Interim Results

8th Nov 2007 07:02

Man Group plc08 November 2007 8 November 2007 UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2007 FINANCIAL HIGHLIGHTS - Funds under management of $68.6 billion at 30 September 2007, up $6.9 billion from 31 March 2007: - Fund sales in the six month period of $8.0 billion; - Redemptions of $4.4 billion, with private investor redemptions consistent with the prior year; - Positive fund performance added $2.9 billion - Profit before tax on continuing operations increased by 21% to $820 million from $679 million - Diluted earnings per share on continuing operations increased by 17% to 34.1 cents from 29.2 cents - Annualised return on shareholders' equity of 33.1%# - Long-term debt ratings confirmed and regulatory capital surplus of $1 billion - In line with our new distribution policy, we have declared an interim dividend in US dollar terms of 16.8 cents per existing share, payable at the rate of 8.03 pence per existing share. Assuming the proposed share consolidation is approved by shareholders at an EGM on 23 November 2007, the dividend will be 19.2 cents per consolidated share, payable at the rate of 9.18 pence per consolidated share+ - Successful IPO of an 81.4% holding in MF Global, giving rise to gross proceeds of $2.9 billion, a gain on sale of $1.7 billion and, subject to shareholder approval, a distribution of approximately $2.75 billion - Continued development: funds under management at 31 October 2007 are estimated to be over $70 billion Half year to Half year to Year to 30 September 30 September 31 March 2007 2006 2007 ------------------------------ ----------- ----------- --------Funds under management $68.6bn $56.8bn $61.7bn------------------------------ ----------- ----------- --------Asset Management net managementfee income $537m $458m $943mAsset Management net performancefee income $283m $221m $358m------------------------------ ----------- ----------- --------Profit before tax - continuingoperations $820m $679m $1,301mTaxation ($148m) ($99m) ($191m)------------------------------ ----------- ----------- --------Profit after tax - continuingoperations $672m $580m $1,110mDiscontinued operations - MFGlobal $53m $40m $174mProfit on sale of MF Global $1,746m - ------------------------------- ----------- ----------- --------Statutory profit after tax ontotal operations $2,471m $620m $1,284m------------------------------ ----------- ----------- --------Diluted earnings per shareContinuing operations 34.1c 29.2c 55.4cTotal operations 124.6c 31.1c 63.9c------------------------------ ----------- ----------- --------Dividends per share 16.8c 7.3c 20.0c------------------------------ ----------- ----------- --------Post-tax return on equity(annualised)# 33.1% 31.5% 30.9%------------------------------ ----------- ----------- --------Equity shareholders' funds $7,173m $4,124m $4,539m------------------------------ ----------- ----------- --------Diluted weighted average numberof shares 1,989m 2,039m 2,051m------------------------------ ----------- ----------- -------- # Post-tax return on equity for the period ended 30 September 2007 is based onAsset Management only (the return therefore excludes the earnings and the profiton sale of MF Global, and the equity base excludes the proceeds from the sale ofMF Global and the residual investment in MF Global). The comparative figures areas published in the interim and annual reports for those periods. + Subject to shareholder approval at an EGM to be held on 23 November 2007,concurrent with a return to shareholders of the net proceeds of the IPO of MFGlobal, the ordinary share capital will be consolidated on a 7 for 8 basis toreflect the return of value. Peter Clarke, Group Chief Executive said: "Man has had a very successful first half, in terms of both strategy andfinancial performance. Our strategy to focus on investment management wasachieved through the IPO of MF Global in July, and the process of returning thecash proceeds to our shareholders will be complete by the end of the year. Wehave continued to see growth in our investment management business, expandingour distribution franchise and launching new and innovative products for ourinvestors. Demand for our investment products was strong, generating sales of $8billion in the first half. Despite the turmoil in financial markets during thesummer, our investors saw nearly $3 billion of positive performance across theperiod, generating performance fee income up 28%. Management fees and totalearnings per share were both up 17%. Our confidence in the financial position, earnings momentum and cash generationof the Group is demonstrated by the adoption of a revised distribution policy.With the increased diversity and predictability of our sources of performancefee income, it is appropriate to set our dividend on the combined management andperformance earnings for the period, and we will target dividend cover of 1.8xcombined earnings within two years. The interim dividend has been increased to alevel to move rapidly towards that target. In addition, our earnings momentumcontinues to create significant excess capital and we will address thosesurpluses through our share repurchase programme. The second half of the year has started strongly. Continued good productperformance has generated significant performance fee income for October and theoutlook for sales remains good. Assets under management are currently estimatedto be over $70 billion and we are well placed for continued asset growth." VIDEO INTERVIEWS & AUDIO WEBCAST Video interviews with Peter Clarke, Group Chief Executive, and Kevin Hayes,Finance Director, in video, audio and text are available on www.mangroupplc.comand www.cantos.com. There will be a live audio webcast of the results presentation at 8.45am onwww.mangroupplc.com and www.cantos.com which will also be available on demandfrom later in the day. EnquiriesMan Group plc 020 7144 1000Peter ClarkeKevin HayesDavid Browne Merlin 020 7653 6620Paul Downes 07900 244888Paul Farrow 07747 607768Anja Kharlamova 07887 884788 About Man Group plc Man Group plc is a leading global provider of alternative investment productsand solutions for private and institutional investors worldwide designed todeliver absolute returns with a low correlation to equity and bond marketbenchmarks. Man has a 20 year track record in this field supported by strongproduct development and structuring skills, and an extensive investor serviceand global distribution network. The Group employs 1,600 people in 13 countries, with key centres in London andPfaeffikon (Switzerland), and offices in Chicago, Dubai, Hong Kong, Montevideo,Nassau, New York, Singapore, Sydney, Tokyo and Toronto. Man Group plc is listedon the London Stock Exchange (EMG) and is a constituent of the FTSE 100 Index.Further information on the Man Group can be found at www.mangroupplc.com andwww.maninvetsments.com. Half Year Review to 30 September 2007 Chief Executive's Review We have made significant progress in the first half of the year in successfullyexecuting our strategy. While the recent market conditions have beenchallenging, our consistent strategy, attractive product range, and strongcapital position mean that we are well positioned to take advantage of theadditional growth opportunities we now see in the market. Funds under managementincreased by 21% to $68.6 billion as of 30 September 2007, compared to $56.8billion as of 30 September 2006, and $61.7 billion as of 31 March 2007. Privateinvestor assets under management have increased since the end of the year by$4.0 billion and institutional assets increased by $2.9 billion, as a result ofstrong sales ($8.0 billion) and performance ($2.9 billion) net of redemptionsand other movements ($4.0 billion). Group profit before tax from continuingoperations increased 21% to $820 million, reflecting a 17% increase in netmanagement fee income and a 28% increase in net performance fee income, comparedto the first half of last year. Operating cash flow on total operations for thesix months ended 30 September 2007 was $702 million, indicating the highly cashgenerative nature of the business. Our performance between July and September in the fund of funds area was abovethe market benchmarks, particularly in the two core fund of funds, Glenwood andRMF product ranges, validating the value created through the skilful selectionof managers and diversification of strategies. We did experience negativeperformance in the multi strategy area; however, the conservative structuring ofour guaranteed products provided resilience in difficult markets. Consequentlynone of our guaranteed products was forced to de-gear and we have notexperienced a significant increase in redemptions. During the six months to 30September 2007 the managed futures strategy has performed well, in particulartowards the end of the period, and AHL recorded a positive return of 15.4%,which included a positive return of 0.3% in the July to September period. Pemba,our credit adviser strategy with $3.5 billion under management, runs 80% of itsbusiness through closed-end collateralised loan obligations. All thesestructures have performed well and no credit events were encountered. The longonly open-ended credit funds managed by Pemba saw negative performance in theturbulent markets in the July to September period, resulting in six monthsperformance to September ranging from -1.5% to -11.8%, depending on the level ofleverage employed. Across all the Core Investment Managers we had minimalexposure to sub prime mortgages, asset or mortgage backed securities andtherefore our performance was not directly affected by exposure to thesemarkets. Throughout the period we maintained significant surplus cash,regulatory capital and unused committed lending facilities to enable us toprovide support to our investors and investment managers. The initial public offering of MF Global on the New York Stock Exchange in Julywas a success with the sale of 81.4% of our holding (refer to note 5 to theinterim financial statements for further details). Consistent with our strategyand, subject to shareholder approval, the net proceeds of approximately $2.75billion will be returned to shareholders by the end of the calendar year. Inaddition, $770 million was returned to our shareholders in the first halfthrough a combination of the final dividend for last year and share repurchases.For our shareholders these distributions represent a significant return of valueand equate in aggregate to approximately 15% of the Company's current marketcapitalisation. The strategic importance of the separation of the brokerage business is to allowus to increase focus on developing our leading position in the investmentmanagement business. Our strategy is to generate continued balanced growth byleveraging our international presence and access to high quality underlyinginvestment management. We will continue to extend our institutional salesfranchise by accessing new markets and developing innovative product solutionsfor our investors. We will expand the range of our private investor products,building on strong distribution relationships to provide access to guaranteed, multi-manager and single manager products. We will use our structuring skills and capital position to facilitate liquidity, transparency and investor reporting for the private investor base. Reflecting our focus on investment management going forward, we have reviewedour capital base, distribution policy and financial objectives. Recognising theincreased diversification and stability of much of our performance fee income,we have changed our distribution policy to target dividend cover of at least 1.8times the combined management fee and performance fee earnings. In addition, wewill use share repurchases on a continuing basis to address capital surpluses asthey arise, recognising the need to maintain a strong capital position andflexibility to invest in the continued growth of our business. The core components of our business for the implementation of our strategy are: • People• Product innovation• Distribution network• Investor services• Governance and risk management• Performance Our people are our key asset. Attracting the best talent, motivating them toexcel, retaining them and ensuring that they progress in their careers is a keyfocus of senior management across the Group. Following the MF Global separationwe have integrated functions into a single business model. Permanent headcountincreased in the first half by 4% to 1,634 as at 30 September 2007. The increasein headcount was primarily in the investment management and investor supportareas as we expand our franchise. We have made some senior appointments in theperiod, including a new head of technology, a chief operating officer for ManGlobal Strategies, a senior appointment in the institutional sales team in theUS and a head of new alternative investments in the US within the RMF hedge fundresearch team. We published the summary results of our employee survey in ourCorporate Responsibility Report in July 2007, which indicated that employeeswere proud to work for the Man Group, were clear about what they are trying toachieve, and individual skills or knowledge had improved. We continue to seeopportunity in the market to attract new talent into the Group in order to growour existing franchise. In addition we have continued to promote exceptionalindividuals into key senior management roles within the Group. During the first half year, Harvey McGrath indicated his intention to retirefrom the Group Board in November 2007. To facilitate an orderly transitionHarvey stepped down as Chairman effective from 1 September 2007, and JonAisbitt, who has been an independent non-executive director for four years,became Chairman. In addition, we added two non-executive directors to the Board,Phillip Colebatch and Patrick O'Sullivan, both with considerable knowledge andexperience in international financial markets. These changes continue tostrengthen the governance and the senior advisory role of the Board. Product innovation allows us to develop an extensive and flexible range ofproducts to meet the risk, return, liquidity and other requirements of ourinvestors worldwide. We have developed a successful business model that utilisesour ownership or preferred access to a wide range of portfolio managers, tooffer investment performance designed to have a low correlation to bond andequity benchmarks. This is combined with our portfolio construction capabilitiesand specialist structuring expertise to tailor products which meet investordemands, and local regulatory and tax requirements. We have continued to invest our capital resources in the development of newsources of return, seeding new managers, products and styles. During the firsthalf of the year we increased our seed money investments from $0.8 billion to$1.0 billion. This increase is spread across our Core Investment Managers. InMan Global Strategies, our multi strategy manager, we seeded ten new managers,and in RMF and Glenwood, the fund of funds managers, we increased seedinginvestments by $60 million across new managers and products. The Seed InvestmentPortfolio is risk managed by the Core Investment Managers, primarily through themanaged account platform, which provides transparency and risk monitoring at theportfolio level. The seed investment process is designed to analyse and test theunderlying investment strategy and establish a performance track record beforewe allocate client capital. The Seed Investment Portfolio therefore recycles ona regular basis as strategies mature and are then replaced with new strategies.The diligence and risk management involved in the seeding process together withour capital resources is a source of competitive advantage and we continue tosee significant opportunities to expand our business, particularly after theturbulence in July and August. In June 2007 we announced the establishment of the Oxford-Man Institute ofQuantitative Finance, and the endowment of a Chair in quantitative finance atthe University of Oxford. The Institute will house a team of full-timeresearchers and senior faculty members from Oxford University and the SaidBusiness School. The research will have particular emphasis on alternativeinvestments and intends to attract the best researchers from around the world.We believe that this initiative will provide a catalyst for developing furtherinnovation in our business. We believe that there is continued opportunity in the area of renewableresources as a source of returns. During the first half of the year we launchedMTM Capital Partners Limited and its China Methane Recovery Fund and have raised$419 million in three separate closings of the Fund. The Fund is based on theextraction of methane from mines using recognised technology and generatingpower and carbon offsets. Extreme events in the financial markets can cause a change in investors'appetite for alternative investment products. Man is recognised as having aleading position in the hedge fund market. Our 20 years of experience and longtrack record demonstrate our ability to deliver long-term cross cycle returnsthat have lower correlation to bond or equity markets. We believe that inturbulent market conditions investors who wish to stay invested in alternativeasset management products will migrate towards those Investment Managers withthe strongest track record and most robust product range. We have a targeted setof products that offer investors a range of risk and returns depending on theirrisk appetite as well as principal guarantees to offer them capitalpreservation. Our distribution network is supported by the long-term relationships our salesforce has with our distributors and our institutional investors. Our distributornetwork covers a wide range of the largest global and strongest regionalfinancial institutions, which sell our product to their clients for a feepayable by Man. This worldwide distributor network offers us scale, flexibilityand efficiency in the distribution of our products. Our strategy is to continueto grow the number of distributors and to focus on those distributors withstrong franchises, high standards and an international presence. An expandingnetwork of regional sales offices around the world is responsible for servicingnew markets and maintaining and expanding our distributor relationships. Duringthe first half of the year we opened offices in Singapore and Miami and havecontinued to expand our presence in Canada and our institutional efforts in theUS. In the first half of the year we launched 18 new products targeted at privateinvestors. Private investor sales for the first half were $4.2 billion comparedwith $5.6 billion for the first half of last year and $3.0 billion for thesecond half of last year. The Man MGS Access global launch, which was achievedwith Citigroup's involvement, raised over $0.8 billion, and in Asia, the ManGlobal Multi-Strategy Principal Protected Fund raised over $1.1 billion. The institutional investor sales team is focused on delivering products to thelargest and most sophisticated professional investors. Institutional sales forthe first half were $3.8 billion compared with a record $5.0 billion for thefirst half of last year and $2.3 billion for the second half of last year. Themajority of these sales was in the RMF fund of funds product. From a regionalperspective we saw continued strong demand for our products in Northern Europeand Switzerland. Our strategy is to continue to grow our sales force to accessnew markets and broaden the product coverage. During the first half of the year we relaunched our Secondary Trading Platform,which provides distributors with daily liquidity for their investors in a rangeof open-ended products. This platform offers liquidity and price transparencysimilar to that offered in traditional financial products and is a key componentof the growth strategy for our open-ended products. During the first half wehave seen good two-way flows on the platform. Our private investor and institutional strategies and breadth of productoffering have resulted in our distribution network creating continued growth infunds under management, providing revenue growth and creating shareholder value. Investor services of the highest standard are essential to support our investorsand our distributor relationships. In turbulent market conditions active andfull communication with investors and distributors is essential to enable themto have the appropriate information to make confident investment decisions. Theinvestment that we have made in technology-enabled solutions has resulted inthese communication processes working effectively during times of market stress.Redemptions for private investors were at a consistent level compared to thesecond half of the prior year. In the first half year redemptions were $2.1billion, or 11% of average funds under management on an annualised basis,compared with $2.0 billion and 12% for the previous six months. These levelsremain significantly below the average for the mutual fund industry. The institutional investor experience in particular relies on high standards ofperformance reporting and risk analysis. The success is reflected in the qualityof our funds under management as measured by both strong product sales and lowredemption rates. Investor services provide us with a source of significant competitive advantageand we will continue to make investment in this area. A strong infrastructure,which can provide investors with up to date information about their productperformance and values, allows them to make informed investment decisions andassists them in meeting their investment objectives given their changingappetite. Governance and risk management are essential components of both the investmentmanagement process for our investors and our approach to maintaining a highquality sustainable business for shareholders. Our corporate reputation isfundamental to our business, and maintaining our corporate integrity is theresponsibility of everyone in the Group. Underlying our strategy is a strongfocus on governance and requirements for high levels of ethical behaviour whichrun through our business. In a highly regulated environment we view themaintenance of high standards of ethical conduct and best business practices asa competitive advantage in the market. Risk management is an essential competency at the portfolio manager and Grouplevel. Active risk management throughout the Group mitigates the risk arisingfrom market, credit, liquidity and reputation risk. Operational risk is the riskthat the Group suffers a loss directly or indirectly from inadequate or failedinternal processes, people, systems or external events. We mitigate operationalrisks through our strong corporate culture that emphasises the importance ofeffective risk management, strong internal controls, good governance and thevalue of maintaining the Group's reputation. We operate in a highly regulated environment and therefore constantly need toensure our products and sales practices are compliant. Our dedicated regulatoryand compliance teams provide us with a source of competitive advantage as theyenable our products to be robust and provide us with speed to market for ourproduct offerings. Regulatory changes could present a risk to our business andmake it more difficult to market alternative investment products to ourinvestors. We therefore have an active dialogue with all our regulators andmonitor proposed changes. We believe that being proactive in regulatorydevelopments results in us maintaining this competitive advantage. Our strong capital position, both in terms of equity capital and debt resources,results in us having financial security across differing cycles and marketconditions. At 30 September 2007, shareholders' equity was $7.2 billion, up 58%from the year-end. The increase in shareholders' equity in the first half of theyear included the realised gain of $1,746 million on the sale of our holding inMF Global and an unrealised gain of $432 million, relating to the residualholding. The conversion of the remaining exchangeable bonds added $451 million.The profit for the period, excluding the gain on the sale of MF Global, added$725 million. Shareholders' equity was reduced by the payment of the finaldividend for last year of $250 million and the consideration paid for sharerepurchases of $520 million. Subject to shareholder approval, the distributionof the net proceeds from the IPO will reduce shareholders' funds byapproximately $2.75 billion to $4.4 billion. During the first half, we repaid $510 million of senior and subordinated debt aspart of the separation of MF Global. In addition we replaced our $2.275 billionsyndicated revolving loan facility with a similar 5-year facility of $2.5billion. As of July 2007, Moody's Investors Service and Fitch Ratings Ltdreaffirmed our long-term debt rating of Baa1 and A- respectively. As of 30September 2007 our total capital resources and undrawn committed facilities werein aggregate $9.4 billion, compared to $8.0 billion at 31 March 2007. At alltimes during the first half year we maintained a free cash balance, after thededuction of all outstanding debt, of at least $500 million. Operating cash flowon total operations for the six months ended 30 September 2007 was $702 million,indicating the highly cash generative nature of the business. Our strategy is to maintain sufficient excess capital and substantial liquidityresources to give us flexibility both to continue to finance growth and tooperate the business effectively under market stress situations. In turbulentmarkets there is a risk that the appetite of financial counterparties thatprovide leverage financing to the funds changes. To mitigate this risk wefacilitate a process whereby the products directly borrow from a wide group offinancial institutions on a collateralised basis. The funds are designed tooperate within defined liquidity constraints so that liquidity is provided tothe products up to the point where they are caused systematically to reduceleverage to preserve capital. This limits the necessity for the Group to providesignificant financing directly to the products. As at 30 September 2007, we had excess regulatory capital of $1.7 billion,compared with $675 million as of 31 March 2007. Of the Group's currentregulatory capital surplus it is intended to utilise $1.0 billion in the returnof the MF Global proceeds to shareholders, being the net proceeds ofapproximately $2.75 billion less the gain on disposal of $1.7 billion. However,the current surplus will be partly restored by the inclusion of the first half'sretained earnings as from the date of this interim report, which will result in the Group having surplus regulatory capital of around $1 billion. From 1 January2008, the Group will fully adopt the new FSA rules, which implement the Capital Requirements Directive. The Group's regulatory capital position at 30 September 2007 is shown in thetable below. Group's regulatory capital position Provisional 30 September 31 March 2007 2007 $m $m-------------------------------------------------------------------------------- Permitted share capital and reserves* 3,975 3,316Less goodwill and other intangibles: - Goodwill on acquisitions of subsidiaries (810) (785) - Goodwill on acquisitions of associates/JVs (194) (198) - Commission intangible (FEL) (434) (405) - Other intangibles (31) (24) - MF Global - (294)--------------------------------------------------------------------------------Available Tier 1 Group capital 2,506 1,610Tier 2 capital - subordinated debt 400 610Tier 2 capital - revaluation reserves 501 120Material holdings deduction - residual MFGlobal investment (645) -Other material holdings deductions less interimtrading book profits (199) (68)--------------------------------------------------------------------------------Group Financial Resources 2,563 2,272 Less Financial Resources Requirement (includingliquidity adjustments): - Asset Management (854) (432) - MF Global - (1,165)--------------------------------------------------------------------------------Group Financial Resources Requirement (854) (1,597)-------------------------------------------------------------------------------- Net excess of Group capital 1,709 675-------------------------------------------------------------------------------- * excludes retained profits for the first half of the financial year as thesewere unaudited as at 30 September 2007. The Group's Financial Resources Requirement has increased by approximately $420million since the year-end. This increase comprises: a $100 million increase inrelation to seeding investments in fund products; $150 million in relation toresidual MF Global market seats transferred to the Group and other itemsrelating to the brokerage business; and $170 million to other Asset Managementitems. Performance is the measure of the successful execution of our strategy. As anasset management business focused on alternatives, where the generation ofperformance is required to be incremental to the movement of the underlyingmarket, we are constantly challenged to outperform. We are proud of our recordof long-term performance for investors across our products. This track recordhas fuelled our strong growth in assets under management and provides themomentum for further growth. Performance 6 months to 30 12 months to 30 3 years to 30 5 years to 30records September 2007 September 2007 September 2007 September 2007 (not annualised) (annualised) (annualised) AHL DiversifiedProgramme* 15.4% 14.4% 13.4% 8.9%RMF^ 4.9% 13.1% 10.2% 8.5%Glenwood@ 4.3% 14.3% 8.1% 5.9%Man Global Strategies# 1.8% 8.4% 9.3% 6.4%Pemba< -11.8% -6.0% N/A N/ABayswater+ -12.0% -7.9% 8.7% N/A HFRX Global Hedge FundIndex| 2.4% 9.5% 6.5% N/AWorld stocks 5.2% 14.6% 14.8% 14.6%Corporate bonds 0.6% 2.0% 4.0% 5.2% Source: Man database and Bloomberg. There is no guarantee of trading performanceand past performance is not necessarily a guide to future results. * AHL Diversified: represented by Athena Guaranteed Futures Limited.^ RMF: represented by RMF Absolute Return Strategies I (dividends reinvested).@ Glenwood: represented by Man-Glenwood Multi-Strategy Fund Limited.# Man Global Strategies: represented by Man Multi-Strategy Guaranteed Limited. Pemba: represented by Pemba European Loan Opportunities - Class A Units.+ Bayswater: Man Bayswater Macro is represented by the performance of Man Global Quant Alpha Investments Limited from August 2004 to June 2006 and Man Bayswater Macro Class O since July 2006.| HFRX Global Hedge Fund Index: Index began in 2003 - no data available for 5 years. Note: All figures are shown net of fees and commissions, where applicable.World stocks: MSCI World Index hedged to US dollar. Corporate bonds: CitigroupHigh Grade Corporate Bond TR. One of the business risks we face is the occurrence of under performance of afund product or fund styles compared to market leaders in the hedge fundindustry. This would lead to increased redemptions and reduce future sales,thereby reducing management and performance fees. To mitigate this risk for theprivate investor we develop our products with three important features:investment diversification through selection of leading investment managers,analytical robustness, and, in the case of guaranteed products, principalguarantees. We have developed a diversified group of investment managers whohave proven track records of actual and analytically tested returns andvolatilities. The portfolios are tested against a variety of market conditionsso that they are resilient and robust cross cycle. The guaranteed products havea principal guarantee component which gives the investor confidence to stayinvested on a long-term basis and withstand short-term volatility. For theinstitutional investor we offer a wide range of investment products withdifferent risk and return characteristics so that as their investment experienceand risk appetite change they can stay invested. This product diversificationtogether with interactive investor services helps mitigate the risk ofredemptions. We are constantly looking to develop new investment opportunities,improve performance and develop new products so that we can offer a wide varietyof investment products to meet the risk appetite of investors. Our focus on performance is at the investor and the Group level. The Group'sfinancial results and the performance of our products continue to show thesuccessful implementation of our strategy. In the first half of the year the Group profit before tax from continuingoperations was $820 million, reflecting the 17% increase in net management feeincome and the 28% increase in net performance fee income. Pre-tax margin was65% compared with 61% for the same period last year and 59% for the previous sixmonth period. This demonstrates our strong discipline around the growth of our expense base, as well as reflecting the levels of performance fees earned in each discrete period. Profit after tax for continuing operations has increased 16% to $672 millioncompared to $580 million for the same period last year, and has increased 27%compared to $530 million for the previous six month period. Annualised return onequity was 33.1%. This has resulted in diluted earnings per share on continuingoperations increasing 17% to 34.1 cents. Gross management fees included within revenue, increased by 14% to $965 millionfor the six months ended 30 September 2007, compared with $846 million for thecomparable six month period. This growth demonstrates the strong sales growth inboth private investor and institutional sectors. Gross performance fees included within revenue, increased by 9% to $293 millionfor the six months ended 30 September 2007, compared with $269 million for thesame period last year. Other performance fee income is included in other netoperating income, relating to net gains from proprietary trading investments,and in the associates and JVs line, relating to our share of BlueCrest'sperformance fees. AHL contributed 68% of the performance fees with 32% from allother Core Investment Managers. Sales commissions relate to the upfront commission (FEL) and trail paid todistributors of our private investor products. For the six months ended 30September 2007, sales commissions were $187 million compared with $162 millionfor the first half of last year. This increase is in line with the growth ofprivate investor funds under management. Included in sales commissions is $70million from the amortisation of the intangible upfront commissions, compared to$63 million in the comparable period and $129 million in the previous full year. Administrative expenses have increased by 29% to $378 million, compared with$292 million for the same period last year. The majority of the increase relatesto discretionary employee bonus compensation, which increased to $183 millionfrom $131 million for the comparative period. Net finance income for the six months was $53 million reflecting interest incomefrom the MF Global IPO proceeds and other cash balances, partly offset byinterest expense on debt to finance acquisitions and working capitalrequirements. We operate in a competitive environment and therefore are subject to marketdynamics which could lead to a reduction in historical profit margins. Ourbusiness model offers us significant flexibility to mitigate the effects of thisrisk. Our constant focus on top quartile performance enables our products toperform and enjoy continued demand and the size and scale of our business allowsus to create operational efficiencies. Our distribution network is a variablecost linked to sales volumes, and a significant portion of our cost base isrepresented by discretionary bonus compensation which is variable withperformance. These factors help us to preserve our profit margins. Income statement The income statement in the table below is for the Group's continuingoperations, relating to Asset Management. It therefore excludes the results ofBrokerage, disposed of in July 2007, and the related profit on disposal. Asset Management - continuing operations H1 2008 H1 2007Half year to 30 September 2007 $m $m -----------------------------------------------------Revenue 1,258 1,115Sales commissions (187) (162)Other net operating income 17 - -----------------------------------------------------Total operating income 1,088 953Administrative expenses (378) (292) -----------------------------------------------------Operating profit 710 661Associates and JVs 57 24Net finance income/(expense) 53 (6) -----------------------------------------------------Profit before tax 820 679Taxation (148) (99) -----------------------------------------------------Profit for the period 672 580 ----------------------------------------------------- Pre-tax margin (Profit before tax/Revenue) 65% 61% ----------------------------------------------------- Discontinued operations - BrokerageThe results of our brokerage business, which are classified as discontinuedoperations in this Interim Report, are given in note 5 to the interim financialstatements. The Group's 18.6% residual holding in MF Global is being designatedas an available for sale asset on the Group balance sheet at fair value, withchanges in fair value being taken to the available for sale reserve withinequity. The fair value of our residual holding was $645 million at 30 September2007, reflecting an unrealised gain of $432 million, which is included in theavailable for sale reserve. Revenue marginsOne of our key performance indicators is net management fee margin. Thisrepresents the management fee income earned from the funds under management andinterest on loans to funds, and compensates us for the distribution, operationand administration services, which we provide to the funds. To add clarity tothe analysis of the net management fee margins we have restated our analysis byexcluding net finance income/(expense), which principally relates to interestincome earned on free cash deposits less finance costs on the Group's debt. Webelieve that the restated net margin analysis gives a clearer indication of netmargins from our ongoing investment management franchise. The net management fee margin for private investors was 215bp, compared to 235bpin the prior year. The primary reason for the reduction in the net margin islower interest income and liquidity fees earned in relation to the fundproducts. We have systematically reduced the amount of funding by Man directlyto the fund products and increased the third party funding of the products. Thisstrategy has placed the financing of the fund products with bank counterpartieswho provide this capital as part of their ordinary business. Consequently wehave reduced our exposure to the funds and increased flexibility andscalability. In addition, the increase in administrative expenses, primarilyrelating to the strengthening of Sterling against the US dollar, and expensesincurred in relation to investment in new sources of returns have resulted in afurther decrease in the margin. The net management fee margin for institutional investors was 53bp, comparedwith 62bp in the prior year. The decrease in net management fee margin isprimarily a result of a negotiated switch from management fee income toperformance fee income. This is consistent with the industry trends in theinstitutional markets. The underlying fund of funds product is diversified andtherefore the performance fees are more stable cross cycle. Revenue margins H1 2008 2007 2006 2005 -------------------------------------------------------- Average FUM in period ($bn) 66.4 57.2 44.7 40.2 Net management fee income ($m) 537 943 704 601Less: net finance (income)/expense ($m) (53) (10) 11 43 --------------------------------------------------------Adjusted net management fee income ($m) 484 933 715 644 Adjusted management fees/FUM 1.46% 1.63% 1.60% 1.60% -------------------------------------------------------- TaxationThe tax charge for the period on continuing operations amounted to $148 million.The effective tax rate is 18.0%, compared to 14.7% for the prior year,reflecting the estimated rate for the full year. The majority of the Group'sprofit continues to be earned in Switzerland and the UK and the currenteffective tax rate is consistent with this profit mix. The increase in the ratefrom the prior year principally relates to the release of tax accruals last yearas a result of reaching agreements with the UK and Swiss tax authorities on anumber of outstanding issues. Financial objectivesOur strategy focuses on delivering long-term, sustainable value to ourshareholders. The key financial objectives that drive this value are growth indiluted earnings per share and return on equity. Earnings per share is a measurethat encapsulates the primary drivers of financial performance for the Group.The earnings metric includes the measure of revenue that results from growingfunds under management and the performance fee income from the investmentperformance of the funds. The maintenance of pre-tax margins as we growdemonstrates our control over our expense base. The denominator of averageshares outstanding reflects our policy of share repurchases and cancellation.Return on equity is the measure to enable us to assess whether we are utilisingshareholders' equity efficiently and ensuring that adequate return hurdles arebeing achieved on invested funds. Earnings per shareDiluted earnings per share on continuing operations for the six months ended 30September 2007 increased 17% to 34.1 cents, compared to 29.2 cents for the sameperiod last year and 55.4 cents for the full year. As part of the Company's distribution policy shares are repurchased and cancelled using excess reserves. During the first half of the year 45,860,018 shares were repurchased and cancelled at a total cost of $520 million. This was earnings enhancing, resulting in a 0.3% accretion to diluted earnings per share. Return on equityThe Group's post-tax return on equity for Asset Management, on an annualisedbasis, for the first half was 33.1%. This measure excludes the earnings and theprofit on sale of MF Global, and the equity base excludes the proceeds from thesale and the residual investment in MF Global. Distribution policyThe Group's stated objective is to maximise shareholder value. Shareholders'equity is therefore either utilised in the business to continue to grow thefranchise or returned to shareholders. The Group has a consistent track recordof distributing significant amounts of shareholders' equity to shareholders.The ordinary dividend has been increased each year, in line with the growth ofunderlying earnings and has increased by a compound average growth rate, indollar terms, of 35% per annum over the last five years. The Group has alsorepurchased shares for cancellation in each of the last six years and inaggregate has returned $1.3 billion of shareholders' equity. The distribution ofthe IPO proceeds from the sale of MF Global will have the effect of distributingthe net gain from the sale of $1.7 billion and in addition $1.1 billion ofshareholders' equity to shareholders. In 2007, subject to shareholder approvalof the IPO distribution, distributions to shareholders aggregate to 15% of thecurrent market capitalisation of the Group. The Group is a growth company in a growth sector. Capital and the access tocapital is a source of competitive advantage to the Group. Capital in the formof debt and equity supports the current business and provides support forcontinued access to additional capital through the capital markets. As aregulated entity, the equity capital and subordinated debt base of the Groupsupports the regulatory capital required to maintain our status and support ourinvestor base. In considering the distribution policy for the Group going forward, the Boardhas considered a number of factors. The sustainability of earningsThe ordinary dividend is a strong signal to shareholders of the recurring natureof a portion of net income. The growth of the dividend is a strong indicationof the Board's confidence in the profitable growth prospects for the Group. TheBoard has previously stated that ordinary dividends would be covered at leasttwo times by post-tax net management fees and that the post-tax net performancefees are used to repurchase shares for cancellation. Man's performance fee income is based on a diversified portfolio of CoreInvestment Managers and therefore the level of performance fee income, taken inaggregate, is more stable and cross cycle a minimum amount is more predictablethan would be the case for an individual fund manager. Therefore, the Boardbelieves it is appropriate to consider a portion of performance fees as havingthe same characteristics as management fee income and thereby set the dividendpolicy to take account of net income in aggregate. Investment opportunitiesThe Group uses its capital resources to support the organic growth of thebusiness. Our internal risk management processes enable us to assess wherecapital is deployed, so that satisfactory returns are achieved and this reviewprocess forms part of the regular management reporting regime in the business.In addition, capital may be deployed to fund other investments includingacquisition opportunities. The source of this capital can be internallygenerated or externally funded. In establishing the distribution policy theBoard will take into account the current and potential future capital needs ofthe business and in setting the level of the ordinary dividend will routinelyconsider investment opportunities. Ordinary dividend policyThe Board has therefore adopted a policy to grow the dividend per share, indollar terms, progressively and in line with the growth of earnings. Inpursuing this policy the Board will set the level of ordinary dividends havingtaken into account: the results for the past years; the outlook for the currentyear; investment opportunities; free cash flow; and the maintenance of prudentcapital against contingencies. The Board will target a dividend coverage ratioof at least 1.8 times profit after tax. It is anticipated that this ratio willbe achieved within the next two years, as a result of increasing the ordinarydividend. The economic currency of the Group is US dollars and therefore the dividend willcontinue to be determined in dollars. Share repurchase programmeShare repurchases will be used in a systematic manner to reduce availablecapital surpluses. In accordance with the new distribution policy adopted by the Board and giventhe Group's strong performance in the first half of the year and our strongcapital position, we have declared an interim dividend of 16.8 cents perexisting share (assuming shareholders approve the ordinary share capitalconsolidation on a 7 for 8 basis at an EGM to be held on 23 November 2007, thedividend will be 19.2 cents per consolidated share). This dividend will be paidat the rate of 8.03 pence per existing share (9.18 pence per consolidated share,assuming the share consolidation is approved). Dates for the 2008 Interim Dividend-----------------------------------------------------------------------Ex Dividend date 28 November 2007Record date 30 November 2007DRIP final election date 5.00pm on 30 November 2007Dividend paid/CREST accounts credited 20 December 2007Share Certificates received/CREST accounts credited with DRIP purchases 28 December 2007----------------------------------------------------------------------- OutlookThe second half of our financial year has started strongly. Since the turbulentmarkets of the summer, our investors have seen a continuation of September'sgood performance carry through into October. With almost all of our assetsstanding at or close to their high watermarks as at the end of September, thestrong performance during October has already generated significant performancefee income for the second half. This product performance has driven further growth in assets under managementsince 30 September, which are currently estimated to be over $70 billion. Our scale and strong capital position provide a stable platform for innovationin our product range and investment in our business. Our investment products aredesigned to perform across a range of differing market conditions, and thecurrent environment creates additional opportunities for investment. The long track record of our products and our established distribution franchisemean that we are well placed for continued asset growth. With recent positiveperformance the outlook for sales remains good. STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe Half Year Review herein includes a fair view of the information required bythe Financial Services Authority's Listing Rules, including the new Disclosureand Transparency Rules. The Directors of Man Group plc are listed in the Annual Report for 31 March2007, with the exception of the following changes in the period: Kevin Davisstepped down from the Board on 19 July 2007; Harvey McGrath retired from theBoard from 8 November 2007; and Phillip Colebatch and Patrick O'Sullivan joinedthe Board on 1 September 2007. By order of the Board Peter ClarkeChief Executive8 November 2007 Kevin HayesFinance Director8 November 2007 GROUP INCOME STATEMENT Restated* Restated* Half year Half year Year to 30 September to 30 to 31 2007 September March 2006 2007 Note $m $m $m ---------------------------------------------------------Revenue 1,258 1,115 2,165Cost of sales (187) (162) (335)Other operating income 53 17 75Other operating losses (36) (17) (26)Administrative expenses (378) (292) (632) ----------------------------------------------------------Group operating profit -continuing operations 710 661 1,247 ----------------------------------Finance income 84 28 65Finance expense (31) (34) (55) -----------------------------------Net financeincome/(expense) 3 53 (6) 10Share of after tax profitof associates and jointventures 57 24 44 ----------------------------------------------------------Profit on ordinaryactivities before taxation 820 679 1,301Taxation 4 (148) (99) (191) ----------------------------------------------------------Profit after tax fromcontinuing operations 672 580 1,110Discontinued operations -Brokerage 5 1,799 40 174 ----------------------------------------------------------Profit for the period 2,471 620 1,284 ----------------------------------------------------------Attributable to:Equity holders of theCompany 2,473 619 1,285Equity minority interests (2) 1 (1) ---------------------------------------------------------- 2,471 620 1,284 ---------------------------------------------------------- Earnings per share 6From continuing operations: Basic 35.1c 31.5c 59.9c Diluted 34.1c 29.2c 55.4cFrom discontinuedoperations: Basic 94.1c 2.2c 9.4c Diluted 90.5c 1.9c 8.5cFrom continuing anddiscontinued operations: Basic 129.2c 33.7c 69.3c Diluted 124.6c 31.1c 63.9c ---------------------------------------------------------- Memo:Dividends paid in theperiod $250m $167m $306mProposed dividend per 16.8c 7.3c 20.0cordinary share+ ---------------------------------------------------------- * The restatement in the comparative period for the half year to 30 September2006 relates to the classification of Brokerage as a discontinued operation. Therestatement presents the post-tax result of the discontinued operation as asingle amount on the Group income statement. In determining the post-tax resultof the discontinued operation only those central costs that were eliminated ondisposal are allocated to the discontinued operation. In addition, interest income on loans to fund products has been reclassified asrevenue instead of finance income. The comparative periods have been restatedaccordingly. See note 1 for further details. + Assuming shareholders approve the ordinary share capital consolidation on a 7for 8 basis at an EGM to be held on 23 November 2007, the dividend relating tothe half year to 30 September 2007 will be 19.2 cents per consolidated share.GROUP BALANCE SHEET At 30 Restated* September At 30 At 31 2007 September March 2006 2007 Note $m $m $m -----------------------------------------------------------ASSETS Non-current assets Property, plant andequipment 48 82 46Goodwill 7 810 840 785Other intangibleassets 7 465 610 429Investments inassociates and jointventures 269 257 258Other investments 5 967 3,415 189Deferred tax assets 37 37 72Non-currentreceivables 74 3,297 40 ----------------------------------------------------------- 2,670 8,538 1,819 -----------------------------------------------------------Current assetsTrade and otherreceivables 1,087 22,377 842Current tax assets 7 15 1Derivative financialinstruments 30 6 15Short-terminvestments 1,054 14,753 655Cash and cashequivalents 4,255 2,898 1,571 --------------------------------------------------------- 6,433 40,049 3,084 -----------------------------------------------------------Assets of Brokerageheld for sale - - 50,162 ----------------------------------------------------------- Total assets 9,103 48,587 55,065 ----------------------------------------------------------- LIABILITIESNon-current liabilitiesLong-term borrowings 8 895 1,434 1,100Deferred taxliabilities 20 32 18Pension obligations 25 40 21Derivative financialinstruments - 31 9Trade and otherpayables - 6,393 2 ----------------------------------------------------------- 940 7,930 1,150 -----------------------------------------------------------Current liabilitiesTrade and otherpayables 577 36,120 476Current taxliabilities 316 285 286Short-term borrowingsand overdrafts 8 91 112 489Derivative financialinstruments 6 8 6 ----------------------------------------------------------- 990 36,525 1,257 -----------------------------------------------------------Liabilities ofBrokerage held forsale - - 48,095 ----------------------------------------------------------- Total liabilities 1,930 44,455 50,502 ----------------------------------------------------------- NET ASSETS 7,173 4,132 4,563 -----------------------------------------------------------EQUITYCapital and reservesattributable to shareholdersShare capital 59 57 57Share premium account 1,399 960 962Merger reserve 722 722 722Other capitalreserves 8 142 142Available for salereserve 501 64 120Cash flow hedgereserve 1 - 2Retained earnings 4,483 2,179 2,534 ----------------------------------------------------------- 7,173 4,124 4,539 -----------------------------------------------------------Equity minorityinterests - 8 24 ----------------------------------------------------------- TOTAL EQUITY 7,173 4,132 4,563 ----------------------------------------------------------- * The restatement in the comparative period relates to a change in accountingpolicy to show certain assets and liabilities in Brokerage on a gross basis,following the acquisition of the Refco assets in 2006. This restatement isexplained in more detail in Policy Z in the Principal Accounting Policiessection in the 2007 Annual Report and in note 1 to these interim financialstatements. GROUP CASH FLOW STATEMENT Restated* Restated* Half year Half year Year to 30 September to 30 September to 31 2007 2006 March 2007 Note $m $m $m -----------------------------------------------------------Cash flows from operatingactivitiesCash generated fromoperations 9 702 511 1,570Interest paid (94) (93) (215)Income tax paid (171) (131) (202)--------------------------- ------ --------- --------- -------- 437 287 1,153--------------------------- ------ --------- --------- --------Cash flows from investingactivitiesAcquisition of subsidiaries and businesses, net of cash acquired (35) - (38)Proceeds from sale ofsubsidiaries and businesses, net of cash disposed 1,325 - -Purchases of property, plant and equipment (22) (21) (43)Proceeds from sale ofproperty, plant and equipment - 1 2Purchases of intangible assets (139) (158) (254)Proceeds from sale ofintangible assets 37 24 57Purchases of associatesand joint ventures - - (4)Proceeds from sale of associates and joint ventures 2 1 -Purchases of othernon-current investments (17) (50) (147)Proceeds from sale ofother non-current investments 25 23 106Interest received 125 105 233Dividends received from associates and joint ventures 42 28 50Dividends from othernon-current investments 6 - 3--------------------------- ------ --------- --------- -------- 1,349 (47) (35) --------------------------- ------ --------- --------- --------Cash flows from financing activitiesProceeds from issue of ordinary shares 72 40 42Purchase of treasury shares (520) (156) (375)Purchase of own shares by ESOP trust (124) (136) (143)Disposal of own shares by ESOP trust 40 35 37Proceeds from borrowings 500 175 250Incremental issue costs (3) - -Repayments of borrowings (757) - -Dividends paid to Company shareholders (250) (165) (306)Dividends paid to equity minority interests - - (1)--------------------------- ------ --------- --------- -------- (1,042) (207) (496) --------------------------- ------ --------- --------- --------Net increase in cash and bank overdrafts 744 33 622Cash and bank overdraftsat the beginning of the period 3,420 2,798 2,798Less: cash and bank overdrafts included in discontinued operations - - (1,850)--------------------------- ------ --------- --------- --------Cash and bank overdraftsat the end of the period 4,164 2,831 1,570--------------------------- ------ --------- --------- -------- * The restatement of the comparative periods relates to the reclassification ofinterest income on loans to fund products (see note 1). The cash flow statement includes cash flows from continuing operations anddiscontinued operations up until the date of the IPO. For the purposes of the cash flow statement, cash and cash equivalents areincluded net of overdrafts repayable on demand. These overdrafts are excludedfrom the definition of cash and cash equivalents disclosed on the balance sheet.At 30 September 2007 overdrafts repayable on demand amounted to $91 million (30September 2006: $67 million, 31 March 2007: $1 million). GROUP CASH FLOW STATEMENT continued Cash flows from discontinued operations up until the date of the IPO comprise: Half year Half year Year to 30 September to 30 September to 31 2007 2006 March 2007 $m $m $m--------------------------- --------- --------- --------Net cash flows from operating activities (522) (44) 79Net cash flows from investingactivities 44 59 203Net cash flows from financingactivities - 95 48--------------------------- --------- --------- --------Net (decrease)/increase incash and bank (478) 110 330overdrafts--------------------------- --------- --------- -------- GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share capital Share premium Capital Revaluation Equity minority Total reserves reserves and interests equity retained earnings $m $m $m $m $m $m -----------------------------------------------------------------------------Balance at 1April 2007 57 962 864 2,656 24 4,563 -----------------------------------------------------------------------------Currency translation adjustments - - - 74 2 76Available for sale investments: Valuation gains taken to equity: Continuing operations - - - 426 - 426 Discontinued operations - - - 24 - 24Transfer to income statement on sale: Discontinued operations - - - (116) - (116)Cash flow hedge: Valuation gains taken to equity: Continuing operations - - - 2 - 2Transfer to income statement in the period: Continuing operations - - - (4) - (4)Taxation: Continuing operations - - - (8) - (8) Discontinued operations - - - 47 - 47----------------------- ------- ------- ------ -------- ------ -------Net income recognised directly in equity - - - 445 2 447Profit for the period: Continuing operations - - - 672 - 672 Discontinued operations - - - 1,801 (2) 1,799----------------------- ------- ------- ------ -------- ------ -------Total recognised income for theperiod - - - 2,918 - 2,918Purchase and cancellationof own shares (1) - 1 (516) - (516)Movement in close periodshare buyback obligations - - - (4) - (4)Conversion ofexchangeable bonds 3 365 (135) 218 - 451Employee share schemes:Value of employee services: Continuing operations - - - 27 - 27 Discontinued operations - - - 20 - 20Proceeds from shares issued - 72 - - - 72Purchase of own shares byESOP trust - - - (124) - (124)Disposal of own shares byESOP trust - - - 40 - 40Disposal of businesses - - - - (24) (24)Dividends - - - (250) - (250)----------------------- ------- ------- ------ -------- ------ -------Balance at 30 September 2007 59 1,399 730 4,985 - 7,173----------------------- ------- ------- ------ -------- ------ ------- GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY continued Share capital Share premium Capital Revaluation Equity minority Total reserves reserves and interests equity retained earnings $m $m $m $m $m $m----------------------- ------- ------- ------ -------- ------ -------Balance at 1April 2006 55 591 945 1,978 8 3,577----------------------- ------- ------- ------ -------- ------ -------Currency translationadjustments - - 1 41 (1) 41Available for sale investments: Valuation losses taken to equity: Discontinued operations - - - (3) - (3)Transfer to income statement on sale: Discontinued operations - - - (4) - (4)Cash flow hedge: Valuation gains taken to equity: Continuing operations - - - 1 - 1 Transfer to income statement in the period: Continuing operations - - - 1 - 1Taxation: Continuing operations - - - 4 - 4 Discontinued operations - - - 1 - 1----------------------- ------- ------- ------ -------- ------ -------Net income/(expense) recogniseddirectly in equity - - 1 41 (1) 41Profit for the period: Continuing operations - - - 580 - 580 Discontinued operations - - - 39 1 40----------------------- ------- ------- ------ -------- ------ -------Total recognisedincome for the period - - 1 660 - 661Purchase and cancellationof own shares (1) - 1 (156) - (156)Employee share schemes: Value of employee services: Continuing operations - - - 18 - 18 Discontinued operations - - - 9 - 9Proceeds from shares issued 1 39 - - - 40Purchase of own shares byESOP trust - - - (136) - (136)Disposal of own shares byESOP trust - - - 35 - 35Partial conversion ofexchangeable bonds 2 330 (83) - - 249Dividends - - - (165) - (165)----------------------- ------- ------- ------ -------- ------ -------Balance at 30September 2006 57 960 864 2,243 8 4,132 Share capital Share premium Capital Revaluation Equity minority Total reserves reserves and interests equity retained earnings $m $m $m $m $m $m ----------------------- ------- ------- ------ -------- ------ -------Balance at 1 April 2006 55 591 945 1,978 8 3,577----------------------- ------- ------- ------ -------- ------ -------Currency translationadjustments - - - 108 1 109Available for sale investments: Valuation gains taken to equity: Continuing operations - - - 3 - 3 Discontinued operations - - - 133 - 133Transfer to income statementon sale: Continuing operations - - - (1) - (1) Discontinued operations - - - (58) - (58)Cash flow hedge: Valuation gains taken to equity: Continuing operations - - - 7 - 7Transfer to income statementin the year: Continuing operations - - - (2) - (2)Taxation: Continuing operations - - - 36 - 36 Discontinued operations - - - (10) - (10)----------------------- ------- ------- ------ -------- ------ -------Net income recogniseddirectly in equity - - - 216 1 217Profit for the year: Continuing operations - - - 1,110 - 1,110 Discontinued operations - - - 175 (1) 174----------------------- ------- ------- ------ -------- ------ -------Total recognised income for theyear - - - 1,501 - 1,501Purchase and cancellationof own shares (1) - 1 (375) - (375)Movement in close period share buybackobligations - - - (100) - (100)Conversion of exchangeable bonds 2 330 (83) - - 249Employee share schemes:Value of employee services: Continuing operations - - - 43 - 43 Discontinued operations - - - 22 - 22Proceeds from shares issued 1 41 - - - 42Purchase of own shares byESOP trust - - - (143) - (143)Disposal of own shares byESOP trust - - - 37 - 37Acquisition of businesses - - - - 17 17Transfer between reserves - - 1 (1) - -Dividends - - - (306) (1) (307)----------------------- ------- ------- ------ -------- ------ -------Balance at 31March 2007 57 962 864 2,656 24 4,563----------------------- ------- ------- ------ -------- ------ ------- NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. Basis of preparation The financial information contained herein is unaudited and does not constitutestatutory accounts as defined by Section 240 of the Companies Act 1985.Statutory accounts for the year to 31 March 2007, which were prepared inaccordance with International Financial Reporting Standards ('IFRS') andrelevant IFRIC interpretations issued by the International Accounting StandardsBoard ('IASB') and IFRIC committee respectively and adopted by the EuropeanUnion ('EU') and upon which the auditors have given an unqualified andunmodified report and which contained no statement under Section 237 of theCompanies Act 1985, have been delivered to the Registrar of Companies and wereposted to shareholders on 11 June 2007. The financial statements for the half year to 30 September 2007 have beenprepared in accordance with IAS 34 'Interim Financial Reporting' and theDisclosure and Transparency Rules of the Financial Services Authority. Exceptfor the change below, the accounting policies applied in these interim financialstatements are consistent with those set out and applied in the Group's AnnualReport for the year to 31 March 2007. On 30 March 2007 the Group Board announced that it intended to separate itsbrokerage business. As a result, Brokerage was reclassified as a discontinuedoperation in the Group's financial statements for the year ended 31 March 2007and in these interim financial statements up to 19 July 2007, the date ofdisposal. In these interim financial statements the Group income statement forthe comparative period has been restated to show Brokerage as a discontinuedoperation but the Group balance sheet at 30 September 2006 is not restated. In accordance with the change in presentation made in the 2007 Annual Report togross up Brokerage assets and liabilities relating to its repurchase agreementsto maturity transactions, the presentation of the comparative figures at 30September 2006 has been changed in the Group balance sheet. The gross-up ofassets is included in: non-current investments $3,166 million; non-currentreceivables $3,227 million; short-term investments $3,399 million; and currenttrade and other receivables $844 million. The gross-up of liabilities isincluded in: non-current trade payables $6,393 million and current payables$4,243 million. There is no impact on the income statement or on net assets orcash flow in the comparative period. The reason for this change is discussed insection Z of the Principal Accounting Policies note in the 2007 Annual Report. The classification of interest income on loans to fund products has been changedto include it in revenue instead of finance income, on the basis that it is akinto management and other fees earned from fund products. The comparative periodshave been restated accordingly. Interest income on loans to fund products was$22 million for the half year to 30 September 2007 (half year to 30 September2006: $28 million; year to 31 March 2007: $51 million). A number of new standards, amendments to existing standards and interpretationshave been issued, some of which are mandatory for the financial year ending 31March 2008, with the remaining becoming effective in future years. IFRS 7 'Financial Instruments: Disclosures' and an amendment to IAS 1'Presentation of Financial Statements' on financial instruments disclosures andcapital disclosures respectively, have been adopted by the Group for reportingin its financial year ending 31 March 2008, and full disclosures will be givenin the annual financial statements. The following interpretations are effective for the financial year ending 31March 2008: IFRIC 8 - Scope of IFRS 2IFRIC 9 - Reassessment of embedded derivativesIFRIC 10 - Interim financial reporting and impairmentIFRIC 11, IFRS 2 - Group and treasury share transactions IFRS 8 'Operating segments' has been issued and, subject to EU endorsement, itwill be adopted by the Group for reporting in its financial year ending 31 March2009. The adoption of any new standards, amendments to existing standards, andinterpretations will not have a material impact on the results or financialposition of the Group. 2. Segmental analysis The Group's continuing operations are in one business segment, Asset Management.There are no other significant classes of business, either individually or inaggregate. Brokerage is classified as a discontinued operation in these financialstatements. Prior to the 2007 Annual Report, it was reported as an individualsegment. Additional information on discontinued operations is provided in note5. 3. Net finance income/(expense) --------------------------- ---------- ---------- ---------- Half year to Restated Restated 30 September Half year to Year to 2007 30 September 31 March $m 2006 2007 $m $m--------------------------- ---------- ---------- ----------Finance income:Bank interest receivable 72 24 55Finance fees 3 4 8Investment income 6 - 1Fair value gain on interest rateswaps 3 - 1-------------------------- ---------- ---------- ---------- 84 28 65Finance expense:Interest payable on borrowings (15) (10) (19)Amortisation of issue costs onborrowings (1) (1) (2)Amortisation of discount on issueof exchangeable bonds (3) (6) (17)Cost of incentive for earlyconversion of exchangeable bonds - (12) (12)Accretion of liabilities discounting (2) (2) (1)Fair value loss on interest rateswaps (10) (3) (4)-------------------------- ---------- ---------- ---------- (31) (34) (55)-------------------------- ---------- ---------- ----------Net finance income / (expense) 53 (6) 10-------------------------- ---------- ---------- ---------- 4. Taxation Half year Restated Year to 30 September Half year to 2007 to 30 September 31 March 2006 2007 $m $m $m---------------------------- ---------- ---------- ---------Taxation charge for the periodUK 81 38 73Overseas 67 61 118---------------------------- ---------- ---------- --------- 148 99 191---------------------------- ---------- ---------- --------- 5. Disposal of discontinued operation On 19 July 2007 the Group separated its Brokerage business, renamed 'MF Global',through an initial public offering (IPO) on the New York Stock Exchange. Itsresults, up to the date of separation, are presented in these financialstatements as discontinued operations. The IPO resulted in the disposal of 81.4% of the share capital of MF Global,giving rise to a gain on sale of $1.7 billion. The residual shareholding held bythe Group has been reclassified as a non-current investment and carried at fairvalue, with fair value movements taken to the available for sale reserve withinequity. The fair value of the residual holding was $645 million at 30 September2007, reflecting an unrealised gain of $432 million, which is included in theavailable for sale reserve. It is intended that net proceeds of approximately $2.75 billion received fromthe separation of MF Global are returned to shareholders through a B and C sharearrangement, which allows shareholders to elect for either capital or incomereceipt, or a combination of both. The distribution is expected to take placebefore the end of the calendar year. Results for discontinued operations comprise: -------------------------------------------------------- Half year Restated+ Year to 30 September Half year to to 31 2007 30 September March $m 2006 2007 $m $m-------------------------------- -------- -------- --------Revenue 750 1,084 2,392Cost of sales (421) (658) (1,445)Other operating income (a) 12 9 85Other operating expenses (9) (1) (3)Administrative expenses (b) (260) (364) (779)-------------------------------- -------- -------- --------Operating profit from discontinuedoperations 72 70 250Net finance income (c) 8 16 11Share of after tax profit ofassociates and joint ventures 1 1 2-------------------------------- -------- -------- --------Profit before tax from discontinuedoperations 81 87 263Taxation (28) (47) (89)Profit on disposal (d) 1,746 - --------------------------------- -------- -------- --------Profit after tax for the period 1,799 40 174-------------------------------- -------- -------- -------- (a) Included in other operating incomeare exceptional items relating to: -------------------------------- -------- -------- --------Gain on sale of NYMEX seats - - 53Income received from a legalsettlement - - 28-------------------------------- -------- -------- -------- (b) Included in administrativeexpenses are exceptional items relating to:-------------------------------- -------- -------- --------Costs directly relating to theplanned sale of Brokerage - - (35)Termination costs in relation to USpension schemes - (19) (18)Costs directly relating to a legalsettlement - - (10)Refco integration costs - (12) (12)-------------------------------- -------- -------- -------- (c) Net finance income comprises:-------------------------------- -------- -------- --------Finance income 70 87 175Finance expense (62) (71) (164)-------------------------------- -------- -------- -------- 8 16 11-------------------------------- -------- -------- -------- (d) Profit on disposal:-------------------------------- -------- -------- --------Consideration 2,921 - -Net assets disposed (928) - -Costs related to the IPO (247) - --------------------------------- -------- -------- -------- 1,746 - --------------------------------- -------- -------- -------- + The restatement in the comparative period relates to the classification ofBrokerage as a discontinued operation. In addition, revenue and cost of saleshave been amended to reduce both lines by $78 million to eliminate intra-grouptransactions. The costs of the IPO principally relate to: underwriting fees; legal, tax,advisory, audit and other professional fees; and termination costs. The profit on disposal of $1,746 million is subject to amendment in the secondhalf of this financial year, as some taxation and cost items are still to beagreed with MF Global, in accordance with the separation agreement. At the time of the IPO, the Man Group, in the normal course of business, wasguaranteeing MF Global's obligations to some of its clients. Since the IPO,nearly all these guarantees have either been terminated or novated into the nameof MF Global. The remaining guarantees are not expected to give rise to any lossfor Man Group. 6. Earnings per share The calculation of basic earnings per ordinary share is based on a profit forthe period of $2,473 million (30 September 2006: $619 million, 31 March 2007:$1,285 million) for continuing and discontinued operations, and a profit for theperiod of $1,801 million (30 September 2006: $39 million, 31 March 2007: $175million) for discontinued operations. The calculation of basic earnings perordinary share for continuing and discontinued operations is based on1,914,471,946 (30 September 2006: 1,839,434,625, 31 March 2007: 1,852,685,662)ordinary shares, being the weighted average number of ordinary shares in issueduring the period after excluding the shares owned by the Man Group plc employeetrusts. The diluted earnings per share is based on a profit for the period of $2,479million (30 September 2006: $634 million, 31 March 2007: $1,310 million) and on1,989,278,260 (30 September 2006: 2,038,498,205, 31 March 2007: 2,051,372,034)ordinary shares, calculated as follows: 30 September 30 September 31 March 2007 2006 2007 Number Number Number (millions) (millions) (millions)------------------------------ --------- --------- ---------Basic weighted average number ofshares 1,914.5 1,839.4 1,852.7Dilutive potential ordinary sharesShare awards under incentiveschemes 42.6 55.6 54.7Employee share options 5.0 3.7 4.2Exchangeable bonds 27.2 139.8 139.8------------------------------ --------- --------- ---------Dilutive weighted average numberof shares 1,989.3 2,038.5 2,051.4------------------------------ --------- --------- --------- The reconciliation of earnings per share from continuing and discontinuedoperations, to earnings per share from continuing operations, is given in thetable below: Half year to 30 September 2007 --------------------------------- Basic Diluted Basic earnings Diluted post-tax post-tax per share earnings earnings earnings cents per share $m $m cents ------------------------- -------- -------- -------- --------Earnings per share oncontinuing and 2,473 2,479 129.2 124.6discontinued operations+Discontinued operations (1,801) (1,801) (94.1) (90.5)------------------------ -------- --------- -------- --------Earnings per share oncontinuingoperations 672 678 35.1 34.1Performance fee relatedincome (216) (216) (11.2) (10.8)------------------------ -------- --------- -------- --------Underlying earnings pershare on continuing operations 456 462 23.9 23.3------------------------ -------- --------- -------- -------- Half year to 30 September 2006 (restated) ---------------------------------------------- Basic Diluted Basic earnings Diluted post-tax post-tax post-tax post-tax earnings earnings earnings earnings $m $m $m $m ------------------------- -------- -------- -------- --------Earnings per share on continuing and discontinued operations+ 619 634 33.7 31.1Discontinued operations (39) (39) (2.2) (1.9)------------------------ -------- --------- -------- --------Earnings per share on continuingoperations 580 595 31.5 29.2Performance fee related income (170) (170) (9.2) (8.3)------------------------ -------- --------- -------- --------Underlying earnings per share oncontinuing operations 410 425 22.3 20.9------------------------ -------- --------- -------- -------- Year to 31 March 2007 ---------------------------- Basic Diluted Basic earnings Diluted post-tax post-tax per share earnings earnings earnings cents per share $m $m cents------------------------- -------- -------- -------- --------Earnings per share oncontinuing and 1,285 1,310 69.3 63.9discontinued operations+Discontinued operations (175) (175) (9.4) (8.5)------------------------ -------- --------- -------- --------Earnings per share on continuingoperations 1,110 1,135 59.9 55.4Performancefee related income (275) (275) (14.9) (13.4)------------------------ -------- --------- -------- --------Underlying earnings per share oncontinuing operations 835 860 45.0 42.0 ------------------------ -------- --------- -------- -------- + The difference between basic and diluted post-tax earnings on total andcontinuing operations is the adding back of the finance expense in the periodrelating to the exchangeable bonds. 7. Intangible assets Other intangible assets ------------------------- Upfront sales Customer Other Total Goodwill commissions relationships $m $m $m $m $m--------------------- --------- --------- --------- ------- -------Net book valueAt 1 April 2007 785 405 - 24 429Currencytranslationdifference 9 - - - -Additions 16 120 - 14 134Redemptions/disposals - (21) - (2) (23)Charge for theperiod - (70) - (5) (75)--------------------- --------- --------- --------- ------- -------Net book valueat 30September 2007 810 434 - 31 465--------------------- --------- --------- --------- ------- -------At 30September 2006 840 421 142 47 610--------------------- --------- --------- --------- ------- -------At 31 March2007 785 405 - 24 429--------------------- --------- --------- --------- ------- ------- 8. Borrowings At 30 At 30 At 31 September September March 2007 2006 2007 $m $m $m------------------------------ --------- --------- --------Amounts falling due within one yearBank loans and overdrafts 91 67 1Private placement notes - senior debt - 45 45Exchangeable bonds - - 443------------------------------ --------- --------- -------- 91 112 489------------------------------ --------- --------- -------- At 30 At 30 At 31 September September March 2007 2006 2007 $m $m $m------------------------------ --------- --------- --------Amounts falling due after more than oneyearBank loans 497 172 248Private placement notes - senior debt - 248 251Private placement notes - subordinated - 202 203debtFloating rate notes - subordinated debt 398 398 398Exchangeable bonds - 414 ------------------------------- --------- --------- -------- 895 1,434 1,100------------------------------ --------- --------- -------- During the six month period to 30 September 2007, the remaining 62% (30September 2006: 38%, 31 March 2007: 38%) of the Group's exchangeable bonds wereconverted, resulting in the issue of 116,366,171 shares. On 9 July 2007, immediately prior to the separation of Brokerage division, theprivate placement notes were redeemed as part of the refinancing of both the ManGroup and MF Global. The Group incurred $18 million in early repayment andtermination charges resulting from the redemption of the private placement notesand associated interest rate swaps which are included in the profit on sale ofMF Global in discontinued operations (note 5). In July 2007, the Group's $2.275 billion syndicated revolving loan facility wasreplaced with a similar 5-year facility of $2.5 billion. 9. Cash generated from operations Restated Restated Half year Half year Year to 30 September to 30 September to 31 March 2007 2006 2007 $m $m $m---------------------------- ---------- ---------- ---------Profit for the period:Continuing operations 672 580 1,110Discontinued operations 1,799 40 174---------------------------- ---------- ---------- --------- 2,471 620 1,284Adjustments for:Income tax 176 146 280Gain on sale ofsubsidiary (1,746) - -Finance income (154) (115) (240)Finance expense 93 105 219Share of results ofassociates and jointventures (58) (25) (46)Gain on disposal of anassociate (16) - -Depreciation of tangiblefixed assets 14 14 30Amortisation ofintangible fixed assets 85 79 157Share based paymentsexpense 34 27 65Fair value gains onavailable for salefinancial assets (11) (4) (58)Impairment charges - 1 1Net (gains)/losses onfinancial instruments (5) 6 (6)Increase/(decrease) inprovisions 3 (2) (22)Other non-cash movements (15) (13) (13)---------------------------- ---------- ---------- --------- 871 839 1,651Changes in working capital:Increase in receivables (14,522) (6,470) (15,998)Increase in otherfinancial assets (3,551) (5,293) (6,452)Increase in payables 17,904 11,435 22,369---------------------------- ---------- ---------- ---------Cash generated fromoperations 702 511 1,570---------------------------- ---------- ---------- --------- 10. Contingent liabilities Man Financial Inc., a former US subsidiary of the Group, was served on 8 May2006 with a Complaint by the receiver for Philadelphia Alternate Asset Fund('PAAF') and associated entities. PAAF investors incurred trading losses as aresult of alleged wrongdoing by a trading manager of PAAF. Man Financial (now MFGlobal) acted as one of the brokers to PAAF, executing and clearing tradinginstructions given by PAAF. Although it has denied liability in the case, inorder to avoid the uncertainties of a jury determination and further litigationcosts, MF Global has put forward a settlement of $69 million. As part of theseparation agreement, Man Group plc has agreed to indemnify MF Global for anylosses in excess of $50 million, after giving effect to any insurance proceedsMF Global receives, resulting from this action. It continues to be the case thatthis matter is not expected to have a material financial impact on the ManGroup. 11. Related party transactions During the period the following categories of related entities relationshipsoccurred: Entity type Description of Description of transactions relationship -------------------------------------------------------------------------------Associates Investor and Seeding and liquidity investments, loans to fundand joint trading advisor products, external re-financing guarantees, assetventures management performance, management and other fees, brokerage commissions, and interest and dividend income.------------------------------------------------------------------------------- Sales / (purchases) of services with related entities during the period: Half year Half year Year to 30 September to 30 September to 31 2007 2006 March 2007 $m $m $m------------------------------ --------- --------- --------Asset Management:Management fee income 248 218 425Performance fee income 77 101 121Other fee income 13 9 21Interest income 9 7 11Brokerage: netcommission expense - (3) (27)Dividend income 42 27 49------------------------------ --------- --------- -------- 389 359 600------------------------------ --------- --------- -------- All transactions between related parties are carried out on an arm's lengthbasis. Period-end balances arising from sales / purchases of services with relatedentities during the period: At 30 September At 30 September At 31 2007 2006 March 2007 $m $m $m------------------------------ --------- --------- --------Receivables from related entities 120 150 130Loans to related entities 26 10 24------------------------------ --------- --------- -------- Key management compensation is in line with the amounts disclosed in thefinancial statements for the year ended 31 March 2007. 12. Exchange rates The following US dollar:Sterling exchange rates have been used in thepreparation of this Interim Report: 30 September 30 September 31 March 2007 2006 2007---------------------------- ---------- ---------- ---------Average exchange rate 0.4990 0.5398 0.5280Period-end exchange rate 0.4889 0.5344 0.5079---------------------------- ---------- ---------- --------- This information is provided by RNS The company news service from the London Stock Exchange

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