LEI: 213800RAR6ZDJLZDND86
IMPAX ENVIRONMENTAL MARKETS
PLC ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDING 31 DECEMBER
2023
London 11 April 2024. Impax
Environmental Markets plc (LSE: IEM) (the "Company" or "IEM") the
UK's largest environmental investment trust investing in the
transition to a more sustainable economy, today announced its final
results for the year ended 31 December 2023.
Highlights of Results:
Net asset
value ("NAV") per ordinary share of 434.3p, up from
419.5p
NAV total
return increase of 4.5%
Net
assets of £1,221m, down from £1,276m
Ordinary
Share price of 400.0p, down from 419.5p
Share
price total return decrease of 3.7%
6%
increase in net revenue return of £14.4 m (£13.3m)
Total
dividend paid in 2023 of 4.6p per ordinary share, a 15% increase
(4.0p)
Glen
Suarez, Chairman of Impax Environmental Markets
comments: "IEM provides shareholders
with a financial return generated from exposure to an exciting
growth story - innovative solutions to environmental challenges or
improving resource efficiency.
"The hypothesis underpinning IEM's
investment strategy is that companies providing solutions for the
world's most pressing environmental challenges, across a diverse
range of end markets, will deliver financial outperformance. There
are many drivers for this, some of which are regulatory, and others
which result from changing customer preferences and social factors.
In many cases, our portfolio companies are providing solutions that
are cost effective and technically better than the less sustainable
alternatives they are replacing. In short, I believe that prospects
for the Company are stronger today than they have ever
been.
"I was delighted to take up the role
of Chairman following last year's AGM, and would like to thank my
predecessor as Chairman, John Scott, and Board member Vicky
Hastings for the services they provided to the Company and to
shareholders over the past ten years. Since my tenure began, we
welcomed Guy Walker to the Board, with Elizabeth Surkovic joining
us at the beginning of 2024. Together with our fellow Board
members, we maintain a focus on performance and generating positive
returns for our shareholders."
Jon
Forster, co-portfolio manager of IEM, comments:
"IEM is founded on the belief that amid rising
environmental challenges, companies enabling the cleaner and more
efficient delivery of basic needs - such as power, water and food,
or mitigating environmental risks like pollution, and climate
change - will grow earnings faster than the global economy over the
long-term. This basic investment thesis remains firmly
intact.
"Markets provided a challenging
backdrop for performance in 2023. Elevated economic uncertainty,
persistent high inflation and interest rates led to weak
performance in the "mid and small cap" and "growth" companies that
are IEM's core focus. A narrow breadth of strong performance
in MSCI ACWI by the so-called "Magnificent 7" mega cap technology
stocks created headwinds to the Company's relative performance.
Despite strong performance in some Environmental Markets, a few
sectors suffered from temporary headwinds, which are detailed in
the annual report.
"Compelling valuations were a key
driver in the decision to refinance and increase gearing, with the
upside potential more than sufficient to compensate for an increase
in the overall cost of debt. Looking forward, we remain
positive, based on the more favourable market outlook for mid and
small caps, the strong long-term drivers of Environmental Markets
and the attractive portfolio valuation."
Contact:
Montfort Communications
iem@montfort.london
Gay Collins/Nita
Shah
+44(0)7798 626282
IEM
at a Glance
IEM
Overview
Impax Environmental Markets plc ("IEM" or the "Company") is
founded on the belief that, with insatiable demand for higher
living standards on a finite planet, companies enabling the cleaner
and more efficient delivery of basic needs - such as power, water
and food - or mitigating environmental risks like pollution and
climate change, will grow earnings faster than the global economy
over the long‑term.
IEM provides its shareholders with
exposure to this exciting growth story. The Company invests in a
well-researched and diversified portfolio of fast-growing,
globally-listed companies providing innovative solutions to
environmental challenges or improving resource efficiency. IEM's
investment opportunity set is also likely to expand rapidly as
regulation, technological innovation, and consumer preferences
accelerate demand for sustainable solutions. The Board
believes this approach can deliver superior risk-adjusted returns
over the long-term.
IEM has recently experienced a
period of weaker performance as a result of sharply rising interest
rates and economic uncertainty. However, the underlying earnings of
IEM's portfolio companies remain robust with excellent prospects
for growth. As the shift to a more sustainable economy
accelerates, IEM should benefit from many positive trends,
including requirements for countries to improve energy security,
the drive by thousands of companies to achieve "net zero"
targets, and regulations such as the US Inflation Reduction Act,
which support US domestic manufacturing in emerging
industries.
The
Manager
The
Manager of IEM, Impax Asset Management (AIFM) Limited (the
"Manager", or "Impax"), uses a proprietary classification system to
define these higher growth markets. This approach has been in place
since IEM was founded in 2002 and is curated by a dedicated Impax
team.
As of today, the system identifies
six sectors: Energy, Clean and efficient transport, Water, Circular
economy, Smart environment and Sustainable food. The range of
activities included has naturally grown as technologies advance and
more industries look to address material environmental
challenges.
To qualify for IEM's investable
universe, a company must derive at least 50% of its revenues from
these Environmental Markets. As a result, IEM's investments are
predominantly in small and medium-sized companies, which tend to
focus their business models on fewer activities.
The Manager then follows a rigorous,
performance-focused process based on bottom-up research to invest
in proven and profitable companies. The breadth of the
Environmental Markets opportunity set enables Impax to create a
diversified portfolio spanning traditional sector boundaries. Once
a company is purchased, its share price is continually monitored
within the context of a live 'valuation range' which incorporates
worst and best-case assumptions.
The Manager also maintains an active
dialogue with executive management. Doing so is an important part
of the investment process, and helps promote greater transparency
around ESG and sustainability issues. Engagement outcomes, company
valuations, as well as portfolio risk metrics and the
macro-outlook, all inform buy and sell decisions.
The
Portfolio
The
IEM portfolio is built with a focus on financial returns, and its
long-term performance against global equity markets remains
compelling.
Reflecting this, the investment
managers are personally invested in the Company. Two of IEM's three
co-portfolio managers - Bruce Jenkyn-Jones and Jon Forster - have
worked together since its launch in 2002, while Fotis
Chatzimichalakis has worked on IEM since 2015. IEM also benefits
from competitive fees and a committed Board, which in 2023
authorised the Manager to increase gearing to reflect the high
conviction and low valuations across the portfolio. Since IEM's
shares began to trade at a discount in 2022, the Board has bought
back shares at a steady rate. All buybacks were accretive to the
Company.
Additionally, by focusing on
Environmental Markets, the portfolio generates outcomes beyond
financial returns. Annually, for each £10m invested, enough clean,
renewable energy is generated to power 360 homes and the equivalent
of 1,410 households' water consumption and 240 tonnes of domestic
waste are saved. In addition, whilst the Manager does not target
them in the investment process, 84% of revenues generated by
portfolio companies were covered by United Nations sustainable
development goals in 2023.
Investment Objective
The
investment objective of Impax Environmental Markets plc is to
enable investors to benefit from growth in the markets for cleaner
or more efficient delivery of basic services of energy, water and
waste.
Investments are made predominantly in quoted companies which
provide, utilise, implement or advise upon technology-based
systems, products or services in environmental markets,
particularly those of alternative energy and energy efficiency,
water treatment and pollution control, and waste technology and
resource management (which includes sustainable food, agriculture
and forestry).
Financial Information
At
31 December 2023
|
2023
|
2022
|
Net
asset value ("NAV") per ordinary share with debt at
bookcost
|
434.9p
|
419.5p
|
NAV
per ordinary share with debt at fair
value1,2
|
434.3p
|
419.5p
|
Ordinary share price discount to NAV2,
3
|
7.9%
|
0.0%
|
Ordinary share price
|
400.0p
|
419.5p
|
Ongoing charges 2,3
|
0.83%
|
0.81%
|
Net
assets
|
£1,221m
|
£1,276m
|
Performance Summary4
For
the year ended 31 December 2023
%
change
|
2023
|
2022
|
NAV
total return per ordinary share2,3
|
4.5%
|
(15.0%)
|
Share price total return per
ordinary share2
|
-3.7%
|
(22.8%)
|
Comparator Benchmarks
|
|
|
MSCI AC World index5
|
15.3%
|
(8.1%)
|
FTSE ET100 index5
|
18.3%
|
(20.1%)
|
1 For 31
December 2022 and before, the NAV with debt at fair value
approximated to the NAV with debt at bookcost. Consequently only
one NAV was reported.
2 These are
alternative performance measures.
3 With debt at
fair value.
4 Total
returns in sterling for the year to 31 December.
5 Source:
Bloomberg and FactSet.
Alternative performance measures ("APMs")
The disclosures as indicated in
footnote 2 are considered to represent the Company's APMs.
Definitions of these APMs and other performance measures used by
the Company, together with how these measures have been calculated,
can be found on pages 97 and 98 of the
annual report.
STRATEGIC REPORT
Chairman's Statement
Dear Shareholder
I
took over as Chairman of the Company at last year's AGM so this is
my first full year as Chairman. I thought it would be helpful to
restate the case for investing in the Company after the past two
difficult years. In short, I believe with the Manager that
prospects for the Company are stronger today than they have ever
been.
Impax Environmental Markets plc
seeks to achieve sustainable, above-market returns over the
longer-term by investing globally in companies that are developing
innovative solutions to the resource challenges that we
face.
The portfolio of global equities is
diversified. While just under 50% of holdings are listed in the US,
the Company also has exposure to Europe (24%), the UK (9%) and
India (3%). These investments are across a broad range of sectors
as detailed in the annual report on page 24.
The Company's portfolio in 2023
underperformed the broader equity markets. Such periods of short
term underperformance are not unusual given the nature of IEM's
investment philosophy and approach, particularly in periods of
rising interest rates. This is discussed further in the Manager's
Report. However, history shows that, in the long-term, what matters
most for shareholder returns is growth in earnings of the
portfolio's companies - and given the nature of investee companies'
profitability and expected revenue growth the Manager strongly
believes that there is significant potential for the Company to
generate very attractive returns for shareholders in the
future.
The
Investment Case
The hypothesis underpinning IEM's
investment strategy is that companies providing solutions for the
world's most pressing environmental challenges, across a diverse
range of end markets, will deliver financial outperformance. There
are many drivers for this, some of which are regulatory, and others
which result from changing customer preferences and social factors.
In many cases, our portfolio companies are providing solutions that
are cost effective and technically better than the less-sustainable
alternatives they are replacing.
Renewable energy is a case in point.
Improvements in technology, economies of scale and greater
experience in building, operating and maintaining renewable energy
systems mean that the costs of wind and solar power generation have
fallen dramatically in recent years. They are now the cheapest
sources of new-build electricity generation in the vast majority of
the world, according to Bloomberg New Energy Finance.1
In more than half of the world, new wind and solar plants are
cheaper than existing fossil fuel power generation sources. In
these areas, it costs less to build new renewables facilities than
it does to cover the operating costs of coal- and gas-fired plants
that have already been built. Regardless of their contribution to
reducing carbon emissions and the reduction of local air pollution,
renewables increasingly make sense in pure economic terms,
presenting an attractive long-term investment opportunity for
investors like IEM. The UK, with its extensive offshore resources,
is potentially one of the biggest beneficiaries of this with
significant potential for exports.
Similar cost reductions are underway
in battery technologies that can help to address the challenge of
intermittent output from wind and solar facilities. Wind and solar
plants can improve their reliability by using batteries to store
and sell excess power during periods of high demand. Batteries are
already providing valuable - and often lucrative - grid‑balancing
services, and can help ease bottlenecks in electricity distribution
networks, deferring or avoiding costly upgrades. Again, this is
creating enormous demand. The International Energy Agency is
forecasting a 75% growth in investment in battery energy storage
from 2022 to 2023, to $35 billion; under its net-zero scenario, it
sees the market growing 35-fold by 2030.2
1
https://rmi.org/wp-content/uploads/dlm_uploads/2023/07/rmi_x_change_electricity_2023.pdf.
2
https://www.iea.org/energy-system/electricity/grid-scale-storage.
Then there is the global food
system, which produces around a third of greenhouse gas
emissions.1 It also consumes millions of tonnes of
chemical fertilisers and pesticides and causes 80% of
deforestation. Not only is there a clear environmental case for
more sustainable agriculture, there is also a compelling business
case. Precision agriculture, using satellite imaging and artificial
intelligence, can help farmers precisely plan planting, irrigation,
and fertiliser and pesticide use. It can cut the use of costly
inputs and increase yields and quality, thus boosting profitability
whilst cutting agriculture's environmental impacts. Companies
providing these services present a clear growth
opportunity.
Beyond this, the revolution in AI is
likely to be one of the big drivers of profit growth in portfolio
companies in which we invest. As it currently stands, 8% of the
Company's portfolio is invested in stocks which are likely to
benefit from the AI revolution. This is discussed further in
the Manager's Report.
As the global debate around
greenhouse gas emissions evolves, it is important to highlight that
the IEM portfolio will have some exposure to fossil fuels. The
Board feels that, within IEM's mandate, a modest amount of such
exposure is acceptable, but only where an investee company is
making a contribution to a reduction in pollutants and has a
credible plan to transition away from fossil fuels.
Performance
The growth in the Company is the
result of robust performance over the longer-term. However, the
past two years of challenging macroeconomic conditions have
reversed some of these gains.
For the year ended 31 December 2023,
the Company's net asset value returned 4.5%, underperforming both
its global equities comparator index (the MSCI All Country World
Index, "MSCI ACWI") return of 15.3%, and its environmental markets
comparator index (the FTSE Environmental Technology 100 Index,
"FTSE ET100" return of 18.3%.
The share price total return
decreased by 3.7%. This reflected the widening of the Company's
discount during the year by 8% as discussed below in the Premium
and Discount Control section.
In any investment strategy, periods
of underperformance are to be expected. Since early 2022, central
banks have been aggressively increasing interest rates to fight
inflation. IEM looks to invest in smaller companies which are
growing. Higher interest rates have a two-fold effect. First, they
increase the discount rate applied to future earnings. This lowers
the premium afforded to 'growth' companies relative to
slower-growing companies already producing substantial cash
earnings. Second, these small and growing businesses often borrow
to help fund that growth. As interest rates rise, so too does
their cost of debt. While IEM looks to avoid stocks with excessive
debt burdens, markets have reacted to higher rates
indiscriminately, selling first and asking questions
later.
These headwinds overwhelm the
tailwind of strong earnings growth in the short term. However, the
sharp pullback in valuations seen across these areas more than
corrects for some of the premiums reached in preceding years.
Moreover, inflation has fallen substantially around the world, and
markets are pricing in the likelihood of interest rates plateauing
and may soon begin to fall.
Dividend
IEM's net revenue return for the
year was £14.4 million, compared with £13.3 million in
2022.
IEM's dividend policy, as approved
by shareholders at the May 2023 AGM, is to declare two dividends
each year. On 28 July 2023, the Board announced a first
interim dividend for this financial year of 1.7 pence per share,
which was paid on 1 September. The second interim dividend of 2.9
pence per share was declared on 2 February 2024 and paid on 15
March 2024. The total dividend per share paid for 2023 is therefore
4.6 pence per share, an increase of 15% on the 4.0 pence paid in
respect of 2022.
It remains the Board's intention to
pay out substantially all earnings by way of dividends, the quantum
of which is affected both by the level of dividends received by the
Company and by the number of shares in issue at the relevant record
date. The Board does not expect dividends to form a significant
proportion of total return in the near future.
Gearing
The Board and Manager believe that
gearing, or the ability to borrow capital to invest, is an
attractive feature of investment trusts and can enhance long-term
performance. In 2014, when the gearing facility was put in place,
the Board and Manager agreed the Company could borrow up to 10% of
net assets. On 6 September 2023 the existing five year £50.3
million facilities with Scotiabank came up for renewal which, due
to IEM's growth, represented net gearing of only 3% at that
time.
As discussed in the Half-yearly
Report, the Board, after extensive discussions with the Manager,
based in part on compelling portfolio valuation, decided to put in
place a mix of structural fixed and floating rate debt which had a
mix of maturity dates and interest rates, alongside a new two-year
Scotiabank facility. The Company accordingly placed
€60 million of privately placed notes ("Notes") with Pricoa
Private Capital (part of PGIM, Inc), which were predominantly used
to repay the pre-existing Scotiabank debt facilities. It also put
in place a new £80.35 million
facility with Scotiabank - a two-year multi-currency revolving
credit facility, floating at reference rate plus 1.6% of which was
fully drawn down in Euros (€40.9 million) in September 2023. The
Scotiabank facility includes provision for an additional £45
million drawings as an uncommitted "accordion", with final
availability subject to approval by
Scotiabank. The Notes documentation provides scope for US $59.834
million additional note issuance.
The Notes break down is set out
below:
Principal
|
|
|
amount
|
Maturity
|
Interest rate
|
€20m
|
7y
|
Floating: 6m EURIBOR
+1.35%
|
€30m
|
10y
|
Fixed: 4.48%
|
€10m
|
12y
|
Fixed: 4.63%
|
As a consequence of the Company's
change to borrowings as set out above, at the close of the year the
Company's net gearing was 6.2%. This was higher than the 2.1% of
net gearing at year end 2022. In summary, total year end borrowings
have a weighted maturity of 6.4 years and a mix of 40% fixed and
60% floating interest rate debt.
Premium and Discount Control
The premium or discount at which the
shares trade to the underlying NAV is actively monitored by the
Board and the Company's corporate brokers.
At 31 December 2023, the Company's
shares traded at a discount to net asset value ("NAV") with debt at
fair value of 7.9%. At the previous year end, shares were trading
at NAV with no discount or premium. During the year the shares
traded between a premium to NAV of 1.3% and a discount of 10.4%
with an average of 5.1%.
In the first half of 2023, the
shares continued to trade close to NAV, but the discount widened in
the second half as investors withdrew from the UK market. This
affected almost all investment trusts in the UK market. During
the
year, the Company bought back some 23.1 million shares,
representing 7.3% of the issued share capital at the start of the
year. The Board will continue to exercise its authority to buyback
or issue shares depending on the circumstances in the
interests of shareholders.
Following this year's buybacks,
there were 281.1 million shares in issue at the year end (2022:
304.2 million) with 24.5 million (2022: 1.4 million) shares
held in treasury.
The
Manager
In Impax, the Company has an
investment management firm which has a long and successful track
record. It has been investing in Environmental Markets for 26
years. As it has grown, Impax has recruited strategically to
increase the breadth and depth of its knowledge and capabilities as
a firm. This includes analysts who are experts in their sector. A
more detailed explanation of the Manager's investment process and
philosophy is set out on pages 26 to 28 of the annual
report.
The Board undertakes both an ongoing
and formal annual review of the investment and other performance
metrics of the Manager, and believes that it is in the best
interests of shareholders to continue with the Manager.
Fees
Following discussions with the
Manager, the Board is pleased to announce the addition of a new
tier to the fee structure. From 1 January 2024, assets under
management in the Company of over £1.4 billion will have a fee of
0.45% pa. The complete fee structure is outlined below.
IEM's Fee Structure - per annum
|
|
Up to £475m NAV
|
0.90%
|
Between £475m and below £1.4bn
NAV
|
0.65%
|
Above £1.4b NAV
|
0.45%
|
The
Board
As previously mentioned, I took over
as Chairman following the AGM in May 2023.
I would like to thank my predecessor
as Chairman, John Scott, as well as Vicky Hastings for the services
that they provided to the Company and to shareholders over the past
10 years.
In May 2023, we welcomed Guy Walker
to the Board. He brings a wealth of market, industry knowledge and
experience. We also welcomed Elizabeth Surkovic to the Board at the
beginning of 2024. She has worked in environmental policy making
and regulation in the private and public sectors. Details of their
resumes are set out on in the annual report on pages 52 and
53.
I would like to thank my fellow
directors for the time contribution and the judgement they have
brought to bear on the issues affecting the Company this
year.
Board Diversity
The Board recognises the importance
and value of diversity on the Board. I am pleased to report that
the Board meets the FCA Listing Rules targets on gender diversity,
female representation in a senior role, and ethnic representation
on the Board.
Annual General Meeting ("AGM")
This year's annual general meeting
will be held at 7th Floor, 30 Panton Street, London, SW1Y 4AJ on 20
May 2024 at 3.00pm. Shareholders are being asked to approve two
additional special resolutions this year: the adoption of new
articles of association and the cancellation of the share premium
account. Further information on these two items of business can be
found on pages 105 to 107 of the annual report.
We are pleased to invite
shareholders to attend the AGM in person to meet the Board and the
investment managers. There will be a presentation and the
opportunity to ask questions. Shareholders are welcome to join
through our website at www.impaxenvironmentalmarkets.co.uk. As is
our normal practice, there will be live voting for those physically
present at the AGM. We are not able to offer live voting via the
website, and we therefore request all shareholders, and
particularly those who cannot attend physically, to submit their
votes by proxy, ahead of the deadline of 3.00pm on 16 May 2024, to
ensure that their vote counts at the AGM.
Shareholders' questions for either
the Board or the investment managers should be submitted to
clientservices@impaxam.com by 3.00pm on 17 May 2024. IEM's website
at www.impaxenvironmentalmarkets.co.uk can be used to access more
insights and also subscribe for regular communications.
Outlook
Higher interest rates have led many
investors to sour on the environmental markets theme as part of the
wider 'risk‑off' mood that has weighed on sentiment towards smaller
companies more broadly. With interest rates set to head downwards,
the Board and the Manager are confident that this sentiment will
similarly change direction. In the meantime, the shares of many
companies in IEM's investment universe have been substantially
derated by the market. This can create valuable opportunities for
an investment manager with long-term horizons.
The Company's investment hypothesis
remains firmly in place. Across the end-markets that it addresses,
policy and regulation continue to put growing pressure on companies
to emit less carbon, become more energy efficient, produce less
waste and reduce their impacts on the natural environment. Consumer
preferences are also moving towards more sustainable products and
services, at competitive price points.
This emphasis on
cost-competitiveness is fundamental to successful investing in
environmental markets. IEM seeks well-managed, disciplined
companies that combine a focus on sustainability with economically
profitable business propositions and with attractive investment
upside. Such companies will deliver financial outperformance. As
Chairman, I will maintain a relentless focus on that performance,
and challenge the Manager to ensure we generate positive investment
returns for our shareholders over the long-term.
Glen Suarez, Chairman
10 April 2024
Manager's Report
Global Equities in 2023
Markets provided a challenging
backdrop for performance in 2023. Investor sentiment was dominated
by expectations around inflation, rising interest rates and their
potential impact on the real economy. Alongside macroeconomic
uncertainty, increasing geopolitical risk also drove more defensive
positioning. Lastly, widespread enthusiasm for Artificial
Intelligence ("AI") concentrated performance in a handful of
mega-cap technology names. As a result, equity markets delivered
positive, albeit volatile returns.
Equity markets once again remained
in thrall to central banks. Focused mainly on the US Federal
Reserve ("Fed"), investors swung sharply between optimism that the
interest rate cycle was peaking and concern that central banks
would raise rates too far. Having appeared to accept fully the
prospect of "higher for longer" rates in October, lower US Consumer
Price Index data and resilient economic activity in November
prompted a strong year-end rally. Expectations are now for a soft
economic landing and multiple rate cuts through 2024.
A higher cost of capital weighed on
some key areas of portfolio exposure. Sectors exposed to long
duration financing, such as Independent Power Producers and Solar
Energy, faced some of the biggest headwinds. Fears of an economic
slowdown also hampered sectors with more cyclical characteristics
such as Industrials and Materials, to which the Company has
significant exposure. Smaller companies, which are perceived to be
more geared towards the economic cycle, also meaningfully
underperformed larger ones. These smaller companies make up around
83% of the portfolio and have contributed to a notable derating in
the portfolio's valuation premium.
Investors have also taken more
defensive positions because of geopolitical
uncertainty.1 Although Russia's invasion of Ukraine has
largely ceased to drive up inflation, the conflict remains a source
of tension. Similarly, diplomatic tensions between the US and China
continue to have read-across to globally important sectors such as
semiconductor manufacturing. More recently, October's attack by
Hamas on Israel, and subsequent fighting in Gaza, have led to an
escalation of tensions across the Middle East. The initial spike in
oil prices subsided rapidly, but with some trade ships now avoiding
the Red Sea - driving up prices and journey times - there is clear
inflationary potential should the conflict spiral
further.
The extent of these challenges
partly explains why positive equity returns this year have been
concentrated in a handful of stocks. However, the public launch of
Chat-GPT also spurred a wave of enthusiasm for companies with
AI exposure. Having fallen dramatically in 2022, shares in the
so-called "Magnificent Seven" (Microsoft, Amazon, Nvidia, Alphabet,
Meta, Apple and Tesla) delivered around half of the MSCI ACWI's
gains, making relative outperformance without them difficult.
Strong sentiment was further compounded by their ability to
generate strong margins and growth despite high interest
rates.
In addition to these top-down
factors, several sector-specific trends played out across the
portfolio. Independent Power Producers ("IPPs") of renewable energy
not only faced rapidly rising interest rates, but also higher costs
for labour and materials, just as power prices declined. For solar
energy companies with residential exposure such as SolarEdge, higher interest rates
translated into greater financing costs for consumers. In the US,
this was combined with a new regulatory regime for the state of
California (the country's largest solar market), while Europe dealt
with Chinese oversupply. Destocking also proved to be an issue for
natural ingredients companies. Having built up inventory during the
Covid-19 pandemic, often at elevated cost, companies like
DSM Firmenich, Corbion and Croda struggled with softer demand from
health care, consumer goods and cosmetics end markets.
There are signs that these
challenges are starting to abate. The interest rate trajectory
already appears more supportive for smaller companies with a growth
tilt, in which IEM invests. Likewise, many IPPs are demonstrating
their ability to generate returns above the cost of capital. In
Ingredients, there are signs that destocking is finally coming to
an end. Solar end markets may continue to endure some headwinds in
the near-term, but the economics remain sound. As a result, heading
into 2024, the investment managers have high conviction in a
portfolio in which debt is low, valuations remain attractive and
the thesis for environmental markets is stronger than
ever.
1 As at 31
December 2023.
Key
Developments and Drivers for Environmental
Markets
The Company is founded on the belief
that amid rising environmental challenges, companies enabling the
cleaner and more efficient delivery of basic needs - such as power,
water and food - or mitigating environmental risks like pollution
and climate change, will grow earnings faster than the global
economy over the long-term.
In recent years, a combination of
rapidly rising interest rates, increased cost of living and
heightened geopolitical risk has presented a challenge to this
thesis. However, during the Covid-19 pandemic, the share prices of
many companies exposed to structural growth opportunities - be they
sustainability-related solutions or digitalisation - arguably
overestimated the durability of increased demand in the
medium-term. However, as conditions normalise, it is clear
that the long-term trajectory of both increasing demand and support
for environmental solutions remains intact.
Electrification
Some of the lowest-hanging fruit to
reduce greenhouse gas ("GHG") emissions can be delivered through
electrification. Powering processes with electricity can deliver
dramatic efficiency gains, with some estimates concluding that
electrifying global energy systems could reduce total energy demand
by around 40%.1
Yet many "non-power" sectors still
rely on fossil fuels as a source of energy. Even in a developed
market like the US, electricity accounts for only slightly more
than one-third of primary energy
consumption.2
The decarbonisation opportunity
therefore lies in broadening electricity's use cases across
sectors. According to the IEA, emissions from transport, buildings,
and industry account for 56% of all CO2
globally.3 While Electric Vehicles ("EVs") are now
commonplace, global penetration remains low. By contrast, the
electrification of heating and cooling, through heat pumps, and the
electrification of industrial processes, is in its
infancy.
Within Industrials, the Company has
exposure to this theme through holdings like UK-listed Spirax Sarco. The company's core
business is to help industrial customers make more efficient use of
steam in their manufacturing process, thereby reducing costs and
emissions. Acquisitions of electrical heating companies in recent
years positions the company to participate in a broader
electrification of industry.
By partnering closely with clients,
Spirax's engineers embed themselves within operations to improve
efficiency and lower energy usage. For example, working with a
subsidiary of the multinational drinks company Diageo, Spirax
overhauled existing boiler infrastructure to remove net zero
emissions across direct operations.4 With only 5% of
industrial heat generated from electricity,5 there is
significant growth potential for such applications.
1 The world
will need less energy after the energy transition
(sustainabilitybynumbers.com).
2 US Energy
Information Agency, 2022.
3 Global
energy-related CO2 emissions by sector - Charts - Data
& Statistics - IEA.
4 Our impact |
Spirax Sarco Engineering plc.
5 Investor
Presentation March 2023 (spiraxsarcoengineering.com).
Electrification also has the
potential to transform the energy used in buildings. Portfolio
holding NIBE Industrier
produces heat pumps for residential and commercial use, which draw
on ambient thermal energy and use electricity to transfer this into
heating systems. Russia's invasion of Ukraine in 2022 exposed the
geopolitical and economic vulnerabilities of fossil fuel
dependence, boosting uptake for alternative solutions like NIBE's.
According to the IEA, global sales of heat pumps grew by 11% in
2022.1 In the near-term, normalisation of subsidies and
increased competition may present some headwinds, but long-term
growth potential remains strong. NIBE's products are complemented
by those of another portfolio holding Kingspan, whose insulation helps to
reduce the aggregate level of energy required for both heating and
cooling.
The pace of electrification has
increased most rapidly in areas where technological advances have
made it most compelling. In transport, the battery packs that power
EVs now cost about one-tenth of what they did 15 years
ago.2 As a result, almost one-fifth of new cars sold
globally in 2023 are expected to be EVs.3 While concerns
about the cost of living have slowed EVs' growth of late, with
continuing cost reductions enabled by technological innovation and
wider adoption, EVs could hit price parity with internal combustion
engine models in Europe over the course of
2024.4
The rise of EVs, alongside the
increasing penetration of technology across transportation,
underpins our investment thesis in Littelfuse. The US-based manufacturer
of circuit protection and sensing devices currently derives around
a third of its revenues from transportation end markets. Alongside
passenger vehicles, this includes construction equipment, public
transport, and EV charging infrastructure. As electrification
continues to disrupt vehicle manufacturing, Littelfuse's products
play a vital role in helping to improve the safety, reliability,
and efficiency of electric systems.
As these sectors electrify, demand
for sustainable electricity will increase. The EU Commission
expects European power demand to rise 60% between now and
2030,5 with renewables contributing much of the supply.
This long-term driver underpins the investment case for all our
renewables holdings, which account for c.11% of the
portfolio.
At the same time, a range of
'midstream' technologies will play an important role in storing,
transforming and delivering clean power to end users. Electricity
grids originally designed to connect consumers to local power
stations will need to become larger and more flexible. They will
also need to connect across greater distances, with greater
penetration of renewables increasing the need to move power from
where it is generated to where it is consumed. Energy storage
facilities and smart demand-side management will likewise need to
increase to deal with renewable power's intermittency.
This additional investment is
required over and above increasingly vital maintenance spend. By
way of example, the U.S. Department of Energy found that 70% of
U.S. transmission lines are more than 25 years old in its last
network-infrastructure review in 2015. Lines typically have a 50
year lifespan, after which efficiency drops off and operating costs
rise. In this vein, November 2023 saw the EU announce its "Grid
Action Plan", which seeks to ease permitting for transmission and
distribution networks, improve financing and reduce grid
interconnection queues.
This long-term infrastructure
development is central to Impax's investment case for Prysmian. Listed in Italy, the company
manufactures electrical cables for the power grid, as well as fibre
optics. Prysmian has market-leading positions across a range of
segments, but particularly in high voltage transmission. These
cables are used to transmit electricity large distances with
minimal energy loss, for example when connecting renewables to the
grid. Prysmian's significant exposure to the US and European
markets make it a likely beneficiary from government
stimulus.
Artificial Intelligence
The launch of Chat-GPT in November
2022 unleashed a wave of public enthusiasm for artificial
intelligence ("AI"). Its biggest beneficiary has been Nvidia (not
held), a designer of graphics processing units ("GPUs") and related
services whose computing technology enables the processing of large
language models ("LLMs"). Market sentiment has been matched by
financial fundamentals, with the company recording year on year
revenue growth of 265% in the quarter ending January 2024. IEM has
no direct exposure to AI development. The manager's investable
universe is focused on companies which derive at least 50% of their
revenues from Environmental Markets, the bulk of which are small
and mid-cap companies. AI is undoubtedly a powerful technology that
will shape many sectors. However, the resources required and
resulting network advantages conferred mean that today's leading
efforts are dominated by mega-cap technology companies such as
Microsoft (through OpenAI), Alphabet or Meta. Nevertheless, IEM
does hold companies with indirect AI exposure. These stocks either
provide products and services for organisations developing AI, or
actively employ AI in their business models. As a result, their
shares have performed well over the Company's financial year. By
way of example, Monolithic Power
Systems ("MPS") is a leading analogue semiconductor company.
AI's complex computational processes require a greater and more
precise delivery of power. MPS' integrated chip component systems
provide this, at the same time as reducing energy consumption for
customers. This makes them critical for data centres, as well as
helping to improve efficiency across a wide range of end markets
such as personal computing, autos and industry. As a leading
supplier to Nvidia, MPS has been a key beneficiary from the recent
surge in investment. The portfolio also holds two companies which
are already integrating AI into their business offering. The
software companies PTC and
Altair Engineering are
leaders in computer-aided design ("CAD") and computer-aided
engineering ("CAE"), respectively. PTC's solutions are used during
the design, operation, and maintenance phase of complex products;
while Altair's focus on simulation and generative design. By
leveraging AI and machine learning, both companies are able to
offer a range of IIOT ("Industrial Internet of Things") solutions;
data-driven capabilities that combine industrial connectivity and
real-time data analytics to improve and optimise the design and
manufacturing process.
1 Global heat
pump sales continue double-digit growth - Analysis -
IEA.
2 Office of
Energy Efficiency and Renewable Energy, 4 October 2021: DOE
Estimates That Electric Vehicle Battery Pack Costs in 2021 are 87%
Lower than in 2008.
3 IEA, 2023:
Electric vehicles.
4 Rocky
Mountain Institute, September 2023.
5 EU
Commission announces electricity grid action plan |
Reuters.
Solar
Within the Company's portfolio, the
solar energy sector faced some of the strongest headwinds in 2023.
A combination of higher interest rates, new US regulation, and
inventory destocking interacted with a sharp drop in European power
prices. As a result, many stocks which had reached all-time highs
in the wake of Russia's invasion of Ukraine fell
sharply.
Higher interest rates reduce demand
for residential solar by raising the cost of financing. In the US
in particular, most domestic solar installations are paid for with
a long-term loan. Higher upfront prices have been lifted further by
soaring wage costs for installation. In Europe, the price of
electricity has plummeted from recent peaks - see chart below. This
dynamic creates an increasingly long and unappealing payback period
- how long it takes the system to pay itself off.
This payback period drew particular
focus in the US state of California. New state regulations known as
Net Energy Metering ("NEM") 3.0 became effective in April 2023, and
cut the export price for new systems by 75%, while also requiring
the installation of a battery as storage.1 California
matters because it represents almost two-fifths of the
US residential solar installed base and has historically set
the trend for US solar regulation.2
Companies with European solar
exposure were insulated from this regulatory headwind, and saw less
impact from higher rates given lower levels of financing. However,
unlike the US, Europe's market can fall victim to Chinese
oversupply. In 2023, Chinese manufacturers dumped an estimated 40GW
of excess inventory (equivalent to a year's worth of installations)
into Europe.3 This effectively crushed pricing power
even while underlying demand remained robust.
However, after a difficult year, the
fundamental drivers for long-term growth in solar energy remain in
place. These include incentives to decarbonise, higher
household electricity consumption and a drive for self-sufficiency.
In 2023, Bloomberg New Energy Finance ("BNEF") estimates that
new global solar PV installations will total 413GW - four-fifths
more than in 2022 and far exceeding recent expectations.
Historically, investing in solar
stocks has required a distinctly contrarian mindset. Market
participants are flighty, with the type of short term focus usually
reserved for hedge funds and speculators. The extent of the recent
sell-off therefore occasions another look at the space. Companies
with market-leading technology have quality business models and
barriers to entry high enough to benefit from the industry's
long-term growth.
1 Kennedy, R.,
4 Nov 2022: California set to release anti-rooftop solar net
metering plan. PV Magazine.
2 Solar Energy
Industries Association / Wood Mackenzie Power & Renewables,
September 2023: U.S. Solar Market Insight 2023 Q3.
3 Bellini, E.
& Kennedy, R., 20 July 2023: European warehouses store 40 GW of
unsold solar panels. PV Magazine.
"Broad public support for environmental solutions also remains
high, particularly when the financial and geopolitical benefits are
made clear."
Likewise, not every player in the
market is succumbing to price competition arising from mass,
low-cost Chinese manufacturing. Indeed, some companies are
benefiting as lower prices for commoditised products increase
aggregate solar demand, without the corresponding increase in
supply for specialist components. This is the thesis which
underpins the Company's position in SolarEdge, a US-listed producer of
optimisers and related components, and continues to inform the
manager's scrutiny of the investable universe.
Policy
Recent macroeconomic and
geopolitical changes have put an increased focus on energy security
and the cost of living. As a result, policy measures which seek to
create a more sustainable economy but involve upfront costs have
been the victim of political pushback. In the UK, the most notable
example came in September 2023, when Prime Minister Rishi Sunak
rolled back the deadline for selling new petrol and diesel cars, as
well as the phasing out of gas boilers.
This trend has been seen across
geographies and partly reflects the vaulting ambition of targets
set during COVID-19 - a time of lower economic activity and more
stable geopolitics. However, it also reflects politicians'
willingness to use sustainability policy as a wedge issue on the
campaign trail, even if the impact is limited in
practice.
Across the board, incidences of real
and direct policy change have thus far been limited with few
long-term strategic shifts. Such developments ultimately amount to
an understandable delay but do not change the destination. Existing
regulations, consumer demand and corporate strategy also continue
to be effective drivers of growth for environmental markets.
Indeed, business leaders remain focused on competing long-term and
some of the most vocal opponents of the UK Government's measures
were the car manufacturers.1
Broad public support for
environmental solutions also remains high, particularly when the
financial and geopolitical benefits are made clear. This continued
level of policy support for environmental markets was evident at
COP 28, November's UN conference on climate change held in Dubai.
The meeting produced an historic agreement on the need to
"transition away from fossil fuels in energy systems".2
Over 130 countries also endorsed the Global Renewables and Energy
Pledge to triple renewable energy capacity and double the rate of
energy efficiency improvements to 2030, specifically calling
attention to permitting and ensuring cross-border grid
interconnections.3
The event was also a testament to
the power of collective engagement. As part of the Farm Animal
Investment Risk and Return Initiative ("FAIRR"), Impax is one of
several stakeholders that has campaigned for a greater focus on the
role food systems play in climate change. Historically absent from
COP agreements, this year saw a whole day devoted to food and
agriculture.
At COP 28, the UN's Food and
Agriculture Organisation launched a road map to bring the world's
food production in line with global climate goals.3 A
corresponding declaration on sustainable agriculture also
demonstrated that governments are increasingly willing to co-opt
entire sectors into their national plans for decarbonisation. With
over 13% of IEM's portfolio invested in companies deriving revenues
from Sustainable Food and Agriculture, these initiatives further
strengthen the Manager's conviction in the long-term growth
prospects of the sector.
Looking forward, one of the biggest
determinants of environmental policy is likely to be the US
Presidential Election. At the time of writing, Donald Trump is the
presumed Republican candidate, and has made his opposition to the
Inflation Reduction Act - which provides funding, as well as
broader legislative support for renewable energy - well
known.
Impax views Donald Trump's chances
of frustrating the legislation as limited. Doing so would require a
comprehensive victory in the Senate and Congress, while also
reversing significant spending and job creation in many Republican
states. Since passage of the Inflation Reduction Act in 2022, more
than US$160bn has been committed by the private sector to new clean
energy manufacturing facilities in states that often or sometimes
have Republican congressional majorities.4 State-level
political dynamics will matter too. Today, 17 US states have
legally binding 100% clean energy targets.4 These cannot
be undone at the federal level. Nevertheless, the prospect will
continue to hang over relevant sectors until November 2024 at
least, affecting valuations accordingly.
1 E.ON boss
hits out at Sunak's plan to row back on net zero
policies
2 COP28:
Landmark summit takes direct aim at fossil fuels - BBC
News.
3
Summary_GCA_COP28.pdf (unfccc.int).
4 Lawrence
Berkeley National Laboratory, June 2023: U.S. State Renewables
Portfolio & Clean Electricity Standards: 2023 Status
Update.
Absolute performance contributors and
detractors
The Company's net asset value
("NAV") delivered positive absolute returns of 4.5% in 2023.
However, this lagged the MSCI All Country World Index ("MSCI
ACWI"), a broad reflection of global equity markets, by
10.8%.
Crucially, the bulk of this
difference was driven by stocks not held in the portfolio. Net
returns from owned companies was in fact positive, although
sizeable positive contributions from positions in construction and
digital infrastructure were partially offset by holdings in the
solar, renewable IPPs and natural ingredients sectors.
This relative underperformance was
driven by a combination of top-down macroeconomic factors, extreme
market concentration and a handful of sector-specific headwinds.
Crucially, the bulk of portfolio underperformance was driven by
stocks not held in the portfolio.
IEM has no exposure to the
Magnificent Seven, accounting for a performance headwind of 7.7%.
These companies benefitted from a combination of market enthusiasm
for AI, as well as their ability to generate strong margins and
defensive growth despite high interest rates. While the Company
could hold Tesla on account of its EV and renewables exposure, the
investment managers view its governance practices as inadequate.
The remaining stocks fail to meet the investment process
requirement of having at least 50% of revenues from Environmental
Markets.
Within the portfolio, companies
operating in the Solar Energy sector delivered some of the
strongest negative returns. As discussed above, higher interest
rates pushed out payback periods for customers financing the
capital expenditure of a new system, just as fossil fuel prices
came down from their 2022 highs. At the same time, new legislation
in California has served to weaken US demand, while in Europe
massive Chinese over-supply has left almost no pricing power to
boost margins. Consequently, SolarEdge Technologies and Xinyi Solar have made some of the
largest negative contributions to performance.
Investing in the solar sector
requires a contrarian approach. Investor time horizons are
typically short-term, with an almost total focus on growth. Across
the industry, near-term visibility on underlying demand remains
uncertain. Having added to positions mid-way through the year, this
uncertainty compounded poor performance. Given the sector's
longer-term drivers and the superior profitability of these
positions, the investment managers continue to hold both names, but
are monitoring progress on headwinds before increasing exposure
further.
The portfolio's IPP holdings also
delivered some of the weakest absolute performance for the year.
The sector saw rising project costs, perceived lower future
returns, and at the margin, the increasing yield on offer from
bonds, all weigh on investor sentiment. Within the portfolio the
share prices of companies like Northland Power, Terna Energy, and EDP Renovaveis fell to levels which not
only discounted the value of pipeline projects, but even existing
operational assets.
Such moves reflect an intensely
top-down market focused on headline-driven sentiment, rather than
recognising portfolio holdings' stated strategies and still
resilient spreads above their cost of capital. Northland Power, for
example, expects to initiate few new projects in the coming years
and will instead focus on operating and selling down its assets
with a view to boosting cash returns. The tail end of 2023 saw the
share prices of both IPP and solar names rally. Yet these gains
were driven entirely by interest rate expectations, with financial
fundamentals a potential further catalyst to the upside.
Natural ingredients companies
represent the third significant group of stocks to weaken
performance. As identified in the interim report, DSM-Firmenich continued to suffer from
low vitamin volumes and pricing across animal and human nutrition.
China's weaker than expected reopening has led to a flood of cheap
vitamin production without the corresponding demand. Croda, conversely, has been hit by
weaker personal care markets while Corbion faced lower demand for
polylactic acid for bioplastics, with a focus in the industry on
lower-cost alternatives.
As 2023 progressed, conversations
with investee companies' management repeatedly saw executives point
to worsening demand transparency from end clients as a result of
the COVID-19 pandemic. Additions to these holdings earlier in the
year thus proved too soon, despite the robust fundamentals of each
company. Nonetheless, there are now signs that this temporary
destocking dynamic has largely played out.
By contrast absolute returns for the
year have been negative, pockets of the portfolio have demonstrated
the long‑term resilience that one would expect from a Company with
diverse exposure to environmental markets. The two biggest areas of
positivity were the Digital Infrastructure sector and companies
with exposure to US construction.
In Digital Infrastructure, the
portfolio benefited from strong performance in industrial software
holdings PTC and
Altair. The two US-listed
companies produce computer-assisted design (CAD) and simulation
software, respectively. Given their central role in modern
manufacturing, both names have benefited from solid growth in
recurring subscription revenues, as well as continued penetration
across industrial markets.
Monolithic Power Systems, a
producer of power management solutions, also boosted performance.
The company delivered robust earnings growth, with meaningful
tailwinds from its exposure to AI, where it is chief supplier to
Nvidia - the leading producer of graphical processing units
used in AI systems.
US 30-year mortgage rates briefly
hit 8% in 2023.1 Despite this, US construction proved
one of the strongest performance areas for the portfolio,
confounding many commentators' expectations at the start of the
year. In the US, mortgages are applied to the property (rather than
the owner) and cannot be transferred. Thus, while higher rates did
cause demand to drop, supply also collapsed as homeowners choose to
move on to more affordable arrangements. With new home construction
still suppressed post pandemic, an easing of building supply chains
made for ideal trading conditions.
Across IEM there is c.20% aggregate
exposure to construction as at 31 December 2023. This exposure is
diversified by region, category (residential, commercial and
infrastructure) as well as type (new build vs refurbishment). While
residential construction's surprising strength drew the bulk of
market commentary, municipal and commercial end markets also proved
robust. Companies which performed strongly include Pentair and Zurn Elkay Water Solutions, with the
former's acquisition of Manitowoc Ice providing additional
diversification in the form of exposure to the food sector. Other
strong performers included wood plastic composite decking company
Azek and HVAC manufacturer
Lennox, which benefit from
refurbishing as well as new build activity.
1 Bloomberg as
at 31 December 2023.
Relative Performance Analysis
|
12 Months
ended
|
|
31 December
2023
|
Performance relative to MSCI ACWI
|
%
|
NAV total return
|
4.5
|
MSCI ACWI total return
|
15.3
|
Relative performance
|
(10.8)
|
Analysis of relative
performance:
|
|
Portfolio total return
|
5.3
|
MSCI ACWI total return
|
15.3
|
Portfolio
underperformance
|
(10.0)
|
Borrowing:
|
|
Gearing effect
|
0.2
|
Finance costs
|
(0.3)
|
Management fee
|
(0.8)
|
Other expenses
|
(0.1)
|
Trading Costs
|
(0.1)
|
Share transactions:
|
|
Buybacks
|
0.4
|
Tax
|
(0.1)
|
Total relative NAV performance
|
(10.8)
|
|
12 Months
ended
|
|
31 December
2023
|
Performance relative to FTSE ET100
|
%
|
NAV total return
|
4.5
|
FTSE ET100 total return
|
18.3
|
Relative performance
|
(13.8)
|
Analysis of relative
performance:
|
|
Portfolio total return
|
5.3
|
FTSE ET100 total return
|
18.3
|
Portfolio
underperformance
|
(13.0)
|
Borrowing:
|
|
Gearing effect
|
0.2
|
Finance costs
|
(0.3)
|
Management fee
|
(0.8)
|
Other expenses
|
(0.1)
|
Trading Costs
|
(0.1)
|
Share transactions:
|
|
Buybacks
|
0.4
|
Tax
|
(0.1)
|
Total relative NAV performance
|
(13.8)
|
Portfolio positioning, activity, valuation and
risk
At the end of the year, IEM's
portfolio comprised 63 listed holdings. Portfolio detail is
provided on pages 22 and 23 of the annual report and positioning by
sector and region is set out on page 24.
The Company's positioning is in line
with what was presented in the Half-yearly Report. The portfolio
maintains a balance of high-quality cyclical and defensive business
models across a broad range of environmental markets. In terms of
activity, cheaper valuations have enabled the Manager to continue
taking new positions in more cyclical businesses with strong
long-term fundamentals, as well as adding selectively to defensive
names. The investment managers have also been looking for new
holdings with exposure to Asia over the year.
Having initiated a position in
Kingspan in the first half
of 2023, the team added a further three positions in cyclical
companies whose valuations had derated substantially. Shimano is the world's leading
manufacturer of bicycle components, and its shares traded
significantly lower after strong performance during Covid-19.
Shimano's products can lower emissions by displacing combustion
engines, as well as benefiting human health through increased
exercise. The purchase was funded by exiting Giant, a Taiwanese bicycle
manufacturer, where the manager perceived limited further
upside.
Prysmian manufactures
electrical wires for the power grid, as well as fibre optic cables.
Rapid growth in renewables, as well as the electrification of power
systems, heating and transport are driving substantial investment
in the grid. With significant market share, particularly in the
more operationally demanding High Voltage segment, the team
believes Prysmian is well-placed to benefit.
Lastly, the Company switched its
holding in Smurfit
Kappa for a position in
Mondi. This was triggered
by Smurfit's announcement in September that it intended to acquire
WestRock, a rival. Some synergies are immediately evident, however
there is little clarity on management's strategy to lift returns
above Westrock's current cost of capital. In addition, while both
Smurfit and Mondi operate in the paper and packaging sector, the
latter is a net producer giving it greater pricing stability and
security of supply as cyclical demand picks up.
On the defensive side of the
portfolio, the Manager bought a position in Steris. The company is a leading
provider of sterilisation equipment and related services for the
healthcare industry whose growth is underpinned by several secular
tailwinds such as ageing populations and greater sterilisation
outsourcing. Steris also delivers industry leading water savings in
its products.
The Company also initiated a
position in Veralto, a
spin-out from US testing and analysis company Danaher. The new
business is focused on providing quality control services for the
water, food, and pharmaceutical markets. As part of Danaher, the
company established a track record of high margin recurring
business and strong growth.
Lastly, 2023 saw the Manager
modestly increase the portfolio's Asian exposure with two
transactions in the first half of the year. In the more defensive
consumer market, IEM purchased Dabur India. As documented previously,
Dabur is a leading supplier of natural ingredients with strong
market share in fast growing markets. The Company also purchased
Shenzhen Innovance
Technology, a producer of industrial automation products and
electrical motors for EVs. The holding marks the Company's
first foray into the Chinese A-share market, which has been under
pressure in 2023. However, the company's track record of growth,
compounded with the still abundant domestic opportunity made for an
attractive entry point.
Valuation and Gearing
Regarding valuation, over the course
of 2023 the portfolio occupied a fairly narrow range for its next
12 months' (or forward) price-to-earnings (PE) ratio. Starting the
year at 18.4x, the portfolio actually finished slightly higher at
20.7x. However, this ratio dropped sharply at several points during
the year when markets took the view that higher interest rates
would have a greater impact on smaller companies. The figure is
also skewed by portfolio holdings where short term downward
revisions to earnings have not necessarily fed through to the share
price.
More significant was the relative PE
premium for the portfolio compared to the broad MSCI ACWI of
equities, which fell steadily over the course of the year. Starting
the year at around 29%, the relative premium fell to 26%. Despite
rallying sharply in latter months as interest rate expectations
changed, this premium remains in line with long-term average
levels. Yet public policy and technological developments have made
the investment case for environmental markets stronger than
ever.
Compelling valuations were a key
driver of the Board and Manager's decision to refinance and
increase gearing towards the end of the year. Absolute and relative
PE premiums were at an historic low even as underlying investment
cases remained robust. The Manager thus perceived meaningful upside
potential, more than sufficient to compensate for an increase in
the overall cost of debt. Moreover, central banks - led by the US
Federal Reserve - have indicated their willingness to cut interest
rates from current levels. Electing to increase gearing with a
combination of fixed and floating debt should allow the Company to
benefit from any drop in rates.
Outlook
The Manager does not pick stocks on
the basis of macroeconomic forecasting. However, macro trends
should be more supportive. This contrasts sharply to 2023 when
macro concerns and higher interest rates made for meaningful
headwinds. While the Fed has pushed back on the date of a cut,
interest rates are expected to fall. If economic data also remains
resilient, it should further benefit the Company's small and
mid-cap exposure. Even in the event of a mild recession, the
consistent returns profiles of IEM's holdings should bear
out.
Secondly, underlying earnings growth
in the portfolio is expected to be robust. This is particularly the
case in companies whose earnings have been depressed by short term
headwinds. For example, there are clear signs of destocking across
natural ingredients companies coming to an end. Geopolitics remain
a potential risk factor, particularly from inflationary shipping
disruptions in the Suez Canal. The team is monitoring any impact
closely.
Lastly, the Manager believes
valuations continue to be attractive. The portfolio's premium
relative to the MSCI ACWI is around the ten-year average, with
shares in the Company itself trading at a further discount to NAV.
As January showed, the macro backdrop will still drive sentiment in
the short term, but the holdings are demonstrating their ability to
operate successfully in a world of higher rates and costs. As
fundamentals continue to improve, they should exert an increasingly
positive influence on the holdings' share prices within the IEM
portfolio.
Investment Managers
Jon
Forster
Fotis Chatzimichalakis
Bruce Jenkyn-Jones
10 April
2024
Principal risks and uncertainties
The Board is responsible for the
management of risks faced by the Company and, through delegation to
the Audit Committee, has established procedures to manage risk,
oversee the internal control framework and determine the nature and
extent of the principal risks the Company is willing to take in
order to achieve its long-term strategic objectives. The Audit
Committee carries out, at least annually, a robust assessment of
the principal risks and uncertainties and reviews ongoing
monitoring of both controls risks and controls. This ensures
heightened and emerging risks are identified outside of the normal
cycle of Board and Audit Committee meetings.
Risks are documented on a risk
register, grouped into four main categories: Strategic and Business
Objective Risks; Investment Management Risks; Operations - Service
Providers Risks; and Compliance, Regulatory and Corporate
Governance Risks. Risks are then rated before and after mitigating
controls by impact and likelihood of occurrence, with the assessed
ratings charted on risk matrices. The risk register is reviewed on
an ongoing basis in an attempt to capture all risks and to ensure
appropriate mitigation is in place. Reviews take into account
changing factors including, but not restricted to, changes to
markets (both macro and micro), stakeholders, operations,
regulation and emerging risks.
The top risks identified by this
process are set out in the following section, and the Board
considers these to be the principal risks of the
Company.
The Board considered the risks posed
by global economic conditions including higher inflation and
interest rates and disruption to supply chains as a result of the
wars in Ukraine and the Middle East, with updates on market impact
and operational resilience received from the Manager, Administrator
and other key service providers. The Board is satisfied that the
key service providers had, and continue to have, the ability to
continue their operations efficiently in a remote or virtual
working environment.
The Manager continues to provide
regular updates to the Board on the financial impacts on the
portfolio performance and investee companies, as well as the
long-term effects and opportunities for the sectors in which the
Company invests.
Emerging risks are considered by the
Board at its quarterly meetings and by the Audit Committee as part
of its risk management and internal control review. Failure to
identify emerging risks may cause reactive actions rather than
being proactive and the Company could be forced to change its
structure, objective or strategy and, in worst case, could cause
the Company to become unviable or otherwise fail.
The experience and knowledge of the
Directors is invaluable in consideration of emerging risks, as are
update papers and advice received from the Board's key service
providers such as the Company's Manager, broker, Company Secretary
and auditor. The AIC also provides regular updates and draws
members' attention to forthcoming industry and/or regulatory
issues.
Potential risk
|
Mitigation
|
Trend
|
Strategic and business objective risks
|
|
|
Economic and market risks
Price movements of the Company's
investments are highly correlated to the performance of global
equities in general and small and mid-cap equities in particular.
Falls in stock markets are likely to adversely affect the
performance of the Company's investments.
Changes in general economic and
market conditions, such as currency exchange rates, interest rates,
rates of inflation, industry conditions, tax laws, political events
and trends can substantially and adversely affect the value of
investments. Market risk includes the potential impact of events
which are outside the Company's control such as the war in the
Middle East and the ongoing war in Ukraine.
The Company holds a significant part
of its portfolio in companies with small market capitalisations,
which are likely to be subject to higher valuation uncertainties
and liquidity risks than larger capitalisation securities. The
Company may also invest in unquoted securities which generally have
greater valuation uncertainties and liquidity risks than securities
listed or traded on a regulated market.
|
There are inherent risks involved in
stock selection. The Manager is experienced and employs its
expertise in selecting the stocks in which the Company invests. The
Manager spreads the investment risk over a wide portfolio of
investments in its three main sectors: energy, water and waste, as
well as geographically.
At year end, the Company held
investments in 63 companies and the largest holding represented
2.9% of net assets.
The Manager will not normally hedge
against foreign currency movements, but the Manager takes account
of the risk when making investment decisions. Further details on
financial risks and risk mitigation are disclosed in note 16 to the
accounts.
The high risk rating remains
unchanged; this reflects continued uncertainty in markets, though
for changed reasons. Interest rates have stabilised and inflation
reduced but geo-political uncertainty continues to remain
high.
|
Neutral
|
Environmental markets
The Company invests in companies
operating in environmental markets. Such companies carry risks that
governments may alter the regulatory and financial support for
environmental improvement, costs of technology may not fall,
capital spending by their customers is reduced or deferred and
their products or services are not adopted.
|
The Company invests in a broad
portfolio of investments which are spread amongst several
environmental market sectors. The Manager has a rigorous investment
process which takes into account relevant factors prior to
investment decisions taking place. As well as reviews of the
portfolio and relevant industry matters at quarterly Board
meetings, the Board has an annual strategy day at which the overall
strategy of the Company is discussed.
|
Neutral
|
Share price trades at excessive discount to net asset
value
It is in the long-term interests of
shareholders that shares do not trade at a significant discount to
net asset value.
Investor demand for the Company's
shares may fall, causing the discount to widen.
|
The Board monitors the level of
premium/discount and receives regular shareholder feedback from the
Company's Manager and broker.
The Board has the power, granted by
shareholders, to buy back shares when in the best interests of the
Company, and this should reduce supply of shares and thus reduce or
stop widening of the discount and may reduce volatility.
|
Neutral
|
Financing risk
The Company may borrow money for
investment purposes. If investment markets fall in value, any
borrowing will enhance the level of loss.
Capacity constraints on the
availability of desirable companies for investment may mean the
Company is unable to achieve the level of gearing
wanted.
|
The Board has authorised the Manager
to use its discretion to utilise gearing up to 10% of net assets.
Any borrowing above this level requires Board approval.
Borrowing facilities are renewed on
a cost effective and timely basis.
The Manager keeps under regular
review the opportunities for enhancing returns by the prudent use
of gearing.
The risk rating decreased following
the successful refinancing of the Company's revolving credit
facility.
|
Decreasing
|
Investment Management
|
|
|
Underperformance of the Investment Manager
Consistent long-term
underperformance by the investment manager may lead to poor
performance of the Company compared to its benchmark comparators
and peers, a widening of discount to NAV, a reduction in capital
and dissatisfied shareholders.
|
At each board meeting the investment
manager reports on the performance of the Company including
comparisons to its peers and benchmark comparators.
The Board considers various
portfolio metrics including top contributors and detractors to
performance, sub-sector and regional performance, investment
rationale, valuation and growth statistics, key activity in the
period, attribution analysis, portfolio positioning and risk, and
the Manager's outlook. The Board considers the rationale behind new
additions, for which the Manager provides details including the
environmental benefit. The Board also considers the macro and
geopolitical risks and uncertainties that effect the portfolio and
the Company.
The risk rating increased as the
likelihood of long-term underperformance increased following a
second year of underperformance.
|
Increasing
|
Operations - service providers risks
|
|
|
Failure or breach of Information Technology (IT) - including
cyber- security, and physical security risks
Failure of IT or physical security
could potentially lead to breaches of confidentiality, data records
being compromised and the inability to make investment decisions.
In addition, unauthorised physical access to buildings could lead
to damage or loss of equipment.
The underlying risks primarily exist
in the third party service providers to whom the Company has
outsourced its depositary, registration, administration and
investment management activities.
|
The Company's key service providers
report periodically to the Board on their procedures to mitigate
cyber security risks including their alignment with industry
standards, their physical and data security procedures and their
business continuity planning.
The Board meets with its key service
providers at each board meeting and directors often engage with
service providers intraboard.
|
Neutral
|
Operational risk
The Board has contractually
delegated to third party service providers the management of the
investment portfolio, and services covering: depositary and
custody; registrar; company secretarial and fund accounting. The
security of the Company's assets, dealing procedures, accounting
records and adherence to regulatory and legal requirements depend
on the effective operation of the systems of these third party
service providers.
Failure by any service provider to
carry out its obligations to the Company could have a material
adverse effect on the Company's performance. Disruption to the
accounting, payment systems or custody records (including cyber
security risk) could prevent the accurate reporting and monitoring
of the Company's financial position.
|
Due diligence is undertaken before
contracts are entered into with third party service providers,
taking into account the quality and cost of services offered,
including policies and procedures, and risk management and controls
systems in operation in so far as they are relevant to the Company.
Thereafter, the performance of the provider is subject to regular
review and report to the Board. The Board monitors key persons as
part of this oversight.
The control of risks related to the
Company's business areas is described in detail in the corporate
governance report.
The risk rating was increased due to
organisational and personnel changes at the Company's company
secretarial provider.
|
Increasing
|
Whilst not being identified as
principal risks after mitigation controls are applied, other
relevant risks to the Company include the following:
|
Potential risk
|
Mitigation
|
Trend
|
Strategic and business objective risks
|
|
|
Global pandemic risk
The rapid spread of infectious
disease may cause governments to implement policies to restrict the
gathering, interaction or movement of people and take other
measures as deemed appropriate to prevent its spread, causing
disruption to markets generally, investee companies, the operations
of the Company and its key service providers.
|
The Manager spreads the investment
risk over a wide portfolio of investments. Risk analysis includes
scenario analysis of possible negative market events.
The Company's key service providers
report periodically to the Board on their business continuity plans
and procedures. The Board monitors the adequacy of controls in
place at the key service providers and their planned response to an
extended period of disruption, to ensure that the impact to the
Company is limited.
During times of elevated volatility
and market stress, the Company's closed-end fund structure protects
it from the liquidity requirements that can arise for open-ended
funds.
|
Neutral
|
Physical climate change risk
While efforts to mitigate climate
change continue, the physical impacts are already emerging in the
form of changing weather patterns. Extreme weather events can
result in flooding, drought, fires and storm damage, potentially
impairing the operations of an investee company at a certain
location, or impacting locations of companies within their supply
chain.
|
Physical climate change risk is
still an emerging topic for investors as well as for the management
teams of investee companies. It has been a focus area of research
and engagement by the Manager to identify companies particularly
exposed to this risk and to open a dialogue with them on management
options. Details of engagement with investee companies are given on
pages 38 and 39 of the annual report.
The Company invests in a broad
portfolio of companies which are spread geographically, limiting
the impact of location specific weather events.
|
Neutral
|
Investment management risks
|
|
|
Financial risks
The Company's investment activities
expose it to a variety of financial risks which include foreign
currency risk, portfolio liquidity risk and interest rate
risk.
The Company invests in securities
and has borrowings which are not denominated or quoted in sterling.
Movements of exchange rates between sterling and other currencies
in which the Company's investments are denominated may have an
unfavourable effect on the return on the investments made by the
Company.
The Company's main exposure is its
floating-rate €20m seven-year Note and its €40m revolving credit
facility, details of which are shown in Note 11.
|
The Manager does not actively hedge
against foreign currency movements affecting the value of its
investments, although the Manager takes account of this risk when
making investment decisions.
Non-sterling borrowings will
effectively hedge non-sterling investments for matching
currencies.
The Company invests in range of
global listed equities and the Manager monitors the foreign
currency exposure and liquidity of holdings within the portfolio
and reports on these to the Board at each meeting.
Interest rate risk on borrowing was
reduced by fixing two of the Notes.
Further details on financial risks
and risk mitigation are disclosed in note 16 to the
accounts.
|
|
Regulatory risks
Loss of investment trust status
would lead to the Company being subject to tax on any gains on the
disposal of its investments.
Breaches of the FCA's rules
applicable to listed entities could result in financial penalties
or suspension of trading of the Company's shares. Breaches of the
Companies Act 2006 could result in financial penalties or legal
proceedings against the Company or its Directors.
Failure of the Manager to meet its
regulatory obligations could have adverse consequences on the
Company.
|
The Company has contracted out
relevant services to appropriately qualified professionals, who
monitor, and report to the Board on regulatory compliance. In
addition, the Company's broker, auditor, Company Secretary and
Manager provide the Board with regulatory updates on a regular
basis.
The Manager reports on regulatory
matters to the Board on a quarterly basis. The assessment of
regulatory risks forms part of the Board's risk assessment
programme.
|
|
|
|
| |
Viability statement
The continuation of the Company is
subject to the approval of shareholders every three years. The
continuation of the Company was approved at the Company's 2022 AGM
with 99.99% votes in favour of the continuation resolution. The
next vote will take place at the Company's 2025 AGM.
The Directors have assessed the
viability of the Company for the period to 31 December 2028 (the
"Viability Period"). The Board believes that the Viability Period,
being approximately five years, is an appropriate time horizon over
which to assess the viability of the Company, particularly when
taking into account the long-term nature of the Company's
investment strategy, the principal risks outlined above and its
gearing. The Board have also assumed that shareholders will approve
the continuation of the Company on each continuation resolution
proposed during the Viability Period. Based on this assessment, the
Directors have a reasonable expectation that the Company will be
able to continue to operate and to meet its liabilities as they
fall due over the Viability Period.
The Board reviewed the Company's
income and expenditure projections and other funding requirements
in normal and worst case market conditions. The level of the
ongoing charges is dependent to a large extent on the level of net
assets, the most significant contributor being the investment
management fee. The Company's income from investments and cash from
the sale of investments (which are readily realisable) provide
substantial cover to the Company's operating expenses, and any
other expenditure likely to be faced by the Company over the
Viability Period. Such expenditure to include buybacks of shares in
order to operate the Company's discount control policy and
repayment of the Company's borrowings, which at the date of this
report represented less than 6.8% of the Company's
investments.
In its assessment of the prospects
of the Company, the Board considered each of the principal risks
and uncertainties and the liquidity and solvency of the
Company.
Statement of Directors'
Responsibilities
The Directors are responsible for
preparing the Annual Report and the financial statements in
accordance with applicable laws and regulations.
Company law requires the Directors
to prepare accounts for each financial year. Under that law the
Directors have elected to prepare the financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice, including FRS 102 'The Financial Reporting Standard
applicable in the UK and the Republic of Ireland'. Under company
law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Company as at the end of the year and of the net
return for the year. In preparing these accounts, the Directors are
required to:
● select suitable accounting policies and then apply them
consistently;
● make judgements and estimates which are reasonable and
prudent; and
● state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the accounts.
The Directors are responsible for
keeping adequate accounting records that are sufficient to show and
explain the Company's transactions and which disclose with
reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the accounts comply with the
Companies Act 2006.
They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The accounts are published on the
www.impaxenvironmentalmarkets.co.uk and www.impaxam.com websites
which are maintained by the Company's Manager, Impax Asset
Management (AIFM) Limited ("Impax"). The work carried out by the
auditor does not involve consideration of the maintenance and
integrity of these websites and, accordingly, the auditor accepts
no responsibility for any changes that have occurred to the
accounts since being initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Directors' confirmation statement
The Directors each confirm to the
best of their knowledge that:
(a) the
accounts, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company;
and
(b) this
Annual Report includes a fair review of the development and
performance of the business and position of the Company, together
with a description of the principal risks and uncertainties that it
faces.
Having taken advice from the Audit
Committee, the Directors consider that the Annual Report and
financial statements taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
For and on behalf of the
Board
Glen Suarez
Chairman
10 April 2024
Income Statement
|
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Gains/(losses) on
investments
|
2
|
-
|
43,767
|
43,767
|
-
|
(226,293)
|
(226,293)
|
Net foreign exchange
losses
|
|
-
|
(464)
|
(464)
|
-
|
(2,778)
|
(2,778)
|
Income
|
3
|
20,279
|
-
|
20,279
|
20,160
|
-
|
20,160
|
Investment management fee
|
4
|
(2,320)
|
(6,960)
|
(9,280)
|
(2,420)
|
(7,258)
|
(9,678)
|
Other expenses
|
5
|
(1,143)
|
-
|
(1,143)
|
(1,037)
|
-
|
(1,037)
|
Return/(loss) on ordinary activities before finance costs and
taxation
|
|
16,816
|
36,343
|
53,159
|
16,703
|
(236,329)
|
(219,626)
|
Finance costs
|
6
|
(799)
|
(2,395)
|
(3,194)
|
(475)
|
(1,424)
|
(1,899)
|
Return/(loss) on ordinary activities before
taxation
|
|
16,017
|
33,948
|
49,965
|
16,228
|
(237,753)
|
(221,525)
|
Taxation
|
7
|
(1,601)
|
133
|
(1,468)
|
(2,956)
|
211
|
(2,745)
|
Return/(loss) on ordinary activities after
taxation
|
|
14,416
|
34,081
|
48,497
|
13,272
|
(237,542)
|
(224,270)
|
Return/(loss) per ordinary
share
|
8
|
4.86p
|
11.49p
|
16.35p
|
4.37p
|
(78.18p)
|
(73.81p)
|
The total column of the Income
Statement is the profit and loss account of the Company.
The supplementary revenue and
capital columns are provided for information purposes in accordance
with the Statement of Recommended Practice issued by the
Association of Investment Companies. All revenue and capital items
in the above statement derive from continuing operations. No
operations were acquired or discontinued during the
year.
Return on ordinary activities after
taxation is also the "Total comprehensive income for the
year".
Balance Sheet
|
|
As at
|
As at
|
|
|
31 December
|
31 December
|
|
|
2023
|
2022
|
|
Notes
|
£'000
|
£'000
|
Fixed assets
|
|
|
|
Investments at fair value through
profit or loss
|
2
|
1,295,847
|
1,302,605
|
Current assets
|
|
|
|
Dividends receivable
|
|
586
|
512
|
Taxation recoverable
|
|
39
|
90
|
Other debtors
|
|
166
|
108
|
Cash and cash equivalents
|
|
16,804
|
26,327
|
|
|
17,595
|
27,037
|
Creditors: amounts falling due within one
year
|
|
|
|
Trade and other payables
|
10
|
(3,821)
|
(1,929)
|
Bank loans and revolving credit
facility
|
11
|
-
|
(51,606)
|
|
|
(3,821)
|
(53,535)
|
Net
current assets/ (liabilities)
|
|
13,744
|
(26,498)
|
Total assets less current liabilities
|
|
1,309,621
|
1,276,107
|
Creditors: amounts falling due after more than one
year
|
|
|
|
Capital gains tax
provision
|
7
|
(40)
|
(169)
|
Notes
|
11
|
(51,785)
|
-
|
Revolving credit facility
|
11
|
(35,312)
|
-
|
Net
assets
|
|
1,222,484
|
1,275,938
|
Capital and reserves: equity
|
|
|
|
Share capital
|
12
|
30,562
|
30,562
|
Share premium account
|
|
423,098
|
423,098
|
Capital redemption
reserve
|
|
9,877
|
9,877
|
Share purchase reserve
|
|
52,557
|
141,872
|
Capital reserve
|
13
|
691,532
|
657,373
|
Revenue reserve
|
|
14,858
|
13,156
|
Shareholders' funds
|
|
1,222,484
|
1,275,938
|
|
|
|
|
Net
assets per ordinary share - debt at bookcost
|
14
|
434.87p
|
419.49p
|
Net
assets per ordinary share - debt at fair value
|
14
|
434.34p
|
419.49p
|
Approved by the Board of Directors
and authorised for issue on 10 April 2024 and signed on their
behalf by:
Glen Suarez, Chairman
Impax Environmental Market plc
incorporated in England with registered number 4348393.
Statement of Changes in Equity
|
|
|
Share
|
Capital
|
Share
|
|
|
|
|
|
Share
|
premium
|
redemption
|
purchase
|
Capital
|
Revenue
|
|
Year ended
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
reserve
|
Total
|
31
December 2023
|
Note
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Opening equity as at 1 January 2023
|
|
30,562
|
423,098
|
9,877
|
141,872
|
657,373
|
13,156
|
1,275,938
|
Dividends paid
|
9
|
-
|
-
|
-
|
-
|
-
|
(12,636)
|
(12,636)
|
Cost of share buybacks
|
12
|
-
|
-
|
-
|
(89,315)
|
-
|
-
|
(89,315)
|
Return for the year
|
|
-
|
-
|
-
|
-
|
34,081
|
14,416
|
48,497
|
Closing equity as at
|
|
|
|
|
|
|
|
|
31
December 2023
|
|
30,562
|
423,098
|
9,877
|
52,557
|
691,454
|
14,936
|
1,222,484
|
|
|
|
Share
|
Capital
|
Share
|
|
|
|
|
|
Share
|
premium
|
redemption
|
purchase
|
Capital
|
Revenue
|
|
Year ended
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
reserve
|
Total
|
31
December 2022
|
Note
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Opening equity as at 1 January 2022
|
|
29,806
|
388,262
|
9,877
|
147,855
|
894,915
|
8,923
|
1,479,638
|
Dividends paid
|
9
|
-
|
-
|
-
|
-
|
-
|
(9,039)
|
(9,039)
|
Net proceeds from issue of
new
|
|
|
|
|
|
|
|
|
shares
|
12
|
756
|
34,162
|
-
|
-
|
-
|
-
|
34,918
|
Net proceeds of shares sold
from
|
|
|
|
|
|
|
|
|
treasury
|
12
|
-
|
674
|
-
|
6,904
|
-
|
-
|
7,578
|
Cost of share buybacks
|
12
|
-
|
-
|
-
|
(12,887)
|
-
|
-
|
(12,887)
|
(Loss)/return for the
year
|
|
-
|
-
|
-
|
-
|
(237,542)
|
13,272
|
(224,270)
|
Closing equity as at
|
|
|
|
|
|
|
|
|
31
December 2022
|
|
30,562
|
423,098
|
9,877
|
141,872
|
657,373
|
13,156
|
1,275,938
|
The Company's distributable reserves
consists of the Share purchase reserve, Capital reserve
attributable to realised profits and Revenue reserve.
Statement of Cash Flows
|
|
Year ended
|
Year ended
|
|
|
31 December
|
31 December
|
|
|
2023
|
2022
|
|
Notes
|
£'000
|
£'000
|
Operating activities
|
|
|
|
Return/(loss) on ordinary activities
before finance costs and taxation
|
|
53,159
|
(219,626)
|
Less: Tax deducted at source on
income from investments
|
|
(1,597)
|
(3,155)
|
Foreign exchange losses
|
|
464
|
2,775
|
Adjustment for (gains)/losses on
investments
|
|
(43,767)
|
226,293
|
Special dividends received as
capital
|
|
132
|
393
|
Scrip dividend received
|
|
(323)
|
-
|
Increase in other debtors
|
|
(81)
|
(413)
|
Increase/(decrease) in other
creditors
|
|
583
|
(1,142)
|
Net
cash flow from operating activities
|
|
8,570
|
5,125
|
Investing activities
|
|
|
|
Sale of investments
|
|
478,935
|
313,189
|
Purchase of investments
|
|
(428,547)
|
(338,730)
|
Net
cash flow from/(used in) investing
|
|
50,388
|
(25,541)
|
Financing activities
|
|
|
|
Equity dividends paid
|
9
|
(12,636)
|
(9,039)
|
Proceeds from Notes and revolving
credit facility
|
|
86,099
|
-
|
Repayment of revolving credit
facility and bank loan
|
|
(50,744)
|
(282)
|
Finance costs paid
|
|
(1,885)
|
(1,864)
|
Net proceeds from issue of new
shares
|
12
|
-
|
34,918
|
Net proceeds of shares sold from
treasury
|
12
|
-
|
7,578
|
Cost of share buybacks
|
12
|
(89,315)
|
(12,887)
|
Net
cash flow (used in)/from financing
|
|
(68,481)
|
18,424
|
Decrease in cash
|
|
(9,523)
|
(1,992)
|
Cash and cash equivalents at start of year
|
|
26,327
|
28,319
|
Cash and cash equivalents at end of year
|
|
16,804
|
26,327
|
Cash inflow includes dividend income
received during the year ended 31 December 2023 of £19,285,000
(2022: £20,348,000) and bank interest of £646,000 (2022:
£205,000).
Changes in net debt
|
Year ended
|
Year ended
|
|
31 December
|
31 December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Net debt at start of year
|
(25,279)
|
(20,794)
|
Decrease in cash and cash
equivalents
|
(9,523)
|
(1,992)
|
Foreign exchange
movements
|
(136)
|
(2,775)
|
Proceeds from Notes and revolving
credit facility
|
(86,099)
|
-
|
Repayment of revolving credit
facility and bank loan
|
50,744
|
282
|
Net
debt at end of year
|
(70,293)
|
(25,279)
|
Notes to the Financial Statements
1
Accounting policies
The Company is an investment company
within the meaning of Section 833 of the Companies Act
2006.
The accounts have been prepared in
accordance with applicable UK accounting standards. The particular
accounting policies adopted are described below.
(a)
Basis of accounting
The accounts are prepared in
accordance with UK Generally Accepted Accounting Practice ('UK
GAAP') including FRS 102 'The Financial Reporting Standard
applicable in the UK and Republic of Ireland' and the Statement of
Recommended Practice 'Financial statements of investment trust
companies and venture capital trusts' ('SORP') issued by the
Association of Investment Companies in July 2022.
The accounts have been prepared on a
going concern basis. Details of the Directors assessment of the
going concern status of the Company, which considered the adequacy
of the Company's resources and the macroeconomic backdrop such as
higher inflation and interest rates and possible recession, are
given on page 57 of the annual report.
Amounts in the accounts have been
rounded to the nearest £'000 unless otherwise stated.
(b)
Investments
Securities of companies quoted on
regulated stock exchanges and the Company's holdings in unquoted
companies have been classified as 'at fair value through profit or
loss' and are initially recognised on the trade date and measured
at fair value in accordance with sections 11 and 12 of FRS 102.
Investments are measured at subsequent reporting dates at fair
value by reference to their market bid prices. Any unquoted
investments are measured at fair value which is determined by the
Directors in accordance with the International Private Equity and
Venture Capital guidelines.
Changes in fair value are included
in the Income Statement as a capital item.
(c)
Reporting currency
The accounts are presented in
sterling which is the functional currency of the Company. Sterling
is the reference currency for this UK registered and listed
company.
(d)
Income from investments
Investment income from shares is
accounted for when the Company's right to receive the income is
established, which is usually considered to be the ex-dividend
date. Overseas income is grossed up at the appropriate rate of tax
but UK dividend income is not grossed up for tax
credits.
Special dividends are assessed on
their individual merits and may be credited to the Income Statement
as a capital item if considered to be closely linked to
reconstructions of the investee company or other capital
transactions. The ordinary element of scrip dividends received in
lieu of cash dividends is recognised as revenue. Any enhancement
above the cash dividend is treated as capital.
Scrip dividends received in lieu of
cash dividends are recognised as revenue except for any excess
above the cash dividend, which is recognised as capital.
All other investment income is
credited to the Income Statement as a revenue item.
(e)
Nature and purpose of equity and reserves:
Share capital represents the 10p
nominal value of the issued share capital.
The share premium account arose from
the net proceeds of new shares and from the excess proceeds
received on the sale of shares from treasury over the repurchase
cost.
The capital redemption reserve
represents the nominal value of shares repurchased for
cancellation.
The share purchase reserve was
created following shareholders' approval and confirmation of the
Court, through the cancellation and transfer of £44,125,000 in
December 2002 and £246,486,789 in July 2009 from the share premium
account. This reserve may only be used for share repurchases, both
into treasury or for cancellation. When shares are subsequently
reissued from treasury, the amount equal to their repurchase cost
is reflected in this reserve, with any proceeds in excess of the
repurchase cost transferred to the share premium
account.
The capital reserve reflects
any:
·
gains or losses on the disposal of
investments;
·
exchange movements of a capital nature;
·
the increases and decreases in the fair value of
investments which have been recognised in the capital column of the
income statement; and
·
expenses which are capital
in nature
Any gains in the fair value of
investments that are not readily convertible to cash are treated as
unrealised gains in the capital reserve.
The revenue reserve reflects
cumulative income and expenditure recognised in the revenue column
of the Income Statement less cumulative dividends paid, and is
distributable by way of dividend.
The Company's distributable reserves
consists of the share purchase reserve, the capital reserve
attributable to realised profits and the revenue reserve. The share
purchase reserve may only be used for share repurchases, both into
treasury or for cancellation.
(f)
Expenses and finance costs
All expenses are accounted for on an
accruals basis. Expenses are recognised through the Income
Statement as revenue items except as follows:
Management fee
In accordance with the Company's
stated policy and the Directors' expectation of the split of future
returns, three quarters of the investment management fee are
charged as a capital item in the Income Statement. There is no
performance fee arrangement with the Manager.
Finance costs
Finance costs include interest
payable and direct loan costs. In accordance with Directors'
expectation of the split of future returns, three quarters of
finance costs are charged as capital items in the Income Statement.
Arrangement costs for revolving credit facilities and Notes are
amortised over the term of the borrowing.
Transaction costs
Transaction costs incurred on the
acquisition and disposal of investments are charged to the Income
Statement as a capital item.
(g)
Taxation
Irrecoverable taxation on dividends
is recognised on an accruals basis in the Income
Statement.
Deferred taxation
Deferred taxation is recognised in
respect of all timing differences that have originated but not
reversed at the financial reporting date, where transactions or
events that result in an obligation to pay more tax in the future
or right to pay less tax in the future have occurred at the
financial reporting date. This is subject to deferred tax assets
only being recognised if it is considered more likely than not that
there will be suitable profits from which the future reversal of
the timing differences can be deducted. Deferred tax assets and
liabilities are measured at the rates applicable to the legal
jurisdictions in which they arise.
(h)
Foreign currency translation
All transactions and income in
foreign currencies are translated into sterling at the rates of
exchange on the dates of such transactions or income recognition.
Monetary assets and liabilities and financial instruments carried
at fair value denominated in foreign currency are translated into
sterling at the rates of exchange at the balance sheet date. Any
gain or loss arising from a change in exchange rates subsequent to
the date of the transaction is included as an exchange gain or loss
in the Income Statement as either a capital or revenue item
depending on the nature of the gain or loss.
(i)
Financial liabilities
Notes and other borrowings are
initially recorded at the proceeds received net of direct issue
costs and subsequently measured at amortised cost.
(j)
Cash and cash equivalents
Cash comprises cash in hand and
demand deposits. Cash equivalents include bank overdrafts repayable
on demand and short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
(k)
Estimates and assumptions
The preparation of financial
statements requires the Directors to make estimates and assumptions
that affect items reported in the Balance Sheet and Income
Statement. Although these estimates are based on management's best
knowledge of current facts, circumstances and, to some extent,
future events and actions, the Company's actual results may
ultimately differ from those estimates, possibly
significantly.
The assumptions regarding the
valuation of unquoted financial instruments are disclosed in note 2
and of the Company's borrowing in note 11.
(l)
Dividend payable
Final dividends payable to equity
shareholders are recognised in the financial statements when they
have been approved by shareholders and become a liability of the
Company. Interim dividends payable are recognised in the period in
which they are paid. The capital reserve and revenue reserve may be
used to fund dividend distributions.
(m)
Treasury shares
Treasury shares are recognised at
cost as a deduction from equity shareholders' funds. Subsequent
consideration received for the sale of such shares is also
recognised in equity, with any difference between the sale proceeds
and the original cost being taken to share premium account. No gain
or loss is recognised in the financial statements on transactions
in treasury shares.
2
Investments at fair value through profit or loss
|
2023
|
2022
|
|
£'000
|
£'000
|
(a)
Summary of valuation
|
|
|
Analysis of closing
balance:
|
|
|
UK quoted securities
|
107,156
|
88,985
|
Overseas quoted
securities
|
1,188,691
|
1,213,620
|
Total investments
|
1,295,847
|
1,302,605
|
(b)
Movements during the year:
|
|
|
Opening balance of investments, at
cost
|
1,122,306
|
1,031,903
|
Additions, at cost
|
428,182
|
338,730
|
Disposals, at cost
|
(399,201)
|
(248,327)
|
Cost of investments at 31 December
|
1,151,287
|
1,122,306
|
Revaluation of investments to fair
value:
|
|
|
Opening balance of capital reserve -
investments held
|
180,299
|
471,847
|
Unrealised losses on investments
held
|
(35,739)
|
(291,548)
|
Balance of capital reserve -
investments held at 31 December
|
144,560
|
180,299
|
Fair value of investments at 31 December
|
1,295,847
|
1,302,605
|
(c)
Gains/(losses) on investments in year (per Income
Statement)
|
|
|
Gain on disposal of
investments1
|
79,976
|
65,492
|
Net transaction costs
|
(608)
|
(630)
|
Special dividends received as
capital
|
132
|
393
|
Unrealised losses on investments
held
|
(35,733)
|
(291,548)
|
Gains/(losses) on investments
|
45,767
|
(226,293)
|
1 Gain
on bookcost at purchase date upon disposal.
During the year, the Company
incurred transaction costs on purchases totalling in aggregate
£684,000 (2022: £588,000) and on disposals totalling in aggregate
£453,000 (2022: £313,000). Following MiFID II, the Manager has
rebated £530,000 (2022: £271,000) in respect of transaction
research costs for the year ended 31 December 2023. Transaction
costs are recorded in the capital column of the Income
Statement.
The Company received £478,935,000
(2022: £327,757,000) from investments sold in the year. The
bookcost of these investments when they were purchased was
£399,201,000 (2022: £262,265,000). These investments have been
revalued over time and until they were sold any unrealised
gains/losses were included in the fair value of the
investments.
During the year special dividends of
£132,000 (2022: £393,000) were recognised on an ex-dividend basis
and treated as capital.
Classification of financial instruments
FRS 102 requires classification of
financial instruments within the fair value hierarchy be determined
by reference to the source of inputs used to derive the fair value
and the lowest level input that is significant to the fair value
measurement as a whole. The classifications and their descriptions
are below:
Level 1
The unadjusted quoted price in an
active market for identical assets or liabilities that the entity
can access at the measurement date.
Level 2
Holdings in companies with no quoted
prices. Inputs other than quoted prices included within Level 1
that are observable (i.e. developed using market data) for the
asset or liability, either directly or indirectly.
Level 3
Inputs are unobservable (i.e. for
which market data is unavailable) for the asset or
liability.
The classification of the Company's
investments held at fair value is detailed in the table
below:
|
31 December
2023
|
31 December
2022
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Investments at fair value through
profit or loss
|
|
|
|
|
|
|
|
|
- Quoted
|
1,295,847
|
-
|
-
|
1,295,847
|
1,302,605
|
-
|
-
|
1,302,605
|
|
1,295,847
|
-
|
-
|
1,295,847
|
1,302,605
|
-
|
-
|
1,302,605
|
The Company held no unquoted
investments during the year or at the year end. In the prior year,
the Company's one unquoted investment, which had been valued at
£582,000 at 31 December 2021, was written down in full.
3
Income
|
2023
|
2022
|
|
£'000
|
£'000
|
Dividends from UK listed
investments
|
1,401
|
2,295
|
Dividends from overseas listed
investments
|
17,909
|
17,660
|
Scrip dividends received
|
323
|
-
|
Bank interest received
|
646
|
205
|
Total Income
|
20,279
|
20,160
|
Dividends from overseas listed
investments includes special dividends classified as revenue of
£75,000 (2022: £283,000).
4
Investment management fee
|
2023
|
2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
|
|
|
|
|
|
Investment management fee
|
2,320
|
6,960
|
9,280
|
2,420
|
7,258
|
9,678
|
At 31 December 2023,
investment management fee accrued were £2,225,000
(£1,601,000).
5
Other expenses
|
2023
|
2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Secretary and administrator
fees
|
266
|
-
|
266
|
250
|
-
|
250
|
Depositary fees*
|
95
|
-
|
95
|
104
|
-
|
104
|
Depositary fees refund*
|
-
|
-
|
-
|
(66)
|
-
|
(66)
|
Custody fees*
|
179
|
-
|
179
|
170
|
-
|
170
|
Custody fees refund*
|
-
|
-
|
-
|
(55)
|
-
|
(55)
|
Directors' fees- see
below
|
158
|
-
|
158
|
171
|
-
|
171
|
Directors' expenses
|
11
|
-
|
11
|
3
|
-
|
4
|
Directors' other costs- see
below
|
4
|
-
|
4
|
9
|
-
|
8
|
Directors' D&O
insurance
|
15
|
-
|
15
|
16
|
-
|
16
|
Director recruitment fees
|
20
|
-
|
20
|
20
|
-
|
20
|
Broker retainer
|
24
|
-
|
24
|
24
|
-
|
24
|
Auditor's fee#
|
48
|
-
|
48
|
42
|
-
|
42
|
Tax advisor fees
|
10
|
-
|
10
|
9
|
-
|
9
|
Association of Investment
Companies
|
22
|
-
|
22
|
21
|
-
|
21
|
Registrar's fees
|
64
|
-
|
64
|
119
|
-
|
119
|
Marketing fees
|
68
|
-
|
68
|
61
|
-
|
61
|
FCA and listing fees
|
113
|
-
|
113
|
107
|
-
|
107
|
Printing fees
|
37
|
-
|
37
|
30
|
-
|
30
|
Other expenses
|
9
|
-
|
9
|
2
|
-
|
2
|
|
1,143
|
-
|
1,143
|
1,037
|
-
|
1,037
|
Full details of the Directors' fees
for the year is provided in the Directors' Remuneration
Implementation Report on page 65 of the annual report. Employer's
National Insurance for Directors' fees is included as appropriate
in Directors' other costs. At 31 December 2023, Directors' fees,
Directors' expenses and national insurance fees outstanding were
£nil (2022: £7,000).
*
Refunds of £66,000 and £55,000 were received respectively for
Depositary and Custody fees charged in 2021 due to revised
Depository and Custody fee rates being retrospectively applied from
1 January 2021.
#
The auditor's fee
for the audit of these financial statements was £47,500, and the
VAT on this is included in other expenses.
6
Finance costs
|
2023
|
2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Interest
|
|
|
|
|
|
|
Interest on bank loans and
repaid
|
|
|
|
|
|
|
revolving credit facility
("RCF")
|
263
|
787
|
1,050
|
471
|
1,414
|
1,885
|
Interest on current RCF
|
318
|
952
|
1,270
|
-
|
-
|
-
|
Interest on Notes
|
205
|
616
|
821
|
-
|
-
|
-
|
|
786
|
2,355
|
3,141
|
471
|
1,414
|
1,885
|
Direct finance costs
|
|
|
|
|
|
|
Bank loans and repaid RCF
|
3
|
9
|
12
|
4
|
10
|
14
|
Revolving credit facility
|
9
|
29
|
38
|
-
|
-
|
-
|
Notes
|
1
|
2
|
3
|
-
|
-
|
-
|
|
13
|
40
|
53
|
4
|
10
|
14
|
Total
|
799
|
2,395
|
3,194
|
475
|
1,424
|
1,899
|
The Company refinanced its
borrowings in the year, details of which are set out in note 11.
The Notes and revolving credit facility arrangement costs amounted
to £252,000 and £217,000 respectively. These direct finance costs
are amortised over the life of each of the Notes and the
facility.
7
Taxation
(a)
Analysis of charge in the year
|
|
|
2023
|
|
|
2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Overseas taxation
|
1,601
|
-
|
1,601
|
2,956
|
59
|
3,015
|
Decrease in CGT provision
|
-
|
(133)
|
(133)
|
-
|
(270)
|
(270)
|
Taxation
|
1,601
|
(133)
|
1,468
|
2,956
|
(211)
|
2,745
|
(b)
Factors affecting total tax charge for the year:
The effective UK corporation tax
rate applicable to the company for the year is 23.5% (2022: 19%).
The tax charge differs from the charge resulting from applying the
standard rate of UK corporation tax for an investment trust
company.
The differences are explained
below:
|
2023
|
2022
|
|
£'000
|
£'000
|
Return/(loss) on ordinary activities
before taxation
|
49,965
|
(221,525)
|
Corporation tax at 23.5% (2022:
19%)
|
11,742
|
(42,090)
|
Effects of:
|
|
|
Non-taxable UK dividend
income
|
(329)
|
(436)
|
Non-taxable overseas dividend
income
|
(4,285)
|
(3,355)
|
Movement in unutilised management
expenses
|
2,449
|
2,036
|
Non-taxable interest
income
|
(152)
|
(39)
|
Movement on non-trade relationship
deficits
|
751
|
361
|
(Gains)/losses on investments not
taxable
|
(10,285)
|
42,995
|
Loss in foreign currency
movement
|
109
|
528
|
Capital gains tax provision
movement
|
(133)
|
(270)
|
Overseas taxation
|
1,601
|
3,015
|
Total tax charge for the year
|
1,468
|
2,745
|
(c) Investment companies which have
been approved by the HM Revenue & Customs under section 1158 of
the Corporation Tax Act 2010 are exempt from tax on capital gains.
Due to the Company's status as an Investment Trust, and the
intention to continue meeting the conditions required to obtain
approval in the foreseeable future, the Company has not provided
for deferred tax on any capital gains or losses arising on the
revaluation of investments.
(d) The capital gains tax provision
represents an estimate of the amount of tax provisionally payable
by the Company on direct investment in Indian equities. It is
calculated based on the long-term or short term nature of the
investments and the unrealised gain thereon at the applicable tax
rate at the year end.
Movements on the capital gains tax
provision for the year
|
2023
|
2022
|
|
£'000
|
£'000
|
Provision brought forward
|
169
|
579
|
Capital gains tax paid
|
4
|
(140)
|
Decrease in provision in
year
|
(133)
|
(270)
|
Provision carried forward
|
40
|
169
|
(e) The Company has unrelieved
excess management expenses and non-trade relationship deficits of
£103,393,000 (2022: £90,423,000). It is unlikely that the Company
will generate sufficient taxable profits in the future to utilise
these expenses and therefore no deferred tax asset has been
recognised. The unrecognised deferred tax asset calculated using a
rate of 25% (2022: 25%) amounts to £25,848,000 (2022:
£22,606,000).
8
Return per share
|
Year ended
|
Year ended
|
|
31 December
|
31 December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Revenue return after taxation
(£'000s)
|
14,416
|
13,272
|
Capital return/(loss) after taxation
(£'000s)
|
34,081
|
(237,542)
|
Total net return/(loss) after tax (£'000s)
|
48,497
|
(224,270)
|
Weighted average number of ordinary
shares
|
296,596,976
|
303,853,145
|
Net return per ordinary share is
based on the above totals of revenue and capital and the weighted
average number of ordinary shares in issue during each
year.
There is no dilution to return per
share as the Company has only ordinary shares in issue.
9
Dividends
(a)
Dividends paid in the year
|
|
2023
|
|
2022
|
|
Rate
|
£'000
|
Rate
|
£'000
|
Interim in lieu of final for the
previous year
|
2.50p
|
7,604
|
1.50
|
4,471
|
First interim for the current
year
|
1.70p
|
5,032
|
1.50
|
4,568
|
|
4.20p
|
12,636
|
3.00p
|
9,039
|
(b)
Dividends paid and payable in respect of the financial year, which
is the basis on which the requirements of s1158-1159 of the
Corporation Tax Act 2010 are considered
|
|
2023
|
|
2022
|
|
Rate
|
£'000
|
Rate
|
£'000
|
First interim for the current
year
|
1.70p
|
5,032
|
1.50p
|
4,568
|
Second interim in lieu of final for
the current year
|
2.90p
|
7,983
|
2.50p
|
7,604
|
|
4.60p
|
13,015
|
4.00p
|
12,172
|
The Board declared two dividends in
respect of the year and expects to continue paying two dividends
annually.
10
Trade and other payables
|
2023
|
2022
|
|
£'000
|
£'000
|
Finance costs payable
|
1,442
|
133
|
Accrued management fee
|
2,225
|
1,601
|
Other accrued expenses
|
154
|
195
|
Total
|
3,821
|
1,929
|
11
Notes and credit facilities
On 1 September 2023, the Company
closed and settled €60m privately placed notes (the "Notes") issued
to funds managed by Pricoa Private Capital.
The Notes consist of three tranches
as follows:
·
€20m maturing on 1
September 2030 with a floating coupon of Euribor + 1.35%
·
€30m maturing on 1 September 2033 with a fixed
coupon of 4.48%; and
·
€10m maturing on 1 September 2035 with a fixed
coupon of 4.63%.
The proceeds of the Notes were used
to repay the five-year fixed rate multi-currency US$20 million and
£15 million loans and £20 million multi-currency revolving credit
facility ("RCF") provided by The Bank of Nova Scotia, London Branch
("Scotiabank") which matured on 6 September 2023.
In addition to the Notes referred to
above, the Company put in place a new two-year £80m multi-currency
floating rate RCF with Scotiabank, expiring on 6 September 2025.
The RCF has a non-utilisation fee of 52.5 basis points on £35m. On
6 September 2023 an amount of €40,943,000 (equivalent to £35m) was
drawn down for 6 months under the RCF with a floating interest rate
priced at the relevant reference rate plus a margin of
1.6%.
The RCF is secured by a floating
charge over the assets of the Company and this floating charge has
been extended to the Notes, so that the two lenders rank pari
passu.
A summary of the Company's
borrowings follows.
|
|
|
2023
|
|
2022
|
|
|
Loan
|
|
Loan
|
|
|
|
currency
|
Bookcost
|
currency
|
Bookcost
|
|
Interest
rate
|
amount
|
£'000
|
amount
|
£'000
|
Notes - Fixed and floating rate
|
|
|
|
|
|
Series A - Floating 2030
|
Euribor +
1.35%
|
€20,000,000
|
17,263
|
-
|
-
|
Series B - Fixed 2033
|
4.48%
|
€30,000,000
|
25,892
|
-
|
-
|
Series C - Fixed 2035
|
4.63%
|
€10,000,000
|
8,630
|
-
|
-
|
|
|
|
51,785
|
-
|
-
|
Bank Loans - Fixed Rate
|
|
|
|
|
|
Sterling
|
2.910%
|
-
|
-
|
£15,000,000
|
15,000
|
Non-sterling
|
4.504%
|
-
|
-
|
$20,000,000
|
16,531
|
|
|
|
-
|
|
31,531
|
RCF
- floating rate
|
|
|
|
|
|
Sterling
|
Six month
SOFR +1.7%
|
-
|
-
|
£10,000,000
|
10,000
|
Non-sterling
|
Six month
SONIA +1.7%
|
-
|
-
|
$12,185,017
|
10,075
|
|
Six month
EURIBOR +1.6%
|
€40,943,000
|
35,312
|
-
|
-
|
|
|
|
87,097
|
|
51,606
|
The maturity profile of the Notes
and credit facility as follows:
|
|
|
|
2023
|
2022
|
|
Bookcost
|
Bookcost
|
Payable at 31 December
|
£'000
|
£'000
|
Bank loans payable less than one
year
|
-
|
31,531
|
Notes payable after more than one
year
|
51,785
|
-
|
Revolving credit facility payable
less than one year
|
-
|
20,075
|
Revolving credit facility payable
after more than one year
|
35,312
|
-
|
|
87,097
|
51,606
|
The Company's Notes and revolving
credit facility contain the following covenants:
1)
Adjusted asset coverage should not be less than 4:1 in respect of
the revolving credit facility;
2)
Borrowings expressed as a percentage of adjusted assets shall not
exceed 35% in respect of the Notes;
3) Net
Asset Value should not be less than £260,000,000; and
4) The
maximum permitted borrowing should not exceed that permitted in the
Company's Articles of Association as described in the Gearing
section of the Investment Policy on page 41 of the annual
report.
There were no breaches of any
covenants either in the year just ended or the prior
year.
12
Share capital
|
2023
|
2022
|
|
Number
|
£'000
|
Number
|
£'000
|
Issued and fully paid shares of 10p each
|
|
|
|
|
Brought forward
|
304,167,039
|
30,416
|
298,061,439
|
29,806
|
New shares issued in year
|
-
|
-
|
7,562,100
|
756
|
Shares bought back and held in
treasury
|
(23,052,000)
|
(2,305)
|
(3,119,400)
|
(312)
|
Treasury shares issued in
year
|
-
|
-
|
1,662,900
|
166
|
Carried forward
|
281,115,039
|
28,111
|
304,167,039
|
30,416
|
Treasury shares of 10p each
|
|
|
|
|
Brought forward
|
1,456,500
|
146
|
-
|
-
|
Shares bought back and held in
treasury
|
23,052,000
|
2,305
|
3,119,400
|
312
|
Issued in year
|
-
|
-
|
(1,662,900)
|
(166)
|
Carried forward
|
24,508,500
|
2,451
|
1,456,500
|
146
|
Share capital
|
305,623,539
|
30,562
|
305,623,539
|
30,562
|
During the year, the total cost of
shares bought back was £89,315,000 (2022: 12,887,000) after
purchase costs of £452,000 (2022: £90,000). The Company issued no
shares during the year. In 2022, the Company received net proceeds
of £34,918,000 after issue costs of £208,000 from the issue of new
shares, and net proceeds of £7,578,000 after issue costs of £91,000
from the issue of treasury shares.
As at 10 April 2024, the latest
practicable date before publication of this report, a further
11,795,000 ordinary shares have been bought back at a total cost of
£45,942,000 after purchase costs of £319,000.
13
Capital reserve
Realised capital reserve
|
2023
|
2022
|
|
£'000
|
£'000
|
Opening balance
|
477,074
|
423,068
|
Gains on disposal of
investments
|
79,982
|
65,492
|
Net transaction costs
|
(608)
|
(630)
|
Net foreign exchange
losses
|
(464)
|
(2,778)
|
Investment management fee charged to
capital
|
(6,960)
|
(7,258)
|
Finance costs charged to
capital
|
(2,395)
|
(1,424)
|
Special dividends received as
capital
|
132
|
393
|
Taxation credit to
capital
|
133
|
211
|
Balance at 31 December
|
546,894
|
477,074
|
Unrealised gains on investments
|
2023
|
2022
|
|
£'000
|
£'000
|
Unrealised gains brought
forward
|
180,299
|
471,847
|
Unrealised (loss)/gains on
investments held
|
(35,739)
|
(291,548)
|
Unrealised gains carried forward
|
144,560
|
180,299
|
Capital reserve balance at 31 December
|
691,454
|
657,373
|
14
Net Asset Value per ordinary share
The net asset value per ordinary
share at the year end are shown below. These were calculated using
281,115,039 (2022: 304,167,039) ordinary shares in
issue.
|
2023
Net asset
value
attributable
|
2022
Net asset
value
attributable
|
|
£'000
|
pence
|
£'000
|
pence
|
Net asset value - Debt at par
value
|
1,222,073
|
434.72
|
1,275,938
|
419.49
|
Add: amortised costs of
borrowing
|
411
|
0.15
|
-
|
-
|
Net
Asset value - Debt at bookcost
|
1,222,484
|
434.87
|
1,275,938
|
419.49
|
A reconciliation of shareholders
funds using debt at fair value is shown in the Alternative
Performance Measures on page 98 of the Annual Report. In prior
periods, the value of debt at par value was a fair approximation of
the value of debt at bookcost.
15
Transactions with the Manager and related party
transactions
Details of the management contract
can be found in the Directors' Report on page 56 of the annual
report. Fees payable to the Manager are detailed in note 4. Since 1
January 2018, the Manager has agreed to rebate commission which
relates to research fees to the Company with such amount disclosed
in note 2.
The Directors' fees are disclosed in
note 5 and the Directors' shareholdings are disclosed in the
Directors' Remuneration Implementation Report on page 66 of the
annual report.
16
Financial risk management
As an investment trust, the Company
invests in equities for the long-term so as to enable investors to
benefit from growth in the markets for cleaner or more efficient
delivery of basic services of energy, water and waste, as stated in
the Company's investment objective which can be found on page 40 of
the annual report. In pursuing its investment objective, the
Company is exposed to a variety of risks that could result in
either a reduction in the Company's net assets or a reduction of
the profits available for dividends. These risks include market
risk (comprising currency risk, interest rate risk, and other price
risk), credit risk and liquidity risk and the Directors' approach
to the management of them is set out below. These metrics are
monitored by the AIFM. The objectives, policies and processes for
managing the risks, and the methods used to measure the risks, are
set out below.
Market risks
The potential market risks are (i)
currency risk, (ii) interest rate risk, and (iii) other price risk.
Each is considered in turn below.
(i)
Currency risk
The Company invests in global equity
markets and therefore is exposed to currency risk as it affects the
value of the shares in the base currency. These currency exposures
are not hedged. The Manager monitors currency exposure as part of
its investment process. Currency exposures for the Company as at 31
December 2023 are detailed in the table at the end of this
note.
Currency sensitivity
The below table shows the
strengthening/(weakening) of sterling against the local currencies
over the financial year for the Company's financial assets and
liabilities held at 31 December 2023.
|
2023
|
2022
|
|
%change1
|
%change1
|
Australian Dollar
|
5.3%
|
(4.7%)
|
Canadian Dollar
|
2.8%
|
(4.2%)
|
Chinese Yuan
|
9.0%
|
-
|
Danish Krone
|
2.3%
|
(4.9%)
|
Euro
|
2.1%
|
(5.0%)
|
Hong Kong Dollar
|
5.6%
|
(10.6%)
|
Indian Rupee
|
6.5%
|
(1.1%)
|
Israeli Shekel
|
8.2%
|
1.3%
|
Japanese Yen
|
13.4%
|
-
|
Korean Won
|
8.1%
|
(5.4%)
|
Norwegian Krone
|
8.8%
|
(0.5%)
|
Swedish Krona
|
1.6%
|
3.1%
|
Swiss Franc
|
(4.3%)
|
(9.3%)
|
Taiwanese Dollar
|
5.5%
|
(1.4%)
|
US Dollar
|
5.6%
|
(10.7%)
|
1
Percentage change of Sterling against local currency from 1 January
to 31 December.
Based on the financial assets and
liabilities at 31 December 2023 and all other things being equal,
if sterling had strengthened by 10%, the profit after taxation for
the year ended 31 December 2023 and the Company's net assets at 31
December 2023 would have decreased by the amounts shown in the
table below. If sterling had weakened by 10% this would have had
the opposite effect.
|
2023
|
2022
|
|
Potential
|
Potential
|
|
effect
|
effect
|
|
£'000
|
£'000
|
Australian Dollar
|
2,535
|
3,335
|
Canadian Dollar
|
5,026
|
5,606
|
Chinese Yuan
|
2,339
|
-
|
Danish Krone
|
2,636
|
2,777
|
Euro
|
17,983
|
25,237
|
Hong Kong Dollar
|
1,361
|
1,955
|
Indian Rupee
|
3,598
|
2,249
|
Israeli Shekel
|
284
|
461
|
Japanese Yen
|
1,694
|
-
|
Korean Won
|
1,248
|
1,486
|
Norwegian Krone
|
2,211
|
2,336
|
Swedish Krona
|
1,186
|
2,135
|
Swiss Franc
|
4,826
|
5,655
|
Taiwanese Dollar
|
1,691
|
6,451
|
US Dollar
|
61,677
|
59,587
|
Total
|
110,295
|
119,270
|
(ii) Interest rate risk
The Company had a mix of fixed and
floating rate borrowings for both this and the preceding year. The
Company's borrowings are shown in note 11, including detailing
those borrowings which are floating and subject to interest rate
risk. In addition, that note and the Chairman's Statement sets out
the significant change to borrowings on 6 September
2023.
In summary,
From 1 January 2022 to 6 September
2023 the Company's had in place a £20 million multi-currency
revolving credit facility based on a floating reference interest
rate plus a margin of 1.70% per annum.
From 1 September 2023, the Company
put in place a two-year £80 million multi-currency revolving credit
facility based on a floating reference interest rate plus a margin
of 1.60% per annum, of which €40,943,000 (equivalent to £35m) was
drawn down; and from 6 September 2023, the Company put in place a
seven-year €20 million Note at a rate of Euribor + 1.35%
If rates had increased or decreased
by 350 basis points the impact to the Company's profit or loss
would be:
|
|
2023
|
2022
|
|
|
Profit or
loss
|
Profit or
loss
|
|
|
350 bps
|
350 bps
|
350 bps
|
350 bps
|
|
|
increase
|
decrease
|
increase
|
decrease
|
31
December
|
|
|
|
|
|
Non-sterling Note
|
€20,000,000
|
(607)
|
607
|
-
|
-
|
Non-sterling revolving credit
facility
|
€40,943,000
|
(1,242)
|
1,242
|
-
|
-
|
|
$12,185,017
|
-
|
-
|
(353)
|
353
|
Sterling revolving credit
facility
|
£10,000,000
|
-
|
-
|
(350)
|
350
|
(iii) Other price risk
The principal price risk for the
Company is the price volatility of shares that are owned by the
Company. The Company is well diversified across different
sub-sectors and geographies and has a volatility level similar to
global stock market indices such as the MSCI ACWI Index to which
the Company has had an annualised tracking error of 7.5% (2022:
6.8%) over the ten year period to 31 December 2023. The historic
3-year (annualised) volatility of the Company to 31 December
2023 is 17.1% (2022: 19.9%).
At the year end the Company held
investments with an aggregate market value of £1,295,847,000 (2022:
£1,302,605,000). All other things being equal, the effect of a 10%
increase or decrease in the share prices of the investments held at
the year end would have been an increase or decrease of
£129,584,700 (2022: £130,260,500) in the profit after taxation for
the year ended 31 December 2023 and the Company's net assets at 31
December 2023.
Overall sensitivity
The Manager has used the Parametric
VaR to calculate value at risk ('VAR'). This model has been used to
estimate the maximum expected loss from the portfolio held at 31
December 2023 over 1 day, 5 day, 10 day and 21 day periods given
the historical performance of the fund over the previous five
years. The data in the previous five years is analysed under
discrete periods to provide 1 in 10, 1 in 20 and 1 in 100 possible
outcomes. The results of the analysis are shown below.
|
2023
|
2022
|
|
Expected as
percentage
|
Expected as
percentage
|
|
at limit
|
at limit
|
|
1 in 20
|
1 in 100
|
1 in 20
|
1 in 100
|
|
(95%)
|
(99%)
|
(95%)
|
(99%)
|
1 day return
|
1.83
|
2.59
|
1.87
|
2.64
|
5 day return
|
4.10
|
5.80
|
4.18
|
5.91
|
10 day return
|
5.80
|
8.20
|
5.90
|
8.35
|
21 day return
|
8.40
|
11.89
|
8.76
|
12.39
|
The above analysis has been based on
the following main assumptions:
·
The distribution of share price returns will be
the same in the future as they were in the past.
·
The portfolio weightings will remain as they were
at 31 December 2023.
The above results suggest, for
example, that there is a 5% or less chance of the NAV falling by
4.1% or more over a 5 day period. Similarly, there is a 1% or
less chance of the NAV falling by 2.59% or more on any given
day.
Credit risks
BNP Paribas Securities Services (the
'Depositary') has been appointed as custodian and depositary to the
Company.
Cash at bank at 31 December 2023
included £16,095,000 (2022: £25,835,000) held in its bank accounts
at the Depositary. The Company also held £709,000 (2022: £492,000)
in its accounts with NatWest Group plc. The Board has established
guidelines that, under normal circumstances, the maximum level of
cash to be held at any one bank should be the lower of i) 5% of the
Company's net assets and ii) £30 million. These are guidelines and
there may be instances when this amount is exceeded for short
periods of time.
Substantially all of the assets of
the Company at the year end were held by the Depositary or
sub-custodians of the Depositary. Bankruptcy or insolvency of the
Depositary or its sub-custodians may cause the Company's rights
with respect to securities held by the Depositary to be delayed or
limited. The Depositary segregates the Company's assets from its
own assets and only uses sub-custodians on its approved list of
sub-custodians. At the year end, the Depositary held £1,295,847,000
(2022: £1,302,605,000) in respect of quoted investments.
The credit rating of the Depositary,
which is a Fitch rating of A+, was reviewed at the time of
appointment and is reviewed on a regular basis by the Manager
and/or the Board.
Credit risk arising on transactions
with brokers relates to transactions awaiting settlement. Risk
relating to unsettled transactions is considered to be low as
trading is almost always done on a delivery versus payment
basis.
There is credit risk on dividends
receivable during the time between recognition of the income
entitlement and actual receipt of dividend.
Liquidity risks
This is the risk that the Company
will encounter difficulty in meeting its obligations for financial
liabilities as they fall due. This risk is minimised because a
majority of the Company's investments are in readily realisable
securities which can be sold to meet funding commitments. The
maturity profile analysis of the Company's financial liabilities is
shown below. The Company does not have derivative financial
liabilities and the amounts shown are undiscounted.
Financial liabilities by maturity at
the year end are shown below on an undiscounted basis:
|
2023
|
2022
|
|
Within
|
Within
|
More than
|
|
Within
|
Within
|
|
|
1 year
|
1-3 years
|
3 years
|
Total
|
1 year
|
1-3 years
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Notes and bank loans
|
-
|
-
|
52,014
|
52,014
|
31,531
|
-
|
31,531
|
Revolving credit facility
|
-
|
35,494
|
-
|
35,494
|
20,075
|
-
|
20,075
|
Interest cash flows on
|
|
|
|
|
|
|
|
Notes and bank loans
|
2,280
|
6,640
|
12,358
|
21,278
|
887
|
-
|
887
|
Interest cash flows on
|
|
|
|
|
|
|
|
revolving credit facility
|
1,883
|
1,412
|
-
|
3,295
|
794
|
|
794
|
Cash flows on other
creditors
|
2,379
|
-
|
-
|
2,379
|
1,796
|
-
|
1,796
|
|
6,542
|
43,546
|
64,372
|
114,460
|
55,083
|
-
|
55,083
|
Financial assets and liabilities
All liabilities carrying amount
approximates fair value.
The Company's financial assets and
liabilities at 31 December 2023 comprised:
|
2023
|
2022
|
|
|
Non-
|
|
|
Non-
|
|
|
Interest
|
interest
|
|
Interest
|
interest
|
|
|
bearing
|
bearing
|
Total
|
bearing
|
bearing
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Investments
|
|
|
|
|
|
|
Australian Dollar
|
-
|
25,347
|
25,347
|
-
|
33,347
|
33,347
|
Canadian Dollar
|
-
|
50,159
|
50,159
|
-
|
55,901
|
55,901
|
Chinese Yuan
|
-
|
23,394
|
23,394
|
-
|
-
|
-
|
Danish Krone
|
-
|
26,360
|
26,360
|
-
|
27,769
|
27,769
|
Euro
|
-
|
268,371
|
268,371
|
-
|
252,369
|
252,369
|
Hong Kong Dollar
|
-
|
13,613
|
13,613
|
-
|
19,548
|
19,548
|
Indian Rupee
|
-
|
35,979
|
35,979
|
-
|
23,074
|
23,074
|
Israeli Shekel
|
-
|
2,837
|
2,837
|
-
|
4,608
|
4,608
|
Japanese Yen
|
-
|
16,840
|
16,840
|
-
|
-
|
-
|
Korean Won
|
-
|
12,483
|
12,483
|
-
|
14,856
|
14,856
|
Norwegian Krone
|
-
|
22,111
|
22,111
|
-
|
23,356
|
23,356
|
Sterling
|
-
|
107,156
|
107,156
|
-
|
88,985
|
88,985
|
Swedish Krona
|
-
|
11,863
|
11,863
|
-
|
21,346
|
21,346
|
Swiss Franc
|
-
|
48,258
|
48,258
|
-
|
56,551
|
56,551
|
Taiwanese Dollar
|
-
|
16,604
|
16,604
|
-
|
64,511
|
64,511
|
US Dollar
|
-
|
614,472
|
614,472
|
-
|
616,384
|
616,384
|
|
-
|
1,295,847
|
1,295,847
|
-
|
1,302,605
|
1,302,605
|
Other assets and liabilities
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
Sterling
|
14,612
|
-
|
14,612
|
23,705
|
-
|
23,705
|
Taiwanese Dollar
|
303
|
-
|
303
|
14
|
-
|
14
|
US Dollar
|
1,889
|
-
|
1,889
|
2,608
|
-
|
2,608
|
|
16,804
|
-
|
16,804
|
26,327
|
-
|
26,327
|
Short term net (creditors)/debtors
|
|
|
|
|
|
|
Sterling
|
-
|
(2,234)
|
(2,233)
|
(25,000)
|
(1,588)
|
(26,588)
|
Canadian Dollar
|
-
|
97
|
97
|
-
|
68
|
68
|
Euro
|
-
|
(1,442)
|
(1,442)
|
-
|
-
|
-
|
Japanese Yen
|
-
|
98
|
98
|
-
|
-
|
-
|
US Dollar
|
-
|
411
|
411
|
(26,606)
|
211
|
(26,395)
|
|
-
|
(3,070)
|
(3,069)
|
(51,606)
|
(1,309)
|
(52,915)
|
Long-term creditors
|
|
|
|
|
|
|
Euro
|
(87,097)
|
-
|
(87,097)
|
-
|
-
|
-
|
Total
|
(70,293)
|
1,292,778
|
1,222,485
|
(25,279)
|
1,301,296
|
1,276,017
|
Capital management
The Company considers its capital to
consist of its share capital of ordinary shares of 10p each, its
distributable reserves and its borrowings.
At 31 December 2023 there were
305,623,539 ordinary shares in issue (2022: 305,623,539) of which
24,508,500 ordinary shares were held in Treasury (2022:
1,456,500).
The Manager and the Company's broker
monitor the demand for the Company's shares and the Directors
review the position at Board meetings. Further details on share
issues during the year and the Company's policies for issuing
further shares and buying back shares (including the Company's
premium/discount control policy).
The Company's policy on borrowings
is detailed in the Directors' Report in the Annual
Report.
Alternative Performance Measures (APMs)
(unaudited)
APMs are often used to describe the
performance of investment companies although they are not
specifically defined under FRS 102. The Directors assess the
Company's performance against a range of criteria which are viewed
as relevant to both the Company and its market sector. APM
calculations for the Company are shown below.
Gearing
A way to magnify income and capital
returns, but which can also magnify losses. A bank loan is a common
method of gearing.
At
31 December
|
|
2023
|
2022
|
Total assets less cash/cash
equivalents (£'000)
|
a
|
1,296,637
|
1,303,315
|
Net assets (Debt at fair
value/bookcost) (£'000)
|
b
|
1,220,980
|
1,275,938
|
Gearing (net)
|
(a÷b)-1
|
6.2%
|
2.1%
|
Leverage
Under the Alternative Investment
Fund Managers Directive ("AIFMD"), leverage is any method by which
the exposure of an Alternative Investment Fund ("AIF") is increased
through borrowing of cash or securities or leverage embedded in
derivative positions.
Under AIFMD, leverage is broadly
similar to gearing, but is expressed as a ratio between the assets
(excluding borrowings) and the net assets (after taking account of
borrowing). Under the gross method, exposure represents the sum of
the Company's positions after deduction of cash balances, without
taking account of any hedging or netting arrangements. Under the
commitment method, exposure is calculated without the deduction of
cash balances and after certain hedging and netting positions are
offset against each other.
Ongoing charges
A measure, expressed as a percentage
of daily net asset value (debt at fair value) during the year, of
the regular, recurring annual costs of running an investment
company.
Year end 31 December
|
|
2023
|
2022
|
Average NAV (£'000)
|
a
|
1,253,409
|
1,321,438
|
Investment management fee
(£'000)
|
b
|
9,280
|
9,678
|
Other expenses (£'000)
|
c
|
1,143
|
1,037
|
|
(b+c)÷a
|
0.83%
|
0.81%
|
Premium/Discount
The amount, expressed as a
percentage, by which the share price is more/less than the Net
Asset Value per ordinary share.
At
31 December
|
|
2023
|
2022
|
NAV per ordinary share (Debt at
bookcost) (p)
|
a
|
434.87
|
419.49
|
Share price (p)
|
b
|
400.00
|
419.50
|
(Discount)/premium
|
(b÷a)-1
|
(8.0)%
|
0.0%
|
|
|
|
|
At
31 December
|
|
2023
|
2022
|
NAV per ordinary share (Debt at fair
value) (p)
|
a
|
434.33
|
419.49
|
Share price (p)
|
b
|
400.00
|
419.50
|
(Discount)/premium
|
(b÷a)-1
|
(7.9)%
|
0.0%
|
Total return
A measure of performance that
includes both income and capital returns. This takes into account
capital gains and reinvestment
of dividends paid out by the Company into its
ordinary shares on the ex-dividend date.
|
|
|
|
|
NAV
|
|
|
|
|
NAV
|
(Debt at
|
|
|
|
Share
|
(Debt at
|
bookcost
|
Year ended 31 December 2023
|
|
|
price
|
fair value)
|
value)
|
Opening at 1 January 2023
(p)
|
a
|
|
419.49
|
419.49
|
419.49
|
Closing at 31 December 2023
(p)
|
b
|
|
400.00
|
434.33
|
434.87
|
Dividend/income adjustment
factor1
|
c
|
|
1.0099
|
1.0093
|
1.0090
|
Adjusted closing (d = b x
c)
|
d
|
|
403.98
|
438.38
|
438.80
|
Total return
|
(d÷a)-1
|
|
-3.7%
|
4.5%
|
4.6%
|
|
|
|
|
NAV
|
|
|
|
|
NAV
|
(Debt at
|
|
|
|
Share
|
(Debt at
|
bookcost
|
|
Year ended 31 December 2022
|
|
price
|
fair value)
|
value)
|
|
Opening at 1 January 2022
(p)
|
a
|
547.00
|
496.42
|
469.42
|
|
Closing at 31 December 2022
(p)
|
b
|
419.50
|
419.49
|
419.49
|
|
Dividend/income adjustment
factor1
|
c
|
1.0066
|
1.0059
|
1.0059
|
|
Adjusted closing (d = b x
c)
|
d
|
422.28
|
421.96
|
421.96
|
|
Total return
|
(d÷a)-1
|
(22.8)%
|
(15.0)%
|
(15.0)%
|
|
1 The
dividend adjustment factor is calculated on the assumption that
dividends paid out by the Company are reinvested into the shares of
the Company at NAV at the ex-dividend date.
Net
asset value - debt at fair value
The net asset value per ordinary
share with debt at fair value at the year end are shown below.
These were calculated using 281,115,039(2022: 304,167,039) ordinary
shares in issue.
|
2023
|
2022
|
|
Net asset
value
|
Net asset
value
|
|
attributable
|
|
attributable
|
|
|
£'000
|
pence
|
£'000
|
pence
|
Net asset value - Debt at par
value
|
1,222,484
|
434.87
|
1,275,938
|
419.49
|
Add: Notes and RCF par
value
|
87,097
|
30.98
|
|
|
Less: Notes and RCF par
value
|
(88,601)
|
(31.52)
|
|
|
Net
Asset value - Debt at bookcost
|
1,220,980
|
434.33
|
|
|
In prior periods the Company's bank loans and RCF were valued at
bookcost which approximated to fair value. For the year ended 2022
bank loans and RCF was valued at £51,606,000.
The fair value of the Notes is
derived by aggregating the discounted value of future cashflows,
being the contractual
interest payments and the repayment of capital at maturity as each
falls due. The discount rate for each tranche
reflects the yield from the Euro Benchmark curve of similar
maturity for each tranche and the spread of similar credit
rated loans as observed via the ICE Bank of America Merrill Lynch
Fixed Income Index.
The fair value of the Notes is
calculated daily for the purposes of the daily NAV. The basis of
this is set out above. A separate valuation was undertaken by an
independent debt valuation specialist firm and the NAV with debt at
fair value using the valuer's mid point valuation was not
materially different from the NAV with debt at fair value in the
table above, being within 0.2%.
Financial Information
This announcement does not constitute the Company's statutory
accounts. The financial information for the year to 31
December 2023 is derived from the statutory accounts for 2023,
which will be delivered to the Registrar of Companies. The auditor
has reported on the 2023 accounts; their report was unqualified and
did not include a statement under Section 498(2) or (3) of the
Companies Act 2006.
The
Annual Report for the year ended 31 December 2023 was approved on
10 April 2024. It will be made available on the Company's website
at www.impaxenvironmentalmarkets.co.uk.
The
Annual Report will be submitted to the National Storage Mechanism
and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This announcement contains regulated information under the
Disclosure Guidance and Transparency Rules of the
FCA.
For
further information contact:
Montfort Communications
|
iem@montfort.london
|
Gay
Collins/Nita Shah
|
07798 626282
|
|
|
Apex Listed Companies Services (UK) Limited
|
020
3327 9720
|
Company Secretary
|
|
END