REG - Personal Assets Tst. - Half-year Report
21/11/2022 07:01
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RNS Number : 9623G Personal Assets Trust PLC 21 November 2022
To:
RNS
From: Personal Assets Trust plc
LEI: 213800Z7ABM7RLQ41516
Date: 21 November 2022
INTERIM REPORT FOR THE SIX MONTHS ENDED 31 OCTOBER 2022 (UNAUDITED)
FINANCIAL SUMMARY
• Personal Assets Trust ("PAT") is an investment trust run expressly for private
investors.
• The Company's investment policy is to protect and increase (in that order) the
value of shareholders' funds per share over the long term.
• Following shareholder approval at the Annual General Meeting in July 2022, the
Company's Ordinary shares were split on a 100 for one basis with effect from 1
August 2022.
• Over the six months to 31 October 2022 PAT's net asset value per share ("NAV")
fell by 4.4% to 470.27 pence. PAT's share price fell by 28.50 pence to 475.50
pence over the same period((1)), being a premium of 0.9% to the Company's NAV
at that date.
• During the period, PAT continued to maintain a high level of liquidity as
follows:
% as at % as at
31 October 30 April
2022 2022
US TIPS 37.2 35.7
US Treasuries 6.4 -
UK Gilts 11.5 -
UK T-Bills 2.6 15.7
Gold Bullion 8.9 9.5
UK cash 6.0 2.6
Overseas cash 0.0 0.0
Net current liabilities (0.2) (1.4)
72.4 62.1
Total
• Over the six months PAT's shares continued to trade close to NAV under the
Company's discount and premium control policy. The Company issued the
equivalent of 18,602,500 new Ordinary shares and reissued 925,000 Ordinary
shares from Treasury (adding £95.5 million of capital) at a small premium and
bought back 925,000 Ordinary shares (at a cost of £4.4 million) at a small
discount.
• Dividends are paid in July, October, January and April of each year. The first
interim dividend, equivalent to 1.4 pence((1)) per Ordinary share, was paid to
shareholders on 22 July 2022 and the second interim dividend of 1.4 pence was
paid on 7 October 2022. A third interim dividend of 1.4 pence per Ordinary
share will be paid to shareholders on 11 January 2023 and it is the Board's
intention, barring unforeseen circumstances, that a fourth interim dividend of
1.4 pence per Ordinary share will be paid in April 2023, making a total for
the year of 5.6 pence per Ordinary share.
Key Features
As at As at
31 October 30 April
2022 2022
Market Capitalisation £1,838.3m £1,855.1m
Shareholders' Funds £1,821.9m £1,814.4m
Shares Outstanding 387,409,400 368,806,900((1))
Liquidity (see fifth bullet point above) 72.4% 62.1%
Share Price 474.50p 503.00p((1))
NAV per Share 470.27p 491.95p((1))
FTSE All-Share Index 3,876.48 4,185.12
Premium to NAV 0.9% 2.2%
Earnings per Share 4.44p 8.36p((1)(2))
Dividend per Share 2.80p 7.00p((1)(2)(3))
((1)) Adjusted for the 100 to one share split of the Ordinary shares on 1
August 2022.
((2)) Full Year.
((3)) A special dividend equivalent to 1.4 pence per Ordinary share was paid
in relation to the year ended 30 April 2022. Further details on the dividends
paid for the year ended 30 April 2022 are set out in note 3 below.
Investment Manager's Report
Over the half year to 31 October 2022, the net asset value per share ("NAV")
of Personal Assets Trust ("PAT") fell by 3.6% while the FTSE All-Share Index
("FTSE") fell by 5.8%. These returns include reinvested dividends. The capital
only returns were -4.4% and -7.4% respectively.
Over the past decade or more, investors have, often without realising it,
gradually been increasing their risk. Yields on cash and bonds fell so low, in
some cases to below zero, that money which had traditionally been seeking a
risk-free return, had to take greater risk to receive any return at all.
Moreover, those that stayed in bonds risked capital losses if and when
interest rates, inflation or both began to rise. Equities have been buoyed by
the view that "There is no alternative" ('TINA') for those seeking a return
above the meagre offerings elsewhere. It became increasingly difficult to
diversify and protect capital; liquidity had found its way into all the
cracks. Stock markets have slowly and steadily become more expensive. That
process, which has been in place since the Global Financial Crisis, is now in
reverse. Inflation has been rising for the last 18 months and central banks
have looked woefully behind the curve. Consequently, we are experiencing the
fastest tightening of financial conditions since the Federal Reserve was
established a century ago. This year the Fed has increased rates at a
breathtaking pace, from near zero to 4%, while the Bank of England has
followed to a more modest 3% base rate.
According to Warren Buffett, "Interest rates are to asset prices what gravity
is to the apple." Rising rates are now exposing the prevailing asset
overvaluation. During 2022, we have experienced the deflation of a 'bubble in
everything'. Bubbles are notoriously difficult to recognise, in real time, but
with hindsight we can see that the strong run in equites, immediately
following the pandemic in 2020 and 2021, had similarities with the dotcom
bubble of 1999. This time the market peaked with the enthusiasm for 'meme
stocks' and unprofitable technology investments in the spring of 2021, and
since then the bubble has been deflating. The current bear market is similar,
but not identical, to the three-year stock market fall from 2000-2003. In
contrast to that period, there have been few attractive alternatives to
protect and grow capital in 2022. Rising yields have hit bond markets equally
hard. The Bloomberg US Long Treasury Bond Index has fallen over -34% this
year, its worst year on record and a performance even worse than that of the
Nasdaq. The US Dollar has been the only place to hide. Gold has also protected
capital in most currencies including Sterling, Euro and Yen. With these
notable exceptions there have been few ports in the storm of falling equity
prices. Index-linked bonds, somewhat counterintuitively, have been dragged
down with the wider bond market, as longer-term inflation expectations remain
low. Fortunately, we have managed duration risk carefully and most of PAT's
holdings in US TIPS are short-dated. The UK's unforced error of the 'mini'
budget in September revealed a vulnerability in the portfolio structure of
many of the country's pension funds, exposing the gilt market to sharp falls
and heightened volatility. The sell-off dragged down many other assets priced
on yields, such as real estate. Alternatives have also been exposed as
vulnerable to higher rates, as well as proving illiquid in the secondary
market, after a period of vast new share issuance, and prices have fallen in
sympathy.
For these reasons, the past six months has been a very challenging period in
which to protect capital. We reduced the Company's equity exposure in 2021 as
we became concerned about valuations. Nevertheless, during the bear market
rally this summer we took the opportunity to trim equity exposure further
still to c.25%. This is the most conservative that the Company has been
positioned since 2008. Larger holdings in Microsoft, Alphabet, American
Express and Visa were reduced and the Company's holding in Medtronic, a
medical devices company, was sold.
Medtronic was first bought in May 2019 and we added to the holding on weakness
as COVID impacted medical procedure volumes. The original investment thesis
was that Medtronic's innovation pipeline was strong and that execution at the
company would improve, leading to better growth in the years ahead. The
company has since had several executional missteps, including delays to their
surgical robot, an FDA warning letter and, most recently, supply chain issues.
The recent supply chain issues are particularly disappointing as procedures
have recovered to pre-COVID levels, but Medtronic is now unable to meet demand
for its products, leading to weaker results. The recent issues led us to
question the quality of the business and its suitability for the portfolio.
The shares were sold for a modest gain over the original purchase price.
The Company invests in highly liquid assets, providing us with flexibility
when valuations reach attractive levels. We have always sought to avoid
illiquid 'lobster pot' investments, which are easily entered and hard to exit.
A year ago, we said: "A battle lies ahead between the 'inflation-protecting'
qualities of stocks and the threat of nominal interest rate rises in the
future." That battle is now raging. Yet it is not all bad news. TINA may be
dead but there is today an alternative to equities. During the latest sell-off
we acquired new holdings in short-dated gilts yielding over 4%. This is a
return not seen for well over a decade. A cost of capital and a risk-free rate
(if only in nominal rather than real terms) is now available. This is a
material and welcome change for savers and investors. It also provides an
anchor to valuations which has been missing for too long.
Rising interest rates make the risk of a recession highly probable. Thus far,
stock market falls have been driven by the decline in valuations and not yet
the fall in profits that would result from an economic downturn. Those are
still to come in 2023. This bear market has room to run.
Sebastian Lyon, Investment Manager
Portfolio as at 31 October
2022
Shareholders' Funds Valuation
31 October 2022
Security Country Equity Sector % £'000
Equities
Unilever UK Food Producer 3.4 62,071
Visa USA Financial Services 2.9 52,271
Nestlé Switzerland Food Producer 2.8 51,861
Franco Nevada Canada Mining 2.8 50,423
Microsoft USA Technology 2.8 50,133
Diageo UK Beverages 2.5 45,568
Alphabet USA Technology 2.0 36,613
Agilent Technology USA Healthcare 1.9 35,444
Becton Dickinson USA Pharmaceuticals 1.8 32,206
American Express USA Financial Services 1.4 25,021
Procter & Gamble USA Household Products 1.3 24,252
Pernod-Ricard France Beverages 0.9 16,550
Experian UK Industrial 0.6 10,680
Moody's USA Financial Services 0.4 7,385
Total Equities 27.5 500,478
US TIPS USA 37.2 678,611
US Treasuries USA 6.4 116,658
UK Gilts UK 11.5 210,088
UK T-Bills UK 2.6 47,480
Gold Bullion 8.9 161,604
Total Investments 94.1 1,714,919
Property 0.1 2,144
UK cash 6.0 110,028
Overseas cash 0.0 20
Net current liabilities (0.2) (5,245)
TOTAL PORTFOLIO 100.0 1,821,866
Geographic Analysis of Investments and Currency Exposure As At 31 October
2022
UK USA Canada France Switzerland Total
% % % % % %
Equities 6.5 14.5 2.8 0.9 2.8 27.5
Index-Linked Securities - 37.2 - - - 37.2
T-Bills 2.6 - - - - 2.6
GIilts 11.5 - - - - 11.5
Treasuries - 6.4 - - - 6.4
Gold Bullion - 8.9 - - - 8.9
Property 0.1 - - - - 0.1
Cash 6.0 0.0 - - - 6.0
Net current liabilities (0.2) - - - - (0.2)
Total 26.5 67.0 2.8 0.9 2.8 100.0
Net currency exposure 63.2 33.1 - 0.9 2.8 100.0
Statement of Principal Risks and Uncertainties
The Board believes that the principal risks to shareholders, which it seeks to
mitigate through continual review of its investments and through shareholder
communication, are events or developments which can affect the general level
of share prices and other financial assets, including, for instance, inflation
or deflation, economic recessions and movements in interest rates and
currencies.
The Board acknowledges that the continuing uncertainties for global economies
and financial markets, with higher levels of inflation and volatility in
markets and heightened geopolitical tensions, create risks and uncertainties
for the Company. The Board continues to work with the Investment Manager, the
Company Secretary and its other advisers to manage these risks as far as
possible.
The Board has established and maintains, with the assistance of the Company
Secretary, a risk matrix which identifies the key risks to the Company. This
register is formally reviewed on a regular basis. Emerging risks that could
impact the Company are considered and discussed at each Board meeting, or on
an ad hoc basis as required, along with any proposed mitigating actions.
The principal risks and uncertainties faced, and the way in which they are
managed, are described in more detail under the heading Principal Risks and
Risk Management within the Strategic Report in the Company's Annual Report for
the year ended 30 April 2022.
The Company's principal risks and uncertainties have not changed since the
date of the Annual Report and are not expected to change for the remaining six
months of the Company's financial year.
Going Concern
The Directors believe, in the light of the controls and review processes noted
above and bearing in mind the nature of the Company's business and assets,
which are considered readily realisable if required, that the Company has
adequate resources to continue operating for the foreseeable future. For this
reason, they continue to adopt the going concern basis in preparing the
financial statements.
Related Party Transactions
Details of related party transactions are contained in the Annual Report for
the year ended 30 April 2022. There have been no material changes in the
nature and type of the related party transactions as stated within the Annual
Report.
Directors' Responsibility Statement in Respect of the Interim Report
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting';
· the Investment Manager's Report include a fair review of the
information required by the Disclosure Guidance and Transparency Rules ("DTR")
4.2.7R, 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;
· the Statement of Principal Risks and Uncertainties is a fair review of
the information required by DTR 4.2.7R; and
· the condensed financial statements include a fair review of the
information required by DTR 4.2.8R, 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 Company
during the period, and any changes in the related party transactions described
in the last Annual Report that could do so.
On behalf of the Board,
Iain Ferguson, Chairman
18 November 2022
For further information, contact:
Sebastian Lyon
Investment Manager
Tel: 0207 499 4030
Carron Dobson
Juniper Partners Limited, Company Secretary
Tel: 0131 378 0500
Condensed Income Statement
For the six months ended 31 October 2022
(Unaudited)
Six months ended
31 October 2022
Revenue Capital
Return Return Total
£'000 £'000 £'000
Investment income 23,283 - 23,283
Other operating income 218 - 218
Losses on investments held at fair value through profit or loss - (29,380) (29,380)
Foreign exchange losses - (52,475) (52,475)
Total income 23,501 (81,855) (58,354)
Expenses (2,610) (3,330) (5,940)
Return before taxation 20,891 (85,185) (64,294)
Taxation (3,971) 633 (3,338)
Return for the period 16,920 (84,552) (67,632)
Return per share (pence) 4.44 (22.19) (17.75)
The ''Return for the Period'' is also the ''Total Comprehensive Income for the
period'', as defined in IAS1 (revised), and no separate Statement of
Comprehensive Income has been presented.
The ''Total'' column of this statement represents the Company's Income
Statement, prepared in accordance with International Financial Reporting
Standards.
The Revenue Return and Capital Return columns are supplementary to this and
are prepared under guidance published by the Association of Investment
Companies.
All items in the above statement derive from continuing operations.
Per share values have been adjusted for the 100 for one share split of the
Ordinary shares on 1 August 2022.
Condensed Income Statement
For the six months ended 31 October 2021
(Unaudited)
Six months ended
31 October 2021
Revenue Capital
Return Return Total
£'000 £'000 £'000
Investment income 19,866 - 19,866
Other operating income 1 - 1
Gains on investments held at fair value through profit or loss - 79,825 79,825
Foreign exchange losses - (3,841) (3,841)
Total income 19,867 75,984 95,851
Expenses (2,445) (2,990) (5,435)
Return before taxation 17,422 72,994 90,416
Taxation (2,873) 2,474 (399)
Return for the period 14,549 75,468 90,017
Return per share (pence) 4.34 22.53 26.87
Condensed Income Statement
For the year ended 30 April 2022
(Audited)
Year ended
30 April 2022
Revenue Capital
Return Return Total
£'000 £'000 £'000
Investment income 39,789 - 39,789
Other operating income 68 - 68
Gains on investments held at fair value through profit or loss - 129,897 129,897
Foreign exchange losses - (49,813) (49,813)
Total income 39,857 80,084 119,941
Expenses (5,016) (6,295) (11,311)
Return before taxation 34,841 73,789 108,630
Taxation (5,931) 3,325 (2,606)
Return for the period 28,910 77,114 106,024
Return per share (pence) 8.36 22.31 30.67
Condensed Statement of Financial Position
As at 31 October
2022
(Unaudited) (Unaudited) (Audited)
31 October 31 October 30 April
2022 2021 2022
£'000 £'000 £'000
Non-current assets
Investments held at fair value through profit or loss
1,714,919 1,626,221 1,790,814
Property 2,144 2,144 2,144
Net current assets 104,803 63,328 21,402
Net assets 1,821,866 1,691,693 1,814,360
Total equity 1,821,866 1,691,693 1,814,360
Net asset value per Ordinary share (pence) 470.27 489.77 491.95
Per share values have been adjusted for the 100 for one share split of the
Ordinary shares on 1 August 2022.
Condensed Statement of Changes in Equity
For the six months ended 31 October 2022
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31 October 31 October 30 April
2022 2021 2022
£'000 £'000 £'000
Opening equity shareholders' funds 1,814,360 1,503,936 1,503,936
Return for the period (67,632) 90,017 106,024
Ordinary dividends paid (15,970) (9,331) (19,254)
Issue of Ordinary shares 95,502 107,071 223,654
Buy back of Ordinary shares (4,394) - -
Closing equity shareholders' funds 1,821,866 1,691,693 1,814,360
Condensed Cash Flow Statement
For the six months ended 31 October 2022
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31 October 31 October 30 April
2022 2021 2022
£'000 £'000 £'000
Net cash (outflow)/inflow from operating activities
(2,139) 1,006 1,895
Net cash outflow from investing
activities (11,841) (102,786) (226,126)
Net cash outflow before financing
activities (13,980) (101,780) (224,231)
Net cash inflow from financing
activities 78,174 94,818 201,364
Net increase/(decrease) in cash and
cash equivalents 64,194 (6,962) (22,867)
Cash and cash equivalents at the start of
the period 47,944 70,907 70,907
Effect of exchange rate changes (2,090) (22) (96)
Cash and cash equivalents at the end of
the period 110,048 63,923 47,944
NOTES
1. The condensed consolidated financial statements have been prepared
in accordance with International Financial Reporting Standard ('IFRS') IAS 34
'Interim Financial Reporting' and the accounting policies set out in the
statutory accounts of the Company for the year ended 30 April 2022. The
condensed consolidated financial statements do not include all of the
information required for a complete set of IFRS financial statements and
should be read in conjunction with the consolidated financial statements of
the Company for the year ended 30 April 2022, which were prepared under full
IFRS requirements.
2. The return per Ordinary share figure is based on the net loss for
the six months of £67,632,000 (six months ended 31 October 2021: net profit
of £90,017,000; year ended 30 April 2022: net profit of £106,024,000) and on
380,991,218 (six months ended 31 October 2021: 334,964,700; year ended 30
April 2022: 345,686,800) Ordinary shares, being the weighted average number of
Ordinary shares in issue during the respective periods.
3. In respect of the year ending 30 April 2023 the Board has declared
a first interim dividend equivalent to 1.4 pence per Ordinary share (adjusted
for the 100 for one share split on 1 August 2022), which was paid on 22 July
2022 and a second interim dividend of 1.4 pence per Ordinary share, which was
paid on 7 October 2022. A third interim dividend of 1.4 pence per Ordinary
share will be paid to shareholders on 11 January 2023 and it is the Board's
intention, barring unforeseen circumstances, that a fourth interim dividend of
1.4 pence per Ordinary share will be paid in April 2023, making a total for
the year of 5.6 pence per Ordinary share. In respect of the year ended 30
April 2022 the Board declared four interim dividends equivalent to 1.4 pence
per Ordinary share and a special dividend equivalent to 1.4 pence per Ordinary
share. This gave a total dividend for the year ended 30 April 2022 of 7.0
pence per Ordinary share.
4. At 31 October 2022 there were 387,409,400 Ordinary shares in issue
(31 October 2021: 345,407,900; 30 April 2022: 368,806,900, adjusted for the
100 for one share split on 1 August 2022). During the six months ended 31
October 2022 the Company issued the equivalent of 18,602,500 new Ordinary
shares, reissued 925,000 Ordinary shares from Treasury and bought back 925,000
Ordinary shares.
5. The Board has considered the requirements of IFRS 8 'Operating
Segments'. The Board is of the view that the Company is engaged in a single
segment of business, being that of investing in equity shares, fixed interest
securities and other investments, and that therefore the Company has only a
single operating segment.
6. The Company held the following categories of financial instruments
as at 31 October 2022:
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments 1,714,919 - - 1,714,919
Current liabilities - (2,974) - (2,974)
Total 1,714,919 (2,974) - 1,711,945
The above table provides an analysis of investments based on the fair value
hierarchy described below and which reflects the reliability and significance
of the information used to measure their fair value. The levels are determined
by the lowest (that is, the least reliable or least independently observable)
level of impact that is significant to the fair value measurement for the
individual investment in its entirety as follows:
Level 1 reflects financial instruments quoted in an active market. The
Company's investment in Gold Bullion has been included in this level.
Level 2 reflects financial instruments the fair value of which is evidenced by
comparison with other observable current market transactions in the same
instrument or based on a valuation technique the variables of which include
only data from observable markets. The Company's forward currency contract has
been included in this level as fair value is achieved using the foreign
exchange spot rate and forward points which vary depending on the duration of
the contract.
Level 3 reflects financial instruments the fair value of which is determined
in whole or in part using a valuation technique based on assumptions that are
not supported by prices from observable market transactions in the same
instrument and not based on available observable market data.
There were no transfers of investments between levels in the period ended 31
October 2022.
The following table summarises the Company's Level 1 investments that were
accounted for at fair value in the period to 31 October 2022.
£'000
Opening book cost 1,440,134
Opening fair value adjustment 350,680
Opening valuation 1,790,814
Movement in the period:
Purchases at cost 950,152
Effective yield adjustment 15,639
Sales - proceeds (1,012,306)
- gains on sales 74,611
Decrease in fair value adjustment (103,991)
Closing valuation at 31 October 2022 1,714,919
Closing book cost 1,468,230
Closing fair value adjustment 246,689
Closing valuation at 31 October 2022 1,714,919
Other aspects of the Company's financial risk management objectives and
policies are consistent with those disclosed in the consolidated financial
statements as at and for the year ended 30 April 2022.
The fair value of the Company's financial assets and liabilities as at 31
October 2022 was not materially different from their carrying values in the
financial statements.
7. These are not full statutory accounts in terms of Section 434 of
the Companies Act 2006 and are unaudited. Statutory accounts for the year
ended 30 April 2022, which received an unqualified audit report and which did
not contain a statement under Section 498 of the Companies Act 2006, have been
lodged with the Registrar of Companies. No full statutory accounts in respect
of any period after 30 April 2022 have been reported on by the Company's
auditors or delivered to the Registrar of Companies.
8. A copy of the Interim Report is available on the Company's website
at www.patplc.co.uk (http://www.patplc.co.uk) . Shareholders are encouraged to
visit the website for further information on the Company.
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