Macquarie Group Limited

Good morning everybody and welcome to Macquarie's first half 2023 result presentation. Before we begin this morning, I would like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora nation and pay our respects to their elders past, present, and emerging. For those in the room, if you could please mute your phones before we start, that'd be great. As is customary, we'll hear from both our CEO, Shamara Wickramanayake, and our CFO, Alex Harvey, on the results, and there will be an opportunity for you to ask questions following that. We'll start in the room, and then we'll go to the lines. With that, I'll hand over to Shamara to go through the result. Thank you.

Thanks, Sam, and welcome. Good morning, everyone, from me as well. And as usual, we'll kick off our half-year results by just noting the footprint of the business that we have. And as we've shared many times, we have a very good diversified portfolio of businesses across four operating groups. We have two annuity-style businesses, which are BFS, our Australian Banking and Financial Services business and our global asset manager, Macquarie Asset Management. And then we have two global market facing businesses in our commodities and global markets and our Macquarie Capital business. And these businesses give us good diversification through the cycle and resilience. And in the environment we just had, we had an equal contribution from each of the annuity style and the market facing activities. Now, those operating businesses are supported by four important support groups, our risk management group, our legal and governance group, our financial management group, and our corporate operations group. And all of our group heads, I think, are represented either in the room here today or dialed in. So if you have questions, they'll all be here to speak to you. So turning to the results for the first half, as you can see, we delivered a result of $2.305 billion. That was up 13% on the first half of last financial year and down 13% on a very strong second half last financial year. The return on equity was 15.6%, which is commendable in this environment. looking at the contribution from the operating groups, in terms of the result versus the first half of last year, they were up 15%. And that was principally due to contribution from the market-facing groups, which were up 35% on that period. And looking at them versus the strong second half, as I mentioned last year, they were down 17% with the annuity style and the market-facing being down on that very strong period. And indeed, if we look at it over... longer period and that's the last five halves you can see the operating income and the profits and the earnings per share kept stepping up until the second half last year in which we had some very strong realizations and asset sales and so the result for this half is down slightly on that Our assets under management, as you saw at the beginning of this financial year, stepped up quite a bit with the two large acquisitions we did in the public investments area. And in this half to September, they're up 3%. The main driver there is the investments being made in the private markets business and the benefits of foreign exchange movements, partially offset clearly by the movement in markets, particularly equity markets. And then looking at the diversification of our income by region, you can see there the Americas were 38% of our income, EMEA 24%, Asia 10%, and Australia 28%. You may recall last year the Americas had stepped up to 48% because of some very large one-off gains in the Americas, but I think this is showing a trend that we've been foreshadowing for a while, which is that the percentage contribution from the Americas and the EMEA region will continue to grow, particularly relative to Australia. And that's while Australia, as you can see on this slide, continues to grow in absolute terms, but the fact is we're quite mature in a small market here, whereas in North America and EMEA, in the Americas more generally, and EMEA, we are a small representation at the moment in very big markets, and as we grow a little bit there, the percentage grows more materially than the Australian. Now, looking at each of our operating groups and their contributions through this period at a high level, Alex will take you through more detail in a minute, but the asset management business, Macquarie Asset Management, contributed 31% of our income in this last half year at $1.402 billion. That was up 28% on the prior comparable half. And some features to note in the private markets business, the equity under management is now at a record $188.5 billion, having raised also a substantial record raising of over $20 billion in this half, $22 billion. And we have dry powder of $30 billion as we go into the next period. I'd also note that the Green Investment Group was brought over into the asset manager last year, as you may recall. That integration is growing well. We've launched our offshore wind platform, Coreo, in this period. In the public investment side, the assets under management at $520.7 billion are down 3%. The main driver there, as we said, is market movements, partially offset by foreign exchange. So good contribution from the asset manager. Also the banking and financial services group, 13% of our income up 20% on the prior comparable period at a $580 million contribution. And you can see there that every line of the business has continued its organic growth with our home loan portfolio up 13% now at just over 101 billion. Business banking up 7% at $12.3 billion. And we had inflows into our funds on platform, but they were down slightly due to market movements. Now, I'd note also the quality of the book there in terms of the LVR at which we're able to grow our home loan portfolio also remains very strong. And all of that growth supported by Again, a big step up in deposits, where we've had the deposits growing now to $116.7 billion. Turning then to the market-facing businesses, commodities and global markets, the largest contributor in this half, 43% of our income and a result of $1.996 billion, which was up 15% on the prior comparable period. We had good solid contribution from the asset finance business, even though you may recall at the end of last year, we divested the UK industrial and commercial meters business, which took the book from 6 billion down to 5.7 billion, but solid contribution there. And then in our financial markets and our commodities, commodity markets businesses, we saw volatility driving increased Client need an activity, an opportunity for us to step up and support our customers. So in financial markets, that drove good results in increased earnings in foreign exchange, also futures and the financing activities in equity derivatives and trading. And in the commodity markets, we had... an increase in terms of our revenue from risk management across all of power and gas, resources, global oil. In the inventory management and trading income area, we did see gains from the gas and power business, but that was offset by the timing of income recognition in storage and transportation contracts. And then Macquarie Capital contributed also 13% of our income in this last half, down 12% at $595 million. And the big factor there, obviously, is that activity levels are much lower in this environment. And that's meaning that fee revenue is lower across areas like mergers and acquisitions advice and capital markets advice. Having said that, our principal investment book has continued to grow. sitting now at $18 billion, particularly in private credit. We've grown that book now to $15 billion and we're having increased income from the credit side and we had some good realisations in this first half, particularly in real estate and in our digital infrastructure businesses. So that's the contribution from the four operating groups that was supported as ever by a strong funding and capital position. And you can see here that our funded balance sheet remains strong with our term funding still comfortably exceeding our term assets. We were able to raise 15.4 billion of term funding in this half. on top of the over $48 billion that we raised in the last half. So we're well positioned with our term funding, and as you can see, we're sitting now with all of that funding, over $100 billion of cash and liquids. In addition to that, I mentioned our customer deposits. The BFS team have been growing those very well, and we're at $122 billion now of deposits, up 20%. So good funding position, and also in terms of capital, a strong position where our BAL3 surplus has gone from $10.7 billion up now to $12.2 billion. Drivers of that clearly were the earnings in the first half offset by the dividend that we paid, hybrid issuance that we did contributing $800 million, and then the net absorption of capital in the businesses, which, as you can see, was not massive in this period. So in Macquarie Asset Management, there was $400 million going into ongoing supporting the organic growth of that business, either seed assets for funds or co-investment into the new funds. BFS continued to absorb capital in the growth of its mortgage book, its business banking book. In CGM, we had a release of capital, and that's really counterparty credit capital that we're holding and driven by market movements. And then in Macquarie Capital, we had some investments I mentioned were growing the credit book in principal finance. and also some digital infrastructure investments. Now, the large absorption of capital was in FX movements, which is offset by our foreign currency translation reserve. We also are sitting with strong regulatory ratios, well above the BAL3 minimums, as you can see there. And given that result and where we're sitting with capital and funding, the board has declared an ordinary dividend of $3 for the half year. That is a 50% payout ratio. So with that, I'll hand over to Alex to take you in more detail through the performance of the businesses and come back to talk about our outlook.

Thanks, Shamara, and good morning, ladies and gentlemen. As Shamara said, I'll now take you through more of the detail on the financial results for the first half and then talk about some other aspects of the group. over the last six months. So starting now with the income statement, you can see here operating income for the half up 11% from where we were in the first half of 22. The key drivers there were 39% increase in net interest and trading income, reflecting the growth in the loan books across the group together with the strong trading conditions that we saw. You can see a 56% increase in investment income, and that reflects disposals that we saw across our green energy portfolio, the real estate assets within Macquarie Capital and the digital infrastructure assets. And those were partly offset by a reduction in fee and commissioning, come down $420 million, and a lower contribution from the share of joint venture associates, joint ventures and associates. Operating expenses were up 11% also for the half versus the first half of last year. And the key drivers there really were the increase in employment expenses, reflecting higher average headcount in this half versus the first half of last year. Wage inflation coming through, together with higher profit share expense and share based payments expense, reflecting the underlying performance of the group. The income tax, the effective tax rate for the half was up at 24.3%. So the bottom line, 2.3, just over $2.3 billion up 13% from where we were in the first half of FY22. Turning now to more of the detail for the individual operating groups and starting with the asset management business. You can see profit for the half up at $1.4 billion, up 28% in the first half of last year. The key driver there was the increase in investment-related income coming through largely from the disposal of the assets in the green investment group that we transferred into Macquarie Asset Management during the half net of the gains that we saw in the first half from the disposal of the MIC assets in the first half of last year. So a step up in investment-related income on a net basis. Expenses were down during the period, largely reflecting the fact that we had one-off costs, as I said, with the acquisitions, particularly with Dell and Reid in the first half of last year. And you can also see base fees up $16 million, and there's a couple of things that are worthwhile highlighting there. The private markets base fees were up 12%. We obviously had favourable foreign exchange movements coming through, and they were partly offset by the market moves across our public investments business together with outflows across some of our equity portfolios in the public investments component of that business. In terms of the underlying drivers, assets under management, obviously key. On the left-hand side there, you can see the private markets piece, a really good period of investing, nearly $23 billion of additional assets under management through the investment activities across the platform in the first half. Favourable FX, so pushing up the assets under management by $36.9 billion. On the right hand side there you can see the market moves, the market moves over the first half offset, well mostly offset by the FX effect that we had coming through on the public investment side as well. Turning now to the banking and financial services business, obviously a really strong result, $580 million up 20% from the first half of last year. And that really reflects the growth in the loan books. It also reflects the recovery in margins that we're seeing coming through that business. In terms of the segments, personal banking up $119 million. That reflects a 30% average growth in loan volumes in our mortgage business. Although we did see a moderation of the growth in those loan volumes toward the second half of the first half in FY23. A really strong result from the mortgage perspective. On the business bank, up $55 million. So we saw a growth in the loan books. We also saw a growth in the deposits. And we had better margins and better margins on the deposits coming through that business. Wealth management income up $76 million, reflecting the growth in deposits and improved margins on deposits coming through that business. And then you can also see the step up in expenses. And we've talked about this for a while now, The team in BFS investing heavily in the platform, increasing headcount to support the growth that we're seeing coming through there, increased investment on the technology side to make sure the platform supports the digital business that Greg and the team are running down there, and obviously investment that we're making across our regulatory obligations and compliance obligations. So you saw that coming through for the first half as we foreshadowed. In terms of the underlying drivers of the business, home loans up, business loans up, deposits up. We saw a partial reduction in the platform assets. Obviously, that's mainly market moves coming through over the first half. And you can see the fall off in car loans there, remembering that we sold, obviously, the dealer finance book in particular in the second half. We completed the sale of the dealer finance book in the second half of FY22. So turning now to the first of the markets facing businesses, the commodities and global markets business up just under $2 billion worth of contribution for the half, a really strong result. Obviously we had strong conditions across most of the platform in CGM for the first six months of the year. Turning to the component parts, you can see commodities up 635 million, about 50% up on where they were for the first half of last year. Pleasingly, we saw a step up of $547 million in the contribution from the risk management aspect of that business. That's where we're providing derivative solutions to clients. We've had an expanded client base there. Obviously, we saw strong conditions, lots of volatility, lots of transaction activity in the first half. And we particularly saw good contributions across gas and power, and that's obviously becoming much more of a global business. So we saw contributions across all regions in the gas and power business. We saw an increased contribution from the resources segment there, together with global oil. On the inventory management and trading, up $20 million from the first half of last year. We saw good trading gains, particularly through the North American gas and power business. offset by that timing of income recognitions associated with the transport and storage assets that are used in that business both in North America and also in Europe. Really pleasing result from a financial markets perspective, up $263 million, just over 70% increase from that business last year and that's obviously FIC, futures, credit markets, that sort of business in in our CGM business, up $263 million, a 70% increase. Obviously, we saw lots of transaction activity through the first half. The other thing we saw, and I think will be very familiar to people, is volatility in FX markets and interest rates. We saw a lot of volatility, particularly through the first half of the year in that business, and the business was able to provide solutions to help clients manage that risk over the course of the first six months of our year. Investment income down $523 million. That largely reflects the gain that we saw in the first half of FY22 from the disposal of the industrial and commercial metres business in CGM. And you can see expenses up over the period, again reflecting a slight increase in headcount. In average terms, the headcount's up about 5%. We also saw, we see the investment that the team is making in the technology platform to support the business, together with the investments being made in regulatory and compliance obligations in that business. In terms of the underlying drivers, again, a chart, hopefully it's familiar to people. You can see on the top right hand side there, the key driver of this business obviously is client numbers, actually being able to provide services to more clients in more regions and more often. And we see that continuing through the first half of FY23. You can see that reflected in the underlying operating income, the underlying client business driving the big step up in operating income for CGM for the first half. And from a capital perspective, I'm sure people recall March 22 was quite an elevated level of capital in CGM. That's remained pretty consistent from period to period, although we did see a spike in capital usage, particularly in the middle part of the half with energy markets across the world. In terms of Macquarie Capital, a more subdued period, not surprising obviously with transaction volume. So if you look at where we are for the first half, $595 million of contribution and you can see the component parts there. Fee and commissioning come down 23% from the first half of last year and that's both from an M&A perspective together with on the capital market side. operating expenses up through the period. Again, the investment that the team's making in the platform to support the growth of the business going forward. And those two were partly offset by an increase in investment-related income. It was good to see the disposals coming through the real estate assets that Macquarie Capital have on their balance sheet. together with the digital infrastructure assets that the team has been working on and building over the last couple of years. We also saw an increased contribution from the principal finance portfolio, up $89 million in terms of the contribution for the first half of FY23. As I mentioned, one of the key things from Macquarie Capital is the capital we have alongside our clients there. You can see what's going on in this chart, up from $3.6 billion to $4.1 billion at 30 September. The primary move there is the increase in debt that you see coming through, together with the increase in digital infrastructure investment. The team has found some additional investment that they've been able to make in the Philippines Tower portfolio over the course of the half. So it was good to see that coming through and obviously that capital investment or capital partnership should pay off into future periods. So that's the operating group. So I might now turn to a couple of other aspects of the financial result for the half. One of the things that we have been doing over the last few years, investing significant amounts in the platform to support the type of organisation we wanna be, to support our ability to grow going forward, and obviously to meet the obligations that we have across the group. So we set out a couple of slides here which illustrates some of where that expenditure is occurring. And firstly, maybe to start with the regulatory compliance slide, you've seen this before, up 41% from where we were in the first half of FY22. There's a couple of aspects there. You can see an increase in regulatory change and project expenses up 60% from the first half of 22. Some key programs have worked there. We're doing end-to-end capital and liquidity transformation across the group. We're obviously working on our APA remediation program that we talked about before, and we're continuing to uplift the focus on non-financial risk across the group. Now, some of that finds its way into business as usual spend, and so you can see that up 33% from the first half of FY22. Obviously, there's an ongoing obligation to meet our obligations. Also, some of that project spend that we see that translates into ongoing business as usual expenditure coming through our regulatory compliance efforts. And then on the bottom part of that chart you can see the technology spend over the last few years up an annual growth rate of 12% over the last four or so years. Significant investment being made to support the growth of the business. In particular, and there's obviously lots of activity here, but in particular the team is making a significant investment in data. and in data analytics, in end-to-end straight through processing and all the way to cyber and of course increasing use of cloud capability across the group. Now, in terms of the central support areas, another area we've been investing heavily over the last few years, you can see here the expenses up FY22, nearly $2 billion in the first half of 23, $1.26 billion of expenditure across corporate operations. And what COG is doing, apart from running the operations of the group, particularly focused on data, data analytics, automation, machine learning, helping us actually meet our obligations, but also position ourselves to grow. From a financial management perspective, modern financial management, thinking about real-time analytics to support the groups. And then from risk management perspective, you can see the focus around non-financial risk, and uplifting our capability to manage risk across the organisation. So these are very significant investments that we're making to support the platform, further embed and strengthen the foundations of the group, enable better risk management. And of course, the other thing is very important. is enabling the groups actually to nimbly move towards new opportunities, to actually change and adapt and actually see opportunity coming forward. All these investments we're making in the central support groups are important to do that. During that period of time, of course, what we've been able to do is deliver an average return on equity over that same period of time of about about 16%. So we're able to continue to deliver despite the increase in cost. And of course, what we think we're doing is setting up the business to be well positioned for the future. In terms of the balance sheet, Shamara mentioned it obviously, very consistent story, solid conservatively positioned balance sheet. Pleasingly, we saw the opportunity to raise $15.4 billion worth of term funding over the course of the half. That was split pretty evenly between term funding for the bank and term funding for the group. The diversity of issuance is something we've talked about before. We continue to look for new pockets of funding to support the efforts of the group. Obviously, from a weighted average life, the term funding is quite long-dated supporting the activities of the group. In terms of the deposit story, up at $122 billion worth of deposits, up 19% from the half. And I think what's really pleasing about this story in particular is what's happening in BFS, expanding the product portfolio, tailoring products to meet the customer demand. And over the course of this half, we saw a really good step up in our transaction and savings account. That account actually is something we introduced, I guess, about two and a half years ago. So that's now growing nicely. The other thing we saw was the opportunity to grow our retail term deposit portfolio. In terms of the loan, the lease portfolio up 11%. You can see the key drivers there, home loans at the top of the page, really driving the step up. And the other thing we've seen during the half is the increase at the bottom of that stack, really in the corporate and other lending, which is the private credit business, largely the private credit business that Macquarie Capital has been growing over the last few years. From an equity perspective, up a billion dollars on where we were for 22. I guess the main thing to point out there probably is the use by MAM of the balance sheet, the asset management business of the balance sheet, putting their foot on seed assets that we see, which will ultimately make their way into new mandates and new products for customers in that private market business. In terms of the regulatory update, lots of things going on. I mentioned that obviously previously. A couple of things to point out here. Firstly, in relation to the new capital standards, they obviously become enforced at the 1st of January. Been a long time coming. We're obviously pleased that that process is now complete. We're obviously well advanced in terms of our preparation for that and have been holding capital aside for those changes for some time. The other thing I might point out is just that the work that we're doing with APRA in relation to the NBL remediation program, a really important piece of work. Obviously the end result of that program is improved processes, improved systems, improved frameworks, and plainly, we think it'll further strengthen the risk culture across the organisation. In terms of the bank capital ratio, very strong at 12.8%, as is the liquidity position in terms of the LCR itself, but also the unencumbered liquid assets and cash that we have on the balance sheet over $75 billion. And finally, for me, in terms of capital management, just a couple of things to mention here. During the period out of the group, we were able to issue a new hybrid, raising $750 million. We're also able to do a tier two issue out of MBL, raising $850 million. So we appreciate the support that we get from investors across each of those areas. And the final thing to mention for me, in terms of the interim dividend, the board has resolved that no discount will apply for the first half 23 dividend reinvestment plan. and that we intend to acquire shares on market to satisfy any applications under that plan. So with that, I'll hand back to Shamara. Thanks.