TIDMAGT
RNS Number : 7181R
AVI Global Trust PLC
09 November 2021
AVI GLOBAL TRUST PLC
('AGT' or the 'Company')
LEI: 213800QUODCLWWRVI968
Annual Financial Report for the year ended 30 September 2021
A copy of the Company's Annual Report for the year ended 30
September 2021 will shortly be available to view and download from
the Company's website, https://www.aviglobal.co.uk. Neither the
contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other
website) is incorporated into, or forms part of, this
announcement.
Copies of the Annual Report will be sent to shareholders
shortly. Additional copies may be obtained from the Corporate
Secretary, Link Company Matters Limited, on 01392 477500.
The Annual General Meeting ('AGM') of the Company will be held
on 16 December 2021 at 11.00am at 11 Cavendish Square, London, W1G
0AN.
The Directors have proposed the payment of a final dividend of
10.50p per Ordinary Share which, if approved by shareholders at the
forthcoming AGM, will be payable on 4 January 2022 to shareholders
whose names appear on the register at the close of business on 3
December 2021 (ex-dividend 2 December 2021).
The following text is copied from the Annual Report and
Accounts:
STRATEGIC REPORT
COMPANY PURPOSE
The Company is an investment trust. Its investment objective is
to achieve capital growth through a focused portfolio of
investments, particularly in companies whose shares stand at a
discount to estimated underlying net asset value.
BUSINESS MODEL
Strategy
Our strategy is to seek out-of-favour companies whose assets are
misunderstood by the market or under-researched, and which trade
significantly below the estimated value of the underlying assets.
Often, we engage actively with management in order to provide
suggestions for improvements that we believe could help narrow the
discount or improve operations, thus releasing value for
shareholders.
Investment Approach
As an investment trust, one of the Company's most important
relationships is with the Investment Manager.
The Company's assets are managed by Asset Value Investors
Limited ('AVI'). AVI aims to deliver superior returns and
specialises in finding companies that, for a number of reasons, may
be selling on anomalous valuations.
The Investment Manager has the flexibility to invest around the
world and is not constrained by any fixed geographic or sector
weightings. There is no income target set and no more than 10% of
the Company's investments may be in unlisted securities. Over the
past five years, there has been an average of 43 stocks held in the
AGT portfolio.
KEY PERFORMANCE INDICATORS ('KPIs')
The Company uses KPIs as an effective measurement of the
development, performance or position of the Company's business, in
order to set and measure performance reliably. These are net asset
value total return, discount to net asset value and the expense
ratio.
NAV TOTAL RETURNS TO 30 SEPTEMBER 2021*
1 Year 10 Years (Annualised)
36.2% 11.3%
DISCOUNT*
30 September 2021 30 September
2020
6.7% 9.3%
EXPENSE RATIO*
2021 2020
0.83% 0.89%
OTHER KEY STATISTICS
NET ASSET VALUE PER SHARE*
30 September 2021 30 September
2020
1,109.77p 837.13p
TOP TEN INVESTMENTS REPRESENT
52.7%
of portfolio*
ESTIMATED PERCENTAGE ADDED TO NET ASSET VALUE PER SHARE FROM
BUYBACKS*
2021 2020
0.3% 0.5%
* For definitions, see Glossary below.
COMPANY PERFORMANCE
Financial Highlights
- Net asset value ('NAV') per share on a total return basis was
36.2%.
- Final dividend of 10.5p and total dividend maintained at
16.5p
- Share price total return of 40.3%
Performance Summary
30 September 30 September
2021 2020
Net asset value per share (total
return) for the year(1) * 36.2% 0.0%
Share price total return for the
year* 40.3% 2.0%
Comparator Benchmark
MSCI All Country World ex-US Index
(GBP adjusted total return ) 18.8% -1.8%
Discount*
Share Price Discount (difference
between share price and net asset
value)(2) 6.7% 9.3%
Year to Year to
30 September 30 September
2021 2020
Earnings and Dividends
Investment income GBP20.40m GBP15.16m
Revenue earnings per share 13.68p 9.36p
Capital earnings per share 273.10p (11.18)p
Total earnings per share 286.78p (1.82)p
Ordinary dividends per share 16.50p 16.50p
Expense Ratio*
Management, marketing and other
expenses (as a percentage of average
shareholders' funds) 0.83% 0.89%
2020 Year's Highs/Lows High Low
Net asset value per share 1,115.86p 835.39p
Net asset value per share (debt
at fair value)* 1,099.81p 815.30p
Share price (mid market) 1,020.00p 729.00p
(1) As per guidelines issued by the AIC, performance is
calculated using net asset values per share inclusive of accrued
income and debt marked to fair value.
(2) As per guidelines issued by the AIC, the discount is
calculated using the net asset value per share inclusive of accrued
income and debt marked to fair value.
The Company uses the net version of the MSCI All Country World
ex-USA Index, which accounts for withholding taxes incurred. If the
gross version of the Index had been used, the comparative figures
for the years ending 30 September 2021 and 30 September 2020 would
have been 19.3% and -1.4%, respectively.
Buybacks
During the year, the Company purchased 3,438,405 Ordinary
Shares, all of which were placed into treasury, at a cost of
GBP32.6m (4,573,938 ordinary shares at a cost of GBP31.1m in
2020).
* Alternative Performance Measures
For all Alternative Performance Measures included in this
Strategic Report, please see definitions in the Glossary below.
CHAIRMAN'S STATEMENT
"NAV total return over the year was +36.2%, driven primarily by
excellent stock selection."
Overview of the Year
I am pleased to report that the NAV total return over the year
to 30 September 2021 was +36.2% driven primarily by excellent stock
selection, which compares very well with the comparator benchmark
return of +18.8%. Performance during the year under review was
naturally linked to the extent and timing of expected economic
recovery from the effects of the COVID-19 pandemic but, as
described in the Investment Manager's Report, several other factors
were also important drivers of investment returns. It was
encouraging to note that returns were driven both by the active
decision by the Investment manager to position part of the
portfolio for the post-COVID economic recovery and also by
companies which are less directly economically sensitive,
demonstrating the broad and balanced exposure of our
investments.
Our Investment Manager's approach focuses on investments where
the value of underlying assets can be clearly assessed and AVI
invests in companies whose share price is trading below our view of
intrinsic value and when there is a realistic prospect of releasing
that value. As well as current value, the Investment Manager
focuses on the growth prospects of underlying businesses.
Performance this year was driven by a combination of these factors,
with both the increase in values of underlying businesses and
discounts to intrinsic value contributing to the strong NAV
return.
Income and Dividend
Our revenue account has recovered somewhat from the effects of
the pandemic and revenue earnings per share were 13.68p, compared
with 9.36p for the previous accounting year. The Company paid an
interim dividend of 6.0p per share on 2 July 2021. We are proposing
a final dividend of 10.5p per share for approval at the AGM which
will bring the total dividend for the year to 16.5p, which is
unchanged from last year.
The Board recognises the importance of income to many
shareholders and so has again elected to use revenue reserves,
which have been built up over many years as a buffer and are a key
advantage of the investment trust structure, to maintain the
dividend level. As I have emphasised before, we do not constrain
our Investment Manager by setting a revenue target and their
mandate is to produce total returns which may be via any
combination of capital growth and income. The Board's current
intention remains to maintain the dividend at current levels. We
have now been operating for over 18 months in an unprecedented
environment and therefore our dividend policy remains under careful
and regular review.
Gearing
In light of the attractive valuations identified by the
Investment Manager and the value added by gearing in recent years,
in August the Board agreed a modest increase in the amount of debt
available by increasing the Company's revolving credit facility
from JPY9.0bn to JPY12.0bn, an increase of approximately GBP19.5
million in sterling terms. Although the primary currency of the
facility is in Japanese Yen, drawings can also be made in Sterling,
US Dollars and Euros. As at 30 September 2021, the total debt
available, if fully drawn, would produce gearing of 13.5% and net
of cash in the portfolio actual gearing was 5.5%*. As I have said
in previous statements, any increase or decrease in cash and
gearing levels is driven primarily by the Investment Manager's view
on investment opportunities, and having appropriate available
liquidity, and not by views on the future direction of markets.
Share Price Rating and Marketing
The shares ended the financial year trading at a discount of
6.7%%, which was narrower than the 9.3% at the same point last
year.
Your Board continues to believe that it is in the best interests
of shareholders to use share buybacks with the intention of
limiting any volatility in the discount. During the accounting year
under review, some 3.4 million shares were bought back. As in
previous years we intervened when the Board believed that the
discount was unnaturally wide and intend to continue to follow this
approach, which is also an approach that our Investment Manager
encourages for many of our investee companies. As well as
benefitting shareholders by limiting the discount at which they
could sell shares if they so wish, buying back shares at a discount
also produced a small uplift in value to the benefit of continuing
shareholders, by approximately 0.3%.
Each year, we take powers to issue new shares. These powers
would only be used if shares could be issued at, or above, the
prevailing NAV per share. Again, the primary purpose of the ability
to issue new shares is with a view to containing the volatility of
the discount and any new issue would only be made if it were
demonstrably beneficial to existing shareholders.
As well as addressing the supply of shares using buybacks we
seek to increase demand through proactive marketing by the
Investment Manager of the Company and its shares. We promote the
Company to a variety of investors and potential investors, from
private individuals to professional fund managers and through a
variety of traditional and digital media. We aim to provide
detailed and informative commentary, which can be accessed via our
website www.aviglobal.co.uk .
Proposed Share Split
The price of the Company's existing ordinary shares ('Existing
Ordinary Shares') has increased in recent years to the point where
shares regularly trade at a price of over 1,000 pence. The
Directors are proposing the sub-division of each Existing Ordinary
Share into 5 new ordinary shares ('New Ordinary Shares'). The
Directors believe that this Share Split may improve the liquidity
in the Company's shares, which would benefit all shareholders.
The Share Split will not itself affect the overall value of any
shareholder's holding in the Company, and we have made arrangements
to ensure that there will be no interruption in trading the shares
on the London Stock Exchange when the Share Split takes place.
The New Ordinary Shares will rank pari passu with each other and
will carry the same rights and be subject to the same restrictions
as the Existing Shares, including the same rights to participate in
dividends paid by the Company. The Share Split requires the
approval of shareholders and, accordingly, resolution 11 in the
Notice of AGM seeks this approval. The Share Split is conditional
on the New Ordinary Shares being admitted to the Official List of
the Financial Conduct Authority and to trading on the London Stock
Exchange's main market for listed securities. If resolution 11 is
passed, the Share Split will become effective on admission of the
New Shares to the Official List. Further details of the Share Split
are set out in the Directors' Report and in the Notice of AGM, both
contained in the full Annual Report.
Management Arrangements
For much of the year under review our Investment Manager and
other key service providers continued to operate parts of their
business with staff working from home, but from our perspective
operations and service delivery remained efficient and effective.
We are now witnessing a return to the office but with contingency
plans having been thoroughly tested. Communications via various
media: video conference, telephone and email, have remained
effective. The Board took a close interest in assuring that all
parts of the Company's infrastructure remained operational and
efficient and we would again like to record our thanks to all of
our suppliers and the staff working on our account for their
support and commitment in such difficult times.
Directors
As announced last year, Nigel Rich will retire at this year's
AGM. I would like to record the thanks of his fellow Directors and
of the Investment Manager for Nigel's invaluable insights and
guidance over the last nine years.
Following Nigel's retirement Calum Thomson will take over the
role of Senior Independent Director.
Neil Galloway was appointed as a non-executive Director of the
Company with effect from 1 September 2021. Neil is currently
Executive Vice President of IWG PLC and is based in London,
immediately prior to which he was an Executive Director and CFO of
Dairy Farm International Holdings Limited based in Hong Kong. He
brings 25 years' experience living and working internationally.
Neil has spent most of his career working in Asia but also has
experience in the Americas, Europe and the Middle East. Following a
successful banking career, he has held senior finance and
management roles, almost entirely with or for family-controlled
companies, overseeing finance, treasury, risk management, legal,
IT, projects and business development, with experience in
significant transformation programmes in large and complex
businesses. His industry experience spans banking, hospitality,
retail (mass market, luxury and franchise operations), real estate
and services industries.
We also announced last year that I will retire from the Board at
the AGM in 2022. My fellow Directors plan to recruit a new
non-executive Director during the course of next year.
Annual General Meeting
Having been obliged to hold last year's AGM behind closed doors,
I am pleased to be able to invite all shareholders to attend our
AGM in person at 11 Cavendish Square on Thursday 16(th) December
2021. While we hope that you are able to attend, the Directors are
aware that government guidance or regulation to contain the spread
of COVID-19 might change and if we are obliged to change the
arrangements for the AGM after publishing this document, details
will be published via RNS and our website. Shareholders who plan to
attend the AGM are encouraged to check the website before
travelling.
We do recognise that some shareholders may be unable to come to
the AGM and if you have any questions about the Annual Report, the
investment portfolio or any other matter relevant to the Company,
please write to us either via email at agm@aviglobal.co.uk or by
post to The Company Secretary, AVI Global Trust PLC, Beaufort
House, 51 New North Road, Exeter, Devon, EX4 4EP.
If you are unable to attend the meeting, I urge you to submit
your proxy votes in good time for the meeting, following the
instructions enclosed with the proxy form. If you vote against any
of the resolutions, we would be interested to hear from you so that
we can understand the reasons behind any objections.
Outlook
Investment performance over the year to 30 September 2021 was
strong and it is natural to express some caution on the environment
in which we operate, as the world seeks to deal with the continuing
effects of the pandemic, resurgent inflation and supply chain
issues. Nevertheless, our Investment Manager has demonstrated great
skill in navigating the recent challenges and has continued to
outperform since the financial year end by +3.7%**. Disciplined
focus on tangible, unrealised value alongside solid growth
prospects continues to produce a portfolio of investments which the
Board believes will serve shareholders well over the long term.
Susan Noble
Chairman
8 November 2021
*Debt at par value.
** As at 31 October 2021.
KEY PERFORMANCE INDICATORS
The Company's Board of Directors meets regularly and at each
meeting reviews performance against a number of key measures.
In selecting these measures, the Directors considered the key
objectives and expectations of typical investors in an investment
trust such as the Company.
NAV total return*
Company 1 Year 10 Years (Annualised)
36.2% 11.3%
The Directors regard the Company's NAV total return as being the
overall measure of value delivered to shareholders over the long
term. Total return reflects both the net asset value growth of the
Company and also dividends paid to shareholders. The Investment
Manager's investment style is such that performance is likely to
deviate materially from that of any broadly based equity index. The
Board considers the most useful comparator to be the MSCI All
Country World ex-US Index. Over the year under review, the
benchmark increased by 18.8% on a total return basis and over ten
years it has increased by 9.0% on an annualised total return
basis.
A full description of performance and the investment portfolio
is contained in the Investment Review, below.
Discount*
Year end 30 September 30 September
2021 2020
6.7% 9.3%
-------------- ------------- -------------
High for the
year 11.8% 13.3%
-------------- ------------- -------------
Low for the
year 4.6% 5.6%
-------------- ------------- -------------
The Board believes that an important driver of an investment
trust's discount or premium over the long term is investment
performance. However, there can be volatility in the discount or
premium. Therefore, the Board seeks shareholder approval each year
to buy back and issue shares with a view to limiting the volatility
of the share price discount or premium.
During the year under review, no new shares were issued and 3.4m
shares were bought back and placed into treasury, adding an
estimated 0.3% to net asset value per share to the benefit of
continuing shareholders. The shares were bought back at a weighted
average discount of 8.2%.
Expense ratio*
Year ended 30 September Year ended 30 September
2021 2020
0.83% 0.89%
The Board continues to be conscious of expenses and aims to
maintain a sensible balance between good service and costs.
In reviewing charges, the Board's Management Engagement
Committee reviews in detail each year the costs incurred and
ongoing commercial arrangements with each of the Company's key
suppliers. The majority of the expense ratio is the cost of the
fees paid to the Investment Manager. This fee is reviewed
annually.
For the year ended 30 September 2021, the expense ratio was
0.83%, down slightly from the previous year.
The Board notes that the UK investment management industry uses
various metrics to analyse the ratios of expenses to assets. In
analysing the Company's performance, the Board considers an expense
ratio which compares the Company's own running costs with its
assets. In this analysis the costs of servicing debt and certain
non-recurring costs are excluded, as these are accounted for in NAV
Total Return and so form part of that KPI. Further, in calculating
a KPI the Board does not consider it relevant to consider the
management fees of any investment company which the Company invests
in, as the Company is not a fund of funds and to include management
costs of some investee companies but not of others may create a
perverse incentive for the Investment Manager to favour those
companies which do not have explicit management fees. The Board has
therefore chosen not to quote an Ongoing Charges Ratio per the
AIC's guidance as part of its KPIs but has disclosed an Ongoing
Charges Ratio in the Glossary below.
* For definitions, see Glossary below.
Principal Risks
When considering the total return of the investments, the Board
must also take account of the risk which has been taken in order to
achieve that return. There are many ways of measuring investment
risk, and the Board takes the view that understanding and managing
risk is much more important than setting any numerical target.
In running an investment trust we face different types of risk
and some are more "acceptable" than others. The Board believes that
shareholders should understand that, by investing in a portfolio of
equity investments invested internationally and with some gearing,
they accept that there may be some loss in value, particularly in
the short term. That loss in value may come from market movements
and/or from movements in the value of the particular investments in
our portfolio. We aim to keep the risk of loss under this
particular heading within sensible limits, as described below. On
the contrary, we have no tolerance for the risk of loss due to
misappropriation or fraud.
The Board looks at risk from many different angles, an overview
of which is set out below. The Directors carry out robust and
regular assessments of the principal risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity, and did so during the year
under review. The approach to monitoring and controlling risk is
not rigid. The Board aims to think not only about the risks that it
is aware of and has documented, but also of emerging and evolving
risks. The Board does not believe that managing risk is solely the
job of someone assigned to the task but that of everyone involved
in the management of the Company: the Board, the Investment
Manager, the Administrators and other service providers all have a
role in thinking about risk, challenging perceptions and being
alert to emerging risks. The objective of these assessments is not
to be prescriptive, but to understand levels of risk and how they
have changed over time. The purpose of this focus is to ensure that
the returns earned are commensurate with the risks assumed.
The Board has assessed the risks which the Company faces under a
number of headings. A summary of the key risks and mitigating
actions are set out in the table below. Shareholders should be
aware that no assessment of this nature can be guaranteed to
predict all possible risks; the objective is to assess the risks
and determine mitigating actions.
Risk Area Risk Tolerance and Mitigating Actions
------------------------------------- ---------------------------------------------------
Pandemic As in the previous accounting year, in
The continued effects of seeking reassurance on the continuing
the COVID-19 pandemic were operation of the Company, the Board worked
felt throughout the year. closely with the Investment Manager and
the various external suppliers to ensure
A pandemic such as this that the portfolio could continue to
affects both (i) the management be managed effectively and that the Company
and operations of the Company could continue to operate despite restrictive
and (ii) the Company's investments. measures on movement imposed to contain
the outbreak.
AVI's bottom-up research approach and
focus on companies with strong balance
sheets enabled the Manager to both identify
and mitigate risks that the pandemic
posed to each investment.
The Board received assurances that the
Investment Manager continued to be able
to execute purchases and sales as usual
and was reassured by the Investment Manager's
ability to continue to operate "business
as usual".
The detailed risk matrix which the Audit
Committee maintains remained effective
in identifying areas of the Company's
operations which may be affected by measures
implemented to contain the pandemic.
The Audit Committee paid particular attention
to key suppliers' internal controls reports.
The Board will continue to monitor the
situation closely and will take action
if and when necessary.
------------------------------------- ---------------------------------------------------
Loss of value in the portfolio The Board accepts that there is a risk
The market or the Company's of loss of value by investing in listed
portfolio could suffer a equities, particularly in the short term.
prolonged downturn in performance. The Board monitors performance at each
Board meeting, and reviews the investment
There will be periods when process thoroughly at least annually.
the investment strategy
underperforms in comparison The Investment Manager has a clear investment
to its benchmark and its strategy, as set out in the Investment
peer group and when it results Review. Conventional wisdom holds that
in a decline in value. the most effective way of reducing risk
is to hold a diversified portfolio of
The net asset value will assets. The Company typically holds 25-35
be affected by general market core positions. It is important to note
conditions which in turn that, in line with its investment objective,
can be affected by extraneous the Company's holdings are mostly in
events such as the COVID-19 stocks which are themselves owners of
pandemic, US-China trade multiple underlying businesses. Thus,
disputes, Brexit and recent the portfolio is much more diversified
concerns by market participants on a look-through basis than if it were
regarding inflation and invested in companies with a single line
the probability of rate of business. This diversification is
hikes evident at country, sector and currency
levels. A key element of the Investment
Manager's approach is to consider the
way in which the portfolio is balanced
and to ensure that it does not become
overly dependent on one business area,
country or investment theme.
The Company, through the Investment Manager's
compliance function and the Administrator's
independent checks, has a robust system
for ensuring compliance with the investment
mandate.
------------------------------------- ---------------------------------------------------
Gearing The Board decided to take on borrowing
While potentially enhancing because it believes that the Investment
returns over the long term, Manager will produce investment returns
the use of gearing makes which are higher than the cost of debt
investment returns more over the medium to long term, and, therefore,
volatile and exacerbates that shareholders will benefit from gearing.
the effect of any fall in
portfolio value. In taking on debt, we recognise that
higher levels of gearing produce higher
There are covenants attached risk. While gearing should enhance investment
to the Loan Notes and bank performance over the long term, it will
debt; in extreme market exacerbate any decline in asset value
conditions, these could in the short term. It is possible (but,
be breached and require on the basis of past returns, it is considered
early repayment, which could unlikely) that the investment returns
be expensive. will not match the borrowing cost over
time, and therefore the gearing will
be dilutive. The Board manages this risk
by setting its gearing at a prudent level.
The covenants are set at levels with
substantial headroom.
In common with other investment trusts,
we also mark the value of debt to its
estimated fair value for the purposes
of measuring investment performance as
part of the Key Performance Indicators*,
which makes the value ascribed to the
debt subject to changes in interest rates
and so makes our published NAV per share
more volatile than would otherwise be
the case. However, if we continue with
the debt to maturity, it will be repaid
at its par value, notwithstanding any
changes in fair value over its life.
The values of loans denominated in currencies
other than Sterling will fluctuate with
currency movements and, if the exchange
rate of those currencies relative to
Sterling increases, then in isolation
this will have the effect of reducing
NAV per share. However, we have certain
assets denominated in the same overseas
currencies as these tranches of debt,
which would increase in value in Sterling
terms if the exchange rates increase,
enabling us to offset the debt position
by creating a natural hedge.
------------------------------------- ---------------------------------------------------
Foreign exchange Foreign exchange risk is an integral
The portfolio has investments part of a portfolio which is invested
in a number of countries across a range of currencies. This risk
and there is a risk that is managed by the Investment Manager
the value of local currencies mainly by way of portfolio diversification,
may decline in value relative but the Investment Manager may, with
to Sterling. Board approval, hedge currency risk.
The Company did not engage in any currency
hedging during the year under review
and has not done so in recent years.
However, as described above, borrowing
in foreign currencies provides a natural
hedge against currency risk in situations
where the Company holds investments denominated
in the borrowed currency. As at 30 September
2021, the Company had EUR50m (GBP43m)
of borrowing and investments denominated
in Euros whose value exceeded that of
this borrowing. Furthermore, the Company
had JPY9m (GBP60m) of borrowing and investments
denominated in Japanese Yen whose value
exceeded that of this borrowing. In addition
the Company had a loan of GBP30m, the
primary currency of the Company, and
holds investments denominated in GBP
of a greater value.
------------------------------------- ---------------------------------------------------
Liquidity of investments The Investment Manager takes account
While the investment portfolio of liquidity when making investments
is made up predominantly and monitors the liquidity of holdings
of liquid investments, there as part of its continuing management
is a possibility that individual of the portfolio. The liquidity and concentration
investments may prove difficult of AVI's holdings across all of its managed
to sell at short notice. portfolios are monitored and reported
at regular Board meetings.
It is important to note that the potential
for the return of capital from investee
companies by means of special dividends
and the partial or full redemption of
shares is a key element of the Investment
Manager's strategy, and so trading on
a stock exchange is not the only source
of liquidity in the portfolio.
------------------------------------- ---------------------------------------------------
Key staff The Investment Manager and key suppliers
Management of the Company's have staff retention policies and contingency
investment portfolio and plans. The Board's Management Engagement
other support functions Committee reviews all of its key suppliers
rely on a small number of at least once per year.
key staff.
------------------------------------- ---------------------------------------------------
Discount rating Any company's share price is affected
The shares of investment by supply and demand for its shares and
trusts frequently trade fluctuations in share price are a risk
at a discount to their published inherent in investing in the Company.
net asset value. The value In seeking to mitigate the discount,
of the Company's shares the Board looks at both supply and demand
will be subject to the interaction for the Company's shares.
of supply and demand, prevailing
net asset values and the The Board seeks to manage the risk of
general perceptions of investors. any widening of the discount by regularly
The share price will accordingly reviewing the level of discount at which
be subject to unpredictable the Company's shares trade. If necessary
fluctuations and the Company and appropriate, the Board may seek to
cannot guarantee that the limit any significant widening through
share price will appreciate measured buybacks of shares.
in value.
The Investment Manager has a comprehensive
The Company may become unattractive marketing, investor relations and public
to investors, leading to relations programme which seeks to inform
pressure on the share price both existing and potential investors
and discount. This may be of the attractions of the Company and
due to any of a variety the investment approach. We have a marketing
of factors, including investment budget to meet third party costs in marketing
performance or regulatory our shares.
change.
------------------------------------- ---------------------------------------------------
Outsourcing The Board insists that all of its suppliers
The Company outsources all (and, in particular, the Investment Manager,
of its key functions to the Custodian, the Depositary, the Company
third parties, in particular Secretary, the Administrator and the
the Investment Manager, Registrar) have effective control systems
and any control failures which are regularly reviewed. During
or gaps in the systems and the year under review, close attention
services provided by third was paid to the ability of all suppliers
parties could result in to maintain a good level of service while
a financial loss or damage dealing with the continued disruption
to the Company. to working practices necessitated by
the COVID-19 pandemic.
The Board assesses thoroughly the risks
inherent in any change of supplier, including
the internal controls of any new supplier.
------------------------------------- ---------------------------------------------------
Climate change The Board maintains a strategic overview
As evidence of the effects of the portfolio, including ESG criteria.
of climate change grows, Management of the portfolio, including
there is increasing focus the integration of ESG considerations
on investment companies' into portfolio construction, is delegated
role in influencing investee to AVI, the Investment Manager. As a
companies' approach to climate responsible steward of assets, AVI fully
change. supports policies and actions implemented
by its portfolio companies to support
a sustainable environment. AVI engages
actively with its portfolio companies,
and looks to understand how each company
approaches stewardship of the environment,
as well as seeking to identify any unacceptable
practices that are detrimental to the
environment or climate.
------------------------------------- ---------------------------------------------------
The principal financial risks are examined in more detail in note14 to the financial statements.
* The value of long term debt is marked to its fair value for
the purpose of measuring investment performance but, as required by
the relevant accounting standards, all debt is recognised on the
balance sheet at amortised cost.
Environmental, Social and Governance ('ESG') Issues
Both the Board and AVI recognise that social, human rights,
community, governance and environmental issues have an effect on
its investee companies.
The Board supports AVI in its belief that good corporate
governance will help to deliver sustainable long-term shareholder
value. AVI is an investment management firm that invests on behalf
of its clients and its primary duty is to produce returns for its
clients. AVI seeks to exercise the rights and responsibilities
attached to owning equity securities in line with its investment
strategy. A key component of AVI's investment strategy is to
understand and engage with the management of public companies.
AVI's Environmental, Social and Governance Policy, which is
summarised on AGT's website
(https://www.aviglobal.co.uk/how-to-invest/investor-information/esg-policy/),
recognises that shareholder value can be enhanced and sustained
through the good stewardship of executives and Boards It therefore
follows that in pursuing shareholder value AVI will implement its
investment strategy through proxy voting and active engagement with
management and boards.
The Company is an investment trust and so its own direct
environmental impact is minimal. The Company has no greenhouse gas
emissions to report from its operations, nor does it have
responsibility for any other emissions-producing sources under the
Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013.
The Company has no employees. The Company's principal suppliers,
which are listed on the inside cover of the Annual Report, have
confirmed that they comply with the provisions of the UK Modern
Slavery Act 2015.
The Directors do not have service contracts. There are six
Directors, four male and two female. Nigel Rich will retire at the
conclusion of this year's AGM. Further information on the Board's
Diversity policy and the policy on recruitment of new Directors is
contained in the full Annual Report .
AVI's full ESG Policy can be found at
www.aviglobal.co.uk/how-to-invest/investor-information/esg.policy/
Future Strategy
The Board and the Investment Manager have long believed in their
focus on investment in high-quality undervalued assets and that,
over time, this style of investment has been well rewarded.
The Company's overall future performance will, inter alia, be
affected by: the Investment Manager's decisions; investee
companies' earnings, corporate activity, dividends and asset
values; and by stock market movements globally. Stock markets are
themselves affected by a number of factors, including: economic
conditions; central bank and other policymakers' decisions;
political and regulatory issues; and currency movements.
The Company's performance relative to its peer group and
benchmark will depend on the Investment Manager's ability to
allocate the Company's assets effectively, and manage its liquidity
or gearing appropriately. More specifically, the Company's
performance will be affected by the movements in the share prices
of its investee companies in comparison to their own net asset
values.
The overall strategy remains unchanged.
Approval of Strategic Report
The Strategic Report has been approved by the Board and is
signed on its behalf by:
Susan Noble
Chairman
8 November 2021
TEN LARGEST EQUITY INVESTMENTS
The top ten equity investments make up 52.7% of the net assets*,
with underlying businesses spread across a diverse range of sectors
and regions.
All discounts are estimated by AVI as at 30 September 2021,
based on AVI's estimate of each company's net asset value.
* For definitions, see Glossary below.
1. PERSHING SQUARE HOLDINGS
Classification: Closed-ended Fund
Valuation: GBP79.8m
% of net assets: 7.0%
Discount: -29%
A Euronext- and London-listed closed-ended fund managed by a
high-profile activist manager. The fund owns a concentrated
portfolio of quality US companies. Pershing Square trades on a 29%
discount to NAV, which we regard as unsustainably wide for a
portfolio of large-cap, liquid securities, particularly given the
manager's activist strategy.
2. THIRD POINT INVESTORS
Classification: Closed-ended Fund
Valuation : GBP74.4m
% of net assets: 6.6%
Discount : -14%
A London-listed closed-ended fund run by a high-profile activist
manager. The fund invests in both long and short equity and credit,
with a long equity bias. The fund trades on a discount of 14%,
having come in from 23% this year. A large part of this, we
believe, is due to the campaign launched by AVI and three other
shareholders to address the fund's structural discount.
3. EXOR
Classification: Holding Company
Valuation: GBP72.0m
% of net assets: 6.4%
Discount: -39%
EXOR is an Italian-listed holding company run by the Agnelli
family, which traces its roots back to the formation of FIAT in
1899. It has exposure to four main assets, three of which are
listed: Stellantis, Ferrari and CNH Industrial, and one unlisted:
PartnerRe. The Agnelli family has a strong history of value
creation and, by aligning investors' capital with theirs, we
believe there is a good prospect of achieving outsized returns.
4. SONY CORP
Classification: Asset-backed Special Situation
Valuation : GBP63.1m
% of net assets: 5.6%
Discount : -26%
A Tokyo-listed company with four "crown jewel" businesses:
Gaming, Music, Pictures and Semiconductors. Despite these
attractive businesses, Sony trades on a discount of 26% to our
estimate of NAV. We believe this reflects the complexity of the
conglomerate structure, which obscures the value on offer and
creates misconceptions. There are several ways to unlock this value
and tighten the discount to NAV.
5. Oakley Capital Investments
Classification: Closed-ended Fund
Valuation : GBP57.8m
% of net assets: 5.1%
Discount : -20%
A London-listed closed-ended fund which invests in the private
funds run by Oakley Capital, a UK based private equity firm. Oakley
owns a portfolio of fast-growing businesses in the consumer,
education and TMT sectors. Its process focuses on less
intermediated markets and complex deals (e.g. carve-outs), which
avoids the auction process, sourced by a network of entrepreneurs
who believe in the Oakley philosophy. We believe the discount will
narrow as Oakley continues to generate NAV outperformance, and
adopts improved standards of corporate governance.
6. KKR AND CO
Classification: Holding Company
Valuation: GBP57.6m
% of net assets: 5.1%
Discount: -26%
A US-listed alternative asset manager with c. USD430bn of assets
under management. KKR is one of the largest companies in an
industry with appealing structural characteristics, underpinned by
valuable fee-related earnings.
7. FONDUL PROPRIETATEA
Classification: Closed-ended Fund
Valuation: GBP51.4m
% of net assets: 4.5%
Discount: -4%
A Bucharest- and London-listed closed-ended fund originally set
up to provide restitution to Romanian citizens whose property was
seized by the Romanian Communist government. Fondul provides
exposure to some of Romania's most attractive utility and
infrastructure assets, including Hidroelectrica, Bucharest Airport
and OMV Petrom. The fund's investment policy is to distribute all
excess cash and realisation proceeds to shareholders via dividends
and buybacks, and offers the potential for several corporate events
to unlock further value.
8. AKER ASA
Classification: Holding Company
Valuation: GBP 48.2 m
% of net assets: 4.3 %
Discount: -28%
Aker is a Norwegian holding company with investments principally
in oil & gas, renewables & green tech, marine-related
activities and industrial software. It's largest assets are Aker
BP, a Norwegian oil exploration and development company, and Aker
Horizons, a holding company established to invest in renewable
energy and technology. Aker has a history of active portfolio
management, deal-making and value creation, with a track record of
strong shareholder returns since IPO in 2004.
9. CHRISTIAN DIOR
Classification: Holding Company
Valuation: GBP 47.9 m
% of net assets: 4.2 %
Discount: -13%
Christian Dior's sole asset is a 41% stake in LVMH, the luxury
goods conglomerate. We view LVMH as a highly attractive asset, with
diverse exposure across Fashion & Leather, Wine & Spirits,
Perfume & Cosmetics, Watches & Jewellery, and Selective
Retail. LVMH's collection of brands is unique and the rich cultural
heritage underlying them is impossible to replicate. These factors
drive strong demand, high pricing power and attractive margins. We
see strong earnings upside from LVMH, as well as potential returns
from collapse of the holding structure.
10. INVESTOR AB 'B'
Classification: Holding Company
Valuation: GBP44.1m
% of net assets: 3.9%
Discount: -19%
Investor AB is the Swedish holding company controlled by the
Wallenberg family, which pursues a strategy of very long-term
oriented active ownership through board representation. We view
Investor's exposure to best-in-class industrial-focused public
equities as extremely appealing, with further potential upside from
their portfolio of attractive unlisted businesses which are
benefitting from secular growth trends.
INVESTMENT PORTFOLIO
AT 30 SEPTEMBER 2021
% of % of
Portfolio investee IRR ROI Cost Valuation net
Company classification company (%, GBP)(1) (%, GBP)(2) GBP'000(3) GBP'000 assets
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Pershing Square
Holdings Closed-ended Fund 0.7% 22.5% 42.3% 54,601 79,770 7.0%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Third Point
Investors Closed-ended Fund 6.2%(4) 14.9% 60.5% 43,576 74,402 6.6%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
EXOR Holding Company 0.5% 13.3% 38.2% 52,232 71,963 6.4%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Sony Corp Situation 0.1% 33.8% 75.0% 32,612 63,098 5.6%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Oakley Capital
Investments Closed-ended Fund 9.1% 27.0% 98.4% 28,760 57,801 5.1%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
KKR & Co Holding Company 0.1% 79.2% 126.4% 25,618 57,552 5.1%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Fondul Proprietatea Closed-ended Fund 2.8% 19.2% 103.8% 24,249 51,380 4.5%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Aker ASA Holding Company 1.1% 18.3% 117.7% 30,455 48,244 4.3%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Christian Dior Holding Company 0.1% 49.6% 69.4% 28,576 47,945 4.2%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Investor AB 'B' Holding Company 0.2% 14.3% 81.8% 40,154 44,092 3.9%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Top ten investments 360,833 596,247 52.7%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
Godrej Industries Holding Company 2.0% 7.6% 15.5% 33,806 39,060 3.4%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Pershing Square
Tontine Holdings Holding Company - -33.5% -10.4% 39,488 38,396 3.4%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Apollo Global
Management 'A' Holding Company 0.2% 49.8% 12.0% 32,245 35,856 3.2%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Keisei Electric Asset-backed Special
Railway Situation 0.8% 31.0% 8.3% 32,590 35,250 3.1%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Nintendo Situation 0.1% -27.7% -5.0% 42,694 34,234 3.0%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Fomento Economico
Mexicano Holding Company 0.2% 43.2% 19.7% 28,663 34,127 3.0%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
IAC/InterActive
Corp Holding Company 0.4% 27.4% 6.3% 33,072 33,984 3.0%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Hipgnosis Songs
Fund Closed-ended Fund 2.0% 9.6% 7.3% 28,427 29,764 2.6%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Associated British
Foods Holding Company 0.2% -24.9% -13.0% 32,256 28,007 2.5%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Symphony
International
Holdings Closed-ended Fund 15.7% 6.4% 31.1% 26,636 26,398 2.3%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Top twenty investments 690,710 931,323 82.2%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Fujitec Situation 1.7% 20.5% 50.8% 15,402 25,151 2.2%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Swire Pacific 'B' Holding Company 1.0% -6.0% -20.6% 40,329 22,639 2.0%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
DTS Situation 2.6% 5.3% 6.0% 21,228 22,079 2.0%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Pasona Group Situation 2.5% 25.7% 73.8% 10,646 21,974 1.9%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Prosus Holding Company 0.0% 30.5% 7.7% 22,323 20,935 1.9%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Wacom Situation 2.5% -21.0% -2.5% 20,244 19,705 1.7%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
VNV Global Holding Company 2.0% 82.2% 63.8% 13,248 21,661 1.9%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Secure Income REIT Situation 1.4% 59.6% 37.7% 14,193 19,090 1.7%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Digital Garage Situation 1.0% 26.8% 40.1% 10,901 15,549 1.4%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
SK Karen Situation 1.8% -9.5% -22.9% 19,056 14,135 1.2%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Top thirty investments 878,280 1,134,241 100.1%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
NS Solutions Situation 0.6% 16.2% 20.6% 11,103 13,210 1.1%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Bank of Kyoto Situation 0.5% -8.7% -5.9% 12,858 11,998 1.1%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Konishi Situation 2.1% 3.8% 9.2% 9,760 10,201 0.9%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Capital & Counties Asset-backed Special
Properties Situation 0.7% 4.0% 2.5% 9,319 9,527 0.9%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Toagosei Situation 10.3% 3.5% 8.9% 9,160 9,435 0.8%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Daiwa Industries Situation 2.1% 0.0% 0.1% 9,389 9,022 0.8%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
JPEL Private Equity Closed-ended Fund 18.4% 21.6% 86.0% 2,882 8,426 0.7%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Kato Sangyo Situation 0.8% 0.6% 1.8% 7,161 6,357 0.6%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Teikoku Sen-I Situation 1.7% 4.7% 11.4% 6,899 6,345 0.6%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Tetragon Financial Closed-ended Fund 0.6% 1.8% 6.3% 8,148 6,050 0.5%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Top Forty Investments 964,959 1,224,812 108.1%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Sekisui Jushi Situation 0.9% 2.3% 6.1% 5,583 5,534 0.5%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Better Capital
(2009) Closed-ended Fund 17.4% 23.3% 45.8% 1,962 2,383 0.2%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Asset-backed Special
Hazama Ando Situation 0.1% -7.5% -4.1% 785 737 0.1%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Ashmore Global
Opportunities
- GBP Closed-ended Fund 8.5% 4.4% 9.4% 61 698 0.1%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Eurocastle
Investment Closed-ended Fund 3.2% 3.7% 4.6% 380 433 0.0%
--------------------- ---------------------- --------- ------------ ------------ ----------- ---------- -------
Total net equity exposure 973,730 1,234,597 109.0%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
Pershing Square Tontine Holdings total return swap (#) - notional
value included in above (39,488) (38,396) -3.4%
---------------------------------------------------------------------- ------------ ----------- ---------- -------
Equity investments at fair value 934,242 1,196,201 105.6%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
Current assets less current liabilities 9,720 0.8%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
Non-current Liabilities (72,699) -6.4%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
Net assets 1,133,222 100.0%
--------------------------------------------- --------- ------------ ------------ ----------- ---------- -------
(1) Internal Rate of Return. Calculated from inception of AVI
Global's investment. Refer to Glossary below.
(2) Return on investment. Calculated from inception of AVI
Global's investment. Refer to Glossary below.
(3) Cost. Refer to Glossary below.
(4) 6.2% of the voting rights
(#) Refer to glossary below.
INVESTMENT MANAGER'S REVIEW
ABOUT ASSET VALUE INVESTORS
Our Edge
Asset Value Investors specialises in finding securities which
have been overlooked or under-researched by other investors.
Investments that for one reason or another are priced below their
true value but can be made into profitable performers. AVI believes
its strategy and investment style differentiate it from other
managers in the market because of the following:
1. 36 years' experience of long-term outperformance following
our distinctive investment style (annualised NAV total returns of
12.0% since 1985*).
2. AVI actively looks for the catalyst within a company which will narrow the discount.
3. AVI promotes active involvement to improve corporate
governance and to unlock potential shareholder value.
* Refer to Glossary below
The aim of AVI is to deliver superior investment returns. AVI
specialises in investing in securities that for a number of reasons
may be selling on anomalous valuations.
Our focus on buying high-quality businesses trading at wide
discounts to their net asset value has served us well over the long
term. There are periods of time, however, when our style is out of
favour and the types of companies in which we invest are ignored by
the broader market. This requires us to be patient and to remain
true to our style, so that when other investors begin to appreciate
the value in those companies, we are well placed to benefit. In the
short term, this means that there could be some volatility in our
returns. However, we are confident that we own high-quality
businesses, which are trading on cheap valuations.
Members of the investment team at AVI invest their own money in
funds which they manage. As at 30 September 2021, AVI's investment
team owned 216,372 shares in AVI Global Trust plc.
OVERVIEW OF AVI'S INVESTMENT PHILOSOPHY
Introduction to the Strategy
Asset Value Investors invests in overlooked and under-researched
companies, which own quality assets, and trade at discounts to NAV.
This philosophy typically leads us to invest in structures such as
family-controlled holding companies, closed-ended funds and, most
recently, Japanese cash-rich operating companies. However, our
views on the types of structures through which we invest are
entirely agnostic, and portfolio weightings are determined solely
by the opportunity set and our judgment of the risk-reward
potential.
Our research process involves conducting detailed fundamental
research in order to: (a) understand the drivers of NAV growth; and
(b) assess the catalysts for a narrowing discount. We often engage
actively with management in order to provide suggestions for
improvements that we believe could help narrow the discount or
improve operations .
Holding Companies
When we consider a holding company as an investment, we seek
several characteristics. The first is a high-quality portfolio of
listed and/or unlisted businesses with the potential for sustained,
above-average, long-term growth. Many of the underlying companies
that we have exposure to are world-famous brands, and include:
LVMH, Ferrari, Stellantis, PlayStation, Primark, KKR, and many
more.
Secondly, we look for the presence of a controlling family or
shareholder with a strong track record of capital allocation and
returns in excess of broader equity markets. Long-term shareholders
provide strategic vision; many of our holding companies have been
family-controlled for generations. This combination of attractive,
quality assets managed by long-term capital allocators creates the
potential for superior NAV growth.
Finally, we invest at a discount to NAV, preferably with a
catalyst in place to narrow the discount. This provides an
additional source of returns. We estimate that historically about
three-quarters of our returns from holding company investments have
come from NAV growth and one-quarter from discount tightening.
Closed-ended Funds
Similar to holding companies, we look for certain qualities when
we consider a closed-ended fund investment. Most importantly, we
look for portfolios of high-quality assets (both listed and
unlisted) with good growth potential. Our portfolio of closed-ended
funds gives us exposure to many quality companies, such as Chipotle
Mexican Grill, Hilton Worldwide, Universal Music Group, Upstart,
Babylon, BlaBlaCar, Voi, and many more.
We also focus to a great extent on the discount to NAV at which
the closed-ended fund trades. In a nuanced distinction from holding
companies, we usually insist on a high probability of the discount
narrowing or vanishing entirely before we will consider making an
investment. In accordance with this, our stakes in closed-ended
funds are larger, and we engage with management, boards, and other
shareholders to enact policies to help narrow discounts and boost
shareholder returns. Historically, our portfolio of closed-ended
funds has generated half of its returns from discount
narrowing.
Asset-backed Special Situations
The majority of this portion of the portfolio consists of
investments outside of holding companies and closed-ended funds.
For several years now, these investments have largely been in
Japanese cash-rich operating companies. At present, we hold
positions in 15 Japanese operating companies which have, on
average, 97% of their market value in cash and listed
securities.
Japanese companies have a reputation for overcapitalised balance
sheets, but we believe that the winds of change are blowing in
Japan. The Japanese government has been championing efforts to
improve corporate governance and enhance balance-sheet efficiency,
and this programme is beginning to have an effect. Major pension
funds have signed up to a new Stewardship Code, boards of directors
are guided by the principles of an updated Corporate Governance
Code, and there is an identifiable uptick in the presence of
activist investors on Japanese share registers.
We can see evidence of this change in increasing payout ratios,
buybacks, and more independent directors. We believe that our
Japanese holdings stand to benefit from this powerful trend, and
that the market will assign a much higher multiple to these
companies if it reassesses the probability of the excess cash and
securities being returned to shareholders. We are active in
pursuing this outcome and engage continuously with the boards and
management of our holdings to argue for a satisfactory outcome for
all stakeholders.
The focus is on quality, cash-generative businesses with low
valuations (our current portfolio trades on just 5x EV/EBIT). These
are the sorts of businesses that one should be happy to own; as
such, we can afford to take a long-term view on our holdings as we
engage with boards and management to create value for all
stakeholders.
This financial year, we also invested a smaller tranche of the
portfolio into high-quality economically sensitive property stocks
which would benefit from the reopening of the global economy. These
holdings are also classified within this category of Asset-Backed
Special Situations. We discuss these in greater detail in AVI's
performance review.
Summary
Our strategy centres upon investing in companies which own
diversified portfolios of high-quality assets. In each case, we
have sought to invest in companies where the market has
misunderstood or overlooked the value on offer, and where our
analysis shows that there is a reasonable prospect of this being
corrected. The historic returns from this strategy have been strong
and came from a combination of discount narrowing and NAV
growth.
PERFORMANCE REVIEW
"AGT's portfolio is well positioned to weather any challenges
that lie ahead - and hopefully prosper."
- Annualised NAV 10 year total return per share*: 11.3%
- Portfolio discount**: 29.2%
It would be a cliché to say the previous year has been
unprecedented - as they say, history does rhyme - however, when the
first global pandemic in over 100 years brings the world to a halt,
I am at a loss to think of a better word. The past 18 months or so
have been completely dissonant with any period that has come before
- at least in the lifetime of any investment practitioner. The
scope of the uncertainty, and associated challenges, has been
massive.
When I wrote to you last, the results of the Pfizer/BioNTech
vaccine had just been released, sparking a so-called "value rally",
as investors could finally envisage a resumption of economic
activity. We had prepared AGT's portfolio for this possibility by
investing in a basket of high-quality economically sensitive stocks
that would, our analysis showed, benefit from such a resumption.
Stocks in the basket included Secure Income REIT, Shaftesbury,
Capital & Counties, Derwent London, British Land, Great
Portland Estates and Associated British Foods (for Primark). Many
of these stocks contributed meaningfully to returns over the
period, driven by the prospect of economies returning (gradually)
to normal.
Alongside this basket, returns were equally strong from
companies which have lower economic sensitivity, such as KKR,
Oakley Capital Investments, Christian Dior and Fondul Proprieatea.
That is to say, the sources of return in AGT's portfolio this year
were diversified and well-balanced.
Altogether, these strong performances resulted in a NAV total
return of +36.2%, compared to a return of +18.8% from the
comparator benchmark, the MSCI ACWI ex-USA Total Return Index (in
GBP).
Deconstructing the returns, it is worthwhile to note that the
strong NAV returns were driven by both NAV growth and, to a lesser
extent, portfolio discount tightening (from 35% to 29%). The
discount to NAV at which AGT's share price trades also tightened
(from 9.3% to 6.7%), resulting in share price total returns of
+40.3%. Our investment income was also up +35% on the prior
year.
As we moved into the second and third quarters of AGT's
financial year, the market became increasingly concerned with the
prospect of sustained, above-average inflation, generated by both a
rebound in economic activity and supply-chain difficulties. Rates
initially rose, reflecting inflationary fears, but declined again
when the United States Federal Reserve indicated that it stood
ready to raise rates if it believed that inflation was at risk of
becoming entrenched. In turn, the "value rally" began to peter out
and "growth" began to outperform again. To compound matters, this
coincided with a change in the regulatory environment in China,
with the ruling party expressing a desire to promote "common
prosperity".
Dealing with the latter, AGT's portfolio has limited exposure to
China. We sold our SoftBank position (exposed to Alibaba) by July
2021 as a result of our investment thesis having played out. The
Prosus and Naspers (exposed to Tencent) positions had also been
reduced over the course of the year in order to free up cash. At
the time of writing, we have fully exited the Prosus/Naspers
positions. While headline valuations appear attractive following a
sharp sell-off in Chinese equities, a cautious stance is warranted
here given the difficulty of predicting the future regulatory
direction.
In Japan, where 29% of the portfolio is invested, stock markets
did not participate to a great extent in the recovery rally until
the summer, when the vaccine rollout began to gather steam. While
speaking of Japan, it is worth mentioning that corporate activity
appears to be picking up. Our investee companies are responding
positively to engagement, and there is a pronounced improvement in
managers' and directors' focus on corporate governance and
shareholder returns. This bodes well for the Japanese stocks that
AGT owns, which have a large portion of cash and securities on the
balance sheet, and which have historically displayed poor
governance practices and neglected shareholders. On a reporting
note, we will no longer be aggregating the Japanese cash-rich
operating companies into a "Japan Special Situations" basket. There
has been no change to the strategy or our view on its prospects;
rather, the increasing concentration in fewer positions meant that
aggregating the stocks into a basket was no longer a useful way of
reporting. From here, we will talk about the performance of each
stock individually.
As the financial year closes, inflation remains the predominant
fear playing in investors' minds. While not sanguine about
inflation and its potentially destabilising effects, I am confident
that many of the companies in AGT's portfolio have very strong
business models, giving them significant resilience in the face of
inflation. On a look-through basis, examples of companies which
should prove resilient in the face of inflation might include LVMH,
KKR, Aker BP, Universal Music, Apollo Global, Hidroelectrica and
Ferrari.
AGT's portfolio is well positioned to weather any challenges
that lie ahead - and hopefully prosper.
Equity Portfolio Value by Market Capitalisation
2021 2020
% %
------------------------ ----- -----
<GBP1 billion 25 35
>GBP1 billion - <GBP5
billion 28 26
>GBP5 billion - <GBP10
billion 11 14
>GBP10 billion 36 25
------------------------ ----- -----
Joe Bauernfreund
Chief Investment Officer
Asset Value Investors Limited
8 November 2021
*For definitions, see Glossary below.
** Please refer to page 28 in the full Annual Report for a graph
of the weighted average discount over the past 10 years .
PORTFOLIO REVIEW
TOP 20 LOOK-THROUGH COMPANIES
AVI Global Trust invests in holding companies and closed-ended
funds that in turn invest in listed and unlisted companies. We show
below the top 20 holdings on a 'look-through basis', i.e. the
underlying companies to which we have exposure. For example, AVI
Global Trust owns a stake in Christian Dior, a Euronext-listed
holding company, that accounts for 4.2% of AVI Global Trust's NAV.
Christian Dior's only holding is LVMH, a European Luxury
conglomerate, which accounts for 100% of Christian Dior's NAV. This
translates to AVI Global Trust having an effective exposure to LVMH
of 4.2% of AVI Global Trust's NAV. The table below is an indication
of the degree of diversification of the portfolio.
Underlying
look-through
Look-through companies Parent company weight Look-through holding sector
------------------------- --------------------- -------------- -------------------------------
LVMH Christian Dior 4.2% Apparel, Accessories and
Luxury Goods
------------------------- --------------------- -------------- -------------------------------
KKR Fund Management KKR 3.9% Asset Management and Custody
Business Banks
------------------------- --------------------- -------------- -------------------------------
Oriental Land Keisei Electric 3.5% Leisure Facilities
------------------------- --------------------- -------------- -------------------------------
Nintendo Nintendo 2.6% Interactive Home Entertainment
------------------------- --------------------- -------------- -------------------------------
Apollo Fund Management Apollo Global 2.5% Asset management and Custody
Business Management Banks
------------------------- --------------------- -------------- -------------------------------
Hidroelectrica Fondul Propreietatea 2.5% Electric Utilities
------------------------- --------------------- -------------- -------------------------------
Aker BP Aker 2.5% Oil and Gas Exploration
and Production
------------------------- --------------------- -------------- -------------------------------
FEMSA Comercio FEMSA 2.2% Food Retail
------------------------- --------------------- -------------- -------------------------------
Universal Music Pershing Square 2.1% Movies and Entertainment
Holdings
------------------------- --------------------- -------------- -------------------------------
Godrej Properties Godrej Industries 1.8% Real Estate Development
------------------------- --------------------- -------------- -------------------------------
Ferrari EXOR 1.8% Automobile Manufacturers
------------------------- --------------------- -------------- -------------------------------
Fujitec Fujitec 1.7% Industrial Machinery
------------------------- --------------------- -------------- -------------------------------
Partner RE EXOR 1.7% Reinsurance
------------------------- --------------------- -------------- -------------------------------
Stellantis EXOR 1.7% Automobile Manufacturers
------------------------- --------------------- -------------- -------------------------------
Sony Playstation Sony 1.6% Interactive Home Entertainment
------------------------- --------------------- -------------- -------------------------------
Primark Associated British 1.6% Apparel Retail
Foods
------------------------- --------------------- -------------- -------------------------------
Sony Music Sony 1.6% Movies and Entertainment
------------------------- --------------------- -------------- -------------------------------
Godrej Consumer Godrej Industries 1.5% Personal Products
Products
------------------------- --------------------- -------------- -------------------------------
Wacom Wacom 1.5% Technology Hardware, Storage
and Peripherals
------------------------- --------------------- -------------- -------------------------------
Benefit One Pasona 1.5% Human Resource and Employment
Services
------------------------- --------------------- -------------- -------------------------------
PERSHING SQUARE HOLDINGS: HOW THE LOOK-THROUGH ANALYSIS WORKS
Pershing Square Holdings is a Euronext- and London-listed closed-ended
fund in which AVI Global Trust invests. Although Pershing Square
Holdings is just one fund, it has investments in multiple different
listed companies, providing your Company's portfolio with exposure
to a diversified collection of businesses.
Estimated % of
Pershing Square
Company Name Holdings' portfolio Geography Sector
Universal Music 27% Global Movies and Entertainment
Group
Lowe's 16% United States Home Improvement Retail
Chipotle Mexican 16% United States Restaurants
Grill
Hilton 11% Global Hotels, Resorts and Cruise
Lines
Restaurant Brands 11% North America Restaurants
Howard Hughes 9% United States Real Estate Development
Dominos 7% Global Restaurants
Fannie Mae & Freddie 2% United States Thrifts and Mortgage
Mac Finance
Pershing Square 1% United States Asset Management and
Tontine Custody Banks
CONTRIBUTORS
THIRD POINT INVESTORS (+3.14%)(3)
Classification: Closed-ended Fund
% of net assets(1) : 6.6%
Discount: -14%
% of investee company: 6.2%
Total return on position FY21 (local)(2) : 65.3%
Total return on position FY21 (GBP): 59.7%
Contribution (GBP)(3) :314bps
ROI since date of initial purchase(4) : 60.5%
Third Point Investors Limited (TPOU) was our largest contributor
over the financial year, adding 314 basis points (bps) to AGT's NAV
on the back of a +71% share price gain. Strong NAV performance
(+54%) was compounded by a narrowing discount (from 23% to 14%),
the latter due in large part we believe to the campaign launched by
ourselves and three other shareholders to properly address the
fund's structural discount.
Following a sustained period of mediocre performance, we have
been pleased with the improved returns this year. Almost two-thirds
of the NAV return for the period came from the performance of
Upstart Holdings, with SentinelOne the other main contributor.
Combined, we estimate that the two positions contributed over +80%
of the total return. Both of these holdings began the year as
private companies held within TPOU's venture capital portfolio,
with Upstart the first to list in December 2020 followed by
SentinelOne in June 2021. Founded by a senior ex-employee at
Google, Upstart operates an AI-lending platform that partners with
banks to originate loans. Since listing, its share price has
increased by almost +1,500% as the company appears to have hit an
inflection point in growth. SentinelOne is a cybersecurity business
with a particular focus on "Endpoint" security which has become an
area of focus for companies in an environment in which many
employees have been working from home. SentinelOne's shares are up
by +53% from the IPO price. Note that in the case of both
companies, there were also material uplifts from their carrying
valuations as private companies to their IPO prices. Other
contributors to the return included Walt Disney, Prudential, and
Danaher.
We originally invested in TPOU in mid-2017, seeing an
opportunity to constructively engage with the board to address a
series of issues that had contributed towards the company trading
at a persistently wide discount to NAV. Over our holding period,
changes have included: replacing the legacy Standard Listing (no
longer available to new investment companies) with a Premium
Listing; commencement of a share buyback programme; reducing the
management fee from the highest rate paid by all Third Point
clients to one that better reflects TPIL's importance; and the
cancellation of "repurchased" Ordinary Shares that, owing to them
being held by the Master Fund, had for years continued to pay
management and performance fees to Third Point.
Despite these measures, TPOU shares continued to trade at a wide
discount to NAV and we became increasingly convinced that the years
of neglect meant the discount had become entrenched, and that a
more structural solution would be required. Under pressure from
ourselves and other shareholders, the board held a strategic review
process that culminated in proposals which we believed fell
woefully short of the minimum required to tackle TPOU's discount
problem; were not reflective of shareholder feedback; and, we
believe, bore the imprimatur of the investment manager. Since then,
AVI and three other shareholders have sought to requisition an EGM
at which shareholders would vote on a proposal that TPOU offers
regular redemptions at close to NAV. At the time of writing, the
TPOU board has rejected two such requisition requests. It is a
basic tenet of corporate governance that boards actually call a
meeting if a sufficient percentage of their shareholders request
that they do so, and we are deeply concerned by the actions of the
board.
OAKLEY CAPITAL INVESTMENTS (+2.93%)(3)
Classification: Closed-ended Fund
% of net assets(1) : 5.1%
Discount: -20%
% of investee company: 9.1%
Total return on position FY21 (local)(2) : 36.3%
Total return on position FY21 (GBP): 36.3%
Contribution (GBP)(3) : 293bps
ROI since date of initial purchase(4) : 98.4%
Oakley Capital Investments turned in a very strong performance
over AGT's financial year, generating a NAV total return of +27%
which, together with a tightening of the discount from 29% to 20%,
resulted in share price total returns of +41%.
Encouragingly, the majority of the returns came from EBITDA
growth within the portfolio, with some support from multiple
expansion and uplifts on disposals of assets. Sterling strength
acted as a headwind over the period. Particularly strong
performance was seen from IU Group (German private university),
Casa (real estate classifieds), TechInsights (semiconductor IP),
WishCard Technologies (gift cards) and Time Out, whose share price
rose by +50% over the period.
It was a busy year for OCI, with eight investments and three
disposals, as well as bolt-on deals and refinancings. New
investments included Idealista (online real estate classified
advertisements), 7NXT (online fitness and nutrition), WindStar
Medical (consumer healthcare), Dexters (London real estate agent),
ICP Education (UK nurseries network), ECOMMERCE ONE (German
e-commerce solutions) and Seedtag (digital advertising). OCI also
made a EUR75m commitment to the Origins fund, which will target
smaller companies than the rest of the Oakley funds.
Portfolio-level EBITDA growth over the past 12 months has been
an excellent +35%, with EBITDA multiples remaining reasonable (12x)
and net debt to EBITDA of 3.5x. 70% of the portfolio is digital,
which has helped in navigating the pandemic, and 75% of the
portfolio has subscription-based or recurring revenues. These are
remarkable attributes in a portfolio, and a highly attractive
collection of assets to own.
We continue to believe that Oakley's strategy is a winning one,
focusing on business sectors/themes it knows well with secular
growth prospects, deals sourced by a network of Oakley-friendly
entrepreneurs, and a willingness to engage in complex transactions.
The result of this strategy, particularly the latter two aspects,
is that 75% of deals are uncontested, which is unusual in the
private equity world.
Despite these considerable merits, OCI continues to trade on a
20% discount - one of the widest of its peers, and all the more
remarkable when we consider that OCI is one of the top-performing
listed private equity funds in London. We have theorised in the
past that investors are punishing OCI for past transgressions (i.e.
dilutive share issuances), and suspect that this is still partly
the case. However, we note that OCI has made significant strides in
improving corporate governance, including enshrining in its
bye-laws a commitment to avoid dilutive share issuances in the
future. The board has also demonstrated a heightened awareness of
the discount, buying back 13% of outstanding shares since 2019 at
an average discount of -31%. We estimate that these actions
resulted in (risk-free and immediate) NAV accretion of +5% for
remaining shareholders.
A further concern may be that a significant portion of the
portfolio is invested in two companies badly affected by the
pandemic, namely Time Out (9% of NAV) and North Sails (19% of NAV).
While these concerns are legitimate, we note that: (a) both
businesses were performing well prior to COVID-19, suggesting that
the business models are in good shape and should recover as
lockdowns continue to ease; and (b) three-quarters of the North
Sails exposure is to its debt, rather than equity, which is placed
higher in the capital structure and therefore more protected in the
event of an adverse outcome.
With OCI, we are being offered a fast-growing portfolio with
attractive growth opportunities, backed by a manager with a
distinct deal-sourcing strategy, and a board that has acknowledged
prior errors and is making significant efforts to improve
governance - and all this available at a discount of 20%! We remain
enthusiastic holders of OCI.
KKR & CO (+2.80%)(3)
Classification: Holding Company
% of net assets(1) : 5.1%
Discount: -26%
% of investee company: 0.1%
Total return on position FY21 (local)(2) : 77.9%
Total return on position FY21 (GBP): 70.4%
Contribution (GBP)(3) : 280bps
ROI since date of initial purchase(4) : 126.4%
KKR has been an important contributor to AGT's returns since its
introduction to the portfolio in the first half of 2020. Over AGT's
2021 financial year, the company's share price increased by +79%.
This added 280bps to AGT's NAV over the period and brought returns
over our holding period to +148% which equates to an IRR of +92%
(all figures in total return in USD).
Despite these outsized returns, we believe that KKR has an
extended runway ahead of mid-teens asset under management (AUM) and
earnings growth and we still see considerable upside in the
position. The company's Investor Day earlier this year and
subsequent results confirmed that the business is firing on all
cylinders with assets under management at the end of the second
quarter standing +93% higher than a year prior. While this figure
was boosted by the acquisition of life insurer Global Atlantic
which closed in the first quarter of 2021, organic growth of +49%
is indicative of KKR's advantaged position within an industry which
is itself benefitting from robust secular tailwinds.
We expect annuity provider Global Atlantic, in which KKR now has
a 61% stake, to accelerate KKR's growth even further over the
coming years as a source of low-cost liabilities. Crucially, the
acquisition means that permanent capital now accounts for almost a
third of AUM, providing even greater stability and visibility to
fee revenues. KKR's moves to grow its platform beyond traditional
private equity have paid off, with 57% of AUM growth between 2010
and 2020 derived from businesses that did not exist ten years
ago.
While private equity now accounts for 36% of total AUM (down
from 75% upon listing in 2010), even that figure understates the
actual level of diversification with the private equity platform
which is now spread across Asian, European, longer dated "Core"
funds, as well as specialist growth equity (healthcare and
technology) funds, in addition to the original US business. These
fund-raising efforts and rapid deployment have led to record levels
of embedded gains both in terms of unrealised carried interest and
balance sheet investment gains, and should translate to elevated
levels of income from these sources over the next few years.
We value KKR on a sum-of-the-parts basis, and believe that the
company's most valuable "part" - fee-related earnings (i.e. from
base management fees) - has been made even more valuable by changes
made earlier this year to the compensation structure that will see
a heavier compensation load placed on carried interest.
CHRISTIAN DIOR (+2.21%)(3)
Classification: Holding Company
% of net assets(1) : 4.2%
Discount: -13%
% of investee company: 0.1%
Total return on position FY21 (local)(2) : 76.8%
Total return on position FY21 (GBP): 67.6%
Contribution (GBP)(3) : 221bps
ROI since date of initial purchase(4) : 69.4%
We initiated a position in Christian Dior (CDI) - the holding
company through which Bernard Arnault controls European luxury
goods conglomerate LVMH - in March 2020. As a single-asset holding
company, CDI had typically traded at a tight discount to NAV;
however, the COVID-19 market volatility saw the discount widen to
20-25%. We took advantage of this, and we were able to build a
position in one of the highest-quality companies in our universe at
a dislocated discount. Both parts of the thesis have played out,
with NAV growth of +57% boosted by a narrowing of the discount from
24% to 13%, resulting in an +81% return over the period.
Starting with the NAV side of the equation, shares in LVMH
returned +57%. The pandemic has had harsh effects on the luxury
industry. However, our thesis was that global mega-brands, such as
Louis Vuitton, would outperform, benefitting from more flexible
cost structures, directly owned stores, and ever-green product
mixes, as well as stronger balance sheets and greater capacity to
invest in digital sales channels. This seems to be the case. LVMH
reported exceptional results for the first half of 2021, with sales
and operating profits +11% and +44% above the 2019 level.
More recently, however, following comments made by Chinese
President Xi Jinping about the need to promote "Common Prosperity",
investors have started to worry about the outlook for growth in
China. Whilst the phrase has appeared repeatedly in recent years,
in the context of 2021 and a seemingly more invasive approach to
regulation and the promotion of social goals, investors are
pondering whether the ideals of the Chinese Communist Party might
dampen growth for the luxury goods sector.
As a number of CEOs of luxury goods companies have pointed out,
the ambition to grow the middle class and reform taxes is likely,
prima facie, to be good for the luxury industry over the medium to
long term. What is less clear however, particularly in the shorter
term, is whether displays of wealth and conspicuous consumption
will become less socially acceptable. This remains largely
unknowable in the short term. We would refrain from making
comparisons to previous anti-grafting campaigns that specifically
targeted the luxury goods sector. Moreover, we note that regulatory
developments over the last eighteen months have been "pro-luxury",
most notably with regard to the development of the Island of Hainan
as a duty-free shopping hotspot.
Turning to CDI's discount, AGT has benefitted from a material
narrowing of the discount from 24% to 13%. During the period, the
family took steps to simplify parts of the control structure which
sit above CDI. It is our expectation that at some point in the
future - when it suits them - the family will collapse CDI
entirely. As such we expect to capture further upside in the
discount. Combined with the prospect of continued NAV growth, we
remain excited by prospective returns.
EXOR (+2.10%)(3)
Classification: Holding Company
% of net assets(1) : 6.4%
Discount: -39%
% of investee company: 0.5%
Total return on position FY21 (local)(2) : 39.6%
Total return on position FY21 (GBP): 34.6%
Contribution (GBP)(3) :210bps
ROI since date of initial purchase(4) : 38.2%
EXOR was a meaningful contributor to returns during the period.
The shares returned +58% over the period, as strong NAV growth was
complemented by a narrowing of the discount from 43% to 39%.
Our initial investment in EXOR back in 2016 was largely
predicated on Fiat Chrysler's undervaluation and the scope for
value creation through industry consolidation, as set out in the
late Sergio Marchionne's Confessions of a Capital Junkie
presentation. During the period a key part of this played out, with
the creation of Stellantis through the merger of FCA and Peugeot.
We view the merger as a great example of how family-controlled
holding companies can create value through the active ownership and
management of their holdings. Indeed, during the period, the value
of EXOR's stake in what was FCA and became Stellantis returned +83%
(including special dividends and distributions) - making it the
largest contributor to EXOR's NAV growth. We continue to see
considerable upside at Stellantis. CEO Carlos Tavares is targeting
EUR5bn of synergies and aims to achieve a 10% operating margin by
2026 - which would likely make Stellantis the most profitable
traditional auto maker in the world. We view the discount at which
Stellantis trades versus Ford and GM to be unjust and see next
year's capital markets day as a possible catalyst for a
re-rating.
The other great driver of NAV growth was CNH Industrial, whose
shares rallied by +123% over the period, benefitting from a
resumption in economic activity and demand for capital goods. In
this context CNH reported exceptionally good results, well ahead of
expectations and with full year guidance having now been raised
twice this year. Results were led by the all-important Agricultural
division, which achieved a record 15% operating margin in Q2 and is
benefitting from the US agricultural replacement cycle, which
finally seems to be turning the corner. The proposed splitting of
the company in two should unlock value currently trapped in its
conglomerate structure.
AGT benefitted from a narrowing of EXOR's discount from 43% to
39% over the last year. However, when compared to its own history
(five-year average: 32%) and other European holding companies, this
seems very wide. We would expect this to narrow over time,
particularly as John Elkann continues to tilt EXOR's portfolio
toward higher quality, less cyclically exposed companies. As and
when this happens it should provide a powerful extra fillip on top
of NAV returns. We added to the position by more than 50% over the
year, to make it your company's third largest position.
SONY CORP (+2.09%)(3)
Classification: Holding Company
% of net assets(1) : 5.6%
Discount: -26%
% of investee company: 0.1%
Total return on position FY21 (local)(2) : 47.9%
Total return on position FY21 (GBP): 35.5%
Contribution (GBP)(3) : 209bps
ROI since date of initial purchase(4) : 75.0%
Sony was the fourth largest contributor to returns over the
period, adding 209bps to performance with a share price return of
+56%. Sony, despite its perception as a shrinking electronics
conglomerate, owns a collection of world-class businesses, with the
four crown jewels of Gaming, Music, Semiconductors and Pictures
accounting for 75% of Sony's NAV.
Over the past year, Sony has proven the quality of its
businesses. For the fiscal year ended March 2021, all of Sony's
business lines, except the Semiconductor business, grew profits by
double digits with overall adjusted profits growth of +15%. This
marks the highest profit in Sony's history, although hopefully not
for long - analyst consensus is for Sony to grow profits by an
annualised +15% over the next five years.
Aside from earnings growth, there have been several developments
which we believe have added substantially to Sony's corporate
value. Most notable is the multitude of acquisitions focused on
bolstering Sony's entertainment content, including investments in
Epic Games (most famed for Fortnite), Crunchyroll (one of the
world's largest anime platforms) and, most recently, Bluepoint
Games (the team behind the remaster of Unchartered and God of War).
Then there was November's hugely successful launch of the
PlayStation 5 - with demand far outstripping supply and on track to
be Sony's best-selling console (despite claims that console gaming
was dead). Lastly, although not exhaustively, the value of Sony's
pictures division was highlighted when Amazon purchased MGM for
USD8.5bn, a deal that implies a value for Sony's pictures segment
of USD26bn - 20% of Sony's market cap and almost 3x higher than our
carrying value.
Sony faced heavy public criticism for its holding structure in
mid-2019, with calls to spin out its semiconductor business and
sell its majority stake in Sony Financial. While we sympathise with
the logic, and indeed supported the break-up when we initially made
the investment, Sony has since made a convincing case for keeping
the holding structure. Being able to allocate capital between
businesses, and allowing management teams to make long-term
decisions, is certainly a benefit of the structure. This, of
course, depends on the quality of the holding company management,
and in Sony's case we think that the team is of a high calibre.
This extends not just to capital allocation and decision making
but, in Sony's unique case, to its content value, where Sony can
monetise intellectual property (IP) through gaming, film, and
music. By that logic, we think that Sony's current 26% discount is
remarkable.
We initiated our Sony position in June 2019 and have earned a
+39% IRR and an +89% total return, versus the equivalent returns
for the MSCI AC World ex US Index of +11% and +22%. Despite the
strong performance and considering the quality of Sony's business,
its growth prospects and valuation - we remain extremely excited
about the return potential, and view it as a core, long-term
holding.
PERSHING SQUARE HOLDINGS (+2.08%)(3)
Classification: Closed-ended Fund
% of net assets(1) : 7.0%
Discount: -29%
% of investee company: 0.0%
Total return on position FY21 (local)(2) : 20.3%
Total return on position FY21 (GBP): 17.1%
Contribution (GBP)(3) : 208bps
ROI since date of initial purchase(4) : 42.3%
For a second consecutive financial year, Pershing Square
Holdings (PSH) was among our top contributors. While PSH's relative
outperformance was not as spectacular as that achieved a year ago
on the back of its inspired hedge against the impacts of COVID-19
on financial markets, a +30% NAV return for the year to 30
September 2021 represents a very good outcome in absolute terms
despite only matching that of the S&P 500 index. A modest
reduction in PSH's discount provided a tailwind to returns with the
share price up by +33%.
A majority of PSH's holdings by number were relative
outperformers including Hilton Worldwide Holdings, Agilent
Technologies, Howard Hughes Corp, Chipotle Mexican Grill, Domino's
Pizza, and Starbucks. These were partially offset by the weak share
price performance of Pershing Square Tontine Holdings (Pershing
Square's SPAC) and the positions in the common and preferred shares
of Fannie Mae and Freddie Mac which declined materially following
an adverse Supreme Court ruling that ruled as legitimate the 2012
"net sweep" decision that saw the companies' profits diverted to
the US Treasury.
We have been impressed by the quality of management across PSH's
investee companies with Hilton and Chipotle great examples of
management "leaning in" to the impact of COVID-19. In the case of
Hilton, a significant part of the 25-30% cost cuts undertaken in
FY20 is expected to be retained, leading to - in the words of CEO
Chris Nassetta - a "meaningfully higher margin business" that
should be able to match or exceed 2019 EBITDA levels by 2022 even
if Revenue per Available Room remains 15% lower than pre-COVID
levels. At Chipotle, a focus on digital operations has positioned
it as a clear "COVID winner" with the most recent quarterly
earnings continuing the run of impressive same-store sales and
showing a large portion (80%) of digital sales being retained even
as in-restaurant sales recover (back to 70% of pre-COVID levels).
This has given management the confidence to raise the targets for
average restaurant sales volumes and to re-state the long-term
target of 6,000 North American restaurants (more than double the
current number).
PSH's portfolio turnover was relatively limited over the year,
with Starbucks switched out for Domino's Pizza and Agilent sold to
fund the purchase of Universal Music Group (UMG). At just over 30%
of PSH's NAV, some investors may baulk at the outsized
concentration in UMG. However, we know UMG well from previous
research on its then-majority owner Vivendi. The music industry has
been transformed over the last ten years by the advent of streaming
both in terms of growth and improved quality of earnings, and we
had already established positions in Hipgnosis Songs Fund and Round
Hill Music Royalty Fund (the latter later being sold to fund an
increased holding in the former) to reflect this bullish outlook.
Our direct position in Hipgnosis Songs Fund complements the
indirect exposure to UMG well with the former offering somewhat of
a hedge against the risk of regulatory pressure forcing a more
equitable split of streaming royalties between
songwriters/recording artists/labels (although, to be clear, this
is not our base case). PSH's investment in UMG is off to a good
start following its listing with the shares up by +24% on the cost
basis (which includes legal costs).
The question of whether the inflation that we are seeing is
"transitory" or not, and the associated potential for higher
interest rates if it proves not to be, is probably the critical one
facing equity investors today. Against this backdrop, we are
comfortable with PSH as our largest holding given: (i) their
high-quality investee companies and associated pricing power; and
(ii) the interest rate "swaptions" held by PSH which provide an
asymmetric pay-off in the event of rising rates.
While PSH's discount narrowed in to the low -20%s at the start
of 2021 following its inclusion in the FTSE 100 index, it is back
at 29% at the time of writing. This seems very much anomalous to us
even though the company's high costs shown in its Key Investor
Information Document (albeit a function of its outsized return in
2020 which triggered a large performance fee) are unhelpful in
attracting demand from the wealth management investor
community.
FONDUL PROPRIETATEA (+2.01%)(3)
Classification: Closed-ended Fund
% of net assets(1) : 4.5%
Discount: -4%
% of investee company: 2.3%
Total return on position FY21 (local)(2) : n/a
Total return on position FY21 (GBP): 38.9%
Contribution (GBP)(3) : 201bps
ROI since date of initial purchase(4) : 103.8%
Fondul Proprietatea (FP) is a Bucharest- and London-listed
closed-ended fund originally set up to provide restitution to
Romanian citizens whose property was seized by the Romanian
Communist government. Today, FP provides exposure to some of
Romania's most attractive utility and infrastructure assets, and
has a policy of distributing all excess cash and realisation
proceeds to shareholders via dividends and buybacks.
FP has been part of AGT's portfolio since 2015 and continues to
be a steady source of returns, this year contributing 201bps to
AGT's NAV on the back of a share price total return of +51% which
benefitted from the compounding effect of an increasing NAV (up
+28%) and a tightening discount (from 18% to 4%).
While the 37% increase in value of FP's stake in listed OMV
Petrom (13% of NAV at the start of the period) was helpful, it was
yet again Hidroelectrica - part of FP's unlisted portfolio - that
generated the bulk of NAV returns. This came despite a lack of
progress in Hidroelectrica's IPO. In one of its final actions
before being voted out, the previous government had banned the
privatisation of state-owned enterprises. A bill repealing this ban
failed to work its way through parliament before leadership
elections within the ruling PNL party and disagreements between the
coalition parties brought essentially all parliamentary business to
a halt. We draw comfort from there being a business-friendly
majority in parliament and our base case at the time of writing is
for the coalition to be re-established, most likely with a new
Prime Minister in power.
We also note that FP's investment manager, Franklin Templeton,
has indicated that a continued lack of progress on the legislative
front will see it look to independently IPO its 20% stake in
Hidroelectrica. Whatever the precise route by which Hidroelectrica
becomes a listed company, we see a significant amount of upside
from its current carrying value given its low-cost production, low
CAPEX requirements and associated high levels of free cash flow,
and its status as what would be the only pure-play listed
hydroelectric company globally.
AKER ASA (+1.91%)(3)
Classification: Holding Company
% of net assets(1) : 4.3%
Discount: -28%
% of investee company: 1.1%
Total return on position FY21 (local)(2) : 50.1%
Total return on position FY21 (GBP): 52.8%
Contribution (GBP)(3) : 191bps
ROI since date of initial purchase(4) : 117.7%
Aker was a significant contributor to your Company's returns
this year, with returns driven by exceptional NAV growth of +124%.
The shares failed to keep pace with the NAV (returning +80%) and as
such the discount widened from 9% to 28%. We took advantage of this
and added to the position by approximately one-third over the
period.
NAV growth was led by Aker BP whose shares rallied by +105%,
adding more than 50% to Aker's NAV. As we noted in the Half Year
Report which was issued in May, the re-opening of physical
economies and improved prospects for global growth had spurred the
oil price from USD42 to USD63 from September to March. These trends
have continued with Brent crude prices pushing through USD80 in
September for the first time in three years.
In the words of one strategist, oil has moved from a cyclical to
a structural bull market, with an expected continued imbalance
between supply and demand and an estimated USD600 billion capex
shortfall through to 2030. Aker has a history of zigging while
others zag (Aker BP was, after all, created in a low-price
environment), and as such we find it interesting that whilst most
oil companies report limited or negative growth outlooks, Aker BP
targets a 70% increase in oil and gas production in 2028 versus
2020. We believe that efficient low cost producers have a role to
play in meeting the (underestimated) medium term demand for oil,
and have the opportunity to create significant value as capital
flees the sector. This bodes well for future NAV growth for
Aker.
The other major driver of NAV growth was Aker Horizons - the
holding company established in 2020 as a platform for Aker to
invest in renewable energy and green technology. Over the last year
Aker Horizons has: (1) conducted a private placement and listed on
the Euronext Growth exchange; (2) acquired a 75% stake in
Mainstream Renewable Power, a renewable energy company in the wind
and solar energy markets, and (3) launched and listed Aker Clean
Hydrogen, a company focused on industrial clean hydrogen. In our
view, the creation of Aker Horizons is indicative of how
family-controlled companies think in generations not quarters,
securing future growth avenues. It is also a prime example of the
active approach that the best families take to creating value.
Since AVI first invested in Aker in 2008 we have earned an IRR
of +19% (in NOK). The prospect of continuing to align capital with
the family at a 28% discount to NAV is an appealing one.
JARDINE STRATEGIC (+1.68%)(3)
Classification: Holding Company
% of net assets(1) : n/a
Discount: n/a
% of investee company: n/a
Total return on position FY21 (local)(2) : 66.0%
Total return on position FY21 (GBP): 53.6%
Contribution (GBP)(3) : 168bps
ROI since date of initial purchase(4) : -1.6%
In previous monthly updates and in the Half Year Report, we
commented on the situation with Jardine Strategic (JS). The
takeover offer from Jardine Matheson, for the 15% of Jardine
Strategic that it did not already own, was a foregone conclusion
and the takeover completed on the 15th of April 2021. This takeover
offer led to Jardine Strategic contributing 168bps to NAV for the
year, boosting performance from strong NAV growth at the beginning
of the calendar year.
The offer at USD33 was at a 20% premium to the undisturbed share
price prior to the offer, but at a 30% discount to our NAV
estimate. Due to the corporate structure, minority shareholders
were not able to stop the deal from completing when voted upon,
although 53% of minority holders voted against the deal. However,
the Bermuda Courts, where JS was incorporated, allow shareholders
to appeal for a fair value appraisal. We have gone down this route
as we believe that a fairer offer price would have been closer to
Jardine Strategic's NAV, particularly as the listed nature of its
investments means that there was very little ambiguity over the
value of the company. Progress at this is time slow as the Bermuda
Courts work through a COVID-induced backlog. However, at the time
of writing a court hearing is scheduled to discuss procedural
matters and discovery to be provided to the experts to make their
valuation.
DETRACTORS
NINTO (-0.81%)(3)
Classification: Asset-backed Special Situation
% of net assets(1) : 3.0%
Discount: -52%
% of investee company: 0.1%
Total return on position FY21 (local)(2) : -14.8%
Total return on position FY21 (GBP): -16.8%
Contribution (GBP)(3) : -81bps
ROI since date of initial purchase(4) : -5.0%
Nintendo was the single-largest detractor from returns for the
period, detracting 81bps from performance with a total return of
-16% since initial investment. AGT initiated its position in
Nintendo in February 2021. The investment thesis was predicated on
the high quality of its unique intellectual property (e.g. Super
Mario, Pokémon), as well as the digital transformation of its
business reminiscent of Sony during the PlayStation 4 cycle.
The video game business has historically been characterised by
earnings cyclicality, with revenues and profits driven by the
periodic release of new consoles. In 2020, Nintendo's management
took large strides in shifting its videogame business towards an
attractive, digitally focused model by introducing both
subscription revenues and downloadable content onto the Switch
platform. The pandemic served as a catalyst to move consumers
online, making the digital subsegment the fastest growing part of
Nintendo, now accounting for 47% of software sales and helping
drive operating margins to 37%. Moreover, Nintendo had opted to
further monetise its world-class IP by expanding into new areas -
opening its first-ever theme park and releasing trailers for a new
Super Mario movie, which is slated for 2022.
Despite the ongoing transformation and deep moat given by IP,
the share price has fallen by -15% since the start of 2021. We
believe that fears have been stoked by the most recent quarterly
earnings release, which provoked concern of a cyclical peak in
earnings, and the announcement of the Nintendo Switch OLED -
whereas the market had been expecting a new, more powerful "Switch
2" to be announced.
Turning to the first, the most-recent quarterly earnings release
revealed that net sales were down by -10% year-on-year, while
operating profits and margins declined, and digital sales fell as a
proportion of overall revenue. At first glance, these figures are
discouraging, suggesting that Nintendo may still be exposed to
cyclical swings in earnings. However, it is important to remember
that the quarter one year ago was a tough one comparatively, as
during the COVID-induced lockdowns many subscribers increased their
levels of gaming (and, necessarily, digital downloads) in the
absence of regular socialising. Furthermore, due to the pandemic,
the Switch has suffered from delays to the production of major new
titles which were tipped for release this year. If we take 2019 as
a baseline, we see much more encouraging figures: sales of the
Switch have doubled, revenue is up by +87%, and digital sales have
grown by +148%.
Turning to the second, Nintendo announced that it would be
releasing a Nintendo Switch OLED on 8 October 2021 - a moderately
upgraded version of the Switch with backwards compatibility. The
new console sold out within minutes on pre-orders. Nonetheless,
some market participants had been calling for a "Switch 2" style
console with a much more powerful chip, instead of the more minor
upgrade that Nintendo has opted for with the Switch OLED. We had
maintained that this would be a mistake, as such a console would
not have been backwards compatible with existing Switch games,
effectively making it much harder for Nintendo to build a
sustainable ecosystem around the Switch. While we recognise why
hardcore gamers could be disappointed with this console, we think
that the announcement of this upgrade reaffirms our initial
investment thesis: Nintendo is moving away from the cyclical
business model dependent on successful new console releases,
focusing instead on building an environment in which digital and
recurring revenues - stickier and higher-margin - play a larger
role.
Overall, while the market performance to date has been
disappointing, we see no contradictory evidence that would lower
the conviction in our thesis. At the current share price, Nintendo
trades at 8x forward operating profits and 16x forward earnings, a
valuation which we believe does not adequately reflect the quality
of Nintendo's business. Nor does it reflect the significance of the
shift from a hardware-driven business model to one focused on
digital, recurring revenues and increased IP monetisation.
PERSHING SQUARE TONTINE HOLDINGS (-0.70%)(3)
Classification: Holding Company
% of net assets(1) : 3.4%
Discount: -2%
% of investee company: n/a
Total return on position FY21 (local)(2) : 10.1%
Total return on position FY21 (GBP): -10.1%
Contribution (GBP)(3) : -70bps
ROI since date of initial purchase(4) : -10.4%
Pershing Square Tontine Holdings (PSTH; Pershing Square's
US-listed SPAC), was the second-largest detractor over the period
with its -12% share price decline deducting 70bps from AGT's NAV.
We invested in PSTH in June 2021 following its announcement of a
deal to acquire a 10% stake in Universal Music Group (UMG), a
then-unlisted company that we knew well from previous research on
its then-majority owner Vivendi. The decline in PSTH's share price
that accompanied the announcement of the deal was, we believe,
driven by retail investors who had hoped for a more "exciting"
target. We were happy to take advantage of this sell-off to acquire
an indirect position in a high-quality business with attractive
secular growth prospects at what we believed to be a compelling
valuation.
However, subsequent to our purchase of PSTH, it was announced
that the UMG transaction had been blocked by US regulators who had
objected to the deal structure. As a result, the UMG purchase
agreement was re-assigned from PSTH to London-listed Pershing
Square Holdings (PSH). This meant that we still gained exposure to
UMG via our long-standing position in PSH, albeit in a less
concentrated fashion than would have been achieved had the original
deal terms stood. UMG's share price performance since listing has
confirmed our view that Pershing Square's acquisition price was
highly advantaged, with the shares up by +24% on a cost basis
(which includes legal costs). Nevertheless, PSTH's shares
understandably declined on the news of the broken deal.
Although PSTH trading below its cash balance offers an
attractive risk-adjusted return given the free optionality, we are
not short of other alternative homes (both in new and existing
investments) for the capital that offer higher prospective absolute
returns. Initially, we replaced our direct exposure to PSTH with a
total return swap with a well-known investment bank at a modest
cost of financing to free up capital (only 30% margin was
required). We then took the decision subsequent to the financial
year-end to exit the position entirely to fully release the
capital.
ASSOCIATED BRITISH FOODS (-0.47%)(3)
Classification: Holding Company
% of nest assets(1) : 2.5%
Discount: -43%
% of investee company: 0.2%
Total return on position FY21 (local)(2) : -13.0%
Total Return on position FY21 (GBP): -13.0%
Contribution (GBP):-47bps
ROI since date of initial purchase: -13.0%
Associated British Foods (ABF) is a UK conglomerate involved in
retailing, grocery, agriculture, sugar and ingredients. It owns
some of the best-recognised brands in UK food and retail, including
Primark, Twinings, Ovaltine, Jordans, Dorset, Ryvita, Patak's, Blue
Dragon, Silver Spoon, and Billington's. Primark is the
single-biggest division, accounting for almost half of sales in
2019 (i.e. prior to the pandemic). ABF is controlled by the Weston
family whose charitable trust, Wittington Investments, owns 55% of
the shares.
We initiated a position in ABF in November 2020, believing that
the share price at the time inadequately reflected Primark's
potential for a recovery following lockdowns. Since that date, we
have earned a total return of -13% on our position, reflecting the
market's growing pessimism over ABF's/Primark's future. We believe
that this pessimism is misplaced.
It is impossible to talk about ABF without talking about
Primark, being the largest single division. Its competitive
position is built on three core offerings: fashionable clothes, at
affordable prices, in great locations. In 2019 (the last year
before the pandemic), revenues were GBP8bn, and had grown at
mid-double-digits over a long period of time. Primark's low-cost,
high-volume approach drove significant scale, allowing it to
re-invest cost savings in lower costs for consumers - creating a
significant competitive edge and customer loyalty in the process,
allowing it to consistently earn attractive margins and high
returns on capital.
We believe that ABF's low rating currently reflects investors'
concerns over Primark. We address these issues below and present
what we hope are convincing counterarguments.
1. Online: Primark has a low online presence, effectively
operating just a "magazine-style" website and social media
accounts. This leaves it vulnerable to competitors that sell online
at a time when retail is increasingly going digital. In our view,
this is a legitimate concern, but overblown. Firstly, Primark sales
recovered strongly after lockdowns were eased, with third-quarter
like-for-like sales growing by +3% compared to 2019. Furthermore,
Primark is maintaining market share in retail in the UK (including
online), suggesting that it is able to compete effectively with its
online peers. It is worth noting that Primark has recently revamped
its website to offer more granular views of its range, as well as
details of whether particular stores stock particular items. In our
view, this may be a prelude to Primark initiating a
click-and-collect offering (although management have been reticent
to say too much on this topic). The introduction of a
click-and-collect offering would go a long way to easing investors'
minds about the future of the business
2. ESG: Consumers are becoming increasingly environmentally
conscious which, given Primark's fast fashion offering, may be a
concern for future growth. We recently listened in to Primark's own
dedicated "ESG Day", in which ABF and Primark management outlined
the steps that they were taking to, within the next decade, make
the business more sustainable, including better durability and
recyclability, sustainable agricultural practices, and insisting on
living wages for suppliers' workers. In our view, ABF's management
is inherently conservative, and would only outline goals that it
believes have a high probability of being achieved. Integrating ESG
into Primark potentially adds a fourth leg to the core offering -
great clothes, great prices, great locations and, now, ethically
sustainable.
3. Growth/expansion: Aside from the pandemic, Primark has had
some issues getting the format of its stores right when expanding
into markets such as the US and Germany. In our view, these issues
have been settled, and Primark's growth trajectory in the US and
Europe looks very promising and has years of runway ahead of it.
The total store network numbers some 400 locations, compared to
larger peers whose stores in Europe and the US number in the
thousands.
We estimate that, using reasonably conservative inputs, the
market is implicitly valuing ABF on 5-6x operating profits, which
we believe is a remarkable price for a business with a significant
competitive advantage and a large runway of growth ahead of it.
Outside of Primark, ABF has many other attractive
characteristics. The other four divisions are of good-to-excellent
quality, providing growing cash flows without requiring additional
capital and earning attractive returns on capital. The presence of
the Weston family is also beneficial, providing a long-term vision
for the group. We have been encouraged in our dialogue with members
of management to hear them repeatedly emphasise the importance of
thinking long-term, and undertaking business in a sustainable,
ethical manner.
Overall, we are excited to gain exposure to a world-class stable
of businesses, led by a strong founding family, at a discount of
over 40%.
OUTLOOK
The intertwined themes of inflation, interest rates and growth
continue to dominate investor thinking and drive markets. The
optimism that characterised the start of the year has subsided;
hopes of reflation have slid to fears of potential stagflation.
Concerns about China's regulatory environment and possible
contagion from the Evergrande property crisis lurk in the
background as potential risks. Yet, markets continue to grind
higher, as the successful global vaccine roll-out and accommodative
monetary policy conditions continue. In an environment such as this
we believe it makes sense to increase the level of portfolio
concentration to reflect our most attractive and highest conviction
ideas. We remain confident in the outlook for a portfolio of
attractive quality assets trading at lowly valuations, as indicated
by the 29% portfolio weighted average discount.
Joe Bauernfreund
Chief Executive Officer
Asset Value Investors Limited
8 November 2021
(1) For definitions, see Glossary below(.)
(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 below for
further details.
DIRECTORS
Susan Noble - Independent Non-Executive Chairman
Nigel Rich CBE, FCA - Senior Independent Non-Executive
Director
Calum Thomson FCA - Independent Non-Executive Director, Chairman
of the Audit Committee
Anja Balfour - Independent Non-Executive Director
Graham Kitchen - Independent Non-Executive Director
Neil Galloway - Independent Non-Executive Director
All Directors are non-executive and independent of the
Investment Manager.
EXTRACTS FROM THE REPORT OF THE DIRECTORS
Investment Objective, Policy and Restrictions
The objective of the Company is to achieve capital growth
through a focused portfolio of investments, particularly in
companies whose shares stand at a discount to estimated underlying
net asset value.
Investments are principally in companies listed on recognised
stock exchanges in the UK and/or overseas, which may include
investment holding companies, investment trusts and other
companies, the share prices of which are assessed to be below their
estimated net asset value or intrinsic worth.
Although listed assets make up the bulk of the portfolio, the
Company may also invest in unlisted assets with the prior approval
of the Board.
The Company generally invests on a long-only basis but may hedge
exposures through the use of derivative instruments and may also
hedge its foreign currency exposures.
There are no geographic limits on exposure, as the Company
invests wherever it considers that there are opportunities for
capital growth. Risk is spread by investing in a number of
holdings, many of which themselves are diversified companies.
The Company will not invest in any holding that would represent
more than 15% of the value of its total investments at the time of
investment.
Potential investments falling within the scope of the Company's
investment objective will differ over the course of market cycles.
The number of holdings in the portfolio will vary depending upon
circumstances and opportunities within equity markets at any
particular time.
The Company is able to gear its assets through borrowings which
may vary substantially over time according to market conditions but
gearing will not exceed twice the nominal capital and reserves of
the Company.
Distribution Policy
Dividend Policy
The Company will ensure that its annual dividend each year will
be paid out of the profits available for distribution and will be
at least sufficient to enable it to qualify as an investment trust
under the Corporation Tax Act 2010. The Board may elect to pay a
special dividend if the Company has exceptional receipts from its
investments. The Company's primary objective is to seek returns
which may come from any combination of increases in the value of
underlying investments, a narrowing of discounts to underlying
asset value and distributions by investee companies.
The Board does not set an income target for the Investment
Manager.
Frequency of Dividend Payment
The Company will normally pay two dividends per year: an interim
dividend declared at the time that the half year results are
announced, and a final dividend declared at the time that the
annual results are announced.
The final dividend will be subject to shareholder approval at
the Annual General Meeting each year.
Buybacks
The Company may also distribute capital by means of share
buybacks when the Board believes that it is in the best interests
of shareholders to do so. Authority to buy back shares is sought
from shareholders at each Annual General Meeting.
Gearing Levels
The Company's Investment Policy, as disclosed above, permits a
significant level of gearing, as do the Company's Articles of
Association and the limits set under AIFMD (see the Company's
website https://www.aviglobal.co.uk).
Under normal market conditions, it is expected that the
portfolio will be fully invested, although net gearing levels may
fluctuate depending on the value of the Company's assets and
short-term movements in liquidity.
The Company's debt as a percentage of total equity as at 30
September 2021 was 11.7%. Long-term debt comprised three tranches
of Loan Notes, of GBP30m, EUR30m and EUR20m, and shorter-term debt,
a JPY12.0bn unsecured multi-currency revolving credit
liability.
Results and Dividends
The Company profit for the year was GBP299,563,000, which
included a profit of GBP14,289,000 attributable to revenue (2020:
loss of GBP1,970,000 which included a profit of GBP10,134,000
attributable to revenue). The profit for the year attributable to
revenue has been applied as follows:
GBP'000
-------------------------------------------------------- --------
Current year revenue available for dividends 14,289
-------------------------------------------------------- --------
Interim dividend of 6.0p per Ordinary Share paid on
2 July 2021 6,267
Recommended final dividend payable on 4 January 2022
to shareholders on the register as at 3 December 2021
(ex-dividend 2 December 2021):
- Final dividend of 10.50p per Ordinary Share 10,685*
-------------------------------------------------------- --------
16,952
-------------------------------------------------------- --------
* Based on shares in circulation on 8 November 2021.
Capital structure
The Company's capital structure comprises Ordinary Shares and
Loan Notes.
Ordinary Shares
At 30 September 2021, there were 116,003,133 (2020: 116,003,133)
Ordinary Shares of 10p each in issue, of which 13,889,808 (2020:
10,451,403) were held in treasury and therefore the total voting
rights attaching to Ordinary Shares in issue were 102,113,325.
Income entitlement
The profits of the Company (including accumulated revenue
reserves) available for distribution and resolved to be distributed
shall be distributed by way of interim, final and (where
applicable) special dividends among the holders of Ordinary Shares,
subject to the payment of interest to the holders of Loan
Notes.
Capital entitlement
After meeting the liabilities of the Company and the amounts due
to Loan Note holders on a winding-up, the surplus assets shall be
paid to the holders of Ordinary Shares and distributed among such
holders rateably according to the amounts paid up or credited as
paid up on their shares.
Voting entitlement
Each Ordinary shareholder is entitled to one vote on a show of
hands and, on a poll, to one vote for every Ordinary Share held.
The Notice of Meeting and Form of Proxy stipulate the deadlines for
the valid exercise of voting rights and, other than with regard to
Directors not being permitted to vote their shares on matters in
which they have an interest, there are no restrictions on the
voting rights of Ordinary Shares.
Transfers
There are no restrictions on the transfer of the Company's
shares other than a) transfers by Directors and Persons Discharging
Managerial Responsibilities and their connected persons during
closed periods under the Market Abuse Regulation or which may
constitute insider dealing, b) transfers to more than four joint
transferees and c) transfers of shares which are not fully paid up
or on which the Company has a lien provided that such would not
prohibit dealings taking place on an open and proper basis.
The Company is not aware of any agreements between shareholders
or any agreements or arrangements with shareholders which would
change in the event of a change of control of the Company.
Proposed Share Split
At this year's AGM Shareholders will vote on a proposal to
sub-divide each existing ordinary share into five new ordinary
shares. Please refer to the description of Resolution 11 in the
Directors' Report for further information.
Loan Notes
At 30 September 2021, there were in issue fixed rate 20 year
unsecured private placement notes (the 'Loan Notes'). The Loan
Notes were issued in the following tranches:
-- on 15 January 2016: GBP30m 4.184% Series A Sterling Unsecured
Loan Notes 2036
-- on 15 January 2016: EUR30m 3.249% Series B Euro Unsecured
Loan Notes 2036
-- on 1 November 2017: EUR20m 2.93% Euro Senior Unsecured Loan
Notes 2037
Income entitlement
Interest is payable half-yearly in each case at annual rates of
4.184% on the GBP30m Sterling Loan Notes, 3.249% on the EUR30m Euro
Loan Notes and 2.93% on the EUR20m Euro Senior Loan Notes.
Capital entitlement
The Loan Note holders are entitled to repayment of principal at
their par value and outstanding interest on the redemption date or,
if earlier, on the occurrence of an event of default. The
redemption dates are:
-- 15 January 2036 for the 4.184% Series A Sterling Unsecured
Loan Notes 2036
-- 15 January 2036 for the 3.249% Series B Euro Unsecured Loan
Notes 2036
-- 1 November 2037 for the 2.93% Euro Senior Unsecured Loan
Notes 2037
The Loan Notes are unsecured. If the Company is liquidated, the
Loan Notes are redeemable by the Company at a price which is the
higher of par and:
-- for the 4.184% Series A Sterling Unsecured Loan Notes 2036,
the price at which the Gross Redemption Yield on the date of
redemption is equivalent to the yield on a reference UK government
bond
-- for the 3.249% Series B Euro Unsecured Loan Notes 2036 and
for the 2.93% Euro Senior Unsecured Loan Notes 2037, the price at
which the Gross Redemption Yield on the date of redemption is
equivalent to the yield on a reference German government bond, in
each case together with interest accrued up to and including the
date of redemption.
The estimated fair values of the Loan Notes as at 30 September
2021 were Series A: GBP36.5m and Series B: GBP31.8m and Euro
Senior: GBP20.7m, being GBP6.6m, GBP6.1m and GBP3.6m respectively
above the amortised values excluding interest.
Had the Company been liquidated on 30 September 2021, the
redemption premium would have amounted to GBP16.5m over and above
the fair values.
Voting entitlement
The holders of the Loan Notes have no right to attend or to vote
at general meetings of the Company.
Debt Covenants
Under the terms of the Loan Notes, covenants require that the
net assets of the Company shall not be less than GBP300,000,000 and
total indebtedness shall not exceed 40% of net assets. The Company
also has a short-term JPY12bn multi-currency revolving credit
facility, the terms of which include covenants requiring that the
net assets shall not be less than GBP300m and the adjusted net
asset coverage to borrowings shall not be less than 4:1.
Management Arrangements
AVI, the Investment Manager, is the Company's appointed AIFM,
and is engaged under the terms of an Investment Management
Agreement ('IMA') dated 17 July 2014. The IMA is terminable by six
months' notice from either party, other than for "cause".
During the year under review, the Investment Manager was
entitled to an annual management fee of 0.70% of the net assets of
the Company, up to GBP1bn and 0.60% for that proportion of assets
above GBP1bn.
J.P. Morgan Europe Limited was appointed as Depositary under an
agreement with the Company and AVI dated 2 July 2014, and is paid a
fee on a sliding scale between 1.0 basis points and 1.95 basis
points based on the assets of the Company. The Depositary Agreement
is terminable on 90 calendar days' notice from either party.
JPMorgan Chase Bank, National Association, London Branch, has
been appointed as the Company's Custodian under an agreement dated
2 July 2014. The agreement will continue for so long as the
Depositary Agreement is in effect and will terminate automatically
upon termination of the Depositary Agreement, unless the parties
agree otherwise.
Link Company Matters Limited was appointed as corporate Company
Secretary on 1 April 2014. The current annual fee is GBP72,225,
which is subject to an annual RPI increase. The Agreement may be
terminated by either party on six months' written notice.
With the Board's consent, AVI has sub-contracted certain fund
administration services to Link Asset Services. The cost of these
sub-contracted services is borne by AVI from its own resources and
not by the Company.
Going Concern
The financial statements have been prepared on a going concern
basis and on the basis that approval as an investment trust company
will continue to be met.
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has adequate resources to continue in operational existence for a
period of at least 12 months from the date when these financial
statements were approved.
In making the assessment, the Directors have considered the
likely impacts of the current COVID-19 pandemic on the Company,
operations and the investment portfolio.
The Directors noted that the Company, with the current cash
balance and holding a portfolio of liquid listed investments, is
able to meet the obligations of the Company as they fall due. The
surplus cash plus borrowing facilities enables the Company to meet
any funding requirements and finance future additional investments.
The Company is a closed ended fund, where assets are not required
to be liquidated to meet day to day redemptions.
The Directors have completed stress tests assessing the impact
of changes in market value and income with associated cash flows.
In making this assessment, they have considered plausible downside
scenarios. These tests were driven by the possible effects of
continuation of the COVID-19 pandemic but, as an arithmetic
exercise, apply equally to any other set of circumstances in which
asset value and income are significantly impaired. The conclusion
was that in a plausible downside scenario the Company could
continue to meet its liabilities. Whilst the economic future is
uncertain, and the Directors believe that it is possible the
Company could experience reductions in income and/or market value,
the opinion of the Directors is that this should not be to a level
which would threaten the Company's ability to continue as a going
concern.
The Directors, the Manager and other service providers have put
in place contingency plans to minimise disruption. Furthermore, the
Directors are not aware of any material uncertainties that may cast
significant doubt on the Company's ability to continue as a going
concern, having taken into account the liquidity of the Company's
investment portfolio and the Company's financial position in
respect of its cash flows, borrowing facilities and investment
commitments (of which there are none of significance). Therefore,
the financial statements have been prepared on the going concern
basis.
Viability
The Directors consider viability as part of their continuing
programme of monitoring risk. The Directors have made a robust
assessment of the principal and emerging risks. The Directors
believe five years to be a reasonable time horizon to consider the
continuing viability of the Company, reflecting a balance between a
longer-term investment horizon and the inherent shorter-term
uncertainties within equity markets, although they do have due
regard to viability over the longer term and particularly to key
points outside this time frame, such as the due dates for the
repayment of long-term debt. The Company is an investment trust
whose portfolio is invested in readily realisable listed securities
and with some short-term cash deposits. The following facts support
the Directors' view of the viability of the Company:
-- In the year under review, expenses (including finance costs
and taxation) were adequately covered by investment income.
-- The Company has a liquid investment portfolio.
-- The Company has long-term debt of GBP30m and EUR30m which
both fall due for repayment in 2036 and EUR20m which falls due for
repayment in 2037. This debt was covered over 17 times as at the
end of September 2021 by the Company's total assets. The Directors
are of the view that, subject to unforeseen circumstances, the
Company will have sufficient resources to meet the costs of annual
interest and eventual repayment of principal on this debt.
-- The Company has short-term debt of JPY9,000m via an unsecured revolving credit facility.
The Company has a large margin of safety over the covenants on
its debt. The Company's viability depends on the global economy and
markets continuing to function. The Directors also consider the
possibility of a wide-ranging collapse in corporate earnings and/or
the market value of listed securities. To the latter point, it
should be borne in mind that a significant proportion of the
Company's expenses are in ad valorem investment management fees,
which would reduce if the market value of the Company's assets were
to fall.
In arriving at its conclusion, the Board has taken account of
the potential effects of the COVID-19 pandemic on the value of the
Company's assets, income from those assets and the ability of the
Company's key suppliers to maintain effective and efficient
operations. As set out in the Going Concern statement above, in
assessing the potential effects of the COVID-19 pandemic the
Directors have completed stress tests which included plausible
downside scenarios.
In order to maintain viability, the Company has a robust risk
control framework which, following guidelines from the FRC, has the
objectives of reducing the likelihood and impact of: poor judgement
in decision-making; risk-taking that exceeds the levels agreed by
the Board; human error; or control processes being deliberately
circumvented.
Taking the above into account, and the potential impact of the
principal and emerging risks as set out in the Annual Report, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due for a period of five years from the date of approval of this
Annual Report.
Approval
The Report of the Directors has been approved by the Board.
By Order of the Board
Link Company Matters Limited
Company Secretary
Statement of Directors' Responsibilities in respect of the
Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they are
required to prepare financial statements in accordance with
international accounting standards in conformity with the
requirements of 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 and of its profit and
loss for that period. In preparing the financial statements, the
Directors are required to:
-- select suitable accounting policies and apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The financial statements of the Company are published on the
Company's website at www.aviglobal.co.uk. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the company's website.
Legislation in the UK governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.
Responsibility statement of the Directors in Respect of the
Annual Financial Report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company together with a description of the principal risks and
uncertainties that the Company faces.
We consider the Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
Susan Noble
8 November 2021
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 30 September 2021
but is derived from those accounts. Statutory accounts for the year
ended 30 September 2021 will be delivered to the Registrar of
Companies in due course. The Auditors have reported on those
accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the Auditors drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditors' report can be found in the
Company's full Annual Report and Accounts on the Company's website
at https://www.aviglobal.co.uk.
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2021
2021 2021 2020 2020
Revenue Capital 2021 Revenue Capital 2020
return return Total return return Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----- -------- -------- ------- -------- -------- -------
Income
Investment income 2 20,376 27 20,403 15,157 - 15,157
Gains/(losses) on financial
assets and financial
liabilities held at fair
value 8 - 289,398 289,398 - (3,073) (3,073)
Exchange losses on currency
balances - 705 705 - (1,594) (1,594)
----------------------------- ----- -------- -------- ------- -------- -------- -------
20,376 290,130 310,506 15,157 (4,667) 10,490
Expenses
Investment management
fee 3 (2,138) (4,988) (7,126) (1,789) (4,173) (5,962)
Other expenses (including
irrecoverable VAT) 3 (1,735) - (1,735) (1,630) - (1,630)
----------------------------- ----- -------- -------- ------- -------- -------- -------
Profit/(loss) before
finance costs and taxation 16,503 285,142 301,645 11,738 (8,840) 2,898
Finance costs 4 (955) (2,248) (3,203) (913) (2,150) (3,063)
Exchange gains/(losses)
on loan revaluation 4 - 2,385 2,385 - (1,114) (1,114)
----------------------------- ----- -------- -------- ------- -------- -------- -------
Profit/(loss) before
taxation 15,548 285,279 300,827 10,825 (12,104) (1,279)
Taxation 5 (1,259) (5) (1,264) (691) - (691)
----------------------------- ----- -------- -------- ------- -------- -------- -------
Profit/(loss) for the
year 14,289 285,274 299,563 10,134 (12,104) (1,970)
----------------------------- ----- -------- -------- ------- -------- -------- -------
Earnings per Ordinary
Share 7 13.68p 273.10p 286.78p 9.36p (11.18p) (1.82p)
----------------------------- ----- -------- -------- ------- -------- -------- -------
The total column of this statement is the income statement of
the Company prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006. The supplementary revenue return and capital return columns
are presented in accordance with the Statement of Recommended
Practice issued by the Association of investment companies ('AIC
SORP').
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the period.
There is no other comprehensive income, and therefore the profit
for the year after tax is also the total comprehensive income.
The accompanying notes are an integral part of these financial
statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2021
Ordinary Capital
share redemption Share Capital Merger Revenue
capital reserve premium reserve* reserve reserve** Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- ----------- -------- --------- -------- ---------- ---------
For the year ended 30
September 2021
Balance as at 30 September
2020 11,600 7,335 28,078 764,245 41,406 30,941 883,605
Ordinary Shares bought
back and held in treasury - - - (32,638) - - (32,638)
Total comprehensive income
for the year - - - 285,274 - 14,289 299,563
Ordinary dividends paid
(see note 6) - - - - - (17,308) (17,308)
--------------------------- -------- ----------- -------- --------- -------- ---------- ---------
Balance as at 30 September
2021 11,600 7,335 28,078 1,016,881 41,406 27,922 1,133,222
--------------------------- -------- ----------- -------- --------- -------- ---------- ---------
For the year ended 30
September 2020
Balance as at 30 September
2019 11,600 7,335 28,078 807,421 41,406 43,101 938,941
Ordinary Shares bought
back and held in treasury - - - (31,072) - - (31,072)
Total comprehensive income
for the year - - - (12,104) - 10,134 (1,970)
Ordinary dividends paid
(see note 6) - - - - - (22,294) (22,294)
--------------------------- -------- ----------- -------- --------- -------- ---------- ---------
Balance as at 30 September
2020 11,600 7,335 28,078 764,245 41,406 30,941 883,605
--------------------------- -------- ----------- -------- --------- -------- ---------- ---------
* Within the balance of the capital reserve, GBP757,120,000
relates to realised gains (2020: GBP675,997,000) which under the
Articles of Association is distributable by way of dividend. The
remaining GBP259,761,000 relates to unrealised gains and losses on
financial instruments (2020: GBP88,247,000 ) and is
non-distributable.
** Revenue reserve is fully distributable by way of
dividend.
The accompanying notes are an integral part of these financial
statements.
BALANCE SHEET
as at 30 September 2021
2021 2020
Notes GBP'000 GBP'000
------------------------------------------- ----- ----------- -----------
Non-current assets
Investments held at fair value through
profit or loss 8 1,196,201 959,709
------------------------------------------- ----- ----------- -----------
1,196,201 959,709
Current assets
Other receivables 9 4,572 8,775
Cash and cash equivalents 68,418 31,596
------------------------------------------- ----- ----------- -----------
72,990 40,371
------------------------------------------- ----- ----------- -----------
Total assets 1,269,191 1,000,080
------------------------------------------- ----- ----------- -----------
Current liabilities
Total return swap liabilities 8, 10 (1,091) -
Revolving credit facility 10 (59,821) (39,314)
Other payables 10 (2,358) (2,097)
------------------------------------------- ----- ----------- -----------
(63,270) (41,411)
------------------------------------------- ----- ----------- -----------
Total assets less current liabilities 1,205,921 958,669
------------------------------------------- ----- ----------- -----------
Non-current liabilities
4.184% Series A Sterling Unsecured
Loan Notes 2036 11 (29,906) (29,899)
3.249% Series B Euro Unsecured Loan
Notes 2036 11 (25,715) (27,140)
2.93% Euro Senior Unsecured Loan Notes
2037 11 (17,078) (18,025)
------------------------------------------- ----- ----------- -----------
(72,699) (75,064)
------------------------------------------- ----- ----------- -----------
Net assets 1,133,222 833,605
------------------------------------------- ----- ----------- -----------
Equity attributable to equity shareholders
Ordinary share capital 12 11,600 11,600
Capital redemption reserve 7,335 7,335
Share premium 28,078 28,078
Capital reserve 1,016,881 764,245
Merger reserve 41,406 41,406
Revenue reserve 27,922 30,941
------------------------------------------- ----- ----------- -----------
Total equity 1,133,222 883,605
------------------------------------------- ----- ----------- -----------
Net asset value per Ordinary Share
- basic and diluted 13 1,109.77p 837.13p
------------------------------------------- ----- ----------- -----------
Number of shares in issue excluding
Treasury 12 102,113,325 105,551,730
------------------------------------------- ----- ----------- -----------
These financial statements were approved and authorised for
issue by the Board of AVI Global Trust plc on 8 November 2021 and
were signed on its behalf by:
Susan Noble
Chairman
The accompanying notes are an integral part of these financial
statements.
Registered in England & Wales No. 28203
STATEMENT OF CASH FLOWS
for the year ended 30 September 2021
2021 2020
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Reconciliation of profit/(loss) before
taxation to net cash inflow from operating
activities
Profit/(loss) before taxation 300,827 (1,279)
(Gains)/losses on investments held
at fair value through profit or loss (289,398) 3,073
(Increase)/decrease in other receivables (2,438) 1,441
Decrease in other payables (438) (158)
Taxation paid (1,138) (685)
Exchange (gains)/losses on Loan Notes
and revolving credit facility (5,304) 391
Amortisation of loan issue expenses 20 20
-------------------------------------------- --------- ---------
Net cash inflow from operating activities 2,131 2,803
-------------------------------------------- --------- ---------
Investing activities
Purchases of investments (655,244) (424,934)
Sales of investments 716,184 431,936
-------------------------------------------- --------- ---------
Cash inflow from investing activities 60,940 7,002
-------------------------------------------- --------- ---------
Financing activities
Dividends paid (17,308) (22,294)
Payments for Ordinary Shares bought
back and placed in treasury (32,371) (30,633)
Net drawdown of revolving credit facility 23,426 10,000
-------------------------------------------- --------- ---------
Cash outflow from financing activities (26,253) (42,927)
-------------------------------------------- --------- ---------
Increase/(decrease) in cash and cash
equivalents 36,818 (33,122)
-------------------------------------------- --------- ---------
Reconciliation of net cash flow movement
in funds:
Cash and cash equivalents at beginning
of year 31,596 64,725
Exchange rate movements 4 (7)
Increase/(decrease) in cash and cash
equivalents 36,818 (33,122)
-------------------------------------------- --------- ---------
Increase/(decrease) in net cash 36,822 (33,129)
-------------------------------------------- --------- ---------
Cash and cash equivalents at end of
year 68,418 31,596
-------------------------------------------- --------- ---------
The accompanying notes are an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
1. General information and accounting policies
AVI Global Trust plc is a company incorporated and registered in
England and Wales. The principal activity of the Company is that of
an investment trust company within the meaning of Sections
1158/1159 of the Corporation Tax Act 2010 and its investment
approach is detailed in the Strategic Report.
The Company's financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006. The financial
statements have also been prepared in accordance with the AIC SORP
for the financial statements of investment trust companies and
venture capital trusts.
Basis of preparation
The functional currency of the Company is Pounds Sterling
because this is the currency of the primary economic environment in
which the Company operates. The financial statements are also
presented in Pounds Sterling rounded to the nearest thousand,
except where otherwise indicated.
Going concern
The financial statements have been prepared on a going concern
basis and on the basis that approval as an investment trust company
will continue to be met.
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has adequate resources to continue in operational existence for a
period of at least 12 months from the date when these financial
statements were approved.
In making the assessment, the Directors have considered the
likely impacts of the current COVID-19 pandemic on the Company,
operations and the investment portfolio.
The Directors noted that the Company, with the current cash
balance and holding a portfolio of liquid listed investments, is
able to meet the obligations of the Company as they fall due. The
current cash balance plus available additional borrowing, through
the revolving credit facility, enables the Company to meet any
funding requirements and finance future additional investments. The
Company is a closed-ended fund, where assets are not required to be
liquidated to meet day-to-day redemptions. The Company is in a net
current asset position as at 30 September 2021.
The Directors have completed stress tests assessing the impact
of changes in market value and income with associated cash flows.
In making this assessment, they have considered plausible downside
scenarios. These tests were driven by the possible effects of
continuation of the COVID-19 pandemic but, as an arithmetic
exercise, apply equally to any other set of circumstances in which
asset value and income are significantly impaired. The conclusion
was that in a plausible downside scenario the Company could
continue to meet its liabilities. Whilst the economic future is
uncertain, and the Directors believe that it is possible the
Company could experience further reductions in income and/or market
value, the opinion of the Directors is that this should not be to a
level which would threaten the Company's ability to continue as a
going concern.
The Directors, the Manager and other service providers have put
in place contingency plans to minimise disruption. Furthermore, the
Directors are not aware of any material uncertainties that may cast
significant doubt on the Company's ability to continue as a going
concern, having taken into account the liquidity of the Company's
investment portfolio and the Company's financial position in
respect of its cash flows, borrowing facilities and investment
commitments (of which there are none of significance). Therefore,
the financial statements have been prepared on the going concern
basis.
Segmental reporting
The Directors are of the opinion that the Company is engaged in
a single segment of business, being investment business. The
Company primarily invests in companies listed in the UK and other
recognised international exchanges.
Accounting developments
In the year under review, the Company has applied amendments to
IFRS issued by the IASB. These include annual improvements to IFRS,
changes in standards, legislative and regulatory amendments,
changes in disclosure and presentation requirements. The adoption
of the changes to accounting standards has had no material impact
on these or prior years' financial statements.
There are amendments to IAS/IFRS that will apply from 1 October
2021 as follows:
-- Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to IFRS 9, IAS 39 and IFRS 7);
-- IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies; Changes in Accounting Estimates and Errors
(Amendment - Disclosure initiative - Definition of Material);
and
-- Revisions to the Conceptual Framework for Financial Reporting.
The adoption of the changes to accounting standards has had no
material impact on these, or prior years', financial
statements.
The Directors do not anticipate that the adoption of these
standards will have a material impact on the financial statements
as presented.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements in conformity with
international accounting standards requires management to make
judgements, estimates and assumptions that affect the application
of policies and the reported amounts in the Balance Sheet, the
Statement of Comprehensive Income and the disclosure of contingent
assets and liabilities at the date of the financial statements. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
period if the revision affects both current and future periods.
There were no significant judgements or estimates which had a
significant impact on these financial statements.
Investments
The Company's business is investing in financial assets with a
view to capital growth. This portfolio of financial assets is
managed and its performance evaluated on a fair value basis in
accordance with the documented investment strategy and information
is provided internally on that basis to the Company's Board of
Directors.
The investments held by the Company are designated "at fair
value through profit or loss". All gains and losses are allocated
to the capital return within the Statement of Comprehensive Income
as "Gains or losses on investments held at fair value through
profit or loss". Also included within this heading are transaction
costs in relation to the purchase or sale of investments. When a
purchase or sale is made under a contract, the terms of which
require delivery within the timeframe of the relevant market, the
investments concerned are recognised or derecognised on the trade
date.
All investments are designated upon initial recognition as held
at fair value through profit or loss, and are measured at
subsequent reporting dates at fair value, which is either the bid
price or closing price for Stock Exchange Electronic Trading
Service - quotes and crosses ('SETSqx'). The Company derecognises a
financial asset only when the contractual rights to the cash flows
from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset
to another entity. On derecognition of a financial asset, the
difference between the asset's carrying amount and the sum of the
consideration received and receivable and the cumulative gain or
loss that had been accumulated is recognised in profit or loss.
Fair values for unquoted investments, or for investments for
which the market is inactive, are established by using various
valuation techniques in accordance with the International Private
Equity and Venture Capital (the 'IPEV') guidelines. These may
include recent arm's length market transactions, the current fair
value of another instrument that is substantially the same,
discounted cash flow analysis, option pricing models and reference
to similar quoted companies. Where there is a valuation technique
commonly used by market participants to price the instrument and
that technique has been demonstrated to provide reliable estimates
of prices obtained in actual market transactions, that technique is
utilised. Where no reliable fair value can be estimated for such
instruments, they are carried at cost. These are constantly
monitored for value. The values, if any, are approved by the
Board.
All investments for which a fair value is measured or disclosed
in the financial statements are categorised within the fair value
hierarchy levels in note 14. A transfer between levels may result
from the date of an event or a change in circumstances.
Foreign currency
Transactions denominated in currencies other than Pounds
Sterling are recorded at the rates of exchange prevailing on the
date of the transaction. Items which are denominated in foreign
currencies are translated at the rates prevailing on the Balance
Sheet date. Any gain or loss arising from a change in exchange rate
subsequent to the date of the transaction is included as an
exchange gain or loss in the capital reserve or the revenue account
depending on whether the gain or loss is capital or revenue in
nature.
Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash
equivalents are short-term, highly liquid investments and money
market funds, that are readily convertible to known amounts of cash
and which are subject to insignificant risk of changes in
value.
For the purposes of the Statement of Cash Flows, cash and cash
equivalents consist of cash and cash equivalents as defined above,
net of outstanding bank overdrafts when applicable.
Other receivables and payables
Trade receivables, trade payables and short-term borrowings are
measured at amortised cost and balances revalued for exchange rate
movements.
Revolving credit facility
The revolving credit facility is recognised at amortised cost
and revalued for exchange rate movements.
Income
Dividends receivable on quoted equity shares are taken to
revenue on an ex-dividend basis. Dividends receivable on equity
shares where no ex-dividend date is quoted are brought into account
when the Company's right to receive payment is established. Fixed
returns on non-equity shares are recognised on a time-apportioned
basis. Dividends from overseas companies are shown gross of any
withholding taxes which are disclosed separately in the Statement
of Comprehensive Income.
Special dividends are taken to the revenue or capital account
depending on their nature. In deciding whether a dividend should be
regarded as a capital or revenue receipt, the Board reviews all
relevant information as to the reasons for the sources of the
dividend on a case-by-case basis.
When the Company has elected to receive scrip dividends in the
form of additional shares rather than in cash, the amount of the
cash dividend forgone is recognised as income. Any excess in the
value of the cash dividend is recognised in the capital column.
Underwriting income is recognised upon completion of
underwriting of a share issue. Where shares are received rather
than cash, the value of the cash foregone is recognised as income.
Any excess in the value of the underwriting is recognised in the
capital column.
All other income is accounted on a time-apportioned accruals
basis and is recognised in the Statement of Comprehensive
Income.
Expenses and finance costs
All expenses are accounted on an accruals basis. On the basis of
the Board's expected long-term split of total returns in the form
of capital and revenue returns of 70% and 30% respectively, the
Company charges 70% of its management fee and finance costs to
capital.
Expenses incurred directly in relation to arranging debt finance
are amortised over the term of the finance.
Expenses incurred in buybacks of shares to be held in treasury
are charged to the capital reserve through the Statement of Changes
in Equity.
Taxation
The charge for taxation is based on the net revenue for the year
and takes into account taxation deferred or accelerated because of
temporary differences between the treatment of certain items for
accounting and taxation purposes.
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and
their carrying amount for financial reporting purposes at the
reporting date. Deferred tax assets are only recognised if it is
considered more likely than not that there will be suitable profits
from which the future reversal of timing differences can be
deducted. In line with the recommendations of the SORP, the
allocation method used to calculate the tax relief on expenses
charged to capital is the "marginal" basis. Under this basis, if
taxable income is capable of being offset entirely by expenses
charged through the revenue account, then no tax relief is
transferred to the capital account.
Dividends payable to shareholders
Dividends to shareholders are recognised as a liability in the
period in which they are paid or approved in general meetings and
are taken to the Statement of Changes in Equity. Dividends declared
and approved by the Company after the Balance Sheet date have not
been recognised as a liability of the Company at the Balance Sheet
date.
Non-current liabilities: Loan Notes
The non-current liabilities are valued at amortised cost. Costs
in relation to arranging the debt finance have been capitalised and
are amortised over the term of the finance. Hence, amortised cost
is the par value less the amortised costs of issue.
The Euro Loan Notes are shown at amortised cost with the
exchange difference on the principal amounts to be repaid
reflected. Any gain or loss arising from changes in the exchange
rate between Euro and Sterling is included in the capital reserves
and shown in the capital column of the Statement of Comprehensive
Income.
Further details of the non-current liabilities are set out in
note 11.
Capital redemption reserve
The capital redemption reserve represents non-distributable
reserves that arise from the purchase and cancellation of
shares.
Share premium
The share premium account represents the accumulated premium
paid for shares issued in previous periods above their nominal
value less issue expenses. This is a reserve forming part of the
non-distributable reserves. The following items are taken to this
reserve:
-- costs associated with the issue of equity; and
-- premium on the issue of shares.
Capital reserve
The following are taken to the capital reserve through the
capital column in the Statement of Comprehensive Income:
Capital reserve - other, forming part of the distributable
reserves:
-- gains and losses on the disposal of investments;
-- amortisation of issue expenses of Loan Notes;
-- costs of share buybacks;
-- exchange differences of a capital nature; and
-- expenses, together with the related taxation effect,
allocated to this reserve in accordance with the above
policies.
Capital reserve - investment holding gains, not
distributable:
-- increase and decrease in the valuation of investments held at the year end.
Merger reserve
The merger reserve represents the share premium on shares issued
on the acquisition of Selective Assets Trust plc on 13 October 1995
and is not distributable.
Revenue reserve
The revenue reserve represents the surplus of accumulated
profits and is distributable by way of dividends.
2. Income
2021 2020
GBP'000 GBP'000
-------------------------------------------- -------------------- --------------------
Income from investments
UK dividends 255 -
UK REIT dividends 390 -
Overseas dividends 20,045 14,598
Total return swap dividends* - 369
-------------------------------------------- -------------------- --------------------
20,690 14,967
Other income
Deposit interest 12 264
Total return swap interest* (200) (481)
Underwriting commission 1 426
Interest on French withholding tax received - 1
Exchange losses on receipt of income** (127) (20)
-------------------------------------------- -------------------- ----------------------
20,376 15,157
-------------------------------------------- -------------------- ----------------------
20,376 15,157
-------------------------------------------- -------------------- ----------------------
Capital dividend*** 27 -
20,403 15,157
-------------------------------------------- -------------------- ----------------------
* Net income (paid)/received on underlying holdings in total
return swaps.
** Exchange movements arise from ex-dividend date to payment
date.
*** Dividend received is attributed to a distribution of
capital.
3. Investment management fee and other expenses
2021 2021 2020 2020
Revenue Capital 2021 Revenue Capital 2020
return return Total return return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ------- ------- ------- ------- ------- -------
Management fee 2,138 4,988 7,126 1,789 4,173 5,962
------------------------------- ------- ------- ------- ------- ------- -------
Other expenses:
Directors' emoluments - fees 171 - 171 169 - 169
Auditor's remuneration - audit 40 - 40 35 - 35
Marketing 411 - 411 459 - 459
Printing and postage costs 49 - 49 65 - 65
Registrar fees 91 - 91 80 - 80
Custodian fees 272 - 272 185 - 185
Depositary fees 140 - 140 120 - 120
Advisory and professional fees 343 - 343 249 - 249
Costs associated with dividend
receipts 5 - 5 60 - 60
Irrecoverable VAT 76 - 76 85 - 85
Regulatory fees 76 - 76 72 - 72
Directors' insurances & other
expenses 61 - 61 51 - 51
------------------------------- ------- ------- ------- ------- ------- -------
1,735 - 1,735 1,630 - 1,630
------------------------------- ------- ------- ------- ------- ------- -------
For the year ended 30 September 2021, the fee calculated in
accordance with the IMA amounted to 0.7% of net assets for assets
up to GBP1bn and 0.6% of net assets over GBP1bn (2020: 0.7%)
calculated on a quarterly basis.
Details of the IMA and fees paid to the Investment Manager are
set out in the Report of the Directors.
4. Finance costs
2021 2021 2020 2020
Revenue Capital 2021 Revenue Capital 2020
return return Total return return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- -------- -------- --------
Loan, debenture and revolving
credit facility interest
4.184% Series A Sterling
Unsecured Loan Notes 2036 376 879 1,255 376 879 1,255
3.249% Series B Euro Unsecured
Loan Notes 2036 252 588 840 259 604 863
2.93% Euro Senior Unsecured
Loan Notes 2037 152 355 507 154 359 513
Revolving credit facility 139 325 464 93 217 310
-------------------------------- -------- -------- -------- -------- -------- --------
919 2,147 3,066 882 2,059 2,941
Amortisation
4.184% Series A Sterling
Unsecured Loan Notes 2036 - 7 7 - 7 7
3.249% Series B Euro Unsecured
Loan Notes 2036 - 5 5 - 5 5
2.93% Euro Senior Unsecured
Loan Notes 2037 - 7 7 - 7 7
JPY revolving credit facility 31 71 102 31 72 103
-------------------------------- -------- -------- -------- -------- -------- --------
31 90 121 31 91 122
Bank interest
Bank debit interest 5 11 16 - - -
-------------------------------- -------- -------- -------- -------- -------- --------
Total 955 2,248 3,203 913 2,150 3,063
-------------------------------- -------- -------- -------- -------- -------- --------
Exchange gains/(losses)
on Loan Notes* - 2,385 2,385 - (1,114) (1,114)
-------------------------------- -------- -------- -------- -------- -------- --------
* Revaluation of Euro Loan Notes.
5. Taxation
Year ended 30 September Year ended 30 September
2021 2020
---------------------------- ----------------------------
Revenue Capital Revenue Capital
return return Total return return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- -------- -------- --------
Analysis of charge for the
year
Overseas tax not recoverable* 1,259 5 1,264 691 - 691
------------------------------- -------- -------- -------- -------- -------- --------
Tax cost for the year 1,259 5 1,264 691 - 691
------------------------------- -------- -------- -------- -------- -------- --------
* Tax deducted on payment of overseas dividends by local tax
authorities.
The tax assessed for the year is the standard rate of
corporation tax in the United Kingdom of 19%. The differences are
explained below:
Year ended 30 September Year ended 30 September
2021 2020
------------------------------- -------------------------------
Revenue Capital Revenue Capital
return return Total return return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------- --------- --------- --------- --------- --------- ---------
Return on ordinary activities
after interest payable but
before appropriations 15,548 285,279 300,827 10,825 (12,104) (1,279)
Theoretical tax at UK corporation
tax rate of 19% 2,954 54,202 57,156 2,057 (2,300) (243)
Effects of the non-taxable
items:
- UK dividend income (48) - (48) - - -
- Tax-exempt overseas investment
income (3,785) (5) (3,790) (2,770) - (2,770)
* (Losses)/gains on investments, exchange gain
s on
capital items and movement of fair value or
derivative financial instruments - (55,572) (55,572) - 1,098 1,098
- Excess management expenses
carried forward 615 1,375 1,990 540 1,202 1,742
- Corporate interest restriction 264 - 264 173 - 173
- Overseas tax not recoverable 1,259 5 1,264 691 - 691
---------------------------------------------------- --------- --------- --------- --------- --------- ---------
Tax credit for the year 1,259 5 5 691 - 691
---------------------------------------------------- --------- --------- --------- --------- --------- ---------
At 30 September 2021, the Company had unrelieved management
expenses of GBP98,322,000 (30 September 2020: GBP87,852,000) that
are available to offset future taxable revenue. On 3 March 2021,
the UK Government announced its intention to increase the rate of
UK corporation tax from 19% to 25% from 1 April 2023 and this was
subsequently substantively enacted on 24 May 2021. The potential
deferred tax asset has been calculated using a corporation tax rate
of 25% (2020: 19%). A deferred tax asset of GBP24,580,500 has not
been recognised because the Company is not expected to generate
sufficient taxable income in future periods in excess of the
available deductible expenses and accordingly, the Company is
unlikely to be able to reduce future tax liabilities through the
use of existing surplus losses.
Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company
meets (and intends to continue for the foreseeable future to meet)
the conditions for approval as an investment trust company.
6. Dividends
2021 2020
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Amounts recognised as distributions to equity holders
in the year:
Final dividend for the year ended 30 September 2020
of 10.50p (2019: 14.50p) per Ordinary Share 11,041 15,855
Interim dividend for the year ended 30 September 2021
of 6.00p (2020: 6.00p) per Ordinary Share 6,267 6,439
------------------------------------------------------- -------- --------
17,308 22,294
------------------------------------------------------- -------- --------
Set out below are the interim and final dividends paid or
proposed on Ordinary Shares in respect of the financial year, which
is the basis on which the requirements of Section 1159 of the
Corporation Tax Act 2010 are considered.
2021 2020
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Interim dividend for the year ended 30 September 2021
of 6.00p (2020: 6.00p) per Ordinary Share 6,267 6,439
Proposed final dividend for the year ended 30 September
2021 of 10.50p (2020: 10.50p) per Ordinary Share 10,685* 11,041
--------------------------------------------------------- -------- --------
16,952 17,480
--------------------------------------------------------- -------- --------
* Based on shares in circulation on 8 November 2021.
7. Earnings per Ordinary Share
The earnings per Ordinary Share is based on Company net profit
after tax of GBP299,563,000 (2020: net loss of GBP1,970,000 ) and
on 104,458,669 (2020: 108,222,102) Ordinary Shares, being the
weighted average number of Ordinary Shares in issue (excluding
shares in treasury) during the year.
The earnings per Ordinary Share detailed above can be further
analysed between revenue and capital as follows:
30 September 2021 30 September 2020
Basic and diluted Revenue Capital Total Revenue Capital Total
------------------------- -------- -------- ------------ -------- --------- ------------
Net profit/(loss)
(GBP'000) 14,289 285,274 299,563 10,134 (12,104) (1,970)
Weighted average number
of Ordinary Shares 104,458,669 108,222,102
------------------------- -------- -------- ------------ -------- --------- ------------
Earnings per Ordinary
Share 13.68p 273.10p 286.78p 9.36p (11.18)p (1.82)p
------------------------- -------- -------- ------------ -------- --------- ------------
There are no dilutive instruments issued by the Company (2020:
none).
8. Investments held at fair value through profit or loss
30 September 30 September
2021 2020
GBP'000 GBP'000
----------------------------------------------------- ------------- -------------
Financial assets held at fair value
Opening book cost 865,047 852,421
Opening investment holding gains 94,662 121,208
----------------------------------------------------- ------------- -------------
Opening fair value 959,709 973,629
Movement in the year:
Purchases at cost:
Equities 655,676 424,886
Sales/Close - proceeds:
Equities and total return swaps (709,673) (435,733)
- realised gains on equity sales and close
of total return swaps 123,192 23,473
Increase/(decrease) in investment holding
gains 166,206 (26,546)
----------------------------------------------------- ------------- -------------
Closing fair value 1,195,110 959,709
----------------------------------------------------- ------------- -------------
Closing book cost 934,242 865,047
Closing investment holding gains 260,868 94,662
----------------------------------------------------- ------------- -------------
Closing fair value 1,195,110 959,709
----------------------------------------------------- ------------- -------------
Financial assets held at fair value
Equities 1,196,201 959,709
Total return swaps (1,091) -
----------------------------------------------------- ------------- -------------
1,195,110 959,709
----------------------------------------------------- ------------- -------------
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
--------------------- ------------- -------------
Transaction costs
Cost on acquisition 433 251
Cost on disposals 480 243
--------------------- ------------- -------------
913 494
--------------------- ------------- -------------
Analysis of capital gains
Gains on sales/close out of financial assets
based on historical cost 123,192 23,473
Movement in investment holding gains for
the year 166,206 (26,546)
---------------------------------------------- -------- ---------
Net gains on investments 289,398 (3,073)
---------------------------------------------- -------- ---------
The Company received GBP709,673,000 (2020: GBP435,733,000) from
investments sold in the year. The book cost of these investments
when they were purchased was GBP586,481,000 (2020: GBP412,260,000).
These investments have been revalued over time and until they were
sold any unrealised gains or losses were included in the fair value
of the investments.
9. Other receivables
2021 2020
GBP'000 GBP'000
-------------------------------- -------- --------
Sales for future settlement - 6,515
Tax recoverable 524 650
Prepayments and accrued income 4,008 1,585
VAT recoverable 40 25
-------------------------------- -------- --------
4,572 8,775
-------------------------------- -------- --------
Tax recoverable relates to withholding tax in a number of
countries, some of which is past due, but is in the process of
being reclaimed by the Custodian through local tax authorities and
also tax deducted on UK REIT dividends, which the Company expects
to receive in due course.
No other receivables are past due or impaired.
10. Current liabilities
2021 2020
GBP'000 GBP'000
--------------------------------- -------- --------
Total return swap 1,091 -
Revolving credit facility 59,821 39,314
Other payables
Purchases for future settlement 432 -
Amounts owed for share buybacks 710 443
Management fees - 488
Interest payable 856 797
Other payables 360 369
--------------------------------- -------- --------
Total other payables 2,358 2,097
--------------------------------- -------- --------
Total current liabilities 63,270 41,411
--------------------------------- -------- --------
Revolving credit facility
On 29 April 2019, the Company entered into an agreement with
Scotiabank Europe Plc for a JPY4.0bn (GBP27,700,000) unsecured
revolving credit facility (the 'facility') for a period of three
years.
The facility was increased to JPY9.0bn and converted to a multi
currency facility with drawings available in Japanese Yen, Pounds
Sterling, US Dollars and Euros on 5 March 2020 with an interest
rate of 0.75% over LIBOR on any drawn balances.
On 23 August 2021 the facility was further increased to
JPY12.0bn. The agreement was additionally novated in reference to
the relevant changes in interest calculations with the
discontinuation of LIBOR.
The interest chargeable will be the appropriate RFR plus the
additional margin:
-- Japanese 1.025% margin over the Tokyo unsecured overnight
Yen rate (TONAR);
-- Pounds Sterling 1.42% margin over SONIA (sterling overnight index
average);
-- US Dollars 1.25% margin above the secured overnight financing
rate (SOFR);
-- Euros 1.25% margin above the Euro short-term rate (EUR
STR).
Undrawn balances below JPY2.0bn are charged at 0.35% and any
undrawn portion above this is charged at 0.30%.
Under the terms of the facility, the covenant requires that the
net assets shall not be less than GBP300m and the adjusted net
asset coverage to borrowings shall not be less than 4:1.
The facility is shown at amortised cost and revalued for
exchange rate movements. Any gain or loss arising from changes in
exchange rates is included in the capital reserves and shown in the
capital column of the Statement of Comprehensive Income. Interest
costs are charged to capital and revenue in accordance with the
Company's accounting policies.
11. Non-current liabilities
2021 2020
GBP'000 GBP'000
------------------------------------------------ -------- --------
4.184% Series A Sterling Unsecured Loan Notes
2036 29,906 29,899
3.249% Series B Euro Unsecured Loan Notes 2036 25,715 27,140
2.93% Euro Senior Unsecured Loan Notes 2037 17,078 18,025
------------------------------------------------ -------- --------
Total 72,699 75,064
------------------------------------------------ -------- --------
The amortised costs of issue expenses are set out in note 4.
The fair values of the Loan Notes are set out in note 14.
The Company issued two Loan Notes on 15 January 2016:
GBP30,000,000 4.184% Series A Sterling Unsecured Loan Notes due 15 January 2036
EUR30,000,000 3.249% Series B Euro Unsecured Loan Notes due 15 January 2036
The Company issued further Loan Notes on 1 November 2017:
EUR20,000,000 2.93% Euro Senior Unsecured Loan Notes due 1 November 2037
Under the terms of the Loan Notes, the net assets of the Company
shall not be less than GBP300,000,000 and total indebtedness shall
not exceed 40% of net assets.
Further information on the Loan Notes is set out above.
12. Called-up share capital
Ordinary Shares of 10p
each
-------------------------
Nominal
Number of value
shares GBP'000
------------------------------------------------- -------------- ---------
Allotted, called up and fully paid: 116,003,133 11,600
------------------------------------------------- -------------- ---------
Treasury Shares:
Balance at beginning of year 10,451,403
Buyback of Ordinary Shares into treasury 3,438,405
Balance at end of year 13,889,808
Total Ordinary Share capital excluding Treasury
Shares 102,113,325
------------------------------------------------- --------------
During the year, 3,438,405 (2020: 4,573,938) Ordinary Shares
with a nominal value of GBP344,000 (2020: GBP457,000 ) and
representing 2.96% of the issued share capital, were bought back
and placed in treasury for an aggregate consideration of
GBP32,638,000 (2020: GBP31,072,000 ). No Ordinary Shares were
bought back for cancellation (2020: nil). No Ordinary Shares were
cancelled from treasury during the year (2020: nil).
The allotted, called up and fully paid shares at 30 September
2021 consisted of 116,003,133 Ordinary Shares.
13. Net asset value
The net asset value per Ordinary share and the net asset value
attributable to the Ordinary Shares at the year end are calculated
in accordance with their entitlements in the Articles of
Association and were as follows:
30 September 2021 30 September 2020
NAV per Net asset NAV per
Ordinary value attributable Ordinary Net asset
Share GBP'000 Share value attributable
Pence Pence GBP'000
------------------- ---------- -------------------- ---------- --------------------
Basic and diluted 1,109.77 1,133,222 837.13 883,605
------------------- ---------- -------------------- ---------- --------------------
Net asset value per Ordinary Share is based on net assets and on
102,113,325 Ordinary Shares (2020: 105,551,730 ), being the number
of Ordinary Shares in issue excluding Treasury Shares at the year
end.
14. Financial instruments and capital disclosures
Investment objective and policy
The investment objective of the Company is to achieve capital
growth through a focused portfolio of investments, particularly in
companies whose share prices stand at a discount to estimated
underlying net asset value.
The Company's investment objective and policy are detailed
above.
The Company's financial instruments comprise equity and
fixed-interest investments, cash balances, receivables, payables
and borrowings. The Company makes use of borrowings to achieve
improved performance in rising markets. The risk of borrowings may
be reduced by raising the level of cash balances or fixed-interest
investments held.
Risks
The risks identified arising from the financial instruments are
market risk (which comprises market price risk, interest rate risk
and foreign currency risk), liquidity risk and credit and
counterparty risk. The Company may also enter into derivative
transactions to manage risk.
The Board and Investment Manager consider and review the risks
inherent in managing the Company's assets which are detailed
below.
Market risk
Market risk arises mainly from uncertainty about future prices
of financial instruments used in the Company's business. It
represents the potential loss which the Company might suffer
through holding market positions by way of price movements,
interest rate movements and exchange rate movements. The Investment
Manager assesses the exposure to market risk when making each
investment decision and these risks are monitored by the Investment
Manager on a regular basis and the Board at quarterly meetings with
the Investment Manager.
Market price risk
Market price risk (i.e. changes in market prices other than
those arising from currency risk or interest rate risk) may affect
the value of investments.
The portfolio is managed with an awareness of the effects of
adverse price movements through detailed and continuing analysis
with the objective of maximising overall returns to shareholders.
The Company has experienced volatility in the fair value of
investments during recent years due to COVID-19 and Brexit. The
Company has used 20% to demonstrate the impact of a significant
reduction/increase in the fair value of the investments and the
impact upon the Company that might arise from future significant
events. If the fair value of the Company's investments at the year
end increased or decreased by 20%, then it would have had an impact
on the Company's capital return and equity of GBP239,022,000 (2020:
GBP191,941,000).
Foreign currency
The value of the Company's assets and the total return earned by
the Company's shareholders can be significantly affected by foreign
exchange rate movements as most of the Company's assets are
denominated in currencies other than Pounds Sterling, the currency
in which the Company's financial statements are prepared. Income
denominated in foreign currencies is converted to Pounds Sterling
upon receipt.
A 5% rise or decline of Sterling against foreign currency
denominated (i.e. non Pounds Sterling) assets and liabilities held
at the year end would have increased/decreased the net asset value
by GBP48,114,000 (2020: GBP40,307,000 ).
The currency exposure is as follows:
Currency risk
GBP EUR USD SEK JPY NOK CHF HKD INR RON Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30
September 2021
Other
receivables 487 252 1,496 - 1,472 - 269 596 - - 4,572
Cash and cash
equivalents 55,068 - 13,350 - - - - - - - 68,418
Other payables (1,269) (384) (66) - (639) - - - - - (2,358)
Total return
swaps - - (1,091) - - - - - - - (1,091)
4.184% Series
A Sterling
Unsecured
Loan Notes
2036 (29,906) - - - - - - - - - (29,906)
3.249% Series
B Euro
Unsecured
Loan Notes
2036 - (25,715) - - - - - - - - (25,715)
2.93% Euro
Senior
Unsecured
Loan Notes
2037 - (17,078) - - - - - - - - (17,078)
Revolving
credit
facility - - - - (59,821) - - - (59,821)
--------------- --------- --------- --------- --------- --------- --------- -------- -------- -------- -------- ----------
Currency
exposure on
net monetary
items 24,380 (42,925) 13,689 - (58,988) - 269 596 - - (62,979)
Investments
held at fair
value
through
profit or
loss -
equities 146,572 141,276 357,263 65,753 324,014 48,244 - 22,639 39,060 51,380 1,196,201
--------------- --------- --------- --------- --------- --------- --------- -------- -------- -------- -------- ----------
Total net
currency
exposure 170,952 98,351 370,952 65,753 265,026 48,244 269 23,235 39,060 51,380 1,133,222
--------------- --------- --------- --------- --------- --------- --------- -------- -------- -------- -------- ----------
This exposure is representative at the Balance Sheet date and
may not be representative of the year as a whole. The balances are
of the holding investment and may not represent the actual exposure
of the subsequent underlying investment.
GBP EUR USD SEK JPY NOK CHF HKD INR Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------- --------- --------- --------- --------- --------- -------- -------- -------- -------- ---------
At 30
September 2020
Other
receivables 102 168 147 - 7,439 197 285 437 - - 8,775
Cash and cash
equivalents 31,596 - - - - - - - - - 31,596
Other payables (1,534) (406) - - (157) - - - - - (2,097)
4.184% Series
A Sterling
Unsecured
Loan Notes
2036 (29,899) - - - - - - - - - (29,899)
3.249% Series
B Euro
Unsecured
Loan Notes
2036 - (27,140) - - - - - - - - (27,140)
2.93% Euro
Senior
Unsecured
Loan
Notes 2037 - (18,025) - - - - - - - - (18,025)
Revolving
credit
facility (10,000) - - - (29,314) - - - - - (39,314)
--------------- --------- --------- --------- --------- --------- --------- -------- -------- -------- -------- ---------
Currency
exposure on
net monetary
items (9,735) (45,403) 147 - (22,032) 197 285 437 - - (76,104)
Investments
held at fair
value
through
profit or
loss -
equities 87,196 108,687 301,093 95,681 285,793 20,287 - 20,035 25,350 15,587 959,709
Total net
currency
exposure 77,461 63,284 301,240 95,681 263,761 20,484 285 20,472 25,350 15,587 883,605
--------------- --------- --------- --------- --------- --------- --------- -------- -------- -------- -------- ---------
Interest rate risk
Interest rate movements may affect:
-- the fair value of investments in fixed-interest rate
securities;
-- the level of income receivable on cash deposits;
-- the interest payable on variable rate borrowings; and
-- the fair value of the Company's long-term debt.
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment decisions.
The Loan Notes issued by the Company pay a fixed rate of
interest and are carried in the Company's Balance Sheet at
amortised cost rather than at fair value. Hence, movements in
interest rates will not affect net asset values, as reported under
the Company's accounting policies, but may have an impact on the
Company's share price and discount/premium. The fair value of the
debt and its effect on the Company's assets is set out below.
The exposure at 30 September of financial assets and financial
liabilities to interest rate risk is shown by reference to floating
interest rates.
At At
30 September 30 September
2021 2020
GBP'000 GBP'000
-------------------------------------- -------------- --------------
Exposure to floating interest rates:
Cash and cash equivalents 68,418 31,596
JPY revolving credit facility (59,821) (39,314)
-------------------------------------- -------------- --------------
If the above level of cash was maintained for a year, a 1%
increase in interest rates would increase the revenue return and
net assets by GBP86,000 (2020: decrease by GBP77,000). Management
proactively manages cash balances. If there was a fall of 1% in
interest rates, it would potentially impact the Company by turning
positive interest to negative interest. The total effect would be a
revenue reduction/cost increase of GBP86,000 (2020: revenue
reduction/cost increase of GBP77,000).
30 September 2021 30 September 2020
----------------------- -----------------------
Book cost Fair value Book cost Fair value
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ---------- ----------- ---------- -----------
4.184% Series A Sterling Unsecured
Loan Notes 2036 29,906 36,519 29,899 38,677
3.249% Series B Euro Unsecured
Loan Notes 2036 25,715 31,779 27,140 34,826
2.93% Euro Senior Unsecured Loan
Notes 2037 17,078 20,700 18,025 22,779
------------------------------------ ---------- ----------- ---------- -----------
Total 72,699 88,998 75,064 96,282
------------------------------------ ---------- ----------- ---------- -----------
The impact of holding the Loan Notes at fair value would be to
reduce the Company's net assets by GBP16,299,000 (2020:
GBP21,218,000).
The fair value of the Company's Loan Notes at the year end was
GBP88,998,000 (2020: GBP96,282,000). The interest rates of the
non-current liabilities (Loan Notes) are fixed. A 1% increase in
market interest rates would be expected to decrease the fair value
of the non-current liabilities by approximately -GBP9.8m (2020:
GBP11.2m), all other factors being equal. A 1% decrease would
increase the fair values by GBP11.3m (2020: GBP13.0m).
Liquidity risk
The Company's assets mainly comprise readily realisable
securities which can be easily sold to meet funding commitments, if
necessary. Unlisted investments, if any, in the portfolio are
subject to liquidity risk. The risk is taken into account by the
Directors when arriving at their valuation of these items.
Liquidity risk is mitigated by the fact that the Company has
GBP68,418,000 (2020: GBP31,596,000) cash at bank, the assets are
readily realisable and further short-term flexibility is available
through the use of bank borrowings. The Company is a closed-ended
fund, assets do not need to be liquidated to meet redemptions, and
sufficient liquidity is maintained to meet obligations as they fall
due.
The remaining contractual payments on the Company's financial
liabilities at 30 September, based on the earliest date at which
payment can be required and current exchange rates at the Balance
Sheet date, were as follows:
In more than In more than In more than
1 2 3
year but not years but not years but not
In 1 year more than more than more than In more than
or less 2 years 3 years 10 years 10 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- --------- ------------- -------------- -------------- ------------ ---------
At 30 September 2021
4.184% Series A Sterling Unsecured
Loan Notes 2036 (1,255) (1,255) (1,255) (8,786) (17,355) (29,906)
3.249% Series B Euro Unsecured
Loan Notes 2036 (838) (838) (838) (5,865) (17,336) (25,715)
2.93% Euro Senior Unsecured Loan
Notes 2037 (504) (504) (504) (3,526) (12,040) (17,078)
Total return swap liabilities (1,091) - - - - (1,091)
Revolving credit facility (59,821) - - - - (59,821)
Other payables (2,358) - - - - (2,358)
----------------------------------- --------- ------------- -------------- -------------- ------------ ---------
(65,867) (2,597) (2,597) (18,177) (46,731) (135,969)
----------------------------------- --------- ------------- -------------- -------------- ------------ ---------
In more than In more than
1 In more than 2 3
year but not years but not years but not
In 1 year more than more than more than In more than
or less 2 years 3 years 10 years 10 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- --------- ------------- -------------- -------------- ------------ ---------
At 30 September 2020
4.184% Series A Sterling Unsecured
Loan Notes 2036 (1,255) (1,255) (1,255) (8,786) (17,348) (29,899)
3.249% Series B Euro Unsecured
Loan Notes 2036 (884) (884) (884) (6,190) (18,298) (27,140)
2.93% Euro Senior Unsecured Loan
Notes 2037 (532) (532) (532) (3,721) (12,708) (18,025)
Revolving credit facility (39,314) - - - - (39,314)
Other payables (2,097) -- - - - (2,097)
----------------------------------- --------- ------------- -------------- -------------- ------------ ---------
(44,082) (2,671) (2,671) (18,697) (48,354) (116,475)
----------------------------------- --------- ------------- -------------- -------------- ------------ ---------
Credit risk
Credit risk is mitigated by diversifying the counterparties
through which the Investment Manager conducts investment
transactions. The credit standing of all counterparties is reviewed
periodically, with limits set on amounts due from any one
counterparty. As at the year end cash is held with JP Morgan (A2*)
and Morgan Stanley in the Liquidity Fund (AAA*).
The total credit exposure represents the carrying value of
fixed-income investments, cash and receivable balances and totals
GBP72,990,000 (2020: GBP40,371,000).
Fair values of financial assets and financial liabilities
Valuation of financial instruments
The Company measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements. Categorisation within the hierarchy has
been determined on the basis of the lowest level input that is
significant to the fair value measurement of the relevant assets as
follows:
-- Level 1 - valued using quoted prices unadjusted in active
markets for identical assets or liabilities.
-- Level 2 - valued by reference to valuation techniques using
observable inputs for the asset or liability other than quoted
prices included within Level 1.
-- Level 3 - valued by reference to valuation techniques using
inputs that are not based on observable market data for the asset
or liability.
The tables below set out fair value measurements of financial
instruments as at the year end, by the level in the fair value
hierarchy into which the fair value measurement is categorised.
Financial assets at fair value through profit Level Level
or loss at 30 September 2021 Level 1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- --------- ------- ------- ---------
Equity investments 1,193,120 - 3,081 1,196,201
--------- ------- ------- ---------
1,193,120 - 3,081 1,196,201
Financial assets at fair value through profit Level Level
or loss at 30 September 2020 Level 1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ------- -------
Equity investments 951,491 5,602 2,616 959,709
----------------------------------------------
951,491 5,602 2,616 959,709
The valuation of Level 2 equity investments is determined using
the average of independent broker traded prices available in the
market. The valuation techniques used by the Company are explained
in the accounting policies note above.
The fair value of the total return swaps was derived by using
the market price of the underlying instruments and exchange rates
and therefore would be categorised as Level 2.
Fair Value of Level 3 investments
30 September 30 September
2021 2020
GBP'000 GBP'000
--------------------------------------------- ------------ ------------
Opening fair value of investments 2,616 -
Transfer from Level 1 to Level 3 in the year 394 2,616
Sales - proceeds (616) -
Realised loss on equity sales (24) -
Movement in investment holding gains 711 -
--------------------------------------------- ------------ ------------
Closing fair value of investments 3,081 2,616
--------------------------------------------- ------------ ------------
The fair value of the Level 3 investment is derived from the net
asset value less the average discount prior to delisting.
Financial liabilities
Valuation of Loan Notes
The Company's Loan Notes are measured at amortised cost, with
the fair values set out below. Other financial assets and
liabilities of the Company are carried in the Balance Sheet at an
approximation to their fair value.
At 30 September At 30 September
2021 2020
------------------------ ------------------------
Book value Fair value Book value Fair value
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----------- ----------- ----------- -----------
4.184% Series A Sterling Unsecured
Loan Notes 2036 (29,906) (36,519) (29,899) (38,677)
3.249% Series B Euro Unsecured
Loan Notes 2036 (25,715) (31,779) (27,140) (34,826)
2.93% Euro Senior Unsecured Loan
Notes 2037 (17,078) (20,700) (18,025) (22,779)
Total (72,699) (88,998) (75,064) (96,282)
------------------------------------ ----------- ----------- ----------- -----------
There is no publicly available price for the Company's Loan
Notes. Their fair market value has been derived by calculating the
relative premium (or discount) of the loan versus the publicly
available market price of relevant reference market instruments and
exchange rates. As this price is derived by a model, using
observable inputs, it would be categorised as Level 2 under the
fair value hierarchy. The fair value of the total return swaps is
derived using the market price of the underlying instruments and
exchange rates and therefore would be categorised as Level 2.
The financial liabilities in the table below are shown at fair
value, being the amount at which the liability may be transferred
in an orderly transaction between market participants. The costs of
early redemption of the Loan Notes are set in the Glossary.
Financial liabilities at 30 September Total
2021 Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ------- -------- ------- --------
Loan Notes - (88,998) - (88,998)
Total return swap liabilities - (1,091) - (1,091)
-------------------------------------- ------- -------- ------- --------
- (90,089) - (90,089)
-------------------------------------- ------- -------- ------- --------
Financial liabilities at 30 September Total
2020 Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ------- -------- ------- --------
Loan Notes - (96,282) - (96,282)
-------------------------------------- ------- -------- ------- --------
- (96,282) - (96,282)
-------------------------------------- ------- -------- ------- --------
Capital management policies and procedures
The structure of the Company's capital is described in the
Annual Report and details of the Company's reserves are shown in
the Statement of Changes in Equity.
The Company's capital management objectives are:
-- to ensure that it will be able to continue as a going concern;
-- to achieve capital growth through a focused portfolio of
investments, particularly in companies whose share prices stand at
a discount to estimated underlying net asset value, through an
appropriate balance of equity capital and debt; and
-- to maximise the return to shareholders while maintaining a
capital base to allow the Company to operate effectively and meet
obligations as they fall due.
The Board, with the assistance of the Investment Manager,
regularly monitors and reviews the broad structure of the Company's
capital on an ongoing basis. These reviews include:
-- the level of gearing, which takes account of the Company's
position and the Investment Manager's views on the market; and
-- the extent to which revenue in excess of that which is
required to be distributed should be retained.
The Company's objectives, policies and processes for managing
capital are unchanged from last year.
The Company is subject to externally imposed capital
requirements:
a) as a public company, the Company is required to have a
minimum share capital of GBP50,000; and
b) in accordance with the provisions of Sections 832 and 833 of
the Companies Act 2006, the Company, as an investment company:
i) is only able to make a dividend distribution to the extent
that the assets of the Company are equal to at least one and a half
times its liabilities after the dividend payment has been made;
and
ii) is required to make a dividend distribution with respect to
each accounting year such that it does not retain more than 15% of
the income that it derives from shares and securities in that
year.
These requirements are unchanged since last year and the Company
has complied with them at all times.
15. Derivatives
The Company may use a variety of derivative contracts, including
total return swaps, to enable it to gain long and short exposure to
individual securities. Derivatives are valued by reference to the
underlying market value of the corresponding security.
At At
30 September 30 September
2021 2020
GBP'000 GBP'000
------------------------- -------------- --------------
Total return swaps
Current assets - -
Current liabilities (1,091) -
------------------------- -------------- --------------
Net value of derivatives (1,091) -
------------------------- -------------- --------------
The gross positive exposure on total return swaps as at 30
September 2021 was GBP38,396,000 (30 September 2020: GBPnil) and
the total negative exposure of total return swaps was GBP39,487,000
(30 September 2020: GBPnil). The liabilities are secured against
assets held with Jefferies Hoare Govett (the 'prime broker'). The
collateral held as at 30 September 2021 was GBP13,349,000 (30
September 2020: GBPnil), which is included in cash and cash
equivalents in the Balance Sheet.
16. Contingencies, guarantees and financial commitments
At 30 September 2021, the Company had GBPnil financial
commitments (2020: GBPnil).
At 30 September 2021, the Company had GBPnil contingent
liability in respect of any investments carrying an obligation for
future subscription or underwriting commitments (2020: GBPnil).
17. Related party transactions and transactions with the
Investment Manager
Fees paid to the Company's Directors are disclosed in the Report
on Remuneration Implementation in the full Annual Report. At the
year end, GBPnil was outstanding due to Directors (2020:
GBPnil).
The transaction pursuant to the IMA with AVI is set out in the
Report of the Directors. Management fees for the year amounted to
GBP7,126,000 (2020: GBP5,962,000 ).
As at the year end, the following amounts were outstanding in
respect of management fees: GBPnil (2020: GBP488,000).
18. Post balance sheet events
Since the year end, the Company has bought back 350,551Ordinary
Shares with a nominal value of GBP35,055 at a total cost of
GBP3,554,000, which have been placed in treasury.
GLOSSARY
AIFM
The AIFM, or Alternative Investment Fund Manager, is Asset Value
Investors, which manages the portfolio on behalf of AGT
shareholders. The current approach to investment used by Asset
Value Investors was adopted in June 1985.
NAV total return since inception of strategy in June 1985
(annualised)
Closing NAV per share (p) - 30 September 1,093.81 a
2021
Dividends paid out (p) 194.48 b
Benefits from re-investing dividends 534.87 c
(p)
----------------------------------------- --------- --------------------
Adjusted NAV per share (p) 1,823.16 d=a+b+c
Opening NAV per share (p) - June 1985 29.72 E
Annualised NAV total return (%) 12.0% ((d/e) ^ (1/36.25))
- 1
----------------------------------------- --------- --------------------
Alternative Performance Measure ('APM')
An APM is a numerical measure of the Company's current,
historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in
the applicable financial framework. In selecting these Alternative
Performance Measures, the Directors considered the key objectives
and expectations of typical investors in an investment trust such
as the Company.
Comparator Benchmark
The Company's Comparator Benchmark is the MSCI All Country World
ex-US Total Return Index, expressed in Sterling terms. The
benchmark is an index which measures the performance of global
equity markets, both developed and emerging. The weighting of index
constituents is based on their market capitalisation.
Dividends paid by index constituents are assumed to be
reinvested in the relevant securities at the prevailing market
price. The Investment Manager's investment decisions are not
influenced by whether a particular company's shares are, or are
not, included in the benchmark. The benchmark is used only as a
yard stick to compare investment performance.
Cost
The book cost of each investment is the total acquisition value,
including transaction costs, less the value of any disposals or
capitalised distributions allocated on a weighted average cost
basis.
Currency
GBP EUR USD SEK JPY NOK CHF HKD BRL RON INR
---------- ----- ---------- -------- --------- ---------- ------- ---------- ---------- --------- -------
Pounds Euro US Dollar Swedish Japanese Norwegian Swiss Hong Kong Brazilian Romanian Indian
Sterling Krona Yen Krone Franc Dollar Real Lei Rupee
---------- ----- ---------- -------- --------- ---------- ------- ---------- ---------- --------- -------
Discount/Premium (APM)
If the share price is lower than the NAV per share, it is said
to be trading at a discount. The size of the Company's discount is
calculated by subtracting the share price of 1,020.00p (2020:
741.00p) from the NAV per share (with debt at fair value) of
1,093.81p (2020: 817.03p) and is usually expressed as a percentage
of the NAV per share, 6.7% (2020: 9.3%). If the share price is
higher than the NAV per share, this situation is called a
premium.
Earnings Before Interest, Tax, Depreciation and Amortisation
('EBITDA')
A proxy for the cash flow generated by a business - it is most
commonly used for businesses that do not (yet) generate operating
or shareholder profits.
Gearing (APM)
Gearing refers to the ratio of the Company's debt to its equity
capital. The Company may borrow money to invest in additional
investments for its portfolio. If the Company's assets grow, the
shareholders' assets grow proportionately more because the debt
remains the same. But if the value of the Company's assets falls,
the situation is reversed. Gearing can therefore enhance
performance in rising markets but can adversely impact performance
in falling markets.
Using debt at par value, the gross gearing of 11.7% (2020:
12.9%) represents borrowings of GBP 132,520,000 (2020:
GBP114,378,000) expressed as a percentage of shareholders' funds of
GBP1, 133,222,000 (2020: GBP883,605,000 ).Using debt at fair value,
gross gearing is 13.3% (2020: 15.7%).
Net gearing, which accounts for cash balances and uses debt at
par value, is 5.5% (2020: 8.6%). Using debt at fair value, net
gearing is 7.0% (2020: 11.3%).
The current values of the Loan Notes and revolving credit
facility consist of the following:
30 September 2021
----------------------------------------------------------------
JPY
2036 2036 2037 revolving
GBP loan EUR Loan EUR Loan credit facility Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------- ---------- ---------- ----------------- ---------
Value of issue 30,000 22,962 17,526 61,201 131,689
Unamortised issue costs (94) (71) (113) - (278)
Exchange movement - 2,824 (335) (1,380) 1,109
------------------------- ---------- ---------- ---------- ----------------- ---------
Amortised book cost 29,906 25,715 17,078 59,821 132,520
------------------------- ---------- ---------- ---------- ----------------- ---------
Fair value 36,519 31,779 20,700 59,821 148,819
------------------------- ---------- ---------- ---------- ----------------- ---------
Redemption costs 5,167 6,547 4,804 - 16,518
Redemption value 41,686 38,326 25,504 59,821 165,337
------------------------- ---------- ---------- ---------- ----------------- ---------
30 September 2020
----------------------------------------------------------------
JPY
2036 2036 2037 revolving
GBP loan EUR Loan EUR Loan credit facility Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------- ---------- ---------- ----------------- ---------
Value of issue 30,000 22,962 17,526 37,775 108,263
Unamortised issue costs (101) (77) (119) - (297)
Exchange movement - 4,255 618 1,539 6,412
------------------------- ---------- ---------- ---------- ----------------- ---------
Amortised book cost 29,899 27,140 18,025 39,314 114,378
------------------------- ---------- ---------- ---------- ----------------- ---------
Fair value 38,677 34,826 22,779 39,314 135,596
------------------------- ---------- ---------- ---------- ----------------- ---------
Redemption costs 7,336 8,124 5,911 - 21,371
------------------------- ---------- ---------- ---------- ----------------- ---------
Redemption value 46,013 42,950 28,690 39,314 156,967
------------------------- ---------- ---------- ---------- ----------------- ---------
The fair values of the Loan Notes are calculated using net
present values of future cash flows and the yields, taking account
of exchange rates. The redemption value includes the penalty
payable on early redemption.
Internal Rate of Return ('IRR')
The IRR is the annualised rate of return earned by an
investment, adjusted for dividends, purchases and sales, since the
holding was first purchased.
Net Asset Value ('NAV')
The NAV is shareholders' funds expressed as an amount per
individual share. Shareholders' funds are the total value of all
the Company's assets, at a current market value, having deducted
all liabilities including debt at amortised cost revalued for
exchange rate movements. The total NAV per share is calculated by
dividing shareholders' funds of GBP1, 133,222,000 (2020:
GBP883,605,000 ) by the number of Ordinary Shares in issue
excluding Treasury Shares of 102,113,325 (2020: 105,551,730 ) at the year end.
Net Asset Value (debt at fair value) (APM)
The adjusted NAV per share (debt at fair value) incorporates the
debt at fair value instead of at amortised cost, reducing the NAV
by GBP16,298,000 (2020: GBP21,218,000). This is calculated by the
original NAV of GBP1,133,222,000 (2020: GBP883,605,000) less the
debt at amortised cost GBP72,699,000 (2020: GBP75,064,000), adding
back the debt at fair value GBP88,998,000(2020: GBP96,282,000). The
adjusted NAV (debt at fair value) is GBP1,116,924,000 (2020:
GBP862,387,000) divided by the number of Ordinary Shares in issue
excluding Treasury Shares of 102,113,325 (2020: 105,551,730) at the
year end provides the adjusted NAV per share (debt at fair
value).
Ongoing Charges Ratio / Expense Ratio (APM)
As recommended by the AIC in its current guidance, the Company's
Ongoing Charges Ratio is the sum of: (a) its Expense Ratio; and (b)
the Ongoing Charges R atios incurred at the underlying funds in
which the Company has investments, weighted for the value of the
investment in each underlying fund as a percentage of the Company's
NAV. For a detailed discussion of the Expense Ratio, please see the
discussion of Key Performance Indicators in the Annual Report.
The Company's Expense Ratio is its annualised expenses
(excluding finance costs and certain non-recurring items) of
GBP8,820,000 (2020: GBP7,592,000) (being investment management fees
of GBP7,126,000 (2020: GBP5,962,000) and other expenses of
GBP1,735,000 (2020: GBP1,630,000) less non-recurring expenses of
GBP41,000 (2020: GBPnil) expressed as a percentage of the average
month-end net assets of GBP1,058,575,000 (2020: GBP853,625,000)
during
the year as disclosed to the London Stock Exchange.
A reconciliation of the Ongoing Charges to the Expense Ratio is
provided below:
2021 2020
--------------------------------------------- ------ ------ ------
Expense Ratio (a Key Performance Indicator) a 0.83% 0.89%
Underlying Charges Ratio b 1.27% 1.42%
Ongoing Charges Ratio =a+b 2.10% 2.31%
--------------------------------------------- ------ ------ ------
% of investee company
AGT's economic exposure to each investee company, as estimated
by AVI.
Return on Investment ('ROI')
The ROI is the total profits earned to date on an investment
divided by the total cost of the investment.
Shares Bought Back and Held in Treasury
The Company may repurchase its own shares and these are then
held in treasury, reducing the freely traded shares ranking for
dividends and enhancing returns and earnings per Ordinary Share to
the remaining shareholders. When the Company repurchases its
shares, it does so at a total cost below the prevailing NAV per
share.
The estimated percentage added to NAV per share from buybacks of
0.3% (2020: 0.5%) is derived from the repurchase of shares in the
market at a discount to the prevailing NAV at the point of
repurchase. The shares were bought back at a weighted average
discount of 8.2% (2020: 10.5%).
30 September 30 September
2021 2020
---------------------------------- ------------- ------------- ------------
Weighted average discount of
buybacks 8.2% 10.5% a
Percentage of shares bought back 3.3% 4.2% b
NAV accretion from buyback 0.3% 0.5% (a*b)/(1-b)
---------------------------------- ------------- ------------- ------------
Total Assets
Total assets include investments, cash, current assets and all
other assets. An asset is an economic resource, being anything
tangible or intangible that can be owned or controlled to produce
positive economic value. The total assets less all liabilities is
equivalent to total shareholders' funds.
Total Return (APM)
Total return statistics enable the investor to make performance
comparisons between investment trusts with different dividend
policies. The total return measures the combined effect of any
dividends paid, together with the rise or fall in the share price
or NAV. This is calculated by the movement in the NAV or share
price plus dividend income reinvested by the Company at the
prevailing NAV or share price.
NAV Total Return (APM)
NAV total return is calculated by assuming that dividends paid
out are re-invested into the NAV on the ex-dividend date. This is
accounted for in the "benefits from re-investing dividends" line.
The NAV used here includes debt marked to fair value and is
inclusive of accumulated income.
Where an "annualised" figure is quoted, this means that the
performance figure quoted is not a standard one-year figure, and
therefore has been converted into an annual return figure in order
to ease comparability. For example, if AGT's NAV increased by +100%
over a ten-year period, this would become an annualised NAV return
of 7.2%.
30 September 30 September
NAV total return over 1 year 2021 2020
Closing NAV per share (p) 1,093.81 817.03 a
Dividends paid out (p) 16.50 20.50 b
Benefits from re-investing dividends
(p) 2.49 0.80 c
-------------------------------------- ------------- ------------- ---------
Adjusted NAV per share (p) 1,112.80 838.33 d=a+b+c
Opening NAV per share (p) 817.03 838.29 e
NAV total return (%) 36.2% 0.0% =(d/e)-1
NAV total return over 10 years
(annualised)
Closing NAV per share (p) -
September 2021 1,093.81 817.03 a
Dividends paid out (p) 135.20 126.40 b
Benefits from re-investing dividends
(p) 114.62 57.73 c
-------------------------------------- --------- ------- -----------
Adjusted NAV per share (p) 1,343.63 d = a + b
+ c
Opening NAV per share (p) - 460.35 e
September 2011
Annualised NAV total return 11.3% ((d/e) ^
(%) (1/10)) -
1
Share Price Total Return (APM)
Share price total return is calculated by assuming that
dividends paid out are re-invested into new shares on the
ex-dividend date. This is accounted for in the "benefits from
re-investing dividends" line.
Share price total return over 30 September 30 September
1 year 2021 2020
-------------------------------------- ------------- ------------- ---------
Closing price per share (p) 1,020.00 741.00 a
Dividends paid out (p) 16.50 20.50 b
Benefits from re-investing dividends
(p) 2.64 0.55 c
-------------------------------------- ------------- ------------- ---------
Adjusted price per share (p) 1,039.14 762.05 d=a+b+c
Opening price per share (p) 741.00 747.00 e
Share price total return (%) 40.2% 2.0% =(d/e)-1
Total Return Swap
A total return swap is a financial contract between two parties,
whereby each party agrees to "swap" a series of payments. AGT has
entered into a swap on Pershing Square Tontine Holdings ('PSTH')
with a well-known investment bank. Effectively, AGT gets paid the
total return on PSTH, and in return agrees to pay a series of
floating-rate interest payments to the investment bank. The gross
equity exposure is disclosed in the investment portfolio. The swap
requires 30% margin on the position.
Weight
Weight is defined as being each position's value as a percentage
of net assets.
Weighted-average Discount (APM)
The weighted-average discount is calculated as being the sum of
the products of each holding's weight in AGT's portfolio times its
discount. AVI calculates an estimated sum-of-the-parts NAV per
share for each holding in AGT's portfolio. This NAV is compared
with the share price of the holding in order to calculate a
discount.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted
shortly to the National Storage Mechanism ('NSM') and will be
available for inspection at the NSM, which is situated at :
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
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END
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November 09, 2021 02:00 ET (07:00 GMT)
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