Macquarie Group Limited

Well, good morning, everyone, and welcome to Macquarie's full year 2025 results presentation. Welcome to those here in the room and online. Before we begin, I would like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora Nation, and pay our respects to Elders past, present and emerging. If I could also ask everyone to turn their mobile phones off or onto silent, please. So today, as is customary, you'll hear from our CEO and Managing Director, Shamara Wickramanayake, and our CFO, Alex Harvey. We've also got, I think, all of our members of the executive committee here as well. We'll have time for questions at the end. And with that, I'll hand over to Shamara. Thank you very much.

Thanks, Sam, and welcome again, everybody. And I'd like to just note, as Sam said, that we've got all of our eight group heads here in the front row, so hopefully you'll get to hear from them. We've also got our chairman and our chair of the audit committee sitting with us in the front row, so thank you for joining. And as usual, I'll just kick this off by noting the business footprint that we have across our eight groups. First of all, those of you that came to the EMEA investor tour earlier this year would have seen that we've evolved the way we're articulating the description of the nature of our earnings. And we've got the annuity style income in the market facing, but we're also recognising between that that there's a whole pile of income that we generate. that has a very recurrent nature to it and may previously have been called market facing. Things like the client service revenues that we have in our commodities and global markets business or the performance fees in Macquarie Asset Management where given the scale of our business now we can be confident that they're consistently repeating. So you can see this year we had 54% from what we historically called annuity style, 17% from market facing and 29% of it was in this bucket of quite recurrent earnings. In terms of our footprint of businesses, operating groups and central service groups, we've got our four operating businesses, very well positioned in structurally growing areas. In Australia here we have our BFS digital banking, very client-focused offering. And then globally we have Macquarie Asset Management, a leader particularly in real assets areas, commodities and global markets in commodities, financial markets and asset finance. And then Macquarie Capital offering advisory and capital market solutions globally but also bringing our balance sheet to invest in credit and equity where we have deep expertise with the teams there. That's supported by our four central service groups and we have our risk management and legal and governance groups bringing second line analysis on everywhere we're taking risk and helping us also deliver on opportunity. Our financial management people and engagement group which is looking at our capital funding liquidity and our very important people, asset and engagement with stakeholders, and the corporate operations group looking at tech, data, digital, and also our business services. So that's the business that you should all be familiar with. In terms of what we delivered in this most recent financial year, FY25, you will have seen we delivered earnings of $3.715 billion. After tax earnings, that was up 5% on the previous year. Our ROE, which was 11.2%, was up 4%. Our earnings per share was up 7%, and that was because of the buyback that we'd been doing over the last year, which has reduced our number of shares. In terms of the contribution to that by group, I'll go into this in more detail soon, so just touch on the fact that we had increased contribution from Macquarie Asset Management and Banking and financial services, Macquarie Capital was broadly in line and commodities and global markets was down a bit because of the more subdued market conditions. Our assets under management are now at $941 billion and that's been driven by some increased fund investments and net asset valuations offset by divestments and some outflows in equities. We obviously you saw recently entered into an agreement with Nomura to transfer our public investments businesses in North America and Europe to them, and that will mean that this number will step down when that transaction completes. In terms of the diversification of our business by region, you can see here that we're still making roughly two-thirds of our income outside of Australia. There's a very good spread in terms of regions, North America obviously being a very large capital market playing a big role, and then EMEA, a large contribution, and Asia, a growing contribution. Our staff are now at 19,735, and more than half of them, just over half, are also internationally located. We have people on the ground in the communities where they're delivering services close to the clients and the markets, as well as a lot of central service group teams that are based outside Australia where we can access the expertise for good... terms and talent and quality. We also, I'd note, as well as our nearly 20,000 staff in the business, we have nearly a quarter of a million people who work for us in our funds around the world and our assets. So turning then to the operating groups and starting with Macquarie Asset Management and Benway's here in the front row with us in Australia this week, the earnings were up 33%, as you can see, to $1.61 billion. The public investments, as I said, we have entered into an agreement in relation to the North American and European businesses to transfer those over to Nomura. That is a very strategic agreement. move for our business there. Those public investments in North America and Europe we've been invested in for a long time. We think we have incredible quality teams there and delivering great solutions but we're needing to invest a lot into our private markets business as that business has to grow into other adjacent capabilities and channels and so this will free up capital but it will allow us to partner with Nomura to still have access to the public investments to bring to our clients, and equally will let us take our private markets offerings through the Nomura client platforms in Japan and outside of Japan. So we think that's strategically been a very important step for the business. In the private markets area where we're focusing a lot on growth currently, you'll see that our equity under management was broadly flat. We did raise about $18 billion. of new assets, but we realized about $19 billion of investment. So we were able to take advantage of the markets we saw around the world to have quite a good period of realization, also drove performance fees. And we're ending with over $27 billion of dry powder to continue investing. In addition to the Nomura transaction that I mentioned, we also realized our rotorcraft business in Macquarie Asset Management. Then turning to banking and financial services, Greg Ward also in the front row here, result up 11%. We've had an ongoing track record of growth of that business for many, many years now, delivered $1.38 billion this year. And basically that is all being driven by our digital banking offering, which is a very customer experience focused offering. We think we have ongoing momentum to keep growing there. in you know as you see the three business lines there personal banking business banking and wealth management personal banking we were up 19 business banking six percent and the funds on platform were up four percent so good ongoing growth across that driven by the big step up in really high quality deposit book, 21% growth, which is really supporting the growth of BFS. And we're very positive about the trajectory of that business. Commodities and global markets delivered a result of $2.829 billion. That was down 12% on the previous year. because of the environment in the commodities business that I'll talk about in more detail in a minute. I just did want to note, though, now that we're describing the nature of our earnings differently, only 16% of that business is what we would call market-facing, in that 22% is annuity, asset finance, leasing, etc., But a vast majority of that income, 62%, so nearly two-thirds, is this repeat client business. And I think over many years we've been showing you the consistency of delivery and growth of that business, particularly in asset finance that's fully annuity-like and financial markets where we've been consistently growing the client base and the earnings of that business again for a very long time. like BFS. Those two together, I think, contributed about 47% this year, because it was a more subdued environment for the commodities business that contributed 53%. And in commodities, we had basically decreased activity and risk management earnings in a mere gas and power and also in our global oil business, partly offset by resources, metals, agriculture, but particularly in the North American gas and power in the timing of income recognition in our inventory management and trading income business. That's where we had the step down. Simon Wright, who's taken over as group head in the last just over a year, I think, Simon, of that business is here in the front row as well. doing a lot of work across the team strategically and structurally and also investing in the platform there. So he's available for questions. And then Macquarie Capital, and again, Michael Silverton is out here from the US in the front row as well, broadly in line, down 1% at $1.043 billion. The increase that came through from the advisory income where we had greater activity around the world in advisory and capital markets, that was offset to some degree by lower investment-related income. And that was mostly driven by last year we had some impairment reversals that drove income up. But As you've seen, we're investing much more now. The credit book has grown and delivers very consistent earnings and continue to do that. This year, subject to ECL provisioning timing, depending on how we see the external market, but the underlying credit performance has been incredibly consistent for 15 years plus now. The equity book is growing quite a bit, so we are seasoning that book, and it will take, you know, the holds, it could take three years for those investments we've been making to start realising, but we hope after that we'll be getting consistent, albeit lumpy, delivery out of those equity books. So those are the four operating businesses. Turning to the funding capital balance sheet side, you've seen that our funded balance sheet remains strong. We did $32 billion of new-term funding over the period, and our term funding is comfortably exceeding term assets. Our deposits are also... materially up 20% at $177.7 billion. And also on the capital side, we're sitting with a $9.5 billion surplus. That was despite investing a lot in the businesses, which I'll go into. But we, through the cycle, constantly hold these very prudent capital funding liquidity positions. With the environment we potentially could be going into now, we think it's particularly important to have this position. So good funding, good capital, but still supporting the businesses a lot. So in Macquarie Asset Management, we were co-investing in new funds we raise and underwriting assets for the funds offset by divestments. BFS, ongoing investment of capital in these areas we know very well in terms of home loans, business banking. CGM increased credit risk, mostly driven by portfolio growth and derivatives. It was a subdued environment for commodities, but I know gold is one commodity that picked up and that drove increased credit capital being held. And then Macquarie Capital, the private credit book grew. The equity book had stepped up already quite a bit by the beginning of this year. We also finished the year with strong regulatory ratios, so you can see that all our reg ratios are sitting comfortably above the blue dotted lines, which are the APRA VAL3 minimums. And the last thing I'll do is mention the year-end dividend before handing back to Alex to go through much more detail of the result. But you will see the board has declared a second half dividend of $3.90, 35% franked. That takes the full year dividend to $6.50, 35% franked. up from $6.40 last year in a payout ratio of 71%. So with that, I will hand over to Alex, but I'd also note, as well as having Alex here, who's our Head of Financial Management, Planning and Engagement, the new name of the group, we've got Nicole Sabara in the front row as well, who's the Head of the Corporate Operations Group, Andrew Cassidy, the Head of our Risk Management Group, Evie Bruce, the Head of Legal and Governance, and also Stuart Green, CEO of Macquarie Bank Ltd. So hopefully they'll all be able to answer questions for you as well.

Thanks, Shamara, and good morning from me as well. As is usually the case, I'll now take you through a little more of the detail of the results for March 25. So maybe starting with the income statement, I'll just talk about the full year result. If you look at the operating income for the full year, up 2% at $17.2 billion. You can see some of the key drivers there. So fee and commission income this year up 9% to $6.8 billion. We had an improved contribution from our joint ventures and associate. That largely reflects the disposal of some assets through our funds business and from joint venture positions that we had on the balance sheet. The other you can see coming through the operating income line is the increase in investment and other income up $325 million from where we were this time last year. That includes the gain from the disposal of the Rotorcraft business. It also includes the gain from the disposal of the 39 Martin Place which was completed over the last 12 months. Net interest and trading income basically in line with where we were last year and we think that's a solid result. It's a solid result on the basis that obviously market conditions from a trading viewpoint were slightly less conducive across parts of Simon's business. We also saw some margin compression in some of our lending businesses offset by the growth in volume. So a solid result from that interest in trading income and obviously a big drive about just about half of the overall revenue coming from that part of the business. The other thing in the net operating income to note is the big turnaround in credit and other impairment charges. So credit and other impairment charges this year are up $730 million. And there's really three key drives there. Firstly, we originated more credit over the period of time, both in BFS, CGM and also in Macquarie Capital. Second thing, we're seeing a deterioration in the macroeconomic outlook, which is affecting our expected credit loss provisioning coming through the group. And the third thing is, as Shamara mentioned, we didn't have the same level of reversals as we saw in FY24, so a big $730 million turnaround in that component of income. So up 2% from a net operating income perspective. A strong result from an expenses viewpoint, flat on where we were this time last year, which I think reflects the discipline that we've showed in relation to cost management over the course of the last 12 months. It also shows the benefit that we're now starting to see in terms of the investment we've made in the platform, in the digitisation and the technology investment that we've made over the last couple of years coming through in terms of creating that scalability to support increased revenue growth. So they're good sort of strategic initiatives. More specifically, we saw, if you look at employment expenses, basically the underlying headcount is down, so underlying employment expenses are down, partly offset by wage inflation and partly offset obviously by increased profit share and share-based payments expense associated with the underlying performance of the group. The tax expense at $1.3 billion and the tax rate at $26.3 billion, basically we were this time last year. So bottom line, 3.715, up 5%, which we think is a solid result. So turning now to the operating groups in a little more detail around their performance over the last 12 months and starting with the asset management business, you can see the asset management business did $1.61 billion for the year, up 33% from this time last year. A couple of key drivers there. In the middle of the page you can see net other operating income up nearly $400 million. That largely reflects the disposal proceeds or the profit from the disposal of the Rotocraft business together with some underlying assets that were sold during the period. Strong period from a performance fee viewpoint, up $206 million. Performance fees coming from MAFE 2, from MAFE 4 and from MIP 3, as we talked about earlier in the year. And then finally, from a base fee perspective, you can see base fees up $51 million on a net basis. The main contributor there obviously is the private markets business where we had a $60 million increase in base fees, about 5%. That reflects the good period of investing we saw last year through 24 and continuing into 25. And I think it's a strong result, particularly in terms of the amount of capital that the team returned to limited partner investors over the course of the last 12 months. In terms of the drivers of the business, assets under management, obviously the key driver, and you can see what's going on here. So we're 941, basically where we were this time last year. If I focus on the private market side, to start with, really strong period of investing, $25 billion worth of investments, of equity invested over the course of the period, together with $19 billion or $29 billion of assets returned to investors in the fund. So a good period of both investing and realising over the last period of time. On the public investment side, you can see the continued drawdown for net flows and that's principally in our equity portfolios, consistent with what we've seen in recent periods and partly offset by the improvement in market conditions and also by FX that was benefiting that business at the end of the reporting period. So turning now to the banking and financial services business, I think a really pleasing result from BFS over the last 12 months. We saw growth in all the underlying divisions over the last 12 months. On the personal banking side, we're seeing average loan growth of 14% over the period, average deposit growth of 18% over the period, so strong growth in the underlying products, partly offset by... by margin compression in that business. The business banking also grew in terms of average loans and in deposit support in that business, but roughly a broadly in line result from the business bank, and an increase in the wealth management, the platform income associated with market movements together with NetFlow. So all those underlying divisions within BFS showing a positive result. Really pleasing, I think, one of the things that Greg and the team have worked on hard in recent times is the expense base, the platform that supports that business, trying to get that platform into a point where it's scalable to support the growth of the business. And we've seen the benefit of the investment coming through over the last 12 months. So expenses down $141 million. Partly that's a reflection, obviously, of the headcount that's come down over that period of time. but also importantly a reflection of the fact that we've invested in the data, we've removed manual processes, we're investing in the technology, we're investing in automation to support the scalability of that business. Underlying drivers all moving in the right direction. Obviously home loans, deposits, really strong period from a deposit viewpoint of funds on platform together with the business loans. Now car loans is not on this slide but obviously car loans were in the process of running off and that's at about $2.7 billion now and will continue to run off over the short term. Turning now to commodities and global markets business, it was down 12% for the year, so $2.83 billion in terms of net profit contribution for the period. I think one of the things that's interesting about this result, just reflecting the diversity, I think, that the business exhibits and the underlying client franchise, which I'll talk to in a moment. In terms of the divisions, you can see the commodities business down $496 million for the year. And the drivers there, risk management income down 13%. And we talked about this obviously through the course of the year, particularly in the gas and power business and particularly in the early parts of the year in the European gas and power business. We saw less client opportunity in that part of the business. We also saw less opportunity in global oil over the course of the last 12 months. Those two components were partly offset by improved performance in base and precious metals, improved performance in agriculture. So again, that client franchise is actually growing, providing some support, albeit that energy is still a significant component of commodities. The other thing we saw was a drawdown in terms of inventory management and trading. The underlying trading results were actually up slightly on where they were last year, but we had timing of income recognition on transport and storage contracts that was pulling down the net profit contribution for the current year. Pleasingly, again, a story that I'm sure is familiar with to all those that have been here, the financial markets piece, the FX interest rates, the credit piece, up again this year, a 9% increase in the contribution from that part of the business. And also on the equities derivatives and trading side, we saw good opportunity in equity financing, we saw good opportunity in equity trading, just given the strength of markets, particularly through calendar 24 and into the early part of 25. So I think that diversity of the business that we've been talking about for some time is coming through in this year's result, albeit that in parts of the commodities business, much more subdued environment in terms of being able to service clients. So on this, again, these slides are hopefully familiar. You can see the underlying client business on the left-hand side contributing the vast majority of revenue. And on the right-hand side, obviously, those client numbers over that period of time, the client numbers have grown at 7% or 8% per annum. And we're continuing to see opportunity to grow across commodities and financial markets. You can see the capital in the business at March 25, that capital had stepped up slightly. You can see it mainly stepping up in credit capital. And again, to the conversation we've had previously, that credit capital is consistent with the sort of services we're providing to clients. That step up is partly a reflection of the weakness in the Aussie dollar at 31 March and partly a reflection to the point that the Chair was making in relation to the exposures we have around some derivative contracts in metals through the end of the year. And then on the right-hand side, the daily P&L chart, I guess much more similar to over 24, 25 than that period pre-22, 23 when we saw the volatility in energy markets. Long and short of it, a narrow distribution of daily outcomes and a pretty consistent track record of profitability across the year, consistent with the fact that the group takes relatively little market risk in comparison to the credit risk in the business. And then finally, from an operating group perspective, Macquarie Capital. So Macquarie Capital's role for the year, $1.05 billion, roughly where we were this time last year. Some highlights through the year. Obviously, the fee and commission income, you can see up $252 million. So the advisory component of the business was up 21%. And in particular, the M&A business in ANZ and also in EMEA in Europe had a very good result. So we're pleased with the the growing customer base there. The other thing we saw coming through in fee and commission income was a 12% growth in brokerage from our equities business, largely related to the activities in Asia. So that's the fee and commission side. On the investment-related income, maybe starting with the income on the credit portfolio, you can see up $26 million for the year. A few things going on, a couple of drivers going on. So if you look at the book, in average terms the book's up $3.6 billion, so that's giving us additional net interest income coming through. But offsetting that, or partly offsetting that, are increased expected credit loss provisions. One of the things that the team did over the course of the last year, they originated a lot of gross originations of about $9 billion for the year, so there's a lot of new origination that creates expected credit loss provisions. The other thing we saw coming through that business this year is just the deterioration of the macroeconomic climate that's underpinning our ECR modelling more generally. So that's obviously pulling down that income over the course of the last 12 months. Investment-related income down $240 million, obviously a slightly more subdued period in time in terms of realisations, but the other thing that's affecting that part of the business is the cost of carry for the equity investments that we have alongside Macquarie Capital's clients. So we talked over the last couple of results sessions in Europe about the investment that we've made in Macquarie Capital. It's up about 40% over the course of the last 12 months or so. That investment obviously is seasoning in terms of producing returns, but for the minute Macquarie Capital is paying the funding costs associated with that capital, so that's drawing down the investment-related income. And you can see that story from a capital viewpoint here, from 5.4 up to $6.6 billion at 31 March. The main component is their debt. You can see the step up in the equity we've got associated with our private credit business. You can see the increase in equity exposures to digital infrastructure and technology, so core areas that the team has invested in for a long period of time. And on the right-hand side, obviously, the distribution of of private credit capital exposures, again pretty consistent with what you've seen previously, good strong defensive sectors we think and cash flow generating businesses and typically we're providing senior debt to these clients. So both that capital position and obviously the debt underpinning the annuity like income coming through Macquarie Capital. So turning now to more of the foundational pieces of financial management over the years, so you can see the regulatory compliance and technology spend. So reg compliance for the year, basically where we were this time last year. We are seeing the benefit, I think, of the investment that is being made across the group in data, in technology, in automation, in control environments. All of that's coming through. We've obviously seen a little bit of a tapering of some of the projects that were where there was a significant expenditure over the last few years, so a little bit of a tapering on that. So a reg expenditure, roughly flat from a technology viewpoint, again, broadly in line with where we were this time last year. And we continue to invest, obviously, and we're seeing the benefit of the investment we're making in upgrading the platform and the capabilities of technology and automation to support the scalability of the group around the world. Technology spends about 20% of the overall group expenditure as we sit here today. In terms of the balance sheet highlights, $32 billion of term funding raised, split pretty evenly between the bank and the non-bank. Obviously the market conditions were very conducive through 24 and into the early part of 25. Market conditions remain open although it spreads a little wider in more recent times, but a good period of raising capital and we appreciate the support obviously of investors all over the world in terms of enabling our business to continue to grow. We continue to diversify the issue and strategy, looking at new markets and new investors and telling the Macquarie story across the world. And obviously we tend to fund the organisation quite long term, so four and a half year average weighted life in terms of funding, supporting the group. And that's obviously a good position to be in, particularly as we look at the outlook over the next little while. The deposit base story continues to be a good one, up at $178 billion. 87% of those deposits are now in transaction and savings or more regular way type of accounts, which is great. That deposit base is supporting the growth of the BFS business and I think reflects obviously the diversity and the quality of the digital offering that Greg and the team have out there in the out there in the market. And the deposit base is now about 48% of the funded balance sheet. So a big component of our funding now coming from deposits. The loan portfolio at $206 billion, you can see the growth really in home loans at the top of the page there and corporate and other lending which is the Macquarie Capital activity at the bottom of the page and those loans obviously should be invested well, should augur well for performance going forward in terms of net interest income. And then on the equity investment side you can see basically in line with where we were this time last year. There's a couple of things to draw out. You can see the green energy exposure gone from $2 billion down to $1.3 billion. So we're able to realise some assets that we had on balance sheet over the course of the last 12 months. And you can see that coming through in the investment income line in Macquarie Asset Management. The other thing we did is we've increased our exposure to aligned capital alongside private market funds within MAN from $2 to $2.6 billion. Largely that reflects the drawdown of capital to support our renewable investing fund and our energy transition fund within MAN. The other thing you'll note there is in Macquarie Capital, a big step up in growth and technology in venture capital, It's the work that Michael and the team do to invest in things like enterprise software and tech-enabled government services. So we saw some good opportunities over the last 12 months there, together with some increase in the infrastructure exposure that we have, digital infrastructure exposure that we have around the world. And finally, just to draw the attention to the other column, just at the bottom from 1.5 down to 900, that's largely the completion of the disposal of 39 Martin Place that I talked about just a little earlier. In terms of the regulatory update, there continues to be a lot of activity from a prudential viewpoint here in Australia, very focused on HIPRAS. There's obviously been some work done on that over the course of the year, and HIPRAS is very focused on interest rate risk across the sector, so we continue to work on those topics amongst others. We obviously continue to invest in the remediation plan that we've spoken about before, uplifting our capabilities, uplifting our control environment, uplifting our data that supports our prudential regulations, and we're making good progress there. We note obviously the announcement that was made by ASIC earlier in the week on the 7th of May. Obviously, as Shamara said, disappointed about that. Nonetheless, obviously, it focuses around our futures business and our over-the-counter derivatives trade reporting. We will set up a program of work, a program of remediation. Plainly, these are important obligations and we need to make sure that we're investing appropriately to make sure that we're meeting those obligations. In terms of the capital ratio, very strong from a bank viewpoint, 12.8% consistent with where we were at September 24 and plainly important to make sure that we remain very well capitalised going into the next period as is always the case. Strong liquidity position consistent with the discussion I was going through just earlier. And finally, from a capital management viewpoint, just a couple of things to point out. Obviously, the Board has resolved to open the dividend reinvestment plan at a zero discount to the share prices. We'll obviously buy any applications under that DRP shares we bought on market to satisfy those applications. Similarly, the Board has resolved to purchase shares to satisfy the 2025 MIRAP requirement, just under $700 million, and those shares will be purchased on market. And finally, I just note in relation to the buyback, obviously the board announced in November, we announced the extension of the buyback, the $2 billion buyback for another 12 months. So we're partway through that. Plainly that buyback we think gives us flexibility to be able to return capital to shareholders via the buyback. We're obviously balancing that between the needs of the groups. And you saw over the course of the last six months, net of FX, a $1.6 billion increase in capital usage for the group. So the teams are seeing good opportunities to deploy that capital. As a result, we haven't bought any shares back, so we've still bought back just over $1 billion worth of stock at just under $190 per share. And with that, I'll hand back to Shamara. Thanks very much.