Macquarie : 2023 full-year result transcript

TRANSCRIPTION

MACQUARIE GROUP LIMITED RESULT ANNOUNCEMENT

FOR THE YEAR ENDED 31 MARCH 2023

5 MAY 2023

	[START OF TRANSCRIPT]
Operator:	Thank you for standing by and welcome to the Macquarie Group Limited 2023
	Full Year Result announcement. All participants are in a listen-only mode.
	There will be a presentation followed by a question and answer session. If you
	wish to ask a question you will need to press the star key followed by the
	number one on your telephone keypad. I would now like to head the conference
	over to Sam Dobson, Head of Investor Relations. Please go ahead.
Sam Dobson:	Thank you very much and good morning, everyone. Welcome to Macquarie's
	2023 Full Year Results presentation. Before we begin I would like to
	acknowledge the traditional custodians of this land and pay our respects to
	their Elders past, present and emerging.
	So this morning you will hear from our CEO and Managing Director, Shemara
	Wikramanayake, and our CFO, Alex Harvey. On the line we also have our Group
	heads. At the end of today's presentation, as the Operator mentioned, we will
	have a Q&A session and we're looking to conclude by about 11:15. So with that
	I'll hand over to Shemara. Thank you.

Shemara Wikramanayake: Thanks very much, Sam, and welcome and good morning, everyone, from me as well. So, as usual, we will 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. So these are specialist advisory and 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. 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

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commodities and global markets business with the market facing business 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 both strong second line review and also assisting in executing in terms of initiatives we take. Then our financial management group, which is responsible not just for our financial and regulatory reporting in 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 et cetera.

Now, all those eight areas together in this last financial year delivered, as you saw, a record result of $A5.182 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.

1. won't dwell on the half-on-half changes but year-on-year the contribution from our operating group 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 Corporation contribution and large realisation of green energy assets and in commodities and global markets we had the realisation of our industrial and commercial needs in 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, as I said, our net profit was 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 would note that we're now including our dry powder in assets under management for

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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 78% this year. I would also note in terms of our now 20,500-plus head count, more than 51% of that is also outside Australia.

In terms of the trends of growth of income in all our regions, you can see on this slide the underlying trend is increased 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.

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 Corporation and the large Green Investment Group realisation contributions, which didn't repeat. Despite that, the underlying franchise is growing very well. In the Private Markets side we have record equity under management of over $A200 billion and we had record raisings of over $A38 billion compared to the record last year of $A27 billion and we have dry powder of nearly $A35 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 is mostly driven by market movements plus the rotation from equity 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 would note that 70% of its assets are beating the benchmark on a three-year basis.

Then turning to Banking and Financial Services, it contributed 12% over this last year as a net profit and it was up 20% on the previous year to just over $A1.2 billion earnings. That was driven by strong growth across the entire platform. The home loans were up by 21%, the business banking up by 13%, the funds on

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platform up by 4% and, importantly, our deposit book growing by about 30% to support all of that. A couple of things I would 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 credit and good returns and the average LVR at origination remained around 65% and the average dynamic LVR at about 55% for home loans. I would 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 $A6 billion of contributions. 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 benefitted 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 a substantially increased contribution from Inventory management and trading, particularly given demand/supply dynamics impacting North American gas and power opportunities.

Then Macquarie Capital contributed 8% of our net profit contribution. That was down 48% at just over $A800 million and the main drivers there was that we had weaker market activity compared to a very strong prior year, which impacted the 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 $A18 billion. We invested about $7 billion over the year. We saw a slowing in deployment in the second half, so probably about $A3.5 billion in the first half, $A2.5 billion 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.

Those results from the four operating groups are supported by a very conservative and strong funding and capital position and in relation to our fund

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and 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 $A134.5 billion and we also issued another $A23.3 billion of term lending coupled with the $A48 billion plus that we did last financial year. We've done over $A70 billion of term 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 market for some time if that were the case in terms of meeting our funding needs.

On the capital side our APRA Basel III capital surplus has increased from the half year $A12.2 billion to $A12.6 billion at the end of the full year and that is after absorbing the $A2.4 billion of capital requirement due to the APRA Unquestionably Strong reform, and I would particularly note that our capital surplus at the end of last financial year was at $A10.7 billion. We're now at $A12.6 billion after absorbing $A2.4 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 $A1 billion of capital released from the business requirements and there's more detail of that you can see here where the biggest contributor was the $A1.7 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 $A1.7 billion release was absorbed to some extent by the other businesses. Macquarie Asset Management absorbed about half a billion in terms of co-investment and seed investments to grow our offering in our franchise, and that was offset slightly by realisations in the green energy/green investment group area. In BFS we absorbed about another $A300 million of capital in growing our home loans and our business banking books, partially offset by run-off in the vehicle leasing. Then in Macquarie Capital we absorbed about $A500 million or $A600 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.

With that, we are ending the year with very strong regulatory ratios, well above the APRA Basel III minimums and I would 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.

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