Macquarie Group, Ltd. · ASX:MQG
Macquarie — H1 2017 Earnings Presentation
74 slides from Macquarie's earnings presentation, Oct 28, 2016
Slide 1: Presentation to investors and analysts
For personal use only Presentation to investors and analysts Result announcement for the half-year ended 30 September 2016 28 October 2016
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: Introduction
For personal use only 1 Introduction Karen Khadi – Head of Investor Relations
Slide 4: Agenda
Agenda For personal use only 1 Introduction – Karen Khadi 2 Overview of Result – Nicholas Moore 3 Result Analysis and Financial Management – Patrick Upfold 4 Outlook – Nicholas Moore 5 Appendices PAGE 4
Slide 5: Overview of Result
For personal use only 2 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 Asset • Top 50 global asset manager with $A491.3b1 of assets under management Management • Provides clients with access to a diverse range of capabilities and products, including infrastructure and real asset management, secu
Slide 7: 1H17 Result
1H17 Result For personal use only $A1,050m • Net profit $A1,050m, down 2% on 1H16 and up 6% on 2H16 • Operating income $A5,218m, down 2% on 1H16 and up 8% on 2H16 • As foreshadowed: – Macquarie’s annuity-style businesses (Macquarie Asset Management, Corporate and Asset Finance and Banking and Financ
Slide 8: 1H17 Result
1H17 Result For personal use only 1H17 2H16 1H16 1H17 v 1H17 v $Am $Am $Am 1H16 2H16 Net operating income 5,218 4,817 5,318 2% 8% Total operating expenses (3,733) (3,421) (3,699) 1% 9% Operating profit before income tax 1,485 1,396 1,619 8% 6% Income tax expense (438) (397) (530) 17% 10% Loss/(profi
Slide 9: Financial performance
Financial performance For personal use only 1H17 Operating income of $A5,218m 1H17 Profit of $A1,050m $Am 1H17 down 2% on 1H16 1H17 down 2% on 1H16 $Am 6,000 1H17 up 8% on 2H16 1,200 1H17 up 6% on 2H16 5,000 800 4,000 400 3,000 2,000 - 1H15 2H15 1H16 2H16 1H17 1H15 2H15 1H16 2H16 1H17 1H17 EPS of $A
Slide 10: Assets under management of $A493.1 billion
Assets under management of $A493.1 billion1 For personal use only AUM increased $A14.5b since 31 Mar 16, largely due to favourable market movements and additional fund investments in MIRA, partially offset by asset realisations in MIRA, unfavourable FX movements and small net outflows in MIM $Ab 500
Slide 11: Diversification by region
Diversification by region International income approx. 60% of total income1 For personal use only Total staff 13,816; International staff 54% of total Europe, Middle East & Africa Asia Americas Income: $A1,295m (25% of total) Income: $A568m (11% of total) Income: $A1,156m (23% of total) Staff: 1,510
Slide 12: Diversification by region
Diversification by region For personal use only • Approx. 60% of total income1 in 1H17 was generated offshore • A 10% movement2 in AUD is estimated to have approx. 6% impact on NPAT $Am 2,400 1,800 1,200 600 - Australia Asia Americas Europe, Middle East & Africa 1H15 2H15 1H16 2H16 1H17 1. Net opera
Slide 13: Macquarie Asset Management
MAM 37% Macquarie Asset Management Operating income of $A1,373m, down 18% on 1H16 and up 32% on 2H16 For personal use only Net profit contribution of $A857m, down 25% on 1H16 and up 70% on 2H16 AUM of $A491.3b1 up 3% on Mar 16 Macquarie Infrastructure and Real Assets Macquarie Investment Management
Slide 14: Corporate and Asset Finance
Corporate and Asset Finance Operating income of $A835m, down 3% on both 1H16 and 2H16 CAF For personal use only Net profit contribution of $A521m, down 15% on 1H16 and broadly in line with 2H16 22% Asset Finance and Lending portfolio of $A38.1b down 3% on Mar 16 Lending Asset Finance • Lending’s fun
Slide 15: Banking and Financial Services
Banking and Financial Services Operating income of $A879m, up 19% on 1H16 and up 21% on 2H16 For personal use only Net profit contribution of $A261m, up 54% on 1H16 and up 45% on 2H16 BFS 11% Australian client numbers 1.1 million Personal Banking Wealth Management Business Banking Provides retail
Slide 16: Macquarie Securities
Macquarie Securities Operating income of $A483m, down 33% on 1H16 and down 4% on 2H16 For personal use only Net profit contribution of $A18m, down 93% on 1H16 and down 36% on 2H16 MSG 1% Cash Derivatives and Trading Market volumes remain subdued across most regions as macroeconomic Market condit
Slide 17: Macquarie Capital
Macquarie Capital Operating income of $A569m, up 10% on 1H16 and down 11% on 2H16 For personal use only MacCap Net profit contribution of $A205m, up 21% on 1H16 and down 27% on 2H16 9% 201 transactions valued at $A65b in 1H17 (216 transactions valued at $A120b in 1H16 and 186 transactions valued at
Slide 18: Commodities and Financial Markets
Commodities and Financial Markets CFM 20% Operating income of $A1,002m, up 24% on 1H16 and up 13% on 2H16 For personal use only Net profit contribution of $A472m, up 67% on 1H16 and up 61% on 2H16 Commodity Markets (Physical & Financial) Financial Markets (Primary & Secondary) 62% of operating incom
Slide 19: Strong funding and balance sheet position
Strong funding and balance sheet position For personal use only • Macquarie remains well funded with a solid and conservative balance sheet, while pursuing its strategy of diversifying funding sources by continuing to grow its deposit base and accessing a variety of funding markets • Total customer
Slide 20: Funded balance sheet remains strong
Funded balance sheet remains strong For personal use only $Ab 30 September 2015 $Ab 31 March 2016 $Ab 30 September 2016 140 140 140 4 130 130 ST wholesale issued 130 paper (7%) 120 ST wholesale issued paper 120 Other debt maturing in the 120 ST wholesale issued paper (9%) 1 (6%) next 12 mths (9%) Ot
Slide 21: Basel III capital position
Basel III capital position For personal use only • APRA Basel III Group capital at Sep 16 of $A16.9b, Group surplus of $A3.7b1 • Bank Group APRA Basel III CET1 ratio: 10.4%; Tier 1 ratio: 11.5%; Leverage ratio: 5.6% • Bank Group Harmonised Basel III CET1 ratio: 12.6%; Tier 1 ratio: 13.7%; Leverage r
Slide 22: Strong regulatory ratios
Strong regulatory ratios For personal use only Macquarie Bank Group (Sep 16) Macquarie Bank Group (Harmonised 1 ) Macquarie Bank Group (APRA) Basel III minimum 2 6.5% 6.0% 200% 14.0% 12.6% 5.0% 10.5% 150% 5.6% 169% 4.0% 10.4% 7.0% 3.0% 100% 2.0% 3.5% 50% 1.0% - - - CET1 ratio Leverage ratio LCR3 1.
Slide 23: Interim dividend
Interim dividend For personal use only • 1H17 dividend set at $A1.90 (45% franked), 62% payout ratio – 1H17 dividend up on 1H16 dividend of $A1.60 (40% franked) and down on 2H16 dividend of $A2.40 (40% franked) – Record date for 1H17 dividend is 9 Nov 16 and payment date is 14 Dec 16 • Dividend Rein
Slide 24: Result Analysis and Financial Management
For personal use only 3 Result Analysis and Financial Management Patrick Upfold – Chief Financial Officer
Slide 25: Income Statement key drivers
Income Statement key drivers For personal use only 1H17 2H16 1H16 • Net interest and trading income of $A1,864m, down 18% on 1H16 $Am $Am $Am – MSG impacted by limited trading opportunities due to market uncertainty Net interest and trading income 1,864 2,073 2,273 – In CAF lower income due to timin
Slide 26: Macquarie Asset Management
Macquarie Asset Management For personal use only Strong result; pcp benefited from record performance fees $Am Key drivers 1,200 • Lower performance fees compared to a particularly strong 1H16 – 1H17 included fees from MQA, MKIF, Australian 1,000 managed accounts and from co-investors in (439) respe
Slide 27: Corporate and Asset Finance
Corporate and Asset Finance For personal use only Reduced activity in CAF Lending partially offset by AWAS & Esanda contribution $Am Key drivers 800 • Contribution from the acquisitions of a portfolio of aircraft from AWAS Aviation Capital Limited and 700 the Esanda dealer finance portfolio; perform
Slide 28: Banking and Financial Services
Banking and Financial Services For personal use only Strong organic growth as well as gain on sale of businesses $Am Key drivers 400 • Gain on sale of the Macquarie Life’s risk insurance business to Zurich Australia Limited partly offset by 350 (20) losses on the sale of US mortgages portfolio • Cha
Slide 29: Macquarie Securities
Macquarie Securities For personal use only Market uncertainty results in reduced trading activity for clients $Am Key drivers 300 • Reduced brokerage and commissions – Market uncertainty impacted levels of client trading activity, particularly in Asia 250 • Lower net interest and trading income (37)
Slide 30: Macquarie Capital
Macquarie Capital For personal use only Improved result driven by greater contribution from principal assets $Am Key drivers 300 • Principal realisations in 1H17 primarily across ANZ and EMEA, predominately in technology, infrastructure and renewable energy sectors 250 (85) • Lower fee and commissio
Slide 31: Commodities and Financial Markets
Commodities and Financial Markets Increased contribution reflects improved asset performance and For personal use only continued strength across the trading platform $Am Key drivers 600 Commodities • Lower impairments given reduced exposure to underperforming commodity-related loans and a reduction
Slide 32: Impairment expense
Impairment expense1 For personal use only $Am Key drivers 600 • Increase in CAF due to portfolio growth primarily from the acquisition of the Esanda dealer finance (28) portfolio and impairments of certain Aviation assets 500 64 (37) • Increase in BFS predominately due to the 38 underperformance of
Slide 33: Costs of compliance
Costs of compliance For personal use only Regulatory project spend 1H17 $Am 2H16 $Am 1H16 $Am • The industry continues to see an increase in Basel III and liquidity 5 13 7 regulatory initiatives, resulting in increased OTC reform 9 7 6 compliance requirements across all levels of the Other Regulator
Slide 34: 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 • Total customer deposits1 continuing to grow, up 5.7% to $A46.1b as at Sep 16 fr
Slide 35: Diversified issuance strategy
Diversified issuance strategy1 For personal use only Term funding as at 30 Sep 16 – diversified by currency2, tenor3 and type Currency Tenor Type GBP Subordinated Syndicated loan facility 7% • Well diversified issuance and CHF debt 4% EUR 8% 2% JPY Securitisations 14% 1-2yrs 11% 7% Covered Bonds 1%
Slide 36: Continued customer deposit growth
Continued customer deposit growth For personal use only • Macquarie has been successful in pursuing its strategy of diversifying its funding sources through growing its deposit base – In excess of 1.1 million BFS clients, of which approx. 600,000 are depositors – Focus on the composition and quality
Slide 37: Loan and lease portfolio – Funded Balance Sheet
Loan and lease portfolio1 – Funded Balance Sheet For personal use only Operating Category Sep 16 Mar 16 Description Group $Ab $Ab Asset Finance2 23.1 23.3 Finance lease assets 13.2 12.7 Secured by underlying financed assets CAF Operating lease assets 9.9 10.6 Diversified corporate and real estate le
Slide 38: Equity investments of $A4.7b
Equity investments of $A4.7b1 For personal use only Carrying value2 Carrying value2 Sep 16 Mar 16 Category $Ab $Ab Description Macquarie Asset Management (MIRA) 1.8 1.7 Includes Macquarie Infrastructure Company, Macquarie SBI Infrastructure Fund, managed funds Macquarie Atlas Roads, MPF Holdings Lim
Slide 39: Regulatory update
Regulatory update For personal use only • Basel Capital Framework – The Basel Committee has proposed a number of changes to the calculation of risk weighted assets, most of which are under consultation. Any impact on capital will depend upon the final form of the proposals and local implementation b
Slide 40: Bank Group Basel III
Bank Group Basel III Common Equity Tier 1 (CET1) Ratio For personal use only • APRA Basel III CET1 ratio: 10.4%1 • Harmonised Basel III CET1 ratio: 12.6%2 Bank Group Common Equity Tier 1 Ratio: Basel III (Sep 16) 14% 0.4% 0.4% 12% 12.5% 12.6% (0.7%) (2.2%) 10% Includes 0.4% from APRA’s 10.4% recent
Slide 41: Strong liquidity position maintained
Strong liquidity position maintained For personal use only • 169% average LCR for Sep 16 quarter1, based on month-end observations – Maintained well above regulatory minimums – Includes APRA approved AUD CLF allocation of $A4.6b for 2016 calendar year • Reflects long-standing conservative approach t
Slide 42: Capital management update
Capital management update For personal use only • Share purchases since 31 Mar 16 – FY16 MEREP $A433m was purchased – $A308m off-market under the staff sale arrangements and $A125m on-market, with a combined weighted average price of $A71.55 • The Board has resolved that no discount will apply for t
Slide 43: Outlook
For personal use only 4 Outlook Nicholas Moore – Managing Director and Chief Executive Officer
Slide 44: Factors impacting short-term outlook
Factors impacting short-term outlook For personal use only FY17 combined net profit contribution1 from operating groups expected to be broadly in line with FY16 Annuity-style businesses Capital markets facing businesses Macquarie Asset Management Macquarie Securities Group • FY16: $A1.6b; 1H17 down
Slide 45: Short-term outlook
Short-term outlook For personal use only • We currently expect the FY17 combined net profit contribution1 from operating groups to be broadly in line with FY16 • The FY17 tax rate is currently expected to be broadly in line with FY16 • Accordingly, the Group’s result for FY17 is currently expected t
Slide 46: Medium-term
Medium-term For personal use only • Macquarie remains well positioned to deliver superior performance in the medium-term • Deep expertise in major markets • Build on our strength in diversity and continue to adapt our portfolio mix to changing market conditions – Annuity-style income is provided by
Slide 47: Approximate business Basel III Capital & ROE
Approximate business Basel III Capital & ROE For personal use only As at 30 Sep 16 1 APRA Basel III Capital Approx. 1H17 Return Approx. 10-Year Average 2 Operating Group @ 8.5% ($Ab) on Ordinary Equity2 Return on Ordinary Equity Annuity-style businesses 8.4 Macquarie Asset Management 1.5 Corporate a
Slide 48: Medium-term
Medium-term For personal use only • Annuity-style business that is diversified across regions, products, asset classes and investor types • Diversification of capabilities allows for the business to be well placed to grow assets under management in different MAM market conditions • Well positioned f
Slide 49: Presentation to investors and analysts
For personal use only Presentation to investors and analysts Result announcement for the half-year ended 30 September 2016 28 October 2016
Slide 50: Detailed result commentary
For personal use only A Detailed result commentary
Slide 51: Macquarie Asset Management – Result
Macquarie Asset Management For personal use only Result 1H17 2H16 1H16 • Base fees of $A790m, broadly in line with 1H16 $Am $Am $Am – Benefited from investments made by MIRA-managed funds, growth in Base fees 790 785 784 the MSIS Infrastructure Debt business and positive market movements Performance
Slide 52: Corporate and Asset Finance – Result
Corporate and Asset Finance For personal use only Result 1H17 2H16 1H16 • Net interest and trading income of $A354m, down 23% on 1H16 $Am $Am $Am – Lower income due to timing of prepayments and realisations as well as Net interest and trading income1 354 388 460 lower loan volumes, resulted in reduc
Slide 53: Banking and Financial Services – Result
Banking and Financial Services For personal use only Result 1H17 2H16 1H16 • Net interest and trading income of $A498m, up 9% on 1H16 $Am $Am $Am – Volume growth in the Australian loan and deposit portfolio driven by growth in Net interest and trading income1 498 485 456 business lending (+8%), Aust
Slide 54: Macquarie Securities – Result
Macquarie Securities For personal use only Result 1H17 2H16 1H16 • Brokerage and commissions of $A274m, down 12% on 1H16 $Am $Am $Am – Market uncertainty impacted levels of client trading activity, particularly Brokerage and commissions 274 284 311 in Asia Net interest and trading income1 161 165 37
Slide 55: Macquarie Capital – Result
Macquarie Capital For personal use only Result 1H17 2H16 1H16 • Fee and commission income of $A416m, down 17% on 1H16 $Am $Am $Am – Market conditions in all key regions in which Macquarie Capital Fee and commission income 416 369 501 operates were subdued in 1H17 with deal values down across M&A Inv
Slide 56: Commodities and Financial Markets – Result
Commodities and Financial Markets For personal use only Result 1H17 2H16 1H16 • Commodities income of $A505m, down 13% on 1H16 $Am $Am $Am – Risk management products down 7% on 1H16, which benefited from higher levels of Commodities1 505 732 583 client activity due to heightened volatility across a
Slide 57: Additional information: Funding
For personal use only B Additional information Funding
Slide 58: 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 predominately to the Non-Bank Grou
Slide 59: 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 60: Funding for the Group
Funding for the Group For personal use only Sep 16 Mar 16 Sep 15 $Ab $Ab $Ab • Well diversified funding sources Funding sources • Minimal reliance on short term wholesale funding markets Negotiable certificates of deposits 0.5 0.4 0.7 Commercial paper 6.8 8.9 10.8 • Deposit base represents 38% of to
Slide 61: Funding for the Bank Group
Funding for the Bank Group For personal use only Sep 16 Mar 16 Sep 15 $Ab $Ab $Ab • Bank balance sheet remains liquid, well capitalised and with a Funding sources diversity of funding sources Negotiable certificates of deposits 0.5 0.4 0.7 Commercial paper 6.8 8.9 10.8 • Term funding beyond one year
Slide 62: Funding for the Non-Bank Group
Funding for the Non-Bank Group For personal use only Sep 16 Mar 16 Sep 15 $Ab $Ab $Ab • Non-Bank Group is predominately term funded Funding sources • Term funding beyond one year (excluding equity) has a Net trade creditors - 0.3 (0.1) weighted average term to maturity of 4.6 years Structured notes
Slide 63: 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 64: 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 65: Additional information: Capital
For personal use only C Additional information Capital
Slide 66: Macquarie Group Basel III regulatory capital
Macquarie Group Basel III regulatory capital For personal use only Surplus calculation Harmonised APRA Basel III Basel III 30 September 2016 $Am $Am Macquarie Group eligible capital: Bank Group Gross Tier 1 capital 13,043 13,043 Non-Bank Group eligible capital 3,865 3,865 Eligible capital 16,908 16,
Slide 67: Macquarie Group APRA Basel III regulatory capital
Macquarie Group APRA Basel III regulatory capital For personal use only Bank Group contribution Risk-weighted assets Tier 1 Deductions Capital Requirement1 30 September 2016 $Am $Am $Am Credit risk On balance sheet 62,796 5,338 Off balance sheet 15,798 1,343 Credit risk total2 78,594 6,681 Market ri
Slide 68: Macquarie Group regulatory capital
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 69: Macquarie Group regulatory capital
Macquarie Group regulatory capital For personal use only Non-Bank Group contribution Capital Assets Requirement Equivalent Risk 30 September 2016 $Ab $Am Weight Funded assets Cash and liquid assets 1.7 22 16% Loan assets 1.3 138 133% Debt investment securities 0.7 73 131% Co-investments in Macquarie
Slide 70: Glossary
For personal use only C Glossary
Slide 71: Glossary
Glossary For personal use only $A / AUD Australian Dollar CCB Capital Conservation Buffer $C / CAD Canadian Dollar CCP Central Counterparty $US / USD United States Dollar CET1 Common Equity Tier 1 £ / GBP British Pound CFM Commodities and Financial Markets € Euro CLF Committed Liquid Facility 1H15 H
Slide 72: Glossary
Glossary For personal use only FY08 Full Year ended 31 March 2008 MAM Macquarie Asset Management FY09 Full Year ended 31 March 2009 MBL Macquarie Bank Limited FY11 Full Year ended 31 March 2011 MEC Macquarie Energy Capital FY13 Full Year ended 31 March 2013 MEIF1 Macquarie European Infrastructure Fu
Slide 73: Glossary
Glossary For personal use only NPAT Net Profit After Tax NPC Net Profit Contribution NSFR Net Stable Funding Ratio P&L Profit and Loss Statement PCP Prior Corresponding Period PPE Property, Plant and Equipment PPP Public Private Partnership RBA Reserve Bank of Australia REIT Real Estate Investment T
Slide 74: Presentation to investors and analysts
For personal use only Presentation to investors and analysts Result announcement for the half-year ended 30 September 2016 28 October 2016