Invesco Reports Results for Three Months Ended December 31, 2012 Continued strong, long-term investment performance

Adjusted operating income increased 10.4%

Total shareholder return of capital of $554 million during 2012

ATLANTA, Jan. 31, 2013 /PRNewswire/ -- Invesco Ltd. (NYSE: IVZ) today reported financial results for the three months and year ended December 31, 2012.

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"Invesco's focus on delivering strong, long-term investment performance to our clients contributed to a 10.4% increase in operating income for the quarter," said Martin L. Flanagan, president and CEO of Invesco. "During 2012, we continued to make progress against our strategic objectives, while further investing in the business for long-term success. Reflecting continued confidence in the fundamentals of our business, we raised our dividend early in 2012 and returned in excess of $550 million to shareholders during the year."



Q4-12


Q3-12


Q4-12 vs. Q3-12


Q4-11


Q4-12 vs. Q4-11


Adjusted Financial Measures(1)











Net revenues

$775.9m


$734.7m


5.6

%


$716.8m


8.2

%


Operating income

$276.5m


$250.4m


10.4

%


$256.3m


7.9

%


Operating margin

35.6

%


34.1

%




35.8

%




Net income attributable to common
shareholders

$202.6m


$188.4m


7.5

%


$190.5m


6.4

%


Diluted EPS

$0.45



$0.42



7.1

%


$0.42



7.1

%













U.S. GAAP Financial Measures











Operating revenues

$1,092.9m


$1,041.4m


4.9

%


$997.1m


9.6

%


Operating income

$222.8m


$216.0m


3.1

%


$211.6m


5.3

%


Operating margin

20.4

%


20.7

%




21.2

%




Net income attributable to common
shareholders

$158.7m


$170.6m


(7.0)

%


$202.3m


(21.6)

%


Diluted EPS

$0.35



$0.38



(7.9)

%


$0.44



(20.5)

%













Assets Under Management











Ending AUM

$687.7bn


$683.0bn


0.7

%


$625.3bn


10.0

%


Average AUM

$680.2bn


$667.9bn


1.8

%


$621.7bn


9.4

%







(1) The adjusted financial measures are all non-GAAP financial measures. See the information on pages 12 through 16 for a reconciliation to their most directly comparable U.S. GAAP measures and the notes beginning on page 23 for other important disclosures.






2012


2011


% Change


Adjusted Financial Measures(1)







Net revenues

$2,959.0m


$2,898.4m


2.1

%


Operating income

$1,045.1m


$1,068.9m


(2.2)

%


Operating margin

35.3

%


36.9

%




Net income attributable to common shareholders

$776.7m


$781.6m


(0.6)

%


Diluted EPS

1.71



1.68



1.8

%









U.S. GAAP Financial Measures







Operating revenues

$4,177.0m


$4,092.2m


2.1

%


Operating income

$871.5m


$898.1m


(3.0)

%


Operating margin

20.9

%


21.9

%




Net income attributable to common shareholders

$677.1m


$729.7m


(7.2)

%


Diluted EPS

1.49



1.57



(5.1)

%









Assets Under Management







Ending AUM

$687.7bn


$625.3bn


10.0

%


Average AUM

$664.4bn


$634.3bn


4.7

%







(1) The adjusted financial measures are all non-GAAP financial measures. See the information on pages 12 through 16 for a reconciliation to their most directly comparable U.S. GAAP measures and the notes beginning on page 23 for other important disclosures.




Assets Under Management

Total assets under management (AUM) at December 31, 2012 were $687.7 billion (September 30, 2012: $683.0 billion), an increase of $4.7 billion during the fourth quarter. Total net inflows were $1.0 billion for the fourth quarter as detailed below. Long-term net flows during the fourth quarter include a $1.6 billion outflow related to a CDO maturity.




Quarterly



Year-to-date



Summary of net flows (in billions)


Q4-12


Q3-12


Q4-11


Dec 31, 2012


Dec 31, 2011


Active


$1.8



$3.6



($0.2)



$1.3



$1.7



Passive


(0.9)



5.8



5.8



11.1



17.5



Long-term net flows


0.9



9.4



5.6



12.4



19.2



Money market


0.1



2.3



0.4



0.1



5.3



Total net flows


$1.0



$11.7



$6.0



$12.5



$24.5


















Net market gains led to a $4.9 billion increase in AUM during the fourth quarter, compared to a $22.1 billion increase in the third quarter 2012. Foreign exchange rate movements led to a $1.2 billion decrease in AUM during the fourth quarter, compared to a $4.3 billion increase in the third quarter 2012.

Average AUM during the fourth quarter were $680.2 billion, compared to $667.9 billion for the third quarter 2012, a 1.8% increase. 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, as described more fully in the Form 10-K for the year ended December 31, 2011, provides further transparency into the business 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.

Non-GAAP Earnings

This section discusses the company's fourth quarter 2012 compared to the third quarter 2012 non-GAAP financial results. 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 (and by calculation net revenue yield), adjusted operating income, adjusted operating margin, adjusted net income attributable to common shareholders 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 increased by $41.2 million (5.6%) to $775.9 million in the fourth quarter from $734.7 million in the third quarter 2012. The change was principally due to increases in investment management fees and performance fee revenues. Net revenue yield before performance fees improved by 0.6 basis points from 43.8 basis points to 44.4 basis points, reflecting an average AUM weighting move towards higher fee-earning asset classes. Foreign exchange rate changes increased fourth quarter net revenues by $2.5 million when compared to the third quarter 2012.

Investment management fees, as adjusted, increased $25.1 million (3.0%) to $865.0 million in the fourth quarter from $839.9 million in the third quarter 2012. The increase reflects higher average AUM as well as increasing revenue yields. Foreign exchange rate changes increased fourth quarter management fees by $3.8 million when compared to third quarter 2012.

Service and distribution fees, as adjusted, increased $3.3 million (1.7%) to $199.4 million in the fourth quarter from $196.1 million in the third quarter 2012, reflecting the higher average AUM. Foreign exchange rate changes increased fourth quarter service and distribution fees by $0.3 million when compared to third quarter 2012.

Performance fees, as adjusted, were $21.1 million in the fourth quarter compared to $3.4 million in the third quarter 2012. The fourth quarter performance fees were primarily earned by our private wealth management business. Other revenues, as adjusted, increased by $3.0 million (12.3%) in the fourth quarter to $27.4 million, compared to $24.4 million in the third quarter 2012, principally due to improved transaction fees from real estate fund activities.

Third-party distribution, service and advisory expenses, as adjusted, increased by $7.9 million (2.4%) to $337.0 million in the fourth quarter compared to $329.1 million in the third quarter 2012, increasing in line with higher investment management fees and service and distribution fees. Foreign exchange rate changes increased the fourth quarter third-party distribution, services and advisory expenses by $1.6 million.

Total operating expenses, as adjusted, increased by $15.1 million (3.1%) to $499.4 million in the fourth quarter from $484.3 million in the third quarter 2012 primarily due to increased employee compensation expenses. Foreign exchange rate changes increased operating expenses by $1.4 million when compared to the third quarter 2012.

Employee compensation expenses, as adjusted, increased by $14.3 million (4.4%) to $342.0 million in the fourth quarter from $327.7 million in the third quarter 2012. The fourth quarter includes additional bonus expense predominately linked to the quarter's performance fee revenues and increases in operating income. In addition, the fourth quarter included a $1.5 million increase in sales commissions in our Continental European business, and a $4.8 million increase in other staff related expenses driven by investment in our fixed income business and year-end staff benefit expense adjustments. Foreign exchange rate changes increased fourth quarter employee compensation expenses by $0.7 million when compared to the third quarter 2012.

Marketing expenses, as adjusted, decreased by $2.7 million (10.2%) to $23.8 million in the fourth quarter from $26.5 million in the third quarter 2012 due to reduced advertising expenditure. Foreign exchange rate changes increased fourth quarter marketing expenses by $0.2 million when compared to the third quarter 2012.

Property, office and technology expenses, as adjusted, increased $2.4 million (3.5%) to $71.7 million in the fourth quarter from $69.3 million in the third quarter 2012. The fourth quarter included increases in outsourced administration in Europe as we transitioned the U.K. transfer agency processes to a third party provider. Foreign exchange rate changes increased fourth quarter property, office and technology expenses by $0.2 million when compared to the third quarter 2012.

General and administrative expenses, as adjusted, increased $1.1 million (1.8%) to $61.9 million in the fourth quarter from $60.8 million in the third quarter 2012. The fourth quarter included additional professional services expenses associated with increasing regulatory requirements in Europe. Foreign exchange rate changes increased fourth quarter general and administrative expenses by $0.2 million when compared to the third quarter 2012.

Non-operating other income and expenses, as adjusted, included equity in earnings from partnership investments of $2.8 million in the fourth quarter compared to $1.6 million in the third quarter 2012. Other gains and losses, net in the fourth quarter were a loss of $0.4 million compared to third quarter investment realized gains of $9.5 million. The effective tax rate decreased to 25.0% for the fourth quarter from 25.8% for the third quarter 2012.

U.S. GAAP Earnings

Operating revenues increased 4.9% to $1,092.9 million in the fourth quarter from $1,041.4 million in the third quarter 2012. Operating expenses increased by 5.4% to $870.1 million in the fourth quarter from $825.4 million in the third quarter 2012.

Operating expenses include $21.7 million in the fourth quarter related to the European infrastructure initiative, compared to $4.0 million for the third quarter. As part of the outsourcing of the U.K. transfer agency, operational process changes resulted in an accounting adjustment recognizing additional distribution expense of $15.3 million in the fourth quarter. This additional expense is attributable to periods prior to 2012 and has no impact on cash flows.

Operating expenses included $2.6 million of transaction and integration charges incurred in the fourth quarter relating to the remaining closed-end fund merger expenses associated with the 2010 acquisition of Morgan Stanley's retail asset management business, including Van Kampen Investments, together with incurred professional services costs associated with the pending acquisition of a 49.0% ownership interest in Religare Asset Management Limited. Transaction and integration charges were $3.0 million in the third quarter 2012.

Other gains and losses, net included a charge of $23.5 million in the fourth quarter related to the call premiums on the redemption of the $333.5 million principal amount of 5.375% Senior Notes due February 27, 2013 and the $197.1 million principal amount of the 5.375% Senior Notes due December 15, 2014. The third quarter included an $8.3 million gain on the sale of certain European CLO management contracts.

The effective tax rate, excluding noncontrolling interests, decreased to 28.1% for the fourth quarter from 30.3% for the third quarter 2012.

Balance Sheet and Cash Flow Statement Presentation

The company is presenting both a U.S. GAAP balance sheet and balance sheet information excluding consolidated investment products, along with a U.S. GAAP statement of cash flows and cash flow statement information excluding consolidated investment products in this release. The information presented excluding consolidated investment products are non-GAAP presentations. Balance sheet and cash flow statement information before and after the consolidation of investment products are 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 provide 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 consolidated investment products within liquidity measures, such as debt-to-equity ratios, causes the company to appear to be far more indebted than is the case.

Balance Sheets and Capital Management

Selected balance sheet information is reflected in the table below:




Excluding Consolidated
Investment Products (CIP)
(Non-GAAP)(1)



Including Consolidated
Investment Products (CIP)
(U.S. GAAP)




December 31, 2012


December 31, 2011


December 31, 2012


December 31, 2011

$ in millions









Cash and cash equivalents


$835.5



$727.4



$835.5



$727.4


Investments of CIP






4,550.6



6,629.0


Total assets(1)


$12,640.9



$12,329.2



$17,492.4



$19,347.0











Current maturities of total debt


$—



$215.1



$—



$215.1


Long-term debt


1,186.0



1,069.6



1,186.0



1,069.6


Long-term debt of CIP






3,899.4



5,512.9


Total debt / Total debt plus CIP debt


$1,186.0



$1,284.7



$5,085.4



$6,797.6











Total liabilities(1)


$4,448.6



$4,541.0



$8,443.4



$10,209.4











Total equity(1)


$8,192.3



$7,788.2



$9,049.0



$9,137.6











Debt/Equity % (1) (2)


14.5

%


16.5

%


56.2

%


74.4

%






(1) The balance sheet line items excluding consolidated investment products are non-GAAP financial measures. See the reconciliation information on page 19 for a fully expanded balance sheet before and after the consolidation of investment products.

(2) The debt/equity ratio excluding CIP is a non-GAAP financial measure. The debt/equity ratio is calculated as total debt divided by total equity for the balance sheet excluding CIP and total debt plus long-term debt of CIP divided by equity for the balance sheet including CIP.




As of December 31, 2012, the company's cash and cash equivalents were $835.5 million with total debt of $1,186.0 million The credit facility balance was $586.5 million at December 31, 2012, compared to $754.5 million at September 30, 2012 and $539.0 million at December 31, 2011.

During the fourth quarter the company issued an initial aggregate principal amount of $600.0 million of 3.125% senior notes with a maturity of November 30, 2022. The majority of the proceeds were used to redeem the $333.5 million principal amount of 5.375% Senior Notes due February 27, 2013 and the $197.1 million principal amount of the 5.375% Senior Notes due December 15, 2014.

During the fourth quarter, the company repurchased $75.0 million of its stock, representing 3.0 million shares at a weighted average share price of $24.64, bringing the total 2012 full-year stock repurchases to $265.0 million.

Dividends paid in the fourth quarter were $77.6 million bringing the total 2012 full-year cash dividends to $289.0 million. Today the company is announcing a fourth-quarter cash dividend of 17.25 cents per share to holders of common shares. The dividend is payable on March 8, 2013 to shareholders of record at the close of business on February 21, 2013.

Headcount

As of December 31, 2012, the company had 6,128 employees, compared to 6,101 employees as of September 30, 2012.

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 retail, institutional and high net worth 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, Thursday, January 31, 2013, at 9:00 a.m. ET by dialing one of the following numbers: 1-866-617-1526 for U.S. and Canadian callers and 0800-279-9630 for U.K. callers or 1-210-795-0624 for international callers. An audio replay of the conference call will be available until Thursday, February 14, 2013 at 5:00 p.m. ET by calling 1-866-365-2384 for U.S. and Canadian callers or 1-203-369-0214 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, AUM, acquisitions, 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.