Annual Financial Report

RNS Number : 7588R

Man Group plc

11 March 2016

 

Man Group plc

In compliance with Listing Rule 9.6.1 the following documents have been submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do 

1.       Annual Report for the year ended 31 December 2015 (the "Annual Report")

2.       Notice of 2016 Annual General Meeting (the "AGM Notice")

3.       Form of Proxy for the Company's 2016 Annual General Meeting

In compliance with DTR 6.3.5 the following information is extracted from the Annual Report and should be read in conjunction with the Group's final results announcement of 24 February 2016. The information reproduced below and in the final results announcement together constitute the material required by DTR 6.3.5 to be communicated in full, unedited text through a regulatory information service. Page numbers and cross references in the extracted information below refer to page numbers and cross-references in the Annual Report.  The Annual Report and the final results announcement can be viewed and downloaded at our website www.man.com together with the AGM Notice.

Principal risks and mitigants

Risks	Mitigants
1.   Investment underperformance risk Fund underperformance on an absolute basis, relative to a benchmark or relative to peer groups would reduce FUM and may result in lower subscriptions and higher redemptions. This risk is exacerbated at times of volatile markets. This may also result in dissatisfied clients, negative press and reputational damage. Lower FUM results in lower management fee revenue and underperformance results in lower performance fees, if any. The breakdown of Man Group's FUM and revenue margins by product line are shown on pages 28 and 30 respectively. Adverse market moves and high volatility may sharply increase the demands on the liquid resources in Man Group's funds. Market stress and increased redemptions could result in the deterioration of fund liquidity and in the severest cases this could lead to the gating of funds.	This is the key risk Man Group has to accept if it is to undertake its business. Man Group's investment businesses each have clearly defined investment processes designed to target and deliver on the investment mandate of each product. Fund and manager performance is closely monitored, and we focus on hiring and retaining highly skilled professionals who are incentivised to perform within the parameters of their mandate. Man Group's diversified range of products and strategies across the alternatives marketplace mitigates the risk to the business from underperformance of any particular strategy. Man Group conducts regular liquidity tests on its funds and endeavours to manage resources in such a way as to meet all demands for fund redemptions according to contractual terms.
2. Regulatory risk Man Group offers an increasingly wide range of investment products covering multiple strategies from a global network of offices. It is licensed in 13 jurisdictions, which results in Man Group being subject to a matrix of regulations. Man Group is regulated by 16 regulators. The Financial Conduct Authority in the UK is the lead regulator. Notable regulatory developments include the upcoming implementation of UCITS V, MiFID II and the Market Abuse Regulation.	Man Group supports proportionate and thoughtful global regulation and initiatives that develop the regulatory environment. Man Group continuously assesses whether the products it markets comply with new regulations as they emerge and change. In this respect, the Company conducts an independent review process for all products. Man Group continues to liaise directly and indirectly with competent authorities e.g. FCA, IOSCO, ESMA, HMT, NFA, DFSA and CSRC through its Compliance department which consists of approximately 42 specialists covering Corporate, Investment Management, Sales and Marketing and Financial Crime. Compliance is located across six jurisdictions.
3. Balance sheet market risk The main sources of market risk are: Man Group uses capital to seed new funds as part of the ongoing business to build our fund offering and expand product distribution. Man Group is exposed to a decline in value of the seeding book. Man Group underwrites the risks related to the UK defined benefit pension plan which closed to new members in 1999 and future accrual in 2011. The plan is fully funded, but is exposed to changes in net asset versus liability values. Volatile markets can place additional, often short term, demands on the balance sheet. Man Group is exposed to having insufficient liquidity resources to meet its obligations.	Requests for seeding capital are assessed on their strategic rationale for the business. Approvals are granted by the Seed Investment Committee (SIC), which is comprised of senior management, Risk and Treasury. Investments are subject to risk limits, an exit strategy and are hedged to a benchmark where appropriate. The positions are monitored regularly by Group Risk and reviewed by the SIC. Asset reallocations by the UK pension plan trustees in 2015 sought to minimise the Equity and net UK interest rate risks. Longevity risk remains but is uncorrelated to Man Group's other risks. Man Group has access to a revolving credit facility and maintains a liquidity surplus.
4. Operational risk Operational risk is defined as the risk resulting from inadequate or failed internal processes, people, systems, or from external events. Man Group continues to outsource a number of functions that were previously performed internally. The risk is that the outsourced service providers do not perform as required, resulting in knock-on implications for our business as a whole.  Acquisitions into the Group introduce short-term integration risks.	Risk and Control Self-Assessment (RCSA) is at the core of our assessment of operational risks. Key risk indicators and operational risk events are regularly reviewed so that our assessment of operational risks correctly reflects the Group's operational risk profile. These assessments are subject to independent review by Risk and Internal Audit, who also provide assurance over the adequacy of the Group's control processes. Man Group's operations team have implemented a methodology (including KPI monitoring) to confirm that outsourced service providers are delivering as required. This process is monitored by the Risk & Finance Committee and ARCom.  Man Group's executive team is experienced in managing integrations. Our risk and compliance teams independently review the assessment of integration risks and the appropriateness of risk mitigation plans.
5. Information security risk Technology and information security are central to Man Group's business. Information security risk is defined as the risk of loss resulting from cybercrime, malicious disruption to our networks or from the theft, misplacing, interception, corruption or deletion of information.	Cyber-crime attacks continue to grow in terms of scale and complexity. We have deployed a number of preventative and detective controls to defend our IT systems against cyber-attack. These include penetration tests, monitoring for targeted attacks, regular security awareness training for employees, a specialist security company monitoring our networks and regular access reviews. However, the fast pace of innovation by cyber-criminals makes it particularly challenging to assess the effectiveness of our defences and deliver protection against this increasing threat.
6. Discretionary trading risk The risk that investment managers either intentionally or unintentionally fail to execute and/or book trades correctly, or fail to adhere to investment mandates or regulatory rules. This includes insider dealing and market abuse, misrepresenting trading positions/trades and misallocation between funds. Man Group may need to compensate for any losses arising from such trades, as well as face the possibility of fines, lawsuits and reputational damage.	Front office systems provide automated checks and controls at portfolio and trade level. Each investment management business has dedicated risk management personnel who monitor portfolio profiles and provide independent challenge. In addition all fund managers are required to undertake regular mandatory training so that they are aware of due processes and their responsibilities related to the placing of trades.
7. Credit/counterparty risk The risk that a counterparty with which the funds or Man Group have financial transactions becomes distressed. Shareholders and investors in Man funds and products are exposed to credit risk of prime brokers, clearing houses, depository banks and guarantee providers. Man Group also provides loans to guaranteed products, and so is subject to counterparty risk to certain investor funds.	Man Group diversifies its deposits across a number of the strongest financial counterparties, each of which is approved and regularly reviewed for creditworthiness by the Counterparty Monitoring Committee, a subcommittee of the Risk and Finance Committee. The Group Risk function monitors the credit spreads and ratings of the approved counterparties on a daily basis. Guaranteed products are closely monitored, and leverage is actively adjusted such that the risk of default related to balance sheet loans to funds is small.
8. Legal risk The global nature of Man Group's business, with corporate and fund entities located in multiple jurisdictions and a diverse investor base makes it subject to a wide range of laws. Failure to comply with these laws and regulations may put Man Group at risk of fines, lawsuits or reputational damage. In response to the financial crisis, an unprecedented number of new laws have arisen which are applicable to Man Group. While the legislative response has been global, implementation is local which leads to variations of approach between key jurisdictions. Failure to stay abreast of, analyse and respond to these new and varied laws may expose Man Group to the risks outlined above.	Man Group operates a global legal framework which underpins all aspects of its business and is resourced by experienced legal teams. These teams are physically located in Man Group's key jurisdictions helping them to understand the context and impact of any legal requirements. Emphasis is placed on proactively analysing new legal developments to assess likely impacts and mitigate risks.
9. Reputational risk The risk that an incident or negative publicity undermines our reputation as a leading alternative investment manager. Reputational damage could result in significant redemptions from our funds, and could lead to issues with external financing, credit ratings and relations with our outsourcing providers.	Our reputation is dependent on both our operational and fund performance. Integrity is fundamental to ensuring Man Group is able to attract investment in funds. Our governance and control structure helps mitigate operational concerns, and our attention to people and investment processes aim to establish that we comply with accepted standards of investment management practice.
10. Key staff retention risk The risk that a key person to the business leaves or is unable to perform their role.	Man Group has been able to attract and retain an array of talented individuals across the Group. Business and investment processes are designed with a view to continue this trend and minimise the impact of losing any key individuals. However, the nature of Man's business means that this is a risk that Man Group must accept.

Related party transactions

Related parties comprise key management personnel and associates. All transactions with related parties were carried out on an arm's length basis. Refer to Note 20 for details of income earned from associates. Management fees earned from fund entities in which Man holds a controlling interest are detailed in Note 16. Contingent consideration payable to Numeric management is detailed in Note 28.

The Executive Committee, together with the non-executive directors, are considered to be the Company's key management, being those directors, partners and employees having authority and responsibility for planning, directing and controlling the activities at Man. The average key management headcount for the year to 31 December 2015 has increased by around 9% from 2014. Key management compensation is reported in the table below.

Key management compensation	Year ended  31 December 2015  $'000	Year ended  31 December 2014 $'000
Salaries and other short-term employee benefits1	33,152	27,895
Share-based payments	4,408	4,522
Fund product based payment charge	6,095	6,426
Pension costs	405	426
Termination benefits	-	765
Total	44,060	40,034

Note: 

1          Includes salary, benefits (including cash pension allowance) and cash bonus.  

Directors' responsibility statement

Each of the directors, whose names and functions are on pages 46 to 48, confirm that, to the best of each person's knowledge and belief:

-     the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

-     the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face;

-     the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's and Group's position, performance, business model and strategy; and

-     there is no relevant audit information of which the Group's auditor is unaware, and that they have taken all steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that Man's auditor is aware of that information.

Enquiries

Fiona Smart

Head of Investor Relations

[phone]

[e-mail] 

Rosanna Konarzewski

Global Head of Communications and Marketing

[phone]

[e-mail] 

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