Annual Financial Report
Invesco Bond Income Plus Limited
Annual Financial Report for the year ended 31 December 2022
The following text is extracted from the Annual Financial Report of the Company for the year ended 31 December 2022. All page numbers below refer to the Annual Financial Report which will be made available on the Company's website.
Financial Information and Performance Statistics
Net asset value – total return with dividends reinvested
| 2022 | 2021 | |||
| Total return dividends reinvested(1)(2) | ||||
| Net asset value | -10.8% | +5.3% | ||
| Share price | -5.2% | +4.2% | ||
| Capital Statistics | ||||
| At 31 December | 2022 | 2021 | change % | |
| Net assets (£000) | 281,089 | 326,730 | –14.0 | |
| Net asset value per ordinary share(2) | 162.20p | 193.82p | –16.3 | |
| Share price(1) | 166.00p | 187.25p | –11.3 | |
| Premium/(discount)(2) | 2.3% | (3.4)% | ||
| Gearing(2) | ||||
| gross gearing | 19.1% | 12.0% | ||
| net gearing | 15.7% | 9.5% | ||
| Performance Statistics | ||||
| Year Ended 31 December | 2022 | 2021 | ||
| Revenue return per ordinary share | 12.47p | 11.21p | ||
| Capital return per ordinary share | (32.98)p | (1.89)p | ||
| Total return | (20.51)p | 9.32p | ||
| Dividend per ordinary share for the year | 11.25p | 10.75p | +4.7% | |
| Ongoing Charges Ratio(2) | 0.86% | 0.87% | ||
(1) Source: Refinitiv.
(2) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 78 to 80 of the financial report for details of the explanation and reconciliations of APMs.
Chairman’s Statement
Highlights
• Share price decreased by 5.2% and NAV down by 10.8%, both on a total return basis with dividends reinvested(1).
• Dividend of 11.25 pence per share for the 2022 financial year, an increase of 4.7% on the dividend paid for the 2021 financial year.
• Share price moved to a premium of 2.3% at year end compared to a discount of 3.4% at prior year end(1).
(1) Alternative Performance Measure (‘APM’). See Glossary of Terms and Alternative Performance Measures on pages 78 to 80 of the financial report for details of the explanation and reconciliations of APMs.
Soaring inflation dominated the financial landscape in 2022 following Russia’s invasion of Ukraine in February. Ukraine experienced devastation and suffering on a scale not seen in Europe since the Second World War. Beyond Ukraine’s borders the invasion resulted in a ‘supply-side’ shock in the form of a sudden disruption to food exports and, as European governments initially struggled to find alternatives to Russian-supplied energy, gas prices spiked to their highest levels in over ten years. This disruption came at a time when inflation was already on the rise as a consequence of the economic dislocation caused by Covid-19.
Inflation rose sharply throughout the developed world though by the end of the year there were some indications that it had at least reached a peak. In the UK our exposure to volatile global gas prices, sterling’s weakness and a worrying post-Covid-19 labour market all fuelled the surge in prices with consumer inflation reaching 11.1% in October. Domestic economic woes were compounded by a year of political turmoil which saw three different Conservative Prime Ministers take office and capital markets recoil from the policy programme set out by Liz Truss during her fleeting premiership.
Central banks were forced to react to catch up with soaring prices and interest rates were increased aggressively in an effort to drive inflation back within target ranges over the medium term. The Bank of England raised the base rate to 3.5%, the highest level in fourteen years, and the Federal Reserve increased interest rates to a target range of 4.25-4.50% marking a decisive end to the period of ultra-low interest rates introduced after the Global Financial Crisis of 2007-8.
Performance
Unsurprisingly given this environment high yield markets experienced a difficult twelve months. Yields rose sharply as investors fretted over the degree to which tighter monetary policy would result in weaker economic activity. Shareholder returns were disappointing during the year as reflected in the Statement of Comprehensive Income on page 53. The Company’s net asset value (‘NAV’) total return for the year was –10.8%, compared to a total return of –10.4% for the ICE Bank of America Merrill Lynch European High Yield Index (‘the Index’) and an average return of –11.7% for funds in the Investment Association Sterling Strategic Bond Sector. The share price total return for the year was –5.2%, a lower decline than the NAV due to the fact that the share price benefitted from re-rating (relative to NAV) during the twelve months.
It is the Board’s view that investment performance is best assessed over a long term horizon and therefore we pay particular attention to returns over three and five years. For the three and five years to the end of 2022 the Company’s NAV total return was 0.4% and 9.8% respectively. This outcome compares favourably with total returns of –3.9% and 5.6% for the Index.
Income Account
Our investment policy is to provide a high level of dividend income relative to prevailing interest rates and I am pleased to report that we were once again able to achieve that goal by a comfortable margin. Moreover, we were able to increase the dividend payable to shareholders for a second successive year. We announced a dividend for 2022 of 11.25 pence per share, a 4.7% increase on the 10.75 pence per share announced for 2021. The dividend was 1.11x covered by earnings.
The dividend was paid in four instalments, with the fourth dividend payment paid on 20 February 2023 in the form of an interim dividend payment. Paying the final instalment in the form of an interim dividend means that it can be paid earlier than would be the case had we declared a final dividend, since this would require approval at the Annual General Meeting later in the year.
May of 2023 will see the second anniversary of the merger of City Merchants High Yield Trust Limited and Invesco Enhanced Income Limited. At the time of the merger we communicated to shareholders our intention to target a dividend of 11.0 pence per share for the three year period following the merger. It is pleasing to report that we are firmly on track to exceed this objective and that the Board is targeting a dividend of 11.5 pence per share for the coming year.
Discount/Premium
The unfavourable economic backdrop meant that on average companies within our AIC sector (Debt – Loans & Bonds) traded at a discount to their NAV’s throughout 2022 and for much of the year our share price also remained at a discount. However, in the autumn we returned to a premium and having started the year at a discount to NAV of 3.4% we closed the year at a premium of 2.3%.
We were able to issue a total of 4,725,000 shares during the year to meet the increase in demand. Shares were issued at an average premium to NAV of 1.5%. I have previously commented on the advantages of scale, for example in terms of the potential for greater share price liquidity and lower ongoing charges, and it is therefore pleasing to report that we have been able to grow shares in issue in 2022 and that we comfortably maintained our position as the largest company within our AIC sector.
Gearing
The Company’s policy on borrowing is set by the Board and remains unchanged. The maximum amount of borrowing is 30% of total assets. The decision to gear the portfolio within this framework rests with the Manager and is determined by the Manager’s assessment of risk and return within the high yield market. The Company maintained a geared portfolio throughout 2022 and as at 31 December 2022 gross gearing was 19.1% (12.0% as at the 31 December 2021). Net gearing was 15.7% at year-end compared to 9.5% at the start of the year. Our preferred method of gearing the portfolio is by the use of repurchase agreements (‘repo agreements’), which are described in more detail on page 12.
Ongoing Charges
Our preferred cost measure is the Company’s ongoing charges ratio (‘OCR’) details of which can be found on page 12. The OCR for the year was 0.86% compared to 0.87% in 2021. The Board remains focussed on ensuring that the costs incurred in managing your company are competitive and it is therefore pleasing to note that your Company had the lowest OCR within its AIC sector at the time of writing this report.
The Board
As a result of the merger in 2021 the number of Board members increased from five to six. I have previously noted our intention to revert to a board of five directors in 2023, and Kate Bolsover, our Senior Independent Director will retire from the Board at the AGM in June of this year. I want to express my thanks to Kate for her invaluable contributions to the successful completion of the merger and to the Board during the period post-merger. Heather MacCallum will become Senior Independent Director on Kate’s retirement and Caroline Dutot will take over the Chair of our Nomination and Remuneration Committee.
In 2022 the FCA announced new requirements for boards to include a statement in their annual financial report setting out whether they have met certain board diversity targets. While the Company is not required to report against these targets until next year’s annual report we have opted to do so this year, and details can be found on page 17. We regularly review the skills, experience and diversity within the Board to ensure that we have the right resources to function effectively and in 2022 we used a specialist firm to assist our assessment of board effectiveness and to benchmark ourselves against the boards of similar companies.
In a new departure for the Board we decided to participate in the Board Apprentice programme. This is a scheme which allows individuals to gain first-hand experience of the functioning and dynamics of boards. The Board Apprentice programme is dedicated to increasing diversity and equality on boards and we were therefore pleased to support this initiative by appointing Raj David as a board apprentice for twelve months from 1 December 2022. Raj will attend our Board and Committee meetings as an observer. The role is unremunerated.
Annual General Meeting (‘AGM’)
The AGM will be held on 27 June 2023 at 11.00am at the Jersey offices of our Company Secretary. Further details of the AGM arrangements can be found on page 36.
Webinar
In addition to the AGM, the Company will be hosting a webinar which will include a presentation from our Portfolio Manager followed by a question and answer session. The webinar will be held on 23 May 2023 at 10.00am and further details of how you register to attend the webinar can be found on page 36.
Outlook
The course of inflation will continue to dominate the financial landscape for the foreseeable future. It is reasonable to expect the recent declines in energy and commodity prices to presage a fall in consumer price inflation over the next year which in turn should allow interest rates to plateau and for markets then to anticipate a more favourable monetary environment. The risks to this relatively benign outlook include the potential for the conflict in Ukraine to escalate, together with the possibility that inflation proves ‘sticky’ and hence difficult to force back within central bank target ranges. In any event we expect 2023 to be a year of weak economic growth as the impact of last year’s rapid interest rate hikes take hold.
Turning to prospects for high yield markets it is noteworthy that yields are well above the average levels of the past ten years and so markets do appear to be on a somewhat cautious footing. This is an encouraging point to note for investors with a longer term viewpoint and in the Portfolio Managers’ Report which follows, Rhys and Edward provide commentary on how the portfolio is positioned to take advantage of the current environment.
My comments to shareholders in recent years have necessarily focussed on the adverse consequences of macroeconomic events such as Covid-19, the conflict in Ukraine and latterly the global surge in inflation. Moreover, as I write these comments, the plight of several weaker banks has necessitated intervention by authorities both in Europe and the USA. We are monitoring developments closely for signs these failures might suggest systematic challenges rather than, as it currently appears, problems which are largely confined to the banks concerned.
Despite the economic and market turbulence of recent years I believe your Company has demonstrated its resilience, combining a proven, successful investment approach with the benefits of scale that come from its position as largest company in its sector. While I suspect that we will continue to have to navigate economic and political challenges in 2023 I am nevertheless confident that your Company remains in a strong position to capture the long term opportunities provided by high yield markets.
Tim Scholefield
Chairman
27 March 2023
Portfolio Managers’ Report
Q&A
Portfolio Manager
Rhys Davies, CFA, Fund Manager and Senior Credit Analyst
Rhys is a fund manager and senior credit analyst for the Henley-based Fixed Interest team.
He began his investment career with Invesco in 2002, moving to the Henley Fixed Interest team in 2003. He became a fund manager in 2014. He manages high yield credit portfolios.
He holds a BSc (Honours) in Management Science from the University of Manchester Management School. He is a CFA charterholder.
Deputy Portfolio Manager
Edward Craven, FCA, Fund Manager and Senior Credit Analyst
Edward is a fund manager and senior credit analyst for the Henley-based Fixed Interest team.
He began his career with KPMG in 2003. In 2008 he moved to The Royal Bank of Scotland, where he worked in structured finance. He joined the team at Invesco in 2011 as a credit analyst and became a fund manager in 2020, managing multi-asset and high yield funds.
He holds a Master’s degree in Physics from the University of Bath. He is an FCA qualified chartered accountant.
Q: What happened to bond markets in 2022?
A: It was a challenging year for financial assets with surging inflation driving market turmoil.
With consumer price growth rising to double-digit levels, central banks tightened monetary policy at an unprecedented rate. Their action prompted a sharp sell-off in global bond markets. Several parts of the market recorded their worst annual performance since records began. The UK gilt market was hit particularly hard after the mini-budget fiasco in late September when the Bank of England was forced to intervene in the market to restore stability as pension funds became stuck in a ‘doom loop’ of selling gilts to meet cash calls on leveraged bets. UK gilts lost a quarter of their value in 2022. Interest rate sensitive investment grade bonds also lost significant ground, down about 20%. By comparison, the performance of high yield bonds held up relatively well with the ICE European Currency High Yield Index recording a 10.4% loss (hedged to sterling).
To stem surging inflation the US Federal Reserve raised interest rates several times in 2022. This took the federal funds rate to a targeted range between 4.25% and 4.50%, considerably higher than where it began the year at between 0.00% and 0.25%. Fears rose that the cumulative effect of these hikes could push the US economy into recession. This ‘inflation versus growth’ conundrum also played out in Europe where the Bank of England and the European Central Bank (‘ECB’) faced the quandary of increasing borrowing costs when data pointed to a slowdown in economic activity. Over the course of the year, the Bank of England rate was hiked from 0.25% to 3.5% and the ECB Main Refinancing Rate from 0% to 2.5%. Bond markets recovered some lost ground in Q4 on evidence that inflation had peaked, raising hopes that central banks would reduce the pace of rate hikes in 2023.
Against this backdrop the yield on the €/£ICE European Currency High Yield Index rose significantly over the year, moving from 3.43% to 8.00%. With recessionary concerns mounting over rising borrowing costs, credit spreads for high yields bonds widened, increasing from 337bps to 515bps.
Q: How did the Company perform?
A: Over the twelve months to 31 December 2022 the share price fell from 187.25p to 166.00p, but with dividends reinvested, the Company delivered a negative share price total return of –5.2%. The net asset value per share total return was –10.8%, a modest underperformance compared to a return of –10.4% for the ICE European Currency High Yield Index (sterling hedged). Whilst income returns were enhanced by gearing, capital returns were adversely impacted.
Q: What were the key contributors and detractors of performance?
A: The –10.8% net asset value total return of the portfolio was driven by widespread price falls across the bond market. In a year when the UK base rate was hiked eight times (from 0.25% to 3.50%), there were few places to hide in the bond market. Interest rate risk was the main negative factor in returns.
The portfolio suffered negative returns in a wide range of bonds, including corporate high yield, investment grade and financials. However, the addition of new bonds and increased exposure to existing holdings as prices fell and yields/coupons rose, increased the level of yield in the portfolio. Later in the year, with a partial recovery in prices, some of the portfolio’s purchases contributed positively.
At an individual bond level the holding in Frigoglass Finance, a Greece-based refrigeration equipment company with production facilities in Russia, was the largest detractor (–74bps). The company is working to deal with the disruption and has come to an agreement with creditors to secure additional funding. We believe the business is still viable. Swedish real estate firm Heimstaden was another notable detractor (–27bps) with rising interest rates prompting concerns that its credit rating could come under pressure.
Following its successful debt restructuring in 2021, Petra Diamonds was a notable contributor for the second consecutive year (+39bps). Benefitting from higher prices for diamonds the company continues to make progress in strengthening its balance sheet through the generation of healthy free cash flow and the reduction of debt. Petra Diamonds is an example where our experience in assessing distressed bonds, aided by working with the companies through restructurings, can provide additional returns for the portfolio.
Q: What changes were made to the portfolio?
A: The Company was active in the period, seeking to invest at the higher yield levels available in the market, while taking due regard to the risk through fundamental credit research. We took advantage of market weakness to add exposure to subordinated bank debt as well as investment grade and high yield corporates. The yields available on many bonds are now at attractive outright levels. Many bonds are priced below par and so offer the potential for price appreciation as well as coupon payment. Whilst we remain vigilant to the broader risks, on an individual bond basis we remain comfortable with the credit risks of the bonds held within the portfolio.
New issue Additional Tier 1 bank bonds with high coupons were purchased from high quality continental European banks. We also saw good value in new issues of higher ranked ‘Lower Tier 2’ bank debt from UK clearers as well as an investment grade-rated senior bank bond from a top US bank. These bonds came to the market with significantly higher coupons than were offered in 2021. Outside of financials, we added several high yield and investment grade bonds in the secondary market. These were purchased at significant discounts to par and included BB-rated bonds with attractive yields. We anticipate that these bonds are likely to return to par ahead of their maturity dates. So long as a company can afford to pay a higher interest cost against a weaker economic backdrop, then such bonds represent excellent value for the longer term income generation of the portfolio.
The allocation to corporate high yield was increased during the year and remained above 50% until November when it was reduced to 48.4%. Exposure to subordinated bank and insurance was gradually increased over the year from 27.1% to 30.7%.
Net gearing was increased from 9.5% to 15.7%. Gearing is one of the tools we can use to adjust the level of risk in the portfolio aligned with the level of opportunity we see in the market. Although the cost of borrowing has gone up, we believe gearing is still an attractive option to utilise given the higher level of yield we can now get from the bonds we want to buy.
Q: What opportunities were on offer in the primary market?
A: Corporate high yield issuance was low in 2022 and while supply picked up a little in Q4, full-year volume in the European currency markets was €32 billion, the lowest level since 2009. Taking into account redemptions, net supply was €1.5 billion versus €85.8 billion in 2021. Issuance was broadly split between BB and B rated bonds with only a residual balance being in lower rated credit (according to data from JP Morgan). While low issuance was a constraining factor, the bonds that did come to the market did provide compelling opportunities. There was also issuance in financials where attractive coupons were on offer.
There was more choice and variety in the secondary market however where a lot of bonds were trading at significant discounts to par. Alongside corporate high yield and subordinated financials, the risk/reward for investment grade improved given the sharp rise in yields.
Q: How is Environmental, Social and Governance (‘ESG’) integrated into the investment process?
A: Whilst we consider ESG factors in our analysis of bonds and bond issuers, and we consider these to be important elements in determining the opportunity the securities represent, we are not bound by any specific ESG criteria in choosing the bonds to hold in the portfolio.
The Investment team incorporates ESG issues in their investment process as they evaluate new ideas, in their engagement with companies and as an element of ongoing portfolio monitoring. ESG ratings are part of the toolkit of both financial and ESG metrics considered as a starting point for further analysis and engagement. Where ESG issues are flagged for further research, the investment team, in partnership with the investment centre’s specialist ESG team, targets ESG research and dialogue towards those companies. Consequently, ESG elements are regularly incorporated into dialogue with companies.
Over the course of 2022, the Henley Fixed Interest team had over 100 ESG engagements (either meetings dedicated to ESG or ESG discussions within a wider meeting). Recent engagements with companies include meeting Celanese, Eurogrid and Heimstaden. Celanese is a leading producer of chemicals and high performance polymers. The company came to the market with a new issue to fund an acquisition. More than 5% of their revenue is derived from tobacco products, an important metric in ESG analysis. We did not invest in the bond issue. Eurogrid is an operator of electricity transmission assets in Germany. The company issued a green bond with proceeds to be allocated to offshore wind grid integration and to enhance the transmission systems capacity for renewable energy. We met Heimstaden’s Investor Relations and Chief Sustainability Officer to understand how their acquisition of assets in the Czech Republic will impact their decarbonisation strategy. The company has set clear targets to reduce emissions by 42% by 2030. We were reassured by Heimstaden’s continued commitment to decarbonisation and we will engage with management and closely monitor progress in 2023.
Finally, the ESG team provides formalised ESG portfolio monitoring. This is a rigorous semi-annual process and includes a meeting to go through the portfolio from an ESG perspective. It is important to note that ESG ratings can be useful as a tool or a flag. The Henley Investment Centre’s approach to ESG means that investment teams make their own subjective conclusions about the ESG characteristics of each investment held and about the overall ESG characteristics of the portfolio.
Q: What is your outlook from here?
A: Looking ahead, it is important to contrast the set of conditions that exist now versus a year ago. The very low levels of yield that many bonds had reached by the start of 2022 exacerbated the negative impact of entering a rate-rising environment. Thankfully, that is not the case today, with bond yields at significantly higher levels. Not only does that offer more yield compensation for bond investors but it dampens the negative impact of any further rise in yield. Furthermore, there are tentative signs that inflation may have peaked in developed economies. In effect, the starting point for bonds in 2023 is much better than a year ago.
Whilst we are positive on the yield and opportunities available today in bonds, we remain cautious on our outlook for the global economy. Higher borrowing costs are a challenge for businesses and consumers in general. We have also seen evidence very recently of weakness in some banks. Apart from the direct impact for investors, this is always an important factor in wider economic sentiment. This leads us to focus the portfolio on the better-quality issuers. Periods of market strength allow an opportunity to re-examine and potentially sell the bonds of companies that face greater challenges in this environment. Meanwhile, the bonds of good quality companies continue to offer attractive yields. We also expect companies to use periods of market strength to issue bonds priced at much higher coupons than we have seen for several years. The Company is ready to purchase these bonds, with a solid liquidity position, bolstered by the very welcome stream of share issuance. We believe the portfolio offers good value for investors seeking a high level of income.
Rhys Davies Edward Craven
Portfolio Managers
27 March 2023
Business Review
Purpose, Business Model and Strategy
Invesco Bond Income Plus Limited is a Jersey domiciled investment company which is listed on the London Stock Exchange
The Company’s purpose is to generate returns over the long-term for its shareholders by investing their pooled capital to achieve the Company’s investment objective through the application of its investment policy (set out below) and with the aim of spreading investment risk.
The strategy the Board follows to achieve the objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied.
The business model the Company has adopted to achieve its objective is to contract investment management and administration to appropriate external service providers, who are subject to oversight by the Board. The principal service providers are:
– Invesco Fund Managers Limited (the ‘Manager’) to manage the portfolio in accordance with the Board’s strategy; and
– JTC Fund Solutions (Jersey) Limited (the ‘Company Secretary’) to provide company secretarial, compliance and general administration services.
In addition to the management and administrative functions of the Manager and the Company Secretary, the Company has contractual arrangements with Computershare Investor Services (Jersey) Limited to act as registrar and the Bank of New York Mellon (International) Limited (‘BNYMIL’) as depository and custodian. As noted in the Company’s 2021 Annual Financial Report, the Board decided to change the Company’s registrar to Computershare Investor Services (Jersey) effective at close of business on 1 April 2022.
The Board has oversight of the Company’s service providers, and monitors them on a formal and regular basis. The Board has a collegiate culture and pursues its fiduciary responsibilities with independence, integrity and diligence, taking advice and outside views as appropriate and constructively challenging and interacting with service providers, including the Manager. The portfolio managers responsible for the day-to-day management of the portfolio are Rhys Davies, Portfolio Manager and Edward Craven, Deputy Portfolio Manager, supported by the wider fixed interest team.
The Company is an alternative investment fund for the purposes of the Alternative Investment Fund Managers Directive.
Investment Objective and Policy
Investment Objective
The Company’s investment objective is to seek to obtain capital growth and high income from investment, predominantly in high-yielding fixed-interest securities.
Investment Policy
The Company seeks to provide a high level of dividend income relative to prevailing interest rates mainly through investment in bonds and other fixed-interest securities. The Company also invests in equities and other equity-like instruments consistent with the Investment Objective.
This Investment Policy should be read in conjunction with the descriptions of Investment Style, Investment Limits, Derivatives and Currency Hedging, and Borrowings set out below.
Investment Style
The Manager seeks to ensure that the portfolio is diversified, having regard to the nature and type of securities (including duration, credit rating, performance and risk measures and liquidity) and the geographic and industry sector composition of the portfolio. The Company may hold both illiquid securities (for example, securities where trading volumes are relatively low and unlisted securities) and concentrated positions (for example, where a high proportion of the Company’s total assets are comprised of a relatively small number of investments).
Investment Limits
– the Company may invest in fixed-interest securities, including but not restricted to preference shares, loan stocks (convertible and redeemable), corporate bonds and government stocks, up to 100% of total assets;
– investments in equities may be made up to an aggregate limit of 20% of total assets;
– the aggregate value of holdings of shares and securities in a single issuer or company, including a listed investment company or trust, will not exceed 15% of the value of the Company’s investments; and
– investments in unlisted investments will not exceed 10% of the Company’s total assets for individual holdings and 25% in aggregate.
All the above limits are measured at the time a new investment is made.
Derivatives and Currency Hedging
The Company may enter into derivative transactions (including options, futures, contracts for difference, credit derivatives and interest rate swaps) for the purposes of efficient portfolio management. The Company will not enter into derivative transactions for speculative purposes.
Efficient portfolio management may include reduction of risk, reduction of cost and enhancement of capital or income through transactions designed to hedge all or part of the portfolio, to replicate or gain synthetic exposure to a particular investment position where this can be done more effectively or efficiently through the use of derivatives than through investment in securities or to transfer risk or obtain protection from a particular type of risk which might attach to portfolio investments.
The Company may hedge against exposure to changes in currency rates to the full extent of any such exposure.
Borrowings
The Company’s borrowing policy is determined by the Board, which has set a maximum of 30% of the Company’s total assets. This limit may be varied from time to time in the light of prevailing circumstances, but has not been changed since the Company’s incorporation in its current form. The Manager has discretion to borrow within the limit set by the Board. Any borrowings are covered by investments in matching currencies to manage exposure to exchange rate fluctuations.
The Board has reviewed the methods of financing available to the Company including repo financing whereby a company participates in sale and repurchase arrangements in connection with its portfolio. Under these arrangements, a company sells fixed interest securities and is contractually obliged to repurchase them at a fixed price on a fixed date, whilst retaining economic exposure to the securities sold. The difference between the (lower) sale price and the later purchase price is the cost (effectively interest) of the repo financing. Repo financing agreements are in place and may be used subject to the aggregate 30% ceiling. At the year end, the sum borrowed using this method was £53.8 million (2021: 39.1 million). This represents gross gearing of 19.1% with cash of 3.4% giving net gearing of 15.7% (2021: gross gearing of 12.0% with cash of 2.5% giving net gearing of 9.5%)(1).
(1) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 78 to 80 of the financial report for details of the explanation and reconciliations of APMs.
Key Performance Indicators
The Board reviews performance by reference to a number of Key Performance Indicators which include the following:
• Performance
• Dividends
• Premium/Discount
• Ongoing Charges Ratio
Performance
As the Company’s objective is to seek to obtain capital growth and high income, the performance is best measured in terms of total return. There is no single index against which the Company’s performance may be meaningfully assessed. Therefore, the Board refers to a variety of relevant data and this is reflected in both the Chairman’s Statement and the Portfolio Managers’ Report on pages 6 to 10. The Manager has a long-term horizon and consequently the Board pays close attention to returns over three and five years in its assessment of investment performance. As explained in the Chairman’s Statement, the Board has noted the performance in the year and is satisfied with the longer term performance of the portfolio.
Dividends and Dividend Payment Policy
Dividends form a key component of the total return to shareholders and after its merger with Invesco Enhanced Income Limited in May 2021 the Company has adopted a dividend policy to target an annualised dividend of 11.00p per share over a three year period following the merger transaction. In the year under review, the Board agreed to pay an increased dividend of 11.25p per share, comprising first and second interim dividends of 2.75p and third and fourth interim dividends of 2.875p, to shareholders. Dividends paid over the last ten years are shown in the table on page 4.
The Board’s Dividend Payment Policy is to pay dividends on a quarterly basis in May, August, November and February in respect of each accounting year. The timing of these regular three-monthly payments means that shareholders do not have an opportunity to vote on a final dividend. Recognising the importance of shareholder engagement, and although not required by any regulation, shareholders are given an opportunity to vote on this policy at the forthcoming AGM.
Premium/Discount
The Board monitors the price of the Company’s shares in relation to their net asset value and the premium/discount at which the shares trade. Powers are taken each year to issue and buy back shares, which can assist short term management, however the level of discount or premium is mostly a function of investor sentiment and demand for the shares, over which the Board may have limited influence. The ideal would be for the shares to trade close to their net asset value. The graph on page 12 shows the discount/premium through the year, ending with a premium of 2.3%.
Ongoing Charges Ratio
The expenses of managing the Company are carefully monitored by the Board. The standard measure of these is the ongoing charges ratio (OCR), which is calculated by dividing the sum of such expenses over the course of the year, including those charged to capital, by the average net asset value. This ongoing charges ratio provides a guide to the effect on performance of annual operating costs. The Company’s ongoing charges ratio for the current year was 0.86%, compared to 0.87% for the previous year.
Investment Process
At the core of the portfolio managers’ philosophy is a belief in active investment management. They seek to invest where they see the potential for attractive returns and to avoid risks that they do not think are well rewarded. Fundamental principles drive a genuinely active investment approach, with a strong emphasis on value.
The investment process comprises four key elements to deliver the information the portfolio managers use to make their decisions:
• top down, macroeconomic analysis – examining the factors that shape the economy;
• credit analysis using internal and external research with a view to maximising returns from acceptable and understood credit risk exposure;
• value assessment, considering the risk/return profile of any bond in relation to cash, core government bonds and the rest of the fixed interest universe; and
• risk considerations, analysing all holdings to allow for a comprehensive understanding of risks involved to ensure diversification of the portfolio.
The portfolio managers enter into the majority of positions with a view to holding them until their call or maturity date and their investment process is based on making investments where the yield to maturity or call appears to them to be at least an adequate reward for the risk. The nature of the high yield market and the Company’s mandate mean that there will be occasions when the value the portfolio managers assessed in an investment is fully realised by the market. On these occasions, they may exit the position before maturity.
The portfolio managers believe that it is good investment practice to try and keep the level of turnover low, whilst at the same time recognising that this should not at any time act as a deterrent to effective portfolio management. Turnover will generally be very low due to the long term nature of many of the holdings, and given the closed end nature of the Company, the portfolio managers are not presented with regular daily inflows and outflows which require managing.
The portfolio managers also consider the aspects of environmental, social and governance (‘ESG’) details of which are given on pages 17 to 20.
Internal Control and Risk Management
The Directors have overall responsibility for the Company’s system of internal controls and are responsible for reviewing the effectiveness of these controls. This includes safeguarding of the Company’s assets. The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.
The Audit & Risk Committee (the ‘Committee’), on behalf of the Board, has established an ongoing process for identifying and assessing the risks to which the Company is exposed by reference to a risk control summary, which maps the risks, mitigating controls in place, and monitoring and reporting of relevant information to it. The review of the risk control summary also incorporated a robust assessment of new and emerging risks for monitoring purposes.
As part of the process, the Committee has identified five risk categories: strategic; investment management; third party service providers; regulation and corporate governance; and operational. An explanation of these categories follows.
Strategic Risk
The Board sets the Company’s strategy, including setting its objective and how this should be achieved. The Board assesses the performance of the Company in the context of the market and macro conditions and gives direction to, and monitors, the Manager’s actions, and those of other third parties, on behalf of the Company.
Investment Management Risk
Investment management covers management of the portfolio together with cash management, gearing and hedging, all being areas the portfolio managers can control, and which generate the Company’s investment performance.
Third Party Service Providers Risk
The Company has no employees and its Directors are appointed on a non-executive basis. The Company is reliant on Third Party Service Providers (‘TPPs’) for its executive functions. The Company’s most significant TPPs are the Manager, to which portfolio management is delegated, fund accounting and the Company Secretary. Other significant TPPs are the corporate broker, depositary, custodian, registrar and auditor.
Regulation and Corporate Governance Risk
The Company is required to comply with many regulations. For the year under review these included but were not limited to, the provisions of the Companies (Jersey) Law 1991, the UK Listing Rules, the Alternative Investment Fund Managers Directive, the Market Abuse Regulation, the FCA’s Disclosure Guidance and Transparency Rules, the UK Corporate Governance Code and International Financial Reporting Standard (‘IFRS’) as adopted by the European Union.
Operational Risk
Operational risk covers the day to day operational matters mainly at the Manager, but also at other Third Party Service Providers.
A matrix of the risks, set out according to their assessed risk levels after mitigation, enables the Directors to concentrate on those risks that are most significant, and also forms the basis of the list of principal risks and uncertainties on pages 14 and 15. The ratings take into account the Board’s risk appetite and the ongoing monitoring by the Manager.
Oversight of the control environment is based on the Company’s relationship with its TPPs, all of which have clearly defined lines of responsibility, delegated authority, and control procedures and systems. The Company’s main TPPs, the Manager, Fund Accounting and the Company Secretary, all have, a ‘Three Lines of Defence Model’, which is embedded into their risk management systems.
The effectiveness of the Company’s internal control and risk management system is reviewed at least twice a year by the Committee. The Committee received and considered, together with representatives of the Manager, reports in relation to operations and systems of internal controls of the Manager, Company Secretary, accounting administrator, custodian and registrar. The Committee also receives regular reports from the Company Secretary’s compliance officer and the Manager’s internal audit and compliance departments. The Committee also received a comprehensive and satisfactory report from the depositary at the year end Committee meeting. The Company’s risk management policies and procedures for financial instruments are set out in note 19 on pages 64 to 69.
Due diligence is undertaken before any contracts are entered into with any third party service provider. The Manager regularly reviews, against agreed service standards, the performance of TPPs through formal and informal meetings, and by reference to third party independently audited control reports. The results of the Manager’s reviews are reported to and reviewed by the Committee. These various reports and reviews did not identify any significant failings or weaknesses which were relevant to the Company during the year and up to the date of this Annual Financial Report. If any had been identified, the required remedial action would have been taken.
Reporting to the Board at each board meeting comprises, but is not limited to: financial reports, including any hedging and gearing; performance against relevant indices and the Company’s peers; the portfolio managers’ review, including of the market, the portfolio, transactions and prospects; revenue forecasts; and investment monitoring against investment guidelines. The portfolio managers are permitted discretion within these investment guidelines, which are set by the Board. Compliance with the guidelines is monitored daily by the Manager. Any proposed variation to these guidelines is referred to the Board for consideration and approval.
The Board, through the Management Engagement Committee, formally reviews the performance of the Manager, the Company Secretary and the other key TPPs annually. The Board has reviewed and accepted both the Manager’s and Company Secretary’s whistleblowing policy under which staff of both Invesco Fund Managers Limited and JTC Fund Solutions (Jersey) Limited can, in confidence, raise concerns about possible improprieties or irregularities in matters affecting the Company.
Principal and Emerging Risks and Uncertainties
The Board has carried out a robust assessment of the risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. As part of this process, the Board conducted a full review of the Company’s risk control summary and considered new and emerging risks. These are not necessarily principal risks for the Company, but may have the potential to be in the future. In carrying out this assessment, the Board considered the emerging risks facing the Company including geopolitical risks such as the invasion of Ukraine by Russia, evolving cyber threats and ESG, including climate risk. The principal risks that follow are those identified by the Board as the most significant after consideration of mitigating factors and not intended to cover all the risk categories as shown in the Internal Control and Risk Management section on page 13.
| Category and Principal Risk Description | Mitigating Procedures and Ongoing Controls |
| Strategic Risk | |
|
Market and Political Risk
The Company invests primarily in fixed interest securities, the majority of which are traded on global security markets. The principal risk for investors in the Company is a significant fall and/or a prolonged period of decline in these markets. This could be triggered by unfavourable developments globally and/or in one or more regions, such as the current conflict in Ukraine, the ongoing effects of the Covid-19 pandemic and other geopolitical tensions and uncertainties and their impact on the global economy. The Board cannot control the effect of such external influences on the portfolio. Market risk also arises from movements in foreign currency exchange rates and interest rates. |
An explanation of market risk and how this is addressed is given in note 19.1 to the financial statements. The Portfolio Managers’ Report summarises particular macro economic factors affecting performance during the year and the portfolio managers’ views on those most relevant to the outlook for the portfolio. |
|
Regulatory or Fiscal Changes
The Company is incorporated in Jersey which is a low tax jurisdiction subject to global scrutiny. Any adverse global regulatory or fiscal measures taken against such low tax jurisdictions, could negatively impact the Company. |
The Board receives regular reports from the Manager and Company Secretary which highlight any proposed changes to the regulatory/fiscal regimes which might impact the Company. |
|
Wide Discount leading to Shareholder Dissatisfaction
The Company’s shares are subject to market movements and can trade at a premium or discount to NAV. Should the Company's shares trade at a significant discount compared to its peers, then shareholder dissatisfaction may result if shareholders cannot realise the value of their investment close to NAV, with the ultimate risk that arbitragers join the share register. |
The Board receives regular reports from both the Manager and the Company’s broker on the Company’s share price performance and level of discount (or premium), together with regular reports on marketing and meetings with shareholders and prospective investors. The Board recognises the importance of the Company’s scale in terms of the aggregate value of its shares in the market (‘market cap’) in creating liquidity and the benefit of a wide shareholder base, and has the ability to both issue and buy back shares to assist with market volatility. The foundation to this lies in solid investment performance and an attractive level of dividend. |
| Third Party Service Providers Risk | |
|
Lack of Control over, or Unsatisfactory Performance of Third Party Service Providers (‘TPPs’)
Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operations of the Company and affect its ability to pursue successfully its investment policy and expose it to reputational risk. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position. |
Details of how the Board monitors the services provided by the Manager and the other TPPs, and the key elements designed to provide effective internal control, are included in the internal control and risk management section on page 13. |
|
Cyber Risk
The Company’s operational structure means that cyber risk (information technology and physical security) predominantly arises at its TPPs. This cyber risk includes fraud, sabotage or crime perpetrated against the Company or any of its TPPs. |
The Audit & Risk Committee on behalf of the Board periodically reviews TPPs’ service organisation control reports and meets with representatives of the Manager’s Investment Management, Compliance, Internal Audit and Investment Trust teams as well as the Company Secretary’s senior staff and Compliance team. The Board receives periodic updates on the Manager’s and the Company Secretary’s information security arrangements. The Board monitors TPPs’ business continuity plans and testing – including their regular ‘live’ testing of workplace recovery arrangements. |
|
Business Continuity Risk
Impact of a major event, such as Covid-19, on the operations of the service providers, including any prolonged disruption. |
The Manager’s business continuity plans are reviewed on a regular basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements. The Board receives periodic reports from the Manager and third-party service providers on business continuity processes and has been provided with assurance from them all insofar as possible that measures are in place for them to continue to provide contracted services to the Company. |
Viability Statement
This Company is an investment company whose business consists of investing the pooled funds of its shareholders to provide them with capital growth and a high income over the long term, predominantly from a portfolio of high yielding fixed income securities. Long term for this purpose is considered to be at least five years and the Directors have assessed the Company’s viability over that period. However, the life of the Company is not intended to be limited to that or any other period.
The main risk to the Company’s continuation is a significant fall in markets or a prolonged period of decline due to political uncertainty or other macro factors outside the Company’s control. This could lead to shareholder dissatisfaction through failure to meet the Company’s investment objective, through poor investment performance or the investment policy not being appropriate in prevailing market conditions, any of which could affect the demand for and liquidity of the Company’s shares. Accordingly, market and political/fiscal risks, are deemed by the Board to be the key principal risks of the Company and are given particular consideration in the continuing assessment of its long term viability.
The Company’s investment objective and policy are kept under review. The continued relevance of the investment objective and policy are underlined by the Company’s annual continuation vote. Last year nearly 100% of the votes registered were in favour of continuation and the Board has no reason to believe that the continuation resolution will not be passed at the forthcoming and subsequent AGMs.
Performance derives from returns for risk taken. The Portfolio Managers’ Report on pages 9 and 10 sets out the current investment strategy of the portfolio managers. The portfolio contains a high level of relatively high-yielding non-investment grade bonds and these carry a higher risk of default than investment grade paper. This is discussed further in note 19 to the financial statements. The Board has adopted investment limits within which the portfolio managers operate. The Directors and the portfolio managers constantly monitor the portfolio, its ratings and default risk. A bond rating analysis of the portfolio at the year end is shown on page 23. Exposure is weighted towards higher quality issuers where the risk of default is considered to be more remote.
Performance has been strong for many years through different, and difficult, market cycles – as shown by the ten year total return performance graph on page 12. The investment policy has effectively been stress tested by market events in recent times by both global and domestic events such as Covid-19 and the conflict in Ukraine. These events affected performance, but at no time did they threaten the viability of the Company. Whilst past performance may not be indicative of performance in the future, the investment policy has been consistent throughout those past periods.
Performance and demand for the Company’s shares are not things that can be forecast. Indeed the Covid-19 outbreak and the conflict in Ukraine continue to have an impact on the economy and markets. There are no current indications that the Company is unable to weather the continuing effects of the Covid-19 pandemic or the conflict in Ukraine or that performance and demand for the Company’s shares may be permanently affected over the next five years so as to affect the Company’s viability.
As described in note 19.2 to the financial statements on page 68 liquidity risk is not viewed by the Directors as a significant risk. The majority of the Company’s assets are readily realisable and amount to many times the value of its short term liabilities and annual operating costs. The Company is permitted to borrow up to a maximum of 30% of the Company’s total assets and currently has no long-term debt obligations.
Following the merger with Invesco Enhanced Income Limited (‘IPE’) on 19 May 2021, the Company’s shareholders now benefit from greater economies of scale resulting from the enlarged asset base of the Company through lower management fee arrangements, lower ongoing charges, improved liquidity and the potential for strong share price rating.
Based on the above analysis, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of their assessment. Despite the ongoing disruption from Covid-19 and the conflict in Ukraine and their impact on global markets, the Directors consider that the Company’s investment strategy will continue to serve shareholders well over the longer term.
Investment Management
As noted earlier, the Manager provides investment management and certain administrative services to the Company. The agreement is terminable by either party giving no less than three months’ prior written notice and subject to earlier termination without compensation in the event of a material breach of the agreement or the insolvency of either party. The management fee is payable quarterly in arrears and is equal to 0.1625% of the value of the Company’s total assets under management less current liabilities at the end of the relevant quarter. In addition, the Manager is paid a fee of £45,000 for marketing services.
The portfolio managers responsible for the day-to-day management of the portfolio are Rhys Davies, Portfolio Manager, and Edward Craven, Deputy Portfolio Manager.
The Manager’s Responsibilities
The Directors have delegated to the Manager the responsibility for the investment management activities of the Company, for seeking and evaluating investment opportunities and for analysing the accounts of investee companies. The Manager has full discretion to manage the assets of the Company in accordance with the Company’s stated objectives and policies as determined from time to time by the Board and approved by shareholders. Within the guidelines specified by the Board, the Manager has discretion to make purchases and sales, make and withdraw cash deposits, enter into underwriting commitments and exercise all rights over the investment portfolio. The Manager also advises on currency exposures and borrowings.
Assessment of the Manager
The performance of the Manager is reviewed continuously by the Board and the ongoing requirements of the Company and services received are assessed annually with reference to key performance indicators as set out on page 12.
The Management Engagement Committee is responsible for reviewing the Manager. Based on its recent review of activities, the Board believes that the continuing appointment of Invesco Fund Managers Limited remains in the best interests of the Company and its shareholders.
Financial Position
The Company’s balance sheet on page 55 shows the assets and liabilities at the year end. The Company has repo financing agreements in place, with an amount of £53.8 million (2021: £39.1 million) borrowed at year end, representing gross gearing of 19.1% (2021: 12.0%) and net gearing of 15.7% (2021: 9.5%), after taking cash and cash equivalents into account, as at 31 December 2022.
Performance and Future Development
The performance and future development of the Company depend on the success of the Company’s investment strategy. A review of the Company’s performance, market background, investment activity and strategy during the year, together with the investment outlook are provided in the Chairman’s Statement and Portfolio Managers’ Report on pages 6 to 10.
Annual Continuation Vote
The Articles of Association of the Company require that unless an ordinary resolution is passed at or before the Annual General Meeting (‘AGM’) each year releasing the Directors from the obligation to do so, the Directors shall convene a general meeting within six months of the AGM at which a special resolution would be proposed to wind up the Company. Having reviewed the performance of the Company, the Directors have no reason to believe that a resolution to release them from that obligation will not be passed at the AGM to be held later in the year. Further details can be found in note 2 (a) (ii) on page 57.
Substantial Holdings in the Company
The Company has been notified of the following holdings of 3% and over of the Company’s ordinary share capital carrying unrestricted voting rights:
| As at | As at | As at | ||||
| 28 February 2023 | 31 December 2022 | 31 December 2021 | ||||
| Fund Manager/Registered Holder | Holding | % | Holding | % | Holding | % |
| Hargreaves Lansdown, stockbrokers (EO) | 26,952,309 | 15.4 | 26,574,014 | 15.3 | 25,250,348 | 15.0 |
| Interactive Investor (EO) | 19,769,982 | 11.3 | 19,654,448 | 11.4 | 19,036,735 | 11.3 |
| Invesco* | 17,540,155 | 10.0 | 17,825,962 | 10.3 | 17,892,684 | 10.6 |
| Charles Stanley | 10,009,945 | 5.7 | 10,136,841 | 5.9 | 12,172,734 | 7.2 |
| AJ Bell, stockbrokers (EO) | 9,510,490 | 5.4 | 9,145,250 | 5.3 | 8,644,124 | 5.1 |
| Redmayne Bentley, stockbrokers | 8,082,148 | 4.6 | 8,166,730 | 4.7 | 9,532,025 | 5.7 |
| HSDL, stockbrokers (EO) | 6,106,745 | 3.5 | 5,966,781 | 3.5 | 6,023,730 | 3.6 |
| EFG Harris Allday, stockbrokers | 5,730,616 | 3.3 | 5,469,738 | 3.2 | 5,940,127 | 3.5 |
EO: Execution only.
* Held across a number of Invesco Funds. Invesco is not considered a related party. For further information see Related Party Transactions and Transactions with Manager note 23 on page 71.
Board’s Duty to Promote the Success of the Company
The Directors have a fiduciary duty to act, in good faith, for the benefit of shareholders taken as a whole. In the UK, section 172 of the Companies Act 2006 seeks to codify this duty and to widen the responsibility to incorporate the consideration of wider relationships that are necessary for the Company’s sustainability. As a UK listed Company it is necessary for the Company to report against this UK statutory duty, being that the Directors have a duty to promote the success of the Company, whilst also having regard to certain broader matters, including the need to engage with employees, service providers, customers and others, and to have regard to their interests. This is reflected in the summary of the Board’s responsibilities on page 39.
In fulfilling these duties, and in accordance with the Company’s nature as an investment company with no employees and no customers in the traditional sense, the Board’s principal concern has been, and continues to be, the interests of the Company’s shareholders taken as a whole. Notwithstanding this, the Board has a responsible governance culture and also has due regard for broader matters so far as they apply. In particular, the Board engages with the Manager and Company Secretary at every Board meeting and the Management Engagement Committee also reviews the Company’s relationships with these and other service providers, such as the registrar, broker, depositary and custodian, at least annually. The assessment of the Manager consequent to these reviews is set out above.
The Company communicates with its shareholders at least three times a year providing information about shareholder meetings, dividend payments and half-yearly and annual financial results. In addition, the annual general meeting of the Company provides shareholders with the opportunity to attend and meet with the Directors and the Manager. The Company’s AGM will be held on 27 June 2023 at 11.00am at the offices of JTC Fund Solutions (Jersey) Limited. Shareholders are welcome to attend the AGM in person. Shareholders who cannot attend in person are encouraged to submit their votes by proxy.
Board Diversity
The Company’s policy on diversity is set out on page 40, under the section ‘Nomination and Remuneration Committee’. The Board considers diversity, including the balance of skills, knowledge, experience and gender amongst other factors when reviewing its composition and appointing new directors. The Board continues to recognise the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow it to fulfil its obligations.
In view of its size, the Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment. In doing so, the Board will seek to meet the targets set out in the FCA’s Listing Rule 9.8.6R (9)(a), which are set out below.
Although the Company is not required to report against these targets until the 2023 Annual Report, the Board has resolved to do so on a voluntary basis for the year ended 31 December 2022. In accordance with the LR 9.8.6R (9), (10) and (11) the Board has provided the following information in relation to its diversity.
Board Gender as at 31 December 2022
| Number of | Number of | Number in | Percentage of | ||
| Board | Percentage of | senior positions | executive | executive | |
| members | the Board | on the Board | management | management | |
| Men | 2 | 33% | 1B | n/a | n/a |
| Women | 4 | 67%A | 2CD | n/a | n/a |
A exceeds target of 40% as set out in LR 9.8.6R (9)(a)(i)
B the position of Chairman is held by a man
C the positions of Chair of the Audit & Risk Committee and Senior Independent Director are held by women
D exceeds target of 1 as set out in LR 9.8.6R (9)(a)(ii)
Board Ethnic Background as at 31 December 2022
| Number of | Number of | Number in | Percentage of | ||
| Board | Percentage of | senior positions | executive | executive | |
| members | the Board | on the Board | management | management | |
| White British or other White | |||||
| (including minority-white groups) | 6 | 100% | 3 | n/a | n/a |
| Minority ethnic | 0A | 0% | 0 | n/a | n/a |
A less than the target of 1 as set out in LR 9.8.6R (9)(a)(iii).
It is the Board’s intention that the target as set out in LR 9.8.6R (9)(a)(iii) will be taken into account at the time of the next appointment.
The information included above in relation to the gender and ethnic background of the Board has been obtained following confirmation from the individual Directors.
There have been no changes since the year end that have affected the Company’s ability to meet the targets set in LR 9.8.6R (9)(a).
As noted in the Chairman’s statement, Kate Bolsover will retire from the Board at the conclusion of the 2023 AGM. The Board will then comprise 60% female representation and the positions of Chair of the Audit & Risk Committee and Senior Independent Director will continue to be held by women.
Modern Slavery Act 2015
The Company is an investment vehicle and does not provide goods or services in the normal course of business, or have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015.
Environmental, Social and Governance (‘ESG’) Matters
In relation to the portfolio, the Company has delegated the management of the Company’s investments to the Manager, who has an ESG Guiding Framework which sets out a number of principles that are intended to be considered in the context of its responsibility to manage investments in the financial interests of shareholders. A greenhouse gas emissions statement is included in the Directors’ Report on page 35.
The Manager is committed to being a responsible investor and applies, and is a signatory to, the United Nations Principles for Responsible Investment (‘PRI’), which demonstrates its extensive efforts in terms of ESG integration, active ownership, investor collaboration and transparency. The Manager scored four stars for its Investment & Stewardship Policy under new scoring methodology produced by PRI. This followed five consecutive years of achieving an A+ rating for responsible investment (Strategy & Governance) under the previous methodology. In addition, the Manager is an active member of the UK Sustainable Investment and Finance Association as well as a supporter of the Task Force for Climate Related Financial Disclosure (‘TCFD’) since 2019 and published its third iteration of its TCFD-aligned Climate Change Report in 2022. Although TCFD does not apply directly to the Company at present, the Board confirms that it will comply with all reporting regulations as they are implemented.
The Manager is complying with the spirit of the Sustainable Finance Disclosure Regulation (‘SFDR’) which came into effect within the EU on 10 March 2021 and is disclosing in its AIFM document as well as its webpage how sustainability risks are integrated.
The Manager’s investment team incorporates ESG considerations in its investment process as part of the evaluation of new opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value. The Portfolio Managers make their own conclusions about the ESG characteristics of each investment held and about the overall ESG characteristics of the portfolio, although third party ESG ratings may inform their view. Additionally, the Manager’s ESG team provides ESG monitoring.
Regarding stewardship, the Board considers that the Company has a responsibility as an investor towards ensuring that appropriate standards of corporate governance are maintained in the companies in which it invests. To achieve this, the Board does not seek to intervene in daily management decisions, but aims to support high standards of governance and, where necessary, will take the initiative to ensure those standards are met.
The Company’s stewardship functions have been delegated to the Manager. The Manager has adopted a clear and considered policy towards its responsibility as an investor on behalf of the Company. As part of this policy, the Manager takes steps to satisfy itself about the extent to which the companies in which it invests look after shareholders’ value and comply with local recommendations and practices, such as the UK Corporate Governance Code. A copy of the current Invesco Stewardship Policy, which is updated annually, can be found at www.invesco.co.uk.
Insight into Invesco’s ESG Framework
The Henley based Invesco Fixed Income team, of which the portfolio managers are a part, incorporates ESG considerations in its investment process as part of the evaluation of new primary and secondary market opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value.
Invesco’s ESG approach is led globally by their Global Head of ESG and the ESG team. This team reports into the Head of Investment Engagement. This team is further supported by their global proxy function.
At a local level, the Henley Investment Centre’s CIO has ultimate oversight, agrees with and sponsors Invesco’s ESG approach. The Henley Investment Centre ESG investor group is chaired by a member of the global ESG team and is made up of champions from each investment team. The ESG champion is a representative of the individual investment teams that has responsibility for feeding into the overall ESG approach and areas of interest for further analysis. The role of this group is to help facilitate dialogue and share insights from across asset classes and regions within the Henley Investment Centre. The group meets quarterly.
Training is an essential part of Invesco’s commitment to ESG integration, and keeping abreast of the rapidly evolving landscape for responsible investment. Their continuing personal development (‘CPD’) training programme includes ESG modules. This is augmented by other programmes such as global sector meetings and CIO insight meetings.
ESG overview
Although ESG integration forms part of the investment process, the Company is not managed to sustainable ESG objectives, constraints or outcomes.
The portfolio managers’ approach is centred on macroeconomic and corporate credit research and focuses on fundamental valuation to support the active management of portfolios. The Manager has always incorporated ESG analysis into its investment research because it believes that non-financial risks can have a material impact on credit risk and by identifying those risks, it can improve its credit risk assessment and produce better risk-adjusted returns in portfolios.
The core objective of the Manager’s ESG approach is to assess issuers’ performance across environmental, social and governance factors and to determine where those risks are potentially material or mispriced.
The fixed income universe is broad and varied. Geographical, structural and regulatory differences mean that data availability, ESG awareness and management engagement levels can vary greatly. As a result, while the investment team’s commitment to ESG risk assessment is constant, the path to arriving at an ESG-based assessment necessarily differs to account for the constraints and challenges of different circumstances.
Common Principles for ESG Research
The Invesco team’s approach to ESG is based on a belief that incorporating material environmental, social and governance risks into a broader risk assessment, leads to better long-term risk-adjusted returns. In order to do this, the team considers materiality and momentum.
• Issuers may have myriad ESG considerations, but materiality means focussing on those particular ESG risk factors that have the potential to impact an issuer’s credit risk profile.
• Momentum means understanding the evolution of ESG risks. As with all risk, Invesco look to identify positive and negative momentum in ESG risks and assess the potential for those trends to affect creditworthiness. As a firm Invesco encourage positive momentum by engaging with companies. Invesco’s Global ESG team engages with the management of companies and provide views on matters such as corporate strategy, transparency, capital allocation and ESG concerns.
ESG analysis for corporate bonds
The Manager’s credit analysts are responsible for understanding and assessing ESG risks for the companies under their coverage alongside financial credit risk. Corporate credit research is organised around global industrial sectors, allowing the analysts to develop a comprehensive understanding of not only the ESG risks pertinent to each issuer under their coverage but also those risks prevalent in a sector.
This approach of incorporating ESG risk into the broader assessment is undertaken for all issuers of corporate bonds, for both developed or emerging market countries.
External ESG resources
Invesco has a range of third-party research and data available as an input to support the analysts in their ESG risk assessment.
Examples:
• MSCI ESG Scores, industry percentiles and weights
• CDP carbon and scoring data
• Sustainalytics Risk scores and category summary data
• Global Compact compliance or violation fields (MSCI and Sustainalytics)
• ISS Climate Solutions – Scope 1 to 3 emissions and science-based emission targets
• Controversies – MSCI & Sustainalytics data feeds
Invesco’s ESG resources
Invesco’s Global ESG team has resources in research, portfolio analytics and management engagement.
Furthermore, Invesco’s own proprietary developed ESG tool (ESGIntel) provides ESG insights, metrics, data points and momentum scores from over 50 data points and metrics. Sector differences are accommodated with each having its own tailor-made framework.
The tool provides a holistic view on how a company’s value chain is impacted in different ways by various ESG metrics, and ratings are produced both at the overall company and indicator levels to facilitate a focus on higher risk company-specific issues. In addition, momentum indicators highlight a company’s trajectory using five years of data history.
While disclosure levels vary greatly by the company due to sector, size and regional factors, these data dashboards can provide a comprehensive picture of each issuer’s performance.
The importance of fundamental ESG analysis
At the issuer level, data availability, disclosure rules and management engagement levels can vary across each global sector. Raw ESG data can sometimes present a partial or even misleading picture. When placed alongside the fact that issuers themselves have unique features in terms of business models, the weighting of ESG factors in each issuer assessment must be interpreted and understood in a broader context.
In our research process, the qualitative judgement of the credit analyst is therefore central to determining whether an ESG factor is evolving in a manner that may compromise an issuer’s financial indicators and ultimately, its creditworthiness.
ESG in credit selection
Once a credit analyst has undertaken their credit assessment, including that of the materiality and momentum of ESG risks, then credit research is presented to portfolio managers.
The portfolio managers need to assess the type and materiality of any ESG risk and set that against the potential investment return in the context of the Company’s objectives.
Other than the exclusions related to certain types of munitions, there are no pre-determined rules on how securities are selected in light of any ESG risks. Each investment case is likely to have its own unique set of risks. The investment team’s credit selection emphasises fund manager judgement and each case is considered on its own merits.
Engagement with issuers
Invesco engages directly with companies to better understand their positions and their future intentions and lobby for change where Invesco believe it is necessary. Although engagement as pure debt investors can be challenging, Invesco’s ownership of both equity and debt can often be used to increase our voice as a stakeholder. Engagement is carried out on a case by case basis by relevant analysts and strategically with co-ordination through Invesco’s Global ESG team.
Investment teams at Invesco are supported on many ESG engagement activities by a centralised team of ESG professionals. Invesco’s Global ESG team is led by the Global Head of ESG. Reporting to the Global Head of ESG is the Director of ESG Research, who leads the ESG analyst team who focus on this ESG company engagement activity. Invesco has established a global process to ensure that its ESG-targeted engagements are a collaboration between its ESG team and the investment teams across Invesco who may have interest in the issuer:
i. Internal assessment and coordination: the ESG team consults with the investment teams and reviews the ESG Engagement focus list and decides whether to: (a) gather feedback on a topic and provide that feedback to an issuer; (b) schedule a call with the issuer if it is deemed to be necessary; or (c) engage directly with the issuer and serve as a liaison. Invesco’s ESG team will arrange contact between the relevant investment teams and issuers when and if it is deemed necessary. Any ESG engagement meeting is added to a centralised calendar that investment teams can access.
ii. Research and follow up: the ESG research team conducts in-depth ESG research in preparation for these meetings and discusses with the relevant investment teams across Invesco to ensure that companies are questioned on the key ESG topics. The ESG team produces an Engagement Report for these meetings which is shared via the Bloomberg platform for all relevant investment teams to access. Invesco is also a member of several organisations that facilitate collective dialogue with companies and continues to assess other collective engagements that we would like to work more closely with in the future:
• Invesco is a signatory to Climate Action 100+ and is taking a leading investor role on one company and a participative role on at least 6 other companies.
• Invesco joined the Investor Tailings Initiative when it was first launched in 2019. Invesco signed letters that were sent to over 600 companies and actively participated in meetings with companies and governments to ensure the development of higher standards and to evolve the tools to assess companies.
• Invesco signed the Investor statement on Covid-19, to encourage the business community to take what steps they can to mitigate the social impacts caused by the pandemic. Some of these steps include providing paid leave, prioritising health and safety, maintaining employment and maintaining supplier relationships. Invesco has engaged with companies on these topics as part of its ongoing one-to-one ESG engagements.
ESG portfolio monitoring
Dedicated ESG-focused portfolio reviews are in place to complement the existing risk-return portfolio review process. Invesco’s Global ESG team leads each review meeting which is attended by fund managers and credit research analysts. Portfolios are reviewed on the basis of a wide range of ESG metrics on an absolute basis and also relative to benchmarks where appropriate.
ESG portfolio monitoring includes measurement, based on Sustainalytics ESG research data, of total portfolio ESG risk and identification of holdings with the highest and lowest ESG risk. As of the end of 2022, holdings with the highest ESG risk were concentrated in the energy sector. The holdings with the lowest ESG risk were spread across several sectors.
The chart on page 19 compares the weighted average Sustainalytics ESG Risk score of the portfolio versus the reference benchmark as at 30 December 2022. The Sustainalytics ESG Risk Score is based on data covering 59% of the portfolio. The ESG Risk Ratings measure the degree to which a company’s economic value (enterprise value) is at risk driven by ESG factors. A company’s ESG Risk Rating is comprised of a quantitative score on a scale of 0 to 100, where 0 represents no risk and 100 is the severe risk respectively. Based on the quantitative scores, companies are grouped into one of five risk categories (negligible, low, medium, high, severe). In this category, the lower the score the better.
Invesco also carry out Carbon Footprint Analysis of the portfolio, in absolute terms and compared to the wider high yield market, using data from ISS Climate Solutions.
The chart on page 19 shows the total aggregate Scope 1, Scope 2 and Scope 3(1) emissions of the portfolio compared to the reference benchmark as at 30 December 2022. The data for aggregate emissions from ISS Climate Solutions covers 64% of the portfolio.
Finally the chart on page 20 shows the carbon intensity of the portfolio compared to the relevant benchmark as at 30 December 2022. Carbon intensity is calculated using data from ISS Climate Solutions which covers 64% of the portfolio’s assets excluding cash. Carbon intensity is calculated as the weighted average of (Scope 1 + Scope 2 emissions (Co2 equivalents)/USD million of revenue). Portfolio level carbon intensity figures are an indicative measure of exposure to carbon risk that should be considered alongside sector and company specific metrics.
(1) Scope 1: All Direct Emissions from the activities of an organisation or under their control. Including fuel combustion on site such as gas boilers, fleet vehicles and air-conditioning leaks.
Scope 2: Indirect Emissions from electricity purchased and used by the organisation. Emissions are created during the production of the energy and eventually used by the organisation.
Scope 3: All Other Indirect Emissions from activities of the organisation, occurring from sources that they do not own or control. These are usually the greatest share of the carbon footprint, covering emissions associated with business travel, procurement, waste and water.
Task Force for Climate-related Financial Disclosures (‘TCFD’)
Whilst TCFD is currently not applicable to the Company, the Manager is in the process of producing a product level report on the Company in accordance with the Financial Conduct Authority’s (‘FCA’) rules and guidance regarding the disclosure of climate-related financial information consistent with TCFD Recommendations and Recommended Disclosures. These disclosures are intended to help meet the information needs of market participants, including institutional clients and consumers of financial products, in relation to the climate-related impact and risks of the Manager’s TCFD in-scope business. It is expected that a product level report on the Company will be produced by the Manager by 30 June 2023 and this report will be made available on the Company’s website.
Investments in Order of Valuation
AT 31 DECEMBER 2022
| Market | |||||
| Country of | Value | % of | |||
| Issuer/issue | Rating(1) | Industry | Incorporation | £000 | Portfolio |
| Lloyds Banking Group | Financials | UK | |||
| 7.875% FRN Perpetual | Baa3/BB–/BBB | 4,109 | 1.3 | ||
| 8.5% Cnv FRN Perpetual | Baa3/BB–/BBB | 3,136 | 1.0 | ||
| 7.5% FRN Perpetual | Baa3/BB–/BBB | 2,665 | 0.8 | ||
| 6.375% FRN Perpetual | Baa3/BB–/BBB | 136 | 0.0 | ||
| 10,046 | 3.1 | ||||
| Teva Pharmaceutical Finance | Health Care | Netherlands | |||
| 6.75% 01 Mar 2028 (SNR) | Ba2/BB–/BB | 3,556 | 1.1 | ||
| 7.125% 31 Jan 2025 (SNR) | Ba2/BB–/BB | 2,550 | 0.8 | ||
| 6% 31 Jan 2025 (SNR) | Ba2/BB–/BB | 930 | 0.3 | ||
| 4.375% 09 May 2030 (SNR) | Ba2/BB–/BB | 727 | 0.2 | ||
| 5.125% 09 May 2029 (SNR) | Ba2/BB–/BB | 577 | 0.2 | ||
| 8,340 | 2.6 | ||||
| Codere New Topco | Consumer Services | Luxembourg | |||
| 11% PIK 30 Sep 2026 | Caa1/CCC/CCC | 5,640 | 1.8 | ||
| 7.5% PIK 30 Nov 2027 (SUB) | Ca/NR/NR | 818 | 0.3 | ||
| 12.75% PIK 30 Nov 2027 | Caa3/CC/CC | 540 | 0.2 | ||
| 13.625% PIK 30 Nov 2027 | Caa3/CC/CC | 348 | 0.1 | ||
| Common Stock | NR/NR/NR | – | 0.0 | ||
| 7,346 | 2.4 | ||||
| Barclays | Financials | UK | |||
| 8.875% Cnv FRN Perpetual | Ba2/B+/BB | 2,681 | 0.8 | ||
| FRN 14 Nov 2032 | Baa2/BB+/BBB | 1,619 | 0.5 | ||
| 8% FRN Perpetual | Ba2/B+/BB | 1,170 | 0.4 | ||
| 6.375% FRN Perpetual | Ba2/B+/BB | 1,095 | 0.3 | ||
| 2.75% FRN Perpetual | Baa3/BB+/BBB | 264 | 0.1 | ||
| 4.375% FRN Perpetual | Ba2/B+/BB | 127 | 0.0 | ||
| 6,956 | 2.1 | ||||
| Aviva | Financials | UK | |||
| 6.875% Cnv FRN Perpetual | Baa2/NR/BBB | 5,103 | 1.6 | ||
| 8.875% Preference | NR/NR/NR | 1,392 | 0.4 | ||
| 6.125% FRN 05 Jul 2043 | A3/BBB+/BBB | 213 | 0.1 | ||
| 6,708 | 2.1 | ||||
| Virgin Media O2 | Telecommunications | UK | |||
| 4% 31 Jan 2029 (SNR) | Ba3/BB–/BB | 2,970 | 0.8 | ||
| 4.25% 15 Jan 2030 (SNR) | Ba3/BB–/BB | 1,477 | 0.5 | ||
| 4.875% 15 Jul 2028 (SNR) | B2/B/B | 1,213 | 0.4 | ||
| 5% 15 Apr 2027 (SNR) | Ba3/BB–/BB | 889 | 0.3 | ||
| 6,549 | 2.0 | ||||
| Co–Operative Bank | Financials | UK | |||
| 9.5% FRN 25 Apr 2029 | NR/NR/NR | 3,078 | 1.0 | ||
| 6% FRN 06 Apr 2027 (SNR) | Ba3/NR/BB | 1,256 | 0.4 | ||
| 5.125% 17 May 2024 (SNR) | NR/BB–/BB | 1,061 | 0.3 | ||
| 7.5% FRN 08 Jul 2026 | NR/BB–/BB | 887 | 0.3 | ||
| 6,282 | 2.0 | ||||
| Ziggo Bond Finance | Telecommunications | Netherlands | |||
| 6% 15 Jan 2027 (SNR) | B3/B–/B | 3,809 | 1.2 | ||
| 3.375% 28 Feb 2030 (SNR) | B3/B–/B | 1,114 | 0.4 | ||
| 4.875% 15 Jan 2030 (SNR) | B1/B+/B | 451 | 0.1 | ||
| 5,374 | 1.7 | ||||
| Petra Diamonds | Basic Materials | Bermuda | |||
| 10.5% PIK 08 Mar 2026 | B3/B–/B | 4,008 | 1.3 | ||
| Common Stock | NR/NR/NR | 1,080 | 0.3 | ||
| 5,088 | 1.6 | ||||
| Albion Finance | Consumer Services | Luxembourg | |||
| 8.75% 15 Apr 2027 (SNR) | B3/B/B | 2,820 | 0.9 | ||
| 6.125% 15 Oct 2026 (SNR) | B1/BB–/BB | 2,215 | 0.7 | ||
| 5,035 | 1.6 | ||||
| Eléctricité De France | Utilities | France | |||
| 6% Perpetual | Ba1/B+/BB | 2,320 | 0.7 | ||
| 5.875% Perpetual | Ba1/B+/BB | 1,471 | 0.5 | ||
| 7.5% FRN Perpetual | Ba1/B+/BB | 880 | 0.3 | ||
| 4,671 | 1.5 | ||||
| Banco BPM | Financials | Italy | |||
| 5% FRN 14 Sep 2030 | Ba3/NR/BB | 3,000 | 0.9 | ||
| 8.75% FRN Perpetual | B2/NR/B | 1,598 | 0.5 | ||
| 4,598 | 1.4 | ||||
| Virgin Money | Financials | UK | |||
| 8.25% Cnv Perpetual | Ba1/NR/BB | 3,591 | 1.1 | ||
| 9.25% Perpetual | Ba1/B/BB | 826 | 0.3 | ||
| 4,417 | 1.4 | ||||
| Clarios | Basic Materials | USA | |||
| 8.5% 15 May 2027 (SNR) | Caa1/CCC+/CCC | 4,147 | 1.3 | ||
| Nationwide | Financials | UK | |||
| 5.75% FRN Perpetual | Baa3/BB+/BBB | 2,383 | 0.7 | ||
| 5.875% FRN Perpetual | Baa3/BB+/BBB | 895 | 0.3 | ||
| FRN 7 Dec 2027 | A3/BBB+/A | 675 | 0.2 | ||
| 3,953 | 1.2 | ||||
| Rothschilds Continuation Finance | Financials | Guernsey | |||
| 9% FRN Perpetual (SUB) | NR/NR/NR | 2,870 | 0.9 | ||
| FRN Perpetual | NR/NR/NR | 1,082 | 0.3 | ||
| 3,952 | 1.2 | ||||
| Legal & General | Financials | UK | |||
| 5.625% FRN Perpetual | Baa2/BBB/BBB | 3,898 | 1.2 | ||
| Altice | Telecommunications | France | |||
| 2.5% 15 Jan 2025 (SNR) | B2/B/B | 1,585 | 0.5 | ||
| 8% 15 May 2027 (SNR) | Caa1/CCC+/CCC | 1,038 | 0.3 | ||
| 4.25% 15 Oct 2029 (SNR) | B2/B/B | 799 | 0.3 | ||
| 5.875% 01 Feb 2027 (SNR) | B2/B/B | 386 | 0.1 | ||
| 3,808 | 1.2 | ||||
| Sainsbury’s Bank | Financials | UK | |||
| 10.5% FRN 12 Mar 2033 | Baa2/NR/BBB | 3,756 | 1.2 | ||
| Bellis | Consumer Goods | UK | |||
| 4.5% 16 Feb 2026 (SNR) | B1/NR/B | 2,352 | 0.7 | ||
| 4% 16 Feb 2027 (SNR) | B3/NR/B | 1,391 | 0.4 | ||
| 3,743 | 1.1 | ||||
| Deutsche Bank | Financials | Germany | |||
| 7.125% Perpetual | Ba2/BB–/BB | 1,439 | 0.5 | ||
| FRN Perpetual | Ba2/BB–/BB | 1,095 | 0.3 | ||
| 6% FRN Perpetual | Ba2/BB–/BB | 714 | 0.2 | ||
| 6.75% FRN Perpetual | Ba2/BB–/BB | 309 | 0.1 | ||
| 4.625% FRN Perpetual | Ba2/BB–/BB | 134 | 0.0 | ||
| 3,691 | 1.1 | ||||
| Volkswagen Financial Services | Consumer Goods | Netherlands | |||
| 3.5% FRN Perpetual | Baa2/BBB–/BBB | 1,800 | 0.5 | ||
| 3.875% FRN Perpetual | Baa2/BBB–/BBB | 1,317 | 0.4 | ||
| 4.375% FRN Perpetual | Baa2/BBB–/BBB | 504 | 0.2 | ||
| 3,621 | 1.1 | ||||
| Parts Europe | Consumer Goods | France | |||
| 6.5% 16 Jul 2025 | B2/B+/B | 3,571 | 1.1 | ||
| DKT Finance | Financials | Denmark | |||
| 7% 17 Jun 2023 (SNR) | Caa2/CCC+/CCC | 1,845 | 0.6 | ||
| 9.375% 17 Jun 2023 (SNR) | Caa2/CCC+/CCC | 1,637 | 0.5 | ||
| 3,482 | 1.1 | ||||
| BCP V Modular Services | Consumer Services | UK | |||
| 6.125% 30 Nov 2028 | B2/B/B | 2,410 | 0.8 | ||
| 6.75% 30 Nov 2029 (SNR) | Caa1/CCC+/CCC | 973 | 0.3 | ||
| 3,383 | 1.1 | ||||
| BNP Paribas | Financials | France | |||
| FRN Perpetual | Ba1/BBB–/BBB | 1,424 | 0.4 | ||
| 9.25% FRN Perpetual | Ba1/BBB–/BBB | 1,241 | 0.4 | ||
| 1.25% Cnv 13 Jul 2031 (SNR) | Baa1/A–/A | 707 | 0.2 | ||
| 3,372 | 1.0 | ||||
| Commerzbank | Financials | Germany | |||
| 6.125% FRN Perpetual | Ba2/BB–/BB | 2,135 | 0.7 | ||
| FRN 06 Dec 2032 | Baa3/BB+/BB | 956 | 0.3 | ||
| 3,091 | 1.0 | ||||
| Stonegate Pub Company | Consumer Services | UK | |||
| 8.25% 31 Jul 2025 | B3/NR/B | 2,974 | 0.9 | ||
| Pension Insurance | Financials | UK | |||
| 7.375% FRN Perpetual | NR/NR/BBB | 2,946 | 0.9 | ||
| IM Group | Consumer Services | France | |||
| 6.625% 01 Mar 2025 | B2/B/B | 2,874 | 0.9 | ||
| Banco BVA | Financials | Spain | |||
| 6% FRN Perpetual | Ba2/NR/BB | 2,862 | 0.9 | ||
| Goodyear Tire & Rubber | Consumer Goods | USA | |||
| 9.5% 31 May 2025 (SNR) | B2/BB–/BB | 2,134 | 0.7 | ||
| 2.75% 15 Aug 2028 (SNR) | Ba3/BB–/BB | 612 | 0.2 | ||
| 2,746 | 0.9 | ||||
| Maison | Industrials | UK | |||
| 6% 31 Oct 2027 (SNR) | NR/B+/B | 2,709 | 0.9 | ||
| Bank Of Ireland | Financials | Ireland | |||
| 7.5% FRN Perpetual | Ba1/B/BB | 1,627 | 0.5 | ||
| 7.594% FRN 06 Dec 2032 | Baa2/BB/BB | 991 | 0.3 | ||
| 2,618 | 0.8 | ||||
| Gatwick Airport Finance | Financials | UK | |||
| 4.375% 07 Apr 2026 (SNR) | Ba3/NR/BB | 2,516 | 0.8 | ||
| Inspired Entertainment | Consumer Services | UK | |||
| 7.875% 01 Jun 2026 (SNR) | B2/NR/B | 2,424 | 0.8 | ||
| Intesa | Financials | Italy | |||
| 6.375% Cnv FRN Perpetual | Ba3/BB–/BB | 1,366 | 0.4 | ||
| 5.148% 10 Jun 2030 | Ba1/BB+/BB | 985 | 0.3 | ||
| 2,351 | 0.7 | ||||
| Banco Comercial Portugues | Financials | Portugal | |||
| 9.25% FRN Perpetual | B2/CCC+/B | 2,312 | 0.7 | ||
| Lottomatica | Consumer Services | Italy | |||
| 6.25 % 15 Jul 2025 | B1/B/B | 1,345 | 0.4 | ||
| 5.125% 15 July 2025 (SNR) | B1/B/B | 965 | 0.3 | ||
| 2,310 | 0.7 | ||||
| NGG Finance | Utilities | UK | |||
| 5.625% FRN 18 Jun 2073 | Ba1/BBB–/BB | 2,263 | 0.7 | ||
| BP Capital | Financials | UK | |||
| 4.25% FRN Perpetual | Baa1/BBB/BBB | 2,247 | 0.7 | ||
| Marcolin | Health Care | Italy | |||
| 6.125% 15 Nov 2026 (SNR) | B3/B–/B | 2,236 | 0.7 | ||
| Beazley | Financials | Ireland | |||
| 5.875% 04 Nov 2026 | NR/NR/BBB | 2,226 | 0.7 | ||
| Prestige Bidco | Consumer Services | Germany | |||
| FRN 15 Jul 2027 (SNR) | B1/B+/B | 2,225 | 0.7 | ||
| Telefonica | Telecommunications | Netherlands | |||
| 5.875% FRN Perpetual (SUB) | Ba2/BB/BB | 1,230 | 0.4 | ||
| FRN Perpetual | Ba2/NR/BB | 994 | 0.3 | ||
| 2,224 | 0.7 | ||||
| Frigoglass Finance | Industrials | Netherlands | |||
| 13% 28 Feb 2023 | NR/NR/NR | 1,165 | 0.4 | ||
| 6.875% 12 Feb 2025 | Ca/CC/CC | 1,045 | 0.3 | ||
| 2,210 | 0.7 | ||||
| Saga | Consumer Services | UK | |||
| 5.5% 15 Jul 2026 (SNR) | B1/B/B | 2,204 | 0.7 | ||
| 888.com | Consumer Services | Gibraltar | |||
| 7.558% 15 Jul 2027 | B1/B/B | 2,124 | 0.7 | ||
| Wheel Bidco | Consumer Services | Jersey | |||
| 6.75% 15 Jul 2026 (SNR) | B2/B/B | 2,114 | 0.7 | ||
| Vodafone Group | Telecommunications | UK | |||
| 7% FRN 04 Apr 2079 | Ba1/BB+/BB | 1,417 | 0.4 | ||
| 4.875% 03 Oct 2078 | Ba1/BB+/BB | 607 | 0.2 | ||
| 2,024 | 0.6 | ||||
| Piraeus Financial | Financials | Greece | |||
| 8.75% FRN Perpetual | Caa2/CCC–/CCC | 1,960 | 0.6 | ||
| Ocado | Consumer Goods | UK | |||
| 3.875% 08 Oct 2026 (SNR) | B3/NR/B | 1,930 | 0.6 | ||
| Cidron Aida Finco | Health Care | Luxembourg | |||
| 6.25% 01 Apr 2028 (SNR) | B3/B–/B | 1,892 | 0.6 | ||
| Tereos Finance | Consumer Goods | France | |||
| 7.5% 30 Oct 2025 (SNR) | NR/BB–/BB | 1,889 | 0.6 | ||
| NatWest | Financials | UK | |||
| 8% FRN Perpetual | Baa3/B+/BBB | 977 | 0.3 | ||
| Cnv FRN 6 Jun 2033 | Baa1/BB+/BBB | 903 | 0.3 | ||
| 1,880 | 0.6 | ||||
| IHO Verwaltungs | Consumer Goods | Germany | |||
| 6% 15 May 2027 (SNR) | Ba2/BB–/BB | 1,876 | 0.6 | ||
| Preem | Oil and Gas | Sweden | |||
| 12% 30 Jun 2027 (SNR) | B3/B+/B | 1,860 | 0.6 | ||
| Lancashire | Financials | Bermuda | |||
| 5.625% 18 Sep 2041 (FRN) | Baa3/BB+/BB | 1,845 | 0.6 | ||
| Achmea | Financials | Netherlands | |||
| 6% 04 Apr 2043 | NR/BBB–/BBB | 1,772 | 0.6 | ||
| Stora Enso | Basic Materials | Finland | |||
| 7.25% 15 Apr 2036 | Baa3/NR/BBB | 1,741 | 0.5 | ||
| Marb Bondco | Consumer Services | UK | |||
| 3.95% 29 Jan 2031 (SNR) | NR/BB+/BB | 1,709 | 0.5 | ||
| Zenith | Consumer Services | UK | |||
| 6.5% 30 Jun 2027 (SNR) | B1/B+/B | 1,703 | 0.5 | ||
| Thames Water (Kemble) Finance | Utilities | UK | |||
| 4.625% 19 May 2026 (SNR) | B1/NR/B | 1,700 | 0.5 | ||
| Petroleos Mexicanos | Oil and Gas | Mexico | |||
| 9.5% 15 Sep 2027 (SNR) | B1/BBB/BB | 847 | 0.3 | ||
| 6.95% 28 Jan 2060 (SNR) | B1/BBB/BB | 478 | 0.2 | ||
| 6.75% 21 Sep 2047 (SNR) | B1/BBB/BB | 371 | 0.1 | ||
| 1,696 | 0.6 | ||||
| Enel Finance International | Utilities | Netherlands | |||
| 7.75% 14 Oct 2052 (SNR) | Baa1/BBB+/BBB | 1,689 | 0.5 | ||
| Hurricane Finance | Financials | UK | |||
| 8% 15 Oct 2025 (SNR) | B3/NR/B | 1,658 | 0.5 | ||
| Banco Sabadell | Financials | Spain | |||
| 5.75% FRN Perpetual | NR/B+/B | 1,073 | 0.3 | ||
| 5% FRN Perpetual | NR/B+/B | 549 | 0.2 | ||
| 1,622 | 0.5 | ||||
| Signa | Consumer Goods | Luxembourg | |||
| 5.5% 23 Jul 2026 (SNR) | NR/B/B | 1,609 | 0.5 | ||
| Neptune Energy | Oil and Gas | UK | |||
| 6.625% 15 May 2025 (SNR) | Ba3/BB/BB | 1,608 | 0.5 | ||
| Heathrow | Financials | UK | |||
| 4.125% 01 Sep 2029 (SNR) | B1/NR/B | 742 | 0.2 | ||
| 7.125% 14 Feb 2024 (SNR) | NR/BBB–/BBB | 850 | 0.3 | ||
| 1,592 | 0.5 | ||||
| Premier Foods Finance | Consumer Services | UK | |||
| 3.5% 15 Oct 2026 (SNR) | Ba3/BB/BB | 1,554 | 0.5 | ||
| Boparan Finance | Consumer Services | UK | |||
| 7.625% 30 Nov 2025 (SNR) | Caa1/B–/B | 1,544 | 0.5 | ||
| CPUK Finance | Financials | Jersey | |||
| 6.5% 28 Aug 2050 (SNR) | NR/B/B | 1,535 | 0.5 | ||
| TalkTalk | Telecommunications | UK | |||
| 3.875% 20 Feb 2025 (SNR) | NR/B/B | 1,504 | 0.5 | ||
| Premier Entertainment | Consumer Services | USA | |||
| 5.625% 01 Sep 2029 (SNR) | B3/CCC+/B | 913 | 0.3 | ||
| 5.875% 01 Sep 2031 (SNR) | B3/CCC+/B | 578 | 0.2 | ||
| 1,491 | 0.5 | ||||
| Jerrold Finco | Financials | UK | |||
| 5.25% 15 Jan 2027 (SNR) | NR/BB/BB | 1,484 | 0.5 | ||
| Credit Suisse | Financials | Switzerland | |||
| 9.75% FRN Perpetual | NR/B/B | 1,027 | 0.3 | ||
| 4.5% FRN Perpetual | B1/B/B | 426 | 0.1 | ||
| 1,453 | 0.4 | ||||
| Picard | Consumer Services | France | |||
| 3.875% 01 Jul 2026 (SNR) | B3/B/B | 1,441 | 0.5 | ||
| Verisure | Industrials | Sweden | |||
| 9.25% 15 Oct 2027 (SNR) | B1/B/B | 1,438 | 0.5 | ||
| FAGE International | Consumer Goods | Luxembourg | |||
| 5.625% 15 Aug 2026 (SNR) | B1/B+/B | 1,398 | 0.4 | ||
| Telecom Italia | Telecommunications | Luxembourg | |||
| 7.721% 04 Jun 2038 | B1/B+/B | 1,389 | 0.4 | ||
| Stena | Consumer Services | Sweden | |||
| 7% 01 Feb 2024 (SNR) | B2/B+/B | 1,356 | 0.4 | ||
| Heimstaden | Consumer Goods | Sweden | |||
| 6.75% FRN Perpetual (SUB) | NR/NR/BB | 778 | 0.2 | ||
| 1.625% 13 Oct 2031 (SNR) | NR/BBB/BBB | 560 | 0.2 | ||
| 1,338 | 0.4 | ||||
| UBS | Financials | Switzerland | |||
| 7% FRN Perpetual | NR/BB+/BB | 818 | 0.3 | ||
| FRN 05 Aug 2033 | NR/A–/A | 503 | 0.2 | ||
| 1,321 | 0.5 | ||||
| Tendam Brands | Consumer Services | Spain | |||
| FRN 31 Mar 2028 | B2/B+/B | 1,308 | 0.4 | ||
| AXA | Financials | France | |||
| 6.379% FRN Perpetual | A3/BBB+/A | 817 | 0.3 | ||
| 5.453% FRN Perpetual | A3/A–/A | 486 | 0.2 | ||
| 1,303 | 0.5 | ||||
| Pinnacle Bidco | Consumer Services | UK | |||
| 6.375% 15 Feb 2025 (SNR) | B3/NR/B | 1,295 | 0.4 | ||
| Sigma Holdco | Consumer Goods | Netherlands | |||
| 7.875% 15 May 2026 (SNR) | Caa2/CCC/CCC | 1,293 | 0.4 | ||
| Food Service Project | Consumer Goods | Spain | |||
| 5.5% 21 Jan 2027 (SNR) | Ba3/NR/BB | 1,274 | 0.4 | ||
| True Potential | Financials | Jersey | |||
| 6.5% 15 Feb 2027 (SNR) | B1/B/B | 1,266 | 0.4 | ||
| UniCredit International Bank | Financials | Italy | |||
| 8% FRN Perpetual | NR/NR/BB | 1,265 | 0.4 | ||
| Alain Afflelou | Consumer Services | France | |||
| FRN 19 May 2027 | Caa1/CCC+/CCC | 1,260 | 0.4 | ||
| HSBC | Financials | UK | |||
| FRN 16 Nov 2034 | Baa1/BBB/BBB | 823 | 0.3 | ||
| 5.25% 14 Mar 2044 | Baa1/BBB/BBB | 431 | 0.1 | ||
| 1,254 | 0.4 | ||||
| Ecclesiastical Insurance Office | Financials | UK | |||
| 8.625% Preference | NR/NR/NR | 1,250 | 0.4 | ||
| Danaos | Consumer Services | Marshall Islands | |||
| 8.5% 01 Mar 2028 (SNR) | B1/BB/B | 1,249 | 0.4 | ||
| Energizer Gamma Acquisition | Consumer Goods | Netherlands | |||
| 3.5% 30 Jun 2029 (SNR) | B2/B/B | 1,241 | 0.4 | ||
| National Bank Of Greece | Financials | Greece | |||
| 8.25% FRN 18 Jul 2029 | B2/CCC+/B | 1,207 | 0.4 | ||
| Tullow Oil | Oil and Gas | UK | |||
| 10.25% 15 May 2026 (SNR) | Caa1/B–/CCC | 1,203 | 0.4 | ||
| DNO ASA | Oil and Gas | Norway | |||
| 8.375% 29 May 2024 | NR/NR/NR | 659 | 0.2 | ||
| 7.875% 09 Sep 2026 (SNR) | NR/NR/NR | 543 | 0.2 | ||
| 1,202 | 0.4 | ||||
| Rolls Royce | Industrials | UK | |||
| 5.75% 15 Oct 2027 (SNR) | Ba3/BB–/BB | 1,198 | 0.4 | ||
| Iron Mountain | Financials | UK | |||
| 3.875% 15 Nov 2025 | Ba3/BB–/BB | 1,195 | 0.4 | ||
| Castle UK (Miller Homes) | Industrials | UK | |||
| FRN 15 May 2028 | B1/B+/B | 653 | 0.2 | ||
| 7% 15 May 2029 (SNR) | B1/B+/B | 517 | 0.2 | ||
| 1,170 | 0.4 | ||||
| Burger King France | Consumer Goods | France | |||
| 7.75% 01 Nov 2027 | NR/CCC/CCC | 1,169 | 0.4 | ||
| Aegon | Financials | Netherlands | |||
| 5.625% FRN Perpetual | Baa3/BB+/BB | 1,154 | 0.4 | ||
| Pinewood | Financials | UK | |||
| 3.625% 15 Nov 2027 (SNR) | NR/BB/BB | 784 | 0.2 | ||
| 3.25% 30 Sep 2025 (SNR) | NR/BB/BB | 367 | 0.1 | ||
| 1,151 | 0.3 | ||||
| Dufry One | Consumer Services | Netherlands | |||
| 3.375% 15 Apr 2028 (SNR) | B1/B+/B | 1,147 | 0.4 | ||
| SSE | Utilities | UK | |||
| 8.375% FRN 20 Nov 2028 | Baa1/BBB+/BBB | 1,137 | 0.4 | ||
| EDP – Energias de Portugal | Utilities | Portugal | |||
| 4.496% 30 Apr 2079 | Ba2/BB+/BB | 1,131 | 0.4 | ||
| OBS | Financials | UK | |||
| 6% FRN Perpetual (SUB) | NR/NR/B | 1,118 | 0.4 | ||
| Ontex | Consumer Goods | Belgium | |||
| 3.5% 15 Jul 2026 (SNR) | B3/B/B | 1,115 | 0.4 | ||
| AA Bond Co | Consumer Services | Jersey | |||
| 7.375% 31 Jul 2050 (SNR) | NR/BBB–/BBB | 1,093 | 0.3 | ||
| Loxam SAS | Consumer Services | France | |||
| 5.75% 15 Jul 2027 | NR/B/B | 1,091 | 0.3 | ||
| Centrica | Utilities | UK | |||
| 7% 19 Sep 2033 (SNR) | Baa2/BBB/BBB | 1,072 | 0.3 | ||
| Motion Finco | Financials | Luxembourg | |||
| 7% 15 May 2025 (SNR) | B2/B/B | 1,069 | 0.3 | ||
| Provident Financial | Financials | UK | |||
| 8.875% 13 Jan 2032 | NR/NR/B | 1,053 | 0.3 | ||
| Puma International | Oil and Gas | Luxembourg | |||
| 5% 24 Jan 2026 | B1/NR/B | 1,040 | 0.3 | ||
| La Financière ATALIAN | Consumer Services | France | |||
| 6.625% 15 May 2025 (SNR) | Caa2/B–/CCC | 1,012 | 0.3 | ||
| Match Group | Technology | USA | |||
| 3.625% 01 Oct 2031 (SNR) | Ba3/BB/BB | 967 | 0.3 | ||
| CCO Holdings | Telecommunications | USA | |||
| 5.125% 01 May 2027 (SNR) | B1/BB–/BB | 965 | 0.3 | ||
| Allied Universal | Consumer Services | Luxembourg | |||
| 4.875% 01 Jun 2028 (SNR) | B2/B/B | 964 | 0.3 | ||
| Societe Generale | Financials | France | |||
| FRN Perpetual | Ba2/BB/BB | 952 | 0.3 | ||
| Cornwall (Jersey) | Consumer Services | Jersey | |||
| 0.75% Cnv 16 Apr 2026 (SNR) | NR/NR/NR | 926 | 0.3 | ||
| AAdvantage Loyalty | Consumer Services | USA | |||
| 5.5% 20 Apr 2026 | Ba2/NR/BB | 910 | 0.3 | ||
| Unique Pub Finance | Consumer Goods | UK | |||
| 7.395% 30 Mar 2024 | NR/B/B | 878 | 0.3 | ||
| Jupiter Fund Management | Financials | UK | |||
| 8.875% 27 Jul 2030 | NR/NR/BBB | 873 | 0.3 | ||
| Koninklijke | Telecommunications | Netherlands | |||
| 6% FRN Perpetual | NR/BB+/BB | 861 | 0.3 | ||
| Neinor Homes | Consumer Discretionary | Spain | |||
| 4.5% 15 Oct 2026 (SNR) | NR/BB–/BB | 852 | 0.3 | ||
| TI Automotive Finance | Consumer Goods | UK | |||
| 3.75% 15 Apr 2029 (SNR) | B3/B+/B | 845 | 0.3 | ||
| Mobilux Finance | Consumer Services | France | |||
| 4.25% 15 Jul 2028 (SNR) | B3/B/B | 838 | 0.3 | ||
| The Very Group | Consumer Services | UK | |||
| 6.5% 31 Aug 2026 (SNR) | B3/NR/B | 770 | 0.2 | ||
| CGG | Oil and Gas | France | |||
| 7.75% 01 Apr 2027 (SNR) | B3/CCC+/B | 745 | 0.2 | ||
| MPT Operating Partnership | Health Care | USA | |||
| 2.5% 24 Mar 2026 (SNR) | Ba1/BBB–/BB | 406 | 0.1 | ||
| 3.375% 24 Apr 2030 (SNR) | Ba1/BBB–/BB | 326 | 0.1 | ||
| 732 | 0.2 | ||||
| Peoplecert Wisdom Issuer | Consumer Services | UK | |||
| 5.75% 15 Sep 2026 | B2/B/B | 725 | 0.2 | ||
| Dell International | Consumer Services | USA | |||
| 6.2% 15 Jul 2030 (SNR) | Baa2/BBB/BBB | 714 | 0.2 | ||
| B&M | Consumer Services | Luxembourg | |||
| 4% 15 Nov 2028 (SNR) | Ba2/BB/BB | 705 | 0.2 | ||
| Fiber Bidco | Industrials | Italy | |||
| 11% 25 Oct 2027 (SNR) | B2/(P)B/B | 698 | 0.2 | ||
| HP | Consumer Services | USA | |||
| 5.5% 15 Jan 2033 (SNR) | Baa2/BBB/BBB | 695 | 0.2 | ||
| Motion Bondco | Financials | Ireland | |||
| 4.5% 15 Nov 2027 (SNR) | Caa2/CCC/CCC | 686 | 0.2 | ||
| Bupa Finance | Health Care | UK | |||
| 5% 08 Dec 2026 | Baa1/NR/BBB | 676 | 0.2 | ||
| Brink’s | Industrials | USA | |||
| 4.625% 15 Oct 2027 | Ba3/BB–/BB | 654 | 0.2 | ||
| PGH Capital | Financials | UK | |||
| 5.375% 06 Jul 2027 | NR/NR/BBB | 647 | 0.2 | ||
| CNP Assurances | Financials | France | |||
| 4.875% FRN Perpetual | Baa2/BBB+/BBB | 647 | 0.2 | ||
| Zurich Finance | Financials | Ireland | |||
| 5.125% FRN 23 Nov 2052 | A2/A+/A | 645 | 0.2 | ||
| British Airways | Consumer Services | USA | |||
| 8.375% 15 Nov 2028 | NR/BBB/BBB | 645 | 0.2 | ||
| Castor | Consumer Services | Italy | |||
| FRN 15 Feb 2029 (SNR) | B3/B/B | 342 | 0.1 | ||
| 6% 15 Feb 2029 (SNR) | B3/B/B | 278 | 0.1 | ||
| 620 | 0.2 | ||||
| International Consolidated Airlines | Consumer Services | Spain | |||
| 3.75% 25 Mar 2029 (SNR) | B1/BB/B | 609 | 0.2 | ||
| Goldman Sachs | Financials | USA | |||
| 3.625% FRN 29 Oct 2029 (SNR) | A2/BBB+/A | 607 | 0.2 | ||
| CEMEX | Industrials | Mexico | |||
| 7.375% 05 Jun 2027 (SNR) | NR/BB+/BB | 602 | 0.2 | ||
| Bayer AG | Health Care | Germany | |||
| 3.125% FRN 12 Nov 2079 (SUB) | Ba1/BB+/BB | 598 | 0.2 | ||
| National Express | Consumer Services | UK | |||
| FRN Perpetual | Ba1/BB+/BB | 562 | 0.2 | ||
| Promontoria | Consumer Services | Netherlands | |||
| 7.875% 01 Mar 2027 (SNR) | B3/B/B | 558 | 0.2 | ||
| Spectrum Management | Telecommunications | USA | |||
| 4.5% 15 Sep 2042 (SNR) | Ba1/BBB–/BBB | 548 | 0.2 | ||
| Nyrstar | Basic Materials | Malta | |||
| 0% 31 Jul 2026 (SNR) | NR/NR/NR | 517 | 0.2 | ||
| Rothesay Life | Financials | UK | |||
| 8% 30 Oct 2025 | NR/NR/BBB | 516 | 0.2 | ||
| Odyssey Europe | Consumer Services | Luxembourg | |||
| 9% PIK 31 Dec 2025 | Caa1/CCC+/CCC | 495 | 0.2 | ||
| Peel Land & Property Investments | Financials | UK | |||
| 8.375% Var 30 Apr 2040 | NR/BBB/BBB | 491 | 0.2 | ||
| Via Celere Desarro | Consumer Goods | Spain | |||
| 5.25% 01 Apr 2026 (SNR) | NR/B+/B | 469 | 0.1 | ||
| Millicom International Cellular | Telecommunications | Luxembourg | |||
| 5.125% 15 Jan 2028 | Ba2/NR/BB | 464 | 0.1 | ||
| Morgan Stanley | Financials | USA | |||
| FRN 18 Nov 2033 (SNR) | A1/A–/A | 440 | 0.1 | ||
| VTR Finance | Telecommunications | Chile | |||
| 5.125% 15 Jan 2028 (SNR) | B2/B/B | 229 | 0.1 | ||
| 6.375% 15 Jul 2028 (SNR) | B3/B–/B | 193 | 0.1 | ||
| 422 | 0.2 | ||||
| RAC Bond Co | Consumer Goods | UK | |||
| FRN 04 Nov 2046 (SNR) | NR/B+/B | 392 | 0.1 | ||
| Turk Telekomunikas | Telecommunications | Turkey | |||
| 6.875% 28 Feb 2025 (SNR) | NR/B/B | 389 | 0.1 | ||
| Herens | Basic Materials | Luxembourg | |||
| 4.75% 15 May 2028 (SNR) | B2/B–/B | 386 | 0.1 | ||
| Terna | Utilities | Italy | |||
| 2.375% FRN Perpetual | Ba1/BBB–/BB | 370 | 0.1 | ||
| HSE Finance | Consumer Services | Luxembourg | |||
| 5.625% 15 Oct 2026 (SNR) | B2/B/B | 355 | 0.1 | ||
| Kosmos Energy | Oil and Gas | USA | |||
| 7.75% 01 May 2027 (SNR) | Caa1/B/B | 346 | 0.1 | ||
| TotalEnergies | Oil and Gas | France | |||
| 3.25% FRN Perpetual (SUB) | A3/A–/A | 325 | 0.1 | ||
| Total Play Telecomunicaciones | Telecommunications | Mexico | |||
| 6.375% 20 Sep 2028 (SNR) | B2/NR/B | 324 | 0.1 | ||
| Daimler Truck | Consumer Goods | USA | |||
| 2.5% 14 Dec 2031 (SNR) | A3/BBB+/BBB | 322 | 0.1 | ||
| Permanent TSB | Financials | Ireland | |||
| 13.25% 26 Apr 2071 | Ba3/NR/BB | 272 | 0.1 | ||
| Argentina (Rep Of) | Government Bonds | Argentina | |||
| 1.5% 09 Jul 2035 (SNR) | NR/CCC+/CCC | 206 | 0.1 | ||
| 1% 09 Jul 2029 (SNR) | NR/CCC+/CCC | 10 | 0.0 | ||
| 216 | 0.1 | ||||
| IMA Group | Telecommunications | Italy | |||
| 3.75% 15 Jan 2028 (SNR) | B2/B/B | 214 | 0.1 | ||
| Abrdn | Financials | UK | |||
| FRN Perpetual | Baa2/BBB–/BBB | 204 | 0.1 | ||
| Cheplapharm Arzneimittel | Health Care | Germany | |||
| 5.5% 15 Jan 2028 (SNR) | B2/B+/B | 201 | 0.1 | ||
| Julius Baer | Financials | Switzerland | |||
| 6.875% Cnv FRN Perpetual | Baa3/NR/BBB | 201 | 0.1 | ||
| Aroundtown | Consumer Goods | Luxembourg | |||
| 4.75% FRN Perpetual (SUB) | NR/BBB–/BBB | 181 | 0.1 | ||
| Banco Santander | Financials | Spain | |||
| 3.625% FRN Perpetual | Ba1/NR/BB | 122 | 0.0 | ||
| John Lewis | Consumer Services | UK | |||
| 4.25% 18 Dec 2034 (SNR) | NR/NR/NR | 121 | 0.0 | ||
| Travis Perkins | Industrials | UK | |||
| 4.5% 07 Sep 2023 (SNR) | NR/NR/BBB | 98 | 0.0 | ||
| M&G Finance | Financials | Luxembourg | |||
| 7.5% FRN Perpetual (SUB NTS) | NR/NR/NR | 19 | 0.0 | ||
| Total investments | 317,870 | 100.0 |
(1) Moody’s/Standard & Poor’s (S&P)/Equivalent average rating.
Abbreviations used in the above valuation:
FRN: Floating Rate Note
SNR: Senior
SUB: Subordinated Notes
PIK: Payment in Kind
Cnv: Convertible
Var: Variable
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Company’s Annual Financial Report in accordance with applicable laws and regulations.
Company law requires the Directors to prepare financial statements for each financial period. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of financial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs.
In preparing these financial statements, the Directors are required to:
– properly select and apply accounting policies and then apply them consistently;
– present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
– provide additional disclosures when compliance with specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
– make an assessment of the Company’s ability to continue as a going concern.
The financial statements have been prepared on a going concern basis. When considering this, the Directors took into account the annual shareholders’ continuation vote (as explained in detail on page 16) and the following: the Company’s investment objective and risk management policies, the nature of the portfolio and expenditure and cash flow projections. As a result, they determined that the Company has adequate resources, an appropriate financial structure, readily realisable fixed assets to repay current liabilities and suitable management arrangements in place to continue in operational existence for the foreseeable future.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the accounts comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Corporate Governance Statement and a Directors’ Report that comply with that law and those regulations.
The Directors of the Company, who are listed on page 34, each confirm to the best of their knowledge that:
– the financial statements, which have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
– this Annual Financial 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 it faces;
– this Annual Financial Report, 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; and
– there is no relevant audit information of which the Company’s auditor is unaware, and each Director has taken steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
Signed on behalf of the Board of Directors
Heather MacCallum
Audit & Risk Committee Chair
27 March 2023
Statement of Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER
| 2022 | 2021 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | |
| Loss on investments held at fair value | 11 | – | (37,322) | (37,322) | – | (3,477) | (3,477) |
| (Loss)/profit on derivative instruments – | |||||||
| currency hedges and CDS | – | (13,752) | (13,752) | – | 915 | 915 | |
| Exchange differences | – | (3,555) | (3,555) | – | 794 | 794 | |
| Income | 4 | 22,881 | – | 22,881 | 17,579 | – | 17,579 |
| Investment management fee | 5 | (924) | (924) | (1,848) | (946) | (946) | (1,892) |
| Other expenses | 6 | (762) | (4) | (766) | (554) | (3) | (557) |
| (Loss)/profit before finance costs and taxation | 21,195 | (55,557) | (34,362) | 16,079 | (2,717) | 13,362 | |
| Finance costs | 7 | (115) | (115) | (230) | 23 | 23 | 46 |
| (Loss)/profit before taxation | 21,080 | (55,672) | (34,592) | 16,102 | (2,694) | 13,408 | |
| Tax on ordinary activities | 8 | (30) | – | (30) | (85) | – | (85) |
| (Loss)/profit after taxation | 21,050 | (55,672) | (34,622) | 16,017 | (2,694) | 13,323 | |
| Return per ordinary share | 9 | 12.47p | (32.98)p | (20.51)p | 11.21p | (1.89)p | 9.32p |
The total column of this statement represents the Company’s statement of comprehensive income, prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The (loss)/profit after taxation is the total comprehensive loss. The supplementary revenue and capital columns are both prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.
Statement of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER
| Stated | Capital | Revenue | |||
| Capital | Reserve | Reserve | Total | ||
| Notes | £000 | £000 | £000 | £000 | |
| At 31 December 2020 | 167,234 | 26,225 | 4,216 | 197,675 | |
| Profit/(loss) after taxation | — | (2,694) | 16,017 | 13,323 | |
| Dividends paid | 10 | — | — | (14,360) | (14,360) |
| Net proceeds from issue of new shares | 16 | 130,236 | — | — | 130,236 |
| Cost of shares issued in respect of the merger | 16 | (144) | — | — | (144) |
| At 31 December 2021 | 297,326 | 23,531 | 5,873 | 326,730 | |
| (Loss)/profit after taxation | – | (55,672) | 21,050 | (34,622) | |
| Dividends paid | 10 | – | – | (18,755) | (18,755) |
| Net proceeds from issue of new shares | 16 | 7,736 | – | – | 7,736 |
| At 31 December 2022 | 305,062 | (32,141) | 8,168 | 281,089 |
Balance Sheet
AT 31 DECEMBER
| 2022 | 2021 | ||
| Notes | £000 | £000 | |
| Non-current assets | |||
| Investments held at fair value through profit or loss | 11 | 317,870 | 351,534 |
| Current assets | |||
| Other receivables | 12 | 7,194 | 5,576 |
| Derivative financial instruments – receivable | 13 | 106,588 | 202,445 |
| Cash and cash equivalents | 9,082 | 8,168 | |
| 122,864 | 216,189 | ||
| Current liabilities | |||
| Other payables | 14 | (746) | (640) |
| Derivative financial instruments – payable | 13 | (105,148) | (201,258) |
| Securities sold under agreements to repurchase | 15 | (53,751) | (39,095) |
| (159,645) | (240,993) | ||
| Net current liabilities | (36,781) | (24,804) | |
| Net assets | 281,089 | 326,730 | |
| Capital and reserves | |||
| Stated capital | 16 | 305,062 | 297,326 |
| Capital reserve | 17 | (32,141) | 23,531 |
| Revenue reserve | 17 | 8,168 | 5,873 |
| Shareholders’ funds | 281,089 | 326,730 | |
| Net asset value per ordinary share | 18 | 162.20p | 193.82p |
The financial statements were approved and authorised for issue by the Board of Directors on 27 March 2023.
Heather MacCallum
Audit & Risk Committee Chair
Signed on behalf of the Board of Directors
The accompanying accounting policies and notes are an integral part of these financial statements.
Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER
| 2022 | 2021 | |||
| £000 | £000 | |||
| Cash flow from operating activities | ||||
| (Loss)/profit before finance costs and taxation | (34,362) | 13,362 | ||
| Adjustment for: | ||||
| Purchases of investments | (109,181) | (116,058) | ||
| Sales of investments | 105,523 | 105,037 | ||
| (3,658) | (11,021) | |||
| Scrip dividend income | – | (7) | ||
| Increase from securities sold under agreements to repurchase | 14,656 | 4,955 | ||
| Loss on investments held at fair value | 37,322 | 3,477 | ||
| Net movement from derivative instruments – currency hedges | (253) | 2,717 | ||
| (Increase)/decrease in receivables | (1,409) | 441 | ||
| (Decrease)/increase in payables | (76) | 181 | ||
| Increase in tax recoverable | (3) | – | ||
| Exchange differences on cash and cash equivalents | 593 | 30 | ||
| Net cash inflow from operating activities before taxation | 12,810 | 14,135 | ||
| Taxation paid | (30) | (85) | ||
| Net cash inflow from operating activities | 12,780 | 14,050 | ||
| Cash flow from financing activities | ||||
| Finance cost paid | (49) | – | ||
| Finance costs received(1) | – | 42 | ||
| Net proceeds from issue of new shares – note 16 | 7,531 | – | ||
| Dividends paid – note 10 | (18,755) | (14,360) | ||
| Net cash acquired following merger | – | 5,670 | ||
| Share issue costs associated with the merger | – | (144) | ||
| Net cash outflow from financing activities | (11,273) | (8,792) | ||
| Net increase in cash and cash equivalents | 1,507 | 5,258 | ||
| Cash and cash equivalents at start of the year | 8,168 | 2,940 | ||
| Exchange differences on cash and cash equivalents | (593) | (30) | ||
| Cash and cash equivalents at the end of the year | 9,082 | 8,168 | ||
| Reconciliation of cash and cash equivalents to the Balance Sheet is as follows: | ||||
| Cash held at custodian | 1,672 | 2,648 | ||
| Invesco Liquidity Funds plc – Sterling | 7,410 | 5,520 | ||
| Cash and cash equivalents | 9,082 | 8,168 | ||
| Cash flow from operating activities includes: | ||||
| Dividends received | 176 | 260 | ||
| Interest received | 21,849 | 14,990 | ||
| At | At | |||
| 1 January | Cash | Non-cash | 31 December | |
| 2022 | flows | movement | 2022 | |
| Reconciliation of net debt: | £000 | £000 | £000 | £000 |
| Cash and cash equivalents | 8,168 | 914 | – | 9,082 |
| Securities sold under agreements to repurchase | (39,095) | (14,656) | – | (53,751) |
| Total | (30,927) | (13,742) | – | (44,669) |
(1) Finance costs received relate to the negative interest rates on the Euro denominated financing of securities sold under agreements to repurchase (repo financing).
Notes to the Financial Statements
1. Principal Activity
The Company is a closed-end investment company incorporated in Jersey and operates under the Companies (Jersey) Law 1991. The principal activity of the Company is investment in a diversified portfolio of high-yielding fixed-interest securities as set out in the Company’s Investment Objective and Policy.
2. Principal Accounting Policies
The principal accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied during the current year and preceding year, unless otherwise stated. The financial statements have been prepared on a going concern basis as noted below.
(a) Basis of Preparation
(i) Accounting Standards Applied
The financial statements have been prepared on a historical cost basis, except for the measurement at fair value of investments and derivatives, and in accordance with the applicable International Financial Reporting Standards (IFRS) and interpretations issued by the International Financial Reporting Interpretations Committee as adopted by the European Union. The standards are those endorsed by the European Union and effective at the date the financial statements were approved by the Board.
Where presentational guidance set out in the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’, updated by the Association of Investment Companies in July 2022, is consistent with the requirements of IFRS, the Directors have prepared the financial statements on a basis compliant with the recommendations of the SORP. The supplementary information which analyses the statement of comprehensive income between items of a revenue and a capital nature is presented in accordance with the SORP.
(ii) Going Concern
As explained on page 16, the Company has an Annual Continuation Vote and the Directors believe shareholders will vote for the Company to continue. Accordingly, the Directors have determined that the financial statements should and have been prepared on a going concern basis, which does not include any adjustments that might arise from cessation of the Company. The Articles of Association of the Company require that unless an ordinary resolution is passed at or before the Annual General Meeting (‘AGM’) each year releasing the Directors from the obligation to do so, the Directors shall convene a general meeting within six months of the AGM at which a special resolution would be proposed to wind up the Company. The directors plan on presenting an ordinary resolution at the forthcoming AGM for which a 50% majority is needed for a special resolution regarding continuance not to be held.
If a special resolution was held regarding a continuation vote a 75% majority of the shareholders need to vote for the company not to continue.
Last year nearly 99.5% of the votes registered at the AGM were in favour of releasing the obligation to hold a continuation vote.
Based upon the current financial performance and financial position of the Company, along with the AGM vote outcome last year and ongoing dialogue with investors, the Directors do not have any concerns regarding the outcome of the forthcoming ordinary resolution and hence do not consider there to be a material uncertainty over going concern.
If a continuation vote was held and was unsuccessful, the basis of preparation would be switched at that date to a basis other than going concern and the NAV impacting adjustments would not be material as the majority of investments are Level 1, held at fair value and the Directors expect that any wind-up costs would not be material.
(iii) Adoption of New and Revised Standards
There were no new nor revised standards and interpretations that became effective during the year having a significant impact on the amounts reported in these financial statements.
(iv) Critical Accounting Estimates and Judgements
The preparation of the financial statements may require the Directors to make estimations where uncertainty exists. It also requires the Directors to exercise judgement in the process of applying the accounting policies. Judgement has been made in the year over the valuation at initial transaction price of one security held at the balance sheet date and to thereby classify this security at Level 3. For further details refer to note 20 on pages 69 and 70. Apart from this there have been no significant judgements, estimates or assumptions for the current or preceding year, except for the judgement in prior year on the accounting treatment of the merger with Invesco Enhanced Income Limited (see note 2(a)(v) and the allocation of management fee and finance costs (see note 2(h)).
(v) Issue of Shares Pursuant to a Scheme of Reconstruction of Invesco Enhanced Income Limited (‘merger’)
On 19 May 2021, City Merchants High Yield Trust Limited (‘CMHY’) issued new ordinary shares to shareholders of Invesco Enhanced Income Limited (‘IPE’) in consideration for the receipt by CMHY of assets pursuant to a scheme of reconstruction and liquidation of IPE.
The Company was renamed Invesco Bond Income Plus Limited following the transaction.
The Directors considered whether the merger with IPE constituted an acquisition of a business as defined under IFRS 3 ‘Business Combinations’. They concluded that the merger was not judged to be an acquisition of a business, and therefore was not treated as a business combination. Note 16 to the financial statements on page 63 contains further details of the accounting treatment.
Investments, accrued income, and cash were transferred from IPE, together with the obligation to purchase securities sold under repurchase agreements (‘repo financing’), including accrued interest thereon. All assets apart from the repo financing were transferred at fair value, with the liability associated with the repo recognised at amortised cost, being the capital amounts owing under the repo financing arrangements. The resultant proceeds from the issue of new shares were recognised in stated capital, as disclosed in note 16 of the financial statements.
Direct costs in respect of the shares issued were recognised in stated capital, whereas other professional costs in relation to the merger were recognised as transaction costs included within profit/(loss) on investments held at fair value.
(b) Foreign Currency
(i) Functional and Presentation Currency
The financial statements are presented in sterling, which is the Company’s functional and presentation currency and the currency in which the Company’s stated capital and expenses are denominated, as well as a certain proportion of its income, assets and liabilities.
(ii) Transactions and Balances
Transactions in foreign currency, whether of a revenue or capital nature, are translated to sterling at the rate of exchange ruling on the date of such transactions. Foreign currency assets and liabilities are translated to sterling at the rates of exchange ruling at the balance sheet date. All profits and losses, whether realised or unrealised, are recognised in the statement of comprehensive income and are taken to capital reserve or revenue reserve, depending on whether the gain or loss is capital or revenue in nature.
(c) Financial Instruments
(i) Recognition of Financial Assets and Financial Liabilities
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. These are offset if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.
(ii) Derecognition of Financial Assets
Financial assets are derecognised when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the Company is recognised as an asset.
(iii) Derecognition of Financial Liabilities
Financial liabilities are derecognised when the Company’s obligations are discharged, cancelled or expired.
(iv) Trade Date Accounting
Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or sell the assets.
(v) Classification of Financial Assets and Financial Liabilities
Financial assets
Investments are classified as held at fair value through profit or loss as the investments are managed and their performance evaluated on a fair value basis in accordance with the Company’s documented investment strategy and this is also the basis on which information about investments is provided internally to the Board.
Financial assets held at fair value through profit or loss are initially recognised at fair value, which is taken to be their cost, with transaction costs expensed in the statement of comprehensive income, and are subsequently valued at fair value. Changes in fair value are recognised in the statement of comprehensive income.
For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted bid prices at the balance sheet date. For investments that are not actively traded or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques including broker quotes and price modelling.
Financial Liabilities
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method.
(d) Derivatives and Hedging
Derivative instruments are valued at fair value in the balance sheet. Hedge accounting has not been adopted.
Forward currency contracts entered into for hedging purposes are valued at the appropriate forward exchange rate ruling at the balance sheet date and any profits and losses are recognised in the statement of comprehensive income and taken to capital.
(e) Cash and Cash Equivalents
Cash and cash equivalents may comprise cash (including short term deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value) as well as cash equivalents, including money market funds.
(f) Securities Sold Under Agreements to Repurchase (‘repo financing’)
The Company participates in repo financing arrangements in connection with its investment portfolio. Under these arrangements, the Company sells fixed interest securities but is contractually obliged to repurchase them at a fixed price on a fixed date. Securities which are the subject of repo financing arrangements are included in investments in the balance sheet at their fair value and the associated liability is recognised at amortised cost, being the capital amounts owing under the repo financing arrangements. The difference between sale and repurchase prices for such transactions is reflected in the statement of comprehensive income over the lives of the transactions, within finance costs which is allocated 50% to capital and 50% to revenue (2021: 50% capital; 50% revenue). This accounting has been adopted because the repurchase price results in a lender‘s return for the transferee as the Company has retained substantially all the risks and rewards of ownership of the asset.
(g) Income Recognition
All income is recognised in the statement of comprehensive income. Interest income arising from fixed income securities is recognised using the effective interest method. Dividend income arises from equity investments held and is recognised on the date investments are marked ‘ex-dividend’. Deposit interest is taken into account on an accruals basis.
Special dividends are considered individually to ascertain the reason behind the payment. This will determine whether they are treated as income or capital in the income statement.
(h) Expenses and Finance Costs
All expenses are accounted for on an accruals basis and are recognised in the statement of comprehensive income. Investment management fees and finance costs are allocated 50% to capital and 50% to revenue (2021: 50% capital; 50% revenue) in accordance with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio. Except for custodian dealing costs, all other expenses are charged through revenue.
(i) Taxation
Overseas interest and dividends are shown gross of withholding tax and the corresponding irrecoverable tax is shown as a charge in the statement of comprehensive income.
(j) Dividends payable to shareholders
Interim dividends are recognised in the period in which they are paid and are dealt with in the statement of changes in equity.
3. Segmental Reporting
No segmental reporting is provided as the Directors are of the opinion that the Company is engaged in a single segment of business of investing in debt and, to a significantly lesser extent, equity securities.
4. Income
This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.
| 2022 | 2021 | |
| £000 | £000 | |
| Income from investments | ||
| UK investment income – interest | 8,065 | 6,281 |
| UK dividends | 207 | 203 |
| Overseas investment income – interest | 14,554 | 11,008 |
| Overseas dividends | 13 | 80 |
| Scrip dividends | – | 7 |
| 22,839 | 17,579 | |
| Other income | ||
| Deposit interest | 23 | – |
| Other income | 19 | – |
| 42 | – | |
| Total income | 22,881 | 17,579 |
5. Investment Management Fee
This note shows the fees paid to the Manager, which are calculated quarterly on the basis of the value of the assets being managed.
| 2022 | 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Investment management fee | 924 | 924 | 1,848 | 946 | 946 | 1,892 |
At 31 December 2022, £457,000 (2021: £531,000) was accrued in respect of the investment management fee.
The investment management fees and finance costs are allocated 50% to capital and 50% to revenue (2021: 50% to capital and 50% to revenue).
Following the merger and with effect from 19 May 2021 the management fee has been reduced from an annual fee of 0.75% to 0.65% of total assets less current liabilities, which remains payable quarterly at the reduced rate of 0.1625% (previously 0.1875%) in arrears at the end of each quarter.
Details of the investment management agreement are provided in the Directors’ Report on page 15.
6. Other Expenses
The other expenses of the Company are presented below; those paid to the Directors and the auditor are separately identified.
| 2022 | 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Directors’ fees(i) | 184 | – | 184 | 155 | – | 155 |
| Auditors’ fees(ii): | ||||||
| for audit of the Company’s | ||||||
| annual financial statements | 53 | – | 53 | 43 | – | 43 |
| additional fees in respect of merger audit | ||||||
| procedures(iii) | – | – | – | 5 | – | 5 |
| Other expenses(iv)(v) | 525 | 4 | 529 | 351 | 3 | 354 |
| 762 | 4 | 766 | 554 | 3 | 557 | |
(i) The maximum Directors’ fees authorised by the Articles of Association are £185,000 per annum. The Directors’ Remuneration Report on page 44, provides further information on Directors’ fees.
(ii) Auditor’s fees include out of pocket expenses.
(iii) Additional assurance fees paid to the Auditor in respect of merger with Invesco Enhanced Income Limited. In addition, the Auditor provided non-audit services related to work on the merger with Invesco Enhanced Income Limited, which amounted to £nil (2021: £53,750). This amount is recognised in investment gains and losses as part of professional fees in respect of the merger.
(iv) Other expenses include:
• custodian transaction charges of £3,700 (2021: £2,700). These are charged to capital.
• amounts due to JTC Fund Solutions (Jersey) Limited who acted as Administrator and Company Secretary to the Company under an agreement starting from 10 December 2019. The fee was calculated at the rate of £70,000 per annum for company secretarial and administration services up to 18 May 2021 and £110,000 per annum thereafter. Additional fees of £17,000 were also paid in 2021 in respect of the merger.
• with effect from 19 May 2021, the Manager’s administration fee, for services which was based on an initial fee of £22,500 plus RPI increases per annum, was removed. A fixed fee of £45,000 per annum is now payable to the Manager for marketing services on behalf of the Company.
• a premium of £71,000 was paid during the year on credit default swaps (2021: £nil).
(v) The increase in Other expenses compared to prior year reflects the increase in variable expenses payable based on the increased size of the Company for the first full year following the merger with Invesco Enhanced Income Limited on 18 May 2021.
7. Finance Costs
Finance costs arise on any borrowing facilities the Company has and comprise commitment fees on any unused facility as well as interest when the facility is used.
| 2022 | 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Interest due/(receivable) under repo financing | 111 | 111 | 222 | (29) | (29) | (58) |
| Overdraft interest | 4 | 4 | 8 | 6 | 6 | 12 |
| 115 | 115 | 230 | (23) | (23) | (46) | |
The Company has repo financing arrangements in place which were used during the year. For repos that are denominated in currencies where the interest rate is negative, the interest is receivable and has been netted against repo interest payable within finance costs, as they relate to borrowing costs.
8 Taxation
As a Jersey investment company no tax is payable on capital gains and, as the Company principally invests in assets which do not result in a revenue tax, the only overseas tax arises on assets domiciled in countries with which Jersey has no double-taxation treaty.
| 2022 | 2021 | |
| £000 | £000 | |
| Overseas taxation | 30 | 85 |
The Company is subject to Jersey income tax at the rate of 0% (2021: 0%). The overseas tax charge consists of irrecoverable withholding tax suffered.
9. Return per Ordinary Share
Return per ordinary share is the amount of gain generated for the financial year divided by the weighted average number of ordinary shares in issue.
The basic revenue, capital and total return per ordinary share is based on each of the returns on ordinary activities after taxation and on 168,797,526 (2021: 142,941,719) ordinary shares, being the weighted average number of ordinary shares in issue throughout the year.
10. Dividends on Ordinary Shares
Dividends are usually paid from the income less expenses. Dividends are paid as an amount per ordinary share held.
The final dividend shown below is based on shares in issue at the record date or, if the record date has not been reached, on shares in issue on the date the balance sheet is signed. The third interim and final dividends are paid after the balance sheet date.
| 2022 | 2021 | |||
| Pence | £000 | Pence | £000 | |
| Dividends paid and recognised in the year: | ||||
| Fourth interim | 2.750 | 4,636 | 2.500 | 2,544 |
| First interim | 2.750 | 4,636 | 2.500 | 2,544 |
| Second interim | 2.750 | 4,636 | 2.750 | 4,636 |
| Third interim | 2.875 | 4,847 | 2.750 | 4,636 |
| 11.125 | 18,755 | 10.500 | 14,360 | |
| Set out below are the dividends that have been declared in respect of the financial years ended 31 December: | ||||
| 2022 | 2021 | |||
| Pence | £000 | Pence | £000 | |
| Dividends payable in respect of the year: | ||||
| First interim | 2.750 | 4,636 | 2.500 | 2,544 |
| Second interim(i) | 2.750 | 4,636 | 2.750 | 4,636 |
| Third interim(i) | 2.875 | 4,847 | 2.750 | 4,636 |
| Fourth interim(i) | 2.875 | 5,008 | 2.750 | 4,636 |
| 11.250 | 19,127 | 10.750 | 16,452 | |
(i) For the year ended 31 December 2021, following the merger with IPE, the number of shares in issue increased and as a result, the dividends paid and payable for the year have also increased.
The fourth interim dividend for 2022 was paid on 20 February 2023 to shareholders on the register on 20 January 2023.
11. Investments Held at Fair Value Through Profit and Loss
The portfolio is principally made up of investments which are listed and traded on regulated stock exchanges. Profits and losses are either:
• realised, usually arising when investments are sold; or
• unrealised, being the difference from cost of those investments still held at the year end.
(a) Analysis of investment profits in the year
| 2022 | 2021 | |
| £000 | £000 | |
| Opening book cost | 343,054 | 190,180 |
| Opening investment unrealised gain | 8,480 | 12,049 |
| Opening valuation | 351,534 | 202,229 |
| Movements in year: | ||
| Purchases at cost: | ||
| Purchases of investments in the ordinary course of business | 109,181 | 116,065 |
| Transfer of investments from the merger with IPE | – | 141,754 |
| Total purchases | 109,181 | 257,819 |
| Sales proceeds | (105,523) | (105,037) |
| Loss on investments in the year | (37,322) | (3,477) |
| Closing valuation | 317,870 | 351,534 |
| Closing book cost | 349,196 | 343,054 |
| Closing investment unrealised (loss)/gain | (31,326) | 8,480 |
| Closing valuation | 317,870 | 351,534 |
The Company received £105,523,000 (2021: £105,037,000) from investments sold in the year. The book cost of these investments when they were purchased was £102,982,000 (2021: £104,945,000) realising a profit of £2,541,000 (2021: £92,000). These investments have been revalued over time and until they were sold any unrealised profits/losses were included in the fair value of the investments.
(b) Transaction costs
In 2021, professional costs, associated with acquisition of assets from the merger with Invesco Enhanced Income Limited (‘IPE’), of £562,000 have been recognised as a transaction cost and included within (loss)/profit on investments held at fair value within the statement of comprehensive income.
(c) Registration of investments
The investments of the Company are registered in the name of the Company or in the name of nominees and held to the order of the Company.
(d) Securities sold under agreements to repurchase
Included in the valuation above are securities under agreements to repurchase which had a market value of £67,843,000 (2021: £48,588,000).
(e) On 19 May 2021 £141,754,000 of investments were acquired in respect of the merger with IPE.
12. Other Receivables
Other receivables are amounts which are due to the Company, such as income which has been earned (accrued) but not yet received and monies due from brokers for investments sold.
| 2022 | 2021 | |
| £000 | £000 | |
| Margin held at brokers | 582 | – |
| Proceeds due from issue of new shares | 206 | – |
| Income tax recoverable | 3 | – |
| Prepayments and accrued income | 6,403 | 5,576 |
| 7,194 | 5,576 |
13. Derivative Financial Instruments
Derivative financial instruments are financial instruments that derive their value from the performance of another item, such as an asset or exchange rates. They are used to manage the risk associated with fluctuations in the value of certain assets and liabilities. The Company can use derivatives to manage its exposure to fluctuations in foreign exchange rates.
Derivative financial instruments comprise forward currency contracts.
| 2022 | 2021 | |
| £000 | £000 | |
| Forward currency contracts – payable | (105,148) | (201,258) |
| Forward currency contracts – receivable | 106,588 | 202,445 |
| 1,440 | 1,187 |
14. Other Payables
Other payables are amounts which must be paid by the Company, and include amounts owed to suppliers, such as the Manager and auditor, and any amounts due to brokers for the purchase of investments.
| 2022 | 2021 | |
| £000 | £000 | |
| Amounts payable relating to issue of new shares | 1 | – |
| Accruals | 745 | 640 |
| 746 | 640 |
15. Securities sold under agreements to repurchase
| 2022 | 2021 | |
| £000 | £000 | |
| Securities sold under agreements to repurchase | 53,751 | 39,095 |
During the year, the Company entered into repo financing arrangements whereby securities are sold under agreements to repurchase. Further details are shown in note 2(f) and note 19.3. Repo financing acquired from the merger is disclosed in note 16.
16. Stated Capital
The stated capital represents the total number of shares in issue. Stated capital can be used for distributions under Jersey Law.
| 2022 | 2021 | |||
| Number | £000 | Number | £000 | |
| Allotted ordinary shares of no par value: | ||||
| Brought forward | 168,577,596 | 297,326 | 101,741,204 | 167,234 |
| Shares issued/net proceeds | 4,725,000 | 7,736 | – | – |
| Shares issued/net proceeds in respect of | ||||
| the merger(1) | – | – | 66,836,392 | 130,092 |
| 173,302,596 | 305,062 | 168,577,596 | 297,326 | |
(1) On 19 May 2021 and following a contractual scheme of reconstruction, 66,836,392 new ordinary shares were issued to all shareholders of Invesco Enhanced Income Limited, in lieu of their investment in that company. Please refer to page 62 of the Annual Financial Report 2021 for further details.
At 31 December 2022, the Company’s stated capital consisted of 173,302,596 ordinary shares of no par value, allotted and fully paid.
At a general meeting of the Company every member has one vote on a show of hands and on a poll one vote for each share held. The notice of general meeting will specify deadlines for exercising voting rights either by proxy or in person in relation to resolutions to be passed at the meeting.
The Directors may restrict voting powers where shareholders fail to provide information with respect to interests in voting rights when so requested, may refuse to register any transfer of a share in favour of more than four persons jointly and can require certain US holders of shares to transfer their shares compulsorily.
Save for the foregoing, there are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.
For the year to 31 December 2022, 4,725,000 (2021: none) new ordinary shares were issued to the Company’s corporate broker, Winterflood Securities Limited, for onward transmission to their clients. Shares were issued in tranches of various quantities throughout the year to satisfy secondary market demand. The gross issue proceeds were £7,775,000 at an average price of 164.54p, and the net proceeds after issue costs were £7,736,000.
Subsequent to the year end 3,025,000 ordinary shares were issued at an average price of 167.55p. The gross proceeds of these issuances were £5,068,000 and the net proceeds after issue costs were £5,043,000. No shares were bought back during the year or since the year end.
Because the criteria in paragraphs 16C and 16D of IAS 32 Financial Instruments: Presentation, have been met, the stated capital of the Company is classified as equity even though there is a continuation vote.
17. Reserves
This note explains the different reserves attributable to shareholders. The aggregate of the reserves and stated capital (see previous note) make up total shareholders’ funds.
The capital reserve includes unrealised investment holding profits and losses, being the difference between cost and market value at the balance sheet date, as well as realised profits and losses of disposals of investments. In addition, costs allocated to capital are recognised in the capital reserve. The revenue reserve shows the net revenue after payment of any dividend from the reserve. Both the capital and revenue reserves are distributable.
18. Net Asset Value per Ordinary Share
The Company’s total net assets (total assets less total liabilities) are often termed shareholders’ funds and are converted into net asset value per ordinary share by dividing by the number of shares in issue.
The net asset value per share and the net asset values attributable at the year end were as follows:
| Net asset value | Net assets | |||
| per ordinary share | attributable | |||
| 2022 | 2021 | 2022 | 2021 | |
| Pence | Pence | £000 | £000 | |
| Ordinary shares | 162.20 | 193.82 | 281,089 | 326,730 |
Net asset value per ordinary share is based on net assets at the year end and on 173,302,596 (2021: 168,577,596) ordinary shares, being the number of ordinary shares in issue (excluding treasury) at the year end.
19. Risk Management: Financial Assets and Liabilities
Financial instruments comprise the Company’s investment portfolio and derivative financial instruments (for the latter see note 13) as well as any cash, borrowings (i.e. securities sold under agreements to repurchase otherwise known as ‘repo financing’), other receivables and other payables. The following note explains the risks that affect the Company’s financial instruments and looks at the Company’s exposure to these various risks.
Risk Management Policies and Procedures
The Business Review details the Company’s approach to investment management risks on page 13 and the accounting policies in note 2 explain the Company’s valuation basis for investments and currency.
As an investment company, the Company invests in loan stocks, corporate bonds, government stocks, preference shares and equities which are held for the long-term in order to achieve the Company’s Investment Objective in accordance with its Investment Policy. In pursuing these, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction in the profits available for payment as dividends.
The Company’s principal financial instruments at risk comprise its investment portfolio. Other financial instruments at risk include cash and cash equivalents, borrowings (including repo financing), other receivables and other payables that arise directly from the Company’s operations.
The Company may enter into derivative transactions, including credit default swaps, for efficient portfolio management. Derivative instruments can be highly volatile and expose investors to a high risk of loss. Where used to hedge risk there is a risk that the return on a derivative does not exactly correlate to the returns on the underlying investment, obligation or market sector being hedged against. If there is an imperfect correlation, the Company may be exposed to greater loss than if the derivative had not been entered into. During the year the only derivatives entered into were forward currency contracts and credit default swaps. As at the year end, no credit default swaps were held.
These risks and the Directors’ approach to managing them are set out below, and have not changed from those applied in the comparative year.
Risk management is an integral part of the investment management process. The Manager controls risk by ensuring that the Company’s portfolio is appropriately diversified and the portfolio managers actively monitor both the ratings and liquidity of the fixed-interest securities taking into account the Company’s financing requirements. In-depth and continual analysis of market and security fundamentals give the portfolio managers the best possible understanding of the risks associated with a particular security. The portfolio managers assess the exposure to market risk when making each investment decision, and monitor the overall level of market risk on the whole of the portfolio on an ongoing basis.
High-yield fixed-interest securities are subject to a variety of risks, including credit risk (note 19.3).
The day to day management of the investment activities, borrowings and hedging of the Company has been delegated to the Manager, and is the responsibility of the portfolio managers to whom the Board has given discretion to operate within set guidelines. Any proposed variation outside those guidelines is referred to the Board and the guidelines themselves are reviewed at every board meeting.
19.1 Market Risk
Market risk arises from changes in the fair value or future cash flows of a financial instrument. Market risk comprises three types of risk: currency risk (note 19.1.1), interest rate risk (note 19.1.2) and other price risk (note 19.1.3).
19.1.1 Currency Risk
The Company has assets, liabilities and income which are denominated in currencies other than sterling and movements in exchange rates will affect the sterling value of those items.
Management of the Currency Risk
The Board meets at least quarterly to assess risk and review investment performance. The portfolio managers monitor the Company’s exposure to foreign currencies on a daily basis and is reviewed by Directors at each Board meeting. The Company may use forward currency contracts to mitigate currency risk. Repo financing is matched to the currency of the underlying assets, which minimises currency risk on the movement of exchange rates affecting the underlying investments. Non-sterling investments that are not pledged under repo financing can be hedged using forward currency contracts. All borrowings and derivative contracts are limited to currencies and amounts commensurate with asset exposure to those currencies.
Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt.
Currency Exposure
The following table shows the fair values of the Company’s monetary items that have foreign currency exposure at 31 December. Where the Company’s investments (which are not monetary items) are priced in a foreign currency, they have been included separately in the analysis to show the overall level of exposure.
| US | ||
| Euro | Dollar | |
| £000 | £000 | |
| 31 December 2022 | ||
| Investments at fair value through profit or loss that are monetary items | ||
| (fixed and floating interest) | 99,494 | 83,922 |
| Forward currency contracts | (38,338) | (50,184) |
| Other receivables (due from brokers and dividends) | 2,240 | 1,337 |
| Cash and cash equivalents | 542 | 359 |
| Other payables (due to brokers and accruals) | (147) | (16) |
| Securities sold under agreement to repurchase | (45,770) | (2,789) |
| Foreign currency exposure on net monetary items | 18,021 | 32,629 |
| Total net foreign currency | 18,021 | 32,629 |
| US | ||
| Euro | Dollar | |
| £000 | £000 | |
| 31 December 2021 | ||
| Investments at fair value through profit or loss that are monetary items | ||
| (fixed and floating interest) | 94,716 | 113,781 |
| Forward currency contracts | (60,797) | (98,179) |
| Other receivables (due from brokers and dividends) | 1,757 | 1,497 |
| Cash and cash equivalents | 851 | 756 |
| Securities sold under agreement to repurchase | (23,608) | (6,654) |
| Foreign currency exposure on net monetary items | 12,919 | 11,201 |
| Investments at fair value through profit or loss that are equities | 1,738 | – |
| Total net foreign currency | 14,657 | 11,201 |
The above may not be representative of the exposure to risk during the year reported because the levels of monetary foreign currency exposure may change significantly throughout the year.
Currency Sensitivity
The effect on the Statement of Comprehensive Income and the net asset value that changes in exchange rates have on the Company’s financial assets and liabilities is based on the following currencies. These changes have been calculated by reference to the volatility of exchange rates during the period using the standard deviation of currency fluctuations against the mean.
| 2022 | 2021 | |
| £000 | £000 | |
| £/Euro | ±1.9% | ±1.5% |
| £/US Dollar | ±6.2% | ±1.7% |
The following sensitivity analysis is based on the Company’s monetary foreign currency financial instruments held at the balance sheet date, taking account of any forward foreign exchange contracts that offset the effects of changes in currency exchange rates, and the income receivable in foreign currency in the year.
If sterling had strengthened by the changes in exchange rates shown above, this would have had the following effect:
| US | ||
| Euro | Dollar | |
| £000 | £000 | |
| 2022 | ||
| Effect on Statement of Comprehensive Income – profit/(loss) after taxation | ||
| Revenue loss | (117) | (458) |
| Capital loss | (303) | (1,941) |
| Total loss after taxation for the year | (420) | (2,399) |
| Effect on net asset value | –0.1% | –0.9% |
| US | ||
| Euro | Dollar | |
| £000 | £000 | |
| 2021 | ||
| Effect on Statement of Comprehensive Income – profit after taxation | ||
| Revenue loss | (78) | (120) |
| Capital loss | (194) | (165) |
| Total loss after taxation for the year | (272) | (285) |
| Effect on net asset value | –0.1% | –0.1% |
If sterling had weakened by the same amounts, the effect would have been the converse.
In the opinion of the Directors, the above sensitivity analysis is not representative of the year as a whole, since the level of exposure changes frequently as part of the currency risk management process of the Company.
19.1.2 Interest Rate Risk
The Company is exposed to interest rate risk in a number of ways. Movements in interest rates may affect the fair value of fixed-interest rate securities, income receivable on cash deposits and floating rate securities, and interest payable on variable rate borrowings, including repo financing. Interest rate risk is related above all to long-term financial instruments.
Management of Interest Rate Risk
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account as part of the portfolio management and borrowings processes of the Manager. The Board reviews on a regular basis the investment portfolio and borrowings. This encompasses the valuation of fixed-interest and floating rate securities.
When the Company has cash balances, they are held in variable rate bank accounts yielding rates of interest dependant on the base rate of the Custodian, the Bank of New York Mellon (International) Limited. Holdings in Invesco Liquidity Funds plc – Sterling are subject to interest rate changes.
The Company has available repo financing arrangements it can use to finance investment activity, details of which are shown in note 7. The Company uses these at levels approved and monitored by the Board.
Interest Rate Exposure
The following table shows the Company’s exposure to interest rate risk at the balance sheet date arising from its monetary financial assets and liabilities.
| Within | More than | ||
| one year | one year | Total | |
| £000 | £000 | £000 | |
| 2022 | |||
| Exposure to floating interest rates: | |||
| Investments held at fair value through profit or loss | – | 108,008 | 108,008 |
| Cash and cash equivalents(i) | 9,082 | – | 9,082 |
| Cash held at brokers (aka collateral pledged on | |||
| futures contracts) | 582 | – | 582 |
| 9,664 | 108,008 | 117,672 | |
| Exposure to fixed interest rates: | |||
| Investments held at fair value through profit or loss | 3,581 | 202,559 | 206,140 |
| Securities sold under agreements to repurchase | (53,751) | – | (53,751) |
| (50,170) | 202,559 | 152,389 | |
| Net exposure to interest rates | (40,506) | 310,567 | 270,061 |
| Within | More than | ||
| one year | one year | Total | |
| £000 | £000 | £000 | |
| 2021 | |||
| Exposure to floating interest rates: | |||
| Investments held at fair value through profit or loss | – | 102,067 | 102,067 |
| Cash and cash equivalents(i) | 8,168 | – | 8,168 |
| 8,168 | 102,067 | 110,235 | |
| Exposure to fixed interest rates: | |||
| Investments held at fair value through profit or loss | 4,516 | 237,696 | 242,212 |
| Securities sold under agreements to repurchase | (39,095) | – | (39,095) |
| (34,579) | 237,696 | 203,117 | |
| Net exposure to interest rates | (26,411) | 339,763 | 313,352 |
(i) Includes £7,410,000 (2021: £5,520,000) held in Invesco Liquidity Fund plc – Sterling.
The nominal interest rates on the investments at fair value through profit or loss are shown in the portfolio list on pages 24 to 32. The weighted average effective interest rate on these investments is 6.6% (2021: 6.3%). The weighted average effective interest rate on cash and cash equivalents is 0.61% (2021: –0.13%).
Interest Rate Sensitivity
The following table illustrates the sensitivity of the profit or loss after taxation for the year to a 3.25% (2021: 1.00%) increase in interest rates in regard to the Company’s financial assets and financial liabilities. As future changes cannot be estimated with any degree of certainty, the sensitivity analysis is based on the Company’s financial instruments held at the balance sheet date, with all other variables held constant.
| 2022 | 2021 | |
| £000 | £000 | |
| Effect on Statement of Comprehensive Income – profit after taxation | ||
| Revenue profit | 314 | 82 |
| Capital loss | (35,549) | (12,348) |
| Total loss after taxation for the year | (35,235) | (12,266) |
| Effect on NAV per ordinary share | (20.3)p | (7.3)p |
If interest rates had decreased by 3.25% (2021: 1.00%), this would have had an equal and opposite effect.
The above exposure and sensitivity analysis are not representative of the year as a whole, since the level of exposure changes frequently as borrowings, which are predominantly from repo financing arrangements, can vary throughout the year.
19.1.3 Other Price Risk
Other price risk includes changes in market prices, other than those arising from currency risk or interest rate risk, which may affect the value of the investment portfolio, whether by factors specific to an individual investment or its issuer, or by factors affecting the wider market.
Management of Other Price Risk
It is the portfolio managers’ responsibility to manage the portfolio and borrowings in accordance with the investment objective and policy, and in accordance with the investment policy guidelines set by the Board. The Board manages the market price risks inherent in the investment portfolio by meeting regularly to monitor on a formal basis compliance with these. The Board also reviews investment performance. Because the Company’s portfolio is the result of the portfolio managers’ investment process, performance may not closely correlate with the markets in which the Company invests.
The Company’s exposure to other changes in market prices at 31 December on its investments is shown in the fair value hierarchy table on pages 69 and 70.
Concentration of Exposure to Other Price Risks
The Company’s investment portfolio is not concentrated in any single country of domicile, however, it is recognised that an investment’s country of domicile or listing does not necessarily equate to its exposure to the economic conditions in that country.
Other Price Risk Sensitivity
Excluding fixed interest securities and convertibles, at the year end the Company held other investments of £3,721,000 (2021: £7,255,000). The effect of a 10% increase or decrease in the fair values of these investments (including any exposure through derivatives) on the profit after taxation for the year is £372,000 (2021: £726,000). This level of change is considered to be reasonably possible based on the observation of market conditions during the financial year, taking account of the subsequent recovery of markets in the aftermath of Covid-19.
19.2 Liquidity Risk
This is the risk that the Company may encounter difficulty in meeting its obligations associated with financial liabilities i.e. when realising assets or raising/replacing repo financing to meet financial commitments. A lack of liquidity in the portfolio may make it difficult for the Company to realise assets at or near their purported value in the event of a forced sale.
Management of Liquidity Risk
Liquidity risk is not viewed by the Directors as a significant risk because the majority of the Company’s assets comprise readily realisable securities, although a lack of liquidity in non-investment grade securities may make it difficult to rebalance the Company’s investment portfolio as and when the portfolio managers believe it would be advantageous to do so. On a daily basis the portfolio managers ascertain the Company’s cash and borrowing requirements by reviewing future cash flows arising from purchases and sales of investments, interest and dividend receipts, expenses and dividend payments, and available financing (including repo financing).
Liquidity Risk Exposure
The contractual maturities of the financial liabilities at 31 December, based on the earliest date on which payment can be required, was as follows:
| 2022 | 2021 | |||||
| Less than | More | Less than | More | |||
| three | than one | three | than one | |||
| months | year | Total | months | year | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Other payables (note 14) | ||||||
| Accruals | 746 | – | 746 | 640 | – | 640 |
| Derivative financial instruments – payable | ||||||
| (note 13) | 105,148 | – | 105,148 | 201,258 | – | 201,258 |
| Securities sold under agreements to | ||||||
| repurchase (note 15) | 53,751 | – | 53,751 | 39,095 | – | 39,095 |
| 159,645 | – | 159,645 | 240,393 | – | 240,393 | |
19.3 Credit Risk
Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligation under that transaction could result in a loss to the Company. The Company’s principal credit risk is the risk of default on the non-investment grade debt. The Company’s other main credit risk arises from the repo financing arrangements whereby, if a counterparty failed to sell the required assets to the Company on the repurchase date, the Company would be left with the claim against the defaulting counterparty for the stock and, if applicable, any margin held by the counterparty and not returned.
At the year end 77.3% (2021: 78.1%) of the Company’s portfolio consisted of non-investment grade securities. To the extent that the Company invests in non-investment grade securities, the Company may realise a higher current yield than the yield offered by investment grade securities. On the other hand, investments in such securities involve a greater volatility of price and a greater risk of default by the issuers of such securities, with consequent loss of interest payments and principal. Non-investment grade securities are likely to be subject to greater uncertainties from exposure to adverse conditions and will be speculative with respect to an issuer’s capacity to meet interest payments and repay principal in accordance with its obligations.
Investment grade and non-investment grade securities totalled 94.9% (2021: 93.1%) of the portfolio at the year end. Adverse changes in the financial position of an issuer of such high-yield fixed-interest securities or in general economic conditions may impair the ability of the issuer to make payments of principal and/or interest or may cause the liquidation or insolvency of an issuer.
The portfolio may be adversely affected if the Company’s custodian suffers insolvency or other financial difficulties. The appointment of a depositary has substantially lessened this risk. The Board reviews the custodian’s annual control report and the Manager’s management of the relationship with the custodian.
Management of and Exposure to Credit Risk
Almost all of the Company’s assets are subject to credit risk. Where the portfolio managers make an investment in a bond, corporate or otherwise, the credit rating of the issuer is also considered when assessing the risk of defaults. Investments in bonds are across a variety of industrial sectors and geographical markets to avoid concentration of credit risk. Counterparties for derivative transactions are also a source of credit risk. Transactions involving derivatives are entered into only with banks whose credit ratings are taken into account to minimise default risk. The credit ratings of the derivatives counterparties range from Aa3 through to Baa1. In addition, the Company may, and during 2022 did to a minor extent, use credit default swaps to offset the credit risk of the portfolio. At the year end, no credit default swaps were held by the Company (2021: none).
Details of the Company’s investments, including their credit ratings, are shown on pages 24 to 32. Credit risk for transactions involving derivatives and equity investments is minimised as the Company only uses approved counterparties.
The Company manages the credit risk inherent in repo financing by only dealing with good quality counterparties whose credit-standing is reviewed periodically by the Manager. There is a maximum limit allowed with any one counterparty, and the repo entered into must have a maturity tenor of three months or less. The Company has exposure to credit risk on securities pledged under repo financing held, with 3 counterparties, as follows (2021: 3 counterparties):
| 2022 | 2021 | |||||||
| Market | Market | |||||||
| value of | Net | value of | Net | |||||
| Amounts | securities | credit | Amounts | securities | credit | |||
| borrowed | pledges | exposure | borrowed | pledges | exposure | |||
| under | under | to | under | under | to | |||
| repo | repo | counter | repo | repo | counter | |||
| financing | financing | party | financing | financing | party | |||
| Counterparty | Rating | Location | £000 | £000 | £000 | £000 | £000 | £000 |
| Barclays | A1/A+ | UK | 38,298 | 49,169 | 10,871 | 6,906 | 7,636 | 730 |
| BNP UK | Aa3/A+ | UK | 7,644 | 9,112 | 1,468 | – | – | – |
| Credit Suisse | A1/A+ | UK | – | – | – | 26,848 | 34,412 | 7,564 |
| HSBC | Aa3/AA– | UK | 7,809 | 9,562 | 1,753 | – | – | – |
| Citibank | A1/A | UK | – | – | – | 5,341 | 6,540 | 1,199 |
| 53,751 | 67,843 | 14,092 | 39,095 | 48,588 | 9,493 | |||
| Net credit exposure as % of net assets | 5.0 | 2.9 | ||||||
Cash balances are held with approved deposit takers only and are limited to a maximum of 4% of the Company’s net asset value with any one deposit taker. Balances held with Invesco Liquidity Funds plc, a triple-A rated money market fund, are limited to a maximum of 10% of the Company’s net asset value. At the balance sheet date the Company had £1.67 million (2021: £2.65 million) held at the custodian and £7.41 million held in Invesco Liquidity Funds plc – Sterling (2021: £5.52 million).
There are no financial assets that are past due or impaired at the year end (2021: none).
Fair Values of Financial Assets and Financial Liabilities
Financial assets are either carried in the balance sheet at their fair value (investments and derivatives), or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, accruals and cash).
Financial liabilities are carried at amortised cost except for derivatives, which as stated above are carried at fair value.
20. Classification Under Fair Value Hierarchy
The valuation techniques used by the Company are explained in the accounting policies note 2(c). The table that follows sets out the fair value of the financial instruments. The three levels set out in IFRS 7 hierarchy follow:
Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability.
There were no transfers in the year between any of the levels.
Normally investments would be valued using stock market active prices, with investments disclosed as Level 1 and this is the case for the quoted equity investments that the Company holds. However, the majority of the Company’s investments are non-equity investment. Evaluated prices from a third party pricing vendor are used to price these securities, together with a price comparison made to secondary and tertiary evaluated third party sources. Evaluated prices are in turn based on a variety of sources including broker quotes and benchmarks. As a result, the Company’s non-equity investments have been shown as Level 2 – recognising that the fair values of these investments are not as visible as quoted equity investments and their higher inherent pricing risk. However, this does not mean that the fair values shown in the portfolio valuation are not achievable at point of sale. Frigoglass 13% 28 Feb 2023 has been classified as fair value Level 3, due to an initial recognition price of €0.95 being used as the fair valuation. No market price is available for this security which was taken on as part of a restructuring where the Portfolio Manager agreed to participate in short-term financing. The initial transaction price was judged to be an appropriate reflection of fair value in this instance due to an absence of market conditions allowing another price to be used, the very short-dated nature of the security at balance sheet date and the uncertainty existing at this date as to the actual maturity date given the agreement allowing for maturity at any date between 11 January and 28 February 2023.
| Level 1 | Level 2 | Level 3 | Total | ||
| £000 | £000 | £000 | £000 | ||
| 2022 | |||||
| Financial assets designated at fair value | |||||
| through profit or loss: | |||||
| Quoted Investments: | |||||
| Fixed interest securities(1) | – | 294,154 | 1,165 | 295,319 | |
| Convertibles | – | 18,614 | – | 18,614 | |
| Government | – | 216 | – | 216 | |
| Preference | 2,641 | – | – | 2,641 | |
| Equities | 1,080 | – | – | 1,080 | |
| Derivative financial instruments: | |||||
| Forward currency contract | – | 1,440 | – | 1,440 | |
| Total for financial assets | 3,721 | 314,424 | 1,165 | 319,310 | |
| A reconciliation of the fair value of Level 3 is set out below. | |||||
| 2022 | |||||
| £000 | |||||
| Opening fair value | – | ||||
| Purchases at cost | 1,143 | ||||
| Unrealised gain (due to foreign exchange movement) | 22 | ||||
| Closing fair value of Level 3 | 1,165 | ||||
| Level 1 | Level 2 | Total | |||
| £000 | £000 | £000 | |||
| 2021 | |||||
| Financial assets designated at fair value through profit or loss: | |||||
| Quoted Investments: | |||||
| Fixed interest securities(1) | – | 341,319 | 341,319 | ||
| Convertibles | – | 2,960 | 2,960 | ||
| Preference | 3,148 | – | 3,148 | ||
| Equities | 4,107 | – | 4,107 | ||
| Derivative financial instruments: | |||||
| Forward currency contract | – | 1,187 | 1,187 | ||
| Total for financial assets | 7,255 | 345,466 | 352,721 | ||
(1) Fixed interest securities include both fixed and floating rate securities.
21. Capital Management
The Company’s capital, or equity, is represented by its net assets which are managed to achieve the Company’s investment objective set out on page 11.
The main risks to the Company’s investments are shown in the Business Review under the ‘Principal Risks and Uncertainties’ section on pages 14 and 15. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.
The Board can also manage the capital structure directly since it has taken the powers, which it is seeking to renew, to issue and buy-back shares and it also determines dividend payments.
The Board regularly monitors the level of borrowing used by the Company and has imposed limits within which borrowings should be managed.
Total equity at 31 December 2022, the composition of which is shown on the balance sheet on page 55, was £281,089,000 (2021: £326,730,000).
22. Contingencies, Guarantees and Financial Commitments
Liabilities the Company is committed to honour but which are dependent on a future circumstance or event occurring would be disclosed in this note if any existed.
There were no contingencies, guarantees or other financial commitments of the Company as at 31 December 2022 (2021: nil).
23. Related Party Transactions and Transactions with Manager
A related party is a company or individual who has direct or indirect control or who has significant influence over the Company.
Under International Financial Reporting Standards as adopted by the EU (‘IFRS’), the Company has identified the Directors and their dependents as related parties. Directors fees paid have been disclosed in the Directors’ Remuneration Report on pages 44 and 45 with additional disclosure in note 6. Full details of Directors’ interests are set out in the Directors’ Remuneration Report on page 45. No other related parties have been identified.
Invesco Fund Managers Limited and Invesco Asset Management Limited, both of which are wholly owned subsidiaries of Invesco Limited, provided investment management and administration services to the Company. Invesco Limited or its subsidiaries are not considered related parties as they do not have direct or indirect control nor significant influence over the Company. Details of the services and fees are disclosed in the Business Review and management fees payable are shown in note 5.
24. Post Balance Sheet Events
Any significant events that occurred after the end of the reporting period but before the signing of the balance sheet will be shown here.
Fair valuation Level 3 holding Frigoglass 13% 28 Feb 2023 matured on 28 February 2023, with proceeds due to be received during April 2023 from the issuance of new super senior notes as part of the consensual recapitalisation of the group of companies which is currently controlled by Frigoglass.
This annual financial report announcement is not the Company’s statutory accounts. The statutory accounts for the period ended 31 December 2022 have been audited and approved but are not yet filed. They received an audit report which is unqualified and does not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.
The audited annual financial report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the Company’s Registered Office, JTC Fund Solutions (Jersey) Limited, PO Box 1075, 28 Esplanade, St Helier, Jersey JE4 2QP or the Manager’s website via the directory found at the following link: www.invesco.co.uk/bips. The Annual General Meeting of the Company will be held at 11.00am on 27 June 2023 at the Company’s Registered Office.
A copy of the annual financial report 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.
Hilary Jones
JTC Fund Solutions (Jersey) Limited
Company Secretary
Telephone: 01534 700000
27 March 2023
LEI: 549300JLX6ELWUZXCX14
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