TATTON ASSET MANAGEMENT PLC — Earnings Release 2012

Feb 19, 2013

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RNS Number : 1799Y

Titanium Asset Management Corp

19 February 2013

Titanium Asset Management Corp. 

Reports 2012 Fourth Quarter and Annual Results

Milwaukee, WI, February 19, 2013 - Titanium Asset Management Corp. (AIM - TAM) today reported results for the fourth quarter and year ended December 31, 2012.

Highlights are as follows:

·      Managed assets increased 1.6% during the fourth quarter of 2012 to $8,854.6 million reflecting both net inflows and positive market returns.  For the year, managed assets increased 6.5% reflecting net inflows and positive market returns.

·      Average managed assets of $8,783.9 million for the fourth quarter of 2012 were 4.9% higher relative to the average management assets of $8,375.6 million for the same period last year.  Investment management fee revenues were $5,877,000 for the fourth quarter of 2012, a 13.9% increase from investment management fee revenues of $5,160,000 for the same period last year, primarily due to the higher average managed asset levels and a higher average fee rate.  For the year, average managed assets of $8,609.6 million were 3.1% higher than the average managed assets of $8,347.2 million for last year.  Investment management fee revenues were $22,344,000 for 2012, a 9.0% increase from investment management fee revenues of $20,507,000 for 2011, due to the higher average managed asset levels and a higher average fee rate.

·      Incentive fees earned for 2012 increased to $1,165,000, a $903,000 increase over the prior year amount due to both an increase in assets managed under the strategies that earn incentive fees and significant market returns for those assets.  The primary strategy earning incentive fees is a preferred stock strategy.  Because investment returns on preferred stocks can be volatile, the level of incentive fees can vary significantly from year to year.

·      Adjusted EBITDA(1) continued to improve during the fourth quarter of 2012.  Adjusted EBITDA was $1,386,000 for the fourth quarter of 2012, compared to Adjusted EBITDA of $541,000 for the same period last year.  Adjusted EBITDA was $3,003,000 for 2012, compared to Adjusted EBITDA of $664,000 for 2011.  The ongoing improvements in Adjusted EBITDA primarily reflect the improved investment management fee revenues, the increased incentive fees, and the structural cost reductions achieved since 2010, which have more than offset the decrease in referral fee revenue.

·      Net investment income of $121,000 for the fourth quarter of 2012 compared to net investment loss of $68,000 for the same period last year.  Net investment income was $640,000 for 2012 compared to $322,000 for 2011.

·      Net loss of $929,000, or $0.05 per diluted common share, for the fourth quarter of 2012 compared to a net loss of $11,174,000, or $0.54 per diluted common share, for the fourth quarter of 2011.  Net loss of $6,093,000, or $0.30 per diluted common share, for 2012 compared to a net loss of $18,250,000, or $0.88 per diluted common share, for 2011.

(1)   See the table below for a definition of Adjusted EBITDA, a non-GAAP financial measure.  The table provides a description of this non-GAAP financial measure and a reconciliation to the most directly comparable GAAP measure.

Commenting on these results, Robert Brooks, Chairman of Titanium Asset Management Corp. said:

"We are pleased to report continued year-over-year improvement to EBITDA for the fourth quarter of 2012. The improvement largely reflects higher investment management fees and the ongoing benefits of the significant reductions to our cost structure that were implemented over the last two years.  The higher investment management fees resulted from both an increase in average managed assets and a higher average fee rate."

"In 2012, we have successfully marketed strategies that have been developed to provide our clients with above average returns in this low interest rate environment and that carry higher than average fee rates for us.  For the year ended December 31, 2012, we added approximately $115 million in new investments to a real estate strategy and approximately $80 million in new investments in our preferred stock strategy."

"Our investment management team continues to achieve solid investment performance and several of our fixed income strategies are performing in the upper deciles of our peer group rankings for their three year investment performance.  We believe these strong performance rankings position us for strong asset growth over the next year."

For further information please contact:

Titanium Asset Management Corp.

Robert Brooks, Chairman                                                          312-335-8300

Titanium Asset Management Corp.

Brian Gevry, Chief Executive Officer                                      216-771-3450

Seymour Pierce

David Foreman/Guy Peters                                                     +44 20 7107 8000

Forward-looking Statements

Statements in this press release which are not historical facts may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements are subject to a number of assumptions, risks, and uncertainties, many of which are beyond our control.

Any forward-looking statements made in this press release speak as of the date made and are not guarantees of future performance.  Actual results or developments may differ materially from the expectations expressed or implied in the forward-looking statements, and we undertake no obligation to update any such statements.  Results may differ significantly due to market fluctuations that alter our assets under management; a further decline in our distributed assets; termination of investment advisory agreements; impairment of goodwill and other intangible assets; our inability to compete; market pressure on investment advisory fees; ineffective management of risk; changes in interest rates, equity prices, liquidity of global markets and international and regional political conditions; or actions taken by TAMCO Holdings, LLC, as our significant stockholder.  Additional factors that could influence our financial results are included in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Our Annual Report on Form 10-K for the year ended December 31, 2012, is expected to be filed with the Securities and Exchange Commission on or about February 28, 2013. The report will be available on the SEC's website at www.sec.gov and on our website at www.ti-am.com.

Assets Under Management

Assets under management of $8.9 billion at December 31, 2012 were 6.5% higher than the $8.3 billion reported at December 31, 2011 due to net inflows and positive investment returns.  The following table presents summary activity for the 2012 and 2011 periods.

		Three months ended				Year ended
		December 31,				December 31,
(in millions)		2012		2011		2012	2011
Beginning balance		$   8,713.2		$  8,434.4		$   8,316.8	$  8,125.0
Inflows		599.4		182.6		2,121.0	1,526.3
	Outflows		(521.0)		(432.1)	(2,094.3)	(1,740.7)
	Net flows		78.4		(249.5)	26.7	(214.4)
	Market value change		63.0		131.9	511.1	406.2
	Ending balance		$  8,854.6		$  8,316.8	$  8,854.6	$   8,316.8
Average Assets Under Management		$  8,783.9		$  8,375.6		$  8,609.6	$  8,347.2
Average Fee Rate (basis points)		26.8		24.7		26.0	24.6

The principle factors affecting our net flows during the periods ended December 31, 2012 and 2011 include the following:

·      Multiemployer pension and welfare plans represent approximately 38% of our client base, and these plans have been faced with a challenging economic environment over the last several years.  This economic environment has generally led to reduced employer contributions and increased withdrawals.  These factors have led to increased levels of outflows from our fixed income strategies throughout the last several years.  During 2011, this trend began to reverse with the general improvement in the economy.  For the three months ended December 31, 2012, net inflows from multiemployer pension and welfare plans were approximately $175 million compared to net inflows of approximately $2 million for the prior year period.  For the year ended December 31, 2012, net inflows from multiemployer pension and welfare plans were approximately $461 million compared to net inflows of approximately $87 million for year ended December 31, 2011.  The improvements in 2012 generally reflect new investments in both a real estate strategy and a preferred stock strategy, both of which carry higher than average fee rates.  The net inflows for 2012 include approximately $115 million in new investments in the real estate strategy and approximately $80 million in new investments in the preferred stock strategy.

·      We generated approximately $700 million of new assets in 2009 through our participation in the Term Asset-Backed Securities Loan Facility ("TALF") of the Federal Reserve Bank of New York.  These assets were added through separate client accounts and our Titanium TALF Opportunity Fund ("TALF Fund") under a strategy that was anticipated to last just a few years.  The TALF strategy ultimately was fully liquidated during the quarter ended September 30, 2012 with outflows reflected in each of 2011 and 2012.  The outflows totaled $350 million and $250 million in 2012 and 2011, respectively.

·      Net flows for 2011 were negatively impacted by the loss of several equity accounts managed under a quantitative strategy.  These accounts totaled approximately $140 million and represented all of the accounts managed under this strategy.  While management fee revenue was impacted by the loss of these accounts, the loss did not have a significant impact on profitability as the revenue was subject to a significant fee sharing arrangement with the portfolio manager.

Market value changes reflect our investment performance. Fixed income assets comprised approximately 89% of our total assets under management at December 31, 2012. The overall market value change related to fixed income assets was approximately $417.1 million, or 5.6% for 2012 ($400.5 million, or 5.6% for the comparable 2011 period).  Fixed income returns as measured by the Barclay's Aggregate Index were 0.2% for the three months ended December 31, 2012 (1.1% for the comparable 2011 period).  For the year ended December 31, 2012, the Barclay's Aggregate Index gained 4.2% (7.8% for the year ended December 31, 2011).  For the year ended December 31, 2012, approximately 92% of our fixed income assets with defined performance benchmarks outperformed their respective benchmarks.

Equity assets comprised approximately 7% of our total assets under management at December 31, 2012. The overall market value change related to equity assets was approximately $77.5 million, or 12.5% for 2012 ($10.1 million, or 1.3% for the comparable 2011 period).  Equity returns as measured by the S&P 500 Index were down 0.4% for the three months ended December 31, 2012 (compared to an increase of 11.8% for the comparable 2011 period). For the year ended December 31, 2012, the S&P 500 Index gained 16.0% (compared to a decrease of 2.1% for the year ended December 31, 2011).  Approximately 2% of our equity assets outperformed their respective benchmarks for the twelve months ended December 31, 2012.

The following table presents summary breakdowns for our assets under management at December 31, 2012 and December 31, 2011.

		December 31,	% of	December 31,	% of
(in millions)		2012	total	2011	Total
	By investment strategy:
	Fixed income	$        7,914.9	89%	$        7,483.4	90%
	Equity	595.6	7%	621.4	7%
	Real estate	344.1	4%	212.0	3%
	Total	$        8,854.6	100%	$        8,316.8	100%
	By client type:
	Institutional	$        7,748.7	88%	$        7,178.9	86%
	Retail	1,105.9	12%	1,137.9	14%
	Total	$        8,854.6	100%	$        8,316.8	100%
	By investment vehicle:
	Separate accounts	$        8,009.1	90%	$        7,540.2	91%
	Private funds	845.5	10%	776.6	9%
	Total	$        8,854.6	100%	$        8,316.8	100%

During 2012, our mix of assets under management by investment strategy remained largely concentrated in fixed income strategies, as fixed income assets comprised 89% of total assets under management at December 31, 2012 compared to 90% at December 31, 2011. 

During 2012, our mix of assets under management by client type shifted to a slightly higher proportion of institutional clients versus retail clients, primarily due to the loss of retail equity accounts at Wood Asset Management.

Our mix of assets under management by investment vehicle was relatively unchanged in 2012 as separate accounts comprised 90% of total assets under management as of December 31, 2012 compared to 91% as of December 31, 2011.

Operating Results

	Three Months Ended December 31,		Year Ended December 31,
	2012	2011	2012	2011
Average assets under management (in millions)	$   8,783.9	$   8,375.6	$  8,609.6	$   8,347.2
Average fee rate (basis points)	26.8	24.7	26.0	24.6
Investment management fees	$  5,877,000	$  5,160,000	$  22,344,000	$  20,507,000
Incentive fees	1,165,000	262,000	1,165,000	262,000
Referral fees	63,000	161,000	326,000	1,106,000
Total operating revenue	7,105,000	5,583,000	23,835,000	21,875,000
Adjusted EBITDA(1)	1,386,000	541,000	3,003,000	664,000
Amortization of intangible assets	2,401,000	2,692,000	9,604,000	6,692,000
Impairment of goodwill	-	8,923,000	-	12,423,000
Operating loss	(1,050,000)	(11,106,000)	(6,733,000)	(18,572,000)
Net investment income	121,000	(68,000)	640,000	322,000
Net loss	(929,000)	(11,174,000)	(6,093,000)	(18,250,000)
Earnings (loss) per share:
Basic and diluted	$   (0.05)	$  (0.54)	$  (0.30)	$   (0.88)

(1)   See the table below for a definition of Adjusted EBITDA, a non-GAAP financial measure.  The table provides a description of this non-GAAP financial measure and a reconciliation to the most directly comparable GAAP measure.

For the three month period, our investment management fees increased by $717,000, or 14%, due to a 5% increase in our average assets under management and a 9% increase in our average fee rate.  For the year, our investment management fees increased by $1,837,000, or 9%, due to a 3% increase in our average assets under management and a 6% increase in our average fee rate.

We also receive incentive fees on an annual basis from the management of certain of our private funds, including one that invests in preferred stocks.  Because investment returns on preferred stocks can be volatile, the level of incentive fees earned can vary significantly from year to year.  These fees generally are based on a calendar year performance period and we recognize the fees at the conclusion of the performance period.  Our annual incentive fees increased by $903,000 due to both an increase in the assets under management for these particular strategies and significant market returns.

We earn referral fees on clients referred to a hedge fund manager with whom we have a referral arrangement.  The assets under this referral arrangement have decreased significantly over the last two years for a variety of factors and as a result, our referral fees have been substantially reduced.  In September 2012, the hedge fund manager announced that it would complete an orderly liquidation of the remaining assets of the primary fund in which the majority of the referred assets are invested.  As a result, the referred assets and referral fees have been substantially eliminated as of December 31, 2012.

Our Adjusted EBITDA for the three months ended December 31, 2012 was $1,386,000, an increase of $845,000, over the comparable amount for the 2011 period.  Our Adjusted EBITDA for 2012 was $3,003,000, an increase of $2,339,000 over 2011.  The improvement to Adjusted EBITDA in the 2012 periods primarily reflects the increases in investment management fees and in incentive fees, the continuing reductions in administrative expenses, offset in part by the reductions to referral fees.

Amortization of intangible assets

Throughout 2011, we considered the impact of recurring redemptions of the referred assets and their impact on the remaining useful life of our NIS referral relationship intangible asset.  The assessment during the fourth quarter of 2011 resulted in reducing the estimated remaining useful life of this intangible asset to approximately 15 months as of October 1, 2011.  The revision to the remaining useful life of the NIS referral relationship intangible asset resulted in increased amortization expense totaling approximately $8,635,000 for this intangible asset in 2012 and resulted in the $2,912,000 increase in total amortization expense in 2012.  The NIS referral relationship intangible asset was fully amortized as of December 31, 2012.  For 2013, we expect that the total annual amortization expense will decrease to $970,000.

Titanium Asset Management Corp.

Condensed Consolidated Balance Sheets

	December 31, 2012	December 31, 2011
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$   3,092,000	$   2,787,000
Investments	5,644,000	2,990,000
Accounts receivable	5,015,000	3,718,000
Other current assets	854,000	828,000
Total current assets	14,605,000	10,323,000
Investments in equity investees	3,970,000	4,707,000
Property and equipment, net	483,000	478,000
Goodwill	13,264,000	13,264,000
Intangible assets, net	5,309,000	14,913,000
Total assets	$  37,631,000	$  43,685,000
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$  166,000	$  91,000
Other current liabilities	2,246,000	2,334,000
Total current liabilities and total liabilities	2,412,000	2,425,000
Commitments and contingencies
Stockholders' equity
Common stock, $0.0001 par value; 54,000,000 shares authorized; 20,634,232 shares issued and outstanding at December 31, 2012 and 2011	2,000	2,000
Restricted common stock, $0.0001 par value; 720,000 shares authorized; none issued at December 31, 2012 and 612,716 issued and outstanding at December 31, 2011	-	-
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued	-	-
Additional paid-in capital	100,971,000	100,971,000
Accumulated deficit	(65,711,000)	(59,618,000)
Other comprehensive loss	(43,000)	(95,000)
Total stockholders' equity	35,219,000	41,260,000
Total liabilities and stockholders' equity	$  37,631,000	$ 43,685,000

Titanium Asset Management Corp.

Condensed Consolidated Statements of Operations

(unaudited)

	Three months ended December 31,		Year ended December 31,
	2012	2011	2012	2011
Operating revenues	$  7,105,000	$  5,583,000	$  23,835,000	$  21,875,000
Operating expenses:
Administrative	5,754,000	5,074,000	20,964,000	21,332,000
Amortization of intangible assets	2,401,000	2,692,000	9,604,000	6,692,000
Impairment of goodwill	-	8,923,000	-	12,423,000
Total operating expenses	8,155,000	16,689,000	30,568,000	40,447,000
Operating loss	(1,050,000)	(11,106,000)	(6,733,000)	(18,572,000)
Other income
Interest income	33,000	19,000	94,000	85,000
Net realized gains (losses) on investments	(3,000)	(23,000)	3,000	(41,000)
Income (loss) from equity investees	91,000	(64,000)	543,000	278,000
Loss before income taxes	(929,000)	(11,174,000)	(6,093,000)	(18,250,000)
Income tax benefit	-	-	-	-
Net loss	$  (929,000)	$ (11,174,000)	$ (6,093,000)	$ (18,250,000)
Earnings (loss) per share
Basic and diluted	$  (0.05)	$  (0.54)	$  (0.30)	$  (0.88)
Weighted average number of common shares outstanding:
Basic and diluted	20,634,232	20,634,232	20,634,232	20,634,232

Titanium Asset Management Corp.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Year ended December 31,
	2012	2011
Cash flows from operating activities
Net loss	$  (6,093,000)	$ (18,250,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets	9,604,000	6,692,000
Impairment of goodwill	-	12,423,000
Depreciation	132,000	121,000
Net realized losses (gains) on investments	(3,000)	41,000
Income from equity investees	(543,000)	(278,000)
Income distributions from equity investees	96,000	169,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable	(1,297,000)	1,065,000
Decrease (increase) in other current assets	(26,000)	351,000
Increase in accounts payable	75,000	49,000
Decrease in other current liabilities	(88,000)	(1,205,000)
Net cash provided by operating activities	1,857,000	1,178,000
Cash flows from investing activities
Purchases of investments	(7,995,000)	(5,085,000)
Sales and redemptions of investments	5,396,000	5,380,000
Capital distributions from equity investee	1,184,000	1,300,000
Purchases of property and equipment	(137,000)	(144,000)
Acquisitions of subsidiaries, net of cash acquired	-	(4,540,000)
Net cash used in investing activities	(1,552,000)	(3,089,000)
Net increase (decrease) in cash and cash equivalents	305,000	(1,911,000)
Cash and cash equivalents:
Beginning	2,787,000	4,698,000
Ending	$   3,092,000	$  2,787,000

Titanium Asset Management Corp.

Reconciliation of Adjusted EBITDA

(unaudited)

	Three months ended		Year ended
	December 31,		December 31,
	2012	2011	2012	2011
Operating loss	$  (1,050,000)	$  (11,106,000)	$  (6,733,000)	$  (18,572,000)
Amortization of intangible assets	2,401,000	2,692,000	9,604,000	6,692,000
Impairment of goodwill	-	8,923,000	-	12,423,000
Depreciation expense	35,000	32,000	132,000	121,000
Adjusted EBITDA	$ 1,386,000	$ 541,000	$  3,003,000	$  664,000

Notes:

(1)   Adjusted EBITDA is defined as operating income or loss before non-cash charges for amortization and impairment of intangible assets and goodwill, depreciation, and share compensation expense.  We believe Adjusted EBITDA is useful as an indicator of our ongoing performance and our ability to service debt, make new investments, and meet working capital obligations.  Adjusted EBITDA as we calculate it may not be consistent with computations made by other companies.  We believe that many investors use this information when analyzing the operating performance, liquidity, and financial position of companies in the investment management industry.

This information is provided by RNS

The company news service from the London Stock Exchange

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