2017 Full Year Results

RNS Number : 1528G

Man Group plc

28 February 2018

Press Release

28 February 2018

RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017

Key points

· Funds under Management (FUM)¹ up 35% to $109.1 billion (31 December 2016: $80.9 billion)

o Net inflows of $12.8 billion (2016: net inflows $1.9 billion)

o Positive investment movement of $10.7 billion (2016: $3.2 billion)

o Aalto acquisition added $1.8 billion

o FX translation and other movements of $2.9 billion (2016: -$2.9 billion)

· 11 basis point reduction in the Group net management fee margin¹ compared to 2016 driven by strong FUM growth in lower margin strategies. Group run rate net management fee margin¹ of 72 basis points at 31 December 2017

· Net revenues increase by 33% reflecting good absolute performance fee generation and 7% growth in net management fee revenue

· Adjusted profit before tax (PBT)¹ of $384 million in 2017 (2016: $205 million),

o Adjusted net management fee PBT of $203 million (2016: $178 million)

o Adjusted net performance fee PBT of $181 million (2016: $27 million)

· Statutory PBT for the year ended 31 December 2017 of $272 million (2016: statutory loss before tax of $272 million)

· Recommended final dividend of 5.8 cents per share bringing total dividend for the year to 10.8 cents per share (2016: 9.0 cents). The final dividend is equal to 4.18 pence per share (2016: 3.62 pence), and the total dividend for the year is equal to 7.97 pence per share (2016: 7.05 pence)

· Proforma surplus regulatory capital of $460 million adjusted for second half earnings, our final dividend and receipt of cash for year end performance fees and redemption of our largest seeding investment. We estimate the adoption of the new leases accounting standard which will apply from 1 January 2019 will reduce that surplus capital by up to £90m ($120 million)

Luke Ellis, Chief Executive Officer of Man, said:

"2017 was a strong year for our business. The record net inflows of $12.8 billion reflected not only the outperformance we delivered for clients, but also our focus on deep client relationships. Our FUM grew by 35% and this, combined with the strong investment performance and our focus on running the business in an efficient and effective manner, led to excellent profit growth, with an 87% increase in adjusted profits.

In common with others, the recent moves in markets have impacted our investment performance in some areas, particularly for our momentum strategies. However, looking forward Man is well positioned, with strong fundamentals, investment in innovative strategies and a continuing pipeline of interest from clients. As ever, we remain focused on delivering long term investment performance and the highest quality service to our clients."

¹For definitions and explanations of our alternative performance measures, please refer to page 52.

Summary financials	Page ref.	Year ended 31 Dec 2017	Year ended 31 Dec 2016
		$	$
Funds under management (end of period)¹	5-7	109.1bn	80.9bn
Net management fee revenue²	17,18,31	736m	691m
Performance fees³	18,31	333m	112m
Net revenues		1,069m	803m
Compensation	19,32	(474m)	(388m)
Other costs (including asset servicing)	19,33	(202m)	(199m)
Net finance expense	20,33	(9m)	(11m)
Adjusted profit before tax¹	20,53	384m	205m
Adjusting items⁴	20,53	(112m)	(477m)
Statutory profit / (loss) before tax	17,24	272m	(272m)
Statutory diluted EPS⁵	35,55	15.3c	(15.8)c
Adjusted EPS^1,5	55	20.3c	10.4c
Adjusted management fee EPS^1,5	55	10.8c	9.0c
Dividend per share⁶	22	7.97p	7.05p

¹For definitions and explanations of our alternative performance measures, please refer to page 52.
² Includes gross management and other fees, distribution costs, and share of post-tax profit of associates.
³ Includes income or gains on investments and other instruments and third party share of gains/losses relating to interests in consolidated funds.

⁴ The adjusting items in the year are shown on page 53 and relate to certain non-recurring items or those resulting from acquisition or disposal related activities.

⁵ The reconciliation of statutory diluted EPS to the adjusted EPS measures is included in the alternative performance measures (page 55).

⁶ Our dividend policy and availability of dividend resources is discussed further on page 22.

Dividend and share repurchase

The Board confirms that it will recommend a final dividend of 5.8 cents per share for the financial year to 31 December 2017, giving a total dividend of 10.8 cents per share for the year. The final dividend will be paid at the rate of 4.18 pence per share.

Man's dividend policy is to pay out at least 100% of adjusted net management fee earnings per share (EPS) 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. Man's policy is to distribute available capital surpluses to shareholders over time, by way of higher dividend payments and/or share repurchases, while maintaining a prudent balance sheet, after taking into account required capital (including liabilities for future earn-out payments) and potential strategic opportunities. 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 October 2017, the Board decided to carry out a share repurchase programme for up to $100 million to return surplus capital to shareholders. Currently, around $56 million worth of shares have been repurchased.

Dates for the 2017 final dividend

Ex-dividend date	26 April 2018
Record date	27 April 2018
Payment date	18 May 2018

Results presentation, audio webcast and dial in details

There will be a presentation by the management team at 9am (UK time) on 28 February 2018 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 which will also be available on demand from later in the day. The dial-in and replay telephone numbers are as follows:

Live Conference Call Dial in Numbers:

International: +44 (0) 203 003 2666

UK Toll-Free Number: 0808 109 0700

US Toll-Free Number: + 1 866 966 5335

30 Day Replay Dial in Numbers:

International: +44 (0) 20 8196 1998

UK Toll Free Number: 0800 633 8453

US Toll Free Number: +1 866 583 1039

Access Code: 2406315#

Enquiries

Fiona Smart

Head of Investor Relations

+44 20 7144 2030

fiona.smart@man.com

Rosanna Konarzewski

Global Head of Communications & Marketing

+44 20 7144 1000

media@man.com

Michael Turner

Finsbury

+44 20 7251 3801

mangroupUK@finsbury.com

About Man Group

Man Group is an active investment management firm focused on delivering performance and client portfolio solutions through its five investment management businesses: Man AHL; Man Numeric; Man GLG; Man FRM and Man Global Private Markets. Man Group's investment management businesses provide long only, alternative and private markets products on a single and multi-manager basis, leveraging the firm's robust infrastructure to provide a diverse range of strategies across investment approaches, styles and asset classes.

The original business was founded in 1783. Today, Man Group plc is listed on the London Stock Exchange under the ticker EMG.L and is a constituent of the FTSE 250 Index. As at 31 December 2017, Man Group's funds under management were $109.1 billion.

Man Group also supports many awards, charities and initiatives around the world, including sponsorship of 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 or to invest in any investment products mentioned herein.

FUNDS UNDER MANAGEMENT ANALYSIS

As our business has evolved, we have changed the categorisation of our FUM such that it better represents strategies with similar characteristics.

The three categories in alternatives are:

· Absolute return (includes strategies that were previously included in quant alternative and discretionary alternative, however excludes risk premia which has been moved to total return and convertibles and North American equity which have been moved to discretionary long only)

· Total return (includes EM debt total return, GPM, risk premia and CLO strategies)

· Multi-manager solutions (includes traditional fund of fund and infrastructure and segregated mandates)

The two long only categories are:

· Systematic (this category was previously called quant long only)

· Discretionary (includes strategies that were previously in discretionary long only, as well as convertibles and North American equity which were previously included in discretionary alternatives. EM debt total return has been moved to total return)

New Categorisation

Three months to 31 December 2017

$bn	FUM at 30 September 2017	Sales	Redemptions	Net inflows/ (outflows)	Investment movement	FX	Other	FUM at 31 December 2017
Alternative	57.3	5.4	(2.5)	2.9	1.4	0.2	(0.1)	61.7
Absolute return	27.5	1.8	(1.4)	0.4	1.0	0.1	0.2	29.2
Total return	14.7	2.4	(0.1)	2.3	(0.4)	0.1	(0.2)	16.5
Multi-manager solutions	15.1	1.2	(1.0)	0.2	0.8	-	(0.1)	16.0
Long only	46.0	2.3	(3.3)	(1.0)	2.2	0.1	(0.1)	47.2
Systematic	26.8	0.5	(1.7)	(1.2)	1.3	-	(0.1)	26.8
Discretionary	19.2	1.8	(1.6)	0.2	0.9	0.1	-	20.4
Guaranteed	0.2	-	(0.1)	(0.1)	-	-	0.1	0.2
Total	103.5	7.7	(5.9)	1.8	3.6	0.3	(0.1)	109.1

Year to 31 December 2017

$bn	FUM at 31 December 2016	Sales	Redemptions	Net inflows/ (outflows)	Investment movement	FX	Other	FUM at 31 December 2017
Alternative	43.8	21.9	(10.2)	11.7	2.7	1.6	1.9	61.7
Absolute return	25.4	6.9	(6.3)	0.6	2.1	0.8	0.3	29.2
Total return	6.6	9.2	(1.0)	8.2	0.1	0.4	1.2	16.5
Multi-manager solutions	11.8	5.8	(2.9)	2.9	0.5	0.4	0.4	16.0
Long only	36.7	11.8	(10.6)	1.2	8.0	1.5	(0.2)	47.2
Systematic	21.4	4.2	(4.8)	(0.6)	5.8	0.2	-	26.8
Discretionary	15.3	7.6	(5.8)	1.8	2.2	1.3	(0.2)	20.4
Guaranteed	0.4	-	(0.1)	(0.1)	-	-	(0.1)	0.2
Total	80.9	33.7	(20.9)	12.8	10.7	3.1	1.6	109.1

Old Categorisation

Three months to 31 December 2017

$bn	FUM at 30 September 2017	Sales	Redemptions	Net inflows/ (outflows)	Investment movement	FX	Other	FUM at 31 December 2017
Alternative	56.7	4.9	(2.7)	2.2	1.6	0.1	(0.3)	60.3
Quant (AHL / Numeric)	24.5	2.2	(0.5)	1.7	1.1	-	0.4	27.7
Discretionary (GLG)	13.2	1.1	(1.2)	(0.1)	0.2	0.1	(0.1)	13.3
Fund of funds (FRM)	16.8	1.5	(1.0)	0.5	0.3	-	(0.5)	17.1
Global Private Markets	2.2	0.1	-	0.1	-	-	(0.1)	2.2
Long only	46.6	2.8	(3.1)	(0.3)	2.0	0.2	0.1	48.6
Quant (AHL / Numeric)	26.9	0.5	(1.8)	(1.3)	1.2	-	0.1	26.9
Discretionary (GLG)	19.7	2.3	(1.3)	1.0	0.8	0.2	-	21.7
Guaranteed	0.2	-	(0.1)	(0.1)	-	-	0.1	0.2
Total	103.5	7.7	(5.9)	1.8	3.6	0.3	(0.1)	109.1

Year to 31 December 2017

$bn	FUM at 31 December 2016	Sales	Redemptions	Net inflows/ (outflows)	Investment movement	FX	Other	FUM at 31 December 2017
Alternative	46.3	18.4	(10.7)	7.7	2.9	1.8	1.6	60.3
Quant (AHL / Numeric)	19.6	8.3	(2.9)	5.4	1.7	0.6	0.4	27.7
Discretionary (GLG)	13.9	3.5	(4.9)	(1.4)	0.6	0.8	(0.6)	13.3
Fund of funds (FRM)	12.8	6.0	(2.9)	3.1	0.6	0.4	0.2	17.1
Global Private Markets	-	0.6	-	0.6	-	-	1.6	2.2
Long only	34.2	15.3	(10.1)	5.2	7.8	1.3	0.1	48.6
Quant (AHL / Numeric)	21.4	4.2	(4.8)	(0.6)	5.8	0.2	0.1	26.9
Discretionary (GLG)	12.8	11.1	(5.3)	5.8	2.0	1.1	-	21.7
Guaranteed	0.4	-	(0.1)	(0.1)	-	-	(0.1)	0.2
Total	80.9	33.7	(20.9)	12.8	10.7	3.1	1.6	109.1

FUM by investment engine

$bn	31-Dec-16	31-Mar-17	30-Jun-17	30-Sep-17	31-Dec-17
AHL	18.7	19.4	19.8	22.0	24.0
AHL Dimension	5.2	5.2	5.1	5.7	5.9
AHL Alpha	4.1	4.2	4.2	4.0	4.4
AHL Diversified (inc. Guaranteed)	3.4	3.3	3.2	3.1	3.1
AHL Evolution	2.8	3.0	3.3	3.4	3.7
AHL Other specialist styles	0.8	0.9	1.0	0.9	0.8
AHL Institutional Solutions*	1.0	1.2	1.4	2.2	2.6
AHL Liquid Strategies	1.4	1.6	1.6	2.7	3.5
Numeric	23.6	25.4	28.0	30.9	31.9
Global	12.2	13.0	14.9	15.9	16.0
Emerging markets	4.2	5.3	5.7	6.5	6.7
US	5.0	4.5	4.5	4.4	4.1
Alternatives	2.2	2.6	2.9	4.1	5.1
GLG	26.7	28.8	31.2	32.9	35.0
Alternatives	11.4	12.5	13.4	13.5	14.6
Equity	3.6	3.6	3.6	3.4	3.8
EM Fixed Income	0.8	2.0	3.4	3.9	4.4
Credit	1.7	1.8	1.5	1.4	1.6
CLO	4.6	4.4	4.3	4.2	4.2
Multi-strategy	0.7	0.7	0.6	0.6	0.6
Long only	15.3	16.3	17.8	19.4	20.4
Japan equity	7.1	7.3	7.9	8.5	9.7
Europe equity	0.9	1.0	1.3	1.9	2.0
US equity	1.2	1.3	1.1	1.2	1.2
Convertibles	2.2	2.3	2.5	2.5	2.2
UK equity	0.8	0.8	1.0	1.2	1.5
Other equity	0.7	0.9	1.0	1.0	1.0
Multi Asset	1.2	1.2	1.1	1.1	1.0
Fixed income	1.2	1.5	1.9	2.0	1.8
FRM	11.9	13.2	14.9	15.5	16.0
Infrastructure & Direct Access	5.3	5.5	7.4	7.1	7.7
Segregated	3.0	4.5	4.7	5.8	6.0
Diversified FoHF	2.7	2.2	1.7	1.6	1.6
Thematic FoHF	0.9	1.0	1.1	1.0	0.7
GPM**	0.0	1.9	2.0	2.2	2.2
Total	80.9	88.7	95.9	103.5	109.1

*AHL Institutional Solutions invests into a range of AHL strategies including AHL Dimension, AHL Alpha and AHL Evolution

** FUM at close on 1 January 2017 was $1.8 billion

Investment Performance

		Total Return (net of fees)		Annualised Return (net of fees)
		3 months to 31 Dec 2017	12 months to 31 Dec 2017	3 years to 31 Dec 2017	5 years to 31 Dec 2017	Since inception to 31 Dec 2017
AHL
AHL Dimension	1	1.7%	3.9%	3.1%	5.5%	5.4%
AHL Alpha	2	4.4%	5.3%	1.2%	4.6%	11.4%
AHL Evolution	3	6.5%	17.9%	8.9%	12.7%	14.3%
AHL Diversified	4	6.7%	5.0%	-1.9%	4.1%	11.7%
GLG
European Equity
GLG European Long Short	5	1.9%	6.5%	4.1%	2.8%	7.6%
Man GLG European Mid-Cap Equity Alternative	6	-0.6%	6.1%	n/a	n/a	6.5%
Credit
Man GLG Global Convertible	7	0.3%	5.4%	3.8%	4.6%	5.7%
Man GLG Global Credit Multi Strategy	8	3.3%	13.4%	8.9%	5.7%	12.8%
Man GLG Global EM Debt Total Return	9	0.3%	2.3%	n/a	n/a	4.8%
Multi-strategy
Man Multi-Strategy	10	2.4%	11.2%	5.2%	3.9%	4.6%
Long Only
Man GLG Japan Core Alpha Equity	11	9.1%	16.7%	11.7%	19.8%	5.2%
Man GLG Undervalued Assets	12	6.8%	30.3%	14.7%	n/a	12.8%
Man GLG Continental European Growth	13	-0.6%	18.7%	22.1%	20.2%	9.7%
FRM
FRM Diversified II	14	1.9%	6.2%	1.1%	2.4%	4.3%
Man Solutions
Man Alternative Risk Premia SP	15	7.0%	10.1%	n/a	n/a	8.6%
Indices
HFRX Global Hedge Fund Index	16	1.5%	6.0%	1.5%	2.1%	n/a
HFRI Fund of Funds Conservative Index	16	1.0%	4.0%	2.1%	3.4%	n/a
Barclay BTOP 50 Index	17	3.9%	-0.6%	-2.0%	1.3%	n/a
HFRX EH: Equity Market Neutral Index	16	-1.0%	1.7%	0.6%	1.4%	n/a
NUMERIC
Alternative
Numeric Alternative Market Neutral		-1.7%	-1.7%	2.1%	4.5%	3.9%
Long only
Numeric Global Core		5.5% %	26.1%	11.9%	n/a	14.1%
Relative Return¹⁷		-0.1%	3.7%	2.6%	n/a	3.6%
Numeric Europe Core (EUR)		-0.1%	13.6%	10.8%	14.0%	9.6%
Relative Return¹⁸		-0.7%	3.3%	3.8%	4.6%	3.0%
Numeric Emerging Markets Core		5.7%	43.3%	14.1%	n/a	9.6%
Relative Return¹⁹		-1.7%	6.0%	5.0%	n/a	4.1%

Investment performance (Cont'd)
1. Represented by AHL Strategies PCC Limited: Class B AHL Dimension USD Shares from 3 July 2006 to 31 May 2014, and by AHL Dimension (Cayman) Ltd - F USD Shares Class from 1 June 2014 until 28 February 2015 when AHL Dimension (Cayman) Ltd - A USD Shares Class is used. Representative fees of 1.5% Management Fee and 20% Performance Fee have been applied. 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 Evolution Limited adjusted for the fee structure (2% p.a. management fee and 20% performance fee) from September 2005 to 31 October 2006; and by AHL Strategies PCC: Class G AHL Evolution USD from 1 November 2006 to 30 November 2011; and by the performance track record of AHL Investment Strategies SPC: Class E AHL Evolution USD Notes from 1 December 2011 to 30 November 2012. From 1 December 2012, the track record of AHL (Cayman) SPC: Class A1 Evolution USD Shares has been shown. All returns shown are net of fees. 4. 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.
5. Represented by GLG European Long Short Fund - Class D Restricted - EUR until 29 June 2007. From 1 July 2007 the performance of GLG European Long Short Fund - Class D Unrestricted is displayed. 6. Represented by Man GLG European Mid-Cap Equity Alternative IN H USD.
7. Represented by Man GLG Global Convertible - Class IL T USD until 7 June 2009. From 8 June 2009 the performance of Man GLG Global Convertible - Class IM USD is displayed.
8. The inception date of the fund, Man GLG Global Credit Multi Strategy, was 16 January 1998. Performance data is shown using Restricted IL XX USD (previously Z) share class up until inception of Unrestricted IL XX USD (previously Z) share class on 31 August 2007, from which point performance is shown using this share class.
9. Represented by Man GLG Global Emerging Markets Debt Total Return Class I USD.Represented by Man GLG Continental European Growth Fund Class C Accumulation Shares. 10. 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 Multi-Strategy Fund - Class G - USD Shares is displayed.
11. Represented by Man GLG Japan CoreAlpha Fund - Class C converted to JPY until 28 January 2010. From 1 February 2010 Man GLG Japan CoreAlpha Equity Fund - Class I JPY is displayed.
12. Represented by Man GLG Undervalued Assets Fund - C Accumulation Shares.
13. Represented by Man GLG Continental European Growth Fund Class C Accumulation Shares.
14. Represented by FRM Diversified II Fund SPC - Class A USD ('the fund') but prior to Jan 2004, FRM has created the FRM Diversified II pro forma using the following methodology: i) for the period Jan 1998 to Dec 2003, by using the returns of Absolute Alpha Fund PCC Limited - Diversified Series Share Cell ('AA Diversified - USD') adjusted for fees and/or currency, where applicable. For the period Jan 2004 to Feb 2004, the returns of the fund's master portfolio have been used, adjusted for fees and/or currency, where applicable. Post Feb 2004, the fund's actual performance has been used, which may differ from the calculated performance of the track record. There have been occasions where the 12-months' performance to date of FRM Diversified II has differed materially from that of AA Diversified. Strategy and holdings data relates to the composition of the master portfolio. Represented by Man GLG Global Emerging Markets Debt Total Return Class I USD. 15. Represented by Man Alternative Risk Premia Class A USD. 16. HFRI and HFRX index performance over the past 4 months is subject to change. 17. The historic Barclay BTOP 50 Index data is subject to change. 18. Performance relative to the MSCI World. This reference index 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. 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. 19. Performance relative to the MSCI Europe (EUR). This reference index 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. 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. 20. Performance relative to MSCI Emerging Markets. This reference index 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. 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.		21.

Past or projected performance is no indication of future results. Financial indices are used for illustrative purposes only and are provided for the purpose of making a comparison to general market data as a point of reference and should not be construed as a true comparison to the strategy.

The information herein is being provided solely in connection with this press release and is not intended to be, nor should it be construed or used as, investment, tax or legal advice, any recommendation or opinion regarding the appropriateness or suitability of any investment or strategy, or an offer to sell, or a solicitation of an offer to buy, an interest in any security, including an interest in any fund or pool described herein.

CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

During the year we made significant progress in respect of our key strategic objectives which has laid firm foundations for the longer term growth of the business. Investment performance was strong and we are pleased to have outperformed peers by 1.9% on average across our strategies¹. This performance has been recognised by our clients with record inflows, but more importantly we are developing better and deeper relationships with the world's largest and most sophisticated asset owners. This resulted in us adding a significant number of new relationships with strategically important asset owners during the year. We continue to add further innovative investment capabilities, for instance in Alternative Risk Premia and Private Markets, and to invest in research and innovation, whether that be machine learning techniques across our quant strategies or new discretionary teams in GLG. From a regulatory perspective an enormous amount of hard work went into ensuring we were ready to meet all MiFID II obligations at the start of 2018 with the whole firm working together to achieve this.

The strong outperformance coupled with positive momentum in markets during 2017 led to an investment performance related increase in FUM of $10.7 billion. Strong client demand for Emerging Market debt, FRM managed accounts and quant strategies led to net inflows of $12.8 billion for the year, albeit the flows were typically lower margin. The combination of these two factors as well as an FX tailwind and the acquisition of Aalto led to a 35% increase in funds under management to $109.1 billion. The growth was broad based, with our alternative and long only strategies, quant and discretionary approaches, and all of our investment engines growing their funds under management during the year.

Adjusted profit before tax increased to $384 million, compared to $205 million in 2016, principally due to a strong rebound in performance fees. We are particularly pleased to see this rebound in fees in a year which was not a favourable environment for traditional trend following strategies. This highlights the benefit of the diversified set of performance fee earning strategies both within Man AHL and across the Group. Adjusted management fee profit before tax was up 14%, growing at a steadier pace than the increase in FUM as our revenue margin compressed due to strong asset growth in lower margin strategies. Statutory profit before tax was $272 million, compared to a loss of $272 million in 2016 when we had the impairment of Man GLG and Man FRM's goodwill and intangibles. Our business continues to be strongly cash generative with adjusted profit after tax (a good proxy for operating cash flow) of $337 million in 2017.

Performance

Market overview

2017 was characterised by a bull market for risk assets. US equities ended the year at record highs, spurred by the positive sentiment from the passage of US tax reforms. The TOPIX was up 22% and despite the UK election result and the uncertainty surrounding Brexit, the FTSE 100 ended the year up 12%. Emerging markets trends were also positive with the MSCI emerging markets index up 37% for the year. Fixed income markets had a volatile year selling off substantially during the last week of June only to recover in the second half of the year with world bonds and corporate bonds ending the year up 2% and 12% respectively. Traditional energy markets such as oil and natural gas saw numerous peaks and troughs but oil prices rallied towards the end of the year.

Alternatives

Against this backdrop returns in many trend following strategies were limited, with the Barclays BTOP ending the year down 0.6%. Man AHL's traditional trend following programmes, AHL alpha and AHL diversified fared noticeably better finishing the year up 5.3% and 5.0% respectively. AHL evolution, our trend following strategy in non-traditional markets, continued its very strong track record and ended the year up 17.9%. AHL dimension, with its allocation to a range of Man AHL's strategies, ended the year up 3.9%. In contrast to the strong overall performance of Numeric, its alternative strategies had weaker performance with the largest market neutral strategy down 1.7% for the year.

1 Performance figures shown net of representative management and performance fees. Past performance is not indicative of future performance.

2 Where a strategy has a formal benchmark, performance is compared to this. Where no formal benchmark has been set, "benchmark" should be taken to refer to a relative index. Relative performance is provided for illustrative purposes to provide market information and is not meant to be an accurate comparison. The strategy is managed significantly differently than the benchmark or index.

Towards the end of 2016 we took steps to improve the consistency of discretionary alternatives performance through the appointment of a GLG CIO, a restructure of the risk team and efforts to bring best practices in risk management and technology to bear from across the Group. Good progress has been made with strong performance generated in 2017 and Man GLG's Alternative Strategies Dollar Weighted Composite delivering returns of 8.3%, versus the HFRX return of 6.0%. Credit strategies followed up a strong 2016 with another year of excellent performance, and Man GLG's equity strategies also had a strong year with the firm's flagship European Long-Short strategy generating returns of 6.5% in 2017, outperforming the HFRX Equity Market Neutral Hedge Index and many direct competitors.

Across our total return strategies, Alternative Risk Premia, which combines liquid strategies from Man AHL and Man Numeric, continued its strong performance since launch, ending up 10.1% for the year. The Emerging Market debt total return strategy which launched in 2016 ended the year up 2.3%, underperforming its competitors due to its bearish positioning.

Man FRM's strategies also had strong investment performance throughout the year. FRM Diversified II was up 6.2% and outperformed the HFRI Fund of Funds Conservative Index by 2.3%.

Long only

Man Numeric had another strong year generating overall net asset weighted outperformance versus benchmark of 2.1%². Positive alpha generation in international strategies including Emerging Markets Core and Global Core was partially offset by weaker alpha in US stocks resulting in negative performance for US strategies including Small Cap Core and Large Cap Core.

Most of Man's discretionary long only strategies had good absolute and relative performance in 2017. However the largest individual strategy, Japan CoreAlpha with its strong value approach underperformed the TOPIX by 5.5%, as value underperformed as a style in Japan, which resulted in Man GLG's long only strategies underperforming their benchmarks by 2.5% on an asset weighted basis. The Continental European Equity strategy outperformed its reference index by 1.2% and the UK Undervalued Assets strategy outperformed its benchmark by 17.2%.

Progress against strategic priorities

Innovative investment strategies

Research and innovation is a key priority across our business. Markets do not stand still; we need to keep innovating to perform for our clients and we invest a huge amount of time and energy in research. Given our focus on maintaining outperformance, we monitor capacity across our strategies and we will regularly have various products that hit their capacity and we soft close to ensure we maintain client returns. However, the constant research and innovation effort across the firm means we will also have new strategies we have developed to help clients address their investment needs.

Man Alternative Risk Premia is a good example of the collective expertise across the firm helping to solve problems for our clients. Man FRM's own portfolio construction process had made clear the benefit of a liquid, cash efficient strategy uncorrelated to traditional assets, as part of an overall alternatives portfolio. They worked with Man AHL and Man Numeric to develop a multi-premia, multi-strategy, multi-asset approach allocating across four broad alternative risk factors. These systematic trading strategies have multi-level risk management and leverage Man's entire range of investment expertise. Man FRM then worked with Sales and Product Structuring to provide a suite of flexible solutions to meet individual client requirements. The strategy is up 20.9% since inception in 2015; we started marketing to clients around the world during the year and are seeing strong interest with $4.0 billion of assets raised to date and a decent sales pipeline.

1 Where a strategy has a formal benchmark, performance is compared to this. Where no formal benchmark has been set, "benchmark" should be taken to refer to a relative index.

2 Numeric's net asset weighted alpha for the periods stated is calculated using the asset weighted average of the performance relative to the benchmark for all strategy composites available net of the highest rate of management fees charged and, as applicable, performance fees that can be charged.

We have expanded the focus of our research across the firm in machine learning and data analytics, to provide growth opportunities from utilising new research techniques and forms of data. This initiative continues to develop, and a number of new machine learning-based signals have been added to several of our quant programmes at Man AHL and Man Numeric this year. Man GLG added a machine learning team during the year in order to use this already well known cutting edge research from quant and introduce it into its discretionary offerings.

We believe technology allows discretionary fund management to materially improve individual investment decisions, the implementation of those ideas and the risk management of overall portfolios. Man is particularly well positioned to bring the benefits of technology to bear on discretionary investment processes.

Another focus during 2017 was on trading and execution. We have appointed a director of trading to manage this effort across Man, bringing together traders, trading technologists and researchers. We believe this initiative will deliver superior execution results for all of our investment engines to the benefit of our clients and increasing our capacity. In many asset classes, electronic market makers are increasingly replacing traditional brokers as the principal source of liquidity and as a result a globally coordinated central execution team will allow us to better adapt to today's market structures. We have made significant efforts this year to reduce trading costs which translates directly into improved performance for clients.

We added a new private markets capability through the acquisition of Aalto Invest in January 2017, with Man Global Private Markets (Man GPM) launched at the same time. Within Man GPM, we have funded several new mandates within our global real estate debt and US residential equity strategies as well as launched a new US direct lending fund. We are encouraged by the additional commitments from longstanding clients and the initial interest shown by our clients for this new asset class within Man. In line with our overall strategy, we continue to look at other possible acquisitions, including in the private markets space to complement Aalto, continuing to ensure we remain disciplined on price, structure and cultural fit.

Strong client relationships

2017 saw excellent engagement with our existing and targeted clients across the globe, as reflected in record net inflows for the year of $12.8 billion. We continued to make good progress in building long term relationships with clients and during the year we added a significant number of new relationships with strategically important asset allocators and distributors. Seeing many of our key targeted clients make their first investments with Man, and our existing clients entrusting us with further allocations is one of the best signs of the progress we have made and the strength of our business today. The trend of clients investing across the firm is also continuing with a number of existing clients investing in new products in 2017. 73% of FUM is now sourced from clients investing in two products or more and 56% of FUM from clients investing in four products or more. Furthermore, 59% of FUM is sourced from clients investing across more than one of our investment engines.

There has also been a significant amount of work done to strengthen our sales organisation which has translated into an improvement in the effectiveness of the function. The focus of the team has been on attracting and developing talent, targeting resources and building the strongest client relationships possible. 2017 saw a 55% increase in gross sales to $33.7 billion driven by strong flows into FRM managed accounts, Man's Alternative Risk Premia offering, and Emerging Market Debt strategies in particular. As highlighted previously it is important to note that the margins on these sales were lower than the average for the Group. Redemptions of $20.9 billion were across a range of strategies and in line with the redemption rate in 2016.

From a geographical perspective, whilst EMEA continues to be our biggest market, the business is now better balanced as we have seen strong growth in the US market over the last five years. Gross sales from the Americas accounted for 32% of the total sales in 2017 compared to 29% in 2016. At 31 December 2017, 27% of FUM was from clients domiciled in the Americas compared to 8% in 2012. Gross sales from the Americas have grown from $1.1 billion in 2012 to $10.8 billion in 2017.

Efficient and effective operations

We continually assess our cost base across the firm in comparison to our revenue earning capabilities to ensure we are running the business as efficiently as possible while investing for growth. We completed the restructuring initiatives that were started in 2016 with the costs of the restructuring in line with expectations. From a regulatory perspective the whole firm worked together to ensure we were ready to meet all MiFID II obligations at the start of 2018. The ongoing costs associated with MiFID II will add around $10-15 million to our cost base from 2018 onwards.

In November we moved all our London teams to the same location in the City of London. We are already seeing the significant advantages this generates for the Group and our clients, with enhanced opportunities to collaborate and to further leverage our collective investment expertise.

Our balance sheet remains strong and liquid, and we continue to support the growth of new products through our seed capital programme. We continually assess whether seeding positions support the business and a large position in a US distressed credit strategy has been redeemed as a result of a lack of investor subscriptions.

We completed our previously announced $100 million buyback in September and announced a further $100 million buyback in October. Our surplus capital at 31 December 2017 was $256 million. The proforma surplus capital including the impact of second half profits, the proposed final dividend and receipt of year end performance fees and proceeds from the redemption from the US distressed credit strategy is $460 million.

People

When I took over as CEO in 2016 I created a Senior Management Executive Committee comprising: Jonathan Sorrell, who is the President of the Group and responsible for our Sales and Marketing teams, Man GPM and Man FRM; Sandy Rattray, who is the Chief Investment Officer for the Group and responsible for Man AHL, Man Numeric and Man GLG; Robyn Grew, our Chief Administrative Officer who is responsible for Man Group's infrastructure, operations, technology, compliance, legal, human resources and facilities functions; and Mark Jones, our Chief Financial Officer, who is responsible for Finance, Investor Relations, Internal Audit and Risk for the Group. The team have provided huge support throughout this year and I would like to thank them, and more importantly everyone within Man for their contribution to the significant operating and financial progress we have made during 2017.

KEY PERFORMANCE INDICATORS

Our financial KPIs illustrate and measure the relationship between the investment experience of our clients, our financial performance and the creation of shareholder value over time. Our KPIs are a key determinant of the remuneration of the executive directors and are used to regularly evaluate progress against our key strategic priorities of research and innovation, strong client relationships, and efficient and effective operations, which together drive returns to shareholders. Our alternative performance measures are discussed on pages 52-57.

The results of our KPIs this year reflect the increase in our FUM base as a result of strong organic growth due to good performance and flows. We had strong outperformance for Numeric and GLG, and good relative performance for AHL, although absolute performance was more moderate, and FRM fund of funds. We achieved record net inflows, largely driven by strong asset raising in total return and multi-manager solutions strategies. Management fee revenue and profitability increased in 2017, despite margin compression as a result of growth in lower margin strategies, due to higher average FUM and a reduction in our fixed costs base.

The performance of the key strategies compared to the benchmarks¹ gives an indication of the competitiveness of our investment performance against similar alternative investment styles offered by other investment managers. The investment performance KPI measures the net investment performance for our managers (AHL, Numeric, GLG and FRM), excluding GPM which was established as a result of the acquisition of Aalto during the year. For AHL, GLG and FRM, investment performance is represented by key strategies against relevant external benchmarks/reference indices. For Numeric, investment performance is monitored by the net asset weighted outperformance or underperformance (alpha) ² based on a predetermined benchmark by strategy. The target for the investment performance KPI is to exceed the relevant benchmarks. The key strategies and the relevant benchmarks are AHL Diversified versus three key peer asset managers for AHL (the target being to beat two of the three peers), the GLG Alternative Strategies Dollar-Weighted Composite versus HFRX for GLG and FRM Diversified II versus HFRI Fund of Funds Conservative Index for FRM. For Numeric, net asset weighted outperformance is based on a benchmark against reference indices by Numeric strategy. We achieved all four of the performance targets, with the performance of AHL's diversified strategy exceeding two out of three of the relevant peer benchmarks, GLG and FRM's metrics exceeding their relevant benchmarks, and Numeric achieving positive net alpha2 in 2017.

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. 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 of 15.8% in 2017 were at record levels and above the target range, which is indicative of the strong net inflows into our total return and multi-manager solutions strategies, as well as inflows into discretionary long only and absolute return strategies, partially offset by smaller net outflows from systematic long only strategies and guaranteed products.

The third KPI measures adjusted management fee EBITDA as a percentage of net revenues (gross management fee revenue and income from associates less cash distribution costs). Our adjusted management fee EBITDA margin is a measure of our underlying profitability. The adjusted management fee EBITDA margin of 27.7% was within the target range for the year ended 31 December 2017, compared to 26.1% for the year ended 31 December 2016. The margin increased in 2017, reflecting the lower compensation ratio and a reduction in fixed costs due to a more favourable hedged US Dollar to Sterling rate and continued efforts on achieving efficiencies within our cost base. For further information on EBITDA see page 57.

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 and adjusting items, divided by the weighted average diluted number of shares. 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 20.0%, from 9.0 cents to 10.8 cents, was within the target range for 2017. Adjusted management fee EPS growth is largely driven by the higher net management fee revenues, a reduction in our fixed costs base despite growth in the business, a slightly lower tax rate and higher profits per share due to the impact of share repurchases which reduce the number of shares. For further information on EPS, see page 55.

1 Where funds have a formal benchmark, performance is compared to this. Where no formal benchmark has been set, 'benchmark' should be taken to refer to a relative index.

CHIEF FINANCIAL OFFICER'S REVIEW

Overview

We are pleased to report strong growth in funds under management (FUM), up 35% to $109.1 billion. The increase was driven by positive investment performance of $10.7 billion in a generally supportive market environment for asset managers, largely from our long only strategies, and record net inflows of $12.8 billion which were driven by demand for our emerging market debt, FRM managed accounts, risk premia and quant absolute return strategies. The acquisition of Aalto in January 2017 added $1.8 billion of FUM. In addition, FUM increased due to FX movements of $3.1 billion primarily as a result of the US Dollar weakening against the Euro, Sterling and Australian Dollar during the year. We have continued to see attrition of our management fee margins which is primarily driven by mix effects, as well as the continued roll-off of guaranteed product FUM. As a result, the growth in net management fees has been more gradual in relation to the movements in FUM.

Net management fee revenue was $736 million for the year, an increase of 7% from prior year as a result of the increase in FUM, partially offset by margin compression as outlined above. We have continued to diversify our business, with net management fees from guaranteed products falling from $31 million to $12 million in 2017 as this legacy business runs off.

Performance fee revenues increased to $289 million from $81 million in 2016, with positive performance across a diverse range of strategies.

We continue to focus our efforts on operating the business efficiently while investing in research to build innovative strategies for clients. Continued focus on cost control, as well as a more favourable hedged US Dollar to Sterling rate, have achieved a reduction in our fixed cash costs despite growth in the business.

Statutory profit before tax was $272 million, which has increased from the 2016 statutory loss before tax of $272 million largely as a result of the non-cash impairment of goodwill and intangible assets of $379 million in 2016. Statutory earnings per share were 15.3 cents (2016: loss of 15.8 cents per share). Our adjusted profit before tax was $384 million, up from $205 million in the prior year, and adjusted earnings per share were 20.3 cents (2016: 10.4 cents). The majority of this improvement was caused by the adjusted performance fee profit before tax increasing to $181 million, up from $27 million in 2016, which reflects solid performance across our strategies. Adjusted management fee profit before tax was $203 million, up from $178 million in 2016, as a result of higher net management fees and a lower compensation ratio, as well as the reduction in fixed cash costs. Core management fee profit before tax¹, which excludes net management fees relating to guaranteed products, sales commission income from Nephila and share of post-tax profits of associates, increased to $178 million from $132 million in 2016.

Our balance sheet remains strong and liquid, with net tangible assets of $669 million or 41 cents per share at 31 December 2017. Our regulatory surplus capital is $256 million at 31 December 2017, and our proforma surplus capital is $460 million. We expect the change in the lease accounting standard, which is applicable from 1 January 2019, to reduce our surplus capital from 2019 by approximately $120 million (£90 million), primarily due to our property lease at Riverbank House. This accounting change has no impact on our lease payments or our cash flows (see further discussion on pages 30 to 31). We have a net cash position of $206 million and we continue to be strongly cash generative with operating cash flows, excluding movements in working capital, of $431 million (2016: $245 million). Adjusted management fee earnings per share, the basis for our dividend payments, has increased to 10.8 cents from 9.0 cents in 2016. Our focus remains on ensuring the business continues to generate strong cash flows to either return to shareholders or invest to generate improved cash flows in the future. In line with this approach, in 2017 we announced a further $100 million share repurchase, and completed the acquisition of Aalto.

1 Refer to page 52 for details of the Group's alternative performance measures.

Funds under management (FUM)

	Alternative			Long only
$bn	Absolute return	Total return	Multi-manager solutions	Systematic	Discretionary	Total excluding Guaranteed	Guaranteed	Total
At 31 December 2016	25.4	6.6	11.8	21.4	15.3	80.5	0.4	80.9
Sales	6.9	9.2	5.8	4.2	7.6	33.7	-	33.7
Redemptions	(6.3)	(1.0)	(2.9)	(4.8)	(5.8)	(20.8)	(0.1)	(20.9)
Net inflows/(outflows)	0.6	8.2	2.9	(0.6)	1.8	12.9	(0.1)	12.8
Investment movement	2.1	0.1	0.5	5.8	2.2	10.7	-	10.7
Foreign currency movement	0.8	0.4	0.4	0.2	1.3	3.1	-	3.1
Other movements	0.3	(0.6)	0.4	-	(0.2)	(0.1)	(0.1)	(0.2)
Acquisition of Aalto	-	1.8	-	-	-	1.8	-	1.8
At 31 December 2017	29.2	16.5	16.0	26.8	20.4	108.9	0.2	109.1

As our business has evolved, we have changed the categorisation of our FUM such that it better represents strategies with similar characteristics, as detailed below.

Absolute return

Absolute return FUM relates to alternative strategies where clients expect the strategy may have net long, short or neutral exposure, and that may make use of leverage to achieve those exposures. This includes trend following and discretionary long-short strategies. Absolute return FUM increased by 15% during the year, driven by strong investment performance across the range of strategies in this category. Net inflows were $0.6 billion, which included $1.3 billion into institutional solutions, $0.5 billion into Numeric market neutral and $0.3 billion into AHL evolution strategies, partially offset by outflows of $0.5 billion from GLG market neutral, $0.5 billion from our GLG equity long short strategies and $0.6 billion from traditional trend following strategies AHL diversified and alpha. The positive investment movement of $2.1 billion was a result of very strong performance for AHL evolution, and good broad-based performance across both quant and discretionary absolute return strategies. Positive foreign exchange movements related to the US Dollar weakening against the Euro, Australian Dollar and Sterling. Other movements primarily relate to leverage changes in quant products.

Total return

Total return FUM relates to alternative strategies where clients expect the strategy to have some positive exposure to particular risk factors over the course of a market cycle although the level of exposure may vary over time. This includes EM debt total return, GPM, risk premia, and CLO strategies. Total return FUM increased by $9.9 billion during the year to $16.5 billion. Net inflows of $8.2 billion were primarily driven by strong interest in the risk premia and EM debt total return strategies. Investment movement was $0.1 billion for the year, largely due to muted performance for EM debt total return. Positive foreign exchange movements related primarily to the weakening of the US Dollar against the Euro and Sterling. The negative other movements relate to CLO maturities during the year. In 2017 we acquired Aalto, a US and Europe based real asset focused investment manager with $1.8 billion of FUM at acquisition, which has enabled us to further diversify our client offering.

Multi-manager solutions

Multi-manager solutions FUM includes traditional fund of fund and infrastructure and segregated mandates. Multi-manager solutions FUM increased by $4.2 billion, primarily as a result of strong net inflows during the year. Net inflows of $2.9 billion included $2.1 billion of infrastructure mandates and $2.2 billion into segregated portfolios, partially offset by net outflows of $1.3 billion from traditional fund of fund strategies. The investment movement of $0.5 billion was largely driven by infrastructure mandates, where investment decisions are made by the investors. Positive foreign exchange movements were primarily due to the weakening of the US Dollar against the Australian Dollar, Sterling and Japanese Yen.

Systematic long only

Systematic long only FUM relates to the previous quant long only category. Systematic long only FUM increased by $5.4 billion during the year, as a result of strong investment performance, partially offset by $0.6 billion of net outflows. These outflows were concentrated in the fourth quarter and were driven by client rebalancing following the strong equity market moves during the year. Net outflows largely related to redemptions from the small cap growth and all cap core strategies. Investment performance of $5.8 million was largely driven by market moves and strong relative performance in international strategies, with Numeric's overall net asset weighted outperformance against applicable benchmarks of 2.1%¹ for the year.

Discretionary long only

Discretionary long only FUM increased by 33%, driven by strong performance, positive net inflows and foreign exchange movements. Net inflows of $1.8 billion were largely driven by flows into Japan core alpha, continental European equity and EM fixed income strategies. The positive investment movement of $2.2 billion was driven by performance from our Japan core alpha, UK undervalued assets, continental Europe and European equities strategies. Positive foreign exchange movements related to the weakening of the US Dollar against Sterling and the Euro.

Guaranteed products

Guaranteed product FUM reduced by $200 million during the year. There were no sales and redemptions totalled $100 million. Investment performance for guaranteed products was broadly flat during the year. Other negative movements relate to maturities and de-gearing.

Summary income statement

	Year ended	Year ended
	31 December	31 December
$m	2017	2016
Gross management and other fees¹	784	750
Share of post-tax profit of associates	8	2
Distribution costs	(56)	(61)
Net management fee revenue	736	691
Performance fees¹	289	81
Gains on investments²	44	31
Net revenue	1,069	803
Asset servicing	(37)	(33)
Fixed compensation³	(174)	(182)
Variable compensation	(300)	(206)
Other costs^1,3	(165)	(166)
Total costs	(676)	(587)
Net finance expense³	(9)	(11)
Adjusted profit before tax³	384	205
Adjusting items³ (see page 53)	(112)	(477)
Statutory profit/(loss) before tax	272	(272)
Adjusted management fee profit before tax³	203	178
Adjusted performance fee profit before tax³	181	27
Statutory diluted EPS profit/(loss)	15.3 cents	(15.8) cents
Adjusted management fee EPS³	10.8 cents	9.0 cents
Adjusted EPS³	20.3 cents	10.4 cents

1 Management and other fees also includes $3 million (2016: $4 million) of management fee revenue, performance fees include $2 million (2016: $nil) of performance fee revenue, and other costs includes a $1 million (2016: $2 million) deduction of costs relating to line-by-line consolidated fund entities for the third-party share (per Group financial statements Note 13.2 on page 43).

2 Gains on investments includes income or gains on investments and other financial instruments of $64 million (2016: $52 million), less $14 million (2016: $15 million) of third party share of gains relating to line-by-line consolidated fund entities, less the reclassification of management fee revenue of $3 million (2016: $4 million), performance fee revenue of $2 million (2016: $nil) and other costs of $1 million (2016: $2 million) as above.

3 We separately identify adjusting items to our statutory Group income statement and related metrics in order to give a better understanding of the underlying profitability of the business. Details of these alternative performance measures and reconciliations to their statutory equivalents are provided on pages 52 to 57.

Net management fee revenue and margins

Net management fees revenue, excluding share of post-tax profit of associates, grew by 6% to $728 million in 2017. The increase is driven by growth in FUM from core activities during the year, partially offset by continued margin compression and the roll off of guaranteed product FUM. There is $200 million of guaranteed product FUM remaining at 31 December 2017 and therefore there will be less of an impact of declining revenue from these assets going forward.

1 Numeric's net asset weighted alpha for the year to 31 December 2017 is calculated using the asset weighted average of the performance relative to the benchmark for all strategy composites available net of the highest management fees and, as applicable, performance fees that can be charged.

The Group's total net management fee margin¹ decreased by 11 basis points during the year to 76 basis points, compared to 87 basis points in 2016. The decline in the overall net margin continue to be driven by mix effects. Around half of the move is the mix effects from the net inflows in the year, particularly the infrastructure mandates in FRM. Better performance and FX gains from our lower margin strategies further lower the Group's net margin, with the remainder of the move from the continued run off of guaranteed products and from small pricing adjustments or the mix of clients within individual funds.

Excluding guaranteed products, the overall net margin decreased by 8 basis points to 75 basis points.

	Year ended		Year ended
	31 December 2017		31 December 2016
	$m	Net margin	$m	Net margin
Absolute return	370	1.38%	374	1.47%
Total return	68	0.56%	27	0.47%
Multi-manager solutions	65	0.45%	72	0.63%
Systematic long only	89	0.36%	70	0.36%
Discretionary long only	119	0.67%	102	0.67%
Core net management	711	0.75%	645	0.83%
fee revenue¹
Guaranteed	12	5.04%	31	4.28%
Other income²	5		13
Net management fee revenue before share of after tax profit of associates	728	0.76%	689	0.87%
Share of post-tax profit of associates	8		2
Net management fee revenue^3,4	736		691

1 Details of these alternative performance measures are included on page 52.

2 Other income primarily relates to a distribution agreement for Nephila products, which ceased in April 2017 (Note 17 to the Group financial statements).

3 Net management fee revenue also includes $3 million (2016: $4 million) of management fee revenue relating to line-by-line consolidated fund entities for the third-party share.

4 Includes $56 million (2016: $61 million) of distribution costs which have been deducted from gross management and other fees of $784 million (2016: $750 million).

During the year, the absolute return net management fee margin decreased by 9 basis points as a result of the continued mix shift towards institutional assets which are at a lower margin. We expect the absolute return margin will continue to gradually decline as the shift towards institutional assets continues.

The total return net management fee margin has increased by 9 basis points as result of the growth in emerging market debt and risk premia strategies as well as the acquisition of Aalto during the year. In 2016 the total return category largely comprised CLO strategies which are at a lower margin.

The multi-manager solutions net management fee margin decreased to 45 basis points in 2017 from 63 basis points in 2016 as a result of the shift in FRM's business from traditional fund of funds to that of solutions provider, with significant inflows into infrastructure mandates and segregated portfolios over the year where margins are materially lower. The multi-manager solutions margin is expected to decline further as the shift towards lower margin services continues.

The systematic long only net management fee margins were stable during the year. Discretionary long only net management fee margins also remained stable during the year at 67 basis points.

Core net management fee revenue¹, which excludes legacy guaranteed product net management fee revenues, other income and share of post-tax profit of associates, have increased by 10% as a result of strong growth in FUM partially offset by margin compression as detailed above.

The guaranteed product net management fee margin increased by 76 basis points compared to 2016 due to maturities from lower margin products during the year.

The Group run rate net management fee margin¹ at 31 December 2017 was 72 basis points, and the run rate net management fee revenue¹ was $789 million.

Performance fees

Gross performance fees for the year were $289 million compared to $81 million in 2016, which included $145 million from AHL (2016: $50 million), $85 million from GLG (2016: $9 million), $52 million from Numeric (2016: $19

[1] Refer to page 52 for details of the Group's alternative performance measures.

million), $5 million from GPM (2016: nil) and $2 million from FRM (2016: $3 million), with performance fee generation across a range of strategies as a result of the continued diversification of our business.

At 31 December 2017, around 65% of AHL FUM ($13.1 billion) were above performance fee high water mark and 21% ($4.2 billion) were within 5% of high water mark. Of the $11.1 billion performance fee eligible Numeric strategies, 85% were outperforming the relevant benchmark at 31 December 2017. Around 48% of eligible GLG assets ($5.3 billion) were above high water mark and a further 44% ($4.9 billion) were within 5% of high water mark at year end. Fund of fund performance fee eligible products were on average approximately 2% below high water mark at 31 December 2017.

The Group benefits from a diversified portfolio of performance fee streams across a variety of strategies that are charged on a regular basis at different points in the year. 85% of AHL FUM is performance fee eligible, of which 83% have performance fees that crystallise annually (mainly in June and December), 13% daily or weekly, and 4% monthly. The majority of performance fees from GLG crystallise semi-annually in June or December. Around 40% of our systematic long only performance fee eligible FUM crystallises annually in November, with the remainder crystallising at various points during the year.

Investment gains

Investment gains of $44 million (2016: $31 million) primarily relate to gains on seeding investments on a year end seeding book of $480 million (2016: $642 million).

Asset servicing

Asset servicing costs include custodial, valuation, fund accounting and registrar functions, and vary depending on transaction volumes, the number of funds, and fund NAVs. Asset servicing costs were $37 million (2016: $33 million), which equates to around 5.5 basis points of average FUM, excluding systematic long only and GPM strategies, in line with prior year. In 2018, asset servicing costs are expected to increase to around 7 basis points on FUM, excluding systematic long only and GPM strategies, due to the inclusion of MiFID II related research and administration costs.

Compensation costs

Compensation costs comprise fixed base salaries, benefits, variable bonus compensation (cash and amortisation of deferred compensation arrangements) and associated social security costs. In addition, during 2017 we completed the restructuring plan which commenced in 2016, with the final $4 million of the $21 million planned restructuring compensation costs recognised in 2017 (an adjusting item per page 53).

Total compensation costs, excluding adjusting items, were $474 million for the year, up by 22% compared to $388 million in 2016. Overall compensation costs increased as a result of higher management and performance fee revenues. Fixed compensation decreased by 4% despite growth in net management fee revenues, which largely reflects the more favourable hedged US Dollar to Sterling rate in 2017 as well as cost efficiencies. Variable compensation increased by 46%, which is above the 33% increase in net revenue due to the increase in performance fee revenue earned. The overall compensation ratio¹ in 2017 was 44%, a decrease from 48% in 2016, as a result of the significant increase in performance fee revenue. The Group's compensation ratio is generally between 40% and 50% of net revenues, depending on the mix and level of revenue. We expect to be at the higher end of the range in years when absolute performance fees are low and the proportion from Numeric and GLG is higher, and conversely we expect to be at the lower end of the range when absolute performance fees are high and the proportion from AHL and FRM is higher. Included within variable compensation is a $4 million expense relating to the pay-out of performance fee related carry from Aalto, which crystallised post-acquisition.

Other costs

Other costs, excluding adjusting items as outlined on page 53, were $165 million for the year (2016: $166 million). These comprise cash costs, including occupancy, technology, consultancy and professional fees, of $147 million (2016: $152 million) and depreciation and amortisation of $18 million (2016: $14 million). Similar levels of cash costs were incurred in 2017 despite increased net management fee revenues compared to 2016, which reflects a more favourable hedged rate in 2017 as well as continued discipline on costs. Depreciation and amortisation has increased by $4 million this year due to higher levels of capital expenditure in 2016 and 2017, which is largely due to software development projects across our operating platforms. Depreciation and amortisation are expected to continue to increase over the next few years as a result of increased investment in our infrastructure.

We incurred $7 million of other costs during the year which largely relate to the associated onerous property leases arising (an adjusting item per page 53) following the centralisation of our London resources into one location.

[1] Refer to page 52 for details of the Group's alternative performance measures.

Net finance expense

Net finance expense, excluding the unwind of discount on contingent consideration which is classified as an adjusting item as outlined on page 53, was $9 million for the year (2016: $11 million) and includes interest payable on borrowings as well as the ongoing costs for the Group's revolving credit facility, which was renegotiated from $1,000 million to $500 million in October 2016.

Adjusted profit before tax

Adjusted profit before tax, as further detailed on page 53, is $384 million compared to $205 million for the previous year. The adjusting items in the year of $112 million (pre-tax) are summarised in the table below, and are detailed on page 53. The directors consider that the Group's profit is most meaningful when considered on a basis which excludes 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 assets in the US), impairment of assets, costs relating to substantial restructuring plans, and certain significant event driven gains or losses, which therefore reflects the revenues and costs that drive the Group's cash flows and inform the base on which the Group's variable compensation is assessed.

	Year ended
	31 December
Adjusting items $m	2017
Revaluation of contingent consideration creditors	(15)
Unwind of contingent consideration discount	(26)
Compensation restructuring costs	(4)
Other restructuring costs	(7)
Reassessment of litigation provision	24
Amortisation of acquired intangible assets	(84)
Total adjusting items (excluding tax)	(112)
Recognition of deferred tax asset (refer to page 35)	17

Adjusted management fee, Core management fee, and Performance fee profit before tax

Adjusted management fee profit before tax was $203 million compared to $178 million in 2016, an increase of 14% as a result of the increase in management fees and a lower increase in related costs. Adjusted performance fee profit before tax of $181 million (2016: $27 million) for the year reflects the higher performance fees generated across the business.

Core management fee profit before tax has increased by 35% from $132 million to $178 million, reflecting strong growth in management fees excluding income from legacy business.

Details and reconciliation of these measures are provided on page 56.

Taxation

The tax charge on the statutory profit for the year was $17 million (2016: tax credit of $6 million on statutory loss), which equates to an effective tax rate of 6%. The majority of Man's profits are earned in the UK, with significant profits also arising in the US, where our tax rate is effectively nil as a result of available tax assets, and in Switzerland, which has a lower rate than the UK.

The underlying rate on adjusted profit of 14% (2016: 13%) represents the statutory tax rates in each jurisdiction in which we operate applied to our geographical mix of profits. The effective tax rate on adjusted profit was 12% (2016: 14%), which is lower than the underlying rate principally as a result of the reassessment of tax exposures globally during the year.

In the US, we have $174 million of accumulated federal tax losses which we can offset against future profits from US entities and will therefore reduce taxable profits. In addition, we have $493 million of tax deductible goodwill and intangibles, largely relating to the Numeric (2014) and Ore Hill (2008) acquisitions, which are amortised for tax purposes in the US over 15 years and which reduce US taxable profits in future periods. We therefore expect not to pay federal tax in the US for a number of years. Effective from 1 January 2018 the US federal tax rate has decreased from 35% to 21%, which we have incorporated into assessment of our US deferred tax balances at 31 December 2017. As a result of our available US federal tax assets, we do not expect this change to have an impact on our effective tax rate for a number of years. Based on forecast US taxable profits and consistent with the methodology applied in prior years, the Group has a deferred tax asset on the balance sheet of $42 million (2016: $25 million) which represents probable tax savings over a three year forecast period due to the utilisation of these losses and future amortisation of intangibles. This has resulted in a $17 million net credit to the tax expense in the year (2016: $6 million credit), which is included as an adjusting item (page 53). The increase represents projected year on year growth in our US business, partially offset by the reduction in the US federal tax rate from 35% to 21% from 1 January 2018. Further details on this deferred tax asset are given in Note 7 to the Group financial statements.

Should the earnings profile of the Group in the US increase significantly this could result in the earlier recognition of the US deferred tax asset in full and as a result the tax rate for the Group would change in line with the prevailing corporation tax rate in the US and the proportion of the Group's profits at that time.

The principal factors that we expect to influence our future underlying tax rate are the mix of profits by tax jurisdiction, changes to applicable statutory tax rates and the consumption of US tax assets. The underlying tax rate in 2018 is currently expected to remain consistent with 2017, dependent on the factors outlined above.

Capital management

Our business has a strong record of cash generation. Our policy is to return our adjusted management fee profits to shareholders each year through our regular dividend. Our adjusted performance fee profits grow our surplus capital position over time. We then actively manage Man's surplus capital to seek to maximise value to shareholders by either investing that capital into acquisitions to improve shareholder returns in future, or to return it to shareholders through share buybacks or special dividends.

We have maintained prudent surplus capital, in compliance with the FCA's capital standards, and available liquidity throughout the year. Details of the Group's syndicated revolving loan facility, which provides additional liquidity, are provided in Note 12 to the Group financial statements on page 41.

We have a 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 monitor our capital requirements through continuous review of our regulatory and economic capital, including monthly reporting to the Risk and Finance Committee and the Board.

At 31 December 2017, surplus regulatory capital over the regulatory capital requirements was $256 million.

	31 December	31 December
$m	2017	2016
Permitted share capital and reserves	1,437	1,530
Less deductions (primarily goodwill and other intangibles)	(1,052)	(995)
Available Tier 1 Group capital	385	535
Lower Tier 2 capital - subordinated debt	149	149
Other Tier 2 capital, including deductions	(2)	2
Group financial resources	532	686
Less financial resources requirement	(276)	(294)
Surplus capital	256	392

The decrease in the Group financial resources of $154 million in the year primarily relates to the $100 million share repurchase programme, which commenced in October 2017, and goodwill and acquired intangible assets of $79 million arising on the Aalto acquisition, partially offset by the receipt of the first half performance fees. The decrease in the Group financial resources requirement of $18 million primarily relates to a lower capital requirement on seeding investments and securitisation positions, partially offset by a higher capital requirement on performance fee receivables balances. As at 31 December 2017 there has been no change to the Internal Capital Guidance scalar that is applied as part of the calculation of the financial resources requirement.

The Group's proforma surplus capital is $460 million, which incorporates: the second half earnings; our final dividend; and receipt of cash for year end performance fees and redemption of our largest seeding investment (see next page). As a result of the impact of adoption of the new leases accounting standard, as outlined below, we expect that our surplus capital will decrease by up to $120 million (£90 million) from 1 January 2019.

Adoption of the new leases accounting standard, which is mandatory for the Group from 1 January 2019 as outlined per Note 1 to the Group financial statements (page 30), is expected to result in a reduction of our capital surplus from that date of up to $120 million (at the 31 December 2017 Sterling exchange rate of 0.74). The reduction is due to the new requirement to bring operating leases onto the Group's balance sheet and an earlier expense recognition profile of the associated rental costs, which therefore impacts our financial resources requirement and Tier 1 capital at 1 January 2019.

Cash earnings and liquidity

We continue to generate strong cash flows. Given the strong cash conversion of our business we believe our adjusted profit after tax is a good measure of our underlying cash flow generation, although the timing of cash conversion is impacted by the seasonal movements in our working capital position through the year and the size of our seeding book over time. Operating cash flows, excluding working capital movements, were $431 million during the year and cash balances at year end were $356 million, excluding cash relating to consolidated fund entities.

	Year ended	Year ended
	31 December	31 December
$m	2017	2016
Cash at 31 December 2016¹	389	586
Operating cash flows before working capital movements	431	245
Working capital movements (including seeding)¹	(186)	(177)
Payment of dividends	(158)	(158)
Share repurchase (including costs)	(92)	(35)
Payment of acquisition related contingent consideration, net of cash acquired	(9)	(25)
Other movements	(19)	(47)
Cash at 31 December 2017¹	356	389

1 Excludes cash relating to consolidated fund entities (Note 13.2 to the Group financial statements).

Working capital movements principally relate to the increase in performance fee receivables at the year-end partially offset by an increase in the related variable compensation payable. The total net decrease in our seeding investment portfolio is not reflected in cash inflows given the timing of redemptions, with amounts receivable included within working capital (including seeding) at 31 December 2017 and subsequently receipted in cash post year-end.

The $500 million revolving credit facility, which remains available and undrawn, matures in 2022. The management of liquidity is explained in Note 12 to the Group financial statements.

Balance sheet

The Group's balance sheet is strong and liquid. Cash has decreased during the year as a result of the movements outlined above. Fees and other receivables have increased as a result of the higher level of performance fees earned in December, along with an increase in payables for associated compensation accruals. The decrease in investments in funds is driven by a decrease in seeding investments as outlined below. Goodwill and other intangibles have increased marginally in 2017 due to the acquisition of Aalto, partially offset by the amortisation charge for the year.

$m	31 December 2017	31 December 2016
Cash and cash equivalents¹	356	389
Fee and other receivables¹	614	257
Total liquid assets	970	646
Payables¹	(848)	(702)
Net liquid assets	122	(56)
Net investments in fund products and other investments¹	559	720
Pension asset	32	27
Investments in associates	29	31
Leasehold improvements and equipment	44	44
Total tangible assets	786	766
Borrowings	(150)	(149)
Net deferred tax asset/(liability)	33	16
Net tangible assets²	669	633
Goodwill and other intangibles	1,047	1,041
Shareholders' equity	1,716	1,674

1 Cash and cash equivalents, fees and other receivables and payables balances excludes amounts relating to line-by-line consolidated fund entities. These are presented net within net investments in fund products and other investments, together with third-party interest in consolidated funds and non-current assets and liabilities held-for-sale (per Group financial statements Note 13.2 on page 43.

2 Equates to net tangible assets per share of 41 cents (2016: 38 cents).

Seeding investments

Man uses capital to invest in products to assist in the growth of the business. At 31 December 2017, the Group's seeding investments were $480 million (refer to Note 13 to the Group financial statements), which have decreased from $642 million at 31 December 2016 principally as a result of the redemption of the US distressed credit strategy, our largest seeding position, following the decision to exit the strategy in December 2017.

Dividends and share repurchases

Man's dividend policy is to pay out at least 100% of adjusted management fee EPS 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 capital surpluses will be distributed to shareholders over time, by way of higher dividend payments and/or share repurchases, while maintaining a prudent balance sheet, after taking into account required capital (including liabilities for future earn-out payments) and potential strategic opportunities. In October 2017 we commenced a $100 million share repurchase programme, which was 27% complete at 31 December 2017, as detailed in Note 20 to the Group financial statements on page 48. As a result of recent share repurchases which lower the number of shares, our EPS and dividend per share growth exceeds the growth in the profitability of the business.

Adjusted management fee EPS is considered the most appropriate basis on which to routinely pay ordinary dividends as this represents the most stable earnings base of the business, and enables the Board to utilise performance fee earnings over time in the most advantageous manner to support the Group's strategy. The reconciliation of adjusted management fee EPS to statutory EPS is provided within Alternative Performance Measures on page 55.

The Board is proposing a final dividend for 2017 of 5.8 cents per share, which together with the interim dividend of 5.0 cents per share, equates to a total dividend for 2017 of 10.8 cents per share, growth of 20% from 2016. The proposed final dividend equates to around $94 million, which is more than covered by the Group's available liquidity and regulatory capital resources. As at 31 December 2017, the Group's cash, less those balances ring-fenced for regulatory purposes, amounted to $319 million and the undrawn committed revolving credit facility was $500 million, as set out in Note 12 to the Group financial statements. The Group regulatory capital surplus was $256 million at the year-end, as shown on page 21. Man Group plc's distributable reserves were $1.9 billion before payment of the proposed final dividend, which are sufficient to pay dividends for a number of years. Furthermore, as profits are earned in the future the Company can receive dividends from its subsidiaries to further increase distributable reserves.

GROUP INCOME STATEMENT

		Year ended	Year ended
		31 December	31 December
$m	Note	2017	2016
Revenue:
Gross management and other fees	2	781	746
Performance fees	2	287	81
		1,068	827
Income or gains on investments and other financial instruments	13.1	64	52
Third-party share of gains relating to interests in consolidated funds	13.2	(14)	(15)
Revaluation of contingent consideration	21	(15)	40
Reassessment of litigation provision	16	24	-
Distribution costs	3	(56)	(61)
Asset servicing	3	(37)	(33)
Amortisation of acquired intangible assets	10	(84)	(94)
Compensation	4	(478)	(405)
Other costs	5	(173)	(176)
Impairment of goodwill and acquired intangibles	10	-	(379)
Share of post-tax profit of associates	17	8	2
Finance expense	6	(38)	(32)
Finance income	6	3	2
Profit/(loss) before tax		272	(272)
Tax (expense)/credit	7	(17)	6
Statutory profit/(loss) attributable to owners of the Parent Company		255	(266)
Earnings/(loss) per share:	8
Basic (cents)		15.5	(15.8)
Diluted (cents)		15.3	(15.8)

GROUP STATEMENT OF COMPREHENSIVE INCOME

	Year ended	Year ended
	31 December	31 December
$m	2017	2016
Statutory profit/(loss) attributable to owners of the Parent Company	255	(266)
Other comprehensive (expense)/income:
Remeasurements of post-employment benefit obligations	3	(17)
Current tax (debited)/credited on pension scheme	(5)	4
Deferred tax credited on pension scheme	1	3
Items that will not be reclassified to profit or loss	(1)	(10)
Cash flow hedges:
Valuation gains/(losses) taken to equity	18	(35)
Transfer to Group income statement	9	23
Deferred tax (debited)/credited on cash flow hedge movements	(5)	2
Net investment hedge	(4)	1
Foreign currency translation	12	(7)
Recycling of FX revaluation to the Group income statement on liquidation of subsidiaries	1	2
Items that may be reclassified subsequently to profit or loss	31	(14)
Other comprehensive income/(expense) (net of tax)	30	(24)
Total comprehensive income/(expense) attributable to owners of the Parent Company	285	(290)

GROUP BALANCE SHEET

		At	At
		31 December	31 December
$m	Note	2017	2016
Assets
Cash and cash equivalents	12	379	426
Fee and other receivables	14	491	257
Investments in fund products and other investments	13	729	794
Pension asset		32	27
Investments in associates	17	29	31
Leasehold improvements and equipment	18	44	44
Goodwill and acquired intangibles	10	1,024	1,024
Other intangibles	11	23	17
Deferred tax assets	7	81	63
		2,832	2,683
Non-current assets held for sale	13	145	263
Total assets		2,977	2,946
Liabilities
Trade and other payables	15	843	647
Provisions	16	34	51
Current tax liabilities	7	21	6
Third-party interest in consolidated funds	13	99	240
Borrowings	12	150	149
Deferred tax liabilities	7	48	47
		1,195	1,140
Non-current liabilities held for sale	13	66	132
Total liabilities		1,261	1,272
Net assets		1,716	1,674
Equity
Capital and reserves attributable to owners of the Parent Company		1,716	1,674

GROUP CASH FLOW STATEMENT

		Year ended	Year ended
		31 December	31 December
$m	Note	2017	2016
Cash flows from operating activities
Statutory profit/(loss)		255	(266)
Adjustments for non-cash items:
Income tax expense/(credit)		17	(6)
Net finance expense		35	30
Share of post-tax profit of associates		(8)	(2)
Revaluation of contingent consideration		15	(40)
Depreciation of leasehold improvements and equipment		12	11
Amortisation of acquired intangible assets		84	94
Amortisation of other intangible assets		6	4
Share-based payment charge		19	18
Fund product based payment charge		40	37
Impairment of goodwill and acquired intangibles		-	379
Other non-cash movements		(5)	35
		470	294
Changes in working capital:
(Increase)/decrease in receivables		(241)	91
Decrease/(increase) in other financial assets¹		-	(63)
Increase/(decrease) in payables		41	(182)
Cash generated from operations		270	140
Interest paid		(10)	(11)
Income tax paid		(29)	(38)
Cash flows from operating activities		231	91
Cash flows from investing activities
Purchase of leasehold improvements and equipment		(12)	(11)
Purchase of other intangible assets		(12)	(8)
Payment of contingent consideration in relation to acquisitions		(11)	(25)
Acquisition of subsidiaries and other intangibles²		2	(18)
Interest received		3	2
Proceeds from sale of associate		2	-
Dividends received from associates		8	1
Cash flows from investing activities		(20)	(59)
Cash flows from financing activities
Proceeds from issue of ordinary shares		7	5
Purchase of own shares by the Employee Trusts and Partnerships		(19)	(18)
Share repurchase programme (including costs)		(92)	(35)
Dividends paid to Company shareholders		(158)	(158)
Cash flows from financing activities		(262)	(206)
Net decrease in cash		(51)	(174)
Cash at the beginning of the year		426	607
Effect of foreign exchange movements		4	(7)
Cash at year end³	12	379	426

Notes:

1 Includes $14 million of restricted net cash outflows (2016: $16 million net inflows) relating to consolidated fund entities (Note 13.2).

2 The 2017 cash received relates to the cash acquired as part of the Aalto acquisition on 1 January 2017 (Note 10). The 2016 payment relates to cash paid into an intermediary holding account in advance of the acquisition of Aalto.

3 Includes $23 million (2016: $37 million) of restricted cash relating to consolidated fund entities (Note 13.2).

GROUP STATEMENT OF CHANGES IN EQUITY

	Year ended	Year ended
	31 December	31 December
$m	2017	2016
Share capital and capital reserves	1,220	1,205
Revaluation reserves and retained earnings	496	469
Capital and reserves attributable to owners of the Parent Company	1,716	1,674

Share capital and capital reserves

$m	Share capital	Share premium account	Capital redemption reserve	Merger reserve	Reorganisation reserve	Total
At 1 January 2017	58	19	5	491	632	1,205
Purchase and cancellation of own shares	(2)	-	2	-	-	-
Issue of ordinary shares: Aalto acquisition	-	-	-	8	-	8
Issue of ordinary shares: Partnership Plans and Sharesave	-	7	-	-	-	7
At 31 December 2017	56	26	7	499	632	1,220

Revaluation reserves and retained earnings

$m	Profit and loss account	Own shares held by Employee Trusts	Cumulative translation adjustment¹	Cash flow hedge reserve¹	Available-for-sale reserve	Total
At 1 January 2017	564	(43)	(39)	(15)	2	469
Statutory profit	255	-	-	-	-	255
Other comprehensive income/(expense)
Revaluation of defined benefit pension scheme	3	-	-	-	-	3
Current tax debited on pension scheme	(5)	-	-	-	-	(5)
Deferred tax credited on pension scheme	1	-	-	-	-	1
Fair value gains on cash flow hedges¹	-	-	-	18	-	18
Transfer cash flow hedge to Group income statement	-	-	-	9	-	9
Deferred tax debited on cash flow hedge movements	-	-	-	(5)	-	(5)
Currency translation difference	-	(4)	13	-	-	9
Share-based payments charge	13	-	-	-	-	13
Deferred tax credited on share-based payments	2	-	-	-	-	2
Purchase of own shares by the Employee Trusts	-	(14)	-	-	-	(14)
Disposal of own shares by the Employee Trusts	(15)	15	-	-	-	-
Share repurchases	(101)	-	-	-	-	(101)
Dividends	(158)	-	-	-	-	(158)
At 31 December 2017	559	(46)	(26)	7	2	496

Note:

1 Details of the Group's hedging arrangements are provided in Note 12.

The proposed final dividend would reduce shareholders' equity by $94 million (2016: $75 million) subsequent to the balance sheet date (Note 9). Further details of the Group's share capital and reserves are included in Note 20.

Share capital and capital reserves

$m	Share capital	Share premium account	Capital redemption reserve	Merger reserve	Reorganisation reserve	Total
At 1 January 2016	59	14	4	491	632	1,200
Purchase and cancellation of own shares	(1)	-	1	-	-	-
Issue of ordinary shares: Aalto acquisition	-	-	-	-	-	-
Issue of ordinary shares: Partnership Plans and Sharesave	-	5	-	-	-	5
At 31 December 2016	58	19	5	491	632	1,205

Revaluation reserves and retained earnings

$m	Profit and loss account	Own shares held by Employee Trusts	Cumulative translation adjustment	Cash flow hedge reserve	Available-for- sale reserve	Total
At 1 January 2016	1,105	(62)	(25)	(5)	2	1,015
Statutory loss	(266)	-	-	-	-	(266)
Other comprehensive income
Revaluation of defined benefit pension scheme	(17)	-	-	-	-	(17)
Current tax credited on pension scheme	4	-	-	-	-	4
Deferred tax credited on pension scheme	3	-	-	-	-	3
Fair value losses on cash flow hedges	-	-	-	(35)	-	(35)
Transfer cash flow hedge to Group income statement	-	-	-	23	-	23
Deferred tax credited on cash flow hedge movements	-	-	-	2	-	2
Currency translation difference	-	10	(14)	-	-	(4)
Share-based payments charge	17	-	-	-	-	17
Current tax credited on share-based payments	1	-	-	-	-	1
Deferred tax debited on share-based payments	(2)	-	-	-	-	(2)
Purchase of own shares by the Employee Trusts	-	(13)	-	-	-	(13)
Disposal of own shares by the Employee Trusts	(22)	22	-	-	-	-
Share repurchases	(101)	-	-	-	-	(101)
Dividends	(158)	-	-	-	-	(158)
At 31 December 2016	564	(43)	(39)	(15)	2	469

NOTES TO THE GROUP FINANCIAL STATEMENTS

1. Basis of preparation

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRSs. Details of the Group's accounting policies can be found in the Group's Annual Report for the year ended 31 December 2016. 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 2017, upon which the auditors have issued an unqualified report, will shortly be delivered to the Registrar of Companies.

The Annual Report and the Notice of the Company's 2018 Annual General Meeting (AGM) will be posted to

shareholders on 8 March 2018 and will be available to download from the Company's website on 9 March 2018. The Annual General Meeting will be held on Friday 11 May 2018 at 10am at Man Group's offices at Riverbank House, 2 Swan Lane, London EC4R 3AD.

Man's relationship with independent fund entities

Man acts as the investment manager/advisor to fund entities. Man assesses such relationships on an ongoing basis to determine whether each fund entity is controlled by the Group and therefore consolidated into the Group's results. Having considered all significant aspects of Man's relationships with fund entities, the directors are of the opinion that, although Man manages the assets of certain fund entities, where Man does not hold an investment in the fund entity the characteristics of control are not met, and that for most fund entities: the existence of independent boards of directors at the fund entities; rights which allow for the removal of the investment manager/advisor; the influence of investors; limited exposure to variable returns; and the arm's length nature of Man's contracts with the fund entities, indicate that Man does not control the fund entities and their associated assets, liabilities and results should not be consolidated into the Group financial statements. Assessment of the control characteristics for all relationships with fund entities led to the consolidation of nine funds for the year ended 31 December 2017 (2016: 11), as detailed in Note 13. An understanding of the aggregate funds under management (FUM) and the fees earned from fund entities is relevant to an understanding of Man's results and earnings sustainability, and this information is provided in the Chief Financial Officer's review.

Judgemental areas and accounting estimates

The most significant area of judgement is whether the Group controls certain funds through its investments in fund products and is required to consolidate them (Note 13.2), with our key judgements outlined above within Man's relationship with independent fund entities. In addition, we have used judgement in assessing the purchase price of the January 2017 acquisition of Aalto (Note 10) in order to determine whether each component should be accounted for as purchase consideration or as post-acquisition compensation costs. In assessing the key criteria as set out in IFRS 3 'Business Combinations' we have concluded that all of the purchase price, including the deferred components, should be accounted for as purchased consideration for the following primary reasons: (i) the sellers will receive all of the purchase price whether they remain employed by Man or not (subject to certain industry standard non-compete clauses); and (ii) Aalto management will be compensated for services at market rates for their services provided to Man as part of their employment contracts, in addition to deferred purchase consideration.

Furthermore, the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, include the determination of fair values for contingent consideration in relation to the Numeric and Aalto acquisitions (Note 21), the valuation of goodwill and acquired intangibles for CGUs with lower levels of headroom (Note 10) and recognition of deferred tax assets in relation to US tax assets (Note 7). The key assumptions and range of possible outcomes are discussed in the relevant notes.

Impact of new accounting standards

A number of new or amendments to existing standards and interpretations have been issued by the International Accounting Standards Board (IASB), one of which is mandatory for the year beginning 1 January 2017, with the remainder becoming effective in future years.

Amendments to IAS 7 Disclosure Initiative was adopted by Man in the current year, which have not had a significant impact.

The following standards and interpretations relevant to the Group's operations were issued by the IASB but are not yet mandatory:

- IFRS 9 - Financial Instruments: IFRS 9 is effective for annual periods beginning on or after 1 January 2018. IFRS 9 replaces the classification and measurement models for financial instruments in IAS 39 (Financial Instruments: recognition and measurement) with three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive income. Under IFRS 9, the Group's business model and the contractual cash flows arising from its investments in financial instruments will determine the appropriate classification. The Group has assessed its balance sheet assets in accordance with the new classification requirements. The $3 million of investments held as Available For Sale (AFS) is expected to be classified as fair value through profit or loss as the AFS category will no longer exist (Note 13). The accumulated gain in the AFS reserve of $2 million is therefore expected be reclassified to retained earnings on transition, and any future revaluations will be recognised directly in the income statement (currently these are recorded in the AFS reserve in equity). There will be no other changes in the classification and measurement for any of the Group's financial assets or liabilities.

In addition, IFRS 9 introduces an expected loss model for the assessment of impairment of financial assets. The current (incurred loss) model under IAS 39 requires the Group to recognise impairment losses when there is objective evidence that an asset is impaired. Under the expected loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is not applicable for investments held at fair value through profit or loss or investments in associates. Therefore the assets on the Group's balance sheet to which the expected loss model applies are loans to funds (Note 13.3) and fee receivables (Note 14), which do not have a history of credit risk or expected future recoverability issues. Therefore, no change to the carrying values of the Group's assets is expected as a result of adoption of the new standard.

The new hedging requirements under IFRS 9, which are optional to adopt, are designed to provide some increased flexibility in relation to hedge effectiveness in order to better align hedge accounting with a company's risk management policies. The Group has elected to apply the IFRS 9 hedge accounting requirements for this reason. IFRS 9 also requires increased disclosures in relation to the Group's risk management strategy and the impact of hedge accounting on the financial statements. The Group's IAS 39 cash-flow and net investment hedge relationships (Note 12) qualify as continuing hedging relationships under IFRS 9, and there is no material change to existing hedge effectiveness assessments as a result. No additional hedge relationships are currently expected to be designated as a result of the adoption of IFRS 9.

The Group does not anticipate that IFRS 9 will have a material impact on its reported results.

- IFRS 15 - Revenue from Contracts with Customers: IFRS 15 is effective for annual periods beginning on or after 1 January 2018 and replaces IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. IFRS 15 establishes a single, principles-based revenue recognition model to be applied to all contracts with customers. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Specifically, IFRS 15 introduces a five-step approach to revenue recognition: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognise revenue when or as the entity satisfies a performance obligation. IFRS 15 is more prescriptive in terms of its recognition criteria, with certain specific requirements in respect of variable fee income such that it is only recognised where the amount of revenue would not be subject to significant future reversals. New disclosure requirements are also introduced.

The Group has considered these changes in light of the terms of our existing investment management agreements, and assessed the timing of management and performance fee recognition. Management fee revenues are recorded on a monthly basis as the underlying management activity (service) takes place, and do not include performance or other obligations (excluding standard duty of care requirements). Performance fee revenues are recognised when they crystallise, at which time they are payable by the client and cannot be clawed-back. There are no other performance obligations or services provided which suggest these have been earned either before or after crystallisation date. As a result of this assessment the Group has not identified any material changes to current revenue recognition principles.

The Group does not anticipate that IFRS 15 will have a material impact on its reported results.

- IFRS 16 - Leases: IFRS 16 is effective for annual periods beginning on or after 1 January 2019 and replaces IAS 17 Leases and related interpretations. This introduces a comprehensive model for the identification of lease arrangements and accounting treatment for both lessors and lessees, which distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. There is substantially no change to the accounting requirements for lessors. IFRS 16 requires operating leases, where the Group is the lessee, to be included on the Group's balance sheet, recognising a right-of-use (ROU) asset and a related lease liability representing the present value obligation to make lease payments. Certain optional exemptions are available under IFRS 16 for short-term (less than 12 months) and low-value leases. The ROU asset will be assessed for impairment annually (incorporating any onerous lease assessments) and depreciated on a straight-line basis, adjusted for any remeasurements of the lease liability. The lease liability will subsequently be adjusted for lease payments and interest, as well as the impact of any lease modifications. IFRS 16 also requires extensive disclosures detailing the impact of leases on the Group's financial position and results.

The adoption of IFRS 16 will result in a significant gross-up of the Group's reported assets and liabilities on the balance sheet, in particular as our sub-lease arrangements (Note 22) are not expected to be eligible for offset against the ROU asset and related lease liability. The rental expense which is currently recognised within occupancy costs in the Group's income statement (Note 5) will no longer be incurred and instead depreciation expense (of the ROU asset) and interest expense (unwind of the discounted lease liability) will be recognised. This will also result in a different total annual expense profile under the new standard (with the expense being front-loaded in the earlier years of the lease term as the discount unwind on the lease liability reduces over time). The Group has considered the available transition options, and has provisionally decided to apply modified retrospective option 1 and currently estimates that the impact will be a gross-up of up to £200 million ($270 million) for ROU lease assets and associated deferred tax assets and £260 million ($350 million) in relation to lease liabilities, with up to £60 million ($80 million) deducted from brought-forward reserves on transition date in 2019. The initial reserves impact will be offset over time by a lower annual Group income statement charge, as the total charge over the life of each lease is the same as under the current IAS 17 requirements (Note 22).

No other standards or interpretations issued and not yet effective are expected to have an impact on the Group's financial statements.

2. Revenue

Fee income is Man's primary source of revenue, which is derived from the investment management agreements that are in place with the fund entities. Fees are generally based on an agreed percentage of net asset value (NAV) or FUM and are typically charged in arrears. Management fees net of rebates, which include all non-performance related fees, 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 fee can be reliably estimated 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 NAV of the fund products. For AHL, GLG, FRM and GPM strategies, 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. Numeric performance fees are earned only when performance is in excess of a predetermined strategy benchmark (positive alpha), with performance fees being generated for each strategy either based on achieving positive alpha (which resets at a predetermined interval, i.e. every one to three years) or, in the case of alternatives, exceeding high water mark.

Rebates relate to repayments of management and performance fees charged, typically to institutional investors, and are presented net within gross management and other fees and performance fees in the Group income statement.

Analysis of FUM, margins and performance is provided in the Chief Financial Officer's Review on pages 16 to 19.

3. Distribution costs and asset servicing

Distribution costs are paid to external intermediaries for marketing and investor servicing, largely in relation to retail investors. Distribution costs are variable with FUM and the associated management fee revenue. Distribution costs are expensed over the period in which the service is provided. Distribution costs have decreased, despite growth in FUM, largely as a result of the continued mix shift towards institutional assets and the roll-off of guaranteed product FUM.

Asset servicing includes custodial, valuation, fund accounting and registrar functions performed by third-parties under contract to Man, on behalf of the funds, and is recognised in the period in which the service is provided. The cost of these services vary based on transaction volumes, the number of funds, and fund NAVs.

4. Compensation

$m	Year ended 31 December 2017	Year ended 31 December 2016
Salaries	148	159
Variable cash compensation	220	141
Share-based payment charge	19	18
Fund product based payment charge	40	37
Social security costs	38	23
Pension costs	9	10
Restructuring costs (adjusting item per page 53)	4	17
Total compensation costs	478	405

Compensation is the Group's largest cost and an important component of Man's ability to retain and attract talent. In the short term, the variable component of compensation adjusts with revenues and profitability.

Total compensation costs, excluding restructuring, have increased by 22% compared to 2016, largely due to the increase in management and performance fee revenues year on year, as reflected in increased variable cash compensation and associated social security costs. The compensation ratio, as outlined on page 57, has decreased to 44% from 48% in 2016 primarily as a result of the higher level of performance fee revenue.

Salaries have decreased from prior year largely as a result of a more favourable hedged Sterling to USD rate in 2017 (1.36) compared to the hedged rate in 2016 (1.51), which had a $12 million impact compared to prior year. As a result of cost saving initiatives the underlying salaries costs have remained largely stable despite growth in the business, inflation and an increase in headcount.

Salaries, variable cash compensation and social security costs are charged to the group income statement in the period in which the service is provided, and include partner drawings.

Pension costs relate to Man's defined contribution and defined benefit plans.

Restructuring costs in 2017 of $4 million (2016: $17 million) relate to termination expenses incurred due to the restructuring of certain areas of the business which commenced in 2016 and were completed in 2017. Compensation costs incurred as part of restructuring are accounted for in full at the time the obligation arises, and include payments in lieu of notice, enhanced termination costs, and accelerated share-based and fund product based charges.

Average headcount

The table below provides average headcount by function, including directors, employees, partners and contractors:

	Year ended 31 December 2017	Year ended 31 December 2016
Investment management	450	402
Sales and marketing	183	198
Support functions	680	650
Average headcount	1,313	1,250

5. Other costs

$m	Year ended 31 December 2017	Year ended 31 December 2016
Occupancy	33	34
Technology and communications	28	27
Temporary staff, recruitment, consultancy and managed services	20	19
Legal fees and other professional fees	17	18
Benefits	13	15
Travel and entertainment	11	11
Audit, accountancy, actuarial and tax fees	7	8
Insurance	4	6
Marketing and sponsorship	5	6
Other cash costs, including irrecoverable VAT	10	10
Restructuring (adjusting item per page 53)	7	4
Acquisition and disposal related other costs (adjusting item per page 53)	-	4
Total other costs before depreciation and amortisation	155	162
Depreciation and amortisation	18	14
Total other costs	173	176

Other costs, before depreciation and amortisation, have decreased to $155 million from $162 million in 2016, which largely reflects a $9 million impact of the more favourable hedged Sterling to USD rate in 2017. The underlying cost base has remained stable despite inflation and growth in the business, reflecting continued efforts to remain disciplined on costs.

Other restructuring costs of $7 million in 2017 largely relate to onerous property leases arising as a result of finalisation of the 2016 restructuring plan following the centralisation of our London resources into one location. Other restructuring costs of $4 million in 2016 largely related to a reassessment of our onerous property lease provision relating to Riverbank House, which was recorded as an adjusting item upon initial recognition.

6. Finance expense and finance income

$m	Year ended 31 December 2017	Year ended 31 December 2016
Finance expense:
Interest payable on borrowings (Note 12)	(9)	(9)
Revolving credit facility costs and other (Note 12)	(3)	(4)
Unwind of contingent consideration discount (adjusting item per page 53)	(26)	(19)
Total finance expense	(38)	(32)
Finance income:
Interest on cash deposits and US Treasury bills	3	2
Total finance income	3	2

7. Taxation

$m	Year ended 31 December 2017	Year ended 31 December 2016
Analysis of tax expense/(credit):
Current tax:
UK corporation tax on profits/(losses)	39	18
Foreign tax	5	5
Adjustments to tax charge in respect of previous years	(6)	(6)
Total current tax	38	17
Deferred tax:
Origination and reversal of temporary differences	(4)	(17)
Recognition of US deferred tax asset	(17)	(6)
Total deferred tax	(21)	(23)
Total tax expense/(credit)	17	(6)

Man is a global business and therefore operates across many different tax jurisdictions. Income and expenses are allocated to these different jurisdictions based on transfer pricing methodologies set in accordance with the laws of the jurisdictions in which Man operates and international guidelines as laid out by the OECD. 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, Switzerland and the US. The Group's US tax rate is effectively nil as a result of accumulated US tax assets, as detailed on page 35.

The current effective tax rate of 6% (2016: 2%) differs from the applicable underlying statutory tax rates principally as a result of the incremental recognition of the US deferred tax asset of $17 million (2016: $6 million), as detailed on page 35, the release of a non-taxable litigation provision (Note 16) and the reassessment of tax exposures globally during the year. In 2016 the 2% effective tax rate differed to the applicable underlying statutory tax rates principally as a result of the impairment of the GLG and FRM goodwill and intangibles being largely non-deductible for tax purposes, which was partially offset by the incremental recognition of the US deferred tax asset of $6 million, and the reassessment of tax exposures in Europe and Asia-Pacific during the year. The effective tax rate is otherwise consistent with this earnings profile.

Accounting for tax involves a level of estimation uncertainty given the application of tax law requires a degree of judgement, which tax authorities may dispute. Tax liabilities are recognised based on the best estimates of probable outcomes, with regard to external advice where appropriate. The principal factors which may influence our future tax rate are changes to tax regulation in the territories in which we operate, the mix of income and expense by jurisdiction, and the timing of recognition of available tax assets.

The current tax liabilities of $21 million (2016: $6 million), as shown on the Group balance sheet, comprise a gross current tax liability of $24 million (2016: $9 million) net of a current tax asset of $3 million (2016: $3 million).

The tax on Man's total profit before tax is lower (2016: credit on loss before tax is lower) than the amount that would arise using the theoretical effective tax rate applicable to the profits/(losses) of the consolidated companies as follows:

$m	Year ended 31 December 2017	Year ended 31 December 2016
Profit/(loss) before tax	272	(272)
Theoretical tax expense/(credit) at UK rate: 19.25% (2016: 20.00%)	52	(54)
Effect of:
Overseas tax rates compared to UK	(10)	11
Adjustments to tax charge in respect of previous periods	(9)	(7)
Recognition of US deferred tax asset	(17)	(6)
Impairment of goodwill and other adjusting items (page 53)	-	43
Share-based payments	-	2
Other	1	5

Tax expense/(credit)	17	(6)

The effect of overseas tax rates compared to the UK includes the impact of the 0% effective tax rate of our US business.

In the current year the adjustments to the tax charge in respect of previous periods primarily relates to a $7 million credit mainly due to reassessment of tax exposures globally. In 2016, adjustments in respect of previous periods primarily related to a $6 million credit following the reassessment of tax exposures in Europe and Asia-Pacific.

The impairment of goodwill and other adjusting items in 2016 reflects that there is no tax relief for the impairment of goodwill recognised in jurisdictions outside the US.

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 2017	Year ended 31 December 2016
Deferred tax liability
At 1 January	(47)	(69)
Acquisition of Aalto balance sheet	(2)	-
(Charge)/credit to the Group income statement	1	22
Deferred tax liability at 31 December	(48)	(47)
Deferred tax asset
At 1 January	63	59
Credit to the Group income statement	20	1
(Charge)/credit to other comprehensive income and equity	(2)	3
Deferred tax asset at 31 December	81	63

The deferred tax liability of $48 million (2016: $47 million) largely relates to deferred tax arising on acquired intangible assets.

The deferred tax asset comprises:

$m	31 December 2017	31 December 2016
US tax assets	42	25
Defined benefit pension schemes	12	11
Employee share schemes	14	10
Tax allowances over depreciation	9	9
Other	4	8
Deferred tax asset at 31 December	81	63

The deferred tax asset income statement credit of $20 million (2016: $1 million) relates to the recognition of the US deferred tax asset of $17 million (2016: $6 million), an increase in the deferred tax asset on employee share schemes of $2 million (2016: $3 million decrease), no change in the deferred tax asset arising on tax allowances over depreciation (2016: decrease of $2 million) and an increase in the deferred tax asset on other temporary differences of $1 million (2016: $nil). The debit to other comprehensive income and equity of $2 million (2016: $3 million credit) relates to movements in the pension accrual, unrealised cash flow hedge balances and employee share schemes.

The Group has accumulated deferred tax assets in the US of $124 million (2016: $192 million). The decrease of $68 million is principally as a result of the reduction in future tax rates in the US arising from the enactment of the 2017 Tax Cuts and Jobs Act, which reduced the US federal tax rate from 35% to 21%, effective from 1 January 2018. These assets principally comprise accumulated operating losses from existing operations of $61 million (2016: $103 million) and future amortisation of goodwill and intangibles assets generated from acquisitions of $48 million (2016: $72 million) that will be available to offset future taxable profits in the US. From the maximum available deferred tax assets of $124 million (2016: $192 million), a deferred tax asset of $42 million has been recognised on the Group balance sheet (2016: $25 million), representing amounts which can be offset against probable future taxable profits. The increase of $17 million from that recognised at 31 December 2016 represents projected year on year growth in our US business, partially offset by the reduction in the US federal tax rate from 1 January 2018. Probable future taxable profits are considered to be forecast profits for the next three years only, consistent with the Group's business planning horizon. As a result of the recognised deferred tax asset and the remaining unrecognised available US deferred tax assets of $82 million (2016: $167 million), Man does not expect to pay federal tax on any taxable profits it may earn in the US for a number of years. Accordingly, any movements in this US tax asset are classified as an adjusting item (page 53). The gross amount of losses for which a deferred tax asset has not been recognised is $48 million (2016: $160 million), which will expire over a period of 11 to 19 years.

8. Earnings per ordinary share (EPS)

The calculation of basic EPS is based on post-tax profit of $255 million (2016: loss of $266 million), and ordinary shares of 1,640,137,392 (2016: 1,679,099,266), being the weighted average number of ordinary shares in 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 1,659,830,089 (2016: 1,695,995,147).

The details of movements in the number of shares used in the basic and dilutive EPS calculation are provided below.

	Year ended 31 December 2017		Year ended 31 December 2016
	Total number (million)	Weighted average (million)	Total number (million)	Weighted average (million)
Number of shares at beginning of year	1,679.9	1,679.9	1,700.8	1,700.8
Issues of shares	10.1	8.4	2.6	1.9
Repurchase of own shares	(46.4)	(28.3)	(23.5)	(2.3)
Number of shares at period end	1,643.6	1,660.0	1,679.9	1,700.4
Shares owned by Employee Trusts	(20.3)	(19.9)	(19.6)	(21.3)
Basic number of shares	1,623.3	1,640.1	1,660.3	1,679.1
Share awards under incentive schemes		17.8		15.9
Employee share options		1.9		1.0
Diluted number of shares		1,659.8		1,696.0

The basic and diluted earnings per share figures are provided below.

	Year ended	Year ended
	31 December	31 December
$m	2017	2016
Basic and diluted post-tax earnings	255	(266)
Basic earnings per share cents	15.5	(15.8)
Diluted earnings per share cents	15.3	(15.8)

9. Dividends

	Year ended	Year ended
	31 December	31 December
$m	2017	2016
Ordinary shares
Final dividend paid for the year to 31 December 2016 - 4.5 cents (2015: 4.8 cents)	77	83
Interim dividend paid for the six months to 30 June 2017 - 5.0 cents (2016: 4.5 cents)	81	75
Dividends paid	158	158
Proposed final dividend for the year to 31 December 2017 - 5.8 cents (2016: 4.5 cents)	94	75

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. Details of the Group's dividend policy are included in the Chief Financial Officer's Review.

10. Goodwill and acquired intangibles

	Year ended 31 December 2017						Year ended 31 December 2016
$m	Goodwill	Investment management agreements	Distribution channels	Brand names	Total	Goodwill		Investment management agreements	Distribution channels	Brand names	Total
Net book value at beginning of the year	588	405	16	15	1,024	907		545	23	22	1,497
Acquisition of business¹	55	10	14	-	79	-		-	-	-	-
Amortisation	-	(75)	(6)	(3)	(84)	-		(86)	(4)	(4)	(94)
Impairment expense²	-	-	-	-	-	(319)		(54)	(3)	(3)	(379)
Currency translation	5	-	-	-	5	-		-	-	-	-
Net book value at year end	648	340	24	12	1,024	588		405	16	15	1,024
Allocated to cash generating
units as follows:
AHL	459	-	-	-	459	454		-	-	-	454
GLG	-	188	12	8	208	-		238	16	11	265
FRM	-	22	-	1	23	-		28	-	1	29
Numeric	134	121	-	3	258	134		139	-	3	276
GPM	55	9	12	-	76	-		-	-	-	-

Notes:

1 Acquisition of business relates to the acquisition of Aalto on 1 January 2017.

2 The 2016 impairment of $379 million relates to GLG ($281 million) and FRM ($98 million).

Goodwill

Goodwill represents the excess of consideration transferred over the fair value of 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, has an indefinite useful life, is not subject to amortisation and is tested for impairment annually, or whenever events or circumstances indicate that the carrying amount may not be recoverable.

Investment management agreements (IMAs), distribution channels and brand names

IMAs, 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 their expected useful lives, which are between three and 13 years (IMAs and brands), and six and 12 years (distribution channels).

Amortisation of acquired intangible assets of $84 million (2016: $94 million) primarily relates to the investment management agreements recognised on the acquisition of GLG and Numeric.

Allocation of goodwill to cash generating units

For statutory accounting impairment review purposes, the Group has identified five cash generating units (CGUs): AHL, GLG, FRM, Numeric and GPM. As a result of the acquisition of Aalto in 2017, the Group formally identified a new CGU, Global Private Markets (GPM). Details of the Aalto acquisition are provided on page 39.

Calculation of recoverable amounts for cash generating units

An impairment expense 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 (CGUs). 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 2017 use cash flow projections based on the Board approved financial plan for the year to 31 December 2018 and a further two years of projections (2019 and 2020), plus a terminal value. The valuation analysis is based on best practice guidance whereby a terminal value is calculated at the end of a short discrete budget period and assumes, after this three year budget period, no growth in asset flows above the long-term growth rate. In order to determine the value in use of each CGU, it is necessary to notionally allocate the majority of the Group's cost base relating to operations, product structuring, distribution and support functions, which are managed on a centralised basis.

The value in use calculations for AHL, GLG, FRM, Numeric and GPM (established as a result of the acquisition of Aalto in January 2017) are presented on a post-tax basis, consistent with the prior year, given most comparable market data is available on a post-tax basis. The value in use calculations presented on a post-tax basis are not significantly different to their pre-tax equivalent.

The assumptions applied in the value in use calculation are derived from past experience and assessment of current market inputs. 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 market beta derived from consideration of Man's beta, similar alternative asset managers, and the asset management sector as a whole. The terminal value is calculated based on the projected closing FUM at 31 December 2020 and applying a mid-point of a range of historical multiples to the forecast cash flows associated with management and performance fees.

The recoverable amount of each CGU has been assessed at 31 December 2017. The key assumptions applied to the value in use calculations for each of the CGUs are provided below.

Key assumptions:	AHL	GLG	FRM	Numeric	GPM
Compound average annualised growth in FUM (over three years)	11%	4%	10%	7%	37%
Discount rate
- Management fees¹	11%	11%	11%	11%	15%
- Performance fees²	17%	17%	17%	17%	21%
Terminal value (mid-point of range of historical multiples)³
- Management fees	13.0x	13.0x	5.9x	13.0x	13.0x
- Performance fees	5.5x	5.5x	3.9x	5.5x	5.5x

Notes:

1 The pre-tax equivalent of the net management fees discount rate is 13%, 13%, 13%, 14% and 18% for each of the AHL, GLG, FRM, Numeric and GPM CGUs, respectively.

2 The pre-tax equivalent of the net performance fees discount rate is 20%, 20%, 20%, 21% and 25% for each of the AHL, GLG, FRM, Numeric and GPM CGUs, respectively.

3 The implied terminal growth rates are 3%, 3%, -10%, 3% and 7% for each of the AHL, GLG, FRM, Numeric and GPM CGUs, respectively.

The results of the valuations are further explained in the following sections, including sensitivity tables which show scenarios whereby the key assumptions are changed to stressed assumptions, indicating the modelled headroom or impairment that would result. Each assumption, or set of assumptions, is stressed in isolation. The results of these sensitivities make no allowance for actions that management would take if such market conditions persisted.

AHL cash generating unit

The AHL value in use calculation at 31 December 2017 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 2017 (2016: nil). The valuation at 31 December 2017 is around $0.5 billion higher than the value in use calculation at 31 December 2016, primarily due to higher opening FUM largely as a result of better than forecast performance in 2017.

			Discount rates (post-tax)			Multiples (post-tax)
Sensitivity analysis:	Compound average annualised growth in FUM¹		Management fee/ performance fee		Management fee/ performance fee
Key assumption stressed to:	13%	(18%)	10%/16%	12%/18%	14.0x/6.5x		12.0x/4.5x
Modelled headroom/(impairment) ($m)	2,813	-	2,588²	2,452²	2,778³		2,260³

Notes:

1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment would arise.

2 An increase/decrease in the value in use calculation of $68 million.

3 An increase/decrease in the value in use calculation of $259 million.

GLG cash generating unit

In 2016 the GLG CGU was impaired by $281 million, primarily due to lower performance and net flows compared to that previously forecast as well as a weakening of industry growth forecasts during the year. This impaired the total GLG goodwill balance of $222 million and further impaired the other acquired intangibles balances relating to investment management agreements, distribution channels and brands by a total of $59 million.

The GLG value in use calculation at 31 December 2017 indicates a value of $387 million, with around $140 million of headroom over the carrying value of the GLG business. Therefore, no impairment charge is deemed necessary at 31 December 2017. The valuation at 31 December 2017 is around $100 million higher than the value in use calculation at 31 December 2016 largely due to a better than forecast inflows. The headroom has also increased as a result of amortisation of acquired intangibles of $57 million during the year, which lowers the carrying value.

			Discount rates (post-tax)			Multiples (post-tax)
Sensitivity analysis:	Compound average annualised growth in FUM¹		Management fee/ performance fee		Management fee/ performance fee
Key assumption stressed to:	6%	0%	10%/16%	12%/18%	14.0x/6.5x		12.0x/4.5x
Modelled headroom/(impairment) ($m)	226	-	150²	132²	172³		110³

Notes:

1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment would arise.

2 An increase/decrease in the value in use calculation of $9 million.

3 An increase/decrease in the value in use calculation of $31 million.

FRM cash generating unit

In 2016 the FRM CGU was impaired by $98 million, largely as a result of acceleration in the FUM mix shift towards lower margin mandates and reduced prospects for the traditional fund of funds business. This impaired the total FRM goodwill balance of $97 million, and further impaired the other acquired intangibles balances relating to investment management agreements and brands by a total of $1 million.

The FRM value in use calculation at 31 December 2017 indicates a value of $37 million, with $5 million of headroom over the carrying value of the FRM business. Therefore, no impairment charge is deemed necessary at 31 December 2017. The valuation at 31 December 2017 is largely in line with the value in use calculation at 31 December 2016. The headroom has increased as a result of amortisation of acquired intangibles of $6 million during the year, which lowers the carrying value.

			Discount rates (post-tax)			Multiples (post-tax)
Sensitivity analysis:	Compound average annualised growth in FUM¹		Management fee/ performance fee		Management fee/ performance fee
Key assumption stressed to:	12%	8%	10%/16%	12%/18%	6.9x/4.9x		4.9x/2.9
Modelled headroom/(impairment) ($m)	11	-	5²	4²	8³		2³

Notes:

1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment would arise.

2 An increase/decrease in the value in use calculation of less than $1 million.

3 An increase/decrease in the value in use calculation of $3 million.

Numeric cash generating unit

The Numeric value in use calculation at 31 December 2017 indicates a value of around $600 million, with around $340 million of headroom over the carrying value of the Numeric business. Therefore, no impairment charge is deemed necessary at 31 December 2017 (2016: nil). The valuation at 31 December 2017 is around $170 million higher than the value in use calculation at 31 December 2016, primarily as a result of higher opening FUM due to stronger performance than previously forecast during 2017.

			Discount rates (post-tax)			Multiples (post-tax)
Sensitivity analysis:	Compound average annualised growth in FUM¹		Management fee/ performance fee		Management fee/ performance fee
Key assumption stressed to:	9%	(17%)	10%/16%	12%/18%	14.0x/6.5x		12.0x/4.5x
Modelled headroom/(impairment) ($m)	401	-	356²	326²	382³		298³

Notes:

1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment would arise.

2 An increase/decrease in the value in use calculation of $15 million.

3 An increase/decrease in the value in use calculation of $42 million.

GPM cash generating unit

The GPM CGU was established in 2017 as a result of the acquisition of Aalto. The GPM value in use calculation at 31 December 2017 indicates a value of around $110 million, with around $40 million of headroom over the carrying value of the GPM business. Therefore, no impairment charge is deemed necessary at 31 December 2017.

			Discount rates (post-tax)			Multiples (post-tax)
Sensitivity analysis:	Compound average annualised growth in FUM¹		Management fee/ performance fee		Management fee/ performance fee
Key assumption stressed to:	39%	23%	14%/20%	16%/22%	14.0x/6.5x		12.0x/4.5x
Modelled headroom/(impairment) ($m)	44	-	41²	35²	45³		31³

Notes:

1 The compound average annualised growth in FUM has been stressed in a downside scenario to determine the point at which headroom would be reduced to nil, after which impairment would arise.

2 An increase/decrease in the value in use calculation of $3 million.

3 An increase/decrease in the value in use calculation of $7 million.

Acquisition of Aalto

On 1 January 2017, Man acquired the entire issued share capital of Aalto, a US and Europe based real asset focused investment manager with $1.8 billion of funds under management at the date of acquisition. The acquisition consideration is structured to align Aalto's interests with those of Man, and comprises of an initial payment of $18 million in cash, including $1 million for acquired working capital, and $8 million in shares, and four deferred payments. The deferred payments are dependent on levels of run rate management fees measured following one, four, six and eight years from completion and are capped at $207 million in aggregate. The net present value of the aggregate deferred payments at completion was $52 million.

The $8 million fair value of the 5.7 million ordinary shares issued as part of the contingent consideration paid for Aalto was measured on the basis of quoted prices at the time of issue. The deferred payments are equivalent to an earn-out (contingent consideration) and deemed to be a financial liability measured initially at fair value with any subsequent fair value movements recognised through the Group income statement (Note 21).

Values for the acquired business at the date of acquisition are set out below:

		Fair value	Fair
$m	Book value	adjustments	value
Intangible assets	-	24	24
Cash and receivables	5	-	5
Loans and payables	(4)	-	(4)
Deferred tax liability	-	(2)	(2)
Net assets acquired	1	22	23
Goodwill on acquisition			55
Net assets acquired including goodwill			78
Contingent consideration			52
Cash consideration			18
Value of shares issued			8
Total consideration			78

The fair value adjustments relate to the recognition of investment management agreements of $10 million and customer relationships of $14 million. These intangible assets are recognised at the present value of the expected future cash flows generated from the assets and are amortised on a straight-line basis over their expected useful lives of eight and six years respectively. Given the funds are close-ended only the future cash flows from funds existing at acquisition date are included within the investment management agreements intangible, and therefore this balance reflects a finite product portfolio and period.

The high proportion of acquired goodwill in comparison to identified other intangible assets is due to the nature of the acquired business. The goodwill balance of $55 million primarily represents direct and efficient access to the private real estate markets, the highly skilled and experienced Aalto team and the tailor made infrastructure and strong relationships to expand Man's current offering to its existing clients. None of the goodwill recognised is expected to be deductible for tax purposes.

Acquisition related costs included in the Group's income statement for the year ended 31 December 2017 amounted to less than $1 million. Aalto contributed $12 million of management fee revenue, $4 million of performance fee revenue and $3 million to the Group's profit before tax for the year ended 31 December 2017.

11. Other intangibles

	Year ended	Year ended
	31 December	31 December
$m	2017	2016
Net book value beginning of the year	17	14
Additions	14	9
Disposals/redemptions	(2)	(2)
Amortisation	(6)	(4)
Net book value at year end	23	17

Other intangibles relate to capitalised computer software. Capitalised computer software includes costs that are directly associated with the procurement or development of identifiable and unique software products, which will generate economic benefits exceeding costs beyond one year and is subject to regular impairment reviews. Capitalised computer software is amortised on a straight-line basis over its estimated useful life (three years), which is included in Other costs in the Group income statement. Additions relate to investment in software across Man's operating platforms.

12. Cash, liquidity and borrowings

	31 December 2017				31 December 2016
		Less than	Greater than			Less than	Greater than
$m	Total	1 year	3 years	Total		1 year	3 years
Borrowings: 2024 fixed rate reset callable guaranteed subordinated notes	150	-	150	149		-	149
Cash and cash equivalents¹	356	356	-	389		389	-
Undrawn committed revolving loan facility	500	-	500	500		-	500
Total liquidity	856	356	500	889		389	500

Note:

1 Excludes $23 million (2016: $37 million) of restricted cash held by consolidated fund entities (Note 13.2).

Liquidity resources support ongoing operations and potential liquidity requirements under stressed scenarios. The amount of potential liquidity requirements is modelled based on scenarios that assume stressed market and economic conditions. The funding requirements for Man relating to the investment management process are discretionary. The liquidity profile of Man is monitored on a daily basis and the stressed scenarios are updated regularly. The Board reviews Man's funding resources at each Board meeting and on an annual basis as part of the strategic planning process. Man's available liquidity is considered sufficient to cover current requirements and potential requirements under stressed scenarios.

In September 2014, Man issued $150 million ten-year fixed rate reset callable guaranteed subordinated notes (Tier 2 notes), with associated issuance costs of $1 million. The Tier 2 notes were issued with a fixed coupon of 5.875% until 15 September 2019. The notes may be redeemed in whole at Man's option on 16 September 2019 at their principal amount, subject to FCA approval. If the notes are not redeemed at this time then the coupon will reset to the five-year mid-swap rate plus 4.076% and the notes will be redeemed on 16 September 2024 at their principal amount.

Borrowings are initially recorded at fair value net of transaction costs incurred, and are subsequently measured at amortised cost. The difference between the amount repayable at maturity on the borrowings and the carrying value is amortised over the period up to the expected maturity of the associated debt in accordance with the effective interest rate method.

Cash and cash equivalents at year end comprises cash at bank on hand of $175 million (2016: $222 million), short-term deposits of $181 million (2016: $102 million) and $nil US Treasury bills (2016: $65 million). Cash ring-fenced for regulated entities totalled $37 million (2016: $28 million). Cash is invested in accordance with strict limits consistent with the Board's risk appetite, which consider both the security and availability of liquidity. Accordingly, cash is held in on-demand deposit bank accounts and short-term bank deposits, and at times invested in short-term US Treasury bills. At 31 December 2017, the $356 million cash balance (excluding US Treasury bills and cash held by consolidated fund entities) is held with 20 banks (2016: $324 million with 18 banks). The single largest counterparty bank exposure of $84 million is held with an A+ rated bank (2016: $88 million with a BBB+ rated bank). At 31 December 2017, balances with banks in the AA ratings band aggregate to $97 million (2016: $109 million) and balances with banks in the A ratings band aggregate to $239 million (2016: $127 million).

In October 2016 the Group reduced the previous $1 billion syndicated revolving loan facility to $500 million. The $500 million facility was undrawn at 31 December 2017 (undrawn at 31 December 2016). The facility was put in place as a five-year facility and included the option for Man to request the banks to extend the maturity date by one year on each of the first and second anniversaries. The participant banks have the option to accept or decline Man's request. On the first and second anniversaries in 2016 and 2017, the banks were asked to extend the maturity date of the facility by one year and banks with participations totalling 98% of the facility accepted the request on both anniversaries. As a result of the maturity extension, $10 million is scheduled to mature in June 2020 and the remaining $490 million matures in June 2022. To maintain maximum flexibility, the facility does not include financial covenants.

Foreign exchange and interest rate risk

Man is subject to risk from changes in interest rates and foreign exchange rates on monetary assets and liabilities.

In respect of Man's monetary assets and liabilities which earn/incur interest indexed to floating rates, as at 31 December 2017 a 50bp increase/decrease in these rates, with all other variables held constant, would have resulted in a $1 million increase/decrease (2016: $1 million increase/decrease) in net interest income.

A 10% strengthening/weakening of the USD against all other currencies, with all other variables held constant, would have resulted in a foreign exchange loss/gain of $1 million (2016: $3 million loss/gain), with a corresponding impact on equity. This exposure is based on USD balances held by non-USD functional currency entities and non-USD balances held by USD functional currency entities within the Group.

In certain circumstances, the Group uses derivative financial instruments to hedge its risk associated with foreign exchange movements. Where fixed foreign currency denominated costs are hedged, the associated derivatives may be designated as cash flow hedges. Effective unrealised gains or losses on these instruments are recognised within the cash flow hedge reserve in equity and, when realised, these are reclassified to the Group income statement in the same line as the hedged item. The realisation of foreign currency operating cash flows and the associated forward foreign currency derivative contracts generally arise on a monthly basis. The fair value of derivatives held in relation to the Group's cash flow hedges at 31 December 2017 is an asset of $9 million (2016: liability $18 million).

13. Investments in fund products and other investments

	31 December 2017
$m	Financial assets at fair value through profit or loss	Loans and receivables	Available-for-sale financial assets	Total investments in fund products and other investments	Net non- current assets held for sale	Total investments
Loans to fund products	-	25	-	25	-	25
Investments in fund products	249	-	-	249	79	328
Other investments	-	-	3	3	-	3
Investments in line-by-line consolidated funds	452	-	-	452	-	452
	701	25	3	729	79	808

	31 December 2016
$m	Financial assets at fair value through profit or loss	Loans and receivables	Available-for-sale financial assets	Total investments in fund products and other investments	Net non- current assets held for sale	Total investments
Loans to fund products	-	26	-	26	-	26
Investments in fund products	275	-	-	275	131	406
Other investments	-	-	3	3	-	3
Investments in line-by-line consolidated funds	490	-	-	490	-	490
	765	26	3	794	131	925

Man's seeding investments are included in various Group balance sheet line items. In summary, the total seeding investments portfolio is made up as follows:

		31 December	31 December
$m	Note	2017	2016
Investments in fund products	13.1	249	275
Less those used to hedge deferred compensation awards	13.1	(76)	(75)
Consolidated net investments in funds - held for sale	13.2	79	131
Consolidated net investments in funds - line-by-line consolidation	13.2	203	285
Loans to funds	13.3	25	26
Seeding investments portfolio		480	642

13.1. Investments in fund products

Man uses capital to invest in our fund products as part of our ongoing business to build our product breadth and to trial investment research developments before we market the products broadly to investors. These seeding investments are generally held for less than one year. Where Man is deemed not to control the fund, these are classified as investments in fund products. Investments in fund products are classified at fair value through profit or loss, with net gains due to movements in fair value of $58 million for the year ended 31 December 2017 (2016: $55 million) recognised through income or gains on investments and other financial instruments. Purchases and sales of investments are recognised on trade date.

The fair values of investments in fund products are derived from the reported NAVs of each of the fund products, which in turn are based upon the value of the underlying assets held within each of the fund products and the anticipated redemption horizon of the fund product. The valuation of the underlying assets within each fund product is determined by external valuation service providers based on an agreed valuation policy and methodology. Whilst these valuations are performed independently of Man, Man has established oversight procedures and due diligence processes to ensure that the NAVs reported by the external valuation service providers are reliable and appropriate. Man makes adjustments to these NAVs where the anticipated redemption horizon, events or circumstances indicate that the NAVs are not reflective of fair value. The fair value hierarchy of financial assets is disclosed in Note 21.

Investments in fund products expose Man to market risk and therefore this process is subject to limits consistent with the Board's risk appetite. The largest single investment in fund products is $79 million (2016: $186 million). The market risk from seeding investments is modelled using a value at risk methodology using a 95% confidence interval and one-year time horizon. The value at risk is estimated to be $29 million at 31 December 2017 (2016: $72 million).

Fund investments for deferred compensation arrangements

At 31 December 2017, investments in fund products included $76 million (2016: $75 million) of fund products related to deferred compensation arrangements. Employees are subject to mandatory deferral arrangements and as part of these arrangements employees can elect to have their deferral in a designated selection of Man fund products. Changes in the fair value of the fund product awards are recognised over the relevant vesting period, which means the compensation expense changes based on the value of the fund products. The associated fund product investments are held to offset this change in compensation during the vesting period and at vesting the value of the fund investment is delivered to the employee. The fund product investments are recorded at fair value with any gains or losses during the vesting period recognised as income or gains on investments and other financial instruments in the Group income statement.

13.2. Consolidation of investments in funds

Seed capital invested into funds may at times be significant, and therefore the fund may be deemed to be controlled by the Group (Note 1). The fund is consolidated into the Group's results from the date control commences until it ceases. In 2017, nine (2016: 11) investments in funds have met the control criteria and have therefore been consolidated, either classified as held for sale or consolidated on a line-by-line basis as detailed below.

Held for sale

Where the Group acquires the controlling stake and actively markets the products to third-party investors, allowing the Group to redeem their share, and it is considered highly probable that it will relinquish control within one year from the date of initial investment, the investment in the controlled fund is classified as held for sale. The seeded fund is recognised on the Group balance sheet as non-current assets and liabilities held for sale, with the interests of any other parties included within non-current liabilities held for sale. Amounts recognised are measured at the lower of the carrying amount and fair value less costs to sell.

The non-current assets and liabilities held for sale are as follows:

	31 December	31 December
$m	2017	2016
Non-current assets held for sale	145	263
Non-current liabilities held for sale	(66)	(132)
Investments in fund products held for sale	79	131

Investments cease to be classified as held for sale when the fund is no longer controlled by the Group, at which time they are classified as financial assets at fair value through profit or loss (Note 13.1). Loss of control may eventuate through sale of the investment or a dilution in the Group's holding. If a held for sale fund remains under the control of the Group for more than one year, and it is unlikely that the Group will reduce or no longer control its investment in the short-term, it will cease to be classified as held for sale and will be consolidated on a line-by-line basis. Three investments in funds which were classified as held for sale in 2016 have been consolidated on a line-by-line basis for the year ended 31 December 2017 (2016: three held for sale funds at 31 December 2015).

Line-by-line consolidation

The investments relating to the five (2016: six) funds which are controlled and are consolidated on a line-by-line basis are included within the Group balance sheet and income statement as follows:

	31 December	31 December
$m	2017	2016
Balance sheet
Cash and cash equivalents	23	37
Transferable securities¹	452	490
Fees and other receivables	1	-
Trade and other payables	(174)	(2)
Net assets of line-by-line consolidated fund entities	302	525
Third-party interest in consolidated funds	(99)	(240)
Net investment held by Man	203	285
Income statement
Net gains on investments²	57	45
Management fee expenses³	(9)	(9)
Performance fee expenses³	(5)	(2)
Other costs⁴	(2)	(3)
Net gains of line-by-line consolidated fund entities	41	31
Third-party share of gains relating to interests in consolidated funds	(14)	(15)
Gains attributable to net investment held by Man	27	16

Notes:

1 Included within Investments in fund products and other investments.

2 Included within Income or gains on investments and other financial instruments.

3 Relates to management and performance fees paid by the funds to Man during the year, and are eliminated within gross management and other fees and performance fees, respectively, in the Group income statement. The management fees elimination includes $3 million (2016: $4 million) in relation to the third-party share of these investments and therefore represents externally generated management fees. The performance fee elimination includes $2 million (2016: $nil) in relation to third-party share which represents performance fees generated externally.

4 Includes $1 million (2016: $2 million) in relation to the third-party share of these investments and therefore represents costs incurred externally.

13.3. Loans to fund products

Loans to fund products are short-term advances primarily to Man guaranteed products, which are made to assist with the financing of the leverage associated with the structured products. The loans are repayable on demand and are carried at amortised cost using the effective interest rate method. The average balance during the year is $28 million (2016: $33 million). The liquidity requirements of guaranteed products together with commitments to provide financial support which give rise to loans to funds are subject to our routine liquidity stress testing and any liquidity requirements are met by available cash resources, or the syndicated revolving credit facility.

Loans to fund products expose Man to credit risk and therefore the credit decision making process is subject to limits consistent with the Board's risk appetite. The carrying value represents Man's maximum exposure to this credit risk. Loans are closely monitored against the assets held in the funds. The largest single loan to a fund product at 31 December 2017 is $12 million (2016: $4 million). Fund entities are not externally rated, however our internal modelling suggests that fund products have a probability of default that is equivalent to a credit rating of A.

13.4. Structured entities

Man has evaluated all exposures and concluded that where Man holds an investment, loan, fees receivable and accrued income, guarantee or commitment with an investment fund or a collateralised loan obligation, this represents an interest in a structured entity as defined by IFRS 10 'Consolidated financial statements'.

As with structured entities, investment funds are designed so that their activities are not governed by way of voting rights and contractual arrangements are the dominant factor in affecting an investor's returns. The activities of these entities are governed by investment management agreements or, in the case of a collateralised loan obligation, the indenture.

The key considerations in assessing whether the Group controls a structured entity, and therefore should be consolidated into the Group's financial statements, are outlined in Note 1. Consolidated structured entities are detailed in Note 13.2.

Man's maximum exposure to loss from unconsolidated structured entities is the sum total of any investment held, fee receivables, accrued income, and loans to the fund entities, and is $578 million for the year ended 31 December 2017 (2016: $420 million). Man's interest in and exposure to unconsolidated structured entities is as follows:

31 December 2017	Total FUM ($bn)	Less infrastructure mandates and consolidated fund entities¹ ($bn)	Total FUM unconsolidated structured entities ($bn)	Number of funds	Net management fee margin² (%)	Fair value of investment held ($m)	Fee receivables and accrued income ($m)	Loans to funds ($m)	Maximum exposure to loss ($m)
Alternative
Absolute return	29.2	0.2	29.0	129	1.38	64	181	-	245
Total return	16.5	-	16.5	45	0.56	105	21	-	126
Multi-manager solutions	16.0	7.7	8.3	80	0.45	2	15	-	17
Long only
Systematic	26.8	0.1	26.7	104	0.36	1	75	-	76
Discretionary	20.4	0.1	20.3	49	0.67	61	26	-	87
Guaranteed	0.2	-	0.2	14	5.04	-	2	25	27
Total	109.1	8.1	101.0	421		233	320	25	578

31 December 2016	Total FUM ($bn)	Less infrastructure mandates and consolidated fund entities¹ ($bn)	Total FUM unconsolidated structured entities ($bn)	Number of funds	Net management fee margin² (%)	Fair value of investment held ($m)	Fee receivables and accrued income ($m)	Loans to funds ($m)	Maximum exposure to loss ($m)
Alternative
Absolute return	25.4	0.5	24.9	121	1.47	145	61	-	206
Total return	6.6	-	6.6	21	0.47	68	7	-	75
Multi-manager solutions	11.8	5.0	6.8	91	0.63	2	15	-	17
Long only
Systematic	21.4	0.1	21.3	108	0.36	1	32	-	33
Discretionary	15.3	0.1	15.2	39	0.67	44	15	-	59
Guaranteed	0.4	-	0.4	25	4.28	-	4	26	30
Total	80.9	5.7	75.2	405		260	134	26	420

Notes:

1 For infrastructure mandates where we do not act as investment manager or advisor Man's role in directing investment activities is diminished and therefore these are not considered to be structured entities.

2 Net management fee margins are the categorical weighted average (see page 18). Performance fees can only be earned after a high water mark is achieved. For performance fee eligible funds, performance fees are within the range of 10% to 20%.

Support by way of loans provided to unconsolidated structured entities is detailed in Note 13.3, and is included within the maximum exposure to loss above. Furthermore, on occasion Man agrees to purchase illiquid investments from the funds at market rates in order to facilitate investor withdrawals. Man has not provided any other non-contractual support to unconsolidated structured entities.

14. Fee and other receivables

	31 December	31 December
$m	2017	2016
Fee receivables	53	30
Accrued income	267	114
Prepayments	16	14
Derivative financial instruments	9	2
Other receivables	146	97
	491	257

Fee and other receivables are initially recorded at fair value and subsequently measured at amortised cost using the effective interest rate method. Fee receivables and accrued income represent management and performance fees from fund products and are received in cash when the funds' net asset values are determined. The majority of fees are deducted from the NAV of the respective funds by the independent administrators and therefore the credit risk of fee receivables is minimal. No balances are overdue or delinquent at year end. The increase in accrued income in 2017 primarily relates to the increase in performance fee income which crystallised on 31 December 2017. Performance fees receivable at year end are $196 million (2016: $32 million).

Details of derivatives used to hedge foreign exchange risk are included in Note 12. Other derivative financial instruments, which consist primarily of foreign exchange contracts, are measured at fair value through profit or loss. All derivatives are held with external banks with ratings of BBB+ (2016: BBB+) or higher and mature within one year. During the year, there were $1 million net realised and unrealised losses arising from derivatives (2016: $4 million gains). The notional value of all derivative financial assets is $262 million (2016: $58 million).

Other receivables principally includes balances relating to the Open Ended Investment Collective (OEIC) funds business, fund redemption proceeds and other deposits. For the OEIC funds businesses, Man acts as the intermediary for the collection of subscriptions due from customers and payable to the funds, and for redemptions receivable from funds and payable to customers. At 31 December 2017, the amount included in other receivables is $38 million (2016: $16 million). The unsettled fund payable is recorded in trade and other payables (Note 15). Other receivables also includes $11 million relating to fund disposal proceeds (2016: $1 million). At 31 December 2017, $8 million (2016: $8 million) of other receivables are expected to be settled after 12 months.

15. Trade and other payables

	31 December	31 December
$m	2017	2016
Accruals	334	253
Trade payables	3	3
Contingent consideration	243	161
Derivative financial instruments	10	22
Other payables	253	208
	843	647

Accruals primarily relate to compensation accruals. Contingent consideration relates to the amounts payable in respect of acquisitions (Note 21). Other payables include the remaining October 2017 announced share repurchase liability of $74 million (2016: $65 million), as detailed in Note 20, payables relating to the OEIC funds business of $35 million (2016: $17 million) and servicing fees payable to distributors.

Details of derivatives used to hedge foreign exchange risk are included in Note 12. The notional value of derivative financial liabilities at 31 December 2017 is $388 million (2016: $334 million). All derivative contracts mature within one year.

The other payables balance in 2017 includes $52 million relating to the third-party share of payables for line-by-line consolidated funds, largely as a result of the December 2017 compulsory redemption for our largest seeding position by all investors (Note 13.2).

Trade and other payables are initially recorded at fair value and subsequently measured at amortised cost. Included in trade and other payables at 31 December 2017 are balances of $213 million (2016: $155 million) which are expected to be settled after more than 12 months, which largely relate to contingent consideration. Man's policy is to meet its contractual commitments and pay suppliers according to agreed terms.

16. Provisions

	Onerous
	property lease
$m	contracts	Litigation	Restructuring	Other	Total
As 1 January 2017	27	24	-	-	51
Charged/(credited) to the income statement:
Charge in the year	6	-	4	4	14
Unused amounts reversed	-	(24)	-	-	(24)
Exchange difference	3	-	-	-	3
Used during the year/settlements	(6)	-	(4)	-	(10)
At 31 December 2017	30	-	-	4	34

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. All provisions are current, other than onerous property lease contracts as outlined below, given the Group does not have the unconditional right to defer settlement. Provisions for restructuring are recognised when the obligation arises, following communication of the formal plan.

The $6 million charge for onerous property lease contracts is included within other costs as detailed in Note 5. Provisions for onerous property lease contracts represent the present value of the future lease payments that the Group is presently obliged to make under non-cancellable onerous operating lease contracts, less the future benefit expected to be generated from these, including sub-lease revenue where applicable. The unexpired terms of the onerous leases range from one to 18 years, with all onerous property lease contracts therefore non-current.

The credit of $24 million in relation to litigation provisions is as a result of the reassessment of the Group's exposure to claims and other settlements.

17. Investments in associates

Associates are entities in which Man holds an interest and over which it has significant influence but not control, and are accounted for using the equity method. In assessing significant influence Man considers the investment held and its power to participate in the financial and operating policy decisions of the investee through its voting or other rights.

Under the equity method associates are carried at cost plus (or minus) our share of cumulative post-acquisition movements in undistributed profits (or losses). Gains and losses on transactions between the Group and its associates are eliminated to the extent of the Group's interests in these entities. An impairment assessment of the carrying value of associates is performed annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, and any impairment is expensed in the Group income statement.

Man's investments in associates are as follows:

	Year ended 31 December 2017				Year ended 31 December 2016
	Nephila			Nephila
$m	Holdings Ltd	Other	Total	Holdings Ltd		Other	Total
At beginning of the year	30	1	31	28		2	30
Share of post-tax profit/(loss)	7	1	8	3		(1)	2
Dividends received	(8)	-	(8)	(1)		-	(1)
Sale of investment in associate	-	(2)	(2)	-		-	-
At year end	29	-	29	30		1	31

Nephila Holdings Limited is an alternative investment manager based in Bermuda specialising in the management of funds which underwrite natural catastrophe reinsurance and invest in insurance-linked securities and weather derivatives. Man has not provided any financial support to associates during the year to 31 December 2017 (2016: nil).

Commission income relating to sales of Nephila Holdings Limited products totalled $4 million for the year ended 31 December 2017 (2016: $12 million), an arrangement which ceased during the year, and is included within gross management and other fees in the Group income statement.

18. Leasehold improvements and equipment

	Year ended 31 December 2017				Year ended 31 December 2016
$m	Leasehold improvements	Equipment	Total	Leasehold improvements		Equipment	Total
Net book value at beginning of the year	29	15	44	32		12	44
Additions	5	7	12	3		8	11
Depreciation expense	(6)	(6)	(12)	(6)		(5)	(11)
Net book value at year end	28	16	44	29		15	44

All leasehold improvements and equipment are recorded at cost less depreciation and impairment. Cost includes the original purchase price of the asset and costs directly attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated using the straight-line method over the asset's estimated useful life, which for leasehold improvements is over the shorter of the life of the lease and the improvement (up to 24 years) and for equipment is between three and ten years.

19. Deferred compensation arrangements

Man operates equity-settled share-based payment schemes as well as fund product based compensation arrangements.

For compensation plans whereby deferred compensation is invested in fund products managed by Man, the fair value of the employee services received in exchange for the fund units is recognised as an expense over the vesting period, with a corresponding liability. The total amount to be expensed is determined by reference to the fair value of the awards, which is remeasured at each reporting date, and equates to the fair value of the underlying fund products at settlement date.

During the year, $59 million (2016: $55 million) relating to share-based payment and deferred fund product plans is included within compensation costs (Note 4), consisting of share-based payments of $19 million (2016: $18 million) and deferred fund product plans of $40 million (2016: $37 million). The unamortised deferred compensation at year end is $51 million (2016: $43 million) and has a weighted average remaining vesting period of 2.2 years (2016: 1.9 years).

20. Capital management

Details of the Group's capital management and dividend policy are provided within the Chief Financial Officer's Review on page 21.

Share capital and capital reserves

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax.

Own shares held through the Employee Trusts are recorded at cost, including any directly attributable incremental costs (net of tax), and are deducted from equity attributable to the Company's equity holders until the shares are transferred to employees or sold. Where such shares are subsequently sold, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the Company's equity holders.

Ordinary shares

Ordinary shares have a par value of 3^3/7 US cents per share (2016: 3^3/7 US cents per share) and represent 99.9% of issued share capital. All issued shares are fully paid. The shares have attached to them full voting, dividend and capital distribution (including on wind up) rights. They do not confer any rights of redemption. Ordinary shareholders have the right to receive notice of, attend, vote and speak at general meetings. A holder of ordinary shares is entitled to one vote per ordinary share held when a vote is taken on a poll and one vote only when a vote is taken on a show of hands.

During the year ended 31 December 2017 $92 million (2016: $35 million) of shares were repurchased at an average price of 154.6 pence (2016: 119.7 pence), buying back 46.4 million shares (2016: 23.5 million shares), which had an accretive impact on EPS (Note 8) of 1.7% (2016: increased the statutory loss per share by 0.1%). This relates to the completion of the remaining $65 million of the share repurchase announced in October 2016, as well as the partial completion of $27 million of the anticipated $100 million share repurchase (plus costs of $1 million) announced in October 2017. As at 27 February 2018, Man Group had an unexpired authority to repurchase up to 217,850,114 of its ordinary shares. A special resolution will be proposed at the forthcoming Annual General Meeting (AGM), pursuant to which the Company will seek authority to repurchase up to 163,339,181 of its ordinary shares, representing 10% of the issued share capital at 27 February 2018.

Deferred sterling shares

50,000 unlisted deferred sterling shares, representing 0.1% of the Company's issued share capital with a par value of £1 per share, were issued due to the redenomination of the ordinary share capital into USD. These shares are necessary for the Company to continue to comply with Section 763 of the Companies Act 2006. The deferred sterling shares are freely transferable and have no rights to participate in the profits of the Company, to attend, speak or vote at any general meeting and no right to participate in any distribution in a winding up except for a return of the nominal value in certain limited circumstances.

Issued and fully paid share capital

	Year ended 31 December 2017			Year ended 31 December 2016
	Ordinary shares Number	Unlisted deferred sterling shares Number	Nominal value $m	Ordinary shares Number	Unlisted deferred sterling shares Number	Nominal value $m
At 1 January	1,679,920,894	50,000	58	1,700,811,013	50,000	59
Purchase and cancellation of own shares	(46,427,274)	-	(2)	(23,474,213)	-	(1)
Issue of ordinary shares: Partnership Plans and Sharesave	4,448,807	-	-	2,584,094	-	-
Issue of shares relating to acquisition of Aalto (Note 10)	5,650,862	-	-	-	-	-
At 31 December	1,643,593,289	50,000	56	1,679,920,894	50,000	58

21. Fair value of financial assets/liabilities

Man discloses the fair value measurement of financial assets and liabilities using three levels, as follows:

-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

-- Level 2: inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

-- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value of financial assets and liabilities can be analysed as follows:

	31 December 2017				31 December 2016
$m	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Financial assets held at fair value:
Investments in fund products and other investments (Note 13)	3	137	112	252	3	207	68	278
Investments in line-by-line consolidated funds (Note 13)	-	452	-	452	-	490	-	490
Derivative financial instruments (Note 14)	-	9	-	9	-	2	-	2
	3	598	112	713	3	699	68	770
Financial liabilities held at fair value:
Derivative financial instruments (Note 15)	-	10	-	10	-	22	-	22
Derivative financial instruments (Note 15)	-	10	-	10	-	22	-	22
Contingent consideration (Note 15)	-	-	243	243	-	-	161	161
	-	10	243	253	-	22	161	183

During the year, there were no significant changes in the business or economic circumstances that affected the fair value of Man's financial assets and no significant transfers of financial assets or liabilities held at fair value between categories. For investments in fund products, Level 2 investments comprise holdings primarily in unlisted, open-ended, active and liquid funds, such as seeding investments, which have daily or weekly pricing derived from third-party information.

A transfer into Level 3 would be deemed to occur where the level of prolonged activity, as evidenced by subscriptions and redemptions, is deemed insufficient to support a Level 2 classification. This, as well as other factors such as a deterioration of liquidity in the underlying investments, would result in a Level 3 classification. The material holdings within this category are priced on a recurring basis based on information supplied by third-parties, with a liquidity premium adjustment applied based on the expected timeframe for exit. Reasonable changes in the liquidity premium assumptions would not have a significant impact on the fair value.

The fair values of non-current assets and liabilities held for sale (Note 13.2) are equal to the carrying values of $145 million (2016: $263 million) and $66 million respectively (2016: $132 million), and would be classified within Level 2. The fair value of borrowings (Note 12) is $156 million (2016: $157 million) and would have been classified as Level 1.

The basis of measuring the fair value of Level 3 investments is outlined in Note 13.1. The movements in Level 3 financial assets and financial liabilities measured at fair value are as follows:

	Year ended 31 December 2017		Year ended 31 December 2016
$m	Financial assets at fair value through profit or loss	Financial liabilities at fair value through profit or loss	Financial assets at fair value through profit or loss	Financial liabilities at fair value through profit or loss
Level 3 financial assets/(liabilities) held at fair value
At beginning of the year	68	(161)	62	(206)
Assets reclassified from held for sale	-	-	11	-
Purchases/(losses)	47	(52)	8	-
Total gains/(losses) in the Group statement of comprehensive income	5	(41)	1	20
Profit/(loss) included in income statement	5	(41)	1	20
Included in other comprehensive income	-	-	-	-
Sales or settlements	(8)	11	(14)	25
At year end	112	(243)	68	(161)
Total gains/(losses) for the year included in the Group statement of comprehensive income for assets/(liabilities) held at year end	5	(41)	1	20

The financial liabilities in Level 3 primarily relate to the contingent consideration payable to the former owners of Numeric and Aalto, with the other contingent consideration relating to smaller acquisitions including FRM, Pine Grove, and BAML fund of funds.

	Year ended 31 December 2017				Year ended 31 December 2016
$m	Numeric	Aalto	Other	Total	Numeric	Other	Total
Contingent consideration payable
At beginning of the year	150	-	11	161	164	42	206
Purchases	-	52	-	52	-	-	-
Revaluation of contingent consideration	15	1	(1)	15	(28)	(12)	(40)
Unwind of contingent consideration discount(Note 6)	18	7	1	26	18	1	19
Finance expense	-	-	-	-	-	1	1
Sales or settlements	(8)	-	(3)	(11)	(4)	(21)	(25)
At year end	175	60	8	243	150	11	161

The revaluation of contingent consideration in the Group income statement is an adjustment to the fair value of expected acquisition earn-out payments. The $15 million increase in the fair value of contingent consideration is largely as a result of better than expected Numeric performance during 2017. The $28 million reduction in the fair value of the Numeric contingent consideration in 2016 was largely due to a decrease in the forecast management fees on long only products and net inflows.

The Numeric contingent consideration relates to an ongoing 18.3% equity interest of Numeric management in the business and profit interests of 16.5%, pursuant to a call and put option arrangement. The call and put option structure means that it is virtually certain that Man will elect to, or be obliged to, purchase the interests held by Numeric management at five (call option) or five and a half (put option) years post-closing (5 September 2014). The maximum aggregate amount payable by Man in respect of the option consideration is capped at $275 million.

The Aalto contingent consideration is dependent on levels of run rate management fees measured following one, four, six and eight years from completion. The maximum aggregate amount payable by Man is capped at $207 million.

The fair values are based on discounted cash flow calculations, which represent the expected future profits of each business as per the earn-out arrangements. The fair values are determined using a combination of inputs, such as weighted average cost of capital, net management fee margins, performance, operating margins and the growth in FUM, as applicable. The post-tax discount rates applied are 11% for management fees and 17% for performance fees for Numeric and Other, and 15% for Aalto.

The most significant inputs into the valuations at 31 December 2017 are as follows:

	Numeric	Aalto
Weighted average net management fee margin (over the remaining earn-out period)	0.4%	0.8%
Compound growth in average FUM (over the remaining earn-out period)	7%	19%

Changes in inputs would result in the following increase/(decrease) in the fair value of the contingent consideration creditor at 31 December 2017, with a corresponding (expense)/gain in the Group income statement:

	Numeric	Aalto
Weighted average net management fee margin
0.1% increase	51	6
0.1% decrease	(51)	(10)¹
Compound growth in average FUM
1% increase	6	4
1% decrease	(6)	(3)

Note:

1 Any increase in net management fee margins would have less of an impact on the contingent consideration given the calculation is close to the maximum capped earn-out for the year 1 payment.

22. Operating lease commitments

	31 December 2017				31 December 2016
	Within	1-5	After		Within	1-5	After
$m	1 year	years	5 years	Total	1 year	years	5 years	Total
Operating lease commitments	27	56	292	375	25	57	265	347
Including offsetting non-cancellable sublease arrangements	20	73	15	108	19	66	30	115

Rent and associated expenses for all leases are recognised on a straight-line basis over the life of the respective lease. The operating lease commitments primarily include the agreements for lease contracts for the headquarters at Riverbank House, London (expiring in 2035) and our main New York office (expiring in 2022), which aggregate to $332 million (2016: $312 million).

23. Other matters

Man Group is subject to various other claims, assessments, regulatory enquiries and investigations in the normal course of its business. The directors do not expect such matters to have a material adverse effect on the financial position of the Group.

ALTERNATIVE PERFORMANCE MEASURES

We assess the performance of the Group using a variety of alternative performance measures. We discuss the Group's results on an 'adjusted' basis as well as a statutory basis. The rationale for using adjusted measures is explained below.

We also explain financial performance using measures that are not defined under IFRS and are therefore termed 'non-GAAP' measures. These non-GAAP measures are explained below. The alternative performance measures we use may not be directly comparable with similarly titled measures by other companies.

Funds under management (FUM)

FUM is the assets that the Group manages for investors in fund entities. FUM is a key indicator of our performance as an investment manager and our ability to remain competitive and build a sustainable business. FUM is measured based on management fee earning capacity. Average FUM multiplied by our net management fee margin (see below) equates to our management fee earning capacity. FUM is shown by product groupings that have similar characteristics (as shown on page 16). Management focus on the movements in FUM split between the following categories:

Net inflows/outflows

Net inflows/outflows are a measure of our ability to attract and retain investor capital. Net flows are calculated as sales less redemptions. Further details are included on page 16.

Investment movement

Investment movement is a measure of the performance of the funds we manage for our investors. It is calculated as the fund performance of each strategy multiplied by the FUM in that strategy. Further details are included on page 16.

FX and other movements

Some of the Group's FUM is denominated in currencies other than USD. FX movements represent the impact of translating non-USD denominated FUM into USD. Other movements principally relate to maturities and leverage movements.

Asset weighted outperformance versus benchmark

The asset weighted outperformance relative to peers for the period stated is calculated using the asset weighted average performance relative to peers for all strategies where we have identified and can access an appropriate peer composite. The performance of our strategies is measured net of management fees charged and, as applicable, performance fees charged. As at 31 December 2017 it covers 87% of the FUM of the Group and excludes infrastructure mandates, Global Private Markets and collateralised loan obligations. Asset weighted outperformance versus benchmark will be added as a new KPI for the 2018 financial year.

Net management fee revenue and margins

Margins are an indication of the revenue margins negotiated with our institutional and retail investors net of any distribution costs paid to intermediaries and are a primary indicator of future revenues. Net management fee revenue is defined as gross management fee revenue and share of post-tax profits of associates less distribution costs, plus management fees relating to consolidated fund entities (Note 13.2 to the Group financial statements) which represent the third party share and are therefore externally generated. Net management fee margin is calculated as net management fee revenue, excluding share of post-tax profits of associates, divided by average FUM. Net management fee revenue and margins are shown on page 18.

Core net management fee revenue

Core net management fee revenue excludes net management fee revenue relating to guaranteed products, sales commission income from Nephila (Note 17) and share of post-tax profits of associates. These items have been excluded in order to better present the core profitability of the Group given the roll-off of the legacy guaranteed product FUM, income from the Nephila sales commission agreement which ended during 2017, and share of post-tax profits of associates which is generated externally. The detailed calculation of core net management fee revenue is shown on page 18.

Run rate net management fee revenue and margins

In addition to the net management fee revenue and margins for the year, as detailed above, we also use run rate net management fee revenue and run rate margins as at the end of the year. These measures give the most up to date indication of our revenue streams at the period end date. The run rate net management fee margin is calculated as net management fee revenue for the last quarter divided by the average FUM for the last quarter on a fund by fund basis. Run rate net management fee revenue is calculated as the run rate net management fee margin applied to the closing FUM as at the period end, plus our share of post-tax profits of associates for the previous 12 months.

Adjusted profit before tax and adjusted earnings per share

Adjusted profit before tax is a measure of the Group's underlying profitability. The directors consider that in order to assess underlying operating performance, the Group's profit period on period is most meaningful when considered on a basis which excludes acquisition and disposal related items (including non-cash items such as amortisation of acquired intangible assets and deferred tax movements relating to the recognition of tax assets in the US), impairment of assets, costs relating to substantial restructuring plans, and certain significant event driven gains or losses, which therefore reflects the revenues and costs that drive the Group's cash flows and inform the base on which the Group's variable compensation is assessed. The directors are consistent in their approach to the classification of adjusting items period to period, maintaining an appropriate symmetry between losses and gains and the reversal of any accruals previously classified as adjusting items.

Adjusted earnings per share (EPS) is calculated as adjusted profit after tax divided by the weighted average diluted number of shares.

The reconciliation of statutory profit before tax to adjusted profit before tax, and the reconciliation of statutory diluted EPS to the adjusted EPS measures are shown below.

$m	Note to the Group financial statements	Year Ended 31 December 2017	Year Ended 31 December 2016
$m	Note to the Group financial statements	Year Ended 31 December 2017	Year Ended 31 December 2016
Statutory profit/(loss) before tax		272	(272)
Adjusting items:
Acquisition and disposal related
Amortisation of acquired intangible assets	10	84	94
Revaluation of contingent consideration	21	15	(40)
Unwind of contingent consideration discount	6	26	19
Impairment of goodwill and acquired intangibles	10	-	379
Other costs	5	-	4
Reassessment of litigation provision	16	(24)	-
Compensation - restructuring	4	4	17
Other costs - restructuring	5	7	4
Adjusted profit before tax		384	205
Tax on adjusted profit		(47)	(28)
Adjusted profit after tax		337	177

Further details on adjusting items are included within the related notes to the Group financial statements.

The impact of adjusting items on the Group's tax expense/credit is outlined below:

$m	Year Ended 31 December 2017	Year Ended 31 December 2016
$m	Year Ended 31 December 2017	Year Ended 31 December 2016
Statutory tax expense/(credit)	17	(6)
Less tax credit/(expense) on adjusting items:
Amortisation of acquired intangible assets	10	15
Impairment of goodwill and acquired intangibles	-	9
Compensation - restructuring	1	3
Other costs - restructuring	2	1
Tax adjusting item (Note 7 to the Group financial statements)	17	6
Tax expense on adjusted profit before tax	47	28
Made up of:
Tax expense on adjusted management fee profit before tax	24	25
Tax expense on adjusted performance fee profit before tax	23	3

Certain adjusting items are included within the notes to the Group financial statements, which can be reconciled to their adjusted equivalents as outlined below:

$m	Year Ended 31 December 2017	Year Ended 31 December 2016
$m	Year Ended 31 December 2017	Year Ended 31 December 2016
Total compensation costs (Note 4)	478	405
Adjusting items (as above)	(4)	(17)
Total compensation costs excluding adjusting items	474	388
Made up of:
Fixed compensation (includes salaries and associated social security costs, and pension costs)	174	182
Variable compensation (includes variable cash compensation, share-based payment charge, fund product payment charge and associated social security costs)	300	206
Total other costs (Note 5)	173	176
Adjusting items (as above)	(7)	(8)
Total other costs excluding adjusting items	166	168
Total finance expense (Note 6)	38	32
Total finance income (Note 6)	(3)	(2)
Net finance expense, including adjusting items	35	30
Adjusting items (as above)	(26)	(19)
Net finance expense excluding adjusting items	9	11

Adjusted management fee EPS

Man's dividend policy is disclosed on pages 22 to 23. Dividends paid to shareholders (or adjusted management fee EPS) are determined based on the adjusted management fee profit before tax. Adjusted management fee EPS is calculated using post-tax profits excluding performance fees and adjusting items, divided by the weighted average diluted number of shares.

The reconciliation from EPS (Note 8 to the Group financial statements) to adjusted EPS is provided below:

	Year ended 31 December 2017			Year ended 31 December 2016
	Year ended 31 December 2017			Year ended 31 December 2016
	Basic and diluted post-tax earnings $m	Basic earnings per share cents	Diluted earnings per share cents	Basic and diluted post- tax earnings $m	Basic earnings per share cents	Diluted earnings per share cents



Statutory profit/(loss) after tax	255	15.5	15.3	(266)	(15.8)	(15.8)
Effect of potential ordinary shares¹	-	-	-	-	-	0.1
Adjusting items	112	6.8	6.8	477	28.4	28.1
Tax adjusting items	(30)	(1.8)	(1.8)	(34)	(2.1)	(2.0)
Adjusted profit after tax	337	20.5	20.3	177	10.5	10.4
Less adjusted performance fee profit	(158)	(9.6)	(9.5)	(24)	(1.4)	(1.4)
Adjusted management fee profit after tax	179	10.9	10.8	153	9.1	9.0

1 As their inclusion would decrease the loss per share in 2016, potential ordinary shares have not been treated as dilutive and have therefore been excluded from the diluted statutory EPS calculation.

Adjusted management fee and performance fee profit before tax

Adjusted profit before tax is split between adjusted management fee profit before tax and adjusted performance fee profit before tax to separate out the variable performance fee related earnings of the business from the underlying management fee earnings of the business, as follows:

$m	Year Ended 31 December 2017	Year Ended 31 December 2016
$m	Year Ended 31 December 2017	Year Ended 31 December 2016
Gross management and other fees¹	784	750
Share of post-tax profit of associates	8	2
Less:
Distribution costs	(56)	(61)
Asset servicing	(37)	(33)
Compensation	(331)	(312)
Other costs¹	(165)	(166)
Net finance expense	-	(2)
Adjusted management fee profit before tax	203	178
Exclude: Net management fees from guaranteed products, commission income and share of post-tax profits of associates	(25)	(46)
Core management fee profit before tax	178	132

Performance fees	289	81
Gains on investments and other financial instruments²	44	31
Less:
Compensation	(143)	(76)
Finance expense	(9)	(9)
Adjusted performance fee profit before tax	181	27

1 Gross management and other fees also includes $3 million (2016: $4 million) of management fee revenue, performance fees include $2 million (2016: $nil) of performance fee revenue and other costs includes a deduction of $1 million of costs (2016: $2 million) relating to line-by-line consolidated fund entities for the third-party share (per Group financial statements Note 13.2 on page 43).

2 Gains on investments includes income or gains on investments and other financial instruments of $64 million (2016: $52 million), less $14 million (2016: $15 million) third party share of gains relating to line-by-line consolidated fund entities, less the reclassification of management fee revenue of $3 million, performance fee revenue of $2 million and other costs of $1 million as above (2016: $4 million, $nil and $2 million respectively).

Core management fee profit before tax

Core management fee profit before tax is adjusted management fee profit before tax, excluding net management fees relating to guaranteed products, sales commission income from Nephila (Note 17) and share of post-tax profits of associates, as detailed on page 52 for core net management fee revenue.

Adjusted EBITDA

As the Group has a number of non-cash items in the income statement, it is important to focus on cash earnings to measure the true earnings generation of the Group. Adjusted EBITDA represents our profitability excluding non-cash items.

Reconciliation of adjusted profit before tax to adjusted EBITDA

$m	Year Ended 31 December 2017	Year Ended 31 December 2016
$m	Year Ended 31 December 2017	Year Ended 31 December 2016
Adjusted profit before tax (refer to page 53)	384	205
Add back:
Net finance expense	9	11
Depreciation	12	11
Amortisation of other intangibles	7	5
Current year amortisation of deferred compensation	59	55
Less:
Deferred compensation awards relating to the current year	(100)	(63)
Adjusted EBITDA	371	224
Made up of:
Adjusted management fee EBITDA¹	203	181
Adjusted performance fee EBITDA²	168	43

1 Includes the management fee related allocation for compensation costs of $331 million (2016: $312 million) and the deduction of management fee related deferred compensation awards relating to the current year of $52 million (2016: $48 million).

2 Includes the performance fee related allocation for compensation costs of $143 million (2016: $76 million) and the deduction of performance fee related deferred compensation awards relating to the current year of $48 million (2016: $15 million).

Adjusted management fee EBITDA margin

The adjusted management fee EBITDA margin is a measure of the underlying profitability of the Group, and a KPI as included on page 14. It is calculated as a percentage of net management fee revenue (gross management fee revenue and share of post-tax profits of associates less distribution costs).

Compensation ratio

The compensation ratio measures our compensation costs relative to our revenue. The Group's compensation ratio is generally between 40% to 50% of net revenue, depending on the mix and level of revenue. It is calculated as total compensation divided by net revenue. Details of the current year compensation ratio are included on page 19.

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