Interim results to 31 March 2020

Condensed Consolidated Statement of Financial Position

As at 31 March 2020

Condensed Consolidated Statement of Changes in Equity

For the six months ended 31 March 2020

Condensed Consolidated Statement of Cash Flows

For the six months ended 31 March 2020

Notes to the Condensed Consolidated Interim Financial Statements

For the six months ended 31 March 2020

1 Basis of preparation

This interim report is unaudited and does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU and the AIM rules. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 September 2019.

The comparative figures for the financial year ended 30 September 2019 are not the Company's statutory accounts for that financial year. Those accounts, prepared in accordance with IFRSs as adopted by the EU, have been reported on by the Company's auditors and delivered to Companies House. The report of the auditors was (i) unqualified, (ii) did not include a reference to matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. Copies of these accounts are available upon request from the Company's registered office at 7th floor, 30 Panton St, London, SW1Y 4AJ or at the Company's website: www.impaxam.com.

Going concern

The Board has made an assessment covering a period of at least 12 months from the date of approval of these interim financial statements which indicates that, taking account of a reasonably possible downside in relation to asset inflows, market performance and costs, the Group will have sufficient funds, to meet its liabilities as they fall due for that period.  In making this assessment the Board has considered the potential impact of Covid-19.  The Group has high cash balances and no debt and, at the Period end market levels, is profitable.  A significant part of the Group's cost basis is variable as bonuses are linked to profitability.  The Group can also preserve cash through dividend reduction and through issuance of shares to cover share option exercises/restricted share awards (rather than purchasing shares).  The Group has operated without disruption during the lockdown period to date and expects to continue to do so.  The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and have continued to adopt the going concern basis in preparing these interim financial statements.

Accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 30 September 2019 except for the adoption of the new International Financial Reporting Standard 16 ("IFRS 16") which considers leases.

IFRS 16

The Group has applied IFRS 16 for the first time for its annual reporting period commencing on 1 October 2019. IFRS 16 replaces IAS 17 Leases and is effective for reporting periods beginning on or after 1 January 2019.

Where the Group is a lessee, IFRS 16 requires operating leases to be recorded in the Group's statement of financial position, reflecting a lease liability and an associated right-of-use ("ROU") asset. The lease liability is initially measured at the present value of the future contractual cash flows remaining under the lease term, discounted using the Group's incremental borrowing rate. Interest is subsequently accrued on the lease liability and presented as a component of finance costs, and calculated using the effective interest method to give a constant rate of return over the life of the lease whilst the liability is reduced by the lease payments. The ROU asset is initially measured at the amount of the lease liability plus initial direct costs incurred by the lessee, adjusted for any lease incentives and the estimated cost of restoration obligations. The ROU asset is presented within property, plant and equipment and depreciated over the lease term as the benefit of the lease is consumed. The Group applies judgement in assessing whether to include options to extend or cancel the lease. All relevant factors that could create an economic incentive to exercise the option are considered and the option is included if it is reasonably certain to be exercised. After the lease commencement date, the Group reassesses the lease term if there is a significant change in circumstances that is within its control and affects the likelihood that it will exercise (or not exercise) the option.

The Group has measured the IFRS 16 ROU assets and lease liabilities as if the standard had always been applied but based on an incremental borrowing rate at the date of initial adoption, 1 October 2019.  Comparative information has not been restated as the Group has applied the modified retrospective approach with the cumulative effect of initially applying the standard recognised as an adjustment to the opening retained earnings at 1 October 2019.  The Group has applied the optional exemption in the standard which permits the cost of short-term (less than 12 months) leases to be expensed evenly over the lease term. These lease arrangements are not material to the Group.

As a result of applying IFRS 16, the Group has recognised lease liabilities and ROU assets at 1 October 2019 of £11,991k and £10,693k respectively in respect of leases over its office buildings.  

The Group has also eliminated the accrual of £1,051k previously required to expense the lease charges evenly over the lease term. These adjustments have reduced the Group's net assets by £247k which is recorded as a reduction in retained earnings at 1 October 2019.  The weighted average incremental borrowing rate applied to the lease liabilities on 1 October 2019 was 4.76%. Additional disclosure on the impact of IFRS 16 to the Group's ROU assets and lease liabilities is provided in note 10.

New and forthcoming accounting standards applicable to the Group

No other new standards or interpretations issued or not yet effective are expected to have an impact on the Group's condensed consolidated financial statements.

2 Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant key source of estimation uncertainty were estimates made in determining if intangible assets were impaired (see Note 9).

3 Adjusted profits and earnings

The reported operating profit, profit before tax and earnings per share in the current and prior periods presented are substantially affected by business combination effects and other items. The Directors have therefore decided to report an adjusted operating profit, adjusted profit before tax and adjusted earnings per share which exclude these items in order to enable comparison with peers and provide consistent measures of performance over time. A reconciliation of the adjusted amounts to the IFRS reported amounts is shown below.

The adjusted diluted earnings per share is calculated using the adjusted profit after taxation shown above with a further adjustment for profit attributable to owners of restricted shares of £313,000 (see Note 7). The diluted number of shares is the same as used for the IFRS calculation of earnings per share (see Note 7).

The same adjustments have been made, where relevant, for the year ended 30 September 2019 to give adjusted operating profit of £17,978,000, adjusted profit before tax of £18,119,000 and adjusted diluted earnings per share of 11.5 pence.

Contingent consideration adjustment

We are required to review and adjust our estimate of the contingent consideration payable in respect of the Impax NH acquisition. Any adjustments is recorded through income but is excluded from adjusted profit.

Mark to market charge on equity incentive awards

The group has awarded employees in prior years and the current period options over the Group's shares, some of which are either unvested or unexercised at the balance sheet date.  The Group has also made awards of restricted shares ("RSS awards") a significant portion of which have not vested at the balance sheet date.  Employer's National Insurance Contributions ("NIC") are payable on the option awards when they are exercised and on the RSS awards when they vest, based on the valuation of the underlying shares at that point.  The Group does however receive a corporation tax credit equal to the value of the awards at the date they are exercised (options) or vest (RSS awards). A charge is accrued for the NIC within IFRS operating profit based on the share price at the balance sheet date. Similarly a credit for the corporation tax is accrued within the IFRS tax charge and where the corporation tax credit is larger than the share based payments within equity.

Additional retention payments are made to holders of vested legacy LTIP awards ("LTIP") when they are exercised. The payment will be equal to the corporation tax benefit the Group receives on the exercise of the options minus the amount of NIC payable on exercise. The charge is accrued based on the share price at the balance sheet date.

These two charges vary based on the Group's share price (together referred to as mark to market charge on equity schemes) and are not linked to the operating performance of the Group. They are therefore eliminated when reporting adjusted profit.

4 Segment Information

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed.

The Group's reportable segments are as follows:

Impax LN - Impax LN is predominantly based in London and manages and advises listed equity and private equity funds and accounts.

Impax NH -Impax NH is based in Portsmouth, New Hampshire and manages the Pax World US mutual funds.

The following tables present revenue and profit information for the Group's operating segments.

Six months ended 31 March 2020

Six months ended 31 March 2019

Twelve months ended 30 September 2019

Segment profit is stated at the adjusted operating profit level as shown in Note 3.

5 Fair value gains/(losses) and other financial income/expense

Fair value gains/(losses) include those arising on revaluation of listed and unlisted investments held by the Group including those held by the Group's consolidated funds (see note 11) and any gains or losses arising on related hedge instruments held by the Group. Other financial income includes foreign exchange gains or losses.

6 Taxation

The tax rate for the period is higher than the standard rate of corporation tax in the UK for the period (19 per cent). The differences are explained below:

7 Earnings per share

Earnings are reduced by £313,000 for the six months ending 31 March 2020 (31 March 2019: £439,000, 30 September 2019: £867,000) for basic and diluted earnings per share to reflect the profit attributable to holders of restricted shares, which are treated as contingently returnable shares. 

The weighted average number of shares is calculated as shown in the table below.

The basic earnings per share for all periods shown includes vested LTIP options on the basis that these have an inconsequential exercise price (1 pence or 0 pence). The Group has an agreement with Management Shareholders of Impax NH under which it can acquire their shares in Impax LLC in exchange for Group shares. This arrangement is not dilutive.

Restricted stock units have been issued to Impax NH staff and management which have a three year vesting period from the date of acquisition and a further two year restriction on the holders' ability to sell the vested awards. The value of the Impax shares received is determined by reference to the Impax NH assets under management at the vesting date. These awards are currently out of the money and accordingly the scheme is not dilutive.

8 Dividends

On 19 March 2020, at the Company's Annual General Meeting, payment of a 4.0 pence per share final dividend for the year ended 30 September 2019 (2018: 3.0 pence per share) was approved.  Combined with an interim payment of 1.5 pence this gave total dividends for the year ended 30 September 2019 of 5.5 pence.  The Trustee of the Impax Employee Benefit Trusts waived the Trusts' rights to part of the final dividend, leading to a total final dividend payment of £5,140,418 which was paid on 27 March 2020.

The Board has declared an interim dividend for the period of 1.8 pence per ordinary share (2019: 1.5 pence). This dividend will be paid on 17 July 2020 to ordinary shareholders on the register at close of business on 12 June 2020.

9 Goodwill and Intangible assets

The goodwill and intangible assets held by the Group primarily relate to the acquisition of Impax NH in January 2018.

Goodwill

There were no brought forward impairment losses at 30 September 2018 or impairment charges during the period.

Intangible assets

The management contracts were acquired with the acquisition of Impax NH in January 2018 and are amortised over an 11 year life.

The impairment test completed this period showed no impairment was required and used the following key assumptions - future subscription of new assets of US$0.35bn per annum on average  (Sept 2019: USD$0.34bn), future equity fund performance of 15% for the year to 31 March 2021, 10% for the year to 31 March 2022 and 5% per year thereafter (September 2019: 5% for all periods) and a discounted cost of capital of 13.5% (September 2019: 13.5%).  The increase in the performance assumption reflects the market falls in March 2020 which we assume will recover over a 2 year period.

Changes in the assumptions would give rise to impairments as follows: a consistent ten per cent decrease in inflows - impairment of £1.6 million; a fall to 5% performance for all periods - impairment of £6.5 million and a one per cent annual reduction in operating margin - impairment of £1 million.

10 Leases

As described in note 1 the Group has adopted IFRS 16 for the first time in these financial statements. Property, plant and equipment therefore includes right-of-use assets in relation to operating leases for the Group's office buildings.

Property plant and equipment

The carrying value of the Group's right of use assets, associated lease liabilities and the movements during the period are set out below.

11 Current asset investments

The Group will from time to time facilitate the establishment of funds for which it is the investment manager. The Group may invest seed capital in these funds in order to provide initial scale and to facilitate the marketing of the fund to third party investors. Where the Group has control of the fund it is consolidated and its underlying investments are included in investments in the table below. Where the investments are not consolidated the investment itself is included in the table below. The Group also invests in private equity funds it manages. These investments are recorded at fair value.

An analysis of the investment by valuation technique hierarchy is disclosed below

Level 1 means that valuation is made by reference to quoted prices in active markets for the relevant securities.

Level 2 assets do not have regular market pricing but can be given a fair value based on quoted prices in active markets.

Level 3 assets are those where there is no readily available market information to value them and the asset value are based on models. For 2020 they represent investments in our private equity funds.

12 Cash reserves

Cash and cash equivalents under IFRS does not include deposits in money market funds or cash held in deposits with an original maturity of more than three months. However the Group considers its total cash reserves to include these amounts. Cash held by consolidated funds is not considered to be available to the Group so is not included in cash reserves. Cash held in Research Payment Accounts ("RPAs") is collected from funds managed by the Group and can only be used towards the cost of researching stocks. A liability of an equal amount is included in trade and other payables. This cash is also excluded from cash reserves. A reconciliation is shown below:

13 Loans

To part fund the acquisition of Impax NH the Group signed a debt facility with RBS.  The facility consisted of a US$13 million term loan repayable annually over a 3 year term and a US$13 million revolving credit facility ("RCF") with a 5 year tenor.  The term loan incurred interest at US LIBOR plus 2.9 per cent and the revolving credit facility at US LIBOR plus 3.3%.  On completion of the acquisition the Group drew down the term loan in full and US$12 million of the revolving credit facility.  The term loan was repaid in full and early in the year ended 30 September 2019.  The revolving credit facility was repaid in full in 2018 but remains available to the Group.

14 Share capital and own shares

Own shares represents a portion of those held in Impax's Employee Benefit Trusts. 1.0 million shares were acquired in the six months ended 31 March 2020, (period ended 31 March 2019: 1.2 million). 2.7 million shares were awarded to option holders on exercise of options or on lapse of restrictions on shares (period ended 31 March 2019: 1.8 million). As at 31 March 2020 there were a total of 5.0 million options outstanding over the Group's shares of which 2.5 million were exercisable. As at 31 March 2020 employees also held 4.8 million Restricted Shares over which the restrictions lapse from January 2021 through to December 2024. These shares are held in trust and are included in own shares above.

15 Related party transactions

Private Equity Funds managed by the Group, entities controlled by these funds and the Impax Global Resource Optimization Fund LP are related parties of the Group by virtue of subsidiaries being the General Partners to these funds.  The Group earns management fees from these entities.

BNP Paribas Asset Management Holdings is a related party of the Group by virtue of owning a 24.5 per cent equity holding. The Group sub-manages certain funds for BNP for which it earns fees.

Other funds managed by subsidiaries of the Group are also related parties by virtue of its management contracts.

Revenue earned from related parties of the Group is as shown in the table below:

Investments in related parties of the Group and trade and other receivables due from related parties are as shown in the table below.

16 cash generated from operations

This note should be read in conjunction with the Condensed Consolidated Cashflow Statement. It provides a reconciliation of how profit before tax, which is based on accounting rules, translates to cashflows.

17 Group risks

The Group's principal risks remain as detailed within the Directors' report of the Group's 2019 Strategic Report.  The global economy is being severely impacted by the Covid-19 pandemic.  This may have an adverse impact on the magnitude and likelihood of the risks disclosed, particularly in relation to operational and finance risks.