Final Results

Man Group plc 20 May 2004 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2004 FINANCIAL HIGHLIGHTS Business summary â€¢ Fund sales in the year of $11.5 billion, including $3.5 billion in RMF â€¢ Funds under management of $38.5 billion at 31 March 2004 (including $15.8 billion in RMF), up 48% from last year â€¢ Net management fee income+ up 50% to Â£271.1 million â€¢ Brokerage+ profits up 47% to Â£70.8 million â€¢ Diluted underlying earnings per share++* up 37% to 83.1 pence â€¢ Net performance fee income up 21% to Â£139.1 million â€¢ Diluted earnings per share on total operations* up 36% to 103.1 pence â€¢ Dividends up 29% to 30.0 pence â€¢ Since the year-end: - Man RMF Multi-Style Ltd closed in April having raised a record $819 million of investor money - Funds under management currently estimated to be $38.5 billion --------------------------------- ---------- ----------- March March 2004 2003 --------------------------------- ---------- ----------- Funds under management $38.5bn $26.1bn Â£20.9bn Â£16.5bn --------------------------------- ---------- ----------- Asset Management net management fee income+ Â£271.1m Â£181.1m Asset Management net performance fee income+ Â£139.1m Â£115.0m Brokerage+ Â£70.8m Â£48.3m ---------- ----------- Financial Services Â£481.0m Â£344.4m Sugar Australia# Â£3.5m Â£3.7m ---------- ----------- Profit before tax, goodwill amortisation and exceptional items Â£484.5m Â£348.1m Goodwill amortisation and exceptional items (Â£49.9m) (Â£51.2m) ---------- ----------- Profit before tax Â£434.6m Â£296.9m --------------------------------- ---------- ----------- Diluted earnings per share * Underlying++ 83.1p 60.7p Total operations 103.1p 75.8p Total operations before goodwill amortisation and 116.8p 91.0p exceptional items --------------------------------- ---------- ----------- Dividends per share 30.0p 23.2p --------------------------------- ---------- ----------- Post-tax return on equity 32.2% 26.9% --------------------------------- ---------- ----------- Equity shareholders' funds Â£1,149.1m Â£970.8m --------------------------------- ---------- ----------- + Before goodwill amortisation and exceptional items * A reconciliation of earnings per share is shown in note 8 to the Accounts ++ 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, Sugar Australia, goodwill amortisation and exceptional items. # Sugar Australia is discussed below. Stanley Fink, Chief Executive said: ' Man Group has enjoyed an outstanding year. Net management fees* are up 50%, performance fees up 21% and Brokerage income* is up 47%. Shareholders have seen earnings per share growth of over 35% and a 29% increase in the dividend for the year. Underpinning the continued growth of the business, the Asset Management division had record sales of $11.5 billion and funds under management at year-end of $38.5 billion. The current year has started well with our latest global launch having raised a record $819 million and the underlying momentum in both our business streams continues to be very strong. The Board is highly confident in the Group's prospects for the coming year.' * Before goodwill amortisation and exceptional items DIAL-IN TO ANALYSTS' PRESENTATION The dial-in numbers are as follows: UK Dial-in number 020 8996 3920 US Dial-in number 888 339 2688 UK / US Pass Code C182759 There will be a playback facility until 6pm on Monday 24 May: UK Replay number 01296 618 700 UK Pass Code 267702 US Dial-in number 888 286 8010 US Pass Code 45564491 Enquiries Man Group plc 020 7144 1000 Stanley Fink Peter Clarke David Browne Merlin 020 7653 6620 Paul Downes 07900 244888 Paul Lockstone 07876 685200 Vanessa Maydon 07802 961902 Lachlan Johnston 07989 304356 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 2,800 people in 15 countries, with key centres in London, Pfaffikon (Switzerland), Chicago, New York, Paris, Singapore and Sydney. Man Group plc is listed on the London Stock Exchange (EMG.L) and is a constituent of the FTSE 100 index. Man Investments, the Asset Management division, is a global leader in the fast growing alternative investment industry. It provides innovative products and tailor made solutions to private and institutional investors. Through its core investment managers - AHL, RMF, Glenwood and Man Global Strategies - Man has succeeded in developing leadership in hedge funds and has interests in other asset classes. In its core hedge fund asset class, Man offers funds of hedge funds, structured, style and single manager 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 and an extensive network of distribution partners. 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 and the energy markets. Note: High resolution images are available for the media to view and download free of charge from www.vismedia.co.uk OVERVIEW The Man Group has enjoyed another very positive year. Both the Asset Management and Brokerage divisions have delivered strong growth in profitability through a combination of continued vigorous organic development of their businesses and by building on the successful integration of two key businesses acquired in the previous year, RMF and GNI. Funds under management at year-end were $38.5 billion, up from $26.1 billion at March 2003, reflecting strong product performance and record asset raising results. Net management fee income was up 50% and, in combination with a strong year for brokerage, resulted in diluted underlying earnings per share, a measure which excludes performance related income, Sugar Australia, goodwill amortisation and exceptional items, increasing 37% to 83.1 pence. Performance fees added 32.9 pence per share. Diluted earnings per share on total operations was 103.1 pence, up 36% on the prior year and leading to a healthy 32.2% post-tax return on equity. OUTLOOK The current year has started well. Appetite for our fund products remains strong. We recently reported that the global offering of the Man RMF Multi-Style product had closed in April having raised $819 million in investor subscriptions and setting a new record for a single global product launch. Funds under management have been impacted by some negative investment performance, particularly in AHL during April, which has recently partly reversed in May. Funds under management are currently estimated to be $38.5 billion, with a good level of forward sales activity in the pipeline. The Brokerage business has also enjoyed a good start to the year, with continued record levels of market volumes. DIVIDENDS This year's results have clearly met or exceeded our key financial targets, being the delivery of significant growth in underlying earnings and the maintenance of a high return on equity. Accordingly, and given our strong financial condition, the Board proposes a final dividend of 18.6 pence per share, for a total dividend for the year of 30.0 pence, an increase of 29%. This year's dividend is covered 2.8 times by underlying earnings and 3.4 times by total earnings. The Group's policy is to grow the level of dividend, whilst maintaining cover of at least two times underlying earnings. The Group also typically earns substantial performance fees in addition to underlying earnings, and as previously stated it is the Board's long term strategy to enhance the existing share repurchase activity by using an amount of up to the Group's post-tax performance fee income in the repurchase of its own shares. This share repurchasing will take place in the market on a continuing basis from year to year rather than being confined within the accounting periods during which performance fees are earned. Subject to shareholders' approval at the Annual General Meeting, the final dividend will be paid on 13 July 2004 to shareholders on the register at the close of business on 25 June 2004. The shares will be quoted ex-dividend from 23 June 2004. The Dividend Reinvestment Plan will be available in respect of this dividend. OPERATING REVIEW ASSET MANAGEMENT We have established a new management and governance structure based upon our 'complete firm' business model. This model has guided the recent success of the business and provides a rational and scaleable arrangement of specialisms. The model aligns the key components of the value chain under: Distribution, Product Structuring and Content. The objective is to continue to achieve a level of excellence in each component of the value chain, thereby enabling us to sustain our growth momentum. We have also taken continuing measures to scale the business and have recruited several key employees in most of the major departments, which have further increased the strength and depth of those departments. Sales and distribution Man had an outstanding year with sales of $11.5 billion, up from $6.7 billion in the prior period. Sales were strong across the different sectors of Man's business. These include the global launches, joint venture sales, open-ended sales and fund of funds sales aimed at institutional investors. We deliver our products through a powerful distribution network that we have built up over the previous two decades. We have established offices strategically located to serve our investors around the world. Historically the largest markets have been Western Europe (excluding the UK) and Asia Pacific (including Australia and New Zealand). Sales this year have broadly reflected this mix with Europe, and in particular Switzerland, being strong. We have an extensive intermediary network covering a very wide array of institutions and financial professionals with a client base of private investors. These intermediaries include asset managers, banks, brokers and IFAs. We seek constantly to grow the quality and absolute size of the network. The increase in funds under management in the year from Man's four global launches (Man Multi Strategy Series 5 and 6, Man AP Unison Series 1, Man Global Strategies Diversified) was a record $3.3 billion, up from $2.2 billion in the prior year. The global launch of Man RMF Multi-Style raised $819 million of investor money and started trading in May 2004. It is therefore not included in the sales figures for the year to 31 March 2004. Sales of our joint venture or 'white label' business accounted for $2.1 billion (2003: $0.8 billion). This is where we work with another financial institution, typically a bank, and construct a customised product to meet their specific requirements for distribution to their client bases. Open-ended sales accounted for $2.4 billion (2003: $1.3 billion). These represent sales of products which are continuously open to investment. These include a large range of products such as Man AHL Diversified plc, which offers weekly liquidity to investors, Man Arbitrage Strategies and Man-Glenwood Multi-Strategy Fund. We also offer a range of products utilising the skills of RMF, including Man RMF Diversified, RMF Four Seasons Strategies and RMF Absolute Return Strategies. These and other products continue to be offered to investors on a world-wide basis and are complemented by products focused on particular markets. For example, during the year we launched our first domestic product in Switzerland, Man Multi-Strategy CH Fund and are expecting to launch a second product focusing on the Hong Kong market during the autumn of 2004. Fund of funds sales to institutions accounted for $3.7 billion (2003: $2.4 billion). These are generally the result of direct relationships with the client institution, in some cases working with consultants. Before the acquisition of RMF, Man Investments had been active in the institutional market, mainly in Japan and the Middle East. The acquisition of RMF brought, in addition to a highly respected track record as a leading fund of hedge fund manager, a professional sales team focused on institutions in Europe, with a particularly strong client base in Switzerland and Germany. Following the integration of RMF last year, and the combination of sales forces, we have been working to broaden this client base across Europe and have had success in winning mandates in France and the UK, and made good progress elsewhere, most notably in The Netherlands. Outside Europe, as interest in these products continues to develop, other strategic areas for institutional sales include Asia Pacific, particularly Japan, and the Middle East. To take advantage of this growth in the institutional market, Man has strengthened its consulting capabilities to provide added value in the development of institutional relationships. In North America, we continue to support the objective of building a distribution network to address a mass-affluent investor universe, and to structure attractive products within the US onshore regulatory framework. We have signed up 64 intermediaries and are continuing to see sales of our registered product. After the end of the year, Man launched the Group's first US SEC registered fund of hedge funds designed specifically for qualified individual retirement accounts and tax-exempt investors in the US. Product structuring Man has spent two decades understanding investor requirements, identifying opportunities and developing leading-edge products and tailor made solutions that cater to the varied needs of institutional and private investors. During the year, 61 new products were successfully developed and we currently actively manage 344 products. Our structuring expertise enables us to offer a range of product types. For the private investor, our structured products have been the most sought after, and these products currently account for about 72% of our private investor assets under management. The bulk of our structured offerings provide principal protection in the form of capital guarantees, with a fixed life to maturity and monthly liquidity. We adapt principal protection structures to meet investor needs and continue to offer features such as variable capital guarantees, which make provision for profits to be locked-in, so that the level of principal protection at maturity is raised above the initial capital invested. In addition, we provide innovative solutions to particular markets, both in terms of product characteristics (for example, variable coupons and capital protection levels) and in terms of structuring features, often working with other financial institutions to 'wrap' products to suit investor needs. Structuring advances and sophisticated financing arrangements enable us to optimise cash usage for increasingly diversified portfolios that include cash-intensive hedge fund strategies. Our approach to creating and managing principal protected structures continues to be guided by the requirement that every portfolio should be able to withstand market shocks and maintain the trading capital required to achieve its target performance. The latest product launches covered a full range of investment strategies and offered varying levels of targeted returns and volatility. These products also offered investors a range of features including: increased investment exposure through leverage; capital guarantees from highly rated banks to return at least 100% of subscribers' initial investment at maturity; profit lock-in features that may allow the guarantee level to rise; and giving investors a choice of both capital and income bonds. Investment Managers Our core investment managers provide the investment content for the products and solutions we structure. They focus exclusively on portfolio construction and management, while benefiting from Man's solid business and corporate infrastructure. Each has distinct expertise as manifested in a diverse range of portfolios offering different target risk/reward profiles. We aim to access high-quality hedge fund capacity through a range of methods. These include partnerships with new start-up managers through our Man Global Strategies and Hedge Fund Venture programmes, optimising the more diversified capacity-accessing capability of our two fund of hedge fund engines, RMF and Glenwood. Most recently, Man has broadened its strategy to include the taking of equity stakes in developed managers and in December it acquired 25% of BlueCrest Capital Management, an alternative asset manager focused on fixed income and currencies based in London. The one, three and five year performance records have continued to be strong. Compound annual rate of return to 31 March 2004 Performance records 1 year to 3 years to 5 years to 31-Mar-04 31-Mar-04 31-Mar-04 AHL Diversified Programme(1) 18.3% 12.5% 16.6% RMF(2) 12.3% 7.4% 9.6% Man-Glenwood(3) 5.4% 2.5% 8.7% Man Global Strategies (4) 9.1% 7.6% n/a(4) HFRI Fund of Funds Composite Index 14.1% 5.9% 8.8% S&P 500 35.1% 0.6% -1.2% FTSE 100 25.2% -5.0% -4.0% Source: Man Database, Standard & Poor's Micropal and HFRI Fund of Funds Composite Index. (1) AHL Diversified: represented by Athena Guaranteed Futures Limited (2) RMF: represented by RMF Absolute Return Strategids I Fund (dividends re-invested) (3) Man-Glenwood: represented by Man-Glenwood Multi-Strategy Fund Limited. (4) Man Global Strategies: represented by Man Multi-Strategy Guaranteed Limited. Inception July 2000 so five year track record not available. Note: All figures are shown net of fees and commissions, where applicable. S&P 500 and FTSE 100 figures include gross dividends reinvested into the index. Redemptions Redemption levels in private investor products in the year at 12% were at the bottom of the 12-18% range that we have typically experienced over the long term. We have observed little correlation between redemptions and fund performance. Redemptions are a function of a number of factors that determine investor behaviour including geographical diversity. Furthermore, early redemption charges and the extended tenor of most structured note products encourage investors to maintain the long term view. Institutional redemptions totalled some $2.5 billion. Of this, around $400 million represented switches at RMF whereby investors redeemed from one fund product and reinvested in another, which is included in both redemptions and sales. Other outflows in RMF amounted to $0.9 billion. Glenwood redemptions were $1.2 billion, which is mainly due to management changes and under-performance up to the beginning of the year. Glenwood's funds under management have now stabilised. BROKERAGE Man Financial has achieved a record profit before tax, goodwill amortisation and exceptional GNI integration costs of Â£70.8 million, an increase of 47% over the previous year. Of equal importance it has achieved this growth while maintaining its profit margins during a period that saw the absorption and rationalisation of a major acquisition. The strong results were reflected in excellent performance across its businesses. Man Financial achieved outstanding returns from its Interest Rate Products business, enjoying active markets, growth in the client base, successful recruitment of producers and the successful inception of cash bond business in London, New York and Paris. These offices plus the strong franchises in Chicago, Singapore and Sydney have achieved leading positions in their markets. Our Foreign Exchange business had a record year. The successful integration of GNI's FX business into Man's complementary institutional business expanded our client base and service capabilities, as markets became increasingly active. The units in New York, London and our Asian offices bridge the cash and derivative markets for clients looking for seamless market access. Our institutional equities business was also significantly strengthened with the acquisition of GNI and its leading position in equity derivatives, including the contract for differences ('CFD') product which is actively used by the fund management community. This business is being expanded to provide execution services in individual shares for institutions looking to access market liquidity in the changing market place. Our Energy business enjoyed another strong year as it continued to lead its markets. The energy industry is also seeing a convergence in its cash and futures markets as the exchanges now provide a clearing mechanism for selected OTC products. This has provided us with the opportunity to expand our traditional focus from industry to the asset managers with growing success. Significant recruitments in both London and New York have given added strength and breadth to our team as we increasingly bridge the cash and futures markets for our clients. The business has been repositioned from a clearing driven business to an execution driven business while maintaining a strong share of the energy clearing industry. Our Metals business has continually expanded its client base, market share and profits in recent years during subdued market conditions. It achieved a strong position in its market with an 8% share. This year our efforts have been amply rewarded as the growing economic recovery generated significantly higher prices, volatility and volumes. As a result profits have grown 59% over the prior year with strong prospects for active market conditions for some time. Fund Clearing Services saw significant growth in profits as the division expanded its client base. This area also provides clearing services to our affiliate Man Investments for their activities in these markets. The asset management community is a primary focus for our clearing services. Private Client business at Man also enjoyed a record year, particularly in Europe. The integration of GNI's retail CFD business and the roll out of the GNI Touch electronic platform underpinned a significant expansion in clients, volumes and profits. The pending rollout of the online FX product is expected to further this growth. Our offering in these markets includes both an execution and clearing service in electronic or full service form. GNI Touch's e-commerce business for the professional trader community also had a record year as market volumes soared in both interest rate products and the increasingly popular equity index products. ADDITIONAL FINANCIAL INFORMATION Financial objectives The Board believes that long-term shareholder value will be achieved through the continued delivery of significant growth in underlying earnings per share and the maintenance of high levels of post-tax return on equity. For this reason these two measures continue to be the basis for the Group's financial objectives and are also the performance criteria used for the Group's long-term incentive schemes. The Group has achieved these objectives in the current year, as it has in each year since they were set in March 2000. Diluted underlying earnings per share has grown by 37% over the last year and by 40% compound per annum over the last four years. Underlying earnings represent net management fee income from Asset Management plus Brokerage net income. This measure excludes the net performance fee income from Asset Management, Sugar Australia, goodwill amortisation and exceptional items (a full reconciliation of underlying earnings and underlying earnings per share to their corresponding statutory figures is shown in note 8 to the Accounts). Underlying earnings per share are lower than total earnings per share but we target this measure when reviewing results because it does not include performance fee income which, although valuable to shareholders, is volatile when looking at year-on-year comparisons. There has also been strong growth in the statutory measure - diluted earnings per share on total operations. This has increased by 36% over last year and has grown by 29% compound per annum over the last four years. As well as seeking growth that is profitable and sustainable, our second financial objective is to target an efficient capital structure so as to maintain high levels of post-tax return on equity whilst retaining a strong Group balance sheet. Within the Group, our businesses are allocated and charged for their use of both capital (including goodwill) and credit so as to ensure business unit alignment with the Group's objective. The Group's post-tax return on equity for the year was 32.2%. This compares to 26.9% last year, which was lower than in previous years mainly due to the Group's capital base doubling as a result of the RMF acquisition. The successful integration and subsequent performance of RMF, coupled with significant growth in the existing businesses, has led to the post-tax return on equity in the current year increasing to the higher levels seen previously. The appropriate capital structure for the Group reflects not only the wish for financial efficiency but also the need to maintain a robust capital base to support changing regulatory capital requirements and to ensure financial flexibility in changing capital markets. Summary of results Profit before tax on total operations was up 46% to Â£434.6 million. Excluding goodwill amortisation and exceptional items, pre-tax profits increased 39% in the year to Â£484.5 million. Underlying pre-tax profit increased 49% in the year to Â£341.9 million. This year's results have been achieved despite the impact of a negative currency translation in excess of Â£30 million, largely due to the US dollar weakening against sterling. Most of the Group's revenues arise in US dollars as the majority of our business is denominated in that currency and the average exchange rate for the year was $1.6938 (2003: $1.5471). The Group does not hedge its US dollar earnings into sterling. The Group's profit before tax, goodwill amortisation and exceptional items by business segment is set out in the table below: ---------- ----------- 2004 2003 Â£m Â£m ---------- ----------- Asset Management net management fee income 271.1 181.1 Asset Management net performance fee income 139.1 115.0 Brokerage 70.8 48.3 Sugar Australia 3.5 3.7 ---------------------------------- ---------- ----------- 484.5 348.1 ---------- ----------- Sugar Australia reflects the contribution from a minority interest in an independently managed, unincorporated joint venture sugar refinery. This is a residual investment from the Group's historical physical trading activities and, although profitable, is non-core. The Group announced on 2 April 2004 that it had signed an agreement to sell its Sugar Australia business to CSR Limited, subject to the consent of various third parties. The Group has made a total provision of Â£11.9 million for the loss on impending sale of this business. Â£11.7 million of this provision relates to the write back of goodwill previously written off to reserves at the time of the formation of the Sugar Australia joint venture. The remaining Â£0.2 million provision relates to impairment of fixed assets. The total provision has been classified as a non-operating exceptional item. In Asset Management net management fee income increased 50% from Â£181.1 million to Â£271.1 million. Net performance fee income increased 21% from Â£115.0 million to Â£139.1 million. As discussed in previous annual and interim reports, performance fee income will typically exhibit volatility, which can be pronounced when comparing one accounting period with another. However, year-on-year performance fee income is becoming less volatile as the diversity of our managers and styles of funds increases. In order to provide some analysis of the relationship between management fees, performance fees and funds under management, the table below shows these as a percentage of average funds under management (FUM) for the last five years. Prior to 2003, the management fee/FUM ratio had been falling slightly. This was not due to any reduction in the profitability of the Group's core private investor products, but rather to an increasing level of institutional FUM as a percentage of the total. Institutional FUM typically carry a lower management fee in return for scale. In 2003, the acquisition of RMF had a significant effect on the ratio since it manages almost exclusively institutional money. However, the Group's private investor FUM also continued to grow strongly in the year at the same fee levels as historically. In 2004, the slight increase in the ratio is mainly due to an increase in the proportion of private investor FUM from 52% to 55%. Going forward this ratio will reflect the relative mix of institutional and private investor FUM at the time. The performance fee/FUM ratio will be a function of the underlying performance of the Group's products during the relevant accounting period. An increase in the proportion of institutional FUM will result in a decrease in the performance fee/FUM ratio as institutional fund products are structured to target a lower return (and lower volatility) and also they tend to pay a lower level of performance fee. 2004 2003 2002 2001 2000 -------- -------- -------- -------- -------- Net Management fee income (Â£m) 271.1 181.1 117.6 70.7 55.5 Management fees/FUM 1.4% 1.3% 1.9% 2.0% 2.1% Net performance fee income (Â£m): First half of year 34.1 35.9 33.5 1.0 15.7 Second half of year 105.0 79.1 21.7 75.0 14.5 -------- -------- -------- -------- -------- Full year 139.1 115.0 55.2 76.0 30.2 Performance fees/FUM 0.7% 0.9% 0.9% 2.2% 1.1% Profit and loss account In order to analyse the performance of the Group's two principal businesses, the table below provides a split of the Group's profit and loss account into its components: Year to 31 March 2004 Asset Brokerage Sugar Group Total Management Â£m Australia Â£m Â£m Â£m Fees and commissions 674.9 615.3 - 1,290.2 receivable Fees and commissions payable (103.3) (400.5) - (503.8) Net trading interest income 6.1 52.2 - 58.3 Other operating income 26.2 2.9 - 29.1 --------------------- ----------- --------- --------- --------- Total operating income 603.9 269.9 - 873.8 Operating expenses (211.1) (213.0) (0.4) (424.5) --------------------- ----------- --------- --------- --------- Operating profit 392.8 56.9 (0.4) 449.3 Associates and JVs 17.7 - 4.3 22.0 Net interest income/(expense) (0.3) 13.9 (0.4) 13.2 --------------------- ----------- --------- --------- --------- Profit before tax, goodwill and exceptionals 410.2 70.8 3.5 484.5 Goodwill amortisation (39.4) (6.0) - (45.4) Allocated exceptional items - (5.3) (11.9) (17.2) Unallocated exceptional items - own 12.7 share sales ----------- --------- --------- --------- --------------------- Profit before tax on total operations 370.8 59.5 (8.4) 434.6 Taxation (95.6) Minority interests (0.3) --------------------- ----------- --------- --------- --------- Profit for the financial year 338.7 --------------------- ----------- --------- --------- --------- In Asset Management, fees and commissions receivable are principally management fees, performance fees and brokerage fees. Fees and commissions payable are mainly sales commissions. Other operating income comprises mostly gains on 'seeding' investments in some of our funds and structuring and arrangement fees in relation to loans to funds. Total operating income has increased by 39% over last year, reflecting the strong growth in management fees off higher levels of funds under management and the increase in performance fees. Operating expenses, after Group allocations, are 35% of total operating income. This operating margin is consistent with the average over the last five years, and reflects the attractiveness of Asset Management's business model. Operating expenses have increased by 45% from Â£146.0 million in the prior year. The increase is largely due to the growth in infrastructure to support the strong growth of the business and to higher variable employee compensation, reflecting the increase in income. Associates and JVs is the contribution from financial interests in established managers, such as Aspect and BlueCrest, and in new managers. The small net interest expense largely arises from borrowings to finance recent acquisitions and working capital requirements, offset by the margin earned on loans to funds. Goodwill amortisation principally relates to the RMF acquisition made in the prior year (Â£28.0 million) and also to the Glenwood, OM Strategic Investments and BlueCrest acquisitions. The RMF, Glenwood and BlueCrest goodwill are being amortised over 15 years, and the OM Strategic Investments goodwill over 8 years. In Brokerage, commissions receivable and payable arise from those businesses where we act as intermediary and also from those businesses where we act as a matched principal broker, such as foreign exchange, securities, metals and energy trading. Net trading interest income is earned on segregated customer balances that are held off balance sheet in accordance with UK accounting practice. Total operating income has increased 30% reflecting a full year's contribution from GNI, the continued recruitment of producer teams and the benefits of active markets. Operating expenses have increased by 26% from Â£168.4 million in the prior year. The full year impact of the acquisition of GNI accounts for the largest component of this increase. Net interest income mainly arises on non-segregated cash balances and investments. The largest component of goodwill amortisation relates to the GNI acquisition made in the prior year (Â£3.6 million), the remainder to smaller acquisitions made previously. The GNI goodwill is being amortised over 10 years. The operating exceptional costs of Â£5.3 million, which were incurred in the first half of the year, relate to GNI integration costs, principally redundancy costs. The tax charge for the year amounts to Â£95.6 million. The effective rate on total operations was 22.0% compared to 21.0% last 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. In future years, the effective tax rate may increase if earnings grow significantly in higher tax locations, for example if our Asset Management activity sees strong sales growth from the recent US private client initiative. The growth in the Group's profitability has resulted in a significant increase in earnings per share. Full details of earnings per share and the weighted average number of shares is given in note 8 to the Accounts. Investment in the business The Group continues to invest in its businesses, not only through acquisition but also in people, operations and systems to provide scale for continued strong profitable growth in both its activities. This has involved recruitment at all levels across the businesses (in particular in sales and distribution, funds administration and risk and compliance) and further investment in systems and business continuity management. Cash flow Net Group cash inflow for the year was Â£386.3 million, driven off strong cash generation from net operating profits. An analysis of the Group's cash flows in the year is shown below: Â£m Operating profit (pre amortisation and depreciation) 482.0 Decrease in working capital 89.3 Taxation paid (62.3) Dividends paid (75.4) Acquisitions (6.4) Net capital expenditure and financial investment (54.9) Other 14.0 -------------------------------------- --------- Cash inflow for the year 386.3 -------------------------------------- --------- The decrease in working capital is largely due to a decrease in the funding requirements for our futures and stock lending businesses in Brokerage. There was a small increase in working capital in Asset Management due to an increase of Â£53 million in sales commissions paid (as a result of the high level of sales in the year) and Â£57 million invested in a Note in relation to third party financing of loans to funds. In addition there was an increase of Â£21 million in other debtors, net of a decrease in loans to funds of Â£118 million. Net capital expenditure and financial investment largely relates to the part of the consideration for BlueCrest that was funded by debt and to refurbishment costs of offices and DR sites. Other cash flows largely relate to net interest receivable of Â£14.0 million, dividends receivable from associates and joint ventures of Â£7.9 million and to additional cash paid in relation to GNI integration costs of Â£8.9 million. Balance sheet The main changes to the Group's balance sheet from the prior year-end are discussed below: The increase in investments in associates is due to the acquisition of a 25% stake in BlueCrest Capital Management, a fund manager focused on fixed income and currencies. The growth in the futures and stock lending businesses in GNI have had the effect of increasing both current assets and short-term creditors by Â£1.0 billion. In addition, there has been a Â£53 million increase in unamortised sales commissions in Asset Management, reflecting the strong level of sales in the year. Despite the high level of sales, loans to funds were Â£118 million lower at Â£192 million, reflecting the success of the externalisation programme. During the year the Group extended its debt maturity profile and further diversified its sources of funding through issuing 10-year subordinated debt of $160 million to the US private placement market. This largely explains the switch between short and long term debt. At 31 March 2004, shareholders' equity was up 18% at Â£1,149.1 million. At 31 March 2004 the Group had a net cash position of Â£327.4 million (2003: net debt position of Â£15.3 million). The Group's balance sheet, as presented in sterling, is affected by currency movements since the majority of the Group's net assets are in US dollars. Reflecting this, the Group chooses to hold a significant amount of its borrowings in US dollars but does not hedge its US dollar net assets into sterling. Currency moves in the year gave rise to a translation loss of Â£150.8 million which is included in the statement of total recognised gains and losses in the year. In the future the impact of this translation difference will be significantly reduced as a result of the decision to switch to reporting in US dollars. As indicated in last year's Annual Report, the Group has decided to change its presentation currency from sterling to US dollars with effect from 1 April 2004 (the Group's IFRS transition date). This means that the first report published in US dollars will be the September 2004 Interim Report. As the majority of the Group's revenue streams, assets and liabilities are denominated in US dollars, it is consistent to present the Group's financial statements in the same currency. The Group Board considers it appropriate to redenominate the ordinary share capital of Man Group plc to bring it into line with its functional currency and the functional currency of the main operating subsidiaries. Shareholder approval for this redenomination into US dollars will be sought at this year's AGM. The US dollar shares will be quoted on the London Stock Exchange (and settled) in sterling as is the case with the existing shares. Dividends will still be paid in sterling except where private overseas shareholders have elected to receive dividends via the Transcontinental Automated Payment Service (TAPS). Further details will be available in the Notice of Annual General Meeting being despatched to shareholders on 2 June 2004. Group Profit And Loss Account for the year ended 31 March 2004 2004 2003 ------------------ ---- -------- ------- ------ -------- -------- ------ Note Before Before goodwill Goodwill goodwill Goodwill and and and and exceptional exceptional exceptional exceptional items items Total items items Total Â£m Â£m Â£ Â£m Â£m Â£m - ----------------- ---- -------- ------- ------ -------- -------- ------ Net operating income 2,3 873.8 - 873.8 640.7 - 640.7 -------- ------- ------ -------- -------- ------ Operating expenses 4 (424.5) (43.0) (467.5) (314.8) (34.8) (349.6) Exceptional item- GNI integration costs 5 - (5.3) (5.3) - (15.0) (15.0) -------- ------- ------ -------- -------- ------ (424.5) (48.3) (472.8) (314.8) (49.8) (364.6) ------------------ ---- -------- ------- ------ -------- -------- ------ Group operating profit- continuing operations 449.3 (48.3) 401.0 325.9 (49.8) 276.1 ------- ------ -------- -------- ------ Share of operating profit/(loss) 22.0 (2.4) 19.6 11.0 (1.4) 9.6 from joint ventures and ---- -------- ------- ------ -------- -------- ------ associates ------------------ Total operating profit: Group and share of joint ventures and associates 471.3 (50.7) 420.6 336.9 (51.2) 285.7 Exceptional items Provision for loss on impending sale of business 5 - (11.9) (11.9) - - - Profit on sale of own shares 5 - 12.7 12.7 - - - Net interest income 6 13.2 - 13.2 11.2 - 11.2 ------------------ ---- -------- ------- ------ -------- -------- ------ Profit on ordinary activities before taxation 3 484.5 (49.9) 434.6 348.1 (51.2) 296.9 Taxation (99.1) 3.5 (95.6) (65.8) 3.5 (62.3) ------------------ ---- -------- ------- ------ -------- -------- ------ Profit on ordinary activities after taxation 385.4 (46.4) 339.0 282.3 (47.7) 234.6 Equity minority interest (0.3) - (0.3) (0.1) - (0.1) ------------------ ---- -------- ------- ------ -------- -------- ------ Profit for the financial year 385.1 (46.4) 338.7 282.2 (47.7) 234.5 Ordinary dividends 7 (89.9) (75.2) ------------------ ---- -------- ------- ------ -------- -------- ------ Retained profit 248.8 159.3 ------------------ ---- -------- ------- ------ -------- -------- ------ Earnings per share on total operations 8 Basic 114.0p 80.0p Diluted 103.1p 75.8p ------------------ ---- -------- ------- ------ -------- -------- ------ Earnings per share before goodwill and exceptional items 8 Basic 129.6p 96.3p Diluted 116.8p 91.0p ------------------ ---- -------- ------- ------ -------- -------- ------ Underlying earnings per share 8 Basic 91.2p 63.8p Diluted 83.1p 60.7p ------------------ ---- -------- ------- ------ -------- -------- ------ Dividends per share 7 11.4p 9.1p Interim 7 18.6p 14.1p Final proposed ------------------ ---- -------- ------- ------ -------- -------- ------ Historical cost profits and losses are not materially different from those shown above. Group Balance Sheet at 31 March 2004 Restated+ ------------ ----------- 2004 2003 ------------ ----------- ------- Note Â£m Â£m Â£m Â£m ------------------------------ ----- ------- ------- ------- ------- Fixed assets Intangible assets - goodwill 442.0 522.8 Tangible assets 37.4 41.7 Investments Investments in joint ventures Share of gross assets and 8.0 21.4 goodwill Share of gross liabilities (0.6) (3.2) ------- ------- 7.4 18.2 Investments in associates 139.5 25.4 Other investments 60.0 70.1 ------- ------- 206.9 113.7 ------------------------------ ----- ------- ------- ------- ------- 686.3 678.2 ------------------------------ ----- ------- ------- ------- ------- Current assets Debtors 9 1,890.7 1,743.3 Investments 1,301.8 694.1 Cash at bank and in hand 926.2 642.6 ------------------------------ ----- ------- ------- ------- ------- 4,118.7 3,080.0 Creditors: amounts falling due within one 11 (3,106.3) (2,277.7) year ----- ------- ------- ------- ------- ------------------------------ Net current assets 1,012.4 802.3 ------------------------------ ----- ------- ------- ------- ------- Total assets less current 1,698.7 1,480.5 liabilities Creditors: amounts falling due after more 11 than one year Exchangeable bonds (390.2) (389.7) Other (157.1) (114.7) ------------------------------ ----- ------- ------- ------- ------- (547.3) (504.4) ------------------------------ ----- ------- ------- ------- ------- Provisions for liabilities and (1.5) (4.8) charges ----- ------- ------- ------- ------- ------------------------------ Net assets 1,149.9 971.3 ------------------------------ ----- ------- ------- ------- ------- Capital and reserves Called up share capital 31.0 30.7 Share premium account 183.6 111.5 Capital reserve 2.1 2.0 Merger reserve 396.4 396.4 Profit and loss account 536.0 430.2 ------------------------------ ----- ------- ------- ------- ------- Equity shareholders' funds 1,149.1 970.8 Equity minority interests 0.8 0.5 ------------------------------ ----- ------- ------- ------- ------- 1,149.9 971.3 ------------------------------ ----- ------- ------- ------- ------- + There has been a change in the presentation of the comparative figures to include a merger reserve, as detailed in note 1. Reconciliation Of Movements In Equity Shareholders' Funds for the year ended 31 March 2004 2004 2003 Note Â£m Â£m ----------------------------------- ------ --------- --------- Profit for the financial year 338.7 234.5 Ordinary dividends 7 (89.9) (75.2) ----------------------------------- ------ --------- --------- Retained earnings 248.8 159.3 Other recognised gains and losses relating to the (150.8) (82.2) year Issue of ordinary share capital 72.5 400.8 Purchase and cancellation of own shares (16.8) (38.5) Goodwill written back on impending disposal 11.7 - Amortisation of Share award costs for Shares to be 12.9 - issued Adjustment to goodwill written off on acquisitions - (0.1) ----------------------------------- ------ --------- --------- Net increase in shareholders' funds 178.3 439.3 Opening shareholders' funds 970.8 531.5 ----------------------------------- ------ --------- --------- Closing shareholders' funds 1,149.1 970.8 ----------------------------------- ------ --------- --------- Group Cash Flow Statement for the year ended 31 March 2004 2004 2003 Note Â£m Â£m ----------------------------------- ------ --------- --------- Net cash inflow from operating activities 12 563.4 318.6 Dividends from joint ventures 2.3 3.2 Dividends from associates 5.6 5.0 Returns on investments and servicing of finance 14.0 17.0 Taxation paid (62.3) (50.6) Capital expenditure and financial investment (54.9) (44.2) Acquisitions and disposals (6.4) (291.3) Equity dividends paid (75.4) (67.1) ----------------------------------- ------ --------- --------- Net cash inflow / (outflow) 386.3 (109.4) Management of liquid resources (195.0) (65.4) Financing 30.5 369.3 ----------------------------------- ------ --------- --------- Increase in cash 221.8 194.5 ----------------------------------- ------ --------- --------- Reconciliation Of Net Cash Flow To Closing Net Cash for the year ended 31 March 2004 2004 2003 Â£m Â£m ---------------------------------- --------- --------- Increase in cash 221.8 194.5 Cash inflow from movement in debt (47.3) (225.0) Cash outflow from movement in liquid resources 195.0 65.4 ---------------------------------- --------- --------- Change in net cash resulting from cash flows 369.5 34.9 Debt acquired with businesses and subsidiaries - (13.1) Currency translation difference (26.8) 3.6 ---------------------------------- --------- --------- Movement in net cash / debt 342.7 25.4 Opening net debt (15.3) (40.7) ---------------------------------- --------- --------- Closing net cash / (debt) 327.4 (15.3) ---------------------------------- --------- --------- Group Statement Of Total Recognised Gains And Losses for the year ended 31 March 2004 2004 2003 Â£m Â£m ----------------------------------- --------- --------- Profit for the financial year 338.7 234.5 Currency translation differences taken directly to reserves (150.8) (82.2) ----------------------------------- --------- --------- Total recognised gains relating to the year 187.9 152.3 ----------------------------------- --------- --------- Notes to the Accounts 1. Basis of preparation The financial information contained herein has been prepared on the basis of the accounting policies set out in the Annual Report for the year to 31 March 2004. The Company has been advised that the acquisition of RMF Investment Group in May 2002, qualified for merger relief under Section 131 Companies Act 1985 and therefore an amount of Â£396.4 million, originally credited to the share premium account, has been transferred to a merger reserve in both the Group and Company balance sheets in the comparative period. The financial information contained herein is abridged and does not constitute statutory accounts as defined by Section 240 of the Companies Act 1985. Statutory accounts for the year to 31 March 2004, upon which the auditors have indicated their intention to give an unqualified report, will shortly be delivered to the Registrar of Companies and will be posted to shareholders on 2 June 2004. The accounts for the year ended 31 March 2003 were unqualified and have been delivered to the Registrar of Companies. 2. Net operating income 2004 2003 Â£m Â£m --------------------------------------- -------- --------- Continuing operations Fees and commissions receivable 1290.2 958.4 Fees and commissions payable (503.8) (363.0) Net trading interest income 58.3 39.0 Other operating income 29.1 6.3 --------------------------------------- -------- --------- Net operating income 873.8 640.7 --------------------------------------- -------- --------- 3. Segmental analysis (a) Segmental analysis of net operating income ------------------------------------- -------- --------- 2004 2003 Â£m Â£m ------------------------------------- -------- --------- Business segment Asset Management 603.9 433.2 Brokerage 269.9 207.5 ------------------------------------- -------- --------- 873.8 640.7 ------------------------------------- -------- --------- Geographic area Europe 675.7 504.2 The Americas 156.1 118.2 Rest of the World 42.0 18.3 ------------------------------------- -------- --------- 873.8 640.7 ------------------------------------- -------- --------- (b) Segmental analysis of profit on ordinary activities before taxation --------------------------------------- -------- --------- 2004 --- 2003 Â£m Â£m -------- --- --------- --------- Business segment Asset Management - net management fee 271.1 181.1 income Asset Management - net performance fee 139.1 115.0 income Asset Management - goodwill amortisation (39.4) (31.4) --------------------------------------- -------- --- --------- Asset Management total 370.8 264.7 Brokerage - before goodwill amortisation and exceptional 70.8 48.3 items Brokerage - goodwill amortisation (6.0) (4.8) Brokerage - exceptional items (5.3) (15.0) --------------------------------------- -------- --- --------- Brokerage total 59.5 28.5 Sugar Australia 3.5 3.7 Sugar Australia-exceptional items (11.9) - --------------------------------------- -------- --- --------- Sugar Australia total (8.4) 3.7 Other exceptional items-profit on sale of 12.7 - own shares -------- --- --------- --------------------------------------- 434.6 296.9 --------------------------------------- -------- --- --------- Geographic area Europe 387.0 284.1 The Americas 40.6 (0.5) Rest of the World 7.0 13.3 --------------------------- -------------- -------- --- --------- 434.6 296.9 --------------------------- -------------- -------- --- --------- Although the majority of the Group's profits and net operating income (see note 3(a) above) are in Europe, the majority of these are denominated in US dollars. 4. Goodwill amortisation Included in operating expenses is goodwill amortisation of Â£43.0 million (2003: Â£34.8 million). Total goodwill amortisation in the year, including the amount relating to joint ventures and associates, on a pre-tax basis is Â£45.4 million (2003: Â£36.2 million) and on a post-tax basis is Â£43.5 million (2003: Â£36.2 million). 5. Exceptional items Exceptional operating expense In 2004, following the acquisition of GNI Holdings Limited in November 2002, further costs amounting to Â£5.3 million (Â£3.7 million net of tax) were incurred relating to the integration of the acquired business into the Group's existing business. These costs relate principally to redundancy and staff retention costs of Â£3.7 million, and other termination and relocation costs of Â£1.6 million. In 2003, following the acquisition of GNI Holdings Limited, costs amounting to Â£15.0 million (Â£11.5 million net of tax) were incurred, or provided for, relating to the integration of the acquired business into the Group's existing business. These costs relate principally to redundancy and staff retention costs of Â£11.5 million and other termination and relocation costs of Â£3.5 million. Non-operating exceptional items At 31 March 2004, the Group made a provision for the loss on sale of their Sugar Australia business. Agreement for the sale has been made with CSR Ltd and is expected to be completed shortly, although as at the date of approval of these Accounts , the sale was not fully unconditional. The provision for loss on sale amounts to Â£11.9 million (Â£11.9 million net of tax). Â£11.7 million of this provision relates to attributable goodwill not previously charged to the profit and loss account, and Â£0.2 million of this provision relates to impairment of fixed assets. For the year to 31 March 2004, the employee share ownership trusts sold in the market 'own shares' that they were holding. These sales generated a profit on sale of Â£12.7 million (Â£12.7 million net of tax). Non-operating exceptional items in 2003 were nil. 6. Net interest income 2004 2003 Â£m Â£m ------------------------------------- ----------- ---------- Interest payable On bank loans and overdrafts (5.1) (13.0) On other loans (18.3) (9.1) Interest receivable 36.5 32.7 ------------------------------------- ----------- ---------- 13.1 10.6 Share of net interest income from joint ventures 0.1 0.6 ------------------------------------- ----------- ---------- Net interest income 13.2 11.2 ------------------------------------- ----------- ---------- 7. Dividends 2004 2003 Â£m Â£m ------------------------------------- ----------- --------- Ordinary shares Interim paid - 11.4 pence (2003: 9.1 pence) 33.5 27.4 Final proposed -18.6 pence (2003: 14.1 pence) 56.4 41.9 Under accrual of 2002 Final - 5.9 ------------------------------------- ----------- --------- 89.9 75.2 ------------------------------------- ----------- --------- The Group offers a Dividend Reinvestment Plan ('DRIP') for shareholders wishing to buy shares with their cash dividend. The DRIP will be available to ordinary shareholders in respect of the final dividend. The 2002 final dividend was under accrued principally, as a result of the issue of 43,621,216 shares at the end of May 2002, in connection with the RMF acquisition. 8. Earnings per share The calculation of basic earnings per ordinary share is based on a profit for the year of Â£338.7 million (2003: Â£234.5 million) and 297,174,602 (2003: 292,984,011) ordinary shares, being the weighted average number of ordinary shares in issue during the year after excluding the shares owned by the Man Group plc employee trusts. The diluted earnings per share is based on a profit for the year of Â£349.2 million (2003: Â£238.5 million) and on 338,776,081 (2003: 314,327,270) ordinary shares, calculated as shown in the table below: 2004 2003 ----------------------------- ------------- --- ------------- -------- ------- Total number Weighted average Total number Weighted average (millions) (millions) (millions) (millions) ----------------------------- -------- -------- --- -------- ------- Number of shares at 1 April 2003 (and 1 April 2002) 306.7 306.7 267.2 267.2 Issue of shares - on acquisition of BlueCrest 4.9 1.2 - - Issue of shares - on acquisition of RMF - - 43.6 36.4 Repurchase and cancellation of own shares (1.3) (1.0) (4.1) (1.3) ----------------------------- -------- -------- --- -------- ------- Number of shares at 31 March 2004 (and 31 March 2003) 310.3 306.9 306.7 302.3 Shares owned by employee trusts (7.3) (9.7) (9.4) (9.3) ----------------------------- -------- -------- --- -------- ------- Basic number of shares 303.0 297.2 297.3 293.0 Share awards under incentive schemes 9.7 9.9 9.4 9.3 Employee share options 1.7 0.5 1.3 0.1 Exchangeable bonds 31.2 31.2 31.2 11.9 ----------------------------- -------- -------- --- -------- ------- Dilutive number of shares 345.6 338.8 339.2 314.3 ----------------------------- -------- -------- --- -------- ------- The reconciliation of adjusted earnings per share is given in the table below. In addition to the statutory earnings per share on total operations measure, we show two other earnings per share figures. Earnings per share before goodwill and exceptional items is given as some key users of our Accounts have requested that profit and earnings per share figures are presented before goodwill and exceptional items. Underlying earnings per share is given as growth in this measure is one of the Group's core financial objectives. 2004 2003 ----------------------------------------------------- ----------------------------------------- Basic Diluted Basic Diluted earnings earnings Basic Diluted Basic Diluted post-tax post-tax per per post-tax post-tax earnings earnings earnings earnings share share earnings earnings per share per share Â£m Â£m pence pence Â£m Â£m pence pence ------------ ------- ------- -------- ------- ------- ------- ------- ------ Earnings per share on total 338.7 349.2 114.0 103.1 234.5 238.5 80.0 75.8 operations + Exceptional items 2.9 2.9 0.9 0.9 11.5 11.5 3.9 3.6 Goodwill amortisation 43.5 43.5 14.7 12.8 36.2 36.2 12.4 11.6 ------------ ------- ------- ------- ------- - ------- ------- ------ --- Earnings per share before goodwill and exceptional items 385.1 395.6 129.6 116.8 282.2 286.2 96.3 91.0 Performance related (111.3) (111.3) (37.5) (32.9) (92.0) (92.0) (31.4) (29.3) income Sugar Australia (2.8) (2.8) (0.9) (0.8) (3.3) (3.3) (1.1) (1.0) ------------ ------- ------- -------- ------- --- ------- ------- ------ Underlying earnings per share 271.0 281.5 91.2 83.1 186.9 190.9 63.8 60.7 ------------ ------- ------- -------- ------- --- ------- ------- ------ + The difference between basic and diluted post-tax earnings on total operations relates to adding back the interest expense in the year relating to the exchangeable bonds. 9. Debtors 2004 2003 Â£m Â£m --------------------------------------- --------- -------- Amounts falling due within one year Trade debtors: Amounts owed by broker dealers on secured stock lending and borrowing 885.4 488.0 Securities transactions in the course of settlement 80.9 245.2 Futures transactions 275.2 315.7 Other trade 169.5 136.7 Amounts owed by joint ventures and associates 2.0 1.5 Amounts owed by funds (note (a)) 192.4 310.6 Other debtors (note (b)) 46.3 29.1 Taxation recoverable - 1.0 Prepayments and accrued income (note (c)) 89.7 67.1 --------------------------------------- --------- -------- 1,741.4 1,594.9 Amounts falling due after more than one year Other debtors 30.8 67.8 Prepayments and accrued income (note (c)) 113.2 76.9 Deferred taxation asset 5.3 3.7 --------------------------------------- --------- -------- 1,890.7 1,743.3 --------------------------------------- --------- -------- Notes: (a) The Group makes available loans to many of its composite fund products, immediately following their launch, with the intention of providing temporary funding until more permanent financing structures are put in place with external providers. Accordingly, the amount of loans to funds will vary from one period to the next as a consequence of the net effect of the level of sales in the period less the quantum of the external re-financing initiative in the period. This external re-financing is typically in the form of total return swaps. On these swaps the Group often enters in to a committed purchase agreement and in some instances gives a first risk of loss guarantee to the external provider. The probability of the Group incurring a loss as a result of giving these guarantees is remote. (b) Other debtors falling due within one year includes Â£12.8 million in relation to loan notes in the management buyout group who purchased the Group's Agricultural Products businesses in March 2000. In the prior year this receivable was Â£33.3 million and was classified in other debtors falling due after more than one year. (c) Included within prepayments falling due within one year and after more than one year are unamortised sales commissions of Â£39.0 million and Â£109.0 million respectively (2003: Â£28.2 million and Â£66.6 million respectively). (d) Certain Group companies in Brokerage are involved as principal in the purchase and simultaneous commitment to sell securities between third parties. The gross amount of the settlement payables and receivables in respect of such outstanding transactions at 31 March 2004 was Â£738.6 million (2003: Â£793.2 million). Substantially all of these transactions have now settled. 10. Segregated funds 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 Â£3,852.7 million (2003: Â£3,148.9 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. 11. Creditors 2004 2003 Â£m Â£m --------------------------------------- --------- -------- Amounts falling due within one year Bank loans and overdrafts 78.0 170.1 Private placement notes (note (a)) - 9.5 Trade creditors: Amounts owed to broker dealers on secured stock lending and borrowing 1,276.7 578.4 Securities transactions in the course of settlement 102.6 169.9 Futures transactions 659.3 525.1 Short stock positions held for hedging 511.7 414.1 Other trade 100.6 70.5 Amounts owed to joint ventures and associates 1.0 0.8 Taxation (note (b)) 88.2 66.4 Other taxation and social security costs 14.8 12.0 Other creditors (note (c)) 68.9 78.5 Accruals and deferred income 148.1 140.5 Proposed final dividend 56.4 41.9 --------------------------------------- --------- -------- 3,106.3 2,277.7 --------------------------------------- --------- -------- Amounts falling due after more than one year Loans Bank loans 43.5 88.6 Private placement notes (note (a)) 87.1 - Exchangeable bonds (note (d)) 390.2 389.7 --------------------------------------- --------- -------- Borrowings over one year 520.8 478.3 Other creditors 26.5 26.1 --------------------------------------- --------- -------- 547.3 504.4 --------------------------------------- --------- -------- Analysis of borrowings due after more than one year Amounts falling due Between one and two years - 88.6 Between two and five years 43.5 - More than five years 477.3 389.7 --------------------------------------- --------- -------- 520.8 478.3 --------------------------------------- --------- -------- Notes: (a) The private placement notes comprise: US$160 million 5.47% subordinated notes, due March 2014. The interest rate is fixed to 16 March 2009 and thereafter is LIBOR plus 2.62%. In 2003, the private placement notes comprise: US$15 million 7.44% notes, which matured on 14 December 2003. (b) Taxation payable within one year includes overseas taxation of Â£50.6 million (2003: Â£34.9 million). (c) Other creditors includes balances with counterparties whereby commodities are bought under financing arrangements on deferred terms. None of these amounts are secured. (d) Forester Limited, a quasi subsidiary, has issued guaranteed exchangeable bonds of Â£400 million at par value, guaranteed by Man Group plc and which mature in November 2009. The bonds have the following features: (1) a coupon of 3.75%, paid semi-annually; (2) holders have the option to exchange for Man Group plc ordinary shares at an initial exchange price of Â£12.82 (the exchange price is subject to adjustment in accordance with the terms of the bonds); (3) Forester Limited can redeem the bonds early (at their principal amount together with accrued interest) at any time on or after 15 days after the fifth anniversary of the issue of the bonds if on not less than 20 days out of a period of 30 consecutive days the Man Group plc share price exceeds 130% of the then current exchange price or at any time if less than 15% of the total issue remains outstanding; (4) Forester Limited has the option to redeem (either on maturity or early redemption) the bonds for a fixed number of shares plus a cash top up amount and any accrued interest; and (5) upon exercise of an exchange right by the holder, Forester Limited has the option to settle in cash rather than shares. The cash settlement amount is equal to the market value of the shares that would have been delivered. The amount of the liability shown in the above table for the exchangeable bonds is their par value of Â£400 million less unamortised issue costs of Â£9.8 million (2003: Â£10.3 million). 12. Net cash inflow from operating activities 2004 2003 Â£m Â£m ---------------------------------- ------------ ---------- Operating profit 401.0 276.1 Depreciation of tangible fixed assets 15.9 12.7 Amortisation of goodwill 43.0 34.8 Amortisation of fixed asset investments 9.2 14.2 Loss on sale of tangible fixed assets 1.4 - Profit on sale of fixed asset investments (0.4) (0.1) Amortisation of share award costs for shares to be issued 12.9 - (Increase)/decrease in debtors (409.8) 1,212.8 (Increase)/decrease in current asset investments (760.3) 772.3 Increase/(decrease) in creditors 1,259.4 (1,995.5) Costs in relation to exceptional items (8.9) ( 8.7) ---------------------------------- ------------ --- --------- 563.4 318.6 ---------------------------------- ------------ --- --------- 13. Exchange rates The following rates of exchange have been used in preparing these accounts. The US dollar exchange rate has a significant effect, with the other currencies shown having a more minor effect. Year-end rates Average rates ---------------- ------------- 2004 2003 2004 2003 ------------------------- ---------- -------- -------- -------- US dollar 1.84 1.58 1.69 1.55 Australian dollar 2.41 2.62 2.44 2.75 Euro 1.50 1.45 1.44 1.56 Swiss franc 2.33 2.14 2.23 2.29 ------------------------- ---------- -------- --- -------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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