Annual Financial Report

RNS Number : 0970T

Impax Environmental Markets PLC

23 March 2016

 

IMPAX ENVIRONMENTAL MARKETS PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2015

KEY DEVELOPMENTS

·      Environmental Markets proved resilient and the Company outperformed both its environmental and global comparator indices

·      The earnings of the portfolio continue to grow faster than the broader economy and the portfolio valuation is materially below the long term average and at a historically low premium to the MSCI ACWI

·      The Board remains committed to the discount control policy and to acting in the interest of shareholders in this regard

·      Proposed dividend of 1.45p per share, with the Company continuing to pay out the majority of its net income

·      The Paris Climate Agreement has raised investor awareness around the risk of holding fossil fuel assets and is positive for environmental markets

FINANCIAL INFORMATION

					At 31
					December
					2015
Net assets					£371.6m
Net asset value ("NAV") per Ordinary Share					178.6p
Ordinary Share price					160.0p
Ordinary Share price discount to NAV					10.4%

PERFORMANCE

					%
					Change1
Share price total return per Ordinary Share					5.8%
NAV total return per Ordinary Share2					6.0%
FTSE ET100 Index					5.0%
MSCI AC World Index					3.3%

¹ Total returns in sterling for the year to 31 December 2015

² Source: Morningstar

CHAIRMAN'S STATEMENT

The last year was one of strong growth for environmental and resource efficiency markets.  During 2015 (the "Period"), Impax Environmental Markets plc ("IEM" or the "Company") out-performed both its environmental comparator index and its global comparator index.  It is pleasing to see the resilience of environmental markets against a more volatile backdrop for global equities, commodity prices, political unrest, and emerging markets.

We are seeing growing investor acknowledgement of environmental and resource-related risks including extreme weather, longer term climate change, and issues such as the Volkswagen emissions scandal.  The Company is well positioned to benefit from this shift in investor awareness as it focuses on the investment opportunities in innovative, high-growth companies that seek to mitigate these environmental risks, or facilitate adaptation.  The universe of companies in which our Manager can invest continues to grow.

During 2015, global environmental policies have continued to tighten.  In the shorter term, tighter emissions standards and pollution regulation favour many companies in which the Company invests.  The outcome of the Paris Climate Agreement in December 2015 also provides a view of the likely long-term regulatory framework.  The build up to the Paris talks, and the media attention they received, has fuelled investor interest and sentiment in environmental markets.  At the same time the global fossil fuel divestment movement is accelerating, increasing the focus on low carbon energy investment strategies. This would appear to be taking place notwithstanding the fall in the price of fossil fuels.

The dramatic decline in the oil price since June 2014 has a limited, but complex, correlation with environmental markets.  The Manager provides insight into the winners and losers at a sector level but it is worth highlighting that far from being the death knell for the sector that some commentators predicted, lower oil prices did not prevent renewable energy being IEM's best performing sector in 2015. 

Although many investors are currently negative on prospects for emerging markets, additional government commitments to counter severe pollution problems support further high growth for environmental companies in many regions.  For example, China's negotiating stance at the Paris Climate talks was more conciliatory than in the past, and proved to be instrumental in the final, successful, outcome.

In the Interim Report I flagged that in response to client interest, the manager planned to develop a methodology to quantify the net positive environmental impact of the portfolio.  We believe IEM is the first listed equity fund to quantify its net positive carbon impact.  The Company's investment objective of seeking sustainable, above market returns over the longer term is unchanged, but by adding quantitative metrics to the reporting process investors should now have a clearer understanding of the positive environmental outcomes of their allocation. 

Investment Performance

For the 12 months ended 31 December 2015 the net asset value per share ("NAV") of IEM achieved a total return of 6.0% and ended the year at 178.6p.   During 2015, IEM's share price total return was 5.8% and ended the year at 160p.

The Company outperformed its global comparator index, the MSCI All Countries World Index ("ACWI"), which rose 3.3% (total return, GBP) over the Period.  IEM's environmental comparator index, the FTSE ET100, returned 5.0% over the Period.  A detailed explanation of performance and a breakdown of the absolute contributors and detractors are covered in the Manager's Report.

Discount and Buybacks 

During the year, the discount to NAV at which the Company's Ordinary Shares traded ranged from 6% to 14% and ended the year at 10.4%.  The Company bought back 11,966,244 Ordinary Shares in the year at an average discount to NAV of 13%.  The buybacks enhanced the NAV per Ordinary Share by approximately 1.3p, equivalent to 0.7% of the NAV per Ordinary Share at the year end. 

Since the last continuation vote in 2013, the discount has narrowed from approximately 15% at that time to 10%¹ at the end of each financial year, in line with the Company's stated discount control policy adopted in May 2013.  The Company has bought back a total of 42.3 million Ordinary Shares over this period, demonstrating the Board's commitment to acting in the interests of shareholders in this regard.  

Interest in growth opportunities in Environmental Markets has gathered strong momentum in recent years and earnings delivery of companies in the portfolio have consistently outperformed global equity markets. In addition, wealth managers are now reporting new appetite for "positive impact" and "fossil free" investment styles.  In this context, the managers believe that IEM is well placed to attract a wider group of investors given its significant size and long operating record. The Board is committed to the continued use of buybacks when necessary to manage the discount at around 10% in normal market conditions.

Dividend

The Company's net revenue for the year was £3.1 million, equivalent to 1.5p per Ordinary Share.  As a result, the directors are recommending a dividend for the year ended 31 December 2015 of 1.45p per share (2014: 1.4p).  If approved at the Company's AGM, this dividend will be paid on 24 May 2016 to shareholders on the register as at the close of business on 22 April 2016.  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 

The Company's £30 million multi-currency revolving credit facility with The Royal Bank of Scotland plc was fully drawn down throughout the Period and at the end of the Period the Company's net gearing was 7%. The facility fell due for renewal on 8 January 2016 and has been extended for a further three year period on materially the same terms.

Continuation Vote

In accordance with the Articles of Association of the Company, an Ordinary Resolution that the Company continues as an investment trust for a further three year period will be proposed at the forthcoming AGM.  The Board strongly believes that IEM offers an attractive opportunity for investors to obtain exposure to environmental and resource efficiency markets and recommends that shareholders vote in favour of the resolution.

Outlook  

Since the start of 2016, equity markets have been volatile but the Company's portfolio has proved resilient.  From 1 January 2016 to 18 March 2016 the NAV has risen 6.4% and the share price has risen by 4.8%.  During this period the MSCI ACWI and FTSE ET100 indices have both gained by 1.4%.

Although investor sentiment in global equity markets is currently fragile, and market volatility looks set to continue, the Board perceives that investor interest in environmental markets is currently much higher than we have witnessed for several years, with a number of high profile catalysts to drive future performance.  This must be driven to some extent by the widespread belief that weather patterns are becoming more extreme, that so-called '100-year events' appear to be happening on a frighteningly shorter cycle and by extensive coverage of pollution disasters such as the Delhi smog (to name but one), which prompted extreme measures of traffic control.

The announcement of the UK's EU referendum will undoubtedly cause further uncertainty and volatility in equity  markets.  However, we do not expect the outcome of the referendum to have a material impact on the Company's performance in the long term.

IEM provides a route to achieve investment exposure to the commercial and political determination to deal with these phenomena.  Our solid, long term record, in a specialist market with relatively few competitors as pure play environmental investment opportunities, should ensure the Company is attractive to investors and well positioned for future growth.

John Scott

Chairman

23 March 2016

¹ Share price discount to NAV at end of financial year: 2013: 10.7%, 2014:10.2%, 2015:10.4%

MANAGER'S REPORT

During the Period, IEM proved resilient, with most environmental sectors delivering strong returns in 2015.  The strong global policy drivers and tightening of environmental regulations have been positive for the Company.  Perhaps most importantly, the Paris Agreement has underscored the impact that environmental risk can have on portfolios.  Environmental issues can have profound short- and long-term effects on company share prices and portfolio performance, and we seek to mitigate these risks and exploit the opportunities.

Drivers of Environmental Markets and Key Developments  

Oil price - low correlation to environmental markets' performance

Since publication of the interim report, the oil price¹ more than halved, reaching a low point just below $28 a barrel this January.  The decline has been driven by slowing demand and persistent oversupply.  We maintain our position that the implications for environmental markets are complex, but ultimately do not constitute a material headwind to performance.  The impact has been mixed, with renewables the best performing sub-sector in the past year. Chemicals for water treatment and insulation and packaging businesses benefitted from lower input costs but, conversely, selected water infrastructure, recycling and environmental consultancies saw some weakness in oil and gas exposed divisions.  The portfolio has limited exposure to these challenged areas, which may present opportunities once the impact of the lower oil price has been fully reflected in their earnings.

Disruption in the Transport Sector

The Volkswagen emissions scandal highlighted a number of issues regarding the future of transportation.  Volkswagen has certainly tarnished the brand of 'clean diesel', but diesel will continue to be an important fuel and increasingly sophisticated devices will be needed to reduce the pollutants it produces.

While regulators are imposing stricter emissions limits we have seen the mismatch in vehicle testing regimes that allows vast differences between laboratory and "real world" results.  We expect the recent increased awareness of this will result in tightening of the actual emissions allowed, requiring both more sophisticated testing (Horiba),  greater engine efficiency (BorgWarner, Norma) and cleaner engine emissions (Umicore).

Electrification of vehicles is increasing, not just in the adoption of pure electric vehicles but also within the conventional internal combustion engine.  Increased electrification will continue to play a key role in improving fuel efficiency and reducing pollution from the transport sector (Sensata, LEM).  Hybrid vehicles are expected to increase market share significantly in the medium-term.

Looking further ahead, technology giants Apple and Google look set to play key roles in the transport sector, joining other disrupters such as Tesla and Uber.  Key themes are ride sharing, increasing connectivity, and autonomous vehicles.  These developments could generate potential investment risks as well as additional opportunities.  For example, global vehicle demand may decline, but the lower production volume will almost certainly be coupled with significantly more energy efficiency technology to make cleaner, safer vehicles.

Renewable energy - strong market growth and positive outlook

Renewable energy markets continued to grow rapidly during the Period, predominantly driven by the rapidly falling cost of technology which continues to reduce industry reliance on subsidies and to open up new regional markets.  Future policy developments should provide further long term support.

We believe solar equipment manufacturers currently offer superior investment opportunities as the wind sub-sector is relatively mature, as demonstrated by the recent escalation of merger and acquisition activity.    Meanwhile, the Renewable Energy Independent Power Producers ("IPPs") have continued to build more projects and have been creating value by selling these assets at significantly higher prices.  IEM's holdings in this area performed well.  The share prices in "Yieldcos", which acquire operating assets that produce a predictable cash flow, were weak.  IEM has no exposure to these, as we do not believe the business model is currently attractive.

Policy and Regulation in Environmental Markets

The Paris Climate Agreement concluded in December with 195 nations, responsible for 95% of global Greenhouse Gas emissions, agreeing a legally binding framework to keep the global temperature increase "well below" 2^oC, and to pursue efforts to limit it to 1.5^oC.  This will require an 80% reduction in the consumption of fossil fuels by 2050.  It is inevitable that environmental regulations will ratchet up considerably in the years ahead, leading to further strong long term investment in the energy efficiency and renewables sectors.

In December, the US introduced legislation to extend the solar investment tax credit (ITC) of 30% until 2019.  The rate will drop gradually to 2021 when it will be held at 10%. The production tax credit (PTC) for wind generation was also extended until 2019.  These announcements provide stronger support for the US renewables sector than the market had expected.

Meanwhile in Europe, the European Commission updated the Circular Economy package.  Re-use and recycling targets for municipal waste have been set at 65% by 2030, with a binding target to reduce landfill of municipal waste to a maximum of 10% by 2030.  75% of all packaging waste must be recycled by 2030.  These announcements will need to be implemented at national level and should lead to significant capex in recycling facilities and companies active in this area.

Absolute Performance Contributors and Detractors 

Contributors 

Performance was broadly positive across regions and sectors. 

Renewables companies delivered the strongest positive performances, with favourable market developments as outlined above, supplemented by stock picking.  For example, SMA Solar (Germany) more than doubled on recovery of its end markets and the successful execution of an extensive turnaround plan.

Buildings Energy Efficiency companies continued to thrive on the combination of recovering construction markets and tightening efficiency standards.  Kingspan (Ireland) and Nibe (Sweden) also benefitted from increasing market penetration of their products together with the successful integration of recent acquisitions.

Merger and acquisition activity continued to highlight the attractiveness of Environmental Markets, with Pall Corp (as mentioned in the interim report) acquired by US industrial group Danaher at approximately a 28% premium to the share price prior to the takeover.

Detractors

The Light Emitting Diode ("LED") markets weakened further during the Period, with industry commoditisation weighing on margins for chip manufacturer Epistar (Taiwan), and delaying capex plans which impacted Aixtron (Germany).  We expect these challenging trends will continue and so have cut our exposure to these markets.

Companies with exposure to oil and gas (discussed above) were weak, especially water holdings Pentair and Franklin Electric (both US), and hazardous waste company Clean Harbors (US) which treats waste oil.  We believe oil and gas exposures in these holdings represent a relatively small part of these businesses and that valuations are attractive relative to the long term prospects of these strong franchises.

Portfolio Activity and Current Structure 

At the end of the Period the portfolio comprised 61 listed holdings, down from 67 at the end of the previous year. This reduction was driven particularly by a focus on reducing exposure to the worsening economic cycle.  A number of more 'defensive' holdings were added, particularly in the Sustainable Food, Agriculture and Forestry sector including United Natural Foods (US) and Eurofins (France).

The portfolio remains well diversified by both geography and by sub-sector.  IEM is underweight Energy and overweight Water and Waste compared to the ET100, and in regional terms is overweight Europe and underweight North America versus the MSCI ACWI.

Unquoted Companies 

At 31 December 2015, the value of the Company's investments in unquoted companies was £9.1m, representing 2.4% of net assets. 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	10.9
Net valuation and FX changes	(1.8)
Valuation at 31 December 2014	9.1

Outlook for 2016 

Equity markets have had a volatile start to 2016, with the economic slowdown in China and oil price weakness sparking concerns about the outlook for the global economy.  While recognising this challenging backdrop, we remain convinced that IEM will continue to deliver superior earnings growth compared to global markets (MSCI ACWI), as it has done over the last four years.  We believe the Company is well positioned to deliver resilient performance in view of this superior growth, together with a portfolio valuation below the long term average and a historically low premium to the MSCI ACWI. 

In the near term, we recognise the incremental uncertainty surrounding a potential "Brexit", but believe this risk is manageable given the diversified nature of the portfolio, a Sterling weighting in line with global indices, and natural hedging within the businesses in which we invest.   In the medium to long term, we believe the Paris Climate Agreement offers significant scope for several positive policy catalysts, which are not priced into current valuations.  Our investment hypothesis is clearly resonating with investors, who are demonstrating more interest in environmental and resource markets than we have witnessed in recent years. 

Impax Asset Management (AIFM) Limited

23 March 2016

¹ WTI

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.

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 61 quoted companies together with 4 unquoted companies.

Further detail on the financial implications of market risks is provided in note 16 to the accounts.

 (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, and the 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.

(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 buybacks 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.

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

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

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, FRS 102 The Financial Reporting Standard 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 work carried out by the auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditors accept 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 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

William Rickett

Director

23 March 2016

INCOME STATEMENT

For the year ended 31 December 2015

	2015			2014
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	19,167	19,167	-	4,736	4,736
Income	5,258	-	5,258	5,422	-	5,422
Investment management fees	(872)	(2,619)	(3,491)	(882)	(2,642)	(3,524)
Other expenses	(650)	-	(650)	(667)	-	(667)
Return on ordinary
activities before finance
costs and taxation	3,736	16,548	20,284	3,873	2,094	5,967
Finance costs	(139)	(417)	(556)	(117)	(352)	(469)
Return on ordinary
activities before taxation	3,597	16,131	19,728	3,756	1,742	5,498
Taxation	(465)	-	(465)	(372)	-	(372)
Return on ordinary
activities after taxation	3,132	16,131	19,263	3,384	1,742	5,126
Return per Ordinary Share	1.45p	7.46p	8.91p	1.52p	0.78p	2.30p

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.

"Return on ordinary activities after taxation" is also the "Total comprehensive income for the period".

BALANCE SHEET

At 31 December 2015

	2015	2014
	£'000	£'000
Fixed assets
Investments at fair value through profit and loss	399,045	398,099
Current assets
Income receivable	124	86
Sales - future settlements	99	-
Taxation recoverable	214	236
Other debtors	85	10
Cash at bank and in hand	3,294	7,180
	3,816	7,512
Creditors: amounts falling due within one year
Accrued liabilities	(906)	(922)
	(906)	(922)
Net current assets	2,910	6,590
Total assets less current liabilities	401,955	404,689
Creditors: amounts falling due after more than one year
Bank loan	(30,357)	(30,989)
Total net assets	371,598	373,700
Capital and reserves: equity
Share capital	25,380	26,577
Share premium account	16,035	16,035
Capital redemption reserve	7,071	5,874
Share purchase reserve	149,988	168,310
Capital reserve	167,606	151,475
Revenue reserve	5,518	5,429
Shareholders' funds	371,598	373,700
Net assets per Ordinary Share	178.57p	169.81p

 

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2015

		Share Capital £'000	Share  Premium Account £'000	Capital Redemption Reserve £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000
	Opening equity
	as at 1 January 2015	26,577	16,035	5,874	168,310	151,475	5,429	373,700
	Share buybacks	(1,197)	-	1,197	(18,322)	-	-	(18,322)
	Dividend paid	-	-	-	-	-	(3,043)	(3,043)
	Profit for the year	-	-	-	-	16,131	3,132	19,263
	Closing equity as at 31 December 2015	25,380	16,035	7,071	149,988	167,606	5,518	371,598

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 equity
	as at 1 January 2014	32,451	16,035	-	183,051	149,733	4,728	385,998
	Share buybacks	(874)	-	874	(14,741)	-	-	(14,741)
	Cancellation of treasury shares	(5,000)	-	5,000	-	-	-	-
	Dividend paid	-	-	-	-	-	(2,683)	(2,683)
	Profit for the year	-	-	-	-	1,742	3,384	5,126
	Closing equity as at 31 December 2014	26,577	16,035	5,874	168,310	151,475	5,429	373,700

STATEMENT OF CASH FLOWS

For the year ended 31 December 2015

		2015		2014
		£'000		£'000
Operating activities
Return on ordinary activities before finance costs and taxation		20,284		5,967
Less: Tax deducted at source on income from investments		(465)		(372)
Add: Realisation of investments at book cost		130,394		94,211
Less: Purchase of investments		(138,980)		(140,473)
Adjustment for losses on investments held		7,640		31,879
Foreign exchange non cash flow losses		876		1,102
(Increase)/decrease in debtors		(197)		1,533
Decrease in creditors		(4)		(886)
Net cash flow from operating activities		19,548		(7,039)
Financing activities
Bank loan (repaid) / drawn down		(1,494)		29,910
Finance costs paid		(575)		(42)
Share buybacks		(18,322)		(15,912)
Equity dividends paid		(3,043)		(2,683)
Net cash flow (used in)/from financing		(23,434)		11,273
(Decrease)/increase in cash		(3,886)		4,234
Opening balance at 1 January		7,180		2,946
Balance at 31 December		3,294		7,180

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 November 2014.

This is the first year that the Company has adopted FRS 102 The Financial Reporting Standard ("FRS 102"). The impact of FRS 102 on the Company is detailed in note 17 of the Annual Report.

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 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.

(c)            Reporting currency

The accounts are presented in sterling which is the functional currency of the Company. Sterling is the reference currency for this UK registered and listed company.

(d)     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.

(e)     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.

(f)       Expenses

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

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 are charged as a capital item in the Income Statement.

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. 

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

Provision is made for deferred taxation in accordance with FRS 102. A deferred tax asset is only recognised to the extent that it is regarded as recoverable.

(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. 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)      Financial liabilities

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

2.

Income

										2015		2014
										£'000		£'000
Income from investments:
Dividends from UK listed investments										800		721
Dividends from overseas listed investments										4,458		4,701
Total income										5,258		5,422

3.               Fees and expenses

		2015				2014
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Investment management fees	872	2,619	3,491		882	2,642	3,524
Secretary and administrator fees	180	-	180		186	-	186
Depositary and custody fees	115	-	115		134	-	134
Directors' fees	102	-	102		102	-	102
Directors' other employment costs	15	-	15		13	-	13
Broker retainer	34	-	34		5	-	5
Auditor's remuneration
- for audit services	27	-	27		25	-	25
- other assurance services*	7	-	7		7	-	7
Association of Investment Companies	12	-	12		31	-	31
Registrar's fees	30	-	30		26	-	26
Marketing fees	35	-	35		44	-	44
Other expenses	93	-	93		94	-	94
	650	-	650		667	-	667
Total expenses	1,522	2,619	4,141		1,549	2,642	4,191

* Fees payable to the Auditors for other services were £7,000 (2014: £7,000) in relation to taxation compliance.

4.       Directors' fees

Prior to 1 April 2015, 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. With effect from 1 April 2015, the fees payable to the directors were: £33,000 to the Chairman, £26,500 to the Chairman of the Audit Committee and £22,000 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.

Further detail on directors' fees in the year is provided in the Directors' Remuneration Implementation Report in the Annual Report.

5.       Finance costs

		2015				2014
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Interest charges	135	406	541		114	342	456
Direct loan costs	4	11	15		3	10	13
	139	417	556		117	352	469

6.       Taxation

(a)	Analysis of charge in the year:
				201	5					2014
		Revenue		Capital		Total		Revenue		Capital		Total
		£'000		£'000		£'000		£'000		£'000		£'000
	Overseas taxation	465		-		465		372		-		372
	Taxation	465		-		465		372		-		372

(b)     Factors affecting total 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 20.25% applicable to the year ended 31 December 2015 (2014: 21.49%). These corporation tax rates are blended rates as a result of changes in the standard rates of UK corporation tax during the years ended 31 December 2015 and 31 December 2014.  The standard rate UK corporation tax rate at 31 December 2015 was 20% (2014: 21%).

The differences are explained below:

		2015		2014
		£'000		£'000
Total profit before tax per accounts		19,728		5,498
Corporation tax at 20.25% (2014: 21.49%)		3,994		1,182
Effects of:
Non-taxable UK dividend income		(162)		(155)
Non-taxable overseas dividend income		(903)		(1,011)
Movement in unutilised management expenses		838		901
Movement on non-trade relationship deficits		113		101
Gains on investments not taxable		(3,881)		(1,018)
Overseas tax		465		372
Total tax charge for the year		465		372

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 £32,900,000 (2014: £28,202,000). 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% (2014: 20%) amounts to £6,580,000 (2014: £5,640,000).

7.       Return per share

Return per share is based on the net gain on ordinary activities after taxation of £19,263,000 comprising a revenue return of £3,132,000 and a capital return of £16,131,000 (2014: gain of £5,126,000 comprising a revenue return of £3,384,000 and a capital return of £1,742,000) attributable to the weighted average of 216,297,621 (2014: 223,268,664) Ordinary Shares of 10p in issue (excluding Treasury shares) during the year.

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

8.       Dividends

		2015		2014
		£'000		£'000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2014 of 1.4p (2013: 1.2p)		3,043		2,683
Dividends not reflected in the financial statements:
Recommended ordinary dividend for the year ended 31 December 2015
of 1.45p (2014: 1.4p) per share		2,897		3,043

If approved at the Annual General Meeting, the dividend will be paid on 24 May 2016 to shareholders on the register as at the close of business on 22 April 2016.

9.       Investments at fair value through profit and loss

		2015		2014
		£'000		£'000
Analysis of closing balance:
UK quoted securities		36,951		37,928
UK unquoted securities		-		2,311
Overseas quoted securities		352,997		349,258
Overseas unquoted securities		9,097		8,602
Total investments		399,045		398,099
Movements during the year:
Opening balance of investments, at cost		334,926		288,664
Additions, at cost		138,980		140,473
Disposals, at cost		(130,394)		(94,211)
Cost of investments at 31 December		343,512		334,926
Revaluation of investments to fair value:
Opening balance of capital reserve - investments held		63,173		95,051
Losses on investments held		(7,640)		(31,878)
Balance of capital reserve - investments held at 31 December		55,533		63,173
Fair value of investments at 31 December		399,045		398,099

During the year, the Company incurred transaction costs on purchases totalling in aggregate £190,000 (2014: £315,000) and on disposals totalling in aggregate £179,000 (2014: £213,000).

10.           Accrued liabilities

		2015		2014
		£'000		£'000
Finance costs payable
		433		445
Other accrued expenses		473		477
		906		922

11.           Bank loan

			2015		2014
			£'000		£'000
Bank loan
Less than one year			-		-
Between one and two years			-		30,989
Between two and five years			30,357		-

The Company has a 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 2015 loans of US$22,000,000 and £15,425,000 were outstanding.  The facility expires on 8 January 2019.

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.

12.   Net asset value per Ordinary Share

Net asset value per Ordinary Share is based on net assets of £371,598,000 (2014: £373,700,000) divided by 208,101,020 (2014: 220,067,264) Ordinary Shares in issue (excluding shares held in Treasury) at the Balance Sheet date.

There is no dilution to net asset value per Ordinary Share as the Company has only Ordinary Shares in issue.

13.   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 £289,000 (2014: £290,000). The directors' fees are disclosed in note 4.

The Manager's group has a holding in Ensyn which is an unquoted investment in the Company's portfolio.  The Manager has procedures in place to mitigate any conflicts of interest from this investment.

14.   Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information for 2015 is derived from the statutory accounts for 2015, which will be delivered to the registrar of companies following the Company's Annual General Meeting.  The statutory accounts for 2014 have been delivered to the registrar of companies.  The auditors have reported on the 2015 and 2014 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 2015 was approved on 23 March 2016.  It 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.

15.   Annual General Meeting

The Annual General Meeting will be held on 17 May 2016 at 2:30 p.m. at Norfolk House, 31 St. James's Square, London SW1Y 4JR.

23 March 2016

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

 

 

ACSUOVVRNWAOUAR