Annual Report
for the year ended 31 March 2019
254029 WWH cover spread 6mm.qxp 11/06/2019 12:22 Page 1
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, Link Asset Services, 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
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Perivan Financial Print 254029
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Investment objective
Worldwide Healthcare Trust PLC (the “Company”) is a specialist investment trust which 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.
Worldwide Healthcare Trust PLC is able to participate in all aspects of healthcare, anywhere in the world because of its
broad investment mandate. These may include patented speciality medicines for small patient populations and 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 also extensive with investments in the U.S., Europe, Asia 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 81 and 82.
Contents
Strategic Report
Governance
Statement of Directors’ Responsibilities
30-31 Board of Directors
32-34 Report of the Directors
35
36-42 Corporate Governance
43-46 Audit Committee Report
47-49 Directors’ Remuneration Report
50-56 Independent Auditors’ Report
Further Information
76
Shareholder Information
77-80 Glossary of Terms and Alternative
Performance Measures
81-82 How to Invest
83-87 Notice of Annual General Meeting
88-89 Explanatory Notes to the Resolutions
90-91 Regulatory Disclosures (Unaudited)
92
93
Company Information
Appendix
Financial Highlights
1
Key Information
2
Company Performance
3
Chairman’s Statement
4-5
Investment Objective and Policy
6-7
Portfolio
8-10
11
OrbiMed Capital LLC
12-15 Portfolio Manager’s Review
16
Contribution by Investment
17-22 Sector Outlook
23-29 Business Review
Financial Statements
Income Statement
Statement of Changes in Equity
Statement of Financial Position
57
58
59
60-75 Notes to the Financial Statements
Keep up to date with
Worldwide Healthcare
Trust PLC
For more information about
Worldwide Healthcare Trust PLC
visit the website at
www.worldwidewh.com
Follow us on Twitter
@worldwidewh
254029 WWH pp01-pp29.qxp 11/06/2019 12:22 Page 01
Strategic Report
Strategic Report/Financial Highlights
For the year to 31 March 2019
Net asset value per
share (total return)*^
+13.7%
2018: +2.8%
Share price
(total return)*^
+14.3%
2018: +5.3%
Benchmark*†^
+21.1%
2018: -2.5%
Premium/(Discount) of
share price to net
asset value per share*^
0.3%
2018: (0.3%)
Dividends per share
26.5p
2018: 17.5p
Ongoing Charges^
0.9%
2018: 0.9%
(excludes performance fees
crystallised during the year)
*Source: Morningstar
† MSCI World Health Care Index on a net total return, sterling adjusted basis. Also see Glossary beginning on page 77.
^ Alternative Performance Measure (see Glossary beginning on page 77).
Total return performance for the year to 31 March 2019
125
120
115
110
105
100
95
M ar 18
A pr 18
M ay 18
Jun 18
Jul 18
A u g 18
Se p 18
O ct 18
N ov 18
D ec 18
Jan 19
Fe b 19
M ar 19
Benchmark (total return)
WWH Share Price (total return)
WWH NAV per Share (total return)
Rebased to 100 as at 31 March 2018
Source: Morningstar, Thomson Reuters & Bloomberg
Annual Report for the year ended 31 March 2019 01
Worldwide Healthcare Trust PLC
254029 WWH pp01-pp29.qxp 11/06/2019 12:22 Page 02
Strategic Report/Key Information
Total return performance since launch to 31 March 2019
4000
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
M ar 18
M ar 19
WWH NAV (total return)
WWH Share Price (total return)
Benchmark (total return)*
*
Rebased to 100 as at 28 April 1995
Source: Morningstar, Thomson Reuters & Bloomberg
With effect from 1 October 2010, the performance of the Company is measured against the MSCI World Health Care Index on a
net total return, sterling adjusted basis. Prior to this date, performance was measured against the Datastream World Pharmaceutical
& Biotechnology Index (total return, sterling adjusted)
Five year total return performance to 31 March 2019
250
200
150
100
50
M ar 14
M ar 15
M ar 16
M ar 17
M ar 18
M ar 19
WWH Share Price (total return)
WWH NAV per Share (total return)
Benchmark (total return)
Rebased to 100 as at 31 March 2014
Source: Morningstar, Thomson Reuters & Bloomberg
02 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
254029 WWH pp01-pp29.qxp 11/06/2019 12:22 Page 03
Strategic Report
Strategic Report/Company Performance
Historic performance for the years ended 31 March
2014 2015 2016 2017 2018 2019
Net asset value per share (total return)*† 25.9% 53.0% (9.0%) 28.9% 2.8% 13.7%
Benchmark (total return)*† 14.9% 35.9% (5.4%) 24.5% (2.5%) 21.1%
Net asset value per share – basic 1,374.3p 2,039.3p 1,850.9p 2,367.2p 2,411.1p 2,722.9p
Net asset value per share – diluted** 1,348.2p 2,039.3p 1,850.5p 2,367.2p 2,411.1p 2,722.9p
Share price 1,301.0p 1,930.0p 1,715.0p 2,304.0p 2,405.0p 2,730.0p
(Discount)/Premium of share price to diluted
net asset value per share† (3.5%) (5.4%) (7.3%) (2.7%) (0.3%) 0.3%
Dividends per share 15.0p 12.5p 16.5p 22.5p 17.5p 26.5p
Leverage† 13.9% 13.2% 14.0% 16.9% 16.4% 4.9%
Ongoing charges† 1.0% 1.0% 0.9% 0.9% 0.9% 0.9%
Ongoing charges (including performance fees
paid or crystallised during the year)† 1.1% 2.2% 2.1% 1.0% 1.2% 1.1%
*Source: Morningstar
**Dilution to take account of the Company’s Subscription Shares (which expired on 31 July 2014) and any shares held in treasury.
†Alternative Performance Measure (see Glossary beginning on page 77).
(Discount)/Premium of the Company’s Share Price to the Net Asset Value per Share –
Year to 31 March 2019
%
2.0
1.5
1.0
0.5
0.0
-0.5
M ar 18
A pr 18
M ay 18
June 18
Jul 18
A u g 18
Se p 18
O ct 18
N ov 18
D ec 18
Jan 19
Fe b 19
M ar 19
Source: Frostrow Capital LLP
Annual Report for the year ended 31 March 2019 03
Worldwide Healthcare Trust PLC
254029 WWH pp01-pp29.qxp 11/06/2019 12:22 Page 04
Strategic Report/Chairman’s Statement
Sir Martin Smith
Investment performance
Whilst the Company has produced another positive return for
shareholders this year, it is disappointing to report that the
strong performance reported at the half-year stage did not
continue in the second half of the year, when periods of
extreme market volatility were in evidence.
The financial year ended 31 March 2019 saw another positive
return for shareholders. The Company’s net asset value per
share total return was +13.7% and the share price total
return was +14.3%.
Although this is a strong return, the pattern of relative returns
was volatile over the year, with outperformance being seen in
the first and last three months, whilst underperformance
occurred in the middle six months. In particular, the very
turbulent market conditions in the three months to December
2018 saw a sharp fall in your Company’s net asset value,
followed by a sharp recovery in the first three months of 2019.
Over the full year, your Company’s net asset value per share
underperformed the Benchmark, the MSCI World Health Care
Index on a net total return, sterling adjusted basis . The
Benchmark provided a return of +21.1%, compared with the
Company’s net asset value total return as noted above, of
+13.7%. Approximately 40% of both returns was due to the
weakness of sterling over the year.
Your Company has a very strong long-term record of both
absolute and relative performance. The major factors behind
the relative underperformance over the last year have also
been contributors to that long-term record. Approximately
70% of the relative underperformance was the consequence of
our lower allocation to the global pharmaceutical sector.
During the year, stocks in that sector outperformed the
Benchmark significantly, providing very strong returns. Our
Portfolio Manager considered, and continues to consider, that
the major innovative opportunities offered within the
healthcare sector are to be found elsewhere, including in
emerging markets and emerging biotechnology, where the
Company has an overweight allocation. Both of those sectors
underperformed the Benchmark in the financial year.
Exposure to healthcare services, speciality and generic
pharmaceutical sectors also detracted during the year, while
positive relative performance arose from exposure to the
medical devices sector and Japan.
The Company had, on average, leverage of 15.4% during the
year (2018: 16.1%) which contributed 1.6% to performance
(2018: the contribution to performance was 0.9%). As at the
04 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
year-end, the leverage level stood at a much reduced 4.9%,
which reflected shorter term rather than more strategic
factors.
Shareholders will be aware that the Company is able to
invest up to 10% of the portfolio, at the time of acquisition, in
unquoted securities. Our Portfolio Manager has identified
some selected opportunities for the Company to invest in a
small number of pre-initial public offering (IPO) healthcare
companies. One of these companies successfully listed
during the year and another, having announced an intention
to list, became the subject of a takeover following the
Company’s year-end.
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 2019, the total return of the
Company’s net asset value per share has been +3,130.3%,
equivalent to a compound annual return of +15.6%. This
compares to a cumulative blended Benchmark return of
+1,407.9%, equivalent to a compound annual return of
+12.0% 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, beginning on page 12.
Capital
The Company’s share price traded at a premium to the net
asset value per share for much of the year. In accordance with
the Company’s share price premium management policy,
2,734,000 new shares were issued during the year at an
average premium of 0.8% to the Company’s cum income net
asset value per share. This issuance gave rise to the receipt of
£72.5m of new funds by the Company, which have been
invested in line with the Company’s investment policy. Since
the end of the year, a further 245,000 new shares have been
issued raising £6.5m of new funds. No shares were
repurchased by the Company during the year and to the date
of this report.
The Company’s share issuance and share buy-back
authorities will as usual be proposed for renewal at the
Company’s Annual General Meeting to be held in July 2019.
Revenue and dividend
Shareholders will be aware that it remains the Company’s
policy to pursue capital growth for shareholders and to pay
254029 WWH pp01-pp29.qxp 11/06/2019 12:22 Page 05
Strategic Report
Strategic Report/Chairman’s Statement
dividends at least to the extent required to maintain
investment trust status. Therefore, the level of dividends
declared can go down as well as up. A first interim dividend
of 6.5p per share, for the year ended 31 March 2019, was paid
on 9 January 2019 to shareholders on the register on
23 November 2018. The Company’s net revenue return for the
year as a whole rose to £14.5m (2018: £9.0 m) due, in part, to
an increase in exposure to higher yielding stocks in the
portfolio and also to the weakness of sterling against the
U.S.$. Accordingly, the Board has declared an increased
second interim dividend of 20.0p per share (2018: 11.0p per
share) which, together with the first interim dividend already
paid, makes a total dividend for the year of 26.5p (2018: 17.5p
per share). Based on the closing mid-market share price of
2,580.0p on 4 June 2019, the total dividend payment for the
year represents a current yield of 1.0%.
The second interim dividend will be payable on 16 July 2019
to shareholders on the register of members on 7 June 2019.
The associated ex-dividend date will be 6 June 2019.
Composition of the Board
The Board is conscious of the need to refresh its own
membership, including my position as Chairman, over the
next three years. Planning is currently in hand to achieve
these changes in an orderly manner, and in a way that gives
full consideration to our diversity aspirations. The Board has
already begun the search for an additional Director with
relevant experience in the healthcare sector and, in due
course, it will be considering my own succession.
Announcements will be made as appropriate.
Outlook
Despite continued volatility in the healthcare sector due, in
part, to increased levels of political rhetoric in the run-up to
the U.S. 2020 Presidential election, fears of a slowing
economy and continued U.S.-China trade wars, our Portfolio
Manager expects the outlook to remain positive, given strong
innovation (including in transformative technologies such as
gene therapy), a pick-up in mergers and acquisitions activity
after a strong start to 2019 and a regulatory environment that
remains supportive of new drug approvals.
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.
Proposed amendments to the Company’s
investment policy
The Directors are proposing to make certain amendments to
the Company’s existing investment policy, which more
accurately reflect our Portfolio Manager’s strategy. The
amended investment policy will apply, subject to shareholder
approval which is required in accordance with the Listing Rules
as these changes are considered material, with effect from the
Company’s Annual General Meeting on 9 July 2019. Full details
of the proposed amendments are set out in the appendix on
page 93 of this Annual Report. The Board unanimously
recommends that shareholders vote in favour of this resolution.
Continuation vote
The Board has undertaken that every five years there will be
a continuation vote resolution tabled at the Annual General
Meeting falling in that year. Accordingly, such a resolution is
included in the notice of Annual General Meeting contained
within this report. In light of the Company’s track record and
its ability to provide shareholders access to a broad range of
healthcare sectors on a global basis, and also the outlook for
the healthcare sector, the Board unanimously recommends
that shareholders vote in favour of the resolution allowing the
Company to continue as an investment trust for a further
five years.
Annual General Meeting
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. The Company’s Annual General
Meeting will be held at etc. venues St. Paul’s, 200 Aldersgate
Conference Centre, London EC1A 4HD on Tuesday, 9 July 2019
at 12 noon.
As I mentioned last year, we have not issued paper forms of
proxy as a matter of course this year. Voting on the resolutions
to be considered at the Company’s Annual General Meeting
can be made via our Registrar’s website at
www.signalshares.com (please also see page 86 for further
information). However, any shareholders who would like a hard
copy form of proxy may request one from our Registrar, Link
Asset Services, whose contact details can be found on page 92.
Sir Martin Smith
Chairman
5 June 2019
Annual Report for the year ended 31 March 2019 05
Annual Report for the year ended 31 March 2019 05
Worldwide Healthcare Trust PLC
Worldwide Healthcare Trust PLC
254029 WWH pp01-pp29.qxp 11/06/2019 12:22 Page 06
Strategic Report/Investment Objective and Policy
Investment Objective
The Company invests in the global healthcare sector with the objective of achieving a high level of capital growth. In order to
achieve its investment objective, the Company invests worldwide in a diversified portfolio of shares in pharmaceutical and
biotechnology companies and related securities in the healthcare sector. It uses gearing, and derivative transactions to
enhance returns and mitigate risk. Performance is measured against the MSCI World Health Care Index on a net total return,
sterling adjusted basis (“Benchmark”).
Investment strategy
The implementation of the Company’s Investment Objective
has been delegated to OrbiMed by Frostrow (as AIFM) under
the Board’s and Frostrow’s supervision and guidance.
– healthcare equipment and supplies
– healthcare technology
– healthcare providers and services;
Details of OrbiMed’s investment strategy and approach are
set out in the Portfolio Manager’s Review on pages 12 to 15.
While the Board’s strategy is to allow flexibility in managing
the investments, in order to manage investment risk it has
imposed various investment, gearing and derivative
guidelines and limits, within which Frostrow and OrbiMed are
required to manage the investments, as set out below.
Any material changes to the Investment Objective, Policy and
Benchmark or the investment, gearing and derivative
guidelines and limits require approval from shareholders.
Investment Policy
Investment limits and guidelines
• The Company will not invest more than 15% of the portfolio
in any one individual stock at the time of acquisition;
• At least 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;
• 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.
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.
The Company does not currently hedge against foreign
currency exposure.
• A maximum of 20% of the portfolio, at the time of
acquisition, may be invested in companies in each of the
following sectors:
Gearing limits
The Board has set a maximum gearing level, through
borrowing, of 20% of the net assets.
06 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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Strategic Report
Strategic Report/Investment Objective and Policy
Proposed amendments to the Company’s investment policy
As noted in the Chairman’s Statement on page 5, a proposal
is being put forward at the Company’s Annual General
Meeting to seek approval from shareholders to make
amendments to the investment policy of the Company. The
proposed amendments, if approved, shall come into effect
from 9 July 2019. The proposed amendments to the
Company’s investment policy is described in the appendix on
page 93.
Leverage limits
Under the AIFMD the Company is required to set maximum
leverage limits. Leverage under the AIFMD is defined as any
method by which the total exposure of an AIF is increased.
The Company has two current sources of leverage: the
overdraft facility, which is subject to the gearing limit; and,
derivatives, which are subject to the separate derivative
limits. The Board and Frostrow have set a maximum leverage
limit of 140% on both the commitment and gross basis.
Further details on the gearing and leverage calculations, and
how total exposure through derivatives is calculated, is
included in the Glossary beginning on page 77. Further
details on how derivatives are employed can be found in
note 16 beginning on page 69.
Dividend Policy
It is the Company’s policy to pay out dividends to shareholders
at least to the extent required to maintain investment trust
status for each financial year.
Annual Report for the year ended 31 March 2019 07
Worldwide Healthcare Trust PLC
254029 WWH pp01-pp29.qxp 11/06/2019 12:22 Page 08
Strategic Report/Portfolio
Investments held as at 31 March 2019
Market
value % of
Investments Country/region £’000 investments
Takeda Pharmaceutical* Japan 126,194 9.1
Merck USA 79,545 5.7
Alexion Pharmaceuticals USA 77,866 5.6
Boston Scientific USA 76,277 5.5
Novartis Switzerland 64,057 4.6
Novo Nordisk** Denmark 55,208 4.0
Edwards Lifesciences USA 47,955 3.5
Wright Medical USA 46,853 3.4
Vertex Pharmaceuticals USA 44,254 3.2
Neurocrine Biosciences USA 43,722 3.1
Top 10 investments 661,931 47.7
Mylan USA 43,313 3.1
Intuitive Surgical USA 38,796 2.8
Thermo Fisher Scientific USA 35,464 2.5
Anthem USA 34,339 2.5
Bristol-Myers Squibb USA 28,251 2.0
Bausch Health Canada 27,245 1.9
Regeneron Pharmaceuticals USA 26,149 1.9
Immunomedics USA 23,192 1.7
CanSino Biologics China 23,093 1.7
Abbott Laboratories USA 22,428 1.6
Top 20 investments 964,201 69.4
Illumina USA 21,603 1.5
Chugai Pharmaceutical Japan 21,585 1.6
Puma Biotechnology USA 20,990 1.5
Teva Pharmaceutical Industries Israel 20,903 1.5
Sarepta Therapeutics USA 20,516 1.5
Cigna USA 19,944 1.4
Deciphera Pharmaceuticals USA 19,347 1.4
Agilent Technologies USA 16,260 1.2
Sino Biopharmaceutical China 16,077 1.2
Humana USA 15,780 1.1
Top 30 investments 1,157,206 83.3
Clovis Oncology USA 15,213 1.1
PTC Therapeutics USA 14,373 1.0
Tandem Diabetes Care USA 14,330 1.0
MyoKardia USA 14,073 1.0
Endo International Ireland 13,874 1.0
eHealth USA 12,720 0.9
Exelixis USA 12,338 0.9
Shanghai Fosun Pharmaceutical China 12,173 0.9
Ascendis Pharma Denmark 10,975 0.8
Genfit France 10,660 0.8
Top 40 investments 1,287,935 92.7
BeiGene*** China 9,447 0.7
CareDx USA 9,174 0.7
Prothena Ireland 8,929 0.6
Harpoon Therapeutics USA 7,774 0.6
Alliance Healthcare Services FRN 20/04/2024 (unquoted) USA 7,549 0.6
Cadila Healthcare India 7,035 0.5
DexCom USA 6,070 0.4
Bioventus FRN 21/11/2021 (unquoted) USA 5,789 0.4
ProQR Therapeutics Netherlands 5,769 0.4
Alphamab Oncology (unquoted) China 4,605 0.3
Top 50 investments 1,360,076 97.9
* includes Takeda Pharmaceutical ADR equating to 0.4% of investments.
** includes Novo Nordisk ADR equating to 1.0% of investments.
*** includes BeiGene ADR equating to 0.5% of investments.
08 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
254029 WWH pp01-pp29.qxp 11/06/2019 12:22 Page 09
Strategic Report/Portfolio
Strategic Report
Market
value % of
Investments Country/region £’000 investments
Medical Depot Holdings FRN 21/12/2023 (unquoted) USA 4,037 0.3
Jubilant Life Sciences India 3,832 0.3
Wenzhou Kangning Hospital China 3,432 0.2
Peloton Therapeutics (unquoted) USA 2,686 0.2
Yestar Healthcare China 1,768 0.1
China Medical System China 1,698 0.1
China Traditional Chinese Medicine Hong Kong 942 0.1
Innoviva FRN 18/08/2022 (unquoted) USA 84 0.0
Aegerion Pharmaceuticals 2% 15/08/2019 (unquoted) USA 66 0.0
Wright Medical Contingent Value Rights Netherlands 60 0.0
Total equities and fixed interest investments 1,378,681 99.2
OTC Equity Swaps – Financed^
JPM China HC A-Share (Basket) China 32,664 2.4
Emerging Markets Healthcare (Basket) Emerging Markets 17,072 1.2
Aier Eye Hospital Group China 15,482 1.1
Apollo Hospitals India 15,039 1.1
Jiangsu Hengrui Medicine China 14,701 1.1
Hangzhou Tigermed Consulting China 8,996 0.6
Aurobindo Pharma India 7,798 0.6
Glenmark Pharmaceuticals India 5,010 0.4
Less: Gross exposure on financed swaps (107,713) (7.8)
Total OTC Swaps 9,049 0.7
Total investments including OTC swaps 1,387,730 99.9
Put Options (Long) 1,350 0.1
Put Options (Short) (611) 0.0
Call Options (Long) 558 0.0
Call Options (Short) (52) 0.0
Total investments including OTC swaps and options 1,388,975 100.0
^ See Glossary beginning on page 77 and note 16 beginning on page 69 for further details in relation to the OTC swaps and options. Basket swaps may include
underlying holdings that are also held directly.
SUMMARY
Market value % of
Investments £’000 investments
Quoted equities 1,353,865 97.4
Unquoted debt securities – variable rate 17,459 1.3
Swaps 9,049 0.7
Unquoted equities 7,291 0.5
Options 1,245 0.1
Unquoted debt securities – fixed rate 66 0.0
Total of all investments 1,388,975 100.0
Annual Report for the year ended 31 March 2019 09
Worldwide Healthcare Trust PLC
2018
2018
15.2
29.5
35.9
■ Pharmaceutical
■ Biotechnology
■ Health Care
Equipment/
Supplies/
Technology
■ Healthcare
Providers &
Services
■ Life Sciences
Tools &
4.0
Services
■ Swap Baskets*
5.4
■ Debt Instruments 2.5
7.5
■ North America 64.6
■ Emerging
Markets
■ Europe
■ Asia
11.4
17.2
6.8
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Strategic Report/Portfolio
Portfolio distribution
By sector
2019
17.0
36.6
27.5
■ Pharmaceutical
■ Biotechnology
■ Health Care
Equipment/
Supplies/
Technology
■ Healthcare
Providers &
Services
■ Life Sciences
Tools &
6.2
Services
■ Swap Baskets*
3.3
■ Debt Instruments 1.2
8.2
By geography
2019
■ North America 63.9
■ Emerging
Markets
■ Europe
■ Asia
14.8
11.4
9.9
* See Glossary beginning on page 77.
10 Worldwide Healthcare Trust PLC
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Strategic Report
Strategic Report/OrbiMed Capital LLC
OrbiMed was founded in 1989 and has evolved over time to be
one of the largest dedicated healthcare investment firms 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.
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 lead managers with responsibility for the Company’s
portfolio are as follows:
Sven H. Borho, CFA, is a founder and
Managing Partner of OrbiMed. Sven heads
the public equity team and he is the
portfolio manager for OrbiMed’s public
equity and hedge funds. He has been a
portfolio manager for the firm’s funds since
1993 and 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. Sven 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 Partner at OrbiMed focused on
the global pharmaceutical industry. Trevor
joined OrbiMed in 2003 and became a
Partner in 2011. 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 Global
Marketing Planning team within Parke-Davis. Trevor holds a
Doctorate in Neuropharmacology & Gross Human Anatomy and
an M.B.A. from Queen's University, Canada.
OrbiMed had over U.S.$13 billion in assets under
management as of 31 March 2019, 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 Investment Team continues to expand and now
has over 80 investment professionals that cover all aspects of
research, trading, finance, and compliance. This includes over
20 degree holders with MD and/or PhD credentials, healthcare
Annual Report for the year ended 31 March 2019 11
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Strategic Report/Portfolio Manager’s Review
Performance Review
The financial year ended 31 March 2019 was not for the faint
of heart. Whilst the first half of the year was mostly orderly
and positive for global equity markets, the hallmark of the
period will surely be the historic downturns of October and
December which put the markets in full “bear” territory,
albeit temporarily.
During the third quarter stocks were especially volatile with
the VIX (the Chicago Board Options Exchange Volatility Index)
spiking above 35 in December after trending sideways and
below 20 most of the year. A multitude of macroeconomic
factors were to blame, from rising interest rates, to a slowing
U.S. economy, to full blown recessionary fears before the end
of December 2018. Other factors also fuelled the uncertainty
and contributed to the market downturn, including the partial
shutdown of the U.S. Federal government and deepening
U.S.-China trade wars. International stocks were not immune
and suffered losses in the quarter that were reminiscent of the
2008 global financial crisis. Volatility was especially notable in
France, Italy, and the United Kingdom as local politics and/or
economic woes added to the market tumult.
However, as the calendar turned to 2019, markets rebounded
considerably. Most economic indicators turned positive,
monetary policy became more dovish, and the fear of a
recession subsided. With that, volatility plummeted, and the
global equity markets responded positively in the final quarter
of the financial year, retracing most, but not quite all the losses
recorded in the preceding three months.
The net results were positive returns for global equities for the
financial year ended 31 March 2019. The MSCI World Index
rose 12.9% (total return in sterling terms) whilst the FTSE 100
Index returned a more modest +7.6% (total return in sterling
terms). We are pleased to report positive returns for the
Company as well with the net asset value per share total
return of +13.7% and the share price total return of +14.3%.
These positive returns outperformed the broad market indices,
but lagged our healthcare benchmark. The MSCI World
Healthcare Index, measured on a net total return, sterling
adjusted basis, advanced 21.1% during the year.
In our assessment, the macro-centric moves of the global
equity markets and our relative positioning were the primary
reasons for the recorded underperformance during the year.
Specifically, the differing returns between the Company and
our healthcare benchmark were primarily driven by the
volatile second and third quarters of the financial year in which
high growth, smaller capitalisation stocks – such as
biotechnology and emerging markets – lagged the large
capitalisation, low volatility, high weight index stocks – such as
large capitalisation pharmaceuticals and healthcare services.
Our relative positioning across these specific sub-sectors was
the reason that underperformance arose.
Overall, since the Company’s inception in 1995 to 31 March
2019, the total return of the Company’s net asset value per
share is +3,130.3%, equivalent to a compound annual return of
+15.6%. This compares to the blended benchmark rise of
+1,407.9%, equivalent to a compound annual return of +12.0%.
A closer examination of quarterly performance helps to elucidate
the positive absolute returns and the relative underperformance
in the reported period.
April to June 2018
In the first quarter of the financial year, volatility was subsiding
from the previous quarter. At the same time sterling
weakened. Company fundamentals, both positive and negative,
were driving share price moves. Overall, the Company
outperformed during this quarter due to a mix of allocation
(overweight biotechnology and emerging markets;
underweight large capitalisation pharmaceuticals) and stock
picking (particularly in medical devices).
July to September 2018
In the second quarter of the financial year, the narrative began
to shift. Whilst volatility remained low and equities moved
higher, not all sectors moved equally. Trade war rhetoric
between the U.S. and China on tariffs began to percolate. Some
popular technology stocks experienced high-profile blow-ups,
such as Facebook. As a result, investors started to shift their
mentality, from “growth” to “value” and some of the share price
moves were turbulent if not outright violent. This rotation
greatly benefited large capitalisation pharmaceutical stocks to
the detriment of emerging biotechnology stocks, regardless of
fundamental news flow. In fact, many biotechnology stocks
were not rewarded with higher share prices during this time
after positive news, significantly blunting our catalyst driven
strategy. Further, emerging markets experienced a tumultuous
sell-off during this rotation. Whilst the benchmark moved
higher owing to the defensive characteristics of healthcare, as
did the Company’s share price, our performance lagged the
12 Worldwide Healthcare Trust PLC
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Strategic Report
Strategic Report/Portfolio Manager’s Review
sector due to the portfolio allocation (overweight biotechnology
and emerging markets whilst underweight large capitalisation
pharmaceuticals and healthcare services).
October to December 2018
The third quarter of the financial year was simply a perfect
storm. During this time, volatility exploded, correlations
spiked, and news flow was negative. The shift from “growth to
value” that had commenced mid-year became a full blown
“risk-off” environment, culminating in record market losses in
December that were second only to those observed during the
Great Depression of 1931. Even bellwether Johnson & Johnson
was not immune. When a news story broke around the
company’s litigation over the safety of baby powder, the
company’s share price plummeted over 10% within a single
trading period, wiping out U.S.$45 billion in market
capitalisation, the largest one-day drop in over 15 years. This
event typified the anxious market conditions at the time. Whilst
the benchmark, too, reflected such tumultuous conditions, our
losses were larger, again owing to our allocation to much
riskier healthcare sub-sectors such as biotechnology,
specialty pharmaceuticals, and emerging markets (each
sector plummeting over 10% in December alone) and an
underweight of the “safer” large capitalisation pharmaceutical
sub-sector.
January to March 2019
Finally, however, the last quarter of the financial year brought
some welcome respite. In fact, signs of a market recovery were
first evident in late December. The peak of the volatility spike
occurred on December 26, 2018, at over 36 (as per the VIX). The
downward trend began immediately thereafter, with the VIX
closing the month of January below 17, a level not seen since
before the carnage of the previous three months. The result?
A dramatic drop in correlations and orderly share price
movement driven primarily by fundamentals. First, we
witnessed a significant rebound in U.S. biotechnology stocks,
partially fuelled by the surprising take-out of Celgene by
Bristol-Myers Squibb but also a nod to the oversold status of
biotechnology stocks and depressed valuations that were the
hallmark of the end of 2018. Second, large capitalisation
pharmaceutical stocks underperformed in the fourth quarter of
the financial year (declining 2.4% in sterling terms) after
benefitting from a macro rotation in the previous two quarters.
Third, emerging markets rebounded significantly after U.S.-China
trade talks resumed in earnest in early 2019. Therefore, overall
positive positioning in the fourth quarter of the financial year
(overweight biotechnology and emerging markets and
underweight large capitalisation pharmaceuticals), key stock
picking (such as Takeda Pharmaceutical), and mergers and
acquisitions (M&A) (such as Celgene and Spark Therapeutics)
culminated in a recapture of nearly 10% of excess return in the
quarter.
Therefore, key upside drivers for the entirety of the financial
year included investments in biotechnology (despite the
volatility) and stock picking within large capitalisation
pharmaceuticals, medical devices and Japan. On a cumulative
basis, however, our positive performance lagged the
benchmark’s returns with the primary culprit being the
portfolio allocation, notably profound underweights in large
capitalisation pharmaceuticals and healthcare services.
Contributors to Performance
The largest single contributor to performance in the year was
Merck, the leader in the still hot immuno-oncology (IO) space.
The company assumed leadership in the global IO arms race
after announcing positive early in 2018 data for the treatment
of frontline advanced or metastatic lung cancer. Simply, the
data showed that taking Keytruda (pembrolizumab) and
chemotherapy instead of chemotherapy alone reduced the risk
of death by over 50%. This data changed the standard of care
globally for the treatment of this deadly disease. Additionally,
the company has been able to garner 15 distinct approvals for
Keytruda, including treating cancers of the lung, skin, kidney,
bladder, stomach, head & neck, among others. Global sales of
Keytruda reached over U.S.$7 billion in 2018. Consensus
estimates for Keytruda continue to rise in the out years and
the leverage to the bottom line is significant as this drug
reaches critical sales mass. As a result, the stock was the
biggest gainer (in local currency) across all large capitalisation
pharmaceutical stocks in 2018 and contributed nearly 3% to
the Company’s performance in the financial year.
One of the most innovative companies in medical technology,
Boston Scientific develops products that are used in
interventional cardiology, cardiac rhythm management,
peripheral interventions, electrophysiology, neurovascular
intervention, endoscopy, urology, gynaecology, and
neuromodulation procedures. The diversification of the
business across several end markets and leadership positions
in each of these businesses, has helped the company grow to
one of the leading medical devices companies today. Shares in
the company consistently outperformed during the financial
year given repeated upward revisions to guidance. Additionally,
Boston Scientific has engaged in 10 acquisitions over the
course of the past year that have the potential to dramatically
improve the company’s longer-term growth profile.
Annual Report for the year ended 31 March 2019 13
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Strategic Report/Portfolio Manager’s Review
Wright Medical develops joint replacement devices, primarily
for shoulder, foot and ankle, trauma and sports medicine
procedures, as well as orthobiologic products. Strength in the
shares over the period has been driven by several factors. The
most notable was a faster than expected turnaround in sales
force productivity, which had been a point of material investor
concern in prior years. Moreover, the U.S. Food and Drug
Administration (FDA) approved a key new biologic product for
the company – Augment injectable – and the company also
acquired Cartiva, which improves the company’s lower
extremities business and gives it access to a new high growth
market. Both Augment injectable and Cartiva could potentially
be platform technologies, setting up for further indications in
the future. Lastly, the company has taken several steps over
the past year to clean up its balance sheet which could support
generating stronger cash flows going forward.
Alexion Pharmaceuticals is a large capitalisation biotechnology
company focused on rare orphan diseases whose lead
product, Soliris (eculizumab), is marketed for several
complement-mediated diseases, including paroxysmal
nocturnal haemoglobinuria, acute haemolytic anaemia, and
myasthenia gravis. Over the course of the year, the company
beat quarterly earnings expectations on a consistent basis,
announced positive Phase III results for their next-generation
complement inhibitor Ultomiris (ravulizumab-cwvz), completed
a number of business development transactions to diversify
their pipeline, and reported unexpected positive results for
Soliris in neuromyelitis optica. Through much of the year, the
stock had been trading at a depressed valuation due to concerns
over the company’s heavy revenue reliance on Soliris and fears
over upcoming competition to that franchise. The company’s
ability to maintain revenues over the long term was dependent
on the successful development and commercialisation of the
long acting Ultomiris. The drug was finally approved in
December 2018, and initial statistics on the number of patients
who have switched to the new therapy have been better than
expectations. The company’s shares have appreciated as
investors have become more confident that Alexion will
successfully transition its patient base to Ultomiris and
successfully defend its franchise against upcoming competition.
A leader in the cardiology device space, Edwards Lifesciences
is a developer of tissue replacement heart valves, and more
specifically transcatheter heart valves (THV). The company’s
aortic THV portfolio has been on the market for some time, but
currently is only approved in the United States for patients
deemed intermediate-to high-risk for open heart surgery. Data
for the final group – the low-risk patients – was presented in
March 2019. Investor optimism had been increasing for this
dataset over the past year and so had the stock price.
Nevertheless, the data was actually better than heightened
expectations, and demonstrated statistical superiority
compared to the control arm (surgery). This was the best-case
outcome, and shares reacted accordingly. Lastly, in late
September 2018, Abbott Laboratories presented strong data
on its THV device for mitral valve repair, in effect validating this
new market. Given that a large portion of the Edwards’
pipeline is tied to devices for this new valve type, Edwards’
shares were buoyed as well.
Detractors from Performance
The largest absolute detractor to performance in the reported
period was Nevro a manufacturer of spinal cord stimulation
devices for the treatment of chronic pain. Over the course of
2018, Nevro’s shares were adversely impacted by several
factors. To start, the company missed sales expectations for the
first quarter of the year by a wide margin and subsequently
announced that the Vice President of Sales for the company
was leaving. Second, the company materially lowered guidance
for the balance of the year on the second quarter call despite
beating expectations for the quarter. Lastly, the company
lowered its expectations for the overall spinal cord stimulation
market on the third quarter call, which called into a question a
potential rebound for the stock in 2019, or even 2020.
Shares of Mylan, a Netherlands-domiciled generic drug
company with extensive U.S. operations, declined significantly
during the financial year, when it missed earnings expectations
and revised down financial guidance due to delayed product
launches and greater than expected pricing erosion for its
base products. In February 2019, Mylan provided lower than
expected financial guidance, reflecting a significant increase in
operating expenses. Despite these revisions, the company’s
valuation is very attractive, and we believe recent product
launches could drive solid revenue and earnings per share
growth in the years ahead.
Puma Biotechnology is an emerging biotechnology company
that launched their first drug Nerlynx (neratinib) in 2017 in the
U.S. to treat patients who have undergone surgery for early
stage breast cancer. For the first three quarters of the financial
year, the stock steadily drifted downwards despite (1) the
company securing European approval for Nerlynx, (2) quarterly
sales of Nerlynx consistently meeting expectations, (3) full year
2018 sales of Nerlynx eclipsing U.S$200 million, and
(4) positive Phase III for Nerlynx reported in December for the
treatment of metastatic breast cancer. Nevertheless, investor
angst grew steadily in 2018 about the company’s reported new
patient starts on Nerlynx, believing the number of new patients
14 Worldwide Healthcare Trust PLC
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Strategic Report
Strategic Report/Portfolio Manager’s Review
Derivatives Strategy
The Company continues to employ a derivative overlay strategy
to glean market intelligence and create additional
outperformance. The strategy has generated meaningful and
consistent outperformance since 2006, including a small
positive contribution this year. The options strategy is used to
create target effective entry prices in favoured stocks, leverage
specific catalysts and capture special situation opportunities.
Two derivative specialists implement the strategy in careful
consultation with the portfolio management team. The
Company adheres to strictly defined risk limits and in practice
maintains a net exposure well below the 5% restriction. In
addition to the derivative overlay strategy, we utilise thematic
over-the-counter basket swaps for both tactical and strategic
investment purposes. Swaps are an efficient and effective way
to gain exposure to a therapeutic category or to a specific
market theme (e.g., oncology; M&A; geography).
Gearing and Leverage
The Board has set a maximum gearing level, through
borrowing, of 20% of the Company’s net assets. Historically,
the level of gearing has typically ranged between 5% to 15%.
During the year, this level transiently fell below this historical
range due to the disposal of two significant large capitalisation
positions within the portfolio. In these cases, one company,
Celgene, was the subject of a successful takeover approach
and the other, Biogen, was sold due to imminent negative
news flow. These positions combined, at their peak, amounted
to 11.7% of the portfolio. The Company’s leverage level stood
at 4.9% at the year-end which arose from the Company’s
derivative exposure.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
5 June 2019
starting therapy would be insufficient to offset the number of
patients discontinuing treatment in future quarters.
Additionally, share price weakness also stemmed from the
collective sell-off of commercial stage small-capitalisation
biotechnology stocks, which collectively sold off in the absence
of meaningful M&A activity in the latter half of the calendar
year. Finally, the stock dropped in November when the
company disclosed that the patient numbers they had released
previously had to be restated to a lower level. However, towards
the end of the financial year, the company posted strong fourth
quarter results that came above the high end of their guidance
range and it issued positive 2019 sales guidance that led to a
sharp rebound in the stock. The numbers restored investor
confidence in the growth trajectory of Nerlynx.
Therapeutics stocks, by their very nature, carry inherent risk
due to the vagaries of new drug discovery and development.
We therefore applauded the strategic acquisition of Monsanto
by Bayer to diversify the company and become the leader in
agricultural sciences whilst maintaining their presence in
biopharmaceuticals and consumer healthcare. Especially in
the face of an uncertain pricing environment in the U.S. for
prescription drugs. The outlook for growth for the newco is
well above industry average and the valuation was compelling.
When the share price took a notable dip after the first court
ruling around glyphosate litigation, we saw the valuation as
even more compelling. However, when the capital markets day
and 2019 guidance underwhelmed, our constructive long
thesis was partially scuttled; so we accepted our losses and
exited the stock.
Clovis Oncology is a commercial stage biotechnology
company focused on cancer therapies. Their lead product,
Rubraca (rucaparib), is an oral therapy for recurrent ovarian
cancer that was launched in early 2017. Rubraca belongs to a
class of drugs known as “PARP inhibitors” that is an attractive
new class of anti-cancer drugs. Other PARP competitors to
Rubraca have enjoyed large business development deals
(AstraZeneca and Merck) or have been bought outright (Tesaro
by GlaxoSmithKline). Shares for Clovis, however, experienced a
long and gradual decline throughout 2018 largely due to
investors’ dissipating hopes of a takeout, which had built up in
2017 when the shares meaningfully appreciated. Share price
weakness was exacerbated by the collective sell-off of
commercial stage small-capitalisation biotechnology stocks,
which collectively sold off in the absence of meaningful M&A
activity in the latter half of the calendar year. In addition, the
company also suffered from slower-than-anticipated growth in
Rubraca and investors’ concern on competitive dynamics.
Annual Report for the year ended 31 March 2019 15
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Strategic Report/Contribution by Investment
Contribution by Investment
Principal contributors to and detractors from net asset value performance
Contribution
Contribution per share*
Top five contributors £’000 £
Merck 34,994 0.69
Boston Scientific 27,200 0.53
Wright Medical 22,175 0.44
Alexion Pharmaceuticals 19,007 0.37
Edwards Lifesciences 14,222 0.28
117,598 2.31
Top five detractors
Clovis Oncology (6,841) (0.13)
Bayer† (7,713) (0.15)
Puma Biotechnology (11,125) (0.22)
Mylan (12,722) (0.25)
Nevro† (13,020) (0.26)
(51,421) (1.01)
*Calculation based on 50,918,841 shares being the weighted average number of shares in issue during the year ended
31 March 2019.
†Not held in the portfolio as at 31 March 2019.
* 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.
16 Worldwide Healthcare Trust PLC
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Strategic Report
Strategic Report/Sector Outlook
Global Pharmaceuticals
Global large capitalisation pharmaceutical stocks were
somewhat of an enigma in the financial year. Perhaps no
sector better exemplified the unique dynamics of healthcare
equities and the macroeconomic influences that dictated share
price performance in the period. In our view, the large rotation
into pharmaceutical stocks and outsized outperformance was
due solely to these macro factors: a defensive rotation given
fears of rising interest rates, market volatility, and a slowing
global economy. Fundamentals, such as earnings, clinical
catalysts, or political risk had much less or even no effect on
stocks through the year.
The start of the year was unremarkable, with shares moving
mostly sideways through to the beginning of July. Revenue and
earnings performance were typical for large capitalisation
pharmaceuticals: low to mid-single digit top line growth and
mid to high-single digit earnings per share growth. Moreover,
there remained some investor angst over drug pricing in the
U.S. and what the Trump administration may or may not have
planned from a legislative perspective. The collective lack of
notable share price moves was reflective of the fundamentals
at that time: minimal catalysts, financials as expected, and
in-line valuations.
However, as the second quarter earnings approached, the
defensive nature of large capitalisation pharmaceutical stocks
played a major role. The entire sub-sector started to move
higher as the calendar turned to 1 July. Why? Not because
expectations rose for earnings results. Not due to an uptick in
M&A. Certainly not due to diminished political risk. Perhaps
there was a valuation argument to be made. But rather, as
discussed above, it was because of a broad market rotation into
value from growth stocks commenced in the middle of the
calendar year. The result? A near record performance for drug
stocks in the quarter: almost 15% higher (total return in
sterling) as measured by the NYSE Arca Pharmaceutical Index
(the “DRG”), the second largest quarterly move for the index
this century. Pharmaceutical stocks were defensive, indeed.
This was quickly followed by some downward moves for the
group, again due almost entirely to macro rather than
fundamental factors. Volatility clearly began with comments
from the Chairman of the U.S. Federal Reserve in October
2018 who cautioned that interest rates would move higher in
the near term. Fears of a slowing economy and continued
U.S.-China trade wars exacerbated a suddenly bad market
environment. Investor mentality switched from “value” to
“risk-off” and carnage ensued. Despite some whipsaw in
November, the resulting sell-off in December removed only
some of the gains of the DRG by year’s end, and it significantly
outperformed the healthcare benchmark by over 7% (in
sterling terms).
Finally, the start of 2019 again brought some renewed
optimism to the market. When the U.S. Federal Reserve
subsequently backed down on interest rate rises for 2019,
market momentum was reignited. Pharmaceutical stocks also
moved higher, but now underperformed the benchmark.
Overall, the DRG rose 26.5% (in sterling terms on a total return
basis) and 17.3% (in U.S. dollar terms on a total return basis)
in the financial year, with some notable moves both up and
down in between. What a ride.
But what about the fundamentals of the large capitalisation
pharmaceutical sector? They remain mixed. First, some
positives. It is without question that innovation is at or near an
all time high in the therapeutics space. The genomic revolution
at the turn of the century is now ripe enough to be producing
more curable targets than ever before. Drug development is
more sophisticated and resulting in less attrition in later
stages than previously seen. Also, when the pipelines appear
thin, business development takes over and acquisition of the
small, small/mid-capitalisation biotechnology stocks helps fill
the coffers.
Perhaps this is a question of the chicken versus the egg, but
the FDA has just had another record year for new drug
approvals. 2018 marks the second consecutive year in which it
has approved a record number of new molecular (or biological)
entities, with 59, smashing the 2017 record of 46. Also of note,
the FDA approved a record number of generic drugs in 2018,
eclipsing the record set in 2017. Whilst the resignation of
Commissioner Scott Gottlieb in early 2019 was disappointing,
the FDA has established unprecedented levels of efficiency,
modernisation, and collaboration and has never been more
aligned with industry to get new drugs approved. We expect
the career staffers to carry on this current culture of
achievement, regardless of who may become the next
commissioner. Speaking of such, Health and Human Services
has named Ned Sharpless, head of the National Cancer
Institute, as the acting Commissioner. Already an appointee
of President Trump and vetted by Congress, we believe
Dr. Sharpless is the leading candidate to become the next
head of the FDA.
Conversely, there remain some negative headwinds for this
group. Whilst more drugs are getting approved, it has become
increasingly difficult getting these drugs to patients as market
access has become much tighter over the past two decades. In
Europe, country regulators have never been more stringent on
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price negotiations. In the U.S., managed care payers are more
aggressive than ever, using a variety of tools such as “prior
authorisations” and “step edits” to limit utilisation. Rising
usage of formularies and tiered access are also the norm.
Finally, the practice of some payers who engage in “exclusive”
contracts with certain manufacturers eliminates competition
altogether.
Of course, one issue that persists in therapeutics is the
dreaded “patent cliff”, when a drug’s exclusivity expires and
generic substitution erodes sales. Whilst not at its worst
currently, the looming issue is biosimilars. The situation in
Europe has been reasonably well chronicled: branded
biologics are forced to reduce price from single-country payers
(between 20% to 80%) and volumes are eroded by roughly 30%
per annum. However, in the U.S., the outlook remains less
certain as there has only been one antibody of import that has
faced a biosimilar thus far (infliximab from Johnson &
Johnson). However, companies on the precipice of U.S.
biosimilar competition are many, including Abbvie, Roche, and
Johnson & Johnson. Overall, we expect U.S.$100 billion worth
of branded sales to be at risk to generic competition to 2027
(source: Wolfe Research).
Of course, the spectre of drug pricing fears also remains into
2019. First, drug price increases, if not completely gone, are at
the very least a diminishing tailwind. In 2017 and again in 2018,
net drug price increases were below that of inflation at less
than 2% (source: PhRMA). Most companies now report that
drug prices are a net negative contributor to sales, not a
positive. We expect this trend to continue, if not accelerate.
On the legislative front for drug pricing in the U.S., we expect
action to be taken in 2019 or 2020 by the Trump administration.
There has been a plethora of proposals from both the
Republicans and Democrats over the past two years, some with
merit, some without. We believe that three policies that are
most worth watching are (1) the move from a rebate to discount
system, (2) the institution of foreign price references, and (3)
switching Medicare Part B covered drugs to Part D coverage.
First, a move from a rebate to discount system may actually
cause net drug prices to go up (at least temporarily). As
rebates are a closely guarded industry secret between
manufacturers and payers, there is no way to know if a
disclosed price discount was above or below the rebate being
paid. Nevertheless, this would reduce out-of-pocket expenses
for patients (1) with no insurance or drug benefit plan and (2)
who pay a co-pay that is a percent of the list price. Overall, this
could be a win-win solution: pharmaceutical companies
maintain status quo of net pricing (or better) and President
Trump can announce significant discounts on drug prices.
Second, the institution of foreign price references to establish a
price for U.S.-sold drugs, on the face of it, could be negative for
the industry. President Trump has proposed the “International
Pricing Index” or the IPI. This plan would peg the price of drugs
sold in the U.S. to the average price in 16 other countries (in
which the current administration believes that prices are on
average 44% lower). Thus far, details on the IPI are sparse but
we would note that this remains a document only (not a bill),
cannot be passed by executive action alone, will need support by
Congress, would not take effect until 2020 (at earliest), and the
peak effect would not be until 2025 (at best). Importantly, the IPI
is not a proposal for a direct purchasing of drugs. Finally, we
note that the IPI was first proposed by President Trump just
ahead of the November 2018 mid-term federal elections, thus
perhaps, more of a shrewd political move by the President
rather than a real policy risk for the industry.
Third, the switching of Medicare Part B covered drugs to Part
D coverage has been one of the first and most consistent
proposals by this Administration. It has full support of the
Centers for Medicare and Medicaid Services and therefore we
think something could materialise from this proposal. The
premise is that current drugs in Medicare Part B (in-office
administered drugs) are not subject to any rebates or
restrictions whereas they are in Part D. We view this risk as
mixed as the numbers of companies to be adversely affected
could be limited.
With 2019 well under way, it is not too early to think about 2020
and with it, another U.S. Presidential election. With that,
Democratic candidate Bernie Sanders, the U.S. Senator of
Vermont, has attracted the attention of voters and investors
alike with his “Medicare for All” proposal. While not a new
idea, an April 2019 “town hall” meeting and subsequent tweets
from Mr Sanders himself elicited an egregious sell-off in
healthcare. His proposed single payer system in the U.S. of
course would be very concerning and would adversely affect
basically all healthcare players, from managed care (which
would conceivably go away) to significant pricing pressure on
manufacturers. An epic sea change, indeed. This has panicked
the generalist investor and hence the recent observed sell off.
But what is the reality? First, April share price sentiment
traded as if Mr Sanders had already won the U.S. Presidency,
which is obviously not the case. Rather, former Senator and
Vice President Joe Biden is the assumed front runner on the
long list of Democratic candidates for that party’s presidential
nominee. Mr Biden is a supporter of the Affordable Care Act,
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or “Obamacare”, which he helped put into law when he was
part of the Obama administration. It would be inconceivable for
Mr Biden to support legislation that would be in opposition to
Obamacare.
Second, could “Medicare for All” even become a reality? It
would require a Democratic sweep of the President, House,
and Senate. Of course, this requires Mr Sanders to win both the
Democratic nomination and the Presidential election. The
House probably remains Democratic but for the Senate to move
from Republican would require three (or four) seats to flip at
the next election in 2020, which we view as highly unlikely.
Third, how is “Healthcare for All” paid for? Early estimates
easily eclipse U.S.$30 trillion. The increase in taxes will be
severe and pervasive across constituents (citizens, states,
businesses). While stumping for this policy change may
resonate with voters early on, the staggering price tag, when
that finally comes into focus for voters, may diminish support.
Fourth, many are drawing analogies today between Hillary
Clinton in 1993/1994 and 2015/2016 to Mr Sanders today. The
one key difference is that Ms Clinton (or her husband) was the
undisputed front runner and major policy changes seemed
inevitable at those times. As mentioned, Mr Sanders is not
currently the front runner of the Democratic party nor is he
expected to be.
Overall, we view the fundamentals of the global
pharmaceutical companies as positive, albeit partially
fragmented. Valuations remain undemanding with price to
earnings ratios towards the low end of the historical range for
the group post the April 2019 sell off. Innovation remains
strong with a number of data read outs and new drug launches
expected in 2019. Earnings growth rates, however, are
disparate from company to company, ranging from low single
digits to high teens as patent expirations, pipelines, and new
product flow can be dissimilar across the industry.
Biotechnology
When the broader market experienced historic volatility and a
drastic downturn in the second half of 2018, it weighed on both
the biotechnology sector and the portfolio. Whereas large
capitalisation companies are historically thought of as
lower-risk and more defensive, the market sell-off in 2018 was
largely indiscriminate and affected both large capitalisation
and emerging biotechnology companies.
While biotechnology and the broader market began a recovery
in 2019, we believe investor appetite for emerging
capitalisation biotechnology was particularly reinvigorated by
increased M&A activity in early 2019, including the acquisitions
of Celgene (by Bristol-Myers Squibb), Loxo (by Eli Lilly), and
Spark (by Roche). Clearly, M&A continues to be a core strategy
for large capitalisation companies to bolster their existing
portfolios and pipelines, many of which suffer from overhangs.
While large capitalisation companies remain at historically low
valuations, we see emerging biotechnology companies as
more attractive investments.
Innovation remains high in biotechnology, with cell therapy and
gene therapy as some of the “hot” new spaces now being
commercialised. We continue to see companies with strong
platform technology as attractive investments and see
technical know-how as an increasingly valuable asset. With
the emergence of newer treatment modalities such as cell
therapy, gene therapy and gene editing, we believe
manufacturing and technical expertise has become a critical
aspect of generating and maintaining value.
As a record number of gene therapy programs are poised to
enter the clinic in 2019, infrastructure and manufacturing
capacity has struggled to grow proportionally to support these
trials, and thus has become a valuable commodity in the
space. We see value in companies with differentiated expertise
in platform technology, which we see as relatively scarce in a
growing field.
We believe recent transactions in gene therapy reflect the
valuable nature of internal technical expertise, with the
acquisition of portfolio company Spark Therapeutics by Roche
being a prime example. With the first marketed in vivo gene
therapy in the United States and multiple late-stage gene
therapy candidates, Spark has been a clear pioneer in
manufacturing, clinical development, regulatory and
commercial execution in the space. We also highlight portfolio
company MeiraGTx as a gene therapy company with strong
technical expertise, which we believe is also reflected by
Janssen’s licensing and collaboration deal with the company in
inherited retinal diseases. Portfolio company Sarepta has also
shown a strong commitment to manufacturing and has
become one of the leaders in the space.
Following the striking clinical and commercial success of the
first wave of immuno-oncology drugs including Keytruda and
Opdivo, many biotechnology companies have focused their
efforts on identifying the next immuno-oncology target.
Disappointingly, several high-profile immuno-oncology
targets, such as IDO1, have failed to produce meaningful
clinical benefit in large clinical trials. Whilst the search for the
next immuno-oncology target continues albeit with markedly
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less enthusiasm, we see targeted therapies as re-emerging as
the class of choice in oncology.
First-generation tyrosine kinase inhibitors (TKIs) such as
Gleevec were a revolution in their time and produced
impressive clinical results across a variety of tumour types,
but were plagued by safety and tolerability concerns. However,
with improved genetic sequencing capability, companies have
developed inhibitors of specific genetic mutations driving
specific tumour types, leading to unprecedented response
rates and substantially more tolerable side effects. We see the
targeted therapy approach as a clear success for precision
medicine and believe innovation will continue in the space.
select group of stocks within this sector could outperform in
the near and intermediate term. Relatively low valuations
create favourable risk-reward profiles, especially ahead of a
multitude of impactful pipeline catalysts.
In Europe, the outlook remains bright for companies with
durable product franchises, established sales and marketing
infrastructure, and rich proprietary pipelines. Lesser
diversified U.S. and Asia-based players continue to actively
seek product/corporate acquisitions and partnerships to gain
access to attractive European markets, setting the stage for
significant business development and M&A. We expect an
uptick in activity over the next 12 months.
Portfolio company Exelixis has pioneered the development of
next-generation targeted therapies with the commercial
success of its drug Cabometyx/Cometriq in various tumor
types including renal cell carcinoma and hepatocellular
carcinoma. We also see portfolio company Deciphera as an
important player in TKIs, with their drug ripretinib showing
strong efficacy in KIT-mutant gastrointestinal stromal tumours
with a meaningfully improved safety and tolerability profile
over first-generation KIT inhibitors which had substantial
off-target activity.
With the approval of Eli Lilly/Loxo’s Viktrakvi in NTRK-mutant
tumours and the continued development of targeted therapies,
we believe genetic sequencing will increasingly become a key
aspect of early diagnosis in oncology. We therefore see
portfolio company Illumina as a clear beneficiary in the
resurgence in targeted therapies, as we expect increasing use
of their sequencing technology to support further drug
development and commercial uptake of targeted therapies.
Specialty Pharmaceuticals
In the U.S., although the focus on drug pricing remains high,
investors’ worries have moderated resulting in improved
sentiment for specialty pharmaceutical stocks. The U.S.
government and regulatory directives aimed at reducing drug
expenditures have been incessant and a power shift within
Congress has produced a fresh wave of legislative initiatives
targeting drug pricing. Despite continued uncertainties,
investors have apparently grown more comfortable with the
array of potential outcomes from these varied approaches to
contain drug spending, with worst case scenarios now heavily
discounted. We continue to monitor these dynamics closely.
Improved operating performance for many specialty
pharmaceutical companies and a combination of new product
launch cycles and favourable clinical data disclosures have
revived interest in the group. We continue to believe that a
20 Worldwide Healthcare Trust PLC
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Generic Pharmaceuticals
The systemic, multi-year, price erosion cycle affecting
companies participating in the U.S. generic market has finally
run its course, with senior management teams from multiple
generic manufacturers highlighting the pricing stability
observed over the last few quarters. Several factors are behind
the improved pricing environment in the U.S.
To start, generic operators have scaled back their marketed
product portfolios and have halted production of products with
marginal profitability. In several cases, this has resulted in
product shortages. Many manufacturers have also withdrawn
generic drug applications currently pending FDA approval due
to unfavourable market conditions and reduced profit
expectations. This has reduced incremental competition in
some markets. We still anticipate significant consolidation of
the U.S. generic market, which could provide further pricing
stabilisation, however this could take considerable time since
sector leverage remains elevated.
Although investor concerns about U.S. pricing dynamics have
subsided, worries about legal risk have escalated which has
stifled the performance of the large generic companies.
Litigation involving the marketing of opioids along with
litigation involving potential pricing collusion for a broad
basket of drugs have caused generic drug stocks to
underperform, pushing valuations to the lower end of
historical ranges. Although we find the current sector
valuations quite attractive we acknowledge that these legal
overhangs could persist. We continue to employ a selective
approach with this sector.
Although geographically diversified players have benefited from
exposure to markets outside of the U.S., we have seen some
growth moderation in certain E.U. markets. Asia remains a
high growth area, with utilisation driven by continued economic
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expansion, favourable demographics, supportive government
policies, and other contributing factors.
Biosimilar launches are gaining traction and we anticipate
steady uptake in all markets. In Europe, where a significant
number of biosimilars have been introduced, we have seen
accelerating rates of market penetration. In the U.S., there
have been fewer biosimilar launches and less rapid product
uptake due primarily to third-party payer obstacles
(i.e., branded product rebates). We anticipate additional U.S.
biosimilar launches in the 2019-2021-time frame with a steady
acceleration in market penetration rates.
Medical Devices
End market growth rates in the medical devices space remain
strong, with accelerating organic growth rates and
well-fortified pipelines that should drive a continuation of this
trend. The key factors underpinning the growth are strong
consumer confidence and low unemployment rates in the
United States, elevated levels of research and development
(R&D) spending across the industry, a large number of new
product approvals by the FDA, and further penetration of key
international markets, especially emerging economies.
On the negative side, valuations remain high and there has
been some investor consternation about “Medicare For All”
rhetoric from select Democratic primary candidates in the
United States. However, we believe valuations are warranted
given the high single digit organic sales growth and mid-teens
earning per share growth profile of many large-capitalisation
companies in the sector, and while a shift to “Medicare For All”
would certainly have a negative impact on device companies
over the long term, we still think the likelihood of a meaningful
shift toward a single payer system in the United States remains
low, with any impact to device companies far in the future.
Turning to stock selection, we continue to prefer (1) cardiology –
where innovation remains industry leading, (2) surgical robotics
– where technology advances have been and will continue to be
disruptive to historical surgical paradigms, (3) diabetes – given
the sheer market size and potential for several new product
cycles to drive elevated growth rates for manufacturers, and
(4) extremities implants/biologics – which remain at the early
stages of the adoption curve.
Healthcare Services
Performance in healthcare services has been very divergent in
this financial year. Fundamentally, managed care companies
generally performed strongly this year due to a multitude of
factors: stable cost trends, tax reform benefits, and the repeal
of the health insurer fee for 2019 allowed companies to invest
for significant growth. However, the beginnings of fears about
U.S. healthcare reform in early 2019 erased positive
performance, and companies such as CVS (a pharmacy
benefits manager and retail pharmacy) and Cigna (managed
care provider) that engaged in major vertical consolidation
were punished for doing so.
Otherwise, on the “providers” side of the healthcare services
spectrum, companies had a stronger 2018 after a weak 2017,
with stabilising volume and increasing acuity contributing to
growth. The supply chain struggled, as generic deflation
pressured distributors, intensifying competition and regulatory
scrutiny pressured pharmacy benefit managers, and
reimbursement and retail headwinds pressured pharmacies.
Looking ahead, the outlook for healthcare services is
turbulent. Democratic presidential candidates touting
“Medicare for All” proposals pose existential risk to managed
care. While rhetoric will eventually moderate to more realistic
proposals following the election in November 2020, negative
headlines could persist and intensify for the entirety of the
presidential campaign. Further, the Trump administration is
moving forward with several reforms on drug pricing reform,
including an International Price Index model for certain drugs
in Medicare Part B, and mandating pharmaceutical rebates be
paid to consumers at the point of sale.
Whilst the fundamental outlook for managed care remains
strong, we expect the political environment for managed care
to be difficult. We believe the current fundamental outlook for
providers is stable but see greater risk to providers in most
outcomes for healthcare reform, as Medicare generally
reimburses providers at lower rates than commercial
insurance.
Finally, the supply chain will face significant headwinds, as
reimbursement challenges and drug pricing reform make it
difficult for the space to grow. In this environment, we prefer
quality names with strong fundamental outlooks that stand to
be unharmed or benefit from plausible realistic outcomes of
healthcare reform that may incrementally expand Medicare.
Life Science Tools / Diagnostics
The life science tools sector continued to reach new highs in
the reported period, as a convergence of strength across most
major end markets and geographies, as well as insulation from
political headwinds, resulted in healthy performance. Growth
across the sector was led by biopharma end markets, which
have benefited from the rapid uptake of new technologies in
bioproduction. Geographically, macroeconomic indicators
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In India, we seek investments in specialty and generic
pharmaceutical companies with a global diversified presence,
strong compliance track record, cost effective manufacturing
capabilities and differentiated pipeline focus. The Indian
pharmaceutical industry grew at circa 10% during the reported
period led by prescription volume growth. We anticipate
continued volume growth driven by strong underlying secular
demand which will more than offset pricing erosion stemming
from government initiatives to contain drug costs.
Additionally, Indian pharmaceutical companies continue to
benefit from the high double-digit growth rates registered in
emerging markets such as South East Asia, Middle East,
Africa, and Eastern Europe. The U.S. generic market, which
accounts for more than 40% of the revenues for Indian pharma
companies, has experienced more favourable dynamics with
multiple signs of pricing stability observed over the last 12
months. This bodes well for near and intermediate term
operating performance for many Indian players.
We also look to invest in domestic healthcare companies
within India with scalable and profitable business models,
including hospitals. We are closely monitoring the roll out of
Ayushman Bharat, a National Health Protection Scheme
(NHPS), which is a government funded healthcare programme
launched in September 2018 aimed at expanding health
insurance coverage. We continue to keep a keen eye on
changing pricing dynamics, cost efficiencies, and leverage and
are intensely focused on the cash generating abilities of our
portfolio companies.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
5 June 2019
moderated across the world, especially in Europe and
somewhat in China, though company performance remained
strong. M&A activity increased among the industry
consolidators with a notable slant toward biopharma
businesses, with Danaher acquiring GE’s Bioprocessing
business and Thermo Fisher Scientific’s acquiring Gatan,
Becton Dickinson’s Advanced Bioprocessing business, and
Brammer Bio.
Our view remains that the fundamental outlook for the tools
sector is very positive. Companies have favourably shifted mix
towards higher-margin, recurring consumable revenue, as
well as towards faster growing, higher-margin biopharma end
markets via acquisitions, hence they are poised to grow
organically at sustainably higher rates. The macro
environment remains healthy, though we are watchful of
Europe and industrial end markets. The ever-present
overhang of China and its associated macro/trade concerns
represent downside risk, though we do not expect a significant
negative outcome from trade negotiations. Despite elevated
valuations, we remain positive on the sector, and expect the
group to compound strong returns for the foreseeable future.
We prefer companies with outsized biopharma end market
exposure, scale, and balance sheet capacity to consolidate the
industry and enhance returns.
Emerging Markets
Equity markets in China were not immune from volatility
during the financial year. Headwinds included the
unpredictable policy changes in hospital drug procurement
and the negative macro environment of U.S.-China trade
tension. Meanwhile, on the positive front, we saw acceleration
in innovative drug approvals, and improved transparency in
healthcare products registration pathways.
In the incoming year, we remain cautious on policy risks in the
drug price regulations, and therefore prefer healthcare service
companies over large pharmaceutical companies, especially
those exposed to discretionary or premium healthcare
services paid out-of-pocket. We are excited about the
fundamentals of the emerging Chinese biotechnology sector
but believe some of the companies are currently overvalued.
Our participation in certain pre-revenue biotechnology IPOs in
Hong Kong is very selective and concentrated.
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The aim of the Strategic Report (on pages 1 to 29) is to provide
shareholders with the ability to assess how the Directors have
performed their duty to promote the success of the Company.
The Strategic Report contains certain forward-looking
statements. These statements are made by the Directors
based on the information available to them at the time of
their approval of this report and such statements should be
treated with caution due to the inherent uncertainties,
including both economic and business risk factors,
underlying any such forward-looking information.
Business model
Worldwide Healthcare Trust PLC is an investment trust and is
admitted to the premium segment of the Official List of the
FCA and to trading on the premium segment of the main
market of the London Stock Exchange. Its investment objective
is set out on pages 6 and 7. 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 as its
Custodian and Prime Broker. Further details about their
appointments can be found in the Report of the Directors on
pages 32 and 33. The Board has determined an investment
objective, policy and related guidelines and limits, as
described on pages 6 and 7.
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.
Continuation of the Company
A resolution was passed at the Annual General Meeting held in
2014 that the Company continues as an investment trust for a
further five year period. In accordance with the Company’s
Articles of Association, shareholders will have an opportunity to
vote on the continuation of the Company at this year’s Annual
General Meeting and every five years thereafter. The Board
unanimously recommends that shareholders vote in favour of
the resolution allowing the Company to continue as an
investment trust for a further five years. (Please see the Notice
of the Annual General Meeting beginning on page 83 and also
page 5, pages 28 and 29 and also page 35 for further
information).
The Board
The Board of the Company comprises Sir Martin Smith
(Chairman), Sarah Bates, Sven Borho, Dr David Holbrook,
Doug McCutcheon and Humphrey van der Klugt. All of these
Directors, with the exception of Sven Borho who joined the
Board on 7 June 2018, served throughout the year. All are
independent non-executive Directors with the exception of
Mr Borho who is not considered to be independent by
the Board.
Further information on the Directors can be found on
pages 30 and 31.
All Directors seek election or re-election by shareholders at
each Annual General Meeting.
Board focus and responsibilities
With the day to day management of the Company outsourced
to service providers the Board’s primary focus at each Board
meeting is reviewing the investment performance and
associated matters, such as, inter alia, future outlook and
strategy, gearing, asset allocation, investor relations,
marketing, and industry issues.
In line with its primary focus, the Board retains responsibility
for all the key elements of the Company’s strategy and
business model, including:
• the Investment Objective, Policy and Benchmark,
incorporating the investment and derivative guidelines and
limits, and changes to these;
• the maximum level of gearing and leverage the Company
may employ;
• a review of performance against the Company’s KPIs;
• a review of the performance and continuing appointment
of service providers; and
• the maintenance of an effective system of oversight, risk
management and corporate governance.
The Investment Objective, Policy, and Benchmark, including
the related limits and guidelines, are set out 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 36 to 42, includes
a statement of compliance with corporate governance codes
and best practice, and the Business Review (pages 23 to 29)
includes details of the internal control and risk management
framework within which the Board operates.
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Key performance indicators (KPI)
The Board assesses the Company’s performance in meeting
its objectives against key performance indicators as follows:
• Net asset value (‘NAV’) per share total return against the
Benchmark;
• Discount/premium of share price to NAV per share; and
• Ongoing charges ratio.
Information on the Company’s performance is provided in the
Chairman’s Statement and the Portfolio Manager’s Review
and a record of these measures is shown on pages 1, 2 and 3.
Further information can be found in the Glossary beginning
on page 77.
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
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 beginning on
page 12 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.
* Alternative Performance Measure (See Glossary beginning
on page 77)
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 Custodian and Prime
24 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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 beginning on page 32.
Alternative Investment Fund Manager (AIFM)
Frostrow under the terms of its AIFM agreement with the
Company provides, inter alia, the following services:
• oversight of the portfolio management function delegated
to OrbiMed Capital LLC;
• investment portfolio administration and valuation;
• risk management services;
• marketing and shareholder services;
• share price discount and premium management;
• administrative and secretarial services;
• advice and guidance in respect of corporate governance
requirements;
• maintenance of the Company’s accounting records;
• maintenance of the Company’s website;
• preparation and dispatch of annual and half year reports
(as applicable) and monthly fact sheets; and
• ensuring compliance with applicable legal and regulatory
requirements.
During the year, under the terms of the AIFM Agreement,
Frostrow received a fee as follows:
On market capitalisation up to £150 million: 0.3%; in the
range £150 million to £500 million: 0.2%; in the range
£500 million to £1 billion: 0.15%; in the range £1 billion to
£1.5 billion: 0.125%; over £1.5 billion: 0.075%. In addition,
Frostrow receives a fixed fee per annum of £57,500.
Portfolio Manager
OrbiMed under the terms of its portfolio management
agreement with the AIFM and the Company provides, inter
alia, the following services:
• the seeking out and evaluating of investment
opportunities;
• recommending the manner by which monies should be
invested, disinvested, retained or realised;
• advising on how rights conferred by the investments
should be exercised;
• analysing the performance of investments made; and
• advising the Company in relation to trends, market
movements and other matters which may affect the
investment objective and policy of the Company.
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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 32.
Depositary, Custodian and Prime Broker
J.P. Morgan Europe Limited acts as the Company’s Depositary
and J.P. Morgan Securities LLC as its Custodian and
Prime Broker.
J.P. Morgan Europe Limited, as Depositary, must take
reasonable care to ensure that the Company is managed in
accordance with the Financial Conduct Authority’s Investment
Funds Sourcebook, the AIFMD and the Company’s Articles of
Association. The Depositary must in the context of this role act
honestly, fairly, professionally, independently and in the
interests of the Company and its shareholders.
The Depositary receives a variable fee based on the size of
the Company as set out on page 32.
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 page 33. J.P. Morgan
Securities LLC, as Custodian and Prime Broker, provides the
following services under its agreement with the Company:
• safekeeping and custody of the Company’s investments
and cash;
• processing of transactions;
• provision of an overdraft facility. Assets up to 140% of the
value of the outstanding overdraft can be taken as
collateral. Such assets may be used by the Custodian and
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 February 2019 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 32, is in the interests of shareholders as a whole. In
coming to this decision, it took into consideration, inter alia,
the following:
• the quality of the service provided and the depth of
experience of the company management, company
secretarial, administrative and marketing team that the
AIFM allocates to the management of the Company; and
• the quality of the service provided and the quality and
depth of experience allocated by the Portfolio Manager to
the management of the portfolio and the long-term
performance of the portfolio in absolute terms and by
reference to the Benchmark.
Principal risks
In fulfilling its oversight and risk management
responsibilities, the Board maintains a framework of key
risks which affect the Company and the related internal
controls designed to enable the Directors to manage and/or
mitigate these risks. The risks can be categorised under the
following broad headings:
• Investment (including leverage risks);
• Operational (including financial, corporate governance,
accounting, legal, cyber security and regulatory risks); and
• Strategic (including shareholder relations and share price
performance).
Further information on the internal control and 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 69.
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.
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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
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 69).
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
managers, at OrbiMed’s offices and encouraging the
participation of the wider OrbiMed team in investor
updates; and
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. Any of the Company’s
assets taken as collateral are not covered by the custody
arrangements provided by J.P. Morgan Securities LLC. The
Company is, however, afforded protection in accordance with
SEC rules and U.S. legislation equal to the value of the assets
that have been rehypothecated.
This risk is managed by the Board through:
• reviews of the arrangements with, and services provided
by, the Depositary and the Custodian and Prime Broker to
ensure that the security of the Company’s assets is being
maintained. Legal opinions are sought, where appropriate,
as part of this review. Also, the Board regularly monitors
the credit rating of the Company’s Custodian and
Prime Broker;
• monitoring of the assets taken as collateral (further
details can be found in note 16 beginning on page 69);
• 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;
• 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; and
• delegating to the Management Engagement &
• J.P. Morgan Securities LLC is subject to regular
Remuneration Committee, responsibility to perform an
annual review of the service received from OrbiMed,
including, inter alia, the team supporting the lead
managers and succession planning.
Counterparty risk
In addition to market and foreign currency risks, discussed
above, the Company is exposed to risk arising from the use of
counterparties. If a counterparty were to fail, the Company
could be adversely affected through either delay in
settlement or loss of 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
monitoring by J.P. Morgan Europe Limited, the Company’s
Depositary, and the Board receives regular reports from
J.P. Morgan Europe Limited.
Service provider risk
The 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;
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• reviews internal control reports, key policies, including
measures taken to combat cyber security issues, and also
the disaster recovery procedures of its service providers;
• maintains a risk matrix with details of risks the Company
is exposed to, the controls relied on to manage those risks
and the frequency of the controls operation; and
• receives updates on pending changes to the regulatory
and legal environment and progress towards the
Company’s compliance with these.
Shareholder relations and share price performance risk
The Company is also exposed to the risk, particularly if the
investment strategy and approach are unsuccessful, that the
Company may underperform resulting in the Company
becoming unattractive to investors and a widening of the
share price discount to NAV per share.
In managing this risk the Board:
• reviews the Company’s Investment Objective in relation to
market, and economic, conditions and the operation of the
Company’s peers;
• discusses at each Board meeting the Company’s future
development and strategy;
• reviews the shareholder register at each Board meeting;
• actively seeks to promote the Company to current and
potential investors; and
• has implemented a discount/premium control
mechanism.
The operation of the discount/premium 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.
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 beginning on page 77). 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 is an
effective share price premium management tool.
Annual Report for the year ended 31 March 2019 27
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Details of share issuance are set out on page 68. No shares
were repurchased during the year and to the date of this
report.
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 in Canada and one in the U.S.. The Board holds the
majority of its regular meetings in the United Kingdom, with
one meeting held each year in New York, and has a policy
that travel, as far as possible, is minimal, thereby minimising
the Company’s greenhouse gas emissions. Further details
concerning greenhouse gas emissions can be found within
the Report of the Directors on page 34.
Impact of Brexit
The Board has considered whether Brexit poses a discrete
risk to the Company. At the date of this report, there was still
considerable uncertainty around both the process and the
effects of Brexit and therefore the analysis at this stage is
necessarily general.
As the Company is priced in sterling and the Company’s
portfolio companies are priced in foreign currencies sharp
movements in exchange rates can affect the net asset value
(see page 72 for the foreign currency sensitivity analysis).
Furthermore, whilst the Company’s current shareholders are
predominantly UK based, sharp or unexpected changes in
investor sentiment, or tax or regulatory changes, could lead to
short term selling pressure on the Company’s shares which
potentially could lead to the share price discount widening.
Overall, however, the Board believes that over the longer
term, Brexit is unlikely to affect the Company’s business
model or whether the Company’s shares trade at a premium
or discount to the net asset value per share. The Board will
continue to monitor developments as they occur.
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 25 to 27.
The Board believes it is appropriate to assess the Company’s
viability over a five year period. This period is also deemed
appropriate due to our Portfolio Manager’s long-term
investment horizon and also what it believes to be investors’
horizons, taking account of the Company’s current position
and the potential impact of the principal risks and
uncertainties as shown on pages 25 to 27. 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.
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.
The Directors highlight that there is a continuation vote due
to take place at this year’s Annual General Meeting. The
Directors fully support the continuation of the Company and,
based on the profile of the shareholder base and the
long-term record of the Company, expect that the
continuation vote will be passed and that the Company will
continue to exist for the foreseeable future. However, if such
a vote were not passed, the Directors would follow the
provisions in the Articles of Association relating to the
reorganisation or winding up of the Company.
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.
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Alternative performance measures
The Financial Statements (on pages 57 to 75) 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 page 24.
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 17 to 22.
As mentioned above, the Board recognises that there is a
continuation vote due to take place at this year’s Annual
General Meeting. The Board expects that this vote will be
passed and then the Company will continue to exist for the
foreseeable future.
By order of the Board
Frostrow Capital LLP
Company Secretary
5 June 2019
Annual Report for the year ended 31 March 2019 29
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Governance/Board of Directors
Sir Martin Smith
Independent Non-Executive Chairman
Sarah Bates
Independent Non-Executive Director
Sven Borho
Non-Executive Director
Joined the Board in 2007 and became
Chairman in 2008
Joined the Board in 2013
Joined the Board in 2018
Remuneration: £47,700pa*
Remuneration: £30,130pa*
Remuneration: Nil*
Sven does not sit on any of the Company’s
Board Committees.
Shareholding in the Company:
11,871 (Beneficial) 2,725 (Trustee)
Skills and Experience
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.
Other Appointments
Sir Martin has a number of other
directorships and business interests,
including being Chairman of GP Bullhound,
and a directorship with Oxford Capital
Partners.
Sir Martin’s 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 Glyndebourne
Arts Trust and also ClientEarth. He has also
chaired the English National Opera.
Shareholding in the Company: 7,200
Shareholding in the Company: 10,000
Skills and Experience
Sarah is past Chair of the Association of
Investment Companies and has been
involved in the UK savings and investment
industry in different roles for over 30 years.
Sarah attended Cambridge University and
has an MBA from London Business School.
Sarah is a fellow of CFA UK.
Other Appointments
Sarah is also non-executive Chair of Merian
Global Investors and of Polar Capital
Technology Trust plc. She is a member of the
Investment Committees of the Universities
Superannuation Scheme and the BBC
Pension Scheme. Sarah is Chair of Trustees
of the Diversity Group Charity and is a
Trustee of the Liver Group Charity. She also
has a number of voluntary appointments on
charity investment committees.
Skills and Experience
Sven H. Borho, CFA, is a founder and
Managing Partner of OrbiMed. Sven heads
the public equity team and he is the portfolio
manager for OrbiMed’s public equity and
hedge funds. He has been a portfolio
manager for the firm’s funds since 1993 and
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. Sven 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.
Other Appointments
Sven is a Managing Partner of OrbiMed and
does not have any other appointments.
Standing for re-election
Yes
Standing for re-election
Yes
Standing for re-election
Yes
* Information as at 31 March 2019
30 Worldwide Healthcare Trust PLC
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Governance/Board of Directors
Governance
Dr David Holbrook
Independent Non-Executive Director
Humphrey van der Klugt, FCA
Independent Non-Executive Director
Doug McCutcheon
Independent Non-Executive Director
Joined the Board in 2007
Joined the Board in 2016
Joined the Board in 2012
Remuneration: £32,320pa*
Remuneration £36,920pa*
Remuneration: £30,130pa*
David is Chairman of the Nominations
Committee and is the Senior Independent
Director.
A Chartered Accountant, Humphrey is
Chairman of the Audit Committee.
Doug is Chairman of the Management
Engagement & Remuneration Committee.
Shareholding in the Company: 1,094
Shareholding in the Company: 3,000
Shareholding in the Company: 15,000
Skills and Experience
A qualified physician, David was formerly
Investment Director of the life science
activities of the seed fund of the University of
Cambridge. 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.
Other Appointments
David manages the new seed fund
established by LifeArc (formerly known as
MRC Technology). David is also a
non-executive Director of Oxford
Biodynamics plc and is Chairman of Trustees
of the Liver Group Charity.
Skills and Experience
Humphrey 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.
Skills and Experience
Doug is the President of Longview Asset
Management Ltd., an investment firm that
manages the capital of families, charities
and endowments. Prior to this, Doug was an
investment banker for 25 years at UBS and
its predecessor firm, S.G. Warburg, where,
most recently, he was the head of Healthcare
Investment Banking for Europe, the Middle
East, Africa and Asia-Pacific. Doug is
involved in philanthropic organisations with a
focus on healthcare and education. He
attended Queen's University, Canada.
Other Appointments
Humphrey is a non-executive Director of
JPM Claverhouse Investment Trust plc and
Allianz Technology Trust PLC.
Other Appointments
Doug is the President of Longview Asset
Management Ltd. and Gormley Limited,
independent investment firms.
Standing for re-election
Yes
Standing for re-election
Yes
Standing for re-election
Yes
* Information as at 31 March 2019
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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 2019.
Significant agreements
Details of the services provided under these agreements are
included in the Strategic Report on pages 24 and 25.
Alternative Investment Fund Management
agreement
As described on page 24, Frostrow is the designated AIFM for
the Company on the terms and subject to the conditions of the
alternative investment fund management agreement between
the Company and Frostrow (the “AIFM Agreement”).
The notice period on the AIFM Agreement with Frostrow is
12 months, termination can be initiated by either party.
During the year under review, Frostrow charged a variable
base fee, which was dependent on the size of the Company.
(Further details of this fee can be found on page 24).
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 is 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 15.0% of any
outperformance over the Benchmark. 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 effect of this is that outperformance has to be maintained
for a twelve month period before it is paid.
In addition, a performance fee only becomes payable to the
extent that the cumulative outperformance gives rise to a total
fee greater than the total of all performance fees paid to date.
No provision for potential future performance fee payments
has been made as at 31 March 2019. As at 31 March 2018 a
provision of £9.7 million had been made, of which
£3.1 million became payable due to the cumulative
outperformance generated up to 30 June 2018. Following net
underperformance in the remaining quarters of the year to
31 March 2019, £6.6 million of the provision was reversed as
shown in note 3 on page 63.
The maximum amount that could become payable within the
year to 31 March 2020, is £8.1 million. This would only be
payable in the event that the underperformance over the
three quarters to 31 March 2019 is reversed and the
cumulative outperformance generated to 30 June 2018 is
re-established as at 30 June 2019. No performance fee
could become payable on the remaining quarter end dates
for the year ending 31 March 2020.
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
“Custodian and Prime Broker”) pursuant to a delegation
32 Worldwide Healthcare Trust PLC
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Governance
Governance/Report of the Directors
Results and dividends
The results attributable to shareholders for the year and the
transfer to reserves are shown on pages 57 to 59. Details of
the Company’s dividend record can be found on page 3.
Directors’ & officers’ liability insurance cover
Directors’ & officers’ liability insurance cover was
maintained by the Company during the year ended
31 March 2019 and to the date of this report. It is intended
that this policy will continue for the year ending
31 March 2020 and subsequent years.
agreement between the Company, Frostrow, the Depositary and
the Custodian and Prime Broker (the “Delegation Agreement”).
The Delegation Agreement transfers the Depositary’s liability
for the loss of the Company’s financial instruments held in
custody by the Custodian and Prime Broker to the Custodian
and Prime Broker in accordance with the AIFMD. The
Company has consented to the transfer and reuse of its
assets by the Custodian and Prime Broker (known as
“rehypothecation”) in accordance with the terms of an
institutional account agreement between the Company, the
Custodian and Prime Broker and certain other J.P. Morgan
entities (as defined therein). See page 26 for further details.
Prime brokerage agreement
The Company appointed J.P. Morgan Securities LLC 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
Custodian and Prime Broker receives interest on the drawn
overdraft as detailed in note 12 on page 68.
The Custodian and Prime Broker is a registered broker-dealer
and is regulated by the United States Securities and Exchange
Commission.
Substantial interests in share capital
The Company was aware of the following substantial interests in the voting rights of the Company as at 30 April 2019, the
latest practicable date before publication of the Annual Report:
Shareholder
Investec Wealth & Investment Limited
Alliance Trust Savings Limited
Rathbone Brothers plc*
Hargreaves Lansdown plc
Charles Stanley & Co Limited
Speirs & Jeffrey Limited*
Quilter Cheviot Investment Management
Forsyth Barr
Brewin Dolphin
30 April 2019
31 March 2019
Number of
shares
% of issued
share capital
Number of
shares
% of issued
share capital
4,198,293
3,393,062
3,300,313
2,686,495
2,593,740
2,209,266
1,885,660
1,844,404
1,745,565
8.0
6.4
6.3
5.1
4.9
4.2
3.6
3.5
3.3
4,195,281
3,376,712
3,276,591
2,677,324
2,590,366
2,206,878
1,906,771
1,833,327
1,726,842
8.0
6.4
6.2
5.1
4.9
4.2
3.6
3.5
3.3
As at 31 March 2019 the Company had 52,595,278 shares in issue. As at 30 April 2019 there were 52,830,278 shares in issue.
* Rathbone Brothers plc completed the acquisition of Speirs & Jeffrey Limited on 31 August 2018. They continue to report their holdings separately.
Annual Report for the year ended 31 March 2019 33
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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 and to the date of this report, no
shares were bought back by the Company to be held in
treasury.
During the year, a total of 2,734,000 new shares were issued
at an average premium of 0.8% to the prevailing cum income
NAV per share.
Since the year end, to the date of this report, 245,000 new
shares have been issued at an average premium of 0.9% to the
prevailing cum income NAV per share.
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 86.
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.
Criminal Finances Act 2017
The Company has a commitment to zero tolerance towards
the criminal facilitation of tax evasion.
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 the 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, Link 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 is set out on pages 36
to 42.
Political and charitable donations
The Company has not in the past and does not intend in the
future to make political or charitable donations.
Articles of Association
Amendments of the Company’s Articles of Association
requires a special resolution to be passed by shareholders.
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.
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,
34 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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 under Listing Rule 9.8.4.
By order of the Board
Frostrow Capital LLP
Company Secretary
5 June 2019
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Governance
Governance/Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Financial
Statements in accordance with applicable law and
regulations. In preparing these financial statements, the
Directors are required to:
• select suitable accounting policies and apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• follow applicable UK accounting standards comprising
FRS 102; and
• prepare the financial statements on a going concern
basis.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements and
the Directors’ Remuneration Report comply with the
Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for ensuring that the Report of
the Directors and other information included in the Annual
Report is prepared in accordance with company law in the
United Kingdom. They are also responsible for ensuring that
the Annual Report includes information required by the
Listing Rules of the FCA.
The 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. The
Company’s shareholders are asked every five years to vote
for the continuation of the Company, this will be put to
shareholders at this year’s Annual General Meeting. The
validity of the going concern basis depends on the outcome
of the continuation vote on which the Board is
recommending that shareholders vote in favour; the Board
expects that the vote will be passed and that the Company
will continue to exist for the foreseeable future. In particular,
no provision has been made for the cost of reorganising or
winding-up the Company in the event that the resolution is
not passed. Having assessed these factors, the principal
risks and other matters discussed in connection with the
viability statement, the Board has determined that it is
appropriate for the financial statements to be prepared on a
going concern basis. The Directors also 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
We confirm to the best of our 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 2019;
• 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
5 June 2019
Annual Report for the year ended 31 March 2019 35
Worldwide Healthcare Trust PLC
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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 Sven Borho.
Key responsibilities:
– to provide leadership and set strategy, values and standards within a framework of prudent effective controls which
enable risk to be assessed and managed;
– to ensure that a robust corporate governance framework is implemented; and
– to challenge constructively and scrutinise performance of all outsourced activities.
Audit
Committee
Nominations
Committee
Management
Engagement &
Remuneration
Committee
Chairman
Doug McCutcheon
All Independent Directors
Key responsibilities:
Chairman
Humphrey van der Klugt, FCA*
All Independent Directors
(excluding the Chairman,
Sir Martin Smith)
Key responsibilities:
– to review regularly the
– to review the Company’s
contracts, the performance
and remuneration of the
Company’s principal service
providers; and
– to set the Directors’
Remuneration Policy of the
Company.
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.
* The Directors believe that Humphrey van der Klugt has the necessary recent and relevant financial experience to Chair the Company’s Audit Committee.
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.
36 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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Governance
Governance/Corporate Governance
Corporate Governance Statement
The Board is committed to maintaining and demonstrating
high standards of corporate governance. The Board has
considered the principles and recommendations of the AIC
Code of Corporate Governance (‘AIC Code’), and by reference
to the AIC Corporate Governance Guide for Investment
Companies (‘AIC Guide’) published in 2016.
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 Corporate Governance Code, which applies for the
year ended 31 January 2019, as well as setting out additional
principles and recommendations on issues that are specific
to investment trusts. The Board considers that reporting in
accordance with the principles and recommendations of the
AIC Code provides more relevant and comprehensive
information to shareholders. The AIC Code and the AIC
Guide can be viewed at www.theaic.co.uk. A revised UK
Corporate Governance Code was published in July 2018 for
accounting years commencing on or after 1 January 2019, a
corresponding revised AIC Code was published in January
2019 and will be reported against in the Annual Report of the
Company for the year commencing 1 April 2019. The
Corporate Governance Statement on pages 36 to 42, forms
part of the Report of the Directors on pages 32 to 34.
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 OrbiMed and Frostrow
• Shareholder Communications
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, 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 43, the Company has not
reported further in respect of these provisions.
The Board
The Board is responsible for the effective Stewardship of the
Company’s affairs. Strategy issues and all operational
matters of a material nature are considered at its meetings.
The Board consists of six non-executive Directors, each of
whom, with the exception of Sven Borho, is independent of
OrbiMed and the Company’s other service providers. No
member of the Board is a Director of another investment
company managed by OrbiMed, nor has any Board member
been an employee of the Company, OrbiMed or any of the
Company’s service providers. Further details regarding the
Directors can be found on pages 30 and 31.
The Board carefully considers the various guidelines for
determining the independence of non-executive Directors,
placing particular weight on the view that independence is
evidenced by an individual being independent of mind,
character and judgement. All Directors, with the exception
of Sven Borho, are presently considered to be independent.
All Directors retire at the AGM each year and, if appropriate,
seek re-election. Each Director has signed a letter of
appointment to formalise the terms of their engagement as
a non-executive Director, copies of which are available on
request at the office of Frostrow Capital LLP and at the
Annual General Meeting.
Meetings
The Board meets formally at least four times each year.
A representative of OrbiMed attends all meetings;
representatives from Frostrow Capital LLP are also in
attendance at each Board meeting. The Chairman
encourages open debate to foster a supportive and
co-operative approach for all participants.
The Board has agreed a schedule of matters specifically
reserved for decision by the Board. This includes
establishing the investment objectives, strategy and the
Benchmark, the permitted types or categories of
investments, the markets in which transactions may be
undertaken, the amount or proportion of the assets that may
be invested in any geography or category of investment or in
any one investment, and the Company’s share issuance and
share buyback policies.
The Board, at its regular meetings, undertakes reviews of key
investment and financial data, revenue projections and
expenses, analyses of asset allocation, transactions and
Annual Report for the year ended 31 March 2019 37
Worldwide Healthcare Trust PLC
254029 WWH pp37-pp42.qxp 11/06/2019 12:23 Page 38
Governance/Corporate Governance
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.
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 Chairman is responsible for ensuring that the Board
receives accurate, timely and clear information.
Representatives of OrbiMed and Frostrow Capital LLP report
regularly to the Board on issues affecting the Company.
The Board is responsible for strategy and has established an
annual programme of agenda items under which it reviews
the objectives and strategy for the Company at each meeting.
Appointments to the Board and Board
Diversity
The Nominations Committee considers annually the skills
possessed by the Board and identifies any skill shortages to
be filled by new Directors.
When considering new appointments, the Board reviews the
skills of the Directors and seeks to add persons with
The Company is committed to ensuring that any vacancies
arising are filled by the candidates who will contribute best
to the Board as a whole and recognises the value of diversity
in the composition of the Board. When considering Board
appointments the Board will ensure that a diverse group of
candidates is considered.
The Board regularly considers its structure. The Board has
an approved succession planning policy to ensure that (i)
there is a formal, rigorous and transparent procedure for the
appointment of new Directors to the Board; and (ii) the
Board is comprised of members who collectively display the
necessary balance of professional skills, experience, length
of service and industry/Company knowledge. The plan is
reviewed annually and at such other times as circumstances
may require.
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 2018/19
Board
(4)
Audit Committee
(2)
Sir Martin Smith^
Sarah Bates
Sven Borho*
Dr David Holbrook
Humphrey van der Klugt
Doug McCutcheon
4
4
4
4
4
4
–
2
–
2
2
2
Nominations
Committee
(1)
1
1
–
1
1
1
^ Sir Martin is not a member of the Audit Committee
* Sven Borho joined the Board on 7 June 2018. He does not sit on any of the Company’s Committees.
All of the serving Directors attended the Annual General Meeting held on 20 September 2018.
Management
Engagement &
Remuneration
Committee
(1)
1
1
–
1
1
1
Policy on Director Tenure
The Board, meeting as the Nomination Committee,
considers the structure of the Board and recognises the
need for ongoing 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 his or
her ability to act independently and, following formal
performance evaluations, believes that each of the Directors
is independent in character and judgement and that there
are no relationships or circumstances which are likely to
affect their judgement. The Board’s policy on tenure is that
38 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
continuity and experience are considered to add significantly
to the strength of the Board and, as such, no limit on the
overall length of service of any of the Company’s Directors,
including the Chairman, has been imposed. In view of its
non-executive nature, the Board considers that it is not
appropriate for the Directors to be appointed for a specified
term, although new Directors are appointed with the
expectation that they will serve for a minimum period of
three years subject to shareholder approval. The AIC Code
states that any Director who has served for more than nine
years is subject to annual re-appointment.
254029 WWH pp37-pp42.qxp 11/06/2019 12:23 Page 39
Governance
Governance/Corporate Governance
All of the Company’s Directors (who are not retiring from the
Board) seek appointment or re-appointment at each Annual
General Meeting.
Board evaluation
During the year the external independent review of the
Board, its committees and individual Directors (including
each Director’s independence) was carried out by an
independent third party, Lintstock.
The Board reviewed the report from Lintstock in June 2018
and the Chairman is leading on implementing those changes
recommended by the report that the Board considered
should be made. The review concluded that the Board
worked in a collegiate, efficient and effective manner, and
did not identify any material weaknesses or concerns.
The Board is satisfied that the structure, mix of skills and
operation of the Board continue to be effective and relevant
for the Company.
As an independent external review of the Board was
undertaken in 2018 the next such review will be held in 2021.
The Board pays close attention to the capacity of individual
Directors to carry out their work on behalf of the Company.
In recommending individual Directors to shareholders for
re-election, it considered their other Board positions and
their time commitments and is satisfied that each Director
has the capacity to be fully engaged with the Company’s
business. The Board has considered the position of all of the
Directors as part of the evaluation process, and believes that
it would be in the Company’s best interests to propose them
for election and re-election at the forthcoming Annual
General Meeting for the following reasons:
Sir Martin Smith, has been a Director since November 2007
and Chairman since July 2008. Having served on the Board
for more that nine years from the date of his first election,
the Board is firmly of the view that he can be considered
independent. Sir Martin has extensive knowledge of the
financial sector and 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
Limited. He has been Chairman or Director of numerous
growing companies over the past 30 years.
Sarah Bates has been a Director since May 2013. Sarah is a
past Chair of the Association of Investment Companies and
has a wealth of experience of the investment trust sector.
She and has been involved in the UK savings and investment
industry in different roles for over 30 years.
Sven Borho joined the Board in June 2018. Sven is a founder
and Managing Partner of OrbiMed and heads their public
Equity team and is the portfolio Manager for OrbiMed’s
public equity and hedge funds
Dr David Holbrook has been a Director since November
2007. Having served on the Board for more that nine years
from the date of his first election, the Board is firmly of the
view that he can be considered independent. A qualified
physician, he was formerly Investment Director of the life
sciences activities of the seed fund of the University of
Cambridge. He is Chairman of the Nominations Committee
and is the Senior Independent Director.
Humphrey van der Klugt joined the Board in February 2016.
A former fund manager and Director of Schroder Investment
Management Limited, Humphrey has extensive experience
of the investment trust sector. He is a Chartered Accountant,
and Chairman of the Audit Committee.
Doug McCutcheon joined the Board in November 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. He is Chairman of the Management
Engagement & Remuneration Committee.
The Chairman is pleased to report that following a formal
performance evaluation, the Directors’ performance
continues to be effective and they continue to demonstrate
commitment to the role.
Training and advice
New appointees to the Board are provided with a full
induction programme. The programme covers the
Company’s investment strategy, policies and practices. The
Directors are also given key information on the Company’s
regulatory and statutory requirements as they arise
including information on the role of the Board, matters
reserved for its decision, the terms of reference of the Board
Committees, the Company’s corporate governance practices
and procedures and the latest financial information. It is the
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 its appointed representative
which is responsible to the Board for ensuring that Board
procedures are followed and that applicable rules and
regulations are complied with. The Company Secretary is
also responsible for ensuring good information flows
between all parties.
Annual Report for the year ended 31 March 2019 39
Worldwide Healthcare Trust PLC
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Governance/Corporate Governance
There is an agreed procedure for Directors, in the
furtherance of their duties, to take independent professional
advice if necessary at the Company’s expense.
not identified any significant failures or weaknesses in
respect of the Company’s internal control systems.
Conflicts of interest
Company Directors have a statutory obligation to avoid a
situation in which they (and connected persons) have, or can
have, a direct or indirect interest that conflicts, or may
possibly conflict, with the interests of the Company. The
Board has in place procedures for managing any actual or
potential conflicts of interest. No conflicts of interest arose
during the year under review.
Promoting the success of the Company
In accordance with Section 172(1) of the Companies Act
2006, the Directors of the Company must act in the way they
consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its members as a
whole. In addition to the mandatory information already
included in the Strategic Report, a separate, clearly
identifiable statement which describes how the Directors
have addressed this will need to be included in the Strategic
Report with effect from the Annual Report of the Company
for the year commencing 1 April 2019.
Risk management and internal controls
The Board has overall responsibility for the Company’s risk
management and internal control systems and for reviewing
their effectiveness. The Company applies the guidance
published by the Financial Reporting Council on internal
controls. Internal control systems are designed to manage,
rather than eliminate, the risk of failure to achieve the
business objective and can provide only reasonable and not
absolute assurance against material misstatement or loss.
These controls aim to ensure that the assets of the Company
are safeguarded, that proper accounting records are
maintained and that the Company’s financial information is
reliable. The Directors have a robust process for identifying,
evaluating and managing the significant risks faced by the
Company, which are recorded in a risk matrix. The Audit
Committee, on behalf of the Board, considers each risk as
well as reviewing the mitigating controls in place. Each risk
is rated for its “likelihood” and “impact” and the resultant
numerical rating determines its ranking into ’Principal/Key’,
’Significant’ or ’Minor’. This process was in operation during
the year and continues in place up to the date of this report.
The process also involves the Audit Committee receiving and
examining regular reports from the Company’s principal
service providers. The Board then receives a detailed report
from the Audit Committee on its findings. The Directors have
Voting policy
The Board has delegated discretion to OrbiMed to exercise
voting powers on its behalf.
The Board has reviewed OrbiMed’s Voting Guidelines and is
satisfied with their approach.
The Directors must also comply with the statutory rules
requiring company directors to declare any interest in an
actual or proposed transaction or arrangement with the
Company.
Relationship with shareholders
The Board, the AIFM and the Portfolio Manager consider
maintaining good communications with shareholders and
engaging with larger shareholders through meetings and
presentations a key priority. Shareholders are being informed
by the publication of annual and half-year reports which
include financial statements. These reports are
supplemented by the daily release of the net asset value per
share to the London Stock Exchange and the publication of
monthly fact sheets. All this information, including interviews
with the Portfolio Manager, is available on the Company’s
website at www.worldwidewh.com.
The Board is also keen that the Annual General Meeting
(“AGM”) be a participative event for all shareholders. The
Portfolio Manager makes a presentation and shareholders
are encouraged to attend. The Chairmen of the Board, and of
the Committees, attend the AGM and are available to
respond to queries and concerns from shareholders. Twenty
working days’ notice of the AGM has been given to
shareholders and separate resolutions are proposed in
relation to each substantive issue. Shareholders may submit
questions for the AGM in advance of the meeting or make
general enquiries of the Company via the Company
Secretary at the registered office of the Company. The
Directors make themselves available after the AGM to
meet shareholders.
Where the vote is decided on a show of hands, the proxy
votes received are relayed to the meeting and subsequently
published on the Company’s website. Proxy forms have a
‘vote withheld’ option. The Notice of Meeting sets out the
business of the AGM together with the full text of any special
resolutions and begins on page 83.
The Board monitors the share register of the Company; it
also reviews correspondence from shareholders at each
meeting and maintains regular contact with major
shareholders. Shareholders who wish to raise matters with
40 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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Governance
Governance/Corporate Governance
a Director may do so by writing to them at the registered
office of the Company.
Beneficial owners of shares –
information rights
Beneficial owners of shares who have been nominated by
the registered holder of those shares to receive information
rights under section 146 of the Companies Act 2006 are
required to direct all communications to the registered
holder of their shares rather than to the Company’s
registrar, Link Asset Services, or to the Company directly.
The Company has adopted a nominee share code which is
set out on the following 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 10 Authority to allot shares
Resolution 11 Authority to disapply pre-emption rights
Resolution 12 Authority to sell shares held in Treasury on a
non pre-emptive basis
Resolution 13 Authority to buy back shares
Resolution 14 Authority to hold General Meetings (other
than the Annual General Meeting) on at least
14 clear days’ notice.
Resolution 15 Authority to amend the Company’s Articles of
Association to increase the annual limit on
aggregate fees payable by the Company to the
Directors.
Resolution 16 To approve an amended Investment Policy
Resolution 17 To approve the continuance of the Company as
an investment trust for a further period of
five years.
The full text of the resolutions can be found in the Notice of
Annual General Meeting on pages 83 to 87 . Explanatory
notes regarding the resolutions can be found on pages 88
and 89.
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.
Annual Report for the year ended 31 March 2019 41
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Governance/Corporate Governance
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
5 June 2019
42 Worldwide Healthcare Trust PLC
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Governance
Governance/Audit Committee Report
Introduction from the Chairman
I am pleased to present my formal report to shareholders as
Chairman of the Audit Committee, for the year ended
31 March 2019.
Composition and meetings
The Committee comprises those Directors considered to be
independent by the Board. The Chairman of the Board is not
a member of the Committee but attends meetings by
invitation. Attendance by each Director is shown in the table
on page 38. 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 was appointed Chairman of the Committee in 2016
and am a Fellow of the Institute of Chartered Accountants in
England and Wales, I am also the Chairman of the Audit
Committee of one other public company; 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 44.
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. Also, to be responsible for the selection
process of the external Auditors.
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.
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 production of the Company’s Annual Report (including
the audit by the Company’s external Auditors) is a thorough
process involving input from a number of different areas. In
order to be able to confirm that the Annual Report is fair,
balanced and understandable, the Board has requested that
the Committee advise on whether it considers these criteria
have been satisfied. As part of this process the Committee
has considered the following:
• the procedures followed in the production of the Annual
Report, including the processes in place to assure the
accuracy of the factual content;
• the extensive levels of review that were undertaken in the
production process, by the Company’s AIFM and also by
the Committee; and
• the internal control environment as operated by the
Portfolio Manager, AIFM and other service providers.
As a result of the work undertaken by the Committee, it has
confirmed that the Annual Report for the year ended
31 March 2019, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company’s financial position,
performance, business model and strategy. The Committee
has confirmed this to the Board.
Significant reporting matters
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.
Annual Report for the year ended 31 March 2019 43
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Governance/Audit Committee Report
Valuation and ownership of the Company’s
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 and Prime Broker or relevant
counterparty. In addition, receiving and reviewing details of
the internal control procedures in place at the Portfolio
Manager, the AIFM and the Custodian and Prime Broker and
also regular reports from both the Custodian and Prime
Broker and also the Depositary (whose role it is to safeguard
the Company’s assets and to verify their valuation);
• reconfirming its understanding of the processes in place
to record investment transactions and income, and to
value both the quoted and unquoted holdings in 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.
Other reporting matters
Calculation of AIFM, Portfolio Management and
Performance fees
The AIFM, Portfolio Management and Performance fees are
calculated in accordance with the AIFM and Portfolio
Management Agreements. The Auditors perform agreed
upon procedures over any performance fee prior to payment.
The Auditors also recalculate the AIFM and Portfolio
Management fee as part of the audit.
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.
Investment Performance
The Committee gained an overall understanding of the
performance of the investment portfolio both in capital and
revenue terms through ongoing discussions and analysis
with the Company’s Portfolio Manager and also with
comparison to suitable key performance indicators (see
page 24).
Accounting Policies
During the year the Committee ensured that the accounting
policies were applied consistently throughout the year. In
light of there being no unusual transactions during the year
or other possible reasons, the Committee agreed that there
was no reason to change the policies.
Going Concern
Having reviewed the Company’s financial position and
liabilities, the Committee is satisfied that it is appropriate for
the Board to prepare the financial statements on the going
concern basis. The Committee notes that there is a
continuation vote due to take place at this year’s Annual
General Meeting and that the Board is fully supportive of the
continuation of the Company and expects that the
continuation vote will be passed. Further detail is provided on
page 35.
Internal controls and risk management
As set out on pages 25 to 27 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
judgement 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.
44 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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Governance
Governance/Audit Committee Report
Viability Statement
The Board is required to make a longer-term viability
statement in relation to the continuing operations of the
Company. The Committee reviewed papers produced in
support of the statement made by the Board which assesses
the viability of the Company over a period of five years.
These included a series of stress tests that considered the
impact of severe stock market and currency volatility on
shareholder funds. The Company is a long-term investor
and the Committee believes that it is appropriate to
recommend to the Board that the Company’s viability should
be assessed over a five-year period, also taking account of
the Company’s current position and the potential impact of
the Company’s principal risks and uncertainties as shown on
pages 25 to 27. The Committee notes that there is a
continuation vote due to take place at this year’s Annual
General Meeting and that the Board is fully supportive of the
continuation of the Company and expects that the
continuation vote will be passed. The Committee expects
that the Company will continue to exist for the foreseeable
future and at least for the period of the assessment.
External Auditors
Meetings:
This year the nature and scope of the audit together with
PricewaterhouseCoopers LLP’s audit plan were considered
by the Committee on 8 November 2018. I, as Chairman of
the Committee, had a meeting with them specifically to
discuss the audit and any issues that arose. The Committee
then met PricewaterhouseCoopers LLP on 28 May 2019 to
review formally the outcome of the audit and to discuss the
limited issues that arose. The Committee also discussed the
presentation of the Annual Report with the Auditors and
sought their perspective.
Independence and Effectiveness:
In order to fulfil the Committee’s responsibility regarding the
independence of the Auditors, the Committee reviewed:
• the senior audit personnel in the audit plan for the year,
• the Auditors’ arrangements concerning any conflicts of
interest,
• the extent of any non-audit services, and
• the statement by the Auditors that they remain
independent within the meaning of the regulations and
their professional standards.
Non-audit services policy
The Company operates on the basis whereby the provision of
all non-audit services by the Auditors 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 Auditors 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.
Non-audit fees of £3,500 (2018: £3,500) were payable to the
Auditors during the year for agreed upon procedures in
relation to their review of the Company’s performance fee
payment.
The Audit Committee has considered the extent and nature
of non-audit work performed by the Auditors and is satisfied
that this did not impinge on their independence and is a cost
effective way for the Company to operate.
Appointment and tenure
PricewaterhouseCoopers LLP were appointed on 14 July
2014 following a formal tender process and this appointment
has been renewed at each subsequent AGM. The Committee
reviews the re-appointment of the Auditors every year and
the need to put the audit out to tender. Based on existing
legislation, another tender process will be conducted no
later than 2024. The Company is therefore in compliance
with the provisions of “The Statutory Audit Services for
Large Companies Market Investigation” (Mandatory use of
competitive tender process and audit committee
responsibilities) Order 2014 as issued by the Competition &
Markets Authority.
The Company’s Audit Partner is required to be rotated every
five years. Sandra Dowling has been in post since the date of
PricewaterhouseCoopers LLP’s appointment and so this is her
last audit. As Chairman of the Committee, I met with
Ms Dowling’s proposed successor in advance of his formal
appointment.
Auditors’ reappointment
PricewaterhouseCoopers LLP have indicated their willingness
to continue to act as Auditors to the Company for the
forthcoming year and a resolution for their re-appointment
will be proposed at the Annual General Meeting.
Annual Report for the year ended 31 March 2019 45
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Governance/Audit Committee Report
The Committee reviews the scope and effectiveness of the
audit process, including agreeing the Auditors’ assessment
of materiality and monitors the Auditors’ independence and
objectivity. It conducted a review of the performance of the
Auditors 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 5 June 2019.
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.
FRC review of the Company’s Annual
Report & Accounts to 31 March 2018
During the year the FRC carried out a review of the
Company’s Annual Report & Accounts to 31 March 2018.
Their review was based on the document itself and did not
benefit from detailed knowledge of the Company. However, it
was conducted by staff of the FRC who had an understanding
of the relevant legal and accounting framework. The
Committee was pleased to note that, based on the FRC’s
review, there were no questions that the FRC wished to
raise.
Effectiveness of the Committee
Lintstock, an independent third party, commented on the
effectiveness of the Committee as part of their evaluation of
the Board (see page 39). In particular the management of
Committee meetings in terms of the annual cycle of work,
the meeting agenda and the input during meetings was
rated highly.
Humphrey van der Klugt, FCA
Chairman of the Audit Committee
5 June 2019
46 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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Governance
Governance/Directors’ Remuneration Report
Introduction from the Chairman
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 (AGM). 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 50 to 56.
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 the adoption of
the Directors’ Remuneration Report was put to shareholders
at the Annual General Meeting of the Company held on
20 September 2018, and was passed with 98.9% of the votes
cast by shareholders voting in favour of 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. An Ordinary resolution will be put to
the AGM to increase the annual limit on the aggregate
amount of fees payable by the Company to the Directors
under Article 113. The Directors wish to provide for any
Board succession overlap and also in the event that the
Board composition were to expand in number in the future.
The Board is proposing that an aggregate annual limit of
£350,000 be approved by shareholders, replacing the current
limit of £250,000. The amount paid in aggregate to the
Directors in 2019 is set out in the table on the following page.
A binding resolution to approve the Directors’ Remuneration
Policy was put to shareholders at the Annual General
Meeting held in 2017, and was passed with 98.4% of
shareholders voting in favour of 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
September 2017, shareholder approval will again be sought
at the Annual General Meeting to be held in 2020.
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
Following a review during the year by the Management
Engagement & Remuneration Committee it was agreed that
the Directors’ fees would be, with effect from 1 April 2019,
as follows:
The Chairman of the Company, and Humphrey van der Klugt,
as Chairman of the Audit Committee, receive an annual fee of
£49,140 and £38,030, respectively. Dr David Holbrook, as the
Senior Independent Director, receives an annual fee of
£33,290. Sarah Bates and Doug McCutcheon each receive an
annual fee of £31,040. Sven Borho has waived his
Director’s fee.
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 2019 47
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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
Sven Borho*
Total
Date of Appointment
to the Board
8 November 2007
15 February 2016
22 May 2013
8 November 2007
14 February 1995
7 November 2012
7 June 2018
Fees (£)
2019
47,700
36,920
30,130
32,320
–
30,130
–
177,200
Taxable
Expenses†
2019
571
344
–
–
–
–
–
915
Total
2019
48,271
37,264
30,130
32,320
–
30,130
–
Fees (£)
2018
45,850
35,500
28,970
31,070
22,730
28,970
–
178,115
193,090
Taxable
Expenses†
2018
695
253
–
–
–
–
–
948
Total
2018
46,545
35,753
28,970
31,070
22,730
28,970
–
194,038
† 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.
^ Ceased to be a Director on 12 January 2018.
* Sven Borho joined the Board on 7 June 2018. Mr Borho has waived his Director’s fee.
Share price total return
The chart below 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 ten years to
31 March 2019
%
650
590
530
470
410
350
290
230
170
110
50
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
M ar-18
M ar-19
WWH Share Price (total return)
WWH NAV (total return)
Benchmark (total return)
Rebased to 100 as at March 2009
Source: Morningstar, Thomson Reuters and Bloomberg
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
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
31 March
2018
31 March
2019
11,871
2,725
7,200
1,094
10,000
3,000
15,000
50,890
11,871
2,725
7,200
1,094
n/a
1,500
15,000
39,390
Sir Martin Smith
– Trustee
Sarah Bates
Dr David Holbrook
Sven Borho*
Humphrey van der Klugt
Doug McCutcheon
*Joined the Board on 7 June 2018
48 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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Governance
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 2018 and 2019.
Relative cost of Directors’ remuneration
£
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Directors’
Fees
2019
Dividends
2019
Ongoing
Charges*
2019
Directors’
Fees
2018
Dividends
2018
Ongoing
Charges*
2018
* Alternative Performance Measure (see Glossary beginning on page 77).
Annual statement
On behalf of the Board, I confirm that the Directors’
Remuneration Policy, set out on page 47 of this Annual
Report, and Directors’ Remuneration Report summarise, as
applicable, for the year to 31 March 2019:
(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
5 June 2019
Annual Report for the year ended 31 March 2019 49
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Governance/Independent Auditors’ Report to the Members
of Worldwide Healthcare Trust PLC
Report on the audit of the financial statements
Opinion
In our opinion, Worldwide Healthcare Trust plc’s financial statements:
• give a true and fair view of the state of the Company’s affairs as at 31 March 2019 and of its net return for the year then
ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of
Ireland”, and applicable law); and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the Statement of Financial
Position as at 31 March 2019; the Income Statement, the Statement of Changes in Equity for the year then ended; and the
notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remained independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Company.
Other than those disclosed in the Report of the Directors, we have provided no non-audit services to the Company in the
period from 1 April 2018 to 31 March 2019.
Our audit approach
Overview
•
•
•
•
•
Overall materiality: £14.3 million (2018: £12.0 million), based on 1% of net assets.
The Company is a standalone Investment Trust Company and engages Frostrow Capital
LLP (the “AIFM”) to manage its assets.
We conducted our audit of the financial statements using information from the AIFM and
J.P. Morgan Europe Limited 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.
We obtained an understanding of the control environment in place at the AIFM and
adopted a fully substantive testing approach using reports obtained from the AIFM and
service providers.
•
•
•
•
Income from investments.
Valuation and existence of investments.
Performance Fee.
Ability to continue as a going concern.
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The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Company and industry, we identified that the principal risks of non-compliance with laws
and regulations related to breaches of section 1158 of the Corporation Tax Act 2010 and the UK and European regulatory
principles, such as those governed by the Financial Conduct Authority (see page 23 of the Annual Report), and we considered
the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws
and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006 and
Chapter 15 of the UK Listing Rules applicable to Closed-Ended Investment Funds. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to posting inappropriate journal entries to increase revenue. Audit
procedures performed by the engagement team included:
• Discussions with management, including consideration of known or suspected instances of non-compliance with laws and
regulations and fraud, and review of the reports made by management;
• Reviewing relevant meeting minutes, including those of the Audit Committee;
• Assessment of the Company’s compliance with the requirements of s1158 of the Corporation Tax Act 2010, including
recalculation of numerical aspects of the eligibility conditions; and
• Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing of expenses.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws
and regulations is from the events and transactions reflected in the financial statements, the less likely we would become
aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This
is not a complete list of all risks identified by our audit.
Key audit matter
Income from investments
Refer to page 44 (Audit Committee Report), pages 60 to 63
(Accounting policies) and page 63 (Notes to the Financial
Statements).
ISAs (UK) presume there is a risk of fraud in income
recognition because of the pressure management may feel
to achieve a certain objective. For the purposes of
clarification, ‘income’ refers to all the Company’s income
streams, both revenue and capital (including gains and
losses on investments). As the Company has a capital
objective, there might be an incentive to overstate income in
that category if capital is particularly underperforming.
How our audit addressed the key audit matter
Our main audit procedures over income were as follows:
• 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 tested the accuracy of dividend receipts by agreeing the
dividend rates from investments to independent market
data. No material misstatements were identified which
required reporting to those charged with governance.
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Key audit matter
Income from investments
We focused on the accuracy and completeness of dividend
income amounting to £14,001,000 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 investments amounting to a gain of
£159,254,000 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.
Valuation and existence of investments
Refer to pages 8 to 10 (Portfolio), page 44 (Audit Committee
Report), page 61 (Accounting policies) and page 67 (Notes to
the Financial Statements)
The investment portfolio at 31 March 2019 principally
comprised listed equity investments, OTC swaps, options
and unquoted debt and equity investments and totalled
£1,388,975,000.
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.
How our audit addressed the key audit matter
• To test for completeness, we tested all investment holdings
in the portfolio, to ensure that all dividends declared in the
market by investment holdings had been recorded.
• We tested occurrence by testing that all dividends recorded
in the year had been declared in the market by investment
holdings, and we traced a sample of dividends received to
bank statements.
• We tested the allocation and presentation of dividend
income between the revenue and capital return columns of
the Income Statement in line with the requirements set out
in the AIC SORP by determining reasons behind dividend
distributions. Our procedures did not identify any material
misstatements which required reporting to those charged
with governance.
• We also checked that the gains or losses on investments
held at fair value comprised realised and unrealised 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, and also tested
the reconciliation of opening and closing investments.
• Our testing did not identify any material misstatements
which required reporting to those charged with governance.
Our main audit procedures over valuation and existence
were as follows:
• 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 investments' portfolio
by agreeing the holdings to a custodian confirmation
obtained independently from J.P. Morgan Securities LLC, as
at 31 March 2019.
There were no material differences requiring reporting to
those charged with governance.
• Unquoted equity instruments:
We tested the existence of unquoted investments, by
agreeing the holdings to a custodian confirmation obtained
independently from J.P. Morgan Securities LLC, as at 31
March 2019.
• 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 obtaining independently sourced confirmations, from the
parties responsible.
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Performance Fee
Refer to page 44 (Audit Committee Report), page 62
(Accounting Policies) and page 63 (Notes to the Financial
Statements).
The performance fee write back for the year was £6.6m. As
at 31 March 2019, there was no performance fee accrual.
Ability to continue as a going concern
Refer to the Going Concern section and Viability Statement in
the Audit Committee Report and the Basis of Preparation in
the Notes to the Financial Statements on page 60.
A continuation vote is due to take place at the next Annual
General Meeting on 9 July 2019 which, if passed, will allow
the Company to continue as an investment trust for a further
five years. As such the Directors have considered and
assessed the potential impact on the ability of the Company
to continue as a going concern.
No material differences were identified which required
reporting to those charged with governance.
• OTC derivative financial instruments (swaps):
We tested the valuation of the OTC derivatives by agreeing
the prices used for a sample in the valuation to independent
third party sources as at 31 March 2019.
We tested the existence of the OTC derivatives by agreeing
the holdings to confirmations sourced independently from
J.P. Morgan Securities LLC and Goldman Sachs
International.
No material differences were identified which required
reporting to those charged with governance.
We focused on this area because the performance fee is
calculated using a complex methodology as set out in the
AIFM Agreement and the Portfolio Management Agreement.
We independently recalculated the performance fee write
back, 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 material misstatements were identified by our testing
which required reporting to those charged with governance.
We have reviewed the Directors’ assessment of going
concern in relation to the passing of the continuation vote.
We have also assessed the appropriateness of preparing the
financial statements on a going concern basis taking into
consideration the continuation vote.
We have challenged the Directors on their assessment which
includes but is not limited to the following in support of the
vote:
• The shareholder register is stable, comprising a wide
range of private wealth managers and retail investors;
• The Company has a positive long term performance track
record; and
• The previous continuation vote in 2014 passed with no
significant votes against.
Our findings in respect of going concern are set out in the
“Going Concern” section below.
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 structure of the Company, the accounting processes and controls, and the
industry in which it operates.
The Company’s accounting is undertaken by the AIFM, who maintains the Company’s accounting records and who has
implemented controls over those accounting records.
We obtained our audit evidence from substantive tests. However, as part of our risk assessment, we understood and
assessed the internal controls in place at the AIFM to the extent relevant to our audit. This assessment of the operating and
accounting structure in place involved obtaining and analysing the relevant control report issued by the independent service
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auditor of the AIFM in accordance with generally accepted assurance standards for such work. Following this assessment,
we applied professional judgement to determine the extent of testing required over each balance in the financial statements.
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 in aggregate 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 – £14.3 million (2018: £12.0 million).
How we determined it – 1% of net assets.
Rationale for benchmark applied – We applied this benchmark, which is a generally accepted auditing practice for
investment trust audits.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £716,000
(2018: £601,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add
or draw attention to in respect of the directors’ statement in
the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of
accounting in preparing the financial statements and the
directors’ identification of any material uncertainties to the
Company’s ability to continue as a going concern over a
period of at least twelve months from the date of approval of
the financial statements.
We are required to report if the directors’ statement relating
to Going Concern in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the
audit.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the
Company’s ability to continue as a going concern. For
example, the terms on which the United Kingdom may
withdraw from the European Union are not clear, and it is
difficult to evaluate all of the potential implications on the
Company’s trade, customers, suppliers and the wider
economy.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by the
UK Companies Act 2006 have been included.
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Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Report of the Directors for the year ended 31 March 2019 is consistent with the financial statements and has been prepared
in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic Report and Report of the Directors. (CA06)
The directors’ assessment of the prospects of the Company and of the principal risks that would threaten the solvency
or liquidity of the Company
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on pages 25 to 27 of the Annual Report 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.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on pages 28 and 29 of the Annual Report 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 to report having performed a review of the directors’ statement that they have carried out a robust
assessment of the principal risks facing the Company and 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 UK
Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and
understanding of the Company and its environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 35, that they consider the Annual Report taken as a whole to be fair,
balanced and understandable, and provides the information necessary for the members to assess the Company’s position
and performance, business model and strategy is materially inconsistent with our knowledge of the Company obtained in
the course of performing our audit.
• The section of the Annual Report on page 43 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
• The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from
a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of the Directors’ Responsibilities set out on page 35, the directors are responsible
for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they
give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
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In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received
from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; 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.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 14 July 2014 to audit the
financial statements for the year ended 31 March 2015 and subsequent financial periods. The period of total uninterrupted
engagement is 5 years, covering the years ended 31 March 2015 to 31 March 2019.
Sandra Dowling (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
5 June 2019
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Financial Statements
Financial Statements /Income Statement
For the year ended 31 March 2019
2019 2018
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Gains on investments 9 – 159,254 159,254 – 30,702 30,702
Exchange (losses)/gains on
currency balances – (687) (687) – 7,942 7,942
Income from investments 2 18,394 – 18,394 12,204 – 12,204
AIFM, Portfolio management
and performance fees 3 (559) (4,028) (4,587) (493) (19,099) (19,592)
Other expenses 4 (908) – (908) (908) – (908)
Net return before finance
charges and taxation 16,927 154,539 171,466 10,803 19,545 30,348
Finance costs 5 (175) (3,327) (3,502) (82) (1,552) (1,634)
Net return before taxation 16,752 151,212 167,964 10,721 17,993 28,714
Taxation on net return 6 (2,267) 543 (1,724) (1,764) 229 (1,535)
Net return after taxation 14,485 151,755 166,240 8,957 18,222 27,179
Return per share 7 28.4p 297.8p 326.2p 18.7p 38.1p 56.8p
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.
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Financial Statements /Statement of Changes in Equity
For the year ended 31 March 2019
Share Capital Total
Share premium Capital redemption Revenue shareholders’
capital account reserve reserve reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
At 31 March 2018 12,466 317,406 851,706 8,221 12,389 1,202,188
Net return after taxation – – 151,755 – 14,485 166,240
Second interim dividend paid in respect
of year ended 31 March 2018 – – – – (5,497) (5,497)
First interim dividend paid in respect
of year ended 31 March 2019 – – – – (3,359) (3,359)
New shares issued 684 71,837 – – – 72,521
At 31 March 2019 13,150 389,243 1,003,461 8,221 18,018 1,432,093
For the year ended 31 March 2018
Share Capital Total
Share premium Capital redemption Revenue shareholders’
capital account reserve reserve reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
At 31 March 2017 11,627 233,539 833,484 8,221 14,032 1,100,903
Net return after taxation – – 18,222 – 8,957 27,179
Second interim dividend paid in respect
of year ended 31 March 2017 – – – – (7,447) (7,447)
First interim dividend paid in respect
of year ended 31 March 2018 – – – – (3,153) (3,153)
New shares issued 839 83,867 – – – 84,706
At 31 March 2018 12,466 317,406 851,706 8,221 12,389 1,202,188
The accompanying notes are an integral part of these statements.
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Financial Statements
Financial Statements/Statement of Financial Position
As at 31 March 2019
2019 2018
Notes £’000 £’000
Fixed assets
Investments 9 1,378,681 1,259,926
Derivative – OTC swaps 9 & 10 11,898 34,105
1,390,579 1,294,031
Current assets
Debtors 11 12,330 6,601
Derivative – put and call options 9 & 10 1,908 587
Cash 49,018 9,932
63,256 17,120
Current liabilities
Creditors: amounts falling due within one year 12 (18,230) (107,865)
Derivatives – put and call options 9 & 10 (663) (1,098)
Derivative - OTC swaps 9 & 10 (2,849) –
(21,742) (108,963)
Net current assets/(liabilities) 41,514 (91,843)
Total net assets 1,432,093 1,202,188
Capital and reserves
Share capital 13 13,150 12,466
Share premium account 389,243 317,406
Capital reserve 17 1,003,461 851,706
Capital redemption reserve 8,221 8,221
Revenue reserve 18,018 12,389
Total shareholders’ funds 1,432,093 1,202,188
Net asset value per share 14 2,722.9p 2,411.1p
The financial statements on pages 57 to 75 were approved by the Board of Directors and authorised for issue on 5 June 2019
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)
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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 in accordance with the Companies Act 2006, FRS 102 ‘The Financial
Reporting Standard applicable in the UK and Ireland’ (‘UK GAAP’) and the guidelines set out in the Statement of
Recommended Practice (‘SORP’), updated in February 2018, for Investment Trust Companies and Venture Capital
Trusts issued by the Association of Investment Companies (‘AIC’), the historical cost convention, as modified by the
valuation of investments and derivatives at fair value and on a going concern basis, as set out on page 35.
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 and derivatives held at fair value are categorised into a fair value hierarchy based on the
degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair
value measurement in its entirety, which are described as follows:
•
•
•
Level 1 – Quoted prices in active markets.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using
market data), either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. for which market data is unavailable).
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and in accordance with the SORP,
supplementary information which analyses the Income Statement between items of a revenue and capital nature has
been presented alongside the Income Statement. The net revenue return is the measure the Directors believe
appropriate in assessing the Company’s compliance with certain requirements set out in Sections 1158 and 1159 of
the Corporation Tax Act 2010.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used in preparing the financial information
are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting estimates will, by definition, seldom equal the related actual
results.
There is one significant judgement involved in the presentation of the Company’s accounts being the judgement on
the functional and presentational currency of the Company.
•
The Company’s investments are primarily made in foreign currencies, however the Board considers the
Company’s functional and presentational currency to be sterling. In arriving at this conclusion, the Board
considered that the shares of the Company are listed on the London Stock Exchange, it is regulated in the United
Kingdom and pays dividends and expenses in sterling. All values are rounded to the nearest thousand pounds
(£’000) except where otherwise indicated.
In addition the Company uses judgements and estimates in valuing the unquoted (Level 3) investments. Given the
relative size of the unquoted investments to the Company’s overall portfolio, the Board does not consider that these
judgements result in a significant risk of a material adjustment arising. 1.8% (2018: 2.5%) of the Company’s portfolio
is comprised of unquoted investments. These are all valued in line with accounting policy 1(b), on page 61.
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Financial Statements
Financial Statements /Notes to the Financial Statements
1.
ACCOUNTING POLICIES continued
(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. Changes in fair value and gains or losses on disposal are included
in the Income Statement as a capital item.
For quoted securities fair value is either bid price or last traded price, depending on the convention of the exchange
on which the investment is listed.
Fair value is the price for which an asset could be exchanged between knowledgeable, willing parties in an arm’s
length transaction. In estimating the fair value of unquoted investments , the AIFM and Board apply valuation
techniques which are appropriate in light of the nature, facts and circumstances of the investment and use reasonable
current market data and inputs combined with judgement and assumptions. Valuation techniques are applied
consistently from one reporting date to another except where a change in technique results in a better estimate of fair
value. In general, the value of the investment in question will be determined using one of a range of valuation
techniques, utilising independent third party pricing sources where available and cost efficient for the Company.
Where the investment being valued was itself made recently, or there has been a third party transaction in the
investment, the price of the transaction may provide a good indication of fair value. Using the Price of Recent
Investment technique is not a default and at each reporting date the fair value of recent investments is estimated to
assess whether changes or events subsequent to the relevant transaction would imply a material change in the
investment’s fair value.
When using the price of a recent transaction in the valuations the Company looks to ‘re-calibrate’ this price at each
valuation point by reviewing progress within the investment, comparing against the initial investment thesis,
assessing if there are any significant events or milestones that would indicate the value of the investment value has
changed materially and considering whether an alternative methodology would be more appropriate.
(c) Derivative financial instruments
The Company uses derivative financial instruments (namely put and call options and equity swaps).
All derivative instruments are valued initially, and at subsequent reporting dates, at fair value in the Statement of
Financial Position.
The equity swaps are accounted for as Fixed Assets 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. Foreign dividends are grossed up at the
appropriate rate of withholding tax.
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Financial Statements /Notes to the Financial Statements
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 are accounted for on an accruals basis in
the Income Statement using the effective interest rate method and are added to the carrying amount of the
instrument to the extent that they are not settled in the period in which they arise.
(g) Taxation
The tax effect of different items of expenditure is allocated between capital and revenue using the marginal basis.
Deferred taxation is provided on all timing differences that have originated but not been reversed by the Statement of
Financial Position date other than those differences regarded as permanent. This is subject to deferred tax assets
only being recognised 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.
Exchange gains/losses on foreign currency balances
Any gains or losses on the translation of foreign currency balances, including the foreign currency overdraft, whether
realised or unrealised, are taken to the capital or the revenue column of the Income Statement, depending on
whether the gain or loss is of a capital or revenue nature.
(i) Capital 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.
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Financial Statements
Financial Statements /Notes to the Financial Statements
1.
ACCOUNTING POLICIES continued
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.
2.
INCOME FROM INVESTMENTS
-- 2019 2018
£’000 £’000
Income from investments
Overseas dividends 13,650 9,600
Fixed interest income 3,803 2,250
UK dividends 351 –
17,804 11,850
Other income
Derivatives 7 121
Deposit interest 583 233
Total income from investments 18,394 12,204
Total income comprises:
Dividends 14,001 9,600
Interest 4,393 2,604
18,394 12,204
3.
AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
2019 2018
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee 120 2,282 2,402 109 2,076 2,185
Portfolio management fee 439 8,342 8,781 384 7,293 7,677
Performance fee – (6,596) (6,596) – 9,730 9,730
559 4,028 4,587 493 19,099 19,592
Further Details on the above fees are set out in the Strategic Report on page 24 and in the Report of the Directors on
page 32.
The performance fee amount of (£6,596,000) is the accrued fee on outperformance generated as of 31 March 2018
which was not maintained for a twelve month period, this amount was therefore written back during the year ended
31 March 2019 in accordance with the terms of the performance fee arrangements as set out on page 32.
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Financial Statements /Notes to the Financial Statements
OTHER EXPENSES
4.
2019 2018
Revenue Revenue
£’000 £’000
Directors’ remuneration 177 193
Auditors’ remuneration for the audit of the Company’s financial statements 29 30
Auditors’ remuneration for non-audit services 4 3
Marketing expenses 49 50
Registrar fees 47 55
Broker fees 30 30
Legal and professional costs 9 7
Stock Exchange listing fees* 132 151
Depositary and custody fees 139 132
Other costs 292 257
908 908
Details of the amounts paid to Directors are included in the Directors’ Remuneration Report on page 48.
* Includes £91,000 (2018: £124,000) in respect of Stock Exchange Block Listing fees required as a result of the issuance
of new shares by the Company during the year.
FINANCE COSTS
5.
2019 2018
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Finance costs 175 3,327 3,502 82 1,552 1,634
6.
TAXATION ON NET RETURN
(a) Analysis of charge in year
2019 2018
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Corporation tax at 19%
(2018: 19%) – – – – – –
Tax relief to capital 523 (523) – 229 (229) –
Overseas taxation 1,744 – 1,744 1,535 – 1,535
Capital gains tax – (20) (20) – – –
2,267 (543) 1,724 1,764 (229) 1,535
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Financial Statements
Financial Statements /Notes to the Financial Statements
6.
TAXATION ON NET RETURN continued
(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 (2018: lower) than the standard rate of corporation tax of 19% (2018: 19%).
The difference is explained below.
2019 2018
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return before taxation 16,752 151,212 167,964 10,721 17,993 28,714
Corporation tax at 19%
(2018: 19%) 3,183 28,730 31,913 2,037 3,419 5,456
Non-taxable gains on
investments – (30,128) (30,128) – (7,342) (7,342)
Overseas withholding taxation 1,744 – 1,744 1,535 – 1,535
Non taxable dividends (2,660) – (2,660) (1,748) – (1,748)
Excess management expenses (523) 1,398 875 (278) 3,923 3,645
Tax relief to capital 523 (523) – 229 (229) –
Double taxation relief expensed – – – (11) – (11)
Capital gains tax – (20) (20) – – –
Total tax charge 2,267 (543) 1,724 1,764 (229) 1,535
(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 £19,793,000 (17% tax rate) (2018: £18,995,000 (17% 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.
RETURN PER SHARE
7.
2019 2018
£’000 £’000
The return per share is based on the following figures:
Revenue return 14,485 8,957
Capital return 151,755 18,222
166,240 27,179
Weighted average number of ordinary shares in issue during the year 50,961,790 47,849,849
Revenue return per ordinary share 28.4p 18.7p
Capital return per ordinary share 297.8p 38.1p
326.2p 56.8p
The calculation of the total, revenue and capital return per ordinary share is carried out in accordance with IAS 33,
“Earnings per Share”, in accordance with the requirements of FRS 102.
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Financial Statements /Notes to the Financial Statements
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:
2019 2018
£’000 £’000
Second interim dividend in respect of the year ended 31 March 2018 5,497 –
First interim dividend in respect of the year ended 31 March 2019 3,359 –
Second interim dividend in respect of the year ended 31 March 2017 – 7,447
First interim dividend in respect of the year ended 31 March 2018 – 3,153
8,846 10,600
In respect of the year ended 31 March 2019, the first interim dividend of 6.5p per share was paid on 9 January 2019.
A second interim dividend of 20.0p is payable on 16 July 2019, the associated ex dividend date will be 6 June 2019. The
total dividends payable in respect of the year ended 31 March 2019 amount to 26.5p per share (2018: 17.5p per share).
The aggregate cost of the second interim dividend, based on the number of shares in issue at 5 June 2019, will be
£10,554,000. In accordance with FRS 102 the second interim dividend will be reflected in the financial statements for
the year ending 31 March 2020. 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:
2019 2018
£’000 £’000
Revenue available for distribution by way of dividend for the year 14,485 8,957
First interim dividend in respect of the year ended 31 March 2018 – (3,153)
Second interim dividend in respect of the year ended 31 March 2018 – (5,497)
First interim dividend in respect of the year ended 31 March 2019 (3,359) –
Second interim dividend in respect of the year ended 31 March 2019* (10,554) –
Net retained revenue 572 307
*based on 52,840,278 shares in issue as at 5 June 2019.
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Financial Statements
Financial Statements /Notes to the Financial Statements
INVESTMENTS
9.
Derivative
Quoted Unquoted Financial
Investments Investments Instruments Total
£’000 £’000 £’000 £’000
Cost at 1 April 2018 1,202,762 35,282 13,056 1,251,100
Investment holdings gains/(losses) at 1 April 2018 24,443 (2,561) 20,538 42,420
Valuation at 1 April 2018 1,227,205 32,721 33,594 1,293,520
Movement in the year:
Purchases at cost 1,433,956 7,327 4,616 1,445,899
Sales - proceeds (1,470,949) (16,081) (23,464) (1,510,494)
realised gains on sales 7,933 289 6,655 14,877
Net movement in investment holding gains 155,720 560 (11,107) 145,173
Valuation at 31 March 2019 1,353,865 24,816 10,294 1,388,975
Cost at 31 March 2019 1,173,702 26,817 863 1,201,382
Investment holding gains/(losses) at 31 March 2019 180,163 (2,001) 9,431 187,593
Valuation at 31 March 2019 1,353,865 24,816 10,294 1,388,975
–
2019 2018
£’000 £’000
Gains on investments
Gains on disposal 14,877 201,332
Effective interest rate amortisation (796) (388)
Less: amounts recognised as investment holding losses/(gains) in previous years 13,387 (128,450)
Gains based on carrying value at previous Statement
of Financial Position date 27,468 72,494
Movement in investment holding gains in the year 131,786 (41,792)
Gains on investments 159,254 30,702
Purchase transaction costs for the year to 31 March 2019 were £1,564,000 (year ended 31 March 2018: £836,000).
Sales transaction costs for the year to 31 March 2019 were £1,006,000 (year ended 31 March 2018: £804,000). These
comprise mainly commission.
10. DERIVATIVE FINANCIAL INSTRUMENTS
2019 2018
£’000 £’000
Fair value of OTC equity swaps (asset) 11,898 34,105
Fair value of OTC equity swaps (liability) (2,849) –
Fair value of put and call options (long) 1,908 587
Fair value of put and call options (short) (663) (1,098)
10,294 33,594
See note 9 above for movements during the year.
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Financial Statements /Notes to the Financial Statements
11. DEBTORS
2019 2018
£’000 £’000
Amounts due from brokers 6,609 3,415
Withholding taxation recoverable 2,523 1,762
VAT recoverable 30 25
Prepayments and accrued income 3,168 1,399
12,330 6,601
12. CREDITORS Amounts falling due within one year
2019 2018
£’000 £’000
Amounts due to brokers 15,573 3,545
Overdraft drawn* – 91,351
Performance fee provision – 9,731
Performance fee payable – 959
Other creditors and accruals 2,657 2,279
18,230 107,865
*The Company’s borrowing requirements are met through the utilisation of an overdraft facility provided by J.P. Morgan
Securities LLC. The overdraft is drawn down in U.S. dollars. Interest on the drawn overdraft is charged at the United
States Overnight Bank Funding Rate plus 45 basis points.
As described on page 26, J.P. Morgan Securities LLC may take investments up to 140% of the value of the overdrawn
balance as collateral and has been granted a first priority security interest or lien over the Company’s assets. (See
page 73 under credit risk for additional details).
SHARE CAPITAL
13.
Total
Treasury shares
Shares shares in issue
number number number
Issued and fully paid at 1 April 2018 49,861,278 – 49,861,278
New shares issued 2,734,000 – 2,734,000
At 31 March 2019 52,595,278 – 52,595,278
2019 2018
£’000 £’000
Issued and fully paid:
Shares of 25p 13,150 12,466
During the year ended 31 March 2019 2,734,000 shares were issued raising £72,521,000. During the year ended
31 March 2018 3,355,000 shares were issued raising £84,706,000. No shares were repurchased by the Company
during these years.
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Financial Statements
Financial Statements /Notes to the Financial Statements
14. NET ASSET VALUE PER SHARE
2019 2018
Net asset value per share 2,722.9p 2,411.1p
The net asset value per share is based on the assets attributable to equity shareholders of £1,432,093,000
(2018: £1,202,188,000) and on the number of Ordinary Shares in issue at the year end of 52,595,278 (2018: 49,861,278).
15. RELATED PARTIES
The following are considered to be related parties:
•
•
•
Frostrow Capital LLP (under the Listing Rules only)
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, are disclosed on page 24. Sven Borho, who joined the Board on 7 June 2018, is
a Managing Partner at OrbiMed. Details of fees paid to OrbiMed by the Company can be found in note 3 on page 63. All
material related party transactions have been disclosed in notes 3 and 4 on pages 63 and 64.
Details of the remuneration of all Directors can be found on page 48. Details of the Directors’ interests in the capital
of the Company can be found on page 48.
Three current and two former partners at 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 on page 63.
16.
FINANCIAL INSTRUMENTS
Risk management policies and procedures
The Company’s financial instruments comprise securities and other investments, derivative instruments, cash
balances, loans and debtors and creditors that arise directly from its operations.
As an investment trust, the Company invests in equities and other investments for the long term so as to secure its
investment objective 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 25 to 27 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 beginning on page 77.
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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 £27.7 million (2018: £9.9 million) was held as collateral against the financed swap positions, of which nil
(2018: Nil) was offset against the overdraft position.
Offsetting disclosure
Swap trades and OTC derivatives are traded under ISDA† Master Agreements. The Company currently has such
agreements in place with Goldman Sachs and JP Morgan.
These agreements create a right of set-off that becomes enforceable only following a specified event of default, or in
other circumstances not expected to arise in the normal course of business. As the right of set-off is not unconditional,
for financial reporting purposes, the Company does not offset derivative assets and derivative liabilities.
(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 25 to 27.
†International Swap Dealers Association Inc.
*See Glossary beginning on page 77 for a description of funded and financed swaps.
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Financial Statements
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.
2019 2018
Notional* Notional
Assets Liabilities exposure Assets Liabilities exposure
£’000 £’000 £’000 £’000 £’000 £’000
Investments 1,378,681 – 1,378,681 1,259,926 – 1,259,926
Put and call options 1,908 (663) 7,088 587 (1,098) 13,098
OTC equity swaps 11,898 (2,849) 116,762 34,105 – 126,125
1,392,487 (3,512) 1,502,531 1,294,618 (1,098) 1,399,149
*The notional exposure is calculated in accordance with the AIFMD requirements for calculating exposure via derivatives.
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 (2018: 25% higher or lower) while all other variables remained constant:
the revenue return would have decreased/increased by £145,000 (2018: £134,000); the capital return would have
increased by £372,926,000 (2018: £346,181,000)/decreased by £371,192,000 (2018: £346,882,000); and, the return on
equity would have increased by £372,781,000 (2018: £344,838,000)/decreased by £371,767,000 (2018: £345,539,000).
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:
2019 2018
Current Current Current Current
assets liabilities Investments assets liabilities Investments
£’000 £’000 £’000 £’000 £’000 £’000
U.S. dollar 66,518 (28,053) 1,068,342 11,236 (94,894) 1,075,131
Swiss franc 1,449 – 64,057 1,032 – 17,772
Japanese yen 2,306 – 142,415 3,988 – 95,628
Hong Kong dollar 2,999 (976) 61,337 – – –
Other 1,072 – 52,824 217 – 104,989
74,344 (29,029) 1,388,975 16,473 (94,894) 1,293,520
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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 (2018: 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.
2019 2018
USD YEN CHF HK USD YEN CHF
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Sterling depreciates 134,947 16,080 7,278 7,040 120,388 11,068 2,089
Sterling appreciates (110,411) (13,156) (5,955) (5,780) (98,499) (9,056) (1,709)
(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 2019, the Company held 1.3% of the portfolio in securitised debt (2018: 2.5% of the portfolio). The
exposure is shown in the table below:
Weighted Weighted Weighted Weighted
2019 2018
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
Unquoted debt
investments
Cash
Overdraft facility
Financed swap
positions
0.4 2.0 66
17,459 5.4 1.8 7,958 24,763
–
49,018 – 9,932
–
– – (91,351)
– (107,713) – (92,020)
(41,236) 7,958 (148,676)
66
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 2019 and the net assets would increase/decrease by £412,000 (2018: increase/decrease by
£1,487,000).
72 Worldwide Healthcare Trust PLC
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Financial Statements
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 2019, based on the earliest date on which
payment can be required, are as follows:
2019 2018
3 months 3 months
or less or less
£’000 £’000
Overdraft facility – 91,351
Amounts due to brokers and accruals 15,573 3,545
OTC equity swaps 2,849 –
Derivatives – Put options (short) 611 1,058
Derivatives – Call options (short) 52 40
19,085 95,994
(v) Credit risk
Credit risk is the risk of failure of a counterparty to discharge its obligations resulting in the Company suffering a
financial loss.
The carrying amounts of financial assets best represent the maximum credit risk at the Statement of Financial
Position date. The Company’s quoted securities are held on its behalf by J.P. Morgan Securities LLC acting as the
Company’s Custodian and Prime Broker.
As noted on page 68, certain of the Company’s assets can be held by J.P. Morgan Securities LLC as collateral against
the overdraft provided by them to the Company. As at 31 March 2019 no assets were held as collateral. As at
31 March 2018, assets with a total market value of £129.3 million were available to J.P. Morgan Securities LLC to be
used as collateral against the overdraft facility which equates to 140% of the overdrawn position (calculated on a
settled basis) of £92.3 million as at 31 March 2018. Such assets held by J.P. Morgan Securities LLC are available for
rehypothecation (see Glossary on page 79 for further information).
Credit risk exposure
2019 2018
£’000 £’000
Unquoted debt investments 17,525 32,721
Derivative – OTC equity swaps 11,898 34,105
Current assets:
Other receivables (amounts due from brokers, dividends
and interest receivable) 12,330 6,601
Derivative – Put options (long) 1,350 161
Derivative – Call options (long) 558 426
Cash 49,018 9,932
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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 2019 £’000 £’000 £’000 £’000
Investments held at fair value through profit or loss 1,353,865 – 24,816 1,378,681
Derivatives: put and call options (short) – (663) – (663)
Derivatives: put and call options (long) – 1,908 – 1,908
Derivatives: OTC swaps (assets) – 11,898 – 11,898
Derivatives: OTC swaps (liabilities) – (2,849) – (2,849)
Financial instruments measured at fair value 1,353,865 10,294 24,816 1,388,975
As at 31 March 2019, the put and call options and equity swaps have been classified as Level 2.
As at 31 March 2019, five debt and two equity investments (included in the portfolio on pages 8 and 10) have been
classified as Level 3. All level 3 positions have been valued using an independent third party pricing source or using
the price of a recent transaction.
Level 1 Level 2 Level 3 Total
As of 31 March 2018 £’000 £’000 £’000 £’000
Investments held at fair value through profit or loss 1,227,205 – 32,721 1,259,926
Derivatives: put and call options (short) – (1,098) – (1,098)
Derivatives: put and call options (long) – 587 – 587
Derivatives: OTC swaps – 34,105 – 34,105
Financial instruments measured at fair value 1,227,205 33,594 32,721 1,293,520
As at 31 March 2018, the put and call options and equity swaps have been classified as Level 2.
As at 31 March 2018, the seven debt investments were classified as Level 3. All level 3 positions were valued using an
independent third party pricing source.
(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 pages 6 and 7.
As at 31 March 2019, the Company had a leverage percentage of 4.9% (2018: 16.4%).
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Financial Statements
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 59.
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 2018 680,836 170,870 851,706
Net gains on investments 27,468 131,786 159,254
Expenses charged to capital less tax relief thereon (6,812) – (6,812)
Exchange gain on currency balances (687) – (687)
At 31 March 2019 700,805 302,656 1,003,461
*Investment holding gains relate to the revaluation of investments and derivatives held at the reporting date. (See note 9 on page 67 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.
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Further Information/Shareholder Information
Financial calendar
31 March Financial Year End
June Final Results Announced
July 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 4HD on Tuesday, 9 July 2019 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, Link Asset Services, on request.
Share prices
The Company’s 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, Link 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.
2019
■ Private Wealth
Managers
■ Shares held via
investment
platforms
■ Mutual Funds
■ Retail
■ Pensions
■ Insurance
■ Charities
■ Inv Trusts
■ Corporate
■ Fund of Funds
■ Directors
56.2
22.4
8.3
3.9
3.3
2.3
1.2
0.7
0.6
1.1
0.0
2018
■ Private Wealth
Managers
■ Shares held via
investment
platforms
■ Mutual Funds
■ Retail
■ Pensions
■ Insurance
■ Charities
■ Corporate
■ Inv Trusts
■ Fund of Funds
■ Directors
56.4
22.3
7.5
4.5
3.3
2.5
1.1
0.8
0.8
0.7
0.1
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Further Information
Further Information/Glossary of Terms and Alternative
Performance Measures (‘APMs’)
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and transported into UK legislation, the AIFMD
classifies certain investment vehicles, including investment companies, as Alternative Investment Funds (AIFs) and requires
them to appoint an Alternative Investment Fund Manager (AIFM) and a depositary to manage and oversee the operations of
the investment vehicle. The Board of the Company retains responsibility for strategy, operations and compliance and the
Directors retain a fiduciary duty to shareholders.
Alternative Performance Measure (‘APM’)
An APM is a numerical measure of the Company’s current, historical or future financial performance, financial position or cash
flows, other than a financial measure defined or specified in the applicable financial framework. In selecting these Alternative
Performance Measures, the Directors considered the key objectives and expectations of typical investors in an investment trust
such as the Company.
Brexit
The advisory public referendum which was held on 23 June 2016 in the United Kingdom to indicate whether voters wanted to
remain or withdraw from membership of the European Union (EU). The referendum vote was cast in favour of leaving the EU.
The process of actually leaving is termed Brexit.
Discount or Premium*
A description of the difference between the share price and the net asset value per share. The size of the discount or premium
is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage (%) of
the net asset value per share. If the share price is higher than the net asset value per share the result is a premium. If the
share price is lower than the net asset value per share, the shares are trading at a discount.
Equity Swaps
An equity swap is an agreement where one party (counterparty) transfers the total return of an underlying equity position to
the other party (swap holder) in exchange for a payment of the principal, and interest for financed swaps, at a set date. Total
return includes dividend income and gains or losses from market movements. The exposure of the holder is the market value
of the underlying equity position.
The company uses two types of equity swap:
• funded, where payment is made on acquisition. They are equivalent to holding the underlying equity position with the
exception of additional counterparty risk and not possessing voting rights in the underlying; and,
• financed, where payment is made on maturity. 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.
The Company employs swaps for two purposes:
• To gain access to individual stocks in the Indian, Chinese and other emerging markets, where the Company is not locally
registered to trade or is able to gain in a more cost efficient manner than holding the stocks directly; and,
• To gain exposure to thematic baskets of stocks (a Basket Swap). Basket Swaps are used to build exposure to themes, or
ideas, that the Portfolio Manager believes the Company will benefit from and where holding a Basket Swap is more cost
effective and operationally efficient than holding the underlying stocks or individual swaps.
Gearing*
Gearing is calculated as the overdraft drawn, less net current assets (excluding dividends), divided by Net Assets, expressed as
a percentage. For years prior to 2013, the calculation was based on borrowings as a percentage of Net Assets.
* Alternative Performance Measure
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Further Information/Glossary of Terms and Alternative
Performance Measures (‘APMs’)
International Swaps and Derivatives Association (ISDA)
ISDA has created a standardised contract (the ISDA Master Agreement) which sets out the basic trading terms between the
counterparties to derivative contracts.
Leverage*
Leverage is defined in the AIFMD as any method by which the AIFM increases the exposure of an AIF. In addition to the gearing
limit the Company also has to comply with the AIFMD leverage requirements. For these purposes the Board has set a
maximum leverage limit of 140% for both methods. This limit is expressed as a % with 100% representing no leverage or
gearing in the Company. There are two methods of calculating leverage as follows:
The Gross Method is calculated as total exposure divided by Shareholders’ Funds. Total exposure is calculated as net assets,
less cash and cash equivalents, adding back cash borrowing plus derivatives converted into the equivalent position in their
underlying assets.
The Commitment Method is calculated as total exposure divided by Shareholders Funds. In this instance total exposure is
calculated as net assets, less cash and cash equivalents, adding back cash borrowing plus derivatives converted into the
equivalent position in their underlying assets, adjusted for netting and hedging arrangements.
See the definition of Options and Equity Swaps for more details on how exposure through derivatives is calculated.
Investments
OTC equity swaps
Put + Call options
Shareholders’ funds
Leverage %
31 March 2019
£
Fair Value
Exposure*
1,378,681
9,049
1,245
1,388,975
1,378,681
116,762
7,088
1,502,531
1,432,093
4.9
31 March 2018
£
Fair Value
1,259,926
34,105
(511)
1,293,520
Exposure*
1,259,926
126,125
13,098
1,399,149
1,202,188
16.4
*Calculated in accordance with AIFMD requirements using the Commitment Method
MSCI World Health Care Index (the Company’s Benchmark)
The MSCI World Health Care Index is designed to capture the large and mid capitalisation segments across 23 developed markets
countries: All securities in the index are classified as healthcare as per the Global Industry Classification Standard (GICS).
Developed Markets countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland the UK and the
U.S. The net total return of the Index is used which assumes the reinvestment of any dividends paid by its constituents after the
deduction of relevant withholding taxes. The performance of the Index is calculated in U.S.$ terms. Because the Company’s
reporting currency is £ the prevailing U.S.$/£ exchange rate is applied to obtain a £ based return.
NAV per Share (pence)
The value of the Company’s assets, principally investments made in other companies and cash being held, minus any
liabilities. The NAV is also described as ‘shareholders’ funds’ per share. The NAV is often expressed in pence per share after
being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price
which is the price at which the Company’s shares can be bought or sold by an investor. The share price is determined by the
relationship between the demand and supply of the shares.
NAV Total Return*
The theoretical total return on shareholders’ funds per share, reflecting the change in NAV assuming that dividends paid to
shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment
management performance of investment trusts which is not affected by movements in discounts/premiums.
* Alternative Performance Measure
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Further Information
Further Information/Glossary of Terms and Alternative
Performance Measures (‘APMs’)
31 March 31 March
2019 2018
NAV Total Return p p
Opening NAV 2,411.1 2,367.2
Increase in NAV 311.8 43.9
Closing NAV 2,722.9 2,411.1
% increase in NAV 12.9% 1.9%
Impact of reinvested dividends 0.8% 0.9%
NAV Total Return 13.7% 2.8%
Ongoing Charges*
Ongoing charges are calculated by taking the Company’s annualised ongoing charges, excluding finance costs, taxation,
performance fees and exceptional items, and expressing them as a percentage of the average daily net asset value of the
Company over the year.
31 March 31 March
2019 2018
£’000 £’000
AIFM & Portfolio Management fees (Note 3) 11,183 9,862
Other Expenses (Note 4) 908 908
Total Ongoing Charges 12,091 10,770
Performance fees paid/crystallised 3,135 3,387
Total 15,226 14,157
Average net assets 1,340,300 1,183,992
Ongoing Charges 0.9% 0.9%
Ongoing Charges (including performance fees paid or crystallised during the year) 1.1% 1.2%
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 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
beginning on page 69, 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
Rehypothecation is the practice by banks and brokers of using, for their own purposes, assets that have been posted as
collateral by clients.
Share Price Total Return*
Return to the investor on mid-market prices assuming that all dividends paid were reinvested.
* Alternative Performance Measure
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Further Information/Glossary of Terms and Alternative
Performance Measures (‘APMs’)
31 March 31 March
2019 2018
Share price Total Return p p
Opening share price 2,405.0 2,304.0
Increase in share price 325.0 101.0
Closing share price 2,730 2,405.0
% increase in share price 13.5% 4.4%
Impact of reinvested dividends 0.8% 0.9%
Share price Total Return 14.3% 5.3%
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.
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Further Information
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.smartinvestor.barclays.co.uk/
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/
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Further Information/How to invest
Link Asset Services – share dealing service
A share dealing service is available to existing shareholders through the Company’s Registrar, Link Asset Services, to either buy
or sell shares. An online and telephone dealing facility provides an easy to access and simple to use service.
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.linksharedeal.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.
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Further Information
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 Tuesday, 9 July 2019 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 2019
2. To re-elect Dr David Holbrook as a Director of the Company
3. To re-elect Sir Martin Smith as a Director of the Company
4. To re-elect Mrs Sarah Bates as a Director of the Company
5. To re-elect Mr Humphrey van der Klugt as a Director of the Company
6. To re-elect Mr Doug McCutcheon as a Director of the Company
7. To re-elect Mr Sven Borho 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 2019
Special business
To consider and, if thought fit, pass the following resolutions of which resolutions 11, 12, 13 and 14 will be proposed as special
resolutions:
Authority to allot shares
10. THAT in substitution for all existing authorities the Directors be and are hereby generally and unconditionally authorised in
accordance with section 551 of the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot relevant
securities (within the meaning of section 551 of the Act) up to a maximum aggregate nominal amount of £1,321,006 (being
10% of the issued share capital of the Company at 5 June 2019) and representing 5,284,027 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 2020 or 15 months from the date of passing this resolution, whichever is the earlier, unless previously revoked,
varied or renewed, by the Company in General Meeting and provided that the Company shall be entitled to make, prior to
the expiry of such authority, an offer or agreement which would or might require relevant securities to be allotted after
such expiry and the Directors may allot relevant securities pursuant to such offer or agreement as if the authority
conferred hereby had not expired.
Disapplication of pre-emption rights
11. THAT in substitution of all existing powers (but in addition to any power conferred on them by resolution 12 set out in the
notice convening the Annual General Meeting at which this resolution is proposed (“Notice of Annual General Meeting”))
the Directors be and are hereby generally empowered pursuant to Section 570 of the Companies Act 2006 (the “Act”) to
allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authority conferred on them
by resolution 10 set out in the Notice of Annual General Meeting or otherwise as if Section 561(1) of the Act did not apply to
any such allotment:
(a) pursuant to an offer of equity securities open for acceptance for a period fixed by the Directors where the equity
securities respectively attributable to the interests of holders of shares of 25p each in the capital of the Company
(“Shares”) are proportionate (as nearly as may be) to the respective numbers of Shares held by them but subject to
such exclusions or other arrangements in connection with the issue as the Directors may consider necessary,
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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 £1,321,006, being 10% of the issued share capital of the Company
as at 5 June 2019 and representing 5,284,027 Shares or, if changed, the number representing 10% of the issued share
capital of the Company at the date of the meeting at which this resolution is passed, and provided further that (i) the
number of equity securities to which this power applies shall be reduced from time to time by the number of treasury
shares which are sold pursuant to any power conferred on the Directors by resolution 12 set out in the Notice of Annual
General Meeting and (ii) no allotment of equity securities shall be made under this power which would result in Shares
being issued at a price which is less than the net asset value per Share as at the latest practicable date before such
allotment of equity securities as determined by the Directors in their reasonable discretion; and
and such power shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this
resolution or 15 months from the date of passing this resolution, whichever is earlier, unless previously revoked, varied or
renewed by the Company in General Meeting and provided that the Company shall be entitled to make, prior to the expiry of
such authority, an offer or agreement which would or might otherwise require equity securities to be allotted after such
expiry and the Directors may allot equity securities pursuant to such offer or agreement as if the power conferred hereby
had not expired.
12. THAT in substitution of all existing powers (but in addition to any power conferred on them by resolution 11 set out in the
Notice of Annual General Meeting) the Directors be and are hereby generally empowered pursuant to Section 570 of the
Companies Act 2006 (the “Act”) to sell relevant shares (within the meaning of Section 560 of the Act) if, immediately before
the sale, such shares are held by the Company as treasury shares (as defined in Section 724 of the Act (“treasury shares”)),
for cash as if Section 561(1) of the Act did not apply to any such sale provided that:
(a) where any treasury shares are sold pursuant to this power at a discount to the then prevailing net asset value of
ordinary shares of 25p each in the capital of the Company (“Shares”), such discount must be (i) lower than the discount
to the net asset value per Share at which the Company acquired the Shares which it then holds in treasury and (ii) not
greater than 5% to the prevailing diluted cum income net asset value per Share at the latest practicable time before
such sale (and for this purpose the Directors shall be entitled to determine in their reasonable discretion the discount
to their net asset value at which such Shares were acquired by the Company and the net asset value per Share at the
latest practicable time before such Shares are sold pursuant to this power); and
(b) this power shall be limited to the sale of relevant shares having an aggregate nominal value of £1,321,006 being 10% of
the issued share capital of the Company as at 5 June 2019 and representing 5,284,027 Shares or, if changed, the
number representing 10% of the issued share capital of the Company at the date of the meeting at which this resolution
is passed, and provided further that the number of relevant shares to which power applies shall be reduced from time
to time by the number of Shares which are allotted for cash as if Section 561(1) of the Act did not apply pursuant to the
power conferred on the Directors by resolution 11 set out in the Notice of Annual General Meeting,
and such power shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of
this resolution or 15 months from the date of passing this resolution, whichever is earlier, unless previously revoked,
varied or renewed by the Company in General Meeting and provided that the Company shall be entitled to make, prior to
the expiry of such authority, an offer or agreement which would or might otherwise require treasury shares to be sold
after such expiry and the Directors may sell treasury shares pursuant to such offer or agreement as if the power
conferred hereby had not expired.
84 Worldwide Healthcare Trust PLC
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Further Information
Further Information/Notice of the Annual General Meeting
Authority to repurchase ordinary shares
13. THAT the Company be and is hereby generally and unconditionally authorised in accordance with section 701 of the
Companies Act 2006 (the “Act”) to make one or more market purchases (within the meaning of section 693(4) of the Act) of
ordinary shares of 25 pence each in the capital of the Company (“Shares”) (either for retention as treasury shares for future
reissue, resale, transfer or cancellation), provided that:
(a) the maximum aggregate number of Shares authorised to be purchased shall be that number of shares which is equal
to 14.99% of the issued share capital of the Company as at the date of the passing of this resolution;
(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 2020 or, if earlier, on the expiry of 15 months from the date of the passing of this resolution unless such authority is
renewed prior to such time; and
(e) the Company may make a contract to purchase Shares under this authority before the expiry of such authority which
will or may be executed wholly or partly after the expiration of such authority, and may make a purchase of Shares in
pursuance of any such contract.
General meetings
14. THAT the Directors be authorised to call general meetings (other than the Annual General Meeting of the Company) on not
less that 14 clear 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.
Increase in limit on annual aggregate Directors’ fees
15. That Article 113 of the Articles of Association of the Company, concerning the limit on the annual aggregate fees payable to
the Directors, be amended by substituting “£350,000” for “£250,000”.
Investment policy
16. That the Investment Policy as set out in the Company’s Annual Report and Financial Statements for the year ended
31 March 2019 and produced to the meeting, be and is hereby approved in substitution for the Company’s existing
Investment Policy.
Continuance of the Company
17. To approve the continuance of the Company as an investment trust for a further period of five years.
By order of the Board
Frostrow Capital LLP
Company Secretary
5 June 2019
Registered Office:
One Wood Street
London EC2V 7WS
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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.
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.
This year, hard copy forms of proxy have not been included with this notice. Members can vote by: logging onto www.signalshares.com and following
instructions; requesting a hard copy form of proxy directly from the registrars, Link Asset Services at enquiries@linkgroup.co.uk or in the case of CREST
members, utilising the CREST electronic proxy appointment service in accordance with the procedures set out below. 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 Link Asset Services,
PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF no later than 12 noon Friday, 5 July 2019.
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 Friday, 5 July 2019 (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 5 June 2019 (being the last business day prior to the publication of this notice) the Company’s issued share capital consists of 52,840,278 ordinary shares,
carrying one vote each. Therefore, the total voting rights in the Company as at 5 June 2019 are 52,840,278.
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.
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Further Information
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
Link 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 Link 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 above) then, subject to paragraph 4 on page 86, 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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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
2019 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 and election of Directors
Resolutions 2 to 7 deal with the re-election and election of
each Director. Biographies of each of the Directors can be
found on pages 30 and 31 of the annual report.
The Board has confirmed, following a performance review,
that the Directors standing for re-election and election
continue to perform effectively.
Resolution 8 – Re-appointment of Auditors and the
determination of their remuneration
Resolution 8 relates to the re-appointment of
PricewaterhouseCoopers LLP as the Company’s independent
Auditors to hold office until the next AGM of the Company and
also authorises the Audit Committee to set their
remuneration.
Resolution 9 – Remuneration Report
The Directors’ Remuneration Report is set out in full in the
annual report on pages 47 to 49.
Resolutions 10, 11 and 12 – Issue of Shares
Ordinary Resolution 10 in the Notice of AGM will renew the
authority to allot the unissued share capital up to an
aggregate nominal amount of £1,321,006 (equivalent to
5,284,027 shares, or 10% of the Company’s existing issued
share capital on 5 June 2019, being the nearest practicable
date prior to the signing of this Report (or if changed, the
number representing 10% of the issued share capital of the
Company at the date at which the resolution is passed). Such
authority will expire on the date of the next AGM or after a
period of 15 months from the date of the passing of the
resolution, whichever is earlier. This means that the authority
will have to be renewed at the next AGM.
When shares are to be allotted for cash, Section 551 of the
Companies Act 2006 (the “Act”) provides that existing
shareholders have pre-emption rights and that the new
shares must be offered first to such shareholders in
proportion to their existing holding of shares. However,
shareholders can, by special resolution, authorise the
Directors to allot shares otherwise than by a pro rata issue to
existing shareholders. Special Resolution 11 will, if passed,
give the Directors power to allot for cash equity securities up
to 10% of the Company’s existing share capital on
5 June 2019 (or if changed, the number representing 10% of
the issued share capital of the Company at the date at which
the resolution is passed), as if Section 551 of the Act does not
apply. This is the same nominal amount of share capital
which the Directors are seeking the authority to allot
pursuant to Resolution 10. This authority will also expire on
the date of the next Annual General Meeting or after a period
of 15 months, whichever is earlier. This authority will not be
used in connection with a rights issue by the Company.
Under the Companies (Acquisition of Own Shares) (Treasury
Shares) Regulations 2003 (as amended) (the “Treasury Share
Regulations”) the Company is permitted to buy-back and
hold shares in treasury and then sell them at a later date for
cash, rather than cancelling them. The Treasury Share
Regulations require such sale to be on a pre-emptive, pro
rata, basis to existing shareholders unless shareholders
agree by special resolution to disapply such pre-emption
rights. Accordingly, in addition to giving the Directors power
to allot unissued share capital on a non pre-emptive basis
pursuant to Resolution 11, Resolution 12, if passed, will give
the Directors authority to sell shares held in treasury on a
non pre-emptive basis. No dividends may be paid on any
shares held in treasury and no voting rights will attach to
such shares. The benefit of the ability to hold treasury shares
is that such shares may be resold. This should give the
Company greater flexibility in managing its share capital, and
improve liquidity in its shares. It is the intention of the Board
that any re-sale of treasury shares would only take place at a
narrower discount to the net asset value per share than that
at which they had been bought into treasury, and in any event
at a discount no greater than 5% to the prevailing diluted
cum income net asset value per share, and this is reflected in
the text of Resolution 12. It is also the intention of the Board
that sales from treasury would only take place when the
Board believes that to do so would assist in the provision of
liquidity to the market. The number of treasury shares which
may be sold pursuant to this authority is limited to 10% of the
Company’s existing share capital on 5 June 2019 (or if
changed, the number representing 10% of the issued share
capital of the Company at the date at which the resolution is
passed) (reduced by any equity securities allotted for cash on
a non-pro rata basis pursuant to Resolution 10, as described
88 Worldwide Healthcare Trust PLC
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Further Information
Further Information/Explanatory Notes to the Resolutions
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.
The Directors intend to use the authority given by
Resolutions 10, 11 and 12 to allot shares and disapply
pre-emption rights only in circumstances where this will be
clearly beneficial to shareholders as a whole. The issue
proceeds would be available for investment in line with the
Company’s investment policy. No issue of shares will be
made which would effectively alter the control of the
Company without the prior approval of shareholders in
general meeting.
New Shares will only be issued at a premium to the
Company’s Cum income net asset value per share at the time
of issue.
Resolution 13 – Share Repurchases
The Directors wish to renew the authority given by
shareholders at the previous AGM. The principal aim of a
share buy-back facility is to enhance shareholder value by
acquiring shares at a discount to net asset value, as and
when the Directors consider this to be appropriate. The
purchase of 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.
Special Resolution 13 in the Notice of AGM will renew the
authority to purchase in the market a maximum of 14.99% of
Ordinary Shares in issue as at the date of the passing of the
resolution. Such authority will expire on the date of the next
AGM or after a period of 15 months from the date of passing
of the resolution, whichever is earlier. This means in effect
that the authority will have to be renewed at the next AGM or
earlier if the authority has been exhausted.
Resolution 14 – General Meetings
Special Resolution 14 seeks shareholder approval for the
Company to hold General Meetings (other than the AGM) at
14 clear days’ notice. The Board confirms that the shorter
notice period would only be used where it was merited by the
purpose of the meeting.
Resolution 15 – Increase in limit on annual aggregate
Directors’ fees
Resolution 15, which is an ordinary resolution, will be put to
the AGM to increase the annual limit on aggregate fees
payable by the Company to the Directors under Article 113.
The Directors wish to provide for any Board succession
overlap and also in the event that the Board composition
were to expand in number in the future. The Board is
proposing that an aggregate annual limit of £350,000 be
approved by shareholders, replacing the current limit of
£250,000.
Resolution 16 – Investment policy
Ordinary Resolution 16 seeks shareholder approval to amend
the Company’s Investment Policy.
Resolution 17 – Continuance of the Company
Ordinary Resolution 17 seeks shareholder approval for the
Company to continue as an investment trust for a period of
five years.
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 48,165 shares.
Annual Report for the year ended 31 March 2019 89
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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
9,099
% of AUM
0.7
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
31,773
84,989
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 2019. 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
27,752
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
TRS
Value
£’000
32,664
84,098
116,762
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 2019
Gross Commitment
Method
Method
140.0%
107.8%
140.0%
104.9%
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 2019 are
detailed below.
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Further Information
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.
Annual Report for the year ended 31 March 2019 91
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Further Information/Company Information
Directors
Sir Martin Smith (Chairman)
Sarah Bates
Sven Borho
Dr David Holbrook (Senior Independent Director and
Chairman of the Nominations Committee)
Humphrey van der Klugt, FCA (Chairman of the Audit
Committee)
Doug McCutcheon (Chairman of the Management
Engagement & Remuneration Committee)
Company Registration Number
3023689 (Registered in England)
The Company is an investment company as defined under
Section 833 of the Companies Act 2006
The Company was incorporated in England and Wales on
14 February 1995. The Company was incorporated as
Finsbury Worldwide Pharmaceutical Trust PLC.
Website
Website: www.worldwidewh.com
Registered Office
One Wood Street
London EC2V 7WS
Alternative Investment Fund Manager,
Company Secretary and Administrator
Frostrow Capital LLP
25 Southampton Buildings, London WC2A 1AL
Telephone: 0203 008 4910
E-mail: info@frostrow.com
Website: www.frostrow.com
Authorised and regulated by the Financial Conduct Authority
Depositary
J.P. Morgan Europe Limited
25 Bank Street
London E14 5JP
Independent Auditors
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
Custodian and Prime Broker
J.P. Morgan Securities LLC
Suite 1, Metro Tech Roadway
Brooklyn, NY 11201
USA
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone (in UK): 0871 664 0300†
Proxy Form related enquiries: 0871 664 0391†
Telephone (from overseas): + 44 371 664 0300†
E-mail: enquiries@linkgroup.co.uk
Shareholder Portal: www.signalshares.com
Website: www.linkassetservices.com
Please contact the Registrars if you have a query about a
certificated holding in the Company’s shares.
†Calls cost 12p per minute plus your phone company’s access charge and may
be recorded for training purposes. Calls outside the UK will be charged at the
applicable international rate. Lines are open between 09.00 and 17.30 Monday
to Friday excluding public holidays in England and Wales.
If you have an enquiry about the Company or if you would like
to receive a copy of the Company’s monthly fact sheet by
e-mail, please contact Frostrow Capital using the above
e-mail address.
Stockbroker
Winterflood Securities Limited
The Atrium Building
Cannon Bridge, 25 Dowgate Hill
London EC4R 2GA
Portfolio Manager
OrbiMed Capital LLC
601 Lexington Avenue, 54th Floor
New York NY 10022
Website: www.orbimed.com
Registered under the U.S. Securities & Exchange Commission
92 Worldwide Healthcare Trust PLC
Annual Report for the year ended 31 March 2019
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)
Global Intermediary Identification
Number (GIIN) : FIZWRN.99999.SL.826
Legal Entity Identifier (LEI) : 5493003YBCY4W1IMJU04
254029 WWH pp76-end.qxp 11/06/2019 12:24 Page 93
Further Information
Further Information
Further Information/Appendix
Proposed changes to the investment policy
The new investment policy for the Company, as proposed in resolution 16 on page 85 of this Annual Report, is set out below.
Changes to the existing policy are marked in black-line.
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.
The Company does not currently hedge against foreign
currency exposure.
Gearing limits
The Board has set a maximum gearing level, through
borrowing of 20% of the net assets.
Investment Policy
Investment limits and guidelines
• The Company will not invest more than 15% of the portfolio
in any one individual stock at the time of acquisition;
• At least 560% of the portfolio will normally be invested in
larger companies (i.e. with a market capitalisation of at
least U.S.$510bn);
• At least 20% of the portfolio will normally be invested in
smaller companies (i.e. with a market capitalisation of
less than U.S.$510bn);
• 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 230% 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;
• The Company will not invest more than 10% of its gross
assets in other closed ended investment companies
(including investment trusts) listed on the London Stock
Exchange, except where the investment companies
themselves have stated investment policies to invest no
more than 15% of their gross assets in other closed ended
investment companies (including investment trusts) listed
on the London Stock Exchange., where such investments
shall be limited to 15% of the Company’s gross assets at
the time of acquisition.
Annual Report for the year ended 31 March 2019 93
Worldwide Healthcare Trust PLC
Annual Report
for the year ended 31 March 2019
254029 WWH cover spread 6mm.qxp 11/06/2019 12:22 Page 1
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, Link Asset Services, 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
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