Man Regulatory News (EMG)

Press Release

28 February 2018

RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017

Key points

· Funds under Management (FUM)1 up 35% to $109.1 billion (31 December 2016: $80.9 billion)

o Net inflows of $12.8 billion (2016: net inflows $1.9 billion)

o Positive investment movement of $10.7 billion (2016: $3.2 billion)

o Aalto acquisition added $1.8 billion

o FX translation and other movements of $2.9 billion (2016: -$2.9 billion)

· 11 basis point reduction in the Group net management fee margin1 compared to 2016 driven by strong FUM growth in lower margin strategies. Group run rate net management fee margin1 of 72 basis points at 31 December 2017

· Net revenues increase by 33% reflecting good absolute performance fee generation and 7% growth in net management fee revenue

· Adjusted profit before tax (PBT)1 of $384 million in 2017 (2016: $205 million),

o Adjusted net management fee PBT of $203 million (2016: $178 million)

o Adjusted net performance fee PBT of $181 million (2016: $27 million)

· Statutory PBT for the year ended 31 December 2017 of $272 million (2016: statutory loss before tax of $272 million)

· Recommended final dividend of 5.8 cents per share bringing total dividend for the year to 10.8 cents per share (2016: 9.0 cents). The final dividend is equal to 4.18 pence per share (2016: 3.62 pence), and the total dividend for the year is equal to 7.97 pence per share (2016: 7.05 pence)

· Proforma surplus regulatory capital of $460 million adjusted for second half earnings, our final dividend and receipt of cash for year end performance fees and redemption of our largest seeding investment. We estimate the adoption of the new leases accounting standard which will apply from 1 January 2019 will reduce that surplus capital by up to £90m ($120 million)

Luke Ellis, Chief Executive Officer of Man, said:

"2017 was a strong year for our business. The record net inflows of $12.8 billion reflected not only the outperformance we delivered for clients, but also our focus on deep client relationships. Our FUM grew by 35% and this, combined with the strong investment performance and our focus on running the business in an efficient and effective manner, led to excellent profit growth, with an 87% increase in adjusted profits.

In common with others, the recent moves in markets have impacted our investment performance in some areas, particularly for our momentum strategies. However, looking forward Man is well positioned, with strong fundamentals, investment in innovative strategies and a continuing pipeline of interest from clients. As ever, we remain focused on delivering long term investment performance and the highest quality service to our clients."

1 For definitions and explanations of our alternative performance measures, please refer to page 52.

1 For definitions and explanations of our alternative performance measures, please refer to page 52.2 Includes gross management and other fees, distribution costs, and share of post-tax profit of associates.3 Includes income or gains on investments and other instruments and third party share of gains/losses relating to interests in consolidated funds.

4 The adjusting items in the year are shown on page 53 and relate to certain non-recurring items or those resulting from acquisition or disposal related activities.

5 The reconciliation of statutory diluted EPS to the adjusted EPS measures is included in the alternative performance measures (page 55).

6 Our dividend policy and availability of dividend resources is discussed further on page 22.

Dividend and share repurchase

The Board confirms that it will recommend a final dividend of 5.8 cents per share for the financial year to 31 December 2017, giving a total dividend of 10.8 cents per share for the year. The final dividend will be paid at the rate of 4.18 pence per share.

Man's dividend policy is to pay out at least 100% of adjusted net management fee earnings per share (EPS) 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. Man's policy is to distribute available capital surpluses to shareholders over time, by way of higher dividend payments and/or share repurchases, while maintaining a prudent balance sheet, after taking into account required capital (including liabilities for future earn-out payments) and potential strategic opportunities. Whilst the Board continues to consider dividends as the primary method of returning capital to shareholders, it will continue to execute share repurchases when advantageous.

In October 2017, the Board decided to carry out a share repurchase programme for up to $100 million to return surplus capital to shareholders. Currently, around $56 million worth of shares have been repurchased.

Dates for the 2017 final dividend

Results presentation, audio webcast and dial in details

There will be a presentation by the management team at 9am (UK time) on 28 February 2018 at our city office: 2 Swan Lane, London, EC4R 3AD. A copy of the presentation will be made available on the Group's website at www.man.com. There will also be a live audio webcast available on https://www.man.com/GB/results which will also be available on demand from later in the day. The dial-in and replay telephone numbers are as follows:

Live Conference Call Dial in Numbers:

International: +44 (0) 203 003 2666

UK Toll-Free Number: 0808 109 0700

US Toll-Free Number: + 1 866 966 5335

30 Day Replay Dial in Numbers:

International: +44 (0) 20 8196 1998

UK Toll Free Number: 0800 633 8453

US Toll Free Number: +1 866 583 1039

Access Code: 2406315#

Enquiries

Fiona Smart

Head of Investor Relations

+44 20 7144 2030

fiona.smart@man.com 

Rosanna Konarzewski

Global Head of Communications & Marketing

+44 20 7144 1000

media@man.com 

Michael Turner

Finsbury

+44 20 7251 3801

mangroupUK@finsbury.com

About Man Group

Man Group is an active investment management firm focused on delivering performance and client portfolio solutions through its five investment management businesses: Man AHL; Man Numeric; Man GLG; Man FRM and Man Global Private Markets. Man Group's investment management businesses provide long only, alternative and private markets products on a single and multi-manager basis, leveraging the firm's robust infrastructure to provide a diverse range of strategies across investment approaches, styles and asset classes.

The original business was founded in 1783. Today, Man Group plc is listed on the London Stock Exchange under the ticker EMG.L and is a constituent of the FTSE 250 Index. As at 31 December 2017, Man Group's funds under management were $109.1 billion.

Man Group also supports many awards, charities and initiatives around the world, including sponsorship of the Man Booker literary prizes. Further information can be found at www.man.com.

Forward looking statements and other important information

This document contains forward-looking statements with respect to the financial condition, results and business of Man Group plc. By their nature, forward-looking statements involve risk and uncertainty and there may be subsequent variations to estimates. Man Group plc's actual future results may differ materially from the results expressed or implied in these forward-looking statements.

The content of the websites referred to in this announcement is not incorporated into and does not form part of this announcement. Nothing in this announcement should be construed as or is intended to be a solicitation for or an offer to provide investment advisory services or to invest in any investment products mentioned herein.FUNDS UNDER MANAGEMENT ANALYSIS

As our business has evolved, we have changed the categorisation of our FUM such that it better represents strategies with similar characteristics.

The three categories in alternatives are:

· Absolute return (includes strategies that were previously included in quant alternative and discretionary alternative, however excludes risk premia which has been moved to total return and convertibles and North American equity which have been moved to discretionary long only)

· Total return (includes EM debt total return, GPM, risk premia and CLO strategies)

· Multi-manager solutions (includes traditional fund of fund and infrastructure and segregated mandates)

The two long only categories are:

· Systematic (this category was previously called quant long only)

· Discretionary (includes strategies that were previously in discretionary long only, as well as convertibles and North American equity which were previously included in discretionary alternatives. EM debt total return has been moved to total return)

New Categorisation

Three months to 31 December 2017

Year to 31 December 2017

Old Categorisation

Three months to 31 December 2017

Year to 31 December 2017

FUM by investment engine

*AHL Institutional Solutions invests into a range of AHL strategies including AHL Dimension, AHL Alpha and AHL Evolution

** FUM at close on 1 January 2017 was $1.8 billion

Investment Performance

CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

During the year we made significant progress in respect of our key strategic objectives which has laid firm foundations for the longer term growth of the business. Investment performance was strong and we are pleased to have outperformed peers by 1.9% on average across our strategies1. This performance has been recognised by our clients with record inflows, but more importantly we are developing better and deeper relationships with the world's largest and most sophisticated asset owners. This resulted in us adding a significant number of new relationships with strategically important asset owners during the year. We continue to add further innovative investment capabilities, for instance in Alternative Risk Premia and Private Markets, and to invest in research and innovation, whether that be machine learning techniques across our quant strategies or new discretionary teams in GLG. From a regulatory perspective an enormous amount of hard work went into ensuring we were ready to meet all MiFID II obligations at the start of 2018 with the whole firm working together to achieve this.

The strong outperformance coupled with positive momentum in markets during 2017 led to an investment performance related increase in FUM of $10.7 billion. Strong client demand for Emerging Market debt, FRM managed accounts and quant strategies led to net inflows of $12.8 billion for the year, albeit the flows were typically lower margin. The combination of these two factors as well as an FX tailwind and the acquisition of Aalto led to a 35% increase in funds under management to $109.1 billion. The growth was broad based, with our alternative and long only strategies, quant and discretionary approaches, and all of our investment engines growing their funds under management during the year.

Adjusted profit before tax increased to $384 million, compared to $205 million in 2016, principally due to a strong rebound in performance fees. We are particularly pleased to see this rebound in fees in a year which was not a favourable environment for traditional trend following strategies. This highlights the benefit of the diversified set of performance fee earning strategies both within Man AHL and across the Group. Adjusted management fee profit before tax was up 14%, growing at a steadier pace than the increase in FUM as our revenue margin compressed due to strong asset growth in lower margin strategies. Statutory profit before tax was $272 million, compared to a loss of $272 million in 2016 when we had the impairment of Man GLG and Man FRM's goodwill and intangibles. Our business continues to be strongly cash generative with adjusted profit after tax (a good proxy for operating cash flow) of $337 million in 2017.

Performance

Market overview

2017 was characterised by a bull market for risk assets. US equities ended the year at record highs, spurred by the positive sentiment from the passage of US tax reforms. The TOPIX was up 22% and despite the UK election result and the uncertainty surrounding Brexit, the FTSE 100 ended the year up 12%. Emerging markets trends were also positive with the MSCI emerging markets index up 37% for the year. Fixed income markets had a volatile year selling off substantially during the last week of June only to recover in the second half of the year with world bonds and corporate bonds ending the year up 2% and 12% respectively. Traditional energy markets such as oil and natural gas saw numerous peaks and troughs but oil prices rallied towards the end of the year.

Alternatives

Against this backdrop returns in many trend following strategies were limited, with the Barclays BTOP ending the year down 0.6%. Man AHL's traditional trend following programmes, AHL alpha and AHL diversified fared noticeably better finishing the year up 5.3% and 5.0% respectively. AHL evolution, our trend following strategy in non-traditional markets, continued its very strong track record and ended the year up 17.9%. AHL dimension, with its allocation to a range of Man AHL's strategies, ended the year up 3.9%. In contrast to the strong overall performance of Numeric, its alternative strategies had weaker performance with the largest market neutral strategy down 1.7% for the year.

1 Performance figures shown net of representative management and performance fees. Past performance is not indicative of future performance.

2 Where a strategy has a formal benchmark, performance is compared to this. Where no formal benchmark has been set, "benchmark" should be taken to refer to a relative index. Relative performance is provided for illustrative purposes to provide market information and is not meant to be an accurate comparison. The strategy is managed significantly differently than the benchmark or index.

Towards the end of 2016 we took steps to improve the consistency of discretionary alternatives performance through the appointment of a GLG CIO, a restructure of the risk team and efforts to bring best practices in risk management and technology to bear from across the Group. Good progress has been made with strong performance generated in 2017 and Man GLG's Alternative Strategies Dollar Weighted Composite delivering returns of 8.3%, versus the HFRX return of 6.0%. Credit strategies followed up a strong 2016 with another year of excellent performance, and Man GLG's equity strategies also had a strong year with the firm's flagship European Long-Short strategy generating returns of 6.5% in 2017, outperforming the HFRX Equity Market Neutral Hedge Index and many direct competitors.

Across our total return strategies, Alternative Risk Premia, which combines liquid strategies from Man AHL and Man Numeric, continued its strong performance since launch, ending up 10.1% for the year. The Emerging Market debt total return strategy which launched in 2016 ended the year up 2.3%, underperforming its competitors due to its bearish positioning.

Man FRM's strategies also had strong investment performance throughout the year. FRM Diversified II was up 6.2% and outperformed the HFRI Fund of Funds Conservative Index by 2.3%.

Long only

Man Numeric had another strong year generating overall net asset weighted outperformance versus benchmark of 2.1%2. Positive alpha generation in international strategies including Emerging Markets Core and Global Core was partially offset by weaker alpha in US stocks resulting in negative performance for US strategies including Small Cap Core and Large Cap Core.

Most of Man's discretionary long only strategies had good absolute and relative performance in 2017. However the largest individual strategy, Japan CoreAlpha with its strong value approach underperformed the TOPIX by 5.5%, as value underperformed as a style in Japan, which resulted in Man GLG's long only strategies underperforming their benchmarks by 2.5% on an asset weighted basis. The Continental European Equity strategy outperformed its reference index by 1.2% and the UK Undervalued Assets strategy outperformed its benchmark by 17.2%.

Progress against strategic priorities

Innovative investment strategies

Research and innovation is a key priority across our business. Markets do not stand still; we need to keep innovating to perform for our clients and we invest a huge amount of time and energy in research. Given our focus on maintaining outperformance, we monitor capacity across our strategies and we will regularly have various products that hit their capacity and we soft close to ensure we maintain client returns. However, the constant research and innovation effort across the firm means we will also have new strategies we have developed to help clients address their investment needs.

Man Alternative Risk Premia is a good example of the collective expertise across the firm helping to solve problems for our clients. Man FRM's own portfolio construction process had made clear the benefit of a liquid, cash efficient strategy uncorrelated to traditional assets, as part of an overall alternatives portfolio. They worked with Man AHL and Man Numeric to develop a multi-premia, multi-strategy, multi-asset approach allocating across four broad alternative risk factors. These systematic trading strategies have multi-level risk management and leverage Man's entire range of investment expertise. Man FRM then worked with Sales and Product Structuring to provide a suite of flexible solutions to meet individual client requirements. The strategy is up 20.9% since inception in 2015; we started marketing to clients around the world during the year and are seeing strong interest with $4.0 billion of assets raised to date and a decent sales pipeline.

1 Where a strategy has a formal benchmark, performance is compared to this. Where no formal benchmark has been set, "benchmark" should be taken to refer to a relative index.

2 Numeric's net asset weighted alpha for the periods stated is calculated using the asset weighted average of the performance relative to the benchmark for all strategy composites available net of the highest rate of management fees charged and, as applicable, performance fees that can be charged.

We have expanded the focus of our research across the firm in machine learning and data analytics, to provide growth opportunities from utilising new research techniques and forms of data. This initiative continues to develop, and a number of new machine learning-based signals have been added to several of our quant programmes at Man AHL and Man Numeric this year. Man GLG added a machine learning team during the year in order to use this already well known cutting edge research from quant and introduce it into its discretionary offerings.

We believe technology allows discretionary fund management to materially improve individual investment decisions, the implementation of those ideas and the risk management of overall portfolios. Man is particularly well positioned to bring the benefits of technology to bear on discretionary investment processes.

Another focus during 2017 was on trading and execution. We have appointed a director of trading to manage this effort across Man, bringing together traders, trading technologists and researchers. We believe this initiative will deliver superior execution results for all of our investment engines to the benefit of our clients and increasing our capacity. In many asset classes, electronic market makers are increasingly replacing traditional brokers as the principal source of liquidity and as a result a globally coordinated central execution team will allow us to better adapt to today's market structures. We have made significant efforts this year to reduce trading costs which translates directly into improved performance for clients.

We added a new private markets capability through the acquisition of Aalto Invest in January 2017, with Man Global Private Markets (Man GPM) launched at the same time. Within Man GPM, we have funded several new mandates within our global real estate debt and US residential equity strategies as well as launched a new US direct lending fund. We are encouraged by the additional commitments from longstanding clients and the initial interest shown by our clients for this new asset class within Man. In line with our overall strategy, we continue to look at other possible acquisitions, including in the private markets space to complement Aalto, continuing to ensure we remain disciplined on price, structure and cultural fit.

Strong client relationships

2017 saw excellent engagement with our existing and targeted clients across the globe, as reflected in record net inflows for the year of $12.8 billion. We continued to make good progress in building long term relationships with clients and during the year we added a significant number of new relationships with strategically important asset allocators and distributors. Seeing many of our key targeted clients make their first investments with Man, and our existing clients entrusting us with further allocations is one of the best signs of the progress we have made and the strength of our business today. The trend of clients investing across the firm is also continuing with a number of existing clients investing in new products in 2017. 73% of FUM is now sourced from clients investing in two products or more and 56% of FUM from clients investing in four products or more. Furthermore, 59% of FUM is sourced from clients investing across more than one of our investment engines.

There has also been a significant amount of work done to strengthen our sales organisation which has translated into an improvement in the effectiveness of the function. The focus of the team has been on attracting and developing talent, targeting resources and building the strongest client relationships possible. 2017 saw a 55% increase in gross sales to $33.7 billion driven by strong flows into FRM managed accounts, Man's Alternative Risk Premia offering, and Emerging Market Debt strategies in particular. As highlighted previously it is important to note that the margins on these sales were lower than the average for the Group. Redemptions of $20.9 billion were across a range of strategies and in line with the redemption rate in 2016.

From a geographical perspective, whilst EMEA continues to be our biggest market, the business is now better balanced as we have seen strong growth in the US market over the last five years. Gross sales from the Americas accounted for 32% of the total sales in 2017 compared to 29% in 2016. At 31 December 2017, 27% of FUM was from clients domiciled in the Americas compared to 8% in 2012. Gross sales from the Americas have grown from $1.1 billion in 2012 to $10.8 billion in 2017.

Efficient and effective operations

We continually assess our cost base across the firm in comparison to our revenue earning capabilities to ensure we are running the business as efficiently as possible while investing for growth. We completed the restructuring initiatives that were started in 2016 with the costs of the restructuring in line with expectations. From a regulatory perspective the whole firm worked together to ensure we were ready to meet all MiFID II obligations at the start of 2018. The ongoing costs associated with MiFID II will add around $10-15 million to our cost base from 2018 onwards.

In November we moved all our London teams to the same location in the City of London. We are already seeing the significant advantages this generates for the Group and our clients, with enhanced opportunities to collaborate and to further leverage our collective investment expertise.

Our balance sheet remains strong and liquid, and we continue to support the growth of new products through our seed capital programme. We continually assess whether seeding positions support the business and a large position in a US distressed credit strategy has been redeemed as a result of a lack of investor subscriptions.

We completed our previously announced $100 million buyback in September and announced a further $100 million buyback in October. Our surplus capital at 31 December 2017 was $256 million. The proforma surplus capital including the impact of second half profits, the proposed final dividend and receipt of year end performance fees and proceeds from the redemption from the US distressed credit strategy is $460 million.

People

When I took over as CEO in 2016 I created a Senior Management Executive Committee comprising: Jonathan Sorrell, who is the President of the Group and responsible for our Sales and Marketing teams, Man GPM and Man FRM; Sandy Rattray, who is the Chief Investment Officer for the Group and responsible for Man AHL, Man Numeric and Man GLG; Robyn Grew, our Chief Administrative Officer who is responsible for Man Group's infrastructure, operations, technology, compliance, legal, human resources and facilities functions; and Mark Jones, our Chief Financial Officer, who is responsible for Finance, Investor Relations, Internal Audit and Risk for the Group. The team have provided huge support throughout this year and I would like to thank them, and more importantly everyone within Man for their contribution to the significant operating and financial progress we have made during 2017.

KEY PERFORMANCE INDICATORS

Our financial KPIs illustrate and measure the relationship between the investment experience of our clients, our financial performance and the creation of shareholder value over time. Our KPIs are a key determinant of the remuneration of the executive directors and are used to regularly evaluate progress against our key strategic priorities of research and innovation, strong client relationships, and efficient and effective operations, which together drive returns to shareholders. Our alternative performance measures are discussed on pages 52-57.

The results of our KPIs this year reflect the increase in our FUM base as a result of strong organic growth due to good performance and flows. We had strong outperformance for Numeric and GLG, and good relative performance for AHL, although absolute performance was more moderate, and FRM fund of funds. We achieved record net inflows, largely driven by strong asset raising in total return and multi-manager solutions strategies. Management fee revenue and profitability increased in 2017, despite margin compression as a result of growth in lower margin strategies, due to higher average FUM and a reduction in our fixed costs base.

The performance of the key strategies compared to the benchmarks1 gives an indication of the competitiveness of our investment performance against similar alternative investment styles offered by other investment managers. The investment performance KPI measures the net investment performance for our managers (AHL, Numeric, GLG and FRM), excluding GPM which was established as a result of the acquisition of Aalto during the year. For AHL, GLG and FRM, investment performance is represented by key strategies against relevant external benchmarks/reference indices. For Numeric, investment performance is monitored by the net asset weighted outperformance or underperformance (alpha) 2 based on a predetermined benchmark by strategy. The target for the investment performance KPI is to exceed the relevant benchmarks. The key strategies 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. For Numeric, net asset weighted outperformance is based on a benchmark against reference indices by Numeric strategy. We achieved all four of the performance targets, with the performance of AHL's diversified strategy exceeding two out of three of the relevant peer benchmarks, GLG and FRM's metrics exceeding their relevant benchmarks, and Numeric achieving positive net alpha2 in 2017.

The second 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 of 15.8% in 2017 were at record levels and above the target range, which is indicative of the strong net inflows into our total return and multi-manager solutions strategies, as well as inflows into discretionary long only and absolute return strategies, partially offset by smaller net outflows from systematic long only strategies and guaranteed products.

The third KPI measures adjusted management fee EBITDA as a percentage of net revenues (gross management fee revenue and income from associates less cash distribution costs). Our adjusted management fee EBITDA margin is a measure of our underlying profitability. The adjusted management fee EBITDA margin of 27.7% was within the target range for the year ended 31 December 2017, compared to 26.1% for the year ended 31 December 2016. The margin increased in 2017, reflecting the lower compensation ratio and a reduction in fixed costs due to a more favourable hedged US Dollar to Sterling rate and continued efforts on achieving efficiencies within our cost base. For further information on EBITDA see page 57.

The fourth KPI measures our adjusted management fee EPS growth, where adjusted management fee EPS is calculated using post-tax profits excluding net performance fees and adjusting items, divided by the weighted average 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 of 20.0%, from 9.0 cents to 10.8 cents, was within the target range for 2017. Adjusted management fee EPS growth is largely driven by the higher net management fee revenues, a reduction in our fixed costs base despite growth in the business, a slightly lower tax rate and higher profits per share due to the impact of share repurchases which reduce the number of shares. For further information on EPS, see page 55.

1 Where funds have a formal benchmark, performance is compared to this. Where no formal benchmark has been set, 'benchmark' should be taken to refer to a relative index.

2 Numeric's net asset weighted alpha for the periods stated is calculated using the asset weighted average of the performance relative to the benchmark for all strategy composites available net of the highest rate of management fees charged and, as applicable, performance fees that can be charged.

CHIEF FINANCIAL OFFICER'S REVIEW

Overview

We are pleased to report strong growth in funds under management (FUM), up 35% to $109.1 billion. The increase was driven by positive investment performance of $10.7 billion in a generally supportive market environment for asset managers, largely from our long only strategies, and record net inflows of $12.8 billion which were driven by demand for our emerging market debt, FRM managed accounts, risk premia and quant absolute return strategies. The acquisition of Aalto in January 2017 added $1.8 billion of FUM. In addition, FUM increased due to FX movements of $3.1 billion primarily as a result of the US Dollar weakening against the Euro, Sterling and Australian Dollar during the year. We have continued to see attrition of our management fee margins which is primarily driven by mix effects, as well as the continued roll-off of guaranteed product FUM. As a result, the growth in net management fees has been more gradual in relation to the movements in FUM.

Net management fee revenue was $736 million for the year, an increase of 7% from prior year as a result of the increase in FUM, partially offset by margin compression as outlined above. We have continued to diversify our business, with net management fees from guaranteed products falling from $31 million to $12 million in 2017 as this legacy business runs off.

Performance fee revenues increased to $289 million from $81 million in 2016, with positive performance across a diverse range of strategies.

We continue to focus our efforts on operating the business efficiently while investing in research to build innovative strategies for clients. Continued focus on cost control, as well as a more favourable hedged US Dollar to Sterling rate, have achieved a reduction in our fixed cash costs despite growth in the business.

Statutory profit before tax was $272 million, which has increased from the 2016 statutory loss before tax of $272 million largely as a result of the non-cash impairment of goodwill and intangible assets of $379 million in 2016. Statutory earnings per share were 15.3 cents (2016: loss of 15.8 cents per share). Our adjusted profit before tax was $384 million, up from $205 million in the prior year, and adjusted earnings per share were 20.3 cents (2016: 10.4 cents). The majority of this improvement was caused by the adjusted performance fee profit before tax increasing to $181 million, up from $27 million in 2016, which reflects solid performance across our strategies. Adjusted management fee profit before tax was $203 million, up from $178 million in 2016, as a result of higher net management fees and a lower compensation ratio, as well as the reduction in fixed cash costs. Core management fee profit before tax1, which excludes net management fees relating to guaranteed products, sales commission income from Nephila and share of post-tax profits of associates, increased to $178 million from $132 million in 2016.

Our balance sheet remains strong and liquid, with net tangible assets of $669 million or 41 cents per share at 31 December 2017. Our regulatory surplus capital is $256 million at 31 December 2017, and our proforma surplus capital is $460 million. We expect the change in the lease accounting standard, which is applicable from 1 January 2019, to reduce our surplus capital from 2019 by approximately $120 million (£90 million), primarily due to our property lease at Riverbank House. This accounting change has no impact on our lease payments or our cash flows (see further discussion on pages 30 to 31). We have a net cash position of $206 million and we continue to be strongly cash generative with operating cash flows, excluding movements in working capital, of $431 million (2016: $245 million). Adjusted management fee earnings per share, the basis for our dividend payments, has increased to 10.8 cents from 9.0 cents in 2016. Our focus remains on ensuring the business continues to generate strong cash flows to either return to shareholders or invest to generate improved cash flows in the future. In line with this approach, in 2017 we announced a further $100 million share repurchase, and completed the acquisition of Aalto.

1 Refer to page 52 for details of the Group's alternative performance measures.

Funds under management (FUM)

As our business has evolved, we have changed the categorisation of our FUM such that it better represents strategies with similar characteristics, as detailed below.

Absolute return

Absolute return FUM relates to alternative strategies where clients expect the strategy may have net long, short or neutral exposure, and that may make use of leverage to achieve those exposures. This includes trend following and discretionary long-short strategies. Absolute return FUM increased by 15% during the year, driven by strong investment performance across the range of strategies in this category. Net inflows were $0.6 billion, which included $1.3 billion into institutional solutions, $0.5 billion into Numeric market neutral and $0.3 billion into AHL evolution strategies, partially offset by outflows of $0.5 billion from GLG market neutral, $0.5 billion from our GLG equity long short strategies and $0.6 billion from traditional trend following strategies AHL diversified and alpha. The positive investment movement of $2.1 billion was a result of very strong performance for AHL evolution, and good broad-based performance across both quant and discretionary absolute return strategies. Positive foreign exchange movements related to the US Dollar weakening against the Euro, Australian Dollar and Sterling. Other movements primarily relate to leverage changes in quant products.

Total return

Total return FUM relates to alternative strategies where clients expect the strategy to have some positive exposure to particular risk factors over the course of a market cycle although the level of exposure may vary over time. This includes EM debt total return, GPM, risk premia, and CLO strategies. Total return FUM increased by $9.9 billion during the year to $16.5 billion. Net inflows of $8.2 billion were primarily driven by strong interest in the risk premia and EM debt total return strategies. Investment movement was $0.1 billion for the year, largely due to muted performance for EM debt total return. Positive foreign exchange movements related primarily to the weakening of the US Dollar against the Euro and Sterling. The negative other movements relate to CLO maturities during the year. In 2017 we acquired Aalto, a US and Europe based real asset focused investment manager with $1.8 billion of FUM at acquisition, which has enabled us to further diversify our client offering.

Multi-manager solutions

Multi-manager solutions FUM includes traditional fund of fund and infrastructure and segregated mandates. Multi-manager solutions FUM increased by $4.2 billion, primarily as a result of strong net inflows during the year. Net inflows of $2.9 billion included $2.1 billion of infrastructure mandates and $2.2 billion into segregated portfolios, partially offset by net outflows of $1.3 billion from traditional fund of fund strategies. The investment movement of $0.5 billion was largely driven by infrastructure mandates, where investment decisions are made by the investors. Positive foreign exchange movements were primarily due to the weakening of the US Dollar against the Australian Dollar, Sterling and Japanese Yen.

Systematic long only

Systematic long only FUM relates to the previous quant long only category. Systematic long only FUM increased by $5.4 billion during the year, as a result of strong investment performance, partially offset by $0.6 billion of net outflows. These outflows were concentrated in the fourth quarter and were driven by client rebalancing following the strong equity market moves during the year. Net outflows largely related to redemptions from the small cap growth and all cap core strategies. Investment performance of $5.8 million was largely driven by market moves and strong relative performance in international strategies, with Numeric's overall net asset weighted outperformance against applicable benchmarks of 2.1%1 for the year.

Discretionary long only

Discretionary long only FUM increased by 33%, driven by strong performance, positive net inflows and foreign exchange movements. Net inflows of $1.8 billion were largely driven by flows into Japan core alpha, continental European equity and EM fixed income strategies. The positive investment movement of $2.2 billion was driven by performance from our Japan core alpha, UK undervalued assets, continental Europe and European equities strategies. Positive foreign exchange movements related to the weakening of the US Dollar against Sterling and the Euro.

Guaranteed products

Guaranteed product FUM reduced by $200 million during the year. There were no sales and redemptions totalled $100 million. Investment performance for guaranteed products was broadly flat during the year. Other negative movements relate to maturities and de-gearing.

Summary income statement

1 Management and other fees also includes $3 million (2016: $4 million) of management fee revenue, performance fees include $2 million (2016: $nil) of performance fee revenue, and other costs includes a $1 million (2016: $2 million) deduction of costs relating to line-by-line consolidated fund entities for the third-party share (per Group financial statements Note 13.2 on page 43).

2 Gains on investments includes income or gains on investments and other financial instruments of $64 million (2016: $52 million), less $14 million (2016: $15 million) of third party share of gains relating to line-by-line consolidated fund entities, less the reclassification of management fee revenue of $3 million (2016: $4 million), performance fee revenue of $2 million (2016: $nil) and other costs of $1 million (2016: $2 million) as above.

3 We separately identify adjusting items to our statutory Group income statement and related metrics in order to give a better understanding of the underlying profitability of the business. Details of these alternative performance measures and reconciliations to their statutory equivalents are provided on pages 52 to 57.

Net management fee revenue and margins

Net management fees revenue, excluding share of post-tax profit of associates, grew by 6% to $728 million in 2017. The increase is driven by growth in FUM from core activities during the year, partially offset by continued margin compression and the roll off of guaranteed product FUM. There is $200 million of guaranteed product FUM remaining at 31 December 2017 and therefore there will be less of an impact of declining revenue from these assets going forward.

1 Numeric's net asset weighted alpha for the year to 31 December 2017 is calculated using the asset weighted average of the performance relative to the benchmark for all strategy composites available net of the highest management fees and, as applicable, performance fees that can be charged.

The Group's total net management fee margin1 decreased by 11 basis points during the year to 76 basis points, compared to 87 basis points in 2016. The decline in the overall net margin continue to be driven by mix effects. Around half of the move is the mix effects from the net inflows in the year, particularly the infrastructure mandates in FRM. Better performance and FX gains from our lower margin strategies further lower the Group's net margin, with the remainder of the move from the continued run off of guaranteed products and from small pricing adjustments or the mix of clients within individual funds.

Excluding guaranteed products, the overall net margin decreased by 8 basis points to 75 basis points.

1 Details of these alternative performance measures are included on page 52.

2 Other income primarily relates to a distribution agreement for Nephila products, which ceased in April 2017 (Note 17 to the Group financial statements).

3 Net management fee revenue also includes $3 million (2016: $4 million) of management fee revenue relating to line-by-line consolidated fund entities for the third-party share.

4 Includes $56 million (2016: $61 million) of distribution costs which have been deducted from gross management and other fees of $784 million (2016: $750 million).

During the year, the absolute return net management fee margin decreased by 9 basis points as a result of the continued mix shift towards institutional assets which are at a lower margin. We expect the absolute return margin will continue to gradually decline as the shift towards institutional assets continues.

The total return net management fee margin has increased by 9 basis points as result of the growth in emerging market debt and risk premia strategies as well as the acquisition of Aalto during the year. In 2016 the total return category largely comprised CLO strategies which are at a lower margin.

The multi-manager solutions net management fee margin decreased to 45 basis points in 2017 from 63 basis points in 2016 as a result of the shift in FRM's business from traditional fund of funds to that of solutions provider, with significant inflows into infrastructure mandates and segregated portfolios over the year where margins are materially lower. The multi-manager solutions margin is expected to decline further as the shift towards lower margin services continues.

The systematic long only net management fee margins were stable during the year. Discretionary long only net management fee margins also remained stable during the year at 67 basis points.

Core net management fee revenue1, which excludes legacy guaranteed product net management fee revenues, other income and share of post-tax profit of associates, have increased by 10% as a result of strong growth in FUM partially offset by margin compression as detailed above.

The guaranteed product net management fee margin increased by 76 basis points compared to 2016 due to maturities from lower margin products during the year.

The Group run rate net management fee margin1 at 31 December 2017 was 72 basis points, and the run rate net management fee revenue1 was $789 million.

Performance fees

Gross performance fees for the year were $289 million compared to $81 million in 2016, which included $145 million from AHL (2016: $50 million), $85 million from GLG (2016: $9 million), $52 million from Numeric (2016: $19

[1] Refer to page 52 for details of the Group's alternative performance measures.

million), $5 million from GPM (2016: nil) and $2 million from FRM (2016: $3 million), with performance fee generation across a range of strategies as a result of the continued diversification of our business.

At 31 December 2017, around 65% of AHL FUM ($13.1 billion) were above performance fee high water mark and 21% ($4.2 billion) were within 5% of high water mark. Of the $11.1 billion performance fee eligible Numeric strategies, 85% were outperforming the relevant benchmark at 31 December 2017. Around 48% of eligible GLG assets ($5.3 billion) were above high water mark and a further 44% ($4.9 billion) were within 5% of high water mark at year end. Fund of fund performance fee eligible products were on average approximately 2% below high water mark at 31 December 2017.

The Group benefits from a diversified portfolio of performance fee streams across a variety of strategies that are charged on a regular basis at different points in the year. 85% of AHL FUM is performance fee eligible, of which 83% have performance fees that crystallise annually (mainly in June and December), 13% daily or weekly, and 4% monthly. The majority of performance fees from GLG crystallise semi-annually in June or December. Around 40% of our systematic long only performance fee eligible FUM crystallises annually in November, with the remainder crystallising at various points during the year.

Investment gains

Investment gains of $44 million (2016: $31 million) primarily relate to gains on seeding investments on a year end seeding book of $480 million (2016: $642 million).

Asset servicing

Asset servicing costs include custodial, valuation, fund accounting and registrar functions, and vary depending on transaction volumes, the number of funds, and fund NAVs. Asset servicing costs were $37 million (2016: $33 million), which equates to around 5.5 basis points of average FUM, excluding systematic long only and GPM strategies, in line with prior year. In 2018, asset servicing costs are expected to increase to around 7 basis points on FUM, excluding systematic long only and GPM strategies, due to the inclusion of MiFID II related research and administration costs.

Compensation costs

Compensation costs comprise fixed base salaries, benefits, variable bonus compensation (cash and amortisation of deferred compensation arrangements) and associated social security costs. In addition, during 2017 we completed the restructuring plan which commenced in 2016, with the final $4 million of the $21 million planned restructuring compensation costs recognised in 2017 (an adjusting item per page 53).

Total compensation costs, excluding adjusting items, were $474 million for the year, up by 22% compared to $388 million in 2016. Overall compensation costs increased as a result of higher management and performance fee revenues. Fixed compensation decreased by 4% despite growth in net management fee revenues, which largely reflects the more favourable hedged US Dollar to Sterling rate in 2017 as well as cost efficiencies. Variable compensation increased by 46%, which is above the 33% increase in net revenue due to the increase in performance fee revenue earned. The overall compensation ratio1 in 2017 was 44%, a decrease from 48% in 2016, as a result of the significant increase in performance fee revenue. The Group's compensation ratio is generally between 40% and 50% of net revenues, depending on the mix and level of revenue. We expect to be at the higher end of the range in years when absolute performance fees are low and the proportion from Numeric and GLG is higher, and conversely we expect to be at the lower end of the range when absolute performance fees are high and the proportion from AHL and FRM is higher. Included within variable compensation is a $4 million expense relating to the pay-out of performance fee related carry from Aalto, which crystallised post-acquisition.

Other costs

Other costs, excluding adjusting items as outlined on page 53, were $165 million for the year (2016: $166 million). These comprise cash costs, including occupancy, technology, consultancy and professional fees, of $147 million (2016: $152 million) and depreciation and amortisation of $18 million (2016: $14 million). Similar levels of cash costs were incurred in 2017 despite increased net management fee revenues compared to 2016, which reflects a more favourable hedged rate in 2017 as well as continued discipline on costs. Depreciation and amortisation has increased by $4 million this year due to higher levels of capital expenditure in 2016 and 2017, which is largely due to software development projects across our operating platforms. Depreciation and amortisation are expected to continue to increase over the next few years as a result of increased investment in our infrastructure.

We incurred $7 million of other costs during the year which largely relate to the associated onerous property leases arising (an adjusting item per page 53) following the centralisation of our London resources into one location.

[1] Refer to page 52 for details of the Group's alternative performance measures.

Net finance expense

Net finance expense, excluding the unwind of discount on contingent consideration which is classified as an adjusting item as outlined on page 53, was $9 million for the year (2016: $11 million) and includes interest payable on borrowings as well as the ongoing costs for the Group's revolving credit facility, which was renegotiated from $1,000 million to $500 million in October 2016.

Adjusted profit before tax

Adjusted profit before tax, as further detailed on page 53, is $384 million compared to $205 million for the previous year. The adjusting items in the year of $112 million (pre-tax) are summarised in the table below, and are detailed on page 53. The directors consider that the Group's profit is most meaningful when considered on a basis which excludes acquisition and disposal related items (including non-cash items such as amortisation of purchased intangible assets and deferred tax movements relating to the recognition of tax assets in the US), impairment of assets, costs relating to substantial restructuring plans, and certain significant event driven gains or losses, which therefore reflects the revenues and costs that drive the Group's cash flows and inform the base on which the Group's variable compensation is assessed.

Adjusted management fee, Core management fee, and Performance fee profit before tax

Adjusted management fee profit before tax was $203 million compared to $178 million in 2016, an increase of 14% as a result of the increase in management fees and a lower increase in related costs. Adjusted performance fee profit before tax of $181 million (2016: $27 million) for the year reflects the higher performance fees generated across the business.

Core management fee profit before tax has increased by 35% from $132 million to $178 million, reflecting strong growth in management fees excluding income from legacy business.

Details and reconciliation of these measures are provided on page 56.

Taxation

The tax charge on the statutory profit for the year was $17 million (2016: tax credit of $6 million on statutory loss), which equates to an effective tax rate of 6%. The majority of Man's profits are earned in the UK, with significant profits also arising in the US, where our tax rate is effectively nil as a result of available tax assets, and in Switzerland, which has a lower rate than the UK.

The underlying rate on adjusted profit of 14% (2016: 13%) represents the statutory tax rates in each jurisdiction in which we operate applied to our geographical mix of profits. The effective tax rate on adjusted profit was 12% (2016: 14%), which is lower than the underlying rate principally as a result of the reassessment of tax exposures globally during the year.

In the US, we have $174 million of accumulated federal tax losses which we can offset against future profits from US entities and will therefore reduce taxable profits. In addition, we have $493 million of tax deductible goodwill and intangibles, largely relating to the Numeric (2014) and Ore Hill (2008) acquisitions, which are amortised for tax purposes in the US over 15 years and which reduce US taxable profits in future periods. We therefore expect not to pay federal tax in the US for a number of years. Effective from 1 January 2018 the US federal tax rate has decreased from 35% to 21%, which we have incorporated into assessment of our US deferred tax balances at 31 December 2017. As a result of our available US federal tax assets, we do not expect this change to have an impact on our effective tax rate for a number of years. Based on forecast US taxable profits and consistent with the methodology applied in prior years, the Group has a deferred tax asset on the balance sheet of $42 million (2016: $25 million) which represents probable tax savings over a three year forecast period due to the utilisation of these losses and future amortisation of intangibles. This has resulted in a $17 million net credit to the tax expense in the year (2016: $6 million credit), which is included as an adjusting item (page 53). The increase represents projected year on year growth in our US business, partially offset by the reduction in the US federal tax rate from 35% to 21% from 1 January 2018. Further details on this deferred tax asset are given in Note 7 to the Group financial statements.

Should the earnings profile of the Group in the US increase significantly this could result in the earlier recognition of the US deferred tax asset in full and as a result the tax rate for the Group would change in line with the prevailing corporation tax rate in the US and the proportion of the Group's profits at that time.

The principal factors that we expect to influence our future underlying tax rate are the mix of profits by tax jurisdiction, changes to applicable statutory tax rates and the consumption of US tax assets. The underlying tax rate in 2018 is currently expected to remain consistent with 2017, dependent on the factors outlined above.

Capital management

Our business has a strong record of cash generation. Our policy is to return our adjusted management fee profits to shareholders each year through our regular dividend. Our adjusted performance fee profits grow our surplus capital position over time. We then actively manage Man's surplus capital to seek to maximise value to shareholders by either investing that capital into acquisitions to improve shareholder returns in future, or to return it to shareholders through share buybacks or special dividends.

We have maintained prudent surplus capital, in compliance with the FCA's capital standards, and available liquidity throughout the year. Details of the Group's syndicated revolving loan facility, which provides additional liquidity, are provided in Note 12 to the Group financial statements on page 41.

We have a 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 monitor our capital requirements through continuous review of our regulatory and economic capital, including monthly reporting to the Risk and Finance Committee and the Board.

At 31 December 2017, surplus regulatory capital over the regulatory capital requirements was $256 million.

The decrease in the Group financial resources of $154 million in the year primarily relates to the $100 million share repurchase programme, which commenced in October 2017, and goodwill and acquired intangible assets of $79 million arising on the Aalto acquisition, partially offset by the receipt of the first half performance fees. The decrease in the Group financial resources requirement of $18 million primarily relates to a lower capital requirement on seeding investments and securitisation positions, partially offset by a higher capital requirement on performance fee receivables balances. As at 31 December 2017 there has been no change to the Internal Capital Guidance scalar that is applied as part of the calculation of the financial resources requirement.

The Group's proforma surplus capital is $460 million, which incorporates: the second half earnings; our final dividend; and receipt of cash for year end performance fees and redemption of our largest seeding investment (see next page). As a result of the impact of adoption of the new leases accounting standard, as outlined below, we expect that our surplus capital will decrease by up to $120 million (£90 million) from 1 January 2019.

Adoption of the new leases accounting standard, which is mandatory for the Group from 1 January 2019 as outlined per Note 1 to the Group financial statements (page 30), is expected to result in a reduction of our capital surplus from that date of up to $120 million (at the 31 December 2017 Sterling exchange rate of 0.74). The reduction is due to the new requirement to bring operating leases onto the Group's balance sheet and an earlier expense recognition profile of the associated rental costs, which therefore impacts our financial resources requirement and Tier 1 capital at 1 January 2019.

Cash earnings and liquidity

We continue to generate strong cash flows. Given the strong cash conversion of our business we believe our adjusted profit after tax is a good measure of our underlying cash flow generation, although the timing of cash conversion is impacted by the seasonal movements in our working capital position through the year and the size of our seeding book over time. Operating cash flows, excluding working capital movements, were $431 million during the year and cash balances at year end were $356 million, excluding cash relating to consolidated fund entities.

1 Excludes cash relating to consolidated fund entities (Note 13.2 to the Group financial statements).

Working capital movements principally relate to the increase in performance fee receivables at the year-end partially offset by an increase in the related variable compensation payable. The total net decrease in our seeding investment portfolio is not reflected in cash inflows given the timing of redemptions, with amounts receivable included within working capital (including seeding) at 31 December 2017 and subsequently receipted in cash post year-end.

The $500 million revolving credit facility, which remains available and undrawn, matures in 2022. The management of liquidity is explained in Note 12 to the Group financial statements.

Balance sheet

The Group's balance sheet is strong and liquid. Cash has decreased during the year as a result of the movements outlined above. Fees and other receivables have increased as a result of the higher level of performance fees earned in December, along with an increase in payables for associated compensation accruals. The decrease in investments in funds is driven by a decrease in seeding investments as outlined below. Goodwill and other intangibles have increased marginally in 2017 due to the acquisition of Aalto, partially offset by the amortisation charge for the year.

1 Cash and cash equivalents, fees and other receivables and payables balances excludes amounts relating to line-by-line consolidated fund entities. These are presented net within net investments in fund products and other investments, together with third-party interest in consolidated funds and non-current assets and liabilities held-for-sale (per Group financial statements Note 13.2 on page 43.

2 Equates to net tangible assets per share of 41 cents (2016: 38 cents).

Seeding investments

Man uses capital to invest in products to assist in the growth of the business. At 31 December 2017, the Group's seeding investments were $480 million (refer to Note 13 to the Group financial statements), which have decreased from $642 million at 31 December 2016 principally as a result of the redemption of the US distressed credit strategy, our largest seeding position, following the decision to exit the strategy in December 2017.

Dividends and share repurchases

Man's dividend policy is to pay out at least 100% of adjusted management fee EPS in each financial year by way of ordinary dividend. In addition, Man expects to generate significant surplus capital over time, primarily from net performance fee earnings. Available capital surpluses will be distributed to shareholders over time, by way of higher dividend payments and/or share repurchases, while maintaining a prudent balance sheet, after taking into account required capital (including liabilities for future earn-out payments) and potential strategic opportunities. In October 2017 we commenced a $100 million share repurchase programme, which was 27% complete at 31 December 2017, as detailed in Note 20 to the Group financial statements on page 48. As a result of recent share repurchases which lower the number of shares, our EPS and dividend per share growth exceeds the growth in the profitability of the business.

Adjusted management fee EPS is considered the most appropriate basis on which to routinely pay ordinary dividends as this represents the most stable earnings base of the business, and enables the Board to utilise performance fee earnings over time in the most advantageous manner to support the Group's strategy. The reconciliation of adjusted management fee EPS to statutory EPS is provided within Alternative Performance Measures on page 55.

The Board is proposing a final dividend for 2017 of 5.8 cents per share, which together with the interim dividend of 5.0 cents per share, equates to a total dividend for 2017 of 10.8 cents per share, growth of 20% from 2016. The proposed final dividend equates to around $94 million, which is more than covered by the Group's available liquidity and regulatory capital resources. As at 31 December 2017, the Group's cash, less those balances ring-fenced for regulatory purposes, amounted to $319 million and the undrawn committed revolving credit facility was $500 million, as set out in Note 12 to the Group financial statements. The Group regulatory capital surplus was $256 million at the year-end, as shown on page 21. Man Group plc's distributable reserves were $1.9 billion before payment of the proposed final dividend, which are sufficient to pay dividends for a number of years. Furthermore, as profits are earned in the future the Company can receive dividends from its subsidiaries to further increase distributable reserves.

GROUP INCOME STATEMENT 

GROUP STATEMENT OF COMPREHENSIVE INCOME

GROUP BALANCE SHEET 

GROUP CASH FLOW STATEMENT 

Notes:

1 Includes $14 million of restricted net cash outflows (2016: $16 million net inflows) relating to consolidated fund entities (Note 13.2).

2 The 2017 cash received relates to the cash acquired as part of the Aalto acquisition on 1 January 2017 (Note 10). The 2016 payment relates to cash paid into an intermediary holding account in advance of the acquisition of Aalto.

3 Includes $23 million (2016: $37 million) of restricted cash relating to consolidated fund entities (Note 13.2).

GROUP STATEMENT OF CHANGES IN EQUITY 

Share capital and capital reserves

Revaluation reserves and retained earnings

Note:

1 Details of the Group's hedging arrangements are provided in Note 12.

The proposed final dividend would reduce shareholders' equity by $94 million (2016: $75 million) subsequent to the balance sheet date (Note 9). Further details of the Group's share capital and reserves are included in Note 20.

Share capital and capital reserves