TIDMWWH
LONDON STOCK EXCHANGE ANNOUNCEMENT
Worldwide Healthcare Trust PLC (the "Company")
Audited Results for the Year Ended 31 March 2022
The Company's annual report will be posted to shareholders on 6 June 2022.
Members of the public may obtain copies from Frostrow Capital LLP, 25
Southampton Buildings, London WC2A 1AL or from the Company's website at
www.worldwidewh.com where up to date information on the Company, including
daily NAV, share prices and fact sheets, can also be found.
The Company's annual report for the year ended 31 March 2022 has been submitted
to the UK Listing Authority, and will shortly be available for inspection on
the National Storage Mechanism (NSM):
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(Documents will usually be available for inspection within two business days of
this notice being given)
Mark Pope, Frostrow Capital LLP, Company Secretary - 0203 008 4913
COMPANY PERFORMANCE
HISTORIC PERFORMANCE FOR THE YEARSED 31 MARCH
2017 2018 2019 2020 2021 2022
Net asset value per share (total 28.9% 2.8% 13.7% 6.5% 30.0% (5.8%)
return)*?
Benchmark (total return)*? 24.5% (2.5%) 21.1% 5.7% 16.0% 20.4%
Net asset value per share 2,367.2p 2,411.1p 2,722.9p 2,868.9p 3,703.0p 3,465.2p
Share price 2,304.0p 2,405.0p 2,730.0p 2,920.0p 3,695.0p 3,275.0p
(Discount)/Premium of share price (2.7%) (0.3%) 0.3% 1.8% (0.2%) (5.5%)
to net asset value per share?
Dividends per share 22.5p 17.5p 26.5p 25.0p 22.0p 26.5p]
Leverage? 16.9% 16.4% 4.9% 12.0% 7.6% 10.9%
Ongoing charges? 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%
Ongoing charges (including 1.0% 1.2% 1.1% 0.9% 0.9% 1.4%
performance fees paid or
crystallised during the year)?
* Source: Morningstar
? Alternative Performance Measure (see Glossary).
CHAIRMAN'S STATEMENT
SIR MARTIN SMITH
INVESTMENT PERFORMANCE
Following last year's strong returns, both on an absolute and on a relative
basis, the year under review has proved to be a challenging one for the
Company. The Company's net asset value per share total return was -5.8% (2021:
+30.0%) and the share price total return was -10.8% (2021: +27.4%), both
significantly underperforming the Company's Benchmark, the MSCI World Health
Care Index measured on a net total return, sterling adjusted basis, which rose
by 20.4% during the year (2021: rose by 16.0%). The disparity between the
performance of the Company's net asset value per share and its share price is
reflected in the widening of the Company's share price discount to its net
asset value per share from 0.2% at the start of the Company's financial year to
5.5% at 31 March 2022.
The majority of the Company's assets are denominated in U.S. dollars, and it
should be noted that the Company's net asset value performance was helped by
the weakness of sterling over the year, particularly against the dollar, where
it depreciated by 4.6%.
The negative absolute return over the year to 31 March 2022 reflected a mildly
positive first half, where the net asset value per share total return was +0.4%
(2021:+23.1%) compared to a rise in the Benchmark of 13.0% (2021: a rise of
15.3%) and a weaker second half where the net asset value total return was
-6.2% (2021-5.6%) compared to a rise in the Benchmark of 7.4% (2021: 0.7%).
During the year the Company's Portfolio Manager continued to pursue a strategy
of being underweight in large pharmaceutical companies and overweight in both
emerging markets and emerging biotechnology companies; an approach which had
served the Company well during the previous year but was the principal reason
for the Company's relative underperformance during the year under review.
While the healthcare sector as a whole performed well during the year, macro
considerations rather than company fundamentals were deemed to be most
important by investors. In addition, the "growth-to-value" rotation which has
tended to favour well-established companies despite their less-exciting growth
prospects also showed that investors have been less willing to take on
investment risk more generally. This risk aversion has hurt those sectors where
we have been strategically overweight, including emerging biotechnology, China
healthcare, and innovative tools.
Risk aversion has also resulted in further pressure on performance as the value
of the smaller capitalisation stocks we own has lagged while large
capitalisation pharmaceutical stocks have outperformed the rest of the
healthcare sector, particularly during the last quarter of the financial year.
It should be emphasised, however, that this extraordinary fall in the valuation
of the biotechnology and other sectors reflects a change in investor sentiment
rather than any significant deterioration in the performance of the underlying
companies. It is for this reason that we remain confident that these stocks
will recover in due course.
Our Portfolio Manager continues to adopt both a pragmatic and tactical approach
with regard to the use of leverage. Leverage levels varied over the course of
the year, with the net effect of a detraction of 1.0% from performance.
The long-term performance of the Company, however, continues to be strong, and
it should be noted that from the Company's inception in 1995 to 31 March 2022,
the total return of the Company's net asset value per share has been +3,866.7%,
equivalent to a compound annual return of +14.7%. This compares to a cumulative
blended Benchmark return of +2,133.6%, equivalent to a compound annual return
of +12.2% over the same period.
Further information on the healthcare sector, the Company's investments and
performance during the year can be found in the Portfolio Manager's Review.
CAPITAL
The Company's share price traded close to the net asset value per share for
much of the year under review. In accordance with the Company's share price
premium management policy 1,227,500 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 £45.5m of new funds to the
Company, which have been invested in line with the investment policy. The
Company's ongoing share issuance programme triggered the requirement for the
Company to publish a prospectus in July 2021 which provided authority for the
issuance of 20 million new shares.
However, toward the end of the calendar year, the Company's share price fell to
a discount to the net asset value per share and 80,509 shares were repurchased
during the Company's financial year for treasury, in accordance with the
Company's share price discount management policy, at a discount of 8.4% to the
Company's cum income net asset value per share, at cost of £2.5m.
At the year-end there were 65,457,246 shares in issue (excluding the 80,509
shares held in treasury (2021: 64,310,255 with no shares held in treasury)).
Since the year-end, to 25 May 2022, the latest practicable date prior to the
publication of this report, a further 223,842 shares were repurchased for
treasury at a discount of 7.0% to the Company's cum income net asset value per
share, at cost of £7.3m. At the time of writing the share price discount stands
at 4.6%.
REVENUE AND DIVID
Shareholders will be aware that it remains the Company's policy to pursue
capital growth for shareholders and to pay 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. An increased interim dividend of 7.0p per
share for the year ended 31 March 2022, was paid on 11 January 2022 to
shareholders on the register on 19 November 2021 (2021: 6.5p per share). Due in
large part to an increase in exposure to higher yielding stocks in the
portfolio and also to the weakness of sterling, the Company's revenue return
per share for the year as a whole increased to 26.8 pence (2021: 24.1 pence).
Accordingly, the Board is proposing an increased final dividend of 19.5 p per
share (2021:15.5p per share) which, together with the interim dividend already
paid, makes a total dividend for the year of 26.5p (2021: 22.0p per share).
Based on the closing mid-market share price of 3040.0p on 25 May 2022, the
total dividend payment for the year represents a current yield of 0.9%.
The final dividend will be payable, subject to shareholder approval, on 15 July
2022 to shareholders on the register of members on 10 June 2022. The associated
ex-dividend date will be 9 June 2022.
The Company's dividend policy will be proposed for approval at the forthcoming
Annual General Meeting.
THE BOARD
The process of Board refreshment continues and, as indicated in my last
year-end statement, following David Holbrook's retirement last year, I shall be
stepping down from the Board on 6 July 2022, the date of this year's Annual
General Meeting. It has been agreed that in the interests of maintaining an
orderly succession process, Doug McCutcheon will extend his term and assume the
Chairmanship following my retirement. I wish him every success for the future.
Bina Rawal will take over as Chair of the Management Engagement & Remuneration
Committee at the same time.
I have served on the Board for 14 years, 13 of which as Chairman, and have been
fortunate to be supported by a group of very loyal, professional and hard
working colleagues during that time. I would also like to pay tribute to the
unswerving dedication of both our Portfolio Manager, OrbiMed and our AIFM,
Company Secretary and Administrator, Frostrow Capital. Although recent results
have been disappointing, I believe that it will be only a matter of time before
the skills and experience of our Portfolio Manager will enable the Company to
resume its excellent long-term record.
The process of recruiting a new Director is ongoing. Shareholders will be kept
informed of developments as they occur. As new members are recruited, the Board
will remain mindful of its commitment to a policy of diversity.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) MATTERS
ESG matters are an important priority for the Board and Bina Rawal and I have
been working closely with our Portfolio Manager to identify an appropriate set
of policies to address them.
Our Portfolio Manager continues to develop tools for assessing the
sustainability of the Company's portfolio including measuring the net impacts
that individual portfolio companies have on both the environment and society,
as much as is possible with the availability and consistency of the reporting
of non--financial data pertaining to both ESG matters and also to climate
change. OrbiMed is committed to taking a leading role in the development of
meaningful ESG engagement practices in the healthcare sector. As part of this
they facilitate dialogue and an exchange of leading practices among investors,
companies and other relevant experts on ESG in the large capitalisation
pharmaceutical sector. They also engage with a broad range of companies on a
regular basis where areas of improvement can be identified. Further information
on both ESG matters and climate change can be found in the Portfolio Manager's
ESG report.
PERFORMANCE FEE
I mentioned last year that as a result of the continued cumulative
outperformance in the year, there was a provision in our year-end accounts of £
31.7 million for future performance fee payments. However, only if
outperformance was maintained to the relevant quarterly calculation dates would
this provision become payable. During the year under review, a performance fee
of £12.9 million crystallised and became payable on 30 June 2021. However, due
to underperformance against the Benchmark during the year, the remainder of the
performance fee accrual as at 31 March 2021 was reversed. No performance fees
were accrued or payable at the Company's year-end as at 31 March 2022.
OUTLOOK
Global markets are currently experiencing unusually high levels of uncertainty.
In addition to the appalling human cost, Russia's invasion of Ukraine has
created near-term risks for markets as high energy prices, rising food prices
and disrupted supply chains threaten a substantial increase in global
inflation. It has also cast a shadow over the longer-term outlook with the
prospect of continued raised levels of geopolitical risk and an increase in
investor risk aversion, both of which may affect markets and economic
confidence for some time.
This comes in addition to existing market and economic concerns that troubled
investors before the invasion, including the onset of U.S. Federal Reserve
tightening, the impact of COVID-19 lockdowns on supply chains and inflation and
also the outlook for China where there are problems in the real estate sector,
as well as around its zero-tolerance COVID-19 policy and heavy-handed
regulation of technology firms.
Against this challenging background, however, our Portfolio Manager OrbiMed
remains positive on the outlook for healthcare with certain of the perceived
risks associated with the sector such as an inefficient drug approval process
in the U.S. and also the spectre of drug price reform having receded.
Fundamentals, however, remain strong, particularly given the amount of
innovation that is fuelling the industry's growth. They further believe that
the sector's defensive growth characteristics should continue to prove
attractive in times of global uncertainty.
Your Board continues to believe that long-term investors in this sector will be
rewarded.
ANNUAL GENERAL MEETING
After COVID restrictions prevented holding meetings in person, the Board is
pleased to welcome all shareholders back 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 meeting will be held at etc. venues 1-3
Bonhill Street, London EC2A 4BX on Wednesday, 6 July 2022 at 12.30pm. Of
course, should circumstances change and restrictions be reintroduced, we will
keep shareholders informed of the final arrangements for the meeting via the
Company's website at www.worldwidewh.com.
For those investors who are not able to attend the meeting in person, a video
recording of the Portfolio Manager's presentation will be uploaded to the
website after the meeting. Shareholders can submit questions in advance by
sending them to wwh@frostrow.com.
I encourage all shareholders to exercise their right to vote at the Annual
General Meeting and to register your votes online in advance of the meeting.
Registering your vote in advance will not restrict you from attending and
voting at the meeting in person should you wish to do so, subject of course to
any government guidance to the contrary. The votes on the resolutions to be
proposed at the Annual General Meeting will be conducted on a poll. The results
of the proxy votes will be published immediately following the conclusion of
the AGM by way of a stock exchange announcement and will also be able to be
viewed on the Company's website at www.worldwidewh.com.
Sir Martin Smith
Chairman
26 May 2022
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.
Details of OrbiMed's investment strategy and approach are set out in the
Portfolio Manager's Review.
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 50% of the portfolio will normally be invested in larger companies
(i.e. with a market capitalisation of at least U.S.$10bn);
* At least 20% of the portfolio will normally be invested in smaller
companies (i.e. with a market capitalisation of less than U.S.$10bn);
* 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 30% of the portfolio, at the time of acquisition, may be
invested in companies in each of the following sectors:
* healthcare equipment and supplies
* 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.
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. Only Equity Swaps were employed within the
portfolio during the year.
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 LIMIT
The Board has set a maximum gearing level, through borrowing, of 20% of the net
assets.
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, are included in the Glossary.
Further details on how derivatives are employed can be found in note 16.
PORTFOLIO
INVESTMENTS HELD AS AT 31 MARCH 2022
Market % of
value
Investments Country £'000 investments
AstraZeneca UK 135,292 5.7
Pfizer USA 117,923 4.9
Roche Holding Switzerland 113,899 4.8
Bristol-Myers Squibb USA 112,460 4.7
Horizon Therapeutics USA 105,462 4.4
AbbVie USA 101,256 4.3
Boston Scientific USA 100,010 4.2
Intuitive Surgical USA 91,924 3.9
Humana USA 88,067 3.7
UnitedHealth Group USA 86,845 3.7
Top 10 investments 1,053,138 44.3
Stryker USA 77,630 3.3
Edwards Lifesciences USA 71,813 3.0
BioMarin Pharmaceutical USA 61,893 2.6
Mirati Therapeutics USA 58,981 2.5
Vertex Pharmaceuticals USA 58,174 2.5
Shanghai Bio-Heart Biological Technology China 46,558 2.0
DexCom USA 42,742 1.8
Neurocrine Biosciences USA 39,067 1.6
Thermo Fisher Scientific USA 38,886 1.6
Guardant Health USA 37,457 1.6
Top 20 investments 1,586,339 66.8
Caris Life Science (unquoted) USA 36,986 1.6
Daiichi Sankyo Japan 36,600 1.5
Seagen USA 34,969 1.5
Tenet Healthcare USA 34,847 1.5
Natera USA 31,523 1.3
SI-BONE USA 31,479 1.3
Global Blood Therapeutics USA 29,984 1.3
Argenx Netherlands 27,097 1.1
Evolent Health USA 25,873 1.1
Shionogi Japan 25,202 1.1
Top 30 investments 1,900,899 80.1
API Holdings (unquoted) India 22,251 0.9
Joinn Laboratories China China 21,669 0.9
NanoString Technologies USA 21,594 0.9
Chugai Pharmaceutical Japan 21,422 0.9
Arrail Group China 18,581 0.8
Crossover Health (unquoted) USA 17,499 0.7
EDDA (unquoted) USA 16,128 0.7
Visen Pharmaceutical (unquoted) China 15,731 0.7
MeiraGTx USA 15,603 0.7
Iovance Biotherapeutics USA 14,869 0.6
Top 40 investments 2,086,246 87.9
Shanghai Fosun Pharmaceutical China 14,838 0.6
Beijing Yuanxin Technology (unquoted) China 14,705 0.6
Arcutis Biotherapeutics USA 13,224 0.5
Ruipeng Pet Group (unquoted) China 13,101 0.5
Dingdang Health Technology (unquoted) China 12,491 0.5
RiMAG (unquoted) China 12,208 0.5
Theravance Biopharma USA 11,394 0.5
Shanghai Kindly Medical Instruments China 11,301 0.5
uniQure Netherlands 11,289 0.5
CSPC Pharmaceutical China 11,001 0.5
Top 50 investments 2,211,798 93.1
Erasca USA 10,868 0.5
Alphamab Oncology China 10,794 0.5
RxSight USA 9,950 0.4
Danaher USA 9,600 0.4
Celldex Therapeutics USA 9,206 0.4
Apollo Hospitals Enterprise India 8,552 0.4
Shanghai Junshi Biosciences Hong Kong 8,133 0.4
New Horizon Health China 7,815 0.3
Ikena Oncology USA 7,522 0.3
Turning Point Therapeutics USA 7,373 0.3
Top 60 investments 2,301,611 97.0
Galapagos Belgium 7,217 0.3
Clover Biopharmaceuticals China 6,420 0.3
Shenzhen Hepalink Pharmaceutical China 6,400 0.3
Simcere Pharmaceutical China 6,092 0.3
MabPlex International (unquoted) China 5,874 0.2
China Medical System China 5,662 0.2
Harpoon Therapeutics USA 5,524 0.2
United Laboratories International Holdings Hong Kong 5,336 0.2
Burning Rock Biotech China 5,290 0.2
Yidu Tech China 5,081 0.2
Top 70 investments 2,360,507 99.4
NanoString Technologies 2.63% 01/03/2025 (unquoted) USA 5,024 0.2
Vor BioPharma USA 3,779 0.2
Abbisko China 3,735 0.2
Achilles Therapeutics USA 3,108 0.1
Passage Bio USA 2,376 0.1
MicroTech Medical Hangzhou China 844 0.0
Peloton Interactive (DCC*-unquoted) USA 475 0.0
Total equities and fixed interest investments 2,379,848 100.2
OTC Equity Swaps - Financed^
Healthcare M&A Target Swap USA 99,898 4.2
Apollo Hospitals India 35,120 1.5
Less: Gross exposure on financed swaps (140,147) (5.9)
Total OTC Swaps (5,129) (0.2)
Total investments including OTC Swaps 2,374,719 100.0
* DCC = deferred contingent consideration.
^ See Glossary and note 16 for further details in relation to the OTC
Swaps.
SUMMARY
Market % of
value
Investments £'000 investments
Quoted equities 2,207,375 93.0
Unquoted equities 167,449 7.0
Unquoted debt securities 5,024 0.2
Equity swaps (5,129) (0.2)
Total of all investments 2,374,719 100.0
PORTFOLIO MANAGER'S REVIEW
MARKETS
2021 was another unprecedented year for the global equity markets. After the
COVID-induced volatility that characterised 2020, markets climbed higher in
2021 despite various headwinds including inflationary fears and supply chain
disruptions. The market reached new highs by the calendar year-end, only to
sell-off in the face of rising interest rates and Russia's invasion of Ukraine
in early 2022. Of course, COVID-19 continued to cast a shadow over the year
under review, with Delta and Omicron variants inducing new waves of infections
across the globe.
Nevertheless, global equity markets produced solid double-digits returns in the
financial year. The MSCI World Index total return was +16.2% (in sterling
terms). The total return for the S&P 500 was +15.6% (in U.S. dollar terms),
notching 70 all-time highs throughout 2021 (source: Forbes). Meanwhile, the
FTSE All-Share Index total return was +13.0% (in sterling terms).
For the most part, healthcare stocks traded in-line with broader indices
throughout the financial year. However, with geopolitical tensions increasing
as the financial year drew to a close alongside a rising interest rate
environment, healthcare benefitted as investors became decisively more
defensive in the last five weeks of the period. As such, the MSCI World
Healthcare Index net total return over the year was +20.4% (in sterling terms),
with over half of that move accruing in the last 27 trading days of the
financial year.
PERFORMANCE
After one of the best performance years in the Company's history in the year
ended 31 March 2021, generating excess returns over the benchmark in the
current financial year proved to be very difficult. Whilst healthcare stocks
mostly traded higher, trading dynamics for the Company were broadly fuelled by
macro factors, with industry and company fundamentals firmly taking a backseat
and going largely unrecognised by investors. As a result, sub-sector moves
within healthcare were very disparate given the "growth-to-value" rotation and
the risk-off environment that characterised the reported year.
This trading environment heavily favoured large capitalisation companies over
small capitalisation stocks, thus, overall positioning within healthcare
equities was far more critical than stock selection. This was particularly true
for the Company's portfolio, with our key long-term strategic overweight
positions in emerging biotechnology, China healthcare, and innovative tools -
typically all small capitalisation stocks - materially underperforming. This
included in historic drawdowns and record setting underperformance in emerging
biotechnology stocks which severely impacted returns, despite an otherwise
healthy fundamental sector. This was exacerbated by our long-term underweight
positioning in pharmaceuticals - typically all large capitalisation stocks - a
sector that outperformed the rest of healthcare, particularly during the last
quarter of the financial year.
Overall, our performance was heavily impacted by this relative positioning as
the preponderance of fundamentals across healthcare failed to influence trading
dynamics; a true mismatch to our investment philosophy. Rather, this
extraordinary market perturbation created not only extreme volatility but also
an historic compression of valuations within certain components of healthcare,
a situation that would expectedly be damaging to our relative portfolio
positioning. As a result, relative and absolute performance suffered with a net
asset value total return of -5.8%, and a share price total return of -10.8%,
compared to the benchmark index total return of +20.4%.
Despite the volatility in the reported period, we are pleased to note that
since the Company's inception in 1995, the total return of the Company's net
asset value per share is +3,866.7%, equivalent to a compound annual return of
+14.7%. This compares to the blended benchmark rise of +2,133.6%, equivalent to
a compound annual return of +12.2%.
This 27-year track record demonstrates several important points. First, it puts
into context the recent drawdown. Previous periods of underperformance by the
Company have all been quickly followed by a significant bounce back and
material outperformance. Second, the chart above shows outperformance for
healthcare (the benchmark) versus the broader markets (in this case, the FTSE
All-Share Index), particularly over the past seven years which coincides with
the real explosion of innovation within the industry. Finally, it shows what an
active manager or specialist investor can do in healthcare, especially in the
face of a highly idiosyncratic, global sector that possesses many barriers to
understanding the scientific, clinical, regulatory, technological, and
political environment that envelops all of healthcare.
Finally, we would note that the fundamentals of healthcare remain strong,
especially in biotechnology, which we regard as the cradle of innovation for
clinical discovery.
The macro trading dynamics that impacted these stocks in the reported period do
not represent, in any way, a deterioration of the elements that underpin the
sector. Rather, it is simply a product of extreme market conditions that we
have never experienced previously, culminating in a profound collapse in
valuations, a situation that should reverse in due time. With fundamentals
intact, we remain positioned for a material rebound in biotechnology stocks.
CONTRIBUTION BY SUB-SECTOR
Looking at performance by sub-sector provides an understanding of overall
performance during the year. First, four areas which contributed a significant
absolute positive contribution were Pharmaceuticals (benefitting from a macro
defensive rotation), Medical Devices/ Technology (a result of stock picking),
Healthcare Services (reflecting our sector positioning), and India.
Healthcare (again, as a result of stock picking). Second, four sub-sectors that
contributed a notable relative positive contribution over the benchmark were
Specialty Pharmaceuticals, Medical Devices/Technology, India Healthcare (all
reflecting the results of stock-picking) and Japan Pharmaceuticals (reflecting
our sector positioning).
However, detractors from performance overwhelmed the positive contributions.
The following three sub-sectors were notable in terms of both relative and
absolute negative contribution - emerging biotechnology (reflecting macro
sector rotation), China healthcare (a result of fundamental investor concerns),
and small/mid-capitalisation life science tools/diagnostics (reflecting our
overweight sector positioning). Each of these sub-sectors experienced
significant drawdowns during the year creating a headwind to the Company's
performance that became insurmountable during the reported 12-month period.
The largest detractor by sub-sector was emerging biotechnology stocks, which
generated over 11% of negative contribution (both in absolute and relative
terms). A "perfect storm" of macro factors led to this disappointing
performance. The financial year began with a rotation by investors from growth
to value stocks, as generalist investors repositioned portfolios to gain
exposure to economically sensitive sectors that would benefit most from a
post-COVID reopening of the economy. Biotechnology underperformed during this
period, as did many other growth sectors to which investors had allocated
capital during the COVID pandemic. Many of the shorter-term investors who did
not regularly invest in the biotechnology sector, but who were temporarily
attracted to the industry's defensive nature and COVID-related research,
appeared to exit the sector.
In the second half of the financial year, increasing concerns about the U.S.
Federal Reserve's plans to raise interest rates to combat inflation led to
continued weakness in technology stocks, especially those earlier-stage
enterprises which are not expected to realise earnings for many years. This
trend was especially damaging to small capitalisation biotechnology performance
and those stocks sold off even further. Overall, these macroeconomic and
related factors created the longest and largest drawdown in biotechnology
history, with the gap between the S&P Biotechnology ETF (XBI) compared to the S
&P 500 Index reaching over 65% during the financial year.
Adding pressure to the Company's performance was a significant drawdown in the
Chinese markets, including Hong Kong, in the second half of the financial year.
The sell-off was precipitated by regulatory tightening by the Chinese
government across a variety of sectors, including the internet (and related
technology industries) and the for-profit education industry. Even though there
were no new significant regulations targeting Chinese healthcare companies,
investor fears were materially heightened that healthcare may be the
government's next target. This broad market downturn in China that began in
June 2021 adversely and indiscriminately impacted many of our China healthcare
positions. Unfortunately, these macro pressures persisted through to the end of
the financial year, generating nearly 4% of negative absolute and relative
contribution in the reported period. Importantly, we continue to believe
fundamental innovation in the China healthcare sector remains strong.
The life science tools sector was also challenging for the Company in the year
under review. Mirroring the broader market, large capitalisation diversified
companies significantly outperformed those with a small and mid-capitalisation
innovative growth profile, and our positioning in this regard was suboptimal,
resulting in over 5% of negative contribution relative to the benchmark.
Additionally, there were fundamental factors that drove this large
capitalisation outperformance - chief among which was the continued durability
of COVID-related revenues as well as a normalisation of non-COVID "base
business" performance which led to positive earnings revisions throughout the
2021 calendar year. Our view that the durability of COVID related earnings
would come into question amid record high valuations was clearly too early.
Whilst we did have modest exposure to Thermo Fisher Scientific and Danaher
Corporation, two companies which benefited from these dynamics and offer
best-in-class execution, we had lower exposure than our benchmark which damaged
our relative performance.
Separately, our preferred small and mid-capitalisation companies in the
innovative tools space weighed on our performance. Whilst we have a positive
structural outlook on liquid biopsy and the continued proliferation of
clinically successful oncology diagnostics, the sector fell out of favour
against the backdrop of demanding valuations and fundamental results that were
strong but were insufficient to drive shares higher against lofty near-term
expectations.
Finally, a word on the performance of large capitalisation pharmaceutical
stocks in the financial year. As articulated already in this report,
pharmaceutical stocks traded mostly in-line with the benchmark throughout the
period.
However, as we approached the turn of the calendar year, this performance began
to diverge materially as inflation, interest rates, and geopolitical risks all
rose and investors turned defensive. As a result, large capitalisation
pharmaceutical stocks moved much higher heading into the financial year end,
many of which ended on 52-week highs on 31 March 2022. This created the single
largest source of absolute contribution for the Company at over 7%. However, as
is our historical norm, we were materially underweight in the pharmaceutical
sector in the period, thus creating over 5.0% of negative relative contribution
to the benchmark due to our positioning.
KEY CONTRIBUTORS TO PERFORMANCE
There were a number of factors that underlay the key positive contributors to
absolute performance. These included the beneficiaries of the macro factors
described above, such as the outperformance of large capitalisation stocks,
alongside a mix of positive fundamentals that also influenced share price
moves. OrbiMed prides itself on its expertise within clinical medicine and how
that capability helps shape good stock picking within the healthcare sector.
A prototypical example of this combination of macro tailwinds and good stock
picking was AbbVie. Over the past two years, the company has been in the midst
of a transformation. Facing the largest patent expiration in industry history
-Humira, with peak global sales of U.S.$20 billion - the company has
re-invented its immunology franchise with newer, better, and safer drugs in
Skyrizi (injectable risankizumab) and Rinvoq (oral upadacitinib), two drugs
approved to treat a variety of immunological disorders.
Investor optimism hit a nadir in September 2021 when the U.S. Food and Drug
Administration (FDA) communicated their general concern over the safety of all
oral JAK inhibitors (Janus Kinase inhibitors, the class of medicines included
Rinvoq), certainly delaying and perhaps denying future additional approvals for
Rinvoq, largely considered the "best-in-class" JAK inhibitor in the world. With
the stock on the low after falling further on the news, we added meaningfully
to our position. That risk paid off two-fold. First, despite a modest delay,
the FDA did ultimately approve Rinvoq for Psoriatic Arthritis, Ulcerative
Colitis, and Atopic Dermatitis (in addition to the already approved Rheumatoid
Arthritis), pushing the stock higher. Second, the stock certainly caught the
macro trend towards the start of 2022 when large capitalisation pharmaceutical
stocks moved higher in the face of rising interest rates, record inflation, and
war in Europe.
Another pharmaceutical company that has re-invented itself is AstraZeneca.
After nearly a decade of declining revenues and earnings, the company has
turned itself around under the guidance of CEO Pascal Soriot, creating one the
largest and fastest growing global, multinational pharmaceutical companies in
the world. With leadership in oncology, cardiovascular, respiratory, and more
recently, rare diseases, the company is poised for sustainable, long-term
growth. However, these successes have not been without some angst, as a messy
but well-intended effort to develop a COVID vaccine created some share price
volatility as did the close of the acquisition of Alexion Pharmaceuticals,
which sparked investor fears that the company's stand-alone financials were
going to disappoint.
However, after a robust fourth quarter report, better than expected guidance
for 2022, and a strong launch for the company's COVID-19 prophylaxis injection,
Evusheld (tixagevimab co-packaged with cilgavima), AstraZeneca's share price
closed at an all-time high at the end of the Company's financial year.
UnitedHealth Group is the largest health insurer in the United States as well
as one of the largest healthcare services providers through its subsidiary,
Optum. This stock represents another example of a mix of positive fundamentals
and a macroeconomic environment that took the share price to new highs in 2022.
Heading into its third quarter 2021 earnings, investors faced significant fears
of whether increasing medical costs and lingering COVID-related costs (testing,
treatment, vaccines) would impede the insurers' ability to grow earnings.
Additionally, regulatory noise became louder with prospects of Medicare
Advantage, an insurer-run government programme, would face reimbursement cuts
or other challenges to pay for other priorities in a large U.S. federal
spending bill.
However, the company produced strong third and fourth quarter results, along
with better-than-expected earnings guidance for 2022. Meanwhile, political
negotiations over a large spending bill broke down in the U.S., removing
another critical source of risk. Finally, the shifting macroeconomic landscape,
including higher interest rates, rising inflation, and a shift out of growth
stocks into value stocks, all benefited UnitedHealth, which has since become a
"safe haven" in healthcare.
Shanghai Bio-heart Biological Technology is a cardiovascular medical device
startup in China. The company sells two product lines: Renal Denervation (RDN)
and Bioresorbable Vascular Scaffold System (BVS). Together, these technologies
address the unmet medical needs of Chinese patients for the treatment of
coronary and peripheral artery diseases and uncontrolled hypertension.
Bio-heart's line of RDN products is a "best-in-class" product in China, with a
unique catheter design which is the only one that can be inserted by both
radial artery and femoral artery (unlike the competition). The company's RDN
business is also backed by Terumo, the Japan-based global leader in medical
technology, in a technology-validating deal. The investment into Bio-heart was
an unquoted investment. The company listed on the Hong Kong Exchange in
December 2021 and the share price more than doubled during the remainder of the
Company's financial year.
Before the turn of the decade, Bristol-Myers Squibb became one of the most, if
not the most, dominant cancer companies in the world. With pioneering work in
revolutionary field of immuno-oncology in the mid-2010s and the U.S.$74 billion
acquisition of Celgene in 2019, the company possessed leadership in both the
solid tumour and liquid tumour fields of oncology. However, the company has
also become misunderstood. Investor anxiety over the company's growth strategy
and increased concerns over imminent patent expirations for key products saw
the company's valuation collapse to an all-time low, with the shares trading
with a price-to-earnings ratio of 7.0x during the reported period.
However, an analyst meeting hosted by company management in November 2021 in
New York City proved to be a seminal moment in the company's recent history.
Using that platform, the company provided a deep dive on their pipeline,
discussed growth opportunities, and provided long term growth targets. That
event, combined with the defensive rotation into pharmaceuticals at the
Company's financial year-end, was a boon to investor interest and the stock
re-rated over 30% (in local currency) over the last four months of the reported
period.
KEY DETRACTORS FROM PERFORMANCE
Mirati Therapeutics is an emerging biotechnology company focused on the
development of therapeutics for the treatment of cancer. The company's main
pipeline asset, adagrasib, is highly selective and potent oral small molecule
inhibitor of KRAS G12C (a mutation that underlies the formation of a number of
tumours) that is being developed for various cancers, including lung, colon,
and other solid tumours. Despite achieving many development milestones for
adagrasib in the year, including a successful new drug application with the
FDA, the share price was punished, perhaps unduly, for a variety of reasons,
including a stock offering and multiple management changes. Most recently, the
stock was under pressure again after the FDA accepted the filing for adagrasib
but granted a regular review rather than the expected priority review, pushing
the potential approval and launch in 2023.
MIRATI THERAPEUTICS: KRAS INHIBITION
In the diagnostics space, Natera is an industry leader with a host of
innovative offerings including non-invasive prenatal testing (NIPT) and other
genetic testing. While Natera's commercial execution was strong in the reported
period, the company did not benefit from COVID-testing tailwinds (unlike the
large-capitalisation diagnostic players) and share price declines were further
exacerbated by the growth-to-value rotation that characterised the year under
review. Additionally, the New York Times published an article in January 2022
denouncing the low accuracy of NIPT in identifying rare genetic diseases, and
in March 2022, a short seller published a report on Natera alleging illegal
billing practices relating to its NIPT business, both of which created
significant controversy. Whilst we disagreed with both of these reports, these
collective issues created a significant disconnect between the company's
fundamentals and most recent valuation.
NATERA: NIPT
Another innovative player in the diagnostics space is Guardant Health, an
oncology diagnostics company that has emerged as the pre-eminent liquid biopsy
provider. The company has many offerings in the cancer diagnostics sector
including therapy selection, disease assays, and response monitoring. The
company also plans to enter the non-invasive screening market in 2022.
Unfortunately, the share price experienced a material pullback through the
course of the year despite generally strong financial performance. Again,
macro-market conditions were largely to blame, but the stock was particularly
weak following rumours that it was considering a purchase of another oncology
diagnostics company, although the deal never materialised. Again, these
collective issues created a significant disconnect between the company's
fundamentals and its most recent valuation.
Deciphera Pharmaceuticals, is a clinical stage, emerging biotechnology company
that is developing small molecule drugs to treat various types of cancer. The
company's focus in recent years has been the continued development of Qinlock
(ripretinib), an orally administered inhibitor of specific mutated kinases
which otherwise contribute to the development of certain cancers. In 2020, the
FDA approved Qinlock for use as a fourth line therapy for gastrointestinal
stromal tumours (GIST). More recently, the company conducted a trial to explore
the use of Qinlock in earlier lines of therapy. However, in November 2021, that
trial failed to show significantly superior results versus the standard of care
in second line GIST, Sutent (sunitinib). The stock had traded down along with
the broader biotechnology drawdown into this update and subsequently gapped
even lower after the failed trial.
The "XBI" is an exchange-traded fund - SPDR S&P Biotech ETF - incorporated in
the U.S. that seeks to replicate the performance of the S&P Biotechnology
Index. The Index is equal-weighted, has approximately 150 constituents, and
tracks all biotechnology single stocks that are listed on the NYSE, American
Stock Exchange, and the NASDAQ National Market and Small Capitalisation
exchanges. The XBI offers an opportunity to gain tactical exposure to the
biotechnology subsector quickly and efficiently while not exposing the
portfolio to unnecessary idiosyncratic single stock risks. Given the
extraordinary drawdown in the biotechnology subsector since February 2021, the
removal of key sector overhangs, and anticipated mergers & acquisitions (M&A)
by large capitalisation pharmaceutical companies, we wanted to gain exposure to
a tactical rebound as we went through the year. Unfortunately, our purchase was
premature, and the XBI continued to sell off right into the financial year-end.
This holding was bought and sold during the year.
CONTRIBUTION FROM UNQUOTEDS
During the financial year, the Company made four new investments in unquoted
companies. Another four portfolio companies - including one of these new
investments - completed their Initial Public Offerings (IPOs) in the period. As
of 31 March 2022, investments in unquoted companies (excluding debt) accounted
for 7.0% of the Company's net assets versus 5.3% as of 31 March 2021.
The four new investments this year were all healthcare services companies in
emerging markets (one in India and three in China). In the U.S., a challenging
public offering market for small and mid-capitalisation therapeutics companies
made pre-IPO crossover investments unattractive in the year. Of the four
companies that completed an Initial Public Offering, three listed on the Hong
Kong Stock Exchange in the second half of the financial year and a
biotechnology company listed on the Nasdaq Stock Exchange in the U.S.
For the year ended 31 March 2022, the Company's unquoted holdings contributed
gains of £21.8m, (including both realised and unrealised gains) equivalent to a
return of 15% and those companies that went public contributed gains of £20.7m,
representing a return of 35%. While the gains in unquoteds were spread among
many companies, the gains for companies that listed were dominated by Shanghai
Bio-heart Biological Technology. Overall, the unquoted strategy (excluding
debt) contributed £42.5m equivalent to 1.8% of the Company's net asset value
return for the year.
GEARING STRATEGY
The Company employs gearing with a maximum level of 20% of the Company's net
assets. Historically, the typical gearing level employed by the Company is
low-to-high teens but can range from low single-digits to high teens.
Considering the level of market volatility during the past two financial years,
the use of gearing has evolved. First, the over level of gearing used - on
average - has declined from 9% (5 year average) to 6% (2 year average). Second,
month-over-month gearing levels have also varied more than historical norms as
we have attempted to utilise gearing in a more tactical fashion and in response
to various market conditions.
DERIVATIVES STRATEGY
The Company has the ability to use equity swaps and options, as set out in the
Company's Investment Objective and Policy. During the current financial year,
the Company employed single stock equity swaps to gain exposure to emerging
market Chinese and Indian stocks. In addition, the Company traded tactical
security baskets created to take advantage of depressed valuations in small and
mid-capitalisation companies that we felt were likely acquisition targets for
large capitalisation pharmaceutical companies. The equity swaps detracted 0.9%
from the Company's return during the year. An analysis of the Company's
investments in emerging markets is included in the Strategic Report.
Further details on the use of swaps can be found in Note 16 and in the
Glossary.
SECTOR DEVELOPMENTS & OUTLOOK
Overall, we remain positive on the outlook for the healthcare industry. Despite
the mixed trading dynamics during the financial year, many immediate overhangs
have lifted and the tailwinds remain strong, in particular the amount of
innovation that is fuelling the industry's growth, both in therapeutic and
non-therapeutic stocks.
On the regulatory front, there has been a growing concern from generalist
investors that things have slowed significantly at the FDA and that there is a
vacuum of leadership at the Agency. This view began to develop in 2020 with the
absence of a Commissioner (typically appointed when there is a change in U.S.
Presidents) and when agency resources where stretched given the COVID-19
pandemic. However, we have a very different view.
First, the FDA response to COVID-19 has been an unprecedented success with
multiple vaccines approved, multiple antibody treatments approved, and more
recently, two oral anti-viral therapies approved as well. We would also be
remiss not to mention the hundreds of diagnostic tests that have also been
approved by the agency. Second, we have not seen a material slowdown in new
drug approvals. In fact, the past five years have been the most productive in
the agency's history, including this past year. This included an Alzheimer's
drug that was approved in June 2021 - the first new treatment approved for
Alzheimer's disease in over 20 years (albeit with some controversy).
Finally, and perhaps most importantly, there was a growing concern that the FDA
was "rudderless" since the Agency has been without a commissioner over that
past two years (since President Biden took office). Whilst this belief was
mostly baseless, nevertheless, a new commissioner was just recently confirmed.
Dr. Robert Calif, a world-renowned cardiologist from Duke University, was the
previous Commissioner under President Obama, and most importantly, is viewed as
"industry friendly." Going forward, we think investor perception of the FDA is
going to improve immensely in 2022 and beyond.
Another dark cloud over the sector is the ongoing (and seemingly endless)
threat of prescription drug price reform in the U.S. This fear has been an
overhang on the Company since late 2020, when President Biden took the White
House and Democrats had total control of Congress, setting off a new
"wall-of-worry" for investors. However, with war breaking out in Eastern
Europe, the Biden Administration's attention has pivoted and is now completely
focused on other matters. Therefore, we believe that expectations for any drug
price reform have now appropriately faded, especially as we approach U.S.
midterm elections later in 2022.
Historically, the healthcare industry is one that sees a significant amount of
corporate activity, frequently in the form of M&A and this M&A activity has
been a notable source of positive performance for the Company. Of course, there
are always ebbs and flows that impact the pace of M&A at any one time, but the
last two quarterly reporting periods have been notable for the profound
messaging from the large capitalisation pharmaceutical executives about
business development, particularly about M&A being a "top priority", the need
to "do more", and looking to add "first-in-class and best-in-class" assets.
Overall, this may be a harbinger of things to come and could be a real rallying
point, especially in the biotechnology sector.
M&A: ACCELERATION EXPECTED
Given the historic volatility within the sector in the reported period, it is
imperative to note that this extreme sell-off was not emblematic of any notable
concerns about the fundamentals within the small and mid-capitalisation
universe of healthcare stocks. Yes, the number of investable companies
continues to increase. Yes, the complexity of the clinical science and new
technology continues to increase. Yes, the political and regulatory landscape
continue to evolve. Collectively, however, these factors can become a tailwind
for the sector as new products, drugs, and services come to market, driving top
line growth and margins, respectively. The by-product of the broad market
conditions has culminated in a profound collapse in valuations, a situation
that invariably reverses in due time, a particular attractive opportunity for
an active manager and specialist healthcare investor, and one on which we will
be in position to capitalise.
Ultimately, as with many modern industries, innovation is the key value driver
and healthcare is no different. We continue to believe that the current pace of
innovation is at an all-time high and will continue to develop novel solutions
to solve health and ageing problems that are facing all of humanity. There are
new advances for small molecules, gene and cell therapy, gene editing,
monoclonal antibodies, and of course vaccines and RNA therapeutics. Novel
diagnostics continue to progress and are shaping treatment choices, dictating
drugs of intervention, and follow-up care. Medical devices continue to evolve
across new robotic platforms, orthopedics, pain, and structural heart. Even
managed care is seeing a revolution in vertical integration that is unlocking
value. Innovation continues to be the number one growth driver for all of
healthcare and remains a key hallmark of the portfolio. As a result of this
view, we will continue to actively position the portfolio to benefit from this
incredible innovation, overweighting innovation through small and
mid-capitalisation stocks, which has been the key pillar of our long-term and
successful investment strategy.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
26 May 2022
CONTRIBUTION BY INVESTMENT
ABSOLUTE CONTRIBUTION BY INVESTMENT FOR THE YEARED 31 MARCH 2022
Principal contributors to and detractors from net asset value performance
Contribution
Contribution per share*
Top five contributors Country Sector £'000 £
Abbvie USA Pharmaceuticals 43,658 0.7
AstraZeneca UK Pharmaceuticals 39,516 0.6
UnitedHealth Group USA Healthcare Providers & 29,254 0.4
Services
Shanghai Bio-Heart Biological China Healthcare Equipment & 24,934 0.4
Technology Supplies
Bristol-Myers Squibb USA Pharmaceuticals 24,633 0.4
Top five detractors
SPDR S&P Biotech ETF ** USA Biotechnology (26,637) (0.4)
Deciphera Pharmaceuticals ** USA Biotechnology (32,923) (0.5)
Guardant Health USA Life Sciences Tools & (34,062) (0.5)
Services
Natera USA Life Sciences Tools & (35,122) (0.5)
Services
Mirati Therapeutics USA Biotechnology (45,742) (0.7)
* Calculation based on 65,307,132 shares being the weighted average number of
shares in issue during the year ended 31 March 2022.
* Not held at 31 March 2022.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE AND CLIMATE CHANGE
EXTRACT FROM ORBIMED'S RESPONSIBLE INVESTING POLICY
The Company's Portfolio Manager, OrbiMed, believes that there is a high
congruence between companies that seek to act responsibly and those that
succeed in building long-term shareholder value. OrbiMed seeks to integrate its
Responsible Investing Policy into its overall investment process for the
Company in order to maximise investment returns.
OrbiMed negatively screens potential investments and business sectors that may
objectively lead to negative impacts on public health or well-being. OrbiMed
makes investment decisions based on a variety of financial and non-financial
company factors, including environmental, social and governance (ESG)
information.
OrbiMed considers sector-specific guidance from the Sustainability Accounting
Standards Board (SASB) to determine material ESG factors. Depending on the
investment, all or a subset of the ESG factors that are financially material
and relevant are considered in OrbiMed's research. The evaluation of a
company's performance on ESG issues provides guidance for investment decisions
and constitutes part of the investment analysis. ESG factors, however, do not
form the sole, or primary, set of considerations for an investment decision.
ESG is a rapidly evolving field. ESG evaluation is not standardised and faces
limitations due to a lack of availability of accurate, timely and uniform data.
Presently, no known universally accepted standards for ESG incorporation in
investment decisions exist. Therefore, ESG evaluation carries a significant
degree of subjectivity.
ESG MONITORING
OrbiMed has integrated ESG scores for public equity holdings from third-party
service providers onto its platform via programming interface. ESG scores are
assigned by third-party service providers to each company based on the
company's disclosure and practice on material environmental, social and
governance factors. Recognising the need to supplement the scores with
OrbiMed's internal ESG research, OrbiMed has enabled enhancements in its
monitoring capability with a custom-built protocol for updating these scores.
OrbiMed is taking the initiative in leading meaningful ESG engagement in the
healthcare sector. As part of these efforts, OrbiMed facilitates dialogues and
an exchange of leading practices among investors, companies and other relevant
experts on ESG in the large capitalisation pharmaceutical sector.
CLIMATE CHANGE
As per the guidance from SASB, climate change in relation to the Company's own
operations is not a material ESG consideration for biotechnology and
pharmaceutical, medical equipment and supplies, and managed care sectors.
However, Energy management is noted as a material ESG concern for the
healthcare delivery sector. To that end, OrbiMed includes the scores on energy
management for the relevant sectors in its overall ESG monitoring.
OrbiMed engages with a number of companies, including one-on-one meetings with
management on ESG, analyst calls and other forums. For example, OrbiMed held a
meeting with Horizon Therapeutics on leading ESG practices and provided
feedback and recommendations on specific ESG topics such as talent management,
disclosure and governance benchmarks to the company. Through these engagements,
OrbiMed was made aware of the 'Energize' programme - a collaborative programme
launched by 10 pharmaceutical companies - including several OrbiMed portfolio
companies - to increase access to renewable electricity for global
pharmaceutical supply chains, and reduce greenhouse gas (GHG) emissions within
the healthcare supply chain.
OrbiMed generally follows the guidelines and recommendations of Glass Lewis &
Co LLC, a leading proxy voting services provider, including on climate change
matters.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
26 May 2022
BUSINESS REVIEW
The Strategic Report, contains a review of the Company's business model and
strategy, an analysis of its performance during the financial year and its
future developments and details of the principal risks and challenges it faces.
Its purpose is to inform shareholders in the Company and help them to assess
how the Directors have performed their duty to promote the success of the
Company. Further information on how the Directors have discharged their duty
under s172 of the Companies Act 2006 in promoting the success of the Company
for the benefit of the investors as a whole, and how they have taken wider
stakeholders' needs into account can be found in the Strategic Report. The
Strategic Report contains certain forward-looking statements. These statements
are made by the Directors in good faith based on the information available to
them up to the date of this report. Such statements should be treated with
caution due to the inherent uncertainties, including both economic and business
risk factors, underlying such forward-looking information.
BUSINESS MODEL
Worldwide Healthcare Trust PLC is an externally managed investment trust and
its shares are listed on the premium segment of the Official List and traded on
the main market of the London Stock Exchange.
As an externally managed investment trust, all of the Company's day-to-day
managements and administrative functions are outsourced to service providers.
As a result, the Company has no executive directors, employees or internal
operations. 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 Business Review. The Board has
determined an investment policy and related guidelines and limits, as described
below.
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 Section 1158 of the Corporation Tax Act
2010). As a result the Company is not liable for taxation on capital gains. The
Directors have no reason to believe that approval will not continue to be
retained. The Company is not a close company for taxation purposes.
The Board is responsible for all aspects of the Company's affairs, including
the setting of parameters for and the monitoring of the investment strategy a s
well as the review of investment performance and policy. It also has
responsibility for all strategic issues, the dividend policy, the share
issuance and buy-back policy, gearing, share price and discount/premium
monitoring and corporate governance matters.
CONTINUATION OF THE COMPANY
A resolution was passed at the Annual General Meeting held in 2019 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 the Annual General
Meeting to be held in 2024 and every five years thereafter.
THE BOARD
The Board of the Company comprises Sir Martin Smith (Chairman), Sarah Bates,
Sven Borho, Doug McCutcheon, Dr Bina Rawal and Humphrey van der Klugt. All of
these Directors, 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.
All Directors, with the exception of Sir Martin Smith, are seeking re-election
by shareholders at this year's Annual General Meeting.
DIVID 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.
Such dividends will typically be paid twice a year by means of an interim
dividend and a final dividend.
KEY PERFORMANCE INDICATORS ('KPI')
The Board assesses the Company's performance in meeting its objectives against
key performance indicators as follows. The Key Performance Indicators have not
changed from the previous year:
* 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. Further information can be found
in the Glossary.
* Alternative Performance Measure (See Glossary)
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 (the 'Benchmark').
OrbiMed has flexibility in managing the investments and are not limited by the
make up of the Benchmark. As a result, investment decisions are 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.
Share price discount/premium to nav per share
The share price discount/premium to NAV per share is considered a key indicator
of performance as it impacts the share price total return of shareholders and
can provide an indication of how investors view the Company's performance and
its Investment Objective.
Ongoing charges ratio
The Board continues to be conscious of expenses and works hard to maintain a
balance between good quality service and costs.
PRINCIPAL SERVICE PROVIDERS
The principal service providers to the Company are the AIFM, Frostrow Capital
LLP (Frostrow), the Portfolio Manager, OrbiMed Capital LLC (OrbiMed), the
Custodian and Prime Broker J.P. Morgan Securities LLC, and the Depositary, J.P.
Morgan Europe Limited. Details of their key responsibilities follow and further
information on their contractual arrangements with the Company are included in
the Report of the Directors.
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.
OrbiMed receives a base fee of 0.65% of NAV and a performance fee of 15% of
outperformance against the Benchmark.
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.
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 in the Report of the Directors. 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; 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 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 2022 with a positive recommendation
being made to the Board.
The Board believes the continuing appointment of the AIFM and the Portfolio
Manager, 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.
RISK MANAGEMENT
The Board is responsible for the management of risks faced by the Company.
Through delegation to the Audit & Risk Committee, the Board has established
procedures to manage risk, to review the Company's internal control framework
and establish the level and nature of the principal risks the Company is
prepared to accept in order to achieve its long-term strategic objective. At
least twice a year the Audit Committee carries out a robust assessment of the
principal risks and uncertainties with the assistance of Frostrow (the
Company's AIFM) identifying the principal risks faced by the Company. These
principal risks and the ways they are managed or mitigated are detailed on the
following pages.
Principal risks and uncertainties Mitigation
Market risks
By the nature of its activities and To manage these risks the Board and the AIFM
Investment Objective, the Company's portfolio have appointed OrbiMed to manage the
is exposed to fluctuations in market prices investment portfolio within the remit of the
(from both individual security prices and investment objective and policy, and imposed
foreign exchange rates) and due to exposure various limits and guidelines. These limits
to the global healthcare sector, it is ensure that the portfolio is diversified,
expected to have higher volatility than the reducing the risks associated with individual
wider market. As such investors should be stocks, and that the maximum exposure
aware that by investing in the Company they (through derivatives and an overdraft
are exposing themselves to market risks and facility) is limited. The compliance with
those additional risks specific to the those limits and guidelines is monitored
sectors in which the Company invests, such as daily by Frostrow and OrbiMed and reported to
political interference in drug pricing. In the Board monthly.
addition, the Company uses leverage (both In addition, OrbiMed reports at each Board
through derivatives and gearing) the effect meeting on the performance of the Company's
of which is to amplify the gains or losses portfolio, which encompasses the rationale
the Company experiences. 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).
The Company does not currently hedge its
currency exposure.
Geo-political/regulatory and macro economic
risk
Macro events may have an adverse impact on While such events are outside the control of
the Company's performance by causing exchange the Company the Board reviews regularly, and
rate volatility, changes in tax or regulatory discusses with the Portfolio Manager, the
environments, and/or a fall in market prices. wider economic and political environment,
Emerging markets, which a portion of the along with the portfolio exposure and the
portfolio is exposed to, can be subject to execution of the investment policy against
greater political uncertainty and price the long-term objectives of the Company. The
volatility than developed markets. Portfolio Manager's risk team perform
systematic risk analysis, including country
and industry specific risk monitoring.
The Board monitors regulatory developments
but relies on the services of its external
advisers to ensure compliance with applicable
law and regulations.
The Board has appointed a specialist
investment trust AIFM and Company Secretary
who provides industry and regulatory updates
at each Board meeting.
With regard to Brexit, the Board does not
believe that it poses a unique risk to the
Company or that it will affect the Company's
share price or how its shares are sold.
Unquoted investment risk
The Company's risk could be increased by its To mitigate this risk the Board and AIFM have
investment in unquoted companies. These set a limit of 10% of the portfolio,
investments may be more difficult to buy, calculated at the time of investment, that
sell or value, so changes in their valuations can be held in unquoted investments and have
may be greater than for listed assets. The established a robust and consistent valuation
valuation of unquoted investments requires policy and process as set out in Note 1(b),
considerable judgement as explained in Note1 which is in line with UK GAAP requirements
(a) and as such realisations may be and the International Private Equity and
materially lower than the value as estimated Venture Capital (IPEV) Guidelines. The Board
by the Company. Particular events, outside also monitors the performance of these
the control of the Company, may also have a investments compared to the additional risks
significant impact on the valuation and involved.
considerable uncertainty may exist around the
potential future outcomes for each
investment.
Investment management key person risk
There is a risk that the individuals The Board manage this risk by:
responsible for managing the Company's
portfolio may leave their employment or may
be prevented from undertaking their duties.
Counterparty risk
In addition to market and foreign currency This risk is managed by the Board through:
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 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.
Service provider risk
The Board is reliant on the systems of the To manage these risks the Board:
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.
The spread of an infectious disease, such as
has been seen as a result of the COVID-19
pandemic, may again force governments to
introduce rules to restrict meetings and
movements of people and take other measures
to prevent its spread, which may cause
disruption to the Company's operations.
ESG related risks
Both the Board and the Portfolio Manager The Board ensures that the Portfolio
recognise the importance of having a coherent Manager's ESG approach is in line with
ESG policy. There is a risk that investing in standards elsewhere and the Board's
companies that disregard ESG factors will expectations. A summary of the Portfolio
have a negative impact on investment returns Manager's approach to Responsible Investing
and also that the Company itself may become can be found in the Strategic Report..
unattractive to investors if ESG is not
appropriately considered in the Portfolio
Manager's decision making process. In light
of this, the Board has asked OrbiMed to
provide ESG reports at each Board meeting,
highlighting examples where ESG issues
influenced investment decisions and/or led to
engagement with an investee company.
Shareholder relations and share price
performance risk
The Company is also exposed to the risk, In managing this risk the Board:
particularly if the investment strategy and The operation of the discount/premium control
approach are unsuccessful, that the Company mechanism and Company promotional activities
may underperform resulting in the Company have been delegated to Frostrow, who report
becoming unattractive to investors and a to the Board at each Board meeting on these
widening of the share price discount to NAV activities.
per share. Also, falls in stock markets, such
as those experienced as a consequence of the
COVID-19 pandemic, and the risk of a global
recession, are likely to adversely affect the
performance of the Company's investments.
Emerging risks
The Company has carried out a robust assessment of the Company's emerging and
principal risks and the procedures in place to identify emerging risks are
described below. The International Risk Governance Council definition of an
'emerging' risk is one that is new, or is a familiar risk in a new or
unfamiliar context or under new context conditions (re-emerging). Failure to
identify emerging risks may cause reactive actions rather than being proactive
and, in worst case, could cause the Company to become unviable or otherwise
fail or force the Company to change its structure, objective or strategy.
The Audit and Risk Committee reviews a risk map at its half-yearly meetings.
Emerging risks are discussed in detail as part of this process and also
throughout the year to try to ensure that emerging (as well as known) risks are
identified and, so far as practicable, mitigated.
COVID-19
The Board recognises that the spread of new coronavirus (COVID-19) strains
represents an area of continuing risk, both to the Company's investments,
investment performance and to its operations. The Portfolio Manager has
continued its dialogue with investee companies and the Board has stayed in
close contact with both the AIFM and the Portfolio Manager and has been
regularly monitoring portfolio and share price developments. The Board has also
received assurances from all of the Company's service providers in respect of:
* their business continuity plans and the steps being taken to guarantee the
ongoing efficiency of their operations while ensuring the safety and
well-being of their employees;
* their cyber security measures including improved user-access controls, safe
remote working and evading malicious attacks; and
* any increased risks of fraud resulting from weaknesses in systems user
access controls.
As the rate of vaccinations increases across the world, the outlook is
cautiously positive, but the Board will continue to monitor developments as
they occur.
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.
Such meetings have been conducted on a virtual basis during the COVID-19
pandemic;
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 cum-income NAV per share.
Under the DCM, when the discount reaches a level of 6% or more, the Company's
shares may be bought back and held as treasury shares (See Glossary).
Treasury shares can be sold back to the market at a later date at a premium to
the cum-income net asset value 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.
Details of share issuance and share buy-backs are set out in the Report of the
Directors.
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. As an externally- managed investment trust, the Company does not
have any employees or maintain any premises, nor does it undertake any
manufacturing or other physical operations itself. All its operational
functions are outsourced to third party service providers. Therefore, the
Company has no material, direct impact on the environment or any particular
community and the Company itself has no environmental, human rights, social or
community policies. 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 U.K., with usually 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. During the Pandemic all of the Board and Committee meetings were
held via video conference. Video conferencing has proved to be a very effective
way of holding meetings, and this medium will continue to be used alongside in
person meetings.
The Portfolio Manager engages with the Company's underlying investee companies
in relation to their corporate governance practices and the development of
their policies on social, community and environmental matters. The Portfolio
Manager's Responsible Investing Policy can be seen below.
TASKFORCE FOR CLIMATE-RELATED FINANCIAL DISCLOSURES ("TCFD")
The Company notes the TCFD recommendations on climate-related financial
disclosures. The Company is an investment trust with no employees, internal
operations or property and, as such, it is exempt from the Listing Rules
requirement to report against the TCFD framework.
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 in the Strategic Report.
The Board believes it is appropriate to assess the Company's viability over a
five year period. This period is also deemed appropriate due to our Portfolio
Manager's long-term investment horizon and also what 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 in the
Strategic Report. The Directors also took into account the liquidity of the
portfolio and the expectation that the Company will pass the next continuation
vote in 2024 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.
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.
STAKEHOLDER INTERESTS AND BOARD DECISION-MAKING (SECTION 172 OF THE COMPANIES
ACT 2006)
The Directors are required to explain more fully how they have discharged their
duty under s172 of the Companies Act 2006 in promoting the success of the
Company for the benefit of the members as a whole. This includes the likely
consequences of the Directors' decisions in the long-term and how they have
taken wider stakeholders' needs into account.
The Directors aim to act fairly between the Company's stakeholders. The Board's
approach to shareholder relations is summarised in the Corporate Governance
Report. The Chairman's Statement provides an explanation of actions taken by
the Directors during the year to achieve the Board's long-term aim of ensuring
that the Company's shares trade at a price close to the NAV per share.
As an externally managed investment trust, the Company has no employees,
customers, operations or premises. Therefore, the Company's key stakeholders
(other than its shareholders) are considered to be its service providers. The
need to foster business relationships with the service providers and maintain a
reputation for high standards of business conduct are central to the Directors'
decision-making as the Board of an externally managed investment trust. The
Directors believe that fostering constructive and collaborative relationships
with the Company's service providers will assist in their promotion of the
success of the Company for the benefit of all shareholders.
The Board engages with representatives from its service providers throughout
the year. Representatives from OrbiMed and Frostrow are in attendance at each
Board meeting. As the Portfolio Manager and the AIFM respectively, the services
they provide are fundamental to the long-term success and smooth running of the
Company. The Chairman's Statement and the Business Review, describe relevant
decisions taken during the year relating to OrbiMed and Frostrow. Further
details about the matters discussed in Board meetings and the relationship
between OrbiMed and the Board are set out in the Corporate Governance Report.
Representatives from other service providers are asked to attend Board meetings
when deemed appropriate.
Further details are set out overleaf.
Who? Why? How?
Stakeholder The benefits of engagement with the How the board, the portfolio manager
group company's stakeholders and the AIFM have engaged with the
company's stakeholders
Investors Clear communication of the Company's The Portfolio Manager and Frostrow,
strategy and the performance against on behalf of the Board, complete a
the Company's objective can help the programme of investor relations
share price trade at a narrower throughout the year. While such
discount or a premium to its net asset meetings were conducted on a virtual
value per share which benefits basis during the COVID-19 pandemic,
shareholders. meetings in person are now being
New shares can be issued to meet held again. In addition, the
demand without net asset value per Chairman has been available to
share dilution to existing engage with the Company's larger
shareholders. Increasing the size of shareholders where required.
the Company can benefit liquidity as An analysis of the Company's
well as spread costs. shareholder register is provided to
Share buy backs are undertaken at the the Directors at each Board meeting
discretion of the Directors. along with marketing reports from
Frostrow. The Board reviews and
considers the marketing plans on a
regular basis. Reports from the
Company's broker are submitted to
the Board on investor sentiment and
industry issues.
Key mechanisms of engagement
include:
What? Outcomes and actions
What were the key areas of What actions were taken, including main decisions?
engagement?
Key areas of engagement Frostrow and the Portfolio Manager engage with retail investors
with investors through a number of different channels:
Who? Why? How?
Stakeholder The benefits of engagement with How the board, the portfolio manager
group the company's stakeholders and the AIFM have engaged with the
company's stakeholders
Portfolio Engagement with the Company's The Board met regularly with the
Manager Portfolio Manager is necessary to Company's Portfolio Manager throughout
evaluate their performance against the year. The Board also receives
the Company's stated strategy and monthly performance and compliance
to understand any risks or reporting.
opportunities this may present. The Portfolio Manager's attendance at
The Board ensures that the each Board meeting provides the
Portfolio Manager's environmental, opportunity for the Portfolio Manager
social and governance ("ESG") and Board to further reinforce their
approach is in line with standards mutual understanding of what is
elsewhere and the Board's expected from both parties.
expectations. The Board encourages the Company's
Engagement also helps ensure that Portfolio Manager to engage with
the Portfolio Manager's fees are companies and in doing so expects ESG
closely monitored and remain issues to be an important
competitive. consideration.
Gaining a deeper understanding of The Board receives an update on
the portfolio companies and their Frostrow's engagement activities by way
strategies as well as of a dedicated report at Board meetings
incorporating consideration of ESG and at other times during the year as
factors into the investment required.
process assists in understanding
and mitigating risks of an
investment as well as identifying
future potential opportunities.
Service The Company contracts with third The Board and Frostrow, acting in its
Providers parties for other services capacity as AIFM, engage regularly with
including: custody, company other service providers both in
secretarial, accounting & one-to-one meetings and via regular
administration and registrar. The written reporting. This regular
Company ensures that the third interaction provides an environment
parties to whom the services have where topics, issues and business
been outsourced complete their development needs can be dealt with
roles in line with their service efficiently and collegiately.
level agreements thereby The Board together with Frostrow have
supporting the Company in its maintained regular contact with the
success and ensuring compliance Company's principal service providers
with its obligations. during the pandemic, as well as
The COVID-19 pandemic has meant carrying out a review of the service
that it was vital to make certain providers' business continuity plans
there were adequate procedures in and additional cyber security
place at the Company's principal provisions.
service providers to ensure safety The review of the performance of the
of their employees and the Portfolio Manager and Frostrow is a
continued high quality service to continuous process carried out by the
the Company. Board and the Remuneration and
Management Engagement Committee with a
formal evaluation being undertaken
annually.
What? Outcomes and actions
What were the key areas of engagement? What actions were taken, including main
decisions?
Key areas of engagement with the Portfolio Manager on an ongoing basis are
portfolio composition, performance, outlook and business updates.
* The ongoing impact of the pandemic - The Board has received regular updates
upon their business and how components from the Portfolio Manager throughout the
in the portfolio dealt with the pandemic and its impact on investment decision
pandemic. making. In addition, the impact of new working
* Regular review of the make up of the practices adopted by the Portfolio Manager as
investment portfolio. a consequence of the pandemic have been
* The integration of ESG factors into reviewed by the Board.
the Portfolio Manager's investment - The Portfolio Manager reports on ESG
processes. issues at each Board meeting.
Key areas of engagement with Service
Providers
* The Directors have frequent engagement - No specific action required as the
with the Company's other service reviews of the Company's service providers,
providers through the annual cycle of have been positive and the Directors believe
reporting. This engagement is their continued appointment is in the best
completed with the aim of maintaining interests of the Company.
an effective working relationship and - The Board agreed to continue to
oversight of the services provided. monitor the position closely.
* The Board sought and received
assurances from all of the Company's
service providers that steps had been
taken to maintain the ongoing
efficiency of their operations while
ensuring the safety and well-being of
their employees.
Key areas of engagement with the broker
- The Board is cognisant that the * Throughout the year the Board closely
trading of the Company's shares at a monitored the Company's discount/premium
persistent and significant discount or to NAV per share and received regular
premium to the prevailing NAV per share is updates from the broker. 80,509 shares
not in the interests of shareholders. were bought back during the year, and a
further 223,842 shares were bought back
since the year-end to 25 May 2022.
1,227,500 new shares were issued during
the year, no shares issued following the
year-end to 25 May 2022. (Please see the
Chairman's Statement for further
information.)
INTEGRITY AND BUSINESS ETHICS
The Company is committed to carrying out business in an honest and fair manner
with a zero-tolerance approach to bribery, tax evasion and corruption. As such,
policies and procedures are in place to prevent this. In carrying out its
activities, the Company aims to conduct itself responsibly, ethically and
fairly, including in relation to social and human rights issues.
The Company believes that high standards of ESG make good business sense and
have the potential to protect and enhance investment returns. The Portfolio
Manager's investment criteria provide that ESG and ethical issues are taken
into account and best practice is encouraged by the Board. The Board's
expectations are that its principal service providers have appropriate
governance policies in place.
PERFORMANCE AND FUTURE DEVELOPMENTS
A review of the Company's year, its performance and the outlook for the Company
can be found in the Chairman's Statement and in the Portfolio Manager's Review.
The Company's overall strategy remains unchanged.
LOOKING TO THE FUTURE
The Board concentrates its attention on the Company's investment performance
and OrbiMed's investment approach and on factors that may have an effect on
this approach. Marketing reports are given to the Board at each board meeting
by the AIFM which include how the Company will be promoted and details of
planned communications with existing and potential shareholders. The Board is
regularly updated by the AIFM on wider investment trust industry issues and
discussions are held at each Board meeting concerning the Company's future
development and strategy.
A review of the Company's year, its performance since the year-end and the
outlook for the Company can be found in the Chairman's Statement and in the
Portfolio Manager's Review. It is expected that the Company's Strategy will
remain unchanged in the coming year.
ALTERNATIVE PERFORMANCE MEASURES
The Financial Statements 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 explained in greater
detail in the Strategic Report, under the heading 'Key Performance Indicators'.
By order of the Board
Frostrow Capital LLP
Company Secretary
26 May 2022
BOARD OF DIRECTORS
SIR MARTIN SMITH
Independent Non-Executive Chairman
Joined the Board in 2007 and became Chairman in 2008
Annual remuneration year-end 2022: £53,150pa
Committee Membership
Sir Martin attends the Audit & Risk Committee by invitation and is a member of
the Nominations and Management Engagement & Remuneration 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 almost
50 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 acting as Chairman Emeritus of GP Bullhound, the technology
investment banking firm. He is also a member of the Advisory Board of Cerno
Capital Partners LLP.
Sir Martin's pro-bono interests include being a founder of the Orchestra of the
Age of Enlightenment of which he is Life President, and he has served on the
boards of a number of other arts organisations including English National
Opera, the Glyndebourne Arts Trust and the Royal Academy of Music and the
Ashmolean Museum. He is a Trustee of ClientEarth. In 2008 Sir Martin with his
family were founding benefactors of the Smith School of Enterprise and the
Environment at Oxford University.
Standing for re-election: No
SARAH BATES
Independent Non-Executive Director
Joined the Board in 2013
Annual remuneration year-end 2022: £36,007pa
Committee Membership
Sarah is Chair of the Nominations Committee and is the Senior Independent
Director. Sarah is also a member of the Audit & Risk and Management Engagement
& Remuneration Committees.
Shareholding in the Company
7,200
Skills and Experience
Sarah is a past Chair of the Association of Investment Companies and has been
involved in the UK savings and investment industry in different roles for over
35 years.
Sarah is a fellow of CFA UK.
Other Appointments
Sarah is non-executive Chair of Polar Capital Technology Trust plc and a
non-executive Director of Alliance Trust PLC. Sarah is also Chair of The John
Lewis Partnership Pensions Trust of BBC Pension Investments Limited and of the
Universities Superannuation Fund Investment Management Limited. Sarah is a
member of the BBC Pension Scheme Investment Committee and is an Ambassador for
Chapter Zero and a mentor for Chairmen Mentors International.
Standing for re-election: Yes
SVEN BORHO
Non-Executive Director
Joined the Board in 2018
Annual remuneration year-end 2022: Nil
Committee Membership
Sven is not a member of any of the Company's Committees.
Shareholding in the Company
10,000
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.
Other Appointments
Sven is a Managing Partner of OrbiMed and does not have any other appointments.
Standing for re-election: Yes
HUMPHREY VAN DER KLUGT, FCA
Independent Non-Executive Director
Joined the Board in 2016
Annual remuneration year-end 2022: £41,133pa
Committee Membership
A Chartered Accountant, Humphrey is Chairman of the Audit & Risk Committee.
Humphrey is also a member of the Management Engagement & Remuneration and the
Nominations Committees.
Shareholding in the Company
3,000
Skills and Experience
Humphrey was formerly Chairman of Fidelity European Values PLC and a Director
of Murray Income Trust PLC, BlackRock Commodities Income Investment Trust plc
and J P Morgan Claverhouse 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.
Other Appointments
Humphrey is a non-executive Director of Allianz Technology Trust PLC.
Standing for re-election: Yes
DOUG MCCUTCHEON
Independent Non-Executive Director
Joined the Board in 2012
Annual remuneration year-end 2022: £33,573pa
Committee Membership
Doug is Chairman of the Management Engagement & Remuneration Committee. Doug is
also a member of the Audit & Risk and Nominations Committees.
Shareholding in the Company
20,000
Skills and Experience
Doug is the President of Longview Asset Management Ltd., an independent
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
Doug is a non-executive Director of Labrador Iron Ore Royalty Corporation
listed on the Toronto Stock Exchange.
Standing for re-election: Yes
DR BINA RAWAL
Independent Non-Executive Director
Joined the Board in 2019
Annual remuneration year-end 2021: £33,573pa
Committee Membership
Dr Rawal is a member of the Audit & Risk, Management Engagement & Remuneration
and Nominations Committees.
Shareholding in the Company
1,810
Skills and Experience
Dr Rawal, a physician scientist with 25 years' experience in Research and
Development, has held senior executive roles in drug development and scientific
evaluation in four global pharmaceutical companies. She has also worked in
senior roles with two medical research funding organisations: Wellcome Trust
and Cancer Research UK.
Other Appointments
Dr Rawal is a non-executive Director of the Central London Community Healthcare
NHS Trust and of Vann Limited. Dr Rawal is also a Trustee on the Board of the
Social Mobility Foundation.
Standing for re-election: Yes
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 2022.
SIGNIFICANT AGREEMENTS
Details of the services provided under these agreements are included in the
Strategic Report.
Alternative investment fund management agreement
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.
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
less any cumulative outperformance on which a performance fee has already been
paid.
The effect of this is that outperformance has to be maintained for a twelve
month period before it is paid.
Due to underperformance against the Benchmark during the year, a reversal of
prior period performance fee provisions totalling £18.9 million occurred (2021:
charge of £31.7 million).
As at 31 March 2022 no performance fees were accrued or payable (31 March 2021:
£31.7 million). Of the 31 March 2021 accrual £12.9 million was paid and became
payable as at 30 June 2021 and £18.9 million was reversed due to
underperformance, as noted above. The performance fee paid related to
outperformance generated as at 30 June 2020 that was maintained to 30 June
2021.
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 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).
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.
The Custodian and Prime Broker is a registered broker-dealer and is regulated
by the United States Securities and Exchange Commission.
RESULTS AND DIVIDS
The results attributable to shareholders for the year and the transfer to
reserves are shown in the financial statements . Details of the Company's
dividend record can be found in the Strategic Report.
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 2022, the latest practicable date before
publication of the Annual Report:
30 April 2022 31 March 2022
% of % of
issued issued
Shareholder Number of share Number of share
shares capital shares capital
Rathbone Brothers plc 5,962,688 9.1 5,956,447 9.1
Investec Wealth & Investment Limited 4,784,176 7.3 4,763,731 7.3
Interactive Investor 4,066,312 6.2 4,043,547 6.2
Hargreaves Lansdown plc 3,865,715 5.9 3,812,568 5.8
Forsyth Barr 3,370,420 5.2 3,303,660 5.1
Charles Stanley & Co Limited 2,900,353 4.5 2,889,422 4.4
Brewin Dolphin 2,421,278 3.7 2,430,556 3.7
Quilter Cheviot Investment Management 2,396,904 3.7 2,346,563 3.6
Craigs Investment Partners 2,083,678 3.2 2,067,121 3.2
Embark Investment Services 2,008,353 3.1 2,031,031 3.1
BlackRock 2,003,967 3.1 2,003,967 3.1
As at 31 March 2022 the Company had 65,457,246 shares in issue (excluding
80,509 shares held in treasury). As at 30 April 2022 there were 65,233,404
shares in issue (excluding 304,351 shares held in treasury).
DIRECTORS' & OFFICERS' LIABILITY INSURANCE COVER
Directors' & officers' liability insurance cover was maintained by the Company
during the year ended 31 March 2022 and to the date of this report. It is
intended that this policy will continue for the year ending 31 March 2023 and
subsequent years.
DIRECTORS' INDEMNITIES
During the year under review and to the date of this report, indemnities were
in force between the Company and each of its Directors under which the Company
has agreed to indemnify each Director, to the extent permitted by law, in
respect of certain liabilities incurred as a result of carrying out his or her
role as a Director of the Company. The Directors are also indemnified against
the costs of defending any criminal or civil proceedings or any claim by the
Company or a regulator as they are incurred provided that where the defence is
unsuccessful the Director must repay those defence costs to the Company. The
indemnities are qualifying third party indemnity provisions for the purposes of
the Companies Act 2006.
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. Please refer to the Chairman's
Statement for details of this year's Annual General Meeting arrangements.
CAPITAL STRUCTURE
The Company's capital structure is composed solely of ordinary shares.
During the year, a total of 1,227,500 new shares were issued at an average
premium of 0.8% to the prevailing cum income NAV per share. Also, 80,509 shares
were repurchased during the year at a discount of 8.4% to the prevailing cum
income NAV per share. These shares are held in treasury. Following the
year-end, to 25 May 2022, the latest practicable date prior to the publication
of this Annual Report, a further 223,842 shares were repurchased at a discount
of 7.0% to the cum income NAV per share. These shares are also held in
treasury. As of 25 May 2022 304,351 shares were held in treasury (2021: Nil).
Since the year end, to 25 May 2022, no new shares have been issued.
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.
POLITICAL AND CHARITABLE DONATIONS
The Company has not in the past and does not intend in the future to make
political or charitable donations.
MODERN SLAVERY ACT 2015
The Company does not provide goods or services in the normal course of
business, and as a financial investment vehicle does not have customers. The
Directors do not therefore consider that the Company is required to make a
statement under the Modern Slavery Act 2015 in relation to slavery or human
trafficking.
ANTI-BRIBERY AND CORRUPTION POLICY
The Board has adopted a zero tolerance approach to instances of bribery and
corruption. Accordingly it expressly prohibits any Director or associated
persons when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private in the UK or abroad to secure any improper benefit for themselves or
for the Company.
The Board ensures that its service providers apply the same standards in their
activities for the Company.
A copy of the Company's Anti Bribery and Corruption Policy can be found on its
website at www.worldwidewh.com. The policy is reviewed regularly by the Audit
Committee.
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 the
Companies Act 2006 (Strategic Reports and Directors' Reports) Regulations 2013
or the Companies (Directors' Report) and Limited Liability Partnerships (Energy
and Carbon Report) Regulations 2018, including those within the Company's
underlying investment portfolio. Consequently, the Company consumed less than
40,000 kWh of energy during the year in respect of which the Report of the
Directors is prepared and therefore is exempt from the disclosures required
under the Streamlined Energy and Carbon Reporting criteria.
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 is an annual
requirement. The Registrars, Link Group, have been engaged to collate such
information and file the reports with HMRC on behalf of the Company.
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 next be put to shareholders at the Annual General
Meeting to be held in 2024. The content of the Company's portfolio, trading
activity, the Company's cash balances and revenue forecasts, and the trends and
factors likely to affect the Company's performance are reviewed and discussed
at each Board meeting. The Board has considered a detailed assessment of the
Company's ability to meet its liabilities as they fall due, including stress
and liquidity tests which modelled the effects of substantial falls in markets
and significant reductions in market liquidity, on the Company's net asset
value, its cash flows and its expenses. Further information is provided in the
Audit & Risk Committee report.
Based on the information available to the Directors at the date of this report,
including the results of these stress tests, the conclusions drawn in the
Viability Statement, the Company's cash balances, and the liquidity of the
Company's listed investments, the Directors are satisfied that the Company has
adequate financial resources to continue in operation for at least the next 12
months and that, accordingly, it is appropriate to continue to adopt the going
concern basis in preparing the financial statements.
ARTICLES OF ASSOCIATION
Amendments of the Company's Articles of Association requires a special
resolution to be passed by shareholders.
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
26 May 2022
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and 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 unless it is
inappropriate that the Company will continue in business.
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 Directors are also responsible for ensuring that the Annual Report and the
Financial Statements are made available on a website. The Annual Report and the
Financial Statements are published on the Company's website at
www.worldwidewh.com and via Frostrow's website at 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.
DISCLOSURE OF INFORMATION TO THE AUDITORS
So far as the Directors are aware, there is no relevant information of which
the Auditors are unaware. The Directors have taken all steps they ought to have
taken to make themselves aware of any relevant audit information and to
establish that the Auditors are aware of such information.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL
REPORT
The Directors confirm to the best of their knowledge that:
* the Annual Report and the Financial Statements 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 2022;
* 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 Guidance and Transparency Rules; and
* the Annual Report and the 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
26 May 2022
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 Capital LLP.
THE BOARD
Chairman - Sir Martin Smith
Senior Independent Director - Sarah Bates
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.
Management Audit & Risk Nominations
Engagement & Committee Committee
Remuneration Chairman Chair
Committee Humphrey van der Sarah Bates
Chairman Klugt, FCA* All Independent
Doug McCutcheon All Independent Directors
All Independent Directors (excluding Key
Directors the Chairman, Sir responsibilities:
Key Martin Smith) - to review
responsibilities: Key regularly the
- to review responsibilities: Board's structure
regularly the - to review and composition;
contracts, the the Company's and
performance and financial reports; - to make
remuneration of the - to oversee recommendations
Company's principal the risk and control for any changes or
service providers; environment and new appointments.
and financial reporting;
- to set the and
Directors' - to review
Remuneration Policy the performance of
of the Company. the Company's
external Auditors.
* The Directors believe that Humphrey van der Klugt has the necessary recent
and relevant financial experience to Chair the Company's Audit & Risk
Committee.
Copies of the full terms of reference, which clearly define the
responsibilities of each Committee, can be obtained from the Company Secretary
and can be found at the Company's website at www.worldwidewh.com. Copies will
also be available for inspection on the day of the Annual General Meeting.
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 published in February
2019 ('AIC Code'). The AIC Code addresses all the principles set out in the UK
Corporate Governance Code (the 'UK Code'), as well as setting out additional
provisions on issues that are of specific relevance to the Company.
The Financial Reporting Council has confirmed that by following the AIC Code
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 Board considers that reporting in accordance with the principles and
recommendations of the AIC Code (which has been endorsed by the Financial
Reporting Council) provides more relevant and comprehensive information to
shareholders. By reporting against the AIC Code, the Company meets its
obligations under the UK Code (and associated disclosure requirements under
paragraph 9.8.6 of the Listing Rules) and as such does not need to report
further on issues contained in the UK Code which are irrelevant to the Company
as an externally-managed investment company, including the provisions relating
to the role of the chief executive, executive directors' remuneration and the
internal audit function.
The Company has complied with the principles and recommendations of the AIC
Code.
The AIC Code can be viewed at www.theaic.co.uk and the UK Code can be viewed on
the Financial Reporting Council website at www.frc.org.uk. The Corporate
Governance Report, forms part of the Report of the Directors.
BOARD LEADERSHIP AND PURPOSE
Purpose and strategy
The purpose and strategy of the Company are described in the Strategic Report.
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 (with the exception of
Sven Borho) been an employee of OrbiMed or any of the Company's service
providers.
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 retire at the AGM each year and, if
appropriate, seek election or 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.
BOARD CULTURE
The Board aims to consider and discuss differences of opinion, unique vantage
points and to exploit fully areas of expertise. The Chairman encourages open
debate to foster a supportive and co-operative approach for all participants.
Strategic decisions are discussed openly and constructively. The Board aims to
be open and transparent with shareholders and other stakeholders and for the
Company to conduct itself responsibly, ethically and fairly in its
relationships with service providers.
The Board has gained assurance on whistleblowing procedures at the Company's
principal service providers to ensure employees at those companies are
supported in speaking up and raising concerns. No concerns relating to the
Company were raised during the year.
Shareholder relations
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, stable list of shareholders and its
shares will trade at close to net asset value per share over the long run.
Frostrow actively promotes the Company.
Shareholder communications
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 supports the principle that the Annual General Meeting be used to
communicate with private investors, in particular. While the COVID-19 pandemic
has necessitated different arrangements for the past two years, shareholders
are usually encouraged to attend the Annual General Meeting, where they are
given the opportunity to question the Chairman, the Board and representatives
of the Portfolio Manager. In addition, the Portfolio Manager makes a
presentation to shareholders covering the investment performance and strategy
of the Company at the Annual General Meeting. Voting at the Annual General
Meeting is conducted on a poll and details of the proxy votes received in
respect of each resolution will be made available on the Company's website.
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 a Director
may do so by writing to them at the registered office of the Company.
Significant holdings and voting rights
Details of the shareholders with substantial interests in the Company's shares,
the Directors' authorities to issue and repurchase the Company's shares, and
the voting rights of the shares are set out in the Directors' Report.
BOARD 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 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.
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.
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.
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 in the Strategic Report, 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, are set out in the Strategic
Report.
The Corporate Governance Report includes a statement of compliance with
corporate governance codes and best practice, and the Business Review includes
details of the internal control and risk management framework within which the
Board operates.
BOARD COMPOSITION AND SUCCESSION
Succession planning
The Board regularly considers its structure and recognises the need for
progressive refreshment. (Please see the Chairman's Statement for further
information).
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; 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.
During the year, the Board reviewed the policy on Directors' tenure and
considered the overall length of service of the Board as a whole.
Policy on the tenure of the chairman and other non-executive directors
The tenure of each non-executive Director, including the Chairman, is not
ordinarily expected to exceed nine years. However, the Board has agreed that
the tenure of the Chairman may be extended for an agreed time provided such an
extension is conducive to the Board's overall orderly succession. The Board
believes that this more flexible approach to the tenure of the Chairman is
appropriate in the context of the regulatory rules that apply to investment
companies, which ensure that the chair remains independent after appointment,
while being consistent with the need for regular refreshment and diversity.
The Board is, however, continuing the process of refreshing its membership
which will mean that certain Directors will serve for longer than nine years to
ensure that the changes to be implemented are made in an orderly and structured
manner. Further details of this process can be found in the Chairman's
Statement.
The Board subscribes to the view that long serving Directors should not
necessarily be prevented from forming part of an independent majority. The
Board considers that a Director's tenure does not necessarily reduce his or her
ability to act independently and will continue to assess each Director's
independence annually, through a formal performance evaluation.
Appointments to the board
The Nominations Committee considers annually the skills possessed by the Board
and identifies any skill shortages to be filled by new Directors.
The rules governing the appointment and replacement of Directors are set out in
the Company's articles of association and the aforementioned succession
planning policy. Where the Board appoints a new Director during the year, that
Director will stand for election by shareholders at the next AGM. Subject to
there being no conflict of interest, all Directors are entitled to vote on
candidates for the appointment of new Directors and on the recommendation for
shareholders' approval for the Directors seeking re-election at the AGM. When
considering new appointments, the Board endeavours to ensure that it has the
capabilities required to be effective and oversee the Company's strategic
priorities. This will include an appropriate range, balance and diversity of
skills, experience and knowledge. The Company is committed to ensuring that any
vacancies arising are filled by the most qualified candidates.
Diversity policy
The Company supports the objectives of improving the performance of corporate
boards by encouraging the appointment of the best people from a range of
differing perspectives and backgrounds. The Company recognises the benefits of
diversity (of which gender is one aspect) on the Board and takes this into
account in its Board appointments. The Company is committed to ensuring that
its director search processes actively seek men and women with the right
qualifications so that appointments can be made, on the basis of merit, against
objective criteria from a diverse selection of candidates. The Board actively
considers diversity during director searches.
The Board is continuing with the process of refreshing its membership. Its
intention is for there to continue to be not less than one-third of its
membership as women and for there to be at least one Director from an ethnic
minority background.
MEETING ATTANCE
The number of meetings held during the year of the Board and its Committees,
and each Director's attendance level, is shown below:
Management
Engagement &
Audit & Risk Nominations Remuneration
Type and number of meetings held in 2021 Board Committee Committee Committee
/22
(4) (2) (1) (1)
Sir Martin Smith^ 4 - 1 1
Sarah Bates 4 2 1 1
Sven Borho* 4 - - -
Dr David Holbrook+ 1 1 - -
Humphrey van der Klugt 4 2 1 1
Doug McCutcheon 4 2 1 1
Dr Bina Rawal 4 2 1 1
^ Sir Martin Smith is not a member of the Audit & Risk Committee
* Sven Borho does not sit on any of the Company's Committees
+ Dr. Holbrook retired from the Board on 8 July 2021
All of the serving Directors attended the Annual General Meeting held on 8 July
2021.
BOARD EVALUATION
During the year the performance of the Board, its committees and individual
Directors (including each Director's independence) was evaluated through a
formal assessment led by the Senior Independent Director. The performance of
the Chairman was also evaluated by the Senior Independent Director. The review
concluded that the Board was working well. 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 2021 the next
such review will be held in 2024.
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
re-election (with the exception of Sir Martin Smith who will be retiring from
the Board at the conclusion of this year's AGM) at the forthcoming AGM for the
following reasons:
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 has been involved in the UK savings and investment
industry in different roles for over 35 years. Sarah is the Chair of the
Nominations Committee and the Senior Independent Director.
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.
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. Doug will become Chairman of the Company following the retirement of
Sir Martin Smith.
Dr Bina Rawal joined the Board on November 2019. A physician with 25 years'
experience in life sciences research and development, she has held senior
executive roles in drug development and scientific evaluation in four global
pharmaceutical companies. Bina will become chair of the Management Engagement &
Remuneration Committee when Doug McCutcheon becomes Chairman of the Company.
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.
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.
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 not identified any
significant failures or weaknesses in respect of the Company's internal control
systems.
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 Group, 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 considered 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 stock broker, 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 stock broker, bank or other agent through whom the
sale or transfer was effected, for onward transmission to the purchaser or
transferee.
The Company's Annual General Meeting will be held at etc.Venues, 1-3 Bonhill
Street, London EC2A 4BY on Wednesday, 6 July 2022 from 12.30 p.m. Please refer
to the Chairman's Statement for details of this year's arrangements.
Resolutions relating to the following items of special business will be
proposed at the forthcoming Annual General Meeting.
Resolution 11 Authority to allot shares
Resolution 12 Authority to disapply pre-emption rights
Resolution 13 Authority to sell shares held in Treasury on a non pre-emptive basis
Resolution 14 Authority to buy-back shares
Resolution 15 Authority to hold General Meetings (other than the Annual General
Meeting) on at least 14 clear days' notice
The full text of the resolutions can be found in the Notice of Annual General
Meeting.
EXERCISE OF VOTING POWERS
The Board and the AIFM have delegated authority to OrbiMed to vote the shares
owned by the Company. 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 Board has reviewed OrbiMed's
Voting Guidelines and is satisfied with their approach.
The Company does not retain voting rights on any shares that are held as
collateral in connection with the overdraft facility provided by J.P. Morgan
Securities LLC.
NOMINEE SHARE CODE
Where shares are held in a nominee company name, the Company undertakes:
* to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance; and
* to allow investors holding shares through a nominee company to attend
general meetings, provided the correct authority from the nominee company
is available.
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
26 May 2022
AUDIT & RISK COMMITTEE REPORT
INTRODUCTION FROM THE CHAIRMAN
I am pleased to present my formal report to shareholders as Chairman of the
Audit & Risk Committee, for the year ended 31 March 2022. During the year under
review, a decision was made to rename the Audit Committee as the Audit & Risk
Committee. The change was made because the Committee carries out a full and
thorough review of the risks associated with the Company and the Board agreed
that this should better be reflected in the name of the Committee.
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. The Committee met twice during the year. 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 it 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 & Risk 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 Committee's main responsibilities during the year were:
1. To review the Company's Half-Year and Annual Report. In particular, the
Committee considered and advised the Board on whether the Annual Report and
the Financial Statements, taken as a whole, 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 Committee's review
are included in the Principal Risks section..
3. To develop and implement a policy for the engagement of the external
Auditors and agreeing the scope of its work and its remuneration. Also, to
be responsible for the selection process of the external Auditors
(including the leadership of an audit tender process) and to have primary
responsibility for the Company's relationship with the external Auditors.
4. To review the effectiveness of the external audit and the process.
5. To review the independence and objectivity of the external Auditors.
6. To consider any non-audit work to be carried out by the Auditors. The
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.
7. 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 Committee has determined there is no requirement for such a function.
8. To assess the going concern and viability of the Company, including the
assumptions used.
9. To report its findings to the Board.
A comprehensive description of the Committee's role, its duties and
responsibilities, can be found in its terms of reference which are available
for review on the Company's website at www.worldwidewh.com.
SIGNIFICANT ISSUES CONSIDERED BY THE AUDIT & RISK 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 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 to the
Board that the Annual Report and the Financial Statements for the year ended 31
March 2022, 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.
Audit Regulation
While the Committee has not had to consider any new audit regulations in the
past year, there have been a number of initiatives to consider including with
regard to the roles, responsibilities and accountability of Directors, Audit
Committees, Auditors and the Regulator itself, with reports published by
Kingman, Brydon and the CMA. The Business Enterprise, Industry and Skills
(BEIS) Select Committee has also published a report containing its views on the
future of audit. The Committee will continue to keep a close review of
developments.
In addition to this, the Committee also reviews the outcomes of the FRC's
annual Audit Quality Reviews and discusses the findings with our Auditors.
SIGNIFICANT REPORTING MATTERS
Overall accuracy of the annual report
The 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 Committee.
Valuation and ownership of the company's investments and derivatives
The 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
ensure that the Company's assets are safeguarded 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.
Valuation of unquoted investments
The Company has the ability to make unquoted investments within its investment
portfolio, up to a limit of 10% of the portfolio at the time of acquisition.
Both the Company's Directors and the AIFM need to ensure that an appropriate
value is placed on such investments within the Company's net asset value. The
Committee has worked with the Company's Portfolio Manager and the AIFM to
establish clear guidelines for the valuation of unquoted investments, including
the use of valuations produced by independent external valuers, where
appropriate.
OTHER REPORTING MATTERS
COVID-19
The Committee continued to pay particular attention to the effects and
potential effects on the Company of the COVID-19 pandemic. The long-term effect
of the pandemic on the global economy is becoming clearer and the Committee
will continue to monitor the impact of COVID-19, which is also captured in the
Company's risk register.
In order to mitigate the business risks caused by the pandemic, the Committee
continues to review the operational resilience of its various service
providers, who have continued to demonstrate their ability to provide services
to the expected level, whilst doing so remotely.
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.
Investment trust status
The Committee approached and dealt with ensuring compliance with Section 1158
of the Corporation Tax Act 2010, by seeking confirmation from Frostrow 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.
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's review of the Company's
financial position included consideration of the cash and cash equivalent
position of the Company; the diversification of the portfolio; and the analysis
of portfolio liquidity, which estimated a liquidation of c.92% of the portfolio
within 10 trading days (based on current market volumes).
Viability statement
The Committee also considered the longer-term viability of the Company in
connection with the Board's statement in the Strategic Report. The Committee
reviewed the Company's financial position (including its cash flows and
liquidity position), the principal risks and uncertainties, the expectation
that the Company will pass the next continuation vote in 2024, and the results
of stress tests and scenarios which considered the impact of severe stock
market volatility on shareholders' funds. This included modelling substantial
market falls, and significantly reduced market liquidity. The scenarios assumed
that there would be no recovery in asset prices and that listed portfolio
companies which have cut or cancelled any dividends due since the coronavirus
outbreak would not reinstate them.
The results demonstrated the impact on the Company's NAV, its expenses, its
cash flows and its ability to meet its liabilities. In even the most stressed
scenario, the Company was shown to have sufficient cash, or to be able to
liquidate a sufficient portion of its listed holdings, in order to be able to
meet its liabilities as they fall due. Based on the information available to
the Directors at the time, the Committee therefore concluded it was reasonable
for the Board to expect that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five financial years.
The Committee expects that the Company will continue to exist for the
foreseeable future and at least for the period of the assessment.
INTERNAL CONTROLS AND RISK MANAGEMENT
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 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.
Principal service providers
In addition to reviewing the systems of internal control in place at the
Company's principal service providers, the Committee also reviewed the cyber
security strategies adopted by them.
Half year report and financial statements
The Committee reviewed the Half Year Report and Financial Statements, which are
not audited or reviewed by the external Auditors, to ensure that the accounting
policies used in the Annual Financial Statements were also used at the
half-year stage and that they portrayed a fair balanced and understandable
picture of the period in question.
INTERNAL AUDIT
The Committee considered whether there was a need for the Company to have an
internal audit function. As the Company delegates its day-to-day operations to
third parties and has no employees, the Committee concluded that there was no
such need.
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 3
November 2021. I, as Chairman of the Committee, had a separate meeting with
them specifically to discuss the audit and any issues that arose. The Committee
then met PricewaterhouseCoopers LLP on 23 May 2022 via video conference 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.
REMUNERATION
The Committee approved a fee of £46,725 for the audit for the year ended 31
March 2022 (2021: £44,500). While this represents an increase on the previous
year's fee, the Committee believes that the fee is in line with general audit
fees payable for the quoted investment trust sector and is reflective of the
level of work required to audit a listed company.
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 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. The Committee will monitor the need for non-audit work to be
performed by the Auditors, if any, in accordance with the Company's non-audit
services policy. A copy of the Company's non-audit services policy can be found
on the Company's website at www.worldwidewh.com
Non-audit fees of £5,000 (2021: nil) 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 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.
As a public company listed on the London Stock Exchange, the Company is subject
to mandatory auditor rotation requirements. The Company will put the external
audit out to tender at least every 10 years, and change auditor at least every
20 years. The Committee will, however, continue to consider annually the need
to go to tender for audit quality, remuneration or independence reasons. Unless
any such grounds for change arise in the interim, it is expected that the next
audit tender will take place in the autumn of 2023, in order that the
successful candidate's appointment or re-appointment can be approved by
shareholders at the AGM to be held in 2024. A range of audit firms will be
considered not just those who are considered to be part of the "Big Four" group
of audit firms. The Committee will be mindful of any potential conflicts of
interest. Any firms providing services to the Company within a two-year period
of the date of the audit tender will be unable to participate.
The Committee has adopted formal audit tender guidelines to govern the audit
tender process.
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 AGM.
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.
PERFORMANCE EVALUATION
The Committee's performance over the past year was reviewed and discussed as
part of the annual Board evaluation. The evaluation considered the composition
of the Committee and the efficacy of Committee meetings, as well as assessing
the Committee's role in monitoring and overseeing the Company's financial
reporting and accounting, risk management and internal controls, compliance
with corporate governance regulations and also the assessment of the external
audit.
This year, an internal evaluation was completed and I am pleased to confirm
that the evaluation result was positive and no matters of concern or
requirements for change were highlighted.
AUDIT & RISK COMMITTEE CONFIRMATION
The Audit & Risk 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
27 May 2022. This procedure is regularly reviewed by the Board; and
b. It is responsible (on behalf of the Board) for the Company's system of
internal controls and for reviewing its effectiveness and that it is
designed to manage the risk of failure to achieve business objectives. This
can only provide reasonable not absolute assurance against material
misstatement or loss.
Humphrey van der Klugt, FCA
Chairman of the Audit & Risk Committee
26 May 2022
DIRECTORS' REMUNERATION REPORT
INTRODUCTION FROM THE CHAIR
This report has been prepared in accordance with Schedule 8 of the Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulation
2013, 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 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.
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 8 July 2021, and was passed with 99.9% 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 £
350,000 in aggregate per annum. The amount paid in aggregate to the Directors
in 2022 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 2020, and was passed with
99.8% 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 July 2020, shareholder approval will
again be sought at the Annual General Meeting to be held in 2023.
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 by the Management Engagement & Remuneration Committee it was
agreed that the Directors' fees would not be increased with effect from 1 April
2022.
All of the Directors, as at the date of this report, 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.
Year Ending Year Ended
31 March 2023 31 March 2022
Fee Level 2023 % Fee Level 2022 %
Director (per annum) Change (per annum) Change
Chairman £53,150 - £53,150 4.0
Audit & Risk Committee Chair £41,133 - £41,133 4.0
Senior Independent Director £35,389 - £35,389 4.0
Director £33,573 - £33,573 4.0
Sums paid to third parties
None of the fees referred to in the below table were paid to any third party in
respect of the services provided by any of the Directors.
Directors' emoluments for the year (audited)
Taxable Taxable
Date of Fixed Expenses Fixed Expenses
fees fees
Appointment (£) (£)? Total (£) (£) (£)? Total (£)
to the Board 2022 2022 2022 2021 2021 2021
Sir Martin Smith 8 November 53,150 865 54,015 51,106 - 51,106
2007
Humphrey Van Der 15 February 41,133 - 41,133 39,551 - 39,551
Klugt 2016
Sarah Bates# 22 May 2013 35,389 - 35,389 32,282 - 32,282
Dr David Holbrook^ 8 November 9,833 - 9,833 34,622 - 34,622
2007
Doug McCutcheon 7 November 33,573 - 33,573 32,282 - 32,282
2012
Sven Borho* 7 June 2018 - - - - - -
Dr Bina Rawal 1 November 33,573 - 33,573 32,282 - 32,282
2019
Total 206,651 865 207,516 222,125 - 222,125
* 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.
* Mr Borho has waived his Director's fee.
^ Dr Holbrook retired from the Board on 8 July 2021.
# Sarah Bates was appointed as the Senior Independent Director with
effect from 8 July 2021.
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.
Directors' interests in the company's shares (audited)
Ordinary
Shares of 25p each
31 March 31 March
2022 2021
Sir Martin Smith 11,871 11,871
- Trustee 2,725 2,725
Sarah Bates 7,200 7,200
Dr David Holbrook* - 1,094
Sven Borho 10,000 10,000
Humphrey van der Klugt 3,000 3,000
Doug McCutcheon 20,000 15,000
Dr Bina Rawal 1,810 1,000
56,606 51,890
* Dr Holbrook retired from the Board on 8 July 2021.
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 2022
Relative cost of directors' remuneration
The bar chart below shows the comparative cost of Directors' fees compared with
the level of dividend distribution and ongoing charges for 2021 and 2022.
Annual statement
On behalf of the Board, I confirm that the Directors' Remuneration Policy, and
Directors' Remuneration Report summarise, as applicable, for the year to 31
March 2022:
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
Chair of the Management Engagement & Remuneration Committee
26 May 2022
INDEPENT 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 2022 and of its loss and cash flows 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 2022; the
Income Statement, the Statement of Changes in Equity and the Statement of Cash
Flows 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 & Risk 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.
Other than those disclosed in the Audit & Risk Committee Report, we have
provided no non-audit services to the Company in the period under audit.
OUR AUDIT APPROACH
Overview
Audit scope
* The Company is a standalone Investment Trust Company and engages Frostrow
Capital LLP (the "AIFM") to manage its assets.
* We conducted our audit of the financial statements using information from
the AIFM and J.P. Morgan Europe Limited with whom the AIFM have 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.
Key audit matters
* Income from Investments
* Valuation and existence of investments
Materiality
* Overall materiality: £22,682,000 (2021: £23,600,000) based on approximately
1% of net assets.
* Performance materiality: £17,011,000 (2021: £17,700,000).
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 planning our audit, we made enquiries of management to understand the extent
of the potential impact of climate change risk on the Company's financial
statements.
The Directors and the AIFM concluded that there was no material impact on the
financial statements. Our
evaluation of this included assessing how the Directors had incorporated
climate risk factors into the key area of judgement and estimation in the
financial statements, being in relation to the process of valuation of unlisted
investments. We also considered the consistency of the climate change
disclosures included in the Strategic Report with the financial statements and
our knowledge from our audit.
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.
Consideration of the impacts of COVID-19 and calculation of the performance fee
accrual, which were key audit matters last year, are no longer included because
of the reduced uncertainty of the impact of COVID-19 and the absence of a
performance fee in the current year. Otherwise, the key audit matters below are
consistent with last year.
KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Income from investments
Refer to the Audit & Risk We assessed the accounting policy for income recognition
Committee Report), the for compliance with accounting standards and the AIC SORP
Principal Accounting and performed testing to confirm that income had been
Policies and the Notes to accounted for in accordance with this stated accounting
the Financial Statements). policy.
ISAs (UK) presume there is a We found that the accounting policies implemented were in
risk of fraud in income accordance with accounting standards and the AIC SORP, and
recognition because of the that income has been accounted for in accordance with the
pressure management may feel stated accounting policy.
to achieve a certain We understood and assessed the design and implementation of
objective. In this instance, key controls surrounding income recognition.
we consider that 'income' The gains/losses on investments held at fair value comprise
refers to all the Company's realised and unrealised gains/losses. For unrealised gains
income streams, both revenue and losses, we sample tested the valuation of the portfolio
and capital (including gains at the year-end (see below), together with testing the
and losses on investments). reconciliation of opening and closing investments. For
As the Company has a capital realised gains/losses, we tested a sample of disposal
objective, there might be an proceeds by agreeing the proceeds to bank statements and we
incentive to overstate re-performed the calculation of a sample of realised gains/
income in that category if losses.
capital is particularly In addition, we tested a sample of dividend receipts by
underperforming. As such, we agreeing the dividend rates from all investments to
focussed this risk on the independent third party sources.
existence/occurrence of To test for completeness, we tested that the appropriate
gains/losses on investments dividends had been received in the year by reference to
and completeness of dividend independent data of dividends declared for all listed
income recognition and its investments during the year. Our testing did not identify
presentation in the Income any unrecorded dividends.
Statement as set out in the We tested the allocation and presentation of dividend
requirements of The income between the revenue and capital return columns of
Association of Investment the Income Statement in line with the requirements set out
Companies' Statement of in the AIC SORP. We did not find any special dividends that
Recommended Practice (the were not treated in accordance with the AIC SORP.
"AIC SORP"). No material misstatements were identified from this
testing.
Valuation and existence of
investments
Refer to the Audit & Risk We tested the valuation of all listed investments by
Committee Report), the agreeing the prices used in the valuation to independent
Accounting Policies) and the third party sources.
Notes to the Financial We tested the existence of all listed investments by
Statements). agreeing the holdings of each investment to an independent
The investment portfolio at confirmation from the Custodian and Prime Broker, J.P.
31 March 2022 principally Morgan Securities LLC, as at 31 March 2022.
comprised listed equity For unquoted investments we understood and evaluated the
investments and unquoted valuation methodology applied, by reference to the
debt and equity investments International Private Equity and Venture Capital Valuation
totalled £2,379,848,000. guidelines (IPEV), and tested the techniques used by the
We focused on the valuation Directors in determining the fair value of unquoted
and existence of investments investments. Our testing, performed on a sample basis,
because investments included:
represent the principal We found that the Directors' valuations of unquoted
element of the net asset investments were materially consistent with the IPEV
value as disclosed in the guidelines and that the assumptions used to derive the
Statement of Financial valuations within the financial statements were reasonable
Position in the financial based on the investee's circumstances or consistent with
statements. appropriate third party sources. No material misstatements
were identified from this testing.
We tested the existence of the unquoted investment
portfolio by agreeing a sample of the holdings to
independently obtained third party confirmations as at 31
March 2022. No variances were identified from this testing.
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.
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.
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 Company £22,682,000 (2021: £23,600,000).
materiality
How we determined it approximately 1% of net assets
Rationale for benchmark We have applied this benchmark, a generally accepted
applied auditing practice for investment trust audits, in the
absence of indicators that an alternative benchmark
would be appropriate and because we believe this
provides an appropriate and consistent year- on-year
basis for our audit.
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2021: 75%) of
overall materiality, amounting to £17,011,000 (2021: £17,700,000) for the
Company financial statements.
In determining the performance materiality, we considered a number of factors -
the history of misstatements, risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the Audit & Risk Committee that we would report to them
misstatements identified during our audit above £1,134,000 (2021: £1,180,000)
as well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the Directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting included:
* evaluating the Directors' updated risk assessment and considering whether
it addressed relevant threats, including the ongoing impact of Covid-19 and
the heightened economic uncertainty as a result of recent global events;
* evaluating the Directors' assessment of potential operational impacts,
considering their consistency with other available information and our
understanding of the business and assessed the potential impact on the
financial statements;
* reviewing the Directors' assessment of the Company's financial position in
the context of its ability to meet future expected operating expenses and
debt repayments, their assessment of liquidity as well as their review of
the operational resilience of the Company and oversight of key third-party
service providers; and
* assessing the implications of reductions in NAV as a result of market
performance on the ongoing ability of the Company to operate.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors' use
of the going concern basis of accounting in the preparation of the financial
statements is appropriate.
However, because not all future events or conditions can be predicted, this
conclusion is not a guarantee as to the Company's ability to continue as a
going concern.
In relation to the directors' reporting on how they have applied the UK
Corporate Governance Code, we have nothing material to add or draw attention to
in relation to the directors' statement in the financial statements about
whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this 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 the Report of the Directors, we also
considered whether the disclosures required by the UK Companies Act 2006 have
been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006
requires us also to report certain opinions and matters as described below.
Strategic report and the 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 the Report of the Directors for
the year ended 31 March 2022 is consistent with the financial statements and
has been prepared in accordance with applicable legal requirements.
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 the Report of the Directors.
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.
Corporate governance statement
The Listing Rules require us to review the directors' statements in relation to
going concern, longer-term viability and that part of the corporate governance
statement relating to the Company's compliance with the provisions of the UK
Corporate Governance Code specified for our review. Our additional
responsibilities with respect to the corporate governance statement as other
information are described in the Reporting on other information section of this
report.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the corporate governance statement is materially
consistent with the financial statements and our knowledge obtained during the
audit, and we have nothing material to add or draw attention to in relation to:
* The Directors' confirmation that they have carried out a robust assessment
of the emerging and principal risks;
* The disclosures in the Annual Report that describe those principal risks,
what procedures are in place to identify emerging risks and an explanation
of how these are being managed or mitigated;
* The Directors' statement in the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in
preparing them, and their identification of any material uncertainties to
the Company's ability to continue to do so over a period of at least twelve
months from the date of approval of the financial statements;
* The Directors' explanation as to their assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate; and
* The Directors' 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 its assessment, including
any related disclosures drawing attention to any necessary qualifications
or assumptions.
Our review of the Directors' statement regarding the longer-term viability of
the group was substantially less in scope than an audit and only consisted of
making inquiries and considering the Directors' process supporting their
statement; checking that the statement is in alignment with the relevant
provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and
understanding of the Company and its environment obtained in the course of the
audit.
In addition, based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our
knowledge obtained during the audit:
* The Directors' statement that they consider the Annual Report, taken as a
whole, is fair, balanced and understandable, and provides the information
necessary for the members to assess the Company's position, performance,
business model and strategy;
* The section of the Annual Report that describes the review of effectiveness
of risk management and internal control systems; and
* The section of the Annual Report describing the work of the Audit & Risk
Committee.
We have nothing to report in respect of our responsibility to report when 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.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities, 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.
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.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities, including
fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
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 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 financial statements such as the Companies act 2006. 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 (investment income and capital gains) or to
increase net asset value, and management bias in accounting estimates. Audit
procedures performed by the engagement team included:
* discussions with the AIFM and the Audit & Risk Committee, including
consideration of known or suspected instances of non-compliance with laws
and regulation and fraud;
* reviewing relevant meeting minutes, including those of the Audit & Risk
Committee;
* assessment of the Company's compliance with the requirements of section
1158 of the Corporation Tax Act 2010, including recalculation of numerical
aspects of the eligibility conditions;
* challenging assumptions and judgements made by management in their
significant accounting estimates, in particular in relation to the
valuation of unquoted investments (see related key audit matter above);
* identifying and testing journal entries, in particular any material or
revenue-impacting manual journal entries posted as part of the Annual
Report preparation process; and
* designing audit procedures to incorporate unpredictability around the
nature, timing or extent of our testing.
There are inherent limitations in the audit procedures described above. We are
less likely to become aware of instances of non-compliance with laws and
regulations that are not closely related to events and transactions reflected
in the financial statements. 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.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques. However, it
typically involves selecting a limited number of items for testing, rather than
testing complete populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other cases, we will
use audit sampling to enable us to draw a conclusion about the population from
which the sample is selected.
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 obtained 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 & Risk 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 8 years, covering the years ended 31 March 2015 to
31 March 2022.
Allan McGrath (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
26 May 2022
INCOME STATEMENT
FOR THE YEARED 31 MARCH 2022
2022 2021
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on 9 - (152,475) (152,475) - 517,267 517,267
investments
Exchange losses on - (6,342) (6,342) - (6,076) (6,076)
currency balances
Income from investments 2 23,471 - 23,471 19,247 - 19,247
AIFM, portfolio 3 (938) 1,061 123 (853) (47,963) (48,816)
management and
performance fees
Other expenses 4 (1,305) (529) (1,834) (1,338) (155) (1,493)
Net return/(loss) before 21,228 (158,285) (137,057) 17,056 463,073 480,129
finance charges and
taxation
Finance costs 5 (40) (761) (801) (20) (379) (399)
Net return/(loss) before 21,188 (159,046) (137,858) 17,036 462,694 479,730
taxation
Taxation on net return 6 (3,668) - (3,668) (2,712) - (2,712)
Net return/(loss) after 17,520 (159,046) (141,526) 14,324 462,694 477,018
taxation
Return/(loss) per share 7 26.8p (243.5) (216.7) 24.1p 777.8p 801.9p
The "Total" column of this statement is the Income Statement of the Company.
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by The Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those shown above and
therefore no separate Statement of Total Comprehensive Income has been
presented.
The accompanying notes are an integral part of these statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2022
Capital Share Total
Share redemption premium Capital Revenue shareholders'
capital reserve account reserve reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2021 16,078 8,221 796,357 1,542,628 18,141 2,381,425
Net (loss)/return after - - - (159,046) 17,520 (141,526)
taxation
Final dividend paid in - - - - (10,085) (10,085)
respect of year ended 31
March 2021
Interim dividend paid in - - - - (4,586) (4,586)
respect of year ended 31
March 2022
New shares issued 307 - 45,242 - - 45,549
Shares purchased for - - - (2,544) - (2,544)
treasury
At 31 March 2022 16,385 8,221 841,599 1,381,038 20,990 2,268,233
FOR THE YEARED 31 MARCH 2021
Capital Share Total
Share redemption premium Capital Revenue shareholders'
capital reserve account reserve reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2020 13,406 8,221 418,441 1,079,934 18,296 1,538,298
Net return after taxation - - - 462,694 14,324 477,018
Second interim dividend paid - - - - (10,512) (10,512)
in respect of year ended 31
March 2020
Interim dividend paid in - - - - (3,967) (3,967)
respect of year ended 31
March 2021
New shares issued 2,672 - 377,916 - - 380,588
At 31 March 2021 16,078 8,221 796,357 1,542,628 18,141 2,381,425
STATEMENT OF FINANCIAL POSITION
As at 31 March 2022
2022 2021
Notes £'000 £'000
Fixed assets
Investments 9 2,379,848 2,416,038
Derivative - OTC swaps 9 & 10 283 18,864
2,380,131 2,434,902
Current assets
Debtors 11 14,724 18,172
Cash 26,594 29,595
41,318 47,767
Current liabilities
Creditors: amounts falling due within one year 12 (147,804) (92,932)
Derivative - OTC swaps 9 & 10 (5,412) (8,312)
(153,216) (101,244)
Net current liabilities (111,898) (53,477)
Total net assets 2,268,233 2,381,425
Capital and reserves
Share capital 13 16,385 16,078
Capital redemption reserve 8,221 8,221
Share premium account 841,599 796,357
Capital reserve 17 1,381,038 1,542,628
Revenue reserve 20,990 18,141
Total shareholders' funds 2,268,233 2,381,425
Net asset value per share 14 3,465.2p 3,703.0p
The financial statements were approved by the Board of Directors and authorised
for issue on 26 May 2022 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)
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 MARCH 2022
2022 2021
Notes £'000 £'000
Net cash (outflow)/inflow from operating activities 18 (13,329) 931
Purchases of investments and derivatives (1,330,279) (1,709,998)
Sales of investments and derivatives 1,253,138 1,481,508
Realised (loss)/gain on foreign exchange transactions (5,541) 3,205
Net cash outflow from investing activities (82,682) (225,285)
Issue of shares 13 48,126 378,728
Shares repurchased 13 (2,544) -
Equity dividends paid (14,671) (14,479)
Interest paid (801) (399)
Net cash inflow from financing activities 30,110 363,850
(Increase)/decrease in net debt (65,901) 139,496
Cash flows from operating activities include interest received of £968,000
(2021: £1,265,000) and dividends received of £23,853,000 (2021: £18,907,000).
RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET DEBT
2022 2021
£'000 £'000
(Increase)/decrease in net debt resulting from cashflows (65,901) 139,496
Losses on foreign currency cash and cash equivalents (801) (9,281)
Movement in net debt in the year (66,702) 130,215
Net debt at 1 April (20,301) (150,516)
Net debt at 31 March (87,003) (20,301)
Net debt includes the bank overdraft of £113,597,000 (2021: £49,896,000) (see
note 12) and cash as per the balance sheet of £26,594,000 (2021: £29,595,000).
The accompanying notes are an integral part of this statement.
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'), published in February 2021, 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. The Board has considered a detailed
assessment of the Company's ability to meet its liabilities as they fall due,
including stress and liquidity tests which modelled the effects of substantial
falls in markets and significant reductions in market liquidity (including
further stressing the current economic conditions caused by the coronavirus
pandemic) on the Company's financial position and cash flows. Further
information on the assumptions used in the stress scenarios is provided in the
Audit & Risk Committee report. The results of the tests showed that the Company
would have sufficient cash, or the ability to liquidate a sufficient proportion
of its listed holdings, to meet its liabilities as they fall due. Based on the
information available to the Directors at the time of this report, including
the results of the stress tests, the Company's cash balances, and the liquidity
of the Company's listed investments, the Directors are satisfied that the
Company has adequate financial resources to continue in operation for at least
the next 12 months from the date of approval of these financial statements and
that, accordingly, it is appropriate to adopt the going concern basis in
preparing these financial statements.
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.
In the course of preparing the financial statements, the only key source of
estimation uncertainty in the process of applying the Company's accounting
policies, is in relation to the valuation of the unquoted (Level 3)
investments. The nature of estimation means that the actual outcomes could
differ from those estimates, possibly significantly. The estimates relate to
the investments where there is no appropriate market price i.e. the private
investments. Whilst the board considers the methodologies and assumptions
adopted in the valuation are supportable, reasonable and robust, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the investment existed. As at 31 March 2022, there is no single key assumption
used in the valuation of the unquoted investments, or other key source of
estimation uncertainty, that, in the Directors' opinion has a significant risk
of causing a material adjustment to the carrying values of assets and
liabilities within the next financial year.
Unquoted investments are all valued in line with the accounting policy set out
below.
(B) Investments
Investments are measured under FRS 102 and are measured initially, and at
subsequent reporting dates, at fair value. Investments 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 and apply these consistently.
The following principles used in determining the valuation of unquoted
investments, are consistent with the International Private Equity and Venture
Capital Valuation ("IPEV") Guidelines. The assumptions and estimates made in
determining the fair value of each unquoted investment are considered at least
each six months or sooner if there is a triggering event. An example of where a
valuation would be considered out of the six-month cycle is the success or
failure of a drug under development to meet an anticipated outcome of its
trial, announcement of the company undergoing an initial public offering, or
other performance against tangible development milestones.
The primary valuation method applied in the valuation of the unquoted
investments is the probability-weighted expected return method (PWERM), which
considers on a probability weighted basis the future outcomes for the
investment. When using the PWERM method significant judgements are made in
estimating the various inputs into the model and recognising the sensitivity of
such estimates. Examples of the factors where significant judgement is made
include, but are not limited to, the probability assigned to potential future
outcomes; discount rates; and, the likely exit scenarios for the investor
company, for example, IPO or trade sale.
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 or Current Liabilities.
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, with the withholding tax recognised in the
taxation charge.
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 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 when it is probable 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 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.
(J) Capital reserve
The following are transferred to this reserve:
* gains and losses on the disposal of investments;
* exchange differences of a capital nature, including the effects of changes
in exchange rates on foreign currency borrowings;
* expenses, together with the related taxation effect, in accordance with the
above policies; and
* changes in the fair value of investments and derivatives.
This reserve can be used to distribute realised capital profits by way of
dividend or share buy backs. Any gains in the fair value of investments that
are not readily convertible to cash are treated as unrealised gains in the
capital reserve. Distributions are only payable out of the capital reserve if
capital reserves are greater than the proposed distribution and positive on the
date of distribution.
(K) Revenue reserve
The revenue reserve is distributable by way of dividend. Dividends are only
payable out of the revenue reserve if revenue reserves are greater than the
proposed dividend and positive on the date of distribution.
(L) Dividend payments
Dividends paid by the Company on its shares are recognised in the financial
statements in the year in which they become payable and are shown in the
Statement of Changes in Equity.
(M) Cash and cash equivalents
Cash comprises cash at bank and cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash and are
subject to an insignificant risk of changes in value.
Bank overdrafts are considered as a component of cash and cash equivalents as
they are repayable on demand and form an integral part of the Company's cash
management.
2. INCOME FROM INVESTMENTS
2022 2021
£'000 £'000
Income from investments
Overseas dividends 19,678 16,730
Fixed interest income 772 999
UK dividends 2,825 1,449
23,275 19,178
Other income
Derivatives 151 -
Deposit interest 45 24
Income from liquidity stocks - 45
Total income from investments 23,471 19,247
Total income comprises:
Dividends 22,503 18,179
Interest 968 1,068
23,471 19,247
3. AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
AIFM fee 160 3,046 3,206 152 2,892 3,044
Portfolio management fee 778 14,781 15,559 701 13,323 14,024
Performance fee (reversal)/charge - (18,888) (18,888) - 31,748 31,748
*
938 (1,061) (123) 853 47,963 48,816
* During the year ended 31 March 2022, due to underperformance against
the Benchmark, a reversal of prior period performance fee provisions totalling
£18,888,000 occurred (2021: charge of £31,748,000).
Further details on the above fees are set out in the Strategic Report and the
Report of the Directors.
4. OTHER EXPENSES
2022 2021
£'000 £'000
Directors' remuneration 207 222
Employer's NIC on Directors' remuneration 20 20
Auditors' remuneration for the audit of the Company's financial 47 49
statements
Auditors' remuneration for non-audit services 5 -
Depositary and custody fees 213 177
Listing fees* 77 461
Registrar fees 63 48
Legal and professional costs 255 78
Broker fees 117 30
Other costs 301 253
1,305 1,338
Professional fees (Capital)^ 529 155
1,834 1,493
Details of the amounts paid to Directors are included in the Directors'
Remuneration Report.
* 2021 includes £405,000 in respect of London Stock Exchange block
listing fees required as a result of the issuance of new shares by the Company
during the year.
^ Professional fees in respect of acquisition of unquoted investments.
These fees do not form part of the ongoing charge ratio. See Glossary.
5. FINANCE COSTS
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Finance costs 40 761 801 20 379 399
6. TAXATION ON NET RETURN
(A) Analysis of charge in year
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Corporation tax at 19% (2020: - - - - - -
19%)
Overseas taxation 3,668 - 3,668 2,712 - 2,712
3,668 - 3,668 2,712 - 2,712
(B) Factors affecting the 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 (2021: lower) than the standard rate of
corporation tax of 19% (2021: 19%).
The difference is explained below.
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return before taxation 21,188 (159,046) (137,858) 17,036 462,694 479,730
Corporation tax at 19% (2021: 4,026 (30,219) (26,193) 3,237 87,912 91,149
19%)
Non-taxable gains on investments - 30,175 30,175 - (97,126) (97,126)
Overseas withholding taxation 3,668 - 3,668 2,712 - 2,712
Non taxable dividends (4,276) - (4,276) (3,468) - (3,468)
Excess management expenses 250 44 294 231 9,214 9,445
Total tax charge 3,668 - 3,668 2,712 - 2,712
(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 £45,055,000 (25% tax
rate) (2021: £33,851,000 (19% 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.
7. RETURN PER SHARE
2022 2021
£'000 £'000
The return per share is based on the following figures:
Revenue return 17,520 14,324
Capital (loss)/return (159,046) 462,694
(141,526) 477,018
Weighted average number of ordinary shares in issue during the year 65,307,132 59,487,545
Revenue return per ordinary share 26.8p 24.1p
Capital (loss)/return per ordinary share (243.5p) 777.8p
(216.7p) 801.9p
The calculation of the total, revenue and capital (loss)/return per ordinary
share is carried out in accordance with IAS 33, "Earnings per Share", in
accordance with the requirements of FRS 102.
8. DIVIDS
Under UK Company Law, 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:
2022 2021
£'000 £'000
Second interim dividend in respect of the year ended 31 March 2020 - 10,512
Interim dividend in respect of the year ended 31 March 2021 - 3,967
Final dividend in respect of the year ended 31 March 2021 10,085 -
Interim dividend in respect of the year ended 31 March 2022 4,586 -
14,671 14,479
In respect of the year ended 31 March 2022, an interim dividend of 7.0p per
share was paid on 11 January 2022. A final dividend of 19.5p will be payable,
subject to shareholder approval, on 13 July 2022, the associated ex dividend
date will be 1 June 2022. The total dividends payable in respect of the year
ended 31 March 2022 amount to 26.5p per share (2021: 22.0p per share). The
aggregate cost of the final dividend, based on the number of shares in issue at
25 May 2022, will be £12,721,000. In accordance with FRS 102 dividends will be
reflected in the financial statements for the year in which they become
payable. 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.
2022 2021
£'000 £'000
Revenue available for distribution by way of dividend for the year 17,520 14,324
Interim dividend in respect of the year ended 31 March 2022 (4,586) -
Final dividend in respect of the year ended 31 March 2022* (12,721) -
Interim dividend in respect of the year ended 31 March 2021 - (3,967)
Final dividend in respect of the year ended 31 March 2021 - (10,085)
Net retained revenue 213 272
* based on 65,233,404 shares in issue as at 25 May 2022.
9. INVESTMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
Derivative
Financial
Quoted Unquoted Instruments
-
Investments Investments Net Total
£'000 £'000 £'000 £'000
Cost at 1 April 2021 1,887,379 126,577 - 2,013,956
Investment holdings gains at 1 April 2021 388,030 14,052 10,552 412,634
Valuation at 1 April 2021 2,275,409 140,629 10,552 2,426,590
Movement in the year:
Purchases at cost 1,284,504 69,066 - 1,353,570
Sales - proceeds (1,243,999) (15,622) 6,304 (1,253,317)
Transfer between levels* 44,424 (44,424) - -
Net movement in investment holding gains (152,963) 22,824 (21,985) (152,124)
Valuation at 31 March 2022 2,207,375 172,473 (5,129) 2,374,719
Cost at 31 March 2022 1,952,701 136,760 - 2,089,461
Investment holding gains/(losses) at 31 March 254,674 35,713 (5,129) 285,258
2022
Valuation at 31 March 2022 2,207,375 172,473 (5,129) 2,374,719
* See Note 16.
The Company received £1,253,317,000 (2021: £1,484,698,000) from investments and
derivatives sold in the year. The book cost of these was £1,278,065,000 (2021:
£1,217,151,000). These investments and derivatives have been revalued over time
and until they were sold any unrealised gains/losses were included in the fair
value of the investments.
2022 2021
£'000 £'000
Net movement in investment holding (losses)/gains in the year (130,139) 483,612
Net movement in derivative holding (losses)/gains in the year (21,985) 33,760
Effective interest rate amortisation (351) (105)
(Losses)/gains on investments (152,475) 517,267
Purchase transaction costs were £1,668,000 (2021: £2,808,000). Sales
transaction costs were £1,244,000 (2021: £1,352,000). These comprise mainly
commission and stamp duty.
10. DERIVATIVE FINANCIAL INSTRUMENTS
2022 2021
£'000 £'000
Fair value of OTC equity swaps (asset) 283 18,864
Fair value of OTC equity swaps (liability) (5,412) (8,312)
(5,129) 10,552
See note 9 above for movements during the year.
11. DEBTORS
2022 2021
£'000 £'000
Amounts due from brokers 10,581 10,402
Issue of own shares awaiting settlement - 2,577
Withholding taxation recoverable 2,587 2,295
VAT recoverable - 66
Prepayments and accrued income 1,556 2,832
14,724 18,172
12. CREDITORS AMOUNTS FALLING DUE WITHIN ONE YEAR
2022 2021
£'000 £'000
Amounts due to brokers 30,131 6,840
Overdraft drawn* 113,597 49,896
Performance fee provision** - 31,748
Other creditors and accruals 4,076 4,448
147,804 92,932
* 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.
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.
* As at 31 March 2022 no performance fees were accrued or payable (31 March
2021: £31.7 million). Of the 31 March 2021 accrual, £12.9 million
crystallised and became payable as at 30 June 2021 and £18.9 million
reversed due to underperformance, as set out in note 3. The performance fee
paid related to outperformance generated as at 30 June 2020 that was
maintained to 30 June 2021.
13. SHARE CAPITAL
Total
Treasury shares
Shares shares in issue
number number number
Issued and fully paid at 1 April 2021 64,310,255 - 64,310,255
New shares issued 1,227,500 - 1,227,500
Shares purchased for treasury (80,509) 80,509 -
At 31 March 2022 65,457,246 80,509 65,537,755
2022 2021
£'000 £'000
Issued and fully paid:
Ordinary Shares of 25p 16,385 16,078
During the year ended 31 March 2022 1,227,500 shares were issued raising £
45,549,000 and 80,509 shares were repurchased into Treasury at a cost of £
2,544,000 (2021: 10,690,977 shares were issued raising £380,588,000 and no
shares were repurchased).
14. NET ASSET VALUE PER SHARE
2022 2021
Net asset value per share 3,465.2p 3,703.0p
The net asset value per share is based on the assets attributable to equity
shareholders of £2,268,233,000 (2021: £2,381,425,000) and on the number of
shares in issue at the year end of 65,457,246 (2021: 64,310,255).
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 in the Business Review and in the Report of the Directors. Sven
Borho, who joined the Board on 7 June 2018, is a Managing Partner at OrbiMed.
Sven Borho has waived his Director's fee of £33,573 (2021: £32,282). Details of
fees paid to OrbiMed by the Company can be found in note 3. All material
related party transactions have been disclosed in notes 3 and 4.
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.
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. 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 and have not
changed from the previous accounting year. The AIFM, in close co-operation with
the Board and the Portfolio Manager, co-ordinates the Company's risk
management.
Use of derivatives
As noted in the Strategic Report, equity swaps are used within the Company's
portfolio.
More details on swaps can be found in the Glossary.
OTC equity swaps
The Company uses OTC equity swap positions to gain access to the Indian and
Chinese markets either when it is more cost effective to gain access via swaps
or to gain exposure to thematic baskets of stocks.
Details of financed swap positions* are noted in the Portfolio.
* See glossary.
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.
? International Swap Dealers Association Inc.
(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.
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.
2022 2021
Notional* Notional*
Assets Liabilities exposure Assets Liabilities exposure
£'000 £'000 £'000 £'000 £'000 £'000
Investments 2,379,848 - 2,379,848 2,416,038 - 2,416,038
OTC equity swaps 283 (5,412) 135,018 18,864 (8,312) 145,636
2,380,131 (5,412) 2,514,866 2,434,902 (8,312) 2,561,674
* The notional exposure is calculated in accordance with the AIFMD
requirements for calculating exposure via derivatives. See glossary.
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 (2021: 25% higher or lower) while all other variables remained constant:
the revenue return would have decreased/increased by £0.2 million (2021: £0.2
million); the capital return would have increased by £608.4 million (2021: £
540.4 million)/decreased by £625.4 million (2021: £604.0 million); and, the
return on equity would have increased by £608.2 million (2021: £540.1 million)/
decreased by £625.2 million (2021: £603.8 million). 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.
2022 2021
Current Current Current Current
assets liabilities Investments assets liabilities Investments
£'000 £'000 £'000 £'000 £'000 £'000
U.S. dollar 64,264 (169,551) 1,821,239 72,352 (99,943) 2,034,533
Swiss franc 2,202 - 113,899 1,513 - 47,411
Japanese yen 332 114 83,225 858 - 42,203
Hong Kong dollar 851 (851) 190,260 - - 179,407
Other 155 - 30,803 489 - 17,642
67,804 (170,288) 2,239,426 75,212 (99,943) 2,321,196
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 (2021: 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.
2022 2021
USD YEN CHF HKD USD YEN CHF HKD
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Sterling 206,233 9,297 12,900 21,140 238,003 4,785 5,436 19,934
depreciates
Sterling (168,736) (7,606) (10,555) (17,296) (194,730) (3,915) (4,448) (16,310)
appreciates
(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 2022, the Company held 0.4% of the portfolio in securitised debt
(2021: 0.7% of the portfolio). The exposure is shown in the table below.
2022 2021
Weighted Weighted Fixed Floating Weighted Weighted Fixed Floating
average average rate rate average average rate rate
period fixed £'000 £'000 period fixed £'000 £'000
for which interest for which interest
rate is rate rate is rate
fixed % fixed %
Years Years
Unquoted debt 2.9 2.6 5,024 - 3.9 2.6 6,945 4,486
investments
Cash - 56,336 - 40,858
Overdraft - (143,339) - (61,159)
facility
Financed swap - (140,147) - (135,084)
positions
5,024 (227,150) 6,945 (150,899)
All interest rate exposures are held in U.S. dollars.
Cash of £56.3 million (2021: £40.9 million) was held as collateral against the
financed swap positions, of which £29.7 million (2021: £11.3 million) was
offset against the overdraft position.
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 2022 and the net
assets would increase/decrease by £2.3 million (2021: increase/decrease by £
1.5 million).
(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. There maybe circumstances where market
liquidity is lower than normal. Stress tests have been performed to understand
how long the portfolio would take to realise in such situations. The Board is
comfortable that in such a situation the Company would be able to meet its
liabilities as they fall due.
Liquidity exposure and maturity
Contractual maturities of the financial liability exposures as at 31 March
2022, based on the earliest date on which payment can be required, are as
follows:
2022 2021
3 to 12 3 months 3 to 12 3 months
months or less months or less
£'000 £'000 £'000 £'000
Overdraft facility - 143,339 - 61,159
Amounts due to brokers and accruals - 30,131 - 6,840
OTC equity swaps 5,412 - 8,312 -
5,412 173,470 8,312 67,999
£56.3 million of cash held as collateral is offset against the overdraft
facility in the Statement of Financial Position, as set out in Note 16(iii)
above.
(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.
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 2022 such assets held by J.P. Morgan Securities LLC are available for
rehypothecation (see Glossary for further information). As at 31 March 2022,
assets with a total market value of £203.1 million (2021: £106.9 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).
CREDIT RISK EXPOSURE
2022 2021
£'000 £'000
Unquoted debt investments 5,024 11,430
Derivative - OTC equity swaps 283 18,864
Current assets:
Other receivables (amounts due from brokers, dividends and interest 14,724 18,172
receivable)
Cash 26,594 29,595
(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).
As of 31 March 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through profit or 2,207,375 - 172,473 2,379,848
loss
Derivatives: OTC swaps (assets) - 283 - 283
Derivatives: OTC swaps (liabilities) - (5,412) - (5,412)
Financial instruments measured at fair value 2,207,375 (5,129) 172,473 2,374,719
As at 31 March 2022, one debt, twelve equity and a deferred consideration
investment (included in the portfolio) have been classified as level 3. All
level 3 positions have been valued in accordance with the accounting policy set
out in Note 1(b).
During 2022 four unquoted investments were transferred to Level 1 following
their initial public offerings.
As of 31 March 2021 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through profit or 2,275,409 - 140,629 2,416,038
loss
Derivatives: OTC swaps (assets) - 18,864 - 18,864
Derivatives: OTC swaps (liabilities) - (8,312) - (8,312)
Financial instruments measured at fair value 2,275,409 10,552 140,629 2,426,590
As at 31 March 2021, three debt, eleven equity and a deferred consideration
investment 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.
During 2021 three unquoted investments were acquired and subsequently
transferred to Level 1 following their initial public offerings.
(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 in the Strategic Report.
As at 31 March 2022, the Company had a net leverage percentage of 10.9% (2021:
7.6%).
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.
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 2021 966,717 575,911 1,542,628
Net losses on investments (25,105) (127,370) (152,475)
Expenses charged to capital (229) - (229)
Exchange loss on currency balances (6,342) - (6,342)
Shares repurchased for Treasury (2,544) - (2,544)
At 31 March 2022 932,497 448,541 1,381,038
* Investment holding gains relate to the revaluation of investments
and derivatives held at the reporting date. (See note 9 for further details).
Under the Company's Articles of Association, sums within "capital reserves -
other" are also available for distribution.
18. RECONCILIATION OF OPERATING (LOSS)/RETURN TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
2022 2021
£'000 £'000
(Loss)/returns before finance charges and taxation (137,057) 480,129
Add: capital loss/(less: capital gain) before finance charges and 158,285 (463,073)
taxation
Revenue return before finance charges and taxation 21,228 17,056
Expenses charged to capital 532 (48,118)
Decrease in other debtors 1,342 934
(Decrease)/increase in provisions, and other creditors and accruals (32,120) 33,302
Net taxation suffered on investment income (3,960) (2,138)
Amortisation (351) (105)
Net cash (outflow)/inflow from operating activities (13,329) 931
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.
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. Financed swaps increase
exposure by the value of the underlying equity position, with no initial
outlay and no increase in the investment portfolio's 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
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.
2022 2021
£'000 £'000
Fair Exposure* Fair Exposure*
Value Value
Investments 2,379,848 2,379,848 2,416,038 2,416,038
OTC equity swaps (5,129) 135,018 10,552 145,636
2,374,719 2,514,866 2,426,590 2,561,674
Shareholders' funds 2,268,233 2,381,425
Leverage % 10.9% 7.6%
* 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.
* Alternative Performance Measure
NET ASSET VALUE (NAV) PER SHARE 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.
2022 2021
NAV Total Return p p
Opening NAV 3,703.0 2,868.9
(Decrease)/increase in NAV (237.8) 834.1
Closing NAV 3,465.2 3,703.0
% (decrease)/increase in NAV (6.4%) 29.1%
Impact of reinvested dividends 0.6% 0.9%
NAV Total Return (5.8%) 30.0%
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.
2022 2021
£'000 £'000
AIFM & Portfolio Management fees (Note 3) 18,765 17,068
Other Expenses - Revenue (Note 4) 1,305 1,338
Total Ongoing Charges 20,070 18,406
Performance fees paid/crystallised 12,861 -
Total 32,931 18,406
Average net assets 2,356,131 2,112,164
Ongoing Charges 0.9% 0.9%
Ongoing Charges (including performance fees paid or crystallised during 1.4% 0.9%
the year)
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.
2022 2021
Share Price Total Return p p
Opening share price 3,695.0 2,920.0
(Decrease)/increase in share price (420.0) 775.0
Closing share price 3,275.0 3,695.0
% (decrease)/increase in share price (11.4%) 26.5%
Impact of reinvested dividends 0.6% 0.9%
Share Price Total Return (10.8%) 27.4%
* Alternative Performance Measure
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 1-3 Bonhill Street, London EC2A 4BY on
Wednesday, 6 July 2022 from 12.30 p.m. 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 2022
2. To approve the payment of a final dividend of 19.5p per ordinary share for
the year ended 31 March 2022
3. To approve the Company's dividend policy for the year ended 31 March 2022
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-elect Dr Bina Rawal as a Director of the Company
9. To re-appoint PricewaterhouseCoopers LLP as the Company's Auditors and to
authorise the Audit & Risk Committee to determine their remuneration
10. To approve the Directors' Remuneration Report for the year ended 31 March
2022
SPECIAL BUSINESS
To consider and, if thought fit, pass the following resolutions of which
resolutions 12, 13, 14 and 15 will be proposed as special resolutions:
Authority to allot shares
11. THAT in substitution for all existing authorities the Directors be and are
hereby generally and unconditionally authorised in accordance with section 551
of the Companies Act 2006 (the "Act") to exercise all powers of the Company to
allot relevant securities (within the meaning of section 551 of the Act) up to
a maximum aggregate nominal amount of £1,630,835 (being 10% of the issued share
capital of the Company at 25 May 2022) and representing 6,523,340 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 2023 or 15 months from the date of
passing this resolution, whichever is the earlier, unless previously revoked,
varied or renewed, by the Company in General Meeting and provided that the
Company shall be entitled to make, prior to the expiry of such authority, an
offer or agreement which would or might require relevant securities to be
allotted after such expiry and the Directors may allot relevant securities
pursuant to such offer or agreement as if the authority conferred hereby had
not expired.
Disapplication of pre-emption rights
12. THAT in substitution for all existing powers (and in addition to any power
conferred on them by resolution 13 set out in the notice convening the Annual
General Meeting at which this resolution is proposed ("Notice of Annual General
Meeting")) the Directors be and are hereby generally empowered pursuant to
Section 570 of the Companies Act 2006 (the "Act") to allot equity securities
(within the meaning of Section 560 of the Act) for cash pursuant to the
authority conferred on them by resolution 11 set out in the Notice of Annual
General Meeting or otherwise as if Section 561(1) of the Act did not apply to
any such allotment:
a. pursuant to an offer of equity securities open for acceptance for a period
fixed by the Directors where the equity securities respectively
attributable to the interests of holders of shares of 25p each in the
capital of the Company ("Shares") are proportionate (as nearly as may be)
to the respective numbers of Shares held by them but subject to such
exclusions or other arrangements in connection with the issue as the
Directors may consider necessary, 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 £1,630,835, being 10% of the issued share
capital of the Company as at 25 May 2022 and representing 6,523,340 Shares
or, if changed, the number representing 10% of the issued share capital of
the Company at the date of the meeting at which this resolution is passed,
and provided further that (i) the number of equity securities to which this
power applies shall be reduced from time to time by the number of treasury
shares which are sold pursuant to any power conferred on the Directors by
resolution 13 set out in the Notice of Annual General Meeting and (ii) no
allotment of equity securities shall be made under this power which would
result in Shares being issued at a price which is less than the net asset
value per Share as at the latest practicable date before such allotment of
equity securities as determined by the Directors in their reasonable
discretion; and
and such power shall expire at the conclusion of the next Annual General
Meeting of the Company after the passing of this resolution or 15 months from
the date of passing this resolution, whichever is earlier, unless previously
revoked, varied or renewed by the Company in General Meeting and provided that
the Company shall be entitled to make, prior to the expiry of such authority,
an offer or agreement which would or might otherwise require equity securities
to be allotted after such expiry and the Directors may allot equity securities
pursuant to such offer or agreement as if the power conferred hereby had not
expired.
13. THAT in substitution for all existing powers (and in addition to any power
conferred on them by resolution 12 set out in the Notice of Annual General
Meeting) the Directors be and are hereby generally empowered pursuant to
Section 570 of the Companies Act 2006 (the "Act") to sell relevant shares
(within the meaning of Section 560 of the Act) if, immediately before the sale,
such shares are held by the Company as treasury shares (as defined in Section
724 of the Act ("treasury shares")), for cash as if Section 561(1) of the Act
did not apply to any such sale provided that:
(a) this power shall be limited to the sale of relevant shares having an
aggregate nominal value of £1,630,835 being 10% of the issued share capital of
the Company as at 25 May 2022 and representing 1,630,835 Shares or, if changed,
the number representing 10% of the issued share capital of the Company at the
date of the meeting at which this resolution is passed, and provided further
that the number of relevant shares to which power applies shall be reduced from
time to time by the number of Shares which are allotted for cash as if Section
561(1) of the Act did not apply pursuant to the power conferred on the
Directors by resolution 12 set out in the Notice of Annual General Meeting, and
such power shall expire at the conclusion of the next Annual General Meeting of
the Company after the passing of this resolution or 15 months from the date of
passing this resolution, whichever is earlier, unless previously revoked,
varied or renewed by the Company in General Meeting and provided that the
Company shall be entitled to make, prior to the expiry of such authority, an
offer or agreement which would or might otherwise require treasury shares to be
sold after such expiry and the Directors may sell treasury shares pursuant to
such offer or agreement as if the power conferred hereby had not expired.
Authority to repurchase ordinary shares
14. THAT the Company be and is hereby generally and unconditionally authorised
in accordance with section 701 of the Companies Act 2006 (the "Act") to make
one or more market purchases (within the meaning of section 693(4) of the Act)
of ordinary shares of 25 pence each in the capital of the Company ("Shares")
(either for retention as treasury shares for future reissue, resale, transfer
or cancellation), provided that:
a. the maximum aggregate number of Shares authorised to be purchased 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 2023 or, if earlier, on the
expiry of 15 months from the date of the passing of this resolution unless
such authority is renewed prior to such time; and
e. the Company may make a contract to purchase Shares under this authority
before the expiry of such authority which will or may be executed wholly or
partly after the expiration of such authority, and may make a purchase of
Shares in pursuance of any such contract.
General meetings
15. THAT the Directors be authorised to call general meetings (other than the
Annual General Meeting of the Company) on not less than 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.
By order of the Board Registered Office:
One Wood Street
Frostrow Capital LLP London EC2V 7WS
Company Secretary
26 May 2022
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. 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.
3. 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 Group 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
Group, PXS1, 29 Wellington Street, 10th Floor, Central Square, Leeds LS1
4DL no later than 1.00 p.m. on Monday, 4 July 2022.
4. 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.
5. 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.
6. 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.
7. The statement of the rights of shareholders in relation to the appointment
of proxies in paragraphs 1 and 3 above does not apply to Nominated Persons.
The rights described in these paragraphs can only be exercised by
shareholders of the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities Regulations
2001, only shareholders registered on the register of members of the
Company (the "Register of Members") at the close of business on Monday, 4
July 2022 (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 25 May 2022 (being the last business day prior to the publication of
this notice) the Company's issued share capital consists of 65,537,755
ordinary shares, carrying one vote each. The Company holds 304,351 shares
in treasury. Therefore, the total voting rights in the Company as at 25 May
2022 are 65,233,404.
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.
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 Group on 0371 600 0300 or +44 371 600 0300. 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 09.00 to 17.30 Monday to Friday excluding public holidays in
England and Wales.
17. 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.
18. 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 Group, PXS1, 29
Wellington Street, 10th Floor, Central Square, Leeds LS1 4DL. 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, the proxy appointment will remain
valid.
How To Vote
If you hold your shares directly you can:
* Log on to https://www.signalshares.com and follow the instructions; or
* Request a hard copy form of proxy from the Company's registrars, Link
Group, by emailing enquiries@linkgroup.co.uk or by calling +44 (0)371 664
0321 and returning the completed form to Link Group, PXS1, 10th Floor,
Central Square, 29 Wellington Street, Leeds LS1 4DL, no later than 12.30
pm on 4 July 2022.
If you hold your shares via an investment platform (e.g. Hargreaves Lansdown)
or a nominee, you should contact them to enquire about arrangements to vote.
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 2022 will be
presented to the Annual General Meeting (AGM). These accounts accompany this
Notice of Meeting.
Resolution 2 - To approve a Final Dividend
The rationale for the payment of a final dividend is set out in the Chairman's
Statement and the Report of the Directors.
Resolution 3 - Approval of the Company's Dividend Policy
Resolution 3 seeks shareholder approval of the Company's dividend policy.
Resolutions 4 to 8 - Re-election of Directors
Resolutions 4 to 8 deal with the re-election of each Director.
The Board has confirmed, following a performance review, that the Directors
standing for re-election and election continue to perform effectively.
Resolution 9 - Re-appointment of Auditors and the determination of their
remuneration
Resolution 9 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 & Risk Committee to set their remuneration.
Resolutions 10 - Remuneration Report
The Directors' Remuneration Report is set out in full in the annual report.
Resolutions 11, 12 and 13 - Issue of Shares
Ordinary Resolution 11 in the Notice of AGM will renew the authority to allot
the unissued share capital up to an aggregate nominal amount of £1,630,835
(equivalent to 6,523,340 shares, or 10% of the Company's existing issued share
capital on 25 May 2022, 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 12 will, if passed,
give the Directors power to allot for cash equity securities up to 10% of the
Company's existing share capital on 25 May 2022 (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 11. This authority will
also expire on the date of the next Annual General Meeting or after a period of
15 months, whichever is earlier. This authority will not be used in connection
with a rights issue by the Company.
Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations
2003 (as amended) (the "Treasury Share Regulations") the Company is permitted
to buy-back and hold shares in treasury and then sell them at a later date for
cash, rather than cancelling them. The Treasury Share Regulations require such
sale to be on a pre-emptive, pro rata, basis to existing shareholders unless
shareholders agree by special resolution to disapply such pre-emption rights.
Accordingly, in addition to giving the Directors power to allot unissued share
capital on a non pre-emptive basis pursuant to Resolution 12, Resolution 13, if
passed, will give the Directors authority to sell shares held in treasury on a
non pre-emptive basis. No dividends may be paid on any shares held in treasury
and no voting rights will attach to such shares. The benefit of the ability to
hold treasury shares is that such shares may be resold. This should give the
Company greater flexibility in managing its share capital, and improve
liquidity in its shares. It is the intention of the Board that any re-sale of
treasury shares would only take place at a premium to the cum income net asset
value per share. 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 25 May 2022 (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 12, as described above). This authority will also
expire on the date of the next Annual General Meeting or after a period of 15
months, whichever is earlier.
The Directors intend to use the authority given by Resolutions 11, 12 and 13 to
allot shares and disapply pre-emption rights only in circumstances where this
will be clearly beneficial to shareholders as a whole. The issue proceeds would
be available for investment in line with the Company's investment policy. No
issue of shares will be made which would effectively alter the control of the
Company without the prior approval of shareholders in general meeting.
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 14 - Share Repurchases
The Directors wish to renew the authority given by shareholders at the previous
AGM. The principal aim of a share buy-back facility is to enhance shareholder
value by acquiring shares at a discount to net asset value, as and when the
Directors consider this to be appropriate. The purchase of Shares, when they
are trading at a discount to net asset value per share should result in an
increase in the net asset value per share for the remaining shareholders. This
authority, if conferred, will only be exercised if to do so would result in an
increase in the net asset value per share for the remaining shareholders and if
it is in the best interests of shareholders generally. Any purchase of shares
will be made within guidelines established from time to time by the Board. It
is proposed to seek shareholder authority to renew this facility for another
year at the AGM.
Under the current Listing Rules, the maximum price that may be paid on the
exercise of this authority must not exceed the higher of (i) 105% of the
average of the middle market quotations for the shares over the five business
days immediately preceding the date of purchase and (ii) the higher of the last
independent trade and the highest current independent bid on the trading venue
where the purchase is carried out. The minimum price which may be paid is 25p
per Share. Existing shares which are purchased under this authority will either
be cancelled or held as Treasury Shares.
Special Resolution 14 in the Notice of AGM will renew the authority to purchase
in the market a maximum of 14.99% of Ordinary Shares in issue 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 15 - General Meetings
Special Resolution 15 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.
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 53,881 shares.
REGULATORY DISCLOSURES (UNAUDITED)
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD) DISCLOSURES
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 in the Strategic Report 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
Gross Commitment
Method Method
Maximum level of leverage 140.0% 140.0%
Actual level at 31 March 2022 113.4% 110.9%
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 2022 are detailed below.
GLOBAL DATA
Amount of assets engaged in TRS
The following table represents the total value of assets engaged in TRS:
£'000 % of AUM
TRS (5,129) (0.2)
CONCENTRATION DATA
Counterparties
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:
Country of
Incorporation £'000
Goldman Sachs U.S.A. 99,898
JPMorgan U.S.A. 35,120
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 2022. The collateral provided by the Company to the above
counterparties is set out below.
Type Currency Maturity Quality £'000
Cash USD less than 1 day n/a 56,336
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:
TRS
Value
Maturity £'000
1 to 3 months -
3 to 12 months 135,018
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.
Frostrow Capital LLP,
Company Secretary
26 May 2022
ANNOUNCEMENT ENDS
END
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