Final Results

RNS Number : 0457B

Man Group plc

27 February 2014

Press Release

27 February 2014

RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013

Key points

· Funds under management (FUM) down 5% to $54.1 billion (31 December 2012: $57.0 billion), FUM excluding guaranteed products up 1% to $51.8 billion (2012: $51.3 billion)

o Gross sales up 26% to $16.1 billion (2012: $12.8 billion)

o Redemptions down 2% to $19.7 billion (2012: $20.1 billion)

o Net outflows down 51% to $3.6 billion (2012: outflows of $7.3 billion), Q4 net inflows of $0.7 billion

o Investment movement of $4.3 billion (2012: $1.3 billion)

o FX translation effects and other movements of -$3.6 billion (2012: -$3.7 billion)

· Adjusted profit before tax (PBT) up 8% to $297 million in 2013 (2012: $275 million)

o Adjusted net management fee PBT down 20% to $175 million (2012: $220 million)

o Adjusted net performance fee PBT up 122% to $122 million (2012: $55 million)

· Statutory PBT for the year ended 31 December 2013 of $56 million (2012: $748 million loss)

· On track to deliver total cost savings of $270 million by the end of 2015

· Proposed final dividend of 5.3 cents per share bringing total dividend for the year to 7.9 cents

· Intention to repurchase $115 million of shares

· Surplus regulatory capital of $760 million at 31 December 2013, $550 million pro-forma for final dividend and share repurchase

Summary financials	Page ref.	Year ended 31 Dec 2013	Year ended 31 Dec 2012¹
		$	$
Funds under management (end of period)	5	54.1bn	57.0bn
Gross management and other fees	34	967m	1,209m
Performance fees	34	193m	90m
Gains on investments and other financial instruments		30m	23m
Share of after tax profit of associates		12m	10m
External distribution costs	34	(145m)	(203m)
Net revenues		1,057m	1,129m
Compensation (including internal distribution costs)	35	(445m)	(475m)
Other costs (including asset servicing)	35, 36	(270m)	(338m)
Net finance expense²	36	(45m)	(41m)
Adjusted profit before tax	33	297m	275m
Adjusting items³	33	(241m)	(1,023m)
Statutory profit/(loss) before tax		56m	(748m)
Diluted statutory EPS	38	2.9c	(45.8)c
Adjusted diluted EPS	38	14.1c	11.6c
Adjusted diluted management fee EPS	38	7.9c	9.2c

¹Restated for the impact of IAS 19 (Revised). Refer to Note 1 to the financial statements (page 32).

²Includes one-off costs related to buyback of debt of $28 million in the year to 31 December 2013 (2012: $21 million). Refer to Note 8 in the financial statements (page 36).

³The adjusting items in the year of $241 million, as detailed in Note 2 of the financial statements on page 33, primarily relate to restructuring costs ($107 million), amortisation of acquired intangible assets ($66 million), and the impairment of FRM goodwill ($69 million)

Post year-end developments

· Calendar year to 21 February 2014 performance for key AHL/MSS strategies: AHL Diversified -2.5%,
AHL Alpha -1.6%, AHL Evolution -0.3%, AHL Dimension +0.7%

o At 31 January 2014, 28% ($2.4 billion) of AHL/MSS open ended products were above high water mark and 4% ($0.3 billion) within 5% of performance fee highs

· Calendar year to 21 February 2014 performance for key GLG UCITS strategies: European Equity Alternative +2.5%, Global Equity Alternative +1.6%, North American Equity Alternative -0.7%, Global Convertibles +1.4%, Emerging Markets -0.9%, Atlas Macro -4.7%, Japan Core Alpha -4.2%, Global Equity +0.1%.

o At 31 January 2014, 74% ($10.7 billion) of GLG performance fee-eligible funds were above high water mark and 20% ($2.9 billion) within 5% of performance fee highs

· Calendar year to 14 February 2014 performance for key FRM strategies: FRM Diversified II +0.1% and FRM Equity Alpha +0.2%

· Guaranteed product de-gears of $200 million in total for January and February 2014 and a de-gear of $100 million for 1 March 2014

Manny Roman, Chief Executive Officer of Man, said:

"Despite challenging conditions for our business, we continued to make progress against our strategic objectives in 2013. Our priorities remain to deliver superior risk adjusted investment performance, build options for growth, improve and leverage our distribution capabilities and operate the business as efficiently as possible. We largely completed the restructuring of our cost base and balance sheet during the year, and continued the development of new business areas. Investment performance in 2013 was reasonable on a relative basis and flows showed modest recovery towards the end of the year after a weaker first half.

We have taken steps to strengthen Man for the long-term and position the company for future growth. The merger of AHL and MSS at the start of 2013 has created a broader, more diverse quant offering for investors including trend and non-trend following products. GLG also launched several new, scalable investment strategies during 2013, and a number of senior hires were added to the teams. FRM is now a fully integrated part of the firm, further diversifying our range of solutions for investors.

However, market conditions remain challenging and we maintain our cautious outlook. Generating superior risk-adjusted returns for our fund investors through the quality of our research, investment in technology, the talent of our investment managers and the strength of our operations and risk infrastructures, remains our core focus."

Dividend and share repurchase

The Board confirms that it will recommend a final dividend of 5.3 cents per share for the financial year to 31 December 2013, giving a total dividend of 7.9 cents per share for the year. This dividend will be paid at the rate of 3.19 pence per share.

As announced in March 2012, Man's dividend policy going forward is to pay at least 100% of adjusted management fee earnings per share in each financial year by way of ordinary dividend. In addition, the Group expects to generate significant surplus capital over time, primarily from net performance fee earnings. Available surpluses, after taking into account required capital, potential strategic opportunities and a prudent buffer, will be distributed to shareholders over time, by way of higher dividend payments and/or share repurchases. Whilst the Board continues to consider dividends as the primary method of returning capital to shareholders, it will continue to execute share repurchases when advantageous.

In line with this policy it is our intention to launch a $115 million share repurchase programme to return surplus capital to shareholders, which will be conducted over the remainder of the year.

Dates for the 2013 final dividend

Ex-dividend date	23 April 2014
Record date	25 April 2014
Payment date	16 May 2014

Change of Auditor

During 2013, the Company undertook a tender process for the external audit for the financial year ending 31 December 2014. Following this process, the Board, in line with the recommendation of the Audit and Risk Committee, is proposing to shareholders the appointment of Deloitte LLP as auditors of the Company for 2014.

Results presentation, audio webcast and dial in details
There will be a presentation by the management team at 10.30am (UK time) on 27 February 2014 at the offices of Goldman Sachs International at Peterborough Court, 133 Fleet Street, London EC4A 2BB. A copy of the presentation will be made available on the Group's website at www.man.com. There will also be a live audio webcast available on https://www.man.com/GB/results and www.cantos.com which will also be available on demand from later in the day. The dial-in and replay telephone numbers are as follows:

Live dial in (listen only)

UK Toll-Free Number: 0808 237 0036

UK Toll Number: 0203 426 2845

US Toll-Free Number: 1877 841 4559

US Toll Number: +1 347 329 1282

Replay of Conference Call (available for 7 days)

UK Playback Toll Number: 020 3426 2807

UK Playback Toll-Free Number: 0808 237 0026

US Playback Toll- Free Number: 1866 535 8030

Playback Pin Code 645829#

Enquiries

Fiona Smart

Head of Investor Relations

+44 20 7144 2030

fiona.smart@man.com

Rosanna Konarzewski

Head of Communications

+44 20 7144 2078

Rosanna.konarzewski@man.com

RLM Finsbury

James Bradley

Ryan O'Keeffe

+44 20 7251 3801

About Man

Man is a world-leading alternative investment management business. It has expertise in a wide range of liquid investment styles including managed futures, equity, credit and convertibles, emerging markets, global macro and multi-manager, combined with powerful product structuring, distribution and client service capabilities. As at 31 December 2013, Man managed $54.1 billion.

The original business was founded in 1783. Today, Man is listed on the London Stock Exchange and is a member of the FTSE 250 Index with a market capitalisation of around £1.5 billion.

Man is a signatory to the United Nations Principles for Responsible Investment (PRI). Man also supports many awards, charities and initiatives around the world, including sponsoring the Man Booker literary prizes and the Man Asian Literary Prize. Further information can be found at www.man.com.

Forward looking statements and other important information

This document contains forward-looking statements with respect to the financial condition, results and business of Man Group plc. By their nature, forward-looking statements involve risk and uncertainty and there may be subsequent variations to estimates. Man Group plc's actual future results may differ materially from the results expressed or implied in these forward-looking statements.

The content of the websites referred to in this announcement is not incorporated into and does not form part of this announcement. Nothing in this announcement should be construed as or is intended to be a solicitation for or an offer to provide investment advisory services.

FUNDS UNDER MANAGEMENT ANALYSIS

Three months to 31 December 2013


$bn	FUM at 30 September 2013	Sales	Redemptions	Net inflows / (Outflows)	Investment movement	FX	Other	FUM at 31 December 2013
Alternative	35.7	3.9	(3.5)	0.4	0.7	(0.1)	(0.2)	36.5
Quant (AHL / MSS)	9.0	0.8	(1.1)	(0.3)	0.2	(0.1)	0.1	8.9
Discretionary (GLG)	15.3	2.0	(1.1)	0.9	0.2	0.2	(0.3)	16.3
Fund of funds (FRM)	11.4	1.1	(1.3)	(0.2)	0.3	(0.2)	0.0	11.3
Long Only	13.8	1.6	(1.0)	0.6	1.0	(0.1)	0.0	15.3
Quant (AHL / MSS)	1.6	0.1	(0.2)	(0.1)	0.0	0.0	0.0	1.5
Discretionary (GLG)	12.2	1.5	(0.8)	0.7	1.0	(0.1)	0.0	13.8
Guaranteed	3.0	0.0	(0.3)	(0.3)	0.2	(0.1)	(0.5)	2.3
Total	52.5	5.5	(4.8)	0.7	1.9	(0.3)	(0.7)	54.1

Year to 31 December 2013

$bn	FuM at 31 December 2012	Sales	Redemptions	Net inflows / (Outflows)	Investment movement	FX	Other	FUM at 31 December 2013
Alternative	39.9	10.2	(13.1)	(2.9)	0.8	(0.7)	(0.6)	36.5
Quant (AHL / MSS)	11.2	2.2	(3.8)	(1.6)	(0.4)	(0.2)	(0.1)	8.9
Discretionary (GLG)	14.6	5.8	(4.9)	0.9	1.2	0.1	(0.5)	16.3
Fund of funds (FRM)	14.1	2.2	(4.4)	(2.2)	0.0	(0.6)	0.0	11.3
Long Only	11.4	5.9	(5.4)	0.5	3.8	(0.4)	0.0	15.3
Quant (AHL / MSS)	1.7	0.2	(0.6)	(0.4)	0.1	0.1	0.0	1.5
Discretionary (GLG)	9.7	5.7	(4.8)	0.9	3.7	(0.5)	0.0	13.8
Guaranteed	5.7	0.0	(1.2)	(1.2)	(0.3)	(0.4)	(1.5)	2.3
Total	57.0	16.1	(19.7)	(3.6)	4.3	(1.5)	(2.1)	54.1

FuM by Manager

$bn	31 Dec 2013	30 Sep 2013	30 June 2013
Quant styles	11.9	12.5	13.9

AHL	9.9	10.2	11.6
MSS	2.0	2.3	2.3

GLG Alternatives	16.4	15.5	14.2
Equity
Europe	4.8	4.4	3.8
North America	3.0	2.0	1.6
UK	0.3	0.5	0.6
Other	0.1	0.0	0.0
Credit and Convertibles
Convertibles	3.5	3.2	3.0
Market Neutral	1.0	0.8	0.9
US credit (Ore Hill)	0.9	1.3	0.9
European CLO (Pemba)	1.9	2.0	2.1
Macro
Emerging markets	0.5	0.7	0.7
Macro	0.4	0.6	0.6

GLG Long only	13.8	12.2	10.3

Japan	9.7	8.4	7.0
Other	4.1	3.8	3.3

FRM	12.0	12.3	13.6
Total	54.1	52.5	52.0

Investment performance
	Total Return		Annualised Return
	3 months to 31 Dec 2013	12 months to 31 Dec 2013	3 years to 31 Dec 2013	5 years to 31 Dec 2013
AHL/MAN SYSTEMATIC STRATEGIES
AHL Diversified¹	6.5%	-3.1%	-3.7%	-2.8%
AHL Alpha²	5.1%	-1.9%	-2.3%	-1.1%
AHL Evolution³	11.9%	16.9%	n/a	n/a
AHL Dimension⁴	2.0%	3.0%	0.0%	1.0%
MSS TailProtect⁵	-4.3%	-15.5%	-3.3%	n/a
MSS Europe Plus⁶	6.8%	20.5%	n/a	n/a
GLG ALTERNATIVES
Equity
Europe
GLG European Long Short Fund⁷	-0.2%	7.1%	6.6%	9.4%
GLG European Equity Alternative UCITS Fund⁸	-0.2%	7.2%	n/a	n/a
GLG European Alpha Alternative UCITS Fund⁹	0.1%	6.7%	3.9%	n/a
North America
GLG North American Opportunity Fund¹⁰	-2.4%	5.3%	-0.3%	8.0%
GLG North American Equity Alternative UCITS Fund¹¹	-3.0%	1.9%	-3.0%	n/a
UK
GLG Alpha Select Fund¹²	3.2%	12.7%	0.6%	5.8%
GLG Alpha Select UCITS Fund¹³	3.0%	11.8%	0.0%	n/a
Other equity alternatives
GLG Global Opportunity Fund¹⁴	1.6%	5.2%	-0.8%	5.0%
Credit and convertibles
Convertibles
GLG Global Convertible Fund¹⁵	1.4%	8.1%	3.4%	11.1%
GLG Global Convertible UCITS Fund¹⁶	1.9%	11.0%	4.8%	12.1%
Market neutral
GLG Market Neutral Fund¹⁷	3.1%	10.3%	9.6%	26.6%
GLG European Distressed Fund¹⁸	6.1%	12.3%	9.2%	n/a
Ore Hill
GLG Ore Hill Fund¹⁹	1.5%	3.8%	6.0%	14.9%
Emerging markets
GLG Emerging Markets Fund²⁰	-0.3%	-6.8%	-5.8%	4.9%
GLG Emerging Markets UCITS Fund²¹	-2.5%	-8.8%	-6.5%	n/a
Macro and Special Situations
GLG Atlas Macro Fund²²	-4.0%	-7.4%	-2.7%	n/a
GLG Atlas Macro Alternative UCITS Fund²³	-2.2%	-4.4%	-3.0%	n/a
GLG LONG ONLY
GLG Japan Core Alpha Equity Fund²⁴	11.5%	64.6%	15.1%	15.0%
GLG Global Equity UCITS Fund²⁵	8.2%	31.2%	10.0%	13.4%

	Total Return		Annualised Return
	3 months to 31 Dec 2013	12 months to 31 Dec 2013	3 years to 31 Dec 2013	5 years to 31 Dec 2013
FRM
AA Diversified²⁶	2.6%	3.5%	0.8%	3.6%
FRM Diversified II²⁷	3.2%	6.0%	2.2%	5.2%
FRM Dynamic Selection²⁸	2.1%	3.5%	-0.4%	2.4%
GLG Multi-Strategy Fund²⁹	1.2%	5.1%	2.1%	7.8%

Indices
World Stocks³⁰	8.4%	28.7%	12.1%	14.5%
World Bonds³¹	0.1%	0.2%	3.4%	2.9%
Corporate Bonds³²	1.2%	-7.1%	6.7%	7.0%

Hedge fund indices
HFRI Fund of Funds Composite Index³³	3.7%	8.9%	2.5%	4.9%
HFRI Fund Weighted Composite Index³³	3.5%	9.2%	3.2%	7.8%
HFRX Global Hedge Fund Index	2.3%	6.7%	0.2%	3.7%
Style indices
Barclay BTOP 50 Index³⁴	3.2%	0.8%	-1.5%	-0.7%
HFRI Equity Hedge (Total) Index³³	4.7%	14.4%	4.0%	9.1%
HFRI EH: Equity Market Neutral Index³³	2.6%	6.5%	2.4%	2.3%
HFRI Macro (Total) Index³³	1.8%	-0.5%	-1.6%	1.5%
HFRI Relative Value (Total) Index³³	2.4%	7.1%	5.8%	10.7%

Source: Man database, Bloomberg, MSCI and Source. There is no guarantee of trading performance and past or projected performance is not a reliable indicator of future performance. Returns may increase or decrease as a result of currency fluctuations.
1) Represented by Man AHL Diversified plc from 26 March 1996 to 29 October 2012, and by Man AHL Diversified (Guernsey) USD Shares - Class A from 30 October 2012 to date. The representative product was changed at the end of October 2012 due to legal and/or regulatory restrictions on Man AHL Diversified plc preventing the product from accessing the Programme's revised target allocations. Both funds are valued weekly; however, for comparative purposes, statistics have been calculated using the best qulaity price that is available at each calendar month end, using estimates where a final price is unavailable. Where a price, either estimate or final is unavailable on a calendar month end, the price on the closest date prior to the calendar month end has been used.
2) Represented by AHL Alpha plc from 17 October 1995 to 24 September 2012, and by AHL Strategies PCC Limited: Class Y AHL Alpha USD Shares from 25 September 2012 to date. 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.
3) Represented by AHL (Cayman) SPC - Class A1 Evolution USD Shares.
4) Represented by AHL Strategies PCC Limited: Class B AHL Dimension USD Shares.
5) Represented by TailProtect Limited Class B.
6) Represented by the official performance of Man GLG Europe Plus Source ETF net of a 0.75% p.a. management fee and no performance fee. Provided by Source.
7) Represented by GLG European Long Short Fund - Class D Unrestricted - EUR.
8) Represented by GLG European Equity Alternative IN EUR.
9) Represented by GLG European Alpha Alternative IN EUR.
10) Represented by GLG North American Opportunity Fund - Class A Unrestricted - USD.
11) Represented by GLG North American Equity Alternative IN USD.
12) Represented by GLG Alpha Select Fund - Class C - EUR.
13) Represented by GLG Alpha Select Alternative IN H EUR.
14) Represented by GLG Global Opportunity Fund - Class Z - USD.
15) Represented by GLG Global Convertible Fund - Class A - USD.
16) Represented by GLG Global Convertible UCITS Fund - Class IL T USD to Class IM USD (08/06/2009).
17) Represented by GLG Market Neutral Fund - Class Z Unrestricted - USD.
18) Represented by GLG European Distressed Fund - Class A - USD.
19) Represented by Ore Hill International Fund II Ltd.
20) Represented by GLG Emerging Markets Fund - Class A Unrestricted - USD.
21) Represented by GLG EM Diversified Alternative IN H USD.
22) Represented by GLG Atlas Macro Fund - Class A - USD.
23) Represented by GLG Atlas Macro Alternative IN USD.
24) Represented by GLG Japan CoreAlpha Equity Fund - Class C to Class I JPY (28/01/2010).
25) Represented by GLG Global Equity Fund - Class I T USD to Class I USD (13/05/2011).
26) Represented by Absolute Alpha Fund PCC Ltd Diversified - USD.
27) Represented by FRM Diversified II Fund SPC - Class A USD.
28) Represented by FRM Dynamic Selection USD I.
29) Represented by the gross return of Man GLG Multi-Strategy Fund - Class A - USD Shares until 31 December 2012. From 1 January 2013 the actual gross performance of Man GLG Multi-Strategy Fund - Class G - USD Shares is displayed.
30) Represented by MSCI World Net Total Return Index hedged to USD.
31) Represented by Citigroup World Government Bond Index hedged to USD (total return).
32) Represented by Citigroup High Grade Corp Bond TR.
33) HFRI index performance over the past 4 months is subject to change.
34) The historic BarclayHedge data is subject to change.

CEO'S PERFORMANCE REVIEW

In 2013 we largely completed the restructuring of our cost base and balance sheet and made progress in developing and building in new business areas, although results will only be seen in the long term.

Notwithstanding this progress, conditions for the business in 2013 remained challenging. Performance, whilst reasonable on a relative basis, was mixed on an absolute basis. Flows were weak in the first half but showed modest signs of improvement towards the end of the year. The result was a 5% reduction in funds under management during the year.

Market overview

The first four months of 2013 saw reduced correlation between asset classes and the reassertion of trends, off the back of the risk rally triggered by the US 'fiscal cliff' being averted, some positive key data points in the US and China and a significant shift of investors from bonds to equities.

By contrast the period from mid-May to the end of June proved to be a very volatile and difficult one for most markets, as news that the Fed's assets purchase programme could be reduced as early as mid-2013 dominated sentiment. Markets viewed the announcement as a signal that the climate of historically low rates and Federal support was likely to end earlier than was previously expected. Investors reacted negatively and the bond market sold-off as investors de-levered and de-risked fixed income portfolios.

Market volatility continued over the summer and into September, driven by the perceived likelihood of a premature end to US economic stimulus. As a result developed market equities pushed higher, whilst developed market spreads continued to tighten, US treasury yields increased marginally and emerging equity markets suffered. These themes continued into the fourth quarter however volatility reduced significantly. As a consequence risk assets in developed markets performed well overall in 2013, the TOPIX was up 56%, the S&P 500 was up 29.6% and the FTSE 100 was up 14%. Fixed income markets had a difficult year with bonds and corporate bonds ending the year up 0.2% and down 7.1% respectively.

Hedge funds rose an average of 9.3% surpassing returns from 2012 and 2011 (7.4% and -3.1% respectively) and just shy of 2010's 10.5% gain. There were a range of returns across strategies with equity exposure providing the industry's best return in 2013, mirroring trends in the broader equity market. Credit strategies faced a difficult 2013 posting their third lowest annual return since 1998. Performance was dragged down by directional credit strategies underperforming in the second half of the year, however within this universe there were a few segments that provided solid returns. Macro hedge funds ended the year slightly positive and while managed futures funds had positive returns in the first and fourth quarters this was not sufficient to overcome heavy losses suffered in May and June 2013.

2013 results

Against this backdrop performance in 2013 was mixed amongst Man's range of strategies. Discretionary GLG strategies performed well, FRM fund of funds strategies performed in line with relevant benchmarks and despite some quant strategies doing broadly well, our flagship AHL trend following strategies had a more difficult year.

FUM decreased to $54.1 billion, mainly as a result of net outflows and further de-gearing in our guaranteed products linked to AHL performance. Excluding guaranteed products, FUM increased by $0.5 billion with an increase in GLG FUM being partially offset by a decrease in FRM and AHL/MSS FUM. Adjusted profit before tax for the year was up 8% compared to 2012 with higher performance fees and cost savings being partially offset by a decline in management fees reflecting the continued shift in the business towards lower margin product.

Update on progress against strategic priorities

During the year we have made progress against the strategic priorities set out in last year's annual report aimed at positioning the firm for future growth, whilst controlling costs and maximising the efficiency of our balance sheet.

Performance - Deliver strong long-term investment performance

· AHL and MSS combined creating one centralised investment function for quantitative strategies

· Mixed absolute performance in quant strategies - AHL Evolution strategy up 16.9%, AHL Diversified strategy down 3.1%

· Reasonable relative performance with AHL beating 2 out of its 3 key peers

· Strong performance across the majority of GLG strategies on a risk adjusted basis

· Top quartile performance from our Japan equities strategy which was up 64.6% in 2013

· Improved relative performance in the diversified FRM portfolios

Investment performance remains the most important factor in our success. We aim to generate superior risk-adjusted returns for our fund investors through the quality of our research, the talent of our investment managers and the strength of our operations and risk infrastructures. During 2013 performance increased FUM by $4.3 billion, a blended return across the business of 7.9%, with particularly strong performance being generated by our discretionary strategies.

AHL/MSS

At the beginning of 2013, Man strengthened its quantitative capabilities by combining AHL with MSS to form one centralised investment function for quantitative strategies. By uniting AHL's deep experience in the managed futures space and MSS's breadth of quantitative investment knowledge, Man aims to enhance the quantitative research process with the goal of improving products and performance. Led by Executive Chairman Tim Wong and CEO Sandy Rattray, AHL/MSS now manages several systematic portfolios, including managed futures, quantitative multi-strategy, equity alpha-capture, tail protection and sector-focused funds. Our aim is to create a broad based quant business and have already made progress in this regard, with over a third of AHL/MSS FUM now away from the historical core trend following strategies.

Performance during 2013 was strong for several AHL/MSS strategies. The AHL Evolution strategy was up 16.9% and was the top performing CTA strategy. Our MSS TailProtect strategy performed well ahead of its relevant benchmark and most other MSS strategies outperformed their benchmarks in 2013: the newly-launched Asia and Continental Europe ETFs performed particularly well. In contrast performance was once again difficult for flagship managed futures funds with trends in risk assets (e.g. equities, credit and precious metals) being offset by reversals in fixed income and currencies, particularly during the second quarter. The result was that performance for the AHL Diversified Programme was down 3.1% to 31 December 2013 and AHL Alpha, the lower-volatility strategy, was down 1.9%. The performance KPI for AHL is the AHL Diversified strategy versus three key peer asset managers (the target being to beat two of the three peers) and as set out on page 18 AHL met the target for 2013.

Over the course of the year, our research effort bore fruit. As an example, our fixed income team refined its models in the second half to deal better with a future rate environment, which is unlikely to echo the steady yield declines observed over the past few decades. In addition, research into new markets continued apace; they remain a key differentiator for managed futures strategies and over 70 markets were added to the Evolution strategy portfolio in 2013.

GLG

2013 has been a positive year for GLG with good absolute performance across a broad range of our Alternative and long only strategies. This strong absolute performance resulted in GLG recording $155 million of gross performance fees in 2013.

Amongst our alternative funds our credit strategies delivered another year of double digit net returns. Our equity strategies have delivered solid single digit returns with low volatility and the European Long-Short and European Alpha strategies in particular have seen significant client interest throughout the year. Some of the stronger performers included the Euro Distressed strategy (+12.4%), the European Long-Short strategy (+7.1%), the Asian equities strategy (+7.2%) and the Market Neutral strategy (+10.3%).

The majority of equity and credit strategies performed in line with or exceeded the relevant benchmarks but the atlas macro and emerging markets strategies performed below benchmarks. The performance KPI for GLG is the GLG alternative dollar-weighted composite versus the HFRX, this KPI was not met in 2013, mainly due to the fact that a number of GLG's largest and strongest performing strategies are market neutral by design in contrast to much of the hedge fund industry.

We are pleased with the breadth of performance across our long only strategies during the year with almost all strategies outperforming their peers. Our Japan equities strategy continued its long track record of excellent performance and was up 64.6% in Yen terms, more than 10% ahead of the TOPIX benchmark. Our Global, European and UK equity strategies also performed strongly up between 24% and 30% and our convertible credit strategies also delivered strong returns. We continue to build track records in other long only strategies and as a result we are seeing client interest across a broad range of long only strategies.

FRM

FRM had a broadly positive first six months of the year as market conditions improved from 2012; dispersion between assets rose, and investor inflows resulted in more fundamentally driven pricing, particularly in equities. Both Credit Long/Short and Equity Long/Short managers were among the top performing styles. Q3 was a weaker period for performance. The adjustment of the world to higher bond yields resulted in a pause in the return generation of many systematic strategies; managed futures were hit particularly hard, but Statistical Arbitrage also struggled as a result of the shift in the correlation structure. With the stabilisation of rates in Q4, stronger performance returned across the majority of strategies. Over the year as a whole, the strongest performing strategies were Equity Long-Short and Credit Long-Short, closely followed by Statistical Arbitrage. Global Macro, both discretionary and systematic, was the weakest strategy.

Assets under management declined due to a combination of adverse FX movements, structured product deleveraging and client redemptions. The performance in the diversified portfolios improved, FRM Diversified II was up 7.0%, with some client specific portfolios also above 7%. Thematic portfolio performance was more mixed, with managed futures performing in line with the industry, however our Statistical Arbitrage portfolio generated positive returns and was up 6.7%. The KPI for FRM is FRM Diversified II versus the HFRI conservative fund of fund index, which was not met in 2013 as this strategy carries less equity market beta than other fund of fund strategies.

	31/12/2008 - 31/12/2013
	Annualised return over cash	Annualised Volatility	Sharpe	Beta
FRM Diversified II Fund SPC - USD Class B¹	6.00%	2.78%	2.15	0.08
HFRX Global Hedge Fund Index	3.46%	4.34%	0.80	0.19
HFRI FOF Conservative Index	3.96%	3.01%	1.31	0.12
HFRI FOF Diversified Index	4.73%	3.80%	1.24	0.16

Source: Bloomberg, HFR Reports, FRM database

1 Represented by FRM Diversified II Fund SPC - Class B USD.

Objectives for 2014

· Build out quantitative platform to provide a wider range of trend and non-trend following products

· Continued focus on research at AHL/MSS to build new markets and asset classes

· At GLG we continue to look for high-calibre investment talent to support the growth of our existing products as well as to support the expansion of our product offering

· Revamp managed accounts platform within FRM

Growth - Focus on generating high-alpha investment opportunities

· $1 billion raised in the AHL Evolution strategy in 2013

· Asia and Continental Europe ETFs launched

· Launch of Total Return, US CLO and Global equity strategies at GLG

· Significant hires at GLG into the Multi-strategy, UK Equity, Financials, Macro and Relative Value teams

· Launched a number of managed account only diversified portfolios at FRM as well as increasing opportunities in managed account infrastructure services

Early in 2013, we identified a clear set of growth initiatives on the investment management and product side. These initiatives were:

1. Building a diversified quant business in AHL

2. Adding new investment teams in GLG alternatives

3. Building our long only franchise

4. Developing our managed accounts platform at FRM

We have made good progress against these initiatives in 2013 and during 2014 we will continue to build on these as well as identifying further opportunities for growth.

On the quantitative side the marketing of the AHL Evolution strategy has gone well and we reached our target of raising $1 billion in this product with the asset raising coming from institutional investors in all regions of the world. Further capacity has been created in this strategy and as such we will be marketing an additional $750 million of the AHL Evolution strategy in 2014. In September we launched Asia and Continental Europe ETFs, a series of long only products similar to the Europe ETFs strategy which has $1.4 billion of assets.

Looking forward into 2014, we will start marketing the AHL Dimension strategy, a multi-strategy quant product which will be targeted at institutional investors, and are looking to launch a global version of the Europe ETF product.

On the discretionary side at GLG we launched a number of new, scalable investment strategies during the year. All of these funds saw allocations from clients following their launch and we will seek to build on that momentum into 2014.

On the equity side we have added additional teams to the European Long-Short strategy to create further capacity. A Global Long-Short strategy which operates a similar investment process to the European Long-Short strategy was launched at the beginning of October 2013 and we have raised over $300 million in this strategy since launch. Asset raising in the Asia equity strategy launched in 2012 has been slow, however the strategy had strong performance in 2013 and with the launch of a UCITS vehicle linked to the strategy in December 2013 we expect demand to pick up.

A global rates strategy was launched in October and it pursues a Fixed Income Absolute Return strategy and is managed by the Macro and Relative Value Team. In August we closed a $400 million CLO in the US, our first one since the crisis and we are looking to grow our CLO business during 2014.

The growth of the long only business continues to be a key objective for us. In September we hired Henry Dixon from Charles Stanley to run a UK Undervalued Asset strategy and to take over management of the UK equities income strategy. James Ind joined during the year to lead the portfolio management of a value-driven total return strategy which was launched at the end of July 2013. Our flexible bond strategy is also seeing client interest into 2014.

2013 has seen a number of positive developments at FRM; the successful integration of two legacy technology systems following the merger last year; the launch of the second phase of our risk and transparency reporting software for the managed account platform, which materially improves the value of the platform to investors; and the launch of a number of managed account only diversified portfolios, initially focused on clients in the Japanese market.

Looking ahead to 2014 the main focus will be on offering the resources of FRM as a service. Our goal is to work closely with clients in each region on the services that best fit their needs. We are seeing increasing interest from US institutions who are looking for control and transparency, as well as financial institutions with the need to fulfil regulatory reporting requirements. By contrast, we see increasing client interest in Asia for direct co-investment into our existing platform and will focus on direct access in this region as a result.

In addition to these initiatives, we continue to look for opportunities to grow the business through selective acquisitions. In assessing these opportunities, we will remain disciplined on price, structure and cultural fit to ensure that any proposed transaction represents a sound use of capital.

Objectives for 2014

· Start marketing the AHL Dimension strategy and market an additional $750 million of the AHL Evolution strategy

· Focus on building assets in GLG products launched in 2014 and on developing long only offering

· Look to offer the resources of FRM as a service to investors who need help with either building or maintaining open architecture alternative investment programmes

· Continue to look at other possible bolt-on acquisitions ensuring that we remain disciplined on price, structure and cultural fit

Distribution - Ensure distribution effectiveness

· Net outflows of $3.6 billion in 2013 compared to $7.3 billion in 2012

· 26% increase in sales during the year, 13% increase in institutional sales and 42% increase in retail sales

· Continued restructuring of the sales team and focused hiring of talent

· Under the QDLP programme selected as one of six hedge funds allowed to market international products to onshore investors in China

· Continued focus on the US but significant progress may not be seen for some time

Net outflows for the year were $3.6 billion compared to $7.3 billion in 2012 and excluding guaranteed products net outflows for the year were $2.4 billion. Gross sales were $16.1 billion with 40% of the sales achieved in the first half and 60% in the second half, driven in particular by strong sales at GLG. Institutional sales in 2013 were $8.7 billion, 13% higher than in 2012. We saw a pick up in demand in the retail space with a 42% increase in year on year sales from $5.2 billion in 2012 to $7.3 billion in 2013, the main driver of the increase being sales of the Japan Equities strategy to UK retail investors. Redemptions were $19.7 billion, ($18.5 billion excluding guaranteed products) reflecting fragile investor sentiment and mixed levels of absolute investment performance across the product range.

Following Christoph Möller's retirement in June, we split the role of Head of Sales: Tim Rainsford (previously Head of European Sales) is now in charge of all regions outside the US; whilst Tim Gullickson has assumed the function of Head of Sales in the US, with a focus on institutional clients. Eric Burl (COO of the US business) is looking after US retail channels. A number of other changes have also been made throughout the sales team, with the overall objective of making it leaner and increasingly focused on institutional clients without losing meaningful optionality from a retail perspective.

Europe and the Middle East remains a key market for us with over two thirds of our assets coming from this region and again we have refocused the sales effort in countries where we believe there to be the most asset raising potential. We have hired a new person to run the sales effort in Italy and have restructured the sales team in the Middle East.

In the Asia Pacific region, a region which historically served a number of retail investors in guaranteed products, we have consolidated offices and refocused the sales effort. While we still see significant potential for asset raising in the region, particularly in Japan and Australia, servicing existing clients and managing future growth can be served from three offices as opposed to five. We have therefore shut down our office in Singapore with people relocating to Hong Kong or London and have integrated the two sales offices we had in Japan following the FRM acquisition. In Australia, an office which grew around our guaranteed product business, we are re-focusing the operations to target institutional business, and we have hired Jamie Douglas, previously with JPM and Moore Capital, to head up that office.

Progress has also been made in China, where under the QDLP programme we were officially selected as one of six hedge funds allowed to market international products to onshore investors for the first time.

The Americas, and the US in particular, remains a key geographical focus for future growth. Further hires have been made during the year and we achieved sales of $1.4 billion in 2013 with sales of the European Long-Short strategy and the US CLO making up the majority of the sales. The potential in this huge market is very significant and the team continues to make good progress however we expect it will take time before we see significant traction. We are assessing our capabilities in the mutual fund space and aim to bring a selective number of liquid alternatives strategies to the mutual fund market in 2014.

Globally we continue to work hard on our consultant relationships and since the beginning of the year we have received an additional four strong buy ratings and positive momentum on seven additional strategies. Consultant coverage of Man has increased from 35 products in January 2010 to 116 today and we have maintained 25 strong buy ratings. From a retail perspective we are still represented on over 10 global private banking platforms covering 60 funds.

The new marketing incentive programme is now in place, providing improved alignment with shareholders by rewarding our sales people based on annual management fees earned, net of expenses, rather than gross sales.

Objectives for 2014

· Focus on making the sales team leaner and increasingly focused on institutional clients without losing optionality from a retail perspective

· Develop further consultant relationships and expand the number of funds represented on private banking platforms

· Improve coverage and traction in the US by selectively adding quality to the institutional sales team

Efficiency - Cost reduction and maintaining balance sheet efficiency

· Cost savings announced during 2012 and 2013 total $270 million

· On track to deliver all of these savings by the end of 2015

· Change in regulatory status from Full Scope to Limited Licence agreed with the FCA reducing the Group's capital requirement by around $550 million

· Repayment of all outstanding debt completed in August 2013

· Reductions in loans to funds in the balance sheet

· Surplus capital of $760 million at 31 December 2013

Cost reduction

We continue to be on track to meet the 2015 cost targets on a constant currency basis. We were ahead of schedule in 2013 with fixed compensation costs of $188 million for the year versus the $211 million target for 2013. Other cash costs were $191 million versus the $219 million target. Non-compensation expenses have been reduced materially and significant attention is being given to running the business as efficiently as possible. We reduced the space we occupy in our head office in Riverbank House during the year to match our requirements and consolidated offices in other regions which accounted for 15% of the additional savings announced in August this year. Headcount has been reduced from 1,876 at 30 June 2011 to 1,115 at 31 December 2013, 532 in front office functions and 583 in group business functions.

Balance sheet efficiency

Our balance sheet remains strong and liquid and in 2013 we made significant progress to improve our capital position and balance sheet efficiency. At 31 December 2013, the Group had tangible net assets of $1.1 billion or 58 cents per share, cash of $1.0 billion and over $2.5 billion of liquidity.

In April 2013 we announced a change in regulatory status from being a Full Scope group to a Limited Licence group. This increased our surplus capital by up to $550 million subject to the FCA's review of a revised ICAAP submitted as part of the change in status. This review was completed at the end of December and their review did not materially change the Group's capital requirement. As such the Group's surplus capital at 31 December 2013 was $760 million.

In May we announced that we were using some of our surplus capital to repay all of our debt and hybrid instruments resulting in annualised interest and coupon savings of $78 million. This repayment programme was completed on 7 August when the perpetual Tier 1 hybrid was repaid.

The remaining surplus capital we have will be used for a suitable buffer against the core capital requirement, organic growth requirements and acquisition opportunities. After assessing these requirements and opportunities, distributions to shareholders, whether through dividends or buybacks, will be considered. At present we consider that there are potential opportunities to deploy surplus capital and so do not intend to make a determination regarding distributions in excess of our stated dividend policy. We seek to remain disciplined however in the use of capital whether organically or for acquisitions.

Objectives for 2014

· Ensure cost reduction programmes remain on track

· Completion of outsourcing programme

· Maintain focus on cost and balance sheet efficiency

CFO's FINANCIAL REVIEW

Overview

Our financial results in 2013 reflect the continued mixed market environment, and in particular challenging operating conditions for trend following strategies. Our funds under management (FUM) decreased by 5% from $57.0 billion at the beginning of the year to $54.1 billion at 31 December 2013. Net outflows in AHL and FRM were the primary drivers behind the decrease, which was partly offset by positive investment performance, and net inflows in the second half, with strong contributions from across the GLG product range.

As previously highlighted, our guaranteed product book has further reduced, to $2.3 billion at 31 December 2013, and we have restructured our business accordingly. Excluding the guaranteed products, our FUM increased in the year from $51.3 billion to $51.8 billion.

Net management fee margins for our quant and fund of funds (FoF) products have declined slightly during the year, and coupled with the continuing mix shift away from the high margin guaranteed products, have resulted in the average net management fee margin decreasing by 19 basis points from the prior year. As a result, net management fee revenue was down 20% for the year, which was partially offset by a more than twofold increase in performance fees, over 80% of which were generated by GLG.

Total costs were down 12%, and within this total fixed costs were down 22% due to the implementation of the $270 million cost saving programme which we remain on track to deliver by the end of 2015.

As a result of these revenue and cost drivers, our adjusted profit before tax is $297 million (2012: $275 million), and adjusted diluted earnings per share 14.1 cents (2012: 11.6 cents).

Our statutory profit before tax is $56 million, reflecting net adjusting items of $241 million, which primarily relate to restructuring costs, impairment of the FRM goodwill, and amortisation of purchased intangible assets. The FRM goodwill was impaired by $69 million at 31 December 2013, which was primarily a result of the guaranteed product FUM reducing at a faster rate than anticipated, and redemptions from a small number of institutional investors, primarily in our legacy Multi-Manager Business.

There continues to be a significant difference between our cash earnings and statutory earnings as evidenced by cash inflows from operating activities amounting to $448 million (2012: $408 million).

Our balance sheet remains strong and liquid and during 2013 we continued to improve our capital position and balance sheet efficiency. In April we announced a change in our regulatory capital status from being a Full Scope group to a Limited Licence group. This increased our surplus capital by approximately $550 million. During the year we used some of our surplus capital to repay all of our debt and hybrid instruments, resulting in annualised interest and coupon saving of $78 million. Surplus capital at 31 December 2013 was $760 million.

Key performance indicators (KPIs)

Our financial KPIs illustrate and measure the relationship between the investment experience of our fund investors, our financial performance and the creation of shareholder value over time. Our KPIs are used on a regular basis to evaluate progress against our four key priorities: performance; growth; distribution; and efficiency.

The results of our KPIs this year reflect the mixed operating environment in 2013, with negative investment performance for AHL, which resulted in further de-gearing of the higher margin guaranteed products and had an adverse impact on net flows. This has resulted in a decline in FUM and revenues, which has impacted our profitability and EPS growth.

This year we have revised the performance metric used for GLG in our investment performance KPI. Previously, we used the investment performance of GLG's Multi Strategy portfolio against the HFRX benchmark to represent the investment performance for GLG, however this is no longer deemed to be an appropriate representative for the GLG business as it has an increased allocation to AHL. To provide a meaningful measure for the investment performance for GLG, a composite investment performance metric for GLG alternative funds is now used, against the HFRX benchmark. We have also revised the performance benchmark used for FRM from the HRFI FoF index to the HFRI FoF: Conservative Index as this index is more representative of FRM's investment strategy.

The comparative information in relation to the investment performance KPI has been restated to reflect the changes for GLG and FRM as explained in the previous paragraph. The comparative information for the adjusted management fee EBITDA margin and the adjusted management fee EPS growth KPIs have been restated to reflect the impact of the adoption of IAS 19 (Revised), as explained in Note 1 to the financial statements.

Key performance indicators

The investment performance KPI measures the net investment performance for our three managers (AHL, GLG, and FRM), represented by key funds, against relevant benchmarks. The target for this KPI is to exceed the relevant benchmarks. The key funds and the relevant benchmarks are AHL Diversified vs. three key peer asset managers for AHL (the target being to beat two of the three peers), the GLG Alternative Strategies Dollar-Weighted Composite vs. HFRX for GLG and FRM Diversified II vs. HFRI Fund of Funds Conservative Index for FRM. The performance of the key funds compared to the benchmarks gives an indication of the competitiveness of our investment performance against similar alternative investment styles offered by other investment managers. This measures our ability to deliver superior long term performance to investors. We achieved one out of the three performance targets. AHL met the target for 2013 as the performance of their key fund exceeded the relevant benchmark. GLG and FRM, whilst recording positive performance, were both below the benchmark in 2013.

The second KPI measures net FUM flows for the period as a percentage of opening FUM, with net flows defined as gross sales less gross redemptions. The target is 0%-10% net inflows each year. Net flows are the measure of our ability to attract and retain investor capital. FUM drives our financial performance in terms of our ability to earn management fees. Net flows were below target in 2013 with a net outflow of 6.3%, compared to a net outflow of 11.1% for the year to 31 December 2012, reflecting the difficult trading environment, in particular for AHL, partly offset by inflows for GLG in the second half of the year.

The third KPI measures adjusted management fee EBITDA as a percentage of net revenues (gross management fee revenue and income from associates less external cash distribution costs). The target is 25%-40%. Our adjusted management fee EBITDA margin is a measure of our underlying profitability. The adjusted management fee EBITDA margin of 36.0% was within the target range for the year ended 31 December 2013. This margin is likely to continue to decline with the rolling off of higher margin guaranteed product FUM.

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 including the cost of the dividend on the Perpetual Subordinated Capital Securities, divided by the diluted number of shares. The target is growth of 0%-20% +RPI each year. Adjusted management fee EPS growth measures the overall effectiveness of our business model, and drives both our dividend policy and the value generated for shareholders. The adjusted management fee EPS growth was below target for 2013 primarily as a result of the decline in management fee revenue and the overall gross margin, partly offset by reduced costs.

Funds Under Management (FUM)

	Alternative				Long only
$bn		Quant (AHL/MSS)	Discretionary (GLG)	Fund of funds (FRM)	Quant (AHL/MSS)	Discretionary (GLG)	Total excluding Guaranteed	Guaranteed	Total
FUM at 31 December 2012		11.2	14.6	14.1	1.7	9.7	51.3	5.7	57.0
Sales		2.2	5.8	2.2	0.2	5.7	16.1	-	16.1
Redemptions		(3.8)	(4.9)	(4.4)	(0.6)	(4.8)	(18.5)	(1.2)	(19.7)
Net (outflows)/inflows		(1.6)	0.9	(2.2)	(0.4)	0.9	(2.4)	(1.2)	(3.6)
Investment movement		(0.4)	1.2	-	0.1	3.7	4.6	(0.3)	4.3
Foreign currency movement		(0.2)	0.1	(0.6)	0.1	(0.5)	(1.1)	(0.4)	(1.5)
De-gearing and other movements		(0.1)	(0.5)	-	-	-	(0.6)	(1.5)	(2.1)
FUM at 31 December 2013		8.9	16.3	11.3	1.5	13.8	51.8	2.3	54.1
Gross management fee margin for year ended 31 December 2013		2.8%	1.4%	1.0%	0.3%	1.0%	1.5%	5.2%	1.8%
Gross management fee margin for year ended 31 December 2012		3.2%	1.3%	1.2%	0.4%	0.9%	1.6%	5.0%	2.1%
Net management fee margin for year ended 31 December 2013		2.3%	1.2%	0.9%	0.3%	0.7%	1.2%	4.4%	1.5%
Net management fee margin for year ended 31 December 2012		2.5%	1.2%	1.1%	0.3%	0.6%	1.3%	3.8%	1.7%

Total FUM decreased by $2.9 billion during the year, including a decrease of $3.4 billion attributable to guaranteed products. Total FUM excluding guaranteed products increased by $500 million. The decrease in total FUM of $2.9 billion is as a result of net outflows of $3.6 billion and negative FX and other movements of $3.6 billion, being offset by positive investment movement of $4.3 billion. The other movements of negative $3.6 billion includes $1.5 billion of adverse FX movement, $1.5 billion of guaranteed product degears and maturities, and $600 million of roll-offs of Pemba assets.

Quant alternative products (AHL/MSS)

Quant alternative FUM decreased by 21% to $8.9 billion during the year to 31 December 2013, which primarily related to net outflows of $1.6 billion and negative investment performance of $400 million. Sales were $2.2 billion, which included $1 billion of the AHL Evolution strategy. The majority of the redemptions of $3.8 billion were from retail investors in the Asia Pacific region. The AHL Diversified programme was down 3.1% for the year, which was the main driver of the negative investment performance of $400 million. Negative FX movements reduced FUM by $200 million, primarily in relation to the Japanese Yen and Australian Dollar.

Discretionary alternative products (GLG)

Discretionary alternatives FUM increased by $1.7 billion during the year as a result of net inflows of $900 million and positive investment performance of $1.2 billion. Sales of $5.8 billion were mainly into European equity, distressed and convertibles strategies. Redemptions of $4.9 billion were from a range of strategies. Total FX and other movements decreased FUM by $400 million. The positive investment performance of $1.2 billion related to good absolute performance across the majority of the discretionary alternative products during the year.

Fund of funds products (FRM)

Fund of funds FUM decreased by 20% to $11.3 billion this year, as a result of net outflows of $2.2 billion and negative FX movements of $600 million. Sales were $2.2 billion with a significant portion coming from Japanese clients. Redemptions of $4.4 billion were from a range of products. Investment performance was flat for the year with no impact on FUM. Negative FX movements reduced FUM by $600 million, primarily in relation to the Japanese Yen.

Long only products (AHL/MSS and GLG)

Total long only FUM increased by $3.9 billion during the year. Discretionary long only products had net inflows of $900 million during the year, with sales of $5.7 billion and redemptions of $4.8 billion. The majority of the sales and redemptions came from the Japan equities strategy, the majority of which were from UK retail clients. Positive investment performance increased FUM by $3.7 billion, primarily as a result of strong investment performance for the Japan equities strategy. Negative FX movements decreased FUM by $500 million.

Guaranteed products (all managers)

Guaranteed product FUM, our highest margin product grouping, declined from $5.7 billion at 31 December 2012 to $2.3 billion in 2013, which continued to have a negative impact on revenues. Redemptions totalled $1.2 billion running at a steady rate of around $300 million per quarter. The weighted average life to maturity of the guaranteed product range is five years. Investment performance for guaranteed products was negative during the year, resulting in a $300 million reduction in FUM. The other movements of $1.5 billion primarily related to guaranteed product de-gears as a result of negative investment performance. Negative FX movements reduced FUM by $400 million, primarily in relation to the movements in the Australian Dollar.

Summary income statement

$m	Year ended 31 December 2013		Year ended 31 December 2012
Management and other fees	967		1,209
Performance fees (including investment gains/losses)	223		113
Share of after tax profit of associates	12		10
Distribution costs	(145)		(203)
Net revenue	1,057		1,129
Asset servicing	(32)		(31)
Compensation	(445)		(475)
Other costs	(238)		(307)
Total costs	(715)		(813)
Net finance expense	(45)		(41)
Adjusted profit before tax	297		275
Adjusting items	(241)		(1,023)
Statutory profit/(loss) before tax	56		(748)
Net management fees	175		220
Net performance fees	122		55
Diluted EPS (statutory)	2.9 cents		(45.8) cents
Adjusted net management fee EPS		7.9 cents	9.2 cents
Adjusted diluted EPS (excluding the adjusting items above)		14.1 cents	11.6 cents

Gross management fees and management fee margins

Average FUM for the year was $54.1 billion compared to $57.7 billion for the prior year. The average gross management fee margin was down 32 basis points from the prior year, largely reflecting the continuing product mix shift primarily caused by the reduced proportion of guaranteed products compared to open-ended products. Gross management fees were $967 million for the year ended 31 December 2013 in comparison to the management fees for the previous year of $1,209 million.

Our total net management fee margin (defined as gross management fees less external distribution costs) has decreased from 169 basis points to 150 basis points during the year. The reduction is a result of the reduced guaranteed product FUM as well as a mix shift towards institutional money and is likely to continue as a greater proportion of our sales, particularly in the alternatives quant space, are to institutional clients.

The alternatives quant net management fee margin has reduced by 21 basis points compared to the year ended 31 December 2012. This is due to the majority of the redemptions in 2013 being from higher margin retail products, whereas the majority of the sales have been into lower margin institutional products. While we saw this flow trend occurring during 2012, the impact on the margin was less pronounced due to the fact that a significant proportion of the retail redemptions were from Nomura Global Trend where the margin was around 1.8%. Looking forward, we would expect this mix shift towards institutional money to continue and hence we would expect the margin to decline further.

Net management fee margins in the alternative discretionary category remained broadly stable compared to 2012.

The net management fee margin in the alternatives fund of fund category reduced by 14 basis points due to the impact of including FRM assets for the full year, as they were only included for half of the year in 2012.

The long only discretionary net management fee margin has increased slightly due to the redemptions in some lower margin institutional mandates.

The guaranteed product net management fee margin has increased by 58 basis points compared to the year ended 31 December 2012. More than a third of the increase is at a gross level and is due to the impact of some fees which are based on net asset value as opposed to FUM. As the margin calculation is based on FUM, and FUM is currently lower than the total net asset value of the product set, this has pushed the margin up 21 basis points compared to last year. The lower level of placement fee amortisation compared to 2012, due to placement fee write offs at 31 December 2012, has pushed the net margin up by an additional 37 basis points.

Performance fees (including investment gains/losses)

Gross performance fees for the year were $193 million, $155 million from GLG, $30 million from AHL and $8 million from FRM. At 31 December 2013, around 75% of eligible GLG assets ($10.3 billion) were above high water mark and around a further 18% ($2.5 billion) within 5% of earning performance fees. AHL and MSS open ended products were approximately 13% on a weighted average basis from the performance fee high water mark, and FRM products were approximately 5% below.

Investment gains were $30 million, which is consistent with 2012. This gain mainly relates to a profit on disposal of certain Ore Hill assets.

Distribution costs

Distribution costs comprised $128 million of investor servicing fees and $17 million of placement fees.

Investor servicing fees are paid to intermediaries for ongoing investor servicing. Servicing fees have decreased from $156 million in 2012 to $128 million in 2013 as a result of lower average FUM, particularly for guaranteed products and AHL.

Placement fees are paid for product launches or sales and are capitalised and amortised over two to five years, unless the FUM is redeemed or is deemed to be impaired as a result of negative investment performance and de-gearing. The capitalised placement fees at 31 December 2013 were $20 million with a weighted average remaining amortisation period of 2.6 years.

Distribution costs relating to employees (internal commissions) are now presented as compensation costs and the prior period has been restated accordingly. This reflects the way the business is now managed, providing more relevant information to users of the financial statements, and brings the treatment in line with industry practice.

Asset servicing

Asset servicing costs (including custodial, valuation, fund accounting and registrar functions which are now across our total FUM) were $32 million (2012: $31 million). Asset servicing costs equate to around 5 basis points on FUM and vary depending on transaction volumes, the number of funds, and fund NAVs.

Compensation costs

Compensation costs comprise fixed base salaries, benefits and variable bonus compensation (cash and amortisation of deferred compensation arrangements). Compensation costs in total, excluding adjusting items and including internal commission costs, were 42% of net revenue, which is the same as the previous year. This ratio will tend to be higher in years where there is a larger proportion of GLG revenues, in particular GLG performance fee revenues.

Fixed compensation and benefits were $188 million for the year compared to $236 million for year to 31 December 2012, a reduction of 20%. Variable compensation costs were $257 million for the year, including $30 million of internal commission costs, compared to $239 million for the previous year including $45 million of internal commission costs. The overall decrease of $30 million in total compensation costs is a result of the fixed compensation cost saving initiatives and lower internal commission costs, partially offset by higher performance fee related compensation and a full year of FRM costs (FRM being acquired in July 2012).

Other costs

Other costs, excluding adjusting items, were $238 million for the year compared to $307 million for the year to 31 December 2012, a reduction of 22%. These comprise cash costs of $191 million (year to 31 December 2012: $244 million) and depreciation and amortisation of $47 million (2012: $63 million).

Cost savings

We have made good progress on the cost saving programmes we announced in 2011 and 2012. We are ahead of schedule with our targets, with 2013 fixed compensation costs of $188 million for the year versus the $211 million target for 2013, and other cash costs of $191 million for the year versus the $219 million target for 2013. Our targets for the cost savings programme as a whole have not changed, however we have been able to implement the savings more quickly than originally planned.

We announced a further $75 million of cost savings in August 2013, bringing the total targeted savings to $270 million by the end of 2015.

Net finance expense

Net finance expense was $45 million for the year, excluding adjusting items. This included a $28 million charge relating to debt buybacks during the year. Interest payable on borrowings decreased in the year as a result of the debt buybacks, although this was offset by lower finance income as cash balances were lower and the prior year included a $15 million gain on the sale of loan notes. The recurring elements of both finance expense and finance income are expected to decrease in 2014 as a result of the debt buybacks, and net finance expense is expected to be around $4 million in 2014, relating to the costs of the revolving credit facility (if undrawn), partly offset by interest income earned on cash deposits.

Adjusted profit before taxes

Adjusted profit before tax is $297 million compared to $275 million for the previous year. The adjusting items in the year of $241 million, as shown in the table below and detailed in Note 2 of the financial statements, primarily relate to restructuring costs ($107 million), amortisation of acquired intangible assets ($66 million), and the impairment of FRM goodwill ($69 million). The directors consider that the Group's profit is most meaningful when considered on a basis which excludes restructuring costs, amortisation and impairment of intangible assets and certain non-recurring gains or losses, which therefore reflect the recurring revenues and costs that drive the Group's cash flow.

Adjusting items

$m	Year ended 31 December 2013
Restructuring costs - compensation	36
Restructuring costs - other costs	71
Amortisation of acquired intangible assets	66
Impairment of FRM goodwill	69
Gain on disposal of Lehman claims, Nephila, and other interests	(16)
Other adjusting items	15
Total adjusting items	241

Net management fees and net performance fees

Net management fees of $175 million reflect the decline in average FUM and the overall gross margin, partly offset by reduced costs driven by the cost saving initiatives. Net performance fees of $122 million for the year reflects the strong contribution from across the GLG product range.

$m	Year ended 31 December 2013	Year ended 31 December 2012
Gross management and other fees	967	1,209
Share of after tax profit of associates	12	10
Less:
Distribution costs	(145)	(203)
Asset services	(32)	(31)
Compensation	(344)	(417)
Other costs	(238)	(307)
Net finance expense	(45)	(41)
Net management fees	175	220

Performance fees	193	90
Gains on investments and other financial instruments	30	23
Less:
Compensation
- variable	(95)	(45)
- deferral amortisation	(6)	(13)
Net performance fees	122	55

Taxation

The average tax rate for the year of 7.1% before adjusting items, compared to the previous year's rate of 14.4%, has decreased as a result of prior year credits including those for further settled tax returns across a number of countries and periods. The tax rate before adjusting for prior year credits and other reconciling items is 18% (31 December 2012: 18%). The amount of company income tax paid in the year was $64 million (31 December 2012: $55 million).

Cash earnings (EBITDA)

As the Group has a number of non-cash items in the income statement it is important to focus on cash earnings to measure the true earnings potential of our business. The table below gives a reconciliation of adjusted profit before tax to adjusted EBITDA. The main differences are net finance expense, depreciation, amortisation of placement fees and the share-based amortisation charge in relation to compensation deferrals. Our EBITDA/net revenue margin was 40%, which can be analysed between EBITDA margin on management fees of 36% and performance fees of 57%.

Reconciliation of adjusted PBT to adjusted EBITDA

$m	Year ended 31 December 2013	Year ended 31 December 2012
Adjusted PBT	297	275
Add back:
Net finance expense	45	41
Depreciation	39	43
Amortisation of capitalised computer software	8	20
Placement fee amortisation	10	56
Accelerated amortisation related to early redemptions	5	10
Deferred compensation amortisation	30	68
Adjusted EBITDA	434	513

Balance sheet

Debt buybacks in 2013	Date of repurchase/ redemption	Carrying value $m	Pre-tax upfront costs $m	Pre-tax finance cost savings $m	Regulatory capital impact $m
Senior 6.5% fixed rate bonds due 2013	1 August 2013	173	-	13	-
Senior 6.0% fixed rate € bonds due 2015	7 May 2013	285	(25)	17	-
Tier 2 subordinated floating rate notes due 2015	24 June 2013	170	2	3	(80)
Tier 2 subordinated 5.0% fixed rate bonds due 2017	14 June 2013	231	(5)	12	(200)
Tier 1 perpetual subordinated capital securities	7 August 2013	300	-	33	(300)
Total		1,159	(28)	78	(580)

The Group's balance sheet remains strong and liquid. At 31 December 2013, total shareholders' equity was $2.4 billion and net tangible assets were $1.1 billion. Cash and cash equivalents have decreased during the year, primarily as a result of the buyback of the Group's debt of $1,159 million, as shown in the table above.

The buyback of the Group's debt will result in annualised pre-tax interest and coupon savings of up to $78 million from 2014, and has reduced the Group's surplus capital by around $580 million. Costs of $28 million were incurred with the debt buybacks, of which nearly all relates to cash costs.

The carrying value of goodwill and intangible assets was tested for impairment at 31 December 2013, using a discounted cash flow valuation. As a result of guaranteed product FUM reducing at a faster rate than anticipated, and unexpected larger redemptions from a small number of institutional investors for FRM, the FRM goodwill was impaired by $69 million at 31 December 2013. The impairment relates to the legacy RMF and Glenwood businesses, which were acquired in 2002 and 2000 respectively. The valuation and assumptions are explained in more detail in Note 12 of the financial statements.

Balance sheet information

$m	31 December 2013	31 December 2012
Cash and cash equivalents	992	2,000
Fee and other receivables	388	382
Total liquid assets	1,380	2,382
Payables	(762)	(751)
Net liquid assets	618	1,631
Investments in fund products and other investments	323	496
Pension asset/(liability)	71	(4)
Investments in associates	31	38
Leasehold improvements and equipment	68	150
Total tangible assets	1,111	2,311
Borrowings	-	(859)
Deferred tax liability	(58)	(71)
Net tangible assets	1,053	1,381
Goodwill and other intangibles	1,354	1,529
Shareholders' equity	2,407	2,910

Liquidity

Operating cash flows were $448 million during the year with cash and cash equivalents of $992 million.

$m	Year ended 31 December 2013
Net cash at 31 December 2012	1,141
Operating cash inflows	448
Payment of dividends	(277)
Repurchase of perpetual capital securities and coupon payments	(325)
Other movements	5
Net cash at 31 December 2013	992

The committed revolving credit facility of $1,525 million is available and undrawn, with $70 million maturing on 22 July 2016, $120 million maturing on 22 July 2017, with the remainder maturing on 22 July 2018. The management of liquidity and capital is explained in notes 14 and 21 respectively.

Regulatory capital

Man is fully compliant with the FCA's capital standards and has maintained significant surplus regulatory capital throughout the year. At 31 December 2013, surplus regulatory capital over the regulatory capital requirements was $760 million.

The small overall net decrease in the surplus regulatory capital of $40 million during 2013 primarily relates to two events:

(1) in April 2013, Man confirmed with the FCA the change of its regulatory status from being a Full Scope group to a Limited Licence group. The impact of this was the removal of the Capital Planning Buffer of approximately $300 million and a further $250 million decrease in the financial resources requirement; and

(2) the repurchase of our qualifying debt and hybrid instruments, amounting to approximately $580 million.

Group's regulatory capital position

$m	31 December 2013	31 December 2012
Permitted share capital and reserves	2,311	2,541
Innovative Tier 1 Perpetual Subordinated Capital Securities	-	193
Less deductions (primarily goodwill and other intangibles)	(1,273)	(1,449)
Available Tier 1 Group Capital	1,038	1,285
Tier 2 capital - subordinated debt	-	309
Other Tier 2 capital	3	90
Group financial resources	1,041	1,684
Less financial resources requirement, including a capital buffer in 2012	(281)	(889)
Surplus capital	760	795

FINANCIAL STATEMENTS

Group income statement

$m	Note	Year ended 31 December 2013	Year ended 31 December 2012 (Restated)¹
Revenue:
Gross management and other fees	3	967	1,209
Performance fees	3	193	90
		1,160	1,299
Gains on investments and other financial instruments		33	32
Distribution costs	4	(145)	(291)
Asset services	5	(32)	(31)
Amortisation of acquired intangible assets	12	(66)	(65)
Compensation	6	(481)	(547)
Other costs	7	(323)	(316)
Share of after tax profit of associates	18	12	10
Gain on disposal of Lehman claims	2	5	131
Gain on disposal of interest in Nephila and other interests	2	11	-
Impairment of goodwill	2,12	(69)	(979)
Release of tax indemnity provision	2	-	11
Recycling of FX revaluation on liquidation of subsidiaries	2	(1)	42
Finance expense	8	(61)	(80)
Finance income	8	13	36
Profit/(loss) before tax		56	(748)
Taxation credit/(expense)	9	16	(39)
Statutory profit/(loss) for the year attributable to owners of the Parent		72	(787)

Earnings per share:	10
Basic (cents)		3.0	(45.8)
Diluted (cents)		2.9	(45.8)
Adjusted profit before tax	2	297	275

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

Group statement of comprehensive income

$m	Year ended 31 December 2013	Year ended 31 December 2012 (Restated)¹
Statutory profit/(loss) for the year attributable to owners of the Parent	72	(787)
Other comprehensive income/(expense):
Remeasurements of post-employment benefit obligations	16	(13)
Corporation tax credited on pension revaluation	6	-
Deferred tax (debited)/credited on pension revaluation	(11)	3
Items that will not be reclassified to profit or loss	11	(10)
Available for sale investments:
Valuation (losses)/gains taken to equity	(1)	18
Transfers from Group statement of comprehensive income upon sale or impairment	1	(19)
Cash flow hedges:
Valuation gains taken to equity	12	16
Transfer to Group income statement	(1)	(9)
Corporation tax debited on cash flow hedge movements	(3)	-
Net investment hedge	20	(3)
Foreign currency translation	(35)	6
Recycling of FX revaluation on liquidation of subsidiaries	1	(42)
Tax charged	-	(1)
Items that may be subsequently reclassified to profit or loss	(6)	(34)
Other comprehensive income/(expense) for the year (net of tax)	5	(44)
Total comprehensive income/(expense) for the year attributable to owners of the Parent	77	(831)

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

Group balance sheet

$m	Note	At 31 December 2013	At 31 December 2012 (Restated)¹	At 1 January 2012 (Restated)¹
Assets
Cash and cash equivalents	14	992	2,000	1,639
Fee and other receivables	16	388	382	428
Investments in fund products and other investments	15	273	496	975
Pension asset		71	-	-
Investments in associates	18	31	38	41
Leasehold improvements and equipment	19	68	150	173
Goodwill and acquired intangibles	12	1,328	1,484	2,478
Other intangibles	13	26	45	187
		3,177	4,595	5,921
Non-current assets held for sale	15	56	-	-
Total assets		3,233	4,595	5,921
Liabilities
Trade and other payables	17	725	657	677
Current tax liabilities		37	98	118
Borrowings	14	-	859	1,066
Deferred tax liabilities	9	58	71	71
		820	1,685	1,932
Non-current liabilities held for sale	15	6	-	-
Total liabilities		826	1,685	1,932
Net assets		2,407	2,910	3,989

Equity
Capital and reserves attributable to the owners of the Parent²	21	2,407	2,610	3,989
Non-controlling interest (perpetual subordinated capital securities)²	14	-	300	-
		2,407	2,910	3,989

Notes:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

2 Refer to the Group statement of changes in equity for further details.

Group cash flow statement

$m	Year ended 31 December 2013	Year ended 31 December 2012 (Restated)¹
Cash flows from operating activities
Profit/(loss) for the period	72	(787)
Adjustments for:
Income tax	(16)	39
Net finance expense	48	44
Share of profits of associates	(12)	(10)
Gain on disposal of interest in Nephila and other interests	(11)	-
Depreciation and impairment of leasehold improvements and equipment	82	43
Amortisation of acquired intangible assets	66	65
Amortisation of other intangible assets	18	76
Share-based payment expense	36	79
Impairment of goodwill	69	979
Net losses on financial instruments	-	1
Gain on disposal of Lehman claims	(5)	(131)
Impairment of capitalised placement fees	-	88
Recycling of FX revaluation on liquidation of subsidiaries	1	(42)
Cash contributions to defined benefit pension plans (net of expense)	(24)	(7)
Other non-cash movements	35	11
	359	448
Changes in working capital:
(Increase)/decrease in receivables	(9)	88
Decrease in other financial assets (primarily loans to fund products)	155	135
Increase/(decrease) in payables	80	(127)
Cash generated from operations	585	544
Interest paid	(73)	(81)
Income tax paid	(64)	(55)
Cash flows from operating activities	448	408
Cash flows from investing activities
Purchase of leasehold improvements and equipment	(2)	(20)
Purchase of other intangible assets	(3)	(33)
Purchase of investments in fund products for deferred compensation awards and other investments	(51)	(17)
Proceeds from sale of leasehold improvements and equipment	1	-
Proceeds from settlement and sale of Lehman claims	5	466
Net proceeds from sale of investments in fund products for deferred compensation awards and other investments	40	28
Acquisition of subsidiary, net of cash acquired	-	40
Interest received	13	35
Payment of contingent consideration in relation to acquisition of FRM	(12)	-
Dividends received from associates	11	13
Proceeds from sale of interest in Nephila and other interests	21	-
Cash flows from investing activities	23	512
Cash flows from financing activities
Proceeds from issue of ordinary shares	4	8
Purchase of own shares by the Employee Trust	(22)	(9)
Repurchase of own shares	-	(7)
Repayment of borrowings	(1,159)	(219)
Dividends paid to Company shareholders	(277)	(299)
Dividend payments in respect of perpetual subordinated capital securities	(25)	(33)
Cash flows from financing activities	(1,479)	(559)
Net (decrease)/increase in cash	(1,008)	361
Cash at beginning of the year	2,000	1,639
Cash at year end	992	2,000

Note: 1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

Group statement of changes in equity

		Equity attributable to owners of the Parent					Equity attributable to owners of the Parent
		Year ended 31 December 2013					Year ended 31 December 2012
$m	Share capital and capital reserves		Revaluation reserves and retained earnings	Total	Non- controlling interest	Total equity	Share capital and capital reserves	Revaluation reserves and retained earnings	Total	Non- controlling interest	Total equity
At beginning of the year (as previously reported)	1,187		1,507	2,694	300	2,994	3,364	696	4,060	-	4,060
Impact of adoption of IAS 19 (Revised)¹	-		(84)	(84)	-	(84)	-	(71)	(71)	-	(71)
At beginning of the year (Restated)	1,187		1,423	2,610	300	2,910	3,364	625	3,989	-	3,989
Profit/(loss) for the year	-		72	72	-	72	-	(787)	(787)	-	(787)
Other comprehensive income/ (expense)	-		5	5	-	5	-	(44)	(44)	-	(44)
Total comprehensive income/ (expense) for the year	-		77	77	-	77	-	(831)	(831)	-	(831)
Perpetual capital securities coupon	-		(19)	(19)	-	(19)	-	(25)	(25)	-	(25)
Transfer to non-controlling interest	-		-	-	-	-	(300)	-	(300)	300	-
Buyback of perpetual capital securities	-		-	-	(300)	(300)	-	-	-	-	-
Capital reduction	-		-	-	-	-	(1,885)	1,885	-	-	-
Acquisition of business	-		-	-	-	-	-	-	-	-	-
Share-based payments	4		30	34	-	34	8	65	73	-	73
Repurchase of own shares	-		(18)	(18)	-	(18)	-	(7)	(7)	-	(7)
Movement in close period buyback obligations	-		-	-	-	-	-	10	10	-	10
Dividends	-		(277)	(277)	-	(277)	-	(299)	(299)	-	(299)
At year end (Note 21) (Restated)	1,191		1,216	2,407	-	2,407	1,187	1,423	2,610	300	2,910

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

Shareholders' equity decreased during the year as a result of the 2012 final dividend payment, which was not covered by the statutory profit for the year, and the repurchase of the $300 million perpetual subordinated capital securities during the year. In the prior year, shareholders' equity decreased primarily as a result of dividend payments and the loss for the year.

The proposed final dividend would reduce shareholders' equity by $95 million (2012: $228 million) subsequent to the balance sheet date.

Details of share capital and capital reserves, revaluation reserves and retained earnings and related movements are included in Note 21.

Notes to the Group financial statements

1. Basis of preparation

In preparing the financial information in this statement the Group has applied policies which are in accordance with the International Financial Reporting Standards as adopted by the European Union at 31 December 2013. Details of the Group's accounting policies can be found in the Group's Annual Report for the year ended 31 December 2012, and the adoption of IAS 19 (Revised) 'Employee Benefits' and the presentation of internal commission costs are explained in the sections below. The financial information included in this statement does not constitute the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2013, upon which the auditors have issued an unqualified report, will shortly be delivered to the Registrar of Companies.

The annual report will be posted to shareholders on 12 March 2014. The Company's Annual General Meeting will be held on Friday 9 May 2014 at 10 am at River Court, 120 Fleet Street, London EC4A 2BE.

Impact of new accounting standards

IAS 19 (Revised) 'Employee benefits' has been adopted this year, and has been applied retrospectively in accordance with IAS 8 'Accounting policies, changes in accounting estimates and errors', and hence the prior year has been restated and the opening restated balance sheet presented. The most significant change arising was to cease to apply the 'corridor approach' in accounting for Man's defined benefit plans. The impact of the adoption of IAS 19 (Revised) 'Employee benefits' resulted in a decrease in net pension assets of $110 million as at 31 December 2012 (31 December 2011: $94 million) and in deferred tax liabilities of $26 million (31 December 2011: $23 million), with a corresponding debit to equity of $84 million (31 December 2011: $71 million). The comparative Group statement of comprehensive income for the prior year has been restated to reflect remeasurements in relation to defined benefit plans of $13 million, partially offset by related tax effects. The profit for 2012 has reduced due to a $3 million increase in pension costs (in the compensation line), which has also reduced both the 2012 basic and diluted earnings per share.

Presentation of internal commission costs and calculation of the compensation ratio

The presentation of internal commission costs has been changed in the Group income statement in the current year, and the prior year has been restated accordingly, to reclassify these costs to compensation costs rather than distribution costs. This reflects the way the business is now managed, providing more relevant information to the readers of the financial statements, and brings the treatment in line with industry practice. Internal commission costs for the year ended 31 December 2013 were $30 million (2012: $45 million).

The methodology for calculating the Group's compensation ratio, as disclosed in Note 6, has changed from the prior year to include internal commission costs and is now a percentage of net revenue (as defined in Note 6) rather than gross revenue. As a result of the change in methodology, the compensation ratio for 2013 has changed from 36% (2012: 33%) to 42% (2012: 42%).

2. Adjusted profit before tax

Statutory profit/(loss) before tax is adjusted to give a fuller understanding of the underlying profitability of the business. The directors consider that the Group's profit is most meaningful when considered on a basis which excludes restructuring costs, amortisation and impairment of intangible assets and certain non-recurring gains or losses, which therefore reflect the recurring revenues and costs that drive the Group's cash flow. The directors are consistent in their approach to the classification of adjusting items period to period. These are explained in detail either below or in the relevant note.

$m	Note	Year ended 31 December 2013	Year ended 31 December 2012 (Restated)¹
Statutory profit/(loss) before tax		56	(748)
Adjusting items:
Gain on disposal of interest in Nephila and other interests		(11)	-
Compensation - restructuring	6	36	65
Other costs - restructuring	7	28	4
Other costs - accelerated depreciation		43	-
Gain on disposal of Lehman claims		(5)	(131)
Regulatory and other settlements	7	14	-
Impairment of goodwill	12	69	979
Release of tax indemnity provision		-	(11)
Recycling of FX revaluation on liquidation of subsidiaries		1	(42)
Impairment of capitalised placement fees	4,13	-	88
FRM acquisition costs	6,7	-	12
Revaluation of contingent consideration		(3)	(9)
Unwind of contingent consideration discount	8	3	3
Amortisation of acquired intangible assets	12	66	65
Adjusted profit before tax		297	275
Tax on adjusted profit		(21)	(40)
Adjusted net income		276	235

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

The gain on disposal of interest in Nephila and other interests primarily relates to the disposal of a 6.25% stake in Nephila on 23 January 2013, reducing the Group's holding to 18.75%.

Compensation costs incurred as part of restructuring are accounted for in full at the time the obligation arises, following communication of the formal plan, and include payments in lieu of notice, enhanced termination costs, and accelerated share-based payment and fund product based charges. The $36 million of compensation restructuring costs recognised in 2013 relate to the further phase of cost saving initiatives announced on 2 August 2013.

Restructuring costs included within Other costs primarily relate to onerous property lease provisions, mainly in relation to Riverbank House (our main London office and headquarters). The accelerated depreciation included within Other costs primarily relates to leasehold improvements and equipment as a result of the sub-letting of office space in Riverbank House.

Regulatory and other settlement costs of $14 million in the year primarily relate to the settlement of a regulatory enquiry in the US and directly associated legal costs.

$5 million of additional proceeds were received in the year relating to the disposal of the Lehman claims in 2012. In the prior year, the Lehman claims were sold by Man for a total consideration of $456 million, resulting in a pre-tax gain of $131 million.

Following a test for impairment of goodwill and intangible assets at 31 December 2013, the FRM goodwill was impaired by $69 million, primarily relating to our legacy Man Multi Manager Business. Refer to Note 12 for further details. In the prior year, GLG and the legacy Man Multi-Manager goodwill was impaired by $837 million and $142 million respectively.

The revaluation of contingent consideration is an adjustment to the fair value of expected earn-out payments resulting primarily from movements in net management fee run rates since the acquisition of FRM and has been included within Gains/(losses) on investments and other financial instruments. The gain of $3 million (2012: $9 million) was offset by an unwind of the discount on the contingent consideration of $3 million (2012: $3 million), included within Finance expense (Note 8).

The amortisation of acquired intangible assets relates to the amortisation of the investment management contracts and brands recognised on the acquisition of FRM, GLG, and Ore Hill. Further details are provided in Note 12.

During the year, some of the Group's foreign subsidiaries were liquidated, which had accumulated foreign currency translation reserves of $1 million (2012: $42 million) at the date of liquidation. The related foreign currency translation was recycled to the Group income statement upon liquidation of these subsidiaries as required by IAS 21.

In the prior year, capitalised placement fees were impaired by $88 million, as a result of de-gearing and negative investment performance in relation to guaranteed products ($50 million) and the introduction of a new servicing fee based internal compensation structure effective from 1 January 2013 ($38 million).

3. Revenue and margins

Fee income is Man's primary source of revenue, which is derived from the investment management agreements that we have in place with the fund entities. Fees are generally based on an agreed percentage of the valuation of FUM and are typically charged in arrears. Management fees net of rebates, which include all non-performance related fees and interest income from loans to fund products, are recognised in the year in which the services are provided.

Performance fees net of rebates relate to the performance of the funds managed during the year and are recognised when the quantum of the fee can be estimated reliably and it is probable that the fee will crystallise. This is generally at the end of the performance period or upon early redemption by a fund investor. Until the performance period ends market movements could significantly move the net asset value (NAV) of the fund products. Man will typically only earn performance fee income on any positive investment returns in excess of the high-water mark, meaning we will not be able to earn performance fee income with respect to positive investment performance in any year following negative performance until that loss is recouped, at which point a fund investor's investment surpasses the high-water mark.

4. Distribution costs

$m	Year ended 31 December 2013	Year ended 31 December 2012
External distribution costs - before adjusting items	145	203
Impairment of capitalised placement fees (Note 2)	-	88
Total distribution costs	145	291

Distribution costs paid to intermediaries are directly related to their marketing activity and the investors serviced by them. The distribution expense is therefore variable to sales, FUM, and the associated management fee income to sustain management fee margins.

Distribution costs, before adjusting items, of $145 million (2012: $203 million) comprise product placement fees of $17 million (2012: $47 million) and investor servicing fees of $128 million (2012: $156 million). Placement fees are paid for product launches or sales and are capitalised and amortised over the expected investment hold period (refer to Note 13). Investor servicing fees are paid to intermediaries for ongoing investor servicing and are expensed as incurred.

Capitalised placement fees were impaired by $88 million during the prior year, and classified as an adjusting item.

Distribution costs relating to employees (internal commissions) are now presented as compensation costs and the prior year has been restated accordingly. Refer to Note 1 for further details.

5. Asset services

Asset services include valuations, fund accounting, and registrar functions performed by third parties under contract to Man, on behalf of the funds.

The cost of these services is based on the number of transactions or FUM, therefore variable with activity levels and FUM. Asset services costs for the year were $32 million (2012: $31 million).

6. Compensation

$m	Year ended 31 December 2013	Year ended 31 December 2012
Salaries - fixed	163	198
Salaries - variable	169	111
Share-based payment charge	30	68
Fund product based payment charge	32	20
Internal commissions - variable	17	30
Social security costs	24	30
Pension costs	10	18
Compensation costs - before adjusting items	445	475
Restructuring	36	65
FRM acquisition costs	-	7
Total compensation costs	481	547

Compensation is our largest cost and an important component of our ability to retain and attract talent at Man. In the short-term, the variable component of compensation adjusts with revenues and profitability. In the medium term the active management of headcount can reduce fixed based compensation, if required.

Compensation costs in total were $445 million, before adjusting items, or 42% of net revenue (2012: 42%). Net revenue is defined as gross management and other fees, performance fees, gains/(losses) on investments and other financial instruments, share of after tax profit of associates, less external distribution costs.

Internal commission costs were reclassified in the current year to compensation costs from distribution costs, and the prior year has been restated accordingly. Refer to Note 1 for further details. Total internal commission costs for the year were $30 million (2012: $45 million), with $6 million (2012: $12 million) included in the share-based payment charge line and $7 million (2012: $3 million) included in the fund product based payment charge line.

Fixed compensation and benefits were $188 million compared to $236 million in the prior year. Fixed compensation comprises salaries - fixed, pension costs and a portion of the social security costs. The prior year includes FRM fixed compensation from 17 July 2012, the date of acquisition.

Variable compensation, excluding internal commissions, was $227 million compared to $194 million in the prior year, primarily reflecting higher performance fee related compensation.

Salaries, both fixed and variable, are charged to the Group income statement in the year in which they are incurred. They include partner drawings.

The accounting for share-based and fund product based compensation arrangements is covered in Note 20. The unamortised deferred compensation at year end was $24 million (2012: $54 million) which had a weighted average remaining vesting period of 1.4 years (2012: 1.2 years). The decrease from the prior year of these two items in aggregate primarily reflects the decrease in the unamortised deferred compensation in line with the decline in profitability over recent years.

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

The aggregate directors' remuneration (including social security), for both executive and non-executive directors, is: (1) Fees and remuneration of $8,469,000 (2012: $5,538,000); (2) Gains made on transfer of share awards and exercise of share options in the year of $nil (2012: $nil); (3) Amounts receivable by directors under long-term incentive schemes in the year of $426,000 (2012: $nil); and (4) Contributions to money purchase pension schemes of $49,000 (2012: $132,000).

7. Other costs

$m	Year ended 31 December 2013	Year ended 31 December 2012
Occupancy	50	56
Technology and communication	34	46
Temporary staff, recruitment, consultancy and managed services	32	42
Legal fees and other professional fees	18	23
Benefits	15	20
Insurance	11	13
Travel and entertainment	10	15
Audit, accountancy, actuarial and tax fees	7	12
Marketing and sponsorship	6	11
Other cash costs	8	6
Total other costs before depreciation and amortisation and adjusting items	191	244
Depreciation and amortisation	47	63
Other costs - before adjusting items	238	307
Restructuring (Note 2)	28	4
Regulatory and other settlements (Note 2)	14	-
FRM acquisition costs (Note 2)	-	5
Accelerated depreciation (Note 2)	43	-
Total other costs	323	316

The level of expenses, including occupancy, communication, technology and travel and entertainment, is linked to headcount.

Other costs, before depreciation and amortisation and adjusting items, were $191 million in the year, compared to $244 million in the prior year, which reflects the impact of the various previously announced cost saving initiatives to reduce the cost base of the Group.

8. Finance expense and finance income

$m	Year ended 31 December 2013	Year ended 31 December 2012
Finance income:
Interest on cash deposits and US Treasury bills	13	21
Other - gain recognised on the repayment of loan notes issued by BlueCrest	-	15
Total finance income	13	36
Finance expense:
Interest payable on borrowings	(22)	(50)
Premium paid on debt buybacks and other	(36)	(27)
Total finance expense - before adjusting items	(58)	(77)
Unwind of contingent consideration discount (Note 2)	(3)	(3)
Total finance expense	(61)	(80)

Finance expense includes a $28 million charge relating to debt buybacks during the year, which is explained further in Note 14 (2012: $21 million).

9. Taxation

$m	Year ended 31 December 2013	Year ended 31 December 2012
Analysis of tax (credit)/charge for the period:
Current tax:
UK corporation tax on profits of the period	29	44
Foreign tax	16	14
Adjustments to tax charge in respect of previous periods	(34)	(17)
Total current tax	11	41
Deferred tax:
Origination and reversal of temporary differences	(28)	(6)
Adjustments to tax charge in respect of previous periods	1	4
Total tax (credit)/charge	(16)	39

Man is a global business and therefore operates across many different tax jurisdictions. Income and profits are allocated to these different jurisdictions based on transfer pricing methodologies set in accordance with the laws of the jurisdictions in which we operate. The effective tax rate results from the combination of taxes paid on earnings attributable to the tax jurisdictions in which they arise. The majority of the Group's profit was earned in UK, Switzerland, and Australia. The current effective tax rate of -28.6% (2012: -5.2%) differs from the underlying rate principally as a result of prior year tax credits including for further settled tax returns across a number of countries and multiple periods, and the impairment of goodwill on which no tax relief is received. The effective tax rate is otherwise consistent with this earnings profile. The effective tax rate on adjusted profits (Note 2) is 7.1% (2012: 14.4%). The lower rate again is principally the result of the effect of prior year tax credits, which along with utilisation of tax losses outweighs the impact of reduced relief on share-based compensation costs.

The tax on Man's total profit/(loss) before tax is lower (2012: higher) than the amount that would arise using the theoretical effective tax rate applicable to profits/(losses) of the consolidated companies, as follows:

$m	Year ended 31 December 2013	Year ended 31 December 2012 (Restated)¹
Profit/(loss) before tax	56	(748)
Theoretical tax charge/(credit) at UK rate - 23.25% (2012: 24.5%)	13	(183)
Effect of:

Overseas rates compared to UK	(14)	(32)
Adjustments to tax charge in respect of previous periods	(33)	(13)
Impairment of goodwill and other adjusting items	19	249
Share-based payments	10	8
Other	(11)	10
	(29)	222
Total tax (credit)/charge	(16)	39

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

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. The deferred tax closing balance of $58 million (2012: $71 million) relates mostly to the tax arising on intangible assets of $97 million (2012: $114 million). The closing balance is also net of deferred tax assets primarily related to defined benefit pension schemes of $9 million (2012: $25 million), employee share schemes of $7 million (2012: $8 million), and tax allowances over depreciation of $18 million (2012: $9 million).

The movement in the deferred tax liability of $58 million (2012: $71 million) includes an income statement credit of $27 million (2012: $2 million), a charge to other revenue reserves of $10 million (2012: $nil), and other currency differences/credits of $4 million (2012: $5 million). The income statement credit of $27 million (2012: $2 million) is made up of a decrease in the deferred tax liability arising on intangibles assets of $17 million (2012: $6 million), an increase in the deferred tax asset arising on tax allowances over depreciation of $9 million (2012: $1 million, decrease) and a decrease in the deferred tax liability on other temporary differences of $1 million (2012: $3 million, increase). The charge to other revenue reserves $10 million arises on the movement in pension accrual in the year.

The adoption of IAS 19 (Revised) 'Employee Benefits' resulted in a deferred tax asset of $26 million at 31 December 2012.

10. Earnings per ordinary share (EPS)

The calculation of basic EPS is based on post-tax profit, after payments to holders of the perpetual subordinated capital securities ($19 million after tax, $25 million for the prior year), of $53 million compared to a loss of $812 million in the prior year, and ordinary shares of 1,787,851,123 (2012: 1,772,828,571), being the weighted average number of ordinary shares on issue during the period after excluding the shares owned by the Man Employee Trusts. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares, being ordinary shares of 1,818,402,923 (2012: 1,802,501,332).

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

	Year ended 31 December 2013		Year ended 31 December 2012
	Total number (million)	Weighted average (million)	Total number (million)	Weighted average (million)
Number of shares at beginning of year	1,821.8	1,821.8	1,820.8	1,820.8
Issues of shares	1.9	1.4	4.3	2.5
Repurchase of own shares	-	-	(3.3)	(2.9)
Business combinations	-	-	-	-
Number of shares at period end	1,823.7	1,823.2	1,821.8	1,820.4
Shares owned by Employee Trusts	(29.7)	(35.3)	(40.8)	(47.6)
Basic number of shares	1,794.0	1,787.9	1,781.0	1,772.8
Share awards under incentive schemes		27.7		28.7
Employee share options		2.8		1.0
Diluted number of shares		1,818.4		1,802.5

The reconciliation from EPS to an adjusted EPS is given below:

	Year ended 31 December 2013
	Basic post- tax earnings $m	Diluted post- tax earnings $m	Basic earnings per share cents	Diluted earnings per share cents
Earnings per share¹	53	53	3.0	2.9
Items for which EPS has been adjusted (Note 2)	241	241	13.5	13.3
Tax on adjusting items	(37)	(37)	(2.1)	(2.1)
Adjusted earnings per share	257	257	14.4	14.1
Net performance fees (post-tax)	(114)	(114)	(6.4)	(6.2)
Adjusted management fee earnings per share	143	143	8.0	7.9

	Year ended 31 December 2012
	Basic post- tax earnings $m	Diluted post- tax earnings $m	Basic earnings per share cents	Diluted earnings per share cents
Earnings per share^1,2	(812)	(812)	(45.8)	(45.8)
Effect of potential ordinary shares²	-	-	-	0.7
Items for which EPS has been adjusted (Note 2)	1,023	1,023	57.7	56.8
Tax on adjusting items	(1)	(1)	(0.1)	(0.1)
Adjusted earnings per share	210	210	11.8	11.6
Net performance fees (post-tax)	(44)	(44)	(2.4)	(2.4)
Adjusted management fee earnings per share	166	166	9.4	9.2

Notes:

1 The difference between post-tax profit/(loss) and basic and diluted post-tax profit/(loss) is the adding back of the expense in the period relating to the perpetual subordinated capital securities (Note 21), totalling $19 million post-tax (2012: $25 million).

2 Potential ordinary shares have been excluded from the diluted unadjusted EPS calculation in 2012 as their conversion would decrease the loss per share.

11. Dividends

$m	Year ended 31 December 2013	Year ended 31 December 2012
Ordinary shares
Final dividend paid for the year to 31 December 2012 - 12.5 cents (9 months to 31 December 2011: 7 cents)	230	126
Interim dividend paid for the six months to 30 June 2013 - 2.6 cents (2012: 9.5 cents)	47	173
Dividends paid during the year	277	299
Proposed final dividend for the year to 31 December 2013 - 5.3 cents (2012: 12.5 cents)	95	228

Dividend distribution to the Company's shareholders is recognised directly in equity and as a liability in Man's financial statements in the period in which the dividend is paid or, if required, approved by the Company's shareholders.

12. Goodwill and acquired intangibles

	Year ended 31 December 2013			Year ended 31 December 2012
$m	Goodwill	IMCs and other acquired intangibles²	Total	Goodwill	IMCs and other acquired intangibles²	Total
Cost:
At beginning of the year	2,252	726	2,978	2,234	694	2,928
Acquisition of business¹	-	-	-	16	32	48
Currency translation	(16)	-	(16)	2	-	2
Other adjustment⁴	(5)	-	(5)	-	-	-
At year end	2,231	726	2,957	2,252	726	2,978
Amortisation and impairment:
At beginning of the year	(1,354)	(140)	(1,494)	(375)	(75)	(450)
Amortisation	-	(66)	(66)	-	(65)	(65)
Impairment³	(69)	-	(69)	(979)	-	(979)
At year end	(1,423)	(206)	(1,629)	(1,354)	(140)	(1,494)
Net book value at year end	808	520	1,328	898	586	1,484
Allocated to cash generating units as follows:
GLG	201	493	694	262	555	817
FRM	139	27	166	227	31	258
AHL	468	-	468	409	-	409

Notes:

1 Acquisition of business in the prior year relates to FRM.

2 Includes investment management contracts (IMCs), brand names and distribution channels.

3 The impairment of $69 million in 2013 relates to FRM. The impairment of $979 million in 2012 relates to the legacy Man Multi-Manager business ($142 million) and GLG ($837 million).

4 The other adjustment of $5 million to goodwill relates to an adjustment to the calculation for the FRM contingent consideration at the date of acquisition (July 2012), reducing the goodwill and contingent consideration creditor.

Goodwill

Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net assets of the acquired business at the date of acquisition.

Goodwill is carried on the Group balance sheet at cost less accumulated impairment losses. Goodwill has an indefinite useful life, is not subject to amortisation and is tested for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

Investment management contracts (IMCs)

IMCs, distribution channels and brand names are recognised at the present value of the expected future cash flows and are amortised on a straight-line basis over the expected useful lives, which are between 9 and 12 years.

Allocation of goodwill to cash generating units

The Group has three identified cash-generating units (CGUs) for impairment review purposes: GLG, FRM, and AHL. The goodwill and other intangible assets acquired on the acquisition of FRM have been allocated to the FRM CGU as the acquired FRM business has been fully integrated with the previous Man Multi-Manager business, which will benefit from all of the synergies from the acquisition.

The Man Systematic Strategies business (MSS) was integrated into the AHL business on 1 January 2013, which was previously reported within the GLG and FRM CGUs. The goodwill associated with the MSS business of $71 million has been transferred from the GLG CGU ($61 million) and the FRM CGU ($10 million) to the AHL CGU.

Calculation of recoverable amounts for cash generating units

The recoverable amounts of the Group's CGUs are assessed each year using a value in use calculation. A value in use calculation gives a higher valuation compared to a fair value less cost to sell approach, as a fair value approach would exclude some of the revenue synergies available to Man through its ability to distribute products using its well established distribution channels, which is unlikely to be fully available to other market participants.

The value in use calculations at 31 December 2013 use cash flow projections based on the approved budget for the year to 31 December 2014 and a further two years of projections (2015 and 2016) plus a terminal value. The valuation analysis is based on best practice guidance whereby a terminal value is calculated at the end of a short discrete budget period and assumes, after this three year budget period, no growth in asset flows above the long-term growth rate.

The key assumptions used in the value in use calculations are represented by the compound average annualised growth in FUM over the three year budget period and the discount rates applied to the modelled cash flows. The value in use calculations are sensitive to small changes in the key assumptions, in particular in relation to the compound average annualised growth in FUM over the three year forecast period. Sensitivity analysis of this assumption is given in each of the GLG, FRM and AHL sections below. The terminal value is calculated based on the projected closing FUM at 31 December 2016 and applying a mid-point of a range of historical multiples to the forecast cash flows associated with management and performance fees. A bifurcated discount rate has been applied to the modelled cash flows to reflect the different risk profile of net management fee income and net performance fee income. The discount rates are based on the Group's weighted average cost of capital using a risk free interest rate, together with an equity risk premium and an appropriate beta derived from a consideration of Man's beta, similar alternative asset managers and the asset management sector as a whole. The post-tax discount rates applied are the same as those used in 2012.

The specific assumptions applied to the value in use calculations for each of the CGUs are explained in the sections below.

GLG cash generating unit

In 2012, GLG goodwill was impaired by $837 million.

At 30 June 2013, GLG's FUM and run rate revenues were higher than the modelled FUM and run rate revenues in the value in use calculation at 31 December 2012 as a result of better than forecast investment performance, particularly for long only. Therefore, there were no indicators of impairment and no impairment test was deemed necessary.

The recoverable amount of the GLG CGU has again been assessed at 31 December 2013. The key assumptions used in the value in use calculation are shown in the table below.

Compound average annualised growth in FUM (over three years)	16.5%
Discount rate (post-tax)¹
- Net management fees	11%
- Net performance fees	17%
Terminal value (mid-point of range of historical multiples)²
- Management fees	13x
- Performance fees	5.5x

Notes:

1 The pre-tax equivalent of the net management fee and net performance fee discount rates are 13% and 22% respectively.

2 The terminal value is equivalent to an overall terminal growth of 3.1% for management fees and 0% for performance fees.

The GLG value in use calculation at 31 December 2013 indicates a value of $1.3 billion, with around $550 million of headroom over the carrying value of the GLG business. Therefore, no impairment charge is deemed necessary at 31 December 2013. The valuation at 31 December 2013 is around $500 million higher than the value in use calculation at 31 December 2012, primarily as a result of better than anticipated net inflows and investment performance in 2013, particularly for long only, and higher growth in FUM anticipated over the next three years.

The table below shows two adverse scenarios, whereby the base case key assumptions are changed to stressed assumptions. The table below shows the effect of these scenarios and the associated modelled headroom or impairment that would result. The results of these sensitivities make no allowance for actions that management would take if such market conditions persisted.

Compound average annualised growth in FUM stressed to:	7%	5%
Modelled headroom/(impairment) ($m)	58	(50)

If the net management fee and net performance fee post-tax discount rates were increased by 1% to 12% and 18% respectively, it would result in the modelled headroom decreasing by $25 million. If the discount rates were decreased by 1%, it would result in the modelled headroom increasing by $27 million.

If the mid-point of the range of historical multiples for management and performance fees used to calculate the terminal value were increased by 1 to 14 times and 6.5 times respectively, it would result in the modelled headroom increasing by around $102 million. If they were decreased by 1 to 12 times and 4.5 respectively, it would result in the modelled headroom decreasing by $103 million.

FRM cash generating unit

The FRM CGU includes the legacy Man Multi-Manager business and the acquired FRM business. A significant majority of the carrying value of the goodwill relates to the legacy RMF and Glenwood businesses, which were acquired in 2002 and 2000 respectively.

In 2012, as a result of the challenging economic environment, a goodwill impairment charge of $142 million was recognised at 30 June 2012. The recoverable amount of the FRM CGU was again assessed at 31 December 2012, which included the previous Man Multi-Manager and the acquired FRM business, and suggested a value for the FRM CGU with significant headroom over the carrying value of the business. Therefore, no further impairment charge was deemed necessary.

At 30 June 2013, FRM's growth in FUM was slightly lower than modelled in the value in use calculation at 31 December 2012. However, as FRM had significant headroom at 31 December 2012, and FRM's margins and costs were as forecast, the lower growth in FUM was deemed to not be significant enough to be an indicator of impairment. As a result, no impairment test of FRM's goodwill was undertaken at 30 June 2013.

As with the GLG CGU, the recoverable amount of the FRM CGU has again been assessed at 31 December 2013. The key assumptions used in the value in use calculation are shown in the table below.

Compound average annualised growth in FUM (over three years)
- Fund of fund products	4.5%
- Guaranteed products	-36%
Discount rate (post-tax)¹
- Net management fees	11%
- Net performance fees	17%
Terminal value (mid-point of range of historical multiples)²
- Management fees	12x
- Performance fees	4x

Notes:

1 The pre-tax equivalent of the net management fee and net performance fee discount rates are 13% and 19% respectively.

2 The terminal value is equivalent to an overall terminal growth of 1.0% for management fees and 0% for performance fees.

As a result of guaranteed product FUM decreasing faster than anticipated, and higher than anticipated outflows in 2013 and Q1 2014, in particular in relation to redemptions from a small number of institutional investors in our legacy Multi Manager Business, the value in use calculation at 31 December 2013 suggests a value of $179 million for the FRM business. As the carrying value of the FRM business was $248 million, this resulted in an associated goodwill impairment charge of $69 million at 31 December 2013.

The table below shows two scenarios: one positive scenario and one adverse scenario, whereby the base case key assumptions for the fund of fund products are changed to more favourable or stressed assumptions. The assumptions for guaranteed products remain unchanged. The table below shows the effect of these scenarios and the associated modelled headroom or impairment that would result. The result of the adverse sensitivity makes no allowance for actions that management would take if such market conditions persisted.

Fund of fund compound average annualised growth in FUM stressed to:	8%	2%
Modelled headroom/(increased impairment) ($m)	18	(136)

If the net management fee and net performance fee post-tax discount rates were increased by 1% to 11% and 18% respectively, it would result in the modelled impairment increasing by $3 million. If the discount rates were decreased by 1%, it would result in the modelled impairment decreasing by $3 million.

If the mid-point of the range of historical multiples for management and performance fees used to calculate the terminal value were increased by 1 to 13 times and 5 times respectively, it would result in the modelled impairment decreasing by around $15 million. If they were decreased by 1 to 11 times and 3 respectively, it would result in the modelled impairment increasing by around $15 million.

AHL cash generating unit

The recoverable amount of the AHL CGU was reviewed at 31 December 2012 using a value in use calculation. The value in use calculation indicated a value for the AHL CGU with significant headroom over the carrying value of the AHL business.

At 30 June 2013, AHL's growth in FUM was slightly lower than that modelled in the value in use calculation at 31 December 2012. However, as AHL had significant headroom at 31 December 2012, and AHL's margins and costs were as expected, the lower growth in FUM was not significant enough to be deemed an indicator of impairment. As a result, no impairment test of AHL's goodwill was undertaken at 30 June 2013.

As with the GLG and FRM CGUs, the recoverable amount of the AHL CGU has been assessed at 31 December 2013 using a value in use calculation. The key assumptions used in the value in use calculation are shown in the table below.

Compound average annualised growth in FUM (over three years)
- Quant products	10.8%
- Guaranteed products	-38%
Discount rate (post-tax)¹
- Net management fees	11%
- Net performance fees	17%
Terminal value (mid-point of range of historical multiples)²
- Management fees	13x
- Performance fees	5.5x

Notes:

1 The pre-tax equivalent of the net management fee and net performance fee discount rates are 13% and 20% respectively.

2 The terminal value is equivalent to an overall terminal growth of 2.8% for management fees and 0% for performance fees.

The value in use calculation at 31 December 2013 for the AHL CGU indicates a value of around $1.25 billion, giving a significant amount of headroom over the carrying value of the AHL CGU.

In an adverse scenario, the compound average annualised growth in FUM (over three years) for quant alternative products, with guaranteed products unchanged, would have to decrease to 3% as a result of a combination of declined net investment performance and net flows for any impairment to arise.

If the net management fee and net performance fee post-tax discount rates were increased by 1% to 11% and 18% respectively, it would result in modelled headroom decreasing by $25 million. If the discount rates were decreased by 1%, it would result in modelled headroom increasing by $25 million.

If the mid-point of the range of historical multiples for management and performance fees used to calculate the terminal value were increased by 1 to 14 times and 6.5 times respectively, it would result in modelled headroom increasing by around $118 million. If they were decreased by 1 to 12 times and 4.5 respectively, it would result in modelled headroom decreasing by around $119 million.

13. Other intangibles

		Year ended 31 December 2013			Year ended 31 December 2012
$m	Note	Placement fees	Capitalised computer software	Total	Placement fees	Capitalised computer software	Total
Cost:
At beginning of the year		81	108	189	639	115	754
Acquisition of business		-	-	-	-	-	-
Additions		3	-	3	29	4	33
Redemptions/disposals		(10)	(39)	(49)	(587)	(11)	(598)
At year end		74	69	143	81	108	189
Aggregate amortisation and impairment:
At beginning of the year		(49)	(95)	(144)	(482)	(85)	(567)
Impairment	2	-	-	-	(88)	-	(88)
Redemptions/disposals		5	40	45	577	10	587
Amortisation		(10)	(8)	(18)	(56)	(20)	(76)
At year end		(54)	(63)	(117)	(49)	(95)	(144)
Net book value at year end		20	6	26	32	13	45

Placement fees

Placement fees are paid to distributors for selling fund products. The majority of placement fees paid are capitalised as intangible assets which represent the contractual right to benefit from future income from providing investment management services. The amortisation period is based on management's estimate of the weighted average period over which Man expects to earn economic benefit from the investor in each product, estimated to be five years on a straight-line basis.

If an investor redeems their investment in a fund product, the corresponding unamortised placement fee is written off. The placement fees intangible is also subject to impairment testing semi-annually to ensure that the future economic benefit arising from each fund product is in excess of the remaining unamortised balance. Amortisation expense, amounts written off, and any impairment losses, are included in distribution costs in the Group income statement.

During the prior year $88 million of external and internal capitalised placement fees were impaired.

The weighted average remaining period of the unamortised placement fees at 31 December 2013 is 2.6 years (31 December 2012: 2.9 years).

From a capital management perspective capital is held against the unamortised balance of placement fees based on an evaluation of the risk of an accelerated amortisation or impairment charge relating to poor investment performance or early redemptions. From a regulatory capital perspective placement fees are an intangible asset and are required to be supported by Tier 1 regulatory capital.

Capitalised computer software

Costs that are directly associated with the procurement or development of identifiable and unique software products, which will generate economic benefits exceeding costs beyond one year, are recognised as capitalised computer software. Capitalised computer software is amortised on a straight-line basis over its estimated useful life (three years) and is subject to regular impairment reviews. Amortisation of capitalised computer software is included in Other costs in the Group income statement.

14. Cash, liquidity and borrowings

Liquidity and borrowings

Total liquidity resources aggregated to $2,517 million at 31 December 2013 (2012: $3,525 million) and comprised cash and cash equivalents of $992 million (2012: $2,000 million) and the undrawn committed revolving credit facility of $1,525 million (2012: $1,525 million). Cash and cash equivalents at year end comprises $291 million (2012: $268 million) of cash at bank on hand, $nil of treasury bills (2012: $1,153 million), and $701 million (2012: $579 million) in short-term deposits, net of overdrafts of nil (2012: nil). Cash ring-fenced for regulated entities totalled $16 million (2012: $303 million).

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

Cash is invested in accordance with strict limits consistent with the Board's risk appetite, which consider both the security and availability of liquidity. Accordingly, cash is invested in short-term US Treasury bills and is held in short-term bank deposits and on-demand deposit bank accounts. At 31 December 2013, $nil was invested in short-dated US Treasury bills (2012: $1,153 million) and $992 million was cash balances with 24 banks (2012: $847 million with 30 banks). The reduction in cash invested in US Treasury bills was a result of the uncertainties surrounding the fiscal debate in the US. The single largest counterparty bank exposure of $136 million was held with an AA- rated bank (2012: $183 million with an A+ rated bank). Balances with banks in the AA ratings band aggregated to $472 million (2012: $134 million). Balances with banks in the A ratings band aggregated to $520 million (2012: $713 million).

As shown in the following tables, Man repaid all of its outstanding borrowings and the perpetual subordinated capital securities during the year.

31 December 2013 ($m)	Total	Less than 1 year	2 years	3 years	Greater than 3 years
Senior 2013 fixed rate bonds	-	-	-	-	-
Senior 2015 fixed rate € bonds	-	-	-	-	-
Tier 2 subordinated 2015 floating rate notes	-	-	-	-	-
Tier 2 subordinated 2017 fixed rate bonds	-	-	-	-	-
Borrowings	-	-	-	-	-
Tier 1 perpetual subordinated capital securities	-	-	-	-	-

Cash and cash equivalents	992	-	-	-	-
Undrawn committed revolving credit facility	1,525	-	70	120	1,335
Total liquidity	2,517	-	70	120	1,335
31 December 2012 ($m)	Total	Less than 1 year	2 years	3 years	Greater than 3 years
Senior 2013 fixed rate bonds	173	173	-	-	-
Senior 2015 fixed rate € bonds	285	-	-	285	-
Tier 2 subordinated 2015 floating rate notes	170	-	-	170	-
Tier 2 subordinated 2017 fixed rate bonds	231	-	-	-	231
Borrowings	859	173	-	455	231
Tier 1 perpetual subordinated capital securities	300	-	-	-	300

Cash and cash equivalents	2,000	-	-	-	-
Undrawn committed revolving credit facility	1,525	-	-	-	1,525
Total liquidity	3,525	-	-	-	1,525

To maintain maximum flexibility, the revolving credit facility does not include financial covenants.

Borrowings are initially recorded at fair value net of transaction costs incurred, and are subsequently measured at amortised cost. The difference between the amount repayable at maturity on the borrowings and the carrying value is amortised over the period up to the expected maturity of the associated debt in accordance with the effective interest rate method. At 31 December 2013, the fair value of borrowings was nil (2012: $826 million).

On 7 May 2013, the €216 million ($285 million) senior 2015 fixed rate bonds were repurchased at a premium of $23 million. This premium, along with an accelerated unwind of issue costs and fees of $2 million, has been included in finance expense for the period.

The $231 million Tier 2 subordinated 2017 fixed rate bonds were repurchased at a premium of $3 million on 14 June 2013. There were no fees payable on the repurchase of the $170 million Tier 2 subordinated 2015 floating rate notes, which took place on 24 June 2013.

On 1 August 2013, the $173 million senior 2013 fixed rate bonds were redeemed at par value. On 7 August 2013, the $300 million Tier 1 perpetual capital securities were redeemed at par value.

The committed revolving credit facility of $1,525 million was put in place during July 2011 as a five year facility and includes the option for Man to ask the banks to extend the maturity date by a year on each of the first and second anniversaries. The participant banks have the option to accept or decline Man's request. Before the second anniversary in July 2013 the banks were asked to extend the maturity date of the facility by a further year. Banks with participations totalling $1,335 million accepted the request and as a result $70 million of the facility is currently scheduled to mature in July 2016, $120 million in July 2017, and $1,335 million in July 2018.

Foreign exchange and interest rate risk

Man is subject to risk from changes in interest rates or foreign exchange rates on monetary assets and liabilities. A 10% strengthening/weakening of the US dollar against all other currencies, with all other variables held constant, would have resulted in a foreign exchange loss/gain of $2 million (2012: $8 million loss/gain), with a corresponding impact on equity. In respect of Man's monetary assets and liabilities which earn/incur interest indexed to floating rates, as at 31 December 2013, a 50bp increase/decrease in interest rates, with all other variables held constant, would have resulted in a $3 million increase or a $1 million decrease (2012: $4 million increase or $1 million decrease) in net interest income.

15. Investments in fund products and other investments

		31 December 2013
$m	Financial assets at fair value through profit or loss		Available-for- sale financial assets	Loans and receivables	Total investments in fund products and other investments	Net non-current assets held for sale	Total investments
Investments in fund products comprise:
Loans to fund products	-		-	99	99	-	99
Other investments in fund products	167		1	-	168	50	218
Other investments	-		6	-	6	-	6
	167		7	99	273	50	323

	31 December 2012
$m	Financial assets at fair value through profit or loss	Available-for- sale financial assets	Loans and receivables	Total investments in fund products and other investments	Net non-current assets held for sale	Total investments
Investments in fund products comprise:
Loans to fund products	-	-	274	274	-	274
Other investments in fund products	212	1	-	213	-	213
Other investments	-	9	-	9	-	9
	212	10	274	496	-	496

15.1. Loans to fund products

Loans to fund products are short-term advances primarily to Man guaranteed products, which are made to assist with the financing of the leverage associated with the structured products. The loans are repayable on demand and are carried at amortised cost using the effective interest rate method. The average balance during the year was $238 million (2012: $332 million). Loans to fund products have decreased compared to the prior year as the guaranteed product FUM has decreased together with the associated leveraging. The liquidity requirements of the guaranteed products together with commitments to provide financial support which give rise to loans to funds are subject to our routine liquidity stress testing and any liquidity requirements are met by available cash resources, or the committed revolving credit facility.

Loans to fund products expose Man to credit risk and therefore the credit decision making process is subject to limits consistent with the Board's risk appetite. The carrying value represents Man's maximum exposure to this credit risk. Loans are closely monitored against the assets held in the funds. The largest single loan to a fund product was $12 million (2012: $21 million). Fund entities are not externally rated, but our internal modelling indicates that fund products have a probability of default that is equivalent to a credit rating of A.

15.2. Other investments in fund products

Man uses capital to invest in our fund products as part of our on-going business to build our product breadth and to trial investment research developments before we market the products to investors. These investments are generally held for less than one year. Where due to the level of investment Man is deemed not to control the fund, these are classified as other investments in fund products. Other investments in fund products are classified primarily at fair value through profit or loss, with movements in fair value being recognised through 'gains/(losses) on investments and other financial instruments'. Purchases and sales of investments are recognised on trade date.

Other investments in fund products are not actively traded and the valuation at the fund level cannot be determined by reference to other available prices. The fair values of investments in fund products are derived from the reported net asset values (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 timings of being able to redeem the fund product. The valuation of the underlying assets within each fund product is determined by external valuation service providers (VSPs) 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 net asset values reported by the VSPs are reliable and appropriate. Man makes adjustments to NAVs where the timing of being able to redeem the fund product or events or circumstances indicate that the NAVs are not reflective of fair value.

Other investments in fund products expose Man to market risk and therefore the commitment process is subject to limits consistent with the Board's risk appetite. The largest single investment in fund products was $50 million (2012: $46 million). The market risk from other investments in fund products and other investments is modelled using a value at risk (VaR) methodology using a 95% confidence interval and 1 month time horizon. The VaR is estimated to be $7 million at 31 December 2013 (2012: $6 million).

The total net gain on investments in fund products reported in the Group income statement was $28 million (2012: $23 million).

Fund investment for deferred compensation arrangements

At year end, investment in fund products included $61 million (2012: $51 million) of Man and GLG fund products related to deferred compensation arrangements. Employees are subject to mandatory deferral arrangements and as part of these arrangements employees can elect deferral into a designated series of Man fund products. The changes in the fair value of the fund product awards are recognised over the relevant vesting period, which means the compensation expense changes based on the value of the designated fund products. The fund product investments are held to offset this change in compensation during the vesting period and at vesting the value of the fund investment is delivered to the employee. The fund product investments are recorded at fair value with any unrealised gain/loss during the vesting period charged to gains/(losses) on investments and other financial instruments in the Group income statement.

15.3. Other investments

Sale of Lehman claims

In the prior year, on 16 November 2012, the Group entered into a series of transactions with Hutchinson Investors LLC, managed by the Baupost Group, to sell the residual exposure to the Lehman estates (Lehman claims) that it acquired in July 2011 from certain GLG managed funds.

The total consideration for the transactions was $456 million, and resulted in a gain on sale of $131 million (Note 2). A further $5 million was then received in 2013 as overall recoveries by the buyer exceeded certain thresholds.

Man provided guarantees of up to $75 million to the funds for prompt payment by the Baupost Group of amounts owed to the funds in the event of a successful claim.

15.4. Non-current assets held for sale

Seed capital invested into funds may at times be significant, and therefore the fund may be deemed to be controlled by the Group. Where the Group acquired the controlling stake exclusively with a view to subsequent disposal through sale or dilution and it is considered highly probable that it will relinquish control within a year, the investment in the controlled fund is classified as held for sale. The seeded fund is recognised in the Group balance sheet as non-current assets and liabilities held for sale, with the interests of any other parties included within non-current liabilities held for sale. The non-current liabilities held for sale in 2013 relate to derivatives, which are offset against the assets in the fund. 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 were as follows:

$m	31 December 2013	31 December 2012
Non-current assets held for sale	56	-
Non-current liabilities held for sale	(6)	-
Investments in fund products held for sale	50	-

Investments held for sale cease to be classified as held for sale when the fund is no longer controlled by the Group, at which time they are classified as financial assets at fair value through profit or loss (Note 15.2). Loss of control may eventuate through sale of the investment or a dilution in the Group's holding.

If a held for sale fund remains under the control of the Group for more than one year, and it is unlikely that the Group will reduce or no longer control its investment in the short-term, it will cease to be classified as held for sale and will be consolidated on a line-by-line basis.

16. Fee and other receivables

$m	31 December 2013	31 December 2012
Fee receivables	62	65
Prepayments and accrued income	200	179
Derivative financial instruments	20	14
Other receivables	106	124
	388	382

Fee and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. Fee receivables and accrued income represent management and performance fees from fund products and are received in cash when the funds' NAV is determined. All fees are deducted from the NAV of the respective funds by the independent administrators and therefore the credit risk of fee receivables is minimal. No balances were overdue or delinquent at year end.

For the Open Ended Investment Collective (OEIC) Funds businesses, Man acts as the intermediary for the collection of subscriptions due from customers and payable to the funds, and for redemption requests receivable from funds and payable to customers. At 31 December 2013 the amount included in other receivables is $27 million (2012: $29 million). The unsettled fund payable is recorded in trade and other payables.

In limited circumstances, the Group uses derivative financial instruments to hedge its risk associated with foreign exchange movements. Derivative financial instruments, which consist primarily of foreign exchange contracts, are measured at fair value through profit or loss. The notional value of the derivative financial assets was $265 million (2012: $599 million). All derivatives are held with external banks with ratings of A or higher and mature within one year. During the year, there were $18 million net realised and unrealised gains arising from derivatives (2012: $18 million net gains). At the year end, $18 million (2012: $28 million) of fee and other receivables are expected to be settled after 12 months.

17. Trade and other payables

$m	31 December 2013	31 December 2012
Accruals	355	345
Trade payables	54	48
Provisions	73	59
Contingent consideration	44	60
Derivative financial instruments	1	2
Pension liability	-	4
Other payables	198	139
	725	657

Accruals primarily relate to compensation accruals. Trade payables primarily relate to GLG's OEIC business. Provisions primarily relate to onerous property leases and potential legal claims. Contingent consideration relates to the amounts payable in respect of the FRM acquisition. Other payables include servicing fees payable to distributors and redemption proceeds due to investors.

Payables are initially recorded at fair value and subsequently measured at amortised cost. Included in trade and other payables at 31 December 2013 are balances of $95 million (2012: $93 million) that are expected to be settled after more than 12 months. Man's policy is to meet its contractual commitments and pay suppliers according to agreed terms.

Derivative financial instruments, which consist primarily of foreign exchange contracts, are measured at fair value through profit or loss. The notional value of the derivative financial liabilities was $412 million (2012: $267 million). All derivative contracts mature within one year.

The pension liability has changed to a pension asset in 2013, as shown in the Group balance sheet, as a result of contributions made during the year.

18. Investments in associates

$m	Year ended 31 December 2013	Year ended 31 December 2012
At beginning of the year	38	41
Additions	2	-
Share of post-tax profit	12	10
Dividends received	(11)	(13)
Disposals	(10)	-
At year end	31	38

The carrying value of investments in associates primarily relates to the Group's interest in Nephila Capital Limited, an alternative investment manager specialising in the management in funds which underwrite natural catastrophe reinsurance and invest in insurance-linked securities and weather derivatives. In January 2013, Man reduced its holding in Nephila from 25% to 18.75%, realising a gain on disposal of $10 million, which is included as an adjusting item (Note 2).

Additions of $2 million in the year relate to the acquisition of a 20% holding in OFI MGA (a French asset manager).

Associates are entities in which Man holds an interest and over which it has significant influence but not control. Investments in associates are accounted for using the equity method 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 interest in the entities. At each reporting date it is determined whether there is any objective evidence that an investment in the associate is impaired. Impairment is calculated as the difference between the recoverable amount of the associate and its carrying value and expensed in the Group income statement.

Where Man has investments in certain fund entities over which it is able to exert significant influence but not control, these are classified as associates. Man has applied the scope exclusion within IAS 28 'Investments in Associates' for mutual funds, unit trusts and similar entities and has classified such holdings as investments and measured them at fair value through profit or loss (Note 15).

Details of associates will be annexed in the Company's annual return.

19. Leasehold improvements and equipment

	Year ended 31 December 2013			Year ended 31 December 2012
$m	Leasehold improvements	Equipment	Total	Leasehold improvements	Equipment	Total
Cost
At beginning of the year	124	116	240	149	105	254
Acquisition of business	-	-	-	-	1	1
Additions	1	1	2	19	1	20
Disposals	(2)	(7)	(9)	(9)	(26)	(35)
Reclassifications	(4)	4	-	(35)	35	-
At year end	119	114	233	124	116	240
Aggregate depreciation:
At beginning of the year	(31)	(59)	(90)	(25)	(56)	(81)
Charge for year	(11)	(28)	(39)	(14)	(29)	(43)
Accelerated depreciation	(38)	(5)	(43)	-	-	-
Disposals	2	5	7	8	26	34
At year end	(78)	(87)	(165)	(31)	(59)	(90)
Net book value at year end	41	27	68	93	57	150

All leasehold improvements and equipment are shown at cost, less depreciation and impairment. Cost includes the original purchase price of the asset and costs directly attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated using the straight-line method over the asset's estimated useful life, which for leasehold improvements is over the shorter of the life of the lease and the improvement and for equipment is between 3 and 10 years.

The accelerated depreciation of $43 million during the year relates to the assets no longer being used following the subletting of space in Riverbank House (our main London headquarters). In prior year, additions primarily relate to the fit-out of the New York office and reclassifications relate to the completion and capitalisation of Man's new data centre facility.

20. Deferred compensation arrangements

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

During the year, $70 million (2012: $101 million) was included in compensation and distribution costs for share-based payment and deferred fund product plans, split between equity-settled share-based payments of $35 million (2012: $74 million), cash-settled share-based payments totaling $1 million (2012: $4 million), and deferred fund product plans of $34 million (2012: $23 million).

21. Capital management

Investor confidence is an important element in the sustainability of our business. That confidence comes, in part, from the strength of our capital base. Man has maintained significant surplus capital and available liquidity throughout the recent periods of financial crisis. This capital has given Man flexibility to support our investors, intermediaries and financial partners and to allow them to make informed decisions regarding their investment exposures. This confidence gives our business credibility and sustainability.

We have a conservative capital and liquidity framework which allows us to invest in the growth of our business. We utilise capital to support the operation of the investment management process and the launch of new fund products. We view this as a competitive advantage which allows us to directly align our interests with those of investors and intermediaries.

Man monitors its capital requirements through continuous review of its regulatory and economic capital, including monthly reporting to the Finance Committee and the Board.

Share capital and capital reserves

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

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

Ordinary shares

Ordinary shares have a par value of 3³/7 US cents per share (2012: 3³/7 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 2013, no shares were repurchased during the year (2012: 3,332,756). As at 26 February 2014, Man had an unexpired authority to purchase further shares up to a maximum amount of 182,179,028 ordinary shares. A resolution to allow the purchase of 182,373,308 ordinary shares, representing 10% of the issued share capital, will be proposed at the forthcoming Annual General Meeting.

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 US dollars. These shares are necessary for the Company to continue to comply with Section 763 of the Companies Act 2006. The deferred sterling shares are freely transferable and have no rights to participate in the profits of the Company, to attend, speak or vote at any general meeting and no right to participate in any distribution in a winding up except for a return of the nominal value in certain limited circumstances.

New Group holding company in 2012

A new holding company was incorporated in the prior year, on 8 August 2012, and became the new listed holding company of the Man Group on 6 November 2012 via a Court approved scheme of arrangement under Part 26 of the Companies Act 2006. The former holding company was renamed Man Strategic Holdings plc and the new holding company assumed the name Man Group plc.

Under the scheme of arrangement, shares in the former holding company of the Group were cancelled. The same number of new ordinary shares were issued to the new holding company in consideration for the allotment to shareholders of one ordinary share of $1.07 in that new holding company for each ordinary share of 3³/7 US cents they had held in the former holding company.

On 8 November 2012, Man Group plc effected a reduction of its share capital to create distributable reserves, as sanctioned by the High Court of the United Kingdom. This capital reduction reduced the nominal value of ordinary shares in the new holding company from $1.07 to 3³/7 US cents.

Issued and fully paid share capital

	Year ended 31 December 2013
		Unlisted
		deferred
	Ordinary	sterling	Nominal
	shares	shares	value
	Number	Number	$m
At 1 January 2013	1,821,790,279	50,000	63
Issue of ordinary shares:
- GLG partnership plans	1,942,802	-	-
At 31 December 2013	1,823,733,081	50,000	63

	Year ended 31 December 2012
		Unlisted
		deferred
	Ordinary	sterling	A shares of	Nominal
	shares	shares	£1	value
	Number	Number	Number	$m
At 1 January 2012	1,820,814,143	50,000	-	63
Issue of ordinary shares:
- Employee share awards/options	165,512	-	-	-
- GLG partnership plans	3,012,545	-	-	-
- A share issued in relation to new Group holding company	-	-	1	-
- Purchase and cancellation of own shares	(3,332,756)	-	-	-
At 6 November 2012	1,820,659,444	50,000	1	63
Man Group plc (new holding company)

Relating to the formation of new holding company	2	50,000	-	-
Scheme of arrangement - issue of ordinary shares of $1.07 each	1,820,659,444	-	-	1,948
Capital reduction to ordinary shares of 3³/7 cents each	-	-	-	(1,885)
GLG Partnership Plans	1,130,833	-	-	-
At 31 December 2012	1,821,790,279	50,000	-	63

Share capital and reserves

		Perpetual
		subordinated	Share	Capital
	Share	capital	premium	redemption	Merger	Reorganisation
$m	capital	securities	account	reserve	reserve	reserve	Total
At 1 January 2013	63	-	1	-	491	632	1,187
Employee share awards/options	-	-	4	-	-	-	4
At 31 December 2013	63	-	5	-	491	632	1,191

At 1 January 2012	63	300	1,707	1,294	-	-	3,364
Employee share awards/options	-	-	8	-	-	-	8
Scheme of arrangement:
- Cancellation of shares in former holding company	(63)	-	(1,714)	(1,294)	-	-	(3,071)
- Issue of shares in new holding company	1,948	-	-	-	491	632	3,071
Capital reduction	(1,885)	-	-	-	-	-	(1,885)
Transfer to non-controlling interest	-	(300)	-	-	-	-	(300)
At 31 December 2012	63	-	1	-	491	632	1,187

Revaluation reserves and retained earnings

		Cash	Own shares
	Available-	flow	held by	Cumulative	Profit
	for-sale	hedge	Employee	translation	and loss
$m	reserve	reserve	Trusts	adjustment	account	Total
At 1 January 2013	3	6	(170)	14	1,654	1,507
Impact of adoption of IAS19 (Revised)¹	-	-	-	-	(84)	(84)
As restated	3	6	(170)	14	1,570	1,423
Currency translation difference	-	-	(4)	(11)	-	(15)
Share-based payments charge for the period	-	-	-	-	30	30
Purchase of own shares by the Employee Trusts	-	-	(18)	-	--	(18)
Disposal of own shares by the Employee Trusts	-	-	82	-	(82)	-
Corporation tax debited on cash flow hedge movements	-	(3)	-	-	-	(3)
Fair value (losses)/gains taken to equity	(1)	12	-	-	-	11
Revaluation of defined benefit pension scheme	-	-	-	-	16	16
Corporation tax debited to reserves - pension scheme	-	-	-	-	6	6
Deferred tax debited to reserves - pension scheme	-	-	-	-	(11)	(11)
Transfer to Group income statement	1	(1)	-	1	-	1
Dividends	-	-	-	-	(277)	(277)
Dividends with respect to perpetual subordinated capital securities	-	-	-	-	(25)	(25)
Taxation with respect to perpetual subordinated capital securities	-	-	-	-	6	6
Profit for the year	-	-	-	-	72	72
At 31 December 2013	3	14	(110)	4	1,305	1,216


			Own shares
	Available-	Cash flow	held by	Cumulative	Profit
	for-sale	hedge	Employee	translation	and loss
$m	reserve	reserve	Trusts	adjustment	account	Total
At 1 January 2012	4	-	(221)	43	870	696
Impact of adoption of IAS19 (Revised)¹	-	-	-	-	(71)	(71)
As restated	4	-	(221)	43	799	625
Currency translation difference	-	-	(10)	13	-	3
Movement in close period buyback obligations	-	-	-	-	10	10
Repurchase of own shares	-	-	-	-	(7)	(7)
Share-based payments charge for the period	-	-	-	-	66	66
Purchase of own shares by the Employee Trusts	-	-	-	-	(1)	(1)
Disposal of own shares by the Employee Trusts	-	-	61	-	(61)	-
Fair value gains taken to equity	18	16	-	-	-	34
Revaluation of defined benefit pension scheme	-	-	-	-	(13)	(13)
Deferred tax credited to reserves - pension scheme	-	-	-	-	3	3
Corporation tax debited to reserves	-	(1)	-	-	-	(1)
Transfer to Group income statement	(19)	(9)	-	(42)	-	(70)
Scheme of arrangement - capital reduction	-	-	-	-	1,885	1,885
Dividends	-	-	-	-	(299)	(299)
Dividends with respect to perpetual subordinated capital securities	-	-	-	-	(33)	(33)
Taxation with respect to perpetual subordinated capital securities	-	-	-	-	8	8
Loss for the year	-	-	-	-	(787)	(787)
At 31 December 2012	3	6	(170)	14	1,570	1,423