Macquarie Group Limited

Good morning, everyone, and welcome to Macquarie's first half 2025 results presentation. Before we start, if I could just ask everyone to turn their mobile phones either on to silent or turn them off, that would be greatly appreciated. I would like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora Nation, and acknowledge or pay our respects to their elders past, present and emerging. This morning, as is customary, you'll hear from our CEO, Shamara Wickramanayake, and our CFO, Alex Harvey, and we also have our operating group and support group heads here in the room and also on the line. At the conclusion of the briefing, there'll obviously be ample time for Q&A. With that, I will hand over to Shamara. Thank you.

Thanks very much, Sam, and good morning and welcome everyone from me as well. And as usual, we'll just start with noting the footprint of the businesses that we have across Macquarie, which cover both annuity style and market facing businesses. And in this particular half year period, We had a 53% contribution from the annuity style and 47% from the market facing, given the environment we've had in markets over the last while. But as you know, we have four operating groups that across them give us very good diversification in terms of the underlying themes they're exposed to and are also very well positioned for growth, both because they're small in the global or local sectors they operate in or and or the sectors are set for good structural growth. And those four operating groups are supported by very four strong central service groups, which cover things like legal and risk management, our financing and capital, and also our operating platform. Now, in this most recent half, the first half of the FY25 financial year, you see we delivered a result of $1.612 billion, and that was up 14% on the prior comparable period on the first half of last year, but down 23% on the second half. And it was an ROE of 9.9%, which compares to the prior comparable period of 8.7. In terms of the contribution from the operating groups, at $3.021 billion, they were up 6% on the prior comparable first half. And that was mostly driven by contributions, increased contributions from Macquarie Asset Management with the timing of performance fee realisations and the ongoing growth of the BFS business. Compared to the second half of last year, we're down 22%. And that was because in that second half, we not only typically have CGM have a stronger second half in the northern winter, but we had strong results in terms of realisations of performance fees in Macquarie Asset Management and also Macquarie Capital realisations, the timing of which can be lumpy. Now, looking at the assets under management, we finished the first half with $916.8 billion of assets under management. That's a 2% decrease from the beginning of this financial year, and that's principally driven by unfavourable foreign exchange movements and also outflows in our equity strategies and some divestments we made in private markets. That was partially offset by favourable market movements. and increased fund investments and asset valuations in the private markets business. And then looking at the geographic composition of our income, it's broadly similar to where we've been recently, which is Australia and the Americas contribute about a third of our earnings at this point. The European region, EMEA, Europe, Middle East and Africa, about a quarter of and Asia 10% and climbing. In terms of this period because we didn't have as much activity globally and the BFS business is very strong in Australia the Australian contribution is the highest at 35% and I won't dwell on the half by half trend but you can see there in terms of regional contribution. What I'll do is move on now to looking at how each of our four operating groups performed in this first half. And starting with Macquarie Asset Management, the result of $684 million for the half was up 68% on the prior comparable period, and it was 23% of our earnings contribution. In the private markets area, I should say that was principally driven by performance fee recognition in this period. compared to the prior comparable period, the increase that we had. In private markets, the assets under management are up 1%, but the equity under management, which is the main figure reflecting how we're going, is down 2%. Now, that's mostly driven, as I said, by unforgettable foreign exchange movements and also some divestments that we had partially offset by... our fundraisings in that period. We raised $7.2 billion in the half year to date. You may recall in the first quarter we raised $1.6 billion. We've raised $5.6 in the second quarter. And the raisings are really impacted by what's open at the time. So we've in the last couple of years raised our very large recent European infrastructure fund and our North American fund. This period we don't have as many big funds open for raising. We have managed to also invest over $10 billion, and we have dry powder of nearly $32 billion at the end of the period. In terms of the public investments, the assets under management there are down by 4%, and that was again driven by unfavourable foreign exchange movements and outflows, as I said, in the equity strategies, partially offset, as I also mentioned, by favourable market movements. But you can see that our assets under management are down across all of the areas of fixed income equities and multi-asset because of those factors that I just mentioned. What business is doing in this current environment is focusing much more on active ETFs, which is how people are accessing these strategies. And we've got 10 active ETFs at the moment. And certainly in Australia, we're the largest ETF provider. active manager now. So not largest, we're top three, apologies, heading to largest hopefully. But that's Macquarie Asset Management. Turning to Banking and Financial Services, and I should say we've got Benway online because he's not in the room today, and Banking and Financial Services, Greg Ward is here in the front row, $650 million contribution. That was up 2% on the prior comparable period, and it was 22% of the contribution. The books are up across the home loan portfolio, the business banking portfolio, the funds on platform and the deposits supporting that. But we have continued to suffer margin pressure from the competitive dynamics in this market. And as Alex will show you as he goes through the numbers, one of the big contributors to BFS's earnings growth in this period was the operational efficiencies we're getting from the long-term digitisation program it's been running. Then turning to commodities and global markets, and again, Simon Wright, the group head, is here in the front row, $1.316 billion was the result. That was down 5% on the prior comparable period, and it contributed still the largest contribution to Macquarie, which is 43% of our income. And the results in financial markets and asset finance were strong. Another record result from financial markets with the customer numbers growing and strong client activity across foreign exchange, interest rates, credit, also in equities trading, a good result. And in asset finance, the book there you can see is up 2% on equities. the first half over the prior comparable period. In commodities, we had lower client activity, particularly in the second quarter, where we are finding there's huge capacity on the supply side and the demand side was not as active, so clients were less active over this period, particularly in global gas and power and emissions and in global oil. That was offset by some better activity and resources, especially metal. The inventory management and trading income was up, but offset again by the timing of recognition of income, but a more subdued period in the second quarter for CGM. And then Macquarie Capital, where Michael Silverton is also online virtually for this, the result was $371 million. That was down 14% on the first half of last year, and I'll explain a little bit the drivers in a moment, but that contributed 12% Macquarie capital of our income. We're continuing to deploy balance sheet there, and our credit book has grown to $22.5 billion, so a big period of investing, $5 billion of investing. That drags on earnings in the early period because of funding costs, but also the provisioning we do for expected credit losses. So that was one of the contributors to the result being down on the prior comparable period. Also, we didn't have the same sort of reversal of impairments that we had in that first half of last year. The activity in terms of the fee levels are up slightly, but we didn't enjoy what you will have seen in other markets where the investment grade debt capital markets have been particularly strong and it's not an area that we operate in. Also we have more a private sponsor client base versus corporates and the corporates have so far been more active but we are starting to see pick up now both in private sponsor M&A activity but also activity in the below investment grade debt markets. So turning then to our funding capital and balance sheet, our funded balance sheet remains strong as you can see our term funding comfortably exceeds our term assets in this period The team in our FMG team, Alex's team, raised $23.6 billion. And we also have our deposits at a record at $158.3 billion, up 7%. Our capital position also, we think, remains strong at $9.8 billion surplus. That's down from the $10.7 billion we had at the beginning of the financial year, and that's because our earnings and also our hybrid issuance were offset by the dividend payment and our on-market buyback. as well as movement, as you can see, the Foreign Currency Translation Reserve. We were talking about the FX impacts. And we invested $0.4 billion into our businesses. And you can see on the right-hand half of these bar charts where that went. The biggest absorption was, as I mentioned, in Macquarie Capital. where we've had growth in our private credit and our equity books, and also then in BFS, where we have ongoing growth in our home loans and our business banking books, and in CGM, where we had increased credit risk driven by fixed income derivatives and financing. Our regulatory ratios are also comfortably across our APRA BAL 3 minimums. And the last thing I wanted to mention is just in relation to the dividend. The board has declared a dividend for the first half of $2.60, which is 35% franked, and that's a 61% payout ratio. And I was going to hand over now to Alex to take you, as usual, in more detail through the numbers, but I also wanted to mention that we do also have in the front row here Andrew Cassidy, our Chief Risk Officer, Nicole Sabara, our Chief Operating Officer, and Evie Bruce, our Head of Legal and Governance, and also Stuart Green, CEO of Macquarie Bank Limited, is here in case you have questions. And maybe Glen Stephens, our chairman, may want to take the odd question as well. So they're all here with us. And with that, I'll hand over to Alex.

Thanks, Shamara. Good morning, everyone. As Shamara said, I'll now take you through a little more of the detail of the financial results for the half. So starting with the income statement, you can see the bottom line, just over $1.6 billion in terms of net profit contribution for the half, up 14% from where we were for the first half of last year. If you look at the components, their net operating income, about $8.2 billion, up 4% from this time last year. And you can see some of the drivers there, obviously fee and commission income up. We also had a strong period in terms of investment income coming through and other income coming through the P&L. If you sort of break that down a little bit, and those three areas were offset by net interest and trading income, which was slightly down, and a more normalised period of net credit charges through the P&L for the first half. So if you break down those income lines a little bit, from a net interest and trading income, what we're really seeing is some margin pressure, particularly through our Australian BFS business, and I'll come to that in a second. and also lower volatility in the CGM business affecting the trading income. Fee and commission income, we're seeing good momentum there, particularly in the asset management business, but good momentum across fee and commission income more generally. And as I said, investment and other income up on where they were this time last year. Obviously, by their nature, a little more lumpy in terms of the component parts, but we're seeing good realisations and revaluations coming through that activity in the first half. And then from an operating expenses viewpoint, you can see operating expenses basically in line with where they were for the first half of last year. And I think this reflects a couple of things. We continue to invest in the foundational components, things like regulation and compliance spend, obviously continuing to invest there. digitisation and data and technology. And I'll talk a little bit about that in a moment. From an employment expenses perspective, you can see basically broadly in line. And there's a couple of things going on there. Obviously, the underlying performance of the business is up. So profit share and share-based payments expense are up over the period. And they're broadly offset by reduction in underlying employment expenses, where we're seeing a reduction in the average headcount across the group. So I think there's been good cost control over the half. From a tax viewpoint, $686 million in terms of tax expense, an effective tax rate of 29.9%, which is pretty consistent with where we were for the first half of 24 and really reflects the geographic composition of income through the first half. If you turn now to the first of the operating groups, starting with the asset management business, a strong half, obviously up 68% from where we were this time last year. And you can see the key driver there. The performance fees were up $167 million over the half. And the key drivers there were MAIF 2, MAIF 4, which we've seen before, and obviously MIP 3 continuing through the half. And then from a base fee perspective, the net base fees were up $29 million. There's probably two stories there. On the private market side, private market base fees were up 7% or $49 million. That reflects a period of strong investment, both last year and continuing into the first half. So it was increasing the base fees from the private market side. On the public investment side, obviously you draw down in those base fees from public investments, largely reflecting the fact that we've had outflows across particularly our... Eric, his portfolio. So the mix between equity and fixed income continues to shift, notwithstanding the fact that we saw a recovery in markets or some recovery in the markets in the public investments business. Green investments up $37 million, so we've continued to transfer those assets from the balance sheet into making those assets available to fund investors. That process is largely complete now, but we've still had some profit through the half. And as we've talked about before, net expenditure on green platforms broadly in line with where we were for the first half of last year. In terms of the underlying drivers, you can see assets under management down 2%, as Shamara mentioned. Largely, that's a reflection of unfavourable foreign exchange movements. But if you break it down a little bit, on the private market side, up $2.7 billion. You can see a good strong period of investing there. So we invested just under $11 billion, $14 billion in terms of... in terms of assets, so a good period of investing. We obviously saw some realisations come through over the period. And the other thing we see coming through the assets under management is the valuation changes, and that valuation change is largely reflective of the digital assets that are part of the asset management business in Macquarie Asset Management. On the public investment side, consistent with what I guess I was just talking about, you can see market movements up nearly $20 billion or $19 billion on the market movement side. So we're seeing recoveries in equity markets and in fixed income. More than offset, I guess, by outflows, both in particularly in the equity portfolios that have continued over the course of the half. Our turnings of banking and financial services are really, I think, a solid result this year, this half up 2% on the first half of last year. And if you break down the component parts there, you can see the personal banking down $29 million, and that's really... We've had growth in the average loan volumes up 12% in terms of average draw and balances on the mortgage book. We have had some margin compression. That margin compression really is what we talked about over the course of the last little while. We saw significant competition in the mortgage market through the early part of last year at a time where there was significant retention, discounting and obviously the cashbacks that we've talked about before. So that was flowing through into our margin into this half. You can see business banking basically broadly in line with where we were for the first half of last year. So volume growth's up 17%. We are seeing some margin compression there. And again, as we've talked about before, we expected quite a bit of competition in that market. Certainly in the last quarter, there's been a big step up in competition, and you can see that coming through the growth between the June quarter and the September quarter. And really pleasingly, as Shamara mentioned, expenses down $65 million for the first half. And I think as everyone's aware, we've invested heavily in the platform in BFS, in the data capabilities, in the digitisation capabilities, and in focusing on operational efficiency. It was really pleasing through the course of the half to see the benefit of some of that work coming through. In terms of the underlying drivers, all moving in the right direction across both the assets and the deposit side there, supporting the growth of the business going forward. In terms of our first market-facing businesses, the commodities and global markets business, so you can see the net profit for the group at $1.316 billion, down 5% from where we were this time last year. I think actually this result really reflects, as the tagline said, the continued strong underlying client business and obviously the business we think is very well positioned for upside. But what we did see through this half may be focusing initially on commodities. So you can see the risk management income down 307 million. That's a 26% reduction from where we were the first half of last year. And there's a couple of key drivers there, certainly on the energy side, so gas, power and emissions. a much weaker environment for both client activity and for trading associated with that in the first half. Particularly in Europe, where markets have normalised quite a bit since the invasion of Russia, Ukraine and the instability in energy markets there. But also in terms of North America, in terms of the supply dynamics that Shamara talked about. So 307 million reduction in risk management income there. from the energy component. We did see a pick up, which I think is reflective of the diversity point I was talking about before. We did see a pick up in the metals activity, both base and precious metals activity. So I guess that's reflecting the diversity of the client franchise that we've talked about previously. Inventory management and trading up $179 million. People will recall, I'm sure, a fairly weak first half of 24, so we're all coming back from a weak first half, but a good period of trading given the market conditions, partly offset by timing of income recognition associated with transport and storage contracts that came through during the half. Financial markets up $40 million, about 5%, and I think a really good story that we've emphasised over the last few years, that growth of the underlying client franchises in financial markets continues, and it's continued, obviously, into this half. Not surprisingly, we've seen more volatility in FX, we've seen more volatility in interest rates, and we've seen some opportunity from a financing viewpoint. So that's all coming through that financial markets line. And then from an operating expenses viewpoint, a little bit up in operating expenses in CGM, mostly a function of a brokerage and commission associated with the equities business that Shamara talked about, together with the continued investment we're making to support the platform and its activities around the world. A slide that I think everyone's hopefully very familiar with, on the left hand side you can see the components of operating income in CGM and obviously the various shades of grey, grey, green at least, the underlying client business and you can see the underlying client business broadly in line from where it was the second half of 24 down on where we were for the first half of 24 but still the predominance obviously of income coming through CGM and on the top right hand side you can see the continued growth in client numbers both in financial markets and in our commodities business, which is really underpinning the franchise that Simon and the team are creating around the world. From a regulatory capital viewpoint, pretty flat. And no doubt people will pull apart the component parts. You can see credit capital up slightly. That reflects the activity that's going on in the financial markets business in particular. And you can see market risk capital down a little bit, I guess, consistent with the trading environment that we're seeing coming through the group. And finally, Macquarie Capital. So Macquarie Capital's first half result was $371 million worth of profit, down 14% from the first half of last year. There's a few components that you can see across this slide. So if I focus on the net income on the private credit portfolio to start with. So in terms of average drawn balances, the private credit portfolio is up $2.7 billion from where we were in the first half of FY24. So we're getting more net interest income from that activity. But as Shamara mentioned, we had a good period of origination there. In fact, we originated about $5 billion worth of private credit through the first half, which by comparison was in the first half of last year was 1.5. So a good period of actually finding opportunities to deploy into the private credit space. But that's creating additional origination ECL that's coming through the P&L. And the other thing that's going on from an ECL viewpoint in the private credit portfolio is we've really got through that process of some reversals that were coming out of the COVID period. So we had some reversals last year that obviously didn't repeat into the first half of this year. private credit contribution down $59 million, despite the fact that the book's actually growing. On the other investment-related income, as people recall from the full year result, we had quite an elevated equity balance sheet associated with Macquarie Capital's activities around the world. That's creating additional funding costs coming through the P&L, despite the fact that we had quite a good period in terms of equity activity, both in terms of realisation and revaluation through that business. And on the fee and commission income, up about 5% across the group, mainly driven by our equities business. We've seen, consistent with the underlying performance of equity markets, we've seen an improvement in our brokerage activity in our equities business, and we've also seen a pick-up in the M&A business around the world, a small pick-up in the M&A business around the world coming through the P&L. In terms of the underlying drivers, again, a slide that people are familiar with. Capital alongside Macquarie Capital's clients expanded by 600 million during the half. A lot of focus on technology and on digital infrastructure where the team have a long track record of successfully deploying capital there and we saw some good opportunities through the half. On the private credit side, again, it's drawing additional capital based on the origination that I talked about before. In terms of the sectors, very well diversified in largely defensive sectors in a range of markets down the world, predominantly Europe and the US and a little bit of exposure down here. Now turning to some of the other aspects of financial management across the group, the cost of regulatory compliance and technology spend, a chart that we've put up for the last little while. Obviously you can see, as we talked about at the full year result, what we're expecting is a stabilisation of regulatory compliance spend. You can see that coming through the first half. We're down about, I guess we're down about 5% on the first half of last year. both in projects and in business as usual. That reflects the fact that some of the projects we had underway have come to a conclusion, and we are seeing some operational efficiencies coming through our BAU, or Businesses Unit, or Regulatory Compliance spend, which is good, so the teams are getting better at addressing the needs. We do, however, continue to invest heavily in this area and would expect to continue to do so going forward. given the obligations and the opportunities that are in front of the group. From a technology spend, broadly in line with where we were in technology spend is about 20% of the overall cost base of the group. So we continue to invest heavily in technology to support the growth of the business and to support obligations that the group have around the world in areas like data and digitalisation, unified technology architecture and so forth. In terms of the balance sheet, it remains solid and conservative. We raised $24 billion through the first half. It was a very strong period, as people know, for investment-grade fundraising over the first half, and we took advantage of that. We were able to do our inaugural green bond, raising $1 billion, so we're pleased with the support we've got from investors in that area as well. The funding base remains very diversified and a long-dated weighted average maturity of 4.6 years and we continue to diversify the funding base in terms of the investors we're talking to as well as the currency available to the group. The deposit base continues to grow 7%. Obviously, the deposit base is really instrumental to the growth that Greg and the team are delivering in BFS. We're basically funding that growth through the deposits. And we continue to diversify that deposit base. I think we continue to offer attractive digital products, and we're seeing that in terms of the opportunity to grow that over the course of the half. And you'll notice from the funded balance sheet, nearly half of the funded balance sheet now comes from deposits. The loan and lease portfolio up at $192 billion, I guess up about 5%. And the main growth there obviously is home loans at the top of the page. Business loans have grown a little bit and Macquarie Capital at the bottom of the stack there in terms of the private credit activity. And the equity investments, we were at 13.2 at the full year result. And I think people, we were talking at that time about that was quite a high level of equity investments. We expected that to come down over the course of the half. And, of course, it has the principal drivers there. You can see that second line. So we had some assets, the green assets that we were transferring into the Macquarie Green Energy and Climate Opportunities Fund. Those transfers have occurred over the half, so that's bringing down the carrying value of that second line. We've seen some good opportunities on transport and industrial infrastructure, mainly in Macquarie Capital and the telco IT media and entertainment lines. And at the bottom of the page there, the second to last line, the real estate obviously has come down from $1.2 to $600 million as we've finished the building next door and completed the sale of 39 Martin Place. For a regulatory viewpoint, lots going on, as usual. I mean, obviously, from an APRA viewpoint, very focused on liquidity and interest rate risk, and we're participating in those discussions, as you'd expect. APRA have also released a paper in relation to hybrids, and we'll be responding to that in due course. From a bank CT1 perspective, strong ratio, 12.8% at the balance state. Liquidity ratios remain very strong, both in terms of the unencumbered liquid asset portfolio together with the NBL LCR position. And finally, in relation to capital management, As people recall, we announced a buyback this time last year of up to $2 billion. As at the end of October, we bought back just over $1 billion. Out of that $2 billion, an average price of $189.80. The board has resolved to extend that buyback for another 12 months. That obviously gives us the opportunity to continue to buy back stock but also balance the capital needs across the group. The dividend reinvestment plan will support the interim dividend. It'll be done at a 0% discount, and we'll buy shares on market to support any participation in that DRP. And we're obviously very pleased to be able to get our MCN7, our group hybrid, away during the period, raising $1.5 billion. And so we really appreciate the support from everyone on that raise. And with that, I'll hand back to Shamara. Thanks very much. Great.