Annual Financial Report

RNS Number : 4407S

Man Group plc

11 March 2019

 

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 http://www.morningstar.co.uk/uk/nsm 

1.       Annual Report for the year ended 31 December 2018 (the "Annual Report")

2.       Notice of 2019 Annual General Meeting (the "AGM Notice")

3.       Form of Proxy for the Company's 2019 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 2019. 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

The trend of the risk in 2018 is shown as; /\ (increased), <> (unchanged) or \/ (decreased). 

Risks	Mitigants	Status	Trend
Business risks
Investment underperformance Fund underperformance on an absolute basis, relative to a benchmark or relative to peer groups could 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.	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 limits the risk to the business from underperformance of any particular strategy.	2018 was a challenging year for many of Man Group's funds in absolute terms. However asset-weighted relative performance to peers has been positive. Net flows have not been materially impacted by absolute performance but the risk has increased. Diversification across Man Group's product offerings reduces the overall risk. The discussion of Man Group's performance is on pages 12-15.	/\
Key person risk 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. Diversification of strategies reduces the overall risk to Man Group. Succession plans and deferred compensation schemes are in place to support the retention of senior investment professionals and key management.	Man Group has continued to be able to attract and retain an array of talented individuals across the Group. Voluntary staff turnover has been higher than prior years. Departures of portfolio managers were managed through a succession plan of internal promotion and new hires and resulted in low voluntary redemptions from strategies they were managing.	/\
Credit risks
A counterparty with which the funds or Man Group have financial transactions, directly or indirectly, becomes distressed or defaults. Shareholders and investors in Man Group funds and products are exposed to credit risk of prime brokers, custodians, sub-custodians, 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 strong 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 credit metrics, such as CDS 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, stress testing and capital requirements for investment banks and central clearing houses supports the overall stability of Man Group's core counterparties. 2018 saw credit spreads widen for most names, particularly European banks. However there were no periods of heightened concern any individual names which resulted in a change in Man's risk appetite to them.	<>
Liquidity risks
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. 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 has access to a revolving credit facility, and maintains a liquidity surplus. Liquidity forecasting, including downside cases, facilitates planning and informs decision making. 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.	A reduced guaranteed products portfolio and illiquid funds/assets within portfolios has reduced potential demands for liquidity. The asset liquidity distribution across funds has remained broadly unchanged.	\/
Market risks
Investment book  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.	A disciplined framework ensures that each request for seed capital is assessed on its risk and return on capital. 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 and hedges are monitored regularly by Group Risk and reviewed by the SIC.	The seeding book grew in size in 2018, but its downside risks were reasonably constant over the period due to our hedging processes. Overall seeding book returns for 2018 were moderately negative; a strong H1 followed by more challenging markets in H2. Nevertheless, the hedges performed as expected and helped protect capital in a more difficult market.	<>
Pension 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 well funded, but is exposed to changes in net asset versus liability values.	The UK pension plan has a low net exposure to UK interest rates. The return seeking assets are low volatility and have a low correlation to equity markets. Longevity is the largest remaining risk, but is uncorrelated to Man Group's other risks.	Following the completion of triennial valuation the fund received the asset value from the Reservoir Trust such that it was fully funded as of 2017 year end, with the surplus returned to Man Group. During 2018 a small deficit, on an actuarial basis, has appeared due to underperformance of the return seeking funds.	<>
Operational risks
Internal process failures Risk of losses resulting from inadequate or failed processes within Man Group.	The Group's risk management framework and internal control systems are based on a three lines of defence model. Internal Audit evaluates the effectiveness of the Group's risk management, control and governance processes.	The Group remains focused on enhancing its systems and control processes where required and ensuring internal process failures are kept to a minimum.	<>
External process failures Man Group continues to outsource a number of functions that were previously performed internally as well as managing outsourcing arrangements on behalf of its funds. The risk is that the outsourced service providers do not perform as required, resulting in knock-on implications for our business as a whole.	Man Group's operations team has implemented a robust methodology (including ongoing third party due diligence and KPI monitoring) to confirm that outsourced service providers are delivering as required.	The Group continues to concentrate its outsourcing into a smaller number of carefully selected and proven outsource providers with which it has established working relationships allowing for greater process consolidation and rationalisation.	\/
Information security and cybercrime security The risk of loss resulting from cybercrime, malicious disruption to our networks or from the theft, misplacing, interception, corruption or deletion of information.	Man Group has a mature information security management programme which governs current and future strategy. The Group has deployed cyber controls and counter-measures which are continuously reviewed, maintained and adjusted in line with our assessments and those of trusted advisors. These security mechanisms are deployed in a layered defence involving preventative, detective, reactive and recovery controls. If one control fails, other controls are in place to detect, prevent or counter an attack. To keep pace with emerging risks, some of the technology solutions are utilising machine learning and behavioural analysis. The Group has a cyber-risk training programme and has commissioned independent threat and security assessments, including simulated staged attacks on our network to test our detection and response capability.	In 2018 cyber-crime groups have used the tactics, techniques, and processes more commonly associated with state sponsored espionage campaigns. Such techniques include whaling, spear phishing, and extensive reconnaissance and lateral movement within a victim network. The attacks have been effective because they circumvent traditional endpoint defence technologies. These groups are frequently looking for data to sell on or request a ransom for its safe return. This trend is expected to continue through 2019.	/\
Information technology Risk of losses incurred by IT software and hardware failures resulting in system downtime, severely degraded performance or limited system functionality.	The Group recognises the fundamental role of technology in delivering the Group's objectives. Alpha and Enterprise Technology are focused on delivering five key themes: improving data management, improving the digital experience across the Group, improving the operating model by consolidating technology, investing in the control and security framework and innovating in the right technology at the right time.	The Group continued to improve its technology capability through 2018 with the implementation of a cloud based Finance and HR platform and further enhancements to the trading and support systems. A strategic roadmap for further advances in technology to support the business needs has also been developed.	<>
Legal and regulatory 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. Changes in laws and regulations can materially impact Man Group or the sectors or the market within which it operates. The FCA in the UK is Man Group's lead regulator.	Man Group operates a global legal and compliance framework which underpins all aspects of its business and is resourced by experienced teams. These teams are physically located in Man Group's key jurisdictions helping them to understand the context and impact of any requirements. Emphasis is placed on proactively analysing new legal and regulatory developments to assess likely impacts and mitigate risks. Man Group continues to liaise directly and indirectly with competent authorities e.g. FCA, SEC, FINMA, CBI.	Man continues to experience new regulatory requirements. In 2018 this included the Markets in Financial Instruments Directive (MiFID II) and the General Data Protection Regulation (GDPR) both of which were successfully implemented. Work is already underway on the Senior Managers Certification Regime (SMCR) due in December 2019. These new regulations may result in an increase in regulatory risk in the short term as the regulator starts to review implementation and understand their effect on investment markets.	/\
Brexit The Group faces legal and regulatory uncertainty which could impact the ability of funds to access markets or cause investors to redeem. Fund performance may be adversely impacted by market volatility or reduced liquidity. Operational events may result from an elevated volume of legal or operational tasks.	Man Group has upgraded the regulatory permissions of its Irish entity to serve European clients. The fund risk toolkit, including limits and stress testing, ensures that funds are managed within their mandate and downside risks are understood.	The prospect of a no-deal Brexit has increased. The group is monitoring the political and regulatory developments closely and will take the necessary steps to ensure that the impact on the business, investors and employees is minimised.	/\
Reputational risks
The risk that an incident or negative publicity undermines our reputation as a leading 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 core counterparties and outsourcing providers.	Our reputation is dependent on both our operational and fund performance. Our governance and control structure mitigates operational concerns, and our attention to people and investment processes are designed to comply with accepted standards of investment management practice.	Man Group continues to enjoy a good reputation and this risk is assessed as stable.	/\
Emerging risks
Primarily external in nature and complementary to the principal risks which are focused on current internal risk. The emerging risk categories include disruption to financial markets and business infrastructure, political risk and changes in the competitive landscape.	The Board and Group Risk monitor emerging risks, trends and changes in the likelihood of impact. This assessment informs the universe of principal risks faced by the firm.	The emerging risks have been reviewed by the Board. No changes were made to the firm's principal risks.	<>

Related party transactions

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

Refer to Note 17 for details of income earned from associates. Management fees earned from fund entities in which Man holds a controlling interest are detailed in Note 13. Contingent consideration payable to Numeric and Aalto management is detailed in Note 25.

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 ended 31 December 2018 has increased by around 6% from 2017.

Key management compensation	Year ended  31 December 2018  $'000	Year ended  31 December 2017 $'000
Salaries and other short-term employee benefits1	30,641	42,456
Share-based payments	11,884	8,636
Fund product based payment charge	8,224	7,743
Pension costs (defined contribution)	643	577
Total	51,392	59,412

Note:

1    Includes salary, benefits and cash bonus.

Man made a charitable donation of £25,500 to Greenhouse Sports Ltd during the year (2017: £25,500) and, £7,200 (2017: £3,700) was paid to VWA Search Ltd, a recruitment firm, which are considered related parties.

Directors' responsibility statement

Each of the directors, whose names and functions are on pages 45-47 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 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 Group's auditor is aware of that information.

Enquiries

Fiona Smart

Head of Investor Relations

[phone]

[e-mail] 

Georgiana Brunner

Communications Director

[phone]

[e-mail] 

END.

 

END

 

 

ACSGIGDXDUBBGCB