TBLI Conference Asia

Performance & Strategy in Environmental Markets

Bruce Jenkyn-Jones

Impax Asset Management Ltd.

25 May 2006

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Overview

• Impax - fund management boutique managing >U$600m

• Defining and understanding the Environmental Markets* opportunity

• Performance of sector funds and indices

• Key observations on the evolution of Environmental Markets

• Conclusions

1

* “Environmental Markets” is Impax’ term for cleantech or resource optimisation or environmental technology

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Changing economics of basic services

Conventional

Low tech

Inefficient

Polluting

Alternative

Hi-tech

More efficient

Cleaner

Energy Water Waste

3

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Strong drivers and superior growth rates

1. Market Liberalisation

2. Environmental Policy

3. Falling Costs of Technology

Annual growth 10-40%

Environmental Markets (2005)

Market Size: £100 billion

DriversConventional Markets

(2005)

>$2 trillion

4

Resource Process Supply Use

Pay by weight ConsultancyLandfill gasRecycling

Utility software Energy efficiencyClean enginesRenewables

Infrastructure MetersFiltrationDesalination

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Performance of Environmental Markets

6

• Alternative energy “bubble” of 2000 part of technology euphoria and California energy crisis

• Delays to Energy Bill and slowdown in utility capital spending leads to collapse in 2001 and 2002

• Fundamentals of Environmental Markets remain in place and drive recovery in 2003 - 2006

• Rising earnings, high fossil fuel prices, environmental concerns and corporate activity drive sector performance

• Volatility and risk profile reduced as universe populated with profitable businesses

REB#(IMPET50~£,-3Y) 2/5/06

2000 2001 2002 2003 2004 200585

100

150

200

250

300

350

400

450

REB#(IMPET50~£,-3Y)REB#(IEM(NAVP),-3Y)REB#(MSWRLD$~£,-3Y)

HIGH 398.13 15/9/00,LOW 90.03 7/3/03,LAST 199.48 28/4/06Source: Thomson Datastream

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Relative Performance of Sub-Sectors

8/5/06

2000 2001 2002 2003 2004 2005100

200

300

400

500

600

700

800

900

1000

1100

ALTERNATIVE ENERGY S OLUTIONS - PRICE INDEXWATER TECH. & POLLUT ION CONTRO - PRICE INDEXWASTE TECH & RESOURC E MGMT - PRICE INDEX Source: Thomson Datastream

8/5/06

2003 2004 2005 2006100

150

200

250

300

350

400

450

500

ALTERNATIVE ENERGY S OLUTIONS - PRICE INDEXWATER TECH. & POLLUT ION CONTRO - PRICE INDEXWASTE TECH & RESOURC E MGMT - PRICE INDEX Source: Thomson Datastream

6 years – “alternative energy underperforms” 3 years – “a different story”

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The evolution of the Impax ET50 - (1)

IMPAX ET50 - PRICE INDEXFROM 30/4/99 TO 5/5/06 WEEKLY

1999 2000 2001 2002 2003 2004 2005 200650

100

150

200

250

300

HIGH 272.14 10/ 3/00 LOW 65.25 14/ 3/03 LAST 174.06Source: Thomson Datastream

1.

2.

3.

4.

5.

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The evolution of the Impax ET50 - (2)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

May 99 Sept 00 Sept 03 Sept 05 May 06

Waste - new businessmodels

Water - reduced onM&A

Other Energy - newsectors emerge

Photovoltaics - rapidrise in 05/06

Wind turbines - stablearound 18%

Pre-profit (eg fuel cells)- decline to zero

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Valuations and other metrics

6

• PER range 15X - >70X

• ET50 now >40X; Impax funds considerably lower PER

• Rating increases as alternative energy increases share of ET50

• Earnings growth had driven performance in last three years

• Volatility declined 2003-05 but now beginning to increase

• Increased number of companies quoted in emerging markets (eg India & Taiwan)

8/5/06

2000 2001 2002 2003 2004 200510

20

30

40

50

60

70

80

IMPAX ET50 - PERIMPAX ET50 - PRICE INDEX

Source: Thomson Datastream

6 years

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Conclusions

• Environmental Markets/Cleantech represents substantial long-term investment opportunity at the small/mid cap level

• Sector is complex due to regulatory and technical issues

• Impax ET50 Index has been volatile since the beginning of 2000

• Wide range of investment opportunities, more limited if focussed on alternative energy

• Investment universe continues to grow rapidly in all parts of the world

• Strong earnings growth in sector but valuations in certain areas may be stretched

• Specialist funds with flexibility to seek new ideas and stay ahead of the market should outperform the Impax ET50 Index