Management Discussion and Analysis
Macquarie Group
Half-year ended 30 September 2018
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 Interim Financial Report
(the Financial Report) for the half-year ended 30 September 2018, 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 half-year ended
30 September 2018 and is current as at 2 November 2018.
The Macquarie name and Holey Dollar device are registered trade marks of Macquarie Group Limited ACN 122 169 279.
CONTENTS
Explanatory notes | 2 | ||
1. | Results overview | 3 | |
1.1 | Executive summary | 4 | |
2. | Financial performance analysis | 11 | |
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 profits of associates and joint ventures | 17 | |
2.5 | Other operating income and charges | 18 | |
2.6 | Operating expenses | 20 | |
2.7 | Headcount | 21 | |
2.8 | Income tax expense | 22 | |
3. | Segment analysis | 23 | |
3.1 | Basis of preparation | 24 | |
3.2 | MAM | 28 | |
3.3 | CAF | 30 | |
3.4 | BFS | 32 | |
3.5 | CGM | 34 | |
3.6 | Macquarie Capital | 36 | |
3.7 | Corporate | 38 | |
3.8 | International income | 40 | |
4. | Balance sheet | 41 | |
4.1 | Statement of financial position | 42 | |
4.2 | Loan assets | 44 | |
4.3 | Equity investments | 47 | |
5. | Funding and liquidity | 49 | |
5.1 | Liquidity risk governance and management framework | 50 | |
5.2 | Management of liquidity risk | 52 | |
5.3 | Funded balance sheet | 54 | |
5.4 | Funding profile for Macquarie | 55 | |
5.5 | Funding profile for the Bank Group | 59 | |
5.6 | Funding profile for the Non-Bank Group | 62 | |
5.7 | Explanatory notes concerning funding sources and funded assets | 64 | |
6. | Capital | 65 | |
6.1 | Overview | 66 | |
6.2 | Bank Group capital | 68 | |
6.3 | Non-Bank Group capital | 71 | |
7. | Funds management | 73 | |
7.1 | Assets under Management | 74 | |
7.2 | Equity under Management | 75 | |
8. | Glossary | 77 | |
8.1 | Glossary | 78 | |
9. | Ten year history | 83 | |
9.1 | Ten year history | 84 |
2 | Macquarie Group Limited Management Discussion and Analysis | macquarie.com |
EXPLANATORY NOTES
COMPARATIVE INFORMATION AND CONVENTIONS
Where necessary, comparative figures have been restated to conform to changes in the current year financial presentation and group structures, except for the adoption of new accounting standards as outlined on page 9.
References to the prior corresponding period (pcp) are to the six months ended 30 September 2017. References to the prior period are to the six months ended 31 March 2018.
References to the current period and current half-year are to the six months ended 30 September 2018.
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 REVIEW REPORT
This document should be read in conjunction with the Financial Report for the half-year ended 30 September 2018, which was subject to independent review by PricewaterhouseCoopers.
PricewaterhouseCoopers' independent auditor's review report to the members of Macquarie Group Limited dated 2 November 2018 was unqualified.
Any additional financial information in this document which is not included in the Financial Report was not subject to independent review 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.
1.0 | 2.0 | 3.0 |
1.1 Executive summary
4.0
5.0
6.0
7.0
8.0
9.0
3
1
RESULTSSECTION OVERVIEWDIVIDER TITLE
4 | Macquarie Group Limited Management Discussion and Analysis | macquarie.com |
RESULTS OVERVIEW
1.1 EXECUTIVE SUMMARY | |
1H19 Net profit contribution(1) by Operating Group | |
Annuity-style businesses | Capital markets facing businesses |
Macquarie Asset Management
29%
Corporate and Asset Finance
17%
Net profit |
contribution |
Commodities and Global Markets
27%
Macquarie Capital
Banking and Financial Services | |
16% | |
11% | |
(1) Net profit contribution is management accounting profit before unallocated corporate costs, profit share and income tax.
Annuity-style businesses
Macquarie Asset Management (MAM), Corporate and Asset Finance (CAF) and Banking and Financial Services (BFS) generated a combined net profit contribution for the half-year ended 30 September 2018 of $A1,495 million, down 29% on the prior corresponding period.
MACQUARIE ASSET | CORPORATE AND |
MANAGEMENT | ASSET FINANCE |
$A762m | $A437m |
LL36% on pcp | LL29% on pcp |
BANKING AND FINANCIAL SERVICES
$A296m
KK3% on pcp
- Performance fees down on a strong prior corresponding period
- Decreased investment-related income largely due to gains on reclassification of certain investments in the prior corresponding period
- Higher operating expenses mainly due to business growth, the impact of acquisitions and foreign exchange movements.
Partially offset by:
- Increased base fees primarily driven by higher AUM including favourable foreign exchange movements.
- Decreased income from early repayments, realisations and investment-related income in the Principal Finance portfolio
- Lower interest income largely as a result of the reduction in the Principal Finance portfolio size
- Asset Finance portfolio broadly in line with the prior corresponding period.
- Growth in deposit, Australian loan portfolio and funds on platform average volumes.
Partially offset by:
- Increased costs associated with investment in technology and headcount in key areas to support business growth
- Platform margin fee compression
- Entire period effect of Australian Government Major Bank Levy relative to the prior corresponding period.
1.0 | 2.0 | 3.0 | 4.0 | 5.0 | 6.0 | 7.0 |
Results overview | ||||||
1H19 Net operating income1H19 Net profit
$A5,830m $A1,310m
8.0 | 9.0 | 5 |
1H19 Return on equity
16.3%
KK8% on pcp | ||||
$A million | ||||
5,830 | ||||
5,523 | ||||
5,397 | ||||
5,218 | 5,146 | |||
1H17 | 2H17 | 1H18 | 2H18 | 1H19 |
KK5% on pcp | ||||
$A million | ||||
1,248 | 1,309 | 1,310 | ||
1,167 | ||||
1,050 | ||||
1H17 | 2H17 | 1H18 | 2H18 | 1H19 |
LL from 16.7% in pcp
1H19 Operating expenses
$A4,125m
KK12% on pcp
Capital markets facing businesses
Commodities and Global Markets (CGM) and Macquarie Capital delivered a combined net profit contribution for the half-year ended 30 September 2018 of $A1,106 million, up 95% on the prior corresponding period.
COMMODITIES AND GLOBAL MARKETS
$A700m
KK85% on pcp
- Increased contribution across the commodities platform driven by client activity and improved trading opportunities
- Increased fee and commission income in Asia driven by increased market turnover and client activity, and an increased contribution from equity capital markets fee income from Asia-Pacific.
Partially offset by:
- Reduced opportunities and challenging markets impacting equity trading activities
- Increased operating expenses reflecting increased client activity, the impact of acquisitions completed in the prior year, and an increase in investment in technology platforms.
MACQUARIE
CAPITAL
$A406m
KK114% on pcp
.
-
Increased net income on equity and debt investments due to asset realisations and reclassifications, particularly in green energy
and technology - Higher fee income across mergers and acquisitions, debt capital markets and equity capital markets.
Partially offset by:
- Higher share of losses of associates and joint ventures and other expenses reflecting underlying investing activity including expenditure on green energy and other projects in the development phase
- Higher operating expenses mainly due to additional headcount, unfavourable foreign exchange movements and increased investing activity.
6 | Macquarie Group Limited Management Discussion and Analysis | macquarie.com |
RESULTS OVERVIEW
CONTINUED
1.1 EXECUTIVE SUMMARY CONTINUED
Profit attributable to ordinary equity holders
$A1,310m
KK5% on prior corresponding period
HALF-YEAR TO | MOVEMENT | ||||
Sep 18 | Mar 18 | Sep 17 | Mar 18 | Sep 17 | |
$Am | $Am | $Am | % | % | |
Financial performance summary | |||||
Net interest income | 998 | 975 | 1,011 | 2 | (1) |
Fee and commission income | 2,661 | 2,102 | 2,568 | 27 | 4 |
Net trading income | 1,231 | 1,076 | 881 | 14 | 40 |
Net operating lease income | 461 | 466 | 469 | (1) | (2) |
Share of net profits of associates and joint ventures | 7 | 138 | 103 | (95) | (93) |
Other operating income and charges | 472 | 766 | 365 | (38) | 29 |
Net operating income | 5,830 | 5,523 | 5,397 | 6 | 8 |
Employment expenses | (2,454) | (2,232) | (2,261) | 10 | 9 |
Brokerage, commission and trading-related expenses | (579) | (408) | (422) | 42 | 37 |
Occupancy expenses | (207) | (203) | (199) | 2 | 4 |
Non-salary technology expenses | (331) | (309) | (295) | 7 | 12 |
Other operating expenses | (554) | (611) | (516) | (9) | 7 |
Total operating expenses | (4,125) | (3,763) | (3,693) | 10 | 12 |
Operating profit before income tax | 1,705 | 1,760 | 1,704 | (3) | <1 |
Income tax expense | (374) | (435) | (448) | (14) | (17) |
Profit after income tax | 1,331 | 1,325 | 1,256 | <1 | 6 |
Profit attributable to non-controlling interests | (21) | (16) | (8) | 31 | 163 |
Profit attributable to ordinary equity holders of | 1,310 | 1,309 | 1,248 | <1 | 5 |
Macquarie Group Limited | |||||
Key metrics | |||||
Expense to income ratio (%) | 70.8 | 68.1 | 68.4 | ||
Compensation ratio (%) | 39.4 | 37.9 | 39.5 | ||
Effective tax rate (%) | 22.2 | 24.9 | 26.4 | ||
Basic earnings per share (cents per share) | 388.3 | 387.5 | 370.4 | ||
Diluted earnings per share (cents per share) | 383.1 | 379.9 | 360.2 | ||
Ordinary dividends per share (cents per share) | 215.0 | 320.0 | 205.0 | ||
Ordinary dividend payout ratio (%) | 55.9 | 83.1 | 55.9 | ||
Annualised return on equity (%) | 16.3 | 16.9 | 16.7 | ||
1.0
Results overview
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
7
1.1 EXECUTIVE SUMMARY CONTINUED
Net operating income
Net operating income of $A5,830 million for the half-year ended 30 September 2018 increased 8% from $A5,397 million in the prior corresponding period from higher Net interest and trading income, higher Fee and commission income as well as lower Credit and Other impairment charges. Key drivers included:
Net interest and trading income
HALF-YEAR TO | KK18% | ||
Sep 18 | Mar 18 | Sep 17 | |
$Am | $Am | $Am | on prior |
corresponding | |||
2,229 | 2,051 | 1,892 | |
period | |||
- Increased contribution across the commodities platform driven by client activity and improved trading opportunities in CGM
- Growth in deposit and Australian loan portfolio in BFS
- Impact of changes in fair value on economic hedges and higher earnings on capital in Corporate.
Partially offset by:
- Reduced income from early repayments, realisations and the reduction in the Principal Finance portfolio size in CAF.
Fee and commission income
HALF-YEAR TO | KK4% | |||
Sep 18 | Mar 18 | Sep 17 | ||
$Am | $Am | $Am | on prior | |
corresponding | ||||
2,661 | 2,102 | 2,568 | period | |
- Increase in brokerage commission in Futures and Cash equity markets from increased market turnover and client activity in Asia, and an increase in equity capital markets fee income from Asia-Pacific in CGM
- Higher fee income from mergers and acquisitions, debt and equity capital markets in Macquarie Capital
- Following the adoption of AASB 15, $A141 million of fee expenses relating to stock borrowing activities and certain recoverable costs previously presented net of associated revenues have been reclassified to Operating expenses.
Partially offset by:
- Lower performance fees compared to a strong prior corresponding period in MAM.
Net operating lease income
HALF-YEAR TO | LL2% | ||
Sep 18 | Mar 18 | Sep 17 | |
$Am | $Am | $Am | on prior |
corresponding | |||
461 | 466 | 469 | period |
- Reduction in underlying Aviation income partially offset by improved income from the Energy and Technology portfolios and favourable foreign exchange movements in CAF.
Share of net profits of associates and joint ventures
HALF-YEAR TO | LL93% | |||
Sep 18 | Mar 18 | Sep 17 | ||
$Am | $Am | $Am | on prior | |
corresponding | ||||
7 | 138 | 103 | period | |
- Losses from associates and joint ventures reflecting underlying investing activity including expenditure on green energy and other projects in the development phase in Macquarie Capital.
Partially offset by:
- An increase in share of net profits from the sale and revaluation of a number of underlying assets within equity accounted investments in MAM.
Other operating income and charges
HALF-YEAR TO | KK29% | ||
Sep 18 | Mar 18 | Sep 17 | |
$Am | $Am | $Am | on prior |
corresponding | |||
472 | 766 | 365 | period |
- Credit and Other impairment charges down on the prior corresponding period which recognised impairments relating to legacy assets in Corporate and underperforming financing facilities in CGM
-
Investment income up primarily due to gains generated across ANZ, Europe and the US from unlisted investments in the green energy and technology sectors in Macquarie Capital, partially offset by the non-recurrence of gains
on reclassification of certain investments in MAM and an investment in a toll road in the UK by CAF - An increase in Other income predominately relating to asset sales in CAF, partially offset by expenditure on green energy projects in the development phase in Macquarie Capital.
8 | Macquarie Group Limited Management Discussion and Analysis | macquarie.com |
RESULTS OVERVIEW
CONTINUED
1.1 EXECUTIVE SUMMARY CONTINUED
Operating expenses
Total operating expenses of $A4,125 million for the half-year ended 30 September 2018 increased 12% from $A3,693 million in the prior corresponding period. Key drivers included:
Employment expenses
HALF-YEAR TO | KK9% | ||
Sep 18 | Mar 18 | Sep 17 | |
$Am | $Am | $Am | on prior |
corresponding | |||
2,454 | 2,232 | 2,261 | period |
- Higher average headcount across the Consolidated Entity
- Increased share-based payments expense mainly driven by Macquarie's share price movement
- Unfavourable foreign exchange movements.
Brokerage, commission and trading-related expenses
HALF-YEAR TO | KK37% | |||
Sep 18 | Mar 18 | Sep 17 | ||
$Am | $Am | $Am | on prior | |
corresponding | ||||
579 | 408 | 422 | period | |
- Following the adoption of AASB 15, $A141 million of fee expenses relating to stock borrowing activities and certain recoverable costs previously presented net of associated revenues have been reclassified to Brokerage, commission and trading-related expenses.
Non-salary technology expenses
HALF-YEAR TO | KK12% | |||
Sep 18 | Mar 18 | Sep 17 | ||
$Am | $Am | $Am | on prior | |
corresponding | ||||
331 | 309 | 295 | period | |
- Higher project activity in BFS
- Increased investment in technology platforms in CGM.
Occupancy and Other operating expenses
HALF-YEAR TO | KK6% | |||
Sep 18 | Mar 18 | Sep 17 | ||
$Am | $Am | $Am | on prior | |
corresponding | ||||
761 | 814 | 715 | period | |
- Increased business activity in the majority of Operating Groups
- Unfavourable foreign exchange movements.
Income tax expense
Income tax expense for the half-year ended 30 September 2018 was $A374 million, a 17% decrease from $A448 million in the prior corresponding period. The decrease was mainly due to a reduction in US tax rates and the geographic composition and nature of earnings.
The effective tax rate for the half-year ended 30 September 2018 was 22.2%, down from 26.4% in the prior corresponding period and 24.9% in the prior period.
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Macquarie Group Ltd. published this content on 15 July 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 July 2024 05:59:01 UTC.