Man Regulatory News (EMG)

Press Release

27 February 2014

RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013

Key points

· Funds under management (FUM) down 5% to $54.1 billion (31 December 2012: $57.0 billion), FUM excluding guaranteed products up 1% to $51.8 billion (2012: $51.3 billion)

o Gross sales up 26% to $16.1 billion (2012: $12.8 billion)

o Redemptions down 2% to $19.7 billion (2012: $20.1 billion)

o Net outflows down 51% to $3.6 billion (2012: outflows of $7.3 billion), Q4 net inflows of $0.7 billion

o Investment movement of $4.3 billion (2012: $1.3 billion)

o FX translation effects and other movements of -$3.6 billion (2012: -$3.7 billion)

· Adjusted profit before tax (PBT) up 8% to $297 million in 2013 (2012: $275 million)

o Adjusted net management fee PBT down 20% to $175 million (2012: $220 million)

o Adjusted net performance fee PBT up 122% to $122 million (2012: $55 million)

· Statutory PBT for the year ended 31 December 2013 of $56 million (2012: $748 million loss)

· On track to deliver total cost savings of $270 million by the end of 2015

· Proposed final dividend of 5.3 cents per share bringing total dividend for the year to 7.9 cents

· Intention to repurchase $115 million of shares

· Surplus regulatory capital of $760 million at 31 December 2013, $550 million pro-forma for final dividend and share repurchase 

1 Restated for the impact of IAS 19 (Revised). Refer to Note 1 to the financial statements (page 32).

2Includes one-off costs related to buyback of debt of $28 million in the year to 31 December 2013 (2012: $21 million). Refer to Note 8 in the financial statements (page 36).

3The adjusting items in the year of $241 million, as detailed in Note 2 of the financial statements on page 33, primarily relate to restructuring costs ($107 million), amortisation of acquired intangible assets ($66 million), and the impairment of FRM goodwill ($69 million)

Post year-end developments

· Calendar year to 21 February 2014 performance for key AHL/MSS strategies: AHL Diversified -2.5%,AHL Alpha -1.6%, AHL Evolution -0.3%, AHL Dimension +0.7%

o At 31 January 2014, 28% ($2.4 billion) of AHL/MSS open ended products were above high water mark and 4% ($0.3 billion) within 5% of performance fee highs

· Calendar year to 21 February 2014 performance for key GLG UCITS strategies: European Equity Alternative +2.5%, Global Equity Alternative +1.6%, North American Equity Alternative -0.7%, Global Convertibles +1.4%, Emerging Markets -0.9%, Atlas Macro -4.7%, Japan Core Alpha -4.2%, Global Equity +0.1%.

o At 31 January 2014, 74% ($10.7 billion) of GLG performance fee-eligible funds were above high water mark and 20% ($2.9 billion) within 5% of performance fee highs

· Calendar year to 14 February 2014 performance for key FRM strategies: FRM Diversified II +0.1% and FRM Equity Alpha +0.2%

· Guaranteed product de-gears of $200 million in total for January and February 2014 and a de-gear of $100 million for 1 March 2014

Manny Roman, Chief Executive Officer of Man, said:

"Despite challenging conditions for our business, we continued to make progress against our strategic objectives in 2013. Our priorities remain to deliver superior risk adjusted investment performance, build options for growth, improve and leverage our distribution capabilities and operate the business as efficiently as possible. We largely completed the restructuring of our cost base and balance sheet during the year, and continued the development of new business areas. Investment performance in 2013 was reasonable on a relative basis and flows showed modest recovery towards the end of the year after a weaker first half.

We have taken steps to strengthen Man for the long-term and position the company for future growth. The merger of AHL and MSS at the start of 2013 has created a broader, more diverse quant offering for investors including trend and non-trend following products. GLG also launched several new, scalable investment strategies during 2013, and a number of senior hires were added to the teams. FRM is now a fully integrated part of the firm, further diversifying our range of solutions for investors.

However, market conditions remain challenging and we maintain our cautious outlook. Generating superior risk-adjusted returns for our fund investors through the quality of our research, investment in technology, the talent of our investment managers and the strength of our operations and risk infrastructures, remains our core focus."

Dividend and share repurchase

The Board confirms that it will recommend a final dividend of 5.3 cents per share for the financial year to 31 December 2013, giving a total dividend of 7.9 cents per share for the year. This dividend will be paid at the rate of 3.19 pence per share.

As announced in March 2012, Man's dividend policy going forward is to pay 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 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. 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 line with this policy 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.

Dates for the 2013 final dividend

Change of Auditor

During 2013, the Company undertook a tender process for the external audit for the financial year ending 31 December 2014. Following this process, the Board, in line with the recommendation of the Audit and Risk Committee, is proposing to shareholders the appointment of Deloitte LLP as auditors of the Company for 2014.

Results presentation, audio webcast and dial in detailsThere will be a presentation by the management team at 10.30am (UK time) on 27 February 2014 at the offices of Goldman Sachs International at Peterborough Court, 133 Fleet Street, London EC4A 2BB. 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 and www.cantos.com which will also be available on demand from later in the day. The dial-in and replay telephone numbers are as follows:

Live dial in (listen only)

UK Toll-Free Number: 0808 237 0036

UK Toll Number: 0203 426 2845

US Toll-Free Number: 1877 841 4559

US Toll Number: +1 347 329 1282

Replay of Conference Call (available for 7 days)

UK Playback Toll Number: 020 3426 2807

UK Playback Toll-Free Number: 0808 237 0026

US Playback Toll- Free Number: 1866 535 8030

Playback Pin Code 645829#

Enquiries

Fiona Smart

Head of Investor Relations

+44 20 7144 2030

fiona.smart@man.com

Rosanna Konarzewski

Head of Communications

+44 20 7144 2078

Rosanna.konarzewski@man.com

RLM Finsbury

James Bradley

Ryan O'Keeffe

+44 20 7251 3801

About Man

Man is a world-leading alternative investment management business. It has expertise in a wide range of liquid investment styles including managed futures, equity, credit and convertibles, emerging markets, global macro and multi-manager, combined with powerful product structuring, distribution and client service capabilities. As at 31 December 2013, Man managed $54.1 billion.

The original business was founded in 1783. Today, Man is listed on the London Stock Exchange and is a member of the FTSE 250 Index with a market capitalisation of around £1.5 billion.

Man is a signatory to the United Nations Principles for Responsible Investment (PRI). Man also supports many awards, charities and initiatives around the world, including sponsoring the Man Booker literary prizes and the Man Asian Literary Prize. 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.

FUNDS UNDER MANAGEMENT ANALYSIS

Three months to 31 December 2013

Year to 31 December 2013

FuM by Manager

CEO'S PERFORMANCE REVIEW

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.

Performance - Deliver strong 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 over a third 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% and was the top performing CTA strategy. 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. 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 set out on page 18 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.

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%). 

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.

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

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

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 $8.7 billion, 13% higher than in 2012. We saw a pick up in demand in the retail space with a 42% increase in year on year sales from $5.2 billion in 2012 to $7.3 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.

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.

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.

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 $1.4 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.

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.

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

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.

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

CFO's FINANCIAL REVIEW

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 in the previous paragraph. 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 financial statements.

Key performance indicators

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 vs. three key peer asset managers for AHL (the target being to beat two of the three peers), the GLG Alternative Strategies Dollar-Weighted Composite vs. HFRX for GLG and FRM Diversified II vs. 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.

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. The target is 0%-10% net inflows each year. 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.

The third 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). The target is 25%-40%. 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.

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 including the cost of the dividend on the Perpetual Subordinated Capital Securities, divided by the diluted number of shares. The target is growth of 0%-20% +RPI each year. 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.

Funds Under Management (FUM)

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.

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.

Summary income statement

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.

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.

Distribution costs

Distribution costs comprised $128 million of investor servicing fees and $17 million of placement fees.

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 2.6 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).

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

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.

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

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

Liquidity

Operating cash flows were $448 million during the year with cash and cash equivalents of $992 million.

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 in notes 14 and 21 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

FINANCIAL STATEMENTS

Group income statement

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

Group statement of comprehensive income

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

Group balance sheet

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.

Group cash flow statement

Note: 1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

Group statement of changes in equity

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

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.

Notes to the Group financial statements

1. Basis of preparation

In preparing the financial information in this statement the Group has applied policies which are in accordance with the International Financial Reporting Standards as adopted by the European Union at 31 December 2013. Details of the Group's accounting policies can be found in the Group's Annual Report for the year ended 31 December 2012, and the adoption of IAS 19 (Revised) 'Employee Benefits' and the presentation of internal commission costs are explained in the sections below. The financial information included in this statement does not constitute the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2013, upon which the auditors have issued an unqualified report, will shortly be delivered to the Registrar of Companies.

The annual report will be posted to shareholders on 12 March 2014. The Company's Annual General Meeting will be held on Friday 9 May 2014 at 10 am at River Court, 120 Fleet Street, London EC4A 2BE.

Impact of new accounting standards

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.

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%).

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.

Note:

1 Refer to Note 1 for details of the adoption of IAS 19 (Revised).

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).

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