Annual Financial Report

RNS Number : 0594J

Impax Environmental Markets PLC

31 March 2015

 



IMPAX ENVIRONMENTAL MARKETS PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2014

KEY DEVELOPMENTS

·      Company performance was resilient in the face of the steep oil price decline, which is not expected to be a significant headwind for environmental markets

·      The earnings of the portfolio continue to grow faster than the broader economy, yet the valuation premium to global markets is significantly below historical levels

·      M&A activity in the portfolio is indicative of attractive valuation and growth prospects

·      Proposed dividend of 1.4p per share, with the Company continuing to pay out the majority of its net income

·      Portfolio expected to benefit during 2015 from further positive sentiment linked to policy developments in environmental markets, for example the UN Climate Change Conference in December

FINANCIAL INFORMATION

					At 31
					December
					2014
Net assets					£373.7m
Net asset value ("NAV") per Ordinary Share					169.8p
Ordinary Share price					152.5p
Ordinary Share price discount to NAV					10.2%

PERFORMANCE

					%
					Change1
Share price total return per Ordinary Share					1.7%
NAV total return per Ordinary Share2					1.7%
FTSE ET100 Index					4.1%
MSCI AC World Index					10.6%

¹ Total returns in sterling for the year to 31 December 2014

² Source: Morningstar

CHAIRMAN'S STATEMENT

Following a strong performance in 2013, the past year was more challenging for global equities with periods of significant volatility.  At the start of 2014 we saw the 'Polar Vortex' grip most of the United States, contributing to a 2% contraction of GDP in the first quarter before robust growth returned.  Concerns about the health of many Eurozone economies resurfaced, while geopolitical tensions in Ukraine and the Middle East also had a marked effect on investor sentiment.

Impax Environmental Markets plc ("IEM" or the "Company") had a somewhat disappointing year, lagging both its global and environmental comparator indices as many investors shifted towards larger cap and more defensive stocks.  However, the Board remains positive about IEM's potential for long term outperformance as the prospects for environmental markets continue to strengthen.

In the second half of the year, in a move which seemed to take most commentators completely by surprise, the price of oil fell sharply.  The effect of this on the Company's target markets has proved complex. There has been much public debate and heightened negative sentiment around the impact of low cost oil on renewables but there have also been many positive consequences.  Further details are outlined in the Manager's Report.

Climate change maintains its prominence in the media as we approach December's United Nations Climate Change Conference ("COP21") in Paris.  The objective of the conference is to seek agreement on a long term framework for greenhouse gas reductions. In spite of considerable differences of opinion between developed and less developed countries on how to (and in some cases, whether we in fact need to) limit emissions, environmental policy remains high on political agendas, and international negotiations are likely to intensify news flow around pollution control efforts.  Meanwhile, rising investment in renewables and improving energy efficiency - much of which is driven by long term political commitments - continue to underpin the high growth investment opportunities for IEM.

As a significant percentage of the carbon reserves of traditional energy companies can never be burned if global warming is to be held at +2⁰C compared to pre-industrial levels, many investors are increasingly concerned that these companies may be overvaluing assets on their balance sheets; what is the value of an oil reservoir which can never be exploited?  Several high profile institutions have already sold or declared their intention to sell their holdings in fossil fuel assets,  and a "carbon divestment campaign" is gathering momentum.   By offering exposure to low carbon energy markets, IEM is well placed to benefit from the growing investor appetite for participation in sectors that are set to benefit from changing approaches to the price of carbon or other policies aimed at reducing emissions.

Investment Performance

For the 12 months ended 31 December 2014 ("the Period"), the net asset value per share ("NAV") of IEM achieved a total return of 1.7% and ended the year at 169.8p.  The continuing discount control policy maintained the discount within the target range.   During the year, IEM's share price returned 1.7% (total return) and ended the year at 152.5p.

IEM's environmental comparator index, the FTSE ET100, rose 4.1% over the Period and the Company underperformed relative to its global comparator index, the MSCI All Countries World Index ("ACWI"), which rose 10.6% (total return, GBP over the Period).  A detailed explanation of performance and a breakdown of the absolute contributors and detractors are covered in the Manager's Report.  In particular, not owning Tesla hurt the Company, relative to the ET100, but the Managers continue to look with some wonderment at a company which at its 2014 peak was worth some US$36 billion, yet in the year under review achieved sales of $3.2 billion and delivered only 33,000 vehicles - roughly what Toyota manufactures in a day.

Discount and Buybacks

During the year, the discount to NAV at which the Company's Ordinary Shares traded ranged from 8% to 13% and ended the year at 10.2%.  The Company bought back 9,763,000 Ordinary Shares in the year at an average discount to NAV of 12%.  The buybacks enhanced the NAV per Ordinary Share by approximately 0.8p, equivalent to 0.5% of the NAV per Ordinary Share at the year end. 

On 13 February 2014, the Company cancelled 50 million of the Ordinary Shares being held in treasury leaving 45,698,109 shares in treasury which can only be resold at a premium to NAV.  All the Ordinary Shares bought back since 13 February 2014 have been cancelled.

Dividend

The Company's net revenue for the year was £3.4 million, equivalent to 1.5p per Ordinary Share.  As a result, the directors are recommending a dividend for the year ended 31 December 2014 of 1.4p per share (2013: 1.2p).  If approved at the Company's AGM, this dividend will be paid on 27 May 2015 to shareholders on the register as at the close of business on 24 April 2015.  As the primary objective of the Company is capital growth, it should not necessarily be assumed that this level of dividend will be paid in future years.

Gearing

In January 2014, the Company entered into a £30 million, two year, multi-currency, revolving credit facility with The Royal Bank of Scotland plc.   This is the first time that the Company has used gearing; the entire facility has been drawn down and invested broadly across existing holdings.  At the end of the Period the Company's net gearing was 6%.

Alternative Investment Fund Managers Directive (AIFMD)

In July 2014, the Board announced that it had appointed Impax Asset Management (AIFM) Limited as the Company's investment manager (the "Manager"), following the authorisation of Impax Asset Management (AIFM) Limited as an alternative investment fund manager by the UK's Financial Conduct Authority.  The Manager replaces Impax Asset Management Limited as the Company's investment manager and this change comes about purely as a result of the AIFMD.  The personnel managing the portfolio remain unchanged, as do the management fee and notice period.

During the year, following completion of a review of its arrangements, the Company appointed BNP Paribas Securities Services as its custodian and subsequently, in accordance with the requirements of AIFMD, as its depositary.

Board of Directors

Richard Bernays retired as Chairman of the Company at the conclusion of the last AGM.  The Board and the Manager wish to express their considerable thanks to Richard for his vision in agreeing to chair the Company at launch, for his wise stewardship during the early yearsand his valuable leadership throughout twelve years of service.

Annual Report/Shareholder communications

Our investment philosophy is based on the efficient use of natural resources.  Therefore, in order to reduce our paper consumption we plan to publish future Annual and Half-yearly Reports in soft copy format only on the IEM website (www.impaxenvironmentalmarkets.co.uk). This will be the last printed document that is automatically mailed to shareholders. You may of course opt to receive a hard copy and these will also be available on request.

Outlook

As at 27 March 2015 the NAV has risen 6.3% and the share price has risen by 4.8% since the year end.  During this period the FTSE ET100 and MSCI ACWI indices have gained by 9.8% and 7.2% respectively.

The long term secular drivers of IEM's target markets remain compelling and the Board shares the Manager's view that the Company's portfolio is well positioned and attractively valued.  Although we are cautious on the global macro-economic backdrop and believe that growth may remain stubbornly slow in some regions, the persistence of loose monetary policy around the world should prove generally supportive of valuations.  We are confident that the current market environment presents an excellent opportunity for the Company to invest in undervalued long term growth.

John Scott

Chairman

31 March 2015

MANAGER'S REPORT

Two key factors dominated global equity markets during 2014. The first was a rotation out of small caps and industrials, following their outperformance in 2013.  Investor preference shifted to large caps and more defensive sectors such as healthcare, where IEM is inevitably underweight. Although some sub-sectors, such as Energy Efficiency and Water Infrastructure, proved robust, the Company's small cap industrial bias resulted in underperformance against our global comparator index, the MSCI ACWI.  The second factor was a fall in the oil price of 45% in the fourth quarter; IEM has proved resilient to this jolt, and investment performance was broadly in line with global markets in the last three months of the year.

Drivers of Environmental Markets and Key Developments

Oil price - negative sentiment but positive for some sectors

The lower oil price has created considerable negative sentiment around environmental markets but has not led to material underperformance.  Understanding the influence of a lower oil price on each sector within the Company's universe is complex and requires a detailed analysis of the underlying drivers of investee companies and the business models involved.  For example, in Energy Efficiency there is some potential downside where companies' products are in direct competition with oil (eg electric vehicles);   on the other hand, a declining oil price tends to be positive for companies with high exposure to consumer spending.  In the water sector we have witnessed both positive and negative impacts, with the lower cost of oil proving positive for many water treatment companies where oil is an input cost for many chemicals.

Mergers & Acquisitions- anticipate increasing levels of activity                                                     

Takeovers of IEM's portfolio companies have been a significant contributor to performance since inception of the Company with large companies acquiring specialist technology and service providers as the demand for resource efficiency solutions grow. There were two acquisitions of portfolio companies during the Period.  Nutreco (Sustainable and Efficient Agriculture, Netherlands) was the subject of an agreed offer by SHV, following a bidding war with Cargill, and Danfoss acquired Vacon (Industrial Energy Efficiency, Finland). In addition, we saw acquisitive behaviour from several of our investee companies; for example, Kingspan announced two North American acquisitions during 2014, followed by the purchase of Joris Ide, (a manufacturer of insulation panels) in January. 

Waste - focus on specialist recyclers

General waste and recyclers continued to suffer from over-capacity and weak commodity prices.  During the year we shifted our focus to the hazardous waste companies such as Stericycle (focused on medical waste disposal), and the specialist recyclers that are able to dominate their waste stream such as LKQ, which recycles car parts from insurance write offs.

Electric vehicles  - preference for fuel efficiency in traditional engines

Innovation in fuel efficiency and alternative transportation technology continued in 2014, with the market's primary focus on electric vehicles (EVs) in general, and Tesla in particular. Tesla's growing brand recognition, with its high performance EV targeted at "technology early adopters", drove its stock to record levels, contributing to 60% of the FTSE ET100's 4% rise.  However, the stock price has declined in recent months as the company experienced increased competition from traditional manufacturers with BMW and GM launching their own EVs.  Since the start of 2015, Daimler and Toyota, which were early investors in Tesla, have also sold or reduced their holdings. 

IEM is invested in parts of the value chain which focus on design advice to EV manufacturers (eg Ricardo) and makers of specialist components to facilitate the electrification of vehicles (eg LEM).  Although we expect a gradual acceleration in the take-up of EVs as battery technology and vehicle range improve, the EV market currently constitutes a very small percentage of total vehicle sales. Thus, for the foreseeable future we continue to prioritise investment in companies delivering improvements in fuel efficiency in the traditional combustion engine (eg Sensata and BorgWarner).

Policy and Regulation in Environmental Markets

The policy landscape continues to be dominated by the UN's climate negotiations. The EU has already made good progress in advance of the Paris meeting.  It has endorsed a binding target to cut greenhouse gases by at least 40% from 1990 levels by 2030, as part of the EU 2030 Energy and Climate Package, and is on track to meet its previous goal of a 20% reduction by 2020.

In addition, the US and China announced ambitious targets to cut their greenhouse gas emissions. The US will pursue a 28% reduction (compared to 2005 levels) by 2025, a significant improvement on the current target of 17% below 2005 emissions by 2020.  China has committed to begin reducing total carbon dioxide emissions by 2030, with the intention to reach this goal earlier.

The local pollution challenges in Asia continue to make the headlines. We expect the new governments in China, India and Japan to maintain their commitments to deliver on environmental improvements to benefit public health.  The sharp decline in the oil price is already supporting higher infrastructure spending as fossil fuel subsidies are reduced (in India and Indonesia), or fuel consumption taxes are increased (in China) to provide cash for these longer term investments.  In the coming months we expect to learn the priorities for China's next Five Year plan and are confident that this will continue to prioritise local environmental improvement.  While in India, ambitious projects to clean up the Ganges River system, extend off grid solar power to rural areas, and invest in high speed rail infrastructure are key features of President Modi's strategy to deliver economic growth.

Addition of Public Transportation sub-sector

The investment opportunities in environmental markets continue to increase as the universe of companies expands.  FTSE recently added a new sub-sector, Public Transportation, within Pollution Control.  This includes operators of transportation networks and bicycle manufacturers.  This sub-sector is now included in IEM's investment universe but we do not currently hold any stocks.

Absolute Performance Contributors and Detractors

Contributors 

Energy Efficiency remained one of our key themes during 2014, benefiting from the on-going cyclical recovery in construction, growth in industrial and automotive end markets, and increasingly stringent energy efficiency regulations.  The most notable contributors were from the Buildings Energy Efficiency sub-sector: portfolio holdings NIBE Industrier (ground source heat pumps, Sweden) and Thermax Limited (energy efficient power generation equipment, India).  The latter benefited from a large order placed by Reliance Industries and a market re-rating following the election of the Modi Government.

The Water Infrastructure and Technologies sub-sector delivered good performance, reflecting strong construction markets, the recovery in municipal spending and investor preference for the defensive characteristics of Water Utilities.  Pall Corporation (water treatment equipment, US), Xylem (water infrastructure, US) and California Water (water utility, US) all made material contributions to performance. 

The single largest contributor to performance was Vestas (wind power generation, Denmark), where a new management team took over in mid-2013 and has made effective progress in improving the company's profitability.

M&A activity was also a meaningful contributor, with portfolio holdings Nutreco and Vacon acquired at 14x and 18x TTM EV/EBITDA¹ respectively, versus 10x for the portfolio. 

Detractors

Our solar holdings, such as SMA Solar Technology (solar inverters, Germany), were underperformers.  This was partly due to market misperceptions about the negative influence of the oil price on the sub-sector: in reality, oil prices have a negligible effect on these markets.  Solar stocks are more closely correlated to government targets, technology costs and power prices.  We believe that this adverse sentiment and the resulting sell-off have been overdone and are currently seeking buying opportunities.

Recycling & Value Added Waste Processing companies were weakened by overcapacity in processing and disposal facilities and lower key commodity prices.  This led to weakness in recycling and value added waste processing companies such as Schnitzer Steel Industries (metal recycling, US).  We reduced our holding in this company earlier in the Period, thus mitigating some of the stock price fall. 

Small and micro-cap holdings also underperformed following good performance in 2013, which impacted Regenersis (mobile phone refurbishment and recycling, UK). 

Portfolio Activity and Current Structure

The sub-sector breakdown for IEM is set out on page 11 of the Annual Report, along with the comparison with the FTSE ET100.

At the end of the Period the portfolio comprised 67 listed holdings, the same number as last year. We continued to find high quality opportunities in Energy Efficiency, particularly in the US.  We have increased our Solar Energy Generation exposure on weakness, added holdings in Sustainable Food, Agriculture and Forestry and added to our Asia Pacific companies.  We exited 11 holdings, mainly on the basis of valuation.

The portfolio remains well diversified by both geography and by sub-sector.  Compared to the ET100, the portfolio is underweight Renewable and Alternative Energy and overweight Waste Management and Technologies (particularly Hazardous Waste) and Water Infrastructure & Technologies (mainly Utilities).  Compared with the MSCI ACWI, in regional terms, the Fund is overweight Europe and underweight North America. 

Unquoted Companies

At 31 December 2014, the value of the Company's investments in unquoted companies was £10.9m (2013: £11.0m), representing 2.9% of net assets. During the year, we were disappointed to learn that the further expected funding for Pelamis from the Scottish Government was withdrawn, due to a change in policy.  Regrettably this resulted in the company entering administration.  The valuations of unquoted holdings are regularly reviewed and we continue to work towards timely exits from these assets.

Movements in the year were as follows:

	£m
Valuation at 1 January 2014	11.0
Net valuation and FX changes	(0.1)
Valuation at 31 December 2014	10.9

Outlook for 2015

We maintain a prudent approach to equity market valuations, which look set to remain volatile given the uncertainty of macro-economic conditions and fragile investor sentiment.    Nevertheless, the underlying fundamentals of environmental markets are solid, and relative valuations are currently attractive with forecast earnings growth well above that predicted for broader global equity markets.

The portfolio is currently valued at a two year low relative to the MSCI ACWI.  We continue to monitor the many catalysts that should trigger a re-rating of devalued stocks, and therefore expect to see to see increased levels of M&A activity; which has historically been a notable contributor to performance.

Impax Asset Management Limited

31 March 2015

¹ Enterprise value trailing twelve months, earnings before income, taxes, depreciation and amortization - a financial metric to assess  the valuation of a target company.

PRINCIPAL RISKS AND UNCERTAINTIES

Together with the issues discussed in the Chairman's Statement and the Manager's Report, the Board considers that the principal risks and uncertainties faced by the Company fall into the following main categories.

(i)      Market 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 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 on the investments made by the Company.

Risk mitigation

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 three main sectors, and at the year end the Company held investments in 67 quoted companies plus 5 unquoted companies. The Company will not normally hedge against foreign currency movements affecting the value of its investments, but the Manager takes account of this risk when making investment decisions.

Further detail on the financial implications of market risk is provided in the Annual Report.

(ii)     Environmental Markets

The Company invests in companies in Environmental Markets. Such companies 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.

Risk mitigation

The Company invests in a broad portfolio of assets 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.  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.

(iii)  Corporate governance and internal control risks

The Board has contractually delegated to external agencies the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the accounting and company secretarial requirements.

The main risk areas arising from the above contracts relate to allocation of the Company's assets by the Manager, performance of administrative, registration and custodial services.  These could lead to various consequences including the loss of the Company's assets, inadequate returns to shareholders and loss of investment trust status. 

Risk mitigation

Each of the above contracts was entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company.  All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis.  The Board monitors key person risks as part of its oversight of the Manager.

The control of risks related to the Company's business areas is described in detail in the corporate governance report in the Annual Report.

(iv) Regulatory risks

Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. 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 on the London Stock Exchange.  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.

Risk mitigation

The Company has contracted out relevant services to appropriately qualified professionals.  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.

(v) Level of share price discount to net asset value

Returns to shareholders may be affected by the level of discount at which the Company's shares trade.

Risk mitigation

The Board has made a statement on discount control. 

The Company utilises its powers to buy back the Company's own shares when circumstances are appropriate.  The Board monitors the level of discount and share buy backs at Board meetings and receives regular shareholder feedback from the Company's Manager and Broker. 

(vi) Financial risks

The Company's investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk. Further details on these risks and risk mitigation are disclosed in the Annual Report.

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 (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.impaxenvironmentalmarkets.co.uk and www.impaxam.com websites which are maintained by the Company's Manager, Impax Asset Management (AIFM) 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.

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 performance, business model and strategy.

For and on behalf of the Board

Julia Le Blan

Director

31 March 2015

INCOME STATEMENT

For the year ended 31 December 2014

		2014			2013
		Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments		-	4,736	4,736	-	99,093	99,093
Income		5,422	-	5,422	5,101	-	5,101
Investment management fees		(882)	(2,642)	(3,524)	(869)	(2,608)	(3,477)
Other expenses		(667)	-	(667)	(689)	-	(689)
Return on ordinary
activities before finance
costs and taxation		3,873	2,094	5,967	3,543	96,485	100,028
Finance costs		(117)	(352)	(469)	-	-	-
Return on ordinary
activities before taxation		3,756	1,742	5,498	3,543	96,485	100,028
Taxation		(372)	-	(372)	(387)	-	(387)
Return on ordinary
activities after taxation		3,384	1,742	5,126	3,156	96,485	99,641
Return per Ordinary Share		1.52p	0.78p	2.30p	1.28p	39.07p	40.35p

The total column of the Income Statement is the profit and loss account of the Company. The revenue and capital columns contain supplementary information as recommended by the Association of Investment Companies SORP.

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 2014

		2014	2013
		£'000	£'000
Fixed assets
Investments at fair value through profit and loss		398,099	383,715
Current assets
Income receivable		86	99
Sales - future settlements		-	1,551
Taxation recoverable		236	187
Other debtors		10	28
Cash at bank and in hand		7,180	2,946
		7,512	4,811
Creditors: amounts falling due within one year
Purchases - future settlements		-	(2,121)
Accrued liabilities		(922)	(407)
		(922)	(2,528)
Net current assets		6,590	2,283
Total assets less current liabilities		404,689	385,998
Creditors: amounts falling due after more than one year
Bank loan		(30,989)	-
Total net assets		373,700	385,998
Capital and reserves: equity
Share capital		26,577	32,451
Share premium account		16,035	16,035
Capital redemption reserve		5,874	-
Share purchase reserve		168,310	183,051
Capital reserve		151,475	149,733
Revenue reserve		5,429	4,728
Shareholders' funds		373,700	385,998
Net assets per Ordinary Share		169.81p	167.95p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 December 2014

		Share Capital £'000	Share  Premium Account £'000	Capital Redemption Reserve £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000
	Opening shareholders' funds
	as at 1 January 2014	32,451	16,035	-	183,051	149,733	4,728	385,998
	Share buy backs	(874)	-	874	(14,741)	-	-	(14,741)
	Cancellation of treasury shares	(5,000)	-	5,000	-	-	-	-
	Dividend paid (May 2014)	-	-	-	-	-	(2,683)	(2,683)
	Profit for the year	-	-	-	-	1,742	3,384	5,126
	Closing shareholders' funds as at 31 December 2014	26,577	16,035	5,874	168,310	151,475	5,429	373,700

For the year ended 31 December 2013

		Share Capital £'000		Share  Premium Account £'000		Capital Redemption Reserve £'000		Share Purchase Reserve £'000		Capital Reserve £'000		Revenue Reserve £'000		Total £'000
	Opening shareholders' funds
	as at 1 January 2013	32,451		16,035		-		235,598		53,248		3,881		341,213
	Share buy backs	-		-		-		(52,547)		-		-		(52,547)
	Dividend paid (May 2013)	-		-		-		-		-		(2,309)		(2,309)
	Profit for the year	-		-		-		-		96,485		3,156		99,641
	Closing shareholders' funds as at 31 December 2013	32,451		16,035		-		183,051		149,733		4,728		385,998

CASH FLOW STATEMENT

For the year ended 31 December 2014

			2014		2013
			£'000		£'000
Operating activities
Return on ordinary activities before finance costs and taxation			5,967		100,028
Less: Tax deducted at source on income from investments			(372)		(387)
Add: Realisation of investments at book cost			94,211		105,618
Less: Purchase of investments			(140,473)		(86,505)
Adjustment for losses/(gains) on investments held			31,879		(68,148)
Foreign exchange non cash flow (gains)/losses			1,102		(10)
Decrease/(increase) in debtors			1,533		(1,148)
(Decrease)/increase in creditors			(886)		1,481
Net cash flow from operating activities			(7,039)		50,929
Returns on investments and servicing of finance
Finance costs paid			(42)		-
Net cash flow from returns on investments and servicing of finance			(42)		-
Equity dividends paid			(2,683)		(2,309)
Financing
Bank loan			29,910		-
Share buy backs			(15,912)		(52,547)
Net cash flow from financing			13,998		(52,547)
Increase/(decrease) in cash			4,234		(3,927)
Opening balance at 1 January			2,946		6,873
Balance at 31 December			7,180		2,946

NOTES

1.      Accounting policies

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") 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 January 2009.

(b)     Investments

Securities of companies quoted on regulated stock exchanges and the Company's holdings in unquoted companies 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. 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. 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

Profits achieved in cash by selling investments and changes in fair value arising upon the revaluation of investments that remain in the portfolio are all charged to the capital column of the Income Statement and allocated to 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. If applicable, 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.

(h)      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.  Loan arrangement costs are amortised over the term of the loan. 

(j)       Financial liabilities

Bank loans and overdrafts are classified as loans and are measured at amortised cost.  They are recorded at the proceeds received net of direct issue costs.

2.

Income

										2014		2013
										£'000		£'000
Income from investments:
Dividends from UK listed investments										721		1,037
Dividends from overseas listed investments										4,701		4,064
Total income										5,422		5,101

3.               Fees and expenses

		2014				2013
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Investment management fees	882	2,642	3,524		869	2,608	3,477
Secretary and administrator fees	186	-	186		181	-	181
Depositary and custody fees	134	-	134		119	-	119
Directors' fees	102	-	102		120	-	120
Directors' other employment costs	13	-	13		16	-	16
Broker retainer	5	-	5		55	-	55
Auditor's remuneration
- for audit services	25	-	25		25	-	25
- other assurance services*	7	-	7		7	-	7
Association of Investment Companies	31	-	31		26	-	26
Registrar's fees	26	-	26		20	-	20
Marketing fees	44	-	44		27	-	27
Consultant fees	-	-	-		33	-	33
Other expenses	94	-	94		60	-	60
	667	-	667		689	-	689
Total expenses	1,549	2,642	4,191		1,558	2,608	4,166

* Fees payable to the Auditor for other services were £7,000 (2013: £7,000) in relation to taxation compliance.

4.       Directors' fees

During the years ended 31 December 2014 and 31 December 2013, the fees payable to the directors were: £30,000 to the Chairman, £24,000 to the Chairman of the Audit Committee and £20,000 to the other directors. There were no other emoluments. Employers' National Insurance upon the fees is included as appropriate in directors' other employment costs under note 3.

5.       Finance costs

		2014				2013
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Interest charges	114	342	456		-	-	-
Direct loan costs	3	10	13		-	-	-
	117	352	469		-	-	-

6.       Taxation

(a)	Analysis of charge in the year:
				201	4					2013
		Revenue		Capital		Total		Revenue		Capital		Total
		£'000		£'000		£'000		£'000		£'000		£'000
	Overseas taxation	372		-		372		387		-		387
	Taxation	372		-		372		387		-		387

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

The current taxation charge for the year is lower than the standard rate of corporation tax in the UK of 21.49% applicable to the year ended 31 December 2014 (2013: 23.25%).

	The differences are explained below:
			2014				2013
			£'000				£'000
Total profit before tax per accounts			5,498				100,028
Corporation tax at 21.49% (2013: 23.25%)			1,182				23,253
Effects of:
Non-taxable UK dividend income			(155)				(241)
Non-taxable overseas dividend income			(1,011)				(945)
Movement in unutilised management expenses			901				968
Movement on non-trade relationship deficits			101				-
(Gains)/losses on investments not taxable			(1,018)				(23,035)
Overseas tax			372				387
Total current tax charge for the year			372				387

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.

(c)            The Company has unrelieved excess management expenses and non-trade relationship deficits of £28,202,000 (2013: £23,543,000). 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 tax rate of 20% (2013: 20%) amounts to £5,640,000 (2013: £4,709,000).

7.       Return per ordinary share

Return per share is based on the net gain on ordinary activities after taxation of £5,126,000 comprising a revenue return of £3,384,000 and a capital return of £1,742,000 (2013: gain of £99,641,000 comprising a revenue return of £3,156,000 and a capital return of £96,485,000) attributable to the weighted average of 223,268,664 (2013: 246,946,495) Ordinary Shares of 10p in issue (excluding Treasury shares) during the year.

8.       Dividends

		2014		2013
		£'000		£'000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2013 of 1.2p (2012: 0.9p)		2,683*		2,309
Dividends not reflected in the financial statements:
Recommended ordinary dividend for the year ended 31 December 2014
of 1.4p (2013: 1.2p) per share		3,043		2,686

If approved at the Annual General Meeting, the dividend will be paid on 27 May 2015 to shareholders on the register as at the close of business on 24 April 2015.

*              The difference between the recommended dividend for the year ended 31 December 2013 and the amount paid in 2014 was due to 200,000 Ordinary Shares being bought back following the date of approval of the Annual Report for the year ended 31 December 2013 but before the record date of the final dividend for that year.

9.       Investments at fair value through profit and loss

		2014		2013
		£'000		£'000
Analysis of closing balance:
UK quoted securities		37,928		42,161
UK unquoted securities		2,311		2,866
Overseas quoted securities		349,258		330,597
Overseas unquoted securities		8,602		8,091
Total investments		398,099		383,715
Movements during the year:
Opening balance of investments, at cost		288,664		307,777
Additions, at cost		140,473		86,505
Disposals, at cost		(94,211)		(105,618)
Cost of investments at 31 December		334,926		288,664
Revaluation of investments to fair value:
Opening balance of capital reserve - investments held		95,051		26,903
Net movement		(31,878)		68,148
Balance of capital reserve - investments held at 31 December		63,173		95,051
Fair value of investments at 31 December		398,099		383,715

During the year, the Company incurred transaction costs on purchases totalling in aggregate £315,000 (2013: £167,000) and on disposals totalling in aggregate £213,000 (2013: £221,000).

10.           Accrued liabilities

		2014		2013
		£'000		£'000
Finance costs payable
		445		-
Other accrued expenses		477		407
		922		407

11.           Bank loan

			2014		2013
			£'000		£'000
Bank loan
Less than one year			-		-
Between one and two years			30,989		-

Bank loan

On 8 January 2014, the Company entered into a two year multi-currency revolving credit facility with The Royal Bank of Scotland plc. Under the terms of the facility the Company may draw down loans of, in aggregate, up to £30 million.  As at 31 December 2014 loans of US$24,000,000 and £15,586,148 were outstanding.

Interest is payable on amounts drawn down under the facility computed at the rate of LIBOR plus a margin of 1.00% per annum.  A commitment fee computed at the rate of 0.25% per annum is payable on any amounts not drawn down under the facility.

An arrangement fee of £30,000 was payable to The Royal Bank of Scotland plc at the commencement of the loan agreement.

12.   Net asset value per Ordinary Share

Net assets per Ordinary Share is based on net assets of £373,700,000 (2013: £385,998,000) divided by 220,067,264 (2013: 229,830,264) Ordinary Shares in issue (excluding shares held in Treasury) at the Balance Sheet date.

13.   Cash flow statement - analysis of changes in net debt

	At 31 December 2012	Cash  flow	At 31 December 2013	Cash  flow	Other flows	At 31 December 2014
	£'000	£'000	£'000	£'000	£'000	£'000
Cash and short term deposits	6,873	(3,927)	2,946	4,234	-	7,180
Bank loans falling due in more than one year	-	-	-	(29,910)	(1,079)	(30,989)
	6,873	(3,927)	2,946	(25,676)	(1,079)	(23,809)

The £1,079,000 of other flows during the year represents foreign exchange movements on the bank loans.

14.   Related party transactions

Details of the management contract can be found in the Directors' Report in the Annual Report. Fees payable to the Manager are detailed in note 3; the relevant amount outstanding as an accrual at the year end was £290,167 (2013: £298,819). The directors' fees are disclosed in note 5.

The Manager's group has a holding in Ensyn.  The Manager has procedures in place to mitigate any conflicts of interest from this investment.

15.   Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information for 2014 is derived from the statutory accounts for 2014, which will be delivered to the registrar of companies following the Company's Annual General Meeting.  The statutory accounts for 2013 have been delivered to the registrar of companies.  The auditors have reported on the 2014 and 2013 accounts; their reports were 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 2014 was approved on 31 March 2015.  It will be posted to shareholders and will be made available on the Company's website at www.impaxenvironmentalmarkets.co.uk

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM

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

16.   Annual General Meeting

The Annual General Meeting will be held on 19 May 2015 at 2:30 p.m. at Norfolk House, 31 St. James's Square, London SW1Y 4JR.

31 March 2015

Secretary and registered office:

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

For further information contact:

Anthony Lee

Cavendish Administration Limited

Tel: [phone]

END

 

END

 

 

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