REG - Man Group plc - 2017 Full Year Results <Origin Href="QuoteRef">EMG.L</Origin> - Part 2
28/02/2018 07:06
- Part 2: For the preceding part double click ID:nRSb1528Ga
4.2 7.6 33.7 - 33.7
Redemptions (6.3) (1.0) (2.9) (4.8) (5.8) (20.8) (0.1) (20.9)
Net inflows/(outflows) 0.6 8.2 2.9 (0.6) 1.8 12.9 (0.1) 12.8
Investment movement 2.1 0.1 0.5 5.8 2.2 10.7 - 10.7
Foreign currency movement 0.8 0.4 0.4 0.2 1.3 3.1 - 3.1
Other movements 0.3 (0.6) 0.4 - (0.2) (0.1) (0.1) (0.2)
Acquisition of Aalto - 1.8 - - - 1.8 - 1.8
At 31 December 2017 29.2 16.5 16.0 26.8 20.4 108.9 0.2 109.1
As our business has evolved, we have changed the categorisation of our FUM
such that it better represents strategies with similar characteristics, as
detailed below.
Absolute return
Absolute return FUM relates to alternative strategies where clients expect the
strategy may have net long, short or neutral exposure, and that may make use
of leverage to achieve those exposures. This includes trend following and
discretionary long-short strategies. Absolute return FUM increased by 15%
during the year, driven by strong investment performance across the range of
strategies in this category. Net inflows were $0.6 billion, which included
$1.3 billion into institutional solutions, $0.5 billion into Numeric market
neutral and $0.3 billion into AHL evolution strategies, partially offset by
outflows of $0.5 billion from GLG market neutral, $0.5 billion from our GLG
equity long short strategies and $0.6 billion from traditional trend following
strategies AHL diversified and alpha. The positive investment movement of $2.1
billion was a result of very strong performance for AHL evolution, and good
broad-based performance across both quant and discretionary absolute return
strategies. Positive foreign exchange movements related to the US Dollar
weakening against the Euro, Australian Dollar and Sterling. Other movements
primarily relate to leverage changes in quant products.
Total return
Total return FUM relates to alternative strategies where clients expect the
strategy to have some positive exposure to particular risk factors over the
course of a market cycle although the level of exposure may vary over time.
This includes EM debt total return, GPM, risk premia, and CLO strategies.
Total return FUM increased by $9.9 billion during the year to $16.5 billion.
Net inflows of $8.2 billion were primarily driven by strong interest in the
risk premia and EM debt total return strategies. Investment movement was $0.1
billion for the year, largely due to muted performance for EM debt total
return. Positive foreign exchange movements related primarily to the weakening
of the US Dollar against the Euro and Sterling. The negative other movements
relate to CLO maturities during the year. In 2017 we acquired Aalto, a US and
Europe based real asset focused investment manager with $1.8 billion of FUM at
acquisition, which has enabled us to further diversify our client offering.
Multi-manager solutions
Multi-manager solutions FUM includes traditional fund of fund and
infrastructure and segregated mandates. Multi-manager solutions FUM increased
by $4.2 billion, primarily as a result of strong net inflows during the year.
Net inflows of $2.9 billion included $2.1 billion of infrastructure mandates
and $2.2 billion into segregated portfolios, partially offset by net outflows
of $1.3 billion from traditional fund of fund strategies. The investment
movement of $0.5 billion was largely driven by infrastructure mandates, where
investment decisions are made by the investors. Positive foreign exchange
movements were primarily due to the weakening of the US Dollar against the
Australian Dollar, Sterling and Japanese Yen.
Systematic long only
Systematic long only FUM relates to the previous quant long only category.
Systematic long only FUM increased by $5.4 billion during the year, as a
result of strong investment performance, partially offset by $0.6 billion of
net outflows. These outflows were concentrated in the fourth quarter and were
driven by client rebalancing following the strong equity market moves during
the year. Net outflows largely related to redemptions from the small cap
growth and all cap core strategies. Investment performance of $5.8 million was
largely driven by market moves and strong relative performance in
international strategies, with Numeric's overall net asset weighted
outperformance against applicable benchmarks of 2.1%(1) for the year.
Discretionary long only
Discretionary long only FUM increased by 33%, driven by strong performance,
positive net inflows and foreign exchange movements. Net inflows of $1.8
billion were largely driven by flows into Japan core alpha, continental
European equity and EM fixed income strategies. The positive investment
movement of $2.2 billion was driven by performance from our Japan core alpha,
UK undervalued assets, continental Europe and European equities strategies.
Positive foreign exchange movements related to the weakening of the US Dollar
against Sterling and the Euro.
Guaranteed products
Guaranteed product FUM reduced by $200 million during the year. There were no
sales and redemptions totalled $100 million. Investment performance for
guaranteed products was broadly flat during the year. Other negative movements
relate to maturities and de-gearing.
Summary income statement
Year ended Year ended
31 December 31 December
$m 2017 2016
Gross management and other fees(1) 784 750
Share of post-tax profit of associates 8 2
Distribution costs (56) (61)
Net management fee revenue 736 691
Performance fees(1) 289 81
Gains on investments(2) 44 31
Net revenue 1,069 803
Asset servicing (37) (33)
Fixed compensation(3) (174) (182)
Variable compensation (300) (206)
Other costs(1,3) (165) (166)
Total costs (676) (587)
Net finance expense(3) (9) (11)
Adjusted profit before tax(3) 384 205
Adjusting items(3) (see page 53) (112) (477)
Statutory profit/(loss) before tax 272 (272)
Adjusted management fee profit before tax(3) 203 178
Adjusted performance fee profit before tax(3) 181 27
Statutory diluted EPS profit/(loss) 15.3 cents (15.8) cents
Adjusted management fee EPS(3) 10.8 cents 9.0 cents
Adjusted EPS(3) 20.3 cents 10.4 cents
1 Management and other fees also includes $3 million (2016:
$4 million) of management fee revenue, performance fees include $2 million
(2016: $nil) of performance fee revenue, and other costs includes a $1 million
(2016: $2 million) deduction of costs relating to line-by-line consolidated
fund entities for the third-party share (per Group financial statements Note
13.2 on page 43).
2 Gains on investments includes income or gains on
investments and other financial instruments of $64 million (2016: $52
million), less $14 million (2016: $15 million) of third party share of gains
relating to line-by-line consolidated fund entities, less the reclassification
of management fee revenue of $3 million (2016: $4 million), performance fee
revenue of $2 million (2016: $nil) and other costs of $1 million (2016: $2
million) as above.
3 We separately identify adjusting items to our statutory
Group income statement and related metrics in order to give a better
understanding of the underlying profitability of the business. Details of
these alternative performance measures and reconciliations to their statutory
equivalents are provided on pages 52 to 57.
Net management fee revenue and margins
Net management fees revenue, excluding share of post-tax profit of associates,
grew by 6% to $728 million in 2017. The increase is driven by growth in FUM
from core activities during the year, partially offset by continued margin
compression and the roll off of guaranteed product FUM. There is $200 million
of guaranteed product FUM remaining at 31 December 2017 and therefore there
will be less of an impact of declining revenue from these assets going
forward.
1 Numeric's net asset weighted alpha for the year to 31 December 2017 is
calculated using the asset weighted average of the performance relative to the
benchmark for all strategy composites available net of the highest management
fees and, as applicable, performance fees that can be charged.
The Group's total net management fee margin(1) decreased by 11 basis points
during the year to 76 basis points, compared to 87 basis points in 2016. The
decline in the overall net margin continue to be driven by mix effects. Around
half of the move is the mix effects from the net inflows in the year,
particularly the infrastructure mandates in FRM. Better performance and FX
gains from our lower margin strategies further lower the Group's net margin,
with the remainder of the move from the continued run off of guaranteed
products and from small pricing adjustments or the mix of clients within
individual funds.
Excluding guaranteed products, the overall net margin decreased by 8 basis
points to 75 basis points.
Year ended Year ended
31 December 2017 31 December 2016
$m Net margin $m Net margin
Absolute return 370 1.38% 374 1.47%
Total return 68 0.56% 27 0.47%
Multi-manager solutions 65 0.45% 72 0.63%
Systematic long only 89 0.36% 70 0.36%
Discretionary long only 119 0.67% 102 0.67%
Core net management 711 0.75% 645 0.83%
fee revenue(1)
Guaranteed 12 5.04% 31 4.28%
Other income(2) 5 13
Net management fee revenue before share of after tax profit of associates 728 0.76% 689 0.87%
Share of post-tax profit 8 2
of associates
Net management fee 736 691
revenue(3,4)
1 Details of these alternative performance measures are
included on page 52.
2 Other income primarily relates to a distribution agreement
for Nephila products, which ceased in April 2017 (Note 17 to the Group
financial statements).
3 Net management fee revenue also includes $3 million (2016:
$4 million) of management fee revenue relating to line-by-line consolidated
fund entities for the third-party share.
4 Includes $56 million (2016: $61 million) of distribution
costs which have been deducted from gross management and other fees of $784
million (2016: $750 million).
During the year, the absolute return net management fee margin decreased by 9
basis points as a result of the continued mix shift towards institutional
assets which are at a lower margin. We expect the absolute return margin will
continue to gradually decline as the shift towards institutional assets
continues.
The total return net management fee margin has increased by 9 basis points as
result of the growth in emerging market debt and risk premia strategies as
well as the acquisition of Aalto during the year. In 2016 the total return
category largely comprised CLO strategies which are at a lower margin.
The multi-manager solutions net management fee margin decreased to 45 basis
points in 2017 from 63 basis points in 2016 as a result of the shift in FRM's
business from traditional fund of funds to that of solutions provider, with
significant inflows into infrastructure mandates and segregated portfolios
over the year where margins are materially lower. The multi-manager solutions
margin is expected to decline further as the shift towards lower margin
services continues.
The systematic long only net management fee margins were stable during the
year. Discretionary long only net management fee margins also remained stable
during the year at 67 basis points.
Core net management fee revenue(1), which excludes legacy guaranteed product
net management fee revenues, other income and share of post-tax profit of
associates, have increased by 10% as a result of strong growth in FUM
partially offset by margin compression as detailed above.
The guaranteed product net management fee margin increased by 76 basis points
compared to 2016 due to maturities from lower margin products during the year.
The Group run rate net management fee margin(1) at 31 December 2017 was 72
basis points, and the run rate net management fee revenue(1) was $789 million.
Performance fees
Gross performance fees for the year were $289 million compared to $81 million
in 2016, which included $145 million from AHL (2016: $50 million), $85 million
from GLG (2016: $9 million), $52 million from Numeric (2016: $19
1 Refer to page 52 for details of the Group's alternative performance
measures.
million), $5 million from GPM (2016: nil) and $2 million from FRM (2016: $3
million), with performance fee generation across a range of strategies as a
result of the continued diversification of our business.
At 31 December 2017, around 65% of AHL FUM ($13.1 billion) were above
performance fee high water mark and 21% ($4.2 billion) were within 5% of high
water mark. Of the $11.1 billion performance fee eligible Numeric strategies,
85% were outperforming the relevant benchmark at 31 December 2017. Around 48%
of eligible GLG assets ($5.3 billion) were above high water mark and a further
44% ($4.9 billion) were within 5% of high water mark at year end. Fund of fund
performance fee eligible products were on average approximately 2% below high
water mark at 31 December 2017.
The Group benefits from a diversified portfolio of performance fee streams
across a variety of strategies that are charged on a regular basis at
different points in the year. 85% of AHL FUM is performance fee eligible, of
which 83% have performance fees that crystallise annually (mainly in June and
December), 13% daily or weekly, and 4% monthly. The majority of performance
fees from GLG crystallise semi-annually in June or December. Around 40% of our
systematic long only performance fee eligible FUM crystallises annually in
November, with the remainder crystallising at various points during the year.
Investment gains
Investment gains of $44 million (2016: $31 million) primarily relate to gains
on seeding investments on a year end seeding book of $480 million (2016: $642
million).
Asset servicing
Asset servicing costs include custodial, valuation, fund accounting and
registrar functions, and vary depending on transaction volumes, the number of
funds, and fund NAVs. Asset servicing costs were $37 million (2016: $33
million), which equates to around 5.5 basis points of average FUM, excluding
systematic long only and GPM strategies, in line with prior year. In 2018,
asset servicing costs are expected to increase to around 7 basis points on
FUM, excluding systematic long only and GPM strategies, due to the inclusion
of MiFID II related research and administration costs.
Compensation costs
Compensation costs comprise fixed base salaries, benefits, variable bonus
compensation (cash and amortisation of deferred compensation arrangements) and
associated social security costs. In addition, during 2017 we completed the
restructuring plan which commenced in 2016, with the final $4 million of the
$21 million planned restructuring compensation costs recognised in 2017 (an
adjusting item per page 53).
Total compensation costs, excluding adjusting items, were $474 million for the
year, up by 22% compared to $388 million in 2016. Overall compensation costs
increased as a result of higher management and performance fee revenues. Fixed
compensation decreased by 4% despite growth in net management fee revenues,
which largely reflects the more favourable hedged US Dollar to Sterling rate
in 2017 as well as cost efficiencies. Variable compensation increased by 46%,
which is above the 33% increase in net revenue due to the increase in
performance fee revenue earned. The overall compensation ratio(1) in 2017 was
44%, a decrease from 48% in 2016, as a result of the significant increase in
performance fee revenue. The Group's compensation ratio is generally between
40% and 50% of net revenues, depending on the mix and level of revenue. We
expect to be at the higher end of the range in years when absolute performance
fees are low and the proportion from Numeric and GLG is higher, and conversely
we expect to be at the lower end of the range when absolute performance fees
are high and the proportion from AHL and FRM is higher. Included within
variable compensation is a $4 million expense relating to the pay-out of
performance fee related carry from Aalto, which crystallised post-acquisition.
Other costs
Other costs, excluding adjusting items as outlined on page 53, were $165
million for the year (2016: $166 million). These comprise cash costs,
including occupancy, technology, consultancy and professional fees, of $147
million (2016: $152 million) and depreciation and amortisation of $18 million
(2016: $14 million). Similar levels of cash costs were incurred in 2017
despite increased net management fee revenues compared to 2016, which reflects
a more favourable hedged rate in 2017 as well as continued discipline on
costs. Depreciation and amortisation has increased by $4 million this year due
to higher levels of capital expenditure in 2016 and 2017, which is largely due
to software development projects across our operating platforms. Depreciation
and amortisation are expected to continue to increase over the next few years
as a result of increased investment in our infrastructure.
We incurred $7 million of other costs during the year which largely relate to
the associated onerous property leases arising (an adjusting item per page 53)
following the centralisation of our London resources into one location.
1 Refer to page 52 for details of the Group's alternative performance
measures.
Net finance expense
Net finance expense, excluding the unwind of discount on contingent
consideration which is classified as an adjusting item as outlined on page 53,
was $9 million for the year (2016: $11 million) and includes interest payable
on borrowings as well as the ongoing costs for the Group's revolving credit
facility, which was renegotiated from $1,000 million to $500 million in
October 2016.
Adjusted profit before tax
Adjusted profit before tax, as further detailed on page 53, is $384 million
compared to $205 million for the previous year. The adjusting items in the
year of $112 million (pre-tax) are summarised in the table below, and are
detailed on page 53. The directors consider that the Group's profit is most
meaningful when considered on a basis which excludes acquisition and disposal
related items (including non-cash items such as amortisation of purchased
intangible assets and deferred tax movements relating to the recognition of
tax assets in the US), impairment of assets, costs relating to substantial
restructuring plans, and certain significant event driven gains or losses,
which therefore reflects the revenues and costs that drive the Group's cash
flows and inform the base on which the Group's variable compensation is
assessed.
Year ended
31 December
Adjusting items $m 2017
Revaluation of contingent consideration creditors (15)
Unwind of contingent consideration discount (26)
Compensation restructuring costs (4)
Other restructuring costs (7)
Reassessment of litigation provision 24
Amortisation of acquired intangible assets (84)
Total adjusting items (excluding tax) (112)
Recognition of deferred tax asset (refer to page 35) 17
Adjusted management fee, Core management fee, and Performance fee profit
before tax
Adjusted management fee profit before tax was $203 million compared to $178
million in 2016, an increase of 14% as a result of the increase in management
fees and a lower increase in related costs. Adjusted performance fee profit
before tax of $181 million (2016: $27 million) for the year reflects the
higher performance fees generated across the business.
Core management fee profit before tax has increased by 35% from $132 million
to $178 million, reflecting strong growth in management fees excluding income
from legacy business.
Details and reconciliation of these measures are provided on page 56.
Taxation
The tax charge on the statutory profit for the year was $17 million (2016: tax
credit of $6 million on statutory loss), which equates to an effective tax
rate of 6%. The majority of Man's profits are earned in the UK, with
significant profits also arising in the US, where our tax rate is effectively
nil as a result of available tax assets, and in Switzerland, which has a lower
rate than the UK.
The underlying rate on adjusted profit of 14% (2016: 13%) represents the
statutory tax rates in each jurisdiction in which we operate applied to our
geographical mix of profits. The effective tax rate on adjusted profit was 12%
(2016: 14%), which is lower than the underlying rate principally as a result
of the reassessment of tax exposures globally during the year.
In the US, we have $174 million of accumulated federal tax losses which we can
offset against future profits from US entities and will therefore reduce
taxable profits. In addition, we have $493 million of tax deductible goodwill
and intangibles, largely relating to the Numeric (2014) and Ore Hill (2008)
acquisitions, which are amortised for tax purposes in the US over 15 years and
which reduce US taxable profits in future periods. We therefore expect not to
pay federal tax in the US for a number of years. Effective from 1 January 2018
the US federal tax rate has decreased from 35% to 21%, which we have
incorporated into assessment of our US deferred tax balances at 31 December
2017. As a result of our available US federal tax assets, we do not expect
this change to have an impact on our effective tax rate for a number of years.
Based on forecast US taxable profits and consistent with the methodology
applied in prior years, the Group has a deferred tax asset on the balance
sheet of $42 million (2016: $25 million) which represents probable tax savings
over a three year forecast period due to the utilisation of these losses and
future amortisation of intangibles. This has resulted in a $17 million net
credit to the tax expense in the year (2016: $6 million credit), which is
included as an adjusting item (page 53). The increase represents projected
year on year growth in our US business, partially offset by the reduction in
the US federal tax rate from 35% to 21% from 1 January 2018. Further details
on this deferred tax asset are given in Note 7 to the Group financial
statements.
Should the earnings profile of the Group in the US increase significantly this
could result in the earlier recognition of the US deferred tax asset in full
and as a result the tax rate for the Group would change in line with the
prevailing corporation tax rate in the US and the proportion of the Group's
profits at that time.
The principal factors that we expect to influence our future underlying tax
rate are the mix of profits by tax jurisdiction, changes to applicable
statutory tax rates and the consumption of US tax assets. The underlying tax
rate in 2018 is currently expected to remain consistent with 2017, dependent
on the factors outlined above.
Capital management
Our business has a strong record of cash generation. Our policy is to return
our adjusted management fee profits to shareholders each year through our
regular dividend. Our adjusted performance fee profits grow our surplus
capital position over time. We then actively manage Man's surplus capital to
seek to maximise value to shareholders by either investing that capital into
acquisitions to improve shareholder returns in future, or to return it to
shareholders through share buybacks or special dividends.
We have maintained prudent surplus capital, in compliance with the FCA's
capital standards, and available liquidity throughout the year. Details of the
Group's syndicated revolving loan facility, which provides additional
liquidity, are provided in Note 12 to the Group financial statements on page
41.
We have a 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 monitor
our capital requirements through continuous review of our regulatory and
economic capital, including monthly reporting to the Risk and Finance
Committee and the Board.
At 31 December 2017, surplus regulatory capital over the regulatory capital
requirements was $256 million.
31 December 31 December
$m 2017 2016
Permitted share capital and reserves 1,437 1,530
Less deductions (primarily goodwill and other intangibles) (1,052) (995)
Available Tier 1 Group capital 385 535
Lower Tier 2 capital - subordinated debt 149 149
Other Tier 2 capital, including deductions (2) 2
Group financial resources 532 686
Less financial resources requirement (276) (294)
Surplus capital 256 392
The decrease in the Group financial resources of $154 million in the year
primarily relates to the $100 million share repurchase programme, which
commenced in October 2017, and goodwill and acquired intangible assets of $79
million arising on the Aalto acquisition, partially offset by the receipt of
the first half performance fees. The decrease in the Group financial resources
requirement of $18 million primarily relates to a lower capital requirement on
seeding investments and securitisation positions, partially offset by a higher
capital requirement on performance fee receivables balances. As at 31 December
2017 there has been no change to the Internal Capital Guidance scalar that is
applied as part of the calculation of the financial resources requirement.
The Group's proforma surplus capital is $460 million, which incorporates: the
second half earnings; our final dividend; and receipt of cash for year end
performance fees and redemption of our largest seeding investment (see next
page). As a result of the impact of adoption of the new leases accounting
standard, as outlined below, we expect that our surplus capital will decrease
by up to $120 million (£90 million) from 1 January 2019.
Adoption of the new leases accounting standard, which is mandatory for the
Group from 1 January 2019 as outlined per Note 1 to the Group financial
statements (page 30), is expected to result in a reduction of our capital
surplus from that date of up to $120 million (at the 31 December 2017 Sterling
exchange rate of 0.74). The reduction is due to the new requirement to bring
operating leases onto the Group's balance sheet and an earlier expense
recognition profile of the associated rental costs, which therefore impacts
our financial resources requirement and Tier 1 capital at 1 January 2019.
Cash earnings and liquidity
We continue to generate strong cash flows. Given the strong cash conversion of
our business we believe our adjusted profit after tax is a good measure of our
underlying cash flow generation, although the timing of cash conversion is
impacted by the seasonal movements in our working capital position through the
year and the size of our seeding book over time. Operating cash flows,
excluding working capital movements, were $431 million during the year and
cash balances at year end were $356 million, excluding cash relating to
consolidated fund entities.
Year ended Year ended
31 December 31 December
$m 2017 2016
Cash at 31 December 2016¹ 389 586
Operating cash flows before working capital movements 431 245
Working capital movements (including seeding)¹ (186) (177)
Payment of dividends (158) (158)
Share repurchase (including costs) (92) (35)
Payment of acquisition related contingent consideration, net of cash acquired (9) (25)
Other movements (19) (47)
Cash at 31 December 2017¹ 356 389
1 Excludes cash relating to consolidated fund entities (Note
13.2 to the Group financial statements).
Working capital movements principally relate to the increase in performance
fee receivables at the year-end partially offset by an increase in the related
variable compensation payable. The total net decrease in our seeding
investment portfolio is not reflected in cash inflows given the timing of
redemptions, with amounts receivable included within working capital
(including seeding) at 31 December 2017 and subsequently receipted in cash
post year-end.
The $500 million revolving credit facility, which remains available and
undrawn, matures in 2022. The management of liquidity is explained in Note 12
to the Group financial statements.
Balance sheet
The Group's balance sheet is strong and liquid. Cash has decreased during the
year as a result of the movements outlined above. Fees and other receivables
have increased as a result of the higher level of performance fees earned in
December, along with an increase in payables for associated compensation
accruals. The decrease in investments in funds is driven by a decrease in
seeding investments as outlined below. Goodwill and other intangibles have
increased marginally in 2017 due to the acquisition of Aalto, partially offset
by the amortisation charge for the year.
$m 31 December 31 December
2017 2016
Cash and cash equivalents(1) 356 389
Fee and other receivables(1) 614 257
Total liquid assets 970 646
Payables(1) (848) (702)
Net liquid assets 122 (56)
Net investments in fund products and other investments(1) 559 720
Pension asset 32 27
Investments in associates 29 31
Leasehold improvements and equipment 44 44
Total tangible assets 786 766
Borrowings (150) (149)
Net deferred tax asset/(liability) 33 16
Net tangible assets² 669 633
Goodwill and other intangibles 1,047 1,041
Shareholders' equity 1,716 1,674
1 Cash and cash equivalents, fees and other receivables and
payables balances excludes amounts relating to line-by-line consolidated fund
entities. These are presented net within net investments in fund products and
other investments, together with third-party interest in consolidated funds
and non-current assets and liabilities held-for-sale (per Group financial
statements Note 13.2 on page 43.
2 Equates to net tangible assets per share of 41 cents
(2016: 38 cents).
Seeding investments
Man uses capital to invest in products to assist in the growth of the
business. At 31 December 2017, the Group's seeding investments were $480
million (refer to Note 13 to the Group financial statements), which have
decreased from $642 million at 31 December 2016 principally as a result of the
redemption of the US distressed credit strategy, our largest seeding position,
following the decision to exit the strategy in December 2017.
Dividends and share repurchases
Man's dividend policy is to pay out at least 100% of adjusted management fee
EPS 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. In October 2017 we commenced a $100
million share repurchase programme, which was 27% complete at 31 December
2017, as detailed in Note 20 to the Group financial statements on page 48. As
a result of recent share repurchases which lower the number of shares, our EPS
and dividend per share growth exceeds the growth in the profitability of the
business.
Adjusted management fee EPS is considered the most appropriate basis on which
to routinely pay ordinary dividends as this represents the most stable
earnings base of the business, and enables the Board to utilise performance
fee earnings over time in the most advantageous manner to support the Group's
strategy. The reconciliation of adjusted management fee EPS to statutory EPS
is provided within Alternative Performance Measures on page 55.
The Board is proposing a final dividend for 2017 of 5.8 cents per share, which
together with the interim dividend of 5.0 cents per share, equates to a total
dividend for 2017 of 10.8 cents per share, growth of 20% from 2016. The
proposed final dividend equates to around $94 million, which is more than
covered by the Group's available liquidity and regulatory capital resources.
As at 31 December 2017, the Group's cash, less those balances ring-fenced for
regulatory purposes, amounted to $319 million and the undrawn committed
revolving credit facility was $500 million, as set out in Note 12 to the Group
financial statements. The Group regulatory capital surplus was $256 million at
the year-end, as shown on page 21. Man Group plc's distributable reserves were
$1.9 billion before payment of the proposed final dividend, which are
sufficient to pay dividends for a number of years. Furthermore, as profits are
earned in the future the Company can receive dividends from its subsidiaries
to further increase distributable reserves.
GROUP INCOME STATEMENT
Year ended Year ended
31 December 31 December
$m Note 2017 2016
Revenue:
Gross management and other fees 2 781 746
Performance fees 2 287 81
1,068 827
Income or gains on investments and other financial instruments 13.1 64 52
Third-party share of gains relating to interests in consolidated funds 13.2 (14) (15)
Revaluation of contingent consideration 21 (15) 40
Reassessment of litigation provision 16 24 -
Distribution costs 3 (56) (61)
Asset servicing 3 (37) (33)
Amortisation of acquired intangible assets 10 (84) (94)
Compensation 4 (478) (405)
Other costs 5 (173) (176)
Impairment of goodwill and acquired intangibles 10 - (379)
Share of post-tax profit of associates 17 8 2
Finance expense 6 (38) (32)
Finance income 6 3 2
Profit/(loss) before tax 272 (272)
Tax (expense)/credit 7 (17) 6
Statutory profit/(loss) attributable to owners of the Parent Company 255 (266)
Earnings/(loss) per share: 8
Basic (cents) 15.5 (15.8)
Diluted (cents) 15.3 (15.8)
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 31 December
$m 2017 2016
Statutory profit/(loss) attributable to owners of the Parent Company 255 (266)
Other comprehensive (expense)/income:
Remeasurements of post-employment benefit obligations 3 (17)
Current tax (debited)/credited on pension scheme (5) 4
Deferred tax credited on pension scheme 1 3
Items that will not be reclassified to profit or loss (1) (10)
Cash flow hedges:
Valuation gains/(losses) taken to equity 18 (35)
Transfer to Group income statement 9 23
Deferred tax (debited)/credited on cash flow hedge movements (5) 2
Net investment hedge (4) 1
Foreign currency translation 12 (7)
Recycling of FX revaluation to the Group income statement on liquidation of 1 2
subsidiaries
Items that may be reclassified subsequently to profit or loss 31 (14)
Other comprehensive income/(expense) (net of tax) 30 (24)
Total comprehensive income/(expense) attributable to owners of the Parent 285 (290)
Company
GROUP BALANCE SHEET
At At
31 December 31 December
$m Note 2017 2016
Assets
Cash and cash equivalents 12 379 426
Fee and other receivables 14 491 257
Investments in fund products and other investments 13 729 794
Pension asset 32 27
Investments in associates 17 29 31
Leasehold improvements and equipment 18 44 44
Goodwill and acquired intangibles 10 1,024 1,024
Other intangibles 11 23 17
Deferred tax assets 7 81 63
2,832 2,683
Non-current assets held for sale 13 145 263
Total assets 2,977 2,946
Liabilities
Trade and other payables 15 843 647
Provisions 16 34 51
Current tax liabilities 7 21 6
Third-party interest in consolidated funds 13 99 240
Borrowings 12 150 149
Deferred tax liabilities 7 48 47
1,195 1,140
Non-current liabilities held for sale 13 66 132
Total liabilities 1,261 1,272
Net assets 1,716 1,674
Equity
Capital and reserves attributable to owners of the Parent Company 1,716 1,674
GROUP CASH FLOW STATEMENT
Year ended Year ended
31 December 31 December
$m Note 2017 2016
Cash flows from operating activities
Statutory profit/(loss) 255 (266)
Adjustments for non-cash items:
Income tax expense/(credit) 17 (6)
Net finance expense 35 30
Share of post-tax profit of associates (8) (2)
Revaluation of contingent consideration 15 (40)
Depreciation of leasehold improvements and equipment 12 11
Amortisation of acquired intangible assets 84 94
Amortisation of other intangible assets 6 4
Share-based payment charge 19 18
Fund product based payment charge 40 37
Impairment of goodwill and acquired intangibles - 379
Other non-cash movements (5) 35
470 294
Changes in working capital:
(Increase)/decrease in receivables (241) 91
Decrease/(increase) in other financial assets(1) - (63)
Increase/(decrease) in payables 41 (182)
Cash generated from operations 270 140
Interest paid (10) (11)
Income tax paid (29) (38)
Cash flows from operating activities 231 91
Cash flows from investing activities
Purchase of leasehold improvements and equipment (12) (11)
Purchase of other intangible assets (12) (8)
Payment of contingent consideration in relation to acquisitions (11) (25)
Acquisition of subsidiaries and other intangibles(2) 2 (18)
Interest received 3 2
Proceeds from sale of associate 2 -
Dividends received from associates 8 1
Cash flows from investing activities (20) (59)
Cash flows from financing activities
Proceeds from issue of ordinary shares 7 5
Purchase of own shares by the Employee Trusts and Partnerships (19) (18)
Share repurchase programme (including costs) (92) (35)
Dividends paid to Company shareholders (158) (158)
Cash flows from financing activities (262) (206)
Net decrease in cash (51) (174)
Cash at the beginning of the year 426 607
Effect of foreign exchange movements 4 (7)
Cash at year end(3) 12 379 426
Notes:
1 Includes $14 million of restricted net cash outflows
(2016: $16 million net inflows) relating to consolidated fund entities (Note
13.2).
2 The 2017 cash received relates to the cash acquired as
part of the Aalto acquisition on 1 January 2017 (Note 10). The 2016 payment
relates to cash paid into an intermediary holding account in advance of the
acquisition of Aalto.
3 Includes $23 million (2016: $37 million) of restricted
cash relating to consolidated fund entities (Note 13.2).
GROUP STATEMENT OF CHANGES IN EQUITY
Year ended Year ended
31 December 31 December
$m 2017 2016
Share capital and capital reserves 1,220 1,205
Revaluation reserves and retained earnings 496 469
Capital and reserves attributable to owners of the Parent Company 1,716 1,674
Share capital and capital reserves
$m Share Share Capital Merger Reorganisation reserve Total
capital premium redemption reserve
account reserve
At 1 January 2017 58 19 5 491 632 1,205
Purchase and cancellation of own shares (2) - 2 - - -
Issue of ordinary shares: Aalto acquisition - - - 8 - 8
Issue of ordinary shares: Partnership Plans and Sharesave - 7 - - - 7
At 31 December 2017 56 26 7 499 632 1,220
Revaluation reserves and retained earnings
$m Profit Own shares Cumulative Cash flow hedge reserve(1) Available-for-sale reserve Total
and loss held by translation
account Employee adjustment(1)
Trusts
At 1 January 2017 564 (43) (39) (15) 2 469
Statutory profit 255 - - - - 255
Other comprehensive income/(expense)
Revaluation of defined benefit pension scheme 3 - - - - 3
Current tax debited on pension scheme (5) - - - - (5)
Deferred tax credited on pension scheme 1 - - - - 1
Fair value gains on cash flow hedges(1) - - - 18 - 18
Transfer cash flow hedge to Group income statement - - - 9 - 9
Deferred tax debited on cash flow hedge movements - - - (5) - (5)
Currency translation difference - (4) 13 - - 9
Share-based payments charge 13 - - - - 13
Deferred tax credited on share-based payments 2 - - - - 2
Purchase of own shares by the Employee Trusts - (14) - - - (14)
Disposal of own shares by the Employee Trusts (15) 15 - - - -
Share repurchases (101) - - - - (101)
Dividends (158) - - - - (158)
At 31 December 2017 559 (46) (26) 7 2 496
Note:
1 Details of the Group's hedging arrangements are provided
in Note 12.
The proposed final dividend would reduce shareholders' equity by $94 million
(2016: $75 million) subsequent to the balance sheet date (Note 9). Further
details of the Group's share capital and reserves are included in Note 20.
Share capital and capital reserves
$m Share Share Capital Merger Reorganisation reserve Total
capital premium redemption reserve
account reserve
At 1 January 2016 59 14 4 491 632 1,200
Purchase and cancellation of own shares (1) - 1 - - -
Issue of ordinary shares: Aalto acquisition - - - - - -
Issue of ordinary shares: Partnership Plans and Sharesave - 5 - - - 5
At 31 December 2016 58 19 5 491 632 1,205
Revaluation reserves and retained earnings
$m Profit Own shares Cumulative Cash flow hedge reserve Available-for- sale reserve Total
and loss held by translation
account Employee adjustment
Trusts
At 1 January 2016 1,105 (62) (25) (5) 2 1,015
Statutory loss (266) - - - - (266)
Other comprehensive income
Revaluation of defined benefit pension scheme (17) - - - - (17)
Current tax credited on pension scheme 4 - - - - 4
Deferred tax credited on pension scheme 3 - - - - 3
Fair value losses on cash flow hedges - - - (35) - (35)
Transfer cash flow hedge to Group income statement - - - 23 - 23
Deferred tax credited on cash flow hedge movements - - - 2 - 2
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 - - - -
Share repurchases (101) - - - - (101)
Dividends (158) - - - - (158)
At 31 December 2016 564 (43) (39) (15) 2 469
NOTES TO THE GROUP FINANCIAL STATEMENTS
1. Basis of preparation
While the financial information included in this preliminary announcement has
been prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards (IFRSs) as adopted by the European
Union, this announcement does not itself contain sufficient information to
comply with IFRSs. Details of the Group's accounting policies can be found in
the Group's Annual Report for the year ended 31 December 2016. The financial
information included in this statement does not constitute the Group's
statutory accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2017, upon which the
auditors have issued an unqualified report, will shortly be delivered to the
Registrar of Companies.
The Annual Report and the Notice of the Company's 2018 Annual General Meeting
(AGM) will be posted to
shareholders on 8 March 2018 and will be available to download from the
Company's website on 9 March 2018. The Annual General Meeting will be held on
Friday 11 May 2018 at 10am at Man Group's offices at Riverbank House, 2 Swan
Lane, London EC4R 3AD.
Man's relationship with independent fund entities
Man acts as the investment manager/advisor to fund entities. Man assesses such
relationships on an ongoing basis to determine whether each fund entity is
controlled by the Group and therefore consolidated into the Group's results.
Having considered all significant aspects of Man's relationships with fund
entities, the directors are of the opinion that, although Man manages the
assets of certain fund entities, where Man does not hold an investment in the
fund entity the characteristics of control are not met, and that for most fund
entities: the existence of independent boards of directors at the fund
entities; rights which allow for the removal of the investment
manager/advisor; the influence of investors; limited exposure to variable
returns; and the arm's length nature of Man's contracts with the fund
entities, indicate that Man does not control the fund entities and their
associated assets, liabilities and results should not be consolidated into the
Group financial statements. Assessment of the control characteristics for all
relationships with fund entities led to the consolidation of nine funds for
the year ended 31 December 2017 (2016: 11), as detailed in Note 13. An
understanding of the aggregate funds under management (FUM) and the fees
earned from fund entities is relevant to an understanding of Man's results and
earnings sustainability, and this information is provided in the Chief
Financial Officer's
- More to follow, for following part double click ID:nRSb1528Gc to.
1 Refer to page 52 for details of the Group's alternative performance measures.
Funds under management (FUM)
Alternative Long only
$bn Absolute return Total return Multi-manager solutions Systematic Discretionary Total excluding Guaranteed Guaranteed Total
At 31 December 2016 25.4 6.6 11.8 21.4 15.3 80.5 0.4 80.9
Sales 6.9 9.2 5.8 4.2 7.6 33.7 - 33.7
Redemptions (6.3) (1.0) (2.9) (4.8) (5.8) (20.8) (0.1) (20.9)
Net inflows/(outflows) 0.6 8.2 2.9 (0.6) 1.8 12.9 (0.1) 12.8
Investment movement 2.1 0.1 0.5 5.8 2.2 10.7 - 10.7
Foreign currency movement 0.8 0.4 0.4 0.2 1.3 3.1 - 3.1
Other movements 0.3 (0.6) 0.4 - (0.2) (0.1) (0.1) (0.2)
Acquisition of Aalto - 1.8 - - - 1.8 - 1.8
At 31 December 2017 29.2 16.5 16.0 26.8 20.4 108.9 0.2 109.1
As our business has evolved, we have changed the categorisation of our FUM such that it better represents strategies with
similar characteristics, as detailed below.
Absolute return
Absolute return FUM relates to alternative strategies where clients expect the strategy may have net long, short or neutral
exposure, and that may make use of leverage to achieve those exposures. This includes trend following and discretionary
long-short strategies. Absolute return FUM increased by 15% during the year, driven by strong investment performance across
the range of strategies in this category. Net inflows were $0.6 billion, which included $1.3 billion into institutional
solutions, $0.5 billion into Numeric market neutral and $0.3 billion into AHL evolution strategies, partially offset by
outflows of $0.5 billion from GLG market neutral, $0.5 billion from our GLG equity long short strategies and $0.6 billion
from traditional trend following strategies AHL diversified and alpha. The positive investment movement of $2.1 billion was
a result of very strong performance for AHL evolution, and good broad-based performance across both quant and discretionary
absolute return strategies. Positive foreign exchange movements related to the US Dollar weakening against the Euro,
Australian Dollar and Sterling. Other movements primarily relate to leverage changes in quant products.
Total return
Total return FUM relates to alternative strategies where clients expect the strategy to have some positive exposure to
particular risk factors over the course of a market cycle although the level of exposure may vary over time. This includes
EM debt total return, GPM, risk premia, and CLO strategies. Total return FUM increased by $9.9 billion during the year to
$16.5 billion. Net inflows of $8.2 billion were primarily driven by strong interest in the risk premia and EM debt total
return strategies. Investment movement was $0.1 billion for the year, largely due to muted performance for EM debt total
return. Positive foreign exchange movements related primarily to the weakening of the US Dollar against the Euro and
Sterling. The negative other movements relate to CLO maturities during the year. In 2017 we acquired Aalto, a US and Europe
based real asset focused investment manager with $1.8 billion of FUM at acquisition, which has enabled us to further
diversify our client offering.
Multi-manager solutions
Multi-manager solutions FUM includes traditional fund of fund and infrastructure and segregated mandates. Multi-manager
solutions FUM increased by $4.2 billion, primarily as a result of strong net inflows during the year. Net inflows of $2.9
billion included $2.1 billion of infrastructure mandates and $2.2 billion into segregated portfolios, partially offset by
net outflows of $1.3 billion from traditional fund of fund strategies. The investment movement of $0.5 billion was largely
driven by infrastructure mandates, where investment decisions are made by the investors. Positive foreign exchange
movements were primarily due to the weakening of the US Dollar against the Australian Dollar, Sterling and Japanese Yen.
Systematic long only
Systematic long only FUM relates to the previous quant long only category. Systematic long only FUM increased by $5.4
billion during the year, as a result of strong investment performance, partially offset by $0.6 billion of net outflows.
These outflows were concentrated in the fourth quarter and were driven by client rebalancing following the strong equity
market moves during the year. Net outflows largely related to redemptions from the small cap growth and all cap core
strategies. Investment performance of $5.8 million was largely driven by market moves and strong relative performance in
international strategies, with Numeric's overall net asset weighted outperformance against applicable benchmarks of 2.1%1
for the year.
Discretionary long only
Discretionary long only FUM increased by 33%, driven by strong performance, positive net inflows and foreign exchange
movements. Net inflows of $1.8 billion were largely driven by flows into Japan core alpha, continental European equity and
EM fixed income strategies. The positive investment movement of $2.2 billion was driven by performance from our Japan core
alpha, UK undervalued assets, continental Europe and European equities strategies. Positive foreign exchange movements
related to the weakening of the US Dollar against Sterling and the Euro.
Guaranteed products
Guaranteed product FUM reduced by $200 million during the year. There were no sales and redemptions totalled $100 million.
Investment performance for guaranteed products was broadly flat during the year. Other negative movements relate to
maturities and de-gearing.
Summary income statement
Year ended Year ended
31 December 31 December
$m 2017 2016
Gross management and other fees1 784 750
Share of post-tax profit of associates 8 2
Distribution costs (56) (61)
Net management fee revenue 736 691
Performance fees1 289 81
Gains on investments2 44 31
Net revenue 1,069 803
Asset servicing (37) (33)
Fixed compensation3 (174) (182)
Variable compensation (300) (206)
Other costs1,3 (165) (166)
Total costs (676) (587)
Net finance expense3 (9) (11)
Adjusted profit before tax3 384 205
Adjusting items3 (see page 53) (112) (477)
Statutory profit/(loss) before tax 272 (272)
Adjusted management fee profit before tax3 203 178
Adjusted performance fee profit before tax3 181 27
Statutory diluted EPS profit/(loss) 15.3 cents (15.8) cents
Adjusted management fee EPS3 10.8 cents 9.0 cents
Adjusted EPS3 20.3 cents 10.4 cents
1 Management and other fees also includes $3 million (2016: $4 million) of management fee revenue, performance
fees include $2 million (2016: $nil) of performance fee revenue, and other costs includes a $1 million (2016: $2 million)
deduction of costs relating to line-by-line consolidated fund entities for the third-party share (per Group financial
statements Note 13.2 on page 43).
2 Gains on investments includes income or gains on investments and other financial instruments of $64 million
(2016: $52 million), less $14 million (2016: $15 million) of third party share of gains relating to line-by-line
consolidated fund entities, less the reclassification of management fee revenue of $3 million (2016: $4 million),
performance fee revenue of $2 million (2016: $nil) and other costs of $1 million (2016: $2 million) as above.
3 We separately identify adjusting items to our statutory Group income statement and related metrics in order to
give a better understanding of the underlying profitability of the business. Details of these alternative performance
measures and reconciliations to their statutory equivalents are provided on pages 52 to 57.
Net management fee revenue and margins
Net management fees revenue, excluding share of post-tax profit of associates, grew by 6% to $728 million in 2017. The
increase is driven by growth in FUM from core activities during the year, partially offset by continued margin compression
and the roll off of guaranteed product FUM. There is $200 million of guaranteed product FUM remaining at 31 December 2017
and therefore there will be less of an impact of declining revenue from these assets going forward.
1 Numeric's net asset weighted alpha for the year to 31 December 2017 is calculated using the asset weighted average of the
performance relative to the benchmark for all strategy composites available net of the highest management fees and, as
applicable, performance fees that can be charged.
The Group's total net management fee margin1 decreased by 11 basis points during the year to 76 basis points, compared to
87 basis points in 2016. The decline in the overall net margin continue to be driven by mix effects. Around half of the
move is the mix effects from the net inflows in the year, particularly the infrastructure mandates in FRM. Better
performance and FX gains from our lower margin strategies further lower the Group's net margin, with the remainder of the
move from the continued run off of guaranteed products and from small pricing adjustments or the mix of clients within
individual funds.
Excluding guaranteed products, the overall net margin decreased by 8 basis points to 75 basis points.
Year ended Year ended
31 December 2017 31 December 2016
$m Net margin $m Net margin
Absolute return 370 1.38% 374 1.47%
Total return 68 0.56% 27 0.47%
Multi-manager solutions 65 0.45% 72 0.63%
Systematic long only 89 0.36% 70 0.36%
Discretionary long only 119 0.67% 102 0.67%
Core net management 711 0.75% 645 0.83%
fee revenue1
Guaranteed 12 5.04% 31 4.28%
Other income2 5 13
Net management fee revenue before share of after tax profit of associates 728 0.76% 689 0.87%
Share of post-tax profitof associates 8 2
Net management feerevenue3,4 736 691
1 Details of these alternative performance measures are included on page 52.
2 Other income primarily relates to a distribution agreement for Nephila products, which ceased in April 2017
(Note 17 to the Group financial statements).
3 Net management fee revenue also includes $3 million (2016: $4 million) of management fee revenue relating to
line-by-line consolidated fund entities for the third-party share.
4 Includes $56 million (2016: $61 million) of distribution costs which have been deducted from gross management
and other fees of $784 million (2016: $750 million).
During the year, the absolute return net management fee margin decreased by 9 basis points as a result of the continued mix
shift towards institutional assets which are at a lower margin. We expect the absolute return margin will continue to
gradually decline as the shift towards institutional assets continues.
The total return net management fee margin has increased by 9 basis points as result of the growth in emerging market debt
and risk premia strategies as well as the acquisition of Aalto during the year. In 2016 the total return category largely
comprised CLO strategies which are at a lower margin.
The multi-manager solutions net management fee margin decreased to 45 basis points in 2017 from 63 basis points in 2016 as
a result of the shift in FRM's business from traditional fund of funds to that of solutions provider, with significant
inflows into infrastructure mandates and segregated portfolios over the year where margins are materially lower. The
multi-manager solutions margin is expected to decline further as the shift towards lower margin services continues.
The systematic long only net management fee margins were stable during the year. Discretionary long only net management fee
margins also remained stable during the year at 67 basis points.
Core net management fee revenue1, which excludes legacy guaranteed product net management fee revenues, other income and
share of post-tax profit of associates, have increased by 10% as a result of strong growth in FUM partially offset by
margin compression as detailed above.
The guaranteed product net management fee margin increased by 76 basis points compared to 2016 due to maturities from lower
margin products during the year.
The Group run rate net management fee margin1 at 31 December 2017 was 72 basis points, and the run rate net management fee
revenue1 was $789 million.
Performance fees
Gross performance fees for the year were $289 million compared to $81 million in 2016, which included $145 million from AHL
(2016: $50 million), $85 million from GLG (2016: $9 million), $52 million from Numeric (2016: $19
1 Refer to page 52 for details of the Group's alternative performance measures.
million), $5 million from GPM (2016: nil) and $2 million from FRM (2016: $3 million), with performance fee generation
across a range of strategies as a result of the continued diversification of our business.
At 31 December 2017, around 65% of AHL FUM ($13.1 billion) were above performance fee high water mark and 21% ($4.2
billion) were within 5% of high water mark. Of the $11.1 billion performance fee eligible Numeric strategies, 85% were
outperforming the relevant benchmark at 31 December 2017. Around 48% of eligible GLG assets ($5.3 billion) were above high
water mark and a further 44% ($4.9 billion) were within 5% of high water mark at year end. Fund of fund performance fee
eligible products were on average approximately 2% below high water mark at 31 December 2017.
The Group benefits from a diversified portfolio of performance fee streams across a variety of strategies that are charged
on a regular basis at different points in the year. 85% of AHL FUM is performance fee eligible, of which 83% have
performance fees that crystallise annually (mainly in June and December), 13% daily or weekly, and 4% monthly. The majority
of performance fees from GLG crystallise semi-annually in June or December. Around 40% of our systematic long only
performance fee eligible FUM crystallises annually in November, with the remainder crystallising at various points during
the year.
Investment gains
Investment gains of $44 million (2016: $31 million) primarily relate to gains on seeding investments on a year end seeding
book of $480 million (2016: $642 million).
Asset servicing
Asset servicing costs include custodial, valuation, fund accounting and registrar functions, and vary depending on
transaction volumes, the number of funds, and fund NAVs. Asset servicing costs were $37 million (2016: $33 million), which
equates to around 5.5 basis points of average FUM, excluding systematic long only and GPM strategies, in line with prior
year. In 2018, asset servicing costs are expected to increase to around 7 basis points on FUM, excluding systematic long
only and GPM strategies, due to the inclusion of MiFID II related research and administration costs.
Compensation costs
Compensation costs comprise fixed base salaries, benefits, variable bonus compensation (cash and amortisation of deferred
compensation arrangements) and associated social security costs. In addition, during 2017 we completed the restructuring
plan which commenced in 2016, with the final $4 million of the $21 million planned restructuring compensation costs
recognised in 2017 (an adjusting item per page 53).
Total compensation costs, excluding adjusting items, were $474 million for the year, up by 22% compared to $388 million in
2016. Overall compensation costs increased as a result of higher management and performance fee revenues. Fixed
compensation decreased by 4% despite growth in net management fee revenues, which largely reflects the more favourable
hedged US Dollar to Sterling rate in 2017 as well as cost efficiencies. Variable compensation increased by 46%, which is
above the 33% increase in net revenue due to the increase in performance fee revenue earned. The overall compensation
ratio1 in 2017 was 44%, a decrease from 48% in 2016, as a result of the significant increase in performance fee revenue.
The Group's compensation ratio is generally between 40% and 50% of net revenues, depending on the mix and level of revenue.
We expect to be at the higher end of the range in years when absolute performance fees are low and the proportion from
Numeric and GLG is higher, and conversely we expect to be at the lower end of the range when absolute performance fees are
high and the proportion from AHL and FRM is higher. Included within variable compensation is a $4 million expense relating
to the pay-out of performance fee related carry from Aalto, which crystallised post-acquisition.
Other costs
Other costs, excluding adjusting items as outlined on page 53, were $165 million for the year (2016: $166 million). These
comprise cash costs, including occupancy, technology, consultancy and professional fees, of $147 million (2016: $152
million) and depreciation and amortisation of $18 million (2016: $14 million). Similar levels of cash costs were incurred
in 2017 despite increased net management fee revenues compared to 2016, which reflects a more favourable hedged rate in
2017 as well as continued discipline on costs. Depreciation and amortisation has increased by $4 million this year due to
higher levels of capital expenditure in 2016 and 2017, which is largely due to software development projects across our
operating platforms. Depreciation and amortisation are expected to continue to increase over the next few years as a result
of increased investment in our infrastructure.
We incurred $7 million of other costs during the year which largely relate to the associated onerous property leases
arising (an adjusting item per page 53) following the centralisation of our London resources into one location.
1 Refer to page 52 for details of the Group's alternative performance measures.
Net finance expense
Net finance expense, excluding the unwind of discount on contingent consideration which is classified as an adjusting item
as outlined on page 53, was $9 million for the year (2016: $11 million) and includes interest payable on borrowings as well
as the ongoing costs for the Group's revolving credit facility, which was renegotiated from $1,000 million to $500 million
in October 2016.
Adjusted profit before tax
Adjusted profit before tax, as further detailed on page 53, is $384 million compared to $205 million for the previous year.
The adjusting items in the year of $112 million (pre-tax) are summarised in the table below, and are detailed on page 53.
The directors consider that the Group's profit is most meaningful when considered on a basis which excludes acquisition and
disposal related items (including non-cash items such as amortisation of purchased intangible assets and deferred tax
movements relating to the recognition of tax assets in the US), impairment of assets, costs relating to substantial
restructuring plans, and certain significant event driven gains or losses, which therefore reflects the revenues and costs
that drive the Group's cash flows and inform the base on which the Group's variable compensation is assessed.
Year ended
31 December
Adjusting items $m 2017
Revaluation of contingent consideration creditors (15)
Unwind of contingent consideration discount (26)
Compensation restructuring costs (4)
Other restructuring costs (7)
Reassessment of litigation provision 24
Amortisation of acquired intangible assets (84)
Total adjusting items (excluding tax) (112)
Recognition of deferred tax asset (refer to page 35) 17
Adjusted management fee, Core management fee, and Performance fee profit before tax
Adjusted management fee profit before tax was $203 million compared to $178 million in 2016, an increase of 14% as a result
of the increase in management fees and a lower increase in related costs. Adjusted performance fee profit before tax of
$181 million (2016: $27 million) for the year reflects the higher performance fees generated across the business.
Core management fee profit before tax has increased by 35% from $132 million to $178 million, reflecting strong growth in
management fees excluding income from legacy business.
Details and reconciliation of these measures are provided on page 56.
Taxation
The tax charge on the statutory profit for the year was $17 million (2016: tax credit of $6 million on statutory loss),
which equates to an effective tax rate of 6%. The majority of Man's profits are earned in the UK, with significant profits
also arising in the US, where our tax rate is effectively nil as a result of available tax assets, and in Switzerland,
which has a lower rate than the UK.
The underlying rate on adjusted profit of 14% (2016: 13%) represents the statutory tax rates in each jurisdiction in which
we operate applied to our geographical mix of profits. The effective tax rate on adjusted profit was 12% (2016: 14%), which
is lower than the underlying rate principally as a result of the reassessment of tax exposures globally during the year.
In the US, we have $174 million of accumulated federal tax losses which we can offset against future profits from US
entities and will therefore reduce taxable profits. In addition, we have $493 million of tax deductible goodwill and
intangibles, largely relating to the Numeric (2014) and Ore Hill (2008) acquisitions, which are amortised for tax purposes
in the US over 15 years and which reduce US taxable profits in future periods. We therefore expect not to pay federal tax
in the US for a number of years. Effective from 1 January 2018 the US federal tax rate has decreased from 35% to 21%, which
we have incorporated into assessment of our US deferred tax balances at 31 December 2017. As a result of our available US
federal tax assets, we do not expect this change to have an impact on our effective tax rate for a number of years. Based
on forecast US taxable profits and consistent with the methodology applied in prior years, the Group has a deferred tax
asset on the balance sheet of $42 million (2016: $25 million) which represents probable tax savings over a three year
forecast period due to the utilisation of these losses and future amortisation of intangibles. This has resulted in a $17
million net credit to the tax expense in the year (2016: $6 million credit), which is included as an adjusting item (page
53). The increase represents projected year on year growth in our US business, partially offset by the reduction in the US
federal tax rate from 35% to 21% from 1 January 2018. Further details on this deferred tax asset are given in Note 7 to the
Group financial statements.
Should the earnings profile of the Group in the US increase significantly this could result in the earlier recognition of
the US deferred tax asset in full and as a result the tax rate for the Group would change in line with the prevailing
corporation tax rate in the US and the proportion of the Group's profits at that time.
The principal factors that we expect to influence our future underlying tax rate are the mix of profits by tax
jurisdiction, changes to applicable statutory tax rates and the consumption of US tax assets. The underlying tax rate in
2018 is currently expected to remain consistent with 2017, dependent on the factors outlined above.
Capital management
Our business has a strong record of cash generation. Our policy is to return our adjusted management fee profits to
shareholders each year through our regular dividend. Our adjusted performance fee profits grow our surplus capital position
over time. We then actively manage Man's surplus capital to seek to maximise value to shareholders by either investing that
capital into acquisitions to improve shareholder returns in future, or to return it to shareholders through share buybacks
or special dividends.
We have maintained prudent surplus capital, in compliance with the FCA's capital standards, and available liquidity
throughout the year. Details of the Group's syndicated revolving loan facility, which provides additional liquidity, are
provided in Note 12 to the Group financial statements on page 41.
We have a 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 monitor our capital
requirements through continuous review of our regulatory and economic capital, including monthly reporting to the Risk and
Finance Committee and the Board.
At 31 December 2017, surplus regulatory capital over the regulatory capital requirements was $256 million.
31 December 31 December
$m 2017 2016
Permitted share capital and reserves 1,437 1,530
Less deductions (primarily goodwill and other intangibles) (1,052) (995)
Available Tier 1 Group capital 385 535
Lower Tier 2 capital - subordinated debt 149 149
Other Tier 2 capital, including deductions (2) 2
Group financial resources 532 686
Less financial resources requirement (276) (294)
Surplus capital 256 392
The decrease in the Group financial resources of $154 million in the year primarily relates to the $100 million share
repurchase programme, which commenced in October 2017, and goodwill and acquired intangible assets of $79 million arising
on the Aalto acquisition, partially offset by the receipt of the first half performance fees. The decrease in the Group
financial resources requirement of $18 million primarily relates to a lower capital requirement on seeding investments and
securitisation positions, partially offset by a higher capital requirement on performance fee receivables balances. As at
31 December 2017 there has been no change to the Internal Capital Guidance scalar that is applied as part of the
calculation of the financial resources requirement.
The Group's proforma surplus capital is $460 million, which incorporates: the second half earnings; our final dividend; and
receipt of cash for year end performance fees and redemption of our largest seeding investment (see next page). As a result
of the impact of adoption of the new leases accounting standard, as outlined below, we expect that our surplus capital will
decrease by up to $120 million (£90 million) from 1 January 2019.
Adoption of the new leases accounting standard, which is mandatory for the Group from 1 January 2019 as outlined per Note 1
to the Group financial statements (page 30), is expected to result in a reduction of our capital surplus from that date of
up to $120 million (at the 31 December 2017 Sterling exchange rate of 0.74). The reduction is due to the new requirement to
bring operating leases onto the Group's balance sheet and an earlier expense recognition profile of the associated rental
costs, which therefore impacts our financial resources requirement and Tier 1 capital at 1 January 2019.
Cash earnings and liquidity
We continue to generate strong cash flows. Given the strong cash conversion of our business we believe our adjusted profit
after tax is a good measure of our underlying cash flow generation, although the timing of cash conversion is impacted by
the seasonal movements in our working capital position through the year and the size of our seeding book over time.
Operating cash flows, excluding working capital movements, were $431 million during the year and cash balances at year end
were $356 million, excluding cash relating to consolidated fund entities.
Year ended Year ended
31 December 31 December
$m 2017 2016
Cash at 31 December 2016¹ 389 586
Operating cash flows before working capital movements 431 245
Working capital movements (including seeding)¹ (186) (177)
Payment of dividends (158) (158)
Share repurchase (including costs) (92) (35)
Payment of acquisition related contingent consideration, net of cash acquired (9) (25)
Other movements (19) (47)
Cash at 31 December 2017¹ 356 389
1 Excludes cash relating to consolidated fund entities (Note 13.2 to the Group financial statements).
Working capital movements principally relate to the increase in performance fee receivables at the year-end partially
offset by an increase in the related variable compensation payable. The total net decrease in our seeding investment
portfolio is not reflected in cash inflows given the timing of redemptions, with amounts receivable included within working
capital (including seeding) at 31 December 2017 and subsequently receipted in cash post year-end.
The $500 million revolving credit facility, which remains available and undrawn, matures in 2022. The management of
liquidity is explained in Note 12 to the Group financial statements.
Balance sheet
The Group's balance sheet is strong and liquid. Cash has decreased during the year as a result of the movements outlined
above. Fees and other receivables have increased as a result of the higher level of performance fees earned in December,
along with an increase in payables for associated compensation accruals. The decrease in investments in funds is driven by
a decrease in seeding investments as outlined below. Goodwill and other intangibles have increased marginally in 2017 due
to the acquisition of Aalto, partially offset by the amortisation charge for the year.
$m 31 December2017 31 December2016
Cash and cash equivalents1 356 389
Fee and other receivables1 614 257
Total liquid assets 970 646
Payables1 (848) (702)
Net liquid assets 122 (56)
Net investments in fund products and other investments1 559 720
Pension asset 32 27
Investments in associates 29 31
Leasehold improvements and equipment 44 44
Total tangible assets 786 766
Borrowings (150) (149)
Net deferred tax asset/(liability) 33 16
Net tangible assets² 669 633
Goodwill and other intangibles 1,047 1,041
Shareholders' equity 1,716 1,674
1 Cash and cash equivalents, fees and other receivables and payables balances excludes amounts relating to
line-by-line consolidated fund entities. These are presented net within net investments in fund products and other
investments, together with third-party interest in consolidated funds and non-current assets and liabilities held-for-sale
(per Group financial statements Note 13.2 on page 43.
2 Equates to net tangible assets per share of 41 cents (2016: 38 cents).
Seeding investments
Man uses capital to invest in products to assist in the growth of the business. At 31 December 2017, the Group's seeding
investments were $480 million (refer to Note 13 to the Group financial statements), which have decreased from $642 million
at 31 December 2016 principally as a result of the redemption of the US distressed credit strategy, our largest seeding
position, following the decision to exit the strategy in December 2017.
Dividends and share repurchases
Man's dividend policy is to pay out at least 100% of adjusted management fee EPS 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. In October 2017 we commenced a $100
million share repurchase programme, which was 27% complete at 31 December 2017, as detailed in Note 20 to the Group
financial statements on page 48. As a result of recent share repurchases which lower the number of shares, our EPS and
dividend per share growth exceeds the growth in the profitability of the business.
Adjusted management fee EPS is considered the most appropriate basis on which to routinely pay ordinary dividends as this
represents the most stable earnings base of the business, and enables the Board to utilise performance fee earnings over
time in the most advantageous manner to support the Group's strategy. The reconciliation of adjusted management fee EPS to
statutory EPS is provided within Alternative Performance Measures on page 55.
The Board is proposing a final dividend for 2017 of 5.8 cents per share, which together with the interim dividend of 5.0
cents per share, equates to a total dividend for 2017 of 10.8 cents per share, growth of 20% from 2016. The proposed final
dividend equates to around $94 million, which is more than covered by the Group's available liquidity and regulatory
capital resources. As at 31 December 2017, the Group's cash, less those balances ring-fenced for regulatory purposes,
amounted to $319 million and the undrawn committed revolving credit facility was $500 million, as set out in Note 12 to the
Group financial statements. The Group regulatory capital surplus was $256 million at the year-end, as shown on page 21. Man
Group plc's distributable reserves were $1.9 billion before payment of the proposed final dividend, which are sufficient to
pay dividends for a number of years. Furthermore, as profits are earned in the future the Company can receive dividends
from its subsidiaries to further increase distributable reserves.
GROUP INCOME STATEMENT
Year ended Year ended
31 December 31 December
$m Note 2017 2016
Revenue:
Gross management and other fees 2 781 746
Performance fees 2 287 81
1,068 827
Income or gains on investments and other financial instruments 13.1 64 52
Third-party share of gains relating to interests in consolidated funds 13.2 (14) (15)
Revaluation of contingent consideration 21 (15) 40
Reassessment of litigation provision 16 24 -
Distribution costs 3 (56) (61)
Asset servicing 3 (37) (33)
Amortisation of acquired intangible assets 10 (84) (94)
Compensation 4 (478) (405)
Other costs 5 (173) (176)
Impairment of goodwill and acquired intangibles 10 - (379)
Share of post-tax profit of associates 17 8 2
Finance expense 6 (38) (32)
Finance income 6 3 2
Profit/(loss) before tax 272 (272)
Tax (expense)/credit 7 (17) 6
Statutory profit/(loss) attributable to owners of the Parent Company 255 (266)
Earnings/(loss) per share: 8
Basic (cents) 15.5 (15.8)
Diluted (cents) 15.3 (15.8)
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 31 December
$m 2017 2016
Statutory profit/(loss) attributable to owners of the Parent Company 255 (266)
Other comprehensive (expense)/income:
Remeasurements of post-employment benefit obligations 3 (17)
Current tax (debited)/credited on pension scheme (5) 4
Deferred tax credited on pension scheme 1 3
Items that will not be reclassified to profit or loss (1) (10)
Cash flow hedges:
Valuation gains/(losses) taken to equity 18 (35)
Transfer to Group income statement 9 23
Deferred tax (debited)/credited on cash flow hedge movements (5) 2
Net investment hedge (4) 1
Foreign currency translation 12 (7)
Recycling of FX revaluation to the Group income statement on liquidation of subsidiaries 1 2
Items that may be reclassified subsequently to profit or loss 31 (14)
Other comprehensive income/(expense) (net of tax) 30 (24)
Total comprehensive income/(expense) attributable to owners of the Parent Company 285 (290)
GROUP BALANCE SHEET
At At
31 December 31 December
$m Note 2017 2016
Assets
Cash and cash equivalents 12 379 426
Fee and other receivables 14 491 257
Investments in fund products and other investments 13 729 794
Pension asset 32 27
Investments in associates 17 29 31
Leasehold improvements and equipment 18 44 44
Goodwill and acquired intangibles 10 1,024 1,024
Other intangibles 11 23 17
Deferred tax assets 7 81 63
2,832 2,683
Non-current assets held for sale 13 145 263
Total assets 2,977 2,946
Liabilities
Trade and other payables 15 843 647
Provisions 16 34 51
Current tax liabilities 7 21 6
Third-party interest in consolidated funds 13 99 240
Borrowings 12 150 149
Deferred tax liabilities 7 48 47
1,195 1,140
Non-current liabilities held for sale 13 66 132
Total liabilities 1,261 1,272
Net assets 1,716 1,674
Equity
Capital and reserves attributable to owners of the Parent Company 1,716 1,674
GROUP CASH FLOW STATEMENT
Year ended Year ended
31 December 31 December
$m Note 2017 2016
Cash flows from operating activities
Statutory profit/(loss) 255 (266)
Adjustments for non-cash items:
Income tax expense/(credit) 17 (6)
Net finance expense 35 30
Share of post-tax profit of associates (8) (2)
Revaluation of contingent consideration 15 (40)
Depreciation of leasehold improvements and equipment 12 11
Amortisation of acquired intangible assets 84 94
Amortisation of other intangible assets 6 4
Share-based payment charge 19 18
Fund product based payment charge 40 37
Impairment of goodwill and acquired intangibles - 379
Other non-cash movements (5) 35
470 294
Changes in working capital:
(Increase)/decrease in receivables (241) 91
Decrease/(increase) in other financial assets1 - (63)
Increase/(decrease) in payables 41 (182)
Cash generated from operations 270 140
Interest paid (10) (11)
Income tax paid (29) (38)
Cash flows from operating activities 231 91
Cash flows from investing activities
Purchase of leasehold improvements and equipment (12) (11)
Purchase of other intangible assets (12) (8)
Payment of contingent consideration in relation to acquisitions (11) (25)
Acquisition of subsidiaries and other intangibles2 2 (18)
Interest received 3 2
Proceeds from sale of associate 2 -
Dividends received from associates 8 1
Cash flows from investing activities (20) (59)
Cash flows from financing activities
Proceeds from issue of ordinary shares 7 5
Purchase of own shares by the Employee Trusts and Partnerships (19) (18)
Share repurchase programme (including costs) (92) (35)
Dividends paid to Company shareholders
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