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Impax Asian Env Mkt (IAEM)

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Friday 07 October, 2011

Impax Asian Env Mkt

Final Results

RNS Number : 8245P
Impax Asian Environmental Mkts Plc
07 October 2011
 



IMPAX ASIAN ENVIRONMENTAL MARKETS PLC ("IAEM")

 

Annual Financial Report Announcement

For the year ended 30 June 2011

 

 

·             Increase in undiluted net asset value ("NAV") per Ordinary Share of 8.2% over the year

·             Successful raising of £131 million of additional capital through an issue of C Shares

·             Long-term gearing facility of US$50 million secured, with US$25 million drawn down and invested to date

·             A proposed final dividend of 0.95p per Ordinary Share to be paid on 1 December 2011 to Shareholders on the register on 28 October 2011

·             Positive outlook for the Company as Asian environmental markets benefit from significant policy developments in China and India as well as from new energy policy in Japan following damage to the Fukushima-Daiichi nuclear power plant.

 

Allan McKenzie, Chairman, said:

"While short term volatility in global markets is likely to persist until sovereign debt issues are resolved and recession fears are overcome there remain positive policy developments and higher earnings growth prospects for the Company's holdings.  Against this background the Directors continue to believe that IAEM represents an attractive proposition to investors with a medium to long term perspective."

 

Bruce Jenkyn-Jones, Co-Manager of IAEM and Managing Director of Listed Equities at Impax, said:

"Recent announcements have reinforced the Company's investment thesis, as Asian governments confirm their determination to deal with limited fossil fuel resources, worsening pollution and ongoing droughts and floods, as well as to provide infrastructure for their urbanising populations.

 

"Recent falls in regional equity markets have created an excellent opportunity for long term investors seeking exposure to this growth sector at an attractive valuation."

 

 

INVESTMENT OBJECTIVE AND FINANCIAL HIGHLIGHTS

 

INVESTMENT OBJECTIVE

 

The Company's investment objective is to generate long-term capital growth through investment in a diverse portfolio of companies in the markets for cleaner or more efficient delivery of basic services of energy, water and waste in the Asia Pacific Region. To be eligible for investment, such companies must have at least 20% of their turnover, profits or invested capital in these markets.

FINANCIAL INFORMATION

                                                                                                                       

                                                                            


At 30 June 2011

At 30 June 2010

% change

Net assets

£257.1m

£127.0m

+102.4%





Number of Ordinary Shares in issue

214,985,682

114,949,000

+87.0%





Net asset value ("NAV") per Ordinary Share




-       Undiluted

119.6p

110.5p

+8.2%

-       Diluted

116.6p

108.9p

+7.1%





NAV per Ordinary Share (excluding current period net revenue)




-       Undiluted

118.5p

110.0p

+7.7%

-       Diluted

115.7p

108.4p

+6.7%





MSCI AC Asia Pacific (ex-Japan) Index (sterling) 1



+17.4%

FTSE Environmental Opportunities Asia Pacific (ex-Japan) Index (sterling) 1



 

+16.4%

FTSE Environmental Opportunities Japan Index (sterling) 1



+12.8%





Ordinary Share price (mid-market)

106.4p

112.8p

-5.7%

Subscription Share price (mid-market)

21.0p

33.8p

-37.9%





Ordinary Share price (discount) / premium to diluted NAV

(8.7%)

+3.6%

-





 

1 Capital return in pounds sterlings

 

FINANCIAL CALENDAR

 

Annual General Meeting

24 November 2011 at 11 a.m.                                                               

145-157 St John Street

London EC1V 4RU

 

Dividend

Ex-dividend date: 26 October 2011

Record date: 28 October 2011

Payment date: 1 December 2011

Amount: 0.95p per Ordinary Share

 

 

CHAIRMAN'S STATEMENT

 

Since my last report to investors in Impax Asian Environmental Markets plc ("IAEM" or the "Company") in February 2011, financial markets have demonstrated notably higher levels of volatility and risk aversion.  Concerns about growth and sovereign debt in the developed world unnerved investors in Asian markets despite their much stronger economic fundamentals.  Asian markets were more specifically worried about inflation and the impact of possible monetary tightening to address the problem.  In this context, notwithstanding many significant positive developments shaping the prospects for environmental markets in the Asia-Pacific region (the "Region"), the Company experienced a challenging end to the financial year ended 30 June 2011 (the "Period").

 

Sector Developments

As set out in the Manager's Report, the Period brought high oil prices and extreme weather events, which, with the Japanese nuclear accident at Fukushima, highlighted the Region's shortage of fossil fuel energy and need for robust water supply and flood management systems. 

 

Policies to address these issues continued to develop rapidly.  As noted in previous statements, China's new Five Year Plan has established a framework for unprecedented levels of capital spending in environmental markets, while India made a major commitment to ramping up renewable power generation infrastructure over the coming decade.  Separately, since the earthquake and nuclear accident in March, the Japanese government has begun a programme to overhaul the nation's energy infrastructure, in which energy efficiency and renewables are likely to be prominent.

 

Nevertheless, weakness in specific markets affected sentiment around a number of the Company's holdings.  Several businesses that are exposed to global economic recovery, such as those in the energy efficient lighting sector, reported disappointing results, while stocks operating in countries with high inflation, particularly India, were sold off in anticipation of rising interest rates.  In addition, the pace of roll-out of Chinese rail infrastructure was slowed, initially by allegations of corruption, and, in July (i.e. post the end of the Period), by the effects of the high speed rail accident two hundred miles south of Shanghai.

 

Investment Performance

The Company's diluted net asset value (excluding income) rose by 6.7%% compared with the three relevant indices as follows - the MSCI AC Asia Pacific ex-Japan Index ("MXAPJ") rose 17.4% while the FTSE Environmental Opportunities Asia Pacific ex-Japan Index ("EOAX") and the FTSE Environmental Opportunities Japan Index ("EOJP") rose 16.4% and 12.8% respectively. The share price fell 5.7% from 112.8p to 106.4p over the Period. The IAEM subscription shares traded at 21.0p at the end of the Period.  In addition to the specific issues in environmental markets mentioned above, the Company's bias towards smaller companies, particularly in China, has contributed to the relative weakness compared with the indices.

 

Discount

Over the year, the IAEM share price traded at an average discount of 0.2% and ranged from a 5.6% premium to an 8.7% discount.  At 30 June 2011 the Ordinary Shares stood at a discount to diluted NAV of 8.7%. 

 

The Board and its advisers monitor the discount level of the Company's shares closely, and a buyback mechanism is in place pursuant to which the Manager is authorised to buy back shares with Board approval when deemed appropriate.

 

The Board believes the authority to buy back shares should remain in place and, accordingly, a resolution to renew this authority will be proposed at this year's Annual General Meeting.

 

Board Evaluation

The Board has noted the recommendation in the updated UK Code of Corporate Governance Combined Code issued in July 2010 which states that the evaluation of the boards of FTSE 350 companies should be externally facilitated at least every three years.  Although the Company is not part of the FTSE 350, the Board has agreed that the Company should comply with this recommendation and intends to have an external evaluation conducted in 2012.

 

Share issues

In October 2010, the Company raised £131 million through a C Share issue.  The net proceeds of the C Share issue were invested and managed as a separate pool of assets until 80% of the net proceeds were invested.  The C Shares subsequently converted into 99,966,100 new Ordinary Shares on 10 December 2010 with holders of the new Ordinary Shares arising on conversion also receiving  a bonus issue of 1 Subscription Share for every 5.5 new Ordinary Shares held. During the financial year 70,582 Subscription Shares were exercised, in aggregate, and as a result 70,582 Ordinary Shares were issued at a price of £1 per Ordinary Share. 

 

Dividend

The Company's net revenue return for the financial year was £2.4 million.  The Directors are recommending a final dividend for the year ended 30 June 2011 of 0.95p per Ordinary Share.  If approved at the Company's Annual General Meeting, the dividend will be paid on 1 December 2011 to shareholders on the register at close of business on 28 October 2011.  It is the Company's intention to generate shareholder returns through capital growth rather than income.  Therefore, it should not be assumed that this level of dividend will be maintained in future years.

 

Gearing

I stated in the Half-yearly report that the Board and the Manager believed that conditions may be favourable for the Company to take on a level of long-term bank debt and that the Board was exploring the various options available.  On 28 April 2011, the Company entered into a two year US$50 million revolving credit facility; a decision that was supported by the fact that the valuation of the companies in the portfolio had fallen to a level that was very attractive compared with both historic levels and expected growth rates.  One half of the total facility was drawn down on 6 May 2011 and a further drawdown will be made when circumstances are considered to be appropriate.  The Company has entered into an interest rate swap to fix the interest rate on these borrowings.  The Manager deployed the funds received from the initial drawdown during the course of May 2011.

 

Bribery Act

The Bribery Act 2010 became effective on 1 July 2011.  It is the Company's policy to conduct all of its business in an honest and ethical manner and we have procedures in place to prevent bribery and corruption which are proportionate to the Company's circumstances. The Company takes a zero-tolerance approach to bribery and corruption and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships wherever it operates. The Manager also adopts a zero tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.

 

Outlook                      

Since the end of the Period, European governments have struggled to manage sovereign debt concerns and the United States' credit rating has been downgraded due to uncertainty about the country's deficit reduction plan.  Despite offering higher growth prospects, Asian markets in general, and the environmental markets in particular, have seen rising risk aversion and further weakness. As of 30 September, the IAEM NAV had fallen by 25.1% (share price had fallen 28.0% leaving the discount at 13.4%) compared with falls of 19.1%, 29.0% and 10.5% for the MXAPJ, EOAX and EOJP respectively. The IAEM portfolio has seen a substantial derating of its valuation (from a price to earnings ratio of 13.0 times at the beginning of the year to 9.1 times at 30 September 2011) such that it is now trading at a discount to its comparable indices.  While short term volatility in global markets is likely to persist until sovereign debt issues are resolved and recession fears are overcome there remain positive policy developments and higher earnings growth prospects for the Company's holdings.  Against this background the Directors continue to believe that IAEM represents an attractive proposition to investors with a medium to long term perspective.

 

 

Allan McKenzie

Chairman

7 October 2011

 

 

MANAGER'S REPORT

 

IAEM's NAV advanced overall during the Company's financial year, with contrasting performance in the two halves. Performance was strong between July and December 2010, but during the first six months of 2011 the Company's NAV declined. Challenges in certain energy efficiency sectors and a high exposure to smaller companies led to underperformance of regional benchmarks over the full Period.

 

The renewable energy, pollution control and diversified environmental sub-sectors were the most positive contributors to performance. The energy efficiency sector also performed well, but significant outperformance reported at the interim stage was eroded by weakness in Chinese rail-related and light emitting diode (LED) companies in 2011.  Outside of the IAEM portfolio there have been some corporate governance issues related to a number of Chinese companies, particularly those listed outside of Hong Kong, which has led to a derating of  the Company's small cap Chinese holdings.

 

Overview of Asian Environmental Markets                         

 

Environmental policy and regulation during the Period supported the structural growth of environmental markets, and was enhanced by macro-events that served to re-focus governments' attention on resource scarcity and energy security. Following the disaster at the Fukushima Daiichi nuclear power station in March, Japan cancelled plans to expand nuclear from 30% to 50% of the energy mix and Germany announced plans to close all nuclear plants by 2022. These developments, along with rising power prices resulting from continued Middle East unrest, strengthened the outlook for the renewable energy and energy efficiency sectors.  Finally, a series of extreme weather events in the Region, particularly droughts in Central China, a poor monsoon in India and severe floods in Australia, highlighted the need for increased investment in water management and infrastructure.

 

China's new renewable energy target of 17% of installed capacity by 2020 will require USD 770bn of investment, and the finalisation of the Chinese 12th Five Year Plan during the Period further added to this renewable energy drive, with targets for a cut in energy consumption per unit of GDP by 16% by 2015, an additional 60GW of wind (compared with a 40GW installed base at end 2010), and 15GW of solar power. In addition, USD 450bn is to be allocated to the water sector.

 

Other announcements during the Period included South Korean long term targets for a national LED penetration of 60%, a Taiwanese target for energy intensity reduction of 2% per year to 2020, an Australian carbon pricing scheme to promote clean energy, and Indonesian targets for solar and bio-energy.

 

Over the Period the investible universe grew from 430 to over 460 companies as established companies expanded their environmental businesses and there were a number of initial public offerings.

 

Renewable and Alternative Energy ("RAE") - 9% weighting

 

The RAE sector was volatile over the Period. However, we were able to navigate successfully the high volatility seen in solar stocks and benefit from strong performance in Renewable Energy Independent Power Producers ("IPPs"), particularly Aboitiz Power (hydro and geothermal IPP, Philippines), EDC (geothermal IPP, Philippines) and Greenko (small hydro, India).  Nonetheless, the Company's holdings in the Wind Power Equipment sub-sector performed poorly due to the continued oversupply of Chinese turbines and slow recovery of the global wind market. Over the Period the Company's RAE weighting fell from 17% to 9% as we reduced exposure to manufacturers in the solar and wind value chain.

 

Policy developments in RAE were generally favourable. The Chinese government increased 2015 targets for wind (100GW, including 5GW of offshore wind farms) and solar installations (15GW). However, power grid constraints remain a concern for wind power development. On a positive note, a Chinese national Feed-in-Tariff was announced for the domestic solar market, and an Indian scheme for trading renewable energy certificates was launched.

 

During the Period, we profitably sold out of Renesola (solar, China), Trina Solar (solar, China), OCI (polysilicon, South Korea) and GCL-Poly Energy (polysilicon, China), took profits in Aboitiz Power and exited Xianjian Goldwind (wind turbine manufacturer, China).

 

Energy Efficiency ("EE") - 39% weighting                          

 

The EE sub-sector contributed positively over the Period, but the significant outperformance reported at the Company's interim stage was eroded by weakness in Chinese rail-related and LED companies in 2011. The pace of investment in Chinese rail infrastructure was negatively impacted by the arrest of the Minister of Rail, and a downward adjustment in the rail infrastructure budget. The LED industry continues to expand due to rapid growth in the lighting market, but LED companies were negatively affected by lower than expected growth in global LED television sales, which led to rising inventories and disappointing short term earnings.  On a positive note, Japanese companies such as Rinnai (efficient water heaters) performed well as demand grew after the earthquake on the back of reconstruction and energy efficiency policy initiatives.  The Company's EE weighting rose from 34% to 39% over the Period, as we added a number of positions.

 

Positive policy momentum continued during the Period, as governments increasingly recognised energy efficiency as the most cost effective means for climate change mitigation and improved energy security. The new Chinese Five Year Plan included the creation of industrial energy efficiency as a strategic environmental industry. Post the earthquake in Japan and the subsequent power shortages, the Japanese government announced a target to reduce peak energy consumption by 15% and extended an Eco points system to subsidise the purchase of energy efficient equipment.

 

We sold out of Zhuzhou CSR (efficient rail engines, China), following a period of strong performance, and added a number of new positions including NVC Lighting (efficient lighting, China), NSK (industrial energy efficiency, Japan) and SFA Engineering (organic LED equipment manufacturer, Korea).

 

Waste Management & Technologies ("WMT") - 14% weighting

 

The WMT sub-sector performed well over the Period, particularly due to rising commodity prices. China Metal Recycling (metal recycling, China) performed well on a recovery in margins and as China announced plans to increase the number of recycling bases and scrap metal plants across several regions, with total government subsidies potentially reaching USD231m. Lee & Man (paper recycling, China) underperformed as management reported a weak short term demand outlook and delayed expansion plans. IAEM's WMT weighting grew slightly from 12% to 14% in the Period.

 

We added to the position in Lee & Man on weakness and sold out of OCI Materials (industrial gases, South Korea).

 

Water Infrastructure & Technologies ("WIT") - 13% weighting

 

The WIT sector contributed negatively to performance as strength in utilities such as Manila Water (Philippines) was offset by weakness in the Indian water infrastructure stocks which were negatively impacted by the tightening interest rate cycle and delays in domestic infrastructure spending. The Company's WIT weighting declined from 18% to 13% over the Period.

 

Strong support for the water infrastructure sector continued, with the Chinese Government indicating that it will invest up to USD450bn under the 12th Five year Plan. The Indian Government remained focused on the water sector, particularly on irrigation, with firm budgets to be announced in the next five year plan. Despite these positive developments, recent policy and budget delays have led to uncertainty and disappointing share price performance of WIT related shares.  We are confident that as spending increases this effect will reverse.

 

During the Period we added to VA Tech Wabag (water treatment equipment) and reduced IVRCL (water infrastructure), both Indian companies. We exited Hyflux (water and waste water treatment sector, Singapore) and increased the exposure to Sound Global (water and waste water treatment sector, China) which is less exposed to the disruptions in the Middle East. We also sold out of Sinomem Technology (water treatment equipment, Singapore) as the company delayed plans to raise additional capital on the Hong Kong Exchange.

 

Pollution Control ("PC") - 14% weighting

 

The PC sub-sector was a major positive contributor to performance. Campbell Brothers (environmental testing, Australia) saw strong top line and margin growth in its testing business and ENN Energy (city gas supply, China) reported strong volume growth and demonstrated resilient margins.  Horiba (environmental & engine testing, Japan) also rose as capital expenditure in the automotive sector started to recover. The Company's PC weighting increased slightly from 12% to 14% over the Period.

 

We added to Horiba (environmental & engine testing, Japan) and took profits on Campbell Brothers (environmental testing, Australia).

 

Diversified Environmental ("DE") - 11% weighting

 

The DE sector, which includes a number of companies that are "in transition" as they expand their environmental activities, performed well. Xinyi Glass (energy efficient and solar glass, China) announced better than expected results and announced plans to expand capacity. LG Chem (chemicals and efficient batteries, South Korea) also performed due to rising earnings expectations. The share price of Thermax (energy efficiency and pollution control, India) fell as the growth in the order book slowed as customers delayed capacity expansion plans in response to rising interest rates. IAEM's DE weighting rose from 8% to 11% over the Period.

 

We took some profits in Xinyi Glass and added to Yingde Gases (industrial gases, China) making it one of the Company's largest positions. We also sold out of Air Water (industrial gases, Japan), as the shares reached our target price.

 

Portfolio Activity and Current Structure                  

 

The Company started the Period with a portfolio of 54 listed companies.  Subsequently we sold out of 13 companies and invested in 12 new companies, to end the Period with 53 listed companies. The structure of the Portfolio is shown on page 8 of the report.

 

Reflecting the Region's large environmental markets opportunity, the Company's exposure to China and Hong Kong rose from 36% to 42% over the Period and remains the largest proportion of the portfolio. The Company's Japanese exposure has remained steady at 19%,whilst the Indian and South Korean exposures have declined.

 

The Company has maintained its diversified sub-sector holdings, increasing energy efficiency to 39% by adding high efficiency industrial automation, power electronics and efficient lighting companies. The weighting in the Waste and Diversified Environmental sectors increased whilst the exposure to Water and Renewable Energy sectors fell.

 

The Company's exposure by market capitalisation has remained focused in the small to medium range with companies having a market capitalisation of less than USD 5 billion representing 83% of the portfolio value at year end.

 

Deployment of funds from share issues and gearing

 

As highlighted in the Chairman's Statement, the Company has increased assets during the year through a C share issue and by taking on long term bank debt. The funds received were invested broadly in line with the existing portfolio structures at the time of these events.

 

Macro and Regional Perspective

 

Global concerns persisted, as European politicians continued to seek a solution to sovereign risk that is acceptable to their domestic audiences and rising expectations of a further round of quantitative easing in the US exerted upward pressure on the Yen. Despite this headwind, the Japanese economy has weathered the disruptions of the earthquake better than expected and we expect there to be opportunities for companies participating in the reconstruction process.

 

Within the Asian region, we remain positive on China, which has started to allow its currency to strengthen and reduced its reliance on monetary tightening measures to control inflation. The authorities have recently indicated that they believe that inflation is close to a peak, improving the prospects for a more balanced agenda between boosting growth and taming inflation.  The technology related markets of South Korea and Taiwan are expected to fare better over the next six months as inventory cycles adjust and seasonal demand recovers. India is further through its tightening cycle, and we anticipate a recovery in growth rates in the year ahead which we expect to favour companies in the energy efficiency markets. 

 

IAEM Outlook

 

As reported in the Chairman's Statement there has been a substantial correction in global equity markets since the end of June.  This has been due to renewed concerns about European sovereign debt and a downgrade to the debt rating of the United States by the credit agency Standard and Poor's.  Emerging markets shares in general have been weak with smaller companies being particularly badly hit as investors have sought to reduce their exposure to riskier assets. Meanwhile, in Asia specifically, there are signs that inflation is under control and that a hard landing is unlikely. However, given the overall backdrop, we believe that equity markets will continue to be volatile for the rest of the year.  Despite some specific sub-sector issues, we remain confident that the long-term fundamentals for the environmental markets in Asia continue to be positive and that the sell-off represents a good opportunity for medium to long term investors seeking exposure to this growth sector at an attractive valuation.

 

We will continue to post monthly updates on sector news and on the Company's performance at www.impax.co.uk.

Impax Asset Management Limited

7 October 2011

 

Principal risks and uncertainties

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

 

(i) Asia Pacific Region

 

Generally, investment in emerging markets is suitable only for sophisticated investors who fully appreciate the significance of the risks involved. In particular, in certain countries in which the Company invests:

 

(a) liquidity and settlement risks may be greater than in Western Europe and the United States;

 

(b) accounting standards may not provide the same degree of shareholder protection as would generally apply internationally;

 

(c) national policies may restrict the investment opportunities available to foreign investors, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests;

 

(d) the fiscal and monetary systems remain relatively undeveloped and this may affect the stability of the economic and financial markets of these countries;

 

(e) substantial limitations may exist with respect to the Company's ability to repatriate investment income, capital or the proceeds of sales of securities;

 

(f) brokerage commissions, custody fees and taxes may be higher than in Western Europe or the United States;

 

(g) assets may be subject to increased political and/or regulatory risk;

 

(h) the economic and legal structures in place may be less diverse and mature, and political and regulatory systems may be less stable, than those of more developed countries;

 

(i) corporate governance procedures in certain countries in the Asia Pacific Region may be less extensive or not applied as rigorously due to the associated costs or business customs of a country; and

 

(j) social and religious instability, crime and corruption may adversely affect performance.

 

While the Manager will take these factors into consideration in making investment decisions, there can be no assurance that the Company will be able to avoid these risks.

 

Most of the companies in which the Company invests are located in and conduct their business in the Asia Pacific Region. Accordingly, performance of the Company's investments and the results of its operations are predominantly dependent on the economic and political conditions prevailing in the Asia Pacific Region. Certain countries in the Asia Pacific Region have less liquid and developed securities markets than the United States and Western Europe. Given that some of the organised securities markets in the Asia Pacific Region have been established relatively recently, the procedures for settlement, clearing and registration of securities transactions may be subject to legal uncertainties, technical difficulties and delays. Investing in industries in the Asia Pacific Region carries some particular risks:

·     governmental liberalisation of basic services and increased environmental legislation may not occur at the rate or in the ways anticipated.

·     the costs of technology in environmental markets may not continue to fall or may not maintain price competitiveness.

·     the performance of investments in Asia Pacific environmental market companies are likely to be adversely affected if industrial and utility capital spending were to decrease or be deferred.

·     the Company's portfolio may include newly established companies and companies whose future is dependent on widespread adoption of their products and services.

·     the Company's investments are generally traded on the main markets in the Asia Pacific Region and a significant fall and/or a prolonged period of decline in these markets would adversely impact the performance of the Company. This could be triggered by unfavourable developments or events within or outside of the Asia Pacific Region. Poor performance or underperformance may also result from the Manager's country and/or stock selection or the market rating of the Company.

 

Furthermore, the performance of some companies in the Asia Pacific Region in which the Company invests may be adversely affected by changes in applicable law and regulation.

 

Although significant developments have occurred in recent years, the sophisticated legal and regulatory frameworks necessary for the efficient functioning of modern capital markets have yet to be fully developed in some countries in the Asia Pacific Region. In particular, legal protections against market manipulation and insider trading are less well-developed in some countries in the Asia Pacific Region, and less strictly enforced, than in the United States and Western European countries and existing laws and regulations may be applied inconsistently with consequent irregularities in enforcement. In addition, less information relating to the proposed target entities and certain investments may be publicly available to investors in securities issued or guaranteed by such entities than is available to investors in entities organised in the United States or Western European countries.

 

Equities that are listed on the main markets in the Asia Pacific Region may be less liquid and may carry a higher risk than an investment in shares listed on markets in the United States and Western Europe.

 

(ii) Market risks

The Company may invest in companies with a small market capitalisation. Such investments are likely to be subject to higher valuation uncertainties and liquidity risks than larger capitalisation securities. The Company's portfolio is likely to have a higher volatility than main equity indices such as the FTSE 100 Index. Securities in some of the investee companies may be illiquid. Valuations of Asia Pacific environmental companies may remain at current levels or may fall.

 

There are inherent risks involved in stock selection.  The Investment Manager is experienced and employs its expertise in selecting the stocks in which the Company invests.  The Manager spreads the investment risk over a wide portfolio of investments and at the period end the Company held investments in 54 companies.

 

The Company invests in securities that are not denominated or quoted in sterling, the base currency of the Company. The Net Asset Value per Share is reported in sterling and dividends are declared and paid in sterling. The movement of exchange rates between sterling and any other currencies in which the Company's investments are denominated or its borrowings drawn down may have an unfavourable or favourable effect on the return otherwise experienced in the investments made by the Company. The Company will not normally hedge against foreign currency movements affecting the value of its investments, but the Manager will take account of this risk when making investment decisions.

 

(iii) Internal risks

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

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

 

Company law requires the Directors to prepare financial statements for each financial period.  Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practices (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the period and of the net return for the period.  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 UK 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.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, including a statement of Corporate Governance and a Directors' Remuneration Report that comply with such law and regulations.

 

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

 

STATEMENT UNDER THE DISCLOSURE & TRANSPARENCY RULES 4.1.12

 

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

 

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

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

 

For and on behalf of the Board

Allan McKenzie

Chairman

7 October 2011

 

INCOME STATEMENT

 

 


Year ended 30 June 2011

Period from 11 September 2009 to 30 June 2010


Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000








Gains on investments

-

1,849

1,849

-

13,572

13,572

Income

3,901

-

3,901

1,234

-

1,234

Investment management fees

(458)

(1,834)

(2,292)

(171)

(682)

(853)

Other expenses

(665)

-

(665)

(377)

-

(377)

Return on ordinary







activities before finance







costs and taxation

2,778

15

2,793

686

12,890

13,576

Finance costs

(65)

(548)

(613)

-

-

-

Return on ordinary







activities before taxation

2,713

(533)

2,180

686

12,890

13,576

Taxation

(295)

-

(295)

(105)

-

(105)

Return on ordinary







activities after taxation

2,418

(533)

1,855

581

12,890

13,471

Return per Ordinary Share







- undiluted

1.42p

(0.31p)

1.11p

0.52p

11.53p

12.05p

- diluted

1.38p

(0.30p)

1.08p

0.51p

11.40p

11.91p

 

 

The total columns of the Income Statement represent the profit and loss account of the Company. The revenue and capital columns contain supplementary information.

 

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

 

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

 

The Company was incorporated on 11 September 2009 and its business operations commenced when its shares were admitted to trading on the London Stock Exchange on 23 October 2009.

 

 

BALANCE SHEET

 


At 30 June

At 30 June



2011

2010



£'000

£'000


Fixed assets




Investments at fair value through profit and loss

267,173

125,017






Current assets




Income receivable

447

169


Sales - future settlements

-

587


Other debtors

9

9


Cash at bank and in hand

5,551

5,389



6,007

6,154






Creditors: amounts falling due within one year




Purchases - future settlements

-

4,009


Accrued liabilities

361

185



361

4,194






Net current assets

5,646

1,960






Total assets less current liabilities

272,819

126,977






Creditors: amounts falling due after more than one year




Bank loan

15,448

-


Fair value of interest rate swap

231

-






Total net assets

257,140

126,977


 

Capital and reserves: equity

 




Share capital

2,189

1,170


Share premium account

10,056

9,986


Capital redemption reserve

129,982

-


Share purchase reserve

102,350

102,350


Capital reserve

10,024

12,890


Revenue reserve

2,539

581


Shareholders' funds

257,140

126,977


 

Net assets per Ordinary Share - undiluted

 

 

119.61p

 

110.46p


Net assets per Ordinary Share - diluted

116.60p

108.85p


 

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 30 June 2011

 



Share

Capital

Share





Share

Premium

redemption

purchase

Capital

Revenue



capital

account

reserve

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000









Opening shareholders' funds

1,170

9,986

-

102,350

12,890

581

126,977

Conversion of C Shares into








Ordinary Shares and bonus issue








of Subscription Shares

1,018

-

129,982

-

(2,333)

-

128,667

Exercise of Subscription Shares

1

70

-

-

-

-

71

Dividends paid

-

-

-

-

-

(460)

(460)

Profit for the year

-

-

-

-

(533)

2,418

1,885

Closing shareholders' funds








as at 30 June 2011

2,189

10,056

129,982

102,350

10,024

2,539

257,140

 

 

For the period from 11 September 2009 to 30 June 2010

 



Share

Share





Share

premium

purchase

Capital

Revenue



capital

account

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000








Ordinary Shares issued

1,149

114,559

-

-

-

115,708

Subscription Shares issued

21

(21)

-

-

-

-

Share issue expenses

-

(2,202)

-

-

-

(2,202)

Cancellation of share premium

-

(102,350)

102,350

-

-

-

Profit for the period

-

-

-

12,890

581

13,471

Closing shareholders' funds as







at 30 June 2010

1,170

9,986

102,350

12,890

581

126,977

 

 

CASH FLOW STATEMENT

 

                                                                                                                                               



Period from


Year ended

11 September 2009


30 June 2011

to 30 June 2010


£'000

£'000




Operating activities






Cash inflow from investment income and bank interest

3,623

1,065

Cash outflow from management expenses

(2,787)

(1,054)

Cash inflow from disposal of investments

220,562

70,901

Cash outflow from purchase of investments

(363,213)

(178,719)

Cash outflow from foreign exchange costs

(772)

(205)

Cash outflow from overseas taxation

(295)

(105)

Net cash flow from operating activities

(142,882)

(108,117)




Equity dividends paid

(460)

-




Financing



Proceeds of share issues

131,071

115,708

Expenses of share issues

(2,620)

(2,202)

Bank loan draw down

15,053

-

Net cash flow from financing

143,504

113,506




Increase in cash

162

5,389




Opening balance

5,389

-




Closing balance

5,551

5,389

                                                               

 

 

NOTES

 

 

1.             ACCOUNTING POLICIES

 

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

 

(a)            Basis of accounting

The Company manages its affairs to enable it to qualify as an investment trust for taxation purposes under section 1158 of the Corporation Tax Act 2010.  The accounts are prepared in accordance with UK Generally Accepted Accounting Practice ("GAAP") and the Statement of Recommended Practice "Financial statements of investment trust companies and venture capital trusts" ("SORP"), issued by the Association of Investment Companies in January 2009.

 

(b)           Investments

Investments have been classified as "fair value through profit or loss" and are initially recognised on the trade date and measured at fair value.  Investments are measured at subsequent reporting dates at fair value by reference to the following criteria:-

 

·      Any securities of companies quoted on an investment exchange are valued at fair value by reference to market bid price.

 

·      Any investments in derivatives are valued at fair value. In the case of Participatory Notes this is by reference to latest broker quotations or, if unavailable or lower, by reference to the equivalent market bid price valuation of the relevant underlying security.

 

·      Any other investment is valued at best estimate of fair value as determined by the Directors.

 

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

 

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

 

(c)            Income from investments

Investment income from shares is accounted for on the basis of ex-dividend dates.  Unfranked dividend income is stated gross of withholding tax. 

 

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

 

(d)           Capital reserves

The Company is precluded by its articles from distributing its capital profit, except by way of redeeming or purchasing its own shares.  Profits achieved in cash by selling investments are dealt with in the capital reserve.  Changes in fair value arising upon the revaluation of investments that remain in the portfolio are dealt with through the capital reserve. 

 

The Company created a share purchase reserve following the cancellation of its share premium account on 9 December 2009.  This reserve may be used for the buy back of the Company's own shares.

 

(e)            Investment management fees and other administration expenses

In accordance with the Company's stated policy and the Directors' expectation of the split of future returns, 80% of investment management fees, net of attributable tax, are charged as a capital item in the Income Statement.  Tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Income Statement on the marginal basis.

 

All other administration expenses are charged as revenue items in the Income Statement.

 

(f)            Deferred taxation

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

 

(g)            Foreign currency translation

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

 

(h)           Finance costs

In accordance with Directors' expectation of the split of future returns, 80% of finance costs are charged as capital items in the Income Statement.  Finance costs include interest payable, direct loan costs and fair value movements on interest rate swaps.

 

(i)            Dividends

The Company pays dividends to the extent that they are required in order to maintain investment trust status.

 

(j)            Financial liabilities

Financial liabilities (including bank loans and derivative liabilities) are classified according to the substance of the contractual arrangements entered into.

 

2.             INVESTMENT COMPANY STATUS

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

 

3.             INCOME


2011

2010


£'000

£'000

Income from investments:



Unfranked dividends from overseas investments

3,880

1,222

Treasury bill income

17

6

Total

3,897

1,228

Other income:



Interest

4

6

Total income

3,901

1,234

         

    

4.               ADMINISTRATION EXPENSES



2011



2010



Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

Investment management fees

458

1,834

2,292

171

682

853








Secretary and administrator fees

150

-

150

94

-

94

Custodian's fees

150

-

150

61

-

61

Directors' fees

91

-

91

58

-

58

Directors' other employment costs

8

-

8

6

-

6

Auditors remuneration







- for audit services

26

-

26

27

-

27

- for taxation

7

-

7

7

-

7

Broker fees

59

-

59

43

-

43

Public relations and marketing

44

-

44

6

-

6

Listing and other regulatory fees

42

-

42

15


15

Miscellaneous expenses

88

-

88

60

-

60


665

-

665

377

-

377

Total administration expenses

1,123

1,834

2,957

548

682

1,230

 

 

Fees of £21,150 (inclusive of VAT) were also payable to the auditor for reporting accounting work performed in connection with the C Share issue during the year.  The fees are included in the finance costs of C Shares.

 

5.             FINANCE COSTS

 



2011



2010



Revenue

Capital

Total

Revenue

Capital

Total


£'000

£'000

£'000

£'000

£'000

£'000

Interest payable

16

63

79

                -

-

-

Direct costs

3

13

16

-

-

-

Fair value of swap

46

185

231

-

-

-

C Share finance costs

-

287

287

-

-

-


65

548

613

-

-

-

 

6.             RETURNS PER ORDINARY SHARE

 

Undiluted return per share is based on the net gain on ordinary activities after taxation of £1,885,000 (2010: £13,471,000) comprising a revenue return of £2,418,000 (2010: £581,000)and a negative capital return of £533,000 (2010: capital return of £12,890,000) attributable to the weighted average of 170,708,369 (2010: 111,762,869) Ordinary Shares of 1p in issue during the year ended 30 June 2011.  

 

Diluted returns per share are based on the net returns on ordinary activities after taxation above attributable to the diluted weighted average of 175,160,467 (2010: 113,130,158) Ordinary Shares in issue during the year ended 30 June 2011.  

 

Dilution is caused by the Subscription Shares in issue during the above period.  Each Subscription Share carries the right to subscribe for an Ordinary Share at a price of 100p.

 

7.             DIVIDEND

 

 




2011

2010




£'000

£'000

Dividend reflected in the financial statements:





Interim dividend for the period ended 30 June 2010 of 0.4p per Ordinary Share



 

460

 

-

 

 

The following are dividends paid and proposed in respect of the financial year which is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered.

 




2011

2010




£'000

£'000






Final dividend for the year ended 30 June 2011 of  0.95p per Ordinary Share



 

2,042

 

-

Interim dividend for the period ended 30 June 2010 of 0.4p per Ordinary Share



 

-

 

460




2,042

460

 

If approved at the Annual General Meeting, the final dividend for the year ended 30 June 2011 will be paid on 1 December 2011 to shareholders on the register as at the close of business on 28 October 2011.

 

The revenue return for the period available for distribution by way of dividend was £2,418,000 (2010: £581,000).

 

8.             NET ASSETS PER ORDINARY SHARE

 

Undiluted net assets per Ordinary Share is based on net assets of £257,140,000 (2010: £126,977,000) divided by 214,985,682 (2010: 114,949,000) Ordinary Shares in issue at the Balance Sheet date.

 

Diluted net assets per Ordinary Share is based on net assets of £296,145,000 (2010: £147,877,000) divided by 253,990,591 (2010: 135,849,000) diluted Ordinary Shares in issue at the Balance Sheet date. The diluted figures are based on the 39,004,909 (2010: 20,900,000) Subscription Shares in issue at 30 June 2011 being converted into Ordinary Shares on that date at a price of 100p per Ordinary Share.

 

9.            ANALYSIS OF CHANGES IN NET DEBT

 


At 30 June 2010

 

Cash flow

Finance costs

Exchange movement

At 30 June 2011







Cash and short term deposits

5,389

162

-

-

5,551







Bank loans falling due more than one year

-

(15,053)

(95)

(300)

(15,448)








5,389

(14,891)

(95)

(300)

(9,897)

 

 

 

10.            RELATED PARTY TRANSACTIONS

 

Fees payable to the Investment Manager are detailed in note 4 to these accounts; the relevant amount outstanding as an accrual at 30 June 2011 was £227,045 (2010: £105,912).

 

11.           FINANCIAL INFORMATION

 

This announcement does not constitute the Company's statutory accounts.  The financial information for 2011 is derived from the statutory accounts for 2011, which will be delivered to the registrar of companies following the Company's Annual General Meeting. The statutory accounts for 2010 have been delivered to the registrar of companies.  The auditors have reported on the 2011 and 2010 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 period ended 30 June 2011 was approved on 7 October 2011.  It will be posted to shareholders and will be made available on the Manager's website at www.impax.co.uk

 

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

 

 

7 October 2011

 

Secretary and registered office:

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

 

Tel: 020 7490 4355

 

END


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