Fund Performance

Royce International Premier Fund advanced 16.7% for the year-to-date period ended 6/30/25 versus a gain of 17.7% for its benchmark, MSCI ACWI ex-USA Small Cap Index, for the same period.

What Worked… and What Didn’t

Eight of the portfolio’s nine equity sectors made a positive impact on performance in the first half of 2025. The sectors making the largest positive contributions were Information Technology, Industrials, and Communication Services. The only negative impact came from Real Estate while the smallest contributions came from Materials and Consumer Discretionary. At the industry level, professional services (Industrials), software (Information Technology), and health care providers & services (Health Care) contributed most for the year-to-date period, while trading companies & distributors (Industrials), electrical equipment (Industrials), and commercial services & supplies (Industrials) were the largest detractors. At the country level, the United Kingdom, Japan, and Germany contributed most for the year-to-date period, while Singapore, Belgium, and the Netherlands were the largest detractors.

The portfolio’s top contributor at the position level for the year-to-date period was Asseco Poland, which is one of Europe’s leading providers of proprietary IT software and services, with a focus on Central & Eastern Europe (CEE), where it serves major financial institutions, public administration, and telco/utilities customers. Asseco Poland also owns a stake in Formula Systems, an Israeli Nasdaq-listed holding company that in turn owns three listed software businesses, including Sapiens, a leading global provider of IT for the insurance industry. Asseco Poland provides mission-critical software and services to a diversified customer base of more than 100,000 customers, the largest of which makes up just 2% of sales. These customers rarely leave (the top 5 customers have a 20-year tenure), and pay Asseco predictable, mostly recurring revenues. Asseco Poland benefits from favorable structural tailwinds, namely the trend to greater digitalization. In fact, the vast majority of the least digitalized countries in Europe are in CEE or Southern Europe, according to the European Commission. With this as a backdrop, the company has produced a strong record, including more than 50% returns on net operating capital, a minimal net debt balance sheet, and a 5-year revenue Compound annualized growth rate (CAGR) of approximately 10%. Moreover, Asseco has taken advantage of its still fragmented end-markets via an M&A-forward strategy through which it has made over 140 acquisitions since 2004.

Its shares continued to surge in 2025’s first half on the news that Topicus, a listed Canadian company that spun out of Constellation Software, announced that it was building a significant stake in Asseco Poland. Topicus/Constellation Software will obtain three board seats and work with Asseco to improve capital allocation, find appropriate M&A targets, and identify cross-selling opportunities with Constellation Software’s other subsidiaries. Constellation Software’s reputation as a successful acquirer and operator of businesses, as well as the additional institutional recognition that Asseco has received by this association, were the main contributors to the stock’s performance. The company also posted strong earnings results for 1Q25, which were reported in May, with sales up 8%, operating profits up 13%, and eight bolt-on acquisitions made during the quarter. Despite the run-up in the company’s share price (+185% in the last 12 months), Asseco still offers a roughly 5% trailing 12-months free cash flow yield. However, given the significant increase in the shares, we reduced our position in the first half of the year.

NICE Information Service is the “Equifax of South Korea” and the leading credit bureau in the country with a dominant market share of approximately 64%. The company provides consumers and financial institutions with a full range of solutions including credit scores, risk analytics, and corporate ratings—all relatively low-cost but mission critical solutions as credit assessments are a necessary part of customers’ day-to-day operations. We are attracted to NICE Information Service for the extensive database it has built on consumers and corporations over the past 30 years, coupled with its proprietary risk models and analytics, which results in high barriers to entry and makes it difficult for competitors to displace it. The company today serves 3,000,000 consumers and 3,000 corporations, none of which accounts for more than 5% of sales. All these factors combined afford the company significant pricing power, with the company historically able to pass on 5-10% price increases each year with minimal customer attrition.

NICE’s share price has benefited from strong recent operational performance, with the company delivering steadily growing its revenues while doubling its margin between 2015-2024, maintaining a net cash balance sheet and achieving returns on invested capital (ROIC) in excess of 30%. Meanwhile, the company also announced a well-received mid-term plan in which it targets accelerated growth of 9% annually over the next three years, a more shareholder friendly capital allocation policy prioritizing greater reinvestment of excess capital into bolt-on acquisitions, the return of capital to shareholders via dividends and buybacks, and improved English investor communication and outreach. These positive developments were coupled with a more buoyant Korean equity market, as investor anxiety late last year that stemmed from former President Yoon’s declaration of martial law has turned into increasing optimism on the back of the election of a new president in June and the administrations focus on digital innovation, corporate governance reforms, and interest rate cuts.

CVS Group, listed in the U.K., is one of the leading providers of veterinary healthcare in the UK. Its more than 450 vet practices offer high-quality, primary care and, to a lesser degree, more advanced specialist treatments. The company also operates an online retail store, diagnostic laboratories and crematoria, offering a ‘cradle to grave’ value proposition to its customers. One of the key attractions of CVS is its diversified customer base, which has proven to be both extremely loyal and price inelastic. The company serves more than a million pets annually, while its services cost pet owners a few hundred pounds a year, a price they consider well worth the health of their companion animals which are increasingly viewed as a part of the family. CVS’s customer loyalty, which has been described as “near absolute,” is underpinned by strong emotional switching costs and is further supported by various studies pointing to the immense recession-resilience of the space. CVS has long been a consolidator of its industry. With corporate ownership of the U.K. vet industry having increased from under 20% in 2009 to 60% today, CVS has now set its sights on the rest of the world, having recently expanded into Australia, another sizeable market where corporate ownership is still just 15%.

CVS’s share price continued to rebound on improving sentiment surrounding the U.K. Competition Markets Authority (CMA) investigation into the region’s vet industry, which was initiated in September 2023. Market participants increasingly believe that U.K. ini===tiatives to push a pro-growth agenda and prevent excessive regulation have increased the odds of a favorable outcome of the CMA investigation later this year. The Chancellor called an audit on the CMA to scrutinize their role in fostering or hindering growth, while the U.K. Business Secretary outlined a new strategic direction for the CMA, emphasizing the need to become less risk averse. In addition, the former head of Amazon UK recently became the new CMA Chair. Meanwhile, recent working papers published by the CMA concluded that the vet industry is more competitive than initially feared and that remedies should focus on transparency rather than draconian price controls. While the company’s shares have re-rated sharply so far this year, we note that the recent enterprise value to earnings before interest & taxes valuation multiple reflected a 35% discount to long-term averages. We also see CVS as a prime take private candidate, as the vet space has been consolidating, with acquisitions often at multiples of 20x or even higher.

Listed in Sweden, Norva24 is the European market leader of outsourced maintenance services for underground sewer systems. Municipalities and corporates such as property management firms and restaurants engage Norva24 to regularly clean, repair, and maintain underground pipes. This is a mission-critical activity since leaking or clogged sewers lead to lengthy and costly downtimes, reduced access to clean water, toilet backflow, and even government fines, and therefore The company’s 60,000 customers have little incentive to be price aggressive. Norva24 generates approximately 75% of revenue from recurring services carried out at periodic intervals under long-term contracts and repeat maintenance work typically mandated by regulations. The poor condition and aging of underground sewer systems in Europe (e.g., sewers in Norva24’s core markets are close to their life expectancy at 40 years old) is expected to increase demand for maintenance services long-term. The industry is also ripe for consolidation as there are natural economies of scale that would not otherwise be available to a small-scale service provider. Despite being the European market leader, we estimate Norva24 holds just a 6% market share in a highly fragmented market dominated by small, mom-and-pop players. Norva24 has successfully acquired 50 companies since 2015 at attractive multiples while management has identified a further 1,900 targets in its operating markets, indicating no shortage of acquisition opportunities. In March, Norva24 announced that it had received a take-out offer from private equity firm Apax Partners at a 59% premium to the pre-bid price. The bid was unanimously recommended by the board, while Apax had already received irrevocable undertakings from Norva24’s anchor shareholders who cumulatively represented 57% of the share capital. Given these circumstances, as well as the attractive premium on offer, we viewed the risk of a counter offer as limited and chose to exit our position.

Based in Japan, Zuken designs, develops, customizes, and sells Electronic Design Automation (EDA) software and other suites of enterprise software solutions, most of which is used by R&D and Product Development engineers to design complex electricals such as PCBs that function as an ‘inner computing brain’ of wide range of products, from automotive to industrial equipment. Through its software offerings, Zuken helps customers to simplify and automate the product design process, shorten lead-time and reduce incidences of manufacturing errors arising from design faults. It faces a highly diversified customer-base of 30,000 customers, who lack the incentive to be price aggressive as the software accounts for small portion of the customers’ R&D budget. The integration of software into the customers’ workflow, as well as the network effect that incentivizes suppliers to adopt the same software as the customer, results in a very sticky relationship that keeps customers loyal to Zuken’s products.

Zuken’s shares rallied during 1Q25 as the market continued to react positively to the encouraging updates to its medium-term growth strategy released in mid-December 2024. Zuken is on track to deliver three-year revenue CAGR of more than 9% to fiscal year March 2024-25, ahead of its original plan for 8%-plus CAGR. Similarly, EBIT margins continue to be on an expansionary path, reaching 13.4% in fiscal year March 2024-25. For the next three years to fiscal year March 2027-28, it expects revenue CAGR of 7% CAGR and EBIT margin target of 16.0%, which suggests to us that Zuken remains confident about sustaining the current growth momentum. What most caught our attention was its commitment to improved shareholder returns, amounting to total shareholder payout ratio of 117%, dwarfing the historical average of 30-35%. In addition, Zuken announced in March that it had sold its minority share ownership in Fortinet, a supplier of network security solutions for distribution in Japan and booked an extraordinary gain. We think these ongoing improvements in the capital allocation policy will help to further unlock value in Zuken’s shares.

Listed in the U.K., Ashtead Technology Holdings is the globally leading, independent provider of rental equipment to the offshore oil & gas and wind industries. The company boasts a fleet of nearly 20,000 rental items that support offshore vessel operators through the entire life cycle of their operations, from site characterization through construction, operations & maintenance, and de-commissioning. Ashtead also provides a number of value-added services, including system design, training, technical consultancy, and testing and calibration; it will even at times deploy its own personnel onto the customers’ vessels to operate and/or oversee their equipment. Ashtead’s niche equipment and services fill a critical gap in the internal equipment fleet of its customers and enables them to effectively conduct offshore operations while minimizing vessel downtime. It provides this value proposition to a diversified group of more than 1,000 customers, who typically charge out hundreds of thousands of dollars per day for the operation of their vessels and participate in high-value/high-risk projects that require substantial levels of investment. The last thing they need is vessel downtime as a result of unavailable or faulty equipment. Moreover, given that Ashtead’s equipment also accounts for less than 1% of their total charge-out rates and is paid out of their operating budgets, customers care most about equipment quality and availability rather than price—which has allowed Ashtead to consistently and meaningfully raise prices on its rental equipment over time. Ashtead also enjoys significant customer retention, having worked with 8 of its top 10 customers for more than a decade; it tends to operate under multi-year framework agreements with its largest customers. This loyalty stems not only from Ashtead’s scale advantage, which allows it to provide the industry’s broadest product assortment and act as a global one-stop-shop for its customers, but also from its embeddedness within its customers’ operations and its technical consultancy and know-how, which the customer often lacks in-house.

Its share price has fallen so far in 2025, largely due to geopolitical concerns, especially in the U.S., where heightened uncertainties are resulting in customer deferrals in some cases. Despite such deferrals, the company’s business fundamentals are robust and its medium-term growth prospects remain intact. Following an exceptional set of 2024 results, which saw 14% organic sales growth (52% reported growth) and 35% adjusted EPS (earnings per share) growth, the company expects to achieve mid- to high- single digit organic growth over the next couple of years, underpinned by record customer backlogs and supplemented by selective bolt-on acquisitions. Additionally, management also noted that it is targeting a move from the Alternative Investment Market (AIM), which is tailored to smaller high-growth companies, to the more established Main Market in the U.K. This move, which should be completed by year-end, is expected to attract greater interest from tracker funds that allocate capital to constituents of the major FTSE indexes, which are generally restricted to companies on the Main Market. Given the company’s quality and growth, we believe its current valuation at less than 10.0x P/E remains highly compelling.

Headquartered in Singapore and listed in the U.K., XP Power designs, manufactures, and sells power control systems that convert the AC derived from the main electricity supply to DC, which is required for electronic equipment to operate. Its solutions typically represent just 1-2% of its customers’ bill of materials but are mission-critical and designed into their end-products. Combined with a technical engineer-to-engineer sales process, this results in a high degree of customer stickiness, with relationships often stretching well beyond a decade. In addition, XP Power benefits from its exposure to structurally growing end-markets including industrial technologies, healthcare devices, and semiconductor manufacturing equipment. In 2025’s first half, XP Power’s share price hurt by weak in fiscal 2024 results, as well as an equity raise to stabilize the company’s balance sheet. The company also reported a 20% decline in revenues caused by a longer-than-expected destocking cycle but was able to maintain gross margins of 41%, adjusted operation margins of 10%, and cash conversion of 261%, reflecting management’s success in maintaining profitability in a weak macroeconomic environment. Meanwhile, the equity raise helped reduce leverage to 1.6x, leaving the company well positioned for an eventual market recovery. While the range of potential outcomes for XP Power in fiscal 2025 is wide given the uncertain macroeconomic backdrop, we believe the company’s severely depressed valuation is excessive, and while we do not buy or hold companies with the express objective to see them acquired at large premiums, we find reassurance from the fact that XP Power has been the subject of take-out activity in the past. In June 2024, U.S.-listed Advanced Energy made a bid for more than twice the level at which the shares were trading at the end of June.

Listed in Belgium, Azelis is a globally leading distributor of specialty chemicals. The company sits between 2,700 suppliers of specialty chemicals selling over 110,000 unique products to 59,000 customers ranging from industrial to life sciences and consumer goods companies. The company enjoys longstanding and often exclusive relationships with suppliers who view Azelis as an extension of their sales force, serving the tens of thousands of customers that they otherwise find uneconomical to sell directly to. Customers, on the other hand, view Azelis as a “one-stop-shop” for all their needs, offering not only a reliable supply of specialty chemicals but also value-added services such as product formulation support. Because specialty chemicals account for a low percentage of the cost of the end-product but determine the product’s key characteristics, they are very rarely switched out once designed into a formulation, resulting in sticky customer relationships.

Its shares trended mostly downward in the year’s first six months, due to softening macroeconomic conditions with first-quarter organic revenue growth coming in at 2.5% versus the company’s usual high-single-digit rate. Uncertainty around tariffs has caused customers to postpone orders, which, combined with the low visibility in the business, led to management striking a cautious tone for the rest of the year and initiating a cost savings plan. Long-term growth prospects, however, remain intact, and we view the current headwinds as transitory—Azelis continues to be a leading consolidator of the highly fragmented specialty chemicals distribution market. The top four players today hold just a 10% market share with the rest held by over 20,000 smaller operators that are facing increasing pressure to compete as chemical suppliers look to rationalize distributor relationships on one hand and customers seek one-stop-shop suppliers on the other. Azelis has completed eight bolt-on acquisitions in 2024 and three year-to-date.

Japan’s Riken Keiki is one of the globally leading manufacturers of industrial gas equipment whose gas detection devices can detect and monitor more than 1,200 different gases, ensuring that various working environments remain safe for workers. Riken Keiki passes the customer test as it provides a clear, enduring benefit of ensuring the customers’ operation remains safe whilst ensuring minimal disruption. The company provides this benefit to a diversified customer base of 3,000-4,000 customers, the top 10 representing just 20% of sales and price said to be the “last criterion” its customers would focus on. These customers remain loyal thanks to the deep after-sales relationship formed around the maintenance & sale of mission critical consumables. These activities account for 40% of revenue but a substantially higher share of operating profits.

Its shares declined during the first quarter of the year, though they rebounded during the second quarter. The weakness was due in part to the slowdown in topline growth momentum owing to the delay in the recovery of semiconductor CapEx. This must be placed within the context that its shares were still up more than 80% (in U.S. dollar terms) over the past five years. The intensification of global tariff wars has further dampened sentiment in the shares, such that they now trade on a highly attractive forward cap rate of more than 10%. During this period, the company has continued to grow its topline thanks to highly resilient aftermarket revenue stream. The company has brought forward upfront investment for overseas operation in support of what we understand to be the on-boarding of a major customer. We remain convinced that Riken Keiki is at the precipice of a major overseas growth runway, and it is our impression that the company will likely have to bring forward its capacity expansion plans.

JCU Corporation is a Japanese specialty chemical manufacturer that designs, makes, and sells surface engineering chemicals, which are low cost, mission critical consumables used in the manufacturing process of various products to add a variety of properties such as decorative finish, corrosion resistance, and electrical conductivity. JCU enjoys a globally leading position in niche PCB and semiconductor packaging applications such as “via filling,” which enable customers to build increasingly complex PCBs and semiconductors. The need to have these consumables designed into the direct customers’ particular production process create substantial switching costs for JCU’s diversified customer-base. Additionally, JCU’s technicians perform a mission critical role in keeping high production yields by helping customers manage their use of chemistry during the plating process. This technical sales relationship discourages customers from changing to another vendor. JCU retains its key attractions of offering high ROIC at an attractive valuation, and we continue to believe the company is making progress to move upmarket into semiconductor packaging, where chemistry value is multiples that of the chemistry used in the PCB market. However, we decided to sell JCU during the first half of 2025 to consolidate exposure among our Japanese electronics and semiconductor-related businesses toward our highest conviction holdings, as the recovery in JCU’s core market of memory chips remains lackluster, and the company’s exposure to the fastest growing end markets, such as data center servers, remains too small to drive a meaningful inflection in near-term earnings.

The portfolio’s disadvantage versus its benchmark was primarily attributable to sector allocation in the year’s first half. At the sector level, stock selection in Industrials detracted most, followed by stock selection and lower weightings in Financials and Materials. Conversely, stock selection and, to a lesser extent, our higher weightings were additive in Communication Services and Health Care, while stock selection and lower exposure to Energy also contributed positively to relative year-to-date results.

Current Positioning and Outlook

The second quarter picked up where the first one ended, opening with Trump’s “Liberation Day” tariffs that sent global equites into a tailspin, and culminating in heightened geopolitical tensions in the Middle East. Amid all the uncertainty, two observations become clear in our view: The first is the importance of asset diversification—International equities continued to dominate their U.S. counterparts. The MSCI ACWI ex-USA Small Cap outperformed the Russell 2000 by nearly 20 percentage points for the year-to-date period ended 6/30/25. As we have discussed, we believe that international small-caps are still in the early stages of a multi-year recovery due to their superior relative valuations, currency discounts, and the potential impact of a relative re-weighting among asset allocators toward international equities. Second, the quarter was a litmus test demonstrating the underlying quality and resilience of the portfolio’s holdings. Our companies produced an average ROIC of more than 20%, nearly 50% higher than that of the benchmark, while maintaining net cash balance sheets and continuing to grow earnings by approximately 10% annually. Notably, our companies have also been resilient to tariffs, reflecting the mission-critical nature of their products or services as well as their flexible cost structures. Many also continue to gain market share. Their operational strength, combined with what we think are attractive valuations, has continued to entice private buyers. The second quarter marked the 11th consecutive quarter of take-private activity as two holdings received takeover bids. The number of companies subject to disclosed take-private attempts over this period is the equivalent of nearly one quarter of our current holdings. While we are pleased with performance during the quarter—having outperformed the benchmark and achieved the Fund’s second strongest quarter of absolute performance since inception—we also capitalized on volatility during the quarter by initiating positions in seven new holdings that we think are exceptional businesses. In our view, these additions set a robust foundation for sustained strong performance and position the Fund for success in the years ahead.

Average Annual Total Returns Through 06/30/25 (%)

Annual Operating Expenses: Gross 1.64 Net 1.44

¹ Not annualized.

Important Performance, Expense and Disclosure Information