Invesco Bond Income Plus Ltd - Annual Financial Report

Invesco Bond Income Plus Limited

Annual Financial Report for the year ended 31 December 2024

The following text is extracted from the Annual Financial Report of the Company for the year ended 31 December 2024. All page numbers below refer to the Annual Financial Report which will be made available on the Company's website.

• Net asset value (‘NAV’) and share price total returns with dividends reinvested for the year of 8.5% and 8.8% respectively.

• Shares traded at a premium for majority of year leading to a strong demand for shares, including a successful retail offer, resulting in 21.7m shares being issued.

• Dividend increased to 11.6875p per share for 2024 with an increased dividend target of 12.25p per share for 2025.

• Dividend continues to be fully covered by current year net revenue along with revenue reserve growth.

Financial Information and Performance Statistics

Net asset value – total return with dividends reinvested

(1) Source: LSEG Data & Analytics.

(2) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 77 to 79 of the financial report for details of the explanation and reconciliations of APMs.

Chairman’s Statement

Highlights

• Net asset value (‘NAV’) and share price total returns with dividends reinvested for the year of 8.5% and 8.8% respectively(1).

• Shares traded at a premium for majority of year leading to a strong demand for shares, including a successful retail offer, resulting in 21.7m shares being issued.

• Dividend increased to 11.6875p per share for 2024 with an increased dividend target of 12.25p per share for 2025.

• Dividend continues to be fully covered by current year net revenue along with revenue reserve growth.

The macroeconomic news in 2024 proved to be something of a mixed bag. On a positive note, declining inflation allowed the Bank of England to start to ease monetary policy with two cuts which took its Bank Rate from 5.25% to 4.75%. However, UK economic growth was subdued and by the final months of the year it had become clear that the tentative recovery in activity had run out of steam. Growth in the Eurozone remained muted, however the United States economy enjoyed a year of surprisingly robust growth, buoyed by strong consumer spending. High yield markets made steady progress and credit spreads – a key barometer of market confidence – remained at the lower end of historical ranges.

The political landscape was transformed with Labour’s general election success in July and in the United States with Donald Trump’s successful bid to return to the White House. Chancellor Rachel Reeves’ first Budget introduced a marked change of approach to the UK’s economic challenges, an approach characterised by a combination of higher public spending, higher taxes and increased government borrowing. In contrast, the anticipation ahead of the second Trump administration was one of return to his first term’s playbook of tariffs, lower taxes and deregulation.

Performance

The Company’s Net asset value (‘NAV’) and share price total returns with dividends reinvested for the year were 8.5% and 8.8% respectively. The 8.5% NAV return was below the 10.2% achieved by the ICE Bank of America Merrill Lynch European Currency High Yield Index (hedged to GBP) (‘the Index’) but above the average return of 4.6% for funds in the Investment Association Sterling Strategic Bond Sector. The under-performance against the Index is attributable to a number of factors. Our managers chose to hold a higher credit quality portfolio, on average, than the index. The portfolio had some unhedged currency exposure (non-GBP) and the pound was relatively strong in 2024. The portfolio also gained and lost some performance through individual holdings. These are covered in more detail in the Managers’ report.

The Company’s investment performance continues to compare favourably with the Index over the longer term. For the five and ten years to the end of 2024 the Company’s NAV total return was 21.7% and 66.7% respectively compared to total returns of 20.4% and 60.0% for the Index.

Income Account

It is pleasing to report that we were able to increase the dividend payable to shareholders for a fourth successive year. We announced a dividend for 2024 of 11.6875 pence per share, a 1.6% increase on the 11.50 pence per share for 2023. Our dividend yield of 6.7% comfortably exceeded the rate of inflation and the dividend was 1.03x covered by earnings.

The dividend was paid in four instalments, with the fourth dividend payment on the 20 February 2025 in the form of an interim dividend. Paying the final instalment in the form of an interim dividend means that it can be made 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.

We expect to be able to build on the Company’s long record of providing shareholders with a high level of income relative to interest rates in 2025. Consequently we are targeting a dividend of 12.25 pence per share for 2025 which would mark a 4.8% increase compared to 2024’s outcome.

The Company’s success in providing shareholders with a consistently high level of income is the result of our Manager’s rigorous process and expertise in managing high yield portfolios. In addition, our investment company status means that we have a number of powers to enhance investment performance. For example, these powers include the opportunity to increase returns by borrowing as well as the ability to use reserves to smooth returns. Lastly, we retain our position as the largest company in our AIC Sector and our size means that we are in a relatively strong position to spread the fixed costs of running the Company.

Premium/Discount

The majority of investment trusts continued to trade at wide discounts to their NAV’s during 2024. Despite this background demand for the Company’s shares remained encouraging throughout 2024 and pleasingly the Company traded at a premium to NAV for most of the year. We closed the year at a premium of 1.8% having started 2024 at a 1.4% premium and we were able to issue a total of 21,676,727 shares during the year to meet demand with this total including 7,926,727 shares issued as a result of a successful share placing completed in February.

Long standing shareholders will recall that Invesco Bond Income Plus Limited is the product of a merger in May 2021 between City Merchants High Yield Trust Limited and Invesco Enhanced Income Limited. In the period since the merger we have been able to steadily increase the Company’s shares by 20.2%. The growth in the Company benefits shareholders by putting downward pressure on the Ongoing Charges Ratio and by improving the liquidity of our shares.

Gearing

The level of gearing is determined by the Portfolio Managers according to their assessment of the opportunities and risks within the high yield market. The maximum amount of borrowing is 30% of total assets and throughout 2024 the Company maintained a geared portfolio. As at 31 December 2024 gross gearing was 13.1% (15.8% as at the 31 December 2023). Net gearing was 9.9% at year-end compared to 12.4% at the start of the year. Our preferred method of gearing remains the use of repurchase agreements (‘repo agreements’), which are described in more detail on page 13.

Ongoing Charges

A key objective for the Board is to ensure that the costs incurred in managing the Company are competitive and we use the Company’s ongoing charges ratio (OCR) to measure these costs. Details of the OCR can be found on page 13. The OCR for the year was 0.89% compared to 0.91% in the previous year. I am pleased to report that our OCR remains the lowest within our Association of Investment Companies sector (Debt – Loans and Bonds).

The Board

There will be a number of changes to the Board in 2025. First as result of our succession planning and subject to regulatory approval I am delighted to report that we will appoint Arun Sarwal to the Board as a Director. Arun will bring extensive financial experience to the Board. Secondly, Tom Quigley has indicated his intention to retire from the Board at the June AGM. I would like to thank Tom for his substantial contribution to the Board.

In 2024 we began our second participation in the Board Apprentice programme. This is a scheme which allows individuals to gain first-hand experience of the functioning and dynamics of boards. I am pleased to report that Anjli Amin was appointed as a Board Apprentice for a twelve-month period.

AGM

The AGM will be held on 11 June 2025 at 9.00am at the Jersey offices of our Company Secretary. Further details of the AGM arrangements can be found on page 35.

Articles of Association (Articles)

The Board proposes that the Company adopt new Articles of Association (the ‘New Articles’) to update the existing Articles for modern practice. The proposed amendments being introduced in the New Articles relate to changes in law and regulation and developments in market practice not currently reflected in the existing Articles. These changes reflect modern best practice and governance standards and may assist in relieving certain administrative and cost burdens on the Company. The proposed amendments seek to balance these administrative burdens with the need to safeguard Shareholder rights. A description of the proposed amendments being introduced in the New Articles, together with further explanations for these changes, are set out within the Directors’ Report on pages 34 to 37. In summary, the proposed changes seek to:

– modernise the Company’s approach to shareholder dormancy and unclaimed dividends;

– facilitate electronic communication with shareholders and the holding of hybrid and electronic meetings (although the Company has no intention of holding electronic only meetings);

– improve the powers of the Company where shareholders have not responded to mandatory information requests, including under the Company’s anti-money laundering and tax reporting obligations;

– provide for annual director re-election and remove the Chair's casting vote; and

– make other minor changes to reflect changes in law since the existing Article’s adoption and to remove outdated language.

Outlook

We are barely a month or two into President Trump’s term of office and yet his impact has been profound both in terms of US’s economic policy and its international relations. The imposition of tariffs is a worrying development and a potential threat to the global economic outlook while the sudden end of long-established international policy norms adds to a sense of heightened global geopolitical uncertainty as we start 2025.

Our investment policy is to provide a high level of dividend income relative to prevailing interest rates. The ‘gap’ between the dividend income provided by the Company and the income available from interest rate savings widened in 2024. With the macroeconomic outlook suggesting that interest rates have further to fall, I expect this gap to widen further in 2025.

The Company has consistently provided shareholders with an attractive dividend, this despite in recent years an ever changing and uncertain macroeconomic environment, the shock of a global pandemic and heightened geopolitical uncertainty. I am confident that our successful and long established investment process, together with the powers we have as an investment trust, will allow us to build on our strong dividend income record in 2025 despite the uncertain outlook.

Tim Scholefield

Chairman

2 April 2025

(1) Alternative Performance Measure (‘APM’). See Glossary of Terms and Alternative Performance Measures on pages 77 to 79 of the financial report for details of the explanation and reconciliations of APMs.

Portfolio Managers’ Report

Q&A

Portfolio Manager

Rhys Davies, CFA, Fund Manager

Rhys is a fund manager for the Invesco Fixed Interest Europe team, based in our Henley office.

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

Edward is a fund manager for the Invesco Fixed Interest Europe team, based in our Henley office.

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 How did bond markets perform in 2024?

A This year, as in 2023, investors who took credit risk were rewarded. While government bonds delivered modest or negative returns, holders of corporate bonds did considerably better, benefitting from a combination of income and capital gain.

As mentioned in the Chairman’s Report, the European High Yield Index(1) returned 10.2% in sterling hedged terms. In local currency terms, the return for both the Global(2) and the European was just under 9%. In the case of the European Index, the total return of 8.8% was a combination of 5.0% income and 3.8% price return. In comparison, the gilt market(3) returned –4.1%, with 2.8% of income more than offset by a –6.9% price return.

This contrast reflects the market’s reaction to macroeconomic developments. While growth was quite subdued in 2024 (just 0.8% in the UK and the Eurozone and 2.8%(4) in the US), it was better than had been expected. At the beginning of the year, predictions of recession were widespread. At the time of writing, the Bloomberg Recession Probability Forecast measure is 25% for the UK (from 60%), 30% for the Eurozone (from 65%) and 20% for the US (from 50%).

This improvement in growth expectations, combined with some signs of a slower decline in inflation, meant that interest rates did not fall as much as forecast. The Bank of England cut rates twice in 2024 (a combined 0.5%), but over the year investors moved from expecting 2% of interest rate cuts by the end of 2025 to expecting just 1-1.25%.

Gilts and other developed market government bonds are primarily sensitive to interest rate expectations and typically fall in value when rate expectations rise. Credit markets, such as high yield corporate bonds and subordinated debt instruments, are more sensitive to corporate earnings, as earnings underpin the ability of corporate bond issuers to repay. Helped by stronger earnings, measures of indebtedness and debt affordability have remained comfortably within their historic range(5). Credit markets rallied, with riskier bonds generally outperforming higher quality bonds.

The corporate bond market was also supported by technical factors. The supply of new bonds rose in both the investment grade and high yield markets, but net issuance remains below the rate of a few years ago. Meanwhile, money flowed into the asset class. As a result, new bond deals tended to be well received and the whole market benefitted from a tailwind of demand.

The result of these positive conditions was that yields fell and credit spreads tightened over the year. Using the ICE Bank of America Merrill Lynch European Currency High Yield Index to illustrate, the yield to maturity fell from 6.8% to 6.1% while the spread over government bonds fell from 411bps to 316bps. By historic standards, this is a relatively modest level of reward for the credit risk. The difference in yield between high yield and investment grade corporate bonds also fell, from 275bps to 215bps(6).

Q How did the company perform?

A Over the 12 months to 31 December 2024 the share price rose from 171.00p to 174.00p. With dividends reinvested, the Company delivered a share price total return of 8.8%. The net asset value per share total return with dividends reinvested was 8.5%.

Q What factors contributed to and detracted from this rise in net asset value?

A 2024 started with yields of around 7% for European high yield and 5% for Sterling investment grade. This provided a good base for returns, which were enhanced by some capital appreciation.

As would be expected from a portfolio focussed on high yield and subordinated bonds, credit risk was the main driver of performance, accounting for the bulk of the return. Within credit, exposure to subordinated financials and corporate high yield bonds contributed most, but there were also contributions from senior bank debt, corporate hybrid instruments and our small allocation to emerging markets debt.

Sterling duration (the sensitivity of the portfolio to UK interest rates) did not contribute significantly to returns. The income that was gained was cancelled out by the negative price movement. The exposure to US Dollar and Euro duration was a positive factor.

The strong performance of financials (the Coco market(7) returned over 12%) is reflected in the list of individual securities that contributed most to portfolio returns. Six of the top ten are banks and three are insurers.

The ten securities that detracted most are from a variety of sectors. Two are long-dated gilts, reflecting the weakness of GBP rates markets. Two others are bonds issued by Thames Water Finance. These cost the portfolio a combined –0.34%. The process of restructuring Thames into a sustainably financed business has been long and difficult. As creditors to the company, we are closely involved in the discussions with government, regulators and other investors. We see a route to a settlement. The bulk of our holdings are in Class A bonds, which are the most senior in the structure. They are currently priced in the market at above 80 pence in the pound.

Q What changes did you make to the portfolio?

A Market yields are still at reasonably high levels. However, credit spreads have tightened, reducing the reward for taking extra credit risk. In 2023, we reduced our exposure to lower credit quality parts of the bond market. In 2024, we continued to do this.

Looked at in terms of credit quality ratings, the portfolio ended the year with 26.7% in investment grade (bonds rated from AAA to BBB-). This compares to 25.4% at the end of 2023 and 17.6% at the end of 2022. Exposure to high yield (bonds rated BB+ and below) and unrated bonds is now 73.3%, compared to 74.6% in 2023 and 82.4% in 2022.

The portfolio’s exposure to bank capital has increased over the year. However, the risk mix within these holdings has changed. Exposure to senior bank debt is higher. Within subordinated bank debt, exposure to AT1 (the lowest debt in the capital structure) has been reduced and exposure to relatively protected Lower Tier 2 debt has increased.

The duration of the portfolio has been managed actively, in line with our view of the yield opportunity in the interest rate market, but it has been managed within a tight range and has not moved very far from the duration of the high yield market over the period.

At the security level, we have of course added and cut positions and increased and decreased the size of existing holdings. We take a bottom-up approach, based on fundamental research at the level of the individual bond and bond issuer, so many of our investment decisions are based on the idiosyncratic strengths and weakness of a single bond. However, the trend to higher quality assets in the portfolio is echoed by purchases of bonds from JP Morgan Chase, Nationwide, Coventry Building Society and John Lewis; alongside sales of Saga (insurance, travel), Merlin (leisure), Boparan (food) and Heimstaden (property).

We have also made some trades that reflect the particular strengths of the closed-end structure of the trust, adding positions in bonds that might be too small to sit comfortably in open-ended portfolios facing the risk of unit redemptions. We added two smaller UK building society bonds, both businesses in which we have confidence and both offering coupons above 10%. We also bought part of a relatively small debt security resulting from the spin-off of a high-quality pharmaceutical company.

We are able to use borrowing (leverage) as a way of increasing portfolio returns when we feel there is sufficient value for the extra risk. In 2022 and 2023, net leverage averaged 17% of net assets. This year, as market valuations have risen, we have reduced the level. It ended the year at just under 10%. Notwithstanding this reduction, we think that leverage is a very useful tool at our disposal.

Q How is Environmental, Social and Governance (‘ESG’) integrated in the investment process?

A The portfolio is not bound by any specific ESG criteria. However, ESG factors are important in our credit analysis and our investment decisions.

We incorporate ESG considerations in our process when we research companies, when we engage with companies and as part of ongoing monitoring. Our credit analysts assign an ESG rating to issuers they cover. Both we and the analysts benefit from access to the data and the expertise of the Invesco ESG team. The ESG team provides ESG portfolio monitoring, including meetings with managers to assess portfolios, along with support for any issues that arise.

In particular, the ESG team is a valuable partner in our engagement activities. In 2024, our team had 164 ESG engagements – either meetings dedicated to ESG issues or ESG discussions within wider meetings. These interactions tend to cover a wide range of topics across environmental, social and governance. For example, meeting with Vodafone we discussed environmental issues relating to their global infrastructure development, labour relations in their Spanish business and their board composition. With Eléctricité De France we assessed reactor safety concerns and the governance risk of their ownership structure (we decided to participate in a new green bond issue). We also participated in a Coventry Building Society deal, having assessed their ESG disclosure, their new net zero targets, their employment practices and their board composition and tenure. Governance questions tend to feature more for high yield investors than they might for other, due to the higher proportion of privately owned companies.

Q What is the outlook for 2025?

A 2024 was a less volatile year in our markets than many foresaw. Growth was stronger than expected and this slowed the rate of interest rate cuts. Along with positive flows into the asset class, this better growth underpinned support for corporate bonds.

We expect to see more rate cuts in 2025. Though few are predicting recessionary conditions, the outlook is for only modest growth, particularly in Europe. This should mean that there is room for the central banks to cut. But there is a lot of uncertainty. The new US administration has stated policies which could impact significantly on growth and inflation in the US and elsewhere, and we expect that the financial markets will need to digest a lot of newsflow from this source.

Away from this ‘macro’ view, we will need to continue to assess the creditworthiness of companies across our universe. We are still in a higher interest rate environment than we had a few years ago and this is a challenge for borrowers seeking to refinance. The level of demand for corporate debt was very supportive of the market in 2024 but there were still individual borrowers that came under strain. We are sure there will be more this year.

The initial market reaction to President Trump’s victory was positive and corporate credit spreads remain tight. This reduces the reward for credit risk. Prudently balancing risk and reward is central to our investment approach, for the portfolio and for each security. Our positioning is more cautious now than in the last couple of years. We think this is the right positioning for current conditions.

(1) ICE Bank of America Merrill Lynch European Currency High Yield Index

(2) ICE Bank of America Merrill Lynch Global High Yield Index

(3) ICE Bank of America Merrill Lynch UK Gilt Index

(4) Bloomberg forecast, 27 January 2025

(5) Morgan Stanely, European Credit Strategy, 2024 Performance Recap, 3 January 2025

(6) Option Adjusted Spread (‘OAS’) of ICE Bank of America Merrill Lynch European Currency High Yield Index minus OAS of ICE Bank of America Merrill Lynch Euro Corporate Index

(7) ICE Bank of America Merrill Lynch Contingent Capital Index

Rhys Davies Edward Craven

Portfolio Managers

2 April 2025

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 depositary and custodian.

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. Our preferred method of gearing remains the use of repurchase agreements and such 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 £45.1 million (2023: £48.1 million). This represents gross gearing of 13.1% with cash and cash equivalents including margin of 3.2% giving net gearing of 9.9% (2023: gross gearing of 15.8% with cash and cash equivalents including margin of 3.4% giving net gearing of 12.4%)(1).

(1) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 77 to 79 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 11. 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 the Company has adopted a dividend policy to target an annualised dividend of 12.25p per share for 2025. In the year under review, the Board agreed to pay an increased dividend of 11.6875p per share, comprising first, second and third interim dividends of 2.875p and a fourth interim dividend of 3.0625p 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 13 shows the premium/discount through the year. The Company’s shares traded at a premium for the majority of the year, with the shares only trading at a discount during certain very limited periods of time due to market factors, but ended the year at a premium of 1.8%.

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 0.89%, compared to 0.91% for the previous year. Your Board continues to believe that costs remain competitive compared to those of similar products.

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 18 to 21.

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 as well as certain administrative services including accounting and marketing 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 Standards (‘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 TPPs.

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 15 and 16. 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 and uncertainties such as the ongoing conflicts in Ukraine and the Middle East, uncertain economic outlook in Europe, USA & the UK as a result of geo-political tensions, evolving cyber threats (including risks associated with artificial intelligence) 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 14.

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 over 98% 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 to 11 sets out the current investment strategy of the portfolio managers. Whilst there has been an increase in the credit quality of the portfolio during the year, it remains the case that the portfolio continues to contain 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 24. 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 13. The investment policy has been stress tested by market events in recent times by both global and domestic events such as Covid-19 and the conflicts in Ukraine and the Middle East. 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, whilst recent geopolitical and macroeconomic events may impact the Company, there are no current indications that performance or demand for the Company’s shares may be permanently affected by such events 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.

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 and 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 was paid a fee of £103,000 during the year for  marketing services (2023: £133,000).

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 13.

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 £45.1 million (2023: £48.1 million) borrowed at year end, representing gross gearing of 13.1% (2023: 15.8%) and net gearing of 9.9% (2023: 12.4%), after taking cash and cash equivalents including margin into account, as at 31 December 2024.

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 11.

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:

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 pages 39 and 40.

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 11 June 2025 at 9.00am 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, gender and ethnicity 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 relatively small 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 UK Listing Rule 6.6.6R (9)(a), which are summarised below. In accordance with UK Listing Rule 6.6.6R (9), (10) and (11) the Board has provided the following information in relation to its diversity as at 31 December 2024, being the financial year-end of the Company. The information included in the tables below has been obtained following confirmation from the individual Directors. As shown in the tables, the Company did not meet the FCA ethnic diversity target as at 31 December 2024, however the Board has already progressed recruitment opportunities to address its diversity targets (see page 39). We continue to monitor diversity expectations.

Board Gender as at 31 December 2024

A the Company does not disclose the number of directors in executive management as this is not applicable for an investment trust.

B meets the target of 40% as set out in UKLR 6.6.6R (9)(a)(i).

C the positions of Senior Independent Director and Chair of the Audit & Risk Committee are held by the same woman (Heather MacCallum). The latter position is not currently defined as a senior position under LR 9.8.6R (9)(a)(ii).

D meets the target of 1 as set out in UKLR 6.6.6R (9)(a)(ii).

Board Ethnic Background as at 31 December 2024

A the Company does not disclose the number of directors in executive management as this is not applicable for an investment trust.

B is less than the target of 1 as set out in UKLR 6.6.6R (9)(a)(iii). Given the proposed appointment noted in the Chairman’s statement on page 7, the Company expects to meet this target following the conclusion of the 2025 AGM.

There have been no changes since the year end that have affected the Company’s ability to meet the targets set in UKLR 6.6.6R (9)(a).

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 philosphy and approach articulated in its UK Stewardship Code Report, 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 34.

The Manager forms part of the Invesco Ltd group. Invesco Ltd (‘Invesco’) 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. Invesco 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, Invesco is an active member of the UK Sustainable Investment and Finance Association as well as a supporter of the Task Force on Climate-related Financial Disclosure (‘TCFD’) since 2019 and published its fourth iteration of its Global TCFD Report in 2023. This report is available at https://www.invesco.com/content/dam/invesco/emea/en/pdf/ivz_global-tcfd-report.pdf.

The Manager’s investment team incorporates ESG considerations in its investment process as part of the evaluation of new opportunities. 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 insight and support.

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. The Manager is also a signatory of the Financial Reporting Council’s Stewardship Code, which seeks to improve the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.

A copy of the current Manager’s UK Stewardship Code Report can be found at https://www.invesco.com/content/dam/invesco/ emea/en/pdf/UK_Stewardship_Code_Report_2023.pdf

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.

Investment teams at Invesco are supported on many ESG engagement activities by a centralised team of ESG professionals. Invesco’s ESG approach is led globally by their Global Head of ESG and the Global ESG team. This team reports into the Head of Investments Engagement. This team is further supported by their global proxy function.

At a local level, The Co-Head of Investments, Invesco Fixed Income has ultimate oversight of, agrees with and sponsors Invesco’s ESG approach. The Invesco Fixed Income Europe ESG investor group is chaired by a member of the global ESG team and is made up of champions from each investment team. Each 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. The group meets quarterly.

Training is an essential part of Invesco’s commitment to ESG integration and keeps the team abreast of the rapidly evolving landscape for responsible investment. The team’s 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 a myriad of ESG considerations, but materiality means focusing 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 looks to identify positive and negative momentum in ESG risks and assess the potential for those trends to affect creditworthiness. As a firm Invesco encourages 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.

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 in turn focus on 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 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 reviews

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 2024, holdings with the highest ESG risk were concentrated in the energy sector. The holdings with the lowest ESG risk were spread across several sectors.

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.

Task Force on Climate-related Financial Disclosures (‘TCFD’)

Whilst TCFD is currently not applicable to the Company, the Manager has produced 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. The product level report on the Company is available on the Company’s website at https://www.invesco.com/uk/en/investment-trusts/invesco-bond-income-plus-limited.html. Key elements of the product level report include a scenario analysis of how climate change is likely to impact the portfolio valuation under net zero 2050, delayed transition and hothouse scenarios, and a discussion of the most significant drivers of performance under those scenarios.

Invesco’s Group Level Task Force on Climate-Related Financial Disclosures (‘TCFD’) is available on the Managers’ Website at https://www.invesco.com/content/dam/invesco/emea/en/pdf/ivz_global-tcfd-report.pdf.

In addition the Managers’ Entity Level TCFD Report is available at https://www.invesco.com/content/dam/invesco/emea/en/pdf/IFML_and_IAML_tcfd-entity-level_report.pdf.

The reports noted above are in the process of being updated for the period to 31 December 2024 and will be made available via the respective websites by 30 June 2025.

Investments in Order of Valuation

at 31 December 2024