Interim Results
Man Group plc
09 November 2006
9 November 2006
UNAUDITED INTERIM RESULTS FOR HALF YEAR ENDED 30 SEPTEMBER 2006
FINANCIAL HIGHLIGHTS
• Funds under management of $56.8 billion at 30 September 2006 (including
private investor FUM of $34.6 billion), up $6.9 billion from 31 March 2006
• Fund sales in the six month period of $10.6 billion, including private
investor sales of $5.6 billion
• Profit before tax on total operations up 33% to $766 million
• Diluted earnings per share on total operations up 35% to 31.1 cents#
• Recurring net management fee income up 38% to $452 million
• Brokerage net income (before exceptional items) up 49% to $124 million
• Diluted underlying earnings per share^* up 44% to 23.7 cents#
• Net performance fee income up 33% to $221 million
• Dividend up 40% in US dollar terms to 7.3 cents#, payable at the rate of
3.84 pence per share
Half year to Half year to Year to
30 September 30 September 31 March
2006 2005 2006
------------------------------ ---------- ----------- --------
Funds under management $56.8bn $44.4bn $49.9bn
------------------------------ ---------- ----------- --------
Asset Management net management
fee income $452m $327m $700m
Asset Management net performance
fee income $221m $166m $450m
Brokerage net income (before
exceptional items) ** $124m $83m $156m
------------------------------ ---------- ----------- --------
Profit before tax and
exceptional items $797m $576m $1,306m
Exceptional items+ ($31m) - ($70m)
------------------------------ ---------- ----------- --------
Statutory profit before tax $766m $576m $1,236m
------------------------------ ---------- ----------- --------
Diluted earnings per share *#
Total operations before exceptional items 32.0c 23.0c 52.3c
-Total operations 31.1c 23.0c 51.0c
Underlying^ 23.7c 16.5c 35.7c
------------------------------ ---------- ----------- --------
Dividends per share # 7.3c 5.2c 14.3c
------------------------------ ---------- ----------- --------
Post-tax return on equity
(annualised) 31.5% 32.9% 33.5%
------------------------------ ---------- ----------- --------
Equity shareholders' funds $4,124m $2,877m $3,569m
------------------------------ ---------- ----------- --------
Diluted weighted average number
of shares # 2,039m 2,052m 2,056m
------------------------------ ---------- ----------- --------
* A reconciliation of earnings per share to the statutory measure is shown in
note 6 to the interim financial statements
^ Underlying earnings per share represents earnings from net management fee
income in Asset Management plus Brokerage net income (it therefore excludes net
performance fee income in Asset Management and exceptional items)
+ Details of the exceptional items are given in note 3 to the interim financial
statements
# The Company sub-divided each ordinary share into six new ordinary shares with
effect from 14 August 2006. The comparative earnings per share, dividends per
share and number of shares in issue figures have been restated accordingly.
** The Brokerage net income (before exceptional items) of $156 million for the
year ended 31 March 2006 was presented in the 2006 Annual Report as the
aggregate of net income excluding Refco of $177 million and a $21 million loss
relating to Refco.
Stanley Fink, Chief Executive said:
'The Man Group has had an outstanding first half. Record sales of $10.6 billion
in the first half is a result of strong and widely spread demand from both
private investors and institutions. This has in turn generated strong management
fee income growth, up 38% to $452 million. Together with net performance fee
income of $221 million, up 33%, pretax profit in our Asset Management business
was $673 million, up 37% on the prior period.
Our Brokerage business has benefited from the successful integration of the
Refco activities acquired a year ago, alongside organic growth from active
markets, together producing very strong growth of 49% over the prior period.
Funds under management are currently estimated to be around $58 billion. With a
good pipeline of fund products scheduled for the second half, and the Brokerage
business positioned to benefit further from strong demand for derivative
products, the Board is very confident of the Group's prospects for the year.'
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ABOUT MAN
Man Group plc is a leading global provider of alternative investment products
and solutions as well as one of the world's largest futures brokers.
The Group employs over 4,000 people in 16 countries, with key centres in London,
Pfaeffikon (Switzerland), Chicago and New York. Man Group plc is listed on the
London Stock Exchange (EMG.L) and is a constituent of the FTSE 100 index.
Man Investments, the Asset Management division, is a global leader in the fast
growing alternative investments industry. It provides innovative products and
tailor-made solutions to private and institutional investors. Through its core
investment managers - AHL, Glenwood, Man Global Strategies and RMF - Man
Investments has succeeded in developing leadership in hedge funds and has
interests in other asset classes. In its core hedge fund asset class, Man
Investments offers fund of hedge funds, structured and style products. Its track
record stretches back more than two decades and defines the standard
for excellence in an industry whose central goal is to provide diversification
away from traditional equity and bond investments. Man has a powerful global
presence, supported by strong product development and structuring skills, and an
extensive investor service and distribution network.
Man Financial, the Brokerage division, is one of the world's leading providers
of brokerage services. It acts as a broker of futures, options and other equity
derivatives for both institutional and private clients and as an intermediary in
the world's metals, energy and foreign exchange markets with offices in key
financial centres. Man has consistently achieved a leading position on the
world's largest futures and options exchanges, with particular strengths in
interest rate products, metals and the energy markets.
HALF YEAR REVIEW to 30 September 2006
Group overview and strategy
The Man Group has made outstanding progress in the first half of the year, with
strong growth in net management fee income, net performance fee income and
Brokerage net income. We have experienced record demand for our investment
offerings driven by strong investment performance and an attractive range of
products.
In the first half, Group profit before tax (before exceptionals) was up 38% to
$797 million, reflecting a 38% increase in net management fee income and a 49%
increase in Brokerage net income. In addition, there has been a 33% increase in
net performance fee income, reflecting strong performance at the start of the
period across most of our managers, in particular AHL. This has driven diluted
earnings per share on total operations up 35% to 31.1 cents for the first half.
Diluted underlying earnings per share were up 44% to 23.7 cents (underlying
earnings per share represents earnings from net management fee income in Asset
Management plus Brokerage net income - it therefore excludes net performance fee
income in Asset Management and exceptional items).
In Asset Management, funds under management (FUM) were $56.8 billion at 30
September 2006, up $6.9 billion on the figure at the end of March. Net inflows
(sales less redemptions) for the first half increased funds under management by
a record $7.0 billion. Negative investment movement of $1.1 billion was mostly
offset by positive FX and other movements. Overall private investor and
institutional funds under management grew by $4.2 billion and $2.7 billion
respectively. The relative proportion of private investor assets as a percentage
of total assets remained unchanged from the year-end. Net management fee margins
and operating expense ratios were better than the improved levels of the prior
full year.
Private investor sales at $5.6 billion were a record and were generated across
the globe. A key contributor to this demand continues to be Asia Pacific where
private investors contributed $2.5 billion to sales in the first half.
Innovative products that have been launched during the period include a
principal protected structured product launched onshore in the US and a
regulated guaranteed product in Hong Kong, our third in that country.
We have opened a Canadian office in Toronto with a team of professional staff
with significant experience in the alternative investments industry. We continue
to see exceptional opportunities in Canada, with a rapidly growing appetite for
our brand of products, having already raised around C$500 million through
Canadian asset manager BluMont Capital. Our new operation will build on this
experience and broaden the range of alternative investment products available in
this market.
We have continued to develop our intermediary network for private investor
sales, and now have 1,962 active intermediaries globally. This is a net increase
of 67 since March comprising 127 new intermediaries less 60 terminations of
non-performing intermediaries. We have continued to build out our product range
and our current global launch, Man AP Enhanced Series 4 Ltd, is a capital
guaranteed product ensuring at least 120% of initial investment at maturity.
This is a new product in the successful AP Enhanced family that has total assets
of over $2.5 billion. Man AP Enhanced Ltd, the first AP Enhanced investment
product, has performed strongly since inception in January 2005.
RMF has also achieved a record level of institutional sales of $4.8 billion in
the first half. RMF continues to build on its core European investor base,
whilst growing its sales to other countries within Europe, and to expand its
product range. In May, RMF launched its fourth CDO fund. In August, RMF launched
its first collateralized fund obligation (CFO). This innovative product-type,
pioneered by Man Investments, combines Man's leadership in product structuring
and transaction management with a highly-diversified RMF portfolio. The RMF Four
Seasons CFO issued five tranches of debt, and one of equity, at record low
spreads for a CFO. The issue in effect raised money to be managed within the
Four Seasons portfolio. This allowed investors either to gain leveraged exposure
to the performance of the Four Seasons portfolio or to buy rated, attractively
priced bonds secured by a fund of hedge funds portfolio. Following the success
of this latest product innovation, RMF is now working on a second CFO offering.
In Brokerage, our focus is on continued organic growth, underpinned by a
diversified product offering and a wide geographical presence across all key
markets. We continue to benefit from the secular growth trend in our core
markets of exchange-traded futures and options. This has been supplemented by
continued recruitment of producer teams and our ability to adapt to market
changes. The growth in profits also reflects the further leveraging of our
product range throughout our global office network.
We seek to supplement our organic growth with acquisitions. The successful
integration and build-out of the first-class professionals and assets that we
acquired in the Refco acquisition has been a particularly significant
contributor in the first half. The integration of Refco was a massive
undertaking and the success of this deal was largely down to the hard work and
professionalism of our staff and demonstrates that integrating acquisitions is a
core competency of Brokerage.
With effect from 1 October 2006, we entered into agreements to acquire and
develop U.S. Futures Exchange LLC (USFE - formerly known as Eurex US). Under the
terms of the transaction, Man Group has acquired 70% of Eurex's shares in USFE
for a purchase price of $23.2 million in cash and in addition has made a capital
injection of $35 million into USFE. Deutsche Borse Systems, the developer and
operator of the Eurex platform and network, will continue to operate the trading
platform and corresponding communications network for USFE.
USFE will offer new products targeted at buy-side customers such as hedge funds
and retail investors, sectors in which Man has significant expertise and market
exposure. The goal is to expand the volume in listed derivatives by broadening
the range of exchange traded products to new and existing user groups, rather
than competing with established futures exchanges. Man Group plans to reduce its
stake in USFE over time to below 50% by inviting other trading institutions,
including hedge funds and financial services firms, to join the partnership with
an equity position. Eurex will retain a minority stake in USFE.
On 7 September 2006, we announced that, effective 1 April 2007, Deputy Chief
Executive and Finance Director, Peter Clarke, will be appointed Chief Executive,
and the present Chief Executive, Stanley Fink, will become non-executive Deputy
Chairman. Stanley Fink will also retain his role as Chairman of the Strategic
Investment Committee of Man Investments. The Group will announce the appointment
of a new Finance Director in due course. Jonathan Nicholls, a non-executive
director of the Company, resigned from the Board, effective 20 July 2006,
following his appointment as an executive director of Old Mutual plc. We would
like to thank Jonathan for his contribution over the last two years as a
non-executive director of Man.
Share capital
Following shareholder approval at the 2006 Annual General Meeting and the
fulfilment of all conditions, each Ordinary Share of 18 US cents was sub-divided
into 6 Ordinary Shares of 3 US cents each, effective on 14 August 2006.
Following this share split shareholders maintained the same percentage interest
in the issued share capital as before and rights attaching to the Ordinary
Shares remain unaffected. All comparative figures in this Interim Report
relating to the numbers of shares in issue have been restated accordingly.
Dividend and share repurchase activities
Given the Group's strong performance in the first half, the Board's confidence
for the full year and our strong capital position, we have continued our
practice of returning cash to shareholders through a progressive dividend policy
and continued share repurchase programme. The interim dividend has been
increased to 7.3 cents, which represents a 40% increase over the US dollar
equivalent of the interim dividend in the prior year of 5.2 cents. This
dividend will be paid in sterling at the rate of 3.84 pence per share. Dates
for the interim dividend are given in the timetable below.
Dates for the 2007 Interim Dividend
---------------------------------- ------------------
Ex Dividend date 15 November 2006
Record date 17 November 2006
DRIP final election date 3.00 pm on 1 December 2006
Dividend paid/CREST accounts credited 21 December 2006
Share certificates received/CREST accounts
credited with DRIP purchases 9 January 2007
---------------------------------- ------------------
20,800,000 shares were repurchased and cancelled in the first half at a total
cost of £84 million ($156 million), giving an average repurchase cost of
£4.03 per share, in accordance with the Group's policy of applying post-tax
performance fees over time in the repurchasing and cancellation of own shares.
This repurchasing activity was earnings enhancing, resulting in a 0.2% accretion
to diluted earnings per share on total operations and a 0.1% accretion to
diluted underlying earnings per share in the first half. In addition, Man set
up an irrevocable, non-discretionary programme to purchase shares for
cancellation on its own behalf, during its close period which commenced on
1 October 2006 and ended on 8 November 2006 with acquisitions effected within
certain pre-set parameters. 1,522,507 shares were purchased under this programme
at an average cost of £4.47 per share. At 30 September 2006 the Group's
cumulative post-tax performance fees available for future share repurchases
amounted to $385 million.
Financial summary
Asset Management
Asset Management increased pre-tax profits for the first half by 37% to $673
million. Recurring net management fee income increased 38% to $452 million as a
result of growth in funds under management and a continued improvement in both
fee income and overhead margins. Net performance fee income at $221 million was
up 33% on last year, reflecting in particular the strong performance of AHL in
April 2006.
Funds under management increased from $49.9 billion at 31 March 2006 to $56.8
billion at 30 September 2006. At 30 September 2006, the split between private
investor and institutional funds under management was $34.6 billion (31 March
2006: $30.4 billion) and $22.2 billion (31 March 2006: $19.5 billion)
respectively. Private investors as a proportion of total funds under management
are 61%, the same percentage as at the year-end. The private investor market is
expected to continue to generate the majority of our profits although both
sectors remain important to us and we continue to develop our private investor
and institutional distribution teams. Sales at $10.6 billion were significantly
up on the $3.5 billion raised in the first half of last year. 13 new private
investor fund products were launched during the half year. The increase in funds
under management from Man's two global launches (Man IP 220 Ltd and Man AP
Enhanced Series 3 Ltd) was $1.9 billion; joint venture sales accounted for $1.7
billion; other private investor sales accounted for $2.0 billion (of which $1.2
billion was from open-ended funds); and institutional sales in the first half
were $5.0 billion. $175 million of investor money was raised from our third
quarter global launch, Man MGS Access Ltd, which closed in October 2006 and is
therefore not included in the sales figures for the first half.
Redemptions totalled $3.6 billion in the first half, of which private investor
comprised $1.3 billion. Redemption levels in private investor products of 8.2%
were lower than the level of 11.0% for the prior full year. Institutional
redemption levels were higher at $2.3 billion, with the majority arising at RMF.
Negative investment performance in the first half was $1.1 billion. Following
the strong performance by our managers at the start of calendar year 2006, the
six months to 30 September 2006 were dominated by a period of negative
performance, which began in May and affected the whole industry.
After a strong April, AHL suffered from the reversal in prolonged trends in
global futures markets, particularly stock indices and metals, although there
was a respite in August. In keeping with its low target volatility objective,
RMF minimised losses over the period and performance was flat as a result of
stable returns from equity hedge and event driven managers. Our other managers,
MGS and Glenwood, who hold more focused portfolios, fared less well as a result
of negative performance of underlying managed futures and relative value
managers respectively.
Performance 6 months to 30 12 months to 30 3 years to 30 5 years to 30
records September 2006 September 2006 September 2006 September 2006
(not annualised) (annualised) (annualised)
AHL
Diversified
Programme 1 -4.0% 3.4% 7.1% 8.2%
RMF 2 0.0% 6.7% 6.9% 7.0%
Glenwood 3 -4.9% 3.5% 3.6% 2.7%
Man Global
Strategies 4 -3.2% 5.2% 5.7% 5.9%
BlueCrest 5 -1.3% 5.6% 7.3% 7.7%
HFRI Fund of
Funds Composite Index -0.2% 7.1% 7.7% 6.8%
HFRI Investable
Global Hedge Index 6 0.0% 5.2% 4.1% N/A
World stocks 1.4% 11.9% 13.9% 5.9%
World bonds 3.4% 3.3% 4.1% 4.5%
Source: Man database and Bloomberg. There is no guarantee of trading performance
and past performance is not necessarily a guide to future results.
1 AHL Diversified: represented by Athena Guaranteed Futures Limited.
2 RMF: represented by RMF Absolute Return Strategies I (dividends reinvested).
3 Glenwood: represented by Man-Glenwood Multi-Strategy Fund Limited.
4 Man Global Strategies: represented by Man Multi-Strategy Guaranteed Limited.
5 BlueCrest: represented by BlueCrest Capital International Limited.
6 HFRI Investable 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 USD. World bonds: Citigroup WGBI World
Index hedged to USD.
FX and other movements accounted for a $1.0 billion increase in funds under
management in the period, mostly comprising favourable currency translation
impacts, reflecting Euro strength against the US dollar in the period, and
leverage on prior year sales.
Brokerage
Brokerage had a strong first half with pre-tax profits, before exceptional
items, of $124 million, an increase of 49% over the first half of last year.
This growth is split broadly evenly between strong organic growth in active
markets and the integration of the Refco assets. The benefits of our diversified
product offering provided further impetus to our profit growth as excellent
performances from our equities, metals and private client businesses more than
offset somewhat slower markets in other business lines during the summer months.
In our institutional equities business: the contract for differences (CFDs)
product line has benefited from the recovery in the equity markets; the more
recently established Research Driven Brokerage product line in the UK continues
to benefit from its expanded client base; and the equity derivatives business in
the US has benefited from the recruitment last year of key staff. Our metals
business has benefited from helpful market conditions, with continued high metal
prices. Interest income has increased materially over all our businesses, in
particular in private clients. This is the result of increased interest rates
and an increase in customer funds, following the Refco acquisition, from $10
billion at 30 September 2005 to $15 billion at 30 September 2006 (customer funds
at 31 March 2006 were also $15 billion). A benefit of the integration of the
Refco assets has been evidenced by the decrease in the ratio of administrative
expenses to net income.
The integration of the Refco assets was successfully completed in July, well
within the original timetable established at the time of the acquisition. This
integration would not have been completed without the substantial work and
effort contributed by both Man and Refco staff. Refco was a complicated
collection of assets with multiple offices, trading platforms, operational
systems and infrastructure. The integration was completed with minimal
disruption to Man's existing business whilst at the same time preserving Refco's
remaining market share and providing opportunity for growth.
Exceptional items amounting to a total cost of $31 million were incurred in the
period. These are discussed below and in note 3 to the interim financial
statements.
Financial objectives
We have continued to deliver results in line with our long-standing key
financial objectives:
- Significant growth in underlying earnings per share (as defined on page 1).
The higher level of funds under management has generated an increase in net
management fee income, which is up 38% to $452 million for the first half. This,
together with a strong contribution from our Brokerage business, has resulted in
continued growth in diluted underlying earnings per share, up 44% to 23.7 cents.
- High levels of return on equity.
The Group's post-tax return on equity on an annualised basis for the first half
was 31.5%, slightly lower than the 32.9% for the comparative period. This is as
a result of increased earnings being more than offset by the impact of a
materially higher level of equity shareholders' funds in this first half,
reflecting the high level of retained earnings.
The Board believes that long-term shareholder value will be achieved through
continued delivery of significant growth in underlying earnings per share and
the maintenance of high levels of post-tax return on equity. For this reason
these two measures continue to be the basis for the Group's financial objectives
and are also the performance criteria used for the Group's long-term incentive
schemes.
Income statement
In order to analyse the performance of the Group's two principal businesses, the
table below provides a split of the Group's income statement into its divisional
components.
-------------------- -------------- ----------- ------------
Income statement Asset Group
Management Brokerage Total
Half year to 30 September 2006 $m $m $m
-------------------- -------------- ----------- ------------
Revenue 1,087 1,162 2,249
Cost of sales (162) (736) (898)
Other operating income 16 9 25
Other operating losses (16) (1) (17)
-------------------- -------------- ----------- ------------
Total operating income 925 434 1,359
Administrative expenses (281) (344) (625)
-------------------- -------------- ----------- ------------
Operating profit 644 90 734
Associates and JVs 24 1 25
Net finance income 5 33 38
-------------------- -------------- ----------- ------------
Profit before tax and
exceptionals 673 124 797
Exceptional items - (31) (31)
-------------------- -------------- ----------- ------------
Profit before tax on total
operations 673 93 766
Taxation (146)
-------------------- -------------- ----------- ------------
Profit for the period 620
-------------------- -------------- ----------- ------------
Asset Management - operating income, costs and margins
Asset Management revenues have increased by 34% over the first half of last
year, reflecting the growth in performance fees and the increase in management
fees derived from higher levels of funds under management. These revenues relate
principally to management fees and performance fees, together with brokerage and
other fees, each based on net asset values of the fund products. Other fees
include risk transfer fees (on guaranteed products); liquidity or cash
management fees; and valuation and registrar fees. Cost of sales relate to
upfront and trail sales commissions and have increased by 33%, as a result of
the high sales in the current financial year and in the second half of the prior
financial year. Cost of sales was split 39%:61% between the amortisation of
upfront commission and trail commission, broadly in line with the ratio in the
prior year.
Other operating income mainly comprises gains on seeding investments in some of
our funds, gains on redemption-bridging activities (both reported in performance
fee income) and due diligence fees. Other operating losses mainly comprise some
small losses on seeding investments in some of our funds (reported in
performance fee income), some administrative costs of the fund entities borne by
the Group, losses on sale of fixed assets and foreign exchange losses.
Administrative expenses have increased by 18% from $238 million in the
comparative period to $281 million. Of this amount, $127 million (45%) are
variable overheads, relating to employee discretionary bonus payments. The
increase in administrative expenses in the period is equally split between
higher discretionary bonus payments off higher profits, and investment in
infrastructure to support the growth of the business. Administrative expenses
comprise 30% of total operating income. This operating margin is slightly better
than the prior year and continues the improving trend seen in recent periods.
The table below shows an analysis of net management fee income and net
performance fee income over the first half of this year and the previous four
financial years together with the margin ratio, as a percentage of average funds
under management in each period. Net management fee income includes the fee
income described above less all sales commissions payable, finance costs and all
overheads not allocated to performance fees. Net performance fee income includes
the fee income detailed above less those overheads allocated to performance
fees, which almost entirely relate to employee performance compensation.
In the first half, the net management fee income/FUM margin was 2.3% for private
investor products, a small improvement over the financial year to March 2006,
and 0.8% for institutional products, which is the same as for 2006. The increase
in the private investor net fee margin is largely the result of a more efficient
use of the fixed cost base. The performance fee/FUM margin reflects the
underlying performance of the Group's products during each accounting period.
Performance fees from institutional fund products tend to be lower as these
products target lower returns (and lower volatility).
Asset Management margins H1 2007 2006 2005 2004 2003
----------------------- -------- -------- -------- -------- --------
Net management fee income ($m) 452 700 594 459 280
Management fees/FUM 1.7% 1.6% 1.5% 1.4% 1.3%
Net performance fee income
($m):
First half of year 221 166 31 55 54
Second half of year 284 88 181 124
-------- -------- -------- -------- --------
Full year 450 119 236 178
Performance fees/FUM 0.8% 1.0% 0.3% 0.7% 0.9%
---------------------- -------- -------- -------- -------- --------
In the above table the figures for the years 2003 and 2004 are as they were
presented under UK GAAP. The more recent periods are on an IFRS basis. Restating
2003 and 2004 on an IFRS basis would not give rise to any significant
differences.
In the income statement table on the previous page, associates and JVs are the
post-tax contribution from financial interests in Affiliated Managers and
include both established managers, such as BlueCrest, and new managers.
BlueCrest contributed $15 million to net management fee income and $7 million to
net performance fee income in the first half.
Brokerage - operating income, costs and margins
In Brokerage, revenue arises from those businesses where Man Financial acts as
intermediary and also from those businesses where it acts as a matched principal
broker, such as foreign exchange, securities, metals and energy trading. Income
earned on segregated customer balances, which are held off balance sheet, is
included within the revenue line as it is akin to an administration fee.
The increase in revenue over the comparative period was 71%, reflecting the
integration of the acquired Refco assets and the continued recruitment of other
producer teams, growth in market share and the benefits of active markets.
Profitability was also enhanced by higher US interest rates and an increase in
customer funds in the first half compared to the comparative period.
Cost of sales increased 76% and relate to fees charged by the exchanges, fees
paid to other brokers, rebates to introductory brokers and commissions paid to
internal producer teams. There is no fixed element of these commissions; they
are all based on sales volumes or profit contributions.
Other operating income mainly comprises gains on selling some surplus exchange
memberships and some small foreign exchange gains.
Administrative expenses in Brokerage have increased 62% from $213 million in the
comparative period to $344 million. Of the administrative expenses, $34 million
relates to variable employee bonus payments.
The table below shows an analysis of the profit and administrative expenses
margins in Brokerage, excluding exceptional items. The administrative expenses/
income margin increase in 2006 was the result of the operating income of the
acquired Refco assets not covering overheads. In the first half of 2007, the
benefits of the Refco integration have resulted in the administrative expenses/
income margin improving significantly, with further improvement expected in the
second half of the financial year, as the Refco integration has now been
completed.
Brokerage margins H1 2007 2006 2005 2004 2003
-------------------- -------- -------- -------- -------- --------
Total operating income plus
net finance income ($m) 468 673 529 481 335
Administrative expenses ($m) (344) (517) (381) (361) (260)
-------- -------- -------- -------- --------
Net profit ($m) 124 156 148 120 75
Administrative
expenses/income 73.5% 76.8% 72.0% 75.1% 77.6%
------------------- -------- -------- -------- -------- --------
In the above table the figures for the years 2003 and 2004 are as they were
presented under UK GAAP. The more recent periods are on an IFRS basis. Restating
2003 and 2004 on an IFRS basis would not give rise to any significant
differences.
The total exceptional items incurred in the period were $31 million ($18 million
net of tax). $19 million relates to the termination costs of the defined benefit
pension schemes in the US and $12 million to Refco integration costs.
$19 million has been provided for the estimated cost of the termination
(effective 31 August 2006) of the two US defined benefit pension schemes. These
costs are non-recurring.
As disclosed in the 2006 Annual Report, further exceptional Refco integration
costs amounting to $12 million have been incurred in the first half of the
financial year ending 31 March 2007. These costs relate to the amortisation of
retention payments to administrative staff, which have been spread over the core
integration period of seven months following the Refco acquisition in November
2005.
In addition, as anticipated in the 2006 Annual Report, further Refco trader
retention amortisation costs of $4 million have been expensed as administrative
expenses in the income statement in the half year ended 30 September 2006. These
payments are not considered to be integration costs (and are therefore not
classified as exceptional items) but are deferred and charged to the income
statement as ongoing costs over the period in which the traders are committed to
give their services to the Group, so as to match the cost with the revenue
streams directly generated by those traders.
Net finance income
Net finance income of $38 million, boosted by higher interest rates in the first
half, arises from interest on non-segregated cash balances and investments in
Brokerage and on cash balances and margins on loans to funds in Asset
Management, offset by interest expense on borrowings to finance acquisitions
made in prior years, working capital requirements and a $12 million expense
incurred in the period on the partial conversion of the Group's exchangeable
bonds.
Group items
The tax charge for the period amounted to $146 million. The effective tax rate
on profit before tax and exceptional items is 20.0%, compared to 20.2% last
year, reflecting the estimated rate for the full year. The bulk of the Group's
profits continue to be earned in Switzerland and the UK and the current
effective tax rate is consistent with this profit mix. The exceptional tax
credit of $13 million comprises $5 million tax relief relating to the
exceptional Refco integration costs and $8 million relating to the exceptional
US pension scheme termination costs.
The growth in the Group's profitability has resulted in a significant increase
in earnings per share in the first half. Full details of earnings per share are
given in note 6 to the interim financial statements.
Cash flow
Cash inflow for the first half was $179 million, before shareholder
distributions, driven off strong cash generation from operating profit. The
statutory cash flow statement, which is presented in a different format, is
given in the financial statements.
Cash flows in the period $m
-------------------------------------- -----------
Operating profit (pre amortisation and depreciation) 823
Increase in working capital (328)
Taxation paid (131)
Net capital expenditure and financial investment (180)
Other (5)
-------------------------------------- -----------
Cash inflow for the period before shareholder distributions 179
Dividends paid (165)
Share repurchases (156)
-------------------------------------- -----------
Cash outflow for the period (142)
Cash inflow from net movements in long term borrowings 175
-------------------------------------- -----------
Increase in cash, net of bank overdrafts, in the period 33
-------------------------------------- -----------
The increase in working capital relates principally to Asset Management. There
has been a $129 million increase in investments in fund products, principally
relating to manager seeding investments. The remaining net increase in working
capital largely relates to receivables, with the most significant item being
redemption proceeds receivable from fund products, which are $84 million higher
than at the year-end, and have all now been received in cash. Loans to funds
were $411 million at 30 September 2006, similar to the balance at the year-end.
Net capital expenditure and financial investment comprise net additions to the
capitalised amount of upfront sales commissions of $131 million with the
remainder largely relating to expenditure on tangible fixed assets, mainly
office refurbishment and IT systems, and to investments in CDO/CFO structures
launched by RMF.
In the cash flow table above, 'Other' relates to net interest received of $40
million, dividends received from associates, joint ventures and other
non-current investments of $28 million, less net purchases of own shares by the
ESOP trust of $61 million and other minor net cash outflows of $12 million.
Balance sheet
The Group's balance sheet remains strong. At 30 September 2006, shareholders'
equity was $4,124 million, up 16% from the year-end. Retained earnings added
$298 million to equity in the first half, after deducting dividends of $165
million and the consideration paid of $156 million for the repurchase and
cancellation of own shares. The partial conversion of the Group's exchangeable
bonds added a further $249 million. At 30 September 2006 the Group had a net
cash position of $1,352 million (March 2006: $1,301 million net cash).
To facilitate an understanding of the different components of the Group's
balance sheet, a segmental balance sheet by business is shown below.
Applying the Group's capital allocation model gives equity allocations to Asset
Management and Brokerage of $1,691 million and $1,018 million respectively. In
the segmental balance sheet table, the implied Group's surplus capital of $1,423
million has been notionally allocated to Asset Management.
-------------------------- ----------- ----------- ----------
Segmental balance sheet at 30 September 2006 Asset Group
Management Brokerage Total
$m $m $m
-------------------------- ----------- ----------- ----------
Non-current assets
Tangible fixed assets 30 52 82
Goodwill 778 62 840
Other intangible assets 443 167 610
Associates/JVs 246 11 257
Other investments 98 151 249
Deferred tax assets 31 6 37
Non-current receivables 53 17 70
-------------------------- ----------- ----------- ----------
Total non-current assets 1,679 466 2,145
Current assets
Loans to funds 411 - 411
Trade and other receivables 481 20,641 21,122
Current tax assets 10 5 15
Derivative financial assets - 6 6
Short-term investments 574 10,780 11,354
Cash and cash equivalents 1,155 1,743 2,898
Inter-divisional balance (181) 181 -
-------------------------- ----------- ----------- ----------
Total current assets 2,450 33,356 35,806
Non-current liabilities
Long-term borrowings (448) (986) (1,434)
Deferred tax liabilities - (32) (32)
Pension obligations (20) (20) (40)
Derivative financial liabilities (6) (25) (31)
-------------------------- ----------- ----------- ----------
Total non-current liabilities (474) (1,063) (1,537)
Current liabilities
Trade and other payables (257) (31,620) (31,877)
Current tax liabilities (242) (43) (285)
Short-term borrowings and overdrafts (38) (74) (112)
Derivative financial liabilities (4) (4) (8)
-------------------------- ----------- ----------- ----------
Total current liabilities (541) (31,741) (32,282)
-------------------------- ----------- ----------- ----------
Net assets 3,114 1,018 4,132
-------------------------- ----------- ----------- ----------
Regulatory capital
During the first half, 38% of the Group's exchangeable bonds were converted. The
impact of this was to reduce the Group's gross debt by $249 million and increase
equity by a similar amount. This issue of equity increased the Group's available
capital for regulatory capital purposes and has therefore contributed to
increasing the Group's Financial Resources, which amounted to $2,383 million at
30 September 2006. At this date the Group's Financial Resources Requirement was
$1,629 million, split $505 million and $1,124 million between Asset Management
and Brokerage respectively, giving the Group a regulatory capital surplus of
some $754 million.
Outlook
The strength of Man's franchise in alternative assets is demonstrated by the
strong level of both sales and growth in profits in the first half. Innovation,
a long track record in this market and a powerful distribution network continue
to give Man a leading position in the asset class. Our distribution platform
continues to develop well, with regional offerings enhancing our global product
launches in new markets. Not withstanding the weaker investment returns in the
industry since May 2006, the forward pipeline of product launches remains
robust, most particularly in Europe. Assets under management are currently
estimated to be around $58 billion.
The Brokerage business has done an outstanding job of integrating the Refco
acquisition assisted by strong growth in underlying market volumes. Man's focus
on client service along with its absolute concentration on keeping overheads
under tight control continues to allow Brokerage to access both revenue
opportunities and margin expansion. Our agreement to further develop USFE is an
exciting opportunity for the futures industry and the customers we serve. The
Brokerage business is rapidly adding new customers worldwide and we believe
there remains significant demand for additional futures products.
With Asset Management and Brokerage both well placed for further growth, the
Board is very confident about the Group's prospects for the full year.
GROUP INCOME STATEMENT (unaudited)
Half year to 30 September 2006 Half year to 30 September 2005 Year to 31 March 2006
------------------------ -------------------- --------------------
Before Before Before
exceptional Exceptional exceptional Exceptional Exceptional Exceptional
items items Total items items Total items items Total
Note $m $m $m $m $m $m $m $m $m
------------------------------------------------------------------------------------------------------------------------
Revenue 2,249 - 2,249 1,493 - 1,493 3,494 - 3,494
Cost of sales (898) - (898) (540) - (540) (1,291) - (1,291)
Other operating
income 25 - 25 38 - 38 77 - 77
Other operating
losses (17) - (17) (9) - (9) (29) - (29)
Administrative
expenses 3 (625) (31) (656) (451) - (451) (1,023) (70) (1,093)
-----------------------------------------------------------------------------------------------------------------------
Group
operating
profit -
continuing
operations 734 (31) 703 531 - 531 1,228 (70) 1,158
-------------------------------- -------------------------------- -----------------------------
Finance income 143 - 143 86 - 86 185 - 185
Finance expense (105) - (105) (55) - (55) (140) - (140)
-------------------------------- --------------------------------- ------------------------------
Net finance
income 4 38 - 38 31 - 31 45 - 45
Share of after
tax profit/(loss)
of associates
and joint
ventures 25 - 25 14 - 14 33 - 33
------------------------------------------------------------------------------------------------------------------------
Profit on
ordinary
activities
before
taxation 2 797 (31) 766 576 - 576 1,306 (70) 1,236
Taxation 5 (159) 13 (146) (121) - (121) (264) 42 (222)
------------------------------------------------------------------------------------------------------------------------
Profit for the
period 638 (18) 620 455 - 455 1,042 (28) 1,014
------------------------------------------------------------------------------------------------------------------------
Attributable to:
Equity holders
of the Company 637 (18) 619 455 - 455 1,042 (28) 1,014
Equity
minority
interests 1 - 1 - - - - - -
------------------------------------------------------------------------------------------------------------------------
638 (18) 620 455 - 455 1,042 (28) 1,014
------------------------------------------------------------------------------------------------------------------------
Earnings per
share * 6
Basic 33.7c 25.3c 56.2c
Diluted 31.1c 23.0c 51.0c
------------------------------------------------------------------------------------------------------------------------
Memo:
Dividends paid
in the period $165m $127m $221m
Proposed dividend per
ordinary share * 7.3c 5.2c 14.3c
* Comparative figures for earnings per share and dividends per share have been restated to reflect the sub-division of
each 18 US cents Ordinary
Share into six Ordinary Shares of 3 US cents each in the period (as detailed in note 1).
GROUP BALANCE SHEET (unaudited)
At 30 At 30 At 31
September September March
2006 2005 2006
Note $m $m $m
--------------------------- ----- --------- --------- ---------
ASSETS
Non-current assets
Property, plant and
equipment 82 64 76
Goodwill 7 840 834 834
Other intangible
assets 7 610 353 548
Investments in
associates and joint
ventures 257 218 242
Other investments 249 129 224
Deferred tax assets 37 29 38
Non-current
receivables 70 49 45
--------------------------- ----- --------- --------- ---------
2,145 1,676 2,007
--------------------------- ----- --------- --------- ---------
Current assets
Trade and other
receivables 8 21,533 13,931 15,045
Current tax assets 15 5 11
Derivative financial
instruments 6 52 5
Short-term
investments 9 11,354 3,464 6,062
Cash and cash
equivalents 2,898 2,359 2,825
--------------------------- ----- --------- --------- ---------
35,806 19,811 23,948
--------------------------- ----- --------- --------- ---------
Total Assets 37,951 21,487 25,955
--------------------------- ----- --------- --------- ---------
LIABILITIES
Non-current liabilities
Long-term borrowings 11 1,434 1,505 1,497
Deferred tax
liabilities 32 17 34
Pension obligations 40 55 35
Provisions - - 6
Derivative financial
instruments 31 - 91
Other creditors - 5 3
--------------------------- ----- --------- --------- ---------
1,537 1,582 1,666
--------------------------- ----- --------- --------- ---------
Current liabilities
Trade and other
payables 10 31,877 16,700 20,421
Current tax
liabilities 285 230 260
Short-term borrowings
and overdrafts 11 112 - 27
Derivative financial
instruments 8 98 4
--------------------------- ----- --------- --------- ---------
32,282 17,028 20,712
--------------------------- ----- --------- --------- ---------
Total liabilities 33,819 18,610 22,378
--------------------------- ----- --------- --------- ---------
NET ASSETS 4,132 2,877 3,577
---------------------------- ----- --------- --------- ---------
EQUITY
Capital and reserves
attributable to shareholders
Share capital 57 54 55
Share premium account 960 377 591
Merger reserve 722 722 722
Other capital
reserves 142 223 223
Available for sale
reserve 64 42 70
Cash flow hedge
reserve - (1) (2)
Retained earnings 2,179 1,460 1,910
--------------------------- ----- --------- --------- --------
4,124 2,877 3,569
Equity minority
interests 8 - 8
--------------------------- ----- --------- --------- ---------
TOTAL EQUITY 4,132 2,877 3,577
--------------------------- ----- --------- --------- ---------
GROUP CASH FLOW STATEMENT (unaudited)
Half year Half year Year
to 30 to 30 to 31
September September March
2006 2005 2006
Note $m $m $m
------------------------------- ------ --------- --------- --------
Cash flows from operating
activities
Cash generated from
operations 15 483 194 943
Interest paid (93) (46) (110)
Income tax paid (131) (77) (180)
------------------------------- ------ --------- --------- --------
259 71 653
------------------------------- ------ --------- --------- --------
Cash flows from investing
activities
Acquisition of
subsidiaries and assets of
businesses, net of cash
acquired - - (297)
Purchases of property,
plant and equipment (21) (12) (28)
Proceeds from sale of
property, plant and
equipment 1 - 1
Purchases of intangible
assets (158) (67) (177)
Proceeds from sale of
intangible assets 24 26 51
Proceeds from sale of
associates and joint
ventures 1 - -
Purchases of other
non-current investments (50) (9) (32)
Proceeds from sale of
other non-current
investments 23 8 97
Interest received 133 74 172
Dividends received from
associates and joint
ventures 28 18 40
Dividends from other
non-current investments - 3 4
--------------------------- ------ --------- --------- --------
(19) 41 (169)
--------------------------- ------ --------- --------- --------
Cash flows from financing
activities
Proceeds from issue of
ordinary shares 40 23 238
Purchase of treasury
shares (156) (174) (230)
Purchase of own shares by
ESOP trust (136) (46) (46)
Disposal of own shares by
ESOP trust 35 26 29
Proceeds from borrowings 175 451 450
Incremental issue costs - (2) (1)
Repayments of borrowings - (50) (51)
Dividends paid to Company
shareholders (165) (127) (221)
--------------------------- ------ --------- --------- --------
(207) 101 168
--------------------------- ------ --------- --------- --------
Net increase in cash and
bank overdrafts 33 213 652
Cash and bank overdrafts
at the beginning of the
period 2,798 2,146 2,146
--------------------------- ------ --------- --------- --------
Cash and bank overdrafts
at the end of the period 2,831 2,359 2,798
--------------------------- ------ --------- --------- --------
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 2006 overdrafts repayable on demand amounted to $67 million (30
September 2005: $nil, 31 March 2006: $27 million).
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
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
gains/(losses)
taken to
equity - - - (3) - (3)
Transfer to
income
statement on
sale - - - (4) - (4)
Cash flow hedge:
Valuation
gains/(losses)
taken to
equity - - - 1 - 1
Transfer to
income
statement in
the period - - - 1 - 1
Taxation - - - 5 - 5
-------------------- ------- ------- ------ -------- ------ -------
Net
income/(expens
e) recognised
directly in
equity - - 1 41 (1) 41
Profit for the
period - - - 619 1 620
-------------------- ------- ------- ------ -------- ------ -------
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 - - - 27 - 27
Proceeds from
shares issued 1 39 - - - 40
Purchase of
own shares by
ESOP - - - (136) - (136)
trust
Disposal of
own shares by
ESOP - - - 35 - 35
trust
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
-------------------- ------- ------- ------ -------- ------ -------
Balance at 1
April 2005 55 354 944 1,359 - 2,712
-------------------- ------- ------- ------ -------- ------ -------
Currency
translation
adjustments - - - (32) - (32)
Available for sale
investments:
Valuation
gains/(losses)
taken to
equity - - - 19 - 19
Transfer to
income
statement on
sale - - - (6) - (6)
Cash flow hedge:
Valuation
gains/(losses)
taken to
equity - - - (1) - (1)
Transfer to income - - - - - -
statement in the
period
Taxation - - - 3 - 3
-------------------- ------- ------- ------ -------- ------ -------
Net
income/(expens
e) recognised
directly in
equity - - - (17) - (17)
Profit for the
period - - - 455 - 455
-------------------- ------- ------- ------ -------- ------ -------
Total
recognised
income for the
period - - - 438 - 438
Purchase and
cancellation
of own shares (1) - 1 (174) - (174)
Employee share
schemes:
Value of
employee
services - - - 25 - 25
Proceeds from
shares issued - 23 - - - 23
Purchase of
own shares by
ESOP - - - (46) - (46)
trust
Disposal of
own shares by
ESOP - - - 26 - 26
trust
Dividends - - - (127) - (127)
-------------------- ------- ------- ------ -------- ------ -------
Balance at 30
September 2005 54 377 945 1,501 - 2,877
-------------------- ------- ------- ------ -------- ------ -------
GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) 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 2005 55 354 944 1,359 - 2,712
-------------------- ------- ------- ------ -------- ------ -------
Currency
translation
adjustments - - - (35) - (35)
Available for sale
investments:
Valuation
gains/(losses)
taken to
equity - - - 88 - 88
Transfer to
income
statement on
sale - - - (18) - (18)
Cash flow hedge:
Valuation
gains/(losses)
taken to
equity - - - (5) - (5)
Transfer to
income
statement in
the year - - - 3 - 3
Taxation - - - (12) - (12)
-------------------- ------- ------- ------ -------- ------ -------
Net
income/(expens
e) recognised
directly in
equity - - - 21 - 21
Profit for the
year - - - 1,014 - 1,014
-------------------- ------- ------- ------ -------- ------ -------
Total
recognised
income for the
year - - - 1,035 1,035
Purchase and
cancellation
of own shares (1) - 1 (230) - (230)
Employee share
schemes:
Value of
employee
services - - - 52 - 52
Proceeds from
shares issued 1 237 - - - 238
Purchase of
own shares by
ESOP - - - (46) - (46)
trust
Disposal of
own shares by
ESOP - - - 29 - 29
trust
Acquisition of
businesses - - - - 8 8
Dividends - - - (221) - (221)
-------------------- ------- ------- ------ -------- ------ -------
Balance at 31
March 2006 55 591 945 1,978 8 3,577
-------------------- ------- ------- ------ -------- ------ -------
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 2006, which were prepared in
accordance with International Financial Reporting Standards ('IFRS') and
relevant IFRIC interpretations issued by the International Accounting Standards
Board ('IASB') and adopted by the European Union ('EU') and upon which the
auditors have given an unqualified report, have been delivered to the Registrar
of Companies and were posted to shareholders on 12 June 2006.
The financial statements for the half year to 30 September 2006 have been
prepared in accordance with IAS 34 'Interim Financial Reporting' and the Listing
Rules of the Financial Services Authority. 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 2006.
There have been a number of new standards, amendments to existing standards and
interpretations, some of which are mandatory for the financial year ending 31
March 2007, with the remainder becoming effective in future years. The adoption
of those changes which are mandatory in the current financial year have not
had a material impact on the Group's financial statements. The Group also does
not expect that the adoption of any changes that become effective in future
years will have a material effect on the recognition and measurement of assets
and liabilities on initial adoption. IFRS 7 'Financial Instruments Disclosures'
and an amendment to IAS 1 'Presentation of Financial Statements' on risk
management and capital disclosures respectively have been issued and will be
adopted by the Group for reporting in its financial year ending 31 March 2008.
During the half year to 30 September 2006 each Ordinary Share of 18 US cents was
sub-divided into six Ordinary Shares of 3 US cents each. All comparative figures
in the Interim Report relating to the number of shares in issue, such as
earnings per share and dividend per share measures, have been restated by
dividing the previously disclosed measure by six.
2. Segmental analysis
Reconciliation of segmental profit before tax to total profit before tax
Half year to 30 September 2006 Asset Brokerage Total
Management
$m $m $m
--------------------- ----------- ------------- -------------
Revenue 1,087 1,162 2,249
Cost of sales (162) (736) (898)
Other operating income 16 9 25
Other operating losses (16) (1) (17)
Administrative expenses before
exceptional items (281) (344) (625)
Exceptional items - (12) (12)
- Refco integration costs - (19) (19)
- Termination costs of US pension
schemes ----------- ------------- -------------
---------------------
Operating profit 644 59 703
Net finance income 5 33 38
Share of after tax profit/(loss) of
associates and joint ventures 24 1 25
----------- ------------- -------------
---------------------
Profit before tax 673 93 766
--------------------- ----------- ------------- -------------
Half year to 30 September 2005 Asset Brokerage Total
Management
$m $m $m
--------------------- ----------- ------------- -------------
Revenue 812 681 1,493
Cost of sales (122) (418) (540)
Other operating income 30 8 38
Other operating losses (6) (3) (9)
Administrative expenses (238) (213) (451)
--------------------- ----------- ------------- -------------
Operating profit 476 55 531
Net finance income 3 28 31
Share of after tax profit/(loss) of
associates and joint ventures 14 - 14
----------- ------------- -------------
---------------------
Profit before tax 493 83 576
--------------------- ----------- ------------- -------------
Year to 31 March 2006 Asset Brokerage Total
Management
$m $m $m
--------------------- ----------- ------------- -------------
Revenue 1,851 1,643 3,494
Cost of sales (273) (1,018) (1,291)
Other operating income 63 14 77
Other operating losses (26) (3) (29)
Administrative expenses before
exceptional items (506) (517) (1,023)
Exceptional items - Refco integration
costs - (70) (70)
--------------------- ----------- ------------- -------------
Operating profit 1,109 49 1,158
Net finance income 8 37 45
Share of after tax profit/(loss) of
associates and joint ventures 33 - 33
----------- ------------- -------------
---------------------
Profit before tax 1,150 86 1,236
--------------------- ----------- ------------- -------------
3. Exceptional items
Half year ended 30 September 2006
The total exceptional items incurred in the period were $31 million ($18 million
net of tax). $19 million relates to the termination costs of the defined benefit
pension schemes in the US and $12 million to the final Refco integration costs.
$19 million has been provided for the estimated cost of the termination
(effective 31 August 2006) of the two US defined benefit pension schemes. These
costs are non-recurring.
As disclosed in the 2006 Annual Report, further exceptional Refco integration
costs amounting to $12 million have been incurred in the first half of the
financial year ending 31 March 2007. These costs relate to the amortisation of
retention payments to administrative staff, which have been spread over the core
integration period of seven months following the Refco acquisition in November
2005.
Year ended 31 March 2006
As disclosed in the 2006 Annual Report, Refco integration costs of $70 million
($48 million net of tax) were charged as exceptional items in the income
statement in 2006, following the acquisition of Refco in November 2005. These
costs comprised: retention payments to administrative staff and incremental
bonuses of $29 million; redundancy/severance payments of $27 million;
professional fees of $7 million; and other costs of $7 million.
There was an exceptional tax credit of $42 million comprising $22 million in
respect of the Refco integration costs and $20 million relating to the reversal
of tax liabilities made in previous years following an agreement with HM Revenue
& Customs with respect to the Group's transfer pricing arrangements.
Half year ended 30 September 2005
No exceptional items were incurred in this period.
4. Net finance income
Half year to Half year to Year to
30 September 30 September 31 March
2006 2005 2006
$m $m $m
Finance income:
Interest on receivables 138 66 164
Finance fees 4 8 11
Investment income 1 1 4
Fair value movement on
interest rate swaps - 11 6
-------------------------- ---------- ---------- ----------
143 86 185
Finance expense:
Interest payable on
borrowings (81) (43) (117)
Cost of exchangeable bond
conversion (12) - -
Amortisation of issue costs
on borrowings (1) (1) (1)
Amortisation of discount on
issue of exchangeable bonds (6) (10) (20)
Accretion of liabilities
discounting (2) (1) (2)
Fair value movement on
interest rate swaps (3) - -
-------------------------- ---------- ---------- ----------
(105) (55) (140)
-------------------------- ---------- ---------- ----------
Net finance income 38 31 45
-------------------------- ---------- ---------- ----------
5. Taxation
Half year Half year Year
to 30 September to 30 to 31
2006
September March
2005 2006
$m $m $m
---------------------------- ---------- ---------- ---------
Taxation charge for the period
UK 86 69 128
Overseas 60 52 94
---------------------------- ---------- ---------- ---------
146 121 222
---------------------------- ---------- ---------- ---------
6. Earnings per share
The calculation of basic earnings per ordinary share is based on a profit for
the period of $619 million (30 September 2005: $455 million, 31 March 2006:
$1,014 million) and on 1,839,434,625 (30 September 2005: 1,799,920,320, 31 March
2006: 1,804,148,292) 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 $634
million (30 September 2005: $472 million, 31 March 2006: $1,047 million) and on
2,038,498,205 (30 September 2005: 2,051,859,258, 31 March 2006: 2,055,637,782)
ordinary shares, calculated as follows:
30 September 30 September 31 March
2006 2005 2006
Number Number Number
(millions) (millions) (millions)
------------------------------ --------- --------- ---------
Basic weighted average number of
shares 1,839.4 1,799.9 1,804.2
Dilutive potential ordinary shares
Share awards under incentive
schemes 55.6 63.0 61.2
Employee share options 3.7 1.8 3.0
Exchangeable bonds 139.8 187.2 187.2
------------------------------ --------- --------- ---------
2,038.5 2,051.9 2,055.6
------------------------------ --------- --------- ---------
The following tables reconcile the earnings per share on total operations with
the earnings per share before exceptional items and underlying earnings per
share:
Half year to 30 September 2006
------------------------- ---------------------------
-------- -------- --------
Basic Diluted Basic Diluted
post-tax post-tax earnings earnings
earnings earnings per share per share
$m $m cents cents
------------------------- -------- -------- -------- --------
Earnings per
share on total
operations + 619 634 33.7 31.1
Exceptional
items 18 18 0.9 0.9
------------------------- -------- -------- -------- --------
Earnings per
share - before
exceptional
items 637 652 34.6 32.0
Performance
fee related
income (170) (170) (9.2) (8.3)
------------------------- -------- -------- -------- --------
Underlying
earnings per
share 467 482 25.4 23.7
------------------------- -------- -------- -------- --------
Half year to 30 September 2005 (restated *)
------------------------- ----------------------------
Basic Diluted Basic Diluted
post-tax post-tax earnings earnings
earnings earnings per share per share
$m $m cents cents
------------------------- --------- -------- -------- --------
Earnings per share on
total operations+ 455 472 25.3 23.0
Exceptional items - - - -
------------------------- --------- -------- -------- --------
Earnings per share -
before exceptional
items 455 472 25.3 23.0
Performance fee related
income (133) (133) (7.5) (6.5)
------------------------- --------- -------- -------- --------
Underlying earnings per
share 322 339 17.8 16.5
------------------------- --------- -------- -------- --------
Year to 31 March 2006 (restated *)
------------------------- ----------------------------
Basic Diluted Basic Diluted
post-tax post-tax earnings earnings
earnings earnings per share per share
$m $m cents cents
------------------------- -------- -------- -------- --------
Earnings per
share on total
operations + 1,014 1,047 56.2 51.0
Exceptional
items 28 28 1.5 1.3
------------------------- -------- -------- -------- --------
Earnings per
share - before
exceptional
items 1,042 1,075 57.7 52.3
Performance
fee related
income (342) (342) (18.9) (16.6)
------------------------- -------- -------- -------- --------
Underlying
earnings per
share 700 733 38.8 35.7
------------------------- -------- -------- -------- --------
* The earnings per share figures have been restated in the comparative periods
to reflect the sub-division of each 18 US cents Ordinary Share into six Ordinary
Shares of 3 US cents each, effective on 14 August 2006.
+ The difference between basic and diluted post-tax earnings on total operations
is the adding back of the finance expense in the period relating to the
exchangeable bonds.
7. Intangible assets
Other intangible assets
-------------------------
--------- ------- -------
Goodwill Upfront sales Customer Other Total
commissions relationships
$m $m $m $m $m
--------------------- --------- --------- --------- ------- -------
Net book value
As at 1 April
2006 834 353 150 45 548
Currency
translation
difference 4 - - - -
Additions 2 146 - 10 156
Redemptions/di
sposals - (15) - - (15)
Charge for the
period - (63) (8) (8) (79)
--------------------- --------- --------- --------- ------- -------
Net book value
at 30
September 2006 840 421 142 47 610
--------------------- --------- --------- --------- ------- -------
At 30
September 2005 834 328 3 22 353
--------------------- --------- --------- --------- ------- -------
At 31 March
2006 834 353 150 45 548
--------------------- --------- --------- --------- ------- -------
8. Current trade and other receivables
At 30 At 30 At 31
September September March
2006 2005 2006
$m $m $m
------------------------------ --------- --------- ---------
Trade receivables:
Amounts owed by broker dealers on secured
stock lending and borrowing 16,672 11,288 9,590
Securities transactions in the course of
settlement 2,340 810 3,242
Futures transactions 914 284 741
Other trade receivables 700 532 602
Amounts owed by joint ventures and
associates 2 1 1
Amounts owed by fund products 411 499 419
Prepayments and accrued income 251 300 307
Other categories of receivables 243 217 143
------------------------------ --------- --------- ---------
21,533 13,931 15,045
------------------------------ --------- --------- ---------
9. Short-term investments
At 30 At 30 At 31
September September March
2006 2005 2006
$m $m $m
------------------------------ --------- --------- ---------
Long stock positions held for matching
contract for differences (CFD) positions
in 5,031 2,276 3,810
Brokerage
Treasury bills 2,278 41 593
Mutual funds 36 36 18
Certificates of deposit 1,882 813 725
Floating rate notes 1,504 - 449
Clearing house deposits 49 13 22
Investments in fund products 574 285 445
------------------------------ --------- --------- ---------
11,354 3,464 6,062
------------------------------ --------- --------- ---------
10. Current trade and other payables
At 30 At 30 At 31
September September March
2006 2005 2006
$m $m $m
------------------------------ --------- --------- --------
Trade payables:
Amounts owed to broker dealers on secured
stock lending and borrowing 21,419 13,047 12,358
Securities transactions in the course of
settlement 5,854 1,026 4,680
Futures transactions 1,998 1,197 1,519
Short stock positions held for hedging 1,492 809 620
Other trade payables 533 208 654
Amounts owed to joint ventures and
associates 6 6 9
Other taxation and social security costs 39 29 41
Accrued expenses 438 279 455
Other categories of payables 98 99 85
------------------------------ --------- --------- --------
31,877 16,700 20,421
------------------------------ --------- --------- --------
11. Borrowings
At 30 At 30 At 31
September September March
2006 2005 2006
$m $m $m
----------------------------- --------- --------- --------
Amounts falling due within one year
Bank loans and overdrafts 67 - 27
Private placement notes - senior debt 45 - -
------------------------------ --------- --------- --------
112 - 27
------------------------------ --------- --------- --------
At 30 At 30 At 31
September September March
2006 2005 2006
$m $m $m
------------------------------ --------- --------- --------
Amounts falling due after more than one
year
Bank loans 172 - -
Private placement notes - senior debt 293 296 291
Private placement notes - subordinated debt 202 201 199
Floating rate notes - subordinated debt 398 398 398
Exchangeable bonds 414 610 609
------------------------------ --------- --------- --------
1,479 1,505 1,497
------------------------------ --------- --------- --------
During the six month period to 30 September 2006, 38% of the Group's
exchangeable bonds were converted, following an offer by the Group to pay a
fixed cash sum to bondholders. The cost of the cash incentive offer amounted to
$12 million and this has been expensed within the finance expense line of the
income statement.
12. Segregated balances
As required by the United Kingdom Financial Services and Markets Act 2000 and by
the US Commodity Exchange Act, the Group maintains certain balances on behalf of
clients with banks, exchanges, clearing houses and brokers in segregated
accounts totalling at 30 September 2006: $14,611 million (30 September 2005:
$9,642 million, 31 March 2006: $14,796 million). These amounts and the related
liabilities to clients, whose recourse is limited to the segregated accounts,
are not included in the Group balance sheet. The reason for their exclusion from
the Group balance sheet is that the Group does not have a liability to its
clients in the event that a third party depository institution, where the
segregated funds are held, does not return all the segregated funds. The
corresponding asset, which is not co-mingled with the Group's funds and over
which the Group's control is severely restricted, is therefore not recognised on
the Group balance sheet.
13. Contingent liabilities
As disclosed in the Group's Annual Report 2006, Man Financial Inc., a US
subsidiary of the Group, was served on 8 May 2006 with a Complaint by the
receiver for Philadelphia Alternative 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 acted as one of the
brokers to PAAF, executing and clearing trading instructions given by PAAF, and
as such does not consider that it is responsible for the losses suffered by PAAF
investors. Accordingly, Man Financial will vigorously defend the proceedings
brought against it. It continues to be the case that this matter is not expected
to have a material financial impact on the Man Group.
14. 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
2006 2005 2006
---------------------------- ---------- ---------- ---------
Average exchange rate 0.5398 0.5494 0.5759
Period-end exchange rate 0.5344 0.5654 0.5600
---------------------------- ---------- ---------- ---------
15. Cash generated from operations
Half year Half year Year
to to to
30 September 30 September 31 March
2006 2005 2006
$m $m $m
---------------------------- ---------- ---------- ---------
Profit for the period 620 455 1,014
Adjustments for:
- Income tax 146 121 222
- Finance income (143) (86) (185)
- Finance expense 105 55 140
- Share of results of
associates and joint
ventures (25) (14) (33)
- Depreciation of
tangible fixed assets 14 13 26
- Amortisation of
intangible fixed assets 79 56 123
- Share based payments
expense 27 25 52
- Fair value gains on
available for sale
financial assets (4) (6) (18)
- Impairment charges 1 4 6
- Net losses/(gains) on
financial instruments 6 1 (5)
- Decrease in provisions (2) (1) (13)
- Other non-cash
movements (13) (11) (21)
---------------------------- ---------- ---------- ---------
811 612 1,308
Changes in working capital:
- Increase in
receivables (6,470) (3,846) (4,858)
- Increase in other
financial assets (5,293) (374) (2,962)
- Increase/(decrease) in
payables 11,435 3,802 7,455
---------------------------- ---------- ---------- ---------
Cash generated from
operations 483 194 943
---------------------------- ---------- ---------- ---------
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