The Trust produced a Net Asset Value total return of -0.3% during the month and a price total return of -1.3%, compared to a return of +1.4% for the FTSE All-Share Index (TR). The return was dominated by the impact of a further profit warning from Provident Financial which had a negative impact of about 1.1% on the Trust’s return. This was very disappointing.
The extent to which the company misjudged the restructuring of a core division has been extremely damaging. A management team which had built a reputation for competence and skilful execution of strategy has been found wanting, and the result has been a material diminution of equity value. We still believe that there is significant value in the Vanquis Bank franchise, but the home-collected credit business will struggle to return to previous levels of profitability.
Investors will know that our aim is to minimise the impact of capital loss on the portfolio. We often forego potential upside in investments because of the possible downside risk, and this helps to lower the Trust’s NAV volatility. But on this occasion we have not succeeded in that aim, which is a cause for regret. The holding was at least a significantly smaller proportion of the portfolio when these problems arose than it was three years ago.
The Provident Financial interim dividend will now not be paid. Although disappointing, the impact of this cut alone on the Trust’s well diversified income account is not sufficient to jeopardize our intention of delivering real dividend growth year on year.