01 May 2009
Macquarie Group Limited (ASX:MQG) today announced a net profit after tax attributable to ordinary shareholders for the year to 31 March 2009 of $A871 million following a year of testing global market conditions.
Macquarie Group Managing Director and Chief Executive Officer, Nicholas Moore, said: “Macquarie has remained profitable despite a year of challenging global market conditions. In the second half, there was significant volatility and continued market declines particularly in November 2008 and February 2009. The year’s result was marked by a significant number of one-off items resulting from these market conditions.”
The year’s net profit was 52% below the record net profit for the previous year of $A1.8b, when market conditions were very strong, and is in line with guidance provided at the February 2009 Operational Briefing.
“This result, however, shows the Group’s resilience and adaptability,” Mr Moore said.
“Macquarie’s full year profit was achieved despite substantial write-downs, much of which are provisions related to strategic long-term investments in Macquarie-managed funds which align Macquarie’s interests with those of other fund investors.
“Our strong funding and balance sheet position was further strengthened in the second half, with an increase in cash and liquid assets, term funding and strong growth in deposits.
“We have a long-term policy of holding a level of capital to efficiently support our businesses and to grow the capital base ahead of business requirements.
“At 31 March, we remained in a strong capital position with $A3.1b of capital in excess of the Group’s minimum capital regulatory requirement,” Mr Moore said.
The Group declared a total dividend for the year of $A1.85 per share, which includes a final dividend of $A0.40 per ordinary share franked to 60%. The full year dividend represents a 60% payout ratio which is in line with Macquarie’s previously stated policy of a 50-60% payout ratio. The record date is 15 May 2009 and the dividend payment date is 3 July 2009. A discount of 2.5% has been re-introduced on the Dividend Reinvestment Plan, effective for the upcoming final dividend.
Strong funding and balance sheet position
Mr Moore said: “Macquarie has always been well capitalised and funded. Over the past three years, we increased our regulatory capital by approximately $A5.4b. This has resulted in Macquarie being well placed to withstand the current market conditions and to capitalise on emerging opportunities.”
Macquarie entered the 2009 financial year with a strong funding position and this was further strengthened during the year. As at 31 March 2009, Macquarie had:
Key drivers of the result
Macquarie Group Chief Financial Officer, Greg Ward, said: “The global market disruption impacted all operating group results but Macquarie’s operating groups and divisions remained profitable, with the exception of the Banking and Financial Services Group and the Real Estate Banking Division.
“There was sound demand for Macquarie’s services and products across a wide range of markets and geographies. For instance, Macquarie Capital advised on 299 deals valued at $A203b over the year, compared with 304 deals valued at $A199b the prior year,” Mr Ward said.
In most categories, however, Macquarie’s operating income declined in 2009 compared with the previous year. Group operating income of $A5.5b was 33% below pcp.
The full year result was achieved despite substantial one-off costs and write-downs which totalled $A2.5b for the year. These comprised:
The result included a gain of $A197m on the financing of the acquisition of Macquarie Income Preferred Securities (MIPS) and an $A274m unrealised gain relating to the fair value adjustment on fixed rate subordinated debt.
Employment expenses were down $A1.8b or 44% and the compensation ratio fell to 41% from 47% in the prior year. Staff numbers were approximately 12,700 at 31 March 2009, compared with approximately 13,000 at 31 March 2008, resulting predominantly from the exit from some businesses and a review of staffing levels by each business.
Return on equity was 9.9% for the year, down from 23.7% for the prior year.
During the year there were a number of opportunities realised, including:
“In line with its business model, Macquarie responded to the changed operating environment and adapted in a number of ways. These changes included winding back the Australian residential mortgage business and the sale of the majority of the margin lending portfolio and the Italian mortgage portfolio,” Mr Ward said.
Macquarie focuses over the medium term
Mr Moore said Macquarie Group has historically focussed on delivering growth over the medium term by providing products and services to clients.
He said this approach would continue through a combination of incremental growth and evolution.
"A significant portion of profit today comes from businesses that did not exist five years ago.
“In the year to 31 March 2009, 40% of operating income came from businesses that did not exist in 2004. At the same time we evolved new businesses, we exited those that were no longer profitable in the short and medium term."
Mr Moore said that businesses Macquarie entered between 2004 and 2009 now provided the following full year operating income contributions to Macquarie’s operating groups:
Mr Moore said that all operating groups were continuing to adapt and evolve and remained busy. All operating groups were looking to grow market share as competitors reduced their activities or exited businesses.
Update on changes to remuneration arrangements
On 31 March, the Board of Directors of Macquarie announced changes to the Group’s remuneration arrangements consistent with global remuneration and regulatory trends.
The proposed changes will be subject to approval by shareholders at the July 2009 AGM.
As part of the proposed changes, it was estimated that approximately $A500m of prior years’ retained profit share would be applied to the grant of fully paid ordinary Macquarie shares in 2009.
The Macquarie equity participation was proposed to be provided via issue of new shares, on-market share purchases or a combination of both at the discretion of the Board.
The Board of Directors of Macquarie has now resolved that the approximately $A500m of Macquarie equity will be provided through the issue of new shares.
The shares are proposed to be priced at the volume weighted average price (VWAP) of Macquarie shares for the period from 4 May to the AGM on 29 July 2009.
Mr Moore said market conditions were likely to remain challenging, making short-term forecasting extremely difficult.
“While there were some early signs of markets stabilising in March and April, significant uncertainties remain and it is still too early to make any judgements on sustained market improvements,” he said.
Mr Moore said that 2010 was likely to be characterised by:
Mr Moore said Macquarie continued to maintain a cautious stance with a conservative approach to funding and capital.
“Our strong balance sheet, strong team and market conditions provide opportunities for medium term growth, building upon the strength, diversification and global reach of our businesses and effective risk management. We are well positioned to take advantage of both ongoing growth initiatives and incremental acquisitions,” Mr Moore said.
Full year result overview
Total operating income from ordinary activities for the year decreased 33% on the pcp to $A5.5b. Operating income before write-downs, impairments, equity accounted losses and other one-off items declined 14% to $A7.6b; fee and commission income decreased 13% to $A4.0b; trading income decreased 35% to $A1.2b; share of net profits of associates increased 200% to $A468m, net interest income increased 15% to $A938m; other asset and equity investment income declined 50% to $A550m and other income increased 61% to $A354m.
Performance of Macquarie’s operating groups during the year:
Retirement of Laurie Cox
Executive Voting Director, Laurie Cox, has advised the Board that he will not stand for re-election at this year's Annual General Meeting and that he will also stand down as an Executive Director. Laurie joined the Macquarie Bank Board as a Non-Executive Director and Joint Chairman of Macquarie Corporate Finance in January 1996. He became an Executive Director in March 2004.
Macquarie Acting Chairman Kevin McCann said that Mr Cox’s experience in the securities and investment banking industries has provided a valuable contribution to Macquarie over 13 years.
1 This represents operating income before write-downs, impairment charges, equity accounted losses, provisions and one-off items of income including the profit on the purchase of the MIPS and the fair value adjustment of fixed rate issued debt relating to changes in the market price of Macquarie's credit spreads.
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