Annual Financial Report

RNS Number : 1811V

Impax Environmental Markets PLC

04 April 2019

 

LEI: 213800RAR6ZDJLZDND86

IMPAX ENVIRONMENTAL MARKETS PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2018

Investment objective

The Company's objective is to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste. Investments are made predominantly in quoted companies which provide, utilise, implement or advise upon technology-based systems, products or services in environmental markets, particularly those of alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management (which includes sustainable food, agriculture and forestry).

Financial information
At 31 December 2018
Net asset value ('NAV') per Ordinary Share	249.6p
Ordinary Share price	253.0p
Ordinary Share price premium to NAV1	1.4%
Net assets	£450.0m
Performance summary2
For the year ended 31 December 2018
	% change
NAV total return per Ordinary Share1	-10.8%
Share price total return per Ordinary Share1	-0.4%
FTSE ET100 Index3	-9.9%
MSCI AC World Index3	-3.8%
1These are alternative performance measures.
2Total returns in sterling for the year to 31 December 2018.
3Source: Bloomberg and FactSet.
Alternative Performance Measures ("APMs")
The disclosures as indicated in footnote 1 above are considered to represent the Company's APMs. Definitions of these APMs and other performance measures used by the Company, together with how these measures have been calculated can be found below.

Chairman's statement

2018 was an interesting, if challenging, year for investors, markets being difficult throughout, but particularly in the fourth quarter.

The resulting effect on Impax Environmental Markets plc ('IEM', or the 'Company') was underperformance against both of its comparative indices, which was disappointing following the run of excellent performance that we have been enjoying.

It was not all bad news, however, the fundamentals underpinning IEM remaining strong. Rising demand for our shares, predominantly from private investors, helped the Company's share price to move from a significant discount to a small premium, which means that the returns for investors - the combination of share price movement and dividends paid - were well ahead of both comparative indices; indeed, the shares now trade generally at a premium to underlying Net Asset Value ('NAV') and we were able to issue shares out of treasury to meet investor demand. The Board's view is that the issues and drivers propelling environmental markets, and the investment potential they offer, remain compelling.

Volatile Markets

Over the course of 2018 (the 'Year'), global equity markets were volatile. The reasons for this included deteriorating trade relationships such as those between China and the USA, and growing concern that interest rates might rise and growth rates decline. In the last three months of the Year global equities fell sharply, culminating in the worst performance during December since the 1980s. Smaller companies (global small caps), core investments for IEM, were particularly vulnerable, significantly underperforming the broader market.

Performance

The turbulent market conditions did no favours to IEM's investment portfolio. The poor performance of smaller companies had a strong negative impact and as a result IEM's NAV total return per Ordinary Share fell by 10.8%, underperforming the MSCI All Country World Index ('MSCI ACWI') by 7%, and modestly underperforming the FTSE Environmental Technologies 100 Index ('FTSE ET100'). As discussed above, IEM's share price delivered returns well ahead of both indices, benefitting from the effect of the shares moving from a significant discount at the start of the Year, to closing at a premium.

IEM's share price total return over the Year (taking account of share price movements and dividends paid) was -0.4%, significantly boosted by the elimination of the discount, and ending the Year at a premium for the first time in ten years. The Manager's Report includes detail on the contributors and detractors to performance.

Investment case

The socio-economic drivers behind the growth of environmental markets gathered pace in 2018. We saw the global controversy surrounding plastics usage escalate further. In January 2018 China, previously the world's biggest recipient of waste materials, banned the importation of 24 categories of waste and recyclates.  As waste piles up in regions around the world the need for solutions grows and Governments are under growing pressure to act.

Companies and Governments introduced strategies to target plastic waste. The European Union ('EU') Parliament, and the EU Council, agreed to put clear restrictions on disposable plastic products like straws and cutlery. The UK Government indicated that by 2022 it would introduce a new tax on all plastics that contain less than 30% recycled materials.

Efforts to reduce CO₂ emissions also made some progress. In December, at the United Nations 24^th Conference of the Parties (COP24) meeting in Poland, the 'Rule Book' was established for the Paris Agreement. It sets out the operational rules governing how the agreement will be implemented to limit temperature increase to 2 degrees Centigrade above pre-industrial levels. China showed leadership by choosing to support similar rules across industrialised and industrialising countries, all of which presents a supportive backdrop for IEM's holdings.

Unquoted investment

Since the Year end, the carrying value of IEM's holding in an unquoted investment has been reduced, with part of that reduction being reflected in the NAV as at 31 December 2018 as a retrospective 'adjusting event'.   In consequence, the audited NAV per share at the Year end in these accounts is 0.6% lower than the unaudited NAV per share published by the Company on 2 January 2019.

Dividend

The Company's net revenue for the Year was £5.7 million (2017: £5.1 million), equivalent to 3.20p (2017: 2.83p) 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 2018 of 3.00p per share (2017: 2.5p). If approved at the AGM on 21 May 2019, the final dividend will be paid on 28 May 2019 to shareholders on the register at the close of business on 26 April 2019. 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.

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 has considerable confidence in our Managers, Impax Asset Management plc, and 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.

Gearing

In September 2018, the Company refinanced its multicurrency revolving credit facility by entering into agreements with Scotiabank for five year fixed rate loans of £15 million and US$20 million.  In addition, a multi-currency revolving credit facility of up to £20 million was agreed, of which £2.5 million is committed and nil was drawn down at the Company's Year end.

As at 31 December 2018, the Company's net gearing was 5.6%.

Premium/discount

The Company's Ordinary Shares traded at a discount to NAV of 8.9% on 1 January 2018 and a premium to NAV of 1.4% on 31 December 2018, having traded at a maximum discount of 9.4% and a maximum premium of 5.2% during the Year. By the close of the Year, IEM had traded at a premium continuously since 21 September 2018 with no buy-backs undertaken during the Year.

Increasing appetite for our investment philosophy, coupled with a growing awareness of IEM prompted by articles in the national press, led to more demand for our shares by investors. This created suitable conditions for the issue out of treasury of shares previously bought back as part of the discount management policy. In December 2018 the Company sold 250,000 Ordinary Shares from treasury at a premium to NAV.

Since then, the Board has made an announcement to reflect a proactive approach to issuance and buy-back in order to maintain the share price, in normal market conditions, close to NAV. There were 45,448,109 Ordinary Shares held in treasury on 31 December 2018, and at the time of writing a further 1,550,000 shares have been issued out of treasury.

Shareholder communications

As permitted by existing regulations on the appointment of auditors, IEM has used the same firm, Ernst & Young, for a number of years. IEM re-appointed the present incumbent following a competitive tender in 2013. At the Company's last AGM a significant number of votes were cast against the re-appointment of the auditor, in line with an emerging view that tenures should be shorter. The Board has consulted investors for feedback and, as a result, IEM has undertaken a tender in respect of the audit services for the year ending 31 December 2019. Following completion of the tender, the Audit Committee and the Board are recommending that shareholders approve the appointment of BDO LLP as Auditor to the Company at the forthcoming AGM. Ernst & Young, who did not participate in the tender, have provided IEM with an excellent service over many years and the Board thanks them for that.

During the Year, we also held a tender for the position of broker to the Company, a position last reviewed several years ago. Unlike the appointment of an auditor, the Board is under no obligation to review or replace the broker at specific intervals. The result of this tender was the unanimous decision of the Board to re-appoint Canaccord Genuity. The ongoing efforts of their investment companies team have played a role in the recent re-rating of our shares and a series of discussions with existing shareholders has been conducted in recent months, as well as with prospective investors, with the aim of further growing IEM through the re-issuance of treasury shares.

The Board

The Directors are committed to a process of regular Board refreshment and have spent time developing a succession plan which looks several years ahead.  The most recent Director to join the Board was Aine Kelly in 2016. Julia Le Blan has indicated that she will wish to stand down at the 2020 AGM, having by that point served on this Board for nine years and this has prompted the need to seek a new Chairman of the Audit Committee, a search for whom is already underway.

Outlook

Whilst in my opinion the investment case for IEM is stronger than ever, 2018 presented our managers with some stiff challenges.  In the circumstances, I feel that the Company weathered the various storms well and it is heartening to see the steady inflow of new shareholders to our register. It is worth remembering that we are operating in a sector which was less familiar to many in the investment world even a decade ago and it is remarkable to see how we have become firmly established in the mainstream in such a short time.

The Board retains its long term conviction in the issues and drivers shaping the development of environmental markets, which we feel were reflected in the shares moving from trading at a discount to a premium in 2018. We find the strong demand for IEM's Ordinary Shares very encouraging, with the updated premium and discount control to maintain the share price close to NAV.

IEM has a high tracking error (the difference in performance of IEM relative to its benchmarks) and in volatile equity markets there are likely to be temporary dislocations. Though the past Year has been unspectacular in terms of investment performance, we have witnessed a number of achievements, not least in becoming one of the few investment trusts which have been able to issue shares out of treasury.

Meanwhile, our longer term performance record remains excellent, our share price and NAV have recovered some ground in the opening months of 2019, and our shareholders are being offered a dividend increase of 20%. The Board joins me in thanking our investment managers for their highly disciplined approach in a financial environment that has been most challenging.

John Scott

Chairman

4 April 2019

Manager's Report

IEM's investment thesis is that portfolios of companies providing cleaner, more efficient products and services across the energy, water, waste, food and agriculture sectors will offer investors strong long term risk-adjusted returns. The Company now has a long record of delivering strong returns for investors; over 10 years the Company's NAV has grown by +168.3%, comparing favourably against its benchmarks the MSCI ACWI (+178.7%) and the FTSE ET100/FTSE ET50 (+69.4%).

IEM underperformed its global comparative index, the MSCI ACWI, in 2018 by 7.0%, thanks in a large part to the global weakness of smaller companies (the breakdown of market capitalisation of the portfolio is shown in the Annual Report and Accounts, and it marginally underperformed (less than 1%) its environmental comparative index, the FTSE ET100.

(For details on IEM's ESG process please see the Annual Report and Accounts.)

Developments and drivers for environmental markets:

Climate change

2018 started with a severe drought in Cape Town and ended with Californian wildfires, highlighting the need for innovation and investment in environmental markets. Evidence linking extreme weather events and climate change appears to grow stronger every year. Morgan Stanley recently estimated that global damage caused by climate-related disasters for the last three years alone stood at around $650 billion. In October, the latest Intergovernmental Panel on Climate Change (IPCC) report suggested that if annual global emissions were maintained at current levels, then damage costs by 2040 could reach $54 trillion. It is hard to digest the size of such figures, nevertheless the implications are clear.

Opportunities for businesses to deliver emission reductions, for example via energy efficiency and renewable energy solutions, and to adapt to changing climate, for example via grid resilience and water infrastructure, are growing.

Circular economy

The traditional economic model is linear, extracting materials with which to produce goods that are then used before being disposed of. The physical effects of climate change, and the focus of consumers and policy makers on plastic pollution, have renewed environmental market focus on the drivers behind the move to a more "circular economy". Over the course of the Year we observed a variety of companies signalling their desire to stop using plastic packaging and adopt strategies to "reduce, reuse and recycle". The Company has exposure to recycling infrastructure, fibre-based packaging and new alternative materials, all of which hold promise in this field.

Trade tensions

Trade frictions between China and the US adversely affected global growth expectations in 2018. IEM's Chinese holdings are more focused on essential domestic spending related to the development of water, rail and natural gas distribution to replace coal, meaning exposure to areas of friction is low, although concerns weighed heavily on the stock market. We have observed how steadfastly China's government has stuck to its infrastructure spending plans to compensate for any destabilisation of economic growth. We will continue to focus on holdings and opportunities that have Chinese domestic supplier strengths and also firms with sufficient pricing power - stemming from competitive positioning - since they will have the ability to pass on tariff-related inflation.

Absolute Performance contributors and detractors

Contributors

The global pressure on companies and policymakers to move away from single-use plastic continued to intensify in 2018. In May, Chinese President Xi Jinping pledged to push the fight against pollution forward. He signalled a desire to fundamentally improve environmental quality standards before 2035. In June, India's Prime Minister Narendra Modi indicated that India will remove all single-use plastics by 2022. European Member States are setting national reduction targets to lower the amount of plastic food containers and drinking cups in circulation and to increase plastic bottle recycling to 90% by 2025. Deposit schemes are currently the most realistic approach to achieving such ambitious targets. Tomra (Waste Technology Equipment, Norway) is the dominant supplier of reverse vending machines and had a strong year.

In previous reports we have highlighted the increased digitalisation of environmental markets and research into this area has led to an investment in PTC (Industrial Energy Efficiency, US), a software developer with a leading market position in product lifecycle management. PTC deploys software to manage the design, manufacturing and maintenance of goods more efficiently. The benefits of this trend in digitising manufacturing processes include greater resource efficiency alongside improving worker safety, cost reductions and increased flexibility. This holding contributed strongly to the Company's performance in 2018.

Mergers and acquisitions played a positive role during the Year. Two companies were exited as a result of acquisitions: Newalta (Hazardous Waste, Canada) and Pure Technologies (Water Infrastructure, Canada).

Performance Contribution analysis

	For year ended			For year ended
MSCI ACWI	31 December 2018		FTSE ET100	31 December 2018
NAV total return	-10.8		NAV total return	-10.8
MSCI ACWI total return	-3.8		FTSE ET100 total return	-9.9
Relative performance	-7.0		Relative performance	-0.9
Analysis of Relative Performance			Analysis of Relative Performance
Portfolio total return	-8.7		Portfolio total return	-8.7
Less benchmark total return	-3.8		Less benchmark total return	-9.9
Portfolio underperformance	-4.9		Portfolio outperformance	1.2
Borrowing:			Borrowing:
Gearing effect	-0.9		Gearing effect	-0.9
Management fee	-0.9		Management fee	-0.9
Other expenses	-0.1		Other expenses	-0.1
Tax	-0.2		Tax	-0.2
Total*	-7.0		Total*	-0.9
*The above analysis contains rounding.

Detractors

Concerns around global growth and volatility in global equity markets in the final three months (last quarter) of 2018 caused a weakness in more indebted stocks. DS Smith (Recycling and Value Added Waste Processing, UK) was marked down, along with other fibre-packaging firms. Welbilt (Sustainable & Efficient Agriculture, US) suffered due to its debt burden and its third quarter results missing sell side analyst expectations, leading to lower guidance on its annual operating margins and earnings. Despite short term market concerns over these companies, our conviction in their medium-term prospects remains and we have retained them in the portfolio.

Following rapid growth in recent years, the light emitting diode ('LED') lighting market has been slowing, as the proportion of LED sales for lighting businesses has matured and the rate of growth in penetration of the building stock has tapered. Slowing growth has driven an increase in competition, resulting in margin pressure for Acuity Brands (Buildings Energy Efficiency, US) and Signify (Buildings Energy Efficiency, Netherlands), formerly known as Philips Lighting. We have consolidated our lighting exposure from three to two names. We nevertheless remain positive about the long-term opportunity for connected lighting technologies.

Unquoted holdings

IEM has one significant holding in an unquoted company named Ensyn Corporation ("Ensyn"), which represented 1.8% of net assets as at 31 December 2018. The Manager received new information in early January 2019 relating to an interpretation of certain regulations by the US Environmental Protection Agency ("EPA"). This interpretation impacted certain Ensyn projects and led the Manager to implement a reduction in valuation, based on a full scenario model, adversely affecting the Company's NAV by 0.6%. The circumstances leading to this reduction existed for a short period during late 2018, and this has therefore been deemed an "adjusting event", i.e. it has been retrospectively applied to the NAV as at 31 December 2018. The value of the holding was reduced further, using the same valuation model, later in January, given the US Government shutdown and its resulting delay in Ensyn's negotiations with the EPA. As of 31 March 2019, the holding represents 1.1% of net assets. Further detail on the impact to valuation from these post balance sheet events is provided in note 18 to the accounts. The Manager continues to see value and potential in Ensyn and is monitoring developments closely to ensure an appropriate valuation in IEM.

Portfolio positioning, valuation and risk

IEM had a well-diversified portfolio of 60 listed holdings at the end of the Year. The portfolio detail and the positioning by sector and region is contained within the Annual Report and Accounts. The structure is consistent with that highlighted in the 2018 Half-Yearly Report. Themes explored in 2018 included sustainable food and agriculture and a focus on bio-chemicals, where synthetic and petro-chemicals are substituted for better performing, lower environmental footprint alternatives (eg. Corbio, Borregaard and Koninklijke DSM). A small number of new positions were taken, the full list of portfolio holdings can be found on our website www.impaxenvironmentalmarkets.co.uk in the About Us/factsheets, documents and videos section.

Our focus was to increase diversification and look for economically defensive businesses. IEM retains its significantly underweight position in North America and is overweight in Europe versus the MSCI ACWI. The weights in various environmental market sectors were not substantially adjusted in 2018. When compared to the FTSE ET100, the portfolio remains underweight in the more volatile and cyclical areas of Energy Efficiency and Renewable & Alternative Energy. In contrast, it is overweight in the more defensive Water Infrastructure & Technology sector and the diversifying Food, Agriculture and Forestry sector.

Outlook

We feel the investment hypothesis is as strong as ever. The global drivers for companies providing environmental solutions remains very compelling, especially in China and the rest of Asia. The behaviour and preferences of consumers, and policy developments, are supportive and evidence of this is already visible in companies' order books. And we are seeing an increasing number of disruptive events, such as electric vehicles and the war on plastic, that point to an accelerating growth trend.

We have had a strong start to 2019, catching up on a significant proportion of the end of 2018's underperformance relative to the MSCI ACWI, but we do think market volatility, as seen at the end of 2018, could continue in 2019.

We expect the changes we have seen in investor sentiment to continue and as a result we expect to see attractive long-term investment opportunities. We see parallels between today and other periods in the past, where market returns across sectors varied substantially. Looking ahead, IEM will continue to choose to be positioned in more defensive businesses relative to the FTSE ET100, with an emphasis on diversification, and will seek to invest in companies with quality management teams delivering sustainable and above market returns.

Impax Asset Management (AIFM) Limited

4 April 2019

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 the performance of global equities in general and small and mid-cap equities in particular. Consequently falls in stock markets are likely to adversely 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 60 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 note 16 to the accounts.

(ii) Environmental Markets

The Company invests in companies operating 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 section, page 24 of 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 relative to the net asset value

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

Risk mitigation

The Board has made a statement on premium/discount control. The Company utilises its powers to buy back the Company's own shares, or to sell shares from treasury, when circumstances are appropriate. The Board monitors the level of discount or premium 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 note 16 to the 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 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 shareholder to sassess the Company's performance, business model and strategy.

For and on behalf of the Board

Julia Le Blan

Director

4 April 2019

 

Income Statement
		Year ended 31 December 2018			Year ended 31 December 2017
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
(Loss)/gains on investments	2	-	(54,053)	(54,053)	-	67,373	67,373
Net foreign exchange (loss)/gain		-	(887)	(887)	-	1,173	1,173
Income	3	9,006	-	9,006	8,265	-	8,265
Investment management fees	4	(1,098)	(3,293)	(4,391)	(1,083)	(3,248)	(4,331)
Other expenses	4	(754)	-	(754)	(758)	-	(758)
(Loss)/profit on ordinary activities before finance costs and taxation		7,154	(58,233)	(51,079)	6,424	65,298	71,722
Finance costs	6	(213)	(638)	(851)	(144)	(435)	(579)
(Loss)/profit on ordinary activities before taxation		6,941	(58,871)	(51,930)	6,280	64,863	71,143
Taxation	7	(1,173)	-	(1,173)	(1,136)	-	(1,136)
(Loss)/profit on ordinary activities after taxation		5,768	(58,871)	(53,103)	5,144	64,863	70,007
Return per Ordinary Share	8	3.20p	(32.69p)	(29.49p)	2.83p	35.63p	38.46p
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".

Balance Sheet
		As at 31 December	As at 31 December
		2018	2017
	Notes	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	2	474,710	524,305
Current assets
Dividend receivable		218	88
Sales awaiting settlement		-	256
Taxation recoverable		-	13
Other debtors		176	18
Cash and cash equivalents		6,481	13,054
		6,875	13,429
Creditors: amounts falling due within one year
Purchases awaiting settlement	10	-	(204)
Other creditors	10	(931)	(1,181)
		(931)	(1,385)
Net current assets		5,944	12,044
Total assets less current liabilities		480,654	536,349
Creditors: amounts falling due after more than one year
Bank loan and credit facility	11	(30,691)	(29,442)
Net assets		449,963	506,907
Capital and reserves: equity
Share capital	12	22,574	22,574
Share premium account		16,035	16,035
Capital redemption reserve		9,877	9,877
Share purchase reserve		96,432	95,772
Capital reserve	13	295,600	354,471
Revenue reserve		9,445	8,178
Shareholders' funds		449,963	506,907
Net assets per Ordinary Share	14	249.58p	281.55p
Approved by the Board of Directors and authorised for issue on 4 April 2019 and signed on their behalf by:
Julia Le Blan
Director
Impax Environmental Market plc incorporated in England with registered number 4348393.

Statement of Changes in Equity
		Share capital	Share premium account	Capital redemption reserve	Share purchase reserve	Capital reserve	Revenue reserve	Total
For the year ended 31 December 2018	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity as at 1 January 2018		22,574	16,035	9,877	95,772	354,471	8,178	506,907
Dividend paid	9	-	-	-	-	-	(4,501)	(4,501)
Share issues from treasury	12	-	-	-	660	-	-	660
Profit for the year		-	-	-	-	(58,871)	5,768	(53,103)
Closing equity as at 31 December 2018		22,574	16,035	9,877	96,432	295,600	9,445	449,963
		Share capital	Share premium account	Capital redemption reserve	Share purchase reserve	Capital reserve	Revenue reserve	Total
Year ended 31 December 2017		£'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
Dividend paid	9	-	-	-	-	-	(3,530)	(3,530)
Share buy backs	12	(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
The Company's distributable reserves consist of the Share purchase reserve, Capital reserve attributable to realised profits and Revenue reserve.

Statement of Cash Flows
		Year ended 31 December 2018	Year ended 31 December 2017
	Notes	£'000	£'000
Operating activities
Return on ordinary activities before finance costs and taxation*		(51,079)	71,722
Less: Tax deducted at source on income from investments		(1,173)	(1,136)
Foreign exchange non cash flow losses		84	(1,342)
Adjustment for losses/(gains) on investments	2	54,053	(67,373)
(Increase)/decrease in other debtors		(275)	112
(Decrease)/increase in other creditors		(41)	392
Net cash flow from operating activities		1,569	2,375
Investing activities
Add: Sale of investments		111,485	146,716
Less: Purchase of investments		(115,891)	(120,748)
Net cash flow (used in)/from investing		(4,406)	25,968
Financing activities
Equity dividends paid	9	(4,501)	(3,530)
(Repayment of)/proceeds from credit facility		(29,297)	350
Proceeds from bank loan		30,462	-
Finance costs paid		(1,060)	(383)
Share issues from treasury	12	660	-
Share buy backs	12	-	(24,825)
Net cash flow used in financing		(3,736)	(28,388)
Decrease in cash		(6,573)	(45)
Opening balance at 1 January		13,054	13,099
Balance at 31 December		6,481	13,054
* Cash inflow from dividends was £8,878,000 (2017: £8,164,000).

The notes form part of these financial statements.

Notes to the Financial Statements

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') including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' 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 and updated in February 2018. 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. 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.

(e) Capital reserves

Gains and losses realised from the sale of investments, changes in fair value arising upon the revaluation of investments that remain in the portfolio, foreign exchanges gains and losses and expenses which are attributable to capital 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. There is no performance fee arrangement with the Manager.

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) Cash and cash equivalents Cash comprises cash and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

(k) 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 note 2.   (l) Dividend payable Final dividends payable to equity shareholders are recognised in the financial statements when they have been approved by shareholders and become a liability of the Company. Interim dividends payable are recognised in the period in which they are paid. The capital and revenue reserve may be used to fund dividend distributions.

(m) Treasury shares Treasury shares are recognised at cost as a deduction from equity shareholders' funds. Subsequent consideration received for the sale of such shares is also recognised in equity, with any difference between the sale proceeds and the original cost being taken to share purchase reserve. No gain or loss is recognised in the financial statements on transactions in treasury shares.

	2 Investments at fair value through profit and loss
											2018				2017
	(a) Summary of valuation										£'000				£'000
	Analysis of closing balance:
	UK quoted securities										41,505				37,320
	Overseas quoted securities										425,318				477,074
	Overseas unquoted securities										7,887				9,911
	Total investments										474,710				524,305
	(b) Movements during the year:
	Opening balance of investments, at cost										365,331				337,903
	Additions, at cost										115,687				120,538
	Disposals, at cost										(79,778)				(93,110)
	Cost of investments at 31 December										401,240				365,331
	Revaluation of investments to fair value:
	Opening balance of capital reserve - investments held										158,974				145,463
	Unrealised (losses)/gains on investments held										(85,504)				13,511
	Balance of capital reserve - investments held at 31 December										73,470				158,974
	Fair value of investments at 31 December										474,710				524,305
	(c) (Losses)/gains on investments in year (per Income Statement)
	Gains on disposal of investments										31,478				53,862
	Net transaction costs										(27)				-
	Unrealised (losses)/gains on investments held										(85,504)				13,511
	(Losses)/gains on investments										(54,053)				67,373
	During the year, the Company incurred transaction costs on purchases totalling in aggregate £111,000 (2017: £122,000) and on disposals totalling in aggregate £73,000 (2017: £103,000). Following MiFID II, the Manager has rebated £74,000 in respect of transaction research costs for the year ended 31 December 2018,  and £83,000 in relation to prior periods. Transaction costs are recorded in the capital column of the Income Statement.
Classification of financial instruments
FRS 102 requires classification of financial instruments with in the fair value hierarchy be determined by reference to the source of inputs used to derive the fair value and the lowest level input that is significant to the fair value measurement as a whole. The classifications and their descriptions are below:
Level 1
The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2
Level 2 investments are holdings in companies with no quoted prices. Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
The classification of the Company's investments held at fair value is detailed in the table below:
			31 December 2018									31 December 2017
		Level 1		Level 2*		Level 3	Total			Level 1			Level 2*		Level 3		Total
		£'000		£'000		£'000	£'000			£'000			£'000		£'000		£'000
Investments at fair value through profit and loss
- Quoted		466,823		-		-	466,823			514,394			-		-		514,394
- Unquoted		-		-		7,887	7,887			-			-		9,911		9,911
		466,823		-		7,887	474,710			514,394			-		9,911		524,305
*Level 2 investments are holdings in companies with no quoted prices.
The movement on the Level 3 unquoted investments during the period is shown below:
						2018				2017
						£'000				£'000
Opening balance						9,911				10,858
Additions during the year						-				-
Disposals during the year						-				-
Valuation adjustments						(2,629)				-
Foreign exchange movement						605				(947)
Closing balance						7,887				9,911
Unquoted investments are valued using relevant financial data available on those investments and applying International Private Equity and Venture Capital guidelines. This includes, where appropriate, consideration of price of recent market transactions, earnings multiples, discounted cash flows, net assets and liquidity discounts. The value of the Company's holding in Ensyn has been valued in US dollars based on a full scenario model prepared by the Manager and translated into sterling using the applicable foreign exchange rate at the Company's year end. The main assumptions are (i) discount rates, (ii) exit values, (iii) exit times, (iv) probabilities of the scenarios. There was a further adjustment to the valuation of level 3 unquoted holdings post year-end, details of the adjustment can be found in note 18. At the year end the Company held 4 unquoted companies of which 3 were valued at nil.

3 Income
	2018	2017
Income from investments	£'000	£'000
Dividends from UK listed investments	793	660
Dividends from overseas listed investments	8,213	7,605
Total income	9,006	8,265

4     Fees and expenses
			2018						2017
			Revenue		Capital		Total		Revenue		Capital		Total
			£'000		£'000		£'000		£'000		£'000		£'000
	Investment management fees		1,098		3,293		4,391		1,083		3,248		4,331
	Secretary and administrator fees		193		-		193		188		-		188
	Depository and custody fees		177		-		177		158		-		158
	Directors' fees		134		-		134		132		-		132
	Directors' other costs		5		-		5		11		-		11
	Broker retainer		53		-		53		7		-		7
	Auditor's fees		28		-		28		29		-		29
	Association of Investment Companies		21		-		21		20		-		20
	Registrar's fees		51		-		51		49		-		49
	Marketing fees		30		-		30		58		-		58
	FCA and listing fees		34		-		34		39		-		39
	Other expenses		28		-		28		67		-		67
			754		-		754		758		-		758
	Total expenses		1,852		3,293		5,145		1,841		3,248		5,089

5     Directors' fees
	Fees payable to the Directors effective 1 April 2018 were: £35,250 to the Chairman, £28,625 to the Chairman of the Audit Committee and £23,500 to the other Directors. Fees prior to that date were £34,500, £28,000 and £23,000 respectively. Employer's National Insurance upon the fees is included as appropriate in Directors' other employment costs under note 4.
6 Finance costs
		2018								2017
			Revenue		Capital		Total			Revenue	Capital	Total
			£'000		£'000		£'000			£'000	£'000	£'000
Interest charges			211		635		846			144	435	579
Direct finance costs			2		3		5			-	-	-
Total			213		638		851			144	435	579

Facility arrangement costs amounting to £65,000 are amortised over the life of the facility.

7     Taxation
	(a) Analysis of charge in the year:
			2018			2017
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
	Overseas taxation		1,173	-	1,173	1,136	-	1,136
	Taxation		1,173	-	1,173	1,136	-	1,136
	(b) Factors affecting total tax charge for the year:
	The effective UK corporation tax rate applicable to the Company for the year is 19.00% (2017: 19.25%). 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 2018 was 19% (2017: 19%).
	The differences are explained below:
							2018	2017
							£'000	£'000
	Total (loss)/profit before tax per accounts						(51,930)	71,143
	Effective corporation tax at 19.00% (2017: 19.25%)						(9,867)	13,695
	Effects of:
	Non-taxable UK dividend income						(151)	(127)
	Non-taxable overseas dividend income						(1,561)	(1,464)
	Movement in unutilised management expenses						978	979
	Movement on non-trade relationship deficits						162	112
	(Gains)/losses on investments not taxable						10,439	(13,195)
	Overseas taxation						1,173	1,136
	Total tax charge for the year						1,173	1,136
	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 £49,483,000 (2017: £43,587,000). 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 17.00% (2017: 17.00%) amounts to £8,400,000 (2017: £7,410,000).

8 Return per share

Return per share is based on the net loss on ordinary activities after taxation of £53,103,000 comprising a revenue gain of £5,768,000 and a capital loss of £58,871,000 (2017: net gain of £70,007,000 comprising a revenue gain of £5,144,000 and a capital gain of £64,863,000) attributable to the weighted average of 180,054,314 (2017: 182,046,517) Ordinary Shares of 10p in issue (excluding Treasury shares) during the year.

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

9 Dividends
	2018	2017
	£'000	£'000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2017 of 2.50p (2016: 1.95p)	4,501	3,530
Dividends not reflected in the financial statements:
Recommended dividend for the year ended 31 December 2018 of 3.0p (2017: 2.50p) per Ordinary Share	5,455	4,501
If approved at the AGM, the dividend will be paid on 28 May 2019 to shareholders on the register as at the close of business on 26 April 2019.

10    Creditors: Amounts falling due within one year
							2018	2017
							£'000	£'000
	Finance costs payable						93	302
	Accrued management fees						709	371
	Other accrued expenses						129	508
	Purchases awaiting settlement						-	204
	Total						931	1,385

11 Bank loan and credit facility
				2018				2017
				£'000				£'000
Bank loan
Credit facility-between one and two years				-				29,442
Bank loans-between two and five years				30,691				-
During the year, the Company terminated the multi-currency revolving credit facility with The Royal Bank of Scotland plc and refinanced by entering into five-year fixed-rate multi-currency USD 20 million and GBP 15 million loans with Scotiabank Europe plc ("Scotiabank"). At the year end, the Company had loans of US$20,000,000 (2017: US$19,000,000) and £15,000,000 (2017: £15,042,000) from the facility. The loans expire on 6 September 2023.
Interest is payable on the loans at the rate of 2.910% per annum in respect of the GBP loan and at the rate of 4.504% per annum in respect of the USD loan.
The Company also has a GBP 20 million multi-currency revolving credit facility with Scotiabank, of which £2.5 million is committed and nil was drawn down at the Company's year end. The facility expires on 6 September 2023.
As at 31 December 2018, the Company's loans outstanding aggregated to £30,691,000, with a breakdown of the loan as follows.
				Loan currency
Currency of loan				amount				£'000
GBP loan				15,000,000				15,000
USD loan				20,000,000				15,691
								30,691
12 Share capital
	As at 31 December 2018						As at 31 December 2017
			Authorised, issued and fully paid								Authorised, issued and fully paid
	Number		£'000				Number				£'000
Ordinary Shares of 10p:
Opening balance	225,737,355		22,574				236,820,604				23,682
Shares bought back in the year	-		-				(11,083,249)				(1,108)
Closing balance	225,737,355		22,574				225,737,355				22,574
At the year end 45,448,109 (2017: 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 2018 was 180,289,246 Ordinary Shares (2017: 180,039,246).
Ordinary Share buybacks and Sales of shares from treasury
During the year, the Company sold 250,000 Ordinary Shares from treasury (2017:  the Company bought back for cancellation 11,083,249) for an aggregate proceeds of £660,000 (2017: cost of £24,825,000).
Since the year end a further 1,550,000 Ordinary Shares have been sold from treasury.
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     Capital reserve
Disposal of investments
						2018				2017
						£'000				£'000
Opening balance						195,498				144,146
Gains on disposal of investments						31,478				53,862
Net transaction costs						(27)				-
Net foreign exchange (loss)/gain						(887)				1,173
Investment management fees charged to capital						(3,293)				(3,248)
Finance costs charged to capital						(638)				(435)
Balance at 31 December						222,131				195,498
Investments held
						2018				2017
						£'000				£'000
Opening balance						158,973				145,462
Movement in revaluation of investments held						(85,504)				13,511
Balance at 31 December						73,469				158,973
Capital reserve balance at 31 December						295,600				354,471

14 Net asset value per Ordinary Share
Net asset value per Ordinary Share is based on net assets of £449,963,000 (2017: £506,907,000) divided by 180,289,246 (2017: 180,039,246) 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.
The below table is a reconciliation between the NAV per Ordinary Share as at 31 December 2018 announced on the London Stock Exchange on 2 January 2019 and the NAV per Ordinary Share as at 31 December 2018 disclosed in these financial statements.
NAV per Ordinary Share as at the financial year end as published on
2 January 2019		251.00p
Revaluation adjustments - Ensyn revaluation		(1.46)p
Other adjustments		0.04p
NAV per share as disclosed in these financial statements		249.58p
15 Related party transactions
Details of the management contract can be found in the Directors' Report contained in the Annual Report and Accounts. Fees payable to the Manager are detailed in note 4; the relevant amount outstanding as an accrual at the year end was £709,000 (2017: £371,000). Since 1 January 2018, the Manager has agreed to rebate commission which relates to research fees to the Company with such amount disclosed in note 2. 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.
The Manager's group has a holding in Ensyn. The Manager has procedures in place to mitigate any conflicts of interest from this investment.

16 Financial risk management

As an investment trust, the Company invests in equities and un-quoted equities for the long-term so as to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste, as stated in the Company's investment objective. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for dividends. These risks, include market risk (comprising currency risk, interest rate risk, and other price risk), credit risk and liquidity risk and the Directors' approach to the management of them are set out below. These metrics are monitored by the AIFM. The objectives, policies and processes for managing the risks, and the methods used to measure the risks, are set out below.
Market risks
The potential market risks are (i) currency risk, (ii) interest rate risk, and (iii) other price risk. Each is considered in turn below.
(i) Currency risk
The Company invests in global equity markets and therefore is exposed to currency risk as it affects the value of the shares in the base currency. These currency exposures are not hedged. The Manager monitors currency exposure as part of its investment process. Currency exposures for the Company as at 31 December 2018 are detailed in the table at the end of this note.
Currency sensitivity
The below table shows the strengthening/(weakening) of sterling against the local currencies over the financial year for the Company's financial assets and liabilities held at 31 December 2018.
															2018			2017
															%change1			%change1
Australian Dollar															(4.5%)			1.2%
Canadian Dollar															(2.5%)			2.0%
Danish Krone															0.8%			(3.8%)
Euro															1.0%			(3.9%)
Hong Kong Dollar															5.5%			10.4%
Indian Rupee															(2.8%)			3.0%
Japanese Yen															8.2%			5.7%
Korean Won															1.7%			(3.1%)
Norwegian Krone															0.4%			4.0%
Swedish Krona															(2.3%)			(1.4%)
Swiss Franc															4.9%			4.8%
Taiwanese Dollar															2.8%			0.7%
Thai Baht															6.5%			(0.4%)
US Dollar															5.8%			9.6%
1Percentage change of Sterling against local currency from 1 January 2018 to 31 December 2018.
Based on the financial assets and liabilities at 31 December 2018 and all other things being equal, if sterling had strengthened or weakened against the local currencies by 10%, the absolute impact on the profit after taxation for the year ended 31 December 2018 and the Company's net assets at 31 December 2018 would have been as follows:
															2018			2017
															Potential effect			Potential effect
															£'000			£'000
Australian Dollar															1,497			1,542
Canadian Dollar															314			565
Danish Krone															425			368
Euro															9,359			9,677
Hong Kong Dollar															3,229			3,919
Indian Rupee															818			1,018
Japanese Yen															1,431			1,814
Korean Won															1,046			1,015
Norwegian Krone															1,454			1,269
Swedish Krona															1,005			855
Swiss Franc															592			1,027
Taiwanese Dollar															1,275			1,223
Thai Baht															739			705
US Dollar															20,834			23,701
Total															44,018			48,698
(ii) Interest rate risk
With the exception of cash, no significant interest rate risks arise in respect of any current asset. The Company, generally, does not hold significant cash balances, with short-term borrowings being used when required. Cash held as a current asset is sterling and is held at the variable interest rates of the custodian. Movement in interest rates will not materially affect the Company's income and as such no sensitivity analysis is required.
The Company had two bank loans in place during the year. The loan interest on the current loans is based on a fixed rate as such no sensitivity analysis is required.
(iii) Other price risk
The principal price risk for the Company is the price volatility of shares that are owned by the Company. The Company is well diversified across different sub-sectors and geographies and has a volatility level similar to global stock market indices such as the MSCI ACWI Index to which the Company has had an  annualised tracking error of 7.0% over the ten year period to 31 December 2018. The historic 3-year (annualised) volatility of the Company to 31 December 2018 is 12.1%.
At the year end the Company held investments with an aggregate market value of £474,710,000 (2017: £524,305,000). All other things being equal, the effect of a 10% increase or decrease in the share prices of the investments held at the year end would have been an increase or decrease of £47,471,000 (2017: £52,430,500) in the profit after taxation for the year ended 31 December 2018 and the Company's net assets at 31 December 2018.
Overall sensitivity
This model uses the Parametric VaR methodology to estimate the maximum expected loss from the portfolio held at 31 December 2018 over 1 day, 5 day, 10 day and 21 day at a particular confidence level (1 in 20 and 1 in 100 possible outcomes). The results of the analysis are shown below.
			2018 Expected as percentage at limit								2017 Expected as percentage at limit
				1 in 20 (95%)				1 in 100 (99%)				1 in 20 (95%)				1 in 100 (99%)
1 day return				1.19				1.68				1.0				1.4
5 day return				2.65				3.75				2.2				3.1
10 day return				3.75				5.30				3.1				4.4
21 day return				3.56				7.87				4.6				6.5
The above analysis has been based on the following main assumptions:
• The distribution of share price returns will be the same in the future as they were in the past.
• The portfolio weightings will remain as they were at 31 December 2018.
The above results suggest, for example, that there is a 5% or less chance of the NAV falling by 2.65% or more over a 5 day period. Similarly, there is a 1% or less chance of the NAV falling by 1.68% or more on any given day.
Credit risks
BNP Paribas Securities Services (the 'Depositary') has been appointed as custodian and depositary to the Company.
Cash at bank at 31 December 2018 included £6,365,000 (2017: £12,859,000) held in its bank accounts at the Depositary. The Company also held £116,000 (2017: 195,000) in its accounts with The Royal Bank of Scotland plc. The Board has established guidelines that, under normal circumstances, the maximum level of cash to be held at any one bank should be the lower of i) 5% of the Company's net assets and ii) £15 million. These are guidelines and there may be instances when this amount is exceeded for short periods of time.
Substantially all of the assets of the Company at the year end were held by the Depositary or sub-custodians of the Depositary. Bankruptcy or insolvency of the Depositary or its sub-custodians may cause the Company's rights with respect to securities held by the Depositary to be delayed or limited. The Depositary segregates the Company's assets from its own assets and only uses sub-custodians on its approved list of sub-custodians. At the year end, the Depository held £466,823,000 in respect of quoted investments. The credit rating of Depositary was reviewed at the time of appointment and is reviewed on a regular basis by the Manager and/or the Board.
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be low as trading is almost always done on a delivery versus payment basis.
There is credit risk on dividends receivable during the time between recognition of the income entitlement and actual receipt of dividend.
Liquidity risks
The Company invests in a range of global equities with different market capitalisations and liquidities and therefore needs to be conscious of liquidity risk. The Manager monitors the liquidity risk by carrying out a 'Maturity Analysis' of the Company's listed equities based on the 30 Day Average Liquidities of each investment and assuming 15% of the daily traded volume.
As shown in the quantitative analysis below, on 31 December 2018, 4.2% of the portfolio by value (excluding unquoted investments) might have taken more than three months to be realised.
Quantitative disclosures
As described above, the Manager has carried out a maturity analysis of the Company's quoted investments at 31 December 2018 and the results for different time bands are reported as follows:
Percentage of portfolio by value that could be liquidated in one week																	72.0%
Percentage of portfolio by value that could be liquidated in one month																	91.5%
Percentage of portfolio by value that could be liquidated in three months																	95.8%
Percentage of portfolio by value that could be liquidated in one year																	97.8%
The Company may invest up to 10% of its net assets into pre-IPO investments which are possible candidates for flotation. At the year end the Company held investments in 4 unquoted companies with an aggregate total value of £7,887,000 (2017: £9,911,000); these investments have been valued at fair value at the year end.
Financial liabilities by maturity at the year end are shown below:
															2018			2017
															£'000			£'000
Less than one year															1,908			30,827
Between one and five years*															34,104			-
															36,012			30,827
*Bank loans.
Financial assets and liabilities
All liabilities carrying amount approximates fair value.
The Company's financial assets and liabilities at 31 December 2018 comprised:
						2018							2017
						Interest bearing			Non-interest bearing		Total		Interest bearing		Non-interest bearing			Total
						£'000			£'000		£'000		£'000		£'000			£'000
Investments
Australian Dollar						-			14,968		14,968		-		15,416			15,416
Canadian Dollar						-			3,139		3,139		-		5,653			5,653
Danish Krone						-			4,254		4,254		-		3,675			3,675
Euro						-			93,593		93,593		-		96,772			96,772
Hong Kong Dollar						-			32,291		32,291		-		39,193			39,193
Indian Rupee						-			8,179		8,179		-		10,180			10,180
Japanese Yen						-			14,310		14,310		-		18,141			18,141
Korean Won						-			10,462		10,462		-		10,150			10,150
Norwegian Krone						-			14,539		14,539		-		12,689			12,689
Sterling						-			34,537		34,537		-		37,320			37,320
Swedish Krona						-			10,050		10,050		-		8,554			8,554
Swiss Franc						-			5,918		5,918		-		10,268			10,268
Taiwanese Dollar						-			12,749		12,749		-		12,232			12,232
Thai Baht						-			7,386		7,386		-		7,054			7,054
US Dollar						-			208,335		208,335		-		237,008			237,008
						-			474,710		474,710		-		524,305			524,305
Cash at bank
Floating rate - £ sterling						6,481			-		6,481		13,054		-			13,054
Short term debtors						-			394		394		-		375			375
Short term creditors						-			(931)		(931)		-		(1,385)			(1,385)
Long term creditors						(30,691)			-		(30,691)		(29,442)		-			(29,442)
						(24,210)			474,173		449,963		(16,388)		523,295			506,907
Capital management
The Company considers its capital to consist of its share capital of Ordinary Shares of 10p each, its distributable reserves and its bank loan.
At 31 December 2018 there were 225,737,355 Ordinary Shares in issue (of these shares 45,448,109 were held in Treasury at the year end). (2017: 225,737,355 Ordinary Shares were in issue of these shares 45,698,109 were held in Treasury.)
The Company has a stated discount control policy. The Manager and the Company's broker monitor the demand for the Company's shares and the Directors review the position at Board meetings. Further details on share issues during the year and the Company's policies for issuing further shares and buying back shares (including the Company's discount control policy) can be found in the Directors' Report.
The Company did not buy back shares during the year (2017: The Company bought back 11,083,249 Ordinary Shares).
Use of distributable reserves is disclosed in note 17.
The Company's policy on borrowings is detailed in the Directors' Report. The Company does not have any externally imposed capital requirements.

17 Distributable reserves

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

The Company currently pays dividends from the Revenue reserve. Share buybacks are funded from the Share purchase reserve.

18 Post Balance sheet events
There have been two post balance events since 31 December 2018 reducing the valuation of the Company's holding in Ensyn. Part of that reduction has been reflected in the NAV as at 31 December 2018 in this Annual Report as an adjusting event (see note 2 page 42).The reason for this adjustment is also explained in more detail in the Manager's report. In addition, a further reduction of £1.9 million was made to the NAV on 18 January 2019 to reflect the valuation impact of Ensyn's circumstances at that date. These events are outlined in the table below. £'000 Ensyn valuation at 1 January 2018 9,911 Foreign exchange movement to 31 December 2018 605 Ensyn valuation at 31 December 2018 prior to adjusting event 10,516 First write down on 9 January 2019 (adjusting event) (2,629) Ensyn valuation at 31 December 2018 after adjusting event 7,887 Second write down on 18 January 2019 (non-adjusting event) (1,873) Foreign exchange movement from 1 Jan 2019 to 31 Mar 2019 (119) Ensyn valuation at 31 March 2019 5,895
ALTERNATIVE PERFORMANCE MEASURES
Discount
The amount, expressed as a percentage, by which the share price is less that the Net Asset Value per Ordinary Share. There is no calculation of discount shown as the Company's Ordinary Shares were trading at a premium at the year end.
Gearing
A way to magnify income and capital returns, but which can also magnify losses. A bank loan is a common method of gearing.
						As at 31 December 2018
Total assets less cash/cash equivalents (£'000)		a				475,104
Net assets (£'000)		b				449,963
Gearing (net)		(a÷b)-1				5.6%
Leverage
Under the Alternative Investment Fund Managers Directive ("AIFMD"), leverage is any method by which the exposure of an Alternative Investment Fund ("AIF") is increased through borrowing of cash or securities or leverage embedded in derivative positions. Under AIFMD, leverage is broadly similar to gearing, but is expressed as a ratio between the assets (excluding borrowings) and the net assets (after taking account of borrowing). Under the gross method, exposure represents the sum of the Company's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other.
Ongoing charges
A measure, expressed as a percentage of average net assets, of the regular, recurring annual costs of running an investment company.
For the year ended 31 December 2018
Average NAV (£'000)		a				496,369
Annualised expenses (£'000)		b				5,145
Ongoing charges		(b÷a)-1				1.04%
Premium
The amount, expressed as a percentage, by which the share price is more than the Net Asset Value per share.
						As at 31 December 2018
NAV per Ordinary Share (p)		a				249.58
Share price (p)		b				253.00
Premium		(b-a)÷a				1.4%
Total return
A measure of performance that includes both income and capital returns. This takes into account capital gains and reinvestment of dividends paid out by the Company into its Ordinary Shares on the ex-dividend date.
For the year ended 31 December 2018				Share price		NAV
Opening at 1 January 2018 (p)	a			256.50		281.55
Closing at 31 December 2018 (p)	b			253.00		249.58
Price movement (b÷a)-1	c			-1.4%		-11.4%
Dividend reinvestment	d			1.0%		0.6%
Total return	(c+d)			-0.4%		-10.8%

Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information for 2018 is derived from the statutory accounts for 2018, which will be delivered to the registrar of companies.  The statutory accounts for 2017 have been delivered to the registrar of companies.  The auditors have reported on the 2018 and 2017 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 and Accounts for the year ended 31 December 2018 was approved on 4 April 2019.  It will be made available on the Company's website at www.impaxenvironmentalmarkets.co.uk.

The Annual Report and Accounts 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 21 May 2019 at 2:00 p.m. at the office of Impax Asset Management Limited, 7^th Floor, 30 Panton Street, London, SW1Y 4AJ

4 April 2019

Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

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

Tel: [phone]

 

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