REG - Man Group plc - RESULTS FOR THE FINANCIAL YEAR ENDED 31 DEC 2015 <Origin Href="QuoteRef">EMG.L</Origin> - Part 5
24/02/2016 07:10
- Part 5: For the preceding part double click ID:nRSX9345Pd
losses on investments2 (16)
Management fee expenses3 (4)
Net losses of line-by-line consolidated fund entities (20)
Third party share of losses relating to interests in consolidated funds 9
Losses attributable to net investment held by Man (11)
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 fees paid by the funds to Man during the year, and is eliminated within gross management and
other fees in the Group income statement.
17. Fee and other receivables
$m 31 December 2015 31 December 2014
Fee receivables 63 134
Prepayments and accrued income 171 204
Derivative financial instruments 2 3
Other receivables 67 55
303 396
Fee and other receivables are recognised initially 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. All 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. At 31 December 2015, $12 million (2014: $8 million) of other receivables
are expected to be settled after 12 months.
For the Open Ended Investment Collective (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 2015 the amount included in other receivables is $26 million (2014: $19 million). The unsettled
fund payable is recorded in trade and other payables.
Details of derivatives used to hedge foreign exchange risk are included in Note 15. Other derivative financial instruments,
which consist primarily of foreign exchange contracts, are measured at fair value through profit or loss.
The notional value of all derivative financial assets is $134 million (2014: $280 million). All derivatives are held with
external banks with ratings of A or higher and mature within one year. During the year, there were $12 million net realised
and unrealised gains arising from derivatives (2014: $3 million net losses). Derivatives are classified as Level 2 under
Man's fair value hierarchy (Note 24).
18. Trade and other payables
$m 31 December 2015 31 December 2014
Accruals 322 289
Trade payables 32 35
Deferred consideration 206 150
Derivative financial instruments 8 15
Other payables 92 92
660 581
Accruals primarily relate to compensation accruals. Trade payables include payables relating to the OEIC funds business of
$25 million at 31 December 2015 (2014: $20 million). Deferred consideration relates to the amounts payable in respect of
acquisitions (Note 24). Other payables include servicing fees payable to distributors and redemption proceeds due to
investors.
Payables are initially recorded at fair value and subsequently measured at amortised cost. Included in trade and other
payables at 31 December 2015 are balances of $178 million (2014: $109 million) that are expected to be settled after more
than 12 months, which relate to deferred consideration. Man's policy is to meet its contractual commitments and pay
suppliers according to agreed terms.
Details of derivatives used to hedge foreign exchange risk are included in Note 15. Derivative financial instruments, which
consist primarily of foreign exchange contracts, are measured at fair value through profit or loss.
The notional value of derivative financial liabilities at 31 December 2015 is $331 million (2014: $358 million). All
derivative contracts mature within one year.
19. Provisions
$m Onerous property lease contracts Litigation Restructuring Total
As 1 January 2015 34 24 7 65
Charged/(credited) to the income statement:
Charge in the year 7 - - 7
Unwinding of discount 1 - - 1
Exchange differences (2) - - (2)
Used during the year/settlements (8) - (5) (13)
At 31 December 2015 32 24 2 58
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.
The $7 million charge for onerous property lease contracts relates to an increase in the Riverbank House onerous property
lease provision as a result of a contractual market-linked rental increase (Note 2). 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 20 years.
Provisions for restructuring are recognised when the obligation arises, following communication of the formal plan.
20. 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:
$m Year ended 31 December 2015 Year ended 31 December 2014
Nephila Capital Ltd OFI MGA Total Nephila Capital Ltd OFI MGA Total
% ownership 18.75%1 20% 18.75%1 20%
At beginning of the year 28 2 30 28 3 31
Share of post-tax profit 3 - 3 9 - 9
Dividends received (3) - (3) (9) (1) (10)
At year end 28 2 30 28 2 30
30
Note:
1 18.75% represents Man's ownership of class B common shares. Man's participation in the profits of Nephila is governed
by the share class rights and therefore does not relate proportionately to the ownership interest held. Man considers that
this equity interest, Man's ability to veto Nephila's annual business plan, and the presence of a Man member on the Nephila
board of directors provides Man with the power to participate in the financial and operating policy decisions, and equates
to significant influence.
Nephila Capital 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, and OFI MGA
is a French asset manager. Both Nephila Capital Limited and OFI MGA have a 31 December year end. Man has not provided any
financial support to associates during the year to 31 December 2015 (2014: nil).
Commission income relating to sales of Nephila Capital Limited products totalled $14 million for the year ended 31 December
2015 (2014: $15 million), and is included within gross management and other fees in the Group income statement.
21. Leasehold improvements and equipment
$m Year ended 31 December 2015 Year ended 31 December 2014
Leasehold improvements Equipment Total Leasehold improvements Equipment Total
Cost
At beginning of the year 114 103 217 119 114 233
Acquisition of business - - - 2 - 2
Additions 2 5 7 1 2 3
Disposals (2) (6) (8) (8) (13) (21)
Reclassifications1 - 4 4 - - -
At year end 114 106 220 114 103 217
Accumulated depreciation:
At beginning of the year (76) (89) (165) (78) (87) (165)
Charge for year (7) (6) (13) (6) (15) (21)
Accelerated depreciation - - - - - -
Disposals 1 5 6 8 13 21
Reclassifications1 - (4) (4) - - -
At year end (82) (94) (176) (76) (89) (165)
Net book value at year end 32 12 44 38 14 52
52
Note:
1 Relate to reclassifications of nil net book value assets from capitalised computer software (Note 14) to computer
hardware.
All leasehold improvements and equipment are shown 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 and for equipment is between three and ten
years.
22. Deferred compensation arrangements
Man operates cash and equity-settled share-based payment schemes as well as fund product based compensation arrangements.
During the year, $53 million (2014: $42 million) is included within compensation costs relating to share-based payment and
deferred fund product plans, consisting of equity-settled share-based payments of $18 million (2014: $11 million),
cash-settled share-based payments totalling nil (2014: $1 million), and deferred fund product plans of $35 million (2014:
$30 million).
23. Capital management
Investor confidence is an important element in the sustainability of our business. That confidence comes, in part, from the
strength of our capital base. Man has maintained significant surplus capital and available liquidity throughout the recent
periods of market volatility. This capital has given Man flexibility to support our investors, intermediaries and financial
partners and to allow them to make informed decisions regarding their investment exposures. This confidence gives our
business credibility and sustainability.
We have a conservative capital and liquidity framework which allows us to invest in the growth of our business. We utilise
capital to support the operation of the investment management process and the launch of new fund products. We view this as
a competitive advantage which allows us to directly align our interests with those of investors and intermediaries.
Man monitors its capital requirements through continuous review of its regulatory and economic capital, including monthly
reporting to the Risk and Finance Committee and the Board.
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, net of tax, from the proceeds.
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 (2014: 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 2015, $175 million shares were repurchased at an average price of 195.6p, buying back
59.0 million shares (2014: 68.8 million shares), which had an accretive impact on EPS of approximately 2%. $1 million of
costs were incurred relating to the repurchase, largely relating to stamp duty. As at 23 February 2016, Man Group had an
unexpired authority to repurchase up to 247,247,179 of its ordinary shares. A special resolution will be proposed at the
forthcoming Annual General Meeting, pursuant to which the Company will seek authority to repurchase up to 254,951,571 of
its ordinary shares, representing 14.99% of the issued share capital at 23 February 2016.
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 2015 Year ended 31 December 2014
Ordinary shares Number Unlisted deferred Sterling shares Number Nominal value $m Ordinary shares Number Unlisted deferredSterling shares Number Nominal value $m
At 1 January 1,756,290,714 50,000 61 1,823,733,081 50,000 63
Issue of ordinary shares:
- Purchase and cancellation of own shares (58,996,084) - (2) (68,835,247) - (2)
- Partnership Plans and Sharesave 3,516,383 - - 1,392,880 - -
At 31 December 1,700,811,013 50,000 59 1,756,290,714 50,000 61
61
Share capital and reserves
$m Share capital Share premium account Capital redemption reserve Merger reserve Reorganisation reserve Total
At 1 January 2015 61 7 2 491 632 1,193
Purchase and cancellation of own shares (2) - 2 - - -
Share awards/options - 7 - - - 7
At 31 December 2015 59 14 4 491 632 1,200
At 1 January 2014 63 5 - 491 632 1,191
Purchase and cancellation of own shares (2) - 2 - - -
Share awards/options - 2 - - - 2
At 31 December 2014 61 7 2 491 632 1,193
Revaluation reserves and retained earnings
$m Available-for-sale reserve Cash flow hedge reserve1 Own shares held by Employee Trusts Cumulative translation adjustment1 Profit and loss account Total
At 1 January 2015 3 (16) (62) (14) 1,330 1,241
Currency translation difference - - 3 (11) - (8)
Share-based payments charge for the year - - - - 15 15
Purchase of own shares by the Employee Trusts - - (30) - - (30)
Disposal of own shares by the Employee Trusts - - 27 - (27) -
Deferred tax credited on cash flow hedge movements - 2 - - - 2
Fair value losses taken to equity - (9) - - - (9)
Revaluation of defined benefit pension scheme - - - - (21) (21)
Current tax credited to reserves - pension scheme - - - - 4 4
Deferred tax credited to reserves - pension scheme - - - - 2 2
Transfer to Group income statement (1) 18 - - - 17
Share repurchases - - - - (176) (176)
Dividends - - - - (193) (193)
Profit for the year - - - - 171 171
At 31 December 2015 2 (5) (62) (25) 1,105 1,015
$m Available-for-sale reserve Cash flow hedge reserve1 Own shares held by Employee Trusts Cumulative translation adjustment1 Profit and loss account Total
At 1 January 2014 3 14 (110) 4 1,305 1,216
Currency translation difference - - 7 (18) - (11)
Share-based payments charge for the year - - - - 9 9
Deferred tax credited to reserves - share-based payments - - - - 2 2
Purchase of own shares by the Employee Trusts - - (14) - - (14)
Disposal of own shares by the Employee Trusts - - 55 - (55) -
Deferred tax credited on cash flow hedge movements - 3 - - - 3
Fair value losses taken to equity - (16) - - - (16)
Revaluation of defined benefit pension scheme - - - - (21) (21)
Current tax credited to reserves - pension scheme - - - - 4 4
Transfer to Group income statement - (17) - - - (17)
Share repurchases - - - - (116) (116)
Dividends - - - - (163) (163)
Profit for the year - - - - 365 365
At 31 December 2014 3 (16) (62) (14) 1,330 1,241
Notes:
1 Details of the Group's hedging arrangements are provided in Note 15.
24. 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:
$m 31 December 2015 31 December 2014
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial assets held at fair value:
Investments in fund products and other investments (Note 16) 4 162 62 228 4 167 42 213
Investments in funds relating to consolidated fund entities - 329 - 329 - - - -
(Note 16)
Derivative financial instruments (Note 17) - 2 - 2 - 3 - 3
4 493 62 559 4 170 42 216
Financial liabilities held at fair value:
Derivative financial instruments (Note 18) - 8 - 8 - 15 - 15
Contingent consideration (Note 18) - - 206 206 - - 145 145
- 8 206 214 - 15 145 160
160
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 weekly or daily pricing derived from third- party
information.
A transfer into Level 3 would be deemed to occur where the level of prolonged activity, as evidenced by subscriptions and
redemptions, is deemed insufficient to support a Level 2 classification. This, as well as other factors such as a
deterioration of liquidity in the underlying investments, would result in a Level 3 classification. The material holdings
within this category are priced on a recurring basis based on information supplied by third parties without adjustment.
Liquidity premium adjustments of $2 million (2014: $2 million) have been applied to gated, suspended, side-pocketed or
otherwise illiquid Level 3 investments. The range of liquidity premium adjustments is from 12% to 33% based on the expected
timeframe for exit. A larger liquidity adjustment is applied where the exit is further in the future. Reasonable changes in
the liquidity premium assumptions would not have a significant impact on the fair value.
The fair value of non-current assets and liabilities held for sale (Note 16.3) are equal to the carrying values of $188
million (2014: $186 million) and $69 million respectively (2014: $33 million), and would be classified within Level 2 ($108
million) and Level 3 ($11 million). In 2014 non-current assets and liabilities held for sale would have been classified as
Level 2.
The basis of measuring the fair value of Level 3 investments is outlined in Note 16.2. The movements in Level 3 financial
assets and financial liabilities measured at fair value are as follows:
$m Year ended 31 December 2015 Year ended 31 December 2014
Financial assets at fair value through profit or loss Available-for-sale financial assets Total Financial assets at fair value through profit or loss Available-for-sale financial assets Total
Level 3 financial assets held at fair value
At beginning of the year 42 - 42 66 1 67
Purchases 25 - 25 2 - 2
Total gains in the Group statement of comprehensive income 9 - 9 5 - 5
Included in profit for the year 9 - 9 5 - 5
Included in other comprehensive income - - - - - -
Sales or settlements (14) - (14) (14) (1) (15)
Transfers into Level 3 - - - - - -
Transfers out of Level 3 - - - (17) - (17)
At year end 62 - 62 42 - 42
Total gains for the year included in the Group statement of comprehensive income for assets held at year end 9 - 9 5 - 5
5
$m Year ended 31 December 2015 Year ended 31 December 2014
Level 3 financial liabilities held at fair value
At beginning of the year 145 44
Purchases 23 118
Total charges/(gains) in the Group statement of comprehensive income 79 (7)
Included in profit for the year 79 (7)
Included in other comprehensive income - -
Settlements (41) (10)
Other adjustments - -
At year end 206 145
Total charges/(gains) for the year included in the Group statement of comprehensive income for liabilities held at year end 79 (7)
The financial liabilities in Level 3 primarily relate to the contingent consideration payable at 31 December 2015 to the
former owners of Numeric ($164 million), with the remaining $42 million relating to contingent consideration for other
smaller acquisitions. In 2014 these largely relate to the contingent consideration payable in relation to the Numeric and
FRM acquisitions.
For Numeric the 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 options 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. The maximum aggregate amount payable by Man in respect of
the option consideration is capped at $275 million.
The fair values are based on discounted cash flow calculations, which represent the expected future profits of each
business as per the earn-out arrangements. The fair values are determined using a combination of inputs, such as weighted
average cost of capital, high water mark levels, net management fee margins, performance, operating margins and the growth
in FUM, as applicable. The discount rates applied are 11% for management fees and 17% for performance fees.
The most significant inputs into the valuations are as follows:
Year ended
31 December 2015 Numeric
Weighted average net management fee margin (over the remaining earn-out period) 0.5%
Compound growth in average FUM (over the remaining earn-out period) 12%
Changes in inputs would result in the following decrease/(increase) of the contingent consideration creditor:
Year ended 31 December 2015 Numeric
Weighted average net management fee margin:
0.1% increase 34
0.1% decrease (34)
Compound growth in average FUM:
1% increase 6
1% decrease (6)
Increases/(decreases) in the fair value of the contingent consideration creditor would have a corresponding (expense)/gain
in the Group income statement.
25. 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 these enquiries to have a material adverse effect on the financial position of
the Group.
This information is provided by RNS
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