Worldwide Healthcare Trust PLC - Half-year Report
Unaudited Half Year Results for the six months ended
This Announcement is not the Company’s Half Year Report & Accounts. It is an abridged version of the Company’s full Half Year Report & Accounts for the six months ended
The Company's Half Year Report & Accounts for the six months ended
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Performance
Six months to One year to
30 September 31 March
2024 2024
Net asset value per share (total return)* # 0.6% 12.0%
Share price (total return)* # 3.6% 8.6%
Benchmark (total return)^ # 0.0% 10.9%
30 September 31 March Six months
2024 2024 change
Net asset value per share 381.5p 381.1p 0.1%
Share price 345.0p 335.0p 3.0%
Discount of share price to the net asset value 9.6% 12.1%
per share
Leverage1 13.3% 10.8%
Ongoing charges* 0.9% 0.9%
Ongoing charges (including performance fees 0.9% 0.9%
crystallised during the period)*
# Source – Morningstar.
^ Benchmark – MSCI World Health Care Index on a net total return, sterling adjusted basis (see Glossary).
* Alternative Performance Measure (See Glossary).
1 Leverage calculated under the Commitment Method (see Glossary).
Statement from the Chair
“During the period, the Company’s net asset value per share total return of +0.6% and share price total return of +3.6% outperformed the Benchmark, which was flat.”
PERFORMANCE
Macroeconomic and geopolitical factors again buffeted global markets during the period under review. Positive factors for markets included the initiation of interest rate reductions in the
Against this backdrop, during the period under review, the
In comparison, the Company’s net asset value (NAV) per share total return was +0.6%, outperforming the Benchmark during the period and building on our outperformance in the previous financial year. The NAV performance was achieved despite the headwind of sterling strengthening against the
The Company’s share price total return was +3.6%, greater than its NAV total return, reflecting a narrowing of the discount of the Company’s share price to its NAV per share from 12.1% at the beginning of the half year to 9.6% at the end.
Looking at specific names in the portfolio, the largest contributions during the reporting period came from healthcare services company Tenet Healthcare and medical technology company Boston Scientific .
The principal detractors from performance were the large capitalisation biotechnology company Biogen , and healthcare equipment manufacturer Dexcom .
Further information regarding the Company’s investments and performance can be found in the Portfolio Manager’s Review.
The Company had, on average, leverage of 12.4% during the period, which added 0.5% to performance. As at the half year-end, leverage stood at 13.3%, compared to 10.8% at the beginning. Our Portfolio Manager continues to adopt both a pragmatic and a tactical approach to the use of leverage, which adds to performance in periods of rising portfolio share prices and has benefitted the Company over time.
Our Portfolio Manager, through its extensive private equity research capabilities, continues to review unquoted opportunities although, in the period under review, no new unquoted investments were made. The Company is able to invest up to 10% of the portfolio, at the time of acquisition, in unquoted securities. Exposure to unquoted equities accounted for 5.3% of the total portfolio at the half year - end, and these holdings made a negative contribution of 0.7% to the Company’s performance during the period under review.
PERFORMANCE FEE
No performance fee was accrued as at
CAPITAL
Share price discounts continue to persist across the
It is the Board’s policy to buy back our shares if the Company’s share price discount to the NAV per share exceeds 6% on an ongoing basis. Despite the Company’s share buybacks, the discount can remain greater than 6% for extended periods of time, depending on overall sentiment towards the Company, the sector and investment trusts generally. Nonetheless, buybacks enhance the NAV per share for remaining shareholders. In addition, the Board believes that regular buybacks help to narrow the discount and go some way to dampening discount volatility.
During the period under review, the Company repurchased a total of 28,230,376 shares for treasury at a cost of £99.8m and at an average discount of 9.6%. At the period end, there were 517,711,956 shares in issue (excluding the 83,953,244
shares held in treasury). Since the period end to
DIVIDENDS
The Board has declared an unchanged interim dividend of 0.7p per share, for the year to
I remind shareholders that it remains the Company’s policy to pay out dividends at least to the extent required to maintain investment trust status. These dividend payments are paid out of the Company’s net revenue for the year and, in accordance with investment trust rules, a maximum of 15% of income can be retained by the Company in any financial year.
It is the Board’s continuing belief that it is in shareholders’ best interests to see the Company’s capital deployed in its investment portfolio rather than paid out as dividends to achieve a particular target yield.
COMPOSITION OF THE BOARD
I am delighted to confirm that, at the beginning of October,
OUTLOOK
While macroeconomic and geopolitical conditions continue to be challenging, your Board believes that the fundamentals of the healthcare sector remain strong.
Our Portfolio Manager is positive about the outlook for the sector, a view driven in part by strong innovation cycles, elevated patient volumes and an ageing global demographic. They also believe that the current high level of merger and acquisition activity in the sector will continue, supported by attractive valuations, healthy balance sheets and an increasing need for larger pharmaceutical and biotechnology companies to address future patent expirations.
Finally, they also believe that the Republican victory in the
Chair
Portfolio
AS AT
Market value % of
Investments Sector Country/region £’000 investments
Eli Lilly Pharmaceuticals United States 194,711 9.4
Health Care
Boston Scientific Equipment & United States 161,020 7.8
Supplies
Health Care
Intuitive Surgical Equipment & United States 124,748 6.0
Supplies
AstraZeneca Pharmaceuticals United Kingdom 122,151 5.9
Novo Nordisk Pharmaceuticals Denmark 120,276 5.8
Merck Pharmaceuticals United States 95,328 4.6
Health Care
Tenet Healthcare Providers & United States 79,290 3.8
Services
Biogen Biotechnology United States 78,681 3.8
Health Care
UnitedHealth Providers & United States 78,003 3.8
Services
Health Care
Stryker Equipment & United States 76,271 3.7
Supplies
Top 10 investments 1,130,480 54.6
Daiichi Sankyo Pharmaceuticals Japan 67,535 3.3
Sarepta Therapeutics Biotechnology United States 46,781 2.3
Natera Life Sciences Tools United States 46,186 2.2
& Services
Argenx Biotechnology Netherlands 45,960 2.2
Eisai Pharmaceuticals Japan 44,425 2.1
Health Care
Integer Holdings Equipment & United States 44,413 2.1
Supplies
Ionis Biotechnology United States 40,985 2.0
Pharmaceuticals
Vertex Biotechnology United States 37,953 1.8
Pharmaceuticals
Thermo Fisher Life Sciences Tools United States 32,628 1.6
Scientific & Services
Health Care
Elevance Health Providers & United States 30,545 1.5
Services
Top 20 investments 1,567,892 75.8
Caris Life Sciences Life Sciences Tools United States 29,554 1.4
* & Services
Alnylam Biotechnology United States 28,290 1.4
Pharmaceuticals
Health Care
Evolent Health Providers & United States 25,385 1.2
Services
Health Care
SI-BONE Equipment & United States 23,954 1.2
Supplies
Health Care
Crossover Health * Providers & United States 23,883 1.2
Services
Cytokinetics Biotechnology United States 21,992 1.1
ICON Life Sciences Tools Ireland 21,664 1.0
& Services
Universal Health Health Care
Services Providers & United States 21,162 1.0
Services
Amgen Biotechnology United States 20,265 1.0
Shanghai INT Medical Health Care
Instruments Equipment & China 20,241 1.0
Supplies
Top 30 investments 1,804,284 87.2
Regeneron Biotechnology United States 20,066 1.0
Pharmaceuticals
Health Care
Jiangxi Rimag Providers & China 19,926 1.0
Services
Apellis Biotechnology United States 19,574 0.9
Pharmaceuticals
Exact Sciences Life Sciences Tools United States 18,926 0.9
& Services
Neurocrine Biotechnology United States 17,443 0.8
Biosciences
Vaxcyte Biotechnology United States 17,097 0.8
Sino Pharmaceuticals Hong Kong 14,872 0.7
Biopharmaceutical
VISEN Biotechnology China 13,143 0.6
Pharmaceuticals *
Innovent Biologics Biotechnology China 13,103 0.6
Beijing Yuanxin Health Care
Technology * Providers & China 12,031 0.6
Services
Top 40 investments 1,970,464 95.2
EDDA Healthcare & Health Care China 10,677 0.5
Technology * Equipment & Supplies
Ruipeng Pet Group * Health Care China 9,834 0.5
Providers & Services
Medpace Life Sciences Tools United States 8,896 0.4
& Services
New Horizon Health Life Sciences Tools China 8,672 0.4
^ & Services
Galderma Pharmaceuticals Switzerland 6,944 0.3
Gushengtang Health Care China 5,980 0.3
Providers & Services
MabPlex * Health Care China 5,081 0.2
Providers & Services
API Holdings * Health Care India 4,270 0.2
Providers & Services
Oscar Health Health Care United States 3,835 0.2
Providers & Services
Sinopharm Health Care China 3,784 0.2
Providers & Services
Top 50 investments 2,038,437 98.4
Shandong Weigao Health Care
Group Medical Equipment & Supplies China 3,231 0.2
Polymer
Ikena Oncology Biotechnology United States 2,049 0.1
Shanghai Bio-heart Health Care
Biological Equipment & Supplies China 1,704 0.1
Technology
Passage Bio Biotechnology United States 1,050 0.1
Peloton
Therapeutics – Biotechnology United States 503 0.0
Milestone *
Total equities 2,046,974 98.9
Biotech M&A Target Swap Baskets United States 175,109 8.5
Swap
Apollo Hospitals Health Care India 16,989 0.8
Enterprise Providers & Services
Less: Gross
exposure on (170,072) (8.2)
financed swaps
Total OTC Swaps 22,026 1.1
Total investments 2,069,000 100.0
including OTC Swaps
* Unquoted holding
* Private holding
^ Shares suspended – subject to fair valuation process
SUMMARY
Market value % of
Investments £’000 investments
Quoted Equities 1,937,998 93.6
Equity Swaps 22,026 1.1
Private Equities 108,976 5.3
Total investments 2,069,000 100.0
Portfolio Manager’s Review
MARKETS
Global equity markets moved higher in the reported six-month period, continuing a trend that first commenced in
Global healthcare stocks also advanced and reached an all-time high (see MSCI World Health Care Index; in
ALLOCATION
The Company’s long standing allocation strategy remained unchanged in the first half of the financial year. Overall, our allocation strategy represents a diverse distribution of investments across all of the major sub-sectors and across the global healthcare industry. This allows investors to view the Company as a “one-stop-shop” for all of their healthcare investment needs given the broad exposure of the portfolio to the entirety of the healthcare ecosystem – from therapeutics, to services, to medical technologies, to growth of emerging markets – given the embedded diversification of the portfolio of companies represented in the portfolio.
Other key traits of our allocation strategy remained deployed in the reported period. Specifically, allocation to Large Cap Pharma remained underweight, owing to (1) disparate fundamentals across the group and (2) the relatively large weight that is represented within the Benchmark. As of
Additionally, allocation to Biotechnology remained above the collective Benchmark weighting, owing to (1) the enormous therapeutic innovation and new drug production that stems from Emerging Biotech companies and (2) the relatively small weight that is represented in the Benchmark. As of
WWH vs. MSCI World Health Care Index
As of 30 September 2024
Subsector WWH MSCI HC +/-
% of NAV % %
Biotechnology 28.5 8.8 19.7
Large Cap Biotech* 8.1 6.6 1.5
Emerging Biotech* 20.4 2.2 18.2
Pharmaceuticals 27.8 45.2 (17.4)
Large Cap Pharma* 27.0 40.8 (13.8)
Spec Pharma* 0.8 4.4 (3.6)
Healthcare Equipment & Supplies 21.9 16.4 5.5
Healthcare Providers & Services 12.0 15.1 (3.1)
Life Science Tools & Services 6.5 10.6 (4.1)
Japan 5.7 3.9 1.8
Emerging Markets 5.5 – 5.5
Privates 5.5 – 5.5
Total 113.4 100.0 13.4
^ Figures expressed as a % of total Net Asset Value. This includes all derivatives as an economically equivalent position in the underlying holding and allocated to the underlying holding’s respective Sector and Region.
See Glossary for definition of Pharmaceutical and Biotechnology subsectors.
PERFORMANCE
We are pleased to report a positive return, in excess of the Benchmark, for the reported period. Specifically, for the six
-
month period ended
Overall, positive performance came primarily from stock picking across non-therapeutic stocks, including Life Science Tools & Services (‘Tools’), Healthcare Providers & Services (‘Services’), and Healthcare Equipment & Supplies (‘Medtech’) and Emerging Markets, offset by stock picking in therapeutic stocks (Pharmaceuticals and Biotechnology). Asset allocation effects were more muted outside of Biotechnology.
Of note, three periods of volatility contributed to the shape of performance across the six-month period. First, equity markets dipped for the first time in five months at the start of the financial year (April) as inflation data was “hotter” than expected and investor optimism for an interest rate cut temporarily waned. Whilst equity markets declined in response, as did the Company’s performance, stock picking generated relative outperformance which helped offset losses in April. Subsequent gains (both absolute and relative) were extended into May and June restoring nearly 6.0% of relative performance, despite Biotechnology’s relative underperformance.
Second, after equity markets reached all-time highs in June (led by market favourite, Nvidia), Technology stocks wobbled on earnings in July and triggered a broad macro trade in which “retail favourites” were sold and year-to-date laggards were bought. This phenomenon adversely impacted the Company’s performance materially, given our positioning within these same segments from a healthcare perspective, resulting in losses of almost 5.0% of both absolute and relative performance in only eight trading days at the end of July and the beginning of August.
That said, those losses were more than reversed in the remaining days of August due to (1) extreme market volatility that originated from economic news in
Finally, in
Despite these volatile periods, we do note that a record high net asset value was achieved during the reported period. A
closing net asset value per share of 408.7p was achieved on
Performance since inception to
SUBSECTOR PERFORMANCE
As mentioned, positive performance came primarily from stock picking across non-therapeutic stocks (including Tools, Services,
The largest contribution on a sub-sector level was from Services, predominantly through stock selection in the
On the detractor side, Biotechnology was the largest negative contributor due to allocation and was exacerbated by stock picking (notably
Apellis Pharmaceuticals
and
Biogen
. See the Major Detractors
section for more information). Pharmaceuticals was also a material detractor, again due to stock selection (including
Merck
and
The largest area of relative outperformance on sub-sector level came from
PRIVATE HOLDINGS
During the first half of the current financial year, the Company strategically refrained from making new investments in private companies, as we continued to cautiously navigate the challenging public offering market for small and mid - capitalisation healthcare firms. While the capital market funding landscape continues to improve, most of our private companies are well capitalised and are being selective with regards to pursuing listings. We remain optimistic about the ability of our unquoted investments to achieve listings within the next year as we anticipate further improvement of the capital market funding environment.
As of the end of the period, private investments made up 5.5% of total net assets, a decrease from 6.4% on
For the first six months of the current financial year, the Company’s private investments generated a loss of £14.2 million, from an opening market value of £133.8 million across 10 companies. The private strategy as a whole had an implied return of -11.6% which detracted -0.7% from performance.
The existing private portfolio constitutes a diverse set of companies. Geographically, exposure is evenly distributed among Emerging Markets and North American companies. On a sub-sector basis, the exposure is concentrated in Services and Tools, with small exposures to Biotechnology and
MAJOR CONTRIBUTORS TO PERFORMANCE
Historically, key performance drivers for the Company, whilst diverse from a sub-sector perspective, usually share some common characteristics. These typically include growth, innovation, new product flow, astute business development acumen, operational excellence, among other positive characteristics. The current interim period was no different.
The largest contributor in the reported six-month period was
Tenet Healthcare
, a
Another significant contributor in the interim period, Boston Scientific , has been a long-term portfolio holding. The medical technology company has a history of innovation, operational excellence, and above average industry growth. The management team is considered top of their field and investors were again rewarded over the past six months after the company experienced a material acceleration in organic sales growth driven by the company’s next generation pulsed field ablation device for the treatment of atrial fibrillation. Whilst the company has several other new products launching, investors are particularly focused on the pulsed field ablation device as the multi-billion dollar atrial fibrillation market has begun rapidly shifting toward this new technology. Looking ahead, investors are optimistic that this market transition can move more rapidly than consensus expectations. Moreover, Boston Scientific has several important trials evaluating pulse field ablation in combination with the company’s Watchman left atrial appendage closure device. Positive results should lead to material market increases for both technologies. We believe the ongoing company algorithm of best-in-class organic sales growth, differentiated margin expansion potential and ongoing mergers & acquisitions (M&A) should result in continued strong and durable profit growth for the foreseeable future.
The undisputed leader in surgical robotic technology is
Intuitive Surgical
. The
The treatment of cancer continues to evolve and perhaps the leader to emerge over the past decade has been
The rise of “diabesity” continues to be a major theme in therapeutics. The most recent entrant, Zepbound (tirzepatide for obesity), from
Eli Lilly
, was approved in
MAJOR DETRACTORS FROM PERFORMANCE
Merck
is a global large cap pharmaceutical company
that is well regarded as a pioneer in immuno-oncology and vaccine development. It has seen its top line rise by more than 50% over the past five years and is expected to eclipse the U.S.
The Emerging Biotech company,
Apellis Pharmaceuticals
has displayed all of the hallmarks of investing in a speculative Biotechnology company, with high rewards and high risks. The company developed Syfovre (pegcetacoplan injection), a
first-in-class treatment for geographic atrophy, a specific form of progressive blindness. Its approval in early 2023 heralded a new treatment for a devastating disease for which there was no treatment – a breakthrough innovation – and the company’s valuation soared to over U.S.
Pharmaceutical brand names rarely become part of popular culture, but
In the
One of the most innovative new drugs over the past 20 years was Leqembi (lecanemab), an antibody developed and commercialised by
Eisai
and partnered with
Biogen
for the treatment of mild to moderate Alzheimer’s disease. The positive pivotal trial (CLARITY-AD) in
DERIVATIVE STRATEGY
The Company has the ability to utilise equity swaps and options as part of its financial strategy. Equity swaps are a financial tool (a derivative contract), that allow for synthetic exposure to a basket of single stocks in an efficient manner and within a well-defined theme. For example, having 15 to 50+ additional positions at smaller weights in the portfolio (i.e., non-core) is suboptimal. An equity swap basket facilitates management of the investment theme and tracking of performance. The swaps contain multiple single stock long positions and the basket swap counterparty is Goldman Sachs, allowing for confidence in forward trading and rebalancing strategies.
The Company strategically invested in two customised tactical basket swaps, targeting growth opportunities in undervalued small and mid-capitalisation Biotechnology, Pharmaceutical and
These baskets were constructed to capitalise on three prevailing themes: 1) investment opportunities possessing considerable potential as attractive acquisition targets for larger corporations (M&A swap basket) and 2) substantial valuation dislocations in small and mid-capitalisation medical device companies brought about by the GLP-1 weight loss craze.
During the period under review, the basket swaps gained £8.0 million, which added 0.4% to performance. The gains were primarily due to the returns generated by the propriety Biotechnology M&A Target Swap.
Throughout the year, the Company also used single stock equity swaps to access Chinese and Indian investments, which would otherwise be inaccessible through more traditional investment methods. During the period under review, single stock equity swaps contributed £1.7 million to performance, and we remain confident in the long-term prospects of emerging market securities, particularly those trading locally in mainland
LEVERAGE STRATEGY
Historically, the typical leverage level employed by the Company has been in the mid-to-high teens range. Considering the market volatility during the past three plus financial years, we have, more recently, used leverage in a more tactical fashion.
In 2024, we have flexed leverage modestly in response to the economic climate, including in consideration of a putative recession earlier in the period and interest rate fluctuations and speculation. Most recently, leverage has converged to the low-double digit range, a reflection of our overall bullishness on the portfolio and a turn in biotechnology stocks. Some factors that keep us from extending leverage even further are the continued uncertainty with the macro backdrop, further geopolitical risk, the looming
SECTOR DEVELOPMENTS
As innovation continues to be the hallmark of our investment strategy, we persist in monitoring and measuring developments at the FDA, perhaps the most objective measure of industry productivity. Whilst 2023 was a record year
for
new drug approvals with 67, the current calendar year looks nearly as robust with 43 approvals to date (as of 30
This era of productivity is simply incredible, especially considering evolving standards for new product approvals – both efficacy and safety – is ever increasing. This year has seen approvals for another antibody for the treatment of Alzheimer’s disease (Kisunla from Eli Lilly), a first-in-class “activin” inhibitor for pulmonary arterial hypertension (Winrevair from Merck), a best-in-class pneumococcal vaccine (Capvaxive from Merck), and the first ever cell therapy for melanoma (Amtagvi from Iovance).
Another important value driver in the therapeutics space has been the acceleration of biotechnology M&A over the past three years. A number of factors have fuelled this M&A frenzy, including a quarter trillion
On the legislative front, nothing has been more scrutinised in healthcare than the emergence of the Inflation Reduction Act (IRA), passed into law by the
Whilst investors were appropriately concerned over this potentially industry-altering pricing mechanism, most breathed a sigh of relief when actual negotiated prices were released ahead of the
We continue to monitor the roll out of the IRA. The new drug prices for the first list of 10 do not take effect until
Finally, the much-anticipated
The implications for healthcare are unequivocally positive. Healthcare stocks were weak ahead of the election on concerns of a Harris win that obviously did not come to fruition. Moreover, the “Red Sweep” was probably the best-case scenario for healthcare. Whilst the implications may vary by sub-sector, overall the Republican party history (and previous Trump administration) has been industry friendly. With
OUTLOOK
The malaise that hung over the Biotechnology industry post-COVID has now evaporated, and investors are re-focused on the fundamentals. The healthcare industry continues to benefit from significant technological advancements and accelerating innovation in drug discovery and development. Across therapeutics, continuous advancements in genetic engineering, personalised medicine, and synthetic biology are fostering a robust pipeline of new therapies and treatments. Increased investment in early-stage science feeds long-term opportunities. Artificial intelligence and machine learning are already impacting all facets of the industry despite still being in its infancy. New product approvals are delivering a quantity and quality of medicines never seen before. The growing elderly demographic worldwide is driving demand for new healthcare solutions, particularly in areas such as cancer treatment, chronic disease management, and age-related health issues. Overall, the future of healthcare will remain robust and dynamic, driven by data, shaped by innovation, improving access and quality for patients on a global basis.
Portfolio Manager
CONTRIBUTION BY INVESTMENT
PRINCIPAL STOCK CONTRIBUTORS TO AND DETRACTORS FROM ABSOLUTE NET ASSET VALUE PERFORMANCE
FOR THE SIX MONTHS ENDED
ContributiContribution
Top five on
contributors Sector Country per share*
£’000
p
Tenet Health Care Providers United States 35,414 6.7
Healthcare & Services
Boston Health Care Equipment United States 21,269 4.0
Scientific & Supplies
Intuitive Health Care Equipment United States 19,549 3.7
Surgical & Supplies
AstraZeneca Pharmaceuticals United Kingdom 13,808 2.6
Eli Lilly Pharmaceuticals United States 12,777 2.4
ContributiContribution
Top five on
detractors Sector Country per share
£’000
p
Biogen Biotechnology United States (14,308) (2.7)
Dexcom** Health Care Equipment & United States (15,958) (3.0)
Supplies
Novo Nordisk Pharmaceuticals Denmark (18,414) (3.5)
Apellis Biotechnology United States (20,982) (3.9)
Pharmaceutical
Merck Pharmaceuticals United States (21,119) (4.0)
* 531,337,518 Weighted average number of shares
**
Not held at
INTERIM MANAGEMENT REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
The Directors continue to review the Company’s key risk register, which identifies the risks and uncertainties that the Company is exposed to, and the controls in place and the actions being taken to mitigate them.
A review of the half year and the outlook for the Company can be found in the Chair of the Board’s Statement and the Portfolio Manager’s Review. The principal risks and uncertainties faced by the Company include the following:
· Exposure to market risks and those additional risks specific to the sectors in which the Company invests, such as political interference in drug pricing.
· The Company uses leverage (both through derivatives and gearing) the effect of which is to amplify the gains or losses the Company experiences.
· Macro events (including geopolitical and regulatory) may have an adverse impact on the Company’s performance by causing exchange rate volatility, changes in tax or regulatory environments, and/or a fall in market prices. Emerging markets, which a portion of the portfolio is exposed to, can be subject to greater political uncertainty and price volatility than developed markets.
· Unquoted investments are more difficult to buy, sell or value and so changes in their valuations may be greater than for listed assets.
· The risk that the individuals responsible for managing the Company’s portfolio may leave their employment or may be prevented from undertaking their duties.
· The risk that, following the failure of a counterparty, the Company could be adversely affected through either delay in settlement or loss of assets.
· The Board is reliant on the systems of the Company’s service providers and as such disruption to, or a failure of, those systems could lead to a failure to comply with law and regulations leading to reputational damage and/or financial loss to the Company.
· The risk that investing in companies that disregard Environmental, Social and Governance (ESG) factors will have a negative impact on investment returns and also that the Company itself may become unattractive to investors if ESG is not appropriately considered in the Portfolio Manager’s decision making process.
· The risk, particularly if the investment strategy and approach are unsuccessful, that the Company may underperform, resulting in the Company becoming unattractive to investors and a widening of the share price discount to NAV per share. Also, falls in stock markets, and the risk of a global recession, are likely to adversely affect the performance of the Company’s investments.
Further information on these risks is given in the Annual Report for the year ended
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 objectives, risk management policies, capital management policies and procedures, the nature of the portfolio and 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 and, more specifically, that there are no material uncertainties relating to the Company that would prevent its ability to continue in such operational existence for at least 12 months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts. In reviewing the position as at the date of this report, the Board has considered the guidance issued by the
The Directors noted the result of the continuation vote held in 2024 (where 93.7% of the votes cast were in favour of continuation). As part of their going concern assessments, stress testing was carried out in
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 Report have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting); and
(ii) the interim management report includes a true and fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
The Half Year Report has not been reviewed or audited by the Company’s auditors.
This Half Year Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the date of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward - looking information.
For and on behalf of the Board
Chair
INCOME STATEMENT
For the six months ended
(Unaudited) (Unaudited)
30 September 2024 30 September 2023
Revenue Capital Revenue Capital
Total Total
Return Return Return Return
£’000 £’000
£’000 £’000 £’000 £’000
Gains/(losses) on investments – 2,585 2,585 – (11,111) (11,111)
Foreign exchange gains/ – 6,906 6,906 – (6,791) (6,791)
(losses)
Income from investments (note 8,830 – 8,830 12,481 – 12,481
2)
AIFM, portfolio management,
and
performance fees (note 3) (408) (7,751) (8,159) (411) (7,803) (8,214)
Other expenses (654) – (654) (686) – (686)
Net return/(loss) before 7,768 1,740 9,508 11,384 (25,705) (14,321)
finance charges and taxation
Finance charges (176) (3,342) (3,518) (246) (4,673) (4,919)
Net return/(loss) before 7,592 (1,602) 5,990 11,138 (30,378) (19,240)
finance
Taxation (357) – (357) (1,486) – (1,486)
Net return/(loss) after 7,235 (1,602) 5,633 9,652 (30,378) (20,726)
taxation
Return/(loss) per share (note 1.4p (0.3)p 1.1p 1.6p (5.0)p (3.4)p
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
All revenue and capital items in the above statement derive from continuing operations.
The Company has no recognised gains and losses other than those shown above and therefore no separate Statement of Total Comprehensive Income has been presented.
The accompanying notes are an integral part of these statements.
STATEMENT OF CHANGES IN EQUITY
For the six months ended
(Unaudited) (Unaudited)
30 September 30 September
2024 2023
£’000 £’000
Opening shareholders’ funds 2,080,417 2,150,721
Shares purchased for treasury (99,759) (133,365)
Return/(loss) for the period 5,633 (20,726)
Dividends paid – revenue (11,198) (14,709)
Closing shareholders’ funds 1,975,093 1,981,921
STATEMENT OF FINANCIAL POSITION
As at
(Unaudited) (Audited)
30 September 31 March
2024 2024
£’000 £’000
Fixed assets
Investments 2,046,974 2,108,235
Derivatives – OTC swaps 22,026 944
2,069,000 2,109,179
Current assets
Debtors 8,635 10,232
Cash and cash equivalents 41,496 73,797
50,131 84,029
Current liabilities
Creditors: amounts falling due within one year (144,038) (100,373)
Derivative – OTC Swaps – (12,418)
(144,038) (112,791)
Net current liabilities (93,907) (28,762)
Total net assets 1,975,093 2,080,417
Capital and reserves
Ordinary share capital – (note 5) 15,042 15,042
Capital redemption reserve 9,564 9,564
Share premium account 841,599 841,599
Capital reserve 1,092,035 1,193,396
Revenue reserve 16,853 20,816
Total shareholders’ funds 1,975,093 2,080,417
Net asset value per share – (note 6) 381.5p 381.1p
CASH FLOW STATEMENT
For the Six months ended
(Unaudited) (Unaudited)
Six months ended Six months ended
Note 30 September 30 September
2024 2023
£’000 £’000
Net cash (outflow)/inflow from operating 8 (4,336) 5,174
activities
Purchases of investments and derivatives (411,658) (554,711)
Sales of investments and derivatives 420,462 560,892
Realised gains/(losses) on foreign 4,803 (2,218)
exchange
Net cash inflow from investing activities 13,607 3,963
Shares repurchased (98,072) (133,365)
Equity dividends paid (11,198) (14,709)
Interest paid (3,518) (4,919)
Net cash outflow from financing (112,788) (152,993)
activities
Increase in net debt (103,517) (143,856)
Cash flows from operating activities includes interest received of £1,684,000 (2023: £1,885,000) and dividends received of £7,448,000 (2023: £10,135,000).
RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET DEBT
(Unaudited) (Unaudited)
Six months ended Six months ended
30 September 30 September
2024 2023
£’000 £’000
Increase in net debt resulting from cash flows (103,517) (143,856)
Gains/(losses) on foreign currency cash and 2,103 (4,574)
cash equivalents
Movement in net debt in the period (101,414) (148,430)
Net debt at 1 April 4,855 2,997
Net debt at 30 September* (96,559) (145,433)
*
The net debt figure as at
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The condensed Financial Statements for the six months to
same accounting policies as set out in the Company’s Annual Report and Financial Statements at
Going concern
After making enquiries, and having reviewed the Investments, Statement of Financial Position and projected income and expenditure for the next 12 months, the Directors have a reasonable expectation that the Company has adequate resources to continue in operation for the foreseeable future. The Directors have therefore adopted the going concern basis in preparing these condensed financial statements.
Fair value
Under FRS 102 and FRS 104 investments have been classified using the following fair value hierarchy:
Level 1 – Quoted market prices in active markets
Level 2 – Prices of a recent transaction for identical instruments
Level 3 – Valuation techniques that use:
(i) observable market data; or
(ii) non-observable data
Level 1 Level 2 Level 3 Total
AS AT 30 SEPTEMBER 2024
£’000 £’000 £’000 £’000
Investments held at fair value through 1,929,327 – 117,647 2,046,974
profit or loss
Derivatives: OTC swaps (assets) – 22,026 – 22,026
Derivatives: OTC swaps (liabilities) – – – –
Financial instruments measured at fair value 1,929,327 22,026 117,647 2,069,000
Level 1 Level 2 Level 3 Total
As at 31 March 2024
£’000 £’000 £’000 £’000
Investments held at fair value through 1,975,108 – 133, 127 2,108,235
profit or loss
Derivatives: OTC swaps (assets) – 944 – 944
Derivatives: OTC swaps (liabilities) – (12,418) – (12,418)
Financial instruments measured at fair 1,975,108 (11,474) 133,127 2,096,761
value
2. INCOME
(Unaudited) (Unaudited)
Six months ended Six months ended
30 September 30 September
2024 2023
£’000 £’000
Investment income 7,146 10,596
Interest Income 1,684 1,885
Total 8,830 12,481
3. AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
(Unaudited) (Unaudited)
Six months ended Six months ended
30 September 2024 30 September 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee 72 1,365 1,437 72 1,369 1,441
Portfolio management fee 336 6,386 6,722 339 6,434 6,773
Performance fee charge for the – – – – – –
period
408 7,751 8,159 411 7,803 8,214
As at
No performance fee could become payable by
See Glossary for further information on the performance fee.
4. RETURN/(LOSS) PER SHARE
(Unaudited) (Unaudited)
Six months ended Six months ended
30 September 30 September
2024 2023
£’000 £’000
The return per share is based on the following
figures:
Revenue return 7,235 9,652
Capital (loss)/return (1,602) (30,378)
Total return 5,633 (20,726)
Weighted average number of shares in issue for 531,229,280 606,004,086
the period
Revenue return per share 1.4p 1.6p
Capital (loss)/return per share (0.3)p (5.0)p
Total (loss)/return per share 1.1p (3.4)p
The calculation of the total, revenue and capital returns per ordinary share is carried out in accordance with IAS 33, “Earnings per Share (as adopted in the EU)”.
5. SHARE CAPITAL
Total
Treasury
Shares shares
shares
number in issue
number
number
As at 1 April 2024 545,942,332 55,722,868 601,665,200
Purchase of shares into treasury (28,230,376) 28,230,376 –
As at 30 September 2024 517,711,956 83,953,244 601,665,200
(Unaudited) (Audited)
30 September 31 March
2024 2024
£’000 £’000
Issued and fully paid:
Nominal value of ordinary shares of 2.5p 15,042 15,042
During the period ended
£99.8m (Year ended
At the AGM of the Company held in
6. NET ASSET VALUE PER SHARE
The net asset value per share is based on the assets attributable to equity shareholders of £1,975,093,000 (
* restated to reflect the ten for one share split.
7. TRANSACTION COSTS
Purchase transaction costs for the six months ended
Sales transaction costs for the six months ended
8. RECONCILIATION OF OPERATING RETURN TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
(Unaudited) (Unaudited)
Six months ended Six months ended
30 September 30 September
2024 2023
£’000 £’000
Gains/losses before finance costs and taxation 9,508 (14,321)
(Less: capital gains)/add: capital losses (1,740) 25,705
before finance charges and taxation
Revenue return before finance charges and 7,768 11,384
taxation
Expenses charged to capital (7,751) (7,803)
Decrease/(increase) in other debtors 226 (474)
Increase in other creditors and accruals 3,754 2,678
Net taxation suffered on investment income (825) (611)
Amortisation – –
Net cash (outflow)/inflow from operating (4,336) 5,174
activities
9. 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 in the Strategic Report and note 16 of the Company’s Annual Report & Accounts for the year ended
10. COMPARATIVE INFORMATION
The condensed financial statements contained in this half year report do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended
The information for the year ended
Earnings for the first six months should not be taken as a guide to the results for the full year.
Glossary of Terms and Alternative Performance Measures (“APMs”)
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (“AIFMD”)
Agreed by the
BENCHMARK
The performance of the Company is measured against the MSCI World Health Care Index on a net total return, sterling adjusted basis.
The net total return is calculated by reinvesting dividends after the deduction of withholding taxes.
LARGE CAP BIOTECH
Biotechnology company with fully integrated discovery, development and commercial capabilities and considered sustainably profitable.
LARGE CAP PHARMA
Global, multinational pharmaceutical companies with fully integrated discovery, development and commercial capabilities.
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 then dividing by the net asset value per share. It 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.
EMERGING BIOTECH
Biotechnology company that does not fit the criteria of Large Cap Biotech, ranging from early-stage development to newly profitable.
EQUITY SWAPS
An equity swap is an agreement in which one party (counterparty) transfers the total return of an underlying equity position to the other party (swap holder) in exchange for a one-off payment at a set date. Total return includes dividend income and gains or losses from market movements. The exposure of the holder is the market value of the underlying equity position.
-- funded, where payment is made on acquisition. They are equivalent to
holding the underlying equity position with the exception of additional
counterparty risk and not possessing voting rights in the underlying;
and,
-- financed, where payment is made on maturity. As there is no initial
outlay, financed swaps increase economic exposure by the value of the
underlying equity position with no initial increase in the investments
value – there is therefore embedded leverage within a financed swap due
to the deferral of payment to maturity.
The Company employs swaps for two purposes:
-- To gain access to individual stocks in the Indian, Chinese and other
emerging markets, where the Company is not locally registered to trade
or is able to gain in a more cost efficient manner than holding the
stocks directly; and,
-- To gain exposure to thematic baskets of stocks (a Basket Swap). Basket
Swaps are used to build exposure to themes, or ideas, that the Portfolio
Manager believes the Company will benefit from and where holding a
Basket Swap is more cost effective and operationally efficient than
holding the underlying stocks or individual swaps.
GENERICS
Any therapeutics company, domestic or global, that focuses a majority of its efforts (not necessarily 100%) on developing and selling generic and/or biosimilar prescription and/or OTC products.
LEVERAGE
Leverage is defined in the AIFMD as any method by which the AIFM increases the exposure of an AIF. In addition to the gearing limit the Company also has to comply with the AIFMD leverage requirements. For these purposes the Board has set a maximum leverage limit of 140% for both methods. This limit is expressed as a percentage with 100% representing no leverage or gearing in the Company. There are two methods of calculating leverage as follows:
The Gross Method is calculated as total exposure divided by Shareholders’ Funds. Total exposure is calculated as net assets, less cash and cash equivalents, adding back cash borrowing plus derivatives converted into the equivalent position in their underlying assets.
The Commitment Method is calculated as total exposure divided by Shareholders’ Funds. In this instance total exposure is calculated as net assets, less cash and cash equivalents, adding back cash borrowing plus derivatives converted into the equivalent position in their underlying assets, adjusted for netting and hedging arrangements.
See the definition of Equity Swaps for more details on how exposure through derivatives is calculated.
As at As at
30 September 2024 31 March 2024
Fair Value Exposure* Fair Value Exposure*
£’000 £’000 £’000 £’000
Investments 2,046,974 2,046,974 2,108,235 2,108,235
OTC equity swaps 22,026 191,150 (11,474) 198,082
2,069,000 2,238,124 2,096,761 2,306,317
Shareholders’ funds 1,975,093 2,080,417
Leverage % 13.3% 10.8%
* Calculated in accordance with AIFMD requirements using the Commitment Method
MSCI WORLD HEALTH CARE INDEX (THE COMPANY’S BENCHMARK)
The MSCI information (relating to the Benchmark) may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any
NET ASSET VALUE (NAV) TOTAL RETURN (“APM”)
The theoretical total return on shareholders’ funds per share, reflecting the change in NAV assuming that dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not affected by movements in discounts/premiums.
Six months to Year to
30 September 31 March
2024 2024
(p) (p)
Opening NAV per share 381.1 343.5
Increase in NAV per share 0.4 37.6
Closing NAV per share 381.5 381.1
% Change in NAV per share 0.1% 10.9%
Impact of reinvested dividends 0.5% 1.1%
NAV per share Total Return 0.6% 12.0%
ONGOING CHARGES (“APM”)
Ongoing charges are calculated by taking the Company’s annualised ongoing charges, excluding finance costs, taxation, performance fees and exceptional items, and expressing them as a percentage of the average daily net asset value of the Company over the year.
Six months to One year to
30 September 31 March
2024 2024
£’000 £’000
AIFM & Portfolio Management fees 8,159 16,267
Other Expenses 654 1,294
Total Ongoing Charges 8,813 17,561
Performance fees paid/crystallised – –
Total 8,813 17,561
Average net assets 2,067,356 2,036,653
Ongoing Charges (annualised) 0.9% 0.9%
Ongoing Charges (annualised, including performance 0.9% 0.9%
fees paid or crystallised during the period)
PERFORMANCE FEE
Dependent on the level of long-term outperformance of the Company, a performance fee can become payable.
The performance fee is calculated by reference to the amount by which the Company’s net asset value (‘NAV’) performance has outperformed the Benchmark.
The fee is calculated quarterly by comparing the cumulative performance of the Company’s NAV with the cumulative performance of the Benchmark since the launch of the Company in 1995. Provision is also made within the daily NAV per share calculation as required and in accordance with generally accepted accounting standards. The performance fee amounts to 15.0% of any outperformance over the Benchmark (see Company’s Annual Report & Accounts for the year ended
In order to ensure that only sustained outperformance is rewarded, at each quarterly calculation date any performance fee payable is based on the lower of:
i) The cumulative outperformance of the 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.
The effect of this is that outperformance has to be maintained for a 12 month period before the related fee is paid.
In addition, a performance fee only becomes payable to the extent that the cumulative outperformance gives rise to a total fee greater than the total of all performance fees paid to date.
SHARE PRICE TOTAL RETURN (“APM”)
Return to the investor on mid-market prices assuming that all dividends paid were reinvested.
Six months to One year to
30 September 31 March
2024 2024
(p) (p)
Opening share price 335.0 311.5
Increase in share price 10.0 23.5
Closing share price 345.0 335.0
% Change in share price 3.0% 7.5%
Impact of reinvested dividends 0.6% 1.1%
Share price Total Return 3.6% 8.6%
SPEC PHARMA
Any other therapeutics company that does not fit the criteria of Large Cap Pharma that develops and sell pharmaceutical products, often focused on a limited number of therapeutic areas (or technologies), with a domestic and sometimes global footprint.
For and on behalf of
- ENDS -
