Macquarie : 2022 full year result management discussion and analysis

Management

Discussion

and Analysis

Macquarie Group

Year ended 31 March 2022

Macquarie Group Limited

ACN 122 169 279

Notice to readers

The purpose of this report is to provide information supplementary to the Macquarie Group Limited Financial Report (the Financial Report) for the year ended 31 March 2022, including further detail in relation to key elements of Macquarie Group Limited and its subsidiaries' (Macquarie, the Consolidated Entity) financial performance and financial position. The report also outlines the funding and capital profile of the Consolidated Entity.

Certain financial information in this report is prepared on a different basis to that contained in the Financial Report, which is prepared in accordance with Australian Accounting Standards. Where financial information presented within this report does not comply with Australian Accounting Standards, a reconciliation to the statutory information is provided.

Date of this report

This report has been prepared for the year ended 31 March 2022 and is current as at 6 May 2022.

Cover image

With more than 15 years' experience in physical and financial energy markets, we have built a deep franchise of client relationships globally. During a period of exceptional volatility, we have continued to service our customers reliably and consistently to enable them to continue their business operations seamlessly.

Explanatory notes

Comparative information and conventions

Where necessary, comparative figures have been restated to conform to changes in current year financial presentation and group structures.

References to the prior year are to the 12 months ended 31 March 2021. References to the first half are to the six months ended 30 September 2021. References to the second half are to the six months ended 31 March 2022.

In the financial tables throughout this document '*' indicates that the absolute percentage change in the balance was greater than 300% or indicates the result was a gain in one period but a loss in another, or vice versa.

Independent Auditor's Report

This document should be read in conjunction with the Financial Report for the year ended 31 March 2022, which was subject to independent audit by PricewaterhouseCoopers.

PricewaterhouseCoopers' independent auditor's report to the members of Macquarie Group Limited dated 6 May 2022 was unqualified.

Any additional financial information in this document which is not included in the Financial Report was not subject to independent audit by PricewaterhouseCoopers.

Disclaimer

The material in this document has been prepared by Macquarie Group Limited ABN 94 122 169 279 (MGL, the Company) and is general background information about Macquarie Group Limited and its subsidiaries' (Macquarie) activities current as at the date of this document. This information is given in summary form and does not purport to be complete. The material in this document may include information derived from publicly available sources that have not been independently verified. Information in this document should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments and does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to these matters, any relevant offer document and in particular, you should seek independent financial advice. No representation or warranty is made as to the accuracy, completeness or reliability of the information. All securities and financial product or instrument transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk.

This document may contain forward looking statements - that is, statements related to future, not past, events or other matters - including, without limitation, statements regarding our intent, belief or current expectations with respect to Macquarie's businesses and operations, market conditions, results of operation and financial condition, capital adequacy, provisions for impairments and risk management practices. Readers are cautioned not to place undue reliance on these forward looking statements. Macquarie does not undertake any obligation to publicly release the result of any revisions to these forward looking statements or to otherwise update any forward looking statements, whether as a result of new information, future events or otherwise, after the date of this document. Actual results may vary in a materially positive or negative manner. Forward looking statements and hypothetical examples are subject to uncertainty and contingencies outside Macquarie's control. Past performance is not a reliable indication of future performance.

Contents

01	02
Result Overview	Financial Performance
1.1 Executive Summary	4 Analysis
	2.1	Net Interest and Trading Income	12
	2.2	Fee and Commission Income	15
	2.3	Net Operating Lease Income	17
	2.4	Share of Net (Losses)/Profits from
		Associates and Joint Ventures	17
	2.5	Credit and Other Impairment Charges 18
	2.6	Net Other Operating Income	20
	2.7	Operating Expenses	21
	2.8	Headcount	22
	2.9	Income Tax Expense	23

06		07
Capital		Funds Management
6.1	Overview	70	7.1	Assets Under Management	80
6.2	Bank Group Capital	72	7.2	Equity Under Management	81
6.3	Non-Bank Group Capital	75

03		04
Segment Analysis		Balance Sheet
3.1	Basis of Preparation	26	4.1	Statement of Financial Position	44
3.2	MAM	30	4.2	Loan Assets	46
3.3	BFS	32	4.3	Equity Investments	48
3.4	CGM	34
3.5	Macquarie Capital	37
3.6	Corporate	39
3.7	International Income	41

05

Funding and Liquidity

5.1	Liquidity Risk Governance and
	Management Framework	52
5.2	Management of Liquidity Risk	54
5.3	Funded Balance Sheet	56
5.4	Funding Profile for Macquarie	58
5.5	Funding Profile for the Bank Group	62
5.6	Funding Profile for the
	Non-Bank Group	65

5.7 Explanatory Notes Concerning

Funding Sources and Funded Assets 67

08	09
Glossary	Ten Year History
8.1 Glossary	84 9.1 Ten Year History	90

01

Result

Overview

Jozwin wind farm, Poland

The Jozwin wind farm comprises of 9 GE turbines and has been operating for nearly 7 years. The project helps avoid 42kt CO2e in greenhouse gas emissions every year.

2

Result	Financial	Segment	Balance	Funding	Capital	Funds		Ten Year
Performance	Glossary
Overview	Analysis	Sheet	and Liquidity	Management	History
Analysis

Macquarie Group Limited 2022 Management Discussion and Analysis	3

1.1 Executive Summary

Macquarie (MGL and its subsidiaries, the Consolidated Entity) is a global financial group with offices in

33 markets.

Macquarie Group Limited (MGL, the Company) is listed in Australia and is regulated by the Australian Prudential Regulation Authority (APRA), the Australian banking regulator, as a Non-Operating Holding Company (NOHC) of Macquarie Bank Limited (MBL), an authorised deposit-taking institution (ADI). Macquarie's activities are also subject to supervision by various other regulatory agencies around the world.

Founded in 1969, Macquarie now employs over 18,000 people globally, has total assets of $A399.2 billion and total equity of $A28.8 billion as at 31 March 2022.

Macquarie's breadth of expertise covers asset management, retail and business banking, wealth management, leasing and asset financing, market access, commodity trading, renewables development, specialist advice, access to capital and principal

investment. The diversity of our operations, combined with a strong capital position and robust risk management framework, has contributed to Macquarie's 53-year record of unbroken profitability.

Macquarie works with institutional, corporate, government and retail clients and counterparties around the world, providing a diversified range of products and services. We have established leading market positions as a global specialist in a wide range of sectors, including renewables, infrastructure, resources and commodities, energy, financial institutions and real estate.

Alignment of interests is a longstanding feature of Macquarie's client-focused business, demonstrated by our willingness to both invest alongside clients and closely align the interests of our shareholders and staff.

$A4,706m

Macquarie now employs over 18,000(1) people	FY2022 profit
globally across 33 markets
EMEA ~14%
Americas ~18%
Asia ~22%
ANZ ~46%
1969	2022

(1) This figure includes staff employed in certain operationally segregated subsidiaries (OSS).

4

Result	Financial	Segment	Balance	Funding	Capital	Funds		Ten Year
Performance	Glossary
Overview	Analysis	Sheet	and Liquidity	Management	History
Analysis

FY2022 net profit

$A4,706m

µµ 56% on prior year

FY2022 net operating income

$A17,324m

µµ 36% on prior year

FY2022 return on equity

18.7%

µµ from 14.3% in prior year

FY2022 operating expenses

$A10,785m

µµ 22% on prior year

FY2022 net profit contribution(1) by activity

Annuity-style activities		Markets-facing activities
$A4,132m		$A5,330m
µµ 25% on prior year		µµ 92% on prior year
~44%		~56%

20

Macquarie Asset Management

~23%

40
60

Commodities and Global Markets

~10% ~31%

Banking and Financial Services

~11%

80	1

Macquarie Capital

~25%

(1) Net profit contribution is management accounting profit before unallocated corporate costs, profit share and income tax.

Macquarie Group Limited 2022 Management Discussion and Analysis	5

1.1 Executive Summary

Continued

FY2022 net profit contribution by Operating Group

Summary of the Operating Groups' performance for the year ended 31 March 2022.

Annuity-style businesses

Markets-facing businesses

Non-Banking Group

Macquarie Asset Management (MAM)

$A2,150m

µµ 4% on prior year

• Increased base fees primarily driven by the acquisition of Waddell & Reed Financial (Waddell & Reed), investments made by Private Markets-managed funds and mandates and Public Investments market movements.
• Increased other fee and commission income largely due to a disposition fee from Macquarie Infrastructure
  Corporation(1) (MIC).
• Increased share of net profits from associates and joint ventures, primarily driven by equity accounted income from MIC and lower equity accounted losses in Macquarie AirFinance.

Partially offset by:

• increased operating expenses driven by Waddell & Reed one-off acquisition and ongoing costs
• decreased net income on equity, debt and other investments driven by the non-recurrence of gains on sale of Macquarie European Rail and other investments as well as lower gains on revaluation of property investments
• decreased performance fees following a strong prior year.

Macquarie Capital

$A2,400m

µµ significantly from $A651m in prior year

• Substantially higher net income on equity, debt and other investments driven by material asset realisations in the green energy, technology and business services sectors and included realisations across all regions.
• Higher fee and commission income due to higher mergers and acquisitions fee income and debt capital markets fee income, partially offset by lower equity capital markets fee income and brokerage income.
• Higher net interest and trading income resulting from growth in the private credit portfolio.

Partially offset by:

• higher credit and other impairment charges primarily due to a small number of underperforming equity investments and growth of the private credit portfolio
• higher non-controlling interests predominantly driven by the share of gains on disposal attributable to non-controlling interests.

Banking Group

Banking and Financial Services (BFS)

$A1,001m

µµ 30% on prior year

• Higher net interest and trading income mainly driven by volume growth in the loan portfolio and BFS deposits.
• Decreased credit and other impairment charges driven by the partial release of COVID-19 overlays. Credit provisioning levels remain prudent with the combined downside macroeconomic scenarios having a higher weighting than the upside scenario.

Partially offset by:

• higher employment, technology and other operating expenses, including increased headcount, to support business growth and to meet regulatory requirements.

Commodities and Global Markets (CGM)(2)

$A3,911m

µµ 50% on prior year

• Increased risk management income with gains across the platform, particularly in Gas and Power, Resources, Agriculture, and Global Oil driven by increased client hedging activity and trading activity due to elevated levels of volatility and price movements in commodity markets, partially offset by the impact of fair value adjustments across the derivatives portfolio.
• Net income on equity, debt and other investments up significantly driven by the gain on the partial sale of the UK Meters portfolio of assets, comprising the industrial and commercial portfolio.
• Decreased credit and other impairment charges driven by the partial release of COVID-19 overlays. Credit provisioning levels remain prudent with the combined downside macroeconomic scenarios having a higher weighting than the upside scenario.

Partially offset by:

• increased other operating expenses driven by higher expenditure on technology platform and infrastructure and increasing compliance and regulatory management spend.

1. On 22 September 2021, Macquarie Infrastructure Corporation completed a corporate reorganisation, becoming a subsidiary of the newly formed Macquarie Infrastructure Holdings, LLC which continues to trade under the New York Stock Exchange symbol of 'MIC'.
2. Certain assets of the Credit Markets business, certain activities of the Commodity Markets and Finance business, and some other less financially significant activities are undertaken from within the Non-Banking Group.

6