Interim Results
Man Group plc
08 November 2007
8 November 2007
UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2007
FINANCIAL HIGHLIGHTS
- Funds under management of $68.6 billion at 30 September 2007, up $6.9
billion from 31 March 2007:
- Fund sales in the six month period of $8.0 billion;
- Redemptions of $4.4 billion, with private investor redemptions
consistent with the prior year;
- Positive fund performance added $2.9 billion
- Profit before tax on continuing operations increased by 21% to $820
million from $679 million
- Diluted earnings per share on continuing operations increased by 17% to
34.1 cents from 29.2 cents
- Annualised return on shareholders' equity of 33.1%#
- Long-term debt ratings confirmed and regulatory capital surplus of $1
billion
- In line with our new distribution policy, we have declared an interim
dividend in US dollar terms of 16.8 cents per existing share, payable at
the rate of 8.03 pence per existing share. Assuming the proposed share
consolidation is approved by shareholders at an EGM on 23 November 2007,
the dividend will be 19.2 cents per consolidated share, payable at the rate
of 9.18 pence per consolidated share+
- Successful IPO of an 81.4% holding in MF Global, giving rise to gross
proceeds of $2.9 billion, a gain on sale of $1.7 billion and, subject to
shareholder approval, a distribution of approximately $2.75 billion
- Continued development: funds under management at 31 October 2007 are
estimated to be over $70 billion
Half year to Half year to Year to
30 September 30 September 31 March
2007 2006 2007
------------------------------ ----------- ----------- --------
Funds under management $68.6bn $56.8bn $61.7bn
------------------------------ ----------- ----------- --------
Asset Management net management
fee income $537m $458m $943m
Asset Management net performance
fee income $283m $221m $358m
------------------------------ ----------- ----------- --------
Profit before tax - continuing
operations $820m $679m $1,301m
Taxation ($148m) ($99m) ($191m)
------------------------------ ----------- ----------- --------
Profit after tax - continuing
operations $672m $580m $1,110m
Discontinued operations - MF
Global $53m $40m $174m
Profit on sale of MF Global $1,746m - -
------------------------------ ----------- ----------- --------
Statutory profit after tax on
total operations $2,471m $620m $1,284m
------------------------------ ----------- ----------- --------
Diluted earnings per share
Continuing operations 34.1c 29.2c 55.4c
Total operations 124.6c 31.1c 63.9c
------------------------------ ----------- ----------- --------
Dividends per share 16.8c 7.3c 20.0c
------------------------------ ----------- ----------- --------
Post-tax return on equity
(annualised)# 33.1% 31.5% 30.9%
------------------------------ ----------- ----------- --------
Equity shareholders' funds $7,173m $4,124m $4,539m
------------------------------ ----------- ----------- --------
Diluted weighted average number
of shares 1,989m 2,039m 2,051m
------------------------------ ----------- ----------- --------
# Post-tax return on equity for the period ended 30 September 2007 is based on
Asset Management only (the return therefore excludes the earnings and the profit
on sale of MF Global, and the equity base excludes the proceeds from the sale of
MF Global and the residual investment in MF Global). The comparative figures are
as published in the interim and annual reports for those periods.
+ Subject to shareholder approval at an EGM to be held on 23 November 2007,
concurrent with a return to shareholders of the net proceeds of the IPO of MF
Global, the ordinary share capital will be consolidated on a 7 for 8 basis to
reflect the return of value.
Peter Clarke, Group Chief Executive said:
'Man has had a very successful first half, in terms of both strategy and
financial performance. Our strategy to focus on investment management was
achieved through the IPO of MF Global in July, and the process of returning the
cash proceeds to our shareholders will be complete by the end of the year. We
have continued to see growth in our investment management business, expanding
our distribution franchise and launching new and innovative products for our
investors. Demand for our investment products was strong, generating sales of $8
billion in the first half. Despite the turmoil in financial markets during the
summer, our investors saw nearly $3 billion of positive performance across the
period, generating performance fee income up 28%. Management fees and total
earnings per share were both up 17%.
Our confidence in the financial position, earnings momentum and cash generation
of the Group is demonstrated by the adoption of a revised distribution policy.
With the increased diversity and predictability of our sources of performance
fee income, it is appropriate to set our dividend on the combined management and
performance earnings for the period, and we will target dividend cover of 1.8x
combined earnings within two years. The interim dividend has been increased to a
level to move rapidly towards that target. In addition, our earnings momentum
continues to create significant excess capital and we will address those
surpluses through our share repurchase programme.
The second half of the year has started strongly. Continued good product
performance has generated significant performance fee income for October and the
outlook for sales remains good. Assets under management are currently estimated
to be over $70 billion and we are well placed for continued asset growth.'
VIDEO INTERVIEWS & AUDIO WEBCAST
Video interviews with Peter Clarke, Group Chief Executive, and Kevin Hayes,
Finance Director, in video, audio and text are available on www.mangroupplc.com
and www.cantos.com.
There will be a live audio webcast of the results presentation at 8.45am on
www.mangroupplc.com and www.cantos.com which will also be available on demand
from later in the day.
Enquiries
Man Group plc 020 7144 1000
Peter Clarke
Kevin Hayes
David Browne
Merlin 020 7653 6620
Paul Downes 07900 244888
Paul Farrow 07747 607768
Anja Kharlamova 07887 884788
About Man Group plc
Man Group plc is a leading global provider of alternative investment products
and solutions for private and institutional investors worldwide designed to
deliver absolute returns with a low correlation to equity and bond market
benchmarks. Man has a 20 year track record in this field supported by strong
product development and structuring skills, and an extensive investor service
and global distribution network.
The Group employs 1,600 people in 13 countries, with key centres in London and
Pfaeffikon (Switzerland), and offices in Chicago, Dubai, Hong Kong, Montevideo,
Nassau, New York, Singapore, Sydney, Tokyo and Toronto. Man Group plc is listed
on the London Stock Exchange (EMG) and is a constituent of the FTSE 100 Index.
Further information on the Man Group can be found at www.mangroupplc.com and
www.maninvetsments.com.
Half Year Review to 30 September 2007
Chief Executive's Review
We have made significant progress in the first half of the year in successfully
executing our strategy. While the recent market conditions have been
challenging, our consistent strategy, attractive product range, and strong
capital position mean that we are well positioned to take advantage of the
additional growth opportunities we now see in the market. Funds under management
increased by 21% to $68.6 billion as of 30 September 2007, compared to $56.8
billion as of 30 September 2006, and $61.7 billion as of 31 March 2007. Private
investor assets under management have increased since the end of the year by
$4.0 billion and institutional assets increased by $2.9 billion, as a result of
strong sales ($8.0 billion) and performance ($2.9 billion) net of redemptions
and other movements ($4.0 billion). Group profit before tax from continuing
operations increased 21% to $820 million, reflecting a 17% increase in net
management fee income and a 28% increase in net performance fee income, compared
to the first half of last year. Operating cash flow on total operations for the
six months ended 30 September 2007 was $702 million, indicating the highly cash
generative nature of the business.
Our performance between July and September in the fund of funds area was above
the market benchmarks, particularly in the two core fund of funds, Glenwood and
RMF product ranges, validating the value created through the skilful selection
of managers and diversification of strategies. We did experience negative
performance in the multi strategy area; however, the conservative structuring of
our guaranteed products provided resilience in difficult markets. Consequently
none of our guaranteed products was forced to de-gear and we have not
experienced a significant increase in redemptions. During the six months to 30
September 2007 the managed futures strategy has performed well, in particular
towards the end of the period, and AHL recorded a positive return of 15.4%,
which included a positive return of 0.3% in the July to September period. Pemba,
our credit adviser strategy with $3.5 billion under management, runs 80% of its
business through closed-end collateralised loan obligations. All these
structures have performed well and no credit events were encountered. The long
only open-ended credit funds managed by Pemba saw negative performance in the
turbulent markets in the July to September period, resulting in six months
performance to September ranging from -1.5% to -11.8%, depending on the level of
leverage employed. Across all the Core Investment Managers we had minimal
exposure to sub prime mortgages, asset or mortgage backed securities and
therefore our performance was not directly affected by exposure to these
markets. Throughout the period we maintained significant surplus cash,
regulatory capital and unused committed lending facilities to enable us to
provide support to our investors and investment managers.
The initial public offering of MF Global on the New York Stock Exchange in July
was a success with the sale of 81.4% of our holding (refer to note 5 to the
interim financial statements for further details). Consistent with our strategy
and, subject to shareholder approval, the net proceeds of approximately $2.75
billion will be returned to shareholders by the end of the calendar year. In
addition, $770 million was returned to our shareholders in the first half
through a combination of the final dividend for last year and share repurchases.
For our shareholders these distributions represent a significant return of value
and equate in aggregate to approximately 15% of the Company's current market
capitalisation.
The strategic importance of the separation of the brokerage business is to allow
us to increase focus on developing our leading position in the investment
management business. Our strategy is to generate continued balanced growth by
leveraging our international presence and access to high quality underlying
investment management. We will continue to extend our institutional sales
franchise by accessing new markets and developing innovative product solutions
for our investors. We will expand the range of our private investor products,
building on strong distribution relationships to provide access to guaranteed,
multi-manager and single manager products. We will use our structuring skills
and capital position to facilitate liquidity, transparency and investor
reporting for the private investor base.
Reflecting our focus on investment management going forward, we have reviewed
our capital base, distribution policy and financial objectives. Recognising the
increased diversification and stability of much of our performance fee income,
we have changed our distribution policy to target dividend cover of at least 1.8
times the combined management fee and performance fee earnings. In addition, we
will use share repurchases on a continuing basis to address capital surpluses as
they arise, recognising the need to maintain a strong capital position and
flexibility to invest in the continued growth of our business.
The core components of our business for the implementation of our strategy are:
• People
• Product innovation
• Distribution network
• Investor services
• Governance and risk management
• Performance
Our people are our key asset. Attracting the best talent, motivating them to
excel, retaining them and ensuring that they progress in their careers is a key
focus of senior management across the Group. Following the MF Global separation
we have integrated functions into a single business model. Permanent headcount
increased in the first half by 4% to 1,634 as at 30 September 2007. The increase
in headcount was primarily in the investment management and investor support
areas as we expand our franchise. We have made some senior appointments in the
period, including a new head of technology, a chief operating officer for Man
Global Strategies, a senior appointment in the institutional sales team in the
US and a head of new alternative investments in the US within the RMF hedge fund
research team. We published the summary results of our employee survey in our
Corporate Responsibility Report in July 2007, which indicated that employees
were proud to work for the Man Group, were clear about what they are trying to
achieve, and individual skills or knowledge had improved. We continue to see
opportunity in the market to attract new talent into the Group in order to grow
our existing franchise. In addition we have continued to promote exceptional
individuals into key senior management roles within the Group.
During the first half year, Harvey McGrath indicated his intention to retire
from the Group Board in November 2007. To facilitate an orderly transition
Harvey stepped down as Chairman effective from 1 September 2007, and Jon
Aisbitt, who has been an independent non-executive director for four years,
became Chairman. In addition, we added two non-executive directors to the Board,
Phillip Colebatch and Patrick O'Sullivan, both with considerable knowledge and
experience in international financial markets. These changes continue to
strengthen the governance and the senior advisory role of the Board.
Product innovation allows us to develop an extensive and flexible range of
products to meet the risk, return, liquidity and other requirements of our
investors worldwide. We have developed a successful business model that utilises
our ownership or preferred access to a wide range of portfolio managers, to
offer investment performance designed to have a low correlation to bond and
equity benchmarks. This is combined with our portfolio construction capabilities
and specialist structuring expertise to tailor products which meet investor
demands, and local regulatory and tax requirements.
We have continued to invest our capital resources in the development of new
sources of return, seeding new managers, products and styles. During the first
half of the year we increased our seed money investments from $0.8 billion to
$1.0 billion. This increase is spread across our Core Investment Managers. In
Man Global Strategies, our multi strategy manager, we seeded ten new managers,
and in RMF and Glenwood, the fund of funds managers, we increased seeding
investments by $60 million across new managers and products. The Seed Investment
Portfolio is risk managed by the Core Investment Managers, primarily through the
managed account platform, which provides transparency and risk monitoring at the
portfolio level. The seed investment process is designed to analyse and test the
underlying investment strategy and establish a performance track record before
we allocate client capital. The Seed Investment Portfolio therefore recycles on
a regular basis as strategies mature and are then replaced with new strategies.
The diligence and risk management involved in the seeding process together with
our capital resources is a source of competitive advantage and we continue to
see significant opportunities to expand our business, particularly after the
turbulence in July and August.
In June 2007 we announced the establishment of the Oxford-Man Institute of
Quantitative Finance, and the endowment of a Chair in quantitative finance at
the University of Oxford. The Institute will house a team of full-time
researchers and senior faculty members from Oxford University and the Said
Business School. The research will have particular emphasis on alternative
investments and intends to attract the best researchers from around the world.
We believe that this initiative will provide a catalyst for developing further
innovation in our business.
We believe that there is continued opportunity in the area of renewable
resources as a source of returns. During the first half of the year we launched
MTM Capital Partners Limited and its China Methane Recovery Fund and have raised
$419 million in three separate closings of the Fund. The Fund is based on the
extraction of methane from mines using recognised technology and generating
power and carbon offsets.
Extreme events in the financial markets can cause a change in investors'
appetite for alternative investment products. Man is recognised as having a
leading position in the hedge fund market. Our 20 years of experience and long
track record demonstrate our ability to deliver long-term cross cycle returns
that have lower correlation to bond or equity markets. We believe that in
turbulent market conditions investors who wish to stay invested in alternative
asset management products will migrate towards those Investment Managers with
the strongest track record and most robust product range. We have a targeted set
of products that offer investors a range of risk and returns depending on their
risk appetite as well as principal guarantees to offer them capital
preservation.
Our distribution network is supported by the long-term relationships our sales
force has with our distributors and our institutional investors. Our distributor
network covers a wide range of the largest global and strongest regional
financial institutions, which sell our product to their clients for a fee
payable by Man. This worldwide distributor network offers us scale, flexibility
and efficiency in the distribution of our products. Our strategy is to continue
to grow the number of distributors and to focus on those distributors with
strong franchises, high standards and an international presence. An expanding
network of regional sales offices around the world is responsible for servicing
new markets and maintaining and expanding our distributor relationships. During
the first half of the year we opened offices in Singapore and Miami and have
continued to expand our presence in Canada and our institutional efforts in the
US.
In the first half of the year we launched 18 new products targeted at private
investors. Private investor sales for the first half were $4.2 billion compared
with $5.6 billion for the first half of last year and $3.0 billion for the
second half of last year. The Man MGS Access global launch, which was achieved
with Citigroup's involvement, raised over $0.8 billion, and in Asia, the Man
Global Multi-Strategy Principal Protected Fund raised over $1.1 billion.
The institutional investor sales team is focused on delivering products to the
largest and most sophisticated professional investors. Institutional sales for
the first half were $3.8 billion compared with a record $5.0 billion for the
first half of last year and $2.3 billion for the second half of last year. The
majority of these sales was in the RMF fund of funds product. From a regional
perspective we saw continued strong demand for our products in Northern Europe
and Switzerland. Our strategy is to continue to grow our sales force to access
new markets and broaden the product coverage.
During the first half of the year we relaunched our Secondary Trading Platform,
which provides distributors with daily liquidity for their investors in a range
of open-ended products. This platform offers liquidity and price transparency
similar to that offered in traditional financial products and is a key component
of the growth strategy for our open-ended products. During the first half we
have seen good two-way flows on the platform.
Our private investor and institutional strategies and breadth of product
offering have resulted in our distribution network creating continued growth in
funds under management, providing revenue growth and creating shareholder value.
Investor services of the highest standard are essential to support our investors
and our distributor relationships. In turbulent market conditions active and
full communication with investors and distributors is essential to enable them
to have the appropriate information to make confident investment decisions. The
investment that we have made in technology-enabled solutions has resulted in
these communication processes working effectively during times of market stress.
Redemptions for private investors were at a consistent level compared to the
second half of the prior year. In the first half year redemptions were $2.1
billion, or 11% of average funds under management on an annualised basis,
compared with $2.0 billion and 12% for the previous six months. These levels
remain significantly below the average for the mutual fund industry.
The institutional investor experience in particular relies on high standards of
performance reporting and risk analysis. The success is reflected in the quality
of our funds under management as measured by both strong product sales and low
redemption rates.
Investor services provide us with a source of significant competitive advantage
and we will continue to make investment in this area. A strong infrastructure,
which can provide investors with up to date information about their product
performance and values, allows them to make informed investment decisions and
assists them in meeting their investment objectives given their changing
appetite.
Governance and risk management are essential components of both the investment
management process for our investors and our approach to maintaining a high
quality sustainable business for shareholders. Our corporate reputation is
fundamental to our business, and maintaining our corporate integrity is the
responsibility of everyone in the Group. Underlying our strategy is a strong
focus on governance and requirements for high levels of ethical behaviour which
run through our business. In a highly regulated environment we view the
maintenance of high standards of ethical conduct and best business practices as
a competitive advantage in the market.
Risk management is an essential competency at the portfolio manager and Group
level. Active risk management throughout the Group mitigates the risk arising
from market, credit, liquidity and reputation risk. Operational risk is the risk
that the Group suffers a loss directly or indirectly from inadequate or failed
internal processes, people, systems or external events. We mitigate operational
risks through our strong corporate culture that emphasises the importance of
effective risk management, strong internal controls, good governance and the
value of maintaining the Group's reputation.
We operate in a highly regulated environment and therefore constantly need to
ensure our products and sales practices are compliant. Our dedicated regulatory
and compliance teams provide us with a source of competitive advantage as they
enable our products to be robust and provide us with speed to market for our
product offerings. Regulatory changes could present a risk to our business and
make it more difficult to market alternative investment products to our
investors. We therefore have an active dialogue with all our regulators and
monitor proposed changes. We believe that being proactive in regulatory
developments results in us maintaining this competitive advantage.
Our strong capital position, both in terms of equity capital and debt resources,
results in us having financial security across differing cycles and market
conditions. At 30 September 2007, shareholders' equity was $7.2 billion, up 58%
from the year-end. The increase in shareholders' equity in the first half of the
year included the realised gain of $1,746 million on the sale of our holding in
MF Global and an unrealised gain of $432 million, relating to the residual
holding. The conversion of the remaining exchangeable bonds added $451 million.
The profit for the period, excluding the gain on the sale of MF Global, added
$725 million. Shareholders' equity was reduced by the payment of the final
dividend for last year of $250 million and the consideration paid for share
repurchases of $520 million. Subject to shareholder approval, the distribution
of the net proceeds from the IPO will reduce shareholders' funds by
approximately $2.75 billion to $4.4 billion.
During the first half, we repaid $510 million of senior and subordinated debt as
part of the separation of MF Global. In addition we replaced our $2.275 billion
syndicated revolving loan facility with a similar 5-year facility of $2.5
billion. As of July 2007, Moody's Investors Service and Fitch Ratings Ltd
reaffirmed our long-term debt rating of Baa1 and A- respectively. As of 30
September 2007 our total capital resources and undrawn committed facilities were
in aggregate $9.4 billion, compared to $8.0 billion at 31 March 2007. At all
times during the first half year we maintained a free cash balance, after the
deduction of all outstanding debt, of at least $500 million. Operating cash flow
on total operations for the six months ended 30 September 2007 was $702 million,
indicating the highly cash generative nature of the business.
Our strategy is to maintain sufficient excess capital and substantial liquidity
resources to give us flexibility both to continue to finance growth and to
operate the business effectively under market stress situations. In turbulent
markets there is a risk that the appetite of financial counterparties that
provide leverage financing to the funds changes. To mitigate this risk we
facilitate a process whereby the products directly borrow from a wide group of
financial institutions on a collateralised basis. The funds are designed to
operate within defined liquidity constraints so that liquidity is provided to
the products up to the point where they are caused systematically to reduce
leverage to preserve capital. This limits the necessity for the Group to provide
significant financing directly to the products.
As at 30 September 2007, we had excess regulatory capital of $1.7 billion,
compared with $675 million as of 31 March 2007. Of the Group's current
regulatory capital surplus it is intended to utilise $1.0 billion in the return
of the MF Global proceeds to shareholders, being the net proceeds of
approximately $2.75 billion less the gain on disposal of $1.7 billion. However,
the current surplus will be partly restored by the inclusion of the first half's
retained earnings as from the date of this interim report, which will result in
the Group having surplus regulatory capital of around $1 billion. From 1 January
2008, the Group will fully adopt the new FSA rules, which implement the Capital
Requirements Directive.
The Group's regulatory capital position at 30 September 2007 is shown in the
table below.
Group's regulatory capital position
Provisional
30 September 31 March
2007 2007
$m $m
--------------------------------------------------------------------------------
Permitted share capital and reserves* 3,975 3,316
Less goodwill and other intangibles:
- Goodwill on acquisitions of subsidiaries (810) (785)
- Goodwill on acquisitions of associates/JVs (194) (198)
- Commission intangible (FEL) (434) (405)
- Other intangibles (31) (24)
- MF Global - (294)
--------------------------------------------------------------------------------
Available Tier 1 Group capital 2,506 1,610
Tier 2 capital - subordinated debt 400 610
Tier 2 capital - revaluation reserves 501 120
Material holdings deduction - residual MF
Global investment (645) -
Other material holdings deductions less interim
trading book profits (199) (68)
--------------------------------------------------------------------------------
Group Financial Resources 2,563 2,272
Less Financial Resources Requirement (including
liquidity adjustments):
- Asset Management (854) (432)
- MF Global - (1,165)
--------------------------------------------------------------------------------
Group Financial Resources Requirement (854) (1,597)
--------------------------------------------------------------------------------
Net excess of Group capital 1,709 675
--------------------------------------------------------------------------------
* excludes retained profits for the first half of the financial year as these
were unaudited as at 30 September 2007.
The Group's Financial Resources Requirement has increased by approximately $420
million since the year-end. This increase comprises: a $100 million increase in
relation to seeding investments in fund products; $150 million in relation to
residual MF Global market seats transferred to the Group and other items
relating to the brokerage business; and $170 million to other Asset Management
items.
Performance is the measure of the successful execution of our strategy. As an
asset management business focused on alternatives, where the generation of
performance is required to be incremental to the movement of the underlying
market, we are constantly challenged to outperform. We are proud of our record
of long-term performance for investors across our products. This track record
has fuelled our strong growth in assets under management and provides the
momentum for further growth.
Performance 6 months to 30 12 months to 30 3 years to 30 5 years to 30
records September 2007 September 2007 September 2007 September 2007
(not annualised) (annualised) (annualised)
AHL Diversified
Programme* 15.4% 14.4% 13.4% 8.9%
RMF^ 4.9% 13.1% 10.2% 8.5%
Glenwood@ 4.3% 14.3% 8.1% 5.9%
Man Global Strategies# 1.8% 8.4% 9.3% 6.4%
Pemba< -11.8% -6.0% N/A N/A
Bayswater+ -12.0% -7.9% 8.7% N/A
HFRX Global Hedge Fund
Index| 2.4% 9.5% 6.5% N/A
World stocks 5.2% 14.6% 14.8% 14.6%
Corporate bonds 0.6% 2.0% 4.0% 5.2%
Source: Man database and Bloomberg. There is no guarantee of trading performance
and past performance is not necessarily a guide to future results.
* AHL Diversified: represented by Athena Guaranteed Futures Limited.
^ RMF: represented by RMF Absolute Return Strategies I (dividends reinvested).
@ Glenwood: represented by Man-Glenwood Multi-Strategy Fund Limited.
# Man Global Strategies: represented by Man Multi-Strategy Guaranteed Limited.
Pemba: represented by Pemba European Loan Opportunities - Class A Units.
+ Bayswater: Man Bayswater Macro is represented by the performance of Man Global
Quant Alpha Investments Limited from August 2004 to June 2006 and Man
Bayswater Macro Class O since July 2006.
| HFRX Global Hedge Fund Index: Index began in 2003 - no data available for 5
years.
Note: All figures are shown net of fees and commissions, where applicable.
World stocks: MSCI World Index hedged to US dollar. Corporate bonds: Citigroup
High Grade Corporate Bond TR.
One of the business risks we face is the occurrence of under performance of a
fund product or fund styles compared to market leaders in the hedge fund
industry. This would lead to increased redemptions and reduce future sales,
thereby reducing management and performance fees. To mitigate this risk for the
private investor we develop our products with three important features:
investment diversification through selection of leading investment managers,
analytical robustness, and, in the case of guaranteed products, principal
guarantees. We have developed a diversified group of investment managers who
have proven track records of actual and analytically tested returns and
volatilities. The portfolios are tested against a variety of market conditions
so that they are resilient and robust cross cycle. The guaranteed products have
a principal guarantee component which gives the investor confidence to stay
invested on a long-term basis and withstand short-term volatility. For the
institutional investor we offer a wide range of investment products with
different risk and return characteristics so that as their investment experience
and risk appetite change they can stay invested. This product diversification
together with interactive investor services helps mitigate the risk of
redemptions. We are constantly looking to develop new investment opportunities,
improve performance and develop new products so that we can offer a wide variety
of investment products to meet the risk appetite of investors.
Our focus on performance is at the investor and the Group level. The Group's
financial results and the performance of our products continue to show the
successful implementation of our strategy.
In the first half of the year the Group profit before tax from continuing
operations was $820 million, reflecting the 17% increase in net management fee
income and the 28% increase in net performance fee income. Pre-tax margin was
65% compared with 61% for the same period last year and 59% for the previous six
month period. This demonstrates our strong discipline around the growth of our
expense base, as well as reflecting the levels of performance fees earned in
each discrete period.
Profit after tax for continuing operations has increased 16% to $672 million
compared to $580 million for the same period last year, and has increased 27%
compared to $530 million for the previous six month period. Annualised return on
equity was 33.1%. This has resulted in diluted earnings per share on continuing
operations increasing 17% to 34.1 cents.
Gross management fees included within revenue, increased by 14% to $965 million
for the six months ended 30 September 2007, compared with $846 million for the
comparable six month period. This growth demonstrates the strong sales growth in
both private investor and institutional sectors.
Gross performance fees included within revenue, increased by 9% to $293 million
for the six months ended 30 September 2007, compared with $269 million for the
same period last year. Other performance fee income is included in other net
operating income, relating to net gains from proprietary trading investments,
and in the associates and JVs line, relating to our share of BlueCrest's
performance fees. AHL contributed 68% of the performance fees with 32% from all
other Core Investment Managers.
Sales commissions relate to the upfront commission (FEL) and trail paid to
distributors of our private investor products. For the six months ended 30
September 2007, sales commissions were $187 million compared with $162 million
for the first half of last year. This increase is in line with the growth of
private investor funds under management. Included in sales commissions is $70
million from the amortisation of the intangible upfront commissions, compared to
$63 million in the comparable period and $129 million in the previous full year.
Administrative expenses have increased by 29% to $378 million, compared with
$292 million for the same period last year. The majority of the increase relates
to discretionary employee bonus compensation, which increased to $183 million
from $131 million for the comparative period.
Net finance income for the six months was $53 million reflecting interest income
from the MF Global IPO proceeds and other cash balances, partly offset by
interest expense on debt to finance acquisitions and working capital
requirements.
We operate in a competitive environment and therefore are subject to market
dynamics which could lead to a reduction in historical profit margins. Our
business model offers us significant flexibility to mitigate the effects of this
risk. Our constant focus on top quartile performance enables our products to
perform and enjoy continued demand and the size and scale of our business allows
us to create operational efficiencies. Our distribution network is a variable
cost linked to sales volumes, and a significant portion of our cost base is
represented by discretionary bonus compensation which is variable with
performance. These factors help us to preserve our profit margins.
Income statement
The income statement in the table below is for the Group's continuing
operations, relating to Asset Management. It therefore excludes the results of
Brokerage, disposed of in July 2007, and the related profit on disposal.
Asset Management - continuing operations H1 2008 H1 2007
Half year to 30 September 2007
$m $m
-----------------------------------------------------
Revenue 1,258 1,115
Sales commissions (187) (162)
Other net operating income 17 -
-----------------------------------------------------
Total operating income 1,088 953
Administrative expenses (378) (292)
-----------------------------------------------------
Operating profit 710 661
Associates and JVs 57 24
Net finance income/(expense) 53 (6)
-----------------------------------------------------
Profit before tax 820 679
Taxation (148) (99)
-----------------------------------------------------
Profit for the period 672 580
-----------------------------------------------------
Pre-tax margin (Profit before tax/Revenue) 65% 61%
-----------------------------------------------------
Discontinued operations - Brokerage
The results of our brokerage business, which are classified as discontinued
operations in this Interim Report, are given in note 5 to the interim financial
statements. The Group's 18.6% residual holding in MF Global is being designated
as an available for sale asset on the Group balance sheet at fair value, with
changes in fair value being taken to the available for sale reserve within
equity. The fair value of our residual holding was $645 million at 30 September
2007, reflecting an unrealised gain of $432 million, which is included in the
available for sale reserve.
Revenue margins
One of our key performance indicators is net management fee margin. This
represents the management fee income earned from the funds under management and
interest on loans to funds, and compensates us for the distribution, operation
and administration services, which we provide to the funds. To add clarity to
the analysis of the net management fee margins we have restated our analysis by
excluding net finance income/(expense), which principally relates to interest
income earned on free cash deposits less finance costs on the Group's debt. We
believe that the restated net margin analysis gives a clearer indication of net
margins from our ongoing investment management franchise.
The net management fee margin for private investors was 215bp, compared to 235bp
in the prior year. The primary reason for the reduction in the net margin is
lower interest income and liquidity fees earned in relation to the fund
products. We have systematically reduced the amount of funding by Man directly
to the fund products and increased the third party funding of the products. This
strategy has placed the financing of the fund products with bank counterparties
who provide this capital as part of their ordinary business. Consequently we
have reduced our exposure to the funds and increased flexibility and
scalability. In addition, the increase in administrative expenses, primarily
relating to the strengthening of Sterling against the US dollar, and expenses
incurred in relation to investment in new sources of returns have resulted in a
further decrease in the margin.
The net management fee margin for institutional investors was 53bp, compared
with 62bp in the prior year. The decrease in net management fee margin is
primarily a result of a negotiated switch from management fee income to
performance fee income. This is consistent with the industry trends in the
institutional markets. The underlying fund of funds product is diversified and
therefore the performance fees are more stable cross cycle.
Revenue margins H1 2008 2007 2006 2005
--------------------------------------------------------
Average FUM in period ($bn) 66.4 57.2 44.7 40.2
Net management fee income ($m) 537 943 704 601
Less: net finance (income)/expense ($m) (53) (10) 11 43
--------------------------------------------------------
Adjusted net management fee income ($m) 484 933 715 644
Adjusted management fees/FUM 1.46% 1.63% 1.60% 1.60%
--------------------------------------------------------
Taxation
The tax charge for the period on continuing operations amounted to $148 million.
The effective tax rate is 18.0%, compared to 14.7% for the prior year,
reflecting the estimated rate for the full year. The majority of the Group's
profit continues to be earned in Switzerland and the UK and the current
effective tax rate is consistent with this profit mix. The increase in the rate
from the prior year principally relates to the release of tax accruals last year
as a result of reaching agreements with the UK and Swiss tax authorities on a
number of outstanding issues.
Financial objectives
Our strategy focuses on delivering long-term, sustainable value to our
shareholders. The key financial objectives that drive this value are growth in
diluted earnings per share and return on equity. Earnings per share is a measure
that encapsulates the primary drivers of financial performance for the Group.
The earnings metric includes the measure of revenue that results from growing
funds under management and the performance fee income from the investment
performance of the funds. The maintenance of pre-tax margins as we grow
demonstrates our control over our expense base. The denominator of average
shares outstanding reflects our policy of share repurchases and cancellation.
Return on equity is the measure to enable us to assess whether we are utilising
shareholders' equity efficiently and ensuring that adequate return hurdles are
being achieved on invested funds.
Earnings per share
Diluted earnings per share on continuing operations for the six months ended 30
September 2007 increased 17% to 34.1 cents, compared to 29.2 cents for the same
period last year and 55.4 cents for the full year.
As part of the Company's distribution policy shares are repurchased and
cancelled using excess reserves. During the first half of the year 45,860,018
shares were repurchased and cancelled at a total cost of $520 million. This was
earnings enhancing, resulting in a 0.3% accretion to diluted earnings per share.
Return on equity
The Group's post-tax return on equity for Asset Management, on an annualised
basis, for the first half was 33.1%. This measure excludes the earnings and the
profit on sale of MF Global, and the equity base excludes the proceeds from the
sale and the residual investment in MF Global.
Distribution policy
The Group's stated objective is to maximise shareholder value. Shareholders'
equity is therefore either utilised in the business to continue to grow the
franchise or returned to shareholders. The Group has a consistent track record
of distributing significant amounts of shareholders' equity to shareholders.
The ordinary dividend has been increased each year, in line with the growth of
underlying earnings and has increased by a compound average growth rate, in
dollar terms, of 35% per annum over the last five years. The Group has also
repurchased shares for cancellation in each of the last six years and in
aggregate has returned $1.3 billion of shareholders' equity. The distribution of
the IPO proceeds from the sale of MF Global will have the effect of distributing
the net gain from the sale of $1.7 billion and in addition $1.1 billion of
shareholders' equity to shareholders. In 2007, subject to shareholder approval
of the IPO distribution, distributions to shareholders aggregate to 15% of the
current market capitalisation of the Group.
The Group is a growth company in a growth sector. Capital and the access to
capital is a source of competitive advantage to the Group. Capital in the form
of debt and equity supports the current business and provides support for
continued access to additional capital through the capital markets. As a
regulated entity, the equity capital and subordinated debt base of the Group
supports the regulatory capital required to maintain our status and support our
investor base.
In considering the distribution policy for the Group going forward, the Board
has considered a number of factors.
The sustainability of earnings
The ordinary dividend is a strong signal to shareholders of the recurring nature
of a portion of net income. The growth of the dividend is a strong indication
of the Board's confidence in the profitable growth prospects for the Group. The
Board has previously stated that ordinary dividends would be covered at least
two times by post-tax net management fees and that the post-tax net performance
fees are used to repurchase shares for cancellation.
Man's performance fee income is based on a diversified portfolio of Core
Investment Managers and therefore the level of performance fee income, taken in
aggregate, is more stable and cross cycle a minimum amount is more predictable
than would be the case for an individual fund manager. Therefore, the Board
believes it is appropriate to consider a portion of performance fees as having
the same characteristics as management fee income and thereby set the dividend
policy to take account of net income in aggregate.
Investment opportunities
The Group uses its capital resources to support the organic growth of the
business. Our internal risk management processes enable us to assess where
capital is deployed, so that satisfactory returns are achieved and this review
process forms part of the regular management reporting regime in the business.
In addition, capital may be deployed to fund other investments including
acquisition opportunities. The source of this capital can be internally
generated or externally funded. In establishing the distribution policy the
Board will take into account the current and potential future capital needs of
the business and in setting the level of the ordinary dividend will routinely
consider investment opportunities.
Ordinary dividend policy
The Board has therefore adopted a policy to grow the dividend per share, in
dollar terms, progressively and in line with the growth of earnings. In
pursuing this policy the Board will set the level of ordinary dividends having
taken into account: the results for the past years; the outlook for the current
year; investment opportunities; free cash flow; and the maintenance of prudent
capital against contingencies. The Board will target a dividend coverage ratio
of at least 1.8 times profit after tax. It is anticipated that this ratio will
be achieved within the next two years, as a result of increasing the ordinary
dividend.
The economic currency of the Group is US dollars and therefore the dividend will
continue to be determined in dollars.
Share repurchase programme
Share repurchases will be used in a systematic manner to reduce available
capital surpluses.
In accordance with the new distribution policy adopted by the Board and given
the Group's strong performance in the first half of the year and our strong
capital position, we have declared an interim dividend of 16.8 cents per
existing share (assuming shareholders approve the ordinary share capital
consolidation on a 7 for 8 basis at an EGM to be held on 23 November 2007, the
dividend will be 19.2 cents per consolidated share). This dividend will be paid
at the rate of 8.03 pence per existing share (9.18 pence per consolidated share,
assuming the share consolidation is approved).
Dates for the 2008 Interim Dividend
-----------------------------------------------------------------------
Ex Dividend date 28 November 2007
Record date 30 November 2007
DRIP final election date 5.00pm on 30 November 2007
Dividend paid/CREST accounts credited 20 December 2007
Share Certificates received/CREST accounts
credited with DRIP purchases 28 December 2007
-----------------------------------------------------------------------
Outlook
The second half of our financial year has started strongly. Since the turbulent
markets of the summer, our investors have seen a continuation of September's
good performance carry through into October. With almost all of our assets
standing at or close to their high watermarks as at the end of September, the
strong performance during October has already generated significant performance
fee income for the second half.
This product performance has driven further growth in assets under management
since 30 September, which are currently estimated to be over $70 billion.
Our scale and strong capital position provide a stable platform for innovation
in our product range and investment in our business. Our investment products are
designed to perform across a range of differing market conditions, and the
current environment creates additional opportunities for investment.
The long track record of our products and our established distribution franchise
mean that we are well placed for continued asset growth. With recent positive
performance the outlook for sales remains good.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union, and that
the Half Year Review herein includes a fair view of the information required by
the Financial Services Authority's Listing Rules, including the new Disclosure
and Transparency Rules.
The Directors of Man Group plc are listed in the Annual Report for 31 March
2007, with the exception of the following changes in the period: Kevin Davis
stepped down from the Board on 19 July 2007; Harvey McGrath retired from the
Board from 8 November 2007; and Phillip Colebatch and Patrick O'Sullivan joined
the Board on 1 September 2007.
By order of the Board
Peter Clarke
Chief Executive
8 November 2007
Kevin Hayes
Finance Director
8 November 2007
GROUP INCOME STATEMENT
Restated* Restated*
Half year Half year Year
to 30 September to 30 to 31
2007 September March
2006 2007
Note $m $m $m
---------------------------------------------------------
Revenue 1,258 1,115 2,165
Cost of sales (187) (162) (335)
Other operating income 53 17 75
Other operating losses (36) (17) (26)
Administrative expenses (378) (292) (632)
----------------------------------------------------------
Group operating profit -
continuing operations 710 661 1,247
----------------------------------
Finance income 84 28 65
Finance expense (31) (34) (55)
-----------------------------------
Net finance
income/(expense) 3 53 (6) 10
Share of after tax profit
of associates and joint
ventures 57 24 44
----------------------------------------------------------
Profit on ordinary
activities before taxation 820 679 1,301
Taxation 4 (148) (99) (191)
----------------------------------------------------------
Profit after tax from
continuing operations 672 580 1,110
Discontinued operations -
Brokerage 5 1,799 40 174
----------------------------------------------------------
Profit for the period 2,471 620 1,284
----------------------------------------------------------
Attributable to:
Equity holders of the
Company 2,473 619 1,285
Equity minority interests (2) 1 (1)
----------------------------------------------------------
2,471 620 1,284
----------------------------------------------------------
Earnings per share 6
From continuing operations:
Basic 35.1c 31.5c 59.9c
Diluted 34.1c 29.2c 55.4c
From discontinued
operations:
Basic 94.1c 2.2c 9.4c
Diluted 90.5c 1.9c 8.5c
From continuing and
discontinued operations:
Basic 129.2c 33.7c 69.3c
Diluted 124.6c 31.1c 63.9c
----------------------------------------------------------
Memo:
Dividends paid in the
period $250m $167m $306m
Proposed dividend per 16.8c 7.3c 20.0c
ordinary share+
----------------------------------------------------------
* The restatement in the comparative period for the half year to 30 September
2006 relates to the classification of Brokerage as a discontinued operation. The
restatement presents the post-tax result of the discontinued operation as a
single amount on the Group income statement. In determining the post-tax result
of the discontinued operation only those central costs that were eliminated on
disposal are allocated to the discontinued operation.
In addition, interest income on loans to fund products has been reclassified as
revenue instead of finance income. The comparative periods have been restated
accordingly. See note 1 for further details.
+ Assuming shareholders approve the ordinary share capital consolidation on a 7
for 8 basis at an EGM to be held on 23 November 2007, the dividend relating to
the half year to 30 September 2007 will be 19.2 cents per consolidated share.
GROUP BALANCE SHEET
At 30 Restated*
September At 30 At 31
2007 September March
2006 2007
Note $m $m $m
-----------------------------------------------------------
ASSETS
Non-current assets
Property, plant and
equipment 48 82 46
Goodwill 7 810 840 785
Other intangible
assets 7 465 610 429
Investments in
associates and joint
ventures 269 257 258
Other investments 5 967 3,415 189
Deferred tax assets 37 37 72
Non-current
receivables 74 3,297 40
-----------------------------------------------------------
2,670 8,538 1,819
-----------------------------------------------------------
Current assets
Trade and other
receivables 1,087 22,377 842
Current tax assets 7 15 1
Derivative financial
instruments 30 6 15
Short-term
investments 1,054 14,753 655
Cash and cash
equivalents 4,255 2,898 1,571
---------------------------------------------------------
6,433 40,049 3,084
-----------------------------------------------------------
Assets of Brokerage
held for sale - - 50,162
-----------------------------------------------------------
Total assets 9,103 48,587 55,065
-----------------------------------------------------------
LIABILITIES
Non-current liabilities
Long-term borrowings 8 895 1,434 1,100
Deferred tax
liabilities 20 32 18
Pension obligations 25 40 21
Derivative financial
instruments - 31 9
Trade and other
payables - 6,393 2
-----------------------------------------------------------
940 7,930 1,150
-----------------------------------------------------------
Current liabilities
Trade and other
payables 577 36,120 476
Current tax
liabilities 316 285 286
Short-term borrowings
and overdrafts 8 91 112 489
Derivative financial
instruments 6 8 6
-----------------------------------------------------------
990 36,525 1,257
-----------------------------------------------------------
Liabilities of
Brokerage held for
sale - - 48,095
-----------------------------------------------------------
Total liabilities 1,930 44,455 50,502
-----------------------------------------------------------
NET ASSETS 7,173 4,132 4,563
-----------------------------------------------------------
EQUITY
Capital and reserves
attributable to shareholders
Share capital 59 57 57
Share premium account 1,399 960 962
Merger reserve 722 722 722
Other capital
reserves 8 142 142
Available for sale
reserve 501 64 120
Cash flow hedge
reserve 1 - 2
Retained earnings 4,483 2,179 2,534
-----------------------------------------------------------
7,173 4,124 4,539
-----------------------------------------------------------
Equity minority
interests - 8 24
-----------------------------------------------------------
TOTAL EQUITY 7,173 4,132 4,563
-----------------------------------------------------------
* The restatement in the comparative period relates to a change in accounting
policy to show certain assets and liabilities in Brokerage on a gross basis,
following the acquisition of the Refco assets in 2006. This restatement is
explained in more detail in Policy Z in the Principal Accounting Policies
section in the 2007 Annual Report and in note 1 to these interim financial
statements.
GROUP CASH FLOW STATEMENT
Restated* Restated*
Half year Half year Year
to 30 September to 30 September to 31
2007 2006 March
2007
Note $m $m $m
-----------------------------------------------------------
Cash flows from operating
activities
Cash generated from
operations 9 702 511 1,570
Interest paid (94) (93) (215)
Income tax paid (171) (131) (202)
--------------------------- ------ --------- --------- --------
437 287 1,153
--------------------------- ------ --------- --------- --------
Cash flows from investing
activities
Acquisition of subsidiaries and businesses,
net of cash acquired (35) - (38)
Proceeds from sale of
subsidiaries and businesses,
net of cash disposed 1,325 - -
Purchases of property, plant and equipment (22) (21) (43)
Proceeds from sale of
property, plant and equipment - 1 2
Purchases of intangible assets (139) (158) (254)
Proceeds from sale of
intangible assets 37 24 57
Purchases of associates
and joint ventures - - (4)
Proceeds from sale of associates and
joint ventures 2 1 -
Purchases of other
non-current investments (17) (50) (147)
Proceeds from sale of
other non-current investments 25 23 106
Interest received 125 105 233
Dividends received from
associates and joint ventures 42 28 50
Dividends from other
non-current investments 6 - 3
--------------------------- ------ --------- --------- --------
1,349 (47) (35)
--------------------------- ------ --------- --------- --------
Cash flows from financing activities
Proceeds from issue of ordinary shares 72 40 42
Purchase of treasury shares (520) (156) (375)
Purchase of own shares by ESOP trust (124) (136) (143)
Disposal of own shares by ESOP trust 40 35 37
Proceeds from borrowings 500 175 250
Incremental issue costs (3) - -
Repayments of borrowings (757) - -
Dividends paid to Company shareholders (250) (165) (306)
Dividends paid to equity minority interests - - (1)
--------------------------- ------ --------- --------- --------
(1,042) (207) (496)
--------------------------- ------ --------- --------- --------
Net increase in cash and bank overdrafts 744 33 622
Cash and bank overdrafts
at the beginning of the period 3,420 2,798 2,798
Less: cash and bank overdrafts included
in discontinued operations - - (1,850)
--------------------------- ------ --------- --------- --------
Cash and bank overdrafts
at the end of the period 4,164 2,831 1,570
--------------------------- ------ --------- --------- --------
* The restatement of the comparative periods relates to the reclassification of
interest income on loans to fund products (see note 1).
The cash flow statement includes cash flows from continuing operations and
discontinued operations up until the date of the IPO.
For the purposes of the cash flow statement, cash and cash equivalents are
included net of overdrafts repayable on demand. These overdrafts are excluded
from the definition of cash and cash equivalents disclosed on the balance sheet.
At 30 September 2007 overdrafts repayable on demand amounted to $91 million (30
September 2006: $67 million, 31 March 2007: $1 million).
GROUP CASH FLOW STATEMENT continued
Cash flows from discontinued operations up until the date of the IPO comprise:
Half year Half year Year
to 30 September to 30 September to 31
2007 2006 March
2007
$m $m $m
--------------------------- --------- --------- --------
Net cash flows from operating
activities (522) (44) 79
Net cash flows from investing
activities 44 59 203
Net cash flows from financing
activities - 95 48
--------------------------- --------- --------- --------
Net (decrease)/increase in
cash and bank (478) 110 330
overdrafts
--------------------------- --------- --------- --------
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share capital Share premium Capital Revaluation Equity minority Total
reserves reserves and interests equity
retained
earnings
$m $m $m $m $m $m
-----------------------------------------------------------------------------
Balance at 1
April 2007 57 962 864 2,656 24 4,563
-----------------------------------------------------------------------------
Currency translation adjustments - - - 74 2 76
Available for sale investments:
Valuation gains taken to equity:
Continuing operations - - - 426 - 426
Discontinued operations - - - 24 - 24
Transfer to income statement
on sale:
Discontinued operations - - - (116) - (116)
Cash flow hedge:
Valuation gains taken to equity:
Continuing operations - - - 2 - 2
Transfer to income statement
in the period:
Continuing operations - - - (4) - (4)
Taxation:
Continuing operations - - - (8) - (8)
Discontinued operations - - - 47 - 47
----------------------- ------- ------- ------ -------- ------ -------
Net income recognised directly in
equity - - - 445 2 447
Profit for the period:
Continuing operations - - - 672 - 672
Discontinued operations - - - 1,801 (2) 1,799
----------------------- ------- ------- ------ -------- ------ -------
Total recognised income for the
period - - - 2,918 - 2,918
Purchase and cancellation
of own shares (1) - 1 (516) - (516)
Movement in close period
share buyback obligations - - - (4) - (4)
Conversion of
exchangeable bonds 3 365 (135) 218 - 451
Employee share schemes:
Value of employee services:
Continuing operations - - - 27 - 27
Discontinued operations - - - 20 - 20
Proceeds from shares issued - 72 - - - 72
Purchase of own shares by
ESOP trust - - - (124) - (124)
Disposal of own shares by
ESOP trust - - - 40 - 40
Disposal of businesses - - - - (24) (24)
Dividends - - - (250) - (250)
----------------------- ------- ------- ------ -------- ------ -------
Balance at 30 September 2007 59 1,399 730 4,985 - 7,173
----------------------- ------- ------- ------ -------- ------ -------
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY continued
Share capital Share premium Capital Revaluation Equity minority Total
reserves reserves and interests equity
retained
earnings
$m $m $m $m $m $m
----------------------- ------- ------- ------ -------- ------ -------
Balance at 1
April 2006 55 591 945 1,978 8 3,577
----------------------- ------- ------- ------ -------- ------ -------
Currency translation
adjustments - - 1 41 (1) 41
Available for sale investments:
Valuation losses taken
to equity:
Discontinued operations - - - (3) - (3)
Transfer to income statement on sale:
Discontinued operations - - - (4) - (4)
Cash flow hedge:
Valuation gains taken to equity:
Continuing operations - - - 1 - 1
Transfer to income statement
in the period:
Continuing operations - - - 1 - 1
Taxation:
Continuing operations - - - 4 - 4
Discontinued operations - - - 1 - 1
----------------------- ------- ------- ------ -------- ------ -------
Net income/(expense) recognised
directly in equity - - 1 41 (1) 41
Profit for the period:
Continuing operations - - - 580 - 580
Discontinued operations - - - 39 1 40
----------------------- ------- ------- ------ -------- ------ -------
Total recognised
income for the period - - 1 660 - 661
Purchase and cancellation
of own shares (1) - 1 (156) - (156)
Employee share schemes:
Value of employee services:
Continuing operations - - - 18 - 18
Discontinued operations - - - 9 - 9
Proceeds from shares issued 1 39 - - - 40
Purchase of own shares by
ESOP trust - - - (136) - (136)
Disposal of own shares by
ESOP trust - - - 35 - 35
Partial conversion of
exchangeable bonds 2 330 (83) - - 249
Dividends - - - (165) - (165)
----------------------- ------- ------- ------ -------- ------ -------
Balance at 30
September 2006 57 960 864 2,243 8 4,132
Share capital Share premium Capital Revaluation Equity minority Total
reserves reserves and interests equity
retained
earnings
$m $m $m $m $m $m
----------------------- ------- ------- ------ -------- ------ -------
Balance at 1 April 2006 55 591 945 1,978 8 3,577
----------------------- ------- ------- ------ -------- ------ -------
Currency translation
adjustments - - - 108 1 109
Available for sale investments:
Valuation gains taken to equity:
Continuing operations - - - 3 - 3
Discontinued operations - - - 133 - 133
Transfer to income statement
on sale:
Continuing operations - - - (1) - (1)
Discontinued operations - - - (58) - (58)
Cash flow hedge:
Valuation gains taken to equity:
Continuing operations - - - 7 - 7
Transfer to income statement
in the year:
Continuing operations - - - (2) - (2)
Taxation:
Continuing operations - - - 36 - 36
Discontinued operations - - - (10) - (10)
----------------------- ------- ------- ------ -------- ------ -------
Net income recognised
directly in equity - - - 216 1 217
Profit for the year:
Continuing operations - - - 1,110 - 1,110
Discontinued operations - - - 175 (1) 174
----------------------- ------- ------- ------ -------- ------ -------
Total recognised income for the
year - - - 1,501 - 1,501
Purchase and cancellation
of own shares (1) - 1 (375) - (375)
Movement in close period share buyback
obligations - - - (100) - (100)
Conversion of exchangeable bonds 2 330 (83) - - 249
Employee share schemes:
Value of employee services:
Continuing operations - - - 43 - 43
Discontinued operations - - - 22 - 22
Proceeds from shares issued 1 41 - - - 42
Purchase of own shares by
ESOP trust - - - (143) - (143)
Disposal of own shares by
ESOP trust - - - 37 - 37
Acquisition of businesses - - - - 17 17
Transfer between reserves - - 1 (1) - -
Dividends - - - (306) (1) (307)
----------------------- ------- ------- ------ -------- ------ -------
Balance at 31
March 2007 57 962 864 2,656 24 4,563
----------------------- ------- ------- ------ -------- ------ -------
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The financial information contained herein is unaudited and does not constitute
statutory accounts as defined by Section 240 of the Companies Act 1985.
Statutory accounts for the year to 31 March 2007, 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 auditors have given an unqualified and
unmodified report and which contained no statement under Section 237 of the
Companies Act 1985, have been delivered to the Registrar of Companies and were
posted to shareholders on 11 June 2007.
The financial statements for the half year to 30 September 2007 have been
prepared in accordance with IAS 34 'Interim Financial Reporting' and the
Disclosure and Transparency Rules of the Financial Services Authority. Except
for the change below, the accounting policies applied in these interim financial
statements are consistent with those set out and applied in the Group's Annual
Report for the year to 31 March 2007.
On 30 March 2007 the Group Board announced that it intended to separate its
brokerage business. As a result, Brokerage was reclassified as a discontinued
operation in the Group's financial statements for the year ended 31 March 2007
and in these interim financial statements up to 19 July 2007, the date of
disposal. In these interim financial statements the Group income statement for
the comparative period has been restated to show Brokerage as a discontinued
operation but the Group balance sheet at 30 September 2006 is not restated.
In accordance with the change in presentation made in the 2007 Annual Report to
gross up Brokerage assets and liabilities relating to its repurchase agreements
to maturity transactions, the presentation of the comparative figures at 30
September 2006 has been changed in the Group balance sheet. The gross-up of
assets is included in: non-current investments $3,166 million; non-current
receivables $3,227 million; short-term investments $3,399 million; and current
trade and other receivables $844 million. The gross-up of liabilities is
included in: non-current trade payables $6,393 million and current payables
$4,243 million. There is no impact on the income statement or on net assets or
cash flow in the comparative period. The reason for this change is discussed in
section Z of the Principal Accounting Policies note in the 2007 Annual Report.
The classification of interest income on loans to fund products has been changed
to include it in revenue instead of finance income, on the basis that it is akin
to management and other fees earned from fund products. The comparative periods
have been restated accordingly. Interest income on loans to fund products was
$22 million for the half year to 30 September 2007 (half year to 30 September
2006: $28 million; year to 31 March 2007: $51 million).
A number of new standards, amendments to existing standards and interpretations
have been issued, some of which are mandatory for the financial year ending 31
March 2008, with the remaining becoming effective in future years.
IFRS 7 'Financial Instruments: Disclosures' and an amendment to IAS 1
'Presentation of Financial Statements' on financial instruments disclosures and
capital disclosures respectively, have been adopted by the Group for reporting
in its financial year ending 31 March 2008, and full disclosures will be given
in the annual financial statements.
The following interpretations are effective for the financial year ending 31
March 2008:
IFRIC 8 - Scope of IFRS 2
IFRIC 9 - Reassessment of embedded derivatives
IFRIC 10 - Interim financial reporting and impairment
IFRIC 11, IFRS 2 - Group and treasury share transactions
IFRS 8 'Operating segments' has been issued and, subject to EU endorsement, it
will be adopted by the Group for reporting in its financial year ending 31 March
2009.
The adoption of any new standards, amendments to existing standards, and
interpretations will not have a material impact on the results or financial
position of the Group.
2. Segmental analysis
The Group's continuing operations are in one business segment, Asset Management.
There are no other significant classes of business, either individually or in
aggregate.
Brokerage is classified as a discontinued operation in these financial
statements. Prior to the 2007 Annual Report, it was reported as an individual
segment. Additional information on discontinued operations is provided in note
5.
3. Net finance income/(expense)
--------------------------- ---------- ---------- ----------
Half year to Restated Restated
30 September Half year to Year to
2007 30 September 31 March
$m 2006 2007
$m $m
--------------------------- ---------- ---------- ----------
Finance income:
Bank interest receivable 72 24 55
Finance fees 3 4 8
Investment income 6 - 1
Fair value gain on interest rate
swaps 3 - 1
-------------------------- ---------- ---------- ----------
84 28 65
Finance expense:
Interest payable on borrowings (15) (10) (19)
Amortisation of issue costs on
borrowings (1) (1) (2)
Amortisation of discount on issue
of exchangeable bonds (3) (6) (17)
Cost of incentive for early
conversion of exchangeable bonds - (12) (12)
Accretion of liabilities discounting (2) (2) (1)
Fair value loss on interest rate
swaps (10) (3) (4)
-------------------------- ---------- ---------- ----------
(31) (34) (55)
-------------------------- ---------- ---------- ----------
Net finance income / (expense) 53 (6) 10
-------------------------- ---------- ---------- ----------
4. Taxation
Half year Restated Year
to 30 September Half year to
2007 to 30 September 31 March
2006 2007
$m $m $m
---------------------------- ---------- ---------- ---------
Taxation charge for the period
UK 81 38 73
Overseas 67 61 118
---------------------------- ---------- ---------- ---------
148 99 191
---------------------------- ---------- ---------- ---------
5. Disposal of discontinued operation
On 19 July 2007 the Group separated its Brokerage business, renamed 'MF Global',
through an initial public offering (IPO) on the New York Stock Exchange. Its
results, up to the date of separation, are presented in these financial
statements as discontinued operations.
The IPO resulted in the disposal of 81.4% of the share capital of MF Global,
giving rise to a gain on sale of $1.7 billion. The residual shareholding held by
the Group has been reclassified as a non-current investment and carried at fair
value, with fair value movements taken to the available for sale reserve within
equity. The fair value of the residual holding was $645 million at 30 September
2007, reflecting an unrealised gain of $432 million, which is included in the
available for sale reserve.
It is intended that net proceeds of approximately $2.75 billion received from
the separation of MF Global are returned to shareholders through a B and C share
arrangement, which allows shareholders to elect for either capital or income
receipt, or a combination of both. The distribution is expected to take place
before the end of the calendar year.
Results for discontinued operations comprise:
--------------------------------------------------------
Half year Restated+ Year
to 30 September Half year to to 31
2007 30 September March
$m 2006 2007
$m $m
-------------------------------- -------- -------- --------
Revenue 750 1,084 2,392
Cost of sales (421) (658) (1,445)
Other operating income (a) 12 9 85
Other operating expenses (9) (1) (3)
Administrative expenses (b) (260) (364) (779)
-------------------------------- -------- -------- --------
Operating profit from discontinued
operations 72 70 250
Net finance income (c) 8 16 11
Share of after tax profit of
associates and joint ventures 1 1 2
-------------------------------- -------- -------- --------
Profit before tax from discontinued
operations 81 87 263
Taxation (28) (47) (89)
Profit on disposal (d) 1,746 - -
-------------------------------- -------- -------- --------
Profit after tax for the period 1,799 40 174
-------------------------------- -------- -------- --------
(a) Included in other operating income
are exceptional items relating to:
-------------------------------- -------- -------- --------
Gain on sale of NYMEX seats - - 53
Income received from a legal
settlement - - 28
-------------------------------- -------- -------- --------
(b) Included in administrative
expenses are exceptional items
relating to:
-------------------------------- -------- -------- --------
Costs directly relating to the
planned sale of Brokerage - - (35)
Termination costs in relation to US
pension schemes - (19) (18)
Costs directly relating to a legal
settlement - - (10)
Refco integration costs - (12) (12)
-------------------------------- -------- -------- --------
(c) Net finance income comprises:
-------------------------------- -------- -------- --------
Finance income 70 87 175
Finance expense (62) (71) (164)
-------------------------------- -------- -------- --------
8 16 11
-------------------------------- -------- -------- --------
(d) Profit on disposal:
-------------------------------- -------- -------- --------
Consideration 2,921 - -
Net assets disposed (928) - -
Costs related to the IPO (247) - -
-------------------------------- -------- -------- --------
1,746 - -
-------------------------------- -------- -------- --------
+ The restatement in the comparative period relates to the classification of
Brokerage as a discontinued operation. In addition, revenue and cost of sales
have been amended to reduce both lines by $78 million to eliminate intra-group
transactions.
The costs of the IPO principally relate to: underwriting fees; legal, tax,
advisory, audit and other professional fees; and termination costs.
The profit on disposal of $1,746 million is subject to amendment in the second
half of this financial year, as some taxation and cost items are still to be
agreed with MF Global, in accordance with the separation agreement.
At the time of the IPO, the Man Group, in the normal course of business, was
guaranteeing MF Global's obligations to some of its clients. Since the IPO,
nearly all these guarantees have either been terminated or novated into the name
of MF Global. The remaining guarantees are not expected to give rise to any loss
for Man Group.
6. Earnings per share
The calculation of basic earnings per ordinary share is based on a profit for
the period of $2,473 million (30 September 2006: $619 million, 31 March 2007:
$1,285 million) for continuing and discontinued operations, and a profit for the
period of $1,801 million (30 September 2006: $39 million, 31 March 2007: $175
million) for discontinued operations. The calculation of basic earnings per
ordinary share for continuing and discontinued operations is based on
1,914,471,946 (30 September 2006: 1,839,434,625, 31 March 2007: 1,852,685,662)
ordinary shares, being the weighted average number of ordinary shares in issue
during the period after excluding the shares owned by the Man Group plc employee
trusts.
The diluted earnings per share is based on a profit for the period of $2,479
million (30 September 2006: $634 million, 31 March 2007: $1,310 million) and on
1,989,278,260 (30 September 2006: 2,038,498,205, 31 March 2007: 2,051,372,034)
ordinary shares, calculated as follows:
30 September 30 September 31 March
2007 2006 2007
Number Number Number
(millions) (millions) (millions)
------------------------------ --------- --------- ---------
Basic weighted average number of
shares 1,914.5 1,839.4 1,852.7
Dilutive potential ordinary shares
Share awards under incentive
schemes 42.6 55.6 54.7
Employee share options 5.0 3.7 4.2
Exchangeable bonds 27.2 139.8 139.8
------------------------------ --------- --------- ---------
Dilutive weighted average number
of shares 1,989.3 2,038.5 2,051.4
------------------------------ --------- --------- ---------
The reconciliation of earnings per share from continuing and discontinued
operations, to earnings per share from continuing operations, is given in the
table below:
Half year to 30 September 2007
---------------------------------
Basic Diluted Basic earnings Diluted
post-tax post-tax per share earnings
earnings earnings cents per share
$m $m cents
------------------------- -------- -------- -------- --------
Earnings per share on
continuing and 2,473 2,479 129.2 124.6
discontinued operations+
Discontinued operations (1,801) (1,801) (94.1) (90.5)
------------------------ -------- --------- -------- --------
Earnings per share on
continuing
operations 672 678 35.1 34.1
Performance fee related
income (216) (216) (11.2) (10.8)
------------------------ -------- --------- -------- --------
Underlying earnings per
share on continuing operations 456 462 23.9 23.3
------------------------ -------- --------- -------- --------
Half year to 30 September 2006 (restated)
----------------------------------------------
Basic Diluted Basic earnings Diluted
post-tax post-tax post-tax post-tax
earnings earnings earnings earnings
$m $m $m $m
------------------------- -------- -------- -------- --------
Earnings per share on
continuing and
discontinued operations+ 619 634 33.7 31.1
Discontinued operations (39) (39) (2.2) (1.9)
------------------------ -------- --------- -------- --------
Earnings per share on continuing
operations 580 595 31.5 29.2
Performance fee related income (170) (170) (9.2) (8.3)
------------------------ -------- --------- -------- --------
Underlying earnings per share on
continuing operations 410 425 22.3 20.9
------------------------ -------- --------- -------- --------
Year to 31 March 2007
----------------------------
Basic Diluted Basic earnings Diluted
post-tax post-tax per share earnings
earnings earnings cents per share
$m $m cents
------------------------- -------- -------- -------- --------
Earnings per share on
continuing and 1,285 1,310 69.3 63.9
discontinued operations+
Discontinued operations (175) (175) (9.4) (8.5)
------------------------ -------- --------- -------- --------
Earnings per share on continuing
operations 1,110 1,135 59.9 55.4
Performance
fee related income (275) (275) (14.9) (13.4)
------------------------ -------- --------- -------- --------
Underlying earnings per share on
continuing operations 835 860 45.0 42.0
------------------------ -------- --------- -------- --------
+ The difference between basic and diluted post-tax earnings on total and
continuing operations is the adding back of the finance expense in the period
relating to the exchangeable bonds.
7. Intangible assets
Other intangible assets
-------------------------
Upfront sales Customer Other Total
Goodwill commissions relationships
$m $m $m $m $m
--------------------- --------- --------- --------- ------- -------
Net book value
At 1 April 2007 785 405 - 24 429
Currency
translation
difference 9 - - - -
Additions 16 120 - 14 134
Redemptions/di
sposals - (21) - (2) (23)
Charge for the
period - (70) - (5) (75)
--------------------- --------- --------- --------- ------- -------
Net book value
at 30
September 2007 810 434 - 31 465
--------------------- --------- --------- --------- ------- -------
At 30
September 2006 840 421 142 47 610
--------------------- --------- --------- --------- ------- -------
At 31 March
2007 785 405 - 24 429
--------------------- --------- --------- --------- ------- -------
8. Borrowings
At 30 At 30 At 31
September September March
2007 2006 2007
$m $m $m
------------------------------ --------- --------- --------
Amounts falling due within one year
Bank loans and overdrafts 91 67 1
Private placement notes - senior debt - 45 45
Exchangeable bonds - - 443
------------------------------ --------- --------- --------
91 112 489
------------------------------ --------- --------- --------
At 30 At 30 At 31
September September March
2007 2006 2007
$m $m $m
------------------------------ --------- --------- --------
Amounts falling due after more than one
year
Bank loans 497 172 248
Private placement notes - senior debt - 248 251
Private placement notes - subordinated - 202 203
debt
Floating rate notes - subordinated debt 398 398 398
Exchangeable bonds - 414 -
------------------------------ --------- --------- --------
895 1,434 1,100
------------------------------ --------- --------- --------
During the six month period to 30 September 2007, the remaining 62% (30
September 2006: 38%, 31 March 2007: 38%) of the Group's exchangeable bonds were
converted, resulting in the issue of 116,366,171 shares.
On 9 July 2007, immediately prior to the separation of Brokerage division, the
private placement notes were redeemed as part of the refinancing of both the Man
Group and MF Global. The Group incurred $18 million in early repayment and
termination charges resulting from the redemption of the private placement notes
and associated interest rate swaps which are included in the profit on sale of
MF Global in discontinued operations (note 5).
In July 2007, the Group's $2.275 billion syndicated revolving loan facility was
replaced with a similar 5-year facility of $2.5 billion.
9. Cash generated from operations
Restated Restated
Half year Half year Year
to 30 September to 30 September to 31 March
2007 2006 2007
$m $m $m
---------------------------- ---------- ---------- ---------
Profit for the period:
Continuing operations 672 580 1,110
Discontinued operations 1,799 40 174
---------------------------- ---------- ---------- ---------
2,471 620 1,284
Adjustments for:
Income tax 176 146 280
Gain on sale of
subsidiary (1,746) - -
Finance income (154) (115) (240)
Finance expense 93 105 219
Share of results of
associates and joint
ventures (58) (25) (46)
Gain on disposal of an
associate (16) - -
Depreciation of tangible
fixed assets 14 14 30
Amortisation of
intangible fixed assets 85 79 157
Share based payments
expense 34 27 65
Fair value gains on
available for sale
financial assets (11) (4) (58)
Impairment charges - 1 1
Net (gains)/losses on
financial instruments (5) 6 (6)
Increase/(decrease) in
provisions 3 (2) (22)
Other non-cash movements (15) (13) (13)
---------------------------- ---------- ---------- ---------
871 839 1,651
Changes in working capital:
Increase in receivables (14,522) (6,470) (15,998)
Increase in other
financial assets (3,551) (5,293) (6,452)
Increase in payables 17,904 11,435 22,369
---------------------------- ---------- ---------- ---------
Cash generated from
operations 702 511 1,570
---------------------------- ---------- ---------- ---------
10. Contingent liabilities
Man Financial Inc., a former US subsidiary of the Group, was served on 8 May
2006 with a Complaint by the receiver for Philadelphia Alternate Asset Fund
('PAAF') and associated entities. PAAF investors incurred trading losses as a
result of alleged wrongdoing by a trading manager of PAAF. Man Financial (now MF
Global) acted as one of the brokers to PAAF, executing and clearing trading
instructions given by PAAF. Although it has denied liability in the case, in
order to avoid the uncertainties of a jury determination and further litigation
costs, MF Global has put forward a settlement of $69 million. As part of the
separation agreement, Man Group plc has agreed to indemnify MF Global for any
losses in excess of $50 million, after giving effect to any insurance proceeds
MF Global receives, resulting from this action. It continues to be the case that
this matter is not expected to have a material financial impact on the Man
Group.
11. Related party transactions
During the period the following categories of related entities relationships
occurred:
Entity type Description of Description of transactions
relationship
-------------------------------------------------------------------------------
Associates Investor and Seeding and liquidity investments, loans to fund
and joint trading advisor products, external re-financing guarantees, asset
ventures management performance, management and other fees,
brokerage commissions, and interest and dividend
income.
-------------------------------------------------------------------------------
Sales / (purchases) of services with related entities during the period:
Half year Half year Year
to 30 September to 30 September to 31
2007 2006 March
2007
$m $m $m
------------------------------ --------- --------- --------
Asset Management:
Management fee income 248 218 425
Performance fee income 77 101 121
Other fee income 13 9 21
Interest income 9 7 11
Brokerage: net
commission expense - (3) (27)
Dividend income 42 27 49
------------------------------ --------- --------- --------
389 359 600
------------------------------ --------- --------- --------
All transactions between related parties are carried out on an arm's length
basis.
Period-end balances arising from sales / purchases of services with related
entities during the period:
At 30 September At 30 September At 31
2007 2006 March
2007
$m $m $m
------------------------------ --------- --------- --------
Receivables from related entities 120 150 130
Loans to related entities 26 10 24
------------------------------ --------- --------- --------
Key management compensation is in line with the amounts disclosed in the
financial statements for the year ended 31 March 2007.
12. Exchange rates
The following US dollar:Sterling exchange rates have been used in the
preparation of this Interim Report:
30 September 30 September 31 March
2007 2006 2007
---------------------------- ---------- ---------- ---------
Average exchange rate 0.4990 0.5398 0.5280
Period-end exchange rate 0.4889 0.5344 0.5079
---------------------------- ---------- ---------- ---------
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