Invesco Reports Results for the Year and Three Months Ended December 31, 2015

ATLANTA, Jan. 28, 2016 /PRNewswire/ -- Invesco Ltd. (NYSE: IVZ) today reported financial results for the year and three months ended December 31, 2015.

"In spite of volatile markets, our strong, long-term investment performance and sharp focus on helping clients achieve their investment objectives contributed to long-term net inflows of $16.2 billion for the year," said Martin L. Flanagan, president and CEO. "Our focused efforts helped us maintain an operating margin of 41.0% and return more than $1.0 billion of capital to shareholders during 2015. For 2016, given the continued volatility in the markets, we are taking a disciplined approach to managing operations, balancing our goals of reinvesting in the business for the benefit of clients with the need to run our business effectively and efficiently."

Assets Under Management

Total assets under management (AUM) at December 31, 2015, were $775.6 billion (September 30, 2015: $755.8 billion), an increase of $19.8 billion during the fourth quarter. Total net inflows were $4.1 billion for the fourth quarter, as detailed below:

Net market gains led to a $21.0 billion increase in AUM during the fourth quarter, compared to a $35.6 billion decrease in the third quarter 2015. Foreign exchange rate movements led to a $5.3 billion decrease in AUM during the fourth quarter, compared to a $5.9 billion decrease in the third quarter 2015. Average AUM during the fourth quarter were $783.7 billion, compared to $788.9 billion for the third quarter 2015, a decrease of 0.7%. Further analysis is included in the supplementary schedules to this release.

Earnings Summary

The company is presenting both U.S. GAAP earnings information and non-GAAP earnings information in this release. The company believes that the additional disclosure of non-GAAP earnings information provides further transparency into the business on an ongoing operations basis and allows more appropriate comparisons with our industry peers. Management uses these non-GAAP performance measures to evaluate the business, and they are consistent with internal management reporting. These measures are described more fully in the company's Form 10-K. Non-GAAP measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies.

U.S. GAAP Earnings

This section comments on the more significant items that have impacted the company's fourth quarter 2015 results as presented in accordance with U.S. GAAP, as compared to the third quarter 2015.

Operating revenues decreased 2.7% to $1,239.7 million in the fourth quarter, from $1,273.5 million in the third quarter 2015. Operating expenses increased by 1.7% to $936.1 million in the fourth quarter, from $920.8 million in the third quarter 2015.

Business optimization charges of $16.2 million were recorded in the fourth quarter of 2015, including $12.2 million of staff severance costs recorded in employee compensation associated with a business transformation initiative. This is the first part of a broad program that will continue through 2016 focused on transforming several key business support functions to become more effective and efficient. Incremental implementation costs in 2016 are estimated to be up to $85 million and the initiative is expected to generate ongoing cost savings that will more than fully offset the implementation expense within a three year time frame after completion.

Separately, general and administrative expenses for the fourth quarter of 2015 include a provision of $12.6 million pertaining to regulatory investigations and related legal fees of $0.5 million.  This includes $7.6 million associated with our private equity business.

In the first quarter of 2015, the company acquired certain investment management contracts from a third party for a purchase price comprised of contingent consideration payable in future periods.  During the fourth quarter of 2015, changes in the fair value of the contingent consideration liability generated a gain of $8.7 million, which was recorded in other gains and losses, net.  The third quarter of 2015 included a gain of $18.4 million associated with the fair value of this liability.

The inclusion of consolidated investment products in the U.S GAAP earnings resulted in a reduction of $19.4 million in net income attributable to Invesco Ltd. in the fourth quarter, compared to a $13.2 million reduction in the third quarter 2015.

The effective tax rate on continuing operations increased to 30.8% for the fourth quarter, from 29.4% for the third quarter 2015. See note 10 on page 26 for further details.

Non-GAAP Earnings

This section discusses the company's fourth quarter 2015 non-GAAP financial results, as compared to the third quarter 2015. The phrase "as adjusted" is used in the following earnings discussion to identify non-GAAP information, together with the non-GAAP financial measures of net revenues, adjusted operating margin, adjusted net income attributable to Invesco Ltd. and adjusted diluted EPS. The most directly comparable U.S. GAAP items are reconciled to these non-GAAP items on pages 12 through 16 of this release.

Net revenues decreased by $16.9 million (1.9%) to $886.1 million in the fourth quarter, from $903.0 million in the third quarter 2015. The decrease was principally due to reduced investment management fees partly offset by reduced third-party distribution, service and advisory expenses. Foreign exchange rate changes decreased fourth quarter net revenues by $8.1 million when compared to the third quarter 2015.

Investment management fees, as adjusted, decreased $29.3 million (2.8%) to $1,008.8 million in the fourth quarter, from $1,038.1 million in the third quarter 2015. The decrease reflects the lower average AUM and changes in the AUM product and currency mix. Foreign exchange rate changes decreased fourth quarter management fees by $10.1 million when compared to third quarter 2015. 

Service and distribution fees, as adjusted, decreased $7.2 million (3.4%) to $207.6 million in the fourth quarter, from $214.8 million in the third quarter 2015, reflecting the lower average AUM associated with products that charge these fees. Foreign exchange rate changes decreased fourth quarter service and distribution fees by $0.1 million when compared to third quarter 2015.

Performance fees, as adjusted, increased $1.2 million (6.8%) to $18.8 million in the fourth quarter, from $17.6 million in the third quarter 2015. The fourth quarter performance fees included $9.8 million generated from real estate, $3.2 million from U.K. equities and the remainder from a variety of other investment capabilities. Foreign exchange rate changes decreased performance fees by $0.1 million in the fourth quarter when compared to the third quarter 2015.

Other revenues, as adjusted, increased by $1.4 million (5.1%) to $29.0 million in the fourth quarter, from $27.6 million in the third quarter 2015 reflecting increased real estate transaction fees. Foreign exchange rate changes decreased fourth quarter other revenues by $0.1 million when compared to third quarter 2015.

Third-party distribution, service and advisory expenses, as adjusted, decreased by $17.0 million (4.3%) to $378.1 million in the fourth quarter from $395.1 million in the third quarter 2015. The decrease reflects lower retail management fees and service and distribution fees. Foreign exchange rate changes decreased the fourth quarter third-party distribution, services and advisory expenses by $2.3 million.

Total operating expenses, as adjusted, increased by $0.8 million (0.2%) to $530.4 million in the fourth quarter, from $529.6 million in the third quarter 2015. Foreign exchange rate changes decreased fourth quarter operating expenses by $3.9 million when compared to the third quarter 2015.

Employee compensation expenses, as adjusted, decreased by $8.1 million (2.3%) to $338.8 million in the fourth quarter, from $346.9 million in the third quarter 2015. The decreased reflected lower incentive compensation combined with the impact of foreign exchange rate changes. Foreign exchange rate changes decreased fourth quarter employee compensation expenses by $2.3 million when compared to the third quarter 2015.

Marketing expenses, as adjusted, increased by $8.8 million (34.1%) to $34.6 million in the fourth quarter, from $25.8 million in the third quarter 2015 due to a seasonal increase in advertising and other marketing costs in support of the business, particularly in EMEA. Foreign exchange rate changes decreased fourth quarter marketing expenses by $0.4 million when compared to the third quarter 2015.

Property, office and technology expenses, as adjusted, increased $0.5 million (0.6%) to $80.4 million in the fourth quarter, from $79.9 million in the third quarter 2015. Foreign exchange rate changes decreased fourth quarter property, office and technology expenses by $0.5 million when compared to the third quarter 2015.

General and administrative expenses, as adjusted, decreased $0.4 million (0.5%) to $76.6 million in the fourth quarter, from $77.0 million in the third quarter 2015. Foreign exchange rate changes decreased fourth quarter general and administrative expenses by $0.7 million when compared to the third quarter 2015.

Non-operating other income and expenses, as adjusted, included equity in earnings from investments of $0.3 million in the fourth quarter, compared to $4.2 million in the third quarter 2015. Other gains and losses, net in the fourth quarter were a loss of $10.3 million compared to a third quarter 2015 loss of $6.6 million. Fourth quarter other gains and losses, net included a $7.3 million realized loss on the disposition of private equity partnership interests and a $2.0 million unrealized loss on the mark-to-market of other seed money investments. Separately, other income of consolidated sponsored investment products (CSIP), net was a gain of $0.8 million in the fourth quarter compared to a third quarter 2015 loss of $3.6 million.

The adjusted effective tax rate increased to 26.6% for the fourth quarter, from 26.5% for the third quarter 2015.

Balance Sheet and Cash Flow Statement Presentation

The company is presenting in this release both a U.S. GAAP balance sheet and balance sheet information excluding consolidated investment products (CIP), along with a U.S. GAAP statement of cash flows and cash flow statement information excluding CIP. The information presented excluding CIP is a non-GAAP presentation. Balance sheet and cash flow statement information before and after the consolidation of investment products is reconciled on pages 19 and 22, respectively.

The company believes that, by excluding the consolidation of investment products, the non-GAAP balance sheet and cash flow statement information provides a more representative presentation of our financial risks and the company's cash and debt positions, allowing more appropriate comparisons with our industry peers. Management uses these non-GAAP presentations to evaluate the business, and the presentations are consistent with internal management reporting. As demonstrated by the selected balance sheet data that follows, inclusion of the long-term debt of CIP within liquidity measures, such as debt-to-equity ratios, causes the company to appear to be significantly more indebted than is actually the case.

Balance Sheets and Capital Management

Selected balance sheet information is reflected in the table below:

As of December 31, 2015, the company's cash and cash equivalents were $1,851.4 million, with long-term debt of $2,072.8 million. The credit facility balance was zero at December 31, 2015, $99.5 million at September 30, 2015 and zero at December 31, 2014.

During the fourth quarter the company issued senior notes with aggregate principal amounts of $500 million at an interest rate of 3.75% due January 15, 2026.

Dividends paid in the fourth quarter were $113.8 million bringing total 2015 full-year cash dividends to $454.5 million. Today the company is announcing a fourth-quarter cash dividend of 27.0 cents per share to holders of common shares. The dividend is payable on March 4, 2016, to shareholders of record at the close of business on February 18, 2016, with an ex-dividend date of February 16, 2016.

During the fourth quarter the company repurchased $214.8 million of its common shares, representing 6.5 million shares at a weighted average share price of $33.11. This brings year-to-date repurchases to $548.8 million representing 15.5 million shares.

Headcount

As of December 31, 2015, the company had 6,490 employees, compared to 6,430 employees as of September 30, 2015, and 6,264 at December 31, 2014. The majority of the headcount increase is attributable to growth in our global shared service centers.

Business Acquisitions

During the fourth quarter of 2015 the company announced that it is increasing its ownership of Religare Invesco Asset Management Company, our joint venture in India, from 49% to 100%.  The acquisition of this controlling interest is expected to close in early 2016 pending regulatory approvals.

On January 12, 2016 the company announced it had acquired Jemstep, a market-leading provider of advisor-focused digital solutions.

Invesco Ltd. is a leading independent global investment management firm, dedicated to helping investors worldwide achieve their financial objectives. By delivering the combined power of our distinctive investment management capabilities, Invesco provides a wide range of investment strategies and vehicles to our clients around the world. Operating in more than 20 countries, the firm is listed on the New York Stock Exchange under the symbol IVZ. Additional information is available at www.invesco.com.

Members of the investment community and general public are invited to listen to the conference call today, January 28, 2016, at 9:00 a.m. ET by dialing one of the following numbers: 1-866-617-1526 for U.S. and Canadian callers or 1-210-795-0624 for international callers. An audio replay of the conference call will be available until February 11, 2016 at 5:00 p.m. ET by calling 1-866-423-4776 for U.S. and Canadian callers or 1-203-369-0842 for international callers. A presentation highlighting the company's performance will be available during a live Webcast and on Invesco's Website at www.invesco.com.

This release, and comments made in the associated conference call today, may include "forward-looking statements." Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, assets under management, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "projects," "forecasts," and future or conditional verbs such as "will," "may," "could," "should," and "would" as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q, filed with the Securities and Exchange Commission. You may obtain these reports from the SEC's website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Invesco Ltd.
Notes

We are presenting the following non-GAAP performance measures: net revenue (and by calculation, net revenue yield on AUM), adjusted operating income (and by calculation, adjusted operating margin), and adjusted net income attributable to Invesco Ltd. (and by calculation, adjusted diluted earnings per share (EPS)). We believe these non-GAAP measures provide greater transparency into our business on an ongoing operations basis and allow more appropriate comparisons with industry peers. Management uses these performance measures to evaluate the business, and they are consistent with internal management reporting. The most directly comparable U.S. GAAP measures are operating revenues (and by calculation, gross revenue yield on AUM), operating income (and by calculation, operating margin), and net income attributable to Invesco Ltd. (and by calculation, diluted EPS). Non-GAAP measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies.

Notes 1 through 8 relate to the income statement reconciliations presented on pages 12 through 16. Further explanations of the reasons the company considers it appropriate to present these adjustments in arriving at the non-GAAP measures can be found in the company's Form 10-K.

Note 9 relates to the balance sheet and cash flow statement reconciliations on pages 19 and 22, respectively.

Note 10 relates to the U.S. GAAP effective tax rate and the impact of non-controlling interests in consolidated investment products (CIP) and consolidated sponsored investment products (CSIP) on the rate.

Note 11 relates to debt balances included in the balance sheet information on page 6 and in the balance sheets and balance sheet reconciliations.

1.       Acquisition/disposition related adjustments

Acquisition/disposition related adjustments are comprised of amounts incurred by the company in connection with business combinations, including transaction and integration expenses, costs related to pre-acquisition matters, intangible asset amortization, changes in the fair value of a contingent consideration liability and all related tax effects. In addition, the net (income)/loss from discontinued operations associated with the sale of the Atlantic Trust business has been excluded from the non-GAAP income statement information. Exclusion of this line item assists in evaluating the continuing business performance and comparability with our results period to period, and aids comparability with peer companies that may not have similar discontinued operations.

Adjustment amounts related to acquisition and disposition activities are as follows:

2.   Third-party distribution, service and advisory expenses

Third-party distribution, service and advisory expenses include renewal commissions, management fee rebates and distribution costs (12b-1 and marketing support) paid to brokers and independent financial advisors, and other service and administrative fees paid to third parties, which are all closely linked to the revenue earned by the company from AUM but vary extensively by geography due to differences in distribution channels. The non-GAAP presentation nets these costs against revenues to arrive at net revenues, which serves to reflect these costs as revenue sharing activities and to remove distortions caused by differing distribution channel fees.

3.   Proportional share of net revenues and operating income from joint venture investments

The company has two joint ventures in China. U.S. GAAP requires classification of the joint venture net income as equity in earnings of unconsolidated affiliates. The non-GAAP adjustment proportionately consolidates these joint ventures, serving to illustrate the contribution of these joint ventures to the operations of the business.

4.   Consolidated investment products (CIP)

Management and performance fees earned by the company, which were eliminated from operating revenues upon consolidation of the CIPs, were $10.0 million in the fourth quarter (third quarter 2015: $9.5 million; fourth quarter 2014: $10.0 million; 2015: $39.2 million; 2014: $35.8 million). Other revenues recorded by the CIPs were zero in the fourth quarter (third quarter 2015: zero; fourth quarter 2014: 0.4 million; 2015: zero; 2014: $0.6 million). By deconsolidating these products in the non-GAAP information, the management and performance fees are added back while the other revenues are excluded. Similarly, the operating expenses of the CIPs and impact on interest income, interest expense, gains and losses, and noncontrolling interests are removed in reconciling from the U.S. GAAP income statement to the non-GAAP information. The consolidation of the investment products resulted in a decrease of $19.4 million in net income attributable to Invesco Ltd. in the fourth quarter U.S. GAAP earnings (third quarter 2015: $13.2 million decrease; fourth quarter 2014: $2.1 million increase; 2015: $40.4 million decrease; 2014: $7.8 million increase). The above adjustments remove this impact.

5.   Market appreciation / depreciation of deferred compensation awards

This adjustment relates to deferred cash compensation that is linked in value to investment products. The change in compensation expense and the investment income or loss, inclusive of interest and dividend income, are adjusted in arriving at the non-GAAP information and, net of the applicable taxation, result in a net income addition or deduction.

6.   Other reconciling items

a.       Business optimization: Operating expenses for the fourth quarter of 2015 include costs associated with a business transformation initiative that includes severance costs of $12.2 million, and consulting and temporary labor costs of $2.0 million.  Separately, property related charges of $2.0 million associated with vacating leased properties as part of a ongoing location strategy were recorded in the fourth quarter of 2015(fourth quarter 2014: $2.7 million credit; 2015: $4.4 million credit; 2014; $33.1 million charge).

b.       General and administrative expenses for the fourth quarter of 2015 include a provision of $12.6 million pertaining to regulatory investigations and related legal fees of $0.5 million.  This includes $7.6 million associated with our private equity business.  

Operating expenses in 2014 include a charge of $31.1 million in respect of the penalty under a settlement of an enforcement proceeding reached with the U.K. Financial Conduct Authority (FCA) pertaining to the company's compliance with certain FCA rules and regulations for the period from May 2008 to November 2012. This charge, together with settlement-related legal costs of $0.5 million, was recorded in general and administrative expenses.

c.       Included within general and administrative expenses for 2015 is a charge of $4.7 million (fourth quarter 2014: $1.6 million; 2014: $31.1 million) in respect of a multi-year fund reimbursement expense associated with historical private equity management fees. The charge resulted primarily from using a more appropriate methodology regarding the calculation of offsets to management fees.

d.       Included within general and administrative expenses for the fourth quarter 2014 is a credit of $4.7 million related to the partial refund of a 2010 levy from the U.K. Financial Services Compensation Scheme.

e.       Included within other gains and losses, net is the mark-to-market of foreign exchange put option contracts intended to provide protection against the impact of a significant decline in the Pound Sterling/U.S. Dollar foreign exchange rate. These contracts provided coverage through March 31, 2016. The adjustment from U.S. GAAP to non-GAAP earnings removes the impact of market volatility; therefore, the company's non-GAAP results include only the amortization of the cost of the contracts during the contract period.

Each of these other reconciling items has been adjusted from U.S. GAAP to arrive at the company's non-GAAP financial measures for the reasons either outlined in the paragraphs above, due to the unique character and magnitude of the reconciling item, or because the item represents a continuation of a reconciling item adjusted from U.S. GAAP in a prior period.

7.   Definition of operating margin and adjusted operating margin

Operating margin is equal to operating income divided by operating revenues. Adjusted operating margin is equal to adjusted operating income divided by net revenues.

8.   Definition of adjusted diluted EPS

Adjusted diluted EPS is equal to adjusted net income attributable to Invesco Ltd. divided by the weighted average number of common and restricted shares outstanding.  There is no difference between the calculated earnings per share amounts presented in this earnings release and the calculated earnings per share amounts under the two class method.

9.   Balance sheets and cash flow information excluding CIP

U.S. GAAP condensed consolidated balance sheets and condensed consolidated statements of cash flows reflect the consolidation of CIP. The majority of the company's CIP balances are CLO-related. The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral assets held by the CLOs, beyond the company's minimal direct investments in, and management fees generated from, CLOs. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Additionally, the investors in the CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. The company therefore does not consider this debt to be a company liability. Similarly, cash held by CIP is not available for general use by Invesco, nor is Invesco cash available for general use by its CIP.

By deconsolidating the CIP in the condensed consolidated balance sheet information excluding CIP, the assets, liabilities and equity of the CIP are removed and the company's equity interest in the investment products, accounted for as equity method and available-for-sale investments, are replaced. The company considers this a more representative presentation of the company's financial position, and calculations made therefrom, such as debt-to-equity ratios, are more meaningful excluding these balances.

The condensed consolidated cash flow information excluding CIP present the cash flows of the company separately and before consolidation of CIP, as the cash flows of CIP do not form part of the company's cash flow management processes, nor do they form part of the company's significant liquidity evaluations and decisions for the reasons noted.

10. U.S. GAAP Effective Tax Rate

The effective tax rate on continuing operations increased to 30.8% for the fourth quarter, from 29.4% for the third quarter 2015 and increased from 30.5% for the fourth quarter 2014. The impact of the inclusion of non-controlling interests in CIP and CSIP increased our effective tax rate by 0.7% for the fourth quarter, compared to an increase of 0.7% for the third quarter 2015 and an increase of 3.6% for the fourth quarter 2014.

11.  Long-term Debt

The company adopted ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs," as of December 31, 2015 on a retrospective basis to all prior balance sheet periods presented.  As a result of the retrospective adoption, the Company reclassified unamortized debt issuance costs of $15.9 million and $12.5 million as of December 31, 2015 and December 31, 2014, respectively, from Other Assets to Long-Term Debt within its consolidated balance sheets.

Invesco Ltd.
Quarterly Assets Under Management

Invesco Ltd.
Quarterly Assets Under Management (continued)

 

Invesco Ltd.
Year-to-Date Assets Under Management

Invesco Ltd.
Year-to-Date Assets Under Management (continued)

Invesco Ltd.
Quarterly Assets Under Management - Passive^(e)

           

           

Invesco Ltd.
Year-to-Date Assets Under Management - Passive^(e)

           

 

Invesco Ltd.
Footnotes to the Assets Under Management Tables

Invesco Ltd.
Investment Capabilities Performance Overview

SOURCE Invesco Ltd.