Bellevue Health Regulatory News (BBH)

BB HEALTHCARE TRUST PLC

LEGAL ENTITY IDENTIFIER ('LEI'): 213800HQ3J3H9YF2UI82

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

For the year ended 30 November 2021

INVESTMENT OBJECTIVE, FINANCIAL INFORMATION, PERFORMANCE SUMMARY AND ALTERNATIVE PERFORMANCE MEASURES

Investment objective

The investment objective of BB Healthcare Trust plc ("the Company") is to provide Shareholders with capital growth and income over the long term, through investment in listed or quoted global healthcare companies. The Company's specific return objectives are: (i) to beat the total return of the MSCI World Healthcare Index (in sterling) on a rolling 3 year period (the index total return including dividends reinvested on a net basis); and (ii) to seek to generate a double-digit total Shareholder return per annum over a rolling 3 year period.

Financial information

Performance summary

1 These are Alternative Performance Measures.

2 Total returns in sterling terms for the year ended 30 November 2021.

3 Total returns in sterling terms for the year ended 30 November 2020.

4 Including dividends reinvested in the year.

Source: Bloomberg.

Alternative Performance Measures ("APMs")

The financial information and performance summary data highlighted in the footnote to the above tables represent APMs of the Company. In addition to these APMs other performance measures have been used by the Company to assess its performance; these can be found in the key performance indicators section of the Annual Report. Definitions of these APMs together with how these measures have been calculated can be found in the Annual Report.

CHAIRMAN'S STATEMENT

Dear Shareholders

This is the fifth annual report of your Company, and the third consecutive report overshadowed by the COVID-19 pandemic. As previously, may I extend the Board's and Investment Manager's heartfelt condolences to those readers who have lost loved ones.

I remain satisfied that, as both a Board and as a Company, we have continued to operate effectively over the past twelve months and remain well served by our service providers, who have maintained their usual excellent service.

The fifth anniversary is another important milestone in the development of the Company and should allow us to garner further investor interest through the publication of an additional longer-term performance metric.

Performance

Over the financial year, the Company's Net Asset Value ("NAV") rose 7.2% to 184.91p. The total NAV return (i.e. including reinvestment of dividends) over the last financial year was 10.3%. In contrast the comparator index, the MSCI World Healthcare Index (the "Index") produced a total return of 16.3%.

The returns are summarised in the following table.

Standardised discrete performance (%)

Source: Bloomberg & Bellevue Asset Management (UK) Ltd., 29.11.2021.

All returns are adjusted for dividends paid during the period, assuming reinvestment in relevant security.

Note: Past performance is not a guide to future performance. The value of an investment and the income from it may fall as well as

rise and is not guaranteed.

Though the Company underperformed the Index over the last financial year, I hope that readers will agree that over a five-year period the Investment Manager has delivered attractive returns that compare very favourably to its peer group. The Investment Manager provides more analysis of performance elsewhere in this report; I would highlight that there were periods of the year that the Company was materially ahead of its benchmark.

Short-term variations should never change an investment process - and hence it is important to assure investors that the Investment Manager remains true to its investment process and continues to focus on bottom-up fundamental analysis to drive stock selection predicated on superior long-term returns.

Board composition and evaluation

On 2 July 2021, Kate Bolsover joined the Board and Committees as a Non-Executive Director. Kate brings a wealth of experience in investment trusts, corporate governance, sales and marketing. She is already an integral part of the Board and has contributed significantly to many areas.

After our financial year end, on 21 December 2021, Professor Justin Stebbing stepped down from the Board. I would like to take this opportunity to thank Justin for all his contributions to the Company, first as the founding Chairman and then as a Non-Executive Director.

The Board considers the composition, skills and competencies of all members on a regular basis as well as succession planning. We have no immediate plans for recruiting a new Board member at the time of writing. The current Board composition is compliant with the recommendations of the Hampton-Alexander Review, and the Parker Review.

As per the AIC Code, the Board undertakes an annual evaluation of its performance and that of its Committees, individual Directors and Investment Manager, Bellevue Asset Management (UK) Limited ("Bellevue"). Following last year's external evaluation, this year an internal evaluation was undertaken and I am satisfied that the Directors and Investment Manager are operating effectively and showing the necessary commitment to the effective fulfilment of their duties.

Fees & charges

During the year the Board undertook a review of fees and ongoing charges. We agreed to leave the management fee we pay to Bellevue unchanged, except that going forward Bellevue will absorb the majority of marketing costs and third-party support costs for investor relations on behalf of the Company. Bellevue's continuing expansion of its support for the Company should help to further reduce the Company's Ongoing Charges Ratio ("OCR") during the current year. Of note, unlike many peers, we do not pay any performance fees.

Our OCR at 1.08% was found to be highly competitive. All other factors being equal, we would expect the OCR to decline further in 2022 as the assets under management rise and the Board continually endeavours to minimise expense growth in other areas.

Portfolio Positioning

The portfolio continues to remain US-centric and thus we have unhedged US Dollar exposure. The Investment Mandate has few constraints beyond liquidity, giving the Investment Manager free reign to pursue a 'best ideas' approach and optimise the risk/return potential of the Company's (intentionally) concentrated investment portfolio.

The portfolio is exposed to companies that are Small / Mid-cap in size - in the context of the US market. The Investment Manager provides more details of this and the subsector exposures in the following pages.

One specific point I would highlight is that the definition of 'Small-Cap' used by our Investment Manager is a company worth less than $2bn. This is considerably larger than the size of company that is often referred to as 'Small-Cap' in a UK market context. The smallest company in the portfolio at the end of November 2021 was MacroGenics with a market capitalisation at that time of $1.08bn.

Portfolio disclosure

Historically we have only disclosed our top ten positions. As the Company has grown in size, we are increasingly likely to make disclosures relating to individual positions in line with local regulatory requirements. Hence, beginning with this report we are disclosing our full portfolio, which can be found in the Annual Report. We appreciate that this is also important for some institutional investors, mainly for regulatory, risk management or due diligence reasons.

Our Investment Management team write a monthly factsheet with updates on their thinking and the Company's top ten current holdings which are available on our web site. I trust you will find these reports very informative and readable documents, and I commend them to you.

The intent, at the time of purchase of a new holding, is a three to five-year holding period; however, we live in particularly 'interesting times'. Thus, readers should consider the portfolio as an expression of 'strong opinions, loosely held'.

Portfolio turnover, i.e. traded value less capital inflows and forced sales for acquisitions of holdings) fell in 2021 compared to the highly elevated levels seen in 2020, but remains above the five-year average. This is likely to remain the case whilst the pandemic continues to alter the operating environment for healthcare companies. Our active share versus the benchmark as at 30 November 2021 was 92.4%.

Gearing

Just after the fiscal year end, on 17 December 2021 we renewed our multi-currency revolving credit facility ("RCF") with The Bank of Nova Scotia, London Branch. The amended RCF gives the Company access to up to $235million of committed facilities for three years to December 2024, drawn down at the Investment Manager's discretion (within limits agreed by the Board), should it see attractive opportunities.

As at 30 November 2021, the Company's leverage ratio (under the "gross method") was 105%.

Responsible Investing

Both the Company and the Investment Manager, Bellevue, are committed to reflecting Environmental, Social & Governance issues ("ESG") as a core focus within the capital allocation process. More details around this topic can be found in the Annual Report, which highlights how we can be a positive agent for change by our engagement with investee companies. We hope that Shareholders find that the ESG statement is a positive expression of the Company's values.

Share Capital and issuance

The Company's issued share capital was 558.9 million Ordinary Shares as at 30 November 2021, versus 488.7 million Ordinary Shares as at 30 November 2020, an increase of 14.4%. A further 20.8 million Ordinary Shares have been issued since the Company's year end via the Company's block listing facility and the number of shares in issue stood at 579.7 million as at 24 February 2022, being the last practicable date prior to the publication of this document.

At the AGM, we will be seeking a new authority to issue up to a maximum of 57.9 million new Ordinary Shares to meet potential investor demand and to fulfil the scrip dividend commitment.

As a reminder, shares issuance through placing and tap issues can only be done at a premium to NAV, thus our share issuance is not dilutive to existing holders. The Board discusses the capacity of the investment strategy with the Investment Managers regularly and is satisfied that the ongoing expansion of the Company does not impact the Investment Manager's ability to optimise stock selection. Continued issuance has been possible because the Company's shares again traded at a premium to NAV over much of the year.

The decrease in OCR reflects one of the benefits of scale that I mentioned in last year's annual report. I would refer readers to the previous report for a discussion of the other benefits of increasing scale.

Shareholder communication

On a number of occasions in the last year we wrote to our larger Shareholders offering meetings or calls with myself or other members of the Board. We appreciate that Shareholders vary by size and resources - but let me emphasise that our investor relations team, our Investment Manager, my fellow Directors and I are keen to engage with Shareholders, whatever their size.

Board fees

Recently our senior independent director ("SID") led a review of Board remuneration, which considered both third party benchmarking against comparable investment companies, and the time and effort involved by Board members in the governance of the Company. Accordingly, there has been an upward adjustment in Board fees.

In order to ensure alignment of interests, Directors are continuing the commitment to investing (post-tax) fees in shares and holding for a minimum of three years.

Corporate advisers / brokers

On 18 January 2021 we appointed Alvarium Securities as joint brokers alongside J.P. Morgan Securities plc (who conduct their UK investment banking activities as J.P. Morgan Cazenove). We previously were represented by Peel Hunt who were our brokers since IPO (and later joined by J.P. Morgan Cazenove) and I wish to express our gratitude to them. Appointing Alvarium reunites us with a sales team we have worked with since inception.

Dividends

The Company targets an annual dividend of 3.5% of preceding year end NAV, paid out in two equal instalments. The Company paid a final dividend of 2.50p in respect of the year ended 30 November 2020, on 30 April 2021 and an interim dividend of 3.015p in respect of the financial year ended 30 November 2021 was paid on 3 September 2021.

The Board has proposed a final dividend of 3.015p per Ordinary Share in respect of the financial year ended 30 November 2021 and, if approved at the forthcoming AGM, this will be paid to Shareholders in April 2022.

Regarding the financial year ending 30 November 2022; the Board is proposing a total dividend of 6.47p per Ordinary Share, composed of interim and final dividends of 3.235p per Ordinary Share, to be paid in August / September 2022 and March / April 2023 respectively, subject to Shareholder approval.

In July 2019, the Company introduced a scrip dividend alternative, allowing Shareholders to elect for their cash dividend to be automatically subscribed on their behalf for new Ordinary Shares. Certificated Shareholders who have already joined the scrip dividend scheme through the Registrar's website need take no further action to continue in the scheme.

Certificated Shareholders who wish to elect for the scrip dividend alternative for the first time can do so online or by contacting the Company's Registrar. Further details can be found in the Annual Report. Uncertificated Shareholders can make an election via the CREST system.

Annual General Meeting ("AGM")

The next AGM will be held on 22 April 2022. In view of the changing rules and regulations relating to COVID-19 we will provide more information nearer the time as to the arrangements.

Even when such events are permissible, we recognise it is not possible for all Shareholders to attend an AGM, hence may I remind readers that we have a dedicated email address for Shareholders to submit any enquiries or feedback they might have: shareholder_questions@bbhealthcaretrust.co.uk - I encourage you to make use of this facility.

In the meantime, we will continue to post content from the Investment Manager onto the Company's website to keep you informed of the Company's progress.

Outlook

Continuing on from previous reports, a big driver of market sentiment continues to be the pandemic and in that regard I make no predictions in my outlook. It is clear that this situation has thrown into stark relief that innovation is continuously needed in healthcare and perhaps the rate of that innovation is speeding up.

The pandemic has also led to a large backlog of need, thus as we 'normalise' it is likely that there will be a lot of 'pent-up demand'.

Your Board continues to believe that your Company is and will continue to be well placed to capitalise on investment opportunities in healthcare to achieve the stated investment objective.

On behalf of the Board, may I wish you both a prosperous and healthy year ahead and thank you for your continued support of BB Healthcare Trust Plc.

Randeep GrewalChairman25 February 2022

INVESTMENT MANAGER'S REPORT

Performance Review

Performance summary - macro musings

The financial year ended 30 November 2021 was a very challenging period for active investment managers, especially in healthcare. From calendar Q4 2020, generalist investors eschewed defensive growth sectors such as healthcare in favour of pro-cyclical, pro-consumer and latterly pro-inflation assets as the "great re-opening" got underway. Value outperformed growth in the early part of 2021.

The COVID-19 pandemic is sadly not yet over, but investor psyche moved on long ago and the overwhelming view is that we can live with this virus and largely return to normality: the MSCI World Index rose >23% during this period and the FTSE All-Share Index >17%. The former broke new all-time highs several times during 2021 and the latter index is currently trading close to its all-time highs from early 2020.

One could devote many pages to a quantitative discussion of the meretricious aspects of such a dynamic, but it would serve little purpose. The past is another country that, like many others currently, one cannot visit. Suffice to say that, for now at least, the price of earnings growth has been rebased upward. Amidst this rumbustious revivification, investors should not forget that, whatever market wisdom suggests, it still feels far from "normal" on the streets and we are not behaving in the same way as we were pre-COVID-19.

In some respects, the reluctance to embrace healthcare during this market recovery phase was understandable; the industry will necessarily be among the last to remove all vestiges of physical and temporal distancing, so activity levels returning to pre-pandemic norms in the shorter-term was always looking like a challenging assumption, as we highlighted in a number of monthly factsheets. All other factors being equal, it feels appropriate then that the MSCI World Healthcare Index would lag the overall return of its parent Index, delivering 16.3% during the year in review.

Performance summary - healthcare highlights

To our minds, there were two main debates in healthcare during the year, both relating to the pandemic. The first revolved around the sustainable demand outlook for vaccines, COVID-19 treatments and diagnostics, and the second over the volume of elective procedures that could be sustained in the short-to-medium term given ongoing infection control precautions and enduring consumer willingness to defer elective treatment.

As several countries have gone as far as to offer booster #2 (i.e. a fourth dose of vaccine) and more and more countries jab ever younger children despite a lack of robust evidence that it has a positive risk/benefit, vaccine demand in the developed world is proving more resilient than we could have imagined. Even in light of this, valuations of COVID-19 vaccine suppliers seemed stretched to us because history shows that vaccine pricing always comes under sustained pressure within a few yearsand it is unsurprising to have seen them falling back in recent months.

With regard to COVID-19 treatments, the debate has largely moved on from antibodies to anti-virals. With the second-generation drugs such as Pfizer's Paxlovid (Gilead's Veklury being the first generation), it does appear we now have the weapons in our armamentarium to take the case fatality rate for COVID-19 down to levels below that for influenza and richer countries will stockpile these treatments. Diagnostic testing volumes have peaked and, with the approval of ever-more providers, prices have come down. We would judge that the market has done a good job at assessing the value proposition around testing.

This leaves the second point of elective procedure volumes as the ongoing conundrum. Broadly speaking, we feel that we judged this situation correctly; the market was too optimistic initially about a return to pre-pandemic procedure volumes and, especially for the lower acuity procedures such as orthopaedics, many companies have disappointed relative to their own early recovery expectations.

Overall, this weighed on sentiment. Nonetheless, the valuations of some of these companies at the low acuity end of the procedure spectrum continued to rise during the year: former holding Intuitive Surgical, for example, rose 35% in sterling terms to achieve further record valuation on forward-looking metrics despite 2022 and 2023 revenue estimates simply returning to pre-pandemic levels; we have struggled to rationalise these outliers.

Figure 1 below illustrates the performance of the healthcare index versus the wider market. Per Figure 1, one can observe that Healthcare actually kept broad pace with the rise of the wider market until the late summer, when it was hit harder in the early September sell-off. Healthcare began to recover with the broader market in early October but the healthcare rally ran out of steam in early November and then reversed. Indeed, the last three months accounted for more than half of the sector's yearly underperformance versus the wider market.

Figure 1:

Generally speaking, long-term returns data supports the argument that one is better off owning a portfolio of small and mid-sized companies (in terms of market capitalisation). This makes intuitive sense: more focused, younger companies are likely to have more inherent growth potential. Healthcare is a very valuable industry, so companies tend to be quite large. We thus define 'Small-Cap' as a company worth less than $2bn, a 'Mid-Cap' as between $2 and $10bn, a 'Large-Cap' as $10-$50bn and a 'Mega-Cap' as a company worth greater than $50bn. For reference, the smallest company in the UK FTSE100 Index of Britain's biggest companies had a market value of $6.2bn at the time of writing.

Since the MSCI World Healthcare Index is, by design, a global index of the world's leading healthcare companies and is weighted by market capitalisation, it does not contain any Small-Caps. However, one can illustrate the performance dispersion by market value by looking at three US Indices: 1) the S&P500 Healthcare Index (broader across market capitalisation spectrum ($8-460bn), but still Mega-Cap dominated), 2) the Russell 2000 Healthcare Index of smaller capitalisation companies ($30m to $8bn) and 3) the Nasdaq Biotech Index (broad and across full market cap spectrum - $100m to $176bn, but not so dominated by Mega-Cap stocks)

Figure 2:

Figure 3 illustrates the performance dispersion by market capitalisation of the MSCI World Healthcare Index over the Company's past three financial years. If all categories delivered equal returns, then the proportion of the return would match the proportion of the Index. If we look at 2019 as the last 'normal' (i.e. pre-COVID-19) year, we see the expected pattern of a higher return coming from outside the Mega-Cap grouping, with the smallest companies doing the best. 2020 was more unusual, but the returns from moving down the market cap spectrum were, in aggregate, still all positive. 2021 was particularly noteworthy in that the returns from the smaller companies were negative:

Figure 3:

This was not specific to the MSCI World Healthcare Index either. Below we reproduce the data for Figure 3 for the 2021 Financial year.

Figure 4:

Performance summary - The Company

Before we look at the Company's performance in more detail, it bears repeating that the stated investment strategy leads to a portfolio with certain inherent characteristics: dollar domination, Mid-cap focus and low benchmark correlation. In light of the macro-dominated narrative and dispersion of returns by market capitalisation across healthcare during the period in review, it is unsurprising that the strategy underperformed its benchmark, per Figure 5.

Figure 5:

Source: Bloomberg. All performance figures are calculated as total return with dividends being reinvested in the relevant security, calculated in GBP and with the relevant period ending on 30 November 2021.

However, the nature of this underperformance does warrant some discussion. The Company's financial year started very strongly and by April 2021, we were on track for a very solid outperformance (+10% relative to the MSCI World Healthcare Index). This faded dramatically in May as Insmed (6.2% of the portfolio) fell ~33% on the back of a poorly handled fundraising round and another five holdings totalling more than 12%, fell more than 20% for various, but arguably trivial, reasons that did not really relate to the longer-term investment case.

We gradually recovered relative performance through late June and were >6% ahead of the benchmark again by month end. Thereafter we struggled to build sustained momentum but spent more days (75%) ahead of the MSCI World Healthcare Index than behind. However, the year end proved very challenging and, somewhat mirroring the Index relative return to the wider market, the vast majority of our outperformance was lost in the final weeks of the financial year.

Although we cannot be satisfied with the relative performance, this has clearly been a very unusual and challenging market dynamic and one that is driven by top-down macro factor considerations rather than bottom-up, company-specific news flow. Indeed, 21 of the 28 companies that were in the portfolio at the start of the year were still there at the end (and three were acquired).

This clearly would not be the case had the underlying fundamentals so deteriorated during the second half of the year. We did not, and will not be, changing our investment approach or philosophy and continue to believe that the correct way to look at returns is on an annualised basis over a multi-year period.

As we have already noted, this was a difficult market for the majority of active managers, with stock selection lagging behind macro factors, size and sub-sector weightings as the key determinants of performance. Benchmark hugging and passive approaches won the day in 2021. But, as the saying goes, even a broken clock is right twice a day.

Coming back to actively managed products - if one takes a longer-term view on annualised returns (three or five years), the performance gap between BBH and its closed end UK healthcare peer group[1] actually increased over 2021. The Company remains the best performing product on a total return basis since its inception and the only one to have beaten the index over that five year period to 30 November 2021.

The ferocity and irrationality of the Small and Mid-Cap focused healthcare sell-off in late 2021 has enabled us to snap up some veritable bargains and left a very compelling set-up as we move into 2022. Notwithstanding the continued volatility that has made an unwelcome return in the New Year, we are as optimistic as we have ever been about the potential for our current portfolio to accrete value for our investors in the longer-term.

[1] UK Healthcare peer group consists of Worldwide Healthcare Trust, Polar Capital Global Healthcare Trust, Biotech Growth Trust and International Biotech Trust. We have excluded RTW Venture Fund as they do not yet have three and five-year track records and are focused mainly on private companies and likewise exclude Syncona as this is also focused on private companies.

Portfolio evolution

During fiscal 2021, the Company held positions in 40 companies (unchanged from the prior period), via 41 securities, two of which were Contingent Value Rights ("CVRs"): one that was issued as part consideration when Alder was acquired by Lundbeck in October 2019 and the other a fungible CVR issued by Bristol-Myers Squibb in respect of its acquisition of Celgene in November 2019, and has now expired.

These figures also include the stake in NMC Health, which has been valued at zero throughout the year and remains classified as an inactive holding. The Alder CVR is also not considered an active position, since it is non-fungible. This simply reflected the right for the Company to receive a contingent payment totalling $1.2m upon EU approval of Lundbeck's Vyepti. This was triggered in February 2022 and the monies have been received. As such, the CVR ceased to exist after this date. The NAV impact of this payment was positive, but not material.

We thus began the fiscal year with 28 active positions and ended with 31 active positions, with an average of 30 across the year. We added 11 new holdings to the portfolio during the year and exited eight positions. There was also one position where we exited and then re-invested two months later, following a material decline in the share price. None of the 11 additions were previous holdings for the Company. We did not participate in any initial public offerings or reverse listing transactions during the year.

Of the eight exits, three were M&A related and the Bristol-Myers CVR expired. Of the remaining four, three were exits because of a change in our view on the investment case and one was because the investment case and valuation had reached their obvious conclusion.

The evolution of the portfolio at a sub-sector level is illustrated in Figure 6 below. Investors can find commentary on the month-by-month evolution of the sub-sector exposure in the monthly factsheets. The table illustrates a few broad trends: decreased exposure to Diversified and Focused Therapeutics, increased exposure to Healthcare IT, Healthcare Technology and Services and intra-year swings in our Medical Technology and Diagnostics holdings.

Toward the end of calendar year 2020, we continued to favour a somewhat more defensive positioning, eschewing low acuity (i.e. elective) procedural exposures and preferring the more certain revenues of essential medicines, services provided under long-term contracts and testing revenues.

Valuations in certain sub-sectors became highly elevated during calendar year 2020 (e.g. Healthcare IT and Healthcare Technology) and so we sold down much of our weightings in these areas. As 2021 began to unfold, we thankfully saw a growing recognition that the pandemic was far from over and thus the final stage of the recovery in elective procedure volumes would take considerable time. This took some of the froth out of certain sub-sectors where valuations had become stretched, enhancing our confidence in putting additional capital to work in these areas.

A material proportion of our overall Medical Technology exposure was in Hill-Rom, which was acquired by Baxter in December 2021 (the deal was first speculated in mid-2021 and we sold out of the shares when they appropriately reflected the proposed deal terms), so our exposure to this sub-sector declined from its highs at the middle of the year. Our remaining exposures tilt toward high acuity procedures.

A similar situation occurred in Diagnostics, following the acquisition of Genmark. Our sub-sector holdings rose again as we re-entered a position in CareDx at what we consider to be a very attractive valuation, having sold out of it at much higher levels in the preceding few months.

Figure 6:

Our top five and bottom five contributors to the evolution of the NAV are summarised below, along with their share price development in sterling over the fiscal year (which does not necessarily correspond to their performance for the Company, since the size and duration of our holding may differ). We would note that the top three performers were all M&A targets:

Figure 7: Top 5 Performers and Bottom 5 Performers

Full investment portfolio as at 30 November 2021

Recent trading and outlook

If the last two years have taught us anything, it is that everything changes very quickly in such a febrile environment. Sadly, we are not so naive as to imagine this situation will normalise (whatever that means) in the short-term and so we will refrain from offering a sub-sector outlook as in previous years. We recommend that investors rely upon the detailed and discursive monthly factsheets for an up-to-date view on the outlook. These can be found on the Company's website[1].

Regarding recent trading, the period from end November 2021 to 15 February 2022 has seen a continuation of the very difficult environment that we saw in October and November, with a very macro-led environment due to inflationary and geo-political factors and attended volatility, especially for Small and Mid-cap companies. Indeed, January 2022 saw the second-worst month performance-wise for the MSCI World Healthcare Index since the inception of the Company and indeed the fourth worst month in the last 20 years, despite no material deterioration in the medium-to-longer term outlook for the sector.

Nonetheless, over this period, the Company's net asset value has declined 2.5%, as compared to 3.1% for the MSCI World Healthcare Index. The wider MSCI World Index has declined 3.5%. We have increased the gearing ratio to enhance gross exposure and benefit from the likely recovery of Small and Mid-cap healthcare valuations, which have become significantly depressed in recent months and we remain optimistic for the year ahead. More details can be found in the December and January factsheets.

Paul Major and Brett Darke

Bellevue Asset Management (UK) Ltd25 February 2022

[1] www.bbhealthcaretrust.co.uk/en/news/factsheets-articles  

INVESTMENT POLICY, RESULTS AND KEY PERFORMANCE INDICATORS

Investment policy

The Company invests in a concentrated portfolio of listed or quoted equities in the global healthcare industry. The Company may also invest in ADRs, or convertible instruments issued by such companies and may invest in, or underwrite, future equity issues by such companies. The Company may utilise contracts for differences for investment purposes in certain jurisdictions where taxation or other issues in those jurisdictions may render direct investment in listed or quoted equities less effective. Any use of derivatives for investment purposes is made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below, and such use is not expected in the normal course to form a material part of the Gross Assets.

The investable universe for the Company is the global healthcare industry including companies within industries such as pharmaceuticals, biotechnology, medical devices and equipment, healthcare insurers and facility operators, information technology (where the product or service supports, supplies or services the delivery of healthcare), drug retail, consumer healthcare and distribution.

No single holding will represent more than 10 per cent. of Gross Assets at the time of investment and, when fully invested, the portfolio will have no more than 35 holdings. The Company will typically seek to maintain a high degree of liquidity in its portfolio holdings (such that 90 per cent of the portfolio may be liquidated in a reasonable number of trading days) and as a consequence of the concentrated approach, it is unlikely that a position will be taken in a company unless a minimum holding of 1.0 per cent. of Gross Assets at the time of investment can be achieved within an acceptable level of liquidity.

There are no restrictions on the constituents of the Company's portfolio by index benchmark, geography, market capitalisation or healthcare industry sub-sector. Whilst the MSCI World Healthcare Index (in sterling) will be used to measure the performance of the Company, the Company does not seek to replicate the index in constructing its portfolio. The portfolio may, therefore, diverge substantially from the constituents of this index (and, indeed, it is expected to do so). However, the portfolio is expected to be well diversified in terms of industry sub-sector exposures. Given the nature of the wider healthcare industry and the geographic location of the investable universe, it is expected that the portfolio will have a majority of its exposure to stocks with their primary listing in the United States and with a significant exposure to the US dollar in terms of their revenues and profits. Although the base currency of the Company is sterling which creates a potential currency exposure, this will not be hedged using any sort of foreign currency transactions, forward transactions or derivative instruments.

The Company will not invest in any companies which are, at the time of investment, unquoted or untraded companies and has no intention of investing in other investment funds.

 Borrowing policy

The Company may deploy borrowing to enhance long-term capital growth. Gearing will be deployed flexibly up to 20 per cent. of the Net Asset Value, at the time of borrowing, although the Portfolio Manager expects that gearing will, over the longer term, average between 5 and 10 per cent. of Net Asset Value. In the event that the 20 per cent. limit is breached as a result of market movements, and the Board considers that borrowing should be reduced, the Portfolio Manager shall be permitted to realise investments in an orderly manner so as not to prejudice shareholders.

No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.

Dividend policy

The Company will set a target dividend each financial year equal to 3.5% of Net Asset Value as at the last day of the Company's preceding financial year. The target dividend will be announced at the start of each financial year. This is a target only and not a profit forecast and there can be no assurance that it will be met.

Dividends will be financed through a combination of available net income in each financial year and other reserves. It is currently expected that most of the total annual dividend will be financed from other reserves. In order to increase the distributable reserves available to facilitate the payment of dividends, the Company cancelled the amount of £146,412,136 standing to the credit of its share premium account immediately following first admission of its Ordinary Shares to trading on the London Stock Exchange in order to create a special distributable reserve. The Company may, at the discretion of the Board, pay all or part of any future dividends out of this special distributable reserve, taking into account the Company's investment objective.

The Company intends to pay dividends on a semi-annual basis, by way of two equal dividends, with dividends declared in July and February/March and paid in August and March/April in each year.

In accordance with regulation 19 of the Investment Trust (Approved Company) (Tax) Regulations 2011, the Company will not (except to the extent permitted by those regulations) retain more than 15 per cent. of its income (as calculated for UK tax purposes) in respect of an accounting period.

 Results and dividend

The Company's revenue return after tax for the year amounted to a profit of £357,000 (2020: profit of £615,000). The Company made a capital return after tax of £86,893,000 (2020: £157,348,000). Therefore, the total return after tax for the Company was £87,250,000 (2020: £157,963,000).

The Company targeted a total dividend for the year ended 30 November 2021 of 6.03p per Ordinary Share.

• Interim dividend of 3.015p paid on 3 September 2021

• Final dividend of 3.015p to be paid on 28 April 2022 (to Shareholders on the register at the close of business on 18 March 2022), subject to Shareholder approval at the AGM to be held on 22 April 2022.

 Target total dividend for the year ending 30 November 2022

As announced by the Company on 3 December 2021, for the financial year ending 30 November 2022, the target total dividend will be 6.47p per Ordinary Share, this being 3.5% of the audited net asset value per Ordinary Share of 184.91p (including current financial year revenue items) as at 30 November 2021. The Board intends to declare an interim dividend of 3.235p per Ordinary Share, being half of the target total dividend for the financial year ending 30 November 2022, in July 2022 and intends to pay this dividend in August/September 2022. The Board intends to propose a final dividend of 3.235p per Ordinary Share for the financial year ending 30 November 2022, in February/March 2023 and intends to pay this dividend in March/April 2023. At the Company's AGM in March 2019, a resolution was passed allowing Shareholders the right to elect to receive their entitlement to the interim dividend in new Ordinary Shares instead of cash in respect of the whole or part of any dividend. The resolution was passed with 99.99% of the proxy votes cast (including discretionary votes) being in favour of the resolution. Shareholders can elect to receive their entitlement to the interim dividend in new Ordinary Shares instead of cash in respect of the whole or part of any dividend.

* This is a target and should not be taken to imply a profit forecast.

Key performance indicators ("KPIs")

The Board measures the Company's success in attaining its investment objective by reference to the following KPIs:

(i) To beat the total return of the MSCI World Healthcare Index (in Sterling) on a rolling three year period

The NAV total return from 1 December 2018 to 30 November 2021 was 46.6%. The total return of the MSCI World Healthcare Index (in sterling terms) over the same period was 40.1%.

The Investment Manager's report incorporates a review of the highlights during the financial year ended 30 November 2021. The Investment Manager's report gives details on investments made during the year and how performance has been achieved.

(ii) To seek to generate a double-digit total Shareholder return per annum over a rolling three year period

The NAV total returns from 1 December 2018 to 30 November 2021 was 46.6% annualised.

(iii) To meet its target total dividend in each financial year

The Company targeted a total dividend of 6.03p per Ordinary Share for the year ended 30 November 2021. The Company paid an interim dividend of 3.015p per Ordinary Share in September 2021 and proposes a final dividend in respect of the year to 30 November 2021 of 3.015p per Ordinary Share.

(iv) Discount/premium to NAV

The discount/premium relative to the NAV per Ordinary Share represented by the share price is monitored by the Board. The share price closed at a 0.7% premium to the NAV as at 30 November 2021 (2020: 0.3% discount).

(v) Maintenance of reasonable level of ongoing charges

The Board monitors the Company's operating costs. Based on the Company's average net assets during the year ended 30 November 2021 the Company's ongoing charges figure calculated in accordance with the Association of Investment Companies ("AIC") methodology was 1.08% (2020: 1.10%). The Board expects the ongoing charges figure to reduce slightly as the Company grows in size.

RISK AND RISK MANAGEMENT

Principal and emerging risks and uncertainties

The Board is responsible for the management of risks faced by the Company and delegates this role to the Audit and Risk Committee (the "Committee"). The Committee carries out, at least annually, a robust assessment of principal and emerging risks and uncertainties and monitors the risks on an ongoing basis. The Committee has a dynamic risk assessment programme in place to help identify key risks in the business and oversee the effectiveness of internal controls and processes, providing a visual reflection of the Company's identified principal and emerging risks.

The Committee considers both the impact and the probability of each risk occurring and ensures appropriate controls are in place to reduce risk to an acceptable level. The Committee continues to be concerned with the risks posed by the COVID-19 pandemic which has a significant impact on all risk categories. In addition to implementing more regular reviews of investment performance with the Investment Manager, the Committee has worked closely with the Company's key service providers to ensure high standards of service were maintained whilst hybrid working models were implemented.

Further information on how the Committee has considered COVID-19 when assessing its effect on the Company's ability to operate as a going concern and the Company's longer-term viability can be found in the Annual Report.

The principal and emerging risks, together with a summary of the processes and internal controls used to manage and mitigate risks where possible are outlined below.

(i) Market risks

Economic conditions

Changes in general economic and market conditions including, for example, impact of pandemics on global economies and national responses to ameliorate such challenges, interest rates, rates of inflation, industry conditions, competition, political events and trends, tax laws, national and international conflicts and other factors could substantially and adversely affect the Company's prospects and thereby the performance of its Ordinary Shares.

Healthcare companies 

The Company invests in global healthcare equities. There are many factors that could adversely affect the performance of investee companies. The healthcare sector may be affected by government regulations and government healthcare programs, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many healthcare companies are heavily dependent on patent protection, and while this is a manageable risk, the expiration of a company's patent may adversely affect that company's profitability. Healthcare companies are subject to competitive forces that may result in price discounting and may be thinly capitalised and susceptible to product obsolescence. The market prices for securities of companies in the healthcare sector may be highly volatile.

Further details on how the COVID-19 pandemic affect the health companies are can be found in Chairman and Investment Manager's statements.

Sectoral diversification

The Company has no limits on the amount it may invest in the healthcare sector and is not subject to any sub-sector investment restrictions. Although the portfolio is expected to be well diversified in terms of industry sub-sector exposures, the Company may have significant exposure to portfolio companies from certain sub-sectors from time-to-time. Greater concentration of investments in any one sub-sector may result in greater volatility in the value of the Company's investments and consequently its NAV and may materially and adversely affect the performance of the Company and returns to Shareholders.

The impact on the portfolio from Brexit and other geopolitical changes, including the trade war between the US and China are monitored and discussed regularly at Board meetings. While it is difficult to quantify the impact of such changes, it is not anticipated that they will fundamentally affect the business of the Company or make the Company's investment case any less desirable.

Management of risks

The Directors acknowledge that market risk is inherent in the investment process. The Company is invested in a diversified portfolio of investments and has a well-defined investment policy that states that no single holding will represent more than 10 per cent. of gross assets at the time of investment and, when fully invested, the portfolio will have no more than 35 holdings.

The Investment Manager also has a well-defined investment objective and process which is regularly and rigorously reviewed by the independent Board of Directors and performance is reviewed at quarterly Board meetings. The Investment Manager is experienced and employs its expertise in selecting the stocks in which the Company invests.

In addition to regular market updates from the Investment Manager and reports at Board meetings, the Board convenes more often during periods of extreme volatility, for example during the COVID-19 pandemic.

(ii) Financial risks

The Company's investment activities expose it to a variety of financial risks which include liquidity, currency, leverage, interest rate and credit risks.

There is a risk that the Company's holdings may not be able to be realised at reasonable prices in a reasonable timeframe. Although the Company's performance is measured in sterling, a high proportion of the Company's assets may be either denominated in other currencies or be in investments with currency exposure. The Company pays interest on its borrowings and as such, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rates.

Further details on financial risks can be found in note 19 to the financial statements.

Management of risks

The Company will typically seek to maintain a high degree of liquidity in its portfolio holdings. The Company's Investment Manager monitors the currency risk of the Company's portfolio on a regular basis. Prevailing interest rates are taken into account when deciding on borrowings.

Further details on the management of financial risks can be found in note 19 to the financial statements.

(iii) Corporate governance and internal control risks

The Board has contractually delegated to external agencies the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services, and the accounting and company secretarial requirements. The external agencies are outlined in the Annual Report.

The main risk areas arising from the above contracts relate to allocation of the Company's assets by the Investment Manager, and the professional execution of their duties of performance of administrative, registration and custodial services. These could lead to various consequences including the loss of the Company's assets, inadequate returns to Shareholders and loss of investment trust status. Cyber security risks could lead to breaches of confidentiality, loss of data records and inability to make investment decision.

Management of risks

The Board has appointed experienced service providers. Each of the contracts were entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company.

All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis.

All key service providers produce annual internal control reports for review by the Audit and Risk Committee. These reviews include consideration of their business continuity plans and the associated cyber security risks. The Company's key service providers report on cyber risk mitigation and management at least annually, which includes confirmation of business continuity capability in the event of a cyber-attack. Penetration testing is carried out by the Investment Manager and key service providers at least annually.

(iv) Regulatory risks

Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments. Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares on the London Stock Exchange. Breaches of the Companies Act 2006, The Alternative Investment Fund Managers' Directive, accounting standards, the Listing Rules, Disclosure Guidance and Transparency Rules, and Prospectus Rules could result in financial penalties or legal proceedings against the Company or its Directors.

Management of risks

The Company has contracted out relevant services to appropriately qualified professionals. The Investment Manager, Depositary and Administrator provide regular reports to the Audit and Risk Committee on their monitoring programmes. The Investment Manager monitors investment positions and the Investment Manager and Administrator monitor the level of forecast income and expenditure. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representations would be made to seek to ensure that the special circumstances of investment trusts are recognised.

(v) Key person risk

The Company depends on the diligence, skill and judgement of the Investment Manager's investment professionals and the information and ideas they generate during the normal course of their activities. The Company's future success depends on the continued service of key personnel. The departure of any of these individuals without adequate replacement may have a material adverse effect on the Company's business prospects and results of operations.

Management of risks

The strength and depth of investment management team provides comfort that there is not over-reliance on one person with alternative investment managers available to act if needed. The Board meets regularly with other members of the wider team employed by the Investment Manager.

(vi) Business interruption

Failure in services provided by key service providers, meaning information is not processed correctly or in a timely manner, resulting in regulatory investigation or financial loss, failure of trade settlement, or potential loss of investment trust status.

The failure or breach of information security could potentially lead to breaches of confidentiality, data records being compromised and the inability to make investment decisions. The failure or breach of physical security could lead to damage or loss of equipment, with consequential negative results.

Management of risks

Each service provider has comprehensive business continuity policies and procedures in place which facilitate continued operation of the business in the event of a service disruption or a major disruption event. Breaches of any nature are reported to the Board.

The Committee receives the Administrator's report on internal controls and the reports by other key third-party providers are reviewed by the Investment Manager and Company Secretary on behalf of the Committee. The Depositary reports on custody matters, including the continued safe custody of the Company's assets.

Cyber security risks are considered and continually monitored by the Investment Manager as these threats evolve and become increasingly sophisticated. The integrity of the Company's information security is closely monitored by the Board, with each of the key service providers providing a regular report through its internal audit function which covers information technology security and provides comfort to the board that appropriate safeguards are in place. All physical locations have security in place and all third-party service providers have disaster recovery plans.

The failure or breach of information security could potentially lead to breaches of confidentiality, data records being compromised and the inability to make investment decisions. The failure or breach of physical security could lead to damage or loss of equipment, with consequential negative results.

(vii) Global pandemic risk

The pandemic is an ongoing risk with both primary and consequential negative effects, such as supply chain disruption. Its impact has been significant with restrictions to movement of people and disruption to business operations affecting global portfolio company valuations positively and negatively and potentially affecting the operational resilience of the Company's service providers. Market volatility has also been heightened.

Management of risks

During the year, the Board continued to monitor, together with the Investment Manager, the market and operational risks associated with the COVID-19 pandemic and the ongoing economic impact on the underlying investee companies. The Board is satisfied that the Investment Manager and the key service providers have in place robust plans and infrastructure to minimise the impact on the Company's operations so that it can continue to trade, meet its regulatory obligations, and report and meet Shareholder requirements.

Due to the ongoing impact of the COVID-19 pandemic, the Audit and Risk Committee requested assurances from the Company's key service providers that business continuity plans had been enacted where necessary, with the majority of service providers enabling remote working arrangements. This provided a satisfactory level of assurance that there had not been, and there was no anticipation of any disruption to service quality.

(viii) Climate change risk

The financial risks from climate change are typically classified as physical or transitional risks. Physical risks are those arising from specific weather events and transitional risks are those arising from the changes to regulations, such as the move to net-zero carbon.

Management of risks

The portfolio is well diversified to mitigate against physical risks. Changes in climate change focused regulation, governing both the Company and investee companies, will create some uncertainty. In comparison to the broader economy, the portfolio has a relatively low carbon footprint and the Investment Manager's parent company is currently deploying a CO2 reduction strategy. This strategy encompasses measures such as an independent audit of its CO2 footprint according to ISO14064-1 and GHG protocols, implementation of corporate CO2 reduction and offsetting of excess emissions with high-quality climate projects. Bellevue Group is targeting a reduction in CO2 emissions per FTE of at least 30% by 2030. Moreover, the Bellevue Group was certified as carbon neutral by Swiss Climate in late 2021.

The Board encourages the Investment Manager to consider ESG factors when selecting and retaining investments and this has been a major topic of discussion in the past year. The Investment Manager's formal ESG guidelines cover areas such as compliance with global norms (UN Global Compact, Guiding Principles for Business and Human Rights, ILO standards), value-based exclusions, controversies, climate change factors and active ownership (management engagement, voting policies, etc.).

The Company's ESG statement is updated annually and is available on the AIC website and in the Annual Report. Investment trusts are currently exempt from TCFD disclosure, but the Board will continue to monitor the situation.

VIABILITY STATEMENT

The Directors have assessed the viability of the Company for the five years to 30 November 2026 (the "Period"), which the Directors consider to be an appropriate time horizon, taking into account the long-term nature of the Company's investment objective and recommendation by the Financial Reporting Council.

In reaching this conclusion, the Directors have considered each of the principal and emerging risks, including climate change and the liquidity and solvency of the Company over the next five years. The Directors have considered the Company's income and expenditure projections and the fact that the Company's investments comprise readily realisable securities, which could, if necessary, be sold to meet the Company's funding requirements. Portfolio changes and market developments are discussed at quarterly Board meetings. The internal control framework of the Company is subject to a formal review on at least an annual basis.

The Directors do not expect there to be a material increase in the annual ongoing charges ratio of the Company over the Period. The Company's income from investments and cash realisable from the sale of its investments provide substantial cover to the Company's operating expenses under all stress test scenarios reviewed by the Directors.

The Company has a redemption facility through which Shareholders are entitled to request the redemption of all or part of their holding of Ordinary Shares on an annual basis. The redemption point is the last business day of November. The Directors' assessment assumes that the number of shares redeemed will not affect the Company's ability to continue in operational existence. At the last redemption point of 30 November 2021, redemption requests in respect of 514,135 Ordinary Shares were received. All of the 514,135 Ordinary Shares, representing 0.09% of the issued share capital at that date, were matched with buyers and there was no change to the Company's share capital. The Company's redemption facility is subject to approval by the board.

The detailed review of the issues arising from the COVID-19 pandemic as discussed in the Chairman's Statement, the Investment Manager's Report and in the Risk and Risk Management section.

Based on their assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due in the Period.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have elected to prepare the financial statements under International Accounting Standards in conformity with the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the year and of the net return for the year. In preparing these accounts, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates which are reasonable and prudent;

· state whether international accounting standards in conformity with the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the accounts; and

· prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the Company's website at www.bbhealthcaretrust.com, which is maintained by the Company's Investment Manager. The work carried out by the auditor does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 Directors' confirmation statement

The Directors each confirm to the best of their knowledge that:

· the accounts, prepared in accordance with international accounting standards in conformity with the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

· this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit and Risk Committee, the Directors consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

Randeep GrewalChairman25 February 2022

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 NOVEMBER 2021

The Company's distributable reserves consist of the special distributable reserve, capital reserve attributable to realised profit and revenue reserve.

The Company may use its distributable reserves to fund dividends, redemptions of Ordinary Shares and share buy backs.

STATEMENT OF CASH FLOWS 

* Cash inflow from dividends for the financial year was £3,764,000 (2020: £2,843,000). Bank deposits interest income received during the year was £nil (2020: £134,000).

Reconciliation of movement in financing liabilities

*No special dividend included within dividend income.

There is no diluted Ordinary Shares.