Macquarie Group Limited (MQG) Earnings Call Transcript & Summary

Well, very good morning, everybody. Welcome to Macquarie Group's Annual General Meeting for 2023. My name is Glenn Stevens. It's my privilege to chair the Board of your company and to chair today's proceedings. I note that the quorum's present, so I declare the meeting open. Begin by acknowledging the traditional owners of the land from where I speak to you today, the Gadigal people, the Eora Nation, and I pay respects to elders past, present and emerging. With me here on the stage are our nonexecutive directors, Rebecca McGrath, Philip Coffey, Nicola Wakefield Evans, Susan Lloyd-Hurwitz, Jillian Broadbent, Michael Roche, and Michelle Hinchliffe. Our CEO, Shemara Wikramanayake, Chief Financial Officer, Alex Harvey, and Company Secretary, Simone Kovacic. Macquarie Bank Director, Michael Coleman, is also present in the room, and present in person or electronically are Macquarie Bank CEO, Stuart Green, and Group Heads, Greg Ward, Ben Way, Nick O'Kane, Michael Silverton, Nicole Sorbara, Andrew Cassidy, and Evie Bruce. It's great to see so many of you in person here in Sydney, just a few meters from our head office. Today's meeting is also a hybrid meeting, and that allows us to welcome shareholders who can't be here in person, including from around the world. The order of proceedings is as set out in the documentation. After some brief remarks from me, Shemara will take you through the 2023 results, and speak to the outlook for the 2024 financial year. We'll then hear from Nicola Wakefield Evans, who's seeking reelection to the Board today, and Susan Lloyd-Hurwitz, who's seeking election to the board for the first time to. Following that, I'll formally open the polls and then we'll take a break. We look forward to meeting those of you who are here in person during the break. After the break, we will reconvene, and address the formal items of business that are on the agenda. As has been our custom for a long time, we'll take questions on all matters together at that time. Please note that recording devices, photographic equipment, and mobile phones should not be used during the meeting. The meeting is being webcast live on Macquarie's website, and you'll be able to review a recording of the meeting later today. Those of you who are attending online can send your questions in, starting now by clicking on the speech icon on your screen, and we'll address them during the formal business of the meeting. We will try to ensure that all topics of interest are addressed in our responses. We may moderate questions or amalgamate them where there are multiple questions on the same topic. Turning then to financial performance, Macquarie Group had a very successful fiscal '23, earning a net profit of $5.2 billion, for a return on shareholders' equity of 16.9%. This was an exceptional outcome achieved by a high-performing management team to deliver for shareholders by delivering for clients. Macquarie's diversification was again evident even as some businesses face more difficult trading conditions, others were able to expand by – profitably, by servicing a growing client base. The commodities business, in particular, was able to help clients adjust to the largest shock to global energy prices since the 1970's. Shareholders received a dividend of $7.50 per share, 20% higher than in the preceding year. 56% of the earnings was returned to shareholders, consistent with long-standing policy on the dividend payout ratio. Now it's important to note that while last year's record result was partly generated by unusual circumstances, the long-term trend in earnings reflects management's efforts over many years in building valuable franchises. The diverse lines of business do have significant autonomy, but they come together around a consistent, robust risk culture, and market-leading remuneration, and accountability structures. The Board believes that, that unique model will continue to serve the company well, even in more difficult times as in the past. And times most likely will be more difficult, at least in the near term. Inflation has so far remained strugglingly high in most markets, and central banks around the world are engaged in a once-in-a-generation struggle to restore the price stability that was such an important feature of the previous era of growth. For both capital markets and for communities, much hinges on success in that struggle. At this point, interest rates seem likely to stay somewhat higher and for longer than most people thought was likely only a short time ago, with the associated prospect of weaker economic outcomes. As we go into that period, Macquarie is well capitalized, well-funded, and well equipped to manage risks, and to take advantage of opportunities should they present themselves. Turning to ESG matters, we released our first net-zero plan for Macquarie Group last year. That was the result of extensive work, collating information and analysis right across the businesses, to inform judgments as to what sort of targets we should set. That report details also some of the ways in which Macquarie is helping clients in their response to climate change. In that first wave report, we set targets for some aspects of our own portfolio. A second wave report is due later this year. Macquarie has continued to make or facilitate industry-leading investments in many aspects of the energy transition, and in emissions reduction technologies beyond the energy space, where it's commercially viable to do so. In doing that, we recognize that there are multiple pathways to net-zero, dependent in large part on significantly increased clean energy investment, and on technological innovation. Meanwhile, science-based net-zero by 2050 scenarios, recognize the need for oil and gas to remain a significant part of the energy mix well into the future. As shareholders would be aware, we've been working hard to uplift our regulatory compliance reporting and engagement through a major set of work programs. That work is very well advanced, but it will continue for some time yet. It's demanding, it's costly, and together with more general compliance requirements, which continue to increase, is continuing to add to the cost of doing business. So the Board and the management are very conscious of those costs, but also of the costs were we to fall short in meeting our regulatory obligations. Improving in this area is a necessary condition for the business ongoing success. Turning then to remuneration, outcomes reflected the very strong performance of the businesses in fiscal '23 and indeed, over a run of years. This year, fiscal '24 that we're now in will see the full implementation of the new APRA standards on remuneration and as we flagged last year, we've reviewed our processes, and they are compliant with the new rules. They are overseen by the Remuneration Committee of the Board, and our framework preserves the key features of our long-standing model. Relatively low fixed pay, performance pay based on financial and nonfinancial contributions, delivered mainly in equity with long deferral periods, and detailed accountability. That maintains the high degree of alignment between management and shareholder interests, which, of course, has been such a feature of Macquarie's arrangements for so long in such a part of the company's success. The remuneration report has more details. Over the past year, the Board has resumed its program of visits to Macquarie's offshore operations. And as we've done that, we've done 3 visits now since our COVID restrictions were lifted. We've been repeatedly impressed by the diversity and the quality of the people that are working in your businesses around the world. We're convinced that a workplace environment that welcomes diversity is a productive one, and we see it in action on the ground everywhere we go. That diversity still comes together though, around Macquarie's long-standing principles of opportunity, accountability and integrity, and is supported by a strong central risk management process. That culture is key. And with our employee count numbering over 20,000, and with about half of those people having joined the company just within the past 3 years, doing all we can to ensure that our employees are invested in that culture, is very much on the minds of the board and the management. So we monitor, as well as doing our visits, we monitor many indicators of culture and behavior and a number of those are reported in the annual report. The Macquarie Group Foundation provides social impact work for the group, supporting its people, its businesses and our communities to build a better future. The foundation supported 2,500 nonprofits over the past year to the tune of $52 million. Over $570 million has been contributed to philanthropic causes by the Foundation and Macquarie employees since 1985. Just one example of that work, is its efforts to support -- work is -- supporting efforts to break down barriers to employment. Last year, the foundation provided white box enterprises with a philanthropic grant and a social impact investment in support of payment by outcomes, a 3-year trial to support 170 people who live with the disability into employment with 1 of 15 jobs focused social enterprises that are participating in the trial. That's just one example of the sort of work the foundation does. Turning then to the Board, we were delighted to welcome Susan Lloyd-Hurwitz as a Group Director, effective 1st of June. The shareholders would know, Susan was the highly regarded CEO of Mirvac until earlier this year, and she brings over 30 years of global investment and real estate sector expertise. She's also in Macquarie alumnus earlier in her career, having started various Macquarie funds in the Asia Pacific in the early 2000's. I'm pleased as well that Nicola Wakefield Evans, our longest serving Director, is seeking re-nomination today so as to extend her term into 2024. That will maintain near-term continuity, while also facilitating managed turnover on the board. We've continued to develop the support for the Macquarie Bank Board, as opposed to the Group Board, as it meets its obligations to the particular interest of Macquarie Bank. I'm pleased to announce today that effective 27 September, subject to completion of necessary regulatory approvals, Mr. David Whiteing will be appointed as a Nonexecutive Director of Macquarie Bank [indiscernible]. Alongside Ian Saines, and Michael Coleman, David will be 1 of 3 bank-only non-execdirectors, and will contribute to strengthening the voice of the bank within Macquarie Group. He brings over 30 years of experience in leading businesses and technology strategies across multiple sectors through numerous periods of change. He has worked globally, including 4 years as a global COO for Standard Chartered Bank in Singapore, various consulting roles in London and 5 years as a group executive at the Commonwealth Bank of Australia. So that's another very strong appointment for us. It remains for me only on the Board's behalf to thank Macquarie's management and staff for their efforts in again delivering a record result through a time of considerable uncertainty. This team, led by Shemara, continues to grow a remarkable set of businesses that are well positioned for the future. Fellow shareholders, that concludes my opening remarks. Thank you for your attention, and for your support of Macquarie. And I now invite Shemara to discuss the results in more detail, and to update you on recent performance. Okay, thank you. [Presentation]

Thanks, Glenn, and good morning, and welcome, everyone, from me as well. As Glenn mentioned, I will take you through our 2023 result financial year, and talk a little bit about the update for the 2024 financial year. But before I go into that, I did just want to take a moment to reflect on the fact that 2023 was our 54th straight financial year of profitability. And not only will be profitable, but we're very pleased that -- you can see there in those columns, the 4 columns on the left that in all the 4 major indices in which we've been included both since listing and over the last 10-year period, we've been first, second or third in terms of total shareholder return that we've been able to deliver. And particularly in the MSCI World Banks Index, we've been first on -- over both of those periods. . So turning to the 2023 financial year results, as Glenn mentioned, we had a result of just over $5.1 billion, which was a record result, and it was up 10% on last year's record result for the 2022 financial year. It was a return on equity of 16.9%, and we were also pleased that the Board was able to increase the dividend by 21% to $7.50 a share for that year. Now the contribution, again, as Glenn mentioned, came from different parts of our businesses. We have 4 main operating groups, and they're all exposed to different drivers. And that gives us very good diversification through cycles in terms of the resilience of the earnings we're able to deliver. Last year, the earnings from those operating groups was up 9% to the net profit contribution from them. And there was a mix of which businesses performed strongest and contributed the most in that period. The annuity-style businesses, which are our global asset management business and our Australian Banking and Financial Services business, had mixed contributions. Banking and financial services continued to grow very resiliently and the earnings in that business were up, whereas in the asset management business, they were down on the previous year, principally because we had some large one-off gains in that year from asset realizations. Then over to your right, we have our 2 market-facing businesses, which are Macquarie Capital, a global business that provides advisory and capital market solutions -- advice and also principal investment. In that business, the earnings were down because the 2022 financial year was a very strong year for activity levels. And so relative to that, it was down. And also the realizations in its investment book were down slightly, even though it continued to grow its private credit book. The area that contributed the biggest amount last year was our commodities and global markets business where we had solid contributions from the asset finance and financial markets business, but the commodities business, particularly was able to deliver strong results from the high activity levels, particularly given the volatility in the energy sector. But I would stress that the diversification positions the overall Macquarie portfolio, well through all cycles to be delivering, and not only do we have that diversification by businesses, but regionally, we're also well diversified now. Australia, where we began our business 54 years ago is today, 29% of our earnings contribution. And we have large contribution from the other 3 geographies, the Americas, Europe, Middle East and Africa, and Asia today as well. Again, good diversification. Now I'll briefly go through each of the 4 businesses over the last year. And starting with Macquarie Asset Management, you can see in that circle down there, it contributed 23% of our net profit from the group's last year. And that result, you can see in the dark green boxes was down 23% on last year's result of the prior year's result at about just over $2.3 billion, mostly down, as I said, because we had material realizations in 1 of our U.S. listed infrastructure funds, and also in our green energy assets. But the underlying business in the column headed private markets, you can see that the assets in that private markets business was up 30% on the prior year, including being driven by record capital raising of $38 billion, just over $38 billion, which left us with close to $35 billion of capital deploying as we go into this new financial year. The public investments, which is principally fixed income, equities, the assets were slightly down. Equity markets came off a lot during that financial year and drove that. But we also had a slight negative impact from net flows, offset by foreign exchange gains. Then turning to the Banking and Financial Services business, that contributed 12% of our net profit from operating groups last year, as you can see circle there. That was up 20% on the prior year to $1.2 billion. And we had really good growth -- ongoing good growth across that business, as you know, it's a customer experience focused digital banking offering. And over the last 10 years, we've had really good growth in our home loans, our business banking, et cetera. Home loans, last year, up 21%. The business banking book up 13%, and that was supported by the deposit growth, which was up 32%, and our funds on platform also grew, and good momentum behind that business as well as we move forward for the reasons that have driven it to date. Then turning to the Commodities and Global Markets business, you see in that circle there, it was our largest contributor last year, contributing 57% of our net profit from the operating groups. It was up 54% on what was already a large record result the year before, and delivered just over $6 billion. And that was driven from all 3 divisions in there. The asset finance business continued to deliver positive performance. The financial markets business also grew across foreign exchange, interest rates, futures, equity derivatives, but the really big step-up was in the commodity markets, where we were able to deliver a lot of client service across a range of classes, gas and power, global oil resources, et cetera. And we also had strong inventory management and trading results, particularly in North American Power and Gas. And then Macquarie Capital contributed 8% last year of our net profit from the operating groups. And that result was down 47% to $800 million, because as I mentioned, we had much lower activity levels in the areas where Macquarie Capital provides services globally. And so fee and commission income was down. We also had slightly less realizations in terms of equity investments, but we had good growth in the private credit book, which is providing annuity income. There it's up to $18 billion now, having invested another $7 billion over that last year. So that was the contribution for the businesses. If we look over the medium term in terms of the returns that they've delivered, you can see, I mentioned at the bottom of -- in the middle column there, you can see 16.9% return on equity this last year. And over the last 17 years, an average of 14% return, which is good compared to peers in our sector. And that was after holding surplus capital of $12.6 billion. Prior to that $12.6 billion, the underlying groups delivered at the top, you can see over in the 2 columns to the right. The annuity-style businesses have delivered 22% on average over the last 17 years, and 18% in the last year, the market facing 17% on average over the last 17 years, and 28% return in the conditions they had year. So the underlying business is continuing to deliver very good return on equity and even after the prudent surplus capital we hold, the overall group delivering a good result. And that was done with a strong and very prudent funding and capital approach. So in the middle, you see there the $12.6 billion of surplus capital I mentioned, we finished the year with. Bank had a 13.7% CET1 ratio. These are strong numbers. And our term funding comfortably exceeded our term assets. So we're very well positioned in terms of any liquidity issues. And our credit ratings, we were A rated by all the 3 major rating agencies, Standard & Poor's, Moody's and Fitch, with Moody's having upgraded us indeed in May of this year. Now with that, I'll look now at an update on the 2024 financial year, and we're experiencing very different conditions as we go into year, as many of you may be aware. Weaker trading conditions over the first quarter of this financial year meant that the contribution from our operating groups was substantially down on what was a very strong prior comparable period. The first quarter of last financial year, we had some very strong results. First, looking at the annuity-style businesses. Our banking and financial services business contribution was actually significantly up on that prior comparable period, as we continue to grow our books, and deliver to our customers and our customer base and invest in our digital banking offering. The asset management result was down substantially, and that was principally due to lower investment-related income in our green energy investments, where we had some strong realizations in the first quarter this year, and didn't have that repeat. In the market-facing businesses, the contribution there as well, combined was substantially down on the prior comparable period. In Macquarie Capital, that was because our fee and commission income was down on the prior period because activity levels were a lot stronger a year ago. And also, we had a fewer material realizations. But the area that was down in terms of commodities and global markets, was the commodities business where we saw much less activities, particularly in the first quarter last year was a very strong period. Looking at some of the features of those 4 businesses, the asset manager finished the first quarter with its assets broadly in line with where they were at the end of last year. We had about $2.1 billion of new investments into our funds that were closed and locked in. We ended the period still with strong dry powder. And in our public investments business, we were slightly up on our assets under management. That's a fixed income and equities. And that was driven heavily by markets recovering a lot in the first quarter of 2023. And we also had some offset there from net flows. The Banking and Financial Services business, I mentioned the growth in all the books there last year. This year as well, we continue to have growth with the mortgage book up 2%. Business banking portfolio up 8%, driven by our deposits, which came off slightly as the competition levels caught up with where we were in the deposit market, and our funds on platform were up 4%. Then the Commodities and Global Markets business, as I mentioned, the asset finance and financial markets continued to deliver strong results, particularly in financial markets where we saw strong activity levels, particularly in foreign exchange. But in the commodities business, we were significantly down on the prior corresponding period, and that was largely driven by reduced trading activity, particularly in Gas and Power. And in Macquarie Capital as well, we saw lower fee and commission income due to the lower activity levels. And we also -- so the fee revenue was down on the prior comparable period, as were the asset realizations offset by the private credit book continuing to grow. In terms of our financial position at the end of the quarter, it remained strong with our term funding comfortably exceeding term assets still. We raised about another almost $3 billion of term funding over the quarter, and our deposits end up strong, still at about $134 billion. Our capital, the main thing that has happened in terms of the change in our capital is, I mentioned about $12.6 billion of surplus capital, that dropped to $10.8 billion, principally driven by the second half dividend of $1.8 billion that we paid. So that was the main change in capital, and we note there again that we did have a credit rating upgrade from Moody's after the financial year. We didn't see a lot of capital absorbed into the business. So the middle column there, the dark green one shows where we ended the last financial year. It's broadly net flat over the first quarter where we saw capital continue to be absorbed in Banking and Financial services in growing our home loans and our business banking books. And Macquarie Capital did some equity investing as well, but that was offset by a reduction in credit risk capital in the commodities and global markets, as we had lower commodity price and exposures. But we finished the year again -- or the quarter, apologies, with strong regulatory ratios there. There you can see well above the dash blue line being the APRA balI 3 minimums that we're required to hold, for example, you can see the second in from the right, our liquidity coverage ratio is at 211% compared to the 100% minimum. And speaking of the APRA regulatory environment, you can see a long list there, half a dozen things that we've noted that APRA is working on in terms of ongoing building resilience of the sector. We are partnering constructively with APRA on that, and the bottom bullet point there in the Australia section, we're also working with APRA constructively on a remediation plan in relation to the governance, culture, remuneration, et cetera, of Macquarie Bank Limited to strengthen the voice of the bank, and that's an ongoing program. In relation to Germany, we update every quarter on what's going on there, and there's no update to the disclosure since the 1 that we made at the end of last financial year. So with that, I'll turn to the last thing I'm going to cover, which is the outlook for the 2024 the rest of the financial year and the full financial year. And again, we'll look at this by each of our 4 operating groups, starting with Macquarie Asset Management. They were expecting the base fees to be broadly in line, but the net other operating income, we think will be substantially down on last financial year because we did have very material realizations in the Green Investment Group. As I mentioned, they were quite front ended. The first half last year, our result was weighted quite strongly to the first half, with the sort of realizations and activity levels we saw this year, some of the realizations are more back ended. In the Banking and Financial Services Group, we're seeing growth in loan portfolio deposits platform volumes, as I mentioned. The results there will be driven by market dynamics, which will continue to drive margins. And we're also continuing to invest a lot in terms of the growth in the volume, the technology investment, which I think Greg was in the front row here, but I think it's $0.25 billion last year that we invested in trying to stay ahead with our digital offering for customers, and also in compliance and regulatory requirements. Macquarie Capital, we think the transaction activity will be up on 2023 because that was a very challenging year and quiet activity levels, so fee and commission income should be up. But the investment-related income, we think, will be broadly in line, with increased revenue coming from the growth in that private credit book, it grew to $19 billion over the first quarter. So up another $1 billion but lower realizations in our equity positions just due to timing of -- we realized the assets at the point at which we think we'll get the best return for the capital that we put in. So we manage the timing on that basis. And then our Commodities and Global Markets business, consistent contribution expected from the financial markets and the asset finance, but the commodities income, which was particularly strong and benefited last year from the exceptionally strong market conditions, trading conditions, volatility. We think this year, we expect it to be broadly in line with the prior year, the 2022 financial year. At the corporate level, our compensation ratio and our effective tax rate, we think, will be consistent with historical levels. I should mention that, that short-term outlook as ever, remains subject to a range of factors. So market conditions, including global economic conditions, inflation, interest rates, volatility, and the impact of geopolitical events could have impact. Also the completion of period and reviews and the completion rate of transactions, and ongoing geographic composition of our income, foreign exchange implications from that; and lastly, regulatory and tax changes. So given that, as you see, we continue to maintain a cautious stance with a very conservative approach to our capital, our funding and our liquidity, which we think positions us well to respond, particularly in the current environment, but more generally through the cycles. Over the medium term, as Glenn has also mentioned, we think we remain well positioned to deliver superior performance. And that's because, as I mentioned, we have deep expertise across 4 very diversified business lines, which are exposed to different drivers and which are positioned for structural growth and gives us runway to keep organically growing those businesses. And that's the customer-focused digital bank, as I mentioned. The global asset manager in private markets and public investments, our commodities, financial markets and asset finance business and Macquarie Capital, which is specialist advice in many different markets, capital solutions and investment. We couple that, obviously, with our strong ongoing investment in our technology and broader platform, and our regulatory spend to support that strong and conservative balance sheet that I've mentioned, and very importantly, our proven risk management framework and culture, and that does include an approach of patient adjacent organic growth. So we think for the medium term, we should be well positioned to continue to deliver you superior returns for the risk and relative to the peers that we have in the sectors in which we operate. So with that, I will hand back to Glenn for the formal business of the meeting. Thank you.

Thank you, Shemara. So now I'll move to the formal items of business for the meeting. The notice of meeting and the accompanying explanatory notes have been sent to shareholders. I propose to take those as read. The items of business are as shown on the slide. Item 1 is to consider and receive the annual accounts. And I now lay before the meeting the financial report, the director's report, and the auditor's report of Macquarie for the financial year ended 21 of March 2023. Please note, there is no formal resolution today relating to the financial statements. Item 2A is the re-election of Nicola Wakefield Evans as a voting director. And Item 2B is the election of Susan Lloyd-Hurwitz as a Voting Director. Each director will address the meeting before we break for the refreshments. Item 3 is the annual nonbinding vote on the remuneration report, which is in the annual report. Included in the notice of meeting other letter from the Chair of the Board Remuneration Committee, and an analysis of how our results are aligned to this year's remuneration outcomes. Shareholders for meeting with Macquarie will know, of course, that our remuneration framework is long-standing, it supports our purpose by motivating staff to grow our businesses, identify new opportunities, and be accountable for their decisions, behaviors and the risk management, customer, economic and broader consequences of their actions. We believe that long-standing approach to remuneration is a key driver of Macquarie's sustained success, as an international organization. Item 4 is to approve the giving of termination benefits as set out in the explanatory notes to the notice of meeting convening today's meeting. Item 5, is to approve the Managing Director's annual participation in Macquarie Group employee retained equity plan or MEREP, as we call it. So I'll now ask those who asked to hear from those seeking reelection today, moving to Item 2A, and that's the reelection of Nicola Wakefield Evans. She's been an independent voting director of Macquarie since February of 2014. She served as Chair of the Board Governance and Compliance Committee, and as a member of the Audit Nominating and Risk committees. Her substantial experience as a Nonexecutive Director and Corporate Finance Lawyer in Australia and internationally, in the financial services, resources, energy and infrastructure sector, materially adds to the Board's expertise in those areas and to the oversight of Macquarie. And we consider it to be of significant benefit to the company. Ensuring that the Board is an effective shareholder steward for a business as diverse as Macquarie, requires balancing experience and longevity with fresh perspectives underpinned by diversity of expertise. And so the Board has no reservations regarding Nicola's ability to discharge their duties as mining of your directors. And so now I invite her to address the meeting. Thank you, Nicki.

Thank you, Glenn, and good morning, shareholders. I'm delighted at the opportunity to speak to you today in support of my reelection as a Director of the Macquarie Group. As you heard from Glenn, I am an experienced company director, and other Boards I currently serve on include Viva Energy, Len Lease, MetLife Australia, and the Clean Energy Finance Corporation. I'm also a member of the Takeovers Panel, and hold Board leadership roles in the non-for-profit sector as the Chair of the 30% Club Australia, the GO Foundation Board, and the University of New South Wales Foundation Board. In my executive career, I was a corporate finance lawyer working with large businesses across a large range of sectors globally. During this time, I held several key management positions at King & Wood Mallesons in Australia and internationally, as managing partner International Hong Kong, and managing partner in Sydney. These experiences, together with my years served on the Macquarie board, to date, I believe, contributed to my ability to provide meaningful perspectives on the group's operations in Australia and globally, and to help guide its governance, culture and purpose. The time I have committed to my role as Chair of the Board Governance and Compliance Committee and as a member of the Board Risk, Board Audit and Board Nominating Committees, have reinforced for me the importance of prudent risk management to support the company's continued success. Following a period of board renewal in recent years, I hope to provide some near-term continuity, by serving shareholders during my remaining tenure, which as Macquarie announced in May, is expected to conclude next year. Thank you very much for your support.

Thank you, Nicki. Item 2B is the election of Susan Lloyd-Hurwitz, having been appointed by the Board as an independent voting director on June 1 this year. The Board will benefit from her significant global investment and real estate sector expertise with over 30 years of experience in that sector, and most recently having served as Chief Executive and Managing Director of Mirvac for more than a decade. Sensor appointments, Susan has been a member of the board nominating committee, and the Board has no reservations regarding her ability to discharge duties as one of your directors, and so I take pleasure in inviting Susan to address the meeting. Thank you.

Thank you, Glenn, and good morning, shareholders. It's a privilege to be speaking to you today in support of my election as a Director of Macquarie Group. As you heard from Glenn, my background is in the built environment sector. Most recently, I had the privilege of leading Mirvac as its Chief Executive Officer and Managing Director for over a decade. I've also served as Managing Director in Europe of LaSalle Investment Management, held various senior management roles at Macquarie Group, MGPA and Lend Lease in Australia, the U.S. and Europe. I was previously National President of the Property Council of Australia, Chair of the Green Building Council of Australia, and a Director of the Business Council of Australia. These roles equip me with a deep technical experience in the global investments and real estate sector, honed by more than 30 years of experience in Australia, Europe, and the U.S. Earlier this year, I became a Non-Executive Director of Rio Tinto. And currently, I'm President of Chief Executive Women, Chair of the Australian National Housing Supply and Affordability Council, a member of the NCADD Global Board, and the Sydney Opera House Trust. I believe I have the skill set and deep expertise in business and in relevant industries internationally to complement the skills and experience of other Board members. I see my role as one where I contribute to the Board's oversight of Macquarie's diverse global operations and support its ongoing success. As a Director of Macquarie Group, I'm confident I will have sufficient time and commitment to serve you, you, the company, and all shareholders. Thank you for your support. [Voting]

Thank you, Susan. To allow everyone attending an opportunity to vote, I now open the polls in respect of all the motions that shareholders will vote on today. Polls will remain open until just before I close the meeting. [Operator Instructions]. Shareholders and proxy holders attending in person have been issued with a handset at registration in order to cast your vote. [Operator Instructions]. Representatives from our registry are here today, and they're available to assist you if you have any questions about how to vote on the handset. Proxy holders with directed votes will have those votes automatically voted as directed. All open votes will be voted according to the option you see via Lumi or on your handset. So I'm now going to adjourn the meeting for a half hour or so to allow those attending in person to have a break for refreshments. We look forward to meeting some of you during that time. We'll reconvene in about half an hour. If you have a handset and you don't intend to return after the break, could you please leave the handset with the staff at the registration desk. And for those online, a notification will appear on your screen prior to the meeting recommencing. So we adjourn for 30 minutes or so. Thank you.

Attention every, just a reminder, if you could please take with you your handset and your share registration cards, you will need them with you to return to the room. Thank you. [Break] [Presentation]

Welcome back, everyone. I now reconvene the meeting and we'll continue with the formal business. Just to remind you that the polls remain open. Let's now move to take questions and comments. Of course, it's my duty as Chair to ensure that so far as we can, a reasonable opportunity is afforded to everyone to ask questions about or to comment on the management of the company, the remuneration report, and the other items of business before the meeting today. To achieve that, we have adopted some procedures that are set out on the slide here. We're committed to ensuring that people attending feel safe and respected [Audio Gap] at all times, and that includes ensuring that the meeting is conducted [Audio Gap] in an orderly way. We've come today to discuss matters of interest to shareholders as a group. Those participating online can submit a written question or comment through the Lumi platform at any time during the meeting until the end of the Q&A session. [Operator Instructions] We're going to start with questions submitted in advance. And then take turns through written questions submitted online during the meeting questions from members here in the room and audio questions. You're welcome to ask 2 questions at a time. And then we'll give other shareholders the opportunity to ask questions before returning to members who have more than 2 questions. You can ask more than 2, but just 2 at a of time. To address this broader range of topics as we can, we might defer to later in the meeting further questions on a particular topic if they've already been covered via a number of other questions on that topic. If you have a customer issue or other matters that don't relate to items of business on the meeting scheduled today, our Investor Relations staff are here, and be happy to take your query. You can email them, at macquarie.shareholders@macquarie.com, or you can see a staff member at the shareholder table outside the meeting. I note that Mr. Sam Hinchliffe from PricewaterhouseCoopers, the external auditor, is present at today's meeting. He's available to respond to questions relevant [Audio Gap] the preparation and content of the auditor's report, the accounting policies adopted by the company in relation to the preparation of the financial statements, and the independence of the auditor [Audio Gap] There were no external pre-written questions for the auditors received prior to the meeting. I'm now going to take questions that were submitted in advance.

Chair. Our first question comes from Dixon. The question is, what is the Chairman's outlook on the world's economy and its implications on Australia's economy?

All very briefly, Dixon, I think the outlook for the world economy is still quite challenged. Inflation is too high. It is coming down. It needs to fall further and the central banks, as I said earlier, are in a once in a generation struggle to make that happen, and we have a lot riding as a community, and as capital market participants [Audio Gap] to know whether they've done enough or not. And I think markets will remain a little bit volatile while all of that unfolds. So I think that's the near-term outlook. And I think that's probably the same in Australia actually for the period just immediately ahead. Next question, please.

Chair, our next question is from Dixon. [Audio Gap] Macquarie Group.

It takes a lot of hard work. No, seriously, this company is looking for people who want to come to work for us, and who are interested in aligning with the principles that we operate under. That's opportunity, accountability and integrity. If you are up for those, you've got the requisite skill set. There's probably a job here for you. And that's the opportunity to grab it. Next question, please.

Chair, our next questions are from Andrew Thomas Punch. They have 2 questions, which are as follows: Question one. There is a rumor that the requirement for employees to work in the office 3 days a week is to prop up Macquarie's property investments. Is Macquarie basing its employee relation policies on its property investment? Question 2, how is the requirement of working in the office 3 days a week, affecting recruitment and retention of top performers, and Macquarie's diversity and inclusion goals, particularly for parents and neurodiverse people?

Well, Andrew, I haven't heard the rumor that you claim there is that we're doing that, but there's no truth to the idea that we are driving return to office policies in order to preserve property value. The property values, the assets we own, they're evaluated under standard criteria and in accordance with the accounting standards. That's how that's done. As for return to work, well, local management around the world is empowered to make these decisions based on what's best for their team, for the company and for the team members, in that jurisdiction and under the circumstances they face. We do think that collaboration is a powerful force for innovation, and that is why it is good to spend at least part of the time at the office, and we very much encourage people to do that. But that's done in quite a decentralized way, because COVID experience was different around the world. Businesses are different in different jurisdictions and locations and their needs are different, so we allow the local management to make those calls subject to achieving the company's objectives. I'm not aware of any suggestion that, that has had a deleterious effect on retention. I think retention is going quite well. And I think most people who are coming back to the office are actually enjoying the experience of being back together, and the innovation and opportunity to collaborate that, that brings. Next question, please.

Chair. Our next questions are from Peter Calero. They have 2 questions, which are as follows: Question one. Does Macquarie use ChatGPT or other AI generative programs? And if so, what are the benefits to Macquarie's businesses? Question 2. Can Macquarie see any risks to any of its divisions of competitors or customers ramping up their spending on ChatGPT or other AI generative programs? And does Macquarie employ any prompt engineers in its businesses?

I'm going to ask Nicole Sorbara to address some of the detail there in a moment. I'd just say that at the Board level, we're following the AI, and especially generative AI issues very closely. The company is looking at all these things. We have a very careful approach, and we're very cognizant of the risks, and the opportunities and those 2 things have, of course, to be kept in balance. Perhaps, Nicole, you could speak to some of the details. Thank you.

Thank you, Chair. So as Glenn said, we are currently experimenting with some pilots around generative AI. And we're taking a very measured approach -- we're quite excited about the opportunity, but we see the opportunity at the moment is more 1 around productivity and helping our people be more productive in their roles, rather than at the moment, it been about replacing whole roles. So we have set up guardrails in place, we have defined standards. We are running a set of pilot, and they're called copilots, across the group, where we are still requiring humans to review and to be actively involved. But where we're saying potentially productivity savings, is -- I'll give you an example, the GitHub copilot, which we're rolling out at the moment across thousands of software developers, and that will help them be able to write code faster. Just answering the last part of the question around prompt engineers, so that skill -- or that discipline, we don't call it as a specific discipline at the moment, but it's essentially about how you define, and then redefine the questions that you asked generative AI. We're essentially starting to do this through the work we're doing in our copilots at the moment. And it's something as generative AI matures, we may see as a specific discipline going forward.

Thank you, Nicole. Could we have the next question, please?

Chair. Our next question is from Stephen David Mayne. The question is, as was discussed at last year's AGM, Macquarie has borrowed $11.3 billion from the Reserve Bank through its term finance facility on a 3-year deal at a fixed rate of 0.1%, which is repayable on June 30, 2024. Is it our intention to wait until the end of June to repay that facility, given then an $11.3 billion loan at the current official RBA rate of 4.1% would cost $463 million a year in interest or $1.27 million a day. We will only pay $34 million in total over the 3-year term of the loan. CFO, Alex Harvey mentioned last year that Macquarie had extended another $3.7 billion in mortgage credit and $2.5 billion in small to medium-sized businesses loans since the RBA loan was taken out. Is there any update on these figures? And will they have to call in some of the loans when the $11.3 billion is fully repaid. Also, how much money does Macquarie currently have on deposit with the RBA and what rate of interest is our central bank paying us?

I'm pretty sure we won't have to call in any mortgages, Alex, but I'm going to go funding issues for you.

I can confirm that, Chair. Thanks, Stephen, for the question. Yes. Just a couple of points, I suppose, in response. Firstly, yes, it is our intention to repay the $11.3 billion at or around the 30th of June 2024. As you know, that facility was extended by the RBA at a difficult time. And in fact, the facility was put in place to encourage lending, both to the mortgage market, but also to small and medium enterprises. And so that's what we did. And in fact, it had an incentive to actually extend credit, particularly to SMEs to enable them to continue to operate through a difficult time. So we've been able to do that and really pleased to do that. I mean as you know, in terms of the results to March 23, the BFS mortgage book grew, I think, point-to-point about 27%. So that was a really strong year of growth from a mortgage perspective. And the small and medium enterprise part of that business grew at 13%. So we've continued to be able to extend credit to customers all over Australia, which we're obviously very pleased to do. In terms of -- as I said, in terms of repayment, we certainly won't be requiring any of our mortgage holders to repay their mortgages on the back of us refinancing the RBA facility. As you know, we have a broad range of financing sources. We run a very conservative funding profile and Shemara talked about that in her presentation today. And in fact, we're well in front of that repayment profile, particularly with the work that Greg and the team have done to expand the deposit products we've got in the marketplace. So we're really pleased about where the balance sheet is positioned. In terms of the SA balances, which I think is the other part of the question. We obviously don't disclose our own ESA balance, and that moves around from time to time in any case. But across the whole sector, if you looked at June 23, the ESA balance exchange settlement account balance with the RBA was a little over $400 billion across the entire market. And in terms of the rate of return, as I know you're aware, Stephen, you get the cash rate less 10 basis points, so about 4% on those ESA balances. And with that, Glenn, I'll hand it back to you.

Thank you. Thanks, Alex. Next question, please.

Chair. The next question is from Craig Edward Corfield. The question is, Macquarie's bank share of the Australian property loan market has increased 1,000% over 10 years. This contrasts with the ANZ who have seen their share of the loan market declined from around 15% to 13%. If these trajectories continue, Macquarie could have a larger share of the Australian loan market than ANZ. What is Macquarie doing differently from ANZ, and did Macquarie consider at making a takeover offer for Suncorp?

Well, there's some operational questions there, Shemara for you, but that record sounds like a record of a growing presence in the market and success on our [Audio Gap]

Yes, of course, thank you for that question. So I mentioned that we've grown our mortgage book to 5% of the Australian mortgage market over a 10-year journey. So it's been a very patient adjacent growth, and it continues. But the majors, you mentioned ANZ, they have multiples of our share of market, and we're not taking share from any one major. We're focused on bringing this digital banking offering to consumers and winning patiently adjacently, slowly market share doing that. And I think Greg is here and can add comments if he wants to, but that's the journey we plan to continue to go on were 5% of the mortgage market today, we're less than 1% of the business banking market, and we see a long runway for patient adjacent organic growth. In terms of acquisitions, we haven't felt the need to do that. Clearly, when you do an acquisition, you have to integrate [Audio Gap] investing a lot in our really state-of-the-art digital network so that the platform we have is really tabling to be nimble and keep evolving. And so we're comfortable continuing on this patient adjacent slow organic growth journey in our banking business. And Greg, I don't know if you would like to add anything because it's really Greg and his amazing team, and the central service groups driving these.

Nothing great. Okay. Next question, please.

Chair. Our next question is from John Sablejack. The question is, currently, Macquarie credit card customers can only pay bills on the day they access their account. Could the CEO please advise when it is expected that all credit card customers will be able to pay bills for a future date? This functionality is currently available from your competitors.

Greg, I might have to pass to you on that one. Thank you.

Yes. No, we have that functionality on the credit card product. There's a red little icon that you go to, which is pay and then you can nominate a future payment date. That's if it's coming from a Macquarie account, if it's coming from an external bank account, you can use BPay and in that bank's application, nominate the future payment date. I think maybe we get the shareholders' contact details, and we can have our client service team [indiscernible].

Okay. Thank you. Next question, please.

Chair. Our next question is from Craig Edward Corfield. The question is my mother has a reverse mortgage with Macquarie-owned RMS on a very low 20% LBR and the interest rate is an extraordinarily high 9.55%. Why does Macquarie charge so much more to pensioners when the low lending ratio reduces Macquarie's risk? Isn't this an example of Macquarie chasing the holy dollar, price gouging pensioners, and 1 reason why Macquarie was found deficient in their reverse mortgage operations by regulators? Given accountability is 1 of Macquarie's 3 key values, how many reverse mortgages has the auditor, PwC, looked at on a granular application form level, and how many reverse mortgages did PwC fine to have deficiencies?

Mr. Corfield, we don't normally go into detail on particular customer issues at the AGM. There are people here who can help you deal with that issue. I'm not aware that we were found deficient by regulators. And in the case you referenced, that has been the subject of a complaint to the relevant body who found in favor of Macquarie in 2021. So I don't think I can give you any more than that today. Can I have the next question, please?

Chair, the next question is from Stephen David Mayne. The question is, the U.K. water industry is currently in a debt crisis with talk of nationalization amidst various environmental and performance problems. The Guardian newspaper published a lengthy business feature on Macquarie's involvement on July 10 this year, in which it reported that debt at Thames Water rose from GBP 3.4 billion to GBP 10.8 billion during the Macquarie consortium ownership from 2006 to 2017. During the same 11-year period, the Guardian claims Thames Water was paid dividends of $2.7 billion to shareholders, including Macquarie. Could Shemara please comment on the role she played in the Thames Water investment and whether she is concerned about recent developments and could Chair, Glenn Stevens advise the Board -- if the Board has sought any independent review of Macquarie's investments in the U.K. water sector? Given our ongoing enormous investment in U.K. infrastructure, is it perhaps time to diversify our Sydney focused Board and appoint at least 1 U.K.-based independent director?

Even I think I'll begin here, and then hand to Shemara. It's important to note that, notwithstanding the rather one-sided commentary in some of the U.K. media, the Macquarie period of management of that asset was from 2006 to 2017. During that time, investment in the utility increase. It was 3x the level previously. Leakage went down, security of water supply went up and customer bills remained amongst the lowest in the U.K. So actually, Macquarie is quite proud of the role that our management of that asset played in that period, which, of course, ended 6 years ago, a long time before the current problems that are in focus again. But Shemara, do you want to perhaps add to that?

I guess, just clarify a couple of things because it's not actually the U.K. water industry that's in debt crisis. It's Thames Water specifically that is having high levels of debt. And as Glenn mentioned, Macquarie hasn't been involved with Water for 6 years. Macquarie owned it for 11 years prior to that. Also, the asset is not a Macquarie asset. So I think it's really important to understand that it's in an asset in our European infrastructure fund, in which the investors are pensioners insurance companies and our asset management team manages that on behalf of those investors and has to make sure it's doing the right investments for that team. But it's not really up to the Macquarie Group Board on Macquarie management to direct them in what they do, they have to take into account the interest of the investors in those funds. And they do, and they do it admirably. It's our job to make sure they are high-quality people. But ultimately, we don't invest in interfering individual asset investment. As the Chairman said, we owned Thames for 11 years until 6 years ago. And the debt levels did increase, not the level you said about $5 billion. But as with your own debt, you know you have to look at debt in the context of the value of your assets and your earnings. And the Thames Water debt always stayed investment grade, well above of what the regulator required under the license. So it shows that the debt levels as with all the assets we manage, we maintain prudent debt levels for the asset. Importantly, as Glenn said, we also -- we invested GBP 11 billion over our period of ownership. That was about GBP 1 billion a year. And with that, we were able to -- the investment was 2.5x what it was in public ownership. So we were putting a lot of asset money into the asset. We reduced leakages by 22%, and we still kept the water rate at the third lowest level for the customers there. So we were very proud of what we did with the Thames asset or our asset management did. The distribution to equity, you said was GBP 2.7 billion. That was actually distribution from the operating company to the holding company, which is where the fund the asset, there was debt at that level as well. So equity only got GBP 1.1 billion out of that, which over the 11 years, it was about GBP 100 million a year. That was a 5% payment to equity. That's a reasonable return for the pensioners and insurers whose money goes into these assets for the risks they take, et cetera. And equally, debt was funded out of those payments. So I would say all our people are proud of what they were able to deliver for Thames Water. I think it's really important, though, to understand the bigger context of what's going on in the U.K. And what's happening there is we have a Victorian Euro pipe system that is unable to cope with the levels of storm water, et cetera, falling now in the U.K., especially with urbanization paving over grass lands, et cetera. And that storm water is flooding into the waste water and waste systems, and pushing storage leakage back out into the community. And addressing that is going to require material capital investment from here, whether it is from the public sector or the private sector. Now with government debt to GDP where it is, private capital seems like a very good solution to address these problems with the water industry in the U.K. Unfortunately, with the narrative being played in the media, we have other infrastructure investors saying to us, why would you bother with the brand risk of investing in U.K. water. Our teams make the decision on where they invest in the U.K. They have, over the last 30 years, invested in a range of GBP 50 billion of investment into the U.K. That's been in areas like green energy and wind farms where we were a lead investor, communications infrastructure, data centers, fiber optic networks, affordable housing, I could go on and on. They have multiple choice of where to invest in infrastructure across U.K. and Europe in those funds. They have chosen to go back and invest in Southern Water in the U.K., regardless of the brand issues and the rhetoric playing out in the media because the system needs investment, government balance sheets are stretched private capital is where the solution can come from, also our people have expertise in this. So our view is that Southern we could, by reducing the leakage 30% or the storm water draining into the waste by 30% this leakage that's going on. And so with Southern, we put $1.1 billion in. We've reduced the leverage from 72% to 66 million. We're about to put another GBP 0.5 billion in. We have a plan to spend $2.2 billion of CapEx out to the 2025 next rate review cycle. But the team is committed, as they are with every asset they manage, to driving better outcomes for the customers of the water utilities, for the communities, for the investors in the fund and hence, for the Macquarie shareholders, in terms of creating extra value through their expertise and understanding that then can be shared in by all of those stakeholders. Now it's disappointing that the U.K. media has chosen to have a very narrow narrative on this. And make a big deal of the debt in terms water try and link it to us, we didn't own the asset for 6 years now, and it was investment grade when we stopped owning the asset, and create a narrative around an Vampire Kangaroo's, et cetera. When really our team are very committed as they are with all of the assets they manage not just in the U.K. but around the world and not just our asset management teams, but all of our teams are really looking to drive better community outcome, create better value in areas where we have deep expertise, and through that generate asset value, et cetera, that can be shared with all stakeholders and we're committed to doing that in the U.K. as other areas. So hopefully, that gives you comfort that we are trying to drive the right outcomes. We know it's not just doing good things. You also have to share the message in terms of what you're doing. So I hope Mr. Mayne, that will help you understand what we're doing and share the message.

Thank you, Shemara. Can I have the next question.

Chair, we will now take a question from the floor from Ian Butler. Please stand to ask your question. Chair, we will now take our next question from the floor from Ling Lu. Please stand to ask your question.

I guess come back if people are temporarily having difficulty. Maybe we should move to the next one. I can't see anyone.

Chair, our next question is from Christopher Chat. Please stand to ask your question.

Senator, welcome back.

Thank you, chairman. First of all, I just want to congratulate the company on this dividend policy, people who invest for dividends, the last what you've just announced today what we have for the last 12 months, very, very good. That leads me to my 1 of 2 questions. One, in view of the announcement today [Audio Gap] by yourself and the CEO, that we expect a downturn in trading, et cetera. I noticed this morning since that was announced, our share price has gone down $8 a share, as would expect that's the way the market operates. Therefore, I want to ask, would you be able to -- would the long-term dividend policy of the company be at risk, I don't expect to get the dividend for the great last year we've just had. But when would we get some indication that the dividend for the year we're now in will be back at the long-term average of which you've been paying? That's my first question. The second question I have, which I raised last year was about this ongoing matter of the German tax office that's now been going for 15 years, I think. It's the first races ahead. I noticed half yearly report, it said that the CEO said today, there'd be no further developments in the last 12 months. I just like a question is that, do we have any idea when this will come to an end from the German authorities? Secondly, is there anything that we are preparing -- a worst-case scenario that people who were affected our customers by being involved in this scheme over 10, 12 years ago, are going to take legal action to recoup their money, and what would be the contingency set aside if that happens, even though we might win the court case against them, et cetera? So those are my 2 questions, Mr. Chairman.

Thank you, sir. On the dividend, we can't, obviously, at the moment, foreshadow what the dividend will be in dollars for the year ahead because we're only just starting down the road of that year. We do not propose to change the dividend payout ratio policy. So at this stage, unless something rather dramatic were to happen, we will stick to the payout ratio policy that we've had for some time. I imagine we can probably say something perhaps at half year. Would that be about..

Yes, Chair. I mean, obviously, as you know, we looked at the dividend policy range a few years ago. We added 60 to 80 and reduced it down to 50 to 70 at that point. And when we did that and the Board obviously considered that at length. When we did that, we were obviously trying to set a policy range that we think is sustainable into the medium term. So just to endorse the Chair's comment in relation to that policy range. And obviously, as we get to the end of this half, we'll look at -- yes, the utilization of capital across the group. We're obviously very constant the Board has been -- has always been very conscious of the shareholder desire for dividends coming out of the group, we have a look at that at the half year, and provide an indication of the interim dividend. But more generally, I think as we think about dividend policy, we're always thinking about trying to be reasonably consistent in terms of that policy payout range in any case.

On the German matter, there is some text in the pack, I think, today. There's nothing really much more we can add. I don't think, as you say it, this is unfolding very, very slowly. We do look at the financial provisions to take into account all these risks. We don't disclose the number for reasons that I think would be obvious. But we revisit that periodically and examine it based on what we know and what is a reasonable set of assumptions about what could occur. That's as much as I can tell you, I think, on that 1 today. Could I have the next question, please?

Chair, our next question is from [ Susan Holes ], ASA. Please stand to ask your question.