Impax Asset Management Regulatory News (IPX)

Impax Asset Management Group plc

Results for the year ended 30 September 2013

London, 28 November 2013 - Impax Asset Management Group plc ("Impax" or the "Company"), the AIMquoted investment manager focused on environmental markets and related resource efficiency sectors, today reports its final audited results for the year ended 30 September 2013 (the "Period").

Financial Performance

· Assets under management ("AUM") at year end: £2.2 billion (2012: £1.8 billion)

· Revenue: £18.5 million (2012: £18.6 million)

· Profit before tax: £3.4 millionI (2012: £(4.7) millionI)

· Cash reserves: £16.5 million (2012: £19.3 million)

· Seed investments: £8.9 million (2012: £6.3 million).

Dividend

· Board recommending an increased dividend of 0.90 pence per share (2012: 0.75 pence per share) and initiation of an interim dividend for the year ending 30 September 2014.

Business Performance

· Principal listed equity strategies all outperformed global markets

· Encouraging business development in the United States

· High level of inflows into the Water strategy

· Strong mandate pipeline

· Launch of Food and Agriculture strategy.

Keith Falconer, Chairman, commented:

"Investor interest in the resource efficiency sectors continues to build, providing further opportunity for us to promote our services around the world."

"The Board now believes the Company is in a position to be able to support both a higher annual dividend as well as the initiation of an interim dividend commencing in 2014. The Board's policy is to grow future dividends progressively in line with our view of business performance."

Ian Simm, Chief Executive, commented:

"Impax's investment performance remains strong relative to global markets, sector benchmarks and the peer group. The steps we have taken to extend our distribution network are producing results, and the Company is well positioned for further expansion."

I Includes £0.2 million (2012: £8.7 million) of charges associated with the Company's historical share schemes.

Chairman's Statement

For the Year Ended 30 September 2013

Investor interest in the resource efficiency sectors continues to build. Our investment performance has been strong relative to global markets, sector benchmarks and the peer group. The Company is well positioned for further expansion.

Since I reported at the end of 2012, a combination of improving economic fundamentals, greater political stability around the world and the declining attraction of other asset classes, notably bonds and cash, have fuelled a sharp rise in both corporate earnings and investor appetite for equities. Against this backdrop, Impax has performed well, delivering strong investment returns and further extending our platform to support growth.

During the Company's financial year from 1 October 2012 to 30 September 2013 (the "Period"), assets under discretionary and advisory management ("AUM") increased 20 per cent from £1.83 billion to £2.20 billion. As at 31 October 2013, AUM had increased further to £2.31 billion.

The case for investing in resource efficiency and environmental markets continues to gather momentum. The recently published fifth report by the United Nations Intergovernmental Panel on Climate Change ("IPCC") provided further scientific evidence of the impact of increased greenhouse gas emissions on the atmosphere, moving climate change back up the political agenda in many countries. 

In China, stricter policy and increased investment in environmental protection and pollution control continue to catalyse attractive, long-term investment opportunities. China has impressive plans to replace old coal generation with cleaner gas plants; it is also committed to ambitious renewables targets and this year is expected to become the largest market for solar power equipment. Elsewhere, our investment teams are particularly interested in companies offering pollution control for industrial facilities, transport energy efficiency and industrial gases.

The extension of our capabilities to include food and agriculture is developing well. The fund we launched in this area is now approaching its first anniversary and this summer FTSE announced the inclusion of sustainable food, agriculture and forestry stocks in its Environmental Markets Index Series. Following some volatility over recent months, the agriculture sector now presents a number of interesting buying opportunities.

Faced with increasing evidence of new risks and opportunities arising from these and similar issues linked to the scarcity of natural and environmental resources, many institutional investors are reviewing their portfolios and strategies and, increasingly, making changes. Notable recent developments in this area include the decision by Norwegian insurance company Storebrand to sell its holdings of fossil fuels stocks, the public review of "investment beliefs" at California pension fund CalPERS, and the stated intention of Munich Re to invest up to €2.5 billion in renewable energy over the next few years. In this context, Impax is well placed to offer investment insight and solutions.

Results for the Year

Revenue over the 12 months to 30 September 2013 was £18.5 million (2012: £18.6 million). Operating earnings1 for the year were £4.3 million (2012: £4.6 million) and the associated operating margin was 23.5 per cent (2012: 24.5 per cent). The slight fall in profits compared to the previous financial year was principally due to the incremental costs of our investments in distribution capability. 

Profit before tax ("PBT") for the year was £3.4 million including £0.2 million of charges due to historical EIA share scheme charges (2012: PBT loss of £4.7 million; £8.7 million of EIA share scheme charges). 

The Board regards the most relevant measure of the year's earnings to be diluted earnings per share ("EPS"). On this basis, EPS increased to 2.77 pence (adjusted2) (2012: 2.64 pence (adjusted2)), a modest fall in PBT excluding EIA share scheme charges being more than offset by the impact of share buybacks during the period and favourable tax effects.

By 30 September 2013, shareholders' equity had increased to £22.9 million (2012: £22.6 million) and cash reserves held by operating entities of the Group were £16.5 million (2012: £19.3 million). The Company remained debt free during the Period.

Operating cash flow for the Period was £4.9 million (2012: £5.2 million). As previously reported, during the Period the Company invested £2.0 million to seed a Food & Agriculture Fund and spent £2.4 million buying back 6.8 million of its own shares. 

Sustainable Investor of the Year Award

In June, Impax was named Sustainable Investor of the Year at the Financial Times/IFC Sustainable Finance Awards, in recognition of our long and successful track record. It was particularly pleasing that the judges acknowledged our rigorous investment process and the role Impax has played in educating institutional investors about the attractive growth opportunities in resource efficiency and environmental markets.

New Dividend Policy and Proposed Dividend for the Period

In light of Impax's prospects for growth and continuing strong cash flow generation, the Board has recently reviewed the Company's policy towards the management of retained earnings and cash on the balance sheet. Having taken account of the need to maintain an adequate risk buffer and also retain the ability to seed new funds, the Board now believes that the Company is in a position to support both a higher annual dividend as well as the initiation of an interim dividend commencing in 2014. The Board's policy is to grow future dividends progressively in line with our view of business performance.

To initiate this new policy, the Board will therefore recommend a dividend of 0.9 pence per share for the Period, which represents a 20 per cent increase over the dividend for the previous period (2012: 0.75 pence). The dividend proposal will be submitted for formal approval by shareholders at the Annual General Meeting on 10 February 2014. If approved, the dividend will be paid on or around 17 February 2014. The record date for the payment of the proposed dividend will be 24 January 2014 and the ex-dividend date will be 22 January 2014. 

Nominated Adviser and Broker

In October, following a review of the Company's service providers in this area, we were pleased to appoint Peel Hunt as Impax's Nominated Adviser and Broker.

Remuneration

In accordance with the Company's remuneration policy, during the Period the Board granted three million Employee Share Option Plan ("ESOP") options to management and staff in respect of their performance for the year ended 30 September 2012. The strike price was set at 37.6 pence and the options will vest on 31 December 2015.

Prospects

Despite a period of strongly rising equity markets and growing investor confidence, the outlook for the global economy remains complex. The recent crisis over the US debt ceiling has raised concerns over the health of the recovery leading to delay in the tapering of quantitative easing. The problems in the Eurozone appear to be in remission for the time being, but many fundamental imbalances are yet to be addressed. Meanwhile, China's ability to sustain its target level of economic growth appears uncertain, while in Japan, many investors are waiting on the side-lines for further evidence of the effectiveness of the recent stimulus programme.

Notwithstanding these issues, investor interest in our target markets continues to build, providing further opportunity for us to promote our services around the world. We have now been in business for over 15 years providing clients with access to one of the most experienced investment management teams covering resource efficiency. The Board shares my confidence that Impax is well placed to continue to build value for shareholders.

J Keith R Falconer

27 November 2013

1 Revenue less operating costs excluding £0.2 million (2012 £8.7 million) charges due to EIA share schemes

2 adjusted to exclude the IFRS2 charge for share schemes satisfied by primary shares, and to include the full effect of share buybacks and the dilutive effect of option schemes.

Chief Executive's Report

For the Year Ended 30 September 2013

The drivers behind resource efficiency and environmental markets strengthened further during the Period, with significant news in science, policy, technology and investor interest, while stock prices generally out-performed broad market indices.

Five years on from the depths of the financial crisis, it is both a relief to see a sustained improvement in business confidence around the globe and yet troubling to conclude that many of the structural weaknesses that contributed to the meltdown of 2008 have yet to be adequately addressed. At a time when the opinions of economic commentators are sharply divided about the prospects for growth and investment returns, it is reassuring to note the consistently positive news flow from the markets in which Impax invests, and to report that our investment capabilities continue to develop.

Sector Developments and Performance

The drivers behind resource efficiency and environmental markets strengthened further during the Period, with significant news in science, policy, technology and investor interest, while stock prices generally out-performed broad market indices.

Climate change has reappeared as a major issue during the Period. In May, atmospheric concentrations of carbon dioxide ("CO2") passed the symbolic threshold of 400 parts per million ("ppm") for the first time in human history, while the IPCC report published in September has provided further detailed confirmation of the urgency with which greenhouse gas emissions must be cut back if the planet is to avert dangerous climate change. Recent global policy developments in this area have been mixed. The US Supreme Court recently upheld the President's instruction to the Environmental Protection Agency to tighten CO2 and other emissions from coal-fired plants, thereby further undermining the prospects for this form of power generation, which currently represents approximately 35 per cent of supply. In June, China launched pilot schemes to trial cap-and-trade schemes for CO2 in seven cities, potentially paving the way for a national scheme in due course. In contrast, the new Coalition government in Australia is in the process of repealing legislation behind the country's carbon tax and dismantling institutions designed to channel finance into clean energy projects.

In a broader context, Carbon Tracker, a UK-based non-governmental organisation, has warned that global regulations to limit CO2 emissions could significantly impact the book value of many companies holding fossil fuel assets. As it becomes uneconomic to extract their reserves, some of these assets may become "stranded", and, according to Carbon Tracker, investors should therefore consider reducing their exposure. Recent research published by Impax has demonstrated that over the last five years, investors could have substituted an actively managed portfolio of alternative energy and energy efficiency stocks for fossil fuel stocks without any negative impact on performance or volatility.

Local air pollution has also become a more urgent issue in some areas. Last winter, toxic smog blighted many large cities in Northern China at levels that caused serious health issues. The Chinese government has been quick to respond with an Action Plan for Air Pollution Control which covers a range of new environmental regulations reminiscent of the steps taken last century when many US and European cities suffered similar pollution. China has stated that it expects to invest ca. US$500 billion in environmental protection under its current Five Year Plan which runs to the end of 2015.

The wider energy sector is experiencing a sustained upheaval, driven by a combination of emissions limits and changing economics. In Europe, the rapid adoption of renewable energy, particularly in Germany, has dramatically reduced the margins of incumbent power utilities, who are now seeking direct subsidies to balance power supply systems. Investment is needed in further grid expansion, increased cross-border trading and the broad encouragement of demand-side management. Elsewhere, cheap shale gas has enabled the United States to cut its CO2 emissions by 3.8 per cent during 2012, the largest energy-related carbon dioxide pollution decline since 1990. In Japan, on-going problems with the Fukushima nuclear plant have reinforced a focus on the deployment of alternative energy and catalysed further national commitments to develop renewable power generation assets, particularly solar photovoltaic.

The water sector continues to provide strong positive signals for investors. Following the announcement of China's increased investment to tackle water pollution we have been encouraged by the acceleration in the roll-out of related infrastructure projects and the strong performance of companies involved in the sanitation and clean water sectors. This is also a critical time for the UK water industry: in the short term, water companies are working to meet targets agreed with the regulator for investment over the period 2010 to 2015, which include efficiency and customer service improvement plans. Investors, however, are increasingly focused on the direction of negotiations over investment in the next five year period (to 2020), when water conservation, storm-water management, new storage infrastructure and extended metering are likely to feature.

With risk appetite rising in the wider economy, the Period saw the return of some of the exuberance last seen in 2007. In particular, Tesla Motors, a manufacturer of electric vehicles, experienced a dramatic increase in investor interest. Between 1 October 2012 and 30 September 2013, Tesla's market capitalisation increased by more than six hundred per cent to US$ 23.5 billion. Last year Tesla sold just 21,000 cars but it is valued at roughly half the value of Ford and a third of the value of General Motors, which sold more than 9 million vehicles last year.

Against this positive backdrop, the share prices of companies active in resource efficiency and environmental markets have increased significantly. During the Period, the FTSE Environmental Opportunities All Share Index grew by 31.5 per cent, a material out-performance over the MSCI All Country World Index, which was up 17.4 per cent. Over the five years to 30 September 2013, these indices grew by 75.8 per cent and 59.6 per cent respectively.

Assets under management and fund flows

During the Period, the Listed Equity funds that we manage or advise had gross inflows of £470 million and outflows of £292 million. The net inflows into third party funds and accounts were £244 million and net outflows from "Impax-label" funds were £66 million. In addition, ca. £190 million of assets were redeemed by shareholders upon the closure of Impax Asian Environmental Markets plc ("IAEM plc"), while £21 million was rolled over from IAEM plc into the open-ended Impax Asian Environmental Markets Ireland fund.

Investment Performance

At the heart of Impax's potential for success is our ability to generate attractive levels of investment return for our clients. I am pleased that we have performed well across the board in this area.

Listed Equity

We are currently running five distinct long-only investment strategies. 

Our Leaders strategy which invests across the market cap range in companies providing solutions to resource scarcity, returned 31.5 per cent1 over the Period compared to 17.4 per cent2 for the MSCI All Country World Index ("ACWI"). Over the last 5 years this strategy has returned 74.0 per cent1 while the MSCI ACWI rose 59.6 per cent2 and the relevant sector comparator, the FTSE Environmental Opportunities All Share Index, returned 75.8 per cent3.

Our Specialists strategy which invests in small and mid-cap stocks returned 31.0 per cent1 over the Period. "Specialists" has the longest track record of our strategies: over the last ten years (to 30 September 2013), it has returned 182.1 per cent1 while the MSCI ACWI and the FTSE ET50 indices rose 118.6 per cent2 and 95.0 per cent3 respectively.

The Water strategy, which will reach its fifth anniversary in January 2014, has retained its position as the top performing fund in its peer group, returning 25.9 per cent1 over the Period. Since inception to 30 September 2013 the strategy returned 94.4 per cent1 compared to 65.8 per cent2 for the MSCI ACWI and 83.8 per cent3 for the FTSE EO Water Technology Index.

Over the Period the Asia-Pacific Strategy returned 21.7 per cent1 against the MSCI AC Asia Pacific Ex Japan and the FTSE Environmental Asia Pacific with Japan Custom Index4 which rose 6.8 per cent2 and 16.3 per cent3 respectively.

Our Food and Agriculture strategy, launched on 1 December 2012 has returned 14.3 per cent1 since inception. This has been a challenging period for the agriculture sector but as the fund approaches it first anniversary it has established a leading position in its peer group.

Private Equity

Our private equity business has continued to make steady progress. During the Period, we increased the level of investments and commitments for Impax New Energy Investors II ("NEF II") from 40 per cent to 60 per cent, with incremental acquisitions in France, Germany and Finland. We have recently sold the first assets from this fund at an attractive profit. The fund's investment pipeline remains healthy, and we intend to explore opportunities for raising and deploying more capital in this area in due course.

The assets held in Impax New Energy Investors LP ("NEF I") continued to perform well operationally. However the holdings of Spanish solar projects have been further adversely affected by the Spanish Government's announcement in July of significant additional changes to the regulations governing tariffs for such projects. Although the details of these changes are yet to be finalised, our interpretation of currently available information has led us to write down the Company's holding in this fund by £0.9 million.

Distribution

We have been very encouraged by the increased interest in our capabilities and track record from institutional investors, investment consultants and fund distributors.

Although Impax remains "investment management led", we continue to develop a range of routes to market. 

In the UK, we have been developing the family office and global distributor segments, channels that to date have been relatively untapped. Our principal investment trust client, Impax Environmental Markets plc has had a strong year, with considerable outperformance versus global indices, a narrowing discount and overwhelming shareholder support at a routine continuation vote. Separately, following the acquisition of Skandia Investment Management by Old Mutual Global Investors, we expect a renewed marketing drive for the Ethical Fund that we have been sub-managing since 2010 and which now has some £77 million of assets.

In Europe, our distribution partners have been successful in expanding the assets that we manage for them. In particular, BNP Paribas has broadened beyond France the marketing for the Aqua fund that we sub-manage; this fund's assets increased from €85.9 million to €435.9 million over the Period, and it now ranks as the fourth largest water fund globally. Elsewhere, the BNP Paribas sales teams were successful in attracting capital for their versions of both Specialists and Leaders, while ASN Bank, a Netherlands-based Impax client since 2001, attracted further funds into their Water and Environment fund, which has won investment awards for five consecutive years.

In the United States, we have been successful in expanding current mandates, winning new business and developing a strong pipeline. During the Period, AUM sourced from US clients increased by 111 per cent to £77 million, led by the Global Environmental Markets Fund, which we sub-advise for Pax World. We also attracted sufficient additional capital into our Delaware-based fund which pursues the Specialists strategy to allow for the gradual withdrawal of the US$ 5 million of seed capital we invested into this strategy at launch in late 2011, with the redemption of the first US$ 1 million this October. Last month we began an advisory mandate with a large American private bank as part of a major new multi-manager product targeting the United States energy market's renaissance. 

Infrastructure and Support

At the end of the Period our headcount was 56.9 full time equivalent staff compared to 56.5 at the same time last year. In recent years we have made a considerable investment in the team and resources required to support both the current business as well as substantial additional inflows into similar strategies. We expect to grow the team significantly only if we expand the number or size of distribution channels, for example in the United States, or take on board new investment strategies.

Outlook

Investors may look back on 2013 as the high point of 'cheap money', and will pass judgement on the skill with which central bankers around the world unwind quantitative easing and succeed in normalising their economies and, hopefully, achieving sustainable growth. 

In the present environment, when it appears that many asset prices are unsustainably inflated, to avoid being heavily punished in any correction, investment managers must increasingly focus on the underlying quality of their portfolios, and in particular the prospects for rising earnings.

In this context, the companies that Impax is targeting are consistently delivering stronger earnings than their peers in other parts of the economy, and their public statements generally point to further improvement in 2014 and beyond. 

With a unique focus on resource efficiency and environmental markets and one of the strongest brands globally in an area of increasing investor interest, the Impax team is ideally placed to deploy client money with a well-informed overview of both opportunity and risk. By looking after current clients well, we continue to improve our prospects for winning the trust of new clients, and thereby, growing value for the Company's shareholders.

Ian R Simm

27 November 2013

In line with market standards the strategy returns1 are calculated including the dividends reinvested, net of withholding taxes, gross of management fee and are represented in GBP; the returns for the MSCI ACWI 2 are net calculated including the dividends reinvested, net of withholding taxes. (Source: FactSet). FTSE indices3 are total return calculated including the dividends reinvested gross of withholding taxes. 4FTSE Environmental Asia Pacific with Japan Custom Index is a custom made benchmark made up of 80% FTSE Environmental Opportunities Asia Pacific ex Japan and 20% FTSE EO Japan which is rebalanced monthly.