REG - Man Group plc - RESULTS FOR THE FINANCIAL YEAR ENDED 31 DEC 2015 <Origin Href="QuoteRef">EMG.L</Origin> - Part 4
24/02/2016 07:11
- Part 4: For the preceding part double click ID:nRSX9345Pc
arise using the theoretical effective tax rate
applicable to profits/(losses) of the consolidated companies as follows:
$m Year ended 31 December 2015 Year ended 31 December 2014
Profit before tax 184 384
Theoretical tax charge at UK rate: 20.25% (2014: 21.50%) 37 83
Effect of:
Overseas tax rates compared to UK (8) (20)
Adjustments to tax charge in respect of previous periods (17) (30)
Impairment of goodwill and other adjusting items 9 (1)
Share-based payments (2) (3)
Recognition of US deferred tax asset (11) (8)
Other 5 (2)
Total tax charge 13 19
In the current year the adjustments to the tax charge in respect of previous periods largely relates to the reassessment of
tax exposures in the UK and Switzerland. In 2014 this primarily related to the release of $25 million due to reassessment
of tax exposures associated with our Asia Pacific operations.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. Deferred tax is calculated at the rates expected to be applied when the deferred tax asset or liability is
realised.
Movements in deferred tax are as follows:
$m Year ended 31 December 2015 Year ended 31 December 2014
Deferred tax liability
At 1 January (83) (97)
Credit to the income statement 14 14
Deferred tax liability at 31 December (69) (83)
Deferred tax asset
At 1 January 47 39
Credit to the income statement 8 8
Credit directly to equity 4 2
Other currency differences - (2)
Deferred tax asset at 31 December 59 47
The deferred tax liability of $69 million (2014: $83 million) relates to deferred tax arising on acquired intangible
assets.
The deferred tax asset of $59 million (2014: $47 million) principally relates to US tax losses and intangible assets of $19
million (2014: $8 million), defined benefit pension schemes of $9 million (2014: $8 million), employee share schemes of $15
million (2014: $17 million), and tax allowances over depreciation of $11 million (2014: $14 million). The deferred tax
asset income statement credit of $8 million (2014: $8 million) relates to the recognition of the deferred tax asset in
respect of US losses of $11 million (2014: $8 million), a decrease in the deferred tax asset on employee share schemes of
$2 million (2014: $7 million increase), a decrease in the deferred tax asset arising on tax allowances over depreciation of
$3 million (2014: $4 million) and an increase in the deferred tax asset on other temporary differences of $2 million (2014:
$3 million decrease in deferred tax liability). The credit to other revenue reserves of $4 million (2014: $2 million)
relates to movements in the pension accrual and unrealised cash flow hedge balance.
The Group has accumulated deferred tax assets in the US of $172 million (2014: $191 million). These assets principally
comprise accumulated operating losses from existing operations and future amortisation of goodwill and intangibles assets
generated from acquisitions that will be available to offset future taxable profits in the US. In the prior year, $8
million of these was recognised for the first time, triggered by the acquisition of Numeric, which gave rise to a higher
degree of certainty that the US business will earn taxable profits in future periods. A deferred tax asset of $19 million
has been recognised on the Group balance sheet in the current year, representing amounts which can be offset against
probable future taxable profits, an increase of $11 million from that recognised at 31 December 2014. Probable future
taxable profits are considered to be forecast profits for the next three years only, consistent with the Group's business
planning horizon. As a result of the recognised deferred tax asset and the remaining unrecognised available US deferred tax
assets of $153 million (2014: $183 million), Man does not expect to pay federal tax on any taxable profits it may earn in
the US for a number of years. Accordingly, any movements in this US tax asset are classified as an adjusting item in Note
2.
11. Earnings per ordinary share (EPS)
The calculation of basic EPS is based on post-tax profit of $171 million compared to a profit of $365 million in the prior
year, and ordinary shares of 1,694,081,544 (2014: 1,754,177,715), being the weighted average number of ordinary shares on
issue during the period after excluding the shares owned by the Man Employee Trusts. For diluted EPS, the weighted average
number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares, being
ordinary shares of 1,714,925,166 (2014: 1,778,702,369).
The details of movements in the number of shares used in the basic and dilutive EPS calculation are provided below.
Year ended 31 December 2015 Year ended 31 December 2014
Total number (million) Weighted average (million) Total number (million) Weighted average (million)
Number of shares at beginning of year 1,756.3 1,756.3 1,823.7 1,823.7
Issues of shares 3.5 1.9 1.4 1.1
Repurchase of own shares (59.0) (42.0) (68.8) (45.9)
Number of shares at period end 1,700.8 1,716.2 1,756.3 1,778.9
Shares owned by Employee Trusts (22.1) (22.1) (21.1) (24.8)
Basic number of shares 1,678.7 1,694.1 1,735.2 1,754.1
Share awards under incentive schemes 17.1 21.2
Employee share options 3.7 3.4
Diluted number of shares 1,714.9 1,778.7
1,778.7
The reconciliation from EPS to adjusted EPS is given below:
Year ended 31 December 2015 Year ended 31 December 2014
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
Earnings per share 171 10.1 10.0 365 20.8 20.5
Items for which EPS has been adjusted (Note 2) 216 12.7 12.6 97 5.5 5.4
Tax adjusting items (Note 2) (26) (1.5) (1.5) (27) (1.5) (1.5)
Adjusted earnings per share 361 21.3 21.1 435 24.8 24.4
Adjusted net performance fee profit before tax (206) (12.1) (12.1) (283) (16.2) (15.9)
Tax on adjusted net performance fee profits 20 1.2 1.2 27 1.7 1.6
Adjusted management fee earnings per share 175 10.4 10.2 179 10.3 10.1
10.1
12. Dividends
$m Year ended 31 December 2015 Year ended 31 December 2014
Ordinary shares
Final dividend paid for the year to 31 December 2014 - 6.1 cents (2013: 5.3 cents) 104 95
Interim dividend paid for the six months to 30 June 2015 - 5.4 cents (2014: 4.0 cents) 89 68
Dividends paid during the year 193 163
Proposed final dividend for the year to 31 December 2015 - 4.8 cents (2014: 6.1 cents) 81 106
Dividend distribution to the Company's shareholders is recognised directly in equity in Man's financial statements in the
period in which the dividend is paid or, if required, approved by the Company's shareholders.
13. Goodwill and acquired intangibles
$m Year ended 31 December 2015 Year ended 31 December 2014
Goodwill IMCs and other acquiredintangibles1 Total Goodwill IMCs and other acquiredintangibles1 Total
Cost:
At beginning of the year 2,359 924 3,283 2,231 726 2,957
Acquisition of business2 22 36 58 137 198 335
Currency translation (10) - (10) (8) - (8)
Other adjustment3 - - - (1) - (1)
At year end 2,371 960 3,331 2,359 924 3,283
Amortisation and impairment:
At beginning of the year (1,423) (278) (1,701) (1,423) (206) (1,629)
Amortisation - (92) (92) - (72) (72)
Impairment4 (41) - (41) - - -
At year end (1,464) (370) (1,834) (1,423) (278) (1,701)
Net book value at year end 907 590 1,497 936 646 1,582
Allocated to cash generating units as follows:
AHL 454 - 454 461 - 461
GLG 222 392 614 201 431 632
FRM 97 37 134 140 36 176
Numeric 134 161 295 134 179 313
313
Notes:
1 Includes investment management contracts (IMCs), brand names and distribution channels.
2 Acquisition of business relates to Silvermine, NewSmith and the BAML fund of funds business for the year ended 31
December 2015, and to Numeric and Pine Grove in 2014.
3 The 2014 other adjustment of $1 million relates to the disposal of goodwill as a result of the sale of a subsidiary to
local management during the year.
4 The 2015 impairment of $41 million relates to FRM.
Goodwill
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net assets of the
acquired business at the date of acquisition.
Goodwill is carried on the Group balance sheet at cost less accumulated impairment. Goodwill has an indefinite useful life,
is not subject to amortisation and is tested for impairment annually, or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the
asset's carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less
costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash generating units).
Investment management contracts, distribution channels and brand names
Investment management contracts (IMCs), distribution channels and brand names are recognised at the present value of the
expected future cash flows and are amortised on a straight-line basis over the expected useful lives, which are between
three and 13 years.
Allocation of goodwill to cash generating units
For statutory accounting impairment review purposes, the Group has identified four cash generating units (CGUs): AHL, GLG,
FRM and Numeric. Silvermine Capital Management LLC (Silvermine) and NewSmith LLP (NewSmith) were acquired during the year,
and have been incorporated into the GLG CGU. The BAML fund of funds IMCs purchased during the year have been allocated to
the FRM CGU. Further details of these are provided below.
Calculation of recoverable amounts for cash generating units
The recoverable amounts of the Group's CGUs are assessed each year using a value in use calculation. The value in use
calculation gives a higher valuation compared to a fair value less cost to sell approach, as this would exclude some of the
revenue synergies available to Man through its ability to distribute products using its well established distribution
channels, which may not be fully available to other market participants.
The value in use calculations at 31 December 2015 use cash flow projections based on the Board approved financial plan for
the year to 31 December 2016 and a further two years of projections (2017 and 2018) plus a terminal value. The valuation
analysis is based on best practice guidance whereby a terminal value is calculated at the end of a short discrete budget
period and assumes, after this three year budget period, no growth in asset flows above the long-term growth rate. In order
to determine the value in use of each CGU, it is necessary to notionally allocate the majority of the Group's cost base,
relating to operations, product structuring, distribution and support functions, which are managed on a centralised basis.
The key assumptions used in the value in use calculations are represented by the compound average annualised growth in FUM
over the three year budget period and the discount rates and terminal value multiples applied to the modelled cash flows.
The assumptions are derived from past experience and consideration of current market inputs. The value in use calculations
are sensitive to small changes in the key assumptions, in particular in relation to the compound average annualised growth
in FUM over the three year forecast period. Sensitivity analysis of this assumption is given in each of the AHL, GLG, FRM
and Numeric sections below. The terminal value is calculated based on the projected closing FUM at 31 December 2018 and
applying a mid-point of a range of historical multiples to the forecast cash flows associated with management and
performance fees. A bifurcated discount rate has been applied to the modelled cash flows to reflect the different risk
profile of net management fee income and net performance fee income. The discount rates are based on the Group's weighted
average cost of capital using a risk free interest rate, together with an equity risk premium and an appropriate beta
derived from consideration of Man's beta, similar alternative asset managers', and the asset management sector as a whole.
The Numeric CGU value in use calculation, presented for the first time in the year ended 31 December 2015, has been
determined on a pre-tax basis. We consider that this is the most appropriate basis for Numeric given the complexity
involved in determining the value of Numeric's future tax obligations, given we do not expect to pay federal tax in the US
for a number of years (Note 10). The value in use calculations for AHL, FRM and GLG continue to be presented on a post-tax
basis, consistent with the year ended 31 December 2014.
The recoverable amount of each CGU has been assessed at 31 December 2015. The key assumptions applied to the value in use
calculations for each of the CGUs are shown in the table below, and the results of the valuations are further explained in
the following sections.
AHL GLG FRM Numeric
Compound average annualised growth in FUM (over three years) 18% 6% 8% 13%
Discount rate1
- Net management fees 11%2 11%2 11%2 13%
- Net performance fees 17%3 17%3 17%3 20%
Terminal value (mid-point of range of historical multiples)1,4
- Management fees 13.0x 13.0x 12.0x 12.0x
- Performance fees 5.5x 5.5x 5.0x 4.8x
Notes:
1 These are presented on a post-tax basis for the AHL, GLG and FRM CGUs, and on a pre-tax basis for the Numeric CGU, in
line with the value in use calculations.
2 The pre-tax equivalent of the net management fees discount rates is 13% for each of the AHL, GLG and FRM CGUs.
3 The pre-tax equivalent of the net performance fees discount rates is 20% for each of the AHL, GLG and FRM CGUs.
4 The implied terminal growth rates for the AHL, GLG, FRM and Numeric CGUs are 1%, 2%, 2% and 4%, respectively.
AHL cash generating unit
The AHL value in use calculation at 31 December 2015 indicates a value of $3.7 billion, with around $3.2 billion of
headroom over the carrying value of the AHL business. Therefore, no impairment charge is deemed necessary at 31 December
2015 (2014: nil). The valuation at 31 December 2015 is around $0.7 billion higher than the value in use calculation at 31
December 2014, primarily as a result of increased opening FUM as a result of lower than forecast redemptions and higher
performance fees on this FUM base, partially offset by a decrease in alternatives margins as a result of the continued mix
shift towards lower margin alternatives products.
The table below shows scenarios whereby the key assumptions are changed to stressed assumptions, indicating the modelled
headroom or impairment that would result. Each assumption, or set of assumptions, is stressed in isolation. The results of
these sensitivities make no allowance for actions that management would take if such market conditions persisted.
Discount rates (post-tax) Multiples (post-tax)
Compound average annualised growth in FUM1 Management fee/Performance fee Management fee/Performance fee
Stressed to: 22% -3% 10%/16% 12%/18% 14.0x/6.5x 12.0x/4.5x
Modelled headroom/(impairment) ($m) 4,289 (1) 3,3382 3,1882 3,6203 2,9043
2,9043
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which
impairment would arise.
2 An increase/decrease of $75 million.
3 An increase/decrease of $358 million.
GLG cash generating unit
The GLG value in use calculation at 31 December 2015 indicates a value of $900 million, with around $270 million of
headroom over the carrying value of the GLG business. Therefore, no impairment charge is deemed necessary at 31 December
2015 (2014: nil). The valuation at 31 December 2015 is around $100 million higher than the value in use calculation at 31
December 2014, primarily due to a change in FUM mix, with higher opening alternatives FUM as a result of higher sales than
previously forecast, which attracts a higher margin, and lower opening long only FUM as a result of higher redemptions than
expected.
The table below shows scenarios whereby the key assumptions are changed to stressed assumptions, indicating the modelled
headroom or impairment that would result. Each assumption, or set of assumptions, is stressed in isolation. The results of
these sensitivities make no allowance for actions that management would take if such market conditions persisted.
Discount rates (post-tax) Multiples (post-tax)
Compound average annualised growth in FUM1 Management fee/Performance fee Management fee/Performance fee
Stressed to: 8% 4% 0% 10%/16% 12%/18% 14.0x/6.5x 12.0x/4.5x
Modelled headroom/(impairment) ($m) 495 (1) (359) 2882 2502 3453 1933
1933
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine both the point at
which impairment would arise and 0%.
2 An increase/decrease of $19 million.
3 An increase/decrease of $76 million.
FRM cash generating unit
For the six months to 30 June 2015 an impairment of $41 million was recognised in relation to the FRM goodwill, largely as
a result of lower sales and higher redemptions of fund of funds products than anticipated.
The FRM value in use calculation at 31 December 2015 indicates a value of $200 million, with around $50 million of headroom
over the carrying value of the FRM business. Therefore, no further impairment charge is deemed necessary at 31 December
2015. The valuation at 31 December 2015 is higher than the value in use calculation at 30 June 2015, primarily as a result
of an increase in FUM due to higher sales than previously forecast, as well as an increase in management fee margins on new
sales.
The table overleaf shows scenarios whereby the key assumptions are changed to stressed assumptions, indicating the modelled
headroom or impairment that would result. Each assumption, or set of assumptions, is stressed in isolation. The results of
these sensitivities make no allowance for actions that management would take if such market conditions persisted.
Discount rates (post-tax) Multiples (post-tax)
Compound average annualised growth in FUM1 Management fee/ Management fee/
Performance fee Performance fee
Stressed to: 10% 6% 0% 10%/16% 12%/18% 13.0x/6.0x 11.0x/4.0x
Modelled headroom/(impairment) ($m) 122 (1) (135) 592 492 703 383
383
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine both the point at
which impairment would arise and 0%.
2 An increase/decrease of $5 million.
3 An increase/decrease of $16 million.
For the year ended 31 December 2014 there was no impairment charge.
Numeric cash generating unit
The Numeric value in use calculation at 31 December 2015 indicates a value of $330 million, with around $30 million of
headroom over the carrying value of the Numeric business. Therefore, no impairment charge is deemed necessary at 31
December 2015 (2014: nil).
The table below shows scenarios whereby the key assumptions are changed to stressed assumptions, indicating the modelled
headroom or impairment that would result. Each assumption, or set of assumptions, is stressed in isolation. The results of
these sensitivities make no allowance for actions that management would take if such market conditions persisted.
Discount rates (pre-tax) Multiples (pre-tax)
Compound average annualised growth in FUM1 Management fee/Performance fee Management fee/Performance fee
Stressed to: 15% 11% 0% 12%/19% 14%/21% 13.0x/5.8x 11.0x/3.8x
Modelled headroom/(impairment) ($m) 70 (1) (160) 412 272 583 103
103
Notes:
1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine both the point at
which impairment would arise and 0%.
2 An increase/decrease of $7 million.
3 An increase/decrease of $24 million.
Acquisition of Silvermine
On 20 January 2015, Man acquired the entire issued share capital of Silvermine, a Connecticut-based leveraged loan manager
with $3.8 billion of funds under management at the date of acquisition across nine active collateralised loan obligation
("CLO") structures. The consideration to Silvermine owners is comprised of $26 million in cash up-front, including $3
million for acquired working capital, and two deferred amounts, payable following the first (up to $17 million) and fifth
(up to $30 million) anniversaries of closing, based on run rate management fees at the time (valued at $15 million). The
deferred consideration payable is equivalent to an earn-out and deemed to be a financial liability measured initially at
fair value, with any subsequent fair value movements recognised through the Group income statement.
Values for the acquired business at the date of acquisition are set out below.
$m Book value Fair value adjustments Provisional value
Fees and other receivables 4 - 4
Intangible assets - 17 17
Trade and other payables (1) - (1)
Net assets acquired 3 17 20
Goodwill on acquisition 21
Net assets acquired including goodwill 41
Purchase consideration:
Cash consideration 26
Contingent consideration 15
Total consideration 41
The fair value adjustments relate to the recognition of investment management contracts of $16 million and brand of $1
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 lives of five and ten years respectively. Goodwill
primarily represents the increased footprint in the US and a presence within the CLO market, as well as Silvermine's
skilled workforce.
Acquisition costs incurred as a result of the Silvermine transaction have been expensed and do not form part of goodwill,
and are classified as an adjusting item (Note 2).
The pre-tax profit for the Silvermine business since acquisition date is $8.7 million. If Silvermine had been acquired at
the beginning of the financial year, the pre-tax profit for Silvermine would have been $9.2 million. Silvermine revenue for
the period since the acquisition date is $16.6 million, and if the acquisition had taken place at the beginning of the
financial year, the revenue would have been $17.5 million.
Acquisition of NewSmith
On 24 April 2015, Man acquired the investment management business of NewSmith, an equity investment manager with $1.2
billion of funds under management at the date of acquisition.
Provisional values for the acquired business at the date of acquisition are set out below.
$m Book value Fair value adjustments Provisional value
Cash and cash equivalents 1 - 1
Fees and other receivables 3 - 3
Intangible assets - 12 12
Trade and other payables (1) - (1)
Net assets acquired 3 12 15
Goodwill on acquisition -
Net assets acquired including goodwill 15
Purchase consideration:
Cash consideration 10
Contingent consideration 5
Total consideration 15
The fair value adjustments relate to the recognition of investment management contracts of $12 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 life of four years.
Acquisition costs incurred as a result of the NewSmith transaction have been expensed and do not form part of goodwill, and
are classified as an adjusting item (Note 2).
The pre-tax profit for the NewSmith business since acquisition date is $5 million, which includes management fee revenues
of $6 million and performance fees of $4 million.
BAML fund of funds acquisition
In April and May 2015 Man made an asset purchase for the BAML fund of fund investment management contracts valued at $7
million. These 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 life of three years.
14. Other intangibles
$m Year ended 31 December 2015 Year ended 31 December 2014
Placement fees Capitalised computer software Total Placement fees Capitalised computer software Total
Cost:
At beginning of the year 66 58 124 74 69 143
Additions 1 6 7 - 9 9
Reclassifications1 - (4) (4) - - -
Redemptions/disposals (4) (4) (8) (8) (20) (28)
At year end 63 56 119 66 58 124
Aggregate amortisation and impairment:
At beginning of the year (61) (50) (111) (54) (63) (117)
Redemptions/disposals 3 4 7 6 16 22
Reclassifications1 - 4 4 - - -
Amortisation (2) (3) (5) (13) (3) (16)
At year end (60) (45) (105) (61) (50) (111)
Net book value at year end 3 11 14 5 8 13
13
Note:
1 Relate to reclassifications of nil net book value assets from capitalised computer software to computer hardware (Note
21).
Placement fees
Placement fees are paid to distributors for fund product launches or sales. The majority of placement fees paid up-front
are capitalised as intangible assets which represent the contractual right to benefit from future income from providing
investment management services. The amortisation period is based on management's estimate of the weighted average period
over which Man expects to earn economic benefits from the investor in each product, estimated to be five years on a
straight-line basis. The placement fee intangible is assessed for impairment annually. Amortisation expense, including any
accelerated charges arising from redemptions, is included in distribution costs in the Group income statement.
Capitalised computer software
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, are recognised as capitalised computer software.
Capitalised computer software is amortised on a straight-line basis over its estimated useful life (three years) and is
subject to regular impairment reviews. Amortisation of capitalised computer software is included in Other costs in the
Group income statement.
15. Cash, liquidity and borrowings
Liquidity and borrowings
Total liquidity resources aggregate to $1,586 million at 31 December 2015 (2014: $2,263 million) and comprise cash and cash
equivalents of $586 million (2014: $738 million), excluding $21 million of cash held relating to consolidated fund entities
(Note 16), and the undrawn committed revolving credit facility of $1,000 million (2014: $1,525 million). Cash and cash
equivalents at year end comprises $250 million (2014: $291 million) of cash at bank on hand, and $336 million (2014: $447
million) in short-term deposits, net of overdrafts of nil (2014: nil). Cash ring-fenced for regulated entities totalled $35
million (2014: $24 million).
Liquidity resources support ongoing operations and potential liquidity requirements under stressed scenarios. The amount of
potential liquidity requirements is modelled based on scenarios that assume stressed market and economic conditions. With
the exception of committed purchase arrangements, the funding requirements for Man relating to the investment management
process are discretionary. The liquidity profile of Man is monitored on a daily basis and the stressed scenarios are
updated regularly. The Board reviews Man's funding resources at each Board meeting and on an annual basis as part of the
strategic planning process. Man's available liquidity is considered sufficient to cover current requirements and potential
requirements under stressed scenarios.
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 short-term bank deposits and on-demand deposit bank
accounts. At 31 December 2015 the $586 million cash balance (excluding cash held by consolidated fund entities) is held
with 22 banks (2014: $738 million with 22 banks). The single largest counterparty bank exposure of $100 million is held
with an A+ rated bank (2014: $100 million with an AA- rated bank). At 31 December 2015, balances with banks in the AA
ratings band aggregate to $239 million (2014: $284 million) and balances with banks in the A ratings band aggregate to $293
million (2014: $453 million).
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.
$m 31 December 2015
Total Less than 1 year 2 years 3 years Greater than 3 years
Borrowings: 2024 fixed rate reset callable guaranteed subordinated notes 149 - - - 149
Cash and cash equivalents1 586 586 - - -
Undrawn committed revolving credit facility 1,000 - - - 1,000
Total liquidity 1,586 586 - - 1,000
1,000
$m 31 December 2014
Total Less than 1 year 2 years 3 years Greater than 3 years
Borrowings: 2024 fixed rate reset callable guaranteed subordinated notes 149 - - - 149
Cash and cash equivalents 738 738 - - -
Undrawn committed revolving credit facility 1,525 - 70 120 1,335
Total liquidity 2,263 738 70 120 1,335
1,335
Note:
1 Excludes $21 million of restricted cash held by consolidated fund entities (Note 16).
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. At 31 December 2015, the fair value of borrowings is $157 million (2014: $154 million).
The committed revolving credit facility of $1,525 million was refinanced during 2015 and replaced with a new committed
syndicated revolving loan facility of $1,000 million which was undrawn at 31 December 2015. The new facility was put in
place as a five year facility and includes the option for Man to request the banks to extend the maturity date by one year
on each of the first and second anniversaries. The participant banks have the option to accept or decline Man's request.
The facility is currently scheduled to mature in June 2020. To maintain maximum flexibility, the revolving credit 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. 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 $2 million (2014: $6 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 respect of Man's monetary assets and liabilities which earn/incur
interest indexed to floating rates, as at 31 December 2015 a 50bp increase/decrease in interest rates, with all other
variables held constant, would have resulted in a $2 million increase or a $1 million decrease (2014: $2 million increase
or $1 million decrease) in net interest income.
In limited 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 2015 is $7 million (2014: $15 million). The Group also hedges its exposure to net investments in
foreign operations through forward foreign exchange contracts where appropriate, with any effective gains or losses
recognised in other comprehensive income and accumulated in the cumulative translation adjustment reserve within equity.
The fair value of derivatives held in relation to the Group's net investment hedges at 31 December 2015 is nil (2014: $3
million). Any ineffective portion of these hedges is recognised immediately in profit or loss, and is included within the
income or gains on investments and other financial instruments.
16. Investments in fund products and other investments
$m 31 December 2015
Financial assets at fair value through profit or loss Available-for-sale financial assets Loans and receivables Total investments in fund products and other investments Net non-current assets held for sale Total investments
Investments in fund products and other investments comprise:
Loans to fund products - - 41 41 - 41
Other investments in fund products 224 - - 224 119 343
Other investments - 4 - 4 - 4
Investments in funds relating to line-by-line consolidated funds 329 - - 329 - 329
553 4 41 598 119 717
717
$m 31 December 2014
Financial assets at fair value through profit or loss Available-for-sale financial assets Loans and receivables Total investments in fund products and other investments Net non-current assets held for sale Total investments
Investments in fund products and other investments comprise:
Loans to fund products - - 94 94 - 94
Other investments in fund products 207 2 - 209 153 362
Other investments - 4 - 4 - 4
207 6 94 307 153 460
460
Man's seeding investments are included in various Group balance sheet line items. In summary, the total seeding investments
portfolio is made up as follows:
$m Note 31 December 2015 31 December 2014
Loans to funds 16.1 41 94
Other investments in fund products 16.2 224 209
Less those used to hedge deferred compensation awards 16.2 (71) (68)
Consolidated investments in funds - held for sale 16.3 119 153
Consolidated investments in funds - line-by-line consolidation 16.3 213 -
Seeding investments portfolio 526 388
16.1. 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 $75 million (2014: $80
million). Loans to fund products have decreased compared to the prior year as guaranteed product FUM has decreased together
with the associated leveraging. The liquidity requirements of guaranteed products together with commitments to provide
financial support which give rise to loans to funds are subject to our routine liquidity stress testing and any liquidity
requirements are met by available cash resources, or the committed 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 2015
is $7 million (2014: $14 million). Fund entities are not externally rated, but our internal modelling indicates that fund
products have a probability of default that is equivalent to a credit rating of A.
16.2. Other investments in fund products
Man uses capital to invest in our fund products as part of our ongoing business to build our product breadth and to trial
investment research developments before we market the products to investors. These seeding investments are generally held
for less than one year. Where Man is deemed not to control the fund, these are classified as other investments in fund
products. Other investments in fund products are classified primarily at fair value through profit or loss, with movements
in fair value being recognised through income or gains on investments and other financial instruments. Purchases and sales
of investments are recognised on trade date.
Other investments in fund products are not actively traded and the valuation at the fund level cannot be determined by
reference to other available prices. The fair values of investments in fund products are derived from the reported NAVs of
each of the fund products, which in turn are based upon the value of the underlying assets held within each of the fund
products and the anticipated redemption horizon of the fund product. The valuation of the underlying assets within each
fund product is determined by external valuation service providers based on an agreed valuation policy and methodology.
Whilst these valuations are performed independently of Man, Man has established oversight procedures and due diligence
processes to ensure that the NAVs reported by the external valuation service providers are reliable and appropriate. Man
makes adjustments to these NAVs where the anticipated redemption horizon or events or circumstances indicate that the NAVs
are not reflective of fair value. The fair value hierarchy of financial assets is disclosed in Note 24.
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 $170 million (2014: $51 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 $55 million at 31 December 2015 (2014: $26 million).
Fund investment for deferred compensation arrangements
At 31 December 2015 investments in fund products included $71 million (2014: $68 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 series of Man fund products. The 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 designated fund products. The 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.
16.3. 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. The
Group's seeding investment portfolio has grown during 2015. In 2015 nine (2014: five) investments in funds have met the
control criteria and 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 acquired the controlling stake exclusively with a view to subsequent disposal through sale or dilution and
it is considered highly probable that it will relinquish control within a year, the investment in the controlled fund is
classified as held for sale. The seeded fund is recognised in the Group balance sheet as non-current assets and liabilities
held for sale, with the interests of any other parties included within non-current liabilities held for sale. Amounts
recognised are measured at the lower of the carrying amount and fair value less costs to sell.
The non-current assets and liabilities held for sale are as follows:
$m 31 December 2015 31 December 2014
Non-current assets held for sale 188 186
Non-current liabilities held for sale (69) (33)
Investments in fund products held for sale 119 153
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 16.2). Loss of control may eventuate through
sale of the investment or a dilution in the Group's holding. If a held for sale fund remains under the control of the Group
for more than one year, and it is unlikely that the Group will reduce or no longer control its investment in the
short-term, it will cease to be classified as held for sale and will be consolidated on a line-by-line basis as below. Two
investments in funds which were classified as held for sale in 2014 have been consolidated on a line-by-line basis for the
year ending 31 December 2015. We expect these seed investments will be sold in the short-term.
Management fee income earned from fund entities classified as held for sale was $1 million for the year ended 31 December
2015 (2014: $1 million).
Line-by-line consolidation
The investments relating to the three funds (2014: nil) which are controlled and are consolidated on a line-by-line basis
are included within the Group balance sheet and income statement as follows:
$m 31 December 2015
Balance Sheet
Cash and cash equivalents 21
Transferrable securities1 329
Accounts payable (1)
Net assets of line-by-line consolidated fund entities 349
Third party interest in consolidated funds (136)
Net investment held by Man 213
Income statement
Net
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