Macquarie Group, Ltd. · ASX:MQG
Macquarie — H1 2014 Earnings Presentation
65 slides from Macquarie's earnings presentation, Nov 1, 2013
Slide 1: Presentation to investors and analysts: 1H14 result announcement
For personal use only Presentation to investors and analysts Result announcement for the half year ended 30 September 2013 1 November 2013 STRICTLY CONFIDENTIAL
Slide 2: Disclaimer
For personal use only Di l i Disclaimer 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 f
Slide 3: Agenda
For personal use only A Agenda d 01. Introduction – Karen Khadi 02. Overview of Result – Nicholas Moore 03 03. R Result lt A Analysis l i and d Fi Financial i lMManagementt – Patrick P t i k Upfold U f ld 04. Outlook – Nicholas Moore 05. Additional Information PAGE 3
Slide 4: Introduction
For personal use only MN Introduction Karen Khadi Head of Investor Relations STRICTLY CONFIDENTIAL
Slide 5: Overview of Result
For personal use only MO Overview of Result Nicholas Moore Managing g g Director and Chief Executive Officer STRICTLY CONFIDENTIAL
Slide 6: About Macquarie
For personal use only About Macquarie q Building for the long term Macquarie • Top 50 global asset manager with $A380.7b1 of assets under management • Provides clients with access to a diverse range of capabilities and products, including infrastructure and real asset management, securities investme
Slide 7: 1H14 Result
For personal use only 1H14 R Result lt • Net profit of $A501m, up 39% on 1H13 and up 2% on 2H13 • Operating p g income $A3.7b, up p 20% on 1H13 and up p 2% on 2H13 • Macquarie’s annuity-style businesses (Macquarie Funds Group, Corporate and Asset Finance, and Banking and Financial Services) continue
Slide 8: 1H14 Result
For personal use only 1H14 R Result lt Sep 13 v Sep 13 Mar 13 Sep 12 Sep 12 $Am $Am $Am Net operating income 20% 3,679 3,603 3,054 Total operating expenses 13% (2,869) (2,715) (2,537) Operating profit before income tax 57% 810 888 517 Income tax expense 97% (307) (377) (156) Profit attributa
Slide 9: Financial performance
For personal use only Fi Financial i l performance f 1H14 Operating income of $A3,679m 1H14 Profit of $A501m $Am 1H14 up p 20% on 1H13 $Am 1H14 up p 39% on 1H13 4,000 600 400 3,000 200 2,000 0 2H11 1H12 2H12 1H13 2H13 1H14 2H11 1H12 2H12 1H13 2H13 1H14 1H14 EPS of $A1.50 1H14 DPS of $A1.00 $A $A 1H1
Slide 10: Assets under management of $A385 billion
For personal use only Assets under management of $A385 billi billion1 • AUM increased $A38b or 11% since 31 Mar 13, primarily driven by favourable currency and market movements, as well as fund raisings and investments in the infrastructure and real assets business $Ab 400 350 300 250 200 150 100 50
Slide 11: Diversified by region
For personal use only Diversified by region International income1 66% of total Total staff 13,901; International staff 56% of total Europe, Middle East Asia Americas & Africa2 Income: $A741m (21% of total) Income: $A485m (13% of total) Income: $A1,162m (32% of total) Staff: 1,199 Staff: 3,280 Staff:
Slide 12: Diversified income
For personal use only Diversified income Net operating income by region • 66% of operating income1 in 1H14 is generated offshore • FX movements estimated to have ~5%5% favourable impact on the 1H14 result compared to both 1H13 and 2H13 $Am 1,600 1H12 2H12 1,400 1H13 1,200 2H13 1,000 1H14 800 600 400
Slide 13: Macquarie Funds
For personal use only Macquarie Funds Operating income of $A907m, $A907m up 25% on 1H13 and up 15% on 2H13 Net profit contribution of $A500m, up 40% on 1H13 and up 25% on 2H13 AUM of $A380.7b1 up 13% on 1H13 and up 11% on 2H13 Macquarie q Infrastructure and Real Assets Macquarie q Investment Managem
Slide 14: Corporate and Asset Finance
For personal use only Corporate and Asset Finance Operating income of $A578m, $A578m up 14% on 1H13 and up 6% on 2H13 Net profit contribution of $A396m, up 18% on 1H13 and up 10% on 2H13 Asset and loan portfolio of $A24.6b1 at 1H14, up 15% on 1H13 and up 10% on 2H13 Corporate Lending Asset Finance •
Slide 15: Banking and Financial Services
For personal use only Banking and Financial Services Operating income of $A667m (restated from $A696m1), ) up 2% on 1H13 and up 5% on 2H13 Net profit contribution of $A111m (restated from $A140m1), down 10% on 1H13 and down 7% on 2H13 Customer numbers approx. 1.02 million, predominantly in Australia
Slide 16: Macquarie Securities
For personal use only Macquarie Securities Operating income of $A436m $A436m, up 42% on 1H13 and 23% on 2H13 Net profit contribution of $A71m up from a loss of $A64m in 1H13 and up from a profit of $A14m in 2H13 Market Australia Asia North America EMEA Conditions Activity Activity Activity Activity
Slide 17: Macquarie Capital
For personal use only Macquarie Capital Operating income of $A372m, $A372m up 48% on 1H13 and down 10% on 2H13 Net profit contribution of $A101m up from a $A10m profit in 1H13 and down 28% on 2H13 204 transactions valued at $A26b during the first half of the year (205 transactions valued at $A35b in
Slide 18: Fixed Income, Currencies and Commodities
For personal use only Fixed Income, Currencies and Commodities Operating income of $A653m, $A653m up 13% on 1H13 and down 10% on 2H13 Net profit contribution of $A203m, down 7% on 1H13 and down 41% on 2H13 Commodity Markets (Physical & Financial) Financial Markets (Primary & Secondary) 60% of operat
Slide 19: Strong funding and balance sheet position
For personal use only St Strong ffunding di and dbbalance l sheet h t position iti • Diverse and stable funding base, minimal reliance on short term wholesale funding markets • Surplus funding capacity continues to be deployed • Total deposits1 increased to $A38.0b at Sep 13 from $A36.2b at Mar 13 •
Slide 20: Funded balance sheet remains strong
For personal use only F d db Funded balance l sheet h t remains i strong t $Ab 30 September 2012 $Ab 31 March 2013 $Ab 30 September 2013 100 100 100 90 90 90 ST wholesale issued paper ST wholesale issued paper (6%) ST wholesale issued paper (6%) (9%) Cash and liquid assets Other debt maturing in the
Slide 21: Capital Management Strategy update
For personal use only C it l M Capital Managementt St Strategy t update d t • On market purchases since 31 Mar 13 – FY13 MEREP $A216m at a weighted average price of $A43 $A43.56 56 – 2H13 DRP $A81m at a weighted average price of $A43.43 • On 7 Jun 13, $A600m Macquarie Group Capital Notes (MCNs) were
Slide 22: Proposed distribution of SYD securities to Macquarie shareholders
For personal use only Proposed distribution of SYD securities to M Macquarie i shareholders h h ld • Subject to shareholder approval, Macquarie proposes to distribute to its shareholders one stapled security in ASX listed Sydney Airport (SYD) for each Macquarie ordinary share held. This amounts to a
Slide 23: Stable Basel III capital position
For personal use only St bl B Stable Basell III capital it l position iti • APRA Basel III Group capital of $A13.7b, Group surplus of $A3.1b at Sep 131 • Pro forma Group surplus of $A2.8b1 post in specie distribution of SYD and other capital initiatives $Ab Group regulatory surplus: Basel III (Sep 1
Slide 24: Interim Dividend
For personal use only I t i Dividends Interim Di id d • 1H14 dividend set at $A1.00, 67% payout ratio – 1H14 dividend up on 1H13 dividend of $A0 $A0.75 75 (unfranked) and down on 2H13 dividend of $A1.25 $A1 25 (40% franked) – 1H14 dividend is 40% franked • Dividend Reinvestment Plan shares for the 1
Slide 25: Board changes
For personal use only B d changes Board h • John Niland has notified the Board of his intention to retire as a Director of Macquarie Group Limited and Macquarie Bank Limited, effective from 31 December 2013 • Gary Banks and Patricia Cross joined the Boards of Macquarie Group Limited and Macquarie Ba
Slide 26: Result analysis and financial management
For personal use only MP Result analysis and financial management Patrick Upfold Chief Financial Officer STRICTLY CONFIDENTIAL
Slide 27: Income Statement key drivers
For personal use only I Income Statement St t t key k drivers di Sep 13 Mar 13 Sep 12 • Net interest and trading income up 21% on 1H13 $Am $Am $Am – Increased lending volumes in CAF and BFS – Improved trading conditions for Macquarie Securities Net interest and trading income 1 451 1,451 1 402 1,402
Slide 28: Macquarie Funds result
For personal use only Macquarie q Funds Result • Base fees up 27% on 1H13 to $A610m Sep 13 Mar 13 Sep 12 $Am $Am $Am – AUM up 13% on 1H13 Base fees 610 509 480 – MIRA driven by new fund raisings, deployment of equity, favourable currency movements and increased equity values, partially offset by ass
Slide 29: Corporate and Asset Finance result
For personal use only Corporate p and Asset Finance Result Sep 13 Mar 13 Sep 12 • Net interest and trading income of $A277m up 10% on 1H13 $Am $Am $Am – Lending up 14% largely due to the effect of weaker AUD (2H13 includes Net interest and trading income1 277 328 251 significantl higher le significa
Slide 30: Banking and Financial Services result
For personal use only Banking g and Financial Services Result Sep 13 Mar 13 Sep 12 • Net interest and trading income of $A366m up 18% on 1H13 $Am $Am $Am – Strong loans and deposit growth in Business Banking, including volume growth Restated1 in Macquarie Premium Funding from acquisition of Pacific
Slide 31: Macquarie Securities result
For personal use only Macquarie q Securities Result Sep 13 Mar 13 Sep 12 • Improved performance from all businesses $Am $Am $Am • Brokerage and commissions up 26% on 1H13 Brokerage and commissions 272 234 216 – Improved equity market conditions particularly in Asia and Australia Net interest and tra
Slide 32: Macquarie Capital result
For personal use only Macquarie q Capital p Result Sep 13 Mar 13 Sep 12 • Fee and commission income up 7% on 1H13 $Am $Am $Am – Advisory and capital markets activity for 1H14 including 204 transactions Fee and commission income 321 286 300 valued al ed at approx. appro $A26b (1H13 (1H13: 205 transac
Slide 33: Fixed Income, Currencies and Commodities result
For personal use only Fixed Income,, Currencies and Commodities Result Sep 13 Mar 13 Sep 12 • Commodities income up 13% on 1H13 to $A393m $Am $Am $Am – Declining gold prices driving increased client activity and trading opportunities Commodities1 393 366 347 – Increased level of physical trading in
Slide 34: Balance sheet highlights
For personal use only B l Balance sheet h t hi highlights hli ht • Balance sheet remains solid and conservative – Term assets covered by term funding funding, stable deposits and equity – Minimal reliance on short term wholesale funding markets • Retail deposits1 continuing to grow, up 7% to $A33.1b
Slide 35: Well diversified funding sources
For personal use only W ll di Well diversified ifi d ffunding di sources MGL term funding (drawn and undrawn1) maturing Diversity of MGL funding sources beyond one year (including equity and hybrids) $Ab Wholesale Wh l l iissued d 25 Equity & Hybrids paper Debt Loan capital Equity and hybrids 13.6%
Slide 36: Continued retail deposit growth
For personal use only C ti Continued d retail t il d deposit it growth th • Macquarie has been successful in pursuing its strategy of diversifying its funding sources through growing its deposit base – In excess of 1 million retail clients, of which more than 681,000 are depositors – Focus on the co
Slide 37: Loan portfolio growth – Funded Balance Sheet
For personal use only Loan portfolio1 growth – F d d Balance Funded B l Sheet Sh t Sep 13 Mar 13 Sep 12 Category $Ab $Ab $Ab Mortgages: Australia 8.0 6.8 4.5 United States 0.5 0.7 0.7 Canada 6.1 6.7 7.8 Other 0.2 0.2 0.1 Total mortgages 14.8 14.4 13.1 Structured investments 4.3 3.6 3.4 Banking 4.5 4
Slide 38: Equity investments of $A5.5b
For personal use only E it iinvestments Equity t t off $A5.5b $A5 5b1 Carrying Carrying value2 value2 Category Sep 13 $Am Mar 13 $Am Description Macquarie Funds (MIRA) managed 1,218 1,158 Macquarie Infrastructure Company, Macquarie Atlas Roads, Macquarie Mexican REIT, funds Macquarie Korea Infrastru
Slide 39: Group Capital Surplus and Bank Group's CET1 ratio in excess of minimum
For personal use only Group Capital Surplus and Bank Group’s CET1 ratio ti iin excess off minimum i i • Based on the Macquarie Group Basel III capital position as at 30 Sep 13 and on a Harmonised Basel III basis1: – Group capital surplus is $A4.5b measured at 7% RWA and $A3.5b at 8.5%2 (BIS requirem
Slide 40: Bank Group Basel III Common Equity Tier 1 Ratio
For personal use only Bank Group Basel III Common Equity Ti 1 (CET1) R Tier Ratio ti • Strong Bank Group APRA Basel III CET1 ratio – Common Equity Tier 1: 9.8%; Tier 1: 10.9% • Basel III applies pp only y to the Bank Group p and not the Non-Bank Group p Bank Group Common Equity Tier 1 (CET1) Ratio:
Slide 41: Basel III Leverage Ratio peer comparison
For personal use only B Basel l III Leverage L Ratio R ti peer comparison i Basel III Tier 1 Leverage Ratio1 6 0% 6.0% US Banks 5.5% Supplemental Leverage Ratio required for US Covered Bank Holding Companies 2 5.0% 4 5% 4.5% 4.0% 3.5% Minimum Basel III Leverage Ratio 3 0% 3.0% 2.5% 2.0% MBL Citi BAM
Slide 42: Outlook
For personal use only Managing MQ Outlook Nicholas Moore g g Director and Chief Executive Officer STRICTLY CONFIDENTIAL
Slide 43: Short term outlook
For personal use only Sh t tterm outlook Short tl k • Summarised below are the outlook statements for each Operating Group • FY14 results will vary with market conditions, particularly the capital markets facing businesses which continue to experience subdued bd d market k conditions di i Net profit
Slide 44: Short term outlook
For personal use only Sh t tterm outlook Short tl k • Consistent with our previous statements to the market, while market volatility makes forecasting difficult, we continue to expect the FY14 net profit contribution1 from operating groups to be up on FY13 • Tax rate is currently expected to be broa
Slide 45: Medium term
For personal use only M di Medium tterm • 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 provid
Slide 46: Approximate business Basel III Capital & ROE
For personal use only Approximate business Basel III Capital C & ROE O APRA Basel III Capital Approx. 1H14 Return Operating Group @ 8.5% ($Ab) on Ordinary Equity1 Approx. 7 7-Year Year Average A Annuity-style it t l businesses b i 55 5.5 Return on Ordinary Equity1 Macquarie Funds Group 2.0 Corporate
Slide 47: Medium term
For personal use only M di Medium tterm • 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 • Any improvement in market confidenc
Slide 48: Additional information: Funding
For personal use only ^ Additional information Funding g STRICTLY CONFIDENTIAL
Slide 49: Group funding structure
For personal use only G Group funding f di structure t t • 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 predominantly to the No
Slide 50: Funded balance sheet reconciliation
For personal use only F d db Funded balance l sheet h t reconciliation ili ti • 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 re
Slide 51: Funding for the Group
For personal use only Funding g for the Group p 30 September 2013 Sep 13 $Ab Mar 131 $Ab Sep 121 $Ab • Well diversified funding sources Funding sources Negotiable certificates of deposits 2.2 2 2 1.4 1 4 13 1.3 • Minimal reliance on short term wholesale funding markets Commercial paper Structured no
Slide 52: Funding for the Bank Group
For personal use only Funding g for the Bank Group p 30 September 2013 Sep 13 $Ab Mar 131 $Ab Sep 121 $Ab • Bank balance sheet remains liquid, well capitalised and Funding sources with a diversity of funding sources Negotiable certificates of deposits 2.2 2 2 1.4 1 4 1.3 1 3 Commercial paper 6.7 3.5
Slide 53: Funding for the Non-Bank Group
For personal use only Funding g for the Non-Bank Group p 30 September 2013 Sep 13 $Ab Mar 131 $Ab Sep 121 $Ab • Non-Bank Group is predominantly term funded Funding sources Structured notes 0.7 1.0 0.8 • Term funding beyond one year (excluding equity) has a Secured funding 0.3 0.1 0.1 weighted averag
Slide 54: Explanation of Funded Balance Sheet reconciling items
For personal use only Explanation of Funded Balance Sheet reconciling ili ititems • 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 clie
Slide 55: Conservative long standing liquidity risk management framework
For personal use only Conservative long standing liquidity risk managementt framework f k Liquidity Policy • The key requirement of MGL and MBL’s liquidity policies is that the entities are able to meet all liquidity obligations on a daily basis and during a period of liquidity stress: – a minimum t
Slide 56: Additional information: Capital
For personal use only _ Additional information Capital p STRICTLY CONFIDENTIAL
Slide 57: Macquarie Group Basel III regulatory capital
For personal use only Macquarie q Group p Basel III regulatory g y capital p Surplus calculation Harmonised APRA Basel III Basel III 30 September 2013 $Am $Am Macquarie Group eligible capital: Bank Group Gross Tier 1 capital 9,629 9,629 Non-Bank Group eligible capital 4,061 4,061 Eligible capital 13
Slide 58: Macquarie Group APRA Basel III regulatory capital – Bank Group contribution
For personal use only Macquarie Group APRA Basel III regulatory capital – Bank Group contribution Risk Weighted Assets Tier 1 Deductions Capital Requirement1 30 September 2013 $Am $Am $Am Credit risk On balance sheet 36,632 2,564 Off balance sheet 11,308 792 Credit risk total 47,940 3,356 Market ris
Slide 59: Macquarie Group regulatory capital – Non-Bank Group contribution
For personal use only Macquarie q Group p regulatory g y capital p 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
Slide 60: Macquarie Group regulatory capital – Non-Bank Group contribution
For personal use only Macquarie q Group p regulatory g y capital p Non-Bank Group contribution Capital Assets Requirement Equivalent Risk 30 September 2013 $Ab $Am Weight Funded assets Cash and liquid assets 2.0 21 13% Loan assets1 1.3 192 185% Debt investment securities 0.1 11 139% Co-investment in
Slide 61: Glossary
For personal use only ` Glossary STRICTLY CONFIDENTIAL
Slide 62: Glossary
For personal use only Glossary Gl $A Australian Dollar AUM Assets Under Management $C Canadian Dollar AVS Available for Sale $US United States Dollar BIS Bank for International Settlements € Euro BFS Banking and Financial Services 1H First half CAF Corporate and Asset Finance 2H Second half CCB Capi
Slide 63: Glossary
For personal use only Glossary Gl EPS Earnings Per Share LNG Liquefied Natural Gas EUM Equity Under Management M&A Mergers and Acquisitions FICC Fixed Income, Currencies and Commodities MacCap Macquarie Capital FIG Financial Institutions Group MBL Macquarie Bank Limited FUA Funds Under Administratio
Slide 64: Glossary
For personal use only Glossary Gl NGL Natural Gas Liquids REB Real Estate Banking No No. Number REIT Real Estate Investment Trust NOIP Net Over Intrinsic Premium RESF Real Estate Structured Finance NPAT Net Profit After Tax ROE Return on Equity NZ New Zealand RWA Risk Weighted Assets OECD Organisati
Slide 65: Presentation to investors and analysts
For personal use only Presentation to investors and analysts Result announcement for the half year ended 30 September 2013 1 November 2013 STRICTLY CONFIDENTIAL