Impax Asset Management Group Plc (IPX) Earnings Call Transcript & Summary

Alright. I think we've got a good quota now. So, welcome to everybody. We're very pleased to welcome you to the webinar today from Impax. They're going to be discussing their interim results for the period up to the end of March 2025. Just a little bit of admin from myself first. This presentation is being recorded, so you can watch it again at your leisure. We will try and address everybody's questions after the formal presentation. So, please use the Submit question button on your screen to put those questions in during the talk. The presentation deck that Ian and Karen are talking to is already available on the Impax website Investor Relations page, including a suitable disclaimer. And I would commend that page for lots of other very useful background material on Impax and its investments. Now, we're very pleased to be joined again today by the CFO, Karen Cockburn, and Ian Simm, the CEO and Founder of Impax. And in just a few seconds, he's going to commence proceedings. So, over to you, Ian.

Well, hello, and welcome to the interim results for Impax Asset Management Group plc for 6 months to 31st of March 2025. So, just diving straight in, if we can have the first proper slide, the next one. There we go. Thank you. So, as I'm sure everyone who's heard about us before knows, we are an investment manager focused on a particular idea, which we call the transition to a more sustainable economy. We've been doing that since I started the business in the late 1990s. Transition to a more sustainable economy essentially is about an industrial revolution, an economic transition in the direction of cleaner, more healthy or less polluting goods and services, which are driven by new technology, changing regulation and changing consumer sentiment. So, it's a capitalist idea, which has the additional outcomes of improving certain environmental results or social results in some cases. So, we believe this is a compelling investment opportunity which fits very nicely into the 2020's view of asset management, which is increasingly split between enormous asset managers offering large-scale products at very low fees on the one hand and boutique specialist managers like Impax on the other, that's got a differentiated offering and a team which is specialized in a particular area. So, Impax is probably the leading brand in this sustainable economy area globally. More than 90% of our client base is from outside the U.K. And although we're pursuing great investment returns, then some of our erstwhile competitors have been getting themselves into a model by offering services that are branded in some way ethical or values driven, which I think has confused a number of parties, including regulators. So, some competitors have been dropping away, which gives us even more of an opportunity. Our business plan really is to scale up. I'll explain the strategy in a moment, but we have a nice critical mass of scalable investment products. And so our plan for the future is to scale up on that base and grow the firm. On the next slide is the highlights for the first half of our financial year to the end of March. So, critically, as we'll explain, our investment performance has turned around as the market has changed. We've got very good momentum towards our strategic priorities, including in fixed income, where we've just recently closed our second acquisition to bulk out our offering. We've had a particular focus on efficiency and cost control. But notwithstanding those very positive developments, we've had a challenging period for flows because the flows have really been reflecting the weakness in certain areas of the market, including ours, for the last year or so. So more detail on that to come. On the next slide is a summary of the key performance indicators financially. So Karen will take you through this in a bit more detail. I won't go through all the details here. But on the left -hand side of the chart, you can see our key financial parameters, which essentially are somewhat lower revenue, operating margin and operating profit than in the previous half year. And although we've got very strong cash reserves, very similar to where they were the first half of our financial '24 period, then we have decided that we're going to update our capital allocation policy. Our priority for capital allocation, as Karen will explain in more detail, remains to continue to invest in the business. We are very confident and are maintaining our dividend policy, which is to pay out at least 55% of our adjusted profit after tax. The payout for the current financial year, which will land at the start of calendar 2026 with the final dividend, is expected to be closer to the threshold. So it's effectively signaling that there will be a lower dividend for this financial year than the previous year. And we are in paying out a 4p per share interim dividend, also signaling that we'll be rebalancing the split between interim and final in favor of the interim dividend. So more of a balance than we had in previous years. And we've also announced a GBP 10 million share buyback program. So, more detail on that to come. The breakdown in the movement of our assets under management is shown in this chart. So if you look at the right-hand side of this chart since 31st of September or 1st of October 2024, which is the start of the current financial year, then we've had a drop from GBP 37.2 billion to GBP 25.3 billion with outflows being greater than inflows and negative market movement, but the standout contributor to this change has been the GBP 6.2 billion drop from the St James's Place mandate termination, which concluded in February. If you compare that right-hand side of the chart to the left-hand side of the chart, which was the prior 6 months, so between the end of March '24 and the end of September 24, then the flows pictures are not dissimilar. Market movement much worse recently than in the prior 6 months. And of course, the SJP outflows didn't land as well. On the next page is a summary of the market situation. So, for those of you who are regularly investing in equity markets, I'm sure you've appreciated that the last calendar year, 2024 and actually the year before 2023, were dominated by a very small number of stocks in the United States. I think something like 37% of the S&P 500 was in just 10 stocks by value. At the end of December, that number is dropping quite materially. That's meant that active equity investment management has been very challenging and struggled to keep up with the generic basket, and hence, underperformance for most active equity managers, including Impax. However, since January 2025, that very narrow market has really disappeared, and we've got a much broader market, which has proven to be much more conducive to successful active equity investment management. And as it says in the bottom right of this chart, 71% of our funds under management have been in products that have outperformed their benchmark since the start of the year to the end of April. So that's a very encouraging turnaround, and I think one of the key messages from this slide presentation. So, that outperformance in calendar 2025 really is a reflection of our strong focus on quality growth, meaning well-positioned, well-run companies in attractive markets that are set for a re-rating and also our determination to manage risk through diversification. So, couple of slides coming up now on our investment performance, starting with 2 of our largest equity -- listed equity mandates. So what we're showing here is calendar year performance in dark blue against the generic benchmark in orange. So having had a very strong 2021 in the Leaders and Global Opportunities strategies, in both cases, there was underperformance in the following 3 years, notably 2023 and 2024. And then, year-to-date through the end of March, which is this data pretty flat and then nicely ahead in the period since then. So, that's more data behind my point around the turnaround in investment performance in equities. And then on the next slide, which is the 2 largest strategies in our fixed income offering. It's really almost a reverse story in the sense that 2022 to 2024 was an outperformance period and calendar year-to-date, slightly behind the market. So this simplistically is a good illustration of the diversification benefits of having more material fixed income offering as well. We generally report our assets under management by range, region and client type as shown here. There's lots of data on this slide. And I think the key point is that if you look in the middle column, AUM by region down to the U.K., you can see a sharp drop between the previous period in orange, that's H1 '24 actually, and the first half of 2025 in dark blue from 22% to 7%. That is overwhelmingly the reduction through the loss of the St. James's Place mandate. And that's meant that, relatively speaking, the EMEA region and North America have increased in size. That's also reflected on the left with the drop in core equities to 23% and associated increase in thematic equities. That's the St. James's Place loss being a main driver of that too. I don't need to go into the rest of the detail, but hopefully, it gives you a sense of the breakdown of our business. Next slide, please. So another standard Impax slide is how the flows for the period or net flows for the period have broken down in different channels. So SJP very stark on the left there and more positive news in the middle, which is the flows we have from BNP Paribas Asset Management, which remains our largest distribution client, have gone from negative GBP 2 billion to negative GBP 1.2 billion with respect to periods, half year '24 to half year '25. So that improvement, still not positive, but improvement reflects the sentiment within the BNP Paribas Asset Management Group in favor of equities now relative to fixed income and money market funds, which is where the balance or emphasis lay 12 months ago. On the next slide, I mentioned that I would just cover our strategic priorities, of which there are already 6. So the first 3 starting from the left are to build up our listed equities, fixed income and private equity offerings on the current foundations; then to enhance and deepen our distribution and client partnership offerings. We now have a team of nearly 100 people in Europe, North America and Asia Pacific region who are working with current clients and building out our marketing. And then to focus in a disciplined fashion on having a scalable, profitable financial model, which has got robust, resilient compliance operations. So bit more color on those priorities in the next few slides. So, starting with distribution, then in the period we're reporting on, we've had very good progress with our Scandinavian distribution. We now have a full-time marketing person based in Denmark. We've got good coverage now with dedicated people in the German-speaking European market, French-speaking European market and also the Benelux region as well as the U.K. and Ireland. We've launched a new UCITS fund for emerging markets' equities. And we now have, through the fixed income acquisitions, 4 additional fixed income funds with client bases mainly in Europe. And then with third-party relationships, the -- as mentioned, the SJP and BNP Paribas news, which were reflected in the previous slides, but we've also had very encouraging progress in Canada and also our well-established U.S. client base is pretty healthy as well. Next slide. The slowdown and slight reduction in the scale of the business has meant that we've also been focusing on cost management, and we've previously announced that we've been able to shed about 10% of our workforce across the firm by really carefully targeting the opportunities for efficiency. The period between 2019 and 2021, we pretty much doubled the scale of the business in terms of people going from 150 to slightly more than 300 people. And inevitably, with that rapid expansion, it was not done with optimal efficiency. So we've been able to make some modest team restructures and also part company with a small number of underperforming individuals. So that's meant that the head count has gone down by 10% without reducing our capabilities or growth potential or client service in any way. We've also mentioned in previous announcements that the aggregate of that change or those changes has led to about GBP 11 million of run rate cost savings, which, broadly speaking, is approximately the same as the loss of the revenue from the SJP mandate. In fixed income, we've had an offering since 2018 when we bought Pax World Management in the U.S. and that in the table, top line Impax pre-acquisition is that Pax World Foundation, now rebranded Impax Asset Management at about GBP 1.1 billion. And we've added 2 acquisitions to that in Denmark, the Absalon Corporate Credit team and U.S. based team SKY Harbor with European clients. So that's taken our AUM up to just north of GBP 2.5 billion and approximately 7 products, which we are now selling to both U.S. investors and European-based investors. So, this has all been stitched together under the Impax framework by our very capable leadership team of fixed income and is poised for further expansion, principally, I think, for the next phase through organic growth. In private equity, then we've had an offering in the private market space since 2005, running a series of 10-year limited partnership funds for institutional clients focusing on creating new projects in the renewable energy sector, mainly in Europe. Our third fund is now majority exited with some encouraging investment performance and Fund IV, which we concluded fundraising for in early 2024 is just over half invested. So based on our solid track record, then we are now looking at plans to expand this area.

And, Ian, thank you. And I'd like to say good afternoon to you all. I'm going to just look in a bit more detail the financials that Ian mentioned at the start. But just really to start with that we're updating today on a set of half year numbers, where there should be no surprises given the level of sort of news that we've had, and principally based upon the AUM that we announced into the market at the end of March. And also, I'll give a bit more detail on the capital allocation. Now upfront, I think it's important to set out clearly what are in these 6 months numbers. And to start with, in terms of when we look into the revenue that even though we announced the loss of SJP back in December, it didn't actually leave. This was the GBP 5.2 billion mandate. It did not leave until the end of February. So there's 5 months of that revenue included within this half -- this set of half year numbers. And then also at the AGM, the time of our AGM at March, we announced a very swift cost reduction and focus on efficiency that Ian has mentioned. Whilst that is all done and delivered by the end of February, only 1 month of those savings are factored in. So it's sort of bit of a mixed picture, what I'm saying that is that in terms of just understanding where we are and our outlook, it's important to look at the run rates, which I will talk to. But ahead of that on this page, really just to run through the numbers, really reflecting that challenging environment for both performance and flows that we did experience through the last 6 months. So with adjusted operating profit of GBP 20.5 million and EPS of 12.6, both with 20% reduction, and this is really due to the flows, which has seen average AUM reduce in the period, resulting in revenue of GBP 76.5 million. As I mentioned, this revenue loss, particularly through SGP was countered by some very strong cash management, which you see our costs for this period, again, continuing to reduce. The negative operational gearing that we have at play due to those outflows and the impact they're having, pegging our operating margin back to 26.8%. And as we said, we did review our capital allocation, as we did highlight at the AGM, we -- and the headlines there really are we're retaining the existing policy. We are rebasing the dividend to a sustainable level, which will mean a reduction in the dividend this year. But alongside, we are announcing a GBP 10 million buyback program, the first one in Impax's history. Just looking at some of the numbers in a bit more detail on the next slide. Looking just at the revenue picture. So, look, it's very simple in that the average AUM going through half 2 in 2024 was about GBP 38 billion. But that over the 6 months that then followed to March 2025 reduced over the period, it's GBP 33 billion, and that really has resulted in that reduction of GBP 7.5 million of revenue for the period. The 2 orange boxes that reflect the impact of the net revenue of over GBP 9 million of reduction, and that is offset though by sort of performance because we're looking over a 12-month period that actually came out as positive and then just some other one-offs in terms of timing around private equity and some adjustments, taking the overall figure to GBP 76.5 million. Now a very important -- so the AUM and the average fee margin are the 2 key data points when looking at our revenue. So the average fee margin, you can see, has increased quite significantly for the period to 47.3%. But more importantly, if I can draw your attention to that run rate margin that we're looking at there of 49.9%. So we had announced -- so, really, the message there is that, that outflow that we have seen has very definitely been toward the lower price points of the clients that we did have. And what we were left with is this AUM of GBP 25 billion, which we believe now is our more loyal long-term clients, but also at this much higher price point of the [ 49.9 ]. That also includes fixed income business that we have of about just over GBP 1 billion, nearly GBP 2 billion today at a margin of 45 basis points. And as we've always indicated in how we see that critical figure of the margin moving over time remains that we see that coming down slowly over time even with our fixed income in that in the short to medium time. In terms of then, I did say it was important to sort of try and take the noise out of the moving parts and look at the annualized run rate. So if I can take you back then to look at the revenue, the annualized run rate that we go into the second half of the year is GBP 126 million. Ian has mentioned that the second acquisition that we've done in fixed income, SKY Harbor, it closed on the 1st of April. So, into the second half, we will increase that by about another GBP 3.5 million on a run rate, taking it to about GBP 130 million. And we're looking into the second half of the year as being a fairly stable with hopefully the continued performance of the business and more stability in terms of the outflow. And with that, we're looking at that potentially being a good outturn for the year that if we can take the March run rate, exit run rate, and I think a good outcome will be to hold that steady in a more stable environment, and that be add-in SKY Harbor about GBP 130 million annualized run rate for me would be a good position, hopefully, when we're speaking again later in the year. But I would underpin and it's important to say that we've always said that we have a very diversified client base. We have over 88 clients remaining. And whilst BNP is our biggest client across 6 funds, that's well diversified across institutions and individuals. There are no more SJPs in the book that can provide that sort of shock outflow to the system of the GBP 5 billion. The next largest client after BNP is less than GBP 1 billion. So, well diversified, lot of clients, both geographically, client type, strategy type. So I think that's one key message that comes out that the client concentration risk has reduced in the overall book. If I can move on to costs then quite quickly. Really, we're seeing there the cost reduction period-on-period is reducing. We have moved quickly. But as I say, even though that we have delivered the GBP 11 million of run rate saving that we announced, unfortunately, only GBP 0.8 million of that is recognized in these numbers. Also, I think I should call out, the biggest driver of the reduction in the period has been our variable staff cost, and that's our bonus where we have a policy that is, we will pay up to 45% of pre-bonus profits. And what we're saying is that we're -- in these numbers, we're applying 40%, which is the rate that we've applied over the last 3 years. And there's much -- there's variability in that in terms of where that will play out during the year. But, again, if I can draw your attention to the run rate, when we pull through all of the savings, which are in place, as at the end of March, we're seeing the run rate there of GBP 98.5 million off the cost base. Now that compares to actually just 6 months ago, the September run rate was GBP 118 million. So we have been -- a significant amount of effort has gone into rightsizing the cost base to where we are now. In terms of, again, looking forward, as of the 1st of April with SKY Harbor, we'll see that cost base -- that run rate rise to about GBP 100 million, and outturn for the year somewhere between the mid -- GBP 100 million to GBP 105 million. Headcount, that's a very important measure. So whilst you can see it has reduced from 315 from the last time we reported now to 296, not quite the 30 people that Ian has mentioned in 10%, and that was just because there were just some contracts that ran into early April. But all of that has been delivered. And I expect that the only additions to the head count will be the 8 individuals who joined us from SKY Harbor, plus or minus a few vacancies. I do not see that number move significantly over the next sort of -- certainly the short to medium term. And in terms of -- I always like to sort of share some detail on the costs. You can see there the bulk of the change in the savings, when you look at the half 1 '25 numbers, most of them are in staff. There's a small increase actually in non-staff, but that is just timing. So I think we increase -- we keep the focus on the efficiency of the business, and very mindful of rightsizing that cost base. On the next slide, really just bringing these 2 together; the negative operating leverage that we see in the business just now across that period, still reporting a fairly healthy, I would say, in the environment of 26.8% at a run rate just now after SKY Harbor, we're probably in the mid-to-low 20s. But as we look into sort of where we go to next, I guess, in a more stable environment, I think the ambition has to be that we maintain that margin at the 25%-mid plus or minus a few basis points, but we will remain very focused on costs. That really is everything I wanted to say on the P&L. And importantly, then turning onto the next slide, if I can and really looking at the capital allocation update. As I've been speaking to people today, I realize that this isn't a terribly complicated piece of management, but it's really about the discipline, I think, that comes from how we now look at what is a very healthy balance sheet. So, the policy, the review that we have put in place really is just coming out with a very simple, disciplined approach to how we think about capital that's fully aligned to our strategy. First and foremost, we're setting aside the capital required with healthy buffers to meet our regulatory requirement. And then after that, we look in order of priority to use that capital for investment, first and foremost, as to how we add shareholder value. And that is the continued development of the business that we have built today, developing the capabilities, particularly around fixed income. And then secondly, we have always said that we remain ambitious for bolt-on acquisitions, and that very much remains the case, value accretive acquisitions being, I guess, the key part of that statement. The way we're looking at sort of the balance sheet is the healthy capital balances that have been built up over the huge success the business has had in recent years, really just ring-fencing that for the purposes of investment and growth within the business. We then look at distributions, both in dividend and share backs through earnings lens in the main. And we have reviewed our dividend policy, which is unchanged at the 55%. So, more than half of the profit after tax being paid as dividend. But we are targeting a more sustainable level that will be funded from earnings, and we're rebalancing the dividend that we'll get into a bit more detail on the next page. Now, given sort of the health of the balance sheet, what this review of our position has allowed us to really consider share buybacks on a discretionary basis in that we are still a growth business and that's how we see ourselves. But we have set ourselves the policy that where we have and we believe we now are in a position that we have enough capital ring-fenced for our growth, that given the right conditions, particularly where the share price is just now, that we feel a buyback -- now is the time for a buyback of GBP 10 million that we have announced today. Now that's sort of just the broad sort of headlines of how we're thinking about that. On the next page, what does that mean for dividend in 2025? We are -- so I've said the policy remains the same. So the policy isn't changing, but what is changing is the level of payout and signaling today that given where we are in the cycle, the markets, the reality, I guess, of where we are is a payout level being set at a sustainable level, close to the threshold of 55%, where we're seeking to set a sustainable level and growing level of dividend out over future years. We've also -- because we were looking at our overall capital policy, we are taking the opportunity to sort of rebalance the split of the interim and dividend, which has been long-standing and a legacy of a much smaller organization, where we paid just 17% has been the history, when you look down in the graph there on the left-hand side, where we have paid 17%. Now we're probably going to double that in terms of balancing that as a percentage. And what that sort of bringing those pieces together is that, today, we're announcing an interim dividend of 4p. And stating the obvious, just given those moving parts, particularly the re-weighting that we're having to the interim, the stating the obvious is that comparing the 4 to what we paid last year and trying to project that forward, it is just not an appropriate calculation. But what we are doing in terms of announcing sort of that reset and that reduction in dividend levels is that the Board has approved to return GBP 10 million of surplus capital through this buyback program. And on the next page, really, just to finish out, I repeat as a CFO, 2.5 years ago, I inherited a very healthy balance sheet in terms of surplus capital, and we have maintained that through these challenging times. What that has done then has allowed us to ring-fence what we need for our acquisition ambitions. And then, seeing as a good use of capital, given the share price, that the Board has approved this GBP 10 million. Now the key question is why GBP 10 million? And really, the way we have looked at that was we wanted to be significant, and we felt GBP 10 million was getting into that territory, but we did not want to curtail our ability in terms of the investment in the business, particularly any acquisitions that presented themselves in the short to medium term. We will retain healthy surpluses after this buyback. As I say, GBP 10 million, it is starting today, and we expect to have that completed by the end of the year. So just before I sort of hand back to Ian, there is no question this has been a very challenging period of 6 months. But I think the cost response that we had has put the business, I think, in a very strong shape and also sort of this new discipline that we have around our capital. But I'm certainly pleased to say that we're heading into sort of the next half of the year in a very sound financial position. And I would really want to steal some of Paul's messages that he had in the note or one header that Paul had in his note last night that I think summarizes sort of where I certainly see things, is that net flows disappoint, but outlook brightens, I think is a good summary with a sound financial fitting. I will hand back to Ian.

So just to wrap up and then move to Q&A. So I think just to summarize what I've already said at the start, Impax finds itself as a global leader in a very interesting part of the asset management space. And with a 26-plus year history behind us and a global client base, we do have a very nice position to be able to scale the business, looking to the future. The critical thing in this presentation is the turnaround in the investment performance of the strategies that we're running in, particularly in equities, which is our largest asset class. And we are already seeing signs that clients are potentially looking at that as a turnaround in performance, and therefore, a strong indicator to be allocating. So we're not there yet in terms of the net flows picture, but with some material new accounts landing in the second half of the year already under contract or being contracted at the moment, then we're looking to a much more positive future on AUM. And then in the context of capital allocation, as Karen has explained in detail, we remain committed to looking after shareholders. And although we're prioritizing investment, we do want to make sure that we've got an attractive dividend and room for buybacks. So with that, let me hand back to Andy for some Q&A.

Great. Thank you very much, both of you. Very, very clear. Lots of questions. So, I am going to dive into those quite rapidly. Karen, ladies first. Having resized your cost base, roughly, how much assets under management do you think current resources could comfortably accommodate in the future without needing material recruitment at that point?

So, I think that's a very good question. And look, as Ian says, that we have trimmed the cost base back to its current levels without removing capability. So, I think the answer to that is, if we started -- the average AUM of the previous 6 months, it was GBP 38 billion. I think we've proven to ourselves that we can get back to GBP 38 billion with not much additions. So, what does that mean for me is that, we've always said that we had an ambition of getting the cost or the -- excuse me, the operating margin of the business into the mid-to-high 30s. And I think what we're now able to say that when flows return, we'll get back to that level, I think, much quicker.

Great. Encouraging. Possibly for Ian. A couple of, I suppose, top-down macro questions. Tariff hopes and fears have dominated market sentiment in recent weeks. Looking across your many investee companies, would it be fair to say that they are mostly unaffected by any potential increases in the cost of exporting?

I think it's also -- it is fair to say that we have a strong focus on infrastructure and a good part of infrastructure investment can be immune to cross-border trade and not necessarily, but that is a bias within our investment strategy. And for example, in our renewable energy private equity mandates, that is definitely a feature. I would say that the key issue for our investment managers, though is security selection. And so tariff realities and tariff potential or the propensity for tariffs to be introduced will be a key consideration in valuation models. So, yes, it's a bit of a complicated picture, but that's kind of what active management is about.

Yes. And following on from that, I suppose looking more at a top-down view, a question also in your underlying portfolios, are you subconsciously making any shift in allocation away from the United States at the moment?

Well, historically, we've had a bias in favor of European, and to some degree, Asia Pacific equities. We simply find more opportunities there given our investment thesis, and that's been part of the headwind around relative investment performance, as in 2023 and 2024, the U.S. market really sort of tore away and was the dominant force globally. The turnaround has meant that with our still strong biases outside the U.S., we've had the ability to outperform. So I would say that we are probably on a stock picking level, more cautious about domestic U.S. demand and marginally more interested and excited about areas like European energy security. But this has not been a sort of a handbrake turn in terms of portfolio construction.

Both in your statement today and in your presentation, you have referred to many of your competitors being less focused on sustainable investing. Could you explain a little bit more how that might manifest itself? Are there fewer competition bids coming in, in competitive tenders? Or are some of those asset managers simply now less well-resourced and starting to deliver poorer investment performance accordingly?

Well, if we go back to the ancient history, certainly between the late '90s and, let's say, 2015 or so, we were fairly limited competition. But over the last 10 years, and there have been a number of asset managers of all shapes and sizes, particularly large ones who've come into the sustainable economy space with different brand offerings. I think many of those recently arrived competitors did confuse themselves and potentially their clients with their positioning. Many of them had sensible or kind of implied ethical or values-driven motivations and that didn't go down well with certain regulatory groups. So, those groups -- those asset managers have rightly been challenged around what exactly they're doing for clients and a number of them have retreated. So how does that manifest to the question? Well, it's definitely manifest in lineups in response to tenders. It's also been manifested in statements from certain asset owners that they no longer want certain types of asset manager to be on the roster. And certainly, offline, if you like, in bilateral conversations, we are being encouraged to pitch for mandates now where asset owners are preparing to retender because they want to part company with the current asset manager because of greenwashing or something similar.

Okay. And I suppose a related question, with less competition, are there any opportunities in the future for you to raise your fees?

Good question.

I like that.

Potentially, but...

Some of your clients may be listening to this presentation.

Look, I think we've done very well historically because we've always charged a sort of fair middle-of-the-road fee and not pushed for high fee levels, which would then be vulnerable to renegotiation. So, it's a very competitive market. We are always challenged around fee levels going into a mandate, but it's very rare that we get a press or pressure for renegotiation midway through. So, yes, I mean, logic would suggest or economic theory suggests that with less competition, we can have higher prices, but we're certainly not forecasting that.

I would add -- can I just add to that, Ian? And you've always said to me that we always believe that we have a very high -quality product that is fairly priced. And I think that's what's continuing to guide us.

And another high-level question. And then, we'll get on to specifics soon, I'm sure. Apologies, well the reader says -- apologies for a simple question. But for you to win mandates, do you think it is more important for Impax to be the clear leader in sustainable investing? Or is it to simply demonstrate the ability to deliver better returns versus all other classes and providers?

Never need to apologize for a simple question. The market is very clearly segmented in simple terms into 2 types of clients. You have those clients who are motivated entirely by what you might call capitalism, seeking the best risk-adjusted returns from a well-run manager. And there, we're in a tough competition with lots of other managers. And we sink or swim on our ability to demonstrate solid investment process and a stable team and great operations. There's a second type of asset owner who usually almost invariably has aspirations and strong interest in risk-adjusted returns, but also is looking for something additional around non-financial outcomes. So for example, lower carbon dioxide footprint from investee companies, and therefore or in that type of mandate opportunity, we are able to demonstrate a range of credentials and track record and service that many other asset managers struggle to provide. So, it's sort of -- in answer to the question, it depends which type of mandate we're pitching for. And of course, what our marketing and sales teams need to do is identify exactly what the decision framework is for the prospective clients and tweak our emphasis in our pitch accordingly.

It helps having strong credentials in both test points. So, Karen, perhaps one for you. Could you briefly go into more detail, that all sounds complicated, about the actual process of integrating new teams, specifically in fixed-interest Absalon and now SKY Harbor. What does that involve? Moving people around, changing brands or is it just a question of teamwork?

So, I'm going to maybe point that one to Ian, if I may.

So, in both cases, the acquisitions we've made being relatively small scale. So in one case, it was 5 individuals. And in the other case, I think it was 8 individuals, most of whom are investment professionals. So, the primary target or primary task is to integrate the investment teams together. And therefore, that's the role of the CIO in the fixed income business to lead that with a little bit of work to be done by the operations, back-office teams to make sure that the other members of the acquired company or group feel properly integrated. Then, of course, there's quite a bit of work to be done to knit systems together, IT systems, trading, et cetera, which is going on below the waterline, if you like. And then as you're pointing out, Andy, there's also some rebranding and marketing work and client service. So it's actually for the relative size of the acquisitions, it's a lot of work, and this is why we've been very thoughtful and very sort of cautious about making acquisitions because the market is replete with failed M&A in our space, and we're trying very hard to avoid making those sorts of mistakes.

Okay. Regional questions. What do you think the prospects are for Impax in Asia Pacific? And does this include India as a potential source of clients?

Yes, very good question. Our first mandate was actually a World Bank mandate that had us marketing in the U.S. for clients, but actually investing the money in India and parts of Africa. So, I personally have been working in India or was working in India for quite some time at the start of Impax's career. The Asia Pacific region, as I think everyone knows, is not really a region at all. It's just a very diverse group of countries which are a very long way from each other -- from India and the Far West, all the way through to Australia, New Zealand, in the East and Japan out in the North. So we've had an office in Hong Kong since 2007, which is primarily research oriented, and we've had an office in Tokyo for nearly 2 years. I think we're in our second year of having an office in Tokyo, which is primarily client focused. We have a client base with clients in Hong Kong, Australia and Japan. It's a relatively small client base. And I would say that the thing that ties those markets together is a very strong focus on performance. And so, we are committed to our presence in the region and to our client outreach in the region, but we're guiding that it's going to be probably a slower growing area for inflows compared to our prospects in Europe and North America. In terms of India, then, we've not sought distribution in India. That's, I think, been quite difficult for non-Indian asset managers to operate there. I haven't looked into the recent trade deal that the U.K. did with India. I did read, I believe, that things are opening up to some degree. So, it might be that some of the rules that have hitherto been barriers to entry could have dropped away or maybe relaxed somewhat. So, it is an area that I think, in principle, we'd be interested in doing more work in. And if anybody who's on the call would like to help us, then do get in touch.

Okay. I hope you all heard that. The U.K., a little bit closer to home, which is now, as you pointed out, quite a small part of your total AUM without SJP. Question, how do you view the U.K. as an opportunity for inflows? And a related question to SJP, and I think Karen was lauding the merits of client diversification. Have you considered whether to actually put a formal cap on the percentage of AUM that could sit under one single client's control in the future?

So, no surprise that we've been actively promoting our services in the U.K. since pretty much the start of the firm, and our Investment Trust, Impax Environmental Markets plc has been up and running since 2002 and just had its AGM yesterday. So that's our largest client in the U.K. and has its own marketing and profile, particularly amongst the retail client base. So, I would say that given that we don't have a retail license under the FCA and therefore, can't promote directly to retail investors, then our marketing in the U.K. is focused, on the one hand, on the private wealth distribution market where we've got a very good footprint and then also with the institutional market, which does tend to be much more consultant-driven, if you'd like model-driven and where the allocation to thematic equities and thematic-type products is much less than it would be, say, in a Scandinavian or French market. So yes, we have a -- I think our largest client service team is actually based in the U.K., providing support to our investment trust and those 2 channels I mentioned, we are very keen to build further on the U.K. footprint. And I think we, if you'd like, watch this space because we'll be making some steps in that direction over the next year or so. In terms of capping the revenue from any one individual client, it's very tricky. I mean, St James's Place, were the first client in our core equities area in 2017, and the initial allocation was very small, and it grew to over GBP 6 billion over a 5-year period, which of course, is very welcome. We recognize indeed that was quite a material risk to have 1 client with so much under management. But actually, the risk management is very difficult. I mean it's very difficult to go to such clients and say, "Sorry, but we're not going to take any more money from you." What we could have done possibly in hindsight was had a bit more of a notification or warning that they were thinking about changing their allocation so we could have trimmed our or been ready to trim our cost base a bit sooner. But as Karen said in her remarks, the critical thing now is that perhaps with the exception of BNP Paribas, which remains our largest shareholder, we do have a nicely diversified client base. We have 88 contracts, but we have well over 200 individual clients in various pool funds and [ separate ] accounts. So the firm is now nicely diversified.

Yes. Good to hear. Of course SJP wasn't the only person or only client to remove mandates in the first half. We've got a question. Could you say a little bit more about the large, I think, GBP 1 billion mandate that was ended in Asia? And is there any common theme between other departures that did occur in the first half?

Well, what happened in the Asia Pacific region was -- I think we lost money from 3 institutional accounts that in total was about GBP 1 billion. A majority of that was an incredibly low fee -- management fee area with a performance fee that didn't pay out. So that's why we're not drawing attention to that because the combination of those 3 accounts didn't reflect much in the way of a drop of run rate revenues. So that was really the only other news around material account closings apart from the SJP closings. Inevitably, in the institutional market, there's quite a slow cadence of new mandate arrivals and then institutions invariably move on at some point. So, there's money coming in and money never speak coming out. So, losing the odd institutional client in a period is entirely business as usual.

And can I add Ian to that, that what we -- just an analysis that we can do is that those institutional mandates that we did lose over the last 6 months, there's a trend towards being clear, they were -- they've been on the books for 3 to 4 years in that they came in at the peak. And then when we look back at where our institutional clients are that we're left with in the base today, they have been -- the broad majority of them have been with us for more than 5 years.

Understood. Question on direct distribution, which has become much more important in the period just reporting for the reason of departures. But the question is, do you have a longer-term aspirational target for how important you would like direct distribution to be within the group?

Well, when a firm like Impax is getting going, then it's usually very slow sales and highly attractive to get indirect distribution through wholesale groups, which we did for the first 1.5 decades and still do with roughly half of our business. Once you've got to a certain critical mass and you can appeal to a large number of client channels, then it's quite often more attractive financially to do direct distribution. So, as I mentioned earlier, we now have direct salespeople in Scandinavia, in Germany, French-speaking Europe, Benelux and a big team in North America. And so -- and we've been adding selectively to that over the last 3 or 4 years. So yes, we are slowly moving in that direction, but we are being quite thoughtful about exactly how we add more salespeople because we know that take quite some time for an individual channel to warm up.

And final question, I believe. I think this might be you, Karen, you might pass it on to him. But this is from a shareholder, clearly, and he agrees that the use of a share buyback at these share price levels to enhance shareholder value makes considerable sense. Did you look at other measures like a special dividend is one question. And then the follow-up was, if the share price does remain depressed in months going ahead, will you consider increasing the scale of the buyback?

So, in answer to, I suppose the first one, on special dividend, I guess the internal house view is that you don't get the value for special dividend. I think, Ian, maybe going back before my time, 2018, 2019, when we go through the cycle of carry coming from the closed-end private equity funds that we've had special dividends in that case, which I could agree with. But more generally that, no, I don't think you get the value long term in the market and in your valuation because of special dividends. And then, in terms of how we're thinking about whether. So, I guess I go back to what I said in terms of, look, we are still a growth company. We still have a lot of opportunity in front of us. So I think for now, when we complete this program, which will be in play until the end of the year, who knows where we'll be by the end of the year. But I think these are very discretionary. And I think in terms of looking at over the long term, shareholder value will be driven through careful acquisition, but that continued investment that we've made in, I guess, the model, the operating model that we have built, feels like the best use of capital. But at least we've got a policy now where we will consider in the circumstances. So, I think that's as most -- as best I can say for today's circumstances as I can't see it, but I wouldn't rule out that we do look at it.

Circumstances keep changing, as we know all too well this year. So that's great. Thank you very much to our audience for their attention and for a wide range of questions. I did see there were 1 or 2 looking for specific answers for what the second half dividend was going to be. We've just been talking about flexibility in the circumstances, but I think the new dividend policy has been very -- what the adjusted or clarified dividend policy is, is being very clear. And if you want to look at forecasts, then a very large detailed note went out from Equity Development today as Karen was kindly quoting from. And there was a dividend forecast there made on the calculation looking at the payout ratio against adjusted net profit. So I'm sure that will answer your question accordingly. Also for the audience, you will receive a short feedback form and the presenters would be delighted if you could share your views on that. As I mentioned at the start, this interview has been recorded and will be available on both the Equity Development and the Impax website as well. And it just leaves me, on behalf of all the viewers, to wish Karen and Ian all the best for that calm, stable second half that you're clearly looking forward to, Karen. So thank you for your time, and good luck.

Thanks very much.

Thank you.