Man Group plc - Interim Report 2007

Chief Executive’s Review
We have made significant progress in the first half of the year in successfully executing our strategy. While the recent market conditions have been challenging, our consistent strategy, attractive product range, and strong capital position mean that we are well positioned to take advantage of the additional growth opportunities we now see in the market. Funds under management increased by 21% to $68.6 billion as of 30 September 2007, compared to $56.8 billion as of 30 September 2006, and $61.7 billion as of 31 March 2007. Private investor 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 of strong sales ($8.0 billion) and performance ($2.9 billion) net of redemptions and other movements ($4.0 billion). Group profit before tax from continuing operations increased 21% to $820 million, reflecting a 17% increase in net management fee income and a 28% increase in net performance fee income, compared to the first half of last year. Operating cash flow on total operations for the six months ended 30 September 2007 was $702 million, indicating the highly cash generative nature of the business.

Our performance between July and September in the fund of funds area was above the market benchmarks, particularly in the two core fund of funds, Glenwood and RMF product ranges, validating the value created through the skilful selection of managers and diversification of strategies. We did experience negative performance in the multi strategy area; however, the conservative structuring of our guaranteed products provided resilience in difficult markets. Consequently none of our guaranteed products was forced to de-gear and we have not experienced a significant increase in redemptions. During the six months to 30 September 2007 the managed futures strategy has performed well, in particular towards 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 its business through closed-end collateralised loan obligations. All these structures have performed well and no credit events were encountered. The long only open-ended credit funds managed by Pemba saw negative performance in the turbulent markets in the July to September period, resulting in six months performance to September ranging from -1.5% to -11.8%, depending on the level of leverage employed. Across all the Core Investment Managers we had minimal exposure to sub prime mortgages, asset or mortgage backed securities and therefore our performance was not directly affected by the exposure to these markets. Throughout the period we maintained significant surplus cash, regulatory capital and unused committed lending facilities to enable us to provide support to our investors and investment managers.

The initial public offering of MF Global on the New York Stock Exchange in July was a success with the sale of 81.4% of our holding (refer to note 5 to the interim financial statements for further details). Consistent with our strategy and, subject to shareholder approval, the net proceeds of approximately $2.75 billion will be returned to shareholders by the end of the calendar year. In addition, $770 million was returned to our shareholders in the first half through a combination of the final dividend for last year and share repurchases. For our shareholders these distributions represent a significant return of value and equate in aggregate to approximately 15% of the Company’s current market capitalisation.

The strategic importance of the separation of the brokerage business is to allow us to increase focus on developing our leading position in the investment management business. Our strategy is to generate continued balanced growth by leveraging our international presence and access to high quality underlying investment management. We will continue to extend our institutional sales franchise by accessing new markets and developing innovative product solutions for 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 reviewed our capital base, distribution policy and financial objectives. Recognising the increased diversification and stability of much of our performance fee income, we have changed our distribution policy to target dividend cover of at least 1.8 times the combined management fee and performance fee earnings. In addition, we will use share repurchases on a continuing basis to address capital surpluses as they arise, recognising the need to maintain a strong capital position and flexibility 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 to excel, retaining them and ensuring that they progress in their careers is a key focus of senior management across the Group. Following the MF Global separation we have integrated functions into a single business model. Permanent headcount increased in the first half by 4% to 1,634 as at 30 September 2007. The increase in headcount was primarily in the investment management and investor support areas as we expand our franchise. We have made some senior appointments in the period, including a new head of technology, a chief operating officer for Man Global Strategies, a senior appointment in the institutional sales team in the US and a head of new alternative investments in the US within the RMF hedge fund research team. We published the summary results of our employee survey in our Corporate Responsibility Report in July 2007, which indicated that employees were proud to work for the Man Group, were clear about what they were trying to achieve and individual skills or knowledge had improved. We continue to see opportunity in the market to attract new talent into the Group in order to grow our existing franchise. In addition we have continued to promote exceptional individuals into key senior management roles within the Group.

During the first half year, Harvey McGrath indicated his intention to retire from the Group Board in November 2007. To facilitate an orderly transition Harvey stepped down as Chairman effective from 1 September 2007, and Jon Aisbitt, 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 and experience in international financial markets. These changes continue to strengthen the governance and the senior advisory role of the Board.

Product innovation allows us to develop an extensive and flexible range of products to meet the risk, return, liquidity and other requirements of our investors worldwide. We have developed a successful business model that utilises our ownership or preferred access to a wide range of portfolio managers, to offer investment performance designed to have a low correlation to bond and equity benchmarks.

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