Annual Financial Report

RNS Number : 2727J

Impax Environmental Markets PLC

28 March 2018

 

LEI: 213800RAR6ZDJLZDND86

IMPAX ENVIRONMENTAL MARKETS PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

KEY DEVELOPMENTS

•       The Company outperformed its global comparator index (MSCI ACWI) for the third consecutive year.

•       Earnings growth accelerated in the portfolio in 2017.  The Manager is confident of healthy earnings growth in 2018.

•       Merger and acquisition again contributed to the Company's performance, with four portfolio companies taken over at significant premia.

•       The Company continues to identify compelling new investment themes within Environmental Markets.

•       The portfolio is well diversified by environmental sector and region, with a healthy balance of economically cyclical and defensive holdings.  The Manager considers this positioning appropriate for current market conditions.

FINANCIAL INFORMATION

							At 31 December 2017
Net assets							£506.9m
Net asset value ("NAV") per Ordinary Share1							281.6p
Ordinary Share price							256.5p
Ordinary Share price discount to NAV1							8.9%

PERFORMANCE²

NAV total return per Ordinary Share1,3						+16.4%
Share price total return per Ordinary Share1,3						+18.7%
MSCI AC World Index						+13.2%
FTSE ET100 Index						+20.2%

^1. These are considered to be alternative performance measures ('APMs').

^2. Total returns in sterling for the year to 31 December 2017.

^3. Source: Bloomberg.

CHAIRMAN'S STATEMENT

During the year to 31 December 2017 ('the Period'), global equity markets proved to be far more resilient than many investors and observers had predicted. The 'Goldilocks' scenario of low volatility, steady growth, and muted inflation contributed to strong global growth, with most world markets ending the year at record highs. These trends were reflected in the performance of Impax Environmental Markets plc ('IEM' or 'the Company'), with solid earnings delivery and an acceleration of growth largely responsible for driving outperformance versus its global comparator index.

Throughout 2017, but especially in the final quarter, environmental issues continued to dominate the news, and the reaction time between public concern and government response narrowed. For example, while against a background of ongoing discussions regarding various controls and bans of plastic that had started some time ago, governments acted particularly rapidly in response to the public reaction to one particular television documentary series dealing with the problem of plastics in our oceans. This shift in public interest also stimulated discussion about food packaging and the waste this produces. A number of the Company's holdings tackle this challenge and are developing future solutions, such as bioplastics.

The world also saw a series of extreme weather events, including six severe hurricanes hitting the US, major winter storms affecting the UK, mainland Europe and the US East Coast, and wildfires and mudslides in California. IEM has significant investments in companies that provide adaptation and mitigation solutions for extreme weather, for which there is an increasing need.

Performance

For the 12 months ended 31 December 2017, the net asset value per share ('NAV') of IEM achieved a total return of 16.4% and ended the Period at 281.6p. During the year, IEM achieved a share price total return of 18.7% and ended the Period at 256.5p, reflecting the combination of the NAV performance and a narrowing of the discount at which our shares trade.

The Company outperformed its global comparator index, the MSCI All Country World Index ('MSCI ACWI'), which increased by 13.2% (total return, GBP) over the Period. Whereas a large part of the Company's success in 2016 was due to stock selection, this year we benefited from asset allocation and foreign exchange movements. The Company slightly lagged its environmental comparator index, with the FTSE ET100 Index ('FTSE ET100') returning 20.2% over the Period. This was largely accounted for by our decision not to hold Tesla (the largest constituent of the FTSE ET100, representing some 10%), which Impax Asset Management (AIFM) Limited, our Manager, still believes to be overvalued. The Manager's Report details an explanation of performance and a breakdown of the absolute contributors and detractors.

Gearing

The Company has a £30 million multicurrency, revolving credit facility with The Royal Bank of Scotland plc to January 2019.

The loan was fully drawn down throughout the Period. As at 31 December 2017 the Company's gearing, net of cash, was 3.2%.

Discount and share buybacks

During the Period, the discount to NAV at which the Company's Ordinary Shares traded ranged from 5% to 14% and ended at 8.9% though I am pleased to report that no buybacks have taken place since June 2017. The Company bought back 11,083,249 Ordinary Shares in the Period at an average discount to NAV of 12.7%. The buybacks enhanced the NAV per Ordinary Share by approximately 1.9p, equivalent to 0.7% of the NAV per Ordinary Share at the Period end.

Dividend

The Company's net revenue return for the year was £5.1 million (2016: £3.9 million), equivalent to 2.83p (2016: 1.99p) per Ordinary Share. Shareholders will be aware that it has been the Board's policy to pay out substantially all earnings by way of dividends and we see no need to vary this.  

As a result, the directors are recommending a dividend for the year ended 31 December 2017 of 2.5p per share (2016: 1.95p). If approved by shareholders at the Company's Annual General Meeting ('AGM'), this dividend will be paid on 24 May 2018 to shareholders on the register as at the close of business on 27 April 2018. As the primary objective of the Company is capital growth, it should not necessarily be assumed that this level of earnings, and hence our ability to pay a similar dividend, will be available in future years.

Management fee

As announced last October, I am pleased to report that we have agreed a new scale of investment management fees with our Manager, which both simplifies what had become an unnecessarily complex arrangement, while at the same time offering savings to IEM, particularly as the fund grows. Details of the new arrangements are set out in the Annual Report and Accounts.

Shareholder communications

We aim to communicate as effectively as possible with all of our shareholders, in line with our investment philosophy. Thus we believe it to be most appropriate to focus on digital communication because of its low environmental impact and the significantly lower costs involved. However, we continue to print a small number of copies of this report and are happy to provide hard copies of it to shareholders who request them from the Registrar.  

Further information can be found on our website, www.impaxenvironmentalmarkets.co.uk, which includes videos, podcasts, media releases, financial calendar updates and all regulatory news. You may also wish to follow us on Twitter, @IEMplc.  

Outlook

With central banks providing more visibility on how they intend to unwind their quantitative easing programmes, and in many cases signalling a rise in interest rates, there are many commentators who suggest that the extraordinary run in global equity markets is at an end. The question for many is whether conditions will remain supportive of current asset prices. Any sustained return of significant volatility may also shake investors' confidence, while the 'Brexit' issue adds further uncertainty to the global economy.

The Board and Manager believe that the direction of travel is towards a more sustainable global economy, and that the factors driving these are fundamental and have widespread public support. Furthermore, we remain confident there remain many more high-growth stories yet to be discovered within Environmental Markets, and our Manager's 15 years of expertise in identifying these prospect means that your Company is well placed to benefit from a sector that is growing both in size and attraction. 

John Scott

Chairman

28 March 2018

MANAGER'S REPORT

During the Period, the Company delivered robust performance, with accelerated earnings growth and continuing merger and acquisition ('M&A') activity contributing to a 3.2% outperformance against its global comparator index, the 'MSCI ACWI'. Asset allocation and foreign exchange movements provided further benefits, notably our zero weighting in energy companies and telecoms, and our being overweight on technology, but there were winners in all main sectors. Regarding foreign exchange, our underweight exposure to the US Dollar and overweight position on the Euro contributed 1.6% to the Company's NAV.

The 3.8% NAV total return underperformance against its environmental comparator index, the FTSE ET100, follows the Company's 15.4% outperformance last year. Aside from not owning Tesla, our decision not to hold a small number of technology companies contributed to this underperformance. We believe these technology companies to be relatively unproven and we maintain our preference for investing in established, proven, and profitable businesses with reasonable valuations.

In the interim report we discussed the uncertainty of the impact President Trump's policies would have on Environmental Markets. A year of his presidency provides more information. While there have been changes in the US's approach to the environment, including a downscaling of the Environmental Protection Agency's power, and continuing ambiguity over the country's signatory status of the Paris Climate Agreement, many US environmental policies remain. In some high profile cases, such as the White House's stated desire to increase coal power output, advances in renewables technology have resulted in this not being economically feasible without huge government subsidies for fossil fuels. Furthermore, we have seen a prioritisation of environmental concerns at the state and city level as a response to President Trump's rhetoric.

Key developments

Growing concern over plastic pollution

In recent months, the issue of plastic waste, with a particular focus on ocean pollution, has dominated the news and political discussions across the world. China has implemented strict new laws governing the waste it will accept (having formerly imported plastic waste from other countries), and various bans and levies are being mooted in the UK, certain US states, and across Europe. This presents opportunities for waste treatment and recyclers, such as IEM holding Tomra (Waste Technology, Norway) and alternative food packaging manufacturers, which are developing new, sustainable ways of packaging food. Accordingly, we added to our exposure of DS Smith (Recycling and Value-added Waste Processing, UK).

The 2017 US hurricane season

2017 was one of the most active hurricane seasons on record, with the US experiencing six severe hurricanes (Harvey, Irma, Jose, Lee, Maria, and Ophelia). Damages cost an estimated $300-$475 billion. Warming oceans are increasing the intensity of extreme weather events, furthering the need for adaptation and mitigation solutions such as water management and backup power. We hold a number of companies in this area, including Xylem (Water Infrastructure, UK). During the Period we added to Generac (Power Network Efficiency, US).

Sustainable Food and Agriculture

Amazon's $13 billion purchase of Whole Foods heralds possible disruption in organic food distribution due to the web giant's expertise in supply chains and distribution, and its continuing aim to reduce costs and pass savings to the customer. We reduced our exposure to United Natural Foods (Sustainable and Efficient Agriculture, US), and we continue to watch this area closely.

Prospects in this space include Welbilt (Industrial Energy Efficiency, US), which we added. This company supplies efficient industrial and commercial side kitchen equipment, and is also active in driving connected kitchens, which manage food production from order to delivery, reducing waste.

Digitalisation in Environmental Markets

In the last annual report, we highlighted the increasing opportunities in this area. We added PTC (Industrial Energy Efficiency, US), a software business with a leading market position in Product Lifecycle Management ('PLM'). PLM involves the integrated use of software to more efficiently manage design, manufacturing and after sales maintenance. The company has well diversified end market exposures and an attractive business model.

Absolute performance contributors and detractors

Contributors

Continuing the theme of recent years, earnings delivery remained robust across most sectors and regions in the portfolio.

Companies with exposure to the rapid growth in hybrid and electric vehicles saw further strong performance. As mentioned previously, IEM favours investments in critical components in the supply chain with broader market exposure, more durable competitive advantages and a more reasonable valuation than that offered by Tesla. Holdings LEM (Power Electronics, Switzerland) and Umicore (materials into cathodes of batteries, Belgium) performed well.

The portfolio's environmental consultancy holdings, which were weak in 2016, saw dramatic improvement in performance during the Period, reflecting improving markets and strong execution, especially on the part of Arcadis (Environmental Support Services, Netherlands).

The portfolio's European holdings also performed well, outperforming the European components of both the MSCI ACWI and the FTSE ET100, reflecting strong earnings delivery and attractive valuations in the region.

Finally, 2017 saw material amounts of M&A activity, with four portfolio holdings taken over, all at significant premiums. We continue to see M&A as a validation of the attractiveness of Environmental Markets in the eyes of the large industrial and financial institutions, which are the typical buyers. Portfolio holdings also continued to make acquisitions of their own, with Kingspan (Buildings Energy Efficiency, Ireland), DS Smith (Recycling and Value-added Waste Processing, UK) Spirax Sarco (Industrial Energy Efficiency, UK) being particularly active.

Detractors

Negative commodity price developments in select markets presented challenges in the Period. Hazardous waste companies often provide waste and recycling services to oil and gas markets, and underperformed against the backdrop of oil price weakness, impacting Clean Harbors (Hazardous Waste Management, US) and Newalta (Hazardous Waste Management, Canada). Sustainable Food and Agriculture holdings saw some consolidation following particular strength in 2016. Lenzing (Sustainable and Efficient Agriculture, Austria) also fell on anticipated weakness in viscose prices following material industry capacity expansion in the fibre, which represents the 'rump' of the business. We continue to hold Lenzing, attracted by the more technical fibres Tencel and Modal, where the company has a very strong market position. United Natural Foods, a distributor of organic and natural foods, was weak subsequent to Amazon's acquisition of Wholefoods, a material customer.

Unquoted

As at 31 December 2017, IEM held only one significant unquoted company in its portfolio with a valuation of £9.9 million, representing 2.0% of net assets. This valuation is reviewed regularly and we are working towards a timely exit.

Movements in the year were as follows:

	£m
Valuation at 1 January 2017	10.9
Foreign exchange gain	(1.0)
Valuation at 31 December 2017	9.9

Portfolio positioning, valuation, and risk

IEM had a well-diversified portfolio of 59 listed holdings at the end of the Period. Positioning by sector and region is set out in the Annual Report and Accounts, with small changes since the interim report.

Regarding environmental sectors, the Company's exposure to Energy Efficiency has increased 4%, reflecting the new additions discussed earlier, and funded by small decreases in Waste Management and Technology, and to a lesser extent Renewable Energy and Food, Agriculture and Forestry. Versus the FTSE ET100, positioning is similar, being underweight in the more volatile sectors of Renewable Energy and Energy Efficiency and overweight in the more defensive area of Water Infrastructure and Technologies.

Compared to ACWI, regional positioning remains unchanged, with a significant underweight position in North America and an overweight position in Europe, which we remain comfortable with on the basis of relative valuations. The portfolio remains slightly more cyclical than the MSCI ACWI. We are focusing on finding additional opportunities for defensive growth within our markets.

Portfolio valuation is slightly above the 10 year average level, but with a premium to the MSCI ACWI slightly below the long-term average. We consider valuation to be neutral, but remain confident of solid prospects for earnings growth for the portfolio.

The Company's risk metrics remain slightly above that of the MSCI ACWI, but well below those of the FTSE ET100.

Outlook

During the Period, the Company delivered superior returns versus global equities markets, which themselves rose significantly. Despite some macroeconomic uncertainties (as discussed in the Chairman's Statement), we are positive that 2018 will bring further growth for Environmental Markets, which continue to benefit from economic and political headwinds, among other powerful drivers. On this basis, we continue to believe that IEM offers compelling investment opportunities for long-term growth.

Impax Asset Management (AIFM) Limited

28 March 2018

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 greater 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 59 quoted companies and also held 4 unquoted companies of which 3 were valued at nil.

Further detail on the financial implications of market risks is provided in the Annual Report and 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 controls risk

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 performance of the Manager, the performance of administrative, registration, custodial and banking services, and the failure of information technology systems used by external agencies. These risk areas could lead to the loss or impairment 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 and Accounts.

(iv) Cyber security risks

Cyber security risks could potentially lead to breaches of confidentiality, data records being compromised and  the inability to make investment decisions. The underlying risks primarily exist in the third party service providers to whom the Company has outsourced its depositary, registration, administration and investment management activities.

Risk mitigation

The Company's key service providers report periodically to the Board on their procedures to mitigate cyber security risks including their alignment with industry standards. The Board also meets with its service providers on a periodic basis.

(v) 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.

(vi) 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.

(vii) 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.

Further details on financial risks and risk mitigation are disclosed in the Annual Report and Accounts.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable laws and regulations.

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

• select suitable accounting policies and then apply them consistently;

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

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

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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

Julia Le Blan

Director

28 March 2018

INCOME STATEMENT

	Year ended 31 December 2017				Year ended 31 December 2016
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Gains on investments	-	68,546	68,546		-	125,251	125,251
Income	8,265	-	8,265		6,360	-	6,360
Investment management fees	(1,083)	(3,248)	(4,331)		(955)	(2,866)	(3,821)
Other expenses	(758)	-	(758)		(731)	-	(731)
Return on ordinary activities before finance costs and taxation	6,424	65,298	71,722		4,674	122,385	127,059
Finance costs	(144)	(435)	(579)		(128)	(383)	(511)
Return on ordinary activities before taxation	6,280	64,863	71,143		4,546	122,002	126,548
Taxation	(1,136)	-	(1,136)		(626)	-	(626)
Return on ordinary activities after taxation	5,144	64,863	70,007		3,920	122,002	125,922
Return per Ordinary Share	2.83p	35.63p	38.46p		1.99p	61.91p	63.90p

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 year.

The notes form part of these financial statements.

BALANCE SHEET

	As at 31 December		As at 31 December
	2017		2016
	£'000		£'000
Fixed assets
Investments at fair value through profit or loss	524,305		483,366
Current assets
Income receivable	88		97
Sales awaiting settlement	256		-
Taxation recoverable	13		129
Other debtors	18		5
Cash and cash equivalents	13,054		13,099
	13,429		13,330
Creditors: amounts falling due within one year
Purchases awaiting settlement	(204)		(414)
Other creditors	(1,181)		(593)
	(1,385)		(1,007)
Net current assets	12,044		12,323
Total assets less current liabilities	536,349		495,689
Creditors: amounts falling due after more than one year
Bank loan	(29,442)		(30,434)
Total net assets	506,907		465,255
Capital and reserves: equity
Share capital	22,574		23,682
Share premium account	16,035		16,035
Capital redemption reserve	9,877		8,769
Share purchase reserve	95,772		120,597
Capital reserve	354,471		289,608
Revenue reserve	8,178		6,564
Shareholders' funds	506,907		465,255
Net assets per Ordinary Share	281.55p		243.43p

Approved by the Board of directors and authorised for issue on 28 March 2018 and signed on their behalf by:

Julia Le Blan

Director

The notes form part of these financial statements.

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2017

	Share capital	Share premium account	Capital redemption reserve	Share purchase reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity as at 1 January 2017	23,682	16,035	8,769	120,597	289,608	6,564	465,255
Dividends paid	-	-	-	-	-	(3,530)	(3,530)
Share buy backs	(1,108)	-	1,108	(24,825)	-	-	(24,825)
Profit for the year	-	-	-	-	64,863	5,144	70,007
Closing equity as at 31 December 2017	22,574	16,035	9,877	95,772	354,471	8,178	506,907

For the year ended 31 December 2016

	Share capital	Share premium account	Capital redemption reserve	Share purchase reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity as at 1 January 2016	25,380	16,035	7,071	149,988	167,606	5,518	371,598
Dividends paid	-	-	-	-	-	(2,874)	(2,874)
Share buy backs	(1,698)	-	1,698	(29,391)	-	-	(29,391)
Profit for the year	-	-	-	-	122,002	3,920	125,922
Closing equity as at 31 December 2016	23,682	16,035	8,769	120,597	289,608	6,564	465,255

The Company's distributable reserves consist of the Share purchase reserve, Capital reserve and Revenue reserve.

The notes form part of these financial statements.

STATEMENT OF CASH FLOWS

			Year ended 31 December 2017		Year ended 31 December 2016
			£'000		£'000
Operating activities
Return on ordinary activities before finance costs and taxation*			71,722		127,059
Less: Tax deducted at source on income from investments			(1,136)		(626)
Foreign exchange non cash flow gains			(169)		(519)
Adjustment for gains on investments			(68,546)		(125,251)
Decrease in other debtors			112		327
Increase in other creditors			392		428
Net cash flow from operating activities			2,375		1,418
Investing activities
Add: Sale of investments			146,716		131,687
Less: Purchase of investments			(120,748)		(87,844)
Net cash flow used in investing			25,968		43,843
Financing activities
Equity dividends paid			(3,530)		(2,874)
Movement in bank loan			350		(2,353)
Finance costs paid			(383)		(838)
Share buybacks			(24,825)		(29,391)
Net cash flow used in financing			(28,388)		(35,456)
(Decrease)/increase in cash			(45)		9,805
Opening balance at 1 January			13,099		3,294
Balance at 31 December			13,054		13,099

* Cash inflow from dividends was £8,164,000 (2016: £6,471,000).

The notes form part of these financial statements.

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 ('New UK GAAP') including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' issued by the UK's Financial Reporting Council (FRC) in September 2015 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.

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 'at fair value through profit or loss' and are initially recognised on the trade date and measured at fair value in accordance with sections 11 and 12 of FRS 102. Investments are measured at subsequent reporting dates at fair value by reference to their market bid prices. Any unquoted investments are measured at fair value which is determined by the directors in accordance with the International Private Equity and Venture Capital guidelines.

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

(c) Reporting currency

The accounts are presented in sterling which is the 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.

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.

Foreign exchange gains and losses and expenses which are attributable to capital are 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

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

(h) Foreign currency translation

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

(i) Financial liabilities

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

(j) Estimates and assumptions

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

The assumptions regarding the valuation of unquoted financial instruments are disclosed in the Annual Report and Accounts.

(k) Dividends payable

Dividends are included in the financial statements on the date on which they are approved by shareholders and are shown in the Statement of Changes in Equity.

2 Investments at fair value through profit and loss

	2017	2016
(a) Summary of valuation	£'000	£'000
Analysis of closing balance:
UK quoted securities	37,320	35,444
Overseas quoted securities	477,074	437,064
Overseas unquoted securities	9,911	10,858
Total investments	524,305	483,366
(b) Movements during the year
Opening balance of investments, at cost	337,903	343,512
Additions, at cost	120,538	87,844
Disposals, at cost	(93,110)	(93,453)
Cost of investments at 31 December	365,331	337,903
Revaluation of investments to fair value:
Opening balance of capital reserve - investments held	145,463	55,533
Gains on investments held	13,511	89,930
Balance of capital reserve - investments held at 31 December	158,974	145,463
Fair value of investments at 31 December	524,305	483,366
(c) Gains on investments in year (per Income Statement)
Gains on disposal of investments	53,862	38,234
Net foreign exchange gain/(loss)	1,173	(2,912)
Movement on valuation of investments held	13,511	89,929
Gains on investments	68,546	125,251

During the year, the Company incurred transaction costs on purchases totalling in aggregate £122,000 (2016: £153,000) and on disposals totalling in aggregate £103,000 (2016: £163,000). Transaction costs are recorded in the capital column of the Income Statement.

3 Income

		2017	2016
		£'000	£'000
Income from investments
Dividends from UK listed investments		660	611
Dividends from overseas listed investments		7,605	5,749
Total income		8,265	6,360

4 Fees and expenses

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fees	1,083	3,248	4,331	955	2,866	3,821
Secretary and administrator fees	188	-	188	185	-	185
Depository and custody fees	158	-	158	151	-	151
Directors' fees	132	-	132	107	-	107
Directors' other employment costs	11	-	11	13	-	13
Broker retainer	7	-	7	19	-	19
Auditors fees	29	-	29	29	-	29
Association of Investment Companies	20	-	20	21	-	21
Registrar's fees	49	-	49	34	-	34
Marketing fees	58	-	58	52	-	52
FCA and listing fees	39	-	39	25	-	25
Other expenses	67	-	67	95	-	95
	758	-	758	731	-	731
Total expenses	1,841	3,248	5,089	1,686	2,866	4,552

5 Directors' fees

Fees payable to the directors effective 1 April 2017 were: £34,500 to the Chairman, £28,000 to the Chairman of the Audit Committee and £23,000 to the other directors. Fees prior to that were £33,000, £26,500 and £22,000 respectively. There were no other emoluments. Employers' National Insurance upon the fees is included as appropriate in directors' other employment costs disclosed in note 4.

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

6 Finance costs

		2017			2016
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Interest charges		144	435	579	123	365	488
Direct loan costs		-	-	-	5	18	23
Total		144	435	579	128	383	511

7 Taxation

(a) Analysis of charge in the year

		2017			2016
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Overseas taxation		1,136	-	1,136	626	-	626
Taxation		1,136	-	1,136	626	-	626

b) Factors affecting total tax charge for the year:

The effective UK corporation tax rate applicable to the Company for the year is 19.25% (2016: 20.00%). The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an Investment Trust company. The standard rate UK corporation tax rate at 31 December 2017 was 19.00% (2016: 20.00%).

The differences are explained below:

						2017	2016
						£'000	£'000
Total profit before tax per accounts						71,143	126,548
Corporation tax at 19.25% (2016: 20%)						13,695	25,310
Effects of:
Non-taxable UK dividend income						(127)	(122)
Non-taxable overseas dividend income						(1,464)	(1,150)
Movement in unutilised management expenses						979	910
Movement on non-trade relationship deficits						112	102
Gains on investments not taxable						(13,195)	(25,050)
Overseas taxation						1,136	626
Total tax charge for the year						1,136	626

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 £43,587,000 (2016: £37,963,000). 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 17% (2016: 18%) amounts to £7,410,000 (2016: £6,833,000).

8 Return per share

Return per share is based on the net gain on ordinary activities after taxation of £70,007,000 comprising a revenue return of £5,144,000 and a capital return of £64,863,000 (2016: gain of £125,922,000 comprising a revenue return of £3,920,000 and a capital return of £122,002,000) attributable to the weighted average of 182,046,517 (2016: 197,055,871) Ordinary Shares of 10p in issue (excluding Treasury shares) during the year.

9 Dividends

	2017	2016
	£'000	£'000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2016 of 1.95p (2015: 1.45p)	3,530	2,874
Dividends not reflected in the financial statements:
Recommended ordinary dividend for the year ended 31 December 2017 of 2.5p (2016: 1.95p) per share*	4,501	3,540

*If approved at the AGM, the dividend will be paid on 24 May 2018 to shareholders on the register as at the close of business on 27 April 2018.

10 Creditors: Amounts falling due within one year

				2017	2016
				£'000	£'000
Finance costs payable				302	106
Other accrued expenses				879	487
Purchases awaiting settlement				204	414
Total				1,385	1,007

11 Bank loan

			2017	2016
			£'000	£'000
Bank loan
Between two and five years			29,442	30,434

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 2017 loans of US$19,000,000 (2016: US$19,000,000) and £15,392,000 (2016: £15,042,000) 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.

In the opinion of the directors, the fair value of the bank loan is not materially different to its amortised cost.

12 Share capital

			As at 31 December 2017		As at 31 December 2016
				Authorised, issued and fully paid		Authorised, issued and fully paid
			Number	£'000	Number	£'000
Ordinary Shares of 10p:
Opening balance			236,820,604	23,682	253,799,129	25,380
Shares bought back in year			(11,083,249)	(1,108)	(16,978,525)	(1,698)
Closing balance			225,737,355	22,574	236,820,604	23,682

At the year end 45,698,109 (2016: 45,698,109) of the above Ordinary Shares were held in Treasury. The number of shares in issue (excluding shares held in Treasury) as at 31 December 2017 was 180,039,246 Ordinary Shares (2016: 191,122,495).

Ordinary Share buybacks

During the year, the Company bought back for cancellation 11,083,249 (2016: 16,978,525) Ordinary Shares at an aggregate cost of £24,825,000 (2016: £29,391,000).

Other than in respect of shares held in Treasury there are no restrictions on the transfer of Ordinary Shares, nor are there any limitations or special rights associated with the Ordinary Shares.

13 Net asset value per Ordinary Share

Net asset value per Ordinary Share is based on net assets of £506,907,000 (2016: £465,255,000) divided by 180,039,246 (2016: 191,122,495) 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.

14 Related party transactions

Details of the management contract can be found in the Directors' Report in the Annual Report and Accounts.

Fees payable to the Manager are detailed in  the relevant amount outstanding as an accrual at the year end was £371,000 (2016: £354,000). The directors' fees are disclosed in note 5 and the Directors' shareholdings are disclosed in the Directors' Remuneration Implementation Report in the Annual Report and Accounts.

Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information for 2017 is derived from the statutory accounts for 2017, which will be delivered to the registrar of companies.  The statutory accounts for 2016 have been delivered to the registrar of companies.  The auditors have reported on the 2017 and 2016 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 2017 was approved on 28 March 2018.  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 Guidance and Transparency Rules of the FCA.

Annual General Meeting

The Annual General Meeting will be held on 17 May 2018 at 2:00 p.m. at 7^th Floor, 30 Panton Street, London, SW1Y 4AJ

28 March 2018

Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

3rd Floor, Mermaid House, 2 Puddle Dock, London, EC4V 3DB

For further information contact:

Anthony Lee / Ciara McKillop

PraxisIFM Fund Services (UK) Limited

Tel: [phone]

END

 

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