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Impax Asian Env Mkt (IAEM)

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Thursday 23 February, 2012

Impax Asian Env Mkt

Half Yearly Report

RNS Number : 9922X
Impax Asian Environmental Mkts Plc
23 February 2012
 



 

IMPAX ASIAN ENVIRONMENTAL MARKETS PLC

 

HALF-YEARLY FINANCIAL REPORT

 

FOR THE SIX MONTHS ENDED 31 DECEMBER 2011

 

 

INVESTMENT OBJECTIVE

 

The Company's investment objective is to generate long-term capital growth through investment in a diverse portfolio of quoted 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 per cent. of their turnover, profits or invested capital in these markets.

 

 

FINANCIAL INFORMATION

                                                                                                           

                                                                            


At 31 December 2011

 

At 30 June 2011

 

% change

Net assets

£188.1m

£257.1m

-26.8%





Bank debt (in sterling terms)

£25.9m

£15.4m

+67.5%





Number of Ordinary Shares in issue (excluding shares held in treasury)

 

213,105,198

 

214,985,682

 

-0.9%





Net asset value ("NAV") per Ordinary Share




·     Undiluted

88.3p

119.6p

-26.2%

·     Diluted

88.3p1

116.6p

-24.3%





NAV per Ordinary Share (excluding current period net revenue)




·     Undiluted

87.5p

118.5p

-26.2%

·     Diluted

87.5p1

115.7p

     -24.4%





NAV per Ordinary Share performance 2




·     Undiluted



-25.4%

·     Diluted



-23.5%





FTSE Environmental Opportunities Asia Pacific (ex-Japan) Index (sterling) 2



 

-24.4%

FTSE Environmental Opportunities Japan Index (sterling)2



-12.4%

MSCI AC Asia Pacific (ex-Japan) Index (sterling) 2



-14.5%





Ordinary Share price (mid-market)

73.6p

106.4p

-30.8%

Subscription Share price (mid-market)

5.8p

21.0p

-72.4%





Ordinary Share price (discount) / premium to diluted NAV

(16.6%)

(8.7%)

-

 

 

1 No dilution due to NAV being below subscription share exercise price

2 Total return in pounds sterling

 

 

CHAIRMAN'S REVIEW

 

During the six month period ended 31 December 2011 (the "Period"), financial market volatility was pronounced as political leaders failed to resolve the on-going sovereign debt problem in Europe.  In Asia, concerns about inflation and the risk of a hard landing in China dominated sentiment. 

Despite a number of positive policy developments that further strengthened the long term outlook for environmental markets in the Asia-Pacific region and are outlined throughout this report, Impax Asian Environmental Markets plc (the "Company") experienced a disappointing six months, particularly during the three months from July to September.

Price and Performance

Over the Period, the Company posted a negative undiluted net asset value total return of 25.4%; the corresponding falls in the FTSE Environmental Opportunities Asia Pacific ex-Japan Index ("EOAX"), the FTSE Environmental Opportunities Japan Index ("EOJP") and the MSCI AC Asia Pacific ex-Japan Index ("MXAPJ") were 24.4%, 12.4% and 14.5% respectively.

The Company's Ordinary Share price fell 30.8% from 106.4p to 73.6p as a widening discount exacerbated the fall in net asset value ("NAV"). The Company's Subscription Shares were trading at 5.8p at the end of the Period.

Sector Developments

Notwithstanding the disappointing performance of stocks in the Asian environmental markets, the sector's long term drivers continued to develop positively as governments across the region responded to resource, infrastructure and environmental challenges with supportive policy.  The earthquake and subsequent nuclear disaster in Japan triggered increases in renewable energy targets across the region, while the Chinese government confirmed an investment of US$770 billion in low carbon energy (with particular emphasis on wind, solar, hydro and gas) by 2020 and the Australian government adopted a carbon tax which has materially improved domestic prospects for both renewable energy and energy efficiency. Floods in both Thailand and Australia highlighted the need to improve management and quality of water resources, and the Chinese government set aside US$450 billion for water sector spending over the next five years.  The Board and the Manager believe that these developments may contribute positively to the Company's performance over the medium to long term.

Gearing

At the start of the Period the Company had drawn down US$25 million from its US$50 million revolving credit facility.  On 9 November 2011, the Company made an additional drawdown of US$15 million, a decision supported by the increasingly attractive valuation of shares within the sector and the positive long term outlook for environmental markets given policy and economic drivers. The proceeds were invested during the final two months of the Period.

Discount and Buybacks

Over the six months ended 31 December 2011, the IAEM Ordinary Share price traded at an average discount to NAV of 11.5% and in a range between 1.9% and 17.7%; at the end of the Period, the discount stood at 16.6%. 

Recognising that buying back stock at a discount to NAV is accretive, the Board bought back 1,885,000 Ordinary Shares during the Period; these shares are currently held in treasury.  The Board and the Company's advisers continue to monitor the discount closely and the Board will continue to exercise its buy back powers when it deems circumstances to be appropriate.   

Update and Outlook

The recovery in equity markets towards the end of the Period has extended into the New Year, as US economic data pointed to a more sustained recovery, inflation across Asia moderated and liquidity conditions in China eased.

As at 17 February 2012, the undiluted NAV (excluding income) of IAEM had risen 13.9% since the end of the Period to 99.7p while the Ordinary Share price had risen 19.6% to 88.0p.  The corresponding increases in the EOAX and the EOJP were 16.4% and 7.7% respectively whilst the MXAPJ had risen by 11.7%1.

The Company's portfolio is currently trading at a price earnings ratio of approximately 12 times expected forward earnings, based on forecast earnings growth of 19%.  Taking into account these metrics and the strengthening drivers of Asian environmental markets, the Directors continue to believe that the Company's shares offer an attractive medium to long-term proposition for investors seeking to benefit from the growth potential of Asian environmental markets.

 

Allan McKenzie

Chairman

23 February 2012

 

1 Total return in pounds sterling

 

 

MANAGER'S REPORT

 

Investment Performance

The Company's performance for the six months ended 31 December 2011 (the "Period") suffered due to a continued de-rating of smaller companies, particularly those in the Chinese industrial and technology sectors.  We expect this trend to reverse with improving liquidity and falling interest rates, and have maintained IAEM's exposure to these areas.

 

Investment Universe & Portfolio Structure

We continue to focus on the bottom-up stock picking of companies with attractive business models and valuations, whilst taking developments in the environmental market sub-sectors and the wider macro-environment into account. The universe of Asian environmental companies has remained broadly stable over the last six months (ca. 460 companies) due to a slowing in the number of initial public offerings and a few companies falling below the market capitalisation threshold.

 

The Company ended the period with investments in 53 companies. The portfolio is diversified by both geography and sub-sector, with a particular focus on China, followed by Japan, Taiwan, and South Korea. On a sub-sector basis, the portfolio has its largest allocation to Energy Efficiency and smallest allocations to Diversified Environmental and Renewable & Alternative Energy. An analysis of the structure of the portfolio as well as the sub-sector contribution to performance is shown on page 9.

 

Environmental Sub-sectors

There were significant developments in each of the principal environmental sub-sectors during the period. These are highlighted below together with the key contributors and detractors to performance and portfolio changes:

 

Renewable & Alternative Energy ("RAE") - 13% weighting

 

Following the earthquake, the Japanese government announced a solar target of 28 gigawatts (GW) by 2020, an eight times increase from current levels; Korea announced plans to increase renewables to 13% of the total energy mix by 2030; and China raised its 2020 target for wind from 100GW to 150GW and doubled its 2020 solar target to 30GW.

Despite positive policy developments in Asia, oversupply and pricing pressure have led to slowing global demand for renewable energy. The Company had limited exposure to this sub-sector, having previously taken profits in polysilicon suppliers, and was concentrated in the more defensive developers and operators including Aboitiz Power and Energy Development Corporation ("EDC") and China Longyuan.

 

The Company's RAE weighting grew from 9% to 13% over the Period as Xinyi Glass was re-classified due to the growth of its solar business. We took profits in EDC and added to Xinyi Glass on weakness. We also added Trina Solar (China) as we anticipate downstream solar players will benefit from lower raw material prices.

 

Energy Efficiency ("EE") - 40% weighting

 

The performance of the EE sector over the Period was disappointing despite favourable policy developments. Following the approval of China's 12th Five Year Plan in the first half of 2011,   industrial energy efficiency has been designated a strategic industry, and there were  initiatives to boost the energy efficient lighting market.  However, the high speed rail crash in China in July, and the on-going overcapacity in the light emitting diode ("LED") sector, led to weakness in a number of stocks.

 

Positive contributions came from SFA Engineering (organic LED equipment manufacturer, Korea) and Rinnai (efficient water heaters, Japan).  A significant negative contributor to performance was China High Precision Automation ("CHPA", automation and efficiency) which was suspended from trading and written down in the portfolio, resulting in a 0.9% negative impact on the NAV at the Period end. We expect CHPA to return to trading on the Hong Kong Stock Exchange in due course.

 

The Company's EE weighting increased from 39% to 40% in the Period. We shifted our LED exposure to stocks further down the value chain by selling out of chip manufacturers Seoul Semiconductor and Samsung Electromechanics (both Korea) and increasing exposure to the lighting integrator NVC Lighting (efficient lighting, China). We also added Airtac (factory automation and efficiency, Taiwan).

 

Water Infrastructure & Technologies ("WIT") - 14% weighting

 

China accelerated a number of water contracts as part of the 12th Five Year Plan budget of $450bn for water conservancy, waste water treatment and recycling. Meanwhile, investment momentum in the Indian water sector improved in line with policy objectives to control water scarcity and polluted water sources. In contrast, instability in the Middle East led to delays to  water projects which affected a number of our companies with exposure to that region and triggered  increased competition in the Asian water market, particularly in the context of  desalination.

 

In the WIT sector, Manila Water (water utility, Philippines) and Thai Tap (water utility, Thailand) contributed positively as they grew in line with the regional economy.  The Company's Indian holdings (Jain Irrigation, VA Tech Wabag and IVRCL) all contributed negatively to performance as projects were delayed due to weak finance markets. We sold out of IVRCL (water infrastructure, India) on balance sheet concerns. We also added two new holdings, China Liansu (water pipes, China) and Woongjin Coway (water filters, Korea). The Company's exposure to the WIT sector increased from 13% to 14%.

 

Pollution Control ("PC") - 13% weighting 

 

The PC sub-sector once again contributed positively to performance, with the Chinese gas sector continuing to report strong volume growth. Beijing Enterprises (gas transmission and distribution, China) rose on expectations of further increases in demand after a Beijing based gas fired power plant operator secured funding for expansion.  Campbell Brothers (environmental testing, Australia) extended gains on the back of strong results and inclusion in a number of regional indices, and Horiba (environmental & engine testing, Japan) was supported by strong earthquake related sales.

 

The Company's PC weighting decreased from 14% to 13% over the Period. Additions included Towngas China (urban gas supply). We exited Shimadzu (environmental testing and gas sensing, Japan) as the stock reached its target price.

 

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

 

The WMT sector was weak overall due to volatile commodity prices. However, China Metal Recycling outperformed on positive earnings and continued expansion while China Everbright International (water and waste treatment) performed well on the announcement of a number of new projects. Conversely, Lee and Man (paper recycling, China) underperformed as margins contracted by energy cost increases and Fook Woo (paper recycling, China) was suspended and written down in the portfolio, resulting in a 0.3% negative impact on the NAV at the Period end. We expect Fook Woo to return to trading on the Hong Kong Stock Exchange in due course.

 

The Company's WMT weighting remained stable at 14% over the Period. We added to our existing position in China Everbright International and sold out of Transpacific Industries Group (integrated waste management, Australia) after a period of strength.

 

Diversified Environmental ("DE") - 6% weighting

Despite a fall in overall performance, DE was one of the best performing sectors.  Yingde Gases (industrial gases, China) rose on results that demonstrated a resilient business model and a number of new project wins. In contrast, weaker end markets impacted LG Chem (batteries, Korea).  The Company's DE weighting fell from 11% to 6% over the Period as Xinyi Glass was reclassified (see above).

 

Macro & Regional Factors

 

During the Period global equity markets suffered a sharp correction, principally due to concerns about the continued European sovereign debt crisis, a situation that was exacerbated by US partisan politics creating uncertainty around the US debt ceiling.  In Asia, the extended monetary tightening in China led to concerns about access to capital and a de-rating of small and midsized companies.

 

Confidence towards the end of the Period was partially restored by the injection of liquidity by the Federal Reserve and the European Central Bank into the European Banking system.   In addition, a reduction in inflation allowed the Chinese authorities to ease monetary conditions and announce measures to support bank lending to smaller companies.

 

Amendments to management arrangements

 

The Manager has taken further steps to develop its resources in the Asia-Pacific region.  In August 2011, Impax Asset Management (Hong Kong) Limited ("IAMHK"), a wholly-owned subsidiary of Impax Asset Management Group plc, secured its Hong Kong Securities and Futures Commission licence to conduct asset management and advisory activities.  In addition, David Hok Kwan Li joined IAMHK as a full time employee, having previously been employed by the Manager's investment adviser, Ajia Partners Asset Management (HK) Limited ("Ajia"), and seconded to the Manager.  As a result of these changes the advisory arrangement which was in place between the Manager and Ajia was terminated.

 

Outlook

 

Following a difficult twelve months, we are beginning to see a moderation in inflation and easing of monetary conditions in Asia. For example, India has started to ease liquidity conditions by reducing the amount of money that banks are required to hold in reserve. We anticipate that equity markets in the region will re-rate higher over the next few months and that smaller sized companies will recover as earnings growth continues. The momentum of environmental policy and legislation in the Asia Pacific region is strong and we remain confident in the long-term outperformance potential of environmental markets in the region.

 

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

 

 

Impax Asset Management Limited

23 February 2012

 

 

FIVE LARGEST INVESTMENTS

 

As at 31 December 2011

 

Yingde Gases (industrial gases, China) (4.4% of net assets) Yingde Gases is the largest provider of on-site industrial gases in China, supplying oxygen to improve the energy efficiency and productivity of steel furnaces. China is the largest growth market for industrial gases, and Yingde is expected to more than double in size over the next two years.

 

ENN Energy (city gas distribution, China) (4.3% of net assets) ENN is the largest privately run city gas distributor in China. The company is set to benefit from policy objectives to improve air quality, reduce coal utilisation and increase the natural gas share of primary energy from 4% to 8% by 2015. The company has long term exclusive concessions in over 90 cities, covering an urban population of over 46 million people.

 

SFA Engineering(OLED equipment manufacturer, Korea) (4.3% of net assets) SFA is a leading Korean manufacturer of specialised factory automation equipment and manufacturing equipment for LCD panels. The company has developed manufacturing equipment for Organic Light Emitting Diodes ("OLED") which is a new display technology benefitting from lower energy use and a thinner screen.  The company is expected to benefit from sales to Samsung which acquired a 10% stake in SFA in 2010.

 

China Longyuan (renewable IPP, China) (4.2% of net assets) China Longyuan is the largest independent wind power producer ("IPP") in China, the world's largest wind market. Longyuan has an installed base over 8.5GW, representing 19% of China's total wind capacity. The company has a large development pipeline and plans to add 1.6-1.7GW per annum.

 

Rinnai (efficient water heaters, Japan) (3.7% of net assets) Rinnai is Japan's largest manufacturer of domestic gas appliances, with a global presence in highly efficient gas-fired water-heaters. The company has unique technologies protected under patents which create strong barriers to entry. The domestic gas market is an oligopoly with the top two companies each holding a 40% share. The company has raised profitability by increasing the in-house production of key components and focussing on profitable customer relationships.

 

 

STRUCTURE OF PORTFOLIO

As at 31 December 2011

 

 

BREAKDOWN BY COUNTRY OF DOMICILE AND QUOTATION (in market value terms)

 

 

 

Domicile

Quotation1

China and Hong Kong2

41%

34%

Japan

20%

20%

Taiwan

9%

10%

South Korea

8%

8%

Philippines

7%

7%

India

6%

5%

Australia

5%

3%

Thailand

3%

3%

Singapore

1%

3%

United States

-

6%

United Kingdom

-

1%

Total

100%

100%

 

 

1 Where a participatory note is held, the exposure is reported for the underlying security.  American depositary receipts are included under United States.

 

2 Companies quoted in Hong Kong represented 34% (by market value) of the Company's portfolio.

 

 

BREAKDOWN AND PERFORMANCE CONTRIBUTION BY SECTOR

 


 

Weighting1

 

Contribution1

Renewable & Alternative Energy

13%

-4%

Energy Efficiency

40%

-14%

Water Infrastructure & Technologies

14%

-4%

Pollution Control

13%

+1%

Waste Management & Technologies

14%

-4%

Diversified Environmental

6%

-1%

Total

100%

-26%

 

1 Source: Impax Asset Management using Factset methodology

 

 

BREAKDOWN BY MARKET CAPITALISATION

 

 

 

>US$5bn

17%

US$1bn - US$5bn

48%

< US$1bn

35%

Total

100%

 

 

The above breakdowns and other information exclude the 2% cash position at 31 December 2011

 

 

 INTERIM MANAGEMENT REPORT

 

The Chairman's review on pages 2 to 3 and the Manager's report on pages 4 to 7 provide details on the performance of the Company.  Those reports also include an indication of the important events that have occurred during the first six months of the financial year ending 30 June 2012 and the impact of those events on the condensed set of financial statements included in this Half-yearly financial report.

 

Details of the largest five investments held at the period end are provided on page 8 and the structure of the portfolio at the period end is analysed on page 9.

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The Board considers that the main risks and uncertainties faced by the Company fall into the categories of (i) Asia Pacific region risks (ii) Market risks and (iii) Corporate governance and internal control risks.  A detailed explanation of these risks and uncertainties can be found in the Company's most recent Annual Report for the year ended 30 June 2011.  The risks and uncertainties facing the Company remain unchanged from those disclosed in the Annual Report.

 

RELATED PARTY TRANSACTIONS

 

Details of the investment management arrangements were provided in the Annual Report.  There have been no changes to the related party transactions described in the Annual Report that could have a material effect on the financial position or performance of the Company.  Amounts payable to the investment manager in the period are detailed in the Income Statement on page 12.

 

Board of Directors

23 February 2012

 

 

DIRECTORS' STATEMENT OF RESPONSIBILITY FOR THE HALF-YEARLY REPORT

 

The Directors confirm to the best of their knowledge that:

 

 

·     The condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with the guidance issued by the Accounting Standards Board on "Half-yearly financial reports".

 

 

·     The interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.

 

 

Allan McKenzie

Chairman of the Board of Directors

23 February 2012

 

INCOME STATEMENT

For the six months ended 31 December 2011

 



Six months ended

31 December 2011

Six months ended

31 December 2010

Year ended 30 June 2011



(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(audited)

(audited)

(audited)



Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total


Note

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000












Gains / (losses) on investments


 

-

 

(64,966)

 

(64,966)

 

-

 

34,744

 

34,744

 

-

 

2,923

 

2,923

Net foreign currency loss


-

(1,137)

(1,137)

-

(498)

(498)

-

   (1,074)

(1,074)

Income

3

2,566

-

2,566

1,058

-

1,058

3,901

-

3,901

Investment management fees


 

(224)

 

(897)

 

(1,121)

 

(189)

 

(757)

 

(946)

 

(458)

 

(1,834)

 

(2,292)

Other expenses


(307)

-

(307)

(281)

-

(281)

(665)

-

(665)

Return on ordinary











activities before finance costs and  taxation


2,035

(67,000)

(64,965)

588

33,489

34,077

2,778

15

2,793












Finance Costs

4

(66)

(265)

(331)

-

-

-

(65)

(548)

(613)

Return on ordinary











activities before taxation


 

1,969

 

(67,265)

 

(65,296)

 

588

 

33,489

 

34,077

 

2,713

 

(533)

 

2,180












Taxation

5

(267)

-

(267)

(77)

-

(77)

(295)

-

(295)

Return on ordinary











activities after taxation


1,702

(67,265)

(65,563)

511

33,489

34,000

2,418

(533)

1,885












Return per Ordinary Share

6










- undiluted


0.79p

(31.34p)

(30.55p)

0.34p

22.21p

22.55p

1.42p

(0.31p)

1.11p

- diluted


0.79p

(31.34p)

(30.55p)

0.33p

21.54p

21.87p

1.38p

(0.30p)

1.08p












 

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

 

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

 

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

 

 

BALANCE SHEET

 

As at 31 December 2011

 

 

 




At 31 December 2011

At 31 December 2010

At 30

June

2011




(unaudited)

(unaudited)

(audited)



Note

 

£'000

 

£'000

 

£'000








Fixed assets






Investments at fair value through profit and loss

2

210,843

286,063

267,173








Current assets






Income receivable


125

89

447


Sales - future settlements


1,639

-

-


Other debtors


165

14

9


Cash at bank and in hand


4,309

3,989

5,551




6,238

4,092

6,007


 

 






Creditors: amounts falling due within one year






Purchases - future settlements


2,655

948

-


Accrued liabilities


263

310

361




2,918

1,258

361


Net current assets


3,320

2,834

5,646








Total assets less current liabilities

 


214,163

288,897

272,819








Creditors; amounts falling due after more than one year






Bank loan

7

25,879

-

15,448


Fair value of interest rate swap

 

8

192

-

231


Total net assets


188,092

288,897

257,140








Capital and reserves






Share capital


2,189

2,188

2,189


Share premium


10,060

9,986

10,056


Capital redemption reserve


129,982

129,982

129,982


Share purchase reserve


100,903

102,350

102,350


Capital reserve


(57,241)

43,759

10,024


Revenue reserve


2,199

632

2,539


Shareholders' funds


188,092

288,897

257,140


 

Net asset value per share

 












Net asset value per Ordinary Share - undiluted

9

88.26p

134.42p

119.61p


Net asset value per Ordinary Share - diluted

 

-      

9

88.26p

129.13p

116.60p













                               

RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS

For the six months ended 31 December 2011 (unaudited)

 




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

2,189

10,056

129,982

102,350

10,024

2,539

257,140


Exercise of Subscription Shares

-

4

-

-

-

-

4


Share buy backs (see note 11)

-

-

-

(1,447)

-

-

(1,447)


Dividends paid

-

-

-

-

-

(2,042)

(2,042)


Profit for the period

-

-

-

-

(67,265)

1,702

(65,563)


Closing shareholders' funds









as at 31 December 2011

2,189

10,060

129,982

100,903

(57,241)

2,199

188,092

 

 

 

For the six months ended 31 December 2010 (unaudited)

 




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

-

(2,620)

-

128,380


Dividends paid

-

-

-

-

-

(460)

(460)


Profit for the period

-

-

-

-

33,489

511

34,000


Closing shareholders' funds









as at 31 December 2010

2,188

9,986

129,982

102,350

43,759

632

288,897

 

 

For the year ended 30 June 2011 (audited)

 




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 period

-

-

-

-

(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

 

 

CASH FLOW STATEMENT

 

For the six months ended 31 December 2011

 


Six months ended 31 December 2011

Six months ended 31 December 2010

Year ended

30 June 2011


(unaudited)

(unaudited)

(audited)


£'000

£'000

£'000

Operating activities




Cash inflow from investment income and bank interest

2,884

1,138

3,623

Cash outflow from management expenses

(1,592)

(1,115)

(2,787)

Cash inflow from disposal of investments

84,861

153,073

220,562

Cash outflow from purchase of investments

(92,481)

(281,841)

(363,213)

Cash outflow from net foreign exchange costs

(1,149)

(498)

(772)

Cash outflow from taxation

(266)

(77)

(295)

Net cash flow from operating activities

(7,743)

(129,320)

(142,882)





Returns on investments and servicing of finance




Interest paid

(245)

-

-

Net cash flow from returns on investments and servicing of finance

 

(245)

 

-

 

-









Equity dividends paid

(2,042)

(460)

(460)





Financing




Proceeds of share issues

4

131,000

131,071

Expenses of share issues

-

(2,620)

(2,620)

Share buy backs

(1,447)

-

-

Bank loan draw down

10,231

-

15,053

Net cash flow from financing

8,788

128,380

143,504





(Decrease) / increase in cash

(1,242)

(1,400)

162

Opening balance

5,551

5,389

5,389

Closing balance

4,309

3,989

5,551

 

                               

NOTES TO THE ACCOUNTS

 

1              Accounting policies

 

The Half-yearly financial report has been prepared in accordance with applicable UK accounting standards and UK GAAP.  The accounting policies used by the Company are the same as those stated in its most recent Annual Report.  The accounting policy in relation to investments is stated in note 2 below. 

 

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 Company therefore presents its accounts in accordance with the Statement of Recommended Practice for Investment Companies.

 

2              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.

 

3              Income

 






Six months ended

Six months ended

Year ended


31 Dec 2011

31 Dec 2010

30 Jun 2011


£'000

£'000

£'000

Income from investments:




Dividends from overseas investments

2,562

1,037

3,880

Treasury bill income receivable

4

17

17

Total

2,566

1,054

3,897

Other income:




Interest receivable

-

4

4

Total income

2,566

1,058

3,901

 

 

4              Finance Costs

 


Six months ended

Six months ended

Year ended


31 Dec 2011

31 Dec 2010

30 Jun 2011


Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Capital


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Interest payable

51

205

256

-

-

-

16

63

79

Direct costs

10

41

51

-

-

-

3

13

16

Fair value of swap

5

19

24

-

-

-

46

185

231

C share finance costs

-

-

-

-

-

-

-

287

287


66

265

331

-

-

-

65

548

613

 

5              Taxation

 

The tax charge in the Income Statement is in respect of overseas tax suffered on dividend income.

 

6              Return per share

 

Undiluted return per Ordinary Share is based on the net return attributable on ordinary activities after taxation attributable to the weighted average of 214,605,268 Ordinary Shares in issue (excluding shares held in treasury) during the period (Six months ended 31 December 2010: 150,806,405; Year ended 30 June 2011: 170,708,369).

 

Diluted return per Ordinary Share is based on the net return attributable on ordinary activities after taxation attributable to the diluted weighted average of Ordinary Shares during the period. There was no dilution of net assets per Ordinary Share at 31 December 2011 (Six month ended 31 December 2010: 155,438,175; Year ended 30 June 2011: 175,160,467). Each Subscription Share carries the right to subscribe for one Ordinary Share at a price of 100p.  The average bid price per Ordinary Share during the period was lower than 100p and consequently the Subscription Shares had an anti-dilutive impact on return per share during the period. 

 

7              Bank Loan

 

The Company has a US dollar revolving credit facility with the Royal Bank of Scotland plc.  Under the terms of the facility the Company may draw down loans of up to, in aggregate, US$50 million.  A first loan of US$25 million was made to the Company on 6 May 2011 and a further US$15 million was drawn down on 9 November 2011.  Therefore the total drawn down at 31 December 2011 was US$40 million.

 

Interest is payable on amounts drawn down under facility computed at the rate of 3 month US$ LIBOR plus a margin of 1.85%.  A commitment fee computed at the rate of 0.925% per annum is payable on any amounts not drawn under the facility.

 

8              Interest Rate Swap

 

The Company has entered into a swap agreement under which the interest rate on the facility has been fixed.  The fixed rate payable under the swap arrangement is 1.0575% with the Company receiving interest at 3 month US$ Libor.  In the event of early repayment of the loan, break costs may apply.

 

9              Net assets per share

 

The undiluted net assets per Ordinary Share figure is based on the net assets of £188,092,000 at 31 December 2011 (31 December 2010: £288,897,000; 30 June 2011: £257,140,000) divided by 213,105,198 Ordinary Shares in issue (excluding shares held in treasury) at 31 December 2011 (31 December 2010: 214,915,100; 30 June 2011: 214,985,682). 

 

There was no dilution of net assets per Ordinary Share at 31 December 2011 due to the net asset value per share being lower than the Subscription Share exercise price of 100p at that date. (31 December 2010: £327,973,000; 30 June 2011: £296,145,000). The number of diluted Ordinary Shares for the comparative periods was 31 December 2010: 253,990,591; 30 June 2011: 253,990,591. The diluted figures assume that the number of Subscription Shares in issue at the end of those periods, 31 December 2010: 39,075,491; 30 June 2011: 39,004,909, were converted into Ordinary Shares on that date at a price of 100p per Ordinary Share.

 

10           Share issues

 

During the period the Company issued 4,516 Ordinary Shares as a result of the exercise of 4,516 Subscription Shares at a subscription price of £1 per Ordinary Share. 

 

Each Subscription Share carries the right to subscribe for one Ordinary Share at 100p per share on any business day between 1 November 2009 and 31 October 2014 inclusive. The subscription price and number of Ordinary Shares are subject to adjustment on the occurrence of certain events including subdivision or consolidation of Ordinary Shares. Subscription Shares carry limited voting rights.

 

11           Purchase of own shares

 

During the six months ended 31 December 2011, 1,885,000 Ordinary Shares were bought back to be held in treasury at an aggregate cost of £1,447,230.

 

The number of Ordinary Shares in issue (excluding treasury Shares) at 31 December 2011 was 213,105,198. 

 

The number of Subscription Shares in issue at 31 December 2011 was 39,000,393.

 

12           Related party transactions

 

Fees payable to Impax Asset Management Limited (the "Manager") are shown in the Income Statement. At 31 December 2011 the fee accrual outstanding to the Manager was £178,447 (31 December 2010: £240,959, 30 June 2011: £227,045).  These fees were subsequently paid following the period end.

 

13           Status of this report

 

These financial statements are not the Company's statutory accounts for the purposes of section 434 of the Companies Act 2006.  They are unaudited and have not been subject to an audit review.  The Half-yearly financial report will be sent to shareholders and copies will be made available to the public at the registered office of the Company.   The report will be available in electronic format on the Manager's website (www.impaxam.com).

 

The Half-yearly financial report was approved by the Board on 23 February 2012.

 

The Company's statutory accounts for the year ended 30 June 2011 received an unqualified audit report and have been filed with the registrar of companies at Companies House.

 

 

DIRECTORS, MANAGER AND ADVISERS

 

 

DIRECTORS  

INVESTMENT MANAGER

Allan McKenzie (Chairman)

Impax Asset Management Limited

Simon Atiyah

Norfolk House

Alan Barber

31 St James's Square

Richard Franklin

London

Terence Mahony

SW1Y 4JR



BROKER

SECRETARY AND ADMINISTRATOR

Collins Stewart Europe Limited

Cavendish Administration Limited

88 Wood Street

145-157 St. John Street

London EC2V 7QR

London EC1V 4RU




REGISTRAR

SOLICITOR

Capita Registrars

CMS Cameron McKenna LLP

The Registry

Mitre House

34 Beckenham Road

160 Aldersgate Street

Beckenham

London EC1A 4DD

Kent BR3 4TU



CUSTODIAN

AUDITOR

BNP Paribas Securities Services

Ernst & Young LLP

BNP Paribas London Branch

1 More London Place

10 Harewood Avenue

London SE1 2AF

London NW1 6AA




REGISTERED OFFICE*


145-157 St. John Street


London EC1V 4RU




 

 

 

 

* Registered in England and Wales No. 7016550

 

 

23 February 2012

 

Enquiries:

 

Anthony Lee                                        

Tel: 020 7490 4355

Company Secretary

Cavendish Administration Limited

 

END

 

 

 


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