TIDMIAEM TIDMIAES
RNS Number : 2229N
Impax Asian Environmental Mkts Plc
26 September 2012
IMPAX ASIAN ENVIRONMENTAL MARKETS PLC ("IAEM")
Annual Financial Report Announcement
For the year ended 30 June 2012
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.
FINANCIAL INFORMATION
At 30 At 30 % change
June June
2012 2011
Net assets GBP183.1m GBP257.1m -28.8%
Number of Ordinary Shares
in issue(1) 207,674,475 214,985,682 -3.4%
Net asset value ("NAV")
per Ordinary Share
* Undiluted 88.2p 119.6p -26.3%
* Diluted 88.2p 116.6p -24.4%
NAV per Ordinary Share (excluding
current period net revenue)
* Undiluted 86.6p 118.5p -26.9%
* Diluted 86.6p 115.7p -25.1%
Total return(2)
* Undiluted -25.5%
* Diluted -23.5%
MSCI AC Asia Pacific (ex-Japan)
Index (sterling) (3) -10.7%
FTSE Environmental Opportunities
Asia Pacific (ex-Japan)
Index (sterling) (3) -21.1%
FTSE Environmental Opportunities
Japan Index (sterling) (3) -11.2%
Composite Index (sterling)(3,4) -18.7%
Ordinary Share price (mid-market) 75.8p 106.4p -28.8%
Subscription Share price
(mid-market) 2.4p 21.0p -88.6%
Ordinary Share price discount
to diluted NAV 14.1% 8.7% -
(1) Excluding shares held in treasury
(2) NAV plus dividend paid
(3) Total return in pounds sterlings
(4) Calculated by Impax Asset Management Limited and consisting
of 80% FTSE Environmental Opportunities Asia Pacific (ex-Japan) and
20% FTSE Environmental Opportunities Japan Indices
FINANCIAL CALENDAR
Annual General Meeting
21 November 2012 at 2 p.m.
Norfolk House
31 St James's Square
London SW1Y 4JR
Dividend
Record date: 26 October 2012
Payment date: 28 November 2012
Amount: 1.45p per Ordinary Share
CHAIRMAN'S STATEMENT
Since my interim report to investors in Impax Asian
Environmental Markets plc ("IAEM" or the "Company") in February
2012, equity markets world-wide have suffered as fears of a
European financial crisis returned and support for "environmental"
stocks has markedly diminished. In the Asia-Pacific region (the
"Region"), interest rate cuts in China and India failed to sustain
investor sentiment as weaker than expected economic data implied
that further policy intervention would be required to boost growth.
Against this background, the Company has been negatively impacted
by the fragility of investor confidence and a de-rating of small
cap stocks in China. Investment performance in the year to 30 June
2012 (the "Period") has been disappointing.
Nevertheless, as set out below and in the Manager's report, the
underlying drivers of growth in the Company's target markets have
continued to strengthen. The development and urbanisation of the
Region is a necessary and inevitable feature of global economic
progress in the 21(st) century, and companies focused on serving
the Region's environmental markets should prosper as countries seek
to improve the efficiency with which they use natural resources,
develop clean infrastructure and protect the natural
environment.
Sector Developments
As detailed in the Manager's Report, regional policy momentum
underpins the long term structural growth of environmental
investment in Asia. Extreme weather events continue to wreak havoc
across the globe, with severe droughts in the US and India and
flooding in China and Europe prompting increased investment in
water supply and flood management systems.
During the Period, following a hiatus for local government
leadership transitions, the Chinese government started to award
many material new private sector contracts to provide water related
infrastructure. Separately, China increased the 12th Five Year Plan
wind installation target from 60GW to 70GW and solar installation
target from 15GW to 20GW, raising the planned contribution of
renewable energy to 20% of power generation capacity by the end of
2015.
In response to last year's nuclear accident, Japan is likely to
announce a new energy policy by the end of the summer, with
expectations that the renewable energy component of power
generation could treble from the current level of 10% to 30% by
2030, as the country's nuclear capacity declines.
India has suffered a peak power shortage of over 10% for many
years due to delays in capacity expansion and an inefficient and
unreliable grid network. In July 2012 a reduction in hydro
generation due to low rainfall coinciding with peak summer demand
triggered a power outage which cut power to 600 million people,
further highlighting the need for accelerated investment in the
power sector. India is seeking to reduce its reliance on coal as a
source of fuel and has doubled the renewable energy target in its
latest five year plan compared with the previous period, including
15GW of wind and 10GW of solar power. Further out, India is aiming
to secure 15% of its energy from renewable sources by 2020,
compared to 6% today.
Investment Performance
Over the Period, the Company posted a negative undiluted total
return of 25.5% compared with the three relevant indices as
follows: the MSCI AC Asia Pacific ex-Japan Index ("MXAPJ") -10.7%;
the FTSE Environmental Opportunities Asia Pacific ex-Japan Index
("EOAX") -21.1% and the FTSE Environmental Opportunities Japan
Index ("EOJP") -11.2%. The IAEM share price declined 28.8% from
106.4p to 75.8p over the Period. The IAEM subscription shares
traded at 2.4p at the end of the Period.
The main contributor to underperformance was the Company's
significant exposure to Chinese small cap stocks, some of which
have reported weaker earnings expectations in the face of a slower
domestic economy, and most of which have suffered from rising risk
aversion, particularly among international investors.
Discount and Buybacks
Over the year, the IAEM share price traded at an average
discount to diluted NAV of 13% and in a range of 2% to 20%. Since
the turn of the calendar year, the Board has sought to address the
issue of the discount through share purchases, and at 30 June 2012
after buy-backs totalling 7,316,000 Ordinary Shares, the discount
was 14%. Since the end of the Period, the Company has bought back a
further 3,741,000 Ordinary Shares; all shares that have been bought
back are held in treasury.
Although it has been encouraging to see the discount reduce from
its peak in January, the Board is fully aware that most investors
believe the current level to be unacceptable, and we will continue
to buy back shares on an ad-hoc basis with a view to narrowing the
discount gap against the peer group of investment trusts focused on
the Region.
Share Issues
During the Period 4,793 Subscription Shares were exercised, in
aggregate, and as a result 4,793 Ordinary Shares were issued at a
price of GBP1 per Ordinary Share.
Dividend
The Company's net revenue return for the financial year was
GBP3.3 million. The Directors are recommending a final dividend for
the Period of 1.45p per Ordinary Share compared with a dividend of
0.95p for the year ended 30 June 2011. If approved at the Company's
Annual General Meeting, the dividend will be paid on 28 November
2012 to shareholders on the register at close of business on 26
October 2012. 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
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. At the end of the Period the total debt outstanding was
US$40 million, which represented 14% of the Company's total assets
at that time.
Regulatory Developments
A number of regulatory changes are scheduled to become effective
over the next couple of years. In Europe, the Alternative
Investment Fund Managers Directive will lead to additional
regulations that are likely to affect the company. Separately, in
the United States the Foreign Account Tax Compliance Act (FATCA) is
expected to impose additional requirements on UK companies. The
Board and its advisers are monitoring developments closely.
Management Fee
The Board and the Manager have agreed that with effect from 1
October 2012 the Management Fee will be determined on the basis of
the Company's net assets rather than, as is stipulated in the
Prospectus, on total assets.
Board Evaluation
In accordance with the UK Corporate Governance Code best
practice, an externally facilitated review was commenced during the
Period and completed in July 2012. The overall conclusion of the
review was that the Board works in a collegial, efficient and
effective manner. A recommendation was made to increase the level
of fees payable to the Directors to bring them into line with
current market rates. The Directors' fees were increased to the
recommended level with effect from 1 July 2012.
Outlook
Over the period from the year end to 21 September 2012, the IAEM
NAV fell by 0.4% compared with, in sterling terms, increases of
5.7% and 1.4% for the MXAPJ and EOAX respectively, and a decrease
of 4.0% for the EOJP. Over the same period the Company's Ordinary
Share price had declined by 3.2%.
Within the Region, the Manager and the Board believe that China
is well positioned to achieve a "soft landing", particularly when
the political uncertainty around the leadership transition is
resolved. Chinese economic recovery should be supported by an
increase in investment spending, with a priority in the strategic
sectors identified in the Five Year Plan which places considerable
emphasis on environmental markets. Elsewhere in the Region, where
the economies of many countries are linked to those of China and/or
the developed world, careful stock picking will be ever more
important.
In order to be optimistic on the future path of equity markets,
greater clarity on the outlook for global growth and a credible
solution to the debt problems in Eurozone are required. Once a
better background is established and investor confidence returns
then the backdrop for our portfolio will be more favourable. Taken
together with the de-rating in valuations we have seen in the
Company's portfolio over the past 12 months there will be an
attractive opportunity for investors in IAEM over the medium to
long term.
Allan McKenzie
Chairman
26 September 2012
MANAGER'S REPORT
We are very disappointed in the results for the financial year
ending 30 June 2012. At a time when the long-term investment themes
underpinning its investment strategy have once again strengthened,
the Company has continued to suffer from the effects highlighted in
the interim report, namely the weakness of Chinese small cap stocks
active in the industrial and technology sectors, which have
experienced aggressive de-rating, in some cases after a slowdown in
earnings growth.
There was considerable variation in performance across the
portfolio's sub-sectors. The pollution control sub-sector and water
utility companies were the most resilient and contributed
positively to performance, while many of the companies focused on
the ASEAN region also did well; however, several of IAEM's energy
and waste stocks performed poorly.
The Company has also been impacted by market perception that
lending by Chinese banks to small and mid-cap companies was lower
than was actually the case. In addition, corporate governance
issues that were given considerable prominence in the Western press
also caused further de-rating of smaller companies and two of the
Company's holdings were suspended from trading during the Period
after failing to file audited accounts; one has since resumed
trading. We continue to pay particular attention to corporate
governance in our stock analysis with a dedicated specialist
supporting the analyst team.
Overview of Asian Environmental Markets
During the Period, governments in the Region continued to roll
out additional policy measures that should underpin further growth
of environmental markets. Nevertheless, some sub-sectors were
impacted by headwinds which led to a weakening of investor
sentiment.
In China, the government announced subsidies to encourage energy
efficiency and proposed a three-tier renewable energy portfolio
standard to support solar and wind power development; in addition,
the investment budget for water-related infrastructure has been
increased and project approvals have seen a pick-up. Japan
continues to formulate its energy policy after the Fukushima
nuclear disaster and has introduced a generous solar feed-in-tariff
("FIT"). India plans to double its renewable capacity in its next
five year plan and has adopted ambitious energy efficiency targets
for heavy industries. In Korea, the government agreed to a carbon
cap and trade scheme by 2015 and has plans to develop off-shore
wind energy, while the Australian government announced the set-up
of an AUD 10bn (GBP 6.7bn) fund to develop clean energy.
After announcements during 2010 and early 2011 of significant
levels of infrastructure investment, there were some delays to the
roll-out of programmes in China (largely attributable to political
change) and, to a lesser extent, India (where economic weakness was
also a contributing factor). As noted below, we expect delays in
China to end, but remain cautious about the outlook for India.
Currently, markets appear to be looking for another bout of
fiscal stimulus in China, similar to that witnessed at the end of
2008 and early 2009, and we are confident that the new leadership
will confirm targeted spending which will specifically benefit the
environmental sector. In effect, it is now likely that the
investment proposed for the 12(th) Five Year Plan will take place
in the last three years of the period ending December 2015.
Renewable and Alternative Energy ("RAE") - portfolio weighting
11% (9% as at 30 June 2011)
Despite the strong policy support in Asia, the RAE sector
performed poorly over the year. Industry oversupply, solar
feed-in-tariff cuts in Europe and protectionist policies in the US
continued to weigh on solar and wind equipment suppliers. Renewable
independent power producers ("IPPs") in the Philippines proved to
be resilient but wind developers in China were hurt by poor wind
conditions and grid constraints.
During the Period, China began drafting a new 3-tier renewable
portfolio standard to support the increased wind and solar
installation targets of 150GW and 30GW by 2020 respectively and
raised the medium term solar installation target from 15GW to 21GW
by 2015. Japan approved a generous solar FIT following the
announcement of the 28GW installation target by 2020 and expects to
announce a new energy policy this summer. India has stated in its
five year plan that it will add ca. 30GW of renewable power
capacity to reach a total of 53GW. Korea announced plans to develop
2.5GW of off-shore wind energy by 2019.
The Company's RAE weighting rose during the Period due to the
reclassification of Xinyi Glass (solar and energy efficient glass,
China) into RAE, but otherwise was stable. We gradually reduced
weightings in the renewable IPPs such as Longyuan (wind IPP,
China), EDC (geothermal IPP, Philippines) and sold our holding in
Aboitiz Power (hydro and geothermal IPP, Philippines). In
anticipation of industry consolidation, and shifting demand from
Europe to Asia, we gradually added to equipment makers including
Trina (solar equipment, China) and China High Speed (wind gearbox,
China) due to attractive valuation and strong long-term market
positions. By the end of the Period the Company's RAE holdings were
approximately equally split between equipment makers and
developers.
Energy Efficiency ("EE") - portfolio weighting 38% (39% as at 30
June 2011)
The EE sub-sector was impacted by the slowdown in industrial
capital expenditure ("capex") and delayed take-up of light emitting
diodes ("LEDs") in general lighting. This was compounded by the
rail accident in China which resulted in a suspension of
rail-related investments. Tight credit markets in India caused
widespread delays in power sector investments despite severe power
shortages, and we remain cautious on the timing of market
acceleration in this area.
Policy momentum was positive. China introduced subsidies for
energy efficient home appliances and vehicles and solicited tenders
from LED makers to qualify for new subsidies. India adopted a
"perform-achieve-trade" scheme to drive energy efficiency for heavy
industries.
The overall EE weighting remained stable. We reduced the rail
related positions and added to new industrial efficiency/automation
names SMC (pneumatic equipment, Japan) and Airtac (pneumatic
equipment, Taiwan). The upstream LED exposure was consolidated into
industry leader Epistar (LEDs, Taiwan) and more emphasis placed on
power electronics such as Delta (power electronics, Taiwan) and
Chroma (testing equipment, Taiwan) and efficient consumer
appliances including Rinnai (efficient water heaters, Japan) and a
new position in Gree (efficient air-conditioners, China). China
High Precision (Industrial automation equipment, China) was
suspended and written down during the Period, resulting in a 0.8%
negative impact on the NAV at the Period end; the stock resumed
trading after the Period end and we subsequently exited the
position.
Waste Management & Technologies ("WMT") - portfolio
weighting 13% (14% as at 30 June 2011)
Weak demand and declining commodity prices were detrimental to
the WMT sub-sector performance. The bright spot was the strong
performance from China Everbright (waste-to-energy and waste water
treatment, China), driven by an increase in new project wins in the
waste-to-energy sector.
During the 12th five year plan, China aims to increase the
percentage of municipal waste water that is treated from 77.5% to
85% by adding ca.46 million cubic metres per day of capacity. In
parallel, the plan stipulates an increase in the percentage of
municipal solid waste that is treated from 63.5% to 90% with the
addition of 580 thousand tonnes per day of treatment capacity. The
on-grid tariff for waste-to-energy was unified and increased
meaning that waste-to-energy companies like China Everbright are
seeing both growing markets and increasing prices. Waste recycling
also became a strategic industry and a waste recycling fee will be
imposed on manufacturers and importers of electrical and electronic
products, which is expected to benefit China Metal Recycling.
The WMT sub-sector weighting fell slightly from 14% at the
beginning of the Period to 13%, reflecting a reduction in commodity
recycling names in addition, to our holding in China Everbright.
Fook Woo (Paper recycling, China) was suspended and written down
during the Period, resulting in a 0.8% negative impact on the NAV
at the Period end. We expect Fook Woo to resume trading in due
course.
Water Infrastructure & Technologies ("WIT") - portfolio
weighting 18% (13% as at 30 June 2011)
The strong performance of the ASEAN water utility stocks was
offset by weakness in the water infrastructure names. Tight credit
markets led to delays in water infrastructure capex, particularly
in India and China. Overall the performance of the WIT sub-sector
was negative.
The recent low rainfall in India and the heavy flooding in
central and north China highlight the serious imbalances in water
resources and strains on water infrastructure in the two countries.
China announced that investment in water conservation will reach
RMB 1.8trn (GBP 181.5bn) in its 12(th) five year plan. India is
expected to require INR 200bn (GBP 2.4bn) per annum to replace
existing water infrastructure and a further INR 180bn (GBP 2.1bn)
for new investments. During the Period we increased our WIT
sub-sector weighting from 13% to 18%, as valuations became more
attractive and reflecting our belief that water sector spending in
China will accelerate in the second half of 2012.
We added new names including Beijing Enterprise Water (waste
water treatment and water supply, China) and Liansu (water pipes,
China) and re-established positions in Woongjin Coway (water
treatment, Korea) and Hyflux (waste water treatment and
desalination, Singapore). We sold our holding in IVRCL (water
infrastructure, India) owing to continued balance sheet issues.
Pollution Control ("PC") - portfolio weighting 13% (14% as at 30
June 2011)
The PC sub-sector was a strong performer due to the continuing
rapid increase in natural gas adoption in China and generally
positive company results across the sub-sector. Further positive
contributions followed the inclusion of Campbell Brothers
(environmental testing, Australia) in a number of regional indices
and increased sales at Horiba (environmental & engine testing,
Japan) following the 2011 earthquake.
We took profits on ALS (formerly Campbell Brothers), ENN (gas
utility, China) and Horiba, and exited Shimadsu (environmental
testing and gas sensing, Japan). New positions were added in
Towngas China (gas utility, China) and Perusahaan Gas (gas utility,
Indonesia). Overall the PC weighting was reduced slightly from 14%
to 13%.
Diversified Environmental ("DE") - portfolio weighting 7% (11%
as at 30 June 2011)
The DE sub-sector performance was mixed, as positive
contributions made at Yingde Gases (industrial gases, China) and
Sekisui Chemical (solar homes, Japan) were offset by a downturn in
the chemical sector which hurt LG Chem (specialty chemicals and
batteries, Korea).
During the Period we took profits in Yingde and added a new
position in Sekisui. The sub-sector weighting was reduced from 11%
to 7% which was mainly due to the reclassification of Xinyi Glass
to renewables.
Portfolio Activity and Current Structure
The Company started the Period with a portfolio of 53 listed
companies. We sold out of 10 companies, re-established positions in
6 companies that we had held previously and invested in 9 new
companies. At the end of the Period the Company was invested in 58
listed companies. The structure of the Portfolio is shown on page 7
of the report.
In recognition of the expected high rates of growth and
investment of environmental markets in China we retain our view
that the Company should have a relatively high exposure to these
markets. However this exposure has been reduced from 42% to 37%
during the course of the year as we reduced positions in smaller
companies in favour of adding to holdings in South Korean and
Taiwan stocks. The Japanese and ASEAN holdings remain comparable to
the prior year.
As described above, we have maintained the Company's
diversification across sub-sectors, with a slight increase in water
infrastructure and technologies. Energy efficiency has the largest
weighting at 38%, similar to the prior year.
The Company's exposure by market capitalisation has remained
focused in the small to medium range. Companies with a market
capitalisation of less than USD 5bn represented 84% of the
portfolio value at year end.
IAEM Outlook
With a near term perspective we remain cautious due to poor
visibility of economic data in China and India as well as the
unresolved sovereign debt crisis in the Eurozone. Although
inflation appears to be under control in the region there remains
some uncertainty about the timing of investment and stimulus as
well as the sustainability of economic growth. However, we believe
that Asian equities are fundamentally cheap at current levels and
environmental markets have been irrationally sold off. As discussed
above, many sector drivers are continuing to gather momentum and we
are confident that the fundamentals for the environmental markets
in the region remain strong.
The longer-term fundamentals for the environmental markets in
Asia remain positive and the Company offers 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.impaxam.com.
Impax Asset Management Limited
26 September 2012
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:
-- liquidity and settlement risks may be greater than in Western Europe and the United States;
-- accounting standards may not provide the same degree of
shareholder protection as would generally apply
internationally;
-- 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;
-- the fiscal and monetary systems remain relatively undeveloped
and this may affect the stability of the economic and financial
markets of these countries;
-- substantial limitations may exist with respect to the
Company's ability to repatriate investment income, capital or the
proceeds of sales of securities;
-- brokerage commissions, custody fees and taxes may be higher
than in Western Europe or the United States;
-- assets may be subject to increased political and/or regulatory risk;
-- 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;
-- 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
-- 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 58
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 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 which may lead to the Company being
subject to tax on any gains on the disposal of its investments.
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 Practice (United
Kingdom Accounting Standards and applicable law). Under company law
the Directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of
affairs of the Company as at the end of the 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.impaxam.com
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
26 September 2012
INCOME STATEMENT
Year ended 30 Year ended 30
June 2012 June 2011
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains
on investments - (67,004) (67,004) - 1,849 1,849
Income 5,024 - 5,024 3,901 - 3,901
Investment
management
fees (449) (1,797) (2,246) (458) (1,834) (2,292)
Other expenses (664) - (664) (665) - (665)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
before finance
costs and
taxation 3,911 (68,801) (64,890) 2,778 15 2,793
Finance costs (160) (636) (796) (65) (548) (613)
Return on
ordinary
activities
before taxation 3,751 (69,437) (65,686) 2,713 (533) 2,180
---------- ---------- ---------- ---------- ---------- ----------
Taxation (408) - (408) (295) - (295)
---------- ---------- ---------- ---------- ---------- ----------
Return on
ordinary
activities
after taxation 3,343 (69,437) (66,094) 2,418 (533) 1,885
---------- ---------- ---------- ---------- ---------- ----------
Return per
Ordinary Share
- undiluted 1.57p (32.63p) (31.06p) 1.42p (0.31p) 1.11p
- diluted 1.57p (32.63p) (31.06p) 1.38p (0.30p) 1.08p
The total columns of the Income Statement represent the profit
and loss account of the Company. The revenue and capital columns
contain supplementary information as recommended by the Association
of Investment Companies SORP.
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
At 30 June 2012
2012 2011
GBP'000 GBP'000
Fixed assets
Investments at fair value
through profit and loss 205,550 267,173
---------- ---------
Current assets
Income receivable 803 447
Sales - future settlements 374 -
Other debtors 12 9
Cash at bank and in hand 2,951 5,551
---------- ---------
4,140 6,007
---------- ---------
Creditors: amounts falling
due within one year
Bank loan 25,510 -
Fair value of interest 179 -
rate swap
Purchases - future settlements 619 -
Accrued liabilities 271 361
26,579 361
---------- ---------
Net current (liabilities)
/ assets (22,439) 5,646
---------- ---------
Total assets less current
liabilities 183,111 272,819
Creditors: amounts falling
due after more than one
year
Bank loan - 15,448
Fair value of interest
rate swap - 231
Total net assets 183,111 257,140
---------- ---------
Capital and reserves:
equity
Share capital 2,189 2,189
Share premium account 10,060 10,056
Capital redemption reserve 129,982 129,982
Share purchase reserve 96,453 102,350
Capital reserve (59,413) 10,024
Revenue reserve 3,840 2,539
---------- ---------
Shareholders' funds 183,111 257,140
---------- ---------
Net assets per Ordinary
Share - undiluted 88.17p 119.61p
Net assets per Ordinary
Share - diluted 88.17p 116.60p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the year ended 30 June 2012
Share Capital Share
Share Premium redemption purchase Capital Revenue
capital account reserve reserve Reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- ------------ ---------- ---------- --------- ----------
Opening shareholders'
funds 2,189 10,056 129,982 102,350 10,024 2,539 257,140
Exercise of
Subscription
Shares - 4 - - - - 4
Ordinary Share
buy backs - - - (5,897) - - (5,897)
Dividends paid - - - - - (2,042) (2,042)
Profit for the
year - - - (69,437) 3,343 (66,094)
--------- --------- ------------ ---------- ---------- --------- ----------
Closing shareholders'
funds 2,189 10,060 129,982 96,453 (59,413) 3,840 183,111
as at 30 June
2012
--------- --------- ------------ ---------- ---------- --------- ----------
For the year ended 30 June 2011
Share Capital Share
Share Premium redemption purchase Capital Revenue
capital account reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
--------- --------- ------------ ---------- --------- --------- ---------
CASH FLOW STATEMENT
Year ended Year ended
30 June to 30 June
2012 2011
GBP'000 GBP'000
------------ ------------
Operating activities
Cash inflow from investment
income and bank interest 4,662 3,623
Cash outflow from management
expenses (3,009) (2,787)
Cash inflow from disposal
of investments 141,956 220,562
Cash outflow from purchase
of investments (146,222) (363,213)
Cash outflow from foreign
exchange costs (307) (772)
Cash outflow from overseas
taxation (408) (295)
------------
Net cash flow from operating
activities (3,328) (142,882)
------------
Returns on investments
and servicing
of finance
Finance costs paid (733) -
Net cash flow from returns
on investments
------------ ------------
and servicing of finance (733) -
------------ ------------
Equity dividends paid (2,042) (460)
Financing
Proceeds of share issues 4 131,071
Expenses of share issues - (2,620)
Share buy backs (5,897) -
Bank loan 9,396 15,053
------------ ------------
Net cash flow from financing 3,503 143,504
------------ ------------
(Decrease) / increase
in cash (2,600) 162
Opening balance 5,551 5,389
Closing balance 2,951 5,551
------------ ------------
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 investments (including suspended securities) are
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. 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 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
Finance costs include interest payable, direct loan costs and
fair value movements on interest rate swaps. In accordance with
Directors' expectation of the split of future returns, 80% of
finance costs are charged as capital items in the Income Statement.
Loan arrangement costs are capitalised and amortised over the term
of the loan. C Share finance costs are charged entirely to
capital.
(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. The interest rate swap is
valued at fair value and all other liabilities are valued at
amortised cost.
2. INVESTMENT COMPANY STATUS
The Company is an investment company within the meaning of
Section 833 of the Companies Act 2006.
3. INCOME
2012 2011
GBP'000 GBP'000
--------- ---------
Income from investments:
Dividends from overseas
listed investments 5,017 3,880
UK treasury bill income 6 17
---------
Total 5,023 3,897
--------- ---------
Other income:
Interest 1 4
---------
Total income 5,024 3,901
--------- ---------
4. ADMINISTRATION EXPENSES
2012 2011
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- --------- --------- ---------
Investment management
fees 449 1,797 2,246 458 1,834 2,292
--------- --------- ---------
Secretary and administrator
fees 166 - 166 150 - 150
Custodian's fees 104 - 104 150 - 150
Directors' fees 102 - 102 91 - 91
Directors' other
employment costs 6 - 6 8 - 8
Auditors remuneration
- for audit services 30 - 30 26 - 26
- for taxation 14 - 14 7 - 7
Broker fees 60 - 60 59 - 59
Public relations
and marketing 55 - 55 44 - 44
Registrar fees 35 - 35
Listing and other
regulatory fees 14 - 14 42 - 42
Miscellaneous expenses 78 - 78 88 - 88
--------- --------- ---------
664 - 664 665 - 665
--------- --------- --------- --------- --------- ---------
Total administration
expenses 1,113 1,797 2,910 1,123 1,834 2,957
--------- --------- --------- --------- --------- ---------
During the year ended 30 June 2011, fees of GBP21,150 (inclusive
of VAT) were also payable to the auditor for reporting accounting
work performed in connection with the C Share issue during that
year. The fees were included in the finance costs of C Share.
5. FINANCE COSTS
2012 2011
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- --------- --------- ---------
Interest payable 149 596 745 16 63 79
Direct loan
costs 21 82 103 3 13 16
Fair value
of swap (10) (42) (52) 46 185 231
C Share finance
costs - - - - 287 287
--------- --------- --------- --------- --------- ---------
160 636 796 65 548 613
--------- --------- --------- --------- --------- ---------
6. RETURNS PER ORDINARY SHARE
Undiluted return per share is based on the net loss on ordinary
activities after taxation of GBP66,094,000 (2011: gain of
GBP1,885,000) comprising a revenue return of GBP3,343,000 (2011:
GBP2,418,000) and a negative capital return of GBP69,437,000 (2011:
negative capital return of GBP533,000) attributable to the weighted
average of 212,795,589 (2011: 170,708,369) Ordinary Shares of 1p in
issue during the year ended 30 June 2012.
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 year.
Dilution may be attributable to the Subscription Shares in issue.
Each Subscription Share carries the right to subscribe for an
Ordinary Share at a price of 100p. The average bid price per
Ordinary Share during the year ended 30 June 2012 was lower than
100p and consequently the Subscription Shares had an anti-dilutive
impact on return per share for the year and no dilution to return
per Ordinary Share is presented. The diluted weighted average
number of Ordinary Shares in issue for the year ended 30 June 2011
was 175,160,467.
7. DIVIDEND
2012 2011
GBP'000 GBP'000
--------- ---------
Dividend reflected
in the financial statements:
Dividend for the year
ended 30 June 2011
of 0.95p (2010: 0.4p)
per Ordinary Share 2,042 460
--------- ---------
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.
2012 2011
GBP'000 GBP'000
--------- ---------
Recommended dividend
for the year ended
30 June 2012 of 1.45p
(2011: 0.95p) per Ordinary
Share 2,957 2,042
If approved at the Annual General Meeting, the final dividend
for the year ended 30 June 2012 will be paid on 28 November 2012 to
shareholders on the register as at the close of business on 26
October 2012.
The revenue return for the period available for distribution by
way of dividend was GBP3,343,000 (2011: GBP2,418,000).
8. NET ASSETS PER ORDINARY SHARE
Undiluted net assets per Ordinary Share is based on net assets
of GBP183,111,000 (2011: GBP257,140,000) divided by 207,674,475
(2011: 214,985,682) Ordinary Shares in issue (excluding shares held
in treasury) at the Balance Sheet date.
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. The
diluted net assets per Ordinary Share figure as at 30 June 2011 is
based on net assets of GBP296,145,000 divided by 253,990,591
diluted Ordinary Shares in issue at that date with the diluted
figure being based on 39,004,909 Subscription Shares in issue being
converted into Ordinary Shares at a price of 100p per Ordinary
Share.
9. ANALYSIS OF CHANGES IN NET DEBT
At 30 Cash Other At 30
June flow flows June
2011 2012
Cash and short term
deposits 5,551 (2,600) - 2,951
Bank loans falling
due in less than one
year - (9,396) (16,114) (25,510)
Bank loans falling
due in more than one
year (15,448) - 15,448 -
(9,897) (11,996) (666) (22,559)
---------- ---------- ---------- ----------
The GBP666,000 of other flows during the year represents foreign
exchange movements, the reclassification of bank loans falling due
in more than one year to bank loans falling due in less than one
year and finance costs payable on the loan.
10. RELATED PARTY TRANSACTIONS
Details of the management contract can be found in the
Directors' Report. Fees payable to the Investment Manager are
detailed in note 4 to these accounts; the relevant amount
outstanding as an accrual at 30 June 2012 was GBP173,000 (2011:
GBP227,000).
11. FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory
accounts. The financial information for 2012 is derived from the
statutory accounts for 2012, which will be delivered to the
registrar of companies following the Company's Annual General
Meeting. The statutory accounts for 2011 have been delivered to the
registrar of companies. The auditors have reported on the 2012 and
2011 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 30 June 2012 was approved
on 26 September 2012. It will be posted to shareholders and will be
made available on the Manager's website at www.impaxam.com
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 Rules and Transparency Rules of the FSA.
26 September 2012
Secretary and registered office:
Cavendish Administration Limited
145-157 St John Street
London
EC1V 4RU
Tel: 020 7490 4355
Enquiries:
Anne Gilding
Impax Asset Management Limited
a.gilding@impaxam.com
Tel: 020 7434 1122
Mobile: 07881 249612
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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