Annual Financial Report

RNS Number : 1297E

Impax Environmental Markets PLC

04 April 2014

IMPAX ENVIRONMENTAL MARKETS PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

HIGHLIGHTS OF THE YEAR

· The company significantly outperformed global equity markets (MSCI ACWI) during the year

· Successful narrowing of the discount by almost 8%, to close the year at 10.7%

· Strong returns were broadly based across environmental sub-sectors and geographies

· Performance led by energy efficiency, water infrastructure and a recovery in renewable energy companies

· Expectations of accelerated expenditure for goods and services that reduce environmental damage or mitigate its impact

FINANCIAL INFORMATION

					At 31
					December
					2013
Net assets					£386.0m
Net asset value ("NAV") per Ordinary Share					167.9p
Ordinary Share price					150.0p
Ordinary Share price discount to NAV					10.7%

PERFORMANCE

					%
					Change¹
Share price total return per Ordinary Share²					47.4%
NAV total return per Ordinary Share²					34.1%
FTSE ET100 Index²					40.7%
MSCI AC World Index²					20.5%

¹ Year to 31 December 2013

² Total return in pounds sterling

CHAIRMAN'S STATEMENT

Against a backdrop of improving economic conditions and rising investor confidence, I am pleased to report that Impax Environmental Markets plc ("IEM" or the "Company") performed strongly during 2013 and is well positioned for the future. At the start of the year, investors were particularly concerned about the health of the global economy in general, and a range of regional issues such as the potential for a hard landing in China, the future of the Euro and the prospect of a sustained recession, particularly in Europe. As many of these worries faded, corporate earnings accelerated and there was a strong pick-up in capital expenditure, particularly in sectors linked to resource efficiency such as energy, infrastructure and pollution control.

Meanwhile, a sequence of notable events including the drought in the Western United States, Typhoon Haiyan in the Philippines in November and a second consecutive winter of severe flooding in parts of the United Kingdom, have provided further evidence of the vulnerability to the environment of many communities and much business activity. This is leading to raised expectations of accelerated expenditure for goods and services that reduce environmental damage and/or mitigate its impact.

Governments still have much work to do to mitigate and adapt to climate change. The next milestone is the Paris Climate Summit in December 2015 at which 190 countries will aim to finalise a new global climate agreement that will follow the current Kyoto Protocol. The high profile debate ahead of this meeting is likely to highlight the case for substantial investment in energy efficiency and renewable energy, and further underpin high growth investment opportunities for IEM.

Investment Performance

For the 12 months ended 31 December 2013 (the "Period"), the Company's net asset value ("NAV") per share achieved a total return of 34.1% and ended the year standing at 167.9p. Strong investment performance, together with the successful implementation of a discount control policy, resulted in the narrowing of the discount by almost 8% to close the year at 10.7%. During the year IEM's share price returned 47.4% (total return) and ended the year at 150.0p. This was achieved during a period in which Sterling strengthened relative to most of the currencies in which the Company's investments are denominated.

The Company significantly out-performed its global comparator index, the MSCI All Countries World Index ("MSCI ACWI"), which rose by 20.5% (total return, GBP) over the Period.

IEM seeks to invest in high quality businesses with long term growth strategies and the potential to deliver strong performance. In 2013 there was considerable exuberance in certain environmental markets which led to the FTSE ET100 index (which replaced the FTSE ET50 as our sector comparator index) enjoying a total return of 40.7% (GBP). These environmental indices were inflated by a small number of constituents with market capitalisations which we believe may be unsustainable. For example, the share price of the US electric car manufacturer Tesla, which is not owned by the Company, rose by over 340% in 2013 and now represents approximately 6% of the FTSE ET100 index. Last year Tesla sold just 21,000 cars, but is valued at roughly half the value of Ford and a third of the value of General Motors. The latter sold more than 9 million vehicles last year.

Discount and Buybacks

During the year, the discount to NAV at which the Company's Ordinary Shares traded ranged from 8% to 20%. On 31 May 2013, and after dialogue with a number of shareholders, the Board announced that it would make use of its share buyback powers to seek to narrow the discount, targeting an initial level of 10% or less, in normal market conditions. This has been successful and has resulted in the narrowing of the discount which closed the year at 10.7%. During the period the Company has bought back 40,940,484 of its own Ordinary Shares at an average discount to NAV of 14%, reducing the number of shares in issue by approximately 15%. The buybacks during the year have enhanced the NAV per Ordinary Share by approximately 3.7p, equivalent to 2.2% of NAV per Ordinary Share at the year end. At 31 December 2013 the Company had a total of 94,679,109 Ordinary Shares held in treasury, equating to 29% of the Ordinary Shares in issue. On 13 February 2014, the Company cancelled 50 million of the Ordinary Shares held in treasury leaving 45,698,109 Shares in Treasury which can be resold at a premium to NAV.

Dividend

The Company's net revenue for the year was £3.2 million, equivalent to 1.3p per share. As a result, the directors are recommending a dividend for the year ended 31 December 2013 of 1.2p per share (2012: 0.9p). If approved at the Company's AGM this dividend will be paid on 28 May 2014 to shareholders on the register as at the close of business on 25 April 2014. As the primary objective of the Company is capital growth, it should not be assumed that this level of dividend will be paid in future years.

Board of Directors

The Board has always planned for succession, in line with best corporate governance practice. As previously reported, I will retire after the Company's Annual General Meeting ("AGM") in May 2014. I have chaired the Company since its inception in 2002, and after 12 years at the helm I am handing over to John Scott who was appointed to the Board in February 2013. He has many years' experience in investment banking and specifically in investment trusts.

Vicky Hastings was appointed by the Board following the last AGM and will therefore stand for election by shareholders at the next AGM.

Revolving credit facility

Following a review, the Board and the Manager agreed that the Company should introduce a modest level of gearing. Post the year end, the Company entered into a £30 million, two year, multi-currency, revolving credit facility with The Royal Bank of Scotland plc. To date the Company has drawn down approximately 50% of the facility and it is our current intention to draw down the balance in the coming months. At time of writing this report, the Company is 3% geared.

Alternative Investment Fund Managers Directive ("AIFMD")

As I highlighted in the Company's Half-year report, Alternative Investment Fund Managers are required to seek authorisation from the Financial Conduct Authority by July 2014. The Board and the Manager have agreed that the Manager will be the Company's Alternative Investment Fund Manager. As described below, under AIFMD, the Company is also required to appoint a depositary.

Custodian and depositary

In preparation for the requirement to appoint a depositary under AIFMD, the Manager conducted a review of the Company's custody arrangements and the Company's depositary requirements under the directive. Following the completion of that review the Manager made a recommendation to the Board for the Company to appoint BNP Paribas Securities Services as the Company's custodian and, in due course, its depositary. The Board approved these changes and BNP Paribas Securities Services was appointed as the Company's custodian with effect from 24 January 2014. Subject to finalisation of terms, it is expected that BNP Paribas Securities Services will be appointed as the Company's depositary before the end of June 2014.

Audit tender

During the financial year, in line with corporate governance best practice, the Company's Audit Committee conducted an audit tender and recommended that the renewed appointment of Ernst & Young LLP should be put forward to shareholders. The Report of the Audit Committee provides further detail on the audit tender process.

Outlook

As at 31 March 2014 the NAV has risen 3.3% and the share price has risen by 3.2%. During this period the MSCI ACWI and FTSE ET100 indices have gained by 0.4% and 5.2% respectively.

The Board remains positive on the outlook for global equity markets for 2014 and the longer term, although we foresee periods of volatility and recognise the scope for some consolidation, following strong performance at the end of 2013. We are particularly confident of the prospects for the environmental end-markets in which the Company invests.

I am pleased to be able to hand over to my successor, John Scott, after such a positive year for the Company, and I am optimistic that the recovery still has considerably further to go and that our markets will outperform global equities. We have seen investor interest returning to our markets, as well as strong catalysts for continued outperformance.

Richard Bernays

Chairman

4 April 2014

MANAGER'S REPORT

Last year was a strong year for global equity markets as economic data continued to strengthen in the United States, China avoided a hard landing and economic conditions continued to stabilise across Europe.

Environmental markets significantly out-performed broader equity markets with returns spread across the spectrum of environmental sub-sectors and geographies. Performance was particularly strong in the Energy Efficiency and Water Infrastructure sub-sectors and there was a substantial recovery in renewable energy companies, a major area of weakness in recent years.

Drivers of Environmental Markets and Key Developments

We believe that the drivers underpinning the Company's investment thesis will continue to strengthen over many years to come. Population growth, increasing scarcity of natural resources, tightening environmental regulation, inadequate infrastructure - particularly in developing markets -and the increased incidence of extreme weather events all underpin a requirement for substantial investment. In the following section we review the key developments across our markets during the Period and assess their impact, prospects for the future and some of the resulting investment opportunities.

Pollution Control in Asia

Mounting pollution issues, such as the severe winter smogs that continue to blight many large Chinese cities, are proving to be a major catalyst for investment in the Pollution Control sub-sector. Media attention has focused on studies highlighting both the health and economic implications of severe air pollution which may reduce average life expectancy by more than ﬁve years and GDP by up to 3%. We have identified numerous investment opportunities in companies involved in the design, development, manufacture and installation of equipment and services which reduce, prevent or clean up air pollution. These include city gas, ﬁltration for the automotive, truck and industrial markets and companies selling to the rail and metro sectors. With this in mind, we added ENN Energy Holdings (pollution control solutions, China) during the Period.

Global Wind and Solar Energy Markets

As signalled at the half year, the economic fundamentals for renewable energy markets continue to improve. Subsidy reductions are well understood, consolidation of the historical overcapacity is well advanced, and the substantially reduced technology costs are driving growth in new regions and in unsubsidised markets. This has led to stabilisation of pricing and margin recovery for the companies involved, resulting in strong performance for this sub-sector. In the wind sector, we added to our holding in Vestas early in the year, which performed strongly. We also established two new positions in the solar sector: GCL Poly and Meyer Burger, both of which have demonstrated good share price appreciation. We continue to look for differentiated opportunities within the renewable energy sector with reasonable valuations and robust balance sheets.

Metal Recycling

We remain optimistic on the outlook for US metal recyclers, after several years of depressed scrap markets and a slower than anticipated start to their recovery. Profitability of recyclers was held back in 2013 by soft demand for scrap steel and over-capacity in scrap processing. Global steel production is expected to recover in 2014, with a rebound in Europe predicted to offset a slowdown in China, and scrap markets should also benefit from increased commercial construction.

Sustainable Food, Agriculture & Forestry

In the half-yearly financial report the Company reported that FTSE had added Sustainable Food, Agriculture & Forestry ("SFAF") as a new sector within its Environmental Markets classification system. Impax has an experienced, specialist team covering these markets, and in the second half of the year we identified interesting investment opportunities for inclusion in the portfolio, making initial investments in Trimble Navigation (US) and Nutreco (Netherlands). Trimble was a pioneer in the application of global positioning system ("GPS") technology to improve productivity in agriculture. Nutreco produces yield enhancing animal and fish nutrition.

Policy and Regulation in Environmental Markets

In recent years we have seen the ratchet of building regulations, energy efficiency standards and pollution limits continue to tighten. As the global economy recovers, companies exposed to these themes are seeing their earnings start to rise strongly as houses get built, cars roll off the production lines, and long-delayed infrastructure projects move forward.

In the United States, the fiscal cliff package was approved early in 2013. This included US$18 billion of green tax provisions, the reinstatement of buildings energy efficiency programmes and tax provisions for biofuels. These steps are creating a wide range of opportunities in, for example, catalytic convertors, urban transport, natural gas infrastructure and water treatment.

In China, the government continues to focus on tackling the country's increasingly dire pollution problems, and environmental protection has been elevated to a "pillar industry" which will receive government support in the form of tax breaks and subsidies. Following this announcement, there has been an acceleration in the roll-out of related infrastructure projects and the subsequent strong performance by portfolio companies involved in sanitation and clean water markets. The opportunity was further strengthened in November, when proposals for increased government investment in water infrastructure were confirmed at the third Communist Party Plenum.

In January 2014, the European Commission announced its long awaited 2030 targets for the reduction of greenhouse gases and the transition to clean energy. According to the proposals, EU member states will be required to cut carbon dioxide emissions by 40% against 1990 levels by 2030, while the European Union would adopt a binding target to source at least 27% of its energy from renewable sources by the same date. Although there are no binding targets for energy efficiency, this area continues to be a major theme for the Company, representing approximately 15% of the portfolio, and was a major contribution to performance during the Period.

Absolute Performance Contributors and Detractors

Contributors

There were broad-based positive contributions from most sub-sectors and geographies.

Many of our holdings benefited from the upturn in the global economy with pollution control, energy efficiency and water infrastructure stocks continuing their long term strong performance. Kingspan (building insulation products, Ireland) was helped by improving European construction markets as well as the successful integration of its substantial 2012 acquisitions. Nibe (ground source heat pumps, Sweden) also performed well due to successful management execution and signs of stabilisation in its core home market.

Vacon (power electronics, Finland) continued to gain market share, in a market which delivered strong growth and the company's performance and good margins demonstrated successful execution of a number of internal initiatives. Pentair (water infrastructure, US) benefitted from its successful integration of the Tyco Flow business acquired in 2012. Vestas made the largest absolute contribution to performance.

Renewable energy was one of the strongest performing sub-sectors as the long term global outlook for the sector improves.

The Company's small-cap holdings in particular Regenersis, demonstrated another year of strong returns.

Detractors

There were few severe detractors during the Period from portfolio stocks. However, not holding Tesla, for the reasons explained by the Chairman, did have a negative impact on the Company's relative performance versus the FTSE ET100 of approximately 4%.

Our holdings in water utilities underperformed due to investors' preference for less defensive stocks. In the second half of the period, light emitting diode ("LED") companies were weaker performers as the industry continued to suffer from over-capacity and delayed capital expenditure, albeit with improvement towards the end of year, which has accelerated into 2014. We maintain our long term positive outlook for LEDs as they gain traction in general lighting markets.

Our North American holdings also lagged somewhat due to their more expensive valuations versus European and Asian companies.

Portfolio Activity and Current Structure

The sub-sector breakdown for IEM is set out on page 10, along with the comparison with the FTSE ET100.

The portfolio was slightly more concentrated at the end of the Period with 67 listed holdings, reduced from 73 at the start, reflecting our growing conviction in core holdings. Today, the portfolio remains well diversified by both geography and by sub-sector (see page 10), and has a positive bias towards hazardous waste, water infrastructure, pollution control and a number of energy efficiency sub-sectors.

As outlined by the Chairman on page 3, the Company now has a debt facility which we expect to invest across existing holdings over the coming months.

Unquoted Companies

At 31 December 2013, the value of the Company's investments in unquoted companies was £11.0m, representing 2.8% of net assets. The valuations of unquoted holdings are regularly reviewed and we continue to work towards exits for these assets.

Movements in the year were as follows:

	£ m
Valuation at 1 January 2013	11.5
Additional investments net of recoveries	0.0
Net valuation and FX changes	(0.5)
Valuation at 31 December 2013	11.0

Board of Directors

We would like to take this opportunity to thank Richard Bernays, who will retire as Chairman in May. Richard agreed to chair the Company at its launch in February 2002 at a time when "environmental markets" were largely unknown among the investor community and Impax Asset Management had only a limited track record. Under his leadership, the Company's net assets expanded from £50 million at launch to £383 million at the end of 2013, and IEM has become the leading investment trust dedicated to this rapidly expanding area of the economy.

We wish Richard all the best for the future, and look forward to the Company's further development as John Scott takes the helm.

Outlook for 2014

We expect a healthy global macro-economic environment with improving GDP growth for 2014, albeit with the likelihood of some periods of volatility. Emerging markets are currently giving investors cause for concern while the reduction of the Federal Reserve's quantitative easing programme ("tapering"), in the United States may reduce risk appetite for investing in emerging markets and increase currency risk.

The year ahead looks promising for environmental markets, which are attractively valued compared to wider global equity markets. Fundamentals continue to improve and many valuations appear to reflect significant discounts to merger and acquisition multiples. The IPO markets are also reawakening for environmentally themed firms. We are particularly optimistic on the outlook for water infrastructure, hazardous waste management and energy efficiency and we also anticipate a modest increase in our exposure to renewables.

With so many compelling long term opportunities evident across environmental markets in most regions, we believe that IEM is well positioned for further growth in 2014 and beyond.

Impax Asset Management Limited

4 April 2014

PRINCIPAL RISKS AND UNCERTAINTIES

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.

(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 (including loss of investment trust status)

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. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments.

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.

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 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

4 April 2014

INCOME STATEMENT

For the year ended 31 December 2013

		2013			2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on
investments	-	99,093	99,093	-	22,153	22,153
Income	5,101	-	5,101	4,500	-	4,500
Investment management
fees	(869)	(2,608)	(3,477)	(813)	(2,438)	(3,251)
Other expenses	(689)	-	(689)	(722)	-	(722)
Return on ordinary
activities before
taxation	3,543	96,485	100,028	2,965	19,715	22,680
Taxation	(387)	-	(387)	(328)	-	(328)
Return on ordinary
activities after
taxation	3,156	96,485	99,641	2,637	19,715	22,352
Return per ordinary
share	1.28p	39.07p	40.35p	0.93p	6.98p	7.91p

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 2013

		2013		2012
	£'000		£'000
Fixed assets
Investments at fair value through profit and loss		383,715	334,680

Current assets
Income receivable	99		283
Sales - future settlements	1,551		236
Taxation recoverable	187		170
Other debtors	28		18
Cash at bank and in hand	2,946		6,873
	4,811		7,580

Creditors: amounts falling due within one year
Purchases - future settlements	(2,121)		(597)
Accrued liabilities	(407)		(450)
	(2,528)		(1,047)

Net current assets	2,283		6,533

Total net assets	385,998		341,213

Capital and reserves: equity
Share capital	32,451		32,451
Share premium account	16,035		16,035
Share purchase reserve	183,051		235,598
Capital reserve	149,733		53,248
Revenue reserve	4,728		3,881
Shareholders' funds	385,998		341,213
Net assets per Ordinary Share	167.95p		126.02p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 December 2013


	Share Capital £'000	Share Premium Account £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000

Opening shareholders' funds
as at 1 January 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

For the year ended 31 December 2012


	Share Capital £'000	Share Premium Account £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000

Opening shareholders' funds
as at 1 January 2012	32,451	16,035	258,875	33,533	3,857	344,751
Share buy backs	-	-	(23,277)	-	-	(23,277)
Dividend paid (May 2012)	-	-	-	-	(2,613)	(2,613)
Profit for the year	-	-	-	19,715	2,637	22,352
Closing shareholders' funds as at 31 December 2012	32,451	16,035	235,598	53,248	3,881	341,213

CASH FLOW STATEMENT

For the year ended 31 December 2013

	2013	2012
	£'000	£'000
Operating activities
Cash inflow from investment income and bank interest	5,285	4,461
Cash outflow from management and other expenses	(4,208)	(3,930)
Cash inflow from disposal of investments	135,261	110,309
Cash outflow from purchase of investments	(84,948)	(78,731)
Cash outflow from foreign exchange costs	(56)	(103)
Cash outflow from taxation	(405)	(405)

Net cash flow from operating activities	50,929	31,601

Equity dividends paid	(2,309)	(2,613)

Financing
Share buy backs	(52,547)	(23,277)

Net cash flow from financing	(52,547)	(23,277)

Increase/(decrease) in cash	(3,927)	5,711

Opening balance at 1 January	6,873	1,162

Balance at 31 December	2,946	6,873

NOTES TO THE ACCOUNTS

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.

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.

Income

	2013	2012
	£'000	£'000
Income from investments:
Dividends from UK listed investments	1,037	813
Dividends from overseas listed investments	4,064	3,645
Loan note interest	-	42
Total income	5,101	4,500

3. Fees and expenses

		2013			2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fees	869	2,608	3,477	813	2,438	3,251

Secretary and administrator fees	181	-	181	172	-	172
Custodian's fees	119	-	119	108	-	108
Directors' fees	120	-	120	122	-	122
Directors' other employment costs	16	-	16	13	-	13
Broker retainer	55	-	55	53	-	53
Auditors remuneration
- for audit services	25	-	25	26	-	26
- for taxation compliance services	7	-	7	11	-	11
Association of Investment Companies	26	-	26	29	-	29
Registrar's fees	20	-	20	43	-	43
Marketing fees	27	-	27	35	-	35
Public relations fees	3	-	3	9	-	9
Consultant fees	33	-	33	16	-	16
Other expenses	57	-	57	85	-	85
	689	-	689	722	-	722
Total expenses	1,558	2,608	4,166	1,535	2,438	3,973

4. Directors' fees

During the years ended 31 December 2013 and 31 December 2012, 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. Taxation

(a)	Analysis of charge in the year:
			201	3			2012
		Revenue	Capital		Total	Revenue	Capital	Total
		£'000	£'000		£'000	£'000	£'000	£'000

	Overseas taxation	387	-		387	328	-	328

	Taxation	387	-		387	328	-	328

(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 23.25% applicable to the year ended 31 December 2013 (2012: 24.49%).

	The differences are explained below:
		2013	2012
		£'000	£'000
Total profit before tax per accounts		100,028	22,680

Corporation tax at 23.25% (2012: 24.49%)		23,253	5,555
Effects of:
Non-taxable UK dividend income		(241)	(199)
Non-taxable overseas dividend income		(945)	(893)
Movement in unutilised management expenses		968	963
(Gains)/losses on investments not taxable		(23,035)	(5,426)
Overseas tax		387	328
Total current tax charge for the year		387	328

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 of £23,543,000 (2012: £19,377,000). 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% (2012: 24%) amounts to £4,709,000 (2012: £4,650,000).

6. Return per ordinary share

Return per share is based on the net gain on ordinary activities after taxation of £99,641,000 comprising a revenue return of £3,156,000 and a capital return of £96,485,000 (2012: gain of £22,352,000 comprising a revenue return of £2,637,000 and a capital return of £19,715,000) attributable to the weighted average of 246,946,495 (2012: 282,457,992) Ordinary Shares of 10p in issue (excluding Treasury shares) during the year.

7. Dividends

	2013	2012
	£'000	£'000
Dividends reflected in the financial statements:
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2012 of 0.9p (2011: 0.9p)	2,309*	2,613
Dividends not reflected in the financial statements:
Dividends not reflected in the financial statements:
Recommended ordinary dividend for the year ended 31 December 2013
of 1.2p (2012: 0.9p) per share	2,686	2,339

If approved at the Annual General Meeting, the dividend will be paid on 28 May 2014 to shareholders on the register as at the close of business on 25 April 2014.

* The difference between the recommended dividend for the year ended 31 December 2012 and the amount paid in 2013 was due to 3,272,484 Ordinary Shares being bought back following the date of approval of the Annual Report for the year ended 31 December 2012 but before the record date of the final dividend for that year.

8. Net asset value per ordinary share

Net assets per Ordinary Share is based on net assets of £385,998,000 (2012: £341,213,000) divided by 229,830,264 (2012: 270,770,748) Ordinary Shares in issue (excluding shares held in Treasury) at the Balance Sheet date.

9. Related party transactions

Fees payable to the Manager are detailed in note 3; the relevant amount outstanding as an accrual at the year end was £298,819 (2012: £268,375). The directors' fees are disclosed in note 4.

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

10. Financial information

This announcement does not constitute the Company's statutory accounts. The financial information for 2013 is derived from the statutory accounts for 2013, which will be delivered to the registrar of companies following the Company's Annual General Meeting. The statutory accounts for 2012 have been delivered to the registrar of companies. The auditors have reported on the 2013 and 2012 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 2013 was approved on 4 April 2014. 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 FSA.

11. ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 21 May 2014 at 2:30 p.m. at Norfolk House, 31 St. James's Square, London SW1Y 4JR.

4 April 2014

Secretary and registered office:

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

For further information contact:

Anthony Lee

Cavendish Administration Limited