Fine. I think we can get underway. Welcome again. You're going to hear about Impax's interim results that were released this morning. We're delighted to be joined again by Ian Simm, who is the founder and the CEO, and also by Karen Cockburn, who is the CFO. Little bits of admin, you needn't worry about taking pictures of these slides because there is a deck available on the Impax investor relations page already. This webinar is being recorded, if you miss any exciting bits or want to review them, it will shortly afterwards be published on both the Impax and the Equity Development websites.
Lastly, for those of you not familiar with Zoom, Ian and Karen will be dealing with questions after the formal presentation, and all you have to do is write them on the Q&A button that will be at the bottom of your screen. Without further ado, I shall pass over to Ian to commence proceedings.
Thank you, and hello, everybody. I'll take you through the deck for the half year to the 31st of March, 2023, in the usual fashion. Just to give a summary for those of you who are not familiar with Impax, we are a firm that I started back in 1998, and we have a particularly distinctive investment philosophy, which is that we believe that the transition to a more sustainable economy is likely to lead to high rates of investment performance, which should be good for investors who are seeking to beat the market, so to speak. We have one of the world's largest investment teams specialized in this area, with very low staff turnover, and we have a truly global client base, with more than 80% of our assets under management sourced from outside the U.K.
As you'll hear, we have very deliberately built a scalable investment model aiming to double today's funds under management over the next few years. On the next slide, just a summary of what we mean by the transition to a more sustainable economy. This essentially is a capitalist idea of industrial revolution, sectoral transformations, if you like, in energy, in transportation, materials, infrastructure, but also in areas such as financials and healthcare, in favor of greater efficiency, better environmental protection, and exploiting developments in new technology. For example, battery driven drive trains in electric vehicles or heat pumps in the renewable heat space. The drivers of the transition are not just technology, but also policy change, including the Inflation Reduction Act in the United States and changing consumer sentiment.
The combination of these sectoral transformations is giving high rates of growth and a prevalence for mispricing and misunderstood companies listed on the market, which we're able to pick up when they're trading below their intrinsic value. This is an opportunity which has been building over the last quarter of a century and shows no signs of slowing down. The next slide, we've got a summary of the results for the year, sorry, for the half year. We've reported net inflows of GBP 1.1 billion, and a larger increase in assets under management over six months as markets have been supportive. Investment performance has been solid in spite of challenging macroeconomic conditions, and we've had some notable steps forward in areas such as Asia, where we've opened a client service office in Japan.
On the next slide, the summary of the PNL and balance sheet changes. Karen will go into more detail a little bit later, but just in summary, on the left, you can see that revenues for the period that we're just reporting on in the dark blue bar, which is a consistent color throughout the deck. Focus on the dark blue bar. Compared to previous periods, revenue is up slightly, operating profit slightly down, as we've added slightly to headcount and strengthened operational resilience ahead of further growth down the road. At the bottom, you can see that our run rate margin has been very slightly depressed.
That's essentially saying that in spite of the increase in headcount, that our operating margin on a sort of, flashpoint at the end of the period is not much lower than it was at the start of the period. The dividend for the interim, we're planning a GBP 4.7 pence per share interim dividend, which is exactly the same as last year, giving us scope for a higher final dividend in line with our 55%-80% payout level compared to distributable profits. The breakdown in assets under management increase over two successive half year periods is shown here.
Starting with the position a year ago, at the end of March 2022. The first half of, or bottom half of the slide illustrates what happened in the second half of the previous financial year. The reporting period is the top half of the slide. You can see there, positive market movements, positive inflows greater than outflows. At the end of April, we were slightly down on assets under management, GBP 39.4 billion, which was a combination of slightly weaker markets in April and very small outflows. The conditions or backdrop for the firm summarize as follows. It has been a challenging period for investors with uncertainty about the trajectory of inflation and also about central bank policy to combat inflation.
We still haven't landed in a stable environment there, as I'm sure everybody's aware. Having said that, equity market sentiment has been broadly positive, so markets have crept up in calendar 2023 so far. Flows generally have been weak, and most investment managers are reporting negative flows. In that sense, Impax is a standout performer. That's really underpinned by the positive trends around the transition to more sustainable economy. I've already mentioned the Inflation Reduction Act. We've seen similar positive policy in European Union and in Asia, in favor of the clean energy revolution. There's been further experience with regulations affecting disclosures around funds in the sustainability space.
The so-called SFDR regulations in the European Union have caused a lot of additional costs for managers seeking to demonstrate Article 8 or Article 9 compliance, which are two sort of relatively high levels of alignment with sustainable economy objectives. Impax has emerged very nicely and very well out of that situation because our funds have been positioned to be sort of fully in the sustainable economy space from the outset. In that context, we continue to be well positioned. We have a set of scalable investment strategies. We've got a large and loyal team that owns 20% of the business, and we've got distribution architecture and distribution people in most parts of the investing world who are able to promote our services. I'll look now at the assets under management breakdown.
In the top left, you can see the breakdown by fund type according to Environmental Markets, which is our thematic equity range, and secondly, Sustainability Lens, which is a more broadly based global equities products. Again, the comparison is the current period in dark blue, compared to the previous period in light blue. The right-hand top donut shape is some more detail around those breakdowns. The blue colors are the individual strategies within the Environmental Markets range, and the orange colors are the Sustainability Lens strategies.
Breakdown by AUM and revenue according to different channels there, the thing to draw attention to is the bottom right area that shows BNP Paribas, BNPP AM, Asset Management Mutual Funds, where the percentage of our revenues associated with our larger shareholder and distribution partner has been declining, which is a deliberate strategy on our part to improve our gross margins by going through more direct channels. On the next page, a simple schematic showing where our clients are based. Firstly, on the left-hand side, with half of our asset and management coming from the European Union, 20% from U.K. clients, the Asia- Pacific portion has been growing quite nicely as well. We're still 95%-96% for assets under management arising from listed equities.
On the next page, you can see breakdown in the movement of funds, so net inflows in three columns. The left-hand column on the slide is the U.K., with St. James's Place, nicely positive, and at the Irish UCITS platform being slightly negative as some of our U.K. pension fund clients were trying to cope with the LDI crisis, a few months ago. In the middle, you can see a nice improvement in the performance of the BNP Paribas channel, but also the other distributors channels around Europe, particularly with ABN AMRO and Lombard Odier. Top right, the North American channel was somewhat weak. I think that's just a general expression of market sentiment being weak rather than losing any clients.
We didn't have any loss of business, but rather just a trickling out of flows in the context of relatively weak markets. The standout performer in Asia- Pacific being our new mandate in Japan. The next two slides show the investment performance, firstly by Sustainability Lens strategies, the more broadly based global and regional equity products and fixed income. Here you can see the dark blue investment performance annualized over one, three and five years compared to the benchmark in mid blue. Generally speaking, very strong performance, certainly in the equities range and the one-year track record now looking pretty solid, pretty compelling, particularly in Global Opportunities and U.S. Small Cap. The second set of performance data on the next slide is the more thematic Environmental Markets range. There we go.
Again, a similar representation, one year, three year and five-year numbers, quite a nice improvement on where we were six months ago. This is a good, very good foundation on which to be pitching for new business. The strategies that we're running at the moment are packaged in around 100 individual funds and accounts around the world. We are planning to scale our business by bringing in more money into those 100 funds where appropriate, but also to find new wrappers, new distribution vehicles, for example, the ABN AMRO and Lombard Odier wrappers that I mentioned earlier. We do have quite significant capacity headroom for those existing strategies, that's the core of the business plan. In addition, we are preparing and launching new products.
We launched a Sustainable Infrastructure product in September last year on our Irish platform, and we are developing a social markets product, which will be ready for launch in the next six to nine months. In private markets and fixed income, we continue to look for opportunities to build capability, hiring additional staff, and also to look around for smaller acquisitions or teams that we can bring onto our platform. Meanwhile, in private markets, we're continuing to develop our fundraising for the fourth fund, which is progressing nicely, albeit in quite tricky fundraising conditions. On the next slide, the work we're doing around the edge to strengthen our communication with clients is an important part of our brand and potential for attracting new clients. There's five areas here, three of which are shown on this slide.
Firstly, policy and advocacy, where we're using our 4-person policy team to improve policy insight into the investment management work, also in an advocacy context, helping to shape the policy landscape for new markets, sometimes by ourselves with government, sometimes in consultation and partnership with other investor groups. On the right-hand side, you can see our reference to our thought leadership and research work. We've recently, for example, produced a paper with Imperial College London on biodiversity and our partnership and networks work around the world, particularly with groups interested in climate change, is sort of helping to move the needle around policy supporting this transition to a more sustainable economy.
Fourthly, on the next slide, on the left, our engagement and stewardship work, and on the right, our impact reporting continue to be differentiators for our conversations with sophisticated clients, we're continuing to invest in our capabilities in both of those areas. Just a few words on cost before I hand over to Karen. Over the last 12-18 months, we have been increasing our headcount in order to create a full service or fully operational client service model and expanding our risk and compliance teams in order to be fully resilient as new money comes in the door. That has led to a 6% increase in the headcount over the six-month period, with hires coming into all major offices and the new office, with two people in Tokyo, as shown there.
Employee retention and employee engagement score both remain very attractive, and we are performing pretty well against our ED&I metrics, particularly around the gender balance of the team. On systems and infrastructure, I've already mentioned compliance and risk. We are really wanting to make sure that clients and prospective clients don't have any reason to be cautious about hiring us because they have questions or doubts about our abilities in these areas. Really fully staffed there now for the current scale of business. In IT, we have been implementing Salesforce recently to improve efficiency around our client service and client relationship management, but also looking at more sophisticated data mapping so that we can make the most of scale potentials and efficiencies using IT.
Good afternoon. This is the first time I'm the new CFO here at Impax, joining in October of last year. I just want to take you through the next few pages, just giving you a wee bit more of a flavor, and the detail in the financials, starting with revenue. Thanks to the inflows, which for yous, for you that follow sort of the asset management industry just now, I think, you know, we're bit of an outlier and actually have a seeing positive flows in the period. The GBP 1.1 billion that Ian talked about has translated into a small but positive income growth of over GBP 1 million.
Earlier, on the chart where we explained AUM, you would have seen a significant increase in the AUM due to the market performance. However, in the analysis that we have here, there was an offsetting sort of downturn in the market that we saw in half two last year, which just balanced each other out. In the range, you know, the income growing and broadly stable on where it was a year ago. I do like to look at run rates, we have a figure here of GBP 182.5 . That gives you a sense of where the business is just now. That's March AUM of GBP 40 billion times twelve.
Just stating the obvious, as markets increase, we'll see that revenue figure in forecasting increase, and if the markets decrease, it's vice versa. What's important to call out is that the stable revenue is supported also by a stable margin, which has just dropped 1 basis points. We do talk that we expect our margin to probably fall slowly over time, but over the short to medium term, to see that in the mid-forties is where we expect to be. That very marginal decline in the period was caused more by mix than any price reductions, and we're not seeing price pressure in the market at this point.
On the next slide, just, I think I'd also like to sort of point out that the strength underpinning that revenue is our continued focus on the diversification of our asset base, whether it is by strategy, by region, or client type. We are beginning to see traction in our strategy to drive our, revenue into the, you see it in orange, into the, Sustainability Lens funds. that is beginning to show signs of success, with it now making up 22% of our overall revenue mix, compared to 18% where it was a year ago.
Likewise, our focus on building our own distribution, is seeing the contribution made by our single biggest asset, holder, BNP, and that has reduced from 31% down to 29%, and we expect to, see that dilution, and diversification of, by the introduction of other clients continue. Lastly, in this slide, just to reiterate what Ian has said, is that we can see Asia-Pacific begin to feature now in how we look at our revenue. As that begins to feature now we have opened the office there, and expect that to grow over time. I always like to draw attention to the fact that, you know, we are of a global footprint with only 17% of our revenue, being dependent upon the U.K.. On the next slide, so that's revenue.
On the next slide, I want to talk about costs. What I want to start now with saying is, look, our costs have increased, but I want to assure you that they are not out of control. Let me tell you what is going on. We're a growing business, and we continue to invest to support our growth, albeit at a much slower rate than the last six months than you would have seen coming through last year. Now, the bulk of the cost increase is, as Ian has mentioned, is in headcount.
You can see, looking out to the right-hand side of the chart, if I take you to the last sort of set of data points, that the headcount has grown by 51, over 20% since this time last year, from 238 up to 289. Thirty-four of those heads, two-thirds of it, were headcount that we had taken on board in 2022, and we have slowed the level of hiring considerably, with only 17 joining in the last six months. Of the 51 heads that we have added, has really been principally for two things. One has been to build that distribution architecture across the globe, where we are now very. That was probably 20 of those heads where they have been placed.
What that has done is that's placed us very well for a recovery, in the market sentiment, to scale the business, with no further investment, no significant further investment required in that space. Really, we have built ahead of the revenue in that space, and that was a strategic choice. The other heads that we've added over the period have been into, sort of central areas, into the resilience, into risk compliance of the business. Really closing out gaps that had been built up as the business experienced, very strong growth over the years 2020 and 2021. That has resulted in, you know, that we're now, we say, I say the costs have caught up.
We have closed out those gaps, and we have now reached a fairly steady state in the headcount for the current market conditions. All told, that headcount, plus we have managed wage inflation to low single digits. Coupled with our bonus, where we retain the policy, where we pay out between 40%-45% of adjusted profit after tax, has resulted in the lion's share of that cost increase of GBP 4.6. That has been, you know, carefully managed, selected hires that we have, very well under control. The non-staff costs in the business have also grown, but at a lesser rate, and that really is as a result of the underlying growth in the business. We have some placing agents fees as we continue to grow and win new mandates.
In there as well, is just a variable cost associated with the headcount growth, and our careful expansion of the office footprint is also adding a little extra cost in there, but at a very, very low rate. All told, I would look at these numbers and say that inflation was also very well managed. Again, I'd like to just pause and look at that run rate. Again, that is March month end times twelve, of GBP 124.5 for the year, and I do expect that to grow, but at a much slower rate into the second half of the year. Lastly, on this slide, you know, we have built a model that we can scale, and one of the key measures that we focus on is our AUM per investment staff member.
We believe we can nearly double the size of assets we have today with broadly the level of investment staff that we have today with existing strategies. That's a figure that's improving, and I expect to improve further as market sentiment improves. On the next slide, we look at sort of the overall operating performance. With, you know, a good performance on revenue, but with those investments that we've made in the business, the operating profit for the period has dropped to GBP 27.3 million, compared to the previous two periods, which were in the mid-thirties. In turn, the operating margin of the business has reduced to 31.1%.
We do keep focused very much on the operating gearing that we have built into the business, looking at the graph on the bottom left-hand side, that you can sort of see over time, that that trend is broadly upwards as the business grows. I expect you know, the target for me of where our operating margin should be is in the mid-thirties. I expect to return into that area as the markets improve. You know, with the controlled investment and the cost control that we will have.
Evidencing sort of the cost control that we have in place, the run rate operating margin, which really is at the end of September, was 32.6, has declined only marginally into the first half of this year to 31.8%. Again, you know, I expect in time, as markets improve, for that to head back towards the mid-30%. Moving on, just to look at the balance sheet, we'll start with dividends first of all, is reflecting that reduction in operating margin and the uncertainty just in the market sentiment, markets in general, that we have held the dividend flat at 4.7p. Also, you know, just to call out, you know, our dividend policy is to pay out between 55% and 80% of the adjusted profit after tax.
In terms of cash, we have a very strong cash position, GBP 61.8 million of cash on the balance sheet at the end of the period. I want to focus just quickly on the cyclicality of that. At the end of the year, or at the end of last year, we had GBP 107 million, and that's the peak of our cash position across a year. In the first half of the year, we pay bonus, and we pay out dividends, which are, you know, very significant uses of our cash. That takes us to the lower point, the lowest point in the year, which is actually this half-year point at March. I therefore expect the business to be cash generative in the second half of the year. That will take the...
Bring us back to sort of the peak on cash holdings for the end of the year. The capital position remains strong, and we retain a healthy capital buffer, and we seek to maintain that going forward in order to help support the growth of the business in seed capital as we invest in new strategies. We will continue to use cash flow of the business to purchase, to avoid dilution and acquire our own shares into our EBT in order to fulfill stock awards. Lastly, we do want to keep a bit of a war chest for the acquisitions, potentially in the fixed income, private equity parts of the business, as we look.
I remind you, our strategy remains one of our organic growth, but we do seek to just maintain that buffer to be able to react as and when the right opportunity comes our way. I want to finish off just very quickly by looking on the next slide at our share register. You know, this really is just there to show that we seek to avoid dilution of shares for to meet share awards by actually purchasing our shares in the market.
This year, we have been fairly active in the first six months, buying 1.4 million shares, which has resulted, when you look at the chart on the left-hand side, that we can see there's now 3.6 million shares in the EBT, used to satisfy the outstanding options in our RSP awards of 4.8 million. A net position of 1.2 million. The key point being, it's 1.2 million. It's not a significantly large number, less than 1%. Just to finish off with just looking at the current ownership has changed very little, if at all, in the last six months, with BNP being our largest shareholder with 14%, and importantly, with employee ownership, which is key to the future of the organization, remaining at 20%.
To allow some time to ask questions, I'm now going to hand back to Ian to wrap up.
It's been a tricky period for investment managers. I think most mid-size groups and even larger groups have seen net outflows for quite a long period of time. In fact, it's actually quite different, and our focus, exclusive focus on the transition to more sustainable economy is proving very popular amongst current and prospective new clients. The net result of our client outreach is that we've been able to sustain positive net flows. Investment performance has improved further, and that does give us a high degree of confidence that over the medium term, we continue to attract new business.
With 80% of our assets under management already coming from outside the U.K., and a distribution arrangements which have been put in place over more than 20 years, reaching the far front corners of the, of the globe, either directly or through partners, we do feel we're very well placed to be in front of clients when they're ready to sign checks. Our pipeline remains very healthy. The rate of conversion of that pipeline is going to depend on the short-term market sentiment, but as Karen explained, we do have a very ruthless focus on efficiency and cost management, while at the same time wanting to put in place the architecture, the building blocks, so that we can continue to build the business over the next few years.
I'm gonna stop there, back to Andy for some Q&A, if that's okay.
Yeah, thank you, both of you. That was very clear. Remind everybody, we have a number of questions already, but you can input through the Q&A button. Rounding a couple of questions together, acquisitions, you have said that the group is primarily focused on organic growth, yet at the same time, you have a huge 96% weighting towards equities. In the light of that, how are you going to move the dial for private markets and fixed interest to more diversify your AUM?
There's two options for growth there. Firstly, organic growth, which I think will be facilitated by further investment capabilities, so we are adding to our fixed income teams right now to increase that organic appeal. Secondly, through the acquiring either of additional teams and/or boutiques with assets under management. As you're correctly saying, Andy, we've signaled very strongly that our central focus is organic growth, and so we're not holding our hats out to say hands out to say we're definitely gonna do acquisitions at any particular timeframe, but there is a live pipeline of conversations underway, and we'll continue to press forward if something attractive comes along.
Okay, thank you, and good growth internationally. Some diverse questions there. Asia- Pacific has gone well for you. What is your ambition or plans regarding the two most populated countries on the planet, namely mainland China and India? Are there opportunities there?
We've had a research team out in Hong Kong since 2007, we've now got a very well-established and experienced investment group there. They run a strategy for us, covering the Asia- Pacific region and making great contributions to our global equities portfolios. Through them, we've got good brand foundation and recognition through the ASEAN region and to some degree, into mainland China. We do have a Chinese client that we've picked up with BNP Paribas. BNP Paribas is continuing to look for opportunities for us on the mainland. We're gonna be extending our Hong Kong regulatory license to allow us to promote our services directly to Hong Kong-based institutional investors, with our office now in Japan, a second Asian office opened up. We're increasingly well-resourced to provide service in China.
India, we've to date, just seen as a place to invest. One of our first ever fund actually invested in private companies in India and certain parts of Africa, which we didn't continue after its wind down after 12 years in 2010. We've continued to invest in Indian stocks, and we just hired an Indian national to be based in Hong Kong to continue that focus. No, no plans at the moment to reach out to Indian investors. BNP Paribas does have quite a well-established presence in India. That could always be a possibility. There's nothing brewing in the short term.
Thank you very much. One for you, Karen, if you want to unmute yourself. There was an unrealized Forex loss of almost GBP 5 million mentioned. Could you elaborate that in a little more detail, and then overall comment about how movements between the pound and the dollar might affect the group going forward?
This really is to do with the interactions and the financing we have with the U.S. business. The large part of the FX variance as the pound has strengthened. You'll see the opposite effect that we had in half two, or in last year's results, where we had a positive movement. This is down to the financing of the purchase of our Pax business that we bought back in 2018 with an intracompany loan and structuring that was set up mostly driven by tax reasons. There's just a translation of that loan, plus some sort of U.S. dollar balances that we hold. That is.
We can look at the cash balances that we're holding, and maybe see that and reduce, some of that going forward. That's been a feature of the business for the last five or six years in terms of that loan structure.
Great, thank you. We keep pinging around the world. America, perhaps one for you, Ian. Clearly a great opportunity for Impax there, but at the same time, it's easy to pick up in the broadsheets here that there's been some changes of sentiment politically towards clean investing and to ESG and even some tentative legislation against ESG in certain states. How do you see the environment at the moment?
We're very deliberately not hanging our colors to an ESG flag or mast, but rather positioning ourselves as looking at opportunities arising from the industrial revolutions around clean energy, electrification of the drivetrain, et cetera, which are compelling themes for capitalists in the U.S., and in particular, supported with strong tailwinds from, for example, the Inflation Reduction Act. The underlying investment idea that Impax is pursuing is very much an American story, as it is a story anywhere else in the world. That's attracting investors who are sort of neutral on ethics, morals or labels such as ESG.
You're absolutely correct in pointing out that there is a bit of a fight going on between the anti-woke brigade in places like Florida and Texas, and those who are pro-... promoting ESG as a label. We are very much steering around that fight, that debate, keeping our heads down and meanwhile promoting ourselves to the very large pools of capital for which that's a distraction, and where the interest in the sort of the real economy, the industrial revolution is much more a priority.
Your direct sales effort, where you mentioned during the presentation that has helped diminish the importance of BNP. Question had come in: Are you happy overall with the rate of progress in developing direct distribution?
Yes, we are. Over the last nearly two years, I've restructured the sales team and brought in experienced sales leaders in both North America and Europe, who are doing a fabulous job in adding to and sort of adjusting the focus of their respective sales teams. We've put in place new products, for example, Collective Investment Trust framework in the U.S. and some new UCITS funds in Europe. This is all part of the investment we're making to make sure that we're making the most of the opportunity to scale the business. Both those leaders have contributed to our positive flows over the last 18 months.
Yes, it would be nice if flows were, net flows were even stronger, but as I've said a couple times earlier on, relative to others, I think we're still towards the top of the pack in terms of performance.
Right. A technology question, appropriately after all the talk of industrial revolutions, specifically on AI. We have someone interested whether you are contemplating or indeed already using AI to improve your investment processes by means of more efficient screening, research, analysis, and so on.
Yeah, it's a very topical question. The answer is yes, we are doing that. We're doing it in a careful and controlled fashion with individual analysts being encouraged to sort of articulate whether they're actually using it, and if so, how, and putting in place some structures to measure the impact. We are letting our analysts and investment managers use AI, but trying to do that in a controlled manner just to sort of monitor the impact in a sort of structured, scientific fashion.
Thank you. Client pipeline. We have a question, how much you can disclose about where it might be lying geographically or what sorts of investors are that you are most excited in at the moment?
Yes. The pipeline, as usual, is very broadly spread across the world and across different client types. We have pension funds in Europe, in Australia. We've got some wholesale clients in continental Europe, Japan, particularly the United States, who are sitting there in the pipeline. The interest is in particularly the listed equity funds. We have been saying the last 24 hours about the pipeline is that it's showing no signs of slowing down relative to historical norms, certainly in the last six-12 months. Although market sentiment remains weak, the pipeline remains just as healthy as it has been over the last six-12 months.
Yes, it's always very tricky to forecast when new business is gonna land, but we're certainly seeing high potential for the material new business in the second half.
You mentioned specifically a very large pension win in out of the Tokyo office. Is it, is business opportunity in Tokyo pension-dominated, or again, is a very wide range of opportunity?
It's a mixture between pension funds on the one hand and wholesale on the other. The bulk of our client base in Japan to date, since 2008, has been in the wholesale market with the very large banks like Nomura and Daiwa, providing a reach into the retail and private banking or private wealth markets. That's still the largest share of our Japanese-based asset under management, and we're seeing further potential for growth there. At the same time, I think our strengthening brand and awareness amongst gatekeepers in Japan is giving us more optimism around pension fund commitments over time.
Thank you, Ian. Karen, I keep unmuting you.
That's fine.
Question on cash flow, which I think you did touch on in the presentation, perhaps elaborating on the factors that affected this year's or this half year's results. I know you've reiterated your confidence in the second half, could you say a little bit more about the natural cash generative status of the business?
I mean, if you were to compare to this time last year, you know, the cash generation in the first half was actually positive, about mid-teens, 15, 16, compared to where you actually see this period, it just sort of was marginally dipped as we, with cash, the opposite of or generative, and by just a very small margin. I can compare those two periods and it really is down to, you know, the operating margin having fallen by the, you know, the GBP 7 million-GBP 8 million compared to where it was last year. Alongside, it's, we paid a bonus in December, and that was a, you know, proportionately large number relative to the cash that was actually generated in half one.
In the second half of the year, the only sizable expense that we have is the interim dividend, which will work out about GBP 6 million. You know, we have built a cash generative model across a 12-month period. It just happens to be that we spent the bulk of it in the first half, and then in the second half, we'll pretty much see all earnings drop through to cash.
Very reassuring. Right. I think with just two questions left, I'll stay with you, Karen. In terms of the investment in infrastructure and the cost increases that we're seeing in the last year or two, which you pointed out would be slowing down, as much the, as such, there is such thing as a sort of normalized projections that you might be using on a two, three, four-year view, how would you expect personnel costs to grow in that medium term?
We have, and we've spoken probably on these calls a few times, before, about sort of an exercise that we have done. You know, we believe that we have built the strategies that we can scale and have the capacity to double from where we are today. We don't, you know, we don't quite put a date on when we see that happening, but we have done the work to look at sort of the current test of, you know, the size and scale and capability of the organization. We believe we can get to a point where we can run double the assets with no more than mid 300s of people being added into the organization. We sort of see that as our sort of cap that we're sort of working towards.
We have hired, you know, the organization has grown very quickly. For me, having been through that two years of rapid growth, I'd like to see a period now where we're focusing on efficiency. The answer is, the question is, you know, another 40, 50 heads maybe from where we are today.
Yeah. The operating gearing that has been a feature in the last decade is just gonna carry on big step.
I expect that.
I wouldn't call you to predict that, but I'd expect it.
Well, do you know, let me finish that. I'd say if, you know, we won't hit our operating margin aspirations, I don't think, because of costs, it will be because of the markets, you know? I think it's that point that I made, we are in growth mode. We're not cutting costs. We will go through a period of efficiency, though.
Great. Perhaps the last one for you, Ian. You'd mentioned that regulations, and particularly in Europe, your publication and status under Article 8 and Article 9 has been helping you. We have a question is: what do your potential clients or existing clients typically use when assessing you or others to manage funds? Do you find that private ratings firms, such as MSCI or Morningstar, also have some significance in their choice?
I think the starting point is the investment process and the quality of the team, including team, consistency, lack of departures, et cetera. From that, then comes something which might be a rating from a group like Morningstar or, a consultant, and that then informs a purchase decision by another individual investor or, another intermediary. The position that we've chosen for ourselves is one of the sort of institutional market rather than retail. We do make sure that we're able to tell compelling stories to intermediary clients who are looking for additional sort of marketing material, but we are putting more emphasis on the mathematics of our investment returns and the risk that we're taking, so that sophisticated clients can know where to position us in their portfolios.
That does set us apart from other investors who, or other investment managers who might be just selling the stories and the concepts into a retail audience. What that does mean is that the sales cycle tends to be a bit longer. The investors do tend to be quite sticky, and there is a multiplier or a scaling effect around the world as we generally find the same sort of investment process in Australia that we find in Canada, and same in the Middle East, and in our sort of latest small-scale distribution activity in South America as well, which were the same sort of questions get asked.
Great. We've had one more added on the subject of very sticky investors. Just a simple technical question: Is BNP and its shareholding in Impax actually locked up at the moment, or is it free to transact in the markets?
We're operating a number of sub-management contracts for SICAV funds run out of Luxembourg. That's the primary source of revenue. Those contracts are basically, they're run under appropriate sort of third-party governance structures. We do have a distribution agreement with BNP Paribas, which has got a minimum term on it, which actually expires towards the end of 2024. There's no obligation to do anything other than keep going. The parties do have the opportunity to go their separate ways later next year.
I think I probably phrased this wrong. I think the question was around the 14% holding in Impax that BNP holds itself.
Yes. Well, that's part of the same story, which is that BNP is our largest shareholder. We're a key part of their marketing story to their end investors, and they're a key part of our distribution arrangement. It's a win-win. It's cemented by the shareholding. There is a distribution agreement underpinning it, but very much sits on the shelf, so it's a long-term partnership.
Great. Well, Ian, thank you very much. On behalf of the audience, thank you to the audience for your questions, and just a reminder for anybody who joined late, that this presentation has been recorded. It will be available, along with a lot of other materials on the Impax website itself, under Investor Relations, and of course, on the Equity Development site. Equity Development has published one of Paul Bryant's thorough analyses after these results today. If you haven't seen it, you can, again, pick it up on both websites. Thank you to both of our presenters. Best of luck for the rest of the year, and hopefully see you both in six months' time.
Thank you.
Thank you, Andy. Thank you, everybody.