Man Regulatory News (EMG)

Press Release   

1 August 2018

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

Key points

· Funds under management (FUM)1 of $113.7 billion (31 December 2017: $109.1 billion)

o Net inflows of $8.3 billion (H1 2017: net inflows $8.2 billion)

o Investment movement of negative $1.7 billion (H1 2017: positive $3.8 billion)

o FX translation and other movements of negative $2.0 billion (H1 2017: positive $1.2 billion) 

· Asset weighted outperformance versus benchmark1 across our range of strategies of 0.3% for the six months to 30 June 2018 (1.9% for the year ended 31 December 2017)

· Adjusted profit before tax (PBT)1 of $153 million (H1 2017: $145 million), up 5%:

o Adjusted management fee PBT1 of $120 million (H1 2017: $94 million)

o Adjusted performance fee PBT1 of $33 million (H1 2017: $51 million)

· 26% growth in adjusted management fee PBT reflecting the growth in FUM and an FX benefit on fixed costs

· Adjusted performance fee PBT reduced due to lower seed investment gains

· Statutory PBT of $90 million (H1 2017: $76 million), up 18%, reflecting both the profit growth drivers above and the lower upwards revaluation of contingent consideration compared to 30 June 2017

· Interim dividend of 6.4 cents per share (H1 2017: 5.0 cents per share), to be paid at a rate of 4.88 pence per share on 5 September 2018

Luke Ellis, Chief Executive Officer of Man Group, said:

"The first half of 2018 has been one of sustained organic growth, with high levels of interest from our global client base in a broad range of strategies. I'm pleased to report record net inflows of $8.3 billion, and a 26% increase in management fee profits. However, given the difficult market backdrop and weaker performance in the first half, FUM and adjusted profit growth were more limited.

Business momentum remains good with solid management fee growth. However, as we have said many times before, and will probably say again, the institutional nature of our business means that flows are likely to be uneven on a quarter-to-quarter basis. We continue to invest in talent, research and technology and remain focused on delivering superior risk adjusted performance for our clients, thereby creating long term value for our shareholders." 

1 For definitions and explanations of our alternative performance measures, please refer to pages 33-36.

2 Percentage change shown is calculated based on actual numbers so may not tie in with percentage change calculated on rounded figures.

1 For definitions and explanations of our alternative performance measures, please refer to pages 33-36

2 The reconciliation of diluted statutory EPS to adjusted EPS is included in the alternative performance measures (page 35)

3 Includes gross management and other fees, distribution costs and share of post-tax profit from associates

4 Includes income or gains/(losses) on investments and other financial instruments and third-party share of losses relating to interests in consolidated funds

5 Excludes adjusting items. Other costs include asset servicing costs

6 Adjusting items primarily relate to amortisation of acquired intangible assets. Refer to the alternative performance measures section (page 35) for further detail

7 For definitions and explanations of key performance indicators refer to the 2017 annual report

8 Six month figures are annualised

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 2076

media@man.com 

Michael Turner

Finsbury

+44 20 7251 3801

ManGroupUK@Finsbury.com 

Results presentation, audio webcast and dial in details

There will be a presentation by the management team at 9:30 am (UK time) on 1 August 2018 at Riverbank House, 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) 20 3003 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: 8099286#

This interim report can be found on Man Group's website, www.man.com.

About Man Group

Man Group is a global active investment management firm, which runs $113.7 billion1 of client capital in liquid and private markets, managed by investment specialists based around the world. Headquartered in London, the firm has 15 international offices and operates across multiple jurisdictions. Our business has five specialist investment engines, which represent the range of our capabilities: Man AHL, Man Numeric, Man GLG, Man FRM and Man GPM.

These engines house numerous investment teams, working collaboratively within the framework of Man Group, with a high degree of investment autonomy. Each team benefits from the strength and resources of the firm's single operating platform, enabling their primary focus to be seeking to generate alpha for clients. The teams invest across a diverse range of strategies and asset classes with highly specialised approaches, with long only and alternative strategies run on a discretionary and quantitative basis in single and multi-manager formats. Our clients are at the heart of everything we do and we engage in close dialogue with our investors as strategic partners, to understand their particular needs and constraints. Man Group's investment teams are empowered and supported by our institutional infrastructure and technology, which aims to facilitate efficient exposure to markets and effective collaboration across the organisation.

Through the Man Charitable Trust and sponsorship of the Man Booker Prizes, Man Group is committed to promoting literacy and numeracy on a global scale, and to supporting charitable causes more broadly.

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. Past performance is not indicative of future results.

1 As at 30 June 2018. All investment management and advisory services are offered through the investment "engines" of Man AHL, Man Numeric, Man GLG, Man FRM and Man GPM.

CHIEF EXECUTIVE OFFICER'S REVIEW

The client led growth in our business remained strong in the first half and, combined with the firm foundations laid across the organisation in 2017, translated into net inflows of $8.3 billion, a new six month record for the firm. We saw continuing interest in our alternative risk premia, emerging market debt and UK and European discretionary long only strategies and there was also a pick-up in demand for our equity long short strategies. This broad based demand demonstrates the increasingly diversified nature of our business.

The six months to June 2018 was a more volatile period for markets, which affected absolute performance across the Group. The more difficult environment for alpha generation impacted our seeding gains and performance fees. Asset weighted outperformance of our strategies versus benchmark1 was 0.3% for the period. Funds under management ended the half at $113.7 billion, up 4% from December 2017, with the strong net inflows partially offset by negative investment movement and an FX headwind as the US dollar strengthened against most major currencies.

Adjusted profit before tax increased by 5% to $153 million compared to H1 2017, primarily driven by higher management fee revenue partially offset by lower investment gains. Adjusted management fee profit before tax was up 26% versus H1 2017 due to a 26% increase in average FUM and lower fixed cash costs as sterling the hedge rate for H1 2018 was 12% lower than the hedge rate in H1 2017, partially offset by a decline in the net management fee margin. Performance fees were broadly in line with H1 2017, however lower seed book investment gains led to lower performance fee profits. Statutory profit before tax increased by 18% to $90 million compared to the six months ended 30 June 2017.

You've heard us say many times previously that, given the institutional nature of our business, flows are likely to be uneven on a quarter-to-quarter basis. Our third quarter flows will be impacted by a $2.2 billion redemption from one very low margin infrastructure mandate. We had been anticipating this during 2018 and timing has now been confirmed. The client maintains other holdings with us. We wanted to flag this pending redemption, but also to highlight that the impact on the Group's net management fees is not material, as you can see from the further details included in the FUM and margins section on page 8. Aside from this, our underlying business momentum remains good with interest across our product range.

Investment performance2

The first half of the year was a choppier environment for the global investment management industry, with increased trade tensions between the US and China weighing on sentiment. Additionally, a strong US dollar, higher US interest rates and local political uncertainty contributed to pressures on certain emerging markets, particularly in the second quarter.

Absolute performance was impacted by these market moves, with over $1 billion of the negative investment movement driven by negative returns in our Japanese long only and emerging market long only strategies. In addition, as we described at our 2017 full year results, momentum strategies had a difficult first quarter and struggled to recover those losses in the second quarter, resulting in negative investment performance of between -2.0% and -5.7% in the first half. This was partially offset by positive performance in UK and European focused discretionary strategies, with the European long short strategy up 2.3%, the continental European strategy up 8.2% and the undervalued assets strategy up 2.5% in the period.

Relative performance across the Group was positive but mixed, with asset weighted outperformance versus benchmark1 across our strategies of 0.3% in the first half. Strong outperformance in emerging market strategies, both systematic and discretionary total return, was broadly offset by underperformance in the Group's largest strategy, Japan CoreAlpha, with its value bias. The Group's discretionary alternative and European long only strategies also performed well on a relative basis, while systematic US large cap and small cap long only strategies, with their value bias, underperformed. Our quant alternative strategies performed broadly in line with benchmarks.

1. For definitions and explanations of our alternative performance measures, please refer to pages 33-36.2. Past performance is not an indication of future performance. All returns shown are net of fees.

Strong client relationships

During the first half of the year, we built upon the engagement with our existing and target clients during 2017, making further progress in building long term relationships with clients and adding new relationships with strategically important asset allocators and distributors globally.

In line with this focus, we continue to see the trend of clients investing across the firm, with 72% of FUM at 30 June 2018 relating to clients invested in two or more products, and 57% relating to clients invested in four or more products. This illustrates the strength and breadth of our offering, and the value of providing clients with a single point of contact who understands them and their unique requirements.

Sales in the first half of 2018 were $19.9 billion, up 14% compared to the first half of 2017. We have continued to see interest and inflows into our in-house developed risk premia strategies, with $3.1 billion of sales in the first half, and into emerging market debt strategies with $1.6 billion of sales. Man GLG's European long short strategy had strong investment performance in 2017, which translated in to $1.0 billion of net inflows in the period, and there were strong inflows into the UK long only and continental European equity strategies.

Redemptions were $11.6 billion in the six months to 30 June 2018, up from $9.3 billion in the first half of 2017, however the redemption rate was at a similar percentage of funds under management.

Whilst EMEA continues to be the Group's largest market, with 55% of FUM from clients in this region, clients domiciled in the Americas now account for 27% of FUM at 30 June 2018 (compared to 8% at December 2012). As the Group evolves and continues to build its global presence, particularly in the US, we continually review our operations in order to ensure our resources and structure are appropriately aligned to best serve our clients and business strategy.

Innovative investment strategies

Developing innovative investment strategies across our business and enhancing our existing offering for clients is core to Man Group's strategy.

During the first half of the year, across our quantitative business, ongoing focus on research continued to drive the development of our strategies. Within equity markets, it is clear that today's companies exist in increasingly complex and interconnected global ecosystems. Man Numeric has developed a systematic approach to mapping and quantifying these 'fundamental networks' across markets, which we believe can help investors understand the equity market universe using a more consistent framework, complementing existing quantitative equity research. Man AHL continues to actively evaluate and access new markets to which its existing strategies can be applied, in order to add more diversifying drivers to its portfolios and currently trades over 600 markets globally.

Within our discretionary business, we are engaged in embedding quantitative techniques to support and enhance the alpha from individual portfolio managers. Developments include the deployment of quantitative portfolio construction techniques to reduce factor risk and extract alpha more efficiently within our long short equity programme, which complements discretionary decision making with a systematic overlay. Man GLG continues to make progress in other areas to further enhance the development of our discretionary credit offering, including appointing a Credit Chief Investment Officer this year.

At a Group level, we made further progress in centralising our trading and execution function, including making a number of internal appointments, as we seek to build a firm-wide centre of execution excellence in trading, trading technology and trading research. A globally coordinated central execution team allows us to adapt to today's more complex market structures with the goal of delivering better execution results for all of our investment engines. We expect this ongoing effort to further reduce trading costs, translating into improved performance for clients.

We remain committed to keeping technology at the heart of the firm in a rapidly evolving world and have appointed an Alpha Chief Technology Officer to manage our front office technology across the firm, supported by a team drawn from across our investment engines. This new structure supports our vision of creating a technology team, environment and platform which promotes the highest level of innovation and agility, whilst minimising any unnecessary duplication of technology, tools and processes.

The Man GPM business is progressing according to plan since its launch in January 2017. As we find opportunities to invest capital, FUM growth has been steady, and we are encouraged by the level of interest shown by our clients for our offering in this asset class.

Efficient and effective operations

Fixed cash costs for the period were $154 million, 4% lower than the first half of 2017. There were cost increases from MiFID II and the increased spend in our investment management and client service capabilities. These were more than offset by the impact of real estate efficiencies and a favourable FX hedge rate, with a $12 million benefit from the sterling hedge rate being lower than in H1 2017. We continue to invest in new talent and technology, as outlined above, and earlier this year we announced an additional $15 million of spend in 2018 into our investment management and client service capabilities. Hiring has been a little slower than planned, as we source the right people for our business and our clients. Fixed cash costs will therefore increase in the second half of 2018 due to a higher sterling hedge rate (1.33 for H2 2018 versus 1.26 for H1 2018), the impact of higher headcount and due to certain costs being second half weighted.

During the first half of the year, we successfully managed the implementation of two key pieces of regulation, MiFID II and the General Data Protection Regulation (GDPR), and were supported in meeting these requirements by the strength of our technology infrastructure and efforts of our people.

Our balance sheet remains strong and liquid, with net tangible assets of $589 million at 30 June 2018 (compared to $669 million at 31 December 2017), the decrease being due to the payment of the final dividend for 2017 and share repurchases. The Group had operating cash net inflows of $203 million for H1 2018 (compared to net inflows of $36 million for H1 2017) primarily as a result of cash profits generated in the period and receipt of performance fees that crystallised in December 2017, partially offset by the payment of the Group's variable compensation in February. The Group had operating cash net inflows (before working capital, interest and tax) of $186 million for the period (H1 2017: $189 million). At 30 June 2018, the Group had total net cash of $159 million excluding the cash balances related to consolidated funds (30 June 2017: $121 million, 31 December 2017: $206 million).

As explained in previous periods, we have a seed capital programme to support the growth of the business as we launch new products over time. The book is sized in accordance with a Value at Risk (VaR) limit of $75 million and in aggregate stood at $563 million at 30 June 2018 ($480 million at 31 December 2017, see page 28 for further detail). The seed book consists of fund and other investments that will be redeemed as practicable, typically within 12 months, as funds are marketed to clients. The asset weighted performance of the seeding book (excluding illiquid assets) for the six months to 30 June 2018 was 0.1% (3.6% for six months to 30 June 2017).

Surplus regulatory capital at 30 June 2018 was $373 million, which is lower than the 31 December 2017 position of $460 million, primarily due to the execution of the $100 million buyback programme. Surplus regulatory capital will be around $350 million after taking into account the receipt of the performance fees that crystallised in June 2018, the impact of interim profits and other reserve movements, which are not included in the 30 June 2018 figure until they have been verified, and the payment of the interim dividend. As previously indicated 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 £90 million ($120 million). More detail on this is included on page 23.

Dividend and share repurchase

Man Group's dividend policy is to pay at least 100% of adjusted management fee EPS in each financial year by way of ordinary dividend. In addition, Man Group 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 and taking into account required capital (including liabilities for future earn-out payments) and potential strategic opportunities.

In line with this policy the Board has declared an interim dividend of 6.4 cents per share, being an amount equal to the adjusted management fee EPS for the six months to 30 June 2018 (refer to the Alternative Performance Measures section (page 35)). The interim dividend will be paid at the rate of 4.88 pence per share on 5 September 2018 to all shareholders on the register on 10 August 2018. In April 2018, the Board announced a share repurchase programme for up to $100 million to return surplus capital to shareholders. Currently, around $50 million worth of shares have been repurchased.

FUNDS UNDER MANAGEMENT (FUM), FLOWS AND NET MANAGEMENT FEE MARGINS1

FUM movements for the six months to 30 June 2018

FUM movements for the three months to 30 June 2018

FUM movements for the three months to 31 March 2018

1. For definitions and explanations of our alternative performance measures, please refer to page 33.

Net management fee margins and run rate net management fee revenues1

1. Run rate revenue applies internal analysis of run rate margin to 30 June 2018 FUM. It is for illustrative purposes and not a forecast. Run rate associate income of $8m is equal to our share of post-tax profits of associates for the previous 12 months.

2. The run rate margin at 30 June 2018 and run rate net management fee revenues at 30 June 2018 have been adjusted to reflect the impact of a pending $2.2 billion redemption from a low margin account in an infrastructure mandate in the multi-manager solutions category

In aggregate, our total net margin has decreased from 76 basis points for the year ended 31 December 2017 to 71 basis points for the six months ended 30 June 2018. This reduction is due to the continued mix shift towards lower margin strategies and the increasing proportion of solutions business in the multi-manager solutions category.

One of our large infrastructure clients has notified us they intend to redeem $2.2 billion in the third quarter as they reallocate their portfolio. Given the low margin and non-complex nature of this account the impact on revenues is not material. The group's run rate margin at 30 June 2018 has been adjusted for this notification in the table above and the run rate margin increases to 72 basis points compared to the margin for the six months ended 30 June 2018.

ALTERNATIVES

Absolute return

Absolute return FUM increased by 2% to $29.7 billion in the six months to 30 June 2018. Net inflows of $2.1 billion included $1.0 billion into the European long short strategy, $0.6 billion from a single client into a bespoke cross content solution mandate, $0.4 billion into the UK alpha select strategy and $0.3 billion into the UK absolute value strategy.

Negative investment movement of $0.7 billion was driven by Man AHL with the AHL Dimension strategy down 2.0%, the AHL Evolution strategy down 3.1%, the AHL Alpha strategy down 2.2% and the AHL Diversified strategy down 5.7%. Man GLG's alternative strategies performed well during the half with the European long short strategy up 2.3%.

Man AHL earned $57 million of gross performance fees in the period (compared to $50 million in H1 2017). The majority of the AHL Evolution strategy's performance fees crystallise annually in June and the performance over the previous twelve months was 6.6% which resulted in $43 million of performance fees. An additional $8 million was earned from funds crystallising in January, which was a very strong month of performance and $6 million was earned from institutional solutions. As at 30 June 2018, 19% of Man AHL performance fee eligible FUM, or $3.7 billion, was at high watermark (with the majority of these funds next crystallising in June 2019) and 49%, or $9.5 billion, was within 5% of high watermark.

Man GLG recorded $24 million of gross performance fees in the first half (compared to $22 million in H1 2017) with the majority of the fees being earned from the European long short, and the UK and European mid-cap equity strategies. As at 30 June 2018, 51% of Man GLG performance fee eligible FUM, or $6.6 billion, was at high watermark and 41%, or $5.2 billion, was within 5% of high watermark.

FX movements were negative $0.4 billion, driven by the strengthening of the US dollar against the Australian Dollar, Euro and Sterling. Other movements of negative $0.5 billion related to the seeding withdrawal from the select opportunities strategy ($0.2 billion) and leverage movements which occur on rebalance ($0.3 billion).

The absolute return margin decreased by 8 basis points compared to the year ended 31 December 2017, as a result of the continued mix shift away from some of our historical strategies towards institutional assets, which are at a lower margin. We expect the absolute return margin will continue to gradually decline as this shift continues.

Total return

Total return FUM increased by 22% in the six months to 30 June 2018 to $20.1 billion, driven by net inflows of $4.6 billion partially offset by negative FX movements of $0.3 billion, CLO maturities of $0.3 billion and loan repayments at GPM of $0.3 billion. Net flows included $2.9 billion into risk premia strategies, $0.8 billion into the AHL target risk strategy and $0.6 billion from CLO launches. Negative FX movements of $0.3 billion were driven by the dollar strengthening against Sterling and the Euro.

Investment performance of our total return strategies was flat in the first half of 2018 with alternative risk premia down 1.1% and the emerging market debt total return strategy up 2.2%. We are pleased with how the emerging market debt total return strategy navigated the first half, with strong outperformance versus peers.

The total return net management fee margin increased slightly compared to the year ended 31 December 2017.

Multi-manager solutions

Multi-manager solutions FUM decreased by 1% to $15.9 billion driven by net outflows of $0.4 billion and negative FX movements of $0.2 billion. This was partially offset by positive leverage movements that occur on rebalance and other movements of $0.5 billion. Net outflows of $0.4 billion from lower margin infrastructure mandates and $0.3 billion from legacy fund of fund strategies were partially offset by a $0.3 billion inflow into a segregated mandate. Negative FX movements of $0.2 billion were driven by the dollar strengthening against the Australian dollar.

Man FRM's strategies had muted investment performance in the first six months of the year and earned $1 million of performance fees in the period (compared to $1 million in H1 2017).

The net margin in the multi-manager solutions category decreased by 8 basis points compared to the year ended 31 December 2017, due to the continued mix shift towards managed account mandates and the decline in legacy fund of fund assets. The run rate margin has increased to 40 basis points mainly due to the inclusion of the impact of the $2.2 billion low margin infrastructure account redemption described above.

LONG ONLY

Systematic

Systematic long only FUM decreased by 2% to $26.3 billion in the six month period, driven primarily by negative investment movement of $0.4 billion. Net inflows into emerging markets strategies and international small cap strategies were offset by outflows from global core strategies.

Man Numeric's range of strategies had mixed absolute and relative performance in the first half of the year, with asset weighted performance relative to benchmarks (net of fees) of negative 1.0%1. Positive alpha was generated in the emerging markets core strategy (outperforming its reference index by 0.4%) and the european core strategy (outperforming its reference index by 2.3%). This positive alpha was more than offset by negative alpha in global developed non-US stocks, resulting in negative performance for certain strategies, including global core, Man Numeric's single largest strategy (underperforming its reference index by 2.6%) and the small cap core strategy (underperforming its reference index by 4.5%). Man Numeric earned $1 million of performance fees in the period (compared to $10 million in H1 2017).

The net margin in this category increased slightly compared to the year ended 31 December 2017.

Discretionary

Discretionary long only FUM increased by 6% to $21.6 billion, driven by net inflows of $2.0 billion, partially offset by negative investment movement of $0.5 billion and negative FX movement of $0.3 billion. Net inflows of $2.0 billion included $0.9 billion into each of UK long only and emerging markets fixed income strategies and $0.4 billion into continental European strategies. This was partially offset by net outflows of $0.3 billion from the convertibles strategy.

The primary driver of the negative investment movement of $0.5 billion was Japan CoreAlpha which was down 7.9% in the half.

The negative FX movement of $0.3 billion was driven by the Dollar strengthening against Sterling.

The run rate net management fee margin in this category declined slightly compared to the year ended 31 December 2017 due to a mix effect away from Japan CoreAlpha in the first half.

1 Numeric's asset weighted performance relative to benchmarks (net of fees) for the six months to 30 June 2018 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 charges.

FUM by product category

1 AHL Alpha UCITS and AHL Momentum UCITS have been reclassified from AHL Diversified to AHL Alpha

2 Man Institutional Solutions includes AHL Institutional Solutions and Multi-strategy. AHL Institutional Solutions invests into a range of AHL strategies including AHL Dimension, AHL Alpha and AHL Evolution and now includes GLG Multi-strategy

FUM by investment engine

1 AHL Alpha UCITS and AHL Momentum UCITS have been reclassified from AHL Diversified to AHL Alpha

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

3 GLG Equity absolute return and GLG Credit absolute return include allocations from Multi-strategy included in Man Institutional solutions in the FUM by product category table

Investment Performance

Investment Performance (Cont'd)

1. Represented by AHL Strategies PCC Limited: Class B AHL Dimension USD Shares from 3 July 2006 to 31 May 2014, and by AHL Dimension (Cayman) Ltd - F USD Shares Class from 1 June 2014 until 28 February 2015 when AHL Dimension (Cayman) Ltd - A USD Shares Class is used. Representative fees of 1.5% Management Fee and 20% Performance Fee have been applied.

2. Represented by AHL Alpha plc from 17 October 1995 to 30 September 2012, and by AHL Strategies PCC Limited: Class Y AHL Alpha USD Shares from 1 October 2012 to 30 September 2013. The representative product was changed at the end of September 2012 due to the provisioning of fund liquidation costs in October 2012 for AHL Alpha plc, which resulted in tracking error compared with other Alpha Programme funds. Both funds are valued weekly; however, for comparative purposes, statistics have been calculated using the best quality price that is available at each calendar month end, using estimates where a final price is unavailable. Where a price, either estimate or final is unavailable on a calendar month end, the price on the closest date prior to the calendar month end has been used. Both of the track records have been adjusted to reflect the fee structure of AHL Alpha (Cayman) Limited - USD Shares. From 30 September 2013, the actual performance of AHL Alpha (Cayman) Limited - USD Shares is displayed.

3. Represented by AHL Evolution Limited adjusted for the fee structure (2% p.a. management fee and 20% performance fee) from September 2005 to 31 October 2006; and by AHL Strategies PCC: Class G AHL Evolution USD from 1 November 2006 to 30 November 2011; and by the performance track record of AHL Investment Strategies SPC: Class E AHL Evolution USD Notes from 1 December 2011 to 30 November 2012. From 1 December 2012, the track record of AHL (Cayman) SPC: Class A1 Evolution USD Shares has been shown. All returns shown are net of fees.

4. Represented by Man AHL Diversified plc from 26 March 1996 to 29 October 2012, and by Man AHL Diversified (Guernsey) USD Shares - Class A from 30 October 2012 to date. The representative product was changed at the end of October 2012 due to legal and/or regulatory restrictions on Man AHL Diversified plc preventing the product from accessing the Programme's revised target allocations. Both funds are valued weekly; however, for comparative purposes, statistics have been calculated using the best quality price that is available at each calendar month end, using estimates where a final price is unavailable. Where a price, either estimate or final is unavailable on a calendar month end, the price on the closest date prior to the calendar month end has been used.

5. Numeric alternative market neutral composite

6. Represented by GLG European Long Short Fund - Class D Restricted - EUR until 29 June 2007. From 1 July 2007 the performance of GLG European Long Short Fund - Class D Unrestricted is displayed.

7. Represented by GLG Market Neutral Fund - Class Z Restricted - USD until 31 August 2007. From the 1 September 2007 Man GLG Global Credit Multi Strategy CL IL XX USD unrestricted.

8. Represented by Man Alternative Risk Premia Class A USD.

9. Represented by Man GLG Global Emerging Markets Debt Total Return Class I USD.

10. Represented by FRM Diversified II Fund SPC - Class A USD ('the fund') until April 2018 then Class A JPY hedged to USD there after. However, prior to Jan 2004, FRM has created the FRM Diversified II pro forma using the following methodology: i) for the period Jan 1998 to Dec 2003, by using the returns of Absolute Alpha Fund PCC Limited - Diversified Series Share Cell ('AA Diversified - USD') adjusted for fees and/or currency, where applicable. For the period Jan 2004 to Feb 2004, the returns of the fund's master portfolio have been used, adjusted for fees and/or currency, where applicable. Post Feb 2004, the fund's actual performance has been used, which may differ from the calculated performance of the track record. There have been occasions where the 12-months' performance to date of FRM Diversified II has differed materially from that of AA Diversified. Strategy and holdings data relates to the composition of the master portfolio.

11. Performance relative to the MSCI World. This reference index is intended to best represent the strategy's universe. Investors may choose to compare returns for their accounts to different reference indices, resulting in differences in relative return information. Comparison to an index is for informational purposes only, as the holdings of an account managed by Numeric will differ from the securities which comprise the index and may have greater volatility than the holdings of an index.

12. Performance relative to the MSCI Europe (EUR). This reference index is intended to best represent the strategy's universe. Investors may choose to compare returns for their accounts to different reference indices, resulting in differences in relative return information. Comparison to an index is for informational purposes only, as the holdings of an account managed by Numeric will differ from the securities which comprise the index and may have greater volatility than the holdings of an index.

13. Performance relative to MSCI Emerging Markets. This reference index is intended to best represent the strategy's universe. Investors may choose to compare returns for their accounts to different reference indices, resulting in differences in relative return information. Comparison to an index is for informational purposes only, as the holdings of an account managed by Numeric will differ from the securities which comprise the index and may have greater volatility than the holdings of an index.

14. Represented by Man GLG Japan CoreAlpha Fund - Class C converted to JPY until 28 January 2010. From 1 February 2010 Man GLG Japan CoreAlpha Equity Fund - Class I JPY is displayed. Relative return shown vs TOPIX (JPY, GDTR).

15. Represented by Man GLG Continental European Growth Fund Class C Accumulation Shares. Relative return shown vs FTSE World Europe Ex UK (GBP, GDTR).

16. Represented by Man GLG Undervalued Assets Fund - C Accumulation Shares. Relative return shown vs FTSE All Share (GBP, NDTR).

17. HFRI and HFRX index performance over the past 4 months is subject to change.

18. The historic Barclay BTOP 50 Index data is subject to change.

RISK MANAGEMENT

It is a key objective of Man Group to remain a leader in risk management and governance. As such, risk management is an essential component of our approach, both to the management of investment funds on behalf of investors, and the management of Man Group's business on behalf of shareholders. Our reputation is fundamental to our business, and maintaining our corporate integrity is the responsibility of everyone at Man Group. Our approach is to identify, quantify and manage risk throughout the Group, in accordance with the Board's risk appetite. We maintain surplus capital and liquidity to give us strategic and tactical flexibility, both in terms of corporate and fund management.

The principal risks faced by Man Group are set out on pages 33 to 35 of our 2017 Annual Report. These remain our principal risks for the second half of the financial year being: investment underperformance risk; key person risk; credit/counterparty risk; liquidity risk; investment book risk; pension risk; risk of external process failure; information security and cybercrime security risk; information technology risk; integration risk; regulatory risk; and reputational risk. Our risk framework operated as expected in the six months to 30 June 2018, with systems and controls functioning as designed despite volatile markets. As described in our 2017 Annual Report Man Group will continue to take the necessary steps to ensure that, post-Brexit, it remains able to service its existing clients and to access new business in the EU.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that, to the best of their knowledge, this condensed set of financial statements in respect of Man Group plc for the six month period ended 30 June 2018 has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union, and that this interim report includes a fair review of the information required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules 4.2.7 and 4.2.8, namely:

· an indication of important events that have occurred during the six months ended 30 June 2018 and their impact on the condensed interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year ending 31 December 2018; and

· material related party transactions in the six months ended 30 June 2018 and any material changes in the related party transactions described in the last annual report.

The Directors of Man Group plc are as listed in the Annual Report for the year ended 31 December 2017, with the exception of Zoe Cruz, who joined the Board on 1 June 2018.

By order of the board

Luke Ellis

Chief Executive Officer

1 August 2018

Mark Jones

Chief Financial Officer

1 August 2018

INDEPENDENT REVIEW REPORT TO MAN GROUP PLC

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the group income statement, Group statement of comprehensive income, the group balance sheet, the group statement of changes in equity, the group cash flow statement and related Notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, UK

1 August 2018

INTERIM FINANCIAL STATEMENTS

Group income statement

Group statement of comprehensive income

Group balance sheet

Group cash flow statement

Notes:

1 Includes $26 million of restricted net cash inflows (H1 2017: $14 million) relating to consolidated fund entities (Note 11).

2 Includes $49 million (H1 2017: $51 million) of restricted cash relating to consolidated fund entities (Note 11).

Group statement of changes in equity

Notes:

1 Of the $101 million share repurchase during the period, $9 million are held as Treasury Shares.

2 The final dividend for the year ended 31 December 2017 of $90 million was approved and paid in May 2018 and was therefore deducted from the retained earnings reserve in the six months ended 30 June 2018.

1.  Basis of preparationThe interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.The income statement and cash flow statement presentation in these interim financial statements shows the six months ended 30 June 2018 (H1 2018) together with the six months ended 30 June 2017 (H1 2017). The balance sheet is presented as at 30 June 2018 together with comparatives as at 31 December 2017. 

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.The financial information contained herein is unaudited and does not constitute statutory accounts as defined by Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2017, which were prepared in accordance with International Financial Reporting Standards (IFRS) and relevant IFRIC interpretations issued by the International Accounting Standards Board (IASB) and IFRIC Committee respectively and adopted by the European Union (EU) and upon which the auditor has given an unqualified and unmodified report and which contained no statement under Section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies and were posted to shareholders on 8 March 2018.

The accounting policies applied in these interim financial statements are consistent with those applied in Man's Annual Report for the year ended 31 December 2017 (the '2017 Annual Report'), other than as outlined below for IFRS 9 and IFRS 15.

Man acts as the investment manager/advisor to fund entities. Man assesses such relationships on an ongoing basis to determine whether each fund entity is controlled by the Group and therefore consolidated into the Group's results. Assessment of the control characteristics for all relationships with fund entities led to the consolidation of eleven fund entities at 30 June 2018 (31 December 2017: nine), which are classified as either held for sale or consolidated on a line by line basis. Based on their nature, interests of third-parties in funds that are consolidated are classified as liabilities, as detailed in Note 11.

The most significant area of judgement relates to whether the Group controls certain funds through its investments in fund products and is required to consolidate them (Note 11).

Furthermore, the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period end that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include the determination of fair values for contingent consideration in relation to the Numeric and Aalto acquisitions (Note 13), the estimated amount of accrued discretionary variable compensation, the valuation of goodwill and acquired intangibles for CGUs with lower levels of headroom (Note 9) and recognition of deferred tax assets in relation to US tax assets (Note 7). The valuations for contingent consideration have been updated as at 30 June 2018 as detailed in Note 13. The determination of the discretionary variable compensation accrual is an annual process undertaken at the calendar year-end, therefore the accrual at 30 June 2018 is an estimated amount based on the financial performance and absolute levels of performance fees of the Group in the year to date. The goodwill and deferred tax estimates are primarily based on discounted future cash flow models as at 31 December 2017, and are disclosed within the 2017 Annual Report along with details of the key assumptions and range of possible outcomes (Note 10 and Note 7 in the 2017 Annual Report, respectively).There have been no significant changes in the business in the year to date, and the directors are confident that the assumptions in the Board's three year financial plan, approved in February 2018, remain appropriate over the forecast period.Impact of new accounting standards and interpretations 

The following accounting standards were applicable for the first time in the period to 30 June 2018:

· IFRS 9 - Financial Instruments: IFRS 9 is effective for annual periods beginning on or after 1 January 2018. IFRS 9 replaces the classification and measurement models for financial instruments in IAS 39 (Financial Instruments: recognition and measurement) with three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive income. Under IFRS 9, the Group's business model and the contractual cash flows arising from its investments in financial instruments determine the appropriate classification. The Group has assessed its balance sheet assets in accordance with the new classification requirements. The $3 million of investments held as Available For Sale (AFS) have been reclassified as fair value through profit or loss as the AFS category no longer exists. The accumulated gain in the AFS reserve of $2 million has therefore been reclassified to retained earnings on transition, and any future revaluations will be recognised directly in the income statement (previously recorded in the AFS reserve in equity). There have been no other changes in the classification and measurement for any of the Group's financial assets or liabilities.

In addition, IFRS 9 introduces an 'expected loss' model for the assessment of impairment of financial assets. The 'incurred loss' model under IAS 39 required the Group to recognise impairment losses when there was objective evidence that an asset was impaired. Under the expected loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is not applicable for investments held at fair value through profit or loss or investments in associates. Therefore the assets on the Group's balance sheet to which the expected loss model applies are loans to funds and fee receivables, which do not have a history of credit risk or expected future recoverability issues. We have assessed the expected lifetime credit losses for these assets by applying the Group's internal risk modelling weightings for both likelihood of loss and exposure to loss. We have determined that under the expected loss model there is no change to the carrying values of the Group's assets.

We have elected to adopt the new hedging requirements of IFRS 9, which are designed to provide some increased flexibility in relation to hedge effectiveness in order to better align hedge accounting with a company's risk management policies. IFRS 9 also requires increased disclosures in the annual financial statements in relation to the Group's risk management strategy and the impact of hedge accounting on the financial statements. The Group's IAS 39 cash flow and net investment hedge relationships at 31 December 2017 qualify as continuing hedging relationships under IFRS 9, and there is no material change to previously existing hedge effectiveness assessments as a result. No additional hedge relationships have been designated as a result of the adoption of IFRS 9.

The adoption of IFRS 9 from 1 January 2018 does not have a material impact on the Group's reported results. 

· IFRS 15 - Revenue from Contracts with Customers: IFRS 15 is effective for annual periods beginning on or after 1 January 2018 and replaces IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. IFRS 15 establishes a single, principles-based revenue recognition model to be applied to all contracts with customers. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Specifically, IFRS 15 introduces a five-step approach to revenue recognition: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognise revenue when or as the entity satisfies a performance obligation. IFRS 15 is more prescriptive in terms of its recognition criteria, with certain specific requirements in respect of variable fee income such that it is only recognised where the amount of revenue would not be subject to significant future reversals. New disclosure requirements in the annual financial statements are also introduced.

The Group has considered these changes in light of the terms of the existing investment management agreements, and assessed the timing of management and performance fee recognition. Management fee revenues are recorded on a monthly basis as the underlying management activity (service) takes place, and do not include performance or other obligations (excluding standard duty of care requirements). Performance fee revenues are recognised when they crystallise, at which time they are payable by the client and cannot be clawed-back. There are no other performance obligations or services provided which suggest these have been earned either before or after crystallisation date. The Group has not identified any material changes to revenue recognition principles.

The adoption of IFRS 15 from 1 January 2018 does not have a material impact on the Group's reported results. 

There have been no other new or revised standards or interpretations which have become effective or been early adopted in the six months to 30 June 2018.The following standards and interpretations relevant to the Group's operations have been issued by the IASB but are not yet mandatory:

· IFRS 16 - Leases: IFRS 16 is effective for annual periods beginning on or after 1 January 2019 and replaces IAS 17 Leases and related interpretations. This introduces a comprehensive model for the identification of lease arrangements and accounting treatment for both lessors and lessees, which distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. There is substantially no change to the accounting requirements for lessors. IFRS 16 requires operating leases, where the Group is the lessee, to be included on the Group's balance sheet, recognising a right-of-use (ROU) asset and a related lease liability representing the present value obligation to make lease payments. Certain optional exemptions are available under IFRS 16 for short-term (less than 12 months) and low-value leases. The ROU asset will be assessed for impairment annually (incorporating any onerous lease assessments) and depreciated on a straight-line basis, adjusted for any remeasurements of the lease liability. The lease liability will subsequently be adjusted for lease payments and interest, as well as the impact of any lease modifications. IFRS 16 also requires extensive disclosures detailing the impact of leases on the Group's financial position and results.

The adoption of IFRS 16 will result in a significant gross-up of the Group's reported assets and liabilities on the balance sheet, in particular as our sub-lease arrangements (as detailed in Note 27.3 of the 2017 Annual Report) are not expected to be eligible for offset against the ROU asset and related lease liability. The rental expense which is currently recognised within occupancy costs in the Group's income statement (Note 5) will no longer be incurred and instead depreciation expense (of the ROU asset) and interest expense (unwind of the discounted lease liability) will be recognised. This will also result in a different total annual expense profile under the new standard (with the expense being front-loaded in the earlier years of the lease term as the discount unwind on the lease liability reduces over time). The Group has considered the available transition options, and has provisionally decided to apply modified retrospective option 1 and currently estimates that the impact will be a gross-up of up to £205 million ($270 million) for ROU lease assets and associated deferred tax assets and £260 million ($340 million) in relation to lease liabilities, with up to £55 million ($70 million) deducted from brought-forward reserves on transition date in 2019. The initial reserves impact will be offset over time by a lower annual Group income statement charge, as the total charge over the life of each lease is the same as under the current IAS 17 requirements.  

No other standards or interpretations issued and not yet effective are expected to have an impact on the Group's financial statements.

2. Revenue

Revenue for the six months to 30 June 2018 was $506 million, which is 10% higher than the $461 million in H1 2017.

Gross management and other fees for the period were $423 million, compared to $378 million in H1 2017, driven by growth in FUM throughout 2017 and the six months to 30 June 2018, partially offset by a reduction in management fee margins due to changes in product mix. 

Revenue from performance fees was $83 million for the six months to 30 June 2018, in line with levels for H1 2017, largely driven by AHL and GLG. 

3. Distribution costs and asset servicing

Distribution costs are paid to external intermediaries for marketing and investor servicing, largely in relation to retail clients, and were $27 million for the period (H1 2017: $28 million).

Asset servicing includes custodial, valuation, fund accounting, registrar and administration functions performed by third-parties under contract to Man, as well as research costs. Asset servicing costs for the period were $25 million (H1 2017: $17 million), which have increased due to higher average FUM and additional research and administration costs incurred by Man as a result of the MiFID II implementation in January 2018. 

4. Compensation

Salaries have decreased by $1 million in H1 2018 compared to H1 2017 due to a more favourable Sterling to US Dollar hedged exchange rate in H1 2018 (1.26) compared to the rate secured in H1 2017 (1.43), partially offset by an increase in headcount. Variable compensation and social security costs have increased principally as a result of higher management fee related bonus accruals in the period.

The unamortised deferred compensation at 30 June 2018 was $107 million (30 June 2017: $77 million), which has a weighted average remaining vesting period of 2.2 years (30 June 2017: 2.3 years).

The restructuring costs in H1 2018 relate to a loss on settlement of our Swiss pension obligation as a result of the restructuring plan implemented in late 2016. The H1 2017 restructuring costs also relate to this restructuring plan.

5. Other costs

Other costs before depreciation and amortisation were $68 million, compared to $73 million in H1 2017 and $82 million for H2 2017. The decrease of $5 million largely reflects the impact of the more favourable Sterling to US Dollar hedged exchange rate in H1 2018 (1.26) compared to the rate secured in H1 2017 (1.43) and lower occupancy costs following the centralisation of our London resources into one location.

Depreciation and amortisation has increased by $2 million in H1 2018 compared to H1 2017 as a result of higher levels of capital expenditure on software development projects across our operating platforms in both 2017 and 2018.

6. Finance expense and finance income