AVI Japan Opportunity Trust (LSE:AJOT) — Annual Results

0:01 Good morning, ladies and gentlemen, and welcome to the AVI JAPAN OPPORTUNITY TRUST PLC Annual Results Presentation. Throughout this recorded presentation, attendees will be in listen only mode. The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful

0:31 for your participation. I'd now like to hand over to the team from AVI JAPAN OPPORTUNITY TRUST, Joe Nicola. Good morning. Good morning, all, and thank you very much for joining us today to talk about the results, the annual results of AVI JAPAN OPPORTUNITY TRUST and to delve into the opportunities we are seeing in Japan, how we're positioned, and what we think prospects are for the coming year. Clearly, a lot has happened over the last few days. I'm sure there'll be some questions on that as we go through the presentation. I'll be very happy to take them. But just from a starting point, to give you a brief overview of AVI JAPAN OPPORTUNITY TRUST, we are a... Another listed investment trust with assets of around £240,000,000.

1:18 We launched in October 2018, so we've been going for about six and a half years now. And over that time, have delivered what I would say is very strong, both absolute and relative returns with fairly, fairly substantial outperformance as you can see here. We are a very concentrated portfolio with roughly 15 core holdings. The top 10, as you'll see later, make up around 70% of the portfolio. And the idea really is to take advantage of not only the very cheap valuations that we are seeing in in Japan, but more importantly and more fundamentally, to take advantage of the very real shift that's occurring in Japan with regards to corporate governance reform and the attitudes generally we're seeing from companies towards shareholder returns.

2:09 And as part of that, AVI and AVI JAPAN OPPORTUNITY TRUST is firmly positioned as one of the activist or engagement funds operating in Japan, and we've developed a a strategy and a process that involves very constructive and intense dialogue with companies that we are invested in in order to deliver to deliver returns for ourselves and other shareholders. So taking a look at 2024, it was a year of strong returns for AVI JAPAN, returning almost 21% in in sterling terms. That was well ahead of peers within the Japanese investment trust small cap space, but also well ahead... Substantially ahead of our benchmark, the MSCI Japan small cap index.

2:59 As you see at the bottom half of the page, there were some quite substantial contributors, clearly far outweighing the detractors detractors that we see here. But more interestingly, when you look at those contributors, a number of them experienced some form of corporate activity, whether that was an explicit takeover bid for the company or some form of improvement or self help that the company's directors have adopted in order to improve shareholder returns. And both of those aspects are really themes that are very much live in Japan and very much, in a sense, the drivers of our returns in Japan, and we certainly see that continuing.

3:47 The year has started pretty well certainly until last week. When you look at returns thus far this year, in the first three months of the year, returns of about 6%, again, very much ahead of benchmark and also ahead of of the peer group. And, again, when you look at the contributors and detractors, substantial corporate activity, TSI was an example of a company that sold a substantial real estate asset that it had sitting on its balance sheet. It amounted to roughly a third of its market cap. The value that it achieved was well in excess of the reported value of that asset, and it's an inefficient balance sheet when it has contributed to its undervaluation.

4:38 And so the fact that management are now addressing that undervaluation are becoming more efficient in their balance sheet management and using those proceeds to return cash to shareholders by buying back shares is is extremely accretive, and the share price has responded accordingly. Technos Japan, for example, it's an IT services business that we've owned for about eighteen months. It was just taken over in January to receive a takeover bid at a substantial premium. So, again, the contributors really have stemmed from that corporate activity both on the engagement side and both... And and also in terms of corporate activity. It's worth just before we get delving into the detail of the opportunity set in Japan, just highlighting some of the macro features that play a part in generating our returns.

5:33 The end depreciation, the weakness of the yen has been a key feature and a key headwind our sterling based returns pretty much since we launched the TRUST in 2018 and certainly over the last couple of years. The yen has been weak historically primarily due to monetary policy in Japan that's been on a different trajectory to the rest of the world, stimulating the economy by way of yield curve control, by way of zero or negative interest rates has really weighed on the yen, and that has led to substantial outflows over the last few years by Japanese consumers and institutions out of Japan, out of the yen, and into foreign currencies and foreign bonds in particular. That has been changing, and we have started to see some repatriation.

6:21 But more fundamentally, when thinking about the trajectory of the yen going forward, there are some shifts in monetary policy, and there are some shifts in economic fundamentals that support the yen appreciation story. Japan has come to the end of deflation, finally. We're starting to see inflation emerge, and particularly so when we look at wage inflation and some of the wage negotiations that are going on in Japan, call for pretty substantial wage increases for Japanese employees. We've also seen the end of zero negative interest rates in Japan. We've seen the Bank of Japan move cautiously towards a normalization of of interest rate policy. And with what's been going on in the Federal Reserve and the and the interest rate path in The US, it does seem to be as if the scene is set for a strengthening yen going forward.

7:18 But clearly, the introduction of tariffs by The US and the upset and carnage really that we've seen in the market over the last few days has led to some uncertainty on that, and the yen has been behaving as a safe haven currency. We've seen some strength over the over the last few days. But fundamentally, the yen remains cheap, and the path going forward at some point should be positive. But you can see here the differences as they're translated between pounds and and yen to our returns over the life of the fund, almost 140 percent in in the end terms compared to about 80% in sterling terms. So very substantial. Okay. So let's let's move back to the environment. It's been a conducive environment for those investors who have embarked on the corporate governance three... Theme, who have played a a role as a shareholder activist.

8:16 And at the heart of this is the third arrow of AVIONOMICS, which was introduced in 2012 and led to the introduction of a corporate governance code and a stewardship code in 2014 and 2015, which fundamentally said to Japanese companies, you've got all this cash on the balance sheet. You've got to start using it, be productive, put it to good use, or give it back to shareholders so that they can fire up the economy. The stewardship code introduced at the same time said to shareholders, shareholders in Japan typically always support management. They never criticize management. You've now got to start acting like owners. If you're not happy, you've got to say so and force companies to do something about it. So at the start of our journey back in 2018, there was a lot of skepticism and cynicism about the commitment of Japanese companies to really unwind decades of shareholder culture that really demoted shareholders to the bottom of the pile and promoted the interests of employees, pensioners, and society ahead of of real... Of shareholders.

9:23 Fast forward to where we are today, and there's been a real shift in attitudes. Back then, it was a struggle to get companies to listen to us, to get companies to buy into the idea that they needed to do more for shareholders. But today, very often, we find ourselves pushing on an open door. Management have now accepted that they've got to do more to drive shareholder returns, that share prices are too cheap, and in some cases, remarkably so, and that if they don't do something about it, then other investors, be it other corporates or private equity investors, will take advantage of their share price. So there is very much a sense today in Japan that the job of management, which may sound bizarre to us, but the job of management is to drive share prices higher. This is something that we're used to in other markets, but it hasn't really been the case in Japan.

10:19 And, really, there have been a number of factors at the heart of this. The government, starting with the introduction of the codes back in 2014, 2015, various ministries, the ministry of economic affairs in Japan has become very, very targeted on encouraging on encouraging takeover activity. And the Tokyo Stock Exchange has also played its part. It... It's created name and chain lists of companies who don't adhere to the highest standards of corporate governance, whose share prices are languishing below book value, and really forcing companies to address undervaluations in a in a big way. And this has really led to a a big increase in corporate activity. And when you think about it, cheap share prices, the catalyst for reversing those cheap share prices is either corporate activity, investors taking advantage of low prices, exploiting them, or it is management doing the right things themselves in order to to address their undervaluations. Now both of those things historically haven't happened in Japan for many years, and, clearly, they are happening in Japan.

11:34 And there's been a real acceleration in both self help measures and corporate activity over the last eighteen months. We highlight a few examples here here on this slide, but the key message is that the commitment from the authorities in Japan to this governance reform movement is really... It's very powerful. There's a strong commitment to it. They're not backing down now. And like everything else in Japan, it remains a very, very long term long term commitment. So when we look at our portfolio and we we look back at the performance over the current year and the start of the new... Sorry, the past year and the start to this year, I think you'll you'll appreciate the message that we're trying to relay in terms of the current opportunity and the current environment in Japan.

12:35 So we had two takeover bids, Binos and and Technos Japan. Binos was our largest holding at around 10% of NAV, so it really moved the needle. Technos Japan was about four or 5% weight, so it also moved the needle but to to a lesser extent. On top of that, though, and the real drivers of of long term returns and the one which we can have the most impact on is our engagement with management and the outcomes we're seeing from there. And even in the first three months or so of the new financial year, we've had a number of announcements by companies of improved governance, asset sales, implemented share buyback programs, reductions in cross shareholdings.

13:24 All of these things are the types of subjects that we are engaging proactively and intensely with management. And the... And certainly, it's the case that a lot of the performance that we generated in the first quarter of this year has arisen because of the positive reaction that we've seen in the share prices of these companies announcing announcing these measures. And the impression that we have from our dialogue and our conversation with these companies and others within the portfolio is that this is not a one off thing. They're not just trying it out. This is a firm commitment, and there is certainly a recognition by many companies in Japan that improved corporate governance, improved capital efficiency, reduction in in cross shareholdings, and the use of cash more productively, more effectively, certainly well received by the stock market and well received by other investors.

14:25 Just to give you a little bit more detail on the exits via corporate activity and the prospects for further corporate activity to benefit the portfolio. So Benos is one that actually came into the portfolio in January 2024, so it came out pretty pretty quickly.

14:43 But... And this is a business that provides ecommerce platforms for for the sale of clothes in in Japan. What was interesting about this is that we bought it when we felt the valuation was very cheap. We had too much cash on the balance sheet. Its growth trajectory was very strong, and so the valuation was very attractive. And we ended up accumulating about a 10% stake in the company. But the very interesting feature that we're seeing increasingly in Japan today is that there were other activists in the... On the register of that company that followed us into it, and it ended up being a situation where almost 45% of the shares were held by so called activists or engagement funds. And although we don't operate in conjunction or in concert with any of those other funds, it's fair to assume that we want similar outcomes and have similar objectives when when talking to companies.

15:41 And the fact that so much of the register of the company is in the hands of investors who want a certain course of action mean that that means that that's... That course of action is much more likely to happen and makes for much more profound, robust conversations and dialogues with management of the company. So in that case, it's been a very successful investment over the life of the hunt... Over the life of the investment, I should say. And... But it does highlight increasingly what we're seeing that more engagement funds are act... Are ending up on the same registers. More engagement funds are are owning more of the same companies that they invest in, and that is really focusing the minds of of companies.

16:26 But it is also an interesting prospect for private equity bidders, and there is an abundance of private equity capital looking to exploit undervaluations and undermanaged businesses, good businesses that have been undermanaged for many years in Japan. And the fact that a handful of shareholders own substantial stakes in those companies makes the prospect of takeover biz more realistic, and we certainly have frequent dialogues with private equity investors about a number of our companies in the portfolio. So that is a trend that has been building for for five or six years. It's reached a tipping point, I would say, in the last twelve months, and certainly the expectation from our dialogues with with those companies is that there's likely to be more takeover activity in the Japanese market.

17:15 It doesn't always happen that quickly. Alps Logistics is is a company that we owned really since inception, so for about six years. It ended up being sold to a KKR backed company at a very substantial premium to its share price. Logistics is a very popular business area for for private equity, and we saw that exited at really a substantial valuation multiple much higher than we actually thought it would it it would go something like 30 times earnings well ahead of the 20 odd times that we thought it was worth. So it shows that there are really good quality businesses in the portfolio. We benefited we benefited from long term growth in earnings of that business, but, ultimately, the attraction and quality of that business led to a a takeover.

18:07 And the final example that we saw was NC Holdings, a very, very small company, around £60,000,000 market cap. This was a a mini conglomerate involved in a number of different business areas, some better than others. We also had a lot of cash on the balance sheet. We ended up owning around 22%. Another investor had similar stakes, slightly larger. And the fact that two shareholders owned almost 50% of the company meant that the wishes of of us two investors were ultimately agreed to by management, and the other investor ended up taking over the the company, and, again, a very, very attractive premium. So some examples really of the kind of corporate activity we've we've seen in Japan and actually the kind of corporate activity we expect to see continuing in Japan in in the future.

18:58 Just to highlight a few things when we look at the portfolio, a few characteristics. I said at the start that this is a very concentrated portfolio, and that's that's really by design. Top 10 making up 70% has been a little bit higher, has been lower, and it really depends upon timing of of exits and and new ideas coming into the portfolio. But the the key point here is that when we engage with companies, it is a very intense process. We're talking to companies not only about corporate governance or about cash on the balance sheet. Most of the value add, I would say, from AVI JAPAN and the team really comes from engaging operational and strategic aspects, the kind of conversations that management really value and really want to hear from us, our ideas, and how we think those operational improvements really translate into a sustainable increase in corporate value for Japanese companies over the long term. And the fact that we're involved in such intense engagement means we want to see a return on our investment in time and resource.

20:08 And so... And and also the fact that we're involved in very detailed conversations and dialogues with companies means that we've got a great deal of conviction and confidence in our investments. And so it makes absolute sense to have a very concentrated portfolio. So when things go well, it does move the needle. Obviously, when things go less well, it also plays a part. But fundamentally, and we're seeing this play out now, when you do see panic in markets, you do get quite extreme moves in share prices that are not necessarily rational, that not necessarily reflect underlying fundamentals. And given our knowledge and understanding of those businesses, those are opportunities we can exploit rather than the things we should be fearful of.

20:57 Benos, as you'll see in the... Is the top name. It's one I've said has been taken over. It is in the portfolio. It's due to be exited in in May when we receive cash from the bidder. So at the moment, it's effectively effectively cash. TSI, the one sold that the real estate asset is still a very substantial holding.

21:18 Thus far, the company has addressed its balance sheet issues, but hasn't really spent much time addressing the operational issues, which we believe to be substantial and and from our perspective, are a source of source of further profit, further return.

21:38 Rather than delve through each of these individual companies, what I wanna highlight on the next page is just that although we've had quite a lot of corporate activity, we've had some very strong share price performances over the last twelve to eighteen months. There are still a number of new ideas coming into the portfolio. You see thus far this year in 2025, we've had five new names come into the portfolio. They're not necessarily all that full size position yet, I would say,

22:05 And some of them have the potential to be very substantial investments for us going forward. You'll see that they range in terms of size, in terms of market cap from some very small sub £100,000,000 market cap companies to some more substantial mid cap names of around 2,000,000,002 billion dollar market caps. But in... On top of that, not only have there been new ideas that have already found place in the portfolio, but there are a number of new names, four new names here that we have on our reserve list. And subject to the availability of capital, some or all of those will find a name... Will find a place in the portfolio as we go forward and as we get some cash back from some of the corporate events I've described.

22:51 It's worth spending a few moments talking about the team that we've built here within AVI to to manage this fund and to to research the companies we're invested in. It's a team that's grown very substantially since the time of launch. Back then, it was myself and a junior analyst sitting here in London, but we've invested heavily in the resource. Today, we have a number of Japanese nationals working on the team, primarily based in London with one exception, Jason Bellamy, who's based in Tokyo full time. The team spend a lot of time traveling to Japan, meeting with companies, but also have the opportunity to meet companies online as it's increasing the norm around the world.

23:41 So it's a very intense process. And our most recent hire who's with me on the call today is Nicola, who joined January this year. She brings a wealth of experience operating in the Japanese equity markets to work with us, which is which is a great thing, but also reflects just our continuing investment in the resource and the process, recognizing that the process that we adopt here in Japan is very intense and time consuming, and we need to have more good people working to that in order to generate more of the same performance, more of the outperformance that we've generated over the past six years.

24:23 Kaz and Shuntaro, head of Japan research and also the senior analyst, have the kind of characteristics and experience that we think is very important to exploit the opportunities. Both of them have worked in Japan at management consultants. Both of them are very experienced experienced and familiar with talking to companies about operational and strategic aspects, which we think is the key to unlocking long term value in a number of these small cap Japanese names. Both, of course, are fluent in English and studied in The US and have have a breadth of experience. We also have an ESG analyst working on the team. We have a new new person joining us in a in a couple of months' time. Clearly, there's a commitment here and and interestingly from Japanese companies on ESG, and we take that very seriously.

25:13 So to summarize before I open it up to questions, AVI JAPAN's approach is really looking to exploit extreme undervaluations in the small cap universe in in Japan. Companies that have got huge amounts of surplus net cash or other assets on the balance sheet where key and the pathway to unlocking value is through intense engagement, getting companies to manage their balance sheets more efficiently, but also to improve their operations, to pursue more profitable endeavors rather than languish with all the cash sitting on the balance sheet, employing all the people that they want, but not really focused on shareholder returns.

26:00 It is a universe that is very under researched and lack of interest, and that is why it is ripe for alpha generation or out... Outperformance. And, really, the secret here is hard work, spending time understanding the businesses, building relationships with management, getting them to do the right things for shareholders. And we have the benefit of a tail... Tailwind in Japan when we look at corporate governance reforms that have taken effect and the commitment to them going forward as well as the animal spirits that are getting fired up by the private equity industry who are very keen to get involved in opportunities. So really from all directions, it's all happening in Japan. It remains a very cheap market.

26:47 The volatility that we're seeing at the moment will throw up more opportunities. These companies that that we own have substantial cash backing. They're unlikely to go bankrupt, you know, even in a recessionary environment. A lot of the businesses are domestically are... Domestically focused, roughly 80% of our company's revenues come from Japan rather than from international or export markets. And so there's there's a defensiveness, a defensive characteristic there as well. And

27:22 speaking to the companies, we are pretty confident that the future is bright for them, notwithstanding the fact that in the short term, it could it could look a little bit messy and unpleasant. So if there are any questions, I'm very happy to take them. Thank you. Joe, thank you very much indeed for updating investors. Ladies and gentlemen, please do continue to submit your questions just using the q and a tab situated on the right hand corner of your screen. I just want to make sure and Nicolas take a couple of moments just to review your questions submitted already. I'd just like to remind you, a recording of this presentation along with a copy of the slides and the published Q and A will be accessible via your investment company platform. Nicolas, you've had a number of questions from investors throughout today's presentation. So thank you firstly to everybody for your engagement. If I may, Nicola, just hand back to you for us to for you to moderate through the Q and A, and I'll pick us pick you up at the end. Yes. Thank you. I mean, I think the first the first one to start with is actually sort of a nice segue from what Joe was just discussing, which is tariffs and Trump.

28:19 And the question is, you know, how do we think tariffs will affect the portfolio? And Joe did allude to the fact that, you know, the portfolio does have a lot of defensive characteristics, that we are 80% exposed to domestic... So domestic sales rather than exports. But I think another thing to note is that, yes, of course, if we see if we see a sort of a broad based volatility within the market, yes, of course, the portfolio will move along with that to a certain extent. However, what you're seeing is really a reversal of some of the some of the flows that we've seen over the past couple of years. And what I mean by that is if you look at Japan over 324, it was really these large cap exporters that saw the bulk of inflows coming in from foreign investors.

29:06 So there's a large inflow coming in, and now because of what's happening, you're seeing... You're starting to see some of that unwinding. What I would say is that even though it has been those large cap exporters that have benefited over the past two and a half years from that. And that's been, you know, obviously, a headwind along with the with the weaker yen for the strategy, but the strategy still managed to pull out some some very impressive outperformance. And then I think that goes back to what Joe was saying in terms of, yes, the portfolio will be to some extent exposed to what's going on more broadly, but the returns that we are looking to find are really idiosyncratic. We're trying to find these companies. We are trying to be the catalyst for change within those companies and work alongside what the TSC are doing, what the government is doing to try and create a healthier, more efficient market.

30:03 And part of the reason, again, a bit anecdotal, but part of the reason I found AVI such an attractive opportunity for me to move into, from my my previous roles, was that we very much believe that where we're going to see that change, the most dramatically within the Japanese market is within small and mid cap Japan. And there are some companies who are quite happy to change and improve on their own, but the vast majority, especially within small mid cap Japan, you know, they need a bit of a helping hand. Sometimes they need a bit of a push, and this why having that constructive activism angle is really important. That brings me on to another question that's been asked about, do we think that the TSC will really stand firm on their threats to delist companies that do not comply with their requests.

30:54 But it's happened, hasn't it? Yes. It's it's already happening. So the grace period that they gave to companies to sort of get their get their ducks in a row in terms of disclosures, in terms of assessing their their valuations, in terms of coming up with a plan to improve those valuations. That ended at the end of March, just gone. So now what they've said is, okay. You've had you've had your three years. So if you haven't sorted yourselves out by the next end of your fiscal year, then you will be you will be kicked out. And we actually, had the Tokyo Stock Exchange. We had a meeting with them last week, and they reiterated that. They are, as Joe mentioned, they are really committed, and they are standing firm. So, yes, we do believe that they will they will go through with, with what they're saying.

31:46 I have a question for you, Joe, from from somebody as well saying, how has our portfolio positioning shifted over the past year, and what has influenced those changes, if anything? Okay. Well, I I think that the portfolio has has probably been on a journey towards becoming a little bit more concentrated if you go back from where it was perhaps eighteen, twenty four months ago. That reflects the fact that there's been growing conviction in the team that there's going to be some form of corporate activity amongst our our largest holdings.

32:26 And then what naturally will happen is that as some of those larger holdings are exited and and cash comes back, you start the journey again. So just in terms of portfolio picture or or construction, you know, it might go to 70 odd percent top 10, and then it might come back down to over 65, and then we start start the process again.

32:46 There's certainly been also when you look back to the new ideas that came into the portfolio about fifteen months ago at the start of twenty twenty four, a number of much smaller cap opportunities. So some below a £100,000,000, some in the low £100,000,000. And there was a sense at the beginning of last year that's where the most extreme opportunities were. When you look at the names that have come in thus far this year and the reserve list as well, it's much more balanced. So there are some more mid cap names or higher... Larger small cap names as well as some of the the the very micro caps. And so I, you know, I think that's one that's one way in which we've seen an evolution or a shift. I wouldn't call it dramatic, but it's more just a a journey.

33:32 In terms of sector diversification, I think it's remained broadly probably the same. As you know, we don't really target particular sectors or avoid necessarily avoid sectors. We're looking really for idiosyncratic situations that have got some interesting characteristics. Naturally,

33:49 we avoid more cyclical industries, industries where the cash might be here today but gone tomorrow, and and the business quality is more variable. So those are things we avoid. But we have been able to to invest into more growthy kind of of industries and and businesses. Was one. IT services generally is a sector that we found quite a lot of good value and and opportunities.

34:13 So Technos Japan's clearly in that, so there is corporate activity. So I think, you know, looking forward, I think it will be more of the same, quite a broad diversification across industries. Naturally, I think it will be more tilted towards Japanese domestic economy and towards exporters. There'll be some very small cap situation, like some some larger ones. And and there'll be, again, return drivers that will be different. Fundamentally, all the investment thesis are built around the idea that earnings will grow, that we will work with companies and management teams to improve their operations, improve their profitability. At the same time, we think there will be a number of situations along the way that will benefit from some change of corporate controls and takeover action.

35:07 In situations where... There's another question. In situations where management are not as receptive as you hoped, what do you do in those situations? K. Right. So, I mean, you're... It's a good question. Clearly, there have been situations, certainly, from some of the earlier investments where management would be less responsive

35:31 and less willing to change. We have one in the portfolio today that's a good example. It's called SK Kaken. This is a company that operates out of Osaka. It's a specialist paints business. It's actually quite a good business, and it's got a super strong balance sheet with roundabout 80% of its market cap in net cash. But it is controlled by a family who own over 40% of the shares. And that family is dominated or led by the founder, president, patriarch of the family who's who's in his nineties and a deeply traditional man and somebody who resists all the changes being thrown at him by the corporate governance code and stewardship code. And so that's been a bit of a struggle.

36:17 The business has continued to do well, but the share price has done nothing over the life of our investment. How did we deal with it? Well, we've submitted shareholder proposals to the AGM over the last four years. In fact, last year, chairman of AJOT and a nonexempt director attended the AGM. They were the first foreign investors to attend such a forum, and they were invited to speak and to address the shareholders. Where we stand is that because the family are in control, we don't win those resolutions, but we get increasing levels of support from from other shareholders. And that, I think, has just opened up a dialogue that has become more friendly and a little a little bit more constructive over the last year with management.

37:06 That's not to say that they're rolling over and doing everything we say, but the dialogue continues. The key here, though, is that in those kind of situations, as long as the business is doing reasonably well and continuing to grow, then the investment could still be a reasonable investment rather than a bad write off. It's why we have to focus on the business quality along with the prospects or the potential of shareholder engagement because we never know how the shareholder engagement is going to go. And if it doesn't go well, then all you're left with is is the operations. So we need to make sure we own good businesses. We need to engage, and we need to push. And although we prefer private constructive dialogue, if that doesn't work, we we have to go public.

37:54 And failing that, if it doesn't work, if all that really doesn't come together, then we need to move on and accept that there are better opportunities, better uses of our time, and better uses of our capital to try and exit. Some cases, it's easy to exit. There's abundant liquidity. Some cases, there's more limited liquidity. SK Kaken would be one such example, but we are managing managing that pretty effectively currently. Just changing tack a little bit. I had a few questions on the fact that the approach within AJOT is obviously being quite successful. Are there are there opportunities outside of AJOT more widely at AVI where the same approach can work, and what's the overlap between AJOT and other strategies at AVI?

38:44 K. So AVI runs a global strategy. The vehicle through which we... The flagship vehicle through which we manage that is called AVI Global Trust. It's also a London listed investment trust. And it, broadly speaking, looks around the world for companies that are undervalued, that are mispriced, that are neglected and overlooked by other investors, and that trade a substantial discount to their net asset value or their intrinsic value. It does have a a large allocation to Japan. Japan has been one of the areas in which we've been most excited about for the last few years. So almost almost 30% of AVI Global's fund is dedicated to Japan.

39:30 Roughly half of that exposure would be in the same kind of companies or the same companies that are invested in AJOT, and half of that Japan exposure is invested in

39:42 larger companies in Japan. Also, companies with substantial asset backing, both cash, both real estate, conglomerate structures, where there's a stark undervaluation, but also where there's an opportunity for active engagement with management from ourselves and other activist investors to unlock value.

40:05 And just on how you think about the portfolio in terms of construction, are there upper limits in terms of how much of a company you would own or how much of the portfolio you would have in a single name? Okay. So there are two sides to that question. In terms of how much of a company we would own, at a bare minimum, we we generally want to own more than 1% of company. And the reason behind that is that when you own 1% of a company in Japan, you become entitled to submit resolutions to the annual general meeting. And that's something that we wanna have in our back pocket. We don't always do it, but we have done it on many, many occasions, and that... That's a good stick to have to waive at management. The other interesting threshold that we increasingly focus on is 5%.

40:52 At 5%, our stake becomes publicly declared. And given the activities of ourselves and other engagement funds, there are a lot of other investors looking at what the engagement funds are doing, what their next targets are, and it can be quite helpful to publicly declare a a 5% stake. Beyond that, as you get into the high single digits, very often in many of our portfolio situations, you become a dominant shareholder. You become a top three shareholder. And that, again, is very useful in terms of having a dialogue, having a seat at the table with management, and getting them to take you seriously. And then beyond that, as you start getting into the 10% plus teens and beyond, then you very much become in the driving seat.

41:39 And those are the kind of situations where you would expect us to have some kind of thesis around the change of corporate control or a a large scale event at the company to to unlock value. It's where we're having quite intense conversations with management. And as I say, the exit will probably come from some large scale form of corporate activity.

42:04 In terms of how the portfolio itself is constructed, as I've said, we want we want our portfolio to be concentrated. In practice, that means that we typically have somewhere between ten and fifteen core core holdings. And so if that's the number of core holdings we wanna have, on average, a four or 5% weighting in the portfolio would be an initial target. And then what seems to happen is as our engagement progresses, as our conviction and confidence in the idea grows, we wanna have more of it to reflect that. And so you see a couple of names approaching 10%, and we're very comfortable to have a handful of names in the high single digits. We'll even have more concentrated than that on occasion, but generally speaking, I prefer to avoid having one very large outside position and the rest, you know, much lower weight. So don't want to call for it to be overly exposed to one individual situation.

43:04 Providing we've got balance, we can be quite concentrated at the top. And given the current madness, as someone has called it, how how have you react to that? Have you raised cash to buffer the portfolio, or have you added to existing positions, or have you taken advantage of it to add new positions into the portfolio since since the start of it?

43:27 Okay. So over the last few days, we've done we've done very little. We certainly haven't been panic selling. And one thing to note about small cap names is that you do get untoward price price moves. Sometimes they don't move despite all the madness, and sometimes they move by mad mad amounts, and you see quite extreme moves. So we're in the position where... Although on on the face of it, on the surface, we have drawn down most of our gearing, we we actually are not are not geared given that BNOS 10% weight is effectively cash. So we have got the scope to add substantially to some of the existing portfolio names and or introduce some of the new names.

44:19 That hasn't happened yet, but that's not not to say that we're not working on things, and we're just waiting to see how how the dust settles. It's only really been three days. Although we've seen some pretty stark, sharp sharp price moves, We're keeping a close eye on on where valuations are and what the price moves imply for the valuations. And a very, very useful metric for us is looking at cash as a percentage of market cap. Where companies are trading at a 100% cash to market cap, that's clearly an extreme level. We've had that on occasion, and what we're keeping an eye on is valuations approaching the kind of levels that we've seen in previous very sharp sell offs, notably during the COVID sell off or during the summer, last summer when we saw again pretty pretty sharp sell off over the space of a couple of weeks. So I expect that over the the coming days, we will start taking advantage,

45:16 but certainly not panicking at the moment. So I've left... We've had a number of questions around the proposed merger with the Fagility Japan TRUST, and I've left those now that we've got a few minutes left. A few things. Why now is the first. Why do you think that the Fidelity Japan Trust board has been hesitant to engage around the proposal? And the third question is, what do you think the benefits are for existing shareholders of Fidelity to to move into AJOT?

45:57 Well, the first and the third part, why now and and what are the benefits, I think go hand in hand. You know, I think when we launched AVI JAPAN, if you think back six years ago, everybody knew that Japan was cheap. It had had a lot of cheap companies for the best part of twenty years, but it always disappointed investors. The market went up for a little bit, and then it went down even more. And, really, there was a lot of skepticism and cynicism that Japan would ever change. If you fast forward now six years, we've demonstrated two important things. We've demonstrated that Japan has changed, that the commitment to corporate governance reform and shareholder returns is real, is genuine, and they're not gonna dial back on that. So I think that really speaks to AJOT's strategy of exploiting the opportunities presented by corporate governance reform.

46:49 On top of that, we demonstrated through our process, via our process, but through the returns that we generated using our process, that our ability to engage with management, to build effective portfolios that can exploit that active engagement really, really does work. And our our brand of engagement that is constructive, that is intense, focuses on the kind of subjects management want to want to do, it means that they're more likely to work hand in hand with us and trust us and do the kind of things that we're asking them to do. So when you throw all of that together and you look at what is going on in Japan today in terms of the activities of engagement funds, the responsiveness of companies, and presence of private equity, it suggests that that kind of environment is like... Likely to continue. So we think it's a good environment for our strategy, and having more capital having more capital invested in that strategy actually makes it more likely that that we will be successful in our engagement as it allows us to own more of the existing companies that we own and be more effective in our engagement. So I think there are benefits.

48:06 You know, I think why now? I think it's a good time for the strategy, notwithstanding the strong performance we've had. Growing the assets is a... Is an opportunity to make the outcomes more certain, more likely, so that's good for shareholders. But one thing to highlight is, you know, that there is a natural limit to capacity here. For us at AVI, it's not about managing more and more money and managing billions of pounds. This strategy wouldn't work were we to be managing billions of pounds in it. There is a definite cap. There's a few £100,000,000 more of capacity, and merging with Fidelity, if if that is a successful process, then would certainly give us additional firepower we could put to good use, make our engagement more effective, but more importantly, that we could get invested without any style drift in a very reasonable period of time.

49:03 As to why the board is hesitant, it's not really for me to speak for the board. They... They'll have their own reasons. But, you know, often in these kind of situations, boards don't wanna give up their job. They don't wanna see an investment trust disappear from the universe. And given the relatively poor performance that Fidelity has generated, I think it's... There's a natural instinct to say, oh, you know, that it's gonna come good, hold firm. Don't don't jump off the bandwagon at the wrong time. It's gonna it's gonna happen. My response to that is, look, it's been a long time, but it hasn't happened. Japan has been a market that's been in and out of favor. Even over the last six years, it's an environment in which AVI has outperformed relatively consistently.

49:55 Even in environments which have been very challenging, we've done relatively well. And so I think our process works in that broad market environment and why would shareholders wanna take the risk of of hoping that the growth style will come back in when a very idiosyncratic, very intense, very active process has demonstrated an ability to outperform in all kind of markets. Anything to add, Nikola?

50:28 Only that... What what you what you highlighted about AJOT is one of the reasons, as I said, that I find... I found it a very attractive option to come and join because it has proved itself to be, you know, touchwood, a strong all weather performer. Even though there have been so many headwinds against AJOT, it has proven itself not really to be beholden to style and what the market is particularly focused on at that particular moment in time. The Japan market, for those for those who are less familiar on the call, is is really... It's it's diverges very strongly between strategies that follow a quality growth approach and strategies that tend to follow a more deep value approach. And depending on, you know, which way the wind is blowing, these funds can do well or do poorly.

51:16 Even though, you know, their stock picking might be solid, there's a lot of other factors that that tend to influence them. And from my perspective, AVI has proven itself, you know, through different cycles, through different types of market, through COVID, through everything that... That's been thrown at it to be able to produce those returns that are really not. So so they're really separate from what's happening in the broader market, which is, I think, a really strong characteristic of it. And I think with Fidelity, they tend to be more of that sort of quality growth type of strategy. And, yes, they did very well in 2020, which was, as we know, the year of COVID. But but, again, I think I think they do tend to be swung by by different market environments, which is which is the way for most Japan funds.

52:10 And, I mean, nothing else to add other than that, really. You know? I think I think it will be down to down to the shareholders to see what they want to do. Just to bring this back to macro, if I may, Joe, unless you have anything else to add on on on that topic. We've been asked, what do we think of the yen? Which, you know, I I always answer this by saying we're not we're not macro managers, but I think there are couple of things that we can highlight. One is that the Bank of Japan has has committed to, pretty vocally, a normalization of monetary policy to... And and the the upshot of that, of course, will be that we'll see, hopefully, a slightly stronger yen. Nothing probably as dramatic as we've seen in terms of the devaluation of the yen over the past couple of years, but there are a number of different factors at work. One is that they are very aware that having had decades of cost of e... Quantitative easing and and negative interest rates, they want to get to a point where they are on a healthier track to normalize rates.

53:19 And it will be a very slow process. They have said, you know, the last thing they want to do is shock markets. So it will be slow and steady and very measured. The other the other facts consider is that the Bank of Japan and the government are under a lot of pressure from domestic consumers. So the average Japanese person now is paying almost twice as much for basic goods like rice, and and they're not very happy about it. And this imported inflation that's coming in from the weekend in terms of food pricing and energy pricing is hitting not just the the everyday consumer, but also a lot of domestically focused companies. So there is there is definitely a sort of an orchestrated effort to try and get a more stable a more stable level to the yen. On the other side of the coin, you've got America.

54:16 Trump has been pretty vocal as well about the fact that he thinks the yen is is far too is far too weak, and that puts American exporters at a disadvantage. So you have pressure from that side from that side as well. So we, you know, we we don't have a crystal ball and and lots of different things can happen, but I think it's fair to say that at this point, the the chances of the yen strengthening are probably higher than the yen weakening, and that would be, as we've mentioned a couple of times now, positive for for the strategy. Yeah. One thing to add, Nikola, without complicating things, to the extent that we're likely to see yen strengthening and as we have seen over the last few days, that is likely to be beneficial to small cap Japan over large cap Japan. So large cap Japan has been a great beneficiary of the weekend. Large cap Japan comprises a lot of the exporters that have done well from weekend.

55:19 And and, historically, we've we've seen for much of much of the time, small cap Japan outperform large cap Japan. We haven't seen that over the last couple of years as the yen has been weakening. So to the extent that that yen trend is reversing and we're gonna see some strength, it's probably the time which you'd expect small cap Japan to be better than large cap. Exactly. If anyone has any more questions, please do send them through. That's great, Nicolas. Thank you very much indeed and to to Joe for updating investors and also for being so generous with your time with the q and a. Just mindful, I know you guys have got back to back meetings today. Joe, I know investor feedback will be particularly important to you and Nicola. I'll shortly redirect those on the call to give you their thoughts and their expectations. But before doing so, Joe, I wonder if I may just come back to you for a couple of closing comments.

56:13 Yeah. I think the most relevant thing I can say is that... Is really to to to look at what's been happening over the last few days. And as one listener said, called it madness, And and it is madness. And having seen a number of market crashes in in my career, they never get any easier. But, you know, deep down, I I I know that when you stick to fundamentals, when you don't panic, when you continue doing what we have demonstrated works, then that's likely to lead to the to the best outcome certainly in in the longer term. In the short term, it it can be unpleasant or uncomfortable, and that is really what we're doing. We know that there's a commitment in Japan to corporate governance reform to shareholder returns. We know that a lot of our companies have got really good businesses.

57:01 They've got rock solid balance sheets and that this this market turmoil will throw up opportunities, and we we intend to plan on keeping our heads focusing on the fundamentals, focusing on what we do know rather than trying to second guess what might be coming out of the White House and what might be thrown at markets next. And I think if we do that, we've got real real prospects of generating not only strong relative returns, but also more importantly, strong absolute returns for our shareholders. Our companies are very undervalued, and there is a there is a strong

57:38 movement in Japan to capitalize on that and to generate shareholder returns. So, you know, I'm I'm pretty confident about the future prospects of AVI JAPAN. I recognize it could be a little bit bumpy in the near term, but those bumpy periods of times that we sow really the returns for the future where, in a way, we do our our best work. So I thank you for your support. So thank you. That's great, Joe. Nicolas, thank you once again for your time this morning. Companies ask investors not to close this session as we now automatically redirect you for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of management team of AVI JAPAN OPPORTUNITIES TRUST PLC, we'd like to thank you for attending today's presentation and enjoy the rest of the day.