Impax Asset Management Regulatory News (IPX)

IMPAX ASSET MANAGEMENT GROUP PLC

FINAL AUDITED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2010

London, 10 January 2011 - Impax Asset Management Group plc, ("Impax" or the "Company"), the AIM listed investment manager focused on the environmental sector, today announces its final audited results for the year ended 30 September 2010.

·; Assets under management ("AUM") up 44% to £1,823 million (2009: £1,263 million)

·; Post year end, further increase in AUM to £2,251 million by 31 December 2010

·; Revenues up 48% to £15.3 million (2009: £10.4 million)

·; Profit before tax of £5.2 million (2009: £2.5 million), boosted by £1.0 million from the redemption of a loan note

·; Earnings per share (adjusted) up 33% to 3.50 pence (2009: 2.63 pence)

·; Long-only listed equity strategies managed by Impax have, on average, returned 69.3% over 5 years to 31 December 2010 (in Sterling), compared to 23.6% for the MSCI World Index

·; Proposed dividend of 0.60 pence per share (2009: 0.40 pence per share), with a record date of 11 February 2011 and payment on or around 11 March 2011

·; Shareholder's equity up 22%, from £13.9 million to £16.9 million

Keith Falconer, Chairman, commented:

"The backdrop to environmental investing has continued to strengthen over the past 12 months as governments around the world have declared ambitious policies to reduce pollution, improve energy security and stimulate the growth of domestic clean technology sectors.

"Evidence continues to build that the environmental sector is growing more rapidly than the overall economy, and Impax is ideally positioned to build its base of institutional clients who are interested in allocating capital to this area."

Ian Simm, Chief Executive, commented:

"Impax is one of the few investment managers with a successful, long-term track record of investing in the environmental sector. With over £2 billion of assets under management, a scalable business model and a network of powerful distribution partners, we are well positioned for further growth."

Analysts' briefing

There will be a conference call for analysts at 9.00am on Monday, 10 January. A copy of the presentation will be available on the Impax website at www.impax.co.uk.

Enquiries:

Impax Asset Management Group plc

Keith Falconer, Chairman

Ian Simm, Chief Executive 020 7434 1122

Execution Noble & Co

John Riddell, Director 0203 429 1426

MHP Communications

Gay Collins 0203 128 8582 gay.collins@mhpc.com

07798 626 282

Lisa Haines 0203 128 8571 lisa.haines@mhpc.com

07841 293 949

Chairman's Statement

Since my statement for the year ended December 2009, the world economy and financial markets have continued to recover and the investment management sector has emerged leaner and, I hope, in a more sober frame of mind. Against this backdrop, I am pleased to report that Impax has sustained its strong track record and once again delivered healthy growth for shareholders.

Over Impax's financial year (the "Period") from 1 October 2009 to 30 September 2010, assets under discretionary and advisory management ("AUM") expanded from £1,263 million to £1,823 million, an increase of 44 per cent. Since the end of the Period we have assumed responsibility for management of an additional £131 million of assets raised by our investment trust focused on the Asia-Pacific region and €134 million of further capital commitments to our second private equity fund. On 31 December 2010, inclusive of these amounts, AUM was £2,251 million.

Over the past 12 months, the backdrop to environmental investing has continued to strengthen. Weather analysts expect that 2010 will turn out to be one of the hottest years on record, while extreme weather events in Pakistan (floods), Russia (heat waves and drought), China (floods) and elsewhere reinforced fears that significant climate change is already upon us. The trend of increasingly unpredictable weather has motivated voters and policy makers in the European Union, Australia and California to press ahead with policy to reduce greenhouse gas emissions and helped to create a sense of urgency at December's climate conference in Cancún, Mexico. Similarly, during 2010 governments in several emerging market economies declared ambitious policies to reduce pollution, improve energy security and stimulate the growth of domestic clean technology sectors.

Results for the year end and proposed dividend 

Turnover for the year was £15,339,000 (2009: £10,391,000), a 48 per cent increase over the year.

Profit before tax was £5,177,000 (2009: £2,473,000, including a charge in respect of the Group's long-term, share-based incentive scheme of £552,000). The profit included £1,002,000 arising from full repayment at face value of a loan note issued to the Company in 2004 when Impax exited from a legacy oil business.

The effective tax rate for the Period was 27 per cent; for the financial year ending 30 September 2009 the tax rate was substantially lower (8 per cent) as a result of credits arising from the recognition of deferred tax assets.

The Board regards the most relevant measure of the year's earnings to be earnings per share ("EPS") as adjusted to exclude the charges for our long-term incentive scheme settled from the issuance of primary shares. On this basis, EPS were 3.50 pence (adjusted), a 33 per cent increase compared to last year (2.63 pence (adjusted)). The 2010 EPS result included 0.79 pence attributable to the uplift in value of the loan note; the 2009 EPS result included 0.65 pence attributable to one off tax benefits.

The Group's balance sheet also strengthened during the Period and cash generation has increased significantly. At the end of the financial year, shareholders' equity had increased to £16,903,000 (2009: £13,850,000) and cash reserves available to shareholders were £8,339,000 (2009: £6,694,000). The Group remained debt free during the Period.

In view of the Group's strong financial position, I am pleased to report that the Board recommends an increased dividend of 0.60 pence per share (2009: 0.40 pence per share). The dividend proposal will be submitted for formal approval by shareholders at the forthcoming Annual General Meeting on 2 March 2011. If approved, the dividend will be paid on or around 11 March 2011. The Board does not currently intend to recommend the payment of interim dividends.

Prospects

Over recent years institutional investors have generally been disappointed by investment returns from mainstream products, which have fallen well behind levels required to deliver on stated objectives. As a consequence, many are revisiting their asset allocation models and examining whether new strategies and asset classes can improve expected risk-adjusted returns. In this context, it is encouraging that many are reviewing in detail the credentials of investment portfolios in the environmental sector, Impax's chosen area of focus. Evidence continues to build that this sector is growing more rapidly than the overall economy, and I anticipate that allocations to strategies such as those run by Impax will grow considerably.

Chief Executive's Report

After a year of considerable uncertainty in the global economy and financial markets, it is encouraging to report that equity markets appear to have stabilised and are positioned for expansion. As described below, Impax has continued to make significant progress in developing its status as a leading investment manager in the environmental sector and has further demonstrated the attractions of its business model.

Sector developments

Just over a year ago, the international community was riveted by the prospects for an agreement in Copenhagen on limiting greenhouse gas emissions. Risk appetite was starting to return to equity markets, and many investors were betting on a strong year ahead for the environmental sector. However, the actual performance during 2010 of Impax's chosen sector was largely driven by a number of unconnected factors. Between January and June, concerns about the health of European economies undermined valuations of all stocks with regional exposure, and environmental markets, with their relatively high dependence on public sector expenditure, were particularly badly affected. In addition, the rapid adoption by power generators in the United States of low cost shale gas reduced power prices significantly, undermining the prospects for companies in the domestic renewable power generation and energy efficiency sectors.

Over the same timescale, Asian environmental markets continued to develop rapidly, particularly on the back of positive policy statements from governments in the region. China reconfirmed its commitment to securing 15 per cent of its electric power from renewable energy sources by 2020, a target that is expected to require at least US$180 billion of capital expenditure. Meanwhile, India announced a similar target of 10 per cent of power from renewables by 2015, and Japan introduced tariff support as part of its policy to source 10 per cent of primary energy from renewables by 2020.

Notwithstanding weakness earlier in the year, environmental sector stocks have again out-performed general equity markets: during calendar year 2010 the FTSE Environmental Opportunities All Share Index grew 22 per cent, while the MSCI World Index expanded by 15 per cent (both priced in Sterling). Stocks exposed to the Asia Pacific region, stocks of larger companies and stocks in the water sector were typically strong contributors, while small cap stocks and those in the renewable energy sector tended to under-perform.

Assets under management and fund flows

The Company's principal divisions, Listed Equity and Private Equity, have made substantial contributions to Impax's increase in AUM since 1 October 2009.

During the Period, Listed Equity funds that we manage or advise secured net inflows of £401 million, comprising £151 million into "Impax-Label" funds, which we typically manage for UK investors, and £250 million into Third Party Funds/Accounts. 

In the former category, our second investment trust, Impax Asian Environmental Markets plc ("IAEM"), launched in October 2009 with £104.5 million of assets. IAEM subsequently attracted £131 million of additional capital in a C Share completed on 22 October 2010, i.e. after the Period end.

In the latter category, the development of our Institutional and Segregated Accounts business has been particularly encouraging. In October 2009 we commenced management of a second account for Russell Investments, a further endorsement of our reputation among international investors. In April 2010 we received the final tranche of funding for a €150 million mandate from a European institutional investor, and in August 2010 we began to manage a A$50 million account for Local Government Super, our first major client in Australia. In November i.e., after the end of the Period, we announced that Lønmodtagernes Dyrtidsfond Pension Fund of Denmark had appointed us to manage €75 million in a segregated account following our Environmental Leaders strategy; we expect this mandate to commence later this month.

Our Third Party Funds business has also made progress. In June, Skandia Investment Group appointed us manager of the £74 million Skandia Ethical Fund, which was refocused on our Environmental Leaders strategy, albeit with an additional ethical screen. In view of Skandia's powerful distribution capabilities in the UK retail market, we decided to wind up the IFSL Impax Environmental Leaders Fund, which had attracted ca. £7 million of capital.

Our Private Equity division has also had a very successful year. In March we held a first closing of Impax New Energy Investors II LP ("Fund II") with €141m of capital from ten limited partners, the majority of whom had invested in Fund I. Fund II has a similar objective to Fund I, i.e. to provide strong capital growth by investing in renewable energy power generation and related assets in Europe. Subsequently, we have raised additional capital for Fund II, taking total commitments to €275 million and we expect to expand this fund further before its final closing, which is scheduled for March 2011. As described further below, we made the first investment for Fund II in December.

Cash flow

Operating cash flow before movements in working capital increased over the Period to £4.3 million (2009: £2.7 million), which was equivalent to £354,000 per month on average (2009: £225,000). Given the recent increase in AUM, monthly operating cash flow has improved further.

As reported in the Interim results for the six month period ended 31 March 2010, the Group disbursed additional funds to Impax New Energy Investors LP, and to date has paid in €2,750,000 out of its total commitment of €3,756,000.

The closure of the IFSL Impax Environmental Leaders Fund released £1.4 million of seed capital to the Group.

Final redemption proceeds of $3,695,000 were received after the period end in respect of a secured loan note from All American Oil and Gas Incorporated ("AAOG"). The note, which was payable in full on or before 31 July 2011, was issued to Impax by AAOG in July 2004 as part of AAOG's purchase of Impax's legacy oil operations. The proceeds represent £1,241,000 more than the previous book value of the note on Impax's balance sheet; in accordance with IFRS, £1,002,000 has been included in the profit before tax for the year ended 30 September 2010.

Investment performanceListed equity

We continue to see strong investment performance as a top priority, and I am pleased to report that, as described below our track record of long-term out-performance has continued. During the Period, we completed our adoption of Global Investment Performance Standards ("GIPS"), which enhances considerably our ability to report investment performance with a methodology that is accepted worldwide by institutional investors.

Over the past few years we have widened our range of listed equity strategies to capitalise on new investment opportunities and respond to demand from clients. We now have four distinct long-only investment strategies: Environmental Specialists, which focuses on companies that have a majority of their business in the environmental sector; Environmental Leaders, which comprises specialists plus more diversified companies; Asia-Pacific, with stocks based in the region; and Water.

As shown in Table 1, we remain very encouraged by the investment performance of the portfolios that we manage. Over five years, our Environmental Specialists strategy has delivered an annualised performance, measured in Sterling, of 10.6 per cent, significantly ahead of the MSCI World Index, which has returned 4.3 per cent (annualised).

Table 1: Performance of Environmental Specialists, Environmental Leaders, Asia-Pacific and Water strategies versus peers (Sterling)

In order to prepare for future growth, we have also been working hard to generate out-performance in more recently established long-only strategies. As discussed in previous statements, our Environmental Leaders strategy is designed to capture the upside from our full investment universe of stocks; the resulting portfolio typically has a lower volatility and tracking error against global equity indices than the Environmental Specialists strategy, and is therefore suitable for an investor seeking broad exposure to environmental markets. The Environmental Leaders strategy has an annualised performance of 18.4 per cent over 2 years which is ahead of the MSCI World Index, up 15.5 per cent over the same period, with a very similar measure of risk (as measured by volatility). The strategy will have a three year track record in March 2011, after which we expect it to be of interest to a wider group of investors.

Private equity

During the Period, we completed the investment programme for Impax New Energy Investors LP ("Fund I"), our first private equity fund, which has €125 million of commitments, by allocating capital to a multi-project solar investment programme in Italy. During August, Fund I acquired an Italian project company with the right to build 9MW in the Lazio region, while in November, the Fund invested in a company developing 10.9MW in Puglia. These commitments have provided the portfolio with further diversification.

In parallel, during calendar 2010 Fund I's portfolio of Spanish solar projects again beat its budget and produced an attractive cash yield. At the time of writing, we are analysing the implications for Fund I of a new Royal Decree passed unexpectedly in Spain on 23 December 2010, which, if formally ratified by the Spanish parliament later in January 2011, will cap the subsidies to solar power generators. Meanwhile, we expect to complete Final Acceptance Testing for these assets during the first half of 2011.

In December we completed the first investment for Fund II through the purchase from the German company Conergy AG of 23MW of operating wind farms as well as a business with a development pipeline of 93MW in Germany and 285MW in France, some of which we expect to be ready target for construction in 2011. We expect to use the business as a platform for growth in these markets.

Distribution

During the Period, our external distribution network has developed significantly in line with our policy of focusing internal resources on our core skill of investment management. The merger of BNP Paribas Investment Partners ("BNPP IP") with Fortis Investment Management, which was completed in April 2010, has extended the sales team that is able to promote Impax's products. For example, the expanded BNPP IP now has much stronger coverage in the Scandinavian and Benelux regions, both of which have historically shown a willingness to commit capital to environmental markets. BNPP IP is now able to represent Impax in most parts of continental Europe and the Asia-Pacific region. At the end of the Period, funds raised by or managed for BNPP IP represented 21 per cent of our total AUM.

In the United States, we have continued to support Titanium Asset Management, who have been acting as our non-exclusive distributor since January 2010. In recognition of the structure of the US investment management sector, we have been focusing on educating leading investment consultants in the characteristics of and potential for the environmental sector, logging our credentials and track record on key databases and engaging with receptive asset owners. We expect this systematic approach to produce results during 2011. Meanwhile, the fund that we sub-advise for Pax World, which currently has ca. US$31 million of assets, has sustained its strong investment performance. Once this fund reaches its third anniversary in March 2011, we expect it to pick up positive independent ratings and to attract additional capital.

In the United Kingdom we have continued our long and successful partnership with Collins Stewart's closed ended companies team. Collins Stewart helped us to launch IAEM in October 2009, and then, as described above, to expand the same trust in October 2010. Separately, since May 2010 we have been directly promoting an open ended version of IAEM to UK investors (through our funds platform in Ireland).

In parallel, we are continuing to engage with representatives of the major investment consultants around the world. After many years of dialogue, we believe we are well regarded by many of these "gatekeepers", and several of them actively recommend one or more of our investment strategies to their clients. In particular, we have secured all of our Segregated Account clients after positive endorsement by consultants.

Infrastructure and support

Behind any successful investment management team is an experienced and well resourced support team. As our business has expanded, we have continued to invest in this key area. During the Period, we hired additional staff into our compliance, operations, marketing, and finance teams, taking the headcount in this area from 17 to 20.

In consultation with some of our larger clients, we decided during summer 2010 to seek external validation of the internal controls for our listed equities investment activity using the widely recognised SAS-70 format. KPMG are currently finalising their reports, and we expect to be able to share the results with investors and prospective investors in the near future.

At the end of the Period, our total headcount was 40 permanent and four temporary staff, up from 34 permanent and four temporary staff at the start of the Period.

Hong Kong subsidiary

In recognition of the rapidly growing demand for our investment expertise in the Asia-Pacific region, during summer 2010, we decided, in consultation with our local partner Ajia Partners Asset Management ("APAM"), to incorporate a subsidiary in Hong Kong. Impax Asset Management (Hong Kong) Limited ("Impax Hong Kong"), which was incorporated in October and is 100 per cent owned by Impax Asset Management Group plc, is currently applying to the Hong Kong Securities and Futures Commission for a licence as an asset manager. Subject to regulatory approval, we expect that, for the foreseeable future, Impax Hong Kong will employ a small number of investment analysts and will share an office with APAM, who will continue to provide regional expertise and oversight.

Outlook

After a volatile year for equity markets, expectations for 2011 are positive, although there is significant downside risk, particularly over financial stress in the euro area, stagflation in developed countries and over-heating in China. Against this backdrop, although a handful of sub-sectors, particularly renewable energy, are struggling to recover, environmental markets, in general, are well positioned for sustained growth.

I am delighted to be able to report on such a strong year for Impax. With over a decade of experience and a robust investment process, we are confident of being able to generate compelling returns for clients, and with our scalable structure and network of distribution partners we are in an excellent position to create significant further value for shareholders.