Half-year Report

RNS Number : 3944W

Man Group plc

01 August 2018

 

Press Release   

1 August 2018

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

Key points

·     Funds under management (FUM)¹ of $113.7 billion (31 December 2017: $109.1 billion)

o  Net inflows of $8.3 billion (H1 2017: net inflows $8.2 billion)

o  Investment movement of negative $1.7 billion (H1 2017: positive $3.8 billion)

o  FX translation and other movements of negative $2.0 billion (H1 2017: positive $1.2 billion) 

·     Asset weighted outperformance versus benchmark¹ across our range of strategies of 0.3% for the six months to 30 June 2018 (1.9% for the year ended 31 December 2017)

·     Adjusted profit before tax (PBT)¹ of $153 million (H1 2017: $145 million), up 5%:

o  Adjusted management fee PBT¹ of $120 million (H1 2017: $94 million)

o  Adjusted performance fee PBT¹ of $33 million (H1 2017: $51 million)

·     26% growth in adjusted management fee PBT reflecting the growth in FUM and an FX benefit on fixed costs

·     Adjusted performance fee PBT reduced due to lower seed investment gains

·     Statutory PBT of $90 million (H1 2017: $76 million), up 18%, reflecting both the profit growth drivers above and the lower upwards revaluation of contingent consideration compared to 30 June 2017

·     Interim dividend of 6.4 cents per share (H1 2017: 5.0 cents per share), to be paid at a rate of 4.88 pence per share on 5 September 2018

Luke Ellis, Chief Executive Officer of Man Group, said:

"The first half of 2018 has been one of sustained organic growth, with high levels of interest from our global client base in a broad range of strategies. I'm pleased to report record net inflows of $8.3 billion, and a 26% increase in management fee profits. However, given the difficult market backdrop and weaker performance in the first half, FUM and adjusted profit growth were more limited.

Business momentum remains good with solid management fee growth. However, as we have said many times before, and will probably say again, the institutional nature of our business means that flows are likely to be uneven on a quarter-to-quarter basis. We continue to invest in talent, research and technology and remain focused on delivering superior risk adjusted performance for our clients, thereby creating long term value for our shareholders."
 

1 For definitions and explanations of our alternative performance measures, please refer to pages 33-36.

2 Percentage change shown is calculated based on actual numbers so may not tie in with percentage change calculated on rounded figures. 

Summary financials	Page ref.	Six months ended 30 June 2018  $m	Year ended 31 December 2017 $m	Six months ended 30 June 2017   $m
Net management fee revenue3	34	401	736	355
Performance fees4	36	85	333	106
Net revenues		486	1,069	461
Compensation5	24	(227)	(474)	(212)
Other costs5	24	(104)	(202)	(99)
Net finance expense5	25	(2)	(9)	(5)
Adjusted profit before tax1	35	153	384	145
Adjusting items6	35	(63)	(112)	(69)
Statutory profit before tax	17	90	272	76
Statutory diluted earnings per share (EPS)	26	4.6c	15.3c	3.8c
Adjusted EPS1,2	35	8.1c	20.3c	7.5c
Adjusted management fee EPS1,2	35	6.4c	10.8c	5.0c
Dividend per share		4.88p	7.97p	3.79p

1   For definitions and explanations of our alternative performance measures, please refer to pages 33-36

2   The reconciliation of diluted statutory EPS to adjusted EPS is included in the alternative performance measures (page 35)

3   Includes gross management and other fees, distribution costs and share of post-tax profit from associates 

4   Includes income or gains/(losses) on investments and other financial instruments and third-party share of losses relating to interests in consolidated funds

5   Excludes adjusting items. Other costs include asset servicing costs

6   Adjusting items primarily relate to amortisation of acquired intangible assets. Refer to the alternative performance measures section (page 35) for further detail

Key Performance Indicators7		Six months ended 30 June 2018		Year ended 31 December 2017	Six months ended 30 June 2017
Asset weighted outperformance versus benchmark			0.3%	1.9%	0.9%
Net inflows8			15.2%	15.8%	20.2%
Adjusted profit before tax			$153m	$384m	$145m
Adjusted management fee EPS growth			28.5%	20.0%	11.1%

7   For definitions and explanations of key performance indicators refer to the 2017 annual report

8   Six month figures are annualised

Enquiries

Fiona Smart

Head of Investor Relations

[phone]

[e-mail] 

Rosanna Konarzewski

Global Head of Communications & Marketing

[phone]

[e-mail] 

Michael Turner

Finsbury

[phone]

[e-mail] 

Results presentation, audio webcast and dial in details

There will be a presentation by the management team at 9:30 am (UK time) on 1 August 2018 at Riverbank House, 2 Swan Lane, London EC4R 3AD. 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 which will also be available on demand from later in the day. The dial-in and replay telephone numbers are as follows:

Live Conference Call Dial in Numbers:

International:                            [phone]

UK Toll-Free Number:              0808 109 0700

US Toll-Free Number:              + 1 866 966 5335

30 Day Replay Dial in Numbers:

International:                            [phone]

UK Toll Free Number:              0800 633 8453           

US Toll Free Number:              [phone]

Access Code:                          8099286#

This interim report can be found on Man Group's website, www.man.com.

About Man Group

Man Group is a global active investment management firm, which runs $113.7 billion¹ of client capital in liquid and private markets, managed by investment specialists based around the world. Headquartered in London, the firm has 15 international offices and operates across multiple jurisdictions. Our business has five specialist investment engines, which represent the range of our capabilities: Man AHL, Man Numeric, Man GLG, Man FRM and Man GPM.

These engines house numerous investment teams, working collaboratively within the framework of Man Group, with a high degree of investment autonomy. Each team benefits from the strength and resources of the firm's single operating platform, enabling their primary focus to be seeking to generate alpha for clients. The teams invest across a diverse range of strategies and asset classes with highly specialised approaches, with long only and alternative strategies run on a discretionary and quantitative basis in single and multi-manager formats. Our clients are at the heart of everything we do and we engage in close dialogue with our investors as strategic partners, to understand their particular needs and constraints. Man Group's investment teams are empowered and supported by our institutional infrastructure and technology, which aims to facilitate efficient exposure to markets and effective collaboration across the organisation.

Through the Man Charitable Trust and sponsorship of the Man Booker Prizes, Man Group is committed to promoting literacy and numeracy on a global scale, and to supporting charitable causes more broadly.

Man Group also supports many awards, charities and initiatives around the world, including sponsorship of the Man Booker literary prizes. 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 or to invest in any investment products mentioned herein. Past performance is not indicative of future results.

1 As at 30 June 2018. All investment management and advisory services are offered through the investment "engines" of Man AHL, Man Numeric, Man GLG, Man FRM and Man GPM.

CHIEF EXECUTIVE OFFICER'S REVIEW

The client led growth in our business remained strong in the first half and, combined with the firm foundations laid across the organisation in 2017, translated into net inflows of $8.3 billion, a new six month record for the firm. We saw continuing interest in our alternative risk premia, emerging market debt and UK and European discretionary long only strategies and there was also a pick-up in demand for our equity long short strategies. This broad based demand demonstrates the increasingly diversified nature of our business.

The six months to June 2018 was a more volatile period for markets, which affected absolute performance across the Group. The more difficult environment for alpha generation impacted our seeding gains and performance fees. Asset weighted outperformance of our strategies versus benchmark¹ was 0.3% for the period. Funds under management ended the half at $113.7 billion, up 4% from December 2017, with the strong net inflows partially offset by negative investment movement and an FX headwind as the US dollar strengthened against most major currencies.

Adjusted profit before tax increased by 5% to $153 million compared to H1 2017, primarily driven by higher management fee revenue partially offset by lower investment gains. Adjusted management fee profit before tax was up 26% versus H1 2017 due to a 26% increase in average FUM and lower fixed cash costs as sterling the hedge rate for H1 2018 was 12% lower than the hedge rate in H1 2017, partially offset by a decline in the net management fee margin. Performance fees were broadly in line with H1 2017, however lower seed book investment gains led to lower performance fee profits. Statutory profit before tax increased by 18% to $90 million compared to the six months ended 30 June 2017.

You've heard us say many times previously that, given the institutional nature of our business, flows are likely to be uneven on a quarter-to-quarter basis. Our third quarter flows will be impacted by a $2.2 billion redemption from one very low margin infrastructure mandate. We had been anticipating this during 2018 and timing has now been confirmed. The client maintains other holdings with us. We wanted to flag this pending redemption, but also to highlight that the impact on the Group's net management fees is not material, as you can see from the further details included in the FUM and margins section on page 8. Aside from this, our underlying business momentum remains good with interest across our product range.

Investment performance²

The first half of the year was a choppier environment for the global investment management industry, with increased trade tensions between the US and China weighing on sentiment. Additionally, a strong US dollar, higher US interest rates and local political uncertainty contributed to pressures on certain emerging markets, particularly in the second quarter. 

Absolute performance was impacted by these market moves, with over $1 billion of the negative investment movement driven by negative returns in our Japanese long only and emerging market long only strategies. In addition, as we described at our 2017 full year results, momentum strategies had a difficult first quarter and struggled to recover those losses in the second quarter, resulting in negative investment performance of between -2.0% and -5.7% in the first half. This was partially offset by positive performance in UK and European focused discretionary strategies, with the European long short strategy up 2.3%, the continental European strategy up 8.2% and the undervalued assets strategy up 2.5% in the period.

Relative performance across the Group was positive but mixed, with asset weighted outperformance versus benchmark¹ across our strategies of 0.3% in the first half. Strong outperformance in emerging market strategies, both systematic and discretionary total return, was broadly offset by underperformance in the Group's largest strategy, Japan CoreAlpha, with its value bias. The Group's discretionary alternative and European long only strategies also performed well on a relative basis, while systematic US large cap and small cap long only strategies, with their value bias, underperformed. Our quant alternative strategies performed broadly in line with benchmarks.

1. For definitions and explanations of our alternative performance measures, please refer to pages 33-36.
2. Past performance is not an indication of future performance. All returns shown are net of fees.

Strong client relationships

During the first half of the year, we built upon the engagement with our existing and target clients during 2017, making further progress in building long term relationships with clients and adding new relationships with strategically important asset allocators and distributors globally.

In line with this focus, we continue to see the trend of clients investing across the firm, with 72% of FUM at 30 June 2018 relating to clients invested in two or more products, and 57% relating to clients invested in four or more products. This illustrates the strength and breadth of our offering, and the value of providing clients with a single point of contact who understands them and their unique requirements. 

Sales in the first half of 2018 were $19.9 billion, up 14% compared to the first half of 2017. We have continued to see interest and inflows into our in-house developed risk premia strategies, with $3.1 billion of sales in the first half, and into emerging market debt strategies with $1.6 billion of sales. Man GLG's European long short strategy had strong investment performance in 2017, which translated in to $1.0 billion of net inflows in the period, and there were strong inflows into the UK long only and continental European equity strategies.

Redemptions were $11.6 billion in the six months to 30 June 2018, up from $9.3 billion in the first half of 2017, however the redemption rate was at a similar percentage of funds under management.

Whilst EMEA continues to be the Group's largest market, with 55% of FUM from clients in this region, clients domiciled in the Americas now account for 27% of FUM at 30 June 2018 (compared to 8% at December 2012). As the Group evolves and continues to build its global presence, particularly in the US, we continually review our operations in order to ensure our resources and structure are appropriately aligned to best serve our clients and business strategy.

Innovative investment strategies

Developing innovative investment strategies across our business and enhancing our existing offering for clients is core to Man Group's strategy.

During the first half of the year, across our quantitative business, ongoing focus on research continued to drive the development of our strategies. Within equity markets, it is clear that today's companies exist in increasingly complex and interconnected global ecosystems. Man Numeric has developed a systematic approach to mapping and quantifying these 'fundamental networks' across markets, which we believe can help investors understand the equity market universe using a more consistent framework, complementing existing quantitative equity research. Man AHL continues to actively evaluate and access new markets to which its existing strategies can be applied, in order to add more diversifying drivers to its portfolios and currently trades over 600 markets globally.

Within our discretionary business, we are engaged in embedding quantitative techniques to support and enhance the alpha from individual portfolio managers. Developments include the deployment of quantitative portfolio construction techniques to reduce factor risk and extract alpha more efficiently within our long short equity programme, which complements discretionary decision making with a systematic overlay. Man GLG continues to make progress in other areas to further enhance the development of our discretionary credit offering, including appointing a Credit Chief Investment Officer this year.

At a Group level, we made further progress in centralising our trading and execution function, including making a number of internal appointments, as we seek to build a firm-wide centre of execution excellence in trading, trading technology and trading research. A globally coordinated central execution team allows us to adapt to today's more complex market structures with the goal of delivering better execution results for all of our investment engines. We expect this ongoing effort to further reduce trading costs, translating into improved performance for clients.

We remain committed to keeping technology at the heart of the firm in a rapidly evolving world and have appointed an Alpha Chief Technology Officer to manage our front office technology across the firm, supported by a team drawn from across our investment engines. This new structure supports our vision of creating a technology team, environment and platform which promotes the highest level of innovation and agility, whilst minimising any unnecessary duplication of technology, tools and processes.

The Man GPM business is progressing according to plan since its launch in January 2017. As we find opportunities to invest capital, FUM growth has been steady, and we are encouraged by the level of interest shown by our clients for our offering in this asset class.

Efficient and effective operations

Fixed cash costs for the period were $154 million, 4% lower than the first half of 2017. There were cost increases from MiFID II and the increased spend in our investment management and client service capabilities. These were more than offset by the impact of real estate efficiencies and a favourable FX hedge rate, with a $12 million benefit from the sterling hedge rate being lower than in H1 2017. We continue to invest in new talent and technology, as outlined above, and earlier this year we announced an additional $15 million of spend in 2018 into our investment management and client service capabilities. Hiring has been a little slower than planned, as we source the right people for our business and our clients. Fixed cash costs will therefore increase in the second half of 2018 due to a higher sterling hedge rate (1.33 for H2 2018 versus 1.26 for H1 2018), the impact of higher headcount and due to certain costs being second half weighted.

During the first half of the year, we successfully managed the implementation of two key pieces of regulation, MiFID II and the General Data Protection Regulation (GDPR), and were supported in meeting these requirements by the strength of our technology infrastructure and efforts of our people.

Our balance sheet remains strong and liquid, with net tangible assets of $589 million at 30 June 2018 (compared to $669 million at 31 December 2017), the decrease being due to the payment of the final dividend for 2017 and share repurchases. The Group had operating cash net inflows of $203 million for H1 2018 (compared to net inflows of $36 million for H1 2017) primarily as a result of cash profits generated in the period and receipt of performance fees that crystallised in December 2017, partially offset by the payment of the Group's variable compensation in February. The Group had operating cash net inflows (before working capital, interest and tax) of $186 million for the period (H1 2017: $189 million). At 30 June 2018, the Group had total net cash of $159 million excluding the cash balances related to consolidated funds (30 June 2017: $121 million, 31 December 2017: $206 million).

As explained in previous periods, we have a seed capital programme to support the growth of the business as we launch new products over time. The book is sized in accordance with a Value at Risk (VaR) limit of $75 million and in aggregate stood at $563 million at 30 June 2018 ($480 million at 31 December 2017, see page 28 for further detail). The seed book consists of fund and other investments that will be redeemed as practicable, typically within 12 months, as funds are marketed to clients. The asset weighted performance of the seeding book (excluding illiquid assets) for the six months to 30 June 2018 was 0.1% (3.6% for six months to 30 June 2017).

Surplus regulatory capital at 30 June 2018 was $373 million, which is lower than the 31 December 2017 position of $460 million, primarily due to the execution of the $100 million buyback programme. Surplus regulatory capital will be around $350 million after taking into account the receipt of the performance fees that crystallised in June 2018, the impact of interim profits and other reserve movements, which are not included in the 30 June 2018 figure until they have been verified, and the payment of the interim dividend. As previously indicated we estimate the adoption of the new leases accounting standard which will apply from 1 January 2019 will reduce that surplus capital by up to £90 million ($120 million). More detail on this is included on page 23.

Dividend and share repurchase

Man Group's dividend policy is to pay at least 100% of adjusted management fee EPS in each financial year by way of ordinary dividend. In addition, Man Group expects to generate significant surplus capital over time, primarily from net performance fee earnings. Available capital surpluses will be distributed to shareholders over time by way of higher dividend payments and/or share repurchases, while maintaining a prudent balance sheet and taking into account required capital (including liabilities for future earn-out payments) and potential strategic opportunities.

In line with this policy the Board has declared an interim dividend of 6.4 cents per share, being an amount equal to the adjusted management fee EPS for the six months to 30 June 2018 (refer to the Alternative Performance Measures section (page 35)). The interim dividend will be paid at the rate of 4.88 pence per share on 5 September 2018 to all shareholders on the register on 10 August 2018. In April 2018, the Board announced a share repurchase programme for up to $100 million to return surplus capital to shareholders. Currently, around $50 million worth of shares have been repurchased.

FUNDS UNDER MANAGEMENT (FUM), FLOWS AND NET MANAGEMENT FEE MARGINS¹

FUM movements for the six months to 30 June 2018

$bn	FUM at 31 December 2017	Net inflows/ (outflows)	Investment movement	FX & other	FUM at 30 June 2018
Alternative	61.7	6.3	(0.8)	(1.5)	65.7
Absolute return	29.2	2.1	(0.7)	(0.9)	29.7
Total return	16.5	4.6	(0.1)	(0.9)	20.1
Multi-manager solutions	16.0	(0.4)	-	0.3	15.9
Long only	47.2	2.0	(0.9)	(0.4)	47.9
Systematic	26.8	-	(0.4)	(0.1)	26.3
Discretionary	20.4	2.0	(0.5)	(0.3)	21.6
Guaranteed	0.2	-	-	(0.1)	0.1
Total	109.1	8.3	(1.7)	(2.0)	113.7

FUM movements for the three months to 30 June 2018

$bn	FUM at 31 March 2018	Net inflows/ (outflows)	Investment movement	FX & other	FUM at 30 June 2018
Alternative	64.0	2.9	0.2	(1.4)	65.7
Absolute return	29.3	0.7	0.2	(0.5)	29.7
Total return	18.5	2.5	-	(0.9)	20.1
Multi-manager solutions	16.2	(0.3)	-	-	15.9
Long only	48.5	0.6	(0.1)	(1.1)	47.9
Systematic	26.9	(0.1)	(0.4)	(0.1)	26.3
Discretionary	21.6	0.7	0.3	(1.0)	21.6
Guaranteed	0.2	-	-	(0.1)	0.1
Total	112.7	3.5	0.1	(2.6)	113.7

FUM movements for the three months to 31 March 2018

$bn	FUM at 31 December 2017	Net inflows/ (outflows)	Investment movement	FX & other	FUM at 31 March 2018
Alternative	61.7	3.4	(1.0)	(0.1)	64.0
Absolute return	29.2	1.4	(0.9)	(0.4)	29.3
Total return	16.5	2.1	(0.1)	-	18.5
Multi-manager solutions	16.0	(0.1)	-	0.3	16.2
Long only	47.2	1.4	(0.8)	0.7	48.5
Systematic	26.8	0.1	-	-	26.9
Discretionary	20.4	1.3	(0.8)	0.7	21.6
Guaranteed	0.2	-	-	-	0.2
Total	109.1	4.8	(1.8)	0.6	112.7

1.       For definitions and explanations of our alternative performance measures, please refer to page 33.

Net management fee margins and run rate net management fee revenues¹

	Margin for the Year ended 31 December 2017 (bps)	Run rate margin at 31 December 2017 (bps)	Margin for the Six months ended 30 June 2018 (bps)	Run rate margin at 30 June 2018 (bps)2	Run rate net management fees at 30 June 20181,2 $m
Absolute return	138	131	130	129	382
Total return	56	56	57	57	114
Multi-manager solutions	45	37	37	40	54
Systematic	36	35	37	37	97
Discretionary	67	71	69	69	148
Core	75	71	71	71	795
Guaranteed	504	479	537	501	7
Associate income					8
Total	76	72	71	72	810

1.     Run rate revenue applies internal analysis of run rate margin to 30 June 2018 FUM. It is for illustrative purposes and not a forecast. Run rate associate income of $8m is equal to our share of post-tax profits of associates for the previous 12 months.

2.     The run rate margin at 30 June 2018 and run rate net management fee revenues at 30 June 2018 have been adjusted to reflect the impact of a pending $2.2 billion redemption from a low margin account in an infrastructure mandate in the multi-manager solutions category

In aggregate, our total net margin has decreased from 76 basis points for the year ended 31 December 2017 to 71 basis points for the six months ended 30 June 2018. This reduction is due to the continued mix shift towards lower margin strategies and the increasing proportion of solutions business in the multi-manager solutions category.

One of our large infrastructure clients has notified us they intend to redeem $2.2 billion in the third quarter as they reallocate their portfolio. Given the low margin and non-complex nature of this account the impact on revenues is not material. The group's run rate margin at 30 June 2018 has been adjusted for this notification in the table above and the run rate margin increases to 72 basis points compared to the margin for the six months ended 30 June 2018.

ALTERNATIVES

Absolute return

Absolute return FUM increased by 2% to $29.7 billion in the six months to 30 June 2018. Net inflows of $2.1 billion included $1.0 billion into the European long short strategy, $0.6 billion from a single client into a bespoke cross content solution mandate, $0.4 billion into the UK alpha select strategy and $0.3 billion into the UK absolute value strategy. 

Negative investment movement of $0.7 billion was driven by Man AHL with the AHL Dimension strategy down 2.0%, the AHL Evolution strategy down 3.1%, the AHL Alpha strategy down 2.2% and the AHL Diversified strategy down 5.7%. Man GLG's alternative strategies performed well during the half with the European long short strategy up 2.3%. 

Man AHL earned $57 million of gross performance fees in the period (compared to $50 million in H1 2017). The majority of the AHL Evolution strategy's performance fees crystallise annually in June and the performance over the previous twelve months was 6.6% which resulted in $43 million of performance fees. An additional $8 million was earned from funds crystallising in January, which was a very strong month of performance and $6 million was earned from institutional solutions. As at 30 June 2018, 19% of Man AHL performance fee eligible FUM, or $3.7 billion, was at high watermark (with the majority of these funds next crystallising in June 2019) and 49%, or $9.5 billion, was within 5% of high watermark. 

Man GLG recorded $24 million of gross performance fees in the first half (compared to $22 million in H1 2017) with the majority of the fees being earned from the European long short, and the UK and European mid-cap equity strategies. As at 30 June 2018, 51% of Man GLG performance fee eligible FUM, or $6.6 billion, was at high watermark and 41%, or $5.2 billion, was within 5% of high watermark.

FX movements were negative $0.4 billion, driven by the strengthening of the US dollar against the Australian Dollar, Euro and Sterling. Other movements of negative $0.5 billion related to the seeding withdrawal from the select opportunities strategy ($0.2 billion) and leverage movements which occur on rebalance ($0.3 billion).

The absolute return margin decreased by 8 basis points compared to the year ended 31 December 2017, as a result of the continued mix shift away from some of our historical strategies towards institutional assets, which are at a lower margin. We expect the absolute return margin will continue to gradually decline as this shift continues.

Total return

Total return FUM increased by 22% in the six months to 30 June 2018 to $20.1 billion, driven by net inflows of $4.6 billion partially offset by negative FX movements of $0.3 billion, CLO maturities of $0.3 billion and loan repayments at GPM of $0.3 billion. Net flows included $2.9 billion into risk premia strategies, $0.8 billion into the AHL target risk strategy and $0.6 billion from CLO launches. Negative FX movements of $0.3 billion were driven by the dollar strengthening against Sterling and the Euro.

Investment performance of our total return strategies was flat in the first half of 2018 with alternative risk premia down 1.1% and the emerging market debt total return strategy up 2.2%. We are pleased with how the emerging market debt total return strategy navigated the first half, with strong outperformance versus peers.

The total return net management fee margin increased slightly compared to the year ended 31 December 2017.

Multi-manager solutions

Multi-manager solutions FUM decreased by 1% to $15.9 billion driven by net outflows of $0.4 billion and negative FX movements of $0.2 billion. This was partially offset by positive leverage movements that occur on rebalance and other movements of $0.5 billion. Net outflows of $0.4 billion from lower margin infrastructure mandates and $0.3 billion from legacy fund of fund strategies were partially offset by a $0.3 billion inflow into a segregated mandate. Negative FX movements of $0.2 billion were driven by the dollar strengthening against the Australian dollar.

Man FRM's strategies had muted investment performance in the first six months of the year and earned $1 million of performance fees in the period (compared to $1 million in H1 2017).

The net margin in the multi-manager solutions category decreased by 8 basis points compared to the year ended 31 December 2017, due to the continued mix shift towards managed account mandates and the decline in legacy fund of fund assets. The run rate margin has increased to 40 basis points mainly due to the inclusion of the impact of the $2.2 billion low margin infrastructure account redemption described above.

LONG ONLY

Systematic

Systematic long only FUM decreased by 2% to $26.3 billion in the six month period, driven primarily by negative investment movement of $0.4 billion. Net inflows into emerging markets strategies and international small cap strategies were offset by outflows from global core strategies. 

Man Numeric's range of strategies had mixed absolute and relative performance in the first half of the year, with asset weighted performance relative to benchmarks (net of fees) of negative 1.0%¹. Positive alpha was generated in the emerging markets core strategy (outperforming its reference index by 0.4%) and the european core strategy (outperforming its reference index by 2.3%). This positive alpha was more than offset by negative alpha in global developed non-US stocks, resulting in negative performance for certain strategies, including global core, Man Numeric's single largest strategy (underperforming its reference index by 2.6%) and the small cap core strategy (underperforming its reference index by 4.5%). Man Numeric earned $1 million of performance fees in the period (compared to $10 million in H1 2017).

The net margin in this category increased slightly compared to the year ended 31 December 2017.

Discretionary

Discretionary long only FUM increased by 6% to $21.6 billion, driven by net inflows of $2.0 billion, partially offset by negative investment movement of $0.5 billion and negative FX movement of $0.3 billion. Net inflows of $2.0 billion included $0.9 billion into each of UK long only and emerging markets fixed income strategies and $0.4 billion into continental European strategies. This was partially offset by net outflows of $0.3 billion from the convertibles strategy. 

The primary driver of the negative investment movement of $0.5 billion was Japan CoreAlpha which was down 7.9% in the half.

The negative FX movement of $0.3 billion was driven by the Dollar strengthening against Sterling.

The run rate net management fee margin in this category declined slightly compared to the year ended 31 December 2017 due to a mix effect away from Japan CoreAlpha in the first half.

1 Numeric's asset weighted performance relative to benchmarks (net of fees) for the six months to 30 June 2018 is calculated using the asset weighted average of the performance relative to the benchmark for all strategy composites available net of the highest management fees and, as applicable, performance fees that can be charges.

FUM by product category

$bn	30-Jun-17	30-Sep-17	31-Dec-17	31-Mar-18	30-Jun-18
Absolute return	26.6	27.2	29.2	29.3	29.7
GLG Equity absolute return	3.6	3.4	3.8	5.5	6.2
AHL Dimension	5.1	5.7	5.9	5.3	5.3
AHL Alpha1	4.9	4.8	5.2	5.0	4.9
AHL Evolution	3.3	3.4	3.7	3.4	3.4
Man Institutional Solutions2	2.0	2.8	3.2	3.3	3.1
Numeric absolute return	1.9	1.8	1.9	1.9	1.9
AHL Diversified1	2.3	2.1	2.1	2.0	1.8
AHL other	2.0	1.8	1.8	1.6	1.8
GLG Credit absolute return	1.5	1.4	1.6	1.3	1.3
Total return	11.3	14.4	16.5	18.5	20.1
Diversified risk premia	1.6	4.1	5.7	7.5	9.0
EM total return	3.4	3.9	4.4	4.5	4.4
CLO	4.3	4.2	4.2	4.4	4.4
GPM	2.0	2.2	2.2	2.1	2.3
Multi-manager solutions	14.9	15.5	16.0	16.2	15.9
Infrastructure & direct access	7.4	7.1	7.7	7.7	7.2
Segregated	4.7	5.8	6.0	6.3	6.6
Diversified and thematic FoHF	2.8	2.6	2.3	2.2	2.1
Systematic long only	25.1	26.8	26.8	26.9	26.3
Global	9.0	9.5	9.6	8.7	8.4
Emerging markets	5.7	6.5	6.7	7.6	7.0
International	5.9	6.4	6.4	6.7	6.9
US	4.5	4.4	4.1	3.9	4.0
Discretionary long only	17.8	19.4	20.4	21.6	21.6
Japan equity	7.9	8.5	9.7	9.5	9.0
Europe equity	2.3	3.1	3.5	4.2	4.8
Other equity	2.1	2.2	2.2	2.2	2.6
Credit & convertibles	3.3	3.3	2.9	2.7	2.3
EM Fixed income	1.1	1.2	1.1	1.9	1.8
Multi Asset	1.1	1.1	1.0	1.1	1.1
Guaranteed	0.2	0.2	0.2	0.2	0.1
Total	95.9	103.5	109.1	112.7	113.7

1 AHL Alpha UCITS and AHL Momentum UCITS have been reclassified from AHL Diversified to AHL Alpha

2 Man Institutional Solutions includes AHL Institutional Solutions and Multi-strategy. AHL Institutional Solutions invests into a range of AHL strategies including AHL Dimension, AHL Alpha and AHL Evolution and now includes GLG Multi-strategy

 

FUM by investment engine

$bn	30-Jun-17	30-Sep-17	31-Dec-17	31-Mar-18	30-Jun-18
AHL	19.8	22.0	24.0	23.8	24.5
Dimension	5.1	5.7	5.9	5.3	5.3
Alpha1	4.9	4.8	5.2	5.0	4.9
Diversified risk premia	0.6	1.8	2.5	3.6	4.6
Evolution	3.3	3.4	3.7	3.4	3.4
Institutional Solutions2	1.4	2.2	2.6	2.7	2.6
Diversified (inc. Guaranteed)1	2.5	2.3	2.3	2.2	1.9
Other	2.0	1.8	1.8	1.6	1.8
Numeric	28.0	30.9	31.9	32.7	32.6
Alternatives	2.9	4.1	5.1	5.8	6.3
Diversified risk premia	1.0	2.3	3.2	3.9	4.4
Numeric absolute return	1.9	1.8	1.9	1.9	1.9
Long only	25.1	26.8	26.8	26.9	26.3
Global	9.0	9.5	9.6	8.7	8.4
Emerging markets	5.7	6.5	6.7	7.6	7.0
International	5.9	6.4	6.4	6.7	6.9
US	4.5	4.4	4.1	3.9	4.0
GLG	31.2	32.9	35.0	37.9	38.4
Alternatives	13.4	13.5	14.6	16.3	16.8
Equity absolute return3	4.0	3.8	4.2	5.9	6.5
EM total return	3.4	3.9	4.4	4.5	4.4
CLOs	4.3	4.2	4.2	4.4	4.4
Credit absolute return3	1.7	1.6	1.8	1.5	1.5
Long only	17.8	19.4	20.4	21.6	21.6
Japan equity	7.9	8.5	9.7	9.5	9.0
Europe equity	2.3	3.1	3.5	4.2	4.8
Other equity	2.1	2.2	2.2	2.2	2.6
Credit & convertibles	3.3	3.3	2.9	2.7	2.3
EM Fixed income	1.1	1.2	1.1	1.9	1.8
Multi Asset	1.1	1.1	1.0	1.1	1.1
FRM	14.9	15.5	16.0	16.2	15.9
Infrastructure & direct access	7.4	7.1	7.7	7.7	7.2
Segregated	4.7	5.8	6.0	6.3	6.6
Diversified and thematic FoHF	2.8	2.6	2.3	2.2	2.1
GPM	2.0	2.2	2.2	2.1	2.3
Total	95.9	103.5	109.1	112.7	113.7

1 AHL Alpha UCITS and AHL Momentum UCITS have been reclassified from AHL Diversified to AHL Alpha

2 Institutional Solutions invests into a range of AHL strategies including AHL Dimension, AHL Alpha and AHL Evolution

3 GLG Equity absolute return and GLG Credit absolute return include allocations from Multi-strategy included in Man Institutional solutions in the FUM by product category table

 

Investment Performance

		Total Return		Annualised Return
		Last 3 months	Last 6 months	3 years	5 years	Since Inception
Absolute return
AHL Dimension	1	2.4%	-2.0%	2.4%	4.8%	5.0%
AHL Alpha	2	0.9%	-2.2%	1.4%	4.5%	11.0%
AHL Evolution	3	0.9%	-3.1%	6.9%	11.0%	13.4%
AHL Diversified	4	0.3%	-5.7%	-1.6%	3.6%	11.2%
Numeric Alternative Market Neutral	5	-0.4%	-1.4%	0.7%	2.6%	3.7%
GLG European Long Short	6	-1.1%	2.3%	3.2%	2.3%	7.6%
Man GLG Global Credit Multi Strategy	7	1.6%	3.8%	8.9%	5.7%	12.7%
Total return
Man Alternative Risk Premia SP	8	-1.3%	-1.1%	n/a	n/a	6.6%
Man GLG Global EM Debt Total Return	9	3.6%	2.2%	n/a	n/a	4.8%
Multi-manager solutions
FRM Diversified II	10	-0.4%	-0.1%	0.1%	1.7%	4.1%
Systematic long only
Numeric Global Core	11	-0.2%	-2.1%	8.8%	12.3%	12.2%
Relative Return		-1.9%	-2.6%	0.3%	2.3%	2.6%
Numeric Europe Core (EUR)	12	4.0%	1.9%	6.4%	12.5%	9.4%
Relative Return		0.0%	2.3%	3.8%	4.0%	3.0%
Numeric Emerging Markets Core	13	-9.3%	-6.2%	9.1%	9.4%	7.3%
Relative Return		-1.4%	0.4%	3.5%	4.3%	3.7%
Discretionary long only
Man GLG Japan Core Alpha Equity	14	-1.0%	-7.9%	1.4%	10.0%	4.3%
Relative Return		-2.1%	-4.2%	-2.8%	-1.1%	2.3%
Man GLG Continental European Growth	15	6.9%	8.2%	20.3%	19.7%	9.9%
Relative Return		3.5%	9.6%	8.4%	9.1%	4.2%
Man GLG Undervalued Assets	16	6.7%	2.5%	11.7%	n/a	11.9%
Relative Return		-2.5%	0.8%	2.1%	n/a	4.5%
Indices
HFRX Global Hedge Fund Index	17	0.2%	-0.8%	0.8%	1.3%
HFRI Fund of Funds Conservative Index	17	1.0%	1.6%	1.9%	3.0%
Barclay BTOP 50 Index	18	-1.1%	-3.6%	-2.2%	0.4%
HFRX EH: Equity Market Neutral Index	17	-0.5%	0.2%	0.4%	1.3%

 

Investment Performance (Cont'd)

1.      Represented by AHL Strategies PCC Limited: Class B AHL Dimension USD Shares from 3 July 2006 to 31 May 2014, and by AHL Dimension (Cayman) Ltd - F USD Shares Class from 1 June 2014 until 28 February 2015 when AHL Dimension (Cayman) Ltd - A USD Shares Class is used. Representative fees of 1.5% Management Fee and 20% Performance Fee have been applied.

2.      Represented by AHL Alpha plc from 17 October 1995 to 30 September 2012, and by AHL Strategies PCC Limited: Class Y AHL Alpha USD Shares from 1 October 2012 to 30 September 2013. 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. Both of the track records have been adjusted to reflect the fee structure of AHL Alpha (Cayman) Limited - USD Shares. From 30 September 2013, the actual performance of AHL Alpha (Cayman) Limited - USD Shares is displayed.

3.      Represented by AHL Evolution Limited adjusted for the fee structure (2% p.a. management fee and 20% performance fee) from September 2005 to 31 October 2006; and by AHL Strategies PCC: Class G AHL Evolution USD from 1 November 2006 to 30 November 2011; and by the performance track record of AHL Investment Strategies SPC: Class E AHL Evolution USD Notes from 1 December 2011 to 30 November 2012. From 1 December 2012, the track record of AHL (Cayman) SPC: Class A1 Evolution USD Shares has been shown. All returns shown are net of fees.

4.      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 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.

5.      Numeric alternative market neutral composite

6.      Represented by GLG European Long Short Fund - Class D Restricted - EUR until 29 June 2007. From 1 July 2007 the performance of GLG European Long Short Fund - Class D Unrestricted is displayed.

7.      Represented by GLG Market Neutral Fund - Class Z Restricted - USD until 31 August 2007. From the 1 September 2007 Man GLG Global Credit Multi Strategy CL IL XX USD unrestricted.        

8.      Represented by Man Alternative Risk Premia Class A USD.

9.      Represented by Man GLG Global Emerging Markets Debt Total Return Class I USD.

10.    Represented by FRM Diversified II Fund SPC - Class A USD ('the fund') until April 2018 then Class A JPY hedged to USD there after. However, prior to Jan 2004, FRM has created the FRM Diversified II pro forma using the following methodology: i) for the period Jan 1998 to Dec 2003, by using the returns of Absolute Alpha Fund PCC Limited - Diversified Series Share Cell ('AA Diversified - USD') adjusted for fees and/or currency, where applicable. For the period Jan 2004 to Feb 2004, the returns of the fund's master portfolio have been used, adjusted for fees and/or currency, where applicable. Post Feb 2004, the fund's actual performance has been used, which may differ from the calculated performance of the track record. There have been occasions where the 12-months' performance to date of FRM Diversified II has differed materially from that of AA Diversified. Strategy and holdings data relates to the composition of the master portfolio.

11.    Performance relative to the MSCI World. This reference index is intended to best represent the strategy's universe. Investors may choose to compare returns for their accounts to different reference indices, resulting in differences in relative return information. Comparison to an index is for informational purposes only, as the holdings of an account managed by Numeric will differ from the securities which comprise the index and may have greater volatility than the holdings of an index.

12.    Performance relative to the MSCI Europe (EUR). This reference index is intended to best represent the strategy's universe. Investors may choose to compare returns for their accounts to different reference indices, resulting in differences in relative return information. Comparison to an index is for informational purposes only, as the holdings of an account managed by Numeric will differ from the securities which comprise the index and may have greater volatility than the holdings of an index.

13.    Performance relative to MSCI Emerging Markets. This reference index is intended to best represent the strategy's universe. Investors may choose to compare returns for their accounts to different reference indices, resulting in differences in relative return information. Comparison to an index is for informational purposes only, as the holdings of an account managed by Numeric will differ from the securities which comprise the index and may have greater volatility than the holdings of an index.

14.    Represented by Man GLG Japan CoreAlpha Fund - Class C converted to JPY until 28 January 2010. From 1 February 2010 Man GLG Japan CoreAlpha Equity Fund - Class I JPY is displayed. Relative return shown vs TOPIX (JPY, GDTR).

15.    Represented by Man GLG Continental European Growth Fund Class C Accumulation Shares. Relative return shown vs FTSE World Europe Ex UK (GBP, GDTR).

16.    Represented by Man GLG Undervalued Assets Fund - C Accumulation Shares. Relative return shown vs FTSE All Share (GBP, NDTR).

17.    HFRI and HFRX index performance over the past 4 months is subject to change.

18.    The historic Barclay BTOP 50 Index data is subject to change.

Past or projected performance is no indication of future results. Financial indices are used for illustrative purposes only and are provided for the purpose of making a comparison to general market data as a point of reference and should not be construed as a true comparison to the strategy. The information herein is being provided solely in connection with this press release and is not intended to be, nor should it be construed or used as, investment, tax or legal advice, any recommendation or opinion regarding the appropriateness or suitability of any investment or strategy, or an offer to sell, or a solicitation of an offer to buy, an interest in any security, including an interest in any fund or pool described herein.

 

RISK MANAGEMENT

It is a key objective of Man Group to remain a leader in risk management and governance. As such, risk management is an essential component of our approach, both to the management of investment funds on behalf of investors, and the management of Man Group's business on behalf of shareholders. Our reputation is fundamental to our business, and maintaining our corporate integrity is the responsibility of everyone at Man Group. Our approach is to identify, quantify and manage risk throughout the Group, in accordance with the Board's risk appetite. We maintain surplus capital and liquidity to give us strategic and tactical flexibility, both in terms of corporate and fund management.

The principal risks faced by Man Group are set out on pages 33 to 35 of our 2017 Annual Report. These remain our principal risks for the second half of the financial year being: investment underperformance risk; key person risk; credit/counterparty risk; liquidity risk; investment book risk; pension risk; risk of external process failure; information security and cybercrime security risk; information technology risk; integration risk; regulatory risk; and reputational risk. Our risk framework operated as expected in the six months to 30 June 2018, with systems and controls functioning as designed despite volatile markets. As described in our 2017 Annual Report Man Group will continue to take the necessary steps to ensure that, post-Brexit, it remains able to service its existing clients and to access new business in the EU.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that, to the best of their knowledge, this condensed set of financial statements in respect of Man Group plc for the six month period ended 30 June 2018 has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union, and that this interim report includes a fair review of the information required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules 4.2.7 and 4.2.8, namely:

·     an indication of important events that have occurred during the six months ended 30 June 2018 and their impact on the condensed interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year ending 31 December 2018; and

·     material related party transactions in the six months ended 30 June 2018 and any material changes in the related party transactions described in the last annual report.

The Directors of Man Group plc are as listed in the Annual Report for the year ended 31 December 2017, with the exception of Zoe Cruz, who joined the Board on 1 June 2018. 

By order of the board

Luke Ellis

Chief Executive Officer

1 August 2018

Mark Jones

Chief Financial Officer

1 August 2018

INDEPENDENT REVIEW REPORT TO MAN GROUP PLC

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the group income statement, Group statement of comprehensive income, the group balance sheet, the group statement of changes in equity, the group cash flow statement and related Notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, UK

1 August 2018

 

INTERIM FINANCIAL STATEMENTS

Group income statement

			Six months to 30 June	Six months to 30 June
$m	Note		2018	2017
Revenue:
Gross management and other fees	2		423	378
Performance fees	2		83	83
			506	461
Income or gains on investments and other financial instruments			4	39
Third-party share of gains relating to interests in consolidated funds		11	(1)	(15)
Revaluation of contingent consideration		13	(5)	(11)
Distribution costs		3	(27)	(28)
Asset servicing		3	(25)	(17)
Amortisation of acquired intangible assets		9	(42)	(42)
Compensation		4	(229)	(216)
Other costs		5	(79)	(82)
Share of post-tax profit of associates			4	4
Finance expense		6	(20)	(18)
Finance income		6	4	1
Profit before tax			90	76
Taxation expense		7	(16)	(14)
Statutory profit for the period attributable to owners of the Parent Company			74	62
Earnings per share:		8
Basic (cents)			4.6	3.8
Diluted (cents)			4.6	3.8

Group statement of comprehensive income

	Six months to 30 June	Six months to 30 June
$m	2018	2017
Statutory profit for the period attributable to owners of the Parent Company	74	62
Other comprehensive income/(expense):
Remeasurements of post-employment benefit obligations	26	(6)
Current tax debited on pension scheme	2	(1)
Deferred tax (debited)/credited on pension scheme	(6)	2
Items that will not be reclassified to profit or loss	22	(5)
Cash flow hedges:
Valuation (losses)/gains taken to equity	(6)	12
Transfer to Group income statement	(9)	11
Deferred tax credited/(debited) on cash flow hedge movements	3	(4)
Net investment hedge	3	(3)
Foreign currency translation	(7)	9
Items that may be subsequently reclassified to profit or loss	(16)	25
Other comprehensive income for the period (net of tax)	6	20
Total comprehensive income for the period attributable to owners of the Parent Company	80	82

 

Group balance sheet

$m	Note	At 30 June 2018	At 31 December 2017
Assets
Cash and cash equivalents	10	358	379
Fee and other receivables		370	491
Investments in fund products and other investments	11	738	729
Pension asset		36	32
Investments in associates		30	29
Leasehold improvements and equipment		41	44
Goodwill and acquired intangibles	9	979	1,024
Other intangibles		26	23
Deferred tax assets		71	81
		2,649	2,832
Non-current assets held for sale	11	41	145
Total assets		2,690	2,977
Liabilities
Trade and other payables		707	843
Provisions	12	29	34
Current tax liabilities		10	21
Third-party interest in consolidated funds	11	158	99
Borrowings	10	150	150
Deferred tax liabilities		42	48
		1,096	1,195
Non-current liabilities held for sale	11	-	66
Total liabilities		1,096	1,261
Net assets		1,594	1,716
Equity
Share capital and capital reserves		1,226	1,220
Revaluation reserves and retained earnings		368	496
Capital and reserves attributable to owners of the Parent Company		1,594	1,716

 

Group cash flow statement

				Six months to 30 June	Six months to 30 June
$m		Note		2018	2017
Cash flows from operating activities
Statutory profit				74	62
Adjustments for non-cash items:
Income tax expense				16	14
Net finance expense				16	17
Share of post-tax profit of associates				(4)	(4)
Revaluation of contingent consideration				5	11
Depreciation of leasehold improvements and equipment				7	6
Amortisation of acquired intangible assets				42	42
Amortisation of other intangible assets				4	3
Share-based payment charge				13	9
Fund product based payment charge				19	19
Defined benefit pension plans				2	-
Other non-cash movements				(8)	10
				186	189
Changes in working capital:
Decrease/(increase) in receivables				292	(119)
(Increase)/decrease in other financial assets1				(100)	52
Decrease in payables				(148)	(78)
Cash generated from operations				230	44
Interest paid				(5)	(5)
Income tax paid				(22)	(3)
Cash flows from operating activities				203	36
Cash flows from investing activities
Purchase of leasehold improvements and equipment				(5)	(2)
Purchase of other intangible assets				(7)	(5)
Cash acquired on the completion of Aalto acquisition				-	2
Payment of contingent consideration in relation to acquisitions				(4)	(6)
Interest received				2	1
Proceeds from sale of associate				-	2
Dividends received from associates				3	5
Cash flows from investing activities				(11)	(3)
Cash flows from financing activities
Proceeds from issue of ordinary shares				6	5
Purchase of own shares by the Employee Trusts and Partnerships				(29)	(18)
Share repurchase programme (including costs)				(100)	(53)
Dividends paid to Company shareholders				(90)	(77)
Cash flows from financing activities				(213)	(143)
Net decrease in cash				(21)	(110)
Cash at beginning of the period				379	426
Effect of foreign exchange movements				-	5
Cash at period end2	10			358	321

Notes:

1       Includes $26 million of restricted net cash inflows (H1 2017: $14 million) relating to consolidated fund entities (Note 11).

2       Includes $49 million (H1 2017: $51 million) of restricted cash relating to consolidated fund entities (Note 11).

Group statement of changes in equity

Share capital and capital reserves $m			Share capital		Share premium account			Capital redemption reserve		Merger reserve			Reorganisation reserve			Total
At 1 January 2018			56		26			7		499			632			1,220
Purchase and cancellation of own shares			(1)		-			1		-			-			-
Issue of ordinary shares: Partnership Plans and Sharesave			-		6			-		-			-			6
At 30 June 2018			55		32			8		499			632			1,226
At 1 January 2017			58		19			5		491			632			1,205
Purchase and cancellation of own shares			(2)		-			2		-			-			-
Issue of ordinary shares: Aalto acquisition			-		-			-		8			-			8
Issue of ordinary shares: Partnership Plans and Sharesave			-		7			-		-			-			7
At 31 December 2017			56		26			7		499			632			1,220
Revaluation reserves and retained earnings
$m	Profit and loss account			Own shares held by Employee Trusts		Treasury Shares			Cumulative    translation    adjustment			Cash    flow    hedge    reserve			Available -for-sale reserve		Total
At 31 December 2017 (as reported)	559			(46)		-			(26)			7			2		496
Adjustment for adoption of IFRS 9 (Note 1)	2			-		-			-			-			(2)		-
At 1 January 2018	561			(46)		-			(26)			7			-		496
Statutory profit	74			-		-			-			-			-		74
Other comprehensive income/(expense)	22			1		-			(5)			(12)			-		6
Share-based payments charge	7			-		-			-			-			-		7
Current tax credited on share based payments	1			-		-			-			-			-		1
Deferred tax debited on share based payments	(1)			-		-			-			-			-		(1)
Purchase of own shares by the Employee Trusts	-			(24)		-			-			-			-		(24)
Disposal of own shares by the Employee Trusts	(13)			13		-			-			-			-		-
Share repurchases1	(101)			-		-			-			-			-		(101)
Transfer to Treasury shares1	9			-		(9)			-			-			-		-
Dividends2	(90)			-		-			-			-			-		(90)
At 30 June 2018	469			(56)		(9)			(31)			(5)			-		368
At 1 January 2017		564		(43)			-		(39)		(15)			2			469
Statutory profit		255		-			-		-		-			-			255
Other comprehensive income		(1)		(4)			-		13		22			-			30
Share-based payments charge		13		-			-		-		-			-			13
Deferred tax credited on share-based payments		2		-			-		-		-			-			2
Purchase of own shares by the Employee Trusts		-		(14)			-		-		-			-			(14)
Disposal of own shares by the Employee Trusts		(15)		15			-		-		-			-			-
Share repurchases		(101)		-			-		-		-			-			(101)
Dividends		(158)		-			-		-		-			-			(158)
At 31 December 2017		559		(46)			-		(26)		7			2			496

Notes:

1      Of the $101 million share repurchase during the period, $9 million are held as Treasury Shares.

2      The final dividend for the year ended 31 December 2017 of $90 million was approved and paid in May 2018 and was therefore deducted from the retained earnings reserve in the six months ended 30 June 2018.

 

1.   Basis of preparation

The interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.

The income statement and cash flow statement presentation in these interim financial statements shows the six months ended 30 June 2018 (H1 2018) together with the six months ended 30 June 2017 (H1 2017). The balance sheet is presented as at 30 June 2018 together with comparatives as at 31 December 2017.
 

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.

The financial information contained herein is unaudited and does not constitute statutory accounts as defined by Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2017, which were prepared in accordance with International Financial Reporting Standards (IFRS) and relevant IFRIC interpretations issued by the International Accounting Standards Board (IASB) and IFRIC Committee respectively and adopted by the European Union (EU) and upon which the auditor has given an unqualified and unmodified report and which contained no statement under Section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies and were posted to shareholders on 8 March 2018.

The accounting policies applied in these interim financial statements are consistent with those applied in Man's Annual Report for the year ended 31 December 2017 (the '2017 Annual Report'), other than as outlined below for IFRS 9 and IFRS 15.

Man acts as the investment manager/advisor to fund entities. Man assesses such relationships on an ongoing basis to determine whether each fund entity is controlled by the Group and therefore consolidated into the Group's results. Assessment of the control characteristics for all relationships with fund entities led to the consolidation of eleven fund entities at 30 June 2018 (31 December 2017: nine), which are classified as either held for sale or consolidated on a line by line basis. Based on their nature, interests of third-parties in funds that are consolidated are classified as liabilities, as detailed in Note 11.

The most significant area of judgement relates to whether the Group controls certain funds through its investments in fund products and is required to consolidate them (Note 11).

Furthermore, the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period end that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include the determination of fair values for contingent consideration in relation to the Numeric and Aalto acquisitions (Note 13), the estimated amount of accrued discretionary variable compensation, the valuation of goodwill and acquired intangibles for CGUs with lower levels of headroom (Note 9) and recognition of deferred tax assets in relation to US tax assets (Note 7). The valuations for contingent consideration have been updated as at 30 June 2018 as detailed in Note 13. The determination of the discretionary variable compensation accrual is an annual process undertaken at the calendar year-end, therefore the accrual at 30 June 2018 is an estimated amount based on the financial performance and absolute levels of performance fees of the Group in the year to date. The goodwill and deferred tax estimates are primarily based on discounted future cash flow models as at 31 December 2017, and are disclosed within the 2017 Annual Report along with details of the key assumptions and range of possible outcomes (Note 10 and Note 7 in the 2017 Annual Report, respectively).

There have been no significant changes in the business in the year to date, and the directors are confident that the assumptions in the Board's three year financial plan, approved in February 2018, remain appropriate over the forecast period.

Impact of new accounting standards and interpretations
 

The following accounting standards were applicable for the first time in the period to 30 June 2018:

·     IFRS 9 - Financial Instruments: IFRS 9 is effective for annual periods beginning on or after 1 January 2018. IFRS 9 replaces the classification and measurement models for financial instruments in IAS 39 (Financial Instruments: recognition and measurement) with three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive income. Under IFRS 9, the Group's business model and the contractual cash flows arising from its investments in financial instruments determine the appropriate classification. The Group has assessed its balance sheet assets in accordance with the new classification requirements. The $3 million of investments held as Available For Sale (AFS) have been reclassified as fair value through profit or loss as the AFS category no longer exists. The accumulated gain in the AFS reserve of $2 million has therefore been reclassified to retained earnings on transition, and any future revaluations will be recognised directly in the income statement (previously recorded in the AFS reserve in equity). There have been no other changes in the classification and measurement for any of the Group's financial assets or liabilities.

In addition, IFRS 9 introduces an 'expected loss' model for the assessment of impairment of financial assets. The 'incurred loss' model under IAS 39 required the Group to recognise impairment losses when there was objective evidence that an asset was impaired. Under the expected loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is not applicable for investments held at fair value through profit or loss or investments in associates. Therefore the assets on the Group's balance sheet to which the expected loss model applies are loans to funds and fee receivables, which do not have a history of credit risk or expected future recoverability issues. We have assessed the expected lifetime credit losses for these assets by applying the Group's internal risk modelling weightings for both likelihood of loss and exposure to loss. We have determined that under the expected loss model there is no change to the carrying values of the Group's assets.

We have elected to adopt the new hedging requirements of IFRS 9, which are designed to provide some increased flexibility in relation to hedge effectiveness in order to better align hedge accounting with a company's risk management policies. IFRS 9 also requires increased disclosures in the annual financial statements in relation to the Group's risk management strategy and the impact of hedge accounting on the financial statements. The Group's IAS 39 cash flow and net investment hedge relationships at 31 December 2017 qualify as continuing hedging relationships under IFRS 9, and there is no material change to previously existing hedge effectiveness assessments as a result. No additional hedge relationships have been designated as a result of the adoption of IFRS 9.

The adoption of IFRS 9 from 1 January 2018 does not have a material impact on the Group's reported results.
 

·     IFRS 15 - Revenue from Contracts with Customers: IFRS 15 is effective for annual periods beginning on or after 1 January 2018 and replaces IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. IFRS 15 establishes a single, principles-based revenue recognition model to be applied to all contracts with customers. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Specifically, IFRS 15 introduces a five-step approach to revenue recognition: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognise revenue when or as the entity satisfies a performance obligation. IFRS 15 is more prescriptive in terms of its recognition criteria, with certain specific requirements in respect of variable fee income such that it is only recognised where the amount of revenue would not be subject to significant future reversals. New disclosure requirements in the annual financial statements are also introduced.

The Group has considered these changes in light of the terms of the existing investment management agreements, and assessed the timing of management and performance fee recognition. Management fee revenues are recorded on a monthly basis as the underlying management activity (service) takes place, and do not include performance or other obligations (excluding standard duty of care requirements). Performance fee revenues are recognised when they crystallise, at which time they are payable by the client and cannot be clawed-back. There are no other performance obligations or services provided which suggest these have been earned either before or after crystallisation date. The Group has not identified any material changes to revenue recognition principles.

The adoption of IFRS 15 from 1 January 2018 does not have a material impact on the Group's reported results.
 

There have been no other new or revised standards or interpretations which have become effective or been early adopted in the six months to 30 June 2018.

The following standards and interpretations relevant to the Group's operations have been issued by the IASB but are not yet mandatory:

·     IFRS 16 - Leases: IFRS 16 is effective for annual periods beginning on or after 1 January 2019 and replaces IAS 17 Leases and related interpretations. This introduces a comprehensive model for the identification of lease arrangements and accounting treatment for both lessors and lessees, which distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. There is substantially no change to the accounting requirements for lessors. IFRS 16 requires operating leases, where the Group is the lessee, to be included on the Group's balance sheet, recognising a right-of-use (ROU) asset and a related lease liability representing the present value obligation to make lease payments. Certain optional exemptions are available under IFRS 16 for short-term (less than 12 months) and low-value leases. The ROU asset will be assessed for impairment annually (incorporating any onerous lease assessments) and depreciated on a straight-line basis, adjusted for any remeasurements of the lease liability. The lease liability will subsequently be adjusted for lease payments and interest, as well as the impact of any lease modifications. IFRS 16 also requires extensive disclosures detailing the impact of leases on the Group's financial position and results.

The adoption of IFRS 16 will result in a significant gross-up of the Group's reported assets and liabilities on the balance sheet, in particular as our sub-lease arrangements (as detailed in Note 27.3 of the 2017 Annual Report) are not expected to be eligible for offset against the ROU asset and related lease liability. The rental expense which is currently recognised within occupancy costs in the Group's income statement (Note 5) will no longer be incurred and instead depreciation expense (of the ROU asset) and interest expense (unwind of the discounted lease liability) will be recognised. This will also result in a different total annual expense profile under the new standard (with the expense being front-loaded in the earlier years of the lease term as the discount unwind on the lease liability reduces over time). The Group has considered the available transition options, and has provisionally decided to apply modified retrospective option 1 and currently estimates that the impact will be a gross-up of up to £205 million ($270 million) for ROU lease assets and associated deferred tax assets and £260 million ($340 million) in relation to lease liabilities, with up to £55 million ($70 million) deducted from brought-forward reserves on transition date in 2019. The initial reserves impact will be offset over time by a lower annual Group income statement charge, as the total charge over the life of each lease is the same as under the current IAS 17 requirements.
 

No other standards or interpretations issued and not yet effective are expected to have an impact on the Group's financial statements.

2.   Revenue           

Revenue for the six months to 30 June 2018 was $506 million, which is 10% higher than the $461 million in H1 2017.

Gross management and other fees for the period were $423 million, compared to $378 million in H1 2017, driven by growth in FUM throughout 2017 and the six months to 30 June 2018, partially offset by a reduction in management fee margins due to changes in product mix.
 

Revenue from performance fees was $83 million for the six months to 30 June 2018, in line with levels for H1 2017, largely driven by AHL and GLG.
 

3.   Distribution costs and asset servicing

Distribution costs are paid to external intermediaries for marketing and investor servicing, largely in relation to retail clients, and were $27 million for the period (H1 2017: $28 million).

Asset servicing includes custodial, valuation, fund accounting, registrar and administration functions performed by third-parties under contract to Man, as well as research costs. Asset servicing costs for the period were $25 million (H1 2017: $17 million), which have increased due to  higher average FUM and additional research and administration costs incurred by Man as a result of the MiFID II implementation in January 2018.
 

4.   Compensation

$m	Six months to 30 June 2018	Six months to 30 June 2017
Salaries	73	74
Variable cash compensation	100	90
Share-based payment charge	13	9
Fund product based payment charge	19	19
Social security costs	17	15
Pension costs	5	5
Restructuring costs (page 35)	2	4
Total compensation costs	229	216

Salaries have decreased by $1 million in H1 2018 compared to H1 2017 due to a more favourable Sterling to US Dollar hedged exchange rate in H1 2018 (1.26) compared to the rate secured in H1 2017 (1.43), partially offset by an increase in headcount. Variable compensation and social security costs have increased principally as a result of higher management fee related bonus accruals in the period.

The unamortised deferred compensation at 30 June 2018 was $107 million (30 June 2017: $77 million), which has a weighted average remaining vesting period of 2.2 years (30 June 2017: 2.3 years).

The restructuring costs in H1 2018 relate to a loss on settlement of our Swiss pension obligation as a result of the restructuring plan implemented in late 2016. The H1 2017 restructuring costs also relate to this restructuring plan.

5.   Other costs

	Six months to 30 June	Six months to 30 June
$m	2018	2017
Occupancy	13	16
Technology and communications	13	14
Temporary staff, recruitment, consultancy and managed services	11	10
Legal fees and other professional fees	6	6
Benefits	7	7
Travel and entertainment	6	6
Audit, accountancy, actuarial and tax fees	3	4
Insurance	2	2
Marketing and sponsorship	3	3
Other cash costs, including irrecoverable VAT	4	5
Total other costs before depreciation and amortisation	68	73
Depreciation and amortisation	11	9
Total other costs	79	82

Other costs before depreciation and amortisation were $68 million, compared to $73 million in H1 2017 and $82 million for H2 2017. The decrease of $5 million largely reflects the impact of the more favourable Sterling to US Dollar hedged exchange rate in H1 2018 (1.26) compared to the rate secured in H1 2017 (1.43) and lower occupancy costs following the centralisation of our London resources into one location.

Depreciation and amortisation has increased by $2 million in H1 2018 compared to H1 2017 as a result of higher levels of capital expenditure on software development projects across our operating platforms in both 2017 and 2018.

 

6.   Finance expense and finance income

	Six months to 30 June	Six months to 30 June
$m	2018	2017
Finance expense:
Interest payable on borrowings (Note 10)	(4)	(4)
Revolving credit facility costs and other	(2)	(2)
Unwind of contingent consideration discount (Note 13 and page 35)	(14)	(12)
Total finance expense	(20)	(18)
Finance income:
Interest on cash deposits and US treasury bills	4	1
Total finance income	4	1

The increase in finance income is due to higher interest rates as well as a slight increase in the average cash balance in H1 2018 compared to H1 2017.

7.   Taxation

The tax charge for the period is $16 million (H1 2017: $14 million), giving a statutory effective tax rate of 18% (H1 2017: 18%). The majority of the Group's profit is earned in the UK, Switzerland and the US. The forecast full year effective tax rate is consistent with this profit mix.

Accounting for tax involves a level of estimation uncertainty given the application of tax law requires a degree of judgement, which tax authorities may dispute. Tax liabilities are recognised based on the best estimates of probable outcomes, with regard to external advice where appropriate. The principal factors which may influence our future tax rate are changes to tax regulation in the territories in which we operate, the mix of income and expense by jurisdiction, and the timing of recognition of available tax assets.

As a result of available deferred tax assets in the US, Man does not expect to pay federal tax on any taxable profits it may earn in the US for a number of years. Based on the Group's three year forecast US taxable profits, a deferred tax asset of $42 million is recognised on the balance sheet at 30 June 2018 (31 December 2017: $42 million).

8.  Earnings per share (EPS)

The calculation of basic earnings per ordinary share is based on basic post-tax profit for the period of $74 million (H1 2017: $62 million), and ordinary shares of 1,601,141,614 (H1 2017: 1,648,618,222), being the weighted average number of ordinary shares in issue during the period after excluding the shares owned by the Man Employee Trusts and Treasury Shares. 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 1,621,925,168 (H1 2017: 1,662,245,222). The decrease in the weighted average number of shares largely relates to the execution of share repurchases in both H2 2017 and H1 2018.

The reconciliation of basic and diluted weighted average number of shares is provided below:  

		Six months to 30 June 2018	Six months to 30 June 2017
	(million)		(million)
Basic weighted average number of shares	1,601.1		1,648.6
Dilutive potential ordinary shares:
Share awards under incentive schemes	19.0		12.8
Employee share options	1.8		0.8
Dilutive weighted average number of shares	1,621.9		1,662.2

 

The basic and diluted earnings per share figure are provided below. For a reconciliation of earnings per share to adjusted earnings per share, please see the Alternative Performance Measures section at the end of this report.

		Basic and diluted post-tax earnings	Basic earnings per share	Diluted earnings per share
		$m	cents	cents
Earnings per share H1 2018	74		4.6	4.6
Earnings per share H1 2017	62		3.8	3.8

9.   Goodwill and acquired intangibles

$m		Goodwill	Investment management agreements		Distribution channels	Brand names		Total
Net book value at 1 January 2018	648		340	24			12	1,024
Currency translation	(3)		-	-			-	(3)
Amortisation	-		(38)	(2)			(2)	(42)
Net book value at 30 June 2018	645		302	22			10	979
Allocated to cash generating units as follows:
AHL	456		1	-			-	457
GLG	-		163	11			7	181
FRM	-		16	-			-	16
GPM	55		8	11			-	74
Numeric	134		114	-			3	251

Amortisation of acquired intangible assets primarily relates to investment management contracts, distribution channels and brands recognised on the acquisition of GLG and Numeric.

Allocation of goodwill to cash generating units and calculation of recoverable amounts

The Group has identified five cash generating units (CGUs) for impairment review purposes: AHL, GLG, FRM, Numeric and GPM. 

Under IAS 36 'Impairment of Assets' goodwill and acquired intangibles must be tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, and goodwill must be tested at least annually. The recoverable amounts of the Group's CGUs are assessed each year using a value in use calculation.
 

We continually assess whether there are any indicators of impairment by considering each of the five CGUs, and note that the operating environment in the year to date has been challenging as a result of market volatility, which has affected absolute performance across the Group. Net flows were positive for H1 2018 across all CGUs except FRM which had small net outflows. There have been no significant changes in the business in the year to date, and the directors are confident that the assumptions in the Board's three year financial plan, approved in February 2018, remain appropriate over the forecast period.

AHL cash generating unit

For the six months to 30 June 2018, AHL's FUM is slightly lower than that modelled in the value in use calculation at 31 December 2017, although management fee margins have remained broadly stable. As there was significant headroom as at 31 December 2017, it was deemed that there were no indicators of impairment.

GLG cash generating unit

For the six months to 30 June 2018, GLG's FUM is higher than the modelled FUM in the value in use calculation at 31 December 2017 as a result of higher than forecast net flows. Management fee margins have decreased slightly over the six months due to mix of FUM. Given the developments in the GLG CGU since 31 December 2017, it was deemed that there were no indicators of impairment.

 

FRM cash generating unit

For the six months to 30 June 2018, FRM's FUM is slightly lower than previously forecast due to small net outflows in the period. As management fee margins are largely in line with that modelled in the value in use calculation at 31 December 2017, and the carrying value has decreased due to amortisation of acquired intangibles in the period, it was deemed that there were no indicators of impairment.

Numeric cash generating unit

For the six months to 30 June 2018, Numeric's FUM is broadly in line with that modelled in the value in use calculation at 31 December 2017. Management fee margins are slightly higher than previously forecast due to changes in FUM mix. Given the level of headroom at 31 December 2017, it was deemed that there were no indicators of impairment.

GPM cash generating unit

For the six months to 30 June 2018 GPM's FUM is marginally lower than that modelled in the value in use calculation at 31 December 2017, driven by delays in funding of commitments. As margins have only decreased slightly compared to those forecast, and given the level of headroom at 31 December 2017, it was deemed that there were no indicators of impairment.

10.   Cash, liquidity and borrowings

Total liquidity resources were $809 million at 30 June 2018 (31 December 2017: $856 million) and comprised cash and cash equivalents of $309 million (31 December 2017: $356 million), and the undrawn committed revolving credit facility of $500 million (31 December 2017: $500 million).

Cash and cash equivalents at period end comprises $121 million (31 December 2017: $175 million) of cash at bank on hand and $188 million (31 December 2017: $181 million) in short-term deposits. In addition, $49 million (31 December 2017: $23 million) of cash at bank on hand held on the balance sheet relates to the cash and cash equivalents held by funds which have been consolidated into the Group at 30 June 2018 (Note 11).

During H1 2017 the maturity date of the $500 million revolving credit facility was extended to June 2022 for $490 million of the facility, with the remaining $10 million maturing in June 2020.

During 2014 the Group issued $150 million ten year fixed rate reset callable guaranteed subordinated notes (Tier 2 notes), with associated issuance costs of $1 million. The Tier 2 notes were issued with a fixed coupon of 5.875% until 15 September 2019. The notes may be redeemed in whole at the Group's option in September 2019 at their principal amount, subject to FCA approval. If the notes are not redeemed at this time then the coupon will reset to the five year mid-swap rate plus 4.076% and the notes will be redeemed in September 2024 at their principal amount.

The following table summarises the Group's available liquidity at the end of the period:

$m	As at 30 June 2018		As at 31 December 2017
Borrowings: 2024 fixed rate reset callable guaranteed subordinated notes		150	150
Cash and cash equivalents1	309		356
Undrawn committed revolving credit facility	500		500
Total liquidity	809		856

Note:

1    Excludes $49 million of cash held by fund entities which have been consolidated (2017: $23 million), as outlined in Note 11.

 

11.   Investments in fund products and other investments

$m	At 30 June 2018	At 31 December 2017
Loans to fund products	11	25
Investments in fund products	395	249
Other investments	3	3
Investment in line-by-line consolidated funds	329	452
Investments in fund products and other investments	738	729
Net non-current assets held for sale	41	79
Total investments	779	808

Man's seeding investments are included in various Group balance sheet line items. In summary, the total seeding investments portfolio is made up as follows:

$m	At 30 June 2018	At 31 December 2017
Investments in fund products	395	249
Less those used to hedge deferred compensation awards	(99)	(76)
Consolidated net investments in funds - held for sale	41	79
Consolidated net investments in funds - line-by-line consolidation	215	203
Loans to fund products	11	25
Seeding investment portfolio	563	480

Investments in fund products, excluding those which are held against outstanding deferred compensation arrangements, relate to seeding investments which are part of our ongoing business to build our product breadth and to trial investment research developments before we market the products broadly to investors.

Consolidation of investments in funds
 

Seed capital invested into funds may at times be significant, and therefore the fund may be deemed to be controlled by the Group (Note 1).

Held for sale
Where the Group acquires the controlling stake and actively markets the products to third-party investors, allowing the Group to redeem their share, and it is considered highly probable that it will relinquish control within one year from the date of initial investment, 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 assets and liabilities held for sale are as follows:

$m	At 30 June 2018	At 31 December 2017
Non-current assets held for sale	41	145
Non-current liabilities held for sale	-	(66)
Investments in fund products held for sale	41	79

Investments cease to be classified as held for sale when the fund is no longer controlled by the Group, at which time the investment is classified as financial assets at fair value through profit or loss (see Note 13.1 of the 2017 Annual Report). 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. Two investments previously classified as held for sale at 31 December 2017 has been consolidated on a line by line basis in the six months to 30 June 2018 (six months to 30 June 2017: one).
 

Line-by-line consolidation

Seed investments which are controlled and where it is not expected that control will be relinquished within one year from the date of initial investment relate to nine funds at 30 June 2018 (31 December 2017: five), which have therefore been consolidated on a line-by-line basis as follows:

$m	At 30 June 2018	At 31 December 2017
Balance Sheet
Cash and cash equivalents	49	23
Fees and other receivables	3	1
Transferrable securities1	329	452
Trade and other payables	(8)	(174)
Net assets of line-by-line consolidated fund entities	373	302
Third-party interest in consolidated funds	(158)	(99)
Net investment held by Man	215	203

Note:
1   Included within Investments in fund products.

	Six months to 30 June	Six months to 30 June
$m	2018	2017
Income statement
Net gains on investments1	1	32
Management fee expenses2	(1)	(3)
Performance fee expenses2	(1)	-
Other costs	(1)	(1)
Net (losses)/gains of line-by-line consolidated fund entities	(2)	28
Third-party share of profits relating to interests in consolidated funds	(1)	(15)
(Losses)/gains attributable to net investment held by Man	(3)	13

Notes:

1       Included within Income or gains on investments and other financial instruments.

2       Relates to management and performance fees paid by the funds to Man during the period, and are eliminated within gross management and other fees and performance fees, respectively, in the Group income statement. The management fees elimination includes $1 million in relation to third-party share of these investments and therefore represents externally generated management fees (H1 2017: $1 million).

12.   Provisions

$m	Onerous property lease contracts	Other	Total
As 1 January 2018	30	4	34
Charged/(credited) to the income statement:
Exchange differences	(1)	-	(1)
Used during the period/settlements	(4)	-	(4)
At 30 June 2018	25	4	29

The onerous property lease contracts largely relate to the Riverbank House office premises.

 

13.   Fair value of financial assets/liabilities

The fair value of financial assets and liabilities can be analysed as follows:

	30 June 2018
$m	Level 1	Level 2	Level 3	Total
Financial assets held at fair value:
Investments in fund products and other investments	3	238	157	398
Investment in line-by-line consolidated funds	-	329	-	329
Derivative financial instruments	-	6	-	6
	3	573	157	733
Financial liabilities held at fair value:
Derivative financial instruments	-	9	-	9
Contingent consideration	-	-	258	258
	-	9	258	267

	31 December 2017
$m	Level 1	Level 2	Level 3	Total
Financial assets held at fair value:
Investments in fund products and other investments	3	137	112	252
Investment in funds relating to consolidated fund entities	-	452	-	452
Derivative financial instruments	-	9	-	9
	3	598	112	713
Financial liabilities held at fair value:
Derivative financial instruments	-	10	-	10
Contingent consideration	-	-	243	243
	-	10	243	253

Level 1, 2 and 3 financial assets and liabilities are defined in Note 25 to the financial statements in the 2017 Annual Report. During the period, there were no significant changes in the business or economic circumstances that affected the fair value of Man's financial assets and no significant transfers of financial assets or liabilities held at fair value between categories.

The basis of measuring the fair value of investments in fund products is outlined in Note 13 in the 2017 Annual Report.

The movements in Level 3 financial assets and financial liabilities measured at fair value are as follows:

	Six months to 30 June 2018
$m	Financial assets at fair value through profit or loss	Financial liabilities at fair value through profit or loss
Level 3 financial assets/liabilities held at fair value
At 1 January 2018	112	(243)
Purchases	83	-
Total losses in Group statement of comprehensive income	(4)	(19)
Loss included in income statement	(4)	(19)
Included in other comprehensive income	-	-
Sales or settlements	(34)	4
At 30 June 2018	157	(258)
Total losses for the period included in the Group statement of comprehensive income for assets/liabilities held at period end	(4)	(19)

 

The fair value of level 3 financial liabilities can be analysed as follows:

		Six months to 30 June 2018
$m	Numeric		Aalto	Other	Total
Contingent consideration payable
At the beginning of the period:	175		60	8	243
Revaluation of contingent consideration	4		1	-	5
Unwind of contingent consideration	10		4	-	14
Sales or settlements	(4)		-	-	(4)
At 30 June 2018	185		65	8	258

The revaluation of contingent consideration of $5 million during the period is primarily driven by increased Numeric run rate management fees as a result of higher management fee margins than previously forecast.

The Numeric contingent consideration relates to an ongoing 18.3% equity interest in Numeric held by management in the business and profit interests of 15.5%, pursuant to a call and put option arrangement. The call and put options structure means that it is virtually certain that Man will elect to, or be obliged to, purchase the interests held by Numeric management at five (September 2019: call option) or five and a half (March 2020: put option) years post-closing. The maximum aggregate amount payable by Man in respect of the option consideration is capped at $275 million.
 

The Aalto contingent consideration is dependent on levels of run rate management fees measured following one, four, six and eight years from completion. The maximum aggregate amount payable by Man in respect of the consideration is capped at $207 million.

The fair values are based on discounted cash flow calculations, which represent the expected future profits of each business as per the earn-out arrangements. The fair values are determined using a combination of inputs, such as weighted average cost of capital, net management fee margins, performance, operating margins and the growth in FUM, as applicable. The discount rates applied are 11% for management fees and 17% for performance fees for Numeric and Other and 15% for Aalto.

The most significant inputs into the valuations at 30 June 2018 are as follows:

	Numeric	Aalto
Weighted average net management fee margin	0.4%	0.8%
Compound growth in average FUM	7%	19%

Changes in inputs would result in the following increase/(decrease) of the contingent consideration creditor at 30 June 2018:

Weighted average net management fee margin
0.1% increase	52	71
0.1% decrease	(52)	(11)
Compound growth in average FUM
1% increase	9	3
1% decrease	(9)	(3)

Note:

1      Any increase in net management fee margins would have less of an impact on the contingent consideration given the calculation is close to the maximum capped earn-out for the year 1 payment.
 

14.   Related party transactions

The related party transactions during the period are consistent with the categories disclosed in the 2017 Annual Report. Related parties comprise key management personnel, associates and fund entities which Man is deemed to control. All transactions with related parties were carried out on an arm's length basis.

Commission income relating to sales of Nephila Capital Ltd (an associate) products totalled $4 million for H1 2017, and is included within gross management and other fees in the Group income statement. This arrangement between Man and Nephila Capital ceased at the end of April 2017.

Management fees earned from fund entities in which Man holds a controlling interest are detailed in Note 11. Contingent consideration payable to Numeric and Aalto management is detailed in Note 13.

15.   Other matters

Man is subject to various other claims, assessments, regulatory enquiries and investigations in the normal course of its business. The directors do not expect such matters to have a material adverse effect on the financial position of the Group.

 

ALTERNATIVE PERFORMANCE MEASURES
 

We assess the performance of the Group using a variety of alternative performance measures (APMs). We discuss the Group's results on an 'adjusted' basis as well as a statutory basis. The rationale for using adjusted measures is explained below.

We also explain financial performance using measures that are not defined under IFRS and are therefore termed 'non-GAAP' measures. These non-GAAP measures are explained below. The alternative performance measures we use may not be directly comparable with similarly titled measures by other companies.

Funds under management (FUM)

FUM is the assets that the Group manages for investors in fund entities. FUM is a key indicator of our performance as an investment manager and our ability to remain competitive and build a sustainable business. FUM is measured based on management fee earning capacity. Average FUM multiplied by our net management fee margin (see below) equates to our management fee earning capacity. FUM is shown by product groupings that have similar characteristics (as shown on page 7). Management focus on the movements in FUM split between the following categories:

Net inflows/outflows

Net inflows/outflows are a measure of our ability to attract and retain investor capital. Net flows are calculated as sales less redemptions. Further details are included on page 7.

Investment movement

Investment movement is a measure of the performance of the funds we manage for our investors. It is calculated as the fund performance of each strategy multiplied by the FUM in that strategy. Further details are included on page 7.

FX and other movements

Some of the Group's FUM is denominated in currencies other than USD. FX movements represent the impact of translating non-USD denominated FUM into USD. Other movements principally relate to maturities and leverage movements.

Asset weighted outperformance versus benchmark

The asset weighted outperformance relative to peers for the period stated is calculated using the asset weighted average performance relative to peers for all strategies where we have identified and can access an appropriate peer composite. The performance of our strategies is measured net of management fees charged and, as applicable, performance fees charged. As at 30 June 2018 it covers 87% of the FUM of the Group and excludes infrastructure mandates, Global Private Markets and collateralised loan obligations. Asset weighted outperformance versus benchmark has been added as a new KPI for the 2018 financial year (page 2), as outlined on page 22 to the 2017 Annual Report.

Net management fee revenue and margins

Margins are an indication of the revenue margins negotiated with our institutional and retail investors net of any distribution costs paid to intermediaries and are a primary indicator of future revenues. Net management fee revenue is defined as gross management fee revenue and share of post-tax profits of associates less distribution costs, plus the third party share of management fees relating to consolidated fund entities (Note 11 to the Group financial statements) which are therefore externally generated. Net management fee margin is calculated as net management fee revenue, excluding share of post-tax profits of associates, divided by FUM.
 

$m	Six months to 30 June 2018		Six months to 30 June 2017
	$m	Net margin	$m		Net margin
Absolute return	188	1.30%	182	1.41%
Total return	51	0.57%	27	0.56%
Multi-manager solutions	29	0.37%	35	0.51%
Systematic long only	50	0.37%	41	0.36%
Discretionary long only	75	0.69%	55	0.66%
Core net management fee revenue	393	%0.71	340	0.77%
Guaranteed	5	%5.37	8	4.57%
Other (expense)/income	(1)		3
Net management fee revenue before share of post- tax profit of associates	397	0.71%	351	0.78%
Share of post-tax profit of associates	4		4
Net management fee revenue1,2	401		355

Notes:

1     Net management fee revenue includes $1 million (H1 2017: $1 million) of management fee revenue relating to line-by-line consolidated fund entities for the third-party share.

2     The amount includes $27 million (H1 2017: $28 million) of distribution costs which have been deducted from gross management and other fees of $423 million (H1 2017: $378 million).

Core net management fee revenue

Core net management fee revenue excludes net management fee revenue relating to guaranteed products, sales commission income from Nephila (Note 14) and share of post-tax profits of associates. These items have been excluded in order to better present the core business given the roll-off of the legacy guaranteed product FUM, income from the Nephila sales commission agreement which ended during 2017, and share of post-tax profits of associates which is generated externally.

Run rate net management fee revenue and margins

In addition to the net management fee revenue and margins for the period, as detailed above, we also use run rate net management fee revenue and run rate margins as at the end of the period. These measures give the most up to date indication of our revenue streams at the period end date. The run rate net management fee margin is calculated as net management fee revenue for the last quarter divided by the average FUM for the last quarter on a fund by fund basis. Run rate net management fee revenue is calculated as the run rate net management fee margin applied to the closing FUM as at the period end, plus our share of post-tax profits of associates for the previous 12 months.

 

Adjusted profit before tax and adjusted earnings per share

Adjusted profit before tax is a measure of the Group's underlying profitability. The directors consider that in order to assess underlying operating performance, the Group's profit period on period is most meaningful when considered on a basis which excludes acquisition and disposal related items (including non-cash items such as amortisation of acquired intangible assets and deferred tax movements relating to the recognition of tax assets in the US), impairment of assets, costs relating to substantial restructuring plans, and certain significant event driven gains or losses, which therefore reflects the revenues and costs that drive the Group's cash flows and inform the base on which the Group's variable compensation is assessed. The directors are consistent in their approach to the classification of adjusting items period to period, maintaining an appropriate symmetry between losses and gains and the reversal of any accruals previously classified as adjusting items.

Adjusted earnings per share (EPS) is calculated as adjusted profit after tax divided by the weighted average diluted number of shares.

The reconciliation of statutory profit before tax to adjusted profit before tax, and the reconciliation of statutory diluted EPS to the adjusted EPS measures, are shown below:

		Six months to 30 June	Six months to 30 June
$m	Note	2018	2017
Statutory profit before tax		90	76
Adjusting items:
Acquisition and disposal related
Amortisation of acquired intangible assets	9	42	42
Revaluation of contingent consideration		5	11
Unwind of contingent consideration discount	6	14	12
Compensation - restructuring		2	4
Adjusted profit before tax		153	145
Tax on adjusted profit		(21)	(20)
Adjusted profit after tax		132	125

Further details on adjusting items are included within the related notes to the Group financial statements.

Adjusted management fee EPS

Man's dividend policy is disclosed on page 29 in the 2017 Annual Report. Dividends paid to shareholders (or adjusted management fee EPS) are determined based on the adjusted management fee profit before tax. Adjusted management fee EPS is calculated using post-tax profits excluding performance fees and adjusting items, divided by the weighted average diluted number of shares.

The reconciliation from EPS (Note 8 to the Interim financial statements) to adjusted EPS is provided below:

	Six months to 30 June 2018			Six months to 30 June 2017
	Basic and diluted post-tax earnings $m	Basic  earnings per share cents	Diluted earnings per share cents	Basic and diluted post- tax earnings $m	Basic earnings per share cents	Diluted earnings per share cents
Statutory profit after tax	74	4.6	4.6	62	3.8	3.8
Adjusting items	63	3.9	3.8	69	4.2	4.1
Tax adjusting items	(5)	(0.3)	(0.3)	(6)	(0.4)	(0.4)
Adjusted profit after tax	132	8.2	8.1	125	7.6	7.5
Less adjusted performance fee profit	(28)	(1.7)	(1.7)	(43)	(2.6)	(2.5)
Adjusted management fee profit after tax	104	6.5	6.4	82	5.0	5.0

 

Adjusted management fee and performance fee profit before tax

Adjusted profit before tax is split between adjusted management fee profit before tax and adjusted performance fee profit before tax to separate out the variable performance fee related earnings of the business from the underlying management fee earnings of the business, as follows:
 

$m	Six months to 30 June 2018	Six months to 30 June 2017
Gross management and other fees1	424	379
Share of post-tax profit of associates	4	4
Less:
Distribution costs	(27)	(28)
Asset servicing	(25)	(17)
Compensation	(179)	(161)
Other costs1	(79)	(82)
Net finance expense	2	(1)
Adjusted management fee profit before tax	120	94
Exclude: Net management fees from guaranteed products, commission income and share of post-tax profits of associates	(8)	(15)
Core management fee profit before tax	112	79
Performance fees	83	83
Gains on investments and other financial instruments2	2	23
Less:
Compensation	(48)	(51)
Finance expense	(4)	(4)
Adjusted performance fee profit before tax	33	51
Adjusting items	(63)	(69)
Statutory profit before tax	90	76

Notes:

1   Gross management and other fees also includes $1 million (H1 2017: $1 million) of management fee revenue relating to line-by-line consolidated fund entities for the third-party share (per Note 11).

2   Gains on investments includes income or gains on investments and other financial instruments of $4 million (H1 2017: $39 million), less $1 million (H1 2017: $15 million) third-party share of gains relating to line-by-line consolidated fund entities, less the reclassification of management fee revenue of $1 million (H1 2017: $1 million).
 

Core management fee profit before tax

Core management fee profit before tax is adjusted management fee profit before tax, excluding net management fees relating to guaranteed products, sales commission income from Nephila (Note 14) and share of post-tax profits of associates.

Effective tax rate on adjusted profit before tax

The effective tax rate on profit before adjusting items of 14% (H1 2017: 14%) reflects the estimated rate for the year ending 31 December 2018.

Compensation ratio

The compensation ratio measures our compensation costs relative to our revenue. The Group's compensation ratio is generally between 40% to 50% of net revenue, depending on the mix and level of revenue. It is calculated as total compensation divided by net revenue.

Changes to the Group's APMs

Adjusted EBITDA and adjusted management fee EBITDA margin were included within the Group's APMs disclosures for the year ended 31 December 2017. Given adjusted management fee EBITDA margin is no longer a KPI for the period to 30 June 2018, these have not been included within APMs.

 

END

 

 

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