Macquarie Group Limited (MQG) Earnings Call Transcript & Summary

[Presentation] Well, a very good morning, everybody. Welcome to Macquarie Group's 2024 Annual General Meeting. I'm Glenn Stevens. It's my privilege to chair the board of your company and today's proceedings. I know the quorum is present, and so I declare the meeting open. Today is also a hybrid meeting, which allows us to welcome shareholders tuning in electronically from around the country and around the world. So welcome to you. I acknowledge the traditional owners of the lands from where I speak today, the Gadigal people of the Eora Nation, and I pay my respects to their elders past, present and emerging. With me here on the stage are our nonexecutive directors, Rebecca McGrath; Phil Coffey, Susan Lloyd-Hurwitz, Jillian Broadbent, Mike Roche and Michelle Hinchliffe, our CEO, Shemara Wikramanayake; our CFO, Alex Harvey; and Company Secretary, Simone Kovacic. Our bank-only directors Wayne Byres, Mike Coleman, Ian Saines and David Whiteing are also present in the room. And present in person or online are Macquarie Bank, CEO, Stuart Green, group heads, Greg Ward, Ben Way, Michael Silverton, Simon Wright, Nicole Sorbara, Andrew Cassidy and Evie Bruce. Now the order of proceedings is as set out in the documents that you have. After some brief remarks from me, Shemara will take you through the 2024 full year results. provide a first quarter update for 2025 and speak to the outlook of the 2025 fiscal year. We will then hear from directors who are seeking reelection to the Board today. That's Rebecca McGrath, Mike Roche and myself. Following that, we'll formally open the polls. And then we'll take a short break, and we look forward to meeting those of you who are here in person during the coffee break. After the break, we'll reconvene to address the formal items of business on the agenda. As has been our long-standing custom, we'll take questions on all matters 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 the Macquarie Group website and you'll also be able to view a recording of the meeting from later today. Those of you attending online can send in your questions starting now [Operator Instructions]. We'll try to ensure that all topics of interest are addressed in our responses. We may moderate or amalgamate some of the online questions if they're on the same topic. Let me then turn to our financial performance for the year. Macquarie delivered a profit of $3.5 billion in fiscal year '24. That was a decline from the exceptional results of the previous 2 years. The volatility in global energy markets that had previously increased customer demand for services and presented trading opportunities gave way to much quieter conditions and hence, lower earnings for the commodities and global markets business. For much of the year, less active financial markets also constrained activity in some other areas of the group's businesses, PARTICULARLY in Macquarie Asset Management. However, as long-term investments pay off, Banking and Financial Services and Macquarie Capital both generated higher profits than in the preceding year. The company earned a return on shareholders' funds of 10.8%. Now that's a bit below what we typically seek to achieve. Over the past 5 years, for example, the company has earned about 15%. And I think the 10-year average is something like 14%. Increases in head count and in the broader cost base have been difficult to avoid in recent years, given the extent of growth in the businesses, the volume of project work we have underway and particularly the increase in regulatory requirements. As some of those projects are now starting to deliver the planned productivity benefits, the management has heightened its focus on costs and is working to ensure value for shareholders. The company finished the year in a very strong financial position with surplus capital, both at the group level and at the bank level. The Board declared a final dividend of $3.85 per share, making for a total dividend for the year of $6.40. That's in keeping with the Board's long-standing policy of paying between 50% and 70% of earnings in dividends. In November of last year, the Board also approved an on-market buyback from Macquarie Group shares of up to $2 billion as an efficient means of returning some of the surplus capital we acquired from the exceptional earnings in 2022 and '23 to shareholders. To date, a total of $908 million in ordinary shares has been acquired on market. The company remains well placed to respond to opportunities and to manage the associated risks, thanks to the diversity of our businesses, enduring client franchises, a strong balance sheet and a disciplined approach to risk management. Turning then to ESG matters. The pace at which the world will be able to lessen the use of fossil fuels will be determined by the pace at which it can add renewable capacity. Macquarie continues to support the development of clean energy infrastructure with 110 gigawatts of clean energy capacity in development, in construction or in operation as at the end of FY '24. To put that 110 gigawatts into perspective, Australia's national electricity market, which is principally the East Coast, currently has about 50 gigawatts of renewable energy capacity installed. Within our field of influence and capability, and with many years' experience in advancing climate solutions, Macquarie is well positioned to continue playing a constructive role in this space as a financier, an adviser, an investor and a fiduciary. And we expect that to be to the benefit of shareholders. Turning to the foundation. During the past year, the Macquarie Group Foundation contributed $67 million to 3,000 nonprofit organizations around the world through our employees' donations, fundraising, the foundation matching and other donations, grants and social impact investments. That was a significant step-up on the giving of the previous year, and it was a record year. In total, over $640 million has been contributed to philanthropic causes by the foundation and Macquarie's employees since the foundation was established in 1985. I'm pleased to say that Macquarie's global -- new global headquarters at 1 Elizabeth Street will open next week. This was part of an ambitious project in partnership with the state government that integrates a major interchange for the city's new metro transport system with 2 state-of-the-art office buildings and a regenerated public precinct with community facilities. It's one of the largest balance sheet infrastructure undertakings Macquarie has had to date. And it's an example of identifying an opportunity to connect capital with community need. And you'll see more about that in a short video that we'll screen just after the refreshment break. Turning to risk culture as well as identifying opportunity. Managing risk is an equally important part of everybody's role at Macquarie. Everyone understands that their performance includes the identification and management of risk and that there are consequences for noncompliance with behavioral and risk expectations. The Board is keenly aware of the importance of continually assessing the culture, and we do that through a great deal of formal reporting that we get at our meetings, but also through the many informal interactions that we have with staff throughout the year. Our remuneration approach also plays an important role in promoting the culture. It supports our purpose by motivating staff to be innovative and to build businesses, but it also incentivizes them to be accountable for their decisions and their behavior. Turning to the Board. During the year, Susan Lloyd-Hurwitz joined the group board and the bank Board as an independent director, bringing her significant expertise in the global investment and real estate sectors and she's making a valued contribution to the Board. In February this year, Nikki Wakefield Evans have observed for 10 years on the Board retired from Macquarie. Nikki made an important contribution, including for over 7 years as Chair of the Board Governance and Compliance Committee. That responsibility is now being taken on by Rebecca McGrath. I'm pleased that Rebecca and Mike Roche are offering themselves for reelection. Rebecca's extensive experience in the energy and industrial sectors and Mike's extensive experience in corporate finance advisory and structured finance, both continue to be of great benefit to the company. During the past year, we completed the process of appointing bank-only nonexecutive directors to the Macquarie Bank Board with the appointment of David Whiteing and Wayne Byres over the past year. Both bring highly valued experience and skills to the bank board and are contributing to strengthening the voice of Macquarie Bank within the broader group. And finally, after 12 years of association with Macquarie as a director, both on the group board and the bank board, Mike Coleman will retire from the bank board tomorrow, after his 2-year term as a bank -- and Mike, thanks so much for your contribution to the company over so long. On the board's behalf, it remains for me to thank the staff and the management of the company for their efforts in what was a challenging year. This is a very high-performing team that remains focused on delivering the best possible results for shareholders. Fellow shareholders, that concludes my opening remarks. Thank you for your attention and for your ongoing support of Macquarie. I'll now invite Shemara to discuss the results in more detail and to update you on recent performance. Shemara?

Thanks, Glenn, and welcome, everybody, and good morning from me as well. Now before I take you through the results for the most recent financial year, I thought it was worth noting that this was actually our 55th year of unbroken profitability and also continues the journey of very strong total shareholder returns that we've delivered. So you can see on this graph here, there's a table at the top actually showing since listing and over the last 10 years, how we've performed relative to many benchmarks. And the graph is showing you, since our listing in '96, the dark green line at the bottom, you see ASX, all ordinaries index. And the gray line is showing the total shareholder return of holding Macquarie Group stock. And we're very pleased with and proud of that outperformance, where if you had been an investor in Macquarie, and I know some of you have since listing, you would have had a 14,000% total shareholder return. So as I said, this most recent year was the 55th of unbroken profitability for us. And as Glenn mentioned, the result of $3.522 billion was down 32%, but on what was a very strong financial year last year, where we earned over $5 billion. And across our 4 very diverse operating groups, which you heard described in the opening video, the contributions, as shown here on this slide, where the down arrows, which are in the top left for Macquarie Asset Management and the bottom right for Commodities and Global Markets, they are the 2 businesses that had step-downs on the prior year. But speaking to the diversification of our businesses, we saw growth in the bottom left in the Banking and Financial Services business and also, as Glenn mentioned, in Macquarie Capital. I'll talk a little bit more in detail about each of those 4 businesses in a moment, but I did want to note that as well as being diversified across our 4 businesses, which is structurally in very good areas for growth. We're also diversified by region. And you can see on this slide where our earnings came from in the last financial year from regions. Australia at 34% contribution on the far right is still the equal biggest contributor, but the Americas, you can see, are contributing as much to our earnings. And Europe, Middle East and Africa, also a big contributor at 23% and Asia starting to really step up 9% of our earnings. And as time goes on these outside-Australia regions, we'll probably become bigger contributors even though Australia continues to grow well in absolute terms, because they're such big markets relative to Australia. So well diversified by region and then across our 4 groups, which are also giving us good diversification and resilience of earnings, starting first with Macquarie Asset Management. You can see in those dark green shaded boxes, the earnings were down 48% to about $1.2 billion from about $2.3 billion last year. The main thing happening there is our Green Investment Group assets. So where we're investing in climate response. We have 110 gigawatts of energy assets still on the balance sheet, we've been realizing those every year. And in the prior 2 financial years, we've been making $800 million a year from realizations. This financial year, we didn't have any assets ready for realization, so we held them all and incurred $200 million of costs. So there was a $1 billion turnaround from those green investments. As we transition those assets from a balance sheet offering to an asset management ones, we're raising funds from our investors to grow a big asset management offering that will give us much more capital to respond to this big theme. It will also, given the assets we've de-risked, put them with the right sort of investors as we scale that. So that's a transition we think medium term is important to do. But in the short term, it meant lower earnings. The underlying franchise in Macquarie Asset Management continues to grow. So you'll see in the black sections on the right are assets under management, both in private markets, which is the unlisted assets, and public investments listed and liquid fixed income and equities were up 8% and 6%, respectively. And I'd note in the private markets, particularly, we raised a very solid $22 billion of new equity. And in the public investments, 69% of our assets under management are outperforming their respective 3-year benchmark. So that should position us very well for ongoing organic growth as we undertake this big transition with our green assets. Then turning next to Banking and Financial Services. This is one of the businesses that you saw. By the way, Susana Leith-Smith, our colleague talked about the asset manager in the video, Ben Perham speak -- spoke about banking and financial services. Many of you in Australia, you should be familiar with the digital banking offering that we have been developing over the last decade. And you can see there that our earnings were up again 3% to $1.241 billion, up from about just over $1.2 billion last year. We're continuing to grow our books in personal banking, which is our home loan portfolio. In business banking, the portfolio is up there as well. So 10% and 22%, respectively, as we bring this digital offering to our customers and really cater to their needs. And we've supported that with a 10% growth in our deposits. And we've also, in the wealth area, grown our funds on platform by 15%. And the car loan portfolio is gradually running off there. Then turning to our annuity market-market facing businesses. Commodities and Global Markets. That was the other business I mentioned at the beginning, was down, materially down 47%. Last year, it earned a little bit over $6 billion and was down to $3.2 billion this year. The main reason is because markets were much more subdued than the 2 prior financial years where we had a lot of volatility from things like the Russian invasion of Ukraine causing disruption in the gas markets. So we had lower client activity and so hence, risk management income and less trading income as well and particularly in the client client-facing revenue that was in the gas and power business in Europe, Middle East and Africa. And in resources, offset by agriculture and then in our inventory management and trading business that was in North America. Having said that, the underlying franchises there continue to grow as well, our customer numbers, the people we're servicing. So in financial markets, the earnings were up across futures, foreign exchange, interest rates and credit, the asset finance portfolio grew by 5%. And in commodities, our client numbers grew so that the underlying client revenue was above what it was 2 years ago when we had a lot of earnings from volatility. And then Macquarie Capital, the fourth operating group, where you heard Miki Edelman talk about the approach we have here. You can see in the black boxes, we have deep expertise in sectors around the world. And in those sectors, we bring for our clients' activity in terms of advisory and capital markets, but we also bring our own balance sheet in debt and equity. And the earnings, they were up 31%, $1.05 billion from about $800 million the year before. That was driven by growth in our credit book as we grew that book to over $21 billion, $21.5 billion with $4.5 billion of investments and realizations or asset value movements in our equity investing. It was a quieter year in the advisory markets, more subdued. So that was the gist of what drove the earnings across the operating groups in the last financial year. While we did that, we delivered returns, as Glenn said, of 10.8%. That's lower than our typical 18-year average of mid-teens, about 14%. The market-facing businesses were consistent with their long-term averages. So they were 16% versus a 17% 18-year average, but the 2 annuity-style businesses, principally driven by asset management compared to a 22% historical 18-year average, they delivered 12%. And the big driver there was a big pool of assets we've moved into Macquarie Asset Management from the Green Investment Group that, at the moment, are reliant on realization of the assets as we grow the funds business there. So that was the driver of that. Now we did all that by maintaining, as we always do, a very cautious and conservative and resilient financial position. So the first 2 bars are showing that our term funding well exceeds our term liabilities. So that gives us ability to manage any liquidity stress that may happen. We also ended the financial year with $10.7 billion of surplus capital and a very strong CET1 ratio of 13.6% and very good credit ratings across the 3 major agencies. That was a summary of last financial year earnings performance and where the balance sheet was. When we turn to this most recent quarter we just completed for this financial year, basically, the performance was broadly in line with the first quarter of last financial year. So it was consistent with the expectations and the guidance that we had given. Breaking it out between the annuity style and the market-facing, in the annuity-style businesses, the results, in terms of the net profit contribution, were broadly in line with the prior comparable period, and that was because in Banking and Financial Services, we had increasing volumes, lower operating expenses and lower credit impairment charges, slightly offset by the margin pressure you'll have seen across the Australian market. And it was also offset by the timing of realizations and performance fees in Macquarie Asset Management, which are quite back ended this financial year versus last. And then in the market-facing businesses, the combined net profit contribution was down on the prior comparable period. And that was mostly also driven by a timing issue, which is the timing of realizations in Macquarie Capital is back-ended to the second half of this year. But the Commodities and Global Markets business offset that through an increase in the contribution from across the platform there. Looking at each of the operating businesses in a bit more detail. In Macquarie Asset Management, the assets were slightly down in this first quarter, and that was mostly because of foreign exchange movements impacting both private markets and public investments with some smaller outflows in public investments. But we continue to have strong performance across our public investments and good investing in the private markets, for example, our Macquarie Real Estate Partners Fund was announced to have reached USD 1.9 billion in raisings. And then in Banking and Financial Services as well, the franchise grew really nicely over the first quarter. You can see there the home loan portfolio, up 4%. The business banking portfolio up 5%; for deposits, up 2%; funds on platform broadly in line. But the underlying franchise in both those business is growing very nicely and similar message for the market-facing businesses in commodities and global markets. As I mentioned, the performance was up on the prior comparable period, and that was driven by improved trading activity in North America, in gas and power and also in agriculture, again, and in resources. And we had growth as well from our financial markets business with strong client activity and our asset finance business was broadly in line. And then in Macquarie Capital, the fee income activity levels are picking up, so it was up on the prior comparable period, which was a very subdued one. And we also grew our credit book, as I mentioned, and that's been driving increase in earnings as well. And that's quite consistent interest earnings. In terms of capital at the end of that first quarter as well, our term funding exceeds our term liability -- term assets. So again, a very prudent funding. We raised $9.4 billion of term funding in this first quarter, and our deposits were also up 1% to $150 billion. And in terms of the capital position, I mentioned we were at 10.7% at the end of last year. That surplus has come down to $8.2 billion, so it's down $2.5 billion. The sort of things that drove that out was lifted, of course, by the earnings over the first quarter, but we paid the dividend out for the second half of the last financial year. We also had to fund the employee share equity buying and the business absorbed a net capital amount of about $500 million gross, about $900 million. The other thing we did is the buyback where over this -- to date, we have bought back 900 million of shares. We mentioned, we were looking to buy up to 2 billion. I'd also mention at the bottom of that page that we were very pleased that Fitch gave us an upgrade for Macquarie Bank Limited from an A rating to an A plus rating. Now in terms of that capital and where it was absorbed, you can see here, the middle buys, the March 24 through to the June 24 last quarter. We had $900 million of capital absorbed in the businesses. That was offset by foreign exchange movements of $400 million. So net $500 million in the business. But the 2 big areas absorbing capital were banking and financial services for the ongoing growth in the books and then Macquarie Capital, where we made investments in credit, but also, principally, in equity across the infrastructure and technology sectors. So we're managing to deploy capital still into the business in areas we think are accretive while we maintain a very prudent funding position. And then in terms of a regulatory update, there's a list of things there that our principal prudential regulator, APRA, is following up on. We're working with them on a remediation process as well. But there's nothing material there, both in Australia and in Germany, where we just note the ongoing investigation industry-wide there, but no developments over this period. So with that, let me just finish by talking about the outlook for the rest of this financial year, the short-term outlook. And again, we look at this by operating group. Macquarie Asset Management, this is broadly consistent with what we said at the beginning of the financial year that we expect the base fees to be broadly in line, but their net other operating income, we expect to be significantly up on last financial year. And that's principally due to higher investment-related income from our green investments, and that's predominantly expected, as I said, to be in the second half for this financial year. We also are expecting the net expenditure on those green investments on a stand-alone basis to be broadly in line with last financial year. Then in Banking and Financial Services, we're seeing ongoing growth in all of our loan portfolios, our deposits and our funds on platform that will be impacted by the market dynamics, which will drive margin pressure. And we are continuing, also, to invest in digitization and automation to support scalable growth for our business while ongoing -- monitoring our provisioning. In Macquarie Capital, subject to market conditions, because those do impact that business, transaction activity, we're expecting to be significantly up on what was a challenging and very subdued period last year. And our investment-related expenses are also expected to be up with increased realizations from, predominantly, assets that we'll realize in the second half of the financial year again and growth in the private credit portfolio. And then we expect continued balance sheet deployment there across debt and equity. And then in the Commodities and Global Markets, again, subject to market conditions because that's another market-facing business, we're expecting our commodity income to be broadly in line, although volatility is always -- could create opportunities. And we're expecting a consistent contribution -- continued contribution from the financial markets and the asset finance. And we expect our compensation ratio and our effective tax rate to be broadly in line with past levels, historical levels. Now those short-term factors are always subject to a range of conditions which are noted here, market conditions, completion of period-end reviews and transactions, the geographic composition of income and the impact of foreign exchange and potential tax regulatory changes and uncertainties. And because of that, we maintain our cautious stance, as I've referred to, in terms of capital funding liquidity, that positions us well for all cycles and particularly the current one. Over the medium term, as we've often said, we expect we should be able to continue to deliver you superior performance, because we have deep expertise across these 4 very diversified businesses where in the opening video, you heard our colleagues talk about how well positioned now, structurally, for growth. Susana talked about the asset manager and the flow of savings to illiquid markets and public markets and the expertise we have there. Ben talked about the digital banking offering here in Australia. Cindy talked about commodities and financial markets and the client-based business we do across all of that as well as trading. And then lastly, Nikki talked about Macquarie Capital and our specialist expertise in sectors for advice capital solutions. Now we grow all that in a very patient adjacent way to manage the risks and we also grow it with strong support from our 4 central services groups: So corporate operations group in terms of the platform and the people, et cetera; the risk management group in terms of prudent medium-term risk taking; the legal and governance group in terms of legal and governance issues; and the financial management group in terms of the funding, the capital and the investor engagement across that business and a very conservative balance sheet. But all up, also, our approach of empowering people to innovate and invest for a better future, our purpose statement. So with that, I might hand back to Glenn to cover the formal business of the meeting. Thank you.

Thank you, Shemara. What we're going to do now is I think we're going to play the video. Or is that later? We're going to play an instructional video that helps explain how to use the devices that you have or the technology that you're using online so that you can cast your vote and indicate that you'd like to ask a question. So that video will play now. [Presentation]

Good morning, everyone. I will explain how shareholders and proxy holders can participate in today's meeting, whether you're joining online or in person. Instructions are also available in the notice of meeting. If you're joining online, you may call plus 612-8-075-0100 for help at any time. Once the chair opens the polls Shareholders and proxy holders voting online can cast a direct vote by clicking on the bar chart icon on the voting tab. Select the option corresponding with the way you wish to vote. The vote you selected will change color and you'll see a confirmation message. For shareholders and proxy holders attending in person, you will have been issued with a handset to cast your vote. Follow the instructions made available at registration and in the notice of meeting on how to vote. Representatives from our registry are on hand to assist if you have any questions about how to use the handset. Whether you're voting online or in person, you can change or cancel your vote at any time until the polls are closed towards the end of the meeting. Proxy holders with directed votes will have those votes automatically voted as directed. All open votes will be voted according to the option you select online or on your handset. [Operator Instructions]

Thank you, Simone. Very nicely done. We're now going to move to the formal items of business for the meeting. The notice of meeting and accompanying explanatory notes have been sent to shareholders, so I propose to take those as read. The items of business are as shown on this slide. The Board recommends that shareholders vote in favor of all resolutions. Item 1 is to consider and receive the financial report, the director's report and the auditor's report of Macquarie for the financial year ended 31st of March 2024. There's no formal resolution relating to that item. Items 2a, 2b and 2c are the reelections of Rebecca McGrath, Mike Roche and myself to the Board. Each of us will address the meeting before the break. Item 3 is the annual nonbinding vote on the remuneration report, which is included as part of our annual report. Included in the notice of meeting are the 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 familiar with Macquarie will know that our remuneration framework is long-standing. It supports our purpose by motivating staff to grow our businesses, identify new opportunities and to be accountable for their decisions and behaviors and the risk management customer and economic and broader consequences of their actions. We believe this long-standing approach is a key driver of Macquarie's sustained success as an international organization. Item 4, is to approve the Managing Director's annual participation in the Macquarie Group Employee Retained Equity Plan, or MEREP. I'm now going to turn to Director elections. item 2A is the election -- or the reelection of Rebecca McGrath, who has been an independent voting director of Macquarie Group and of Macquarie Bank since January 2021. Rebecca has served as Chair of the Board Governance and Compliance Committee for a little while now and is a member of the Board Nominating and Board Risk Committees. She is an experienced company Director and Chair with substantial international business experience. Details of her experience are in the notice of meeting. And so I now take pleasure in inviting Rebecca to address the meeting. Thank you.

Thank you, Glenn. Good morning, ladies and gentlemen. Thank you very much for considering my reelection to the Macquarie board. As you heard from Glenn, I'm an experienced company director, having served recently on the Board of Oz Minerals Limited, Goodman Group and Investor Wholesale Funds Management and currently, Djerriwarrh Investments Limited. These roles, along with my executive career experience, have deepened my knowledge of gas and other commodity markets, including chemicals and base metals and the global energy shift to electrification in transport applications, renewables and battery technologies, more broadly. As a professional company director, I also have a strong commitment to good governance. I'm currently a member of the National Board of the Australian Institute of Company Directors, the Australia British Chamber of Commerce Advisory Council and the ASIC Corporate Governance Consultative Panel. I have brought this experience to bear on my role as Chair of Macquarie's Board, Governance and Compliance Committee. During my time as a member, and more recently as Chair of the committee, I supported and continued to oversee the committee's focus on customers, conduct risk, work health and safety and environmental and social risk matters. My executive career further underpins and informs my experience as a director. It has provided me with significant insights into risk management, market dynamics, value chains and infrastructure strategies. Having held a number of senior management roles in the resources sector across finance, operations, corporate planning, project management and marketing in Australasia, Europe and the U.K., I also have significant knowledge of the commercial and industrial property sectors internationally and the prudential requirements of large-scale fund and asset management enterprises. It is an honor to serve this board and as a shareholder's representative. And if reelected today, I can assure you that I'll continue to dedicate both the time and the commitment to fulfill my duties in a manner that awards your trust in me. Thank you very much.

Thank you, Rebecca. I'd now like to invite Mike Roche to address the meeting. Thanks, Mike.

Good morning, ladies and gentlemen. Good morning, shareholders. Thank you for considering my reelection as a Director of Macquarie Group. Thank you, Glenn, for the introduction. As you heard, I have over 40 years' experience in financial services, over 30 of that in investment banking. Most of that was for a global investment bank where I advised corporates, private equity and a range of government. For the balance of that period, I was a senior actuary for AXA, advising on superannuation funding and investment. I'm currently a Director of -- a Non-Executive Director of Wesfarmers and 2 private companies, 1 half owned by Apollo, the global private equity giant. I'm a co-founder and Director of Sally Foundation, along with my wife, Geraldine. In my time in investment banking, I work for many clients across a range of jurisdictions outside Australia, obviously, including Australia, U.K., U.S., Europe, Asia, South Africa, Middle East, New Zealand, et cetera. I was Head of Investment -- I was Head of Mergers and Acquisitions for the final 10 years and on the federal government appointed takeover panel for 2 terms. I competed against or co-worked with most international investment banks, including Macquarie over that time. In infrastructure, in structured finance, in debt advisory, capital raisings, mergers and acquisitions. And I specialized in large complex transactions, many of which were cross-border. I believe I have wide-ranging experience. Since my initial appointment, it's been a valuable experience looking at Macquarie from the inside. What I've observed is a very high-quality institution with great people and great depth around the globe, well-positioned businesses and with a strong ethos of caring and engaging with the community and most importantly, a strong reputation. As a director, I try and bring a questioning and outside-looking-in perspective to considerations. I think in such a bottom-up organization, this is very important. I care about trying to help the organization make the right decision about helping Macquarie preserve its well-earned reputation. I can assure you that I will always try and act in the best interest of Macquarie, and most importantly, your best interest as shareholders. I believe my skill set is complementary to that of other Board members and adds to the Board's oversight of the diverse global operations of Macquarie. I look forward to your support. Thank you.

Thanks very much, Mike. I might take opportunity myself now to address shareholders in connection with my own reelection as a director of Macquarie, which is item 2-C. I've been a Director of the group and the bank since November 2017. And it's been my privilege to chair the Board since Peter retired in May of 2022. There have certainly been some challenges and some opportunities in the nearly 7 years and I believe I've been able to bring my former experience and my skill set to bear to make a useful contribution to the Board. My career was 35-plus years in Central Banking in the Reserve Bank of Australia, 10 years as the Governor and Chairman of that Board. So I bring a lifetime of thinking about economics, finance, risk, how the financial system works and how it contributes to the broader economy and society. In the nearly 8 years now since I left Central Banking and went to the private sector. I believe I've been able to round out my skill set, bringing to bear more commercial lenses to the issues that we faced. As Chair of the Board since mid-2022, I've overseen ongoing Board renewal at the company and a strengthening in the governance structure of our key subsidiary, Macquarie Bank Limited. That's been quite a big task to get that working well. I think it is working well now. And I thank the other directors, including our bonds for the support that they've given in that. I've continued to work collegiately with all the directors, and I believe that we have a very good and well-functioning board, a very open and frank discussion, probing when necessary, but always respectful. Many challenges lie ahead for us, I'm sure, and the organization and the Board will be busy seeking to anticipate those and to respond to them, and I'd very much like to play a part in that. And so I respectfully seek your endorsement to continue as a director of your company. Thank you very much. To allow everyone an opportunity to vote, I now open the polls in respect of all the motions that shareholders will vote on today. The polls will remain open until just before I close the meeting. We're now going to adjourn to allow those attending in person to have a break for refreshments. We're going to reconvene in about a half hour. If you've already voted with a handset and you don't want to return after the break, please return the handset to the staff at the registration desk. If you are attending in person and you'd like to ask a question, it would be helpful if you can sit near one of the microphones that will be in the aisles later, if that's possible. That will help. For online participants. So you'll get a notification on screen prior to us recommencing. So thank you. We'll see you in about half an hour. Thanks. [Break]

Welcome back, everyone. I'm now going to reconvene the meeting and continue with the formal business. Please be reminded that the polls remain open. We're now going to move to take questions and comments. As a reminder, we are committed to ensuring that everybody feels respected and safe, and that includes ensuring the meeting's conducted in an orderly fashion. We're going to start with questions that have been submitted in advance and then take turns through written questions submitted online, questions from members here in the room and audio questions. You're welcome to ask 2 questions at a time. But in order to give everybody adequate time to ask their questions, once you've had 2, we'd ask you then to rejoin the queue, and we'll get back to you after we've heard from others. I may defer some questions on a particular topic if that's already been covered in a number of earlier questions. If you have a customer issue, or an inquiry that's not related to the business of the meeting, please see a staff member at the shareholder table. They'll be happy to take your query and help you. I'll note that Ms. Voula Papageorgiou from PricewaterhouseCoopers, the external auditor, is present at today's meeting. She is available to respond to questions relevant to the audit, that is the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted by the company in relation to the financial statements and the independence of the auditor in relation to the conduct of the auditor -- the audit. The external auditor did not receive any written questions from shareholders prior to the meeting. I'm now going to take questions that were submitted in advance. Thank you.

Chair. Our first question comes from [ Stephen McMahon ]. The question is, "Can you provide more clarity in relation to our outlook, current strategies forecast earnings per share and dividends per share and the related material threats and opportunities?"

Thank you for the question. I'm not sure that I can add much at all to the remarks that Shemara gave earlier and the short- and medium-term outlook comments that are in our published materials that are available today. In terms of our strategies, our approach is to expand selectively and adjacently to work in areas where we think we have expertise and where we can meet unmet needs of clients and communities. And we're relying, really, on the teams who are closest to the markets and the clients to help direct the strategy. Strategy is a very bottom-up process in the company. And as we said earlier, we think we're very well placed with the diversity of our businesses, our strong risk management, strong balance sheet and disciplined approach to continue the growth of the company in the future. Can I have the next question, please.

Chair, our next question is from Sarah Jane Evans. The question is, "Macquarie seems to have caught the attention of the retail banks in Australia and now has significant market share. Can you sustain this growth?

The company -- the BFS business has expanded its footprint in the local market very effectively over the last decade or more. We're probably 5%, 5.5% now of the mortgage market. The business, I think, sees further potential for growth there, subject to getting adequate funding and maintaining discipline on both quality and pricing. Greg, would you like to offer any further comment on that?

Thank you, Chair. Yes, we're very pleased with, "the best" and as you say, we've grown a lot in the last decade and seen the banking license, it's been about -- we've had the banking license about 40 years. So we've had 40 years of good growth. And actually got some staff that have been there for that entire journey, 40 years and working diligently for customers. And I think we're very well placed to continue that long sort of growth trajectory. We're investing heavily in our technology and digital platforms to increase the sort of service, the speed and efficiency and reliability of the service we offer customers and that should stand us in really good stead to keep growing over time.

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

Chair, the next question comes from [ Gordon James Smith ]. The question is, "Macquarie has changed its options for customers to make day-to-day contact with the bank with an emphasis on online chat via either the app or the website. The traditional customer service line reflects that with a convoluted menu, pushing customers away from direct phone contact to the web. I've experienced it myself I needed to speak with the bank as a matter of urgency. What followed was 5 hours of navigating phone menus, being put on hold, being diverted to Webchat being put in a queue online that never progressed over the space of 30 minutes, being disconnected and beginning the process all over again. I don't have the time to pander to such poor service. For a bank of Macquarie's stature, do you believe this is an acceptable way to treat customers? And why has it become so difficult to make contact."

Well, Mr. Smith, I'm very sorry that you had such an unsatisfactory experience and it is incredibly frustrating, I know, to have such difficulties communicating. I understand the client care team has been in touch with you, and I hope that they've been able to resolve the issues that you had. We did decide to roll out live chat earlier this year because we do think there are benefits to customers. It is more efficient and it's more secure and enables us to, we think, better serve the customers, but we're always obviously willing to take feedback on that and try to improve our service. And if people have feedback for us, separately to today, obviously, we're happy to receive that, and we'll try to do better, thank you.

Chair, our next question comes from Sarah Jane Evans. The question is, "You have been involved in renewable energy for many years, and it seems the world is getting to a point where there are concerns that we are not going to stop the impacts of climate change. What is your view on what should be done, at this point, in time, to address the climate crisis?"

Look, it's a very big question. I think I'd start and I'll probably ask Shemara to add some comments here. But the transition that is in prospects, to shift from hydrocarbon fuels to non-carbon fuels is easily the biggest reengineering of the modern economy that we live in that there's been since the industrial revolution. It is a huge undertaking. It will take many years. It will take a tremendous amount of investment and a lot of capital is going to need to be committed to it. We're trying to play our part in that, as we said earlier in our opening comments by way of helping the rollout of renewable energy. As we said earlier, 110 gigawatts of capacity at some -- at various stages of the development process. But it's a very long journey. It will take a considerable amount of time. There will be many twists and turns on this journey. And our view also is that some of the carbon-based fuels, particularly gas, are going to remain a part of the energy mix for quite some time as a transition fuel. It is unrealistic, actually, to think otherwise in our view. And so that's another part of what we do. We do have some appetite for business in that area, provided it's consistent with the net 0 commitments that we've made for our own balance sheet. So a very long journey, much investment needed. We're trying to play our part. We're just a small part really, but we're trying to use our own capital and to catalyze the capital of our clients towards that end. Shemara, would you like to add anything?

No, I think you've pretty much covered it, Glenn. But I would say, the journey has certainly gathered pace, that when we first started investing 2 decades ago to come up with solutions that were low emissions across energy, transport, agriculture, industrial production, et cetera, we were one of the few players, and we were only using our balance sheet in small dollars. Today, there's much more recognition of the need, and there are very large funds raised to respond to this. And I mentioned in my opening comments that we're now moving from just our balance sheet to taking these fiduciary funds and having much large capital. But as Glenn says, I think you're exactly right, it's going to still take many decades from here to develop the solutions at scale and at cost, where they can be adopted to replace traditional ways. And while we've got wind and solar and energy, they're intermittent, and we need firming solutions at cost. While we've got passenger vehicles now moving a lot to EVs, we need long-haul transport solutions in shipping and air. To us, ultimately, we see that as an opportunity to bring our expertise across our 4 operating groups to help drive these solutions. But at the same time, as you say, have an orderly transition so we don't lose the support of the community by trying to go too far too fast.

Thank you. Next question, please?

Chair, our next question is from Mr. [ Peter Callejero ]. The question is, a question to all directors seeking reelection, have you read the book Bad Banking (sic) [ Banking Bad ] by Adele Ferguson? As a long-term shareholder of Macquarie Group, I recommend it to all banking directors.

Well, thank you, sir, for the tip, and I'll put that on the very large pile side in my bed. I don't know whether other -- I haven't read it yet, but I don't know whether other directors would like to comment, but thank you for the tip.

Chair, our next question is from Susan Hamilton. The question is, can you speak to the management of risk when the changing face of working means that many staff are regularly working remotely and thereby not as integrated within groups and culture.

It is a challenge, I think, to maintain and perpetuate a good culture with flexible working. That said, flexible working is here to stay. We've had good return-to-office experience across the company. It's a little bit different by jurisdiction and by business line, and we've given local managements the discretion to decide with their teams how that's done. But we do make an effort to keep people culturally engaged and to grow our culture. I think that's proving effective. Nicole, is there anything you'd like to add on that matter? I should offer you that opportunity.

Thank you. As you said, we offer our people the ability or the flexibility to work from home. But the vast majority of our people are spending a decent amount of time in the office. And that is important so they can come together, collaborate, innovate, but also so we can inculcate them into the culture. And obviously, our risk culture is a big part of that. We have a very robust risk management framework. We have policies and standards. We have training, which all of our staff undertake. And we also actively measure risk outcomes. And there are ways that we can measure and have a barometer on the risk culture, which all of that goes up to the Board. And we haven't seen any material adverse impacts of -- from a hybrid working approach. Thank you.

Thank you, Nicole. Next question, please?

Chair, the next question comes from Stephen Mayne. The question is, PwC has been the auditor of Macquarie since before the 1996 listing, and the job has never been tendered. PwC has been paid more than $1 billion by Macquarie for auditing and other services over this period, including $66.2 million in the last year, $79 million in 2023 and $72.7 million in 2022. Voula Papageorgiou replaced Kristin Stubbins as the PwC audit signing partner this year. In terms of the audit process, could Voula please provide a brief summary of how many people assist in the audit and why it costs shareholders so much? With Kristin Stubbins part of her team, could Voula also address the question of where the line is drawn in terms of auditing Macquarie Group and auditing the various funds within the empire? Finally, could the Audit Committee Chair comment on why we didn't put the audit to tender and whether, in making that decision, we negotiated a lower fee during the major review that was promised at last year's AGM? Why did PwC get paid $13 million less this year?

Well, I'm not going to go to the particular ins and outs of what the fees were. The fees were what they were for the work that was done and the amount of work that gets done on the audit and on some other assurance things that PW does for Macquarie. That varies a little bit from year to year, and the fees are what they are. On the broader audit issue, as you know, we had the -- we discussed this at last year's AGM, the comprehensive review of the audit. And we said we would make a decision after that was completed as to how to proceed. It was completed earlier in the year. And as is now publicly known, we decided that the audit would tender out every 10 years, beginning no later than 2026. There's been no -- our review, by the way, did not identify any problems with the performance of PwC as the auditor. On the contrary, their performance in that role has been exemplary, as my colleagues would attest. There are a number of elements to that question. But I think the main point is that we will tender out the audit every decade, starting in no later than '26. We'll continue to do comprehensive reviews of the auditor every 5 years within those contracts. And we, of course, continue to annually review the auditor's performance, which is in line with audit quality guidance that ASIC has. As to the particular size of the fee and the details, I can't really go into that. I would say that Macquarie is a complex audit. I think there are over 200 entities that get audited every year by the PwC team globally. And the team here, led by Voula, pull all that information together, and that gives us a lot of confidence in the audit process. I wonder, Alex, is there anything you'd like to add on costs and so on?

Thanks, Glenn. Just to add to the point you're making. Obviously, these are very complex audit. We're a large multinational organization with operations in over 30 countries around the world. So the audit process is very complex. In terms of setting the fees itself, obviously, there's a very extensive process of discussion that goes, as is the case in a lot of their organization, from the, I guess, the bottom up of the organization, working on exactly how much work is required for each of these entities in each of these countries, that's a very robust process that we go through in order to settle the fees with PwC on an annual basis. I think we feel very comfortable, as you said, Glenn, with the work that PwC do for the company. So I feel very comfortable with the way the fees are set. In terms of the particulars from 1 year to the next, obviously, there are certain years where there's additional work required. In the case of the reference to '23, there was a lot of work required from a regulatory viewpoint that wasn't necessary in the '24 financial year, and that's reflected in the fee, nothing else.

Thank you. Next question, please?

Chair, the next question is from Stephen Mayne. The question is, as was discussed at last year's AGM, Macquarie borrowed $11.3 billion from the Reserve Bank through its COVID emergency term finance facility on a 3-year deal at a fixed rate of just 0.1%, which was repayable on June 30, 2024. Did we repay the lot on June 30? And where did we source alternative funding from? CFO Alex Harvey mentioned at the 2022 AGM that Macquarie had extended another $37.5 billion in mortgage credits and $2.5 billion in small- to medium-sized business loans since the RBA loan was taken out in 2021. Is there any update on these figures? And have we had to call in some of the loans when the $11.3 billion was 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?

Well, Macquarie accessed the TFF on the same terms, as all other banks did. Yes, it has been repaid. No, we didn't call in any loans to make that repayment. I don't have the number in my head as to how much is in the ESA at the RBA right now. But whatever is there, we'll be getting the same terms as any other bank. Next question?

Chair, we will now take a question from the floor from shareholder, [ Susan House ], ASA. [Operator Instructions]

Good morning. My name is Susan House. I'm representing the Australian Shareholders Association. This morning, I'm looking after -- or I have proxies relating to 434 shareholders totaling $97.8 million. Mr. Chairman, you mentioned in your discussion with us that the ROE for FY '24 was about as low as MQG would want to go. How does Macquarie manage ROE given the diverse nature of its operations? And how does this flow through to the remuneration and the goals -- the objectives that are set at the business?

Well, as I said earlier, at 10.8%, that's down on what we typically seek to achieve and what we've been able to achieve over the longer run. I think Shemara showed a number earlier of 14% over -- I think that was over 18 years. The 5-year average is about 15%. So mid-teens is what we have typically been able to achieve, and what we're seeking without wanting to make that too hard and fast a target. There is a disciplined process of capital allocation, where a business has to earn its cost of capital and earn what's needed for the shareholders. Not every business can do that exactly in every year, and we have to accept that. But over time, those businesses that earn a better risk-adjusted return will get more capital, and those with a poorer one will see a shrinkage in the resources available to them. The company has always operated that way. The remuneration structure is aligned to the performance. I think this is well known. It's a profit share system. When profits rise, the key people who helped that happen share in that. And when profits go down, they share in it going down as well. There are some design features that smooth that out for the central control type people and that is by design, and that's a regulatory requirement actually. So the degree of variation they have, both up and down, is less. But that's been a very effective remuneration system for the company over a long time. And thus far, we found that the overwhelming bulk of shareholders have supported it.

One more question, if I may. Mr. Roche said earlier that the strong reputation of Macquarie is very important to it. There's recently been news about AGAT and Venture egg. And I know financial planners are not the responsibility of Macquarie. But Macquarie's Wrap is being used in another scheme that seems to be shaping up to be an advice scandal. How does Macquarie look at managing its reputation in a situation like that?

I'm not that familiar with those particular cases, to be honest, but the Wrap platform is a platform that enables customers to get access to products, many of which are not actually Macquarie products and not advised by us, in particular, to take on any particular product there. If there's a problem with a product that arises, typically, we will cooperate with regulatory inquiries associated with that. Remove access from the Wrap, if that's what the appropriate thing is to do. Not really able to say that much more than that. But we do care about the reputation, and we try to act promptly when anything comes along that puts it at risk or puts, more importantly, our customers or our shareholders at risk. Over to the next question, please?

Chair, our next question is from [ Jerome Nicholas Nikolopouli ]. [Operator Instructions]

Good morning, Chairman and everyone. This is my first-to-face Annual General Meeting. It's great to be here, and thanks for organizing. Warren Buffett says shareholders are part owners of the company, and I'm happy that I have a small slice and be a part owner of this company. Chairman, I have 2 questions for our CEO, Shemara. Shemara, I understand Macquarie was the first real infrastructure fund manager that existed, and we built this business. Also, 10 to 15 years ago, there were only 4 to 5 funds in the range of $5 billion to $10 billion in infrastructure asset management. However, today is different. Firms like Brookfield, KKR and others are raising USD 20 billion to USD 30 billion in their infrastructure flagship funds. Everyone wants to have a slice of this big market, and I understand this is a market of several trillions. My question, Shemara is, given the increased competition from other big players that I mentioned, how do you position Macquarie to compete with them? And what does Macquarie need to do to continue to add value to the shareholders so they can enjoy the similar kind of returns, which the previous shareholders have enjoyed over the past. My second question is, currently, of economic value is driven by our diversity in our franchise, such as asset management, banking and financial services, acquired capital and commodities and global market. Do you see any major structural changes in our franchise diversity in the coming 5 to 10 years to continue to drive our growth? Also, how do you see the growth of private credit and insurance in these franchises?

Yes. So to your first question about infrastructure asset management, we were one of the people involved here in Australia to begin that as a separate asset class for investors in their portfolios. And it happened here in Australia that one of our states had their credit rating go to junk. And we had a premier come in and decide to lift it to AAA again by taking assets off the public balance sheet and putting them across to private funding and regulating them. We also had compulsory superannuation coming in at the similar time and so a lot of assets accruing in these super funds. And people at Macquarie, including our former CEO, Nicholas Moore, decided or saw that the logical owners of these utility-type, capital-protected, defensive income-producing assets were these pensions. And so we started, together with others in Australia, establishing funds to buy and investing and operate these assets, and went from the utilities to transportation assets like roads, airports. Today, we invest in a lot of communications, infrastructure, et cetera. Since that time, as you say, the presence of competitors has grown a lot. We think that's a fantastic thing because it gives investors a lot more choice, and it keeps us on our toes. So we welcome that participation. Ultimately, we're in an early innings of a long, long journey. There is massive investment needed in infrastructure, both in developed countries, where the public purse is still funding a lot and private capital and expertise is needed, and in developing countries completely with population growth urbanization. So we think we're in an early innings, and we welcome the participation of other deep expertise because it validates the sector more. I would say, in the U.S., they only have a couple of percent allocation in the big pension funds now to infrastructure, whereas the Canadians are moving towards 15% to 20% in here, 10% to 15%. We think it can play a bigger part in investors' portfolios, given their liability profiles, but also in communities, their need for investment. So we actually think it's something that has a long runway to grow. And that's related to your second question about our 4 operating businesses at the moment. I think I was saying early on that we're in 4 sectors that are also very structurally well positioned for long-term growth. So for example, Greg's Banking and Financial Services business, the digital banking offering, we have -- I think we've mentioned we have about 5% of the mortgage market here after creating 10 years of committed growth. But actually, the next smallest major has about 12%. So there's a long runway for Greg to keep doing that in business banking with less than 1% of the market, a long runway to keep growing. Our Wealth platform, there's more offering. That's in the Banking and Financial Services. It's the same in the other 3 businesses, which are global. In Macquarie Asset Management, you just mentioned our small [indiscernible] infrastructure, which is our biggest differentiated area. We're growing into, you mentioned, private credit, real estate, agriculture, a lot of other real asset areas as well as public investment. So a long runway there. In our Commodities and Global Markets, even though it's a big player contributing massively to our earnings, our biggest group at the moment, I can't see where Simon is there. But we have a long runway, Simon. So we are big in North American gas and power. We've only been expanding into the European region the last sort of 5 years and have grown to be quite big there 5 to 10 years. And Asia is still an area that has scope for us to grow, and that's just in one of the commodities. And also in financial markets, we're serving some countries, but there's a long runway for growth. And lastly, Macquarie Capital as well, we have a long runway for growth. North America is the biggest capital market there. We've got a footprint in there. So we're kind of large in the Australian market, but continue to grow both North America, Europe, Asia. So ultimately, as Glenn has said as well, we grow from areas of deep expertise. We don't make top-down bids from the center saying, "Tomorrow, we want to be in this sector of financial services." For example, private equity is a big investment area. We would never go and buy $100 billion of private equity assets and start doing -- we would gradually grow in with a very patient adjacent bid led by our teams of experts on the ground. So if we're going to go into Latin America, it's teams that are in North America that go to Latin America, do small things and grow from there. In Asia as we go into each Asian multiple different countries political backdrops, cultures, et cetera, languages, geographies. We led our teams on the ground, take patient adjacent bids is how we manage risk as well. But we're comfortable across all those forays. We have a long runway and deep expertise. So hopefully, that answers the second question.

Thanks, Jerome. Can we have the next question?

Chair, our next question comes from Morgan Pickett. [Operator Instructions]

Thank you. Thank you, Chair. I'm here as a proxy shareholder but work at the organization, Market Forces. On the 8th of July 2024, Empire Energy released an ASX announcement indicating that Macquarie Group has become a substantial holder of Empire Energy, holding 7.57% of Empire's outstanding shares. Empire plans to frac the Beetaloo Basin, a project that would release an estimated 1.1 billion tonnes of carbon dioxide equivalent emissions into the atmosphere over its lifetime. For reference, that's almost 2.5x Australia's entire emissions in the year 2021. Traditional owners and local farmers have already voiced significant opposition to the Beetaloo project. Could you please explain why Macquarie has become a substantial holder of this company? Is Macquarie holding these shares directly?

Macquarie's underlying shareholding is about 2.5% in Empire Energy. That's a long-standing position that we've had. There is a temporarily higher holding that has been recorded, which, I believe, one of the businesses has acquired on behalf of a client. But our underlying holding that we expect to persist with is a bit -- is 2.6%. Next question?

Chair, our next question is from Mr. Michael Sanderson. [Operator Instructions]

I've got 2 topics I'd like to address. First one relates to renewables. Renewables was mentioned 41 times in the Macquarie Annual Report. On Page 9, it states global emissions still increasing despite the rapid increase of renewable capacity. And recent experience highlights that fossil fuels, particularly natural gas, will be required for some time to come, even as the trend of renewables continues. And we are investing in renewables energy solutions at scale. Now Germany has pursued the renewable unicorn for 2 decades. In 2023, Germany's carbon intensity was 400 grams, and it had to import 11.7 terawatt hours of energy. In the same year, nuclear France carbon intensity was 53 grams, some 75% lower, and it exported 50.3 terawatt hours of energy. My question is, should shareholders be concerned that renewable investments will become stranded if the coalition's nuclear campaign is successful? Or by supporting the underperforming renewables, is it a cash cow that also supports gas investments?

I don't think we're concerned that our renewable investments that Macquarie has made, both for our own balance sheet and in conjunction with our clients. We're not concerned that they're going to be stranded assets, which I think was the thrust of your question, if I understood it. The contractual arrangements and the price -- power price offtake arrangements that -- they are all in place for those, are very well in place. They're very solid. So we continue to believe that the green investments, both in the funds and on balance sheet, will be to the advantage of shareholders. Most of those investments, of course, are around the world. So I'm not sure how the nuclear energy debate in Australia is going to unfold, and we have no public comment on that. But I don't think, whichever way that goes, that there's a material risk to Macquarie assets, either for the funds or to the shareholders.

Just taking on board that the primary purpose is to decrease the carbon footprint. I think we'd all agree that. We've got 1 example of a country that's pursued a new renewable for 2 decades, and their footprint has increased. Their fossil fuel consumption has increased. Right next door, there is another country that built renewables that reduced the carbon footprint in a decade by, I think, 55%. This goes back to 80s. Surely, there has to be -- there's something not right here.

Well, I don't think we can comment on the relative policies of Germany versus France or other countries. That's not our business to do that. Our business is to seek and take opportunities where we can find them in your interest, as shareholders, to deploy our capital. And we still think that the energy transition, we want to play a constructive role there, and we think that will be profitable for shareholders. On the energy policies of particular countries, I don't think I can offer comments on that, I'm sorry.

Okay. My second thing is on gas. Gas was mentioned 37 times in the annual report. On Page 15, it states, "Through its investment in national gas, MIM is supporting the safe, secure and reliable transportation of gas across the U.K. and working with partners to future-proof the energy system." End. This is a good one. This is really good. It is helping to create a next-generation transmission system capable of transporting low-carbon gases, taking on board your investment in North America. On the 19th of December 2023, 170 scientists wrote to Joe Biden stating, "Even in the best case scenario, LNG is at least 24% worse for climate than coal. Increasing LNG exports will mean increasing extraction of fossil fuels and climate pollution and directs us away from renewable energy future." My questions are, in the light of the Biden letter, is it -- is the deception, low-carbon gases, misleading the market and is a disingenuous dog whistle? Macquarie's support for renewables just -- sorry, I'll start again. Is Macquarie's support for renewables just a gas policy that also misleads the market? What influence does political policy support have with regard to investment in high-carbon gas and shallow carbon-reducing renewables?

Well, I don't think anything that we've said is misleading to the market. We have a very thorough and detailed process of checking that everything we say is able to be backed up by factual analysis. So I don't think it is the case at all the things that we've said have misled the market. As I said earlier, we do think that gas, natural gas is a very important part of the energy transition, and that will remain the case for quite some time to come. I don't have any particular comment on the letter from scientists, which is, to be honest, not something I'm familiar with.

I have a copy. I will give it to you before I leave.

Views about the carbon intensity of gas versus coal that I've heard are rather different to the one that I think you expressed. But in any event, our position is that gas has an important role to play in the energy transition. That will be the case for some time ahead. And we think that, that sits quite well alongside the renewable investment that we do ourselves and facilitate for others. And no, we haven't mislead the market. Next question, please?

Chair, our next question is from Roderick Anderson. [Operator Instructions]

Thank you, Mr. Chairman. My question is directed towards Rebecca McGrath. On the 23rd of October last year, Empire Energy announced that it had received a $15.6 million research and development tax offset for expenses relating to the drilling and fracking of 2 shale gas wells in the Beetaloo Basin, following finalization of their 2022 Australian tax return. They said that they would use the funds to repay all or part of their Facility A revolving credit facility with Macquarie Bank. Previous announcements from Empire Energy indicated that the anticipated receipt of this tax offset was written into the terms of the credit facility agreement with Macquarie Bank. So firstly, was the bank aware when it entered into this agreement that gas exploration and appraisal are excluded from being core activities able to claim these R&D tax offsets? Secondly, what due diligence was done in 2022 and is being done now to ensure that the bank is not creating loan facilities that are contingent on gas explorers' unlawfully claiming tax credits that may subsequently be recovered from them by the ATR?

I don't think it's reasonable to expect Rebecca to have the details of particular covenants and arrangements for a small facility for 1 particular client, and certainly not across those things. What I would say is that all the appropriate due diligence is done by any part of Macquarie that undertakes any facility or, for that matter, equity investment. As to the tax matters, I'm not in a position to speak about that in any detail. I'm not aware of the details of that. I don't know, Rebecca, if you are, but I think you could be forgiven for not being across that.

No, not.

Sorry. Next question?

Chair, our next question is from Mrs. Susan Hamilton. The question is, do you see AI having a significant impact on your business, particularly with regard to employing AI to replace some aspects of employee work and thereby reducing the workforce?

It's the question that every business in the world is asking themselves how to deploy AI. And there's a lot of work going on in Macquarie on this, both from the point of view of trying to see how we can benefit from the advantages of it and also to make sure that the risks that can accompany new technologies are adequately managed and thought through. So there's a lot of work going on. We have some guardrails in place that protects -- that are designed to protect both our employees, our data and our customers. So it's a work in progress. There's a lot of work happening, and there are some use cases currently in place. Probably Nicole and/or Greg might be best placed to talk a little bit about those? Thanks, Nicole.

Thank you. We have many examples where we are using AI, and we have been using AI for a long time. And what we found is it's either making our employees more productive, so providing them with insights. So for example, our cyber team are using AI and that can detect unusual behavior far more quickly. Within BFS, there are a number of use cases similar to the cyber team. They can use it in BFS to detect fraud alerts or anti-money laundering alerts. But we're also using it, say, in the Commodities and Global Markets space so we can make faster trading decisions as well. From a generative AI perspective, as Glenn said, we have been piloting use cases. We've put the guardrails in place. We're now productionizing many cases of generative AI. And we're finding that it is, again, making our people more productive. I wouldn't say there are whole jobs that are going because of AI, but it's providing them with insights faster to market and allows us to have more scale.

Thank you, Nicole. Next question?

Chair, our next question is from Stephen Mayne. The question is, former Macquarie CEO, Nicholas Moore, has observed that keeping us safe reputationally was a key point Macquarie asked of their teams before supporting proposed investments. In light of this, do we have any regrets about getting involved in the U.K. water sector? We had a profitable 11-year involvement with Thames Water, which ended in 2017. Equity investors like QIC, have now written their Thames Water stakes down to 0 as the new U.K. government is said to be contemplating nationalization of the business, which is currently saddled with $24 billion in debt, amid an ongoing political and media pile on. Are we exposed to that $24 billion debt? And do we have any regrets about literally going back into the sewer in 2021 when we paid more than $2 billion for equity control of Southern Water and committed to invest $4 billion over 4 years, improving its assets. Could Shemara comment on the broader U.K. water scene, how our reputation is being impacted and whether we regret the Southern Water investment?

Well, thank you, Stephen, for that very lengthy and multiple-part question. Shemara, I'll invite you to respond partially, at least.

Sure. Thanks, Glenn. And I think the question that Stephen addressed to me is what do we think about the U.K. water sector and do we regret investing in Southern Water. Our teams that manage our European infrastructure funds are the ones that have more recently invested in Southern Water post exiting Thames Water 8 years ago. And I think their view is that, as I said, we rely on the deep expertise of our teams that we do have something to bring to the water sector in the U.K. So the U.K. government, I think you mentioned the case done by government, have come into a situation where their debt is higher than the water sectors. Let's talk of the debt in Thames Water being 95%. The U.K. debt to GDP is higher than that. And the water sector needs investment. It's a Victorian-era pipe system, where water and sewage go through the same pipe system. And that worked back in Victorian times. But with the huge amounts of excess storm water now washing through that system with climate change and also putting cement over a lot of grasslands and water not being absorbed, massive capital investment is needed to deliver solutions for U.K. water customers. And in our time owning Thames, I think we've talked about this many times before, we put in $11 billion of capital investment. It was triple what was getting invested in public ownership. We were able to bring the leakages down by over 40%. We were able to bring it to some of the best quality water in the U.K. I think there was a 5x improvement there. And we also kept the rates at the lowest in the U.K. So I think our teams believe we can not only bring private capital, which is really needed to drive these solutions with deep expertise to deliver for water users and the water sector in the U.K., and so we feel we have to step up there and deliver for the community using our expertise, but also for the investors in our funds. That's why we've invested in Southern Water. Southern Water is not having the problems Thames Water had. We haven't been an investor in Thames Water for 8 years. So we can't really comment on what is driving all the issues there because when we exited it, it was an investment-grade asset and delivering really good operational outcomes. Southern Water today is meeting the requirements of the regulator. We're just about to go through the next regulatory reset period in April 25, and we have been delivering on the commitments we made. We're well funded, and we think we can bring that into the U.K. water sector. We've been involved in it for a very long time before Thames. We were in Southeast water. We had a role working at Mid Kent Water. So it's a sector where we think we have expertise. And so it's our duty to bring our capabilities to create value for the community and share that value with the investors in the fund and the shareholders. And we think, long term, that's important to our reputation as well. Where there are negative allegations about our reputation, and we have to work with the people directly involved, the customers in Southern, the regulators of the government and, to the extent, we have to treat media as well to address those. But ultimately, the biggest thing is doing a good job, and then talking about it, we agree, is important, but we're very committed to delivering.

Thanks, Shem. Can we have the next question, please?

Chair, our next question is from Mr. Peter Callejero. The question is, in some banks, risk management staff are seen as a pain in the backside by staff. Does the risk management team have enough respect at Macquarie from all staff?

The answer to that is absolutely. The risk management group are highly respected, even when, occasionally, they can be a pain. That is their job, actually, to occasionally say no or not yet or manage the risk a bit better. So we have no doubt at all that the risk management group is held in high esteem, and they do a very good, rigorous job. The Board is completely comfortable with how that's working. Next question, please?

Chair, our next question is from Mr. Stephen Mayne. Big 4 competitor, ANZ, is currently in a world of pain over alleged federal bond market manipulation. Its CEO, Shayne Elliott, has today publicly apologized to the federal government's borrowing authority, [indiscernible]. The ANZ Board has commissioned a major investigation and multiple ANZ traders have been fired. When these sorts of scandals arise, competitor Boards usually ask management what exactly has ANZ done wrong? And is there any risk we could be accused of doing the same thing? What is the answer to that question? Also, as a Director of the New South Wales government's borrowing authority, TCorp, which is managing more than $150 billion of liabilities and bonds for New South Wales taxpayers, does Glenn Stevens believe there may also have been manipulation of bonds trading in state debt as well as federal debt? Could this become a systemic issue between government borrowers and Australia's big 5 banks?

I have no comment on the ANZ matter. We're confident that there's nothing of that nature that's happened inside Macquarie. The Board and the management always look at risk events and culture events around the market to ensure that our systems and our practices are always where they should be. Tcorp is not a matter for today's agenda, Stephen, so I'm not going to comment on that, and it's inappropriate to do so. Next question?

Chair, our next question is from the floor from shareholder, Mr. [ Craig Corfield ]. [Operator Instructions]

Good morning, Mr. Stephens. Just a side note, when you're reading Adele Ferguson's book, Banking Bad, you'll note I get a mention for the reform work that we do at AGMs and parliamentary inquiries. That's [indiscernible]. The annual report to shareholders, I do not believe, is timely or balanced. I want to select just 3 things. One, customer service really empathizing, really listening to and understanding the customers and taking appropriate action, not just dollar settlements, is the Macquarie sort of style. More is needed in that respect. I know in our families 2 long-standing cases with Macquarie that the interest of the customers is really missing in action. Two, ASIC's recent $10 million fine, where Macquarie admitted to the Federal Court, we failed to do all things necessary to ensure the financial services were provided efficiently, honestly and fairly. And three, APRA, under Wayne Byre's leadership, issued a $500 million capital penalty for deficiencies in management and operational risk back in 2021, raises at each AGM demonstrating Macquarie's inability to fix it. John Lonsdale said, for one of the country's largest financial institutions to have committed breaches of this nature is unacceptable. And he said, alongside the enforcement actions, APRA will subject Macquarie Bank to intensified supervision to address the bank's persistent difficulties in complying with its prudential obligations. Two questions. One, why are the steps to repair the risk failures APRA identified not published, like CBA did? And two, at Thames Water sewage disaster to ASIC's federal court win and APRA's $500 million overlay, why is it taking so long to repair these risk failures?

Well, the APRA matters, as you said, from some years ago, there is an extensive work program that's been underway for several years now to remedy that. That is overseen by APRA, and the work that's done there is also assured by PwC. That work is very well advanced. So it's not as though nothing has happened. It's not yet complete, and some aspects of it will be a couple more years before they are. But many aspects of it have been completed and are in the stage of being embedded. As for when the $500 million penalty might be removed, that's a matter for APRA, obviously, and we can't comment on that. I would observe that the tendency has been for other banks that have had similar types of penalties that it takes some years. I think it's a safe assumption that, that will be the case for Macquarie. On the other matters you mentioned, yes, there have been some failings in some areas in the past. What we've done about those is, firstly try to fix them. Secondly, acknowledge them with the regulator and take our penalties as they see fit and do better in the future. I don't think there's anything I could say beyond that today. On the Thames Water matter, I think Shemara has already covered that. But our view is that the period of Macquarie ownership, through the funds and management, was a success for that organization. As for what's happened in the ensuing 7 years, we're not in control of that. It's regrettable, and it's unfortunate that our name is dragged through the mud by some people. But the history of that ownership and management, when we had it, was actually a very good one, and we stand by that. Your second question?

That was the 2 questions, but you didn't actually address my first one, which was why are the steps to repair the risks APRA identified not published, as CBA published. We could track CBA along the way. I think CBA had 11 quarterly reports. And I could see what APRA was saying, what CBA was up to speed on, what they were failing on. We don't have that transparency, and that's a word you use in your annual report.

Well, I think the CBA case is a little bit different. The CBA actually did have an external body come in and review the risk culture. And in fact, my colleague, Jillian, was part of that. So that whole process was a much more public one. What we're doing is working on a couple of very major work streams, which have well in excess of 100 milestones, most of which have already been achieved. To remedy this, we don't think it's sensible or useful to do all that in the public domain. We do work with APRA in a very constructive way, and we will endeavor to get those work streams finished in a very timely fashion and move on.

You say the current CBA report was different. But actually, you had your own APRA report into your own governance filings. And you decided not to publish it as well as this one not being published. I really think it's a lack of transparency. If you're there to -- we all know things go wrong. I'm not saying things don't go wrong. But if something goes wrong, and it's a regulator, and it's affecting hundreds of thousands or millions of Australians, and the federal court said you're not efficient, you're not honest, you're not fair, and you admitted it, really, just bring some transparency on to say, "This is what's coming up, and this is what we will face into." I'm not happy with the no transparency.

Well, I do not agree that there's no transparency, but we're going to have to agree to disagree on that one, I think. Next question, please?

Chair, our next question is from [ Factory Holdings ] PTY LTD. [Operator Instructions]

Good afternoon, Chairman and the Board. I've been customer and a shareholder of Macquarie for over 35 years, even though this is the first time I'm attending a face-to-face meeting in 15 years because I live in Melbourne now. And I'm sure the Board is very competent and intelligent group of people, and I have a very strong moral question for you all. What do I tell my grandson when he asked me that, in your lifetime, genocide happened in Gaza and what did you do?

Well, I'm not in a position to make a comment on the Gaza-Israel conflict, sir. It's a very, very complex and difficult situation. But it's not a thing that Macquarie intends to take a public position on. I don't think it would be appropriate for us. We all have our own personal views, but we don't propose to have a company statement on the matter.

By the way, we have many investor groups, which I'm part of. I was also awarded the UN Peace Prize and also got the Australia Day award. And I still belong to a lot of inter-faith networks. We talk in all of these groups. And we are scratching ahead how do we answer this greatest moral question in our lifetime: how to stop the genocide in Gaza? And Macquarie is a very powerful organization in some discussions we have. They say Macquarie is probably more powerful than the Australian government. And I'm sure you can do something.

Well, I don't think we're more powerful than the Australian government. And statements of foreign policy for the country, that is actually their job, not ours. I'm sorry. Next question, please?

Chair, our next question is from [ Kyle Robertson ]. [Operator Instructions]

Good afternoon, Board, Chair. My question relates to Macquarie's net-zero commitments and expectations for its banking clients in the oil and gas sector. So as a member of the Net-Zero Banking Alliance, Macquarie has committed to transition its lending and investment portfolios to align with a 1.5-degree warming pathway. This commitment has driven many NZBA banks around the world, including the big 4 Australian banks, to put in place policies that require their upstream oil and gas clients to have credible Paris-aligned climate transition plans as a condition for new or renewed lending. These policies are time-bound, with transition plans required from October 2025. To varying degrees, the big 4 Australian banks have disclosed how they will assess their clients' transition plans for alignment with Paris, including what criteria will be included in the assessment process. Unlike the big 4 banks, Macquarie has only disclosed that it considers the existence and reasonableness of a client's decarbonization plan when deciding whether or not to finance an oil and gas company. There's no detail on how Macquarie -- what criteria Macquarie uses to conduct those assessments or which best practice international transition plan frameworks have been leveraged to inform those assessments. There's no detail on what Macquarie considers to be reasonable, no detail on whether such plans have to be consistent with global climate goals, and finally, no time-bound requirement for those clients to produce those transition plans as a condition for new or renewed financing. Now some of Macquarie's oil and gas clients allocated hundreds of millions of dollars to continue to explore for new oil and gas resources in the past 3 years. An analysis by German research and advocacy institute, Urgewald, concluded that the expansion plans of many of Macquarie's oil and gas clients will significantly overshoot the 1.5-degree warming limit. So considering the importance of ensuring individual clients are aligned with Macquarie's climate commitments, why hasn't Macquarie disclosed a policy framework for assessing its oil and gas clients' transition plans?

Well, we have disclosed quite a bit about our own plans, and we work with our clients as much as we can to help them in their efforts to decarbonize their businesses. And as I said earlier, we do think that natural gas, in particular, is an important part of the transition path for the world. I'm not sure what more I can say to you other than that. There is -- we do work in detail with our customers. Whether we can do more to disclose the way we evaluate that, we will take that on notice and see what can be done.

Does Macquarie think it's important that its oil and gas clients are aligned with the 1.5-degree pathway so that it can align its lending portfolio with its net-zero commitments?

We think it's important our clients have their own path to net-zero world by 2050, yes.

So is this a policy that Macquarie will consider disclosing more detail on in the future?

We'll consider what further disclosure might be helpful. Next question, please?

Chair, our next question is from Mr. Stephen Mayne. The question is, the disgraced CFMEU is going into administration. It had a monopoly union coverage over our new head office, which was delivered by Lendlease. The Chair noted today that this building was one of Macquarie's largest balance sheet infrastructure undertakings to date. How much in Macquarie shareholder funds did we originally anticipate spending? And what was the final figure? Did we pay 30% more due to the CFMEU work practices as former ACCC Chair, Rod Sims, estimated last week? And are we confident organized crime figures were not able to work on the job? Given the work-from-home phenomenon that emerged at during COVID, how many employees are we expecting to occupy the building? And are we looking to sublease any space? Finally, could PwC auditor, Voula Papageorgiou, comment on whether the carrying value of this enormous investment was tested as at March 31? Or whether that will only happen in the upcoming September 30 half year audit given that the building has only just reached final completion?

Was just about 6 questions there, Stephen, so you offer me the opportunity to pick which 2 to answer. But I might ask Nicole, I think, to talk about the projects, the management of the risk assessment, the costings to the extent we can. Please, if you would. Thank you.

Thank you. Our role in the project, we were an active client and the principal contractor is Lend Lease and with strong robust governance, as you would expect from us. And Lend Lease contracted with all the contractors, Lend Lease had all the dealings with the unions. Our role was to ensure that there was robust governance from a spend and a quality and an execution perspective. The job has come in on time and on budget. We had an independent QS go through all of the spend over the last 6 years, so all of that was a very robust process. The building was always designed for Macquarie to occupy the vast majority. But we will have some tenants come in and occupy some of the top part of the building, but we are occupying the majority of the building. As Glenn mentioned earlier on, next week, we're opening the building to our staff. We have a gradual transition. We will have over 9,000 people moving in to this precinct. And it is the first time in 25 years we've had all of our staff together in one building in Sydney.

On the testing for the audit year, it was very seriously tested as PW. It always does. I don't know if you want to add any comment, Voula. Okay. If you take the microphone, thank you.

Thank you for your question, Mr. Mayne, and good afternoon, shareholders. Just to reiterate what the Chairman just said, the various components of this project were absolutely subject to audit for the 31 March 2024 year end, and we're satisfied that they were all appropriately presented in accordance with the accounting standards in the financial report.

Thank you. Next question, please.

Chair, we will now take a question from the floor. Constantin Investments Proprietary Limited, please stand to ask your question.