Invesco Plc (IVZ)

IVZ 
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Invesco (IVZ)

Q1 2011 Earnings Call

April 27, 2011 9:00 am ET

Executives

Loren Starr - Chief Financial Officer and Senior Managing Director

Aaron Uhde - Director of Investor Relations and Assistant Treasurer

Martin Flanagan - Chief Executive Officer, President and Executive Director

Gregory Armour - Senior Managing Director and Head of Worldwide Institutional Business

Analysts

Michael Kim - Sandler O'Neill & Partners

William Katz - Citigroup Inc

Craig Siegenthaler - Crédit Suisse AG

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc.

Michael Kim - Sandler O'Neill + Partners, L.P.

Michael Carrier - Deutsche Bank AG

Kenneth Worthington - JP Morgan Chase & Co

Robert Lee - Keefe, Bruyette, & Woods, Inc.

Marc Irizarry - Goldman Sachs Group Inc.

Roger Freeman - Barclays Capital

Presentation

Aaron Uhde

This presentation 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 believe, 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. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our most recent form 10-K and subsequent Forms 10-Q filed with the SEC. You may obtain these reports from the SEC website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure, if any forward-looking statement later turns out to be inaccurate.

Operator

Welcome to Invesco's First Quarter Results Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to speakers for today, Mr. Martin L. Flanagan, President and CEO of Invesco; and Mr. Loren Starr, Chief Financial Officer. Mr. Flanagan, you may now begin.

Martin Flanagan

Thank you very much, and thank you, everybody, for joining us. In addition to myself, Loren Starr, Invesco's CFO and also Mark Armour is on the call with us today who leads our Institutional business. We'll be speaking to the presentation that's available on our website. And this morning, we'll do what we typically do to review the business, but we thought it would be very, very helpful to have Mark provide some perspective on our Global Institutional business and highlight the capabilities, where we're seeing the greatest interest from clients and consultants. Loren will go into the financial results in greater detail, and then the 3 of us are more than happy to answer anybody's question.

So on Page 3, let me just hit a few points to highlight the quarter. Invesco's commitment to investment excellence continue to yield strong long-term investment performance for our clients. Investment performance across the enterprise remain very strong in the first quarter with very exceptional performance.

Our strong investment performance continued a trend of positive long term net flows for the firm. And during the first quarter, we saw strong long-term net flows across all distribution channels. Also during the quarter, we continue the share repurchase program, purchasing 2.1 million shares for $53 million. The fund consolidation related to the acquisition of Morgan Stanley's Retail Asset Management business is nearly complete.

We experienced no merger-related outflows year-to-date and the combined business has demonstrated strong momentum. And consistent with our 6-year track record of progressively increasing the dividend and reflecting the firm's continued financial strength, we're raising our first quarter dividend to $0.1225 per share, an increase of 11.4%.

Now let me hit the summary of the financial results for the quarter. Assets under management ended the quarter at $641 billion versus $616 billion at the end of the fourth quarter, reflecting the improved markets and also the strong momentum across our business globally. Adjusted operating income for the quarter was $272 million and the operating margin was 36.2%. Net flows for the quarter were $9.2 billion, including net long term flows of $6.6 billion. This continues the positive trend we've demonstrated over the past several quarters. And again, Loren will go into greater detail when he review the financials.

If you take a look at the quarterly flows, what you'll see is the strength coming from strong gross sales in the first quarter led a continued positive momentum into long term flows. And as I mentioned earlier, the long term flows for the quarter was $6.6 billion, driven by continued strong interest in our traditional Invesco PowerShares ETFs and the UIT business also. If you look at the different distribution channels, again, strong growth sales across Retail and Institutional channels contributed to positive net flows for Invesco as a whole during the quarter and we saw positive flows into the Private Local Management business. And this is now 4 years in a row that we have had positive flows into that business.

As you all know, key strategic priority for us is to generate strong long-term investment performance for our clients and our commitment to investment excellence has lead to a continuing significant improvement in our investment performance across the enterprise. The key reason, we've seen improved stability in our flows, has been a strong investment performance of the firm. And if you look at the firm as a whole, 77% of the assets were ahead of peers on a three-year basis at the end of the first quarter, and over a 5-year period, 79% of the assets were ahead of peers. We also saw improvement in the one-year number with 55% of the assets ahead of peers during the first quarter versus 48% in the prior fourth quarter. And we have detailed charts in the appendix if you would like to look at that at your leisure.

As I mentioned earlier, we saw strong investment performance across the enterprise, with pockets of exceptional performance. The U.S. value capability remained strong with 94% of assets in the top half of peers that were 3 and 5 years; 94% of U.K. Equity assets beating benchmarks of 1, 3 and 5 years; 86% of the total fixed income assets in the top half of the peer groups are 1, 3, 5 years; 95% of Asian Equity assets beating benchmarks over the 5-year period and Morningstar ratings for Invesco in the U.S. remain at near all-time highs with 61% of the assets rated 4 and 5 stars. And also, Invesco received 9 Lipper awards for 6 Retail Funds across a broad range of capabilities, including convertibles, non-US equities, sector, value and growth.

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