Macquarie Group, Ltd. · ASX:MQG
Macquarie — H1 2015 Earnings Presentation
68 slides from Macquarie's earnings presentation, Oct 31, 2014
Slide 1: Presentation to investors and analysts: 1H15 result announcement
For personal use only Presentation to investors and analysts Result announcement for the half year ended 30 September 2014 31 October 2014
Slide 2: Disclaimer
Disclaimer For personal use only The material in this presentation has been prepared by Macquarie Group Limited ABN 94 122 169 279 (Macquarie) and is general background information about Macquarie’s activities current as at the date of this presentation. This information is given in summary form and
Slide 3: Agenda
Agenda For personal use only 01. Introduction – Karen Khadi 02. Overview of Result – Nicholas Moore 03. Result Analysis and Financial Management – Patrick Upfold 04. Outlook – Nicholas Moore 05. Additional Information PAGE 3
Slide 4: Introduction
For personal use only 01 Introduction Karen Khadi Head of Investor Relations
Slide 5: Overview of Result
For personal use only 02 Overview of Result Nicholas Moore Managing Director and Chief Executive Officer
Slide 6: About Macquarie
About Macquarie For personal use only Building for the long term Macquarie • Top 50 global asset manager with $A423b1 of assets under management • Provides clients with access to a diverse range of capabilities and products, including infrastructure and real asset management, Funds securities invest
Slide 7: 1H15 Result
1H15 Result For personal use only • Net profit $A678m, up 35% on 1H14 and down 11% on 2H14 – Increase on 1H14 stronger than previously expected given the timing of transactions • Operating income $A4.3b, up 17% on 1H14 and down 3% on 2H14 • As foreshadowed: – Macquarie’s annuity-style businesses (Ma
Slide 8: 1H15 Result
1H15 Result For personal use only 1H15 2H14 1H14 1H15 v $Am $Am $Am 1H14 Net operating income 4,298 4,453 3,679 17% Total operating expenses (3,177) (3,157) (2,869) 11% Operating profit before income tax 1,121 1,296 810 38% Income tax expense (432) (520) (307) 41% Profit attributable to non-controll
Slide 9: Financial performance
Financial performance For personal use only 1H15 Operating income of $A4,298m 1H15 Profit of $A678m $Am 1H15 up 17% on 1H14 $Am 1H15 up 35% on 1H14 5,000 1,000 750 4,000 500 3,000 250 2,000 0 2H12 1H13 2H13 1H14 2H14 1H15 1H12 2H12 1H13 2H13 1H14 2H14 1H15 EPS of $A2.13 1H15 DPS of $A1.30 $A 1H15 up
Slide 10: Assets under management of $A425 billion
Assets under management of $A425 billion1 For personal use only • AUM broadly in line with 31 Mar 14 with favourable currency and market movements, as well as fund raisings and investments in the infrastructure and real assets business offset by the impact of the formation of the Jackson Square Part
Slide 11: Diversified by region
Diversified by region International income 65% of total income1 For personal use only Total staff 14,138; International staff 53% of total Europe, Middle East Asia Americas & Africa2 Income: $A1,049m (25% of total) Income: $A419m (10% of total) Income: $A1,272m (30% of total) Staff: 1,335 Staff: 3,4
Slide 12: Diversified income
Diversified income For personal use only Net operating income by region • 65% of total income1 in 1H15 was generated offshore • FX has not had a material impact on the 1H15 result compared to both 1H14 and 2H14 $Am 1,800 1H13 2H13 1,600 1H14 1,400 2H14 1,200 1H15 1,000 800 600 400 200 0 Australia As
Slide 13: Macquarie Funds
Macquarie Funds Operating income of $A1,239m, up 37% on 1H14 and up 21% on 2H14 For personal use only Net profit contribution of $A785m, up 57% on 1H14 and up 42% on 2H14 AUM of $A423b1 up 11% on Sep 13 and broadly in line with Mar 14 Macquarie Infrastructure and Real Assets Macquarie Investment Man
Slide 14: Corporate and Asset Finance
Corporate and Asset Finance Operating income of $A688m, up 19% on 1H14 and up 9% on 2H14 For personal use only Net profit contribution of $A468m, up 18% on 1H14 and up 9% on 2H14 Asset and loan portfolio of $A27.5b up 12% on Sep 13 and up 8% on Mar 141 Corporate Lending Asset Finance • Lending’s fun
Slide 15: Banking and Financial Services
Banking and Financial Services Operating income from continuing operations1 of $A665m, up 12% on 1H14 and up 7% on 2H14 For personal use only Net profit contribution of $A141m, up 27% on 1H14 and down 5% on 2H14 Australian client numbers 1.1 million Personal Banking Wealth Management Business Bankin
Slide 16: Macquarie Private Wealth: enforceable undertaking and client remediation update
Macquarie Private Wealth For personal use only Enforceable undertaking and client remediation update Enforceable undertaking – progress since AGM (24 July 2014) • Implementation on track with fourth and final phase progressing to schedule • Roll out of advice platform, XPLAN, to all advisers largely
Slide 17: Macquarie Securities
Macquarie Securities Operating income of $A431m, broadly in line with both 1H14 and 2H14 For personal use only Net profit contribution of $A17m down 76% on 1H14 and down 53% on 2H14 Market conditions Australia Asia North America EMEA Secondary cash market activity Commissions up 15% on Commiss
Slide 18: Macquarie Capital
Macquarie Capital Operating income of $A439m, up 18% on 1H14 and broadly in line with 2H14 For personal use only Net profit contribution of $A150m up 49% on 1H14 and down 16% on 2H14 219 transactions valued at $A63b in 1H15 (214 transactions valued at $A28b in 1H14 and 258 transactions valued at $A6
Slide 19: Fixed Income, Currencies and Commodities
Fixed Income, Currencies and Commodities Operating income of $A725m, up 11% on 1H14 and down 30% on 2H14 For personal use only Net profit contribution of $A250m, up 23% on 1H14 and down 52% on 2H14 Commodity Markets Financial Markets 12% of operating 61% of operating income 27% of operating income i
Slide 20: Strong funding and balance sheet position
Strong funding and balance sheet position For personal use only • Diverse and stable funding base, minimal reliance on short term wholesale funding markets • Surplus funding capacity continues to be deployed • Retail deposits1 continuing to grow, up 6% to $A35.3b in Sep 14 from $A33.3b at Mar 14 • $
Slide 21: Funded balance sheet remains strong
Funded balance sheet remains strong For personal use only 30 September 2013 31 March 2014 30 September 2014 $Ab $Ab $Ab 100 100 100 ST wholesale issued paper ST wholesale issued paper ST wholesale issued paper (12%) 90 (9%) 90 90 (9%) Other debt maturing in the Cash, liquids and self Other debt matu
Slide 22: Regulatory update
Regulatory update For personal use only • In Aug 14, APRA issued its final rules for Conglomerates with the implementation timing dependent on the outcomes of the Financial System Inquiry. We continue to work through the application of these rules with APRA, however, our current assessment is that M
Slide 23: Basel III capital position
Basel III capital position For personal use only • APRA Basel III Group capital (including BCN1) at Sep 14 of $A13.7b, Group surplus of $A1.8b (1 Jan 16 requirements 2), $A2.9b (existing requirements3) • Bank Group APRA Basel III CET1 ratio: 8.7% (9.6% including Non-Bank Group capital surplus) • Ban
Slide 24: Interim dividend
Interim dividend For personal use only • 1H15 dividend set at $A1.30 (40% franked), 62% payout ratio – 1H15 dividend up on 1H14 dividend of $A1.00 (40% franked) and down on 2H14 dividend of $A1.60 (40% franked)1 – Record date for 1H15 dividend is 14 Nov 14 and payment date is 16 Dec 14 • Given busin
Slide 25: Board change
Board change For personal use only • Gordon Cairns has been appointed to the Macquarie Group Limited and Macquarie Bank Limited Boards as an independent director, effective 1 Nov 14 • Mr Cairns has held a wide range of management and executive roles throughout his career including CEO of Lion Nathan
Slide 26: Result analysis and financial management
For personal use only 03 Result analysis and financial management Patrick Upfold Chief Financial Officer
Slide 27: Income Statement key drivers
Income Statement key drivers For personal use only 1H15 2H14 1H14 • Net interest and trading income of $A1,643m, up 13% on 1H14 $Am $Am $Am – Increased corporate lending activity in CAF and BFS (mortgages and Net interest and trading income 1,643 1,824 1,451 business banking) – Improved result for F
Slide 28: Macquarie Funds: Result
Macquarie Funds For personal use only Result 1H15 2H14 1H14 • Base fees of $A641m, up 5% on 1H14; AUM up 11% $Am $Am $Am – New fund raisings and deployment of equity in MIRA, partially offset by Base fees 641 652 610 divestments – Favourable currency movements and increased equity values Performance
Slide 29: Recognition of performance fees from unlisted funds
Recognition of performance fees from unlisted funds For personal use only • Macquarie’s entitlement to receive performance fees on its unlisted funds typically occurs once investors have received repayment of their initial capital invested as well as their preferential return • The performance fee s
Slide 30: Corporate and Asset Finance: Result
Corporate and Asset Finance For personal use only Result 1H15 2H14 1H14 • Net interest and trading income of $A326m, up 18% on 1H14 $Am $Am $Am – Net increase in lending activity and higher early repayments levels (early Net interest and trading income1 326 386 277 repayment levels down on strong 2H
Slide 31: Banking and Financial Services: Result
Banking and Financial Services For personal use only Result 1H15 2H14 1H14 • Net interest and trading income of $A406m, up 11% on 1H14 $Am $Am $Am – Strong growth in Australian mortgage volumes (up 36% to $A19.8b from Net interest and trading income1 406 372 366 $A14.6b at Sep 13) partially offset b
Slide 32: Macquarie Securities: Result
Macquarie Securities For personal use only Result 1H15 2H14 1H14 • Brokerage and commissions of $A262m, down 4% on 1H14 $Am $Am $Am – Higher brokerage and commission in Australia and Europe offset by lower Brokerage and commissions 262 275 272 brokerage in Asia as a result of decreased market turnov
Slide 33: Macquarie Capital: Result
Macquarie Capital For personal use only Result 1H15 2H14 1H14 • Fee and commission income of $A361m, up 12% on 1H14 $Am $Am $Am – Australia and the US generated comparable levels of fee income Fee and commission income 361 406 321 – Increased ECM activity in Australia, higher DCM income in the US In
Slide 34: Fixed Income, Currencies and Commodities: Result
Fixed Income, Currencies and Commodities For personal use only Result 1H15 2H14 1H14 • Commodities income of $A418m, up 6% on 1H14 $Am $Am $Am – Increase commodities financing activities and trading opportunities across MAST platform Commodities1 418 731 393 – Partially offset by lower gold hedging
Slide 35: Income tax expense: Geographic mix of income
Income tax expense For personal use only Geographic mix of income Australia US EMEA Asia Statutory tax rates1 30% 35% to 45% 21% to 30% 16% to 35% Impacts on • Non-deductible expenses • State and city tax rates • Australian top-up tax may • Tax rate depends on effective tax rate including: vary appl
Slide 36: Income tax expense: Tax uncertainties
Income tax expense For personal use only Tax uncertainties • Macquarie carries a provision for tax uncertainties • Reviews of the tax uncertainties are conducted periodically and may be adjusted where there is a change in circumstances or disagreement with the relevant revenue authorities arising ou
Slide 37: Balance sheet highlights
Balance sheet highlights For personal use only • Balance sheet remains solid and conservative – Term assets covered by term funding, stable deposits and equity – Minimal reliance on short term wholesale funding markets • Retail deposits1 continuing to grow, 6% to $A35.3b in Sep 14 from $A33.3b at Ma
Slide 38: Well diversified funding sources
Well diversified funding sources For personal use only Diversity of MGL funding sources MGL term funding (drawn and undrawn1) maturing Equity & Hybrid Wholesale issued beyond one year (including equity and hybrids) 13% paper Loan capital 12% $Ab 4% 25 Deposits - corporate Debt Loan capital Equity an
Slide 39: Continued retail deposit growth
Continued retail deposit1 growth For personal use only • Macquarie has been successful in pursuing its strategy of diversifying its funding sources through growing its deposit base – 1.1 million retail clients, of whom circa 600,000 are depositors – Focus on the composition and quality of the deposi
Slide 40: Loan portfolio growth – Funded Balance Sheet
Loan portfolio1 growth – Funded Balance Sheet For personal use only Sep 14 Mar 14 Sep 13 Category $Ab $Ab $Ab Mortgages: Australia 12.6 10.5 8.4 Canada, United States and other regions 5.2 5.7 6.8 Total mortgages 17.8 16.2 15.2 Structured investments 2.3 3.8 4.3 Banking 4.9 4.2 4.1 Real Estate 2.9 2
Slide 41: Equity investments of $A4.2b
Equity investments of $A4.2b1 For personal use only Carrying value2 Carrying value2 Sep 14 Mar 14 Category $Am $Am Description Macquarie Funds (MIRA) managed funds 1,522 1,528 Includes MIC, MPF Holdings Limited, Macquarie SBI Infrastructure Fund, MQA, MEIF1, MWREF, Macquarie Mexican REIT, Macquarie
Slide 42: Capital Management update
Capital Management update For personal use only • On-market share purchases since 31 Mar 14 – FY14 MEREP $A265m at a weighted average price of $A59.56 – 2H14 Dividend Reinvestment Plan $A63m at a weighted average price of $A59.94 • On 8 Oct 14, $A429m Macquarie Bank Capital Notes (BCN) were issued.
Slide 43: Group Capital Surplus and Bank Group's CET1 ratio in excess of minimum
Group Capital Surplus and Bank Group’s CET1 ratio in excess of minimum For personal use only • Based on the Macquarie Group Basel III capital position as at 30 Sep 14 (including BCN1) and on a Harmonised Basel III basis2: – Group capital surplus is $A3.4b measured at the 2019 BIS requirement of 8.5%
Slide 44: Bank Group Basel III Common Equity Tier (CET1) Ratio
Bank Group Basel III Common Equity Tier 1 (CET1) Ratio For personal use only • Bank Group APRA Basel III CET1 ratio: 8.7% (9.6% including Non-Bank Group capital surplus) • Bank Group APRA Basel III Tier 1 ratio: 10.3% including BCN1 (11.1% including Non-Bank Group capital surplus) • Basel III applie
Slide 45: Outlook
For personal use only 04 Outlook Nicholas Moore Managing Director and Chief Executive Officer
Slide 46: Short term outlook
Short term outlook For personal use only • Summarised below are the outlook statements for each Operating Group • FY15 results will vary with market conditions, particularly the capital markets facing businesses Net profit contribution FY07 – FY14 FY07 – FY14 FY15 outlook as Operating Group historic
Slide 47: Short term outlook
Short term outlook For personal use only • While the impact of future market conditions makes forecasting difficult, we continue to expect that the FY15 combined net profit contribution1 from operating groups will be up on FY14, offsetting the FY14 realised gain relating to the SYD distribution • Th
Slide 48: Medium term
Medium term For personal use only • Macquarie remains well positioned to deliver superior performance in the medium term • Deep expertise in major markets • Build on our strength in diversity and continue to adapt our portfolio mix to changing market conditions – Annuity-style income is provided by
Slide 49: Approximate business Basel III Capital & ROE
Approximate business Basel III Capital & ROE For personal use only 1 Operating Group APRA Basel III Capital Approx. 1H15 Return @ 8.5% ($Ab) on Ordinary Equity2 Approx. 8-Year Average Annuity-style businesses 6.2 Return on Ordinary Equity2 Macquarie Funds Group 1.9 Corporate and Asset Finance 2.8 24
Slide 50: Medium term
Medium term For personal use only • Annuity-style business that is diversified across regions, products, asset classes and investor types MFG • Well positioned for organic growth with several strongly performing products and an efficient operating platform • Higher margin products should benefit fro
Slide 51: Additional information: Funding
For personal use only A Additional information Funding
Slide 52: Group funding structure
Group funding structure For personal use only • MGL and MBL are the Group’s two primary external funding vehicles which have separate and distinct funding, capital and liquidity management arrangements • MBL provides funding to the Bank Group • MGL provides funding principally to the Non-Bank Group
Slide 53: Funded balance sheet reconciliation
Funded balance sheet reconciliation For personal use only • The Group’s statement of financial position is prepared based on generally accepted accounting principles which do not represent actual funding requirements • A funded balance sheet reconciliation has been prepared to reconcile the reported
Slide 54: Funding for the Group
Funding for the Group For personal use only 30 September 2014 Sep 14 $Ab Mar 14 $Ab Sep 13 $Ab • Well diversified funding sources Funding sources Negotiable certificates of deposits 1.7 1.9 2.2 • Minimal reliance on short term wholesale funding markets Commercial paper Net Trade Creditors 10.0 0.3 6
Slide 55: Funding for the Bank Group
Funding for the Bank Group For personal use only 30 September 2014 Sep 14 $Ab Mar 14 $Ab Sep 13 $Ab • Bank balance sheet remains liquid, well capitalised and Funding sources with a diversity of funding sources Negotiable certificates of deposits 1.7 1.9 2.2 Commercial paper 10.0 6.6 6.7 • Term fundi
Slide 56: Funding for the Non-Bank Group
Funding for the Non-Bank Group For personal use only 30 September 2014 Sep 14 $Ab Mar 14 $Ab Sep 13 $Ab • Non-Bank Group is predominantly term funded • Term funding beyond one year (excluding equity) has a Funding sources Net Trade Creditors (0.7) 0.3 - Structured notes 0.5 0.7 0.7 weighted average
Slide 57: Explanation of Funded Balance Sheet reconciling items
Explanation of Funded Balance Sheet reconciling items For personal use only • Self funded trading assets: Macquarie enters into stock borrowing and lending as well as repurchase agreements and reverse repurchase agreements in the normal course of trading activity that it conducts with its clients an
Slide 58: Conservative long standing liquidity risk management framework
Conservative long standing liquidity risk management framework For personal use only Liquidity Policy • The key requirement of MGL and MBL’s liquidity policies is that the entities are able to meet all liquidity obligations during a period of liquidity stress: – a minimum 12 month period with constr
Slide 59: Additional information: Capital
For personal use only B Additional information Capital
Slide 60: Macquarie Group Basel III regulatory capital
Macquarie Group Basel III regulatory capital Surplus calculation1 For personal use only Harmonised Basel III APRA Basel III 30 September 2014 $Am $Am Macquarie Group eligible capital: Bank Group Gross Tier 1 capital (includes BCN1) 10,079 10,079 Non-Bank Group eligible capital 3,586 3,586 Eligible c
Slide 61: Macquarie Group APRA Basel III regulatory capital: Bank Group contribution
Macquarie Group APRA Basel III regulatory capital For personal use only Bank Group contribution Risk Weighted Assets Tier 1 Deductions Capital Requirement1 30 September 2014 $Am $Am $Am Credit risk On balance sheet 42,150 2,951 Off balance sheet 12,735 891 Credit risk total 54,885 3,842 Market risk
Slide 62: Macquarie Group regulatory capital: Non-Bank Group contribution
Macquarie Group regulatory capital For personal use only Non-Bank Group contribution • APRA has specified a regulatory capital framework for MGL • A dollar capital surplus is produced; no capital ratio calculation is specified • APRA has approved Macquarie’s Economic Capital Adequacy Model (ECAM) fo
Slide 63: Macquarie Group regulatory capital: Non-Bank Group contribution
Macquarie Group regulatory capital For personal use only Non-Bank Group contribution Capital Assets Requirement Equivalent Risk 30 September 2014 $Ab $Am Weight Funded assets Cash and liquid assets 1.7 23 17% Loan assets1 1.2 137 142% Debt investment securities 0.9 85 119% Co-investment in Macquarie
Slide 64: Glossary
For personal use only Glossary C
Slide 65: Glossary
Glossary For personal use only $A / AUD Australian Dollar BCN Macquarie Bank Capital Notes $C Canadian Dollar BIS Bank for International Settlements $US United States Dollar BFS Banking and Financial Services € Euro CAF Corporate and Asset Finance 1H15 Half Year ended 30 September 2014 CCB Capital C
Slide 66: Glossary
Glossary For personal use only EUM Equity Under Management MAST Metals and Agriculture, Sales and Trading FIC Fixed Income and Currencies MBL Macquarie Bank Limited FICC Fixed Income, Currencies and Commodities MEC Metals and Energy Capital FUA Funds Under Administration MEIF1 Macquarie European Inf
Slide 67: Glossary
Glossary For personal use only NGL Natural Gas Liquids SGX Singapore Exchange No. Number SMSF Self Managed Super Fund NOIP Net Over Intrinsic Premium ST Short Term NPAT Net Profit After Tax SYD Sydney Airport NZ New Zealand TMET Telecommunications, Media, Entertainment and Technology OECD Organisati
Slide 68: Presentation to investors and analysts: 1H15 result announcement
For personal use only Presentation to investors and analysts Result announcement for the half year ended 30 September 2014 31 October 2014