Annual Financial Report

RNS Number : 6608Z

Man Group plc

16 March 2017

 

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 2016 (the "Annual Report")

2.       Notice of 2017 Annual General Meeting (the "AGM Notice")

3.       Form of Proxy for the Company's 2017 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 1 March 2017. 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	Status
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 fees and underperformance results in lower performance fees, if any. 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.	Man Group's investment businesses each have clearly defined investment processes designed to target and deliver on the investment mandate of each product. 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.	2016 was a challenging year with volatile markets and a number of significant political events leading to varied performance across Man's funds. The discussion of Man Group's performance is on pages 10 to 29.
2. Regulatory risk Regulatory risk is the risk that a change in laws and regulations will materially impact Man Group or the sector or market within which it operates. Man Group offers an increasingly wide range of investment products covering multiple strategies from a global network of offices. It is licensed in multiple jurisdictions, which results in Man Group being subject to a matrix of regulations. The Financial Conduct Authority in the UK is Man Group's lead regulator.	Man Group regularly conducts independent reviews for all its products to assess compliance with regulations as they emerge and change. Man Group continues to liaise directly and indirectly with competent authorities e.g. FCA, IOSCO, ESMA, HMT, NFA, DFSA and CSRC through its Global Compliance department which consists of 38 specialists covering Corporate, Investment Management, Sales and Marketing and Financial Crime.	Man is experiencing an increase in the breadth and complexity of regulations globally including the Markets in Financial Instruments Directive (MiFID II), Dodd Frank and the Senior Managers Certification Regime (SMCR) among others. These may result in an increase in regulatory risk in the short-term as these regulations are implemented.
3. Balance sheet market risk Man Group uses capital to seed new funds to build our fund offering and expand product distribution. Man Group is therefore exposed to a decline in value of the seeding book. Man Group also 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 well 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. The UK pension plan has a low net exposure to equities and UK interest rates. 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.	Seeding book risks increased in 2016 reflecting new funds added to the programme. The seed portfolio was not negatively affected by market volatility around Brexit. Asset reallocations by the UK pension plan trustees in 2015/2016 balanced the liabilities to UK gilt rates. The plan maintained a surplus throughout the year.
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 and management of operational risks. Key risk indicators and operational risk events are regularly reviewed.   Man Group's operations team has implemented a methodology (including KPI monitoring) to confirm that outsourced service providers are delivering as required.   Our Risk and Compliance teams independently review the businesses risk assessments (including integration risks) and the appropriateness of risk mitigation plans. Internal Audit evaluates the effectiveness of the Group's risk management, control and governance processes.	Previous acquisitions have been integrated into the Group's governance and operating model. An Aalto integration project is underway and will be a priority in 2017. The Group's assessment of operational risk remains stable.
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 cyber-crime, malicious disruption to our networks or from the theft, misplacing, interception, corruption or deletion of information.	We have deployed a number of preventative and detective controls to defend our IT systems against cyber-attack including regular staff training. In 2016 this included social engineering, safe web browsing, social media and physical security. 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.	Cyber-crime attacks are growing in terms of scale and complexity as hackers continuously seek to circumvent software improvements.
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.	Our operating model enforces strict segregation of duties. Preventative and detective controls operated by the Group's Compliance, Operations and Risk teams are in place. 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 investment managers are subject to thorough pre-employment checks and are required to undertake regular mandatory training.	This risk is inherent to active asset management and we see no change to this risk currently.
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 (CMC). The CMC also oversees contingency planning ahead of significant market or political events. 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 on balance sheet loans to funds is small.	Increased regulatory scrutiny and capital requirements for investment banks has improved the overall stability of Man's counterparties. Individual names had periods of heightened concern and these were monitored by the CMC.
8. Legal risk The global nature of Man Group's business, the expansion of its investment businesses and the acquisition of new investment businesses, with corporate and fund entities located in multiple jurisdictions and a diverse investor base makes it subject to a wide range of laws and regulations. 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.	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 trading 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.	The breadth of the Group's offering together with the international nature of our business means that new complex and extensive regulations (e.g. MiFID II) are likely to create challenges for the Group's legal team. Management is confident that the breadth and depth of the team's expertise means that the overall legal risk profile remains stable.
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. Our governance and control structure helps mitigate operational concerns, and our attention to people and investment processes are designed to comply with accepted standards of investment management practice.	Man continues to enjoy a good reputation and this risk is assessed as stable.
10. Key staff retention risk The risk that a key person to the business leaves or is unable to perform their role.   Retention risk increases in years of poor performance.	Business and investment processes are designed with a view to minimise the impact of losing any key individuals.   Succession plans and deferred compensation schemes are in place to support the retention of senior investment professionals and key management.	In 2016, our CEO, Manny Roman decided to step down. Luke Ellis, previously President of the Group was appointed CEO. Other key roles were also filled by internal successors.   Man Group has continued to be able to attract and retain an array of talented individuals across the Group. Voluntary staff turnover remains low.

Related party transactions

Related parties comprise key management personnel, associates and fund entities which we are deemed to control. All transactions with related parties were carried out on an arm's length basis.

Refer to Note 18 for details of income earned from associates. Management fees earned from fund entities in which Man holds a controlling interest are detailed in Note 14. Contingent consideration payable to Numeric management is detailed in Note 26. 

The Executive Committee, together with the non-executive directors, are considered to be the Group'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 2016 has increased by around 13% from 2015. 

Key management compensation	Year ended  31 December 2016  $'000	Year ended  31 December 2015 $'000
Salaries and other short-term employee benefits1	24,263	33,152
Share-based payments	7,114	4,408
Fund product based payment charge	9,589	6,095
Pension costs	290	405
Total	41,256	44,060

Note:

1    Includes salary, benefits and cash bonus.

Man Group plc made a charitable donation of £50,000 to Greenhouse Sports Ltd during the year (2015: £50,000), which is considered a related party. In addition, £1,800 (2015: £10,320) was paid to Victoria Wall Associates Limited, a recruitment firm, which is considered a related party.

Directors' responsibility statement

Each of the directors, whose names and functions are on pages 47 to 49 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; and

-     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 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

Andrea Waters

Head of Investor Relations

[phone]

[e-mail] 

Rosanna Konarzewski

Global Head of Communications and Marketing

[phone]

[e-mail] 

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