RNS Number : 6010H Impax Asian Environmental Mkts Plc 24 February 2010  
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IMPAX ASIAN ENVIRONMENTAL MARKETS PLC
 
HALF-YEARLY FINANCIAL REPORT
 
FOR THE PERIOD FROM
11 SEPTEMBER 2009 TO 31 DECEMBER 2009
 
 
INVESTMENT OBJECTIVE
 
The Company's investment objective is to generate long-term capital growth through investment in a diverse portfolio of companies in the markets for cleaner or more efficient delivery of basic services of energy, water and waste in the Asia Pacific Region.  To be eligible for investment, such companies must have at least 20 per cent. of their turnover, profits or invested capital in these markets.
 
 
FINANCIAL INFORMATION
                                                                                                                       
                                                                            
 
At 31 December 2009
 
 
 
At launch*
% change since launch
Net assets
£118.6m
£102.4m^
+15.8%
 
 
 
 
Net asset value ("NAV") per Ordinary Share
 
 
 
-     Undiluted
107.8p
98.0p
+10.0%
-     Diluted
106.5p
98.0p
+8.7%
 
 
 
 
MSCI AC Asia Pacific (ex-Japan) Index (sterling)
-
-
+2.2%
FTSE Environmental Opportunities Asia Pacific (ex-Japan) Index (sterling)
 
-
 
-
 
+5.6%
FTSE Environmental Opportunities Japan Index (sterling)
 
-
 
-
 
+3.8%
 
 
 
 
Ordinary Share price
108.5p
  100.0p
+8.5%
Subscription Share price
32.3p
-
n/a
 
 
 
 
Ordinary Share price premium to diluted NAV
1.8%
2.0%
-
 
 
 
 
 
* the Company's shares were admitted to trading on the London Stock Exchange on 23 October 2009
^ after share issue expenses
 
 
Note on choice of indices: The Company does not have a formal benchmark. The prospectus makes reference to the MSCI AC Asia Pacific (ex-Japan) and the FTSE Environmental Opportunities Asia Pacific (ex-Japan) Indices and these are both considered relevant for comparison of performance.  In addition, given the exposure to Japan of around 20% that the Company expects to maintain, it is proposed to also report performance against the FTSE Environmental Opportunities Japan Index. It is not proposed to report Asia Pacific Indices that include Japan as these indices have materially higher weightings in Japanese stocks than is expected for the Company's portfolio.
 
 
HALF-YEARLY MANAGEMENT REPORT AND CHAIRMAN'S REVIEW
 
This is my first communication as Chairman and I would like to start by welcoming all shareholders and thanking them for their support in launching Impax Asian Environmental Markets plc ("IAEM" or "the Company"). 
 
The Company was launched on 23 October 2009 and raised gross proceeds of £104.5m in the Placing and Offer for Subscription for Ordinary Shares and bonus issue of Subscription Shares. Since the launch, market demand for the Company's shares has continued to be strong and a further 9,000,000 Ordinary Shares have been issued at a premium to net asset value.  At the date of this document, in aggregate, there are 113,500,000 Ordinary Shares and 20,900,000 Subscription Shares in issue.   The Subscription Shares entitle Subscription Shareholders to subscribe for Ordinary Shares on a one for one basis at a price of 100 pence per Ordinary Share on any business day between 1 November 2009 and 31 October 2014. 
 
IAEM has started well in terms of both the performance of the net asset value ("NAV") and the Ordinary Share price of the company, which has generally traded at a premium to NAV since the launch date.
 
Price performance and comment
 
During the interim period since the Company's launch the diluted NAV per share has risen by 8.7%. This compares favourably with three relevant indices.  Since 23 October 2009, in sterling terms the MSCI AC Asia Pacific ex-Japan Index ("MXAPJ") has risen by 2.2% while the FTSE Environmental Opportunities Asia Pacific ex-Japan Index ("EOAX") and the FTSE Environmental Opportunities Japan Index ("EOJP") have risen 5.6% and 3.8% respectively.  It has been encouraging to see the breadth of performance in the portfolio with all sub-sectors (notably energy efficiency) and countries (notably China and Japan) contributing positively over the period.
 
Development of the drivers in Asia and comment on market activity
 
As noted in the Company's prospectus at launch, environmental markets in the Asia Pacific region are set to expand rapidly.   The challenges relating to finite natural resources and weak infrastructure are exacerbated by expanding populations and rising standards of living; governments are continuing to react to these issues by adopting more ambitious environmental plans and policies.  For example, in the short period since the Company's launch, China has pledged to cut its carbon intensity by 40-45% by 2020 and reports suggest that the country's next Five Year Plan from 2011 onwards will call for more than USD 450bn in investment to protect the environment.  In addition, India has launched its Solar Mission, targeting 20GW in solar installations by 2022 to be funded by USD 19bn investment, and Korea has enacted a law on Low Carbon Green Growth, which lays the framework for measures to reduce greenhouse gases and develop clean technologies.
  
Cancellation of share premium account
 
As was also described in the Company's prospectus, following the admission of its shares to trading on the London Stock Exchange, the Company applied to the Court for approval of the cancellation of its share premium account.  The cancellation became effective in December 2009 following receipt of that approval and the registration of the Court Order at Companies House. 
 
Update and outlook
 
Since the end of the period, equity markets have been volatile and environmental markets in Asia have been no exception.   As at 19 February 2010, the MXAPJ and EOAX indices had fallen in sterling terms since the period end by 2.3% and 3.4% respectively while the EOJP index had risen by 0.6%.  The diluted NAV of IAEM had fallen 2.0% to 104.4p while the share price had fallen 1.8% to 106.5p. 
 
The Directors believe that the Company has excellent growth prospects.  The global economy appears to be stabilising and many Asian countries are currently experiencing strong economic growth.   Against a backdrop of rapid policy development, companies active in the region's environmental markets should continue to report superior growth, and the Company's investors should benefit accordingly. 
 
 
Allan McKenzie
24 February 2010
 
 
MANAGER'S REPORT
 
During the short period since launch, we have been encouraged both by the wide range of attractive investment opportunities and by the Company's performance (which is reported in the Chairman's Statement).  At the end of December 2009, 92 per cent of the Company's net assets were invested. 
 
Investment Performance
 
The IAEM performance has been robust, with contributions across many countries (particularly China, India and the Philippines) and most environmental sub-sectors (notably renewable energy and pollution control).  Further analysis indicates that the out-performance has been due to both good sector allocation and strong stock-picking.  The initial portfolio has focussed on companies with high quality management teams and strong corporate governance while avoiding those highly rated stocks in the universe that have tended to underperform during the period.
 
Investment Universe & Portfolio Structure
 
The Impax investment process focuses on bottom-up stock picking from a diverse universe of stocks, informed by a thematic analysis of key developments in environmental markets and the wider macro-environment.  Following the half-yearly review of the FTSE Environmental Opportunities Index series, the eligible universe for the Company has grown to over 400 stocks, in particular due to a number of initial public offerings of environmental companies in the region.
 
The Company ended the period with investments in 47 companies which is within the expected range of 40-60.  The Structure of the Portfolio is presented at the back of this report and shows that IAEM is diversified by both geography and by sub-sector.  As indicated at launch, we are particularly interested in investing in smaller companies: at the end of the period, 73% of the portfolio was invested in companies with market capitalisations of between £200 million and £2 billion.
 
Environmental Sub-sectors
 
There were significant developments in each of the principal environmental subsectors during the period.  We have highlighted key developments, interesting themes and example holdings for each area.
 
Renewable energy.  In line with its increasing engagement in international climate change policy, China reformed its renewable energy law, raising wind power tariffs and doubling the conventional power surcharges used to support renewable energy. In India the cabinet approved the US$19bn Solar Mission plan targeting 20 GW of solar generation by 2022. Positive contribution to the Company's performance came from Chinese wind companies China Longyuan (wind power producer, China) and China High Speed (wind gear boxes, China).  Also, Aboitiz Power (hydro and geothermal power producer, Philippines) won further government power concessions and reported recovering Filipino power prices.
 
Energy Efficiency. Japan extended its green stimulus measures with a US$6.2bn programme targeting increased energy efficiency, particularly for domestic appliances and vehicles. The light emitting diodes ("LEDs") sector saw continued strength with further planned roll-outs of LED street lighting in Chinese cities and an acceleration of notebook computer and liquid crystal display ("LCD") backlighting for televisions. At the stock level, Hollysys (automation equipment, China) was strong on the back of orders in the rail sector, Epistar (LED, Taiwan) benefited from increased LED volume and Daikin (energy efficient products, Japan) from domestic efficiency stimulus and expansion into China.
 
Water Treatment and Pollution Control. During the period many Chinese provinces increased water tariffs to support continued roll-out of water infrastructure. In addition China is expected to double its spending on environmental protection to US$454bn in its 5 year plan to 2015. Roll-out of natural gas infrastructure in cities generated strong performance in Xinao Gas (natural gas, China), and Beijing Enterprises (water and natural gas, China) also benefited from the water tariff increases. Hyflux (desalination, Singapore) won new orders from North Africa and the Middle East.
 
Waste Technologies and Resource Management. Recovery in commodity prices was driven by demand in China and this was positive for recyclers of metals in particular. Paper recyclers also saw better pricing power from strong domestic Chinese demand. Sims (metals recycling, Australia) was strong on the back of the metals volume and pricing improvements, and Lee & Man (paper recycling, China) benefited from the improved paper pricing. However Transpacific Industries (waste management, Australia) was weak after an earlier refinancing and restructuring of its balance sheet.
 
Macro & Regional Discussion
 
The Company launched during a period of market volatility on fears of the removal of emergency measures and sovereign credit concerns. Markets quickly regained their composure as Central Banks committed to maintaining accommodative policies for an extended period of time and investors became more optimistic on the outlook for the US economy in 2010.  Across Asian markets, China and India generally outperformed (in local currency terms) while Australia and Japan were weaker.  The strength of the NT$ significantly enhanced the Taiwanese market performance in Sterling terms over the period while the strength in South Korea was driven by the performance of the heavy industrials.
 
At the policy level, there were several significant announcements from Asian Governments ahead of the December UN Climate Change Conference in Copenhagen, particularly from China, Korea, and India (as outlined in the Chairman's Statement).  In addition, the new Japanese government has followed through on its election promises with a series of environmental taxes and stimulus funds that primarily target the environmental sector.
 
Outlook
 
Impax Asset Management remains very positive on the outlook for the Company. In particular, the momentum of environmental policy and legislation in the Asia Pacific region is strong and we believe that many environmental markets are set for sustained growth.  Although the pace of global economic recovery remains uncertain, we are confident that the secular growth characteristics of environmental markets and the acceleration of spending and investment in the Asian environmental markets will make an incremental contribution to performance over the long term.
 
We will continue to post monthly updates on the Company's performance and sector news on www.impax.co.uk.
 
 
Impax Asset Management Limited
24 February 2010
 
 
FIVE LARGEST HOLDINGS
 
As at 31 December 2009
 
Xinyi Glass (China) (3.7% of portfolio)
Xinyi Glass is an integrated glass manufacturer focused in energy efficient glass products for application in the automotive aftermarket, high end construction, and solar energy. The company's integrated plants reduce logistics costs and improve production yield, with new plants adopting cleaner and cheaper gas fired furnaces.  Xinyi is well positioned to benefit from industry consolidation given its strong balance sheet and better environmental compliance record. New energy efficiency building codes are expected to promote increased use of Xinyi's products.
 
Xinao Gas (China) (3.6%)
Xinao Gas is the largest independent city gas network operator in China. Long term growth is driven by rising gas penetration rates from currently low levels. This is underpinned by government support for cleaner substitutes to coal and facilitated by the build out of gas supply trunk lines and  liquefied natural gas terminals. Another growth opportunity is the build out of refuelling stations to meet the rising usage of compressed natural gas for public transportation.
 
Taewoong (Korea) (3.5%)
Taewoong is a global leader in the manufacture of forged metal components used in wind turbines, power plants, ship engines and industrial machinery.  The company has been gaining market share in the wind component market in recent years and major customers include General Electric and Vestas.  Wind orders have grown rapidly to represent 50% of revenue in 2008. The completion of a capacity expansion at the end of 2009 will enable the company to manufacture larger products with higher margins as order flow resumes. 
 
Delta Electronics (Taiwan) (3.4%)
Delta Electronics is a global leader in power electronics with strong R&D and low cost production. They benefit from a rich product portfolio and development pipeline including electric vehicle power system, LED general lighting, ePaper, and solar energy. The company will benefit from increasing regulation of the efficiency and standby power in both consumer and industrial power supplies shifting the product mix to more advanced and higher margin products. The company already has an attractive margin and 16% return on equity despite an underutilised balance sheet.
 
Lee & Man (China) (3.2%)
Lee & Man is the second largest containerboard producer from recycled materials in China. The company has built modern operations capable of using 100% waste paper which consume less energy and water. The industry is also undergoing consolidation driven by tightening environmental regulations and tighter bank credit for private enterprises. Over the last three years management has been able to reduce the company's reliance on export customers and tapped into local companies to target the rising domestic consumption.
 
 
STRUCTURE OF PORTFOLIO
As at 31 December 2009
 
 
BREAKDOWN BY COUNTRY OF DOMICILE AND QUOTATION
 
 
Domicile
Quotation
China
20%
2%
Japan
20%
20%
Hong Kong
16%
28%
South Korea
11%
11%
Australia
7%
5%
Taiwan
7%
7%
Philippines
6%
6%
India
6%
5%
Singapore
4%
6%
Thailand
3%
3%
United States
-
6%
United Kingdom
-
1%
 
Note: where a participatory note is held, the exposure is reported for the underlying security.
 
BREAKDOWN BY SECTOR
 

2009
Energy Efficiency
31%
Water
30%
Renewable Energy
19%
Waste
15%
Diversified Environmental
5%
 
BREAKDOWN BY MARKET CAPITALISATION
 
 
2009
>£2bn
22%
£200m - £2bn
73%

5%
 
The above breakdowns exclude the 8% net cash position at 31 December 2009.
 
DIRECTORS' STATEMENT OF RESPONSIBILITY
FOR THE HALF-YEARLY REPORT
 
The Directors confirm to the best of their knowledge that:
 
 
·     The condensed set of financial statements contained within the half yearly financial report has been prepared under the guidance issued by the Accounting Standards Board on "Half-yearly financial reports".
 
 
·     The interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.
 
Allan McKenzie
Chairman
 
 
INCOME STATEMENT
 
For the period from 11 September 2009 to 31 December 2009
 
Revenue
Capital
Total

Note
£'000
£'000
£'000

Gains on investments
 

-
10,627
10,627
Income
  - from investments

112
-
112
  - interest receivable

12
-
12

Investment management fees

(42)
(170)
(212)
Other expenses

(134)
-
(134)

Return on ordinary
activities before taxation
 
 
(52)
10,457
 
10,405

Taxation
3
(8)
-
(8)
Return on ordinary
activities after taxation

(60)
10,457

10,397

Return per Ordinary Share - undiluted
4
(0.05p)
9.86p
9.81p
Return per Ordinary Share - diluted
4
(0.05p)
9.83p
9.78p
 
 
The total column of the Income Statement is the profit and loss account of the Company.
 
All capital and revenue items in the above statement derive from continuing operations.  No operations were acquired or discontinued during the period. 
 
A Statement of Total Recognised Gains and Losses is not required, as all gains and losses of the Company have been reflected in the above statement.
 
The Company was incorporated on 11 September 2009 and operations commenced when its shares were listed on the London Stock Exchange on 23 October 2009.
 
 
BALANCE SHEET
 
As at 31 December 2009
 
 
 
Note
 
£'000

FIXED ASSETS

Investments at fair value through profit and loss
5
108,626

CURRENT ASSETS

Income receivable

37

Other debtors

13

Cash at bank and in hand

10,297

10,347

 
 

CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

Purchases - future settlements

(224)

Accrued liabilities

(183)

(407)

NET CURRENT ASSETS

9,940

TOTAL NET ASSETS

118,566

CAPITAL AND RESERVES

Share capital

1,121

Share premium

4,698

Share purchase reserve

102,350

Capital reserve

10,457

Revenue reserve

(60)

SHAREHOLDERS' FUNDS

118,566

 
Net asset value per share
 

Net asset value per Ordinary Share
6
-       Undiluted
     

107.79p

-       Diluted
      

106.54p

Ordinary Shares in issue

110,000,000

Subscription Shares in issue

20,900,000
                               
           
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
 
For the period from 11 September 2009 to 31 December 2009
 
 
 
 
 
 
 
 
 
 
Share
Capital
£'000
Share
 Premium
Account
£'000
Share
Purchase
Reserve
£'000
 
Capital
Reserve
£'000
 
Revenue
Reserve
£'000
 
 
Total
£'000

Shares issued during the period
 
1,100
 
109,217
 
-
 
-
 
-
 
110,317

Subscription shares issued during the period
 
21
 
(21)
 
-
 
-
 
-
 
-

Share issue expenses
-
(2,148)
-
-
-
(2,148)

Cancellation of share premium
 
-
 
(102,350)
 
102,350
 
-
 
-
 
-

Profit for the period
-
-
-
10,457
(60)
10,397

Closing shareholders' funds
As at 31 December 2009
 
1,121
 
4,698
 
102,350
 
10,457
 
(60)
 
118,566
 
 
The Company was incorporated on 11 September 2009 and operations commenced when its shares were listed on the London Stock Exchange on 23 October 2009.
 
 
CASH FLOW STATEMENT
 
For the period from 11 September 2009 to 31 December 2009
 

£'000
Operating activities

Cash inflow from investment income and bank interest
88
Cash outflow from management expenses
(176)
Cash inflow from disposal of investments
33,350
Cash outflow from purchase of investments
(131,079)
Cash outflow from net foreign exchange losses
(47)
Foreign tax paid
(8)
Net cash flow from operating activities
(97,872)
Financing

Issue of shares (after share issue expenses)
108,169
Net cash flow from financing
108,169
Increase in cash
10,297
Balance at 31 December 2009
10,297
                               
The Company was incorporated on 11 September 2009 and operations commenced when its shares were listed on the London Stock Exchange on 23 October 2009.
 
 
NOTES TO THE ACCOUNTS
 
1              Accounting standards
 
The Half-yearly financial report has been prepared in accordance with applicable UK accounting standards and UK GAAP. 
 
2          Investment company status
 
The Company manages its affairs to enable it to qualify as an investment trust for taxation purposes under section 842 of the Income and Corporation Taxes Act.  The Company therefore presents its accounts in accordance with the Statement of Recommended Practice for Investment Companies.
 
3          Taxation
 
The tax charge in the Income Statement is in respect of overseas tax suffered on dividend income.
 
4          Return per share
 
Return per share is based on the net return attributable on ordinary activities after taxation attributable to the weighted average of 106,021,429 Ordinary Shares in issue during the period.
 
Diluted return per share is based on the net return attributable on ordinary activities after taxation attributable to the diluted weighted average of 106,355,623 Ordinary Shares during the period.  Dilution is caused by the Subscription Shares in issue throughout the period.
 
5          Investments
 
Securities of companies quoted on regulated stock exchanges or derivatives providing exposure to underlying securities have been classified as "fair value through profit or loss" and are initially recognised on the trade date and measured at fair value.  Quoted investments are measured at subsequent reporting dates at fair value by reference to their market bid prices. 
 
Changes in fair value are included in the Income Statement as a capital item.
 
Transaction costs incurred on the acquisition and disposal of investments are charged to the Income Statement as a capital item.
 
6          Net assets per share
 
Undiluted net assets per share figures are based on the net assets of the Company attributable to the number of Ordinary Shares in issue at the end of the period. 
 
Diluted net assets per share figures are based on the net assets of the Company plus the amount which would have been subscribed by Subscription Shareholders had all the outstanding Subscription Shares been exercised at the end of the period divided by the number of Ordinary Shares which would have been in issue had all the Subscription Shares been exercised at the end of the period.
 
7          Share issues
 
Pursuant to the Placing and Offer for Subscription detailed in its prospectus, on 23 October 2009 the Company issued 104,500,000 million Ordinary Shares at a price of 100 pence per Ordinary Share, together with 20,900,000 Subscription Shares by way of bonus issue on the basis of one Subscription Share for every five Ordinary Shares held.  The Subscription Shares entitle Subscription Shareholders to subscribe for Ordinary Shares on a one for one basis at a price of 100 pence per Ordinary Share on any business day between 1 November 2009 and 31 October 2014.  Net proceeds of £102,410,000 were raised in the Placing and Offer for Subscription.
 
In the period following the Company's listing on 23 October 2009 to 31 December 2009 a further 5,500,000 Ordinary Shares were issued at an aggregate value of £5,759,000 after issue expenses.
 
Since 31 December 2009 the Company has issued a further 3,500,000 Ordinary Shares at an aggregate value of £3,741,000 after issue expenses.
 
The number of Ordinary Shares in issue at 31 December 2009 was 110,000,000. 
 
The number of Subscription Shares in issue at 31 December 2009 was 20,900,000.
 
8          Related party transactions
 
Fees payable to the Manager are shown in the Income Statement. At 31 December 2009 the fee accrual outstanding to the Manager was £98,897.
 
9          Cancellation of share premium account
 
As detailed in the prospectus dated 8 October 2009, following the admission of the Company's shares to trading on the London Stock Exchange, the Company applied to the Court for the cancellation of its share premium in order to create additional distributable reserves which would be available for the buy back of its own Ordinary Shares and Subscription Shares.  The cancellation was confirmed by the Court and became effective on 16 December 2009.  An amount of £102,349,840 was transferred from the share premium account to share purchase reserve on the effective date.  The Company cannot make any purchases of Ordinary Shares and/or Subscription Shares until appropriate annual, interim or initial accounts for the Company have been filed with the Registrar of Companies as required by the Act.
 
10         Status of this report
 
These financial statements are not the Company's statutory accounts for the purposes of section 434 of the Companies Act 2006.  They are unaudited.  The Half-yearly financial report will be sent to shareholders and copies will be made available to the public at the registered office of the Company.   The report will be available in electronic format on the Manager's website (www.impax.co.uk).
 
The Half-yearly financial report was approved by the Board on 24 February 2010.
 
 
DIRECTORS, MANAGER AND ADVISERS
 
 
DIRECTORS  
INVESTMENT MANAGER
Allan McKenzie (Chairman)
Impax Asset Management Limited
Simon Atiyah
Mezzanine Floor
Alan Barber
Pegasus House
Terence Mahony
37-43 Sackville Street
 
London W1S 3EH
 
 
BROKER
INVESTMENT ADVISER
Collins Stewart Europe Limited
Ajia Partners Asset Management (HK) Limited
88 Wood Street
78th Floor, The Center
London EC2V 7QR
99 Queen's Road
 
Central Hong Kong
 
 
SOLICITOR
SECRETARY AND ADMINISTRATOR
CMS Cameron McKenna LLP
Cavendish Administration Limited
Mitre House
145-157 St. John Street
160 Aldersgate Street
London EC1V 4RU
London EC1A 4DD
 
 
REGISTRAR
CUSTODIAN
Capita Registrars
BNP Paribas Securities Services
The Registry
BNP Paribas London Branch
34 Beckenham Road
10 Harewood Avenue
Beckenham
London NW1 6AA
Kent BR3 4TU
 
 
REGISTERED OFFICE*
AUDITOR
145-157 St. John Street
Ernst & Young LLP
London EC1V 4RU
1 More London Place

London SE1 2AF
* Registered in England and Wales No. 7016550
 
 

24 February 2010
 
Enquiries:
 
Anthony Lee                                         020 7490 4355
Company Secretary
Cavendish Administration Limited
 
END

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