Impax Asset Management Group (LSE:IPX) — Investor Presentation

0:01 Good afternoon, and welcome to the IMPAX ASSET MANAGEMENT GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can view all questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll, and I would now like to hand you over to founder and CEO, Ian Sim. Good afternoon to you. Good afternoon, everybody. Thank you for joining. So let's just dive straight in. Next slide. So this is what I'm gonna cover. Just a quick, summary of the business highlights and updates, the financials, and then the outlook. No need to go through the appendices, so we'll just switch to q and a then.

0:55 So IMPAX ASSET MANAGEMENT is a company I started in the late nineties. The business idea is that we believe there's very strong growth into the future from certain markets, markets particularly focused on clean energy, smart materials, infrastructure, food and agriculture, and elements of other sectors that are affected by the inexorable move towards cleaner, more efficient goods and services. So this is a economic opportunity rather than an ethical opportunity. We have been operating around the world both investing but also serving clients for more than a quarter of a century. And we find that our brand is now probably the leading brand in this area globally, particularly as many of our competitors, many of the large groups that have been in this space for five or six years only have, recently pulled back because they're concerned about legal challenge, particularly from US institutions because they've been able they've been muddling up ethics and values on one hand, with value creation on the other.

1:57 Our strategy really is to continue to build on a scalable business model. So as you'll see, we run three different types of mandate, listed equities, fixed income, and private markets, each of which have got very significant investment capacity. And so with a relatively flat sized team, we ought to be able to grow asset management and therefore have a a quite leveraged approach to building profits into the future. Next slide. So this transition to a more sustainable economy is driven in part by technology change. So for example, the rapid arrival of electric vehicle charging and, vehicle itself technology or, for example, clean power around wind technology or energy efficiency.

2:47 There's also an element of regulatory change. So we've seen very strong commitment from regulators to shape grid markets, which is very helpful for connecting distributed generation and also innovative models around infrastructure finance. There's also an element of consumer choice here. So a lot of individuals or family around the world are keen on energy independence and so like to have, solar panels on their roofs or would like to have cheaper mobility. So hence, the medium term interest in electric vehicles. Sectors are being transformed. There is definitely an element of AI here as well, although AI is not a major part of our universe of stocks. There are elements of AI that can improve efficiency. We need to be careful about the possible regulatory backlash if the AI data centers, for example, are consuming too much water.

3:43 And because of the disruptive forces here, then there's a real opportunity for active management that is particularly around, stock picking, but also waiting positions according to, where risk and opportunity lies over the the medium term. Next slide. So just turning to our results for the year ended 09/30/2025, which we've just reported on, this morning. So it has been a particularly, unusual market this year. It's been, sometimes incredibly narrow with dominance of, half a dozen to to a dozen tech oriented US mega cap stocks, but at other times, a much broader market. In that context, because IMPAX isn't investing much, if anything, in these areas given our mandates, then we have seen outflows.

4:34 And those outflows have been moderating into the second half of the year, so a very positive trend. Meanwhile, the list of equity strategies that we are running have got quite compelling valuations. We're also making very good progress towards achieving our strategic objectives. So for example, we closed our third acquisition in April this year, which is in the fixed income space. It's a company called Sky Harbor. We've been making our business more efficient, reducing our cost base without any impact on our growth capabilities or opportunities. And meanwhile, we've got a very strong balance sheet and nearing the end of a £10,000,000 share buyback program. Next slide. So here are the key financial metrics. I'll come back to the details in a moment.

5:21 So compared to the previous financial year, revenue is down, and therefore margin is down as well. We've, announced a dividend of, final dividend of 8p a share on top of an interim of 4p, taking the total dividend per share to 12p. And that leaves us with, expected cash reserves of, just over £60,000,000, which is a very healthy balance sheet, no debt. Next slide. So probably don't need to go into detail about the, interesting market environment for this year. I think there is still a lot of concern about, the direction of inflation and consumer confidence. At the same time, there's, a bull case to be made for equity markets grinding higher and for, a rebound in out of favor sectors, which would certainly benefit us.

6:12 Many asset owners are moving towards systematic type products because they want to reduce their tracking error against the mainstream indices. And meanwhile, fixed income markets are stable, but there's a relatively tight spread. The the the premium you get for taking more risk is is not where we'd like it to be. But we're expecting that that trend will will reverse over the next twelve to eighteen months. Meanwhile, private markets are in an interesting juncture. There's lots of money chasing the mega cap or mega sized deals, but our strategy of looking under the radar or looking for smaller transactions is proving to be still very beneficial and lucrative for our investors.

6:59 Next slide. So a bit of detail on this slide, which I won't dwell on, but essentially, this is our investment performance over calendar years for the last five years to the end of September in blue against the, the benchmark in, orange for four of our largest investment strategies representing, majority of our assets under management. So we've moved from the the top of the cycle in 2021 to, the bottom of the cycle recently, and hopefully, we'll we'll be on the upper trend, pretty soon. Next slide. I'm just showing how that, cycle has affected us. So this is the the chart of the ratio between price earnings, and growth of the underlying earnings. So this is a a simple but quite useful metric for valuation.

7:47 The higher the number, the less attractive the opportunity given the, growth being the denominator. So on our water strategy on the left, that, peg ratio, as it's called, has dropped from 1.8 to 1.25, while the drop in the comparable from the main market is is much, less pronounced. And we're looking, cheap relative to the main market as we are as on the right hand side of the chart with our small cap strategy, which is normally called specialists. Next slide. A lot of busy data on this one, I'm afraid as well, but this is the equivalent slide for fixed income where we have four core strategies now post our acquisitions of Epsilon Capital Management in 2024 and then Sky Harbor just a few months ago.

8:38 So numbers here, much more, competitive. There hasn't been a derating in the way that there has been in the equity strategies. So, this is, for those asset owners and potential clients who are looking at one, three, and five year performance numbers, this is a a pretty strong fee feature. For those interested in equities, then we'd point to the, the low valuation multiples. Next slide. So, if you've seen an IMPAX presentation before, you'll recognize the structure of these charts. I'm afraid that, with the the stock market, protocols or traditions, and we're giving quite a lot of granular detail. So if, you're not used to it, then apologies. But, this is another standard impact slide. So reading reading from left to the right, the £37,200,000,000 is where we stood assets under management till the end of September or 10/01/2024.

9:31 And then the, the bridge to the middle of the year, which is the green bar, and then to the end of the year, the dark blue bar is shown in, in the usual fashion. So we had a mandate loss with St. James's Place, SJP in December on out in December last year. So that's, the lion's share of the drop to the interim position. And then the net net flows, situation was, was much better in the second half of the year, so showing a positive trend. Next slide, please. This chart shows the breakdown of our asset under management, and revenue on the right. So breaking asset under management down into what we call thematic equities and core equities. So thematic equities would be, for example, our food fund, our water fund. Core equities, those a bit closer to the mainstream index. So you can see that the business is, nearly 90%, by us to the management coming from the equity strategies.

10:36 And in the middle bar, you can see that, North America and and the emerging and European, Middle East, and Africa region, EMEA, over 90%. So UK is now a pretty small percentage, that is a differentiating factor compared to our peer group, which tends to be dominated by UK clients. And then revenue by product type on the right. So, what's interesting or notable here, I think, is the BNPP. That's BNP Paribas mutual funds, which represent a quarter of our revenue, and BNP Paribas Asset Management is our largest, shareholder with about 14% of our of the shares owned by them. Next slide, please. The net flows for the twelve month period.

11:23 So, again, blue bar for IMPAX in the financial year 2025, and the orange bar in this case is our the same numbers for the previous financial year. So St James' place the the big chart or big number on this, the slide. BNP Paribas is a a lower outflow number than the previous year, so that's a positive trend. And then, on the bottom right, you can see a segregated account number, £1,175,000,000, and that was the, departure of one of our Asian clients, which was paying as a very small fee. So, not a material part of of the, the reduction in revenue. Next slide, please. So just looking at our, strategy now. So a numb the six elements of the strategy. I think I'm gonna talk about, five of them. So firstly, in our listed equity division, then our intention is to continue to work on our investment process.

12:24 We have centralized our research team recently and have been adopting AI in various parts of the research process. Product development is being spearheaded in The US at the moment with a new ETF, which will be a landing pad for mutual fund product, which, tends to be quite tax inefficient for US retail investors. So once we've got our first ETF off the ground, there will be, a determined push to to launch quite a few others. We have been developing further our so called systematic equity division, which is using quant tools instead of stock selection to improve the the risk adjusted returns for clients. So that's proving to be very attractive for those asset owners who want to move closer to the index. And then we've also been developing our emerging markets, product as well. Next slide.

13:20 In fixed income, we've, as I said, finalized the acquisition of Sky Harbor Capital Management. That now gives us a critical mass in our institutional quality team. We have a well diversified client base and starting to get new consultant endorsements. That's the gatekeepers for major asset owners. So the the brand and fixed income is, building quite nicely. Next slide. And then our third division is in private markets or private equities. There's obviously lots of limited partner or LP interest in this area. The energy transition is is very popular amongst allocators because they can see investment upside with relatively limited amount of risk. Been investing in this area for over twenty years now and are currently investing our fourth fund while exiting our third fund, and, we are lining up further expansion into the space.

14:17 Next slide. In our sales, marketing, or so called distribution area, then we've been increasingly looking for direct distribution with coverage of our own salespeople in DACH, which is the German speaking part of Europe. Got a representative in Copenhagen covering Scandinavia and then individuals covering Benelux Region, France, and and someone based in Montreal covering Canada. We have, we've registered our largest ever segregated account, WIN, which is a European pension fund who which joined us at the end of June. And we've also been building our sustainability center, which, I think I'll come back to in a in a moment. Third party relationships, we are registering a much, more positive situation with BNP Paribas Asset Management, which tends to allocate its wealth clients or push its wealth clients into fixed income or money market funds.

15:19 So the the outflows from our equity funds with them have been, dropping quite, sharply. And meanwhile, we do have third party representation for what we do in the Pacific Region, Latin America, and, the South Of Europe. And meanwhile, the departure of many of our large brand competitors from our space is creating quite a number of opportunities, particularly in European pension funds and to some degree, West And East Coast US pension funds that are looking for a authentic partner that can help them in these thematic areas while providing them with additional insights into the way policy and, technology are are changing. Next slide.

16:07 There's no, shortage of incentive or energy around creating efficiency in the business. But, as the ASSET MANAGEMENT have have stepped down, we have found that we can, reduce our headcount. So we've made about 15% of our staff redundant in the last twelve months or so. That's without reducing our capabilities or growth potential. And, there's definitely scope for more of that, we believe, as technology based solutions become more, available and their application in this area is, is better understood. Next slide. And then, as I said, our sustainability centre, this is a group of 19 staff who are helping our investment teams with specialist topics like how regulations are changing. They're also coordinating the governance or, engagement work with the managers and boards of the companies that we're investing in. They're providing sophisticated reporting back to clients and also participating in policy advocacy. So, giving our clients exposure to conversations with regulators designed to improve the, the shaping of of new markets.

17:19 So, this is definitely helping to enhance and, build our brand in all corners of the world. Next slide, please. Okay. So just briefly on the financials. I can go into a bit more detail if that's helpful later, but, the dark blue bars show the outturn for the year. Just gone against the previous two years. So a drop in operating profits to £33,600,000 and associated drop in, diluted EPS. That's obviously following from the drop in revenue. Fee margin, however, has gone up. So, we've actually where we have lost clients, that's been from the lower fee end of the business.

18:07 Cost down as a result of our efficiency program and headcount reduction, a lot of that's still to come through because, of course, the redundancies were made midway through the year. So the run rate dropping cost is much stronger than that. And the operating margin at 23.7% is is obviously pretty healthy still, but, still a drop on, on the previous couple of years. And then as I said at the start, our, proposed final dividend subject to ratification of the AGM in March is is eight p, which takes us to twelve p in total. And then back at the end of the summer, we announced a £10,000,000 share buyback program, which has been progressing, very well. And at the end of Friday, was nearly 90% completed. So we're aiming to complete that by the end of the calendar year.

18:57 Next slide. So bit more detail on that. So I won't really I won't really dwell on all this. So, either let the numbers digest or you can digest the numbers sort of on the screen or perhaps look at the the slides later. I think there's no surprise really in the, the drop in the revenue, which came from the reduction in the assets under management. Saint James' place there shown as a as a carve out from the impact of the net flows. And then the average fee margin going up to 46.9 basis points on the on the right. Next slide. Cost management. Again, the efficiency and variable staff costs, elements were the major components of the cost reduction.

19:44 And, you can see on the top right, our head count had dropped from or has dropped from 315 at the start of October twenty twenty four to, 275 today. Those elements all lead through to our operating margin, 23.7%, as I said, which is a drop from 31%, last year. Next slide. Share management. So sorry. There's probably a bit too much detail here for for what we all need. But, the end of of May or nearly the end of May, we we had a 132,600,000 shares in issue. That's in the table on the top left. And, as of end of last week, that had dropped to 127,800,000. And there will be another drop as we complete the share buyback program.

20:34 And then the bottom right, you can see the breakdown. So that's the you can see BNP Paribas Asset Management to 14% of the shares. The, founder employees and the other employees together make about 20%, and the free float is, is about one third. Next slide. Balance sheet is, in good shape, notwithstanding the, the drop in in profit. We, have slightly lower cash, at the end of the year just because of the large dividend that we paid out. It's based on 2024 results plus the, the buyback program and the acquisition. And then you can see our dividend history on the on the right or recent dividend history on the right. Next slide.

21:22 So balance sheet is, in good shape. We've got some cash, or or noncash items at the bottom and then, capital requirement under the FCA's rules, and then a 54,500,000, capital surplus, which includes our liquid seed positions of of 16,800,000. So capital allocation priorities. Well, clearly, financial resilience comes first. We have a, dividend policy of paying at least 55% of digital profits out to shareholders. The employee benefit trust EBT share purchases are designed to offset the dilution from share awards made as part of our bonus pool. And then, of course, we've got a, a growth based investment plan.

22:09 Next slide. So just wrapping up with the outlook, just going back to what I said at the start. This has been a quite a challenging time for active investment managers, but this is still an area where a very large amount of money around the world is directed. And increasingly, as asset owner clients like pension funds and sovereign wealth funds are looking for specialist authentic boutiques, then IMPAX stands out as the global leading brand in the area that we call the transition to a more sustainable economy. So our specialist position sets us apart. We are advocating, I think, quite successfully that this is a capitalist idea based on an industrial economic transformation led by technology change, regulatory change, changing consumer sentiment rather than something which is political or driven by ethics or values.

22:58 Our main strategies in equities are trading at, particularly low valuations, and so should represent a a good entry point for patient investors. And our work with clients around the world is cementing multidimensional client partnerships, so not just the investment product, but also access to the sustainability resources, reporting, collaboration on, company engagement, etcetera. Our work to diversify the business, around fixed income, is progressing quite nicely as is our work on efficiency. And, the bottom line is that our balance sheet remains very strong, so we're we're still in very good financial health. So I think that is a good point to pause, and I am gonna have a look at the, the chat. So I've got a question here, which I think I just about read.

23:49 How do you look to manage client concentration risk? So let me just address that. So I think there's another second part to the question. So, client concentration risk, well, we've had experience with SJP, Saint James' Place, that they started a mandate with us in 2017 and then, just ramped up from zero to just over £6,000,000,000 in the space of about, six years without us really doing very much other than supporting their their client meetings. So what we don't have at the moment is a cap on, money from one particular client, but we, of course, do pay particular attention to the risk that client might disappear. So right now, we really only have one strategically, vital client, which is BNP Paribas Asset Management, which is also our largest shareholder.

24:38 So, it's something that we pay close attention to, but we don't actively manage it beyond what I've just said. Second part of that question is how you position yourself to capture market share from those managers retreating from the sustainability space? Well, I think the key thing is just being in the right place at the right time with the right offering. So we've spent twenty five plus years in in, demonstrating that our brand is adding value for clients or asset owners and provide able to provide very good client service. We've got ourselves on the, radar of major gatekeepers and investment consultants around the world, and we're actively check tracking investment mandates, through RFP or or similar structures.

25:27 So our sales team, which now as part of a wider distribution team of about 90 people is is well staffed, think is, very well placed to identify opportunities. And, we've got six people in our RFP team responding to, specific requests through, a consultant or or, Internet, channels to make sure that we're we're pitching. So, no more than just good alert, client engagement and and resources to respond on a timely fashion to, opportunities. So that's probably the the limit at the moment. And then second person asking a question. So with the revised dividend policy and share buyback, how do you elevate the trade off, I think that is, between capital returns and investing for growth?

26:22 Well, we've always said that our business opportunity is, very large, but we need to be careful about, the level of disruption that we cause by making acquisitions. I think there are a number of our peers who have stumbled because they've tried to knit together incompatible teams and created cultural, misalignments, which ultimately destroys shareholder value. So that's the priority is to keep our current off offering and team culture intact. So, that's a tempering force on our, acquisition opportunities or or appetite. So in that context, then we've been finding that we've got more, distributable profits than we need for acquisitions, hence the the, share buyback program. So I think the although we're not signaling a, another share buyback program in the future, then, at today's profitability with today's strong cash reserves, that's not out of the question.

27:32 But equally, we do see quite a lot of opportunities for seeding new products. And if the right acquisition opportunity comes along, we would we'd certainly take a strong look. So I think the best summary of the in that context is the, that we're sort of taking a balanced approach trying to optimize against a number of parameters. The next question is, can you provide more details about your new ETF? So, yes, this is a US only product. The motivation, as I said, is because The US mutual fund space is, is increasingly looking to switch to ETFs mainly for tax reasons and some degree cost reasons. So once we've set up and launched this new ETF probably in February, March next year, then we'll be looking to replicate it with, other ETF structures, which we can use for other parts of our mutual fund range and and therefore migrate the products over.

28:28 At moment, we don't have any plans to launch active ETFs in Europe. The, there's no real tax incentive to do that, so less client pressure. And there might be some cost benefit for clients, but that that's not a particular driver at the moment given our, I think, strong value for money in terms of the cost we already charge clients. Next question. Do you expect to extend the share buyback program next year? I think that I've addressed that one in the sense of, we're not signaling that we will do, but given our approach to, trying to optimize that use of surplus capital for seeding acquisitions and share buybacks that, it's not out of the question that we would, we would do something similar.

29:18 Next question. Why isn't the CFO presenting today? I'm not sure, actually. She's certainly around. She presented at an analyst call before. If you would like to, speak to her, then please drop us a line. She's definitely available. And then second part of that, will you will you release the the run rate figures? There were run rate figures on one of the slides, so, we have released some of those. If you'd like more detail and you haven't got access to one of the analysts with who do have the their view of the run rate figures, then please drop us a line. Happy to try and address that separately. And then what is happening with inflows and outflows, current rate, and future forecast?

30:07 Well, as I said, the the net flows in September were still negative. If you look at our asset under management report at the end of September, then that that should be clear. What we've said, recently is that the flows are still, net negative in the, two months since the start of our new financial year, so a combination of October and November. But the trend continues to be in the right direction. Future forecast, well, I think, frankly, what we tend to find is that when the investment strategies start to perform well against the all country world index, then, the flows can pick up pretty quickly. So, we're we're not quite there yet. Obviously, it's sort of there or thereabouts, but it's pretty too early to quite call the point of inflection. But I think if we have consistently broad markets going into the new year, then there's no reason why investment performance shouldn't flip to being positive or outperforming against global indices, in which case the flow should start to pick up quite nicely.

31:12 I think that's the end of the questions. So hopefully, that addressed everybody's queries. If there's any more questions, pause for another few seconds. Otherwise, hand back to organizer. Perfect, Ian. Yeah. That's great. You have addressed all those questions. And, of course, the company can review all questions submitted today, and we'll polish those responses on the company platform. And we haven't got any questions left. So, Ian, if I may just ask you for a few closing comments. Sure. Yes. Well, look. Thanks for joining. Many of you, I'm sure, have, heard me speak before, and, hopefully, you heard Karen Coburn, our CFO, as well. So we remain very enthusiastic and excited about IMPAX's prospects. This is a a globally operating business with a, a leading global brand in an area that, although it's been overshadowed by AI recently, is definitely poised for strong investment returns, on an absolute basis over the medium term and should, relative to the main market, bounce back through the cycle to outperform.

32:10 Our strategy of diversifying through building out fixed income is something we can't, magic overnight, but we're making very good progress. And I think over the the next sort of three or four years, we should be able to rapidly expand the percentage of the company's revenues that come from fixed income, which is not entirely, independent of equity markets, but a nice diversify. And then hopefully, you've seen over the years that we pay close attention to to cost base and prioritize shareholder value mainly through through positive cash flow, but also as appropriate for through a progressive dividend policy in the future at some point, and also crucially, the share buyback program. So always happy to address any other questions or comments. We'd love to get some feedback, if you'd like to provide that as well and look forward to staying in touch. Thanks very much. Fantastic. Ian, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations?

33:12 This will only take a few moments to complete, and I'm sure we're greatly valued by the company. On behalf of the management team of IMPAX ASSET MANAGEMENT GROUP PLC, we would like to thank you for attending today's presentation, and good afternoon to you all.