IVZ

Business Context and Reporting Period

Company: Amvescap PLC (trading as Invesco Ltd.)
Filing Type: Form 20-F Annual Report
Reporting Period: Fiscal year ended December 31, 1998
Accounting Basis: U.K. GAAP (with reconciliations to U.S. GAAP provided)
Overview: Amvescap is a global independent investment management group. As of December 31, 1998, the company managed $275.4 billion in assets. The company operates through four groups: Managed Products, U.S. Institutional, INVESCO Global, and Retirement and Benefit Services. The reporting period was significantly impacted by the acquisition of the Asset Management Division of Liechtenstein Global Trust AG ("GT") in May 1998.

Key Financial Metrics (U.K. GAAP)

Note: All figures in thousands of pounds sterling (L). Net debt is presented as a negative value indicating a liability.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 51.2% to L802.2 million, driven primarily by the GT acquisition, market appreciation, and net new business.
• Profitability: While operating profit before exceptional items rose 30.5% to L236.1 million, reported profit for the year decreased 19.6% to L94.1 million. This decline was due to a L48.6 million exceptional item (integration costs for GT) and L21.2 million in goodwill amortization.
• Assets Under Management (AUM): AUM grew 43.3% to $275.4 billion. This included $46.8 billion from the GT acquisition, $26.2 billion from market gains, and $4.6 billion in net new business.
• Debt Levels: Total long-term debt increased significantly by L463.6 million to L693.2 million. This was funded by the issuance of $650 million in senior notes and debt assumed in the GT acquisition, partially offset by repayments of prior debt.
• Cash Flow: Cash provided by operations decreased to L159.9 million from L234.0 million in 1997, largely due to working capital changes and the timing of the acquisition.

Guidance, Outlook, and Risks

• Outlook: Management anticipates operating activities in 1999 will provide sufficient cash flows to meet commitments and fund expansion. The company plans to use remaining cash to reduce debt levels in 1999.
• Integration: The integration of GT is expected to take up to 18 months, with major activities completing by June 1999. Integration costs are estimated at L48.6 million.
• Dividends: The Board recommended a final dividend of 5p per share, bringing the total 1998 dividend to 8p (a 14% increase over 1997).
• Year 2000 Compliance: The company is actively remediating systems. It expects substantially all mission-critical applications to be compliant by June 30, 1999. Estimated costs for 1999 are L2.5 million.
• Risks: Key risks include exchange rate fluctuations (significant U.S. dollar exposure), market volatility, regulatory changes, and the ability to successfully integrate acquisitions. The company does not hedge foreign exchange translation of profits.

Investor Verification Checklist

• U.S. GAAP Reconciliation: Verify the significant difference between U.K. GAAP profit (L94.1 million) and U.S. GAAP net income (L44.3 million) due to goodwill amortization and acquisition accounting treatments.
• Debt Covenants: Review the $700 million credit facility terms, specifically the restriction on paying dividends in excess of 60% of consolidated net profit.
• Goodwill Amortization: Confirm the impact of the new accounting standard (FRS 10) adopted in 1998, which requires amortization of goodwill over 20 years, affecting future earnings.
• Integration Costs: Monitor the actual realization of the L48.6 million exceptional item and the timeline for GT integration synergies.
• Currency Exposure: Assess the sensitivity of earnings to the U.S. dollar/pound sterling exchange rate, given the majority of profits are U.S.-denominated.