REG - Man Group plc - 2016 Full Year Results <Origin Href="QuoteRef">EMG.L</Origin> - Part 4
01/03/2017 07:07
- Part 4: For the preceding part double click ID:nRSA1408Yc
Compound average annualised growth in FUM (over three years) 12% 3% 1% 9%
Discount rate
- Management fees1 11% 11% 11% 11%
- Performance fees2 17% 17% 17% 17%
Terminal value (mid-point of range of historical multiples)3
- Management fees 13.0x 13.0x 5.3x 14.0x
- Performance fees 5.5x 5.5x 2.1x 6.0x
Notes:
1. The pre-tax equivalent of the net management fees discount rate is 13%, 13%, 13% and 15% for each of the AHL,
GLG, FRM and Numeric CGUs, respectively.
2. The pre-tax equivalent of the net performance fees discount rate is 20%, 20%, 20% and 22% for each of the AHL,
GLG, FRM and Numeric CGUs, respectively.
3. The implied terminal growth rates for the AHL, GLG, FRM and Numeric CGUs are 2%, 2%, -10% and 4%, respectively.
The results of the valuations are further explained in the following sections, including sensitivity tables which show
scenarios whereby the key assumptions are changed to stressed assumptions, indicating the modelled headroom or impairment
that would result. Each assumption, or set of assumptions, is stressed in isolation. The results of these sensitivities
make no allowance for actions that management would take if such market conditions persisted.
AHL cash generating unit
The AHL value in use calculation at 31 December 2016 indicates a value of $2.5 billion, with around $2.0 billion of
headroom over the carrying value of the AHL business. Therefore, no impairment charge is deemed necessary at 31 December
2016 (2015: nil). The valuation at 31 December 2016 is around $1.2 billion lower than the value in use calculation at 31
December 2015, primarily due to lower opening FUM as a result of lower than forecast performance of quant alternative
products in 2016, as well as a reduction in forecast investment performance and an increase in shared costs as a result of
reassessment of the Group's shared costs allocations (as previously detailed).
Sensitivity analysis: Discount rates (post-tax) Multiples (post-tax)
Compound average annualised growth in FUM1 Management fee/ Management fee/
Performance fee Performance fee
Key assumption stressed to: 14% -2% 10%/16% 12%/18% 14.0x/6.5x 12.0x/4.5x
Modelled headroom/(impairment) ($m) 2,455 (1) 2,0502 1,9342 2,2243 1,7583
1,7583
Notes:
1. The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at
which impairment would arise.
2. An increase/decrease of $58 million.
3. An increase/decrease of $233 million.
GLG cash generating unit
The GLG value in use calculation at 31 December 2016 indicates a value of $289 million, which suggests an impairment of
$281 million (2015: nil) based on the carrying value of the GLG business. The valuation at 31 December 2016 is around $600
million lower than the value in use calculation at 31 December 2015, primarily due to a lower opening FUM as a result of
lower performance and net flows compared to that previously forecast, as well as a weakening of industry growth forecasts
during the year, partially offset by a decrease in shared costs as a result of the reassessment of the Group's shared costs
allocations.
The GLG CGU impairment of $281 million impairs the total GLG goodwill balance of $222 million, and further impairs the
other acquired intangibles balances relating to investment management agreements, distribution channels and brands by a
total of $59 million.
Sensitivity analysis: Discount rates (post-tax) Multiples (post-tax)
Compound averageannualised growth in FUM Management fee/ Management fee/
Performance fee Performance fee
Key assumption stressed to: 5% 1% 10%/16% 12%/18% 14.0x/6.5x 12.0x/4.5x
Modelled headroom/(impairment) ($m) (244) (305) (274)1 (288)1 (256)2 (306)2
(306)2
Notes:
1. An increase/decrease of $7 million.
2. An increase/decrease of $25 million.
FRM cash generating unit
The FRM value in use calculation at 31 December 2016 indicates a value of $39 million, which suggests an impairment of $98
million based on the carrying value of the FRM business. The valuation at 31 December 2016 is $160 million lower than the
value in use calculation at 31 December 2015, primarily as a result of the faster than previously anticipated 2016 and
forecast FUM mix shift towards lower margin infrastructure mandates and reduced prospects for the traditional fund of funds
business, partially offset by a decrease in shared costs as a result of the reassessment of the Group's shared costs
allocations.
The FRM CGU impairment of $98 million erodes the total FRM goodwill balance of $97 million, and further impairs the other
acquired intangibles balances relating to investment management agreements and brands by a total of $1 million.
Sensitivity analysis: Discount rates (post-tax) Multiples (post-tax)
Compound averageannualised growth in FUM Management fee/ Management fee/
Performance fee Performance fee
Key assumption stressed to: 3% -1% 10%/16% 12%/18% 6.3x/3.1x 4.3x/1.1x
Modelled headroom/(impairment) ($m) (91) (104) (97)1 (99)1 (96)2 (100)2
(100)2
Notes:
1. An increase/decrease of $1 million.
2. An increase/decrease of $2 million.
Impairment of $41 million was recognised in relation to the FRM goodwill for the year ended 31 December 2015, largely as a
result of lower sales and higher redemptions of fund of funds products than anticipated.
Numeric cash generating unit
The Numeric value in use calculation at 31 December 2016 indicates a value of $469 million, with around $190 million of
headroom over the carrying value of the Numeric business. Therefore, no impairment charge is deemed necessary at 31
December 2016 (2015: nil). The valuation at 31 December 2016 is around $140 million higher than the value in use
calculation at 31 December 2015, primarily as a result of higher opening FUM due to higher sales of long only products than
forecast and a decrease in shared costs as a result of the reassessment of the Group's shared costs allocations, partially
offset by a decrease in the forecast management fees on new sales and net inflows on long only products.
Sensitivity analysis: Discount rates (post-tax) Multiples (post-tax)
Compound averageannualised growth in FUM1 Management fee/ Management fee/
Performance fee Performance fee
Key assumption stressed to: 11% -1% 10%/16% 12%/18% 15.0x/7.0x 13.0x/5.0x
Modelled headroom/(impairment) ($m) 246 (1) 2022 1802 2223 1603
1603
Notes:
1. The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at
which impairment would arise.
2. An increase/decrease of $11 million.
3. An increase/decrease of $31 million.
The Numeric CGU goodwill headroom has increased despite a decrease in the Numeric contingent consideration creditor (Note
2), which is as a result of the Numeric earn-out not being influenced by the Group's shared costs allocations, which are
determined solely for goodwill impairment purposes.
12. Other intangibles
$m Year ended 31 December 2016 Year ended 31 December 2015
Capitalised computer software Placement fees Total Capitalised computer software Placementfees Total
Net book value beginning of the year 11 3 14 8 5 13
Additions 9 - 9 6 1 7
Disposals/redemptions (1) (1) (2) - (1) (1)
Amortisation (3) (1) (4) (3) (2) (5)
Net book value at year end 16 1 17 11 3 14
14
Capitalised computer software includes costs that are directly associated with the procurement or development of
identifiable and unique software products, which will generate economic benefits exceeding costs beyond one year.
Capitalised computer software is amortised on a straight-line basis over its estimated useful life (three years) and is
subject to regular impairment reviews. Amortisation of capitalised computer software is included in Other costs in the
Group income statement.
13. Cash, liquidity and borrowings
$m 31 December 2016 31 December 2015
Total Less than1 year Greater than3 years Total Less than1 year Greater than3 years
Borrowings: 2024 fixed rate reset callable guaranteed subordinated notes 149 - 149 149 - 149
Cash and cash equivalents1 389 389 - 586 586 -
Undrawn committed revolving loan facility 500 - 500 1,000 - 1,000
Total liquidity 889 389 500 1,586 586 1,000
1,000
Note:
1 Excludes $37 million (2015: $21 million) of restricted cash held by consolidated fund entities (Note 14.2).
Liquidity resources support ongoing operations and potential liquidity requirements under stressed scenarios. The amount of
potential liquidity requirements is modelled based on scenarios that assume stressed market and economic conditions. With
the exception of committed purchase arrangements, the funding requirements for Man relating to the investment management
process are discretionary. The liquidity profile of Man is monitored on a daily basis and the stressed scenarios are
updated regularly. The Board reviews Man's funding resources at each Board meeting and on an annual basis as part of the
strategic planning process. Man's available liquidity is considered sufficient to cover current requirements and potential
requirements under stressed scenarios.
In September 2014, Man issued $150 million ten-year fixed rate reset callable guaranteed subordinated notes (Tier 2 notes),
with associated issuance costs of $1 million. The Tier 2 notes were issued with a fixed coupon of 5.875% until 15 September
2019. The notes may be redeemed in whole at Man's option on 16 September 2019 at their principal amount, subject to FCA
approval. If the notes are not redeemed at this time then the coupon will reset to the five-year mid-swap rate plus 4.076%
and the notes will be redeemed on 16 September 2024 at their principal amount.
Borrowings are initially recorded at fair value net of transaction costs incurred, and are subsequently measured at
amortised cost. The difference between the amount repayable at maturity on the borrowings and the carrying value is
amortised over the period up to the expected maturity of the associated debt in accordance with the effective interest rate
method.
Cash and cash equivalents at year end comprises $222 million (2015: $250 million) of cash at bank on hand, $102 million
(2015: $336 million) in short-term deposits and $65 million (2015: nil) of US Treasury bills. Cash ring-fenced for
regulated entities totalled $28 million (2015: $35 million). Cash is invested in accordance with strict limits consistent
with the Board's risk appetite, which consider both the security and availability of liquidity. Accordingly, cash is held
in on-demand deposit bank accounts and short-term bank deposits, and is invested in short-term US Treasury bills. At 31
December 2016, the $324 million cash balance (excluding US Treasury bills and cash held by consolidated fund entities) is
held with 18 banks (2015: $586 million with 22 banks). The single largest counterparty bank exposure of $88 million is held
with an BBB+ rated bank (2015: $100 million with an A+ rated bank). At 31 December 2016, balances with banks in the AA
ratings band aggregate to $109 million (2015: $239 million) and balances with banks in the A ratings band aggregate to $127
million (2015: $293 million).
During October 2016, the Group reduced $500 million of the $1 billion syndicated revolving loan facility. The remaining
$500 million facility was undrawn at 31 December 2016. The previous committed revolving credit facility of $1,525 million
was refinanced during 2015 and replaced with a new committed syndicated revolving loan facility of $1 billion (undrawn at
31 December 2015). The new facility was put in place as a five-year facility and includes the option for Man to request the
banks to extend the maturity date by one year on each of the first and second anniversaries. The participant banks have the
option to accept or decline Man's request. Before the first anniversary in June 2016, the banks were asked to extend the
maturity date of the facility by a year and banks with participations totalling 98% of the facility accepted the request.
As a result of the maturity extension and following the cancellation of $500 million of the facility, $10 million is
scheduled to mature in June 2020, with the remainder maturing in June 2021. To maintain maximum flexibility, the facility
does not include financial covenants.
Foreign exchange and interest rate risk
Man is subject to risk from changes in interest rates and foreign exchange rates on monetary assets and liabilities.
In respect of Man's monetary assets and liabilities which earn/incur interest indexed to floating rates, as at 31 December
2016 a 50bp increase/ decrease in these rates, with all other variables held constant, would have resulted in a $1 million
increase/decrease (2015: $2 million increase or $1 million decrease) in net interest income.
A 10% strengthening/weakening of the USD against all other currencies, with all other variables held constant, would have
resulted in a foreign exchange loss/gain of $3 million (2015: $2 million loss/gain), with a corresponding impact on equity.
This exposure is based on USD balances held by non-USD functional currency entities and non-USD balances held by USD
functional currency entities within the Group.
In certain circumstances, the Group uses derivative financial instruments to hedge its risk associated with foreign
exchange movements. Where fixed foreign currency denominated costs are hedged, the associated derivatives may be designated
as cash flow hedges. Effective unrealised gains or losses on these instruments are recognised within the cash flow hedge
reserve in equity and, when realised, these are reclassified to the Group income statement in the same line as the hedged
item. The realisation of foreign currency operating cash flows and the associated forward foreign currency derivative
contracts generally arise on a monthly basis. The fair value of derivatives held in relation to the Group's cash flow
hedges at 31 December 2016 is a liability of $18 million (2015: $7 million). The Group also hedges its exposure to net
investments in foreign operations through forward foreign exchange contracts where appropriate, with any effective gains or
losses recognised in other comprehensive income and accumulated in the cumulative translation adjustment reserve within
equity (Note 21). The fair value of derivatives held in relation to the Group's net investment hedges at 31 December 2016
is an asset of $1 million (2015: nil). Any ineffective portion of these hedges is recognised immediately in profit or loss,
and is included within income or gains on investments and other financial instruments.
14. Investments in fund products and other investments
31 December 2016
$m Financial assets at fair value through profit or loss Loans and receivables Available-for- sale financial assets Total investments in fund products and otherinvestments Net non- current assets held for sale Total investments
Loans to fund products - 26 - 26 - 26
Investments in fund products 275 - - 275 131 406
Other investments - - 3 3 - 3
Investments in line-by-line consolidated funds 490 - - 490 - 490
765 26 3 794 131 925
31 December 2015
$m Financial assets at fair value through profit or loss Loans and receivables Available-for- sale financial assets Total investments in fund products Net non- current assets held for sale Total investments
and otherinvestments
Loans to fund products - 41 - 41 - 41
Investments in fund products 224 - - 224 119 343
Other investments - - 4 4 - 4
Investments in line-by-line consolidated funds 329 - - 329 - 329
553 41 4 598 119 717
Man's seeding investments are included in various Group balance sheet line items. In summary, the total seeding investments
portfolio is made up as follows:
$m Note 31 December2016 31 December2015
Investments in fund products 14.1 275 224
Less those used to hedge deferred compensation awards 14.1 (75) (71)
Consolidated net investments in funds - held for sale 14.2 131 119
Consolidated net investments in funds - line-by-line consolidation 14.2 285 213
Loans to funds 14.3 26 41
Seeding investments portfolio 642 526
14.1. Investments in fund products
Man uses capital to invest in our fund products as part of our ongoing business to build our product breadth and to trial
investment research developments before we market the products to investors. These seeding investments are generally held
for less than one year. Where Man is deemed not to control the fund, these are classified as investments in fund products.
Investments in fund products are classified at fair value through profit or loss, with movements in fair value of $55
million for the year ended 31 December 2016 (2015: $14 million) being recognised through income or gains on investments and
other financial instruments. Purchases and sales of investments are recognised on trade date.
Investments in fund products are not actively traded and the valuation at the fund level cannot be determined by reference
to other available prices. The fair values of investments in fund products are derived from the reported NAVs of each of
the fund products, which in turn are based upon the value of the underlying assets held within each of the fund products
and the anticipated redemption horizon of the fund product. The valuation of the underlying assets within each fund product
is determined by external valuation service providers based on an agreed valuation policy and methodology. Whilst these
valuations are performed independently of Man, Man has established oversight procedures and due diligence processes to
ensure that the NAVs reported by the external valuation service providers are reliable and appropriate. Man makes
adjustments to these NAVs where the anticipated redemption horizon, events or circumstances indicate that the NAVs are not
reflective of fair value. The fair value hierarchy of financial assets is disclosed in Note 22.
Investments in fund products expose Man to market risk and therefore this process is subject to limits consistent with the
Board's risk appetite. The largest single investment in fund products is $186 million (2015: $170 million). The market risk
from seeding investments is modelled using a value at risk methodology using a 95% confidence interval and one-year time
horizon. The value at risk is estimated to be $72 million at 31 December 2016 (2015: $55 million).
Fund investments for deferred compensation arrangements
At 31 December 2016, investments in fund products included $75 million (2015: $71 million) of fund products related to
deferred compensation arrangements. Employees are subject to mandatory deferral arrangements and as part of these
arrangements employees can elect to have their deferral in a designated selection of Man fund products. Changes in the fair
value of the fund product awards are recognised over the relevant vesting period, which means the compensation expense
changes based on the value of the fund products. The associated fund product investments are held to offset this change in
compensation during the vesting period and at vesting the value of the fund investment is delivered to the employee. The
fund product investments are recorded at fair value with any gains or losses during the vesting period recognised as income
or gains on investments and other financial instruments in the Group income statement.
14.2. Consolidation of investments in funds
Seed capital invested into funds may at times be significant, and therefore the fund may be deemed to be controlled by the
Group (Note 1). The fund is consolidated into the Group's results from the date control commences until it ceases. In 2016,
eleven (2015: nine) investments in funds have met the control criteria and have therefore been consolidated, either
classified as held for sale or consolidated on a line-by-line basis as detailed below.
Held for sale
Where the Group acquires the controlling stake and actively markets the products to third-party investors, allowing the
Group to redeem their share, and it is considered highly probable that it will relinquish control within one year from the
date of initial investment, the investment in the controlled fund is classified as held for sale. The seeded fund is
recognised on the Group balance sheet as non-current assets and liabilities held for sale, with the interests of any other
parties included within non-current liabilities held for sale. Amounts recognised are measured at the lower of the carrying
amount and fair value less costs to sell.
The non-current assets and liabilities held for sale are as follows:
$m 31 December 2016 31 December 2015
Non-current assets held for sale 263 188
Non-current liabilities held for sale (132) (69)
Investments in fund products held for sale 131 119
Investments cease to be classified as held for sale when the fund is no longer controlled by the Group, at which time they
are classified as financial assets at fair value through profit or loss (Note 14.1). Loss of control may eventuate through
sale of the investment or a dilution in the Group's holding. If a held for sale fund remains under the control of the Group
for more than one year, and it is unlikely that the Group will reduce or no longer control its investment in the
short-term, it will cease to be classified as held for sale and will be consolidated on a line-by-line basis as below.
Three investments in funds which were classified as held for sale in 2015 have been consolidated on a line-by-line basis
for the year ending 31 December 2016 (2015: two held for sale funds at 31 December 2014).
Line-by-line consolidation
The investments relating to the six funds (2015: three) which are controlled and are consolidated on a line-by-line basis
are included within the Group balance sheet and income statement as follows:
$m 31 December 2016 31 December 2015
Balance Sheet
Cash and cash equivalents 37 21
Transferrable securities1 490 329
Trade and other payables (2) (1)
Net assets of line-by-line consolidated fund entities 525 349
Third-party interest in consolidated funds (240) (136)
Net investment held by Man 285 213
Income statement
Net gains/(losses) on investments2 45 (16)
Management fee expenses3 (9) (4)
Performance fee expenses3 (2) -
Other costs4 (3) -
Net gains/(losses) of line-by-line consolidated fund entities 31 (20)
Third-party share of (gains)losses relating to interests in consolidated funds (15) 9
Gains/(losses) attributable to net investment held by Man 16 (11)
Notes:
1. Included within Investments in fund products and other investments.
2. Included within Income or gains on investments and other financial instruments.
3. Relates to management and performance fees paid by the funds to Man during the year, and is eliminated within
gross management and other fees in the Group income statement. The management fees elimination includes $4 million in
relation to the third-party share of these investments and therefore represents externally generated management fees (2015:
nil).
4. Includes $2 million in relation to the third-party share of these investments and therefore represents costs
incurred externally (2015: nil).
14.3. Loans to fund products
Loans to fund products are short-term advances primarily to Man guaranteed products, which are made to assist with the
financing of the leverage associated with the structured products. The loans are repayable on demand and are carried at
amortised cost using the effective interest rate method. The average balance during the year is $33 million (2015: $75
million). Loans to fund products have decreased compared to the prior year as guaranteed product FUM has decreased together
with the associated leveraging. The liquidity requirements of guaranteed products together with commitments to provide
financial support which give rise to loans to funds are subject to our routine liquidity stress testing and any liquidity
requirements are met by available cash resources, or the syndicated revolving credit facility.
Loans to fund products expose Man to credit risk and therefore the credit decision making process is subject to limits
consistent with the Board's risk appetite. The carrying value represents Man's maximum exposure to this credit risk. Loans
are closely monitored against the assets held in the funds. The largest single loan to a fund product at 31 December 2016
is $4 million (2015: $7 million). Fund entities are not externally rated, but our internal modelling indicates that fund
products have a probability of default that is equivalent to a credit rating of A.
14.4. Structured entities
A structured entity is an entity designed so that its activities are not governed by way of voting rights, for example
where contractual arrangements are the dominant factor in affecting an investor's returns. Man has evaluated all exposures
and concluded that where Man holds an investment, loan, fees receivable, guarantee or commitment with an investment fund or
a collateralised loan obligation, this represents an interest in a structured entity. The activities of these entities are
governed by investment management agreements or, in the case of a collateralised loan obligation, the indenture.
The key considerations in assessing whether the Group controls a structured entity, and therefore should be consolidated
into the Group's financial statements, are outlined in Note 1. Consolidated structured entities are detailed in Note 14.2.
Man's maximum exposure to loss from unconsolidated structured entities is the sum total of any investment held, fee
receivables, accrued income, and loans to the fund entities, and is $420 million for the year ended 31 December 2016 (2015:
$450 million). Man's interest in, and exposure to, unconsolidated structured entities is as follows:
Year ended 31 December 2016 Total FUM($bn) Lessinfrastructuremandates andconsolidatedfund entities1($bn) Total FUMunconsolidatedstructuredentities($bn) Numberof funds Grossmanagementfee margin2(%) Fair value ofinvestmentheld ($m) Feereceivablesand accruedincome($m) Loansto funds($m) Maximumexposureto loss($m)
Alternative
Quant (AHL/Numeric) 19.6 - 19.6 78 1.5 68 45 5 118
Discretionary (GLG) 13.9 0.5 13.4 66 1.0 130 21 - 151
Fund of funds (FRM) 12.8 5.0 7.8 94 0.7 4 17 - 21
Long only
Quant (AHL/Numeric) 21.4 0.1 21.3 109 0.4 8 32 - 40
Discretionary (GLG) 12.8 0.1 12.7 33 1.0 50 15 - 65
Guaranteed 0.4 - 0.4 25 5.1 - 4 21 25
Total 80.9 5.7 75.2 405 260 134 26 420
Year ended 31 December 2015 Total FUM($bn) Lessinfrastructuremandates andconsolidatedfund entities1($bn) Total FUMunconsolidatedstructuredentities($bn) Numberof funds Grossmanagementfee margin2(%) Fair value ofinvestmentheld ($m) Feereceivablesand accruedincome($m) Loansto funds($m) Maximumexposureto loss($m)
Alternative
Quant (AHL/Numeric) 16.4 0.1 16.3 68 1.7 38 86 - 124
Discretionary (GLG) 16.3 0.2 16.1 66 1.0 150 43 - 193
Fund of funds (FRM) 11.9 2.9 9.0 107 0.9 4 18 - 22
Long only
Quant (AHL/Numeric) 18.6 - 18.6 102 0.3 2 34 - 36
Discretionary (GLG) 14.2 - 14.2 32 1.0 4 20 - 24
Guaranteed 1.3 - 1.3 36 5.1 1 9 41 51
Total 78.7 3.2 75.5 411 199 210 41 450
Notes:
1. For infrastructure mandates where we do not act as investment manager or advisor Man's role in directing
investment activities is diminished and therefore these are not considered to be structured entities.
2. Gross management fee margins are the categorical weighted average. Performance fees can only be earned after a high
water mark is achieved. For performance fee eligible funds, performance fees are within the range of 10% to 20%.
Support by way of loans provided to unconsolidated structured entities is detailed in Note 14.3, and is included within the
maximum exposure to loss above. Furthermore, on occasion Man agrees to purchase illiquid investments from the funds at
market rates in order to facilitate investor withdrawals. Man has not provided any other non-contractual support to
unconsolidated structured entities.
15. Fee and other receivables
$m 31 December 2016 31 December 2015
Fee receivables 30 63
Prepayments and accrued income 128 171
Derivative financial instruments 2 2
Other receivables 97 67
257 303
Fee and other receivables are initially recorded at fair value and subsequently measured at amortised cost using the
effective interest rate method. Fee receivables and accrued income represent management and performance fees from fund
products and are received in cash when the funds' net asset values are determined. The majority of fees are deducted from
the NAV of the respective funds by the independent administrators and therefore the credit risk of fee receivables is
minimal. No balances are overdue or delinquent at year end. At 31 December 2016, $8 million (2015: $12 million) of other
receivables are expected to be settled after 12 months.
Details of derivatives used to hedge foreign exchange risk are included in Note 13. Other derivative financial instruments,
which consist primarily of foreign exchange contracts, are measured at fair value through profit or loss. All derivatives
are held with external banks with ratings of BBB+ (2015: A) or higher and mature within one year. During the year, there
were $4 million net realised and unrealised gains arising from derivatives (2015: $12 million). The notional value of all
derivative financial assets is $58 million (2015: $144 million).
For the Open Ended Investment Collective (OEIC) funds businesses, Man acts as the intermediary for the collection of
subscriptions due from customers and payable to the funds, and for redemptions receivable from funds and payable to
customers. At 31 December 2016, the amount included in other receivables is $16 million (2015: $26 million). The unsettled
fund payable is recorded in trade and other payables (Note 16).
16. trade and other payables
31 December 31 December
$m 2016 2015
Accruals 253 322
Trade payables1 3 7
Contingent consideration 161 206
Derivative financial instruments 22 8
Other payables1 208 117
647 660
Note:
1. In the prior period the $25 million payable relating to the OEICs fund business was presented within trade
payables, however, it has been reclassified to other payables in the year in order to better reflect the nature of this
balance. This is consistent with the classification of the OEICs fund receivables balance, as included within other
receivables in Note 15.
Accruals primarily relate to compensation accruals. Contingent consideration relates to the amounts payable in respect of
acquisitions (Note 22). Other payables include the remaining October 2016 announced share repurchase liability of $65
million (Note 21), payables relating to the OEIC funds business of $17 million (2015: $25 million) and servicing fees
payable to distributors.
Details of derivatives used to hedge foreign exchange risk are included in Note 13. The notional value of derivative
financial liabilities at 31 December 2016 is $334 million (2015: $342 million). All derivative contracts mature within one
year.
Trade and other payables are initially recorded at fair value and subsequently measured at amortised cost. Included in
trade and other payables at 31 December 2016 are balances of $155 million (2015: $178 million) which are expected to be
settled after more than 12 months, which largely relate to contingent consideration. Man's policy is to meet its
contractual commitments and pay suppliers according to agreed terms.
17. Provisions
$m Onerousproperty leasecontracts Litigation Restructuring Total
As 1 January 2016 32 24 2 58
Charged/(credited) to the income statement:
Charge in the year 3 - - 3
Exchange differences (5) - - (5)
Additional provisions 1 - - 1
Used during the year/settlements (4) - (2) (6)
At 31 December 2016 27 24 - 51
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of
the obligation. All provisions are current, other than onerous property lease contracts as outlined below, given the Group
does not have the unconditional right to defer settlement.
The $3 million charge for onerous property lease contracts is included as an adjusting item as outlined in Note 2.
Provisions for onerous property lease contracts represent the present value of the future lease payments that the Group is
presently obliged to make under non-cancellable onerous operating lease contracts, less the future benefit expected to be
generated from these, including sub-lease revenue where applicable. The unexpired terms of the onerous leases range from
two to 19 years, with all onerous property lease contracts therefore non-current.
Provisions for restructuring are recognised when the obligation arises, following communication of the formal plan.
18. Investments in associates
Associates are entities in which Man holds an interest and over which it has significant influence but not control, and are
accounted for using the equity method. In assessing significant influence Man considers the investment held and its power
to participate in the financial and operating policy decisions of the investee through its voting or other rights.
Under the equity method associates are carried at cost plus (or minus) our share of cumulative post-acquisition movements
in undistributed profits (or losses). Gains and losses on transactions between the Group and its associates are eliminated
to the extent of the Group's interests in these entities. An impairment assessment of the carrying value of associates is
performed annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable,
and any impairment is expensed in the Group income statement.
Man's investments in associates are as follows:
Year ended Year ended
31 December 2016 31 December 2015
$m NephilaCapital Ltd Other Total NephilaCapital Ltd Other Total
At beginning of the year 28 2 30 28 2 30
Share of post-tax profit/(loss) 3 (1) 2 3 - 3
Dividends received (1) - (1) (3) - (3)
At year end 30 1 31 28 2 30
Nephila Capital Limited is an alternative investment manager based in Bermuda specialising in the management of funds which
underwrite natural catastrophe reinsurance and invest in insurance-linked securities and weather derivatives. Man has not
provided any financial support to associates during the year to 31 December 2016 (2015: nil).
Commission income relating to sales of Nephila Capital Limited products totalled $12 million for the year ended 31 December
2016 (2015: $14 million), and is included within gross management and other fees in the Group income statement.
19. Leasehold improvements and equipment
Year ended 31 December 2016 Year ended 31 December 2015
$m LeaseholdImprovements Equipment Total Leasehold improvements Equipment Total
Net book value at beginning of the year 32 12 44 38 14 52
Additions 3 8 11 2 5 7
Disposals - - - (1) (1) (2)
Depreciation expense (6) (5) (11) (7) (6) (13)
Net book value at year end 29 15 44 32 12 44
All leasehold improvements and equipment are recorded at cost less depreciation and impairment. Cost includes the original
purchase price of the asset and costs directly attributable to bringing the asset to its working condition for its intended
use. Depreciation is calculated using the straight-line method over the asset's estimated useful life, which for leasehold
improvements is over the shorter of the life of the lease and the improvement (up to 24 years) and for equipment is between
three and ten years.
20. Deferred compensation arrangements
Man operates equity-settled share-based payment schemes as well as fund product based compensation arrangements.
For compensation plans whereby deferred compensation is invested in fund products managed by Man, the fair value of the
employee services received in exchange for the fund units is recognised as an expense over the vesting period, with a
corresponding liability. The total amount to be expensed is determined by reference to the fair value of the awards, which
is remeasured at each reporting date, and equates to the fair value of the underlying fund products at settlement date.
During the year, $55 million (2015: $53 million) relating to share-based payment and deferred fund product plans is
included within compensation costs (Note 5), consisting of share-based payments of $18 million (2015: $18 million) and
deferred fund product plans of $37 million (2015: $35 million). The unamortised deferred compensation at year end is $43
million (2015: $49 million) and has a weighted average remaining vesting period of 1.9 years (2015: 2.1 years).
21. Capital management
Investor confidence is an important element in the sustainability of our business. That confidence comes, in part, from the
strength of our capital base. Man has maintained significant surplus capital and available liquidity throughout the recent
periods of market volatility. Details of the Group's syndicated revolving loan facility, which provides additional
liquidity, are provided in Note 13. This capital has given Man flexibility to support our investors, intermediaries and
financial partners, and to allow them to make informed decisions regarding their investment exposures. This confidence
gives our business credibility and sustainability.
We have a conservative capital and liquidity framework which allows us to invest in the growth of our business. We utilise
capital to support the operation of the investment management process and the launch of new fund products. We view this as
a competitive advantage which allows us to directly align our interests with those of investors and intermediaries.
Man monitors its capital requirements through continuous review of its regulatory and economic capital, including monthly
reporting to the Risk and Finance Committee and the Board. Man Group plc's distributable reserves are $1.8 billion (2015:
$1.9 billion) before payment of the proposed final dividend (Note 10). Further details of the Group's regulatory capital
position are included in the Chief Financial Officer's review.
Man's dividend policy is that we will pay out at least 100% of adjusted net management fee earnings per share in each
financial year by way of ordinary dividend. In addition, Man expects to generate significant surplus capital over time,
primarily from net performance fee earnings. Available capital surpluses will be distributed to shareholders over time, by
way of higher dividend payments and/or share repurchases, while maintaining a prudent balance sheet, after taking into
account required capital (including liabilities for future earn-out payments) and potential strategic opportunities.
Further details are provided within the Chief Financial Officer's Review.
Share capital and capital reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
shown in equity as a deduction from the proceeds, net of tax.
Own shares held through the Employee Trusts are recorded at cost, including any directly attributable incremental costs
(net of tax), and are deducted from equity attributable to the Company's equity holders until the shares are transferred to
employees or sold. Where such shares are subsequently sold, any consideration received, net of any directly attributable
incremental transaction costs and the related tax effects, is included in equity attributable to the Company's equity
holders.
Ordinary shares
Ordinary shares have a par value of 33/7 US cents per share (2015: 33/7 US cents per share) and represent 99.9% of issued
share capital. All issued shares are fully paid. The shares have attached to them full voting, dividend and capital
distribution (including on wind up) rights. They do not confer any rights of redemption. Ordinary shareholders have the
right to receive notice of, attend, vote and speak at general meetings. A holder of ordinary shares is entitled to one vote
per ordinary share held when a vote is taken on a poll and one vote only when a vote is taken on a show of hands.
During the year ended 31 December 2016 $35 million (2015: $175 million) of shares were repurchased at an average price of
119.7 pence (2015: 195.6 pence), buying back 23.5 million shares (2015: 59.0 million shares), which increased the statutory
loss per ordinary share (Note 9) by approximately 0.1% (2015: accretive impact on EPS of approximately 2%). This relates to
partial completion of the anticipated $100 million share repurchase as announced in October 2016. As at 28 February 2017,
Man Group had an unexpired authority to repurchase up to 216,367,549 of its ordinary shares. A special resolution will be
proposed at the forthcoming Annual General Meeting (AGM), pursuant to which the Company will seek authority to repurchase
up to 250,436,551 of its ordinary shares, representing 14.99% of the issued share capital at 28 February 2017. Should the
Company's issued share capital as at the date of the AGM be lower than the issued share capital as at 28 February 2017
(being the latest practicable date prior to publication) the directors will limit the Company's use of this authority to
14.99% of the Company's issued share capital as at the date of the AGM.
Deferred sterling shares
50,000 unlisted deferred sterling shares, representing 0.1% of the Company's issued share capital with a par value of £1
per share, were issued due to the redenomination of the ordinary share capital into USD. These shares are necessary for the
Company to continue to comply with Section 763 of the Companies Act 2006. The deferred sterling shares are freely
transferable and have no rights to participate in the profits of the Company, to attend, speak or vote at any general
meeting and no right to participate in any distribution in a winding up except for a return of the nominal value in certain
limited circumstances.
Issued and fully paid share capital
Year ended 31 December 2016 Year ended 31 December 2015
OrdinarysharesNumber Unlisteddeferred sterling sharesNumber Nominalvalue$m OrdinarysharesNumber Unlisteddeferred sterling sharesNumber Nominalvalue$m
At 1 January 1,700,811,013 50,000 59 1,756,290,714 50,000 61
Purchase and cancellation of own shares (23,474,213) - (1) (58,996,084) - (2)
Issue of ordinary shares: Partnership Plans and Sharesave 2,584,094 - - 3,516,383 - -
At 31 December 1,679,920,894 50,000 58 1,700,811,013 50,000 59
Share capital and reserves
$m Sharecapital Sharepremiumaccount Capitalredemptionreserve Mergerreserve Reorganisation reserve Total
At 1 January 2016 59 14 4 491 632 1,200
Purchase and cancellation of own shares (1) - 1 - - -
Issue of ordinary shares: Partnership Plans and Sharesave - 5 - - - 5
At 31 December 2016
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