REG - Man Group plc - 2017 Full Year Results <Origin Href="QuoteRef">EMG.L</Origin> - Part 5
28/02/2018 07:06
- Part 5: For the preceding part double click ID:nRSb1528Gd
Year ended 31 December 2016
Basic and diluted post-tax earnings $m Basic earnings per share cents Diluted earnings per share cents Basic and diluted post- tax earnings $m Basic earnings per share cents Diluted earnings per share cents
Statutory profit/(loss) after tax 255 15.5 15.3 (266) (15.8) (15.8)
Effect of potential ordinary shares(1) - - - - - 0.1
Adjusting items 112 6.8 6.8 477 28.4 28.1
Tax adjusting items (30) (1.8) (1.8) (34) (2.1) (2.0)
Adjusted profit after tax 337 20.5 20.3 177 10.5 10.4
Less adjusted performance fee profit (158) (9.6) (9.5) (24) (1.4) (1.4)
Adjusted management fee profit after tax 179 10.9 10.8 153 9.1 9.0
1 As their inclusion would decrease the loss per share in 2016,
potential ordinary shares have not been treated as dilutive and have therefore
been excluded from the diluted statutory EPS calculation.
Adjusted management fee and performance fee profit before tax
Adjusted profit before tax is split between adjusted management fee profit
before tax and adjusted performance fee profit before tax to separate out the
variable performance fee related earnings of the business from the underlying
management fee earnings of the business, as follows:
Year Ended 31 December 2017 Year Ended 31 December 2016
$m
Gross management and other fees(1) 784 750
Share of post-tax profit of associates 8 2
Less:
Distribution costs (56) (61)
Asset servicing (37) (33)
Compensation (331) (312)
Other costs(1) (165) (166)
Net finance expense - (2)
Adjusted management fee profit before tax 203 178
Exclude: Net management fees from guaranteed products, commission income and (25) (46)
share of post-tax profits of associates
Core management fee profit before tax 178 132
Performance fees 289 81
Gains on investments and other financial instruments(2) 44 31
Less:
Compensation (143) (76)
Finance expense (9) (9)
Adjusted performance fee profit before tax 181 27
1 Gross 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 deduction of $1
million of costs (2016: $2 million) 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) third party share of gains relating to line-by-line
consolidated fund entities, less the reclassification of management fee
revenue of $3 million, performance fee revenue of $2 million and other costs
of $1 million as above (2016: $4 million, $nil and $2 million respectively).
Core management fee profit before tax
Core management fee profit before tax is adjusted management fee profit before
tax, excluding net management fees relating to guaranteed products, sales
commission income from Nephila (Note 17) and share of post-tax profits of
associates, as detailed on page 52 for core net management fee revenue.
Adjusted EBITDA
As the Group has a number of non-cash items in the income statement, it is
important to focus on cash earnings to measure the true earnings generation of
the Group. Adjusted EBITDA represents our profitability excluding non-cash
items.
Reconciliation of adjusted profit before tax to adjusted EBITDA
Year Ended 31 December 2017 Year Ended 31 December 2016
$m
Adjusted profit before tax (refer to page 53) 384 205
Add back:
Net finance expense 9 11
Depreciation 12 11
Amortisation of other intangibles 7 5
Current year amortisation of deferred compensation 59 55
Less:
Deferred compensation awards relating to the current year (100) (63)
Adjusted EBITDA 371 224
Made up of:
Adjusted management fee EBITDA¹ 203 181
Adjusted performance fee EBITDA² 168 43
1 Includes the management fee related allocation for compensation
costs of $331 million (2016: $312 million) and the deduction of management fee
related deferred compensation awards relating to the current year of $52
million (2016: $48 million).
2 Includes the performance fee related allocation for compensation
costs of $143 million (2016: $76 million) and the deduction of performance fee
related deferred compensation awards relating to the current year of $48
million (2016: $15 million).
Adjusted management fee EBITDA margin
The adjusted management fee EBITDA margin is a measure of the underlying
profitability of the Group, and a KPI as included on page 14. It is calculated
as a percentage of net management fee revenue (gross management fee revenue
and share of post-tax profits of associates less distribution costs).
Compensation ratio
The compensation ratio measures our compensation costs relative to our
revenue. The Group's compensation ratio is generally between 40% to 50% of net
revenue, depending on the mix and level of revenue. It is calculated as total
compensation divided by net revenue. Details of the current year compensation
ratio are included on page 19.
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osses) 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 comprehensive income for assets/(liabilities) held at year end 5 (41) 1 20
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 period) 0.4% 0.8%
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.
$m Note to the Group financial statements Year Ended Year Ended
31 December 2017 31 December 2016
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:
$m Year Ended Year Ended
31 December 2017 31 December 2016
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:
$m Year Ended Year Ended
31 December 2017 31 December 2016
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, and pension costs) 174 182
Variable compensation (includes variable cash compensation, share-based payment charge, fund product payment charge and associated social security costs) 300 206
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 Year ended 31 December 2016
Basic and diluted post-tax earnings Basic Diluted Basic and Basic Diluted
$m earnings earnings diluted post- earnings earnings
per share per share tax earnings per share per share
cents cents $m cents cents
Statutory profit/(loss) after tax 255 15.5 15.3 (266) (15.8) (15.8)
Effect of potential ordinary shares1 - - - - - 0.1
Adjusting items 112 6.8 6.8 477 28.4 28.1
Tax adjusting items (30) (1.8) (1.8) (34) (2.1) (2.0)
Adjusted profit after tax 337 20.5 20.3 177 10.5 10.4
Less adjusted performance fee profit (158) (9.6) (9.5) (24) (1.4) (1.4)
Adjusted management fee profit after tax 179 10.9 10.8 153 9.1 9.0
1 As their inclusion would decrease the loss per share in 2016, potential ordinary shares have not been treated as
dilutive and have therefore been excluded from the diluted statutory EPS calculation.
Adjusted management fee and performance fee profit before tax
Adjusted profit before tax is split between adjusted management fee profit before tax and adjusted performance fee profit
before tax to separate out the variable performance fee related earnings of the business from the underlying management fee
earnings of the business, as follows:
$m Year Ended Year Ended
31 December 2017 31 December 2016
Gross management and other fees1 784 750
Share of post-tax profit of associates 8 2
Less:
Distribution costs (56) (61)
Asset servicing (37) (33)
Compensation (331) (312)
Other costs1 (165) (166)
Net finance expense - (2)
Adjusted management fee profit before tax 203 178
Exclude: Net management fees from guaranteed products, commission income and share of post-tax profits of associates (25) (46)
Core management fee profit before tax 178 132
Performance fees 289 81
Gains on investments and other financial instruments2 44 31
Less:
Compensation (143) (76)
Finance expense (9) (9)
Adjusted performance fee profit before tax 181 27
1 Gross 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 deduction of $1 million of costs
(2016: $2 million) 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) third party share of gains relating to line-by-line consolidated fund
entities, less the reclassification of management fee revenue of $3 million, performance fee revenue of $2 million and
other costs of $1 million as above (2016: $4 million, $nil and $2 million respectively).
Core management fee profit before tax
Core management fee profit before tax is adjusted management fee profit before tax, excluding net management fees relating
to guaranteed products, sales commission income from Nephila (Note 17) and share of post-tax profits of associates, as
detailed on page 52 for core net management fee revenue.
Adjusted EBITDA
As the Group has a number of non-cash items in the income statement, it is important to focus on cash earnings to measure
the true earnings generation of the Group. Adjusted EBITDA represents our profitability excluding non-cash items.
Reconciliation of adjusted profit before tax to adjusted EBITDA
$m Year Ended Year Ended
31 December 2017 31 December 2016
Adjusted profit before tax (refer to page 53) 384 205
Add back:
Net finance expense 9 11
Depreciation 12 11
Amortisation of other intangibles 7 5
Current year amortisation of deferred compensation 59 55
Less:
Deferred compensation awards relating to the current year (100) (63)
Adjusted EBITDA 371 224
Made up of:
Adjusted management fee EBITDA¹ 203 181
Adjusted performance fee EBITDA² 168 43
1 Includes the management fee related allocation for compensation costs of $331 million (2016: $312 million) and the
deduction of management fee related deferred compensation awards relating to the current year of $52 million (2016: $48
million).
2 Includes the performance fee related allocation for compensation costs of $143 million (2016: $76 million) and the
deduction of performance fee related deferred compensation awards relating to the current year of $48 million (2016: $15
million).
Adjusted management fee EBITDA margin
The adjusted management fee EBITDA margin is a measure of the underlying profitability of the Group, and a KPI as included
on page 14. It is calculated as a percentage of net management fee revenue (gross management fee revenue and share of
post-tax profits of associates less distribution costs).
Compensation ratio
The compensation ratio measures our compensation costs relative to our revenue. The Group's compensation ratio is generally
between 40% to 50% of net revenue, depending on the mix and level of revenue. It is calculated as total compensation
divided by net revenue. Details of the current year compensation ratio are included on page 19.
This information is provided by RNS
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