Annual Financial Report

RNS Number : 1205J

Impax Environmental Markets PLC

24 March 2010

 



Annual Financial Report Announcement

Impax Environmental Markets plc

Year ended 31 December 2009

CHAIRMAN'S STATEMENT

I am pleased to report that Impax Environmental Markets plc ("IEM", or the "Company") has completed another strong year, posting a rise in diluted net asset value (excluding income) of 28.0%, its highest annual return since launch in 2002.  Twelve months ago, the global economy and financial markets were in almost unprecedented levels of turmoil, and the outlook for investors was very uncertain.  However, it appears that government policies to avert a slump have been successful, and prospects for markets have recovered dramatically.

Against this background, environmental markets have staged a significant recovery and have benefited from increased public sector expenditure and new environmental policy initiatives.  Although December's climate change conference in Copenhagen attracted the most media attention, most of it negative, there were important positive developments in other areas as many countries announced challenging long-term targets for environmental markets, particularly in renewable energy, energy efficiency and the reduction of greenhouse gases.

Performance and Current Status

During the year, the Company's net asset value ("NAV") per Ordinary Share (excluding current year net revenue and taking into account the dilution effect of the warrants in issue) increased from 98.8p to 126.5p, a rise of 28.0%. The share price rose 40.1% from 85.0p to 119.1p reflecting a narrowing of the share price discount to diluted NAV over the period from 14.7% to 6.4%.  Over the same period, the MSCI World and the MSCI World Small Cap Indices (priced in Pounds Sterling) rose by 14.6% and 27.9% respectively.  The Company's five year performance track record remains impressive:  during the five years to 31 December 2009, the diluted NAV (excluding income) of IEM rose 64.9% compared to 18.6% for the MSCI World Index and 26.3% for the MSCI World Small Cap Index.

The Company's investments in seven unquoted companies accounted for 4.1% of NAV at the end of the year.  During the year ended 31 December 2008 several of the holdings were revalued downwards.  After a challenging start to 2009, which resulted in further reduced valuations, this portion of the portfolio has made some good progress in the last quarter of the year with directors increasing their valuation of two unquoted holdings.

The current year has had a mixed start with generally positive results and outlook statements from portfolio companies being counterbalanced by concerns about high levels of sovereign debt particularly in European markets.  As at 19 March 2010, the diluted NAV (excluding income) had risen 3.4% since the start of the year, while the share price had risen by 0.1%.  The MSCI World Index (in Pounds Sterling) had risen 9.5% over the same period.  The discount of the Company's share price to diluted NAV had increased to 9.4%.

Discount

After several years of generally trading at a premium, the Company's share price traded at an average discount to diluted NAV of 6.9% during the year in spite of the strong NAV performance. The Board responded to this situation by buying 907,005 shares during the year at an average discount of 11.1%.

Warrants

The final subscription date for the warrants will be 15 June 2010.  At the date of this report there are 18,666,085 warrants outstanding.  The warrants, issued to all shareholders on 22 December 2005 pursuant to the terms of the Company's first "C" share issue, entitle holders to subscribe for Ordinary Shares on a one for one basis at a price of 96p per Ordinary Share.  A separate circular on this subject will be sent to warrant holders in due course.

Continuation vote

In accordance with the Articles of Association of the Company, an ordinary resolution that the Company continue as an investment trust for a further three year period will be proposed at the forthcoming Annual General Meeting.  Notwithstanding challenging market conditions, the Board considers the Company's performance over the last five years to have been excellent.  We continue to believe that IEM offers an attractive opportunity for investors to obtain exposure to environmental markets and recommend that shareholders vote in favour of the resolution.

Dividend

The Company's net revenue return for the year was £2.4 million reflecting strong cash flow generation by a number of IEM's holdings.  The directors recommend a dividend of 0.75p per Ordinary Share (0.85p per share in 2008), which, if approved at the Company's Annual General Meeting, will be paid to shareholders on the register as at the close of business on 16 April 2010.  The primary objective of the Company is capital growth, therefore it should not be assumed that this level of dividend will be paid in future years.

Outlook

While risks undoubtedly remain, the environmental sector has recovered well, further assisted by global stimulus funding and longer term environmental policies. As explained further in the Manager's Report, given the positive newsflow from both governments and companies involved in the environmental sectors, together with the attractive valuations of the companies in the portfolio, the Manager and directors believe that the Company's shares offer a compelling opportunity for investors seeking to benefit from the long term growth potential of these dynamic markets.

Richard Bernays

24 March 2010

MANAGER'S REPORT

Against a backdrop of a stabilising global economy and financial markets, the recovery in the Company's performance noted in the interim report accelerated during the second half of 2009, resulting in a strong full year increase in diluted NAV.

The principal driver of performance was a reversal of the negative themes of 2008, namely the credit crisis, falling commodity prices and the decline of cyclical industries such as construction.  Recovery in debt and equity markets allowed companies to raise capital and refinance or renegotiate debt facilities.  Commodity prices also recovered, underpinning improved economics for energy efficiency and recycling businesses.  The decline in construction markets lessened, driving share price performance as investors sought exposure to the next growth cycle.  In addition, strong performance of Asian stocks and the re-emergence of merger and acquisition ("M&A") activity in Environmental Markets also made material contributions to the recovery.

We also chose to hold a relatively underweight exposure to the renewable energy sector.  This benefited performance as these stocks suffered from a lack of project finance, regulatory uncertainty and, in some markets, falling power prices.

Drivers of Environmental Markets in 2009

The fundamental drivers of Environmental Markets remained in place during 2009.  Despite the failure of the Copenhagen climate change conference to produce a legally binding global agreement, there were significant developments in environmental legislation at the national level, with the United States, China and India in particular engaging for the first time and establishing long term targets which should be translated into law in 2010.

The US$500 billion of global stimulus funding targeted at Environmental Markets has also started to flow, with US$100 billion disbursed during 2009 and US$200 billion forecast to flow in 2010.  This is expected to complement legislative targets and to contribute to a resumption of secular growth in the sector.

Since the Company's launch, M&A activity has played a key role in generating long term performance as holdings have been acquired at attractive premiums and related stocks have been rerated.  M&A was largely absent during the financial crisis but re-emerged during 2009, particularly during the second half, with three holdings bid for during the year.  As larger, global companies see value and growth in Environmental Markets, M&A activity is expected to accelerate during 2010.

Development of Companies and Markets by Sub-Sector

In recent years, Impax Asset Management has been working in collaboration with FTSE to develop the comprehensive Environmental Markets Classification System ("EMCS"), which is now used to define the FTSE Environmental Opportunities Index Series.  The classification system aims to enable investors globally to clearly identify and measure investment opportunities in Environmental Markets.  The EMCS further breaks down the Impax classifications of Alternative Energy and Energy Efficiency (Energy); Water Treatment and Pollution Control (Water); Waste Technologies and Resource Management (Waste) and we have analysed key developments during the year using this more granular breakdown.

Alternative Energy and Energy Efficiency (47.4% portfolio weighting)

(i)         Renewable and Alternative Energy ("RAE") - 21.8% weighting

The RAE sector underperformed the portfolio average for the second year in succession due to ongoing project finance scarcity, power price declines, and overcapacity in selected industries.  Nevertheless, the overall legislative environment remains positive; in June 2010, European member states will present plans to attain the Union-wide 2020 renewables target. In the United States, climate change and energy legislation has been delayed as Congress has been preoccupied with healthcare and financial reform. However, President Obama has recently reiterated his commitment to the legislation and it seems likely that a bill including long-term support for renewable and energy efficiency will be under consideration in 2010.

In the wind sector, Global Wind Energy Council figures indicate that the world's wind power capacity grew by 31% in 2009, showing remarkable resilience despite numerous challenges.  In the United States, the American Recovery and Reinvestment Act's emphasis on supporting renewable energy projects was successful in keeping the United States at world number one for cumulative installed wind power capacity.  However, China became the world's largest wind power market in 2009, doubling its wind generation capacity over the year.  The Chinese government took further steps in 2009 to limit CO2 emissions, announcing a commitment to reduce carbon emissions intensity by 40-45% from 2005 levels by 2020, and introducing improved incentives for wind and solar power.

The European wind market grew to a lesser extent, and European wind-related stocks were some of the weakest contributors to performance with Gamesa (wind turbines, Spain) and Vestas (wind turbines, Denmark) underperforming.  On the upside, key contributors were Canadian Hydro Developers (wind IPP, Canada), which was acquired by Transalta (utility, Canada) and China High Speed Transmission Equipment (wind components, Hong Kong) which benefited from strong growth in the Asian wind market.

In the solar sector, where we continue to maintain only a small exposure, the industry has experienced continued upheaval.  European players have faced aggressive competition from lower-cost Chinese manufacturers, and regulatory uncertainty has been an issue, especially in major European markets such as Germany, Spain and Italy.  Long-term, we believe that the sustainable growth prospects of the industry remain positive as the economics of the technology become increasingly attractive.  We will consequently look to exploit share price weakness to add holdings in companies with significant long-term competitive advantages.

During the year we increased our holding in Vestas and added Hansen Transmissions (wind turbine gearboxes, UK) in anticipation of a recovery in wind markets in 2010/11.  We sold out of Pyeong San (wind turbine components, Korea), switching into its competitor Taewoong (also Korean).

(ii)        Energy Efficiency ("EE") - 25.6% weighting

EE markets recovered well in 2009 and made a strong contribution to performance during the year.  Stocks in the United States benefited from the steady deployment of stimulus funds into initiatives such as the "smart grid" (technologies and techniques that make the grid work more efficiently), and energy efficient goods and appliances.  In the European Union, lawmakers reached a compromise on the recast Energy Performance of Buildings Directive, agreeing that all new buildings will have to comply with high energy performance standards and source a significant share of their energy requirements from renewables from 2020.  Although construction activity levels remain depressed, data show that the environment is improving, which has benefited Kingspan (buildings insulation, Ireland), a top performer for 2009.

In the transport sector, there was significant publicity surrounding the potential growth of the electric vehicle market following the listing of A123 (lithium ion batteries, United States) and a number of hybrid and electric model announcements from major automobile manufacturers.  Investment in electric cars is being driven by tightening emissions regulations, concerns over energy security and enthusiasm for the technology in China, already the world's largest car market.  Industry forecasts suggest that by 2020 about 10% of new cars could be either entirely battery driven vehicles or "plug-in" hybrids.  As many of the businesses involved in electric vehicles are not yet profitable, we maintain a cautious approach to this market looking for proven technologies at a reasonable valuation.

Other key contributors to performance were Epistar (light-emitting diodes / "LEDs", Taiwan) benefiting from the adoption of LED technology in new markets, such as television backlights, and Power Integrations (power efficiency, United States) which benefited from tightening energy efficiency standards in the United States market, particularly California.  Conversely, Itron (advanced metering, United States) disappointed due to increased competition in the smart grid technology space, concerns about the scalability of their technology and the speed of roll out of projects.

Portfolio movements included the addition of Zumtobel (LED's, Austria) who stand to benefit from current strong growth in LED lighting markets and an eventual recovery in commercial construction.  We took profit in Regal Beloit (electric motors, US) following strong performance.

Waste Technologies and Resource management (portfolio weighting - 30.6%)

(i)         Waste Management & Technologies ("WMT") - 26.8% weighting

The WMT sector slightly outperformed over the year, recovering from the impact of decreased waste volumes, volatile commodity prices and slowing industrial activity experienced in 2008.  Vehicle 'scrappage' schemes continued to boost the automobile sector worldwide, notably in Germany, the United Kingdom, the United States and France.  The schemes have continued to benefit vehicle recycling businesses, and to encourage the purchase of more fuel efficient vehicles, and LKQ (auto parts recycling, United States) was one of the top performers for 2009.   Also in the United States, the prospect of tightening hazardous waste legislation related to coal ash (a by-product of combustion in power stations) has created investor interest in companies such as Clean Harbors (hazardous waste).

The recovery in global commodity prices helped metals recyclers Sims Group (Australia), and Metalico (US), as well as Lee and Man (recycled cartonboard, Hong Kong) which was the top performer in the portfolio for the year.

With strengthening credit markets, M&A has returned to the sector. For example, Energy Developments (waste-to-energy, Australia) received a conditional takeover offer from a private equity fund, and Shanks (waste management, United Kingdom) is currently subject to a bid by Carlyle Group, another private equity investor.

During the year we participated in the recapitalisation of Transpacific Industries (integrated waste management, Australia) alongside Warburg Pincus, a respected venture capital fund and  took profit in Lee & Man following strong performance.

(ii)        Environmental Support Services ("ESS") - 3.8% weighting

Global stimulus funding announcements were an important driver of the support services sector in 2009.  However, delays in the deployment of funds in the United States have disappointed investors, and environmental consultancies in particular have suffered, contributing to ESS sector underperformance.  We remain confident that much of this money will flow in the near future, and that portfolio holdings Stantec (Canada) and ICF International (United States) are well positioned to benefit.

The outcome of the United Nations Copenhagen conference in December 2009 left the future unclear for carbon markets post-2012, when the existing Kyoto Protocol expires.  Although the European Union Emissions Trading Scheme will continue until 2020, the future of global demand for carbon credits and thus the carbon price remains uncertain.

Key portfolio movements included the addition of ICF International as a new holding, and a reduction in the weighting in Stantec.

Water Treatment and Pollution Control (22.0% portfolio weighting)

(i)         Water Infrastructure & Technologies ("WIT") - 16.5% weighting

Water scarcity persisted as an important issue in 2009 following a study by the World Bank that predicted a need for US$50-60 billion of annual investment between now and 2030 in order to avoid global water shortages with serious economic and environmental consequences.  In China, the government announced plans to use stimulus funding to speed up a water diversion scheme to ease chronic shortages in Beijing and other parts of northern China.  Meanwhile, in California, a state of emergency was declared due to drought, and after years of gridlock California lawmakers reached an historic agreement to address the vulnerability of the state's water supply.

As predicted at the end of 2008, stimulus funding allocated to water infrastructure has taken some time to flow through to the revenues of investible companies, particularly in the United States, where stocks involved in this market such as Mueller Water (water infrastructure, United States) underperformed during the year. The Congressional Budget Office estimates that just 4% of the US$6 billion of "stimulus money" allocated to the water sector was spent in 2009.  However, industry sources indicate that stimulus-related business activity rose in the fourth quarter, and municipal spending on water infrastructure is expected to increase with the start of the construction season in March 2010.  

China Everbright International (waste and water infrastructure, Hong Kong) outperformed on a steady stream of project announcements that were supported by the Chinese stimulus focus on infrastructure development.  In addition, BWT (water technology, Austria) and Amiad Filtration (water treatment, Israel/United Kingdom) outperformed during 2009.  It was encouraging to see the return of M&A to the sector with the takeover of Christ Water (water treatment, Austria) by GLV (Canada).

During the year Nalco (water treatment chemicals, US) was added as a new holding while the holding in Kurita (water treatment technology, Japan) was reduced

(ii)        Pollution Control ("PC") - 5.5% weighting

The PC segment of the portfolio recovered in line with the portfolio average, supported by tightening environmental legislation.  In the United States, the Environmental Protection Agency declared that CO2 should be considered as "dangerous to human health" under the Clean Air Act, thus clearing the way for the Agency to regulate the gas itself and bypass Congress in the event that climate change legislation is delayed.  In China, attempts to curb the country's drastic pollution problems continued with the adoption of government policy of shutting down outdated industrial plants and inefficient small-scale power plants.

The best performers during the year were Horiba (testing and monitoring, Japan) which benefited from an anticipated cyclical recovery in the automotive and semiconductor markets, and Dionex (testing and monitoring, United States) due to strong growth in Asian markets.

Changes to the portfolio included profit-taking in Dionex and adding  to our holding in Horiba.

Portfolio Activity and Current Structure (excluding unquoted companies)

The Company started the year with 88 listed companies.  Since that time we have sold out of 12 companies and we have invested in 11 new companies.  As a result the Company had investments in a total of 87 listed companies on 31 December 2009.

We continue to favour profitable companies, which represented 93.0% of the portfolio at year end, a figure that is unchanged from last year.  The portfolio remains diversified by subsector, with 21.8% invested in RAE, 25.6% in EE, 16.5% in WIT, 5.5% in PC, 26.8% in WMT and 3.8% in ESS.  Notwithstanding the change in classification, the sector allocations remain consistent with last year's levels.

In terms of company size, at year end 6.0% of the portfolio was invested in micro caps with a market capitalisation of less than £100 million, 47.0% in companies between £100 million and £1 billion and 42.8% in companies above £1 billion.  The Company has systematically increased its exposure to Asian markets over the last two years in order to take advantage of superior growth opportunities in this region.  This is reflected in the increase in weighting in the Company's Rest of the World exposure from 14.0% last year to 20.1%.  The remaining funds are invested 43.3% in Europe and 36.6% in North America.

Unquoted Companies

Investments in unquoted companies represented 4.2% of the portfolio as of 31 December 2009 (equal to £16.3 million).  2009 has seen the most challenging business climate for unquoted companies for a very long time, with normal markets for debt and new equity virtually closed. Our focus during the year was therefore to support portfolio companies through these extremely difficult funding conditions.

One portfolio company, RecovCo, was forced into administration with a loss to IEM during the year of £0.1 million (and a total loss of just under £1 million).  The company recycled aluminium, selling largely to the French automotive market, and the collapse in both volume and price made it uneconomic to continue trading.

Despite these challenges, we are pleased to report a significant recovery in the unquoted investments during the 4th quarter of 2009, with New Earth Solutions (waste technology, United Kingdom), Emergya Wind Technologies ("EWT", Netherlands) and Nordic Windpower (United States) all raising new funds to support their business development.  During the year, IEM completed follow-on investments into EWT, Nordic and Ensyn (a secondary purchase).

Outlook for 2010

Following the past two years of high volatility and unprecedented economic upheaval, we are encouraged by the resilience of the Company's long term investment thesis.  Environmental policy and legislation continues to strengthen, the costs of key technologies in sectors such as renewable energy, energy efficiency and water recycling have fallen, and the ongoing trend towards liberalisation of basic services is now being extended to the Asia-Pacific region.

Over the last couple of years we have felt it appropriate to adjust the Company's exposure to different environmental sub-sectors depending on their sensitivity to the economic cycle.  During 2008, IEM maintained a higher exposure to defensive areas while during 2009 we have benefitted from the strong performance of "early cycle" companies.  In the current environment we feel that the cyclical exposure of companies is less important than the bottom-up stock-picking through the fundamental analysis that has always been our focus.

At the time of writing, the valuation of the Company's portfolio has stabilised at a level that is slightly below the historic range (18-22x earnings), while market analysts anticipate earnings expectations will recover quickly to the long-term average level of greater than 20%.  The recent quarterly results season has seen our companies continuing to surpass earnings expectations and start to report a return to organic revenue growth, giving us a justifiably positive outlook for the Company.

We will continue to post monthly updates on sector news and on the Company's performance at www.impax.co.uk.

Impax Asset Management Limited

24 March 2010

Principal risks and uncertainties

The Board considers that the risks faced by the Company fall into two main categories.

i)          External risks

Price movements of the Company's investments are highly correlated to performance of global equities in general and small and mid cap equities in particular. Consequently falls in stock markets are likely to negatively affect the performance of the Company's investments.

The Company invests in companies in Environmental Markets.  Such companies carry risks that government liberalisation may not occur as expected, costs of technology may not fall, capital spending by their customers is reduced or deferred and their products or services are not adopted.

The Company invests 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 also invests in unquoted securities which generally have higher valuation uncertainties and liquidity risks than securities listed or traded on a regulated market.

The Company invests in securities 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 in the investments made by the Company.

ii)         Internal risks

The main risk areas are poor allocation of the Company's assets by the Investment Manager, poor governance by the Board and poor compliance or administration including the loss of investment trust status.  These factors could potentially result in unacceptable returns for shareholders.

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 Practices (United Kingdom accounting standards and applicable law). 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.impax.co.uk website which is maintained by the Company's Manager, Impax Asset Management Limited ("IAM"). The maintenance and integrity of the website maintained by IAM is, so far as it relates to the Company, the responsibility of IAM. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

STATEMENT UNDER THE DISCLOSURE & TRANSPARENCY RULES 4.1.12

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.

For and on behalf of the Board

Richard Bernays

Chairman

24 March 2010

INCOME STATEMENT

For the year ended 31 December 2009

			2009			2008
		Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on investments		-	91,687	91,687	-	(92,089)	(92,089)
Income		4,217	-	4,217	4,878	-	4,878
Investment management fees		(779)	(2,335)	(3,114)	(824)	(2,473)	(3,297)
VAT recovered on investment management fees		-	-	-	86	257	343
Other expenses		(582)	-	(582)	(818)	-	(818)
Return on ordinary activities before taxation		2,856	89,352	92,208	3,322	(94,305)	(90,983)
Taxation		(480)	105	(375)	(665)	273	(392)
Return on ordinary activities after taxation		2,376	89,457	91,833	2,657	(94,032)	(91,375)
Return per ordinary share - undiluted		0.78p	29.33p	30.11p	0.88p	(30.99)p	(30.11)p
Return per ordinary share - diluted		0.78p	29.31p	30.09p	0.88p	(30.99)p	(30.11)p

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

All revenue and capital items in the above statement derive from continuing operations.  No operations were acquired or discontinued during the year.

A Statement of Total Recognised Gains and Losses has not been presented as all gains and losses are recognised in the Income Statement.

BALANCE SHEET

At 31 December 2009

		2009		2008
		£'000		£'000
FIXED ASSETS
Investments at fair value through profit and loss		386,748		294,468
CURRENT ASSETS
Income receivable		136		224
Sales - future settlements		187		385
Taxation recoverable		5		9
Other debtors		34		414
Cash at bank and in hand		7,378		10,374
		7,740		11,406
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Purchases - future settlements		(219)		(278)
Accrued liabilities		(429)		(666)
		(648)		(944)
NET CURRENT ASSETS		7,092		10,462
TOTAL NET ASSETS		393,840		304,930
CAPITAL AND RESERVES: EQUITY
Share capital		30,585		30,541
Share premium account		-		246,110
Share purchase reserve		289,858		44,125
Capital reserve		70,651		(18,806)
Revenue reserve		2,746		2,960
SHAREHOLDERS' FUNDS		393,840		304,930
Net assets per Ordinary Share - undiluted		129.15p		99.84p
Net assets per Ordinary Share - diluted		127.24p		99.62p

Impax Environmental Markets plc is incorporated in England with registered number 4348393.

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 December 2009

		Share Capital £'000	Share  Premium Account £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000
	Opening shareholders' funds as at 1 January 2009	30,541	246,110	44,125	(18,806)	2,960	304,930
	Share buy backs	-	-	(748)	-	-	(748)
	Exercise of warrants	44	377	(6)	-	-	415
	Cancellation of share premium	-	(246,487)	246,487	-	-	-
	Dividend paid (May 2009)	-	-	-	-	(2,590)	(2,590)
	Profit for the year	-	-	-	89,457	2,376	91,833
	Closing shareholders' funds as at 31 December 2009	30,585	-	289,858	70,651	2,746	393,840

For the year ended 31 December 2008

		Share Capital £'000	Share  Premium Account £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000
	Opening shareholders' funds as at 1 January 2008	30,125	242,024	44,125	75,226	1,212	392,712
	Shares issued during the year	350	3,584	-	-	-	3,934
	Exercise of warrants	66	567	-	-	-	633
	Share issue expenses	-	(65)	-	-	-	(65)
	Dividend paid (May 2008)	-	-	-	-	(909)	(909)
	Profit for the year	-	-	-	(94,032)	2,657	(91,375)
	Closing shareholders' funds as at 31 December 2008	30,541	246,110	44,125	(18,806)	2,960	304,930

 

CASH FLOW STATEMENT

For the year ended 31 December 2009

	2009		2008
	£'000		£'000
OPERATING ACTIVITIES
Cash inflow from investment income and bank interest	4,339		4,781
Cash outflow from management expenses	(3,955)		(4,599)
Cash inflow from recovery of VAT on management fees	371		-
Cash inflow from disposal of investments	79,379		95,199
Cash outflow from purchase of investments	(79,354)		(100,868)
Cash (outflow)/inflow from foreign exchange costs	(478)		177
Cash outflow from taxation	(375)		(385)
NET CASH FLOW FROM OPERATING ACTIVITIES	(73)		(5,695)
EQUITY DIVIDENDS PAID	(2,590)		(909)
FINANCING
Proceeds of share isues	420		4,567
Expenses of share issue	(5)		(65)
Share buy backs	(748)		-
NET CASH FLOW FROM FINANCING	(333)		4,502
DECREASE IN CASH	(2,996)		(2,102)
Opening balance at 1 January	10,374		12,476
Balance at 31 December	7,378		10,374

NOTES

1.             ACCOUNTING POLICIES

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 ("GAAP") and the Statement of Recommended Practice "Financial statements of investment trust companies" ("SORP"), issued by the Association of Investment Companies in January 2009.

(b)           Investments

Securities of companies quoted on regulated stock exchanges have been classified as "fair value through profit or loss" and are initially recognised on the trade date and measured at fair value.  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.

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

(c)           Income from Investments

Investment income from shares is accounted for on the basis of ex-dividend dates.  Unfranked income is grossed up at the appropriate rate of tax but franked 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. All other investment income is credited to the Income Statement as a revenue item.  Interest receivable is accrued on a time apportionment basis and reflects the effective interest rate. 

(d)           Capital Reserves

The Company is precluded by its articles from distributing its capital profit, except by way of redeeming or purchasing its own shares.  Profits achieved in cash by selling investments are dealt with in the capital reserve.  Changes in fair value arising upon the revaluation of investments that remain in the portfolio are dealt with through the capital reserve. 

(e)           Investment Management Fees

In accordance with the Company's stated policy and the directors' expectation of the split of future returns, three quarters of investment management fees, net of attributable tax, are charged as a capital item in the Income Statement.  Tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Income Statement on the marginal basis.

(f)            Deferred Taxation

Provision is made for deferred taxation, using the liability method, on all timing differences to the extent that it is probable that a liability will crystallise.  Deferred tax is recorded in accordance with FRS19 'Deferred tax'. Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date.  A deferred tax asset is only recognised to the extent that it is regarded as recoverable.

(g)           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.  Foreign currency assets and liabilities at the balance sheet date 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.

2.             INVESTMENT COMPANY STATUS

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

3.             RETURNS PER ORDINARY SHARE

Undiluted return per share is based on the net gain on ordinary activities after taxation of £91,833,000 comprising a revenue return of £2,376,000 and a capital return of £89,457,000 (2008: £91,375,000 loss, comprising a revenue return of £2,657,000 and a capital loss of £94,032,000) attributable to the weighted average of 305,015,304 (2008: 303,459,331) Ordinary Shares of 10p in issue during the year.  

Diluted returns per share are based on the net returns on ordinary activities after taxation above attributable to the diluted weighted average of 305,177,359 Ordinary Shares in issue during the year.  There was no dilution to return per share in the year ended 31 December 2008.

4.             DIVIDEND

The directors propose that the Company will pay a final dividend for the year ended 31 December 2009 of 0.75p per Ordinary Share.  The shares will go ex-dividend on 14 April 2010 and the associated record date will be 16 April 2010. If approved at the Annual General Meeting, the dividend will be paid on 18 May 2010.

5.             NET ASSETS PER ORDINARY SHARE

Undiluted net assets per Ordinary Share is based on net assets of £393,840,000 (2008: £304,930,000) divided by 304,936,283 (2008: 305,405,220) Ordinary Shares in issue (excluding shares held in Treasury) at the Balance Sheet date.

Diluted net assets per Ordinary Share is based on net assets of £411,759,000 (2008: £323,270,000) divided by 323,602,368 (2008: 324,509,373) diluted Ordinary Shares in issue at the Balance Sheet date. The diluted figures is based on all warrants being converted in to Ordinary Shares at a price £0.96 per Ordinary Share.

6.            RELATED PARTY TRANSACTIONS

Fees payable to the Investment Manager are detailed in the Income Statement; the relevant amount outstanding as an accrual at 31 December 2009 was £304,771 (2008: £243,167).

7.             FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts.  The financial information for 2009 is derived from the statutory accounts for 2009, which will be delivered to the registrar of companies following the company's Annual General Meeting.  The statutory accounts for 2008 have been delivered to the registrar of companies.  The auditors have reported on the 2009 and 2008 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006 or Section 237(2) or (3) of the Companies Act 1985.

The Annual Report for the year ended 31 December 2009 was approved on 24 March 2010.  It will be posted to shareholders and will be made available on the Manager's website at www.impax.co.uk

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

8.             ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 11 May 2010 at 3.00 p.m. at 145-157 St. John Street, London, EC1V 4RU.

24 March 2010

Secretary and registered office:

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

Tel: [phone]

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