Macquarie Group Limited

Thank you very much and good morning everyone. Welcome to Macquarie's 2023 full year results presentation. Before we begin, I would like to on the line, we also have our group heads. At the end of today's presentation, as the operator mentioned, we'll have a Q&A session and we're looking to conclude by about 11.15. So with that, I'll hand over to Shamara. Thank you.

Thanks very much Sam and welcome and good morning everyone from me as well. So as usual we'll start this presentation by looking at the footprint of our business across our four operating groups and those are as long-term investors will know our Australian digital banking business BFS, our global asset manager Macquarie Asset Management, our global commodities and financial markets business, and our global Macquarie Capital business that is a specialist advisory in capital solutions and balance sheet investment business in our areas of expertise. Across those four businesses, we get very good diversification, not just by geography, but also by product exposure. And they all respond differently in different markets. So we get a lot of resilience in our earnings through cycles as a result. And in this most recent cycle, which was conducive for particularly the commodities and global markets business with the market facing businesses to an extent in general, we had 59% contribution from the market facing businesses and 41% from the annuity style. Now, supporting those four operating groups are four very important central service groups that ensure, again, that we deliver strong results through cycles. And those are our legal and governance group and our risk management group that give us very strong second line review and also assist in executing in terms of initiatives we take and then our financial management group which is responsible not just for our financial and regulatory reporting and our engagement with external stakeholders but also our funding and capital through cycles and then lastly our corporate operations group that delivers our entire platform across technology, HR, premises, strategy etc. Now, all those eight areas together in this last financial year delivered, as you saw, a record result of $5.182 billion, and that was up 10% on the previous financial year. The return on equity at 16.9%, was down a bit on the 18.7% last year, but that was principally due to much increased capital position with our capital surplus now materially higher than it was at the end of last year. And we'll touch on that as we go through the presentation. I won't dwell on the half on half changes, but year on year, the contribution from our operating groups was also up nearly 10%. It was up 9% on the previous financial year and that was made up of the annuity style businesses being down 17% principally due to some large one-off items last financial year. In Macquarie Asset Management we had the Macquarie Infrastructure Company contribution and large realisation of green energy assets and in commodities and global markets we had the realisation of our industrial and commercial meter business in the UK last year. The market facing businesses were up 38% on the last year and that was principally driven by the contribution from commodities and global markets where we had elevated volatility and market price movements in commodities. Now, overall, we, as I said, on net profit were up 10%, our operating income was also up 10% and our earnings per share were up 6%. The dividend per share is up 21% at the $7.50 approved by our board. Our assets under management are also up 10% at $870.8 billion and I'd note that we're now including our dry powder in assets under management for previous years as well as the current year to be consistent now with global peers. The big drivers of that increase were investments made in the private markets managed funds and foreign exchange movements and that was partially offset by market movements impacting the public investments business. In terms of the geographic diversification of our income, Australia contributed 29%, so we had 71% coming from outside Australia, with the Americas being the largest contributor again at 38% this year. I'd also note in terms of our now 20,500 plus headcount, more than 51% of that is also outside Australia. In terms of the trends of growth in income in all of our regions, you can see on this slide The underlying trend is increase in all of our four regions. The Americas last year, as you will probably know, had a very large contribution from realisations in the green investment group and some commodities and global markets income. So turning then to look at each of the four operating groups and their contribution over the last year, starting with Macquarie Asset Management. Macquarie Asset Management contributed 23% and that was down 23% on the previous year at just over $2.3 billion. And as I mentioned, the reason for that drop is principally because last financial year we had the Macquarie Infrastructure Company and the large green investment group realisation contributions, which didn't repeat. Despite that, the underlying franchise is growing very well. So in the private market side we have record equity under management over $200 billion and we had record raisings of over $38 billion compared to the record last year of $27 billion. And we have dry powder of nearly $35 billion to invest as we potentially go into what could be a better investing environment. On the public investment side, the assets under management are down slightly, and that's mostly driven by market movements, plus the rotation from equities to fixed income that we've seen happen over this last year, partially offset by foreign exchange. That business franchise has also stepped up a lot with the acquisitions made over the last financial year. And I'd note that 70% of its assets are beating their benchmark on a three-year basis. Then turning to banking and financial services, it contributed 12% over this last year of the net profit, and it was up 20% on the previous year to just over $1.2 billion earnings. That was driven by strong growth across the entire platform. So the home loans were up by 21%, the business banking up by 13%, the funds on platform up by 4%. And importantly, our deposit book growing by about 30% to support all of that. A couple of things I'd note is that in our growth in our books, not just home loans, but all of them, we're very focused on high quality growth in terms of good credits and good returns. and the average LVR at origination remained around 65% and the average dynamic LVR as about 55% for home loans. I'd also note with the deposits the diversity of the sources from which we have our deposits. Turning then to commodities and global markets, this was the largest contributor to net profit contribution at 57% this year. That was up 54% from last year at just over $6 billion of contribution. And we had solid contribution consistent again from the asset finance business and also the financial markets business that grew their contribution. And that was in areas like foreign exchange and interest rates where we benefited from volatility and from client engagement and in the futures business a strong step up from significantly higher interest and commission revenues. But the biggest contributor was the commodities business where we had both strong risk management income across areas like gas and power, global oil and resources and substantially increased contribution from inventory management and trading, particularly given demand supply dynamics impacting North American gas and power opportunities. And then Macquarie Capital contributed 8% of our net profit contribution. That was down 47% at just over $800 million. And the main drivers there were that we had weaker market activity compared to a very strong prior year, which impacted fee revenue and capital solutions advisory and capital raising revenue. On the principal slide, we had slightly lower investment income. But we continued very good investing across particularly private credit and also across equity and had stronger private credit income underneath that. The private credit book is now at, I think, $18 billion. We invested about $7 billion over the year. We saw a slowing in deployment in the second half, so probably about three and a half in the first half, two and a half in the second half as the environment was tighter. And I should have mentioned in relation to BFS as well, Alex will give more detail, but the growth in our home loan book also we saw slower in the second half than the first half. So those results from the four operating groups are supported by a very conservative and strong funding and capital position. And in relation to our funded balance sheet, that remains strong with our term funding continuing to comfortably exceed our term assets. And over this last year, deposits across the group grew 33% to $134.5 billion. And we also issued another $23.3 billion of term lending, coupled with the $48 billion plus that we did last financial year, we've done over $70 billion of funding in the last couple of years and again as Alex will elaborate we're very strongly positioned now not to need to go to markets for some time if that were the case in terms of meeting our funding needs. On the capital front our apribal tree capital surplus has increased from the half-year 12.2 billion to 12.6 billion at the end of the full year. that's after absorbing the 2.4 billion of capital requirement due to the APRA unquestionably strong reforms and I particularly note that our capital surplus at the end of last financial year was at 10.7 billion we're now at 12.6 after absorbing 2.4 billion of regulatory capital requirements. Now the drivers in this half in terms of increase in the capital have been clearly the earnings net of the dividend but we also had a billion dollars of capital released from the business requirements and there's more detail of that you can see here where the biggest contributor was the 1.7 billion of release we had from the commodities and global markets as we had a reduction in credit risk capital due to lower commodity prices and exposures. That 1.7 billion release was absorbed to some extent by the other businesses so Macquarie Asset Management absorbed about a half a billion in terms of co-investments and seed investments to grow our offerings and our franchise and that was offset slightly by realizations in the green energy green investment group area. In BFS, we absorbed about another $300 million of capital in growing our home loans and our business banking books, partially offset by runoff in the vehicle leasing. And then in Macquarie Capital, we absorbed about $500 or $600 million in investment, as I said, in the private credit lending activity, but also in some targeted equity investments in our areas of expertise and focus in that business. And with that, we are ending the year with very strong regulatory ratios, well above the APRA BAL 3 minimums. And I'd particularly note our liquidity coverage ratio at the moment is sitting at 214%. Those ratios ordinarily, of course, run off unless there's issuance as the funding runs down, the liquid funding. And I would also note in terms of dividends, as I said, that the board has approved a dividend of $4.50, 40% franked for the year end dividend. And that results in a full year dividend of $7.50, 40% franked. which is up from the $6.22 declared for the last financial year. And the last thing before I hand over to Alex is just updating on some of the board changes that we've had recently. First of all, Sue Lloyd Hurwitz, who will be well known to investors as the CEO, retiring CEO of Mervac, will be joining our board effective the 1st of June onto the group board and then following approval at the AGM will also become a director of the bank board. And then Nicola Wakefield Evans, who has been our longest serving director, has also confirmed that she will seek re-election at the AGM, which will happen in July. So with that, and I think she's expected to continue on our board in 2024. So with that, I'll hand over to Alex to take you through the results in more detail.

Thanks, Shamara, and good morning from me as well. As Shamara said, I'll now take you through some more of the detail of the financial results for March 23 and also some of the other aspects of financial management across the group. So starting with the income statement, and I thought I'd start by looking at the second half in comparison with the first half and then move on to the full year. So from a second half viewpoint, if you look at net operating income, it was up 21% for the second half in comparison with the first half. The key drivers of that were a 50% increase in net interest and trading income, a $506 million increase in fees and commission income, partly offset by a reduction in investment income, and we talked about this at the half in terms of those realisations that were skewed to the first half of the year. In combination with that, expenses for the half were up 16%. Tax rate was slightly up based on the composition of income. And as a result, the group delivered a profit of $2.877 billion for the second half, which of course is a record half. Turning now to the full year result and bringing together the first and the second half, you can see operating income for the year was up 10%. That was driven by a 53% increase in net interest and trading income. offset by a 5% reduction in fee and commission income, a reduction in the investment related disposal proceeds during the year and a lower contribution from joint ventures and associates coming through the group in the full year. Expenses were up 12% for the period. The key driver there is really employment expenses and there's a few things happening there. We saw an average increase in headcount of 12% across the group skewed toward the central service areas and to the banking and financial services group. We also saw wage increases coming through the group and the other thing we see is an increased profit share and share based payments expense coming through consistent with the underlying performance of the group. Effective tax rate up slightly from where we were at the full year FY22. So bring that all together, an underlying net profit across the group of $5.182 billion up 10% on where we were this time last year. I'll now turn to each of the operating groups and give you a little more detail about the performance over the course of the year. So starting with the asset management business, you can see the net profit contribution at $2.342 billion down 23% from where we were in FY22. And the key drivers there are lower proceeds associated with realisations across the group, particularly realisations through our green energy portfolio, so fewer material realisations. The other thing we saw, obviously, is the non-repeat of the gains from the disposition of MIC in the US, which came through on FY22. up in operating expenses associated with the platform. Those reductions were offset by a 75% increase in performance fees, largely coming out of MIP4 in Europe and MIP3 in the United States. And we also saw the non-repeat of acquisition related expenses associated with Waddell and Reid, AMP and CPG through FY22. We've also set out the split from a base fee viewpoint. So base fees in the private market business, up 14%, up $164 million. And that really reflects the strong period of investing, $27.2 billion worth of investment made through the year. And that was almost offset by the reduction in base fees coming through our public investments business that relate to market movements. And as Shamara said, the switching of portfolios away from equity investment portfolios toward fixed interest. In terms of the underlying drivers, the asset under management up nearly $871 billion at March 23. And as we said before, that now includes the dry powder which makes it consistent from a comparability viewpoint with where other firms are around the world. Turning now to the second of our annuity-style businesses, the banking and financial services business, a really pleasing result, up 20% from where we were this time last year. And you can see the drivers of that from a personal banking viewpoint, a $206 million increased contribution. That really was driven by a 31% average growth in mortgage volumes over the course of the year, albeit slowing in the second half of the year as we foreshadowed at the half-year results. We saw an increased contribution from our business bank, $184 million. That reflects a growth in loan volumes. It also reflects a growth in deposit volumes and improving margins in that business. And an increase of $191 million in terms of the contribution from the wealth channel in that business, reflecting a growth of 13% in terms of average volumes, improved margins associated with those deposits, and an improvement in average funds on the platform through the year. You can see a step up in the credit and other impairment charges. And there's a couple of things happening there. Firstly, the macroeconomic outlook has deteriorated relative to where we were. The other thing is we've weighted slightly more to the downside scenarios. And we also had, you might recall in the FY22 year, the release of provisions associated with the sale of the dealer finance business and the reduction in the car loan portfolio. So that didn't come through in FY23. And you can also see the step up in expenses through the year, 21% step up in expenses, really expenses associated with driving the growth of the business with the investment that the team is making in the data capabilities and the technology platform that supports the business both in terms of front office customer experience together with the capabilities necessary to meet the obligations that we have in that business. And we've also seen a step up in regulatory and compliance spend through the course of the year. But a really pleasing result, up 20% from this time last year. In terms of the drivers, with the exception of the motor vehicle business, everything moving in the right direction in terms of growth in both loan assets, deposits to support the business, and also funds on the platform. Now turning to the first of our market-facing businesses, the commodities and global markets business, obviously a tremendous result, up 54% from FY22. Really reflective of the opportunities that business saw through the year to grow the customer franchise, and I'll talk a bit more about that in a moment, to provide solutions to those customers. Obviously the market conditions provided opportunity to manage those customer positions on balance sheet and generate trading income for the group. So really a tremendous result. We have seen those conditions taper off a little bit in the fourth quarter, or our fourth quarter, the first quarter of calendar 23. In terms of the components of the movement, you can see commodities up 82%, risk management income for the year up 50%, and that really reflects the work that the team is doing with customers, particularly in the global gas, power and emissions business, in the global oil business and the global resources business. We also saw a step up of $1.6 billion in inventory management and trading coming through there, reflecting those demand and supply imbalances that we've talked about, particularly in the North American market now for many results. Financial markets up $114 million, a little under 10%, a really strong contribution from financial markets, particularly in the first half coming through as we saw lots of volatility in interest rates and FX markets, but there were opportunities to extend credit in that business, which we were very pleased to provide and provided opportunities to grow the revenue base. We didn't have the repeat of the gain on the disposal of the commercial and industrial meters business in the UK. And we also had a step up in expenses coming through the group, about 22% step up in expenses, really associated with the investment they were making in the platform to support the growth of that business and to support the obligations that that business has around the world in relation to regulatory compliance data and so on. So a really pleasing result for the group. Just as we've done in the past, just looking at some of the, hopefully the slides that help to contextualise some of the result over the period, and starting with the chart that's on the screen now, which is obviously indicative of some of the volatility we saw through the year. So this is the volatility we saw in European gas prices and in US gas prices. And you can see from about the middle of FY22 all the way through until the end of calendar 22, we saw a very volatile period. That provided opportunities for us to grow our customer base and provide solutions to those customers to help manage that volatility. It also provided good opportunities from a trading perspective for the group. And as we talked about at the operational briefing, the third quarter in particular, exceptional trading results through CGM. And those have normalised, if you like, in the first quarter of 23, back towards where we saw prior to the first half of 22. In terms of a chart that will be familiar to people, obviously on the right hand side you can see the growth in customer numbers across CGM. Really pleasing to see that underlying customer franchise continue to grow. And where the team's seen opportunities, particularly is in the European gas power and emissions market, in our agricultural sector, as well as our resources, upstream resources. So there's been good growth in the customer numbers there. And on the left-hand side, obviously that's reflected, continued to be reflected in the operating income of the group, which is very much skewed towards income associated with our underlying client franchise. So that growing client franchise deal with the clients more often in more locations, really driving the opportunities for the group. And then finally in terms of the capital position for CGM, on the left hand side you can see the capital position over the last few periods. You can see the reduction in credit capital from March 22 all the way to March 23, reflective of prices coming down and volumes coming down over the course of that period. Market risk, as we've talked about through the year, stepped up a little bit as the size of the opportunity and the size of the business increased. So you can see market risk capital a little higher than what it was back in March 21 and previous periods. And you can see the impact of those trading opportunities on the daily P&L chart on the right-hand side of this page, which is a reasonably familiar shape to what we've had in the last couple of years, albeit flatter and slightly more skewed further to the right of the y-axis. but still very much skewed to the positive, which is reflective of the focus that the group has around client activity and slightly higher in terms of the average daily P&L, which really relates to the opportunities the team saw during the course of the year. Now in terms of Macquarie Capital, the last of our business units, so Macquarie Capital, a more challenging period, down 47% for the year, just over $800 million worth of contribution. And you can see where the drivers are there. The fee and commissioning come down 27%. over the period, investment-related income, lower contribution than the prior year and obviously skewed to the first half of the year, and operating expenses up both in terms of continuing to invest in those sectors where we have really deep capability across the world, so great opportunity I think for us to grow there, but also increased investment in the platform to support the business activity. Partially offset by an increase in the contribution from the private credit portfolio, In average terms, the private credit portfolio is up just over $5 billion, consistent sort of margin profile through that business. That increase in contribution is partly offset by an increase in the ECL contribution. both reflective of the macro environment and the slightly higher weighting to the downside scenarios, but also reflective of a couple of specific provisions in the private credit portfolio where we've made specific provision against the performance of those credits. terms of the underlying drivers macquarie capital capital alongside its clients grew over the period you can see where the growth is it's really around the private credit portfolio the dark green at the bottom the team also saw opportunities in the digital infrastructure space together with the infrastructure space more uh more generally to uh to deploy capital we hope that uh those investments pay off into future periods. And on the right hand side, we gave you a composition of the private credit portfolio in terms of the sector exposures that the private credit portfolio has. And as we've said in the past, very consistent with sectors where we think we have deep global expertise, which allows us to generate transactions on a bilateral basis and at good risk adjusted returns. Now turning to some of the other aspects of the group, the regulatory compliance and technology spend a feature of the results over the last few years and it continues to be so for FY23. So from a regulatory compliance viewpoint, you can see up 33% on where we were for the full year 22. That really reflects the growth in the regulatory change. There is a lot of change going on across the regulatory landscape around the world. that occasion spend on new projects and of course some of that's flowing through into the BAU compliance spend as we continue to invest and improve the platform around the world and ensure we meet our obligations. And on the technology side, up 26% in terms of annual expenditure on technology. Just to give you a breakdown, about a quarter of that relates to changing the group and about three quarters of that relates to running the group. And just by way of comparison, when Nicole Sabara presented a few years ago at the operational briefing, you'll recall that at that time we talked about 19% of the spend coming through for change to group activities with the balance on run the group. So of course that change activity is a feature of what we're doing with our technology investment. Our balance sheet, as Shamara mentioned, another strong period of fundraising in terms of term funding, just over $23 billion of term funding, split reasonably evenly between the bank and the non-group, and coupled with last year's 48, over $70 billion worth of raising over the last couple of years. We continue to work on diversifying the funding sources for the group and this year we're delighted to welcome another 200 investors who own debt exposures to the group and really pleased to say that the term funding from our point of view, weighted average term funding, still out at 4.9 years. Our deposit story is a familiar one I'm sure to everyone. It's been another strong year for Greg and the team in BFS with a growth of up to $135 billion and we continue to diversify the customers that we're serving and improve the product offering to those customers across all of our deposit products and in particular our transaction and savings deposits and add our term deposits over the course of this year. The loan and lease portfolio up 18%, largely reflecting the growth in the home loan portfolio, the business loan portfolio and at the bottom of the page there you can see the growth in Macquarie Capital's private credit portfolio. Equity investments at $9.6 billion. The key drivers here really are investments where we're using the balance sheet to seed future strategies for the private markets business in MAM. The other thing you've seen is increased contributions across investments across transport in the in the aviation space. And of course, that digital infrastructure and infrastructure story I talked about with within Macquarie Capital. From a regulatory viewpoint, as I mentioned before, a lot going on. I guess most significantly over the course of the last 12 months, we've had the implementation of the Basel III unquestionably strong reforms coming through that were implemented on the 1st of January 2023, which is great to have a long project actually come to conclusion. The second thing is just in relation to the German dividend trading matter investigations. Authorities continue with their investigations in Germany in relation to the dividend trading matter. Whilst nothing particularly material from a Macquarie Group perspective has happened over the course of the last period of time, we did take the opportunity to update our disclosure just to note that some of our former and current employees have, we've been notified that they'll be interviewed in relation to that matter. We continue to provide for that matter. and we'll monitor those provisions going forward. In terms of the Basel III CT1 ratio for the bank, really strong, 13.7% and 18.4% on a harmonised basis. As Shamara mentioned, the cash and liquidity position on the balance sheet continues to be very strong. The LCR at very elevated levels, consistent with the fact that we've been raising funding ahead of the obligations to repay things like the term funding facility for the sake of the example. and so on. So we'll see over time whilst that elevated level exists today that that level will come down as we come to a more normalised level going forward. And then from a capital management viewpoint, the only thing to note really on this page is that in addition to the declaration of the dividend today, the board has also enacted the DRP at a zero discount and we'll be buying shares on market to satisfy any applications under the DRP. And in relation to the MIREP, we will also be buying shares on market in relation to the MIREP grants. There will be a share sale facility available for staff who have stock invested in their hands at the end of this period. And so with that, I'll hand back to Shamara. Thank you.