INVESTMENT MANAGER'S REPORT

"Our focus remains on the bottom-up fundamentals of a relatively small number of mispriced situations where we have an

advantage. We continue to believe that stock picking, hard work, activism and a focus on events are key tenets in navigating our way forward."

Performance Review

"So far, so good" read the introduction to the 2024 annual report by the Bank of International Settlements, the so-called "central bankers' central bank".

And this appears largely true. Inflation has continued to recede such that we are now at the point of monetary policy easing; the US and major Western economies have proved surprisingly resilient; and equity markets have continued to reach new highs.

That is not to say there is nothing to worry about. There are many good reasons to believe that inflation may well be more volatile and structurally higher than it has been in recent decades, and in-turn this increases the chances of central bank policy mistakes. Economic growth and jobs markets might yet deteriorate faster than anticipated and, notwithstanding recent interventions, China's economic malaise poses an increased threat to global growth and corporate profits. Meanwhile the increased financialisation of markets and corresponding inherent leverage in the system can lead to bouts of volatility and instability, as we saw in early August 2024.

Within this context AVI Global Trust's NAV increased by +13.7% on a total return basis over the 12 months to 30 September 2024. This compares to a +19.9% return for the MSCI AC World Index, our comparator benchmark.

It has been well documented that index level returns have principally been driven by a narrow band of US technology companies. Even so, it is stark to note that the equal weighted version of the MSCI AC World index returned +10.7% over the period (£).

The Company's performance was driven by stock selection, with outsized contributions from larger holdings such as KKR, Hipgnosis Songs Fund and Schibsted, as we have continued to shape the portfolio around a concentrated handful of situations where activism and events provide real catalysts to unlock value.

Indeed, we believe that activism and the ability to engage with companies is a key tool in our arsenal, and central to our ability to generate differentiated returns and unlock value for all shareholders. The public example of Hipgnosis Songs Fund - which added +245bps¹ to returns over the period - demonstrates this. With that said, it is our preference and priority that most engagements remain private, where dialogue can be most constructive. In both the London-listed closed-end fund market and amongst Japanese small caps, we find a large number of lowly valued companies where we think we can add value through engagement.

As well as this engagement, a focus on events and catalysts remains an important part of our approach. Schibsted was a prime example of this over the last financial year and we have redeployed capital into new and existing names where we believe the prospects for transformational events are underpriced, such as News Corp (7.5% weight) and Bollore (5.1%).

In recent weeks, we have also added significantly to D'Ieteren which is now your Company's largest position. D'Ieteren is due to make an extraordinary return of capital of 74 euros per share - a yield of 39% - later this year. On a post-distribution basis D'Ieteren is trading at an implied -54% discount to NAV which we believe to be a highly attractive valuation.

Performance since the interim period has been more challenging as discounts have generally widened and we have witnessed bouts of volatility across markets. A number of companies have endured weaker share price performance, such as Christian Dior and FEMSA, and there has been a lack of commensurately strong performers from the top of the portfolio to offset this. Lulls in performance are not unexpected for a concentrated and catalyst-focused investment strategy, and the underlying asset quality means we can be patient whilst we wait for events to occur.

Latterly, the portfolio has also suffered from extreme volatility in the Japanese equity market as the Bank of Japan raised interest rates and attempted (!) to pave the way for further hikes to come. A strengthening of the Yen saw shifts in the carry trade, which reverberated through to global equities, with the TOPIX registering its largest single day decline since 1987. Such moves are devoid of fundamentals and likely fuelled by algorithmic trading.

In our view, fundamentally very little has changed, and we believe the thesis of governance reform, corporate activity and activism remains a highly valid one that is still in a relatively early innings. As such we took advantage of this volatility, adding approximately 300bps¹ (£33m) to several Japanese names at prices few would have thought possible just a matter of days earlier. As we have always said, as uncomfortable as it feels at the time, volatility is the friend of the long-term investor.

More broadly, both in Japan and other areas of the world, the opportunity set remains rich, and idea generation across all parts of our universe is high. Discounts have generally widened and are wide by historical standards, as indicated by the 35.7% portfolio weighted average discount at the year end.

As ever, we do not pretend to know what is round the corner from a macroeconomic perspective. Rather, our focus remains on the bottom-up fundamentals of a relatively small number of mispriced situations where we have an advantage. We continue to believe that stock picking, hard work, activism and a focus on events are key tenets in navigating our way forward. Combined with attractive starting valuations, this gives us confidence in generating attractive long-term returns.

¹ See Glossary in the full Annual Report.

PORTFOLIO REVIEW

CONTRIBUTORS

KKR & Co

Classification: Holding Company

% of net assets¹: N/A*

Discount: N/A*

% of investee company: N/A*

Total return on position FY24 (local)²: 40.7%

Total return on position FY24 (GBP): 36.8%

Contribution (GBP)³: 250bps

ROI since date of initial purchase⁴: 216.6%

Although we sold the last of our shares in KKR (an investment initiated in 2020) in May 2024, the investment was our largest contributor over AGT's financial year.

While earnings growth was stellar over the period (with the company on track for ~20% compounded annual growth in fee-related earnings per share), the shares also benefited from multiple expansion as the market reappraised the business quality and growth prospects, to bring its view more into line with our own that informed our original thesis.

Our initial thesis was that the listed alternative asset management sector was systematically undervalued, and that KKR (and Apollo, which we still own) was itself undervalued relative to peers. At the time of our investment, both the multiples at which the sector was trading and the volatility of share prices suggested alternative asset managers were perceived as high beta plays on risk assets.

It is certainly true that both KKR and Apollo have more on-balance sheet risk than peers (in the case of KKR, via its investments in its own private equity funds; for Apollo, via the large balance sheet of its insurance subsidiary Athene). But our contention was that the market was underestimating the defensive characteristics of scale-advantaged managers that earn fees on long-dated committed capital, and the powerful tailwinds for structural growth across the industry.

KKR and its peers are still often referred to as "private equity managers" despite having successfully diversified from the foundations on which they were built. At the time of our first purchase of KKR shares, their private equity business accounted for 39% of total assets under management, compared to 72% when they listed in the US in 2010. Even these figures mask the degree of diversification given that their private equity business is both far less US-centric than it was then and is now spread across a broader range of sub-strategies.

Over our four-year holding period, this evolution continued with KKR's credit business increasing from 35% of AUM to 47% (having been just 23% in 2010). Much of the recent growth in this segment resulted from KKR's acquisition of a controlling stake in life insurance business Global Atlantic, made in 2020. KKR's bet here aped that of Apollo, whose success with Athene Insurance, which it formed in the wake of the Global Financial Crisis, has been much envied by its alternative asset management peers. Apollo were the first to see the huge potential from acquiring books of long-term, sticky, and predictable annuity liabilities against which they were convinced they could do a better job of managing assets than their previous traditional insurance company owners.

In early 2024, KKR announced that it was to acquire the 37% of Global Atlantic that it did not already own. This was taken well by the market. In the words of KKR co-CEO Scott Nuttall, Global Atlantic has been a 'home-run investment'. With Global Atlantic's assets more than doubling from the point of acquisition to today, it is hard to argue otherwise, with KKR's ownership also helping scale its real estate credit and asset-based finance businesses whose assets sit well on insurance company balance sheets.

Given the material re-rating in the shares and the intense competition for capital within our portfolio, we took the decision to reduce and ultimately exit our stake in KKR in May 2024. Over the life of the investment, initiated in 2020, returns were exceptional with a 217% total return (versus 59% for the benchmark) and a 40% IRR (versus 14% for the benchmark).

Hipgnosis Songs Fund

Classification: Closed-ended fund

% of net assets¹: N/A*

Discount: N/A*

% of investee company: N/A*

Total return on position FY24 (local)²: 38.1%

Total return on position FY24 (GBP): 38.1%

Contribution (GBP)³: 245bps

ROI since date of initial purchase⁴: 24.3%

Hipgnosis Songs Fund ('SONG') was our second largest contributor over the financial year.

A bidding war was triggered in April 2024 when Concord - a music rights firm backed by Apollo - announced a binding offer for SONG at a price of $1.16-$1.18 per share. Blackstone, the majority owner of Hipgnosis Songs Management (the Manager of SONG), ultimately prevailed with a bid of $1.30 per share. This represented a premium of +48% to the undisturbed share price.

This marked the end of a highly successful investment for AGT, in which we played a key role in fighting off the proposed related-party sale of a portion of SONG's catalogues and also making the case against the company continuing in its present form. Resolutions proposing each matter were heavily defeated at shareholder meetings.

With two directors resigning on the eve of the AGM and the then-Chairman suffering a resounding vote against his re-election, we and other shareholders engaged with the remaining rump to push for the appointment of two new directors - Robert Naylor and Francis Keeling - who had just stepped down from SONG's peer company Round Hill Music Royalty Fund (RHM) following its acquisition by Concord. Both were appointed with Robert immediately installed as Chairman.

We were delighted with an outcome that not only generated a very strong return for AGT's shareholders but demonstrated again both the value of shareholder activism and the critical importance of having the right people on boards. The new directors joined the company at a time of crisis and engineered an excellent outcome for shareholders in a timeframe few would have felt possible at the time of their appointment.

With no viable future as an ongoing listed vehicle, the key task facing the new appointees was how best to generate competitive tension in a situation where, under the terms of the Investment Management Agreement, the Manager had a call option allowing them to purchase the portfolio in the event of the termination of their management contract. The investigatory work conducted by the Board and their advisors, some of the fruits of which were made public, led to an understandable perception that there existed more than sufficient grounds to terminate the management agreement "for cause", which would invalidate the call option. We think it likely that this, alongside other measures introduced by the newly reconstituted Board, gave Concord the confidence to make their initial bid and resulted in a higher price ultimately being achieved for the company than would otherwise have been the case. We applaud the new directors' fortitude and shrewd handling of a highly complex situation.

AVI's involvement with SONG began several years ago. Following research on French holding company Vivendi and its investment in UMG, we could see the attractions of the music rights asset class. As a pure play on catalogue, SONG had its attractions, and we established a small position in late-2020 with part of our thesis being that SONG would likely be a takeover target once it had achieved scale. That element of the thesis broke down in October 2021 with the acquisition of a majority stake in the Manager by Blackstone. Given Blackstone's deep pockets, we felt that the Manager's call option over the portfolio was much more likely to impede any competitive sales process in the future.

When combined with growing concerns over transparency, earnings quality, and governance, we took the decision to exit the position and sold over 70% of our shareholding in late-2021/early-2022 at modest profits on our purchase price, before the share price began to decline rapidly along with other alternative income vehicles deemed to be interest-rate sensitive. We were left with a residual shareholding that equated to a 0.8% stake in the company.

Our full attention turned back to the company following Concord's bid for RHM in September 2023, just ahead of SONG's continuation vote and its proposal to sell a portion of its catalogues to Blackstone in a related party deal. With the confidence garnered from extensive research and calls with industry experts that helped underwrite our valuation of the assets, we increased our stake almost ten-fold over the following six months and generated a return on our overall investment materially in excess of AGT's benchmark, the MSCI AC World. We sold out of our entire position in late May 2024 and generated a +36% total return/+72% IRR on the position acquired in late 2023/early 2024 (vs +14%/+27% respectively for the benchmark). Since we initiated our position in Hipgnosis in September 2020, AGT generated an IRR/ROI of +21%/+24% on the position.

Schibsted 'B'  

Classification: Holding Company

% of net assets¹: N/A*

Discount: N/A*

% of investee company: N/A*

Total return on position: FY24 (local)²: 26.2%

Total return on position: FY24 (GBP): 21.8%

Contribution (GBP)³: 188bps

ROI since date of initial purchase⁴: 49.5%

This time last year Schibsted was your Company's largest position (8.8% of NAV). Over the course of AGT's financial year, Schibsted took significant steps to unlock value which supported a re-rating in the shares and saw us exit the investment. Over the course of the year, Schibsted added +188bps to NAV.

Writing in last year's Annual Report (page 41) we explained that Permira and Blackstone had entered negotiations to take Adevinta private. In November 2023, this came to fruition with a 115 NOK per share offer. The transaction - which valued Schibsted's 28% stake at 40bn NOK/79% of Schibsted's pre-announcement market cap - saw Schibsted crystalise a large portion of its value (24bn NOK), whilst also retaining an 11% stake in the private entity.

Shortly after, in December 2023, Schibsted delivered a second transformational transaction, selling its legacy News Media assets to its controlling shareholder, the Tinius Trust, for 6.3bn NOK. This removed a capital consuming and terminally challenged asset from the group, transforming Schibsted into a purer classified marketplace business play.

Taken together, these steps have reduced the group's structural complexity and shone a light on the highly attractive nature of Schibsted's Nordic marketplace assets, the quality and value of which had hitherto been overlooked. As well as this, the transactions allowed for extraordinary returns of capital with a total of 24bn NOK returned to shareholders via special dividends (20bn NOK) and an ongoing buyback programme (4bn NOK).

This simplification has supported a re-rating of the shares from a 45% discount to close to NAV. The implied ex-Adevinta stub rerated from c.6x NTM EV/EBITDA¹  to >20x.

Whilst we believe that there is still value to be extracted both from increasing monetisation in line with international peers and improving margins, as well as from the unlisted stake in Adevinta, this is better reflected in the valuation, with risks around execution. As such we have exited the position, allowing us to recycle capital into other mispriced opportunities.

Over the course of the investment, Schibsted generated a +67% ROI² and +47% IRR² which compares favourably to the +31%/22% returns of the MSCI AC World Index over the same period (all figures in NOK). We believe that these figures demonstrate the powerful returns that can be driven from "events" and companies undergoing strategic and structural change. Indeed, Schibsted is emblematic of what we are trying to achieve.

Apollo Global Management 'A'

Classification: Holding Company

% of net assets¹: 3.7%

Discount: -12%

% of investee company: 0.1%

Total return on position FY24 (local)²: 29.2%

Total return on position FY24 (GBP): 21.1%

Contribution (GBP)³: 131bps

ROI since date of initial purchase⁴: 111.6%

Following AGT's 2023 financial year in which Apollo was our largest contributor, the investment was again a strong performer with a share price total return of 42% over the year to 30 September 2024.

Taking a step back to our original investment case for Apollo, we believed that the business was poorly understood by the market when we first initiated a position back in April 2021 ahead of its announced merger with sister company Athene Insurance. AGT shareholders with long memories may recall that we had a very profitable investment in Athene from 2012 to 2017 when it was a private investment held by a listed Apollo-managed vehicle called AP Alternative Assets. Life insurance businesses are understandably often lowly rated by the market. But the reasons why they are so - unpredictable liabilities with tail risks (e.g. long-term care) and hard-to-hedge liabilities such as Variable Annuities - simply do not apply to Athene which has a highly focused business model predominantly centred on fixed annuities. As such, Athene can be looked at as effectively a spread-lending business, earning a spread between the rates paid on annuities and the yields earned on its investments. Its fixed income portfolio (95% of total assets) is 97% investment-grade, with Athene seeking to earn a return premium from complexity and illiquidity rather than from taking duration or additional credit risk, and its return-on-equity has averaged 16% over the last four years (in line with its target of mid-to-high-teens).

Life insurance businesses are also correctly perceived as being capital intensive, and this was a source of some disquiet when the Apollo/Athene merger was announced. But capital intensity is not a bad thing if one is earning high returns on that capital; and, as we understood at the time, a material proportion of Athene's growth was likely to be funded by third-party "sidecar" vehicles.

The market seems to increasingly have come round to our more positive view on Apollo as evidenced by the strong share price performance over the last few years on the back of strong earnings growth and higher multiples. Higher rates have led to very strong demand for annuities (unsurprisingly, people prefer to earn higher rather than lower rates on their investments even if only in nominal terms) with retail inflows of $19bn in the first half of 2024 up by 27% over the previous half year, building on 2023's total of $35bn which was itself up 67% on the prior year.

These inflows need to be invested and, as Apollo's CEO Marc Rowan has argued, the real constraint on growth is not capital (which he contends is "plentiful") but a lack of safe-yielding high-quality assets. This insight lies behind Apollo's focus on investment grade private credit and its investments in platforms which originate investment grade assets (aviation financing, mid-market lending, mortgages, supply chain finance, etc.) that find a natural home on Athene's balance sheet, those of third-party insurance companies and other institutions who draw comfort in the alignment of interest from investing alongside Athene. In addition to one-off syndication fees, Apollo is increasingly earning ongoing management fees from many of these third parties establishing separately managed accounts. Athene is at the heart of this flywheel and provides Apollo a huge advantage over peers in what CEO Marc Rowan has termed the "Fixed Income Replacement Opportunity", a potential market measuring in the tens of trillions of dollars. In early-October 2024, just after AGT's year-end, Apollo held an Investor Day in New York City at which it laid out some impressive targets to 2029 which includes $275bn in annual originations (this compares to just under $150bn in the 12 months to 30 June 2024). 

Despite the very strong run for the shares, we see considerable scope for continued further upside for Apollo shares given its undemanding valuation in the context of its clear pathway to high-teens earnings growth over the next five years.

Cordiant Digital Infrastructure

Classification: Closed-ended Fund

% of net assets¹: 4.9%

Discount: -27%

% of investee company: 8.3%

Total return on position FY24 (local)²: 30.6%

Total return on position FY24 (GBP):  30.6%

Contribution (GBP)³: 128bps

ROI since date of initial purchase⁴: 30.6%

Cordiant Digital Infrastructure (CORD) was the fifth largest contributor to returns over the period. We began building our stake in February 2024 at a discount to NAV of almost 50% in a classic arbitrage between perception and reality. The perception was that CORD shared the failings of its only listed investment trust peer, Digital 9 Infrastructure (DGI9), which had run into severe problems since its listing just weeks after CORD's own in early-2021.

While the pitch for both investment vehicles was the prospect of attractive returns from investing in businesses and assets benefitting from the exponential increase in data traffic, there the similarity ends. The lack of discipline and investment acumen shown by DGI9's manager in assembling its portfolio led to forced sales of assets to shore up an overly indebted balance sheet; in contrast, CORD's portfolio was constructed with far more care, leaving sufficient room on its balance sheet to fund growth capex needs at its investee companies. We believed the reality was that there was in fact no read-across from DGI9's travails to CORD.

Although CORD's portfolio consists of five businesses, its two largest positions account for almost 90% of its total portfolio value. These two businesses, Emitel in Poland and CRA in the Czech Republic, were acquired for undemanding multiples of earnings despite the highly-cash-flow-generative nature of their assets and a high degree of visibility and predictability from contracted revenues.

While broadcast businesses tend to trade for relatively low multiples compared to other digital assets due to concerns over their useful life as streaming becomes more widely adopted, this is less of a concern in Poland and the Czech Republic where the sizable rural population makes universal high speed broadband coverage harder to achieve. There is also considerable scope for further innovation in broadcast services, such as 5G technology that allows for the broadcast of terrestrial digital television directly to mobile phones.

In any event, both companies are making impressive progress in using the cash flows from their core broadcast businesses to diversify into segments such as data centres and telecoms towers, with over half of CRA's FY24 revenues derived from non-broadcasting services. A recent trip to Prague confirmed the scale of this opportunity, visiting several sites with ready-made power and fibre connections (usually the biggest impediment for new developments) already converted into data centres. The jewel in the crown is the planned Zbraslav data centre which, with a 26MW capacity, will be one of the largest in Central and Eastern Europe. With data centres and telecoms towers commanding multiples in excess of 20x, there is scope for future multiple arbitrage from potential spin-offs of these non-broadcast assets once they achieve further scale.

While CORD's discount has narrowed materially from our purchase levels to stand at -27% at the time of writing, we see scope for attractive further upside here from both discount contraction and NAV growth.

¹ For definitions, see Glossary in the full Annual Report.

² Weighted returns adjusted for buys and sells over the year.

³ Figure is an estimate by the managers and sum of contributions will not equal quoted total return over the financial year.

⁴ Figure quoted in GBP terms. Refer to Glossary in the full Annual Report for further details.

* The Company no longer had a position in this investment as at 30 September 2024.

DETRACTORS

Symphony International Holdings

Classification: Closed-ended Fund

% of net assets¹: 1.7%

Discount: -57%

% of investee company: 15.7%

Total return on position FY24 (local)²: -34.9%

Total return on position FY24 (GBP): -40.8%

Contribution (GBP)³: -125bps

ROI since date of initial purchase⁴: 20.2%

Symphony International ('SIHL') was our largest detractor over the period, resulting from a -35% decline in its (US Dollar denominated) share price. The share price decrease was almost entirely due to a widening discount which expanded from 36% to 57%.

To recap, SIHL is a London-listed investment company with a focus on predominantly unlisted (92% of current NAV) Asian consumer and real estate businesses. The investment, initiated in 2012, has been weak in absolute and relative terms with an IRR of less than 4% over our holding period. As the largest independent shareholder, we have worked to improve corporate governance at the company and unlock value trapped in the persistently wide discount at which the shares have traded. This culminated in a 2021 public campaign to Save Symphony.

In September 2023, the company announced that it would pursue an orderly realisation of its investments. As such, our ultimate returns from SIHL will depend on the prices at which it realises its investments and the timeframe over which these realisations take place, rather than its share price on the screen at any particular point in time. SIHL's shares trade at a sizeable bid-offer spread (average of 8% over AGT's 2024 financial year), are tightly-held and thinly traded, and are heavily impacted in both directions by relatively small order sizes.

That SIHL's shares trade at such a wide discount despite the company having adopted a managed wind-up strategy reflects, in our view, scepticism around a management team that has historically prioritised its own interests over those of shareholders; uncertainty over the timeframe over which realisations will take place; and - as is often the case with investment companies with unlisted assets - wariness over whether the carrying values of assets are an accurate reflection of realisable values. We understand these concerns.

However, we contend that while the management team continues to add to their already substantial shareholdings, they have little incentive to maintain or increase reported valuations to artificially high levels and that an incentive may in fact exist in the opposite direction. That said, they also have little incentive to expedite asset sales and returns of capital while they still believe that there is stock available to purchase to add to the over one-third of the company held by management and the board.

Noting that the pace of management purchases has slowed recently in the face of low trading volumes, we may not be far from the point where their attention turns to unlocking the value in their shareholdings trapped by the huge discount to NAV.

Aker ASA

Classification: Holding Company

% of net assets¹: 3.7%

Discount: -26%

% of investee company: 1.4%

Total return on position FY24 (local)²: -11.1%

Total Return on position FY24 (GBP): -17.4%

Contribution (GBP)³: -111bps

ROI since date of initial purchase⁴: 64.2%

For the second consecutive year, Aker was a meaningful detractor from returns (-111bps). Over the course of the year, on a total return basis, the shares declined by -13% which was largely a function of a -11% decline in the NAV as well as a small widening of the discount from 24% to 26%. The Trust's returns were better than this, as we sold c.17% of our holding some +15% above where the shares currently trade, however we were punished by a -8% depreciation of the NOK.

Starting with the NAV, this was almost exclusively a function of a -16% decline in the share price of Aker BP, which accounts for 55% of Aker's NAV. Brent crude oil prices are some -25% lower than they were a year ago as demand (particularly from China) has been lower than anticipated and non-OPEC supply has exceeded expectations. In turn, latterly, it has been reported that OPEC are looking to abandon their long-term $100 per barrel price target.

We do not profess to have a crystal ball when it comes to oil prices - nor attempt to - with the recent escalation of geo-political risk and corresponding rise in the oil price serving as a reminder of oil's unpredictability. Rather our investment in Aker has always been founded upon the attractive valuation of the underlying assets, the controlling shareholder's track record of creating value through active ownership and the (at the time of acquisition very wide) discount at which Aker trades. On all three fronts there is room for optimism.

Aker BP now trades on an 11.2% dividend yield, which is about as cheap as it has ever been. We believe this to be an attractive valuation for a low-cost operator with a long-dated production schedule and continue to believe that oil will play an important and elongated role in the energy transition.

The controlling family continue to show themselves to be thoughtful long-term owners with a keen eye for how to grow and unlock value. An example of this from the last year comes from Aker Biomarine (6% of NAV), shares in which have returned +125% over the last year as the company spun-off its food ingredients business following a strategic review.

Since AGT first invested in Aker in 2008, we have earned an IRR of +17% (in NOK). The prospect of continuing to align capital with the controlling family at such a discount to NAV is an appealing one.

FEMSA

Classification: Holding Company

% of net assets¹: 4.2%

Discount: -29%

% of investee company: 0.3%

Total return on position FY24 (local)²: -3.5%

Total return on position FY24 (GBP): -9.9%

Contribution (GBP)³: -69bps

ROI since date of initial purchase⁴: 40.8%

Having been the second largest contributor in the 2023 Financial Year¹ (+258bps), this year FEMSA was the third largest detractor (-69bps). This was principally a function of a deprecation of the Mexican Peso.

By way of reminder, FEMSA is a Mexican family controlled holding company. We initiated a position in 2021 with an investment case predicated on the highly attractive nature of FEMSA Comercio - which operates Oxxo-branded convenience stores, and other small-format retail stores, across Mexico and Latin America. The business is expertly managed, with strong unit economics, earning high returns on capital with a long growth runway.

Despite these attractions, FEMSA traded at an unduly low valuation reflecting its conglomerate group structure, and we believed that the market was mispricing the potential for management to take steps to unlock value. Over time this was indeed what occurred, with management conducting a strategic review that concluded in 2023 with the exiting of Heineken and other non-core assets via sales totalling over $11bn.

This simplified the group structure, and the equity story propelled the (ADS¹) shares to an all-time-high of a little above $140 in February 2024. Over this time, we exited nearly 30% of our position at an average price of $118 and as high as $133.

However, since this point, the shares have fallen back to trade at $99 at the period end, as the discount has widened from the high teens to 29% as we write. This is reflective of both macro and micro factors. Starting with the former, Mexican equities have been under pressure since the spring National Elections and FEMSA - which accounts for c.13% of the MSCI Mexico Index - has not been immune to this. Moreover, this has been amplified by the depreciation of the Peso, most notably against Sterling where it has weakened by some -19% over the last year.

Turning to the micro: Q2 results published in July 2024 fell short of expectations, with a deceleration in Oxxo's Same Store Sales (SSS) growth to +4.1% (from +9.7% in Q1), with both traffic and ticket size decelerating (from +2.2% to -0.6% for traffic and from +7.3% to +4.7% for ticket size). As management explained "the second quarter was an atypical one… where each month reflected a unique set of mixed effects generally more negative than positive".

We concur that this recent disappointment is temporary in nature, reflecting short-term headwinds and expect that SSS growth will recover in the second half of the year and into 2025. Turning to the bigger picture, management indicate that going forward they believe SSS growth can likely exceed the old rule of thumb of +5% achieved prior to 2019 and we see a long growth runway for new stores, with current new store openings running at +1,621 over the last twelve months (+7.3% year on year). Combined, we believe that these factors will lead to double-digit topline growth in the future, with operating profit likely to compound in the low-teens.

Despite the significant strides that management have taken to simplify the group, the attractions and growth prospects remain poorly reflected in the share price, with FEMSA trading at a 29% discount to NAV and the unlisted FEMSA Comercio stub trading at an implied 8.7x NTM EBITDA vs. a historic long-term average of c.13x. We believe this to be a highly attractive valuation and see the scope for better than-expected capital returns, with management already having returned 60% of the $3bn billed to be returned to shareholders by 2026. As such, having reduced the position earlier in the year at $133 per share, we have been increasing the position recently, at $109.

To date the investment has generated an IRR / ROI of 15% and 41% (in GBP).

Keisei Electric Railway

Classification: Asset-backed Special Situation

% of net assets¹:  N/A*

Discount: N/A*

% of investee company: N/A*

Total return on position FY24 (local)²: -24.2%

Total Return on position FY24 (GBP): -29.5%

Contribution (GBP)³: -53bps

ROI since date of initial purchase⁴: -29.5%

Keisei Electric Railway (Keisei) was a detractor over the period, shaving off -53bps from AGT's NAV. This was a relatively short and unsuccessful investment, due to the combination of NAV weakness and discount widening, leading to a -24% return in JPY. The -9% depreciation of the Yen compounded matters, and we took the decision to exit the position.

We first initiated a position in the Japanese railway company due to its 21% stake in the listed theme park operator - Oriental Land (OLC) - which accounted for 180% of Keisei Electric's market cap pre-tax. However, Japanese accounting rules dictate that Keisei value OLC on their balance sheet based solely on a proportionate net income basis, thereby significantly deflating the book value of Keisei Electric.

OLC offers exposure to Japan's largest theme parks - Tokyo Disneyland and Tokyo DisneySea - which are also two of the most visited theme parks in the world (#2 and #4). OLC also owns six high-quality Disney-themed hotels, a further three hotels through subsidiary Milial Resorts, and the facilities surrounding the park area - monorail, shopping mall, and theatre.

In the context of wider corporate governance reforms, we felt that Keisei Electric's stake in OLC would be an obvious target for unwinding, given the lack of synergies between the two companies and the outsized proportion of intrinsic value that it represents to Keisei. Given the underlying business quality of both the railway operations and of OLC, and with a public activist already on the register, we felt that we could be patient and await any unlocking of this value.

Following Keisei's AGM, in which the public activist's shareholder proposal to sell down the OLC stake was rejected and the directors' approval rating remained completely unchanged, we believed that the management team would no longer feel pressured to take action over the stake in OLC and correct its undervaluation. In a competing capital environment, we decided to reallocate our capital to opportunities with more near-term catalysts and made the decision to sell our position in Keisei Electric.

Toyota Industries

Classification: Asset-backed Special Situation

% of net assets¹: 2.7%

Discount: -45%

% of investee company: 0.2%

Total return on position FY24 (local)²: 11.3%

Total Return on position FY24 (GBP): -12.7%

Contribution (GBP)³: -47bps

ROI since date of initial purchase⁴: -13.5%

Toyota Industries was a detractor over the period, reducing NAV by -47bps and generating a return of -14% in GBP.

By way of reminder, we initiated our position in Toyota Industries in November 2023, with an investment case predicated on the low implied valuation of Toyota Industries' stub due to the outsized value trapped in its Toyota Group cross-shareholdings, which accounted for 93% of the company's then market cap. This is despite the company's dominant market position as the number one supplier of forklift trucks (30% share) and auto AC compressors (50% share) globally, and with long-term growth potential in logistics solutions from the continued expansion of e-commerce.

In particular, we felt that management would be under pressure to correct the company's lowly valuation and return on equity ratio following the request made by the Tokyo Stock Exchange for companies trading under 1x Price/Book value to disclose an improvement plan.

In the period since initiation of our investment, Toyota Motor's Chairman has received a historically low approval rating of 72% (only 57% if excluding votes from Toyota Group companies), the wider group has started to unwind cross-shareholdings, Toyota Industries announced a buyback worth 3% of market cap (JPY180bn) and commenced buybacks of its own shares from Toyota Motor for the first time in its history. We believe that this shift in attitude towards shareholder returns from its historically conservative stance is a real step-change for Toyota and highlights the pressure that the group is feeling. The market, however, appears to have lost patience with the Group's slow rate of change as evidenced by Toyota Industries' shares being down by -2% year-to-date.

At current prices, Toyota Industries trades at a -45% discount to our estimated NAV. The Toyota Industries stub trades at a lowly 1.6x forward EBIT versus forklift peers at 14.0x and consignment auto part peers at 10.3x. At this valuation, the stub only represents 13% of Toyota's market cap, suggesting that the market is not pricing in any potential for management to unlock the value trapped within the structure.

We remain confident in our holding in Toyota Industries and believe that the continued growth of the company's underlying operations and potential for unlocking of value across the Toyota Group make for an exciting combination.

¹ For definitions, see Glossary in the full Annual Report.

² Weighted returns adjusted for buys and sells over the year.

³ Figure is an estimate by the managers and sum of contributions will not equal quoted total return over the financial year.

⁴ Figure quoted in GBP terms. Refer to Glossary in the full Annual Report for further details.

* The Company no longer had a position in this investment as at 30 September 2024.

OUTLOOK

The macroeconomic and geopolitical environment remains confusing, worrying and interesting in equal measure. Equity markets - as they tend to - have continued to climb the wall of worry from the October 2023 lows.

Then, as now, the risks feel real and there are plenty of issues to worry about. Indeed, investors continue to fret over whether we will endure a so-called soft, hard or even no landing. A lot of ink has been spilt by others on which of these might occur; however, history shows that market timing is largely a futile exercise and it must always be remembered that the economy and the market are not the same thing.

As readers of our reports will not be surprised to hear, our attention, time and focus remain on the bottom-up fundamentals, which our experience shows are the key to generating long-term outperformance.

In this regard, there is quite a lot to be excited about. The opportunity set across the niche and overlooked parts of the equity market in which we fish is rich. Discounts - as indicated by the 35.1%* portfolio weighted average discount - are wide by historical standards. And we have positioned the portfolio to benefit from a number of explicit catalysts and events, including our own activism. Together we believe that these ingredients set us in good stead to earn attractive long-term returns.

Joe Bauernfreund

CEO/CIO

Asset Value Investors Limited

12 November 2024

* As at 7 November 2024.

FURTHER INFORMATION

AVI Global Trust Plc's annual report and accounts for the year ended 30 September 2024 (which includes the notice of meeting for the Company's AGM) will be available today on https://www.aviglobal.co.uk.

It will also be submitted shortly in full unedited text to the Financial Conduct Authority's National Storage Mechanism and will be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

ENDS

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.