REG - Man Group plc - 2016 Full Year Results <Origin Href="QuoteRef">EMG.L</Origin> - Part 5
01/03/2017 07:07
- Part 5: For the preceding part double click ID:nRSA1408Yd
58 19 5 491 632 1,205
At 1 January 2015 61 7 2 491 632 1,193
Purchase and cancellation of own shares (2) - 2 - - -
Issue of ordinary shares: Partnership Plans and Sharesave - 7 - - - 7
At 31 December 2015 59 14 4 491 632 1,200
Revaluation reserves and retained earnings
$m Profitand lossaccount Own sharesheld byEmployeeTrusts Cumulativetranslationadjustment1 Cash flowhedge reserve1 Available-for-sale reserve Total
At 1 January 2016 1,105 (62) (25) (5) 2 1,015
Currency translation difference - 10 (14) - - (4)
Share-based payments charge 17 - - - - 17
Current tax credited on share-based payments 1 - - - - 1
Deferred tax debited on share-based payments (2) - - - - (2)
Purchase of own shares by the Employee Trusts - (13) - - - (13)
Disposal of own shares by the Employee Trusts (22) 22 - - - -
Transfer to Group income statement - - - 23 - 23
Fair value losses on cash flow hedges - - - (35) - (35)
Deferred tax credited on cash flow hedge movements - - - 2 - 2
Revaluation of defined benefit pension scheme (17) - - - - (17)
Current tax credited on pension scheme 4 - - - - 4
Deferred tax credited on pension scheme 3 - - - - 3
Share repurchases (101) - - - - (101)
Dividends (158) - - - - (158)
Statutory loss (266) - - - - (266)
At 31 December 2016 564 (43) (39) (15) 2 469
$m Profitand lossaccount Own sharesheld byEmployeeTrusts Cumulativetranslationadjustment1 Cash flowhedgereserve1 Available-for-sale reserve Total
At 1 January 2015 1,330 (62) (14) (16) 3 1,241
Currency translation difference - 3 (11) - - (8)
Share-based payments charge 15 - - - - 15
Purchase of own shares by the Employee Trusts - (30) - - - (30)
Disposal of own shares by the Employee Trusts (27) 27 - - - -
Transfer to Group income statement - - - 18 (1) 17
Fair value losses on cash flow hedges - - - (9) - (9)
Deferred tax credited on cash flow hedge movements - - - 2 - 2
Revaluation of defined benefit pension scheme (21) - - - - (21)
Current tax credited on pension scheme 4 - - - - 4
Deferred tax credited on pension scheme 2 - - - - 2
Share repurchases (176) - - - - (176)
Dividends (193) - - - - (193)
Statutory profit 171 - - - - 171
At 31 December 2015 1,105 (62) (25) (5) 2 1,015
Note:
1 Details of the Group's hedging arrangements are provided in Note 13.
22. Fair value of financial assets/liabilities
Man discloses the fair value measurement of financial assets and liabilities using three levels, as follows:
- Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: Inputs, other than quoted prices included within Level 1, that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair value of financial assets and liabilities can be analysed as follows:
31 December 2016 31 December 2015
$m Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial assets held at fair value:
Investments in fund products and other investments (Note 14) 3 207 68 278 4 162 62 228
Investments in line-by-line consolidated funds(Note 14) - 490 - 490 - 329 - 329
Derivative financial instruments (Note 15) - 2 - 2 - 2 - 2
3 699 68 770 4 493 62 559
Financial liabilities held at fair value:
Derivative financial instruments (Note 16) - 22 - 22 - 8 - 8
Contingent consideration (Note 16) - - 161 161 - - 206 206
- 22 161 183 - 8 206 214
During the year, there were no significant changes in the business or economic circumstances that affected the fair value
of Man's financial assets and no significant transfers of financial assets or liabilities held at fair value between
categories. For investments in fund products, Level 2 investments comprise holdings primarily in unlisted, open-ended,
active and liquid funds, such as seeding investments, which have daily or weekly pricing derived from third-party
information.
A transfer into Level 3 would be deemed to occur where the level of prolonged activity, as evidenced by subscriptions and
redemptions, is deemed insufficient to support a Level 2 classification. This, as well as other factors such as a
deterioration of liquidity in the underlying investments, would result in a Level 3 classification. The material holdings
within this category are priced on a recurring basis based on information supplied by third-parties without adjustment.
Liquidity premium adjustments of $1 million (2015: $2 million) have been applied to gated, suspended, side-pocketed or
otherwise illiquid Level 3 investments. The range of liquidity premium adjustments is from 12% to 33% based on the expected
timeframe for exit, with a larger liquidity adjustment applied where the exit is further in the future. Reasonable changes
in the liquidity premium assumptions would not have a significant impact on the fair value.
The fair values of non-current assets and liabilities held for sale (Note 14.2) are equal to the carrying values of $263
million (2015: $188 million) and $132 million respectively (2015: $69 million), and would be classified within Level 2. In
2015, non-current assets and liabilities held for sale would have been classified as Level 2 ($108 million) and Level 3
($11 million). The fair value of borrowings (Note 13) is $157 million (2015: $157 million) and would have been classified
as Level 1.
The basis of measuring the fair value of Level 3 investments is outlined in Note 14.1. The movements in Level 3 financial
assets and financial liabilities measured at fair value are as follows:
Year ended 31 December 2016 Year ended 31 December 2015
$m Financialassets at fairvalue throughprofit or loss Financialliabilities at fairvalue throughprofit or loss Financial assetsat fair valuethrough profitor loss Financial liabilitiesat fair valuethrough profitor loss
Level 3 financial assets/(liabilities) held at fair value
At beginning of the year 62 (206) 42 (145)
Assets reclassified from held for sale 11 - - -
Purchases 8 - 25 (23)
Total gains in the Group statement of comprehensive income 1 20 9 (79)
Profit/(loss) included in income statement 1 20 9 (79)
Included in other comprehensive income - - - -
Sales or settlements (14) 25 (14) 41
At year end 68 (161) 62 (206)
Total gains/(losses) for the year included in the Group statement of comprehensive income for assets/(liabilities) held at year end 1 20 9 (79)
The financial liabilities in Level 3 primarily relate to the contingent consideration payable at 31 December 2016 to the
former owners of Numeric ($150 million), with the remaining $11 million relating to contingent consideration for other
smaller acquisitions. In 2015, these largely related to the contingent consideration payable in relation to the Numeric and
FRM acquisitions.
Year ended 31 December 2016 Year ended 31 December 2015
$m Numeric Other Total Numeric Other Total
Contingent consideration payable
At beginning of the year 164 42 206 110 35 145
Purchases - - - 23 23
Revaluation of contingent consideration (28) (12) (40) 61 1 62
Unwind of contingent consideration 18 1 19 12 5 17
Finance expense - 1 1 - -
Sales or settlements (4) (21) (25) (19) (22) (41)
At year end 150 11 161 164 42 206
The Numeric contingent consideration relates to an ongoing 18.3% equity interest of Numeric management in the business and
profit interests of 16.5%, pursuant to a call and put option arrangement. The call and put option structure means that it
is virtually certain that Man will elect to, or be obliged to, purchase the interests held by Numeric management at five
(call option) or five and a half (put option) years post-closing (5 September 2014). The maximum aggregate amount payable
by Man in respect of the option consideration is capped at $275 million.
The fair values are based on discounted cash flow calculations, which represent the expected future profits of each
business as per the earn-out arrangements. The fair values are determined using a combination of inputs, such as weighted
average cost of capital, net management fee margins, performance, operating margins and the growth in FUM, as applicable.
The post-tax discount rates applied are 11% for management fees and 17% for performance fees.
The most significant inputs into the valuations at 31 December 2016 are as follows:
Numeric
Weighted average net management fee margin (over the remaining earn-out period) 0.4%
Compound average annualised growth in FUM (over the remaining earn-out period) 9%
A 0.1% increase/decrease in the weighted average net management fee margin would result in a $59 million increase/decrease
in the contingent consideration creditor at 31 December 2016. A 1% increase/decrease in the compound average annualised
growth in FUM (over the remaining earn-out period) would result in a $5 million increase/decrease in the contingent
consideration creditor at 31 December 2016.
Increases/(decreases) in the fair value of the contingent consideration creditor would have a corresponding (expense)/gain
in the Group income statement.
23. Post balance sheet events
On 1 January 2017, the Board completed the acquisition of Aalto Invest Holding AG ('Aalto'), with an estimated acquisition
fair value of approximately $78 million. Aalto is a US and Europe-based real asset focused investment manager with $1.8
billion of funds under management at 1 January 2017. The estimated acquisition fair value largely represents goodwill in
the acquired business, and also includes other acquired intangible assets such as investment management agreements. The
acquisition consideration is structured to align Aalto's interests with those of Man, and comprises an upfront payment of
$25 million and four earn-out payments. The earn-out payments are dependent on levels of run rate management fees measured
following one, four, six and eight years from completion, and are capped at $207 million in aggregate.
24. Other matters
Man Group is subject to various other claims, assessments, regulatory enquiries and investigations in the normal course of
its business. The directors do not expect such matters to have a material adverse effect on the financial position of the
Group.
Alternative performance measures
Introduction
We assess the performance of the group using a variety of alternative performance measures. We discuss the Group's results
on an 'adjusted' basis as well as a statutory basis. The rationale for using adjusted measures is explained below.
We also explain financial performance using measures that are not defined under IFRS and are therefore termed 'non-GAAP'
measures. These non-GAAP measures are explained below. The alternative performance measures we use may not be directly
comparable with similarly titled measures by other companies.
Funds under management (FUM) (non-GAAP measure)
FUM is the assets that the Group manages for investors in fund entities. FUM is a key indicator of our performance as an
investment manager and our ability to remain competitive and build a sustainable business. FUM is measured based on
management fee earning capacity. Average FUM multiplied by our net management fee margin (see below) equates to our
management fee earning capacity. Funds under management are shown by product groupings that have similar margin and
investor characteristics (as shown on page 4). Management focus on the movements in FUM split between the following
categories:
· Net inflows/outflows (non-GAAP measure)
Net inflows/outflows are a measure of our ability to attract and retain investor capital. Net flows are calculated as sales
less redemptions. Further details are included on page 14.
· Investment movement (non-GAAP measure)
Investment movement is a measure of our ability to manage the performance of our funds for our investors. It is calculated
as the fund performance of each strategy multiplied by the FUM in that strategy. Further details are included on page 14.
· FX and other movements (non-GAAP measure)
Some of the Group's FUM is denominated in currencies other than USD. FX movements represent the impact of translating
non-USD denominated FUM into USD. Other movements principally relate to maturities and leverage movements.
· Net management fee margins (non-GAAP measure)
Margins are an indication of the revenue margins negotiated with our institutional and retail investors net of any
distribution costs paid to intermediaries. The net management fee margin is calculated as net management fee revenue (gross
management fee revenue and income from associates less distribution costs) divided by average FUM. Details of the current
year net management fee margins are included on page 18.
Alternative performance measures (continued)
Adjusted profit before tax and adjusted earnings per share
Adjusted profit before tax reflects the recurring revenues and costs that drive the Group's underlying profitability. The
directors consider that in order to assess underlying operating performance, the Group's profit period on period is most
meaningful when considered on a basis which excludes acquisition and disposal related items, impairment of assets,
restructuring costs and certain non-recurring gains or losses. This therefore reflects the recurring revenues and costs
that drive the Group's cash flows and inform the base on which the Group's variable compensation is assessed.
The reconciliation of statutory profit before tax to adjusted profit before tax is shown on page 31. The reconciliation of
diluted statutory EPS to the adjusted EPS measures is included on page 37.
· Adjusted net management fee profit before tax and adjusted net management fee EPS
Adjusted profit before tax is split between adjusted net management fee profit before tax and adjusted net performance fee
profit before tax to separate out the variable performance fee related earnings of the business from the underlying
management fee earnings of the business. Adjusted net management fee profit before tax is calculated as adjusted profit
before tax excluding net performance fee profit before tax. The detailed calculation of adjusted net management fee profit
before tax is shown on page 21.
Man's dividend policy is disclosed on page 24. Dividends paid to shareholder (or adjusted net management fee EPS) are
determined based on the adjusted net management fee profit before tax.
Adjusted net management fee EPS is calculated using post-tax profits excluding net performance fees and adjusting items,
divided by the weighted average diluted number of shares.
The reconciliation of diluted statutory EPS to adjusted net management fee EPS is included on page 37.
· Adjusted net performance fee profit before tax
The detailed calculation of adjusted net performance fee profit before tax is shown on page 21.
Adjusted EBITDA
As the Group has a number of non-cash items in the income statement, it is important to focus on cash earnings to measure
the true earnings generation of the Group. Adjusted EBITDA represents our profitability excluding non-cash items. The table
on page 22 gives a reconciliation of adjusted profit before tax to adjusted EBITDA. The main differences are net finance
expense, depreciation and amortisation, and deferred compensation charges relating to deferred awards.
· Adjusted management fee EBITDA margin
The adjusted management fee EBITDA margin is a measure of the underlying profitability of the Group. It is calculated as a
percentage of net management fee revenues (gross management fee revenue and income from associates less cash distribution
costs). Further details on this measure are included on page 14.
Compensation ratio
The compensation ratio measures our compensation costs relative to our revenues. The Group's compensation ratio is
generally between 40% to 50% of net revenues, depending on the mix and level of revenue. It is calculated as total
compensation divided by net revenues (gross management fee revenue and income from associates less cash distribution
costs). Details of the current year compensation ratio are included on page 19.
This information is provided by RNS
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