Annual Report
for the year ended 31 March 2016
Worldwide Healthcare Trust PLC
Investment objective and policy
Worldwide Healthcare Trust PLC is a specialist investment trust that invests in the global healthcare sector with the objective
of achieving a high level of capital growth. In order to achieve its investment objective, the Company invests worldwide in a
diversified portfolio of shares in pharmaceutical and biotechnology companies and related securities in the healthcare
sector. It uses gearing, and derivative transactions to enhance returns and mitigate risk. Performance is measured against
the MSCI World Health Care Index on a net total return, sterling adjusted basis (Benchmark). Further details of the
Company’s investment policy are set out in the Strategic Report on pages 5 and 6.
Accessing the global market
The healthcare sector is a global one and accessing this global market as a UK investor can be difficult. Within the UK, there
are diminishing options for investment as the universe of healthcare companies is shrinking through merger and acquisition
activity. The Company offers an opportunity to gain exposure to pharmaceutical, biotechnology and related companies in the
healthcare sector on a global scale.
Among healthcare funds, Worldwide Healthcare Trust PLC is unique due to its broad investment mandate allowing it to
participate in all aspects of healthcare, anywhere in the world. These can range from patented specialty medicines for small
patient populations to unpatented generic drugs, in both developed countries and emerging markets. In addition, the Company
invests in medical device technologies, life science tools and healthcare services. The overall geographic spread of Worldwide
Healthcare Trust PLC is unique among healthcare funds with investments in the U.S., Europe, Japan and emerging markets.
How to invest
The Company’s shares are traded openly on the London Stock Exchange and can be purchased through a stock broker or other
financial intermediary. The shares are available through savings plans (including investment dealing accounts, ISAs, Junior
ISAs and SIPPs) which facilitate both regular monthly investments and lump sum investments in the Company’s shares. There
are a number of investment platforms that offer these facilities. Further details can be found on pages 71 and 72.
Performance since launch to 31 March 2016
%
3000
2500
2000
1500
1000
500
0
A pr 95
M ar 96
M ar 97
M ar 98
M ar 99
M ar 00
M ar 01
M ar 02
M ar 03
M ar 04
M ar 05
M ar 06
M ar 07
M ar 08
M ar 09
M ar 10
M ar 11
M ar 12
M ar 13
M ar 14
M ar 15
M ar 16
WWH NAV per Share (total return)
WWH Share Price (total return)
Benchmark (total return)*
*
Rebased to 100 as at 28 April 1995
Source: Morningstar, Thomson Reuters & Bloomberg
With effect from 1 October 2010, the performance of the Company is measured against the MSCI World Health Care Index on a net
total return, sterling adjusted basis. Prior to this date, performance was measured against the Datastream World Pharmaceutical
& Biotechnology Index (total return, sterling adjusted).
1Strategic Report
Company Performance
1-2
Chairman’s Statement
3-4
Investment Objective and Policy
5-6
Portfolio
7-9
OrbiMed Capital LLC
10
11-13 Portfolio Manager’s Review
13
Contribution by Investment
14-16 Sector Outlook
17-22 Business Review
3Financial Statements
Income Statement
Statement of Changes in Equity
Statement of Financial Position
49
50
51
52-67 Notes to the Financial Statements
Keep up to date with
Worldwide Healthcare Trust PLC
For more information about
Worldwide Healthcare Trust PLC
visit the website at
www.worldwidewh.com
Follow us on Twitter
@worldwidewh
2Governance
Statement of Directors’ Responsibilities
23-24 Board of Directors
25-27 Report of the Directors
28
29-36 Corporate Governance
37-39 Audit Committee Report
40-42 Directors’ Remuneration Report
43-48 Independent Auditors’ Report
4Further Information
Shareholder Information
68
69-70 Glossary
71-72 How to Invest
73-77 Notice of Annual General Meeting
78-79 Explanatory Notes to the Resolutions
80
81
AIFMD Related Disclosures
Company Information
Winner:
Best Sector Specialist Investment Trust –
What Investment Trust Awards 2014
Highly Commended:
Money Observer Trust Awards 2014 and 2015,
Category: Best Large Trust
1
Strategic Report
Company Performance
As at As at
31 March 31 March %
2016 2015 Change
Ordinary share price 1715.0p 1930.0p (11.1%)
Net asset value per share – basic 1850.9p 2039.3p (9.2%)
Net asset value per share – diluted 1850.5p 2039.3p (9.3%)
Discount of ordinary share price to the diluted
net asset value per share 7.3% 5.4% n/a
Year ended Year ended
31 March 31 March
2016 2015
Ordinary share price (total return)* (10.5%) 49.8%
Net asset value per share – (total return)* (9.0%) 53.0%
Benchmark (total return)* (5.4%) 35.9%
Dividends per ordinary share 16.5p 12.5p
*Source – Morningstar.
Total return performance for the year to 31 March 2016
%
110
105
100
95
90
85
80
M ar 15
A pr 15
M ay 15
Jun 15
Jul 15
A u g 15
Se p 15
O ct 15
N ov 15
D ec 15
Jan 16
Fe b 16
M ar 16
Benchmark (total return)
WWH NAV per Share (total return)
WWH Share Price (total return)
Rebased to 100 as at 31 March 2015
Source: Morningstar, Thomson Reuters & Bloomberg
01 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Historic performance for the years ended 31 March
2011 2012 2013 2014 2015 2016
Net asset value per share (total return)* 4.0% 14.4% 30.3% 25.9% 53.0% (9.0%)
Benchmark (total return)* 2.5% 13.4% 31.4% 14.9% 35.9% (5.4%)
Net asset value per share – basic 799.2p 909.4p 1110.2p 1374.3p 2039.3p 1850.9p
Net asset value per share – diluted** 773.5p 871.0p 1089.6p 1348.2p 2039.3p 1850.5p
Ordinary share price 686.0p 795.0p 1009.0p 1301.0p 1930.0p 1715.0p
Discount of share price to diluted net
asset value per share 11.3% 8.7% 7.4% 3.5% 5.4% 7.3%
Dividends per ordinary share 15.0p 17.5p 16.5p 15.0p 12.5p 16.5p
Leverage† 18.0% 25.1% 12.7% 13.9% 13.2% 14.0%
Ongoing charges† 1.0% 1.1% 1.0% 1.0% 1.0% 0.9%
Ongoing charges (including performance fees
paid or crystallised during the year)† 1.8% 1.3% 1.2% 1.1% 2.2% 2.1%
*Source: Morningstar
**Dilution to take account of the Company’s Subscription Shares (which expired on 31 July 2014) and also any shares held in treasury.
†See Glossary beginning on page 69.
Five year total return performance to 31 March 2016
%
340
300
260
220
180
140
100
60
M ar 11
M ar 12
M ar 13
M ar 14
M ar 15
M ar 16
WWH Share Price (total return)
WWH NAV per Share (total return)
Benchmark (total return)
Rebased to 100 as at 31 March 2011
Source: Morningstar, Thomson Reuters & Bloomberg
Annual Report for the year ended 31 March 2016 02
Worldwide Healthcare Trust PLC
1
Strategic Report
Chairman’s Statement
Sir Martin Smith
“I am delighted to report that your Company
has continued to perform strongly both in
absolute terms and also compared to its
Benchmark.”
Review of the year and performance
As I reported at the half-year stage, it has been a challenging
period for the healthcare sector and also for world markets.
The year ended 31 March 2016 has seen periods of extreme
volatility in healthcare stocks, in particular the biotechnology
sector, as a result of investor concerns over the stability of
the world’s economy and the potential for regulatory policy
changes that could affect drug prices in the U.S. market.
The Company’s performance over this period was negatively
affected by these factors and also the overweight position in
biotechnology stocks. The Company’s net asset value per
share total return was -9.0% and the share price total return
was -10.5%, both underperforming the Company’s
benchmark, the MSCI World Health Care Index on a net total
return, sterling adjusted basis, which fell by 5.4%.
Despite short-term underperformance the long-term
performance of the Company remains strong and it is
pleasing to note that from the Company’s inception in 1995 to
31 March 2016, the total return of the Company’s net asset
value per share has been 2,094.6%, equivalent to a compound
annual return of 15.9%. This compares to a cumulative
blended Benchmark* return of 924.9%, equivalent to a
compound annual return of 11.8% over the same period.
* See inside front cover for further information on the Benchmark.
The Company had, on average, leverage of 18% (2015: 14%)
during the year which, due to difficult market conditions,
detracted 1.5% from performance (2015: contribution to
performance of 4.5%). The Company’s option strategy
contributed c. 0.1% (2015: 0.9%) to returns.
Further information on the healthcare sector and on the
Company’s investments can be found in the Portfolio
Manager’s Review beginning on page 11 of this Annual
Report.
Performance fee
As described in previous years, the performance fee
provisions compare the performance of the Company since
launch with that of the Benchmark. Only when incremental
outperformance has been achieved since launch, and is
maintained for a twelve month period, is a performance fee
actually paid. These arrangements are described in detail on
page 25 of this report.
03 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
I am pleased to report that, as a result of continued
cumulative outperformance in the three quarters to
31 December 2015, performance fees of £11.2m were paid
during the year. These fees were shared between the
Company’s Alternative Investment Fund Manager (Frostrow)
and the Portfolio Manager (OrbiMed) as described on page 25.
Following underperformance in the final quarter of the
Company’s financial year £5.5m of performance fee accruals
that had been made as at 31 March 2015 were reversed, as
shown in note 3 to the financial statements on page 55. There
is currently no provision for future performance fee
payments.
Capital
As part of the Board’s discount control management policy, a
total of 794,867 shares were repurchased by the Company
during the year to be held in treasury, at an average discount
of 6.5% to the prevailing diluted ex income net asset value
per share. 256,832 of these shares were subsequently
reissued from treasury at share prices that equated to an
average discount 2.9% to the prevailing diluted cum income
net asset value per share. As at 31 March 2016 there were
198,975 shares held in treasury. Shareholder approval to
renew the authority to buy-back ordinary shares will be
sought at the Annual General Meeting. The execution and
timing of any share buy-back will continue to be at the
absolute discretion of the Board.
Any shares held in treasury on 21 September 2016, the date
of this year’s Annual General Meeting, will be cancelled.
339,060 shares held in treasury were cancelled on
24 September 2015, shortly after the date of last year’s
Annual General Meeting.
Revenue and dividend
Shareholders will be aware that it remains the Company’s
policy to pursue capital growth for shareholders and to pay
dividends to the extent required to maintain investment trust
status and therefore the level of dividends declared can go
down as well as up. A first interim dividend of 6.5p per share,
for the year ended 31 March 2016, was paid on 8 January
2016 to shareholders on the register on 27 November 2015.
The Company’s net revenue return for the year as a whole
has increased to £8.2 million (2015: £6.2 million).The Board
has declared a second interim dividend of 10.0p per share
which, together with the first interim dividend already paid,
makes a total dividend for the year of 16.5p (2015: 12.5p per
share). Based on the current mid-market share price of
1797.0p on 13 June 2016, the total dividend payment for the
year represents a current yield of 0.9%.
The second interim dividend will be payable on 15 July 2016
to ordinary shareholders on the register of members on
17 June 2016. The associated ex-dividend date will be
16 June 2016.
Board composition and governance
I am delighted to report that Humphrey van der Klugt joined
the Board in February. A Chartered Accountant, he is a
non-executive Director of a number of investment trusts. His
experience will be of great benefit to the Board. A resolution
proposing Humphrey’s election will be considered by
shareholders at this year’s Annual General Meeting.
Jo Dixon has confirmed her intention to retire from the Board
at the conclusion of this year’s Annual General Meeting. Jo
has been a Director and Chairman of the Audit Committee
since 2004. Her extensive knowledge, experience and wise
counsel will be greatly missed. Following her retirement,
Humphrey van der Klugt will succeed her as Chairman of the
Audit Committee and Dr David Holbrook will succeed her as
the Senior Independent Director.
Outlook
Despite a challenging year our Portfolio Manager remains
positive with respect to the fundamentals for the healthcare
sector. Innovation, merger & acquisition activity and an
efficient regulatory environment will continue to be key
drivers.
Our Portfolio Manager’s focus remains on the selection of
stocks with strong prospects for capital enhancement and
your Board firmly believes that the long-term investor will
continue to be well rewarded.
Annual General Meeting
The Company offers an excellent opportunity to gain
exposure to the global healthcare sector, and the Board is
pleased to note the increasing presence of retail
shareholders on the Company’s share register. The Board is
keen to welcome all shareholders to the Company’s Annual
General Meeting which offers an opportunity to meet the
Directors and also to hear the views of our Portfolio Manager.
This year, the Annual General Meeting of the Company will be
held at Skinners’ Hall, 8 Dowgate Hill, London EC4R 2SP on
Wednesday, 21 September 2016 at 12 noon.
During the year the Board undertook reviews of the
Company’s Investment Guidelines, the Benchmark and also
its gearing arrangements. In each case it was concluded that
no changes should be made.
Sir Martin Smith
Chairman
14 June 2016
The Nominations Committee also undertook a review of the
Company’s Committees where the following changes were
agreed:
• I ceased to be a member of the Audit Committee;
• Doug McCutcheon succeeded me as Chairman of the
Management Engagement and Remuneration Committee;
and
• Dr David Holbrook succeeded Jo Dixon as Chairman of the
Nominations Committee.
Annual Report for the year ended 31 March 2016 04
Worldwide Healthcare Trust PLC
1
Strategic Report
Investment Objective and Policy
The Company invests in the global healthcare sector with the objective of achieving a high level of capital growth. In order to
achieve its investment objective, the Company invests worldwide in a diversified portfolio of shares in pharmaceutical and
biotechnology companies and related securities in the healthcare sector. It uses gearing, and derivative transactions to
enhance returns and mitigate risk. Performance is measured against the MSCI World Health Care Index on a net total return,
sterling adjusted basis (Benchmark).
Investment strategy
The implementation of the Company’s Investment Objective
has been delegated to OrbiMed by Frostrow (as AIFM) under
the Board’s and Frostrow’s supervision and guidance.
Details of OrbiMed’s investment strategy and approach are
set out in the Portfolio Manager’s review on pages 11 to 13.
While performance is measured against the Company’s
Benchmark, Frostrow and OrbiMed have been given the
ability to manage the portfolio without regard to the
Benchmark and its make-up.
While the Board’s strategy is to allow flexibility in managing
the investments, in order to manage investment risk it has
imposed various investment, gearing and derivative
guidelines and limits, within which Frostrow and OrbiMed are
required to manage the investments, as set out below.
Any material changes to the Investment Objective, Policy and
Benchmark or the investment, gearing and derivative
guidelines and limits require approval from shareholders.
Investment limits and guidelines
• The Company will not invest more than 10% of its gross
assets in other closed ended investment companies
(including investment trusts) listed on the London Stock
Exchange, except where the investment companies
themselves have stated investment policies to invest no
more than 15% of their gross assets in other closed ended
investment companies (including investment trusts) listed
on the London Stock Exchange;
• The Company will not invest more than 15% of the portfolio
in any one individual stock at the time of acquisition;
• At least 60% of the portfolio will normally be invested in
larger companies (i.e. with a market capitalisation of at
least U.S.$5bn);
• At least 20% of the portfolio will normally be invested in
smaller companies (i.e. with a market capitalisation of
less than U.S.$5bn);
• Investment in unquoted securities will not exceed 10% of
the portfolio at the time of acquisition;
• A maximum of 5% of the portfolio, at the time of
acquisition, may be invested in each of debt instruments,
convertibles and royalty bonds issued by pharmaceutical
and biotechnology companies;
• A maximum of 20% of the portfolio, at the time of
acquisition, may be invested in companies in each of the
following sectors:
– healthcare equipment and supplies
– healthcare technology
– healthcare providers and services.
Derivative strategy and limits
In line with the Investment Objective, derivatives are
employed, when appropriate, in an effort to enhance returns
and to improve the risk-return profile of the Company’s
portfolio. There are two types of derivatives currently
employed within the portfolio: Options and Equity Swaps;
The Board has set the following limits within which derivative
exposures are managed:
• Derivative transactions (excluding equity swaps) can be
used to mitigate risk and/or enhance capital returns and
will be restricted to a net exposure of 5% of the portfolio;
and
• Equity Swaps may be used in order to meet the Company’s
investment objective of achieving a high level of capital
growth and counterparty exposure through these is
restricted to 12% of the gross assets of the Company at
the time of acquisition.
Further details on how derivatives are employed can be found
in note 16 beginning on page 61.
The Company does not currently hedge against foreign
currency exposure.
05 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Gearing limits
The Board and Frostrow believe that shareholder returns can
be enhanced through the use of borrowings at appropriate
times for the purpose of investment. The Board has set a
maximum gearing level, through borrowing, of 20% of the net
assets. OrbiMed are responsible for deciding on the
appropriate level of gearing at any one time, subject to acting
within the 20% limit.
The Company has two current sources of leverage: the
overdraft facility, which is subject to the gearing limit; and,
derivatives, which are subject to the separate derivative
limits. The Board and Frostrow have set a maximum leverage
limit of 140% on both the commitment and gross basis.
Further details on the gearing and leverage calculations, and
how total exposure through derivatives is calculated, is
included in the Glossary beginning on page 69.
Leverage limits
Under the AIFMD the Company is required to set maximum
leverage limits. Leverage under the AIFMD is defined as any
method by which the total exposure of an AIF is increased.
Annual Report for the year ended 31 March 2016 06
Worldwide Healthcare Trust PLC
1
Strategic Report
Portfolio
Investments held as at 31 March 2016
Fair
value % of
Investment Country/region £’000 investments
Ono Pharmaceutical Japan 54,624 5.8
Allergan* Ireland 53,070 5.7
HCA USA 50,687 5.4
Bristol-Myers Squibb USA 42,689 4.5
AbbVie USA 41,031 4.4
Amgen USA 35,183 3.8
Boston Scientific USA 33,390 3.6
Intuitive Surgical USA 29,683 3.2
Regeneron Pharmaceuticals USA 29,090 3.1
Biogen USA 26,822 2.9
Top 10 investments 396,269 42.4
Roche Holdings Switzerland 25,399 2.7
Nuvasive USA 23,051 2.5
Celgene USA 20,017 2.1
WellCare Health Plans USA 19,714 2.1
Alexion Pharmaceuticals USA 18,210 1.9
Incyte USA 17,631 1.9
Wright Medical Netherlands 17,574 1.9
Gilead Sciences USA 17,311 1.9
Vertex Pharmaceuticals USA 16,551 1.8
Eli Lilly USA 16,479 1.8
Top 20 investments 588,206 63.0
Illumina USA 15,447 1.7
Express Scripts USA 14,854 1.6
Novo Nordisk Denmark 14,368 1.5
Impax Laboratories USA 14,135 1.5
Actelion Switzerland 13,885 1.5
Santen Pharmaceutical Japan 13,447 1.4
Celltrion Korea 13,161 1.4
Cooper Cos Ireland 12,710 1.4
Thermo Fisher Scientific USA 11,620 1.2
Luye Pharma China 11,558 1.2
Top 30 investments 723,391 77.4
Novartis Switzerland 10,999 1.2
Yestar International China 10,397 1.1
ImmunoGen USA 10,221 1.1
Nippon Shinyaku Japan 10,053 1.1
Creganna-Tactx Medical Second Lien Loan
FRN 20/11/22 (unquoted) Ireland 9,113 1.0
Biomarin Pharmaceutical USA 9,055 1.0
Exact Sciences USA 8,852 0.9
Teva Pharmaceutical USA 8,671 0.9
Ophthotech USA 8,111 0.8
Shire USA 7,839 0.8
Top 40 investments 816,702 87.3
* includes Allergan 5.5% Preference equating to 1.9% of investments.
07 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Fair
value % of
Investment Country/region £’000 investments
Merrimack Pharmaceuticals Second Lien Loan 11.5%
15/12/2022 (unquoted) USA 7,604 0.8
Ironwood Pharmaceuticals USA 7,317 0.8
Sino Biopharmaceuticals China 7,038 0.7
Galapagos Belgium 6,691 0.7
Sawai Pharmaceutical Japan 6,457 0.7
Xencor USA 5,921 0.7
Portola Pharmaceuticals USA 5,262 0.6
Nichi-Iko Pharmaceutical Japan 4,982 0.5
Fluidigm USA 4,715 0.5
IHH Healthcare Malaysia 4,679 0.5
Top 50 investments 877,368 93.8
Towa Pharmaceutical Japan 4,391 0.5
Shanghai Fosun Pharmaceutical China 3,790 0.4
Wenzhou Kangning Hospital China 3,281 0.3
Agilent Technologies USA 2,912 0.3
Bluebird Bio USA 2,770 0.3
NewLink Genetics USA 2,679 0.3
Puma Biotechnology USA 2,455 0.3
Medivation USA 2,318 0.2
Infinity Pharmaceuticals USA 1,732 0.2
Forward Pharma USA 1,604 0.2
Top 60 investments 905,300 96.8
QLT Canada 171 0.0
Total equities and fixed interest investments 905,471 96.8
Jiangsu Hengrui Medicine^ China 15,284 1.6
Strides Shasun China 14,806 1.6
Emerging Markets HC Basket with India^ Emerging Markets 14,658 1.6
Aurobindo Pharma India 14,299 1.5
ORBCI Index^ USA 13,777 1.5
Aier Eye Hospital Group^ China 6,340 0.7
JP China HC Basket^ USA 6,101 0.7
Jiangsu Nhwa Pharmaceutical^ China 6,075 0.6
Ajanta Pharma India 2,058 0.2
Less: Gross exposure on financed swaps (63,199) (6.7)
Total OTC Swaps 30,199 3.3
Total investments including OTC Swaps 935,670 100.1
Put Options (Long) 7 0.0
Put Options (Short) (615) (0.1)
Call Options (Long) 346 0.0
Call Options (Short) (129) 0.0
Total investments including OTC Swaps and Options 935,279 100.0
^ Financed
See note 16 beginning on page 61 for further details in relation to the OTC Swaps and Options.
Annual Report for the year ended 31 March 2016 08
Worldwide Healthcare Trust PLC
1
Strategic Report
Portfolio
continued
SUMMARY
Fair value % of
Investment £’000 investments
Equities (including options & swaps) 900,421 96.3
Convertible debt securities 18,141 1.9
Unquoted debt securities – variable rate 9,113 1.0
Unquoted debt securities – fixed rate 7,604 0.8
Total of all investments 935,279 100.0
Portfolio distribution
By sector
2016
Emerging Market
basket swaps*
2.1%
Life Sciences
Tools and Services
3.3%
Unquoted debt 1.8%
2015
Emerging Market
basket swaps*
2.1%
Life Sciences
Tools and Services
6.5%
Unquoted debt 1.5%
Healthcare Providers/
Services
10.1%
Healthcare Equipment/
Supplies/Technology
13.5%
Pharmaceutical
38.7%
Pharmaceutical
38.7%
Biotechnology
27.6%
2015
Asia
9.2%
Emerging
Markets
11.3%
Europe 17.1%
North America
66.0%
North America
62.4%
Healthcare Equipment/
Supplies/Technology
11.8%
Healthcare Providers/
Services
12.4%
Biotechnology
29.9%
By geography
2016
Asia
9.3%
Europe 10.0%
Emerging
Markets
14.7%
* See page 62 for further details regarding swaps.
09 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
OrbiMed Capital LLC
OrbiMed was founded in 1989 and has evolved over time to be
the largest dedicated healthcare investment firm in the
world. OrbiMed has managed the Company’s portfolio since
its launch in 1995. Strong returns and many investment
awards signify the aggregate talents of this exceptional team.
OrbiMed had over U.S.$15 billion in assets under
management as of 31 March 2016, across a range of funds,
including investment trusts, hedge funds, mutual funds,
and private equity funds.
Investment strategy and process
Within the guidelines set by the Board, the OrbiMed team
work constantly to identify sources of outperformance, or
alpha, with a focus on fundamental research. In healthcare,
there are many primary sources of alpha generation,
especially in therapeutics. Clinical events such as the
publication of new clinical trial data is a prominent example
and historically has been the largest source of share price
volatility. Regulatory events, such as new drug approvals by
U.S., European, or Japanese regulatory authorities are also
stock moving events. Subsequent new product launches are
carefully tracked and forecasted. Other sources include legal
events and, of course, merger and acquisition activity.
The team has a global focus with a universe of coverage that
covers the entire spectrum of companies, from early stage
companies with pre-clinical assets to fully integrated
biopharmaceutical companies. The universe of actively
covered companies is approaching 1,000.
OrbiMed emphasises investments in companies with
underappreciated products in the pipeline, high quality
management teams, and adequate financial resources. A
disciplined portfolio construction process is utilised to ensure
the portfolio is focused on high conviction positions. Finally,
the portfolio is subject to a rigorous risk management
process to moderate portfolio volatility.
The team
The OrbiMed Public Equity Investment Team continues to
expand. Led by founding partner, Samuel D. Isaly, now over
80 investment professionals cover all aspects of research,
trading, finance, and compliance. This includes over 20 degree
holders with MD and/or PhD credentials, healthcare industry
veterans, and finance professionals with over 20 years of
experience.
The firm has a global investment horizon and the OrbiMed
footprint now spans three continents with offices in New York,
San Francisco, Herzliya (Israel), Shanghai, and Mumbai.
The team that manages the Company’s portfolio is as follows:
Samuel D. Isaly, is the Managing Partner at
OrbiMed and also a Director of the Company.
Mr Isaly’s biographical details can be found on
page 24 of this Annual Report.
Sven H. Borho, CFA, is a founding Partner of
OrbiMed. He heads the public equity team and
he is the portfolio manager for OrbiMed's
public equity and hedge funds. Sven has
played an integral role in the growth of
OrbiMed's asset management activities. He
started his career in 1991 when he joined OrbiMed's
predecessor firm as a Senior Analyst covering European
pharmaceutical firms and biotechnology companies
worldwide. In 1993, Sven was promoted to portfolio
manager. He studied business administration at Bayreuth
University in Germany and received a M.Sc. (Econs.),
Accounting and Finance, from The London School of
Economics; he is a citizen of both Germany and Sweden.
Trevor M. Polischuk, Ph.D., is a Public Equity
Partner focused on the global pharmaceutical
industry. Previously, he worked at Lehman
Brothers as a Senior Research Analyst
covering the U.S. pharmaceutical industry.
Trevor began his career at Warner Lambert as
a member of the Pharmaceutical Global Marketing Planning
team. In this role, he coordinated marketing activities for the
second generation gabapentinoid product, Pregabalin. Trevor
holds a Doctorate in Neuropharmacology & Gross Human
Anatomy and an M.B.A. from Queen's University, Canada.
Annual Report for the year ended 31 March 2016 10
Worldwide Healthcare Trust PLC
1
Strategic Report
Portfolio Manager’s
Review
Samuel D. Isaly
“All of the healthcare sub-sectors in
which the Company invests were
positive contributors to performance.”
Review of investments
Performance review
The year that ended 31 March 2016 was certainly marked by
periods of extreme volatility in the global equity markets.
Moreover, it was also one of the most volatile periods in the
history of global healthcare equities, in particular
biotechnology stocks, which bore witness to one the largest
drawdowns in history.
Most notable was the market drop in August 2015, as investor
concerns over a slowing economy in China and the devaluation
of the Yuan caused global equity markets to roll over. When
macro concerns reach such prodigious levels, market
correlation typically approaches 1.0. Such was the case here
and no sector was spared. In addition, further exacerbating the
move down in healthcare was the U.S. political landscape.
The spotlight on U.S. drug pricing, widely known as the last
bastion of free market pricing for pharmaceuticals, had also
intensified in the autumn of 2015 after “price gouging” by the
now shamed ex-CEO of Turing Pharmaceuticals, Martin
Shkreli was uncovered. Then, Hillary Clinton, a candidate for
the Democratic nomination for the next U.S. Presidential
election, added to the poor performance of the biotechnology
sector. Her threatening “tweet” in late September 2015 about
drug prices in America was a catalyst for the biotechnology
collapse. The result was a toxic mix of uncertainty and
concerns over a “biotech bubble”, which ultimately started one
of the largest equity re-ratings in U.S. biotechnology history.
Adding to the market woes, at the turn of the calendar year
some macro concerns came back into the fore. Two primary
concerns once again roiled global equity markets at that time:
renewed concerns over slowing of the Chinese economy and
further declines in the price of oil. The resulting tumult
created a “risk-off” environment in which investors fled the
market and particularly sold high-flying, risky sectors.
Additionally, the backdrop of rhetoric emanating from the U.S.
Presidential election cycle, in which drug pricing had been a
hot button topic, had not dissipated. This perfect storm simply
pushed biotechnology stocks even lower.
The resulting environment was extremely difficult for
healthcare equities, most notably therapeutic stocks. In the
worst period (20 July 2015 to 11 February 2016), the S&P
Biotech ETF (XBI) was down 45% and the NASDAQ
Biotechnology Index (NBI) was down 34% (both in sterling
terms). For the Company’s financial year, the XBI fell by 29%
and the NBI fell by 22% (both in sterling terms).
The Company’s performance for the year ended 31 March 2016
was adversely impacted by these market conditions, given the
relative overweight positioning of the portfolio in biotechnology
stocks. The net asset value per share total return was -9.0%
and the share price total return was -10.5%. This compares to
the Company’s Benchmark, the MSCI World Healthcare Index,
measured on a net total return, sterling adjusted basis, which
was -5.4%.
Nevertheless, since the Company’s inception in 1995 to
31 March 2016, the total return of the Company’s net asset value
per share is 2,094.6%, equivalent to a compound annual return
of 15.9%. This compares to the blended Benchmark* rise of
924.9%, equivalent to a compound annual return of 11.8%.
*See inside front cover for further information
Contribution to performance
In terms of positive contribution, the most significant
contributor in both absolute and relative terms was
Osaka-based Ono Pharmaceutical. Over the course of the year
under review, the company transformed itself from a mid-tier
domestic player to one of the largest pharmaceutical
companies in Japan. How? The worldwide roll out of the most
important cancer drug in over 10 years, Opdivo (nivolumab)
has revolutionised how cancer is being treated and how long
patients are staying alive.
Opidvo belongs to a new class of agents called immunotherapy
in which the body’s own immune system is recruited to hunt
and destroy tumour cells. Ono’s stock started to garner
attention after its partner, Bristol-Myers Squibb launched
Opdivo for melanoma and lung cancer in 2015 in the United
States and across Europe. The role-out portended mega block
buster status and Ono is the recipient of a (blended)
double-digit royalty on end-user sales from those
geographies. Meanwhile, the sales opportunity for Ono in
Japan alone started to attract investor attention, in particular
in lung cancer, which was approved in Japan in December
2015. Patient uptake as reported by the company surprised on
the upside early in 2016, suggestive of a blockbuster in Japan
alone, sending the stock higher. The result was a share price
that essentially doubled in the period (in sterling terms).
11 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
One biotechnology company that proved to be immune to the
epic sell-off in biotechnology stocks was Swiss-based
Actelion. Its European domicile helped protect it from the
difficult U.S. environment, but solid fundamentals were also
critical. The company is a global leader in the treatment of
pulmonary arterial hypertension (PAH), a severe lung disease
characterised by an increase in blood pressure in the blood
vessels of the lung, leading to a series of breathing
complications, lung transplantation, and in some cases, death.
Actelion’s latest offering to patients afflicted with PAH is called
Uptravi (selexipag). Uptravi has been shown in clinical trials to
reduce significantly the risk of a morbidity/mortality event by
40% versus a placebo in patients with PAH, making it the most
efficacious agent ever to be marketed for this disease. A
December approval by the U.S. Food and Drug Administration
(FDA) and solid launch early in 2016 pushed Actelion’s share
price to an all-time high by the Company’s year-end.
Intuitive Surgical. is the leader in robotic-assisted surgery
with the company’s da Vinci suite of systems and instrument
set solutions. During the period, the company’s share price
was driven by solid new adoption rates of its “Xi” robotic
system, as well as accelerating procedure growth in key new
general surgical categories such as hernia repair. Importantly,
procedure growth was materially outpacing both company
guidance and investor expectations. Lastly, investor concerns
had declined over the launch of competing robotic platforms
from Medtronic/Covidien and Johnson & Johnson/Google, as
early feedback has pointed to less robust systems that will be
marketed toward procedure categories in which Intuitive does
not currently compete.
The year ended 31 March 2016 saw multiple advances for the
coming wave of generic alternatives to biologic therapies, or
so called biosimilars. Celltrion is a South Korean company
that is in the forefront of biosimilars as a leading developer,
manufacturer, and marketer. Celltrion’s lead monoclonal
antibody biosimilar, Remsima (infliximab) – a copy of Johnson
&Johnson’s Remicade – showed impressive market share
penetration in Europe after launching in February 2015.
Celltrion also won the backing of an FDA Advisory Committee
in February 2016. Finally, global regulators supported the
notion of “extrapolation” of Remsima, allowing the drug to be
approved across the entire suite of indications for which
Remicade is approved, without needing clinical trial data in all
of them. This further validated Celltrion’s biosimilar pipeline,
leading to favorable stock performance in the period.
Jiangsu Hengrui Medicine is a leading Chinese pharmaceutical
company with strong drug development and commercialisation
capabilities. The launch of the innovative cancer drug apatinib
in China and generic cyclophosphamide in the U.S.
(via partnership with Sandoz, the generic unit of Novartis)
significantly accelerated Hengrui’s profit growth from 20% in
2014 to over 40% in 2015. Upwards earnings revisions and
multiple expansion as a result of investors’ appreciation of the
company’s growth potential and value of its pipeline assets
drove the outperformance of the stock.
Negative contribution to the portfolio came from two
significant sources: (1) overweight positioning in biotechnology
stocks; and (2) individual stocks with unexpected negative
news flow.
Our fundamental view on the outlook for biotechnology shares
was positive through the reported period and remains positive
today. A mix of innovation, new product launches, growth,
valuation, and merger and acquisition (M&A) supports our
view. Political rhetoric was largely to blame for the
biotechnology sector difficulties, rather than a shift of
fundamentals, thus we believe our prominent overweight of
this sector is justified. Nevertheless, this positioning yielded
negative contribution of over 6.5% in absolute terms and over
4.0% relative to the benchmark.
In terms of single stocks, the largest single detractor was
Fluidigm, a life sciences company enabling genomics
research in the expanding single cell analysis market (the
chemical analysis of the contents of a cell). At an industry
conference early last year, management introduced multiple
new products to further solidify its footprint in the growing
single cell market. The new product launches were to layer
over an existing product base, affirming investors’ view that
Fluidigm was indeed a solid growth stock. However, execution
of their new product launches was poor due to a lack of
management experience in large scale commercialisation and
misunderstanding of the product cycle. The company
subsequently had to revise expectations lower numerous
times once their new product launches disappointed and
existing product sales lagged.
The global large capitalisation biotechnology company, Biogen,
began the year on a high. The company had presented
impressive data, albeit early, for their novel antibody,
aducanumab, for the treatment of Alzheimer’s disease. The
data showed preliminary evidence that aducanumab could be
disease modifying. Such potential would be transformative for
patients inflicted with this insufferable disease. However, an
additional data set was released in July 2015, creating some
doubt about the compound’s efficacy, causing the stock to fall.
Annual Report for the year ended 31 March 2016 12
Worldwide Healthcare Trust PLC
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Strategic Report
Portfolio Manager’s Review
continued
Moreover, safety concerns over rare adverse events for the
company’s flagship drug for the treatment of multiple
sclerosis, Tecfidera (dimethyl fumarate), arose in 2015. Price
erosion in Europe for Tecfidera also impacted sales. These
events prompted the company to significantly lower financial
guidance for 2015. Unfortunately, this announcement came
only two days after the aducanumab update, causing the share
price to spiral downward and the further general sell-off in
biotechnology stocks never allowed for a recovery in the stock.
Shares in the Swiss global pharmaceutical giant, Novartis,
underperformed after the company experienced two key
missteps. First, the launch of their novel chronic heart failure
drug, Entresto (sacubitril/valsartan), failed to take off as
expected in the second half of the calendar year 2015. Second,
revenues from the company’s ophthalmology unit, Alcon,
unexpectedly faltered late in 2015. These problems persisted
throughout the reported period and the share price
subsequently underperformed.
Shares of Bluebird Bio, a leading gene therapy company
focused on genetic blood disorders, also came under pressure
during the fiscal year. Bluebird had presented early data
showing promising results in patients with beta thalassemia
and sickle cell disease. However, the stock started sliding
lower in August 2015 with the Initial Public Offering (IPO) of a
competing biotechnology company developing an oral
treatment for sickle cell disease that would compete directly
with Bluebird’s gene therapy approach. In December 2015,
Bluebird stock fell when they presented updated data at a
major haematology medical meeting showing disappointing
data in sickle cell disease and a particularly severe form of
beta thalassemia. While the gene therapy approach still
appears sound, it looks like second-generation modifications
to the process will be required to increase the success rates of
the treatment.
In addition to being affected by difficult market conditions,
shares in the emerging biotechnology company, Portola
Pharmaceuticals, fell sharply after the company’s lead
pipeline product, betrixaban for the treatment of blood clots,
failed in a late stage clinical trial. This unexpected event
occurred right before the Company’s year-end, resulting in a
share price that sank over 60% (in U.S. $ terms) in the first
three months of 2016.
The outlook for the various healthcare sub sectors can be
found in the following pages.
Samuel D. Isaly
OrbiMed Capital LLC
Portfolio Manager
14 June 2016
Contribution by investment
Principal contributors to and detractors from net asset value performance
Contribution Contribution
for the year to per share
31 March 2016 (pence) *
Top five contributors £'000
Ono Pharmaceutical 26,111 54.6
Actelion 5,639 11.8
Intuitive Surgical 5,504 11.5
Celltrion 5,188 10.9
Jiangsu Hengrui Medicine 4,861 10.2
47,303 99.0
Top five detractors
Fluidigm (15,792) (33.0)
Biogen (15,423) (32.3)
Novartis (10,971) (23.0)
Bluebird Bio (9,292) (19.4)
Portola Pharmaceuticals (7,511) (15.7)
(58,989) (123.4)
* based on 47,800,223 being the weighted average number of shares in issue during the year ended 31 March 2016.
13 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Sector Outlook
Large capitalisation pharmaceuticals
Global large capitalisation pharmaceutical stocks were not
immune to the healthcare sector issues that became the
hallmark of the past year. While the re-rating was less severe
than their biotechnology counterparts, the effect was
significant. Looking ahead, while we do not want to completely
ignore the continued rhetoric coming from the U.S.
Presidential election cycle on U.S. pricing, we firmly believe
that there will not be any notable adverse impact on the
fundamentals of these companies, in particular revenues and
earnings.
Nevertheless, large capitalisation pharmaceutical companies
have been dealing with real price pressure in the U.S. market in
recent years. First, Managed Care has become very experienced
in selecting therapeutic categories where there is plenty of
competition – respiratory, diabetes, hepatitis C – just to name a
few. Second, rebating has increased and net prices have come
down in these areas. In addition, patent expirations and generic
entry in which volumes and prices for the branded incumbent
now drop over 90% within a month of generic availability.
Therefore, while not directly legislated for, per se, free market
pressures have contributed to price containment in the U.S.
These companies now all acknowledge the same thing – only
novel drugs that are truly are innovative and satisfy a unmet
medical need get premium pricing, and more importantly,
reimbursement in the U.S. Market efficiencies in the private
sector have provided the appropriate checks and balances for
pricing.
Discovering, developing and launching truly innovative
products on a large enough scale while navigating patent
losses is not easy. We therefore remain selective, targeting
only companies with deep pipelines, transformative optionality,
and management teams who understand the climate in which
they are operating.
Specialty pharmaceuticals
Pricing concerns, triggered by the actions of Turing Pharma,
Valeant and other “bad actors”, have stifled performance of
most stocks in this sector. Although this universe is
heterogeneous, consisting of a diverse group of branded
companies with varied business models and areas of focus,
heightened fears have resulted in investors drawing the
incorrect conclusion that these companies are similarly
troubled. As a result, better-positioned players may have to
demonstrate solid operating performance for several
consecutive quarters to re-gain investors’ confidence.
We believe patience will be rewarded as stronger operators
separate from the pack and outperform their disadvantaged
peers in the coming fiscal year and beyond. In Europe, we
remain very selective, however, improving economic trends,
new launch cycles, and increased merger and acquisition
(M&A) activity makes us a little more positive. We expect M&A
to remain a dominant theme, especially with recent sector
devaluation, as players continue to pursue creative business
combinations driven by potential revenue, operating and tax
synergies.
Generic pharmaceuticals
Investors’ concern about pricing dynamics within the U.S.
generic drug market has reached fever pitch, driving notable
underperformance and significant devaluations for most
stocks in this sector. Continued consolidation within the
pharmacy and wholesaler/distributor channels is a major
reason for the heightened fears, as it has shifted the balance
of power resulting in moderate generic pricing erosion in
some generic product areas (oral solid, injectable) and more
severe contraction in others (topicals, narcotics/opioids).
In the U.S., generic companies may have to demonstrate solid
operating performance for several consecutive quarters to
reignite investors’ interest in the space. In Europe, generic
utilisation is increasing in most major regions, but market
conditions, in general, remain concerning due to weak pricing.
Throughout Asia, economic expansion, favourable
demographics, supportive governmental policies, and other
contributing factors continue to drive robust generic utilisation
in some regions. In Japan, while some low hanging fruit has
already been picked, the secular trend remains strong as the
government continues to legislate in favor of increased generic
utilisation to help thwart rising healthcare costs there.
We still favour generic players with growing, diversified,
branded franchises bolstered by focused, franchise-extending,
proprietary pipelines. Further consolidation of the generic
industry is likely and we believe some of the small and
mid-sized U.S. based companies are attractive targets.
Large capitalisation biotechnology
The large capitalisation biotechnology sector experienced
weakness beginning in the summer of 2015 due to investor
fears over the sustainability of drug pricing in the U.S. A
broad-based sector sell-off was caused by election year
rhetoric about the need for stronger government policies to
control drug price inflation. We believe these drug pricing
proposals are unlikely to become reality given a
Republican-controlled Congress, but the news headlines
negatively affected sentiment for the sector. Additionally, the
blockbuster product launches in the past few years that have
Annual Report for the year ended 31 March 2016 14
Worldwide Healthcare Trust PLC
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Strategic Report
Sector Outlook
continued
driven earnings growth for large capitalisation biotechnology
companies have entered a more mature phase in their growth
trajectory, so earnings growth has moderated. However, price
earnings (P/E) valuations for large capitalisation
biotechnology companies, which are normally higher than the
S&P 500 Index, have now dipped below that market index.
We continue to believe valuations are compelling and expect
strong double-digit growth for the sector.
interest, have significantly rebounded in recent months,
primarily driven by several sizable new product cycles, overall
moderate growth in legacy and market volumes, and pricing
stabilisation. This is more uniformly true amongst the large
capitalisation firms in the space which has also been the area
of our increased investment. The small capitalisation firms
are, by definition, a more diversified and niche group of
companies whose overall performance has lagged.
Despite the recent sentiment-driven falls in the sector,
industry fundamentals for biotechnology remain strong.
Innovation continues to be robust, with a number of key data
readouts for potential blockbuster drugs expected in 2016 in
areas such as migraine, multiple sclerosis, and cardiovascular
disease. The regulatory environment at the FDA remains
favorable for the approval of new drugs. We would also expect
M&A activity to accelerate with the recent fall in valuations, as
larger companies continue to seek smaller companies with
innovative assets. New product launches, favourable pipeline
developments, and M&A should allow the large capitalisation
biotechnology companies to maintain their steady earnings
growth. As the election year rhetoric on drug pricing subsides,
we would expect sector valuations to recover.
Emerging biotechnology
After years of outperformance, the emerging biotechnology
sector finally took a breather this year. Macro concerns coupled
with sector specific risks such as drug pricing concerns drove
the underperformance of the sector, regardless of market
capitalisation. We believe that pricing overhang will eventually
be lifted and remain confident that unmet medical needs are
still abundant for an aging population in the major markets.
Innovations in the forms of novel drugs and cutting-edge
technologies should continue to serve the unmet medical
needs and benefit biotechnology companies.
Looking forward to the coming year, clinical catalysts in orphan
diseases such as cystic fibrosis, sickle cell disease, haemophilia
and rare autoimmune diseases, as well as in oncology and
age-related macular degeneration, could drive outperformance
in quite a few portfolio names. In addition, positive
clinical/regulatory news in emerging biotechnology companies
could reinvigorate M&A activity in the sector, especially with
many stocks now trading at attractive valuations.
Amid increased volatility in the biotechnology sector, we
continue to only invest in high conviction names which have
near to medium-term catalysts.
Medical devices
Our collective view on the Medical Devices sector is notably
more positive than at any point in the past several years.
Fundamentals in the sector, and consequently investor
15 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Despite the fundamental changes to the industry, our stock
selection framework remains consistent. We focus on:
(1) innovation in the form of new product cycles that drive
emerging therapeutic categories or disrupt legacy therapies;
and (2) business right-sizing in the form of strong cost controls
and subsequent margin expansion. Within product cycles,
areas of significant investor interest include transcatheter
heart valves, surgical robotics, left atrial appendage closure
devices, drug coated balloons and bioabsorbable polymer
coated drug eluting stents, which are all tracking above
investor expectations. On the cost control side, companies in
the process of recovering from years of mismanagement (such
as Boston Scientific) or that are in the midst of recognising
synergies from previously completed acquisitions (such as
Zimmer Holdings) remain key areas of focus for us.
Lastly, while valuations have increased for the sector, we think
this is more than supported by the improved fundamental
picture. 2016 guidance across the sector remains conservative,
especially given robust first quarter results, currency
tailwinds, and the removal of the Medical Device excise tax in
the United States. We see a high likelihood of upward revisions
to guidance and consensus estimates through the balance of
the year.
Healthcare services
Investors refocused on industry fundamentals after the
Supreme Court upheld the Affordable Care Act – a.k.a.
Obamacare – for a second time in June 2015. Hospital stocks
subsequently underperformed as Obamacare headwinds
began to reappear and fears around recession risk and high
yield market stress percolated. Looking forward, we are
bullish on the sector. Hospital stocks are undervalued based
on historical positive correlations between volume growth in a
stable economy versus stock valuation, and we prefer
companies with relatively lower leverage so that capital
deployment can support growth. In addition, there is upside if
it becomes increasingly clear that Democrat Hillary Clinton
will win the U.S. Presidential election in November 2016,
because more states would likely expand Medicaid eligibility
under Obamacare. A Republican victory led by political
newcomer Donald Trump would create some headline risk,
but his actual healthcare policies remain less clear.
Within managed care, industry consolidation has been the
theme as companies seek to scale up to operate more efficiently
in an increasingly regulated environment. We believe proposed
mergers between Aetna/Humana and Anthem/CIGNA are more
likely than not to be approved, especially Aetna/Humana based
on our case study analysis of past Medicare transactions where
anti-trust concerns were successfully resolved by divesting local
contracts. Meanwhile, we remain positive on Medicaid HMOs
(Health Maintenance Organisation) that are benefiting from
structural growth tailwinds as states transition Medicaid
populations to managed care (from unmanaged fee for service),
in order to save money and improve care quality. We used the
proceeds from Health Net, which was acquired by Centene, to
maintain exposure to Medicaid.
Life science tools/diagnostics
Looking back at the Company’s last financial year, macro
themes and product cycles dominated sentiment in the life
science tools/diagnostic sector. On the macro front, the
unprecedented strengthening of the U.S. dollar relative to
currencies of both emerging and other developed markets
tampered growth. Coupled with the volatility in the currency
markets, trepidation about growth in China also caused
volatility in stock prices throughout the course of the year,
leading to adjustments in expectations. On the micro front,
disappointing product cycles in genomics caused severe
multiple contractions in small capitalisation life sciences and
diagnostics companies.
Looking forward, macro concerns relating to currency are
abating, as currency headwinds look to be less severe than
feared. Also, commentaries from the companies with
significant exposure in China with “feet-on-the-ground”
indicate that the life sciences industry is as healthy and
buoyant as before, despite headline concerns.
As leverage in the balance sheets of consolidators nears
healthy levels, M&A and additional capital deployment
strategies will once again dominate the sector. The industry
remains fragmented with scale and geographic footprint being
the driving force for further consolidation in the sector. We
prefer companies with balance sheet flexibility and operating
margin expansion opportunities. We remain cautious on
companies with significant exposure to reimbursement.
Emerging markets
Despite the economic, currency, and market volatility
associated with emerging markets, we continue to believe
that healthcare investment in emerging markets is a good
long-term, secular play. Our investment thesis has multiple
themes. We believe that aging populations, rising income
levels, and increasing healthcare spending as a percentage of
GDP are the three key drivers underpinning the growth of
healthcare markets in these regions for the next few decades.
In addition, we are seeing early signs that suggest drug
research and development (R&D) innovation could emerge as a
new growth driver in a time horizon that is much sooner than
our previous expectations.
We are on the ground getting a first-hand understanding of
policy and industry macro trends in each of the subsectors,
including drugs, medtech, and healthcare services. We heavily
rely on our fundamental analysis of specific companies to pick
long-term winners with competitive positioning in their
respective subsector and a solid management team. We
carefully construct our portfolio to manage volatility typically
associated with emerging market stocks as well as specific
industry risks, such as pricing pressure, insurance
reimbursement, and healthcare spending control.
As we move into the next fiscal year, we expect to observe a
substantial consolidation trend in China among
pharmaceutical manufactures, as the government starts to
implement dramatically more stringent regulatory and quality
requirements on generic drugs. A similar consolidation trend
could also be observed for distributors in the country, as a
result of the “two invoices” system that is being pushed by the
government. As such, we are positively biased towards large
established players in each sub sector as we believe it will
likely be a “winner takes all” situation. We combine our
conviction in macro trends with our fundamental research on
specific companies, and favour companies with strong product
development capability and commercial channels. Your
portfolio does include emerging biotechnology companies with
exceptional product pipeline, despite their likely smaller size
compared to their established peers. We continue to avoid
mass generic companies in China as we believe pricing
pressure and regulatory requirements could exacerbate the
competitive environment for these companies.
We continue to like private hospital stocks in China and in the
South East Asia region, driven by favourable government policy
initiatives and early growth stage of the industry. We also
expect industry consolidation and M&A activities in emerging
markets to continue to play out for our picks in both acquirers
and acquisition targets.
Samuel D. Isaly
OrbiMed Capital LLC
Portfolio Manager
14 June 2016
Annual Report for the year ended 31 March 2016 16
Worldwide Healthcare Trust PLC
1
Strategic Report
Business Review
The aim of the Strategic Report is to provide shareholders with
the ability to assess how the Directors have performed their
duty to promote the success of the Company during the year
under review.
Structure and objective of the company
Worldwide Healthcare Trust PLC is an investment trust and
has a premium listing on the London Stock Exchange. Its
investment objective is set out on page 5. In seeking to achieve
this objective, the Company employs Frostrow Capital LLP
(Frostrow) as its Alternative Investment Fund Manager (AIFM),
OrbiMed Capital LLC (OrbiMed) as its Portfolio Manager,
J.P. Morgan Europe Limited as its Depositary and J.P. Morgan
Clearing Corp. as its Prime Broker and Custodian. Further
details about their appointments can be found in the Report
of the Directors on pages 25 and 26. The Board has
determined an investment policy and related guidelines and
limits, as described on page 5.
The Company is subject to UK and European legislation and
regulations including UK company law, UK GAAP, the UK
Listing, Prospectus, Disclosure and Transparency Rules,
taxation law and the Company’s own Articles of Association.
The Company is an investment company within the meaning of
Section 833 of the Companies Act 2006 and has been approved
by HM Revenue & Customs as an investment trust (for the
purposes of Sections 1158 and 1159 of the Corporation Tax Act
2010). As a result the Company is not liable for taxation on
capital gains. The Directors have no reason to believe that
approval will not continue to be retained.
The Board
The Board of the Company comprises Sir Martin Smith
(Chairman), Sarah Bates, Jo Dixon, Dr David Holbrook, Samuel
D. Isaly, Doug McCutcheon and Humphrey van der Klugt. All of
these Directors served throughout the year (with the exception
of Humphrey van der Klugt) and are non-executive independent
Directors, except for Samuel D. Isaly who is deemed not to be
independent due to his role at OrbiMed.
Further information on the Directors can be found on
pages 23 and 24.
All Directors seek election or re-election by shareholders at
each Annual General Meeting.
Board focus and responsibilities
With the day to day management of the Company outsourced
to service providers the Board’s primary focus at each Board
meeting is reviewing the investment performance and
associated matters, such as, inter alia, future outlook and
strategy, gearing, asset allocation, investor relations,
marketing, and industry issues.
In line with its primary focus, the Board retains responsibility
for all the key elements of the Company’s strategy and
business model, including:
• Investment Objective, Policy and Benchmark,
incorporating the investment and derivative guidelines and
limits, and changes to these;
• maximum level of gearing and leverage the Company may
employ;
• review of performance against the Company’s KPIs;
• review of the performance and continuing appointment of
service providers; and
• maintenance of an effective system of oversight, risk
management and corporate governance.
The Investment Objective, Policy, and Benchmark, including
the related limits and guidelines, are set out on pages 5 and 6,
along with details of the gearing and leverage levels allowed.
Details of the principal KPIs and further information on the
principal service providers, their performance and continuing
appointment, along with details of the principal risks, and
how they are managed, follow within this Business Review.
The Corporate Governance report, on pages 29 to 36,
includes a statement of compliance with corporate
governance codes and best practice, together with the
outline of the internal control and risk management
framework within which the Board operates.
Key performance indicators (KPI)
To ensure an attractive share price total return the Board
monitors the following KPIs. KPI metrics, including a five
year history, can be seen in the Company Performance
section on pages 1 and 2.
• Net asset value (‘NAV’) per share total return against the
Benchmark;
• Discount/premium of share price to NAV per share; and
• Ongoing charges ratio.
NAV per share total return against the Benchmark
The Directors regard the Company’s NAV per share total
return as being the overall measure of value delivered to
shareholders over the long term. This reflects both net asset
value growth of the Company and dividends paid
to shareholders.
The Board considers the most important comparator, against
which to assess the NAV per share total return performance,
to be the MSCI World Health Care Index measured on a net
total return, sterling adjusted basis. As noted on page 5
Frostrow and OrbiMed have flexibility in managing the
17 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
investments and are not limited by the constraints of the
Benchmark. As a result, investment decisions may be made
that differentiate the Company from the Benchmark and
therefore the Company’s performance may also be different
to that of the Benchmark.
A full description of performance during the year under review
is contained in the Portfolio Manager’s Review commencing on
page 11 of this Annual Report.
Share price discount/premium to NAV per share
The share price discount/premium to NAV per share is
considered a key indicator of performance as it impacts the
share price total return of shareholders and can provide an
indication of how investors view the Company’s performance
and its Investment Objective.
Ongoing charges ratio
The Board continues to be conscious of expenses and works
hard to maintain a balance between good quality service and
costs.
Principal service providers
The principal service providers to the Company are the AIFM,
Frostrow Capital LLP (Frostrow), the Portfolio Manager,
OrbiMed Capital LLC (OrbiMed), the Prime Broker
J.P. Morgan Clearing Corp., and the Depositary, J.P. Morgan
Europe Limited. Details of their key responsibilities follow
and further information on their contractual arrangements
with the Company are included in the Report of the Directors
commencing on page 25.
Alternative Investment Fund Manager (AIFM)
Frostrow under the terms of its AIFM agreement with the
Company provides, inter alia, the following services:
• oversight of the portfolio management function delegated
to OrbiMed Capital LLC;
• investment portfolio administration and valuation;
• risk management services;
• marketing and shareholder services;
• share price discount and premium management;
• administrative and secretarial services;
• advice and guidance in respect of corporate governance
requirements;
• maintains the Company’s accounting records;
• maintenance of the Company’s website;
Under the terms of the AIFM Agreement Frostrow receives a
periodic fee equal to 0.30% per annum of the Company’s
market capitalisation up to £150 million, 0.20% per annum of
the market capitalisation in excess of £150 million and up to
£500 million, and 0.125% per annum of the market
capitalisation in excess of £500 million, plus a fixed amount
equal to £57,500 per annum, and a performance fee as set
out in the Performance Fee section on page 25.
Portfolio Manager
OrbiMed under the terms of its portfolio management
agreement with the AIFM and the Company provides, inter
alia, the following services:
• the seeking out and evaluating of investment
opportunities;
• recommending the manner by which monies should be
invested, disinvested, retained or realised;
• advising on how rights conferred by the investments
should be exercised;
• analysing the performance of investments made; and
• advising the Company in relation to trends, market
movements and other matters which may affect the
investment objective and policy of the Company.
OrbiMed receives a base fee of 0.65% of NAV and a
performance fee of 15% of outperformance against the
Benchmark as detailed on page 25.
Depositary and Prime Broker
J.P. Morgan Europe Limited acts as the Company’s Depositary
and J.P. Morgan Clearing Corp as its Prime Broker.
J.P. Morgan Europe Limited, as Depositary, must take
reasonable care to ensure that the Company is managed in
accordance with the Financial Conduct Authority’s Investment
Funds Sourcebook, the AIFMD and the Company’s Articles of
Association. The Depositary must in the context of this role act
honestly, fairly, professionally, independently and in the
interests of the Company and its shareholders.
The Depositary receives a variable fee based on the size of
the Company as set out on pages 25 and 26.
J.P. Morgan Europe Limited has discharged certain of its
liabilities as Depositary to J.P. Morgan Clearing Corp. Further
details of this arrangement are set out on pages 25 and 26.
J.P. Morgan Clearing Corp, as Prime Broker, provides the
following services under its agreement with the Company:
• preparation and dispatch of annual and half year reports
• safekeeping and custody of the Company’s investments
and monthly Fact Sheets; and
and cash;
• ensuring compliance with applicable legal and regulatory
• processing of transactions;
requirements.
Annual Report for the year ended 31 March 2016 18
Worldwide Healthcare Trust PLC
1
Strategic Report
Business Review
continued
• provision of an overdraft facility. Assets up to 140% of the
• Strategic (including Shareholder relations and share price
value of the outstanding overdraft can be taken as
collateral. Such assets may be used by the Prime Broker
and such use may include being loaned, sold,
rehypothecated or transferred by the Prime Broker; and
• foreign exchange services.
AIFM and Portfolio Manager evaluation and
re-appointment
The performance of the AIFM and the Portfolio Manager is
reviewed continuously by the Board and the Company’s
Management Engagement & Remuneration Committee (the
“Committee”) with a formal evaluation being undertaken each
year. As part of this process, the Committee monitors the
services provided by the AIFM and the Portfolio Manager and
receives regular reports and views from them. The Committee
also receives comprehensive performance measurement
reports to enable it to determine whether or not the
performance objectives set by the Board have been met. The
Committee reviewed the appropriateness of the appointment
of the AIFM and the Portfolio Manager in March 2016 with a
positive recommendation being made to the Board.
The Board believes the continuing appointment of the AIFM
and the Portfolio Manager, under the terms described in the
Report of the Directors on pages 25 and 26, is in the interests
of shareholders as a whole. In coming to this decision, it took
into consideration, inter alia, the following:
• the quality of the service provided and the depth of
experience of the company management, company
secretarial, administrative and marketing team that the
AIFM allocates to the management of the Company; and
• the quality of the service provided and the quality and
depth of experience allocated by the Portfolio Manager to
the management of the portfolio and the long-term
performance of the portfolio in absolute terms and by
reference to the Benchmark.
Principal risks
In fulfilling its oversight and risk management
responsibilities the Board maintains a framework of key risks
which affect the Company and the related internal controls
designed to enable the Directors to manage and/or mitigate
these risks. The risks can be categorised under the following
broad headings:
• Investment (including leverage risks);
• Operational (including financial corporate governance,
accounting, legal, cyber security and regulatory risks); and
performance).
Further information on the internal control and the risk
management framework can be found below and information
on the use of financial instruments and their associated
risks, including exposures to market risk and counterparty
risk can be found in note 16 beginning on page 61.
The following section details the risks the Board consider to be
the most significant to the Company.
Market risks
By the nature of its activities and Investment Objective, the
Company’s portfolio is exposed to fluctuations in market
prices (from both individual security prices and foreign
exchange rates) and due to exposure to the global healthcare
sector, it is expected to have higher volatility than the wider
market. As such investors should be aware that by investing
in the Company they are exposing themselves to market
risks and those additional risks specific to the sectors in
which the Company invests, such as political interference in
drug pricing. In addition, the Company uses leverage (both
through derivatives and gearing) the effect of which is to
amplify the gains or losses the Company experiences.
To manage these risks the Board and the AIFM have
appointed OrbiMed to manage the investment portfolio within
the remit of the investment objective and policy, and imposed
various limits and guidelines , set out on pages 5 and 6.
These limits ensure that the portfolio is diversified, reducing
the risks associated with individual stocks, and that the
maximum exposure (through derivatives and an overdraft
facility) is limited. The compliance with those limits and
guidelines is monitored daily by Frostrow and OrbiMed and
reported to the Board monthly.
In addition OrbiMed reports at each Board meeting on the
performance of the Company’s portfolio, which encompasses
the rationale for stock selection decisions, the make-up of
the portfolio, potential new holdings and, derivative activity
and strategy (further details on derivatives can be found in
note 16 beginning on page 61).
The Company does not currently hedge its currency exposure.
Investment management key person risk
There is a risk that the individuals responsible for managing
the Company’s portfolio may leave their employment or may
be prevented from undertaking their duties.
19 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
The Board manage this risk by:
• appointing OrbiMed, who operate a team environment
such that the loss of any individual should not impact on
service levels;
• receiving reports from OrbiMed at each Board meeting,
such report includes any significant changes in the
make-up of the team supporting the Company;
• meeting the wider team, outside the designated lead
manager, at OrbiMed’s offices and encouraging the
participation of the wider OrbiMed team in investor
updates; and
• delegating to the Management Engagement &
Remuneration Committee, responsibility to perform an
annual review of the service received from OrbiMed,
including, inter alia, the team supporting the lead manager
and succession planning.
Counterparty risk
In addition to market and foreign currency risks, discussed
above, the Company is exposed to credit risk arising from the
use of counterparties. If a counterparty were to fail, the
Company could be adversely affected through either delay in
settlement or loss of assets.
The most significant counterparty the Company is exposed to is
J.P. Morgan Clearing Corp which is responsible for the
safekeeping of the Company’s assets and provides the overdraft
facility to the Company. As part of the arrangements with
J.P. Morgan Clearing Corp they may take assets, up to 140% of
the value of the drawn overdraft, as collateral and have first
priority security interest or lien over all of the Company’s
assets. Such assets taken as collateral may be used, loaned,
sold, rehypothecated or transferred by J.P. Morgan Clearing
Corp, although the Company maintains the economic benefit
from the ownership of those assets it does not hold any of the
rights associated with those assets. The Company is afforded
protection in accordance with SEC rules and U.S. legislation
equal to the value of the assets that have been rehypothecated.
• monitoring of counterparties, including reviews of internal
control reports and credit ratings, as appropriate; and
• by only investing in markets that operate DVP (Delivery
Versus Payment) settlement. The process of DVP
mitigates the risk of losing the principal of a trade during
the settlement process.
Service provider risk
The Board is reliant on the systems of the Company’s service
providers and as such disruption to, or a failure of, those
systems could lead to a failure to comply with law and
regulations leading to reputational damage and/or financial
loss to the Company.
To manage these risks the Board:
• receives a monthly compliance report from Frostrow,
which includes, inter alia, details of compliance with
applicable laws and regulations;
• reviews internal control reports, key policies, including
measures taken to combat cyber security issues, and also
disaster recovery procedures of its service providers;
• maintains a risk matrix with details of risks the Company
is exposed to, the controls relied on to manage those risks
and the frequency of the controls operation; and
• receives updates on pending changes to the regulatory
and legal environment and progress towards the
Company’s compliance with these.
Shareholder relations and share price performance risk
The Company is also exposed to the risk, particularly if the
investment strategy and approach are unsuccessful, that the
Company may underperform resulting in the Company
becoming unattractive to investors and a widening of the
share price discount to NAV per share.
In managing this risk the Board:
• reviews the Company’s Investment Objective in relation to
market, and economic, conditions and the operation of the
Company’s peers;
Credit risk is managed by the Board through:
• discusses at each Board meeting the Company’s future
• reviews of the arrangements with, and services provided
by, the Depositary and Prime Broker to ensure that the
security of the Company’s assets is being maintained.
Legal opinions are sought, where appropriate, as part of
this review;
• monitoring of the assets taken as collateral (further
details can be found in note 16 on page 61);
• reviews of OrbiMed’s approved list of counterparties, the
Company’s use of those counterparties and OrbiMed’s
process for monitoring, and adding to, the approved
counterparty list;
development and strategy;
• reviews the shareholder register at each Board meeting;
• actively seeks to promote the Company to current and
potential investors; and,
• has implemented a discount control mechanism.
The operation of the discount control mechanism and
Company promotional activities have been delegated to
Frostrow, who report to the Board at each Board meeting on
these activities.
Annual Report for the year ended 31 March 2016 20
Worldwide Healthcare Trust PLC
1
Strategic Report
Business Review
continued
Company promotion
The Company has appointed Frostrow to provide marketing
and investor relations services, in the belief that a
well-marketed investment company is more likely to grow
over time, have a more diverse and stable shareholder register
and will trade at a superior rating to its peers.
Frostrow actively promotes the Company in the following ways:
Engaging regularly with institutional investors, discretionary
wealth managers and a range of execution-only platforms:
Frostrow regularly talks and meets with institutional
investors, discretionary wealth managers and execution-only
platform providers to discuss the Company’s strategy and to
understand any issues and concerns, covering both
investment and corporate governance matters;
Making Company information more accessible: Frostrow
works to raise the profile of the Company by targeting key
groups within the investment community, holding annual
investment seminars, overseeing PR output and managing
the Company’s website and wider digital offering, including
Portfolio Manager videos and social media.
Disseminating key Company information: Frostrow performs
the Investor Relations function on behalf of the Company and
manages the investor database. Frostrow produces all key
corporate documents, distributes monthly Fact Sheets,
Annual Reports and updates from OrbiMed on portfolio and
market developments; and
Monitoring market activity, acting as a link between the
Company, shareholders and other stakeholders: Frostrow
maintains regular contact with sector broker analysts and
other research and data providers, and conducts periodic
investor perception surveys, liaising with the Board to provide
up-to-date and accurate information on the latest
shareholder and market developments.
Discount control mechanism (DCM)
The Board undertakes a regular review of the level of
discount/premium and consideration is given to ways in
which share price performance may be enhanced, including
the effectiveness of marketing, share issuance and share
buy-backs, where appropriate.
The Board implemented the DCM in 2004. This established a
target level of no more than a 6% share price discount to the
ex-income NAV per share.
21 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Under the DCM, the Company’s shares being offered on the
stock market, when the discount reaches a level of 6% or
more, may be bought back and held as treasury shares (See
Glossary on page 69). Treasury shares can be sold back to
the market at a later date at a discount narrower than that at
which they were bought and no greater than a 5% discount to
the cum income NAV per share.
Shareholders should note, however, that it remains possible
for the share price discount to the NAV per share to be
greater than 6% on any one day. This is due to the fact that
the share price continues to be influenced by overall supply
and demand for the Company’s shares in the secondary
market. The volatility of the NAV per share in an asset class
such as healthcare is another factor over which the Board
has no control.
In recent years the Company’s successful performance has
generated substantial investor interest. Whenever there are
unsatisfied buying orders for the Company’s shares in the
market, the Company is able to issue new shares at a small
premium to the cum income NAV per share. This ensures
that there is no asset dilution to existing shareholders and
stops the market price going to a significant and possibly
unsustainable premium.
Details of share buy-backs and issuance are set out on
page 27.
Social, economic and environmental matters
The Directors, through the Company’s Portfolio Manager,
encourage companies in which investments are made to
adhere to best practice with regard to corporate governance.
In light of the nature of the Company’s business there are no
relevant human rights issues and the Company does not have
a human rights policy.
The Company recognises that social and environmental
issues can have an effect on some of its investee companies.
The Company is an investment trust and so its own direct
environmental impact is minimal. The Board of Directors
consists of seven Directors, five of whom are resident in the
UK, one is resident in the U.S. and one in Canada. The Board
holds the majority of its regular meetings in the United
Kingdom, with one meeting held each year in New York, and
has a policy that travel, as far as possible, is minimal, thereby
minimising the Company’s greenhouse gas emissions.
Further details concerning greenhouse gas emissions can be
found within the Report of the Directors on page 27.
Board diversity
When recruiting a new Director, the Board’s policy is to
appoint individuals on merit. Diversity is important as it helps
to bring a range of skills and experience to the Board. A skills
audit was carried out by the Nominations Committee during
the year which concluded that the Board was equipped with
the necessary skills and experience required for the sound
stewardship of the Company and to enable the Directors to
hold meaningful debates at its meetings. There are currently
five male and two female Directors on the Board. Full details
of the skills and experience of the Directors can be found on
pages 23 and 24.
Long term viability
The Board has carried out a robust assessment of the
principal risks facing the Company including those that
would threaten its business model, future performance,
solvency or liquidity. The Board has drawn up a matrix of
risks facing the Company and has put in place a schedule of
investment limits and restrictions, appropriate to the
Company’s investment objective and policy, in order to
mitigate these risks as far as practicable. The principal risks
and uncertainties which have been identified, and the steps
taken by the Board to mitigate these as far as possible, are
shown on pages 19 to 20 of this annual report.
The Board believes it is appropriate to assess the Company’s
viability over a five year period. This period is also deemed
appropriate due to our Portfolio Manager’s long-term
investment horizon and also what we believe to be investors’
horizons, taking account of the Company’s current position
and the potential impact of the principal risks and
uncertainties as shown on page 19 to 20 of this annual report.
The Directors also took into account the liquidity of the
portfolio when considering the viability of the Company over
the next five years and its ability to meet liabilities as they fall
due. In addition, the Board noted that shareholders have an
opportunity to vote on the continuation of the Company every
five years; a resolution regarding the continuance of the
Company will next be put to shareholders at the Annual
General Meeting to be held in 2019.
The Directors do not expect there to be any significant
change in the principal risks that have been identified or the
adequacy of the mitigating controls in place, and do not
envisage any change in strategy or objectives or any events
that would prevent the Company from continuing to operate
over that period as the Company’s assets are liquid, its
commitments are limited and the Company intends to
continue to operate as an investment trust. The Directors
believe that only a substantial financial crisis affecting the
global economy could have an impact on this assessment.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the next
five year period.
Performance and future developments
An outline of performance, investment activity and strategy,
and market background during the year, as well as the future
outlook, is provided in the Chairman’s Statement on pages 3
and 4 and the Portfolio Manager’s Review on pages 11 to 13.
It is expected that the Company’s strategy will remain
unchanged in the coming year.
By order of the Board
Frostrow Capital LLP
Company Secretary
14 June 2016
Annual Report for the year ended 31 March 2016 22
Worldwide Healthcare Trust PLC
2
2
Governance
Governance
Board of Directors
Sir Martin Smith Chairman
A Director since 2007
Last reappointed to the Board: 2015
Remuneration: £43,200
Sarah Bates
A Director since 2013
Last reappointed to the Board: 2015
Remuneration: £27,300
Jo Dixon
A Director since 2004
Last reappointed to the Board: 2015
Remuneration: £33,450
Sarah Bates is currently Chairman of JPMorgan
American Investment Trust plc, St James’s Place
plc and of Witan Pacific Investment Trust plc. She
is also a non-executive Director of Polar Capital
Technology Trust plc and U and I Group PLC, and
is a former Chairman of the Association of
Investment Companies. She is a member of the
Universities Superannuation Fund Investment
Committee, and an adviser to the East Riding
Pension Fund and has a number of voluntary
appointments on charity or pension fund
investment committees. She attended
Cambridge University and has an MBA from
London Business School.
Shareholding in the Company: 7,200
Jo Dixon is Chairman of the Audit Committee and
is also the Senior Independent Director. Jo is
currently a non-executive Director and Chairman
of the Audit Committee of Standard Life Equity
Income Trust PLC. She is also a non-executive
Director of JPMorgan European Investment Trust
plc, Strategic Equity Capital plc and F&C Global
Smaller Companies PLC. Jo is a graduate
Chartered Accountant having trained with Touche
Ross in London. Her career has spanned
strategic development, finance and commercial
management at a number of companies including
The Eden Project, Serco Group plc and Newcastle
United PLC and also within the Investment Bank
and main group of NatWest.
Shareholding in the Company: 3,859
Sir Martin Smith has been involved in the
financial services sector for more than 30 years.
He was a founder and senior partner of Phoenix
Securities, becoming Chairman of European
Investment Banking for Donaldson, Lufkin &
Jenrette (DLJ) following the acquisition of
Phoenix by DLJ. He was subsequently a founder
of New Star Asset Management Ltd. and has a
number of other directorships and business
interests, including being Chairman of GP
Bullhound, and a directorship with Oxford
Capital Partners.
His pro-bono interests include serving as
Chairman of the Orchestra of the Age of
Enlightenment and serving on the boards of a
number of other arts organisations including the
Royal Academy of Music, the Glyndebourne Arts
Trust and the Science Museum Foundation. He
has chaired the English National Opera and is a
Governor of the Ditchley Foundation.
Shareholding in the Company: 11,871 (Beneficial)
2,725 (Trustee)
Meeting attendance
The number of scheduled meetings held during the year of the Board and its Committees, and each Director’s attendance
level, is shown below:
Type and number of meetings
held in 2015/16
Board
(4)
Audit Committee
(2)
Sir Martin Smith*
Sarah Bates
Jo Dixon
Dr David Holbrook
Samuel D. Isaly
Humphrey van der Klugt**
Doug McCutcheon
4
4
4
4
4
1
4
1
2
2
2
–
–
2
Nominations
Committee
(2)
2
2
2
2
–
1
2
*Sir Martin Smith ceased to be a member of the Audit Committee with effect from 4 June 2015
** Appointed 15 February 2016
All of the serving Directors attended the Annual General Meeting held on 24 September 2015.
23 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Management
Engagement &
Remuneration
Committee
(1)
1
1
1
1
–
1
1
Dr David Holbrook
A Director since 2007
Last reappointed to the Board: 2015
Remuneration: £27,300
Samuel D. Isaly
A Director since 1995
Last reappointed to the Board: 2015
Remuneration: £27,300
Dr David Holbrook is Chairman of
the Nominations Committee. He is
a qualified physician and a Venture
Partner at MTI Partners Limited, a
leading technology venture capital
investor. He attended London and
Oxford Universities, and has an
MBA from Harvard Business
School. He has held senior
positions in a number of blue chip
biopharmaceutical organisations
including GlaxoSmithKline and
Roche.
Shareholding in the Company:
1,094
Sam Isaly is Managing Partner of
OrbiMed Capital LLC, the
Company’s Portfolio Manager, and
has been a worldwide healthcare
investment specialist for more than
30 years having worked in New York
and Europe with Chase Manhattan,
Société Générale, Crédit Suisse and
UBS Warburg.
Shareholding in the Company:
3,600
Humphrey van der
Klugt
A Director since 2016
Last reappointed to the Board: N/A
Remuneration: £27,300
Humphrey van der Klugt is a
Director of JPM Claverhouse
Investment Trust plc and Allianz
Technology Trust PLC. He was
formerly Chairman of Fidelity
European Values PLC and a
Director of Murray Income Trust
PLC and BlackRock Commodities
Income Investment Trust plc. Prior
to this Humphrey was a fund
manager and Director of Schroder
Investment Management Limited
and in a 22 year career was a
member of their Group Investment
and Asset Allocation Committees.
Prior to joining Schroders, he was
with Peat Marwick Mitchell & Co
(now KPMG) where he qualified as a
Chartered Accountant in 1979.
Shareholding in the Company:
1,500
Doug McCutcheon
A Director since 2012
Last reappointed to the Board: 2015
Remuneration: £27,300
Doug McCutcheon is Chairman of
the Management Engagement &
Remuneration Committee. He is the
President of Longview Asset
Management Ltd. and Gormley
Limited, independent investment
firms. Until 2012, Doug was an
investment banker at S.G. Warburg
and then UBS for 25 years, most
recently as the head of Healthcare
Investment Banking for Europe, the
Middle East, Africa and Asia-Pacific.
Doug is involved in several
philanthropic organisations with a
focus on healthcare and education.
He attended Queen’s University,
Canada.
Shareholding in the Company:
15,000
Annual Report for the year ended 31 March 2016 24
Worldwide Healthcare Trust PLC
2
Governance
Report of the Directors
The Directors present their annual report on the affairs of
the Company together with the audited financial statements
and the Independent Auditors’ Report for the year ended
31 March 2016.
Significant agreements
Details of the services provided under these agreements are
included in the Strategic Report on page 18.
Alternative Investment Fund Management
agreement
As described on page 18, Frostrow is the designated AIFM for
the Company on the terms and subject to the conditions of the
alternative investment fund management agreement between
the Company and Frostrow (the “AIFM Agreement”).
The notice period on the AIFM Agreement with Frostrow is
12 months, termination can be initiated by either party.
Frostrow charge a variable base fee, which is dependent on
the size of the Company (further details can be found on
page 18) and a performance fee of 1.5% of outperformance
against the Benchmark as set out below.
Portfolio management agreement
Under the AIFM Agreement Frostrow has delegated the
portfolio management function to OrbiMed, under a portfolio
management agreement between it, the Company and
Frostrow (the “Portfolio Management Agreement”).
OrbiMed receives a periodic fee equal to 0.65% p.a. of the
Company’s NAV and a performance fee as set out in the
Performance Fee section below. Its agreement with the
Company may be terminated by either party giving notice of
not less than 12 months.
Performance fee
Dependent on the level of long-term outperformance of the
Company, OrbiMed and Frostrow are entitled to a
performance fee. The performance fee is calculated by
reference to the amount by which the Company’s NAV
performance has outperformed the Benchmark (see inside
front cover for details of the Benchmark).
The fee is calculated quarterly by comparing the cumulative
performance of the Company’s NAV with the cumulative
performance of the Benchmark since the launch of the
Company in 1995. The performance fee amounts to 16.5% of any
outperformance over the Benchmark, OrbiMed receiving 15%
and Frostrow receiving 1.5% respectively. Provision is also made
25 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
within the daily NAV per share calculation as required and in
accordance with generally accepted accounting standards.
In order to ensure that only sustained outperformance is
rewarded, at each quarterly calculation date any performance
fee payable is based on the lower of:
(i) The cumulative outperformance of the portfolio over the
Benchmark as at the quarter end date; and
(ii) The cumulative outperformance of the portfolio over the
Benchmark as at the corresponding quarter end date in the
previous year.
The effect of this is that outperformance has to be maintained
for a twelve month period before it is paid.
In addition, a performance fee only becomes payable to the
extent that the cumulative outperformance gives rise to a total
fee greater than the total of all performance fees paid to date.
No provision for potential future performance fee payments
has been made as at 31 March 2016. As at 31 March 2015 a
provision of £16.7m had been made, of which £11.2m
became payable due to continued cumulative outperformance
in the three quarters to 31 December 2015. Following
underperformance in the quarter to 31 March 2016, £5.5m
of the provision was reversed as shown in note 3 on page 55.
The maximum amount that could become payable by 31 March
2017, in the event that the last quarter’s underperformance is
reversed and outperformance achieved is £12.8m.
Depositary agreement
The Company appointed J.P. Morgan Europe Limited (the
“Depositary”) as its Depositary in accordance with the
AIFMD on the terms and subject to the conditions of the
Depositary agreement between the Company, Frostrow and
the Depositary (the “Depositary Agreement”).
Under the terms of the Depositary Agreement the Company
has agreed to pay the Depositary a fee calculated at 1.75bp
on net assets up to £150 million, 1.50 bps on net assets
between £150 million and £300 million 1.00bps on net assets
between £300 million and £500 million and 0.50bps on net
assets above £500 million.
The Depositary has delegated the custody and safekeeping of
the Company’s assets to J.P. Morgan Clearing Corp (the
“Prime Broker”) pursuant to a delegation agreement
between the Company, Frostrow, the Depositary and the
Prime Broker (the “Delegation Agreement”).
The Delegation Agreement transfers the Depositary’s liability
for the loss of the Company’s financial instruments held in
custody by the Prime Broker to the Prime Broker in
accordance with the AIFMD. The Company has consented to
the transfer and reuse of its assets by the Prime Broker
(known as “rehypothecation”) in accordance with the terms of
an institutional account agreement between the Company,
the Prime Broker and certain other J.P. Morgan entities (as
defined therein). See page 20 for further details.
Prime brokerage agreement
The Company appointed J.P. Morgan Clearing Corp (the
“Prime Broker”) on the terms and subject to the conditions
of the prime brokerage agreement between the Company,
Frostrow and the Depositary (the “Prime Brokerage
Agreement”). The Prime Broker receives interest on the
drawn overdraft as detailed in note 12 on page 60.
The Prime Broker is a registered broker-dealer and is regulated
by the United States Securities and Exchange Commission.
Continuation of the Company
In accordance with the Company’s Articles of Association,
shareholders will have an opportunity to vote on the
continuation of the Company at the 2019 Annual General
Meeting and every five years thereafter.
Results and dividends
The results attributable to shareholders for the year and the
transfer from reserves are shown on pages 49 to 51. Details
of the Company’s dividend record can be found on page 2.
Substantial interests in share capital
The Company was aware of the following substantial interests in the voting rights of the Company as at 31 May 2016, the
latest practicable date before publication of the Annual Report:
Shareholder
Investec Wealth & Investment Limited
Alliance Trust Savings Limited
Rathbone Brothers plc
Speirs & Jeffrey Limited
Charles Stanley & Co Limited
Hargreaves Lansdown plc
Brewin Dolphin Limited
Quilter Cheviot Limited
31 May 2016
31 March 2016
Number of
shares
% of issued
share capital
Number of
shares
% of issued
share capital
5,733,954
2,569,041
2,544,547
1,928,470
1,901,814
1,789,724
1,660,065
1,600,375
11.99
5.4
5.3
4.0
4.0
3.7
3.5
3.4
5,786,468
2,427,415
2,544,522
1,901,313
1,935,289
1,840,622
1,689,964
1,592,602
12.2
5.1
5.3
4.0
4.1
3.9
3.6
3.4
As at 31 March 2016 the Company had 47,640,045 shares in issue (excluding 198,975 shares held in treasury). As at
31 May 2016 the Company had 47,308,593 shares in issue (excluding 530,427 shares held in treasury).
Beneficial owners of shares – information
rights
Beneficial owners of shares who have been nominated by
the registered holder of those shares to receive information
rights under section 146 of the Companies Act 2006 are
required to direct all communications to the registered
holder of their shares rather than to the Company’s
registrar, Capita Asset Services, or to the Company directly.
Directors’ & officers’ liability insurance cover
Directors’ & officers’ liability insurance cover was
maintained by the Company during the year ended 31 March
2016. It is intended that this policy will continue for the year
ending 31 March 2017 and subsequent years.
Directors’ indemnities
During the year under review and to the date of this report,
indemnities were in force between the Company and each of its
Directors under which the Company has agreed to indemnify
each Director, to the extent permitted by law, in respect of
certain liabilities incurred as a result of carrying out his or her
role as a Director of the Company. The Directors are also
indemnified against the costs of defending any criminal or civil
proceedings or any claim by the Company or a regulator as they
are incurred provided that where the defence is unsuccessful
the Director must repay those defence costs to the Company.
The indemnities are qualifying third party indemnity provisions
for the purposes of the Companies Act 2006.
Annual Report for the year ended 31 March 2016 26
Worldwide Healthcare Trust PLC
2
Governance
Report of the Directors
continued
A copy of each deed of indemnity is available for inspection
at the Company’s registered office during normal business
hours and will be available for inspection at the Annual
General Meeting.
Capital structure
The Company’s capital structure is composed solely of Ordinary
Shares.
Ordinary shares
During the year under review, 794,867 Ordinary Shares were
bought back by the Company to be held in treasury at an
average discount of 6.5% to the prevailing diluted ex income
NAV per share. A total of 256,832 shares were then reissued
from treasury during the year at an average discount of 2.9%
to the prevailing diluted ex income NAV per share at the time
of issue, resulting in a net gain to the Company of £66,000.
339,060 Ordinary Shares held in treasury were cancelled by the
Company on 24 September 2015.
Since the year end 615,099 Ordinary Shares were bought back
into treasury at an average discount of 7.2% to the prevailing
ex income NAV per share.
Voting rights in the Company’s ordinary shares
Details of the voting rights in the Company’s ordinary shares
at the date of this Annual Report are given in note 9 to the
Notice of Annual General Meeting on page 76.
Political and charitable donations
The Company has not in the past and does not intend in the
future to make political or charitable donations.
Global greenhouse gas emissions
The Company has no greenhouse gas emissions to report
from its operations, nor does it have responsibility for any
other emissions producing sources under Large and
Medium sized Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended), including those
within our underlying investment portfolio.
Corporate governance
The Corporate Governance Statement set out on pages 29 to
36 forms part of the Report of the Directors.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include certain
information in a single identifiable section of the Annual
Report or a cross reference table indicating where the
information is set out. The Directors confirm that there are
no disclosures to be made in this regard.
By order of the Board
Frostrow Capital LLP
Company Secretary
14 June 2016
27 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Statement of Directors’ Responsibilities
Company law in the United Kingdom requires the Directors
to prepare financial statements for each financial year. The
Directors are responsible for preparing the Financial
Statements in accordance with applicable law and
regulations. In preparing these financial statements, the
Directors have:
• selected suitable accounting policies and applied them
consistently;
• made judgments and estimates that are reasonable and
prudent;
• followed applicable UK accounting standards; and
• prepared the financial statements on a going concern
basis.
The Directors are responsible for keeping adequate
accounting records which disclose with reasonable accuracy
at any time the financial position of the Company and enable
them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for ensuring that the Report of
the Directors and other information included in the Annual
Report is prepared in accordance with company law in the
United Kingdom. They are also responsible for ensuring that
the Annual Report includes information required by the
Listing Rules of the FCA.
The financial statements are published on the Company’s
website www.worldwidewh.com and via Frostrow’s website
www.frostrow.com. The maintenance and integrity of these
websites, so far as it relates to the Company, is the
responsibility of Frostrow. The work carried out by the
Auditors does not involve consideration of the maintenance
and integrity of these websites and, accordingly, the Auditors
accept no responsibility for any changes that have occurred
to the financial statements since they were initially
presented on these websites. Visitors to the websites need
to be aware that legislation in the United Kingdom governing
the preparation and dissemination of the financial
statements may differ from legislation in their jurisdiction.
Going concern
The financial statements have been prepared on a going
concern basis. The Directors consider this is the appropriate
basis as the Company has adequate resources to continue in
operational existence for the foreseeable future, being taken
as 12 months after approval of the financial statements. In
considering this, the Directors took into account the
diversified portfolio of readily realisable securities which can
be used to meet funding commitments and the ability of the
Company to meet all of its liabilities, including the overdraft
and ongoing expenses from its assets.
Disclosure of information to the auditors
So far as the Directors are aware, there is no relevant
information of which the Auditors are unaware. The
Directors have taken all steps they ought to have taken to
make themselves aware of any relevant audit information
and to establish that the Auditors are aware of such
information.
Responsibility statement of the directors in
respect of the annual financial report
The Directors, whose details can be found on pages 23 and
24, confirm to the best of their knowledge that:
• the Financial Statements, within this Annual Report,
have been prepared in accordance with applicable
accounting standards, give a true and fair view of the
assets, liabilities, financial position and the return for the
year ended 31 March 2016;
• the Chairman’s Statement, Strategic Report and the
Report of the Directors include a fair review of the
information required by 4.1.8R to 4.1.11R of the FCA’s
Disclosure and Transparency Rules; and
• the annual report and financial statements taken as a
whole are fair, balanced and understandable and provide
the information necessary to assess the Company’s
performance, business model and strategy.
On behalf of the Board
Sir Martin Smith
Chairman
14 June 2016
Annual Report for the year ended 31 March 2016 28
Worldwide Healthcare Trust PLC
2
Governance
Corporate Governance
The Directors are accountable to shareholders for the governance of the Company’s affairs. The UK Listing Rules require all
listed companies to disclose how they have applied the principles and complied with the provisions of the UK Corporate
Governance Code (the ‘UK Code’) issued by the Financial Reporting Council (the ‘FRC’). The UK Code can be viewed at
www.frc.org.uk.
The Association of Investment Companies (‘AIC’) publishes a Code of Corporate Governance (‘AIC Code’) and a Corporate
Governance Guide for Investment Companies (‘AIC Guide’). In March 2015 the AIC published a revised AIC Code and AIC Guide
to reflect changes made to the UK Code in September 2014.
The Financial Reporting Council has confirmed that by following the AIC Code and the AIC Guide, boards of investment
companies will meet their obligations in relation to the UK Code and paragraph 9.8.6 of the UK Listing Rules.
The AIC Code and AIC Guide address the principles set out in the UK Code as well as additional principles and
recommendations on issues that are specific to investment trusts. The AIC Code can be viewed at www.theaic.co.uk.
The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC
Guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders.
The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate
Governance Code, except as follows:
The UK Corporate Governance Code includes certain provisions relating to:
• directors’ tenure
• the roles of the chief executive
• executive directors’ remuneration
• the need for an internal audit function
For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers these
provisions are not relevant to the position of the Company, being an externally managed investment company. In particular,
all of the Company’s day-to-day management and administrative functions are outsourced to third parties. As a result, the
Company has no executive directors, employees or internal operations. Therefore with the exception of Director tenure,
which is addressed further on page 30, and the need for an internal audit function which is addressed further on page 37, the
Company has not reported further in respect of these provisions.
The Board attaches great importance to the matters contained in the AIC Code and observed the relevant requirements
throughout the year under review.
The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Guide and the Board
believes that the Company’s current practices are consistent in all material respects with the principles of the AIC Code.
Where non-compliance occurs, an explanation has been provided. The Board will continue to observe the principles and
recommendations set out in the AIC Code in future.
The Principles of the AIC Code
The AIC Code is made up of twenty-one principles split into three sections covering:
- The Board
- Board Meetings and relations with the AIFM and the Portfolio Manager
- Shareholder Communications
29 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
The Board
AIC Code Principle
Compliance Statement
1. The Chairman should be
independent.
2. A majority of the Board should
be independent of the
manager.
3. Directors should be submitted for
re-election at regular intervals.
Nomination for re-election
should not be assumed but be
based on disclosed procedures
and continued satisfactory
performance.
4. The Board should have a policy
on tenure, which is disclosed in
the annual report.
The Chairman, Sir Martin Smith, continues to be independent of the AIFM and the
Portfolio Manager. There is a clear division of responsibility between the Chairman, the
Directors, the AIFM, the Portfolio Manager and the Company’s other third party service
providers. The Chairman is responsible for the leadership of the Board and for
ensuring its effectiveness in all aspects of its role.
The Board consists of seven non-executive Directors, each of whom (with the exception
of Samuel D. Isaly who is the Managing Partner at OrbiMed, the Company’s Portfolio
Manager) is independent of the AIFM and the Portfolio Manager. No other member of
the Board is a Director of another investment company managed by Frostrow or
OrbiMed, nor has any Board member been an employee of the Company, OrbiMed,
Frostrow or any of its service providers.
All Directors submit themselves for annual election or re-election by shareholders.
The individual performance of each Director standing for election or re-election is
evaluated annually by the remaining members of the Board and, if considered
appropriate, a recommendation is made that shareholders vote in favour of their
election or re-election at the Annual General Meeting.
Jo Dixon will be retiring from the Board and will therefore not be seeking re-election at
this year’s Annual General Meeting.
Humphrey van der Klugt joined the Board on 15 February 2015. Accordingly, his
appointment will be proposed to shareholders for ratification at the Annual General
Meeting to be held in September 2016.
The Nominations Committee considers the structure of the Board and recognises the
need for progressive refreshment.
The Board subscribes to the view expressed within the AIC Code that long-serving
Directors should not be prevented from forming part of an independent majority. It
does not consider that a Director’s tenure necessarily reduces their ability to act
independently and, following formal performance evaluations, believes that each of the
independent Directors is independent in character and judgment and that there are no
relationships or circumstances which are likely to affect their judgment.
The Board’s policy on tenure is that continuity and experience are considered to add
significantly to the strength of the Board and, as such, no limit on the overall length of
service of any of the Company’s Directors, including the Chairman, has been imposed.
In view of its non-executive nature, the Board considers that it is not appropriate for the
Directors to be appointed for a specified term, although new Directors are appointed
with the expectation that they will serve for a minimum period of three years subject to
shareholder approval.
The terms and conditions of the Directors’ appointments are set out in letters of
appointment which are available for inspection on request at the office of the
Company’s AIFM and at the Annual General Meeting.
Annual Report for the year ended 31 March 2016 30
Worldwide Healthcare Trust PLC
2
Governance
Corporate Governance
continued
AIC Code Principle
Compliance Statement
5. There should be full
disclosure of information
about the Board.
6. The Board should aim to
have a balance of skills,
experience, length of
service and knowledge of
the company.
7. The Board should
undertake a formal and
rigorous annual evaluation
of its own performance and
that of its committees and
individual directors.
8. Director remuneration
should reflect their duties,
responsibilities and the
value of their time spent.
The Directors’ biographical details, set out on pages 23 and 24 demonstrate the wide
range of skills and experience that they bring to the Board.
Details of the Board’s Committees and their composition are set out on page 35 of this
annual report.
The Nominations Committee considers annually the skills possessed by the Board and
identifies any skill shortages to be filled by new Directors. Following a skills audit
carried out during the year it was agreed that the Board was equipped with the
necessary skills and experience required for the sound stewardship of the Company
and to enable the Directors to hold meaningful debates at its meetings. When
considering new appointments, the Committee reviews the skills of the Directors and
seeks to add persons with complementary skills or who possess the skills and
experience which fill any gaps in the Board’s knowledge or experience and who can
devote sufficient time to the Company to carry out their duties effectively.
The experience of the current Directors is detailed in their biographies set out on
pages 23 and 24.
The Company’s policy on diversity is set out on page 22.
During the year the performance of the Board and its committees was evaluated
internally by the Directors. An independent external review will be carried out in 2018.
The Board is satisfied that its structure and mix of skills, experience, independence,
knowledge and diversity continue to be effective and relevant for the Company.
The Management Engagement & Remuneration Committee reviews the fees paid to
the Directors and compares these with the fees paid by the Company’s peer group and
the investment trust industry generally, taking into account the level of commitment
and responsibility of each Board member. Details on the remuneration arrangements
for the Directors of the Company can be found in the Directors’ Remuneration Report
on pages 40 to 42.
Individual Directors take no part in discussions regarding their own remuneration. The
Board periodically takes advice from external independent advisers on Directors’
remuneration.
9. The Independent Directors
should take the lead in the
appointment of new Directors
and the process should be
disclosed in the annual report.
Subject to there being no conflicts of interest, all members of the Nominations
Committee are entitled to vote on candidates for the appointment of new Directors and
on the recommendation for shareholders’ approval of the Directors seeking election or
re-election at the Annual General Meeting. The membership of the Committee
comprises solely those Directors considered to be independent by the Board.
Details of the Board’s commitment to Diversity are set out on page 22.
As part of the process to appoint Humphrey van der Klugt the Board engaged the
services of a specialist recruitment consultant, Trust Associates. Trust Associates
prepared a list of potential candidates for consideration by a sub-committee appointed
by the Nominations Committee. A short list was then arrived at, the candidates were
interviewed and Humphrey van der Klugt was subsequently appointed. Trust
Associates has no other connection with the Company.
31 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
AIC Code Principle
Compliance Statement
10. Directors should be
offered relevant training
and induction.
11. The Chairman (and the
Board) should be brought
into the process of
structuring a new launch
at an early stage.
New appointees to the Board are provided with a full induction programme. The
programme covers the Company’s investment strategy, policies and practices. The
Directors are also given key information on the Company’s regulatory and statutory
requirements as they arise including information on the role of the Board, matters
reserved for its decision, the terms of reference for the Board Committees, the
Company’s corporate governance practices and procedures and the latest financial
information. It is the Chairman’s responsibility to ensure that the Directors have
sufficient knowledge to fulfil their role and Directors are encouraged to participate in
training courses where appropriate.
The Directors have access to the advice and services of a Company Secretary, through
Frostrow, who is responsible to the Board for ensuring that Board procedures are
followed and that applicable rules and regulations are complied with. The Company
Secretary is also responsible for ensuring good information flows between all parties.
Principle 11 applies to the launch of new investment companies and is not applicable to
the Company.
Board Meetings and relations with the Frostrow and OrbiMed
12. Boards and managers
should operate in a
supportive, co-operative
and open environment.
The Board meets regularly throughout the year and a representative of the AIFM and
the Portfolio Manager is in attendance at each Board meeting. The Chairman
encourages open debate to foster a supportive and co-operative approach for all
participants.
13. The primary focus at
regular board meetings
should be a review of
investment performance
and associated matters,
such as gearing, asset
allocation, marketing/
investor relations, peer
group information and
industry issues.
The Board has agreed a schedule of matters specifically reserved for decision by the
Board. This includes establishing the investment objectives, strategy and benchmarks,
the permitted types or categories of investments, the markets in which transactions
may be undertaken, the amount or proportion of the assets that may be invested in any
category of investment or in any one investment, and the Company’s share issuance
and share buy-back policies.
The Board, at its regular meetings, undertakes reviews of key investment and financial
data, revenue projections and expenses, analyses of asset allocation, transactions and
performance comparisons, share price and net asset value performance, marketing and
shareholder communication strategies, the risks associated with pursuing the
investment strategy, peer group information and industry issues.
14. Boards should give
sufficient attention to
overall strategy.
The Board is responsible for strategy and has established an annual programme of
agenda items under which it reviews the objectives and strategy for the Company at
each meeting.
Annual Report for the year ended 31 March 2016 32
Worldwide Healthcare Trust PLC
2
Governance
Corporate Governance
continued
AIC Code Principle
Compliance Statement
15. The Board should
regularly review both the
performance of, and
contractual arrangements
with, the AIFM and the
Portfolio manager (or
executives of a
self-managed company).
16. The Board should agree
policies with the AIFM and
the Portfolio Manager
covering key operational
issues.
17. Boards should monitor the
level of the share price
discount or premium (if
any) and, if desirable, take
action to reduce it.
18. The Board should monitor
and evaluate other service
providers.
The Board has delegated the following activities to its committees:
The Management Engagement & Remuneration Committee meets at least once a year
and reviews the performance of the AIFM and the Portfolio Manager. This Committee
considers the quality, cost and remuneration method (including the performance fee) of
the service provided by the AIFM and the Portfolio Manager against their contractual
obligations. It also considers the performance analysis provided by the AIFM and the
Portfolio Manager.
The Audit Committee reviews the risk matrix and oversees the risk and control
environment of the Company, including monitoring the internal control system in
operation at its principal service providers. Further details can be found on pages 37
to 39.
The Portfolio Management Agreement between the Company, the AIFM and the Portfolio
Manager sets out the limits of the Portfolio Manager’s authority, beyond which Board
approval is required. The Board has agreed detailed guidelines and limits with the AIFM
and the Portfolio Manager, which are considered at each Board meeting.
Representatives from the AIFM and the Portfolio Manager attends each meeting of the
Board to address questions on specific matters and to seek approval for specific
transactions which the Portfolio Manager is required to refer to the Board.
The AIFM has delegated the management of the Company’s portfolio and also the
voting powers relating to the securities held therein to the Portfolio Manager.
Contentious or sensitive matters are referred to the Board for consideration.
The Board has reviewed the Portfolio Manager’s Proxy Voting and Class Action Policy
which includes its Corporate Governance and Voting Guidelines.
Reports on commissions paid by the Portfolio Manager are submitted to the Board
regularly.
The Board considers any imbalances in the supply of and the demand for the
Company’s shares in the market and has put in place a Discount Control Mechanism
as described on page 21.
The Management Engagement & Remuneration Committee reviews, the performance
of all the Company’s third party service providers, including the level and structure of
fees payable and the length of the notice period, to ensure that they remain competitive
and in the best interests of shareholders.
The Audit Committee reviews reports from the principal service providers on
compliance and the internal and financial control systems in operation and relevant
independent audit reports thereon, as well as reviewing service providers’ anti-bribery
and corruption policies to address the provisions of the Bribery Act 2010.
33 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Shareholder Communications
AIC Code Principle
Compliance Statement
19. The Board should regularly
monitor the shareholder
profile of the company and
put in place a system for
canvassing shareholder
views and for communicating
the Board’s views to
shareholders.
20. The Board should normally
take responsibility for, and
have a direct involvement in,
the content of communications
regarding major corporate
issues even if the manager is
asked to act as spokesman.
21. The Board should ensure
that shareholders are
provided with sufficient
information for them to
understand the risk/reward
balance to which they are
exposed by holding the
shares.
Details of the Company activities undertaken to promote the Company and manage
relations with shareholders are set out on page 21. In addition, all shareholders are
encouraged to attend the Annual General Meeting, where they are given the
opportunity to question the Chairman, the Board and representatives of OrbiMed.
Shareholders wishing to communicate with the Chairman, or any other member of the
Board, may do so by writing to the Company, for the attention of the Company
Secretary at the Offices of Frostrow.
The Directors welcome the views of all shareholders and place considerable
importance on communications with them.
All substantive communications regarding any major corporate issues are discussed by
the Board taking into account representations from the AIFM and the Portfolio
Manager, the Auditor, legal advisers and the Corporate Stockbroker.
The Company places great importance on communication with shareholders and aims
to provide them with a full understanding of the Company’s investment objective, policy
and activities, its performance and the principal investment risks by means of
informative Annual and Half Year reports. This is supplemented by the daily publication,
through the London Stock Exchange, of the net asset value of the Company’s shares.
In line with its primary focus, the Board retains responsibility for all key elements of
the Company’s strategy and business model. Further details can be found in the
Business Review on page 17.
The annual report provides information on the Portfolio Manager’s investment
performance, portfolio risk and, operational and compliance issues. Further details on
the risk/reward balance are set out in the Strategic Report under Principal Risks on
pages 19 and 20 and in note 16 beginning on page 61.
The Portfolio is listed on pages 7 to 9.
The Company’s website, www.worldwidewh.com, is regularly updated with monthly
factsheets and provides useful information about the Company including the
Company’s financial reports and announcements.
Annual Report for the year ended 31 March 2016 34
Worldwide Healthcare Trust PLC
2
Governance
Corporate Governance
continued
The Board and Committees
Responsibility for effective governance lies with the Board. The governance framework of the Company reflects the fact that
as an Investment Company it has no employees and outsources portfolio management to OrbiMed and risk management,
company management, company secretarial, administrative and marketing services to Frostrow.
Chairman – Sir Martin Smith
Senior Independent Director – Jo Dixon
The Board
Five additional non-executive Directors, all considered independent except for Samuel D. Isaly, as noted on page 30.
Key responsibilities:
– to provide leadership and set strategy, values and standards within a framework of prudent effective controls which
enable risk to be assessed and managed;
– to ensure that a robust corporate governance framework is implemented; and
– to challenge constructively and scrutinise performance of all outsourced activities.
Management
Engagement &
Remuneration
Committee
Chairman
Doug McCutcheon
All Independent Directors
Key responsibilities:
– to review regularly the
contracts, the performance
and remuneration of the
Company’s principal service
providers; and
– to set the Directors
Remuneration Policy of the
Company.
Audit
Committee
Chairman
Jo Dixon
All Independent Directors
(excluding the Chairman,
Sir Martin Smith)
Key responsibilities:
– to review the Company’s
financial reports;
– to oversee the risk and control
environment and financial
reporting; and
– to review the performance of
the Company’s external
Auditors.
Nominations
Committee
Chairman
Dr David Holbrook
All Independent Directors
Key responsibilities:
– to review regularly the Board’s
structure and composition;
and
– to make recommendations for
any changes or new
appointments.
Copies of the full terms of reference, which clearly define
the responsibilities of each Committee, can be obtained
from the Company Secretary, will be available for inspection
at the Annual General Meeting, and can be found at the
Company’s website at www.worldwidewh.com.
Anti-bribery and corruption policy
The Board has adopted a zero tolerance approach to
instances of bribery and corruption. Accordingly it expressly
prohibits any Director or associated persons when acting on
behalf of the Company, from accepting, soliciting, paying,
offering or promising to pay or authorise any payment,
public or private in the UK or abroad to secure any improper
benefit for themselves or for the Company.
The Board ensures that its service providers apply the same
standards in their activities for the Company.
A copy of the Company’s Anti Bribery and Corruption Policy
can be found on its website at www.worldwidewh.com. The
policy is reviewed regularly by the Audit Committee.
Relations with shareholders
Details of the Company’s activities undertaken to promote
the Company and manage relations with shareholders are
set out on page 20.
35 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
The Board supports the principle that the Annual General
Meeting be used to communicate with investors, with all
Directors attending the Annual General Meeting, under the
Chairmanship of the Chairman of the Board. Details of proxy
votes received in respect of each resolution are made
available to shareholders at the meeting and are also
published on the Company’s website at
www.worldwidewh.com.
Representatives from the Portfolio Manager attend the
Annual General Meeting and give a presentation on
investment matters to those present.
The Company has adopted a nominee share code which is
set out later on this page.
The annual and half-year financial reports, and a monthly fact
sheet are available to all shareholders. The Board, with the
advice of Frostrow, reviews the format of the annual and
half-year financial reports so as to ensure they are useful to
all shareholders and others taking an interest in the Company.
In accordance with best practice, the annual report, including
the Notice of the Annual General Meeting, is sent to
shareholders at least 20 working days before the meeting.
Separate resolutions are proposed for substantive issues.
Exercise of voting powers
The Board and the AIFM have delegated authority to
OrbiMed to vote the shares owned by the Company that are
held on its behalf by J.P. Morgan Clearing Corp. The Board
has instructed that OrbiMed submit votes for such shares
wherever possible. This accords with current best practice
whilst maintaining a primary focus on financial returns.
OrbiMed may refer to the Board on any matters of a
contentious nature. The Company does not retain voting
rights on any shares that are held as collateral in connection
with the overdraft facility provided by J.P. Morgan Clearing
Corp.
Nominee share code
Where shares are held in a nominee company name, the
Company undertakes:
• to provide the nominee company with multiple copies of
shareholder communications, so long as an indication of
quantities has been provided in advance;
• to allow investors holding shares through a nominee
company to attend general meetings, provided the
correct authority from the nominee company is available;
and
• that investors in the Alliance Trust Savings Scheme or
ISA are automatically sent shareholder communications,
including details of general meetings, together with a
form of direction to facilitate voting and to seek authority
to attend.
Nominee companies are encouraged to provide the
necessary authority to underlying shareholders to attend the
Company’s general meetings.
By order of the Board
Frostrow Capital LLP
Company Secretary
14 June 2016
Annual Report for the year ended 31 March 2016 36
Worldwide Healthcare Trust PLC
2
Governance
Audit Committee Report
The Audit Committee, which comprises those Directors
considered to be independent by the Board, met twice during
the course of the year and up to the date of this Annual
Report. Attendance by each Director is shown in the table on
page 23. During the year it was agreed that Sir Martin Smith,
the Chairman of the Company, should not be a member of
the Audit Committee.
Responsibilities
The Audit Committee’s main responsibilities during the year
were:
1. To review the Company’s half-year and annual report. In
particular, the Audit Committee considered whether the
annual report is fair, balanced and understandable,
allowing shareholders to more easily assess the
Company’s strategy, investment policy, business model
and financial performance.
2. To review the risk management and internal control
processes of the Company and its key service providers.
Further details of the Audit Committee’s review are
included in the Internal Controls and Risk Management
section on page 38.
3. To recommend the appointment of external Auditors,
agreeing the scope of its work and its remuneration,
reviewing its independence and the effectiveness of the
audit process.
During the year the nature and scope of the audit
together with PricewaterhouseCoopers LLP’s (PwC’s)
audit plan were considered by the Audit Committee
without PwC being present. The Chairman of the Audit
Committee met with PwC and Frostrow to discuss in
detail the outcome of the audit and the draft Annual
Report. The Audit Committee then met PwC, without
Frostrow or OrbiMed, to review and discuss the outcome
of the audit and the draft Annual Report.
4. To consider any non-audit work to be carried out by the
Auditors. The Audit Committee reviews the need for
non-audit services to be provided by the Auditors and
authorises such on a case by case basis, having
consideration to the cost effectiveness of the services and
the independence and objectivity of the Auditors.
Non-audit fees of £10,500 were payable to the Auditors,
PwC, during the year for agreed upon procedures in
relation to the Company’s performance fee review and
other audit related assurance services.
37 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
The Audit Committee has considered the extent and
nature of non-audit work performed by PwC and is
satisfied that this did not impinge on their independence
and is a cost effective way for the Company to operate.
5. To consider the need for an internal audit function. Since
the Company delegates its day-to-day operations to third
parties and has no employees, the Audit Committee has
determined there is no requirement for such a function.
The Audit Committee’s terms of reference are available for
review on the Company’s website at www.worldwidewh.com.
Financial statements
The financial statements, and the annual report as a whole,
are the responsibility of the Board. The Statement of
Directors’ Responsibilities is contained on page 28. The
Board looks to the Audit Committee to advise them in
relation to the financial statements both as regards their
form and content, issues which might arise and on any
specific areas requiring judgement.
Although the Committee did not identify any significant
issues as part of its review of the annual financial
statements, it paid particular attention to the following:
Overall accuracy of the Annual Report
The Audit Committee dealt with this matter by considering
the draft Annual Report, a letter from Frostrow in support of
the letter of representation made by the Board to the
Auditors and the Auditors’ Report to the Audit Committee.
Investments and derivatives
The Audit Committee dealt with this matter by:
• ensuring that all investment holdings and cash/deposit
balances had been agreed to an independent
confirmation from the custodian or relevant counterparty;
• reconfirming its understanding of the processes in place
to record investment transactions and income, and to
value the portfolio;
• reviewing and amending, where necessary, the
Company’s register of key risks in light of changes to the
portfolio and the investment environment;
• gaining an overall understanding of the performance of
the portfolio both in capital and revenue terms through
comparison to the benchmark; and
• Conducting a review of how the Company’s derivative
positions were monitored.
Performance fees
The Audit Committee approached and dealt with this matter
by noting that the Auditors, as a separate engagement, had
been requested to report to the Board on the accuracy of the
performance fee calculation, and inputs to that calculation,
prior to the payment of all performance fees.
Adoption of new UK GAAP and Corporate
Governance Code
As set out on page 52, the Company adopted FRS 102 during
the year. The Committee dealt with this by:
• arranging for all Directors to be briefed by the Company’s
auditors on the changes made to UK GAAP and the
expected impact on the Company; and
• reviewing a report prepared by Frostrow of the changes to
be made to the Annual Report.
In addition as set out on page 22, under the
2014 UK Corporate Governance Code, the Company is now
required to publish a viability statement. The Committee
discussed the length of time that the viability statement
should cover for the Company, given its nature, the
investment approach taken by its Investment Manager, the
principal risks facing the Company and the ability of the
Company to cover its costs and meet its liabilities as they fall
due. Based on these discussions the Committee
recommended the statement cover a period of five years.
Internal controls and risk management
As set out on page 19 the Board is responsible for the risk
assessment and review of internal controls of the Company,
undertaken in the context of the overall investment
objective.
The review covers the key business, operational, compliance
and financial risks facing the Company. In arriving at its
judgment of what risks the Company faces, the Board has
considered the Company’s operations in the light of the
following factors:
• the nature of the Company, with all management
functions outsourced to third party service providers;
• the nature and extent of risks which it regards as
acceptable for the Company to bear within its overall
investment objective;
• the threat of such risks becoming a reality; and
• The Company’s ability to reduce the incidence and impact
of risk on its performance.
Against this background, a risk matrix has been developed
which covers all key risks the Company faces, the likelihood
of their occurrence and their potential impact, how these
risks are monitored and mitigating controls in place. The
Board has delegated to the Audit Committee the
responsibility for the review and maintenance of the risk
matrix and it reviews, in detail, the risk matrix each time it
meets, bearing in mind any changes to the Company, its
environment or service providers since the last review. Any
significant changes to the risk matrix are discussed with the
whole Board.
Policy on non-audit services
The provision of non-audit services by the Company’s auditor
is considered and approved by the Audit Committee on a
case by case basis. The policy set by the Audit Committee,
which is kept under review, ensures that consideration is
given to the following factors when considering the provision
of non-audit services by the auditor:
• the level of non-audit fees paid to the audit firm in
relation to the statutory audit fee;
• whether the audit firm is the most suitable supplier of
non-audit services;
• the impact on the auditor’s independence and objectivity
and what safeguards can be put in place to eliminate or
reduce any threat in this regard; and
• the cost-effectiveness of the services.
The Board has determined that the auditor will not be
considered for the provision of services related to accounting
and preparation of the financial statements; the design,
implementation and operation of information systems;
internal control functions; tax advice; and legal, broker,
investment adviser or investment banking services. With
effect from 1 April 2016, the cost of non-audit services
provided by the Company’s auditor is subject to a cap of 70%
of the average statutory audit fees over the previous three
years.
Auditor
Following a tender process undertaken by the Audit
Committee, PwC were appointed as auditor of the Company
commencing with the 2014/15 financial year (date of
appointment 14 July 2014). In accordance with EU regulation
on auditor rotation and FRC guidance on audit tendering the
Company will be required to put its audit contract out to
tender at least every 10 years.
Annual Report for the year ended 31 March 2016 38
Worldwide Healthcare Trust PLC
2
Governance
Audit Committee Report
continued
PwC has carried out the audit for the year ended 31 March
2016 and were considered to be independent by the Board.
PwC have indicated their willingness to continue to act as
Auditor to the Company for the forthcoming year and a
resolution for their re-appointment will be processed at the
forthcoming Annual General Meeting.
Audit Committee confirmation
The Audit Committee confirms that it has carried out a
review of the effectiveness of the system of internal financial
control and risk management during the year, as set out
above and that:
(a) An ongoing procedure for identifying, evaluating and
managing significant risks faced by the Company was in
place for the year under review and up to 14 June 2016.
This procedure is regularly reviewed by the Board; and
(b) It is responsible (on behalf of the Board) for the
Company’s system of internal controls and for reviewing
its effectiveness and that it is designed to manage the
risk of failure to achieve business objectives. This can
only provide reasonable not absolute assurance against
material misstatement or loss.
Jo Dixon
Chairman of the Audit Committee
14 June 2016
39 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Directors’ Remuneration Report
Statement from the Chairman of the
Management Engagement & Remuneration
Committee
This report has been prepared in accordance with Schedule 8 of
the large and medium-sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013 and in accordance
with Listing Rules of the Financial Conduct Authority. A
non-binding Ordinary Resolution for the approval of this report
will be put to shareholders at the Company’s forthcoming
Annual General Meeting. The law requires the Company’s
Auditors to audit certain of the disclosures provided in this
report. Where disclosures have been audited, they are indicated
as such and the Auditors’ audit opinion is included in its report
to shareholders on pages 43 to 48.
The Management Engagement & Remuneration Committee
considers the framework for the remuneration of the
Directors on an annual basis. It reviews the ongoing
appropriateness of the Directors’ Remuneration Policy and
the individual remuneration of Directors by reference to the
activities and particular complexities of the Company and
comparison with other companies of a similar structure and
size. This is in-line with the AIC Code.
A non-binding Ordinary Resolution proposing adoption of the
Directors’ Remuneration Report was put to shareholders at
the Annual General Meeting of the Company held on
24 September 2015, and was passed by 98.3% of the votes
cast by shareholders voting on the Resolution.
As noted in the Strategic Report, all of the Directors are
non-executive and therefore there is no Chief Executive Officer.
The Company does not have any employees. There is therefore
no Chief Executive Officer or employee information to disclose.
Directors’ Remuneration Policy
The Directors’ Remuneration Policy provides that fees
payable to the Directors should reflect the time spent by the
Board on the Company’s affairs and the responsibilities
borne by the Directors and should be sufficient to enable
candidates of high calibre to be recruited. Directors are
remunerated in the form of fees payable monthly in arrears,
paid to the Director personally or to a specified third party.
There are no long-term incentive schemes, share option
schemes, pension arrangements, bonuses, or other benefits
in place and fees are not specifically related to the Directors’
performance, either individually or collectively.
The remuneration for the non-executive Directors is
determined within the limits set out in the Company’s
Articles of Association. The present limit is £250,000 in
aggregate per annum.
A binding resolution to approve the Directors’ Remuneration
Policy was put to shareholders at the last Annual General
Meeting held in 2014, and was passed by 97.1% of
shareholders voting on the resolution. The aforementioned
Directors’ Remuneration Policy provisions will apply until
they are next put to shareholders for renewal of that
approval, which must be at intervals of not more than three
years, or if the Directors’ Remuneration Policy is varied in
which case shareholder approval for the new Directors’
Remuneration Policy will be sought.
Directors’ appointment
None of the Directors has a service contract. The terms of
their appointment provide that Directors shall retire and be
subject to election at the first Annual General Meeting after
their appointment and to re-election annually thereafter. The
terms also provide that a Director may be removed without
notice and that compensation will not be due on leaving office.
Directors’ fees
At the most recent Management Engagement &
Remuneration Committee held on 17 March 2016 it was
agreed that the Directors’ fees would be, with effect from
1 April 2016, as follows:
The Chairman of the Company, and Jo Dixon, as Chairman of
the Audit Committee and Senior Independent Director, will
receive an annual fee of £43,650 and £33,800, respectively.
Sarah Bates, Dr David Holbrook, Samuel D. Isaly, Humphrey
van der Klugt and Doug McCutcheon will each receive an
annual fee of £27,570.
The Directors, as at the date of this report, all served
throughout the year, except for Humphrey van der Klugt. The
table overleaf excludes any employer’s national insurance
contributions, if applicable.
The Directors are entitled to be reimbursed for reasonable
expenses incurred by them in connection with the
performance of their duties and attendance at Board and
General Meetings.
In certain circumstances, under HMRC rules travel and other
out of pocket expenses reimbursed to the Directors may be
considered as taxable benefits. Where expenses are classed
as taxable under HMRC guidance, they are shown in the
taxable expenses column of the Directors’ remuneration
table along with the associated tax liability.
Annual Report for the year ended 31 March 2016 40
Worldwide Healthcare Trust PLC
2
Governance
Directors’ Remuneration Report
continued
Directors’ emoluments for the year (audited)
Fixed
Fees
2016
£
Date of Appointment
to the Board
Sir Martin Smith
Jo Dixon
Sarah Bates
Dr David Holbrook
Samuel D. Isaly
Doug McCutcheon
Humphrey van der
Klugt
8 November 2007
25 February 2004
22 May 2013
8 November 2007
14 February 1995
7 November 2012
15 February 2016
43,200
33,450
27,300
27,300
27,300
27,300
3,430
189,280
Taxable
Total
Expenses+ Remuneration
2016
£
2016
£
781
2,298
–
125
–
–
43,981
35,748
27,300
27,425
27,300
27,300
Fixed
Fees
2015
£
41,100
39,800
26,000
26,000
26,000
26,000
Taxable
Total
Expenses+ Remuneration
2015
£
2015
£
881
3,293
55
1,272
–
–
41,981
43,093
26,055
27,272
26,000
26,000
–
3,430
–
–
–
3,204
192,484
184,900
5,501
190,401
+ Taxable expenses primarily comprise travel and associated expenses incurred by the Directors in attending Board and Committee meetings in London. These are
reimbursed by the Company and, under HMRC Rules, are subject to tax and National Insurance and therefore are treated as a benefit in kind within this table.
No communications have been received from shareholders
regarding Directors’ remuneration.
Total shareholder return for the seven years to
31 March 2016
%
400
360
320
280
240
200
160
120
80
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Worldwide Healthcare Share Price (total return)
Benchmark Index
Mar-14
Mar-15
Mar-16
Rebased to 100 as at 31 March 2009
Source: Morningstar, Thomson Reuters and Bloomberg
Sums paid to third parties
Fees due to Dr Holbrook were paid to MTI Managers
Limited, his employer. Otherwise none of the fees referred
to in the above table were paid to any third party in respect
of the services provided by any of the Directors.
Directors’ interests in the Company’s shares
(audited)
Sir Martin Smith
– Trustee
Jo Dixon
Sarah Bates
Dr David Holbrook
Samuel D. Isaly
Humphrey van der Klugt
Doug McCutcheon
Ordinary
Shares of 25p each
2015
2016
11,871
2,725
3,859
7,200
1,094
3,600
1,500
15,000
46,849
11,871
2,725
3,859
7,200
1,094
3,600
N/A
15,000
45,349
Share price total return
The chart to the right illustrates the total shareholder return
for a holding in the Company’s shares as compared to the
Benchmark, which the Board has adopted as the key
measure of the Company’s performance.
41 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
The bar chart below shows the comparative cost of Directors’
fees compared with the level of dividend distribution and
ongoing charges for 2015 and 2016.
Relative cost of directors’ remuneration
£m
9
8
7
6
5
4
3
2
1
0
Directors’
Fees
2016
Dividends
2016
Ongoing
Charges*
2016
Directors’
Fees
2015
Dividends
2015
Ongoing
Charges*
2015
*Excludes finance costs and performance fees
Annual statement
On behalf of the Board, I confirm that the Directors’
Remuneration Policy, set out on page 40 of this Annual
Report, and Directors’ Remuneration Report summarise, as
applicable, for the year to 31 March 2016:
(a) the major decisions on Directors’ remuneration;
(b) any substantial changes relating to Directors’
remuneration made during the year; and
(c) the context in which the changes occurred and decisions
have been taken.
Doug McCutcheon
Chairman of the Management Engagement &
Remuneration Committee
14 June 2016
Annual Report for the year ended 31 March 2016 42
Worldwide Healthcare Trust PLC
2
Governance
Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC
with whom the AIFM has engaged to provide certain
administrative functions.
• We tailored the scope of our audit taking into account the
types of investments within the Company, the involvement
of the third parties referred to above, the accounting
processes and controls, and the industry in which the
Company operates.
Areas of focus
• Income.
• Valuation and existence investments.
• Performance Fees.
• Presentation and Disclosure – FRS 102.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK &
Ireland)”).
We designed our audit by determining materiality and
assessing the risks of material misstatement in the financial
statements. In particular, we looked at where the directors
made subjective judgements, for example in respect of
significant accounting estimates that involved making
assumptions and considering future events that are
inherently uncertain. As in all of our audits we also
addressed the risk of management override of internal
controls, including evaluating whether there was evidence of
bias by the directors that represented a risk of material
misstatement due to fraud.
The risks of material misstatement that had the greatest
effect on our audit, including the allocation of our resources
and effort, are identified as “areas of focus” in the table
below. We have also set out how we tailored our audit to
address these specific areas in order to provide an opinion
on the financial statements as a whole, and any comments
we make on the results of our procedures should be read in
this context. This is not a complete list of all risks identified
by our audit.
Report on the financial statements
Our opinion
In our opinion, Worldwide Healthcare Trust PLC’s financial
statements (the “financial statements”):
• give a true and fair view of the state of the Company’s
affairs as at 31 March 2016 and of its loss for the year then
ended;
• have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements
of the Companies Act 2006.
What we have audited
The financial statements, included within the Annual Report,
comprise:
• the Statement of Financial Position as at 31 March 2016;
• the Income Statement for the year then ended;
• the Statement of Changes in Equity for the year then
ended; and
• the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented elsewhere
in the Annual Report, rather than in the notes to the
financial statements. These are cross-referenced from the
financial statements and are identified as audited.
The financial reporting framework that has been applied in
the preparation of the financial statements is United
Kingdom Accounting Standards, comprising FRS 102 “The
Financial Reporting Standard applicable in the UK and
Republic of Ireland”, and applicable law (United Kingdom
Generally Accepted Accounting Practice).
Our audit approach
Overview
Materiality
• Overall materiality: £8,818,000 which represents 1% of
net assets.
Audit scope
• The Company is a standalone Investment Trust Company
and engages Frostrow Capital LLP (the “AIFM”) to
manage its assets.
• We conducted our audit of the financial statements using
information from the AIFM and J.P. Morgan Europe Limited
43 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Area of focus
How our audit addressed the area of focus
Income
Refer to pages 52 and 53 (Accounting Policies) and pages 55
and 59 (Notes to the Financial Statements).
We focused on the accuracy and completeness of income
from investments amounting to £10,482,000 for the year and
its presentation in the Income Statement as set out in the
requirements of The Association of Investment Companies
Statement of Recommended Practice (the ‘AIC SORP’).
We assessed the accounting policy for income recognition for
compliance with accounting standards and the AIC SORP and
performed testing to check that income had been accounted
for in accordance with this stated accounting policy.
We found that the accounting policies implemented were in
accordance with accounting standards and the AIC SORP,
and that income has been accounted for in accordance with
the stated accounting policy.
We also focused on the calculation of realised and
unrealised gains and losses on investments amounting to a
loss of £86,856,000 for the year.
This is because incomplete or inaccurate income (for both
the revenue and capital return columns of the Income
Statement) could have a material impact on the Company’s
net asset value.
We understood and assessed the design and implementation
of key controls surrounding income recognition.
In addition, we tested dividend income by agreeing the
dividend rates from a sample of investments to independent
third party sources. No misstatements were identified by our
testing which required reporting to those charged with
governance.
To test for completeness, we tested that the appropriate
dividends had been received in the year by reference to
independent data of dividends declared for a sample of
investment holdings in the portfolio.
Our testing did not identify any unrecorded dividends.
We did not identify any special dividend income.
We have also tested the gains or losses on investments held
at fair value comprising realised and unrealised gains or
losses.
For realised gains or losses, we tested a sample of disposal
proceeds to bank statements.
For unrealised gains or losses, we tested the valuation of the
portfolio at the year-end, together with testing the
reconciliation of opening and closing investments.
No misstatements were identified by our testing which
required reporting to those charged with governance.
Annual Report for the year ended 31 March 2016 44
Worldwide Healthcare Trust PLC
2
Governance
Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC continued
Area of focus
How our audit addressed the area of focus
• Quoted investments:
We tested the valuation of quoted investments by agreeing
the prices used to third party sources.
We tested the existence of the quoted investment portfolio
by agreeing the holdings to an independent custodian
confirmation from J.P. Morgan Clearing Corp.
No differences were identified which required reporting to
those charged with governance.
• Unquoted debt investments:
We tested the valuation of unquoted debt investments by
agreeing the prices used to third party sources.
We tested the existence of the unquoted debt investments by
agreeing the holdings for investments to an independent
custodian confirmation from J.P. Morgan Clearing Corp and
an independent confirmation from the loans administrative
agent RBC Capital Markets.
No differences were identified which required reporting to
those charged with governance.
• OTC derivative financial instruments (swaps):
We tested the valuation of the OTC derivatives by agreeing
the prices used for a sample in the valuation to independent
third party sources.
We tested the existence of the OTC derivatives by agreeing
the holdings to an independent custodian confirmation from
J.P. Morgan Clearing Corp and the Broker, Goldman Sachs
International.
No differences were identified which required reporting to
those charged with governance.
We independently recalculated the performance fee using
the methodology set out in the AIFM Agreement and
Portfolio Management Agreement and agreed the inputs to
the calculation, including the benchmark data, to
independent third party sources, where applicable.
No misstatements were identified by our testing which
required reporting to those charged with governance.
Valuation and existence investments
Refer to page 37 (Audit Committee Report), page 52
(Accounting Policies) and pages 59 (Notes to the Financial
Statements).
Fixed asset investments at 31 March 2016 comprised quoted
investments, unquoted debt investments and OTC swaps
totalling £935,670,000.
We focused on the valuation and existence of investments
because investments represent the principal element of the
net asset value as disclosed on the Statement of Financial
Position in the financial statements.
Performance fees
Refer to page 37 (Audit Committee Report), page 53
(Accounting Policies) and page 55 (Notes to the Financial
Statements).
At 31 March 2016, outperformance was not maintained and
therefore a provision for performance fees was not required
which resulted in a write back of £5,460,000 to the Income
Statement.
We focused on this area because the performance fee is
calculated using a complex methodology as set out in the
AIFM Agreement and Portfolio Management Agreement.
45 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Area of focus
How our audit addressed the area of focus
Presentation and Disclosure – FRS 102
The financial statements are prepared in compliance with
the AIC SORP, Companies Act and FRS 102, including
financial statements disclosures and presentation.
As this is the first year FRS 102 was implemented, we
focused on whether the financial statements were presented
in compliance with FRS 102 as well as the compliance of AIC
SORP, Companies Act 2006 and the Listing Rules.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the types
of investments within the Company, the involvement of the
Manager and Administrator, the accounting processes and
controls, and the industry in which the Company operates.
The Company’s accounting is delegated to the Administrator
who maintain their own accounting records and controls and
report to the Manager and the Directors.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually
and on the financial statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
• Overall materiality – £8,818,000 (2015: £9,825,000).
• How we determined it – 1% of net assets.
• Rationale for benchmark applied – We have applied this
benchmark, a generally accepted auditing practice for
investment trust audits, in the absence of indicators that
an alternative benchmark would be appropriate and
because we believe this provides an appropriate and
consistent year-on-year basis for our audit.
The financial statements for the year ended 31 March 2016
have been prepared for the first time under FRS 102. We
have assessed that the changes applicable to the Company
have been implemented, this includes the amendments to
the disclosure of fair value hierarchy information and
presentational aspects relating to the Statement of Financial
Position. No issues were noted in the presentation of the
financial statements.
The new UK Corporate Governance Code was published in
September 2014, with a further update published on 23
October 2015. The new Code requires disclosure of a viability
statement, a robust assessment of risks and a new-style
going concern confirmation in the Annual Report. We have
reviewed the information provided in the Annual Report and
Accounts and no issues were noted in disclosure of
corporate governance.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above
£441,000 (2015: £491,000) as well as misstatements below
that amount that, in our view, warranted reporting for
qualitative reasons.
Going concern
Under the Listing Rules we are required to review the
Directors’ statement, set out on page 28, in relation to going
concern. We have nothing to report having performed our
review.
Under ISAs (UK & Ireland) we are required to report to you if
we have anything material to add or to draw attention to in
relation to the directors’ statement about whether they
considered it appropriate to adopt the going concern basis in
preparing the financial statements. We have nothing
material to add or to draw attention to.
As noted in the Directors’ statement, the Directors have
concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going concern
basis presumes that the company has adequate resources to
remain in operation, and that the directors intend it to do so,
for at least one year from the date the financial statements
were signed. As part of our audit we have concluded that the
directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be
predicted, these statements are not a guarantee as to the
company’s ability to continue as a going concern.
Annual Report for the year ended 31 March 2016 46
Worldwide Healthcare Trust PLC
2
Governance
Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC continued
Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion:
• the information given in the Strategic Report and the
Report of the Directors for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
• the information given in the Corporate Governance
Statement set out on page 29 with respect to internal
control and risk management systems and about share
capital structures is consistent with the financial
statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if,
in our opinion:
• information in the Annual Report is:
− materially inconsistent with the information in the
audited financial statements; or
− apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the company
acquired in the course of performing our audit; or
− otherwise misleading.
We have no exceptions to report.
• the statement given by the Directors on page 28, in
accordance with provision C.1.1 of the UK Corporate
Governance Code (the “Code”), that they consider the
Annual Report taken as a whole to be fair, balanced and
understandable and provides the information necessary
for members to assess the company’s position and
performance, business model and strategy is materially
inconsistent with our knowledge of the company acquired
in the course of performing our audit.
We have no exceptions to report.
• the section of the Annual Report on page 37, as required by
provision C.3.8 of the Code, describing the work of the Audit
Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report.
The Directors’ assessment of the prospects of the
company and of the principal risks that would
threaten the solvency or liquidity of the company
Under ISAs (UK & Ireland) we are required to report to you if
we have anything material to add or to draw attention to in
relation to:
• the directors’ confirmation on page 39 of the Annual
Report, in accordance with provision C.2.1 of the Code,
that they have carried out a robust assessment of the
principal risks facing the company, including those that
would threaten its business model, future performance,
solvency or liquidity.
We have nothing material to add or to draw attention to.
• the disclosures in the Annual Report that describe those
risks and explain how they are being managed or mitigated.
We have nothing material to add or to draw attention to.
• the Directors’ explanation on page 22 of the Annual
Report, in accordance with provision C.2.2 of the Code, as
to how they have assessed the prospects of the company,
over what period they have done so and why they consider
that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the
company will be able to continue in operation and meet
its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We have nothing material to add or to draw attention to.
Under the Listing Rules we are required to review the
directors’ statement that they have carried out a robust
assessment of the principal risks facing the company and
the directors’ statement in relation to the longer-term
viability of the company. Our review was substantially less in
scope than an audit and only consisted of making inquiries
and considering the Directors’ process supporting their
statements; checking that the statements are in alignment
with the relevant provisions of the Code; and considering
whether the statements are consistent with the knowledge
acquired by us in the course of performing our audit. We
have nothing to report having performed our review.
Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
47 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
• we have not received all the information and explanations
we require for our audit; or
• adequate accounting records have not been kept, or
returns adequate for our audit have not been received
from branches not visited by us; or
• the financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Directors’ remuneration
Directors’ remuneration report - Companies Act 2006
opinion
In our opinion, the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to
you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have no
exceptions to report arising from this responsibility.
Corporate governance statement
Under the Companies Act 2006 we are required to report to
you if, in our opinion, a corporate governance statement has
not been prepared by the company. We have no exceptions to
report arising from this responsibility.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to ten further
provisions of the Code. We have nothing to report having
performed our review.
Responsibilities for the financial statements and
the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’
Responsibilities set out on page 28, the Directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and
ISAs (UK & Ireland). Those standards require us to comply with
the Auditing Practices Board’s Ethical Standards for Auditors.
accordance with Chapter 3 of Part 16 of the Companies Act
2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly
agreed by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or
error. This includes an assessment of:
• whether the accounting policies are appropriate to the
company’s circumstances and have been consistently
applied and adequately disclosed;
• the reasonableness of significant accounting estimates
made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming
our own judgements, and evaluating the disclosures in the
financial statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We
obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report.
Sandra Dowling (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
This report, including the opinions, has been prepared for
and only for the company’s members as a body in
14 June 2016
Annual Report for the year ended 31 March 2016 48
Worldwide Healthcare Trust PLC
3
Financial Statements
Income Statement
For the year ended 31 March 2016
2016 2015
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments 9 – (86,856) (86,856) – 349,804 349,804
Exchange (losses)/gains on currency balances – (3,490) (3,490) – 6,302 6,302
Income from investments 2 10,482 – 10,482 8,474 – 8,474
AIFM, Portfolio management
and performance fees 3 (383) (1,817) (2,200) (338) (23,149) (23,487)
Other expenses 4 (762) – (762) (825) – (825)
Net return/(loss) before finance
charges and taxation 9,337 (92,163) (82,826) 7,311 332,957 340,268
Finance costs 5 (36) (690) (726) (24) (449) (473)
Net return/(loss) before taxation 9,301 (92,853) (83,552) 7,287 332,508 339,795
Taxation on net (loss)/return on ordinary
activities 6 (1,126) 49 (1,077) (1,090) (18) (1,108)
Net return/(loss) after taxation 8,175 (92,804) (84,629) 6,197 332,490 338,687
Return/(loss) per share – basic 7 17.1p (194.1)p (177.0)p 13.0p 698.9p 711.9p
The “Total” column of this statement is the Income Statement of the Company. The “Revenue” and “Capital” columns are
supplementary to this and are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
The Company has no recognised gains and losses other than those shown above and therefore no separate Statement of Total
Comprehensive Income has been presented.
The accompanying notes are an integral part of these statements.
49 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Statement of Changes in Equity
For the year ended 31 March 2016
Ordinary Subscription Share Capital
share share premium Capital redemption Revenue
capital capital account reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000
At 31 March 2015 12,045 – 233,396 720,170 7,803 9,099 982,513
Net (loss)/return from ordinary
activities after taxation – – – (92,804) – 8,175 (84,629)
Dividend paid in respect of
year ended 31 March 2015 – – – – – (3,105) (3,105)
First interim dividend paid in respect
of year ended 31 March 2016 – – – – – (3,110) (3,110)
Shares purchased for treasury – – – (14,862) – – (14,862)
Shares issued from treasury – – 141 4,810 – – 4,951
Shares cancelled from treasury (85) – – – 85 – –
At 31 March 2016 11,960 – 233,537 617,314 7,888 11,059 881,758
For the year ended 31 March 2015
Ordinary Subscription Share Capital
share share premium Capital redemption Revenue
capital capital account reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000
At 31 March 2014 11,573 19 219,604 387,661 7,803 9,526 636,186
Net return from ordinary activities
after taxation – – – 332,490 – 6,197 338,687
Dividend paid in respect of
year ended 31 March 2014 – – – – – (3,733) (3,733)
First interim dividend paid in respect
of year ended 31 March 2015 – – – – – (2,891) (2,891)
Subscription shares exercised for
ordinary shares 466 (19) 12,542 19 – – 13,008
Shares purchased for treasury – – – (3,868) – – (3,868)
Shares issued from treasury – – 815 3,868 – – 4,683
Issue of new shares 6 – 435 – – – 441
At 31 March 2015 12,045 – 233,396 720,170 7,803 9,099 982,513
The accompanying notes are an integral part of these statements.
Annual Report for the year ended 31 March 2016 50
Worldwide Healthcare Trust PLC
3
Financial Statements
Statement of Financial Position
As at 31 March 2016
2016 2015
Notes £’000 £’000
Fixed assets
Investments 9 905,471 1,012,625
Derivative – OTC swaps 9 & 10 30,199 78,688
935,670 1,091,313
Current assets
Debtors 11 1,950 1,548
Derivative – put and call options 9 & 10 353 2,654
Cash 18,536 7,579
20,839 11,781
Current liabilities
Creditors: amounts falling due within one year 12 (74,007) (119,461)
Derivatives – put and call options 9 & 10 (744) (1,120)
(74,751) (120,581)
Net current liabilities (53,912) (108,800)
Total net assets 881,758 982,513
Capital and reserves
Ordinary share capital 13 11,960 12,045
Share premium account 233,537 233,396
Capital reserve 17 617,314 720,170
Capital redemption reserve 7,888 7,803
Revenue reserve 11,059 9,099
Total shareholders’ funds 881,758 982,513
Net asset value per share – basic 14 1850.9p 2039.3p
Net asset value per share – fully diluted for
treasury shares 14 1850.5p 2039.3p
The financial statements on pages 49 to 67 were approved by the Board of Directors and authorised for issue on 14 June 2016
and were signed on its behalf by:
Sir Martin Smith
Chairman
The accompanying notes are an integral part of this statement.
Worldwide Healthcare Trust PLC – Company Registration Number 3023689 (Registered in England)
51 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
3
Financial Statements
Notes to the Financial Statements
1.
ACCOUNTING POLICIES
The principal accounting policies, all of which have been applied consistently throughout the year in the preparation
of these financial statements, are set out below:
(a) Basis of preparation
These financial statements have been prepared under UK Company Law, UK Generally Accepted Accounting Practice
(‘UK GAAP’) and in accordance with guidelines set out in the Statement of Recommended Practice (‘SORP’), dated
November 2014, for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment
Companies (‘AIC’), the historical cost convention, as modified by the valuation of investments at fair value and on a
going concern basis, as set out on page 28.
In preparing these financial statements the Company has applied FRS 102 ‘The Financial Reporting Standard
applicable in the UK and Ireland’, for the first time. On adopting FRS 102 there have been no changes to the
Company’s accounting policies nor restatements required to the Company’s previously reported financial position and
financial performance. The Company has taken advantage of the exemption from preparing a Cash Flow Statement
under FRS 102, as it is an investment fund that’s investments are substantially all highly liquid and carried at fair
(market) value.
The Company’s financial statements are presented in sterling, being the functional and presentational currency of the
Company. All values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated.
In addition, investments held at fair value are categorised into a fair value hierarchy based on the degree to which the
inputs to the fair value measurements are observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
•
•
•
Level 1 – Quoted prices in active markets.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable (ie developed using
market data), either directly or indirectly.
Level 3 – Inputs are unobservable (ie for which market data is unavailable).
In preparing these financial statements the Company has early adopted ‘Amendments to FRS102: Fair value hierarchy
disclosures (March 2016)’ published by the FRC.
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and in accordance with the SORP,
supplementary information which analyses the Income Statement between items of a revenue and capital nature has
been presented alongside the Income Statement. The net revenue return is the measure the Directors believe
appropriate in assessing the Company’s compliance with certain requirements set out in Sections 1158 and 1159 of
the Corporation Tax Act 2010.
(b) Investments
Investments are measured initially, and at subsequent reporting dates, at fair value, and are recognised and de-
recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time
frame established by the market concerned. For quoted securities fair value is either bid price or last traded price,
depending on the convention of the exchange on which the investment is listed. Unquoted debt investments are fair
valued using the bid price from a publicly available source or a broker. Changes in fair value and gains or losses on
disposal are included in the Income Statement as a capital item.
Annual Report for the year ended 31 March 2016 52
Worldwide Healthcare Trust PLC
3
Financial Statements
Notes to the Financial Statements
continued
(c) Derivative financial instruments
The Company uses derivative financial instruments (namely put and call options and equity swaps).
All derivative instruments are valued initially, and at subsequent reporting dates, at fair value in the Statement of
Financial Position.
The equity swaps are accounted for as Fixed Assets and Options are accounted for as Current Assets or Current
Liabilities.
Options are reviewed on a case-by-case basis and gains and losses are charged to the capital column of the Income
Statement, where the option has been entered into to generate or protect capital returns. All of the put and call
options bought and sold during the year have been capital in nature.
All gains and losses on over-the-counter (OTC) equity swaps are accounted for as gains or losses on investments.
Where there has been a re-positioning of the swap, gains and losses are accounted for on a realised basis. All such
gains and losses have been debited or credited to the capital column of the Income Statement.
Cash collateral held by counterparties is included within cash, except where there is a right of offset against the
overdraft facility.
(d) Investment income
Dividends receivable are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are
recognised when the Company’s right to receive payment is established. UK dividends are shown net of tax credits
and foreign dividends are grossed up at the appropriate rate of withholding tax.
Income from fixed interest securities is recognised on a time apportionment basis so as to reflect the effective
interest rate. Deposit interest is accounted for on an accruals basis.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the
Income Statement except as follows:
•
•
expenses which are incidental to the acquisition or disposal of an investment are charged to the capital column of
the Income Statement; and
expenses are charged to the capital column of the Income Statement where a connection with the maintenance
or enhancement of the value of the investments can be demonstrated. In this respect the portfolio management
and AIFM fees have been charged to the Income Statement in line with the Board’s expected long-term split of
returns, in the form of capital gains and income, from the Company’s portfolio. As a result 5% of the portfolio
management and AIFM fees are charged to the revenue column of the Income Statement and 95% are charged to
the capital column of the Income Statement.
Any performance fee accrued or paid is charged in full to the capital column of the Income Statement.
(f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are charged to the Income Statement in line with
the Board’s expected long-term split of returns, in the form of capital gains and income, from the Company’s
portfolio. As a result 5% of the finance costs are charged to the revenue column of the Income Statement and 95% are
charged to the capital column of the Income Statement. Finance charges, if applicable, including interest payable and
premiums on settlement or redemption, are accounted for on an accruals basis in the Income Statement using the
effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not
settled in the period in which they arise.
53 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
1.
ACCOUNTING POLICIES continued
(g) Taxation
The tax effect of different items of expenditure is allocated between capital and revenue using the marginal basis.
Deferred taxation is provided on all timing differences that have originated but not been reversed by the Statement of
Financial Position date other than those differences regarded as permanent. This is subject to deferred tax assets
only being recognised if it is considered more likely than not that there will be suitable profits from which the reversal
of timing differences can be deducted. Any liability to deferred tax is provided for at the rate of tax enacted or
substantially enacted.
(h) Foreign currency
Transactions recorded in overseas currencies during the year are translated into sterling at the appropriate daily
exchange rates. Assets and liabilities denominated in overseas currencies at the Statement of Financial Position date
are translated into sterling at the exchange rates ruling at that date.
Any gains or losses on the translation of foreign currency balances, whether realised or unrealised, are taken to the
capital or the revenue column of the Income Statement, depending on whether the gain or loss is of a capital or
revenue nature.
(i) Capital reserve
The following are transferred to this reserve:
•
•
•
•
gains and losses on the disposal of investments;
exchange differences of a capital nature;
expenses, together with the related taxation effect, in accordance with the above policies; and
changes in the fair value of investments and derivatives.
This reserve can be used to distribute realised capital profits by way of dividend. Any gains in the fair value of
investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve.
(j) Capital redemption reserve
This reserve arose when ordinary shares were redeemed by the Company and subsequently cancelled. When ordinary
shares are redeemed by the Company and subsequently cancelled, an amount equal to the par value of the ordinary
share capital is transferred from the ordinary share capital to the capital redemption reserve.
(k) Revenue reserve
The revenue reserve is distributable by way of dividend.
(l) Dividend payments
Dividends paid by the Company on its shares are recognised in the financial statements in the year in which they are
paid and are shown in the Statement of Changes in Equity.
Annual Report for the year ended 31 March 2016 54
Worldwide Healthcare Trust PLC
3
Financial Statements
Notes to the Financial Statements
continued
2.
INCOME FROM INVESTMENTS
-- 2016 2015
£’000 £’000
Income from investments
UK listed dividends 100 –
Overseas dividends 9,010 7,206
Fixed interest income 1,210 1,129
10,320 8,335
Other income
Derivatives 149 139
Deposit interest 13 –
Total income from investments 10,482 8,474
Total income comprises:
Dividends 9,110 7,206
Interest 1,372 1,268
10,482 8,474
3.
AIFM, PORTFOLIO MANAGEMENT, AND PERFORMANCE FEES
2016 2015
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee 84 1,594 1,678 77 1,461 1,538
Portfolio management fee 299 5,683 5,982 261 4,962 5,223
Performance fee – (5,460) (5,460) – 16,726 16,726
383 1,817 2,200 338 23,149 23,487
The performance fee amount of £5,460,000 represents outperformance generated as at 31 March 2015 which was not
maintained for a twelve month period, this amount was therefore written back during the year in accordance with the
terms of the performance fee arrangement as set out in the Report of the Directors on page 25 under the heading
‘Performance Fee’ and in note 12 on page 60.
The split of fees between revenue and capital is calculated in accordance with the Expenses accounting policy shown
on page 53.
55 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
OTHER EXPENSES
4.
2016 2015
Revenue Revenue
£’000 £’000
Directors’ remuneration 189 185
Auditors’ remuneration for the audit of the Company’s financial statements 29 26
Auditors’ remuneration for non-audit services 10 16
Marketing expenses 51 43
Registrar fees 78 81
Broker fees 7 40
Legal and professional costs 14 44
Stock Exchange listing fees 38 33
Depositary* and custody fees 130 85
Other costs 216 272
762 825
*Appointed 14 July 2014.
Details of the amounts paid to Directors are included in the Directors’ Remuneration Report on page 41.
FINANCE COSTS
5.
2016 2015
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Finance costs 36 690 726 24 449 473
The split of fees between revenue and capital is calculated in accordance with the Expenses accounting policy shown
on page 53.
Annual Report for the year ended 31 March 2016 56
Worldwide Healthcare Trust PLC
3
Financial Statements
Notes to the Financial Statements
continued
6.
TAXATION ON NET RETURN ON ORDINARY ACTIVITIES
(a) Analysis of charge in year
2016 2015
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Corporation tax at 20%
(2015: 21%)
Overseas capital gains
tax refund – (49) (49) – – –
Tax relief to capital – – – (18) 18 –
Overseas taxation 1,126 – – 1,108 – 1,108
1,126 (49) 1,077 1,090 18 1,108
(b) Factors affecting current tax charge for the year
Approved investment trusts are exempt from tax on capital gains made within the Company.
The tax charged for the year is lower than the standard rate of corporation tax in the UK for a large company 20%
(2015: 21%).
The difference is explained below.
2016 2015
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return/(loss) before taxation 9,301 (92,853) (83,552) 7,287 332,508 339,795
Corporation tax at 20%
(2015: 21%) 1,860 (18,571) (16,711) 1,530 69,826 71,356
Non-taxable losses/(gains) on
investments held at fair value
through profit or loss – 18,069 18,069 – (74,782) (74,782)
Overseas withholding taxation 1,126 – 1,126 1,108 – 1,108
Overseas capital gains
tax refund – (49) (49) – – –
Non taxable overseas dividends (1,781) – (1,781) (1,511) – (1,511)
Non taxable UK dividends (20) – (20) – – –
Excess management expenses (59) 502 443 (19) 4,956 4,937
Tax relief to capital – – – (18) 18 –
Current tax charge 1,126 (49) 1,077 1,090 18 1,108
(c) Provision for deferred tax
No provision for deferred taxation has been made in the current or prior year. The Company has not provided for
deferred tax on capital profits and losses arising on the revaluation or disposal of investments, as it is exempt from
tax on these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset of £14,418,000 (18% tax rate) (2015: £14,141,000 (20% tax rate))
as a result of excess management expenses and loan expenses. It is not anticipated that these excess expenses will
be utilised in the foreseeable future.
57 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
RETURN PER SHARE
7.
2016 2015
£’000 £’000
Basic
The return per share is based on the following figures:
Revenue return 8,175 6,197
Capital (loss)/return (92,804) 332,490
(84,629) 338,687
Weighted average number of ordinary shares in issue during the year 47,800,223 47,572,148
Revenue return per ordinary share 17.1p 13.0p
Capital (loss)/return per ordinary share (194.1p) 698.9p
(177.0p) 711.9p
The calculation of the total, revenue and capital (loss)/return per ordinary share is carried out in accordance with
IAS 33, “Earnings per Share”.
8.
INTERIM DIVIDEND
Under UK GAAP, final dividends are not recognised until they are approved by shareholders and interim dividends are
not recognised until they are paid. They are also debited directly from reserves. Amounts recognised as distributable
to Ordinary Shareholders in these financial statements were as follows:
2016 2015
£’000 £’000
Second interim dividend in respect of the year ended 31 March 2015 3,105 –
First interim dividend in respect of the year ended 31 March 2016 3,110 –
Second interim dividend in respect of the year ended 31 March 2014 – 3,733
First interim dividend in respect of the year ended 31 March 2015 – 2,891
6,215 6,624
In respect of the year ended 31 March 2016, the first interim dividend of 6.5p per share was paid on 8 January 2016.
A second interim dividend of 10.0p is payable on 15 July 2016, the associated ex dividend date will be 16 June 2016.
The total dividends payable in respect of the year ended 31 March 2016 amount to 16.5p per share (2015: 12.50p per
share). The aggregate cost of the second interim dividend, based on the number of shares in issue at 14 June 2016,
will be £4,702,000. In accordance with FRS 102 the second interim dividend will be reflected in the financial
statements for the year ending 31 March 2017. Total dividends in respect of the financial year, which is the basis on
which the requirements of s1158 of the Corporation Tax Act 2010 are considered, are set out below:
2016 2015
£’000 £’000
Revenue available for distribution by way of dividend for the year 8,175 6,197
First interim dividend in respect of the year ended 31 March 2015 – (2,891)
Second interim dividend in respect of the year ended 31 March 2015 – (3,105)
First interim dividend in respect of the year ended 31 March 2016 (3,110) –
Second interim dividend in respect of the year ended 31 March 2016* (4,702) –
Net retained revenue 363 201
*based on 47,024,946 shares in issue as at 14 June 2016.
Annual Report for the year ended 31 March 2016 58
Worldwide Healthcare Trust PLC
3
Financial Statements
Notes to the Financial Statements
continued
INVESTMENTS
9.
Unquoted Derivative
Quoted Debt Financial
Investments Investments Instruments Total
£’000 £’000 £’000 £’000
Cost at 1 April 2015 662,409 14,939 67,087 744,435
Investment holding gains at 1 April 2015 334,154 1,123 13,135 348,412
Valuation at 1 April 2015 996,563 16,062 80,222 1,092,847
Movement in the year:
Purchases at cost 477,929 7,339 7,161 492,429
Sales – proceeds (498,446) (7,254) (57,455) (563,155)
– realised gains on sales 114,503 751 13,306 128,560
Net movement in investment holding gains (201,795) (181) (13,426) (215,402)
Valuation at 31 March 2016 888,754 16,717 29,808 935,279
Cost at 31 March 2016 756,395 15,775 30,099 802,269
Investment holding gains/(losses) at 31 March 2016 132,359 942 (291) 133,010
Valuation at 31 March 2016 888,754 16,717 29,808 935,279
–
2016 2015
£’000 £’000
Gains on investments
Gains on disposal 128,560 156,731
Less: amounts recognised as investment holding gains in previous years (146,315) (71,744)
(Losses)/gains based on carrying value at previous Statement
of Financial Position date (17,755) 84,987
Movement in investment holding gains/(losses) in the year (69,101) 264,817
(Losses)/gains on investments (86,856) 349,804
Purchase transaction costs for the year to 31 March 2016 were £430,000 (year ended 31 March 2015: £553,000). Sales
transaction costs for the year to 31 March 2016 were £435,000 (year ended 31 March 2015: £340,000). These comprise
mainly commission.
10. DERIVATIVE FINANCIAL INSTRUMENTS
2016 2015
£’000 £’000
Fair value of OTC equity swaps 30,199 78,688
Fair value of put and call options (long) 353 2,654
Fair value of put and call options (short) (744) (1,120)
29,808 80,222
See note 9 above for movements during the year.
59 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
11. DEBTORS
2016 2015
£’000 £’000
Withholding taxation recoverable 980 733
VAT recoverable 1 20
Prepayments and accrued income 969 795
1,950 1,548
12. CREDITORS
2016 2015
£’000 £’000
Amounts falling due within one year
Amounts due to brokers 7,013 1,789
Overdraft facility* 65,244 96,810
Performance fee accrued – 18,889
Other creditors and accruals 1,750 1,973
74,007 119,461
*The Company’s borrowing requirements are met through the utilisation of an overdraft facility provided by J.P. Morgan
Clearing Corp.
As at 31 March 2016, the overdraft facility of £65.2 million (2015: £96.8 million) is net of £4.4 million (2015:
£1.4 million) of cash held as collateral against certain derivative positions. See page 65 for further details. As
described on page 20, J.P. Morgan Clearing Corp may take up to 140% of the value of the overdrawn balance as
collateral and has been granted a first priority security interest or lien over the Company’s assets. (See page 65 under
credit risk for additional details).
Interest on the drawn overdraft is charged at the Federal Funds effective rate plus 45 basis points.
SHARE CAPITAL
13.
Total
ordinary
Ordinary Treasury shares
shares shares in issue
number number number
Issued and fully paid at 1 April 2015 48,178,080 – 48,178,080
Ordinary shares purchased for treasury (794,867) 794,867 –
Ordinary shares re-issued from treasury 256,832 (256,832) –
Cancellation of treasury shares – (339,060) (339,060)
At 31 March 2016 47,640,045 198,975 47,839,020
2016 2015
£’000 £’000
Issued and fully paid:
Ordinary shares of 25p 11,960 12,045
During the year ended 31 March 2016 794,867 Ordinary Shares were bought back by the Company into treasury at a
cost of £14,862,000 (2015: 286,096 bought back at cost of £3,868,000). In 2016 256,832 (2015: 286,096) Ordinary Shares
were issued from treasury, raising proceeds of £4,951,000 (2015: £4,683,000) and 339,060 (2015: nil) shares were
cancelled.
Annual Report for the year ended 31 March 2016 60
Worldwide Healthcare Trust PLC
3
Financial Statements
Notes to the Financial Statements
continued
14. NET ASSET VALUE PER SHARE
2016 2015
Net asset value per share – basic 1,850.9p 2,039.3p
Net asset value per share – diluted for treasury shares 1,850.5p n/a
Net asset value per share – basic
The net asset value per share is based on the assets attributable to equity shareholders of £881,758,000 (2015:
£982,513,000) and on the number of Ordinary Shares in issue at the year end of 47,640,045 (2015: 48,178,080).
Net asset value per share – diluted for treasury shares
The diluted NAV per share assumes that all treasury shares were sold back to the market at 1,758.3p, resulting in
assets attributable to equity shareholders of £885,257,000 and on 47,839,020 Ordinary Shares.
15. RELATED PARTIES
The following are considered to be related parties:
•
•
•
Frostrow Capital LLP (under the Listing Rules)
OrbiMed Capital LLC
The Directors of the Company
Details of the relationship between the Company and Frostrow Capital LLP, the Company’s AIFM, and OrbiMed Capital
LLC, the Company’s Portfolio Manager, is disclosed on page 18. Samuel D. Isaly is a Director of the Company, and also
the Managing Partner at OrbiMed Capital LLC. Details of fees paid to OrbiMed by the Company can be found in note 3
on page 55. All material related party transactions have been disclosed in notes 3 and 4 on pages 55 and 56. Details of
the remuneration of all Directors can be found on page 41. Details of the Directors’ interests in the capital of the
Company can be found on page 41.
A number of the partners at, and a former partner of, OrbiMed Capital LLC have a minority financial interest totalling 20%
in Frostrow Capital LLP, the Company’s AIFM. Details of the fees paid to Frostrow Capital LLP by the Company can be
found in the note 3 on page 55.
16.
FINANCIAL INSTRUMENTS
Risk management policies and procedures
The Company’s financial instruments comprise securities and other investments, derivative instruments, cash
balances, loans, debtors and creditors that arise directly from its operations.
As an investment trust, the Company invests in equities and other investments for the long term so as to secure its
investment objective as stated on pages 5 and 6. In pursuing its investment objective, the Company is exposed to a
variety of risks that could result in a reduction in the Company’s net assets.
The main risks that the Company faces arising from its financial instruments are:
(i) market risk (including foreign currency risk, interest rate risk and other price risk)
(ii)
liquidity risk
(iii) credit risk
These risks, with the exception of liquidity risk, and the Directors’ approach to the management of them, are set out
in the Strategic Report on pages 5 and 6 and have not changed from the previous accounting year. The AIFM, in close
co-operation with the Board and the Portfolio Manager co-ordinate the Company’s risk management.
Use of derivatives
As noted in the Strategic Report, on pages 5 and 6, options and equity swaps are used within the Company’s portfolio.
More details on options and swaps can be found in the Glossary on pages 69 and 70.
61 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Put and call options
OrbiMed employs, when appropriate, options strategies in an effort to enhance returns and to improve the risk-return
profile of the Company’s portfolio.
The Board monitor the use of options through a monthly report, summarising the options activity and strategic intent,
provided by OrbiMed.
OrbiMed employs the following option strategies, or a combination of such:
•
•
•
•
Buy calls: provides leveraged long exposure while minimising capital at risk;
Buy puts: provides leveraged protection, against price falls while minimising capital at risk;
Sell calls: against an existing position, provides partial protection from a decline in stock price, facilitates
commitment to an exit strategy and exit price that is consistent with fundamental analysis;
Sell puts: provides an effective entry price at which to add to an existing position, or provides an effective entry
price at which to initiate a new position.
OTC equity swaps
The Company uses OTC equity swap positions to gain access to the Indian and Chinese markets because the Company
is not locally registered to trade in either market and to gain exposure to thematic baskets of stocks.
Details of funded and financed* swap positions are noted in the Portfolio on pages 7 to 9.
Collateral cash of £22.9 million (2015: £9.0 million) was held against the financed swap positions, of which
£4.4 million (2015: £1.4 million) was offset against the overdraft position.
Offsetting disclosure
Swap basket trades and OTC derivatives are traded under ISDA† Master Agreements. The Company currently has
such agreements in place with Goldman Sachs and JP Morgan.
These agreements create a right of set-off that becomes enforceable only following a specified event of default, or in
other circumstances not expected to arise in the normal course of business. As a result, as the right of set-off is not
unconditional, for financial reporting purposes, the Company does not offset derivative assets and derivative liabilities.
(i) Other price risk
In pursuance of the Company’s Investment Objective the Company’s portfolio, including its derivatives, is exposed to
the risk of fluctuations in market prices and foreign exchange rates.
The Board manage these risks through the use of limits and guidelines, monthly compliance reports from Frostrow
and reports from Frostrow and OrbiMed presented at each Board meeting, as set out on pages 18 to 20.
†International Swap Dealers Association Inc.
*See Glossary beginning on page 69 for description of funded and financed swaps.
Annual Report for the year ended 31 March 2016 62
Worldwide Healthcare Trust PLC
3
Financial Statements
Notes to the Financial Statements
continued
Other price risk exposure
The Company’s gross exposure to other price risk is represented by the fair value of the investments and the
underlying exposure through the derivative investments held at the year end as shown in the table below.
2016 2015
Notional* Notional
Assets Liabilities exposure Assets Liabilities exposure
£’000 £’000 £’000 £’000 £’000 £’000
Investments 905,471 – 905,471 1,012,625 – 1,012,625
Put and call options 353 (744) 16,900 2,654 (1,120) 15,090
OTC equity swaps 30,199 – 93,398 78,688 – 114,973
936,023 (744) 1,015,769 1,093,967 (1,120) 1,142,688
*The notional exposure is calculated as the maximum loss the Company could experience.
Other price risk sensitivity
If market prices of all of the Company’s financial instruments including the derivatives at the Statement of Financial
Position date had been 25% higher or lower (2015: 25% higher or lower) while all other variables remained constant:
the revenue return would have decreased/increased by £97,000 (2015: £102,000); the capital return would have
increased by £298,474,000 (2015: £281,352,000)/decreased by £249,430,000 (2015: £283,432,000); and, the return on
equity would have increased by £248,377,000 (2015: £281,250,000)/decreased by £249,333,000 (2015: £283,330,000).
The calculations are based on the portfolio as at the respective Statement of Financial Position dates and are not
representative of the year as a whole.
(ii) Foreign currency risk
A significant proportion of the Company’s portfolio and derivative positions are denominated in currencies other than
sterling (the Company’s functional currency, and the currency in which it reports its results). As a result, movements
in exchange rates can significantly affect the sterling value of those items.
Foreign currency exposure
The fair values of the Company’s monetary assets and liabilities that are denominated in foreign currencies are
shown below:
2016 2015
Current Current Current Current
assets liabilities Investments assets liabilities Investments
£’000 £’000 £’000 £’000 £’000 £’000
U.S. dollar 19,197 (65,244) 722,770 316 (90,215) 862,949
Swiss franc 642 – 50,282 618 – 75,712
Japanese yen 486 – 93,955 1,453 (1,789) 93,593
Other 151 – 68,272 110 – 51,312
20,476 (65,244) 935,279 2,497 (92,004) 1,083,566
63 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Foreign currency sensitivity
The following table details the sensitivity of the Company’s net return for the year and shareholders’ funds to a 10%
increase and decrease in sterling against the relevant currency (2015: 10% increase and decrease).
These percentages have been determined based on market volatility in exchange rates over the previous 12 months.
The sensitivity analysis is based on the Company’s significant foreign currency exposures at each Statement of
Financial Position date.
2016 2015
USD YEN CHF USD YEN CHF
£’000 £’000 £’000 £’000 £’000 £’000
Sterling depreciates 81,427 10,493 5,658 89,947 10,362 8,481
Sterling appreciates (66,622) (8,586) (4,630) (73,593) (8,478) (6,939)
(iii) Interest rate risk
Interest rate changes may affect:
– the interest payable on the Company’s variable rate borrowings;
– the level of income receivable from floating and fixed rate securities and cash at bank and on deposit;
– the fair value of investments in fixed interest securities.
Interest rate exposure
The Company’s main exposure to interest rate risks is through its overdraft facility with J.P. Morgan Clearing Corp,
which is repayable on demand, and, its holding in fixed interest securities. The exposure of financial assets and
liabilities to fixed and floating interest rates, is shown below.
At 31 March 2016, the Company held 1.8% of the portfolio in convertible bonds and securitised debt (2015: 5.8% of the
portfolio). The exposure is shown in the table below:
Weighted Weighted Weighted Weighted
2016 2015
average
period
for which
rate is fixed
Years
average average average
fixed period fixed
interest Fixed Floating for which interest Fixed Floating
rate rate rate rate is fixed rate rate rate
% £’000 £’000 Years % £’000 £’000
1.9 5.5 18,141
– 5.0 4.8 46,164 –
6.7 11.5 7,604
9,113 6.9 8.8 7,349 8,713
– – –
18,536 – – – 7,579
– – –
(65,244) – – – (96,810)
– – –
(63,199) – – – (36,285)
25,745 (100,794) 53,513 (116,803)
Convertible
securities
Unquoted debt
investments
Cash
Overdraft facility
Unfunded swap
positions
All interest rate exposures are held in U.S. dollars.
Interest rate sensitivity
If interest rates had been 1% higher or lower and all other variables were held constant, the Company’s net return for
the year ended 31 March 2016 and the net assets would increase/decrease by £1,008,000 (2015: increase/decrease by
£1,257,000).
Annual Report for the year ended 31 March 2016 64
Worldwide Healthcare Trust PLC
3
Financial Statements
Notes to the Financial Statements
continued
(iv) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not considered significant as the majority of the Company’s assets are investments in quoted
securities that are readily realisable within one week, in normal market conditions.
Liquidity exposure and maturity
Contractual maturities of the financial liability exposures as at 31 March 2016, based on the earliest date on which
payment can be required, are as follows:
2016 2015
3 months 3 months
or less or less
£’000 £’000
Overdraft facility 65,244 89,231
Amounts due to brokers and accruals 7,013 1,789
Derivatives – Put options (short) 615 488
Derivatives – Call options (short) 129 480
73,001 91,988
(v) Credit risk
Credit risk is the risk of failure of a counterparty to discharge its obligations resulting in the Company suffering a
financial loss.
The carrying amounts of financial assets best represent the maximum credit risk at the Statement of Financial
Position date. The Company’s quoted securities are held on its behalf by J.P. Morgan Clearing Corp acting as the
Company’s Prime Broker.
As noted on page 60, certain of the Company’s assets can be held by J.P. Morgan Clearing Corp as collateral against
the overdraft provided by them to the Company. As at 31 March 2016, assets with a total market value of £98.6 million
(2015: £139.8 million) were available to J.P. Morgan Clearing Corp to be used as collateral against the overdraft
facility which equates to 140% (2015: 140%) of the overdrawn position (calculated on a settled basis) of £70.4 million
(2015: £100.0 million).
Credit risk exposure
2016 2015
£’000 £’000
Convertible securities and unquoted debt investments 34,858 46,164
Derivative – OTC equity swaps 30,199 78,688
Current assets:
Other receivables (amounts due from brokers, dividends
and interest receivable) 1,950 1,548
Derivative – Put options (long) 7 170
Derivative – Call options (long) 346 2,484
Cash 18,536 7,579
(vi) Fair value of financial assets and financial liabilities
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value
(investments and derivatives) or the Statement of Financial Position amount is a reasonable approximation of fair
value (due from brokers, dividends and interest receivable, due to brokers, accrual, cash at bank, bank overdraft and
amounts due under the loan facility).
65 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
(vii) Hierarchy of investments
The Company has classified its financial assets designated at fair value through profit or loss and the fair value of
derivative financial instruments using a fair value hierarchy that reflects the significance of the inputs used in making
the fair value measurements. The hierarchy has the following levels:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 – inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 1 Level 2 Level 3 Total
As of 31 March 2016 £’000 £’000 £’000 £’000
Investments held at fair value through profit or loss 888,754 – 16,717 905,471
Derivatives: put and call options (short) – (744) – (744)
Derivatives: put and call options (long) – 353 – 353
Derivatives: OTC swaps – 30,199 – 30,199
Financial instruments measured at fair value 888,754 29,808 16,717 935,279
As at 31 March 2016, the put and call options and equity swaps have been classified as Level 2.
As at 31 March 2016, the two securitised debt investments Creganna-Tactx Medical Second Lien Loan FRN 20/11/22
and Merrimack Pharmaceuticals Second Lien Loan 11.5% 15/12/22 have been classified as Level 3. Both positions
have been valued using the estimated fair values as provided by counterparties.
Level 1 Level 2 Level 3 Total
As of 31 March 2015 £’000 £’000 £’000 £’000
Investments held at fair value through profit or loss 977,306 19,257 16,062 1,012,625
Derivatives: put and call options (short) – (1,120) – (1,120)
Derivatives: put and call options (long) – 2,654 – 2,654
Derivatives: OTC swaps – 78,688 – 78,688
Financial instruments measured at fair value 977,306 99,479 16,062 1,092,847
As at 31 March 2015, the put and call options, the equity swaps, and Incyte Corporation 4.75% 01/10/15 Convertible
Bond, were classified as level 2.
As at 31 March 2015, the two securitised debt investments, Ikaria Second Lien Loan 8.75% 04/02/22 and Creganna-
Tactx Medical Second Lien Loan FRN 20/11/22 have been classified as level 3. Both positions have been valued using
the estimated fair values as provided by counterparties.
(viii) Capital management policies and procedures
The Company’s capital management objectives are to ensure that it will be able to continue as a going concern and to
maximise the income and capital return to its equity shareholders through an appropriate level of gearing or leverage.
The Board’s policy on gearing and leverage is set out on page 6.
As at 31 March 2016, the Company had a leverage percentage of 14.0% (2015: 13.2%).
The capital structure of the Company consists of the equity share capital, retained earnings and other reserves as
shown in the Statement of Financial Position on page 51.
Annual Report for the year ended 31 March 2016 66
Worldwide Healthcare Trust PLC
3
Financial Statements
Notes to the Financial Statements
continued
The Board, with the assistance of the AIFM and the Portfolio Manager, monitors and reviews the broad structure of
the Company’s capital on an ongoing basis. This includes a review of:
–
the planned level of gearing, which takes into account the Portfolio Manager’s view of the market;
–
the need to buy back equity shares, either for cancellation or to hold in treasury, in light of any share price
discount to net asset value per share in accordance with the Company’s share buy-back policy;
–
the need for new issues of equity shares, including issues from treasury; and
–
the extent to which revenue in excess of that which is required to be distributed should be retained.
The Company’s objectives, policies and processes for managing capital are unchanged from the preceding
accounting year.
17. CAPITAL RESERVE
Capital Reserves*
Investment
Holding
Other Gains Total
£’000 £’000 £’000
At 31 March 2015 371,758 348,412 720,170
Transfer on disposal of investments 146,301 (146,301) –
Net losses on investments (17,755) (69,101) (86,856)
Expenses charged to capital less tax relief thereon (2,458) – (2,458)
Shares purchased for treasury (14,862) – (14,862)
Shares re-issued from treasury 4,810 – 4,810
Exchange loss on currency balances (3,490) – (3,490)
At 31 March 2016 484,304 133,010 617,314
*Investment holding gains relate to the revaluation of investments and derivatives held at the reporting date. (See note 9 on page 59 for further details).
Under the terms of the revisions made to the Company’s Articles of Association in 2013, sums within “capital
reserves – other” are also available for distribution.
67 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
44
Further Information
Shareholder Information
Financial calendar
31 March Financial Year End
June Final Results Announced
September Annual General Meeting
30 September Half Year End
November Half Year Results Announced
January/July Dividends Payable
Annual General Meeting
The Annual General Meeting of Worldwide Healthcare Trust PLC will be held at Skinners’ Hall, 8 Dowgate Hill, London
EC4R 2SP on Wednesday, 21 September 2016 from 12 noon.
Dividends
The Company pays two interim dividends in January and July each year. Shareholders who wish to have dividends paid directly
into a bank account, rather than by cheque to their registered address, can complete a mandate form for the purpose.
Mandates may be obtained from the Company’s Registrars, Capita Asset Services, on request.
Share prices
The Company’s Ordinary Shares are listed on the London Stock Exchange under ‘Investment Companies’. The price is given
daily in the Financial Times and other newspapers.
Change of address
Communications with shareholders are mailed to the address held on the share register. In the event of a change of address or
other amendment this should be notified to the Company’s Registrars, Capita Asset Services, under the signature of the
registered holder.
Daily net asset value
The daily net asset value of the Company’s shares can be obtained on the Company’s website at www.worldwidewh.com and is
published daily via the London Stock Exchange.
Profile of the Company’s ownership
% of Ordinary Shares held at 31 March
2016
■ Retail
■ Mutual Funds
■ Insurance
■ Pensions
■ Charities
■ Corporate
■ Fund of Funds
■ Inv Trusts
■ Directors
77.6
9.4
5.1
3.7
1.6
1.4
0.7
0.3
0.2
2015
■ Retail
■ Mutual Funds
■ Insurance
■ Pensions
■ Charities
■ Corporate
■ Fund of Funds
■ Inv Trusts
■ Directors
77.1
9.4
5.7
3.0
1.9
1.7
0.7
0.3
0.2
Annual Report for the year ended 31 March 2016 68
Worldwide Healthcare Trust PLC
44
Further Information
Glossary
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and transported into UK legislation, the AIFMD
classifies certain investment vehicles, including investment companies, as Alternative Investment Funds (AIFs) and requires
them to appoint an Alternative Investment Fund Manager (AIFM) and depositary to manage and oversee the operations of the
investment vehicle. The Board of the Company retains responsibility for strategy, operations and compliance and the Directors
retain a fiduciary duty to shareholders.
Diluted Net Asset Value
This is a method of calculating the net asset value (NAV) of a company that has issued, and has outstanding, convertible loan
stocks, warrants, subscription shares or options. The calculation assumes that the holders have exercised their right to
convert or subscribe, thus increasing the number of shares among which the assets are divided.
Discount or Premium
A description of the difference between the share price and the net asset value per share. The size of the discount or premium
is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage (%) of
the net asset value per share. If the share price is higher than the net asset value per share the result is a premium. If the
share price is lower than the net asset value per share, the shares are trading at a discount.
Equity Swaps
An equity swap is an agreement in which one party (counterparty) transfers the total return of an underlying equity position to
the other party (swap holder) in exchange for a one off payment at a set date. Total return includes dividend income and gains
or losses from market movements. The exposure of the holder is the market value of the underlying equity position.
Your company uses two types of equity swap:
• funded, where payment is made on acquisition. They are equivalent to holding the underlying equity position with the
exception of additional counterparty risk and not possessing voting rights in the underlying; and,
• financed, where payment is made on maturity. As there is no initial outlay, financed swaps increase exposure by the value of
the underlying equity position with no initial increase in the investments value – there is therefore embedded leverage
within a financed swap due to the deferral of payment to maturity.
Gearing
Gearing is calculated as borrowings, less net current assets, divided by Net Assets, expressed as a percentage. For years prior
to 2013, the calculation was based on borrowings as a percentage of Net Assets.
Health Maintenance Organisation (HMO)
In the United States an HMO is a medical insurance group that provides health services for a fixed fee.
International Swaps and Derivatives Association (ISDA)
ISDA has created a standardised contract (the ISDA Master Agreement) which sets out the basic trading terms between the
counterparties to derivative contracts.
Leverage
Leverage is defined in the AIFMD as any method by which the AIFM increases the exposure of an AIF. In addition to the gearing
limit the Company also has to comply with the AIFMD leverage requirements. For these purposes the Board has set a
maximum leverage limit of 140% for both methods. This limit is expressed as a % with 100% representing no leverage or
gearing in the Company. There are two methods of calculating leverage as follows:
The Gross Method is calculated as total exposure divided by Shareholders’ Funds. Total exposure is calculated as net assets,
less cash and cash equivalents, adding back cash borrowing plus derivatives converted into the equivalent position in their
underlying assets.
69 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
The Commitment Method is calculated as total exposure divided by Shareholders Funds. In this instance total exposure is
calculated as net assets, less cash and cash equivalents, adding back cash borrowing plus derivatives converted into the
equivalent position in their underlying assets, adjusted for netting and hedging arrangements.
See the definition of Options and Equity Swaps for more details on how exposure through derivatives is calculated.
MSCI World Health Care Index
The MSCI World Health Care Index is comprised of large and mid capitalisation healthcare companies across the following
23 developed markets countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, the UK and the U.S. The net total
return of the Index is used which assumes the reinvestment of any dividends paid by its constituents after the deduction of relevant
withholding taxes. The performance of the Index is calculated in U.S.$ terms. Because the Company’s reporting currency is £ the
prevailing U.S.$/£ exchange rate is applied to obtain a £ based return.
NAV per Share (pence)
The value of the Company’s assets, principally investments made in other companies and cash being held, minus any
liabilities. The NAV is also described as ‘shareholders’ funds’ per share. The NAV is often expressed in pence per share after
being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price
which is the price at which the Company’s shares can be bought or sold by an investor. The share price is determined by the
relationship between the demand and supply of the shares.
NAV Total Return
The theoretical total return on shareholders’ funds per share, including the assumed £100 original investment at the beginning
of the period specified, reflecting the change in NAV assuming that dividends paid to shareholders were reinvested at NAV at
the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts
which is not affected by movements in discounts/premiums.
Ongoing Charges
Ongoing charges are calculated by taking the Company’s annualised ongoing charges, excluding finance costs, taxation,
performance fees and exceptional items, and expressing them as a percentage of the average daily net asset value of the
Company over the year.
Options
An option is an agreement that gives the buyer, who pays a fee (premium), the right – but not the obligation – to buy or sell a
specified amount of an underlying asset at an agreed price (strike or exercise price) on or until the expiration of the contract
(expiry). A call option is an option to buy, and a put option an option to sell.
The potential loss of the buyer is limited to the higher of the premium paid or the market value of the bought option. On the other
side for the seller of a covered call option (your company does not sell uncovered options) any loss would be offset by gains in the
covering position, and for sold puts the potential loss is the strike price times the number of option contracts held. For the
purposes of calculating exposure to risk in note 16 on page 63, the potential loss is used. The exposure, used in calculating the
AIFMD leverage limits, between these two b ounds is determined as the delta (an options delta measures the sensitivity of an
option’s price solely to a change in the price of the underlying asset) adjusted equivalent of the underlying position.
Rehypothecation
The practice of using the assets held as collateral for one client in transactions for another.
Share Price Total Return
Return to the investor on mid-market prices assuming that all dividends paid were reinvested.
Treasury Shares
Shares previously issued by a company that have been bought back from shareholders to be held by the company for potential
sale or cancellation at a later date. Such shares are not capable of being voted and carry no rights to dividends.
Annual Report for the year ended 31 March 2016 70
Worldwide Healthcare Trust PLC
4
Further Information
How to Invest
Retail Investors Advised by IFAs
The Company currently conducts its affairs so that its shares can be recommended by Independent Financial Advisers (IFAs)
in the UK to ordinary retail investors in accordance with the Financial Conduct Authority (FCA) rules in relationship to
non-mainstream investment procedures and intends to continue to do so. The shares are excluded from the FCA’s restrictions
which apply to non-mainstream investment products because they are shares in an investment trust.
Investment platforms
The Company’s shares are traded openly on the London Stock Exchange and can be purchased through a stock broker or
other financial intermediary. The shares are available through savings plans (including Investment Dealing Accounts, ISAs,
Junior ISAs and SIPPs) which facilitate both regular monthly investments and lump sum investments in the Company’s
shares. There are a number of investment platforms that offer these facilities. A list of some of them, that is not
comprehensive nor constitutes any form of recommendation, can be found below:
AJ Bell Youinvest
www.youinvest.co.uk/
Alliance Trust Savings
www.alliancetrustsavings.co.uk/
Barclays Stockbrokers
www.barclaysstockbrokers.co.uk/Pages/index.aspx
Bestinvest
www.bestinvest.co.uk/
Charles Stanley Direct
www.charles-stanley-direct.co.uk/
Club Finance
Fidelity
www.clubfinance.co.uk/
www.fidelity.co.uk/
Halifax Share Dealing
www.halifax.co.uk/Sharedealing/
Hargreave Hale
www.hargreave-hale.co.uk/
Hargreaves Lansdown
www.hl.co.uk/
HSBC
iDealing
IG Index
investments.hsbc.co.uk/
www.idealing.com/
www.igindex.co.uk/
Interactive Investor
www.iii.co.uk/
IWEB
James Brearley
James Hay
Saga Share Direct
Selftrade
www.iweb-sharedealing.co.uk/share-dealing-home.asp
www.jbrearley.co.uk/Marketing/index.aspx
www.jameshay.co.uk/
www.sagasharedirect.co.uk/
www.selftrade.co.uk/
The Share Centre
www.share.com/
Saxo Capital Markets
uk.saxomarkets.com/
TD Direct Investing
www.tddirectinvesting.co.uk/
71 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Capita Asset Services – share dealing service
A quick and easy share dealing service is available to existing shareholders through the Company’s Registrar, Capita Asset
Services, to either buy or sell shares. An online and telephone dealing facility provides an easy to access and simple to use
service.
There is no need to pre-register and there are no complicated forms to fill in. The online and telephone dealing service allows
you to trade ‘real time’ at a known price which will be given to you at the time you give your instruction.
To deal online or by telephone all you need is your surname, investor code, full postcode and your date of birth. Your investor
code can be found on your tax voucher or certificate. Please have the appropriate documents to hand when you log on or call,
as this information will be needed before you can buy or sell shares.
For further information on this service, please contact: www.capitadeal.com (online dealing).
Telephone: 0371 664 0445 (Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United
Kingdom are charged at the applicable international rate. Lines are open between 8.00 am – 4.30 pm, Monday to Friday excluding
public holidays in England and Wales).
Risk warnings
– Past performance is no guarantee of future performance.
–
The value of your investment and any income from it may go down as well as up and you may not get back the amount invested.
This is because the share price is determined by the changing conditions in the relevant stockmarkets in which the Company
invests and by the supply and demand for the Company’s shares.
– As the shares in an investment trust are traded on a stockmarket, the share price will fluctuate in accordance with supply and
demand and may not reflect the underlying net asset value of the shares; where the share price is less than the underlying value
of the assets, the difference is known as the ‘discount’. For these reasons, investors may not get back the original amount
invested.
– Although the Company’s financial statements are denominated in sterling, it may invest in stocks and shares that are
denominated in currencies other than sterling and to the extent they do so, they may be affected by movements in exchange
rates. As a result, the value of your investment may rise or fall with movements in exchange rates.
–
–
Investors should note that tax rates and reliefs may change at any time in the future.
The value of ISA and Junior ISA tax advantages will depend on personal circumstances. The favourable tax treatment of ISAs and
Junior ISAs may not be maintained.
Annual Report for the year ended 31 March 2016 72
Worldwide Healthcare Trust PLC
4
Further Information
Notice of the Annual General Meeting
Notice is hereby given that the Annual General Meeting of Worldwide Healthcare Trust PLC will be held at Skinners’ Hall,
8 Dowgate Hill, London EC4R 2SP on Wednesday, 21 September 2016 from 12 noon for the following purposes:
Ordinary business
To consider and, if thought fit, pass the following as ordinary resolutions:
1. To receive and, if thought fit, to accept the Audited Accounts and the Report of the Directors for the year ended
31 March 2016
2. To re-elect Dr David Holbrook as a Director of the Company
3. To re-elect Mr Samuel D. Isaly as a Director of the Company
4. To re-elect Sir Martin Smith as a Director of the Company
5. To re-elect Mrs Sarah Bates as a Director of the Company
6. To elect Mr Humphrey van der Klugt as a Director of the Company
7. To re-elect Mr Doug McCutcheon as a Director of the Company
8. To re-appoint PricewaterhouseCoopers LLP as the Company’s Auditors and to authorise the Audit Committee to determine
their remuneration
9. To receive and approve the Directors’ Remuneration Report for the year ended 31 March 2016
Special business
To consider and, if thought fit, pass the following resolutions of which resolutions 11, 12, 13 and 14 will be proposed as special
resolutions:
Authority to allot shares
10. THAT in substitution for all existing authorities the Directors be and are hereby generally and unconditionally authorised in
accordance with section 551 of the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot relevant
securities (within the meaning of section 551 of the Act) up to a maximum aggregate nominal amount of £1,175,623 (being
10% of the issued share capital of the Company at 14 June 2016) and representing 4,702,494 shares of 25 pence each (or, if
changed, the number representing 10% of the issued share capital of the Company at the date at which this resolution is
passed), provided that this authority shall expire at the conclusion of the Annual General Meeting of the Company to be
held in 2017 or 15 months from the date of passing this resolution, whichever is the earlier, unless previously revoked,
varied or renewed, by the Company in General Meeting and provided that the Company shall be entitled to make, prior to
the expiry of such authority, an offer or agreement which would or might require relevant securities to be allotted after
such expiry and the Directors may allot relevant securities pursuant to such offer or agreement as if the authority
conferred hereby had not expired.
Disapplication of pre-emption rights
11. THAT in substitution of all existing powers (but in addition to any power conferred on them by resolution 12 set out in the
notice convening the Annual General Meeting at which this resolution is proposed (“Notice of Annual General Meeting”))
the Directors be and are hereby generally empowered pursuant to Section 570 of the Companies Act 2006 (the “Act”) to
allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authority conferred on them
by resolution 10 set out in the Notice of Annual General Meeting or otherwise as if Section 561(1) of the Act did not apply to
any such allotment:
(a) pursuant to an offer of equity securities open for acceptance for a period fixed by the Directors where the equity
securities respectively attributable to the interests of holders of shares of 25p each in the capital of the Company
(“Shares”) are proportionate (as nearly as may be) to the respective numbers of Shares held by them but subject to
such exclusions or other arrangements in connection with the issue as the Directors may consider necessary,
73 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
appropriate or expedient to deal with equity securities representing fractional entitlements or to deal with legal or
practical problems arising in any overseas territory, the requirements of any regulatory body or stock exchange, or any
other matter whatsoever;
(b) provided that (otherwise than pursuant to sub-paragraph (a) above) this power shall be limited to the allotment of
equity securities up to an aggregate nominal value of £1,175,623, being 10% of the issued share capital of the Company
as at 14 June 2016 and representing 4,702,494 Shares or, if changed, the number representing 10% of the issued share
capital of the Company at the date of the meeting at which this resolution is passed, and provided further that (i) the
number of equity securities to which this power applies shall be reduced from time to time by the number of treasury
shares which are sold pursuant to any power conferred on the Directors by resolution 12 set out in the Notice of Annual
General Meeting and (ii) no allotment of equity securities shall be made under this power which would result in Shares
being issued at a price which is less than the net asset value per Share as at the latest practicable date before such
allotment of equity securities as determined by the Directors in their reasonable discretion; and
and such power shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this
resolution or 15 months from the date of passing this resolution, whichever is earlier, unless previously revoked, varied or
renewed by the Company in General Meeting and provided that the Company shall be entitled to make, prior to the expiry of
such authority, an offer or agreement which would or might otherwise require equity securities to be allotted after such
expiry and the Directors may allot equity securities pursuant to such offer or agreement as if the power conferred hereby
had not expired.
12. THAT in substitution of all existing powers (but in addition to any power conferred on them by resolution 11 set out in the
Notice of Annual General Meeting) the Directors be and are hereby generally empowered pursuant to Section 570 of the
Companies Act 2006 (the “Act”) to sell relevant shares (within the meaning of Section 560 of the Act) if, immediately before
the sale, such shares are held by the Company as treasury shares (as defined in Section 724 of the Act (“treasury shares”)),
for cash as if Section 561(1) of the Act did not apply to any such sale provided that:
(a) where any treasury shares are sold pursuant to this power at a discount to the then prevailing net asset value of
ordinary shares of 25p each in the capital of the Company (“Shares”), such discount must be (i) lower than the discount
to the net asset value per Share at which the Company acquired the Shares which it then holds in treasury and (ii) not
greater than 5% to the prevailing diluted cum income net asset value per Share at the latest practicable time before
such sale (and for this purpose the Directors shall be entitled to determine in their reasonable discretion the discount
to their net asset value at which such Shares were acquired by the Company and the net asset value per Share at the
latest practicable time before such Shares are sold pursuant to this power); and
(b) this power shall be limited to the sale of relevant shares having an aggregate nominal value of £1,175,623 being 10% of
the issued share capital of the Company as at 14 June 2016 and representing 4,702,494 Shares or, if changed, the
number representing 10% of the issued share capital of the Company at the date of the meeting at which this resolution
is passed, and provided further that the number of relevant shares to which power applies shall be reduced from time
to time by the number of Shares which are allotted for cash as if Section 561(1) of the Act did not apply pursuant to the
power conferred on the Directors by resolution 11 set out in the Notice of Annual General Meeting,
and such power shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of
this resolution or 15 months from the date of passing this resolution, whichever is earlier, unless previously revoked,
varied or renewed by the Company in General Meeting and provided that the Company shall be entitled to make, prior to
the expiry of such authority, an offer or agreement which would or might otherwise require treasury shares to be sold
after such expiry and the Directors may sell treasury shares pursuant to such offer or agreement as if the power
conferred hereby had not expired.
Annual Report for the year ended 31 March 2016 74
Worldwide Healthcare Trust PLC
4
Further Information
Notice of the Annual General Meeting
continued
Authority to repurchase ordinary shares
13. THAT the Company be and is hereby generally and unconditionally authorised in accordance with section 701 of the
Companies Act 2006 (the “Act”) to make one or more market purchases (within the meaning of section 693(4) of the Act) of
ordinary shares of 25 pence each in the capital of the Company (“Shares”) (either for retention as treasury shares for
future reissue, resale, transfer or cancellation), provided that:
(a) the maximum aggregate number of Shares authorised to be purchased is 7,049,039 (representing approximately
14.99% of the issued share capital of the Company at the date of the notice convening the meeting at which this
resolution is proposed);
(b) the minimum price (exclusive of expenses) which may be paid for a Share is 25 pence;
(c) the maximum price (exclusive of expenses) which may be paid for a Share is an amount equal to the greater of (i) 105%
of the average of the middle market quotations for a Share as derived from the Daily Official List of the London Stock
Exchange for the five business days immediately preceding the day on which that Share is purchased and (ii) the higher
of the price of the last independent trade and the highest then current independent bid on the London Stock Exchange
as stipulated in Article 5(1) of Regulation No. 2233/2003 of the European Commission (Commission Regulation of
22 December 2003 implementing the Market Abuse Directive as regards exemptions for buy-back programmes and
stabilisation of financial instruments);
(d) the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company to be held
in 2017 or, if earlier, on the expiry of 15 months from the date of the passing of this resolution unless such authority is
renewed prior to such time; and
(e) the Company may make a contract to purchase Shares under this authority before the expiry of such authority which
will or may be executed wholly or partly after the expiration of such authority, and may make a purchase of Shares in
pursuance of any such contract.
General meetings
14. THAT the Directors be authorised to call general meetings (other than the Annual General Meeting of the Company) on not
less that 14 working days’ notice, such authority to expire on the conclusion of the next Annual General Meeting of the
Company, or, if earlier, on the expiry 15 months from the date of the passing of the resolution.
By order of the Board
Frostrow Capital LLP
Company Secretary
14 June 2016
Registered Office:
One Wood Street
London EC2V 7WS
75 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Notes
1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may
appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held
by that shareholder. A proxy need not be a shareholder of the Company. A proxy form which may be used to make such appointment and give proxy
instructions accompanies this notice.
2.
3.
4.
5.
6.
7.
A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolutions. If no voting
indication is given, a proxy may vote or abstain from voting at his/her discretion. A proxy may vote (or abstain from voting) as he or she thinks fit in relation to
any other matter which is put before the meeting.
To be valid any proxy form or other instrument appointing a proxy must be completed and signed and received by post or (during normal business hours only)
by hand at Capita Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF no later than 12 noon Monday, 19 September 2016.
In the case of a member which is a company, the instrument appointing a proxy must be executed under its seal or signed on its behalf by a duly authorised
officer or attorney or other person authorised to sign. Any power of attorney or other authority under which the instrument is signed (or a certified copy of it)
must be included with the instrument.
The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described below) will not prevent a shareholder attending the
meeting and voting in person if he/she wishes to do so.
Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a “Nominated
Person”) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or have someone
else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any
such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.
The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 3 above does not apply to Nominated Persons. The
rights described in these paragraphs can only be exercised by shareholders of the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, only shareholders registered on the register of members of the Company (the
“Register of Members”) at the close of business on Monday, 19 September 2016 (or, in the event of any adjournment, on the date which is two days before the
time of the adjourned meeting) will be entitled to attend and vote or be represented at the meeting in respect of shares registered in their name at that time.
Changes to the Register of Members after that time will be disregarded in determining the rights of any person to attend and vote at the meeting.
9.
As at 14 June 2016 (being the last business day prior to the publication of this notice) the Company’s issued share capital consists of 47,024,946 ordinary
shares, carrying one vote each. Therefore, the total voting rights in the Company as at 14 June 2016 are 47,024,946.
10. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service
provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
11.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must
be properly authenticated in accordance with the specifications of Euroclear UK and Ireland Limited (“CRESTCo”), and must contain the information required
for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to
the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID RA10) no later than
48 hours before the time appointed for holding the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp
applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other
means.
12. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that CRESTCo does not make available special
procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system
and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
14.
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder
will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Register of Members in respect of the joint holding
(the first named being the most senior).
15. Members who wish to change their proxy instructions should submit a new proxy appointment using the methods set out above. Note that the cut-off time for
receipt of proxy appointments (see above) also applies in relation to amended instructions; any amended proxy appointment received after the relevant cut-off
time will be disregarded.
Annual Report for the year ended 31 March 2016 76
Worldwide Healthcare Trust PLC
4
Further Information
Notice of the Annual General Meeting
continued
16. Members who have appointed a proxy using the hard-copy proxy form and who wish to change the instructions using another hard-copy form, should contact
Capita Asset Services on 0871 664 0300 or +44 371 664 0300 if calling from outside the United Kingdom. Calls cost 12p per minute plus your phone company’s
access charge. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open 09.00 to 17.30 Monday to Friday excluding
public holidays in England and Wales.
17.
18.
If a member submits more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will
take precedence.
In order to revoke a proxy instruction, members will need to inform the Company. Members should send a signed hard copy notice clearly stating their
intention to revoke a proxy appointment to Capita Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF.
In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the
company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of
such power of attorney) must be included with the revocation notice. If a member attempts to revoke their proxy appointment but the revocation is received
after the time for receipt of proxy appointments (see page 76) then, subject to paragraph 4, the proxy appointment will remain valid.
Location of the Annual General Meeting
Skinners’ Hall , 8 Dowgate Hill, London EC4R 2SP
ST PAUL’S
CATHEDRAL
CHEAPSIDE
BANK OF
ENGLAND
POULTRY
BANK
T
E
T R E
V I C T O R I A S
SKINNERS’
HALL
Q U E E N
CANNON
STREET
CANNON
STREET
UPPER THAMES
MANSION
HOUSE
STREET
RIVER THAMES
77 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Explanatory Notes to the Resolutions
Resolution 1 – To receive the Annual Report and Accounts
The Annual Report and Accounts for the year ended 31 March
2016 will be presented to the Annual General Meeting (AGM).
These accounts accompany this Notice of Meeting and
shareholders will be given an opportunity at the meeting to
ask questions.
Resolutions 2 to 7 – Re-election of Directors
Resolutions 2 to 7 deal with the election and re-election of
each Director. Biographies of each of the Directors can be
found on pages 23 and 24 of the annual report.
The Board has confirmed, following a performance review,
that the Directors standing for election and re-election
continue to perform effectively.
Resolution 8 – Re-appointment of Auditors and the
determination of their remuneration
Resolution 8 relates to the re-appointment of
PricewaterhouseCoopers LLP as the Company’s independent
Auditors to hold office until the next AGM of the Company and
also authorises the Audit Committee to set their
remuneration.
Resolution 9 – Remuneration Report
The Directors’ Remuneration Report is set out in full in the
annual report on pages 40 to 42.
Resolutions 10, 11 and 12 – Issue of Shares
Ordinary Resolution 10 in the Notice of AGM will renew the
authority to allot the unissued share capital up to an
aggregate nominal amount of £1,175,623 (equivalent to
4,702,494 shares, or 10% of the Company’s existing issued
share capital on 14 June 2016, being the nearest practicable
date prior to the signing of this Report). Such authority will
expire on the date of the next AGM or after a period of
15 months from the date of the passing of the resolution,
whichever is earlier. This means that the authority will have
to be renewed at the next AGM.
When shares are to be allotted for cash, Section 551 of the
Companies Act 2006 (the “Act”) provides that existing
shareholders have pre-emption rights and that the new
shares must be offered first to such shareholders in
proportion to their existing holding of shares. However,
shareholders can, by special resolution, authorise the
Directors to allot shares otherwise than by a pro rata issue to
existing shareholders. Special Resolution 11 will, if passed,
give the Directors power to allot for cash equity securities up
to 10% of the Company’s existing share capital on
14 June 2016, as if Section 551 of the Act does not apply. This
is the same nominal amount of share capital which the
Directors are seeking the authority to allot pursuant to
Resolution 10. This authority will also expire on the date of
the next Annual General Meeting or after a period of
15 months, whichever is earlier. This authority will not be
used in connection with a rights issue by the Company.
Under the Companies (Acquisition of Own Shares) (Treasury
Shares) Regulations 2003 (as amended) (the “Treasury Share
Regulations”) the Company is permitted to buy-back and
hold shares in treasury and then sell them at a later date for
cash, rather than cancelling them. The Treasury Share
Regulations require such sale to be on a pre-emptive, pro
rata, basis to existing shareholders unless shareholders
agree by special resolution to disapply such pre-emption
rights. Accordingly, in addition to giving the Directors power
to allot unissued share capital on a non pre-emptive basis
pursuant to Resolution 11, Resolution 12, if passed, will give
the Directors authority to sell shares held in treasury on a
non pre-emptive basis. No dividends may be paid on any
shares held in treasury and no voting rights will attach to
such shares. The benefit of the ability to hold treasury shares
is that such shares may be resold. This should give the
Company greater flexibility in managing its share capital, and
improve liquidity in its shares. It is the intention of the Board
that any re-sale of treasury shares would only take place at a
narrower discount to the net asset value per share than that
at which they had been bought into treasury, and in any event
at a discount no greater than 5% to the prevailing diluted
cum income net asset value per share, and this is reflected in
the text of Resolution 12. It is also the intention of the Board
that sales from treasury would only take place when the
Board believes that to do so would assist in the provision of
liquidity to the market. The number of treasury shares which
may be sold pursuant to this authority is limited to 10% of the
Company’s existing share capital on 14 June 2016 (reduced
by any equity securities allotted for cash on a non-pro rata
basis pursuant to Resolution 11, as described above). This
authority will also expire on the date of the next Annual
General Meeting or after a period of 15 months, whichever
is earlier.
Annual Report for the year ended 31 March 2016 78
Worldwide Healthcare Trust PLC
Special Resolution 13 in the Notice of AGM will renew the
authority to purchase in the market a maximum of 14.99% of
Ordinary Shares in issue on 14 June 2016, being the nearest
practicable date prior to the signing of this Report,
(amounting to 7,049,039 Ordinary Shares). Such authority will
expire on the date of the next AGM or after a period of
15 months from the date of passing of the resolution,
whichever is earlier. This means in effect that the authority
will have to be renewed at the next AGM or earlier if the
authority has been exhausted.
Resolution 14 – General Meetings
Special Resolution 14seeks shareholder approval for the
Company to hold General Meetings (other than the AGM) at
14 working days’ notice. The Board confirms that the shorter
notice period would only be used where it was merited by the
purpose of the meeting.
Recommendation
The Board considers that the resolutions relating to the
above items are in the best interests of shareholders as a
whole. Accordingly, the Board unanimously recommends to
the shareholders that they vote in favour of the above
resolutions to be proposed at the forthcoming AGM as the
Directors intend to do in respect of their own beneficial
holdings totalling 44,124 shares.
4
Further Information
Explanatory Notes to the Resolutions
continued
The Directors intend to use the authority given by
Resolutions 10, 11 and 12 to allot shares and disapply
pre-emption rights only in circumstances where this will be
clearly beneficial to shareholders as a whole. The issue
proceeds would be available for investment in line with the
Company’s investment policy. No issue of shares will be
made which would effectively alter the control of the
Company without the prior approval of shareholders in
general meeting.
Resolution 13 – Share Repurchases
The Directors wish to renew the authority given by
shareholders at the previous AGM. The principal aim of a
share buy-back facility is to enhance shareholder value by
acquiring shares at a discount to net asset value, as and
when the Directors consider this to be appropriate. The
purchase of Ordinary Shares, when they are trading at a
discount to net asset value per share should result in an
increase in the net asset value per share for the remaining
shareholders. This authority, if conferred, will only be
exercised if to do so would result in an increase in the net
asset value per share for the remaining shareholders and if it
is in the best interests of shareholders generally. Any
purchase of shares will be made within guidelines
established from time to time by the Board. It is proposed to
seek shareholder authority to renew this facility for another
year at the AGM.
Under the current Listing Rules, the maximum price that
may be paid on the exercise of this authority must not exceed
the higher of (i) 105% of the average of the middle market
quotations for the shares over the five business days
immediately preceding the date of purchase and (ii) the
higher of the last independent trade and the highest current
independent bid on the trading venue where the purchase is
carried out. The minimum price which may be paid is 25p per
Ordinary Share. Existing shares which are purchased under
this authority will either be cancelled or held as
Treasury Shares.
79 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Alternative Investment Fund Managers Directive (AIFMD) Related Disclosures
(unaudited)
Investment Objective and Leverage
A description of the investment strategy and objectives of the
Company, the types of assets in which the Company may
invest, the techniques it may employ, any applicable
investment restrictions, the circumstances in which it may use
leverage, the types and sources of leverage permitted and the
associated risks, any restrictions on the use of leverage and
the maximum level of leverage which the AIFM and Portfolio
Manager are entitled to employ on behalf of the Company and
the procedures by which the Company may change its
investment strategy and/or the investment policy can be found
on page 5 under the heading “Investment Strategy”.
The table below sets out the current maximum permitted
limit and actual level of leverages for the Company: As a
percentage of net assets
Maximum level of leverage
Actual level at 31 March 2016
Gross Commitment
Method
Method
140%
115%
140%
113%
Remuneration of AIFM Staff
Following completion of an assessment of the application of
the proportionality principle to the FCA’s AIFM Remuneration
Code, the AIFM has disapplied the pay-out process rules with
respect to it and any of its delegates. This is because the
AIFM considers that it carries out non-complex activities and
is operating on a small scale.
Further disclosures required under the AIFM Rules can be
found within the Investor Disclosure Document on the
Company’s website: www.worldwidewh.com.
Annual Report for the year ended 31 March 2016 80
Worldwide Healthcare Trust PLC
4
Further Information
Company Information
Directors
Sir Martin Smith (Chairman)
Sarah Bates
Jo Dixon
Dr David Holbrook
Samuel D. Isaly
Humphrey van der Klugt
Doug McCutcheon
Company Registration Number
3023689 (Registered in England)
The Company is an investment company as defined under
Section 833 of the Companies Act 2006
The Company was incorporated in England and Wales on
14 February 1995. The Company was incorporated as
Finsbury Worldwide Pharmaceutical Trust PLC.
Website
Website: www.worldwidewh.com
Registered Office
One Wood Street
London EC2V 7WS
Alternative Investment Fund Manager,
Company Secretary and Administrator
Frostrow Capital LLP
25 Southampton Buildings, London WC2A 1AL
Telephone: 0203 008 4910
E-mail: info@frostrow.com
Website: www.frostrow.com
Authorised and regulated by the Financial Conduct Authority
Depositary
J.P. Morgan Europe Limited
25 Bank Street
London E14 5JP
Auditors
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
Prime Broker
J.P. Morgan Clearing Corp
Suite 1, Metro Tech Roadway
Brooklyn, NY 11201
USA
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone (in UK): 0871 664 0300†
Telephone (from overseas): + 44 371 664 0300†
E-mail: shareholderenquiries@capita.co.uk
Website: www.capitaassetservices.com
Please contact the Registrars if you have a query about a
certificated holding in the Company’s shares.
†Calls cost 12p per minute plus your phone company’s access charge and may
be recorded for training purposes. Calls outside the UK will be charged at the
applicable international rate. Lines are open between 09.00 and 17.30 Monday
to Friday excluding public holidays in England and Wales.
If you have an enquiry about the Company or if you would like
to receive a copy of the Company’s monthly fact sheet by
e-mail, please contact Frostrow Capital using the above
e-mail address.
Stockbroker
Winterflood Securities Limited
The Atrium Building
Cannon Bridge, 25 Dowgate Hill
London EC4R 2GA
Portfolio Manager
OrbiMed Capital LLC
601 Lexington Avenue, 54th Floor
New York NY 10022
Website: www.orbimed.com
Registered under the U.S. Securities & Exchange Commission
Share Price Listings
The price of your shares can be found in various publications
including the Financial Times, The Daily Telegraph, The
Times and The Scotsman.
The Company’s net asset value per share is announced daily
and is available, together with the share price, on the
TrustNet website at www.trustnet.com.
Identification Codes
Shares: SEDOL : 0338530
ISIN : GB0003385308
BLOOMBERG : WWH LN
EPIC : WWH
Foreign Account Tax Compliance Act (“FATCA)
IRS Registration Number (GIIN) : FIZWRN.99999.SL.826
81 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2016
Disability Act
Copies of this annual report and other documents issued by the
Company are available from the Company Secretary. If needed,
copies can be made available in a variety of formats, including
Braille, audio tape or larger type as appropriate. You can contact the
Registrar to the Company, Capita Registrars, which has installed
telephones to allow speech and hearing impaired people who have
their own telephone to contact them directly, without the need for an
intermediate operator, for this service please call 0800 731 1888.
Specially trained operators are available during normal business
hours to answer queries via this service. Alternatively, if you prefer to
go through a ‘typetalk’ operator (provided by the RNID) you should
dial 18001 followed by the number you wish to dial.
A member of the Association of Investment Companies
This report is printed on Revive 100% White Silk a totally recycled
paper produced using 100% recycled waste at a mill that has been
awarded the ISO 14001 certificate for environmental management.
The pulp is bleached using a totally chlorine free (TCF) process.
This report has been produced using vegetable based inks.
Worldwide Healthcare Trust PLC
25 Southampton Buildings, London WC2A 1AL
www.worldwidewh.com
Perivan Financial Print 240159