LEI: 213800RAR6ZDJLZDND86

IMPAX ENVIRONMENTAL MARKETS PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 DECEMBER 2024

 

London, 3 April 2025. Impax Environmental Markets plc (LSE: IEM) (the "Company" or "IEM"), the UK's largest environmental investment trust investing in the transition to a more sustainable economy, today announced its full-year results for the year ended 31 December 2024. 

 

·    Net asset value ("NAV") per ordinary share of 427.6p (31 Dec 2023: 434.3p)

·    Net assets at 31 Dec 2024 of £1,026m (31 Dec 2023: £1,221m) - change primarily due to the sale of positions to fund share buy-backs

·    Ordinary share price of 385.5p (31 Dec 2023: 400.0p)

·    Ongoing charges of 0.84% (31 Dec 2023: 0.83%)

·    Total dividend paid during 2024 financial year of 5.0pps, an increase of 8.7% (2023: 4.6pps)

·    The Company bought back 41.25 million shares during the year, representing 14.7% of the issued share capital, spending £161m.

 

Glen Suarez, Chairman of Impax Environmental Markets, comments:

 

"The past year has brought investors well-documented geopolitical and macroeconomic challenges, as well as a highly concentrated equity market. Nevertheless, the long-term investment case for environmental markets remains intact, irrespective of short-term policy development and political rhetoric.

 

"The Board acknowledges IEM's short-term share price performance over the period , but we are encouraged that the underlying earnings of  companies in our portfolio are growing faster than the benchmark and there is every reason to think that this trend will accelerate over the next decade and the current low valuation levels of companies in the environmental markets represent a huge investment opportunity and differentiated proposition from the MSCI ACWI.

 

"Like almost all the investment trust sector, the Company's shares have traded at a discount to NAV.  During 2024, the Company bought back a considerable number of shares. This has been to support shareholders and mitigate this price volatility. The Board will continue to exercise its authority to buy back or issue shares depending on the circumstances and in the interests of shareholders.

 

"In the third quarter of the year, the Board took the opportunity to consult with a large proportion of the shareholder base representing over half of the issued share capital to listen and discuss the Company's thematic mandate as well as understand their perceptions of the Company. 

 

"The Board undertook a thorough review of IEM's investment proposition and strategy.  This included stock selection, portfolio composition, risk management, challenge and oversight, buy-sell discipline, management of leverage risk and opportunity and geographical and factor exposure.

 

"Upon completion of this review, the Board has concluded that the Manager has a unique investment approach with substantial research depth and skill in this area of the market and, put simply, continues to be the right Manager for the Company.

 

"At the AGM in May 2025, shareholders will have the opportunity, as they do every three years, to vote on the continuation of the Company as an investment trust. The Directors strongly recommend that shareholders vote in favour of the continuation resolution.   We are pleased to invite shareholders to attend the AGM in person to meet the Board and the investment managers and to vote.

 

"IEM is the only investment trust giving access to both shareholders and potential investors to the unique and exciting growth dynamics of environmental markets. Over rolling 5-year periods over the last 10 years, IEM investors have enjoyed market-beating returns 70% of the time.  I remain assured that the transition to a more sustainable economy, catalysed by climate change, will drive stock market returns in the years to come. Your Company represents the ideal way to capitalise on one of the most significant and enduring themes of this century."

 

Contact:   

 

Montfort Communications, Gay Collins, Charlie Barnes	iem@montfort.london 07798 626282 / 07471475485
Impax Asset Management, Paul French	p.french@impaxam.com 0203 912 3032

         

                 

IEM at a Glance 

IEM Overview

IEM provides its shareholders with exposure to this exciting growth story. The Company invests in a well-researched and diversified portfolio of fast-growing, globally-listed companies providing innovative solutions to environmental challenges or improving resource efficiency. IEM's investment opportunity set is also likely to expand rapidly as regulation, technological innovation, and consumer preferences accelerate demand for sustainable solutions. The Board believes this approach can deliver superior risk-adjusted returns over the long-term.

IEM provides its shareholders with exposure to this exciting growth story. The Company invests in a well-researched and diversified portfolio of fast-growing, listed businesses. IEM's Board of Directors (the "Board") believes that investing in these companies can deliver superior risk-adjusted returns over the long-term. This thesis is borne out in the superior earnings growth portfolio companies have delivered compared to global equity markets over the past decade. Looking forward, IEM continues to benefit from an expanding opportunity set of investable companies harnessing structural drivers. These include the digitalisation of industrial supply chains, rising demand for cost-efficient electricity and the increasingly urgent need for climate change adaptation.

This thesis is borne out in IEM's portfolio. Earnings delivered by portfolio companies over the past decade have surpassed those of broader global equity markets. However, like all equity investments, IEM's short-term performance can be influenced by macroeconomic issues and sentiment.

The Manager

The Manager of IEM, Impax Asset Management (AIFM) Limited (the "Manager", or "Impax"), uses a proprietary classification system to define these higher growth 'Environmental Markets'. This approach has been in place since IEM was founded in 2002 and is overseen by a dedicated Impax team.

Today the classification system is made up of six sectors: Energy, Clean and Efficient Transport, Water, Circular Economy, Smart Environment and Sustainable Food. The range of activities included has naturally grown over the years as technologies advance and more industries begin to address the environmental challenges which they face.

To qualify for IEM's investable universe, a company must derive at least 50% of its revenues from these Environmental Markets. As a result, IEM's investments are predominantly in small and medium-sized companies, which tend to focus their business models on fewer activities.

The Manager then follows a rigorous, performance-focused process based on bottom-up research to invest in proven and profitable companies. The breadth of the Environmental Markets opportunity set enables Impax to create a diversified portfolio spanning traditional sector boundaries. Once a company is purchased, its share price is continually monitored within the context of a live 'valuation range' which incorporates worst and best-case assumptions.

The Manager also maintains an active dialogue with the companies in which it invests. Doing so is central to optimising shareholder returns, helping to promote greater transparency around corporate issues and risk. Engagement outcomes, company valuations, as well as portfolio risk metrics and the macro-outlook, all inform buy and sell decisions.

The Company

IEM's goal is to deliver financial returns for shareholders. It benefits from an active, committed Board, as well as competitive fees. Additionally, the investment managers are personally invested, thus aligning themselves financially with shareholders.

By IEM focusing on Environmental Markets, the portfolio generates outcomes beyond financial returns. Annually, for each £1 million invested, enough clean, renewable energy is generated to power 70 homes, and the equivalent of 422 households' water consumption and 17 tonnes of domestic waste are saved. Whilst the Manager does not target the UN Sustainable Development Goals in the investment process, 81% of portfolio company revenues were aligned with them in 2024.

 

Investment Objective

The investment objective of Impax Environmental Markets plc is to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste.

Investments are made predominantly in quoted companies which provide, utilise, implement or advise upon technology-based systems, products or services in environmental markets, particularly those of alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management (which includes sustainable food, agriculture and forestry).

Financial Information

 

At 31 December 2024	2024	2023
Net asset value ("NAV") per ordinary share with debt at bookcost	428.6p	434.9p
NAV per ordinary share with debt at fair value1	427.6p	434.3p
Ordinary share price discount to NAV1,3	9.8%	7.9%
Ordinary share price	385.5p	400.0p
Ongoing charges1	0.84%	0.83 %
Net assets1,3	£1,026m	£1,221m

 

Performance Summary²

 

For the year ended 31 December 2024 % change	2024	2023
NAV total return per ordinary share1,3	(0.4%)	4.5 %
Share price total return per ordinary share1	(2.6%)	(3.7%)
Comparator Benchmarks
MSCI AC World index4	19.6%	15.3%
FTSE ET100 index4	16.8%	18.3 %

 

1         These are alternative performance measures ("APMs").

2         Total returns in sterling for the year to 31 December 2024.

3         With debt at fair value.

4         Source: Bloomberg and FactSet.

Alternative performance measures ("APMs")

The disclosures as indicated in footnote 1 are considered to represent the Company's APMs. Definitions of these APMs and other performance measures used by the Company, together with how these measures have been calculated, can be found within the Annual Report.

STRATEGIC REPORT

Chairman's Statement

Dear Shareholder

The business of investment is never straightforward and so 2024 has proved. But while the last twelve months have seen challenges, future opportunities firmly present themselves for IEM.

Over the course of the year, the Board undertook a thorough review of IEM's investment proposition and strategy. We concluded that the fundamental investment hypothesis on which the Company's strategy is based, namely that companies operating in "Environmental Markets"¹ will outperform the broader market over the long term regardless of public policy, remains robust. To give you just one example, increasing air temperatures, particularly in summer, are boosting demand for air-conditioning globally and that demand will continue regardless of politics and public policy.

The Company's goal is to produce long-term returns and it is only to be expected that there will be temporary periods when returns fluctuate either side of those of global equities. Investing ultimately is a long term game of hard work and patience.

Performance

For the year ended 31 December 2024, the Company's net asset value fell 0.4%, while the global equities comparator index (the MSCI All Country World Index, "MSCI ACWI") returned 19.6%. The share price total return decreased by 2.6%. This reflected the widening of the Company's discount during the year by 1.9%, as discussed in the "Discount" section below.

The Board acknowledges IEM's short-term share price performance over the period, but we are encouraged that the underlying earnings of our portfolio companies are growing faster than the benchmark. Our review of IEM's offering underlined continued investor appetite for its unique proposition as a diversified Environmental Markets investment which provides exposure to global opportunities. This recognises that it is uncorrelated to the 'Magnificent Seven', which have disproportionately skewed the performance of the equity markets over the past few years.²

The Magnificent Seven, fossil fuel and most financial businesses are not eligible for inclusion in our portfolio as they do not meet IEM's key criterion - portfolio companies should be "pure play" companies which derive at least 50% of their revenues from the environmental markets as we have defined them. Despite this, at the sector level there were robust gains in construction and digital infrastructure.

When considering shareholder returns over time, we see a different picture to the one when looking at a single snapshot such as this annual report's one year time period. As an example, the graph in the Annuual Report, showing rolling 5-year returns over the last 10 years, demonstrates something else - a much more consistent picture where investors have enjoyed market-beating returns 70% of the time:³

1           As set out on within the Annual Report.

2           The "Magnificent Seven" are identified as Microsoft, Amazon, Meta, Apple, Nvidia, Alphabet and Tesla.

3           Source: Morningstar, showing rolling 5 year returns ending over the last 5 years. This shows how returns over different time periods have fluctuated and provides a clearer picture as to how the Manager has delivered against the Company's objective over time.

The other relevant point is that the earnings of portfolio companies have been growing faster than the earnings of companies in the index, as we can see in the chart in the Annual Report.

This also supports the Manager's contention that the very low valuation levels of companies in the Environmental Markets represent a huge opportunity especially given the turn in the global markets since the start of the year.

Thus, we have a very buoyant view of the potential that IEM offers. The portfolio's differentiation versus mainstream equity markets is a significant part of its appeal and the Board notes the very high (c.99%) active share that IEM offers against wider global markets.¹

As the chart in the Annual Report exhibits, one clear market trend is the concentration we currently see in the US stock market, which forms such a large proportion of global markets. By way of example, the top ten stocks by market cap of the S&P 500 account for 32.4% of the index's total market capitalisation, as set out below.² This has been a feature of recent years, reflecting the popularity of mega-cap technology stocks like Alphabet (Google), Meta (Facebook) and Microsoft.

None of these companies offer pure play exposure to Environmental Markets. The key is to position the portfolio to benefit from themes that will be in play as the market moves into the next cycle.

Market sentiment around this concentration in these mega-cap technology stocks has moved around over the past year. Mixed earnings reports and declining interest rates are driving a change in that sentiment as the technology these companies are delivering plays its role in the successful transition to a more sustainable economy. As a result, the market is moving to focus on companies embracing the use of that technology to deliver their aims, seeing them as being much better placed to deliver returns.

1           Against MSCI ACWI. Source: MSCI as at 31 December 2024.

2           Morningstar, MSCI, Standard & Poor's. Weights shown by issue, and they are the sum of the top 10 holdings of each index on a monthly basis. As at 31 August 2024.

Benchmark

One of the issues shareholders have faced in understanding the performance of IEM is that a large percentage of the MSCI ACWI benchmark is made up of stocks that cannot be held in the IEM portfolio. And, as referenced in the Company's latest half-yearly financial report, the FTSE Environmental Technology 100 Index ("FTSE ET100"), which we have historically used, no longer represents the best reflection of the opportunity set. To improve the standard of our reporting and to understand more objectively the nature of returns and the performance of the Manager, the Board is working with the Manager to introduce a new benchmark to reflect the opportunity set. I will have more to share on this in the coming period and expect to be updating shareholders on an alternative, after thoroughly testing it as a comparator measure of success.

Discount

Like almost all the investment trust sector, the Company's shares have traded at a discount to NAV. This reflects a number of different factors, including negative sentiment towards the UK market as a whole, differences in the direction of interest rates globally and within the UK and the perceived performance of the Company relative to its benchmark.

The discount is actively monitored by the Board and the Company's corporate brokers. Although your Board sees discounts as an opportunity to invest, it also takes the view that buybacks are useful to dampen share price volatility. At 31 December 2024, the Company's shares traded at a discount to NAV, with debt at fair value, of 9.8%. At the previous year end, shares were trading at a 7.9% discount to NAV. During the year the shares traded between a discount of 8.1% and 17.2% with an average of 11.1%.

Against this backdrop, the discount widened in the second half of this period as the market became nervous as investors digested the implications of Rachel Reeves' first Budget. This affected almost all investment trusts, which saw the discounts across all trusts on average widen from 13.7% to 15.2% during 2024.¹ During the year, the Company bought back some 41.25 million shares, representing 14.7% of the issued share capital at the start of the year, in order to support shareholders and mitigate this price volatility.

The Board will continue to exercise its authority to buy back or issue shares depending on the circumstances in the interests of shareholders.

Following this year's buybacks, there were 239.9 million shares in circulation at the year-end (2023: 281.1 million), excluding 65.76 million shares held in treasury (2023: 24.5 million).

The Board believes that the current level of the discount - taken with the potential for NAV outperformance, as discussed, offers investors an attractive entry point given the turn in the markets. Recent research from the Association of Investment Companies² shows how previous periods of elevated discounts have ended with those discounts narrowing, contributing to strong returns - indeed, the average investment trust returned 86.5% in five-year periods that began with double-digit discounts, compared to the 53.8% return achieved over five years when investing at discounts narrower than 10%.³

IEM's discount is 10.7% as at 31 March 2025, the latest practicable date prior to publication of the report and the figures above and chart in the Annual Report suggest a clear correlation between a greater potential for returns and historically elevated levels of trust discounts (as is the case now):

1          Investment trust 2024 review (updated) | The AIC.

2          "Longest period of double-digit discounts for 30 years presents investors with opportunity" AIC, 3rd February 2025.

3          As defined by AIC as excluding 3i and venture capital trusts.

Dividend

IEM's net revenue return for the year was £12 million, compared with £14.4 million in 2023.

IEM's distribution policy, as approved by shareholders at the 2024 AGM, is to declare two dividends each year. On 7 August 2024, the Board announced a first interim dividend for this financial year of 1.8 pence per share, which was paid on 5 September 2024. The second interim dividend of 3.2 pence per share was declared on 30 January 2025 and paid on 7 March 2025. The total dividend per share paid for 2024 was therefore 5.0 pence per share, an increase of 8.7% on the 4.6 pence paid in respect of 2023.

It remains the Board's intention to pay out substantially all earnings by way of dividends, the quantum of which is affected both by the level of dividends received by the Company and by the number of shares in issue at the relevant record date. The Board does not expect dividends to form a significant proportion of total return in the near future.

Gearing

The Board and the Manager believe that gearing, or the ability to borrow capital to invest, is an attractive feature of investment trusts and can enhance long-term performance. The Company has used gearing for a number of years and has a combination of fixed and floating rate debt with a mix of maturity dates and interest rates.

At the year end the aggregate of the Company's borrowings was £83.1 million, giving net gearing of 7.6% (2023: £87.1 million and 6.2%, respectively).

A breakdown of the Company's borrowings at 31 December 2024 follows.

The Company has €60 million of privately placed notes ("Loan Notes"), as set out in the table below.

Loan amount € million	Loan amount £'million	Maturity 30 September	Interest rate
20	16.5	2030	Floating: 6m EURIBOR +1.35%
30	24.7	2033	Fixed: 4.48%
10	8.2	2035	Fixed: 4.63%

The Company also has a two-year £80 million multi-currency revolving credit facility which has a floating interest rate priced at reference rate +1.6%. An amount of €40.8 million (equivalent to £33.7million) was drawn down at the year end (2023: €40.9 million and £35.3 million, respectively).

At the year end, the weighted maturity of the Company's borrowings was 5.3 years and the mix of fixed to floating was 40%:60% (2023: 6.4 years and 40%:60%, respectively).

Sustainability label

In November, the Manager and the Board agreed to apply the "Sustainability Impact" label to the Company, within the FCA's Sustainability Disclosure Requirements. The label reflects the fact that the Manager applies an investment process which derives, as a function of its workings, a range of clear impacts, which we set out within the Annual Report. But shareholders should not doubt that the business of investment for long term financial returns is the clear priority of the Manager and of IEM. The Sustainability Impact label offers shareholders a clear view on what they are supporting when investing in the Company.

Consultation with shareholders

The Board has taken the view that the upcoming Continuation Vote (see below) represents an opportunity to challenge the Company and its investment proposition.

With this in mind, in the third quarter of the year, the Board took the opportunity to consult with a large proportion of the shareholder base representing over half of the issued share capital to listen and discuss the Company's thematic mandate as well as understand their perceptions of the Company, its performance, fees, capital structure, the Manager and the role that the Company plays in their portfolio. The results of this extensive engagement were supportive of the Company and its strategy and I outline the Board's reasoning to shareholders on the specifics of the Continuation Vote below. The Board is committed to continuing a high level of shareholder communications during 2025.

The Board

IEM has a Board with considerable collective knowledge, balanced across activities in the investment arena. The Board altogether has the experience and skill to support and challenge the Manager, as well as assess and put in place measures to mitigate enterprise risks that arise beyond the investment process.

On 1 January 2024, we welcomed Elizabeth ("Liz") Surkovic to the Board as an independent non-executive director. Liz brings with her a wealth of experience in environmental policy making and regulation in the private and public sectors. A short biography is set out within the Annual Report.

I would like to thank my fellow directors for the time, contribution and the judgement they have brought to bear on the issues affecting the Company this year.

The Board recognises the importance and value of diversity on the Board. I am pleased to report that the Board meets the UK Listing Rules targets on gender diversity, female representation in a senior role, and ethnic representation on the Board.

The Manager

I would like to remind shareholders that the Board is fully independent of the Manager and one of the functions of the Board is to evaluate its performance and to decide whether the interests of the Company and its shareholders are best served by the continuing appointment of the Manager.

The Board has a strong track record of holding managers to account. As Chair of another UK listed investment trust, I have previously replaced the manager, and this Board would follow the same course of action should it lose faith in the Manager's investment process and did not believe the Manager was the right party to deliver the long-term goals of IEM's shareholders.

As such, during the year, the Board undertook both a qualitative and quantitative review of the Manager, its performance and processes.

As far as the qualitative review is concerned, the Board asked the Manager to explain its investment process over a series of meetings in considerable detail. We went through the process of stock selection, portfolio composition, risk management, challenge and oversight, buy-sell discipline, the management of leverage risk and opportunity and geographical and factor exposure.

As far as the quantitative review is concerned, the thesis of the strategy is that over the long-term companies in the Environmental Markets will outperform the broader market indices. We looked for evidence that the earnings of the portfolio picks were growing faster than the market as a whole and that the portfolio was being constructed in way that captured that opportunity set.

The Board noted the Manager's loss of its St James's Place mandate in November and endeavoured to scrutinise it on behalf of shareholders on the reasons for, and implications of, this loss. This was to assess whether the Manager has the depth of research and financial capability to continue to provide the level of portfolio management services that shareholders are entitled to expect at reasonable fee levels.

As part of our ongoing assessment, the Board has supported the Manager's evolution of the structure around IEM's portfolio management team, with succession planning having been an important consideration throughout. This planning has been several years in the making and includes the Manager's appointment of Co-Chief Investment Officer, Charles French, and significant enhancements such as the build-out of Impax's global equities research function, which now includes 20 analysts with specialist expertise in Environmental Markets.

Within this context, Bruce Jenkyn-Jones has informed the Board that he plans to retire as a co-Investment Manager of IEM on 1 July 2026. Jon Forster and Fotis Chatzimichalakis will continue as co-Investment Managers following Bruce's retirement next year. The Board expects a seamless transition, aided by the long notice period that Bruce has provided and the fact that Jon and Fotis have worked together on the portfolio for eight years, with Jon having been in place since 2004.

We will have a chance to mark Bruce's contribution in full over the coming year, but for now, I'd like to take this opportunity to thank him for his continued support and ongoing commitment to the Company.

In addition, as discussed in the Manager's Report, the Manager conducted its own review of its investment process.

These extensive reviews - whether the Manager's own or derived from the Board's questioning - have led to some portfolio changes being made which the Manager references in its report and which the Board has welcomed. The Manager's investment process is dynamic and continuously evaluated and it has evolved over the 23 years of the Company's life (and the 27 years since the Manager's foundation).

In light of this increased level of scrutiny through the various reviews, the Board has concluded that the Manager has a unique investment approach with substantial research depth and skill in this area of the market and, put simply, continues to be the right Manager for the Company.

The Company offers long-term investors an unrivalled prospect of outperformance over the long term from an uncorrelated set of underlying companies from around the world.

Reporting

I am pleased to report that last year's edition was awarded the Best Report & Accounts - Specialist Awards at the AIC Shareholder Communications Award 2024. The AIC judges highlighted the appealing design and effective combination of graphics and text which brought the report to life. They praised the chairman's statement, describing it as fresh and engaging. They commended the environmental impact reporting which struck a good balance between comprehensive detail and clear analysis.¹

¹          Winners of the AIC Shareholder Communication Awards 2024 Press Release.

Annual General Meeting ('AGM')

We are pleased to invite shareholders to attend the AGM in person to meet the Board and the investment managers. There will be a presentation and the opportunity to ask questions. Shareholders are welcome to join through our website at www.impaxenvironmentalmarkets.co.uk. As is our normal practice, there will be live voting for those physically present at the AGM. We are not able to offer live voting via the website, and we therefore request all shareholders, and particularly those who cannot attend physically, to submit their votes by proxy, ahead of the deadline of 3.00pm on 16 May 2025, to ensure that their vote counts at the AGM.

Shareholders' questions for either the Board or the investment managers should be submitted to clientservices@impaxenvironmentalmarkets.co.uk by 3.00pm on 16 May 2025. The Company's website at www.impaxenvironmentalmarkets.co.uk can be used to access more insights and also subscribe for regular communications.

Continuation Vote

In addition to the normal business of the meeting, shareholders are being asked to consider as an ordinary resolution the continuation of the Company as an investment trust. The Company's Articles of Association provide for the Company's shareholders to vote, once every three years, on whether the Company should continue operating in its current form.

As I have referred to above, your Company is the only investment trust giving access to both shareholders and potential investors to this unique and exciting growth story. It has generated strong returns since inception, as well as over an assortment of longer term time periods.

Annual Report and Circular and Notice of the AGM ("AGM Circular")

The Company has published a separate annual report and AGM Circular. The AGM Circular contains the notice of the AGM and detailed explanations for each resolution, including resolution 12 for the continuation vote.

The Directors strongly recommend that shareholders vote in favour of the continuation resolution, as the Directors intend to do so in respect of their shareholdings, as well as in favour of all the other resolutions.

Shareholders in receipt of this annual report and AGM Circular directly from Company will receive a Form of Proxy in order to vote.

Shareholders who are invested in the Company via third party platforms or intermediaries who hold shares on their behalf very commonly possess the right to instruct the platform on how they wish their shares to be voted. The Directors similarly urge these investors to exercise their rights and details on how to make your instruction can be obtained from your platform or intermediary. More information on voting can also be obtained from the Association of Investment Companies at: https://www.theaic.co.uk/how-to-vote-your-shares.

Outlook

Since the start of the year it has become increasingly clear that the markets are undergoing a re-pricing, with the Magnificent 7, NASDAQ, and the US markets underperforming other companies and markets. The market appears to be focusing increasingly on corporate fundamentals, and the most important driver of market returns in the long term is earnings.

The good news is that earnings of companies in our portfolio have been growing faster than the earnings of the broader market indices over long periods and there is every reason to think that this trend will accelerate over the next decade, regardless of politics and policy. It remains our conviction that investors focused on these transformations can target attractive risk-adjusted returns as the transition to a more sustainable economy accelerates, and your Company represents the ideal way to capitalise on that.

The Board believes that the Company is one of the few investment propositions in the UK market that offers broad spectrum exposure to one of the most significant and enduring themes of this century.

We can be sure that society will adapt to changes in the environment driven by climate change and that these efforts will drive stock market returns, regardless of policy development and political rhetoric. Opportunities for IEM will abound and increase as the impact of climate change develops. The thoughtful investor will take advantage of the mispriced risks and potential, whatever shorter term political noise exists, with analysis, conviction and patience.

Glen Suarez, Chairman

2 April 2025

 

Manager's Report

The fundamental trends which underpin Environmental Markets remain intact. These include rising power demand and electrification, digitalisation and AI, as well as climate change adaptation. These markets are driven by pure economics, not public opinion. The companies within IEM's portfolio continue to be well-positioned for long-term growth.

Recent performance has not reflected this, in large part thanks to a highly concentrated equity market. As investment managers, we increased our weight in high conviction names and bought positions in great companies at attractive valuations. We believe the resulting combination of robust earnings growth, relative value, and significant differentiation from broader markets, makes IEM a compelling proposition heading into the decade ahead.

Global Equities in 2024

Global equity markets continued to challenge active equity investors in 2024. At a headline level, returns as measured by the MSCI All Country World Index ("MSCI ACWI") came in at 19.6%. Yet this robust gain masks stark differences across sectors and market capitalisations, as well as inconsistency over the year. For Environmental Markets the re-election of Donald Trump to the White House further complicated the picture.

Investors entered the new year expecting a swift start to interest rate cuts from the US Federal Reserve ("Fed"). On 2 January 2024, market consensus forecast the Fed would cut twice by May 2024, with six cuts ultimately bringing rates to 4% by the end of the year.¹ In reality, both the European Central Bank and the Bank of England beat the Fed to the punch, with investors having to wait until 30 September 2024 for a 0.5% cut to US interest rates.

Relatively volatile economic data drove the Fed's cautious approach. While US consumer price inflation cooled and unemployment ticked up, they refused to do so uniformly. Equity investors eager to price in a world of more accommodative monetary policy thus experienced several false starts. Instead, the year was confirmed as one in which US interest rates really would remain "higher for longer". Ultimately, US economic performance remained strong.

By contrast, growth in Europe and China continued to be lacklustre. Both regions failed to recapture pre-pandemic levels of growth, with Europe hit by higher energy prices and the loss of Chinese demand to support its export market. By way of response, China launched successive stimulus announcements towards the end of the year, including a US$1.4 trillion package for local governments to reduce debt burdens and ramp up public spending.² Despite a cut to interest rates, Eurozone manufacturing PMI data ended in contraction at 45.2.³

Geopolitical issues further complicated the macro picture. The resurgence of open conflict in the Middle East renewed oil price volatility and stoked fears of resurgent inflation, with Brent Crude peaking at $91 in April 2024.⁴ Similar concerns surrounded shipping costs, which threatened to spike as companies avoided Houthi incursions in the Red Sea. Even before Donald Trump's re-election, new and higher China tariffs from both President Biden and the European Commission set the tone for more difficult trade relations.

With over 50% of the world's population going to the polls in 2024, investors also faced several periods of electoral uncertainty. In the US, a late Democrat candidate switch from Joe Biden to Kamala Harris added to an already fractious and divided contest. The advance of right-wing parties in Germany and France led to fresh elections being called, mirroring victories in the European parliament. India and the UK also elected national governments, although here the outcomes were more expected. With elections now largely consigned to the rear-view mirror, markets can focus on how the victors acquit themselves in power.

Amid this uncertainty, equity investors mostly stuck with what served them well in 2023. Larger stocks continued to outperform smaller companies deemed to be labouring under a higher cost of debt. The Magnificent Seven⁵ and other related technology stocks benefitted from greater AI uptake and enthusiasm. Financials similarly powered on, thanks to elevated US interest rates and the prospect of a more permissive mergers and acquisitions regime under Donald Trump. As a result, around half the MSCI ACWI's returns in 2024 came from just ten stocks.

There were periods of stronger performance outside these areas. The prospect of rate cuts led to a sharp - albeit unsustained - momentum reversal in Q3, with utilities, real estate and small-caps all outperforming. Likewise, China's stimulus boosted local equity markets, as well as stocks with greater exposure to the region. However, this was not enough to offset US outperformance with its growing line-up of trillion-dollar companies. Consequently, global equity markets presented several challenges for IEM, which holds most of its portfolio in mid and small-caps, holds no financial stocks and owns fewer US companies than the MSCI ACWI.

1          Source: Bloomberg Fed Funds Futures as at 2 January 2024.

2          China unveils $1.4tn debt swap program to ease local government pain - Nikkei Asia.

3          PMI - Purchasing Manager Index. Source, Bloomberg 31 December 2024.

4          Source: Bloomberg, 31 December 2024.

5          Microsoft, Amazon, Meta, Apple, Nvidia, Alphabet, Tesla.

Key Developments and Drivers for Environmental Markets

The Re-Election of Donald Trump

The prospect and ultimate re-election of Donald Trump was a constant theme for 2024. Yet while not an ideal outcome for Environmental Markets, it is far from universally negative.

The actions of one Presidency will not derail the structural demand for greater resource efficiency which underpins IEM's investment thesis. Even in areas where Trump is actively unsympathetic, such as renewables, the breadth of IEM's investable universe is sufficient to avoid either exposure to the US, or potentially the sector altogether. This, combined with disciplined portfolio construction meant IEM outperformed the MSCI ACWI over the course of Donald Trump's last term in office.

Going into the election the investment managers explored various scenarios to determine potential repercussions. The investment managers were able to leverage this across the portfolio. This activity has since continued, particularly given the sharp reaction in some stocks despite no concrete policy.

Key priorities in the US included establishing what changes, if any, might be made to the Inflation Reduction Act ("IRA"), Infrastructure Investment and Jobs Act ("IIJA") and Chips & Science Act. Impax's base case is that total repeal for these three key pieces of legislation remains unlikely given broad-based Republican support. Slower investments, higher tariffs, and the removal of tax credits for renewables and electric vehicles ("EVs") remain a risk.

Consequently, the investment managers take a sector-specific approach. Where downward moves look overdone, there are buying opportunities; where near-term visibility is reduced and the longer-term outlook is uncertain, investment cases must be reviewed.

The table on the below sets out how we currently see this Trump Presidency - based on statements made at the time of writing - will affect each thematic area of the portfolio. Under the "Impact" column, red means a potentially less favourable set of circumstances for the portfolio; amber means circumstances requiring care, with the potential for good opportunities; while green represents the areas we see most likely to benefit. Further detail is set out in the paragraphs below the table. In short, we see some real potential opportunity in the years ahead of this Presidency.

Analysing medium-term implications for key thematic areas

Thematic Area	Portfolio Weight (%)	Impact	Election Implication	Investment Action
Alternative Energy	7	Negative	•Incremental risk to PTC1/ITC2 subsidies. •Historically negative views on offshore wind development. •Operating assets not impacted. •Mixed impact on biofuels mandates.	•Increased IPPs3 trading below operating asset value. •Reduced already low wind and solar exposure.
Transport Solutions	3	Neutral	•EV Tax credits at risk, with potential roll back of sales targets. •Improved outlook for transport pollution control.	•EV4 exposure manageable across diversified holdings.
Sustainable Food & Agriculture	13	Neutral	•Read-across to farmer incomes from tariffs. •RFK5 stance on food processing positive for natural ingredients. •Construction tailwinds positive for sustainable forestry, subject to rates.	•Limited exposure to theme. •Adding to Natural Ingredients recovery story.
Environmental Services & Resources	3	Neutral	•Onshoring an ongoing opportunity for environmental consultants. •Mixed impact from roll back/replacement of Federal regulations.	•Researching beneficiaries of onshoring/infra buildout.
Energy Management & Efficiency	22	Positive	•"Pro-growth" policies support Industrial and Construction exposure. •Further grid investment likely to support AI6 development.	•Maintain significant exposure
Water Infrastructure & Technologies	15	Positive	•Tailwinds industrial reshoring and increased construction. •Likely acceleration of water utility M&A on de-regulation.	•Adding to existing exposure.
Resource Efficiency & Waste Management	21	Positive	•Accelerating economic growth positive for general waste volumes. •Increased onshoring and oil/gas activity positive for hazardous waste. •Tailwinds for equipment rental names from economic growth.	•Recently added new waste holding. •Maintaining existing waste and equipment exposure.
Digital Infrastructure	14	Positive	•Onshoring positive for industrial software holdings. •Neutral impact on data centres and AI.	•Continued research into further holdings.

Donald Trump has been a vocal critic of renewables, and the alternative energy sector sold off sharply following his victory. While not our base case, there is now incremental risk to both the Investment and Production Tax Credits ("ITC" & "PTC"), as well as less enthusiasm for offshore wind. However, PE⁷ multiples across the sector had already contracted, both anticipating a Trump win and reflecting higher interest rates. At 7.0% of the portfolio,⁸ the investment managers reduced IEM's already low wind and solar exposure, in favour of consolidated positions in independent power producers ("IPPs") trading below operating asset values.

Beyond alternative energy, the takeaways across Environmental Markets, and the IEM portfolio, are more mixed. Trump is expected to prioritise domestic economic growth and to continue Biden's policy of reshoring manufacturing. This would be favourable for names exposed to construction and industry across energy management and water infrastructure.

In addition, stocks in resource efficiency & waste management are likely to be net beneficiaries. A US pivot towards more conventional energy would also generate high value waste streams for hazardous waste holding Clean Harbors, and could provide further tailwinds for equipment rental names, as well as the portfolio's industrial software names in digital infrastructure.

The new administration's priorities are less clear-cut across the areas of Transport Solutions, Sustainable Food & Agriculture, and Environmental Services & Resources. For example, EV4 tax credits may be at risk but any fallout could well be balanced by Elon Musk's influence over government policy. In Sustainable Food & Agriculture, the negative impact of tariffs has to be weighed against the likely tailwinds for Natural Ingredients companies of Robert Kennedy's stance on food processing. Similarly, the potential repeal of federal regulations in favour of state-level decrees creates opportunities for environmental consultancies able to navigate them.

Ultimately, the structural trends which underpin IEM's core investment thesis will not change over the course of Trump's presidency. Indeed, policies which do not address or even exacerbate environmental issues will eventually lead to greater demand for adaptation solutions, be they a more resilient electrical grid, greater storm drainage or cooling solutions. Similarly, governments have little influence over the very real economic incentives driving the uptake of more efficient technologies by businesses and consumers. The investment managers are continuously searching for additional investment opportunities which harness these growth drivers.

Recovery of Disrupted Supply Chains

While the COVID-19 pandemic now feels like a distant memory, global patterns of supply and demand are only now normalising after the unprecedented disruption. Companies which built up inventory levels during the pandemic have had to work through them as demand stabilised, or in some cases weakened. The consequence of this for the suppliers however, is that demand meaningfully decreased.

There are now positive signs that this protracted process is coming to an end and the opportunity is becoming more clear. In Natural Ingredients, companies like DSM-Firmenich and Croda are reporting a return to demand growth across most of their key markets. In Life Sciences, bioprocessing companies like Repligen are seeing sustained strength across large pharma and Contract Development and Manufacturing Organizations ("CDMOs"). In Industrials, UK-listed DiscoverIE rallied sharply towards the end of the year as the maker of specialised industrial components reported similarly strong numbers.

These holdings demonstrate the tremendous recovery of potential holdings when market dynamics change. At the same time, these organisations have been improving their operational efficiency, emerging leaner and more profitable at the other end.

1          Production Tax Credit.

2          Investment Tax Credit.

3          Independent Power Producer.

4          Electric Vehicle.

5          Robert F Kennedy.

6          Artificial Intelligence.

7          Price to next 12-month earnings per share.

8          As at 31 December 2024.

Power Demand - Grids, AI and Nuclear

Global electricity demand is set to triple between now and 2050 thanks to a combination of increasing electrification and higher economic growth in developing economies.¹ In the latter, the switch away from fossil fuel energy generation is likely to be most pronounced in the residential and transportation sectors.² Electrifying industrial processes such as steel production would increase this still further. In addition, the rise of AI means that the International Energy Agency expects data centre energy consumption will reach 1,000 TWh by 2026, roughly equivalent to the entire energy consumption of Japan.² The arrival of the "Deepseek" AI technology in the opening weeks of 2025 has challenged, but not changed, this thinking.

To cope with this, electricity grids need to expand. The introduction of renewables and the growth of energy storage means they must also become more flexible, with more interconnections to manage the intermittency of solar and wind generation (the output of which can be more variable). Electricity networks are also becoming bidirectional, as users start to both consume and produce electricity. Yet grid investment has largely been static over the past 14 years, at around US$300 billion globally each year.³ Consequently, around two-fifths of Europe's grids are more than 40 years old. In the US, the average age of a large power transformer is of a similar age, which is the end of its typical lifespan.³

Aging cables, accelerating electricity demand and the needs relying on a more intermittent supply mean systems are becoming increasingly fragile, with a greater risk of blackouts.⁴ To combat this, annual global investment in electricity grids will need to rise commensurately, with annual spending of some US$900 billion between now and 2050, plus an additional US$200 billion directed towards expanding energy storage capacity. This long-term trend underpins IEM's holding in electrical cable manufacturer Prysmian.

Aligned with these developments is the renewed interest in nuclear energy. Big tech companies in particular have become high profile proponents, driven by their need to support massive energy requirements while also meeting carbon reduction commitments. Small modular reactors ("SMRs") in particular have garnered significant interest, as they promise enhanced safety, efficiency and scalability; although their current use is limited. Most tangibly, in September Microsoft (not held) signed a deal to reopen Three Mile Island.⁵ We continue our search for other innovative portfolio additions in this space.

Mergers and Acquisitions ("M&A")

There is a long history of M&A in Environmental Markets. Large corporates and private equity ("PE") are drawn to the structural growth potential that these companies offer as IEM seeks to do. Activity typically picks up when a sector is viewed as ripe for consolidation or valuations become particularly attractive.

In the early 2000s, the water treatment and waste management sectors experienced such episodes. The industrial conglomerate General Electric purchased several water treatment companies including Ionics and Osmonics.⁶ UK-based PE company Terra Firma was similarly drawn to the waste sector's strong and stable cashflows, purchasing Waste Recycling Group in 2003 and Shanks in 2004, before combining and ultimately selling them on.⁷

In recent years there have been fewer takeovers in Environmental Markets. Maturing companies have instead focused on consolidating existing business and growing their own franchises. However, the combination of higher interest rates, negative sentiment on sustainability oriented stocks and concentrated performance in mega-cap tech has left many valuations well below their historic averages. The effect is most pronounced in some of IEM's IPP holdings, where companies like Boralex trade at 10x EV/EBITDA - a multiple which discounts not only the pipeline, but existing operational assets. By contrast, transactions for similar companies in the private markets - such as Brookfield's acquisition of NEOEN - are taking place at multiples of c.17x EV/EBITDA.⁸

This discrepancy is driving up M&A across sectors. Within the IEM portfolio there have been three instances in 2024. As disclosed in the half-yearly financial report, Greek IPP Terna Energy announced a takeover by Masdar, an Abu Dhabi owned renewables developer. Most recently, in October the simulation software company Altair Engineering announced an agreement to be acquired by the German technology conglomerate Siemens (not held). At $113 per share, the takeover represents a 19% premium to the undisturbed share price.⁹ The deal was unanimously approved by Altair's Board, and is expected to close in the second half of 2025, following regulatory approval. As Siemens' second biggest acquisition ever,¹⁰ the transaction reflects the transformational role data analysis, software and AI are having on the industrial value chain.

1           Energy Transition Commission, 22 November 2023: Barriers to Clean Electrification - Grids: the critical gap, presentation to Commissioner meeting.

2           Executive summary - Electricity 2024 - Analysis - IEA.

3           Executive summary - Electricity Grids and Secure Energy Transitions - Analysis - IEA.

4           North American Electric Reliability Corporation, December 2023.

5           Three Mile Island nuclear site to reopen in Microsoft deal - BBC News.

6           GE Infrastructure Completes Acquisition of Ionics, Inc. | GE News; GE Power Systems to Acquire Osmonics, aLeader in Water Purification and Filtration; New Unit to Become Partof GE Water | GE News.

7           Terra Firma sells waste business for £1.4bn (infrastructureinvestor.com).

8           Brookfield to acquire Neoen for €6.1 billion - Energy-Storage.News.

9           Siemens strengthens leadership in industrial software and AI with acquisition of Altair Engineering | Press | Company | Siemens.

10         Siemens' $10.6 billion Altair deal strengthens its industrial software offering | Reuters.

Absolute Performance Contributors and Detractors

The Company's net asset value ("NAV") delivered absolute returns of -0.4% in 2024. Global equity markets, as measured by the MSCI All Country World Index ("MSCI ACWI"), delivered 19.6% over the same period.

The primary driver of IEM's performance lag relative to the MSCI ACWI were stocks which - due to the Manager's 50% Environmental Markets revenue requirement - fall outside of the investable universe. The portfolio has remained true to label and this is not at odds with IEM's investment thesis, which is long-term in nature. Rather it reflects that amid economic uncertainty, high interest rates and geopolitical tensions, investors have continued to take shelter in mega-cap stocks where mass enthusiasm for AI underpins investor momentum.

In 2024, over 50% of the MSCI ACWI's returns came from just 10 stocks. As well as the so-called Magnificent Seven, these included semiconductor companies Broadcom and TSMC, and online streaming platform Netflix. While their earnings growth has doubtless been robust, a significant part of performance has been driven by multiple appreciation. Even so, this was not sustained uniformly throughout the year, with a sharp - albeit temporary - rotation in Q3 towards mid and small-caps, illustrating the speed at which high momentum dynamics can reverse.

Higher for longer interest rates also drove the outperformance of Financials in 2024. Despite increasing initiatives around environmental finance, most of the sector falls outside IEM's investable universe on revenue grounds. The prospect of Donald Trump's re-election further boosted Financials given his "pro-growth" stance. Investors anticipated inflationary tariffs, looser fiscal policy and a lengthy period of higher interest rates. The new regime's permissive stance on M&A is also viewed as a boost for dealmaking investment banks, as well as increasing the likelihood of regional US bank consolidation.

Relative Performance Analysis

Performance relative to MSCI ACWI	12 Months ended 31 December 2024 %
NAV total return	(0.4)
MSCI ACWI total return	19.6
Relative performance	(20.0)
Analysis of relative performance:
Portfolio total return	(0.5)
MSCI ACWI total return	19.6
Portfolio underperformance	(20.1)
Borrowing:
Gearing effect	(0.1)
Finance costs	(0.4)
Management fee	(0.8)
Other expenses	(0.1)
Trading Costs	(0.2)
Share transactions:
Buybacks	1.9
Tax	(0.2)
Total relative NAV performance	(20.0)

        

        

Performance relative to FTSE ET100	12 Months ended 31 December 2024 %
NAV total return	(0.4)
FTSE ET100 total return	16.8
Relative performance	(17.2)
Analysis of relative performance:
Portfolio total return	(0.5)
FTSE ET100 total return	16.8
Portfolio underperformance	(17.3)
Borrowing:
Gearing effect	(0.1)
Finance costs	(0.4)
Management fee	(0.8)
Other expenses	(0.1)
Trading Costs	(0.2)
Share transactions:
Buybacks	1.9
Tax	(0.2)
Total relative NAV performance	(17.2)

Positive contributions to performance were broadly spread across IEM's portfolio. In addition to several acquisitions (see Key Developments and Drivers) many companies delivered consistently strong returns over the year, such as Clean Harbors - a US industrial waste specialist, CATL - a Chinese battery producer, and Brambles - an Australian pallet and logistics company. Despite all being categorised as 'Industrials', the companies have highly differentiated business models, sources of revenue and geographical exposure. Furthermore, where CATL was added to the portfolio early this year due to a compelling valuation opportunity given its competitive advantage, Clean Harbors is a long-term holding which continues to demonstrate how quality management can drive up earnings by capitalising on captive demand, structural growth and ever-tighter regulation.

One specific area of strength within the portfolio was companies with exposure to construction, particularly in the US. These delivered positive returns in 2023 and continued to do so in 2024. At a headline level, high interest rates have done little to weaken residential demand, while infrastructure investment and commercial spending continues apace.

Exemplifying these trends are two of IEM's top contributors for the year: Pentair and Lennox International, a producer of water flow technology and HVAC1 solutions, respectively. Pentair steadily drove margins up over the year, with growing sales from its Pool division and further synergies from its Manitowoc Ice acquisition. Lennox delivered a series of "beat and raise" earnings updates, citing market share gain and sales growth within its commercial business. While the long-term investment cases for these, and IEM's other construction holdings, remain intact, we have managed the position by taking profits, bearing in mind the industry's cyclical nature.

IEM's Digital Infrastructure stocks also boosted performance. With a shared focus on operational efficiency, and consequently environmental performance, its customers have continued to invest in solutions which boost their bottom line. Within this segment, software companies include the likes of transportation management platform Descartes and design and simulation specialist PTC, whose dominance of a niche and subscription-based revenues enable steady growth. By comparison, Trimble - a producer of geolocation software and equipment - rallied substantially after repeated engagement and an activist shareholder produced a strategic update and earnings upgrades.

In hardware, the strongest contribution has come from Monolithic Power Systems a producer of thermally efficient power semiconductors. The shares performed strongly thanks to sustained growth in data centres, where Monolithic is sole supplier to Nvidia (not held). Concerns this relationship could be at risk prompted a pullback in the shares towards the end of the year but appear overdone. Management has long trailed Nvidia's desire for another supplier and has factored this into guidance. Equally, growth is returning to Monolithic's other business segments which have experienced temporary weakness, such as autos, consumer electronics and industrials.

Lastly, the portfolio also benefited from its positions in companies related to the energy grid. These include long-term holding Generac, as well as Prysmian. The former, a maker of standby electrical generators, experienced resurgent demand in its home standby division thanks to a particularly active hurricane season and its continued penetration of US distributors. By contrast, Prysmian - an Italian producer of electrical and fibre optic cables - is at the centre of long-term investment in grid infrastructure. At the time of its purchase in October 2023, the investment managers also saw evidence of a business turnaround at an attractive valuation. This thesis has played out rapidly in 2024, with the acquisition of US company Encore Wire helping management to boost margins, deliver cash flow, and deleverage the balance sheet.

The bulk of IEM's negative returns came from holdings in a handful of sectors with compelling long-term growth that have been experiencing temporary headwinds. The portfolio's renewables holdings account for the largest of these. Excepting Terna Energy which was taken over (see Developments and Drivers), averaged out across the full year this 8.6% allocation spans four IPPs, two solar positions and a manufacturer of wind turbines. From a sentiment perspective, sustained higher interest rates and Donald Trump's re-election weighed on the P/E multiples of all seven companies.

IPPs were further impacted by low European power prices, themselves driven by soft industrial production and plentiful US gas. Yet here the investment managers are seeing consistent evidence of new long-dated contracts being priced at higher rates with inflation protection, particularly where the source of demand is Big Tech. At the same time, holdings such as Northland Power are navigating medium-term uncertainty by focusing on project execution and cash generation, while companies like Ormat Technologies continue to receive vocal support for their geothermal energy and battery storage solutions. This is creating a range of attractive valuation opportunities across the space.

In wind and solar, there were more fundamental issues. In solar, sustained weak demand combined with poor capital discipline from Chinese producers resulted in weak performance and ultimately a loss of conviction for both SolarEdge Technologies and Xinyi Solar. The latter had also rallied meaningfully following Chinese stimulus. Similarly, Vestas, a maker of wind turbines, reported successive results with disappointing margins. These were driven by accounting adjustments from its services division, historically seen as a superior quality business relative to peers. With lingering questions about margin recovery, increased Chinese competition and management quality, the managers exited the position.

Conversely, the trajectory of IEM's Life Sciences companies provided an almost exact mirror image. Repligen, a maker of products and solutions for the bioprocessing industry, entered the year assuming continued sales weakness would prevent it being able to raise prices. Yet by Q3, more supportive demand, combined with product differentiation and a push into more commercial customers, enabled the company to boost its operating margin by 1%.

Shares in Spirax Group, a supplier of specialised industrial heat solutions, also inflected towards year end. Sustained weakness in Watson Marlow - its peristaltic pump division with significant bioprocessing exposure - had been compounded by softer industrial demand, particularly in China. Here too though, a November trading update indicated a return to growth despite these challenges.

Industrial production remains weak globally, and companies which experienced super-normal demand during COVID have faced lengthy inventory destocking periods. While some of these are now normalising, holdings with weak cyclical end markets accounted for the second largest source of negative returns. These include manufacturers of electrical components such as Littelfuse (a maker of circuit protection), LEM (maker of transducers) and DiscoverIE (a specialist industrial manufacturer). Amid weaker demand for their products, these companies have been active in cutting costs to protect margins. More optimistic forward guidance in Q4, notably from DiscoverIE, provided a late boost to the shares, demonstrating their recovery potential when market dynamics change.

Portfolio Positioning and Activity

As at 31 December 2024, the Company holds a diversified portfolio of 60 listed companies. Since the half-yearly financial report was published, the investment managers have focused on upscaling the weight of its top ten holdings, consolidating into high conviction positions and exiting sub-scale positions with limited near-term visibility. Doing so has proved beneficial, with a 22.6% turnover over the full year making a 1.1% positive contribution to performance.

New holdings	Holdings sold1
Bentley Systems Inc	Dialight
Boralex Inc	Cryoport
Cognex Corp	Eurofins Scientific
CATL	Indraprastha Gas
nVent Electric Plc	Shimano Inc
Waste Connections Inc	SolarEdge Technologies
Xylem Inc	Stericycle Inc
	Terna Energy
	Vestas Wind Systems
	Xinyi Solar Holdings
	Badger Meter

1          Holdings fully disposed of.

In general, the investment managers aim to strike a balanced weighting between cyclicals and defensives, even if the nature of IEM's investable universe skews towards the former. Since the half-yearly financial report, the weight in defensives has moderately increased. Rather than any concerted macro call, the move reflects an ability to source ideas from across Impax's platform of analysts and investment managers. Given attractive valuations across Environmental Markets, many of these are stable businesses harnessing long-term growth which typically trade at a premium but are currently presenting opportunities to initiate.

The first group of transactions were related by virtue of the investment managers' valuation discipline. In July, IEM exited its position in Shimano. Shares in the Japanese maker of bicycle components had risen sharply, presenting limited medium-term upside. This calculus was partly informed by a product malfunction and allegations of forced labour at a company supplier. Taken together, this presented an unfavourable combination of risk and reward.

Valuation discipline also informed the exit of water meter company Badger Meter. Badger was held in IEM's portfolio for over two decades, delivering consistently strong contributions to performance. However, its valuation reached a point where the investment managers saw little further upside. The proceeds were used to initiate a position in Xylem, a water infrastructure provider with some product overlap. Shares in Xylem weakened sharply after Q3 results, trading at circa 40% below its peak multiple set in 2021. This created an entry point in a company which continues to expect stable revenue growth and robust cash flows.

Longer than expected inventory destocking has weighed on industrial stocks like Dialight, a lighting specialist, as well as IEM's bioprocessing companies. In addition, conversations with the management of Cryoport raised concerns around capital allocation. As a result, the investment managers sold the position in favour of existing holding Repligen, a company focused on bioprocessing equipment and solutions. The Manager exited its position in Indraprastha Gas, an Indian provider of natural gas. Regulatory changes are increasingly pushing for electrification of IPG's key transportation end-market, fundamentally changing the investment thesis.

Further consolidation took place across IEM's renewables holdings. This consisted of selling holdings where lower than expected business quality has added to the pressure of sustained high interest rates and soft power prices. Proceeds were reallocated to IPPs which, similar to when Contemporary Amperex Technology ("CATL") was purchased in February, traded on low valuations relative to history and were not reliant on US growth for their investment case. Thus Vestas Wind Systems (a wind turbine manufacturer), Xinyi Solar (a maker of solar glass) and SolarEdge Technologies (a producer of solar optimisers) were sold to initiate a position in Boralex. Shares in the latter, a Canadian-listed IPP, pulled back in the wake of Donald Trump's election in November, despite the US accounting for a relatively small amount of its 6.4GW pipeline, which is spread across Canada, France and the Northeastern US.

The Manager sold its position in Eurofins Scientific, an environmental testing company listed in France. Due to a changing business mix, company revenues fell below Impax's 50% environmental markets revenue threshold.

The Manager's third series of transactions focused on increasing IEM's exposure to digital infrastructure. Having purchased Cognex, a maker of machine vision systems in the first half of the year, the investment managers initiated a position in Bentley Systems. They are a provider of software for the planning, construction, and maintenance of infrastructure. The company's relatively low cost to clients and subscription-based business model ensures a high level of retention, with construction one of the sectors least penetrated by software adoption.

Separately, nVent Electric, a provider of electrical products and solutions, was bought. Following the disposal of its Thermal Management business, the company is split 60/40 between two divisions: Enclosures, and Electrical & Fastening Solutions. The former provides storage and cooling products for data centres, where the latter connects electrical components in buildings. With strong market leadership across several niche segments, nVent has a track record of delivering robust margins. The shares traded well below peers and in line with broader industrials at the time of purchase.

Finally, the investment managers also made several changes to the portfolio following strong share price rallies driven by M&A. While the proceeds of Terna Energy's disposal were reallocated across the portfolio, profits from Stericycle were used to initiate a position in Waste Connections. This is a US-based solid waste disposal and recycling company that has also moved into renewable natural gas. By targeting markets where it enjoys exclusivity or minimal competition. It benefits from high route density, low capex needs and long-lasting contracts. It targets a defensive growth model through a combination of pricing and asset acquisition. As a result, the stock trades at a justified premium to peers.

Valuation, Growth and Gearing

Over the course of 2024, IEM's portfolio occupied a relatively narrow valuation range as measured by its next 12 months' (or forward) price-to-earnings ("PE") ratio. Indeed, having started the year at 20.7x, the portfolio ended on 20.2x. This is only slightly above IEM's historical ten-year average, despite IEM having steadily increased its holdings in more highly valued sectors such as Technology and Health Care. The investment manager's view this as evidence that not only are global equity markets pricing in sentiment headwinds across overtly "sustainable" companies, but that markets also continue to overly discount smaller companies relative to their larger peers.

Sector headwinds notwithstanding, over the past ten years the portfolio's implied annualised earnings growth (or estimated future growth rate) of 4.9% is ahead of the MSCI ACWI's 4.2%. However, the portfolio's tilt towards pro-cyclical, mid and small-cap stocks means that when macroeconomic conditions place these segments of the market out of favour, short-term relative returns can be impacted. This is reflected in the sharp contraction of IEM's P/E multiple over the year, even as that of the MSCI ACWI has expanded. While the fundamental performance of IEM's holdings has been robust, this has not been rewarded by broader equity markets.

While past performance does not predict future returns and forecasts are not always certain, the bar chart in the Annual Report shows the potential earnings growth (green bars) of the companies in which IEM is invested over the next 10 years, as suggested by movements in share prices of those companies.¹ This in turn suggests that IEM has a higher potential upside following the recent strong performance of the MSCI ACWI.

Further proof of this can be seen in the relative premium at which the portfolio trades relative to the MSCI ACWI. The forward PE for this index rose steadily over the course of the year, reaching 17.9x by December. As a result, IEM's valuation premium has steadily declined to 13.3% by the end of 2024, even as forward earnings growth remains meaningfully higher than the broader market. With shares in IEM trading at a further discount, the investment managers believe this makes a compelling offering for prospective shareholders, as well as those looking to increase existing positions.

Since the most recent renewal of the Company's borrowings (as referenced in the Chairman's Statement), gearing has been a modest 0.16% detractor from performance but has enabled the portfolio to more fully participate in the breadth of opportunities across Environmental Markets as a whole, with the potential upside to come. Overall, the investment managers remain comfortable operating within a gearing framework of up to 10% of net assets.

1           This is derived from a "log return" refers to a method of calculating the percentage change in an asset's value over a period of time by taking the natural logarithm of the ratio between its current price and its previous price, essentially representing a continuously compounded rate of return, where the compounding effect is fully accounted for; this makes it a more accurate measure compared to simple returns when analysing price changes over time.

Outlook

There has been a clear shift in the market narrative. Performance has broadened beyond a narrow group of mega-cap technology stocks. US exceptionalism has given way to stronger performance for Europe and China. Notably, shares in electric vehicle manufacturer Tesla - the only "Magnificent Seven" stock which falls within IEM's investable universe - have fallen more than 40%. The move reflects some of the investment managers' concerns about valuation and governance risk, which drove their decision not to invest. At the time of writing, this is favourable to IEM's portfolio, which is overweight Europe, has 99% active share and holds many attractively valued stocks recovering from cyclical headwinds. Current volatility is also creating opportunities for active managers to initiate positions in companies harnessing long-term structural trends.

Artificial Intelligence remains a powerful force that will shape many industries. However, some companies delivering that change are spending hundreds of billions to do so, without the earnings growth to justify it. Elevated valuations, and the prospect of falling interest rates, means investors are tactically reallocating to cheaper areas of the market with comparable earnings potential.

US economic confidence is weakening. Donald Trump's willingness to deploy tariffs for geopolitical, as well as economic ends is driving up consumer and manufacturing uncertainty. As a result, Conference Board indicators are falling to recessionary levels¹, PMIs are pulling back² and growth expectations are weakening. The outlook for tariffs and trade wars remains volatile and uncertain. We remain in close contact with portfolio holdings on plans and scenarios to navigate this uncertain period but - like them - are avoiding knee jerk reactions until more clarity emerges.

Conversely, European stocks are benefiting from multiple tailwinds. Valuations were and remain more attractive, with Europe's Stoxx 600 trading at 14.2x forward price to earnings (PE) at the start of the year, compared to the S&P 500's 24.0x. Inflation in the EU is at 2.4%, trending downwards, and the ECB has cut interest rates twice.³ A possible end to the Russian/Ukraine war may also lower energy prices and instigate a c.$486 billion rebuilding programme.⁴ Lastly, US isolationism has galvanised European political action, with Germany advocating a 500bn EUR infrastructure fund (of which 20% will likely be allocated to Environmental Markets), looser state debt rules and a 150bn EUR EU-wide rearmament package. These actions have potential to accelerate economic growth in the EU, where IEM is c.18% overweight vs MSCI ACWI.

The events of 2025 so far this year are testament to the limited value of macroeconomic prognostication. Within IEM, the investment managers focus on purchasing well-run companies, harnessing structural trends driven by economic need, at reasonable valuations. Long-term themes such as electrification, digitalisation and adaptation to climate change are transitions which cut across sectors and will continue regardless of which political party is in office. This is a compelling time to be invested in an investment trust that is highly differentiated from concentrated global equity indices and continues to trade at a c.10% discount to NAV.

  

Investment Managers

Jon Forster

Fotis Chatzimichalakis

Bruce Jenkyn-Jones
2 April 2025

1          US Consumer Confidence.

2          February 2025 Manufacturing ISM® Report On Business®.

3          Source: Bloomberg as at 11 March 2025.

4          Pricing Ukrainian Reconstruction | German Marshall Fund of the United States.

 

 Principal risks and uncertainties

The Board is responsible for the management of risks faced by the Company and, through delegation to the Audit Committee, has established procedures to manage risk, oversee the internal control framework and determine the nature and extent of the principal risks the Company is willing to take in order to achieve its long-term strategic objectives. The Audit Committee carries out, at least annually, a robust assessment of the principal risks and uncertainties and reviews ongoing monitoring of both controls risks and controls. This ensures heightened and emerging risks are identified outside of the normal cycle of Board and Audit Committee meetings.

Risks are documented on a risk register, grouped into four main categories: Strategic and Business Objective Risks; Investment Management Risks; Operations - Service Providers Risks; and Compliance, Regulatory and Corporate Governance Risks. Risks are then rated before and after mitigating controls by impact and likelihood of occurrence, with the assessed ratings charted on risk matrices. The risk register is reviewed on an ongoing basis in an attempt to capture all risks and to ensure appropriate mitigation is in place. Reviews take into account changing factors including, but not restricted to, changes to markets (both macro and micro), stakeholders, operations, regulation and emerging risks.

The top risks identified by this process are set out in the following section, and the Board considers these to be the principal risks of the Company.

The Board considered both global economic and geo-political risks, and those arising from armed conflicts amongst other risks. Updates on market impact and operational resilience were received from the Manager, Administrator and other key service providers. The Board is satisfied that the key service providers had, and continue to have, the ability to continue their operations efficiently, including in a remote or virtual working environment.

The Manager continues to provide regular updates to the Board on the financial impacts on the portfolio performance and investee companies, as well as the long-term effects and opportunities for the sectors in which the Company invests.

Emerging risks are considered by the Board at its quarterly meetings and by the Audit Committee as part of its risk management and internal control review. Failure to identify emerging risks may cause reactive actions rather than being proactive and the Company could be forced to change its structure, objective or strategy and, in worst case, could cause the Company to become unviable or otherwise fail.

The experience and knowledge of the Directors is invaluable in consideration of emerging risks, as are update papers and advice received from the Board's key service providers such as the Company's Manager, broker, company secretary and auditor. The AIC also provides regular updates and draws members' attention to forthcoming industry and/or regulatory issues.

		Potential risk	Mitigation		Trend
		Strategic and business objective risks
		Economic and market risks Price movements of the Company's investments are highly correlated to the performance of global equities in general and small and mid-cap equities in particular. Falls in stock markets are likely to adversely affect the performance of the Company's investments. The changing world order increases uncertainty. Changes in general economic and market conditions, such as currency exchange rates, interest rates, rates of inflation, industry conditions, tax laws, political events and trends can substantially and adversely affect the value of investments. Market risk includes the potential impact of events which are outside the Company's control, such as the ongoing wars in the Middle East and in the Ukraine. The Company holds a significant part of its portfolio​ in companies with small market capitalisations, which are likely to be subject to higher valuation uncertainties and liquidity risks than larger capitalisation securities. The Company may also invest in unquoted securities which generally have greater valuation uncertainties and liquidity risks than securities listed or traded on a regulated market	There are inherent risks involved in stock selection. The Manager is experienced and employs its expertise in selecting the stocks in which the Company invests. The Manager spreads the investment risk over a wide portfolio of investments in its three main sectors: energy, water and waste, as well as geographically. At year end, the Company held investments in 60 companies and the largest holding represented 3.2% of net assets. The Manager will not normally hedge against foreign currency movements, but the Manager takes account of the risk when making investment decisions. Further details on financial risks and risk mitigation are disclosed in note 16 to the accounts. The high risk rating remains unchanged; this reflects continued uncertainty in markets, though for changed reasons. Interest rates have stabilised and inflation reduced but geo-political uncertainty continues to remain high.		Neutral
		The Company's objective and strategy do not continue to attract investors This risk includes, but is not limited to, the risk that the Company's anticipated growth of financial returns from environmental markets does not occur, that the environmental thematic decreases in relevance and that there is reversal of environmental policy. Companies operating in environmental markets carry risks that governments may alter the regulatory and financial support for environmental improvement, costs of technology may not fall, capital spending by their customers is reduced or deferred and their products or services are not adopted. There is the risk that even though the Company's objective and strategy continues to be attractive to investors, a significant minority shareholder, whose interests are not aligned with the interests of other shareholders, could threaten the Company's long-term objectives.	The Company invests in a broad portfolio of investments which are spread amongst several environmental market sectors. The Manager has a rigorous investment process which takes into account relevant factors prior to investment decisions taking place and thereafter. As well as reviews of the portfolio and relevant industry matters at quarterly Board meetings, the Board has an annual strategy day at which the overall strategy of the Company is discussed. All shareholders have an opportunity to talk with the Board and the Manager at the AGM and can communicate with the Board at any time by writing to the Company's registered address or by email (details are within the Annual Report).		Increasing
		Share price trades at excessive discount to net asset value It is in the long-term interests of shareholders that shares do not trade at a significant discount to ​net asset value. Investor demand for the Company's shares may fall, causing the discount to widen​.​ A wide discount can cause the shares of the Company to become attractive to activist shareholders, who may have a short term agenda which is not in the interests of all shareholders.	The Board monitors the level of premium/discount and receives regular shareholder feedback from the Company's Manager and broker. The Board has the power, granted by shareholders, to buy back shares when in the best interests of the Company, and this should reduce supply of shares and thus reduce or stop widening of the discount​ and may reduce volatility. The power taken at the AGM is for a maximum of 14.99% of shares to be bought back. However, the Board has the option (which it exercised subsequent to the year end) to ask shareholders to authorise an additional number of shares be bought back. The risk rating was increased to reflect the widening of the discount; this occurring even though the Company bought back 14.7% of its share capital during the year.		Increasing
		Continuation vote risk  The risk that the continuation vote fails to be passed by shareholders. Additionally, that the vote is passed but there is a major vote against, potentially indicating that a significant minority of shareholders are dissatisfied with the Company. The risk that if the Company had a significant minority shareholder, this shareholder's vote could disproportionately affect the outcome of the vote if shareholder voting numbers were to be low.	The Board, the Company's broker and the Manager engage with major shareholders on an ongoing basis. All shareholders have an opportunity to talk with the Board and the Manager at the AGM, and to submit questions to the Board throughout the year by writing to the Company's registered address or by email (details are within the Annual Report). The risk rating was increased to reflect this year's tri-annual vote. The Board seeks to ensure all shareholders, including those whose shares are held indirectly on platforms, are informed of the upcoming AGM and of their opportunity to vote. For platform shareholders, specific guidance on how to vote will be advised and the availability of general guidance on the AIC website has been highlighted in the Chairman's Statement and the separate Circular and notice of AGM.		Increasing
		Investment Management
		Underperformance of the Investment Manager Consistent long​-term underperformance by the investment manager may lead to poor performance of the Company compared to its benchmark comparators and peers, a widening of discount to NAV, a reduction in capital and dissatisfied shareholders.	At each board meeting the investment manager reports on the performance of the Company​ including comparisons to its peers and benchmark comparators. The Board considers various portfolio metrics including top contributors and detractors to performance, sub-sector and regional performance, investment rationale, valuation and growth statistics, key activity in the period, attribution analysis, portfolio positioning and risk, and the Manager's outlook. The Board considers the rationale behind new additions, for which the Manager provides details including the environmental benefit. The Board also considers the macro and geopolitical risks and uncertainties that effect the portfolio and the Company. The Board considers the investment process to ensure this is aligned to the Company's investment objective and policy. The Board considers the capabilities of the Manager, the viability of the Manager's business model and the ongoing investment in resources. The risk rating increased as the likelihood of long​-term underperformance increased following a third year of underperformance.		Increasing
		Operations - service providers risks
		Failure or breach of Information Technology (IT) - including cyber-security, and physical security risks Failure of IT or physical security could potentially lead to breaches of confidentiality, data records being compromised and the inability to make investment decisions. In addition, unauthorised physical access to buildings could lead to damage or loss of equipment. The underlying risks primarily exist in the third party service providers to whom the Company has outsourced its depositary, registration, administration and investment management activities.	The Company's key service providers report periodically to the Board on their procedures to mitigate cyber security risks including their alignment with industry standards, their physical and data security procedures and their business continuity planning. The Board meets with its key service providers at each Board meeting and Directors often engage with service providers intraboard.		Neutral
		Operational risk The Board has contractually delegated to third party service providers the management of the investment portfolio, and services covering: depositary and custody; registrar; company secretarial and fund accounting. The security of the Company's assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of these third party service providers. Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company's performance. Disruption to the accounting, payment systems or custody records (including cyber security risk) could prevent the accurate reporting and monitoring of the Company's financial position.	Due diligence is undertaken before contracts are entered into with third party service providers, taking into account the quality and cost of services offered, including policies and procedures, and risk management and controls systems in operation in so far as they are relevant to the Company. Thereafter, the performance of the provider is subject to regular review and report to the Board. The Board monitors key persons as part of this oversight. The control of risks related to the Company's business areas is described in detail in the corporate governance report within the Annual Report. The risk rating was increased due to organisational and personnel changes at Apex, the Company's company secretarial and administrative service provider.		Increasing
		Whilst not being identified as principal risks after mitigation controls are applied, other relevant risks to the Company include the following:
		Potential risk		Mitigation	Trend
		Strategic and business objective risks
		Financing risk The Company may borrow money for investment purposes. If investment markets fall in value, any borrowing will enhance the level of loss. Capacity constraints on the availability of desirable companies for investment may mean the Company is unable to achieve the level of gearing wanted.		The Board has authorised the Manager to use its discretion to utilise gearing up to 10% of net assets. Any borrowing above this level requires Board approval. Borrowing facilities are renewed on a cost effective and timely basis. The Manager keeps under regular review the opportunities for enhancing returns by the prudent use of gearing. The risk rating decreased following the successful refinancing of the Company's revolving credit facility.	Neutral
		Global pandemic risk The rapid spread of infectious disease may cause governments to implement policies to restrict the gathering, interaction or movement of people and take other measures as deemed appropriate to prevent its spread, causing disruption to markets generally, investee companies, the operations of the Company and its key service providers		The Manager spreads the investment risk over a wide portfolio of investments. Risk analysis includes scenario analysis of possible negative market events. The Company's key service providers report periodically to the Board on their business continuity plans and procedures. The Board monitors the adequacy of controls in place at the key service providers and their planned response to an extended period of disruption, to ensure that the impact to the Company is limited. During times of elevated volatility and market stress, the Company's closed-end fund structure protects it from the liquidity requirements that can arise for open-ended funds.	Neutral
		Physical climate change risk While efforts to mitigate climate change continue, the physical impacts are already emerging in the form of changing weather patterns. Extreme weather events can result in flooding, drought, fires and storm damage, potentially impairing the operations of an investee company at a certain location, or impacting locations of companies within their supply chain.		Physical climate change risk is still an emerging topic for investors as well as for the management teams of investee companies. It has been a focus area of research and engagement by the Manager to identify companies particularly exposed to this risk and to open a dialogue with them on management options. Details of engagement with investee companies are given within the Annual Report. The Company invests in a broad portfolio of companies which are spread geographically, limiting the impact of location specific weather events.	Neutral
		Investment management risks
	Financial risks The Company's investment activities expose it to a variety of financial risks which include foreign currency risk, portfolio liquidity risk and interest rate risk. The Company invests in securities and has borrowings which are not denominated or quoted in sterling. Movements of exchange rates between sterling and other currencies in which the Company's investments are denominated may have an unfavourable effect on the return on the investments made by the Company. The Company's main exposure are its €60 million floating-rate Loan Notes and its £80 million revolving credit facility expiring in 2025, details of which are shown in note 11.			The Manager does not actively​ hedge against foreign currency movements affecting the value of its investments, although​ the Manager takes account of this risk when making investment decisions. Non-sterling borrowings will effectively hedge non-sterling investments for matching currencies. The Company invests in range of global listed equities and the Manager monitors the foreign currency exposure and liquidity of holdings within the portfolio and reports on these to the Board at each meeting. Interest rate risk on borrowing was reduced by fixing two of the Loan Notes. Further details on financial risks and risk mitigation are disclosed in note 16 to the accounts.	Neutral
Regulatory risks Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments. Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares. Breaches of the Companies Act 2006 could result in financial penalties or legal proceedings against the Company or its Directors. Failure of the Manager to meet its regulatory obligations could have adverse consequences on the Company.				The Company has contracted out relevant services   to appropriately qualified professionals, who monitor, and report to the Board on regulatory compliance. In addition, the Company's broker, auditor, Company Secretary and Manager provide the Board with regulatory updates on a regular basis. The Manager reports on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.	Neutral

Viability statement

The continuation of the Company is subject to the approval of shareholders every three years, and approval was last given by shareholders at the Company's 2022 AGM with 99.99% votes in favour of continuation of the Company. The Board consulted with shareholders both during the year and subsequent to the year end. Following this, and advise from the Board's brokers who have also consulted with major shareholders, the Directors confirm that they have a reasonable basis to believe that the resolution to continue will be passed by shareholders at the forthcoming AGM on 20 May 2025. Details of the continuation resolution is set out in the separate Circular and Notice of Annual General Meeting.

The Directors have assessed the viability of the Company for the period to 31 December 2028 (the "Viability Period"). The Board believes that the Viability Period, being approximately five years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the long-term nature of the Company's investment strategy, the principal risks outlined above and its gearing. The Board have also assumed that shareholders will approve the continuation of the Company on each continuation resolution proposed during the Viability Period. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the Viability Period.

The Board reviewed the Company's income and expenditure projections and other funding requirements in normal and worst case market conditions. The level of the ongoing charges is dependent to a large extent on the level of net assets, the most significant contributor being the investment management fee. The Company's income from investments and cash from the sale of investments (which are readily realisable) provide substantial cover to the Company's operating expenses, and any other expenditure likely to be faced by the Company over the Viability Period. Such expenditure includes buybacks of shares and repayment of the Company's borrowings, which at the date of this report represented less than 7.6​% of the Company's investments.

In its assessment of the prospects of the Company, the Board considered each of the principal risks and uncertainties, including the upcoming continuation vote, and the liquidity and solvency of the Company.

 

 Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102 'The Financial Reporting Standard applicable in the UK and the Republic of Ireland'. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the year and of the net return for the year. In preparing these accounts, the Directors are required to:

●       select suitable accounting policies and then apply them consistently;

●       make judgements and estimates which are reasonable and prudent; and

●        state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006.

They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.impaxenvironmentalmarkets.co.uk and www.impaxam.com websites which are maintained by the Company's Manager, Impax Asset Management (AIFM) Limited ("Impax"). The work carried out by the auditor does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmation statement

The Directors each confirm to the best of their knowledge that:

(a)      the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)      this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Directors consider that the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

For and on behalf of the Board

 

 

Glen Suarez
Chairman

2 April 2025

 

Income Statement

		Year ended			Year ended
		31 December 2024			31 December 2023
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments	2	-	(26,676)	(26,676)	-	43,767	43,767
Net foreign exchange gains/(losses)		-	4,056	4,056	-	(464)	(464)
Income	3	18,776	-	18,776	20,279	-	20,279
Investment management fee	4	(2,105)	(6,315)	(8,420)	(2,320)	(6,960)	(9,280)
Other expenses	5	(1,351)	-	(1,351)	(1,143)	-	(1,143)
Return on ordinary activities before
finance costs and taxation		15,320	(28,935)	(13,615)	16,816	36,343	53,159
Finance costs	6	(1,183)	(3,551)	(4,734)	(799)	(2,395)	(3,194)
Return on ordinary activities before taxation		14,137	(32,486)	(18,349)	16,017	33,948	49,965
Taxation	7	(2,042)	(255)	(2,297)	(1,601)	133	(1,468)
Return on ordinary activities after taxation		12,095	(32,741)	(20,646)	14,416	34,081	48,497
Return per ordinary share	8	4.64p	(12.56p)	(7.92p)	4.86p	11.49p	16.35p

The total column of the Income Statement is the profit and loss account of the Company.

The supplementary revenue and capital columns are provided for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

Return on ordinary activities after taxation is also the total comprehensive income for the year.

The notes form part of these financial statements.

 

Balance Sheet

		As at	As at
		31 December	31 December
		2024	2023
	Notes	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	2	1,099,278	1,295,847
Current assets
Dividends receivable		1,763	586
Sales awaiting settlement		1,774	-
Taxation recoverable		52	39
Other debtors		427	166
Cash and cash equivalents		13,405	16,804
		17,421	17,595
Creditors: amounts falling due within one year
Trade and other payables	10	(5,468)	(3,821)
Revolving credit facility	11	(33,716)	-
		(39,184)	(3,821)
Net current (liabilities)/assets		(21,763)	13,774
Total assets less current liabilities		1,077,515	1,309,621
Creditors: amounts falling due after more than one year
Capital gains tax provision	7	(31)	(40)
Loan Notes	11	(49,400)	(51,785)
Revolving credit facility	11	-	(35,312)
Net assets		1,028,084	1,222,484
Capital and reserves: equity
Share capital	12	30,562	30,562
Share premium account		-	423,098
Capital redemption reserve		9,877	9,877
Share purchase reserve		-	52,557
Special reserve		370,043	-
Capital reserve		603,177	691,454
Revenue reserve		14,425	14,936
Shareholders' funds		1,028,084	1,222,484
Net assets per ordinary share - debt at bookcost	13	428.62p	434.87p
Net assets per ordinary share - debt at fair value1		427.58p	434.34p

 

¹ This is an alternative performance measure.

Approved by the Board of Directors and authorised for issue on 2 April 2025 and signed on their behalf by:

 

Glen Suarez, Chairman

 

Impax Environmental Market plc incorporated in England with registered number 4348393.

The notes form part of these financial statements.

 

Statement of Changes in Equity

			Share	Capital	Share
		Share	premium	redemption	purchase	Special	Capital	Revenue
Year ended		capital	account	reserve	reserve	reserve	reserve	reserve	Total
31 December 2024	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity as at 1 January 2024		30,562	423,098	9,877	52,557	-	691,454	14,936	1,222,484
Return for the year		-	-	-	-	-	(32,741)	12,095	(20,646)
Cancellation of share premium account*		-	(423,098)	-	-	423,098	-	-	-
Dividends paid	9	-	-	-	-	-	-	(12,606)	(12,606)
Cost of share buybacks	12	-	-	-	(52,557)	(53,055)	(55,536)	-	(161,148)
Closing equity as at 31 December 2024		30,562	-	9,877	-	370,043	603,177	14,425	1,028,804
* The new special reserve arose from the cancellation of the share premium account during the year as explained in note 1(e) and in the Directors' Report. It is distributable, unlike the share premium account.
			Share	Capital	Share
		Share	premium	redemption	purchase	Special	Capital	Revenue
Year ended		capital	account	reserve	reserve	reserve	reserve	reserve	Total
31 December 2023	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity as at 1 January 2023		30,562	423,098	9,877	141,872	-	657,373	13,156	1,275,938
Return for the year		-	-	-	-	-	34,081	14,416	48,497
Dividends paid	9	-	-	-	-	-	-	(12,636)	(12,636)
Cost of share buybacks	12	-	-	-	(89,315)	-	-	-	(89,315)
Closing equity as at 31 December 2023		30,562	423,098	9,877	52,557	-	691,454	14,936	1,222,484

The notes within the Annual Report form part of these financial statements.

Statement of Cash Flows

		Year ended	Year ended
		31 December	31 December
		2024	2023
	Notes	£'000	£'000
Operating activities
Return on ordinary activities before finance costs and taxation1		(13,615)	53,159
Less: Tax deducted at source on income from investments		(2,288)	(1,597)
Foreign exchange (gains)/losses		(4,178)	(39)
Adjustment for losses/(gains) on investments	2	26,676	(43,767)
Special dividends received as capital		3,293	132
Scrip dividend received		-	(323)
Increase in other debtors		(1,451)	(81)
(Decrease)/increase in other creditors		(165)	583
Net cash flow from operating activities		8,272	8,067
Investing activities
Sale of investments		421,201	478,935
Purchase of investments		(256,375)	(428,547)
Net cash flow from investing activities		164,826	50,388
Financing activities
Dividends paid	9	(12,606)	(12,636)
Proceeds from Loan Notes and revolving credit facility		-	86,099
Repayment of revolving credit facility and bank loan		-	(50,744)
Finance costs paid		(4,593)	(1,885)
Cost of share buybacks		(159,420)	(89,315)
Net cash outflow used in financing activities		(176,619)	(68,481)
Decrease in cash		(3,521)	(10,026)
Cash and cash equivalents at start of year		16,804	26,327
Effect of movements in exchange rates on cash held		122	503
Decrease in cash		(3,521)	(10,026)
Cash and cash equivalents at end of year		13,405	16,804

 

¹   Cash inflow includes dividend income received during the year ended 31 December 2024 of £15,070,000 (2023: £19,285,000) and bank interest of £487,000 (2023: £646,000).

Changes in net debt

		Year ended	Year ended
		31 December	31 December
		2024	2023
		£'000	£'000
Net debt at start of year		(70,293)	(25,279)
Decrease in cash and cash equivalents		(3,521)	(10,026)
The effect of changes in foreign exchange rates		4,103	367
Proceeds from Loan Notes and revolving credit facility		-	(86,099)
Repayment of revolving credit facility and bank loan		-	50,744
Net debt at end of year		(69,711)	(70,293)

The notes form part of these financial statements.

 

Notes to the Financial Statements

1 Accounting policies

The Company is a public limited company incorporated in England and Wales with registered number 4348393. Its registered office is as shown within the Annual Report. The Company's shares are traded on the London Stock Exchange.

The Company is an investment company within the meaning of Section 833 of the Companies Act 2006.

The accounts have been prepared in accordance with applicable UK accounting standards. The particular accounting policies adopted are described below.

(a) Basis of accounting

The accounts are prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and the Statement of Recommended Practice 'Financial statements of investment trust companies and venture capital trusts' ('SORP') issued by the Association of Investment Companies in July 2022.

The accounts have been prepared on a going concern basis. Details of the Directors assessment of the going concern status of the Company, which considered the adequacy of the Company's resources and the macroeconomic backdrop such as higher inflation and interest rates and possible recession, are given within the Annual Report. This assessment also highlights the Directors consideration of the shareholders' continuation vote at the forthcoming AGM.

Amounts in the accounts have been rounded to the nearest £'000 unless otherwise stated.

(b) Investments

Securities of companies quoted on regulated stock exchanges and any holdings in unquoted companies have been classified as 'at fair value through profit or loss' and are initially recognised on the trade date and measured at fair value in accordance with sections 11 and 12 of FRS 102. Investments are measured at subsequent reporting dates at fair value by reference to their market bid prices. Any unquoted investments are measured at fair value which is determined by the Directors in accordance with the International Private Equity and Venture Capital guidelines.

Changes in fair value are included in the Income Statement as a capital item.

(c) Reporting currency

The accounts are presented in Sterling which is the Company's functional and presentational currency and the currency in which the Company's share capital, reserves and expenses are denominated as an UK registered and listed company.

(d) Income from investments

Investment income from shares is accounted for when the Company's right to receive the income is established, which is usually considered to be the ex-dividend date. Overseas income is grossed up at the appropriate rate of tax but UK dividend income is not grossed up for tax credits.

Special dividends are assessed on their individual merits and may be credited to the Income Statement as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions. The ordinary element of scrip dividends received in lieu of cash dividends is recognised as revenue. Any enhancement above the cash dividend is treated as capital.

Scrip dividends received in lieu of cash dividends are recognised as revenue except for any excess above the cash dividend, which is recognised as capital.

All other investment income is credited to the Income Statement as a revenue item.

(e) Nature and purpose of equity and reserves

Share capital represents the 10p nominal value of the issued share capital.

The share premium account arose from the net proceeds of new shares and from the excess proceeds received on the sale of shares from treasury over the repurchase cost.

The capital redemption reserve represents the nominal value of shares repurchased for cancellation.

The share purchase reserve was created from the cancellation in full of the share premium account in 2002 and 2009. The cancellation and transfer were approved by shareholders and confirmed by the Court. This reserve can only be used for share repurchases, both into treasury or for cancellation. When shares are subsequently reissued from treasury, the amount equal to their repurchase cost is reflected in this reserve, with any proceeds in excess of the repurchase cost transferred to the share premium account.

The special reserve was created from the cancellation in full of the share premium account in July 2024. The cancellation and transfer were approved by shareholders and confirmed by the Court, and following this £423,098,000 was transferred into this reserve. This reserve is distributable, and can be used for both share repurchases and dividends.

The capital reserve reflects any

●       gains or losses on the disposal of investments;

●       exchange movements of a capital nature;

●        the increases and decreases in the fair value of investments which have been recognised in the capital column of the income statement; and

●       expenses which are capital in nature.

Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve.

The revenue reserve reflects cumulative income and expenditure recognised in the revenue column of the Income Statement less cumulative dividends paid, and is distributable by way of dividend.

The Company's distributable reserves consist of the share purchase reserve, the special reserve, the capital reserve attributable to realised profits and the revenue reserve. The share purchase reserve may only be used for share repurchases, both into treasury or for cancellation.

(f) Expenses and finance costs

All expenses are accounted for on an accruals basis. Expenses are recognised through the Income Statement as revenue items except as follows:

Management fee

In accordance with the Company's stated policy and the Directors' expectation of the split of future returns, three quarters of the investment management fee are charged as a capital item in the Income Statement. There is no performance fee arrangement with the Manager.

Finance costs

Finance costs include interest payable and direct loan costs. In accordance with Directors' expectation of the split of future returns, three quarters of finance costs are charged as capital items in the Income Statement. Arrangement costs for revolving credit facilities and Loan Notes are amortised over the term of the borrowing.

Transaction costs

Transaction costs incurred on the acquisition and disposal of investments are charged to the Income Statement as a capital item.

(g) Taxation

Irrecoverable taxation on dividends is recognised on an accruals basis in the Income Statement.

Deferred taxation

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the financial reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the timing differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.

(h) Foreign currency translation

All transactions and income in foreign currencies are translated into sterling at the rates of exchange on the dates of such transactions or income recognition. Monetary assets and liabilities and financial instruments carried at fair value denominated in foreign currency are translated into sterling at the rates of exchange at the balance sheet date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Income Statement as either a capital or revenue item depending on the nature of the gain or loss.

(i) Financial liabilities

Loan Notes and other borrowings are initially recorded at the proceeds received net of direct issue costs and subsequently measured at amortised cost.

(j) Cash and cash equivalents

Cash comprises cash in hand and demand deposits. Cash equivalents include bank overdrafts repayable on demand and short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(k) Estimates and assumptions

The preparation of financial statements requires the Directors to make estimates and assumptions that affect items reported in the Balance Sheet and Income Statement. Although these estimates are based on management's best knowledge of current facts, circumstances and, to some extent, future events and actions, the Company's actual results may ultimately differ from those estimates, possibly significantly.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future periods affected. There have been no estimates, judgements or assumptions which have had a significant impact on the financial statements for the year.

(l) Dividend payable

Final dividends payable to equity shareholders are recognised in the financial statements when they have been approved by shareholders and become a liability of the Company. Interim dividends payable are recognised in the period in which they are paid. The capital reserve, revenue reserve and special reserve may be used to fund dividend distributions.

(m) Treasury shares

Treasury shares are recognised at cost as a deduction from equity shareholders' funds. Subsequent consideration received for the sale of such shares is also recognised in equity, with any difference between the sale proceeds and the original cost being taken to share premium account. No gain or loss has been recognised in the financial statements on transactions in treasury shares.

2 Investments at fair value through profit or loss

	2024	2023
	£'000	£'000
(a) Summary of valuation
Analysis of closing balance:
UK quoted securities	257,290	107,156
Overseas quoted securities	841,988	1,188,691
Total investments	1,099,278	1,295,847
(b) Movements during the year:
Opening balance of investments, at cost	1,151,287	1,122,306
Additions, at cost	256,280	428,182
Disposals, at cost	(399,860)	(399,201)
Cost of investments at 31 December	1,007,707	1,151,287
Revaluation of investments to fair value:
Opening balance of capital reserve - investments held	144,560	180,299
Unrealised losses on investments held	(52,989)	(35,739)
Balance of capital reserve - investments held at 31 December	91,571	144,560
Fair value of investments at 31 December	1,099,278	1,295,847
(c) (Losses)/gains on investments in year (per Income Statement)
Gains on disposal of investments1	23,213	79,982
Net transaction costs	(193)	(608)
Special dividends received as capital	3,293	132
Unrealised losses on investments held	(52,989)	(35,739)
(Losses)/gains on investments	(26,676)	43,767

¹        Gains on bookcost at purchase date upon disposal.

During the year, the Company incurred transaction costs on purchases totalling in aggregate £316,000 (2023: £685,000) and on disposals totalling in aggregate £326,000 (2023: £453,000). Following MiFID II, the Manager has rebated £449,000 (2023: £530,000) in respect of transaction research costs for the year ended 31 December 2024. Transaction costs are recorded in the capital column of the Income Statement.

The Company received £433,349,000 (2023: £478,935,000) from investments sold in the year. The bookcost of these investments when they were purchased was £410,329,000 (2023: £399,201,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

During the year special dividends of £3,293,000 (2023: £132,000) were recognised on an ex-dividend basis and treated as capital.

Classification of financial instruments

FRS 102 requires classification of financial instruments within the fair value hierarchy be determined by reference to the source of inputs used to derive the fair value and the lowest level input that is significant to the fair value measurement as a whole. The classifications and their descriptions are below:

Level 1

The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2

Holdings in companies with no quoted prices. Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3

Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The classification of the Company's investments held at fair value is detailed in the table below:

		31 December 2024			31 December 2023
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investments at fair value through
profit or loss
- Quoted	1,099,278	-	-	1,099,278	1,295,847	-	-	1,295,847
	1,099,278	-	-	1,099,278	1,295,847	-	-	1,295,847

The Company held no unquoted investments during the year and at the year end.

3 Income

	2024	2023
	£'000	£'000
Dividends from UK listed investments	2,340	1,401
Dividends from overseas listed investments	15,949	17,909
Scrip dividends received	-	323
Total dividend income	18,289	19,633
Bank interest	487	646
Total Income	18,776	20,279

Dividends from overseas listed investments includes special dividends classified as revenue of £292,000 (2023: £75,000).

4 Investment management fee

	2024			2023
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fee	2,105	6,315	8,420	2,320	6,960	9,280

Details of the investment management fee are given in the Directors' report within the Annual Report. At 31 December 2024, investment management fee accrued were £1,493,000 (2023: £2,225,000).

5 Other expenses

			2024			2023
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Auditor's fee1	50	-	50	48	-	48
Broker retainer fee	27	-	27	24	-	24
Custody fees	165	-	165	179	-	179
Depositary fees	93	-	93	95	-	95
Directors' fees2	187	-	187	157	-	157
Marketing fees	144	-	144	68	-	68
Registrar's fees	60	-	60	64	-	64
Secretary and administrator fees	267	-	267	266	-	266
Other expenses	358	-	358	242	-	242
	1,351	-	1,351	1,143	-	1,143

¹           The auditor's fee for the statutory audit of these financial statements was £49,875 (2023: £47,500), excluding VAT of £9,975 (2023: £9,500) and out of pocket expenses.

²           Full detail of Directors' fees for the year is provided in the Directors' Remuneration Implementation Report within the Annual Report. Employer's National Insurance for Directors' fees is included as appropriate in Directors' other costs. At 31 December 2024, Directors' fees, Directors' expenses and national insurance outstanding were £nil (2023: £nil).

6 Finance costs

			2024			2023
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Interest charges
Interest on bank loans and repaid
revolving credit facility ("RCF")	-	-	-	426	1,276	1,702
Interest on current RCF	484	1,451	1,935	155	463	618
Interest on Loan Notes	665	1,997	2,662	205	616	821
	1,149	3,448	4,597	786	2,355	3,141
Direct finance costs
Bank loans and repaid RCF	-	-	-	3	9	12
RCF	27	82	109	9	29	38
Loan Notes	7	21	28	1	2	3
	34	103	137	13	40	53
Total	1,183	3,551	4,734	799	2,395	3,194

Full details of the Company's borrowings are set out in note 11. The Company's refinancing in 2023 comprised the issuance of Loan Notes and putting in place a new RCF. The direct finance costs in relation to the Loan Notes and RCF amounted to £252,000 and £217,000, respectively. These costs are amortised over the life of the Loan Notes and the RCF on a straight-line basis.

 

7 Taxation

(a) Analysis of charge in the year

			2024			2023
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Overseas taxation	2,042	259	2,301	1,601	-	1,601
Decrease in CGT provision	-	(4)	(4)	-	(133)	(133)
Taxation	2,042	255	2,297	1,601	(133)	1,468

(b) Factors affecting total tax charge for the year:

The effective UK corporation tax rate applicable to the Company for the year is 25.0% (2023: 23.5%). The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company. The standard rate UK corporation tax rate at 31 December 2024 was 25.0% (2023: 23.5%).

The differences are explained below:

	2024	2023
	£'000	£'000
Return on ordinary activities before taxation	(18,349)	49,965
Corporation tax at 25.0% (2023: 23.5%)	(4,587)	11,742
Effects of:
Non-taxable UK dividend income	(585)	(329)
Non-taxable overseas dividend income	(3,779)	(3,989)
Movement in unutilised management expenses	1,886	2,153
Movement on non-trade relationship deficits	1,062	599
Losses/(gains) on investments not taxable	7,017	(10,285)
(Gains)/losses in foreign currency movement	(1,014)	109
Capital gains tax provision movement	(4)	(133)
Overseas taxation	2,301	1,601
Total tax charge for the year	2,297	1,468

(c) Investment companies which have been approved by the HM Revenue & Customs under section 1158 of the Corporation Tax Act 2010 are exempt from tax on capital gains. Due to the Company's status as an Investment Trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains or losses arising on the revaluation of investments.

(d) The capital gains tax provision represents an estimate of the amount of tax provisionally payable by the Company on direct investment in Indian equities. It is calculated based on the long-term or short term nature of the investments and the unrealised gain thereon at the applicable tax rate at the year end.

Movements on the capital gains tax provision for the year

	2024	2023
	£'000	£'000
Provision brought forward	40	169
Capital gains tax cash movement	(5)	4
Decrease in provision in year	(4)	(133)
Provision carried forward	31	40

(e) The Company has unrelieved excess management expenses and non-trade relationship deficits of £111,078,000 (2023: £99,282,000). It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised. The unrecognised deferred tax asset calculated using a rate of 25% (2023: 25%) amounts to £27,770,000 (2023: £24,821,000).

8 Return per share

	Year ended	Year ended
	31 December	31 December
	2024	2023
	£'000	£'000
Revenue return after taxation (£'000)	12,095	14,416
Capital return after taxation (£'000)	(32,741)	34,081
Net return (£'000)	(20,646)	48,497
Weighted average number of ordinary shares	260,523,018	296,596,976

Net return per ordinary share is based on the above totals of revenue and capital and the weighted average number of ordinary shares in issue during each year.

There is no dilution to return per share as the Company has only ordinary shares in issue.

9 Dividends

(a) Dividends paid in the year

		2024		2023
	Rate	£'000	Rate	£'000
Interim in lieu of final for the previous year	2.90p	7,983	2.50p	7,604
First interim for the current year	1.80p	4,623	1.70p	5,032
	4.70p	12,606	4.20p	12,636

(b) Dividends paid and payable in respect of the financial year, which is the basis on which the requirements of s1158-1159 of the Corporation Tax Act 2010 are considered

		2024		2023
	Rate	£'000	Rate	£'000
First interim for the current year	1.80p	4,623	1.70p	5,032
Second interim in lieu of final for the current year	3.20p	7,470	2.90p	7,983
	5.00p	12,093	4.60p	13,015

The Board declared two dividends in respect of the year and expects to continue paying two dividends annually.

10 Trade and other payables

	2024	2023
	£'000	£'000
Finance costs payable	1,583	1,442
Accrued management fee	1,493	2,225
Other accrued expenses	664	154
Amounts due to brokers for shares bought back	1,728	-
Total	5,468	3,821

11 Loan Notes and revolving credit facility

The Company has in place the following privately placed notes (the "Loan Notes") issued to funds managed by Pricoa Private Capital:

●       €20m maturing on 1 September 2030 with a floating coupon of Euribor + 1.35%;

●       €30m maturing on 1 September 2033 with a fixed coupon of 4.48%; and

●       €10m maturing on 1 September 2035 with a fixed coupon of 4.63%.

In addition to the Loan Notes referred to above, the Company has in place a two-year £80 million multi-currency floating rate RCF with Scotiabank, expiring on 6 September 2025. The RCF has a non-utilisation fee of 52.5 basis points.

The RCF is secured by a floating charge over the assets of the Company and this floating charge has been extended to the Loan Notes, so that the two lenders rank pari passu.

A summary of the Company's borrowings are as follows:

			2024		2023
		Loan		Loan
		currency		currency
		amount	Bookcost	amount	Bookcost
	Interest rate	€'000	£'000	€'000	£'000
Loan Notes - Fixed and floating rate
Series A - Floating 2030	Euribor + 1.35%	20,000	16,470	20,000	17,263
Series B - Fixed 2033	4.48%	30,000	24,698	30,000	25,892
Series C - Fixed 2035	4.63%	10,000	8,232	10,000	8,630
			49,400		51,785
RCF - floating rate
Non-sterling	Six month EURIBOR +1.6%	40,800	33,716	40,943	35,312
			83,116		87,097

The maturity profile of the Loan Notes and RCF are as follows:

	2024	2023
	Bookcost	Bookcost
Payable at 31 December	£'000	£'000
RCF payable in less than one year	33,716	-
RCF payable after more than one year	-	35,312
Loan Notes payable after more than one year	49,400	51,785
	83,116	87,097

The Company's Loan Notes and RCF contain the following covenants:

1)    Adjusted asset coverage should not be less than 4:1 in respect of the RCF;

2)    Borrowings expressed as a percentage of adjusted assets shall not exceed 35% in respect of the Loan Notes;

3)    Net Asset Value should not be less than £260,000,000; and

4)    The maximum permitted borrowing should not exceed that permitted in the Company's Articles of Association as described in the Gearing section of the Investment Policy within the Annual Report.

There were no breaches of any covenants either in the year just ended or the prior year.

12 Share capital

		2024		2023
	Number	£'000	Number	£'000
Issued and fully paid shares of 10p each
Brought forward	281,115,039	28,111	304,167,039	30,416
Shares bought back and held in treasury	(41,253,520)	(4,125)	(23,052,000)	(2,305)
Carried forward	239,861,519	23,986	281,115,039	28,111
Treasury shares of 10p each
Brought forward	24,508,500	2,451	1,456,500	146
Shares bought back and held in treasury	41,253,520	4,125	23,052,000	2,305
Carried forward	65,762,020	6,576	24,508,500	2,451
Share capital	305,623,539	30,562	305,623,539	30,562

During the year, the total cost of shares bought back was £161,148,000 (2023: £89,315,000), of which £1,728,000 (2023: nil) was payable at the year end. Total costs included the costs of the shares and other purchase costs totalling £1,028,000 (2023: £452,000).

As at 31 March 2025, the latest practicable date before publication of this report, a further 19,201,391 ordinary shares have been bought back at a total cost of £73,957,429, including purchase costs of £441,000.

13 Net Asset Value per ordinary share

The net asset value per ordinary share at the year end are shown below. These were calculated using 239,861,519 (2023: 281,115,039) ordinary shares in issue at the year end (excluding treasury shares).

		2024		2023
		Net asset value		Net asset value
		attributable		attributable
	£'000	pence	£'000	pence
Net Asset value - Debt at bookcost	1,028,084	428.62	1,222,484	434.87

A reconciliation of shareholders funds with debt at fair value is shown in the Alternative Performance Measures within the Annual Report.

14 Transactions with the Manager and related party transactions

Details of the management contract can be found in the Directors' Report within the Annual Report. Fees payable to the Manager are detailed in note 4 within the Annual Report. Since 1 January 2018, the Manager has agreed to rebate commission which relates to research fees to the Company with such amount disclosed in note 2.

A related party is a company or individual who has direct or indirect control or who has significant influence over the Company. The Company has identified the Directors as related parties. The Directors' emoluments for the year and shareholdings have been disclosed within the Annual Report.

15 Financial risk management

As an investment trust, the Company invests in equities for the long-term so as to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste, as stated in the Company's investment objective which can be found within the Annual Report. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for dividends. These risks include market risk (comprising currency risk, interest rate risk, and other price risk), credit risk and liquidity risk and the Directors' approach to the management of them is set out below. These metrics are monitored by the AIFM. The objectives, policies and processes for managing the risks, and the methods used to measure the risks, are set out below.

Market risks

The potential market risks are (i) currency risk, (ii) interest rate risk, and (iii) other price risk. Each is considered in turn below.

(i) Currency risk

The Company invests in global equity markets and therefore is exposed to currency risk as it affects the value of the shares in the base currency. These currency exposures are not hedged. The Manager monitors currency exposure as part of its investment process. Currency exposures for the Company as at 31 December 2024 are detailed in the table at the end of this note.

Currency sensitivity

The below table shows the strengthening/(weakening) of sterling against the local currencies over the financial year for the Company's financial assets and liabilities held at 31 December 2024.

	2024	2023
	% change1	% change1
Australian Dollar	8.4	5.3
Canadian Dollar	6.9	2.8
Chinese Yuan	0.8	9.0
Danish Krone	4.8	2.3
Euro	4.9	2.1
Hong Kong Dollar	(2.5)	5.6
Indian Rupee	1.1	6.5
Israeli Shekel	(1.0)	8.2
Japanese Yen	6.8	13.4
Korean Won	12.3	8.1
Norwegian Krone	10.4	8.8
Swedish Krona	8.2	1.6
Swiss Franc	6.1	(4.3)
Taiwanese Dollar	5.4	5.5
US Dollar	(1.9)	5.6

¹          Percentage change of Sterling against local currency from 1 January to 31 December.

Based on the financial assets and liabilities at 31 December 2024 and all other things being equal, if sterling had strengthened by 10%, the profit after taxation for the year ended 31 December 2024 and the Company's net assets at 31 December 2024 would have decreased by the amounts shown in the table below. If sterling had weakened by 10% this would have had the opposite effect.

	2024	2023
	Potential	Potential
	effect	effect
	£'000	£'000
Australian Dollar	2,876	2,535
Canadian Dollar	6,813	5,026
Chinese Yuan	3,599	2,339
Danish Krone	-	2,636
Euro	9,991	17,983
Hong Kong Dollar	-	1,361
Indian Rupee	2,210	3,598
Israeli Shekel	270	284
Japanese Yen	-	1,694
Korean Won	1,656	1,248
Norwegian Krone	2,035	2,211
Swedish Krona	919	1,186
Swiss Franc	2,559	4,826
Taiwanese Dollar	1,504	1,691
US Dollar	57,985	61,677
Total	92,417	110,295

(ii) Interest rate risk

The Company had a mix of fixed and floating rate borrowings for both this and the preceding year. The Company's borrowings are shown in note 11, including detailing those borrowings which are floating Loan and subject to interest rate risk.

The Company has a two-year £80 million multi-currency revolving credit facility based on a floating reference interest rate plus a margin of 1.60% per annum and a €20 million Loan Note due 2030 at EURIBOR+1.35%.

Prior to 6 September 2023, the Company had in place a £20 million multi-currency revolving credit facility based on a floating reference interest rate plus a margin of 1.70% per annum.

If rates had increased or decreased by 350 basis points the impact to the Company's profit or loss would be:

 

			2024			2023
			Profit or loss			Profit or loss
		350 bps	350 bps		350 bps	350 bps
	€'000	increase	decrease	€'000	increase	decrease
31 December
Non-sterling Loan Note	20,000	(579)	579	20,000	(607)	607
Non-sterling RCF	40,800	(1,180)	1,180	40,943	(1,242)	1,242

(iii) Other price risk

The principal price risk for the Company is the price volatility of shares that are owned by the Company. The Company is well diversified across different sub-sectors and geographies.

At the year end the Company held investments with an aggregate market value of £1,099,278,000 (2023: £1,295,847,000). All other things being equal, the effect of a 10% increase or decrease in the share prices of the investments held at the year end would have been an increase or decrease of £109,927,800 (2023: £129,584,700) in the profit after taxation for the year ended 31 December 2024 and the Company's net assets at 31 December 2024.

Overall sensitivity

The Manager has used the Parametric VaR to calculate value at risk ('VAR'). This model has been used to estimate the maximum expected loss from the portfolio held at 31 December 2024 over 1 day, 5 day, 10 day and 21 day periods given the historical performance of the fund over the previous five years. The data in the previous five years is analysed under discrete periods to provide 1 in 10, 1 in 20 and 1 in 100 possible outcomes. The results of the analysis are shown below.

	2024		2023
	Expected as percentage		Expected as percentage
	at limit	at limit
	1 in 20	1 in 100	1 in 20	1 in 100
	(95%)	(99%)	(95%)	(99%)
1 day return	1.58	2.24	1.83	2.59
5 day return	3.54	5.01	4.10	5.80
10 day return	5.01	7.08	5.80	8.20
21 day return	7.26	10.27	8.40	11.89

The above analysis has been based on the following main assumptions:

●       The distribution of share price returns will be the same in the future as they were in the past.

●       The portfolio weightings will remain as they were at 31 December 2024.

The above results suggest, for example, that there is a 5% or less chance of the NAV falling by 3.54% or more over a 5 day period. Similarly, there is a 1% or less chance of the NAV falling by 2.24% or more on any given day.

Credit risks

BNP Paribas Securities Services (the 'Depositary') has been appointed as custodian and depositary to the Company.

Cash at bank at 31 December 2024 included £12,606,000 (2023: £16,095,000) held in its bank accounts at the Depositary. The Company also held £799,000 (2023: £709,000) in its accounts with NatWest Group plc. The Board has established guidelines that, under normal circumstances, the maximum level of cash to be held at any one bank should be the lower of i) 5% of the Company's net assets and ii) £30 million. These are guidelines and there may be instances when this amount is exceeded for short periods of time.

Substantially all of the assets of the Company at the year end were held by the Depositary or sub-custodians of the Depositary. Bankruptcy or insolvency of the Depositary or its sub-custodians may cause the Company's rights with respect to securities held by the Depositary to be delayed or limited. The Depositary segregates the Company's assets from its own assets and only uses sub-custodians on its approved list of sub-custodians. At the year end, the Depositary held £1,099,278,000 (2023: £1,295,847,000) in respect of quoted investments.

The credit rating of the Depositary, which is a Fitch rating of A+, was reviewed at the time of appointment and is reviewed on a regular basis by the Manager and/or the Board.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be low as trading is almost always done on a delivery versus payment basis.

There is credit risk on dividends receivable during the time between recognition of the income entitlement and actual receipt of dividend.

Liquidity risk

This is the risk that the Company will encounter difficulty in meeting its obligations for financial liabilities as they fall due. This risk is minimised because a majority of the Company's investments are in readily realisable securities which can be sold to meet funding commitments. The maturity profile analysis of the Company's financial liabilities is shown below. The Company does not have derivative financial liabilities and the amounts shown are undiscounted.

Financial liabilities by maturity at the year end are shown below on an undiscounted basis:

	2024				2023
	Within	Within	More than		Within	Within	More than
	1 year	1-3 years	3 years	Total	1 year	1-3 years	3 years	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Loan Notes	-	-	49,400	49,400	-	-	51,785	51,785
RCF	33,716	-	-	33,716	-	35,312	-	35,312
Interest cash flows on
Loan Notes	2,213	6,669	10,116	18,998	2,280	6,640	12,358	21,278
Interest cash flows on RCF	1,877	-	-	1,877	1,883	1,412	-	3,295
Cash flows on other
creditors	2,157	-	-	2,157	2,379	-	-	2,379
	39,963	6,669	59,516	106,148	6,542	43,364	64,143	114,049

Financial assets and liabilities

All liabilities carrying amount approximates fair value.

The Company's financial assets and liabilities at 31 December 2024 comprised:

	2024			2023
		Non-			Non-
	Interest	interest		Interest	interest
	bearing	bearing	Total	bearing	bearing	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investments
Australian Dollar	-	28,759	28,759	-	25,347	25,347
Canadian Dollar	-	68,046	68,046	-	50,159	50,159
Chinese Yuan	-	35,986	35,986	-	23,394	23,394
Danish Krone	-	-	-	-	26,360	26,360
Euro	-	183,810	183,810	-	268,371	268,371
Hong Kong Dollar	-	-	-	-	13,613	13,613
Indian Rupee	-	22,128	22,128	-	35,979	35,979
Israeli Shekel	-	2,700	2,700	-	2,837	2,837
Japanese Yen	-	-	-		16,840	16,840
Korean Won	-	16,557	16,557	-	12,483	12,483
Norwegian Krone	-	20,352	20,352	-	22,111	22,111
Sterling	-	96,294	96,294	-	107,156	107,156
Swedish Krona	-	9,187	9,187	-	11,863	11,863
Swiss Franc	-	25,243	25,243	-	48,258	48,258
Taiwanese Dollar	-	15,036	15,036	-	16,604	16,604
US Dollar	-	575,180	575,180	-	614,472	614,472
	-	1,099,278	1,099,278	-	1,295,847	1,295,847
Other assets and liabilities
Cash and cash equivalents
Sterling	11,262	-	11,262	14,612	-	14,612
Taiwanese Dollar	-	-	-	303	-	303
Chinese Yuan	1	-	1	-	-	-
US Dollar	2,142	-	2,142	1,889	-	1,889
	13,405	-	13,405	16,804	-	16,804
Short term debtors and creditors
Sterling	-	(3,625)	(3,625)	-	(2,234)	(2,234)
Canadian Dollar	-	86	86	-	97	97
Euro	(33,717)	(786)	(34,503)	-	(1,442)	(1,442)
Japanese Yen	-	-	-	-	98	98
Swiss Franc	-	346	346	-	-	-
US Dollar	-	2,528	2,528	-	411	411
	(33,717)	(1,451)	(35,168)	-	(3,070)	(3,070)
Long-term creditors
Euro	(49,400)	-	(49,400)	(87,097)	-	(87,097)
Indian Rupee	-	(31)	(31)	-	-	-
	(49,400)	(31)	(49,431)	(87,097)	-	(87,097)
Total	(69,712)	1,097,796	1,028,084	(70,293)	1,292,777	1,222,484

 

Capital management

The Company considers its capital to consist of its share capital of Ordinary Shares of 10p each and its reserves. At 31 December 2024 there were 305,623,539 ordinary shares in issue (2023: 305,623,539) of which 65,762,020 ordinary shares were held in treasury (2023: 24,508,500).

The Manager and the Company's broker monitor the demand for the Company's shares and the Directors review the position at Board meetings. Further details on shares bought during the year and the Company's policies for issuing and buying back shares can be found in the Directors' Report.

The Company's policy on borrowings is detailed in note 11 within the Financial Statements.

 

Alternative Performance Measures ("APMs") (unaudited)

APMs are often used to describe the performance of investment companies although they are not specifically defined under FRS 102. The Directors assess the Company's performance against a range of criteria which are viewed as relevant to both the Company and its market sector. APM calculations for the Company are shown below.

Gearing

A way to magnify income and capital returns, but which can also magnify losses. A bank loan is a common method of gearing.

At 31 December		​	2024	2023
Total assets less cash/cash equivalents (£'000)	a	​	1,103,294	1,296,637
Net assets (Debt at fair value) (£'000)	b	​	1,025,577	1,220,980
Gearing (net)	(a÷b)-1		7.6%	6.2%

Leverage

Under the Alternative Investment Fund Managers Directive ("AIFMD"), leverage is any method by which the exposure of an Alternative Investment Fund ("AIF") is increased through borrowing of cash or securities or leverage embedded in derivative positions.

Under AIFMD, leverage is broadly similar to gearing, but is expressed as a ratio between the assets (excluding borrowings) and the net assets (after taking account of borrowing). Under the gross method, exposure represents the sum of the Company's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other.

Ongoing charges

A measure, expressed as a percentage of ​daily net asset value (debt at fair value) during the year, of the regular, recurring annual costs of running an investment company.

At 31 December		Page	2024	2023
Average NAV (£'000)	a	n/a	1,137,050	1,253,409
Investment management fee (£'000)	b	84	8,420	9,280
Other expenses* (£'000)	c	85	1,089	1,143
	(b+c)÷a		0.84%	0.83%

* Expenses that are not recurring, such as one-off legal fees and director recruitment fees, are excluded from other expenses .

Premium/Discount

The amount, expressed as a percentage, by which the share price is more/less than the Net Asset Value per ordinary share.

At 31 December		​	2024	2023
NAV per ordinary share (Debt at fair value) (p)	a	​	427.58	434.34
Share price (p)	a	​	385.50	400.00
(Discount)/premium	(b÷a)-1		(9.8)%	(7.9)%

Total return

A measure of performance that includes both income and capital returns. This takes into account capital gains and reinvestment of dividends paid out by the Company into its ​ordinary ​shares on the ex-dividend date.

  

				NAV	NAV
			Share	(Debt at	(Debt at
Year ended 31 December 2024		​	price	fair value)	bookcost)
Opening at 1 January 2024 (p)	a	​	400.00	434.34	434.87
Closing at 31 December 2024 (p)	b	​	385.50	427.58	428.62
Dividend/income adjustment factor1	c	​	1.01064	1.01176	1.01052
Adjusted closing (d = b x c)	d	​	389.60	432.60	433.13
Total return	(d÷a)-1		-2.6%	-0.4%	-0.4%
				NAV	NAV
			Share	(Debt at	(Debt at
Year ended 31 December 2023		​	price	fair value)	bookcost)
Opening at 1 January 2023 (p)	a	​	419.49	419.49	419.49
Closing at 31 December 2023 (p)	b	​	400.00	434.34	434.87
Dividend/income adjustment factor1	c	​	1.0099	1.0093	1.0090
Adjusted closing (d = b x c)	d	​	403.98	438.38	438.80
Total return	(d÷a)-1		-3.7%	4.5%	4.6%

¹           The dividend adjustment factor is calculated on the assumption that dividends paid out by the Company are reinvested into the shares of the Company at NAV at the ex-dividend date.

Net asset value - debt at fair value

The net asset value per ordinary share with debt at fair value at the year end are shown below. These were calculated using 239,861,519 (2023: 281,115,039) ordinary shares in issue.

		2024		2023
		Net asset value		Net asset value
		attributable		attributable
	£'000	pence	£'000	pence
Net asset value - Debt at bookcost (note 13)	a	1,028,084	428.62	1,222,484	434.87
Add: Loan Notes at bookcost (note 11)	b	49,400	20.60	51,785	18.42
Less : Loan Notes at fair value	c	(51,907)	(21.64)	(53,289)	(18.95)
Net asset value - Debt at fair value	a+b+c	1,025,577	427.58	1,220,980	434.34

The fair value of the Loan Notes is derived by aggregating the discounted value of future cashflows, being the contractual interest payments and the repayment of capital at maturity as each falls due. Discount rates are determined based on the closest available maturity, using the EUR Mid-Swap Rate for fixed-rate tranches and the Euro short-term rate Overnight Index Swap curve for floating-rate tranches. Both rates are adjusted for appropriate credit spreads and illiquidity premia. For 2023, the discount rate for each tranche reflects the yield from the Euro Benchmark curve of similar maturity for each tranche and the spread of similar credit rated loans as observed via the ICE Bank of America Merrill Lynch Fixed Income Index.

The fair value of the Loan Notes is calculated by an independent debt valuation specialist firm and the NAV with debt at fair value uses this value. For 2023, the valuer's mid point valuation was used and was not materially different from the NAV with debt at fair value in the table above,

The fair value of the Company's RCF is not an adjustment in the reconciliation of NAV with debt at bookcost to NAV with debt at fair value due to the fact that the RCF is valued at bookcost, which approximated to fair value.

Financial Information

This announcement does not constitute the Company's statutory accounts.  The financial information for the year to 31 December 2024 is derived from the statutory accounts for 2024, which will be delivered to the Registrar of Companies. The auditor has reported on the 2024 accounts; their report was unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 31 December 2024 and the Circular and Notice of AGM was approved on 2 April 2025. Both will be made available on the Company's website at www.impaxenvironmentalmarkets.co.uk.

The Annual Report and the Circular and Notice of AGM will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.

 

For further information contact:

Montfort Communications	iem@montfort.london
Gay Collins/Nita Shah	07798 626282
Apex Listed Companies Services (UK) Limited	+44 (0) 7443 970082
Company Secretary

 

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