TIDMEMG
RNS Number : 8077F
Man Group plc
25 February 2015
Press Release
25 February 2015
RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014
Key points
-- Fund under Management (FUM) up 35% to $72.9 billion (31 December 2013: $54.1 billion)
o Gross sales up 36% to $21.9 billion (2013: $16.1 billion)
o Redemptions down 6% to $18.6 billion (2013: $19.7 billion)
o Net inflows of $3.3 billion (2013: net outflows $3.6
billion)
o Investment movement of $3.6 billion (2013: $4.3 billion)
o FX translation effects and other movements of -$4.3 billion
(2013: -$3.6 billion)
o Acquisition of Numeric (a US based quant manager) and Pine
Grove (a US based fund of fund credit manager) completed during the
year, adding $16.2 billion to FUM
-- Adjusted profit before tax (PBT) up 62% to $481 million in 2014 (2013: $297 million) due to:
o Higher performance fees and cost savings
o Partially offset by a decrease in management fees linked to a
decline in the blended management fee margin due to a change in
product and business mix
-- Statutory PBT for the year ended 31 December 2014 of $384 million (2013: $56 million)
-- $270 million cost savings programme completed ahead of schedule
-- Proposed final dividend of 6.1 cents per share bringing total
dividend for the year to 10.1 cents (2013: 7.9 cents)
-- Intention to repurchase $175 million of shares
-- Surplus regulatory capital of $419 million at 31 December
2014 (2013: $760m); $350 million pro-forma for acquisitions, final
dividend and share repurchase
Summary financials Page Year ended Year ended
ref. 31 Dec 2014 31 Dec 2013
$ $
Funds under management (end of period) 5 72.9bn 54.1bn
Gross management and other fees(1) 22,36 819m 979m
Performance fees(2) 22,36 367m 223m
External distribution costs 23,36 (104m) (145m)
Net revenues 1,082m 1,057m
Compensation 23,37 (391m) (445m)
Other costs (including asset services) 23,37,38 (201m) (270m)
Net finance expense(3) 24,38 (9m) (45m)
Adjusted profit before tax 24,35 481m 297m
Net management fee income 25 198m 175m
Net performance fees 25 283m 122m
Adjusting items(4) 24,35 (97m) (241m)
Statutory profit before tax 384m 56m
Diluted statutory EPS 40,41 20.5c 2.9c
Adjusted diluted EPS 40,41 24.4c 14.1c
Adjusted diluted management fee EPS 40,41 10.1c 7.9c
(1) Includes share of income from associates. (2) Includes
income and gains on investments and other instruments. (3) Includes
one-off costs related to buyback of debt of $28 million in the year
to 31 December 2013. (4) The adjusting items in the year of $97
million, as detailed in Note 2 to the financial statements on page
35, relate to non-recurring items or those resulting from
acquisition or disposal related transactions.
Post year end developments
-- Calendar year to 23 February 2015 performance for key AHL strategies: AHL Diversified 5.2%,
AHL Alpha 3.9%, AHL Evolution 7.1%, AHL Dimension 1.7%
o At 31 January 2015, 74% ($10.6 billion) of AHL performance
fee-eligible funds were above high water mark and 23% ($3.3
billion) within 5% of performance fee highs
-- Calendar year to 20 February 2015 performance for key GLG
UCITS strategies: European Equity Alternative 2.9%, Global
Convertibles 3.4%, Japan CoreAlpha 8.1%, Global Equity 4.1%.
o At 31 January 2015, 14% ($1.6 billion) of GLG performance
fee-eligible funds were above high water mark and 57% ($6.6
billion) within 5% of performance fee highs
-- Numeric's asset weighted outperformance at 23 February was 102 basis points before fees
-- Calendar year to 31 January 2015 performance for key FRM strategy of FRM Diversified II 0.5%
-- Guaranteed product re-gears of $200 million in total for
January and February 2015 and a de-gear of $100 million for 1 March
2015
-- Acquisition of Silvermine (CLO manager) completed on 20
January 2015 and Bank of America Merrill Lynch fund of funds
portfolio acquisition due to complete in Q2 2015
-- Acquisition of NewSmith, an equity investment manager based
in London and Tokyo with $1.2 billion of funds under management,
due to complete in Q2 2015
Manny Roman, Chief Executive Officer of Man, said:
"2014 marked a year of progress for the Group with strong
performance at AHL, a full year of net inflows, the completion of
the restructuring programme ahead of schedule and several key
acquisitions and hires that have materially enhanced our investment
capabilities and our North American business. We saw the benefits
from these initiatives as FUM increased by 35% and adjusted profits
by 62%.
Despite the strong performance across the AHL range in 2014 we
do not expect to see a meaningful pick-up in demand for these
products until later in the year, and this, coupled with a slowdown
in sales across our discretionary strategies and the ongoing
volatility of the markets in which we operate, means that we remain
cautious in our near-term outlook.
After the significant progress made against our strategic
objectives in 2014, however, we are better positioned as a group to
grow our business profitably over time. We have a more diversified
offering to clients and a range of attractive options for growth.
If we are able to deliver superior risk adjusted returns for our
clients, as we were able to in particular in our quantitative
business last year, we will be able to leverage our global
distribution to grow our assets steadily."
Dividend and share repurchase
The Board confirms that it will recommend a final dividend of
6.1 cents per share for the financial year to 31 December 2014,
giving a total dividend of 10.1 cents per share for the year. This
dividend will be paid at the rate of 3.95 pence per share.
Man's dividend policy is to pay at least 100% of adjusted
management fee earnings per share in each financial year by way of
ordinary dividend. In addition, the Group expects to generate
significant surplus capital over time, primarily from net
performance fee earnings. Available surpluses, after taking into
account required capital (including accruals for future earn-out
payments), potential strategic opportunities and a prudent buffer,
will be distributed to shareholders over time, by way of higher
dividend payments and/or share repurchases. Whilst the Board
continues to consider dividends as the primary method of returning
capital to shareholders, it will continue to execute share
repurchases when advantageous.
In line with this policy it is our intention to launch a $175
million share repurchase programme to return surplus capital to
shareholders, which will be conducted over the remainder of the
year.
Dates for the 2014 final dividend
Ex-dividend date 23 April 2015
----------------- --------------
Record date 24 April 2015
----------------- --------------
Payment date 15 May 2015
----------------- --------------
Results presentation, audio webcast and dial in details
There will be a presentation by the management team at 10am (UK
time) on 25 February 2015 at our City office; 2 Swan Lane, London,
EC4R 3AD. A copy of the presentation will be made available on the
Group's website at www.man.com. There will also be a live audio
webcast available on https://www.man.com/GB/results and
www.cantos.com which will also be available on demand from later in
the day. The dial-in and replay telephone numbers are as
follows:
Audio Details
Participant Dial In Number(s)
UK Toll / International: +44 (0) 20 3003 2666
UK Toll Free: 0808 109 0700
USA Toll Free: 1 866 966 5335
Replay
UK Toll / International : +44 (0) 20 3350 6902
UK Toll Free: 0800 640 1726
US Number: 1 866 966 6340
Replay PIN : 5038672#
Enquiries
Fiona Smart
Head of Investor Relations
+44 20 7144 2030
fiona.smart@man.com
Rosanna Konarzewski
Global Head of Communications
+44 20 7144 2078
Rosanna.konarzewski@man.com
Finsbury
James Bradley/ Michael Turner
+44 20 7251 3801
About Man
Man is a leading alternative investment management business with
a diverse offering in hedge funds and long only products across
equity, credit, managed futures, convertibles, emerging markets,
global macro and multi-manager solutions. At 31 December 2014, Man
managed $72.9 billion. The original business was founded in 1783.
Today, Man is listed on the London Stock Exchange and is a member
of the FTSE 250 Index with a market capitalisation of around GBP3.3
billion. Man also supports many awards, charities and initiatives
around the world, including sponsoring the Man Booker literary
prizes. Further information can be found at www.man.com.
Forward looking statements and other important information
This document contains forward-looking statements with respect
to the financial condition, results and business of Man Group plc.
By their nature, forward-looking statements involve risk and
uncertainty and there may be subsequent variations to estimates.
Man Group plc's actual future results may differ materially from
the results expressed or implied in these forward-looking
statements.
The content of the websites referred to in this announcement is
not incorporated into and does not form part of this announcement.
Nothing in this announcement should be construed as or is intended
to be a solicitation for or an offer to provide investment advisory
services.
FUNDS UNDER MANAGEMENT ANALYSIS
Three months to 31 December 2014
FUM at Sales Reds Net inflows/ Investment FX Other Acq. FUM at
30 September (Outflows) movement 31 December
$bn 2014 2014
---------------- -------------- ------ ------ ------------- ----------- ------ ------ ----- -------------
Alternative 39.2 2.2 (3.0) (0.8) 1.0 (0.9) (0.3) 0.0 38.2
---------------- -------------- ------ ------ ------------- ----------- ------ ------ ----- -------------
Quant (AHL /
Numeric) 11.5 0.8 (0.4) 0.4 1.1 (0.3) 0.2 0.0 12.9
Discretionary
(GLG) 16.3 1.0 (1.8) (0.8) (0.1) (0.4) (0.5) 0.0 14.5
Fund of funds
(FRM) 11.4 0.4 (0.8) (0.4) 0.0 (0.2) 0.0 0.0 10.8
---------------- -------------- ------ ------ ------------- ----------- ------ ------ ----- -------------
Long Only 31.4 2.8 (1.8) 1.0 0.8 (1.0) 0.5 0.0 32.7
---------------- -------------- ------ ------ ------------- ----------- ------ ------ ----- -------------
Quant (Numeric
/ AHL) 15.6 1.5 (0.4) 1.1 0.4 (0.4) 0.0 0.0 16.7
Discretionary
(GLG) 15.8 1.3 (1.4) (0.1) 0.4 (0.6) 0.5 0.0 16.0
---------------- -------------- ------ ------ ------------- ----------- ------ ------ ----- -------------
Guaranteed 1.7 0.0 (0.1) (0.1) 0.2 (0.1) 0.3 0.0 2.0
Total 72.3 5.0 (4.9) 0.1 2.0 (2.0) 0.5 0.0 72.9
---------------- -------------- ------ ------ ------------- ----------- ------ ------ ----- -------------
Year to 31 December 2014
FUM at Sales Reds Net inflows Investment FX Other Acq. FUM at
31 December / (Outflows) movement 31 December
$bn 2013 2014
---------------- ------------- ------ ------- -------------- ----------- ------ ------ ----- -------------
Alternative 36.5 13.1 (13.0) 0.1 2.5 (2.2) (0.8) 2.1 38.2
---------------- ------------- ------ ------- -------------- ----------- ------ ------ ----- -------------
Quant (AHL /
Numeric) 8.9 3.6 (2.8) 0.8 2.3 (0.4) 0.2 1.1 12.9
Discretionary
(GLG) 16.3 7.2 (5.9) 1.3 (0.5) (1.3) (1.3) 0.0 14.5
Fund of funds
(FRM) 11.3 2.3 (4.3) (2.0) 0.7 (0.5) 0.3 1.0 10.8
---------------- ------------- ------ ------- -------------- ----------- ------ ------ ----- -------------
Long Only 15.3 8.8 (4.9) 3.9 0.8 (1.9) 0.5 14.1 32.7
---------------- ------------- ------ ------- -------------- ----------- ------ ------ ----- -------------
Quant (Numeric
/ AHL) 1.5 2.3 (0.5) 1.8 0.0 (0.7) 0.0 14.1 16.7
Discretionary
(GLG) 13.8 6.5 (4.4) 2.1 0.8 (1.2) 0.5 0.0 16.0
---------------- ------------- ------ ------- -------------- ----------- ------ ------ ----- -------------
Guaranteed 2.3 0.0 (0.7) (0.7) 0.3 (0.2) 0.3 0.0 2.0
Total 54.1 21.9 (18.6) 3.3 3.6 (4.3) 0.0 16.2 72.9
---------------- ------------- ------ ------- -------------- ----------- ------ ------ ----- -------------
FUM by Manager
$bn 31 Dec 2014 30 Sep 2014 30 Jun 2014 31 Mar 2014 31 Dec 2013
-------------------------- ------------ ------------ ------------ ------------ ------------
AHL 14.4 13.3 12.1 11.3 11.9
-------------------------- ------------ ------------ ------------ ------------ ------------
AHL Diversified 4.7 4.4 4.3 4.4 5.6
AHL Alpha 3.1 2.8 2.1 2.1 2.3
AHL Evolution 2.8 2.3 1.7 1.3 1.1
AHL Dimension 1.8 1.3 1.3 1.2 0.9
MSS Europe 1.9 2.5 2.7 2.3 2.0
Other specialist styles 0.1 0.0 0.0 0.0 0.0
-------------------------- ------------ ------------ ------------ ------------ ------------
Numeric 16.7 15.1 n/a n/a n/a
-------------------------- ------------ ------------ ------------ ------------ ------------
Global 9.1 7.6 n/a n/a n/a
Emerging markets 1.9 2.1 n/a n/a n/a
US 4.3 4.1 n/a n/a n/a
Alternatives 1.4 1.3 n/a n/a n/a
-------------------------- ------------ ------------ ------------ ------------ ------------
GLG 30.5 32.2 34.1 32.7 30.2
-------------------------- ------------ ------------ ------------ ------------ ------------
Alternatives 14.5 16.4 18.1 18.2 16.4
-------------------------- ------------ ------------ ------------ ------------ ------------
Europe equity 3.8 5.8 6.4 6.4 4.8
North America equity 2.2 2.0 2.2 2.5 3.0
UK equity 0.3 0.3 0.3 0.3 0.3
Other equity 0.8 0.7 0.8 1.0 0.1
Convertibles 3.8 4.3 4.4 3.9 3.5
Market Neutral 0.9 1.1 1.2 1.1 1.0
US credit (Ore Hill) 0.8 0.8 0.8 0.7 0.9
European CLO (Pemba) 1.0 1.1 1.5 1.6 1.9
Multi-strategy 0.7 0.0 0.0 0.0 0.0
Macro & emerging markets 0.2 0.3 0.5 0.7 0.9
Long only 16.0 15.8 16.0 14.5 13.8
-------------------------- ------------ ------------ ------------ ------------ ------------
Japan equity 10.2 10.5 10.6 9.7 9.7
Global equity 1.3 1.4 1.5 1.5 1.4
Europe equity 1.1 1.1 1.2 1.1 1.2
UK equity 0.6 0.5 0.5 0.5 0.4
Fixed income 2.8 2.3 2.2 1.7 1.1
-------------------------- ------------ ------------ ------------ ------------ ------------
FRM 11.3 11.7 11.5 11.0 12.0
-------------------------- ------------ ------------ ------------ ------------ ------------
Infrastructure 1.8 2.1 2.4 2.2 2.0
Direct access 0.7 0.7 0.7 0.3 0.4
Segregated 3.3 3.4 3.0 3.0 3.4
Diversified FoHF 3.5 3.4 4.2 4.1 4.1
Thematic FoHF 1.5 1.6 0.9 0.9 1.4
Guaranteed 0.5 0.5 0.3 0.5 0.7
-------------------------- ------------ ------------ ------------ ------------ ------------
Total 72.9 72.3 57.7 55.0 54.1
-------------------------- ------------ ------------ ------------ ------------ ------------
Investment performance
-------------------
Total Return Annualised Return
3 months 12 months 3 years 5 years
to 31 to 31 Dec to 31 Dec to 31 Dec
Dec 2014 2014 2014 2014
----------------------------------------- ------------ ----------- ------------- -----------
AHL/MAN SYSTEMATIC STRATEGIES
AHL Diversified(1) 12.8% 33.8% 8.2% 6.7%
AHL Alpha(2) 9.2% 22.8% 6.5% 6.2%
AHL Evolution(3) 8.0% 20.3% n/a n/a
AHL Dimension(4) 6.1% 16.7% 7.4% 6.4%
MSS TailProtect(5) -2.7% -9.8% -13.4% n/a
MSS Europe(6) 0.8% 4.0% 15.1% n/a
----------------------------------------- ------------ ----------- ------------- -----------
GLG ALTERNATIVES
Equity
Europe
GLG European Long Short Fund(7) -0.3% -5.2% 2.4% 4.4%
GLG European Equity Alternative
UCITS Fund(8) -0.5% -6.3% 2.2% n/a
GLG European Alpha Alternative UCITS
Fund(9) -0.7% -1.3% 2.9% 2.7%
North America
GLG North American Opportunity Fund(10) -0.4% -1.3% 2.3% 2.3%
GLG North American Equity Alternative
UCITS Fund(11) -0.9% -4.4% -1.1% n/a
UK
GLG Alpha Select Fund(12) 3.5% 3.9% 5.7% 2.4%
GLG Alpha Select UCITS Fund(13) 3.6% 4.2% 5.4% n/a
Other equity alternatives
GLG Global Opportunity Fund(14) -1.0% -5.2% 1.1% 0.3%
Convertibles
GLG Global Convertible Fund(15) 0.4% -0.5% 6.2% 3.1%
GLG Global Convertible UCITS Fund(16) 0.8% 0.7% 8.2% 4.7%
Market neutral
GLG Market Neutral Fund(17) -7.0% -7.4% 6.5% 10.2%
GLG European Distressed Fund(18) -3.9% -4.6% 8.1% 11.0%
Multi-strategy
GLG Multi-Strategy Fund(19) 2.1% -0.9% 3.0% 3.6%
----------------------------------------- ------------ ----------- ------------- -----------
GLG LONG ONLY
GLG Japan CoreAlpha Equity Fund(20) 5.3% 7.7% 27.5% 11.2%
GLG Global Equity UCITS Fund(21) 2.5% 5.8% 16.9% 9.2%
GLG Strategic Bond Fund(22) 0.3% 4.5% 9.5% n/a
GLG Undervalued Assets Fund(23) 0.8% 3.7% n/a n/a
FRM
AA Diversified(24) 0.3% 2.4% 2.3% 2.0%
FRM Diversified II(25) 0.3% 2.7% 3.5% 3.2%
FRM Dynamic Selection(26) 0.3% 2.5% 2.8% 1.7%
Investment performance (Cont'd)
Total return Annualised return
3 months to 12 months 3 years to 5 years
31 Dec 2014 to 31 Dec 2014 to
31 Dec 2014 31 Dec
2014
------------------------------ ------------- ------------- --------------- ---------
NUMERIC ALTERNATIVES(27,28)
US Market Neutral -0.3% 1.8% 2.2% 4.8%
World Market Neutral 0.9% 3.6% 6.0% 4.1%
NUMERIC LONG ONLY(27,28)
Global & International
Global Core 1.1% 7.5% n/a n/a
MSCI World 1.0% 4.9% n/a n/a
Relative Return 0.0% 2.6% n/a n/a
Europe Core (EUR) -0.3% 9.3% 20.5% 12.6%
MSCI Europe -0.1% 6.8% 14.5% 8.9%
Relative Return -0.1% 2.5% 6.0% 3.6%
Japan Core (JPY) 6.4% 9.0% 28.3% 14.4%
MSCI Japan 6.7% 9.5% 27.2% 11.0%
Relative Return -0.3% -0.5% 1.2% 3.4%
International Small Cap -1.4% -3.4% 18.8% n/a
Custom MSCI World Ex-US -3.4% -5.3% 13.3% n/a
Relative Return 1.9% 1.9% 5.5% n/a
Emerging Markets Alpha -4.8% 8.6% 14.6% n/a
MSCI Emerging Markets Alpha -4.5% -2.2% 4.0% n/a
Relative Return -0.3% 10.7% 10.6% n/a
Emerging Markets Core -4.1% 1.8% n/a n/a
MSCI Emerging Markets Alpha -4.5% -2.2% n/a n/a
Relative Return 0.4% 4.0% n/a n/a
US Large Cap
Core 5.5% 16.1% 24.2% 17.2%
Russell 1000 4.9% 13.2% 20.6% 15.6%
Relative Return 0.6% 2.8% 3.6% 1.6%
Value 5.0% 14.9% 24.0% 17.2%
Russell 1000 Value 5.0% 13.5% 20.9% 15.4%
Relative Return 0.0% 1.4% 3.1% 1.8%
All Cap Core 3.9% 12.5% 24.2% 18.0%
Russell 3000 5.2% 12.6% 20.5% 15.6%
Relative Return -1.4% -0.1% 3.7% 2.3%
Large Cap Core 6.1% 16.9% 24.9% 17.4%
S&P 500 4.9% 13.7% 20.4% 15.5%
Relative Return 1.1% 3.3% 4.5% 1.9%
US Small Cap
Small Cap Core 6.3% 4.2% 23.6% 19.4%
Russell 2000 9.7% 4.9% 19.2% 15.5%
Relative Return -3.4% -0.7% 4.4% 3.8%
Small Cap Value 5.6% 4.3% 22.6% 18.7%
Russell 2000 Value 9.4% 4.2% 18.3% 14.3%
Relative Return -3.8% 0.1% 4.3% 4.5%
Small Cap Growth 7.1% 4.4% 24.7% 19.2%
Russell 2000 Growth 10.1% 5.6% 20.1% 16.8%
Relative Return -2.9% -1.2% 4.5% 2.4%
------------------------------ ------------- ------------- ----------- -------------
Investment performance (Cont'd)
Total return Annualised return
----------------------------------------
12 months 3 years to 5 years
3 months to 31 Dec 2014 to
to 31 Dec 31 Dec 2014 31 Dec
2014 2014
---------------------------------------- ------------ --------------- --------------- --------
Indices
World stocks(29) 3.2% 9.7% 17.8% 11.3%
World bonds(30) 2.7% 8.4% 4.3% 4.4%
Corporate bonds(31) 5.9% 17.3% 6.5% 9.9%
Hedge fund indices
HFRI Fund of Funds Composite Index(32) 0.8% 2.9% 5.5% 3.2%
HFRI Fund Weighted Composite Index(32) 0.5% 3.3% 6.2% 4.6%
HFRX Global Hedge Fund Index -1.7% -0.6% 3.2% 1.0%
Style indices
Barclay BTOP 50 Index(33) 7.7% 12.3% 3.6% 2.5%
HFRI Equity Hedge (Total) Index(32) 0.2% 2.0% 7.8% 4.9%
HFRI EH: Equity Market Neutral
Index(32) 1.6% 3.5% 4.3% 2.7%
HFRI Macro (Total) Index(32) 2.9% 6.2% 1.8% 1.8%
HFRI Relative Value (Total) Index(32) -0.7% 4.2% 7.3% 6.6%
---------------------------------------- ------------ --------------- -------------- ---------
Source: Man database, Bloomberg, MSCI and Source. There is no guarantee
of trading performance and past or projected performance is not a reliable
indicator of future performance. Returns may increase or decrease as a
result of currency fluctuations.
1) Represented by Man AHL Diversified plc from 26 March 1996 to 29 October
2012, and by Man AHL Diversified (Guernsey) USD Shares - Class A from
30 October 2012 to date. The representative product was changed at the
end of October 2012 due to legal and/or regulatory restrictions on Man
AHL Diversified plc preventing the product from accessing the Programme's
revised target allocations. Both funds are valued weekly; however, for
comparative purposes, statistics have been calculated using the best quality
price that is available at each calendar month end, using estimates where
a final price is unavailable. Where a price, either estimate or final
is unavailable on a calendar month end, the price on the closest date
prior to the calendar month end has been used.
2) Represented by AHL Alpha plc from 17 October 1995 to 30 September 2012,
and by AHL Strategies PCC Limited: Class Y AHL Alpha USD Shares from 1
October 2012 to 30 September 2013. The representative product was changed
at the end of September 2012 due to the provisioning of fund liquidation
costs in October 2012 for AHL Alpha plc, which resulted in tracking error
compared with other Alpha Programme funds. Both funds are valued weekly;
however, for comparative purposes, statistics have been calculated using
the best quality price that is available at each calendar month end, using
estimates where a final price is unavailable. Where a price, either estimate
or final is unavailable on a calendar month end, the price on the closest
date prior to the calendar month end has been used. Both of the track
records have been adjusted to reflect the fee structure of AHL Alpha (Cayman)
Limited - USD Shares. From 30 September 2013, the actual performance of
AHL Alpha (Cayman) Limited - USD Shares is displayed.
3) Represented by AHL (Cayman) SPC - Class A1 Evolution USD Shares.
4) Represented by AHL Strategies PCC Limited: Class B AHL Dimension USD
Shares until 31 May 2014, and by AHL Dimension (Cayman) Ltd - Class F
USD Shares from 1 June 2014 to date.
5) Represented by TailProtect Limited Class B.
6) Represented by the official performance of Man GLG Europe Plus Source
ETF net of a 0.75% p.a. management fee and no performance fee. Provided
by Source.
7) Represented by GLG European Long Short Fund - Class D Unrestricted
- EUR.
8) Represented by GLG European Equity Alternative IN EUR.
9) Represented by GLG European Alpha Alternative IN EUR.
10) Represented by GLG North American Opportunity Fund - Class A Unrestricted
- USD.
11) Represented by GLG North American Equity Alternative IN USD.
12) Represented by GLG Alpha Select Fund - Class C - EUR.
13) Represented by GLG Alpha Select Alternative IN H EUR.
14) Represented by GLG Global Opportunity Fund - Class Z - USD.
15) Represented by GLG Global Convertible Fund - Class A - USD.
16) Represented by GLG Global Convertible UCITS Fund - Class IM USD.
17) Represented by GLG Market Neutral Fund - Class Z Unrestricted - USD.
18) Represented by GLG European Distressed Fund - Class A - USD.
19) Represented by the gross return of Man GLG Multi-Strategy Fund - Class
A - USD Shares until 31 December 2012. From 1 January 2013 the performance
of Man GLG Multi-Strategy Fund - Class G - USD Shares is displayed.
20) Represented by GLG Japan CoreAlpha Equity Fund - Class C to Class
I JPY (28/01/2010).
21) Represented by GLG Global Equity Fund - Class I T USD to Class I USD
(13/05/2011).
22) Represented by GLG Strategic Bond Fund Class A.
23) Represented by GLG Undervalued Assets Fund - C Accumulation Shares.
24) Represented by Absolute Alpha Fund PCC Ltd Diversified - USD.
25) Represented by FRM Diversified II Fund SPC - Class A USD.
26) Represented by FRM Dynamic Selection USD I.
27) The reference index listed by Numeric is intended to best represent
the strategy's universe. Investors may choose to compare returns for their
accounts to different reference indices, resulting in differences in relative
return information. International Small Cap used MSCI EAFE Small Cap as
reference index until Aug 2013 and MSCI World ex-U.S. Small Cap thereafter.
Comparison to an index is for informational purposes only, as the holdings
of an account managed by Numeric will differ from the securities which
comprise the index and may have greater volatility than the holdings of
an index. Please refer to the Glossary for further information about the
indices.
28) Returns are based on the performance of only unrestricted accounts
within each strategy. Performance is net of fees. Returns of accounts
with client restrictions may differ.
29) Represented by MSCI World Net Total Return Index hedged to USD.
30) Represented by Citigroup World Government Bond Index hedged to USD
(total return).
31) Represented by Citigroup High Grade Corp Bond TR.
32) HFRI index performance over the past 4 months is subject to change.
33) The historic Barclay BTOP 50 Index data is subject to change.
CEO'S PERFORMANCE REVIEW
2014 was a year in which AHL delivered strong performance, we
completed our restructuring programme and created a more
diversified business through the Numeric acquisition.
Overview
During the year we made significant progress in respect of our
key strategic objectives: (i) generating superior risk adjusted
returns for our clients; (ii) developing options for growth across
our investment businesses; (iii) ensuring distribution
effectiveness; and, (iv) operating as efficiently as possible, both
from a cost and a balance sheet perspective.
Performance was very strong on both an absolute and relative
basis in our quantitative strategies at AHL and Numeric, whilst
being more mixed in our discretionary businesses. Investment
performance continues to be the single most important determinant
of success in our business and achieving superior risk adjusted
returns for our clients remains our most important priority.
We have made good progress in creating a more diversified
business and developing options for growth across our investment
businesses. With the acquisition of Numeric, we have created a
leading global quantitative investment management business with
over $30 billion of assets managed across a full range of
alternative and long only strategies. At GLG, we hired a number of
new teams for our discretionary alternative and long only business,
including Rory Powe in European long only equities, Pierre Henri
Flamand in the Event-driven space and several new hires into our
Equity Long Short strategy. Furthermore, through the acquisition of
Silvermine we added a significant leveraged loan capability to GLG.
At FRM, we have made strides in building our Managed Accounts
business with a substantial new mandate from a large institution
which will fund in the course of 2015. In addition, we have
enhanced FRM's business with credit fund of fund capabilities
through the acquisition of Pine Grove and an important new
distribution relationship with Bank of America Merrill Lynch (BAML)
through the acquisition of its fund of hedge fund business.
From a distribution perspective there were $3.3 billion of net
inflows in the course of the year. Gross sales increased 36%
year-on-year, with strong performance in particular in the EMEA
region. We continue to develop our capability in North America, and
reorientate our businesses in Asia Pacific more towards
institutional clients, whilst retaining optionality in retail
channels. We are making progress in these markets, but meaningful
results will take a number of years. That said, through organic
growth and acquisitions, our North American business is now a
significant part of the Group, with $18.5 billion of assets (25%)
run from teams based in North America, and $12.1 billion of assets
(17%) run on behalf of clients based there.
From an efficiency perspective, we continued our progress with
respect to our cost base and balance sheet. We completed our $270
million cost saving programme, with original targets set for 2015
achieved ahead of schedule in the course of 2014. We also further
enhanced the efficiency of our balance sheet, returning $115
million of capital through a share repurchase and expanding our
seed capital programme financed by a new issue of $150 million of
lower Tier 2 capital.
Market overview
2014 was characterised by volatile market conditions and a
breakdown in correlations between asset classes. As a result,
returns across markets were varied with the S&P 500 up 11.4%,
bringing US equities close to all-time highs, the TOPIX up 10.3%
and at a seven year high, and world bonds and corporate bonds up
8.4% and 17.3% respectively. By contrast European, emerging markets
and energy markets suffered with the FTSE 100 down 2.7%, the MSCI
emerging markets index down 2.2% and oil prices starting a downward
trend in the second half of the year reaching five year lows at the
end of the year.
The hedge fund industry overall had a negative 2014 with the
HFRX Global Hedge Fund Index ending the year down 58bps. There were
a range of returns across strategies and the top performing
strategy was Managed Futures, due to strong trends across asset
classes in the second half of the year. Credit long short managers
started the year well, but the second half of the year was more
challenging. Concerns over the eventual timing of rate hikes in the
US weighed on sentiment, and alpha generation dried up with few
single name credit moves working well. Equity managers had a
challenging year. In Europe, frequent mid-month risk reversals
meant managers' risk management policies
CEO'S PERFORMANCE REVIEW (Cont'd)
contributed to underperformance, while in the US there were at
least two bouts of sector rotation that weighed on returns.
2014 results
In this context performance in 2014 was mixed amongst Man
Group's range of strategies. AHL's momentum based strategies
benefited from trends in fixed income markets and delivered very
strong returns, whilst by contrast GLG's Equity Long Short
strategies had a difficult second quarter impacted by the move from
growth to value in technology stocks, ending the year with negative
peformance. Flows were positive in the year, with particularly
robust sales in the first and second quarters, linked primarily to
the strong performance at GLG in 2013. The solid flows during the
year and the acquisitions of Numeric and Pine Grove drove a 35%
increase in funds under management to $72.9 billion at 31 December
2014. Adjusted profit before tax increased by 62% with strong
performance fees from AHL, cost savings and lower interest costs
being partially offset by a decline in net management fee revenues
largely as a result of the roll-off of our legacy guaranteed
products and a mix shift from retail to institutional FUM in our
quantitative alternatives business.
Progress against strategic priorities - Performance and
growth
During 2014 we have made significant progress in creating a more
diversified group with multiple options for growth, as explained
below.
AHL
2014 has been an exciting year at AHL yielding excellent
performance, which drove a 21% increase in FUM, interesting
research and new fund launches.
Whilst AHL's traditional momentum programmes (AHL Alpha and AHL
Diversified) have suffered in recent years at the hands of
unprecedented levels of central bank intervention and increased
correlation across markets, 2014 saw this change. The re-emergence
of trends across AHL's core markets and correlation lower than it
has been at any time post the Global Financial Crisis created a
near perfect environment for trend-followers. As a result, the AHL
Alpha strategy returned 22.8% and the higher volatility AHL
Diversified strategy was up 33.8%. Long fixed income exposure led
the way as yields continued to fall, with further gains coming as a
strengthening US economy benefited the strategies' long USD
exposure. News in the final months of 2014 was dominated by the
continued decline in oil prices, a trend that paid off well for the
funds' short position.
Once again, AHL Evolution had a strong year returning 20.3% and,
following another year of significant inflows, it was soft closed
in September 2014, with assets standing at $2.8 billion. AHL's
multi-strategy programme, AHL Dimension, generated 16.7% in 2014
taking advantage of both trending markets, but also the
diversification brought from the programme's fundamental and
technical strategies. Assets doubled over the year with a mix of
inflows from new and existing investors. Performance of the
specialist strategies was mixed over the year. Despite the Alpha
Capture funds generally performing well, they were below benchmark
for the year. However, the Tail Protect strategy outperformed its
benchmark and the AHL Currency strategy was up 58.0% for the
year.
The AHL business continues to win institutional mandates and
there has been a significant shift from retail to institutional
investors over the last few years. We broadened our UCITS range in
2014, adding directional equity, volatility, multi-strategy and
risk parity funds to our existing multi-asset momentum offering.
2014 was also an exciting year for partnerships with the launch of
two new funds in two very different jurisdictions. First off was a
40-Act product (a retail alternatives product sold to US investors)
launched in partnership with American Beacon in the US, providing
access to the multi-billion dollar mutual fund market. Later in the
year came a dedicated product for the onshore China market which
trades momentum on a number of Chinese futures markets.
FRM
FRM's assets decreased by 6% during the year with net outflows
being partially offset by the inclusion of Pine Grove's assets.
CEO'S PERFORMANCE REVIEW (Cont'd)
From a performance perspective FRM's quantitative strategies
outperformed their discretionary strategies in 2014, with both
managed futures and statistical arbitrage managers ending the year
with strong returns. The performance in FRM's Diversified
portfolios was positive, but marginally below target with the FRM
Diversified II strategy up 2.7%. Portfolios investing via managed
accounts with higher concentration performed better and client
specific portfolios performed broadly in line with commingled
portfolios. Thematic portfolio performance was strong, with the
managed futures portfolio having its strongest annual performance
since 2008 (the FRM Sigma strategy was up 22.2%) and the
Statistical Arbitrage portfolio enjoying another mid-single digit
positive year (the FRM Equity Alpha strategy was up 6.4%).
2014 has seen a number of positive developments at FRM. Firstly
in early June we announced the acquisition of Pine Grove, a
US-based fund of hedge fund manager specialising in the management
of credit-focused hedge fund portfolios with approximately $1.0
billion of assets under management. Pine Grove will further enhance
our presence in the US and add to FRM's fund of hedge funds
business, reinforcing our efforts to offer clients a wide variety
of investment opportunities including SEC-registered US 40 Act
funds and complementary fund of hedge fund products. Secondly,
following on from its launch in late 2013, the second phase of our
risk and transparency reporting software for managed accounts has
continued to extend the service we can offer to managed account
platform investors. This is now increasingly recognised by the
market place and new mandates are being won in a highly competitive
market.
Finally, in December 2014 we announced that Merrill Lynch had
selected FRM as the steward of its $1.2 billion portfolio of
multi-strategy and strategy-focused funds, supported by a proven
distribution platform. We look forward to continuing to deliver
high quality products and services to Merrill Lynch's clients,
while expanding the investor base globally as investors
increasingly seek exposure to alternative investments through
managers like Man Group.
GLG
GLG's assets increased slightly during the year with strong
inflows, particularly in the first half of the year, being offset
by currency movements.
Performance across GLG's range of strategies was mixed in 2014.
In equities, GLG's Equity Long Short strategies had a weak year in
2014 with performance ranging from +4.2% to -6.3%. In particular
the largest long short strategy had a difficult second quarter,
with the factor rotation in technology stocks being a key driver in
the underperformance. GLG's equity long only strategies performed
well in 2014. The Japan CoreAlpha strategy was up 7.7%, slightly
below its benchmark, whilst the European and UK equity strategies
were well ahead of their respective benchmarks. The Undervalued
Asset strategy was up 3.7% compared to the FTSE All Share Index
which was up 1.2%, whilst the European Equity long only strategy
was up 7.8% compared to the MSCI Europe Index which was up
4.5%.
The majority of GLG's credit strategies started the year well
but experienced a difficult third quarter and were not able to
regain ground in the remainder of the year resulting in Euro
Distressed being down 4.6% and Market Neutral being down 7.4%. The
Cross Asset Value strategy (CRAVE) had a better year ending up
4.7%. The Strategic Bond strategy was up 4.5% well ahead of its
LIBOR benchmark.
Throughout the year we continued to look for talent to broaden
out the alternatives and long only product offering. On the
alternatives side, Pierre-Henri Flamand joined at the beginning of
June and is focused on a global catalyst-driven strategy across the
capital structure and we added several new hires into our Equity
Long Short strategy. In our long only business, Rory Powe joined
the European equity team managing a focused European equity long
only strategy.
In January 2015 we completed the acquisition of Silvermine, a
Connecticut-based leveraged loan manager with $3.8 billion of funds
under management across nine active collateralised loan obligation
(CLO) structures. The acquisition of Silvermine will further expand
our existing credit business and position us to benefit from strong
demand for US CLOs and other credit strategies. As part of Man
Group, Silvermine will benefit from our infrastructure,
distribution and access to capital and the acquisition will bring
meaningful advantages to our investors by further diversifying our
offering.
CEO'S PERFORMANCE REVIEW (Cont'd)
Numeric
In September 2014 we completed the acquisition of Numeric, a
Boston-based quantitative equity manager with $16.7 billion of
funds under management across a range of long only and long short,
fundamentally based strategies. Numeric has an excellent track
record of performance across these strategies and has seen
substantial growth over the past two years.
Numeric manages four main categories of equity strategies across
long only and alternatives: Global long only with $9.1 billion of
assets, Emerging markets long only with $2.0 billion of assets, US
long only with $4.2 billion of assets and long short with $1.4
billion of assets. The $1.4 billion in alternatives are
predominantly invested in multi-strategy and market neutral
strategies. Numeric's fundamentally-driven systematic investment
process seeks to outperform the market by buying inexpensive stocks
with improving fundamentals and catalysts for growth. The firm
generates alpha by outperforming regional and global benchmarks in
the US, Europe, Japan and Emerging Markets, and by delivering
returns from its long short market neutral strategies. Numeric
manage assets for institutional clients globally, including
corporate and public pension plans, foundations, endowments, and
sovereign funds.
One of Man Group's core strategic objectives is to build a
broader-based quantitative platform across alternatives and long
only, momentum, technical and fundamental strategies. The
acquisition advances this objective by creating a diversified,
global quantitative investment management platform comprising AHL
and Numeric with over $30 billion of funds under management with a
balance between value, momentum and technical based strategies.
Another of our core strategic objectives is to expand our presence
in the US. The addition of the Numeric business helps us to
establish a credible investment footprint in North America, through
a recognised brand, a presence in an important investment centre
and relationships with over 25 US-based institutional clients.
In addition, Numeric's strong investment track record of
relative and absolute performance and the scalability of their wide
range of long only and market neutral strategies provide the
opportunity to leverage Man Group's global distribution capability
to grow Numeric's asset base over time. The firm has a highly
experienced and well regarded team and there is a strong cultural
fit with Man Group. The Numeric management team is led by Mike Even
who is the Chief Executive Officer, Robert Furdak who is Co-CIO and
Director of Portfolio management and Shanta Puchtler who is Co-CIO
and Director of Research. Together these individuals are
responsible for the ongoing management of the Numeric business
within the enlarged group and Mike and Shanta have been appointed
to Man Group's Executive Committee.
From the point of acquisition in September 2014 to the end of
the year Numeric's assets grew by 10% driven by strong sales into
their long only and alternatives strategies.
From a performance point of view, Numeric had a very good 2014.
Since Numeric manages a variety of strategies that encompass many
markets it is hard to make sweeping generalisations, but Numeric's
average client portfolio out-performed its benchmark by 3% before
fees. The stronger performing strategies for 2014 were the active
extension (130/30) strategies that outpaced their respective
benchmarks by double-digit percentages, before fees. This
out-performance adds to a strong long-term performance track record
for Numeric's strategies and based on annualised returns, over 90%
of Numeric's current quantitative strategies have historically
outperformed their selected benchmark over one, three and five
years(1) .
No change has been made to Numeric's investment committee or
investment process as a result of the acquisition however work has
already begun to take advantage of various Man Group
capabilities.
Note:
1 Not all current strategies have performance track records for
the full three and five year periods, but they have outperformed
their selected benchmark for the periods during which they
existed.
CEO'S PERFORMANCE REVIEW (Cont'd)
Current efforts include integration of infrastructure,
globalisation of compliance efforts, research collaboration with
the Group's other investment businesses and leveraging some of its
technology and distribution capabilities.
Progress against strategic priorities - Distribution
effectiveness
The flow picture improved from 2013 with net inflows of $3.3
billion in the year. Gross sales were $21.9 billion, an increase of
36% compared to 2013 with the increase coming from flows into GLG
alternatives and long only strategies linked to strong performance
in 2013, as well as sales of Numeric products post acquisition. The
majority of the demand continues to come from institutions with
institutional sales constituting 63% of total sales. As a result
our flows are becoming much more lumpy in nature and one or two
mandates can skew the quarterly numbers significantly. The large
institutional sales during 2014 included $1.0 billion into the GLG
European Long Short strategy, $1.0 billion into a bespoke AHL
mandate, $0.8 billion into the GLG Strategic Bond strategy, $0.7
billion into an FRM managed account and $0.5 billion into AHL
Dimension. Redemptions were $18.6 billion in the year, down from
$19.7 billion in 2013 but reflecting mixed levels of absolute
investment performance across the product range.
At AHL the marketing of the Evolution strategy continued to
progress well with sales of $1.5 billion during the year and we
started marketing the Dimension strategy raising $500 million from
an institutional client in the first half of the year. Despite the
strong performance across the AHL product range in 2014 we do not
expect to see a meaningful pick-up in retail demand for our
traditional momentum products until later in 2015, providing
performance holds. Currently early stage interest is coming from
institutions and the AHL business has seen a significant shift from
retail to institutional investors over the past few years.
We saw significant growth in GLG assets in the first half of
2014 off the back of good performance in 2013 with continued flows
into strategies that sold well in 2013 including European Long
Short, Japan CoreAlpha and Euro Distressed. In addition, following
strong performance since launch in November 2011 $2.0 billion was
raised into the Strategic and Flexible Bond strategies during the
year, $600 million was raised into the Global Long Short strategy
which launched in October 2013, $300 million into the Undervalued
Asset strategy and $200 million into CRAVE which has reached its
target level of asset raising following strong performance in
2013.
At FRM we have made progress in the managed accounts business
with $1.5 billion of sales in 2014 and we have a substantial new
mandate from a large institution which will fund in the course of
2015. In Japan, where the client interest is for direct
co-investment into our existing platform, we raised $700 million
into FRM diversified strategies. Redemptions from the legacy multi
manager business which totalled $1.7 billion in the year continue
to be a drag on the business and other redemptions of $2.6 billion
resulted in a net outflow at FRM in the year.
Asset raising at Numeric continues to progress well and since
acquisition $2.1 billion of assets have been sold into their
various strategies. We are developing a number of UCITS strategies
for sale to high net worth and institutional clients around
Europe.
The US remains a key focus for us from a distribution
perspective and, as outlined earlier, the Numeric, Pine Grove,
Silvermine and BAML acquisitions will help us with this effort,
with Numeric in particular adding presence in an important
investment centre and relationships with a range of institutional
clients.
We continue to restructure our retail distribution
infrastructure and during the year our retail sales offices in
Canada and the Netherlands were sold to the management teams in
those regions. We maintain a strong ongoing relationship with these
teams enabling us to continue to sell Man Group products through
these channels.
CEO'S PERFORMANCE REVIEW (Cont'd)
Progress against strategic objectives - Efficiency
The cost savings programme announced in 2012 and 2013 was
completed during the year. 2014 total fixed costs were $297 million
(excluding one quarter's costs for Pine Grove and Numeric), versus
the $305 million like-for-like target set for 2015. 2014 fixed
compensation costs (excluding Numeric and Pine Grove) were $151
million, versus the $161 million target for 2014. 2014 other cash
costs (excluding Numeric and Pine Grove) were $146 million, versus
the $169 million target for 2014. Underlying cost saving targets
for 2015 remain unchanged, despite being ahead of schedule versus
the targets for 2014.
The inclusion of the fixed costs related to the acquisitions of
Numeric, Pine Grove, the BAML fund of funds and Silvermine and the
effect of Sterling weakness against the US Dollar, give a pro-forma
cost base of $370 million for 2015. We feel we are running the
business as efficiently as is appropriate given the range of
opportunities we are pursuing and going forward, we do not expect
any further reductions in our fixed cost base unless there is a
material change in our operating performance or business
environment.
Our balance sheet remains strong and liquid with net tangible
assets of $0.8 billion or 48 cents per share at 31 December 2014.
Gross cash was $0.7 billion compared to $1.0 billion at the end of
2013 and the committed revolving credit facility of $1,525 million
is available and undrawn. In September 2014 we issued $150 million
of Tier 2 debt to fund the expansion of our seeding programme. We
completed the $115 million share repurchase announced in February
2014 at an average price of 99.7 pence, buying back 68.8 million
shares. Surplus capital at 31 December 2014 was $419 million with
the majority of the decrease from the December 2013 position of
$760 million being due to the acquisitions of Numeric and Pine
Grove which utilised $345 million of surplus capital.
Objectives for 2015
Performance
-- Continued focus on research at AHL to build new markets and asset classes
-- Collaboration between AHL and Numeric to further enhance research efforts in both managers
-- Focus on improving areas of underperformance in GLG alternatives strategies in 2014
Growth
-- Continue to develop additional momentum and non-momentum products at AHL
-- Continue to look for high-calibre investment talent at GLG to
support the growth of our existing products as well as to support
the expansion of our alternatives and long only product
offering
-- Continue to look at other possible bolt-on acquisitions
ensuring that we remain disciplined on price, structure and
cultural fit
Distribution
-- Market AHL's momentum strategies off the back of strong performance in 2014
-- Develop and launch UCITS products at Numeric to build track
records and market to investors over time
-- Leverage Man Group's global distribution capability to grow assets in acquired businesses
-- Continue to improve coverage and asset raising in the US
Efficiency
-- Focus on sustaining our efficiency and ensuring that our cost
base enables us to address the risks and opportunities in our
business appropriately
-- Integrate the operational functions of our acquired businesses
-- Maintain focus on balance sheet efficiency including ensuring
our seeding portfolio is managed effectively
CFO'S FINANCIAL REVIEW
In 2014 we have seen the benefits of the progress on the
delivery of our strategy with improved profitability, a full year
of net inflows and growth in FUM.
Overview
Our financial results in 2014 reflect the strong run of absolute
performance from AHL's traditional momentum strategies, which more
than compensated for mixed performance in GLG's discretionary
alternative strategies, together with the acquisitions of Numeric
and Pine Grove in the second half of the year.
Funds under management (FUM) increased by 35% from $54.1 billion
at the beginning of the year to $72.9 billion at 31 December 2014.
We added $16.2 billion of FUM through the acquisitions of Numeric
and Pine Grove, and the remainder of the increase in FUM reflects
net inflows in every quarter of the year ($3.3 billion) and
positive investment performance ($3.6 billion), partly offset by
significantly adverse foreign currency movements ($4.3
billion).
Net management fee revenues decreased by 14% from $822 million
in prior year to $706 million in 2014, and performance fee revenues
have increased by 76% from $193 million to $340 million, 80% of
which were generated by AHL. As expected, management fee margins
for our quant alternative products declined during the year given a
mix shift towards lower margin institutional assets and, coupled
with the continuing mix shift away from the high margin guaranteed
products, this resulted in the average net management fee margin
decreasing by 36 basis points from the prior year.
Total costs were down 17%, and within this total fixed costs
were down 20% due to the continued implementation of the Group's
cost savings programme. As a result of these revenue and cost
drivers, our adjusted profit before tax was $481 million, up 62%
from the prior year, and adjusted diluted earnings per share were
24.4 cents (2013: 14.1 cents). Our statutory profit before tax was
$384 million (2013: $56 million), reflecting adjusting items of $97
million, which primarily relate to amortisation of purchased
intangible assets and acquisition related costs.
Strategically, we are focused on operating our business as
efficiently as possible and managing our balance sheet effectively,
whilst maintaining its strength and liquidity. We have made
significant progress in respect of these two objectives during
2014.
We have completed the execution of our cost savings programme
ahead of schedule, delivering our 2015 target fixed cost base
during the second half of 2014. Total fixed costs in H2 2014,
excluding Numeric and Pine Grove, were $143 million, or $286
million on an annualised basis, versus a target for 2015 of $305
million. We believe we are operating our business as efficiently as
is appropriate for the set of business opportunities we are
pursuing and no additional reductions are expected unless there are
changes in operating performance or the business environment.
Our balance sheet continues to be strong and liquid, with a
regulatory capital surplus of $419 million at 31 December 2014 and
a net cash position of $589 million. During the year we continued
to enhance the efficiency of our capital and funding. In the first
half, we executed a $115 million share repurchase, acquiring 4% of
our issued share capital, whilst in the second half, we financed
the expansion of our seed capital activity with the issuance of
$150 million of lower Tier 2 capital.
Key performance indicators (KPIs)
Our financial KPIs illustrate and measure the relationship
between the investment experience of our fund investors, our
financial performance and the creation of shareholder value over
time. Our KPIs are used on a regular basis to evaluate progress
against our four key priorities: performance, growth, distribution,
and efficiency.
The results of our KPIs this year again reflect a volatile
operating environment, with stronger investment performance for AHL
and weaker performance for GLG, but an improvement in net flows off
the back of strong GLG performance in 2013. The general product mix
shift from higher margin retail assets to lower margin
institutional assets has continued to have an adverse impact on
management fee margins and revenue, but the continued reduction in
our cost base has reduced the impact on our profitability and EPS
growth.
CFO'S FINANCIAL REVIEW (Cont'd)
The investment performance KPI measures the net investment
performance for our three managers (AHL, GLG, and FRM), represented
by key funds, against relevant benchmarks. The target for this KPI
is to exceed the relevant benchmarks. The key funds and the
relevant benchmarks are AHL Diversified vs. three key peer asset
managers for AHL (the target being to beat two of the three peers),
the GLG Alternative Strategies Dollar-Weighted Composite vs. HFRX
for GLG and FRM Diversified II vs. HFRI Fund of Funds Conservative
Index for FRM. The performance of the key funds compared to the
benchmarks gives an indication of the competitiveness of our
investment performance against similar alternative investment
styles offered by other investment managers. This measures our
ability to deliver superior long-term performance to investors. We
achieved one out of the three performance targets. AHL met the
target for 2014 as the performance of its key fund exceeded all
three of the relevant peer benchmarks. FRM and GLG were both below
the benchmark in 2014. Further investment performance information
is provided on pages 7 to 14.
The second KPI measures net FUM flows for the period as a
percentage of opening FUM, with net flows defined as gross sales
less gross redemptions. The target is 0%-10% net inflows each year.
Net flows are the measure of our ability to attract and retain
investor capital. FUM drives our financial performance in terms of
our ability to earn management fees. Net flows were within the
target range in 2014 with a net inflow of 6.1%, compared to a net
outflow of 6.3% for the year to 31 December 2013. The improvement
in flows in 2014 reflects strong asset raising in GLG products in
the first half of the year off the back of strong performance in
2013, as well as inflows into Numeric and AHL products in the
second half of the year.
The third KPI measures adjusted management fee EBITDA as a
percentage of net revenues (gross management fee revenue and income
from associates less external cash distribution costs). The target
is 25%-40%. Our adjusted management fee EBITDA margin is a measure
of our underlying profitability. The adjusted management fee EBITDA
margin of 30.3% was within the target range for the year ended 31
December 2014. This margin has been declining as a result of the
roll off of higher margin guaranteed product FUM and the general
product mix shift from higher margin retail assets to lower margin
institutional assets.
The fourth KPI measures our adjusted management fee EPS growth,
where adjusted management fee EPS is calculated using post-tax
profits excluding net performance fees, divided by the weighted
average diluted number of shares. The target is growth of 0%-20% +
RPI each year. Adjusted management fee EPS growth measures the
overall effectiveness of our business model, and drives both our
dividend policy and the value generated for shareholders. The
adjusted management fee EPS growth of 28% was above the target
range for 2014 (target of 0%-20% plus RPI of 1.6%), compared to
-14% in 2013, which has increased primarily as a result of the
significant reduction in costs, including lower finance expense,
and to a lesser extent the acquisitions of Numeric and Pine Grove
and the share repurchase programme undertaken in the first half of
the year.
CFO'S FINANCIAL REVIEW (Cont'd)
Funds Under Management (FUM)
Alternative Long only
-------------------------------------- ------------------------
Quant Fund of Quant Total
(AHL/ Discretionary funds (AHL/ Discretionary excluding
$bn Numeric) (GLG) (FRM) Numeric) (GLG) Guaranteed Guaranteed Total
------------------- --------- ------------- ------------ --------- ------------- ----------- ---------- ------
FUM at 31 December
2013 8.9 16.3 11.3 1.5 13.8 51.8 2.3 54.1
Sales 3.6 7.2 2.3 2.3 6.5 21.9 - 21.9
Redemptions (2.8) (5.9) (4.3) (0.5) (4.4) (17.9) (0.7) (18.6)
------------------- --------- ------------- ------------ --------- ------------- ----------- ---------- ------
Net
inflows/(outflows) 0.8 1.3 (2.0) 1.8 2.1 4.0 (0.7) 3.3
Investment movement 2.3 (0.5) 0.7 - 0.8 3.3 0.3 3.6
Foreign currency
movement (0.4) (1.3) (0.5) (0.7) (1.2) (4.1) (0.2) (4.3)
De-gearing and
other movements 0.2 (1.3) 0.3 - 0.5 (0.3) 0.3 -
Acquisition of
Numeric and Pine
Grove 1.1 - 1.0 14.1 - 16.2 - 16.2
------------------- --------- ------------- ------------ --------- ------------- ----------- ---------- ------
FUM at 31 December
2014 12.9 14.5 10.8 16.7 16.0 70.9 2.0 72.9
------------------- --------- ------------- ------------ --------- ------------- ----------- ---------- ------
Gross management
fee margin for
year ended 31
December 2014 2.2% 1.4% 0.9% 0.3% 0.9% 1.2% 5.2% 1.3%
------------------- --------- ------------- ------------ --------- ------------- ----------- ---------- ------
Gross management
fee margin for
year ended 31
December 2013 2.8% 1.4% 1.0% 0.3% 1.0% 1.5% 5.2% 1.8%
------------------- --------- ------------- ------------ --------- ------------- ----------- ---------- ------
Net management fee
margin for year
ended 31 December
2014 1.9% 1.2% 0.9% 0.3% 0.7% 1.1% 4.1% 1.1%
------------------- --------- ------------- ------------ --------- ------------- ----------- ---------- ------
Net management fee
margin for year
ended 31 December
2013 2.3% 1.2% 0.9% 0.3% 0.7% 1.2% 4.4% 1.5%
------------------- --------- ------------- ------------ --------- ------------- ----------- ---------- ------
Total FUM increased by $18.8 billion during the year, with the
acquisition of Numeric and Pine Grove adding $16.2 billion of
assets in Q3 2014. The remaining increase of $2.6 billion is a
result of positive investment performance of $3.6 billion and net
inflows of $3.3 billion, partly offset by negative foreign exchange
movements of $4.3 billion (due to the fact that 46% of the Group's
closing FUM is in non-US Dollar currencies).
Quant alternative products (AHL/Numeric)
Quant alternative FUM increased by 45% to $12.9 billion during
the year to 31 December 2014, primarily as a result of positive
investment performance of $2.3 billion and the acquisition of
Numeric, which added $1.1 billion. Sales were $3.6 billion, which
included a significant investment by a large institutional Asia
Pacific investor into a bespoke AHL mandate, $1.5 billion into AHL
Evolution, $500 million into AHL Dimension and $300 million into
various of Numeric's alternative strategies. The majority of the
redemptions of $2.8 billion were from retail investors in AHL
Diversified and AHL Alpha. AHL's main programmes were up between
16.7% and 33.8% in the year, which resulted in positive investment
performance of $2.3 billion. At 31 December 2014, 75% of quant
alternative FUM was denominated in US Dollars and 11% was in
Australian Dollars.
CFO'S FINANCIAL REVIEW (Cont'd)
Discretionary alternative products (GLG)
Discretionary alternatives FUM decreased by $1.8 billion during
the year. Net inflows of $1.3 billion were mainly into fixed income
and Equity Long Short strategies in the first half of the year
linked to strong performance in 2013. Negative foreign exchange
movements of $1.3 billion related primarily to the strengthening of
the US Dollar against the Euro and Sterling. At 31 December 2014,
45% of Discretionary alternative FUM was denominated in US Dollars,
49% was in Euro and 3% was in Sterling. The negative investment
performance of $500 million was primarily in relation to equity
long short strategies. The negative other movements of $1.3 billion
relate to $900 million of Pemba and Ore Hill maturities during the
year and a $400 million reclassification to Discretionary long
only.
Fund of funds products (FRM)
Fund of funds FUM has remained broadly flat this year. Sales of
$2.3 billion included $700 million from one client into a separate
managed account and $500 million into infrastructure mandates.
Redemptions of $4.3 billion included $1.7 billion from legacy Man
Multi-Manager products and $1.0 billion from two institutional
clients in other FRM products. The negative foreign exchange
movements of $500 million related primarily to the strengthening of
the US Dollar against the Japanese Yen and Euro. At 31 December
2014, 45% of alternative fund of fund FUM was denominated in US
Dollars, 36% in Yen and 14% was in Euro. Positive investment
performance across FRM's strategies added $700 million to FUM
during the year, of which the largest contributor was FRM
Diversified II, which was up 2.7% for the year. The acquisition of
Pine Grove in August 2014 added $1.0 billion of FUM and there were
positive other movements of $300 million in the year.
Quant long only products (AHL/Numeric)
Quant long only FUM increased by $15.2 billion during the year
to $16.7 billion, primarily as a result of the acquisition of
Numeric in September 2014, which added $14.1 billion of assets at
acquisition. Net inflows were $1.8 billion for the year, of which
$1.6 billion related to Numeric. Negative foreign exchange
movements decreased FUM by $700 million primarily due to the
strengthening of the US Dollar against the Euro. At 31 December
2014, 97% of quant long only FUM was denominated in US Dollars and
3% was in Euro.
Discretionary long only (GLG)
Discretionary long only FUM increased 16% to $16.0 billion
during the year, driven by net inflows of $2.1 billion. Sales were
$6.5 billion and included $3.8 billion into Japan CoreAlpha and
$2.7 billion into other long only strategies, including $2.0
billion into the Strategic and Flexible Bond strategies.
Redemptions were $4.4 billion, the majority of which were from the
Japan CoreAlpha strategy. The positive investment performance of
$800 million was primarily as a result of strong investment
performance from Japan CoreAlpha. Positive other movements of $500
million primarily related to a reclassification from Discretionary
alternatives. Negative foreign exchange movements of $1.2 billion
related to the strengthening of the US Dollar against the Sterling
and Japanese Yen. At 31 December 2014, 55% of discretionary long
only FUM was denominated in Sterling, 29% was in Yen and 10% was in
US Dollars.
Guaranteed products
Guaranteed product FUM, our highest margin product grouping,
declined from $2.3 billion at 31 December 2013 to $2.0 billion in
2014. Average FUM in this category was $1.8 billion in 2014
compared to $4.6 billion in 2013, which continued to have a
negative impact on revenues. There were no sales during the year
and redemptions totalled $500 million. The weighted average life to
maturity of the guaranteed product range is 4.5 years, with $400
million scheduled to mature in 2015 and $400 million in 2016.
Investment performance for guaranteed products was positive during
the year, resulting in a $300 million increase in FUM. The other
movements of $300 million primarily related to guaranteed product
re-gears as a result of positive investment performance. Negative
foreign exchange movements reduced FUM by $200 million.
CFO'S FINANCIAL REVIEW (Cont'd)
Summary income statement
$m Year ended 31 December 2014 Year ended 31 December 2013
----------------------------------------------------- --------------------------- ---------------------------
Management and other fees 810 967
Performance fees (including investment income/gains) 367 223
Share of after tax profit of associates 9 12
Distribution costs (104) (145)
----------------------------------------------------- --------------------------- ---------------------------
Net revenue 1,082 1,057
----------------------------------------------------- --------------------------- ---------------------------
Asset servicing (27) (32)
Compensation (391) (445)
Other costs (174) (238)
----------------------------------------------------- --------------------------- ---------------------------
Total costs (592) (715)
----------------------------------------------------- --------------------------- ---------------------------
Net finance expense (9) (45)
----------------------------------------------------- --------------------------- ---------------------------
Adjusted profit before tax 481 297
----------------------------------------------------- --------------------------- ---------------------------
Adjusting items (97) (241)
----------------------------------------------------- --------------------------- ---------------------------
Statutory profit before tax 384 56
----------------------------------------------------- --------------------------- ---------------------------
Net management fees 198 175
Net performance fees 283 122
----------------------------------------------------- --------------------------- ---------------------------
Diluted EPS (statutory) 20.5 cents 2.9 cents
----------------------------------------------------- --------------------------- ---------------------------
Adjusted net management fee EPS 10.1 cents 7.9 cents
----------------------------------------------------- --------------------------- ---------------------------
Adjusted diluted EPS 24.4 cents 14.1 cents
----------------------------------------------------- --------------------------- ---------------------------
Gross management fees and margins
Gross management fees were $810 million for the year ended 31
December 2014 compared to $967 million for the previous year. While
average assets went up year-on-year, in aggregate the total gross
margin decreased from 177 basis points for the year ended 31
December 2013 to 131 basis points for the year ended 31 December
2014, which was the main driver of the reduction in gross
management fees. The total net management fee margin (defined as
gross management fees less external distribution costs) has
decreased from 150 basis points to 114 basis points over the same
period. These reductions are due to reduced higher margin
guaranteed product FUM, a mix shift towards institutional assets,
particularly in the alternatives quant category, as well as the
inclusion of Numeric's assets which have a blended margin of around
38 basis points. The reduction in margin is less at the net level
as there are higher distribution costs associated with retail FUM
than institutional FUM. This product mix shift and consequent
reduction in overall margin is likely to continue as we sell more
open ended alternative product, particularly to institutions, and
there are no sales of guaranteed products.
The alternatives quant net management fee margin reduced by 39
basis points compared to the year ended 31 December 2013. This is
due to the fact that over 85% of the redemptions were from
investors in AHL Diversified and AHL Alpha, where the gross margin
was 2% to 4%, whereas the majority of the sales were to
institutional investors into AHL Evolution, AHL Dimension and AHL
Alpha where the margin is 1% to 2%. In addition, the inclusion of
the Numeric quant alternatives assets, which have a lower margin,
has reduced the margin by around 6 basis points. Looking forward,
we expect this mix shift towards institutional assets to continue
and hence the margin to decline further.
CFO'S FINANCIAL REVIEW (Cont'd)
Net management fee margins in the alternative discretionary and
fund of funds categories remained consistent compared to 2013.
Looking forward we would expect the alternatives fund of fund
margin to trend down as we see a greater proportion of sales into
managed account mandates where the margin is 30 to 50 basis
points.
The long only quant net management fee margin has remained
consistent with the prior year at 33 basis points as the Numeric
assets acquired in September 2014 have a similar margin to the
existing long only quant FUM.
The long only discretionary net management fee margin also
remained consistent with 2013.
The guaranteed product net management fee margin has decreased
by 31 basis points compared to the year ended 31 December 2013 as a
result of accelerated amortisation of placement fees related to
redemptions and the net de-gear in the first half of the year.
Excluding the impact of the accelerated amortisation, the net
margin would be 456 basis points versus 446 in 2013.
Net management fee revenue
$m Year ended 31 December 2014 Year ended 31 December 2013
---------------------------- --------------------------- ---------------------------
Quant alternatives 188 226
Discretionary alternatives 207 181
Fund of fund alternatives 96 119
Quant long only 20 5
Discretionary long only 109 79
Guaranteed 73 202
Other income(1) 13 10
---------------------------- --------------------------- ---------------------------
Net management fee revenues 706 822
---------------------------- --------------------------- ---------------------------
(1) Other income primarily relates to distribution income from
externally managed products.
Performance fees (including investment income/gains)
Gross performance fees for the year were $340 million, $272
million from AHL (including $25 million relating to guaranteed
products), $37 million from GLG, $23 million from Numeric and $8
million from FRM. Numeric performance fees included $9 million of
performance fees that were accrued but uncrystallised at the point
of completion of the acquisition. At 31 December 2014, around 97%
of AHL open ended products ($11.2 billion) were above performance
fee high water mark and of the $6.2 billion performance fee
eligible Numeric products, 98% were outperforming the relevant
benchmark at 31 December 2014. Around 11% of eligible GLG assets
($1.5 billion) were above high water mark and around a further 48%
($6.4 billion) within 5% of earning performance fees, and FRM
performance fee eligible products were on average approximately 3%
below high water mark.
Man Group benefits from a portfolio of performance fee streams
across a variety of strategies that are charged on a regular basis
at different points in the year. 90% of AHL FUM is performance fee
eligible, of which 64% have performance fees that crystallise
annually, 22% daily or weekly, and 14% monthly. The majority of
GLG's performance fees crystallise semi-annually in June or
December. Around 50% of Numeric performance fee eligible FUM
crystallises annually in November, with the remainder crystallising
at various points during the year.
Investment gains of $27 million primarily relate to gains on
seed investments.
CFO'S FINANCIAL REVIEW (Cont'd)
Distribution costs
Distribution costs comprised $89 million of investor servicing
fees and $15 million of placement fees.
Investor servicing fees are paid to intermediaries for ongoing
investor servicing. Servicing fees have decreased from $130 million
in 2013 to $89 million in 2014 primarily as a result of the
roll-off of guaranteed product FUM and a mix shift towards
institutional assets, particularly in the alternatives quant
category.
Placement fees are paid for product launches or sales and are
capitalised and amortised over two to five years, unless the FUM is
redeemed or the placement fee is deemed to be impaired as a result
of negative investment performance and de-gearing. Capitalised
placement fees at 31 December 2014 were $5 million, down from $20
million in the prior year, with a weighted average remaining
amortisation period of 1.9 years. The reduction in capitalised
placement fees is due to the amortisation charge recognised for the
period, early redemptions of guaranteed products and limited new
payments.
Asset servicing
Asset servicing costs (including custodial, valuation, fund
accounting and registrar functions) were $27 million (2013: $32
million). Asset servicing costs equate to around 4 basis points on
FUM and vary depending on transaction volumes, the number of funds,
and fund NAVs. The reduction in asset servicing costs, despite an
increase in average FUM, is primarily a result of contract
renegotiations in the latter half of 2014.
Compensation costs
Compensation costs comprise fixed base salaries, benefits,
variable bonus compensation (cash and amortisation of deferred
compensation arrangements) and associated social security costs.
Compensation costs in total, excluding adjusting items, were 36% of
net revenue, down from 42% in the previous year due to a lower
proportion of GLG revenues, in particular in relation to
performance fees.
Fixed compensation and benefits were $155 million for the year
compared to $188 million for the year to 31 December 2013, a
reduction of 18%. The $33 million decrease in fixed compensation is
a result of the Group's cost savings initiatives, partially offset
by the inclusion of Numeric and Pine Grove salaries costs since
acquisition of $4 million. Variable compensation costs were $236
million for the year, compared to $257 million for the previous
year. The decrease in variable compensation costs of $21 million is
a result of lower performance fee related compensation, and the
impact of a change in application of the deferred compensation
accounting policy which has a $17 million impact (for further
details see Note 6 to the financial statements). This has been
partially offset by the inclusion of Numeric and Pine Grove bonus
costs of $17 million since acquisition.
Other costs
Other costs, excluding adjusting items, were $174 million for
the year compared to $238 million for the year to 31 December 2013,
a reduction of 27%. These comprise cash costs of $150 million
(2013: $191 million) and depreciation and amortisation of $24
million (2013: $47 million). The $41 million, or 21%, decrease in
cash costs reflects reduced costs as a result of the Group's cost
savings initiatives (see Note 7 to the financial statements), and
the $23 million decrease in depreciation and amortisation is due to
lower capital expenditure in recent years largely as a result of
the integration of business operating platforms, as well as the
acceleration of leasehold improvements and equipment in 2013 due to
the subletting of office space in Riverbank House. There were
additional Other costs in relation to the Numeric and Pine Grove
businesses of $4 million during the year, excluding adjusting items
that were deal-related.
CFO'S FINANCIAL REVIEW (Cont'd)
Net finance expense
Net finance expense, excluding adjusting items, was $9 million
for the year (2013: $45 million). The decrease is largely due to a
$28 million charge relating to debt buybacks made in 2013 and
interest expense on the related debt of $22 million during that
year. This decrease has been partially offset by lower interest
income, due to lower cash balances in 2014, and $3 million of
interest payable on borrowings in relation to the ten-year fixed
rate reset callable guaranteed subordinated notes (Tier 2 capital)
issued in September 2014. Finance expense includes an annual $4
million charge relating to the undrawn revolving credit
facility.
Adjusted profit before taxes
Adjusted profit before tax is $481 million compared to $297
million for the previous year. The adjusting items in the year of
$97 million (pre-tax) are summarised in the table below and
detailed in Note 2 to the financial statements. The directors
consider that the Group's profit is most meaningful when considered
on a basis which excludes restructuring costs, impairment of
assets, acquisition and disposal related items (including non-cash
items such as amortisation of purchased intangible assets and
deferred tax movements relating to the recognition of tax losses in
the US) and certain non-recurring gains or losses, which therefore
reflect the recurring revenues and costs that drive the Group's
cash flows.
Adjusting items
$m Year ended 31 December 2014
--------------------------------------------------------------------------- ---------------------------
Acquisition related restructuring, professional fees and integration costs (12)
Litigation claims (24)
Revaluation of FRM contingent consideration 17
Amortisation of acquired intangible assets (72)
Other adjusting items (6)
--------------------------------------------------------------------------- ---------------------------
Total adjusting items (excluding tax) (97)
--------------------------------------------------------------------------- ---------------------------
Recognition of deferred tax asset (see below) 8
--------------------------------------------------------------------------- ---------------------------
The acquisition costs relate to legal and other advisory fees
largely relating to the Numeric and Pine Grove transactions, as
well as the costs of staff termination and integration of our
operating platforms. Litigation claims include $4 million of legal
fees.
The revaluation of the FRM contingent consideration is an
adjustment to the fair value of expected earn-out payments, while
the amortisation of acquired intangibles primarily relates to GLG,
with charges of $7 million relating to the newly acquired Numeric
and Pine Grove intangibles.
CFO'S FINANCIAL REVIEW (Cont'd)
Net management fees and net performance fees
Net management fees of $198 million, compared to $175 million in
2013, reflect reduced expenses driven by the cost savings
programme, partly offset by lower management fees related to the
reduction in overall gross margin. Net performance fees of $283
million (2013: $122 million) for the year reflect the strong
performance of AHL quant alternative products, partially offset by
lower performance fees from GLG.
$m Year ended 31 December 2014 Year ended 31 December 2013
----------------------------------------------------- --------------------------- ---------------------------
Gross management and other fees 810 967
Share of after tax profit of associates 9 12
Less:
Distribution costs (104) (145)
Asset services (27) (32)
Compensation (310) (344)
Other costs (174) (238)
Net finance expense (6) (45)
----------------------------------------------------- --------------------------- ---------------------------
Net management fees 198 175
----------------------------------------------------- --------------------------- ---------------------------
Performance fees 340 193
Gains on investments and other financial instruments 27 30
Less:
Compensation (81) (101)
Finance expense (3) -
----------------------------------------------------- --------------------------- ---------------------------
Net performance fees 283 122
----------------------------------------------------- --------------------------- ---------------------------
Taxation
In the current year we recognised a tax credit of $30 million in
respect of previous periods, which primarily relates to the
reassessment of tax exposures associated with our Asia Pacific
operations. The effective tax rate on adjusted profit for the year
of 10% has increased from the previous year's rate of 7% primarily
due to these adjustments representing a lower proportion of
adjusted profit before tax than the $34 million tax credit
recognised for 2013, which principally related to the settlement of
tax returns across a number of countries. The tax rate before
adjusting for prior year credits and other reconciling items was
17% (2013: 18%).
We have $191 million of realised US tax losses which we can
offset against the tax on future profits from US entities. In
addition, we have $362 million of goodwill and intangibles,
predominantly relating to the Numeric acquisition, which will be
amortised for tax purposes in the US over 15 years and which will
reduce US taxable profits in future periods. Accordingly, we do not
expect to pay federal tax in the US for a number of years.
Previously the US business as a whole was loss making and
therefore Man did not recognise any of its accumulated $191 million
US tax assets. Man has recognised a deferred tax asset of $8
million in 2014, a credit to the tax expense, as a result of
acquiring Numeric which means that it is likely that the US
business will earn taxable profits in the future. The proportion
recognised relates only to the next three years, consistent with
the Group's business planning horizon. As Man does not expect to
pay federal tax for the foreseeable future, any movements through
the income statement relating to accounting for this deferred tax
are treated as adjusting items.
CFO'S FINANCIAL REVIEW (Cont'd)
Cash earnings (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 our business. The table below gives a
reconciliation of adjusted profit before tax to adjusted EBITDA.
The main differences are net finance expense, depreciation, and
amortisation of placement fees and deferred compensation charges
relating to share and fund product awards. Our adjusted EBITDA/net
revenue margin was 44.8% (2013: 37.5%), which can be divided
between margin on management fees of 30.3% (2013: 36.0%) and
performance fees of 73.8% (2013: 41.7%). The EBITDA management fee
margin has decreased from 2013 due to the general product mix shift
from higher margin retail assets to lower margin institutional
assets, and the EBITDA performance fee margin has increased due to
the majority of net performance fees earned in 2014 relating to AHL
which attract a lower compensation ratio than GLG performance
fees.
Reconciliation of adjusted PBT to adjusted EBITDA
$m Year ended 31 December 2014 Year ended 31 December 2013(1)
--------------------------------------------------------- --------------------------- ------------------------------
Adjusted PBT 481 297
Add back:
Net finance expense 9 45
Depreciation 21 39
Amortisation of capitalised computer software 3 8
Placement fee amortisation 15 15
Current year amortisation of deferred compensation 42 62
Less: Deferred compensation awards relating to the
current year (79) (64)
--------------------------------------------------------- --------------------------- ------------------------------
Adjusted EBITDA 492 402
--------------------------------------------------------- --------------------------- ------------------------------
Note:
1 Adjusted EBITDA has been restated for 2013 to reflect the cash
cost in relation to deferred compensation awards.
Balance sheet
The Group's balance sheet continues to be strong and liquid. At
31 December 2014, total shareholders' equity was $2.4 billion and
net tangible assets were $0.8 billion. Cash and cash equivalents
have decreased during the year largely as a result of the purchase
of Numeric and Pine Grove ($227 million), dividends on ordinary
shares ($163 million), share repurchase and associated costs ($116
million) and an increase in seeding investments ($223 million),
partially offset by seeding redemptions ($89 million), the issuance
of the Tier 2 notes ($149 million including costs) and other cash
inflows from operating activities ($263 million). Goodwill and
other intangibles have increased in 2014 due to the acquisition of
Numeric and Pine Grove, partially offset by amortisation of $72
million.
The issuance of the Tier 2 subordinated notes of $150 million in
September 2014 is expected to result in an annualised pre-tax
interest expense of $9 million from 2015, and has increased the
Group's surplus capital by around $149 million. Associated issuance
costs of $1 million have been capitalised.
CFO'S FINANCIAL REVIEW (Cont'd)
Balance sheet
$m 31 December 2014 31 December 2013
--------------------------------------------------- ---------------- ----------------
Cash and cash equivalents 738 992
Fee and other receivables 396 388
--------------------------------------------------- ---------------- ----------------
Total liquid assets 1,134 1,380
Payables (697) (762)
--------------------------------------------------- ---------------- ----------------
Net liquid assets 437 618
Investments in fund products and other investments 460 323
Pension asset 45 71
Investments in associates 30 31
Leasehold improvements and equipment 52 68
--------------------------------------------------- ---------------- ----------------
Total tangible assets 1,024 1,111
Borrowings (149) -
Deferred tax liability (36) (58)
--------------------------------------------------- ---------------- ----------------
Net tangible assets 839 1,053
Goodwill and other intangibles 1,595 1,354
--------------------------------------------------- ---------------- ----------------
Shareholders' equity 2,434 2,407
--------------------------------------------------- ---------------- ----------------
Liquidity
Operating cash flows were $129 million during the year, with
cash and cash equivalents balances of $738 million at year end. The
working capital movements principally relate to an increase in
seeding investments of $134 million and an increase in fee
receivables at the year end of $72 million, with the remainder
relating primarily to lower compensation accruals and lower
redemption proceeds payable to investors.
$m Year ended 31 December 2014
------------------------------------------------------ ---------------------------
Cash at 31 December 2013 992
Operating cash flows before working capital movements 463
Working capital movements (including seeding) (334)
Payment of dividends (163)
Acquisition of subsidiaries, net of cash acquired (227)
Share repurchase (including costs) (116)
Issuance of Tier 2 notes (including costs) 149
Other movements (26)
------------------------------------------------------ ---------------------------
Cash at 31 December 2014 738
------------------------------------------------------ ---------------------------
The committed revolving credit facility of $1,525 million is
available and undrawn, with $70 million maturing on 22 July 2016,
$120 million maturing on 22 July 2017, and the remainder ($1,335
million) maturing on 22 July 2018. The management of liquidity and
capital are explained in Note 14 and Note 22 to the financial
statements, respectively.
CFO'S FINANCIAL REVIEW (Cont'd)
Going concern
The directors have concluded that there is a reasonable
expectation that Man has adequate resources to continue in
operational existence for the foreseeable future, and have
accordingly prepared the financial statements on a going concern
basis.
Regulatory capital
Man is compliant with the FCA's capital standards and has
maintained significant surplus regulatory capital throughout the
year. At 31 December 2014, surplus regulatory capital over the
regulatory capital requirements was $419 million.
The decrease in the Group financial resources of $335 million
during 2014 primarily relates to:
(1) The acquisitions of Numeric and Pine Grove, which has
increased the intangibles deduction from Tier 1 capital by $345
million;
(2) The final 2013 dividend payment of $95 million;
(3) The share repurchase programme undertaken in the first half
of the year of $116 million (including costs); partly offset by
(4) H1 2014 post-tax net performance fee income of $55 million
(H2 2014 performance fees will be added once audited in February
2015); and
(5) The issuance of Tier 2 debt of $150 million, less
capitalised costs of $1 million.
The increase in the Group financial resources requirement of $6
million primarily relates to a net increase of $34 million driven
by seeding investments in fund products, partly offset by the
impact of a lower capital requirement on various receivables
balances.
Group's regulatory capital position
$m 31 December 2014 31 December 2013
----------------------------------------------------------- ---------------- ----------------
Permitted share capital and reserves 2,101 2,311
Less deductions (primarily goodwill and other intangibles) (1,564) (1,273)
----------------------------------------------------------- ---------------- ----------------
Available Tier 1 Group capital 537 1,038
----------------------------------------------------------- ---------------- ----------------
Lower Tier 2 capital - subordinated debt(1) 149 -
Other Tier 2 capital 20 3
----------------------------------------------------------- ---------------- ----------------
Group financial resources 706 1,041
----------------------------------------------------------- ---------------- ----------------
Less financial resources requirement (287) (281)
----------------------------------------------------------- ---------------- ----------------
Surplus capital 419 760
----------------------------------------------------------- ---------------- ----------------
(1) Lower Tier 2 capital is not permitted to exceed one third of
Group financial resources.
FINANCIAL STATEMENTS
Group income statement
$m Note Year ended 31 December 2014 Year ended 31 December 2013
------------------------------------------------------ ---- --------------------------- ---------------------------
Revenue:
Gross management and other fees 3 810 967
Performance fees 3 340 193
------------------------------------------------------ ---- --------------------------- ---------------------------
1,150 1,160
------------------------------------------------------ ---- --------------------------- ---------------------------
Income or gains on investments and other financial
instruments 44 33
Distribution costs 4 (104) (145)
Asset services 5 (27) (32)
Amortisation of acquired intangible assets 12 (72) (66)
Compensation 6 (394) (481)
Other costs 7 (202) (323)
Share of after tax profit of associates 19 9 12
Gain on disposal of Lehman claims 2 - 5
(Loss)/gain on disposal of subsidiaries and other
interests 2 (4) 11
Impairment of goodwill 2,12 - (69)
Recycling of FX revaluation on liquidation of
subsidiaries 2 - (1)
Finance expense 8 (19) (61)
Finance income 8 3 13
------------------------------------------------------ ---- --------------------------- ---------------------------
Profit before tax 384 56
Taxation (expense)/credit 9 (19) 16
------------------------------------------------------ ---- --------------------------- ---------------------------
Statutory profit for the year attributable to owners
of the Parent 365 72
------------------------------------------------------ ---- --------------------------- ---------------------------
Earnings per share: 10
Basic (cents) 20.8 3.0
Diluted (cents) 20.5 2.9
------------------------------------------------------ ---- --------------------------- ---------------------------
Adjusted profit before tax 2 481 297
------------------------------------------------------ ---- --------------------------- ---------------------------
FINANCIAL STATEMENTS (Cont'd)
Group statement of comprehensive income
$m Year ended 31 December 2014 Year ended 31 December 2013
------------------------------------------------------------ --------------------------- ---------------------------
Statutory profit for the year attributable to owners of the
Parent 365 72
------------------------------------------------------------ --------------------------- ---------------------------
Other comprehensive (expense)/income:
Remeasurements of post-employment benefit obligations (21) 16
Corporation tax credited on pension revaluation 4 6
Deferred tax credited/(debited) on pension revaluation - (11)
------------------------------------------------------------ --------------------------- ---------------------------
Items that will not be reclassified to profit or loss (17) 11
------------------------------------------------------------ --------------------------- ---------------------------
Available for sale investments:
Valuation gains/(losses) taken to equity - (1)
Transfers from Group statement of comprehensive income upon
sale or impairment - 1
Cash flow hedges:
Valuation (losses)/gains taken to equity (16) 12
Transfer to Group income statement (17) (1)
Corporation tax credited/(debited) on cash flow hedge
movements 3 (3)
Net investment hedge 13 20
Foreign currency translation (24) (35)
Recycling of FX revaluation on liquidation of subsidiaries - 1
------------------------------------------------------------ --------------------------- ---------------------------
Items that may be subsequently reclassified to profit or
loss (41) (6)
------------------------------------------------------------ --------------------------- ---------------------------
Other comprehensive (expense)/income for the year (net of
tax) (58) 5
------------------------------------------------------------ --------------------------- ---------------------------
Total comprehensive income for the year attributable to
owners of the Parent 307 77
------------------------------------------------------------ --------------------------- ---------------------------
FINANCIAL STATEMENTS (Cont'd)
Group balance sheet
At 31 December
$m Note At 31 December 2014 2013
-------------------------------------------------------------- ---- ------------------- --------------
Assets
Cash and cash equivalents 14 738 992
Fee and other receivables 16 396 388
Investments in fund products and other investments 15 307 273
Pension asset 45 71
Investments in associates 19 30 31
Leasehold improvements and equipment 20 52 68
Goodwill and acquired intangibles 12 1,582 1,328
Other intangibles 13 13 26
-------------------------------------------------------------- ---- ------------------- --------------
3,163 3,177
-------------------------------------------------------------- ---- ------------------- --------------
Non-current assets held for sale 15 186 56
-------------------------------------------------------------- ---- ------------------- --------------
Total assets 3,349 3,233
-------------------------------------------------------------- ---- ------------------- --------------
Liabilities
Trade and other payables 17 581 633
Provisions 18 65 92
Current tax liabilities 51 37
Borrowings 14 149 -
Deferred tax liabilities 9 36 58
-------------------------------------------------------------- ---- ------------------- --------------
882 820
-------------------------------------------------------------- ---- ------------------- --------------
Non-current liabilities held for sale 15 33 6
-------------------------------------------------------------- ---- ------------------- --------------
Total liabilities 915 826
-------------------------------------------------------------- ---- ------------------- --------------
Net Assets 2,434 2,407
-------------------------------------------------------------- ---- ------------------- --------------
Equity
-------------------------------------------------------------- ---- ------------------- --------------
Capital and reserves attributable to the owners of the Parent 22 2,434 2,407
-------------------------------------------------------------- ---- ------------------- --------------
FINANCIAL STATEMENTS (Cont'd)
Group cash flow statement
Year ended Year ended
31 December 31 December
$m Note 2014 2013
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from operating activities
Profit for the period 365 72
Adjustments for:
Income tax 19 (16)
Net finance expense 16 48
Share of profits of associates (9) (12)
Loss/(gain) on disposal of subsidiaries and other interests 4 (11)
Reassessment of the litigation provision (6) -
Depreciation and impairment of leasehold improvements and equipment 21 82
Amortisation of acquired intangible assets 72 66
Amortisation of other intangible assets 16 18
Share-based payment expense 11 36
Revaluation of FRM contingent consideration (17) (3)
Impairment of goodwill - 69
Gain on disposal of Lehman claims - (5)
Recycling of FX revaluation on liquidation of subsidiaries - 1
Defined benefit pension plans (including repayments/contributions) 3 (24)
Other non-cash movements (16) 38
---------------------------------------------------------------------------------- ------ ------------ ------------
479 359
---------------------------------------------------------------------------------- ------ ------------ ------------
Changes in working capital:
Decrease/(increase) in receivables 12 (9)
(Increase)/decrease in other financial assets (seeding investments and loans to
fund products) (134) 155
(Decrease)/increase in payables (212) 80
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash generated from operations 145 585
Interest paid (3) (73)
Income tax paid (13) (64)
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from operating activities 129 448
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Purchase of leasehold improvements and equipment (3) (2)
Purchase of other intangible assets (9) (3)
Purchase of investments in fund products for deferred compensation awards and
other investments (45) (51)
Proceeds from sale of leasehold improvements and equipment - 1
Proceeds from settlement and sale of Lehman claims - 5
Net proceeds from sale of investments in fund products for deferred compensation
awards and
other investments 40 40
Acquisition of subsidiaries, net of cash acquired (227) -
Interest received 3 13
Payment of contingent consideration in relation to acquisition of FRM (8) (12)
Dividends received from associates 10 11
Proceeds from sale of interest in Nephila and other interests - 21
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from investing activities (239) 23
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Proceeds from issue of ordinary shares 2 4
Proceeds from borrowings (net of costs) 149 -
Purchase of own shares by the Employee Trusts (16) (22)
Repurchase of own shares (including costs) (116) -
Repayment of borrowings - (1,159)
Dividends paid to Company shareholders (163) (277)
Dividend payments in respect of perpetual subordinated capital securities - (25)
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from financing activities (144) (1,479)
---------------------------------------------------------------------------------- ------ ------------ ------------
Net (decrease) in cash (254) (1,008)
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash at beginning of the year 992 2,000
---------------------------------------------------------------------------------- ------ ------------ ------------
Cash at year end 14 738 992
---------------------------------------------------------------------------------- ------ ------------ ------------
FINANCIAL STATEMENTS (Cont'd)
Group statement of changes in equity
Equity attributable to owners of the
parent Equity attributable to owners of the parent
Year ended 31 December 2014 Year ended 31 December 2013
----------------- ------------------------------------ -------------------------------------------------------------
Share Revaluation Share Revaluation
capital reserves capital reserves
and and and and
capital retained capital retained Non-controlling
$m reserves earnings Total equity reserves earnings Total interest Total equity
----------------- --------- ----------- ------------ ---------- ----------- ----- --------------- ------------
At beginning of
the year 1,191 1,216 2,407 1,187 1,423 2,610 300 2,910
----------------- --------- ----------- ------------ ---------- ----------- ----- --------------- ------------
Profit for the
year - 365 365 - 72 72 - 72
Other
comprehensive
(expense)/income - (58) (58) - 5 5 - 5
----------------- --------- ----------- ------------ ---------- ----------- ----- --------------- ------------
Total
comprehensive
income for the
year - 307 307 - 77 77 - 77
----------------- --------- ----------- ------------ ---------- ----------- ----- --------------- ------------
Perpetual capital
securities
coupon - - - - (19) (19) - (19)
Buyback of
perpetual
capital
securities - - - - - - (300) (300)
Share-based
payments 2 11 13 4 30 34 - 34
Purchase of own
shares by the
Employee Trusts - (14) (14) - (18) (18) - (18)
Repurchase of own
shares - (116) (116) - - - - -
Dividends - (163) (163) - (277) (277) - (277)
----------------- --------- ----------- ------------ ---------- ----------- ----- --------------- ------------
At year end (Note
22) 1,193 1,241 2,434 1,191 1,216 2,407 - 2,407
----------------- --------- ----------- ------------ ---------- ----------- ----- --------------- ------------
Shareholders' equity remained largely in line with prior year
largely as a result of the statutory profit for the year being
offset by the 2013 final dividend payment and share repurchase. In
the prior year, shareholders' equity decreased primarily as a
result of dividend payments which were not covered by the statutory
profit for the year, and the repurchase of the perpetual
subordinated capital securities.
The proposed final dividend would reduce shareholders' equity by
$106 million (2013: $95 million) subsequent to the balance sheet
date.
Details of share capital and capital reserves, revaluation
reserves and retained earnings and related movements are included
in Note 22.
Notes to the Group financial statements
1. Basis of preparation
In preparing the financial information in this statement the
Group has applied policies which are in accordance with the
International Financial Reporting Standards as adopted by the
European Union at 31 December 2014. Details of the Group's
accounting policies can be found in the Group's Annual Report for
the year ended 31 December 2013, and the adoption of IFRS 10
'Consolidated financial statements', IFRS 12 'Disclosures of
interests in other entities' and the presentation of provisions are
explained in the sections below. The financial information included
in this statement does not constitute the Group's statutory
accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2014, upon
which the auditors have issued an unqualified report, will shortly
be delivered to the Registrar of Companies.
The annual report will be posted to shareholders on 11 March
2015. The Notice of the Company's 2015 Annual General Meeting will
be posted separately in early April 2015. The Annual General
Meeting will be held on Friday 8 May 2015 at 10am at Man Group's
offices at Riverbank House, 2 Swan Lane, London EC4R 3AD.
Impact of new accounting standards
IFRS 10 'Consolidated financial statements' is the revised
consolidation accounting standard, which became effective from 1
January 2014. The adoption of this standard has resulted in the
consolidation of one fund at 31 December 2013 and five funds at 31
December 2014. These funds are classified on the balance sheet as
non-current assets/liabilities held for sale (Note 15). The impact
of consolidating these funds is an increase in the gross assets and
liabilities on the Group balance sheet of around $33 million. There
is no impact on the Group income statement.
In considering the principles of IFRS 10, Man has redefined
'associates' to exclude fund entities where Man is acting as Agent
and therefore we do not have significant influence. Accordingly,
these fund entities are no longer considered related parties as
defined in International Accounting Standard 24 'Related Parties'.
There is no impact on the Group income statement or Group balance
sheet.
IFRS 12 'Disclosures of interests in other entities' became
effective from 1 January 2014. As a result of the adoption of this
standard, additional information about the risk exposure from
structured entities, which we have defined as fund entities for
which Man is the investment manager, is provided in Note 15.
Changes in presentation
A change in presentation of the balance sheet has been made in
the period to separate 'provisions' from 'trade and other
payables', and to provide a summary of movements in provisions for
the year (Note 18).
2. Adjusted profit before tax
Statutory profit before tax is adjusted to give a fuller
understanding of the underlying profitability of the business. The
directors consider that the Group's profit is most meaningful when
considered on a basis which excludes restructuring costs,
impairment of assets, acquisition and disposal related Items
(including non-cash items such as amortisation of purchased
intangible assets and deferred tax movements relating to the
recognition of tax losses in the US) and certain non-recurring
gains or losses, which therefore reflect the recurring revenues and
costs that drive the Group's cash flow. 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. These are explained in detail either
below or in the relevant note.
$m Note Year ended 31 December 2014 Year ended 31 December 2013
----------------------------------------------------- ----- --------------------------- ---------------------------
Statutory profit before tax 384 56
Adjusting items:
Reassessment of the litigation provision (6) -
Litigation, regulatory and other settlements 7 24 14
Acquisition and disposal related:
Compensation - restructuring 6 3 -
Other costs - professional fees and integration
costs 7 9 -
Revaluation of FRM contingent consideration 12,27 (17) (3)
Unwind of contingent consideration discount 8 7 3
Amortisation of acquired intangible assets 12 72 66
Loss/(gain) on disposal of subsidiaries and other
interests 4 (11)
Recycling of FX revaluation on liquidation of
subsidiaries - 1
Impairment of goodwill 12 - 69
Compensation - restructuring 6 - 36
Other costs - restructuring 7 1 28
Other costs - accelerated depreciation 7 - 43
Gain on disposal of Lehman claims - (5)
----------------------------------------------------- ----- --------------------------- ---------------------------
Adjusted profit before tax 481 297
Tax on adjusted profit(1) (46) (21)
----------------------------------------------------- ----- --------------------------- ---------------------------
Adjusted profit after tax 435 276
----------------------------------------------------- ----- --------------------------- ---------------------------
Note:
1 The difference of $27 million (2013: $37 million) between tax
on statutory profit and tax on adjusted profit is made up of a tax
credit of $19 million (2013: $37 million expense) on adjusting
items and a tax credit of $8 million (2013: nil) relating to the
recognition of a deferred tax asset which is classified as an
adjusting item (Note 9).
The 2014 credit of $6 million relates to reassessment of
potential legal claims (Note 18). In 2014 litigation, regulatory
and other settlements relates to legal claims, including associated
costs. In 2013 the $14 million primarily relates to the settlement
of a regulatory enquiry in the US and directly associated legal
costs.
The acquisition related compensation and other costs relate to
staff termination, legal and other advisory fees relating to the
Numeric and Pine Grove transactions, as well as the costs of
integrating our operating platforms (Note 12 and Note 18).
Compensation costs incurred as part of restructuring are accounted
for in full at the time the obligation arises, following
communication of the formal plan, and include payments in lieu of
notice, enhanced termination costs, and accelerated share-based
payment and fund product based charges.
The revaluation of the FRM contingent consideration is an
adjustment to the fair value of expected FRM earn-out payments,
resulting primarily from movements in net management fee run rates
since the acquisition of FRM, and has been included within income
or gains on investments and other financial instruments. The unwind
of the discount on contingent consideration in 2014 relates to FRM
($3 million), Numeric ($3 million) and Pine Grove ($1 million)
contingent consideration since the respective acquisition dates
(Note 12), and is included within finance expense (Note 8).
Amortisation of acquired intangibles primarily relates to
investment management contracts and brands recognised on the
acquisition of GLG and FRM, with amortisation charges of $7 million
in 2014 relating to the newly acquired Numeric and Pine Grove
intangibles (Note 12).
The $4 million loss on disposal of subsidiaries and other
interests in 2014 is the result of the Group selling two of its
subsidiaries to local management in May 2014. The prior period $11
million gain on disposal relates primarily to the disposal of a
6.25% stake in Nephila in January 2013, reducing our stake to
18.75%. In 2013, some of the Group's foreign subsidiaries were
liquidated, which had accumulated foreign currency translation
reserves of $1 million at the date of liquidation. Upon liquidation
of these subsidiaries the related foreign currency translation was
recycled to the Group income statement. In the prior year the FRM
goodwill was impaired by $69 million, primarily relating to our
legacy Man Multi-Manager Business (Note 12).
In 2014, the $1 million of restructuring costs relates to an
onerous lease on our New York property. The $36 million of
compensation restructuring costs recognised in 2013 relate to the
further phase of cost saving initiatives announced on 2 August
2013. Other costs relating to restructuring in 2013 primarily
relate to onerous property lease provisions, largely in relation to
Riverbank House (our main London office and headquarters). The
prior year accelerated depreciation included within Other costs
primarily relates to leasehold improvements and equipment as a
result of the sub-letting of office space in Riverbank House.
During 2013, $5 million of additional proceeds were received
relating to the disposal of the Lehman claims in 2012.
3. Revenue
Fee income is Man's primary source of revenue, which is derived
from the investment management agreements that we have in place
with the fund entities. Fees are generally based on an agreed
percentage of the valuation of FUM and are typically charged in
arrears. Management fees net of rebates, which include all
non-performance related fees and interest income from loans to fund
products, are recognised in the year in which the services are
provided.
Performance fees net of rebates relate to the performance of the
funds managed during the year and are recognised when the quantum
of the fee can be estimated reliably and has crystallised. This is
generally at the end of the performance period or upon early
redemption by a fund investor. Until the performance period ends
market movements could significantly move the net asset value (NAV)
of the fund products. Man will typically only earn performance fee
income on any positive investment returns in excess of the
high-water mark, meaning we will not be able to earn performance
fee income with respect to positive investment performance in any
year following negative performance until that loss is recouped, at
which point a fund investor's investment surpasses the high water
mark.
4. Distribution costs
$m Year ended 31 December 2014 Year ended 31 December 2013
------------------- --------------------------- ---------------------------
Distribution costs 104 145
------------------- --------------------------- ---------------------------
Distribution costs paid to external intermediaries are directly
related to their marketing activity and the investors serviced by
them. The distribution expense is therefore variable with FUM and
the associated management fee income.
Distribution costs, before adjusting items, of $104 million
(2013: $145 million) comprise product placement fees of $15 million
(2013: $15 million) and investor servicing fees of $89 million
(2013: $130 million). Servicing fees have decreased primarily as a
result of the roll-off of guaranteed product FUM and a mix shift
towards institutional assets, particularly in the quant
alternatives category.
Placement fees are paid for product launches or sales and are
capitalised and amortised over the expected investment holding
period (Note 13). Investor servicing fees are paid to
intermediaries for ongoing investor servicing and are expensed as
incurred.
5. Asset services
Asset services include valuations, fund accounting, and
registrar functions performed by third parties under contract to
Man, on behalf of the funds.
The cost of these services is based on the number of
transactions or FUM, and is therefore variable with activity levels
and FUM. Asset services costs for the year are $27 million compared
to $32 million in 2013. The decrease in asset services costs is
primarily a result of contract renegotiations in the latter half of
2014.
6. Compensation
$m Year ended 31 December 2014 Year ended 31 December 2013
-------------------------------------------- --------------------------- ---------------------------
Salaries 136 163
Variable cash compensation 174 186
Share-based payment charge 12 30
Fund product based payment charge 30 32
Social security costs 33 24
Pension costs 6 10
-------------------------------------------- --------------------------- ---------------------------
Compensation costs - before adjusting items 391 445
Acquisition related costs 3 -
Restructuring - 36
-------------------------------------------- --------------------------- ---------------------------
Total compensation costs 394 481
-------------------------------------------- --------------------------- ---------------------------
Compensation is our largest cost and an important component of
our ability to retain and attract talent at Man. In the short-term
the variable component of compensation adjusts with revenues and
profitability. In the medium-term the active management of
headcount can reduce fixed compensation, if required.
Compensation costs in total are $391 million, before adjusting
items, or 36% of net revenue (2013: 42%). Net revenue is defined as
gross management and other fees, performance fees, income or gains
on investments and other financial instruments, share of after tax
profit of associates, less external distribution costs. Salaries
and variable cash compensation are charged to the Group income
statement in the year in which they are incurred, and include
partner drawings.
Fixed compensation and benefits are $155 million compared to
$188 million in the prior year. Fixed compensation comprises
salaries, pension costs and a portion of the social security costs.
The current year includes Numeric and Pine Grove fixed compensation
from 5 September 2014 and 4 August 2014 respectively, the dates of
acquisition.
Variable compensation is $236 million compared to $257 million
in the prior year, primarily reflecting lower performance fee
related compensation and the change in application of the policy
for deferred awards, as discussed in the next paragraph.
The directors have determined that going forward all share-based
and fund product-based awards relate entirely to future services,
which is consistent with the approach currently adopted for GLG
awards, and hence the amortisation charge relating to all future
awards will be spread over the vesting period from the date of
grant. The revised application of the deferred compensation policy
results in a lower charge to the income statement of around $17
million in 2014, compared to the approach applied previously.
The accounting for share-based and fund product based
compensation arrangements is covered in Note 21. The unamortised
deferred compensation at year end is $22 million (2013: $24
million) which has a weighted average remaining vesting period of
1.3 years (2013: 1.4 years).
Pension costs relate to Man's defined contribution and defined
benefit plans.
7. Other costs
$m Year ended 31 December 2014 Year ended 31 December 2013
------------------------------------------------------------ --------------------------- ---------------------------
Occupancy 33 50
Technology and communication 32 34
Temporary staff, recruitment, consultancy and managed
services 25 32
Legal fees and other professional fees 13 18
Benefits 12 15
Insurance 7 11
Travel and entertainment 9 10
Audit, accountancy, actuarial and tax fees 8 7
Marketing and sponsorship 6 6
Other cash costs 5 8
------------------------------------------------------------ --------------------------- ---------------------------
Total other costs before depreciation and amortisation and
adjusting items 150 191
------------------------------------------------------------ --------------------------- ---------------------------
Depreciation and amortisation 24 47
------------------------------------------------------------ --------------------------- ---------------------------
Other costs - before adjusting items 174 238
Reassessment of litigation provision (Note 2) (6) -
Litigation, regulatory and other settlements (Note 2) 24 14
Acquisition related other costs (Note 2) 9 -
Restructuring (Note 2) 1 28
Accelerated depreciation (Note 2) - 43
------------------------------------------------------------ --------------------------- ---------------------------
Total other costs 202 323
------------------------------------------------------------ --------------------------- ---------------------------
The level of expenses, including occupancy, communication,
technology and travel and entertainment, is linked to
headcount.
Other costs, before depreciation and amortisation and adjusting
items, are $150 million in the year, compared to $191 million in
the prior year, which reflects the impact of the previously
announced cost savings programme.
8. Finance expense and finance income
$m Year ended 31 December 2014 Year ended 31 December 2013
------------------------------------------------------------ --------------------------- ---------------------------
Finance income:
Interest on cash deposits and US Treasury bills 3 13
------------------------------------------------------------ --------------------------- ---------------------------
Total finance income 3 13
------------------------------------------------------------ --------------------------- ---------------------------
Finance expense:
Interest payable on borrowings (3) (22)
Revolving credit facility costs, premium paid on debt
buybacks and other (Note 14) (9) (36)
------------------------------------------------------------ --------------------------- ---------------------------
Total finance expense - before adjusting items (12) (58)
Unwind of contingent consideration discount (Note 2) (7) (3)
------------------------------------------------------------ --------------------------- ---------------------------
Total finance expense (19) (61)
------------------------------------------------------------ --------------------------- ---------------------------
9. Taxation
$m Year ended 31 December 2014 Year ended 31 December 2013
------------------------------------------------------------ --------------------------- ---------------------------
Analysis of tax charge/(credit) for the period:
Current tax:
UK corporation tax on profits of the period 54 29
Foreign tax 17 16
Adjustments to tax charge in respect of previous periods (30) (34)
------------------------------------------------------------ --------------------------- ---------------------------
Total current tax 41 11
------------------------------------------------------------ --------------------------- ---------------------------
Deferred tax:
Origination and reversal of temporary differences (14) (28)
Adjustments to tax charge in respect of previous periods - 1
Initial recognition of US deferred tax asset (8) -
------------------------------------------------------------ --------------------------- ---------------------------
Total deferred tax (22) (27)
------------------------------------------------------------ --------------------------- ---------------------------
Total tax charge/(credit) 19 (16)
------------------------------------------------------------ --------------------------- ---------------------------
Man is a global business and therefore operates across many
different tax jurisdictions. Income and profits are allocated to
these different jurisdictions based on transfer pricing
methodologies set in accordance with the laws of the jurisdictions
in which we operate. The effective tax rate results from the
combination of taxes paid on earnings attributable to the tax
jurisdictions in which they arise. The majority of the Group's
profit was earned in the UK and Switzerland. The current effective
tax rate of 5% (2013: -29%) differs from the underlying rate
principally as a result of the release of a tax liability of $25
million and recognition of a US deferred tax asset of $8 million,
which are detailed below. The effective tax rate is otherwise
consistent with this earnings profile. The effective tax rate on
adjusted profits (Note 2) is 10% (2013: 7%). The higher rate is
principally the result of the effect of credits to the tax charge
in respect of previous periods of a similar value to 2013 having a
smaller impact on the higher profits in 2014.
The tax on Man's total profit before tax is lower than the
amount that would arise using the theoretical effective tax rate
applicable to profits/(losses) of the consolidated companies as
follows:
$m Year ended 31 December 2014 Year ended 31 December 2013
--------------------------------------------------------- --------------------------- ---------------------------
Profit before tax 384 56
Theoretical tax charge at UK rate: 21.50% (2013: 23.25%) 83 13
Effect of:
--------------------------- ---------------------------
Overseas rates compared to UK (20) (14)
Adjustments to tax charge in respect of previous periods (30) (33)
Impairment of goodwill and other adjusting items (1) 19
Share-based payments (3) 10
Initial recognition of US deferred tax asset (8) -
Other (2) (11)
--------------------------------------------------------- --------------------------- ---------------------------
Total tax charge/(credit) 19 (16)
--------------------------------------------------------- --------------------------- ---------------------------
In the current year the adjustments to the tax charge in respect
of previous periods largely relates 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 2014 Year ended 31 December 2013
------------------------------------------ --------------------------- ---------------------------
Deferred tax liability
At 1 January (97) (114)
Credit to the income statement 14 17
------------------------------------------ --------------------------- ---------------------------
Deferred tax liability at 31 December (83) (97)
------------------------------------------ --------------------------- ---------------------------
Deferred tax asset
At 1 January 39 43
Credit to the income statement 8 10
Credit/(charge) directly to equity 2 (10)
Other currency differences (2) (4)
------------------------------------------ --------------------------- ---------------------------
Deferred tax asset at 31 December 47 39
------------------------------------------ --------------------------- ---------------------------
The deferred tax liability of $83 million (2013: $97 million)
relates to deferred tax arising on acquired intangible assets.
The deferred tax asset of $47 million (2013: $39 million)
principally relates to US tax losses and intangible assets of $8
million (2013: nil), defined benefit pension schemes of $8 million
(2013: $9 million), employee share schemes of $17 million (2013: $7
million), and tax allowances over depreciation of $14 million
(2013: $18 million). The deferred tax asset income statement credit
of $8 million (2013: $10 million) relates to initial recognition of
the deferred tax asset in respect of US losses of $8 million (2013:
nil), an increase in the deferred tax asset on employee share
schemes of $7 million (2013: nil), a decrease in the deferred tax
asset arising on tax allowances over depreciation of $4 million
(2013: $9 million decrease) and a decrease in the deferred tax
liability on other temporary differences of $3 million (2013: $1
million increase). The credit to other revenue reserves of $2
million (2013: charge of $10 million) relates to movements in the
pension accrual and employee share schemes in the year.
The Group has accumulated deferred tax assets in the US of $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. These assets
have not been recognised on the balance sheet in the past because
the US business as a whole was loss making, and therefore there was
no clear evidence that the business would be able to benefit from
these tax assets. As at 31 December 2014, a proportion ($8 million)
of these previously unrecognised deferred tax assets has been
recognised, triggered by the acquisition of Numeric, which gives
rise to a higher degree of certainty that the US business will earn
taxable profits in future periods. The $8 million deferred tax
asset recognised in 2014 represents amounts which can be offset
against probable future taxable profits, which 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 $183 million (2013: $188 million), Man does
not expect to pay federal tax on any taxable profits it may earn in
the US for the foreseeable future. Accordingly, any movements in
this US tax asset are classified as an adjusting item in Note 2
(such as the credit to tax expense of $8 million recognised in
2014).
10. Earnings per ordinary share (EPS)
The calculation of basic EPS is based on post-tax profit (and
for 2013, after payments to holders of the perpetual subordinated
capital securities of $19 million after tax) of $365 million
compared to a profit of $53 million in the prior year, and ordinary
shares of 1,754,177,715 (2013: 1,787,851,123), 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 1,778,702,369 (2013:
1,818,402,923).
The details of movements in the number of shares used in the
basic and dilutive EPS calculation are provided below.
Year ended 31 December 2014 Year ended 31 December 2013
------------------------- ------------------------------------------------- ----------------------------------------
Weighted average Weighted average
Total number (million) (million) Total number (million) (million)
------------------------- ---------------------- ------------------------- ---------------------- ----------------
Number of shares at
beginning of year 1,823.7 1,823.7 1,821.8 1,821.8
Issues of shares 1.4 1.1 1.9 1.4
Repurchase of own shares (68.8) (45.9) - -
Number of shares at
period end 1,756.3 1,778.9 1,823.7 1,823.2
Shares owned by Employee
Trusts (21.1) (24.8) (29.7) (35.3)
------------------------- ---------------------- ------------------------- ---------------------- ----------------
Basic number of shares 1,735.2 1,754.1 1,794.0 1,787.9
Share awards under
incentive schemes 21.2 27.7
Employee share options 3.4 2.8
------------------------- ---------------------- ------------------------- ---------------------- ----------------
Diluted number of shares 1,778.7 1,818.4
------------------------- ---------------------- ------------------------- ---------------------- ----------------
The reconciliation from EPS to adjusted EPS is given below:
Year ended 31 December 2014
------------------------------- -------------------------------------------------------------------------------------
Basic and diluted post-tax
earnings Basic earnings per share Diluted earnings per share
$m cents cents
------------------------------- ------------------------------- ------------------------ --------------------------
Earnings per share 365 20.8 20.5
Items for which EPS has been
adjusted (Note 2) 97 5.5 5.4
Tax adjusting items (Note 2) (27) (1.5) (1.5)
------------------------------- ------------------------------- ------------------------ --------------------------
Adjusted earnings per share 435 24.8 24.4
------------------------------- ------------------------------- ------------------------ --------------------------
Net performance fees (post-tax) (256) (14.5) (14.3)
------------------------------- ------------------------------- ------------------------ --------------------------
Adjusted management fee
earnings per share 179 10.3 10.1
------------------------------- ------------------------------- ------------------------ --------------------------
Year ended 31 December 2013
------------------------------- -------------------------------------------------------------------------------------
Basic and diluted post-tax
earnings Basic earnings per share Diluted earnings per share
$m cents cents
------------------------------- ------------------------------- ------------------------ --------------------------
Earnings per share(1) 53 3.0 2.9
Items for which EPS has been
adjusted (Note 2) 241 13.5 13.3
Tax on adjusting items (Note 2) (37) (2.1) (2.1)
------------------------------- ------------------------------- ------------------------ --------------------------
Adjusted earnings per share 257 14.4 14.1
------------------------------- ------------------------------- ------------------------ --------------------------
Net performance fees (post-tax) (114) (6.4) (6.2)
------------------------------- ------------------------------- ------------------------ --------------------------
Adjusted management fee
earnings per share 143 8.0 7.9
------------------------------- ------------------------------- ------------------------ --------------------------
Note:
1 The difference between post-tax profit and basic and diluted
post-tax profit in 2013 is the adding back of the expense relating
to the perpetual subordinated capital securities which were
redeemed during 2013 (Note 22), totalling $19 million post-tax.
11. Dividends
$m Year ended 31 December 2014 Year ended 31 December 2013
------------------------------------------------------------ --------------------------- ---------------------------
Ordinary shares
------------------------------------------------------------ --------------------------- ---------------------------
Final dividend paid for the year to 31 December 2013 - 5.3
cents (2012: 12.5 cents) 95 230
Interim dividend paid for the six months to 30 June 2014 -
4.0 cents (2013: 2.6 cents) 68 47
------------------------------------------------------------ --------------------------- ---------------------------
Dividends paid during the year 163 277
------------------------------------------------------------ --------------------------- ---------------------------
Proposed final dividend for the year to 31 December 2014 -
6.1 cents (2013: 5.3 cents) 106 95
------------------------------------------------------------ --------------------------- ---------------------------
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.
12. Goodwill and acquired intangibles
Year ended 31 December 2014 Year ended 31 December 2013
-------------------------- -------------------------------------------- --------------------------------------------
IMCs and other acquired IMCs and other acquired
$m Goodwill intangibles2 Total Goodwill intangibles(2) Total
-------------------------- -------- ------------------------- ------- -------- ------------------------- -------
Cost:
At beginning of the year 2,231 726 2,957 2,252 726 2,978
Acquisition of business(1) 137 198 335 - - -
Currency translation (8) - (8) (16) - (16)
Other adjustment(3) (1) - (1) (5) - (5)
-------------------------- -------- ------------------------- ------- -------- ------------------------- -------
At year end 2,359 924 3,283 2,231 726 2,957
-------------------------- -------- ------------------------- ------- -------- ------------------------- -------
Amortisation and
impairment:
At beginning of the year (1,423) (206) (1,629) (1,354) (140) (1,494)
Amortisation - (72) (72) - (66) (66)
Impairment(4) - - - (69) - (69)
-------------------------- -------- ------------------------- ------- -------- ------------------------- -------
At year end (1,423) (278) (1,701) (1,423) (206) (1,629)
-------------------------- -------- ------------------------- ------- -------- ------------------------- -------
Net book value at year end 936 646 1,582 808 520 1,328
-------------------------- -------- ------------------------- ------- -------- ------------------------- -------
Allocated to cash
generating units as
follows:
GLG 201 431 632 201 493 694
AHL 461 - 461 468 - 468
FRM 140 36 176 139 27 166
Numeric 134 179 313 - - -
-------------------------- -------- ------------------------- ------- -------- ------------------------- -------
Notes:
1 Acquisition of business relates to Numeric and Pine Grove.
2 Includes investment management contracts (IMCs), brand names and distribution channels.
3 The 2014 other adjustment of $1 million relates to the
disposal of goodwill resulting from the sale of a subsidiary to
local management during the year. The prior year other adjustment
of $5 million to goodwill relates to an adjustment to the
calculation for the FRM contingent consideration at the date of
acquisition (July 2012), reducing the goodwill and contingent
consideration creditor.
4 The 2013 impairment of $69 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 5 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): GLG, AHL, FRM and
Numeric. The goodwill and other intangible assets acquired as part
of the Pine Grove acquisition have been allocated to the FRM CGU as
the acquired Pine Grove business has been fully integrated with the
FRM business. The Numeric acquisition is detailed below.
The Man Systematic Strategies business (MSS) was integrated into
the AHL business on 1 January 2013, and associated goodwill of $71
million was transferred from the GLG and FRM CGUs to the AHL CGU at
that date.
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 2014 use cash flow
projections based on the Board approved financial plan for the year
to 31 December 2015 and a further two years of projections (2016
and 2017) 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.
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 applied to the
modelled cash flows. 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 GLG, AHL and FRM sections below. The terminal value
is calculated based on the projected closing FUM at 31 December
2017 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 post-tax discount rates applied are the same as those
used in 2013.
The specific assumptions applied to the value in use
calculations for each of the CGUs are explained in the sections
below.
GLG cash generating unit
For the year ended 31 December 2013 there was no impairment
charge. The recoverable amount of the GLG CGU has again been
assessed at 31 December 2014. The key assumptions used in the value
in use calculation are shown in the table below.
Compound average annualised growth in FUM (over three years) 7%
------------------------------------------------------------------------- ----
Discount rate (post-tax)(1)
* Net management fees 11%
* Net performance fees 17%
------------------------------------------------------------------------- ----
Terminal value (mid-point of range of historical multiples, post-tax)(2)
* Management fees 13x
* Performance fees 5.5x
------------------------------------------------------------------------- ----
Notes:
1 The pre-tax equivalent of the net management fee and net
performance fee discount rates are 14% and 21% respectively.
2 The terminal value is equivalent to an overall terminal growth
rate of 3% for management fees and 0% for performance fees.
The GLG value in use calculation at 31 December 2014 indicates a
value of $800 million, with around $150 million of headroom over
the carrying value of the GLG business. Therefore, no impairment
charge is deemed necessary at 31 December 2014. The valuation at 31
December 2014 is around $500 million lower than the value in use
calculation at 31 December 2013, primarily as a result of lower
than anticipated investment performance and net inflows in 2014,
particularly for discretionary alternatives, and decreased growth
in FUM anticipated over the next three years as result of the 2014
performance.
The table below shows scenarios whereby the base case key
assumptions are changed to stressed assumptions, indicating the
modelled headroom or impairment that would result. Each assumption,
or set of assumptions, is stressed in isolation. The results of
these sensitivities make no allowance for actions that management
would take if such market conditions persisted.
Discount rates (post-tax) Multiples (post-tax)
-------------- --------------------------- ----------------------
Compound average annualised growth in Management fee/ Management fee/
FUM Performance fee Performance fee
------------------------ --------------------------------------- --------------------------- ----------------------
Stressed to: 5% 4% 10%/16% 12%/18% 14x/6.5x 12x/4.5x
------------------------ -------------- ----------------------- ------------- ------------ ---------- ----------
Modelled
headroom/(impairment)
($m) 31 (20) 168(1) 136(1) 217(2) 85(2)
------------------------ -------------- ----------------------- ------------- ------------ ---------- ----------
Notes:
1 An increase/decrease of $16 million.
2 An increase/decrease of $66 million.
AHL cash generating unit
For the year ended 31 December 2013 there was no impairment
charge. The recoverable amount of the AHL CGU has been assessed at
31 December 2014 using a value in use calculation. The key
assumptions used in the value in use calculation are shown in the
table below.
Compound average annualised growth in FUM (over three years) 17%
------------------------------------------------------------------------- ----
Discount rate (post-tax)(1)
* Net management fees 11%
* Net performance fees 17%
------------------------------------------------------------------------- ----
Terminal value (mid-point of range of historical multiples, post-tax)(2)
* Management fees 13x
* Performance fees 5.5x
------------------------------------------------------------------------- ----
Notes:
1 The pre-tax equivalent of the net management fee and net
performance fee discount rates are 13% and 21% respectively.
2 The terminal value is equivalent to an overall terminal growth
rate of 3% for management fees and 0% for performance fees.
The AHL value in use calculation at 31 December 2014 indicates a
value of $3.0 billion, with around $2.5 billion of headroom over
the carrying value of the AHL business. Therefore, no impairment
charge is deemed necessary at 31 December 2014. The valuation at 31
December 2014 is around $1.7 billion higher than the value in use
calculation at 31 December 2013, primarily as a result of strong
investment performance in 2014, particularly for quant
alternatives, better than anticipated net inflows, and higher
growth in FUM anticipated over the next three years as a result of
this strong performance.
The table below shows scenarios whereby the base case key
assumptions are changed to stressed assumptions, indicating the
modelled headroom or impairment that would result. Each assumption,
or set of assumptions, is stressed in isolation. The results of
these sensitivities make no allowance for actions that management
would take if such market conditions persisted.
Discount rates (post-tax) Multiples (post-tax)
----------------------- --------------------------- ----------------------
Compound average annualised growth in Management fee/ Management fee/
FUM Performance fee Performance fee
----------------------- ---------------------------------------- --------------------------- ----------------------
Stressed to: 8% -2% 10%/16% 12%/18% 14x/6.5x 12x/4.5x
----------------------- ----------------------- --------------- ------------- ------------ ---------- ----------
Modelled
headroom/(impairment)
($m) 1,103 260 2,580(1) 2,460(1) 2,794(2) 2,246(2)
----------------------- ----------------------- --------------- ------------- ------------ ---------- ----------
Notes:
1 An increase/decrease of $60 million.
2 An increase/decrease of $274 million.
FRM cash generating unit
The FRM CGU includes the legacy Man Multi-Manager business, the
acquired FRM business and goodwill relating to the acquisition of
Pine Grove during 2014.
For the year ended 31 December 2013 an impairment charge of $69
million was recognised as a result of guaranteed product FUM
decreasing faster than expected and lower than anticipated FUM and
flows, in particular due to redemptions in our legacy Multi-Manager
Business. The recoverable amount of the FRM CGU has again been
assessed at 31 December 2014. The key assumptions used in the value
in use calculation are shown in the table below.
Compound average annualised growth in FUM (over three years) 9%
------------------------------------------------------------------------- ---
Discount rate (post-tax)(1)
* Net management fees 11%
* Net performance fees 17%
------------------------------------------------------------------------- ---
Terminal value (mid-point of range of historical multiples, post-tax)(2)
* Management fees 12x
* Performance fees 5x
------------------------------------------------------------------------- ---
Notes:
1 The pre-tax equivalent of the net management fee and net
performance fee discount rates are 13% and 20% respectively.
2 The terminal value is equivalent to an overall terminal growth
rate of 2% for management fees and 0% for performance fees.
The FRM value in use calculation at 31 December 2014 indicates a
value of $230 million, with around $40 million of headroom over the
carrying value of the FRM business. Therefore, no impairment charge
is deemed necessary at 31 December 2014. The valuation at 31
December 2014 is slightly higher than the value in use calculation
at 31 December 2013, primarily as a result of better than
anticipated net inflows for fund of fund products in 2014, in
particular for managed account mandates, and higher growth in FUM
anticipated over the next three years, which have been partially
offset by a decline in management fee margins. Despite an increase
in the FRM CGU value in use, the valuation of the FRM contingent
consideration has decreased by $17 million during 2014 (Note 2).
This is the result of a decrease in the management fee run rate
revenue of the legacy FRM business versus expectations, and does
not take into account the impact of the significant cost base
reduction of this business since acquisition.
The table below shows scenarios whereby the base case key
assumptions are changed to stressed assumptions, indicating the
modelled headroom or impairment that would result. Each assumption,
or set of assumptions, is stressed in isolation. The results of
these sensitivities make no allowance for actions that management
would take if such market conditions persisted.
Discount rates (post-tax) Multiples (post-tax)
-------------- --------------------------- ----------------------
Compound average annualised growth in Management fee/ Management fee/
FUM Performance fee Performance fee
------------------------ --------------------------------------- --------------------------- ----------------------
Stressed to: 8% 7% 10%/16% 12%/18% 13x/5x 11x/3x
------------------------ -------------- ----------------------- ------------- ------------ ---------- ----------
Modelled
headroom/(impairment)
($m) 10 (19) 46(1) 36(1) 60(2) 22(2)
------------------------ -------------- ----------------------- ------------- ------------ ---------- ----------
Notes:
1 An increase/decrease of $5 million.
2 An increase/decrease of $19 million.
Acquisition of Numeric
On 5 September 2014 Man acquired Numeric Holdings LLC
('Numeric'), a Boston-based quantitative equity manager with funds
under management at the date of acquisition of $15.2 billion.
The consideration to Numeric owners is comprised of $219 million
up-front and $19 million of balance sheet consideration paid in
cash at completion, plus two earn-out style contingent
consideration arrangements (the 'Option Consideration') payable
post-acquisition. Numeric Management are rolling over the majority
of their consideration in return for an ongoing 18.3% equity
interest in the business (the 'Management Interests') and have also
been granted profits interests in the business that entitle them to
share in 16.5% of the increase in the value of the Numeric business
over the period prior to the exercise date for the put and call
arrangement described below (the 'Profit Interests'). At the end of
five years following completion, Man will have an opportunity to
acquire the Management Interests and the Profit Interests pursuant
to a put and call option arrangement. The maximum aggregate amount
payable by Man in respect of the Option Consideration is capped at
$275 million. 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.
Therefore this element of the consideration is equivalent to an
earn-out and is deemed to be a financial liability measured
initially at fair value and any subsequent fair value movements
recognised through the Group income statement.
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 12 - 12
Fees and other receivables 26 - 26
Leasehold improvements and equipment 3 - 3
Intangible assets - 185 185
Trade and other payables (15) (1) (16)
--------------------------------------- ---------- ---------------------- -----------------
Net assets acquired 26 184 210
Goodwill on acquisition 134
--------------------------------------- ---------- ---------------------- -----------------
Net assets acquired including goodwill 344
--------------------------------------- ---------- ---------------------- -----------------
Purchase consideration:
Cash consideration 238
Contingent consideration 106
--------------------------------------- ---------- ---------------------- -----------------
Total consideration 344
--------------------------------------- ---------- ---------------------- -----------------
The fair value adjustments relate to the recognition of
intangible assets comprising acquired investment management
contracts ($181 million) and the Numeric brand ($4 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 10
and 13 years respectively. No deferred tax liability has been
recognised on acquisition as these intangibles are tax-deductible
in the US.
Goodwill primarily represents future synergies from combining
Man's global distribution capabilities with the existing Numeric
business, Numeric's skilled workforce, and the market share and
positioning within the US quantitative domain. Numeric's strong
performance track record underpins the implied goodwill within the
acquired business. Goodwill is expected to be deductible for tax
purposes. The newly acquired Numeric business is considered a
separate CGU for future statutory accounting impairment review
purposes.
Acquisition costs relating to staff termination, legal and other
advisory fees, as well as the costs of integrating our operating
platforms, have been incurred as a result of the Numeric
transaction. These have been expensed and do not form part of
goodwill, and are classified as adjusting items (Note 2).
The pre-tax profit for the Numeric business since acquisition
date is $19 million. If Numeric had been acquired at the beginning
of the financial year, the pre-tax profit for Numeric would have
been $43 million, based on the post-acquisition expense structure
and excluding any deal related costs. Numeric revenue for the
period since the acquisition date is $42 million (including
performance fee revenue of $23 million), and if the acquisition had
taken place at the beginning of the financial year, the revenue
would have been $94 million (including performance fee revenue of
$39 million).
Acquisition of Pine Grove
On 4 August 2014, Man acquired the entire issued share capital
of Pine Grove Asset Management LLC ('Pine Grove'), a US based fund
of hedge fund manager specialising in the management of
credit-focused hedge fund portfolios with funds under management at
the date of acquisition of $1.0 billion.
The consideration to Pine Grove owners comprises $1 million in
cash up-front and $5 million in August 2015, and contingent amounts
based on management fees earned, paid annually for five years post
acquisition (valued at $11 million). The deferred consideration
payable is equivalent to an earn-out and deemed to be a financial
liability measured initially at fair value and any subsequent fair
value movements recognised through the Group income statement.
Provisional 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 1 - 1
Intangible assets - 13 13
--------------------------------------- ---------- ---------------------- -----------------
Net assets acquired 14
Goodwill on acquisition 3
--------------------------------------- ---------- ---------------------- -----------------
Net assets acquired including goodwill 17
--------------------------------------- ---------- ---------------------- -----------------
Purchase consideration:
Cash consideration 6
Contingent consideration 11
--------------------------------------- ---------- ---------------------- -----------------
Total consideration 17
--------------------------------------- ---------- ---------------------- -----------------
The fair value adjustments relate primarily to the recognition
of investment management contracts of $13 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 nine years. No
deferred tax liability has been recognised on acquisition as these
intangibles are tax-deductible in the US.
Goodwill primarily represents the future incremental synergies
from cost savings, Pine Grove's skilled workforce and increased
access to the US market.
Acquisition costs relating to staff termination, legal and other
advisory fees, as well as the costs of integrating our operating
platforms, have been incurred as a result of the Pine Grove
transaction. These have been expensed and do not form part of
goodwill, and are classified as adjusting items (Note 2).
The pre-tax profit for the Pine Grove business since acquisition
date is $2 million. If Pine Grove had been acquired at the
beginning of the financial year, the pre-tax profit for Pine Grove
would have been $4 million, excluding any deal related costs. Pine
Grove revenue for the period since the acquisition date is $4
million, and if the acquisition had taken place at the beginning of
the financial year, the revenue would have been $11 million.
13. Other intangibles
Year ended 31 December 2014 Year ended 31 December 2013
------------------------- ----------------------------------------------- ------------------------------------------
Capitalised computer Placement Capitalised computer
$m Placement fees software Total fees software Total
------------------------- -------------- ------------------------ ----- --------- ------------------------ -----
Cost:
At beginning of the year 74 69 143 81 108 189
Additions - 9 9 3 - 3
Redemptions/disposals (8) (20) (28) (10) (39) (49)
------------------------- -------------- ------------------------ ----- --------- ------------------------ -----
At year end 66 58 124 74 69 143
------------------------- -------------- ------------------------ ----- --------- ------------------------ -----
Aggregate amortisation
and impairment:
At beginning of the year (54) (63) (117) (49) (95) (144)
Redemptions/disposals 6 16 22 5 40 45
Amortisation (13) (3) (16) (10) (8) (18)
------------------------- -------------- ------------------------ ----- --------- ------------------------ -----
At year end (61) (50) (111) (54) (63) (117)
------------------------- -------------- ------------------------ ----- --------- ------------------------ -----
Net book value at year
end 5 8 13 20 6 26
------------------------- -------------- ------------------------ ----- --------- ------------------------ -----
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.
If an investor redeems their investment in a fund product, the
corresponding unamortised placement fee is written-off (accelerated
amortisation). The placement fees intangible is also subject to a
valuation assessment semi-annually to ensure that the future
economic benefit arising from each fund product is in excess of the
remaining unamortised balance. Amortisation expense, including any
accelerated charges, is included in distribution costs in the Group
income statement.
The weighted average remaining period of the unamortised
placement fees at 31 December 2014 is 1.9 years (31 December 2013:
1.5 years).
From a capital management perspective, capital is held against
the unamortised balance of placement fees based on an evaluation of
the risk of an accelerated amortisation charge relating to poor
investment performance or early redemptions. From a regulatory
capital perspective placement fees are an intangible asset and are
required to be supported by Tier 1 regulatory capital.
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.
14. Cash, liquidity and borrowings
Liquidity and borrowings
Total liquidity resources aggregate to $2,263 million at 31
December 2014 (2013: $2,517 million) and comprise cash and cash
equivalents of $738 million (2013: $992 million) and the undrawn
committed revolving credit facility of $1,525 million (2013: $1,525
million). Cash and cash equivalents at year end comprises $291
million (2013: $291 million) of cash at bank on hand, and $447
million (2013: $701 million) in short-term deposits, net of
overdrafts of nil (2013: nil). Cash ring-fenced for regulated
entities totalled $24 million (2013: $16 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 2014 the $738 million cash balance is held with 22 banks
(2013: $992 million with 24 banks). The single largest counterparty
bank exposure of $100 million is held with an AA- rated bank (2013:
$136 million with an AA- rated bank). At 31 December 2014, balances
with banks in the AA ratings band aggregate to $284 million (2013:
$472 million) and balances with banks in the A ratings band
aggregate to $453 million (2013: $520 million).
During 2013 Man repaid all of its previously outstanding
borrowings and the perpetual subordinated capital securities.
On 16 September 2014 Man issued $150 million ten year fixed rate
reset callable guaranteed subordinated notes (Tier 2 notes), with
associated issuance costs of $1 million. The Tier 2 notes were
issued with a fixed coupon of 5.875% until 15 September 2019. The
notes may be redeemed in whole at Man's option on 16 September 2019
at their principal amount, subject to FCA approval. If the notes
are not redeemed at this time then the coupon will reset to the
five year mid-swap rate plus 4.076% and the notes will be redeemed
on 16 September 2024 at their principal amount.
Less than Greater than
31 December 2014 ($m) Total 1 year 2 years 3 years 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
-------------------------------------------------------------- ----- --------- ------- ------- ------------
Less than Greater than
31 December 2013 ($m) Total 1 year 2 years 3 years 3 years
-------------------------------------------- ----- --------- ------- ------- ------------
Cash and cash equivalents 992 992 - - -
Undrawn committed revolving credit facility 1,525 - - 70 1,455
-------------------------------------------- ----- --------- ------- ------- ------------
Total liquidity 2,517 992 - 70 1,455
-------------------------------------------- ----- --------- ------- ------- ------------
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
2014, the fair value of borrowings is $154 million (2013: nil).
In 2013 the senior fixed rate bonds and floating rate notes of
$859 million were repurchased at a total premium of $26 million.
This premium, along with an accelerated unwind of issue costs and
fees of $2 million, was included in finance expense in 2013.
The committed revolving credit facility of $1,525 million was
put in place during July 2011 as a five year facility and included
the option for Man to ask the banks to extend the maturity date by
a year on each of the first and second anniversaries. The
participant banks had the option to accept or decline Man's
request. Before the second anniversary in July 2013 the banks were
asked to extend the maturity date of the facility by a further
year. Banks with participations totalling $1,335 million accepted
the request and as a result $70 million of the facility is
currently scheduled to mature in July 2016, $120 million in July
2017, and $1,335 million in July 2018. 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 US Dollar against all other
currencies, with all other variables held constant, would have
resulted in a foreign exchange loss/gain of $6 million (2013: $2
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 2014, 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 (2013:
$3 million increase or $1 million decrease) in net interest
income.
15. Investments in fund products and other investments
31 December 2014
--------------- -----------------------------------------------------------------------------------------------------
Total
Financial investments in Net
assets at fair fund products non-current
value through Available-for-sale Loans and and other assets held for Total
$m profit or loss financial assets receivables investments sale investments
--------------- -------------- ------------------ --------------- -------------- --------------- ---------------
Investments in
fund products
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
--------------- -------------- ------------------ --------------- -------------- --------------- ---------------
31 December 2013
--------------- -----------------------------------------------------------------------------------------------------
Total
Financial investments in Net
assets at fair fund products non-current
value through Available-for-sale Loans and and other assets held Total
$m profit or loss financial assets receivables investments for sale investments
--------------- -------------- ------------------ --------------- -------------- --------------- ---------------
Investments in
fund products
comprise:
Loans to fund
products - - 99 99 - 99
Other
investments in
fund products 167 1 - 168 50 218
Other
investments - 6 - 6 - 6
--------------- -------------- ------------------ --------------- -------------- --------------- ---------------
167 7 99 273 50 323
--------------- -------------- ------------------ --------------- -------------- --------------- ---------------
15.1. 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 $80 million (2013: $238 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 2014 is $14 million (2013: $12
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.
15.2. 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.
Other 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 $51 million (2013: $50 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 $26 million at 31 December 2014
(2013: $19 million).
Fund investment for deferred compensation arrangements
At 31 December 2014 investments in fund products included $68
million (2013: $61 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.
15.3. Non-current assets held for sale
Seed capital invested into funds may at times be significant,
and therefore the fund may be deemed to be controlled by the Group.
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 2014 31 December 2013
------------------------------------------- ---------------- ----------------
Non-current assets held for sale 186 56
Non-current liabilities held for sale (33) (6)
------------------------------------------- ---------------- ----------------
Investments in fund products held for sale 153 50
------------------------------------------- ---------------- ----------------
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 15.2). 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.
15.4. Structured entities
A structured entity is an entity designed so that its activities
are not governed by way of voting rights, for example where
contractual arrangements are the dominant factor in affecting an
investor's returns. Man has evaluated all exposures and concluded
that where Man holds an investment, loan, fees receivable,
guarantee or commitment with an investment fund or a collateralised
loan obligation, this represents an interest in a structured
entity. The activities of these entities are governed by investment
management agreements or, in the case of a collateralised loan
obligation, the indenture.
In determining whether Man controls a structured entity the
directors focus on the purpose and design of the entity, the
decision making rights as investment manager or advisor, the
substantive rights to remove the fund manager or advisor and Man's
aggregate economic interests in the form of interest held and
exposure to variable returns. Where Man does not hold an investment
in the structured entity, Man considers that the characteristics of
control are not met. Furthermore, for managed accounts where we do
not act as investment manager or advisor, and for illiquid
investments purchased by Man where these are no longer actively
traded or managed, Man's role in directing investment activities is
diminished and therefore these are not considered to be structured
entities.
In most instances Man's decision making authority in its
capacity as investment manager or advisor to these entities is well
defined and discretion is exercised regarding the relevant
activities. These agreements include only terms, conditions or
amounts that are customarily present in similar arrangements
negotiated on an arm's length basis, including management and
performance fee arrangements. Where the right to remove Man as
investment manager without cause also exists, Man is acting as
agent on behalf of the investors and therefore these entities are
not consolidated into Man's results.
Man is considered to be acting as principal where Man is the
investment manager or advisor and is able to make the investment
decisions on behalf of the investors, has substantial exposure to
variable returns through investments held and fee arrangements, and
there are no substantive rights that would remove Man as investment
manager or advisor. Consolidated structured entities are detailed
in Note 15.3.
Man's interest in and exposure to unconsolidated structured
entities is as follows:
Less Managed
Accounts
and Total FUM Fair value
Consolidated Unconsolidated Gross of Loans Maximum
Total fund Structured management investment Fees to exposure
FUM entities entities No. fee margin held receivable funds to loss
($bn) ($bn) ($bn) of funds (%)(1) ($m) ($m) ($m) ($m)(2)
--------------- ------ ------------ -------------- -------- ---------- ---------- ---------- ------ ---------
Alternative
Quant
(AHL/Numeric) 12.9 - 12.9 87 2.2 40 85 1 126
Discretionary
(GLG) 14.5 0.1 14.4 439 1.4 114 7 93 214
Fund of
funds (FRM) 10.8 1.8 9.0 141 0.9 6 12 - 18
Long only
Quant
(AHL/Numeric) 16.7 - 16.7 10 0.3 2 3 - 5
Discretionary
(GLG) 16.0 - 16.0 112 0.9 4 9 - 13
Guaranteed 2.0 - 2.0 48 5.2 - 18 - 18
--------------- ------ ------------ -------------- -------- ---------- ---------- ---------- ------ ---------
Total 72.9 1.9 71.0 837 166 134 94 394
--------------- ------ ------------ -------------- -------- ---------- ---------- ---------- ------ ---------
Notes:
1 Gross management fee margins are the categorical weighted
average. 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%.
2 Man's maximum exposure to loss from unconsolidated structured
entities at 31 December 2014 is the sum total of any investment
held, fees receivable and loans to the fund entities.
Included within fund of funds is a $19 million interest
representing approximately 46% in the most subordinated debt
tranche of a collateralised loan obligation. Man is also the
Collateral Manager. Man has limited decision making power and
therefore ability to affect returns due to restrictive parameters
within the indenture, which also provides substantive removal
rights on which Man cannot vote, in particular in relation to the
key-man clause, meaning in practice that either the holder of the
remaining majority subordinated debt tranche or the majority
controlling class shareholder can remove Man as Collateral Manager.
Furthermore, the majority controlling class shareholder has
demonstrated its power to make changes to the indenture.
Accordingly, having considered all factors and in particular the
restrictive indenture and the practical ability of the other
parties to remove Man as Collateral Manager, Man considers that it
does not control this investment. As a holder of the most
subordinated debt tranche, Man has a greater exposure to the risk
of borrower default than most other investors, however this risk is
limited to the value of the investment held.
Support provided to unconsolidated structured entities is
detailed in Note 15.1, 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.
16. Fee and other receivables
$m 31 December 2014 31 December 2013
--------------------------------- ---------------- ----------------
Fee receivables 134 62
Prepayments and accrued income 204 200
Derivative financial instruments 3 20
Other receivables 55 106
--------------------------------- ---------------- ----------------
396 388
--------------------------------- ---------------- ----------------
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 2014, $8 million (2013: $18 million) of
fee and 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 2014 the amount included in other receivables is $19
million (2013: $27 million). The unsettled fund payable is recorded
in trade and other payables.
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. Other 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 assets is $280 million (2013: $265
million). All derivatives are held with external banks with ratings
of A or higher and mature within one year. During the year, there
were $3 million net realised and unrealised losses arising from
derivatives (2013: $18 million net gains).
17. Trade and other payables
$m 31 December 2014 31 December 2013
--------------------------------- ---------------- ----------------
Accruals(1) 289 336(1)
Trade payables 35 54
Deferred consideration 150 44
Derivative financial instruments 15 1
Other payables 92 198
--------------------------------- ---------------- ----------------
581 633
--------------------------------- ---------------- ----------------
Note:
1 $19 million relating to restructuring has been reclassified
from accruals, as presented in prior year, to provisions (Note
18).
Accruals primarily relate to compensation accruals. Trade
payables include payables of $20 million at 31 December 2014 (2013:
$27 million) relating to the OEIC funds business. Deferred
consideration in 2014 relates to the amounts payable in respect of
the Numeric, Pine Grove and FRM acquisitions (2013: FRM). 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 2014 are balances of $109 million (2013: $22 million)
that are expected to be settled after more than 12 months. Man's
policy is to meet its contractual commitments and pay suppliers
according to agreed terms.
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 2014 is $358 million (2013: $412
million). All derivative contracts mature within one year.
18. Provisions
$m Onerous property lease contracts Litigation Restructuring Total
------------------------------------------------ -------------------------------- ---------- ------------- -----
As 1 January 2014 43 30 19 92
Charged/(credited) to the income statement:
Charge in the year 2 - - 2
Provisions related to acquisitions during year - - 3 3
Unused amounts reversed (1) (6) - (7)
Unwinding of discount 1 - - 1
Exchange differences (2) - - (2)
Used during the year/settlements (9) - (15) (24)
------------------------------------------------ -------------------------------- ---------- ------------- -----
At 31 December 2014 34 24 7 65
------------------------------------------------ -------------------------------- ---------- ------------- -----
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.
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 21
years.
Provisions for restructuring are recognised when the obligation
arises, following communication of the formal plan. Movements in
the restructuring provision relate to the settlement of prior year
provisions and termination costs associated with acquisitions
during the year.
The $6 million reduction in the litigation provision is the
result of reassessment of the litigation provision required.
The opening provision balances for 2013 were $29 million for
onerous property lease contracts, $30 million in relation to
litigation and nil for restructuring.
19. 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 2014 Year ended 31 December 2013
-------------------------- ----------------------------------- -----------------------------------
$m 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 3 31 38 - 38
Additions - - - - 2 2
Shares of post-tax profit 9 - 9 11 1 12
Dividends received (9) (1) (10) (11) - (11)
Disposals - - - (10) - (10)
-------------------------- ------------------- ------- ----- ------------------- ------- -----
At year end 28 2 30 28 3 31
-------------------------- ------------------- ------- ----- ------------------- ------- -----
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. In 2013 Man reduced its interest in
Nephila from 25% to 18.75%, realising a gain on disposal of $10
million which is classified as an adjusting item (Note 2). 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. OFI MGA is a
French asset manager which was acquired during 2013. Both Nephila
Capital Ltd and OFI MGA have a 31 December year end. Man has not
provided any financial support to associates during the year to 31
December 2014 (2013: nil).
Commission income relating to sales of Nephila products totalled
$15 million for the year ended 31 December 2014 (2013: $10
million), and is included in gross management and other fees in the
Group income statement.
20. Leasehold improvements and equipment
Year ended 31 December 2014 Year ended 31 December 2013
--------------------------- ---------------------------------------- ----------------------------------------
$m Leasehold improvements Equipment Total Leasehold improvements Equipment Total
--------------------------- ---------------------- --------- ----- ---------------------- --------- -----
Cost
At beginning of the year 119 114 233 124 116 240
Acquisition of business 2 - 2 - - -
Additions 1 2 3 1 1 2
Disposals (8) (13) (21) (2) (7) (9)
Reclassifications - - - (4) 4 -
--------------------------- ---------------------- --------- ----- ---------------------- --------- -----
At year end 114 103 217 119 114 233
--------------------------- ---------------------- --------- ----- ---------------------- --------- -----
Accumulated depreciation:
At beginning of the year (78) (87) (165) (31) (59) (90)
Charge for year (6) (15) (21) (11) (28) (39)
Accelerated depreciation - - - (38) (5) (43)
Disposals 8 13 21 2 5 7
--------------------------- ---------------------- --------- ----- ---------------------- --------- -----
At year end (76) (89) (165) (78) (87) (165)
--------------------------- ---------------------- --------- ----- ---------------------- --------- -----
Net book value at year end 38 14 52 41 27 68
--------------------------- ---------------------- --------- ----- ---------------------- --------- -----
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 10 years.
In 2013 the accelerated depreciation of $43 million relates to
the assets no longer being used following the sub-letting of space
in Riverbank House (our main London headquarters).
21. Deferred compensation arrangements
Man operates cash and equity-settled share-based payment schemes
as well as fund product based compensation arrangements.
During the year, $42 million (2013: $70 million) is included in
compensation costs relating to share-based payment and deferred
fund product plans, consisting of equity-settled share-based
payments of $10 million (2013: $35 million), cash-settled
share-based payments totalling $1 million (2013: $1 million), and
deferred fund product plans of $31 million (2013: $34 million).
22. 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.
Man's dividend policy is that we will pay out at least 100% of
adjusted net management fee earnings per share in each financial
year by way of ordinary dividend. In addition, Man expects to
generate significant surplus capital over time, primarily from net
performance fee earnings. Available surpluses, after taking into
account our required capital (including accruals for future
earn-out payments), potential strategic opportunities and a prudent
buffer, will be distributed to shareholders over time, by way of
higher dividend payments and/or share repurchases. Whilst the Board
considers dividends as the primary method of returning capital to
shareholders, it will continue to execute share repurchases when
advantageous.
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 3(3/7) US cents per share
(2013: 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 2014, $115 million shares were
repurchased at an average price of 99.7p, buying back 68.8 million
shares (2013: no shares), which had an accretive impact on EPS of
approximately 3%. $1 million of costs were incurred relating to the
repurchase, largely relating to stamp duty. As at 24 February 2015,
Man Group had an unexpired authority to repurchase up to
153,455,914 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
263,267,978 of its ordinary shares, representing 14.99% of the
issued share capital at 24 February 2015.
Deferred sterling shares
50,000 unlisted deferred sterling shares, representing 0.1% of
the Company's issued share capital with a par value of GBP1 per
share, were issued due to the redenomination of the ordinary share
capital into US Dollars. 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 2014
---------------------------------------------- ----------------------------------------------------------------------
Ordinary
shares Unlisted deferred sterling shares
Number Number Nominal value $m
---------------------------------------------- ------------- ------------------------------------- ----------------
At 1 January 2014 1,823,733,081 50,000 63
Issue of ordinary shares:
* Purchase and cancellation of own shares (68,835,247) - (2)
* Partnership Plans 1,392,880 - -
---------------------------------------------- ------------- ------------------------------------- ----------------
At 31 December 2014 1,756,290,714 50,000 61
---------------------------------------------- ------------- ------------------------------------- ----------------
Year ended 31 December 2013
-------------------------- --------------------------------------------------
Ordinary Unlisted deferred
shares sterling shares
Number Number Nominal value $m
-------------------------- ------------- ----------------- ----------------
At 1 January 2013 1,821,790,279 50,000 63
Issue of ordinary shares:
* Partnership Plans 1,942,802 - -
-------------------------- ------------- ----------------- ----------------
At 31 December 2013 1,823,733,081 50,000 63
-------------------------- ------------- ----------------- ----------------
Share capital and reserves
Share Share Capital redemption Merger
$m capital premium account reserve reserve Reorganisation reserve Total
----------------------- -------- ---------------- ----------------------- -------- ---------------------- ------
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
----------------------- -------- ---------------- ----------------------- -------- ---------------------- ------
At 1 January 2013 63 1 - 491 632 1,187
Share awards/options - 4 - - - 4
----------------------- -------- ---------------- ----------------------- -------- ---------------------- ------
At 31 December 2013 63 5 - 491 632 1,191
----------------------- -------- ---------------- ----------------------- -------- ---------------------- ------
Revaluation reserves and retained earnings
Own shares held Cumulative
Available-for-sale Cash flow hedge by Employee translation Profit and loss
$m reserve reserve Trusts adjustment 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 period - - - - 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) -
Corporation tax
credited on cash
flow hedge
movements - 3 - - - 3
Fair value
(losses)/gains
taken to equity - (16) - - - (16)
Revaluation of
defined benefit
pension scheme - - - - (21) (21)
Corporation 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
----------------- ------------------ ---------------- ---------------- ---------------- ----------------- ------
Own shares held Cumulative
Available-for-sale Cash flow hedge by Employee translation Profit and loss
$m reserve reserve Trusts adjustment account Total
----------------- ------------------ ---------------- ---------------- ---------------- ----------------- ------
At 1 January 2013 3 6 (170) 14 1,570 1,423
Currency
translation
difference - - (4) (11) - (15)
Share-based
payments charge
for the period - - - - 30 30
Purchase of own
shares by the
Employee Trusts - - (18) - -- (18)
Disposal of own
shares by the
Employee Trusts - - 82 - (82) -
Corporation tax
debited on cash
flow hedge
movements - (3) - - - (3)
Fair value
(losses)/gains
taken to equity (1) 12 - - - 11
Revaluation of
defined benefit
pension scheme - - - - 16 16
Corporation tax
credited to
reserves -
pension scheme - - - - 6 6
Deferred tax
debited to
reserves -
pension scheme - - - - (11) (11)
Transfer to Group
income statement 1 (1) - 1 - 1
Dividends - - - - (277) (277)
Dividends with
respect to
perpetual
subordinated
capital
securities - - - - (25) (25)
Taxation with
respect to
perpetual
subordinated
capital
securities - - - - 6 6
Profit for the
year - - - - 72 72
----------------- ------------------ ---------------- ---------------- ---------------- ----------------- ------
At 31 December
2013 3 14 (110) 4 1,305 1,216
----------------- ------------------ ---------------- ---------------- ---------------- ----------------- ------
23. Post balance sheet events
On 20 January 2014 the Board completed the acquisition of
Silvermine Capital Management LLC ('Silvermine'), with an estimated
acquisition fair value of approximately $45 million. Silvermine is
a Connecticut-based leveraged loan manager with $3.8 billion of
funds under management across nine active collateralised loan
obligation structures. The estimated acquisition fair value
primarily relates to acquired intangible assets which attract tax
deductions in the US. The acquisition consideration is structured
to align Silvermine's interests with those of Man, and comprises an
upfront payment of $23.5 million and two earn-out payments. The
earn-out payments are payable following the first (up to $16.5
million) and fifth (up to $30 million) anniversary of closing on a
sliding scale dependent on levels of run rate management fees.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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