Final Results
LEI: 213800RAR6ZDJLZDND86
IMPAX ENVIRONMENTAL MARKETS PLC
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Investment objective
The investment objective of Impax Environmental Markets plc ("the Company") 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
|
as at 31 December |
2019 |
2018 |
|
Net asset value ("NAV") per Ordinary Share |
321.8p |
249.6p |
|
Ordinary Share price |
333.0p |
253.0p |
|
Ordinary Share price premium to NAV1 |
3.5% |
1.4% |
|
Net assets |
£657.0m |
£450.0m |
|
Ongoing charges1 |
1.02% |
1.04% |
Performance Summary2
|
For the year ended 31 December |
2019 |
2018 |
|
NAV total return per Ordinary Share1 |
30.6% |
-10.8% |
|
Share price total return per Ordinary Share1 |
32.9% |
-0.4% |
|
MSCI AC World Index3 |
21.7% |
-9.9% |
|
FTSE ET100 Index3 |
29.2% |
-3.8% |
1. These are alternative performance measures.
2. Total returns in sterling for the year to 31 December 2019.
3. Source: Bloomberg and Fact Sheet.
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 on pages 63 and 64 of the Annual Report and Accounts.
Chairman's statement
"Our investment proposition has moved from what was once regarded as the fringe, to the mainstream of investor consciousness."
No letter to shareholders can fail to acknowledge the enormous impact which the COVID-19 virus is inflicting on society and the world economy. With good reason, world stock markets have reacted violently in recent weeks, but it should not be forgotten that 2019 was a remarkably successful year for us; the bulk of this statement deals with the year ended 31 December 2019, with comments on subsequent events confined to the Outlook section at the end.
As well as enjoying a year of excellent investment performance, Impax Environmental Markets plc ("IEM", or the "Company") benefitted from strong investor demand. Our shares started the year trading at a premium of 1.4% and ended the year on a premium of 3.5%, at a price of 330p. Almost 24 million shares were re-issued from treasury. During 2019, the market capitalisation of IEM grew by 49% to £680 million.
2019 saw world equity markets rally following the retreat seen at the end of 2018. Shareholders will recall from last year's Annual Report that this sell-off had a significant negative effect on IEM, whose bias towards smaller cap companies made us particularly vulnerable. In 2019 markets were well supported by strong macro-economic data, interest rate cuts across major economies, receding fears of a global recession and, later in the year, by the lessening of US-China trade tensions. These developments supported corporate earnings growth and encouraged a further re-rating of markets, providing a greater than expected boost to stock prices.
Even against this positive backdrop, the Company outperformed its two comparative indices, the broader MSCI All Countries World Index ("MSCI ACWI") and the FTSE Environmental Technologies 100 Index ("FTSE ET100"). This outperformance is a vindication of the Company's investment thesis - that, over the long-term, companies offering solutions to the world's sustainability challenges will grow faster than the wider market - and reflects the investment managers' skill in identifying companies which meet our investment criteria, while employing high quality management teams and operating defensible business models.
PERFORMANCE
Over the year to the end of December 2019, IEM's net asset value increased by 28.9%, with its shares delivering a total return of 32.9%, compared with a 29.2% rise in the FTSE ET100, and a 21.7% increase in MSCI ACWI (all in sterling terms, calculated with dividends re-invested). The Company outpaced the FTSE ET100 by 8.8% during the first half of the year, but a strong rally in the share price of Tesla (which the Company excludes on the basis of valuation, risk and poor environmental, social and governance "ESG" standards), meant that the FTSE ET100 narrowed the gap in the last quarter of the year. Tesla is the largest component of the FTSE ET100 - about 11% at the end of December 2019 - and movements in its share price have a large effect on IEM's performance relative to that index.
Thanks in part to our excellent investment performance and also to our programme of share issuance the Company's NAV grew in 2019 from £450 million to £657 million.
INVESTMENT CASE
As is explained in more detail in the section on Investment Policy, IEM has three principal investment themes: alternative energy and energy efficiency; water treatment and pollution control; and waste technology and resource management, with a particular focus on sustainable agriculture. Of these, the one capturing most headlines at present is the first, since many consider that decarbonising the global economy is an essential part in the fight against global warming. This will require trillions of dollars of investment over the coming decades, creating a range of opportunities for those investing in environmental markets. The need to adapt to a changing climate continues to require huge investment in all parts of the world, whether or not the countries concerned believe that the underlying cause is global warming. The climate issue rose further up the world agenda in 2019, spurring high profile protests by climate change activists, more militant groups such as Extinction Rebellion, and large-scale climate marches. Most vividly, wildfires, particularly in California, the Brazilian rainforest and Australia, and the recent high levels of rain with resultant floods in the UK, have brought home the grim reality of a changing climate.
Climate change is having profound economic impacts. 2019 began with the bankruptcy of California utility Pacific
Gas and Electric under the weight of liabilities for its role in the 2018 wildfires, and it concluded with the Australian bushfires The direct costs of these environmental catastrophes are in the billions of dollars, and the impacts of higher health spending, reduced tourism revenues and the costs of making infrastructure more resilient will be of a similar magnitude.
More positively, we are beginning to see a policy response commensurate with the scale of the threat, with governments around the world making the first "net-zero" commitments. While the COP25 climate talks in Madrid in December 2019 may have disappointed, with climate change-sceptic countries slowing down the negotiations, in January the UN announced that in excess of 100 countries have now submitted more ambitious emissions targets ahead of the next landmark negotiations. This will undoubtedly provide additional support for companies within IEM's investable universe.
DIVIDEND & AGM
The Company's net revenue for the year was £6.8 million, a useful increase over the £5.7 million earned in 2018. The number of ordinary shares in issue as at 31 December 2018 was 180 million, but by the end of 2019 this had grown to 204 million, diluting the earnings attributable to each share. The earnings per share, based on the weighted average number of shares in issue during the relevant year, grew from 3.20 pence to 3.63 pence.
Due to the emergency measures being implemented in the UK in response to the COVID-19 pandemic, which include restrictions on gatherings of more than two people and the possible delay to the Company's Annual General Meeting, the Board decided to pay this year's dividend as an interim dividend, rather than as a final dividend requiring shareholder approval at the Annual General Meeting. On 25 March 2020, the Board announced an interim dividend for the 2019 financial year of 3.0 pence per Ordinary Share, payable on 24 April 2020 to shareholders who appear on the register on 3 April 2020, with an ex-dividend date of 2 April 2020. This dividend is as at the same level as that paid in respect of the previous financial year.
It remains the Board's policy to pay out substantially all earnings by way of dividend, but shareholders will note that there is a significant gap between our reported earnings per share (3.63 pence) and the interim dividend paid (3.0 pence); this is a consequence of the continued expansion of our capital base. Following strong investor demand for our shares, particularly in January and February 2020, there were 228 million ordinary shares in issue on the record of 3 April 2020, all of which qualify for the interim dividend and this growth has diluted the earnings per share.
I am pleased that we were able to maintain the Company's dividend at the same level as paid in the previous year, but it comes with a warning as to the future. While our investment managers have been successful in growing earnings in recent years, we are to a large extent at the mercy of the distribution policies of our investee companies.
The Company will hold its Annual General Meeting on 21 May 2020. However, current UK emergency measures mean that this will be a closed meeting and shareholders will be unable to attend in person. I would therefore strongly encourage shareholders to vote instead by proxy. Full details of the Annual General Meeting, the resolutions proposed and how to vote by proxy are described in the Notice of Meeting and supporting explanatory notes on pages 67 to 70. Shareholders who have questions that they would have raised at the Annual General Meeting, should submit them by 18 May 2020 to the Company's email address, clientservices@impaxam.com. Answers will be published on the Company's website in advance of the meeting.
The Board hopes that it is understood that these steps are being taken to protect shareholders' wellbeing and help in the prevention of further virus spread and would like to take this opportunity to thank all shareholders for their continued support and understanding in these exceptional circumstances. The Company will return to full shareholder engagement as soon as feasible.
GEARING
The Board's policy is that gearing is a positive feature of investment companies and encourages the Manager to make use of this ability with full discretion on a tactical basis up to a level of 10%. To support this, 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, of which £15 million (full drawdown) and US$20 million (full drawdown) are outstanding. In addition, we have a multi-currency revolving credit facility for up to £20 million, which is currently not drawn.
As at 31 December 2019, the Company's net gearing was 2.8%. The Manager keeps under regular review the opportunities for enhancing returns by the prudent use of gearing.
PREMIUM/DISCOUNT
The Company's Ordinary Shares traded at a premium to NAV of 1.4% on 1 January 2019 and a premium to NAV of 3.5% on 31 December 2019, the highest point for the year. The lowest point during the year was a discount of -1.4%. IEM traded at an average of 1.2% premium over the year, with no share buybacks undertaken.
Increasing appetite for our investment philosophy, coupled with awareness of IEM thanks to strong coverage in the media and recommendations by online platforms, led to growing demand for our shares. This created suitable conditions for the re-issue of treasury shares previously bought back as part of our discount management policy. By the end of December 2019, the Company had sold 24 million Ordinary Shares from treasury at a premium to NAV, raising aggregate gross proceeds of £74 million.
During the year the Board obtained authority from shareholders at a General Meeting to increase the Company's capacity to issue or sell from treasury up to 19,913,924 Ordinary Shares on a non pre-emptive basis (representing approximately 10% of the Company's issued share capital as at 14 November 2019), up until the AGM on 21 May 2020. This was in addition to the authority granted at the 2019 AGM to issue up 18,165,740 Ordinary Shares on a non pre-emptive basis.
So strong has been the demand for our shares that, by early February 2020, we had effectively exhausted the additional authority granted by shareholders in the previous December and were unable to meet market demand for our shares. We therefore called another General Meeting to ask shareholders for a further authority to issue shares on a non pre-emptive basis in order to assist with the management of the growing premium at which our shares were trading. On 24 February shareholders voted to give us permission to issue an additional 11,015,962 Ordinary Shares, representing approximately 5% of the shares outstanding as at 5 February.
Thus, we are once again in a position to issue shares; the first 2.6 million of these were the remaining treasury shares (all of which have now been sold) and new shares which will be issued up to the limit established under the most recent authority. At the Company's forthcoming AGM, Resolution 10 seeks permission from shareholders to issue approximately 23 million new shares on a non pre-emptive basis and the Board intends to use these to ensure that the Company's shares once again trade close to NAV.
SHAREHOLDER COMMUNICATIONS
We seek to communicate as effectively as possible with all our shareholders. As an environmental investor, we favour digital communication because of its low environmental impact, but for the moment we remain happy to provide hard copies of our reports to those shareholders who request them from the company secretary. Further information can be found on our website, www.impaxenvironmentalmarkets.co.uk, and regular updates are posted on our @IEMplc Twitter account.
THE BOARD
As we have announced previously, Julia Le Blan is to retire at our 2020 AGM, by which time she will have served on the IEM Board for nine years, holding the position of Chairman of the Audit Committee for most of that time. I would like to thank Julia for her service to the Company and in particular for her dedicated role in running the Audit Committee with uncomplaining competence and consummate professionalism.
In July 2019, Stephanie Eastment joined the Board; she is a chartered accountant and a Certified Company Secretary with more than 30 years' experience in the financial services industry, mostly within the investment company sector. She will become the Chairman of the Audit Committee when Julia steps down.
OUTLOOK
IEM has in the past year been the beneficiary of much favourable publicity in the financial press and elsewhere reflecting, amongst other things, the view that our investment proposition has moved from what was once regarded as the fringe, to the mainstream of investor consciousness. Amongst many supportive articles, perhaps the one I enjoyed most appeared at the time of the Extinction Rebellion demonstrations, the thesis of which was that if the protesters really want to save the planet, rather than gluing themselves to the doors of the Stock Exchange they would be better to encourage more people to buy shares in Impax Environmental Markets. Demand for our stock suggests that some may have followed this advice.
Shortly before this Report was published we received the news that IEM had been promoted to the FTSE-250 Index, an elevation which is driven largely by market capitalisation. The credit for this, coming about as it did at the conclusion of a year of excellent performance and expansion of our capital base, lies primarily with our investment managers Impax Asset Management ("IAM"). There are many reasons to welcome this promotion, which brings with it broader coverage, improved liquidity and a wider parish of investors able to buy our shares. Furthermore, as IEM has grown, its ongoing costs ratio has fallen, reflecting IAM's lower management fee of 0.65% on net assets over £475 million.
COVID-19
Earlier, I promised a detailed reference to the COVID-19 virus that is sweeping the globe, claiming many thousands of lives, overwhelming health services and causing the most serious damage to the world economy that has been seen in peacetime. Many stock indices have fallen by a third or more and IEM has not escaped this carnage. Our Manager's statement sets out the measures that IAM has implemented to ensure the continued smooth running of its business and I draw your attention to Note 17 of the accounts which provides information on developments subsequent to the 2019 year end.
It is heartening to observe that, despite the meltdown in financial markets, our shares have continued to trade generally at a premium to NAV and there remains market demand for IEM stock, allowing for further share issuance. The depth of this demand is at present untested, and we are mindful of the Manager's need to exercise caution in allocating capacity, which will determine future issuance of new shares beyond the 10% authority which is being sought at the AGM under Resolution 10.
This is a time when strong nerves are needed and indeed they may be required for some time, but from every crisis some winners emerge. Your Company may well be one of them; we have little gearing (4.99% as at the date of this report) and we invest in many sectors which will be long term beneficiaries of the likely reappraisal of the way in which Governments, businesses and consumers prioritise expenditure and manage resources. Your Board has great confidence in the expertise of its investment managers in selecting those businesses which are best placed to benefit from the current dislocations. I am sure that shareholders will join me in applauding their great achievements in 2019 and in wishing them good fortune in navigating the choppy waters which currently surround us.
John Scott
Chairman
20 April 2020
Manager's Report
The strong cumulative performance of the Company in 2019 is a validation of our investment thesis, namely that, over the longer term, environmental markets will grow faster than the broader economy in order to address the sustainability challenges that the world faces and, as the global population grows and becomes more affluent, to use resources more efficiently.
Specifically, the Company has benefited from strong earnings delivery compared with our benchmarks. Over five years, the portfolio has delivered annualised earnings growth of 8%, in line with the FTSE ET100, and above the 4% delivered by the MSCI ACWI. This earnings growth helped to produce IEM's strong performance relative to its two benchmarks over the course of 2019. The net asset value ("NAV") per Ordinary Share of the Company generated a total return of 30.6%, measured in pounds sterling. That was 8.9% ahead of that returned by the MSCI ACWI, and 1.4% ahead of the FTSE ET100.
KEY DEVELOPMENTS AND DRIVERS FOR ENVIRONMENTAL MARKETS
IEM explores a broad range of environmental investment ideas where we believe growth opportunities exist. These include new energy, waste, water and sustainable food and agriculture sectors, and align with well-known themes such as the war against plastic, the electrification of vehicles and the industrial internet of things.
In 2019 the climate crisis really hit the headlines, due to public protests, extreme weather events and Greta Thunberg's campaign. Thematically this growing awareness was explored within the portfolio by examining opportunities in carbon emission mitigation and adaptation to increasingly adverse weather conditions.
Climate change mitigation
The increasingly noticeable physical impacts of climate change are beginning to trigger medium-term policy commitments. If these are successfully implemented, they would be in line with pledges made in the Paris Agreement to hold the global average temperature rise to no more than 2°C above pre-industrial levels. This presents transition risks for companies, yet also leads to mitigation opportunities.
In July, the UK became the first country to legislate a net-zero emissions target, committing to become carbon neutral by 2050. In December, a similar target was agreed by the EU, despite opposition from a number of Eastern European countries that remain heavily dependent on coal-fired power generation. According to the Energy & Climate Intelligence Unit, a London-based think-tank, around 49% of global GDP is produced by states or regions which have either made such a commitment, or where a commitment is under active political discussion.
These net-zero targets are significant because they are economy-wide. No single sector is off the hook. 2050 may seem like a long way off but, for many economic sectors, decisions and investments will need to be made within the next five years if these targets are to be met. This creates a positive backdrop for IEM portfolio companies offering climate mitigation solutions. Approximately 50% of the IEM portfolio exposure is to climate change mitigation, including 8% Renewable Energy, 27% Energy Efficiency and 15% Sustainable and Efficient Agriculture.
Climate change adaption
To date, mitigation - cutting carbon emissions - has dominated the global response to climate change. Globally, we have seen a significant acceleration of extreme climate events. Australia experienced its hottest and driest year on record, and its worst ever recorded bushfire season, where more than 186,000 km2 of bush was destroyed - more than the size of Denmark. The wildfire season in California saw 7,860 fires and almost 260,000 acres burned. Also in the US, the fourth consecutive above-normal Atlantic hurricane season, with 18 named storms, including six hurricanes, causing billions of dollars of damage. Chennai in India, which is enduring a water crisis, saw government officially declare 19th June 2019 as "Day Zero", the day when almost no water was left. As the disruptive effects of global warming are becoming apparent, investment is increasing in products and services that help companies and individuals manage that disruption and physical asset risk. With approximately 25% of the portfolio exposed to climate change adaption, one of the key focuses for Impax and our engagement with companies, is physical asset climate risk.
Adaptation presents opportunities across a number of IEM sub-sectors. There will be a need for substantial investment to make power grids more resilient in the face of extreme weather and wildfires. Similarly, we are seeing increased demand for micro-grid infrastructure and back-up power. For example, Generac (Power Network Efficiency, US), which offers an integrated generation, storage and power management product, has identified the California market as a major potential source of growth. Penetration of back-up power systems in the state is under 1%, compared with 4% for the US as a whole.
Water infrastructure around the world will also require substantial upgrading, with declining rainfall in some regions necessitating investments to reduce waste. Conversely, flood defences and storm water management will need to be enhanced in other regions to cope with increasing and more intense rainfall and rising sea levels.
A changing climate is also increasing the incentives towards more efficient food and agricultural production. With agriculture accounting for some 70% of water use, the sector is under pressure to use water more efficiently, by use of micro-irrigation techniques, for example, while customers are shifting to less environmentally intensive inputs, such as by replacing cotton with sustainable textiles.
ABSOLUTE PERFORMANCE CONTRIBUTORS AND DETRACTORS
Contributors
Over the year, a significant contribution to the Company's performance was the recovery of a number of portfolio holdings following an aggressive de-rating in Q4 2018. For example, Arcadis (Environmental Consulting, Netherlands) and Itron (Power Network Efficiency, USA), were weak in 2018 due to concerns around their balance sheets and earnings outlook. In 2019, however, both companies delivered strong earnings and cashflow, and successfully paid down debt, driving strong share price performance.
The rapidly falling cost of solar power, together with a resumption in activity in the key Chinese market, drove performance in solar holdings Xinyi Solar (Hong Kong) and Sunpower (US). In addition, the simultaneous declining cost of energy storage or batteries is opening up new opportunities for combined solar plus storage systems, which help address the intermittent nature of solar power and boost growth prospects. Generac, discussed above, has launched a storage product to be sold through its extensive distribution network, which uses software to manage an integrated solution comprising solar, storage and back-up power. Its an attractive new opportunity which contributed to share price performance.
Successful stock picking helped drive returns. Among these new holdings, Indraprastha Gas (Pollution Control Solutions, India), which has the franchise to distribute natural gas in New Delhi, has performed well as India seeks to address crippling urban air pollution. Darling Ingredients (Recycling and Value-Added Waste Processing, US), processes food waste into value-added products such as animal feed and has a joint venture with US refiner Valero to supply biodiesel into California. This also performed well due to supply shortages into the Californian market and an extension of tax credits.
Detractors
There were two areas that exerted a drag on the Company's performance in 2019.
The first was China. The government set aggressive environmental targets in its five-year plan. However, the government has had to shift focus and capital expenditure in the light of ongoing global trade discussions and a slowing economy. This led to weak performance for Zhuzhou CRRC Times Electric (Transport Energy Efficiency, China), which supplies technology for railway infrastructure, and Beijing Enterprise Water (Water Utilities, China). Despite near-term headwinds, we remain convinced of the longer-term investment case and take reassurance from recently renewed governments commitments on infrastructure investment.
The second laggard was software, which switched from being a contributor to performance in 2018 to a detractor in 2019. This was almost entirely the result of company-specific challenges at two holdings - PTC (Industrial Energy Efficiency, USA) and Altair (Industrial Energy Efficiency, USA). PTC is transforming its business from a sales to a subscription model, a process which proved distracting to management. Altair suffered as a result of the slow-down in the automotive sector, to which it is partially exposed. In both cases, we are confident that management is successfully working through the issues they face and we remain confident of the prospects for the two companies and the overall sector.
Performance contribution analysis
|
For year ended 31 December 2019 |
MSCI ACWI COMPARISON % |
FTSE ET100 COMPARISON % |
|
NAV total return |
30.6 |
30.6 |
|
Index total return |
21.7 |
29.2 |
|
Relative performance |
8.9 |
1.4 |
|
Analysis of relative performance |
|
|
|
Portfolio total return |
30.8 |
30.8 |
|
Benchmark total return |
21.7 |
29.2 |
|
Portfolio outperformance |
9.1 |
1.6 |
|
Borrowing: |
|
|
|
Gearing effect |
1.7 |
1.7 |
|
Management fee |
-0.9 |
-0.9 |
|
Other expenses |
-0.2 |
-0.2 |
|
Trading Costs |
-0.4 |
-0.4 |
|
Effect of share issues |
0.1 |
0.1 |
|
Tax |
-0.4 |
-0.4 |
|
Residual |
-0.1 |
-0.1 |
|
Total |
8.9 |
1.4 |
Unquoted holdings
IEM has only one active holding in an unquoted company, Ensyn Corporation, a second-generation biofuels company based in Ontario, Canada, and with operations in the US. Ongoing regulatory challenges in its markets have led to the three write-downs during the year. As at 31 December 2019, the company represented only 17 basis points of the portfolio. We are continuing to monitor the regulatory situation closely and stand ready to further revise the valuation as necessary.
Portfolio positioning, valuation and risk
The Company held a portfolio of 61 listed holdings at the end of 2019. The portfolio is well diversified across regions and environmental subsectors, with detail set out on pages 11 to 14 of the Annual Report and Accounts. The structure is consistent with that presented in the 2019 Half-Yearly Interim Report.
Portfolio activity remains focused on finding attractive investment ideas, particularly those that provide additional diversification and/or economically defensive business models.
At the end of the Period, the portfolio was valued at just over 19 times earnings and a price to book ratio of 3.1x, which is somewhat expensive in absolute terms. However, in price/earnings terms, it was trading at a 20% premium to MSCI ACWI, which is in line with the long term average. Recent turmoil has seen the price to book ratio fall to 2.1x, which is below the long term average.
Outlook
The strong performance of the Company in 2019 underlines our conviction that we are investing in parts of the economy that are set to continue to outperform over the medium to long term. It should be stressed, however, that this level of outperformance is not guaranteed, and its tracking error in relation to global equities is an indicator of the Company's higher risk profile compared with the broader market.
As of the time of writing, COVID-19 has become a global pandemic that is expected to pose unprecedented challenges to society, healthcare services and broad swathes of the economy. Equity markets are increasingly pricing in recessionary scenarios and this presents challenges to parts of the IEM portfolio. While we expect to benefit from zero exposure to Energy and Financials stocks, the structural overweight positions in Industrials and companies with smaller market capitalisations represent a headwind to relative performance against the MSCI ACWI.
There have been areas of strength for the portfolio, notably the utility, testing laboratory, environmental infrastructure and specialty chemicals holdings. At a company level, we have spent a lot of time focusing on companies' balance sheets, as those with even a modest amount of debt have severely underperformed. We are comfortable with the balance sheet strength and cash generation of the portfolio holdings, even in current circumstances.
Market conditions have led to us allocating cash to top up existing names at compelling valuations and has provided an entry point for a new filtration opportunity, which fits our focus on diversification and defensive businesses. We continue to watch central bank monetary policy; governments' fiscal policies and economic stimulus; the expansion of COVID-19, government controls and scientific research; and company balance sheets and their ability to get through the economic hiatus.
COVID-19 will pose many challenges to us all, but nothing in our opinion that undermines the long-term investment hypothesis on which IEM is based. We do expect certain markets (clean water, clean air, testing, climate change adaptation) to emerge stronger at the end of crisis.
We therefore remain optimistic for the long-term outlook of the Company. Sustainability pressures are only becoming greater, as is awareness among policymakers and the general public about the need to address them. This awareness will help drive consumer demand to more sustainable products and services, as well as supporting tightening regulation and policy to require companies to become more resource efficient. In this context, we see an exciting investment opportunity, with a growing universe of companies applying cost competitive sustainability and resource efficiency solutions to an increasingly large proportion of the global economy.
Impax Asset Management (AIFM) Limited
20 April 2020
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, such as those experienced as a consequence of the COVID-19 pandemic, 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 may also invest 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 65 companies.
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 investments 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 third party service providers the management of the investment portfolio, depositary and custody services (which include the safeguarding of the assets), registration services and accounting and company secretary services.
The main risk areas arising from the above contracts relate to performance of the Manager, the performance of administrative, registration, depositary, custodial and banking services, and the failure of information technology systems used by third party service providers. 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 risk management and control systems in operation in so far as they relate to the affairs of the Company. All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis. The Board monitors key person risks as part of its oversight of the Manager.
The control of risks related to the Company's business areas is described in detail in the corporate governance report in the Annual Report and Accounts.
(iv) Cyber security risks
Cyber security risks could potentially lead to breaches of confidentiality, data records being compromised and the inability to make investment decisions. The underlying risks primarily exist in the third party service providers to whom the Company has outsourced its depositary, registration, administration and investment management activities.
Risk mitigation
The Company's key service providers report periodically to the Board on their procedures to mitigate cyber security risks including their alignment with industry standards. The Board also meets with its service providers on a periodic basis.
(v) Regulatory risks
Breaches of Section 1158 of the Corporation Tax Act 2010 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 as detailed on page 27 of the Annual Report and Accounts. 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 detail on financial risks and risk mitigation are disclosed in note 16 to the accounts.
(viii) Global pandemic risk
The rapid spread of infectious disease may cause governments to implement policies to restrict the gathering, interaction or movement of people and take other measures as deemed appropriate to prevent the its spread, causing disruption to the operations of the Company, its key service providers and the companies in which it invests.
Risk mitigation
The Company's key service providers report periodically to the Board on their business continuity plans and procedures. The Board monitors the adequacy of controls in place at the key service providers and their planned response to an extended period of disruption, to ensure that the impact to the Company is limited.
(ix) Physical climate change risk
While efforts to mitigate climate change continue, the physical impacts are already emerging in the form of changing weather patterns. Extreme weather events can result in flooding drought, fires and storm damage, potentially impairing the operations of a portfolio company at a certain location, or impacting locations of companies within their supply chain.
Risk mitigation
Physical climate change risk is still an emerging topic for investors as well as for the management teams of portfolio companies. As such it has been a focus area of research and engagement by the Manager in 2019 to identify companies particularly exposed to this risk and to open a dialogue with them on management options. The Company invests in a broad portfolio of companies which are spread geographically, limiting the impact of location specific weather events.
Emerging risks
The Company has carried out a robust assessment of the Company's emerging and principal risks and the procedures in place to identify emerging risks are described below. International Risk Governance Council defines as 'emerging' a risk that is new, or a familiar risk in a new or unfamiliar context or under new context conditions (re-emerging). Failure to identify emerging risks may cause reactive actions rather than being proactive and, in worse case, could cause the Company to become unviable or otherwise fail or the Company may be forced to change its structure, objective or strategy.
Risk management and mitigation
The Board reviews a risk map at its quarterly Board meetings and an annual formal review of the risk procedures and controls in place at the investment manager and other key service providers is performed. Emerging risk are actively discussed as part of this process and throughout the year in the attempt that emerging (as well as known) risks are identified and, so far as practicable, mitigated.
The market and operational risks and financial impact as a result of the COVID-19 pandemic, and measures introduced to combat its spread, were discussed by the Board, with updates on operational resilience received from the Manager, Administrator and other key service providers. The Manager continues to provide regular updates to the Board on the financial impacts of the pandemic on the portfolio performance and investee companies, as well as the long term effects and opportunities for the sectors in which IEM invests.
The experience and knowledge of the Directors is valuable to these deliberations, as are update papers and advice received from the Board's key service providers such as the Company's investment manager, broker, company secretary and auditor. In addition, the Company is a member of the AIC, which provides regular technical updates as well as drawing members' attention to forthcoming industry and/or regulatory issues and advising on compliance obligations.
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 auditor does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditor accepts 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 shareholders to assess the Company's position and performance, business model and strategy.
For and on behalf of the Board
Julia Le Blan
Director
20 April 2020
|
Income Statement |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Year ended 31 December 2019 |
Year ended 31 December 2018 |
|
||||||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
||||
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
||||
|
Gains/(losses) on investments |
2 |
- |
137,459 |
137,459 |
- |
(54,053) |
(54,053) |
|
||||
|
Net foreign exchange gains/(losses) |
|
- |
513 |
513 |
- |
(887) |
(887) |
|
||||
|
Income |
3 |
10,558 |
- |
10,558 |
9,006 |
- |
9,006 |
|
||||
|
Investment management fees |
4 |
(1,203) |
(3,610) |
(4,813) |
(1,098) |
(3,293) |
(4,391) |
|
||||
|
Other expenses |
4 |
(874) |
- |
(874) |
(754) |
- |
(754) |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Return on ordinary activities before finance costs and taxation |
|
8,481 |
134,362 |
142,843 |
7,154 |
(58,233) |
(51,079) |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Finance costs |
6 |
(295) |
(885) |
(1,180) |
(213) |
(638) |
(851) |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Return on ordinary activities before taxation |
|
8,186 |
133,477 |
141,663 |
6,941 |
(58,871) |
(51,930) |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Taxation |
7 |
(1,371) |
(720) |
(2,091) |
(1,173) |
- |
(1,173) |
|
||||
|
Return on ordinary activities after taxation |
|
6,815 |
132,757 |
139,572 |
5,768 |
(58,871) |
(53,103) |
|
||||
|
Return per Ordinary Share |
8 |
3.63p |
70.63p |
74.26p |
3.20p |
(32.69p) |
(29.49p) |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
The total column of the Income Statement is the profit and loss account of the Company. |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
||||
|
The supplementary revenue and capital columns are provided for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. 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 |
|
|||||||
|
|
|
|
2019 |
2018 |
|
|||||||
|
|
|
Notes |
£'000 |
£'000 |
|
|||||||
|
|
Fixed assets |
|
|
|
|
|||||||
|
|
Investments at fair value through profit or loss |
2 |
674,892 |
474,710 |
|
|||||||
|
|
Current assets |
|
|
|
|
|||||||
|
|
Dividend receivable |
|
131 |
218 |
|
|||||||
|
|
Taxation recoverable |
|
23 |
- |
|
|||||||
|
|
Other debtors |
|
72 |
176 |
|
|||||||
|
|
Cash and cash equivalents |
|
13,818 |
6,481 |
|
|||||||
|
|
|
|
14,044 |
6,875 |
|
|||||||
|
|
Creditors: amounts falling due within one year |
|
|
|
|
|||||||
|
|
Other creditors |
10 |
(1,185) |
(931) |
|
|||||||
|
|
Net current assets |
|
12,859 |
5,944 |
|
|||||||
|
|
Total assets less current liabilities |
|
687,751 |
480,654 |
|
|||||||
|
|
Creditors: amounts falling due after more than one year |
|
|
|
|
|||||||
|
|
Capital gains tax provision |
7 |
(690) |
- |
|
|||||||
|
|
Bank loans and credit facility |
11 |
(30,080) |
(30,691) |
|
|||||||
|
|
Net assets |
|
656,981 |
449,963 |
|
|||||||
|
|
Capital and reserves: equity |
|
|
|
|
|||||||
|
|
Share capital |
12 |
22,574 |
22,574 |
|
|||||||
|
|
Share premium account |
|
62,162 |
16,035 |
|
|||||||
|
|
Capital redemption reserve |
|
9,877 |
9,877 |
|
|||||||
|
|
Share purchase reserve |
|
123,239 |
96,432 |
|
|||||||
|
|
Capital reserve |
13 |
428,357 |
295,600 |
|
|||||||
|
|
Revenue reserve |
|
10,772 |
9,445 |
|
|||||||
|
|
Shareholders' funds |
|
656,981 |
449,963 |
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
Net assets per Ordinary Share |
14 |
321.83p |
249.58p |
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
Approved by the Board of Directors and authorised for issue on 20 April 2020 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 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
FOR THE YEAR ENDED 31 DECEMBER 2019 |
|
Share capital |
Share premium account |
Capital redemption reserve |
Share purchase reserve |
Capital reserve |
Revenue reserve |
Total |
|||
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
Opening equity as at 1 January 2019 |
|
22,574 |
16,035 |
9,877 |
96,432 |
295,600 |
9,445 |
449,963 |
|||
|
Dividend paid |
9 |
- |
- |
- |
- |
- |
(5,488) |
(5,488) |
|||
|
Shares sold from treasury |
12 |
- |
46,127 |
- |
26,807 |
- |
- |
72,934 |
|||
|
Return for the year |
|
- |
- |
- |
- |
132,757 |
6,815 |
139,572 |
|||
|
Closing equity as at 31 December 2019 |
|
22,574 |
62,162 |
9,877 |
123,239 |
428,357 |
10,772 |
656,981 |
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
YEAR ENDED 31 DECEMBER 2018 |
|
Share capital |
Share premium account |
Capital redemption reserve |
Share purchase reserve |
Capital reserve |
Revenue reserve |
Total |
|||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
Opening equity as at 1 January 2018 |
|
22,574 |
16,035 |
9,877 |
95,772 |
354,471 |
8,178 |
506,907 |
|||
|
Dividend paid |
9 |
- |
- |
- |
- |
- |
(4,501) |
(4,501) |
|||
|
Shares sold from treasury |
12 |
- |
- |
- |
660 |
- |
- |
660 |
|||
|
Return 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 |
|||
|
The Company's distributable reserve consists of the Share purchase reserve, Capital reserve attributable to realised profits and Revenue reserve. |
|
||||||||||
|
|
|
||||||||||
|
|
Statement of Cash Flows |
|
|
||||||||
|
|
|
|
|
|
|
||||||
|
|
|
|
Year ended 31 December 2019 |
Year ended 31 December 2018 |
|
||||||
|
|
|
Notes |
£'000 |
£'000 |
|
||||||
|
|
Operating activities |
|
|
|
|
||||||
|
|
Return on ordinary activities before finance costs and taxation* |
|
142,843 |
(51,079) |
|
||||||
|
|
Less: Tax deducted at source on income from investments |
|
(1,371) |
(1,173) |
|
||||||
|
|
Foreign exchange non cash flow (gains)/losses |
|
(611) |
84 |
|
||||||
|
|
Adjustment for (gains)/losses on investments |
2 |
(137,459) |
54,053 |
|
||||||
|
|
Decrease/(increase) in other debtors |
|
168 |
(275) |
|
||||||
|
|
Increase/(decrease) in other creditors |
|
240 |
(41) |
|
||||||
|
|
Net cash flow from operating activities |
|
3,810 |
1,569 |
|
||||||
|
|
|
|
|
|
|
||||||
|
|
Investing activities |
|
|
|
|
||||||
|
|
Add: Sale of investments |
|
150,731 |
111,485 |
|
||||||
|
|
Less: Purchase of investments |
|
(213,454) |
(115,891) |
|
||||||
|
|
Net cash flow used in investing |
|
(62,723) |
(4,406) |
|
||||||
|
|
|
|
|
|
|
||||||
|
|
Financing activities |
|
|
|
|
||||||
|
|
Equity dividends paid |
9 |
(5,488) |
(4,501) |
|
||||||
|
|
Repayment of credit facility |
|
- |
(29,297) |
|
||||||
|
|
Proceeds from bank loans |
|
- |
30,462 |
|
||||||
|
|
Finance costs paid |
|
(1,196) |
(1,060) |
|
||||||
|
|
Share sold from treasury |
12 |
72,934 |
660 |
|
||||||
|
|
Net cash flow from/(used in) financing |
|
66,250 |
(3,736) |
|
||||||
|
|
Increase/(decrease) in cash |
|
7,337 |
(6,573) |
|
||||||
|
|
Cash and cash equivalents at start of year |
|
6,481 |
13,054 |
|
||||||
|
|
Cash and cash equivalents at end of year |
|
13,818 |
6,481 |
|
||||||
|
|
|
|
|
|
|
||||||
* Cash inflow includes dividends income received £10,619,000 (31 December 2018: £8,878,000) and bank interest of £26,000 (31 December 2018: £nil)
Changes in net debt note
|
|
|
YEAR ENDED 31 DECEMBER 2019 £'000 |
YEAR ENDED 31 DECEMBER 2018 £'000 |
|
|
Net debt at start of year |
|
(24,210) |
(16,338) |
|
|
Increase in cash and cash equivalents |
|
7,337 |
(6,573) |
|
|
Foreign exchange movements |
|
611 |
(84) |
|
|
Repayment of credit facility |
|
- |
29,297 |
|
|
Proceeds from bank loans |
|
- |
(30,462) |
|
|
Net debt at end of year |
|
(16,262) |
(24,210) |
|
|
|
|
|||
|
|
|
|
|
|
|
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. |
||||
|
|
||||
|
(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 October 2019.
The accounts have been prepared on a going concern basis. Details of the Directors assessment of the going concern status of the Company, which considered the adequacy of the Company's resources and the impacts of the COVID-19 pandemic, are given on page 29 of the Annual Report and Accounts.
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. |
||||
|
|
||||
|
(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) Nature and purpose of equity and reserves: |
||||
|
Share capital represents the 10p nominal value of the issued share capital.
The share premium account arose from the net proceeds of new shares and from the excess proceeds received on the sale of shares from treasury over the repurchase cost.
The capital redemption reserve represents the nominal value of shares repurchased for cancellation.
The share purchase reserve was created following shareholders' approval and confirmation of the Court, through the cancellation and transfer of £44,125,000 in December 2002 and £246,486,789 in July 2009 from the share premium account. This reserve may only be used for share repurchases, both into treasury or for cancellation. When shares are subsequently reissued from treasury, the amount equal to their repurchase cost is reflected in this reserve, with any proceeds in excess of the repurchase cost transferred to the share premium account.
The capital reserve reflects any: • gains or losses on the disposal of investments; • exchange movements of a capital nature; • the increases and decreases in the fair value of investments which have been recognised in the capital column of the income statement; and • expenses which are capital in nature
Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve.
The revenue reserve reflects all income and expenditure recognised in the revenue column of the income statement and is distributable by way of dividend.
The Company's distributable reserve consists of the share purchase reserve, the capital reserve and the revenue 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 premium account. No gain or loss is recognised in the financial statements on transactions in treasury shares. |
||||
|
2 Investments at fair value through profit or loss |
|
|
|||||||||||||||
|
|
|
|
|
||||||||||||||
|
|
2019 |
2018 |
|
||||||||||||||
|
(a) Summary of valuation |
£'000 |
£'000 |
|
||||||||||||||
|
Analysis of closing balance: |
|
|
|
||||||||||||||
|
UK quoted securities |
75,184 |
41,505 |
|
||||||||||||||
|
Overseas quoted securities |
598,519 |
425,318 |
|
||||||||||||||
|
Overseas unquoted securities |
1,189 |
7,887 |
|
||||||||||||||
|
Total investments |
674,892 |
474,710 |
|
||||||||||||||
|
|
|
|
|
||||||||||||||
|
(b) Movements during the year |
|
|
|
||||||||||||||
|
Opening balance of investments, at cost |
401,240 |
365,331 |
|
||||||||||||||
|
Additions, at cost |
213,454 |
115,687 |
|
||||||||||||||
|
Disposals, at cost |
(110,929) |
(79,778) |
|
||||||||||||||
|
Cost of investments at 31 December |
503,765 |
401,240 |
|
||||||||||||||
|
Revaluation of investments to fair value: |
|
|
|
||||||||||||||
|
Opening balance of capital reserve - investments held |
73,470 |
158,974 |
|
||||||||||||||
|
Unrealised gains/(losses) on investments held |
97,657 |
(85,504) |
|
||||||||||||||
|
Balance of capital reserve - investments held at 31 December |
171,127 |
73,470 |
|
||||||||||||||
|
Fair value of investments at 31 December |
674,892 |
474,710 |
|
||||||||||||||
|
|
|
|
|
||||||||||||||
|
(c) Gains/(losses) on investments in year (per Income Statement) |
|
|
|||||||||||||||
|
Gains on disposal of investments |
40,163 |
31,478 |
|
||||||||||||||
|
Net transaction costs |
(361) |
(27) |
|
||||||||||||||
|
Unrealised gains/(losses) on investments held |
97,657 |
(85,504) |
|
||||||||||||||
|
Gains/(losses) on investments |
137,459 |
(54,053) |
|
||||||||||||||
|
During the year, the Company incurred transaction costs on purchases totalling in aggregate £304,000 (2018: £111,000) and on disposals totalling in aggregate £142,000 (2018: £73,000). Following MiFID II, the Manager has rebated £85,000 (2018: £74,000 and £83,000 in relation to prior periods) in respect of transaction research costs for the year ended 31 December 2019. Transaction costs are recorded in the capital column of the Income Statement.
The Company received £150,950,000 (2018: £111,183,000) from investments sold in the year. The book cost of these investments when they were purchased was £110,929,000 (2018: £79,778,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Classification of financial instruments |
|
|
|||||||||||||||
|
FRS 102 requires classification of financial instruments within 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 2019 |
31 December 2018 |
|
|
|||||||||||||
|
|
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 or loss |
|
|
|
|
|
|
|||||||||||
|
- Quoted |
673,703 |
- |
- |
673,703 |
466,823 |
- |
- |
466,823 |
|
|
|||||||
|
- Unquoted |
- |
- |
1,189 |
1,189 |
- |
- |
7,887 |
7,887 |
|
|
|||||||
|
|
673,703 |
- |
1,189 |
674,892 |
466,823 |
- |
7,887 |
474,710 |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
The movement on the Level 3 unquoted investments during the year is shown below: |
|||||||||||||||||
|
|
|
|
|
2019 |
2018 |
|
|
||||||||||
|
|
|
|
|
£'000 |
£'000 |
|
|
||||||||||
|
Opening balance |
|
|
|
7,887 |
9,911 |
|
|
||||||||||
|
Additions during the year |
|
|
|
- |
- |
|
|
||||||||||
|
Disposals during the year |
|
|
|
- |
- |
|
|
||||||||||
|
Valuation adjustments |
|
|
|
(6,391) |
(2,629) |
|
|
||||||||||
|
Foreign exchange movements |
|
|
|
(307) |
605 |
|
|
||||||||||
|
Closing balance |
|
|
|
1,189 |
7,887 |
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
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. At the year end the Company had one active unlisted holding, Ensyn. The value of the Company's holding in Ensyn has been valued in US dollars based on peer analysis prepared by the Manager and translated into sterling using the applicable foreign exchange rate at the Company's year end.
The Company holds three unquoted investments which were written off in full more than two years ago: Emergya Wind Technologies, New Earth Recycling and Renewable and Pelamis Wave Power. |
|
||||||||||||||||
|
3 Income |
|
|
|
||||||||||||||
|
|
|
|
|
||||||||||||||
|
|
2019 |
2018 |
|
||||||||||||||
|
|
£'000 |
£'000 |
|
||||||||||||||
|
Dividends from UK listed investments |
1,100 |
793 |
|
||||||||||||||
|
Dividends from overseas listed investments |
9,432 |
8,213 |
|
||||||||||||||
|
Bank interest received |
26 |
- |
|
||||||||||||||
|
Total Income |
10,558 |
9,006 |
|
||||||||||||||
|
4 Fees and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
2018 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Investment management fees |
1,203 |
3,610 |
4,813 |
1,098 |
3,293 |
4,391 |
|
Secretary and administrator fees |
190 |
- |
190 |
193 |
- |
193 |
|
Depository and custody fees |
198 |
- |
198 |
165 |
- |
165 |
|
Directors' fees |
146 |
- |
146 |
134 |
- |
134 |
|
Directors' other costs |
13 |
- |
13 |
5 |
- |
5 |
|
Broker retainer |
60 |
- |
60 |
51 |
- |
51 |
|
Auditor's fees |
27 |
- |
27 |
28 |
- |
28 |
|
Association of Investment Companies |
21 |
- |
21 |
21 |
- |
21 |
|
Registrar's fees |
55 |
- |
55 |
48 |
- |
48 |
|
Marketing fees |
10 |
- |
10 |
20 |
- |
20 |
|
Public Relations fees |
69 |
- |
69 |
36 |
- |
36 |
|
FCA and listing fees |
39 |
- |
39 |
27 |
- |
27 |
|
Printing fees |
24 |
- |
24 |
15 |
- |
15 |
|
Other expenses |
22 |
- |
22 |
11 |
- |
11 |
|
|
874 |
- |
874 |
754 |
- |
754 |
|
Total expenses |
2,077 |
3,610 |
5,687 |
1,852 |
3,293 |
5,145 |
|
5 Directors' fees |
|
Full detail on directors' fees in the year is provided in the Directors' Remuneration Implementation Report. |
|
Employer's National Insurance upon the fees is included as appropriate in directors' other employment costs under note 4. As at 31 December 2019, directors and national insurance fees outstanding was £12,000 (2018: £30,000) |
|
6 Finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
2018 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Interest charges |
288 |
865 |
1,153 |
211 |
635 |
846 |
|
Direct finance costs |
7 |
20 |
27 |
2 |
3 |
5 |
|
Total |
295 |
885 |
1,180 |
213 |
638 |
851 |
|
|
|
|
|
|
|
|
|
Facility arrangement costs amounting to £72,000 are amortised over the life of the facility on a straight-line basis. |
||||||
|
7 Taxation |
|
|
|
|
|
|
|
|
(a) Analysis of charge in the year |
|
|
|
||||
|
|
2019 |
2018 |
|
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Overseas taxation |
1,371 |
- |
1,371 |
1,173 |
- |
1,173 |
|
|
Capital gain tax provision |
- |
720 |
720 |
- |
- |
- |
|
|
Taxation |
1,371 |
720 |
2,091 |
1,173 |
- |
1,173 |
|
|
|
|
|
|
|
|
|
|
|
(b) Factors affecting total tax charge for the year: |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
The standard rate UK corporation tax rate at 31 December 2019 was 19.00% (2018: 19.00%). The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company. |
|
||||||
|
|
|
|
|
|
|
|
|
|
The differences are explained below: |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
|
|
|
|
|
£'000 |
£'000 |
|
|
Total return before tax per accounts |
|
|
141,663 |
(51,930) |
|
||
|
Corporation tax at 19.00% (2018: 19.00%) |
|
|
26,916 |
(9,867) |
|
||
|
Effects of: |
|
|
|
|
|
|
|
|
Non-taxable UK dividend income |
|
|
|
(209) |
(151) |
|
|
|
Non-taxable overseas dividend income |
|
|
(1,792) |
(1,561) |
|
||
|
Non-taxable interest income |
|
|
|
(5) |
- |
|
|
|
Movement in unutilised management expenses |
|
1,080 |
978 |
|
|||
|
Movement on non-trade relationship deficits |
|
225 |
162 |
|
|||
|
(Gain)/loss on investments not taxable |
|
|
|
(26,117) |
10,270 |
|
|
|
(Gain)/loss on foreign currency movement |
|
|
|
|
(98) |
169 |
|
|
Capital gain tax provision |
|
|
|
|
720 |
- |
|
|
Overseas taxation |
|
|
|
|
1,371 |
1,173 |
|
|
Total tax charge for the year |
|
|
|
2,091 |
1,173 |
|
|
|
|
|
|
|
|
|
|
|
|
c) Investment companies which have been approved by 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 UK deferred tax on any capital gains or losses arising on the revaluation of investments.
The capital gains tax provision represents an estimate of the amount of tax provisionally payable by the Company on direct investment in Indian equities. It is calculated based on the long term or short term nature of the investments and the unrealised gain thereon at the applicable tax rate at the year end. |
|||||||
|
|
|
|
|
|
|
|
|
|
(d) The Company has unrelieved excess management expenses and non-trade relationship deficits of £56,532,000 (2018: £49,483,000). 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 19% (2018: 17%) amounts to £10,700,000 (2018: £8,400,000). |
|||||||
|
8 Return per share |
|
|
|
Return per share is based on the net gain on ordinary activities after taxation of £139,572,000 comprising a revenue return of £6,815,000 and a capital return of £132,757,000 (2018: loss of £53,103,000 comprising a revenue return of £5,768,000 and a capital loss of £58,871,000) attributable to the weighted average of 187,961,095 (2018: 180,054,314) Ordinary Shares of 10p in issue (excluding Treasury shares) during the year. |
|
9 Dividends |
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Dividends reflected in the financial statements: |
|
|
|
Final dividend paid for the year ended 31 December 2018 of 3.00p (2017: 2.50p) |
5,488 |
4,501 |
|
Dividends not reflected in the financial statements: |
|
|
|
Declared ordinary interim dividend for the year ended 31 December 2019 of 3.00p (2018: 3.00p) per share |
6,862 |
5,488 |
|
|
|
|
|
The interim dividend will be paid on 24 April 2020 to shareholders on the register as at the close of business on 3 April 2020, with an ex-dividend date of 2nd April 2020. |
||
|
10 Creditors: Amounts falling due within one year |
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Finance costs payable |
77 |
93 |
|
Accrued management fees |
865 |
709 |
|
Other accrued expenses |
243 |
129 |
|
Total |
1,185 |
931 |
|
11 Bank loans and credit facility |
|
|
|
|
|
|
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Bank loan |
|
|
|
Between two and five years |
30,080 |
30,691 |
|
|
|
|
|
On 6 September 2018, the Company entered into five-year fixed rate multi-currency US$ 20 million and £15 million loans with Scotiabank Europe plc ('Scotiabank').
Interest is payable on the loans at the rate of 2.910% per annum in respect of the GB£ loan and at the rate of 4.504% per annum in respect of the US$ loan. The loans expire on 6 September 2023.
As at 31 December 2019, the loans were fully drawn down and the Company's loans outstanding aggregated to £30,080,000, 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 |
15,080 |
|
|
|
30,080 |
The Company also has a £20 million multi-currency revolving credit facility with Scotiabank, of which £2.5 million is committed and nil was drawn down at the period end. Interest is payable on amounts drawn down under the credit facility computed at the agreed rate of LIBOR plus a margin of 1.70% per annum. The facility expires on 6 September 2023.
The Company's loans and revolving credit facility contain the following covenants, with which failure to comply could necessitate the early repayment of the loan:
1) Adjusted asset coverage should not be less than 4:1
2) Net Asset Value should not be less than £260,000,000
3) The maximum permitted borrowing should not exceed that permitted in the Company's Articles of Association as described in the Gearing section of the Investment Policy on page 16 of the Annual Report and Accounts.
|
12 Share capital |
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2019 |
As at 31 December 2018 |
||
|
|
|
Issued and fully paid |
|
Issued and fully paid |
|
|
Number |
£'000 |
Number |
£'000 |
|
Ordinary Shares of 10p |
|
|
|
|
|
Opening Balance |
225,737,355 |
22,574 |
225,737,355 |
22,574 |
|
Shares bought back for cancellation in year |
- |
- |
- |
- |
|
Closing balance |
225,737,355 |
22,574 |
225,737,355 |
22,574 |
|
|
|
|
|
|
|
At the year end 21,598,109 (2018: 45,448,109) of the above Ordinary Shares were held in treasury. The number of shares in issue (excluding shares held in treasury) as at 31 December 2019 was 204,139,246 Ordinary Shares (2018: 180,289,246). |
||||
|
|
|
|
|
|
|
Ordinary Share buybacks and Share issues |
|
|
|
|
|
During the year, the Company reissued 23,850,000 Ordinary Shares from treasury (2018: 250,000), for aggregate proceeds of £72,934,000 (2018: £660,000). |
||||
|
Since the year end, all 21,598,109 Ordinary Shares that were held in treasury have been reissued, with a further 5,182,000 new shares issued up to the date of this report. |
||||
|
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 |
|
|
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Opening balance |
222,130 |
195,498 |
|
Gains on disposal of investments |
40,163 |
31,478 |
|
Net transaction costs |
(361) |
(27) |
|
Net foreign exchange gain/(loss) |
513 |
(887) |
|
Investment management fees charged to capital |
(3,610) |
(3,293) |
|
Finance costs charged to capital |
(885) |
(639) |
|
Taxation charges to capital |
(720) |
- |
|
Balance at 31 December |
257,230 |
222,130 |
|
|
|
|
|
Investments held |
|
|
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Opening balance |
73,470 |
158,974 |
|
Movement on revaluation of investments held |
97,657 |
(85,504) |
|
Balance at 31 December |
171,127 |
73,470 |
|
Capital reserve balance at 31 December |
428,357 |
295,600 |
|
14 Net asset value per Ordinary Share |
|
|
|||
|
|
|
|
|||
|
Net asset value per Ordinary Share is based on net assets of £656,981,000 (2018: £449,963,000) divided by 204,139,246 (2018: 180,289,246) 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. |
|
||||
|
|
|
|
|||
|
|
|
|
|
||
|
15 Transactions with the Manager and related party transactions
Details of the management contract can be found in the Directors' Report. Fees payable to the Manager are detailed in note 4. 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. |
|||||
|
16 Financial risk management |
|
|
|||||||||||||
|
|
|
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As an investment trust, the Company invests in 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 which can be found on page 15 of the Annual Report and accounts. 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 is 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. |
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Market risks |
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The potential market risks are (i) currency risk, (ii) interest rate risk, and (iii) other price risk. Each is considered in turn below. |
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(i) Currency risk |
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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 2019 are detailed in the table at the end of this note. |
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Currency sensitivity |
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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 2019. |
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2019 |
2018 |
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|
|
|
%change1 |
%change1 |
|||||||
|
Australian Dollar |
|
|
|
|
|
|
(4.3) |
(4.5) |
|||||||
|
Canadian Dollar |
|
|
|
|
|
|
0.9 |
(2.5) |
|||||||
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Danish Krone |
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|
|
|
|
|
(6.2) |
0.8 |
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Euro |
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|
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(6.1) |
1.0 |
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Hong Kong Dollar |
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|
|
|
|
|
(3.5) |
5.5 |
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Indian Rupee |
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|
|
|
|
|
(6.4) |
(2.8) |
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Japanese Yen |
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|
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(3.0) |
8.2 |
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Korean Won |
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|
|
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(7.9) |
1.7 |
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Norwegian Krone |
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|
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(5.6) |
0.4 |
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Swedish Krona |
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(9.6) |
(2.3) |
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Swiss Franc |
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(2.3) |
4.9 |
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Taiwanese Dollar |
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|
|
|
(1.7) |
2.8 |
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Thai Baht |
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4.2 |
6.5 |
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US Dollar |
|
|
|
|
|
|
(4.1) |
5.8 |
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1. Percentage change of Sterling against local currency from 1 January 2019 to 31 December 2019. |
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Based on the financial assets and liabilities at 31 December 2019 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 2019 and the Company's net assets at 31 December 2019 would have been as follows: |
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2019 |
2018 |
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Potential effect |
Potential effect |
|
||||||
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|
£'000 |
£'000 |
|
||||||
|
Australian Dollar |
|
|
|
|
|
|
1,511 |
1,497 |
|
||||||
|
Canadian Dollar |
|
|
|
|
|
|
377 |
314 |
|
||||||
|
Danish Krone |
|
|
|
|
|
|
1,037 |
425 |
|
||||||
|
Euro |
|
|
|
|
|
|
12,930 |
9,359 |
|
||||||
|
Hong Kong Dollar |
|
|
|
|
|
|
4,350 |
3,229 |
|
||||||
|
Indian Rupee |
|
|
|
|
|
|
1,424 |
818 |
|
||||||
|
Japanese Yen |
|
|
|
|
|
|
1,145 |
1,431 |
|
||||||
|
Korean Won |
|
|
|
|
|
|
1,277 |
1,046 |
|
||||||
|
Norwegian Krone |
|
|
|
|
|
|
3,105 |
1,454 |
|
||||||
|
Swedish Krona |
|
|
|
|
|
|
1,191 |
1,005 |
|
||||||
|
Swiss Franc |
|
|
|
|
|
|
2,396 |
592 |
|
||||||
|
Taiwanese Dollar |
|
|
|
|
|
|
1,388 |
1,275 |
|
||||||
|
Thai Baht |
|
|
|
|
|
|
- |
739 |
|
||||||
|
US Dollar |
|
|
|
|
|
|
28,944 |
20,834 |
|
||||||
|
Total |
|
|
|
|
|
|
61,075 |
44,018 |
|
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|
(ii) Interest rate risk |
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The Company is typically fully invested in global equities but will from time to time hold interest bearing assets. These assets are cash balances that earn interest at a floating rate and, typically, UK Treasury Bills when large amounts of cash are held.
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.
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|
The Company's £20 million multi-currency revolving credit facility, of which £2.5 million is committed, is based on a floating interest rate of Libor plus a margin of 1.70% per annum. The facility has not been drawn down and as such no interest rate sensitivity analysis is required. |
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|
(iii) Other price risk |
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|
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 6.4% over the ten year period to 31 December 2019. The historic 3-year (annualised) volatility of the Company to 31 December 2019 is 11.4%. |
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At the year end the Company held investments with an aggregate market value of £674,892,000 (2018: £474,710,000). 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 £67,489,200 (2018: £47,471,000) in the profit after taxation for the year ended 31 December 2019 and the Company's net assets at 31 December 2019. |
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Overall sensitivity |
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The Manager has used the Parametric VaR to calculate value at risk ('VAR'). This model has been used to estimate the maximum expected loss from the portfolio held at 31 December 2019 over 1 day, 5 day, 10 day and 21 day periods given the historical performance of the fund over the previous five years. The data in the previous five years is analysed under discrete periods to provide 1 in 10, 1 in 20 and 1 in 100 possible outcomes. The results of the analysis are shown below.
|
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|
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|
2019 |
|
|
2018 |
|
||||||
|
|
Expected as percentage at limit |
Expected as percentage at limit |
|
||||||||||
|
|
|
1 in 20 (95%) |
1 in 100 (99%) |
|
1 in 20 (95%) |
1 in 100 (99%) |
|
||||||
|
1 day return |
|
1.11 |
1.57 |
|
1.19 |
1.68 |
|
||||||
|
5 day return |
|
2.48 |
3.51 |
|
2.65 |
3.75 |
|
||||||
|
10 day return |
|
3.51 |
4.97 |
|
3.75 |
5.30 |
|
||||||
|
21 day return |
|
5.21 |
7.37 |
|
3.56 |
7.87 |
|
||||||
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 2019.
The above results suggest, for example, that there is a 5% or less chance of the NAV falling by 2.48% or more over a 5 day period. Similarly, there is a 1% or less chance of the NAV falling by 1.57% 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 2019 included £5,637,000 (2018: £6,365,000) held in its bank accounts at the Depositary. The Company also held £8,181,000 (2018: £116,000) 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 £673,703,000 (2018: £466,823,000) in respect of quoted investments.
The credit rating of the 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 3 Month Average Liquidities of each investment and assuming 15% of the daily traded volume.
As shown in the quantitative analysis below, on 31 December 2019, 2.9% 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 2019 and the results for different time bands are reported as follows:
|
Percentage of portfolio by value that could be liquidated in one week |
|
70.44 |
|
|
Percentage of portfolio by value that could be liquidated in one month |
|
91.96 |
|
|
Percentage of portfolio by value that could be liquidated in three months |
|
97.10 |
|
|
Percentage of portfolio by value that could be liquidated in one year |
|
|
99.83 |
The Company may invest up to 10% of its net assets into pre-IPO investments which are possible candidates for flotation.
Financial liabilities by maturity at the year-end are shown below:
|
|
|
|
|
|
|
2019 |
2018 |
|
||||||
|
|
|
|
|
|
|
'000 |
'000 |
|
||||||
|
Less than one year |
|
|
|
|
|
1,875 |
1,908 |
|
||||||
|
Between one and five years* |
|
|
|
|
30,080 |
34,104 |
|
|||||||
|
|
|
|
|
|
|
31,955 |
36,012 |
|
||||||
|
*Bank loans. |
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|
|
|
|
|
|
|
||||||
|
Financial assets and liabilities |
||||||||||||||
|
All liabilities carrying amount approximates fair value. |
||||||||||||||
|
The Company's financial assets and liabilities at 31 December 2019 comprised: |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
2019 |
2018 |
||||||||||
|
|
|
|
Interest bearing |
Non-interest bearing |
Total |
Interest bearing |
Non-interest bearing |
Total |
||||||
|
|
|
|
'000 |
'000 |
'000 |
'000 |
'000 |
'000 |
||||||
|
Investments |
|
|
|
|
|
|
|
|
||||||
|
Australian Dollar |
|
|
- |
15,109 |
15,109 |
- |
14,968 |
14,968 |
||||||
|
Canadian Dollar |
|
|
- |
3,768 |
3,768 |
- |
3,139 |
3,139 |
||||||
|
Danish Krone |
|
|
- |
10,370 |
10,370 |
- |
4,254 |
4,254 |
||||||
|
Euro |
|
|
- |
129,304 |
129,304 |
- |
93,593 |
93,593 |
||||||
|
Hong Kong Dollar |
|
|
- |
43,497 |
43,497 |
- |
32,291 |
32,291 |
||||||
|
Indian Rupee |
|
|
- |
14,236 |
14,236 |
- |
8,179 |
8,179 |
||||||
|
Japanese Yen |
|
|
- |
11,452 |
11,452 |
- |
14,310 |
14,310 |
||||||
|
Korean Won |
|
|
- |
12,773 |
12,773 |
- |
10,462 |
10,462 |
||||||
|
Norwegian Krone |
|
|
- |
31,053 |
31,053 |
- |
14,539 |
14,539 |
||||||
|
Sterling |
|
|
- |
64,151 |
64,151 |
- |
34,537 |
34,537 |
||||||
|
Swedish Krona |
|
|
- |
11,906 |
11,906 |
- |
10,050 |
10,050 |
||||||
|
Swiss Franc |
|
|
- |
23,957 |
23,957 |
- |
5,918 |
5,918 |
||||||
|
Taiwanese Dollar |
|
|
- |
13,878 |
13,878 |
- |
12,749 |
12,749 |
||||||
|
Thai Baht |
|
|
- |
- |
- |
- |
7,386 |
7,386 |
||||||
|
US Dollar |
|
|
- |
289,438 |
289,438 |
- |
208,335 |
208,335 |
||||||
|
|
|
|
- |
674,892 |
674,892 |
- |
474,710 |
474,710 |
||||||
|
Other assets and liabilities |
|
|
|
|
|
|
|
|
||||||
|
Cash and cash equivalents |
|
13,818 |
- |
13,818 |
6,481 |
- |
6,481 |
|||||||
|
Short term debtors |
|
|
- |
226 |
226 |
- |
394 |
394 |
||||||
|
Short term creditors |
|
|
- |
(1,875) |
(1,875) |
- |
(931) |
(931) |
||||||
|
Long term creditors |
|
|
(30,080) |
- |
(30,080) |
(30,691) |
- |
(30,691) |
||||||
|
|
|
|
(16,262) |
673,243 |
656,981 |
(24,210) |
474,173 |
449,963 |
||||||
|
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||||||
|
|
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|
|
|
|
|
|
|
||||||
|
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 2019 there were 225,737,355 Ordinary Shares in issue (of these shares 21,598,109 were held in Treasury at the year-end). (2018: 225,737,355 Ordinary Shares were in issue; of these shares 45,448,109 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 bought back no Ordinary Shares during the year (2018: nil).
|
||||||||||||||
|
The Company's policy on borrowings is detailed in the Directors' Report. |
||||||||||||||
17 Post balance sheet events
Since the period end and up to the date of this report, the Company has issued 26,780,109 Ordinary Shares raising net proceeds of £83.7 million.
Due to the impact of COVID-19 on financial markets and investors, the value of the investment portfolio has fallen since the end of the period as reflected in the daily NAV announcements.
18 Financial information
This announcement does not constitute the Company's statutory accounts. The financial information for 2019 is derived from the statutory accounts for 2019, which will be delivered to the registrar of companies. The statutory accounts for 2018 have been delivered to the registrar of companies. The auditors have reported on the 2019 and 2018 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 2019 was approved on 20 April 2020. 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.
19 Annual General Meeting
In line with the requirements of the Companies Act 2006, the Company will hold an Annual General Meeting of shareholders to consider the resolutions laid out in the Notice of Meeting. The Annual General Meeting will be held at Colney Fields Shopping Park, London Colney, St Albans, AL2 1BW on 21 May 2020 at 2.00 pm. There will be no presentation from the Investment Manager and the sole business of the meeting will be to propose the resolutions set out in the Notice of Meeting on pages 67 to 68 of the Annual Report and Accounts.
In response to the current COVID-19 crisis, the UK Government has established stay at home measures prohibiting, amongst other things, public gatherings of more than two people. In light of these measures, the AGM will be run as a closed meeting and shareholders will not be able to attend in person. Shareholders attempting to attend the AGM will be refused entry.
The Board will make arrangements such that the legal requirements to hold the meeting can be satisfied through the attendance of two shareholders. Shareholders should therefore vote by proxy. Given the restrictions on attendance, shareholders are encouraged to appoint the "Chairman of the Meeting" as their proxy rather than another person who will not be permitted to attend the meeting. Details of how to vote, either electronically, by proxy form or through CREST, can be found in the Notes to the Notice of AGM on pages 69 to 70 of the Annual Report and Accounts.
The outcome of the resolutions will as usual be determined by shareholder vote based on the proxy votes received. All valid proxy appointments (whether submitted electronically or in hard copy form) will be included in the poll to be taken at the AGM. The results of the poll will be announced to the London Stock Exchange and placed on the Company's website, in the usual way, as soon as practicable after the conclusion of the AGM.
Should a shareholder have a question that they would have raised at the AGM, either of the Board or the Investment Manager, the Board would ask that they send it by email to clientservices@impaxam.com by the 18 of May 2020. Answers to questions will be published on the Company's website in advance of the AGM.
This situation is constantly evolving, and the UK Government may change the current restrictions or implement further measures during the affected period. Shareholders should monitor the Company's website at www.impaxenvironmentalmarkets.co.uk and London Stock Exchange announcements for any updates regarding the AGM. Alternatively, shareholders can contact the Registrar, Link Asset Services, for updated information (please see Notes to the Notice of AGM on pages 69 to 70 of the Annual Report and Accounts for the Registrar's contact details).
20 April 2020
Secretary and registered office:
PraxisIFM Fund Services (UK) Limited
Tel: 020 7653 9690
3rd Floor, Mermaid House, 2 Puddle Dock, London, EC4V 3DB
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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