Impax Environmental Markets plc
Half-yearly Financial Report Announcement
For the six months to 30 June 2021
LEI: 213800RAR6ZDJLZDND86
Investment Objective
The investment objective of Impax Environmental Markets plc (the “Company”) 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
Financial Information
|
|
At 30 June 2021 |
At 31 December 2020 |
|
Net asset value (“NAV”) per Ordinary Share |
465.6p |
411.2p |
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Ordinary Share price |
475.5p |
422.5p |
|
Ordinary Share price premium to NAV1 |
2.1% |
2.7% |
|
Net assets |
£1,322.1m |
£1,093.3m |
PERFORMANCE SUMMARY
For the six months ended 30 June 2021
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|
|
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% CHANGE2,3 |
|
NAV total return per Ordinary Share1 |
13.5% |
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Share price total return per Ordinary Share1 |
12.8% |
|
MSCI ACWI Index |
11.1% |
|
FTSE ET100 Index |
1.7% |
1 These are alternative performance measures.
2 Total returns in sterling for the six months to 30 June 2021.
3 Source: Bloomberg and FactSet.
ALTERNATIVE PERFORMANCE MEASURES (“APMs”)
The disclosures as indicated in footnote 1 above 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 in the Half-yearly Financial Report
Chairman's Statement
I am happy to report a further period of strong performance by Impax Environmental Markets (the “Company” or “IEM”) in the first six months of 2021 (the “Period”). IEM was again ahead of its global equity comparator index, the MSCI All Country World index (“MSCI ACWI”), over the Period, building upon the outperformance seen in 2019 and 2020, and has also significantly outperformed its environmental markets benchmark, the FTSE Environmental Technology 100 index (“FTSE ET100”).
Despite good progress on vaccinations in many western economies, it is too early to suggest that COVID-19 might be behind us. On a global basis vaccination rates continue to vary enormously between countries and with the emergence of new variants it is clear that the human health, social and economic impact will continue to be felt in coming months, if not years.
In May a net-zero roadmap was published by the International Energy Agency (“IEA”), an intergovernmental body which advises member countries on energy policy, which clarified for the first time its view on what would be required to reach net-zero emissions by 2050. “Nothing less than a complete transformation of how we produce, transport and consume energy,” it notes, before setting out the policies, investment and innovation required; a roadmap which it considers “narrow but achievable”.
The imperative to pursue a net-zero path becomes ever greater. Climate disruption was a factor in the freezing weather that paralysed Texas in February, leading to more than 100 deaths and likely economic costs above $130 billion.1 At the other end of the temperature scale, the Pacific Northwest faces an intense heatwave and Brazil is experiencing its worst drought in almost a century, with water shortages threatening output from its agricultural sector, which accounts for almost a third of its GDP.
Despite this backdrop of seemingly negative social and environmental news, financial markets remain optimistic on the likely speed and scale of economic recovery. Concerns that COVID-19 might crowd out climate change and other sustainability issues have proved unfounded; if anything, the pandemic has increased awareness of the interaction of our economy with the natural environment and has demonstrated the ability of societies to respond to global threats when the resources and political will are deployed.
Today we see a premium for listed companies contributing to efforts to “build back better”.
The shape of equity markets is certainly being driven in part by exceptionally loose monetary policy and substantial government infrastructure investment announcements.
Significant parts of those packages are directed towards environmental purposes. In the EU, for example, €500 billion of the €1.8 trillion spending package agreed in July 2020 is ringfenced for climate action. In the US, the latest $1.2 trillion infrastructure bill contains significant allocations for public transportation and strengthening the power grid and is to be followed by a larger $6 trillion bill where climate change will be a core focus. This stimulus spending is taking place in the context of increasing government support for the transition to a net-zero global economy, as envisaged by the Paris Agreement. Countries representing around two-thirds of global GDP have committed to reach net-zero carbon emissions by mid-century. In the run-up to the COP26 climate talks in Glasgow in November, we expect to see a growing number of countries produce nearer-term emission reduction plans.
In addition to these familiar drivers, it is worth noting that financial market regulators, including the UK's Financial Conduct Authority, are now paying greater attention to the role of the financial system in directing capital towards companies contributing positively to environmental objectives. Impax Asset Management has pioneered the reporting of environmental impact within listed equity markets, enabling shareholders to understand the benefits being delivered by the companies within the portfolio. As a well-established investor in environmental markets, the Company is well positioned to continue as a leader in the creation of a more sustainable finance sector.
INVESTMENT PERFORMANCE
During the Period, the net asset value (“NAV”) per share of the Company achieved a total return of 13.5% (measured in pounds sterling and with dividends reinvested) and ended the Period at 465.6p. The Company outperformed its global comparator index, which returned 11.1% on the same basis, and it significantly outpaced the FTSE ET100 (which, thanks in part to the weakness of the Tesla share price, saw a meagre increase of + 1.7% over the Period), recovering from underperformance against this index in 2020.
GEARING
As at 30 June 2021, the Company's net gearing was 1.6%, slightly below the 2.2% net gearing as at the end of 2020. The Board maintains its view that gearing is a positive feature of investment trusts. However, whilst we continue to see high investor demand for our shares, any increase in capital by way of borrowings is likely to result in a reduction in our ability to issue equity, given capacity constraints of the specialist strategy of our Manager.
DIVIDEND
The Company's net revenue return for the Period was £5.7 million, compared with £3.2 million earned in the same period last year.
There continues to be strong investor demand for our shares and at the end of the Period there were 284 million shares in issue, as compared to 265.9 million as at the year end 31 December 2020. As outlined in the Company's latest Annual Report, the Board recognises that the steady expansion of the Company's capital base has the effect of diluting earnings per share if a single annual dividend is paid, irrespective of when the new shares are issued; the problem is exacerbated the longer the period between the end of the financial year and the dividend record date. The Company's dividend policy, as approved by shareholders at the May 2021 AGM, is to declare two dividends each year; and, while the Company's capital base is growing, to pay these by way of interim dividends in order to make the distribution earlier and thereby reduce the dilutive effect.
In 2020, a first interim dividend of 1.3 pence per Ordinary Share was paid on 28 August 2020 to shareholders on the register at 7 August 2020. A second interim dividend in respect of the 2020 financial year of 1 penny per Ordinary Share was paid on 12 March 2021 to shareholders on the register at 19 February 2021, giving a total distribution of 2.3 pence for the 2020 financial year.
On 29 July 2021, the Board announced a first interim dividend for this financial year of 1.3 pence per Ordinary Share, payable on 27 August 2021 to shareholders who appear on the register at 6 August 2021, with an ex-dividend date of 5 August 2021. The second interim dividend will be declared in Q1 2022. It remains the Board's policy to pay out substantially all earnings by way of dividend.
PREMIUM AND DISCOUNT CONTROL
The Company's Ordinary Shares traded at a premium to NAV of 2.7% on 31 December 2020 and a premium to NAV of 2.1% on 30 June 2021, having traded between a premium of 0.1% and 13.3% during the Period.
The Company has been issuing shares throughout the Period to meet demand and manage the premium. There were 265.9 million Ordinary Shares in issue at the start of the year and this grew to 284.0 million by the end of June 2021, reflecting the issuance of 18.1 million new shares, raising gross proceeds of £82.4 million. Subsequent to the Period end, demand has continued and a further 4 million new shares have been issued, raising a further £19 million. At a General Meeting on 12 January 2021, the Company received a fresh authority to issue a further 26.3 million Ordinary Shares, approximately 10% of the shares then in issue. In addition, at the May 2021 AGM the Company was granted authority to issue a further 27.8 million Ordinary Shares, approximately 10% of the shares in issue at the date of the Notice of AGM.
The Board takes this opportunity to reiterate what was said in the 2020 Annual Report, namely that, following discussions between IEM and the Manager, Impax Asset Management has requested that, in order to manage overall flows into the strategy within which the Company sits, the Board should aim to control the issuance of new shares in the Company so that not more than approximately 10% of the Company's share capital is issued over the course of a calendar (and financial) year. The Company and its brokers will endeavour to manage demand within these constraints but the Board notes that, should the Company's share issuance authority become exhausted ahead of renewal, or should demand outstrip the rate of issuance agreed with IAM, there is the prospect of an increasing share price premium to net asset value, which the Board would find hard to control.
SHAREHOLDER COMMUNICATIONS
We seek to communicate effectively with all our shareholders. The May 2021 AGM was successfully held as a virtual event, with the Manager invited to give a presentation to investors. A video is available on our website for those who were not able to attend.
As an environmental investor, we favour digital communication on account of its low environmental impact. Our website provides our shareholders with access to a wider range of content and we encourage shareholders to sign up to receive our news at www.impaxenvironmentalmarkets.co.uk/trust-info/ alert-service/.
THE BOARD
William Rickett, non-executive director and chairman of the Remuneration Committee, retired at the 2021 AGM. The Board would like to express its appreciation for Mr Rickett's invaluable contribution to the Company in the ten years since he joined IEM in 2011.
As announced previously, I plan to step down at the 2022 AGM. It is intended that Simon Fraser, who joined as a non-executive director of the Company at the beginning of March and was elected by shareholders at the recent 2021 AGM, will succeed me as Chairman. We are delighted to welcome Mr Fraser, with his wealth of investment trust experience and deep knowledge of global markets, to the Board.
In addition, as announced on 8 July 2021, Nick Hurd has joined the Board as a non-executive director on 1 August. Mr Hurd was a Member of Parliament for fourteen years, prior to standing down in 2019. During that time he served as a Government Minister for almost nine years in five different departments, including spells as the UK Minister of State for Climate Change and Industry, and UK Minister for International Development. His involvement in climate change policy goes back to 2004 and he has served as Chair of the Environment All Party Parliamentary Group and as a member of the Environmental Audit Committee and the Climate Change Bill Committee. He is a member of the Privy Council. Before politics, Mr Hurd spent eighteen years in the private sector, including nine years in investment management and banking. As we continue to develop our business, I believe that Mr Hurd will be able to bring to IEM his many years of experience within government, as the world's leading economies find themselves forced to de-carbonise in the face of an accelerating climate and resource crisis.
OUTLOOK
Global equity markets are subject to considerable uncertainty at present. This reflects the pace of emergence from the COVID-19 pandemic, fears over inflation and continuing geopolitical tension between China and the West. Against this short-term backdrop, the Manager continues to voice concerns about the high valuation of environmental stocks. Longer term, the Directors and the Manager are encouraged both by the attractive economics of environmental solutions and the clear focus by policymakers on environmental challenges and the need for a green recovery. The outlook for superior, long-term growth remains fully intact for the companies owned by IEM, which are providing solutions to some of the world's most pressing environmental challenges.
John Scott,
Chairman
3 August 2021