TIDMPCGH TIDMPGHZ
RNS Number : 2864J
Polar Capital Global Health Tst PLC
12 December 2022
POLAR CAPITAL GLOBAL HEALTHCARE TRUST PLC
Legal Entity Identifier: 549300YV7J2TWLE7PV84
AUDITED RESULTS ANNOUNCEMENT FOR THE YEARED
30 SEPTEMBER 2022
FINANCIAL HIGHLIGHTS
For the year to 30 September 2022
Performance
Net Asset Value per Ordinary Share (Total Return)* 5.59%
Benchmark index
(MSCI ACWI Health Care Index (total return in sterling
with dividends reinvested)) 6.93%
Share Price Total Return* 10.11%
Since restructuring
Net asset value per Ordinary share (total return)
since restructuring * 60.79%
Benchmark index total return since restructuring 64.05%
Expenses 2022 2021
Ongoing charges* 0.84% 0.83%
------------------------------------------ ------------------ ------------------ ------------
Financials As at As at
30 September 30 September
2022 2021 Change %
------------------------------------------ ------------------ ------------------ ------------
Total net assets (Group and
Company) GBP404,833,000 GBP385,728,000 +5.0%
Net asset value per Ordinary
share 333.83p 318.07p +5.0%
Net asset value per ZDP share^ 116.91p 113.50p +3.0%
Price per Ordinary share 315.00p 288.00p +9.4%
Discount per Ordinary share* 5.6% 9.5%
Price per ZDP share^ 114.00p 113.50p +0.4%
Net gearing* 7.41% 6.04%
Ordinary shares in issue
(excluding those held
in treasury) 121,270,000 121,270,000 -
Ordinary shares held in treasury 2,879,256 2,879,256 -
ZDP shares in issue^ 32,128,437 32,128,437 -
------------------------------------------ ------------------ ------------------ ------------
Dividends
The Company has paid or declared the following dividends
relating to the financial year ended 30 September 2022:
Amount
per
Ordinary
Pay date share Record Date Ex-Date Declared Date
------------------------------ ----------- ------------- --------------- ---------------
First interim: 31 August 1.00p 5 August 2022 4 August 2022 14 July 2022
2022
Second interim: 28 February 1.10p 3 February 2 February 9 December 2022
2023 2023 2023
Total (2021: 2.00p) 2.10p
------------------------------ ----------- ------------- --------------- ---------------
* See Alternative Performance Measures provided in the Annual
Report.
The Company's portfolio was restructured on 20 June 2017. The
total return NAV performance since restructuring is calculated by
reinvesting the dividends in the assets of the Company from the
relevant payment date.
^ For information purposes.
For further information please contact:
Ed Gascoigne-Pees Tracey Lago, FCG John Regnier-Wilson
Camarco Polar Capital Global Healthcare Polar Capital LLP
Tele. 020 3757 Trust Plc Tele. 020 7227 2725
4984 Tele. 020 7227 2742
STATUS OF ANNOUNCEMENT
The figures and financial information contained in this
announcement are extracted from the Audited Annual Report for the
year ended 30 September 2022 and do not constitute statutory
accounts for the period. The Annual Report and Financial Statements
include the Report of the Independent Auditors which is unqualified
and does not contain a statement under either section 498(2) or
Section 498(3) of the Companies Act 2006.
The Annual Report and Financial Statements for the year ended 30
September 2022 have not yet been delivered to the Registrar of
Companies. The figures and financial information for the period
ended 30 September 2021 are extracted from the published Annual
Report and Financial Statements for the period ended 30 September
2021 and do not constitute the statutory accounts for that year.
The Annual Report and Financial Statements for the period ended 30
September 2021 have been delivered to the Registrar of Companies
and included the Report of the Independent Auditors which was
unqualified and did not contain a statement under either section
498(2) or Section 498(3) of the Companies Act 2006.
The Directors' Remuneration Report and certain other helpful
Shareholder information have not been included in this announcement
but forms part of the Annual Report which will be available on the
Company's website and will be sent to Shareholders in December
2022.
CHAIR'S STATEMENT
Dear Shareholders,
On behalf of the Board I am pleased to provide to you the
Company's Annual Report for the year ended 30 September 2022.
Performance
The portfolio performed well over the financial year delivering
absolute returns of 5.59%, despite the challenging market and
economic conditions, especially following Russia's invasion of
Ukraine which commenced in late February 2022. Whilst ahead of the
overall market and the peer group, performance did slightly lag the
benchmark (MCSI Global Healthcare Index) by 1.3%. In the financial
year, the share price total return increased by 10.1% as the
discount narrowed. At the financial year end the discount was 5.6%
compared to the prior year of 9.5%. Further detail is provided
within the Investment Manager's Report.
Outlook
The industry fundamentals remain strong, valuations are still
attractive, and with the macro and political background supportive,
we remain very optimistic for the outlook for healthcare. Further
information on the underlying themes and drivers for the sector are
provided in the Investment Manager's report. The Board continues to
monitor performance and remains confident that the Company is well
placed to generate attractive returns for shareholders
Board
The Board is aware of the FCA's Diversity and Inclusion Policy
published in April 2022 and, whilst the current Board composition
does not currently meet the following target requirements, a
minimum of 40% female Board members and at least one non-white
ethnic minority Board member, it does meet the requirement to have
a senior female Board role in the form of myself as Chair. We will
continue to keep this under consideration as part of the Board's
future succession plans and will provide full disclosures in next
year's annual report as required under the FCA's policy. Further
details are provided in the ESG Statement and the Report on
Corporate Governance.
Dividends
The Company's focus remains on capital growth and consequently
dividends are expected to represent a relatively small part of
shareholders' total return. The Company has a policy to pay two
small dividends per year but it is recognised that these will not
necessarily be of equal amounts and may be reduced. In August 2022
the Company paid an interim dividend of 1.00p per ordinary share.
The Board has declared a further interim dividend of 1.10p per
ordinary share payable to shareholders on the register as at 3
February 2023. This will bring the total dividend paid for the
financial year under review to 2.10p per ordinary share, a small
increase on the previous financial year.
Environmental, Social and Governance
During the year under review, the Board continued its ESG
journey and further extended its engagement with the Investment
Manager on the progress that has been made in integrating ESG into
their investment approach and processes. As stated previously the
Board believes the Manager is best placed to integrate ESG factors
into the decision making process, with the Board providing
oversight and challenge, to gain assurance that the process is
being executed as expected. This year, particular focus has been on
how ESG has influenced our Manager's decision making and the
methodology used to assess current and potential investee
companies. Whilst there is still some way to go in terms of
quality, comparable data for all companies, the Manager has
recently introduced an ESG dashboard which allows us to review the
ratings of investee companies within the portfolio and to inform
discussions between the Board and Manager at Board meetings. As at
30 September 2022, based on MSCI ESG ratings, the portfolio and the
benchmark were both AAA rated.
The Board also receives information on the progress that has
been made at the corporate side of Polar Capital's business. Please
refer to the ESG statement in the Annual Report which incorporates
both the investment and corporate approaches.
Share Capital
The Company has 121,270,000 ordinary shares in issue as at the
date of writing and no shares have been bought back or issued
during the financial year under review. The Company's share price
on 30 September 2022 was 315.00p (2021: 288.00p). The Company's
market capitalisation at the financial year end was GBP382.0m
(2021: GBP349.3m). The Company's share price traded in a discount
range of 3.9% to 15.5% throughout the year, ending at a discount of
5.6% compared to 9.5% at the start of the year. The Board has
reconfirmed the authority given to the Manager to use discretion to
purchase shares in the market when deemed appropriate to do so.
Subsidiary Undertaking
The Company is parent to a wholly owned subsidiary, PCGH ZDP
Plc. The subsidiary was created as part of the Company's
restructure in 2017; the purpose of the subsidiary is to issue zero
dividend preference ("ZDP") shares and provide a loan to the parent
in the form of structural gearing. The subsidiary has a fixed life
whereby the loan will be repaid and the ZDP shares will be redeemed
in June 2024 at which time the entity will be liquidated. Further
information can be found on the Company's website
www.polarcapitalglobalhealthcaretrust.co.uk .
Annual General Meeting
The Company's twelfth Annual General Meeting ("AGM") will be
held at 16 Palace Street at 2pm on Thursday 9 February 2023. The
notice of AGM has been provided to shareholders and will also be
available on the Company's website. Detailed explanations on the
formal business and the resolutions to be proposed at the AGM is
contained within the Shareholder Information section of the Annual
Report and in the Notice of AGM. We look forward to welcoming you
to the Company's AGM on 9 February 2023 should you choose to
attend.
Lisa Arnold
Chair
9 December 2022
INVESTMENT MANAGER'S REPORT - FOR THE YEARED 30 SEPTEMBER
2022
The objective of Polar Capital Global Healthcare Trust plc ("the
Company") is to generate long-term capital appreciation by
investing in a globally diversified portfolio of healthcare
companies.
The Company's diversification strategy, coupled with its focus
on large-capitalisation healthcare companies with robust,
medium-term growth outlooks, helps drive the positive risk/ return
profile of the underlying assets, relative to the more volatile
areas of healthcare. Further, the broad investment remit affords
the opportunity to invest in growth areas regardless of the
economic, political and regulatory environment. Importantly, the
Company also has the opportunity to invest in earlier -- stage,
more innovative and disruptive companies that tend to be lower down
the market-capitalisation and liquidity scales. This is a key
advantage of the Company's structure as a closed-end company.
Regardless of size, subsector or geography, stock selection is
central to the process, as we look to identify companies where
there is a disconnect between valuations and the near and
medium-term growth drivers.
In terms of structure, the majority of the Company's assets
(calculated on a gross basis and referred to as the Growth
portfolio) will be invested in companies with a market
capitalisation >$5bn at the time of investment, with the balance
invested in companies with a market capitalisation <$5bn (a
maximum of 20% of gross assets and referred to as the Innovation
portfolio). At the end of the reporting period, 30 companies in the
portfolio were Growth investments (94.5% of net assets) and 11 were
Innovative investments (12.8%). Structural debt, in the form of
Zero Dividend Preference Shares, offers access to additional
liquidity and the opportunity to enhance returns.
Market Cap 30 September 30 September
at 2022 2021
Large (>US$10bn) 78.5% 78.9%
Medium (US$5bn -
US$10bn) 16.0% 14.8%
Small (<US$5bn) 12.8% 12.2%
Other net liabilities (7.3%) (5.9%)
100.0% 100.0%
============= =============
Over the financial year to the end of 30 September 2022, the
Company delivered a NAV per share total return of 5.59%, 1.34%
behind its benchmark, the MSCI All Country World/ Healthcare Total
Return Index. The absolute performance of the healthcare sector was
positive, up 6.93% over the reporting period, with the sector
comfortably outperforming the broader market, as tracked by the
MSCI All Country World Net Total Return Index (all figures above
are in sterling terms) which was down 4.04%. Despite being faced
with a
cocktail of rising inflation, hawkish central banks and the war
in Ukraine, equity markets were remarkably resilient during the
first six months of the financial year. Unfortunately, that
resilience faded heavily in the latter half of the period as
inflationary and supply-chain pressures accelerated, economic
activity started to slow and the markets started to digest the
possibility of a recession.
Reflecting on performance, strong stock selection across the
market-capitalisation spectrum was offset by the negative
allocation effect of having a relative overweight position in small
and mid-capitalisation stocks. Distributors, managed care,
healthcare services and pharmaceuticals all performed strongly over
the period. Pharmaceuticals had a relatively strong year, primarily
driven by companies' resilience to inflationary pressure given
their high gross and operating margins, coupled with the essential
nature of their products.
At the other end of the scale, the past 12 months have been
difficult for the healthcare supplies, life sciences tools and
services, equipment and facilities subsectors. The US-based
multinationals had the strain on their earnings of significant
upward pressure from the appreciation of the US dollar. The
struggles witnessed in the healthcare facilities subsector reflect
rising wage inflation coupled with volumes that have been hampered
by COVID-19-related staffing shortages.
As set out in last year's annual report, the focus was very much
on three key investment themes that accelerated through the
COVID-19 crisis; disrupting the delivery of healthcare, outsourcing
and prevention, all of which remain relevant today. The dynamism
within the healthcare market has, however, shifted our focus to
areas we feel will be more relevant for the year ahead. More
specifically, delivery disruption, accelerating utilisation and
consolidation. Disrupting the delivery of healthcare continues to
be a critical component when it comes to generating much-needed
efficiencies, with recent momentum likely to continue in the near
and medium term. Increased utilisation could be a significant
revenue driver as the healthcare industry works its way through the
ever-expanding backlog of patients who require medical attention.
Last, but not least, we expect the recent wave of consolidation in
the industry to
continue as management teams look to use generally strong
company balance sheets to either expand their pipelines, access
innovative technologies and platforms or accelerate near-term
revenue and earnings momentum.
After a period of relative calm, US healthcare reform came to
prominence again in 2022 with a healthcare reconciliation package
signed into law in August 2022. Included within the Inflation
Reduction Act, the major healthcare provisions include price
negotiations for certain Medicare drugs towards the end of the
decade, mechanisms to control drug-pricing inflation and caps on
out-of-pocket spend for US seniors. Encouragingly, the Act also
extended premium subsidies to ensure ongoing access to healthcare
cover, a positive not just for US citizens but for the pockets of
the industry that benefit from either providing healthcare
insurance plans or from sustained utilisation. With reform now very
much in the rear-view mirror, investors can focus their attention
on a healthcare sector that is highly innovative, possesses strong
fundamentals, is attractively valued and defensive. These are all
extremely appealing characteristics in the current, challenging
macroeconomic environment.
PERFORMANCE REVIEW
Over the financial year to the end of September 2022, the
overall healthcare sector comfortably outperformed the broader
market, with the MSCI All Country World/Healthcare Total Return
Index returning 6.93% in sterling terms, compared to a decline in
the broader equity market of 4.04%, as represented by the MSCI All
Country World Net Total Return Index. The Company achieved a return
on net assets of 5.59%, which was 1.34% behind its benchmark, but
significantly ahead of more volatile areas of healthcare such as
smaller stocks and biotechnology. Global equity markets posted
positive returns in the first three months of the financial year,
but a sustained downtrend started in mid-January as investors
grappled with a deteriorating macroeconomic environment
characterised by persistent inflation, slowing growth and
geopolitical tension.
The Company entered the financial year with approximately 6% net
gearing and a large exposure to healthcare facilities, managed
care, healthcare distributors and healthcare equipment and
supplies, with the biggest underweight in the pharmaceuticals
sector and a smaller underweight in life sciences tools and
services. As the year progressed and the macroeconomic picture
became more challenging, the portfolio was shifted to a more
defensive position, with increased exposure to pharmaceuticals,
biotechnology and healthcare facilities, and reduced allocation to
healthcare equipment and supplies. Healthcare equipment was the
biggest positive
contributor to performance thanks to strong stock selection.
Biotechnology and managed care were also positive.
On the other hand, pharmaceuticals detracted the most due to
negative allocation and stock-picking. Solid selection in
healthcare facilities was not enough to offset the negative
allocation effect, while distributors suffered due to poor stock
selection. In summary, the underperformance relative to our
benchmark during the financial year was caused by adverse
allocation which marginally outstripped the positive contribution
from stock selection.
From a market-capitalisation perspective, small and midsized
healthcare companies experienced a sharp downward correction
starting in early November 2021. For context, the Russell 2000
Healthcare Index underperformed the S&P 500 Healthcare index by
over 30%, in dollar terms, during the financial year. Investors'
risk appetite deteriorated significantly over the course of the
period under review with inflation, high interest rates, a slowing
global economy and geopolitical unrest the catalysts for a flight
to safety. Consequently, given the Company's overexposure to small
and mid-capitalisation stocks, the allocation effect was negative,
although this was more than offset by strong stock selection. As
for the larger-company investments, to which the Company was
underweight relative to the benchmark, both allocation and
selection were negatives.
On a geographical basis, the largest positive contributors were
Asia Pacific ex-Japan, where both allocation and selection
contributed positively, and Japan, where allocation was
particularly favourable. Despite the good allocation effect,
adverse selection and currency effects meant both Europe and North
America detracted from performance.
The active management of gearing did not have a meaningful
contribution to performance.
Top 10 Relative Contributors (%)
Average Active Stock Stock Total
Stock Weight Return Return Attribution
Top 10 Weight vs BM
-------------------- -------- -------- -------- -------- -------------
Cytokinetics 2.72 2.72 63.37 56.44 1.33
-------------------- -------- -------- -------- -------- -------------
Moderna 0.00 -0.86 -62.97 -69.90 1.19
-------------------- -------- -------- -------- -------- -------------
Acadia Healthcare 2.44 2.44 47.72 40.79 0.92
-------------------- -------- -------- -------- -------- -------------
Molina Healthcare 2.21 1.98 46.51 39.58 0.88
-------------------- -------- -------- -------- -------- -------------
Daiichi Sankyo
Co 1.20 0.62 26.49 19.56 0.83
-------------------- -------- -------- -------- -------- -------------
arGEN-X BV 2.01 1.80 44.97 38.04 0.77
-------------------- -------- -------- -------- -------- -------------
Intuitive Surgical 0.00 -1.28 -31.84 -38.77 0.60
-------------------- -------- -------- -------- -------- -------------
Medtronic 0.00 -1.84 -22.37 -29.30 0.60
-------------------- -------- -------- -------- -------- -------------
DexCom 0.64 0.09 -29.01 -35.94 0.56
-------------------- -------- -------- -------- -------- -------------
Biohaven
Pharmaceutical
Holding 1.32 1.32 31.15 24.22 0.53
-------------------- -------- -------- -------- -------- -------------
Source: Polar Capital, as at 30 September 2022.
Positive contributors to performance for the financial year
included Cytokinetics, Moderna, Acadia Healthcare, Molina
Healthcare, and Daiichi Sankyo.
Cytokinetics is a biotechnology company focused on developing
drugs for cardiovascular and neuromuscular diseases of impaired
muscle function. The stock performed strongly, due to the potential
for the company's differentiated and possibly commercially
attractive assets. Following positive results from a Phase 3
clinical trial, Cytokinetics' mecamtiv mecarbil, a drug for heart
failure with reduced ejection fraction (HFrEF), is undergoing FDA
review. An FDA Advisory Committee is scheduled for early December
and a decision on its approval is expected in the first quarter of
2023. Additionally, the company is continuing its trials for
aficamten in patients with obstructive hypertrophic
cardiomyopathies (oHCM); the approval of Bristol-Myer Squibb's
Camzyos (mavacamten), which also targets the same disease, should
bode well for the prospect of aficamten.
The lack of exposure to Moderna, an mRNA vaccine manufacturer
that benefitted significantly from the COVID-19 pandemic, was a
positive contributor. The stock dropped considerably over the
financial year as investors shifted their focus to the broader
utility of the mRNA technology beyond COVID-19. Additionally, the
stock was caught up in a widespread sell-off of high-growth
biotechnology names whose terminal values have been eroded by
rising interest rates and a slowing funding environment.
Although Acadia Healthcare struggled in the first few months of
the financial year in the wake of the Omicron variant and a
tightening labour market, the company posted a solid set of FY21
results coupled with FY22 guidance that provided a strong sense of
relief for investors. Strong execution continued in the new year,
with 1Q22 and 2Q22 results ahead of expectations.
Molina Healthcare , a managed care organisation, performed
extremely well on the back of strong execution and favourable micro
and macroeconomic factors. On the company-specific side,
utilisation remained subdued despite the drop in COVID-19 cases,
which meant the medical loss ratio (a measure of revenue spent to
provide care for members) was tightly managed. Additionally, full
financial-year outlook was raised during the first two earnings
releases in 2022 and the company also gave a better than expected
guidance for 2023. We believe the share performance also reflected
a generally advantageous backdrop for managed care organisations,
which tend to benefit from higher interest rates and are less
affected by inflationary and supply-chain pressures.
Daiichi Sankyo , a Japanese pharmaceutical company with a focus
on oncology, experienced a strong upward rerating, which reflected
both increasing enthusiasm for recently launched Enhertu, an
antibody drug conjugate (ADC) for the treatment of metastatic
breast cancer, but also the rapid pace of development into
additional indications for the drug. Further, the company had been
subject to a litigation brought forward by Seagen, alleging that
Daiichi Sankyo's ADCs infringed a series of patents. When the
ruling came out in
favour of the Japanese company, the overhang on the stock was
removed and the share price rose rapidly.
Bottom 10 Relative Contributors (%)
Average Active Stock Stock Total
Stock Weight Return Return Attribution
Bottom 10 Weight vs BM
---------------------- -------- -------- -------- -------- -------------
AbbVie 1.54 -1.75 49.94 43.01 -1.46
---------------------- -------- -------- -------- -------- -------------
Avantor 2.51 2.26 -42.25 -49.18 -1.44
---------------------- -------- -------- -------- -------- -------------
Eli Lilly
& Co 0.09 -2.96 68.65 61.72 -1.34
---------------------- -------- -------- -------- -------- -------------
Bio-Rad Laboratories 3.03 2.85 -32.61 -39.54 -1.24
---------------------- -------- -------- -------- -------- -------------
Siemens Healthineers
AG 2.44 2.22 -19.35 -26.28 -1.00
---------------------- -------- -------- -------- -------- -------------
Merck & Co 0.00 -2.83 41.88 34.95 -0.86
---------------------- -------- -------- -------- -------- -------------
UCB 2.05 1.88 -25.00 -31.93 -0.83
---------------------- -------- -------- -------- -------- -------------
Horizon Therapeutics 2.78 2.52 -31.91 -38.84 -0.74
---------------------- -------- -------- -------- -------- -------------
Medley 0.79 0.79 -44.42 -51.35 -0.63
---------------------- -------- -------- -------- -------- -------------
Tenet Healthcare
Corp 1.48 1.48 -6.44 -13.37 -0.60
---------------------- -------- -------- -------- -------- -------------
Source: Polar Capital, as at 30 September 2022. Past performance
is not indicative or a guarantee of future results.
Negative contributors to performance for the financial year 2022
included AbbVie, Avantor, Eli Lilly, Bio-Rad Laboratories, and
Siemens Healthineers.
For the majority of the financial year, the Company had no
holdings in either AbbVie or Eli Lilly. Both companies benefitted
from a market rotation away from high-growth,
smaller-capitalisation stocks, riskier assets towards more stable,
larger-capitalisation stocks with an ability to weather an economic
recession. The pharmaceutical majors fit squarely into this camp.
There were also stock -- specific aspects that explain the positive
performance of AbbVie and Eli Lilly. The former produced a series
of solid sets of financial results that were well received by the
market, thanks to strong uptake for rheumatology and dermatology
drugs Skyrizi and Rinvoq. Eli Lilly's performance was a reflection
of good execution and increased interest for the potential of its
diabetes and obesity franchises given the exceptional results of
Mounjaro (tirzepatide) in decreasing blood sugar levels and body
weight.
Avantor , a life sciences tools and services business, sold off
heavily on a disappointing 2Q22 update. The company cited COVID-19
revenues rolling off, foreign exchange headwinds and lower than
expected contributions from recent acquisitions MasterFlex and
Ritter GmbH as the reasons for the weak set of numbers. The strong
derating was also a sign of investors' lack of confidence in
management's ability to execute on deals and manage investors'
expectations. On a more positive note, the end markets for the life
sciences tools and services industry remain buoyant, especially in
areas such as bioprocessing.
Like many other life sciences tools and services companies,
Bio-Rad Laboratories was dragged down by the general market switch
to less highly-rated companies. Despite the subsector's ability to
pass higher input costs to end customers, companies still had to
contend with supply-chain disruption, inflation and fears that the
challenging environment for access to capital for early-stage
biopharmaceuticals will impact drug development timelines. The
stock also suffered from the decline in value of its investment in
Sartorius which was rumoured to be on the lookout for M&A
deals, a prospect investors did not support.
Siemens Healthineers , a European medical technology company
with a strong presence in imaging, radiation oncology and
diagnostics, experienced a turbulent period of performance
following downgrades to its margin guidance for FY2022. The company
also pointed to lower margins for its diagnostics division in the
year ahead, making it even more ambitious to reach its long-range
targets. Supply -- chain challenges, the rising costs of materials
and labour, and lockdowns in China were the main explanations for
the revised outlook. The market also grew progressively more
nervous about hospitals' ability to invest in large capital
equipment projects, such as imaging or radiation -- oncology
machines, during an economic downturn.
Healthcare: Momentum and conviction building
The 2021 Annual Report focused on three key themes that we
believed were accelerating in a COVID-19 endemic world:
-- Disrupting healthcare delivery and shifting utilisation to
lower-cost settings: This will be by far the most important
structural shift in healthcare for the next 10-20 years and the
enablers of this shift should enjoy significant growth.
-- Outsourcing : A continuing theme with robust growth across
clinical trial outsourcing and contract manufacturing.
-- Prevention : References diagnostics and vaccines, both of
which provide tremendous value to healthcare systems as prevention
is the most cost-effective way of delivering healthcare. The impact
of COVID-19 has highlighted the value of diagnostics and
vaccines.
We continue to believe the above themes will be relevant for
some time, but in a rapidly evolving environment the following
trends may have more relevance and momentum in the near term:
-- Healthcare delivery disruption accelerating including the
shift to value-based care: Not just driving patient volumes through
lower-cost settings, but coordinating care to drive better
outcomes.
-- Utilisation: Working through the ever-growing backlog of
patients as healthcare systems globally learn to live with
COVID-19.
-- Consolidation: Healthcare is highly fragmented and heavily
populated with companies that have robust cashflows and strong
balance sheets. M&A activity has increased of late and is
highly likely to continue on the same path.
Accelerating healthcare delivery disruption, utilisation and
consolidation:
Key themes for the year ahead
Shifting patient volumes away from hospitals to lower-cost
outpatient settings such as ambulatory surgical centres (ASCs) and
the home are central cogs when it comes to generating much-needed
efficiencies in healthcare systems. ASCs are outpatient healthcare
facilities that offer same-day surgical services, including
diagnostic and preventive services. These facilities offer
cost-effective services and are more convenient for consumers than
more traditional hospital settings. The number of procedures
offered in ASCs is expanding and already includes orthopaedics,
ophthalmology, dermatology, urology, gastroenterology and pain
management. For context, ASCs perform more than half of all US
outpatient surgical procedures and they can expect to see greater
volumes as the
number of outpatient procedures is expected to increase by an
estimated 15% by 2028. Further, over the next 10 years, surgeries
are projected to grow 25% at ASCs and 18% at both hospital
outpatient departments and physicians' offices, according to a
report published by Sg2, a US-based healthcare and hospital system
consultancy. The combination of material cost savings (an average
gallbladder surgery costs $12,000 when done at a hospital while the
same procedure costs $2,200 at an ASC) and patient convenience
underpins the medium-term future for an already accelerating
trend.
Home health also adds a critical dimension to the idea that the
delivery of healthcare is being disrupted. Home health is usually
less expensive, more comfortable for patients and can be just as
effective as the care offered by hospitals and skilled nursing
facilities. If managed appropriately, home health can also
accelerate independence and self-sufficiency. In the US, for
example, Medicare covers a number of services including skilled
nursing care, physical therapy, social services and medical
supplies. Based on a survey of physicians who serve predominantly
Medicare fee-for-service (FFS) and Medicare Advantage (MA)
patients, it is estimated that up to $265bn of care services for
Medicare FFS and MA beneficiaries could shift from traditional
facilities to the home by 2025 without
a reduction in quality or access. That represents a three to
fourfold increase in the quantity of care being delivered at home
today for this population.
Value-based care (VBC) rewards healthcare providers for quality
of care via payment systems that incentivise high quality of care
from clinicians and healthcare organisations alike. The potential
benefit to patients comes via improved coordination of care and
engagement which in turn can drive more essential diagnostics,
reduced hospital readmissions and better outcomes. If successful,
the benefits to patients are obvious but there are also benefits to
the healthcare systems. An effective VBC model could reduce costly
hospital readmissions, improve preventative care and bolster the
health of the general population. It all sounds sensible and
effective but it is the alignment of incentives that really makes
VBC work. Risk -- sharing arrangements are key to ensuring
providers reduce
waste and work hard to drive better outcomes. Recent deal
activity in the US adds even more conviction to this idea that VBC
will be an important growth engine for the healthcare industry. In
September 2022, UnitedHealth Group agreed a 10-year partnership
with Walmart with the specific aim of driving VBC adoption for
Walmart's clinicians. Through the partnership, UnitedHealth Group's
Optum division will assist Walmart clinicians in delivering
comprehensive VBC through data analytics and decision support
tools. Not only will the initiative improve the provision of care,
it will also go some way to addressing the key issue of
affordability.
Across the world there is a consensus that there is a growing
backlog of patients requiring medical attention, but it is the size
of the backlog, for example, and the precise shape of the recovery
curve that is tough to predict. The latest NHS figures point to a
record 6.84 million people waiting for treatment, with 2.67 million
of those having waited more than 18 weeks. Perhaps even more
worrying is the hidden backlog with cancer targets continuing to be
missed. Looking at the US, according to a study published in the
Annals of Surgery, hospitals lost an estimated $22.3bn in revenue
between March and May 2020, some of which we believe will likely
be, or has already been, recaptured. On a more optimistic note,
there is strong evidence to suggest healthcare systems have learnt
to adapt and have been able to self-regulate, maintaining surgical
procedure volumes even during the COVID-19 surges. That evidence is
based on the observation that, despite a 48% drop in surgical
procedure volumes in the US immediately after the March 2020
lockdowns, surgical volumes returned to 2019 rates in the vast
majority of specialties, a rate maintained during the COVID-19
winter surges.
The healthcare sector operates in the most fragmented of all
industries, with consolidation a major long-term driver of
efficiencies for companies that operate in different parts of
healthcare. Unlike other industries, few subsectors see a small
number of companies dominating markets, but the benefits of such
scale do matter in healthcare. Consolidation typically drives
margin enhancement and often revenue growth, both of which are
drivers of shareholder value. The most fragmented part of
healthcare is on the services side, particularly within health
insurance and all the different types of healthcare provider.
Most recently, M&A activity has been picking up between
large-capitalisation pharmaceutical and small/mid-capitalisation
biotechnology companies, with the former typically offering
significant premiums to acquire the latter. There are several
reasons for a pick-up in acquisitions. In 2020-21, following the
wider market lows in March 2020, the biotechnology subsector
enjoyed a strong run of outperformance and access to capital was
easy through IPOs and secondary offerings. As such,
small/mid-capitalisation biotechnology companies did not need an
exit strategy as they could easily access capital to fund their
research programmes. However, with the bursting of the bubble in
unprofitable companies, access to funds has become much more
challenging, particularly with the market selloff in 2022. The
resulting collapse in prices for small/mid capitalisation
biotechnology stocks has created a much more attractive environment
for the larger companies to consider M&A. Further, large
pharmaceutical companies are looking to bolster revenues in the
years 2025-30 with patent expiries set to impact growth. Pfizer,
for example, has been explicit in saying they want to acquire $25bn
in revenues by the end of the decade. In summary, there appears to
be a clear rationale for an acceleration in M&A. If this comes
to fruition, the innovation part of the Company's portfolio should
be the prime beneficiary of potential deal flow.
Inflation Reduction Act: Is peak policy risk behind us?
On 16 August 2022, the Inflation Reduction Act was signed into
law in the US. With regards to healthcare, there were two main
areas of focus: drug pricing reform and access to care. As regards
drug pricing, the Act includes several provisions to lower
prescription drug costs for those with Medicare and reduce drug
spending by the federal government:
-- Selective drug price negotiation authority for the US
Department of Health & Human Services.
-- Rebates on drug price increases greater than inflation.
-- A $2,000 out-of-pocket cap for Medicare beneficiaries.
The Act also includes a provision to extend health insurance
subsidies to reduce monthly premium expenses for the next three
years. These subsidies, expanded via the American Rescue Plan Act
of 2021, were set to expire at the end of 2022.
So, what are the implications? This Act deals mainly with
Medicare, i.e. health insurance for the over 65's. With regards to
drug pricing for Medicare, the planned negotiation beginning in
2026 for a small number of products is only a small negative for
the industry as it will impact the value of these products very
close to their patent expiry. A positive is the $2,000
out-of-pocket cap which will be a significant tailwind for both
patients and the industry given the implications for enhanced
affordability and increased volumes.
Focusing on access to care, had the subsidies to reduce monthly
insurance premium expenses expired, the Kaiser Family Foundation
estimated that 13 million people receiving assistance for their
marketplace insurance would have faced significant increases in
their monthly premiums. For people who enrolled in the federal
marketplace, Healthcare.gov, premiums could have gone up by more
than 50%. The decision to extend the subsidies by an additional
three years is a clear positive for the healthcare insurance
industry plus the facilities and providers.
In summary, the Act is a modest positive for the broader
healthcare industry, especially if the drug pricing reforms remain
isolated to Medicare and there is no contagion into the wider
commercial setting. Further, and potentially more importantly, we
believe further legislation is unlikely. In essence, the Act is a
clearing event for the sector, potentially removing a significant
overhang.
Positioning and process: Constructive on biotechnology,
facilities and managed care
The sharp market correction towards the end of the financial
year, while frustrating, presented an opportunity to engage with a
number of really exciting investments which are a direct play on
the key themes of disruption and utilisation. As at 30 September
2022, three of the largest overweight subsector positionings were
in biotechnology, healthcare facilities and managed healthcare.
Despite what feels like an extremely challenging environment for
early-stage biotechnology investing, we remain constructive on
the
sector. The industry continues to be innovative and highly
productive with many of the Company's investments in businesses
with either late-stage assets or commercialised drugs or both.
Drilling down into therapeutic categories, oncology is a key area
of focus and an area that has seen an incredible amount of
investment, innovation and, most importantly, success. While not an
exhaustive list, other areas of interest include cardiovascular
diseases, haemophilia, respiratory disorders and obesity.
From a healthcare facilities perspective, the investments here
are biased towards businesses providing access to healthcare
services in the lowest-cost settings such as the home and
outpatient facilities or ASCs. The Company also has exposure to
behavioural health services, where we have sadly seen a huge jump
in demand due to the pandemic. The constructive stance on managed
care is based on a number of factors including healthy, growing end
markets (with Medicare Advantage at the forefront), good earnings
visibility and an earnings tailwind from rising Treasury yields. As
insurance companies, managed care companies have large investment
portfolios that benefit from rising rates, creating a potential
tailwind to EPS growth.
Healthcare equipment is a subsector we have been constructive on
historically given the current innovation wave, the rising demand
for their products and services, and attractive valuations relative
to the anticipated growth opportunities. As at the end of
September, however, we were much more cautious on healthcare
equipment given the difficult macroeconomic climate. Supply-chain
challenges coupled with rising input and freight costs have put
pressure on operating margins, plus the strength of the dollar has
created a material headwind for the near-term earnings profiles of
US companies with exposure to ex-US markets. Looking ahead,
however, we are optimistic that some of the supply-chain
constraints will ease and the ever-growing backlog of patients will
create a platform for accelerating top and bottom-line growth.
Healthcare supplies is another subsector where we have adopted a
more cautious stance during the reporting period. Much of the input
pressure being experienced in the equipment subsector is relevant
for supplies but the consumer is also a critical factor. Certain
dental and ophthalmology end markets have a material discretionary
component, an uncomfortable backdrop given the current
macroeconomic climate.
Our shifting stance on pharmaceuticals is also worth noting.
Historically, we have adopted a material underweight in
pharmaceuticals relative to the benchmark, taking the view that,
collectively, they have fairly unexciting revenue and earnings
growth profiles. However, the essential nature of their products
coupled with relatively high gross and operating margins, makes
them very attractive investments at a time when inflation is high,
economic activity is slowing and unemployment is rising. As such,
we have reduced our relative underweight versus the benchmark.
From a geographical perspective, the Company continues to have
an overweight stance in Europe as well as North America. The
biggest change to the portfolio was moving Japan from being an
underweight to an overweight via the addition of pharmaceutical
stocks.
Geographical Exposure 30 September 2022 30 September 2021
at
----------------------- ------------------ ------------------
United States 72.2% 69.0%
United Kingdom 6.8% 7.3%
France 6.5% 6.2%
Netherlands 6.4% 5.2%
Denmark 4.4% 4.6%
Germany 2.9% 2.7%
Switzerland 2.6% 2.5%
Australia 2.3% 2.4%
Belgium 2.2% 2.3%
Ireland 1.0% 1.9%
Japan - 1.8%
Canada - -
Other net liabilities (7.3%) (5.9%)
------------------ ------------------
Total 100% 100.0%
------------------ ------------------
Source: Polar Capital, portfolio as at 30 September 2022.
Sector Exposure 30 September 2022 30 September 2021
at
-------------------------- ------------------ ------------------
Pharmaceuticals 31.3% 23.0%
Biotechnology 28.3% 14.8%
Managed Healthcare 13.1% 11.8%
Healthcare Equipment 12.1% 23.4%
Healthcare Facilities 7.4% 7.2%
Life Sciences Tools
& Services 4.3% 5.4%
Healthcare Supplies 2.9% 6.3%
Metal & Glass Containers 2.4% 2.3%
Healthcare Services 2.1% 1.8%
Healthcare Distributors 1.9% 4.9%
Healthcare Technology 1.5% 2.3%
Apparel, Accessories
& Luxury Goods - 2.7%
Other net liabilities (7.3%) (5.9%)
------------------ ------------------
Total 100% 100%
------------------ ------------------
Source: Polar Capital, portfolio as at 30 September 2022.
While the previous charts focus on subsector and geographical
weightings, bottom-up stock selection is central to the team's
investment process. The healthcare industry is extremely
complicated and dynamic, and subject to varied news flow which
lends itself to active management. We look to take advantage of
dislocations between near-term valuations and medium-term returns.
Our own in-house idea generation is complemented by input from
external research, with conviction built through company meetings,
investor conferences and dialogue with expert physician and
consultant networks. The team also has a strong valuation
discipline looking at a large number of metrics including sales and
earnings revisions, price-to-earnings, enterprise values and free
cash flow.
Zero Dividend Preference shares; A vehicle for enhancing
returns
In terms of a top-down strategy for the Company's portfolio,
active decisions are made on market capitalisation, subsector and
geographical exposure, dependent on the current macro-outlook of
the team which is formulated with the aid of third-party research
and the monitoring of many key risk indicators. The debt raised
through the original issuance of Zero Dividend Preference (ZDP)
shares allows the ability to take on gearing with the aim of
enhancing returns.
Net Gearing
During the financial year, gearing has averaged 6%, but it has
been adjusted to reflect the risk outlook throughout the past 12
months. Net gearing was brought down from around 6% to 4.5% in the
first four months of the reporting period, on the back of
macroeconomic concerns. Over the remainder of the year, gearing was
increased as a more defensive positioning of the portfolio was
achieved with higher exposure to large-capitalisation stocks.
However, the sharp correction among the small and
mid-capitalisation universe offered an opportunity to add new
positions to the Innovation portfolio. We exited the 2022 financial
year with net gearing at 7.41%, a figure that reflects a balance
between our constructive stance on the healthcare sector with more
cautious posturing with regards broader equity markets.
Outlook for healthcare: Macro and micro stars are aligning
The healthcare industry continues to undergo material,
structural changes as it looks to use innovative products,
technologies and services to meet the ever-growing demands of an
ageing global population. It is those structural changes that are
creating some exciting and robust growth opportunities. In the
near-term, a substantial increase in utilisation could be the
catalyst for positive revenue and earnings revisions as healthcare
systems globally work their way through ever-growing surgery
backlogs. Another positive, near-term dynamic is the disruption of
the delivery of healthcare as systems globally look to treat in
more cost-effective settings. The adoption of innovative
technologies is facilitating the shift of patient volumes from the
more traditional and more expensive hospital settings to lower-cost
facilities such as ASCs and the home. A trend that inflected during
the COVID-19 pandemic, we believe that the momentum will continue
for many years to come. Last, but not least, we expect the recent
wave of M&A activity to continue as companies look to use their
free cashflow and balance sheets to inorganically complement
internal assets.
Not only are the industry fundamentals in good health but the
macroeconomic and political environments are also very supportive,
not just for defensive stocks but also for those that sit higher up
the market-capitalisation scale, a scenario that very much suits
the larger-capitalisation focus of the Company. A combination of
rising inflation, slowing economic activity and growing
unemployment is creating a constructive backdrop for defensive
sectors, none more so than healthcare. Importantly, if inflation
persists and we enter a more stagflationary environment, healthcare
has shown an ability, historically, to outperform the broader
market given the low earnings and share-price beta to economic
indicators, the essential nature of its products and services and a
relatively broad ability to absorb inflationary pressures given the
sector's high gross and operating margins. Last, but not least, we
think the introduction of the Inflation Reduction Act in the US has
removed some, if not all, healthcare reform uncertainty offering
investors greater clarity on the near and medium-term investment
landscape.
Against a background of continued global economic challenges,
the outlook for the healthcare sector remains robust. The demand
for products and services is growing significantly, innovation
continues at a rapid pace and valuations are attractive. The
positive fundamental investment drivers are currently matched with
a macroeconomic backdrop which is extremely supportive for the
sector. The healthcare sector has outperformed the broader market
over the last 12 months and with the recent healthcare reform
update having passed in the US as part of the Inflation
Reduction Act, we are anticipating a period of sustained
outperformance for the sector.
James Douglas & Gareth Powell
Co-Managers
9 December 2022
PORTFOLIO REVIEW
Full Investment Portfolio
As at 30 September
Ranking Stock Sector Country Market Value % of total
GBP'000 net assets
2022 2021 2022 2021 2022 2021
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
1 (1) Johnson & Johnson Pharmaceuticals States 35,964 29,093 8.9% 7.5%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
2 (2) UnitedHealth Managed Healthcare States 29,655 24,053 7.3% 6.2%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
3 (-) Abbvie Biotechnology States 24,932 - 6.2% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
4 (3) AstraZeneca Pharmaceuticals Kingdom 19,761 19,954 4.9% 5.2%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
5 (-) Eli Lilly Pharmaceuticals States 16,997 - 4.2% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
6 (22) Cytokinetics Biotechnology States 14,673 8,974 3.6% 2.3%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
7 (10) Boston Scientific Healthcare Equipment States 14,092 10,810 3.5% 2.8%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
8 (-) Novartis Pharmaceuticals Switzerland 14,091 - 3.5% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
9 (-) Humana Managed Healthcare States 13,908 - 3.4% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
10 (31) Alcon Healthcare Supplies Switzerland 12,040 7,678 2.9% 2.0%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Top 10 investments 196,113 48.4%
------------------------ ------------ ----------- -------- -------- -----
11 (-) Biovitrum Biotechnology Sweden 11,758 - 2.9% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
12 (-) Daiichi Sankyo Pharmaceuticals Japan 11,459 - 2.9% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
13 (-) HCA Healthcare Facilities States 10,872 - 2.7% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
14 (5) Sanofi Pharmaceuticals France 10,513 13,629 2.6% 3.5%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
15 (34) Genmab Biotechnology Denmark 10,197 5,712 2.5% 1.5%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
16 (19) Acadia Healthcare Healthcare Facilities States 10,082 9,595 2.5% 2.5%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Life Sciences United
17 (27) Avantor Tools & Services States 9,824 8,637 2.4% 2.2%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
18 (-) DexCom Healthcare Equipment States 9,812 - 2.4% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
19 (9) Horizon Therapeutics Biotechnology States 9,723 10,910 2.4% 2.8%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
20 (-) Astellas Pharma Pharmaceuticals Japan 9,701 - 2.4% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Top 20 investments 300,054 74.1%
------------------------ ------------ ----------- -------- -------- -----
United
21 (-) Incyte Genomics Biotechnology States 9,662 - 2.4% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Metal & Glass United
22 (24) AptarGroup Containers States 9,623 8,852 2.4% 2.3%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
23 (16) Molina Healthcare Managed Healthcare States 9,603 9,961 2.4% 2.6%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
24 (17) ArgenX Biotechnology Netherlands 9,210 9,703 2.3% 2.5%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
25 (-) Penumbra Healthcare Equipment States 9,172 - 2.3% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
26 (-) Sartorius Healthcare Equipment Germany 9,070 - 2.2% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
27 (-) Seagen Biotechnology States 8,886 - 2.2% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Option Care United
28 (-) Health Healthcare Services States 8,452 - 2.1% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
29 (-) United Therapeutics Biotechnology States 8,060 - 2.0% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Life Sciences United
30 (28) Bio-Rad Laboratories Tools & Services States 7,879 8,439 1.9% 2.2%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Top 30 investments 389,671 96.3%
------------------------ ------------ ----------- -------- -------- -----
United
31 (-) Revance Therapeutics Pharmaceuticals States 7,647 - 1.9% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
32 (-) Tenet Healthcare Healthcare Facilities States 7,582 - 1.9% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
33 (40) Zealand Pharma Biotechnology Denmark 7,437 3,807 1.8% 1.0%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
34 (35) Uniphar Healthcare Distributors Ireland 4,171 5,438 1.0% 1.4%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
35 (42) Axonics Healthcare Equipment States 4,018 2,180 1.0% 0.6%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
36 (41) Ship Healthcare Healthcare Distributors Japan 3,503 2,882 0.9% 0.7%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Intelligent United
37 (38) Ultrasound Healthcare Technology Kingdom 3,049 3,811 0.8% 1.0%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
38 (39) LivaNova Healthcare Equipment Kingdom 2,950 3,810 0.7% 1.0%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
39 (36) Medley Healthcare Technology Japan 2,901 4,404 0.7% 1.1%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
United
40 (-) Surgery Partners Healthcare Facilities States 1,326 - 0.3% -
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Top 40 investments 434,255 107.3%
------------------------ ------------ ----------- -------- -------- -----
41 (43) Quotient Healthcare Supplies Switzerland 164 2,123 - 0.5%
----- --------------------- ------------------------ ------------ ----------- -------- -------- -----
Total equities 434,419 107.3%
------------------------ ------------ ----------- -------- -------- -----
Other net liabilities (29,586) (7.3%)
------------------------ ------------ ----------- -------- -------- -----
Net assets 404,833 100.0%
--------------------- ------------------------ ------------ ----------- -------- -------- -----
Note - Sectors are from the GICS (Global Industry Classification
Standard).
STRATEGIC REPORT
The Strategic Report section of this Annual Report comprises the
Chair's Statement, the Investment Manager's Report, including
information on the portfolio, and this Strategic Report. This
Report has been prepared to provide information to shareholders on
the Company's strategy and the potential for this strategy to
succeed, including a fair review of the Company's performance
during the year ended 30 September 2022, the position of the
Company at the year end and a description of the principal risks
and uncertainties.
Throughout the Strategic Report there are certain
forward-looking statements made by the Directors in good faith
based on the information available to them at the time of their
approval of this Report. Such statements should be treated with
caution due to inherent uncertainties, including both economic and
business risk factors, underlying any such forward-looking
information.
BUSINESS MODEL AND REGULATORY ARRANGEMENTS
The Company's business model follows that of an externally
managed investment trust providing shareholders with access to a
global portfolio of healthcare stocks.
The Company is designated an Alternative Investment Fund ('AIF')
under the Alternative Investment Fund Management Directive
('AIFMD') and, as required by the Directive, has contracted with
Polar Capital LLP to act as the Alternative Investment Fund Manager
('AIFM') and HSBC Bank Plc to act as the Depositary.
Both the AIFM and the Depositary have responsibilities under
AIFMD for ensuring that the assets of the Company are managed in
accordance with the investment policy and are held in safe custody.
The Board remains responsible for setting the investment strategy
and operational guidelines as well as meeting the requirements of
the Financial Conduct Authority ('FCA') Listing Rules and the
Companies Act 2006.
The AIFMD requires certain information to be made available to
investors in AIFs before they invest and requires that material
changes to this information be disclosed in the Annual Report of
each AIF. Investor Disclosure Documents, which set out information
on the Company's investment strategy and policies, gearing, risk,
liquidity, administration, management, fees, conflicts of interest
and other Shareholder information are available on the Company's
website.
There have been no material changes to the information requiring
disclosure. Any information requiring immediate disclosure pursuant
to the AIFMD will be disclosed to the London Stock Exchange.
Statements from the Depositary and the AIFM can be found on the
Company's website.
INVESTMENT OBJECTIVE AND POLICY
The Company's Investment Objective is to generate capital growth
through investments in a global portfolio of healthcare stocks.
The Company will seek to achieve its objective by investing in a
diversified global portfolio consisting primarily of listed
equities. The portfolio is diversified by geography, industry
sub-sector and investment size.
The portfolio will comprise a single pool of investments, but
for operational purposes, the Investment Manager will maintain a
Growth portfolio and an Innovation portfolio. Innovation companies
are broadly defined by the Investment Manager as small/mid cap
innovators that are driving disruptive change, giving rise not only
to new drugs and surgical treatments but also to a transformation
in the management and delivery of healthcare. The Growth portfolio
is expected to comprise a majority of the Company's assets. For
this purpose, once an innovation stock's market capitalisation has
risen above US $5bn, it will ordinarily then
be treated as a growth stock.
The relative ratio between the two portfolios may vary over the
life of the Company due to factors such as asset growth and the
Investment Manager's views as to the risks and opportunities
offered by investments in each pool and across the combined
portfolio. The original make-up of the combined portfolio was of up
to 50 stocks, with growth stocks being primarily US listed. In
2018, the Board authorised an increase to the number of stocks able
to be held to 65 and confirmed there is no restriction on
geographical exposure.
The combined portfolio will therefore be made up of interests in
up to 65 companies, with no single investment accounting for more
than 10% (or 15% in the case of an investment in another fund
managed by the Investment Manager) of the Gross Assets at the time
of investment. The innovation portfolio may include stocks which
are neither quoted nor listed on any stock exchange but the
exposure to such stocks, in aggregate, will not exceed 5% of Gross
Assets at the time of investment. In the event that the Investment
Manager launches a dedicated healthcare innovation fund, the
Company's exposure to innovation stocks may be achieved in whole or
in part by an investment in that fund. In any event, the Company
will not, without the prior consent of the Board, acquire more than
15% of any such healthcare innovation fund's issued share
capital.
The Board remains positive on the outlook for healthcare and the
Company will continue to pursue its Investment Objective in
accordance with the stated investment policy and strategy. Future
performance is dependent to a significant degree on the world's
financial markets and their reactions to economic events and other
geo-political forces. The Chair's Statement and the Investment
Manager's Report comment on the development and performance of the
business during the financial year, the outlook and potential risks
to the performance of the portfolio.
THE BOARD
As the day-to-day management of the Company is outsourced to
service providers the Board's focus at each meeting is on
investment performance, including the outlook and strategy. The
Board also considers the management and provision of services
received from third-party service providers and the risks inherent
in the various matters reviewed and discussed. Further information
on the composition of the Board can be found in the Corporate
Governance Report in the full Annual Report and Accounts.
STRATEGY AND INVESTMENT APPROACH
The Investment Manager's investment process is primarily based
on bottom-up fundamental analysis. The Investment Manager uses a
qualitative filter consisting of key criteria to build up a
watch-list of securities that is monitored on a regular basis. Due
diligence is then carried out on the individual securities on the
watch-list. Each individual holding is assessed on its own merits
in terms of risk: reward including ESG criteria. While the Company
expects normally to be fully or substantially invested, the Company
may hold cash
or money market instruments pending deployment in the portfolio.
In addition, it will have the flexibility, when the Investment
Manager perceives there to be actual or expected adverse equity
market conditions, to maintain cash holdings as it deems
appropriate.
SERVICE PROVIDERS
Polar Capital LLP has been appointed to act as the Investment
Manager and AIFM as well as to provide or procure company
secretarial services, marketing and administrative services,
including accounting, portfolio valuation and trade settlement
which it has arranged to deliver through HSBC Securities Services
("HSS").
The Company also contracts directly, on terms agreed
periodically, with a number of third parties for the provision of
specialist services:
-- Panmure Gordon & Co as Corporate Broker;
-- Herbert Smith Freehills LLP as Solicitors;
-- HSBC Securities Services as Custodian and Depositary;
-- Equiniti Limited as the Share Registrars;
-- RD: IR for Investor Relations and Shareholder Analysis;
-- Camarco as PR advisors;
-- PricewaterhouseCoopers LLP as independent Auditors;
-- Huguenot Limited for website designers and internet hosting services; and
-- Perivan Limited as designers and printers for shareholder Communications.
GEARING
Following the restructure of the Company in June 2017, the
Company maintains long-term structural gearing in the form of a
loan from the wholly owned subsidiary PCGH ZDP Plc. No short-term
borrowings have been made and there are no arrangements made for
any bank loans. The Articles of Association provide that the
Company may borrow up to 15% of its Net Asset Value at the time of
drawdown, for tactical deployment when the Board believes that
gearing will enhance returns to shareholders. Further details of
the loan provided by the subsidiary are given in the full Annual
Report and Accounts.
BENCHMARK
The Company will measure the Investment Manager's performance
against the MSCI ACWI Healthcare Index total return, in sterling
with dividends reinvested. Although the Company has a benchmark,
this is neither a target nor determinant of investment strategy.
The portfolio may diverge substantially from the constituents of
this index. The purpose of the Benchmark is to set a reasonable
measure of performance for shareholders above which the
Investment Manager earns a share for any outperformance it
has delivered.
INVESTMENT MANAGEMENT COMPANY AND MANAGEMENT OF THE
PORTFOLIO
As the Company is an investment vehicle for shareholders, the
Directors have sought to ensure that the business of the Company is
managed by a leading specialist investment management team and that
the investment strategy remains attractive to shareholders. The
Directors believe that a strong working relationship with Polar
Capital LLP (the Investment Manager) will achieve the optimum
return for shareholders. As such, the Board and the Investment
Manager operate in a supportive, co-operative and open
environment.
The Investment Manager is Polar Capital LLP ('Polar Capital'),
which is authorised and regulated by the Financial Conduct
Authority, to act as Investment Manager and AIFM of the Company
with sole responsibility for the discretionary management of the
Company's assets (including uninvested cash) and sole
responsibility to take decisions as to the purchase and sale of
individual investments. The Investment Manager also has
responsibility for asset allocation within the limits of the
investment policy and guidelines established
and regularly reviewed by the Board, all subject to the overall
control and supervision of the Board.
Under the terms of the IMA, the Investment Manager also provides
or procures accountancy services, company secretarial, marketing
and day-to-day administrative services, including the monitoring of
third-party suppliers, which are directly appointed by the Company.
The Investment Manager has, with the consent of the Directors,
delegated the provision of certain of these administrative
functions to HSBC Securities Services and to Polar Capital
Secretarial Services Limited.
Polar Capital provides a team of healthcare specialists and the
portfolio is co-managed by Dr James Douglas and Mr Gareth Powell.
The Investment Manager has other resources which support the
investment team and has experience in managing and administering
other investment trust companies. Polar Capital provides a team of
healthcare specialists and the portfolio is co-managed by Dr James
Douglas and Mr Gareth Powell. The Investment Manager has other
resources which support the investment team and has experience in
managing and administering other investment trust companies.
TERMINATION ARRANGEMENTS
The IMA may be terminated by either party giving 12 months'
notice. The IMA may be terminated earlier by the Company with
immediate effect on the occurrence of certain events, including:
(i) if an order has been made or an effective resolution passed for
the liquidation of the Investment Manager; (ii) if the Investment
Manager ceases or threatens to cease to carry on its business;
(iii) where the Company is required to do so by a relevant
regulatory authority; (iv) on the liquidation of the Company; or
(v) subject to certain conditions, where the Investment Manager
commits a material breach of the IMA.
In the event the IMA is terminated before the expiry of the
Company's fixed life then, except in the event of termination by
the Company for certain specified causes, the base fee and the
performance fee will be calculated pro rata for the period up to
and including the date of termination.
FEE ARRANGEMENTS
MANAGEMENT FEE
Under the terms of the IMA, the Investment Manager will be
entitled to a management fee together with reimbursement of
reasonable expenses incurred by it in the performance of its
duties. The management fee is payable monthly in arrears and is
charged at the rate of 0.75% per annum based on the lower of the
market capitalisation and adjusted net asset value. In accordance
with the Directors' policy on the allocation of expenses between
income and capital, in each financial year 80% of the management
fee payable is charged to capital and the remaining 20% to
income.
PERFORMANCE FEE
The Investment Manager may be entitled to a performance fee. The
performance fee was reset at the date of reconstruction of the
Company and will be paid in cash at the end of the Company's
expected life (except in the case of an earlier termination of the
IMA). The performance fee will be an amount equal to 10% of the
excess total return (based on the Adjusted Net Asset Value per
ordinary share at that time) over the total return of the benchmark
plus 1.5% compounded annually on each anniversary of share
admission and adjusted for periods of less than 12 months. In the
event of a performance fee becoming payable on the future portfolio
realisation date, such fee would be subject to a maximum amount of
3.5% of the terminal NAV. For the purposes of calculating the
performance fee, the Company's Adjusted Net Asset Value will be
based on the Net Asset Value adjusted by the amount of any
dividends paid by the Company deemed to have been reinvested on the
date of payment in ordinary shares at their Net Asset Value (on
such date) and the resulting amount added to the Company's Net
Asset Value. If at the end of the Company's expected life the
amount available for distribution to shareholders is less than
215.9p per ordinary share, no performance fee will be payable. If
the amount is more than 215.9p per ordinary share but payment of
the performance fee in full would reduce it below that level, then
the performance fee will be reduced such that shareholders receive
exactly 215.9p per share. No performance fee has been paid or
accrued since inception and up to 30 September 2022.
PERFORMANCE AND KEY PERFORMANCE OBJECTIVES
The Board appraises the performance of the Company and the
Investment Manager as the key supplier of services to the Company
against key performance indicators ('KPIs'). The objectives of the
KPIs comprise both specific financial and Shareholder related
measures. These KPI's have not differed from the prior year.
KPI CONTROL PROCESS OUTCOME
The provision of investment The Board reviews As at 30 September 2022,
returns to shareholders the performance of the total net assets of
measured by long- the portfolio in detail the Company amounted to
term and hears the views GBP404,833,000 2021: GBP385,728,000).
NAV growth and relative of the Investment
performance against Manager at The Company's NAV total
the Benchmark. each meeting. return, over the year
ended 30 September 2022,
The Board also considers was 5.59% while the Benchmark
the value delivered Index over the same period
to shareholders through decreased by 6.93%. The
NAV growth and dividends Company's performance
paid. is explained further in
the Investment Manager's
Report.
Since restructuring on
20 June 2017, the total
return of the NAV was
60.79% and the benchmark
was 64.05%.
Investment performance
is explained in the Chair's
Statement and the Investment
Manager's Report.
------------------------------- ---------------------------------------
The achievement of Financial forecasts Two dividends have been
the dividend policy. are reviewed to track paid or are payable in
income and distributions. respect of the year ended
30 September 2022 totalling
2.10 p per share (2021:
two dividends totalling
2.00p per share).
The Company's focus remains
on capital growth. While
the Company continues
to aim to pay two dividends
per year these are expected
to be a small part of
a shareholder total return.
------------------------------- ---------------------------------------
Monitoring and reacting The Board receives The discount of the ordinary
to issues created regular information share price to the NAV
by the discount or on the composition per ordinary share at
premium of of the share register the year ended 30 September
the ordinary share including trading 2022 was 5.6% (2021: 9.5%).
price to the NAV per patterns and discount/premium
ordinary share with levels of the Company's During the year ended
the aim of reduced ordinary shares. The 30 September 2022, no
discount volatility Board discusses and new shares were issued
for shareholders. authorises the issue or bought back.
or buy back of shares
when appropriate. The number of shares in
issue, as at the year
The Board is aware end was 124,149,256 of
of the vulnerability which 2,879,256 were held
of a sector specialist in treasury. The total
investment trust to voting rights of the Company
a change in investor are 121,270,000 shares.
sentiment to that
sector. While there
is no formal discount
policy the Board discusses
the market factors
giving rise to any
discount or premium,
the long or short-term
nature of those factors
and the overall benefit
to Shareholders of
any actions. The market
liquidity is
also considered when
authorising the issue
or buy back of shares
when appropriate market
conditions prevail.
A daily NAV per share,
calculated in accordance
with the AIC guidelines
is issued to the London
Stock Exchange.
------------------------------- ---------------------------------------
To qualify and continue The Board receives The Company was granted
to meet the requirements regular financial investment trust status
for sections 1158 information which annually up to 1 October
and 1159 of the Corporation discloses the current 2014 and is deemed to
Tax Act 2010 ('investment and projected financial be granted such status
trust status'). position of the Company for each subsequent year
against each of the subject to the Company
tests set out in sections continuing to satisfy
1158 and 1159. the conditions of section
1158 of the Corporation
Tax Act 2010 and other
associated ongoing requirements.
The Directors confirm
that the tests have been
met in the financial year
ended 30 September 2022
and believe that they
will continue to be met.
------------------------------- ---------------------------------------
To ensure the efficient The Board considers The Board has received,
operation of the Company annually the services and considered satisfactory,
by monitoring the provided by the Investment the internal controls
services provided Manager, both investment report of the Investment
by third party suppliers, and administrative, Manager and other key
including the Investment and reviews on a cycle suppliers including the
Manager, and controlling the provision of services contingency arrangements
ongoing charges. from third parties to facilitate the ongoing
including the costs operations of the Company
of their services. in the event of withdrawal
or failure of services.
The annual operating
expenses are reviewed The ongoing charges for
and any non-recurring the year ended 30 September
project related expenditure 2022 were 0.84%, compared
approved by the Board. to 0.83% the previous
year.
------------------------------- ---------------------------------------
Risk Management
The Board is responsible for the management of risks faced by
the Company and, through delegation to the Audit Committee, has
established procedures to manage risk, oversee the internal control
framework and determine the nature and extent of the principal
risks the Company is willing to take in order to achieve its
long-term strategic objectives.
The established risk management process the Company follows
identifies and assesses various risks, their likelihood, and
possible severity of impact, considering both internal and external
controls and factors that could provide mitigation. A post
mitigation risk impact score is then determined for each principal
risk.
The Audit Committee carries out, at least annually, a robust
assessment of the principal risks and uncertainties with the
assistance of the Investment Manager, continually monitors
identified risks and meets to discuss both long-term and emerging
risks outside of the normal cycle of Audit Committee meetings.
During the year the Audit Committee, in conjunction with the
Board and the Investment Managers undertook a full review of the
Company's Risk Map including the mitigating factors and controls to
reduce the impact of the risks. The Committee continues to closely
monitor these risks along with any other emerging risks as they
develop and implements mitigating actions as necessary.
The Committee is mindful of the uncertainty surrounding
inflation, recession and rising interest rates coupled with the
invasion of Ukraine by Russia and the longer term impact this may
have on the market and global economy. The impact of this is
discussed further in the Chair's Statement and Investment Manager's
Report. Further information on how the Committee has assessed the
Company's ability to operate as a going concern and the Company's
longer-term viability can be found in the full Annual Report and
Accounts.
The key risks, which are those classified as having the highest
risk impact score post mitigation, are detailed below with a
high-level
summary of the management through mitigation and status arrows
to indicate any change in assessment over the past year.
Portfolio Management
Description Assessment Mitigation
--------------------------- ---------------- ------------------------------
Investment Breach of Investment Unchanged from The Board seeks
Performance policy, Investment previous year. to mitigate the
Manager unable to impact of such risks
deliver the Investment through the regular
Objective leading reporting and monitoring
to poor performance of the Company's
against the benchmark investment performance
or market/industry against its peer
average. group, benchmark
and other agreed
indicators of relative
performance. A detailed
annual review of
the investment strategy
is undertaken by
the Investment Manager
with the Board including
analysis of investment
markets and sector
trends.
At each meeting
the Board discusses
developments in
healthcare and drug
pipelines with the
Investment Manager
in addition to the
composition and
diversification
of the portfolio
with sales and purchases
of investments and
the degree of risk
which the Investment
Manager incurs to
generate investment
returns. Individual
investments are
discussed with the
Investment Manager
as well as the Investment
Manager's general
views on the various
investment markets
and the healthcare
sector in particular.
Analytical performance
data and attribution
analysis is presented
by the Investment
Manager.
The Board is committed
to a clear communication
program to ensure
shareholders understand
the investment strategy.
This is maintained
through the use
of monthly factsheets
which have a market
commentary from
the
Investment Manager
as well as portfolio
data, an informative
website as well
as annual and half
year reports.
--------------------------- ---------------- ------------------------------
Gearing Inability to repay Unchanged from The Board considered
ZDP loan and or previous year. the benefits and
inappropriate use drawbacks of the
of derivatives. structural debt
at the time of restructuring
and concluded that
the ability to lock-in
an effective interest
rate of 3% pa for
the 7-year life
would be beneficial
to investment returns,
the Board remains
of the same belief.
The asset cover
necessary to repay
the ZDP shares is
reviewed at each
Board meeting. If
any flexible gearing
is contemplated
the Board would
agree the overall
levels of gearing
with the AIFM. The
arrangement of bank
facilities and drawing
of funds under such
arrangements are
controlled by the
Board. Derivatives
are considered as
being a form of
gearing and a policy
for their use has
been agreed by the
Board. The deployment
of any borrowed
funds is based on
the Investment
Manager's assessment
of risk and reward.
--------------------------- ---------------- ------------------------------
Discount/Premium Persistent discount Decreased from The Board regularly
in excess of Board previous year. considers, in comparison
or Shareholder acceptable to the sector and
levels. peers, the level
of premium and discount
of the share price
to the NAV and ways
to enhance Shareholder
value including
share issuance and
buy backs.
The Board has carefully
monitored the discount
level and market
movements and has
discussed performance
with the Managers
and advisers. The
discount of the
Company narrowed
during the year
under review and
as at 30 September
2022, the discount
of the ordinary
share price to the
NAV per ordinary
share was 5.6% (2020:
9.5%). The Chair
also meets regularly
with key shareholders
to understand any
concerns and views
as detailed in the
Chair's Statement
and within
the s172 Report.
Further detail on
the performance
and the impact market
movements on the
Company is given
in the Investment
Manager's Report.
--------------------------- ---------------- ------------------------------
Trading Execution of unauthorised Unchanged from Investment limits
trade/dealing error. previous year. and restrictions
Error or breach are encoded into
may cause regulatory the dealing and
investigation leading operations systems
to fines, reputational of the Investment
damage and risk Manager and various
to investment trust oversight functions
status. are undertaken to
ensure there is
early warning of
any potential issue
of compliance or
regulatory matters.
--------------------------- ---------------- ------------------------------
Operational Risk
Description Assessment Mitigation
------------------------------- ---------------- ---------------------------------
Service Failure Failure in services Unchanged from The Board carries
provided by the previous year. out an annual review
Investment Manager, of internal control
Custodian, reports
Depositary or other from suppliers which
service providers; includes cyber protocols
Accounting, Financial and disaster recovery
or Custody Errors procedures. Due
resulting in regulatory diligence and service
investigation or reviews are undertaken
financial loss, with third-party
failure of trade service providers
settlement, potential including the Custodian
loss of Shareholder and Depositary.
assets and investment
trust status. A full review of
the internal control
framework is carried
out at least annually.
Regular reporting
is received by the
Investment Manager
on behalf of the
Board from the Depositary
on the safe custody
of the Company's
assets. The Board
undertakes independent
reviews
of the Depositary
and external Administrator
services and additional
resources have been
put in place by
the Investment Manager.
Management accounts
are produced and
reviewed monthly,
statutory reporting
and daily NAV calculations
are produced by
the external Administrator
and verified by
the Investment Manager.
Accounting records
are tested, and
valuations verified
independently as
part of the year-end
financial reporting
process.
------------------------------- ---------------- ---------------------------------
Cyber Risk Cyber-attack causing Unchanged from The number, severity
disruption to or previous year. and success rate
failure of operational of cyber-attacks
and accounting systems have increased considerably
and processes provided over recent years.
by the Investment However, controls
Manager creating are in place and
an unexpected event the Board proactively
and/or adverse impact seeks to keep abreast
on personnel or of developments
the portfolio. through updates
from representatives
of the Investment
Manager who undertakes
meetings with the
relevant service
providers.
The Audit Committee
sought assurance
via the Investment
Manager, from each
of the Company's
service providers
on the resilience
of their business
continuity arrangements.
These assurances
and the subsequent
detailed updates
that were given
to the Committee
provided a satisfactory
level of assurance
that there had not
been, and there
was no anticipation
of any disruption
in the ability of
each service provider
to fulfil their
duties as would
typically be expected.
------------------------------- ---------------- ---------------------------------
Key Man Loss of Investment Unchanged from The strength and
Manager or other previous year. depth of investment
key management professionals. team provides comfort
Impact on investor that there is not
confidence leading over-reliance on
to widening of the one person with
discount and/or alternative portfolio
poor performance managers available
creating a period to act if needed.
of uncertainty and For each key business
potential termination process roles, responsibilities
of the Investment and reporting lines
Management Agreement. are clear and unambiguous.
Key personnel are
incentivised by
equity participation
in the investment
management company.
------------------------------- ---------------- ---------------------------------
Shareholder Failure to effectively Unchanged from Polar Capital Sales
Communications communicate significant previous year. Team and the Corporate
events to the shareholder Broker provide periodic
and investor base. reports to the Board
on communications
with shareholders
and feedback received.
The Board is committed
to a clear communication
programme to ensure
Shareholders understand
the investment strategy.
This is maintained
through the use
of monthly factsheets
which have a market
commentary from
the Investment Manager
as well as portfolio
data, an informative
website as well
as annual and half
year reports.
Contact details
and how to contact
the Board are provided
in regulatory announcements
and the Board are
present at the AGM
to speak to shareholders.
------------------------------- ---------------- ---------------------------------
Regulatory Risk
Description Assessment Mitigation
------------------------------ ---------------- ---------------------------
Non-compliance with Unchanged from The Board monitors
statutes, regulations previous year. regulatory change
and disclosure requirements, with the assistance
including FCA listed of the
company regime and Investment Manager,
Companies Act 2006; Company Secretary
s1158/1159 of the and external professional
Corporation Tax suppliers and implements
Act 2010, the Companies necessary changes
Act 2006 and other should they be required.
UK, European and
overseas legislation The Board receives
affecting UK companies regulatory reports
including MiFID for discussion and,
II and the GDPR. if required, considers
the need for any
Not complying with remedial action.
accounting standards In addition, as
could result is an investment company,
a suspension of the Company is required
listing or loss to comply with a
of investment trust framework of tax
status, reputational laws, regulation
damage and Shareholder and company law.
activism.
The Board keeps
Further risks arise abreast of third
from not keeping party service provider
abreast of changes internal controls
in legislation and processes to ensure
regulations which requirements are
have in recent years met in accordance
been substantial. with regulatory
requirements.
------------------------------ ---------------- ---------------------------
Economic and Market Risk
Description Assessment Mitigation
------------------------------- ---------------- -----------------------------
Financial loss due Unchanged from The Board regularly
to unexpected natural previous year. discusses the general
disaster or other economic conditions
unpredictable event and developments.
disrupting the ability
to operate or significant The impact on the
exposure to the portfolio from
economic cycles other geopolitical
of the markets in changes
which the underlying are monitored through
investments existing control
conduct their business systems and discussed
operations as well regularly by the
as the economic Board. While it
impact on is difficult to
investment markets quantify the impact
where such investments of such changes,
are listed. it is not anticipated
that they will
Fluctuations in fundamentally affect
stock markets and the business of
currency exchange the Company or
rates could be advantageous make healthcare
or disadvantageous investing any less
to the Company and desirable. The
its performance. longer term effects
of inflation, recession
Disruption to trading and the war in
platforms and support Ukraine will continue
services. to be assessed
by the Audit Committee
in light of how
they will impact
the Company's portfolio
and the overall
economic and geopolitical
environment in
which the Company
operates.
The Company through
the Investment
Manager, has a
disaster recovery
plan in place.
----------------------------- -------------------- ---------------------------
SECTION 172 OF THE COMPANIES ACT 2006
The statutory duties of the Directors are listed in s171-177 of
the Companies Act 2006. Under s172, Directors have a duty to
promote the success of the Company for the benefit of its members
(our shareholders) as a whole and in doing so have regard to the
consequences of any decision in the long term, as well as having
regard to the Company's stakeholders amongst other considerations.
The fulfilment of this duty not only helps the Company achieve its
Investment Objective but ensures decisions are made in a
responsible and sustainable way for shareholders.
To ensure that the Directors are aware of, and understand, their
duties, they are provided with an induction when they first join
the Board, including details of all relevant regulatory and legal
duties as a Director and continue to receive regular and ongoing
updates on relevant legislative and regulatory developments. They
also have continued access to the advice and services of the
Company Secretary and, when deemed necessary, the Directors can
seek independent professional advice. The Schedule of Matters
Reserved for the Board, as well as the Terms of Reference of its
committees, are reviewed annually and further describe Directors'
responsibilities and obligations and include any statutory and
regulatory duties.
The Board seeks to understand the needs and priorities of the
Company's stakeholders and these are taken into account during
discussions and as part of the decision-making process. As an
externally managed investment company, the Company does not have
any employees or customers, however the key stakeholders and a
summary of the Board's consideration and actions where possible in
relation to each group of stakeholders are described in the table
below.
STAKEHOLDER HOW WE ENGAGE WITH THEM
GROUP
SHAREHOLDERS The Directors have considered this duty when making
the strategic decisions during the year that affect
shareholders, including the continued appointment
of the Investment Manager and the recommendation
that
shareholders vote in favour of the resolutions
for the Company to continue and to renew the allotment
and buy back authorities at the AGM. The Directors
have also engaged with and taken account of shareholders'
interests during the year.
The Company's AGM will be held at 2pm on Thursday
9 February 2023 at the offices of Polar Capital,
16 Palace Street, London SW1E 5JD. The Board recognises
that the AGM is an important event for shareholders
and the Company and is keen to ensure that shareholders
are able to exercise their right to vote and participate.
Any changes to these arrangements will be communicated
through the Company's website and via a Regulatory
Information Service announcement.
The Board believes that shareholder engagement
remains important, especially in the current market
conditions and is keen that the AGM be a participative
event for all. To enable all shareholders to hear
the Managers' presentation, this year a pre-recorded
presentation reviewing the year past and the outlook
for 2022-2023 will be uploaded to the Company's
website ahead of the AGM. The AGM in-person meeting
will comprise the formal business and questions
only. Shareholders are encouraged to send any questions
ahead of the AGM to the Board via the Company Secretary
at cosec@polarcapital.co.uk stating the subject
matter as PCGH-AGM.
The investment manager gives a presentation and
the Chairs of the Board and of the Committees,
along with
the Managers, will be in attendance at the AGM
and will be available to respond to questions and
concerns from shareholders. Should any significant
votes be cast against a resolution, the Board will
engage with shareholders and explain in its announcement
of the results of the AGM the actions it intends
to take to consult shareholders in order to understand
the reasons behind the votes against. Following
the consultation, an update will be published no
later than six months after the AGM and the Annual
Report will detail the impact the Shareholder feedback
has had on any decisions the Board has taken and
any actions or resolutions proposed.
Relations with shareholders
The Board and the Manager consider maintaining
good communications and engaging with shareholders
through meetings and presentations a key priority.
The Board regularly considers the share register
of the Company and receives regular reports from
the Manager and the Corporate Broker on meetings
attended with shareholders and any concerns that
are raised in those meetings. The Board also reviews
correspondence from shareholders and may attend
investor presentations.
Shareholders are kept informed by the publication
of annual and half year reports, monthly fact sheets,
access to commentary from the Investment Manager
via the Company's website and attendance at events
at which the Investment Manager presents.
Shareholders are able to raise any concerns directly
with the Board without using the Manager or Company
Secretary as a conduit. The Chair or other Directors
are available to shareholders who wish to raise
matters either in person or in writing. The Chair
and Directors may be contacted through the registered
office of the Company.
The Company, through the sales and marketing efforts
of the Investment Manager, encourages retail investment
platforms to engage with underlying shareholders
in relation to Company communications and enabling
those shareholders to cast their votes on Shareholder
resolutions. The Company however has no responsibility
over such platforms. The Board therefore encourage
shareholders invested via the platforms to regularly
visit the Company's website or to make contact
with the Company directly to obtain copies of Shareholder
communications.
The Company has also made arrangements with its
registrar for shareholders, who own their shares
directly rather than through a nominee or share
scheme, to view their account online at www.shareview.co.uk.
Other services are also available via this service.
Outcomes and strategic decisions during the year
AGM
To enable more shareholders the opportunity to
hear the Investment Manager's AGM presentation,
the Board has opted to pre-record and upload this
to the website ahead of the voting deadline and
in-person formal business AGM.
----------------------------------------------------------------
INVESTMENT MANAGER Through the Board meeting cycle, regular updates
and the work of the Management Engagement Committee
reviewing the services of the Investment Manager
annually, the Board is able to safeguard Shareholder
interests by:
* Ensuring adherence to the Investment Policy;
* Ensuring excessive risk is not undertaken in the
pursuit of investment performance;
* Ensuring adherence to the Investment Management
Policy and reviewing the agreed management and
performance fees; and
* Reviewing the Investment Manager's decision making
and consistency in investment process.
Maintaining a close and constructive working relationship
with the Manager is crucial as the Board and the
Investment Manager both aim to continue to achieve
consistent, long-term returns in line with the
Investment Objective. The culture which the Board
maintains to ensure this involves encouraging open
discussion with the Investment Manager; recognising
that the interests of Shareholders and the Investment
Manager are aligned, providing constructive challenge
and making Directors' experience available to support
the Investment Manager. This culture is aligned
with the collegiate and meritocratic culture which
Polar Capital has developed and maintains.
Outcomes and strategic decisions during the year
ESG
During the year under review, the Board continued
to develop its approach to ESG and engages with
the Investment manager to better understand how
ESG has been further integrated into the investment
and decision-making process. The Board also receives
information on how ESG affects Polar Capital as
a business and the healthcare team in particular.
Please see the ESG Report in the full Annual Report
for further information.
The Management Engagement Committee has recommended
and the Board has approved the continued appointment
of the Investment Manager on the terms set out
within the Investment Management Agreement.
----------------------------------------------------------------
INVESTEE COMPANIES The Board has instructed the Investment Manager
to take into account the published corporate governance
policies of the companies in which they invest.
The Board has also considered the Investment Manager's
Stewardship Code and Proxy Voting Policy. The Voting
Policy is for the Investment Manager to vote at
all general meetings of companies in favour of
resolutions proposed by the management where it
believes that the proposals are in the interests
of shareholders. However, in exceptional cases,
where the Investment Manager believes that a resolution
would be detrimental to the interests of shareholders
or the financial performance of the Company, appropriate
notification will be given and abstentions or a
vote against will be lodged.
The Investment Manager has voted at 47 company
meetings over the year ended 30 September 2022,
with 5.8% of all votes being against management
and 31% of meetings having at least one against
or withheld vote.
The Investment Manager reports to the Board, when
requested, on the application of the Stewardship
Code and Voting Policy. The Investment Manager's
Stewardship Code and Voting Policy can be found
on the Investment Manager's website in the Corporate
Governance section (www.polarcapital.co.uk). Further
information on how the Investment Manager considers
ESG in its engagement with investee companies can
be found in the ESG Report in the full Annual Report.
----------------------------------------------------------------
SERVICE PROVIDERS The Directors have frequent engagement with the
Company's other service providers through the annual
cycle of reporting and due diligence meetings or
site visits. This engagement is completed with
the aim of having effective oversight of delegated
services, seeking to improve the processes for
the benefit of the Company and to understand the
needs and views of the Company's service providers,
as stakeholders in the Company. Further information
on the Board's engagement with service providers
is included in the Corporate Governance Statement
and the Report of the Audit Committee in the full
Annual Report. During the year under review, due
diligence meetings have been undertaken by the
Investment Manager and where possible, service
providers have joined meetings to present their
reports directly to the Board or the Audit Committee
as appropriate.
Outcomes and strategic decisions during the year
The reviews of the Company's service providers
have been positive and the Directors believe their
continued appointment is in the best interests
of the Company. The accounting and administration
services of HSBC Securities Services (HSS) are
contracted through Polar Capital and provided to
the Company under the terms of the IMA. The Board
continue to monitor service levels and due diligence
reviews conducted by the Company Secretary and
is satisfied that the service received continues
to be of a high standard.
----------------------------------------------------------------
PROXY ADVISORS The support of proxy adviser agencies is important
to the Directors, as the Company seeks to retain
a reputation for high standards of corporate governance,
which the Directors believe contributes to the
long-term sustainable success of the Company. The
Directors consider the recommendations of these
various proxy voting agencies when contemplating
decisions that will affect Shareholders and also
when reporting to Shareholders through the Half
Year and Annual Reports.
Recognising the principles of stewardship, as promoted
by the UK Stewardship Code, the Board welcomes
engagement with all of its investors. The Board
recognises that the views, questions from, and
recommendations of many institutional investors
and proxy adviser agencies provide a valuable feedback
mechanism and play a part in highlighting evolving
Shareholders' expectations and concerns.
Prior to AGMs, the Company engages with these agencies
to fact check their advisory reports and clarify
any areas or topics that the agency requests. This
ensures that whilst the proxy advisory reports
provided to Shareholders are objective and independent,
the Company's actions and intentions are represented
as clearly as possible to assist with Shareholders'
decision making when considering the resolutions
proposed at the AGM.
Outcomes and strategic decisions during the year
The Directors are aware of the voting policies
of proxy adviser agencies. The Nomination Committee
considers the time commitment required of Directors
and the Board considers each Director's independence
on an ongoing basis. The Board have confirmed that
all Directors remain independent and able to commit
sufficient time in fulfilling their duties, including
those listed on s172 of the Companies Act. Accordingly,
all Directors are standing for re-election at the
Company's AGM. Further information has been provided
where appropriate in each directors biography in
the Full Annual Report.
----------------------------------------------------------------
THE AIC The Company is a member of the AIC and has also
supported lobbying activities such as the consultations
on the 2019 AIC Code, the 2021 BEIS Restoring Trust
in Audit and Corporate Governance and the FCA's
2021 consultation on Diversity and Inclusion on
Company Boards. The Directors also cast votes in
the AIC Board Elections each year and regularly
attend AIC events.
----------------------------------------------------------------
Approved by the Board on 9 December 2022
By order of the Board
TRACEY LAGO, FCG
POLAR CAPITAL SECRETARIAL SERVICES LIMITED
COMPANY SECRETARY
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare Financial
Statements for each financial year. Under that law the Directors
have prepared the Group Financial Statements in accordance with
UK-adopted IAS and applicable law. Additionally, the Financial
Conduct Authority's Disclosure Guidance and Transparency Rules
require the directors to prepare the Financial Statements in
accordance with
UK -- adopted IAS.
Under company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group and Company for that period. In
preparing the Financial Statements, the Directors are required
to:
-- select suitable accounting policies and then apply them consistently;
-- state whether they have been prepared in accordance with
UK-adopted IAS, subject to any material departures disclosed and
explained in the Financial Statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The Directors are 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 Group and enable them to ensure that its
Financial Statements and the Directors' Remuneration Report comply
with the Companies Act 2006. They are 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, and have general responsibility for
taking such steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of Financial Statements may differ from
legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the annual report and Financial
Statements, taken as a whole, are fair, balanced and understandable
and provides the information necessary for shareholders to assess
the group and company's position and performance, business model
and strategy.
Each of the Directors, whose names and functions are listed in
the Strategic Report, confirm that, to the best of their
knowledge:
-- the Company Financial Statements, which have been prepared in
accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position
and profit of the company;
-- the Group Financial Statements, which have been prepared in
accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position
and profit of the group; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
group and company, together with a description of the principal
risks and uncertainties that it faces.
In the case of each Director in office at the date the
Directors' Report is approved:
-- so far as the Director is aware, there is no relevant audit
information of which the Group and Company's Auditors are unaware;
and
-- they have taken all the steps that they ought to have taken
as a Director in order to make themselves aware of any relevant
audit information and to establish that the group and company's
Auditors are aware of that information.
Lisa Arnold
Chair
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2022
Group Group
------------------------------ ---- ---------------------------- ----------------------------
Year ended Year ended
30 September 2022 30 September 2021
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
return return return return return return
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ---- -------- -------- -------- -------- -------- --------
Investment income 3 4,427 - 4,427 3,685 - 3,685
------------------------------ ---- -------- -------- -------- -------- -------- --------
Other operating income 4 26 - 26 - - -
------------------------------ ---- -------- -------- -------- -------- -------- --------
Gains on investments
held at fair value 5 - 22,985 22,985 - 64,165 64,165
------------------------------ ---- -------- -------- -------- -------- -------- --------
Other currency losses 6 - (610) (610) - (144) (144)
------------------------------ ---- -------- -------- -------- -------- -------- --------
Total income 4,453 22,375 26,828 3,685 64,021 67,706
------------------------------ ---- -------- -------- -------- -------- -------- --------
Expenses
------------------------------ ---- -------- -------- -------- -------- -------- --------
Investment management
fee 7 (602) (2,406) (3,008) (518) (2,070) (2,588)
------------------------------ ---- -------- -------- -------- -------- -------- --------
Other administrative
expenses 8 (599) (59) (658) (553) (59) (612)
------------------------------ ---- -------- -------- -------- -------- -------- --------
Total expenses (1,201) (2,465) (3,666) (1,071) (2,129) (3,200)
------------------------------ ---- -------- -------- -------- -------- -------- --------
Profit before finance
costs and tax 3,252 19,910 23,162 2,614 61,892 64,506
------------------------------ ---- -------- -------- -------- -------- -------- --------
Finance costs 9 - (1,096) (1,096) - (1,064) (1,064)
------------------------------ ---- -------- -------- -------- -------- -------- --------
Profit before tax 3,252 18,814 22,066 2,614 60,828 63,442
------------------------------ ---- -------- -------- -------- -------- -------- --------
Tax 10 (535) - (535) (421) - (421)
------------------------------ ---- -------- -------- -------- -------- -------- --------
Net profit for the
year and total comprehensive
income 2,717 18,814 21,531 2,193 60,828 63,021
------------------------------ ---- -------- -------- -------- -------- -------- --------
Earnings per Ordinary
share (pence) 12 2.24 15.51 17.75 1.81 50.16 51.97
------------------------------ ---- -------- -------- -------- -------- -------- --------
The total column of this statement represents Group's Statement
of Comprehensive Income, prepared in accordance with UK -- adopted
International Accounting Standards.
The revenue return and capital return columns are supplementary
to this and are prepared under guidance published by the
Association of Investment Companies.
The Group does not have any other income or expense that is not
included in net profit for the year. The net profit for the year
disclosed above represents the Group's total comprehensive
income.
There are no dilutive securities and therefore the Earnings per
Share and the Diluted Earnings per share are the same.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the year.
The notes below form part of these Financial Statements.
STATEMENTS OF CHANGES IN EQUITY
For the year ended 30 September 2022
Group and Company
Year ended 30 September 2022
--------------------- ---- -------------------------------------------------------------------------------
Called Capital Share Special
up share redemption premium distributable Capital Revenue Total
capital reserve reserve reserve reserves reserve Equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---- --------- ----------- -------- -------------- --------- -------- --------
Total equity at
1 October 2021 31,037 6,575 80,685 3,672 261,977 1,782 385,728
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Total comprehensive
income:
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Profit for the
year ended 30 September
2022 - - - - 18,814 2,717 21,531
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Transactions with
owners, recorded
directly to equity:
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Equity dividends
paid 11 - - - - - (2,426) (2,426)
--------------------- ---- --------- ----------- -------- -------------- --------- -------- --------
Total equity at
30 September 2022 31,037 6,575 80,685 3,672 280,791 2,073 404,833
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Group and Company
Year ended 30 September 2021
--------------------- ---- -------------------------------------------------------------------------------
Called Capital Share Special
up share redemption premium distributable Capital Revenue Total
capital reserve reserve reserve reserves reserve Equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---- --------- ----------- -------- -------------- --------- -------- --------
Total equity at
1 October 2020 31,037 6,575 80,685 3,672 201,149 2,015 325,133
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Total comprehensive
income:
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Profit for the
year ended 30 September
2021 - - - - 60,828 2,193 63,021
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Transactions with
owners, recorded
directly to equity:
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
Equity dividends
paid 11 - - - - - (2,426) (2,426)
--------------------- ---- --------- ----------- -------- -------------- --------- -------- --------
Total equity at
30 September 2021 31,037 6,575 80,685 3,672 261,977 1,782 385,728
--------------------------- --------- ----------- -------- -------------- --------- -------- --------
The notes below form part of these Financial Statements.
BALANCE SHEETS
As at 30 September 2022
Group Company
----- ------------------------------------ ------------------------------------
30 September 2022 30 September 2021 30 September 2022 30 September 2021
Notes GBP'000 GBP'000 GBP'000 GBP'000
----- ----------------- ----------------- ----------------- -----------------
Non-current assets
Investments held at fair value 13 434,419 408,561 434,419 408,561
Investment in subsidiary 13 - - 50 50
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Current assets
Receivables 233 2,300 233 2,300
Overseas tax recoverable 666 572 666 572
Cash and cash equivalents 16 7,546 13,718 7,496 13,668
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
8,445 16,590 8,395 16,540
Total assets 442,864 425,151 442,864 425,151
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Current liabilities
Payables (470) (2,956) (470) (2,956)
(470) (2,956) (470) (2,956)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Non-current liabilities
Zero Dividend Preference shares (37,561) (36,467) - -
Loan from subsidiary - - (37,561) (36,467)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Total liabilities (38,031) (39,423) (38,031) (39,423)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Net assets 404,833 385,728 404,833 385,728
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Equity attributable to equity
Shareholders
Called up share capital 14 31,037 31,037 31,037 31,037
Share premium reserve 80,685 80,685 80,685 80,685
Capital Redemption reserve 6,575 6,575 6,575 6,575
Special distributable reserve 3,672 3,672 3,672 3,672
Capital reserves 280,791 261,977 280,791 261,977
Revenue reserve 2,073 1,782 2,073 1,782
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Total equity 404,833 385,728 404,833 385,728
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Net asset value per Ordinary share
(pence) 15 333.83 318.07 333.83 318.07
Net asset value per ZDP share
(pence) 116.91 113.50 - -
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
The parent company has taken advantage of section 408 of the
Companies Act 2006 and has not included its own income statement in
the Financial Statements. The parent company's profit for the year
was GBP21,531,000 (2021: GBP63,021,000).
The Financial Statements were approved and authorised for issue
by the Board of Directors on 9 December 2022 and signed on its
behalf by
Lisa Arnold
Chair
Registered number 7251471
The notes below form part of these Financial Statements.
CASH FLOW STATEMENTS
For the year ended 30 September 2022
Group and Company
--------------------------------------
Year ended Year ended
30 September 2022 30 September 2021
Note GBP'000 GBP'000
--------------------------------------------------------------- ---- ------------------ ------------------
Cash flows from operating activities
Profit before finance costs and tax 23,162 64,506
Adjustment for non-cash items:
Gains on investments held at fair value through profit or loss (22,985) (64,165)
Adjusted profit before tax 177 341
Adjustments for:
Purchases of investments, including transaction costs (480,136) (626,164)
Sales of investments, including transaction costs 476,716 625,115
Decrease/(increase) in receivables 27 (108)
Increase/(decrease) in payables 101 (479)
Overseas tax deducted at source (629) (404)
Net cash used in operating activities (3,744) (1,699)
--------------------------------------------------------------- ---- ------------------ ------------------
Cash flows from financing activities
Interest paid (2) (2)
Equity dividends paid 11 (2,426) (2,426)
Net cash used in financing activities (2,428) (2,428)
--------------------------------------------------------------- ---- ------------------ ------------------
Net decrease in cash and cash equivalents (6,172) (4,127)
--------------------------------------------------------------- ---- ------------------ ------------------
Cash and cash equivalents at the beginning of the year 13,718 17,845
Cash and cash equivalents at the end of the year 16 7,546 13,718
--------------------------------------------------------------- ---- ------------------ ------------------
The notes below form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
1. General Information
The consolidated Financial Statements for the year ended 30
September 2022 comprise the Financial Statements of the Company and
it's wholly-owned subsidiary PCGH ZDP plc (together referred to as
the 'Group').
The principal activity of the Group is that of an investment
trust company within the meaning of Section 1158/1159 of the
Corporation Tax Act 2010 and its investment approach is detailed in
the Strategic Report.
The Group and Company's presentational currency is pounds
sterling (rounded to the nearest GBP'000). Pounds sterling is also
the functional currency of the Group and Company because it is the
currency which is most relevant to the majority of the Group and
Company's shareholders and creditors and the currency in which the
majority of the Group and Company's operating expenses are
paid.
2. Accounting Policies
The principal accounting policies which have been applied
consistently for all years presented are set out below:
(a) Basis of Preparation
The Group and Company's Financial Statements have been prepared
and approved by the Directors in accordance with UK- adopted
international accounting standards ("UK-adopted IAS").
The Financial Statements have been prepared on a going concern
basis under the historical cost convention, as modified by the
revaluation of investments and derivative financial instruments at
fair value through profit or loss.
Where presentational guidance set out in the Statement of
Recommended Practice (SORP) for investment trusts issued by the
Association of Investment Companies (AIC) in July 2022 is
consistent with the requirements of UK-adopted IAS, the Directors
have sought to prepare the Financial Statements on a basis
compliant with the recommendations of the SORP.
Basis of consolidation - The Group Financial Statements
consolidate the Financial Statements of the Company and its wholly
owned subsidiary, PCGH ZDP plc, drawn up to the same accounting
date. The subsidiary is consolidated from the date of its
incorporation.
The Company has taken advantage of the exemption under section
408 of the Companies Act 2006 and accordingly has not presented a
separate parent company income statement.
The financial position of the Group and Company as at 30
September 2022 are shown in the balance sheet above. As at 30
September 2022 the Group and Company's total assets exceeded its
total liabilities by a multiple of over 11. The assets of the Group
and Company consist mainly of securities that are held in
accordance with the Group and Company's Investment Policy, as set
out above and these securities are readily realisable. The
Directors have considered a detailed assessment of the Group and
Company's ability to meets their liabilities as they fall due. The
assessment took account of the Group and Company's current
financial positions, their cash flows and their liquidity
positions. In addition to the assessment, the Group and Company
carried out stress testing which used a variety of falling
parameters to demonstrate the effects of the Group and Company's
share prices and net asset values. In light of the results of these
tests, the Group and Company's cash balances, and the liquidity
positions, the Directors consider that the Group and Company has
adequate financial resources to enable them to continue in
operational existence for at least 12 months. Accordingly, the
Directors believe that it is appropriate to continue to adopt the
going concern basis in preparing the Group and Company's
accounts.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust
company and in accordance with the guidance set out by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive Income.
The results presented in the revenue return column is the measure
the Directors believe appropriate in assessing the Group and
Company's compliance with certain requirements set out in section
1158 of the Corporation Tax Act 2010.
(c) Income
Dividends receivable from equity shares are recognised and taken
to the revenue return column of the Statement of Comprehensive
Income on an ex-dividend basis.
Special dividends are recognised on an ex-dividend basis and may
be considered to be either revenue or capital items. The facts and
circumstances are considered on a case-by-case basis before a
conclusion on appropriate allocation is reached.
Where the Group and Company has received dividends in the form
of additional shares rather than in cash, the amount of the cash
dividend foregone is recognised in the revenue return column of the
Statement of Comprehensive Income. Any excess
in value of shares received over the amount of the cash dividend
foregone is recognised in the capital return column of the
Statement of Comprehensive Income.
Bank interest is accounted for on an accruals basis. Interest
outstanding at the year end is calculated on a time apportionment
basis using market rates of interest.
(d) Written Options
The Group and Company may write exchange-traded options with a
view to generating income. This involves writing short-dated
covered-call options and put options. The use of financial
derivatives is governed by the Group and Company's policies, as
approved by the Board.
These options are recorded initially at fair value, based on the
premium income received, and are then measured at subsequent
reporting dates at fair value. Changes in the fair value of the
options are recognised in the capital return for the period.
The option premiums are recognised evenly over the life of the
option and shown in the revenue return, with an appropriate amount
shown in the capital return to ensure the total return reflects the
overall change in the fair value of the options.
Where an option is exercised, any balance of the premium is
recognised immediately in the revenue return with a corresponding
adjustment in the capital return based on the amount of the loss
arising on exercise of the option.
(e) Expenses
All expenses, including the management fee, are accounted for on
an accruals basis and are recognised when they fall due. All
expenses have been presented as revenue items except as
follows:
Expenses are charged to the capital column of the Statement of
Comprehensive Income where a connection with the maintenance or
enhancement of the value of investments can be demonstrated. In
this respect the investment management fees have been charged to
the Statement of Comprehensive Income in line with the Board's
expected long-term split of returns, in the form of capital gains
and income from the Group and Company's portfolio. As a result 20%
of the investment management fees are charged to the revenue
account and 80% charged to the capital account of the Statement of
Comprehensive Income.
The performance fee (when payable) is charged entirely to
capital as the fee is based on the out-performance of the Benchmark
and is expected to be attributable largely, if not wholly, to
capital performance.
The research costs relate solely to specialist healthcare
research and are accounted for on an accrual basis and, are
allocated 20% to revenue and 80% capital. This is in line with the
Board's expected long-term split of revenue and capital return from
the Company's investment portfolio.
Finance costs
The ZDP shares are designed to provide a pre-determined capital
growth from their original issue price of 100p on 20 June 2017 to a
final capital repayment of 122.99p on 19 June 2024. The initial
capital will increase at a compound interest rate of 3% per
annum.
No dividends are payable on the ZDP shares. The provision for
the capital growth entitlement of the ZDP shares is included as a
finance cost and charged 100% to capital within the Statement of
Comprehensive Income (AIC SORP paragraph 53 - issued July
2022).
Overdraft interest costs are allocated 20% to revenue and 80% to
capital in line with the Board's expected long-term split of
revenue and capital return from the Company's investment
portfolio.
Share issue costs
Costs incurred directly in relation to the issue of shares in
the subsidiary are borne by the Company and taken 100% to capital.
Share issue costs relating to ordinary share issues by the Company
are taken 100% to the share premium account.
Zero Dividend Preference (ZDP) shares
Shares issued by the subsidiary are treated as a liability of
the Group, and are shown in the Balance Sheet at their redemption
value at the Balance Sheet date. The appropriations in respect of
the ZDP shares necessary to increase the subsidiary's liabilities
to the redemption values are allocated to capital in the Statement
of Comprehensive Income. This treatment reflects the Board's
long-term expectations that the entitlements of the ZDP
shareholders will be satisfied out of gains arising on investments
held primarily for capital growth.
(f) Taxation
The tax expense represents the sum of the overseas withholding
tax deducted from investment income, tax currently payable and
deferred tax.
The tax currently payable is based on the taxable profits for
the year ended 30 September 2022. Taxable profit differs from net
profit as reported in the Statement of Comprehensive Income because
it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Group and Company's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted at the balance sheet date.
In line with the recommendations of the SORP, the allocation
method used to calculate tax relief on expenses presented against
capital returns in the supplementary information in the Statement
of Comprehensive Income is the "marginal basis". Under this basis,
if taxable income is capable of being offset entirely by expenses
presented in the revenue return column of the Statement of
Comprehensive Income, then no tax relief is transferred to the
capital return column.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the Financial Statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax
liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Investment trusts which have approval as such under section 1158
of the Corporation Taxes Act 2010 are not liable for taxation on
capital gains.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax rates that have been enacted or substantively
enacted at the balance sheet date.
Deferred tax is charged or credited in the Statement of
Comprehensive Income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
(g) Investments Held at Fair Value Through Profit or Loss
When a purchase or sale is made under contract, the terms of
which require delivery within the timeframe of the relevant market,
the investments concerned are recognised or derecognised on the
trade date and are initially measured at fair value.
On initial recognition the Group and Company has designated all
of its investments as held at fair value through profit or loss as
defined by UK-adopted IAS. All investments are measured at
subsequent reporting dates at fair value, which is either the bid
price or the last traded price, depending on the convention of the
exchange on which the investment is quoted.
All investments, classified as fair value through profit or
loss, are further categorised into the following fair value
hierarchy:
Level 1: Unadjusted prices quoted in active markets for
identical assets and liabilities.
Level 2: Having inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices).
Level 3: Having inputs for the asset or liability that are not
based on observable market data.
Changes in fair value of all investments held at fair value and
realised gains and losses on disposal are recognised in the capital
return column of the Statement of Comprehensive Income.
In the event a security held within the portfolio is suspended
then judgement is applied in the valuation of that security.
(h) Receivables
Receivables are initially recognised at fair value and
subsequently measured at amortised cost. Receivables do not carry
any interest and are short-term in nature and are accordingly
stated at their nominal value (amortised cost) as reduced by
appropriate allowances for estimated irrecoverable amounts.
(i) Cash and Cash Equivalents
Cash comprises cash on hand and demand deposits. Cash
equivalents are short-term, maturity of three months or less,
highly liquid investments that are readily convertible to known
amounts of cash.
(j) Dividends Payable
Dividends payable to shareholders are recognised in the
Financial Statements when they are paid or, in the case of final
dividends, when they are approved by the shareholders.
(k) Payables
Other payables are not interest-bearing and are initially valued
at fair value and subsequently stated at their nominal value
(amortised cost).
(l) Foreign Currency Translation
Transactions in foreign currencies are translated into sterling
at the rate of exchange ruling on the date of each transaction.
Monetary assets, monetary liabilities and equity investments in
foreign currencies at the balance sheet date are translated into
sterling at the rates of exchange ruling on that date. Realised
profits or losses on exchange, together with differences arising on
the translation of foreign currency assets or liabilities, are
taken to the capital return column of the Statement of
Comprehensive Income.
Foreign exchange gains and losses arising on investments held at
fair value are included within changes in fair value.
(m) Capital Reserves
Capital reserve arising on investments sold includes:
-- gains/losses on disposal of investments
-- exchange differences on currency balances
-- transfer to subsidiary in relation to ZDP funding requirement
-- other capital charges and credits charged to this account in
accordance with the accounting policies above.
Capital reserve arising on investments held includes:
-- increases and decreases in the valuation of investments held at the balance sheet date.
All of the above are accounted for in the Statement of
Comprehensive Income.
When making a distribution to shareholders, the Directors
determining the profits available for distribution by reference to
the 'Guidance on realised and distributable profits under the
Companies Act 2006' issued by the Institute of Chartered
Accountants of England & Wales and the Institute of Chartered
Accountants of Scotland in April 2017. The availability of
distributable reserves in the Company is dependent on those
dividends meeting the definition of qualifying consideration within
the guidance and on the available cash resources of the Company and
other accessible sources of funds. The distributable reserves are
therefore subject to any future restrictions or limitations at the
time such distribution is made.
(n) Repurchase of Ordinary Shares (Including Those Held in Treasury)
The costs of repurchasing Ordinary shares including related
stamp duty and transaction costs are taken directly to equity and
reported through the Statement of Changes in Equity as a charge on
the special distributable reserve. Share repurchase transactions
are accounted for on a trade date basis.
The nominal value of Ordinary share capital repurchased and
cancelled is transferred out of called up share capital and into
the capital redemption reserve.
Where shares are repurchased and held in treasury, the transfer
to capital redemption reserve is made if and when such shares are
subsequently cancelled.
(o) Segmental Reporting
Under IFRS 8, 'Operating Segments', operating segments are
considered to be the components of an entity about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance. The chief operating
decision maker has been identified as the Investment Manager (with
oversight from the board).
The Directors are of the opinion that the Group and Company has
only one operating segment and as such no distinct segmental
reporting is required.
(p) Key Estimates and judgements
Estimates and assumptions used in preparing the Financial
Statements are reviewed on an ongoing basis and are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances. The results of these
estimates and assumptions form the basis of making judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. The Group and Company do not consider
that there have been any significant estimates or assumptions in
the current financial year.
(q) New and revised accounting Standards
There were no new UK-adopted IAS or amendments to UK-adopted IAS
applicable to the current year which had any significant impact on
the Group and Company's Financial Statements.
i) The following new or amended standards became effective for
the current annual reporting period and the adoption of the
standards and interpretations have not had a material impact on the
Financial Statements of the Group and Company:
Standards & Interpretations Effective
for periods
commencing
on or after
---------------------------- ---------------------------------------- -------------
IFRS 9, IAS 39, IBOR Reform - Phase 2 addresses 1 January
IFRS 7, IFRS issues that might affect financial 2021
16 and IFRS 4: Interest reporting during the reform of
Rate Benchmark Reform an interest rate benchmark, including
- phase 2 (amended) the effects of changes to contractual
cash flows or hedging relationships
arising from the replacement of
an interest rate benchmark with
an alternative benchmark rate.
The Phase 2 amendments apply only
to changes required by the interest
rate benchmark reform to financial
instruments and hedging relationships.
---------------------------- ---------------------------------------- -------------
ii) At the date of authorisation of the Group and Company's
Financial Statements, there were no relevant standards that
potentially impact the Group and Company are in issue but are not
yet effective and have not been applied in the Financial
Statements.
The Directors expect that the adoption of the standards listed
above will have either no impact or that any impact will not be
material on the Financial Statements of the Group and Company in
future periods.
3. Investment Income
Year ended Year ended
30 September 30 September
2022 2021
GBP'000 GBP'000
------------------------------------- ------------- -------------
Revenue:
UK Dividend income 472 430
------------------------------------- ------------- -------------
Overseas Dividend income 3,955 3,255
------------------------------------- ------------- -------------
Total investment income allocated to
revenue 4,427 3,685
------------------------------------- ------------- -------------
4. Other Operating Income
Year ended Year ended
30 September 30 September
2022 2021
GBP'000 GBP'000
----------------------------- ------------- -------------
Bank interest 26 -
----------------------------- ------------- -------------
Total other operating income 26 -
----------------------------- ------------- -------------
5. Gains on Investments Held at Fair Value
Year ended Year ended
30 September 30 September
2022 2021
GBP'000 GBP'000
------------------------------------------- ------------- -------------
Net gains on disposal of investments
at historic cost 18,524 56,156
Less fair value adjustments in earlier
years (11,626) (10,661)
------------------------------------------- ------------- -------------
Gains based on carrying value at previous
balance sheet date 6,898 45,495
Valuation gains on investments held during
the year 16,087 18,670
------------------------------------------- ------------- -------------
22,985 64,165
------------------------------------------- ------------- -------------
6. Other Currency losses
Year ended Year ended
30 September 30 September
2022 2021
GBP'000 GBP'000
------------------------------------- ------------- -------------
Exchange losses on currency balances (610) (144)
------------------------------------- ------------- -------------
7. Investment Management Fee
Year ended Year ended
30 September 30 September
2022 2021
GBP'000 GBP'000
------------------------------------- ------------- -------------
Management fee
- charged to revenue 602 518
- charged to capital 2,406 2,070
------------------------------------- ------------- -------------
Investment management fee payable to
Polar Capital LLP 3,008 2,588
------------------------------------- ------------- -------------
Management fees are allocated 20% to revenue and 80% to capital.
Details of the fee arrangements are given in the Strategic
Report above.
8. Other Administrative Expenses (Including VAT where appropriate)
Year ended Year ended
30 September 30 September
2022 2021
GBP'000 GBP'000
---------------------------------------------- ------------- -------------
Directors' fees(1) 136 129
Directors' NIC 14 12
Auditors' remuneration(2) :
For audit of the Group and Company Financial
Statements 48 44
Depositary fee 23 24
Registrar fee 30 30
Custody and other bank charges 37 35
UKLA and LSE listing fees(3) 3 50
Legal & professional fee(4) 6 (7)
AIC fees 21 19
Directors' and officers' liability insurance 16 12
Corporate broker's fee 25 25
Marketing expenses(5) 43 18
Research costs - allocated to revenue(6) 15 15
Shareholder communications 22 14
HSBC administration fee 158 131
Other expenses 2 2
---------------------------------------------- ------------- -------------
Total other administrative expenses allocated
to revenue 599 553
---------------------------------------------- ------------- -------------
Research cost - allocated to capital(6) 59 59
---------------------------------------------- ------------- -------------
Total other administrative expenses 658 612
---------------------------------------------- ------------- -------------
1 Full disclosure is given in the Directors' Remuneration Report
within the Annual Report.
2 2022 includes GBP6,875 (2021: GBP6,250) paid to the Auditor
for the audit of PCGH ZDP Plc.
3 Reflects write off of PCCH ZDP FCA fee accrual which no longer
applies.
4 2021 includes the reversal of unused prior year accruals.
5 Includes marketing expenses payable to Polar Capital LLP of
GBP22,500 (2021: GBP12,600).
6 Research costs (which applied from 3 January 2018) payable by
the Company relate solely to specialist healthcare research and are
capped at US $81,772 (GBP74,000) (2021: US $147,721 (GBP110,000))
with the cost of general non-specialist research and any amounts
exceeding the agreed cap being absorbed by Polar Capital. Any
adjustments to the prior year's budget versus actual spend is
included in the current period. These costs are allocated 20% to
revenue and 80% to capital and are included in the ongoing charges
calculation.
Ongoing charges represents the total expenses of the fund,
excluding finance costs and tax, expressed as a percentage of the
average daily net asset value, in accordance with AIC guidance
issued in May 2012.
The ongoing charges ratio for the year ended 30 September 2022
was 0.84% (2021: 0.83%). See Alternative Performance Measures
provided in the Annual Report.
9. Finance Costs
Year ended 30 September Year ended 30 September
2022 2021
---------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- -------- ------- -------- -------- -------
Interest on overdrafts - 2 2 - 2 2
Appropriation to
ZDP shares - 1,094 1,094 - 1,062 1,062
----------------------- --------- -------- ------- -------- -------- -------
Total finance
costs - 1,096 1,096 - 1,064 1,064
----------------------- --------- -------- ------- -------- -------- -------
10. Taxation
Year ended Year ended
30 September 2022 30 September 2021
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- -------- -------- --------
a) Analysis of tax charge
for the year:
Overseas tax 535 - 535 421 - 421
-------------------------- -------- -------- -------- -------- -------- --------
Total tax for the year
(see note 10b) 535 - 535 421 - 421
-------------------------- -------- -------- -------- -------- -------- --------
b) Factors affecting tax
charge for the year:
The charge for the year
can be reconciled to the
profit per the Statement
of Comprehensive Income
as follows:
Profit before tax 3,252 18,814 22,066 2,614 60,828 63,442
-------------------------- -------- -------- -------- -------- -------- --------
Tax at the UK corporation
tax rate of 19% (2021:
19%) 617 3,575 4,192 496 11,557 12,053
Tax effect of non-taxable
dividends (841) - (841) (700) - (700)
Gains on investments that
are not taxable - (4,251) (4,251) - (12,164) (12,164)
Unrelieved current period
expenses
and deficits 224 468 692 204 405 609
Overseas tax suffered 535 - 535 421 - 421
Expenses not allowable - 208 208 - 202 202
Total tax for the year
(see note 10a) 535 - 535 421 - 421
-------------------------- -------- -------- -------- -------- -------- --------
c) Factors that may affect future tax charges:
The Company has an unrecognised deferred tax asset of
GBP6,334,000 (2021: GBP5,423,000). The deferred tax asset is based
on a prospective corporation tax rate of 25% (2021: 25%). The
Finance Act 2021 received Royal Assent on 10 June 2021 and the rate
of Corporation Tax of 25% effective from 1 April 2023 has been used
to calculate the potential deferred tax asset.
It is unlikely that the Company will generate sufficient taxable
profits in the future to utilise these expenses and deficits and
therefore no deferred tax asset has been recognised.
Due to the Company's tax status as an investment trust and the
intention to continue meeting the conditions required to obtain
approval of such status in the foreseeable future, the Company has
not provided tax on any capital gains arising on the revaluation or
disposal of investments held by the Company.
11. Amounts Recognised as Distributions to Ordinary Shareholders in the Year
Dividends paid in the year ended 30 September 20 22
Year ended
30 September
Pence per 2022
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
28 February 2022 121,270,000 1.00p 1,213
31 August 2022 121,270,000 1.00p 1,213
-------------
2,426
-------------
The revenue available for distribution by way of dividend for
the year is GBP2,717,000 (2021: GBP2,193,000).
The total dividends payable in respect of the financial year
ended 30 September 2022, which is the basis on which the
requirements of section 1158 Corporation Tax Act 2010 are
considered, is set out below:
Year ended
30 September
Pence per 2022
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
31 August 2022 121,270,000 1.00p 1,213
28 February 2023 121,270,000 1.10p 1,334
2,547
-------------
Dividends paid in the year ended 30 September 20 21
Year ended
30 September
Pence per 2021
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
26 February 2021 121,270,000 1.00p 1,213
31 August 2021 121,270,000 1.00p 1,213
2,426
-------------
The total dividends payable in respect of the financial year
ended 30 September 2021, which is the basis on which the
requirements of section 1158 Corporation Tax Act 2010 are
considered, is set out below:
Year ended
30 September
Pence per 2021
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
31 August 2021 121,270,000 1.00p 1,213
28 February 2022 121,270,000 1.00p 1,213
2,426
-------------
All dividends are paid as interim dividends, and all have been
charged to revenue, where necessary utilising the revenue
reserves.
The dividends paid in February each year relate to a dividend
declared in respect of the previous financial year but paid in
the
current accounting year.
12. Earnings per Ordinary Share
Year ended Year ended
30 September 2022 30 September 2021
------------------------------------- ---------------------------------------
Revenue Capital Total Revenue Capital Total
return return return return return return
----------- ----------- ----------- ----------- ----------- -----------
The calculation of
basic earnings per
share is based
on the following
data:
Net profit for the
year (GBP'000) 2,717 18,814 21,531 2,193 60,828 63,021
Weighted average
Ordinary
shares in issue
during the year 121,270,000 121,270,000 121,270,000 121,270,000 121,270,000 121,270,000
Basic - Ordinary
shares (pence) 2.24 15.51 17.75 1.81 50.16 51.97
-------------------- ----------- ----------- ----------- ----------- ----------- -----------
As at 30 September 2022 there were no potentially dilutive
shares in issue.
13. Investments held at fair value
a) Investments held at far value through profit or loss
30 September 30 September
2022 2021
GBP '000 GBP '000
---------------------------------------- ------------------------------ ------------------------------
Opening book cost 380,123 321,976
Opening investment holding gains 28,438 20,428
Opening fair value 408,561 342,404
Analysis of transactions made during
the year
Purchases at cost 477,549 626,217
Sales proceeds received (474,676) (624,225)
Gains on investments held at fair value 22,985 64,165
---------------------------------------- ------------------------------ ------------------------------
Closing fair value 434,419 408,561
---------------------------------------- ------------------------------ ------------------------------
Closing book cost 401,521 380,123
Closing investment holding gains 32,898 28,438
---------------------------------------- ------------------------------ ------------------------------
Closing fair value 434,419 408,561
---------------------------------------- ------------------------------ ------------------------------
The Company received GBP474,676,000 (2021: GBP624,225,000) from
disposal of investments in the year. The book cost of these
investments when they were purchased were GBP456,152,000 (2021:
GBP568,069,000). These investments have been revalued over time and
until they were sold, any unrealised gains/losses were included in
the fair value of the investments.
The following transaction costs, including stamp duty and broker
commissions were incurred during the year:
30 September 30 September
2022 2021
GBP'000 GBP'000
--------------- ------------ ------------
On acquisition 310 442
On disposal 224 256
--------------- ------------ ------------
534 698
--------------- ------------ ------------
b) Fair value hierarchy
30 September 30 September
2022 2021
GBP'000 GBP'000
--------------------------------- ------------ ------------
Level 1 assets 434,419 408,561
Valuation at the end of the year 434,419 408,561
--------------------------------- ------------ ------------
All Level 1 assets are traded on a recognised Stock
Exchange.
c) Subsidiary undertaking
Country of registration, Number and class
Company and incorporation and of shares held by
business operation the Company Holding
------------- ------------------------- ----------------------- -------
50,000 Ordinary shares
PCGH ZDP Plc England and Wales of GBP1 100%
------------- ------------------------- ----------------------- -------
The Company is a public limited company with the sole purpose of
issuing Zero Dividend Preference (ZDP) shares. The registered
office is at Polar Capital, 16 Palace Street, London SW1E 5JD.
The investment is stated in the Company's Financial Statements
at cost, which is considered by the Directors to equate to fair
value.
The subsidiary is non-trading and the value of the net assets
have not changed since the acquisition of the Ordinary share
capital by the Company. The cost is therefore considered to equate
to the fair value of the shares held.
14. Called up Share Capital
30 September 30 September
Ordinary shares - Allotted, Called 2022 2021
up and Fully paid: GBP'000 GBP'000
------------------------------------------ ------------ ------------
Ordinary shares of nominal value 25p
each:
Opening balance of 121,270,000 (2021:
121,770,000) 30,317 30,317
Allotted, Called up and Fully paid:
121,270,000 (2021: 121,270,000) Ordinary
shares of 25p 30,317 30,317
2,879,256 (2021: 2,879,256) Ordinary
shares, held in treasury 720 720
------------------------------------------ ------------ ------------
At 30 September 2022 31,037 31,037
------------------------------------------ ------------ ------------
No Ordinary shares were repurchased or issued during the year
(2021: nil).
The Ordinary shares held in treasury have no voting rights and
are not entitled to dividends.
15. Net Asset Value Per Share
30 September 30 September
Ordinary shares 2022 2021
------------------------------------------------- ------------ ------------
Net assets attributable to Ordinary Shareholders
(GBP'000) 404,833 385,728
Ordinary shares in issue at end of year 121,270,000 121,270,000
Net asset value per Ordinary share (pence) 333.83 318.07
------------------------------------------------- ------------ ------------
Total issued Ordinary shares 124,149,256 124,149,256
Ordinary shares held in treasury 2,879,256 2,879,256
Ordinary shares in issue 121,270,000 121,270,000
------------------------------------------------- ------------ ------------
As at 30 September 2022 there were no potentially dilutive
shares in issue.
16. Cash and Cash Equivalents
30 September 30 September
2022 2021
GBP'000 GBP'000
---------------------------------- ------------ ------------
Cash at bank 7,496 13,668
Company cash and cash equivalents 7,496 13,668
Cash held at subsidiary 50 50
---------------------------------- ------------ ------------
Group cash and cash equivalents 7,546 13,718
---------------------------------- ------------ ------------
17. Transactions with the Investment Manager and Related Party Transactions
(a) Transactions with the Manager
Under the terms of an agreement dated 26 May 2010 the Group has
appointed Polar Capital LLP ("Polar Capital") to provide investment
management, accounting, secretarial and administrative services.
Details of the fee arrangement for these services are given in the
Strategic Report. The total fees, paid under this agreement to
Polar Capital in respect of the year ended
30 September 2022 were GBP3,008,000 (2021: GBP2,588,000) of
which GBP259,000 (2021: GBP239,000) was outstanding at the
year-end.
In addition, the total research cost in respect of the year
ended 30 September 2022 was GBP74,000 (2021: GBP114,000). As at the
year end, GBP54,800 (2021: GBP18,700) was outstanding. Refer to
note 8 above for more details.
(b) Related party transactions
The Group and Company has no employees and therefore no key
management personnel other than the Directors. The Group and
Company paid GBP136,000 (2021: GBP129,000) to the Directors and the
Remuneration Report including Directors' shareholdings and
movements within the year is set out within the full Annual
Report.
18. Post Balance Sheet Events
There are no significant events that have occurred after the end
of the reporting period to the date of this report which require
disclosure.
AGM
The Annual Report and separate Notice for the Annual General
Meeting will be posted to Shareholders in December 2022 and is
available from the Company Secretary at the Company's Registered
Office, (16 Palace Street London SW1E 5JD) or from the Company's
website. The AGM will be held at the Company's Registered Office at
2pm on 9 February 2023.
FORWARD LOOKING STATEMENTS
Certain statements included in the Annual Report and Financial
Statements contain forward-looking information concerning the
Company's strategy, operations, financial performance or condition,
outlook, growth opportunities or circumstances in the countries,
sectors or markets in which the Company operates. By their nature,
forward-looking statements involve uncertainty because they depend
on future circumstances, and relate to events, not all of which are
within the Company's control or can be predicted by the Company.
Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, no assurance can be
given that such expectations will prove to have been correct.
Actual results could differ materially from those set out in the
forward-looking statements. For a detailed analysis of the factors
that may affect our business, financial performance or results of
operations, we urge you to look at the principal risks and
uncertainties included in the Strategic Report Section the Annual
Report and Financial Statements.
No part of these results constitutes, or shall be taken to
constitute, an invitation or inducement to invest in Polar Capital
Global Healthcare Trust plc or any other entity, and must not be
relied upon in any way in connection with an investment decision.
The Company undertakes no obligation to update any forward-looking
statements.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
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END
FR FSEFAUEESESE
(END) Dow Jones Newswires
December 12, 2022 02:00 ET (07:00 GMT)
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