Macquarie Group Limited (MQG) Earnings Call Transcript & Summary

Still some people coming in, but we'll make a start. So good morning, everyone, and welcome to Macquarie's Financial Year 2024 Full Year Results Presentation. Good to see so many of you here. Before we begin today, I would ask that you turn your phones to silent. And I would also like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora Nation pay our respects to their elders past, present and emerging. As is customary, we'll hear today from both our CEO, Shemara Wikramanayake; and our CFO, Alex Harvey on the results, and then we'll have an opportunity for questions at the end. And I'd also note that probably for the first time since COVID, we've got all of our EC here today in person, so that's great. With that, I will hand over to Shemara. Thank you.

Thanks very much, Sam. And I should also note that we have our Chair, Glenn Stevens and the Chair of our Audit Committee; Michelle Hinchliffee here in the front row with us as well as the pleasure of having all of the executive committee with our same person first time in Asia. As usual, before going through the results for this year, I'll just touch on the footprint that we have across our 4 operating businesses. And as you know, we have very good diversification across those 4 businesses with 4 deep areas of expertise that are exposed to structurally very well growing underlying themes. And those are our Australian digital banking offering headed up by Greg Ward here that group. Our global Macquarie Asset Management business, very strong in private markets, but also public investments set it up by Benoit here in the front. -- commodities and global markets, which has strength globally, not just across commodities, but also financial markets and very good runway to grow across all those areas. Simon Wright, group head there sitting next to Greg. And then Macquarie Capital, which as well as doing advisory and capital markets solutions brings the balance sheet in our areas of expertise in equity and debt. And Michael Silverton is with us here, the group head for Macquarie Capital. They're obviously supported by very strong operating platform across our 4 operating groups. And in terms of our very important risk management framework, the risk management group headed by Andrew Cassidy and sitting next to him, Evie Bruce, our Head of our Legal and Governance Group. Also, the financial management group as well as our regulatory and financial reporting and tax, et cetera, and communication with stakeholders like yourself is dealing with funding capital, liquidity through the cycle, which is very important for our performance and Alex, our CFO, he's here on the stage with me. And the corporate operations group where the platform supporting us to invest, particularly in this area of technology moving so fast, but also covering HR, our premises strategy Foundation, Nicole Sorbara here in the front row. Now in this last year, the split of contribution from the annuity in the market-facing businesses was 45-55. As you know, that varies depending on the external environment of the time. So, turning to the results for this most recent year. You will have seen we delivered a result of GBP 3.2 billion. That was down 32% on a very strong record year last year. And the 2 big contributors for that were in commodities and global markets we didn't experience the external environment volatility, particularly in energy markets that we had in both FY '22 and particularly FY '23. And then in Macquarie Asset Management, where we're transitioning our balance sheet green investment strategy to a fiduciary strategy, which we consider very important for the medium term, that impacted results as well. I would note the second half of last year was up on the first half. And it's reflected that we had a better second half. It was down on the second half of last year, we had very strong commodities earnings. I won't dwell on the details by half, but I'll just note that the operating group contribution was also up 35% half-on-half and year-on-year, it was down 35% from the very strong year last year. Before turning to looking at each operating group, a couple of things I'd note. One is the assets under management have grown by 7% to ZAR 938.3 billion. The big drivers there were in our private market funds, the investments that we made lifted AUM and also market movements and foreign exchange contributed. That was partially offset by assets that we no longer manage as a result of reduction in our co-investment management, right? And the second thing, apart from assets under management, I'd note, as usual, the footprint globally in terms of diversification of our income. This year, Australia contributed 34%, which is up a little bit due to the non-repeat of the big gains we had in North America and EMEA over last year. But more broadly, we expect to see this non-Australian earnings contribution continuing to grow given our small presence in these big offshore markets. And -- this last year, we had 2/3 of our income come from those offshore markets. We also had more than half our 20,000-odd staff based outside of Australia. Now that 20,000 staff number has grown quite materially over the last few years, particularly over FY '22 and FY '23. And Alex is going to give you a bit of a deeper dive into the head count growth and the cost growth when he speaks. I won't spend ages on this slide in terms of the diversification. It follows the messages I gave by region. I'll turn now to going through each of the operating groups and starting with Macquarie Asset Management. The result, as you will have seen, was $1.208 billion, contributing 18% of Macquarie's earnings. That was down 48%. And as I said, the big driver there was, as we discussed at the half year that we had meaningful realizations of about GBP 800 million a year in FY '22 and '23 in our green investments, which were a balance sheet strategy. This year, we've held those assets to seed a fund, which is called the Macquarie green energy and climate opportunities on, but MCO for short. And you saw we launched that fund and transferred 6 of the seed assets across to that as we transfer assets to fund the typically later stage ones, and we're transferring them pretty close to the investment we've made in them, which we're typically expensing in Devex and OpEx each year compared to the more mature assets on the balance sheet, which were being realized, as I said, for gains of about GBP 800 million a year. This year, in contrast, we had a EUR 200 million negative number due to the OpEx and Devex on those numbers. So about $1 billion turnaround in Macquarie Asset Management. I would also note, going forward, Macquarie Asset Management still has a portfolio of more mature green assets that will be realized over the next few years, but unlikely to be at the scale of contribution of FY '22 and '23 because we're no longer pursuing that strategy. So, over the next while, we'll gradually realize the balance sheet assets but raise the funds and build the fiduciary income. Now as well as launching that Geco fund, we also, over this year, had very good fundraising. So, equity under management is up at just over $222 billion, and that was after nearly $22 billion of raising in what was a very challenging fundraising year, but investors were doubling down on their core managers. And so, the seventh in a series of the European funds MFV with the second largest raise in infrastructure funds globally being just a regional fund at EUR 8 billion and closed subscribed above its hard cap. We also, as well as Geco as I mentioned in the half as well, have the Macquarie Green Energy Transition Fund, the earlier stage fund. Mgets raising. That's at USD 2 billion and interestingly and materially, it's the first of our private markets funds that's distributed its capabilities via the very big U.S. wealth channel, which is not one Mamas previously done distribution into. We've really worked with big institutional investors, but areas like insurance and private markets well for becoming bigger sources of funding. So also ending the year with over $37 billion of dry powder in man. That's also a record dry powder in the private market. In the public investments, the assets under management, they were up 6% to just over GBP 567 billion, mostly driven by market movements. But pleasingly, 69% of the strategy. So, it's a multi-boutique approach of beating their benchmark on a 3-year basis. Then turning to Banking and Financial Services. The result there. Again, you will have seen $1.241 billion, up 3% and contributing 19% and of the operating group income this year. There, our digital banking offering continues to gather market positioning and grow the franchise. So, we had good increases in the home loan portfolio up 10%. The business banking portfolio, which was up 22%. Now that's off a low base, so a material percentage growth for us and the funds on platform, which is up 15%. That was supported by the deposit growth of 10%. In terms of volumes, we did announce just recently that we would cease new car lending through our broker and our direct and our novated leasing channels. So that will see runoff slightly. The other thing that impacted the results obviously is a competitive dynamics and margin pressures as well as ongoing investment in the platform. Then turning to the market-facing businesses, Commodities and Global Markets, $3.213 billion, which was down 47%, but still the biggest contributor at 47% of the group. That middle column there, the commodities area is where we saw the meaningful step down, and that was basically, as I said, due to the market environment where we didn't have the European and North American volatility we saw in FY '22 and '23. That impacted both the income from risk management services, which depend on how active our clients are and also the inventory management and trading. Alex will take you through in more detail where this played out. But in the risk management, it was really EMEA gas and power and resources to an extent, offset by agriculture, where we continue to grow our franchise. And in the inventory management and trading, it was a North American gas and power. Now either side of that, the 2 businesses, financial markets, another good year in growing of the franchise there in foreign exchange. We had strong client activity globally. And we also, in the fund financing had good growth in the book in North America. And in future as well, we saw improved commission and interest revenue. And the asset finance business -- and I should say that financial markets in a more normalized year like this, we're getting sort of 2/3 from commodities and 1/3 from financial markets and asset finance with financial markets being a big contributor at nearly 30%. Asset Finance, again, we were able to grow the total portfolio by 5% to GBP 6.5 billion. Then Macquarie Capital, the result of $1.51 billion was up 31%. Apologies, Michael, I got it wrong by person we were speaking earlier, but -- that's a good result for Macquarie capital improvement and step-up wise, 16% contribution from it. The big driver over this year was the investment-related income, where we continue to grow that private credit book. So, it's up $4.5 billion now at $21.5 billion and also in terms of lower impairment charges for our equity positions. On the fee income side, last year, you saw across the industry again was a more subdued year. So, the fee income was down, but we had higher broking fee income. Then turning from earnings to balance sheet and funding. Our funded balance sheet has ever remained strong with our term funding comfortably exceeding our term assets over the year. Alex and the team were able to raise another $21.1 billion of term funding what were quite conducive markets, and our deposits grew across the whole of Macquarie Group by 10% to $148.3 billion. Our capital as well has ended the year stronger at $10.7 billion, up from GBP 10.5 billion. The big contributor there was the earnings offset by the dividend. We also did $600 million of buyback, which again, Alex can give more details of, and the businesses absorbed about $600 million, which I'll elaborate on in a moment, but I just wanted to note that our CET1 ratio is at 13.6% at the end of the year. In terms of that $600 million absorption of capital, the biggest area was in Macquarie Capital, where we were growing both the private credit book and equity deployment, and that was in areas like technology and in infrastructure and energy. We also had CGM, particularly in the second half increased credit capital driven by portfolio growth and client service. And in BFS, we had ongoing growth in home loans, business banking, partially offset by the runoff in car loans, but consistent absorption of capital. And then in Macquarie Asset Management, particularly in the second half, you saw that reduction of $700 million in the second half due to divestments, predominantly driven, as I said, by this agreed acquisition of the 6 renewable investments by the MGECO fund. So, with that, we remain very comfortably above our by 3 regulatory ratios, as you can see here. And the last thing I wanted to touch on is the dividend before handing over to Alex. The Board has declared a second half ordinary dividend of $3.85 a share. That takes the full year dividend to $6.40, and that is a 40% franked. It's at 70% payout at the higher end of our range. We have mentioned that we feel we have surplus capital at the current stage. We're mostly addressing that. The most effective way for shareholders is via buyback, but we also are doing it through dividends. So, with that, I will hand over to Alex to take you in much more detail through the financials.

Thanks, Shemara, and good morning, everyone, from me as well. As Shemara said, I'll now take you through a little more of the detail of the financial results for the March year-end. Starting with the income statement, I might focus initially on the second half and then draw it together for the full year result. So, you can see as Shemara had a stronger second half relative to a pre-subdued first half of '24. Operating income for the second half was up about 13.5%. And the main drivers of that, you can see at the top of that stack there, $417 million increase from net interest and trading income. We also had a $203 million increase in fee and commission income. We had $252 million reversal through the P&L of credit and other impairment charges -- we also had nearly a doubling of the investment income as the climate for realization in the second half was better than we saw in the first half. From a moment from an operating expenses viewpoint, you can see the operating expense is up about 4% on the first half. Largely, that reflects the increased profit share expense we saw coming through the group in the second half consistent with the performance of the group, partially offset by lower underlying salary costs as the head count is trending down. So, on a total basis, that was $2.107 bottom line, down up about just under 50% on where we were for the first half. Now if you bring that to those 2 halves together and look at the full year result, you can see net operating income at $16.9 billion down 12% on where we were this time last year. And the main drivers of that were a 16% reduction in net interest and trading income following the very strong conditions that CGM experienced through FY '23. We also saw a 49% reduction in investment income coming through particularly Macquarie Capital and Macquarie Asset Management. Partly offsetting that was a $235 million release in the P&L from some impairments we've taken on a small number of equity positions across the group in prior periods and $134 million release in the P&L from credit impairments, where we see the macro climate improving, and we've changed our weighting of scenarios that are impacting our expected credit loss provisioning. If you look at the operating expenses, operating expenses were broadly in line with where we were for FY '23. There's a couple of things happening there. In terms of underlying average head count, average head count for the year was up 8% from where we were in FY '23. And we're seeing ongoing, albeit slowing wage inflation through the year. We've continued to invest in data and digitalization efforts across the group. And we had some unfavorable foreign exchange movements as a result of the depreciation of the Australian dollar. Partly offsetting that will lower profit share expenses consistent with the underlying performance of the group. The effective tax rate for the year at 26.8%, up from 26%, 26.1% last year. So, an increase in the effective tax rate, really the nature and the geography of income coming through this year. And so, the bottom line of 3.522%, down 32% on a record result that we saw in FY '23. Now given the increase in the operating expenses that we've seen over the -- over recent periods, we thought we'd add a new slide to the deck, which really shows the composition of operating expenses and importantly, the movement in average head count over the course of the last few years. I thought I'd focus on the period from FY '21 to '24, obviously, that's where we've seen the significant step up. That's also been a period of time of significant growth across the group. So, from a revenue viewpoint, in FY '21, we did $12.8 billion worth of revenue in FY '24, we're doing $16.9 billion worth of revenue. Commensurate with that, I guess, is the increase in the operating cost base. The operating cost base in FY '21, 8.9% in total, now just over $12.1 billion. In terms of the underlying drivers of that increase in the cost base, you can see average head count over that period of time increased 29%. And -- there are 3 main drivers there. We invested in the growth in the business that we've seen over the course of the last several years. We've increased our focus -- our head count associated with regulatory and compliance obligations in many jurisdictions around the world, and we've also undertaken some acquisitions. So, we've increased our head count as a result of those acquisitions that the group has done over the last few years. In addition to that, we've seen a 50% increase in net -- in nonsalary technology expenses, things like market data, things like software licenses, progress of data and digitalization across the group, they are intended to scale what the enterprise is able to do on a global basis. And of course, investment that we're making in data and digitalization to support our important regulatory and compliance obligations around the world. So that's a 50% increase in nonsalary technology. And we've also seen a nearly $500 million increase in other expenses. And there's a few components there. Obviously, with a couple of things that are worthy of note in this period, in particular, is that we saw travel and entertainment expenses up quite considerably from '21 to '24, mostly because 2021 was actually a low period, as people recall, in COVID. But in addition to that, we've seen a significant step-up in the amortization of intangibles, consistent with the sort of businesses that we bought over the course of the last few years. You can see from '23 to '24, the head count -- the operating expenses are fairly flat. And what we're really seeing there is whilst the averages have been going up over the last 3 or 4 years, we're now starting to see that head count trend flattening out and, in fact, coming down. If you look at the ending balance of staff at 31 March is pretty consistent with where we were at 31 March '23, albeit the average for the year was up at 8% that I mentioned previously. A slide that I think people are no doubt familiar with the regulatory compliance and technology spend. That's obviously been a large component of what's been going on from an expense viewpoint over the last few years. And whilst you can see from this chart that both the regulatory compliance spend and the technology spend continues to trend up. A couple of things that are worthy of note, and we mentioned this last year, our expectation. In relation to the reg compliance spend, the growth rate is actually lower than the growth rate we've seen over the last 5 years. And that's really consistent, I think, with the work we've been doing in terms of preparing the organization for the change that goes through in regulatory and compliance and organization like ours, but also the conclusion of some of the projects that we've had that have been influencing that spend over the course of the last couple of years. And in relation to the technology spend, the growth rate is still pretty consistent with the average, about 14% over the last 12 months. But importantly, we're now spending 35% of that technology spend on change the organization initiatives and 65% on run the organization initiatives. That percentage has changed. It used to be a smaller proportion on change. And the important thing there, of course, is setting up the organization to meet our obligations, but we also able to support the growth of the business that we expect in years to come. So, turning now to the operating groups a little more detail of the financial results, and I'll start with the Macquarie Asset Management business, as Shemara mentioned, down 48% from where we were for FY '23, ending result of $1.20. If you look at the movements there, you can see base fees across the group, up $92 million. And the 2 components there. On the private market side, base fees up 11% at an additional $143 million worth of base fees. And that really reflects the investing the team has been doing, not just this year but in prior periods and also the fundraising that we've seen, the good fundraising we're seeing continuing in that business over now many years. On the other side, partially offsetting that was a reduction in the base fees coming through from our public investments business, and that's largely consistent with the story we've seen over time where we've seen a shifting of exposures, our client exposures from equity portfolios toward fixed income portfolio. And that's really driving what's going on from a base fee viewpoint in that part of the business. As Shemara mentioned, we've been talking about during the year. If you look at the -- in the middle of the chart there, you can see the reduced contribution from green investment divestments during the year, down $823 million. People recall we had a very strong period of divestment in '23. We didn't see that repeat into '24. And we're also continuing -- Ben and the team are continuing to invest in the renewable and development activities we're undertaking across many markets in the world, and that resulted in increased expense going through the P&L of $212 million. Assets under management over the year up, as Shem said, 7% at $938 billion. Importantly, $38 billion of dry powder to invest after another good period of capital raising. So, the team has been busy raising capital and is well positioned to deploy that in the coming periods. Now turning to the Banking and Financial Services business. You can see up 3% from where we were at this time last year, and so really strong and important volume growth this year. So, 13% average growth in average home loan balances this year, really strong 20% growth in the business bank. So, we're just really pleasing to see, given the focus the team has had there and supported by a 14% growth in terms of average deposit balances over course of the last 12 months. Now net interest and trading income, you'll see coming through the P&L up 5%. So that volume -- overall volume growth has been partially offset by margin pressure and funding costs associated with that business. If you sort of break down the component parts, a little more there from a personal banking view up $23 million in terms of contribution. So, we're seeing increased volume, but competitive pressure from a margin viewpoint and funding costs that are dragging down that result. Business banking, as I said, benefiting from the volume growth. But also, we saw the benefit of the interest rate environment coming through our business banking deposits over the course of the last 12 months. Our credit impairment, there was a release of increased release of $49 million in the P&L this year. Again, that was reflective of the fact the macroeconomic environment is much improved from where we were 12 months ago, and we've reweighted the portfolio to a more balanced view between our upside scenarios and our downside scenarios. We've continued to invest in the business with expenses up 12% this year. And in that other column at the end, you can see the drag that's amongst other things, but the drag that's occurring from the rundown of the car loan portfolio over the course of the last 12 months. Underlying products, all volumes all heading in the right direction with home loans at, I think, now 5.3% of the market and deposits just over 5%. Now in terms of the first of the market-facing businesses, the Commodities and Global Markets business. As Shemara mentioned, really -- I think a really pleasing result, particularly in the context of the subdued environment that the business experienced over much of the last 12 months. And I think reflects the point we've been talking about for some time that the underlying drivers, the franchise drivers here, the growth of the client franchise and the provision of services to those clients, and we saw that coming through over the course of the last 12 months. I break down the movement a little bit. So, the end result was 3.2%. You can see on the commodity side, commodities income down $2.6 billion from where we were in FY '23. And importantly, as people know, we're up on FY '22 to $200 million up on where we were from FY '22, which again reflects that client franchise point I was making before. In terms of the drivers of the move between FY '24 and FY '23, we saw a materially lower contribution from our North American gas and power business, which experienced very strong conditions in FY '23. We also saw a reduction in the contribution from our EMEA Gas and Power business and our Resources business, partly offset by opportunities the team saw in the agricultural markets, particularly sugar and cocoa I think, over the course of the last 12 months. Great to see the Financial Markets business continuing to grow $166 million. And I think people will recall over many years now that business has been ticking up at a nice rate growth as we grow the client franchise, and we extend some financing opportunities to clients in that market. So really pleasing to see that continuing to grow. And that business this year represented 29% of CGM's overall result. And you can see the expenses coming through, they're up $400 million as we continue to invest in the data and digitalization opportunities in CGM. And importantly, CGM has many obligations around the world from a regulatory and compliance viewpoint, and we're continuing to invest to ensure we can meet those obligations. Hopefully, reasonably familiar slides now for everyone, but we set them out again, the operating income and the client numbers. The only point to make here is the strong correlation between client numbers going up and client-related business also heading up. This business is all about more clients in more jurisdictions and more often, and that's what the team has been doing for many years and has continued oversea over the last 12 months. In terms of the capital position, the capital position is pretty consistent with where we saw at March '23, still very exposed to credit capital, predominantly exposed to credit capital consistent with a client service type of offering. And then on the right-hand side, you can see the daily P&L chart, which, again, we've produced this year. And I guess the shape is hopefully what people were anticipating. We saw more subdued conditions. So, we see the distribution of daily P&L is slightly skewed to the right, consistent with the growing client franchise and far fewer outlier days than we saw in the prior periods where we're experiencing much more conducive trading conditions. And then finally, turning to Macquarie Capital. I think a really pleasing result in the context of quite a difficult market for investment banking or -- and merchant banking type activities around the world. So up 31%, 1.051 million of contribution. You can see the drivers there. Investment-related income up $487 million. Private -- the returns from our private credit portfolio up 406. This reflects the fact that we're able to grow the book in terms of average balances by $3.6 billion during the year and margins were pretty consistent in that business, which is great to see. We also saw the release of expected credit loss provisions in that part of the business as well. The underlying book is performing very well. In addition to that, we saw -- we see an improving macroeconomic climate relative to where we were last year and obviously, the reweighting of the scenarios. We had increased investment-related income, partly that's gains on revaluation of assets on the balance sheet and some disposals that the team undertook during the year, but we also saw the reversal of a number of impairments or small number of impairments on equity investments that we've taken in prior periods coming through this result. -- fee and commissioning come down $155 million. I think everyone is probably pretty familiar with the level of activity around the world being more subdued over the last 12 months and Macquarie Capital saw that as well and operating expense is up $82 million. In terms of the capital against -- or partnered with Macquarie Capital clients around the world, you can see up $1.2 billion. So, the team has seen some good opportunity to invest over the course of the last 12 months. You can see the growth in the private credit book there coming through. But in addition to that, key sectors of expertise, technology, energy transition and adaptation, digital infrastructure, all those areas are providing really good opportunities for Macquarie Capital to deploy over the last 12 months. And on the right-hand side, you can see the private credit book, as Shemara mentioned, the closing balance, $21.5 billion, a pretty diverse book, about 160 positions, typically defensive-type underlying borrowers and good cash flow generation. So, we're really pleased with that book is performing. So, if I now turn just to a few more aspects of the financial management, the group is starting with the balance sheet. Another good year from the team, over $21 billion worth of term funding raised in the last 12 months. About 75% of that has been in the bank and a quarter has been in the group. Pleasing to see the ratings upgrade from Moody's that came through in March this year, and that will obviously help us continue to diversify the source of funding and raise the most cost-effective funding that we can. As I said, we have diversified the issuance strategy, really important. We've been doing this for many years now, and we continue in the last 12 months. We now have over 2,000 investors that actually own Macquarie paper around the world across a whole range of different programs. And we added another 100 new investors and new organization investors over the last 12 months and the way the average life hasn't changed much from where we were before, now at 4.5 years. Deposit base, yes, super important, obviously, from a BFS perspective, largely providing the funding that's supporting the growth of Greg and the team's business in BFS. So up $14 billion this year. And really pleasing, I think, to see the increasing diversity of that deposit base, in particular, the work the team has done around the transaction and savings accounts over the course of the last few years and the traction we're getting with clients because of the product we're actually out there providing in the marketplace. The loan lease portfolio up 11%. You can see the main movements here at the top of the page, you've got home loans and business loans up and at the bottom of that page, you can see the growth in Macquarie Capital business from $17.1 billion to $19.9 billion drawn at 31 March 24. In terms of the equity investments, obviously, quite a big step up from $9.6 billion to $13.2 billion. Some of this is a bit transitory because we've -- on this page, there are, for instance, the assets that Shemara mentioned that have been sold from the balance sheet into the Green Energy and Climate Opportunities Fund. So, they sit there as a held-for-sale assets at the balance sheet and they'll settle in due course. But in addition to that, we've seen quite a bit of investing across the group. So, the $3.6 billion of growth. Obviously, we've continued to invest in our green energy portfolio, particularly in Korea. We talked a lot about the offshore wind asset in the U.S. that we were successful in tendering for at our half year results. So, you're seeing continued investment through our Green Energy portfolio. You've also seen, particularly from Macquarie Capital viewpoint, as I mentioned before, an increase in digital infrastructure, an increase in cell towers, fiber optic networks, IT services type businesses that the team have been investing in for many years and were successful over the course of the last 12 months at achieving some completion of those transactions. In terms of the regulatory update, obviously, the environment here in Australia continues to evolve. The near-term focus, I think, as everyone is probably aware is around operational and cyber resilience, obviously really 2 really important topics. -- liquidity, interest rate risk and obviously the ongoing conversation about bank hybrids. The capital position of the group, the bank at least at 13.6% CET1 ratio. That's a very strong capital position. And similarly, a very strong liquidity position. We still have nearly $60 billion of unencumbered cash and liquids on the balance sheet. Obviously, the LCR has come down a little bit to 191. That's a deliberate strategy to bring that back closer to the target level for it -- and from a -- just finally, from a capital management viewpoint, -- just a couple of things. Shemara mentioned, the dividend. Obviously, the Board has also opened the dividend reinvestment plan at a 0% discount for the final dividend. Any shares issued under the DRP will be acquired on market. And in relation to the Macquarie Group employee retained equity plan, the Board has also resolved to acquire shares on market to satisfy the issue of meat grants for FY '24. And just finally, in relation to the buyback we announced as part of our half year result as at balance date, we bought back $644 million worth of shares at an average price of 183.26. And with that, I'll hand back to Shema. Thanks very much.

Thanks very much, Alex, and I'll take you through the outlook and then we'll open for questions. And as usual, we'll start with the short-term outlook, looking at it by each of our 4 operating groups. So, first of all, Macquarie Asset Management. As we've been saying for the last 5 years, we expect broad base fees to be broadly in line. But in relation to net other operating income, our expectation is that it should be significantly up, and this is mainly due to higher investment realizations from our green investments. Now having said that, I mentioned we will continue to have a portfolio of green assets on the balance sheet and our net expenditure in the green portfolio companies that are operating on a standard alone basis, we expect to be broadly -- remain broadly in line. Turning to Banking & Financial Services. We are expecting continued growth in all of our loan portfolios, funds on platform, deposit, but that is obviously going to be impacted by market dynamics, which will continue to drive margin pressure. And also, as has previously been the case, continued investment for digitization and automation across the platform, driving scalable growth and ongoing monitoring of provisioning. Then turning to the market-facing businesses. Macquarie Capital, subject to market conditions because it is a market-facing business. We're expecting transaction activity to be significantly up on what has been still another challenging year. And in relation to investment-related income, we're also expecting that to be up because we expect continued growth in our private credit portfolio, and we also expect increased revenue from asset realizations, and we will continue to deploy balance sheet capital in both equity and debt investments there. And then Commodities and Global Markets, again, subject to market conditions. In the Commodities division, our income is expected to be broadly in line subject, of course, to volatility that could create opportunities. And in financial markets and asset finance, we expect a continued contribution from those as we grow our franchises. The compensation ratio and the effective tax rate, we expect to be in line with historical levels. And all of the short-term guidance remains, of course, subject to a range of factors. And those are market conditions, which would include the global economic conditions, inflation, interest rates, any significant volatility events and the impact of the geopolitical events we're seeing. -- completion of period-end reviews and completion of transactions and the geographic composition of income and impacts on foreign exchange. And lastly, any tax or regulatory changes and tax uncertainties. So given all of that, as we bottomed, we continue to maintain our cautious stance to all of funding, capital and liquidity to position us for whatever environments we may face. And that's been the case, of course, over the medium term, where our guidance there is that we think we remain well positioned to deliver superior performance because of the diversification of our capabilities across these 4 operating business lines. And indeed, within them so that even in the Macquarie Capital, we had the private credit more annuity style income with more market-facing advisory and fee revenue. But there are importantly, areas in which we think we have deep expertise, special expertise to deliver better return and to see ongoing structural growth we can respond to. Now that's, of course, supported by, as Alex has mentioned, our very strong operating platform that we continue to invest in for defensive and opportunity-driven reasons, our very conservative approach to our balance sheet and our proven and prudent risk management framework and culture. And that has allowed us over the medium term to deliver returns over the last 18 years on average of 14% across the business, 22% in the annuity style and 17 in the market facing. This year, those figures were 12% in the annuity style as we transition to this green investment strategy that we think is a very medium-term important one for us and 16% in the market facing giving us 10.8% overall. So, with that, I'll hand back to Sam to take your questions...

So, we'll start with questions in the room, and then we'll go to the line. I'll start with Edmund the second rather... Thanks.

Ed Henning from CLSA. I've got a couple of questions on man, please. The first one, in the short-term outlook, you talked about the net expenditure from the green portfolio being basically broadly in line. Can you just run through that in a little bit because you've been developing -- you've been using the development expenses going through the P&L? Why isn't there a saving there as you've sold those assets and rolling that forward as the first one?

Yes. I might actually take both questions because I'll briefly answer them both, and then we've got Ben here, so then can elaborate if it...

No. The second one was just on the other operating income in man. It was just under $600 million in FY '24. Now I understand the line can be volatile and a few things go through there. Can you just talk about how you think of it as an average year is 24% below? And also now as you have less reinvestment gains going through, should that line go down a little bit or that will be offset by performance fees coming through, but any guidance on that would be helpful.

Sure. So brief comments. On the OpEx and debt that we're having in the green portfolios, we still have some meaningful portfolios left there in solar, wind, et cetera. And they're continuing to invest and build up. And we'll, at the right point, be realizing those separate portfolios that are at a point where there should be accrued gain in them. So rather than exit them to a fund where we could have questions later on, on the pricing, we're looking to exit those from third parties. But we're continuing to incur OpEx and debit that we typically expense it. So that will run for a bit longer. In terms of the realization of the assets and the offset from performance fees, we do expect this year to have more -- because last year, we were really focused on the fund. Now I think the MAM team will be focusing on in parallel, realizing some of those operating platforms we have. So, we expect higher investment-related income from those. We'll have to see how much interest there is in the market in then. There seems to be very good investment interest in green portfolios, but we'll see over this year. But at this stage, we're expecting on our base view that we should be up on where we are. In terms of performance fees, there's a question of the season and the timing of the funds because we have a whole lot of funds, some of which didn't have catch-up that are realizing at the moment. But then, hopefully, I've left you something to elaborate on there. But in terms of the 2 questions. One is the green portfolio and how you're running that down and the other is investment-related income and performance fees.

Well, I don't think it's actually much for me to add. The only thing I would say is it was obviously a much more subdued market last year from an M&A point of view. And I think the other thing you've got to remember that is that we've been raising much bigger funds, and those funds are still in their deployment or they're in the asset management phase. So, as we look to the sort of medium term, we'll be -- we've got more money to deploy than ever before. We've been raising bigger funds. And so over time, obviously, you'll get that performance fee, but that is not for some time. So that will certainly offset some of the investment gains from the Grid investment business. And I think Shemara answered the OpEx and Devex question as well as I could.

Sorry, just one follow-up on that. Just how long do you think the grand investments will take to go to roll through to get those? And then you offset with the performance fees coming through is sort of a 2-year, 3-year, 5-year period? Like how long should we expect...

Certainly be a multi-year effort. So, it won't all be done in 1 year. We're really pleased with the support we've had from the market to establish both the GAC and MGAs fund, and we see a very good pipeline of investors for those, and we've already deployed significant amounts of capital in building those portfolios. But as Shemara said, we do have a couple of very large platforms that have embedded gains for shareholders that can't be transferred for obviously, for conflict reasons from a fiduciary point of view into funds that we will continue to support with OpEx and Devex and over the next couple of years as it makes sense, we'll look to divest those and create a realization. So again, some of that will hopefully occur this year, then into the next year, but it is a multiyear effort.

And beyond that, it could be 3 to 4 years of the realization of the assets, which will support your strategy medium term of growing the fiduciary income.

Welcome, second higher?

Can I just follow on with that topic for that Shemara as well. It looks like the MGECO was established in April. So does that imply that some of the assets were sold into the fund at a game, which have already been crystallized into the FY '25 year. So, you've effectively started this year off very well. Am I interpreting that correctly?

Did you want to answer I can briefly say the funds that we're transferring -- the assets we're transferring to the fund. As we've mentioned previously, we tend not to look to make a big gain on transfer because we want the fiduciary investors long term to have a very good experience. They're usually earlier assets. But then, I'll let you elaborate...

So, first of all, GECO was definitely closed before April before the 31st of March, that's important. It's only had its first close. And so obviously, we've transferred a number of assets that we were holding really at cost on the balance sheet into that fund because as we've discussed before, investor sentiment to actually knock back line pools, but to come into a ceded fund. That's a point of difference often for us because we can use the balance sheet to do that. So, I think it's fair to say that we've really just -- we've now got a fund with a first close that has a good set of assets in it, which makes it much easier for future investors to due diligence. And I would -- I think it is fair to say also that we've got good momentum around the fundraising there and those assets are performing well.

And just a follow-up question, actually, more on the private credit side because I think the portfolio is now in equity north of $200 billion worth of capital tied up there. Just wanted to get a feel for the returns on that RON there. Given how rapidly it's going, the opportunities that you're seeing, is the ROA coming under any pressure Michael, or anyone there?

Yes, I'm happy to let Michael speak briefly as well. But basically, I think we've said that we're making net of our transfer pricing close to 5% on that. So, the transfer pricing is a couple of percent. We think for the risks involved, that is very good return. I think we've mentioned previously, we're provisioning expected credit losses at 3% to 4%. Our experience has been 0.3 to 0.4 because they're very good investors in the niches in which they invest and through the cycle have managed to deliver pretty good returns. Michael, did you want to -- because Michael is very closely watching the credit and the equity investing going...

John, as you know, the market has grown a lot. So, in the sponsor market, about 80% of financing is being done direct. We're obviously not looking to be a market share player. So, we're focused on those sectors that Alex referenced before, like software, education, health care. And there's been ample opportunity. We're not compelled to invest. And so, we've been able to sustain the margins. Most importantly, though, the loss rate is what we're focused on capital preservation and that continues to perform in line with historical levels. On the equity front, as you know, we've got a number of strategies, and we've seen really good opportunity in the past year as illustrated by the growth in the book. That's across a very diverse array of businesses and the returns are consistent with the historical returns that we expect to make. And so, whether that's in the digitization area, whether it's in PPPs and economic and social infrastructure or whether it's in technology, we're seeing really good opportunities out there.

And the only other brief thing I'd add to that is we basically have 4 swim lanes where we see our people having really deep expertise in delivering superior return that we're backing with more capital. At this stage, we have a slight seasoning issue where they've put a lot to work over the last few years, and it realizes these would be Michaels 3, 4, 5-year hold. So, there'll be a point at which the equity book is delivering more consistently as with the credit book with a little bit of lumpiness around it, but we're still seasoning there.

I'll got it, Andrew, and then Matt.

Andrew Triggs from JPMorgan. Another question on MAM. So if you look at the profit performance this year is $1.2 billion. If you go back to prior to GIG going into that business, it was routinely doing 2.1-odd billion of profit, albeit with some material gains on sale from European rail and Mig disposition fee. Can you give us a sense, please, of -- to what extent was DIG loss-making this year and whether it will still be next year? And also whether the underlying earnings power, the rest of the man business is greater than what it used to be.

Yes. And again, I'll answer briefly to say, look, the underlying franchise has been growing. You've seen the equity under management growing, the base fee is growing, the public investments AUM growing and the feeds going on there. We obviously did acquisitions there that we've integrated and taken the costs out of now. So, the underlying has been growing. You mentioned we had some very large one-offs. So, the rail leasing was multi-hundred million. So, we had $300 million $400 million there. The MIC was about $600 million. So, we've had various one-offs, but the underlying continues to grow. And I think for the last 2 years, the big one-offs FY '22 and '23, we're in the 800 meld of the green. But on the underlying franchise, Benny, anything you want to add or if you have... I think the one thing on the underlying franchise is the fact that we're managing $938 billion of assets under management today, the best leading indicator for an asset manager is, are you being trusted by your clients to manage more of their assets than ever before. And obviously, the answer for us is, yes, in probably the most difficult fundraising market since the GFC relative to our peers, our teams have done an outstanding job of not just raising our existing vintages like MEF. We've also got MP6 in the market, which is going very well from a fundraising point of view, but also launching new products, which for most asset managers, first-time funds has been almost impossible to raise. So, I think we are very happy with the client franchise and the support of clients. We think in some areas, we've got unrivaled expertise and able to deliver on giving clients superior returns, but we are in a tricky period in terms of that transition. And this year, we -- while we're very convicted around energy transition, and we think we've got an unrivaled team, it was a more difficult year for grid investments, and that was part of the transition. And as you know, we didn't have another significant one-off to buttress that. So, we've sort of got a strategy in place for the medium to long term that we're convicted around. And we always knew there would be some years of transition, and this has been one of those.

And will DID likely be loss-making again in FY '25?

We've said that the operating expenses will be similar, but we expect some realizations this year, which is what we said about the net other operating income. So, in FY '24, we didn't have meaningful realizations. As I said, the team now are going to be for the next few years. focusing on those. I would also briefly say in terms of the underlying Ben and the team are looking at more than just the green, which is a very important adjacent strategy, but growing into private credit, the real estate growth that's been running for a while, the agricultural funds, the asset finance, which is part of private credit, but the aircraft portfolio. So, there's a lot of growth going on in private markets in man, which is where really the interest is in terms of where investors want to allocate their savings. And also MAMS looking to grow more into the wealth channel and the insurance channel, and that as well is drawing investment, which we think for the medium term is very worth doing. It's not a massive percent of MAM earnings, but that's hot... And maybe just to add, Andrew, I mean you can see from our guidance, we talk about net other operating income significantly up. So, we've obviously used that phraseology in the past. And so that -- there's a component of that, which is the performance fees as a component of that, which is the returns that we expect from realizing assets off the balance sheet and obviously, our share of equity accounted income might come through our interest in the funds. We would note that at least in relation to the green component that we are saying subject to market conditions. So, the point that Ben made, I think, during the last 12 months, it's obviously been a more challenging environment from a realization perspective, not because we think that the fundamentals have changed in relation to energy transition. There's obviously a huge amount of capital required to transition the energy market. But we've seen supply chain challenges across the sector -- we've obviously seen some of those assets that we talked about at half year where people had actually had to give up their PPI, their feed-in tariff because the pricing was yesterday's cost and to those economics. So, all of that's been playing through. I think the team has done a good job, but actually, as Ben said, raising the fund for -- or raising the capital for MGO to enable the transition together the way. Obviously, this year, we're pretty comfortable with the way the portfolio is performing. But at the end of the day, we've got to make sure that the market is there to support them. And the assets are really high-quality assets. We want to make sure that those that we're either putting into the funds or we're selling to third parties, we're getting the right value for those assets.

And maybe second question on commodities. So I've seen some data, which shows open interest in global commodities back close to a record level and flows year-to-date, calendar year-to-date have been very strong into commodity markets. To what extent is that a lead indicator for particularly the risk management product line within the quantities franchise?

And again, Simon here, we might let him comment. But ultimately, even within commodities in CGM, there's huge diversification across gas and power in North America, growing into EMEA, growing into Asia, oil, ags, resources, et cetera. And in all of them, we're patiently looking at growing these franchises. So, we see opportunity in every one of them because we're a small player on the -- were you talking about energy commodities specifically there? Are you talking about commodities.

By tax link...

Okay. Do you want Simon to comment.

Yes, sure. I mean that inflow is well recognized and that we're seeing the uplift of our business through the client franchise. I think over the last 2 years, we've seen our client numbers and our percentage grew by 8% CAGR.

That someone calls client calling Simon to pick up a...

Yes In order. But obviously, what drives the inventory management is the volatility. And so we realized money in 2 ways through our client franchise, but also the opportunities that that volatility presents. But we are very focused on continuing to grow that client franchise, which we're demonstrating while still maintaining that optionality around the opportunities to come with volatility. So, it's pleasing to see inflows. We are benefiting from them, but the real optionality will be driven by volatility. Thank you.

And we go to Matt Dunger.

Matt Dunger from Bank of America. If I could just ask you on Macquarie asset management capital requirements, which reduced by $700 million in the half. You called out AmGen the transfers. Can you walk us through the outlook for business capital requirements for MAM going forward?

Yes. And I'll let Alex give you the detail because as I mentioned, we have different treatments in how that's shown. So, in the equity list, the assets are still there. But I think broadly, we should see that equity requirement in MAM step off as we realize these green assets. Do you want to give in.

Yes, I mean I think there's a few things going on there. I mean obviously, we have, as Samar and Ben mentioned before, we've obviously agreed the terms on which the transfer of some assets will move from the balance sheet into the new Dream Energy and Climate Opportunities Fund. So, the capital has come off. The settlement hasn't occurred, which is why they're seeing sell on the balance sheet and that equity slide, that's why I mentioned that, that will come up really relatively quickly. My expectations are in that green investments in green energy component on the equity investment side, you've got a couple of platform assets. Those platform assets we've been building for some time. I think as Ben mentioned, we're likely to think about realizing those assets to third parties in due course rather than through into funds. And so they'll result in a reduction, you would guess, in the equity you've got alongside the asset management business. The other side of that, though, Matt, is that we're obviously growing our energy transition fund. We're growing our renewable energy fund. And consistent with that, you also see group contributions to those funds LP interest of those funds that will no doubt grow as we grow those businesses at least for the next sort of while. So, I think Soma's point around the direction travel is probably right, but there's obviously a few components there that will influence exactly where we get to over the next 1 to 2, 3 years. And if I could just follow up on that.

In terms of the deployment, you're talking about of capital into Macquarie into MacCap. Is that subject to the realizations happening? And Alex, any comments updating us 6 months ago, I think you were talking about expectations for realizations to really start to kick off in the second half of this year. Is that still on track? Have you changed expectations?

I mean maybe I'll just make one point, and then I'll talk -- I'll let -- to really importantly, from my perspective, I was really pleased to see the investing the team have done over the last 12 months. I mean, obviously, in a subdued environment, what we want our teams to be really encouraged to see the investing, particularly in the areas that the team has got great expertise as to the broader question, I might leave it to too...

And just one little thing I was going to say is that we're at $13.6 billion of equity. I mean, we have the green assets coming off. But on a $34 billion total equity position. So, concentrations wise, we really focus on appetite. Michael's teams are managing to originate a lot of other good investments. So, if we want to deploy, we may look at bringing partner equity along. But...

Yes. The only point I'd add is that within the equity portfolio as well, we have a number of companies that are seeing opportunities themselves. And one of the key aspects of working alongside our clients is that we can support them on that growth. So, at times, if there are opportunities to grow the platform further and then time the realization that could work in the interest of our clients, and we've seen a lot of growth within those portfolio companies as well.

Obviously, just at more generally, the second half was better from that cap in the first half. And part of that was the performance of the private credit business. Part of that was the revaluation gains on some of the portfolio investments and some disposals. And as I said in my comments earlier, a reversal of some impairments on a small number of equity investments that MacCap had made and we've taken in prior periods where we're able to reverse in this half.

John, John Storey is in the second row here.

John Storey, UBS. Just wanted to follow on from Matt's question just around the 700 capital release, Alex. And just trying to reconcile the delta or the move in the balance sheet in terms of assets held for sale. I think, obviously, everyone is trying to get a bit of a sense on what the size of realizations could look like for '25 and a lot of people probably bake that into consensus already. So just that $600 million difference, is that some of the mature state as that Ben referenced there? Or is there a difference in terms of cost to market value. So just to reconcile that? That's the first one. And then just the second one, which is, I think, a lot easier is just to get an understanding, if you're going to have a look at the corporate center, just on the cost line there. Has there been any change in terms of how group services are charged back into the business units. It's quite a big delta that came through during the course of this year in that on item...

Second one, maybe just deal with the second one first. Pretty as you know, there's been no change. We obviously with the corporate center gets recovered gets fully recovered out to the operating groups. The step up, as you're referring to, I think, is probably consistent with the point I was making before around the increase in head count. A lot of that head count come through the central service area. So, we recover that out to the businesses as we've always done. There's a few other things going though the corporate center around earnings on capital, and we've been able to deploy our liquids into high-yielding HQLA rather than the exchange reserve account with the RBA. So that's generated a bit of return there. And then because the business has been able to deploy the surplus funding, we've been able to generate better transfer pricing, which sits in the center. So that's really the movement in the...

So just briefly comment, Alex, that if you look across the across tables Alex does for each operating group over the last few years, you'll see that whole 3 bit of increase allocated out to all the businesses.

So, it is recovered and has been. In relation to the movement of capital, the $700 million of capital in MAM, mostly that's related to the assets that we have agreed to sell to the new Green Energy and Climate Opportunities fund. So, the conditions for releasing the capital have been satisfied, but settlement hasn't occurred. So those assets are sitting in held for sale on the balance sheet because settlement hasn't occurred. They're sitting in our equity investments, but they will come off the balance sheet when settlement actually occurs, but the capital has been released. In relation to the held for sale assets, I think you're referring to the -- the step-up in the balance sheet assets versus the capital. There's obviously a big step up, $1.3 billion or something, some of which is the assets that I just referred to that are going to go from MAM into the Green Engine Climate Opportunities Fund. But there's also a number of other assets across the group, not just in man that we have an expectation that sitting here today, we'll realize those assets or we're likely to realize those assets over the course of the next 12 months. And so as a result, they get reclassified as held for sale in the balance sheet.

Okay... Yes, we'll go to Brian microphone behind you.

Brian Johnson, MST. Three questions, if I may. The first one is just on the transfer of the 7 renewable energy assets and even East Anglia Shareholders, long-suffering shareholders, the P&L gets hit effectively because you expense the development and the construction costs. And presumably, you're doing a good job on that, then you transfer them over effectively into the fiduciary fund. I'd just like to understand why there isn't a gigantic gain when you've been expensing the development cost is the fact that there's no gain telling us that they haven't been developed very well. Why?

They're pretty early assets, so we'll be expensing intra-year. And then when we transferred, we pretty much just recovered our expenses, our OpEx and debits in the transfer prices. And frankly, they're so early stage that we wouldn't be expecting third-party transfer to have massive opportunity of gain that we've foregone for the shareholders. So, we think it's actually in the interest of the long-suffering shareholders to build these assets, transfer and put them into a fiduciary strategy that long term for, I guess, 3 reasons, we're moving these assets to a fiduciary strategy. One is the volume of capital going into green energies well beyond the capacity of our shareholders' balance sheet that we want to put to work. Two, frankly, the returns have come in. They are still at a point where they're attractive for the risk of a long-term holder, but for Macquarie, where we were buying and exiting at much higher risks and doing much more development work at much higher returns. -- it makes more sense to have a fiduciary strategy in this. And 3, frankly, the counterparts we're dealing with, we're starting to express some dissatisfaction with us seen as a buy-and-flip partner in these projects that we're doing, whether they're co-investors, governments, we deal with, et cetera. So, the long-term fiduciary approach will give us a much better license to operate in responding to this great growing opportunity that's going to happen for green investment. Now the ones Brian, where the balance sheet has long suffered for quite a few years, those are the ones still sitting on the balance sheet, where we've made a conscious decision in MAM to exit those 2 third parties East Anglia, that you just mentioned is one of those. We just exited that LNG -- and the ones -- the 6 that went across which were listed in EV sitting here in the front row, and we'll tell me that the SEC rules on general solicitation don't let us talk if we're actively raising a fund about how the fundraising is going, what we expect to get to. But one of the investors UniSuper put out a press release on the $400 million commitment they made listing the assets and talking a bit about the strategy. So, there's information. And I think even the press release, Ben put out on MGO and the launch has a bit of information. But you'll see the assets listed. They're pretty early platforms like all, like , et cetera, that we're early stage have been working on this year. And then hopefully, you can endorse that, that's what happened on the P&L.

I mean I do think it's important, Brian, that we distinguish where we've where we've invested and created an asset and held it on the balance sheet for 4 or 5 years. We do not put that into a fund. That would be unfair to shareholders, particularly at where we're doing that and creating embedded value in those assets. And that's things like Corio and Cero. And so, we will look to over the next coming years, divest those on behalf of shareholders and realize a gain from those. We have in MAM for many, many years, used the balance sheet to often seed new funds with assets and that's all we've done here with MGECO. So we've actually followed a path that we've done for the MAFF, for the MIPS previously. And we often do that because our teams find good assets for the underlying investors, and we don't want to miss out on that opportunity until we have a first close of the fund. So MGECO is no different to what we've done ever before for other types of funds. It's probably just detracted a bit more attention. But I can certainly assure you we're not looking ever to transfer funds that shareholders have supported for a long period of time into fund at the expense of shareholders. We have a very clear policy and delineation around those types of balance sheet positions.