Business Context and Reporting Period
Company: Invesco Ltd.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: Invesco is a global investment manager providing retail, institutional, and high-net-worth clients with investment management capabilities. As of March 31, 2009, the company managed $348.2 billion in assets under management (AUM).
Key Financial Metrics
| Metric ($ in millions) | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Operating Revenues | 548.6 | 910.4 |
| Net Revenues (Non-GAAP) | 410.0 | 684.2 |
| Operating Income | 61.8 | 228.1 |
| Net Income Attributable to Common Shareholders | 30.7 | 155.2 |
| Diluted Earnings Per Share | $0.08 | $0.39 |
| Operating Margin | 11.3% | 25.1% |
| Cash and Cash Equivalents | 333.1 | 802.3 (End of Q1 2008) |
| Total Debt | 1,151.7 | 1,159.2 (Dec 31, 2008) |
Liquidity: Cash and cash equivalents decreased to $333.1 million from $585.2 million at year-end 2008, primarily due to dividend payments and annual bonus funding. The company maintains a $900 million credit facility with $7.5 million drawn as of March 31, 2009.
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased 39.7% to $548.6 million. This was driven by a 40.8% drop in investment management fees due to lower average AUM ($351.0 billion vs. $476.6 billion in 2008), unfavorable foreign exchange rates (impacting $85.7 million of the decline), and a shift in asset mix toward lower-yielding money market funds.
- Expense Reduction: Total operating expenses decreased 28.7% to $486.8 million. Significant reductions occurred in third-party distribution expenses (down 40.0%) and general and administrative expenses (down 56.1%, aided by a $9.5 million insurance recovery).
- Profitability: Operating income fell 72.9% to $61.8 million. Net income attributable to common shareholders dropped 80.2% to $30.7 million.
- Consolidated Investment Products: Net losses of consolidated investment products totaled $86.5 million, largely offset by noncontrolling interests. This reflects market declines in underlying assets held by consolidated funds.
Guidance, Outlook, and Risks
Management Commentary: Management noted that global equity markets declined in Q1 2009 but rebounded in April. The company emphasized cost containment measures and a shift in asset mix. AUM declined due to market losses and foreign exchange, partially offset by net inflows in long-term AUM and institutional money market funds.
Outlook: The company is exploring opportunities to obtain a new multi-year credit facility to replace the $900 million facility expiring in March 2010 and the $294.2 million senior notes maturing in December 2009.
Risks and Contingencies:
- Goodwill Impairment: An interim goodwill impairment test was conducted due to market declines; no impairment was recorded. However, management noted that a 20% decline in fair value or a 2% increase in the discount rate could trigger an impairment loss.
- Contingent Support Agreements: The company has committed up to $54.0 million (potentially $64.5 million) in support for two investment trusts to maintain stable pricing. No payments have been made to date.
- Legal Proceedings: Ongoing regulatory investigations and market timing lawsuits are subject to settlement. A $9.8 million settlement was recorded in 2007; management does not expect material adverse effects from current actions.
- Investment Valuation: The company recorded a $6.6 million other-than-temporary impairment charge related to Collateralized Loan Obligations (CLOs) and seed money.
Key Facts for Investor Verification
- AUM Yield Compression: Verify the sustainability of the net revenue yield on AUM, which declined to 46.7 basis points from 57.4 basis points in the prior year, driven by a shift to lower-fee money market assets.
- Debt Maturities: Confirm the company's ability to refinance $294.2 million in senior notes due December 2009 and the $900 million credit facility expiring March 2010 in a volatile capital market environment.
- Goodwill Sensitivity: Monitor the $5.9 billion goodwill balance, as management indicated it is sensitive to further declines in market capitalization or changes in discount rate assumptions.
- Contingent Liabilities: Track the status of the $54.0 million contingent support agreements for investment trusts and the potential for future drawdowns.
- Non-GAAP Reconciliations: Review the reconciliation of "Net Revenues" and "Net Operating Income" to GAAP measures to understand the impact of third-party distribution expenses and joint venture contributions.