Sydney, 30 October 2015
Macquarie Group (ASX: MQG; ADR: MQBKY) today announced a net profit after tax attributable to ordinary shareholders of $A1,070 million for the half-year ended 30 September 2015 (1H16), up 58 percent on the half-year ended 30 September 2014 (1H15) and up 16 percent on the half-year ended 31 March 2015 (2H15).
Macquarie Group Managing Director and Chief Executive Officer (CEO), Nicholas Moore said: “The six months to 30 September 2015 saw all operating groups deliver net profit contributions up on 1H15.”
Macquarie’s annuity-style businesses (Macquarie Asset Management (MAM), Corporate and Asset Finance (CAF) and Banking and Financial Services (BFS)) continued to perform well, with 1H16 combined net profit contribution up 38 percent on 1H15. Macquarie’s capital markets facing businesses (Macquarie Securities (MSG), Macquarie Capital and Commodities and Financial Markets (CFM)) continued to improve with combined net profit contribution up 66 percent on 1H15.
Net operating income of $A5.3 billion in 1H16 was up 24 percent on 1H15 and up seven percent on 2H15, while operating expenses of $A3.7 billion were up 17 percent on 1H15 and up three percent on 2H15.
“While Macquarie continued to build on the strength of its Australian franchise, its international income accounted for 71 percent of the Group’s total income for 1H16. This reflects the growth of our international operations, as well as the favourable impact of foreign exchange movements,” Mr Moore said.
A 10 percent movement4 in the Australian dollar is estimated to have approximately seven percent impact on full year net profit. Given currency movements, Macquarie estimates approximately a quarter of the increase in 1H16 net profit on 1H15 is attributable to foreign exchange.
The effective tax rate of 33.1 percent was down from 38.9 percent in 1H15 and down on the full year ended 31 March 2015 (FY15).
Macquarie’s assets under management (AUM) at 30 September 2015 were $A504 billion, up four percent on 31 March 2015.
Mr Moore said: “The Group remains well positioned, with a strong and diverse global platform and specialist skills across a range of products and asset classes. All of this is built on the foundation of a strong balance sheet, surplus capital, a robust liquidity and funding position and a conservative approach to risk management.”
Macquarie also announced today an interim dividend of $A1.60 per share, 40 percent franked, up from the 1H15 dividend of $A1.30 per share and down from the 2H15 dividend of $A2.00 per share, both 40 percent franked. This represents a payout ratio of 51 percent. The record date is 11 November 2015 and the payment date for the interim dividend is 16 December 2015.
On 24 September 2015, Macquarie Group Limited (MGL) and Macquarie Bank Limited (MBL) announced that Kevin McCann AM will retire as Chairman and a Voting Director of both companies effective 31 March 2016. Independent Director, Peter Warne, was appointed non-executive Chairman of the Boards of MGL and MBL effective on Mr McCann’s retirement.
While the impact of future market conditions makes forecasting difficult, it is currently expected that the combined net profit contribution from operating groups for the year ending 31 March 2016 (FY16) will be up on FY15.
The FY16 tax rate is currently expected to be broadly in line with 1H16.
Given the earlier than expected recognition of additional performance fees in 1H16, the half-year ended 31 March 2016 (2H16) result is expected to be lower than 1H16 but higher than the prior corresponding period (2H15).
Accordingly, Macquarie continues to expect the FY16 result to be up on FY15.
The Group’s short term outlook remains subject to a range of challenges including: market conditions; the impact of foreign exchange; the cost of our continued conservative approach to funding and capital; and potential regulatory changes and tax uncertainties.
Mr Moore said: “Macquarie remains well positioned to deliver superior performance in the medium term due to its deep expertise in major markets, strength in diversity and ability to adapt our portfolio mix to changing market conditions, the ongoing benefits of continued cost initiatives, a strong and conservative balance sheet, and a proven risk management framework and culture.”
Half-year result overview
Chief Financial Officer (CFO), Patrick Upfold said: “Net operating income of $A5.3 billion for 1H16 increased 24 percent on 1H15, while total operating expenses of $A3.7 billion for 1H16 increased 17 percent on 1H15.”
Key drivers of the change from the prior corresponding period were:
Staff numbers were 13,582 at 30 September 2015, down from 14,085 at 31 March 2015.
The income tax expense for 1H16 was $A530 million, up 23 percent from $A432 million in the prior corresponding period. The effective tax rate of 33.1 percent was down on FY15.
Strong funding and balance sheet position
“Macquarie remains well funded with a solid and conservative balance sheet. The Group continued to pursue its strategy of diversifying funding sources during the year by growing its deposit base and accessing different funding markets,” Mr Upfold said.
Total customer deposits5 increased 7.8 percent from 31 March 2015 to $A42.8 billion at 30 September 2015. During 1H16, $A10.3 billion6 of term funding was raised covering a range of sources, tenors, currencies and product types as well as $A4.0 billion6 raised as an AWAS Aviation Capital Limited (AWAS) acquisition debt facility.
During 1H16, Macquarie completed the on-market purchase of shares to satisfy the FY15 Macquarie Group Employee Retained Equity Plan (MEREP) requirements of $A383 million at a weighted average price of $A80.68.
In October 2015, the Group issued $A0.4 billion in equity via an Institutional Placement (Placement) to provide capital for the acquisition of the Esanda dealer finance portfolio from ANZ Banking Group. An associated Share Purchase Plan (SPP) will be offered to eligible shareholders in Australia and New Zealand from 2 November 2015, who can apply for shares with a dollar value of up to $A10,000. If eligible shareholders participated in the March 2015 SPP, the maximum value of shares allocated from both the March 2015 SPP and this offer is limited to $A15,000. The record date for participation in the SPP was 7 October 2015 (the day prior to the launch of the Placement).
SPP Shares will not be eligible for the 1H16 dividend, however the offer price will be adjusted to reflect this. SPP shares will be offered at the lower of:
– $A78.40 representing the issue price paid under the Placement ($A80.00) less the 1H16 dividend ($A1.60); and
– a 1.0 percent discount to the volume weighted average price of shares traded during the pricing period7.
Full details of the SPP will be sent to eligible shareholders on or around 2 November 2015.
Macquarie intends to redeem the Preferred Membership Interests $US400m hybrid in December 2015 and expects to replace these in due course.
Macquarie Group remains very well capitalised with APRA Basel III Group capital of $A16.9 billion at 30 September 2015, a $A3.1 billion surplus to Macquarie’s minimum regulatory capital requirement from 1 January 2016. The Bank Group APRA Basel III Common Equity Tier 1 capital ratio was 9.9 percent at 30 September 2015, which was up from 9.7 percent at 31 March 2015.
In August 2014, APRA issued its final rules for Conglomerates with implementation timing yet to be announced. Macquarie continues to work through the application of the rules with APRA and the current assessment remains that Macquarie has sufficient capital to meet the minimum APRA capital requirements for Conglomerates.
The government released its response to the Financial System Inquiry on 20 October 2015, agreeing with the majority of the recommendations and setting a timetable for their implementation. The government endorsed APRA to implement most of the resilience recommendations and so the final design of any policy changes has yet to be determined.
Based on finalised BCBS leverage ratio requirements9 released in January 2014, the Bank Group is well in excess of the currently proposed Basel III 3.0 percent minimum10, with a 6.0 percent leverage ratio as at 30 September 2015. APRA’s ‘super equivalence’ in relation to the definition of capital carries over to the leverage ratio. On an APRA basis, the Bank Group’s leverage ratio is 5.1 percent as at 30 September 2015.
Liquidity Coverage Ratio (LCR) requirements came into effect from 1 January 2015, with disclosure required from 1 July 2015. For the quarter ended September 2015 the Bank Group’s average LCR was 170 percent11.
Operating Group performance:
This release does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States. Any such securities have not been, and will not be, registered under the U.S. Securities Act of 1933 (Securities Act), or the securities laws of any state or other jurisdiction of the United States and may not be offered or sold, directly or indirectly, in the United States or to, or for the account or benefit of, persons in the United States, unless they have been registered under the Securities Act (which Macquarie has no obligation to do or to procure) or are offered and sold in a transaction exempt from, or not subject to, the registration requirements of the Securities Act.