REG - Man Group plc - 2017 Full Year Results <Origin Href="QuoteRef">EMG.L</Origin> - Part 4
28/02/2018 07:06
- Part 4: For the preceding part double click ID:nRSb1528Gc
2022. To maintain maximum flexibility, the facility does not include
financial covenants.
Foreign exchange and interest rate risk
Man is subject to risk from changes in interest rates and foreign exchange
rates on monetary assets and liabilities.
In respect of Man's monetary assets and liabilities which earn/incur interest
indexed to floating rates, as at 31 December 2017 a 50bp increase/decrease in
these rates, with all other variables held constant, would have resulted in a
$1 million increase/decrease (2016: $1 million increase/decrease) in net
interest income.
A 10% strengthening/weakening of the USD against all other currencies, with
all other variables held constant, would have resulted in a foreign exchange
loss/gain of $1 million (2016: $3 million loss/gain), with a corresponding
impact on equity. This exposure is based on USD balances held by non-USD
functional currency entities and non-USD balances held by USD functional
currency entities within the Group.
In certain circumstances, the Group uses derivative financial instruments to
hedge its risk associated with foreign exchange movements. Where fixed foreign
currency denominated costs are hedged, the associated derivatives may be
designated as cash flow hedges. Effective unrealised gains or losses on these
instruments are recognised within the cash flow hedge reserve in equity and,
when realised, these are reclassified to the Group income statement in the
same line as the hedged item. The realisation of foreign currency operating
cash flows and the associated forward foreign currency derivative contracts
generally arise on a monthly basis. The fair value of derivatives held in
relation to the Group's cash flow hedges at 31 December 2017 is an asset of $9
million (2016: liability $18 million).
13. Investments in fund products and other investments
31 December 2017
$m Financial assets at fair Loans and Available-for-sale financial Total Net non- Total
value through receivables assets investments in fund products current assets investments
profit or loss and other held for sale
investments
Loans to fund products - 25 - 25 - 25
Investments in fund products 249 - - 249 79 328
Other investments - - 3 3 - 3
Investments in line-by-line consolidated funds 452 - - 452 - 452
701 25 3 729 79 808
31 December 2016
$m Financial assets at fair Loans and Available-for-sale financial Total Net non- Total
value through receivables assets investments in fund products current assets investments
profit or loss and other held for sale
investments
Loans to fund products - 26 - 26 - 26
Investments in fund products 275 - - 275 131 406
Other investments - - 3 3 - 3
Investments in line-by-line consolidated funds 490 - - 490 - 490
765 26 3 794 131 925
Man's seeding investments are included in various Group balance sheet line
items. In summary, the total seeding investments portfolio is made up as
follows:
31 December 31 December
$m Note 2017 2016
Investments in fund products 13.1 249 275
Less those used to hedge deferred compensation awards 13.1 (76) (75)
Consolidated net investments in funds - held for sale 13.2 79 131
Consolidated net investments in funds - line-by-line consolidation 13.2 203 285
Loans to funds 13.3 25 26
Seeding investments portfolio 480 642
13.1. Investments in fund products
Man uses capital to invest in our fund products as part of our ongoing
business to build our product breadth and to trial investment research
developments before we market the products broadly to investors. These seeding
investments are generally held for less than one year. Where Man is deemed not
to control the fund, these are classified as investments in fund products.
Investments in fund products are classified at fair value through profit or
loss, with net gains due to movements in fair value of $58 million for the
year ended 31 December 2017 (2016: $55 million) recognised through income or
gains on investments and other financial instruments. Purchases and sales of
investments are recognised on trade date.
The fair values of investments in fund products are derived from the reported
NAVs of each of the fund products, which in turn are based upon the value of
the underlying assets held within each of the fund products and the
anticipated redemption horizon of the fund product. The valuation of the
underlying assets within each fund product is determined by external valuation
service providers based on an agreed valuation policy and methodology. Whilst
these valuations are performed independently of Man, Man has established
oversight procedures and due diligence processes to ensure that the NAVs
reported by the external valuation service providers are reliable and
appropriate. Man makes adjustments to these NAVs where the anticipated
redemption horizon, events or circumstances indicate that the NAVs are not
reflective of fair value. The fair value hierarchy of financial assets is
disclosed in Note 21.
Investments in fund products expose Man to market risk and therefore this
process is subject to limits consistent with the Board's risk appetite. The
largest single investment in fund products is $79 million (2016: $186
million). The market risk from seeding investments is modelled using a value
at risk methodology using a 95% confidence interval and one-year time horizon.
The value at risk is estimated to be $29 million at 31 December 2017 (2016:
$72 million).
Fund investments for deferred compensation arrangements
At 31 December 2017, investments in fund products included $76 million (2016:
$75 million) of fund products related to deferred compensation arrangements.
Employees are subject to mandatory deferral arrangements and as part of these
arrangements employees can elect to have their deferral in a designated
selection of Man fund products. Changes in the fair value of the fund product
awards are recognised over the relevant vesting period, which means the
compensation expense changes based on the value of the fund products. The
associated fund product investments are held to offset this change in
compensation during the vesting period and at vesting the value of the fund
investment is delivered to the employee. The fund product investments are
recorded at fair value with any gains or losses during the vesting period
recognised as income or gains on investments and other financial instruments
in the Group income statement.
13.2. Consolidation of investments in funds
Seed capital invested into funds may at times be significant, and therefore
the fund may be deemed to be controlled by the Group (Note 1). The fund is
consolidated into the Group's results from the date control commences until it
ceases. In 2017, nine (2016: 11) investments in funds have met the control
criteria and have therefore been consolidated, either classified as held for
sale or consolidated on a line-by-line basis as detailed below.
Held for sale
Where the Group acquires the controlling stake and actively markets the
products to third-party investors, allowing the Group to redeem their share,
and it is considered highly probable that it will relinquish control within
one year from the date of initial investment, the investment in the controlled
fund is classified as held for sale. The seeded fund is recognised on the
Group balance sheet as non-current assets and liabilities held for sale, with
the interests of any other parties included within non-current liabilities
held for sale. Amounts recognised are measured at the lower of the carrying
amount and fair value less costs to sell.
The non-current assets and liabilities held for sale are as follows:
31 December 31 December
$m 2017 2016
Non-current assets held for sale 145 263
Non-current liabilities held for sale (66) (132)
Investments in fund products held for sale 79 131
Investments cease to be classified as held for sale when the fund is no longer
controlled by the Group, at which time they are classified as financial assets
at fair value through profit or loss (Note 13.1). Loss of control may
eventuate through sale of the investment or a dilution in the Group's holding.
If a held for sale fund remains under the control of the Group for more than
one year, and it is unlikely that the Group will reduce or no longer control
its investment in the short-term, it will cease to be classified as held for
sale and will be consolidated on a line-by-line basis. Three investments in
funds which were classified as held for sale in 2016 have been consolidated on
a line-by-line basis for the year ended 31 December 2017 (2016: three held for
sale funds at 31 December 2015).
Line-by-line consolidation
The investments relating to the five (2016: six) funds which are controlled
and are consolidated on a line-by-line basis are included within the Group
balance sheet and income statement as follows:
31 December 31 December
$m 2017 2016
Balance sheet
Cash and cash equivalents 23 37
Transferable securities(1) 452 490
Fees and other receivables 1 -
Trade and other payables (174) (2)
Net assets of line-by-line consolidated fund entities 302 525
Third-party interest in consolidated funds (99) (240)
Net investment held by Man 203 285
Income statement
Net gains on investments(2) 57 45
Management fee expenses(3) (9) (9)
Performance fee expenses(3) (5) (2)
Other costs(4) (2) (3)
Net gains of line-by-line consolidated fund entities 41 31
Third-party share of gains relating to interests in consolidated funds (14) (15)
Gains attributable to net investment held by Man 27 16
Notes:
1 Included within Investments in fund products and other
investments.
2 Included within Income or gains on investments and other
financial instruments.
3 Relates to management and performance fees paid by the
funds to Man during the year, and are eliminated within gross management and
other fees and performance fees, respectively, in the Group income statement.
The management fees elimination includes $3 million (2016: $4 million) in
relation to the third-party share of these investments and therefore
represents externally generated management fees. The performance fee
elimination includes $2 million (2016: $nil) in relation to third-party share
which represents performance fees generated externally.
4 Includes $1 million (2016: $2 million) in relation to the
third-party share of these investments and therefore represents costs incurred
externally.
13.3. Loans to fund products
Loans to fund products are short-term advances primarily to Man guaranteed
products, which are made to assist with the financing of the leverage
associated with the structured products. The loans are repayable on demand and
are carried at amortised cost using the effective interest rate method. The
average balance during the year is $28 million (2016: $33 million). The
liquidity requirements of guaranteed products together with commitments to
provide financial support which give rise to loans to funds are subject to our
routine liquidity stress testing and any liquidity requirements are met by
available cash resources, or the syndicated revolving credit facility.
Loans to fund products expose Man to credit risk and therefore the credit
decision making process is subject to limits consistent with the Board's risk
appetite. The carrying value represents Man's maximum exposure to this credit
risk. Loans are closely monitored against the assets held in the funds. The
largest single loan to a fund product at 31 December 2017 is $12 million
(2016: $4 million). Fund entities are not externally rated, however our
internal modelling suggests that fund products have a probability of default
that is equivalent to a credit rating of A.
13.4. Structured entities
Man has evaluated all exposures and concluded that where Man holds an
investment, loan, fees receivable and accrued income, guarantee or commitment
with an investment fund or a collateralised loan obligation, this represents
an interest in a structured entity as defined by IFRS 10 'Consolidated
financial statements'.
As with structured entities, investment funds are designed so that their
activities are not governed by way of voting rights and contractual
arrangements are the dominant factor in affecting an investor's returns. The
activities of these entities are governed by investment management agreements
or, in the case of a collateralised loan obligation, the indenture.
The key considerations in assessing whether the Group controls a structured
entity, and therefore should be consolidated into the Group's financial
statements, are outlined in Note 1. Consolidated structured entities are
detailed in Note 13.2.
Man's maximum exposure to loss from unconsolidated structured entities is the
sum total of any investment held, fee receivables, accrued income, and loans
to the fund entities, and is $578 million for the year ended 31 December 2017
(2016: $420 million). Man's interest in and exposure to unconsolidated
structured entities is as follows:
31 December 2017 Total Less Total FUM Number Net Fair value of Fee Loans Maximum
FUM infrastructure unconsolidated of funds management investment receivables to funds exposure
($bn) mandates and structured fee margin(2) held and accrued ($m) to loss
consolidated entities (%) ($m) income ($m)
fund entities(1) ($bn) ($m)
($bn)
Alternative
Absolute return 29.2 0.2 29.0 129 1.38 64 181 - 245
Total return 16.5 - 16.5 45 0.56 105 21 - 126
Multi-manager solutions 16.0 7.7 8.3 80 0.45 2 15 - 17
Long only
Systematic 26.8 0.1 26.7 104 0.36 1 75 - 76
Discretionary 20.4 0.1 20.3 49 0.67 61 26 - 87
Guaranteed 0.2 - 0.2 14 5.04 - 2 25 27
Total 109.1 8.1 101.0 421 233 320 25 578
31 December 2016 Total Less Total FUM Number Net Fair value of Fee Loans Maximum
FUM infrastructure unconsolidated of funds management investment receivables to funds exposure
($bn) mandates and structured fee margin(2) held and accrued ($m) to loss
consolidated entities (%) ($m) income ($m)
fund entities(1) ($bn) ($m)
($bn)
Alternative
Absolute return 25.4 0.5 24.9 121 1.47 145 61 - 206
Total return 6.6 - 6.6 21 0.47 68 7 - 75
Multi-manager solutions 11.8 5.0 6.8 91 0.63 2 15 - 17
Long only
Systematic 21.4 0.1 21.3 108 0.36 1 32 - 33
Discretionary 15.3 0.1 15.2 39 0.67 44 15 - 59
Guaranteed 0.4 - 0.4 25 4.28 - 4 26 30
Total 80.9 5.7 75.2 405 260 134 26 420
Notes:
1 For infrastructure mandates where we do not act as
investment manager or advisor Man's role in directing investment activities is
diminished and therefore these are not considered to be structured entities.
2 Net management fee margins are the categorical weighted
average (see page 18). Performance fees can only be earned after a high water
mark is achieved. For performance fee eligible funds, performance fees are
within the range of 10% to 20%.
Support by way of loans provided to unconsolidated structured entities is
detailed in Note 13.3, and is included within the maximum exposure to loss
above. Furthermore, on occasion Man agrees to purchase illiquid investments
from the funds at market rates in order to facilitate investor withdrawals.
Man has not provided any other non-contractual support to unconsolidated
structured entities.
14. Fee and other receivables
31 December 31 December
$m 2017 2016
Fee receivables 53 30
Accrued income 267 114
Prepayments 16 14
Derivative financial instruments 9 2
Other receivables 146 97
491 257
Fee and other receivables are initially recorded at fair value and
subsequently measured at amortised cost using the effective interest rate
method. Fee receivables and accrued income represent management and
performance fees from fund products and are received in cash when the funds'
net asset values are determined. The majority of fees are deducted from the
NAV of the respective funds by the independent administrators and therefore
the credit risk of fee receivables is minimal. No balances are overdue or
delinquent at year end. The increase in accrued income in 2017 primarily
relates to the increase in performance fee income which crystallised on 31
December 2017. Performance fees receivable at year end are $196 million (2016:
$32 million).
Details of derivatives used to hedge foreign exchange risk are included in
Note 12. Other derivative financial instruments, which consist primarily of
foreign exchange contracts, are measured at fair value through profit or loss.
All derivatives are held with external banks with ratings of BBB+ (2016: BBB+)
or higher and mature within one year. During the year, there were $1 million
net realised and unrealised losses arising from derivatives (2016: $4 million
gains). The notional value of all derivative financial assets is $262 million
(2016: $58 million).
Other receivables principally includes balances relating to the Open Ended
Investment Collective (OEIC) funds business, fund redemption proceeds and
other deposits. For the OEIC funds businesses, Man acts as the intermediary
for the collection of subscriptions due from customers and payable to the
funds, and for redemptions receivable from funds and payable to customers. At
31 December 2017, the amount included in other receivables is $38 million
(2016: $16 million). The unsettled fund payable is recorded in trade and other
payables (Note 15). Other receivables also includes $11 million relating to
fund disposal proceeds (2016: $1 million). At 31 December 2017, $8 million
(2016: $8 million) of other receivables are expected to be settled after 12
months.
15. Trade and other payables
31 December 31 December
$m 2017 2016
Accruals 334 253
Trade payables 3 3
Contingent consideration 243 161
Derivative financial instruments 10 22
Other payables 253 208
843 647
Accruals primarily relate to compensation accruals. Contingent consideration
relates to the amounts payable in respect of acquisitions (Note 21). Other
payables include the remaining October 2017 announced share repurchase
liability of $74 million (2016: $65 million), as detailed in Note 20, payables
relating to the OEIC funds business of $35 million (2016: $17 million) and
servicing fees payable to distributors.
Details of derivatives used to hedge foreign exchange risk are included in
Note 12. The notional value of derivative financial liabilities at 31 December
2017 is $388 million (2016: $334 million). All derivative contracts mature
within one year.
The other payables balance in 2017 includes $52 million relating to the
third-party share of payables for line-by-line consolidated funds, largely as
a result of the December 2017 compulsory redemption for our largest seeding
position by all investors (Note 13.2).
Trade and other payables are initially recorded at fair value and subsequently
measured at amortised cost. Included in trade and other payables at 31
December 2017 are balances of $213 million (2016: $155 million) which are
expected to be settled after more than 12 months, which largely relate to
contingent consideration. Man's policy is to meet its contractual commitments
and pay suppliers according to agreed terms.
16. Provisions
Onerous
property lease
$m contracts Litigation Restructuring Other Total
As 1 January 2017 27 24 - - 51
Charged/(credited) to the income statement:
Charge in the year 6 - 4 4 14
Unused amounts reversed - (24) - - (24)
Exchange difference 3 - - - 3
Used during the year/settlements (6) - (4) - (10)
At 31 December 2017 30 - - 4 34
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle the obligation, and a reliable estimate can be made of
the amount of the obligation. All provisions are current, other than onerous
property lease contracts as outlined below, given the Group does not have the
unconditional right to defer settlement. Provisions for restructuring are
recognised when the obligation arises, following communication of the formal
plan.
The $6 million charge for onerous property lease contracts is included within
other costs as detailed in Note 5. Provisions for onerous property lease
contracts represent the present value of the future lease payments that the
Group is presently obliged to make under non-cancellable onerous operating
lease contracts, less the future benefit expected to be generated from these,
including sub-lease revenue where applicable. The unexpired terms of the
onerous leases range from one to 18 years, with all onerous property lease
contracts therefore non-current.
The credit of $24 million in relation to litigation provisions is as a result
of the reassessment of the Group's exposure to claims and other settlements.
17. Investments in associates
Associates are entities in which Man holds an interest and over which it has
significant influence but not control, and are accounted for using the equity
method. In assessing significant influence Man considers the investment held
and its power to participate in the financial and operating policy decisions
of the investee through its voting or other rights.
Under the equity method associates are carried at cost plus (or minus) our
share of cumulative post-acquisition movements in undistributed profits (or
losses). Gains and losses on transactions between the Group and its associates
are eliminated to the extent of the Group's interests in these entities. An
impairment assessment of the carrying value of associates is performed
annually or whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, and any impairment is expensed in the
Group income statement.
Man's investments in associates are as follows:
Year ended 31 December 2017 Year ended 31 December 2016
Nephila Nephila
$m Holdings Ltd Other Total Holdings Ltd Other Total
At beginning of the year 30 1 31 28 2 30
Share of post-tax profit/(loss) 7 1 8 3 (1) 2
Dividends received (8) - (8) (1) - (1)
Sale of investment in associate - (2) (2) - - -
At year end 29 - 29 30 1 31
Nephila Holdings Limited is an alternative investment manager based in Bermuda
specialising in the management of funds which underwrite natural catastrophe
reinsurance and invest in insurance-linked securities and weather derivatives.
Man has not provided any financial support to associates during the year to 31
December 2017 (2016: nil).
Commission income relating to sales of Nephila Holdings Limited products
totalled $4 million for the year ended 31 December 2017 (2016: $12 million),
an arrangement which ceased during the year, and is included within gross
management and other fees in the Group income statement.
18. Leasehold improvements and equipment
Year ended 31 December 2017 Year ended 31 December 2016
$m Leasehold Equipment Total Leasehold Equipment Total
improvements improvements
Net book value at beginning of the year 29 15 44 32 12 44
Additions 5 7 12 3 8 11
Depreciation expense (6) (6) (12) (6) (5) (11)
Net book value at year end 28 16 44 29 15 44
All leasehold improvements and equipment are recorded at cost less
depreciation and impairment. Cost includes the original purchase price of the
asset and costs directly attributable to bringing the asset to its working
condition for its intended use. Depreciation is calculated using the
straight-line method over the asset's estimated useful life, which for
leasehold improvements is over the shorter of the life of the lease and the
improvement (up to 24 years) and for equipment is between three and ten years.
19. Deferred compensation arrangements
Man operates equity-settled share-based payment schemes as well as fund
product based compensation arrangements.
For compensation plans whereby deferred compensation is invested in fund
products managed by Man, the fair value of the employee services received in
exchange for the fund units is recognised as an expense over the vesting
period, with a corresponding liability. The total amount to be expensed is
determined by reference to the fair value of the awards, which is remeasured
at each reporting date, and equates to the fair value of the underlying fund
products at settlement date.
During the year, $59 million (2016: $55 million) relating to share-based
payment and deferred fund product plans is included within compensation costs
(Note 4), consisting of share-based payments of $19 million (2016: $18
million) and deferred fund product plans of $40 million (2016: $37 million).
The unamortised deferred compensation at year end is $51 million (2016: $43
million) and has a weighted average remaining vesting period of 2.2 years
(2016: 1.9 years).
20. Capital management
Details of the Group's capital management and dividend policy are provided
within the Chief Financial Officer's Review on page 21.
Share capital and capital reserves
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction from the proceeds, net of tax.
Own shares held through the Employee Trusts are recorded at cost, including
any directly attributable incremental costs (net of tax), and are deducted
from equity attributable to the Company's equity holders until the shares are
transferred to employees or sold. Where such shares are subsequently sold, any
consideration received, net of any directly attributable incremental
transaction costs and the related tax effects, is included in equity
attributable to the Company's equity holders.
Ordinary shares
Ordinary shares have a par value of 3(3/7) US cents per share (2016: 3(3/7) US
cents per share) and represent 99.9% of issued share capital. All issued
shares are fully paid. The shares have attached to them full voting, dividend
and capital distribution (including on wind up) rights. They do not confer any
rights of redemption. Ordinary shareholders have the right to receive notice
of, attend, vote and speak at general meetings. A holder of ordinary shares is
entitled to one vote per ordinary share held when a vote is taken on a poll
and one vote only when a vote is taken on a show of hands.
During the year ended 31 December 2017 $92 million (2016: $35 million) of
shares were repurchased at an average price of 154.6 pence (2016: 119.7
pence), buying back 46.4 million shares (2016: 23.5 million shares), which had
an accretive impact on EPS (Note 8) of 1.7% (2016: increased the statutory
loss per share by 0.1%). This relates to the completion of the remaining $65
million of the share repurchase announced in October 2016, as well as the
partial completion of $27 million of the anticipated $100 million share
repurchase (plus costs of $1 million) announced in October 2017. As at 27
February 2018, Man Group had an unexpired authority to repurchase up to
217,850,114 of its ordinary shares. A special resolution will be proposed at
the forthcoming Annual General Meeting (AGM), pursuant to which the Company
will seek authority to repurchase up to 163,339,181 of its ordinary shares,
representing 10% of the issued share capital at 27 February 2018.
Deferred sterling shares
50,000 unlisted deferred sterling shares, representing 0.1% of the Company's
issued share capital with a par value of £1 per share, were issued due to the
redenomination of the ordinary share capital into USD. These shares are
necessary for the Company to continue to comply with Section 763 of the
Companies Act 2006. The deferred sterling shares are freely transferable and
have no rights to participate in the profits of the Company, to attend, speak
or vote at any general meeting and no right to participate in any distribution
in a winding up except for a return of the nominal value in certain limited
circumstances.
Issued and fully paid share capital
Year ended 31 December 2017 Year ended 31 December 2016
Ordinary Unlisted Nominal Ordinary Unlisted Nominal
shares deferred sterling value shares deferred value
Number shares Number $m Number sterling shares $m
Number
At 1 January 1,679,920,894 50,000 58 1,700,811,013 50,000 59
Purchase and cancellation of own shares (46,427,274) - (2) (23,474,213) - (1)
Issue of ordinary shares: Partnership Plans and Sharesave 4,448,807 - - 2,584,094 - -
Issue of shares relating to acquisition of Aalto (Note 10) 5,650,862 - - - - -
At 31 December 1,643,593,289 50,000 56 1,679,920,894 50,000 58
21. 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 2017 31 December 2016
$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 3 137 112 252 3 207 68 278
other investments (Note 13)
Investments in line-by-line consolidated funds (Note 13) - 452 - 452 - 490 - 490
Derivative financial instruments (Note 14) - 9 - 9 - 2 - 2
3 598 112 713 3 699 68 770
Financial liabilities held at fair value:
Derivative financial instruments (Note 15) - 10 - 10 - 22 - 22
Contingent consideration (Note 15) - - 243 243 - - 161 161
- 10 243 253 - 22 161 183
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, with a liquidity premium adjustment applied based on the
expected timeframe for exit. 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
13.2) are equal to the carrying values of $145 million (2016: $263 million)
and $66 million respectively (2016: $132 million), and would be classified
within Level 2. The fair value of borrowings (Note 12) is $156 million (2016:
$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 13.1. The movements in Level 3 financial assets and financial liabilities
measured at fair value are as follows:
Year ended 31 December 2017 Year ended 31 December 2016
$m Financial Financial Financial assets Financial
assets at fair liabilities at at fair value liabilities at fair
value through fair value through profit value through
profit or loss through profit or loss profit or loss
or loss
Level 3 financial assets/(liabilities) held at fair value
At beginning of the year 68 (161) 62 (206)
Assets reclassified from held for sale - - 11 -
Purchases/(losses) 47 (52) 8 -
Total gains/(losses) in the Group statement of comprehensive income 5 (41) 1 20
Profit/(loss) included in income statement 5 (41) 1 20
Included in other comprehensive income - - - -
Sales or settlements (8) 11 (14) 25
At year end 112 (243) 68 (161)
Total gains/(losses) for the year included in the Group statement of 5 (41) 1 20
comprehensive income for assets/(liabilities) held at year end
The financial liabilities in Level 3 primarily relate to the contingent
consideration payable to the former owners of Numeric and Aalto, with the
other contingent consideration relating to smaller acquisitions including FRM,
Pine Grove, and BAML fund of funds.
Year ended 31 December 2017 Year ended 31 December 2016
$m Numeric Aalto Other Total Numeric Other Total
Contingent consideration payable
At beginning of the year 150 - 11 161 164 42 206
Purchases - 52 - 52 - - -
Revaluation of contingent consideration 15 1 (1) 15 (28) (12) (40)
Unwind of contingent consideration discount(Note 6) 18 7 1 26 18 1 19
Finance expense - - - - - 1 1
Sales or settlements (8) - (3) (11) (4) (21) (25)
At year end 175 60 8 243 150 11 161
The revaluation of contingent consideration in the Group income statement is
an adjustment to the fair value of expected acquisition earn-out payments. The
$15 million increase in the fair value of contingent consideration is largely
as a result of better than expected Numeric performance during 2017. The $28
million reduction in the fair value of the Numeric contingent consideration in
2016 was largely due to a decrease in the forecast management fees on long
only products and net inflows.
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 Aalto contingent consideration is dependent on levels of run rate
management fees measured following one, four, six and eight years from
completion. The maximum aggregate amount payable by Man is capped at $207
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 for Numeric and Other, and 15% for Aalto.
The most significant inputs into the valuations at 31 December 2017 are as
follows:
Numeric Aalto
Weighted average net management fee margin (over the remaining earn-out 0.4% 0.8%
period)
Compound growth in average FUM (over the remaining earn-out period) 7% 19%
Changes in inputs would result in the following increase/(decrease) in the
fair value of the contingent consideration creditor at 31 December 2017, with
a corresponding (expense)/gain in the Group income statement:
Numeric Aalto
Weighted average net management fee margin
0.1% increase 51 6
0.1% decrease (51) (10)(1)
Compound growth in average FUM
1% increase 6 4
1% decrease (6) (3)
Note:
1 Any increase in net management fee margins would have less
of an impact on the contingent consideration given the calculation is close to
the maximum capped earn-out for the year 1 payment.
22. Operating lease commitments
31 December 2017 31 December 2016
Within 1-5 After Within 1-5 After
$m 1 year years 5 years Total 1 year years 5 years Total
Operating lease commitments 27 56 292 375 25 57 265 347
Including offsetting non-cancellable sublease arrangements 20 73 15 108 19 66 30 115
Rent and associated expenses for all leases are recognised on a straight-line
basis over the life of the respective lease. The operating lease commitments
primarily include the agreements for lease contracts for the headquarters at
Riverbank House, London (expiring in 2035) and our main New York office
(expiring in 2022), which aggregate to $332 million (2016: $312 million).
23. 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
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)
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. FUM is shown by product groupings that have similar characteristics
(as shown on page 16). Management focus on the movements in FUM split between
the following categories:
Net inflows/outflows
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 16.
Investment movement
Investment movement is a measure of the performance of the funds we manage 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
16.
FX and other movements
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.
Asset weighted outperformance versus benchmark
The asset weighted outperformance relative to peers for the period stated is
calculated using the asset weighted average performance relative to peers for
all strategies where we have identified and can access an appropriate peer
composite. The performance of our strategies is measured net of management
fees charged and, as applicable, performance fees charged. As at 31 December
2017 it covers 87% of the FUM of the Group and excludes infrastructure
mandates, Global Private Markets and collateralised loan obligations. Asset
weighted outperformance versus benchmark will be added as a new KPI for the
2018 financial year.
Net management fee revenue and margins
Margins are an indication of the revenue margins negotiated with our
institutional and retail investors net of any distribution costs paid to
intermediaries and are a primary indicator of future revenues. Net management
fee revenue is defined as gross management fee revenue and share of post-tax
profits of associates less distribution costs, plus management fees relating
to consolidated fund entities (Note 13.2 to the Group financial statements)
which represent the third party share and are therefore externally generated.
Net management fee margin is calculated as net management fee revenue,
excluding share of post-tax profits of associates, divided by average FUM. Net
management fee revenue and margins are shown on page 18.
Core net management fee revenue
Core net management fee revenue excludes net management fee revenue relating
to guaranteed products, sales commission income from Nephila (Note 17) and
share of post-tax profits of associates. These items have been excluded in
order to better present the core profitability of the Group given the roll-off
of the legacy guaranteed product FUM, income from the Nephila sales commission
agreement which ended during 2017, and share of post-tax profits of associates
which is generated externally. The detailed calculation of core net management
fee revenue is shown on page 18.
Run rate net management fee revenue and margins
In addition to the net management fee revenue and margins for the year, as
detailed above, we also use run rate net management fee revenue and run rate
margins as at the end of the year. These measures give the most up to date
indication of our revenue streams at the period end date. The run rate net
management fee margin is calculated as net management fee revenue for the last
quarter divided by the average FUM for the last quarter on a fund by fund
basis. Run rate net management fee revenue is calculated as the run rate net
management fee margin applied to the closing FUM as at the period end, plus
our share of post-tax profits of associates for the previous 12 months.
Adjusted profit before tax and adjusted earnings per share
Adjusted profit before tax is a measure of 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 (including non-cash items such as amortisation of acquired 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. The directors
are consistent in their approach to the classification of adjusting items
period to period, maintaining an appropriate symmetry between losses and gains
and the reversal of any accruals previously classified as adjusting items.
Adjusted earnings per share (EPS) is calculated as adjusted profit after tax
divided by the weighted average diluted number of shares.
The reconciliation of statutory profit before tax to adjusted profit before
tax, and the reconciliation of statutory diluted EPS to the adjusted EPS
measures are shown below.
Note to the Group financial statements Year Ended 31 December 2017 Year Ended 31 December 2016
$m
Statutory profit/(loss) before tax 272 (272)
Adjusting items:
Acquisition and disposal related
Amortisation of acquired intangible assets 10 84 94
Revaluation of contingent consideration 21 15 (40)
Unwind of contingent consideration discount 6 26 19
Impairment of goodwill and acquired intangibles 10 - 379
Other costs 5 - 4
Reassessment of litigation provision 16 (24) -
Compensation - restructuring 4 4 17
Other costs - restructuring 5 7 4
Adjusted profit before tax 384 205
Tax on adjusted profit (47) (28)
Adjusted profit after tax 337 177
Further details on adjusting items are included within the related notes to
the Group financial statements.
The impact of adjusting items on the Group's tax expense/credit is outlined
below:
Year Ended 31 December 2017 Year Ended 31 December 2016
$m
Statutory tax expense/(credit) 17 (6)
Less tax credit/(expense) on adjusting items:
Amortisation of acquired intangible assets 10 15
Impairment of goodwill and acquired intangibles - 9
Compensation - restructuring 1 3
Other costs - restructuring 2 1
Tax adjusting item (Note 7 to the Group financial statements) 17 6
Tax expense on adjusted profit before tax 47 28
Made up of:
Tax expense on adjusted management fee profit before tax 24 25
Tax expense on adjusted performance fee profit before tax 23 3
Certain adjusting items are included within the notes to the Group financial
statements, which can be reconciled to their adjusted equivalents as outlined
below:
Year Ended 31 December 2017 Year Ended 31 December 2016
$m
Total compensation costs (Note 4) 478 405
Adjusting items (as above) (4) (17)
Total compensation costs excluding adjusting items 474 388
Made up of:
Fixed compensation (includes salaries and associated social security costs, 174 182
and pension costs)
Variable compensation (includes variable cash compensation, share-based 300 206
payment charge, fund product payment charge and associated social security
costs)
Total other costs (Note 5) 173 176
Adjusting items (as above) (7) (8)
Total other costs excluding adjusting items 166 168
Total finance expense (Note 6) 38 32
Total finance income (Note 6) (3) (2)
Net finance expense, including adjusting items 35 30
Adjusting items (as above) (26) (19)
Net finance expense excluding adjusting items 9 11
Adjusted management fee EPS
Man's dividend policy is disclosed on pages 22 to 23. Dividends paid to
shareholders (or adjusted management fee EPS) are determined based on the
adjusted management fee profit before tax. Adjusted management fee EPS is
calculated using post-tax profits excluding performance fees and adjusting
items, divided by the weighted average diluted number of shares.
The reconciliation from EPS (Note 8 to the Group financial statements) to
adjusted EPS is provided below:
Year ended 31 December 2017
- More to follow, for following part double click ID:nRSb1528Ge rating unit
The GPM CGU was established in 2017 as a result of the acquisition of Aalto. The GPM value in use calculation at 31
December 2017 indicates a value of around $110 million, with around $40 million of headroom over the carrying value of the
GPM business. Therefore, no impairment charge is deemed necessary at 31 December 2017.
Discount rates Multiples (post-tax)
(post-tax)
Sensitivity analysis: Compound average annualised Management fee/ Management fee/
growth in FUM1 performance fee performance fee
Key assumption stressed to: 39% 23% 14%/20% 16%/22% 14.0x/6.5x 12.0x/4.5x
Modelled headroom/(impairment) ($m) 44 - 412 352 453 313
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at
which headroom would be reduced to nil, after which impairment would arise.
2 An increase/decrease in the value in use calculation of $3 million.
3 An increase/decrease in the value in use calculation of $7 million.
Acquisition of Aalto
On 1 January 2017, Man acquired the entire issued share capital of Aalto, a US and Europe based real asset focused
investment manager with $1.8 billion of funds under management at the date of acquisition. The acquisition consideration is
structured to align Aalto's interests with those of Man, and comprises of an initial payment of $18 million in cash,
including $1 million for acquired working capital, and $8 million in shares, and four deferred payments. The deferred
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. The net present value of the aggregate deferred payments at
completion was $52 million.
The $8 million fair value of the 5.7 million ordinary shares issued as part of the contingent consideration paid for Aalto
was measured on the basis of quoted prices at the time of issue. The deferred payments are equivalent to an earn-out
(contingent consideration) and deemed to be a financial liability measured initially at fair value with any subsequent fair
value movements recognised through the Group income statement (Note 21).
Values for the acquired business at the date of acquisition are set out below:
Fair value Fair
$m Book value adjustments value
Intangible assets - 24 24
Cash and receivables 5 - 5
Loans and payables (4) - (4)
Deferred tax liability - (2) (2)
Net assets acquired 1 22 23
Goodwill on acquisition 55
Net assets acquired including goodwill 78
Contingent consideration 52
Cash consideration 18
Value of shares issued 8
Total consideration 78
The fair value adjustments relate to the recognition of investment management agreements of $10 million and customer
relationships of $14 million. These intangible assets are recognised at the present value of the expected future cash flows
generated from the assets and are amortised on a straight-line basis over their expected useful lives of eight and six
years respectively. Given the funds are close-ended only the future cash flows from funds existing at acquisition date are
included within the investment management agreements intangible, and therefore this balance reflects a finite product
portfolio and period.
The high proportion of acquired goodwill in comparison to identified other intangible assets is due to the nature of the
acquired business. The goodwill balance of $55 million primarily represents direct and efficient access to the private real
estate markets, the highly skilled and experienced Aalto team and the tailor made infrastructure and strong relationships
to expand Man's current offering to its existing clients. None of the goodwill recognised is expected to be deductible for
tax purposes.
Acquisition related costs included in the Group's income statement for the year ended 31 December 2017 amounted to less
than $1 million. Aalto contributed $12 million of management fee revenue, $4 million of performance fee revenue and $3
million to the Group's profit before tax for the year ended 31 December 2017.
11. Other intangibles
Year ended Year ended
31 December 31 December
$m 2017 2016
Net book value beginning of the year 17 14
Additions 14 9
Disposals/redemptions (2) (2)
Amortisation (6) (4)
Net book value at year end 23 17
Other intangibles relate to capitalised computer software. Capitalised computer software includes costs that are directly
associated with the procurement or development of identifiable and unique software products, which will generate economic
benefits exceeding costs beyond one year and is subject to regular impairment reviews. Capitalised computer software is
amortised on a straight-line basis over its estimated useful life (three years), which is included in Other costs in the
Group income statement. Additions relate to investment in software across Man's operating platforms.
12. Cash, liquidity and borrowings
31 December 2017 31 December 2016
Less than Greater than Less than Greater than
$m Total 1 year 3 years Total 1 year 3 years
Borrowings: 2024 fixed rate reset callable guaranteed subordinated notes 150 - 150 149 - 149
Cash and cash equivalents1 356 356 - 389 389 -
Undrawn committed revolving loan facility 500 - 500 500 - 500
Total liquidity 856 356 500 889 389 500
Note:
1 Excludes $23 million (2016: $37 million) of restricted cash held by consolidated fund entities (Note 13.2).
Liquidity resources support ongoing operations and potential liquidity requirements under stressed scenarios. The amount of
potential liquidity requirements is modelled based on scenarios that assume stressed market and economic conditions. The
funding requirements for Man relating to the investment management process are discretionary. The liquidity profile of Man
is monitored on a daily basis and the stressed scenarios are updated regularly. The Board reviews Man's funding resources
at each Board meeting and on an annual basis as part of the strategic planning process. Man's available liquidity is
considered sufficient to cover current requirements and potential requirements under stressed scenarios.
In September 2014, Man issued $150 million ten-year fixed rate reset callable guaranteed subordinated notes (Tier 2 notes),
with associated issuance costs of $1 million. The Tier 2 notes were issued with a fixed coupon of 5.875% until 15 September
2019. The notes may be redeemed in whole at Man's option on 16 September 2019 at their principal amount, subject to FCA
approval. If the notes are not redeemed at this time then the coupon will reset to the five-year mid-swap rate plus 4.076%
and the notes will be redeemed on 16 September 2024 at their principal amount.
Borrowings are initially recorded at fair value net of transaction costs incurred, and are subsequently measured at
amortised cost. The difference between the amount repayable at maturity on the borrowings and the carrying value is
amortised over the period up to the expected maturity of the associated debt in accordance with the effective interest rate
method.
Cash and cash equivalents at year end comprises cash at bank on hand of $175 million (2016: $222 million), short-term
deposits of $181 million (2016: $102 million) and $nil US Treasury bills (2016: $65 million). Cash ring-fenced for
regulated entities totalled $37 million (2016: $28 million). Cash is invested in accordance with strict limits consistent
with the Board's risk appetite, which consider both the security and availability of liquidity. Accordingly, cash is held
in on-demand deposit bank accounts and short-term bank deposits, and at times invested in short-term US Treasury bills. At
31 December 2017, the $356 million cash balance (excluding US Treasury bills and cash held by consolidated fund entities)
is held with 20 banks (2016: $324 million with 18 banks). The single largest counterparty bank exposure of $84 million is
held with an A+ rated bank (2016: $88 million with a BBB+ rated bank). At 31 December 2017, balances with banks in the AA
ratings band aggregate to $97 million (2016: $109 million) and balances with banks in the A ratings band aggregate to $239
million (2016: $127 million).
In October 2016 the Group reduced the previous $1 billion syndicated revolving loan facility to $500 million. The $500
million facility was undrawn at 31 December 2017 (undrawn at 31 December 2016). The facility was put in place as a
five-year facility and included the option for Man to request the banks to extend the maturity date by one year on each of
the first and second anniversaries. The participant banks have the option to accept or decline Man's request. On the first
and second anniversaries in 2016 and 2017, the banks were asked to extend the maturity date of the facility by one year and
banks with participations totalling 98% of the facility accepted the request on both anniversaries. As a result of the
maturity extension, $10 million is scheduled to mature in June 2020 and the remaining $490 million matures in June 2022. To
maintain maximum flexibility, the facility does not include financial covenants.
Foreign exchange and interest rate risk
Man is subject to risk from changes in interest rates and foreign exchange rates on monetary assets and liabilities.
In respect of Man's monetary assets and liabilities which earn/incur interest indexed to floating rates, as at 31 December
2017 a 50bp increase/decrease in these rates, with all other variables held constant, would have resulted in a $1 million
increase/decrease (2016: $1 million increase/decrease) in net interest income.
A 10% strengthening/weakening of the USD against all other currencies, with all other variables held constant, would have
resulted in a foreign exchange loss/gain of $1 million (2016: $3 million loss/gain), with a corresponding impact on equity.
This exposure is based on USD balances held by non-USD functional currency entities and non-USD balances held by USD
functional currency entities within the Group.
In certain circumstances, the Group uses derivative financial instruments to hedge its risk associated with foreign
exchange movements. Where fixed foreign currency denominated costs are hedged, the associated derivatives may be designated
as cash flow hedges. Effective unrealised gains or losses on these instruments are recognised within the cash flow hedge
reserve in equity and, when realised, these are reclassified to the Group income statement in the same line as the hedged
item. The realisation of foreign currency operating cash flows and the associated forward foreign currency derivative
contracts generally arise on a monthly basis. The fair value of derivatives held in relation to the Group's cash flow
hedges at 31 December 2017 is an asset of $9 million (2016: liability $18 million).
13. Investments in fund products and other investments
31 December 2017
$m Financial assets at fairvalue throughprofit or loss Loans andreceivables Available-for-sale Totalinvestments in fund productsand otherinvestments Net non-current assetsheld for sale Totalinvestments
financialassets
Loans to fund products - 25 - 25 - 25
Investments in fund products 249 - - 249 79 328
Other investments - - 3 3 - 3
Investments in line-by-line consolidated funds 452 - - 452 - 452
701 25 3 729 79 808
31 December 2016
$m Financial assets at fairvalue throughprofit or loss Loans andreceivables Available-for-sale Totalinvestments in fund productsand otherinvestments Net non-current assetsheld for sale Totalinvestments
financialassets
Loans to fund products - 26 - 26 - 26
Investments in fund products 275 - - 275 131 406
Other investments - - 3 3 - 3
Investments in line-by-line consolidated funds 490 - - 490 - 490
765 26 3 794 131 925
Man's seeding investments are included in various Group balance sheet line items. In summary, the total seeding investments
portfolio is made up as follows:
31 December 31 December
$m Note 2017 2016
Investments in fund products 13.1 249 275
Less those used to hedge deferred compensation awards 13.1 (76) (75)
Consolidated net investments in funds - held for sale 13.2 79 131
Consolidated net investments in funds - line-by-line consolidation 13.2 203 285
Loans to funds 13.3 25 26
Seeding investments portfolio 480 642
13.1. Investments in fund products
Man uses capital to invest in our fund products as part of our ongoing business to build our product breadth and to trial
investment research developments before we market the products broadly to investors. These seeding investments are
generally held for less than one year. Where Man is deemed not to control the fund, these are classified as investments in
fund products. Investments in fund products are classified at fair value through profit or loss, with net gains due to
movements in fair value of $58 million for the year ended 31 December 2017 (2016: $55 million) recognised through income or
gains on investments and other financial instruments. Purchases and sales of investments are recognised on trade date.
The fair values of investments in fund products are derived from the reported NAVs of each of the fund products, which in
turn are based upon the value of the underlying assets held within each of the fund products and the anticipated redemption
horizon of the fund product. The valuation of the underlying assets within each fund product is determined by external
valuation service providers based on an agreed valuation policy and methodology. Whilst these valuations are performed
independently of Man, Man has established oversight procedures and due diligence processes to ensure that the NAVs reported
by the external valuation service providers are reliable and appropriate. Man makes adjustments to these NAVs where the
anticipated redemption horizon, events or circumstances indicate that the NAVs are not reflective of fair value. The fair
value hierarchy of financial assets is disclosed in Note 21.
Investments in fund products expose Man to market risk and therefore this process is subject to limits consistent with the
Board's risk appetite. The largest single investment in fund products is $79 million (2016: $186 million). The market risk
from seeding investments is modelled using a value at risk methodology using a 95% confidence interval and one-year time
horizon. The value at risk is estimated to be $29 million at 31 December 2017 (2016: $72 million).
Fund investments for deferred compensation arrangements
At 31 December 2017, investments in fund products included $76 million (2016: $75 million) of fund products related to
deferred compensation arrangements. Employees are subject to mandatory deferral arrangements and as part of these
arrangements employees can elect to have their deferral in a designated selection of Man fund products. Changes in the fair
value of the fund product awards are recognised over the relevant vesting period, which means the compensation expense
changes based on the value of the fund products. The associated fund product investments are held to offset this change in
compensation during the vesting period and at vesting the value of the fund investment is delivered to the employee. The
fund product investments are recorded at fair value with any gains or losses during the vesting period recognised as income
or gains on investments and other financial instruments in the Group income statement.
13.2. Consolidation of investments in funds
Seed capital invested into funds may at times be significant, and therefore the fund may be deemed to be controlled by the
Group (Note 1). The fund is consolidated into the Group's results from the date control commences until it ceases. In 2017,
nine (2016: 11) investments in funds have met the control criteria and have therefore been consolidated, either classified
as held for sale or consolidated on a line-by-line basis as detailed below.
Held for sale
Where the Group acquires the controlling stake and actively markets the products to third-party investors, allowing the
Group to redeem their share, and it is considered highly probable that it will relinquish control within one year from the
date of initial investment, the investment in the controlled fund is classified as held for sale. The seeded fund is
recognised on the Group balance sheet as non-current assets and liabilities held for sale, with the interests of any other
parties included within non-current liabilities held for sale. Amounts recognised are measured at the lower of the carrying
amount and fair value less costs to sell.
The non-current assets and liabilities held for sale are as follows:
31 December 31 December
$m 2017 2016
Non-current assets held for sale 145 263
Non-current liabilities held for sale (66) (132)
Investments in fund products held for sale 79 131
Investments cease to be classified as held for sale when the fund is no longer controlled by the Group, at which time they
are classified as financial assets at fair value through profit or loss (Note 13.1). Loss of control may eventuate through
sale of the investment or a dilution in the Group's holding. If a held for sale fund remains under the control of the Group
for more than one year, and it is unlikely that the Group will reduce or no longer control its investment in the
short-term, it will cease to be classified as held for sale and will be consolidated on a line-by-line basis. Three
investments in funds which were classified as held for sale in 2016 have been consolidated on a line-by-line basis for the
year ended 31 December 2017 (2016: three held for sale funds at 31 December 2015).
Line-by-line consolidation
The investments relating to the five (2016: six) funds which are controlled and are consolidated on a line-by-line basis
are included within the Group balance sheet and income statement as follows:
31 December 31 December
$m 2017 2016
Balance sheet
Cash and cash equivalents 23 37
Transferable securities1 452 490
Fees and other receivables 1 -
Trade and other payables (174) (2)
Net assets of line-by-line consolidated fund entities 302 525
Third-party interest in consolidated funds (99) (240)
Net investment held by Man 203 285
Income statement
Net gains on investments2 57 45
Management fee expenses3 (9) (9)
Performance fee expenses3 (5) (2)
Other costs4 (2) (3)
Net gains of line-by-line consolidated fund entities 41 31
Third-party share of gains relating to interests in consolidated funds (14) (15)
Gains attributable to net investment held by Man 27 16
Notes:
1 Included within Investments in fund products and other investments.
2 Included within Income or gains on investments and other financial instruments.
3 Relates to management and performance fees paid by the funds to Man during the year, and are eliminated within
gross management and other fees and performance fees, respectively, in the Group income statement. The management fees
elimination includes $3 million (2016: $4 million) in relation to the third-party share of these investments and therefore
represents externally generated management fees. The performance fee elimination includes $2 million (2016: $nil) in
relation to third-party share which represents performance fees generated externally.
4 Includes $1 million (2016: $2 million) in relation to the third-party share of these investments and therefore
represents costs incurred externally.
13.3. Loans to fund products
Loans to fund products are short-term advances primarily to Man guaranteed products, which are made to assist with the
financing of the leverage associated with the structured products. The loans are repayable on demand and are carried at
amortised cost using the effective interest rate method. The average balance during the year is $28 million (2016: $33
million). The liquidity requirements of guaranteed products together with commitments to provide financial support which
give rise to loans to funds are subject to our routine liquidity stress testing and any liquidity requirements are met by
available cash resources, or the syndicated revolving credit facility.
Loans to fund products expose Man to credit risk and therefore the credit decision making process is subject to limits
consistent with the Board's risk appetite. The carrying value represents Man's maximum exposure to this credit risk. Loans
are closely monitored against the assets held in the funds. The largest single loan to a fund product at 31 December 2017
is $12 million (2016: $4 million). Fund entities are not externally rated, however our internal modelling suggests that
fund products have a probability of default that is equivalent to a credit rating of A.
13.4. Structured entities
Man has evaluated all exposures and concluded that where Man holds an investment, loan, fees receivable and accrued income,
guarantee or commitment with an investment fund or a collateralised loan obligation, this represents an interest in a
structured entity as defined by IFRS 10 'Consolidated financial statements'.
As with structured entities, investment funds are designed so that their activities are not governed by way of voting
rights and contractual arrangements are the dominant factor in affecting an investor's returns. The activities of these
entities are governed by investment management agreements or, in the case of a collateralised loan obligation, the
indenture.
The key considerations in assessing whether the Group controls a structured entity, and therefore should be consolidated
into the Group's financial statements, are outlined in Note 1. Consolidated structured entities are detailed in Note 13.2.
Man's maximum exposure to loss from unconsolidated structured entities is the sum total of any investment held, fee
receivables, accrued income, and loans to the fund entities, and is $578 million for the year ended 31 December 2017 (2016:
$420 million). Man's interest in and exposure to unconsolidated structured entities is as follows:
31 December 2017 TotalFUM($bn) Lessinfrastructuremandates andconsolidatedfund entities1($bn) Total FUMunconsolidatedstructuredentities($bn) Numberof funds Netmanagementfee margin2(%) Fair value ofinvestmentheld($m) Feereceivablesand accruedincome($m) Loansto funds($m) Maximumexposureto loss($m)
Alternative
Absolute return 29.2 0.2 29.0 129 1.38 64 181 - 245
Total return 16.5 - 16.5 45 0.56 105 21 - 126
Multi-manager solutions 16.0 7.7 8.3 80 0.45 2 15 - 17
Long only
Systematic 26.8 0.1 26.7 104 0.36 1 75 - 76
Discretionary 20.4 0.1 20.3 49 0.67 61 26 - 87
Guaranteed 0.2 - 0.2 14 5.04 - 2 25 27
Total 109.1 8.1 101.0 421 233 320 25 578
31 December 2016 TotalFUM($bn) Lessinfrastructuremandates andconsolidatedfund entities1($bn) Total FUMunconsolidatedstructuredentities($bn) Numberof funds Netmanagementfee margin2(%) Fair value ofinvestmentheld($m) Feereceivablesand accruedincome($m) Loansto funds($m) Maximumexposureto loss($m)
Alternative
Absolute return 25.4 0.5 24.9 121 1.47 145 61 - 206
Total return 6.6 - 6.6 21 0.47 68 7 - 75
Multi-manager solutions 11.8 5.0 6.8 91 0.63 2 15 - 17
Long only
Systematic 21.4 0.1 21.3 108 0.36 1 32 - 33
Discretionary 15.3 0.1 15.2 39 0.67 44 15 - 59
Guaranteed 0.4 - 0.4 25 4.28 - 4 26 30
Total 80.9 5.7 75.2 405 260 134 26 420
Notes:
1 For infrastructure mandates where we do not act as investment manager or advisor Man's role in directing
investment activities is diminished and therefore these are not considered to be structured entities.
2 Net management fee margins are the categorical weighted average (see page 18). Performance fees can only be
earned after a high water mark is achieved. For performance fee eligible funds, performance fees are within the range of
10% to 20%.
Support by way of loans provided to unconsolidated structured entities is detailed in Note 13.3, and is included within the
maximum exposure to loss above. Furthermore, on occasion Man agrees to purchase illiquid investments from the funds at
market rates in order to facilitate investor withdrawals. Man has not provided any other non-contractual support to
unconsolidated structured entities.
14. Fee and other receivables
31 December 31 December
$m 2017 2016
Fee receivables 53 30
Accrued income 267 114
Prepayments 16 14
Derivative financial instruments 9 2
Other receivables 146 97
491 257
Fee and other receivables are initially recorded at fair value and subsequently measured at amortised cost using the
effective interest rate method. Fee receivables and accrued income represent management and performance fees from fund
products and are received in cash when the funds' net asset values are determined. The majority of fees are deducted from
the NAV of the respective funds by the independent administrators and therefore the credit risk of fee receivables is
minimal. No balances are overdue or delinquent at year end. The increase in accrued income in 2017 primarily relates to the
increase in performance fee income which crystallised on 31 December 2017. Performance fees receivable at year end are $196
million (2016: $32 million).
Details of derivatives used to hedge foreign exchange risk are included in Note 12. Other derivative financial instruments,
which consist primarily of foreign exchange contracts, are measured at fair value through profit or loss. All derivatives
are held with external banks with ratings of BBB+ (2016: BBB+) or higher and mature within one year. During the year, there
were $1 million net realised and unrealised losses arising from derivatives (2016: $4 million gains). The notional value of
all derivative financial assets is $262 million (2016: $58 million).
Other receivables principally includes balances relating to the Open Ended Investment Collective (OEIC) funds business,
fund redemption proceeds and other deposits. For the OEIC funds businesses, Man acts as the intermediary for the collection
of subscriptions due from customers and payable to the funds, and for redemptions receivable from funds and payable to
customers. At 31 December 2017, the amount included in other receivables is $38 million (2016: $16 million). The unsettled
fund payable is recorded in trade and other payables (Note 15). Other receivables also includes $11 million relating to
fund disposal proceeds (2016: $1 million). At 31 December 2017, $8 million (2016: $8 million) of other receivables are
expected to be settled after 12 months.
15. Trade and other payables
31 December 31 December
$m 2017 2016
Accruals 334 253
Trade payables 3 3
Contingent consideration 243 161
Derivative financial instruments 10 22
Other payables 253 208
843 647
Accruals primarily relate to compensation accruals. Contingent consideration relates to the amounts payable in respect of
acquisitions (Note 21). Other payables include the remaining October 2017 announced share repurchase liability of $74
million (2016: $65 million), as detailed in Note 20, payables relating to the OEIC funds business of $35 million (2016: $17
million) and servicing fees payable to distributors.
Details of derivatives used to hedge foreign exchange risk are included in Note 12. The notional value of derivative
financial liabilities at 31 December 2017 is $388 million (2016: $334 million). All derivative contracts mature within one
year.
The other payables balance in 2017 includes $52 million relating to the third-party share of payables for line-by-line
consolidated funds, largely as a result of the December 2017 compulsory redemption for our largest seeding position by all
investors (Note 13.2).
Trade and other payables are initially recorded at fair value and subsequently measured at amortised cost. Included in
trade and other payables at 31 December 2017 are balances of $213 million (2016: $155 million) which are expected to be
settled after more than 12 months, which largely relate to contingent consideration. Man's policy is to meet its
contractual commitments and pay suppliers according to agreed terms.
16. Provisions
Onerous
property lease
$m contracts Litigation Restructuring Other Total
As 1 January 2017 27 24 - - 51
Charged/(credited) to the income statement:
Charge in the year 6 - 4 4 14
Unused amounts reversed - (24) - - (24)
Exchange difference 3 - - - 3
Used during the year/settlements (6) - (4) - (10)
At 31 December 2017 30 - - 4 34
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of
the obligation. All provisions are current, other than onerous property lease contracts as outlined below, given the Group
does not have the unconditional right to defer settlement. Provisions for restructuring are recognised when the obligation
arises, following communication of the formal plan.
The $6 million charge for onerous property lease contracts is included within other costs as detailed in Note 5. Provisions
for onerous property lease contracts represent the present value of the future lease payments that the Group is presently
obliged to make under non-cancellable onerous operating lease contracts, less the future benefit expected to be generated
from these, including sub-lease revenue where applicable. The unexpired terms of the onerous leases range from one to 18
years, with all onerous property lease contracts therefore non-current.
The credit of $24 million in relation to litigation provisions is as a result of the reassessment of the Group's exposure
to claims and other settlements.
17. Investments in associates
Associates are entities in which Man holds an interest and over which it has significant influence but not control, and are
accounted for using the equity method. In assessing significant influence Man considers the investment held and its power
to participate in the financial and operating policy decisions of the investee through its voting or other rights.
Under the equity method associates are carried at cost plus (or minus) our share of cumulative post-acquisition movements
in undistributed profits (or losses). Gains and losses on transactions between the Group and its associates are eliminated
to the extent of the Group's interests in these entities. An impairment assessment of the carrying value of associates is
performed annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable,
and any impairment is expensed in the Group income statement.
Man's investments in associates are as follows:
Year ended 31 December 2017 Year ended 31 December 2016
Nephila Nephila
$m Holdings Ltd Other Total Holdings Ltd Other Total
At beginning of the year 30 1 31 28 2 30
Share of post-tax profit/(loss) 7 1 8 3 (1) 2
Dividends received (8) - (8) (1) - (1)
Sale of investment in associate - (2) (2) - - -
At year end 29 - 29 30 1 31
Nephila Holdings Limited is an alternative investment manager based in Bermuda specialising in the management of funds
which underwrite natural catastrophe reinsurance and invest in insurance-linked securities and weather derivatives. Man has
not provided any financial support to associates during the year to 31 December 2017 (2016: nil).
Commission income relating to sales of Nephila Holdings Limited products totalled $4 million for the year ended 31 December
2017 (2016: $12 million), an arrangement which ceased during the year, and is included within gross management and other
fees in the Group income statement.
18. Leasehold improvements and equipment
Year ended 31 December 2017 Year ended 31 December 2016
$m Leaseholdimprovements Equipment Total Leaseholdimprovements Equipment Total
Net book value at beginning of the year 29 15 44 32 12 44
Additions 5 7 12 3 8 11
Depreciation expense (6) (6) (12) (6) (5) (11)
Net book value at year end 28 16 44 29 15 44
All leasehold improvements and equipment are recorded at cost less depreciation and impairment. Cost includes the original
purchase price of the asset and costs directly attributable to bringing the asset to its working condition for its intended
use. Depreciation is calculated using the straight-line method over the asset's estimated useful life, which for leasehold
improvements is over the shorter of the life of the lease and the improvement (up to 24 years) and for equipment is between
three and ten years.
19. Deferred compensation arrangements
Man operates equity-settled share-based payment schemes as well as fund product based compensation arrangements.
For compensation plans whereby deferred compensation is invested in fund products managed by Man, the fair value of the
employee services received in exchange for the fund units is recognised as an expense over the vesting period, with a
corresponding liability. The total amount to be expensed is determined by reference to the fair value of the awards, which
is remeasured at each reporting date, and equates to the fair value of the underlying fund products at settlement date.
During the year, $59 million (2016: $55 million) relating to share-based payment and deferred fund product plans is
included within compensation costs (Note 4), consisting of share-based payments of $19 million (2016: $18 million) and
deferred fund product plans of $40 million (2016: $37 million). The unamortised deferred compensation at year end is $51
million (2016: $43 million) and has a weighted average remaining vesting period of 2.2 years (2016: 1.9 years).
20. Capital management
Details of the Group's capital management and dividend policy are provided within the Chief Financial Officer's Review on
page 21.
Share capital and capital reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
shown in equity as a deduction from the proceeds, net of tax.
Own shares held through the Employee Trusts are recorded at cost, including any directly attributable incremental costs
(net of tax), and are deducted from equity attributable to the Company's equity holders until the shares are transferred to
employees or sold. Where such shares are subsequently sold, any consideration received, net of any directly attributable
incremental transaction costs and the related tax effects, is included in equity attributable to the Company's equity
holders.
Ordinary shares
Ordinary shares have a par value of 33/7 US cents per share (2016: 33/7 US cents per share) and represent 99.9% of issued
share capital. All issued shares are fully paid. The shares have attached to them full voting, dividend and capital
distribution (including on wind up) rights. They do not confer any rights of redemption. Ordinary shareholders have the
right to receive notice of, attend, vote and speak at general meetings. A holder of ordinary shares is entitled to one vote
per ordinary share held when a vote is taken on a poll and one vote only when a vote is taken on a show of hands.
During the year ended 31 December 2017 $92 million (2016: $35 million) of shares were repurchased at an average price of
154.6 pence (2016: 119.7 pence), buying back 46.4 million shares (2016: 23.5 million shares), which had an accretive impact
on EPS (Note 8) of 1.7% (2016: increased the statutory loss per share by 0.1%). This relates to the completion of the
remaining $65 million of the share repurchase announced in October 2016, as well as the partial completion of $27 million
of the anticipated $100 million share repurchase (plus costs of $1 million) announced in October 2017. As at 27 February
2018, Man Group had an unexpired authority to repurchase up to 217,850,114 of its ordinary shares. A special resolution
will be proposed at the forthcoming Annual General Meeting (AGM), pursuant to which the Company will seek authority to
repurchase up to 163,339,181 of its ordinary shares, representing 10% of the
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