Half-yearly Report
NEWS RELEASE
For immediate release
28 November 2014
Worldwide Healthcare Trust PLC
Unaudited Half Year Results for the six months ended
30 September 2014
This Announcement is not the Company's Half Year report. It is an abridged
version of the Company's full Half Year report for the six months ended 30
September 2014. The full Half Year report will be sent to shareholders on 5
December 2014. The full Half Year report, together with a copy of this
announcement, will also be available on the Company's website:
www.worldwidewh.com
The Company's Half Year Report & Accounts for the six months ended 30 September
2014 has been submitted to the UK Listing Authority, and will shortly be
available for inspection on the National Storage Mechanism (NSM):
www.hemscott.com/nsm.do
For further information please contact: Mark Pope, Frostrow Capital LLP 020
3008 4913
Performance
Six months One year
to to
30 September 31 March
2014 2014
Share price (total return)# +16.2% +30.8%
Net asset value per share (total return)# +16.8% +25.9%
Benchmark index (total return)^ +11.5% +14.9%
30 31 Six
September March months
2014 2014 % change
Shareholders' funds £750.5m £636.2m +18.0
Net asset value per share - basic 1,562.0p 1,374.3p +13.7
Share price 1,502.0p 1,301.0p +15.4
Discount of share price to the basic net 3.8% 5.3% -
asset value per share
Gearing+ 11.6% 12.0% -
Ongoing charges+ 1.0% 1.0% -
Ongoing charges (including performance 1.7% 1.1% -
fees crystalised during the period)+
# Source - Morningstar. (Net asset value diluted for subscription shares and
treasury shares). There were no subscription shares in issue on 30 September
2014).
^ Benchmark index - MSCI World Health Care Index on a net total return,
sterling adjusted basis.
+ See glossary.
* With effect from 1 October 2010, the performance of the Company is measured
against the MSCI World Health Care Index on a net total return, sterling
adjusted basis. Prior to this date, performance was measured against the
Datastream World Pharmaceutical & Biotechnology Index (total return, sterling
adjusted). Historic data therefore consists of a blended figure containing both
indices.
Chairman's Statement
PERFORMANCE
I am pleased to report that the strong returns reported for last year have been
maintained by the Company so far this year. The Company's net asset value total
return was +16.8% over the last six months, significantly outperforming the
Company's benchmark return of +11.5%. The principal contributors to net asset
value performance included holdings in biotechnology companies InterMune and
Gilead Sciences and also the for-profit healthcare facility operator
HCA Holdings. This continued good performance was reflected in the Company's
share price which also performed strongly, with a total return of +16.2% over
the same period. The discount of the Company's share price to the basic net
asset value per share narrowed during the period. As at 30 September 2014 it
was 3.8%, having been 5.3% at the beginning of the period. The healthcare
sector as a whole continued its outperformance of the wider market during the
period, with the MSCI World Index (measured in sterling terms on a total return
basis) rising by 5.9%. Further information on investment performance and the
outlook for the Company is given in the Review of Investments.
CAPITAL
The Board continues to monitor closely the Company's share price discount to
the net asset value per share, with the Board seeking to ensure that such
discount is no greater than 6% over the long-term. During the period and to the
date of this report, a total of 286,096 shares were repurchased by the Company
to be held in treasury at a total cost of £3.9 million and at an average
discount of 7.6%.
I am pleased to report that, in line with the Board's published policy (that
treasury shares can be re-issued at a discount lower than that at which they
had been bought in at, and in any event at a discount no greater than 5% to the
prevailing diluted cum income net asset value per share at the time of sale)
all of the 286,096 shares held in treasury have been reissued since the
period-end at share prices that equated to an average discount of 2.5% to the
prevailing diluted cum income net asset value per share, raising £4.7 million.
The final exercise date for the Company's subscription shares was 31 July 2014
and all of the remaining subscription shares in issue on that date were
converted into ordinary shares. In total during the period and to the date of
this report 1,860,969 subscription shares were exercised at an exercise price
of 699p per share raising £13.0 million of additional funds for the Company.
REVENUE AND DIVIDENDS
The revenue return for the period was £2,738,000, compared to £3,420,000 in the
same period last year. This was due to a reduction in the overall yield from
portfolio investments from 1.4% to 1.0%. The Board has declared a first interim
dividend of 6.0p per share, for the year to 31 March 2015, which will be
payable on 9 January 2015 to shareholders on the register of members on 5
December 2014. The associated ex-dividend date will be 4 December 2014. The
second interim dividend for the year to 31 March 2015 is expected to be
announced in June 2015.
The Board reminds shareholders that it remains the Company's policy to pursue
capital growth for shareholders and to pay dividends to the extent required to
maintain investment trust status.
THE ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (`AIFMD')
As reported at the year-end, the Company was required to comply with AIFMD on
or before 22 July 2014. As a result of this European legislation and its
incorporation into law in the UK, I am pleased to confirm that the Company made
a number of changes to its service providers to bring it into compliance with
AIFMD. The Company has appointed its existing Manager, Frostrow Capital LLP
(`Frostrow') as its Alternative Investment Fund Manager (`AIFM') on the terms
and subject to the conditions of a new alternative investment fund management
agreement. In addition, OrbiMed Capital LLC (`OrbiMed') has continued to be
responsible for the management of the Company's portfolio of investments under
a new portfolio management agreement. The fee arrangements of both Frostrow and
OrbiMed remain unchanged as a result of these new arrangements. The old
agreements between the Company, Frostrow and OrbiMed were terminated.
The Company has also appointed J.P. Morgan Europe Limited as its depositary and
J.P. Morgan Clearing Corp. as prime broker, to act as custodian and also to
provide a loan facility to the Company. These new arrangements replaced the
Company's existing custody and prime brokerage arrangements with Goldman Sachs
& Co.
OUTLOOK
2014 has seen highs achieved in a number of markets. However, mixed readings on
the global economy and geopolitical tensions have caused volatility in world
markets. However, our Portfolio Manager believes that the healthcare sector
will continue to outperform the wider market due in large part to high levels
of innovation and continued corporate activity within the sector.
Your Board believes that the Company is well positioned to take advantage of
this encouraging outlook for healthcare and that the long-term investor in our
sector will continue to be well rewarded.
Sir Martin Smith
Chairman
28 November 2014
Review of Investments
PERFORMANCE
The global equity markets for the six month period from 1 April to 30 September
2014 were a tale of two distinct quarters. The first quarter was characterised
by a modest dip in April, followed by an orderly and steady increase in share
prices, supported by a lack of any unhelpful moves by the U.S. Federal Reserve.
Investor confidence was high and an important rebound in both technology and
biotechnology stocks helped push indices higher. As a consequence, global
indices including the MSCI World Index marked record highs in early July.
The second quarter of the six month period was decidedly more volatile. Whilst
most central bank monetary policies continued to be supportive of the markets,
some divergence appeared and geopolitical tensions rose, increasing investor
angst. Additionally, macroeconomic data from Europe and China indicated early
signs of slowing growth. As such, global markets sold off, partially reversing
some of the gains from earlier in the period.
Healthcare stocks followed a predictable course, underperforming modestly in
the first half of the six month period before demonstrably outperforming the
broader markets in the second half.
Specifically, in the six month period ended 30 September 2014, the benchmark
MSCI World Health Care Index on a net total return, sterling adjusted basis
posted a total return of +11.5% compared to the sterling adjusted total return
of the MSCI World Index return of +5.9%. The Company significantly outperformed
both the broader market and the healthcare specific index, with a share price
total return of +16.2% and a net asset value total return of +16.8%.
The main drivers of the Company's outperformance in the period were sub-sector
positioning and stock selection in the biotechnology sector. Specifically, our
continued overweight position in large capitalisation biotechnology across all
key stocks led to both positive absolute performance and also superior
performance relative to the benchmark. In emerging biotechnology stocks, good
stock selection, merger and acquisition (M&A) activity, and a lack of bad news,
compounded by an overweight stance, also contributed to returns. Performance
was further helped as a result of macro tailwinds and astute stock picking in
both China and India and also by the portfolio's underweight exposure to large
capitalisation pharmaceutical stocks.
Another critical sector for performance was specialty pharmaceutical/generics.
Here, M&A was a predominant theme, combined with robust operating performance
for selected stocks.
An additional important contribution came from stock selection in healthcare
services. Specifically, smart positioning around the Affordable Care Act across
hospitals and managed care added to gains.
The themes of innovation and M&A were instrumental in the holding that was the
largest contributor in the reported six month period. InterMune, Inc. is a
California-based, one product, biotechnology company. We had been long-term
investors in the company, given our belief that its key drug, Esbriet
(pirfenidone), was a critical advance in the treatment of idiopathic pulmonary
fibrosis (IPF), a severe lung disease in which fibrosis (scar tissue) builds up
in the lungs, compromising breathing, and eventually leading to death,
typically in 3 to 5 years. The company presented an impressive pooled data
analysis, showing a significant survival advantage for IPF patients taking
Esbriet. Roche HoldingsAG, the Swiss-based, global pharmaceutical company, took
notice. Wanting to add a specialty care, non-oncology product to help diversify
the company's marketed drug portfolio, Roche announced in August 2014 its
intention to acquire InterMune for U.S.$8.3 billion, representing nearly a 40%
premium to its share price.
The Company has been a long-term investor in Gilead Sciences, Inc., a large
capitalisation, California-based, biotechnology company. Gilead added to their
virology leadership with the 2011 acquisition of Pharmasset, Inc., a leader in
the development of novel therapies for hepatitis C. Three years later, Gilead
is now reaping the benefits of that purchase, as the lead product from that
acquisition, Solvaldi (sofosbuvir), was launched in the U.S. at the beginning
of 2014. What followed was a record-shattering new drug launch which helped the
company's share price appreciate more than 50% (in U.S.$ terms) in the six
month period.
HCA Holdings, Inc. is the largest for-profit hospital operator in the U.S.
managing over 160 hospital facilities and over 110 freestanding surgery centres
across the U.S. and the U.K. The company benefits from its scale,
diversification, operational expertise and flexible balance sheet. In 2014,
these assets materially benefited from: (1) the rollout of the Affordable Care
Act (ACA) health insurance coverage; and (2) improvement of the core business.
The newly insured ACA lives have enhanced the profitability of HCA where care
was previously provided but uncompensated. This was evidenced with improved bad
debt expense and declining self-pay visits. During the third quarter, in
Medicaid expansion states, HCA saw a 37% increase in Medicaid admissions and a
56% decrease in uninsured admissions. Separate from the ACA, HCA has benefited
from an increase in utilisation in its markets. In 2015, the benefit from
reform should increase again as more people sign up for exchanges and more U.S.
states decide to expand Medicaid.
The treatment of metastatic prostate cancer has undergone a revolution over the
past two years. The emerging biotechnology company, Medivation Inc., has been
at the forefront of this revolution. The company's offering for this disease is
Xtandi (enzalutamide), which was first approved in the U.S. in 2012 and Europe
in 2013. But 2014 has been an eventful year for both the company and Xtandi.
Impressive data in an earlier treatment setting prompted the U.S. Food and Drug
Administration (FDA) to approve the drug in this additional indication after a
priority review. The drug was also approved in Japan. Investor expectations
also rose with respect to the possibility of Xtandi being effective in other
tumour types, such as breast cancer. But most importantly, sales of Xtandi on a
global basis have continued to surpass investor expectations. As a result, the
share price for Medivation appreciated over 50% (in U.S. $ terms) during the
six month period.
The last of the top five contributors was the specialty pharmaceutical company,
Allergan Inc. The Botox maker was the target of an aggressive takeover attempt
by a fellow specialty pharmaceutical company, Valeant Pharmaceuticals. Led by
activist investor Bill Ackman, the bid for Allergan was first announced in
April. The share price moved higher on the news and, while no resolution was
reached by 30 September 2014, the stock continued to move higher as Valeant
continued its pursuit of the company. Meanwhile, Allergan's fundamentals
improved as evidenced by accelerating sales and earnings results throughout the
period. The result was a share price advance of nearly 50% (in U.S. $ terms) in
the six months.
Overall, detractors from performance were modest in magnitude and few in
number. On a sector level, medical devices were the largest drag on
performance. Idiosyncratic negative stock picking coupled with a lack of
meaningful winners detracted from both absolute and relative performance.
On a single stock basis, Fluidigm Corporation was the largest detractor from
performance in the period ended 30 September 2014. At the vanguard of genomic
research, Fluidigm has been the unquestionable leader in driving innovation in
single cell analysis. Fluidigm's technology enabled researchers to analyse
samples at a single cell level, allowing them to see molecular variations at an
earlier stage. In order to augment its growth and to capitalise on the
opportunities in single cell analysis, Fluidigm acquired DVS Sciences in
January 2014. The acquisition enabled Fluidigm to move into the single cell
proteomics market supplementing its current dominance in the genomics market.
The acquisition was initially received positively as the newly positioned
combination looked to dominate the quickly growing single cell market. However,
subsequent to the initial integration, Fluidigm lowered the growth outlook for
DVS Sciences, citing a near term lack of sales opportunities. This revised
outlook significantly dampened investors' sentiment, as the acquisition was
then considered to be dilutive. Fluidigm's share price fell as a result and
subsequently trended lower in the period. Despite the step back for Fluidigm,
we remain positive as the long term outlook for single cell analysis continues
to outpace growth elsewhere in the life sciences sector.
Insulet Corporation is a medical device company that develops, manufactures and
markets the OmniPod System, the only commercially available programmable
insulin pump that does not need tubing tethered to the patient. Insulet is also
partnered with drug and biotechnology companies to deliver medications with its
delivery device. After a strong 2013 launch of a second generation pump with a
better gross margin profile, the company experienced reimbursement issues in
mid-2014 delaying new patient starts. The share price slid as a result. But
looking ahead, we believe this will ultimately be resolved. Additionally, in
2015, investors should also be getting greater visibility on drug partnership
to modify the OmniPod platform to deliver drugs other than insulin, such as
medicines to treat anaemia.
The Boston-based biotechnology company, Curis Inc., focuses on discovery and
development for novel therapeutics for the treatment of cancers. Their lead
drug, Erivedge (vismodegib), is approved for a specific type of skin cancer,
called basal cell carcinoma. The share price for Curis slid lower in the period
due to lowered expectations for Erivedge sales coupled with a lack of
meaningful news flow on the company's early stage pipeline.
Vocera Communications Inc. provides instant mobile voice communication
solutions to medical facilities and other service industries, to increase
workflow efficiency and clinical effectiveness. Vocera's systems typically
replace a patchwork of different solutions including overhead paging, pagers,
mobile phones and written communication. The company has experienced continued
softness in the hospital spending environment, which has led to multiple
downward earnings revisions. After two consecutive disappointing quarterly
results in which the share price fell, we exited the stock.
Weigao, known more formally as Shandong Weigao Group Medical Polymer Co., Ltd.,
is China-based medical device company that specialises in "single use" medical
products (syringes, catheters, infusion kits, blood bags, etc.). Entering 2014,
investor expectations were high after a restructuring announcement in the
previous year pushed the stock to a
52-week high. However, the stock significantly underperformed during the six
month period due to disappointing quarterly earnings and lowered revenue
guidance for the year.
SECTOR DEVELOPMENTS
Overall, companies in the healthcare sector remain in a strong position. In
addition to strong secular tailwinds, namely aging demographics and increased
spending and consumption of healthcare services on a global basis, near term
fundamentals are as strong as ever. Perhaps even more so in the therapeutics
sector, where biotechnology companies, both big and small, have been behind a
surge of innovation that has led to new round of blockbuster products that may
be unprecedented.
The FDA have been anything but an obstacle to this wave of innovation. We
continue to view the current leadership at the FDA as "industry friendly" as a
number of new programmes designed to bring drugs to market faster have been
approved over the past few years. Through the first three quarters of the
calendar year 2014, the FDA has approved 30 new chemical entities, already
surpassing the 27 approvals of all of 2013. In fact, 2014 could see the highest
number of approvals in one year since the 1990's.
2014 also saw the full implementation of the Affordable Care Act (ACA), also
known as "Obamacare", a U.S. federal statute that was signed into law in 2010.
The ACA, of course, is the signature piece of legislation from two-term
President Barack Obama, designed to expand both public and private health
insurance coverage to reduce the number of Americans with no health insurance.
Despite some growing pains earlier in the year, given some logistical hiccups
with enrollment, over 10 million people with no previous coverage now enjoy
some form of insurance.
As usual, M&A activity has played a significant role in healthcare equities. We
expect this to continue. Perhaps most notable was the U.S. $8 billion plus
acquisition of InterMune by Roche Holdings AG. It was an archetypal therapeutic
sector acquisition: a large multi-national pharmaceutical company buying a
small but innovation-rich biotechnology company for their new drug candidate.
One wave of M&A that was much more transient in the period was the tidal wave
of tax-motivated transactions that occurred in the first nine months of 2014.
These deals centered around the goal of reducing corporate tax rates by an
acquiring company domiciled in a country with a high tax rate (typically the
U.S.), buying a company domiciled in a lower tax rate (such as Ireland), and
"inverting" the combined entity into the geography with the lower corporate tax
rate, and thereby lowering the tax rate for the entire newco. These deals were
immediately accretive and could also propagate further M&A as the newco could
continue to acquire companies with higher tax rates in highly accretive
transactions. A number of deals occurred with a multitude of companies,
predominantly in the specialty pharmaceuticals sector, that triggered a frenzy
of pacts. However, in mid-September, under heavy political pressure, the U.S.
Treasury Department published a series of comments that effectively reduced the
financial advantages of such transactions. Some putative deals fell apart,
including the stunning collapse of Abbvie's U.S. $55 billion acquisition of
Shire PLC in October 2014. Whilst tax inversion deals have slowed to a trickle,
we do expect them to continue in a selective manner going forward.
STRATEGY REVIEW
The focus of the Company remains on finding and investing in innovation across
the spectrum of healthcare goods and services. The increase in innovation in
therapeutics, services, and even now, to some degree, in medical devices means
that the number of investable opportunities is on the rise.
Biotechnology
Most important of these remains the biotechnology sector. 2014 brought a raft
of blockbuster product launches. Of course, most noteworthy was the spectacular
launch of Gilead's novel treatment for hepatitis C, Solvaldi, which shattered
every conceivable new drug launch record there was. Thus, our strategy remains
to be overweight the large capitalisation biotechnology sector, a move that we
first made late in 2012. Then, as now, we believe this group offers compelling
value relative to large capitalisation pharmaceutical companies from a
multitude of metrics, including valuation, growth, pipelines, catalysts and,
most importantly, new drug opportunities. While 2014 has been a solid year for
the group, we expect more in 2015 with yet another wave of clinical data and
new product launches. Finally, a word on valuation. Whilst many believe that
biotechnology stocks have become "expensive" and are on the verge of a bubble,
we argue the opposite. With performance continuing to rise on the heels of new
blockbuster launches, we believe the sector continues to get cheaper as growth
rates rise. Regardless, valuations in the large capitalisation biotechnology
sector remain well below historical averages and offer much more compelling
value than say large capitalisation pharmaceutical stocks.
Similar to the large capitalisation biotechnology sector, the emerging
biotechnology sector experienced strong performance in 2014 as a result of high
profile clinical events and M&A activity. In addition, the mounting number of
initial public offerings (IPOs) since 2013 has also significantly increased
investment opportunities in the sector. We believe this trend will continue in
2015. Companies developing drugs in "hot" disease areas, such as
immuno-oncology, infectious diseases and select orphan diseases, are expected
to have numerous clinical and regulatory catalysts in 2015, which will likely
retain investors' interest in the sector. Furthermore, we fully expect M&A
activity to continue to be a major theme in the sector. We believe the ongoing
weaknesses in some pharmaceutical company pipelines coupled with numerous
innovative therapeutics in emerging biotechnology companies will result in more
M&A deals. With respect to valuation, we believe it is all about the catalysts
(or significant events) rather than market capitalisation, when it comes to
emerging biotechnology companies. That is to say, despite a lack of revenues
and earnings (in fact, these companies lose money), these stocks have the most
ability to re-rate higher, 2-times, 5-times, even 10-times, as catalysts
(clinical, regulatory, M&A) drive the share prices.
Pharmaceuticals
The large capitalisation pharmaceutical sector remains an enigma. Some
companies are showing accelerating growth while others still have patent
cliffs. Some companies have novel therapies for truly unmet medical needs in
their pipelines while some companies show a dearth. Some companies are
expanding their margins by focusing on specialty care while some companies are
being hurt by price competition in the over-competitive primary care markets.
Thus, it goes without saying, that we remain selective, trying to identify the
"haves" from the "have-nots". Moreover, valuations have risen, roughly to
on-par with historical averages. Therefore, it becomes more imperative to only
invest in those companies deserving of such multiples. As a result, we are
underweight this sector.
A significant increase in the level of M&A activity within the specialty
pharmaceuticals/generics sector has been the primary driver of this group's
outperformance in 2014. Interestingly, the deal frenzy has caused many
investors to overlook strong organic growth trends from some players within
this group. We believe deal activity will remain high despite recent moves by
the U.S. Department of Treasury to curb future tax inversions and initial steps
by Ireland to change its tax code, closing the "Double Irish" corporate tax
loophole. In our opinion, the U.S. Department of Treasury's actions, in
particular, could paradoxically catalyse additional M&A activity, with
tax-advantaged ex-U.S. domiciled corporations targeting U.S.-based companies
with attractive, fast-growing franchises but inefficient tax structures. We
remain well-positioned in this sector, as we hold sizable positions in several
companies that could make accretive acquisitions over the next 12-18 months.
Life Science Tools and Diagnostics
The life science tools and diagnostics sector has struggled in 2014 to keep
pace with the buoyant therapeutics sector laden with catalysts and
acquisitions. Underperformance has occurred primarily as a result of global
economic indicators, especially in Europe and China, pointing toward a
slow-down in growth. Lacking micro-level catalysts and M&A in the group,
macroeconomic themes have outweighed incremental positive data points for the
sector. In the midst of an adverse macro focused environment, a light can be
seen in innovations in next-generation of sequencing. Improvements in
sequencing continue to dominate sector news flow as genomic research yields
more fruit, further demonstrating its importance in clinical settings. We look
for continued strength and outperformance from those companies that are driving
the innovations in genomics research as we head into 2015. Outside of life
sciences research, the diagnostics sector continues to face challenges as the
gap between reimbursement and innovation remains large. Steering away from the
reimbursement issue and focusing on diagnostic companies with value creating
assets remains a key goal in our strategy.
Managed Care
Managed care outperformed in the six month period led by Medicaid Health
Maintenance Organisations (HMOs). ACA implementation has been better than
feared, especially after technology glitches with the Federal Exchange website
(www.healthcare.gov). In fact, despite critics and a plethora of news
headlines, the U.S. government actually achieved its 2014 goal of enrolling
seven million individuals. Multiples for HMO stocks expanded appropriately as
this overhang dissipated. Meanwhile, Medicaid revenue growth exceeded
expectations, driven by programme eligibility expansions outlined under ACA as
well as U.S. states transferring existing beneficiaries to managed care (from
unmanaged fee for service). Going forward, we are bullish on Medicaid HMOs with
a view that accelerating revenue and earnings growth remain underappreciated.
However, there is some risk to commercial HMOs covering the employer sponsored
market if utilisation increases as the economy improves.
The ACA has also had a demonstrable effect on healthcare services, notably
hospitals. In theory, a net increase in healthcare dollars stemming from ACA
should fund greater consumption of drugs and healthcare services. Newly insured
lives would then enhance the profitability of hospitals, as care that was
previously provided but uncompensated declines. In 2014, we began to witness
such a phenomenon. Publicly traded hospitals saw a 60% decline in self-pay
admissions in expansion states as early as the second quarter of calendar 2014.
Moving into 2015 and 2016, coverage expansion should continue to grow to the
benefit of healthcare service providers. At the same time, patent expirations
(leading to increased availability of cheaper generic drugs) and increasing
drug pricing should enhance profitability in the drug supply chain at the
pharmacy benefits managers and the drug wholesalers. Thus, overall we remain
bullish on the healthcare services sector.
Medical Devices
The overall environment for medical devices can best be characterised as
stable, with pricing pressure roughly offsetting volume growth (in the low- to
mid-single digit range), and new products plus business right-sizing driving
returns. Interestingly, M&A trends in devices have been transformed in the past
six months. Previously, smaller pure-play companies were the sole acquisition
targets for the larger multi-nationals, but now these larger players have
become targets as well. Several deals have been announced including Medtronic/
Covidien, Zimmer/Biomet and Becton Dickinson/CareFusion. Increasing scale and
cost synergies in device categories characterised by ongoing pricing pressure
and low volume growth (e.g. hip/knee implants, internal defibrillators,
pacemakers, stents and supplies) are the main drivers of such transactions.
That said, there remain several, albeit smaller, device categories where end
market dynamics remain favourable (e.g. contact lenses, shoulder implants, and
foot/ankle implants). Against this backdrop, we continue to target areas of
innovation in the form of new product cycles in attractive end markets that
offer patients and/or physicians an attractive value proposition, as well as
those companies with the potential for margin expansion from cost
rationalisation and improving sales profiles.
Japan
In Japan, the domestic pharmaceutical market has fallen in 2014 and the local
branded drug makers are suffering. Continued efforts by federal authorities to
promote generic drug utilisation continues to make inroads, and those companies
that are dependent on so-called "long listed" products (branded drugs with
generic alternatives) are seeing greater than expected loss of share.
Furthermore, the bi-annual price cut scheme took effect on 1 April 2014,
pressuring top and bottom lines of those Japanese companies servicing domestic
customers. There are some offsets however. Continued yen weakness against the
U.S. dollar has helped share prices. But more importantly, companies with a
global footprint and/or global new product opportunities are partially immune
to the domestic ills. Overall, we remain cautious on the outlook in Japan but
continue to look for selective opportunities to invest in truly novel
innovation emanating from Japan. The most pre-eminent example is Ono
Pharmaceutical. The company has been a pioneer in the revitalisation of the
field of immuno-oncology (IO). Moreover, the company was the first to obtain an
approval anywhere in the world for a "PD-1" targeted antibody.
Programmed-Death-1 is widely considered the future backbone of IO therapy and
the Japanese approval and launch in 2014 for metastatic melanoma represents a
watershed moment in the treatment of cancer. Partner Bristol Myers-Squibb holds
the global rights outside of Japan.
Emerging Markets
Following a solid performance in 2013, emerging market healthcare (EMHC) has
continued to perform strongly in 2014. We continue to focus on three investment
themes for our emerging market holdings, including: (1) superior management
teams; (2) differentiated product development; and (3) commercialisation
capability (both public and private). In addition, given the consolidation
trend in the markets, M&A has also been a significant driver of business growth
and stock performance during the period. Government price control policies in
countries such as China and India have been a persistent headwind for drug
manufacturers and overall market growth. Whilst it is possible to see Chinese
healthcare market growth to marginally decelerate, we nevertheless expect
robust low-teens growth into the future. Our long term view on the EMHC
investment opportunities remains bullish for the rest of 2014 and into 2015. In
particular, it is likely for China A share stocks to outperform other countries
in the region, after many years of underperformance, in large part due to
stabilising economic fundamentals. We continue to believe that EMHC is a
secular play as the economic improvement in these developing countries could
warrant and prompt healthcare spending to outpace its economic growth.
Furthermore, we believe that the EMHC industry is also gaining increasing
capability to compete in the developed markets, which is opening up tremendous
opportunities for new sources of profitable growth.
Samuel D. Isaly
OrbiMed Capital LLC
Portfolio Manager
28 November 2014
PRINCIPAL CONTRIBUTORS TO AND DETRACTORS FROM NET ASSET VALUE PERFORMANCE
For the six months to 30 September 2014
Contribution Contribution
£'000 per share
(p)*
Top Five Contributors
Intermune 15,992 34.00
Gilead Sciences 12,253 26.05
HCA 10,044 21.36
Medivation 8,639 18.37
Allergan 7,723 16.42
54,651 116.20
Top Five Detractors
Fluidigm (7,564) (16.08)
Insulet (2,402) (5.11)
Curis (1,603) (3.41)
Vocera (1,210) (2.57)
Shandong Weigo (941) (2.00)
(13,720) (29.17)
* based on 47,030,552 shares being the weighted average number of shares in
issue during the six months ended 30 September 2014.
Source: Frostrow Capital LLP
Portfolio
as at 30 September 2014
Market value % of
Investments Country £'000 investments
HCA USA 33,756 4.0
Roche Holdings Switzerland 33,696 4.0
AbbVie USA 32,601 3.9
Regeneron Pharmaceuticals USA 30,817 3.7
Bristol-Myers Squibb USA 30,623 3.7
Merck & Co. USA 28,156 3.4
Amgen USA 27,552 3.3
Actavis Ireland 23,803 2.8
Biogen Idec USA 23,467 2.8
Ono Pharmaceutical Japan 21,503 2.6
Top 10 investments 285,974 34.2
Celgene USA 20,463 2.4
Actelion Switzerland 19,937 2.4
Shire USA 18,536 2.2
Agilent Technologies USA 18,456 2.2
Intuitive Surgical USA 17,947 2.1
Thermo Fisher Scientific USA 17,266 2.1
Luye Pharma China 16,044 1.9
Pfizer USA 15,869 1.9
lncyte* USA 15,725 1.9
Health Net USA 15,257 1.8
Top 20 investments 461,474 55.1
Novartis Switzerland 15,132 1.8
Illumina USA 13,841 1.7
Fluidigm** USA 13,591 1.6
Perrigo Ireland 13,508 1.6
Cooper Cos Ireland 13,508 1.6
Medivation USA 13,416 1.6
Molina Healthcare USA 12,864 1.5
Tornier Netherlands 11,794 1.4
Ironwood Pharmaceuticals USA 11,791 1.4
Allergan USA 10,710 1.3
Top 30 investments 591,629 70.6
Carefusion USA 10,328 1.2
Express Scripts USA 9,672 1.2
Insulet USA 9,599 1.1
Astellas Pharma Japan 9,098 1.1
Vertex Pharmaceutical USA 9,075 1.1
Impax Laboratories USA 8,731 1.0
Osstem Implant South Korea 8,695 1.0
Gilead Sciences USA 8,471 1.0
Chugai Pharmaceutical Japan 8,201 1.0
Shandong Weigao Group China 7,966 1.0
Top 40 investments 681,465 81.3
Stryker USA 7,471 0.9
Wright Medical USA 7,457 0.9
Sawai Pharmaceutical Japan 7,440 0.9
Sino Biopharmaceuticals China 6,856 0.8
Ikaria Second Lien Loan 8.75% 04/02/22 USA 6,729 0.8
(unquoted)
Zimmer USA 6,391 0.8
Nuvasive USA 6,343 0.8
St Jude Medical USA 5,964 0.7
Portola Pharmaceuticals USA 5,848 0.7
Mckesson USA 5,644 0.7
Top 50 investments 747,608 89.3
Towa Pharmaceutical Japan 4,843 0.6
Infinity Pharmaceuticals USA 4,487 0.5
Neurocrine Biosciences USA 4,241 0.5
NPS Pharmaceuticals USA 4,042 0.5
Nichi-Iko Pharmaceutical Japan 3,886 0.5
IHH Healthcare Malaysia 3,791 0.5
Exact Sciences USA 3,586 0.4
Orasure Technologies USA 3,158 0.4
Supernus Pharmaceuticals USA 3,109 0.4
Biosensors International Singapore 2,568 0.3
Top 60 investments 785,319 93.9
Volcano Corp 1.75% 01/12/17 USA 2,358 0.3
Qiagen Netherlands 1,890 0.2
Curis USA 1,696 0.2
Celldex Therapeutics USA 1,652 0.2
Orexigen Therapeutics 2.75% 01/12/20 USA 1,270 0.2
DB X-Trackers Csi300 Health Care China 991 0.1
Endologix 2.25% 15/12/18 USA 554 0.1
Cerus USA 371 0.0
Total equities and fixed interest 796,101 95.2
investments
Funded OTC Swaps
Jiangsu Hengrui China 10,975 1.3
Aurobindo India 8,847 1.0
Strides Arcolab India 7,369 0.9
Lupin India 4,320 0.5
China Health Care A Shares (Basket) China 2,917 0.3
Unfunded OTC Swaps
Gilead Sciences USA 5,711 0.7
Emerging Market Health Care (Basket) - 928 0.1
Aier Eye Hospital Group China 213 0.0
Total investments including OTC Swaps 837,381 100.0
Put Option (Long) - 157 0.0
Put Option (Short) - (1,359) (0.2)
Call Option (Long) - 3,949 0.5
Call Option (Short) - (2,335) (0.3)
Total investments including OTC swaps and 837,793 100.0
options
* includes bond, 1.7% of portfolio.
** includes bond, 0.7% of portfolio.
Interim Management Report
PRINCIPAL RISKS AND UNCERTAINTIES
The Company's principal risks are as follows and are described in more detail
under the heading Risk Management within the Strategic Report in the Company's
annual report for the year ended 31 March 2014: Investment Activity and
Strategy; Financial; Shareholder Relations and Corporate Governance;
Operational; and Accounting, Legal and Regulatory. The Company's principal
risks and uncertainties have not changed materially since the date of that
report and are not expected to change materially for the remaining six months
of the Company's financial year.
RELATED PARTY TRANSACTIONS
During the first six months of the current financial year no material
transactions with related parties have taken place which have affected the
financial position or the performance of the Company during the period.
GOING CONCERN
The Directors believe, having considered the Company's investment objective
risk management policies, capital management policies and procedures, and the
nature of the portfolio and its expenditure projections, that the Company has
adequate resources, an appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the foreseeable
future. For these reasons, they consider there is reasonable evidence to
continue to adopt the going concern basis in preparing the accounts.
DIRECTORS' RESPONSIBILITIES
The Board of Directors confirms that, to the best of its knowledge:
(i) the condensed set of financial statements contained within the half year
financial report has been prepared in accordance with the Accounting Standards
Board's Statement `Half Yearly Financial Reports' and gives a true and fair
view of the state of affairs of the Company and of the assets, liabilities,
financial position and net return of the Company, as at 30 September 2014, as
required by the UK Listing Authority Disclosure and Transparency Rules 4.2.4R;
and
(ii) the interim management report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and
Transparency Rules.
In order to provide these confirmations, and in preparing these financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business;
and the Directors confirm that they have done so.
The Half Year Report has not been reviewed or audited by the Company's auditor.
Sir Martin Smith
Chairman
28 November 2014
Income Statement
for the six months ended 30 September 2014
(Unaudited) (Unaudited) (Audited)
Six months Six months Year ended
ended ended
30 September 2014 30 September 2013 31 March 2014
Revenue Capital Revenue Capital Revenue Capital
Return Return Total Return Return Total Return Return Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on - 114,972 114,972 - 41,145 41,145 - 130,246 130,246
investments held at
fair value through
profit or loss
Exchange (losses)/ - (2,238) (2,238) - 7,561 7,561 - 10,039 10,039
gains on currency
balances
Income from 3,772 - 3,772 4,309 - 4,309 9,048 - 9,048
investments held at
fair value through
profit or loss
(note 2)
AIFM, portfolio (149) (8,920) (9,069) (117) (8,036) (8,153) (249) (14,758) (15,007)
management and
performance fees
(note 3)
Other expenses (358) - (358) (320) - (320) (753) - (753)
Net return before 3,265 103,814 107,079 3,872 40,670 44,542 8,046 125,527 133,573
finance charges and
taxation
Finance charges (6) (182) (188) (10) (195) (205) (20) (376) (396)
Net return before 3,259 103,632 106,891 3,862 40,475 44,337 8,026 125,151 133,177
taxation
Taxation on (521) - (521) (442) - (442) (821) (233) (1,054)
ordinary activities
Net return after 2,738 103,632 106,370 3,420 40,475 43,895 7,205 124,918 132,123
taxation
Return per share - 5.8p 220.4p 226.2p 7.5p 88.5p 96.0p 15.7p 271.9p 287.6p
basic (note 4)
Return per share - 5.8p 220.4p 226.2p 7.3p 86.9p 94.2p 15.4p 267.5p 282.9p
diluted (note 4)
The "Total" column of this statement is the Income Statement of the Company.
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those shown above and
therefore no separate statement of total recognised gains and losses has been
presented.
No operations were acquired or discontinued during the period.
Reconciliation of Movements in Shareholders' Funds
Ordinary Subscription Share Capital
share share premium Capital redemption Revenue
(Unaudited) capital capital account reserve reserve reserve Total
Six months ended 30 £'000 £'000 £'000 £'000 £'000 £'000 £'000
September 2014
At 1 April 2014 11,573 19 219,604 387,661 7,803 9,526 636,186
Net return from - - - 103,632 - 2,738 106,370
ordinary activities
after taxation
Second interim - - - - - (3,733) (3,733)
dividend paid in
respect of year
ended 31 March 2014
Subscription shares 465 (19) 12,543 19 - - 13,008
exercised for
ordinary shares
Repurchase of - - - (1,259) - - (1,259)
shares into
treasury
At 30 September 12,038 - 232,147 490,053 7,803 8,531 750,572
2014
Ordinary Subscription Share Capital
share share premium Capital redemption Revenue
(Unaudited) capital capital account reserve reserve reserve Total
Six months ended 30 £'000 £'000 £'000 £'000 £'000 £'000 £'000
September 2013
At 1 April 2013 11,441 24 215,237 260,010 7,803 9,900 504,415
Net return from - - - 40,475 - 3,420 43,895
ordinary activities
after taxation
Second interim - - - - - (4,352) (4,352)
dividend paid in
respect of year
ended 31 March 2013
Subscription shares 31 (1) 844 1 - - 875
exercised for
ordinary shares
Shares issued from - - 803 2,727 - - 3,530
treasury
At 30 September 11,472 23 216,884 303,213 7,803 8,968 548,363
2013
Ordinary Subscription Share Capital
share share premium Capital redemption Revenue
(Audited) capital capital account reserve reserve reserve Total
Year ended 31 March £'000 £'000 £'000 £'000 £'000 £'000 £'000
2014
At 1 April 2013 11,441 24 215,237 260,010 7,803 9,900 504,415
Net return from - - - 124,918 - 7,205 132,123
ordinary activities
after taxation
Dividend paid in - - - - - (4,352) (4,352)
respect of year
ended 31 March 2013
First interim - - - - - (3,227) (3,227)
dividend paid in
respect of year
ended 31 March 2014
Subscription shares 132 (5) 3,565 5 - - 3,697
exercised for
ordinary shares
Shares issued from - - 802 2,728 - - 3,530
treasury
At 31 March 2014 11,573 19 219,604 387,661 7,803 9,526 636,186
Balance Sheet
as at 30 September 2014
(Unaudited) (Unaudited) (Audited)
30 30 31
September September March
2014 2013 2014
£'000 £'000 £'000
Fixed assets
Investments held at fair value through 796,101 582,265 673,138
profit or loss
Derivatives - OTC swaps 41,280 48,377 40,325
837,381 630,642 713,463
Current assets
Debtors 25,415 14,708 24,243
Derivatives - put and call options 4,106 2,059 1,067
29,521 16,767 25,310
Current liabilities
Creditors: amounts falling due within one (34,021) (30,824) (38,813)
year
Bank overdraft (78,615) (67,359) (62,723)
Derivatives - put and call options (3,694) (863) (1,051)
(116,330) (99,046) (102,587)
Net current liabilities (86,809) (82,279) (77,277)
Total net assets 750,572 548,363 636,186
Capital and reserves
Ordinary share capital 12,038 11,472 11,573
Subscription share capital - 23 19
Share premium account 232,147 216,884 219,604
Capital reserve 490,053 303,213 387,661
Capital redemption reserve 7,803 7,803 7,803
Revenue reserve 8,531 8,968 9,526
Total shareholders' funds 750,572 548,363 636,186
Net asset value per share - basic (note 5) 1,562.0p 1,195.0p 1,374.3p
Net asset value per share - diluted for 1,562.0p 1,171.7p 1,348.2p
subscription shares (note 5)
Net asset value per share - fully diluted 1,561.8p 1,171.7p 1,348.2p
for subscription shares and treasury
shares (note 5)
Cash Flow Statement
for the six months ended 30 September 2014
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
30 30 31
September September March
2014 2013 2014
£'000 £'000 £'000
Net cash inflow from operating activities 641 1,440 1,163
Servicing of finance
Interest paid (188) (205) (396)
Taxation
Taxation recovered/(suffered) 743 (565) (288)
Financial investment
Purchases of investments and derivatives (277,554) (278,235) (501,915)
Sales of investments and derivatives 254,688 234,011 460,445
Net cash outflow from financial investment (22,866) (44,224) (41,470)
Equity dividends paid (3,733) (4,352) (7,579)
Net cash outflow before financing (25,403) (47,906) (48,570)
Financing
Repurchase of own shares to be held in (1,259) - -
treasury
Issue of shares from treasury - 3,530 3,530
Subscription shares exercised for ordinary 13,008 875 3,697
shares
Net cash inflow from financing 11,749 4,405 7,227
Decrease in cash (13,654) (43,501) (41,343)
Reconciliation of net cash flow movements
to net debt
Increase in net debt resulting from cash (13,654) (43,501) (41,343)
flows
Exchange movements (2,238) 7,561 10,039
Movement in net debt in the period (15,892) (35,940) (31,304)
Net debt at beginning of period (62,723) (31,419) (31,419)
Net debt at period/year end (78,615) (67,359) (62,723)
Notes to the Financial Statements
1. ACCOUNTING POLICIES
The condensed financial statements have been prepared under the historical cost
convention, modified to include the valuation of investments at fair value and
in accordance with United Kingdom Generally Accepted Accounting Practice and
with the Statement of Recommended Practice `Financial Statements of Investment
Trust Companies and Venture Capital Trusts' dated January 2009. All of the
Company's operations are of a continuing nature.
The same accounting policies used for the year ended 31 March 2014 have been
applied.
2. INCOME
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
30 30 31
September September March
2014 2013 2014
£'000 £'000 £'000
Investment income 3,771 4,306 9,043
Interest receivable 1 3 5
Total 3,772 4,309 9,048
3. AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
(Unaudited) (Unaudited) (Audited)
Six months ended Six months ended Year ended
30 September 2014 30 September 2013 31 March 2014
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
AIFM fee 35 674 709 31 581 612 64 1,211 1,275
Portfolio 114 2,173 2,287 86 1,638 1,724 185 3,529 3,714
management fee
Performance fee - 6,073 6,073 - 5,817 5,817 - 10,018 10,018
charged in the
period/year*
149 8,920 9,069 117 8,036 8,153 249 14,758 15,007
* As at 30 September 2014 performance fees totalling £4,628,000 crystallised
and became payable (period ended 30 September 2013: £1,189,000). In addition,
as at 30 September 2014 an additional provision for potential future fees of £
6,073,000 was made (as at 30 September 2013: £4,628,000).
As at 30 September 2014, the total provision made for potential future fees was
£10,273,000 (as at 30 September 2013: £4,628,000).
See glossary. A full description of the performance fee can also be found on
pages 26 and 27 of the Company's Annual Report & Accounts for the year ended 31
March 2014.
4. RETURN PER SHARE
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
30 30 31
September September March
2014 2013 2014
£'000 £'000 £'000
Basic
The return per share is based on the
following figures:
Revenue return 2,738 3,420 7,205
Capital return 103,632 40,475 124,918
Total return 106,370 43,895 132,123
Weighted average number of shares in issue 47,030,552 45,759,412 45,940,093
for the period/year
Revenue return per share 5.8p 7.5p 15.7p
Capital return per share 220.4p 88.5p 271.9p
Total return per share - basic 226.2p 96.0p 287.6p
Diluted
Revenue return 2,738 3,420 7,205
Capital return 103,632 40,475 124,918
Total return 106,370 43,895 132,123
Weighted average number of shares in issue 47,030,552 45,759,412 45,940,093
during the period/year
Number of dilutive shares - 819,948 753,640
Diluted shares in issue for period/year 47,030,552 46,579,360 46,693,733
Revenue return per share 5.8p 7.3p 15.4p
Capital return per share 220.4p 86.9p 267.5p
Total return per share - diluted 226.2p 94.2p 282.9p
The calculation of the diluted total, revenue and capital returns per ordinary
share is carried out in accordance with FRS No. 22, "Earnings per Share". For
the purposes of calculating the diluted total return, the diluted shares in
issue for the period/year is the weighted average used in the basic calculation
plus the number of shares deemed to be issued for no consideration on the
exercise of all subscription shares calculated by reference to the average
price of the ordinary shares during the period/year.
5. NET ASSET VALUE PER SHARE
i) Net asset value per share - basic
The net asset value per share is based on the assets attributable to equity
shareholders of £750,572,000 (30 September 2013: £548,363,000; 31 March 2014: £
636,186,000) and on the number of shares in issue at the period end of
48,053,080 (30 September 2013: 45,888,385; 31 March 2014: 46,292,111).
ii) Net asset value per share - diluted for subscription shares
As at 30 September 2014 there were no subscription shares in issue as all the
shares had been exercised, there was therefore no dilutive effect on the net
asset value from subscription shares. (30 September 2013: the dilution assumed
that the 2,264,695 subscription shares in issue were exercised at 699p
resulting in assets attributable to equity shareholders of £564,193,000 in
respect of 48,153,080 shares: 31 March 2014: the dilution assumed that the
1,860,969 subscription shares in issue were exercised at 699p resulting in
assets attributable to equity shareholders of £649,194,000 in respect of
48,153,080 shares).
iii) Net asset value per share - fully diluted for subscription shares and
treasury shares
As at 30 September 2014 there were 100,000 ordinary shares held in treasury and
no subscription shares remained unexercised at that date. As at 30 September
2014 there was therefore only a dilutive effect attributable to the 100,000
shares held in treasury and had such shares been sold back to the market at
1,502p (the prevailing ordinary share price at 30 September 2014) assets
attributable to equity shareholders would have been £752,074,000 in respect of
48,153,080 shares in issue.
As at 30 September 2013 and 31 March 2014 there were no shares held in
treasury. As at these two dates there were 2,264,695 and 1,860,969 subscription
shares remaining unexercised and therefore the dilutive effect as at these two
dates was attributable to unexercised subscription shares. As at 30 September
2013 had 2,264,695 subscription shares been exercised at 699p, assets
attributable to equity shareholders would have been £564,193,000 in respect of
48,153,080 shares in issue. As at 31 March 2014 had 1,860,969 subscription
shares been exercised at 699p, assets attributable to equity shareholders would
have been £649,194,000 in respect of 48,153,080 shares.
6. TRANSACTION COSTS
Purchase transaction costs for the six months ended 30 September 2014 were £
316,000 (six months ended 30 September 2013: £465,000; year ended 31 March
2014: £718,000).
Sales transaction costs for the six months ended 30 September 2014 were £
153,000 (six months ended 30 September 2013: £360,000; year ended 31 March
2014: £643,000).
These costs comprise mainly commission.
7. SUBSCRIPTION SHARES
The final exercise date for the Company's subscription shares was 31 July 2014.
During the period ended 30 September 2014 the remaining 1,860,969 subscription
shares were exercised for a total consideration of £13,008,000 (six months
ended 30 September 2013: 125,231 subscription shares were exercised for a total
consideration of £875,000).
8. PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks facing the Company are listed in the Interim Management
Report. An explanation of these risks and how they are managed is contained on
pages 8 to 10 and also in note 18 of the Company's Annual Report & Accounts for
the year ended 31 March 2014.
9. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half year report does not
constitute statutory accounts as defined in sections 434-436 of the Companies
Act 2006. The financial information for the half years ended 30 September 2014
and 30 September 2013 has not been audited, or reviewed by the auditors.
The information for the year ended 31 March 2014 has been extracted from the
latest published audited financial statements. The audited financial statements
for the year ended 31 March 2014 have been filed with the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not include a reference to any matters to which the auditors drew attention by
way of emphasis without qualifying the report, and did not contain statements
under section 498 of the Companies Act 2006.
Earnings for the first six months should not be taken as a guide to the results
for the full year.
Glossary
AIFM Directive
The Alternative Investment Fund Managers Directive (the `Directive') is a
European Union Directive that was implemented in the UK with effect from 22
July 2013 subject to a transitional period running for a further year until 22
July 2014. The Directive regulates EU fund managers that manage alternative
investment funds (this includes investment trusts).
Diluted Net Asset Value
This is a method of calculating the net asset value ("NAV") of a company that
has issued, and has outstanding, convertible loan stocks, treasury shares,
subscription shares or options. The calculation assumes that the holders have
exercised their right to convert or subscribe, thus increasing the number of
shares among which the assets are divided.
Discount or Premium
A description of the difference between the share price and the net asset value
per share. The size of the discount or premium is calculated by subtracting the
share price from the net asset value per share and is usually expressed as a
percentage (%) of the net asset value per share. If the share price is higher
than the net asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading at a
discount.
Gearing and Leverage
Gearing is calculated using the Association of Investment Companies definition.
Total assets, less current liabilities (before deducting any prior charges)
minus cash/cash equivalents divided by Shareholders' funds, expressed as a
percentage.
An additional item which the AIFM Directive (the `Directive') has introduced is
the obligation on the Company and Frostrow Capital LLP (`Frostrow'), as its
AIFM' to disclose the Company's limits for `leverage', as defined by the
Directive. The Directive leverage definition is slightly different to the
Association of Investment Companies method of calculating `gearing' and is as
follows: `any method by which the AIFM increases the exposure of an AIF it
manages whether through borrowing of cash or securities, or leverage embedded
in derivative positions.' There are two methods for calculating leverage under
the Directive - the Gross Method and the Commitment Method.
The Company's existing gearing limit (that the Company may borrow up to the
lower of £120m or 20% of the Company's net asset value) is unchanged. The Board
has set the leverage limit for both the Gross basis and the Commitment basis at
140%. These limits are monitored by both the Board and the AIFM and will be
discussed further in the Company's next and future Annual Report & Accounts.
NAV per share (pence)
The value of the Company's assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV is also described
as `shareholders' funds' per share. The NAV is often expressed in pence per
share after being divided by the number of shares which have been issued. The
NAV per share is unlikely to be the same as the share price which is the price
at which the Company's shares can be bought or sold by an investor. The share
price is determined by the relationship between the demand and supply of the
shares.
NAV Total Return
The theoretical total return on shareholders' funds per share, including the
assumed £100 original investment at the beginning of the period specified,
reflecting the change in NAV assuming that dividends paid to shareholders were
reinvested at NAV at the time the shares were quoted ex-dividend. A way of
measuring investment management performance of investment trusts which is not
affected by movements in discounts/premiums.
Performance Fee
Dependent on the level of long-term outperformance of the Company, the AIFM and
the Portfolio Manager are entitled to the payment of a performance fee. The
performance fee is calculated by reference to the amount by which the Company's
net asset value (`NAV') performance has outperformed the benchmark index.
The fee is calculated quarterly by comparing the cumulative performance of the
Company's NAV with the cumulative performance of the benchmark since the launch
of the Company in 1995. The performance fee amounts to 16.5% of any
outperformance over the benchmark, the Portfolio Manager receiving 15% and the
AIFM receiving 1.5% respectively. Provision is also made within the daily NAV
per share calculation as required and in accordance with generally accepted
accounting standards.
In order to ensure that only sustained outperformance is rewarded, at each
quarterly calculation date any performance fee is based on the lower of:
i) The cumulative outperformance of the investment portfolio over the benchmark
as at the quarter end date; and
ii) The cumulative outperformance of the investment portfolio over the
benchmark as at the corresponding quarter end date in the previous year.
In addition, a performance fee only becomes payable to the extent that the
cumulative outperformance gives rise to a total fee greater than the total of
all performance fees paid to date.
(See pages 26 and 27 of the Company's Annual Report & Accounts for further
information).
Total Assets
Total assets less current liabilities before deducting prior charges. Prior
charges include all loans for investment purposes.
Ongoing Charges
Ongoing charges are calculated by taking the Company's annualised expenses,
excluding performance fees and exceptional items, and expressing them as a
percentage of the average net asset value of the Company over the year.
Treasury Shares
Shares previously issued by a company that have been bought back from
shareholders to be held by the company for potential sale or cancellation at a
later date. Such shares are not capable of being voted and carry no rights to
dividends.
END
Frostrow Capital LLP
Company Secretary
28 November 2014
Latest directors dealings
- 4 hours ago Marlowe
- 4 hours ago Haleon
- 4 hours ago TUI AG Reg Shs (DI)
- 4 hours ago Georgia Capital
- 4 hours ago Weir Group