Final Results

RNS Number : 8642B

Impax Environmental Markets PLC

07 April 2017

 

IMPAX ENVIRONMENTAL MARKETS PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2016

KEY DEVELOPMENTS

·      The Company again significantly outperformed both its environmental and global comparator indices

·      Solid earnings delivery across the portfolio continued to drive relative performance, rather than a re-rating of the portfolio

·      The valuation is currently in line with long term average levels, with multiple positive catalysts ahead

·      President Trump may have changed investor sentiment around environmental markets, however the drivers advancing global environmental technologies are increasingly beyond most regulatory intervention

·      The new US Administration is committed to infrastructure spending and domestic energy production which should support future investment opportunities

·      The Board remains committed to the discount control policy

FINANCIAL INFORMATION

					At 31
					December
					2016
Net assets					£465.3m
Net asset value ("NAV") per Ordinary Share					243.4p
Ordinary Share price					218.0p
Ordinary Share price discount to NAV					10.4%

PERFORMANCE

					%
					Change1
Share price total return per Ordinary Share					+37.4%
NAV total return per Ordinary Share2					+37.3%
FTSE ET100 Index					+21.9%
MSCI AC World Index					+28.7%

¹ Total returns in sterling for the year to 31 December 2016.

² Source: Morningstar.

CHAIRMAN'S STATEMENT

Impax Environmental Markets plc ("IEM" or "the Company") passed its fifteenth anniversary at the end of February 2017.  Since launch, environmental markets have grown rapidly. Consumer demand for products and services that address environmental problems has increased significantly. The investment universe has expanded from approximately 250 companies in 2002 to a current total of some 1,100. During this period, IEM has become an established market leader and the Company's net assets have grown from £50 million at inception to £465 million at the end of 2016.

We have had an excellent year and it is pleasing to report that IEM delivered its strongest annual returns since inception for the year to 31 December 2016 (the "Period"), outperforming both its global and environmental comparator indices by considerable margins.

During the Period, market sentiment has been dominated by Brexit and the election of President Trump in the US, and these events have given rise to significant volatility. With approximately 94% of the portfolio invested in companies outside the UK, IEM has benefitted from the post Brexit fall in the value of Sterling which accounts for almost half of the Company's reported increase in NAV per share in the Period. The results of the US election surprised global equity and currency markets, and there is still much uncertainty around what the Trump Administration will be able to achieve. However, a Trump presidency could well prove positive for global investors given his stated commitment to cutting corporate taxes and implementing growth-friendly policies. The Manager reviews the sectors and companies most likely to benefit, and those that may prove to be less well-positioned, in more detail later in this Report.

Performance

For the 12 months ended 31 December 2016, the net asset value per share ("NAV") of IEM achieved a total return of +37.3% and ended the year at 243.4p. During the year, IEM's share price total return was +37.4%, and the share price ended the year at 218p.

The Company outperformed its global comparator index, the MSCI All Countries World Index ("ACWI"), which rose 28.7% (total return, GBP) over the Period. IEM's environmental comparator index, the FTSE ET100, returned 21.9% over the Period. An explanation of performance and a breakdown of the absolute contributors and detractors are covered in the Manager's Report.

Discount and Share Buybacks

During the Period, the Company's shares traded at an 11% average discount to NAV. The Company bought back 16,978,525 Ordinary Shares in the Period at an average discount to NAV of 13%. The buybacks enhanced the NAV per Ordinary Share by approximately 2.2p, equivalent to 0.9% of the NAV per Ordinary Share at the Period end. Following a period of excellent investment performance, we have seen some profit taking from investors. However, we believe that our attractive investment opportunities will continue to appeal to a broad investor audience and we note growing interest, in particular from private banks and wealth advisers. The Manager is increasingly focused on these investors with the aim of broadening the shareholder base.

Gearing

The Company's £30 million multi-currency, revolving credit facility with The Royal Bank of Scotland plc was due to expire on 8 January 2016. Having reviewed the Company's financing options, the Board decided to renew the facility for a further three years on materially the same terms. The loan was fully drawn down throughout the Period. As at 31 December 2016 the Company's net gearing was 4% and our gearing added nearly 3% to NAV over the Period.

Dividend

The Company's net revenue return for the year was £3.9 million, equivalent to 1.99p per Ordinary Share.  Shareholders will be aware that it has been the Board's practice 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 2016 of 1.95p per share (2015: 1.45p).  If approved by shareholders at the Company's Annual General Meeting, this dividend will be paid on 23 May 2017 to shareholders on the register as at the close of business on 28 April 2017. As the primary objective of the Company is capital growth, it should not necessarily be assumed that this level of earnings, and hence our ability to pay a similar dividend, will be available in future years.

Board

On 10 November 2016 we were pleased to announce the appointment of Aine Kelly as a Director of IEM; this followed a series of interviews with candidates for the position and we were assisted in this process by an independent external recruitment agency. Aine is an independent consultant specialising in impact investing.  She has more than 25 years' experience in financial markets across investment banking, private banking and, since 2013, social impact investing.

Continuation Vote

At the half year we reported that over 99% of votes cast at the Company's Annual General Meeting on 17 May 2016 were in favour of IEM continuing as an investment trust for a further three-year period.  The Board is pleased to have secured such strong support for the Company's investment mandate.

Shareholder Communications

The Board and the Manager are committed to the continuous improvement of the Company's digital communications.  We have recently upgraded the content and functionality of IEM's website which is a useful source of information about the Company and environmental markets.  Please do make use of the alerts service on the home page of our website (www.impaxenvironmentalmarkets.co.uk) where you can elect to receive information including press releases, regulatory news, financial calendar details and Reports & Accounts as soon as they are published.  You may also like to follow us on Twitter (@IEMplc).  We print a small number of Annual and Interim Reports for shareholders who prefer to receive hard copies, and these are available on request from the Company Secretary.

Outlook 

At the time of writing, global equity markets are trading around their all-time highs. Although the outlook for the global economy is strong, political uncertainties mean that investors are likely to have to contend with more volatility in the future. Environmental markets are underpinned by many powerful long-term drivers that are independent of politics, so we are confident that they will maintain both their resilience and expansion and that the Company remains well positioned to deliver outperformance, while directing capital to sectors which are in sympathy with the environment. IEM remains an attractive channel for investors looking to access diversified exposure to the high growth prospects in global environmental markets.

John Scott

Chairman

6 April 2017

MANAGER'S REPORT

IEM has an established record of delivering superior earnings growth compared with broader global equities (MSCI ACWI). 2016 was no exception, with generally solid earnings delivery across the portfolio driving relative performance of IEM, rather than a re-rating of the portfolio.

IEM's performance was delivered against a backdrop of uncertainties and surprises around the world, with heightened volatility in currencies and in developing country equities. However, equity markets in developed countries proved remarkably resilient, with several ending the year at or around their all-time highs. 

Impact of Brexit

In the immediate aftermath of the UK's referendum vote, and again more recently with the rising probability of a "hard Brexit", the fall in Sterling drove a rotation into exporters, with domestic UK stocks out of favour.  However, with approximately 94% of IEM's portfolio companies located and listed outside the UK, weaker Sterling was a positive contributor to the Company's performance. Over the longer term, management teams of companies may modify their strategic decisions, particularly related to end markets and production locations.

The US election

President Trump's announcements have altered investor sentiment in many areas targeted by the Company.  However, the underlying drivers advancing environmental technologies are increasingly beyond most regulatory intervention.  The last few years have seen dramatic falls in the cost of many environmental technologies which no longer rely on subsidies or regulatory support. President Trump's stated commitment to infrastructure improvements across water, transport and real estate should be positive for the Company.  The President has also stressed his support for domestic energy production and independence.  This outlook should strengthen the investment case for areas such as hazardous waste management, water treatment and environmental testing and consultants. 

Global commitment to environmental regulation

The COP22 climate conference took place in Marrakesh in November 2016, and the mood from most countries was defiantly optimistic. The response from the international community to President Trump's pre-election threat to "cancel" the 2015 Paris Climate Agreement and his subsequent changes to the structure and powers of US Environmental Protection Agency, has been to redouble support for the climate treaty, with China, crucially, reiterating its commitment to addressing climate change. Early in 2016 China released more details of its 13th Five Year Plan, with heavy emphasis on improving environmental health, tackling air, water and land pollution, and investing further in renewable energy and energy efficiency.

Key developments

Digitalisation drives higher returns in environmental markets

We have noted for several years the rise of data, acceleration of digitalisation and deployment of software-based models in environmental markets, and are encouraged by the growth and high returns on capital that these businesses offer to investors. The smart use of data and optimisation tools is enabling enhanced efficiency of processes and networks in rail, water, electricity, agriculture, construction, lighting and building controls. IEM holdings with software solutions that benefit from the digitalisation trend include Trimble Navigation (US - agriculture, construction), Hollysys (China - rail, renewable energy) and Itron (US - water, electricity, gas).

Sustainable Forestry

The Food, Agriculture and Forestry sector was added to our universe in 2013.  During the Period we made our first investment in the Sustainable Forestry area.  Timber is an important sustainable resource and, if produced sustainably, is relatively disease resistant and helps to prevent the destruction of natural forests.  During the Period we added a position in Rayonier (US) which manages large areas of sustainable timberlands (Forest Stewardship Council (FSC) certified) in the US and New Zealand. The strategic positioning of Rayonier's timberlands ensures premium product pricing and exposure to key market trends such as the recovery in domestic housing, restricted Canadian lumber supply, strong Chinese housing demand and wood pellet exports.

Electrification of the automotive industry

In the last Annual Report, we discussed the interesting investment opportunities arising from the disruption in the transport sector, in particular the increase in the electrification of vehicles.  We continue to seek compelling opportunities in companies which increase the efficacy of fuel consumption and reduce pollution from internal combustion engines.  We hold several companies in this area including LEM and Sensata, and during the Period we added to the portfolio Delta Electronics Thailand, a manufacturer of power supplies and electronic components to the motor industry.

Absolute Performance Contributors and Detractors

Contributors

Companies across the portfolio largely delivered robust earnings. The Sustainable Food & Agriculture and Water Infrastructure and Technologies sub-sectors contributed particularly strong performance.

Sustainable Food & Agriculture benefits from the same core drivers of other environmental markets, namely rising demand due to population expansion and higher living standards, and a need to find more resource efficient means to satisfy these basic needs. The sub-sector has proved to be a rich area for stock picking, with particular strength from a range of holdings including fibre specialist Lenzing (Austria), sustainable aquaculture company Leroy Seafood Group (Norway) and "connected farm" software company Trimble Inc (US). We are seeking additional opportunities in this area, which offers strong growth potential and additional diversification benefits for the portfolio.

Water Infrastructure & Technologies companies maintained their robust performance.  Xylem and Watts Water (both US) benefited from recovering construction markets and municipal spending to upgrade aged water networks.  Water utilities also provided opportunities, with American Water (US) advancing as a result of strong execution, a positive regulatory backdrop and consolidation potential in a fragmented market.

M&A continues to be a contributor to portfolio performance.  During the second half of the Period two holdings (Hydro International and Ovivo) were acquired and a further two acquisitions announced and pending completion (ClarCor and Trina Solar). With strong exit multiples generally achieved, we expect M&A to continue to contribute to IEM's performance.

Detractors

The majority of portfolio companies performed well and there were relatively few significant detractors over the Period.  However, Solar Energy Generation Equipment remains an area of weakness as solar markets continue to face supply and demand side challenges. Sunpower (US) was the main detractor in this area. We believe that short term headwinds are priced into stocks and, while our exposure is modest at around 3%, we are confident that additional opportunities will emerge. Long term prospects remain strong given falling costs of technology and incremental opportunities from combining solar generation with energy storage. IEM's environmental consultancy holdings (Arcadis, (NL) and RPS (UK)) also had a more challenging year, reflecting a combination of weakness across emerging markets and issues around exposure to oil and gas markets.  Conditions appear to have stabilised and valuations remain attractive in this area. 

Portfolio Positioning and Current Activity

The portfolio remains well diversified by geography and sub-sector and comprised 60 listed holdings at the end of the Period. 

The sub-sector breakdown for IEM is set out in the Annual Report, together with the comparison to the FTSE ET100.  Exposure to Sustainable Food and Agriculture has increased by 4% over the Period through outperformance and the addition of new holdings including Rayonier (Sustainable Forestry & Plantations, US). Renewable & Alternative Energy and Waste Management & Technology exposure decreased. 

IEM remains underweight North America and overweight Europe compared with MSCI ACWI. We are comfortable with this positioning on the basis of relative valuation and growth prospects.  Looking at economic cyclicality, the portfolio remains approximately 5% less "defensive" than the MSCI ACWI.

Unquoted companies

At 31 December 2016, the Company held only one significant unquoted company in its portfolio with a valuation of £10.9 million, representing 2.3% of net assets. This valuation is reviewed regularly and we are working towards a timely exit.

Movements in the year were as follows:

	£m
Valuation at 1 January 2016	£9.1
Foreign exchange gain	£ 1.8
Valuation at 31 December 2016	£10.9

Outlook

During the Period, the Company has maintained its established trend of delivering higher profit growth compared to global equities, and we expect this to persist. 

Our investment universe also continues to expand and we are seeing interesting new opportunities in developing markets and in emerging technologies.  The drivers of environmental markets strengthen further, driving future growth. Meanwhile investors are increasingly seeking access to higher growth opportunities as economic growth rates around the world look set to slow. IEM has had a strong start to 2017. We are optimistic that the long-term prospects for environmental markets and the Company will continue to strengthen.

Impax Asset Management (AIFM) Limited

6 April 2017

PRINCIPAL RISKS AND UNCERTAINTIES

Together with the issues discussed in the Chairman's Statement and the Manager's Report, the Board considers that the principal risks and uncertainties faced by the Company fall into the following main categories:

(i)      Market risks

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

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

Risk mitigation

There are inherent risks involved in stock selection. The Manager is experienced and employs its expertise in selecting the stocks in which the Company invests. The Manager spreads the investment risk over a wide portfolio of investments in three main sectors, and at the year end the Company held investments in 61 quoted companies. The company also held 4 unquoted companies of which 3 were valued at nil at the year end.

(ii)     Environmental Markets

The Company invests in companies in environmental markets. Such companies carry risks that governments may alter the regulatory and financial support for environmental improvement, costs of technology may not fall, capital spending by their customers is reduced or deferred and their products or services are not adopted.

Risk mitigation

The Company invests in a broad portfolio of assets which are spread amongst several environmental market sectors.  The Manager has a rigorous investment process which takes into account relevant factors prior to investment decisions taking place.  As well as reviews of the portfolio and relevant industry matters at quarterly Board meetings, the Board has an annual strategy day at which the overall strategy of the Company is discussed.

(iii)  Corporate governance and internal control risks

The Board has contractually delegated to external agencies the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the accounting and company secretarial requirements.

The main risk areas arising from the above contracts relate to allocation of the Company's assets by the Manager, and the performance of administrative, registration and custodial services.  These could lead to various consequences including the loss of the Company's assets, inadequate returns to shareholders and loss of investment trust status. 

Risk mitigation

Each of the above contracts was entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company.  All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis.  The Board monitors key person risks as part of its oversight of the Manager.

(iv) Regulatory risks

Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments.  Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares on the London Stock Exchange.  Breaches of the Companies Act 2006 could result in financial penalties or legal proceedings against the Company or its directors.  Failure of the Manager to meet its regulatory obligations could have adverse consequences on the Company.

Risk mitigation

The Company has contracted out relevant services to appropriately qualified professionals.  The Manager reports on regulatory matters to the Board on a quarterly basis.  The assessment of regulatory risks forms part of the Board's risk assessment programme.

(v) Level of share price discount to net asset value

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

Risk mitigation

The Board has made a statement on discount control. The Company utilises its powers to buy back the Company's own shares when circumstances are appropriate.  The Board monitors the level of discount and share buybacks at Board meetings and receives regular shareholder feedback from the Company's Manager and Broker. 

(vi) Financial risks

The Company's investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk.

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

Risk mitigation

The Company will not normally hedge against foreign currency movements affecting the value of its investments, but the Manager takes account of this risk when making investment decisions

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

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

·      select suitable accounting policies and then apply them consistently;

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

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

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

The accounts are published on the www.impaxenvironmentalmarkets.co.uk and www.impaxam.com websites which are maintained by the Company's Manager, Impax Asset Management (AIFM) Limited ("IAM"). The work carried out by the auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions

Directors' confirmation statement

The directors each confirm to the best of their knowledge that:

(a)     the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

(b)     this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Directors consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

Julia Le Blan

Director

6 April 2017

INCOME STATEMENT

For the year ended 31 December 2016

	2016			2015
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on investments	-	125,251	125,251	-	19,167	19,167
Income	6,360	-	6,360	5,258	-	5,258
Investment management fees	(955)	(2,866)	(3,821)	(872)	(2,619)	(3,491)
Other expenses	(731)	-	(731)	(650)	-	(650)
Return on ordinary
activities before finance
costs and taxation	4,674	122,385	127,059	3,736	16,548	20,284
Finance costs	(128)	(383)	(511)	(139)	(417)	(556)
Return on ordinary
activities before taxation	4,546	122,002	126,548	3,597	16,131	19,728
Taxation	(626)	-	(626)	(465)	-	(465)
Return on ordinary
activities after taxation	3,920	122,002	125,922	3,132	16,131	19,263
Return per Ordinary Share	1.99p	61.91p	63.90p	1.45p	7.46p	8.91p

The total column of the Income Statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

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

BALANCE SHEET

At 31 December 2016

	2016	2015
	£'000	£'000
Fixed assets
Investments at fair value through profit and loss	483,366	399,045
Current assets
Income receivable	97	124
Sales awaiting settlement	-	99
Taxation recoverable	129	214
Other debtors	5	85
Cash at bank and in hand	13,099	3,294
	13,330	3,816
Creditors: amounts falling due within one year
Purchases awaiting settlement	(414)	-
Accrued liabilities	(593)	(906)
	(1,007)	(906)
Net current assets	12,323	2,910
Total assets less current liabilities	495,689	401,955
Creditors: amounts falling due after more than one year
Bank loan	(30,434)	(30,357)
Total net assets	465,255	371,598
Capital and reserves: equity
Share capital	23,682	25,380
Share premium account	16,035	16,035
Capital redemption reserve	8,769	7,071
Share purchase reserve	120,597	149,988
Capital reserve	289,608	167,606
Revenue reserve	6,564	5,518
Shareholders' funds	465,255	371,598
Net assets per Ordinary Share	243.43p	178.57p

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2016

		Share Capital £'000	Share  Premium Account £'000	Capital Redemption Reserve £'000	Share Purchase Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Total £'000
	Opening equity
	as at 1 January 2016	25,380	16,035	7,071	149,988	167,606	5,518	371,598
	Share buybacks	(1,698)	-	1,698	(29,391)	-	-	(29,391)
	Dividend paid	-	-	-	-	-	(2,874)	(2,874)
	Profit for the year	-	-	-	-	122,002	3,920	125,922
	Closing equity as at 31 December 2016	23,682	16,035	8,769	120,597	289,608	6,564	465,255

For the year ended 31 December 2015

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

STATEMENT OF CASH FLOWS

For the year ended 31 December 2016

		2016		2015
		£'000		£'000
Operating activities
Return on ordinary activities before finance costs and taxation*		127,059		20,284
Less: Tax deducted at source on income from investments		(626)		(465)
Add: Realisation of investments at book cost		93,453		130,394
Less: Purchase of investments		(87,844)		(138,980)
Adjustment for (gains)/losses on investments held		(89,930)		7,640
Foreign exchange non cash flow losses		2,394		876
Decrease/(increase) in debtors		327		(197)
Increase/(decrease) in creditors		428		(4)
Net cash flow from operating activities		45,261		19,548
Financing activities
Bank loan repaid		(2,353)		(1,494)
Finance costs paid		(838)		(575)
Share buybacks		(29,391)		(18,322)
Equity dividends paid		(2,874)		(3,043)
Net cash flow used in financing		(35,456)		(23,434)
Increase/(decrease) in cash		9,805		(3,886)
Opening balance at 1 January		3,294		7,180
Balance at 31 December		13,099		3,294

*Cash inflow from dividends was £6,471,000.

NOTES

1.       Accounting policies

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

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

(a)     Basis of Accounting

The accounts are prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") 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.

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. Interest receivable is accrued on a time apportionment basis and reflects the effective interest rate.

(e)     Capital Reserves

Profits achieved in cash by selling investments and changes in fair value arising upon the revaluation of investments that remain in the portfolio are all charged to the capital column of the Income Statement and allocated to the capital reserve.

(f)       Expenses

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

Management fees

In accordance with the Company's stated policy and the directors' expectation of the split of future returns, three quarters of investment management fees are charged as a capital item in the Income Statement.

Finance costs

Finance costs include interest payable and direct loan costs.  In accordance with Directors' expectation of the split of future returns, three quarters of finance costs are charged as capital items in the Income Statement.  Loan arrangement costs are amortised over the term of the loan. 

Transaction costs

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

(g)     Taxation

Irrecoverable taxation on dividends is recognised on an accruals basis in the Income Statement.

Deferred taxation

Deferred taxation is recognised in respect of all temporary 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 temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.

(h)      Foreign currency translation

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

(i)       Financial liabilities

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

(j)       Estimates and assumptions

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

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

2.

Income

										2016		2015
										£'000		£'000
Income from investments:
Dividends from UK listed investments										611		800
Dividends from overseas listed investments										5,749		4,458
Total income										6,360		5,258

3.               Fees and expenses

		2016				2015
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Investment management fees	955	2,866	3,821		872	2,619	3,491
Secretary and administrator fees	185	-	185		180	-	180
Depositary and custody fees	151	-	151		115	-	115
Directors' fees	107	-	107		102	-	102
Directors' other employment costs	13	-	13		15	-	15
Broker retainer	19	-	19		34	-	34
Auditor's remuneration
- for audit services	29	-	29		27	-	27
- other assurance services*	-	-	-		7	-	7
Association of Investment Companies	21	-	21		12	-	12
Registrar's fees	34	-	34		30	-	30
Marketing fees	52	-	52		35	-	35
FCA and listing fees	25	-	25		22	-	22
Other expenses	95	-	95		71	-	71
	731	-	731		650	-	650
Total expenses	1,686	2,866	4,552		1,522	2,619	4,141

* Fees payable to the Auditor, no fees were payable for other services.  In the year ended 31 December 2015 £7,000 was payable to the Auditor in relation to taxation compliance services.

4.       Directors' fees

Fees payable to the directors were: £33,000 to the Chairman, £26,500 to the Chairman of the Audit Committee and £22,000 to the other directors.  There were no other emoluments. Employers' National Insurance upon the fees is included as appropriate in directors' other employment costs under note 3.

5.       Finance costs

		2016				2015
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Interest charges	123	365	488		135	406	541
Direct loan costs	5	18	23		4	11	15
	128	383	511		139	417	556

6.       Taxation

(a)	Analysis of charge in the year:
				201	6					2015
		Revenue		Capital		Total		Revenue		Capital		Total
		£'000		£'000		£'000		£'000		£'000		£'000
	Overseas taxation	626		-		626		465		-		465
	Taxation	626		-		626		465		-		465

(b)     Factors affecting total tax charge for the year:

The total taxation charge for the year is lower than the standard rate of corporation tax in the UK of 20% applicable to the year ended 31 December 2016 (2015: 20.25%). These 2015 corporation tax rate is a blended rate as a result of changes in the standard rates of UK corporation tax during the years ended 31 December 2015.  The standard rate UK corporation tax rate at 31 December 2016 was 20% (2015: 21%).

	The differences are explained below:
			2016				2015
			£'000				£'000
Total profit before tax per accounts			126,548				19,728
Corporation tax at 20% (2015: 20.25%)			25,310				3,994
Effects of:
Non-taxable UK dividend income			(122)				(162)
Non-taxable overseas dividend income			(1,150)				(903)
Movement in unutilised management expenses			910				838
Movement on non-trade relationship deficits			102				113
Gains on investments not taxable			(25,050)				(3,881)
Overseas tax			626				465
Total tax charge for the year			626				465

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 £37,963,000 (2015: £32,900,000). 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 18% (2015: 20%) amounts to £6,833,000 (2015: £6,580,000).

7.       Return per share

Return per share is based on the net gain on ordinary activities after taxation of £125,922,000 comprising a revenue return of £3,920,000 and a capital return of £122,002,000 (2015: gain of £19,263,000 comprising a revenue return of £3,132,000 and a capital return of £16,131,000) attributable to the weighted average of 197,055,871 (2015: 216,297,621) Ordinary Shares of 10p in issue (excluding Treasury shares) during the year.

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

8.       Dividends

		2016		2015
		£'000		£'000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2015 of 1.45p (2014: 1.4p)		2,874		3,043
Dividends not reflected in the financial statements:
Recommended ordinary dividend for the year ended 31 December 2016
of 1.95p (2015: 1.45p) per share		3,540		2,897

If approved at the Annual General Meeting, the dividend will be paid on 23 May 2017 to shareholders on the register as at the close of business on 28 April 2017.

9.       Investments at fair value through profit and loss

		2016		2015
		£'000		£'000
Analysis of closing balance:
UK quoted securities		35,444		36,951
Overseas quoted securities		437,064		352,997
Overseas unquoted securities		10,858		9,097
Total investments		483,366		399,045
Movements during the year:
Opening balance of investments, at cost		343,512		334,926
Additions, at cost		87,844		138,980
Disposals, at cost		(93,453)		(130,394)
Cost of investments at 31 December		337,903		343,512
Revaluation of investments to fair value:
Opening balance of capital reserve - investments held		55,533		63,173
Gains/(Losses) on investments held		89,930		(7,640)
Balance of capital reserve - investments held at 31 December		145,463		55,533
Fair value of investments at 31 December		483,366		399,045

During the year, the Company incurred transaction costs on purchases totalling in aggregate £153,000 (2015: £190,000) and on disposals totalling in aggregate £163,000 (2015: £179,000).  Transaction costs are recorded in the capital column of the Income Statement.

10.           Accrued liabilities

		2016		2015
		£'000		£'000
Finance costs payable
		106		433
Other accrued expenses		487		473
Purchases awaiting settlement		414		-
		1,007		906

11.           Bank loan

			2016		2015
			£'000		£'000
Bank loan
Between two and five years			30,434		30,357

The Company has a multi-currency revolving credit facility with The Royal Bank of Scotland plc. Under the terms of the facility the Company may draw down loans of, in aggregate, up to £30 million.  As at 31 December 2016 loans of US$19,000,000 (2015: US$22,000,000) and £15,042,000 (2015: £15,425,000) were outstanding.  The facility expires on 8 January 2019.

Interest is payable on amounts drawn down under the facility computed at the rate of LIBOR plus a margin of 1.00% per annum.  A commitment fee computed at the rate of 0.25% per annum is payable on any amounts not drawn down under the facility.

12.   Net asset value per Ordinary Share

Net asset value per Ordinary Share is based on net assets of £465,255,000 (2015: £371,598,000) divided by 191,122,495 (2015: 208,101,020) Ordinary Shares in issue (excluding shares held in Treasury) at the Balance Sheet date.

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

13.   Related party transactions

Details of the management contract can be found in the Directors' Report in the Annual Report. Fees payable to the Manager are detailed in note 3; the relevant amount outstanding as an accrual at the year end was £354,000 (2015: £289,000). The directors' fees are disclosed in note 4 and the Directors' shareholdings are disclosed in the Directors' Remuneration Implementation Report in the Annual Report.

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

Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information for 2016 is derived from the statutory accounts for 2016, which will be delivered to the registrar of companies following the Company's Annual General Meeting.  The statutory accounts for 2015 have been delivered to the registrar of companies.  The auditors have reported on the 2016 and 2015 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 2016 was approved on 6 April 2017.  It will be made available on the Company's website at www.impaxenvironmentalmarkets.co.uk

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM

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

Annual General Meeting

The Annual General Meeting will be held on 16 May 2017 at 2:30 p.m. at Norfolk House, 31 St. James's Square, London SW1Y 4JR.

6 April 2017

Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

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

For further information contact:

Anthony Lee / Ciara McKillop

PraxisIFM Fund Services (UK) Limited

Tel: [phone]

END

 

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