Invesco Ltd. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012; the filing also provides unaudited fourth-quarter results. Invesco is a global investment manager operating in more than 20 countries, with $687.7 billion in assets under management (AUM) at year-end.
Key financial metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Operating revenue (GAAP) | $4,177.0 million | $4,092.2 million |
| Net revenue (non-GAAP) | $2,959.0 million | $2,898.4 million |
| Operating income / margin (GAAP) | $871.5 million / 20.9% | $898.1 million / 21.9% |
| Adjusted operating income / margin (non-GAAP) | $1,045.1 million / 35.3% | $1,068.9 million / 36.9% |
| Net income attributable to common shareholders | $677.1 million | $729.7 million |
| Diluted EPS / adjusted diluted EPS (non-GAAP) | $1.49 / $1.71 | $1.57 / $1.68 |
| Operating cash flow (GAAP) | $819.3 million | $964.8 million |
| Cash and cash equivalents | $835.5 million | $727.4 million |
| Company debt, excluding consolidated investment products | $1,186.0 million | $1,284.7 million |
| Ending AUM | $687.7 billion | $625.3 billion |
Fourth-quarter 2012 revenue was $1,092.9 million, operating income was $222.8 million, net income attributable to common shareholders was $158.7 million, and diluted EPS was $0.35.
Material changes versus 2011
- Operating and net revenue rose 2.1%, while operating expenses increased 3.5%; operating income and margins declined. Adjusted operating income fell 2.2% and adjusted margin fell 1.6 percentage points.
- Common-shareholder net income declined 7.2% and diluted EPS fell from $1.57 to $1.49. The comparison includes a $45.0 million litigation settlement gain in 2011 and a $23.5 million 2012 debt-extinguishment charge.
- AUM increased 10.0%. Positive market movements added $48.8 billion and long-term net inflows added $12.4 billion; equity experienced $9.3 billion of net outflows. Passive long-term inflows were $11.1 billion, compared with $1.3 billion of active long-term inflows.
- Net revenue yield declined to 44.5 basis points from 45.7 basis points, mainly reflecting the higher share of lower-fee passive AUM. Management said the trend improved in the second half; fourth-quarter net revenue yield before performance fees was 44.4 basis points versus 43.6 basis points for the full year.
- Operating cash flow was lower on a consolidated basis, but cash generated by operations excluding consolidated investment products increased to $872.1 million from $802.8 million. Investing activities used $82.4 million and financing activities used $645.9 million.
Liquidity, capital and shareholder returns
Year-end company debt was $1,186.0 million, and the non-GAAP debt-to-equity ratio excluding consolidated investment products was 14.5%, down from 16.5%. Invesco issued $600 million of 3.125% notes due 2022 and used proceeds principally to retire $530.6 million of older notes; it also repaid $215.1 million of 5.625% notes. The credit facility had $586.5 million outstanding, with $1.25 billion of commitments and an expiration date of June 2016. The company reported compliance with its covenants; year-end leverage and interest-coverage ratios were 0.99:1 and 23.61:1, respectively.
Invesco generated $835.5 million of cash, though some cash is subject to jurisdictional or regulatory restrictions; the European sub-group held $528.3 million. The company repurchased $265.0 million of shares in 2012 and paid $289.0 million in dividends. The annual dividend attributable to 2012 was $0.69 per share, up 40.8% from $0.49 in 2011; the board declared a fourth-quarter dividend of $0.1725 per share for payment in March 2013.
Management commentary, outlook and notable items
- Management emphasized long-term investment performance, client relationships, global distribution and platform efficiency. At year-end, 78% of ranked assets outperformed peers over five years; 59% of total AUM was included in the peer rankings.
- Management cited strong positive net flows, continued investment in products and capabilities, and further development of multi-asset and ETF businesses. It provided no quantified financial guidance in the supplied filing text.
- 2012 included an additional $15.3 million distribution expense recorded in the fourth quarter after operational changes in the U.K. transfer-agency outsourcing process; the expense related to prior periods. European outsourcing was ongoing, with completion then expected in mid-2013.
- Invesco agreed to acquire 49% of Religare Asset Management Limited, subject to regulatory approval. Undrawn capital and purchase commitments totaled $209.3 million.
- Two investment-trust support agreements had $21.0 million of committed support, with potential authorization to increase that amount to $66.0 million. No payment had been made; the recorded estimated liability was $1.0 million.
- Closed-end fund litigation related to redemptions of auction-rate preferred securities remained pending. The filing says damages were unspecified and the eventual outcome could not be predicted. A Canadian tax assessment of approximately $20.8 million, including interest and penalties, was disputed; no provision was recorded.
- Key risks include market declines and AUM outflows, shifts to lower-fee products, investment underperformance, fee and distribution pressure, regulatory change, litigation, foreign-exchange movements, employee retention, operational or information-security failures, and potential impairment of goodwill or intangibles. Goodwill was $7.0 billion; the annual 2012 impairment test found no impairment.
Consolidated investment products materially affect GAAP presentation: at year-end they included $3.9 billion of debt and related collateral assets that management says are not obligations or assets available to Invesco generally. The company also reports non-GAAP measures that exclude or adjust for these products and other items; these measures are not substitutes for GAAP results.
Important facts for investors to verify
- Reconcile the 2012 earnings decline and reported $677.1 million of income attributable to common shareholders against GAAP net income of $587.3 million, including the effect of noncontrolling interests in consolidated products.
- Review the definitions and reconciliations of adjusted income, adjusted margins, net revenue and debt ratios; assess the recurring nature of excluded or adjusted items.
- Track AUM flows by active/passive mix, asset class and channel, and monitor whether the second-half improvement in fee yield continues.
- Distinguish Invesco’s $1.2 billion of company debt from consolidated-product debt, and assess cash availability given regulatory restrictions and facility covenants.
- Follow the Religare transaction, pending litigation and tax assessment, trust-support exposure, and completion and costs of the European infrastructure initiative.
- Consider the concentration of goodwill and intangible assets and the sensitivity of fee revenue and impairment assessments to markets, AUM and fee rates.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at December 31, 2012.