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