Final Results

Man Group plc 26 May 2005 26 May 2005 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2005 FINANCIAL HIGHLIGHTS • Fund sales in the year of $12.1 billion, including institutional sales of $5.8 billion • Funds under management of $43.0 billion at 31 March 2005 (including institutional FUM of $17.7 billion), up 12% from last year • Net management fee income+ up 34% to $614 million • Brokerage profits+ up 21% to $145 million • Diluted underlying earnings per share+* up 28% to 181 cents • Net performance fee income down 50% to $119 million • Profit before tax on total operations up 10% to $784 million • Diluted earnings per share on total operations* up 8% to 182 cents • Dividends up 30% in US dollar terms to 66.0 cents • Since the year-end: - Man AP Enhanced Series 2 Ltd closed in April having raised $438 million of investor money - Funds under management currently estimated to be over $43.0 billion March March 2005 2004 ---------- ----------- Funds under management $43.0bn $38.5bn ---------------------------------- ---------- ----------- Asset Management net management fee income+ $614m $459m Asset Management net performance fee income+ $119m $236m Brokerage+ $145m $120m ---------- ----------- Financial Services+ $878m $815m Sugar Australia> $2m $6m ---------- ----------- Profit before tax, goodwill amortisation and exceptional items $880m $821m Goodwill amortisation and exceptional items# ($96m) ($106m) ---------- ----------- Profit before tax# $784m $715m ---------------------------------- ---------- ----------- Diluted earnings per share * Underlying++ 181c 141c Total operations# 182c 168c Total operations before goodwill amortisation and 209c 198c exceptional items ---------------------------------- ---------- ----------- Dividends per share^ 66.0c 50.8c ---------------------------------- ---------- ----------- Post-tax return on equity# 26.8% 32.5% ---------------------------------- ---------- ----------- Equity shareholders' funds# $2,424m $2,048m ---------------------------------- ---------- ----------- + Before goodwill amortisation and exceptional items ++ Underlying earnings per share represents earnings from net management fee income in Asset Management plus Brokerage net income. It therefore excludes net performance fee income in Asset Management, the results of Sugar Australia, goodwill amortisation and exceptional items. # In accordance with UITF 38, which has been adopted in 2005, the comparative figures have been restated as a result of derecognising the exceptional profit on sale of own shares held by the ESOP trusts. A further requirement of UITF 38 is to present any holding of own shares as a deduction from shareholders' funds, hence both fixed asset investments and shareholders' funds have been restated. Details of the full effect of the restatements are given in notes 1 and 13. > Sugar Australia is discussed below * A reconciliation of earnings per share is shown in note 8 ^ Following the redenomination of ordinary share capital into US dollars, dividends will be declared in US dollars. Therefore, the US dollar equivalents of the dividends declared in sterling in the prior year have been disclosed Stanley Fink, Chief Executive said: 'These results demonstrate the broad appeal of Man Group's products and services. Net management fees are up 34%* and Brokerage income is up 21%*, resulting in underlying earnings per share up 28%**. Underpinning the continued growth of the business, the Asset Management division had record sales of $12.1 billion and the Brokerage division continued to benefit from its diversified presence across its key markets. Since the year-end we have made continued progress in sales, with our latest Global launch raising $438 million of investor assets. With Asset Management and Brokerage both well placed for further growth, the Board is confident of the Group's prospects for the coming year.' * Before goodwill amortisation and exceptional items **Underlying earnings per share represents earnings from net management fee income in Asset Management plus Brokerage net income. It therefore excludes net performance fee income in Asset Management, the results of Sugar Australia, goodwill amortisation and exceptional items. DIAL-IN TO ANALYSTS' PRESENTATION AT 9AM The dial-in numbers are as follows: UK dial-in number 020 8996 3920 US dial-in number 888 339 2688 UK / US pass code C210497 There will be a playback facility until 6pm on Tuesday 31st May. UK replay number 01296 618 700 UK pass code 705664 US replay number 888 286 8010 US passcode 95709406 INTERVIEWS Interviews with Stanley Fink, Chief Executive and Peter Clarke, Finance Director, are available in video, audio and text on www.mangroupplc.com and www.cantos.com. Enquiries Man Group plc 020 7144 1000 Stanley Fink Peter Clarke David Browne Merlin 020 7653 6220 Paul Downes 07900 244888 Paul Lockstone 07876 685200 Vanessa Maydon 07802 961902 Lachlan Johnston 07989 304356 ABOUT MAN Man Group is a leading global provider of alternative investment products and solutions as well as one of the world's largest futures brokers. The Group employs over 3,000 people in 15 countries, with key centres in London, Pfaeffikon (Switzerland), Chicago, New York, Paris, Singapore and Sydney. Man Group plc is listed on the London Stock Exchange (EMG.L) and is a constituent of the FTSE 100 Index. Man Investments, the Asset Management division, is a global leader in the fast growing alternative investments industry. It provides access for private and institutional investors worldwide to hedge fund and other alternative investment strategies through a range of products and solutions designed to deliver absolute returns with a low correlation to equity and bond market benchmarks. Man Investments has a twenty year track record in this field, supported by strong product development and structuring skills, and an extensive investor service and global distribution network. Man Financial, the Brokerage division, is one of the world's leading providers of brokerage services. It acts as a broker of futures, options and other equity derivatives for both institutional and private clients and as an intermediary in the world's metals, energy and foreign exchange markets with offices in key financial centres. Man has consistently achieved a leading position on the world's largest futures and options exchanges, with particular strengths in interest rate products, metals and the energy markets. Note: High resolution images are available for the media to view and download free of charge from www.vismedia.co.uk OVERVIEW Man Group's performance has been robust, with strong growth in both management fee income and in our brokerage business. Funds under management at the year-end were $43.0 billion, up from $38.5 billion at March 2004, reflecting modestly positive investment movement, record gross sales, a low level of redemptions and the maturity of a fixed term institutional mandate. Net management fee income was up 34% and, in combination with a strong year for Brokerage, resulted in diluted underlying earnings per share, a measure which excludes performance related income, Sugar Australia, goodwill amortisation and exceptional items, increasing 28% to 181 cents. Diluted earnings per share on total operations was 182 cents, up 8% on the prior year and leading to a 26.8% post-tax return on equity. OUTLOOK The Board is confident of the Group's prospects for the coming year. We are seeing improved private investor demand feeding through into product sales, with the global offering Man AP Enhanced Series 2, which closed in April, raising $438 million of investor money, and a good level of activity in the forward pipeline. Funds under management are currently estimated to be over $43.0 billion. The brokerage business has also enjoyed a good start to the year. DIVIDEND This year's results have clearly met our key financial targets, being the delivery of significant growth in underlying earnings and the maintenance of a high return on equity. Net cash inflow for the year was $408 million, driven off strong cash generation from net operating profits. Accordingly, and given our strong financial condition, the Board proposes a final dividend of 42.0 cents per share, for a total dividend for the year of 66.0 cents, an increase of 30%. This year's dividend is covered 2.7 times by both underlying earnings and total earnings. Subject to shareholders' approval at the Annual General Meeting to be held on 12 July 2005, the final dividend will be paid on 19 July 2005 in sterling at the rate of 22.96 pence per share to shareholders on the register at the close of business on 1 July 2005. The shares will be quoted ex-dividend from 29 June 2005. The Dividend Reinvestment Plan will be available in respect of this dividend. The Group also earns substantial performance fees in addition to underlying earnings, and it remains the Board's long-term strategy to use an amount of up to the Group's post-tax performance fee income in the repurchase of its own shares where to do so is earnings enhancing to shareholders. This share repurchasing will take place in the market on a continuing basis from year-to-year rather than being confined within the accounting periods during which performance fees are earned. RETIREMENT OF NON EXECUTIVE DIRECTOR Stephen Nesbitt wishes to retire from the Board and so will not be seeking re-appointment when he retires by rotation at the forthcoming Annual General Meeting to be held on 12 July 2005. OPERATING REVIEW ASSET MANAGEMENT Sales and distribution Sales in the year were a record $12.1 billion. These were spread across 44 new products and split $6.3 billion and $5.8 billion between private investor and institutional sales respectively. Traditionally our key private investor markets have been Western Europe (excluding the UK) and Asia Pacific (including Australia and New Zealand) and sales this year have broadly continued to reflect this mix. Institutional sales were predominantly in Europe as in previous years. For private investor demand, Asia Pacific was strong, most particularly Japan. Japan has been an active region for many asset management styles and we have seen particularly strong demand from Japanese private investors for our alternative investment products, reflecting their low exposure to this asset class. We expect demand in the current year to remain strong in this region. The South East Asian market tends to be performance focused, especially Hong Kong, and we expect demand in this region to pick up with improving performance. In Continental Europe we saw some slow-down in asset raising from private investors, in particular Switzerland, and this was true for the whole alternative industry. This appears to reflect the fact that private investors in this region are typically already well allocated to alternatives. In North America, we continue to support the objective of structuring attractive products within the US onshore regulatory framework and building a distribution network to address a mass-affluent investor market. The onshore market in registered products has been slow to develop, but the range of opportunities to support both private and institutional investors remains attractive. Private investor. Private investor funds under management represent around 59% of Man's total funds under management. Our focus is on the mass affluent investor, who might typically have financial investments in the range of $1million to $5 million and who typically invests an average of $150,000 in a product. Private investor sales can be split into three categories: global launches, joint ventures and open-ended products. The increase in funds under management in the year from four global launches was $2.5 billion, down from $3.3 billion in the prior year, partly because of lacklustre short-term performance of our funds and partly because of continued strong sales of our joint venture or 'white label' business which were up 14% at $2.4 billion. These customised products are designed with another financial institution, typically a bank, to meet the specific requirements for distribution to their investors. These are an attractive complement to our global launches - both for our investors as these launches tend to be tailored to local requirements, and to Man as they are less resource intensive. Particularly noteworthy were two large joint ventures in Japan which raised a total of $1.1 billion. Open-ended sales accounted for $1.4 billion, down from $2.4 billion in the prior year. These represent sales of products which are continuously open for investment. Products include Man AHL Diversified plc, which offers weekly liquidity to investors, Man Arbitrage Strategies and Man-Glenwood Multi-Strategy Fund. These continue to be offered to investors globally and are complemented by products focused on particular markets. For example, during the year we launched Man Hedge Diversified Ltd, our first authorised retail hedge fund since the SFC introduced new guidelines for hedge funds in Hong Kong in 2002. We currently have active relationships with over 1,850 distribution partners in 100 countries. This network of professional intermediaries includes banks, asset managers, independent financial advisers and other professionals and is constantly being reviewed and expanded. Asset managers and banks together represent nearly 60% by value of our private investor sales. These intermediaries have been increasingly keen to offer high quality alternative investment products to their clients from independent providers. These intermediaries offer Man the most efficient means of raising assets given their large client bases and sophisticated portfolio and investment skills. Institutional. Fund of funds sales to institutions were a record $5.8 billion, up 57% from the prior year with RMF being our principal manager for institutional sales. Institutional investors often prefer to allocate to fund of funds managers who can offer access to a wide range of alternative investment styles combined with investing in a large number of underlying managers. In this way an institution can achieve diversification of returns with low volatility and correlation and allocate significant assets. Sales were assisted by a one-off opportunity to utilise capacity freed up from a legacy product at RMF that matured earlier in the year. Sales related to this recycling totalled some $2.4 billion, of which $1.8 billion was recycled to new investors at superior fee margins compared to the legacy product. Overall growth in sales was largely from the ongoing structural shift by institutions looking to develop exposure to the alternative asset class. Our net management fee margins on institutional assets under management increased from 50 basis points in 2003 to 70 basis points in 2005. This reflects the fact that we have recycled some maturing lower fee products sold historically by RMF and have attracted new assets at higher fees. Most of this margin opportunity has now been captured and we anticipate current net management fee margin on institutional assets to remain stable in the near-term. Institutional sales are often the result of direct relationships with the investing institution, in some cases working with consultants. The majority of sales continue to be made in Europe, with the largest markets being RMF's historically core German speaking countries. However, we continue to focus on broadening this client base across Europe, winning mandates in new areas such as Scandinavia, the UK and The Netherlands. Outside Europe, as interest in these products continues to develop, other strategic areas for institutional sales include Asia Pacific, particularly Japan, and the Middle East. To take advantage of this growth in the institutional market, we have recently appointed a new global head of institutional sales. Redemptions and maturities. Redemption levels in private investor products in the year at 10% continued the downward trend in redemptions that we have seen over recent years. Redemptions are influenced by a number of factors that include the geography of the investor, the investment holding period and performance. Man's structured products are sold for their long-term investment potential and, whilst we do offer frequent liquidity, we seek to discourage early redemptions. Many of our products carry a redemption fee in the event of early termination and we incentivise investors to retain their investment by having guarantee step-ups in many of our products. These allow investors to capture in the product guarantee a proportion of positive investment performance. We also typically pay intermediaries a component of sales fee based on annual payments for so long as an investor remains a holder of our products. This is designed to discourage intermediaries from inappropriate rapid turning of client assets, reinforce the long-term nature of the investment proposition and facilitate high levels of investor servicing. Of the total redemptions in the year of $4.3 billion, institutional redemptions totalled some $2.0 billion. Outflows in RMF amounted to $1.8 billion and Glenwood redemptions were $0.2 billion. Maturities of $3.2 billion almost entirely relate to a series of agreements that RMF had with a major institution that reached their scheduled maturity at the end of June 2004. These related to fixed-term agreements that RMF had entered into prior to its acquisition by Man. We have been selling private investor structured products for many years, most of these assets being raised in closed-ended products with long maturities. Accordingly, only a small proportion of total funds under management are currently within funds that will be maturing over the next five years. Private Investor Funds maturing over next 5 years Year ended Funds under management 31 March at 31 March 2005 $m 2006 337 2007 48 2008 568 2009 1,000 2010 692 Product structuring We have focused on our product structuring skills for many years and invested in people and systems to maintain a leading market position. Our product structuring business unit numbers over 150 employees in five locations with most of the staff in either Switzerland or London. For the private investor, our structured products have been most in demand, and these products currently account for 62% of our private investor funds under management. The remaining 38% of private investor assets are held in open-ended products. The bulk of our structured offerings provide principal protection in the form of capital guarantees, with a fixed life to maturity, monthly liquidity and increased investment exposure. Guarantees are provided by third party banks and financial institutions and are valid only at the date of the maturity of the fund. Man has gradually increased the life of recent fund products from over nine years in 2000 to the most recent launches which have maturities of over 12 years. The weighted average remaining life to maturity of these guaranteed products, taking into account redemptions to date and investment performance, was around 9 years at the end of March 2005. Given the historic low levels of redemptions, there is considerable forward earnings value to be derived from Man's existing portfolio of structured products. We innovate around our principal protection structures to meet investor needs. Features include variable capital guarantees, which make provision for profits to be locked-in to maturity; liquidity enhancements; and specialist solutions for particular markets, both in terms of product characteristics (for example, variable coupons and capital protection levels) and in terms of structuring features, often working with other financial institutions to 'wrap' products to suit investor needs. During the year we completed an arrangement with Credit Suisse First Boston whereby they will provide liquidity by offering secondary market making services to buyers and sellers of a range of our products. This market making initiative allows investors in these products daily liquidity for their investments. Structuring advances and sophisticated financing arrangements enable us to offer products with increasingly diversified underlying strategies even if they are cash intensive. Our approach to creating and managing principal protected structures continues to be guided by the requirement that every portfolio should be able to withstand market shocks and maintain the trading capital required to achieve its target performance. Investment management Man has a deliberate focus on quantitative strategies and those styles that have a low correlation to traditional markets. As a result, Man has a much higher than industry average weighting to managed futures (principally through AHL), which accounts for around one third of our assets, and a lower weighting to equity long/short. The performance of Man's funds overall has been lacklustre in the year, in line with the alternative investments industry as a whole and the managed futures subset in particular. Man is overweight the managed futures sector, both through AHL, its largest single manager, and through RMF which allocates to a large number of third party managers. As a result, RMF slightly underperformed the HFR Fund of Funds Index and the structured products, represented by Man Global Strategies, showed a small negative return. Although AHL recorded a -5.4% return for the year to March 2005, this was in line with its peers, as shown by the Stark 300 Index which returned -5.9%. AHL's long- term track record remains well ahead of the index, showing a compounded annual growth rate of 17.8% since December 1990 (the date of inception of Athena Guaranteed Futures Ltd) compared to the Stark 300 index which showed 7.6%. We continue to believe that managed futures offer an attractive style component of products and that our funds are well-placed to continue to provide attractive returns to our investors over the long-term. Glenwood seeks to provide investment returns with low risk and little correlation to the returns from the stock market overall. This results in a portfolio that has a higher than industry average allocation to highly-hedged equity long/short strategies and relative value strategies, and which tends to avoid those areas which carry more market risk. In years, such as last year, where a combination of low volatilty and tighter pricing reduced the opportunity of profitable trades in those areas, Glenwood will underperform relative to the industry overall which has a higher risk tolerance both in absolute terms and relative to the equity market. The overall investment movement on Man's funds under management during the year was $0.1 billion positive. 1 year to 3 years to 5 years to 31-Mar-05 31-Mar-05 31-Mar-05 AHL Diversified Programme+ -5.4% 13.8% 13.9% Glenwood= 0.6% 1.4% 3.5% Man Global Strategies3 -2.7% 8.5% 9.5%* RMF# 3.0% 7.2% 7.1% BlueCrest^ 6.9% 9.2% 14.6%^ HFRI Fund of Funds Composite Index 4.6% 6.4% 4.0% World stocks 1.1% 6.9% -2.5% World bonds 5.5% 14.5% 8.2% Source: Man database and Bloomberg. There is no guarantee of trading performance and past performance is not necessarily a guide to future results. +AHL Diversified: represented by Athena Guaranteed Futures Limited. =Glenwood: represented by Man-Glenwood Multi-Strategy Fund Limited. *Man Global Strategies: represented by Man Multi-Strategy Guaranteed Limited. Inception July 2000 so five year track record is approximated by 4 years 8 months since inception. #RMF: represented by RMF Absolute Return Strategies I fund (dividends re-invested). ^BlueCrest: represented by BlueCrest Capital International Limited. Inception November 2000 so five year track record is approximated by 4 years 4 months since inception Note: All figures are shown net of fees and commissions, where applicable. World stocks: MSCI World Stock Index (total return). World bonds: Citigroup Global Government Bond Index - All Maturities (total return) BROKERAGE Man Financial has achieved a record profit before tax and goodwill amortisation of $145 million, an increase of 21% over the previous year. In the financial year, all business areas performed well. We achieved outstanding returns in our Interest Rate Products business; from growth in the client base, successful recruitment of producers, and the continued development of the cash bond business in London and New York. These two offices, in addition to the strong franchises that we have in Chicago, Paris, Singapore and Sydney, have achieved leading positions in their markets. The results were achieved during a year that had intermittent periods of subdued market activity. Our Foreign Exchange business had another excellent year. We continued to expand our client base and service capabilities, as markets reached record volumes. The units in New York, London and Asia continued to bridge the cash and derivative markets for clients looking for seamless market access. The increase in electronic access to the foreign exchange markets expanded overall market volumes. Our Institutional Equities business continued to perform well, anchored by our leading position in equity derivatives, including the contract for differences ('CFD') product which is actively used by the fund management community. We have expanded this business to provide execution services in European shares for institutions looking to access market liquidity. Revenues have increased significantly and we are now doing business with 65% of the top 80 institutional buyers of European shares. The profitability of our Energy business increased substantially this year. The energy industry is also seeing a convergence in the cash and futures markets with some exchanges now providing a clearing mechanism for selected OTC products. This has provided us with the opportunity to expand our traditional focus on industry participants to include asset managers. Significant recruitment in both London and New York has given added strength and breadth to our team. The acquisition in April 2004 of our next largest competitor in NYMEX execution services significantly expanded our position there. We have repositioned the business from a clearing-driven activity to an execution-driven business while maintaining a strong share of the energy clearing market. Our Metals business showed very strong growth for the second year in a row. We have continually expanded our client base, market share and profits in recent years. We have an 8% share of this market and a global client base which has expanded by 14%. This year our efforts have been rewarded as the growing demand has generated significantly higher prices, volatility and volumes. Fund Clearing Services saw significant growth in profits as we expanded our client base. This area also provides clearing services to Man Investments for many of its activities in these markets. The asset management community is a primary focus for our clearing services. The overall growth of the asset management community and its increasing use of listed derivatives continues to provide opportunity for more growth in this business. Our Private Client business continued to expand its presence both in Europe and in the US. The mix of futures, equity derivatives and foreign exchange, and the continued roll-out of electronic platforms underpinned this expansion. Interest income increased with growing client balances and increasing interest rates. Our offering in these markets includes both an execution and clearing service in electronic or full service form. GNI Touch's e-commerce business for the professional trader community also had a strong year as electronic market volumes reached new records. Brokerage has been able to grow its business organically and integrate acquisitions effectively. This has resulted in a significant drop in the ratio of fixed costs to net revenues, from 75.1% to 72.5% in the last year. By successfully positioning itself as a technology integrator rather than a developer, and linking together industry standard products to provide straight through processing, we have grown without costly technology investment. The continued migration to electronic markets provides continuing opportunity for cost rationalisation. ADDITIONAL FINANCIAL INFORMATION Financial objectives The Board believes that long-term shareholder value will be achieved through continued delivery of significant growth in underlying earnings per share and the maintenance of high levels of post-tax return on equity. For this reason these two measures continue to be the basis for the Group's financial objectives and are also the performance criteria used for the Group's long-term incentive schemes. The Group has achieved these objectives in the current year, as it has in each year since they were set in March 2000. Diluted underlying earnings per share has grown by 28% over the last year and by 42% compound per annum over the last five years. Underlying earnings represent net management fee income from Asset Management plus Brokerage net income. This measure excludes the net performance fee income from Asset Management, Sugar Australia, goodwill amortisation and exceptional items (a full reconciliation of underlying earnings and underlying earnings per share to their corresponding statutory figures is shown in note 8 to the Accounts). Underlying earnings per share are lower than total earnings per share but we target the former measure when reviewing results because it does not include performance fee income which, although valuable to shareholders, introduces volatility when looking at year-on-year comparisons. Long-term it is appropriate for the Group to be judged on growth in diluted earnings per share on total operations, including performance fees (the statutory measure). This measure has grown by 27% compound per annum over the last five years, although because of the decrease in performance fees earned, it has grown to a lesser extent in the year, up 8% on last year. As well as seeking growth that is profitable and sustainable, our second financial objective is to target an efficient capital structure so as to maintain high levels of post-tax return on equity whilst retaining a strong Group balance sheet. The Group's post-tax return on equity for the year was 26.8%. This compares to 32.5% last year. The decrease results from a combination of a materially higher level of net assets this year, reflecting a high level of retained earnings, and a modest increase in total post-tax profits, with increased management fee income largely offset by a decrease in net performance fee income. Regulatory capital The Group is subject to minimum capital requirements set by various regulators of its worldwide businesses. The Financial Services Authority (FSA) supervises the Group on a consolidated basis and the Group submits returns to the FSA on its capital adequacy. Various subsidiaries within each of Brokerage and Asset Management are directly regulated by the FSA or supervisors in other countries, which set and monitor their capital adequacy. The Group currently has core Tier 1 capital, represented by fully paid up share capital, reserves (excluding revaluation reserves) and audited retained earnings, less intangible assets and other less significant deductions; Lower Tier 2 capital, represented by its subordinated debt; and Tier 3 capital, represented by the post-tax profit in Brokerage relating to the second half of the financial year. Group's regulatory capital position Unaudited Audited 31 March 2005 31 March 2004 $m $m ----------- ----------- Tier 1 capital* 1,200 728 Tier 2 capital 160 160 Tier 3 capital 60 58 ----------- ----------- Group Financial Resources 1,420 946 --------------------------- ----------- ----------- Less Financial Resources Requirement : ----------- ----------- • Asset Management (400) (339) • Brokerage (470) (368) --------------------------- ----------- ----------- Group Financial Resources Requirement (870) (707) Net excess of Group capital 550 239 --------------------------- ----------- ----------- * excludes retained profits for the second half of the financial year as these were unaudited as at 31 March. The increase in 2005 in the available Tier 1 capital of $470 million relates almost entirely to the increase in the Group's retained earnings. The increase in the Brokerage financial resources requirement largely relates to a change in the basis of calculation of the credit risk requirement by the regulators in the US; the requirement was based on 4% of segregated customer balances in 2004 but is now based on 8% of maintenance margin. As from 1 April 2005, the Group's regulatory capital position will be based on IFRS figures, but these will be subject to adjustments as set out by the FSA in its Policy Statement 05/5. An assessment of the impact of converting to IFRS will be contained in the Annual Report 2005. The main regulatory capital implication for the Group of converting to IFRS is the reclassification of unamortised sales commissions from prepayments to intangible assets. Adjusting for IFRS, and including the retained earnings for the second half of the financial year (effective from 26 May 2005 - the date of the auditors' report), the Group's regulatory capital headroom has decreased from $550 million to be in the region of $400 million. Summary of results Profit before tax on total operations was up 10% to $784 million. Excluding goodwill amortisation and exceptional items, pre-tax profits increased 7% in the year to $880 million. Underlying pre-tax profit increased 31% in the year to $759 million. The principal reason for the small increase in profit on total operations but the significant growth in underlying profits is the decrease in performance fees earned in the year. The Group's profit before tax, goodwill amortisation and exceptional items by business segment is set out in the table below: 2005 2004 $m $m ---------- ----------- Asset Management net management fee income 614 459 Asset Management net performance fee income 119 236 Brokerage 145 120 Sugar Australia 2 6 ---------- ----------- 880 821 ---------- ----------- Sugar Australia reflects the contribution from a former minority interest in an independently managed, unincorporated joint venture sugar refinery. This was a residual investment from the Group's historical physical trading activities, which it sold on 5 August 2004 to CSR Limited, thus completing the Group's strategy of exiting all its agricultural products businesses. The results of Sugar Australia are not disclosed as discontinued on the face of the profit and loss account as the sale does not have a material effect on the nature or focus of the Group's operations. Profit and loss account The table below provides a split of the Group's profit and loss account between its two principal businesses: Year to 31 March 2005 Asset Brokerage Sugar Group Total Management $m Australia $m $m $m Fees and commissions 1,236 1,101 - 2,337 receivable Fees and commissions payable (218) (726) - (944) Net trading interest income 15 109 - 124 Other operating income 49 - - 49 --------------------- ----------- --------- --------- --------- Net operating income 1,082 484 - 1,566 Operating expenses (384) (383) - (767) --------------------- ----------- --------- --------- --------- Operating profit 698 101 - 799 Associates and JVs 35 - 2 37 Net interest income/(expense) - 44 - 44 --------------------- ----------- --------- --------- --------- Profit before tax, goodwill and exceptionals 733 145 2 880 Goodwill amortisation (79) (12) - (91) Exceptional items (5) - - (5) --------------------- ----------- --------- --------- --------- Profit before tax on total operations 649 133 2 784 Taxation (176) Minority interests - --------------------- ----------- --------- --------- --------- Profit for the financial year 608 --------------------- ----------- --------- --------- --------- Asset Management - operating income, costs and margins Man Investments earns both management fees and performance fees. Management fee income consists of management fees and brokerage fees, and also includes, to a lesser extent, other types of fee, such as: risk transfer fees (on guaranteed products); liquidity or cash management fees; valuation fees; consultancy fees; and registrar fees. These fees are typically based on a percentage of funds under management. Gross management fee income has increased by 29% over last year, reflecting the growth in funds under management. Performance fees principally reflect incentive fees earned on funds under management, and are usually based on a percentage of incremental fund performance in excess of the previous performance peak for the relevant product. Performance fees are charged to align the interests of the managers with investors and ensure focus on absolute performance. Measurement dates for calculating performance fees vary, but AHL funds are typically measured monthly (some weekly) whilst RMF and Glenwood funds tend to have annual measurement dates, usually 31 December. Performance fee income will typically exhibit volatility, reflecting underlying fund performance and timing, and this can be pronounced when comparing one accounting period with another. As the Group continues to diversify the range of managers and increase the proportion of lower volatility products, in particular for the institutional investor, performance fee income should become less variable year-on-year. Performance fees also include net gains on 'seeding' investments in some of our funds and gains on redemption-bridging activities. Fees and commissions payable in Asset Management largely relate to sales commissions paid to intermediaries, which are based on the amount of their sales of Man's products. In addition, a small percentage of total commissions is paid to certain employees, the amount being dependent on the level of sales achieved by their regional office. Sales commissions are either paid upfront when a fund product is first launched and/or are paid annually as trail commission. Upfront commissions are capitalised and amortised to the profit and loss account on a straight line basis over the shorter of five years and the period during which fees are payable by the investor for early redemption. Trail commission is charged to the profit and loss account as incurred. The sales commission profit and loss account charge in 2005 was split 37%:63% between the annual amortisation of upfront commission and trail commission paid in the year. Operating expenses in Asset Management increased 7% from $358 million in the prior year to $384 million in 2005. Of this amount, $148 million (39%) are variable overheads, relating to employee discretionary bonus payments, which are broadly unchanged from the prior year. The increase in operating expenses in the year is largely from the investment in infrastructure to support the growth of the business. Operating expenses are 35% of net operating income. This operating margin is consistent with the average over the last five years. The table below shows an analysis of net management fee income and net performance fee income over the last five years and the margin ratio, as a percentage of average funds under management (FUM) in each year. Net management fee income includes the fee income described above less all sales commissions payable, finance costs and all overheads not allocated to performance fees. Net performance fee income includes the fee income detailed above less those overheads allocated to performance fees, which almost entirely relate to employee performance compensation. The ratio of net management fee income to funds under management is lower for institutional products than for private investor. In 2005, this margin was 2.1% and 0.7% for private investor and institutional products respectively. The main reason for this is that the Group only receives a fund of funds management fee for institutional assets, whereas for private investor products the Group additionally receives underlying manager fees. Although distribution fees payable, if any, are lower for institutional products, the impact of this is not sufficient to offset the lower headline fee income. The ratio of operating expenses to management fee income is similar for institutional and private investor products. The mix of the Group's FUM between institutional and private investor therefore has a significant impact on management fees as a percentage of total assets. Prior to 2003, the management fee/FUM ratio had been falling slightly. This was not because of any reduction in the profitability of the Group's core private investor products, but rather a result of an increasing level of institutional assets as a percentage of the total. In 2003, the acquisition of RMF had a significant effect on the ratio since it manages almost exclusively institutional money. From 2004 onwards the ratio has increased as institutional fee margins have increased and private investor assets have increased as a percentage of the total from 52% to 59% over the last two years. The performance fee/FUM ratio reflects the underlying performance of the Group's products during each accounting period. Performance fees from institutional fund products tend to be lower as these products target lower returns (and lower volatility). 2005 2004 2003 2002 2001 ----------------------- -------- -------- -------- -------- -------- Net management fee income ($m) 614 459 280 169 104 Management fees/FUM 1.5% 1.4% 1.3% 1.9% 2.0% Net performance fee income ($m): First half of year 29 55 54 48 1 Second half of year 90 181 124 31 111 -------- -------- -------- -------- -------- Full year 119 236 178 79 112 Performance fees/FUM 0.3% 0.7% 0.9% 0.9% 2.2% ----------------------- -------- -------- -------- -------- -------- In the profit and loss account table above, associates and JVs is the contribution from financial interests in Affiliated Managers and includes established managers, such as BlueCrest and new managers. BlueCrest contributed $12 million to net management fee income and $14 million to net performance fee income in the year. Brokerage - operating income, costs and margins In Brokerage, commissions receivable arise from those businesses where Man Financial acts as intermediary and also from those businesses where it acts as a matched principal broker, such as foreign exchange, securities, metals and energy trading. Net trading interest income is earned on segregated customer balances that are held off balance sheet in accordance with UK accounting practice. Total operating income, including net trading interest income, has increased 10% reflecting the continued recruitment of producer teams, growth in market share and the benefits of active markets. Commissions payable relate to fees charged by the exchanges, fees paid to other brokers, rebates to introductory brokers and commissions paid to internal producer teams. There is no fixed element of these commissions; they are all based on sales volumes or profit contributions. Operating expenses in Brokerage have increased 6% from $361 million in the prior year to $383 million in 2005, reflecting Man Financial's ability to grow its revenues without having to expand significantly its support and administrative functions. Of the $383 million operating expenses in 2005, $42 million relates to variable employee compensation. The table below shows an analysis of the profit and operating expenses margins in Brokerage. 2005 2004 2003 2002 2001 Net operating income plus net interest income ($m) 528 481 335 244 212 Operating expenses ($m) 383 361 260 189 168 ------------------------------------ Net profit ($m) 145 120 75 55 44 Operating expenses/income 72.5% 75.1% 77.6% 77.5% 79.2% Net profit/income 27.5% 24.9% 22.4% 22.5% 20.8% Other profit and loss amounts Net interest income of $44 million arises on non-segregated cash balances and investments in Brokerage and margins on loans to funds in Asset Management, offset by interest expense on borrowings to finance acquisitions and working capital requirements. Goodwill amortisation principally relates to the RMF acquisition made in 2003 ($47 million) and also to the Glenwood, Man Investments Australia and BlueCrest acquisitions in Asset Management, and the GNI acquisition in Brokerage. The exceptional item relates to the loss on sale of an interest in a private equity business, which was sold in the second half of the financial year. The tax charge for the year amounts to $176 million (2004: $162 million). The effective rate on profit before tax, goodwill amortisation and exceptional items was 20.5% (2004: 20.5%). The majority of the Group's profit is earned in Switzerland and the UK and the current effective tax rate is consistent with this profit mix. The effective tax rate on total profit before tax of 22.5% (2004: 22.7%) reflects the non-deductible nature of the majority of the goodwill amortisation charged in the year. Full details of earnings per share and the weighted average number of shares are given in note 8. Cash flow Net Group cash inflow for the year was $408 million, driven off strong cash generation from net operating profits. $m Operating profit (pre amortisation and depreciation) 877 Increase in working capital (191) Taxation paid (143) Dividends paid (177) Disposals 20 Net capital expenditure and financial investment (45) Other 67 -------------------------------------- --------- Cash inflow for the year 408 -------------------------------------- --------- There was a small increase in working capital in Asset Management from the increase in loans to funds of $151 million, and the net increase of $60 million in sales commissions paid (as a result of the high level of sales in the year), net of a decrease of $90 million in proprietary investments in fund products. There was a small increase in working capital requirements in Brokerage. Net capital expenditure and financial investment comprises investments of $17 million, principally relating to long-term investments in the funds, and $28 million expenditure on tangible fixed assets, mainly office refurbishment and IT systems. In the table above, 'Other' largely relates to net interest receivable of $50 million and dividends receivable from associates and joint ventures of $19 million. Balance sheet The Group's balance sheet remains strong. At 31 March 2005, shareholders' equity was up 18% at $2,424 million. At 31 March 2005 the Group had a net cash position of $903 million (2004: net cash position of $602 million). The growth in the futures and stock lending businesses in Brokerage has the effect of increasing both current assets and short-term creditors by $0.5 billion. In addition, there has been a net $60 million increase in unamortised sales commissions in Asset Management, reflecting the strong level of sales in the year. The high level of sales in the year has also resulted in loans to funds increasing slightly by $151 million to $505 million at the year-end. During the year the Group extended its debt maturity profile and further diversified its sources of funding through issuing $300 million of senior debt to the US private placement market, with maturities ranging from five to 10 years. Investments in associates decreased as a result of the Group selling Sugar Australia, its sugar refining business. This decrease was partly offset by an increase in the Group's share of the retained earnings of its other associates, in particular BlueCrest. International Financial Reporting Standards The Group will be implementing IFRS for the financial year ending 31 March 2006 and work to meet the requirements of IFRS is progressing to plan. Our aim is to ensure that communication of the impact on the Group of IFRS is timely, clear and effective. To achieve this, it is intended to separate developments in the business, including the results for the year and financial position at the year-end, from the effect of changes in accounting as a result of adopting IFRS. Accordingly, it is planned to release summary IFRS financial information for the financial year ended 31 March 2005 (with reconciliations to the previously published UK GAAP figures) on 5 July 2005. A qualitative update on the likely impact of IFRS will be contained in the Annual Report 2005. The Interim Report for the year ending 31 March 2006 will be produced on a full IFRS basis in November 2005. Group Profit and Loss Account for the year ended 31 March 2005 ------------------ ------------------- 2005 restated* 2004 ------------------ ------------------- -------- -------- -------- ------ Before Goodwill Total Before Goodwill Total goodwill and $m goodwill and $m and exceptional and exceptional exceptional items exceptional items items $m items $m Note $m $m ----------------- ----- --------- -------- ------ -------- -------- ------ ----------------- ----- --------- -------- ------ -------- -------- ------ Net operating income 2,3 1,566 - 1,566 1,480 - 1,480 --------- -------- ------ -------- -------- ------ Operating expenses 4 (767) (78) (845) (719) (73) (792) Exceptional item - GNI integration costs 5 - - - - (9) (9) --------- -------- ------ -------- -------- ------ (767) (78) (845) (719) (82) (801) ----------------- ----- --------- -------- ------ --- -------- -------- ------ Group operating profit - continuing operations 799 (78) 721 761 (82) 679 Share of operating profit/(loss) from joint ventures and associates 37 (13) 24 38 (4) 34 ----------------- ----- --------- -------- ------ --- -------- -------- ------ Total operating profit: Group and share of joint ventures and associates 836 (91) 745 799 (86) 713 Exceptional items Loss on sale of businesses 5 - (5) (5) - (20) (20) Net interest income 6 44 - 44 22 - 22 ----------------- ----- --------- -------- ------ --- -------- -------- ------ Profit on ordinary activities before taxation 3 880 (96) 784 821 (106) 715 Taxation (180) 4 (176) (168) 6 (162) ----------------- ----- --------- -------- ------ --- -------- -------- ------ Profit on ordinary activities after taxation 700 (92) 608 653 (100) 553 Equity minority interest - - - (1) - (1) ----------------- ----- --------- -------- ------ --- -------- -------- ------ Profit for the financial year 700 (92) 608 652 (100) 552 Ordinary dividends 7 (200) (152) ----------------- ----- --------- -------- ------ --- -------- -------- ------ Retained profit 408 400 ----------------- ----- --------- -------- ------ --- -------- -------- ------ Earnings per share on total operations 8 Basic 201c 186c Diluted 182c 168c ----------------- ----- --------- -------- ------ --- -------- -------- ------ Earnings per share before goodwill and exceptional items 8 Basic 231c 220c Diluted 209c 198c ----------------- ----- --------- -------- ------ --- -------- -------- ------ Underlying earnings per share 8 Basic 200c 154c Diluted 181c 141c ----------------- ----- --------- -------- ------ --- -------- -------- ------ Dividends per share 7 Interim 24.0c 18.4c Final proposed 42.0c 32.4c ----------------- ----- --------- -------- ------ --- -------- -------- ------ Historical cost profits and losses are not materially different from those shown above. * Details of the restatement to the comparative period are given in notes 1 and 13. Group Balance Sheet at 31 March 2005 restated * 2005 2004 ----------- ----------- ------- Note $m $m $m $m ------------------------------ ----- ------ ------- --- ------ ------- Fixed Assets Intangible assets - goodwill 761 812 Tangible assets 68 69 Investments Investments in joint ventures Share of gross assets and goodwill 9 15 Share of gross liabilities (1) (1) ------- ------- 8 14 Investments in associates 219 256 Other investments 61 46 ------- ------- 288 316 ------------------------------ ----- ------ ------- --- ------ ------- 1,117 1,197 ------------------------------ ----- ------ ------- --- ------ ------- Current assets Debtors 9 3,418 3,475 Investments 3,145 2,393 Cash at bank and in hand 2,150 1,702 ------------------------------ ----- ------ ------- --- ------ ------- 8,713 7,570 Creditors: amounts falling due within one year 11 (6,127) (5,709) ----- ------ ------- --- ------ ------- ------------------------------ Net current assets 2,586 1,861 ------------------------------ ----- ------ ------- --- ------ ------- Total assets less current liabilities 3,703 3,058 Creditors: amounts falling due after more than 11 one year Exchangeable bonds (741) (717) Other (538) (289) ------------------------------ ----- ------ ------- --- ------ ------- (1,279) (1,006) Provisions for liabilities and charges - (3) ------------------------------ ----- ------ ------- --- ------ ------- Net assets 2,424 2,049 ------------------------------ ----- ------ ------- --- ------ ------- Capital and reserves Called up share capital 55 57 Share premium account 354 337 Capital reserve 4 4 Merger reserve 722 729 Profit and loss account 1,289 921 ------------------------------ ----- ------ ------- --- ------ ------- Equity shareholders' funds 2,424 2,048 Equity minority interests - 1 ------------------------------ ----- ------ ------- --- ------ ------- 2,424 2,049 ------------------------------ ----- ------ ------- --- ------ ------- * Details of the restatement to the comparative period are given in notes 1 and 13. Reconciliation of Movements in Equity Shareholders' Funds for the year ended 31 March 2005 2005 restated 2004 Note $m $m ------ -------- ------- Profit for the financial year 608 552 Ordinary dividends 7 (200) (152) ---------------------------------- ------ --------- ------- Retained profit 408 400 Other recognised gains and losses relating to the 14 (3) year Issue of ordinary share capital 19 133 Purchase and cancellation of own shares (78) (31) Goodwill written back on disposal - 22 UITF 17 charge for the year 49 37 Purchase of own shares by ESOP trusts (62) (69) Disposal of own shares by ESOP trusts 26 83 ---------------------------------- ------ --------- ------- Net increase in equity shareholders' funds 376 572 Opening equity shareholders' funds 2,048 1,534 Prior year adjustment 13 - (58) ---------------------------------- ------ --------- ------- Closing equity shareholders' funds 2,424 2,048 ---------------------------------- ------ --------- ------- Group Cash Flow Statement for the year ended 31 March 2005 2005 restated 2004 Note $m $m ------ --------- ------- Net cash inflow from operating activities 12 684 1,058 Dividends from joint ventures 4 4 Dividends from associates 15 9 Returns on investments and servicing of finance 50 24 Taxation paid (143) (105) Capital expenditure and financial investment (45) (106) Acquisitions and disposals 20 (11) Equity dividends paid (177) (128) ---------------------------------- ------ --------- ------- Net cash inflow 408 745 Management of liquid resources 266 (330) Financing 39 (39) ---------------------------------- ------ --------- ------- Increase in cash 713 376 ---------------------------------- ------ --------- ------- Reconciliation of Net Cash Flow to Movement in Net Cash for the year ended 31 March 2005 restated 2005 2004 Note $m $m ---------------------------------- ------ -------- ------- Increase in cash 713 376 Cash (inflow)/outflow from movement in debt (134) 21 Cash (inflow)/outflow from movement in liquid resources (266) 330 ---------------------------------- ------ -------- ------- Change in net cash resulting from cash flows 313 727 Debt disposed of with businesses and subsidiaries sold 11 - Currency translation difference (23) (101) ---------------------------------- ------ -------- ------- Movement in net cash 301 626 Opening net cash 602 (24) ---------------------------------- ------ -------- ------- Closing net cash 903 602 ---------------------------------- ------ -------- ------- Group Statement of Total Recognised Gains and Losses for the year ended 31 March 2005 ---------------------------------- ------- --------- ------- Note 2005 2004 $m $m ---------------------------------- ------- --------- ------- Profit for the financial year 608 552 Currency translation differences taken directly to reserves 14 (3) ---------------------------------- ------- --------- ------- Total recognised gains relating to the year 622 549 Prior year adjustments 13 (29) ---------------------------------- ------- --------- ------- Total recognised gains since last annual report 593 ---------------------------------- ------- --------- ------- Notes to the Accounts Basis of preparation The financial information contained herein has been prepared on the basis of the accounting policies set out in the Annual Report for the year to 31 March 2005. As from 1 April 2004, the Group has adopted UITF 38 'Accounting for ESOP trusts' and UITF 17 (revised 2003) 'Employee share schemes'. Under UITF 38 own shares held through an ESOP trust are now recorded at cost and shown as a deduction in arriving at shareholders' funds. Previously these shares were recorded at cost less amortisation and shown as a fixed asset investment with amortisation charges being taken to the profit and loss account. Also, gains and losses on the purchase, sale, issue or cancellation of own shares are now no longer recognised in the profit and loss account or statement of total recognised gains and losses. Under the revised UITF 17, employee share scheme charges to the profit and loss account are now always calculated as the intrinsic value of the award spread over the performance period. The intrinsic value is the difference between the fair value of the shares at the date of grant and the amount paid by the employee to exercise the rights to those shares irrespective of the cost of shares purchased to fund the award. The adoption of these two standards represents a change in accounting policy and the comparative figures have been restated accordingly. Details of the effect of the prior year adjustments are given in note 13. The financial information contained herein is abridged and does not constitute statutory accounts as defined by Section 240 of the Companies Act 1985. Statutory accounts for the year to 31 March 2005, upon which the auditors have indicated their intention to give an unqualified report, will shortly be delivered to the Registrar of Companies and will be posted to shareholders on 8 June 2005. The accounts for the year ended 31 March 2004 were unqualified and have been delivered to the Registrar of Companies. 2. Net operating income 2005 2004 $m $m ------------------------------------- --------- ----- -------- Continuing operations Fees and commissions receivable 2,337 2,185 Fees and commissions payable (944) (853) Net trading interest income 124 99 Other operating income 49 49 ------------------------------------- --------- ----- -------- Net operating income 1,566 1,480 ------------------------------------- --------- ----- -------- 3. Segmental analysis (a) Segmental analysis of net operating income 2005 2004 $m $m ------------------------------------- --------- -------- Business segment Asset Management 1,082 1,023 Brokerage 484 457 ------------------------------------- --------- -------- 1,566 1,480 --------- -------- Geographic area Europe 1,191 1,145 The Americas 277 264 Rest of the World 98 71 ------------------------------------- --------- -------- 1,566 1,480 --------- -------- (b) Segmental analysis of profit on ordinary activities before taxation restated 2005 2004 $m $m ------------------------------------ ---------- --------- Business segment Asset Management - net management fee income 614 459 Asset Management - net performance fee income 119 236 Asset Management - goodwill amortisation (79) (67) Asset Management - exceptional items (5) - ------------------------------------ ---------- --------- Asset Management - total 649 628 Brokerage - before goodwill amortisation and exceptional items 145 120 Brokerage - goodwill amortisation (12) (10) Brokerage - exceptional items - (9) ------------------------------------ ---------- --------- Brokerage - total 133 101 Sugar Australia 2 6 Sugar Australia - exceptional items - (20) ------------------------------------ ---------- --------- Sugar Australia - total 2 (14) ------------------------------------ ---------- --------- 784 715 ------------------------------------ ---------- --------- Geographic area Europe 664 634 The America 81 69 Rest of the World 39 12 ------------------------------------ ---------- --------- 784 715 ------------------------------------ ---------- --------- 4. Goodwill amortisation Included in operating expenses is goodwill amortisation of $78 million (2004: $73 million). Total goodwill amortisation in the year, including the amount relating to joint ventures and associates, on a pre-tax basis is $91 million (2004: $77 million) and on a post-tax basis is $87 million (2004: $74 million). 5. Exceptional items Exceptional operating expenses Exceptional operating expenses in 2005 were nil. In 2004, following the acquisition of GNI Holdings Limited in November 2002, further costs amounting to $9 million ($6 million net of tax) were incurred relating to the integration of the acquired business into the Group's existing business. These costs related principally to redundancy and staff retention costs of $6 million, and other termination and relocation costs of $3 million. Non-operating exceptional items In 2005, the Group sold the majority of its holding in Westport Private Equity Limited and its entire holding in Parallel Private Equity Holdings Limited, an associate. The loss on sale amounted to $5 million ($5 million net of tax). In 2004, the Group made a provision for the loss on sale of the Sugar Australia business. Agreement for the sale had been made with CSR Ltd as at 31 March 2004, but was not fully unconditional. The provision for the loss on sale amounted to $20 million ($20 million net of tax), relating almost entirely to attributable goodwill not previously charged to the profit and loss account. The remainder related to impairment of fixed assets. 6. Net interest income ------------- ------ 2005 2004 $m $m ------------- ------ Interest payable On bank loans and overdrafts (15) (9) On other loans (47) (31) Interest receivable 106 62 ----------------------------------- ------------- ------ Net interest income 44 22 ----------------------------------- ------------- ------ 7. Dividends ------- ------- 2005 2004 $m $m ------- ------- Ordinary shares Interim paid - 24.0 cents (2004: 18.4 cents) 73 56 Final proposed - 42.0 cents (2004: 32.4 cents) 127 96 ------- ------- 200 152 ------- ------- The Group offers a Dividend Reinvestments Plan ('DRIP') for shareholders wishing to buy shares with their cash dividend. The DRIP will be available to ordinary shareholders in respect of the final dividend. 8. Earnings per share The calculation of basic earnings per ordinary share is based on a profit for the year of $608 million (2004: $552 million) and 302,498,430 (2004: 297,174,602) ordinary shares, being the weighted average number of ordinary shares in issue during the year after excluding the shares owned by the Man Group plc employee trusts. The diluted earnings per share is based on a profit for the year of $627 million (2004: $570 million) and on 344,609,297 (2004: 338,776,081) ordinary shares, calculated as shown in the table below: 2005 2004 --------------------------- ----------------- ------------- Total Weighted Total Weighted Number average Number average (millions) (millions) (millions) (millions) --------------------------- ----------- --------- ------ ------- Number of shares at 1 April 2004 (and 1 April 2003) 310.3 310.3 306.7 306.7 Issues of shares 0.8 0.5 5.0 1.2 Repurchase and cancellation of own shares (3.4) (1.7) (1.4) (1.0) --------------------------- ----------- --------- --- ------- ------- Number of shares at 31 March 2005 (and 31 March 2004) 307.7 309.1 310.3 306.9 Shares owned by employee trusts (6.1) (6.6) (7.3) (9.7) --------------------------- ----------- --------- --- ------- ------- Basic number of shares 301.6 302.5 303.0 297.2 Share awards under incentive schemes 10.2 10.4 9.7 9.9 Employee share options 1.8 0.5 1.7 0.5 Exchangeable bonds 31.2 31.2 31.2 31.2 --------------------------- ----------- --------- --- ------- ------- Dilutive number of shares 344.8 344.6 345.6 338.8 --------------------------- ----------- --------- --- ------- ------- The reconciliation of adjusted earnings per share is given in the table below. In addition to the statutory earnings per share on total operations measure, we show two other earnings per share figures. Earnings per share before goodwill and exceptional items is given as some key users of our accounts have requested that profit and earnings per share figures are presented before goodwill and exceptional items. Underlying earnings per share is given as growth in this measure is one of the Group's core financial objectives. 2005 2004 (restated) ---------------------------------------- ------------------------------------------ Basic Diluted Basic Diluted Basic Diluted Basic Diluted post-tax post-tax earnings earnings post-tax post-tax earnings earnings earnings earnings per per earnings earnings per per $m $m share share $m $m share share cents cents cents cents ------------- ------- -------- ------- ------- --- ------- ------- ------- ------- Earnings per share on total 608 627 201 182 552 570 186 168 operations+ Exceptional items 5 5 2 2 26 26 9 9 Goodwill amortisation 87 87 28 25 74 74 25 21 ------------- ------- -------- ------- ------- --- ------- ------- ------- ------- Earnings per share before goodwill and exceptional items 700 719 231 209 652 670 220 198 Performance fee related income (93) (93) (30) (27) (188) (188) (64) (56) Sugar Australia (1) (1) (1) (1) (5) (5) (2) (1) ------------- ------- -------- ------- ------- --- ------- ------- ------- ------- Underlying earnings per share 606 625 200 181 459 477 154 141 ------------- ------- -------- ------- ------- --- ------- ------- ------- ------- + The difference between basic and diluted post-tax earnings on total operations relates to adding back the interest expense in the year relating to the exchangeable bonds. 9. Debtors ---------------------------------------- -------- -------- 2005 2004 $m $m ---------------------------------------- -------- -------- Amounts falling due within one year Trade debtors: Amounts owed by broker dealers on secured stock lending and borrowing 1,231 1,627 Securities transactions in the course of settlement 211 149 Futures transactions 501 506 Other 394 311 Amounts owed by joint ventures and associates 1 4 Amounts owed by funds (note (a)) 505 354 Other debtors 66 85 Taxation recoverable 2 - Prepayments and accrued income (note b)) 195 165 ---------------------------------------- -------- -------- 3,106 3,201 Amounts falling due after more than one year Other debtors 55 56 Prepayments and accrued income (note (b)) 248 208 Deferred taxation asset 9 10 ---------------------------------------- -------- -------- 3,418 3,475 ---------------------------------------- -------- -------- Notes: (a) The Group makes available short-term loans to fund products, immediately following their launch, with the intention of providing temporary funding until more permanent financing structures are put in place with external providers. Accordingly, the amount of loans to funds will vary from one period to the next as a consequence of the net effect of the level of sales in the period less the quantum of the external re-financing initiative in the period. This external re-financing is typically in the form of total return swaps. On these swaps the Group often enters in to a committed purchase agreement and in some instances gives a first risk of loss guarantee to the external provider. The probability of the Group incurring a loss as a result of giving these guarantees is remote. (b) Included within prepayments falling due within one year and after more than one year are unamortised sales commissions of $92 million and $240 million respectively (2004: $72 million and $200 million respectively). (c) Certain Group companies in Brokerage are involved as principal in the purchase and simultaneous commitment to sell securities between third parties. The gross amount of the settlement payables and receivables in respect of such outstanding transactions at 31 March 2005 was $366 million (2004: $1,358 million). Substantially all of these transactions have now settled. In addition, certain Group companies in Brokerage are involved in collateralised stock borrowing and lending transactions acting as an intermediary between counterparties. The gross amount of payables and receivables in respect of such outstanding transactions at 31 March 2005 was $6,695 million (2004: $2,201 million). 10. Segregated balances As required by the United Kingdom Financial Services and Markets Act 2000 and by the US Commodity Exchange Act, the Group maintains certain balances on behalf of clients with banks, exchanges, clearing houses and brokers in segregated accounts totalling, at 31 March 2005, $8,173 million (2004: $7,081 million). These amounts and the related liabilities to clients, whose recourse is limited to the segregated accounts, are not included in the Group balance sheet. The reason for their exclusion from the Group balance sheet is that the Group does not have a liability to its clients in the event that a third party depository institution, where the segregated funds are held, does not return all the segregated funds. The corresponding asset, which is not co-mingled with the Group's funds and over which the Group's control is severely restricted, is therefore not recognised on the Group balance sheet. 11. Creditors ------------------------------------- --------- --------- 2005 2004 $m $m ------------------------------------- --------- --------- Amounts falling due within one year Bank loans and overdrafts 3 143 Trade creditors: Amounts owed to broker dealers on secured stock lending and borrowing 3,220 2,347 Securities transactions in the course of settlement 276 189 Futures transactions 1,153 1,212 Short stock positions held for hedging 480 940 Other 268 185 Amounts owed to joint ventures and associates 7 2 Taxation 186 162 Other taxation and social security costs 30 27 Other creditors 60 126 Accruals and deferred income 317 272 Proposed final dividend 127 104 ------------------------------------- --------- --------- 6,127 5,709 ------------------------------------- --------- --------- Amounts falling due after more than one year Loans Bank loans 46 80 Private placement notes (note (a)) 457 160 Exchangeable bonds (note (b)) 741 717 ------------------------------------- --------- --------- Borrowings over one year 1,244 957 Other creditors 35 49 ------------------------------------- --------- --------- 1,279 1,006 ------------------------------------- --------- --------- Analysis of borrowings due after more than one year Amounts falling due Between two and five years 1,135 80 More than five years 109 877 ------------------------------------- --------- --------- 1,244 957 ------------------------------------- --------- --------- Notes: (a) The private placement notes comprise: (1) US$160 million 5.47% subordinated notes issued in March 2004 and due March 2014. The interest rate is fixed to 16 March 2009 and thereafter is LIBOR plus 2.62%; and (2) US$300 million senior notes issued in May 2004. These senior notes comprise: $45 million at floating rates and due May 2007; $145 million 4.84% notes due May 2009; $60.5 million 5.34% notes due May 2011; and $49.5 million 5.93% notes due May 2014. (b) Forester Limited, a quasi subsidiary, has issued guaranteed exchangeable bonds of £400 million at par value, guaranteed by Man Group plc and which mature in November 2009. The bonds have the following features: (1) a coupon of 3.75%, paid semi-annually; (2) holders have the option at any time to exchange for Man Group plc ordinary shares at an initial exchange price of £12.85 (the exchange price is subject to adjustment in accordance with the terms of the bonds); (3) Forester Limited can redeem the bonds early (at their principal amount together with accrued interest) at any time on or after 15 days after the fifth anniversary of the issue of the bonds if on not less than 20 days out of a period of 30 consecutive days the Man Group plc share price exceeds 130% of the then current exchange price or at any time if less than 15% of the total issue remains outstanding; and (4) Forester Limited has the option to redeem (either on maturity or early redemption) the bonds for a fixed number of shares plus a cash top up amount and any accrued interest. On 5 November 2004, the terms and conditions of the exchangeable bonds were amended to remove the option, which Forester Limited had, to settle in cash rather than shares, upon exercise of an exchange right by a bond holder. The amount of the liability shown in the above table for the exchangeable bonds is their par value of $755 million (2004: $735 million) less unamortised issue costs of $14 million (2004: $18 million). 12. Net cash inflow from operating activities ---------------------------------- ----------- ----------- 2005 restated $m 2004 $m ---------------------------------- ----------- ----------- Operating profit 721 679 Depreciation of tangible fixed assets 29 27 Amortisation of goodwill 78 73 Amortisation of fixed asset investments - 4 Loss on sale of tangible fixed assets - 2 Profit on sale of fixed asset investments (2) (1) UITF 17 charge for the year 49 37 Decrease/(increase) in debtors 58 (694) Increase in current asset investments (754) (1,288) Increase in creditors 505 2,234 Costs in relation to exceptional items - (15) ---------------------------------- ----------- ----------- 684 1,058 ---------------------------------- ----------- ----------- 13. Prior year adjustments In accordance with UITF 38 The reclassification of own shares, held by ESOP trusts, from fixed asset investments to equity has reduced net assets and equity shareholders' funds by $64 million as at 31 March 2004 and $58 million as at 1 April 2003. The profit on selling own shares is no longer recognised in the profit and loss account and statement of total recognised gains and losses. This reduces profit from exceptional items, and therefore profit before tax, profit after tax and the total recognised gains by $23 million for the year to 31 March 2004. In accordance with UITF 17 The reversal of the amortisation charge based on the cost of shares purchased and the inclusion of a charge based on the intrinsic value of the shares at the date of grant had no material effect on the profit and loss account for the current period or for the year to 31 March 2004. The effect on years prior to the comparative period is to decrease retained profits by $6 million. Statement of total recognised gains and losses The prior year adjustments of $29 million included in the statement of total recognised gains and losses comprise the reversal of the exceptional profit on sale of own shares of $23 million and an increase in share scheme charges relating to earlier years of $6 million. Earnings per share The reversal of the exceptional profit on sale of own shares of $23 million in the year to 31 March 2004 has had the effect of reducing basic earnings per share on total operations from 193 cents to 186 cents, and diluted earnings per share from 175 cents to 168 cents. There is no change to earnings per share before goodwill amortisation and exceptional items or to underlying earnings per share. Cash flow statement The transfer of net disposals of own shares from the capital expenditure and financial investment line to the financing line was $14 million for the year to 31 March 2004. In the cash flow from operating activities note (note 12), the line 'UITF 17 charge for the year' has been added. This combines the amortisation of fixed asset investments in prior periods, relating to own shares, and the amortisation of share award costs of shares to be issued. Reconciliation of movements in equity shareholders' funds The prior year adjustment to the opening equity shareholders' funds in the comparative period of $58 million relates to the reclassification of own shares from fixed asset investments to equity shareholders' funds as at 1 April 2003. 14. Exchange rates The following US dollar rates of exchange have been used in preparing these accounts. Year-end rates Average rates ------------- ------------- 2005 2004 2005 2004 ------- ------- -------- -------- Australian dollar 1.2942 1.3099 1.3515 1.4380 Euro 0.7715 0.8135 0.7941 0.8503 Sterling 0.5298 0.5441 0.5417 0.5904 Swiss franc 1.1955 1.2671 1.2240 1.3169 --------------------------- ------- ------- -------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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