annual report
for the year ended 31 deceMber 2013
Man Group plc
Welcome
Man Group
Annual Report
2013
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Man Group plc
Annual Report 2013
Man is one of the world’s leading
investment management companies,
offering a wide range of investment
products accessible through a variety
of formats to meet client needs and
regulatory requirements globally.
• Performance-driven investment culture
• $54.11billion funds under management (FUM) across a full
range of investment styles
• Based in London with offices in every major region and
approximately 1,1151 employees
• A powerful distribution network that serves a highly
diversified client base
• Constituent of the FTSE 250 Index (UK:EMG)
Note:
1 As at 31 December 2013
Contents
Highlights
Chairman’s statement
Strategic report
Strategic framework
Business model
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Pro
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Perfor m a n c
Fund Investors
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Marke t s
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s tr u cture and Ca
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Corporate governance
Board of directors
Corporate governance report
Audit and Risk Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
01
Man Group plc
Annual Report 2013
2
3
4
6
CEO’s Performance review
Progress against key priorities
8
Performance
Deliver strong risk adjusted long-term investment
performance
Growth
Focus on generating high-alpha investment opportunities
Distribution
Ensure distribution effectiveness
Efficiency
Cost reduction and maintaining balance sheet
efficiency
– Outlook
CFO’s Financial review
– Key performance indicators
Risk management
People and corporate responsibility
26
28
34
38
40
60
Financial statements
Financial statements
Directors’ responsibility statement
Independent auditors’ report
Group income statement
Group statement of comprehensive income
Group balance sheet
Group cash flow statement
Group statement of changes in equity
Notes to the Group financial statements
Five year record
Parent Company financial information
Notes to the Parent Company financial statements
Other information
Shareholder information
Man’s literary sponsorships
Charitable trust
13
14
15
20
24
62
63
64
67
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68
69
70
71
100
101
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105
107
108
02
Man Group plc
Annual Report 2013
Highlights
• Funds under management (FUM) down 5% to $54.1 billion at 31 December 2013.
• Adjusted profit before tax up 8% on 2012 with an increase in performance fee profits and cost savings being partially offset by
a decrease in management fees.
• Adjusted EBITDA of $434 million, with a margin of 40%. Cash inflows from operating activities for the year of $448 million.
• Statutory pre-tax profit of $56 million (2012: $748 million loss).
• Mixed investment performance in the year to 31 December 2013: AHL Diversified Programme -3.1%; GLG alternatives
weighted average composite +5.6%; FRM Diversified II strategy +6.0%; Japan CoreAlpha strategy +64.6%.
• Continued progress made in reshaping the business.
• On track to deliver total cost savings of $270 million by the end of 2015.
• Regulatory capital surplus of $760 million at 31 December 2013.
• Dividend for the year of 7.9 cents per share in line with our stated dividend policy. Proposed final dividend of 5.3 cents
per share. Payable at a rate of 3.19 pence per share. Intention to repurchase $115 million of shares.
Funds under management (FUM)
Sales
Net flows
$54.1bn
$16.1bn
$(3.6)bn
Down 5% from $57.0bn at 31 December 2012 and up
1% excluding guaranteed products. The decrease
comprises: net outflows of $3.6bn, de-gearing and other
movements of $2.1bn, negative FX of $1.5bn, partly
offset by positive investment performance of $4.3bn.
Split $10.2bn alternatives and $5.9bn long only. The
$3.3bn or 26% increase compared to the year ended
31 December 2012 was split $1.2bn in alternatives and
$2.1bn in long only. 71% of the total gross sales were
from GLG, 15% from AHL/MSS and 14% from FRM.
Compared to net outflows of $7.3bn in the year ended
31 December 2012. Excluding guaranteed products
net outflows were $2.4bn with a $2.9bn net outflow
from alternatives partially offset by a $0.5bn inflow into
long only.
Revenue
Adjusted profit before tax
Statutory profit before tax
$1,160m
$297m
$56m
Gross revenue comprised $967m of management fees
and $193m of performance fees. Revenue was impacted
by: the decrease in FUM, a decline in the aggregate gross
management fee margin from 209bps in the prior period
to 179bps in 2013 (as a result of the continuing product
mix shift) partially offset by an increase in performance
fees, the majority of which were from GLG. Revenue was
$1,299m for the prior period.
Adjusted diluted management fee earnings
per share
Comprises adjusted net management fee income
of $175m and net performance fee income of $122m.
Adjusted profit before tax for year ended 31 December
2012 was $275m comprising adjusted net management
fee income of $220m and net performance fee income
of $55m.
Reflects adjusting items including the impairment
of FRM goodwill ($69m), redundancy costs ($36m),
onerous lease provisions and accelerated depreciation
($71m) and amortisation of acquired intangibles ($66m).
A full reconciliation between the statutory profit and
adjusted profit for the year is given in Note 2 of the
financial statements. The loss before tax for the year
ended 31 December 2012 was $748m.
Adjusted diluted earnings per share
Statutory diluted earnings per share
7.9 cents
14.1 cents
2.9 cents
Adjusted management fee earnings per share for the
year ended 31 December 2012 were 9.2 cents. The
decrease reflects the decline in our management fee
revenue streams due to the reduction in FUM and
aggregate gross management fee margin partially offset
by cost savings and tax credits. A reconciliation to the
statutory earnings per share is given in Note 10 to the
financial statements.
Up 20% compared to the year ended 31 December
2012. The increase reflects higher net performance fees
and tax credits partially offset by lower net management
fee earnings. A reconciliation to the statutory earnings
per share is given in Note 10 to the financial statements.
Reflects goodwill impairment, amortisation of acquired
intangibles and restructuring charges incurred in the
year. Diluted loss per share for the year ended
31 December 2012 was 45.8 cents.
Chairman’s statement
03
Man Group plc
Annual Report 2013
Jon Aisbitt
Chairman
Chairman’s review
2013 proved to be another tough year for our business. While the first
quarter saw a return to a more stable environment, the rest of the year
was impacted by uncertainty regarding the cessation of the US Federal
Reserve’s asset purchase programme which led to the de-risking and sell
off of bond and equity portfolios. As a result, the performance of Man’s
funds in these later quarters was mixed; certain GLG discretionary
strategies performed well while AHL and FRM returns were negative or flat.
The negative AHL performance resulted in a further reduction in our high
margin guaranteed product and the renewed volatility and uncertainty
subdued investor appetite overall and resulted in a net outflow for the year.
The headline results on the opposite page show the negative impacts
of this degear and net outflow on FUM and management fee revenues.
Cost savings and higher performance fees from GLG resulted in
increased adjusted profits for the year. The Board focuses on adjusted
profit as this reflects the recurring revenue and costs that drive our future
cashflows. Statutory profit was $56 million compared to a statutory loss
of $748 million in 2012. Against this trading background, the Board has
continued to focus on the core business priorities of driving strong
investment performance, creating opportunities for growth, ensuring
effective distribution and delivering cost and balance sheet efficiency.
Investment performance
The performance of the individual investment managers is key to Man’s
success and is closely monitored in both absolute and relative terms. The
Board receives regular data on the performance of the main competitor
funds and examines our fund’s relative performance in some detail. It
explores with AHL the impacts of the enhancements they have made to
Man’s core momentum product and the comparison with the models
used by other trend followers. It seeks explanations of the performance
of individual GLG discretionary strategies and teams. The progress of the
fund of funds business since the FRM acquisition is regularly reviewed.
Growth opportunities
The Board keeps abreast of expert intelligence on projected hedge fund
industry growth and explores future asset raising potential. It has discussed
with AHL the marketing of the Evolution strategy, diversification into broader
based quant products and the launch of new investment vehicles. It has
been kept updated on progress on the new GLG Multi-Asset Total Return
and Fixed Income strategies and has recognised the opportunities for FRM
offered by its managed account platform. In addition, we continue to review
possible bolt-on and asset consolidation acquisitions which could diversify
the Group’s investment management offering.
Effective distribution
The Board has overseen the rationalisation of the retail structured product
distribution structure and the reorientation of the sales team to match the
increasing business focus on institutional flows. It continues to monitor
the impact of the new sales compensation structure introduced last year
to incentivise both the raising and retention of assets and create closer
alignment with shareholder interests. It is intent on achieving progress on
fund raising in the key US market and is kept updated on significant hires
to support this.
Balance sheet efficiency and cost reduction
In April 2013 Man announced the change in its regulatory status
from being a Full Scope to a Limited Licence group and the associated
increase in surplus regulatory capital. The Board elected to use some
of this capital to repay all of the Group’s debt and hybrid instruments.
It reviews at every meeting progress on management’s implementation
of the ongoing cost reduction programme which is on track to deliver the
total $270 million announced savings by the end of 2015.
Dividend
In line with our previously stated policy, the Board has announced a
recommended final dividend of 5.3 cents per share, subject to approval
by shareholders at the 2014 AGM. In addition, it is our intention to launch
a $115 million share repurchase programme to return surplus capital to
shareholders, which will be conducted over the remainder of the year.
Board changes
2013 saw substantial change to our Board. At the end of February, as
previously reported, Emmanuel (Manny) Roman was appointed as Chief
Executive Officer in succession to Peter Clarke, and Alison Carnwath, a long
serving non-executive director, retired at our 2013 AGM. Later in the year our
Senior Independent Director, Patrick O’Sullivan, stood down from the Board
and was succeeded in that role by Phillip Colebatch, Chairman of the
Remuneration Committee. We have been joined by two new non-executive
directors, Andrew Horton, Chief Executive Officer of Beazley, and Dev
Sanyal, Executive Vice-President and Group Chief of Staff of BP, who bring
valuable strategy development, risk management and operational expertise
from their executive roles. Fred Jolly, who has served as a non-executive
director for five years, will be retiring at our 2014 AGM. We wish Fred and
those directors who have left the Board the very best for the future and
extend a warm welcome to Andrew and Dev.
Outlook
The Board is confident in the executive team it has put in place and is
pleased with the progress made in improving Man’s capital and cost
efficiency. In 2014 we shall continue to work together to drive investment
performance, diversify Man’s product offering and grow the business in
pursuit of improved long-term returns for our shareholders.
04
Man Group plc
Annual Report 2013
Strategic framework
Objective
Our objective is to be a leading provider of liquid, high-alpha investment strategies across a
diversified range of asset classes and geographies.
Business model
Man’s business model begins and ends with investment performance, and the ability of our investment managers
to deliver strong long-term performance for our investors across a broad spectrum of investment strategies.
Our expertise in investment management, combined with local client and regulatory knowledge, longstanding
relationships and operational scale enables us to build investor solutions for private investors and institutions,
worldwide. Our marketing, sales and client support deliver highly professional client service to investors and
local partners.
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Revenue generation
Investment performance and fund
flows drive the economics of our
business. Management fees are
charged for providing investment
management services at a percentage
of each fund entity’s gross investment
exposure or NAV. Performance fees
are charged as a percentage of
investment performance above a
benchmark return or previous higher
valuation ‘high water mark’.
Costs
Man is fundamentally a people
business and the majority of our
costs comprise payments to
individuals whether they are third-
party intermediaries or internal sales
staff who distribute our products,
our investment managers who
manage investor assets or the teams
that manage our operations and
infrastructure. To achieve superior
performance for our clients and
shareholders we need to have the
right people in the right roles, fully
motivated and competitively paid.
See pages 6 to 7 for more detail
05
Man Group plc
Annual Report 2013
Market context
Markets remain sensitive to the influence of political as much as economic decisions and
we continue to see spikes in volatility. This creates a difficult environment for trend following
strategies and the risk on/risk off environment means that investor sentiment remains fragile.
In light of this challenging backdrop we are focusing on the things we can control as set out in
our strategic priorities.
Strategic
priorities
Performance
Growth
Distribution
Efficiency
Deliver strong risk
adjusted long
term investment
performance
Focus on
generating
high-alpha
investment
opportunities
Achieve industry-
leading risk-adjusted
performance across
a wide range of liquid
investment strategies.
Develop high-alpha
investment products
and restructure
existing products to
appeal to a broader
client base.
Ensure
distribution
effectiveness
Cost reduction
Maintain balance
sheet efficiency
Reorienting the
distribution effort
to reflect the
increasing demand
from institutional
channels and away,
in particular, from
guaranteed products.
Our key focus
is implementing
our cost saving
programmes and
running the business
as efficiently as
possible.
As the mix of
our business
changes away from
guaranteed products
we will continue to
focus on maximising
the efficiency of our
balance sheet.
Our four financial KPIs as listed below illustrate and measure the relationship between the investment experience
of our fund investors, our financial performance and the creation of shareholder value over time.
These KPIs are used on a regular basis to evaluate progress against our strategic priorities: investment
performance; creating options for growth; distribution effectiveness; and efficiency.
Investment performance
•
• Net flows
• Adjusted management fee EBITDA margin
• Adjusted management fee EPS growth
The executive directors’ long-term remuneration is linked to performance against KPIs, as detailed on page 50.
Man identifies its principal risks across the firm and
assesses their likely impact. We measure and monitor the
size of our risks, and implement controls and transactions
to reduce and hedge exposures in order to ensure that
they stay within our firm-wide risk appetite framework.
Man’s principal risks are:
Investment underperformance risks
•
• Legal risks
• Regulatory risks
• Operational risks
• Credit/counterparty risks
• Discretionary trading risk
• Key staff retention
• Reputational risks
See pages 9 to 13
for more detail
Key performance
indicators
See page 15
for more detail
Risks
See page 20
for more detail
The strategic report is set out on pages 4 to 25
By order of the board
Emmanuel Roman
Chief Executive Officer
Strategic reportCorporate governanceFinancial statementsOther information 06
Man Group plc
Annual Report 2013
Business model
Performance
Man’s investment managers have
expertise in a diverse range of strategies,
which offer investment returns matched
to investor appetite for risk and reward.
FUM by manager
1
3
2
1. AHL/MSS
2. GLG
3. FRM
$11.9bn
$30.2bn
$12.0bn
22%
56%
22%
Fund Investors
Man’s investor base is broadly split one
third/two thirds between private investors
and institutional investors. Man’s private
investor base is focused on the mass
affluent market and high net worth
individuals and our institutional clients are
predominantly pension funds, insurance
companies, banks, asset managers,
sovereign wealth funds and endowments.
AHL
AHL/MSS is Man’s systematic investment
specialist that focuses on delivering a range of
absolute return, long only and momentum-
based quantitative funds. As a pioneer in the
systematic trading of global markets, and with a
25-year track record, AHL/MSS has established
itself at the forefront of its field. Backed by
extensive research capabilities and a singular
collaborative culture, AHL/MSS apply innovative
quantitative methods, informed by market
understanding, to locate potential opportunities
in more than 300 markets worldwide.
FRM
FRM is the largest, independent alternatives
specialist based in Europe and employs an
extensive research and investment team located
in London, New York, Tokyo, Guernsey and
Pfaffikon (Switzerland). It specialises in open
architecture hedge fund and alpha strategy
solutions for institutional investors, including
fund of hedge funds, client advisory solutions,
outsourced research and consulting. Their
extensive managed accounts platform offers
institutional investors control, transparency and
sophisticated risk management.
GLG
GLG is a leading discretionary, multi-strategy
global investment management business that
offers a range of absolute return and long only
strategies across asset classes, sectors and
geographies. Founded in 1995, GLG has built
up a team of investment professionals covering
equity, macro, emerging markets, credit,
fixed income, convertible bond and
thematic strategies.
These investors invest in independent fund
entities for which Man acts as the investment
manager. The independent fund entities pay
Man management fees and performance fees.
Performance fees are charged as a percentage
of the investment performance earned above a
benchmark return or a previous higher valuation
‘high water mark’.
Management fees are charged for providing
investment management services at a
percentage of each entity’s gross investment
exposure. Gross investment exposure in this
report is referred as FUM.
The fund entities are independently governed.
Their investment performance, assets and
liabilities are separate from Man and are not
consolidated into Man’s financial statements.
EMEA
London, Pfaffikon, Rotterdam, Dubai
Distribution
Our extensive global distribution network,
long established local relationships and
high quality technology-enabled investor
reporting gives us competitive advantage.
We distribute our products and solutions to
private investors via a unique global network
of intermediaries, and directly to institutions.
Intermediaries are rewarded through sales
commission. Client service is an essential part
of our growth strategy and we focus equally
on expanding our investor base and serving
existing investors.
FUM
73%
The Americas
New York, Toronto,
Montevideo
FUM
7%
Asia Pacific
Tokyo, Hong Kong,
Beijing, Sydney
FUM
20%
07
Man Group plc
Annual Report 2013
Products
Man is able to offer a wide range of liquid
investment strategies and formats across
geographies to meet the needs of the
investor. These include quantitative and
discretionary, long only and long short,
single and multi-manager.
Investor priorities and regulatory regimes vary
significantly between jurisdictions, meaning that
investor solutions need to be carefully tailored to
the needs of local markets. Having the scale
and expertise to be able to package investment
returns appropriately to meet investor and
regulatory requirements is a key source of
competitive advantage.
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Infrastructure and capital
Surrounding our investment management
and distribution is strong operational
infrastructure, risk management, people
management and governance which
ensures the sustainability of our business
model and enables us to take advantage of
new business opportunities.
FUM by format
3
1
2
1. Alternative
2. Long only
3. Guaranteed
$36.5bn
$15.3bn
$2.3bn
67%
29%
4%
FUM by investor type
1
2
1. Private
2. Institutional
34%
66%
Risk management and governance Man’s
comprehensive risk management framework
forms an essential part of our business model
and enables us to protect the interests of both
investors and shareholders.
People Man employs 1,115 people. In addition
to the 332 investment professionals and 200
people in sales and marketing we have 370
people in operations and technology and 213
people in management and support.
Capital Our surplus capital of $760 million
and liquidity resources of $2.5 billion give us
flexibility to support and grow our business
across market cycles.
Strategic reportCorporate governanceFinancial statementsOther information
08
Man Group plc
Annual Report 2013
CEO’s performance review
Emmanuel Roman
Chief Executive Officer
In 2013 we largely completed the
restructuring of our cost base and
balance sheet and made progress
in developing and building in new
business areas, although results
will only be seen in the long term.
Notwithstanding this progress, conditions for the business in 2013 remained
challenging. Performance, whilst reasonable on a relative basis, was mixed
on an absolute basis. Flows were weak in the first half but showed modest
signs of improvement towards the end of the year. The result was a 5%
reduction in funds under management during the year.
Market overview
The first four months of 2013 saw reduced correlation between asset
classes and the reassertion of trends, off the back of the risk rally triggered
by the US ‘fiscal cliff’ being averted, some positive key data points in the
US and China and a significant shift of investors from bonds to equities.
By contrast the period from mid-May to the end of June proved to be a very
volatile and difficult one for most markets, as news that the Fed’s assets
purchase programme could be reduced as early as mid-2013 dominated
sentiment. Markets viewed the announcement as a signal that the climate
of historically low rates and Federal support was likely to end earlier than
was previously expected. Investors reacted negatively and the bond market
sold-off as investors de-levered and de-risked fixed income portfolios.
Market volatility continued over the summer and into September, driven by
the perceived likelihood of a premature end to US economic stimulus. As a
result developed market equities pushed higher, whilst developed market
spreads continued to tighten, US treasury yields increased marginally and
emerging equity markets suffered. These themes continued into the fourth
quarter however volatility reduced significantly. As a consequence risk
assets in developed markets performed well overall in 2013, the TOPIX was
up 56%, the S&P 500 was up 29.6% and the FTSE 100 was up 14%. Fixed
income markets had a difficult year with bonds and corporate bonds
ending the year up 0.2% and down 7.1% respectively.
Hedge funds rose an average of 9.3% surpassing returns from 2012 and
2011 (7.4% and -3.1% respectively) and just shy of 2010’s 10.5% gain.
There were a range of returns across strategies with equity exposure
providing the industry’s best return in 2013, mirroring trends in the
broader equity market. Credit strategies faced a difficult 2013 posting
their third lowest annual return since 1998. Performance was dragged
down by directional credit strategies underperforming in the second half
of the year, however within this universe there were a few segments that
provided solid returns. Macro hedge funds ended the year slightly positive
and while managed futures funds had positive returns in the first and
fourth quarters this was not sufficient to overcome heavy losses suffered
in May and June 2013.
2013 results
Against this backdrop performance in 2013 was mixed amongst Man’s
range of strategies. Discretionary GLG strategies performed well, FRM
fund of funds strategies performed in line with relevant benchmarks and
despite some quant strategies doing broadly well, our flagship AHL trend
following strategies had a more difficult year.
FUM decreased to $54.1 billion, mainly as a result of net outflows and
further de-gearing in our guaranteed products linked to AHL performance.
Excluding guaranteed products, FUM increased by $0.5 billion with an
increase in GLG FUM being partially offset by a decrease in FRM and AHL/
MSS FUM. Adjusted profit before tax for the year was up 8% compared to
2012 with higher performance fees and cost savings being partially offset by
a decline in management fees reflecting the continued shift in the business
towards lower margin product.
Update on progress against strategic priorities
During the year we have made progress against the strategic priorities
set out in last year’s annual report aimed at positioning the firm for future
growth, whilst controlling costs and maximising the efficiency of our
balance sheet.
09
Man Group plc
Annual Report 2013
Performance Deliver strong risk adjusted long-term investment performance
• AHL and MSS combined creating one centralised investment function for quantitative strategies
• Mixed absolute performance in quant strategies – AHL Evolution strategy up 16.9%, AHL Diversified strategy down 3.1%
• Reasonable relative performance with AHL beating 2 out of its 3 key peers
• Strong performance across the majority of GLG strategies on a risk adjusted basis
• Top quartile performance from our Japan equities strategy which was up 64.6% in 2013
• Improved relative performance in the diversified FRM portfolios
Investment performance remains the most important factor in our success.
We aim to generate superior risk-adjusted returns for our fund investors
through the quality of our research, the talent of our investment managers
and the strength of our operations and risk infrastructures. During 2013
performance increased FUM by $4.3 billion, a blended return across the
business of 7.9%, with particularly strong performance being generated by
our discretionary strategies.
AHL/MSS
At the beginning of 2013, Man strengthened its quantitative capabilities by
combining AHL with MSS to form one centralised investment function for
quantitative strategies. By uniting AHL’s deep experience in the managed
futures space and MSS’s breadth of quantitative investment knowledge, Man
aims to enhance the quantitative research process with the goal of improving
products and performance. Led by Executive Chairman Tim Wong and CEO
Sandy Rattray, AHL/MSS now manages several systematic portfolios,
including managed futures, quantitative multi-strategy, equity alpha-capture,
tail protection and sector-focused funds. Our aim is to create a broad based
quant business and have already made progress in this regard, with 34% of
AHL/MSS FUM now away from the historical core trend following strategies.
Performance during 2013 was strong for several AHL/MSS strategies.
The AHL Evolution strategy was up 16.9%. Our MSS TailProtect strategy
performed well ahead of its relevant benchmark and most other MSS
strategies outperformed their benchmarks in 2013: the newly-launched
Asia and Continental Europe ETFs performed particularly well. In contrast
performance was once again difficult for flagship managed futures funds
with trends in risk assets (e.g. equities, credit and precious metals) being
offset by reversals in fixed income and currencies, particularly during the
second quarter (as can be seen in the chart opposite). The result was
that performance for the AHL Diversified Programme was down 3.1% to
31 December 2013 and AHL Alpha, the lower-volatility strategy, was down
1.9%. The performance KPI for AHL is the AHL Diversified strategy versus
three key peer asset managers (the target being to beat two of the three
peers) and as such AHL met the target for 2013.
Over the course of the year, our research effort bore fruit. As an example,
our fixed income team refined its models in the second half to deal better
with a future rate environment, which is unlikely to echo the steady yield
declines observed over the past few decades. In addition, research into
new markets continued apace; they remain a key differentiator for
managed futures strategies and over 70 markets were added to the
Evolution strategy portfolio in 2013.
Performance across AHL/MSS funds
30
20
10
0
-10
-20
16.9%
3.0%
-3.1%
AHL Diversified
-1.9%
AHL Alpha
AHL Dimension
AHL Evolution
Credit
Agriculturals
Stocks
Metals
Bonds
Currencies
Energy
Interest Rates
Source: Man database and Bloomberg.
Sector attribution shown net of fees; 2013 net performance shown in figures above/below bars.
AHL Diversified: Represented by Man AHL Diversified (Guernsey) USD Shares – Class A which is
valued weekly; however, for comparative purposes, statistics have been calculated using the best
quality price that is available at each calendar year end, using estimates where a final price is
unavailable. AHL Alpha: Represented by AHL Strategies PCC Limited: Class Y AHL Alpha USD
Shares which is valued weekly; however, for comparative purposes, statistics have been calculated
using the best quality price that is available at each calendar year end, using estimates where a final
price is unavailable. AHL Dimension: Represented by AHL Strategies PCC Limited: Class B AHL
Dimension USD Shares. AHL Evolution: Represented by AHL (Cayman) SPC: Class A1 Evolution
USD Shares. There is no guarantee of trading performance and past or projected performance is
not a reliable indicator of future performance. Returns may increase or decrease as a result of
currency fluctuations. Assumptions have been applied to the calculation of sector contribution
to show contribution net of fees. The sector contribution is only intended to be indicative.
GLG
2013 has been a positive year for GLG with good absolute performance
across a broad range of our Alternative and Long only strategies. This
strong absolute performance resulted in GLG recording $155 million of
gross performance fees in 2013.
Amongst our alternative funds our credit strategies delivered another year
of double digit net returns. Our equity strategies have delivered solid
single digit returns with low volatility and the European Long-Short and
European Alpha strategies in particular have seen significant client
interest throughout the year. Some of the stronger performers included
the Euro Distressed strategy (+12.4%), the European Long-Short strategy
(+7.1%), the Asian equities strategy (+7.2%) and the Market Neutral
strategy (+10.3%).
Strategic reportCorporate governanceFinancial statementsOther information
10
Man Group plc
Annual Report 2013
CEO’s performance review continued
Strategic update
GLG track record 1 April 1997 to 31 December 2013
6,000
5,000
4,000
3,000
2,000
1,000
0
7
9
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GLG Alternative Strategies Dollar-Weighted Composite1
GLG Long Only Dollar-Weighted Composite2
Dow Jones Credit Suisse Hedge Fund
HFRI Fund Weighted Composite Index
World Stocks
Source: Man database, Bloomberg and MSCI. There is no guarantee of trading
performance and past or projected performance is not a reliable indicator of future
performance. Returns may increase or decrease as a result of currency fluctuations.
Please note that the HFRI index performance over the past four months is subject
to change. World stocks: MSCI World Net Total Return Index hedged to USD.
1 Represented by the GLG Alternative Strategies Dollar-Weighted Composite.
GLG alternative strategy dollar-weighted average returns are calculated
as the composite performance of the alternative strategy funds and funds that have
closed, in addition to managed accounts managed in accordance with alternative
strategies, weighted by the sum of the prior month-end AUM.
2 Represented by the GLG Long Only Dollar-Weighted Composite. GLG long only
dollar-weighted average returns are calculated as the composite performance of the
long only strategy funds and funds that have closed, in addition to managed accounts
managed in accordance with long only strategies, weighted by the sum of the prior
month-end AUM.
The majority of equity and credit strategies performed in line with or
exceeded the relevant benchmarks but the atlas macro and emerging
markets strategies performed below benchmarks. The performance KPI
for GLG is the GLG alternative dollar-weighted composite versus the
HFRX, this KPI was not met in 2013, mainly due to the fact that a number
of GLG’s largest and strongest performing strategies are market neutral
by design in contrast to much of the hedge fund industry.
We are pleased with the breadth of performance across our long only
strategies during the year with almost all strategies outperforming their
peers. Our Japan equities strategy continued its long track record of
excellent performance and was up 64.6% in Yen terms, more than 10%
ahead of the TOPIX benchmark. Our Global, European and UK equity
strategies also performed strongly up between 24% and 30% and our
convertible credit strategies also delivered strong returns. We continue
to build track records in other long only strategies and as a result we are
seeing client interest across a broad range of long only strategies.
FRM
FRM had a broadly positive first six months of the year as market conditions
improved from 2012; dispersion between assets rose, and investor inflows
resulted in more fundamentally driven pricing, particularly in equities. Both
Credit Long/Short and Equity Long/Short managers were among the
top performing styles. Q3 was a weaker period for performance. The
adjustment of the world to higher bond yields resulted in a pause in the
return generation of many systematic strategies; managed futures were
hit particularly hard, but Statistical Arbitrage also struggled as a result of
the shift in the correlation structure. With the stabilisation of rates in Q4,
stronger performance returned across the majority of strategies. Over the
year as a whole, the strongest performing strategies were Equity Long-
Short and Credit Long-Short, closely followed by Statistical Arbitrage.
Global Macro, both discretionary and systematic, was the weakest strategy.
Assets under management declined due to a combination of adverse FX
movements, structured product deleveraging and client redemptions. The
performance in the diversified portfolios improved, FRM Diversified II was
up 7.0%, with some client specific portfolios also above 7%. Thematic
portfolio performance was more mixed, with managed futures performing
in line with the industry, however our Statistical Arbitrage portfolio
generated positive returns and was up 6.7%. The KPI for FRM is FRM
Diversified II versus the HFRI conservative fund of fund index, which was
not met in 2013 as this strategy carries less equity market beta than other
fund of fund strategies.
31/12/2008–31/12/2013
Annualised
return over
cash
Annualised
volatility
Sharpe
Beta
FRM Diversified II Fund
SPC – USD Class B1
HFRX Global Hedge
Fund Index
HFRI FOF Conservative
6.00%
2.78%
3.46%
4.34%
Index
3.96%
3.01%
HFRI FOF Diversified
Index
4.73%
3.80%
2.15
0.80
1.31
1.24
0.08
0.19
0.12
0.16
Source: Bloomberg, HFR Reports, FRM database.
1 Represented by FRM Diversified II Fund SPC – Class B USD.
Objectives for 2014
• Build out quantitative platform to provide a wider range of trend and
non-trend following products
• Continued focus on research at AHL/MSS to build new markets and
asset classes
• At GLG we continue to look for high-calibre investment talent to
support the growth of our existing products as well as to support the
expansion of our product offering
• Revamp managed accounts platform within FRM
11
Man Group plc
Annual Report 2013
Growth
Focus on generating high-alpha investment opportunities
• $1 billion raised in the AHL Evolution strategy in 2013
• Asia and Continental Europe ETFs launched
• Launch of Total Return, US CLO and Global equity strategies at GLG
• Significant hires at GLG into the Multi-strategy, UK Equity, Financials, Macro and Relative Value teams
• Launched a number of managed account only diversified portfolios at FRM as well as increasing opportunities
in managed account infrastructure services
Early in 2013, we identified a clear set of growth initiatives on the
investment management and product side. These initiatives were:
1. Building a diversified quant business in AHL
2. Adding new investment teams in GLG alternatives
3. Building our long only franchise
4. Developing our managed accounts platform at FRM
We have made good progress against these initiatives in 2013 and during
2014 we will continue to build on these as well as identifying further
opportunities for growth.
On the quantitative side the marketing of the AHL Evolution strategy has
gone well and we reached our target of raising $1 billion in this product
with the asset raising coming from institutional investors in all regions of
the world. Further capacity has been created in this strategy and as such
we will be marketing an additional $750 million of the AHL Evolution
strategy in 2014. In September we launched Asia and Continental Europe
ETFs, a series of long only products similar to the Europe ETFs strategy
which has $1.4 billion of assets.
Looking forward into 2014, we will start marketing the AHL Dimension
strategy, a multi-strategy quant product which will be targeted at
institutional investors, and are looking to launch a global version of
the Europe ETF product.
On the discretionary side at GLG we launched a number of new, scalable
investment strategies during the year. All of these funds saw allocations
from clients following their launch and we will seek to build on that
momentum into 2014.
On the equity side we have added additional teams to the European
Long-Short strategy to create further capacity. A Global Long-Short strategy
which operates a similar investment process to the European Long-Short
strategy was launched at the beginning of October 2013 and we have raised
over $300 million in this strategy since launch. Asset raising in the Asia
equity strategy launched in 2012 has been slow, however the strategy had
strong performance in 2013 and with the launch of a UCITS vehicle linked
to the strategy in December 2013 we expect demand to pick up.
A global rates strategy was launched in October and it pursues a Fixed
Income Absolute Return strategy and is managed by the Macro and
Relative Value Team. In August we closed a $400 million CLO in the US,
our first one since the crisis and we are looking to grow our CLO business
during 2014.
The growth of the long only business continues to be a key objective for us.
In September we hired Henry Dixon from Charles Stanley to run a UK
Undervalued Asset strategy and to take over management of the UK
equities income strategy. James Ind joined during the year to lead the
portfolio management of a value-driven total return strategy which was
launched at the end of July 2013. Our flexible bond strategy is also seeing
client interest into 2014.
2013 has seen a number of positive developments at FRM; the successful
integration of two legacy technology systems following the merger last
year; the launch of the second phase of our risk and transparency
reporting software for the managed account platform, which materially
improves the value of the platform to investors; and the launch of a
number of managed account only diversified portfolios, initially focused
on clients in the Japanese market.
Looking ahead to 2014 the main focus will be on offering the resources
of FRM as a service. Our goal is to work closely with clients in each region
on the services that best fit their needs. We are seeing increasing interest
from US institutions who are looking for control and transparency, as
well as financial institutions with the need to fulfil regulatory reporting
requirements. By contrast, we see increasing client interest in Asia for
direct co-investment into our existing platform and will focus on direct
access in this region as a result.
In addition to these initiatives, we continue to look for opportunities to
grow the business through selective acquisitions. In assessing these
opportunities, we will remain disciplined on price, structure and cultural fit
to ensure that any proposed transaction represents a sound use of capital.
Objectives for 2014
• Start marketing the AHL Dimension strategy and market an additional
$750 million of the AHL Evolution strategy
• Focus on building assets in GLG products launched in 2014 and on
developing long only offering
• Look to offer the resources of FRM as a service to investors who need
help with either building or maintaining open architecture alternative
investment programmes
• Continue to look at other possible bolt-on acquisitions ensuring that
we remain disciplined on price, structure and cultural fit
Strategic reportCorporate governanceFinancial statementsOther information 12
Man Group plc
Annual Report 2013
CEO’s performance review continued
Strategic update
Distribution
Ensure distribution effectiveness
• Net outflows of $3.6 billion in 2013 compared to $7.3 billion in 2012
• 26% increase in sales during the year, 13% increase in institutional sales and 42% increase in retail sales
• Continued restructuring of the sales team and focused hiring of talent
• Under the QDLP programme selected as one of six hedge funds allowed to market international products
to onshore investors in China
• Continued focus on the US but significant progress may not be seen for some time
Net outflows for the year were $3.6 billion compared to $7.3 billion in 2012
and excluding guaranteed products net outflows for the year were $2.4
billion. Gross sales were $16.1 billion with 40% of the sales achieved in the
first half and 60% in the second half, driven in particular by strong sales at
GLG. Institutional sales in 2013 were $8.6 billion, 13% higher than in 2012.
We saw a pick up in demand in the retail space with a 44% increase in year
on year sales from $5.2 billion in 2012 to $7.5 billion in 2013, the main driver
of the increase being sales of the Japan Equities strategy to UK retail
investors. Redemptions were $19.7 billion, ($18.5 billion excluding
guaranteed products) reflecting fragile investor sentiment and mixed
levels of absolute investment performance across the product range.
Following Christoph Möller’s retirement in June, we split the role of Head
of Sales: Tim Rainsford (previously Head of European Sales) is now in
charge of all regions outside the US; whilst Tim Gullickson has assumed
the function of Head of Sales in the US, with a focus on institutional
clients. Eric Burl (COO of the US business) is looking after US retail
channels. A number of other changes have also been made throughout
the sales team, with the overall objective of making it leaner and
increasingly focused on institutional clients without losing meaningful
optionality from a retail perspective.
Progress has also been made in China, where under the QDLP
programme we were officially selected as one of six hedge funds allowed
to market international products to onshore investors for the first time.
The Americas, and the US in particular, remains a key geographical focus
for future growth. Further hires have been made during the year and we
achieved sales of $1.1 billion in 2013 with sales of the European Long-
Short strategy and the US CLO making up the majority of the sales. The
potential in this huge market is very significant and the team continues to
make good progress however we expect it will take time before we see
significant traction. We are assessing our capabilities in the mutual fund
space and aim to bring a selective number of liquid alternatives strategies
to the mutual fund market in 2014.
Globally we continue to work hard on our consultant relationships
and since the beginning of the year we have received an additional four
strong buy ratings and positive momentum on seven additional strategies.
Consultant coverage of Man has increased from 35 products in January
2010 to 116 today and we have maintained 25 strong buy ratings. From a
retail perspective we are still represented on over 10 global private
banking platforms covering 60 funds.
Europe and the Middle East remains a key market for us with over
two-thirds of our assets coming from this region and again we have
refocused the sales effort in countries where we believe there to be the
most asset raising potential. We have hired a new person to run the sales
effort in Italy and have restructured the sales team in the Middle East.
The new marketing incentive programme is now in place, providing
improved alignment with shareholders by rewarding our sales people
based on annual management fees earned, net of expenses, rather than
gross sales.
In the Asia Pacific region, a region which historically served a number of
retail investors in guaranteed products, we have consolidated offices and
refocused the sales effort. While we still see significant potential for asset
raising in the region, particularly in Japan and Australia, servicing existing
clients and managing future growth can be served from three offices as
opposed to five. We have therefore shut down our office in Singapore with
people relocating to Hong Kong or London and have integrated the two
sales offices we had in Japan following the FRM acquisition. In Australia,
an office which grew around our guaranteed product business, we are
re-focusing the operations to target institutional business, and we have
hired Jamie Douglas, previously with JPM and Moore Capital, to head up
that office.
Objectives for 2014
• Focus on making the sales team leaner and increasingly focused on
institutional clients without losing optionality from a retail perspective
• Develop further consultant relationships and expand the number of
funds represented on private banking platforms
•
Improve coverage and traction in the US by selectively adding quality
to the institutional sales team
13
Man Group plc
Annual Report 2013
Efficiency
Cost reduction and maintaining balance sheet efficiency
• Cost savings announced during 2012 and 2013 total $270 million
• On track to deliver all of these savings by the end of 2015
• Change in regulatory status from Full Scope to Limited Licence agreed with the FCA reducing the Group’s capital
requirement by around $550 million
• Repayment of all outstanding debt completed in August 2013
• Reductions in loans to funds in the balance sheet
• Surplus capital of $760 million at 31 December 2013
Cost reduction
We continue to be on track to meet the 2015 cost targets on a
constant currency basis. We were ahead of schedule in 2013 with fixed
compensation costs of $188 million for the year versus the $211 million
target for 2013. Other cash costs were $191 million versus the $219 million
target. Non-compensation expenses have been reduced materially and
significant attention is being given to running the business as efficiently as
possible. We reduced the space we occupy in our head office in Riverbank
House during the year to match our requirements and consolidated offices
in other regions which accounted for 15% of the additional savings
announced in August this year. Headcount has been reduced from 1,876
at 30 June 2011 to 1,115 at 31 December 2013, 532 in front office functions
and 583 in group business functions.
Balance sheet efficiency
Our balance sheet remains strong and liquid and in 2013 we made
significant progress to improve our capital position and balance sheet
efficiency. At 31 December 2013, the Group had tangible net assets of
$1.1 billion or 58 cents per share, cash of $1.0 billion and over $2.5 billion
of liquidity.
In April 2013 we announced a change in regulatory status from being a
Full Scope group to a Limited Licence group. This increased our surplus
capital by up to $550 million subject to the FCA’s review of a revised
ICAAP submitted as part of the change in status. This review was
completed at the end of December and their review did not materially
change the Group’s capital requirement. As such the Group’s surplus
capital at 31 December 2013 was $760 million.
Outlook
In comparison to the ‘risk on’ environment we saw for most of 2013, asset
price movements at the start of 2014 have clearly represented a swing
towards ‘risk off’ with emerging market assets being hit particularly hard.
In this context, our trend following strategies lost money as gains in bonds
and agriculturals couldn’t offset losses in equities. Most of our long only
strategies are down, however they are still outperforming their
benchmarks. The market neutral stance of our GLG alternative strategies
has proved beneficial, with most of the equity and credit funds having
positive performance year to date – unlike our Macro, Emerging Markets
and Rates funds. The conservative nature of FRM’s funds has also proved
advantageous with performance amongst the majority of funds either flat
or slightly positive in January.
In May we announced that we were using some of our surplus capital to
repay all of our debt and hybrid instruments resulting in annualised
interest and coupon savings of $78 million. This repayment programme
was completed on 7 August when the perpetual Tier 1 hybrid was repaid.
The remaining surplus capital we have will be used for a suitable buffer
against the core capital requirement, organic growth requirements and
acquisition opportunities. After assessing these requirements and
opportunities, distributions to shareholders, whether through dividends
or buybacks, will be considered. At present we consider that there are
potential opportunities to deploy surplus capital and so do not intend to
make a determination regarding distributions in excess of our stated
dividend policy. We seek to remain disciplined, however, in the use of
capital whether organically or for acquisitions.
Objectives for 2014
• Ensure cost reduction programmes remain on track
• Completion of outsourcing programme
• Maintain focus on cost and balance sheet efficiency
Looking forward, the overall operating environment continues to be
challenging: whilst flows are better in places, performance – the single
most important driver of our success – remains mixed. After a very
strong year in equity markets in 2013, it is difficult to have high levels
of conviction in many asset classes and geographies. Accordingly
we remain cautious in our outlook, endeavouring to generate superior
risk-adjusted returns for our clients whilst maintaining our focus
on building and developing options for growth and running our
business efficiently.
Strategic reportCorporate governanceFinancial statementsOther information
14
Man Group plc
Annual Report 2013
CFO’s financial review
Jonathan Sorrell
Chief Financial Officer
Overview
Our financial results in 2013 reflect the continued mixed market
environment, and in particular challenging operating conditions for trend
following strategies. Our funds under management (FUM) decreased
by 5% from $57.0 billion at the beginning of the year to $54.1 billion at
31 December 2013. Net outflows in AHL and FRM were the primary
drivers behind the decrease, which was partly offset by positive
investment performance, and net inflows in the second half, with
strong contributions from across the GLG product range.
As previously highlighted, our guaranteed product book has further
reduced, to $2.3 billion at 31 December 2013, and we have restructured
our business accordingly. Excluding the guaranteed products, our FUM
increased in the year from $51.3 billion to $51.8 billion.
Net management fee margins for our quant and fund of funds (FoF)
products have declined slightly during the year, and coupled with the
continuing mix shift away from the high margin guaranteed products, have
resulted in the average net management fee margin decreasing by 19 basis
points from the prior year. As a result, net management fee revenue was
down 20% for the year, which was partially offset by a more than twofold
increase in performance fees, over 80% of which were generated by GLG.
Total costs were down 12%, and within this total fixed costs were down 22%
due to the implementation of the $270 million cost saving programme which
we remain on track to deliver by the end of 2015.
As a result of these revenue and cost drivers, our adjusted profit before
tax is $297 million (2012: $275 million), and adjusted diluted earnings per
share 14.1 cents (2012: 11.6 cents).
Our statutory profit before tax is $56 million, reflecting net adjusting items of
$241 million, which primarily relate to restructuring costs, impairment of the
FRM goodwill, and amortisation of purchased intangible assets. The FRM
goodwill was impaired by $69 million at 31 December 2013, which was
primarily a result of the guaranteed product FUM reducing at a faster rate
than anticipated, and redemptions from a small number of institutional
investors, primarily in our legacy Multi-Manager Business.
There continues to be a significant difference between our cash earnings
and statutory earnings as evidenced by cash inflows from operating
activities amounting to $448 million (2012: $408 million).
Our balance sheet remains strong and liquid and during 2013 we
continued to improve our capital position and balance sheet efficiency. In
April we announced a change in our regulatory capital status from being
a Full Scope group to a Limited Licence group. This increased our surplus
capital by approximately $550 million. During the year we used some of
our surplus capital to repay all of our debt and hybrid instruments,
resulting in annualised interest and coupon saving of $78 million.
Surplus capital at 31 December 2013 was $760 million.
Key performance indicators (KPIs)
Our financial KPIs illustrate and measure the relationship between the
investment experience of our fund investors, our financial performance
and the creation of shareholder value over time. Our KPIs are used on
a regular basis to evaluate progress against our four key priorities:
performance; growth; distribution; and efficiency.
The results of our KPIs this year reflect the mixed operating environment
in 2013, with negative investment performance for AHL, which resulted in
further de-gearing of the higher margin guaranteed products and had an
adverse impact on net flows. This has resulted in a decline in FUM and
revenues, which has impacted our profitability and EPS growth.
This year we have revised the performance metric used for GLG in
our investment performance KPI. Previously, we used the investment
performance of GLG’s Multi Strategy portfolio against the HFRX benchmark
to represent the investment performance for GLG, however this is no longer
deemed to be an appropriate representative for the GLG business as it has
an increased allocation to AHL. To provide a meaningful measure for the
investment performance for GLG, a composite investment performance
metric for GLG alternative funds is now used, against the HFRX
benchmark. We have also revised the performance benchmark used for
FRM from the HRFI FoF index to the HFRI FoF: Conservative Index as this
index is more representative of FRM’s investment strategy.
The comparative information in relation to the investment performance KPI
has been restated to reflect the changes for GLG and FRM as explained
above. The comparative information for the adjusted management fee
EBITDA margin and the adjusted management fee EPS growth KPIs have
been restated to reflect the impact of the adoption of IAS 19 (Revised), as
explained in Note 1 to the Group financial statements.
Key performance indicators
15
Man Group plc
Annual Report 2013
AHL
Benchmark
GLG
Benchmark
FRM
Benchmark
Performance
Performance
Growth
Distribution
Investment performance %
Investment performance %
Target: key fund vs benchmark
Net flows %
Target: 0%–10% net inflows
12
8
4
0
-4
-8
-12
0
.
0
0
.
5
5
.
3
8
.
1
2
.
4
3
.
1
-
7
.
0
1
-
6
.
3
-
4
.
4
-
1
.
3
-
5
.
1
1
-
4
.
9
7
.
6
0
.
6
6
.
5
7
.
7
0
-2
-4
-6
-8
-10
-12
-2.2
-6.3
-11.1
Year ended
31 December 2012
Year ended
31 December 2013
9 months ended
31 December 2011
Year ended
31 December 2012
Year ended
31 December 2013
The investment performance KPI measures the net investment performance for our three
managers (AHL, GLG, and FRM), represented by key funds, against relevant benchmarks.
The target for this KPI is to exceed the relevant benchmarks. The key funds and the relevant
benchmarks are AHL Diversified versus three key peer asset managers for AHL (the target
being to beat two of the three peers), the GLG Alternative Strategies Dollar-Weighted
Composite versus HFRX for GLG and FRM Diversified II versus HFRI Fund of Funds
Conservative Index for FRM. The performance of the key funds compared to the
benchmarks gives an indication of the competitiveness of our investment performance
against similar alternative investment styles offered by other investment managers. This
measures our ability to deliver superior long-term performance to investors. We achieved
one out of the three performance targets. AHL met the target for 2013 as the performance of
their key fund exceeded the relevant benchmark. GLG and FRM, whilst recording positive
performance, were both below the benchmark in 2013. Further investment performance
information is provided on pages 9 to 10.
This KPI measures net FUM flows for the period as a percentage of opening FUM, with
net flows defined as gross sales less gross redemptions. Net flows are the measure of our
ability to attract and retain investor capital. FUM drives our financial performance in terms
of our ability to earn management fees. Net flows were below target in 2013 with a net
outflow of 6.3%, compared to a net outflow of 11.1% for the year to 31 December 2012,
reflecting the difficult trading environment, in particular for AHL, partly offset by inflows
for GLG in the second half of the year.
Adjusted management fee EBITDA margin %
Target: 25–40%
Adjusted management fee EPS growth %
Target: 0%–20% + RPI
Performance
Growth
Distribution
Efficiency
Performance
Growth
Distribution
Efficiency
42.3
41.9
36.0
50
40
30
20
10
0
-10
-20
-30
-40
-50
-14
-25
-39
9 months ended
31 December 2011
Year ended
31 December 2012
Year ended
31 December 2013
9 months ended
31 December 2011
Year ended
31 December 2012
Year ended
31 December 2013
This KPI measures adjusted management fee EBITDA as a percentage of net revenues
(gross management fee revenue and income from associates less external cash distribution
costs). Our adjusted management fee EBITDA margin is a measure of our underlying
profitability. The adjusted management fee EBITDA margin of 36.0% was within the target
range for the year ended 31 December 2013. This margin is likely to continue to decline with
the rolling off of higher margin guaranteed product FUM.
This KPI measures our adjusted management fee EPS growth, where adjusted
management fee EPS is calculated using post-tax profits excluding net performance fees
and including the cost of the dividend on the Perpetual Subordinated Capital Securities,
divided by the diluted number of shares. Adjusted management fee EPS growth measures
the overall effectiveness of our business model, and drives both our dividend policy and the
value generated for shareholders. The adjusted management fee EPS growth was below
target for 2013 primarily as a result of the decline in management fee revenue and the overall
gross margin, partly offset by reduced costs.
Strategic reportCorporate governanceFinancial statementsOther information 16
Man Group plc
Annual Report 2013
CFO’s financial review continued
Funds Under Management (FUM)
$bn
FUM at 31 December 2012
Sales
Redemptions
Net (outflows)/inflows
Investment movement
Foreign currency movement
De-gearing and other movements
FUM at 31 December 2013
Gross management fee margin for
year ended 31 December 2013
Gross management fee margin for
year ended 31 December 2012
Net management fee margin for
year ended 31 December 2013
Net management fee margin for year
ended 31 December 2012
Alternative
Long only
Quant
(AHL/MSS)
Discretionary
(GLG)
Fund of funds
(FRM)
Quant
(AHL/MSS)
Discretionary
(GLG)
Total excluding
Guaranteed
Guaranteed
11.2
2.2
(3.8)
(1.6)
(0.4)
(0.2)
(0.1)
8.9
14.6
5.8
(4.9)
0.9
1.2
0.1
(0.5)
16.3
14.1
2.2
(4.4)
(2.2)
–
(0.6)
–
11.3
1.7
0.2
(0.6)
(0.4)
0.1
0.1
–
1.5
9.7
5.7
(4.8)
0.9
3.7
(0.5)
–
13.8
51.3
16.1
(18.5)
(2.4)
4.6
(1.1)
(0.6)
51.8
5.7
–
(1.2)
(1.2)
(0.3)
(0.4)
(1.5)
2.3
Total
57.0
16.1
(19.7)
(3.6)
4.3
(1.5)
(2.1)
54.1
2.8%
1.4%
1.0%
0.3%
1.0%
1.5%
5.2%
1.8%
3.2%
1.3%
1.2%
0.4%
0.9%
1.6%
5.0%
2.1%
2.3%
1.2%
0.9%
0.3%
0.7%
1.2%
4.4%
1.5%
2.5%
1.2%
1.1%
0.3%
0.6%
1.3%
3.8%
1.7%
Total FUM decreased by $2.9 billion during the year, including a decrease of $3.4 billion attributable to guaranteed products. Total FUM excluding
guaranteed products increased by $500 million. The decrease in total FUM of $2.9 billion is as a result of net outflows of $3.6 billion and negative
FX and other movements of $3.6 billion, being offset by positive investment movement of $4.3 billion. The other movements of negative $3.6 billion
includes $1.5 billion of adverse FX movement, $1.5 billion of guaranteed product degears and maturities, and $600 million of roll-offs of Pemba assets.
Quant alternative products (AHL/MSS)
Quant alternative FUM decreased by 21% to $8.9 billion during the year
to 31 December 2013, which primarily related to net outflows of $1.6 billion
and negative investment performance of $400 million. Sales were
$2.2 billion, which included $1 billion of the AHL Evolution strategy. The
majority of the redemptions of $3.8 billion were from retail investors in the
Asia Pacific region. The AHL Diversified programme was down 3.1% for the
year, which was the main driver of the negative investment performance of
$400 million. Negative FX movements reduced FUM by $200 million,
primarily in relation to the Japanese Yen and Australian Dollar.
Discretionary alternative products (GLG)
Discretionary alternatives FUM increased by $1.7 billion during the year as
a result of net inflows of $900 million and positive investment performance
of $1.2 billion. Sales of $5.8 billion were mainly into European equity,
distressed and convertibles strategies. Redemptions of $4.9 billion were
from a range of strategies. Total FX and other movements decreased FUM
by $400 million. The positive investment performance of $1.2 billion related
to good absolute performance across the majority of the discretionary
alternative products during the year, as described in more detail on
pages 9 to 10.
Fund of funds products (FRM)
Fund of funds FUM decreased by 20% to $11.3 billion this year, as a result
of net outflows of $2.2 billion and negative FX movements of $600 million.
Sales were $2.2 billion with a significant portion coming from Japanese
clients. Redemptions of $4.4 billion were from a range of products.
Investment performance was flat for the year with no impact on FUM.
Negative FX movements reduced FUM by $600 million, primarily in
relation to the Japanese Yen.
Long only products (AHL/MSS and GLG)
Total long-only FUM increased by $3.9 billion during the year.
Discretionary long only products had net inflows of $900 million during
the year, with sales of $5.7 billion and redemptions of $4.8 billion. The
majority of the sales and redemptions came from the Japan equities
strategy, the majority of which were from UK retail clients. Positive
investment performance increased FUM by $3.7 billion, primarily as a
result of strong investment performance for the Japan equities strategy.
Negative FX movements decreased FUM by $500 million.
Guaranteed products (all managers)
Guaranteed product FUM, our highest margin product grouping, declined
from $5.7 billion at 31 December 2012 to $2.3 billion in 2013, which
continued to have a negative impact on revenues. Redemptions totalled
$1.2 billion running at a steady rate of around $300 million per quarter. The
weighted average life to maturity of the guaranteed product range is five
years. Investment performance for guaranteed products was negative
during the year, resulting in a $300 million reduction in FUM. The other
movements of $1.5 billion primarily related to guaranteed product de-gears
as a result of negative investment performance. Negative FX movements
reduced FUM by $400 million, primarily in relation to the movements in the
Australian Dollar.
17
Man Group plc
Annual Report 2013
Summary income statement
$m
Management and other fees
Performance fees (including investment
gains/losses)
Share of after tax profit of associates
Distribution costs
Net revenue
Asset servicing
Compensation
Other costs
Total costs
Net finance expense
Adjusted profit before tax
Adjusting items
Statutory profit/(loss) before tax
Net management fees
Net performance fees
Diluted EPS (statutory)
Year ended
31 December
2013
Year ended
31 December
2012
967
1,209
223
12
(145)
113
10
(203)
1,057
1,129
(32)
(445)
(238)
(715)
(45)
297
(241)
56
(31)
(475)
(307)
(813)
(41)
275
(1,023)
(748)
The guaranteed product net management fee margin has increased by 58
basis points compared to the year ended 31 December 2012. More than a
third of the increase is at a gross level and is due to the impact of some fees
which are based on net asset value as opposed to FUM. As the margin
calculation is based on FUM, and FUM is currently lower than the total net
asset value of the product set, this has pushed the margin up 21 basis
points compared to last year. The lower level of placement fee amortisation
compared to 2012, due to placement fee write offs at 31 December 2012,
has pushed the net margin up by an additional 37 basis points.
Performance fees (including investment gains/losses)
Gross performance fees for the year were $193 million, $155 million from
GLG, $30 million from AHL and $8 million from FRM. At 31 December 2013,
around 75% of eligible GLG assets ($10.3 billion) were above high water
mark and around a further 18% ($2.5 billion) within 5% of earning
performance fees. AHL and MSS open ended products were approximately
13% on a weighted average basis from the performance fee high water
mark, and FRM products were approximately 5% below.
Investment gains were $30 million, which is consistent with 2012.
This gain mainly relates to a profit on disposal of certain Ore Hill assets.
175
122
220
55
2.9 cents (45.8) cents
Distribution costs
Distribution costs comprised $128 million of investor servicing fees and
$17 million of placement fees.
Adjusted net management fee EPS
7.9 cents
9.2 cents
Adjusted diluted EPS (excluding the adjusting
items above)
14.1 cents
11.6 cents
Gross management fees and management fee margins
Average FUM for the year was $54.1 billion compared to $57.7 billion for
the prior year. The average gross management fee margin was down 32
basis points from the prior year, largely reflecting the continuing product
mix shift primarily caused by the reduced proportion of guaranteed
products compared to open-ended products. Gross management fees
were $967 million for the year ended 31 December 2013 in comparison
to the management fees for the previous year of $1,209 million.
Our total net management fee margin (defined as gross management fees
less external distribution costs) has decreased from 169 basis points to
150 basis points during the year. The reduction is a result of the reduced
guaranteed product FUM as well as a mix shift towards institutional
money and is likely to continue as a greater proportion of our sales,
particularly in the alternatives quant space, are to institutional clients.
The alternatives quant net management fee margin has reduced by
21 basis points compared to the year ended 31 December 2012. This is
due to the majority of the redemptions in 2013 being from higher margin
retail products, whereas the majority of the sales have been into lower
margin institutional products. While we saw this flow trend occurring
during 2012, the impact on the margin was less pronounced due to the
fact that a significant proportion of the retail redemptions were from
Nomura Global Trend where the margin was around 1.8%. Looking
forward, we would expect this mix shift towards institutional money to
continue and hence we would expect the margin to decline further.
Net management fee margins in the alternative discretionary category
remained broadly stable compared to 2012.
The net management fee margin in the alternatives fund of fund category
reduced by 14 basis points due to the impact of including FRM assets for
the full year, as they were only included for half of the year in 2012.
The long only discretionary net management fee margin has increased
slightly due to the redemptions in some lower margin institutional mandates.
Investor servicing fees are paid to intermediaries for ongoing investor
servicing. Servicing fees have decreased from $156 million in 2012 to
$128 million in 2013 as a result of lower average FUM, particularly for
guaranteed products and AHL.
Placement fees are paid for product launches or sales and are capitalised
and amortised over two to five years, unless the FUM is redeemed or is
deemed to be impaired as a result of negative investment performance
and de-gearing. The capitalised placement fees at 31 December 2013
were $20 million with a weighted average remaining amortisation period
of 1.5 years.
Distribution costs relating to employees (internal commissions) are now
presented as compensation costs and the prior period has been restated
accordingly. This reflects the way the business is now managed, providing
more relevant information to users of the financial statements, and brings
the treatment in line with industry practice.
Asset servicing
Asset servicing costs (including custodial, valuation, fund accounting
and registrar functions which are now across our total FUM) were $32
million (2012: $31 million). Asset servicing costs equate to around 5 basis
points on FUM and vary depending on transaction volumes, the number
of funds, and fund NAVs.
Compensation costs
Compensation costs comprise fixed base salaries, benefits and variable
bonus compensation (cash and amortisation of deferred compensation
arrangements). Compensation costs in total, excluding adjusting items
and including internal commission costs, were 42% of net revenue, which
is the same as the previous year. This ratio will tend to be higher in years
where there is a larger proportion of GLG revenues, in particular GLG
performance fee revenues.
Fixed compensation and benefits were $188 million for the year compared
to $236 million for year to 31 December 2012, a reduction of 20%. Variable
compensation costs were $257 million for the year, including $30 million of
internal commission costs, compared to $239 million for the previous year
including $45 million of internal commission costs. The overall decrease of
$30 million in total compensation costs is a result of the fixed compensation
cost saving initiatives and lower internal commission costs, partially offset
by higher performance fee related compensation and a full year of FRM
costs (FRM being acquired in July 2012).
Strategic reportCorporate governanceFinancial statementsOther information 18
Man Group plc
Annual Report 2013
CFO’s financial review continued
Other costs
Other costs, excluding adjusting items, were $238 million for the year
compared to $307 million for the year to 31 December 2012, a reduction
of 22%. These comprise cash costs of $191 million (year to 31 December
2012: $244 million) and depreciation and amortisation of $47 million (2012:
$63 million).
Cost savings
We have made good progress on the cost saving programmes we
announced in 2011 and 2012. We are ahead of schedule with our targets,
with 2013 fixed compensation costs of $188 million for the year versus the
$211 million target for 2013, and other cash costs of $191 million for the
year versus the $219 million target for 2013. Our targets for the cost savings
programme as a whole have not changed, however we have been able to
implement the savings more quickly than originally planned.
We announced a further $75 million of cost savings in August 2013,
bringing the total targeted savings to $270 million by the end of 2015.
Net finance expense
Net finance expense was $45 million for the year, excluding adjusting items.
This included a $28 million charge relating to debt buybacks during the
year. Interest payable on borrowings decreased in the year as a result of the
debt buybacks, although this was offset by lower finance income as cash
balances were lower and the prior year included a $15 million gain on the
sale of loan notes. The recurring elements of both finance expense and
finance income are expected to decrease in 2014 as a result of the debt
buybacks, and net finance expense is expected to be around $4 million in
2014, relating to the costs of the revolving credit facility (if undrawn), partly
offset by interest income earned on cash deposits.
Adjusted profit before taxes
Adjusted profit before tax is $297 million compared to $275 million for the
previous year. The adjusting items in the year of $241 million, as shown in
the table below and detailed in Note 2 of the financial statements, primarily
relate to restructuring costs ($107 million), amortisation of acquired intangible
assets ($66 million), and the impairment of FRM goodwill ($69 million).
The directors consider that the Group’s profit is most meaningful when
considered on a basis which excludes restructuring costs, amortisation and
impairment of intangible assets and certain non-recurring gains or losses,
which therefore reflect the recurring revenues and costs that drive the
Group’s cash flow.
Adjusting items
$m
Restructuring costs – compensation
Restructuring costs – other costs
Amortisation of acquired intangible assets
Impairment of FRM goodwill
Gain on disposal of Lehman claims, Nephila, and other
interests
Other adjusting items
Total adjusting items
Year ended
31 December
2013
36
71
66
69
(16)
15
241
Net management fees and net performance fees
Net management fees of $175 million reflect the decline in average FUM
and the overall gross margin, partly offset by reduced costs driven by the
cost saving initiatives. Net performance fees of $122 million for the year
reflects the strong contribution from across the GLG product range.
$m
Gross management and other fees
Share of after tax profit of associates
Less:
Distribution costs
Asset services
Compensation
Other costs
Net finance expense
Net management fees
Performance fees
Gains on investments and other financial
instruments
Less:
Compensation
– variable
– deferral amortisation
Net performance fees
Year ended
31 December
2013
Year ended
31 December
2012
967
12
(145)
(32)
(344)
(238)
(45)
175
193
30
(95)
(6)
122
1,209
10
(203)
(31)
(417)
(307)
(41)
220
90
23
(45)
(13)
55
Taxation
The average tax rate for the year of 7.1% before adjusting items,
compared to the previous year’s rate of 14.4%, has decreased as a result
of prior year credits including those for further settled tax returns across a
number of countries and periods. The tax rate before adjusting for prior
year credits and other reconciling items is 18% (31 December 2012: 18%).
The amount of company income tax paid in the year was $64 million
(31 December 2012: $55 million).
Cash earnings (EBITDA)
As the Group has a number of non-cash items in the income statement
it is important to focus on cash earnings to measure the true earnings
potential of our business. The table below gives a reconciliation of
adjusted profit before tax to adjusted EBITDA. The main differences are
net finance expense, depreciation, amortisation of placement fees and
the share-based amortisation charge in relation to compensation
deferrals. Our EBITDA/net revenue margin was 40%, which can be
analysed between EBITDA margin on management fees of 36% and
performance fees of 57%.
Reconciliation of adjusted PBT to adjusted EBITDA
$m
Adjusted PBT
Add back:
Net finance expense
Depreciation
Amortisation of capitalised computer software
Placement fee amortisation
Accelerated amortisation related to early
redemptions
Deferred compensation amortisation
Adjusted EBITDA
Year ended
31 December
2013
Year ended
31 December
2012
297
275
45
39
8
10
5
30
434
41
43
20
56
10
68
513
19
Man Group plc
Annual Report 2013
Debt buybacks in 2013
Senior 6.5% fixed rate bonds due 2013
Senior 6.0% fixed rate € bonds due 2015
Tier 2 subordinated floating rate notes due 2015
Tier 2 subordinated 5.0% fixed rate bonds due 2017
Tier 1 perpetual subordinated capital securities
Total
Date of repurchase/
redemption
1 August 2013
7 May 2013
24 June 2013
14 June 2013
7 August 2013
Carrying
value
$m
173
285
170
231
300
1,159
Pre-tax
upfront
costs
$m
Pre-tax
finance
cost savings
$m
Regulatory
capital
impact
$m
–
(25)
2
(5)
–
(28)
13
17
3
12
33
78
–
–
(80)
(200)
(300)
(580)
Balance sheet
The Group’s balance sheet remains strong and liquid. At 31 December
2013, total shareholders’ equity was $2.4 billion and net tangible assets
were $1.1 billion. Cash and cash equivalents have decreased during the
year, primarily as a result of the buyback of the Group’s debt of $1,159
million, as shown in the table above.
The buyback of the Group’s debt will result in annualised pre-tax interest
and coupon savings of up to $78 million from 2014, and has reduced the
Group’s surplus capital by around $580 million. Costs of $28 million were
incurred with the debt buybacks, of which nearly all relates to cash costs.
The carrying value of goodwill and intangible assets was tested for
impairment at 31 December 2013, using a discounted cash flow
valuation. As a result of guaranteed product FUM reducing at a faster
rate than anticipated, and unexpected larger redemptions from a small
number of institutional investors for FRM, the FRM goodwill was impaired
by $69 million at 31 December 2013. The impairment relates to the legacy
RMF and Glenwood businesses, which were acquired in 2002 and 2000
respectively. The valuation and assumptions are explained in more detail
in Note 12 of the financial statements.
Balance sheet information
$m
Cash and cash equivalents
Fee and other receivables
Total liquid assets
Payables
Net liquid assets
Investments in fund products and other
investments
Pension asset/(liability)
Investments in associates
Leasehold improvements and equipment
Total tangible assets
Borrowings
Deferred tax liability
Net tangible assets
Goodwill and other intangibles
Shareholders’ equity
31 December
2013
31 December
2012
992
388
1,380
(762)
618
323
71
31
68
1,111
–
(58)
1,053
1,354
2,407
2,000
382
2,382
(751)
1,631
496
(4)
38
150
2,311
(859)
(71)
1,381
1,529
2,910
Liquidity
Operating cash flows were $448 million during the year with cash and
cash equivalents of $992 million.
$m
Net cash at 31 December 2012
Operating cash inflows
Payment of dividends
Repurchase of perpetual capital securities and coupon
payments
Other movements
Net cash at 31 December 2013
Year ended
31 December
2013
1,141
448
(277)
(325)
5
992
The committed revolving credit facility of $1,525 million is available and
undrawn, with $70 million maturing on 22 July 2016, $120 million maturing on
22 July 2017, with the remainder maturing on 22 July 2018. The management
of liquidity and capital is explained on pages 82 and 89 respectively.
Regulatory capital
Man is fully compliant with the FCA’s capital standards and has
maintained significant surplus regulatory capital throughout the year.
At 31 December 2013, surplus regulatory capital over the regulatory
capital requirements was $760 million.
The small overall net decrease in the surplus regulatory capital of
$40 million during 2013 primarily relates to two events:
(1) in April 2013, Man confirmed with the FCA the change of its regulatory
status from being a Full Scope group to a Limited Licence group.
The impact of this was the removal of the Capital Planning Buffer of
approximately $300 million and a further $250 million decrease in the
financial resources requirement; and
(2) the repurchase of our qualifying debt and hybrid instruments,
amounting to approximately $580 million.
Group’s regulatory capital position
$m
Permitted share capital and reserves
Innovative Tier 1 Perpetual Subordinated
Capital Securities
Less deductions (primarily goodwill and other
intangibles)
31 December
2013
31 December
2012
2,311
2,541
–
193
(1,273)
(1,449)
Available Tier 1 Group Capital
Tier 2 capital – subordinated debt
Other Tier 2 capital
Group financial resources
Less financial resources requirement,
including a capital buffer in 2012
Surplus capital
Jonathan Sorrell
Chief Financial Officer
1,038
–
3
1,041
(281)
760
1,285
309
90
1,684
(889)
795
Strategic reportCorporate governanceFinancial statementsOther information 20
Man Group plc
Annual Report 2013
Risk management
Man’s business model is
strengthened by an integrated
approach to risk management.
Man’s risk management framework
The responsibility for risk management rests with Man’s Board, however,
accountability is embedded throughout all layers of the business. The risk
management framework aims to ensure that the business operates within
the Board’s acceptable risk tolerances, as defined by the risk appetite
statements. Our governance structure provides a solid foundation for
ongoing oversight in a dynamic environment.
Last year we highlighted business transformation risks as one of the
Group’s principal risks, following the announcement of two rounds of
significant cost reduction plans. These plans are largely complete and our
business has managed to successfully absorb these cost reductions and
emerge as a more operationally efficient organisation.
In the ‘Principal risks and mitigants’ section on page 22 we have noted
a number of recent regulatory developments. This dynamic regulatory
environment together with the Group’s global presence and wide range of
products means compliance is increasingly demanding. The Group has
remained focused on ensuring that our operational and risk management
frameworks keep pace with the evolving regulatory landscape in the
jurisdictions in which we do business.
We have taken significant steps to improve the efficiency of the Group’s
capital and liquidity structure. Following the Group’s move in regulatory
status from Full Scope to Limited Licence in April 2013, we implemented
a plan at that time to use our strong capital and cash position to buy all
outstanding debt and hybrid securities.
Developments in 2013
Our risk profile has not changed significantly during the year; investment
underperformance continues to be the biggest risk facing the Group.
A diverse product range gives Group shareholders protection against
concentrated underperformance from any one sector. The Group has
continued to add to our wide range of investment styles and products.
We have recruited several proven investment professionals to enhance
our offering and attract funds.
We have continued to reduce our legacy positions in funds whilst the
further de-gearing of structured products has resulted in reduced loans to
funds. This together with the improved capital and liquidity structure has
allowed the Group greater flexibility to selectively seed new funds.
The risk to the Group’s balance sheet from counterparty defaults remains
low. We continue to keep a close eye on counterparty and average credit
spreads which have been tight throughout 2013.
Risk Management Categories
The risk of reduced funds under
management due to:
• poor fund performance
•
fund underperformance relative to a
benchmark or peer group
Note:
This is a risk Man must adopt as part of its
business model.
The risk of a loss
to Man owing to:
t
n
e
Invest m
• adverse market movements
• counterparty failure to deliver investor or
•
shareholder assets when due
insufficient liquidity resources available for
Man to meet its obligations
F
i
n
a
n
cial
O p
Str
a
t
e
g
i
c
al
e ration
The risk that Man (or its
business units) will:
• make inappropriate strategic choices
• be unable to successfully implement
selected strategies
• be subject to changes which
invalidate strategies and undermine
the existing business model
The risk resulting from:
•
inadequate or failed internal
processes, people or systems
• external events
Note:
This includes legal and regulatory risks.
21
Man Group plc
Annual Report 2013
Man’s governance
The below committees have been given a mandate by the Board and
the CEO to oversee the risk management framework. These
committees provide assurance to the Board that risk has been
managed according to the risk appetite statements:
PLC Board
CEO
Audit and Risk Committee
The Audit and Risk Committee
(ARCom) is a committee of the
Board which has oversight of the
Assurance functions (see page 34
for further detail).
Executive Committee
The Executive Committee is
accountable for all risks assumed
in the business and is responsible
for the execution of appropriate
risk management discipline.
Man’s risk appetite statements
The risk appetite statements are set by the Board and cover all significant
risk categories. They apply to both the investment management functions
and Man Group itself. The statements express the Board’s appetite for
risk, promote a risk aware culture and set out objectives and boundaries
for Man’s business.
The primary goal of risk management is to support the achievement of
company objectives by encouraging an appropriate balance between
risk-seeking and risk-averse activities, in a controlled and regulatory
compliant context.
The governance framework and control environment within the Group
have been designed to manage risks in accordance with these
statements. The Board and ARCom receive regular reporting on the
Group’s risk profile and adherence with risk appetite. In the event that
breaches to risk appetite occur, these will be resolved in line with the
firm’s procedures and processes. The statements are reviewed at least
annually by the Board.
A summary of the risk appetite statements is available at www.man.com.
Risk Assurance Committee
Finance Committee
The Risk Assurance Committee
(RAC) oversees the operational,
regulatory and reputational risks
faced by the Group and the internal
control environment. The RAC
is chaired by the Chief Risk
Officer, (CRO).
The Finance Committee approves
actual and contingent use of the
Group balance sheet and ensures
the adequacy of economic and
regulatory capital and liquidity
buffers. The Finance Committee is
chaired by the CFO.
Three lines of defence
The overall risk management framework at Man is based on the three
lines of defence, and is overseen by the Audit and Risk Committee as
delegated by the Board:
The framework instils the principles of direct responsibility for risk
management in each business unit. Embedding accountability at the
business level is the ‘first line of defence’.
1st line
of defence
2nd line
of defence
3rd line
of defence
Compliance
Risk
Business
Management
‘In Business’
Risk
Management
Operational
Management
t
i
d
u
A
l
a
n
r
e
t
n
I
The business units are monitored by a number of risk control functions
(i.e. Risk, Compliance), which form the ‘second line of defence’.
The independent review and oversight provided by Internal Audit is
the ‘third line of defence’, which independently evaluates the adequacy
and effectiveness of the Group’s risk management, control and
governance processes.
Although Man and the investors in its products are susceptible to losses,
we believe our risk management framework supports long-term value
through the process of risk-aware decision making.
t
i
d
u
A
l
a
n
r
e
t
x
E
Strategic reportCorporate governanceFinancial statementsOther information
22
Man Group plc
Annual Report 2013
Principal risks and mitigants
Risk
Mitigant
1. Investment underperformance risks
Fund underperformance on an absolute basis, relative to a benchmark or
relative to peer groups would reduce funds under management (FUM)
and may result in lower subscriptions and higher redemptions. This may
also result in dissatisfied clients, negative press and reputational damage.
This is the key risk Man has to accept if it is to undertake its business.
Man’s investment businesses each have clearly defined investment
processes designed to target and deliver on the investment mandate
of each product.
Lower FUM results in lower management fee revenue and underperformance
results in lower performance fees, if any.
Fund and manager performance is closely monitored, and we focus on
hiring and retaining highly skilled professionals who are incentivised to
perform within the parameters of their mandate.
The breakdown of Man’s FUM and revenue margins by product line is shown
on page 16.
Man’s diversified range of products and strategies across the alternatives
marketplace mitigates the risk to the business from underperformance of
any particular strategy.
2. Regulatory risks
Man offers a wide range of investment products from a global network of
offices in 19 jurisdictions. This results in Man being subject to a matrix of
regulations both at a supra national and individual jurisdiction level, coupled
with a rapidly changing regulatory environment.
Man is regulated by 20 regulators and lead regulated by the UK Financial
Conduct Authority.
Notable recent regulatory developments include the implementation of the
EU Alternative Investment Fund Managers Directive, the implementation
of CRD IV, preparations for EMIR and Dodd Frank Chapter VII and the
emergence of detail on UCITS V, MiFID/MiFIR, Market Abuse Directive II
and Financial Transaction Tax.
Man supports proportionate and thoughtful global regulation and initiatives
that develop the regulatory environment.
Man continuously assesses whether the products it markets comply with
new regulations as they emerge and change. In this respect, the company
conducts an independent review process for all products.
Man continues to liaise directly with competent authorities e.g. IOSCO,
ESMA, NFA, HMT, FCA, DFSA and CSRC through its Compliance
department which consists of approximately 28 FTE (or equivalents)
specialists functionally split between Corporate, Investment Management,
Sales and Marketing and Financial Crime. Compliance is located across
eight jurisdictions.
3. Operational risks
Operational risk is defined by Man as the risk resulting from inadequate or
failed internal processes, people, systems or from external events.
Man’s Operational Risk Policy provides an overview of the responsibilities
that all staff have to identify, assess, monitor and manage operational risk
within the Group.
Man continues to outsource a number of functions that were previously
performed internally. The risks are that the outsourced service providers
do not perform as required, resulting in knock-on implications for our
business as a whole.
The aim is to ensure that operational risks are identified, understood,
assessed and mitigated in such a way that their financial impact is
managed in accordance with a defined risk appetite.
Risk and Control Self-Assessment (RCSA) is at the core of our
assessment of operational risks. Key risk indicators and operational risk
events are also analysed to ensure that our assessment of operational
risks in RCSA is up-to-date and correctly reflects the Group’s operational
risk profile.
Man’s operations team have extensive experience of running an
outsourcing process, and have implemented a robust methodology
(including extensive KPI monitoring) to ensure that service providers are
able to deliver as required – this is in turn monitored by Risk Assurance
Committee (RAC) and ARCom.
23
Man Group plc
Annual Report 2013
Risk
Mitigant
4. Credit/counterparty risks
The risk that a counterparty with which the funds or Man have financial
transactions fails to deliver back investor or shareholder assets.
Shareholders and investors in Man funds and products are exposed to
credit risk of prime brokers, clearing houses, futures clearers, depository
banks and guarantee providers, if any.
Man also provides loans to guaranteed products, and so is subject to
counterparty risk to certain investor funds.
Man diversifies its deposits across a number of the strongest financial
counterparties, each of which are approved by the Finance Committee
and have maximum exposure limits set, in line with Man’s risk appetite.
Man monitors credit spreads and ratings of our main trading
counterparties and banks as forward indicators of their credit quality.
During 2013 the average CDS spreads for banks have remained tight as
central banks have maintained strong liquidity provision policies.
Guaranteed products are closely monitored, and leverage is actively
adjusted such that the risk of default related to balance sheet loans to
funds is small.
5. Discretionary trading risk
The risk that fund managers place inappropriate trades outside of
mandate and regulatory boundaries. Man may need to compensate for
any losses arising for such trades, as well as face the possibility of fines,
lawsuits and reputational damage.
Front office systems provide automated checks and controls at portfolio
and trade level. Each investment management business has dedicated
risk management personnel who monitor portfolio profiles and provide
independent challenge.
Such risks include insider dealing, valuation, mis-allocation between
funds and market abuse.
In addition all fund managers are required to undertake regular mandatory
training to ensure they are aware of due processes and their responsibilities
related to the placing of trades.
6. Key staff retention
The risk that a key person to the business leaves or is unable to perform
their role.
Man has been able to attract and retain an array of talented individuals
across the Group. Business and investment processes are designed
with a view to continue this trend and minimise the impact of losing any
particular key individuals. In addition, there is an established succession
planning process at senior levels of the business.
7. Legal risks
The global nature of Man’s business, with corporate and fund entities
collectively located in 19 jurisdictions, makes it subject to a wide range
of laws.
Failure to comply with these laws may put Man at risk of fines, lawsuits or
reputational damage.
Man operates a robust legal framework which underpins all aspects of its
business and is resourced by experienced legal teams.
These teams are physically located in Man’s key jurisdictions helping
them to understand the context and impact of any legal requirements.
8. Reputational risks
The risk that an incident or negative publicity undermines our reputation
as a leading alternative investment manager. Reputational damage could
result in significant redemptions from our funds, and could lead to issues
with external financing, credit ratings and relations with our outsourcing
providers.
Our reputation is dependent on both our operational performance and
fund performance. Integrity is fundamental to ensuring Man is able to
attract investment in funds. Our strong governance and control structure
outlined above helps mitigate operational concerns, and our attention to
people and robust investment processes aim to ensure we comply with
very high standards of investment management practice. The Board
regularly reviews evidence of whether the right tone from the top is
being maintained.
Strategic reportCorporate governanceFinancial statementsOther information 24
Man Group plc
Annual Report 2013
People and corporate responsibility
To achieve superior performance for
our clients and shareholders we need to
have the right people in the right roles,
fully motivated and competitively paid.
We are very conscious of the need to
provide appropriate development for our
talented and increasingly international
workforce. Encouraging effective
collaboration and teamwork across
the Company, within the bounds of
regulation and good governance, is
a key part of our strategy.
Male
Female
14
86
14
86
Breakdown of staff by gender %
31
69
100
75
50
25
Total workforce
Senior managers
Board of
Directors
People by function %
June 2011: 1,876
December 2013: 1,115
50
40
30
20
10
30
21
39
33
19
18
21
19
Investment
management
Sales and
marketing
Product
& client
operations &
technology
Central
management
and support
Human resources strategy
Our human resources objectives are aligned with the strategic priorities
for Man. We achieve this by hiring the most able people and developing
and motivating them in an environment which stimulates innovation and
profitable growth.
Talent
Despite the challenging market conditions, we believe it is important
to develop and retain talented individuals for the future of the business.
To increase our talent pipeline we have launched a new investment
management graduate programme and a structured summer internship
programme, both of which start in 2014. Five high calibre graduates have
been hired and will participate in a two year programme, rotating through
placements in AHL, FRM, GLG and Sales which will equip them with a
broad knowledge of our products and overall business. Four interns will
spend 10 weeks with us in the summer, working on key projects with a
view to successful interns being offered a place on the following year’s
graduate programme.
In 2013, we hired apprentices for the first time in the UK through
participation in the Ladder for London initiative – a scheme launched
by the Evening Standard to help tackle youth unemployment in London
through apprenticeships. Our apprentices were offered a 12-month
full-time position, and have attended college for one day per week during
their first six months. To ensure the apprentices get maximum benefit
from their work placement, they are supported by supervisors, assigned
buddies and HR. They also have exposure to management through
discussion sessions at which they provide progress updates to members
of the senior leadership team.
We focus on retention through our annual performance evaluation
and succession planning processes. This annual review is a valuable
opportunity for managers to give individuals feedback on their
performance and how their careers can progress with the Company,
particularly during difficult times. Our ongoing succession planning
process is designed to mitigate continuity risks by identifying key
individuals for retention and further development.
Efficiencies
A significant part of the $270 million cost saving programme has
come from a reduction in headcount phased over 2012, 2013 and 2014.
The result of these initiatives will mean that Group headcount including
contractors and consultants has been reduced from 1,876 in June 2011
to 1,115 at 31 December 2013 and by the time all the cost savings are
fully implemented the ratio of support function employees to front office
will be approximately 1 to 1, which we believe to be in line with industry
best practice.
Man treats those impacted by redundancy fairly and respectfully
whilst protecting the Company from potential litigation. We provide
outplacement assistance to individuals who are made redundant
including career advice, interview preparation and guidance on
developing their networks to help them transition to a new role.
Remuneration
Our remuneration policies and practices are designed to enable us
to remain competitive in the increasingly global markets in which we
operate. More information on how we set compensation packages is
given in the Directors’ remuneration report on page 40. Set out opposite
is the key compensation information for the year ended 31 December
2013 and the prior year. The compensation ratio for 2013 (defined as total
compensation as a percentage of net revenues) was in line with 2012.
Key compensation information
Year ended
31 December
2013
$m
Year ended
31 December
2012c
$m
1 Net revenue
2 Salaries and related personnel
costs (fixed costs)
3 Cash performance bonus costs
4 Amortisation of share and fund
awards
5 Variable compensation (3+4)
6 Internal commissions
7 Total compensation costsa,b
(2+5+6)
8 Ratio of compensation cost/
Net revenue (7/1)
9 Adjusted Diluted Earnings per
share (EPS) (cents per share)
1,057
1,129
188
178
49
227
30
445
236
121
73
194
45
475
42%
42%
Year over
Year
change
-6%
-20%
47%
-33%
17%
-33%
-6%
–
14.1¢
11.6¢
22%
Notes:
a Profit allocation to partners is included in compensation as required by
accounting standards.
b Compensation excludes FRM costs prior to acquisition in July 2012 including
$7 million accrual at acquisition for year end bonus.
c Restated.
Equality and diversity
Man’s culture is based on mutual respect for others and discrimination by
any individual on the grounds of age, disability, gender, race, religion, sexual
orientation or educational background is not acceptable. Full and fair
consideration is given by Man to applications for employment made by
disabled persons, having regard to their aptitudes and abilities. Man’s Global
Inclusion Policy outlines our commitment to ensuring a diverse workforce
and our opposition to discrimination of any form, including on the basis of
disability. The company ensures that disabled persons are fairly treated in
respect of training and career development. For those who become disabled
during their employment, reasonable adjustments are made and ongoing
support is provided as required to enable the individual to continue working.
Man remains committed to promoting gender diversity at senior
management and Executive Committee level, as well as across the
organisation. Our recruitment policy has the objective of securing
meaningful female representation on long lists of candidates (internal and
external) for senior roles and wherever possible we engage executive
search firms who have signed up to the Voluntary Code of Conduct on
gender diversity and best practice. Our Executive Committee was
refreshed at the beginning of this year and we have two women in key
senior roles who sit on that committee. The improved diversity of the
refreshed Executive Committee as listed below is welcome.
Man Group Executive Committee
Manny Roman
CEO, Man Group
Jonathan Eliot
Chief Risk Officer
Luke Ellis
Robyn Grew
Keith Haydon
Rene Herren
President, Man Group
Global Head, Compliance & Regulatory
CIO, FRM
Deputy Head of Sales
Teun Johnston
Co-CEO, GLG
Mark Jones
Co-CEO, GLG
Pierre Lagrange
Chairman, Man Asia & Senior Managing Director, GLG
Michelle McCloskey
Senior Managing Director, FRM
Tim Rainsford
Sandy Rattray
Jasveer Singh
Global Head, Sales & Marketing
CEO, AHL & MSS
General Counsel
Jonathan Sorrell
Chief Financial Officer
Simon White
Tim Wong
Global Head, Technology & Operations
Chairman, AHL & MSS
25
Man Group plc
Annual Report 2013
Employee engagement and support
Employees receive regular updates and presentations on Company
results and major decisions which affect them through face to face
meetings or, if necessary, via video link. The Man intranet is used to
provide supplementary updates from senior management on all aspects
of our business and is a critical part of the dissemination of knowledge
and information.
Our Global Mobility Programme enables us to meet specific business
needs within given markets or business areas. Assigning people overseas
assists us in attracting, retaining and developing our people in order to
meet our business goals and strengthen our geographic footprint. This
creates a diverse talent pool with varied perspectives and enhanced
sharing of our knowledge base.
Corporate responsibility
Our corporate responsibility strategy is to pursue and evidence where
possible the high standards of behaviour, both corporate and individual,
which underpin our ethos and maintain the trust and loyalty of our key
stakeholders. We focus on five key areas of corporate responsibility:
1. World-class governance and risk management
Man strives to deliver the highest standards of governance and risk
management. We have long recognised the importance of corporate
governance practices that help ensure effective oversight and strong
accountability. With our scale, we are well-positioned to implement and
manage these practices effectively across our platform, as we strive to
deliver industry leading governance and risk management.
2. Responsibilities to our market place
Man is committed to the highest standards of ethical conduct and actively
supports collaboration of the alternative asset management industry in
developing and committing to standards of responsible investment.
The Hedge Fund Standards were drawn up in 2007 to address key issues
relating to the hedge fund industry and best practice, covering the areas of
disclosure, valuation, risk management, fund governance and shareholder
conduct. Man is a founding signatory of the Hedge Fund Standards Board
(HFSB) which was fully established in 2008 as a guardian to the Standards
with the goal of creating a framework for promoting integrity, transparency
and good governance in the industry.
3. Managing our people
Man aims to create an environment which enables our staff to reach
their full potential. We encourage our teams to work together to help each
other develop and succeed professionally and personally by providing a
workplace which is healthy, safe, and offers guarantees of fairness and
equal opportunities. As a responsible business, we constantly review
our procedures which support the development and retention of talent
including performance management programmes, flexible working policies,
health and well-being initiatives, and our comprehensive benefits scheme.
4. Contributing to our communities
Man Group is actively involved in charitable initiatives and volunteering
opportunities local to the firm’s offices through its ManKind programme.
Furthermore, we have a worldwide commitment to promoting literacy in
children, underscored through our sponsorship of the Man Booker Prize.
We are very conscious of the impact of our organisation on our community
and have taken steps to ensure we are contributing positively to those
around us.
5. Protecting the environment
Whilst our environmental impact is relatively limited, we strive to deliver clear
and transparent reporting that makes sense of the measurable elements
within our control and respond to external risks and expectations. We look
to take all practicable and economic measures to conserve and reduce
energy consumption at our offices around the world. We monitor our
impacts using Credit 360, a system that measures relevant data and
generates reports which provide practical guidance in identifying our
impacts and managing their reduction.
Strategic reportCorporate governanceFinancial statementsOther information
26
Man Group plc
Annual Report 2013
Board of directors
Jon Aisbitt
Chairman of the Board and
Chairman of the Nomination
Committee
Phillip Colebatch
Senior Independent Director and
Chairman of the Remuneration
Committee
Andrew Horton
Independent non-executive
director
Frédéric Jolly
Independent non-executive
director
Background and experience
Jon Aisbitt has 20 years’
experience in international
corporate finance and was
previously a Partner and
Managing Director in the
Investment Banking Division
of Goldman Sachs.
Prior to joining the Board, Phillip
Colebatch was a member of the
Executive Boards of Swiss
Reinsurance Company and
Credit Suisse Group. He has
substantial financial, operational
and markets experience.
Andrew Horton has over 25
years of broad financial services,
risk management and
operational experience. He held
various finance positions within
ING, NatWest and Lloyds Bank
prior to his appointment as
Group Finance Director of
Beazley plc in 2003. He was
appointed Chief Executive Officer
of Beazley in September 2008.
Frédéric (Fred) Jolly was Chief
Executive Officer of Russell
Investments (Europe, Middle
East and Africa) until the
summer of 2008. Prior to this,
he was Head of Investment
Consulting at The Wyatt
Company, Paris (now Watson
Wyatt). Fred has extensive
knowledge of asset
management and broad
international experience.
Date of appointment
Jon was appointed to the
Board as a non-executive
director in August 2003 and
was appointed non-executive
Chairman in September 2007.
Phillip was appointed to the
Board as a non-executive
director in September 2007.
Andrew was appointed to the
Board as a non-executive
director in August 2013.
Fred was appointed to the
Board as a non-executive
director in August 2009. He will
not be seeking reappointment at
the 2014 AGM.
External appointments
Jon is an Advisory Board
Director of Celtic Pharma I and
Celtic Pharma II (biotechnology)
and a Director of New Forests
Company Holdings Limited
(African forestry).
Phillip is a non-executive director
of Lend Lease Corporation and
is on the Boards of Trustees of
the LGT Group Foundation and
the Prince of Liechtenstein
Foundation.
Andrew is Chief Executive
Officer of Beazley plc.
Fred is Senior Advisor for
Europe, Investec Asset
Management.
Committee membership
Jon is Chairman of the
Nomination Committee and a
member of the Remuneration
Committee. He attends Audit
and Risk Committee meetings
by invitation.
Phillip is Chairman of the
Remuneration Committee and
a member of the Audit and Risk
Committee and Nomination
Committee.
Andrew is a member of the Audit
and Risk Committee and the
Nomination Committee.
Fred is a member of the
Remuneration Committee and
Nomination Committee.
Strategic report
Corporate governance
Financial statements
Other information
27
Man Group plc
Annual Report 2013
Matthew Lester
Independent non-executive
director and Chairman of the
Audit and Risk Committee
Matthew Lester is Chief Finance
Officer of Royal Mail plc. He was
Group Finance Director of ICAP
from 2006 to 2010 and prior to
that worked at Diageo plc in a
number of senior finance roles,
including Group Financial
Controller, Treasurer and
Divisional Finance Director.
He has substantial financial
management and regulatory
expertise.
Emmanuel Roman
Chief Executive Officer
Dev Sanyal
Independent non-executive
director
Nina Shapiro
Independent non-executive
director
Jonathan Sorrell
Chief Financial Officer
Emmanuel (Manny) Roman
joined Man as Chief Operating
Officer in October 2010 following
the acquisition of GLG. He
joined GLG in 2005 as Co-Chief
Executive Officer after 18 years
with Goldman Sachs where he
was Co-Head of Worldwide
Global Securities and Co-Head
of the European Securities
Division. He has extensive
trading, investment
management, operational
and business management
experience.
Dev Sanyal has held a number
of senior financial and line
management positions within
BP in a career of more than 20
years. As Group Treasurer, he
gained in-depth experience of
capital markets, asset
management, trading and
foreign exchange. He is currently
Executive Vice President and
Group Chief of Staff and a
member of BP’s Group
Executive Committee.
Nina Shapiro has had a long
career of senior roles within the
World Bank and was Vice
President, Finance and
Treasurer of the International
Finance Corporation from 2000
to 2011. She has in-depth
knowledge of global capital
markets and emerging
economies.
Jonathan Sorrell joined Man
in August 2011 as Head of
Strategy and Corporate Finance.
Before this he spent 13 years
at Goldman Sachs in the
Investment Management,
Securities and Investment
Banking Divisions, latterly leading
investments in a broad range of
hedge fund firms. He has broad
strategy development, financial
and commercial expertise.
Matthew was appointed
to the Board as a non-executive
director in May 2011.
Manny was appointed to the
Board in May 2011. He was
appointed President of Man
in August 2012 and Chief
Executive Officer in
February 2013.
Matthew is Chief Finance Officer
of Royal Mail plc. He is on the
main Committee of the Hundred
Group of Finance Directors.
Manny is a trustee of the Hedge
Fund Standards Board Limited
and a non-executive director of
Grupo Prisa SA (education,
media and entertainment).
Dev was appointed to the Board
as a non-executive director on 1
December 2013.
Nina was appointed to the
Board as a non-executive
director in October 2011.
Jonathan was appointed to the
Board as Chief Financial Officer
in June 2012.
Nina is a director of African
Minerals Limited and holds a
number of Senior Advisor and
Advisory Board roles in the
financial and other sectors.
None.
Dev is Executive Vice President
and Group Chief of Staff of BP
p.l.c. He is a member of the
Accenture Global Energy Board,
a member of the International
Business Leaders Group of The
Duke of Edinburgh’s
International Award Foundation
and a Trustee of the Career
Academy Foundation.
Matthew is Chairman of the
Audit and Risk Committee and
a member of the Nomination
Committee.
Manny regularly attends
Audit and Risk Committee,
Remuneration Committee and
Nomination Committee meetings
by invitation. He is Chairman of
the Executive Committee.
Dev is a member of the Audit
and Risk Committee and the
Nomination Committee.
Nina is a member of the
Remuneration Committee and
the Nomination Committee.
Jonathan regularly attends
Audit and Risk Committee
meetings by invitation.
He attends Remuneration
Committee meetings for certain
items of business. He is a
member of the Executive
Committee.
28
Man Group plc
Annual Report 2013
Corporate governance report
Jon Aisbitt
Chairman
In this report, which follows on from
my Chairman’s statement, I am
pleased to discuss how the Board
sought to provide effective leadership
and governance for the development
of the business during 2013. In
discharging these responsibilities,
both the Board and its Committees
had a full and active year.
At the end of February, Manny Roman succeeded to the role of CEO,
completing the change in the executive team which the Board had put
in place the previous year. In Manny’s year end results presentation, in
response to investors’ wish for a better understanding of our investment
proposition, he outlined the Board’s view of Man’s core strengths and
the key priorities on which the business would be focussing during 2013.
Progress on these priorities has been discussed elsewhere in the Annual
Report and details of the Board’s contribution to their achievement are
provided below.
Later in the year, the Nomination Committee conducted a search for and
recommended the appointment of two new non-executive directors to
provide a substantial refresh of our non-executive membership.
The Remuneration Committee has engaged in further consultation
with shareholders on our remuneration policy and responded to
their requested change in our deferred executive compensation
arrangements.
In line with new UK Corporate Governance Code requirements, the Audit
and Risk Committee conducted an audit tender which has led to the
Board proposing the appointment of Deloitte LLP as the Company’s
auditors for the 2014 financial year, subject to approval by shareholders
at the Annual General Meeting. Fuller details of all these actions are given
in the respective Committee reports which follow.
Board composition
As Chairman of the Board, one of my main responsibilities is to ensure that
its members collectively have the right balance of skills and experience
required to drive the direction of the business, manage risk and monitor
performance. 2013 was the first full year for our new executive director
team, Manny Roman, CEO, and Jonathan Sorrell, CFO, and we are
pleased with the progress they have made in securing a more appropriate
and favourable regulatory status for the firm and delivering against an
ambitious cost reduction programme.
2013 was also a year of significant change in our non-executive
membership. With the departure of two long serving non-executives, Alison
Carnwath and Patrick O’Sullivan, and in response to the need identified in
our 2012 Board evaluation for a greater focus on non-executive succession
planning and, in particular, for further strengthening of the Audit and Risk
Committee, we have appointed two new non-executive directors, Andrew
Horton, Chief Executive Officer of Beazley, and Dev Sanyal, Executive
Vice-President and Group Chief of Staff of BP. With their broad knowledge
of financial markets and wide ranging international and operational
expertise, both are well placed to contribute to the development and
execution of Man’s strategy and risk management.
The Board overall benefits from a broad mix of wholly independent
non-executive directors who bring a range of perspectives and
experiences drawn from different business and cultural backgrounds.
Three bring valuable hands-on current experience from their external
executive roles. Details of our Board appointment and succession
planning activities, including our policy on building diversity, are given in
my Nomination Committee report on page 38. You will find full
biographical details of all our directors on pages 26 and 27.
Board remit and processes
Matters reserved for Board decision
To ensure that it retains control of key decisions and actions impacting
the business, the Board has put in place a Schedule of matters which
are reserved for its decision and approval alone. These include matters
such as strategy development, annual budgets, major acquisitions and
disposals, risk appetite and risk management, borrowing and credit
exposure limits, executive remuneration, capital structure, dividends,
Board appointments and financial results and statements. The full
Schedule is available on our website www.man.com/GB/board-
governance. The Board delegates all other matters to the CEO who
has established a detailed framework of delegated authorities for material
issues and decisions across the firm in accordance with the risk appetites
set by the Board.
29
Man Group plc
Annual Report 2013
Board Committee structure
Certain of the Board’s governance functions are delegated to and supported by three dedicated Board Committees with the mandates summarised
below. The communication and coordination of the work of these Committees is achieved through regular reporting to the Board by the Committee
Chairmen and the circulation of minutes and papers.
Audit and Risk Committee
Review the integrity of the Company’s financial
reports and statements prior to approval by
the Board.
Remuneration Committee
Recommend to the Board for approval the
principles and structure of the Company’s
executive remuneration policy.
Review and report to the Board on the
effectiveness of Man’s risk management and
internal controls framework.
Recommend to the Board for approval
the quantum of the Company’s variable
compensation pool.
Recommend to the Board the appointment of
the external auditors, review the scope of their
work and their effectiveness.
Recommend to the Board for approval the
annual objectives and compensation for
individual executive directors.
Approve the internal audit plan; review the
effectiveness of internal audit; and management
response to their findings.
Approve the compensation for Executive
Committee members and FCA Code staff.
Determine the contractual termination terms for
executive directors and any severance payments.
Nomination Committee
Keep the Board’s skill and experience base
under regular review in the light of business
changes and agree with the Board the
role specification for any proposed new
appointments.
Conduct the search and selection process
for new directors and recommend proposed
appointees to the Board.
Review senior executive development and
succession plans to ensure continuity of
resource at, and just below, Board level.
Review and recommend the renewal of non-
executive director appointments.
Audit and Risk Committee report
Page 34
Directors’ remuneration report
Page 40
Nomination Committee report
Page 38
Full Committee terms of reference, which are approved by the Board, can be found on our website www.man.com/GB/corporate-governance.
Details of the work of the Committees during the year are given in the separate Committee reports highlighted above.
Board agenda
The Board met formally eight times during 2013. At every Board meeting
the Board receives an update from the CEO on the performance of Man’s
main funds and progress on fund flows, often supplemented by
presentations from investment management and sales teams. Detailed
financial reporting is provided by the CFO, including analysis of results
against budget, updated full year forecasts and projected run rate costs
for future years based on ongoing cost reduction. The Board receives a
regular Treasury update on its economic and regulatory capital position
and reviews movements in the Group Risk Dashboard which is updated
on a monthly basis. Significant people issues and developments in
acquisition opportunities are discussed in detail by the CEO.
Strategy review
In the first half of the year the Board held a one and a half day strategy
review which commenced with a broad overview from external industry
experts on current trends and future outlook for the asset management
and hedge fund industry. Input on developing regulatory impacts was
provided by Man’s in house risk, legal and regulatory teams. This created
a backdrop for a detailed Board review of the performance and prospects
of each of Man’s main investment engines, progress on distribution and
acquisition opportunities followed by discussion and confirmation of the
business strategy for the year ahead.
Priorities and actions in 2013
The table on page 30 highlights specific areas of Board review and
decision during the year. These include actions taken to progress our
strategic business priorities and other key matters falling within the
Board’s remit.
Board engagement
Key relationships
Of key importance for the effective working of the Board is the division of
responsibility between my role as Chairman and that of the CEO as leader
of the business. Details of our separate but complementary responsibilities
are given on our website www.man.com/GB/board-governance. Manny
keeps me closely advised of progress and key developments in the
business and we jointly discuss and agree our approach to bringing
forward issues for discussion by the Board.
I maintain regular contact with our Senior Independent Director (SID) and
test with him my thinking on Board issues and areas of focus or proposed
change. Details of the SID’s particular role and responsibilities in relation
to Board and shareholder communications and relationships are given
on our website www.man.com/GB/board-governance. I also seek and
encourage frequent dialogue with my other non-executive colleagues in
order to keep abreast of and respond to their thinking, interests and any
areas of concern. Regular discussions with the Company Secretary on
agenda planning and the impacts of external regulatory developments
help promote appropriate and timely consideration of business and
governance issues.
Time commitment
The table on page 31 shows directors’ attendance at the main formal
Board meetings held during the year. Where a director is unable to
participate in a meeting, I will solicit their views on key issues to be
considered and ensure that their feedback is taken into account in the
subsequent meeting discussions. Board members may also be called
upon at short notice between scheduled meetings to consider and
respond to any urgent issues or proposals which may arise. In addition,
I like to arrange occasional separate meetings or dinners with non-
executives only to provide a more informal opportunity for an exchange
of views on Board matters. We may be joined on such occasions by key
executives just below Board level to further those individuals’ exposure
to the Board and develop non-executives’ insight into the business and
spread of management talent.
Strategic reportCorporate governanceFinancial statementsOther information 30
Man Group plc
Annual Report 2013
Corporate governance report continued
Board priorities and actions during 2013
Fund performance
• Undertook in-depth reviews of AHL performance and research activity, including
the impacts of enhancements to the core momentum model. Reviewed the product
pipeline, team development and challenges. Explored and analysed competitor
strategies and performance including a peer case study.
• Reviewed and discussed new GLG Macro, Fixed Income and Currency teams’
capability, product launches and priorities for 2013.
• Monitored and discussed the progress of the fund of funds business following
the FRM acquisition.
Growth opportunities
• Maintained a firm focus on asset raising and discussed potential sources of future
flows. Reinforced the strategic focus on the key US market.
• Examined a range of acquisition opportunities proposed by management against
agreed business diversification and asset raising objectives.
Effective distribution
• Reviewed and endorsed the rationalisation of the retail distribution structure,
Balance sheet efficiency and cost
reduction
Risk
Regulatory compliance
including the closure of regional offices, in line with the decline of the structured
product and the shrinking market outside the US.
• Reviewed and endorsed the reorientation of the sales team to match the increasing
business focus on institutional flows.
• Established and obtained FCA approval of a reduced regulatory capital requirement
for Man in line with its change in status from a Full Scope to Limited Licence group.
• Applied some of Man’s surplus regulatory capital to buy back all its outstanding debt
and deliver $78 million annualised interest and coupon payment savings while
maintaining an adequate margin of liquidity and surplus capital to pursue acquisitions.
• Challenged management on the delivery and scope of the cost reduction
programme and sought assurance on its impacts on performance, the control
environment and staff engagement and retention.
• Reviewed Man’s risk appetite statements, including its operational risk capital
tolerance, and approved the use of a common risk assessment grid for all
operational risks within the business.
• Reviewed Man’s vulnerability to, and protections against, the specific risks of
cyber crime.
• Reviewed the effectiveness of the whole of the Group’s risk management and internal
control systems (see separate Risk management and internal controls section on
page 32).
• Noted the new reporting requirements relating to the structure and content of the
Annual Report and agreed proposed enhancements to Man’s existing review and
approval processes.
• Noted the FCA’s supervision priorities and work programme for 2014. Received a
presentation on FCA expectations in respect of the conduct of the UK retail business
and considered Man’s response in terms of product provision, marketing activities
and regulatory responsibilities.
• Reviewed the mapping of Man’s procedures to manage conflicts of interest within the
investment managers and confirmed the Board’s view of their adequacy.
Planning and resources
• Reviewed and approved the 2014 Budget and three-year 2014–16 Medium Term
Plan assumptions, scenarios and projections.
• Reviewed the new HR business model, internal service levels, outsourced provision
and risks related to the reduction of HR headcount. Discussed the ownership and
promotion of the talent agenda within the business.
31
Man Group plc
Annual Report 2013
Board evaluation
In 2013, following two successive in-depth annual Board evaluations
carried out by an external third party, we chose to conduct an internal
exercise facilitated by the Company Secretary. Board members were
asked, through a written questionnaire, for their views on selected topics
and were invited to give comments and suggestions for improvement in
each case. The topics surveyed included areas which had been identified
as priorities for future focus in the 2012 evaluation, key issues handled
during 2013 and ongoing Board communication and governance
processes. The evaluation findings were submitted to, and discussed by,
the Board and priority areas of focus for 2014 agreed.
2013 evaluation findings
Against a significant year of change encompassing a new executive team,
the departure of long serving non-executives, the reshaping of the business
and ongoing cost reduction, the evaluation revealed positive views and
progress in many areas. There was a high degree of confidence in the new
executive directors, their ability to work together and their communication
of business developments to non-executive colleagues. Significant
progress was recognised in the area of non-executive succession planning
and the discussion of the skills and experience required for future Board
roles. The quality of reports to the Board by Committee chairmen was
highly commended and provided assurance on the governance framework
which had been put in place. Positive responses on the conduct of Board
debate and the handling of areas of potential dissension provided evidence
of an open culture which encouraged the surfacing of difficult issues and
facilitated their resolution.
Areas of focus for 2014
Arising from the evaluation findings and subsequent Board discussion, the
Board has identified the following areas for particular focus during 2014:
1. Knowledge of competitors – gain further insight into competitor
strategies and Man’s market positioning.
2. Business knowledge – continue building directors’ knowledge
of Man’s investment managers and other key business areas.
3. Board experience and skills – add more investment management
expertise through future non-executive director recruitment.
4. Employee talent and engagement – review recruitment, motivation
and retention in key risk areas and more broadly.
Individual director evaluation
To provide feedback on individual directors’ contributions to the Board,
I had one to one private meetings with all Board members and identified
potential areas of development with them. The Senior Independent Director
led a review of my own contribution as Chairman, taking on board the
views of all the directors, and communicated their feedback to me.
Directors’ attendance at main Board meetings
Attendance record
Jon Aisbitt, Chairman
Alison Carnwath1
Peter Clarke2
Phillip Colebatch
Andrew Horton3
Frédéric Jolly
Matthew Lester
Patrick O’Sullivan4
Emmanuel Roman
Dev Sanyal5
Nina Shapiro
Jonathan Sorrell
8/8
3/3
1/1
8/8
2/3
7/8
7/8
5/5
8/8
1/1
8/8
8/8
Notes:
1 Alison Carnwath retired from the Board on 3 May 2013.
2 Peter Clarke retired from the Board on 28 February 2013.
3 Andrew Horton joined the Board on 3 August 2013.
4 Patrick O’Sullivan retired from the Board on 3 August 2013.
5 Dev Sanyal joined the Board on 1 December 2013.
External appointments
I always discuss Man’s Board schedule and their other business
commitments with non-executive directors prior to their appointment
to ensure that they have sufficient time to give to Man. A minimum time
expectation is set out in their letter of appointment. However, owing to prior
fixed engagements, an occasional conflict with a Man Board meeting in a
director’s first year of service may be unavoidable. Non-executives also
seek my advice and endorsement before taking on any additional external
business commitments which might conflict with their responsibilities to
and time available for Man. Any external interests which are perceived to
represent a potential conflict are reviewed by the executive directors and
appropriate guidance given. A complete schedule of all directors’ external
interests is circulated to the Board for information and approval on
an annual basis.
Induction and education
To provide an initial introduction to the business and its executive
management, new non-executive directors are provided with a
comprehensive induction programme, details of which are given on our
website www.man.com/GB/board-governance, supported by pre-meeting
briefing materials and follow up sessions where requested. I regularly seek
feedback from our newly appointed directors on the quality and scope of
this programme to keep it refreshed and effective.
My non-executive colleagues are always keen to develop and update their
knowledge of Man’s investment managers and distribution activities, which
we achieve through presentations at Board and strategy review meetings
and in one to one ad hoc sessions with relevant executives. In addition, to
support the particular needs of directors serving on our Audit and Risk and
Remuneration Committees, we regularly circulate details of external
programmes on topical legal, accounting and regulatory developments
which I encourage non-executives to join wherever this would be useful.
I was pleased to attend a number of discussion forums and seminars
on governance developments during the year in order to keep updated
on changes in the regulatory framework within which Man operates.
Strategic reportCorporate governanceFinancial statementsOther information 32
Man Group plc
Annual Report 2013
Corporate governance report continued
Risk management and internal controls
The Board is required to maintain sound risk management and internal
control systems, to review their effectiveness and to report on this review
to shareholders. Information on Man’s risk management and internal
control systems, which have been in place throughout the period and up
to the date of this report, can be found in the Risk management section
on pages 20 to 23. Details of Man’s risk management and internal control
systems in relation to the financial reporting process, and of the Board’s
ongoing review of all Man’s risk management and internal control
systems, are given below.
Financial reporting controls
The Group operates a financial controls framework which is designed
to provide assurance that proper accounting records are adequately
maintained and that financial information used within the business and
for publication is reliable and free from material misstatement, thereby
safeguarding the Company’s assets.
This framework is managed by the Financial Controls Group through a
process whereby the control owners certify that key preventative and
detective controls, financial statement preparation processes, material
balance sheet reconciliations and entity level analytical reviews have
been performed and are operating effectively. During the year a formal
check and review of a sample of these certifications were performed by
the Financial Controls Manager to verify the accuracy of the reporting.
The Board has delegated oversight of risk management and systems of
internal control to the Audit and Risk Committee (ARCom). At each meeting
the ARCom reviews summary dashboards for each of risk, internal controls,
the financial controls framework and compliance. It also receives reports
from the Risk Assurance Committee which considers the effectiveness of
risk controls through regular review of Risk and Control Self-Assessments,
risk scenarios, key risk indicators and operational risk incident reports.
Objective assurance on the operation and effectiveness of internal controls
is provided by Internal Audit whose audit programme is targeted on the
business areas and processes that are most significant in terms of the
Group’s risk profile and where there are key controls on which the Group
relies. The report from the Chairman of the ARCom on pages 34 to 37
provides further information on how the Committee has discharged its risk
oversight responsibilities during the year.
Board review of risk management and internal control systems
The Company’s systems of internal control aim to safeguard assets,
maintain proper accounting records and provide confidence that the
financial information used in the business and published externally is
robust and reliable. The systems are designed to manage key risks,
rather than eliminate the risk of failure to achieve business objectives,
and can only provide reasonable and not absolute assurance against
material misstatement or loss. The systems comply with the guidance
given in ‘Internal Control: Revised Guidance for Directors’ (the 2005
Turnbull guidance).
Man’s risk management and internal control systems are regularly
reviewed by the Board. The Board receives reports from line management
and Group Risk on the risks to the achievement of the Group’s operational
and financial objectives, together with assurance that the level of risk
sustained is consistent with and being managed in accordance with the
Board’s risk appetite. These reports include current and forward looking
assessments of capital and liquidity adequacy and a summary
‘risk dashboard’.
As part of its risk oversight responsibilities, a number of operational and
regulatory matters which had occurred during the year were reported to
the ARCom during the normal course of business. Whilst Man sought to
improve its processes as a result, these matters were not sufficiently
material in number or nature either to require separate disclosure or to
indicate that the control environment had not been working effectively.
Year end review of risk management and internal controls
In addition to its ongoing monitoring of risk controls, the Board has
conducted a specific period end review of the effectiveness of the Group’s
risk management and internal control systems during the 12 months and
for the period up to the date of this Annual Report. This review covered all
material risks and included a review of all significant operational risk events
and Internal Audit findings raised during the period. The Board also
considered the outcome of the firm-wide Risk and Control Self-Assessment
process, the potential impact of certain risks identified by the business and
the quality of the controls in place to mitigate them. Following this review
the Board concluded that the Group’s risk management processes were
appropriate and that there were no significant weaknesses or failings in the
systems of internal controls.
33
Man Group plc
Annual Report 2013
Statement of compliance
The Company has, throughout the year ended 31 December 2013,
applied the principles of and complied with the provisions of the UK
Corporate Governance Code dated September 2012 (the Code) except
in the following respects:
Provision D.2.2 of the Code requires that the Remuneration Committee
should have delegated responsibility for setting the remuneration of all
the executive directors and the Chairman.
Executive directors’ remuneration
At Man, the terms of reference of the Remuneration Committee provide
that the Committee should recommend, for approval by the Board,
individual executive directors’ objectives and compensation. This is
subject to the proviso that no director should participate in the approval
of his or her objectives or compensation. The Board believes that,
given the importance of motivating the executive team to deliver the
Company’s strategy, it is appropriate for all non-executive Board
members, rather than just those who sit on the Remuneration
Committee, to determine the executive directors’ objectives and
compensation packages.
Chairman’s remuneration
The remuneration of the Chairman is determined by the Board based
on the recommendation of the Remuneration Committee. This makes
the process fully transparent and allows the views of all the directors,
executive and non-executive, to be taken into account.
Other information
Certain additional information in relation to the Company’s share
capital, the powers of the directors and amendments to the articles of
association that is required to be disclosed pursuant to DTR 7.2.6 may
be found in the Directors’ report on pages 60 to 61.
Shareholder engagement
Institutional investors
The Board receives regular updates from our investor relations team
regarding changes in the share register, feedback from institutional
investors (covering both top shareholders and non-holders) and key
commentary from the sell-side analyst community. Our executive directors
met with around half of our institutional shareholder base during 2013 and
are in regular contact with analysts and other market commentators.
As Chairman, I attend results presentations to analysts and investors
and at the end of last year undertook a programme of meetings with key
institutional investors to supplement contact between investors and the
executive team. This gave me the opportunity to hear at first hand from
investors on their perception and concerns about the business and to
report back to my Board colleagues on their views. The Board very much
values direct feedback of this kind and, as indicated earlier in this report,
responds to such feedback wherever possible.
The Chairman of the Remuneration Committee has continued our specific
dialogue with shareholders on our executive remuneration arrangements
and responded to their suggestions for change. As Senior Independent
Director, he is also available to meet shareholders to discuss any matters
of concern.
Private investors
We are keen to hear the views of our private shareholders and encourage
them to use our website to access the Company’s interim and annual
reports and results presentations. The website also provides a wealth
of other information about the business and gives direct access to our
Registrars’ Shareview website (www.shareview.co.uk) which enables
shareholders to manage their shareholding account online. For specific
enquiries about Man’s business, we provide a dedicated shareholder
mailbox (shareholder@man.com).
In March 2013, we held a meeting with members of the UK Shareholders
Association (UKSA) in London at which Jonathan Sorrell, our CFO, reported
on the progress of the business and our areas of strategic focus and
responded to UKSA members’ questions. At our AGM in May, Manny
Roman as our new CEO gave an update to shareholders on the positioning
of, and outlook for, the business. This was followed by a shareholder
question and answer session covering many aspects of the Company’s
business as well as the resolutions to be considered at the meeting.
I look forward to welcoming shareholders to our 2014 AGM in May this
year and updating them on the latest business developments.
Jon Aisbitt
Chairman
Strategic reportCorporate governanceFinancial statementsOther information 34
Man Group plc
Annual Report 2013
Corporate governance report continued
Audit and Risk Committee report
Matthew Lester
Chairman, Audit and Risk Committee
Throughout the year the Committee
continued to be focused on the
integrity of the Group’s financial
reporting, risk management
processes and the effectiveness
of internal controls. In particular,
it focused on the coordination of
the activities of the Finance, Risk,
Compliance, Internal Audit and Legal
functions, in light of the headcount
reduction plan, to provide assurance
over the integrity of the control
environment. The Committee also
led an external audit tender process,
following which a recommendation to
appoint Deloitte LLP as the external
auditors was made to the Board and
further information on this process
can be found on page 37.
Committee composition and attendance
The composition of the Committee was refreshed in early August when
Patrick O’Sullivan stepped down from the Board and ceased to be a
Committee member and, as the new Senior Independent Director, Phillip
Colebatch joined the Committee. In addition, Nina Shapiro stepped down
from the Committee and was replaced by Andrew Horton who joined the
Board on the same day. The breadth of experience of the Committee has
been enhanced by the appointment of a fourth member in December; Dev
Sanyal. All of the members of the Committee are independent non-
executive directors and their biographies can be found on pages 26 to 27.
Andrew Horton, Dev Sanyal and I are the members considered to have
relevant and recent financial experience. The attendance of members at
Committee meetings held during the year can be found below.
Matthew Lester (Chair)
Phillip Colebatch1
Andrew Horton1
Patrick O’Sullivan2
Dev Sanyal3
Nina Shapiro2
Attendance
record
6/6
2/2
2/2
3/4
1/1
4/4
Notes:
1 Appointed to the Committee with effect from 3 August 2013.
2 Stepped down from the Committee with effect from 3 August 2013.
3 Appointed to the Committee with effect from 1 December 2013.
In addition to the above members, the Board Chairman, CEO, CFO, Chief
Risk Officer, Global Head of Compliance and Regulatory, Head of Internal
Audit, Group Financial Controller and representatives from the external
auditors regularly attend the meetings. The Committee meets privately
with the Head of Internal Audit and the external audit partners after each
Committee meeting and I maintain ongoing dialogue with both parties.
Committee’s roles, responsibilities and processes
The Audit and Risk Committee forms an integral part of Man’s
governance framework with oversight of the Group’s financial reporting,
internal and external audit, risk management and regulatory compliance.
An overview of the roles and responsibilities of the Committee can be
found opposite and is summarised from the full terms of reference which
are available at www.man.com, together with details of the standard
business addressed by the Committee. The key matters considered by
the Committee during the year can be found on pages 35 to 37.
35
Man Group plc
Annual Report 2013
The Committee receives reports and presentations from management and
values the direct engagement with management from both operational and
governance areas. At each meeting the Committee reviews dashboards on
the key risks, compliance matters, financial controls framework and internal
controls. These are designed to provide the Committee with an update in
these key areas and highlight any issues or changes which should be
considered by the Committee. Items are also escalated from the Group
Finance and Risk Assurance Committees (further details on these
Committees can be found on page 21) and reports from these meetings
are submitted to every Committee meeting. I report to the Board at the
following Board meeting to ensure that all directors are fully briefed on
Committee matters.
All new Board directors are given a detailed induction programme (and
further information in this regard can be found at www.man.com). As part
of this programme, new members to the Committee are provided with all
relevant materials, including copies of recent minutes, the Committee
forward agenda and terms of reference. In addition, each Committee
stakeholder meets with the new director to provide a tailored briefing.
The Committee has oversight of the functions detailed below and is
responsible for reporting its findings and any recommendations to the Board.
F Financial reporting
Year-end and interim financial statements to ensure they give a fair,
balanced and understandable view of the business and comply with
required accounting standards and regulation, with particular focus on:
• Key accounting policies and judgements;
• Going concern statement; and
• Annual Report sections on Risk management and the Audit and
Risk Committee:
– Changes to financial reporting standards and regulations; and
– Effectiveness of the financial controls framework.
R Risk management, internal controls and compliance
• The effectiveness of:
– The Group Risk Framework including policies and processes
for the identification, assessment and management of risk;
– The effectiveness of internal controls (in line with Turnbull
guidance); and
– The Group’s regulatory reporting activities and Compliance
function.
•
In addition, the Committee reports any relevant findings in relation
to risk matters which may impact the discretionary remuneration
available to all staff or individuals.
IA Internal audit
• Approval of the annual Internal Audit plan and Internal Audit activities;
• The effectiveness of the Internal Audit function; and
• All significant Internal Audit recommendations and findings, and
management’s response to, and progress in, addressing them.
EA External audit
• Recommending the appointment of, and determining the
remuneration of, the external auditors, including reviewing their
effectiveness and independence;
• Review and approval of the audit plan and the auditors’ control
procedures;
• Review of the findings of the audit and the auditors’ management
letter and ensuring appropriate action, where required; and
• Approval and monitoring of the policies relating to the provision
of non-audit services by the external auditors and the hiring of
personnel from the external auditors.
Key items considered during the year
F
EA Financial reporting
The Committee considers all key accounting judgements for the full year
and interim financial statements and once again the most significant
judgement made related to the valuation of the goodwill of the Group’s
main business units. The Committee tested the assumptions used in the
valuation model and agreed that no impairments to goodwill were
required for the six months to June 2013. A further goodwill valuation of
each business unit was undertaken for the year-end results, following
which the FRM goodwill was impaired by $69 million. This impairment
primarily related to the impairment of the legacy Man Multi-Manager
business which was combined with the FRM business on acquisition
in 2012. Further information on this can be found on page 80.
The Committee also reviewed the accounting judgements applied to the
contingent consideration creditor which relates to the acquisition of FRM.
The overall purchase price of FRM is dependent on management fee run
rates and the quantum was revised to reflect the best estimates of future
payments due under the purchase agreement. Overall, these adjustments
have decreased the contingent consideration creditor by circa $3 million
(please see page 73 for further information).
The Committee reviewed and approved the adjusting items in the
consolidated financial statements to ensure that they were appropriate,
that there was consistency in treatment year on year and that they
provided a fair overview of the underlying profitability of the business. For
further information on the items included as adjusting items please refer
to Note 2 to the financial statements on page 73.
The Committee was briefed on new reporting requirements by the Group
Financial Controller and reviewed and approved the Group’s approach
and revised processes to ensure compliance.
F
R
IA Governance and assurance review
The Committee conducted a review of the governance functions and
assessed the progress against their plans for 2013 and it was noted
that good progress had been made. An assurance map has also been
developed by Internal Audit and reviewed by the Committee which maps
the coverage of all business areas by the second and third lines of defence
(see page 21). In addition the Committee undertook a review of the
governance of regional offices to ensure that there was effective oversight.
Following the headcount reductions across the business the Committee
has monitored the impact of this on the internal control framework and
reviewed the key governance functions (Risk, Compliance, Internal Audit,
Finance and Legal) in light of the headcount reduction plan. This included
an assessment of the capabilities of key individuals within each function.
As part of this process, the Committee also conducted ‘deep-dive
reviews’ of Finance and Treasury to test the impact of the headcount
reductions in these areas. The Committee was satisfied that the control
environment continued to be effective and that in some areas the
simplification of processes had reduced risk.
The Committee received regular briefings on the status and development
of the operational risk framework and monitored correspondence with the
FCA in this regard. The good progress in this area has continued and the
Risk and Control Self-Assessment (‘RCSA’) process has now been rolled
out across all areas of the business. Following the completion of the first
roll-out and the commencement of the annual rolling update, the
Committee undertook an effectiveness review to establish how effectively
the RCSA process had been embedded throughout the organisation.
Strategic reportCorporate governanceFinancial statementsOther information
36
Man Group plc
Annual Report 2013
Corporate governance report continued
Audit and Risk Committee report continued
The Committee undertook a review of the work of the GLG Systems and
Controls Committee (SYSC) which oversees the internal controls and
compliance safeguards around discretionary trading and ensures that
investors are treated fairly within the GLG business unit. Any issues arising
from SYSC are escalated to the Risk Assurance Committee which would,
if appropriate, escalate them to the Committee. The Committee was
satisfied with the controls in place to detect unusual trading patterns and/
or excessive risk taking.
R Compliance
Compliance continued to be a key area of focus for the business during
2013 and this is expected to increase during 2014, with the continued
roll-out of new rules and regulations. The Head of Compliance and
Regulatory presents annually to the Committee on the work of the
department and the status of key areas. In addition, the Committee
reviewed how conflicts of interests are managed across the Group
and received a briefing on the breach review process within GLG.
R Internal capital adequacy assessment process (ICAAP)
The Committee reviewed the Group’s ICAAP submission to the FCA and
made recommendations to the Board in this regard. During the year the
Group was reclassified from a Full Scope to a Limited Licence group
under FCA regulations and this reclassification resulted in revised
requirements for the Group’s ICAAP submission to the FCA. The
Committee particularly focused on compliance with the changed
requirements and the operational risk capital element. The FCA has
reviewed the submission and has confirmed the revised level of regulatory
capital to be held by the Group. See page 19 for further information.
F
EA Funds under management (FUM)
During the year, management recommended some amendments to the
methodology applied in calculating the Group’s funds under management
from a fee-based approach to investment exposure. This has made the
calculation procedure more robust and auditable, and facilitates the
outsourcing arrangements, as less reliance is placed on third parties to
provide the information required for FUM calculation. The impact of the
change in methodology was not significant. The Committee agreed to
obtain independent verification over the actual FUM calculation process,
which will be undertaken during 2014.
R Service providers
The Committee has continued to monitor the Group’s progress with the
outsourcing initiatives detailed in last year’s report. The outsourcing has
progressed well with minimal issues to date and the Committee has
reviewed the governance framework in place to manage the services
provided to the Group and the funds it manages. The Committee also
received reports on the contingency plans which have been developed
and agreed with all key suppliers to ensure continuity of service.
R Information technology
The Committee receives an update from the Head of Technology
twice per year and the Committee noted the good progress made in
rationalising the Group’s IT systems. This simplification has enhanced the
IT control environment, increased the robustness of the IT infrastructure
and provided benefits to the business both through reduced costs and
enhanced functionality.
The Business Operational Risk department has also presented to the
Committee on cyber-crime and the Committee challenged the Group’s
preparedness for an attack.
IA Internal Audit
During the year the Internal Audit function transitioned to an outsourced
model provided by an independent firm, KPMG. The Committee monitored
the transition process carefully with particular focus on any impact on the
business. The transition has progressed very well and the benefits of
leveraging the knowledge and expertise of a third party supplier have been
recognised, not only by the Committee, but throughout the business.
During the year the Committee approved the revised 2013 plan and the
2014 plan and comprehensive progress reports are presented at each
meeting. A detailed review of the effectiveness of the Internal Audit function
is planned for Q2 2014, a year after KPMG fully commenced the role.
EA External audit
Non-audit services
The Committee has a policy in place for the provision of non-audit services
by the external audit firm. The policy prohibits the external auditors from
providing services which could impact their independence, which include:
• Services related to the Group’s accounting records, financial statements
or financial information systems design and implementation;
• Appraisal/valuation services, fairness opinions or contribution-in-kind
reports;
Internal Audit outsourcing services;
• Actuarial services;
•
• Management functions or human resources;
• Broker/dealer, investment advisor or investment banking;
• Certain taxation or capital markets services;
• Litigation support services where this would involve the audit firm
estimating the likely outcome of a pending legal matter that could be
material to the financial statements;
• Legal or legal support services which would involve the audit firm
estimating the likely outcome of a pending legal matter or representing
the Group in a dispute or litigation which is material to the financial
statements; and
• Recruitment or remuneration services relating to the filling of key
management positions or determining their remuneration.
Any potential services to be provided by the external auditors that have
an expected value of $75,000 or more, or where the pre-approved fees
in any financial year exceed $2 million in aggregate, must be approved in
advance by the Committee.
The table below shows the remuneration paid to the external auditors,
PricewaterhouseCoopers LLP (PwC ) and its worldwide associates, for
the year ended 31 December 2013.
Year ended
31 December
2013
$’000
Year ended
31 December
2012
$’000
Fees payable to the Company’s auditors
for the audit of the Parent Company and
consolidated financial statements
Other services:
The audit of the Company’s subsidiaries
pursuant to legislation
Audit-related assurance services
Tax compliance services
Tax advisory services
Other assurance services
All other services
736
1,202
1,795
369
1,056
452
–
167
2,494
668
556
235
687
891
Total auditors’ remuneration
4,575
6,733
The level of non-audit fees has reduced against 2012 primarily due to the
reduction of specific project work. In the prior year, the external auditors
provided services in connection with the acquisition of FRM and the creation
of a new group holding company.
Audit-related assurance services consist of fees paid for the work
undertaken in reviewing the interim results and for the assurance reports
required to be submitted to financial regulators, in particular in Switzerland.
Tax compliance services are provided in many of the jurisdictions in which
Man operates but they primarily relate to the completion of tax returns
and our compliance reporting in the US. Various state and city tax returns
are required as well as the federal filings and in 2013 PwC completed the
tax returns relating to both 2011 and 2012, which accounts for the
increase from the prior year. Tax advisory services mainly relate to
business restructuring advice in the UK.
Other services primarily relate to advice in connection with the Group’s
entity rationalisation and restructuring project.
External audit tender process
During the year, the Committee conducted a tender process for the
external audit for the financial year ending 31 December 2014. The tender
allowed the Committee to test the marketplace in terms of both service
and price and ensured compliance with the UK Corporate Governance
Code. PwC, the incumbent, was first appointed as Man’s auditors in 1996
and a full tender had not been conducted since that date.
37
Man Group plc
Annual Report 2013
The Committee concluded to recommend the appointment of Deloitte
on the basis of their experienced lead partner and audit team, their use
of technology, their proposed transition process and the value added
services identified in their proposal. In reaching this decision, the
Committee had also considered the advantages and disadvantages of
utilising one firm for both the corporate and fund audits. Although the
efficiencies that would be derived from using one firm were recognised,
the use of two firms was preferred on the basis of risk management and
maintaining broader relationships.
Committee evaluation
Last year’s evaluation identified three areas for further consideration and
development during 2013 and the table below provides an update on
these areas.
2012 evaluation
2013 progress
Increased forward looking focus
on strategic risks to supplement
the Committee’s extensive review
of day-to-day operational risks.
The skills and experience of the
Committee and the benefits of
increasing the membership.
Specific strategic risks have
been considered during the year
and further enhancements are
proposed for 2014 including a
presentation on emerging risks
in Q2.
The Committee has been
strengthened during the year by
the appointment of Andrew Horton
and Dev Sanyal, both of whom
bring valuable financial, operational
and risk management expertise
from their executive roles with
Beazley and BP respectively.
The quality of papers has
continued to improve throughout
the year, particularly those from
Internal Audit.
The tender process closely followed the best practice guidance issued by
the Financial Reporting Council in July 2013. In October 2013, a request
for proposal (RFP) was issued to provide external audit and audit-related
services covering:
Providing more focused papers
whilst still highlighting all relevant
issues.
• The audit of Man’s Parent Company, the Group financial statements
and those of certain subsidiaries;
• Reporting, in the Annual Report, whether certain remuneration and
governance disclosures were in accordance with applicable legislation
and regulations;
• The review of the interim financial statements; and
• The provision of regulatory and client asset reporting in various locations.
PwC, Ernst & Young and Deloitte were invited to tender their proposals.
Firms in the next tier of audit firms were considered but as a result of the
Group’s geographical spread none of these firms were invited to
participate. KPMG provides Man with internal audit services and was
therefore excluded for independence reasons. The three participating
firms were evaluated against set criteria in the following areas:
During the year the Committee conducted an evaluation of its
effectiveness which was managed internally. Questionnaires were sent
to Committee members and regular meeting attendees to seek their
views on the operation of the Committee. Their responses were collated
into a report and discussed at the December Committee meeting. The
evaluation found that the Committee continued to operate effectively and
added value to the business. The following areas were identified for
development during 2014:
• Further improvement of the mix of strategic and operational risks
considered by the Committee; and
• Further development of Committee members’ understanding of the
AHL operational risk and control environment.
• Credentials and capabilities of the audit firm;
• Effectiveness of the lead partner and engagement team;
• Behaviour and deliverables; and
• Fees and terms.
Matthew Lester
Chairman, Audit and Risk Committee
The process was led by the Committee and involved meetings with
key Man personnel followed by the submission of written proposals.
Presentations from each firm were then made to an external audit tender
sub-committee who reported to the Committee. As part of this process
the effectiveness of the external auditors was assessed and no concerns
were raised.
Strategic reportCorporate governanceFinancial statementsOther information
38
Man Group plc
Annual Report 2013
Corporate governance report continued
Nomination Committee report
Jon Aisbitt
Chairman
In 2013 the Committee continued
its ongoing review of the Board’s
membership and skill base with a
specific emphasis on non-executive
director succession planning. It took
a number of actions to ensure that the
Board continues to have the full range
of competencies, knowledge and
experience required for the direction
and oversight of the business. As part
of this work, it focused on the priority
areas identified for the Committee’s
attention in the 2012 Board and
Committee evaluations and
contributed its thinking and
experience to the development of
the Board’s diversity policy which
is discussed later in my report.
Committee membership and meetings
All our non-executive directors are members of the Nomination Committee
and I involve them as fully as possible in all areas of its work. Meetings are
normally also attended by Manny Roman as CEO. The table below shows
the number of meetings held and non-executive directors’ attendance
during the year. Specific areas of review and action taken by the Committee
in 2013 are discussed in this report. No individual participated in discussion
or decision making on issues relating to them personally. The Committee’s
full terms of reference can be found on our website www.man.com/GB/
nomination-committee.
Directors’ attendance at Committee meetings
Jon Aisbitt, Chairman
Alison Carnwath1
Philip Colebatch
Andrew Horton2
Frédéric Jolly
Matthew Lester
Patrick O’Sullivan3
Dev Sanyal4
Nina Shapiro
Attendance record
5/5
2/2
4/5
1/2
5/5
4/5
3/3
1/1
5/5
Notes:
1 Alison Carnwath retired from the Board on 3 May 2013.
2 Andrew Horton joined the Board on 3 August 2013.
3 Patrick O’Sullivan retired from the Board on 3 August 2013.
4 Dev Sanyal joined the Board on 1 December 2013.
Non-executive director search and appointment process
This was the most important area of activity for the Committee during the
year. In considering the Board’s future development, our initial focus was
on the further strengthening of the Audit and Risk Committee’s technical
expertise. We were also aware of the need to provide additional non-
executive resource to fill the gap which would arise following Alison
Carnwath’s retirement from the Board at the 2013 AGM.
To progress the Audit and Risk Committee requirement, we reviewed and
agreed with the Board a specification for a non-executive role which
included regulatory and risk management as well as financial reporting
experience. Egon Zehnder, who have no other connection with the
Company, were appointed to carry out a candidate search, drawing on
their prior knowledge of Man and its executive team and their successful
sourcing of previous non-executive roles. As part of their brief, in order to
39
Man Group plc
Annual Report 2013
these factors, the number of women directors on our Board will necessarily
vary from time to time and we do not think that it is appropriate to target the
achievement of a specific percentage by a given date. We will, however,
continue to seek to increase the number of women on our Board as part of
our future non-executive search.
Our full Board diversity policy, which gives details of the measures Man
employs to foster and support gender diversity within the firm as a whole,
is given on our website www.man.com/GB/board-governance.
Executive talent
The Committee’s focus during 2013 was to support the new executive
directors in their restructuring of the business and its senior management.
Mr Roman kept us advised of all key appointments, including that of Luke
Ellis as President of Man, and the reorganisation of the sales leadership team.
Our Executive Committee, which is listed on page 25, currently includes
two women members whose appointments have been achieved through
internal promotion. We will continue to challenge management to develop
further the female talent which exists within the firm and strengthen the
pipeline of candidates available for executive roles at Man and, where
appropriate, non-executive roles outside.
Committee evaluation
At its December meeting, the Committee reviewed its performance and
achievements during the year against the priorities identified in the 2012
Committee evaluation and the key elements of its ongoing mandate.
Feedback received from the Board was that good progress had been made
in the review of Board composition and non-executive succession planning,
resulting in the appointment of two new Board members who had both
financial sophistication and a good mix of strategic, risk management and
operational experience. Committee members felt that there had been a
good dialogue and increased participation in the non-executive search
process and a high level of conviction behind the candidates selected.
Opportunities for the Committee to interact informally as a group through
non-executive director dinners have been welcomed. These occasions have
also afforded non-executives the opportunity to meet executives just below
Board level and to gain more insight into the current executive talent pool.
Committee focus for 2014
Arising from the 2013 evaluation discussions, and from Board
developments during the year, the Committee has agreed the following
priorities for 2014 and I look forward to reporting on progress in these
areas in next year’s report:
• Continue the refreshing of the non-executive element of the Board.
• Focus new non-executive search on candidates with asset
management and specialist Remuneration Committee expertise.
• Review Executive Committee and senior management talent
and succession.
Jon Aisbitt
Chairman
continue to build gender diversity on the Board, the firm were asked to
include in their long list a good proportion of women candidates.
Andrew Horton
Following a review of the long list of candidates, a shortlist was drawn up
for interview by me, our CEO and our CFO, the Chairman of the Audit and
Risk Committee and our Senior Independent Director. Regrettably, this
process did not produce any female candidates who were interested in
and suited to the role. I obtained both search firm and direct references
on the Committee’s preferred candidate, Andrew Horton, CEO of Beazley,
which confirmed his suitability. Andrew brings us broad knowledge of
financial markets and risk and operational management from his current
role at Beazley. He also has extensive financial reporting and regulatory
expertise, including that gained in his former position as Beazley CFO.
Following the receipt of FCA approval of Mr Horton’s candidature, the
Committee was pleased to recommend his appointment to the Board
and to the Audit and Risk Committee.
Dev Sanyal
Patrick O’Sullivan advised us in the course of the year of his wish to stand
down from the Board. This prompted the Committee to consider the need
for new non-executive resource and options for succession to the role of
Senior Independent Director previously held by Patrick.
We had identified in our earlier non-executive search another strong
candidate, Dev Sanyal, Executive Vice President and Group Chief of Staff
of BP, who had expressed an interest in joining the Board later in the year.
Dev was able to offer us a broad spectrum of relevant skills and
experience in line management, international operations and trading and,
in particular, significant capital markets and investment expertise from his
former role as Group Treasurer of BP. Following the receipt of positive
search firm and direct references, and the securing of FCA approval, the
Committee was pleased to recommend Dev’s appointment as a member
of the Board and the Audit and Risk Committee.
Refreshing other non-executive director roles
The Committee took advantage of changes in the non-executive
membership to refresh the roles of other continuing members. It proposed
to the Board the appointment of Phillip Colebatch, Chairman of the
Remuneration Committee, as Senior Independent Director in succession
to Patrick O’Sullivan. Later in the year, after discussion of Mr Colebatch’s
wholly independent outlook, challenge and contribution, we recommended
that the Board should renew his appointment for a further three-year term,
subject to his annual retirement and reappointment by shareholders at
the AGM. A further change in non-executive responsibility followed
our recommendation of Nina Shapiro’s transfer to the Remuneration
Committee after two years’ service on the Audit and Risk Committee.
Board diversity
The Board has further discussed its diversity policy in the light of Man’s
available executive talent pool and the Committee’s non-executive search
experience. Its firm principle is to continue to make Board appointments
based on merit and overall suitability for the role. It recognises the value
that is brought to Board debate and decision making by directors with
diverse geographical background, experience and outlook and strives to
capture such diversity when making Board appointments.
It aims, in relation to gender diversity, to achieve an impactful percentage
of female representation on the Board in line with the spirit of the Davies
recommendations while recognising the constraints arising from Man’s
available internal executive pool and the limited supply of external non-
executive female candidates who meet its search criteria. As a result of
Strategic reportCorporate governanceFinancial statementsOther information 40
Man Group plc
Annual Report 2013
Directors’ remuneration report
Phillip Colebatch
Chairman of the Remuneration Committee
Directors’ remuneration report
contents
1.
Remuneration highlights
2.
2.1
2.2
2.3
Policy Report
Executive directors’ remuneration policy
Performance measures selection and approach to target-setting
Differences between executive directors’
and employees’ remuneration
Shareholding guidelines
Non-executive directors’ remuneration policy
Illustrative pay for performance scenarios
Approach to recruitment remuneration
Non-executive directors
Service contracts and exit payment policy
2.4
2.5
2.6
2.7
2.8
2.9
2.10 External appointments
2.11 Consideration of conditions elsewhere in the company
2.12 Consideration of shareholder views
40
42
42
43
43
43
44
44
45
45
46
47
47
47
Annual report on remuneration
Remuneration Committee membership in 2013
Key activities
Advisers
Statement of shareholder voting
Single total figure of remuneration for executive directors
Short-term annual bonus in respect of 2013 performance
Long-term deferred bonus in respect of 2013 performance
Single total figure of remuneration for non-executive directors
Percentage change in CEO remuneration
3.
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10 Relative importance of spend on pay
3.11 Review of past performance
3.12 Scheme interests awarded in relation to 2013
3.13 Exit payments in the year
3.14 Payments to past directors
3.15 Directors’ interests
3.16 Details of former long-term incentive plans
3.17 Retirement benefits
3.18
3.19 Non-executive director remuneration policy for 2014
47
47
48
48
48
48
49
50
51
51
51
52
52
52
53
53
56
57
Implementation of executive director remuneration policy for 2014 57
59
1. Dear shareholders,
On behalf of the Board, I present the
Directors’ remuneration report for the year
ended 31 December 2013. Remuneration in
2013 reflects the performance of the business
in the context of a mixed market environment
for alternatives throughout the year whilst
recognising the significant achievements
made by the recently appointed management
team in reshaping the Company.
Key remuneration highlights are:
Remuneration policy
• As described in our 2012 report a new Executive Incentive Plan (EIP)
was introduced for executive directors which replaced all existing
executive director remuneration arrangements. The EIP is designed to
engage and motivate senior management to deliver on Man’s KPIs
and supports implementation of the corporate strategy. It is also
designed to increase transparency and alignment with shareholders
whilst reducing the likely quantum and complexity of awards. The EIP
forms the central part of our proposed remuneration policy. Details of
Man’s KPIs are set out on pages 14 and 15.
• Our proposed remuneration policy develops further the EIP as set out
in our 2012 Remuneration Report. In response to further feedback
from shareholders following last year’s AGM and Remuneration
Report, the Remuneration Committee introduced a cap on the
long-term deferred bonus element of the EIP. This is in addition to the
cap on the short-term annual cash bonus element already established.
• The EIP comprises two elements: a short-term annual cash bonus
capped at 250% of salary, and a long-term deferred bonus capped at
350% of salary for executive directors. The long-term deferred bonus
plan will be subject to a separate shareholder vote at the AGM on
9 May 2014.
41
Man Group plc
Annual Report 2013
• Man operates mostly in the hedge fund industry and is one of the few
hedge fund companies listed anywhere in the world. Compensation
information is not generally available from Man’s privately owned
competitors. Man also has a presence in 11 countries worldwide.
None of the asset managers listed on the London Stock Exchange
manage primarily hedge funds and few operate globally. Comparators
to Man and relevant benchmarks are extremely difficult to establish.
In response to a recommendation made in the review of the
Remuneration Committee’s role, conducted in 2012, the Remuneration
Committee appointed Kepler Associates as independent advisers to
the Remuneration Committee.
•
• The Remuneration Committee believes the proposed remuneration
policy supports the delivery of the Company’s strategy and is in line with
emerging governance and best practice for executive remuneration. In
particular, it is designed to promote a focus on Man’s strategy along
with simplicity and transparency. The performance period for the EIP of
up to three years and the vesting period of up to five years are intended
to create a stronger alignment between the rewards and risk exposure
of our executives and those of our shareholders.
• As a result primarily of the increase in performance fees relating to
GLG investment managers, variable compensation including internal
commissions increased by 8%. It is essential that the Company
continues to engage and motivate revenue generators and maintain
operating capability to deliver shareholder value over the longer term.
The market for talent in investment management and sales activities
remains highly competitive.
• Staff discretionary bonuses are subject to deferral of up to 60%. This
strengthens alignment with shareholders and the future performance
of the Company and with the interests of investors in funds managed
by the Company.
• The Board reviewed management proposals for a new internal sales
compensation structure for the sales staff with the objective of both
promoting asset gathering and retention and aligning interests on costs.
A new plan was approved by the Board effective 1 January 2013.
• Staff participation in share and option plans remains high with 50% of
staff owning equity interests in Man. This fosters a culture where staff
adopt the mindset of shareholders. Additionally the Board and
employees own circa 8% of the Company’s share capital.
The report is set out in two sections:
(i) the Policy Report on pages 42 to 47, which will be subject to a binding
shareholder vote at the AGM on 9 May 2014; and
(ii) the Annual Report on Remuneration on pages 47 to 59, which provides
details of how Man’s remuneration policy was implemented during the
financial year ended 31 December 2013 and plans for 2014. This section
will be subject to an advisory vote at the AGM on 9 May 2014.
The Remuneration Committee would like to thank all those shareholders
who provided feedback during the consultation exercises undertaken late
2012, early 2013 and early 2014. As always, I welcome any comments
you may have.
Man’s Statement of Remuneration Principles is on our website:
https://www.man.com/GB/remuneration-committee
Phillip Colebatch
Remuneration Committee Chairman
Remuneration outcomes for 2013
• Executive directors’ salaries were reviewed and for the fifth
consecutive year no salary increases were awarded to serving
executive directors for 2014. There has been no increase in fees for
the Chairman since appointment in 2007 or non-executive directors
since 2009.
• The short-term annual cash bonus is determined based on
assessment against executive director objectives. In recognition of
the significant achievement against personal objectives a short-term
annual cash bonus award of 175% of salary has been awarded to the
CEO and 250% of salary for the CFO. This represents 70% and 100%
respectively of the maximum award of 250% of salary. See tables
R10a and R10b on page 49 for details of the Remuneration
Committee’s assessment against objectives.
• The long-term deferred bonus award is determined based on the
outcome against a balanced scorecard of award criteria including
80% financial and 20% non-financial criteria. For 2013, the
Remuneration Committee decided to apply a 50% discount factor to
the calculated outcome, resulting in a long-term deferred bonus award
of circa 60% of salary for the CEO and CFO. This represents circa 17%
of the maximum award of 350% of salary. See table R11 on page 50
for details of the outcome on the balanced scorecard.
• Despite the difficulties of benchmarking referred to above, when
determining Man’s 2013 compensation for its two executive directors
the Remuneration Committee referenced a benchmark study of the
equivalent positions at a number of listed asset managers.
• There was no payout to the former executive directors in respect of
prior year awards from the long-term incentives which completed their
performance period in March 2013 and December 2013. These
awards lapsed as the performance conditions were not met. See
tables R21 and R22 on page 55.
• As part of the Company’s cost saving initiatives, staff fixed costs were
reduced by 20%, see page 17 for further details.
• With a 6% reduction in total compensation the compensation/net
revenue ratio including internal commissions was 42% which has been
maintained flat to the prior reporting period.
Strategic reportCorporate governanceFinancial statementsOther information 42
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
2. Policy report
2.1. Executive directors’ remuneration policy
Aligning the interests of the executive directors with those of shareholders and with Man’s strategic goals is central to Man’s remuneration policy.
Executive directors owned over 1% of Company shares as at 31 December 2013 while staff as a whole owned circa 8%.
In line with shareholders’ interests being managed within a robust governance framework, the Company aims to retain and incentivise high calibre
executive directors by paying competitive base salary and benefits, together with a short-term annual bonus and a long-term deferred bonus linked to:
• Profits and contribution;
• The achievement of individual objectives, which are consistent with the strategy of the Company and building sustainable profitability;
• The achievement of long-term strategic KPIs in line with the long-term focus of the Company;
• The creation of long-term shareholder value;
• Ongoing oversight of a robust risk management framework;
• Maintenance of strong capital and liquidity positions; and
• Addition of senior talent, building succession for leadership and setting a strong governance structure for the Board’s delegated authorities.
This section of the report sets out the remuneration policy for executive and non-executive directors which shareholders are asked to approve at the
2014 AGM. The Remuneration Committee intends that the remuneration policy will come into effect from the AGM on 9 May 2014.
Executive directors’ remuneration policy
Table R1
Function
Operation
Opportunity
Performance metrics
Base salary
Based on experience and
individual contribution to
leadership and Company
strategy
Salaries are reviewed annually at
the year end taking into account
market ranges for executives of
comparable status, responsibility and
skill in companies of similar size and
complexity to Man with consideration
also given to sector relevance.
There is no set maximum salary
for executive directors. In reviewing
salaries the Remuneration
Committee takes into account
company performance, salary
increases below Board level, time
since the last increase and market
practice and total compensation
opportunity.
Continued good performance.
Pension
To provide an opportunity for
executives to build up income
on retirement
Benefits
To provide non-cash benefits
which are competitive in the
market in which the executive
is employed
Sharesave
To encourage UK-based
employees to own Man Group
shares
Executive Incentive Plan
Short-term annual cash bonus
To incentivise and reward
strong performance against
annual financial and non-
financial targets
Group Personal Pension (GPP), or a
similar contribution to an alternative
arrangement is provided. For those
exceeding HM Revenue & Customs
pension allowances, cash allowances
are provided at no additional cost
to Man.
Benefits include family private
medical insurance, life assurance and
permanent health insurance.
Flexible benefits can be purchased from
base salary.
Other ad-hoc benefits such as
relocation can be offered, depending
on personal circumstances.
The Man Group Sharesave Scheme
is an all-employee plan. The executive
directors who participate in the
Sharesave Scheme are granted options
over Man shares and make monthly
savings from their post-tax salary.
Options are granted at a 20% discount
to market price on the date of grant.
Objectives are set at the start of
the year. At the end of the year, the
Remuneration Committee considers
the extent to which these have been
achieved and sets the award level.
Awards are normally paid in cash.
The maximum employer
contribution is 20% of pensionable
base salary.
None.
It is not anticipated that the total
taxable benefits for any executive
director will normally exceed 10%
of salary.
None.
Savings capped at HM Revenue &
Customs limits.
In accordance with HM Revenue &
Customs requirements.
The maximum award is 250%
of salary.
The bonus is based on the
Remuneration Committee’s
assessment of executive directors’
performance over a financial year
against objectives, which cover:
1. Strategy, structure and people
2. P&L performance and sales
3. Financial health
4. Risk, compliance and reputation
The outcome of performance
against these objectives will
be reported in the Directors’
remuneration report for the
financial year in consideration.
43
Man Group plc
Annual Report 2013
Executive directors’ remuneration policy
Table R1
Function
Operation
Opportunity
Performance metrics
The EIP deferred awards will
be determined in relation to the
performance as described in the
performance metric column and
will take account of observed pay-
for-performance market practice in
comparable alternative investment
funds.
The maximum award is 350%
of salary.
Based on a balanced scorecard
of performance criteria for each
executive director.
80% of the award is based on
financial criteria, comprising:
• Investment performance 25%
• Net fund flows 25%
• Adjusted management fee
EBITDA margin 15%
• Adjusted management fee EPS
growth 15%
The remaining 20% of an award
is based on non-financial criteria,
such as culture and talent.
The Remuneration Committee
may adjust the weighting of these
criteria from time to time, to reflect
changes in strategic priorities.
Executive Incentive Plan
Long-term deferred bonus
To engage and motivate
senior management to
deliver on KPIs and support
implementation of the
Company’s strategy.
Awards are made subject to
assessment based on the three prior
years’ performance against a balanced
scorecard of financial and non-financial
measures.
As part of transitional arrangements
for the new plan, the performance
period will progressively increase to a
three-year performance period. Initially,
performance will be assessed over
a one-year period (2013 only) with
performance being assessed at the 2013
financial year end and with anticipated
deferred bonus awards granted in Q1
2014. The performance period for 2014
awards will be two years assessed at the
end of the 2014 financial year, and three
years thereafter starting at the end of the
2015 financial year.
The above transitional arrangement will
also apply for any executive director on
joining the Board.
The vesting period is set at a further
three to five years after each performance
period, the resulting combined
performance and vesting periods will then
be six to eight years from the start of each
performance period.
The number of shares subject to an
award shall be increased by reference
to dividends paid between the grant
and vesting date of an award, and such
shares shall vest only when the shares
subject to an award vest.
Malus provisions would apply for
misstatement or gross misconduct.
Notes to the policy table:
In implementing the above remuneration policy, the Remuneration Committee shall have regard to all relevant legal and regulatory requirements, including the principles and provisions
of the UK Corporate Governance Code, the UKLA Listing Rules and, the Financial Conduct Authority Remuneration Code of practice on remuneration policies, the AIFM Remuneration
Code, and to leading investor representative body guidelines (including the ABI and NAPF).
Please note that any commitments made prior to, but due to be fulfilled after, the approval and implementation of the remuneration policy approved by shareholders will be honoured. In
addition to the elements of remuneration detailed in the policy table, the Remuneration Committee may consider it appropriate to grant an award under a different structure in order to
facilitate the recruitment or retention of an individual, exercising the discretion available under the UKLA Listing Rules (see details in paragraph 2.7).
2.2. Performance measures selection and approach to target-setting
Annual objectives are set according to immediate priorities identified by the Board and management, and will be reviewed and adjusted annually to
reflect changing priorities. The long-term incentive measures are in line with the long-term strategic focus of the Company and will be reviewed as part
of the annual Board strategic review.
2.3. Differences between executive directors’ and employees’ remuneration
Executive Committee members are eligible to participate in the Executive Incentive Plan alongside executive directors to align the remuneration of the
most senior management, although their incentive payouts are uncapped, in line with market practice in alternative investment funds.
Employee remuneration includes base salary, benefits, an annual performance bonus and, for senior contributors, share and fund-based deferrals.
The level of deferral increases as total compensation increases. This provides alignment with shareholders and the future performance of the
Company and with the interests of investors in funds managed by the Company.
Sales staff have a specific bonus scheme, which was reviewed in 2013, to reinforce asset gathering and retention whilst aligning interests on costs.
2.4. Shareholding guidelines
The Chief Executive Officer is required to maintain a shareholding of 200% of base salary. Other executive directors are required to maintain a
shareholding of 100% of base salary. Executive directors are required to build up this shareholding on joining the Board and after a reduction in share
price. Incumbents will build up to the prescribed shareholdings with (post-tax) vested shares where not already at or above this level.
In addition, the EIP has been designed so that executive directors have a significant holding of unvested shares subject to ongoing service at any one time.
Strategic reportCorporate governanceFinancial statementsOther information 44
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
2.5. Non-executive directors’ remuneration policy
Non-executive directors have formal letters of appointment. These do not contain any notice provisions or provision for compensation in the event of
early termination. The Chairman has a contract with the Company which provides that his appointment as Chairman is terminable on three months’
notice; there are no notice provisions relating to his appointment as a director. The Board’s policy is to appoint non-executive directors for an initial
three-year term, subject to retirement and reappointment by shareholders annually at the AGM, which may be followed by a further three years by
mutual agreement. Any further extension will be subject to rigorous review. The initial dates of appointment of the non-executive directors to the Board
are shown on pages 26 and 27 of the Annual Report, and their current fee levels are provided in the Annual Report on Remuneration. Non-executive
directors are also encouraged to build a shareholding in the Company.
Details of the policy on fees paid to our non-executive directors are set out in the table below.
Non-executive directors’ remuneration policy
Table R2
Function
Operation
Opportunity
Performance metrics
Fees
To attract and retain non-executive
directors of the highest calibre and
experience relevant to Man
Fees are reviewed annually by
the Board at the year-end taking
into account market benchmarks
for non-executives of companies
of similar size and complexity to
Man with consideration of sector
relevance.
Any fee increases for non-executive
directors will not normally exceed
the average increase in the market.
A fee increase may be above this
level if there is a significant change
in time commitment required or
scope of the role.
None
The Chairman’s remuneration
is recommended by the
Remuneration Committee and
approved by the Board. Neither the
Chairman nor the non-executive
directors take part in discussions
or vote on their own remuneration.
Non-executive directors receive
a base fee for Board service
and additional fees for Board
Committee membership and
other responsibilities. They do not
participate in any share option or
share incentive plans.
2.6. Illustrative pay for performance scenarios
Although executive directors will be assessed individually for their short-term awards, the chart below provides an illustration of some of the potential
future reward opportunities for executive directors, and the potential split between the different elements of remuneration under three different
performance scenarios: ‘minimum’, ‘on-target’ and ‘maximum’.
Projected pay under three performance scenarios ($’000)
CEO
Maximum
15%
On-target
26%
Minimum
100%
CFO
35%
31%
43%
50%
Maximum
16%
35%
49%
On-target
28% 30%
42%
Minimum
100%
Table R3
$7,052
$4,052
$1,052
$4,465
$2,590
$715
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
Salary & Benefits
Annual cash EIP
Long-term EIP
45
Man Group plc
Annual Report 2013
Assumptions used:
• The ‘minimum’ scenario reflects base salary, pension and benefits (i.e. fixed remuneration) which are the only elements of the executive directors’
remuneration packages not linked to performance during the year being reported on.
• The ‘on-target’ scenario reflects fixed remuneration as above, plus bonus payout of 125% of salary (corresponding to the Remuneration
Committee’s assessment of an overall on-target performance) and a long-term deferred bonus award of 175% of salary (corresponding to the
Remuneration Committee’s assessment of an overall on-target performance over the one, two or three-year performance period).
• The ‘maximum’ scenario reflects full bonus payout of the current maximum of 250% of salary for the short-term annual cash bonus award and the
current maximum of 350% of salary for the long-term deferred bonus award.
• The illustrations are based on initial award value and therefore do not reflect potential share price appreciation or any dividends received over the
deferral periods.
2.7. Approach to recruitment remuneration
External appointment
Approach to recruitment remuneration
Table R4
Component
Base salary
Pension
Benefits
Sharesave
Approach
Maximum grant value
Base salary will be determined to provide competitive total
compensation in relation to relevant market practice, experience and
skills of the individual, internal relativities and their current compensation.
None
Pension contributions or an equivalent cash supplement will normally be
set in line with existing policy.
Benefits may include (but are not limited to) private medical insurance,
life assurance, permanent health insurance and any necessary
relocation expenses.
New appointees will be eligible to participate in any all-employee share
schemes the Company offers.
n/a
n/a
n/a
Executive Incentive Plan
Short-term annual cash bonus
The remuneration structure described in the policy table will apply to
new appointees with the relevant maximum being pro-rated to reflect the
proportion of employment over the year.
250% of salary
Executive Incentive Plan
Long-term deferred bonus
New appointees may be granted awards under the long-term deferred
bonus on the same terms as other executives, as described in the
policy table.
350% of salary
The performance periods used for determining the awards would be
gradually increased until the new appointee has completed three full
financial years at Man.
In determining the appropriate remuneration, the Remuneration Committee will take into consideration all relevant factors (including quantum,
nature of remuneration and the jurisdiction from which the candidate was recruited) to ensure that arrangements are in the best interests of both
Man and its shareholders.
With respect to a new appointment the Remuneration Committee may ‘buy out’ incentive arrangements, including bonuses, forgone on leaving
a previous employer, and awards made under such ‘buy out’ arrangements may be in addition to the remuneration outlined in the table above.
In doing so, the Remuneration Committee will consider relevant factors including any performance conditions attached to these incentive
arrangements and the likelihood of those conditions being met. In defining the size of this award, the Remuneration Committee would ensure that
its fair value is no higher than the fair value of the incentive arrangements forgone. The Remuneration Committee may also consider it appropriate
to structure any such ‘buy out’ award differently to the structure described in the policy table including whether appropriate performance
conditions should apply, exercising the discretion available under the UKLA Listing Rules.
The Remuneration Committee does not intend that such awards will be made as a matter of routine; on the contrary, although the Remuneration
Committee cannot anticipate every circumstance which it might face in the future, it is expected that any such awards under the UKLA Listing
Rules will only be contemplated in exceptional circumstances, will be reviewed and approved by the full Board and described fully in the next
subsequent year’s Directors’ remuneration report.
Internal appointment
For the appointment of a new executive director by way of internal promotion, the Remuneration Committee’s approach will be consistent with the
policy for external appointees detailed above. Where an individual has contractual commitments made prior to their promotion to the Board, the
Company will continue to honour these commitments.
2.8. Non-executive directors
When recruiting a new non-executive director, the Board will utilise the policy as set out in table R2 on page 44. A base fee in line with the prevailing
fee schedule would be payable for Board membership, with additional fees payable for acting as Senior Independent Director or as a member or
Chairman of a Board Committee.
Strategic reportCorporate governanceFinancial statementsOther information 46
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
2.9. Service contracts and exit payment policy
Service contracts
Element
Contract dates
Condition
Jonathan Sorrell: 28 September 2012.
Emmanuel Roman: 7 February 2013.
Current appointment
No fixed term.
Notice period (by either Company
or director)
Emmanuel Roman: 12 months.
Jonathan Sorrell: 6 months.
Table R5
Contractual entitlement to fixed
bonus or share-based incentive
None
The Company’s policy is that notice periods will not exceed 12 months.
Provisions for contract termination Under both contracts the Company can opt to terminate immediately by making a payment in lieu of the
notice period or part of it. Emmanuel Roman’s contract requires payment of base salary only in lieu. Jonathan
Sorrell’s contract requires payment of base salary plus the value of pension contributions (or alternative cash
allowance) and certain other insured benefits in lieu.
Payments in lieu are to be made in monthly instalments unless the Company and the executive agree otherwise.
Unless the Company decides otherwise both executives have a duty to mitigate their losses arising from
termination of their employment; any replacement earnings earned in what would otherwise have been the
notice period will reduce the obligation on the Company to make payments in lieu.
The service contracts do not oblige the Company to pay any cash bonus to executive directors and bonuses
are awarded at the Board’s discretion following a recommendation from the Remuneration Committee.
Payment of any cash bonus is conditional upon the executive being in employment and not under notice
at the payment date.
Short-term annual cash bonus
Long-term deferred bonus and
incentives
Treatment of deferred bonuses and long-term incentives is governed by the relevant plan rules as
explained below.
To protect the Group’s business interests the executive directors’ service contracts contain covenants which restrict the executives’ ability to solicit or
deal with clients and their ability to solicit senior employees. Emmanuel Roman has also entered into a broader non-compete covenant for an agreed
period post termination.
Further the Board has the right at its discretion to require Jonathan Sorrell to comply with a broader non-compete covenant for up to six months
post termination to provide additional protection for the Group. If the Board exercises this right, the Company will pay an additional amount up to
six months’ base salary and the value of pension contributions (or alternative cash allowance) and certain other insured benefits so that he is not left
without income during the time when the Board wishes the non-compete to operate. This amount is paid in two equal instalments and is reduced
by any payments made in lieu of notice.
Executive directors’ service contracts are available to view at the Company’s registered office.
When considering exit payments, the Remuneration Committee reviews all outstanding incentive awards and assesses outcomes that are fair to both
shareholders and participants. The table below summarises how awards under the Executive Incentive Plan are typically treated in specific circumstances,
with the final treatment remaining subject to the Remuneration Committee’s discretion.
Long-term deferred bonus and other share incentives
Table R6
Reason for leaving
Good leaver(a)
Timing of vesting
Calculation of vesting/payment
Follows normal vesting schedule (except in the case
of death where the Remuneration Committee may
allow early vesting or redundancy under the Deferred
Share Plan(b) and Fund Product Plan(b) where early
vesting occurs).
Awards vest on a time pro rata basis under the
long-term deferred bonus. No time pro-rating applies
under other plans.
Any other reason
All awards lapse.
Notes:
(a) Good leaver reasons include death, retirement, ill-health, injury or disability, redundancy, sale of the company or business in which the individual was employed, leaving with
agreement of the Company if the Remuneration Committee is satisfied that an orderly handover has been organised and performed. The Remuneration Committee may also
decide, in its discretion, to grant good leaver status in other exceptional circumstances and will take into account the reason for leaving and the executive director’s performance up
to the date employment ceases.
(b) Jonathan Sorrell was granted nil-cost options under the DSP and FPP schemes prior to his appointment as a director.
47
Man Group plc
Annual Report 2013
2.10. External appointments
With the approval of the Board in each case, and subject to the overriding requirements of the Group, executive directors may accept a limited number
of external appointments as non-executive directors of other companies and retain any fees received. Details of external directorships held by
executive directors, including associated fees, are provided in the Directors’ remuneration report where applicable.
2.11. Consideration of conditions elsewhere in the company
In assessing executive director remuneration, internal relativities within the Company are reviewed by the Remuneration Committee. These internal
reviews cover the individual elements of base salaries, benefits and total compensation. The CEO and senior management also conduct regular town
hall meetings, where all employees have an opportunity to ask questions or express opinions on various subjects, including remuneration.
2.12. Consideration of shareholder views
The Remuneration Committee takes into account shareholder views received in relation to resolutions to be considered at the AGM each year and
guidance from shareholder representative bodies more broadly. The Remuneration Committee considers shareholder feedback an important input
when forming remuneration policy and regularly reviews Man’s remuneration policy against the guidelines of key institutional shareholders and their
representative bodies.
The Executive Incentive Plan takes into account a number of inputs received from our shareholders during the consultation process the Board
undertook in late 2012 and early 2013, an example of which is the introduction of a cap on the long-term deferred bonus element of the EIP. The Board
also consulted with a number of shareholders in early 2014 on the proposed remuneration policy including the proposed Executive Incentive Plan and
took into account inputs received in formulating the remuneration policy.
3. Annual report on remuneration
The following section provides details of how Man’s remuneration policy was implemented during the financial year ended 31 December 2013.
3.1. Remuneration Committee membership in 2013
The Remuneration Committee is comprised of the Company Chairman, the Senior Independent Director and two further independent non-executive
directors. The Senior Independent Director is also a member of the Audit and Risk Committee thereby facilitating the flow of information between the
Committees. All Remuneration Committee meetings in 2013 were attended by all its members.
At the invitation of the Remuneration Committee, the CEO, CFO and Head of Compensation, who is also Secretary to the Remuneration Committee,
attended selected agenda items requiring their contribution. No individual participated in the discussion or approval of his or her own compensation.
The Remuneration Committee follows relevant legal and regulatory requirements including the principles and provisions of the UK Corporate
Governance Code, the UKLA Listing Rules and the FCA Remuneration Code of practice on remuneration policies (the FCA Code), the Alternative
Investment Funds Management Directive (AIFMD) and leading investor representative body guidelines (including the ABI and NAPF).
The Remuneration Committee was found to be operating effectively and had fulfilled its obligations in an independent evaluation of the Remuneration
Committee undertaken by Edis-Bates Associates in 2012, as engaged by Man (for further information please see page 32 of 2012 Annual Report).
The evaluation offered recommendations to the Remuneration Committee during 2013 including:
• The skills and experience of the Remuneration Committee to be complemented by an appointed external remuneration advisor who attends
meetings frequently.
• With the pace of current developments in remuneration governance and practice, current briefings to be supplemented by additional training
and updates.
The Remuneration Committee conducted an internal evaluation in 2013 and was found to be operating effectively.
Remuneration Committee meeting attendance
Member
Jon Aisbitt
Phillip Colebatch
Alison Carnwath
Frédéric Jolly
Position
Company Chairman
Remuneration Committee Chairman (and Senior Independent Director from 3 August 2013)
Member (stepped down from the Board on 3 May 2013)
Member
Patrick O’Sullivan
Senior Independent Director (stepped down from the Board on 3 August 2013)
Nina Shapiro
Member (joined the Remuneration Committee on 3 August 2013)
Table R7
Number of
meetings
during term
Number of
meetings
attended
5
5
2
5
2
3
5
5
2
5
2
3
Strategic reportCorporate governanceFinancial statementsOther information
48
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
3.2. Key activities
In 2013 the Remuneration Committee reviewed and followed its already well-established governance policies and processes to meet the requirements
of the FCA Remuneration Code and developing best practice requirements. The key activities include:
• Reviewed the revised remuneration reporting regulations and approved the Directors’ remuneration report. As part of the remuneration policy the
Remuneration Committee decided to introduce a cap on the long-term deferred bonus element of the Executive Incentive Plan. The Remuneration
Committee carried out a further shareholder consultation on the proposed remuneration policy.
• Continued working closely with the Audit and Risk Committee in reviewing current and future risks around setting remuneration. In reviewing risks
within the business the Committees attributed responsibility for these risks to individuals to identify the FCA Code Staff employees responsible for risk
management. The Remuneration Committee reviews and approves pay for these staff.
• Reviewed the Remuneration Committee Terms of Reference in light of the evolving FCA Remuneration Code. The terms of reference of the Remuneration
Committee can be found on the Company’s website http://www.mangroupplc.com/about-man/board-directors/remuneration-committee.jsf
• Regular meetings were held with a structured agenda and follow up process. The Remuneration Committee held five meetings. In these meetings the
Remuneration Committee monitored and implemented regulatory and best practice updates.
• Review and approval of the terms for the appointment and termination of executive directors and other key staff.
• Reviewed compensation packages proposed for senior hires to ensure there is a sound business case to justify these hires, and guaranteed
remuneration was only used in exceptional circumstances.
• Compensation was structured such that an appropriate proportion of employees’ compensation is deferred into shares or funds to create a direct
alignment between the rewards and risk exposure of employees with shareholders and investors. For 2013, the level of deferral increases as total
compensation increases with up to 60% deferred for other senior employees.
• Reviewed performance evaluations for executive directors and recommended for Board approval the 2013 remuneration for executive directors.
The Board approved executive directors’ objectives and compensation, following a recommendation from the Remuneration Committee, given the
importance of using compensation to motivate executive directors to deliver the Company’s strategic plan.
3.3. Advisers
The Remuneration Committee invites independent consultants to provide advice on specific remuneration issues. In line with the recommendations from the
2012 review of the Remuneration Committee’s role, Kepler Associates (Kepler) was appointed by the Remuneration Committee following a tender process in
September 2013 as its independent adviser. The Remuneration Committee undertakes due diligence periodically to ensure that Kepler remains independent
and that the advice provided is impartial and objective. In 2013 Kepler provided advice on executive director remuneration policy and compliance with the new
BIS requirements. Kepler reports directly to the Chairman of the Remuneration Committee and does not advise the Company on any other issues. Their total
fees for the provision of services to the Remuneration Committee in 2013 were £35,550 (excluding VAT) on the basis of time and materials.
3.4. Statement of shareholder voting
The following table shows the results of the advisory vote on the 2012 Remuneration Report at the 2013 AGM.
For
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
Table R8
Total number of votes % of votes cast
915,748,663
45,478,980
95.3%
4.7%
961,227,643
100.0%
21,998,620
983,226,263
3.5. Single total figure of remuneration for executive directors
The table below sets out a single figure for the total remuneration received by each director for the year ended 31 December 2013 and the prior year.
Single total figure of remuneration for executive directors (audited)
Table R9
All figures in USD
Salary
Taxable benefits
Pension benefits
Short-term variable
Long-term variable
Other
Total
Executive directors
Former executive directors
Emmanuel Roman
Jonathan Sorrell
Peter Clarke
Kevin Hayes(d)
2013
2012
2013
2012(a)
2013(c)
2012
2013
2012
1,000,000
49,804
–
1,750,000
595,583
1,776
1,000,000
46,412
–
–
–
1,268
625,000
3,059
85,059
336,407
2,761
46,088
1,562,500 1,482,000(b)
–
690
372,240
1,636
869,500
20,839
84,869
–
–
2,916
925,000
23,052
97,384
–
–
2,388
3,397,163
1,047,680
2,649,494
1,867,946
978,124
1,047,824
–
–
–
–
–
–
–
914,384
5,052
73,190
–
–
2,303
994,930
Notes:
(a) Jonathan Sorrell was appointed to the Board on 18 June 2012. Salary and benefits have been included for the period in 2012 as a director. The 2012 share award is for the full
calendar year 2012.
(b) DBSOP award.
(c) Peter Clarke stepped down from the Board on 28 February 2013 and remained on garden leave until the end of his notice period on 10 December 2013, when he retired. The total
earnings during his garden leave period were $811,494 (salary $721,500 and benefits $89,994) and are included in the 2013 single total figure of remuneration.
(d) Kevin Hayes stepped down from the Board on 18 June 2012 and was on garden leave until his contract terminated on 18 December 2012. The total earnings during his garden
leave period were $342,572 (salary $314,384 and benefits $28,188) and a payment of $339,057 was made in lieu of salary ($312,500) and benefits ($26,557) for the balance of his
notice period.
49
Man Group plc
Annual Report 2013
3.6. Short-term annual bonus in respect of 2013 performance
The short-term annual cash bonus is based on the Remuneration Committee’s assessment of executive directors’ performance against objectives as
agreed by the Board at the beginning of the year. Tables R10a and R10b show the results of this assessment for 2013.
Chief Executive Officer (audited)
Table R10a
Assessment criteria
Objectives
Achievements
Strategy, structure and people
• Reorganise and rejuvenate management structure.
• Overhaul overall organisational structure to
enhance focus on investment performance, sales
and US market.
• These objectives were achieved early in the year
with a number of key hires and appointments.
This enabled an important focus on key strategic
objectives for the balance of the year.
Financial health
• Provide leadership for headcount reductions
necessary to achieve cost saving target.
• Grow revenue.
• Grow EBITDA.
• Exit selected geographies.
• Headcount target achieved.
• Revenue and EBITDA targets not achieved.
• Closure of certain offices achieved.
Investment performance and sales
• Restructure organisation of quantitative
product platform.
Invest in carefully chosen new products.
•
• Refocus sales, overhaul sales incentive plan and
achieve a return to net asset inflows.
• AHL and MSS merged into a single and enhanced
quantitative products area. Developed Evolution.
• Developed fixed income and macro products.
• Objectives on sales organisation achieved. Man
returned to positive net sales in Q3 and Q4.
Risk, compliance and reputation
• Continue to nurture compliance and control culture.
• No material control and compliance breaches or
• Unwavering focus on compliance and control.
• Reputational objective achieved.
reputational issues.
Engagement with external
• Rejuvenate engagement with shareholders and
• Full commitment to engaging with external
stakeholders
other external stakeholders.
stakeholders, including key regulators in the UK
and abroad.
• Stakeholder feedback taken into account with
useful discussion amongst senior management.
Total resulting level of award as a percentage of maximum opportunity of up to 250%
of salary
Award as a percentage of salary
Quantum of award
Chief Financial Officer (audited)
Assessment criteria
Objectives
Achievements
70%
175%
$1,750,000
Table R10b
Balance sheet/capital optimisation
• Conclude discussions with FCA on regulatory status
and ICAAP with objective of releasing capital.
• Depending on outcome of FCA discussions, devise
and execute plan for capital efficiencies.
Cost reduction
• Ensure delivery of the Phase II cost saving
programme.
• Deliver 2013 cost budget.
• FCA agreed change of Man regulatory status from
Full Scope to Limited Licence with consequent
release of $550 million of capital.
• Revised ICAAP agreed with FCA, which resulted in
no significant change to the capital requirement of
the Group.
• Redeemed all outstanding debt, tier 2 and hybrid
securities saving $78 million pa of interest/coupon
payments.
• Phase II cost saving programme exceeded.
•
Identified and announced $75 million of further
cost savings.
• Actual 2013 costs under budget.
Investor relations
• Overhaul investor relations and improve financial
• Made financial presentation to analysts more
communication.
Financial analysis and reporting
•
Improve relevance of internal financial reporting
and links to strategic priorities.
• Continue to develop financial control framework.
relevant leading to more accurate market forecasts.
• Positive analyst feedback on clarity of
communication and equity investment story.
• Rationalised internal financial reporting functions
and developed information to gauge progress
against business objectives and strategic priorities.
• Further developed financial control framework.
Restructure and enhance the
• Reorganise and enhance Finance team.
• Developed key senior talent to embrace greater
finance team
responsibilities.
Total resulting level of award as a percentage of maximum opportunity of up to 250%
of salary
Award as a percentage of salary
Quantum of award
100%
250%
$1,562,500
Strategic reportCorporate governanceFinancial statementsOther information 50
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
3.7. Long-term deferred bonus in respect of 2013 performance
The long-term deferred bonus plan awards are made subject to assessment against a balanced scorecard of performance criteria for each executive
director, with 80% determined by financial criteria and 20% non-financial criteria. Table R11 shows the result of this assessment for 2013. Additional
information on Man’s KPIs is set out on pages 14 and 15.
Long-term deferred bonus – 2013 outcome of balanced scorecard of financial and non-financial metrics (audited)
Table R11
Performance
achieved vs target
t
e
m
y
l
l
a
i
t
r
a
P
l
l
u
f
n
i
t
e
M
t
e
m
t
o
N
Financial KPI
Weight Target
Investment
performance
25% • Net performance <= benchmark
performance, criteria is not met.
• Net performance > benchmark
performance, criteria is met.
Net flows
25% • Net flows ≤ 0%, criteria is not met.
• Net flows ≥ 10%, criteria is met in full.
• 0% < Net flows < 10%, criteria is met
proportionally.
15% • Adjusted management fee EBITDA margin
≤ 25%, criteria is not met.
• Adjusted management fee EBITDA margin
≥ 40%, criteria is met in full.
• 25% < adjusted management fee EBITDA
margin < 40%, criteria is met
proportionally.
15% • Adjusted management fee EPS growth ≤
0% plus RPI, criteria is not met.
• Adjusted management fee EPS growth ≥
20% plus RPI, criteria is met in full.
• 0% plus RPI, < adjusted management fee
EPS growth < 20% plus RPI, criteria is
met proportionally.
20% • Judgement made by the Remuneration
Committee and Board.
Adjusted
management
fee EBITDA
margin
Adjusted
management
fee EPS
growth
Non-
financial
Culture and
talent
Percentage
achieved of
weighting
Resulting
outcome
33.3%
8.3%
0%
0%
73%
11%
0%
0%
75%
15%
Achievement
Achieved one out of the three
performance targets. AHL met the
target. Although GLG and FRM
reported both positive and good
performance on a risk adjusted basis,
the stretch targets were not met.
Net flows were below target in 2013
with a net outflow of 6.3%. This
was an improvement from the year
to 31 December 2012 but reflects
the difficult trading environment, in
particular for AHL, partly offset by
inflows for GLG in the second half of
the year.
The adjusted management fee
EBITDA margin of 36% was within the
target range for the year ended 31
December 2013.
The adjusted management fee EPS
growth was below target for 2013
primarily as a result of the decline in
management fee revenue and the
overall gross margin, partly offset by
reduced costs.
Key hires and role changes made
in the senior management team,
sales organisation and investment
organisation.
Maintained control environment while
reducing headcount and costs.
Renewed sense of accountability
and achievability in key parts of the
organisation.
Brought in new talent.
The CEO and CFO worked together
on these initiatives throughout the
year and both are rated the same in
this respect.
Total resulting outcome as a percentage of maximum opportunity of up to 350% of salary.
34%
For 2013, the Remuneration Committee decided to apply a 50% discount factor to the calculated outcome of the balanced scorecard. The resulting
award level, in percentage of executive director’s salary is therefore circa 17% of the maximum award (350% of salary), resulting in a deferred share
award of circa 60% of executive director’s salary.
51
Man Group plc
Annual Report 2013
3.8. Single total figure of remuneration for non-executive directors
The table below sets out a single figure for the total remuneration received by each non-executive director for the year ended 31 December 2013 and
the prior year.
Single total figure of remuneration for non-executive directors (audited)
All figures in GBP
Current directors
Jon Aisbitt
Phillip Colebatch(a)
Frédéric Jolly
Nina Shapiro(b)
Matthew Lester
Andrew Horton(c)
Dev Sanyal(d)
Former directors
Alison Carnwath(e)
Patrick O’Sullivan(f)
Table R12
Total fees
2013
2012
450,000
100,224
75,000
77,955
95,000
32,821
6,667
450,000
90,000
75,000
80,000
95,000
–
–
31,250
59,103
75,000
100,000
Notes:
(a) Phillip Colebatch was appointed Senior Independent Director and a member of the Audit and Risk Committee on 3 August 2013.
(b) Nina Shapiro ceased to be a member of the Audit and Risk Committee and was appointed to the Remuneration Committee on 3 August 2013.
(c) Andrew Horton was appointed to the Board and as a member of the Audit and Risk Committee on 3 August 2013.
(d) Dev Sanyal was appointed to the Board and as a member of the Audit and Risk Committee on 1 December 2013.
(e) Alison Carnwath stepped down from the Board on 3 May 2013.
(f) Patrick O’Sullivan stepped down from the Board on 3 August 2013.
3.9. Percentage change in CEO remuneration
The table below sets out the percentage change in remuneration for the CEO and staff.
Percentage change in CEO remuneration
Salary
Taxable benefits
Annual bonus
2013
CEO(a)
2012
Table R13
All Staff
All figures in $’000s
% change
% change
1,000
50
1,750
1,000
46
–
0%
9%
n/a
3%
-6%
36%(b)
Notes:
(a) Emmanuel Roman joined Man in the GLG acquisition. As part of this, he acquired a significant shareholding in Man and contractually committed to retain those shares for a period.
Along with selected other senior GLG management, he committed to work for the effective integration of GLG into Man, to receive only a fixed salary (of US$1 million) and agreed not to
be eligible to participate in any bonus plan. During this period he became a key member of the Man senior management team. These acquisition arrangements have now expired and,
in recognition of his broad contribution, he was appointed CEO on 28 February 2013. The Board determined that it would be inappropriate to reduce his salary upon appointment to
CEO. For 2013, he is eligible to receive a bonus for the first time since joining Man and the Board has assessed his total remuneration as described in this Directors’ remuneration
report. Emmanuel Roman is a non-executive director of Grupo Prisa SA; he retains fees of €121,583 (of which €24,582 was awarded as shares) in respect of this directorship.
(b) Variable compensation including internal commissions increased by 8% from 2012 to 2013 as a result primarily of the increase in performance fees relating to GLG investment
managers. Average headcount decreased by 20% from 2012 to 2013. Refer to notes 6 and 24 to the financial statements.
3.10. Relative importance of spend on pay
The table below shows the year-on-year change in total employee expenditure compared to the change in shareholder distributions.
Relative importance of spend on pay
Total employee expenditure(a)
Shareholder distributions(b)
Table R14
% change
-6%
-9%
2012
$m
475
306
2013
$m
445
277
Notes:
(a) Remuneration paid to or receivable by all employees (i.e. accounting cost). Refer to note 6 to the financial statements for further details.
(b) Distributions to shareholders (dividends paid and repurchase of shares in the year).
Strategic reportCorporate governanceFinancial statementsOther information 52
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
3.11. Review of past performance
The performance graph below compares the Company’s total shareholder return performance against the FTSE 350 Financial Services Index. Man
operates in the alternative investment management sector and is listed on the FTSE 250 Index on the London Stock Exchange. The FTSE 350
Financial Services Index has been chosen as it is the most appropriate comparator to cover a period when Man has been in both the FTSE 100 and
FTSE 250. The majority of Man’s direct competitors are unlisted and information is not available.
180
56
2
1
c
e
D
Table R15a
236
63
3
1
c
e
D
Source: Datastream
Table R15b
250
200
150
100
50
100
100
9
0
r
a
M
151
121
0
1
r
a
M
178
136
1
1
r
a
M
150
75
1
1
c
e
D
Man Group TSR
FTSE 350 Financial Services TSR
Historical CEO remuneration
Accounting period ended
CEO single figure ($’000s)
STI award (as a percentage of maximum opportunity)(c)
LTI award (as a percentage of maximum opportunity)(c)
31 March 2010 31 March 2011(a)
31 December
2011(b)
31 December
2012
31 December 2013 (d)
P Clarke
P Clarke
P Clarke
P Clarke
P Clarke
E Roman
6,299
8,173
6,437
1,048
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
978
0%
0%
3,397
70%
17%
Notes:
(a) Salary and benefits are for 12 months and bonus for nine months.
(b) Salary and benefits are for nine months and bonus for 12 months.
(c) For the accounting periods ended up to and including 31 December 2012, as there was no cap on the overall maximum bonus awards, the percentage of maximum opportunity
is not shown.
(d) Peter Clarke stepped down as CEO with effect from 28 February 2013 and was on garden leave until his retirement on 10 December 2013. Emmanuel Roman became CEO on
28 February 2013.
3.12. Scheme interests awarded in relation to 2013
Scheme interests awarded in relation to 2013 (audited)
Table R16
Executive director
Emmanuel Roman
Jonathan Sorrell
Scheme
Maximum award
Award (% of
maximum)
Award value(a)
(USD)
End of holding
period date
2013 Deferred executive incentive plan
350% of salary
circa 17%
595,583
2013 Deferred executive incentive plan
350% of salary
circa 17%
372,240
Mar-19
Mar-19
Note:
(a) Awards are calculated according to performance against a balanced scorecard, refer to section 3.7 above. Awards will be converted into a number of shares using the USD/GBP rates
and mid-market share price quoted mid-March 2014. Awards are due to be granted as conditional awards of shares and vest three to five years after grant, subject to plan rules.
3.13. Exit payments in the year (audited)
Peter Clarke stepped down as CEO with effect 28 February 2013, and retired, after a garden leave period, on 10 December 2013. Peter Clarke was
paid his contractual entitlement to basic salary, car allowance and cash pension allowance during the period of his garden leave and continued to
benefit from life and permanent health insurance benefits during this period. The total earnings during his garden leave period were $811,494 (salary
$721,500 and benefits $89,994), and are included within the single total figure of remuneration in table R9 on page 48. No bonus was paid in respect
of 2013. Further details have been disclosed in the 2012 Annual Report, page 47.
There was no payout to Peter Clarke in respect of awards from long-term incentives which completed their performance period in 2013, as the
performance conditions were not met.
53
Man Group plc
Annual Report 2013
3.14. Payments to past directors (audited)
There were no remuneration payments, except for those disclosed in 3.13 above, made to former executive directors during the year.
3.15. Directors’ interests
Directors’ interests in shares of Man Group plc (audited)
Table R17
Executive directors
Emmanuel Roman(c)
Jonathan Sorrell(d)
Non-executive directors
Jon Aisbitt
Phillip Colebatch
Frederic Jolly
Matthew Lester
Nina Shapiro
Andrew Horton(e)
Dev Sanyal(f)
Former directors
Peter Clarke
Patrick O’Sullivan
Alison Carnwath
Number of ordinary shares(a)
31-Dec-13
Number of ordinary shares(a)
31-Dec-12(b)
19,629,418
425,791
1,681,251
10,000
9,705
22,692
28,258
50,000
60,947
5,168,750(g)
115,116(h)
294,161(i)
19,629,418
304,878
1,681,251
10,000
9,705
22,692
28,258
n/a
n/a
5,168,750
108,389
294,161
Notes:
(a) All of the above interests are beneficial.
(b) There has been no change in the directors’ interests in the ordinary shares of Man Group plc from 31 December 2013 to the date of this report.
(c) Emmanuel Roman also holds 50,000 deferred sterling shares of £1, which are held to satisfy a requirement of the Companies Act 2006 and carry no voting rights or rights
to distributions.
(d) Jonathan Sorrell was appointed to the Board on 18 June 2012.
(e) Andrew Horton was appointed to the Board on 3 August 2013.
(f) Dev Sanyal was appointed to the Board on 1 December 2013.
(g) Interest as at 28 February 2013, the date Peter Clarke stepped down from the Board.
(h) Interest as at 3 August 2013, the date Patrick O’Sullivan stepped down from the Board.
Interest as at 3 May 2013, the date Alison Carnwath stepped down from the Board.
(i)
The market price of the Company’s shares at the end of 31 December 2013 was 85 pence. The highest and lowest daily closing share prices during
the 12 month financial period were 134.40 pence and 78.35 pence respectively.
Executive directors’ shareholdings against their respective shareholding requirement
as at 31 December 2013
Table R18
Shares held
Nil cost options held
Other options held
Owned
outright
Value of
shareholding(a)
(USD) Salary (USD)
Share-
holding
requirement
as a % of
salary
Current
shareholding
as a % of
salary
Requirement
met?
Vested
but not
exercised
Unvested
and subject
to continued
employment
Vested
but not
exercised
Unvested
and subject
to continued
employment
(b)
Unvested
and
subject to
performance
criteria being
met
Executive directors
Emmanuel Roman
19,629,418 27,623,695 1,000,000
200% 2,762%
Yes
–
–
Jonathan Sorrell(c)
425,791
599,199
625,000
100%
96% No (by 4%)
– 1,381,551
–
–
–
23,076
–
–
Former executive director
Peter Clarke(d)
5,168,750
7,273,775
925,000
200%
786%
Yes 873,431
– 3,091,231
–
491,477
Notes:
(a) Shareholdings valued at 31 December 2013 share price of £0.85 and £1=$1.6556.
(b) This includes options held under the Man Group Sharesave Scheme. Details are available in table R20.
(c) Jonathan Sorrell has 92,598 award shares under the Deferred Share Plan which will vest in March 2014.
(d) Shareholding as at 28 February 2013, the date Peter Clarke stepped down from the Board. In addition to the above, he holds 833,410 unvested DBSOP share awards and
6,265,401 DBSOP share options details of which can be found in table R19.
Strategic reportCorporate governanceFinancial statementsOther information
54
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
3.15. Directors’ interests continued
Directors’ interests in shares and options under Man Group long-term incentives
Shares under option in the Deferred Bonus Share and Option Plan (DBSOP)(a) – subject to service conditions
and an option exercise price set 10% above the market price at grant (audited)
Table R19
Executive director
Jonathan Sorrell
Date of grant
Mar-13
–
1,099,635
1 January
2013
Granted during
period (b)
Exercised
during period
Lapsed during
period
31 December
2013
Option exercise
price
Earliest exercise
date
Latest exercise
date
A. Number of shares(b)
Mar-12
Mar-12
768,471
256,155
64,939
21,645
–
–
–
–
1,099,635
n/a
Mar-16
Mar-16
–
–
833,410
277,800
n/a
n/a
Mar-15
Mar-15
Mar-15
Mar-15
B. Number of options(a)
Jun-10
2,997,442
Mar-11
3,629,238
Mar-12
2,636,163
Jun-10
Mar-11
749,360
777,693
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,997,442
280.1799p
3,629,238
273.0795p
2,636,163
156.5300p
749,360
280.1799p
777,693
273.0795p
Jun-13
Mar-14
Mar-15
Jun-13
Mar-14
Jun-20
Mar-15
Mar-16
Jun-14
Mar-15
Former executive directors
Peter Clarke(c)
Kevin Hayes(d)
Former executive directors
Peter Clarke(c)
Kevin Hayes(d)
Notes:
(a) The Company’s obligations for option awards granted under the DBSOP are externally economically hedged. Refer to note 20 to the financial statements.
(b) The Company’s obligations for conditional awards granted under the DBSOP are hedged by the Employee Trust. Deferred Bonus Shares attract dividend accruals. On 17 May 2013
dividend accruals of 48,318 shares and 16,105 shares were added to Peter Clarke and Kevin Hayes award shares respectively, based on a sterling dividend of 8.26 pence. On 4
September 2013 dividend accruals of 16,621 shares and 5,540 shares were applied based on a sterling dividend of 1.72 pence. On 13 March 2013 Jonathan Sorrell was originally
granted 1,013,951 shares. On 17 May 2013 dividend accruals of 63,753 shares were added to his award based on a sterling dividend of 8.26 pence. On 4 September 2013 dividend
accruals of 21,931 shares were applied based on a sterling dividend of 1.72 pence.
(c) Peter Clarke stepped down from the Board with effect from 28 February 2013 and was on garden leave until his retirement on 10 December 2013.
(d) Kevin Hayes stepped down from the Board with effect from 18 June 2012 and was on garden leave until his contract terminated on 18 December 2012.
Shares under option under the Man Group Sharesave Scheme (audited)
Table R20
The Man Group Sharesave Scheme is an all-employee plan. The executive directors who participate in the Sharesave Scheme are granted options
over Man shares and make monthly savings from their post-tax salary.
Executive director
Date of grant
2013
during period
during period
1 January
Lapsed
Granted
Exercised
during period
31 December
2013
Option price
Earliest exercise
date
Latest exercise
date
Jonathan Sorrell
Aug-12
23,076
0
Former executive director
Peter Clarke(a)
Jun-09
4,653
4,653
0
0
0
0
23,076
65.0p
Oct-17
Mar-18
0
195.0p
Aug-12
n/a
Number of options
Note:
(a) Peter Clarke stepped down from the Board with effect from 28 February 2013 and was on garden leave until his retirement on 10 December 2013.
55
Man Group plc
Annual Report 2013
Status of the PSP and ESOS award cycles
Share awards and matching awards under the Performance Share Plan – subject to performance
and service conditions (audited)
Table R21
Former executive directors
Peter Clarke(b)
Kevin Hayes(c)
Former executive directors
Peter Clarke(b)
Kevin Hayes(c)
Performance Share Plan – Share Awards(a) – Basic Awards
Number of awards
Date of grant
1 January 2013
Awarded during
period
Transferred
during period
Lapsed during
period
31 December
2013
Transfer/Lapse
date
Jun-10
Mar-11
Mar-12
Jun-10
Mar-11
Mar-12
251,212
172,537
310,903
153,771
66,753
45,019
–
–
–
–
–
–
–
–
–
–
–
–
251,212
172,537
–
–
109,597
201,306
153,771
66,753
–
–
–
45,019
Mar-13
Dec-13
Dec-14
Mar-13
Dec-13
Dec-14
Performance Share Plan – Matching Awards(a)
Number of Awards
Date of grant
1 January 2013
Awarded during
period
Transferred
during period
Lapsed during
period
31 December
2013
Transfer/Lapse
date
Jun-10
Mar-11
Mar-12
Jun-10
Mar-11
Mar-12
271,581
248,702
448,148
209,129
99,684
72,031
–
–
–
–
–
–
–
–
–
–
–
–
271,581
248,702
–
–
157,978
290,170
209,129
99,684
72,031
–
–
–
Mar-13
Dec-13
Dec-14
Jan-13
Jan-13
Jan-13
Notes:
(a) Vesting is subject to achieving cumulative three year net management fee income growth (NMFIG) and average three year adjusted ROE (AROE). For all grants in March 2011
75% of vesting is subject to achieving cumulative three year NMFIG and 25% of vesting is subject to achieving three year average AROE. The 2010 and 2011 awards have lapsed
in their entirety.
(b) Peter Clarke stepped down from the Board with effect from 28 February 2013 and was on garden leave until his retirement on 10 December 2013. The 2012 lapses during the year
reflect the time pro-ration.
(c) Kevin Hayes stepped down from the Board with effect from 18 June 2012 and was on garden leave until his contract terminated on 18 December 2012. On 15 January 2013,
he sold his bonus shares which resulted in forfeiting his remaining PSP cash match awards.
Shares under option under the Man Group Executive Share Option Scheme 2001 and Man Group 2011
Executive Share Option Plan – subject to performance and service conditions (audited)
Table R22
Former executive director
Date of grant
1 January 2013
Awarded during
period
Exercised
during period
Lapsed during
period
31 December
2013
Option exercise
price
Earliest exercise
date
Latest exercise
date
Number of options(a)
Peter Clarke(b)
Jun-06
93,789
Jun-10(c)
484,179
Mar-11
345,073
Mar-12(d)
621,805
–
–
–
–
–
–
–
–
–
93,789
399.83p
484,179
345,073
621,805
–
–
–
258.3p
247.5p
142.3p
Jun-09
Lapsed
Lapsed
Lapsed
Dec-14
n/a
n/a
n/a
Notes:
(a) For grants prior to 2009, the performance condition was earnings per share growth in excess of RPI over a three year performance period. For grants from June 2009 onwards,
vesting was subject to achieving cumulative three-year net management fee income growth (NMFIG) and average three-year adjusted ROE (AROE). For grants in March 2012, the
performance period was reduced and ended on 10 December 2013 being Peter Clarke’s retirement date. 75% of vesting was subject to achieving cumulative three year NMFIG and
25% of vesting was subject to achieving three year average AROE.
(b) Peter Clarke stepped down from the Board with effect from 28 February 2013 and was on garden leave until his retirement on 10 December 2013.
(c) The June 2010 and March 2011 ESOS award lapsed on 31 March 2013 and 31 December 2013 respectively as the performance criteria were not met.
(d) Under the rules of the Man Group 2011 plan, the March 2012 ESOS award lapsed on 10 December 2013 as the performance criteria were not met.
Strategic reportCorporate governanceFinancial statementsOther information 56
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
3.15. Directors’ interests continued
Share and fund awards – subject to service conditions (audited)
Table R23
Executive director
Jonathan Sorrell(a)
Deferred Share Plan (DSP)
Fund Product Plan (FPP)(b)
1 January 2013
Dividends
accruing
Exercised
during period
Held at
31 December
2013
Earliest exercise
date
Latest exercise
date
89,184
89,184
85,384
85,384
85,384
1,063
1,063
1,063
5,607
7,536
94,791
–
–
96,720
–
85,384
7,214
7,214
–
–
–
–
–
1,063
–
–
–
92,598
92,598
–
1,063
1,063
Jun-13
Jun-14
Mar-13
Mar-14
Mar-15
Mar-13
Mar-14
Mar-15
n/a
Aug-21
n/a
Mar-22
Mar-22
n/a
Mar-16
Mar-16
Notes:
(a) Jonathan Sorrell was granted nil-cost options under the DSP and FPP schemes prior to his appointment as a director.
(b) Fund investment under the FPP is in the Man GLG Multi-Strategy UCITS product.
3.16. Details of former long-term incentive plans
Both the former PSP and ESOS have a three year performance period with vesting subject to achieving performance conditions. The PSP has a four
year service period. There are no re-testing opportunities should performance measures not be met at the end of the third year.
All share and option awards are conditional and subject to forfeiture if an executive director resigns or the service contract is terminated for misconduct.
The performance conditions for the plans are Net Management Fee Income Growth (NMFIG) and Adjusted Return on Equity (AROE). The three year
performance period was chosen as appropriate for the business and the period over which growth and returns should be achieved.
Net management fee income is the product of two components, namely the funds under management and the net management fee margins. Net
management fee margins are after deduction of all fixed costs and variable costs not attributable to performance fees. The net margin excludes adjusting
items and net finance income costs. The return performance condition measures the efficiency with which Man invests or returns capital. The adjustment
to the ROE measure is to calculate equity excluding the Board’s determination of any surplus capital not currently being utilised in the business.
The surplus capital is additional capital in excess of (a) the minimum regulatory capital of the Group (Pillar 1 capital adjusted by the Individual Capital
Guidance percentage agreed with the FCA plus any specific add-on), plus (b) any capital planning buffer set by the FCA, plus (c) any Board cushion as
set by the Board from time to time to give operating flexibility. Notional interest incurred on surplus capital is deducted in calculating AROE. Capital
strategy is a matter for the Board; executive directors can only influence the policy within the Board framework.
The Remuneration Committee has previously considered using relative return performance measures. However, since the Remuneration Committee is
not aware of any listed companies of substantial size whose main business activities are comparable in nature and scale to that of Man Group, such
measures were not considered appropriate. The Remuneration Committee therefore sets performance conditions to target absolute returns for its
shareholders that are designed to be both challenging and appropriate given the regulated nature of the Company’s business.
ESOS: Status of award cycles
Cycle
2012–2015(a)
2011–2014(a)
2010–2013
2009–2012
2008–2011
2007–2010
2006–2009
Vesting level at lower target
Lower target (EPS growth unless
otherwise stated)
Upper target for maximum vesting
(EPS growth unless otherwise
stated)
25% for each target
25% for each target
10% AROE
10% NMFIG
10% AROE
10% NMFIG
17.5% AROE
30% NMFIG
25% AROE
50% NMFIG
8% See long-term incentive plans for information on the
dual performance conditions of AROE and NMFIG
8%
50%
50%
50%
RPI plus 5%
RPI plus 5%
RPI plus 5%
RPI plus 10%
RPI plus 10%
RPI plus 10%
Table R24
Actual
performance
outcome:
EPS growth in
excess of RPI
% of maximum
award vesting
not met
not met
not met
not met
not met
not met
9.40%
nil
nil
nil
nil
nil
nil
50%
Note:
(a) 2011 and 2012 awards are weighted with 75% on the NMFIG and 25% on the AROE performance condition.
57
Man Group plc
Annual Report 2013
PSP: Status of award cycles
Cycle(a)
2012–2015(b)
2011–2014(b)
2010–2013
2009–2012
2008–2011
2007–2010
2006–2009
Vesting level at lower target
25% for each target
25% for each target
Lower target
(Statutory RoE unless otherwise
stated)
Upper target for maximum vesting
(Statutory RoE unless otherwise
stated)
10% AROE
10% NMFIG
10% AROE
10% NMFIG
17.5% AROE
30% NMFIG
25% AROE
50% NMFIG
8% See long-term incentive plans for information on the
dual performance conditions of AROE and NMFIG
8%
10%
10%
10%
20%
20%
20%
30%
30%
30%
Table R25
Actual
performance
outcome:
average return
on equity
% of maximum
award vesting
n/a
n/a
not met
not met
not met
not met
21.70%
29.30%
nil
nil
nil
nil
26%
92%
Notes:
(a) Performance is assessed over a three year period. Following the three year period, awards are subject to one further year service before vesting.
(b) 2011 and 2012 awards are weighted with 75% on the NMFIG and 25% on the AROE performance condition.
3.17. Retirement benefits
Peter Clarke was employed on a full-time basis as CEO until 28 February 2013. However, he elected to draw his defined benefit pension from the
Man Group plc Pension Fund with effect from 1 March 2010. He has no further prospective entitlement to any defined benefit pension arrangement.
Emmanuel Roman and Jonathan Sorrell are not eligible to participate in the defined benefit pension plan (the Man Group plc Pension Fund).
3.18. Implementation of executive director remuneration policy for 2014
Base salary
Salaries are reviewed annually at year-end taking into account market benchmarks for executives of comparable status, responsibility and skill. For the
fifth year in a row, the Remuneration Committee decided not to increase executive directors’ salaries.
Base salary of executive directors
Base salary at
1 January 2013
1 January 2014
Table R26
Jonathan
Sorrell
Emmanuel
Roman
$625,000 $1,000,000
$625,000 $1,000,000
Short-term annual cash bonus for 2014
The objectives for the 2014 bonus have been defined by the Remuneration Committee around:
i. Strategy, structure and people
ii. P&L performance and sales
iii. Financial health
iv. Risk, compliance and reputation
The Remuneration Committee considers that the disclosure of more detailed or quantified objectives would provide an unfair advantage to Man
Group’s competitors, most of whom are not listed and therefore not under the obligation to disclose their objectives. More details will be provided
in the 2014 Annual Report, in the review of achievements vs objectives.
Strategic reportCorporate governanceFinancial statementsOther information 58
Man Group plc
Annual Report 2013
Directors’ remuneration report continued
3.18. Implementation of executive director remuneration policy for 2014 continued
Long-term deferred bonus for 2014 performance
The KPIs and thresholds that will be used to measure performance are illustrated below.
Balanced scorecard of financial and non-financial metrics(a)
Table R27
Financial KPIs – 80% – Man’s Company KPIs
Definition
Proposed target
Investment performance (25%)
• Measure net performance of three managers
(represented by key funds) vs. respective
benchmarks.
• Key funds/benchmark:
– Man AHL Diversified/two of three competitors.
– GLG Alternative Strategies Dollar Weighted –
• Relevant period: performance is measured over the
reporting year (first to last trading days of the year).
• Criteria type: binary outcome.
• Criteria for each fund over the relevant period:
– If Net Performance ≤ Benchmark performance,
criteria is not met.
Composite/HFRX.
– If Net Performance > Benchmark Performance,
– FRM Diversified II/HFRI FoF: Conservative Index.
criteria is met.
Net flows (25%)
• Measure net FUM flows annually.
• Net Flows are defined as, over a reporting year:
– (Gross Sales – Redemptions)/Start of Year FUM,
expressed in %.
• Weighting: each fund is ascribed a 1/3 weighting.
• Relevant period: net flows are measured over the
reporting year.
• Criteria type: sliding scale.
• Criteria for the relevant period:
– If Net Flows ≤ 0%, criteria is not met.
– If Net Flows ≥ 10%, criteria is met in full.
– If 0% < Net Flows < 10%, criteria is met
proportionally.
Adjusted(b) management fee
EBITDA margin (15%)
• Measure management fee EBITDA margin.
• Adjusted management fee EBITDA margin defined
as, over a reporting year adjusted management fee
EBITDA/Net Revenues.
• Relevant period: Adjusted management fee EBITDA
margin is measured over the reporting year.
• Criteria type: sliding scale.
• Criteria for the relevant period:
Adjusted(b) management fee
EPS growth (15%)
• Measure adjusted management fee EPS growth,
i.e. growth in minimum common dividend per
share.
• Adjusted management fee EPS growth defined as:
– (Current Year Adjusted Management Fee EPS/
Previous Year Adjusted Management Fee EPS) –
1, expressed in %.
– If adjusted management fee EBITDA margin ≤
25%, criteria is not met.
– If adjusted management fee EBITDA margin ≥
40%, criteria is met in full.
– If 25% < adjusted management fee EBITDA
margin < 40%, criteria is met proportionally.
• Relevant period: Adjusted management fee EPS
growth is measured over the reporting year.
• Criteria type: sliding scale.
• Criteria for the relevant period:
– If adjusted management fee EPS growth ≤ 0%
plus RPI, criteria is not met.
– If adjusted management fee EPS growth ≥ 20%
plus RPI, criteria is met in full.
– If 0% plus RPI, < adjusted management fee
EPS growth < 20% plus RPI, criteria is met
proportionally.
Non-financial metrics
Culture and talent (20%)
Fostering a culture of effective dealings with all stakeholders; building and retaining a collaborative,
motivated and aligned senior management team; having an appropriate succession plan in place for senior
management; attracting and retaining high quality staff, motivated by appropriate, balanced incentives.
The Remuneration Committee will review the balanced scorecard of metrics prior to the start of each financial year and may amend them so that
they remain appropriately challenging.
Notes:
(a) As part of transitional arrangements for the new plan, the performance period will progressively increase to a three-year performance period. The performance period for 2014
awards will be two years (2013 and 2014) assessed at the end of the 2014 financial year. Performance is measured for each of the two reporting years and then averaged.
(b) Adjusting items are material items, which are excluded by virtue of their size or nature, in order to aid comparability from period to period and to understand the underlying
profitability of the business.
Based on the experience of 2013, the Board has re-evaluated the targets for assessing investment performance. For 2014, the representative fund used to
assess GLG investment performance will change from GLG Multi Strategy as used in 2013 to GLG Alternative Strategies Dollar Weighted - Composite for
2014. The benchmark against which this representative fund will be compared is unchanged. For FRM, the representative fund remains FRM Diversified II
but the Board has concluded that a more appropriate comparative benchmark is HFRI FoF: Conservative Index. Shareholders should note that, had these
changes been effective for 2013, the outcome of the performance metric for these categories would have been unchanged and would still not have
been met.
59
Man Group plc
Annual Report 2013
3.19. Non-executive director remuneration policy for 2014
There has been no increase in fees for the Chairman since appointment in 2007 or non-executive directors since 2009.
Non-executive directors’ fees for 2014
Table R28
All figures in GBP
Position
Chairman of the Board
Board fee(a)
Senior Independent Director
Audit and Risk Committee chair
Other Audit and Risk Committee members
Remuneration Committee chair
Other Remuneration Committee members
Note:
(a) Includes Nomination Committee membership (all non-executive directors are members of the Nomination Committee).
For and on behalf of the Board
Phillip Colebatch
Remuneration Committee Chairman
27 February 2014
2014
2013
% increase
450,000
450,000
65,000
10,000
30,000
15,000
25,000
10,000
65,000
10,000
30,000
15,000
25,000
10,000
0%
0%
0%
0%
0%
0%
0%
Strategic reportCorporate governanceFinancial statementsOther information 60
Man Group plc
Annual Report 2013
Directors’ report
The directors submit their report,
together with the audited consolidated
financial statements, for the year ended
31 December 2013 (the year).
Man Group plc is incorporated as a public limited company and is
registered in England with the registered number 08172396. The
Company’s registered office is Riverbank House, 2 Swan Lane,
London EC4R 3AD.
Directors
Details of the current directors, together with their biographies, can be
found on pages 26 and 27. The following Board changes have occurred
during the year:
Peter Clarke
Alison Carnwath
Patrick O’Sullivan
Andrew Horton
Dev Sanyal
Retired 28 February 2013
Retired 03 May 2013
Retired 03 August 2013
Appointed 03 August 2013
Appointed 01 December 2013
Details of directors’ interests in the Company’s shares are given on page
53 of the Annual Report.
Powers of directors
The Board is responsible for the management of the business of the
Company and may exercise all the powers of the Company subject to the
provisions of relevant statutes and the Company’s Articles of Association
(the ‘Articles’). A copy of the Articles is available on the Company’s
website (www.man.com) and by request from the registered office of
the Company. The Articles may be amended by special resolution of
the shareholders.
Appointment, retirement and replacement of directors
The appointment, retirement and replacement of directors are governed
by the Company’s Articles, the UK Corporate Governance Code and the
Companies Act 2006. Under the Articles, the Board has the power to
appoint further directors during the year, but any director so appointed
must stand for reappointment at the next annual general meeting. In
accordance with the Articles, one-third of the Board must retire by
rotation at each annual general meeting and may stand for reappointment.
In practice, and in accordance with the UK Corporate Governance Code,
all Board members retire and offer themselves for reappointment at each
annual general meeting.
The Articles give the power to a director to appoint any person to be his
alternate, subject to the appointment of such person who is not another
director being approved by the Board.
Directors’ indemnities and insurance cover
The Company has maintained qualifying third party indemnity provision
for the benefit of its directors during the year and this remains in force at
the date of this report. The indemnity is granted by the Company to new
directors on their appointment and covers, to the extent permitted by law,
any third party liabilities which they may incur as a result of their service
on the Board. The Company arranges directors’ and officers’ liability
insurance to cover certain liabilities and defence costs which the
Company indemnity does not meet. Neither the indemnity nor the
insurance provides any protection in the event of a director being found
to have acted fraudulently or dishonestly in respect of the Company.
Shares
Share capital
Details of the movements in the issued share capital, together with the
rights and obligations attaching to the Company’s shares are set out in
Note 21 to the financial statements. This note also provides information
on the Company’s unexpired authority to purchase its own shares.
Substantial voting interests
As at 26 February 2014 the following voting interests in the ordinary share
capital of the Company disclosable under the FCA’s Disclosure and
Transparency Rules have been notified to the Company.
Shareholder
Odey Asset Management LLP
G&S Trustees Limited – Pierre Lagrange
%
5.92
3.51
Restriction on voting rights
Where shares are held in employee benefit trusts for the satisfaction of
awards made under the Company’s share schemes, under the trust
deeds the trustees have discretion to vote or abstain from voting.
Share transfer restrictions
The Board may decline to register a transfer of any share which is not a fully
paid share. In addition, registration of a transfer of an uncertificated share
may be refused in the circumstances set out in the Uncertificated Securities
Regulations and where the number of joint holders exceeds four.
Change of control
The Company’s employee share incentive schemes contain provisions
whereby, upon a change of control of the Company, outstanding options
and awards would vest and become exercisable, subject (in the case of
certain schemes only) to the satisfaction of performance conditions at
that time and any time pro-rating of options and awards.
Independent auditors
Following the Board’s decision to recommend a change in the external
auditors (see page 37 for further information), a resolution to appoint
Deloitte LLP as auditors of the Company and Group for the financial year
ending 31 December 2014 will be proposed at the 2014 AGM.
Carbon emissions reporting
The information below details our mandatory reporting of greenhouse gas
emissions pursuant to the Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013 for the year ended 31 December 2013.
Around 82% of our overall emissions relate to purchased electricity and
gas usage across our various geographical locations, with the remaining
18% relating to air travel. All emissions are reported in tonnes of carbon
dioxide equivalents (CO2e).
61
Man Group plc
Annual Report 2013
Further disclosures
Information fulfilling the further disclosure requirements contained in
the Companies Act 2006, Schedule 7 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 and
the FCA’s Listing Rules and Disclosure and Transparency Rules can be
found in the following sections of the Annual Report for the year ended
31 December 2013 which are incorporated into the Directors’ report
by reference:
Future developments in the business
Research and development activities
Dividend
Dividend waiver
Employment policy and employee involvement
Financial risk management and financial instruments
Corporate governance report including internal control
and risk management statements
Post balance sheet events
Directors’ responsibility statements including disclosure
of information to the auditors
Page
8–13
9–10
78, 105
87
25
82–83, 96–97
28–33
99
63
By order of the Board
Rachel Rowson
Company Secretary
27 February 2014
Man Group’s emissions by scope
Scope
Scope 1
Scope 2
Scope 3
Total
Source
Natural gas
Electricity
Air travel
Tonnes
of CO2e
emissions
2013
469
3,558
857
4,884
The emissions we are reporting have been calculated using an intensity
metric which will enable us to monitor emissions independent of activity.
As Man is a people related business, we expect that any changes to
headcount will impact the property space we occupy and the amount of
business travel we use. Therefore, emissions per employee are the most
appropriate metric for our business, as shown in the table below.
Emissions per employee
Scope 1
Scope 2
Scope 3
Emissions per employee
Tonnes
of CO2e
emissions
2013
0.4
3.1
0.7
4.2
Methodology
For practical reasons, emissions data was gathered for the first nine
months of 2013 and, as appropriate, extrapolated in order to calculate
the full year emissions. Based on the nature of our emissions and the
consistency month on month, we believe this is an appropriate
representation of the annual emissions.
In order to compile the reportable emissions data from our offices,
electricity and gas meter readings have been obtained from our energy
suppliers. For some of our smaller offices, we are not charged for energy
usage separately as these costs are incorporated into the service fees for
our premises. These emissions have not been included in the reported
total above due to the data being unavailable and relate to offices for the
use of six employees (2013 average employees: 1,163).
Where Man is the landlord of a property, and electricity costs are incurred
on the behalf of sub-tenants, these costs are on-charged to the sub-
tenants as the users of the electricity. Accordingly, no emissions data for
energy usage incurred on behalf of sub-tenants is included in Man’s
reportable emissions above.
Disclosures of emissions related to business travel are restricted to flight
costs as a result of the CO2e emission convertible data relating to other
means of transport (i.e. taxis) not being available. During 2013, Man had
five lease vehicles, used for both business and employee personal use.
Due to a lack of available data the emissions from these vehicles have not
been included in the reported figures. As from 1 October 2013 only one
lease vehicle remained. The remaining lease will end in mid 2014.
Strategic reportCorporate governanceFinancial statementsOther information 62
Man Group plc
Annual Report 2013
Financial statements
Audited information
Group income statement
Group statement of comprehensive income
Group balance sheet
Group cash flow statement
Group statement of changes in equity
Parent Company financial information
Basis of preparation
Significant accounting policies schedule
Adjusted profit before tax
Revenue and margins
Distribution costs
Asset services
Compensation
Other costs
Finance expense and finance income
Taxation
Earnings per ordinary share
Dividends
Goodwill and acquired intangibles
Other intangibles
Cash, liquidity and borrowings
Investment in fund products and other
investments
Fee and other receivables
Trade and other payables
Investments in associates
Leasehold improvements and equipment
Deferred compensation arrangements
Capital management
Pension benefits
Segmental analysis
Geographical disclosure
Foreign currencies
Fair value of financial assets/liabilities
Related party transactions
Financial guarantees and commitments
Post balance sheet events
Other matters
Principal Group investments
Independent auditors’ report
Unaudited information
Directors’ responsibility statement (unaudited)
Five year record
Note
Page
67
67
68
69
70
101
71
72
73
74
74
74
74
75
76
76
77
78
78
82
82
84
85
86
86
87
87
89
92
95
95
96
96
98
98
99
99
99
64
63
100
1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Directors’ responsibility statement
63
Man Group plc
Annual Report 2013
Having taken advice from the Audit and Risk Committee, the directors
consider that the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders
to assess the Company’s performance, business model and strategy.
The directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the directors, whose names and functions are on pages 26 to 27,
confirm that, to the best of each person’s knowledge and belief:
•
•
•
the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair view
of the assets, liabilities, financial position and results of the Group;
the strategic and other reports contained on pages 1 to 25 include a
fair review of the development and performance of the business and
the position of the Group, together with a description of the principal
risks and uncertainties that it faces; and
there is no relevant audit information of which the Group’s auditors
are unaware, and that they have taken all steps that they ought to have
taken as a director in order to make themselves aware of any relevant
audit information and to establish that Man’s auditors are aware of
that information.
The directors are responsible for preparing the Annual Report, the
directors’ Remuneration report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for
each financial year. Under that law the directors have prepared the Group
financial statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU), and the
Parent Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law). Under company law the directors must
not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period. In
preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable IFRSs as adopted by the European Union
and applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the Group and
Parent Company financial statements respectively; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial
statements and the directors’ Remuneration report comply with the
Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
Strategic reportCorporate governanceFinancial statementsOther information 64
Man Group plc
Annual Report 2013
Independent Auditors’ Report to the
Members of Man Group plc
Report on the Group financial statements
Our opinion
In our opinion the Group financial statements, as defined below:
•
•
•
give a true and fair view of the state of the Group’s affairs as at
31 December 2013 and of the Group’s profit and cash flows for the
year then ended;
have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say in the remainder
of this report.
What we have audited
The Group financial statements, which are prepared by Man Group plc,
comprise:
•
•
•
•
the Group balance sheet as at 31 December 2013;
the Group income statement and statement of comprehensive income
for the year then ended;
the Group statement of changes in equity and statement of cash flows
for the year then ended; and
the notes to the Group financial statements, which include a summary
of significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in their preparation
comprises applicable law and IFRSs as adopted by the European Union.
Certain disclosures required by the financial reporting framework have
been presented elsewhere in the Annual Report, rather than in the notes to
the financial statements. These are cross-referenced from the financial
statements and are identified as audited.
What an audit of financial statements involves
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). An audit involves
obtaining evidence about the amounts and disclosures in the financial
statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud
or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s
circumstances and have been consistently applied and adequately
disclosed;
the reasonableness of significant accounting estimates made by the
directors; and
the overall presentation of the financial statements.
•
•
In addition, we read all the financial and non-financial information in the
Man Group plc Annual Report (the “Annual Report”) to identify material
inconsistencies with the audited Group financial statements and to
identify any information that is apparently materially incorrect based on,
or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications
for our report.
Overview of our audit approach
Materiality
We set certain thresholds for materiality. These helped us to determine
the nature, timing and extent of our audit procedures and to evaluate the
effect of misstatements, both individually and on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the
Group financial statements as a whole to be $8.3 million based on 5% of
profit before tax adjusted for the impairment of goodwill, onerous lease
charges and the associated write off of fixed assets, the gain on disposal
of the Lehman claims and the gain on sale of an investment in associates.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above $0.4 million as well as
misstatements below that amount that, in our view, warranted reporting
for qualitative reasons.
Overview of the scope of our audit
The Group financial statements are a consolidation of 16 principal
operating units, a number of smaller operating units, and centralised
functions. In establishing the overall approach to the group audit, we
determined the type of work that needed to be performed at the reporting
units by us, as the Group engagement team, or component auditors from
other PwC network firms operating under our instruction. Where the work
was performed by component auditors, we determined the level of
involvement we needed to have in the audit work at those reporting units
to be able to conclude whether sufficient appropriate audit evidence had
been obtained as a basis for our opinion on the Group financial
statements as a whole.
We identified 11 reporting units based in the United Kingdom and
Switzerland which, in our view, required an audit of their complete
financial information, either due to their size or their risk characteristics.
Specific audit procedures on certain balances and transactions were
performed at a further five reporting units which included some reporting
units based in the United States and Australia. The work performed on
the reporting units, together with additional procedures performed at the
Group level gave us the evidence we needed for our opinion on the Group
financial statements as a whole.
Areas of particular audit focus
In preparing the financial statements, the directors made a number of
subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future
events that are inherently uncertain. We primarily focused our work in
these areas by assessing the directors’ judgements against available
evidence, forming our own judgements, and evaluating the disclosures
in the financial statements.
In our audit, we tested and examined information, using sampling and
other auditing techniques, to the extent we considered necessary to
provide a reasonable basis for us to draw conclusions. We obtained
audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
We considered the following areas to be those that required particular
focus in the current year. This is not a complete list of all risks or areas of
focus identified by our audit. We discussed these areas of focus with the
Audit Committee. Their report on those matters that they considered to
be significant issues in relation to the financial statements is set out on
page 35.
65
Man Group plc
Annual Report 2013
Area of focus
How the scope of our audit addressed the area of focus
Valuation of goodwill
We focused on this area because the determination of whether or not
an impairment charge for goodwill was necessary involved significant
judgements about the future results of the Group’s three business lines
GLG, AHL and FRM.
We evaluated the directors’ future cash flow forecasts, and the process
by which they were drawn up, including comparing them to the latest
Board approved budgets, and testing the underlying calculations.
We challenged:
(Refer also to note 12 to the financial statements.)
Fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition
because of the pressure management may feel to achieve the planned
results.
The underlying calculation of revenue is performed by a third party
outsourced administrator and therefore has a lower risk of fraud.
We have therefore focused on the journal entries used to record revenue
in the books and records of Man.
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
•
•
the directors’ key assumptions for flows, performance and long term
growth rates in the forecasts by comparing them to historical results,
economic and industry forecasts; and
the discount rate by assessing the cost of capital for the company and
comparable organisations.
We also performed sensitivity analysis around the key drivers in the
calculation of the discounted future cash flow. Having ascertained
the extent of change in those assumptions that either individually
or collectively would be required for the goodwill to be impaired,
we considered the likelihood of such a movement in those key
assumptions arising.
We recalculated a sample of revenue transactions recorded by
management using the related prospectus documents and tested cash
receipts for a sample of revenue transactions that had been recorded.
We also tested a sample of manual journal entries posted to revenue
accounts to identify unusual or irregular items.
We assessed the overall control environment of the Group, including
the arrangements for staff to “whistle-blow” inappropriate actions, and
interviewed senior management and the Group’s internal audit function.
We examined the significant accounting estimates and judgements
relevant to the financial statements for evidence of bias by the directors
that may represent a risk of material misstatement due to fraud.
We also tested a sample of manual journal entries.
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 71, in relation to going concern. We have nothing to report
having performed our review.
As noted in the directors’ statement, the directors have concluded that it is appropriate to prepare the Group’s financial statements using the going
concern basis of accounting. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the directors
intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors’
use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s ability to continue as a
going concern.
Strategic reportCorporate governanceFinancial statementsOther information 66
Man Group plc
Annual Report 2013
Independent Auditors’ Report to the Members of Man Group plc continued
Opinion on matters prescribed by the
Companies Act 2006
Other information in the Annual Report
Under ISAs (UK & Ireland), we are required to report to you if, in our
opinion, information in the Annual Report is:
In our opinion the information given in the Strategic report and the
Directors’ report for the financial year for which the Group financial
statements are prepared is consistent with the Group financial statements.
Other matters on which we are required
to report by exception
Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in
our opinion we have not received all the information and explanations
we require for our audit. We have no exceptions to report arising from
this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our
opinion, certain disclosures of directors’ remuneration specified by law
have not been made, and under the Listing Rules we are required to
review certain elements of the report to shareholders by the Board on
directors’ remuneration. We have no exceptions to report arising from
these responsibilities.
Corporate Governance statement
Under the Listing Rules we are required to review the part of the
Corporate Governance statement relating to the Company’s compliance
with nine provisions of the UK Corporate Governance Code (‘the Code’).
We have nothing to report having performed our review.
On page 63 of the Annual Report, as required by the Code Provision C.1.1,
the directors state that they consider the Annual Report taken as a whole to
be fair, balanced and understandable and provides the information
necessary for members to assess the Group’s performance, business
model and strategy. On page 35, as required by C3.8. of the Code, the
Audit Committee has set out the significant issues that it considered in
relation to the financial statements, and how they were addressed. Under
(ISAs) (UK & Ireland) we are required to report to you if, in our opinion:
•
•
the statement given by the directors is materially inconsistent with our
knowledge of the Group acquired in the course of performing our
audit; or
the section of the Annual Report describing the work of the Audit and
Risk Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report arising from this responsibility.
• materially inconsistent with the information in the audited Group
financial statements; or
• apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Group acquired in the course of performing
our audit; or
is otherwise misleading.
•
We have no exceptions to report arising from this responsibility.
Responsibilities for the financial
statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Directors’ responsibilities statement set
out on page 63, the directors are responsible for the preparation of the
Group financial statements and for being satisfied that they give a true
and fair view.
Our responsibility is to audit and express an opinion on the Group
financial statements in accordance with applicable law and ISAs (UK &
Ireland). Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the
Company’s members as a body in accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no other purpose. We do not, in
giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
Other matter
We have reported separately on the Parent Company financial statements
of Man Group plc for the year ended 31 December 2013 and on the
information in the Directors’ remuneration report that is described as
having been audited.
Parwinder Purewal (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2014
Financial statements
Group income statement
$m
Revenue:
Gross management and other fees
Performance fees
Gains on investments and other financial instruments
Distribution costs
Asset services
Amortisation of acquired intangible assets
Compensation
Other costs
Share of after tax profit of associates
Gain on disposal of Lehman claims
Gain on disposal of interest in Nephila and other interests
Impairment of goodwill
Release of tax indemnity provision
Recycling of FX revaluation on liquidation of subsidiaries
Finance expense
Finance income
Profit/(loss) before tax
Taxation credit/(expense)
Statutory profit/(loss) for the year attributable to owners of the Parent
Earnings per share:
Basic (cents)
Diluted (cents)
67
Man Group plc
Annual Report 2013
Note
3
3
4
5
12
6
7
18
2
2
2,12
2
2
8
8
9
10
Year ended
31 December
2013
Year ended
31 December
2012
(Restated)1
967
193
1,160
1,209
90
1,299
33
(145)
(32)
(66)
(481)
(323)
12
5
11
(69)
–
(1)
(61)
13
56
16
72
32
(291)
(31)
(65)
(547)
(316)
10
131
–
(979)
11
42
(80)
36
(748)
(39)
(787)
3.0
2.9
(45.8)
(45.8)
Adjusted profit before tax
2
297
275
Group statement of comprehensive income
$m
Statutory profit/(loss) for the year attributable to owners of the Parent
Other comprehensive income/(expense):
Remeasurements of post-employment benefit obligations
Corporation tax credited on pension revaluation
Deferred tax (debited)/credited on pension revaluation
Items that will not be reclassified to profit or loss
Available for sale investments:
Valuation (losses)/gains taken to equity
Transfers from Group statement of comprehensive income upon sale or impairment
Cash flow hedges:
Valuation gains taken to equity
Transfer to Group income statement
Corporation tax debited on cash flow hedge movements
Net investment hedge
Foreign currency translation
Recycling of FX revaluation on liquidation of subsidiaries
Tax charged
Items that may be subsequently reclassified to profit or loss
Other comprehensive income/(expense) for the year (net of tax)
Total comprehensive income/(expense) for the year attributable to owners of the Parent
Note:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
Year ended
31 December
2013
Year ended
31 December
2012
(Restated)1
72
16
6
(11)
11
(1)
1
12
(1)
(3)
20
(35)
1
–
(6)
5
77
(787)
(13)
–
3
(10)
18
(19)
16
(9)
–
(3)
6
(42)
(1)
(34)
(44)
(831)
Strategic reportCorporate governanceFinancial statementsOther information
68
Man Group plc
Annual Report 2013
Financial statements continued
Group balance sheet
$m
Assets
Cash and cash equivalents
Fee and other receivables
Investments in fund products and other investments
Pension asset
Investments in associates
Leasehold improvements and equipment
Goodwill and acquired intangibles
Other intangibles
Non-current assets held for sale
Total assets
Liabilities
Trade and other payables
Current tax liabilities
Borrowings
Deferred tax liabilities
Non-current liabilities held for sale
Total liabilities
Net Assets
Equity
Capital and reserves attributable to the owners of the Parent2
Non-controlling interest (perpetual subordinated capital securities)2
Notes:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
2 Refer to the Group statement of changes in equity for further details.
At
31 December
2013
Note
At
31 December
2012
(Restated)1
At
1 January
2012
(Restated)1
14
16
15
22
18
19
12
13
15
17
14
9
15
21
14
992
388
273
71
31
68
1,328
26
3,177
56
3,233
725
37
–
58
820
6
826
2,407
2,407
–
2,407
2,000
382
496
–
38
150
1,484
45
4,595
–
1,639
428
975
–
41
173
2,478
187
5,921
–
4,595
5,921
657
98
859
71
1,685
–
1,685
2,910
2,610
300
2,910
677
118
1,066
71
1,932
–
1,932
3,989
3,989
–
3,989
The financial statements were approved by the Board of Directors on 27 February 2014 and signed on its behalf by:
Emmanuel Roman
Chief Executive Officer
Jonathan Sorrell
Chief Financial Officer
Group cash flow statement
$m
Cash flows from operating activities
Profit/(loss) for the period
Adjustments for:
Income tax
Net finance expense
Share of profits of associates
Gain on disposal of interest in Nephila and other interests
Depreciation and impairment of leasehold improvements and equipment
Amortisation of acquired intangible assets
Amortisation of other intangible assets
Share-based payment expense
Impairment of goodwill
Net losses on financial instruments
Gain on disposal of Lehman claims
Impairment of capitalised placement fees
Recycling of FX revaluation on liquidation of subsidiaries
Cash contributions to defined benefit pension plans (net of expense)
Other non-cash movements
Changes in working capital:
(Increase)/decrease in receivables
Decrease in other financial assets (primarily loans to fund products)
Increase/(decrease) in payables
Cash generated from operations
Interest paid
Income tax paid
Cash flows from operating activities
Cash flows from investing activities
Purchase of leasehold improvements and equipment
Purchase of other intangible assets
Purchase of investments in fund products for deferred compensation awards and other investments
Proceeds from sale of leasehold improvements and equipment
Proceeds from settlement and sale of Lehman claims
Net proceeds from sale of investments in fund products for deferred compensation awards and other investments
Acquisition of subsidiary, net of cash acquired
Interest received
Payment of contingent consideration in relation to acquisition of FRM
Dividends received from associates
Proceeds from sale of interest in Nephila and other interests
Cash flows from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Purchase of own shares by the Employee Trust
Repurchase of own shares
Repayment of borrowings
Dividends paid to Company shareholders
Dividend payments in respect of perpetual subordinated capital securities
Cash flows from financing activities
Net (decrease)/increase in cash
Cash at beginning of the year
Cash at year end
Note:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
69
Man Group plc
Annual Report 2013
Year ended
31 December
2013
Year ended
31 December
2012
(Restated)1
72
(16)
48
(12)
(11)
82
66
18
36
69
–
(5)
–
1
(24)
35
359
(9)
155
80
585
(73)
(64)
448
(2)
(3)
(51)
1
5
40
–
13
(12)
11
21
23
4
(22)
–
(1,159)
(277)
(25)
(1,479)
(1,008)
2,000
992
(787)
39
44
(10)
–
43
65
76
79
979
1
(131)
88
(42)
(7)
11
448
88
135
(127)
544
(81)
(55)
408
(20)
(33)
(17)
–
466
28
40
35
–
13
–
512
8
(9)
(7)
(219)
(299)
(33)
(559)
361
1,639
2,000
Strategic reportCorporate governanceFinancial statementsOther information 70
Man Group plc
Annual Report 2013
Financial statements continued
Group statement of changes in equity
Equity attributable to
owners of the parent
Equity attributable to
owners of the parent
Year ended 31 December 2013
Year ended 31 December 2012
Share
capital
and capital
reserves
Revaluation
reserves
and
retained
earnings
Non–
controlling
interest
Total
Total
equity
Share
capital
and capital
reserves
Revaluation
reserves
and
retained
earnings
Non–
controlling
interest
Total
$m
At beginning of the year
(as previously reported)
Impact of adoption of IAS 19
(Revised)1
At beginning of the year
(Restated)
Profit/(loss) for the year
Other comprehensive income/
(expense)
Total comprehensive income/
(expense) for the year
Perpetual capital securities coupon
Transfer to non-controlling interest
Buyback of perpetual capital
securities
Capital reduction
Acquisition of business
Share-based payments
Repurchase of own shares
Movement in close period buyback
obligations
Dividends
1,187
1,507
2,694
300
2,994
3,364
696
4,060
–
(84)
(84)
–
(84)
–
(71)
(71)
1,187
–
1,423
72
2,610
72
300
–
2,910
72
3,364
–
625
(787)
3,989
(787)
–
–
–
–
–
–
–
4
–
–
–
5
5
77
(19)
–
–
–
–
30
(18)
77
(19)
–
–
–
–
34
(18)
–
(277)
–
(277)
–
–
–
–
(300)
–
–
–
–
–
–
–
5
77
(19)
–
(300)
–
–
34
(18)
–
(277)
–
–
–
(300)
–
(1,885)
–
8
–
–
–
(44)
(44)
(831)
(25)
–
–
1,885
–
65
(7)
10
(299)
(831)
(25)
(300)
–
–
–
73
(7)
10
(299)
Total
equity
4,060
(71)
3,989
(787)
(44)
(831)
(25)
–
–
–
–
73
(7)
10
(299)
–
–
–
–
–
–
–
300
–
–
–
–
–
–
–
At year end (Note 21) (Restated)
1,191
1,216
2,407
Note:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
2,407
1,187
1,423
2,610
300
2,910
Shareholders’ equity decreased during the year as a result of the 2012 final dividend payment, which was not covered by the statutory profit for the
year, and the repurchase of the $300 million perpetual subordinated capital securities during the year. In the prior year, shareholders’ equity decreased
primarily as a result of dividend payments and the loss for the year.
The proposed final dividend would reduce shareholders’ equity by $95 million (2012: $228 million) subsequent to the balance sheet date.
Details of share capital and capital reserves, revaluation reserves and retained earnings and related movements are included in Note 21.
71
Man Group plc
Annual Report 2013
Notes to the Group financial statements
1. Basis of preparation
Accounting policies
The audited consolidated financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) and
interpretations (IFRICs) as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Man’s
principal accounting policies have been consistently applied across the Group in the preparation of the financial statements. Accounting policies are
included in the relevant sections, and significant policies are provided below. The impact of new accounting standards and amendments applicable to
the year ended 31 December 2013 and accounting standards that are not yet effective are outlined below.
Consolidated group and presentation currency
The consolidated group is Man Group plc (the Company) and its subsidiaries (together the Group or Man). The stand-alone Parent Company financial
statements of Man Group plc have been included as separate financial statements, starting on page 101. The majority of revenues, assets, liabilities
and funding are denominated in United States dollars (USD) and therefore Man’s presentation currency is USD.
The consolidated financial information contained within these financial statements incorporates the results, cash flows and financial position of the
Company and its subsidiaries for the year to 31 December 2013. Subsidiaries are entities controlled by Man and are consolidated from the date on
which control is transferred to Man until the date that control ceases. Control exists when Man has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. All intercompany transactions, balances, income and expenses between Group entities
are eliminated on consolidation.
Business combinations (acquisitions) are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value at the
acquisition date of assets transferred, liabilities incurred, and equity instruments issued by the Group. The fair value of an acquisition is calculated at
the acquisition date by recognising the acquiree’s identifiable assets, liabilities and contingent liabilities at their fair values at that date. Costs relating to
acquisitions are recognised in the Group income statement as incurred. The acquisition date is the date on which Man effectively obtains control of the
acquiree. Any contingent consideration will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent
consideration will be recognised in Group income statement and classified as an adjusting item.
Man’s relationship with independent fund entities
Man acts as the investment manager/advisor to fund entities. Having considered all significant aspects of Man’s relationships with fund entities, the
directors are of the opinion that although Man manages the assets of certain fund entities: the existence of independent boards of directors at the
fund entities; termination provisions in the investment management agreements, which allow for the removal of the investment manager/advisor; the
influence of investors; and, the arm’s length nature of Man’s contracts with the fund entities, Man does not control the fund entities and their associated
assets, liabilities and results should not be consolidated into Man’s Group financial statements. An understanding of the aggregate funds under
management (FUM) and the fees earned from the fund entities is relevant to an understanding of Man’s results and earnings sustainability and this
information is provided in the Chief Financial Officer’s review on page 14.
Judgemental areas and accounting estimates
The most significant area of judgement is the allocation and valuation of goodwill and intangible assets, in particular the goodwill in relation to the GLG
acquisition (which includes an allocation to AHL) and the FRM business (Note 12) and the carrying value of capitalised product placement fees (Note
13). The valuation of goodwill and intangibles has been an area of focus for the Group Board, and in particular the Audit and Risk Committee, during
the year. The report of the Chairman of the Audit and Risk Committee discusses the involvement of the Committee in this evaluation on page 35. Other
areas of judgement are the determination of fair values for contingent consideration in relation to the FRM acquisition (Note 26), illiquid investments
(Notes 15 and 26), deferred compensation awards (Note 20) and pension obligations (Note 22).
Going concern
Man’s business activity is discussed on pages 1 to 25, together with the significant risk factors (pages 20 to 23). Man’s liquidity and capital positions
are set out in Note 14 and 21 respectively. The directors monitor Man’s capital and liquidity positions and forecasts throughout the year, and in addition
they have approved a budget, medium term financial plan, and a capital and liquidity plan, which cover the foreseeable future and include rigorous
analysis of stressed capital and liquidity scenarios. The directors have concluded that there is a reasonable expectation that Man has adequate
resources to continue in operational existence for the foreseeable future. Accordingly, the Group and Parent financial statements have been prepared
on a going concern basis using the historical cost convention, except for the measurement at fair value of certain financial instruments that are
available-for-sale or held at fair value through profit or loss.
Scheme of arrangement in prior year
In the prior year, on 6 November 2012, under a scheme of arrangement between Man Strategic Holdings plc (formally Man Group plc), the former
holding company of the Group, and its shareholders under Part 26 of the Companies Act 2006, and as sanctioned by the High Court, all the issued
ordinary shares in that company were cancelled and the same number of new ordinary shares were issued to Man Group plc (the new holding
company) in consideration for the allotment to shareholders of one ordinary share in Man Group plc for each ordinary share they held in Man Strategic
Holdings plc. The scheme of arrangement was treated as a capital reorganisation. The consequence was that the Man Group did not fundamentally
change in any way, and no fair value adjustments or goodwill were recognised.
Strategic reportCorporate governanceFinancial statementsOther information 72
Man Group plc
Annual Report 2013
Financial statements continued
1. Basis of preparation continued
Financial reporting controls
The Group’s systems of internal control aim to safeguard assets, ensure that proper accounting records are maintained, and ensure that the financial
information used in the business and published externally is robust and reliable. The financial reporting controls comply with the guidance given in
‘Internal Control: Revised Guidance for Directors on the Combined Code’. The Corporate governance report is provided on pages 28 to 39.
Significant accounting policies schedule
Policy
Goodwill
Other intangibles
– Investment management contracts, brand names and distribution channels
– Placement fees
– Capitalised computer software
Investment in fund products
Investments in associates
Revenue
Compensation – share-based payments
Compensation – restructuring
Pension benefits
Note
12
12
13
13
15
18
3
20
2
22
Page
78
78
82
82
84
86
74
87
73
92
Impact of new accounting standards
A number of amendments to existing standards and interpretations have been issued, some of which were mandatory for the year beginning
1 January 2013, with the remaining becoming effective in future periods.
IAS 19 (Revised) ‘Employee benefits’ has been adopted this year, and has been applied retrospectively in accordance with IAS 8 ‘Accounting policies,
changes in accounting estimates and errors’, and hence the prior year has been restated and the opening restated balance sheet presented. The most
significant change arising was to cease to apply the ‘corridor approach’ in accounting for Man’s defined benefit plans. The impact of the adoption of IAS
19 (Revised) ‘Employee benefits’ resulted in a decrease in net pension assets of $110 million as at 31 December 2012 (31 December 2011: $94 million) and
in deferred tax liabilities of $26 million (31 December 2011: $23 million), with a corresponding debit to equity of $84 million (31 December 2011: $71 million).
The comparative Group statement of comprehensive income for the prior year has been restated to reflect remeasurements in relation to defined benefit
plans of $13 million, partially offset by related tax effects. The profit for 2012 has reduced due to a $3 million increase in pension costs (in the
compensation line), which has also reduced both the 2012 basic and diluted earnings per share.
Other relevant new standards adopted by Man in the current year, which have not had a significant impact, are:
• Amendment to IAS 1 – ‘Presentation of financial statements’
• Amendment to IFRS 7 – ‘Financial instruments: Disclosures’
•
IFRS 13 – ‘Fair value measurement’
Other new or revised standards and interpretations issued but not yet effective, which are not expected to have a significant impact on the Group
financial statements of Man, are as follows:
IFRS 11 – ‘Joint arrangements’
IFRS 12 – ‘Disclosure of interests in other entities’
IAS 27 (revised 2011) – ‘Separate financial statements’
IAS 28 (revised 2011) – ‘Investments in joint ventures and associates’
•
•
•
•
• Amendments to IAS 36 – ‘Impairment of assets’
IFRS 10 ‘Consolidated financial statements’ is the revised consolidation accounting standard, which is effective from 1 January 2014. The adoption of this
standard is expected to have an impact on the Group’s consolidated financial statements as some of the Group’s investments in fund products will fall into
scope for consolidation under this standard. The adoption of IFRS 10 is expected to result in the consolidation of one fund at 1 January 2014 with an
increase in the gross assets and liabilities on the Group balance sheet of around $400 million, and a minimal impact on the Group income statement.
Certain sections of IFRS 9 – ‘Financial instruments’ have been issued by the International Accounting Standards Board and are effective from
1 January 2015, however at present these have not yet been endorsed by the EU and are therefore currently not expected to be applicable in 2014.
Presentation of internal commission costs and calculation of the compensation ratio
The presentation of internal commission costs has been changed in the Group income statement in the current year, and the prior year has been
restated accordingly, to reclassify these costs to compensation costs rather than distribution costs. This reflects the way the business is now
managed, providing more relevant information to the readers of the financial statements, and brings the treatment in line with industry practice.
Internal commission costs for the year ended 31 December 2013 were $30 million (2012: $45 million).
The methodology for calculating the Group’s compensation ratio, as disclosed in Note 6, has changed from the prior year to include internal
commission costs and is now a percentage of net revenue (as defined in Note 6) rather than gross revenue. As a result of the change in methodology,
the compensation ratio for 2013 has changed from 36% (2012: 33%) to 42% (2012: 42%).
73
Man Group plc
Annual Report 2013
2. Adjusted profit before tax
Statutory profit/(loss) before tax is adjusted to give a fuller understanding of the underlying profitability of the business. The directors consider that the
Group’s profit is most meaningful when considered on a basis which excludes restructuring costs, amortisation and impairment of intangible assets
and certain non-recurring gains or losses, which therefore reflect the recurring revenues and costs that drive the Group’s cash flow. The directors are
consistent in their approach to the classification of adjusting items period to period. These are explained in detail either below or in the relevant note.
$m
Statutory profit/(loss) before tax
Adjusting items:
Gain on disposal of interest in Nephila and other interests
Compensation – restructuring
Other costs – restructuring
Other costs – accelerated depreciation
Gain on disposal of Lehman claims
Regulatory and other settlements
Impairment of goodwill
Release of tax indemnity provision
Recycling of FX revaluation on liquidation of subsidiaries
Impairment of capitalised placement fees
FRM acquisition costs
Revaluation of contingent consideration
Unwind of contingent consideration discount
Amortisation of acquired intangible assets
Adjusted profit before tax
Tax on adjusted profit
Adjusted net income
Note:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
Year ended
31 December
2013
Note
Year ended
31 December
2012
(Restated)1
6
7
7
12
4,13
6,7
8
12
56
(11)
36
28
43
(5)
14
69
–
1
–
–
(3)
3
66
297
(21)
276
(748)
–
65
4
–
(131)
–
979
(11)
(42)
88
12
(9)
3
65
275
(40)
235
The gain on disposal of interest in Nephila and other interests primarily relates to the disposal of a 6.25% stake in Nephila on 23 January 2013,
reducing the Group’s holding to 18.75%.
Compensation costs incurred as part of restructuring are accounted for in full at the time the obligation arises, following communication of the formal plan,
and include payments in lieu of notice, enhanced termination costs, and accelerated share-based payment and fund product based charges. The $36
million of compensation restructuring costs recognised in 2013 relate to the further phase of cost saving initiatives announced on 2 August 2013.
Restructuring costs included within Other costs primarily relate to onerous property lease provisions, mainly in relation to Riverbank House (our main
London office and headquarters). The accelerated depreciation included within Other costs primarily relates to leasehold improvements and
equipment as a result of the sub-letting of office space in Riverbank House.
Regulatory and other settlement costs of $14 million in the year primarily relate to the settlement of a regulatory enquiry in the US and directly
associated legal costs.
$5 million of additional proceeds were received in the year relating to the disposal of the Lehman claims in 2012. In the prior year, the Lehman claims
were sold by Man for a total consideration of $456 million, resulting in a pre-tax gain of $131 million.
Following a test for impairment of goodwill and intangible assets at 31 December 2013, the FRM goodwill was impaired by $69 million, primarily
relating to our legacy Man Multi-Manager Business. Refer to Note 12 for further details. In the prior year, GLG and the legacy Man Multi-Manager
goodwill was impaired by $837 million and $142 million respectively.
The revaluation of contingent consideration is an adjustment to the fair value of expected earn-out payments resulting primarily from movements in net
management fee run rates since the acquisition of FRM and has been included within Gains/(losses) on investments and other financial instruments.
The gain of $3 million (2012: $9 million) was offset by an unwind of the discount on the contingent consideration of $3 million (2012: $3 million), included
within Finance expense (Note 8).
The amortisation of acquired intangible assets relates to the amortisation of the investment management contracts and brands recognised on the
acquisition of FRM, GLG, and Ore Hill. Further details are provided in Note 12.
During the year, some of the Group’s foreign subsidiaries were liquidated, which had accumulated foreign currency translation reserves of $1 million
(2012: $42 million) at the date of liquidation. The related foreign currency translation was recycled to the Group income statement upon liquidation of
these subsidiaries as required by IAS 21.
In the prior year, capitalised placement fees were impaired by $88 million, as a result of de-gearing and negative investment performance in relation to
guaranteed products ($50 million) and the introduction of a new servicing fee based internal compensation structure effective from 1 January 2013
($38 million).
Strategic reportCorporate governanceFinancial statementsOther information
74
Man Group plc
Annual Report 2013
Financial statements continued
3. Revenue and margins
Fee income is Man’s primary source of revenue, which is derived from the investment management agreements that we have in place with the fund
entities. Fees are generally based on an agreed percentage of the valuation of FUM and are typically charged in arrears. Management fees net of
rebates, which include all non-performance related fees and interest income from loans to fund products, are recognised in the year in which the
services are provided.
Performance fees net of rebates relate to the performance of the funds managed during the year and are recognised when the quantum of the fee can
be estimated reliably and it is probable that the fee will crystallise. This is generally at the end of the performance period or upon early redemption by a
fund investor. Until the performance period ends market movements could significantly move the net asset value (NAV) of the fund products. Man will
typically only earn performance fee income on any positive investment returns in excess of the high-water mark, meaning we will not be able to earn
performance fee income with respect to positive investment performance in any year following negative performance until that loss is recouped, at
which point a fund investor’s investment surpasses the high-water mark.
4. Distribution costs
$m
External distribution costs – before adjusting items
Impairment of capitalised placement fees (Note 2)
Total distribution costs
Year ended
31 December
2013
Year ended
31 December
2012
145
–
145
203
88
291
Distribution costs paid to intermediaries are directly related to their marketing activity and the investors serviced by them. The distribution expense is
therefore variable to sales, FUM, and the associated management fee income to sustain management fee margins.
Distribution costs, before adjusting items, of $145 million (2012: $203 million) comprise product placement fees of $17 million (2012: $47 million) and
investor servicing fees of $128 million (2012: $156 million). Placement fees are paid for product launches or sales and are capitalised and amortised over
the expected investment hold period (refer to Note 13). Investor servicing fees are paid to intermediaries for ongoing investor servicing and are expensed
as incurred.
Capitalised placement fees were impaired by $88 million during the prior year, and classified as an adjusting item.
Distribution costs relating to employees (internal commissions) are now presented as compensation costs and the prior year has been restated
accordingly. Refer to Note 1 for further details.
5. Asset services
Asset services include valuations, fund accounting, and registrar functions performed by third parties under contract to Man, on behalf of the funds.
The cost of these services is based on the number of transactions or FUM, therefore variable with activity levels and FUM. Asset services costs for the
year were $32 million (2012: $31 million).
6. Compensation
$m
Salaries – fixed
Salaries – variable
Share-based payment charge
Fund product based payment charge
Internal commissions – variable
Social security costs
Pension costs
Compensation costs – before adjusting items
Restructuring
FRM acquisition costs
Total compensation costs
Year ended
31 December
2013
Year ended
31 December
2012
163
169
30
32
17
24
10
445
36
–
481
198
111
68
20
30
30
18
475
65
7
547
Compensation is our largest cost and an important component of our ability to retain and attract talent at Man. In the short-term, the variable
component of compensation adjusts with revenues and profitability. In the medium term the active management of headcount can reduce fixed based
compensation, if required.
75
Man Group plc
Annual Report 2013
Compensation costs in total were $445 million, before adjusting items, or 42% of net revenue (2012: 42%). Net revenue is defined as gross
management and other fees, performance fees, gains/(losses) on investments and other financial instruments, share of after tax profit of associates,
less external distribution costs.
Internal commission costs were reclassified in the current year to compensation costs from distribution costs, and the prior year has been restated
accordingly. Refer to Note 1 for further details. Total internal commission costs for the year were $30 million (2012: $45 million), with $6 million (2012:
$12 million) included in the share-based payment charge line and $7 million (2012: $3 million) included in the fund product based payment charge line.
Fixed compensation and benefits were $188 million compared to $236 million in the prior year. Fixed compensation comprises salaries – fixed, pension
costs and a portion of the social security costs. The prior year includes FRM fixed compensation from 17 July 2012, the date of acquisition.
Variable compensation, excluding internal commissions, was $227 million compared to $194 million in the prior year, primarily reflecting higher
performance fee related compensation.
Salaries, both fixed and variable, are charged to the Group income statement in the year in which they are incurred. They include partner drawings.
The accounting for share-based and fund product based compensation arrangements is covered in Note 20. The unamortised deferred compensation
at year end was $24 million (2012: $54 million) which had a weighted average remaining vesting period of 1.4 years (2012: 1.2 years). The decrease
from the prior year of these two items in aggregate primarily reflects the decrease in the unamortised deferred compensation in line with the decline in
profitability over recent years.
Pension costs relate to Man’s defined contribution and defined benefit plans (Note 22).
The aggregate directors’ remuneration (including social security), for both executive and non-executive directors, is: (1) Fees and remuneration of
$8,469,000 (2012: $5,538,000); (2) Gains made on transfer of share awards and exercise of share options in the year of $nil (2012: $nil); (3) Amounts
receivable by directors under long-term incentive schemes in the year of $426,000 (2012: $nil); and (4) Contributions to money purchase pension
schemes of $49,000 (2012: $132,000).
7. Other costs
$m
Occupancy
Technology and communication
Temporary staff, recruitment, consultancy and managed services
Legal fees and other professional fees
Benefits
Insurance
Travel and entertainment
Audit, accountancy, actuarial and tax fees
Marketing and sponsorship
Other cash costs
Total other costs before depreciation and amortisation and adjusting items
Depreciation and amortisation
Other costs – before adjusting items
Restructuring (Note 2)
Regulatory and other settlements (Note 2)
FRM acquisition costs (Note 2)
Accelerated depreciation (Note 2)
Total other costs
Year ended
31 December
2013
Year ended
31 December
2012
50
34
32
18
15
11
10
7
6
8
191
47
238
28
14
–
43
323
56
46
42
23
20
13
15
12
11
6
244
63
307
4
–
5
–
316
The level of expenses, including occupancy, communication, technology and travel and entertainment, is linked to headcount.
Other costs, before depreciation and amortisation and adjusting items, were $191 million in the year, compared to $244 million in the prior year, which
reflects the impact of the various previously announced cost saving initiatives to reduce the cost base of the Group.
Auditors’ remuneration, including advisory and professional services, is disclosed in more detail in the Corporate governance section on page 36.
Strategic reportCorporate governanceFinancial statementsOther information 76
Man Group plc
Annual Report 2013
Financial statements continued
8. Finance expense and finance income
$m
Finance income:
Interest on cash deposits and US Treasury bills
Other – gain recognised on the repayment of loan notes issued by BlueCrest
Total finance income
Finance expense:
Interest payable on borrowings
Premium paid on debt buybacks and other
Total finance expense – before adjusting items
Unwind of contingent consideration discount (Note 2)
Total finance expense
Year ended
31 December
2013
Year ended
31 December
2012
13
–
13
(22)
(36)
(58)
(3)
(61)
21
15
36
(50)
(27)
(77)
(3)
(80)
Finance expense includes a $28 million charge relating to debt buybacks during the year, which is explained further in Note 14 (2012: $21 million).
9. Taxation
$m
Analysis of tax (credit)/charge for the period:
Current tax:
UK corporation tax on profits of the period
Foreign tax
Adjustments to tax charge in respect of previous periods
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Adjustments to tax charge in respect of previous periods
Total tax (credit)/charge
Year ended
31 December
2013
Year ended
31 December
2012
29
16
(34)
11
(28)
1
(16)
44
14
(17)
41
(6)
4
39
Man is a global business and therefore operates across many different tax jurisdictions. Income and profits are allocated to these different jurisdictions
based on transfer pricing methodologies set in accordance with the laws of the jurisdictions in which we operate. The effective tax rate results from the
combination of taxes paid on earnings attributable to the tax jurisdictions in which they arise. The majority of the Group’s profit was earned in the UK,
Switzerland, and Australia. The current effective tax rate of -28.6% (2012: -5.2%) differs from the underlying rate principally as a result of prior year tax
credits including for further settled tax returns across a number of countries and multiple periods, and the impairment of goodwill on which no tax relief
is received. The effective tax rate is otherwise consistent with this earnings profile. The effective tax rate on adjusted profits (Note 2) is 7.1% (2012:
14.4%). The lower rate again is principally the result of the effect of prior year tax credits, which along with utilisation of tax losses outweighs the impact
of reduced relief on share-based compensation costs.
The tax on Man’s total profit/(loss) before tax is lower (2012: higher) than the amount that would arise using the theoretical effective tax rate applicable
to profits/(losses) of the consolidated companies, as follows:
$m
Profit/(loss) before tax
Theoretical tax charge/(credit) at UK rate – 23.25% (2012: 24.5%)
Effect of:
Overseas rates compared to UK
Adjustments to tax charge in respect of previous periods
Impairment of goodwill and other adjusting items
Share-based payments
Other
Total tax (credit)/charge
Note:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
Year ended
31 December
2013
56
13
(14)
(33)
19
10
(11)
(29)
(16)
Year ended
31 December
2012
(Restated)1
(748)
(183)
(32)
(13)
249
8
10
222
39
77
Man Group plc
Annual Report 2013
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the rates expected to be
applied when the deferred tax asset or liability is realised. The deferred tax closing balance of $58 million (2012: $71 million) relates mostly to the tax arising
on intangible assets of $97 million (2012: $114 million). The closing balance is also net of deferred tax assets primarily related to defined benefit pension
schemes of $9 million (2012: $25 million), employee share schemes of $7 million (2012: $8 million), and tax allowances over depreciation of $18 million
(2012: $9 million).
The movement in the deferred tax liability of $58 million (2012: $71 million) includes an income statement credit of $27 million (2012: $2 million), a charge
to other revenue reserves of $10 million (2012: $nil), and other currency differences/credits of $4 million (2012: $5 million). The income statement credit of
$27 million (2012: $2 million) is made up of a decrease in the deferred tax liability arising on intangibles assets of $17 million (2012: $6 million), an increase
in the deferred tax asset arising on tax allowances over depreciation of $9 million (2012: $1 million, decrease) and a decrease in the deferred tax liability on
other temporary differences of $1 million (2012: $3 million, increase). The charge to other revenue reserves $10 million arises on the movement in pension
accrual in the year.
The adoption of IAS 19 (Revised) ‘Employee Benefits’ resulted in a deferred tax asset of $26 million at 31 December 2012.
10. Earnings per ordinary share (EPS)
The calculation of basic EPS is based on post-tax profit, after payments to holders of the perpetual subordinated capital securities ($19 million after
tax, $25 million for the prior year), of $53 million compared to a loss of $812 million in the prior year, and ordinary shares of 1,787,851,123 (2012:
1,772,828,571), being the weighted average number of ordinary shares on issue during the period after excluding the shares owned by the Man
Employee Trusts. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential
ordinary shares, being ordinary shares of 1,818,402,923 (2012: 1,802,501,332).
The details of movements in the number of shares used in the basic and dilutive EPS calculation are provided below.
Number of shares at beginning of year
Issues of shares
Repurchase of own shares
Business combinations
Number of shares at period end
Shares owned by Employee Trusts
Basic number of shares
Share awards under incentive schemes
Employee share options
Diluted number of shares
The reconciliation from EPS to an adjusted EPS is given below:
Earnings per share1
Items for which EPS has been adjusted (Note 2)
Tax on adjusting items
Adjusted earnings per share
Net performance fees (post-tax)
Adjusted management fee earnings per share
Year ended 31 December 2013
Year ended 31 December 2012
Total number
(million)
1,821.8
1.9
–
–
1,823.7
(29.7)
1,794.0
Total number
(million)
1,820.8
4.3
(3.3)
–
1,821.8
(40.8)
1,781.0
Weighted
average
(million)
1,821.8
1.4
–
–
1,823.2
(35.3)
1,787.9
27.7
2.8
1,818.4
Weighted
average
(million)
1,820.8
2.5
(2.9)
–
1,820.4
(47.6)
1,772.8
28.7
1.0
1,802.5
Year ended 31 December 2013
Basic post–
tax earnings
$m
Diluted post–
tax earnings
$m
Basic
earnings
per share
cents
Diluted
earnings
per share
cents
53
241
(37)
257
(114)
143
53
241
(37)
257
(114)
143
3.0
13.5
(2.1)
14.4
(6.4)
8.0
2.9
13.3
(2.1)
14.1
(6.2)
7.9
Strategic reportCorporate governanceFinancial statementsOther information
78
Man Group plc
Annual Report 2013
Financial statements continued
10. Earnings per ordinary share (EPS) continued
Earnings per share1,2
Effect of potential ordinary shares2
Items for which EPS has been adjusted (Note 2)
Tax on adjusting items
Adjusted earnings per share
Net performance fees (post-tax)
Adjusted management fee earnings per share
Year ended 31 December 2012
Basic post–
tax earnings
$m
Diluted post–
tax earnings
$m
Basic earnings
per share
cents
(812)
–
1,023
(1)
210
(44)
166
(812)
–
1,023
(1)
210
(44)
166
(45.8)
–
57.7
(0.1)
11.8
(2.4)
9.4
Diluted
earnings
per share
cents
(45.8)
0.7
56.8
(0.1)
11.6
(2.4)
9.2
Notes:
1 The difference between post-tax profit/(loss) and basic and diluted post-tax profit/(loss) is the adding back of the expense in the period relating to the perpetual subordinated
capital securities (Note 21), totalling $19 million post-tax (2012: $25 million).
2 Potential ordinary shares have been excluded from the diluted unadjusted EPS calculation in 2012 as their conversion would decrease the loss per share.
11. Dividends
$m
Ordinary shares
Final dividend paid for the year to 31 December 2012 – 12.5 cents (9 months to 31 December 2011: 7 cents)
Interim dividend paid for the six months to 30 June 2013 – 2.6 cents (2012: 9.5 cents)
Dividends paid during the year
Proposed final dividend for the year to 31 December 2013 – 5.3 cents (2012: 12.5 cents)
Year ended
31 December
2013
Year ended
31 December
2012
230
47
277
95
126
173
299
228
Dividend distribution to the Company’s shareholders is recognised directly in equity and as a liability in Man’s financial statements in the period in
which the dividend is paid or, if required, approved by the Company’s shareholders.
12. Goodwill and acquired intangibles
$m
Cost:
At beginning of the year
Acquisition of business1
Currency translation
Other adjustment4
At year end
Amortisation and impairment:
At beginning of the year
Amortisation
Impairment3
At year end
Net book value at year end
Allocated to cash generating units as follows:
GLG
FRM
AHL
Year ended 31 December 2013
Year ended 31 December 2012
IMCs and
other
acquired
intangibles2
Goodwill
Total
Goodwill
IMCs and
other
acquired
intangibles2
2,252
–
(16)
(5)
2,231
(1,354)
–
(69)
(1,423)
808
201
139
468
726
–
–
–
726
(140)
(66)
–
(206)
520
493
27
–
2,978
–
(16)
(5)
2,957
(1,494)
(66)
(69)
(1,629)
1,328
694
166
468
2,234
16
2
–
2,252
(375)
–
(979)
(1,354)
898
262
227
409
694
32
–
–
726
(75)
(65)
–
(140)
586
555
31
–
Total
2,928
48
2
–
2,978
(450)
(65)
(979)
(1,494)
1,484
817
258
409
Notes:
1 Acquisition of business in the prior year relates to FRM.
2
3 The impairment of $69 million in 2013 relates to FRM. The impairment of $979 million in 2012 relates to the legacy Man Multi-Manager business ($142 million) and GLG ($837 million).
4 The other adjustment of $5 million to goodwill relates to an adjustment to the calculation for the FRM contingent consideration at the date of acquisition (July 2012), reducing the
Includes investment management contracts (IMCs), brand names and distribution channels.
goodwill and contingent consideration creditor.
79
Man Group plc
Annual Report 2013
Goodwill
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net assets of the acquired business at the date
of acquisition.
Goodwill is carried on the Group balance sheet at cost less accumulated impairment losses. Goodwill has an indefinite useful life, is not subject to
amortisation and is tested for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (cash generating units).
Investment management contracts (IMCs)
IMCs, distribution channels and brand names are recognised at the present value of the expected future cash flows and are amortised on a straight-
line basis over the expected useful lives, which are between 9 and 12 years.
Allocation of goodwill to cash generating units
The Group has three identified cash-generating units (CGUs) for impairment review purposes: GLG, FRM, and AHL. The goodwill and other intangible
assets acquired on the acquisition of FRM have been allocated to the FRM CGU as the acquired FRM business has been fully integrated with the
previous Man Multi-Manager business, which will benefit from all of the synergies from the acquisition.
The Man Systematic Strategies business (MSS) was integrated into the AHL business on 1 January 2013, which was previously reported within the
GLG and FRM CGUs. The goodwill associated with the MSS business of $71 million has been transferred from the GLG CGU ($61 million) and the
FRM CGU ($10 million) to the AHL CGU.
Calculation of recoverable amounts for cash generating units
The recoverable amounts of the Group’s CGUs are assessed each year using a value in use calculation. A value in use calculation gives a higher valuation
compared to a fair value less cost to sell approach, as a fair value approach would exclude some of the revenue synergies available to Man through its
ability to distribute products using its well established distribution channels, which is unlikely to be fully available to other market participants.
The value in use calculations at 31 December 2013 use cash flow projections based on the approved budget for the year to 31 December 2014 and a
further two years of projections (2015 and 2016) plus a terminal value. The valuation analysis is based on best practice guidance whereby a terminal
value is calculated at the end of a short discrete budget period and assumes, after this three year budget period, no growth in asset flows above the
long-term growth rate.
The key assumptions used in the value in use calculations are represented by the compound average annualised growth in FUM over the three
year budget period and the discount rates applied to the modelled cash flows. The value in use calculations are sensitive to small changes in the key
assumptions, in particular in relation to the compound average annualised growth in FUM over the three year forecast period. Sensitivity analysis of
this assumption is given in each of the GLG, FRM and AHL sections below. The terminal value is calculated based on the projected closing FUM at
31 December 2016 and applying a mid-point of a range of historical multiples to the forecast cash flows associated with management and
performance fees. A bifurcated discount rate has been applied to the modelled cash flows to reflect the different risk profile of net management fee
income and net performance fee income. The discount rates are based on the Group’s weighted average cost of capital using a risk free interest rate,
together with an equity risk premium and an appropriate beta derived from a consideration of Man’s beta, similar alternative asset managers and the
asset management sector as a whole. The post-tax discount rates applied are the same as those used in 2012.
The specific assumptions applied to the value in use calculations for each of the CGUs are explained in the sections below.
GLG cash generating unit
In 2012, GLG goodwill was impaired by $837 million.
At 30 June 2013, GLG’s FUM and run rate revenues were higher than the modelled FUM and run rate revenues in the value in use calculation at
31 December 2012 as a result of better than forecast investment performance, particularly for long only. Therefore, there were no indicators of
impairment and no impairment test was deemed necessary.
The recoverable amount of the GLG CGU has again been assessed at 31 December 2013. The key assumptions used in the value in use calculation
are shown in the table below.
Compound average annualised growth in FUM (over three years)
Discount rate (post-tax)1
– Net management fees
– Net performance fees
Terminal value (mid-point of range of historical multiples)2
– Management fees
– Performance fees
Notes:
1 The pre-tax equivalent of the net management fee and net performance fee discount rates are 13% and 22% respectively.
2 The terminal value is equivalent to an overall terminal growth of 3.1% for management fees and 0% for performance fees.
16.5%
11%
17%
13x
5.5x
Strategic reportCorporate governanceFinancial statementsOther information 80
Man Group plc
Annual Report 2013
Financial statements continued
12. Goodwill and acquired intangibles continued
The GLG value in use calculation at 31 December 2013 indicates a value of $1.3 billion, with around $550 million of headroom over the carrying value
of the GLG business. Therefore, no impairment charge is deemed necessary at 31 December 2013. The valuation at 31 December 2013 is around
$500 million higher than the value in use calculation at 31 December 2012, primarily as a result of better than anticipated net inflows and investment
performance in 2013, particularly for long only, and higher growth in FUM anticipated over the next three years.
The table below shows two adverse scenarios, whereby the base case key assumptions are changed to stressed assumptions. The table below
shows the effect of these scenarios and the associated modelled headroom or impairment that would result. The results of these sensitivities make no
allowance for actions that management would take if such market conditions persisted.
Compound average annualised growth in FUM stressed to:
Modelled headroom/(impairment) ($m)
7%
58
5%
(50)
If the net management fee and net performance fee post-tax discount rates were increased by 1% to 12% and 18% respectively, it would result in the
modelled headroom decreasing by $25 million. If the discount rates were decreased by 1%, it would result in the modelled headroom increasing by
$27 million.
If the mid-point of the range of historical multiples for management and performance fees used to calculate the terminal value were increased by 1 to 14
times and 6.5 times respectively, it would result in the modelled headroom increasing by around $102 million. If they were decreased by 1 to 12 times and
4.5 respectively, it would result in the modelled headroom decreasing by $103 million.
FRM cash generating unit
The FRM CGU includes the legacy Man Multi-Manager business and the acquired FRM business. A significant majority of the carrying value of the
goodwill relates to the legacy RMF and Glenwood businesses, which were acquired in 2002 and 2000 respectively.
In 2012, as a result of the challenging economic environment, a goodwill impairment charge of $142 million was recognised at 30 June 2012. The
recoverable amount of the FRM CGU was again assessed at 31 December 2012, which included the previous Man Multi-Manager and the acquired
FRM business, and suggested a value for the FRM CGU with significant headroom over the carrying value of the business. Therefore, no further
impairment charge was deemed necessary.
At 30 June 2013, FRM’s growth in FUM was slightly lower than modelled in the value in use calculation at 31 December 2012. However, as FRM had
significant headroom at 31 December 2012, and FRM’s margins and costs were as forecast, the lower growth in FUM was deemed to not be
significant enough to be an indicator of impairment. As a result, no impairment test of FRM’s goodwill was undertaken at 30 June 2013.
As with the GLG CGU, the recoverable amount of the FRM CGU has again been assessed at 31 December 2013. The key assumptions used in the
value in use calculation are shown in the table below.
Compound average annualised growth in FUM (over three years)
– Fund of fund products
– Guaranteed products
Discount rate (post-tax)1
– Net management fees
– Net performance fees
Terminal value (mid-point of range of historical multiples)2
– Management fees
– Performance fees
4.5%
-36%
11%
17%
12x
4x
Notes:
1 The pre-tax equivalent of the net management fee and net performance fee discount rates are 13% and 19% respectively.
2 The terminal value is equivalent to an overall terminal growth of 1.0% for management fees and 0% for performance fees.
As a result of guaranteed product FUM decreasing faster than anticipated, and higher than anticipated outflows in 2013 and Q1 2014, in particular in
relation to redemptions from a small number of institutional investors in our legacy Multi-Manager Business, the value in use calculation at 31 December
2013 suggests a value of $179 million for the FRM business. As the carrying value of the FRM business was $248 million, this resulted in an associated
goodwill impairment charge of $69 million at 31 December 2013.
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Man Group plc
Annual Report 2013
The table below shows two scenarios: one positive scenario and one adverse scenario, whereby the base case key assumptions for the fund of fund
products are changed to more favourable or stressed assumptions. The assumptions for guaranteed products remain unchanged. The table below
shows the effect of these scenarios and the associated modelled headroom or impairment that would result. The result of the adverse sensitivity
makes no allowance for actions that management would take if such market conditions persisted.
Fund of fund compound average annualised growth in FUM stressed to:
Modelled headroom/(increased impairment) ($m)
8%
18
2%
(136)
If the net management fee and net performance fee post-tax discount rates were increased by 1% to 11% and 18% respectively, it would result in the
modelled impairment increasing by $3 million. If the discount rates were decreased by 1%, it would result in the modelled impairment decreasing by
$3 million.
If the mid-point of the range of historical multiples for management and performance fees used to calculate the terminal value were increased by
1 to 13 times and 5 times respectively, it would result in the modelled impairment decreasing by around $15 million. If they were decreased by 1 to 11
times and 3 respectively, it would result in the modelled impairment increasing by around $15 million.
AHL cash generating unit
The recoverable amount of the AHL CGU was reviewed at 31 December 2012 using a value in use calculation. The value in use calculation indicated a
value for the AHL CGU with significant headroom over the carrying value of the AHL business.
At 30 June 2013, AHL’s growth in FUM was slightly lower than that modelled in the value in use calculation at 31 December 2012. However, as AHL
had significant headroom at 31 December 2012, and AHL’s margins and costs were as expected, the lower growth in FUM was not significant enough
to be deemed an indicator of impairment. As a result, no impairment test of AHL’s goodwill was undertaken at 30 June 2013.
As with the GLG and FRM CGUs, the recoverable amount of the AHL CGU has been assessed at 31 December 2013 using a value in use calculation.
The key assumptions used in the value in use calculation are shown in the table below.
Compound average annualised growth in FUM (over three years)
– Quant products
– Guaranteed products
Discount rate (post-tax)1
– Net management fees
– Net performance fees
Terminal value (mid-point of range of historical multiples)2
– Management fees
– Performance fees
10.8%
-38%
11%
17%
13x
5.5x
Notes:
1 The pre-tax equivalent of the net management fee and net performance fee discount rates are 13% and 20% respectively.
2 The terminal value is equivalent to an overall terminal growth of 2.8% for management fees and 0% for performance fees.
The value in use calculation at 31 December 2013 for the AHL CGU indicates a value of around $1.25 billion, giving a significant amount of headroom
over the carrying value of the AHL CGU.
In an adverse scenario, the compound average annualised growth in FUM (over three years) for quant alternative products, with guaranteed products
unchanged, would have to decrease to 3% as a result of a combination of declined net investment performance and net flows for any impairment to arise.
If the net management fee and net performance fee post-tax discount rates were increased by 1% to 11% and 18% respectively, it would result
in modelled headroom decreasing by $25 million. If the discount rates were decreased by 1%, it would result in modelled headroom increasing by
$25 million.
If the mid-point of the range of historical multiples for management and performance fees used to calculate the terminal value were increased by
1 to 14 times and 6.5 times respectively, it would result in modelled headroom increasing by around $118 million. If they were decreased by 1 to 12
times and 4.5 respectively, it would result in modelled headroom decreasing by around $119 million.
Strategic reportCorporate governanceFinancial statementsOther information 82
Man Group plc
Annual Report 2013
Financial statements continued
13. Other intangibles
$m
Cost:
At beginning of the year
Acquisition of business
Additions
Redemptions/disposals
At year end
Aggregate amortisation and impairment:
At beginning of the year
Impairment
Redemptions/disposals
Amortisation
At year end
Net book value at year end
2
Year ended 31 December 2013
Year ended 31 December 2012
Note
Placement
fees
Capitalised
computer
software
Placement
fees
Capitalised
computer
software
639
–
29
(587)
81
(482)
(88)
577
(56)
(49)
32
115
–
4
(11)
108
(85)
–
10
(20)
(95)
13
Total
189
–
3
(49)
143
(144)
–
45
(18)
(117)
26
Total
754
–
33
(598)
189
(567)
(88)
587
(76)
(144)
45
81
–
3
(10)
74
(49)
–
5
(10)
(54)
20
108
–
–
(39)
69
(95)
–
40
(8)
(63)
6
Placement fees
Placement fees are paid to distributors for selling fund products. The majority of placement fees paid are capitalised as intangible assets which
represent the contractual right to benefit from future income from providing investment management services. The amortisation period is based on
management’s estimate of the weighted average period over which Man expects to earn economic benefit from the investor in each product,
estimated to be five years on a straight-line basis.
If an investor redeems their investment in a fund product, the corresponding unamortised placement fee is written off. The placement fees intangible
is also subject to impairment testing semi-annually to ensure that the future economic benefit arising from each fund product is in excess of the
remaining unamortised balance. Amortisation expense, amounts written off, and any impairment losses, are included in distribution costs in the
Group income statement.
During the prior year $88 million of external and internal capitalised placement fees were impaired.
The weighted average remaining period of the unamortised placement fees at 31 December 2013 is 1.5 years (31 December 2012: 2.9 years).
From a capital management perspective capital is held against the unamortised balance of placement fees based on an evaluation of the risk of an
accelerated amortisation or impairment charge relating to poor investment performance or early redemptions. From a regulatory capital perspective
placement fees are an intangible asset and are required to be supported by Tier 1 regulatory capital.
Capitalised computer software
Costs that are directly associated with the procurement or development of identifiable and unique software products, which will generate economic
benefits exceeding costs beyond one year, are recognised as capitalised computer software. Capitalised computer software is amortised on a straight-
line basis over its estimated useful life (three years) and is subject to regular impairment reviews. Amortisation of capitalised computer software is included
in Other costs in the Group income statement.
14. Cash, liquidity and borrowings
Liquidity and borrowings
Total liquidity resources aggregated to $2,517 million at 31 December 2013 (2012: $3,525 million) and comprised cash and cash equivalents of
$992 million (2012: $2,000 million) and the undrawn committed revolving credit facility of $1,525 million (2012: $1,525 million). Cash and cash equivalents
at year end comprises $291 million (2012: $268 million) of cash at bank on hand, $nil of treasury bills (2012: $1,153 million), and $701 million (2012:
$579 million) in short-term deposits, net of overdrafts of nil (2012: nil). Cash ring-fenced for regulated entities totalled $16 million (2012: $303 million).
Liquidity resources support on-going operations and potential liquidity requirements under stressed scenarios. The amount of potential liquidity
requirements is modelled based on scenarios that assume stressed market and economic conditions. With the exception of committed purchase
arrangements (Note 28.1), the funding requirements for Man relating to the investment management process are discretionary. The liquidity profile
of Man is monitored on a daily basis and the stressed scenarios are updated regularly. The Board reviews Man’s funding resources at each Board
meeting and on an annual basis as part of the strategic planning process. Man’s available liquidity is considered sufficient to cover current
requirements and potential requirements under stressed scenarios.
83
Man Group plc
Annual Report 2013
Cash is invested in accordance with strict limits consistent with the Board’s risk appetite, which consider both the security and availability of liquidity.
Accordingly, cash is invested in short-term US Treasury bills and is held in short-term bank deposits and on-demand deposit bank accounts. At
31 December 2013, $nil was invested in short-dated US Treasury bills (2012: $1,153 million) and $992 million was cash balances with 24 banks (2012:
$847 million with 30 banks). The reduction in cash invested in US Treasury bills was a result of the uncertainties surrounding the fiscal debate in the
US. The single largest counterparty bank exposure of $136 million was held with an AA- rated bank (2012: $183 million with an A+ rated bank).
Balances with banks in the AA ratings band aggregated to $472 million (2012: $134 million). Balances with banks in the A ratings band aggregated
to $520 million (2012: $713 million).
As shown in the following tables, Man repaid all of its outstanding borrowings and the perpetual subordinated capital securities during the year.
31 December 2013 ($m)
Senior 2013 fixed rate bonds
Senior 2015 fixed rate € bonds
Tier 2 subordinated 2015 floating rate notes
Tier 2 subordinated 2017 fixed rate bonds
Borrowings
Tier 1 perpetual subordinated capital securities
Cash and cash equivalents
Undrawn committed revolving credit facility
Total liquidity
31 December 2012 ($m)
Senior 2013 fixed rate bonds
Senior 2015 fixed rate € bonds
Tier 2 subordinated 2015 floating rate notes
Tier 2 subordinated 2017 fixed rate bonds
Borrowings
Tier 1 perpetual subordinated capital securities
Cash and cash equivalents
Undrawn committed revolving credit facility
Total liquidity
Total
Less than
1 year
2 years
3 years
Greater than
3 years
–
–
–
–
–
–
992
1,525
2,517
Total
173
285
170
231
859
300
2,000
1,525
3,525
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
70
70
–
–
–
–
–
–
–
120
120
–
–
–
–
–
–
–
1,335
1,335
Less than
1 year
2 years
3 years
Greater than
3 years
173
–
–
–
173
–
–
–
–
–
–
–
–
–
–
–
–
–
–
285
170
–
455
–
–
–
–
–
–
–
231
231
300
–
1,525
1,525
To maintain maximum flexibility, the revolving credit facility does not include financial covenants.
Borrowings are initially recorded at fair value net of transaction costs incurred, and are subsequently measured at amortised cost. The difference
between the amount repayable at maturity on the borrowings and the carrying value is amortised over the period up to the expected maturity of the
associated debt in accordance with the effective interest rate method. At 31 December 2013, the fair value of borrowings was nil (2012: $826 million).
On 7 May 2013, the €216 million ($285 million) senior 2015 fixed rate bonds were repurchased at a premium of $23 million. This premium, along with an
accelerated unwind of issue costs and fees of $2 million, has been included in finance expense for the period.
The $231 million Tier 2 subordinated 2017 fixed rate bonds were repurchased at a premium of $3 million on 14 June 2013. There were no fees payable
on the repurchase of the $170 million Tier 2 subordinated 2015 floating rate notes, which took place on 24 June 2013.
On 1 August 2013, the $173 million senior 2013 fixed rate bonds were redeemed at par value. On 7 August 2013, the $300 million Tier 1 perpetual
capital securities were redeemed at par value.
The committed revolving credit facility of $1,525 million was put in place during July 2011 as a five year facility and includes the option for Man to ask
the banks to extend the maturity date by a year on each of the first and second anniversaries. The participant banks have the option to accept or
decline Man’s request. Before the second anniversary in July 2013 the banks were asked to extend the maturity date of the facility by a further year.
Banks with participations totalling $1,335 million accepted the request and as a result $70 million of the facility is currently scheduled to mature in July
2016, $120 million in July 2017, and $1,335 million in July 2018.
Disclosures in relation to financial guarantees and commitments are included in Note 28.
Foreign exchange and interest rate risk
Man is subject to risk from changes in interest rates or foreign exchange rates on monetary assets and liabilities. A 10% strengthening/weakening of
the US dollar against all other currencies, with all other variables held constant, would have resulted in a foreign exchange loss/gain of $2 million (2012:
$8 million loss/gain), with a corresponding impact on equity. In respect of Man’s monetary assets and liabilities which earn/incur interest indexed to
floating rates, as at 31 December 2013, a 50bp increase/decrease in interest rates, with all other variables held constant, would have resulted in a
$3 million increase or a $1 million decrease (2012: $4 million increase or $1 million decrease) in net interest income.
Strategic reportCorporate governanceFinancial statementsOther information
84
Man Group plc
Annual Report 2013
Financial statements continued
15. Investments in fund products and other investments
$m
Investments in fund products comprise:
Loans to fund products
Other investments in fund products
Other investments
$m
Investments in fund products comprise:
Loans to fund products
Other investments in fund products
Other investments
31 December 2013
Financial
assets at fair
value through
profit or loss
Available–for–
sale financial
assets
Loans and
receivables
Total
investments in
fund products
and other
investments
Net
non-current
assets held
for sale
Total
investments
–
167
–
167
–
1
6
7
99
–
–
99
99
168
6
273
–
50
–
50
99
218
6
323
31 December 2012
Financial
assets at fair
value through
profit or loss
Available-for-
sale financial
assets
Loans and
receivables
Total
investments in
fund products
and other
investments
Net
non-current
assets held
for sale
Total
investments
–
212
–
212
–
1
9
10
274
–
–
274
274
213
9
496
–
–
–
–
274
213
9
496
15.1. Loans to fund products
Loans to fund products are short-term advances primarily to Man guaranteed products, which are made to assist with the financing of the leverage
associated with the structured products. The loans are repayable on demand and are carried at amortised cost using the effective interest rate method.
The average balance during the year was $238 million (2012: $332 million). Loans to fund products have decreased compared to the prior year as the
guaranteed product FUM has decreased together with the associated leveraging. The liquidity requirements of the guaranteed products together with
commitments to provide financial support (Note 28) which give rise to loans to funds are subject to our routine liquidity stress testing and any liquidity
requirements are met by available cash resources, or the committed revolving credit facility.
Loans to fund products expose Man to credit risk and therefore the credit decision making process is subject to limits consistent with the Board’s risk
appetite. The carrying value represents Man’s maximum exposure to this credit risk. Loans are closely monitored against the assets held in the funds.
The largest single loan to a fund product was $12 million (2012: $21 million). Fund entities are not externally rated, but our internal modelling indicates
that fund products have a probability of default that is equivalent to a credit rating of A.
15.2. Other investments in fund products
Man uses capital to invest in our fund products as part of our on-going business to build our product breadth and to trial investment research
developments before we market the products to investors. These investments are generally held for less than one year. Where due to the level of
investment Man is deemed not to control the fund, these are classified as other investments in fund products. Other investments in fund products are
classified primarily at fair value through profit or loss, with movements in fair value being recognised through ‘gains/(losses) on investments and other
financial instruments’. Purchases and sales of investments are recognised on trade date.
Other investments in fund products are not actively traded and the valuation at the fund level cannot be determined by reference to other available
prices. The fair values of investments in fund products are derived from the reported net asset values (NAVs) of each of the fund products, which in
turn are based upon the value of the underlying assets held within each of the fund products and the timings of being able to redeem the fund product.
The valuation of the underlying assets within each fund product is determined by external valuation service providers (VSPs) based on an agreed
valuation policy and methodology.
Whilst these valuations are performed independently of Man, Man has established oversight procedures and due diligence processes to ensure that
the net asset values reported by the VSPs are reliable and appropriate. Man makes adjustments to NAVs where the timing of being able to redeem the
fund product or events or circumstances indicate that the NAVs are not reflective of fair value. The fair value hierarchy of financial assets is disclosed in
Note 26.
Other investments in fund products expose Man to market risk and therefore the commitment process is subject to limits consistent with the Board’s risk
appetite. The largest single investment in fund products was $50 million (2012: $46 million). The market risk from other investments in fund products and
other investments is modelled using a value at risk (VaR) methodology using a 95% confidence interval and 1 month time horizon. The VaR is estimated to
be $7 million at 31 December 2013 (2012: $6 million).
The total net gain on investments in fund products reported in the Group income statement was $28 million (2012: $23 million).
85
Man Group plc
Annual Report 2013
Fund investment for deferred compensation arrangements
At year end, investment in fund products included $61 million (2012: $51 million) of Man and GLG fund products related to deferred compensation
arrangements. Employees are subject to mandatory deferral arrangements and as part of these arrangements employees can elect deferral into a
designated series of Man fund products. The changes in the fair value of the fund product awards are recognised over the relevant vesting period,
which means the compensation expense changes based on the value of the designated fund products. The fund product investments are held to
offset this change in compensation during the vesting period and at vesting the value of the fund investment is delivered to the employee. The fund
product investments are recorded at fair value with any unrealised gain/loss during the vesting period charged to gains/(losses) on investments and
other financial instruments in the Group income statement.
15.3. Other investments
Sale of Lehman claims
In the prior year, on 16 November 2012, the Group entered into a series of transactions with Hutchinson Investors LLC, managed by the Baupost
Group, to sell the residual exposure to the Lehman estates (Lehman claims) that it acquired in July 2011 from certain GLG managed funds.
The total consideration for the transactions was $456 million, and resulted in a gain on sale of $131 million (Note 2). A further $5 million was then
received in 2013 as overall recoveries by the buyer exceeded certain thresholds.
Man provided guarantees of up to $75 million (Note 28) to the funds for prompt payment by the Baupost Group of amounts owed to the funds in the
event of a successful claim.
15.4. Non-current assets held for sale
Seed capital invested into funds may at times be significant, and therefore the fund may be deemed to be controlled by the Group. Where the Group
acquired the controlling stake exclusively with a view to subsequent disposal through sale or dilution and it is considered highly probable that it will
relinquish control within a year, the investment in the controlled fund is classified as held for sale. The seeded fund is recognised in the Group balance
sheet as non-current assets and liabilities held for sale, with the interests of any other parties included within non-current liabilities held for sale. The
non-current liabilities held for sale in 2013 relate to derivatives, which are offset against the assets in the fund. Amounts recognised are measured at
the lower of the carrying amount and fair value less costs to sell.
The non-current assets and liabilities held for sale were as follows:
$m
Non-current assets held for sale
Non-current liabilities held for sale
Investments in fund products held for sale
31 December
2013
31 December
2012
56
(6)
50
–
–
–
Investments held for sale cease to be classified as held for sale when the fund is no longer controlled by the Group, at which time they are classified
as financial assets at fair value through profit or loss (Note 15.2). Loss of control may eventuate through sale of the investment or a dilution in the
Group’s holding.
If a held for sale fund remains under the control of the Group for more than one year, and it is unlikely that the Group will reduce or no longer control its
investment in the short-term, it will cease to be classified as held for sale and will be consolidated on a line-by-line basis.
16. Fee and other receivables
$m
Fee receivables
Prepayments and accrued income
Derivative financial instruments
Other receivables
31 December
2013
31 December
2012
62
200
20
106
388
65
179
14
124
382
Fee and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.
Fee receivables and accrued income represent management and performance fees from fund products and are received in cash when the funds’ NAV
is determined. All fees are deducted from the NAV of the respective funds by the independent administrators and therefore the credit risk of fee
receivables is minimal. No balances were overdue or delinquent at year end.
For the Open Ended Investment Collective (OEIC) Funds businesses, Man acts as the intermediary for the collection of subscriptions due from
customers and payable to the funds, and for redemption requests receivable from funds and payable to customers. At 31 December 2013 the amount
included in other receivables is $27 million (2012: $29 million). The unsettled fund payable is recorded in trade and other payables.
Strategic reportCorporate governanceFinancial statementsOther information
86
Man Group plc
Annual Report 2013
Financial statements continued
16. Fee and other receivables continued
In limited circumstances, the Group uses derivative financial instruments to hedge its risk associated with foreign exchange movements. Derivative
financial instruments, which consist primarily of foreign exchange contracts, are measured at fair value through profit or loss. The notional value of the
derivative financial assets was $265 million (2012: $599 million). All derivatives are held with external banks with ratings of A or higher and mature within
one year. During the year, there were $18 million net realised and unrealised gains arising from derivatives (2012: $18 million net gains). Derivatives are
classified as Level 2 under Man’s fair value hierarchy (Note 26). At the year end, $18 million (2012: $28 million) of fee and other receivables are expected
to be settled after 12 months.
17. Trade and other payables
$m
Accruals
Trade payables
Provisions
Contingent consideration
Derivative financial instruments
Pension liability
Other payables
31 December
2013
31 December
2012
355
54
73
44
1
–
198
725
345
48
59
60
2
4
139
657
Accruals primarily relate to compensation accruals. Trade payables primarily relate to GLG’s OEIC business. Provisions primarily relate to onerous
property leases and potential legal claims. Contingent consideration relates to the amounts payable in respect of the FRM acquisition. Other payables
include servicing fees payable to distributors and redemption proceeds due to investors.
Payables are initially recorded at fair value and subsequently measured at amortised cost. Included in trade and other payables at 31 December 2013
are balances of $95 million (2012: $93 million) that are expected to be settled after more than 12 months. Man’s policy is to meet its contractual
commitments and pay suppliers according to agreed terms.
Derivative financial instruments, which consist primarily of foreign exchange contracts, are measured at fair value through profit or loss. The notional
value of the derivative financial liabilities was $412 million (2012: $267 million). All derivative contracts mature within one year.
The pension liability has changed to a pension asset in 2013, as shown in the Group balance sheet, as a result of contributions made during the year.
18. Investments in associates
$m
At beginning of the year
Additions
Share of post-tax profit
Dividends received
Disposals
At year end
Year ended
31 December
2013
Year ended
31 December
2012
38
2
12
(11)
(10)
31
41
–
10
(13)
–
38
The carrying value of investments in associates primarily relates to the Group’s interest in Nephila Capital Limited, an alternative investment manager
specialising in the management in funds which underwrite natural catastrophe reinsurance and invest in insurance-linked securities and weather
derivatives. In January 2013, Man reduced its holding in Nephila from 25% to 18.75%, realising a gain on disposal of $10 million, which is included
as an adjusting item (Note 2).
Additions of $2 million in the year relate to the acquisition of a 20% holding in OFI MGA (a French asset manager).
Associates are entities in which Man holds an interest and over which it has significant influence but not control. Investments in associates are
accounted for using the equity method at cost plus (or minus) our share of cumulative post-acquisition movements in undistributed profits (or losses).
Gains and losses on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the entities. At each
reporting date it is determined whether there is any objective evidence that an investment in the associate is impaired. Impairment is calculated as the
difference between the recoverable amount of the associate and its carrying value and expensed in the Group income statement.
Where Man has investments in certain fund entities over which it is able to exert significant influence but not control, these are classified as associates.
Man has applied the scope exclusion within IAS 28 ‘Investments in Associates’ for mutual funds, unit trusts and similar entities and has classified such
holdings as investments and measured them at fair value through profit or loss (Note 15).
Details of associates will be annexed in the Company’s annual return.
87
Man Group plc
Annual Report 2013
19. Leasehold improvements and equipment
$m
Cost
At beginning of the year
Acquisition of business
Additions
Disposals
Reclassifications
At year end
Aggregate depreciation:
At beginning of the year
Charge for year
Accelerated depreciation
Disposals
At year end
Net book value at year end
Year ended 31 December 2013
Year ended 31 December 2012
Leasehold
improvements
Equipment
Total
Leasehold
improvements
Equipment
Total
124
–
1
(2)
(4)
116
–
1
(7)
4
240
–
2
(9)
–
119
114
233
(31)
(11)
(38)
2
(78)
41
(59)
(28)
(5)
5
(87)
27
(90)
(39)
(43)
7
(165)
68
149
–
19
(9)
(35)
124
(25)
(14)
–
8
(31)
93
105
1
1
(26)
35
116
(56)
(29)
–
26
(59)
57
254
1
20
(35)
–
240
(81)
(43)
–
34
(90)
150
All leasehold improvements and equipment are shown at cost, less depreciation and impairment. Cost includes the original purchase price of the asset
and costs directly attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated using the straight-line method
over the asset’s estimated useful life, which for leasehold improvements is over the shorter of the life of the lease and the improvement and for equipment
is between 3 and 10 years.
The accelerated depreciation of $43 million during the year relates to the assets no longer being used following the sub-letting of space in Riverbank
House (our main London headquarters). In prior year, additions primarily relate to the fit-out of the New York office and reclassifications relate to the
completion and capitalisation of Man’s new data centre facility.
20. Deferred compensation arrangements
Man operates cash and equity-settled share-based payment schemes as well as fund product based compensation arrangements. Details of these
schemes may be found in the Directors’ Remuneration report on pages 40 to 59.
During the year, $70 million (2012: $101 million) was included in compensation costs for share-based payment and deferred fund product plans,
split between equity-settled share-based payments of $35 million (2012: $74 million), cash-settled share-based payments totalling $1 million (2012:
$4 million), and deferred fund product plans of $34 million (2012: $23 million).
In respect of equity-settled share-based payment schemes, the fair value of the employee services received in exchange for the share awards and
options granted is recognised as an expense, with the corresponding credit being recognised in equity. The fair value of the share awards and options
granted in exchange for employee services is calculated using the Black-Scholes valuation model that takes into account the effect of both financial
and demographic assumptions. Forfeiture and early vesting are based upon historical observable data. The fair values per option and award granted
during the period to employees and the assumptions used in the calculations are presented below.
The total amount to be expensed over the vesting period is determined by reference to the fair value of the shares and options awarded/granted.
Changes to the original estimates, if any, are included in the Group income statement, with a corresponding adjustment to equity. Man also operates
compensation plans in which deferred compensation is invested in fund products managed by Man. The fair value of the employee services received
in exchange for the fund units is recognised as an expense, with a corresponding liability. The total amount to be expensed over the vesting period is
determined by reference to the fair value of the awards, re-measured at each reporting date until the settlement date is reached. The fair value of the
awards equates to the fair value of the underlying fund products at the settlement date.
20.1 Employee Trusts
The Employee Trusts have the obligation to deliver shares, options and fund product based payments which have been granted to employees.
Man contributed funds, in order for the Trusts to meet their current period obligations, of $27 million (2012: $25 million) in the year.
The Trusts are fully consolidated into Man and shares held are treated as treasury shares for EPS purposes. The shares held by the Trusts are
deducted from Tier 1 Capital. The Employee Trusts are controlled by independent trustees and their assets are held separately from those of Man.
At 31 December 2013 the net assets of the employee trusts amounted to $36 million (2012: $43 million). These assets include 29,681,372 (2012:
40,762,323) ordinary shares in the Company, $31 million notional value options over Man shares (2012: $35 million), and $36 million fund units to
deliver against the future obligations (2012: $26 million). The shares are recorded at cost and shown as a deduction from shareholders’ funds. During
the year the trustees of one of the Employee Trusts waived all of the interim dividend for the year ended 31 December 2013 on each of the 30,526,357
ordinary shares registered in its name at the relevant date for eligibility for the interim dividend (interim dividend for the year ended 31 December 2012:
waived on all 41,985,564 shares) and all of the final dividend for the year ended 31 December 2012 on each of 37,404,793 of the ordinary shares
registered in its name at the relevant date for eligibility for the final dividend (31 December 2012 final: waived on all 50,148,674 shares).
Strategic reportCorporate governanceFinancial statementsOther information 88
Man Group plc
Annual Report 2013
Financial statements continued
20. Deferred compensation arrangements continued
20.2 Share-based payments: share grant information
The following information shows the movements in share-based payments during the period with comparative information.
Share options
The fair value of share options is determined using the Black-Scholes valuation model. The fair values of share options granted during the year to
employees and the assumptions used in the calculations are as follows:
Grant dates
Weighted average share price at grant date ($)
Weighted average exercise price at grant date ($)
Share options granted in the period
Vesting period (years)
Expected share price volatility (%)
Dividend yield
Risk-free rate
Expected option life (years)
Number of options assumed to vest
Average fair value per option granted ($)
Sharesave
share option
schemes
02/09/2013
1.3
1.1
622,317
3–5
40
6
0.6
3.1
475,939
0.3
The expected share price volatility is based on historical volatility over the past 10 years. The expected option life is the average expected period to
exercise. The risk-free rate of return is the yield on zero-coupon US and UK (where appropriate) government bonds of a term consistent with the
assumed option life.
There were no share options granted for the key executive option plan, executive share option scheme or deferred bonus share option scheme during
the year ended 31 December 2013.
Movements in the number of share options outstanding are as follows:
Year ended 31 December 2013
Year ended 31 December 2012
Share options outstanding at beginning of the year
Granted
Forfeited
Exercised
Share options outstanding at year end
Share options exercisable at year end
Weighted
average
exercise price
($ per share)
Weighted
average
exercise price
($ per share)
Number
Number
57,786,826
622,317
(5,060,748)
(208,172)
4.22 58,998,026
8,918,725
1.15
3.49 (10,128,772)
(1,153)
1.03
53,140,223
4.27 57,786,826
14,147,305
4.69
1,485,261
4.66
1.62
4.46
1.03
4.22
4.34
The share options outstanding at the end of the year have a weighted average exercise price and expected remaining life as follows:
Range of exercise prices ($ per share)
1.01–5.00
5.01–7.00
7.01–9.00
31 December 2013
31 December 2012
Weighted
average
exercise price
($ per share)
Weighted
average
expected
remaining life
Number of
share options
Weighted
average
exercise price
($ per share)
Weighted
average
expected
remaining life
3.8
5.1
–
5.5 29,830,297
6.2 27,952,395
4,134
–
57,786,826
3.6
5
7.7
5.3
6.2
0.1
Number of
share options
27,166,824
25,973,399
–
53,140,223
Share awards
The fair values of share awards granted during the year to employees and the assumptions used in the calculations are as follows:
Grant dates
Weighted average share price at grant date ($)
Share awards granted in the period
Vesting period (years)
Average fair value per share award granted ($)
There were no share awards granted for the performance share plan during the year ended 31 December 2013.
Deferred share
plan
13/3/2013–01/10/2013
1.5
11,731,744
1–3
1.5
Movements in the number of share awards outstanding are as follows:
Share awards outstanding at beginning of the year
Granted
Forfeited
Exercised
Share awards outstanding at year end
Share awards exercisable at year end
21. Capital management
89
Man Group plc
Annual Report 2013
Year ended
31 December
2013
Number
Year ended
31 December
2012
Number
36,620,848 42,199,998
11,731,744 19,520,850
(4,512,479)
(18,877,751) (20,587,521)
(3,792,637)
25,682,204 36,620,848
1,660,353
2,418,239
Investor confidence is an important element in the sustainability of our business. That confidence comes, in part, from the strength of our capital base.
Man has maintained significant surplus capital and available liquidity throughout the recent periods of financial crisis. This capital has given Man
flexibility to support our investors, intermediaries and financial partners and to allow them to make informed decisions regarding their investment
exposures. This confidence gives our business credibility and sustainability.
We have a conservative capital and liquidity framework which allows us to invest in the growth of our business. We utilise capital to support the
operation of the investment management process and the launch of new fund products. We view this as a competitive advantage which allows us to
directly align our interests with those of investors and intermediaries.
Man monitors its capital requirements through continuous review of its regulatory and economic capital, including monthly reporting to the Finance
Committee and the Board.
Share capital and capital reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Own shares held through the Employee Trusts are recorded at cost, including any directly attributable incremental costs (net of tax), and are deducted
from equity attributable to the Company’s equity holders until the shares are transferred to employees or sold. Where such shares are subsequently
sold, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity
attributable to the Company’s equity holders.
Ordinary shares
Ordinary shares have a par value of 33/7 US cents per share (2012: 33/7 US cents per share) and represent 99.9% of issued share capital. All issued
shares are fully paid. The shares have attached to them full voting, dividend and capital distribution (including on wind up) rights. They do not confer
any rights of redemption. Ordinary shareholders have the right to receive notice of, attend, vote and speak at general meetings.
A holder of ordinary shares is entitled to one vote per ordinary share held when a vote is taken on a poll and one vote only when a vote is taken on a
show of hands.
During the year ended 31 December 2013, no shares were repurchased during the year (2012: 3,332,756). As at 26 February 2014, Man had an
unexpired authority to purchase further shares up to a maximum amount of 182,179,028 ordinary shares. A resolution to allow the purchase of
182,373,308 ordinary shares, representing 10% of the issued share capital, will be proposed at the forthcoming Annual General Meeting.
Deferred sterling shares
50,000 unlisted deferred sterling shares, representing 0.1% of the Company’s issued share capital with a par value of £1 per share, were issued due to
the redenomination of the ordinary share capital into US dollars. These shares are necessary for the Company to continue to comply with Section 763
of the Companies Act 2006. The deferred sterling shares are freely transferable and have no rights to participate in the profits of the Company, to
attend, speak or vote at any general meeting and no right to participate in any distribution in a winding up except for a return of the nominal value in
certain limited circumstances.
New Group holding company in 2012
A new holding company was incorporated in the prior year, on 8 August 2012, and became the new listed holding company of the Man Group on
6 November 2012 via a Court approved scheme of arrangement under Part 26 of the Companies Act 2006. The former holding company was
renamed Man Strategic Holdings plc and the new holding company assumed the name Man Group plc.
Under the scheme of arrangement, shares in the former holding company of the Group were cancelled. The same number of new ordinary shares
were issued to the new holding company in consideration for the allotment to shareholders of one ordinary share of $1.07 in that new holding company
for each ordinary share of 33/7 US cents they had held in the former holding company.
On 8 November 2012, Man Group plc effected a reduction of its share capital to create distributable reserves, as sanctioned by the High Court of the
United Kingdom. This capital reduction reduced the nominal value of ordinary shares in the new holding company from $1.07 to 33/7 US cents.
Strategic reportCorporate governanceFinancial statementsOther information 90
Man Group plc
Annual Report 2013
Financial statements continued
21. Capital management continued
Issued and fully paid share capital
At 1 January 2013
Issue of ordinary shares:
- GLG Partnership Plans
At 31 December 2013
At 1 January 2012
Issue of ordinary shares:
– Employee share awards/options
– GLG partnership plans
– A share issued in relation to new Group holding company
– Purchase and cancellation of own shares
At 6 November 2012
Man Group plc (new holding company)
Relating to the formation of new holding company
Scheme of arrangement – issue of ordinary shares of $1.07 each
Capital reduction to ordinary shares of 33/7 cents each
GLG partnership plans
Year ended 31 December 2013
Ordinary
shares
Number
Unlisted
deferred
sterling
shares
Number
1,821,790,279
50,000
1,942,802
–
1,823,733,081
50,000
Year ended 31 December 2012
Ordinary
shares
Number
1,820,814,143
165,512
3,012,545
–
(3,332,756)
Unlisted
deferred
sterling
shares
Number
50,000
–
–
–
–
1,820,659,444
50,000
2
1,820,659,444
–
1,130,833
1,821,790,279
50,000
–
–
–
50,000
A shares of £1
Number
–
–
–
1
–
1
–
–
–
–
–
Nominal
value
$m
63
–
63
Nominal
value
$m
63
–
–
–
–
63
–
1,948
(1,885)
–
63
Total
1,187
4
1,191
3,364
8
(3,071)
3,071
(1,885)
(300)
1,187
At 31 December 2012
Share capital and reserves
$m
At 1 January 2013
Employee share awards/options
At 31 December 2013
At 1 January 2012
Employee share awards/options
Scheme of arrangement:
– Cancellation of shares in former holding company
– Issue of shares in new holding company
Capital reduction
Transfer to non-controlling interest
At 31 December 2012
Perpetual
subordinated
capital
securities
Share capital
Share
premium
account
Capital
redemption
reserve
Merger
reserve
Reorganisation
reserve
63
–
63
63
–
(63)
1,948
(1,885)
–
63
–
–
–
300
–
–
–
–
(300)
–
1
4
5
1,707
8
(1,714)
–
–
–
1
–
–
–
1,294
–
(1,294)
–
–
–
–
491
–
491
–
–
–
491
–
–
491
632
–
632
–
–
–
632
–
–
632
91
Man Group plc
Annual Report 2013
Available-for-
sale reserve
Cash flow
hedge reserve
Own shares
held by
Employee
Trusts
Cumulative
translation
adjustment
Profit and loss
account
Revaluation reserves and retained earnings
$m
At 1 January 2013
Impact of adoption of IAS19 (Revised)1
As restated
Currency translation difference
Share-based payments charge for the period
Purchase of own shares by the Employee Trusts
Disposal of own shares by the Employee Trusts
Corporation tax debited on cash flow hedge movements
Fair value (losses)/gains taken to equity
Revaluation of defined benefit pension scheme
Corporation tax debited to reserves – pension scheme
Deferred tax debited to reserves – pension scheme
Transfer to Group income statement
Dividends
Dividends with respect to perpetual subordinated capital securities
Taxation with respect to perpetual subordinated capital securities
Profit for the year
At 31 December 2013
3
–
3
–
–
–
–
–
(1)
–
–
–
1
–
–
–
–
3
6
–
6
–
–
–
–
(3)
12
–
–
–
(1)
–
–
–
–
14
$m
At 1 January 2012
Impact of adoption of IAS19 (Revised)1
As restated
Currency translation difference
Movement in close period buyback obligations
Repurchase of own shares
Share-based payments charge for the period
Purchase of own shares by the Employee Trusts
Disposal of own shares by the Employee Trusts
Fair value gains taken to equity
Revaluation of defined benefit pension scheme
Deferred tax credited to reserves – pension scheme
Corporation tax debited to reserves
Transfer to Group income statement
Scheme of arrangement – capital reduction
Dividends
Dividends with respect to perpetual subordinated capital securities
Taxation with respect to perpetual subordinated capital securities
Loss for the year
At 31 December 2012
Note:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
Available-for-
sale reserve
Cash flow
hedge reserve
4
–
4
–
–
–
–
–
–
18
–
–
–
(19)
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
16
–
–
(1)
(9)
–
–
–
–
–
6
(170)
–
(170)
(4)
–
(18)
82
–
–
–
–
–
–
–
–
–
–
(110)
Own shares
held by
Employee
Trusts
(221)
–
(221)
(10)
–
–
–
–
61
–
–
–
–
–
–
–
–
–
–
(170)
1,654
(84)
1,570
–
30
––
(82)
–
–
16
6
(11)
–
(277)
(25)
6
72
Total
1,507
(84)
1,423
(15)
30
(18)
–
(3)
11
16
6
(11)
1
(277)
(25)
6
72
14
–
14
(11)
–
–
–
–
–
–
–
–
1
–
–
–
–
4
1,305
1,216
Cumulative
translation
adjustment
Profit and loss
account
43
–
43
13
–
–
–
–
–
–
–
–
–
(42)
–
–
–
–
–
14
870
(71)
799
–
10
(7)
66
(1)
(61)
–
(13)
3
–
–
1,885
(299)
(33)
8
(787)
1,570
Total
696
(71)
625
3
10
(7)
66
(1)
–
34
(13)
3
(1)
(70)
1,885
(299)
(33)
8
(787)
1,423
Strategic reportCorporate governanceFinancial statementsOther information 92
Man Group plc
Annual Report 2013
Financial statements continued
22. Pension benefits
Man operates 12 (2012: 12) defined contribution plans and two (2012: two) funded defined benefit plans.
Defined contribution plans
Man pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Man has no
further payment obligation once the contributions have been paid. Defined contribution pension costs totalled $8 million for the year to 31 December
2013 (2012: $10 million). The contributions are recognised as pension costs when they are due.
Defined benefit plans
A defined benefit plan creates a financial obligation to provide funding to the pension plan to provide a retired employee with pension benefits usually
dependent on one or more factors such as age, years of service and compensation. As with the vast majority of similar arrangements, Man ultimately
underwrites the risks related to the defined benefit plans. These risks include investment risks and demographic risks, such as members living longer
than expected.
The two defined benefit plans operated are the Man Group plc Pension Fund in the UK (the UK Plan) and the Man Group Pension Plan in Switzerland
(the Swiss Plan). At 31 December 2013, the UK plan comprised 89% (31 December 2012: 86%) of the Group’s total defined benefit pension obligations.
The UK Plan is approved by HMRC for tax purposes, and is operated separately from Man and managed by an independent set of trustees.
The trustees are responsible for payment of the benefits and management of the UK Plan’s assets. Under UK regulations, Man and the trustees of the
UK Plan are required to agree a funding strategy and contribution schedule for the UK Plan.
The latest funding valuation of the UK Plan was carried out by independent qualified actuaries as at 31 December 2011 and indicated a deficit of
£45 million, after including £49 million of assets in the Reservoir Trust. To remove the funding deficit, Man agreed to make three cash payments of
£11.8 million at 31 March 2013, 2014 and 2016, with a further lump sum to be contributed from the Reservoir Trust in March 2018 of up to £69.0 million
to cover any remaining funding deficit. Cash contributions of £12.6 million were made to the UK Plan and asset contributions of £20 million were made
to the Reservoir Trust in the year to 31 December 2013. If the contributions currently agreed are insufficient to pay the benefits due, Man will need to
make further contributions.
In order to maintain flexibility with regards to the funding of the UK Plan, Man set up the Man Group Reservoir Trust (the Reservoir Trust) in 2010. Man
contributed $76 million (£50 million) of assets to the Reservoir Trust on 31 March 2010 and has committed to ensure the Reservoir Trust value remains
at least £69 million from 1 April 2013 or at the level of the funding deficit in the UK Plan, if lower. The Reservoir Trust gives the pension trustees comfort
that Man can fund a deficit at 31 December 2017 and in the event that the UK Plan is fully funded, allows Man to recover the assets so that the UK Plan
is not over funded.
The UK plan was closed to new members in May 1999, and to future accrual in May 2011. Employed members of the UK plan retain enhanced
benefits, including a link to salary, on their accrued benefits in the UK plan. Future benefits are provided via a defined contribution plan.
In Switzerland, the Group operates a retirement foundation with assets which are held separately from the Group. This foundation covers the majority
of employees in Switzerland and provides benefits on a cash balance basis. From 1 January 2014 the financing vehicle was changed, and from this
date the assets and liabilities were transferred to a multi-employer vehicle called Vita Invest, with the assets and liabilities segregated from those of the
other employers. A number of other changes were made to the structure of benefits, resulting in a past service credit recognised in 2013.
Each employee has a retirement account to which the employee and the Group make contributions at rates set out in the plan rules based on a
percentage of salary. Every year the pension fund commission (composed of employer and employee representatives) decides the level of interest,
if any, to apply to retirement accounts based on their agreed policy. At retirement an employee can take their retirement account or have this paid as
a pension.
The amounts recognised in the Group balance sheet are determined as follows:
$m
Present value of funded obligations
Fair value of plan assets
Net pension asset/(liability) in the Group balance sheet at year end
Note:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
Our economic capital model includes capital in respect of a possible deficit in the pension plans.
31 December
2013
31 December
2012
(Restated)1
(413)
484
71
(417)
413
(4)
Pensions: actuarial information
Changes in the present value of the defined benefit obligations are as follows:
$m
Present value of funded obligations at beginning of the year
Currency translation difference
Current service cost (employer portion)
Interest cost
Employee contributions
Remeasurements due to:
– changes in financial assumptions
– changes in demographic assumptions
– experience adjustments
Actual benefit payments
Past service costs
Curtailments and settlements
Present value of funded obligations at year end
Changes in the fair value of plan assets are as follows:
$m
Fair value of plan assets at beginning of the year (restated)
Currency translation difference
Interest income on plan assets
Actual return on plan assets less interest on plan assets
Employer contributions
Employee contributions
Benefits paid
Assets distributed on curtailments and settlements
Fair value of plan assets at year end
93
Man Group plc
Annual Report 2013
Year ended
31 December
2013
Year ended
31 December
2012
(Restated)1
417
6
3
16
2
1
(3)
(3)
(10)
(1)
(15)
413
383
17
3
17
3
20
7
(10)
(23)
–
–
417
Year ended
31 December
2013
Year ended
31 December
2012
(Restated)1
413
10
18
11
53
2
(10)
(13)
484
381
16
17
5
14
3
(23)
–
413
The plan assets primarily relate to investments in equities, bonds and hedge funds. The equity and bond assets have prices quoted in active markets
and the hedge funds are primarily unquoted. At 31 December 2013, around 75% of the plan assets relate to those with quoted prices and 25% with
unquoted prices (2012: around two thirds quoted and one third unquoted). The actual return on plan assets for the year to 31 December 2013 was $29
million (2012: $22 million).
The change in the net asset/(liability) recognised in the Group balance sheet is as follows:
$m
Net pension liability at start of the year
Total pension credit/(charge)
Amount recognised outside profit and loss
Employer contributions
Currency translation difference
Net pension asset/(liability) at end of the year
The amounts recognised in the Group income statement are as follows:
$m
Current service cost (employer portion)
Interest on net pension (asset)/liability
Past service cost
Gains on settlement/curtailment
Total (credit)/charge
The contributions expected to be paid during the year ending 31 December 2014 amount to $21.2 million.
Note:
1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).
Year ended
31 December
2013
Year ended
31 December
2012
(Restated)1
(4)
2
16
53
4
71
(2)
(3)
(13)
14
–
(4)
Year ended
31 December
2013
Year ended
31 December
2012
(Restated)1
3
(2)
(1)
(2)
(2)
3
–
–
–
3
Strategic reportCorporate governanceFinancial statementsOther information 94
Man Group plc
Annual Report 2013
Financial statements continued
22. Pension benefits continued
The most significant actuarial assumptions used in the valuations of the two plans as at 31 December 2013 were:
Discount rate
Price inflation
Future salary increases
Interest crediting rate
Social security increases
Pension in payment increases
Deferred pensions increases
UK plan
Swiss plan
31 December
2013
% pa
31 December
2012
% pa
31 December
2013
% pa
31 December
2012
% pa
4.5
3.4
3.4
–
–
3.7
5.0
4.4
3.0
3.0
–
–
3.5
5.0
2.4
1.4
1.4
2.4
1.0
0.0
–
2.0
1.5
1.5
2.0
1.0
0.0
–
At 31 December 2013, mortality rates in the UK plan are assumed to be in line with 100% of the S1NA tables (2012: 100% of the S1NA tables)
projected by year of birth with allowance for future improvements in mortality rates in line with the 2013 CMI projections with a long-term rate of
improvement of 1.25% pa for males and 1% pa for females (2012: in line with the 2011 CMI projections with a long-term rate of improvement of 1.25%
pa for males and 1% pa for females).
At both 31 December 2012 and 31 December 2013 mortality rates in the Swiss plan are assumed to be in line with the Swiss BVG 2010
generational tables.
Life expectancy of male aged 60 at accounting date
Life expectancy of male aged 60 in 20 years
UK plan
Swiss plan
31 December
2013
31 December
2012
31 December
2013
31 December
2012
26.9
29.0
26.9
28.9
26.1
26.5
26.0
26.4
The table below illustrates the impact on the assessed value of the benefit obligations from changing the actuarial assumptions. The calculations to
produce the below figures have been carried out using the same method and data as Man’s pension figures. Each assumption has been varied
individually and a combination of changes in assumptions could produce a different result.
As at 31 December 2013:
$m
Discount rate decreased by 0.1% pa
Inflation rate increased by 0.1% pa
One year increase in assumed life expectancy
The duration of a pension plan is the average term over which the plan’s benefits are expected to fall due, weighted by the present value of each
expected benefit payment. The duration of the UK plan is approximately 17 years, and the duration of the Swiss plan is approximately 19 years.
The assets held by the two plans as at 31 December 2013 were as follows:
UK plan
Swiss plan
UK equities
Non-UK equities
Swiss equities
Non-Swiss equities
Index linked government bonds
Corporate bonds
Swiss bonds
Non-Swiss bonds
Property
Hedge funds
LDI
Diversified growth funds
Cash
Other
Reservoir Trust holdings:
– Convertible bond type hedge funds
– Growth type hedge funds
– Cash
Total assets
$m
41
38
–
–
32
70
–
–
–
–
15
102
9
–
10
109
4
430
%
10
9
–
–
7
16
–
–
–
–
4
24
2
–
2
25
1
100
$m
–
–
6
5
–
–
9
11
5
14
–
–
2
2
–
–
–
54
UK Plan
Swiss Plan
Increase in
obligation
Increase in
obligation
6
2
11
1
–
1
%
–
–
11
10
–
–
16
21
8
26
–
–
4
4
–
–
–
100
95
Man Group plc
Annual Report 2013
The plans do not invest directly in property occupied by Man or in Man’s own transferable financial securities.
The UK Plan’s investment strategy is broadly split into “growth” and “matching” portfolios. At the beginning of 2013 the matching portfolio was invested
primarily in gilts, along with some corporate bond investments. These were intended to partially match the movement in the UK Plan’s liabilities, and
therefore remove some interest and inflation rate risk. In January, the trustees of the UK Plan switched the gilts portfolio into liability driven investments
(LDI funds), which provide a better match for the Plan’s liabilities, in order to increase protection against interest and inflation rate risk. Over the course
of 2013 the level of interest and inflation rate hedging was gradually increased.
As the Swiss Plan is essentially a defined contribution plan with guarantees, the assets held aim to be at least as much as the total of the member
account balances at any point in time. Member account balances cannot reduce, but interest is only applied to the account balances when sufficient
surplus assets are available. As such there is no specific asset liability matching strategy in place, but if the liabilities (i.e. the sum of the member
account balances) ever exceed the value of the assets, the Company will consider how to remove a deficit as quickly as possible.
23. Segmental analysis
The criteria for identifying an operating segment is that it is a component of Man whose results are regularly reviewed by the Board and the Executive
Committee to make decisions about resources to be allocated to the segment and to assess its performance. Management information regarding
revenues, gross management fee margins, investment performance and distribution costs relevant to the operation of the investment managers,
products and the investor base are reviewed by the Board and the Executive Committee. A centralised shared infrastructure for operations, product
structuring and distribution means that operating costs are not allocated to constituent parts of the investment management businesses. As a result,
resources are allocated and performance is assessed by the Board and the Executive Committee on the basis of the investment management
business of Man as a whole. Accordingly we operate and report as a single segment investment management business, together with relevant
information regarding FUM flows, gross margins, and distribution costs to allow for the analysis of the direct contribution of products and the
respective investor base.
24. Geographical disclosure
Disclosure of revenue by geographic location is required by IFRS based on the registered domicile of the fund entity paying Man fees.
$m
Bermuda
Cayman Islands
Cook Islands
Ireland
Switzerland
United Kingdom and the Channel Islands
United States of America
Other countries
Year ended 31 December 2013
Year ended 31 December 2012
Non-current
assets
Revenues by
fund location
Non-current
assets
Revenues by
fund location
32
–
–
–
58
94
1,167
102
159
355
95
223
2
197
24
105
1,453
1,160
38
–
–
–
140
183
1,235
121
1,717
262
276
146
177
–
224
35
179
1,299
Revenue from any single fund during the year did not exceed 10% of total revenues. Non-current assets above exclude financial instruments, deferred
tax and pension assets, and are allocated based on where the assets are located.
Average number of directors, employees and partners
The table below provides average headcount by location for the current and prior year.
Number
United Kingdom and the Channel Islands
Switzerland
USA
Other countries
Average number of directors, employees and partners
Year ended
31 December
2013
Year ended
31 December
2012
723
210
96
134
847
291
127
193
1,163
1,458
Strategic reportCorporate governanceFinancial statementsOther information 96
Man Group plc
Annual Report 2013
Financial statements continued
25. Foreign currencies
The majority of revenues, assets, liabilities and funding are denominated in US dollars (USD) and therefore Man’s presentation currency is USD.
The assets and liabilities of consolidated entities that have a functional currency other than USD are translated into USD at the balance sheet date rate.
Income and expenses are translated at the average rate for the period in which the transactions occur. Exchange differences which arise are recorded
in other comprehensive income.
For consolidated entities with a USD functional currency, monetary assets and liabilities denominated in foreign currencies are translated at each
balance sheet date rate. Transactions denominated in foreign currencies are converted at the spot rate at the date of the transaction or if appropriate
the average rate for the month in which the transaction occurs. Resulting exchange differences are recognised in the Group income statement.
26. Fair value of financial assets/liabilities
Man discloses the fair value measurement of financial assets and liabilities using three levels, as follows:
• Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices).
• Level 3. Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair value of financial assets and liabilities can be analysed as follows:
$m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31 December 2013
31 December 2012
Financial assets held at fair value:
Investments in fund products and other
investments (Note 15)
Derivative financial instruments (Note 16)
Financial liabilities held at fair value:
Derivative financial instruments
Contingent consideration (Note 17)
5
–
5
–
–
–
102
20
122
1
–
1
67
–
67
–
44
44
174
20
194
1
44
45
4
–
4
–
–
–
96
14
110
2
–
2
122
–
122
–
60
60
222
14
236
2
60
62
During the year, there were no significant changes in the business or economic circumstances that affected the fair value of Man’s financial assets
and no significant transfers of financial assets or liabilities held at fair value between categories. For investments in fund products, Level 2 investments
comprise holdings primarily in unlisted, open-ended, active and liquid funds, such as seeding investments, which have weekly or daily pricing derived
from third party information.
A transfer into Level 3 would be deemed to occur where the level of prolonged activity, as evidenced by subscriptions and redemptions, is deemed
insufficient to support a Level 2 classification. This, as well as other factors such as a deterioration of liquidity in the underlying investments, would
result in a Level 3 classification. The material holdings within this category are priced on a recurring basis based on information supplied by third
parties without adjustment. Liquidity premium adjustments of $6 million (2012: $8 million) have been applied to gated, suspended, sidepocketed or
otherwise illiquid Level 3 investments. The range of liquidity premium adjustments is from 18% to 38% based on the expected timeframe for exit.
A larger liquidity adjustment is applied where the exit is further in the future. Reasonable changes in the liquidity premium assumptions would not
have a significant impact on the fair value.
The fair value of non-current assets and liabilities held for sale (Note 15.4) are equal to the carrying values of $56 million and $6 million respectively, and
would be classified within Level 2.
97
Man Group plc
Annual Report 2013
The basis of measuring the fair value of Level 3 investments is outlined in Note 15. Movement in Level 3 financial assets and financial liabilities,
measured at fair value, during the year can be analysed as follows:
$m
Level 3 financial assets held at fair value
At beginning of the year
Purchases
Total gains/(losses) in the Group statement of
comprehensive income
Included in profit/(loss) for the year
Included in other comprehensive income
Sales or settlements
Transfers into Level 3
Transfers out of Level 3
At year end
Total gains/(losses) for the period included in the Group statement
of comprehensive income for assets held at year end
Year ended 31 December 2013
Year ended 31 December 2012
Financial
assets at fair
value through
profit or loss
Available-for-
sale financial
assets
117
24
16
16
–
(82)
–
(9)
66
16
5
–
2
2
–
(6)
–
–
1
(1)
Financial
assets at fair
value through
profit or loss
Available-for-
sale financial
assets
183
52
17
17
–
(137)
3
(1)
117
17
339
–
18
(1)
19
(352)
–
–
5
–
Total
122
24
18
18
–
(88)
-
(9)
67
15
Total
522
52
35
16
19
(489)
3
(1)
122
17
$m
Level 3 financial liabilities held at fair value
At beginning of the year
Purchases
Total gains in the Group statement of comprehensive income
Included in profit/(loss) for the year
Included in other comprehensive income
Settlements
Other adjustments
At year end
Total gains for the year included in the Group statement of comprehensive income for liabilities held at year end
Year ended
31 December
2013
Year ended
31 December
2012
60
–
2
2
–
(13)
(5)
44
2
–
87
(21)
(21)
–
(6)
–
60
6
The financial liabilities in Level 3 relate to the contingent consideration payable to former shareholders of FRM Holdings Limited. The fair value is based
on a discounted cash flow calculation, based on the expected run rate management fee level for the legacy FRM business up to three years after the
original acquisition date of July 2012, and is determined using a combination of inputs, such as weighted average cost of capital, high water mark
levels, net management fee margins and the growth in FUM. The discount rates applied are 11% for management fees and 17% for performance fees.
The most significant inputs into the valuation relate to the expectations of the weighted average net management fee margin over the future period of
0.8% and the compound growth in average FUM over three years of 5.6%.
If the net management fee margin for FRM legacy funds decreased from 0.8% to 0.7%, the fair value of the contingent consideration creditor would
decrease by $5 million, with a corresponding further gain of $5 million in the Group income statement. If the compound average growth in FUM over
three years decreased by 2%, from 5.6% to 3.6%, the fair value of the contingent consideration creditor would decrease by $3 million, with a
corresponding further gain of $3 million in the Group income statement.
Strategic reportCorporate governanceFinancial statementsOther information 98
Man Group plc
Annual Report 2013
Financial statements continued
27. Related party transactions
Related parties comprise key management personnel and associates. Transactions with related parties include seeding and liquidity investments,
loans to fund products, external re-financing guarantees, asset management performance, management and other fees, brokerage commissions,
and interest and dividend income.
Total revenue earned from fund entities deemed to be associates included in the Group income statement during the year was $137 million (2012:
$169 million) and at 31 December 2013 total fee receivables and loan balances with fund entities deemed to be associates totalled $40 million (2012:
$15 million). In addition, at 31 December 2013 Man had entered into committed purchase agreements totalling $1 million (2012: $6 million), and has
payables of $1 million (2012: nil) with fund entities deemed to be associates. All transactions with related parties were carried out on an arm’s
length basis.
Refer to Note 18 for details of income earned from associates.
The Executive Committee, together with the non-executive directors, are considered to be the Company’s key management, being those directors,
partners and employees having authority and responsibility for planning, directing and controlling the activities at Man. Key management
compensation is reported in the table below.
Key management compensationa
Salaries and other short-term employee benefitsb
Post-employment benefitsc
Share-based paymentsd
Other long-term benefitsd
Termination benefits
Total
Year ended
31 December
2013
$’000
Year ended
31 December
2012
$’000
23,191
347
10,270
8,362
1,281
8,274
263
16,001
3,154
–
43,451
27,692
Notes:
a Key management includes non-executive directors and the Executive Committee including executive directors of the Board.
b Salary, benefits (including cash pension allowance) and cash bonus.
c Money purchase pension.
d Other long-term benefits relate to fund product deferrals. Refer to Note 20 for further explanation of share-based and fund product-based deferred compensation arrangements.
28. Financial guarantees and commitments
28.1 Committed purchase agreements (CPAs)
For certain structured products, Man has previously made commitments to buy underlying investments in specific fund products at a discount to
net asset value, if requested by the fund board directors, to create liquidity. Man has the option to defer a purchase, if so called, for three months.
The commitment at 31 December 2013 covers investments in existing fund products totalling $37 million (2012: $145 million).
Given the risk and liquidity management at the portfolio level by the investment manager the residual liquidity and market risk to Man from CPAs is not
significant. The stressed liquidity and risk modelling performed across all structured products includes the CPAs and is provided for in our liquidity and
risk management framework.
28.2 Guarantee to funds in respect of Lehman claims
As a result of the disposal of the Lehman claims to Hutchinson Investors LLC, Man has provided a continuing guarantee to certain GLG funds for the
obligations of Hutchinson Investors LLC in respect of amounts it would owe to funds, up to a maximum of $75 million. The fair value of this
commitment has been determined to be nil (2012: nil).
28.3 Daylight settlement facilities
Man from time to time provides a guarantee over certain bank accounts of structured product entities to secure daylight settlement facilities which
allow for the efficient movement of cash during the trading day. In aggregate these guarantees had a notional amount of $50 million (2012: $50 million).
Ordinarily no net exposure exists at the end of any given day and the fair value of these commitments has been determined to be nil (2012: nil).
28.4 Intra-day and overnight credit facilities
Man guarantees the obligations under a $500 million intra-day (2012: $500 million) and $25 million overnight credit facilities (2012: $25 million), used to
settle the majority of the Group’s banking arrangements. As at 31 December 2013, the exposure under the intra-day facility was nil (2012: nil) and the
overnight facility exposure was nil (2012: nil). The fair value of these commitments has been determined to be nil (2012: nil).
99
Man Group plc
Annual Report 2013
28.5 Operating lease commitments
Operating lease commitments due within one year totalled $39 million (2012: $45 million), $107 million from one to five years (2012: $134 million) and
$315 million due after five years (2012: $384 million). The commitments include non-cancellable offsetting sublease arrangements, totalling $81 million
(2012: $46 million) for commitments less than five years and $97 million (2012: $58 million) for commitments over five years.
The operating lease commitments include the agreements for lease contracts for the headquarters at Riverbank House, London (25 years) expiring in
November 2035, and the UK Data Centre, Woking (10 years) expiring in July 2019, which aggregate to $357 million (2012: $439 million).
Rent and associated expenses for all leases are recognised on a straight-line basis over the life of the respective lease.
29. Post balance sheet events
On 27 February 2014, the Board announced its intention to launch a $115 million share repurchase programme to return surplus capital to
shareholders, which will be conducted over the remainder of the year.
30. Other matters
Man Group is subject to various claims, assessments, regulatory enquiries and investigations in the normal course of its business. The directors do not
expect these enquiries to have a material adverse effect on the financial position of the Group.
31. Principal Group investments
The names of the principal subsidiaries of Man Group plc, together with the Group’s interests in the equity shares, are given below. The country of
operation is the same as the country of incorporation and the period end is 31 December unless otherwise stated.
In accordance with the Companies Act 2006 the information below is provided solely in relation to principal operating subsidiaries. Details of all
subsidiaries and associates will be annexed to the Company’s Annual Return.
Principal operating subsidiaries
Asset management
Man Investments Limited
AHL Partners LLP
Man Investments AG
FRM (Americas) LLC
Man Investments (CH) AG
GLG Partners LP
Group services company
E D & F Man Limited
Group treasury and holding company
Man Investments Finance Limited
Country of
incorporation
Effective group
interest
UK
UK
Switzerland
US
Switzerland
UK
UK
UK
100
100
100
100
100
100
100
100
Strategic reportCorporate governanceFinancial statementsOther information
100
Man Group plc
Annual Report 2013
Five year record
$m
Income statement – continuing operations
Profit before adjusting items
Adjusting items1
Pre-tax profit/(loss)
Taxation
Profit/(loss) for the period on continuing operations
Income statement – discontinued operations
Pre-tax loss
Taxation
Loss for the period on discontinued operations
12 months to
31 December
2013
12 months to
31 December
2012
(Restated)3
9 months to
31 December
2011
12 months to
31 March
2011
12 months to
31 March
2010
297
(241)
56
16
72
–
–
–
275
(1,023)
(748)
(39)
(787)
–
–
–
262
(69)
193
(34)
159
–
–
–
599
(275)
324
(51)
273
(62)
–
(62)
560
(19)
541
(96)
445
–
–
–
Total profit/(loss) for the period
72
(787)
159
211
445
Earnings per share (diluted)
Continuing operations (cents)
Continuing and discontinued operations (cents)
Balance sheet ($m)
Net cash
Net assets
Other statistics
Post-tax return on equity – continuing operations (%)
Ordinary dividends per share (cents)
Funds under management ($bn)
2.9
2.9
992
2,407
2.1
7.9
54.1
(45.8)
(45.8)
1,141
2,910
(23.2)
22.0
57.0
7.6
7.6
573
4,060
4.6
16.5
58.4
14.0
10.5
881
4,436
6.5
22.0
69.1
24.8
24.8
1,740
3,987
10.1
44.0
39.4
Average headcount – continuing operations2
1,163
1,458
1,596
1,562
1,574
Sterling/US dollar exchange rates
Average
Period end
0.6388
0.6040
0.6307
0.6158
0.6233
0.6435
0.6427
0.6235
0.6261
0.6588
Notes:
1 Statutory profit/(loss) before tax is adjusted to give a fuller understanding of the underlying profitability of the business – see Note 2 for further details.
2 The average headcount includes partners.
3 Restated for the impact of the adoption of IAS 19 (Revised) – see Note 1 for further details.
Parent Company financial information
Balance sheet
$m
Fixed assets
Investments
Current assets
Debtors
Creditors – amounts falling due within one year
Other creditors and accruals
Net current liabilities
Total assets less current liabilities
Capital and reserves
Called up share capital
Share premium
Merger reserve
Profit and loss account
Total shareholders’ funds
101
Man Group plc
Annual Report 2013
At 31
December
2013
At 31
December
2012
Note
2
3
4
5
2,454
2,445
6
(28)
(22)
4
(10)
(6)
2,432
2,439
63
5
491
1,873
2,432
63
–
491
1,885
2,439
The financial statements were approved by the Board of Directors on 27 February 2014 and were signed on its behalf by:
Emmanuel Roman
Chief Executive Officer
Jonathan Sorrell
Chief Financial Officer
Strategic reportCorporate governanceFinancial statementsOther information 102
Man Group plc
Annual Report 2013
Notes to the Company financial statements
1. Basis of preparation
The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards in the
United Kingdom issued by the Accounting Standards Board and with the requirements of the Companies Act 2006 (the Act). The comparative
information provided is from the date of incorporation (8 August 2012) to 31 December 2012.
The Company reviews and updates its accounting policies on a regular basis in accordance with FRS 18. These policies have been applied consistently
throughout the period. The Company has adopted FRS 29 and has taken advantage of the exemption from providing further financial risk disclosures.
The Company’s financial statements are prepared on a going concern basis. For further details, refer to Note 1 in the Group financial statements.
Scheme of arrangement
Man Group plc was incorporated on 8 August 2012 and became the new listed holding company of the Man Group on 6 November 2012 via a Court
approved scheme of arrangement under Part 26 of the Companies Act 2006, with the former holding company being renamed Man Strategic
Holdings plc.
Under the scheme of arrangement, shares in the former holding company of the Group, were cancelled and the same number of new ordinary shares
were issued to the new holding company in consideration for the allotment to shareholders of one ordinary share of $1.07 in the new holding company
for each ordinary share of 33/7 US cents they held in the former holding company.
On 8 November 2012, Man Group plc effected a reduction of its share capital to create distributable reserves, as sanctioned by the High Court.
This capital reduction reduced the nominal value of ordinary shares in the new holding company from $1.07 to 33/7 US cents.
Result for the period
The profit after tax for the year was $256 million (five month period ended 31 December 2012: $6 million loss). In accordance with Section 408 of the
Act, a separate profit and loss account has not been presented for the Company.
There are no recognised gains and losses other than the result for the period and hence no statement of recognised gains and losses for the Company
has been presented.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction or, where it is
more practical, an average rate for the week or month for all transactions in each foreign currency occurring during that week or month (as long as the
relevant exchange rates do not fluctuate significantly). Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in other operating
income and losses in the profit and loss account.
Dividends
Dividend distribution to the Company’s shareholders is recognised as a liability in the financial statements, and directly in equity, in the period in which
the dividend is paid or approved by the Company’s shareholders, if required. Dividends received from subsidiary undertakings are recognised in the
period in which they are received. Refer to Note 11 in the consolidated financial statements for more information on dividends paid during the year.
2. Investments
$m
Shares in group undertakings
At 1 January (2012: 8 August 2012)
Additions
Share-based payment
31 December
2013
31 December
2012
2,445
–
9
2,454
–
2,439
6
2,445
The Company’s shares in subsidiary undertakings are stated in the balance sheet of the Company at cost less provision for any impairment incurred.
The additions in the prior period relate to the Company’s investment in Man Strategic Holdings plc, when it became the new group holding company
on 6 November 2012 under the scheme of arrangement, as described in Note 1. The share-based payment relates to the grant by the Company of
share awards over its equity instruments to the employees of subsidiary undertakings, which is treated as a capital contribution. The fair value of
employee services received, measured by reference to the grant fair value, is recognised over the vesting period as an increase to investment in
subsidiary undertakings, with a corresponding credit to reserves. Details of the principal Group subsidiaries are given on page 99.
103
Man Group plc
Annual Report 2013
31 December
2013
31 December
2012
–
6
6
2
2
4
31 December
2013
31 December
2012
28
–
28
8
2
10
Called up
share capital
Share
premium
account
Merger
reserve
Profit and loss
account
–
1,948
(1,885)
–
–
63
–
–
–
–
63
–
–
–
–
–
–
5
–
–
–
5
–
491
–
–
–
491
–
–
–
–
491
–
–
1,885
6
(6)
1,885
–
256
9
(277)
1,873
Total
–
2,439
–
6
(6)
2,439
5
256
9
(277)
2,432
3. Debtors – amounts falling due within one year
$m
Amounts owed by group undertakings
Current tax assets
4. Creditors – amounts falling due within one year
$m
Amounts owed to group undertakings
Other creditors
5. Reconciliation of movements in shareholders’ funds
$m
At 8 August 2012
Issue of ordinary share capital
Capital reduction
Share-based payment
Loss for the financial period
At 31 December 2012
Issue of ordinary share capital
Profit for the financial year
Share-based payment
Dividends
At 31 December 2013
During the prior period, the Company undertook a Court approved capital reduction, the effect of which was to reduce the nominal value of the
Company shares and increase distributable reserves. The allotted and fully paid share capital of the Company is detailed in Note 21 of the Group
financial statements.
6. Directors’ remuneration
Details of the individual directors’ emoluments, options, share awards and loans and key management compensation disclosures is given in the
Directors’ remuneration report on pages 40 to 59.
7. Statutory and other information
There are no employees of the Company. The directors of the Company were paid by another Group company in the period.
Shares in the Company are awarded/granted to directors and employees through the Group’s share schemes. Details relating to these share awards/
grants are given in the Remuneration report on pages 40 to 59.
The Company provides financial instruments disclosures in accordance with IFRS 7 in the Group financial statements on pages 62 to 99.
Consequently the Company has taken advantage of the FRS 29 exemption from providing further financial instruments disclosures.
The Company provides full related party disclosures on page 98. Consequently the Company has taken advantage of the exemption not to disclose
related party transactions with other members of Man Group plc.
8. Post balance sheet events
On 27 February 2014, the Board announced its intention to launch a $115 million share repurchase programme to return surplus capital to
shareholders, which will be conducted over the remainder of the year.
Strategic reportCorporate governanceFinancial statementsOther information 104
Man Group plc
Annual Report 2013
Independent auditors’ report to the
members of Man Group plc on the Parent
Company financial statements
Report on the Parent Company financial statements
Our opinion
In our opinion the Parent Company financial statements as defined below:
• give a true and fair view of the state of the Parent Company’s affairs as at
31 December 2013;
Other matters on which we are required to report
by exception
Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• have been properly prepared in accordance with United Kingdom Generally
• we have not received all the information and explanations we require for our
Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies
Act 2006.
This opinion is to be read in the context of what we say in the remainder of this report.
What we have audited
The Parent Company financial statements, which are prepared by Man Group plc,
comprise:
•
•
•
the Parent Company balance sheet as at 31 December 2013;
the Parent Company reconciliation of movement in shareholders’ funds for the
year then ended; and
the notes to the Parent Company financial statements, which include a
summary of significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in their preparation
comprises applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
Certain disclosures required by the financial reporting framework have been
presented elsewhere in the Annual Report, rather than in the notes to the financial
statements. These are cross-referenced from the financial statements and are
identified as audited.
What an audit of financial statements involves
We conducted our audit in accordance with International Standards on Auditing
(UK & Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence about the
amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement,
whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Parent Company’s
circumstances and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the directors;
and
the overall presentation of the financial statements.
•
•
In addition, we read all the financial and non-financial information in the Man Group
plc Annual Report (the “Annual Report”) to identify material inconsistencies with the
audited Parent Company financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become
aware of any apparent material misstatements or inconsistencies we consider the
implications for our report.
Opinions on matters prescribed by the Companies
Act 2006
In our opinion:
• The information given in the Strategic report and the Directors’ report for the
financial year for which the Parent Company financial statements are prepared
is consistent with the Parent Company financial statements.
• The part of the Directors’ remuneration report to be audited has been properly
prepared in accordance with the Companies Act 2006.
audit; or
• adequate accounting records have not been kept by the Parent Company, or
•
returns adequate for our audit have not been received from branches not visited
by us; or
the Parent Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion,
certain disclosures of directors’ remuneration specified by law have not been made.
We have no exceptions to report arising from this responsibility.
Other information in the Annual Report
Under ISAs (UK & Ireland), we are required to report to you if, in our opinion,
information in the Annual Report is:
• materially inconsistent with the information in the audited Parent Company
financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Parent Company acquired in the course of performing our
audit; or
is otherwise misleading.
•
We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and
the audit
Our responsibilities and those of the directors
As explained more fully in the Directors’ Responsibilities statement set out on page
63, the directors are responsible for the preparation of the Parent Company
financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the Parent Company
financial statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for and only for the
Company’s members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose. We do not, in giving these opinions,
accept or assume responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Other Matter
We have reported separately on the Group financial statements of Man Group plc
for the year ended 31 December 2013.
Parwinder Purewal (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2014
Shareholder information
105
Man Group plc
Annual Report 2013
In this section we have provided
some key information to assist you in
managing your shareholding in Man.
If you have a question that is not
answered below, you can contact us
by email: shareholder@man.com
Useful websites
References are made throughout this section to two websites which you
will find useful for managing your shareholding in Man and for finding out
more about the Company:
Man (www.man.com)
Man’s corporate website contains a wealth of information about the
Company including details of the industry in which we operate, our
strategy and business performance, recent news from Man and corporate
responsibility initiatives. The ‘Investor Relations’ section is a key tool for
shareholders with information on share price and financial results, reports,
and presentations. This section of the website also gives access to the
‘Shareholder Information’ pages which contain dividend and shareholder
meeting details and useful ‘Frequently Asked Questions’.
Equiniti Shareview (www.shareview.co.uk/shareholders)
Man’s register of shareholders is maintained by Equiniti, the Company’s
Registrars. Many aspects of managing your shareholding such as
checking your current shareholding, managing dividend payments, and
updating your contact details can be carried out by registering on the
Equiniti Shareview website. To do this you will need your shareholder
reference number which can be found on your share certificate or
dividend tax voucher.
Final dividend for the year ended 31 December 2013
3.19 pence per
share
Dividends
Final dividend for 2013
The directors have recommended a final dividend of 3.19 pence per share
in respect of the year ended 31 December 2013. Payment of this dividend
is subject to approval at the 2014 Annual General Meeting (AGM). Key
dates relating to this dividend are given below:
Ex-dividend date
Record date
DRIP election date
AGM (to approve final dividend)
Payment date
23 April 2014
25 April 2014
25 April 2014
9 May 2014
16 May 2014
DRIP certificates received/CREST accounts credited
22 May 2014
Dividend policy
Man’s dividend policy is to pay out at least 100% of adjusted management
fee earnings per share in each financial year by way of ordinary dividend. In
addition, the Group expects to generate significant surplus capital over time,
primarily from net performance fee earnings. Available surpluses, after
taking into account our required capital, potential strategic opportunities and
a prudent buffer, will be distributed to shareholders over time, by way of
higher dividend payments and/or share repurchases. As announced with
our 2013 year end results, the Board intends to launch a $115 million share
repurchase programme to return surplus capital to shareholders, which
will be conducted over the remainder of the year.
Dividend payment methods
You can choose to receive your dividend in a number of ways. Dividends
will automatically be paid to you by cheque and sent to your registered
address unless you have chosen one of the options below:
1. Direct payment to your bank: We recommend that you apply for
cash dividends to be paid directly into your UK bank or building
society account to speed up the payment process and to avoid the
risk of cheques becoming lost or delayed in the post. The associated
tax voucher will still be sent direct to your registered address. To
switch to this method of payment simply download a dividend
mandate form from the ‘Dividends’ section of our corporate website.
Alternatively, dividend mandate forms are available from the Equiniti
Shareview website. If you have any queries you may telephone Equiniti
on 0871 384 21121, who will be able to assist.
2. Overseas payment service2: If you live overseas, Equiniti offers an
overseas payment service which is available in certain countries. This
may make it possible to receive dividends direct into your bank account
in your local currency. Further information can be found on the Equiniti
Shareview website or via the Equiniti helpline 0871 384 21121.
3. Dividend Reinvestment Plan (DRIP): The Company is pleased to
offer a DRIP which gives shareholders the opportunity to build their
shareholding in Man Group plc in a convenient and cost-effective way.
Instead of receiving your dividend in cash, you receive as many whole
shares as can be bought with your dividend, taking into account related
purchase costs; any residual cash is then carried forward and added to
your next dividend. If you wish to join the DRIP, you can download
copies of the DRIP terms and conditions and the DRIP mandate form
from the ‘Dividends’ section of Man’s website. Simply complete the
DRIP mandate form and return it to Equiniti. Should you have any
questions regarding the DRIP, or to request a paper mandate form,
please contact Equiniti on 0871 384 22681. Please note that if you wish
to join the DRIP in time for the payment of the forthcoming final dividend
for the year ended 31 December 2013, Equiniti must have received your
instruction by 5.00pm on 25 April 2014. Instructions received after this
date will be applied to the next dividend payment.
Notes:
1 Lines are open from 8.30am to 5.30pm, each business day. Calls to this number are
charged at 8 pence per minute plus network extras.
2 Please note that a payment charge will be deducted from each individual payment
before conversion into your local currency.
Strategic reportCorporate governanceFinancial statementsOther information 106
Man Group plc
Annual Report 2013
Shareholder information continued
Dividends paid in the 2013/14 tax year
Dividend
no
Payment
date
Amount per
share (p)
Ex-dividend
date
Record
date
DRIP share
price (p)
DRIP purchase
date
Interim dividend for the year ended 31 Dec 2013
Final dividend for the period ended 31 Dec 2012
O/13
O/12
04/09/13
17/05/13
1.72
8.26
14/08/13
16/08/13
84.37
04/09/13
24/04/13
26/04/13
131.76
22/05/13
Dividend history
To help shareholders with their tax affairs, details of dividends paid in the
2013/14 tax year can be found above. Please note that the dividend
amounts are declared in US dollars but paid in Sterling. For ease of
reference the Sterling dividend amounts have been detailed in the table.
For details of historical payments, please refer to the ‘Dividends’ section of
our corporate website which can be found under ‘Shareholder Information’.
Company contact details
Registered office
Man Group plc
Riverbank House
2 Swan Lane
London
EC4R 3AD
Telephone: 020 7144 1000
Fax: 020 7144 1923
Web: www.man.com
Registered in England and Wales with registered no: 08172396
Investor Relations
investor@man.com
Head of Investor Relations – Fiona Smart
Company Secretariat
shareholder@man.com
Company Secretary – Rachel Rowson
Company advisers
Independent auditors
PricewaterhouseCoopers LLP (for the year ended 31 December 2013)
Deloitte LLP (for the year ending 31 December 2014, subject to
shareholder approval at the 2014 AGM)
Corporate brokers
Bank of America Merrill Lynch
Credit Suisse
Goldman Sachs
Public relations
RLM Finsbury
Registrar
Equiniti
Note:
1 Lines are open from 8.30am to 5.30pm, each business day. Calls to this number are
charged at 8 pence per minute plus network extras.
Shareholder communications
Annual and Interim Reports
Man publishes an Annual and Interim Report every year. The Annual
Report is sent to shareholders in March through the post unless the
shareholder has chosen to receive shareholder communications
electronically (see ‘E-communications’ below). The Interim Report is
published on the website in early August and printed copies are available
on request from the Company Secretary.
E-communications
You can help Man to reduce its printing and postage costs as well as its
carbon footprint by signing up to receive communications electronically
rather than receiving printed documents such as annual reports and
Notices of AGMs in the post. To sign up for e-communications, simply
register on the Equiniti Shareview website. Once registered, you will need
to change your mailing preference to e-communications and provide your
email address. You will then receive an email each time a shareholder
communication or document becomes available on Man’s website.
Managing your shareholding
Online, by post, or by phone
Many aspects of your shareholding can be managed by registering on the
Equiniti Shareview website. For enquiries about your shareholding you
can also contact Equiniti in writing at Equiniti, Aspect House, Spencer
Road, Lancing, West Sussex BN99 6DA, or by telephone on 0871 384
21121 or Text tel 0871 384 22551, quoting Ref No 874. Callers from outside
the UK should telephone +44 121 415 7592.
Share dealing service
Equiniti also provides a share dealing facility through which you can buy
or sell Man Group plc shares in the UK. The service is provided by Equiniti
Financial Services Limited and can be accessed via the dealing section of
the Equiniti Shareview website (www.shareview.co.uk/dealing). To use
Equiniti’s telephone dealing service, please call 08456 037 037 between
8.00am and 4.30pm Monday to Friday. You can also buy and sell shares
through any authorised stockbroker or bank that offers a share dealing
service in the UK, or in your country of residence if outside the UK.
Shareholder alert!
Remember: if it sounds too good to be true, it probably is!
Share or investment scams are often run from ‘boiler rooms’ where
fraudsters cold-call investors to offer them worthless, overpriced or even
non-existent shares, or to buy shares they currently hold at a price higher
than the market value. Shareholders are advised to be very wary of any
unsolicited advice, offers to buy shares at a discount, or offers of free
reports about the Company. Even seasoned investors have been caught
out by such fraudsters and it is estimated that £200 million is lost in this
way in the UK each year.
The Financial Conduct Authority (FCA) has some helpful information about
such scams on its website, including 10 top tips to protect your savings
and how to report a suspected investment scam. Man encourages
shareholders to read the information on the site which can be accessed
at www.fca.org.uk/consumers/scams.
Man’s literary
sponsorships
Man sponsors two major literary prizes
– the annual Man Booker Prize for
Fiction and the biennial Man Booker
International Prize.
107
Man Group plc
Annual Report 2013
Man first took on the sponsorship of the Man Booker Prize for Fiction in
2002. The prize, which was launched in 1969 and receives worldwide
recognition, aims to promote excellence in fiction by awarding the best
full-length novel published in the English language that year. As of 2014,
the rules of the prize have expanded to include writers beyond the UK,
Republic of Ireland and Commonwealth, as long as they are writing
originally in English and are published in the UK. The novel must be an
original, non-self published work in English.
Winning the Man Booker Prize is considered the ultimate accolade by
many writers. As former prize-winner Graham Swift commented: “Prizes
don’t make writers and writers don’t write to win prizes, but in the
near-glut of literary awards now on offer… it’s the one which, if we’re
completely honest, we most covet.”
Eleanor Catton, who won the prize in 2013 for ‘The Luminaries’, made
Man Booker history by being the youngest ever winner at the age of 28,
having started writing the novel when she was just 25 years old. At 832
pages, ‘The Luminaries’ is the longest work to ever win the prize. The
chair of the judges, Robert Macfarlane, commented “It’s a dazzling work.
It’s a luminous work. It is vast without being sprawling.” Catton was
presented with the prize by the Duchess of Cornwall and Man’s Chief
Executive, Emmanuel Roman, on 15 October 2013 at Guildhall.
The Man Booker International prize is awarded every two years to a living
author who has published fiction either originally in English or whose work
is generally available in translation in English. It differs from the annual
Man Booker Prize in that it highlights one writer’s overall contribution to
fiction on the world stage, rather than a single work. The 2013 prize went
to US author Lydia Davis.
Strategic reportCorporate governanceFinancial statementsOther information 108
Man Group plc
Annual Report 2013
Charitable Trust
The voluntary sector continues to face huge
challenges to deal with an economic climate
that puts its income under pressure, and
increasing demands to deliver results to
vulnerable people. It is vital that services are
delivered more efficiently and effectively to
alleviate some of the impact of funding cuts
on beneficiaries, and charities and social
enterprises have the ability to play a key role
in improving delivery with their close
connections with, and understanding of their
beneficiaries, strong local community ties and
capacity for innovation.
Charities can effect real change but with the Government’s aim to reduce
the deficit there is an increasing emphasis on the service provision role of
the sector and within that its capacity to deliver public services. With the
funding mix shifting away from grants to payments by results contracts,
charities must increasingly compete with the private sector for funding
and with limited access to capital, most cannot afford to take on
contracts to tackle social problems without up-front funding.
Many charitable organisations are not involved in contracting with the
state and a large part of the sector continues to operate with very little
funding. Requirements and expectations have also grown, across
aspects such as governance, leadership, financial management and
reporting and impact measurement. As funders, the Man Charitable Trust
has an important role to play in shaping behaviour around impact practice
as it is essential that the charities we support are able to provide us with
evidence of their impact, effectiveness and efficiency. This in turn enables
them to assess their own performance, develop their work and
communicate their results to those they need to reach.
Man’s charitable contribution is based on the financial performance of the
business and as a result no donations were received by the Trust in 2013.
However, by utilising the Trust’s reserves we were able to run a reduced
grant programme, spending $1.8 million on charitable donations and
employee engagement programmes during the period and enabling the
charities we support to leverage over $1.1 million from other funding
sources. In the UK our supported projects benefitted over 50,000
individuals including disadvantaged and difficult-to-reach young people
at risk of exclusion, the homeless and victims of human trafficking.
At Man we recognise the fact that we have far more to give than just
financial support. We continue to provide our employees with opportunities
to give their time and expertise to those in need in the local community,
through our ManKind community volunteering programme. In 2013, our
employees provided over 780 hours of volunteering activity, from mentoring
young people and running employability skills workshops to transforming
an outdoor space at a local women’s refuge.
2013 also marked the end of our two year Annual Charity partnership
with Starlight. Our employees took part in a number of fundraising and
volunteering activities for the charity throughout the year, culminating in a
Last Hour Appeal where employees had the opportunity to donate the last
hour of their salaries for the benefit of seriously and terminally ill children.
Over the course of the partnership employees raised $158,000 in support
of Starlight’s work.
Our employees have chosen the Children’s Cancer Recovery Project
as our new UK Annual Charity for 2014/15. The charity provides much
needed support to families coping with a child’s cancer diagnosis and we
look forward to working with them over the next two years.
Our thanks go out to all of our employees who supported our charitable
programmes over the past year and volunteered their time to help others.
Our focus for 2014 is to concentrate our support on literacy, numeracy
and programmes that support disadvantaged people to engage with
education and build the necessary vital life skills to improve life chances
and employment prospects.
Lisa Clarke
Trust Manager
Registered charity no: 275386
Community links Community Links is an east London based charity that runs a wide range of community
projects working with 16,000 people in each year in one of the most deprived areas of the UK. The Trust’s
donation supported the literacy programme at Education Links, an alternative provision school run by
Community Links for young people who have been excluded or are at risk of exclusion from mainstream
education due to difficulties with their behaviour and attitude, typically driven by a troubled family background.
Education Links students require more support than mainstream schools can offer and staff work closely with
students to improve their literacy, a vital skill for life which will help them to achieve their potential.
Teens and Toddlers Teens and Toddlers is an early intervention programme, designed to target young
people considered to be at high risk of becoming teenage parents, or disengaging with education, often
resulting in NEET (not in employment, education or training). Disadvantaged teenagers, aged between 13 and
17 years, are paired with vulnerable toddlers who they mentor in a supervised nursery environment. This
transformative work experience, combined with classroom training, encourages young people to carefully
consider the consequences of decisions they make and builds their sense of responsibility so they make
positive decisions about their education, their health and their future. The Trust’s donation supported four new
projects in Hackney and Tower Hamlets.
Xlp XLP work in some of London’s most challenging areas delivering projects that transform the attitude and
behaviour, of young people, increase their educational achievement and empower them to make wise lifestyle
choices and realise their potential. Whilst much of their work is based in schools, XLP also travels to 15 inner
London estates each week, in two customised double decker buses, to host a range of activities for young
people. Teams of experienced youth workers and volunteers provide strong positive role models, homework
support and other intervention activities to encourage young people to develop positive behaviour and
life-skills, raise self-confidence and stay in education.
featured grants
8 yrs
The typical reading age of students
joining Education Links is age 8 at
14–16 years old.
22%
Research suggests that by the
age of 30, teenage mothers are
22% more likely to be living in
poverty than mothers who have
their first child at age 24 or older.
1.2m
There are over 1.2m children and
young people of school age in London.
A significant proportion of those live on
deprived inner London housing estates
and experience high levels of family
breakdown, financial deprivation,
unemployment, educational failure and
criminal and anti-social behaviour.
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