Invesco Ltd. — 2020 Form 10-K Summary
Business context and reporting period. Invesco is a global investment manager reporting one operating segment. This annual report covers the fiscal year ended December 31, 2020; the filing also provides unaudited fourth-quarter results. At year-end, Invesco managed $1.350 trillion for clients in more than 120 countries and had 8,512 employees. Its results depend chiefly on assets under management (AUM), market performance, client flows, investment mix and fee rates.
Financial performance and key metrics
Amounts below are in U.S. dollars; annual comparisons are 2020 versus 2019 unless stated otherwise. Adjusted measures are non-GAAP and should be considered alongside GAAP results.
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Operating revenues | $6,145.6 million | $6,117.4 million | Up 0.5% |
| Net revenues (non-GAAP) | $4,501.0 million | $4,415.1 million | Up 1.9% |
| Operating income | $920.4 million | $808.2 million | Up 13.9%; GAAP operating margin rose to 15.0% from 13.2% |
| Adjusted operating income (non-GAAP) | $1,664.5 million | $1,655.8 million | Up 0.5%; adjusted operating margin eased to 37.0% from 37.5% |
| Net income attributable to Invesco Ltd. | $524.8 million | $564.7 million | Down 7.1% |
| Adjusted net income attributable to Invesco Ltd. (non-GAAP) | $892.9 million | $1,124.0 million | Down 20.6% |
| Diluted EPS / adjusted diluted EPS (non-GAAP) | $1.13 / $1.93 | $1.28 / $2.55 | Both declined |
| Operating cash flow | $1,230.3 million | $1,116.6 million | Excluding consolidated investment products (CIP), $1,303.0 million versus $1,274.9 million |
| Cash and cash equivalents | $1,408.4 million | $1,049.0 million | Up $359.4 million; excludes restricted cash and CIP cash |
| Long-term debt | $2,082.6 million | $2,080.3 million | Company debt; excludes $6,714.1 million of non-recourse CIP debt |
Year-end AUM was $1,349.9 billion, up from $1,226.2 billion. The increase reflected $103.0 billion of market gains, $16.9 billion of reinvested distributions and $10.3 billion of foreign currency translation, offset in part by $6.5 billion of total net outflows. Long-term net flows were negative $15.7 billion. Retail AUM was $947.1 billion and institutional AUM $402.8 billion. Passive AUM increased 24.8% to $370.6 billion, while active AUM rose 5.4% to $979.3 billion.
Net revenue yield fell to 37.7 basis points from 40.3 basis points. Management attributed the decline to the greater share of lower-fee passive products, growth in QQQ, and shifts toward lower-fee fixed-income, money-market and stable-value products. Management said these factors are expected to pressure revenue and yields in the near term.
Fourth quarter: Operating revenues were $1,630.1 million versus $1,742.8 million in Q4 2019; operating income was $217.8 million versus $314.6 million. Net income attributable to Invesco Ltd. was $211.1 million versus $179.8 million, and diluted EPS was $0.46 versus $0.39. Q4 2020 performance fees were $57.3 million, compared with $49.8 million a year earlier.
Material changes and unusual items
- The OppenheimerFunds acquisition, completed in May 2019, affected year-over-year comparisons and contributed to 2019 AUM and expenses. There were no acquisitions in 2020.
- Transaction, integration and restructuring expense decreased to $393.3 million from $673.0 million, largely reflecting lower OppenheimerFunds integration costs. 2020 included $147.8 million of restructuring charges, including $119.0 million for a new strategic cost initiative.
- A $105.3 million charge was recorded for a missed rebalancing of two S&P 500 equal-weight funds. Invesco compensated the funds and is seeking insurance recovery; recovery amount and timing are uncertain.
- Invesco recorded a $387.8 million liability for expected remediation and shareholder reimbursements relating to restated historical financial statements for four MLP funds acquired with OppenheimerFunds. The estimate relies substantially on incomplete shareholder data; possible insurance or indemnification recoveries are excluded, and the ultimate amount remains uncertain.
- Other significant 2020 income-statement items included $44.9 million of net other gains, including investment and deferred-compensation-related gains, partly offset by investment and foreign-exchange losses. Preferred-share dividends were $236.8 million, versus $123.6 million in 2019.
Liquidity, capital and outlook
Management said available cash, operating cash generation and the undrawn $1.5 billion revolving credit facility should provide resources for operating needs, debt service and expected capital requirements. The facility had no balance outstanding at year-end. All company long-term borrowings were fixed-rate; weighted-average debt cost was 3.77%. The company reported compliance with debt covenants, with a 1.37:1 leverage ratio against a 3.25:1 maximum and 11.83:1 interest coverage against a 4.00:1 minimum. Some subsidiary cash is subject to regulatory or jurisdictional restrictions; the minimum regulatory capital requirement was $763.6 million.
Invesco reduced its common dividend to $0.155 per share beginning with the second-quarter 2020 dividend, paid $0.78 per common share for the year, and made no open-market share repurchases in 2020. It continued settlements under previously entered share-repurchase forward contracts. The company also issued approximately $4.0 billion of 5.9% perpetual preferred shares in the 2019 OppenheimerFunds transaction.
Management’s strategic evaluation targets $200 million in permanent annual net operating expense improvements, with $150 million expected by the end of 2021 and the balance by the end of 2022. Management estimated another $150 million to $175 million of restructuring costs over the following two years. The filing does not provide earnings or revenue guidance.
Management described continued uncertainty from COVID-19, market volatility and remote operations. Other principal risks include AUM declines or outflows, fee compression and passive-product competition, investment underperformance, foreign-exchange exposure, cyber and operational disruption, regulatory and litigation exposure, and the LIBOR transition. Brexit-related financial-services arrangements were still evolving. Invesco reported that the independent auditor gave an unqualified opinion on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective as of year-end.
Most important facts for investors to verify
- Track AUM flows and market-driven growth separately, particularly retail outflows, passive-product growth and the effect of QQQ on fee yield.
- Monitor whether the targeted $200 million annual expense savings are achieved, alongside restructuring costs and the distinction between GAAP and adjusted margins and earnings.
- Follow the $387.8 million MLP-fund remediation estimate as remaining omnibus-account data is obtained, including any insurance or MassMutual indemnification recoveries.
- Check for updates on the $105.3 million fund-rebalancing loss and the uncertain insurance recovery.
- Assess cash availability after subsidiary capital restrictions, preferred-dividend obligations, forward-contract settlements and scheduled debt maturities; distinguish Invesco’s debt from non-recourse CIP debt.
- Review the assumptions behind management’s near-term fee-yield outlook and the sensitivity of earnings to markets, flows, foreign exchange and interest rates.