Final Results

RNS Number : 1301E

Impax Environmental Markets PLC

01 April 2011

 



IMPAX ENVIRONMENTAL MARKETS PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2010

HIGHLIGHTS OF THE YEAR

·     Further expansion of net assets (up 15.1% to £453.4m)

·     NAV per share increased by 12.2% over the year

·     Strong five-year investment performance sustained

-      NAV (total return) per share up 56.4%

-      MSCI World Index (net total return) up 23.6%

·     Strengthening drivers of environmental markets

-      Energy efficiency legislation in the US, the European Union and China

-      Water sector policy accelerating following widespread floods and droughts

-      High and rising commodity prices, particularly oil

-      Damage to Fukushima plant in Japan post year end has led to further investment interest in environmentally friendly energy

·    Outstanding warrants were standing at a 19% premium at the final subscription date and fully 
subscribed

·     Appointment of 2 new board directors post year end

FINANCIAL INFORMATION

	At 31 December 2010	At 31 December 2009	% change
Net assets	£453.4m	£393.8m	+15.1%
Number of Ordinary Shares in issue2	317,800,336	304,936,283	+4.2%
Net asset value ("NAV") per Ordinary Share	142.7p	127.2p1	+12.2%
NAV per Ordinary Share (excluding current year net revenue)	141.8p	126.5p1	+12.1%
MSCI World Index3 (sterling)			+13.0%
MSCI World Small Cap Index3 (sterling)			+28.3%
Ordinary Share price (mid-market)	129.8p	119.1p	+9.0%
Ordinary Share price discount to NAV	(9.0%)	(6.4%)	n/a

¹ Diluted for 18,666,085 warrants in issue at 31 December 2009.  All of these warrants were subsequently exercised during June 2010.

² Excluding shares held in treasury.

³ Capital return

CHAIRMAN'S STATEMENT

After a volatile first six months, Impax Environmental Markets plc ("IEM" or the "Company") ended 2010 strongly to deliver a creditable net asset value ("NAV") return over the year as a whole.  Against a backdrop of improving economic conditions, the Company benefited from its exposure to industrial companies in developed markets, businesses serving demand for clean products and services in Asia and rising commodity prices. 

Energy efficiency markets were notably buoyant during the year as many governments introduced measures to curb energy use in the face of rising oil prices and mounting concerns over energy security and climate change.  In contrast, companies active in the renewable energy sector generally disappointed shareholders as the Spanish government announced retrospective reductions in solar power tariffs, prompting concerns that other countries may follow suit.

Investment Performance

During the year, the Company's net asset value per Ordinary Share (taking into account the dilution effect of the warrants in issue at 31 December 2009) increased from 127.2p to 142.7p, a rise of 12.2%.  The share price rose 9.0% from 119.1p to 129.8p.  Over the same period, the MSCI World and the MSCI World Small Cap Indices (capital return priced in Pounds Sterling) rose by 13.0% and 28.3% respectively. We have traditionally compared our performance against the MSCI World indices. During the past year, companies involved in environmental markets have generally performed less well than the MSCI World Small Cap index.  The Company's five year performance track record remains compelling.  During the five years to 31 December 2010, the NAV of IEM plus dividends paid returned 56.4% compared to net total returns in Sterling terms of 23.6% for the MSCI World Index and 36.8% for the MSCI World Small Cap Index.

The Company's investments in six unquoted companies accounted for 4% of NAV at the end of the year, approximately the same proportion as at the end of 2009.  Since the end of the year, the valuation of two unquoted holdings has been written down to reflect specific events that are discussed in the Manager's Report.

Continuation Vote

In May 2010, the first continuation vote required by the Company's Articles of Association was passed by shareholders at the Company's Annual General Meeting ("AGM").  Henceforth, the Articles of Association require a continuation vote to be proposed at every third AGM of the Company, the next such vote being in 2013.

Discount

During the year under review, the Company's Ordinary Shares traded at an average discount to net asset value ("NAV") of 9.9%.  The Board responded to widening of the discount by buying-in an aggregate of 5,802,032 of the Company's own Ordinary Shares at an average discount of 11.4%.  The Ordinary Shares ended the year at a discount to NAV of 9.0%.  The Board will continue to exercise its powers to buy back the Company's own shares when it considers the circumstances to be appropriate.

Warrants

As reported in the Half-yearly Financial Report, the final subscription of warrants was completed during June 2010. As a result 18,666,085 new Ordinary Shares were issued at a subscription price of 96p per Ordinary Share. The mid-market price of the Ordinary Shares at the close of business on the final subscription date of 15 June 2010 was 114.5p, representing a 19.2% premium to the subscription price.

Dividend

The Company's net revenue return for the year was £2.6 million.  As a result, the directors are recommending an unchanged final dividend for the year ended 31 December 2010 of 0.75p per share.  If approved at the Company's AGM, this dividend will be paid on 17 May 2011 to shareholders on the register as at the close of business on 15 April 2011.  As the primary objective of the Company is capital growth, it should not be assumed that this level of dividend will be paid in future years.

Board of Directors

The Company was launched in February 2002, when four of the five directors serving during the year under review were appointed.  During 2010, the Company's Nominations Committee conducted a review of the composition of the Board and it was agreed that it was an appropriate time to appoint two new directors.

Following completion of a search, Julia Le Blan and William Rickett were appointed to the Board on 27 January 2011.  The new directors bring a strong set of skills and breadth of experience to the Board.  Julia was a tax partner at Deloitte from 1990 until her retirement in 2009; and William was Director General, (Energy) in the Department of Energy & Climate Change and chairman of the Governing Board of the International Energy Agency until October 2009.  Bill Brown will retire at the forthcoming AGM and will not stand for re-election.  My Board colleagues and I would like to thank Bill for his valuable input and service since the Company's formation and we wish him every success for the future.

The directors have determined that, in line with current best practice, all directors of the Company will stand for re-election at the forthcoming AGM and at every AGM thereafter.

Current Status and Outlook

The start to 2011 has been challenging for the Company, with positive performance from many of its largest holdings offset by weakness in Asia and in companies unable to pass on rising costs to their customers.  As at 25 March 2011, the NAV had fallen 0.6% since the start of the year, while the share price had fallen by 5.3%.  The MSCI World Index (capital return in Pounds Sterling) had risen 0.8% over the same period. 

At the time of writing, several geo-political events are drawing attention back towards environmental markets, with elevated political instability in the Middle East and North Africa renewing governments' focus on energy security and the need to reduce reliance on imported oil.  Furthermore, the unfolding situation at the Fukushima nuclear power plant in Japan has led to a renewed debate about the long term future of nuclear power.  It is too early to accurately assess the long term impact of these events, although they are undoubtedly positive for both the renewable energy and energy efficiency sectors, both of which are performing well.  With a current price earnings ratio of 16x, the valuation of the IEM's portfolio remains at the bottom end of the historical range of 16-22x.  Furthermore, the earnings of the Company's holdings are expected to grow at 25 per cent over the next 12 months (on average).  Therefore, the Manager and the Board continue to believe that IEM offers an attractive opportunity for investors.

Richard Bernays

1 April 2011

MANAGER'S REPORT

Following the global financial crisis of 2007 and 2008, the last two years have been particularly challenging for investors charged with interpreting rapidly changing macro-economic fundamentals.  Investing in environmental markets has been no different, with these complexities compounded by significant developments in government policy affecting the sector.

In this context, although IEM marginally under-performed the MSCI World Index during 2010, we were encouraged by the year's result, which was significantly ahead of both the peer group and the FTSE ET50 Index, which was down 2.3 per cent for the year¹.

Drivers of Environmental Markets in 2010

Environmental policy and regulation remained a key driver for the Company, as governments sought to improve the efficient use of resources, reduce geopolitical supply risks and lower the environmental impact of economic growth.  The Asia-Pacific region saw ongoing implementation of new policies, as governments became increasingly concerned about the resource, infrastructure and environmental challenges faced by the region.  However, investors were unnerved by statements from some European governments concerning retrospective changes to subsidies for renewable energy, and by the failure of the US government to progress material environmental policy in advance of the mid-term elections.

¹ The FTSE ET50 Index comprises the 50 largest stocks in the universe of stocks that the Company can invest in.

Signs of economic recovery were positive for the Company during 2010.  Rising commodity prices, particularly for oil, paper and metals bolstered margins in energy efficiency and recycling markets, while anticipation of a recovery in construction activity also provided support, in particular for water infrastructure and buildings energy efficiency holdings.  Finally, the superior growth of environmental markets has proved to be attractive to corporate as well as to private equity buyers.  In this context, three companies held by IEM were taken over during 2010, and, as balance sheets of key consolidators are restored, we expect more corporate activity in 2011.

Alternative Energy and Energy Efficiency (42% portfolio weighting at 31 December 2010)

(i) Renewable and Alternative Energy ("RAE") - 17% weighting

The RAE sector continued to be weak during 2010.  Power markets provided a challenging backdrop, with lower demand and increasing supply of gas leading to pressure on power prices.  Regulatory uncertainty and overcapacity also contributed to negative performance.

In the solar sector, several European governments announced plans to reduce subsidies for new projects in line with falling equipment supply costs.  However, the Spanish government, which, unusually, passes the subsidy burden to the taxpayer rather than to the consumer, took the unprecedented step of applying retrospective changes to subsidies awarded in 2008.  Investors worried that other countries could follow suit, and there was a widespread sell-off of solar stocks such as Sunpower (US).  In contrast, Asian solar companies outperformed in challenging markets due to the cost advantages of manufacturing in the region.  Notable beneficiaries included Renesola and Trina Solar (both China).  Nevertheless, we believe the outlook for the solar sector remains challenging, with a risk of oversupply and consequent pressure on margins.

In the wind sector, the lack of progress in developing new Federal renewable energy targets in the US, weak demand for power, reduced utility capital expenditure and industry overcapacity contributed to sluggish market growth.  This negatively impacted both original equipment manufacturers ("OEMs") such as Vestas and Gamesa (wind turbines, Denmark and Spain) and independent power producers ("IPPs") such as EDP Renovaveis (Portugal).  Although we believe the long term investment proposition for wind remains intact, we have consolidated the Company's holdings in this area and have shifted the focus in favour of IPPs, which we believe are better placed to take advantage of current market circumstances.  We continue to closely monitor the RAE sector with a view to increasing our exposure as the sector recovers.

(ii) Energy Efficiency ("EE") - 25% weighting

Benefiting from rising oil prices and new government policy, energy efficiency generated the strongest sub-sector performance in 2010.  The most notable development in this area was China's latest Five Year Plan, which singled out energy efficiency as a key area for strategic investment.  In December, the UK introduced an Energy Bill with a focus on energy efficiency, including an innovative scheme known as the "Green Deal," which will provide attractive finance to support domestic energy efficiency investments. 

The EE sector also benefited from a strong recovery in industrial activity and an anticipated recovery in construction activity. This led to strong performance by industrial energy efficiency holdings such as LEM (power electronics, Switzerland) and Regal Beloit (electric motors, US), as well as buildings energy efficiency holdings such as Nibe (heat pumps, Sweden).  Increasing traction of LED technology in lighting applications led to strong performance of Dialight (LED, UK).  As noted in the Half-yearly Financial Report, M&A activity made a positive contribution to performance, with Emerson acquiring Chloride (uninterruptible power supply, UK).

Waste Technologies and Resource Management (32% portfolio weighting at 31 December 2010)

(i) Waste Management & Technologies ("WMT") - 27% weighting

The WMT sector generally performed well during 2010, with mixed results at the stock level.

Under the umbrella of the European Union's Landfill Directive, the UK announced further increases to its landfill tax escalator, driving waste volumes to higher value disposal solutions; in addition, France made further progress in rolling out its five-year plan, "Grenelle Environnement," with a new set of stringent regulations expected to lead to further closures of non-compliant waste facilities, benefiting Séché Environnement (waste management, France). 

The US hazardous waste segment generated strong performance, partly reflecting upgrades following the oil spill in the Gulf of Mexico, but also reflecting the strong market position and consequent pricing power of key holdings Stericycle (medical waste, US) and Clean Harbors (hazardous waste, US).  Separately, the Environmental Protection Agency (EPA) announced proposals for rules that would designate coal combustion ash as a hazardous waste; if adopted, this would increase opportunities for Headwaters (recycled materials, United States).

The value added waste processing sub-sector was also strong, with high commodity prices and increased use of recycled parts leading to strong performance of LKQ (auto parts recycling, US).  Rising commodity prices and continued industrial recovery also benefited Newalta (industrial waste recycling, Canada). 

The diversified waste management segment was lack-lustre, due to continued uncertainty around the pace of economic growth and resulting waste volumes, and Lassila & Tikanoja (waste management, Finland) and Shanks (waste management, UK), were consequently weak.

(ii) Environmental Support Services ("ESS") - 5% weighting

We remain positive on the ESS sector, in particular on environmental consultants on the basis of compelling valuations and earnings that are showing early signs of recovery after three years of downgrades.  Nevertheless, budget constraints in both the public and private sectors led to weak overall performance in this sector during in 2010.  Elsewhere in this sub-sector, uncertainty surrounding the carbon credit markets and carbon pricing following the UN Cancun conference in December 2010 impacted portfolio holding Camco (carbon consultancy, China). 

Water Treatment and Pollution Control (26% portfolio weighting at 31 December 2010)

(i) Water Infrastructure & Technologies ("WIT") -20% weighting

Water scarcity remains a global theme, with increasingly uneven water distribution exacerbated by extreme weather patterns in 2010, including droughts in the US and China and flooding in Pakistan and Australia.  Investment in the sector continues to be strong with China's 12^th Five Year Plan aiming to double water infrastructure investments to a total of RMB 4 trillion over the next 10 years. Additionally, in the US the EPA recently issued a Clean Water and Drinking Water Infrastructure Sustainability Policy with the goal of increasing the sustainability of water and wastewater infrastructure in the United States.

Water treatment equipment companies performed strongly, with Nalco (water treatment chemicals, US) benefiting from the clean-up of the Gulf of Mexico oil spill and demonstrating strong organic growth.  Pall Corporation (water filtration, US) also had a good year, delivering well against its strategic plan and benefiting from takeover speculation. 

Water infrastructure companies saw mixed performance in 2010.  Companies with value added products and strong market positions, such as Geberit (Switzerland), performed well in what are still challenging construction markets.  Companies with commoditised products and limited pricing power fared less well, including Mueller Water (US).  M&A activity was also a key theme in the sector, with the takeover of Spice (utility services, UK) by a private equity fund.

(ii) Pollution Control ("PC") - 6% weighting

The PC segment continued to perform well, with policy makers continuing to set aggressive goals for emissions reduction.  The European Commission called for a 60% cut in CO₂ emissions from transport by 2050, while in the US the EPA is moving to regulate CO₂ under the Clean Air Act, albeit against strong opposition.

M&A activity was also a key driver of performance in this sub-sector, for example as Dionex (environmental testing, US) was approached by Thermo Fisher in the US.  Clarcor (engine filtration, US) performed well due to its exposure to the recovering automotive industry and status as a possible takeover target.  Companies such as Horiba (testing and monitoring, Japan), that were able to quickly satisfy orders from customers expanding their manufacturing capacity, also contributed to performance.

Portfolio Activity and Current Structure (excluding unquoted companies)

The Company started the year with 84 listed companies.  Since that time we have sold out of 12 companies and invested in 6 new companies.  As a result the Company held a total of 78 listed companies as at 31 December 2010.

We continue to focus on profitable companies, which represented 94% of the portfolio at year end.  As highlighted above, the portfolio remains diversified by sub-sector.  At year end, 3% of the portfolio was invested in micro caps with a market capitalisation of less than £100 million, 49% in companies between £100 million and £1 billion and 44% in companies above £1 billion.  The median market cap was £504 million and the weighted average £1.4bn.

The Company has systematically increased its exposure to Asia-Pacific markets over the last two years in order to take advantage of superior growth opportunities in this region, and exposure to this region now stands at 23%.  The remaining funds are invested 39% in Europe and 38% in North America.

Unquoted Companies

At 31 December 2010, the value of the Company's investments in unquoted companies stood at £16.6 million, representing 4% of the portfolio.  The tentative signs of improvement in the financing markets in late 2009 were not sustained, and the year continued to present challenging conditions for private companies seeking new funds, whether debt or equity.  Consequently, during the year, we believed it was prudent to reduce the value of the unlisted portfolio by a net £1.6 million.

We continued to work with other shareholders to support our portfolio holdings, making five incremental investments totaling £1.9 million.  Each investment provided essential funding to support business development and thereby raise the prospects for a successful exit when market circumstances allow.

Following the end of the period, further net aggregate write downs of £3.5 million have been made in response to specific events post the year end at two companies: fundraising at a discounted price by Nordic and an incident at one of Sterecycle's facilities.  We are not currently intending to add any new unquoted companies to the IEM portfolio.

Outlook for 2011

As highlighted in the Chairman's Statement, recent international events have further reinforced several of the drivers behind environmental markets, and we are confident about the prospects for the portfolio, particularly in light of the current valuation.  We continue to favour energy efficiency stocks as well as those in the water, pollution control, waste and support services sub-sectors.  Although we are optimistic about the longer term prospects for renewable energy, we do not yet see sufficient positive catalysts to justify building up the Company's exposure to this sector.

The Company's portfolio valuation continues to be at the lower end of the normal historical range and is considered attractive in the light of accelerating earnings and the likely additional contribution from continued M&A activity.  We will continue to post monthly updates on sector news and on the Company's performance at www.impax.co.uk.

Impax Asset Management Limited

1 April 2011

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the principal risks and uncertainties faced by the Company fall into the following main categories.

(i) Market risks

Price movements of the Company's investments are highly correlated to performance of global equities in general and small and mid cap equities in particular. Consequently falls in stock markets are likely to negatively affect the performance of the Company's investments.

The Company invests in companies with small market capitalisations, which are likely to be subject to higher valuation uncertainties and liquidity risks than larger capitalisation securities.  The Company also invests in unquoted securities which generally have higher valuation uncertainties and liquidity risks than securities listed or traded on a regulated market.

The Company invests in securities which are not denominated or quoted in sterling. Movements of exchange rates between sterling and other currencies in which the Company's investments are denominated may have an unfavourable effect on the return in the investments made by the Company.

There are inherent risks involved in stock selection.  The Investment 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 84 companies. The Company will not normally hedge against foreign currency movements affecting the value of its investments, but the Manager takes account of this risk when making investment decisions. 

(ii) Environmental Markets

The Company invests in companies in Environmental Markets.  Such companies carry risks that government liberalisation may not occur as expected, costs of technology may not fall, capital spending by their customers is reduced or deferred and their products or services are not adopted.

(iii) Corporate governance and internal control risks

The main risk areas are poor allocation of the Company's assets by the Investment Manager, poor governance by the Board and poor compliance or administration including the loss of investment trust status.  These factors could potentially result in unacceptable returns for shareholders.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

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

·      select suitable accounting policies and then apply them consistently;

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

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

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

The accounts are published on the www.impax.co.ukwebsite which is maintained by the Company's Manager, Impax Asset Management Limited ("IAM"). The maintenance and integrity of the website maintained by IAM is, so far as it relates to the Company, the responsibility of IAM. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

STATEMENT UNDER THE DISCLOSURE & TRANSPARENCY RULES 4.1.12

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.

For and on behalf of the Board

William Rickett

Director

1 April 2011

INCOME STATEMENT

For the year ended 31 December 2010

			2010			2009
		Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments		-	50,929	50,929	-	91,687	91,687
Income		4,602	-	4,602	4,217	-	4,217
Investment management fees		(936)	(2,807)	(3,743)	(779)	(2,335)	(3,114)
Other expenses		(725)	-	(725)	(582)	-	(582)
Return on ordinary activities before taxation		2,941	48,122	51,063	2,856	89,352	92,208
Taxation		(316)	-	(316)	(480)	105	(375)
Return on ordinary activities after taxation		2,625	48,122	50,747	2,376	89,457	91,833
Return per ordinary share - undiluted		0.84p	15.36p	16.20p	0.78p	29.33p	30.11p
Return per ordinary share - diluted		n/a	n/a	n/a	0.78p	29.31p	30.09p

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.

A Statement of Total Recognised Gains and Losses has not been presented as all gains and losses are recognised in the Income Statement.

BALANCE SHEET

At 31 December 2010

		2010		2009
		£'000		£'000
Fixed assets
Investments at fair value through profit and loss		439,766		386,748
Current assets
Income receivable		171		136
Sales - future settlements		58		187
Taxation recoverable		10		5
Other debtors		33		34
Cash at bank and in hand		14,789		7,378
		15,061		7,740
Creditors: amounts falling due within one year
Purchases - future settlements		(1,003)		(219)
Accrued liabilities		(459)		(429)
		(1,462)		(648)
Net current assets		13,599		7,092
Total net assets		453,365		393,840
Capital and reserves: equity
Share capital		32,451		30,585
Share premium account		16,035		-
Share purchase reserve		283,016		289,858
Capital reserve		118,773		70,651
Revenue reserve		3,090		2,746
Shareholders' funds		453,365		393,840
Net assets per Ordinary Share - undiluted		142.66p		129.15p
Net assets per Ordinary Share - diluted		142.66p		127.24p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 December 2010

	Share Capital £'000	Share  Premium Account £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000
Opening shareholders' funds
as at 1 January 2010	30,585	-	289,858	70,651	2,746	393,840
Share buy backs	-	-	(6,842)	-	-	(6,842)
Exercise of warrants	1,866	16,035	-	-	-	17,901
Cancellation of share premium	-	-	-	-	-	-
Dividend paid (May 2010)	-	-	-	-	(2,281)	(2,281)
Profit for the year	-	-	-	48,122	2,625	50,747
Closing shareholders' funds as at 31 December 2010	32,451	16,035	283,016	118,773	3,090	453,365

For the year ended 31 December 2009

	Share Capital £'000	Share  Premium Account £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000
Opening shareholders' funds
as at 1 January 2009	30,541	246,110	44,125	(18,806)	2,960	304,930
Share buy backs	-	-	(748)	-	-	(748)
Exercise of warrants	44	377	(6)	-	-	415
Cancellation of share premium	-	(246,487)	246,487	-	-	-
Dividend paid (May 2009)	-	-	-	-	(2,590)	(2,590)
Profit for the year	-	-	-	89,457	2,376	91,833
Closing shareholders' funds as at 31 December 2009	30,585	-	289,858	70,651	2,746	393,840

CASH FLOW STATEMENT

For the year ended 31 December 2010

	2010		2009
	£'000		£'000
Operating activities
Cash inflow from investment income and bank interest	4,567		4,339
Cash outflow from management and other expenses	(4,440)		(3,955)
Cash inflow from recovery of VAT on management fees	-		371
Cash inflow from disposal of investments	131,569		79,379
Cash outflow from purchase of investments	(132,352)		(79,354)
Cash outflow from foreign exchange costs	(394)		(478)
Cash outflow from taxation	(317)		(375)
Net cash flow from operating activities	(1,367)		(73)
Equity dividends paid	(2,281)		(2,590)
Financing
Proceeds of share issues	-		420
Expenses of share issue	-		(5)
New share issues	17,901		-
Share buy backs	(6,842)		(748)
Net cash flow from financing	11,059		(333)
Increase / (decrease) in cash	7,411		(2,996)
Opening balance at 1 January	7,378		10,374
Balance at 31 December	14,789		7,378

NOTES TO THE ACCOUNTS

1.             ACCOUNTING POLICIES

The accounts have been prepared in accordance with applicable UK accounting standards.  The particular accounting policies adopted are described below.

(a)           Basis of Accounting

The accounts are prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and the Statement of Recommended Practice "Financial statements of investment trust companies and venture capital trusts" ("SORP"), issued by the Association of Investment Companies in January 2009.

(b)           Investments

Securities of companies quoted on regulated stock exchanges have been classified as "fair value through profit or loss" and are initially recognised on the trade date and measured at fair value.  Investments are measured at subsequent reporting dates at fair value by reference to their market bid prices.  Any unquoted investments are measured at fair value which is determined by the directors in accordance with the International Private Equity and Venture Capital guidelines.

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

Transaction costs incurred on the acquisition and disposal of investments are charged to the Income Statement as a capital item.

(c)           Income from Investments

Investment income from shares is accounted for on the basis of ex-dividend dates.  Overseas income is grossed up at the appropriate rate of tax but UK dividend income is not grossed up for tax credits. 

Special Dividends are assessed on their individual merits and may be credited to the Income Statement as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions. All other investment income is credited to the Income Statement as a revenue item.  Interest receivable is accrued on a time apportionment basis and reflects the effective interest rate. 

(d)           Capital Reserves

The Company is precluded by its articles from distributing its capital profit, except by way of redeeming or purchasing its own shares.  Profits achieved in cash by selling investments and changes in fair value arising upon the revaluation of investments that remain in the portfolio are all charged to the capital column of the Income Statement and allocated to the capital reserve. 

(e)           Investment Management Fees

In accordance with the Company's stated policy and the directors' expectation of the split of future returns, three quarters of investment management fees, net of attributable tax, are charged as a capital item in the Income Statement.  If applicable, tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Income Statement on the marginal basis.

(f)            Deferred Taxation

Provision is made for deferred taxation, using the liability method, on all timing differences to the extent that it is probable that a liability will crystallise.  Deferred tax is recorded in accordance with FRS19 'Deferred tax'. Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date.  A deferred tax asset is only recognised to the extent that it is regarded as recoverable.

(g)           Foreign currency translation

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

2.             INVESTMENT COMPANY STATUS

The Company is an investment company within the meaning of Section 833 of the Companies Act 2006.

3.             INCOME

	2010		2009
	£'000		£'000
Income from investments:
Franked dividends from listed investments	902		886
Unfranked dividends from overseas investments	3,642		3,260
Loan note interest	55		6
Total	4,599		4,152
Other income:
Interest receivable	3		34
Other income	-		31
Total income	4,602		4,217

4.               FEES AND EXPENSES

		2010				2009
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Investment management fees	936	2,807	3,743		779	2,335	3,114
Secretary and administrator fees	155	-	155		131	-	131
Custodian's fees	168	-	168		119	-	119
Directors' fees	109	-	109		91	-	91
Directors' other employment costs	9	-	9		8	-	8
Auditors remuneration
- for audit services	28	-	28		25	-	25
- for taxation	7	-	7		6	-	6
Broker retainer	54	-	54		47	-	47
Registrar's fees	40	-	40		37	-	37
Association of Investment Companies	38	-	38		35	-	35
Consultant fees	35	-	35		-	-	-
Legal fees	-	-	-		30	-	30
Other expenses	82	-	82		53	-	53
	725	-	725		582	-	582
Total expenses	1,661	2,807	4,468		1,361	2,335	3,696

5.             RETURNS PER ORDINARY SHARE

Undiluted return per share is based on the net gain on ordinary activities after taxation of £50,747,000 comprising a revenue return of £2,625,000 and a capital return of £48,122,000 (2009: £91,833,000 comprising a revenue return of £2,376,000 and a capital return of £89,457,000) attributable to the weighted average of 313,164,696 (2009: 305,015,304) Ordinary Shares of 10p in issue during the year.  

There was no dilution to return per share in the year ended 31 December 2010. Diluted returns per share for the year ended 31 December 2009 are based on the net returns on ordinary activities after taxation above attributable to the diluted weighted average of 305,177,359 Ordinary Shares in issue during the year.

6.             DIVIDENDS

The directors propose that the Company will pay a final dividend for the year ended 31 December 2010 of 0.75p per Ordinary Share.  The dividend record date will be 15 April 2011. If approved at the Annual General Meeting, the dividend will be paid on 17 May 2011.

7.             NET ASSETS PER ORDINARY SHARE

Undiluted net assets per Ordinary Share is based on net assets of £453,365,000 (2009: £393,840,000) divided by 317,800,336 (2009: 304,936,283) Ordinary Shares in issue (excluding shares held in Treasury) at the Balance Sheet date.

There was no dilution to net assets per Ordinary Share at the year end as there were no Warrants remaining in issue. Diluted net assets per Ordinary Share at 31 December 2009 is based on net assets of £411,759,000 divided by 323,602,368 diluted Ordinary Shares at that date. The diluted figure is based on all warrants being converted in to Ordinary Shares at a price £0.96 per Ordinary Share.

8.            RELATED PARTY TRANSACTIONS

Fees payable to the Investment Manager are detailed in note 4; the relevant amount outstanding as an accrual at the year end was £344,415 (2009: £304,771).

9.             FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts.  The financial information for 2010 is derived from the statutory accounts for 2010, which will be delivered to the registrar of companies following the company's Annual General Meeting.  The statutory accounts for 2009 have been delivered to the registrar of companies.  The auditors have reported on the 2010 and 2009 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 2010 was approved on 1 April 2011.  It will be posted to shareholders and will be made available on the Manager's website at www.impax.co.uk

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

10.          ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 10 May 2011 at 3.00 p.m. at 145-157 St. John Street, London, EC1V 4RU.

1 April 2011

Secretary and registered office:

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

Tel: [phone]

END

 

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FR UAURRAKASRAR