Annual Report
for the year ended 31 March 2017
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Perivan Financial Print 244865
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
Financial Highlights
Key Information
Company Performance
Chairman’s Statement
Investment Objective and Policy
Strategic Report
1
2
3
4-5
6-7
8-10 Portfolio
OrbiMed Capital LLC
11
12-15 Portfolio Manager’s Review
15
Contribution by Investment
16-19 Sector Outlook
20-25 Business Review
Financial Statements
52
53
54
55-70 Notes to the Financial Statements
Income Statement
Statement of Changes in Equity
Statement of Financial Position
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
Governance
26-27 Board of Directors
28-30 Report of the Directors
Statement of Directors’
31
Responsibilities
32-39 Corporate Governance
40-42 Audit Committee Report
43-45 Directors’ Remuneration Report
46-51 Independent Auditors’ Report
Shareholder Information
Further Information
71
72-73 Glossary
74-75 How to Invest
76-80 Notice of Annual General Meeting
81-82 Explanatory Notes to the Resolutions
83-84 Regulatory Disclosures
Inside
Cover Company Information
Winner:
Investment Week, Investment Company of the
Year 2016,
Category: Specialist (including Hedge Funds)
Highly Commended:
Money Observer Trust Awards 2015,
Category: Best Large Trust
Further Information/Company Information
Directors
Sir Martin Smith (Chairman)
Sarah Bates
Dr David Holbrook
Samuel D. Isaly
Humphrey van der Klugt, FCA
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
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.
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
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 Securities LLC (formerly 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.
Stockbroker
Winterflood Securities Limited
The Atrium Building
Cannon Bridge, 25 Dowgate Hill
London EC4R 2GA
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
Legal Entity Identifier : 5493003YBCY4W1IMJU04
Strategic Report/Financial Highlights
For the year to 31 March 2017
Net asset value
per share (total return)
+28.9%
2016: (9.0)%
Discount of share price
to net asset value
per share
2.7%
2016: 7.3%
Share price* (total return)
Benchmark*†
+35.5%
2016: (10.5)%
*Source - Morningstar
+24.5%
2016: (5.4)%
*MSCI World Health
Care Index on a net total
return, sterling adjusted basis
†Source - Morningstar
Dividends per share
Ongoing Charges Ratio*
22.5p
2016: 16.5p
0.9%
2016: 0.9%
*(excludes performance
fees crystallised
during the year)
Total return performance for the year to 31 March 2017
%
150
140
130
120
110
100
90
80
M ar 16
A pr 16
M ay 16
Jun 16
Jul 16
A u g 16
Se p 16
O ct 16
N ov 16
D ec 16
Jan 17
Fe b 17
M ar 17
WWH Share Price (total return)
WWH NAV per Share (total return)
Benchmark (total return)
Rebased to 100 as at 31 March 2016
Source: Morningstar, Thomson Reuters & Bloomberg
Annual Report for the year ended 31 March 2017 01
Worldwide Healthcare Trust PLC
Strategic Report/Key Information
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 6 and 7.
Accessing the global market
The healthcare sector is global and accessing this 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 enable 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 74 and 75.
Total return performance since launch to 31 March 2017
%
3500
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
M ar 17
WWH NAV per Share (total return)
WWH Share Price (total return)
Benchmark (total return)*
(cid:0)(cid:0)*
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).
02 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Strategic Report/Company Performance
Historic performance for the years ended 31 March
2012 2013 2014 2015 2016 2017
Net asset value per share (total return)* 14.4% 30.3% 25.9% 53.0% (9.0%) 28.9%
Benchmark (total return)* 13.4% 31.4% 14.9% 35.9% (5.4%) 24.5%
Net asset value per share – basic 909.4p 1110.2p 1374.3p 2039.3p 1850.9p 2,367.2p
Net asset value per share – diluted** 871.0p 1089.6p 1348.2p 2039.3p 1850.5p 2,367.2p
Share price 795.0p 1009.0p 1301.0p 1930.0p 1715.0p 2,304.0p
Discount of share price to diluted net
asset value per share 8.7% 7.4% 3.5% 5.4% 7.3% 2.7%
Dividends per share 17.5p 16.5p 15.0p 12.5p 16.5p 22.5p
Leverage† 25.1% 12.7% 13.9% 13.2% 14.0% 16.9%
Ongoing charges† 1.1% 1.0% 1.0% 1.0% 0.9% 0.9%
Ongoing charges (including performance fees
paid or crystallised during the year)† 1.3% 1.2% 1.1% 2.2% 2.1% 1.0%
*Source: Morningstar
**Dilution to take account of the Company’s Subscription Shares (which expired on 31 July 2014) and any shares held in treasury.
†See Glossary beginning on page 72.
Five year total return performance to 31 March 2017
%
340
300
260
220
180
140
100
60
M ar 12
M ar 13
M ar 14
M ar 15
M ar 16
M ar 17
WWH Share Price (total return)
WWH NAV per Share (total return)
Benchmark (total return)
Rebased to 100 as at 31 March 2012
Source: Morningstar
Annual Report for the year ended 31 March 2017 03
Worldwide Healthcare Trust PLC
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
I am pleased to report that the strong performance reported
at the half-year stage continued into the second half of the
Company’s financial year. The Company’s net asset value per
share total return was +28.9% and the share price total
return was +35.5%, both outperforming the Company’s
Benchmark, the MSCI World Health Care Index on a net total
return, sterling adjusted basis, which rose by 24.5%. The
Company’s and the Benchmark’s strong performance was, in
part, due to the sharp fall in sterling (amounting to 13.0%
against the U.S.$ over the year) following the outcome of the
EU referendum in the UK held in June 2016. Both our
portfolio and the Benchmark have a high exposure to
companies denominated in U.S.$.
Capital
As part of the Board’s discount control management policy, a
total of 1,425,062 shares were repurchased by the Company
during the year to be held in treasury, at an average discount
of 6.9% to the prevailing diluted ex income net asset value
per share. 291,295 of these shares were subsequently
reissued from treasury at share prices that equated to an
average discount 2.7% to the prevailing diluted cum income
net asset value per share. As at 31 March 2017 there were no
shares held in treasury. Shareholder approval to renew the
authority to buy-back 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.
The Company had, on average, leverage of 16% (2016: 18%)
during the year which, due to strong market conditions,
contributed 3.2% to performance (2016: detraction from
performance of 1.5%).
There was volatility in both stock and currency markets
during the year. Following the Brexit vote, investors
recognised the healthcare sector’s defensive qualities and,
with the exception of biotechnology (given its risk profile), it
outperformed the broader market. However, in the run-up to
the U.S. Presidential election in November 2016 global stock
markets, and in particular healthcare stocks, were again
weak, but rallied strongly following the election of President
Trump and the Republican Party taking control of the U.S.
Congress.
The long-term performance of the Company continues to be
strong and it is pleasing to note that from the Company’s
inception in 1995 to 31 March 2017, the total return of the
Company’s net asset value per share has been 2,728.1%,
equivalent to a compound annual return of 16.5%. This
compares to a cumulative blended Benchmark return of
1,175.6%, equivalent to a compound annual return of 12.3%
over the same period.
Further information on the healthcare sector and on the
Company’s investments can be found in the Portfolio
Manager’s Review.
Any shares held in treasury on 14 September 2017, the date
of this year’s Annual General Meeting, will be cancelled.
1,332,742 shares held in treasury (comprising shares both
held in treasury at the beginning of the year and shares
repurchased during the year to date) were cancelled on
27 September 2016, shortly after the date of last year’s
Annual General Meeting.
The Company’s strong performance during the year helped
the discount of its share price to the net asset value per
share to narrow considerably, ending the year at 2.7% from
7.3% at the beginning of the year.
Following the year-end, the Company’s shares have been
trading at a small premium to the net asset value per share
and I am pleased to report that 35,000 new shares have been
issued at an average premium of 0.7% to the prevailing cum
income net asset value per share.
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, as a minimum, 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 2017, was paid on
9 January 2017 to shareholders on the register on
25 November 2016. The Company’s net revenue return for
the year as a whole has increased to £10.7 million (2016:
£8.2 m). The Board has declared a second interim dividend of
16.0p per share which, together with the first interim dividend
already paid, makes a total dividend for the year of 22.5p
(2016: 16.5p per share). Based on the closing mid-market
04 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Strategic Report/Chairman’s Statement
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 etc. venues St. Paul’s,
200 Aldersgate Conference Centre, London EC1A 4HD on
Thursday, 14 September 2017 at 12 noon.
Sir Martin Smith
Chairman
14 June 2017
share price of 2,457.5p on 13 June 2017, the total dividend
payment for the year represents a current yield of 0.9%.
The second interim dividend will be payable on 14 July 2017
to shareholders on the register of members on 16 June 2017.
The associated ex-dividend date will be 15 June 2017.
Management and Performance Fees
As reported at the half-year stage, the Board is pleased that
amendments to the fee arrangements between the Company
and Frostrow have been agreed and became effective on
1 April 2017. Further details of these new arrangements can
be found in the Business Review on page 21.
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.
I am pleased to report that as a result of continued
cumulative outperformance in the year to 31 March 2017,
performance fees of £1.3m were paid during the year and, as
at 31 March 2017, there was a provision of £3.4m for future
performance fee payments. This provision will become
payable over the next year if the outperformance is
maintained.
Outlook
As we look forward, our Portfolio Manager believes that the
healthcare sector will be less affected by macro issues
allowing it to trade more on its fundamentals. In particular, it
believes that 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 Report for the year ended 31 March 2017 05
Worldwide Healthcare Trust PLC
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 12 to 15.
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 64.
The Company does not currently hedge against foreign
currency exposure.
06 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Strategic Report/Investment Objective and Policy
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 72.
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.
Dividend Policy
It is the Company’s policy to pay out, as a minimum, dividends
to shareholders to the extent necessary to maintain investment
trust status for each financial year.
Annual Report for the year ended 31 March 2017 07
Worldwide Healthcare Trust PLC
Strategic Report/Portfolio
Investments held as at 31 March 2017
Market
value % of
Investments Country/region £’000 investments
Wright Medical* Netherlands 65,184 5.5
Merck USA 55,957 4.7
Boston Scientific USA 55,056 4.6
Eli Lilly USA 47,777 4.0
Biogen USA 47,208 4.0
Alexion Pharmaceuticals USA 44,377 3.7
Regeneron Pharmaceuticals USA 43,957 3.7
Incyte USA 41,380 3.5
Roche Holdings Switzerland 40,957 3.4
HCA USA 40,636 3.4
Top 10 investments 482,489 40.5
Edwards Lifesciences USA 32,665 2.7
Amgen USA 32,330 2.7
Nippon Shinyaku Japan 32,237 2.7
Intuitive Surgical USA 30,893 2.6
Aetna USA 28,173 2.4
Humana USA 27,629 2.3
Eisai Japan 24,225 2.0
Allergan** Ireland 23,855 2.0
Anthem USA 22,419 1.9
Unitedhealth Group USA 20,148 1.7
Top 20 investments 757,063 63.5
Novo Nordisk Denmark 19,920 1.7
Vertex Pharmaceuticals USA 16,220 1.4
Bristol-Myers Squibb USA 14,895 1.2
Array BioPharma USA 14,143 1.2
Sino Biopharmaceuticals China 13,539 1.1
Coherus Biosciences USA 13,000 1.1
Shire USA 12,853 1.1
Illumina USA 12,254 1.0
Celgene USA 12,016 1.0
Xencor USA 11,554 1.0
Top 30 investments 897,457 75.3
Exact Sciences USA 11,383 0.9
Centene USA 11,358 0.9
Thermo Fisher Scientific USA 11,090 0.9
Genmab Denmark 11,045 0.9
Stryker USA 10,982 0.9
Teva Pharmaceutical*** USA 10,950 0.9
Biomarin Pharmaceutical USA 10,832 0.9
Santen Pharmaceutical Japan 10,337 0.9
Luye Pharma China 10,330 0.9
Mylan Netherlands 10,253 0.9
Top 40 investments 1,006,017 84.3
Tenet Healthcare USA 9,908 0.8
Merrimack Pharmaceuticals Second Lien Loan
11.5% 15/12/2022 (unquoted) USA 9,746 0.8
Ono Pharmaceutical Japan 9,586 0.8
* includes Wright Medical Contingent Value Rights equating to 0.7% of investments.
** includes Allergan 5.5% Preference equating to 0.7% of investments.
*** includes Teva Pharmaceutical 7% Preference equating to 0.6% of investments.
08 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Strategic Report/Portfolio
Market
value % of
Investments Country/region £’000 investments
Momenta Pharmaceuticals USA 7,810 0.7
Celltrion South Korea 7,760 0.7
Nuvasive USA 7,374 0.6
Galapagos Belgium 6,858 0.6
Yestar Healthcare China 6,502 0.5
Genoa A QOL Healthcare FRN 28/10/2024 (unquoted) USA 6,323 0.5
Bioventus FRN 21/11/2021 (unquoted) USA 6,309 0.5
Top 50 investments 1,084,193 90.8
Ironwood Pharmaceuticals USA 6,117 0.5
Puma Biotechnology USA 6,043 0.5
NewLink Genetics USA 5,973 0.5
Aerie Pharmaceuticals USA 5,901 0.5
Medical Depot Holdings FRN 03/01/2024 (unquoted) USA 5,758 0.5
BeiGene Cayman Island 5,683 0.5
Radius Health USA 5,507 0.5
ImmunoGen USA 5,329 0.4
Agilent Technologies USA 4,439 0.4
IHH Healthcare Malaysia 4,330 0.4
Top 60 investments 1,139,273 95.5
Fluidigm USA 3,814 0.3
Wenzhou Kangning Hospital China 3,271 0.3
Nevro USA 2,818 0.2
Aegerion Pharmaceuticals 2% 15/08/2019 (unquoted) USA 2,339 0.2
Sarepta Therapeutics USA 2,011 0.2
Magellan Health USA 1,992 0.2
Bluebird Bio USA 1,627 0.1
Novelion Therapeutics Canada 215 0.0
Vanda Pharmaceuticals USA 132 0.0
Alimera Sciences USA 70 0.0
Total equities and fixed interest investments 1,157,562 97.0
Emerging Markets Healthcare (Basket)^ Emerging Markets 18,665 1.6
Aurobindo Pharma India 15,220 1.3
M&A (Basket)^ USA 14,034 1.2
JP China HC A-Share (Basket)^ China 13,434 1.1
Jiangsu Hengrui Medicine^ China 12,535 1.1
India Health Care (Basket)^ India 12,446 1.0
Strides Shasun China 11,937 1.0
Jiangsu Nhwa Pharmaceutical^ China 8,593 0.7
Aier Eye Hospital Group^ China 7,005 0.6
Ajanta Pharma India 3,014 0.2
Inner Mongolia Furui Medical Science^ China 43 0.0
Less: Gross exposure on financed swaps (82,516) (6.9)
Total OTC Swaps 34,410 2.9
Total investments including OTC Swaps 1,191,972 99.9
Call Options (Long) 1,191 0.1
Put Options (Short) (282) (0.0)
Total investments including OTC Swaps and Options 1,192,881 100.0
^ Financed
See note 16 beginning on page 64 for further details in relation to the OTC Swaps and Options.
Annual Report for the year ended 31 March 2017 09
Worldwide Healthcare Trust PLC
Strategic Report/Portfolio
SUMMARY
Market value % of
Investments £’000 investments
Equities (including options & swaps) 1,147,003 96.2
Unquoted debt securities – variable rate 18,390 1.5
Convertible debt securities 15,403 1.3
Unquoted debt securities – fixed rate 12,085 1.0
Total of all investments 1,192,881 100.0
Portfolio distribution
By sector
2017
2016
Life Sciences
Tools and Services
3.3%
Unquoted debt 2.6%
Pharmaceutical
30.7%
Emerging Market
basket swaps
2.1%
Life Sciences
Tools and Services
3.3%
Unquoted debt 1.8%
Healthcare Equipment/
Supplies/Technology
11.8%
Healthcare Providers/
Services
12.4%
Pharmaceutical
38.7%
Biotechnology
28.6%
Biotechnology
29.9%
Emerging Market
basket swaps
4.6%
Healthcare Providers/
Services
13.7%
Healthcare Equipment/
Supplies/Technology
16.5%
By geography
2017
Asia
6.5%
2016
Asia
9.3%
Emerging
Markets
12.1%
Europe 15.4%
Europe 10.0%
Emerging
Markets
14.7%
North America
66.0%
North America
66.0%
10 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Strategic Report/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.$13 billion in assets under
management as of 31 March 2017, 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 27 of this Annual Report.
Sven H. Borho, CFA, is a founding Partner of
OrbiMed. He is a senior member of the public
equity team and he is a 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. 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 2017 11
Worldwide Healthcare Trust PLC
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.”
Performance Review
The year ended 31 March 2017 can be mostly characterised by
two political events of notable import that shaped the
performance of global healthcare equities. Specifically, the
U.K. referendum that resulted in its decision to leave the
European Union and the U.S. Presidential election that
resulted in a Republican sweep of the White House, Senate,
and House of Representatives, created a volatile year in equity
markets that was exacerbated by significant fluctuations in
global currencies, most notably sterling. Nevertheless,
healthcare stocks did in fact finish the period higher.
The start of the Company’s financial year bore witness to a
market rebound in healthcare stocks after rhetoric pouring out
of the U.S. Presidential race and investor concerns about
China’s economy dramatically depressed share prices in the
three-month period immediately preceding this year. As a
result, the first quarter of the period was positive, as stocks
traded more on industry fundamentals rather than
macro-economic concerns. However, this came to a dramatic
head in June 2016, where performance of global equity
markets in the month could be summarised in one word –
Brexit. Britain’s decision to leave the European Union sent the
markets into a swoon as investors turned to a “risk off”
strategy, buying defensive names and selling uncertainty. As a
result, healthcare stocks performed well although
biotechnology stocks, given their risk profile, notably lagged.
The Brexit tailwind lasted through July but then investor focus
reverted to the highly contested U.S. Presidential election race,
where drug pricing and putative reform legislation were a
continuous topic, led primarily by the Democratic presidential
nominee, Hillary Clinton. The result was a dramatic sell-off in
global healthcare equities ahead of the November election,
where healthcare stocks reached a 52-week low (in U.S.$).
However, in an election result that was heard around the
world, Republican presidential nominee Donald Trump was
elected as the 45th President of the United States, including
Republican control of both The House of Representatives and
the U.S. Senate.
Whilst still volatile, the election results re-stimulated investor
interest in healthcare, pushing stocks higher as the threat of
drug price reforms in the U.S. partially abated and the promise
of U.S. tax reform increased. Additionally, the weakening of
sterling (compared to the U.S.$) during the period also
influenced performance.
The net result was a significant rise in global healthcare
equites. The MSCI World Healthcare Index, measured on a net
total return, sterling adjusted basis, advanced +24.5% for the
year ended 31 March 2017. The Company was able to
outperform this. Its net asset value per share total return was
+28.9% and its share price total return was +35.5%.
Overall, since the Company’s inception in 1995 to 31 March
2017, the total return of the Company’s net asset value per
share is 2,728.1%, equivalent to a compound annual return of
16.5%. This compares to the blended Benchmark rise of
1,175.6%, equivalent to a compound annual return of 12.3%.
Contribution to Performance
Absolute positive contribution was generated in most
subsectors, including pharmaceuticals, biotechnology,
specialty pharmaceuticals, medical devices, healthcare
services, life science tools & diagnostics, and emerging
markets. The lone exception was generic pharmaceuticals.
Outperformance was generated via multiple ways. Allocation
was most critical, with overweight positioning in emerging
biotechnology and medical device stocks. Astute stock picking
in the life science tools space, medical devices, and healthcare
services (managed care) also fueled outperformance.
Leverage also played an important role in the Company’s
performance during the year, contributing 3.2% to returns as a
result of strong market conditions. The level of leverage
employed during the year remained stable at around 16%
(slightly lower than last year) and this reflected our positive
overall view on the outlook for the healthcare sector. Notably,
eight individual positions added 1.0% or more to performance
whereas only one position detracted more than 1.0% from
performance. Some offsets to outperformance included
overweight positioning in large capitalisation biotechnology
and underweight positioning in large capitalisation
pharmaceuticals.
The top contributor during the Company’s financial year was
the medical device maker, Wright Medical. The company,
which develops devices and instruments for a number of
medical applications such as joint replacement, trauma,
sports medicine, as well as orthobiologic products, entered
12 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Strategic Report/Portfolio Manager’s Review
the year as a distressed asset. At that time, we were invested
in the company with a contrarian view. Wright’s integration of
the Tornier acquisition from late 2015 was finally completed
after a long and arduous process and the company began to
recognise both sales and cost synergies in early 2016. These
fundamental improvements, combined with a successful
refinancing of the company’s convertible debt and increased
comfort that management would be able to settle the
outstanding hip implant litigation, led us to increase our equity
position in the company in late June, 2016.
Subsequently, Wright posted a strong second quarter and
announced the anticipated litigation settlement which
triggered a re-rating of the share price. The third quarter was
tough for Medical Technology stocks overall as several key
large companies reported lacklustre results and multiples
across the sector contracted. Simultaneously however, Wright
successfully completed the sale of its slow growth hip and
knee implant business to Corin Orthopaedics and posted an
acceleration in sales of its new Augment orthobiologic product
for the month of September. Given the dislocation in the share
price despite an improved fundamental outlook for Wright,
once again we increased our position in the stock in late
October, 2016.
Finally, as the calendar year ended, management announced
plans to significantly expand its salesforce in 2017 to boost
revenue growth, while continuing to implement strong general
and administrative cost controls. This aggressive strategy was
a hallmark of the company’s new found turnaround after years
of defensive moves, and has set the company on a path of
accelerating sales growth in the high growth extremities
implant end markets. As a result, we again increased our
equity position in mid-February, 2017. In total, our position in
Wright Medical’s shares increased almost 50% over the course
of the Company’s financial year, with these additions evenly
spread across the three buying periods. Overall, the stock
more than doubled (in sterling terms) over the financial year.
Exact Sciences is a molecular diagnostics company focused
on developing and commercialising non-invasive cancer
screening tests. Their first product, Cologuard, is indicated for
the use in screening colorectal cancer. The shares
outperformed significantly in 2016 as management
successfully rolled out Cologuard in the U.S. Of most import,
the United States Preventative Services Task Force (USPSTF)
repositioned its rating of Cologuard to be more favourable,
stimulating initial momentum for Cologuard demand and
commercialisation in first half of 2016. Subsequent to the
USPSTF rating change, the company managed to obtain
multiple positive coverage decisions from managed care
organisations endorsing the non-invasive test for colorectal
cancer screening. With positive insurance policy coverages
and strong product positioning, Cologuard became the most
successful diagnostics launch in the industry, consistently
beating analysts’ estimates. In addition to its flagship product,
Exact Sciences disclosed early stage validation data
demonstrating non-invasive screening techniques for
esophageal, pancreatic, and lung cancers.
Boston Scientific develops implantable medical devices,
primarily for use in cardiology, electrophysiology, peripheral
vascular, neurovascular, endoscopic, urologic, gynecologic, and
pain management procedures. Over the past 12 months, the
company achieved industry leading revenue growth stemming
from flawless execution across new product launches,
additional geographic expansion, and a positive utilisation
environment in the United States. Whilst all was not perfect
– the company issued a recall on its highly anticipated
transcatheter aortic valve replacement device known as
“Lotus” in February – management continued to execute
above expectations, ensuring a quick return to the market for
Lotus and maintaining a bullish stance on its commercial
opportunity. Moreover, the company doubled down in this
attractive end market by acquiring Symetis in March, another
transcatheter heart valve company with a highly competitive
offering.
Incyte is a commercial-stage biopharmaceutical company
focused on novel therapeutics for unmet needs in the
treatment of cancer. The share price nearly doubled (in local
currency) during the year due to a rapidly growing financial
base and new opportunities emerging from its pipeline. Its
lead asset, Jakafi (ruxolitinib), launched in 2015, is already
considered to be a blockbuster drug (one that guarantees
annual sales of at least U.S. 1 billion) with 2017 sales expected
to be in excess of this figure. Among the many experimental
cancer drugs in it pipeline, epacadostat, an oral selective IDO-
1 enzyme inhibitor, is of the most value. Initial clinical data of
epacadostat in combination with PD-1 inhibitors have shown
impressive efficacy on several solid tumours, including
melanoma and lung cancer. This led to expanded strategic
collaborations with partners Merck and Bristol-Myers Squibb
to rapidly advance epacadostat into late stage clinical trials.
Shares of Incyte appreciated significantly following the
announcement of these strategic decisions.
Excessively high blood pressure in the lungs is a serious
cardiovascular disease known as pulmonary arterial
hypertension (PAH), marked by shortness of breath, dizziness
Annual Report for the year ended 31 March 2017 13
Worldwide Healthcare Trust PLC
Strategic Report/Portfolio Manager’s Review
and fatigue that can lead to heart failure, lung transplantation,
and death. Innovation and category leadership in PAH has
been the hallmark of the Swiss company, Actelion. The
company’s most recent offering is called Uptravi (selexipag)
and has shown unprecedented efficacy in treating PAH. After
garnering worldwide approval in 2015, Uptravi approached
blockbuster status in 2016, sparking merger & acquisition
(M&A) interest. Ultimately, global pharmaceutical giant,
Johnson & Johnson (JNJ), struck a deal to acquire Actelion for
U.S.$30 billion, representing more than an 80% premium to
the unaffected share price.
Detractors from Performance
Detractors in the fiscal year were largely idiosyncratic in
nature, with individual stocks from different sectors declining
primarily due to unexpected news flow.
Such was the case of Ono Pharmaceutical, the Osaka-based
mid-cap pharmaceutical company who helped pioneer a
revolution in immuno-oncology. The launch of Opdivo
(nivolumab) at the beginning of 2016 in Japan for the
treatment of a type of lung cancer in patients where
chemotherapy had previously failed was an immense success
by any measure. However, that success drew the attention of
the Ministry of Finance and even the Prime Minister of Japan,
Shinzo Abe, himself. As usage climbed, federal authorities
grew concerned over the cost of paying for the drug. Due to a
quirk in the domestic drug pricing system, Opdivo’s price in
Japan (for lung cancer) was the highest in the world, a
complete reversal of what the typical case is in Japan for a
drug price. Thus, with the enormous uptake and high price,
the Ministry of Health, Labour and Welfare slashed the price
by 50%. While many investors expected a price cut for Opdivo
in Japan, as is the typical practice in Japan, both the severity
and quick timing were unprecedented. The share price sagged
as a result.
Further exacerbating downside in Ono’s share price was the
unexpected clinical trial failure of Opdivo as a treatment for
frontline lung cancer. The global trial, conducted by Ono’s
partner Bristol-Myers Squibb, did not demonstrate any
difference in efficacy between Opdivo and chemotherapy in
patients who were newly diagnosed with metastatic lung
cancer. This was a shocking result given Opdivo’s previous
success in all other previous lung cancer trials conducted and
the success of a competitor’s similar drug in the same setting
only weeks earlier. This time, the share price fell sharply.
14 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
α
ImmunoGen, is a small biotechnology company developing
Antibody Drug Conjugates (ADCs) as treatment for cancer. Its
lead program, mirvetuximab, is an ADC targeting folate
receptor alpha (FR
). The drug showed very impressive
objective response rates as single agent in patients with
FR
However, the data deteriorated in a subsequent update, with
lowered response rates that disappointed investors.
Underwhelming clinical updates, coupled with investor
concerns on the uncertainties in the development path of
mirvetuximab, led the stock to underperform during the year.
-positive platinum-resistant ovarian cancer in early study.
α
Pricing pressure for U.S. pharmaceuticals has increased over
the last three years. The therapeutic category most adversely
affected has been diabetes, in particular insulin pricing. The
“perfect storm” of incumbent players, each with a new product
offering that offers little new in terms of differentiation,
coupled with the approval and launch of a biososimilar insulin,
swung the leverage pendulum in favour of the payers. Global
diabetes leader, Novo Nordisk, was caught in this storm and
was slow to realise the mounting pressure. The result was
multiple downgrades of the company’s long term growth
targets, causing the share price to re-rate lower.
Coherus Biosciences, is a pure-play biosimilars company
working on developing biosimilar versions to a number of
blockbuster biotechnology products, including Neulasta,
Enbrel, and Humira. Shares of the company declined in the
period due to an adverse legal ruling that will make it more
difficult for Coherus to overcome the patents protecting
Humira, AbbVie’s U.S.$16 billion drug for rheumatoid arthritis,
psoriasis, and inflammatory bowel disease. There is also some
investor scepticism that Coherus will be able to get its
biosimilar Neulasta approved on-time in June 2017, as the
U.S. Food and Drug Administration (FDA) has not yet
announced an advisory panel to review the drug. All other
first-in-class biosimilars approved to date have had advisory
panels. We believe Coherus will eventually succeed in getting
its biosimilars approved and would expect rapid uptake for the
products.
Shares of Impax Laboratories, a U.S.-based generic drug
company, declined sharply during the year, as the company fell
victim to the severe pricing erosion experienced by many other
players in the generic pharmaceuticals sector during the fiscal
year. Although the company successfully closed a significant
acquisition during the year, the transaction was much less
accretive than expected, forcing management to cut
Strategic Report/Portfolio Manager’s Review
previously-issued financial guidance. Impax’s Board of
Directors, in response to management’s missteps and poor
execution, forced the company’s CEO out in late December
2016.
Derivative Strategy
OrbiMed continues to employ a derivative overlay strategy to
create additional outperformance. While the strategy has
generated meaningful outperformance since 2006, the
contribution in the last two years has been negligible. The
options strategy is primarily used to create target entry prices
for favoured stocks, leverage specific catalysts and capture
special situation opportunities. Two derivative specialists
implement the strategy in careful consultation with the
portfolio management team. OrbiMed adheres to strictly
defined risk limits and in practice maintains a net exposure
well below the 5% restriction.
Samuel D. Isaly
OrbiMed Capital LLC
Portfolio Manager
14 June 2017
Contribution by Investment
Principal contributors to and detractors from net asset value performance
Contribution
for the year to Contribution
31 March 2007 per share
Top 5 £’000 (pence)*
Wright Medical 26,386 56.5
Exact Sciences 23,418 50.2
Incyte 21,346 45.7
Boston Scientific 21,102 45.2
Actelion† 15,800 33.8
108,052 231.4
Bottom 5
Impax Laboratories† (4,100) (8.8)
Coherus Biosciences (4,592) (9.8)
Novo Nordisk (4,909) (10.5)
ImmunoGen (5,049) (10.8)
Ono Pharmaceutical (17,396) (37.3)
(36,046) (77.2)
* based on 46,695,120 being the weighted average number of shares in issue during the year ended 31 March 2017.
† not owned in the portfolio as at 31 March 2017.
Annual Report for the year ended 31 March 2017 15
Worldwide Healthcare Trust PLC
Strategic Report/Sector Outlook
Large Capitalisation Pharmaceuticals
Currency effects notwithstanding, global pharmaceutical
stocks posted mostly modest gains in the year. Whilst the New
York Stock Exchange ARCA Pharmaceutical Index (DRG)
returned over 21% sterling terms, the return in local currency
was a more subdued 5.6%. The U.S. Presidential election
remained both an overhang and a headwind that significantly
diminished the appetite of investors to bet heavily on the
sector. Moreover, with the broader markets outpacing the
pharmaceutical sector by over 10.0% in the period (in local
currency), investors preferred to dine at smorgasbord of
financials, technology, materials, industrials, and energy over
pharmaceuticals.
Looking ahead to 2017, we expect the group to resume trading
on fundamentals instead of macro concerns. This should be a
positive for the group as we anticipate a multitude of catalysts
going forward. First and foremost is positive earnings
momentum as revenue headwinds from patent expirations are
currently at an ebb. New product launches over the past three
years have been robust and we see important inflection points
ahead for many companies in this universe. Additionally,
important catalysts should play out in the coming year in
oncology, cardiovascular, immunology, rheumatology, and
neuroscience, just to name a few. Finally, we expect important
legislative news flow about putative tax reform in the United
States which could trigger a business development shopping
spree for large capitalisation pharmaceutical companies,
fattening their pipelines and their valuations.
On the regulatory side, the environment for new drug
approvals continues to be favourable. President Trump has
said repeatedly that he would like to expedite the approval of
new drugs, and his nominee to head the FDA, Scott Gottlieb, is
regarded as industry-friendly. Once there is more clarity about
President Trump’s plans for drug prices, we would expect
therapeutic stocks to recover in a more convincing way.
Biotechnology
Whilst much of the healthcare sector remained range bound
heading into the U.S. Presidential election in November 2016,
perhaps none was more affected than biotechnology stocks.
Fears over a potential Hillary Clinton victory and her proposed
policies to reduce drug prices continued to act as an overhang
on the sector.
The surprise election victory of President Donald Trump briefly
catalysed a relief rally in biotechnology, sending the Nasdaq
Biotechnology Index up 9% (local currency) on the day after the
election. Investors perceived the Republican sweep of the
presidency and both chambers of Congress as a more
16 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
favourable outcome for the drug industry than a Democratic
victory, as it appeared to lessen the likelihood of any dramatic
government action to control drug prices. Indeed, President
Trump’s platform had largely been based on jobs, trade, taxes,
and national security rather than lowering prescription drug
prices. Nevertheless, there is some uncertainty about
specifically what President Trump intends to do with his
healthcare policy going forward, including the “repeal and
replace” of Obamacare, or the Affordable Care Act (ACA).
Despite some remaining opaqueness in Washington D.C., the
fundamentals of biotechnology companies remain strong.
Innovation continues, with companies such as Biogen,
launching a new product Spinraza (nusinersen) for spinal
muscular atrophy and Amgen, announcing positive results
from a cardiovascular outcomes trial of their
cholesterol-lowering drug Repatha (evolocumab). Innovation
from emerging biotechnology companies also remains strong.
For example, we should see new product approvals in the gene
therapy space (for blindness) and the anti-cancer therapeutic
known as CAR-T.
Valuations of large-capitalisation biotechnology companies
remain very reasonable, even though earnings growth has
slowed as the revenue bases of the companies have gotten
larger. Valuations are seen by many investors as sufficiently
compelling that an acquisition of a large-capitalisation
biotechnology company by a larger pharmaceutical company
would not be surprising. Additionally, Republican plans to
institute a tax repatriation holiday should allow
large-capitalisation U.S. biotechnology companies to
repatriate overseas cash at a reduced tax rate, increasing the
cash balances they have to make acquisitions of smaller
biotechnology companies and add assets to their pipelines.
Specialty Pharmaceuticals
Branded drug franchise pricing concerns have plagued
specialty pharmaceutical stocks over the past year and were a
major reason behind the group’s lacklustre performance.
Although the pricing environment remains challenging, the
outlook for specialty pharmaceutical stocks, in general, looks
fairly bright with several names poised for recovery. Current
valuations largely reflect expectations of reduced pricing
power, allowing investors to better appreciate the varied
strategies employed by companies in this group. Over time, we
believe investors will increasingly reward players with durable
franchises and attractive growth profiles. We also anticipate
that a greater focus on proprietary pipelines will drive
increased interest. In our opinion, proprietary pipelines for
certain companies remain significantly undervalued, setting
Strategic Report/Sector Outlook
the stage for share price outperformance upon favourable data
disclosures. As a result, we view a select group of companies
with significant pipeline disclosures over the next 12-15
months as particularly attractive.
In Europe, we have become more constructive on a select
group of companies benefiting from improving trends, new
launch cycles, and increased M&A activity. 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
There was a significant correction in generic pharmaceutical
stock prices over the year. Uncertain dynamics in the U.S.
generic drug market made investors wary of the sector.
Significant and sustained pricing erosion, stemming from the
consolidation of pharmacy and wholesaler distribution
channels, has destabilised large-scale and niche generic
players alike, resulting in reported earnings shortfalls,
downwardly-revised revenue and earnings forecasts,
worsened leverage ratios, and depressed valuations.
In Europe, market conditions for generic companies were
somewhat better. Some sizable markets like France, Italy, and
Spain demonstrated better growth potential as generic
utilisation ramped up from relatively modest levels. In these
markets, pricing erosion was more moderate and largely in
line with expectations, in stark contrast to the rapidly
deteriorating conditions observed in the U.S.. Throughout Asia,
economic expansion, favourable demographics, supportive
governmental policies, and other contributing factors continue
to drive robust generic utilisation throughout the region. In
contrast, the Japanese generic market saw decelerating
volume growth and extreme pricing concerns.
Looking ahead, recent commentary from both a large global
generic company and a major wholesaler leads us to believe
that U.S. market dynamics could deteriorate further over the
next few quarters. Thus, large global generic companies
appear best-positioned within this sector. We believe solid
performance in key European and Asian markets could offset
weaker U.S. performance for the large diversified players. We
anticipate further consolidation of the generic industry;
however recent transactions indicate that unfavourable U.S.
dynamics have impaired acquisition premiums.
Medical Devices
Entering 2016, our collective view on the Medical Devices
sector was notably more positive than at any point in the past
several years. That view remains unabated as we look ahead to
2017, with new product innovation in cardiology, orthopaedic
extremities, and surgical robotics poised to unleash a new
wave of revenue growth for the sector in the 2018-2020
timeframe.
The macro environment is stable, with healthy procedure
volume growth providing stability against normal (but
importantly not intensifying) pricing pressures. Political
headwinds are navigable: the sector is largely insulated from
potential healthcare reform given much greater exposure to
Medicare covered lives vs. commercial, and tax reform
represents a solid tailwind for the majority of companies. M&A
remains a key theme for the sector, with further large
acquisitions still possible and ample opportunity for portfolio
rationalisation, divestments, and smaller tuck-in acquisitions.
Against this backdrop, we continue to favour companies with
differentiated growth profiles in durable sectors such as
cardiology, where transcatheter heart valve market growth and
several other emerging product categories are promising,
surgical robotics which is gaining further traction and
recognition as a replacement for surgery, and orthopedic
extremities implants/biologics which offer uniquely strong
revenue growth in the orthopaedic industry.
Healthcare Services
2016 bore witness to important repositioning for the
Company’s investment across healthcare services. Exposure
to Medicaid Health Maintenance Organisations (HMOs) in the
U.S. was significantly reduced after the recent Presidential
election. These companies were big winners under the ACA,
benefiting from accelerating patient enrollment in their plan
offering and earnings growth as many U.S. states expanded
Medicaid eligibility under the law.
However, those tailwinds are over and going forward we
foresee operational headwinds for Medicaid HMOs under the
Trump administration, including potential "repeal and replace"
of the ACA, including block grants (also known as funding
cuts).
We are bullish on commercial and Medicare HMOs, because
ACA-related taxes and regulations will be “repealed” and
"replace" would further privatise Medicare. There are also
macro catalysts for these stocks like corporate tax reform
(100% domestic business) and rising interest rates. We remain
cautious on the drug supply chain including distributors and
pharmacy benefit managers due to deteriorating
fundamentals highlighted by decelerating drug price inflation
and intensifying competition.
Annual Report for the year ended 31 March 2017 17
Worldwide Healthcare Trust PLC
Strategic Report/Sector Outlook
Life Science Tools / Diagnostics
During the Company’s previous financial year, the life sciences
sector saw consistent investor bids as it gained favoritism
amongst healthcare investors looking for stability amidst
uncertainties in bio-pharma. Outside of sub-sector rotation
dynamics, the sector enjoyed outsized growth in
pharmaceutical-related end markets that kept fundamentals
largely intact. Academic and government spending saw
another year of anemic growth despite positive rhetoric out of
Washington D.C. Whilst the weak spending coming out of the
government funded National Institutes of Health (NIH) and
NIH-levered academic markets, the deleterious impact to
share prices was muted due to aforementioned
pharma-related activities in the sector.
Although devoid of large transformative deals in 2016,
consolidation in the industry remained active with
Thermo Fisher, Danaher, and Abbott involved with small to
medium sized acquisitions which helped valuations remain
elevated throughout the course of the year.
For 2017, we expect the sector to continue to benefit from
relative uncertainties and volatility of bio-pharma as drug
pricing rhetoric in the U.S. possibly lingers with unclear
pathway forward. Kicking off this year, we are seeing early
signs of recovery in the cyclical industrial end market, which
has been a drag to the overall growth profile of the industry for
the past few years. Additionally, new product cycles in
genomics continue to grab investors’ interests. In particular,
new products that can proverbially “move the needle” could
drive valuations higher.
That said, foreword looking valuations of the sector should,
and will, be debated. The current premium versus the broader
market and other healthcare sub-sectors remains elevated.
We expect this trend to continue. But with stretched balance
sheets and rising interest rates environment, expectations of
large transformative deals should be muted.
Defensive bids, generated by stability in end markets, should
allow current valuations to be sustained in the near term.
However, looking at the sub-sector holistically, a dose of
caution is necessary given premium valuation. We remain
neutral in the sector but select exposure to product cycle
names is warranted.
Emerging Markets
Emerging markets continue to offer healthcare companies
with superior growth prospects than many companies in the
West, driven by aging demographics, rising income levels, and
an expected increase in the proportion of GDP spent on
healthcare. Our strategy continues to be to invest in
high-quality leading companies in each subsector that will
reflect these positive long-term macro trends.
In China, our investments consist of companies in two broad
categories: 1) pharmaceuticals and 2) private hospitals. In the
pharmaceutical space, the Chinese government has been
undertaking reforms to increase the quality of drugs sold in
China and improve the robustness and efficiency of their drug
approval system. To improve the quality of medicines in China,
the government is mandating bioequivalence testing for many
of the generic drugs currently marketed in China to confirm
that they truly have equivalent efficacy to the original brand.
The government is also discouraging use of so-called
“adjuvant” drugs, which account for the majority of hospital
drug use yet have little to no clinical data demonstrating their
efficacy. We expect these initiatives to reduce the number of
low-quality drugs in the Chinese marketplace, which should
reduce pricing pressure in the space. On the regulatory front,
the Chinese FDA (CFDA) has been criticised for being slow to
approve new drugs (typically taking multiple years rather than
the U.S. FDA’s target of a year or less). To clear the extensive
backlog of drugs pending review at the CFDA, the agency
asked all pharmaceutical companies to certify the clinical data
integrity of any pending drug applications at the agency. Any
drug sponsors found to have applications with deficient clinical
data quality would be sanctioned by not having any of their
future drug applications accepted or approved by the agency
for a period of time. As a result of this stringent
self-certification requirement, the vast majority of pending
drug applications were actually withdrawn from the CFDA. In
addition, the CFDA has instituted a priority review programme
which accelerates review of innovative drugs in certain
therapeutic areas of unmet medical need. All of these policies
should benefit high-quality drug companies developing
innovative drugs, which are the types of companies OrbiMed
prefers investing in. Over the course of 2016, pricing pressure
from provincial tenders continued to act as a headwind for the
sector. While we expect pricing pressure to persist, we believe
volume growth should allow companies to continue to deliver
18 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Strategic Report/Sector Outlook
strong earnings growth, especially those companies with
innovative products that are less susceptible to competition.
In the private hospital sector, we are capitalising on the
Chinese government’s desire to develop the healthcare
delivery infrastructure in the country. The government has
been encouraging more private investment in hospitals. Our
hospital investments in China consist of high-quality operators
that are expected to expand profitably in Asia. Unlike drug
companies, private hospitals do not face the same headwinds
stemming from pricing pressure due to drug tenders.
In India, our strategy remains to invest in high quality generic
companies with compliant manufacturing and
specialty/differentiated products. Over the course of the year,
the FDA continued to inspect the manufacturing facilities at
many Indian generic manufacturers, resulting in the
identification of deficiencies that in some cases led to
temporary plant suspensions. While we expect the FDA
inspections to continue, we would expect the leaders in the
Indian generics industry to remedy any manufacturing
deficiencies identified, resulting in a long-term improvement
in manufacturing quality for the Indian generics industry
overall. One headwind that has weighed on the Indian
pharmaceutical industry is the pricing erosion seen recently in
the U.S. generics market, which will affect Indian companies
with U.S. exposure. We believe new generic launches can
mitigate this impact.
Samuel D. Isaly
OrbiMed Capital LLC
Portfolio Manager
14 June 2017
Annual Report for the year ended 31 March 2017 19
Worldwide Healthcare Trust PLC
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 6. 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 Securities LLC (formerly 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 28 and 29. The Board has determined an
investment objective, policy and related guidelines and limits,
as described on page 6.
The Company is subject to UK and European legislation and
regulations including UK company law, UK GAAP, the
Alternative Investment Fund Managers Directive, 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, Dr David Holbrook, Samuel D. Isaly,
Doug McCutcheon and Humphrey van der Klugt. All of these
Directors served throughout the year and are independent
non-executive 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 26 and 27.
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.
20 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
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 6 and 7,
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 32 to 39,
includes a statement of compliance with corporate
governance codes and best practice, and the Business
Review (pages 22 to 24) includes details 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 on pages 1, 2 and 3.
• 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 6
Frostrow and OrbiMed have flexibility in managing the
investments and are not limited by the constraints of the
Benchmark. As a result, investment decisions may be made
Strategic Report/Business Review
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 Securities LLC, and the Depositary, J.P. Morgan
Europe Limited. Details of their key responsibilities follow
and further information on their contractual arrangements
with the Company are included in the Report of the Directors
commencing on page 28.
Alternative Investment Fund Manager (AIFM)
Frostrow under the terms of its AIFM agreement with the
Company provides, inter alia, the following services:
During the year, under the terms of the AIFM Agreement,
Frostrow received 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 of 1.5% of outperformance against the
Benchmark as detailed on page 28.
With effect from 1 April 2017 the annual management fee
payable to Frostrow has been amended as follows:
On market capitalisation up to £150 million: 0.3%
(unchanged); in the range £150 million to £500 million: 0.2%
(unchanged); in the range £500 million to £1 billion: 0.15%
(increased from 0.125%); in the range £1 billion to
£1.5 billion: 0.125% (unchanged); over £1.5 billion: 0.075%
(reduced from 0.125%). In addition, Frostrow continues to
receive a fixed fee per annum of £57,500.
Frostrow is no longer entitled to future performance fees,
however it will still be entitled to receive any performance fee
that crystallises during the year ending 31 March 2018 in
respect of cumulative outperformance attained by
31 March 2017.
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
• oversight of the portfolio management function delegated
opportunities;
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;
• preparation and dispatch of annual and half year reports
and monthly fact sheets; and
• ensuring compliance with applicable legal and regulatory
requirements.
• 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 28.
Annual Report for the year ended 31 March 2017 21
Worldwide Healthcare Trust PLC
Strategic Report/Business Review
Depositary and Prime Broker
J.P. Morgan Europe Limited acts as the Company’s Depositary
and J.P. Morgan Securities LLC 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 28 and 29.
J.P. Morgan Europe Limited has discharged certain of its
liabilities as Depositary to J.P. Morgan Securities LLC.
Further details of this arrangement are set out on pages 28
and 29. J.P. Morgan Securities LLC, as Prime Broker, provides
the following services under its agreement with the 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
• safekeeping and custody of the Company’s investments
• Strategic (including shareholder relations and share price
and cash;
• processing of transactions;
• provision of an overdraft facility. Assets up to 140% of the
value of the outstanding overdraft can be taken as
collateral. 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 2017 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 on
page 21, 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
22 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
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 64.
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 6 and 7.
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
Strategic Report/Business Review
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 64).
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.
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 Securities LLC which is responsible for the
safekeeping of the Company’s assets and provides the overdraft
facility to the Company. As part of the arrangements with
J.P. Morgan Securities LLC they may take assets, up to 140% of
the value of the drawn overdraft, as collateral and have first
priority security interest or lien over all of the Company’s
assets. Such assets taken as collateral may be used, loaned,
sold, rehypothecated or transferred by J.P. Morgan Securities
LLC, although the Company maintains the economic benefit
from the ownership of those assets it does not hold any of the
rights associated with those assets. 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.
Credit risk is managed by the Board through:
• 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 68);
• reviews of OrbiMed’s approved list of counterparties, the
Company’s use of those counterparties and OrbiMed’s
process for monitoring, and adding to, the approved
counterparty list;
• monitoring of counterparties, including reviews of internal
control reports and credit ratings, as appropriate; 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.
Annual Report for the year ended 31 March 2017 23
Worldwide Healthcare Trust PLC
Strategic Report/Business Review
In managing this risk the Board:
• reviews the Company’s Investment Objective in relation to
market, and economic, conditions and the operation of the
Company’s peers;
• discusses at each Board meeting the Company’s future
development and strategy;
• reviews the shareholder register at each Board meeting;
• actively seeks to promote the Company to current and
potential investors; and,
• has implemented a discount 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.
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.
24 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
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.
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 73). 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 has the ability 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 30.
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 six Directors, four of whom are resident in the UK,
one is resident in the U.S. and one in Canada. The Board
Strategic Report/Business Review
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 30.
Board diversity
The Board is supportive of the recommendations of Lord
Davies’ report that the performance of corporate boards can
be improved by encouraging the appointment of the best
people from a range of differing perspectives and backgrounds.
The Company recognises the benefits of diversity on the Board,
including gender, and takes this into account in its Board
appointments. The Company is committed to ensuring that any
Director search process actively seeks persons with the right
qualifications so that appointments can be made, on the basis
of merit, against objective criteria from a diverse selection of
candidates. To this end the Board will dedicate time to
considering diversity during any director search process and
keep in mind that the Davies Review of Women on Boards
recommended that UK Listed Companies in the FTSE 100
should be aiming for a minimum of 25% of females on the
Board.
Male
Female
Directors of the Company
5
1
The Company does not have any employees. Therefore there
is no employee information to disclose.
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 22 to 24.
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 22 to 24.
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.
Alternative performance measures
The Financial Statements (on pages 52 to 70) set out the
required statutory reporting measures of the Company’s
financial performance. In addition, the Board assesses the
Company’s performance against a range of criteria which are
viewed as particularly relevant for investment trusts, which
are summarised on page 3 and explained in greater detail in
the Strategic Report, under the heading ‘Key Performance
Indicators’ on pages 20 and 21.
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 4
and 5 and the Portfolio Manager’s Review and Sector Outlook
on pages 12 to 19.
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 2017
Annual Report for the year ended 31 March 2017 25
Worldwide Healthcare Trust PLC
Governance/Board of Directors
Sarah Bates
A Director since 2013
Seeks annual re-election by shareholders
Dr David Holbrook
A Director since 2007
Seeks annual re-election by shareholders
Sarah Bates is currently Chair of St James’s
Place Plc and a non-executive Director of Polar
Capital Technology Trust plc and of JPMorgan
American Investment Trust plc. She is a former
Chair of the Association of Investment
Companies. She is a member of the Universities
Superannuation Fund Investment Committee,
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
Dr David Holbrook is Chairman of the
Nominations Committee and is the Senior
Independent Director. He is a qualified
physician. David co-manages Cambridge
University’s Seed Funds in the Life Sciences. He
is also a Venture Partner at MTI Partnership
LLP, a leading early stage venture capital
investor, having been General Partner and Head
of Healthcare Investing for 13 years. David
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
Sir Martin Smith
Chairman
A Director since 2007
Seeks annual re-election by shareholders
Sir Martin Smith has been involved in the
financial services sector for more than 40 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 and Energy Works PLC.
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 2016/17
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
2
4
3
4
4
–
2
1
2
–
2
2
Nominations
Committee
(1)
1
1
–
1
–
1
1
*Retired from the Board on 21 September 2016
All of the serving Directors attended the Annual General Meeting held on 21 September 2016.
26 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Management
Engagement &
Remuneration
Committee
(1)
1
1
–
1
–
1
1
Governance/Board of Directors
Samuel D. Isaly
A Director since 1995
Seeks annual re-election by shareholders
Humphrey van der Klugt, FCA
A Director since 2016
Seeks annual re-election by shareholders
Doug McCutcheon
A Director since 2012
Seeks annual re-election by shareholders
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 is Chairman of the
Audit Committee. He 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 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 2017 27
Worldwide Healthcare Trust PLC
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 2017.
Significant agreements
Details of the services provided under these agreements are
included in the Strategic Report on pages 21 to 22.
Alternative Investment Fund Management
agreement
As described on page 21, 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”).
and Frostrow receiving 1.5%, for fees payable to March 2018
following which no further fees will be payable to Frostrow
(further details can be found on page 21) respectively. Provision
is made within the daily NAV per share calculation as required
and in accordance with generally accepted accounting
standards.
In order to ensure that only sustained outperformance is
rewarded, at each quarterly calculation date any performance
fee payable is based on the lower of:
(i) The cumulative outperformance of the portfolio over the
Benchmark as at the quarter end date; and
(ii) The cumulative outperformance of the portfolio over the
Benchmark as at the corresponding quarter end date in the
previous year.
The notice period on the AIFM Agreement with Frostrow is
12 months, termination can be initiated by either party.
The effect of this is that outperformance has to be maintained
for a twelve month period before it is paid.
During the year under review, Frostrow charged a variable
base fee, which was dependent on the size of the Company
and a performance fee of 1.5% of outperformance against the
Benchmark as set out below. (Further details of these
arrangements and also of changes made that took effect
from 1 April 2017 can be found on page 21).
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%
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.
The performance fee charge for the year was £4.7m (2016:
reversal of £5.5m) and consisted of:
• £1.3m which became payable due to outperformance that
had been achieved as at 30 September 2015 and
maintained to 30 September 2016; and
• A provision for potential future performance fee payments
of £3.4m (2016: no provision) made as at 31 March 2017.
The maximum amount that could become payable by 31 March
2018, is £3.4m.
Depositary agreement
The Company appointed J.P. Morgan Europe Limited (the
“Depositary”) as its Depositary in accordance with the
AIFMD on the terms and subject to the conditions of the
Depositary agreement between the Company, Frostrow and
the Depositary (the “Depositary Agreement”).
Under the terms of the Depositary Agreement the Company
has agreed to pay the Depositary a fee calculated at 1.75bp
on net assets up to £150 million, 1.50 bps on net assets
between £150 million and £300 million 1.00bps on net assets
between £300 million and £500 million and 0.50bps on net
assets above £500 million.
The Depositary has delegated the custody and safekeeping of
the Company’s assets to J.P. Morgan Securities LLC (the
“Prime Broker”) pursuant to a delegation agreement
28 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Report of the Directors
between the Company, Frostrow, the Depositary and the
Prime Broker (the “Delegation Agreement”).
continuation of the Company at the 2019 Annual General
Meeting and every five years thereafter.
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 23 for further details.
Prime brokerage agreement
The Company appointed J.P. Morgan Securities LLC (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 63.
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
Results and dividends
The results attributable to shareholders for the year and the
transfer from reserves are shown on pages 52 to 54. Details
of the Company’s dividend record can be found on page 3.
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
2017. It is intended that this policy will continue for the year
ending 31 March 2018 and subsequent years.
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 2017, the
latest practicable date before publication of the Annual Report:
Shareholder
Investec Wealth & Investment Limited
Rathbone Brothers plc
Alliance Trust Savings Limited
Speirs & Jeffrey Limited
Quilter Cheviot Investment Management
Hargreaves Lansdown plc
Charles Stanley & Co Limited
Brewin Dolphin Limited
31 May 2017
31 March 2017
Number of
shares
% of issued
share capital
Number of
shares
% of issued
share capital
5,783,166
2,737,184
2,661,418
2,057,778
2,018,197
1,956,601
1,949,166
1,572,291
12.4
5.9
5.7
4.4
4.3
4.2
4.2
3.4
5,739,451
2,674,758
2,594,162
2,058,128
2,033,683
1,925,929
1,943,410
1,471,151
12.3
5.8
5.6
4.4
4.4
4.1
4.2
3.2
As at 31 March 2017 the Company had 46,506,278 shares in issue. As at 31 May 2017 there were 46,516,278 shares in issue.
Annual Report for the year ended 31 March 2017 29
Worldwide Healthcare Trust PLC
Governance/Report of the Directors
Directors’ indemnities
During the year under review and to the date of this report,
indemnities were in force between the Company and each of its
Directors under which the Company has agreed to indemnify
each Director, to the extent permitted by law, in respect of
certain liabilities incurred as a result of carrying out his or her
role as a Director of the Company. The Directors are also
indemnified against the costs of defending any criminal or civil
proceedings or any claim by the Company or a regulator as they
are incurred provided that where the defence is unsuccessful
the Director must repay those defence costs to the Company.
The indemnities are qualifying third party indemnity provisions
for the purposes of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection
at the Company’s registered office during normal business
hours and will be available for inspection at the Annual
General Meeting.
Capital structure
The Company’s capital structure is composed solely of ordinary
shares.
During the year under review, 1,425,062 shares were bought
back by the Company to be held in treasury at an average
discount of 6.9% to the prevailing diluted ex income NAV per
share. A total of 291,295 shares were then reissued from
treasury during the year at an average discount of 2.7% to the
prevailing diluted cum income NAV per share at the time of
issue. The share buyback and issuance activities resulted in a
net profit to shareholders of £1,656,000 (2016: £762,000).
1,332,742 shares held in treasury were cancelled by the
Company on 27 September 2016. This figure comprised
198,975 shares held in treasury at the beginning of the year
and 1,133,767 shares bought back during the financial year to
2 September.
Since the year end, to the date of this report, 35,000 new shares
have been issued at an average premium of 0.7% to the
prevailing cum income NAV per share. No shares were bought
back by the Company during this period.
Voting rights in the Company’s shares
Details of the voting rights in the Company’s shares at the
date of this Annual Report are given in note 9 to the Notice of
Annual General Meeting on page 79.
Political and charitable donations
The Company has not in the past and does not intend in the
future to make political or charitable donations.
Modern Slavery Act 2015
The Company does not provide goods or services in the
normal course of business, and as a financial investment
vehicle does not have customers. The Directors do not
therefore consider that the Company is required to make a
statement under the Modern Slavery Act 2015 in relation to
slavery or human trafficking.
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.
Common Reporting Standard (CRS)
CRS is a global standard for the automatic exchange of
information commissioned by the Organisation for Economic
Cooperation and Development and incorporated into UK law
by the International Tax Compliance Regulations 2015. CRS
requires the Company to provide certain additional details to
HMRC in relation to certain shareholders. The reporting
obligation began in 2016 and will be an annual requirement
going forward. The Registrars, Capita Asset Services, have
been engaged to collate such information and file the
reports with HMRC on behalf of the Company.
Corporate governance
The Corporate Governance Statement set out on pages 32 to
39 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 2017
30 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/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 26 and
27, 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 2017;
• 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 2017
Annual Report for the year ended 31 March 2017 31
Worldwide Healthcare Trust PLC
Governance/Corporate 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 July 2016 the AIC published a revised AIC Code and AIC Guide.
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 Code), will provide better information to shareholders.
Statement of Compliance
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 Code includes certain provisions relating to:
• the role 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 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 the need for an internal audit function
which is addressed further on page 40, the Company has not reported further in respect of these provisions.
The principles of the AIC Code
The AIC Code is made up of 21 principles split into three sections covering:
- The Board
- Board Meetings and relations with AIFM and Portfolio Manager
- Shareholder Communications
32 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Corporate Governance
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 six 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 considered by the Board to be 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. Mr Isaly, and also
Sir Martin Smith and Dr David Holbrook have all served on the Board for more than
nine years from the date of their first election. Given the strongly independent mindset
of Sir Martin Smith and Dr Holbrook, the Board is firmly of the view that they can be
considered to be independent. Mr Isaly, due to his connections with OrbiMed, is not
considered to be independent by the Board.
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.
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
Annual Report for the year ended 31 March 2017 33
Worldwide Healthcare Trust PLC
Governance/Corporate Governance
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.
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.
The Directors’ biographical details, set out on pages 26 and 27 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 38 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 26 and 27.
The Company’s policy on diversity is set out on page 25.
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 43 to 45.
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 25.
34 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Corporate Governance
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 2017 35
Worldwide Healthcare Trust PLC
Governance/Corporate Governance
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 40
to 42.
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 24.
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.
36 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Corporate Governance
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 24. 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 Company’s Auditors, 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 20.
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 22 to 24 and in note 16 beginning on page 64.
The Portfolio is listed on pages 8 to 10.
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 2017 37
Worldwide Healthcare Trust PLC
Governance/Corporate Governance
The Board and Committees
Responsibility for effective governance lies with the Board. The governance framework of the Company reflects the fact that
as an Investment Company it has no employees and outsources portfolio management to OrbiMed and risk management,
company management, company secretarial, administrative and marketing services to Frostrow.
Chairman – Sir Martin Smith
Senior Independent Director – Dr David Holbrook
The Board
Four additional non-executive Directors, all considered independent except for Samuel D. Isaly, as noted on page 33.
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
Nominations
Committee
Chairman
Humphrey van der Klugt, FCA
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.
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 24.
38 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Corporate Governance
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.
Resolution 14 Authority to buy back shares
Resolution 15 Authority to hold General Meetings (other than
the Annual General Meeting) on at least 14
working days’ notice.
The full text of the resolutions can be found in the Notice of
Annual General Meeting on pages 76 to 80. Explanatory
notes regarding the resolutions can be found on pages 81
and 82.
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.
Annual General Meeting
THE FOLLOWING INFORMATION TO BE DISCUSSED AT THE
FORTHCOMING ANNUAL GENERAL MEETING IS
IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the action you should take, you
should seek advice from your stockbroker, bank manager,
solicitor, accountant or other financial adviser authorised
under the Financial Services and Markets Act 2000 (as
amended). If you have sold or transferred all of your
ordinary shares in the Company, you should pass this
document, together with any other accompanying
documents, including the form of proxy, at once to the
purchaser or transferee, or to the stockbroker, bank or
other agent through whom the sale or transfer was
effected, for onward transmission to the purchaser
or transferee.
Resolutions relating to the following items of special
business will be proposed at the forthcoming Annual
General Meeting.
Resolution 11 Authority to allot shares
Resolution 12 Authority to disapply pre-emption rights
Resolution 13 Authority to sell shares held in Treasury on a
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 Securities LLC. 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 Securities LLC.
Nominee share code
Where shares are held in a nominee company name, the
Company undertakes:
• to provide the nominee company with multiple copies of
shareholder communications, so long as an indication of
quantities has been provided in advance;
• 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
non pre-emptive basis
14 June 2017
Annual Report for the year ended 31 March 2017 39
Worldwide Healthcare Trust PLC
Governance/Audit Committee Report
Introduction from the Chairman
I am pleased to present my first formal report to
shareholders as Chairman of the Audit Committee, for the
year ended 31 March 2017.
Composition and Meetings
The Committee, which comprises those Directors
considered to be independent by the Board and also
excluding the Chairman of the Company, met twice during
the year. Attendance by each Director is shown in the table
on page 26. I was appointed Chairman of the Committee on
the retirement of my predecessor Jo Dixon on
21 September 2016. The Board has taken note of the
requirements that the Committee as a whole should have
competence relevant to the sector in which the Company
operates and that at least one member of the Committee
should have recent and relevant financial experience. The
Committee is satisfied that the Committee is properly
constituted in both respects: I am a Chartered Accountant
and am also the Chairman of the Audit Committee of two
other public companies; the other Committee members
have a combination of financial, investment and other
relevant experience gained throughout their careers.
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 41.
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
40 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
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 £3,500 were payable to the Auditors,
PwC, during the year for agreed upon procedures in
relation to the Company’s performance fee review.
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.
Significant Issues Considered by the Audit
Committee during the year
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 31. 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.
Governance/Audit Committee Report
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.
Taxation
The Committee approached and dealt with ensuring
compliance with Section 1158 of the Corporation Tax Act
2010, by seeking confirmation that the Company continues
to meet the eligibility conditions on a monthly basis.
Brexit
The Audit Committee considered the potential risks to the
Company as a result of the UK’s vote to leave the EU.
Currently, other than the impact of exchange rates on the
Company’s investment values (which is covered under
Market Risks on page 22), the Audit Committee does not
consider that the Brexit vote has significantly altered the risk
profile of the Company as substantially all the Company’s
investments are based outside the EU, and the majority of
shareholders are UK based.
The Audit Committee will continue to monitor changes in the
regulatory environment as the exit negotiation proceeds and
re-assess the Company’s risks accordingly.
Internal controls and risk management
As set out on page 22 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.
Non-Audit Services
The Company operates on the basis whereby the provision of
all non-audit services by the Auditor has to be pre-approved
by the Audit Committee. Such services are only permissible
where no conflicts of interest arise, the service is not
expressly prohibited by audit legislation, where the
independence of the Auditor is not likely to be impinged by
undertaking the work and the quality and the objectivity of
both the non-audit work and audit work will not be
compromised. In particular, non-audit services may be
provided by the Auditor if they are inconsequential or would
have no direct effect on the Company’s financial statements
and the audit firm would not place significant reliance on the
work for the purposes of the statutory audit.
Annual Report for the year ended 31 March 2017 41
Worldwide Healthcare Trust PLC
Governance/Audit Committee Report
Audit Tendering
PricewaterhouseCoopers LLP have been the Auditor since
July 2014, which was the last occasion an audit tender was
held. Formal Audit tender guidelines have been adopted to
govern the Audit tender process.
As a public company listed on the London Stock Exchange,
the Company is subject to the mandatory Auditor rotation
requirements of the European Union. The Company will put
the external audit out to tender at least every 10 years and
change Auditor at least every 20 years.
Auditor Reappointment
PricewaterhouseCoopers LLP 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 proposed at the Annual General
Meeting.
The Committee reviews the scope and effectiveness of the
audit process, including agreeing the Auditor’s assessment
of materiality and monitors the Auditor’s independence and
objectivity. It conducted a review of the performance of the
Auditor during the year and concluded that performance
was satisfactory and there were no grounds for change.
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 2017.
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.
Humphrey van der Klugt, FCA
Chairman of the Audit Committee
14 June 2017
42 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Directors’ Remuneration Report
Statement from the Chairman of the
Management Engagement & Remuneration
Committee
This report has been prepared in accordance with the
requirements of Section 421 of the Companies Act 2006 and the
Enterprise and Regulatory Reform Act 2013. 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 46 to 51.
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 2016, and was passed by 98.7% 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 Annual General
Meeting held in 2014, and was passed by 97.1% of
shareholders voting on the resolution. The aforementioned
Directors’ Remuneration Policy provisions apply until the
next time that they are put to shareholders for the renewal of
that approval, which must be at intervals of not more than
three years, or if the Directors’ Remuneration Policy is
varied. As approval of this policy was last granted by
shareholders at the Annual General Meeting held in
July 2014, shareholder approval will again be sought at
this year’s Annual General Meeting.
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 30 March 2017 it was
agreed that the Directors’ fees would be, with effect from
1 April 2017, as follows:
The Chairman of the Company, and Humphrey van der Klugt,
as Chairman of the Audit Committee, will receive an annual
fee of £45,850 and £35,500, respectively. Dr David Holbrook, as
the Senior Independent Director will receive an annual fee of
£31,070, Sarah Bates, Samuel D. Isaly and Doug McCutcheon
will each receive an annual fee of £28,970.
The Directors, as at the date of this report, all served
throughout the year. 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.
Annual Report for the year ended 31 March 2017 43
Worldwide Healthcare Trust PLC
Governance/Directors’ Remuneration Report
Directors’ emoluments for the year (audited)
Sir Martin Smith
Humphrey Van Der Klugt
Sarah Bates
Dr David Holbrook
Samuel D. Isaly
Doug McCutcheon
Jo Dixon*
Directors Fees
Date of Appointment
to the Board
8 November 2007
15 February 2016
22 May 2013
8 November 2007
14 February 1995
7 November 2012
25 February 2004
Fees (£)
2017
43,650
30,685
27,570
28,670
27,570
27,570
16,055
201,770
Taxable
Expenses†
2017
655
386
–
50
–
–
1,183
2,274
Total
2017
44,305
31,071
27,570
28,720
27,570
27,570
17,238
Fees (£)
2016
43,200
3,430
27,300
27,300
27,300
27,300
33,450
204,044
189,280
Taxable
Expenses†
2016
781
–
–
125
–
–
2,298
3,204
Total
2016
43,981
3,430
27,300
27,425
27,300
27,300
35,748
192,484
† 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.
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.
Total shareholder return for the eight years to
31 March 2017
%
480
440
400
360
320
280
240
200
160
120
80
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Worldwide Healthcare Share Price (total return)
Benchmark (total return)
Rebased to 100 as at March 2009
Source: Morningstar, Thomson Reuters and Bloomberg
* Retired from the Board on 21 September 2016.
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.
No communications have been received from shareholders
regarding Directors’ remuneration.
Sums paid to third parties
Until May 2016 fees due to Dr Holbrook were paid to MTI
Managers Limited, his then employer. Thereafter, his fees
have been paid to him directly, 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)
Ordinary
Shares of 25p each
2016
2017
11,871
2,725
n/a
7,200
1,094
3,600
1,500
15,000
42,990
11,871
2,725
3,859
7,200
1,094
3,600
1,500
15,000
46,849
Sir Martin Smith
– Trustee
Jo Dixon*
Sarah Bates
Dr David Holbrook
Samuel D. Isaly
Humphrey van der Klugt
Doug McCutcheon
*Retired from the Board on 21 September 2016
44 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Directors’ Remuneration Report
The bar chart below shows the comparative cost of Directors’
fees compared with the level of dividend distribution and
ongoing charges for 2016 and 2017.
Relative cost of directors’ remuneration
£
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Directors’
Fees
2017
Dividends
2017
Ongoing
Charges
2017
Directors’
Fees
2016
Dividends
2016
Ongoing
Charges
2016
Annual statement
On behalf of the Board, I confirm that the Directors’
Remuneration Policy, set out on page 43 of this Annual
Report, and Directors’ Remuneration Report summarise, as
applicable, for the year to 31 March 2017:
(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 2017
Annual Report for the year ended 31 March 2017 45
Worldwide Healthcare Trust PLC
Governance/Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC
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 2017 and of its profit 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 2017;
• the Income Statement for the year then ended;
• the Statement of Changes in Equity for the year then
ended; and
• We conducted our audit of the
financial statements
using information from the AIFM
and J.P. Morgan Europe Limited
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.
Audit Focus
• Income.
• Valuation and existence of
investments.
• Performance fees.
• the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
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)”).
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: £11,009,000
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 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.
46 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC
Area of focus
How our audit addressed the area of focus
Income
Refer to pages 55 and 56 (Accounting Policies) and pages 58
and 62 (Notes to the Financial Statements).
We focused on the accuracy and completeness of dividend
income amounting to £13,098,000 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 also focused on the calculation of realised and
unrealised gains and losses on the investment amounting to
a gain of £260,256,000 for the year.
This is because incomplete or inaccurate income (both
revenue and capital) could have a material impact on the
Company’s net asset value.
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 understood and assessed the design and implementation
of key controls at JPMorgan CIB 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 2017 47
Worldwide Healthcare Trust PLC
Governance/Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC
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 Securities LLC.
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.
No differences were identified which required reporting to
those charged with governance.
• OTC derivative financial instruments:
We tested the valuation of the OTC derivatives by
reperforming the valuation using independent market data.
We tested the existence of the OTC derivatives by agreeing
the holdings to an independent confirmation from
J.P. Morgan Securities LLC and the counterparty, 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 of investments
Refer to page 41 (Audit Committee Report), pages 55 and 56
(Accounting Policies) and page 62 (Notes to the Financial
Statements).
The investment portfolio at 31 March 2017 principally
comprised listed equity investments, OTC swaps and
unquoted debt investments and totalled £1,192,881,000.
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 41 (Audit Committee Report), page 56
(Accounting Policies) and page 58 (Notes to the Financial
Statements).
As at 31 March 2017, a performance fee accrual of £3.4m
was calculated, all of which was recognised as a provision
for the potential future payment.
Performance fees totalling £1.3m were paid during the year
due to outperformance achieved for the quarter ending
30 September 2016. This resulted in a total performance fee
charge for the year of £4.7m.
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.
48 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Governance/Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC
Going concern
Under the Listing Rules we are required to review the
Directors’ statement, set out on page 31, 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.
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 AIFM, the accounting processes and controls, and the
industry in which the Company operates.
The Company’s accounting is delegated to the AIFM who
maintains the Company’s accounting records and controls
and reports to 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 – £11,009,000 (2016: £8,818,000).
• 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.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above
£550,000 (2016: £441,000) as well as misstatements below
that amount that, in our view, warranted reporting for
qualitative reasons.
Annual Report for the year ended 31 March 2017 49
Worldwide Healthcare Trust PLC
Governance/Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC
Other required reporting
Consistency of other information and compliance with
applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course
of the audit:
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 information given in the Strategic Report and the
• the Directors’ confirmation on page 22 of the Annual
Report of the Directors for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
• the Strategic Report and the Report of the Directors have
been prepared in accordance with applicable legal
requirements.
In addition, in light of the knowledge and understanding of the
Company and its environment obtained in the course of the
audit, we are required to report if we have identified any
material misstatements in the Strategic Report and the Report
of the Directors. We have nothing to report in this respect.
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 31, 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 40, 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.
50 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
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 25 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:
Governance/Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC
• 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 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 31, 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.
This report, including the opinions, has been prepared for
and only for the Company’s members as a body in
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.
With respect to the Strategic Report and Report of the
Directors, we consider whether those reports include the
disclosures required by applicable legal requirements.
Sandra Dowling (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
14 June 2017
Annual Report for the year ended 31 March 2017 51
Worldwide Healthcare Trust PLC
Financial Statements /Income Statement
For the year ended 31 March 2017
2017 2016
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Gains/(losses) on investments 9 – 260,256 260,256 – (86,856) (86,856)
Exchange (losses) on currency balances – (9,113) (9,113) – (3,490) (3,490)
Income from investments 2 13,098 – 13,098 10,482 – 10,482
AIFM, Portfolio management
and performance fees 3 (423) (12,751) (13,174) (383) (1,817) (2,200)
Other expenses 4 (718) – (718) (762) – (762)
Net return/(loss) before finance
charges and taxation 11,957 238,392 250,349 9,337 (92,163) (82,826)
Finance costs 5 (43) (785) (828) (36) (690) (726)
Net return/(loss) before taxation 11,914 237,607 249,521 9,301 (92,853) (83,552)
Taxation on net (return)/loss 6 (1,231) 79 (1,152) (1,126) 49 (1,077)
Net return/(loss) after taxation 10,683 237,686 248,369 8,175 (92,804) (84,629)
Return/(loss) per share – basic 7 22.9p 509.0p 531.9p 17.1p (194.1)p (177.0)p
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.
52 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Statements /Statement of Changes in Equity
For the year ended 31 March 2017
Share Capital
Share premium Capital redemption Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 March 2016 11,960 233,537 617,314 7,888 11,059 881,758
Net return after taxation – – 237,686 – 10,683 248,369
Dividend paid in respect of
year ended 31 March 2016 – – – – (4,702) (4,702)
First interim dividend paid in respect
of year ended 31 March 2017 – – – – (3,008) (3,008)
Shares purchased for treasury – – (27,533) – – (27,533)
Shares issued from treasury – 2 6,017 – – 6,019
Shares cancelled from treasury (333) – – 333 – –
At 31 March 2017 11,627 233,539 833,484 8,221 14,032 1,100,903
For the year ended 31 March 2016
Share Capital
Share premium Capital redemption Revenue
capital account reserve reserve reserve Total
£’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 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
The accompanying notes are an integral part of these statements.
Annual Report for the year ended 31 March 2017 53
Worldwide Healthcare Trust PLC
Financial Statements/Statement of Financial Position
As at 31 March 2017
2017 2016
Notes £’000 £’000
Fixed assets
Investments 9 1,157,562 905,471
Derivative – OTC swaps 9 & 10 34,410 30,199
1,191,972 935,670
Current assets
Debtors 11 5,865 1,950
Derivative – put and call options 9 & 10 1,191 353
Cash 10,780 18,536
17,836 20,839
Current liabilities
Creditors: amounts falling due within one year 12 (108,623) (74,007)
Derivatives – put and call options 9 & 10 (282) (744)
(108,905) (74,751)
Net current liabilities (91,069) (53,912)
Total net assets 1,100,903 881,758
Capital and reserves
Share capital 13 11,627 11,960
Share premium account 233,539 233,537
Capital reserve 17 833,484 617,314
Capital redemption reserve 8,221 7,888
Revenue reserve 14,032 11,059
Total shareholders’ funds 1,100,903 881,758
Net asset value per share – basic 14 2,367.2p 1,850.9p
Net asset value per share – fully diluted for
treasury shares 14 n/a 1,850.5p
The financial statements on pages 52 to 70 were approved by the Board of Directors and authorised for issue on 14 June 2017
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)
54 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
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 31.
The Company has taken advantage of the exemption from preparing a Cash Flow Statement under FRS 102, as it is an
investment fund and its 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).
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 2017 55
Worldwide Healthcare Trust PLC
Financial Statements /Notes to the Financial Statements
1.
ACCOUNTING POLICIES 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 current and comparative year were 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.
56 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Statements /Notes to the Financial Statements
(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, including the effects of changes in exchange rates on foreign currency
borrowings;
expenses, together with the related taxation effect, in accordance with the above policies; and
changes in the fair value of investments and derivatives.
This reserve can be used to distribute realised capital profits by way of dividend. 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 2017 57
Worldwide Healthcare Trust PLC
Financial Statements /Notes to the Financial Statements
2.
INCOME FROM INVESTMENTS
-- 2017 2016
£’000 £’000
Income from investments
UK listed dividends – 100
Overseas dividends 10,735 9,010
Fixed interest income 2,023 1,210
12,758 10,320
Other income
Derivatives 290 149
Deposit interest 50 13
Total income from investments 13,098 10,482
Total income comprises:
Dividends 10,735 9,110
Interest 2,363 1,372
13,098 10,482
3.
AIFM, PORTFOLIO MANAGEMENT, AND PERFORMANCE FEES
2017 2016
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee 89 1,693 1,782 84 1,594 1,678
Portfolio management fee 334 6,340 6,674 299 5,683 5,982
Performance fee – 4,718 4,718 – (5,460) (5,460)
423 12,751 13,174 383 1,817 2,200
The 2016 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 arrangements as set out below.
During the year, the AIFM fee was 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. With effect from
1 April 2017 the AIFM fee will be amended to 0.30% of the market capitalisation up to £150 million, 0.20% in excess of
£150 million and up to £500 million, 0.15% in excess of £500 million and up to £1 billion, 0.125% in excess of £1 billion
to £1.5 billion, and over £1.5 billion 0.075%, plus a fixed amount equal to £57,500 per annum.
The Portfolio management fee is 0.65% per annum of the Company’s NAV.
The performance fee provision 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%, for fees payable to March 2018 following which no further fees will be payable to Frostrow.
58 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Statements /Notes to the Financial Statements
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.
A performance fee is only provided for or becomes payable to the extent that the cumulative outperformance to date
gives rise to a total fee greater than the total of all performance fees paid to date.
OTHER EXPENSES
4.
2017 2016
Revenue Revenue
£’000 £’000
Directors’ remuneration 202 189
Auditors’ remuneration for the audit of the Company’s financial statements 27 29
Auditors’ remuneration for non-audit services 4 10
Marketing expenses 58 51
Registrar fees 63 78
Broker fees 14 7
Legal and professional costs 18 14
Stock Exchange listing fees 23 38
Depositary and custody fees 139 130
Other costs 170 216
718 762
Details of the amounts paid to Directors are included in the Directors’ Remuneration Report on page 44.
FINANCE COSTS
5.
2017 2016
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Finance costs 43 785 828 36 690 726
Annual Report for the year ended 31 March 2017 59
Worldwide Healthcare Trust PLC
Financial Statements /Notes to the Financial Statements
6.
TAXATION ON NET RETURN ON ORDINARY ACTIVITIES
(a) Analysis of charge in year
2017 2016
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Corporation tax at 20%
(2016: 20%)
Overseas capital gains
tax refund – – – – (49) (49)
Tax relief to capital 79 (79) – – – –
Overseas taxation 1,152 - 1,152 1,126 – 1,126
1,231 (79) 1,152 1,126 (49) 1,077
(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%
(2016: 20%).
The difference is explained below.
2017 2016
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return/(loss) before taxation 11,914 237,607 249,521 9,301 (92,853) (83,552)
Corporation tax at 20%
(2016: 20%) 2,383 47,522 49,905 1,860 (18,571) (16,711)
Non-taxable (gains)/losses on
investments – (50,229) (50,229) – 18,069 18,069
Overseas withholding taxation 1,152 – 1,152 1,126 – 1,126
Overseas capital gains
tax refund – – – – (49) (49)
Non taxable overseas dividends (2,103) – (2,103) (1,781) – (1,781)
Non taxable UK dividends – – – (20) – (20)
Excess management expenses (280) 2,707 2,427 (59) 502 443
Tax relief to capital 79 (79) – – – –
Current tax charge 1,231 (79) 1,152 1,126 (49) 1,077
(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 £15,813,000 (17% tax rate) (2016: £14,418,000 (18% 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.
60 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Statements /Notes to the Financial Statements
RETURN PER SHARE
7.
2017 2016
£’000 £’000
Basic
The return per share is based on the following figures:
Revenue return 10,683 8,175
Capital return/(loss) 237,686 (92,804)
248,369 (84,629)
Weighted average number of ordinary shares in issue during the year 46,695,120 47,800,223
Revenue return per ordinary share 22.9p 17.1p
Capital return/(loss) per ordinary share 509.0p (194.1p)
531.9p (177.0p)
The calculation of the total, revenue and capital return/(loss) 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
in these financial statements were as follows:
2017 2016
£’000 £’000
Second interim dividend in respect of the year ended 31 March 2016 4,702 –
First interim dividend in respect of the year ended 31 March 2017 3,008 –
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
7,710 6,215
In respect of the year ended 31 March 2017, the first interim dividend of 6.5p per share was paid on 9 January 2017.
A second interim dividend of 16.0p is payable on 14 July 2017, the associated ex dividend date will be 15 June 2017.
The total dividends payable in respect of the year ended 31 March 2017 amount to 22.5p per share (2016: 16.5p per
share). The aggregate cost of the second interim dividend, based on the number of shares in issue at 14 June 2017,
will be £7,458,000. In accordance with FRS 102 the second interim dividend will be reflected in the financial
statements for the year ending 31 March 2018. 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:
2017 2016
£’000 £’000
Revenue available for distribution by way of dividend for the year 10,683 8,175
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)
First interim dividend in respect of the year ended 31 March 2017 (3,008) –
Second interim dividend in respect of the year ended 31 March 2017* (7,458) –
Net retained revenue 217 363
*based on 46,541,278 shares in issue as at 14 June 2017.
Annual Report for the year ended 31 March 2017 61
Worldwide Healthcare Trust PLC
Financial Statements /Notes to the Financial Statements
INVESTMENTS
9.
Unquoted Derivative
Quoted Debt Financial
Investments Investments Instruments Total
£’000 £’000 £’000 £’000
Cost at 1 April 2016 756,395 15,775 30,099 802,269
Investment holding gains/(losses) at 1 April 2016 132,359 942 (291) 133,010
Valuation at 1 April 2016 888,754 16,717 29,808 935,279
Movement in the year:
Purchases at cost 741,380 25,254 3,578 770,212
Sales – proceeds (749,518) (14,101) (9,337) (772,956)
– realised gains on sales 175,788 1,209 3,697 180,694
Net movement in investment holding gains 70,683 1,396 7,573 79,652
Valuation at 31 March 2017 1,127,087 30,475 35,319 1,192,881
Cost at 31 March 2017 924,045 28,137 28,037 980,219
Investment holding gains at 31 March 2017 203,042 2,338 7,282 212,662
Valuation at 31 March 2017 1,127,087 30,475 35,319 1,192,881
–
2017 2016
£’000 £’000
Gains on investments
Gains on disposal 180,694 128,560
Less: amounts recognised as investment holding gains in previous years (81,818) (146,315)
Gains/(losses) based on carrying value at previous Statement
of Financial Position date 98,876 (17,755)
Movement in investment holding gains in the year 161,380 (69,101)
Gains/(losses) on investments 260,256 (86,856)
Purchase transaction costs for the year to 31 March 2017 were £616,000 (year ended 31 March 2016: £430,000). Sales
transaction costs for the year to 31 March 2017 were £543,000 (year ended 31 March 2016: £435,000). These comprise
mainly commission.
10. DERIVATIVE FINANCIAL INSTRUMENTS
2017 2016
£’000 £’000
Fair value of OTC equity swaps 34,410 30,199
Fair value of put and call options (long) 1,191 353
Fair value of put and call options (short) (282) (744)
35,319 29,808
See note 9 above for movements during the year.
62 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Statements /Notes to the Financial Statements
11. DEBTORS
2017 2016
£’000 £’000
Amounts due from brokers 2,751 –
Withholding taxation recoverable 1,575 980
VAT recoverable 15 1
Prepayments and accrued income 1,524 969
5,865 1,950
12. CREDITORS
2017 2016
£’000 £’000
Amounts falling due within one year
Amounts due to brokers 4,783 7,013
Overdraft facility* 98,337 65,244
Performance fee accrued 3,387 –
Other creditors and accruals 2,116 1,750
108,623 74,007
*The Company’s borrowing requirements are met through the utilisation of an overdraft facility provided by J.P. Morgan
Securities LLC.
As at 31 March 2017, the overdraft facility of £98.3 million (2016: £65.2 million) is net of £6.3 million (2016: £4.4 million)
of cash held as collateral against certain derivative positions. See page 68 for further details. As described on page 23,
J.P. Morgan Securities LLC 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 68 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
Treasury shares
Shares shares in issue
number number number
Issued and fully paid at 1 April 2016 47,640,045 198,975 47,839,020
Shares purchased for treasury (1,425,062) 1,425,062 –
Shares re-issued from treasury 291,295 (291,295) –
Cancellation of treasury shares – (1,332,742) (1,332,742)
At 31 March 2017 46,506,278 – 46,506,278
2017 2016
£’000 £’000
Issued and fully paid:
Shares of 25p 11,627 11,960
During the year ended 31 March 2017 1,425,062 shares were bought back by the Company into treasury at a cost of
£27,533,000 (2016: 794,867 bought back at cost of £14,862,000). In 2017 291,295 (2016: 256,832) shares were issued
from treasury, raising proceeds of £6,019,000 (2016: £4,951,000) and 1,332,742 (2016: 339,060) shares were cancelled.
Annual Report for the year ended 31 March 2017 63
Worldwide Healthcare Trust PLC
Financial Statements /Notes to the Financial Statements
14. NET ASSET VALUE PER SHARE
2017 2016
Net asset value per share – basic 2,367.2p 1,850.9p
Net asset value per share – diluted for treasury shares n/a 1,850.5p
The basic net asset value per share is based on the assets attributable to equity shareholders of £1,100,903,000
(2016: £881,758,000) and on the number of Ordinary Shares in issue at the year end of 46,506,278 (2016: 47,640,045).
The diluted net asset value per share for 2016 assumes all treasury shares were sold back to the market at 1,758.3p,
resulting in assets attributable to shareholders of £885,257,000 and on 47,839,020 shares. There were no treasury
shares as at 31 March 2017.
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 21. 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
beginning on page 58. All material related party transactions have been disclosed in notes 3 and 4 on pages 58 and 59.
Details of the remuneration of all Directors can be found on page 44. Details of the Directors’ interests in the capital
of the Company can be found on page 44.
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 note 3 beginning on page 58.
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 6 and 7. 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 22 to 24 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 6 and 7, 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 72 and 73.
64 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Statements /Notes to the Financial Statements
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 8 to 10.
Cash of £17.1 million (2016: £22.9 million) was held as collateral against the financed swap positions, of which
£6.3 million (2016: £4.4 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 22 to 24.
†International Swap Dealers Association Inc.
*See Glossary beginning on page 72 for description of funded and financed swaps.
Annual Report for the year ended 31 March 2017 65
Worldwide Healthcare Trust PLC
Financial Statements /Notes to the Financial Statements
16.
FINANCIAL INSTRUMENTS 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.
2017 2016
Notional* Notional
Assets Liabilities exposure Assets Liabilities exposure
£’000 £’000 £’000 £’000 £’000 £’000
Investments 1,157,562 – 1,157,562 905,471 – 905,471
Put and call options 1,191 (282) 11,590 353 (744) 16,900
OTC equity swaps 34,410 – 116,926 30,199 – 93,398
1,193,163 (282) 1,286,078 936,023 (744) 1,015,769
*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 (2016: 25% higher or lower) while all other variables remained constant:
the revenue return would have decreased/increased by £123,000 (2016: £97,000); the capital return would have
increased by £318,300,000 (2016: £248,474,000)/decreased by £317,372,000 (2016: £249,430,000); and, the return on
equity would have increased by £318,177,000 (2016: £248,377,000)/decreased by £317,249,000 (2016: £249,333,000).
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:
2017 2016
Current Current Current Current
assets liabilities Investments assets liabilities Investments
£’000 £’000 £’000 £’000 £’000 £’000
U.S. dollar 14,886 (103,492) 998,352 19,197 (65,244) 722,770
Swiss franc 969 (168) 41,448 642 – 50,282
Japanese yen 659 – 76,385 486 – 93,955
Other 525 (147) 76,697 151 – 68,272
17,039 (103,807) 1,192,881 20,476 (65,244) 935,279
66 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Statements /Notes to the Financial Statements
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 (2016: 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.
2017 2016
USD YEN CHF USD YEN CHF
£’000 £’000 £’000 £’000 £’000 £’000
Sterling depreciates 110,251 8,560 4,694 81,427 10,493 5,658
Sterling appreciates (90,206) (7,004) (3,841) (66,622) (8,586) (4,630)
(iii) Interest rate risk
Interest rate changes may affect:
– the interest payable on the Company’s variable rate borrowings;
– the level of income receivable from floating and fixed rate securities and cash at bank and on deposit;
– the fair value of investments in fixed interest securities.
Interest rate exposure
The Company’s main exposure to interest rate risks is through its overdraft facility with J.P. Morgan Securities LLC,
which is repayable on demand, and, its holding in fixed interest securities. The exposure of financial assets and
liabilities to fixed and floating interest rates, is shown below.
At 31 March 2017, the Company held 3.8% of the portfolio in convertible bonds and securitised debt (2016: 1.8% of the
portfolio). The exposure is shown in the table below:
Weighted Weighted Weighted Weighted
2017 2016
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
1.3 6.2 15,403
– 1.9 5.5 18,141 –
5.1 9.7 12,085
18,390 6.7 11.5 7,604 9,113
10,780 – – – 18,536
(98,337) – – – (65,244)
27,488 (151,683) 25,745 (100,794)
(82,516) – – – (63,199)
Convertible
securities
Unquoted debt
investments
Cash
Overdraft facility
Financed 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 2017 and the net assets would increase/decrease by £1,517,000 (2016: increase/decrease by
£1,008,000).
Annual Report for the year ended 31 March 2017 67
Worldwide Healthcare Trust PLC
Financial Statements /Notes to the Financial Statements
16.
FINANCIAL INSTRUMENTS 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 2017, based on the earliest date on which
payment can be required, are as follows:
2017 2016
3 months 3 months
or less or less
£’000 £’000
Overdraft facility 98,337 65,244
Amounts due to brokers and accruals 4,783 7,013
Derivatives – Put options (short) 282 615
Derivatives – Call options (short) – 129
103,402 73,001
(v) Credit risk
Credit risk is the risk of failure of a counterparty to discharge its obligations resulting in the Company suffering a
financial loss.
The carrying amounts of financial assets best represent the maximum credit risk at the Statement of Financial
Position date. The Company’s quoted securities are held on its behalf by J.P. Morgan Securities LLC acting as the
Company’s Prime Broker.
As noted on page 63, certain of the Company’s assets can be held by J.P. Morgan Securities LLC (formerly J.P. Morgan
Clearing Corp.) as collateral against the overdraft provided by them to the Company. As at 31 March 2017, assets with
a total market value of £146.1 million (2016: £98.6 million) were available to J.P. Morgan Securities LLC to be used as
collateral against the overdraft facility which equates to 140% (2016: 140%) of the overdrawn position (calculated on a
settled basis) of £104.6 million (2016: £70.4 million).
Credit risk exposure
2017 2016
£’000 £’000
Convertible securities and unquoted debt investments 45,878 34,858
Derivative – OTC equity swaps 34,410 30,199
Current assets:
Other receivables (amounts due from brokers, dividends
and interest receivable) 5,865 1,950
Derivative – Put options (long) – 7
Derivative – Call options (long) 1,191 346
Cash 10,780 18,536
68 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Statements /Notes to the Financial Statements
(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).
(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 2017 £’000 £’000 £’000 £’000
Investments held at fair value through profit or loss 1,127,087 – 30,475 1,157,562
Derivatives: put and call options (short) – (282) – (282)
Derivatives: put and call options (long) – 1,191 – 1,191
Derivatives: OTC swaps – 34,410 – 34,410
Financial instruments measured at fair value 1,127,087 35,319 30,475 1,192,881
As at 31 March 2017, the put and call options and equity swaps have been classified as Level 2.
As at 31 March 2017, the five debt investments (included in the portfolio on pages 8 and 9) have been classified as
Level 3. All level 3 positions have been valued using the estimated fair values as provided by counterparties.
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.
(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 7.
As at 31 March 2017, the Company had a leverage percentage of 16.9% (2016: 14.0%).
Annual Report for the year ended 31 March 2017 69
Worldwide Healthcare Trust PLC
Financial Statements /Notes to the Financial Statements
16.
FINANCIAL INSTRUMENTS continued
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 54.
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 2016 484,304 133,010 617,314
Transfer on disposal of investments 81,728 (81,728) –
Net gains on investments 98,876 161,380 260,256
Expenses charged to capital less tax relief thereon (13,457) – (13,457)
Shares purchased for treasury (27,533) – (27,533)
Shares re-issued from treasury 6,017 – 6,017
Exchange loss on currency balances (9,113) – (9,113)
At 31 March 2017 620,822 212,662 833,484
*Investment holding gains relate to the revaluation of investments and derivatives held at the reporting date. (See note 9 on page 62 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.
70 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
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 etc. venues St. Paul’s, 200 Aldersgate
Conference Centre, London EC1A 4HU on Thursday, 14 September 2017 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.
2017
■ Retail
■ Mutual Funds
■ Pensions
■ Insurance
■ Charities
■ Fund of Funds
■ Corporate
■ Inv Trusts
■ Directors
82.5
7.1
3.1
2.9
1.3
1.3
0.9
0.7
0.2
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
Annual Report for the year ended 31 March 2017 71
Worldwide Healthcare Trust PLC
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.
72 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Further Information/Glossary
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 2017 73
Worldwide Healthcare Trust PLC
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/
74 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Further Information/How to invest
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.
Be ScamSmart
Investment scams are
designed to look like
genuine investments
Spot the warning signs
Have you been:
• contacted out of the blue
• promised tempting returns
and told the investment is safe
• called repeatedly, or
• told the offer is only available
for a limited time?
If so, you might have been
contacted by fraudsters.
Avoid investment fraud
1 Reject cold calls
If you’ve received unsolicited contact about
an investment opportunity, chances are
it’s a high risk investment or a scam. You
should treat the call with extreme caution.
The safest thing to do is to hang up.
2 Check the FCA Warning List
The FCA Warning List is a list of firms and
individuals we know are operating without
our authorisation.
3 Get impartial advice
Think about getting impartial financial
advice before you hand over any money.
Seek advice from someone unconnected to
the firm that has approached you.
Report a Scam
If you suspect that you have been
approached by fraudsters please tell the
FCA using the reporting form at
www.fca.org.uk/consumers/report-
scam-unauthorised-firm. You can also call
the FCA Consumer Helpline on
0800 111 6768
If you have lost money to investment fraud,
you should report it to Action Fraud on
0300 123 2040 or online at
www.actionfraud.police.uk
Find out more at
www.fca.org.uk/scamsmart
Remember: if it sounds too
good to be true, it probably is!
Annual Report for the year ended 31 March 2017 75
Worldwide Healthcare Trust PLC
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 etc.venues
St. Paul’s, 200 Aldersgate Conference Centre, London EC1A 4HD on Thursday, 14 September 2017 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 2017
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 re-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 approve the Directors’ Remuneration Report for the year ended 31 March 2017
10. To approve the Directors’ Remuneration Policy
Special business
To consider and, if thought fit, pass the following resolutions of which resolutions 12, 13, 14 and 15 will be proposed as special
resolutions:
Authority to allot shares
11. THAT in substitution for all existing authorities the Directors be and are hereby generally and unconditionally authorised in
accordance with section 551 of the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot relevant
securities (within the meaning of section 551 of the Act) up to a maximum aggregate nominal amount of £1,163,531 (being
10% of the issued share capital of the Company at 14 June 2017) and representing 4,654,127 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 2018 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
12. THAT in substitution of all existing powers (but in addition to any power conferred on them by resolution 13 set out in the
notice convening the Annual General Meeting at which this resolution is proposed (“Notice of Annual General Meeting”))
the Directors be and are hereby generally empowered pursuant to Section 570 of the Companies Act 2006 (the “Act”) to
allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authority conferred on them
by resolution 11 set out in the Notice of Annual General Meeting or otherwise as if Section 561(1) of the Act did not apply to
any such allotment:
(a) pursuant to an offer of equity securities open for acceptance for a period fixed by the Directors where the equity
securities respectively attributable to the interests of holders of shares 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,
76 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Further Information/Notice of the Annual General Meeting
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 £1,163,531, being 10% of the issued share capital of the Company
as at 14 June 2017 and representing 4,654,127 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 13 set out in the Notice of Annual
General Meeting and (ii) no allotment of equity securities shall be made under this power which would result in Shares
being issued at a price which is less than the net asset value per Share as at the latest practicable date before such
allotment of equity securities as determined by the Directors in their reasonable discretion; and
and such power shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this
resolution or 15 months from the date of passing this resolution, whichever is earlier, unless previously revoked, varied or
renewed by the Company in General Meeting and provided that the Company shall be entitled to make, prior to the expiry of
such authority, an offer or agreement which would or might otherwise require equity securities to be allotted after such
expiry and the Directors may allot equity securities pursuant to such offer or agreement as if the power conferred hereby
had not expired.
13. THAT in substitution of all existing powers (but in addition to any power conferred on them by resolution 12 set out in the
Notice of Annual General Meeting) the Directors be and are hereby generally empowered pursuant to Section 570 of the
Companies Act 2006 (the “Act”) to sell relevant shares (within the meaning of Section 560 of the Act) if, immediately before
the sale, such shares are held by the Company as treasury shares (as defined in Section 724 of the Act (“treasury shares”)),
for cash as if Section 561(1) of the Act did not apply to any such sale provided that:
(a) 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 £1,163,531 being 10% of
the issued share capital of the Company as at 14 June 2017 and representing 4,654,127 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 12 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 2017 77
Worldwide Healthcare Trust PLC
Further Information/Notice of the Annual General Meeting
Authority to repurchase ordinary shares
14. THAT the Company be and is hereby generally and unconditionally authorised in accordance with section 701 of the
Companies Act 2006 (the “Act”) to make one or more market purchases (within the meaning of section 693(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 6,976,537 (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 2018 or, if earlier, on the expiry of 15 months from the date of the passing of this resolution unless such authority is
renewed prior to such time; and
(e) the Company may make a contract to purchase Shares under this authority before the expiry of such authority which
will or may be executed wholly or partly after the expiration of such authority, and may make a purchase of Shares in
pursuance of any such contract.
General meetings
15. THAT the Directors be authorised to call general meetings (other than the Annual General Meeting of the Company) on not
less 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 2017
Registered Office:
One Wood Street
London EC2V 7WS
78 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Further Information/Notice of the Annual General Meeting
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 Tuesday, 12 September 2017.
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 Tuesday, 12 September 2017 (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 2017 (being the last business day prior to the publication of this notice) the Company’s issued share capital consists of 46,541,278 ordinary
shares, carrying one vote each. Therefore, the total voting rights in the Company as at 14 June 2017 are 46,541,278.
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 2017 79
Worldwide Healthcare Trust PLC
Further Information/Notice of the Annual General Meeting
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 81) then, subject to paragraph 4, the proxy appointment will remain valid.
Location of the Annual General Meeting
etc.venues St. Paul’s, 200 Aldersgate Conference Centre,
London EC1A 4HD
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80 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Further Information/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
2017 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 re-election of each Director.
Biographies of each of the Directors can be found on
pages 26 and 27 of the annual report.
The Board has confirmed, following a performance review,
that the Directors standing for 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 and 10 – Remuneration Report and
Remuneration Policy
The Directors’ Remuneration Report is set out in full in the
annual report on pages 43 to 45. The Directors’
Remuneration Policy is set out on page 43.
Resolutions 11, 12 and 13 – 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 £1,163,531 (equivalent to
4,654,127 shares, or 10% of the Company’s existing issued
share capital on 14 June 2017, 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 12 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 2017, 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 11. 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 12, Resolution 13, if passed, will give
the Directors authority to sell shares held in treasury on a
non pre-emptive basis. No dividends may be paid on any
shares held in treasury and no voting rights will attach to
such shares. The benefit of the ability to hold treasury shares
is that such shares may be resold. This should give the
Company greater flexibility in managing its share capital, and
improve liquidity in its shares. It is the intention of the Board
that any re-sale of treasury shares would only take place at a
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 13. 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 2017 (reduced
by any equity securities allotted for cash on a non-pro rata
basis pursuant to Resolution 12, as described above). This
authority will also expire on the date of the next Annual
General Meeting or after a period of 15 months, whichever
is earlier.
Annual Report for the year ended 31 March 2017 81
Worldwide Healthcare Trust PLC
Further Information/Explanatory Notes to the Resolutions
Special Resolution 14 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 2017, being the nearest
practicable date prior to the signing of this Report,
(amounting to 6,976,537 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 15 – General Meetings
Special Resolution 15 seeks 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 40,265 shares.
The Directors intend to use the authority given by
Resolutions 11, 12 and 13 to allot shares and disapply
pre-emption rights only in circumstances where this will be
clearly beneficial to shareholders as a whole. The issue
proceeds would be available for investment in line with the
Company’s investment policy. No issue of shares will be
made which would effectively alter the control of the
Company without the prior approval of shareholders in
general meeting.
Resolution 14 – 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 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
Share. Existing shares which are purchased under this
authority will either be cancelled or held as Treasury Shares.
82 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Further Information/Regulatory Disclosures (unaudited)
Alternative Investment Fund Managers Directive
(AIFMD) Disclosures
Global Data
Amount of assets engaged in TRS
The following table represents the total value of assets
engaged in TRS:
TRS
Concentration Data
Counterparties
£’000
34,410
% of AUM
2.9
The following table provides details of the counterparties and
their country of incorporation (based on gross volume of
outstanding transactions with exposure on a gross basis) in
respect of TRS as at the balance sheet date:
Goldman Sachs
JPMorgan
Country of
Incorporation
U.S.A
U.S.A
£’000
96,444
20,482
Aggregate transaction data
Type, quality, maturity, tenor and currency of collateral
No collateral was received by the Company in respect of TRS
during the year to 31 March 2017. The collateral provided by
the Company to the above counterparties is set out below.
Type
Cash
Currency Maturity
Quality
£’000
USD
less than
1 day
n/a
17,081
Maturity tenor of TRS
The following table provides an analysis of the maturity tenor
of open TRS positions (with exposure on a gross basis) as at
the balance sheet date:
Maturity
1 to 3 months
3 to 12 months
more than 1 year
TRS
Value
£’000
19,540
58,620
38,766
116,926
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 6 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 2017
Gross Commitment
Method
Method
140.0%
119.0%
140.0%
116.9%
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.
Security Financing Transactions Disclosures
As defined in Article 3 of Regulation (EU) 2015/2365,
securities financing transactions (SFT) include repurchase
transactions, securities or commodities lending and
securities or commodities borrowing, buy-sell back
transactions or sell-buy back transactions and margin
lending transactions. Whilst the Company does not engage in
such SFT’s, it does engage in Total Return Swaps (TRS)
therefore, in accordance with Article 13 of the Regulation, the
Company’s involvement in and exposure to Total Return
Swaps for the accounting year ended 31 March 2017 are
detailed below.
Annual Report for the year ended 31 March 2017 83
Worldwide Healthcare Trust PLC
Further Information/Regulatory Disclosures (unaudited)
Settlement and clearing
OTC derivative transactions (including TRS) are entered into
by the Company under an International Swaps and
Derivatives Associations, Inc. Master Agreement (“ISDA
Master Agreement”). An ISDA Master Agreement is a
bilateral agreement between the Company and a
counterparty that governs OTC derivative transactions
(including TRS) entered into by the parties. All OTC derivative
transactions entered under an ISDA Master Agreement are
netted together for collateral purposes, therefore any
collateral disclosures provided are in respect of all OTC
derivative transactions entered into by the Company under
the ISDA Master agreement, not just total return swaps.
Safekeeping of collateral
There was no non-cash collateral provided by the Company
in respect of OTC derivatives (including TRS) with the
counterparties noted above as at the statement of financial
position date.
Return and cost
All returns from TRS transactions will accrue to the Company
and are not subject to any returns sharing arrangements with
the Company’s AIFM, Portfolio Manager or any other third
parties. Returns from those instruments are disclosed in
Note 9 to the Company’s financial statements.
84 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2017
Financial Highlights
Key Information
Company Performance
Chairman’s Statement
Investment Objective and Policy
Strategic Report
1
2
3
4-5
6-7
8-10 Portfolio
OrbiMed Capital LLC
11
12-15 Portfolio Manager’s Review
15
Contribution by Investment
16-19 Sector Outlook
20-25 Business Review
Financial Statements
52
53
54
55-70 Notes to the Financial Statements
Income Statement
Statement of Changes in Equity
Statement of Financial Position
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
Governance
26-27 Board of Directors
28-30 Report of the Directors
Statement of Directors’
31
Responsibilities
32-39 Corporate Governance
40-42 Audit Committee Report
43-45 Directors’ Remuneration Report
46-51 Independent Auditors’ Report
Shareholder Information
Further Information
71
72-73 Glossary
74-75 How to Invest
76-80 Notice of Annual General Meeting
81-82 Explanatory Notes to the Resolutions
83-84 Regulatory Disclosures
Inside
Cover Company Information
Winner:
Investment Week, Investment Company of the
Year 2016,
Category: Specialist (including Hedge Funds)
Highly Commended:
Money Observer Trust Awards 2015,
Category: Best Large Trust
Further Information/Company Information
Directors
Sir Martin Smith (Chairman)
Sarah Bates
Dr David Holbrook
Samuel D. Isaly
Humphrey van der Klugt, FCA
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
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.
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
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 Securities LLC (formerly 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.
Stockbroker
Winterflood Securities Limited
The Atrium Building
Cannon Bridge, 25 Dowgate Hill
London EC4R 2GA
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
Legal Entity Identifier : 5493003YBCY4W1IMJU04
Annual Report
for the year ended 31 March 2017
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Perivan Financial Print 244865
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