Sydney, 03 May 2013
Macquarie Group (ASX: MQG; ADR: MQBKY) today announced a net profit after tax attributable to ordinary shareholders of $A851 million for the full year ended 31 March 2013 (FY13), up 17 per cent on the full year ended 31 March 2012 (FY12). Profit for the second half of the year (2H13) was $A490 million, up 36 per cent on the first half (1H13).
Macquarie Group Managing Director and Chief Executive Officer Nicholas Moore said: “Global market conditions generally improved during the year to 31 March 2013 which, together with strong cost control across the Group, led to the improved result. Client activity remained subdued for Macquarie’s capital markets facing businesses and affected the performance of some groups.
“Profit for 2H13 was up 36 per cent on 1H13. Macquarie’s annuity-style businesses (Macquarie Funds, Corporate and Asset Finance and Banking and Financial Services) continued to perform well with combined net profit contribution up 4 per cent on 1H13, and up 27 per cent on 2H12. Macquarie’s capital markets facing businesses (Macquarie Securities, Macquarie Capital and Fixed Income, Currencies and Commodities) delivered a significantly improved result with combined net profit contribution up 202 per cent on a weak 1H13, and up 14 per cent on 2H12, however market conditions remain subdued for most businesses.
“The 2H13 result was impacted by an increase in the effective tax rate to 43.5 per cent from 30.2 per cent for 1H13. The high 2H13 tax rate was due to increased profitability in the US, write down of certain international group tax assets and increased provisioning for tax uncertainties.
“For the full year ended 31 March 2013, Macquarie’s annuity-style businesses continued to perform well with FY13 combined net profit contribution up 10 per cent on FY12. Macquarie’s capital markets facing businesses, although continuing to face subdued market conditions in most businesses, delivered a combined net profit contribution up 54 per cent on FY12. Macquarie Securities and Macquarie Capital continued to be impacted by low activity levels across ECM and M&A.
“FY13 operating expenses were $A5.3b down 10 per cent on FY12 as a result of continued operating efficiencies, with employment expenses of $A3.3b down 8 per cent on FY12.
“The effective tax rate for FY13 was 38.5 per cent up from 28.2 per cent in FY12.
“Macquarie’s assets under management at March 2013 were $A347 billion, up from $A327 billion at March 2012.
“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, significant surplus capital, a robust liquidity and funding position together with a conservative approach to risk management.”
The Board resolved to pay a final ordinary dividend of $A1.25 per ordinary share (40 per cent franked), up from $A0.75 in the first half (unfranked). The total ordinary dividend payment for the year was $A2.00 per ordinary share, up from $A1.40 in the previous year. This represents an annual dividend payout ratio of 79 per cent.
The Board has resolved that the annual dividend payout ratio will be in the range of 60 to 80 per cent. The future rate of franking remains subject to the composition of income.
Macquarie today advised that Catherine Livingstone will retire by rotation at the upcoming Annual General Meeting (AGM) on 25 July 2013. Catherine has notified the Board that she does not intend to seek re-election at the upcoming AGM and will retire as a Director of Macquarie Group and Macquarie Bank at that time. Catherine joined the Macquarie Bank Board in November 2003 and became Chairman of the Board Audit Committee in December 2005. The Macquarie Group Chairman Kevin McCann, on behalf of the Board, thanked Catherine for her services as a Director and Chairman of the Board Audit Committee. Mr McCann said “The Board deliberations and proceedings have greatly benefited from Catherine’s wise counsel and outstanding performance as Audit Chair.”
Michael Coleman joined the Boards of Macquarie Group and Macquarie Bank on 9 November 2012. An audit partner at KPMG for 30 years, Michael has a strong background in risk management, financial reporting, regulatory and corporate governance and experience across sectors including financial services, funds management and property in Australia and Asia. He has become a member of the Board Risk Committee and the Board Audit Committee. He will succeed Catherine Livingstone as Chairman of the Board Audit Committee.
Macquarie also advised that Peter Maher has announced his intention to retire from Macquarie Group after serving as Group Head of Banking and Financial Services (“BFS”) for over 12 years. Peter will be leaving BFS following a record result in the current year, and having built and integrated a strong retail offering for Macquarie. Mr Moore said: “The Board and management would like to take this opportunity to thank Peter for his dedication in building the BFS business over many years of service”.
Greg Ward has been appointed Group Head of BFS in addition to his current position as Deputy Managing Director of Macquarie Group Limited and Chief Executive Officer of Macquarie Bank Limited.
As mentioned in the interim update, Nicole Sorbara was appointed Chief Operating Officer and Head of the newly formed Corporate Operations Group on 1 January 2013. Nicole has also joined Macquarie’s Executive Committee.
Nigel Smyth retired as Head of the Market Operations and Technology Group on 1 January 2013 and will leave Macquarie on 1 July 2013. We thank Nigel for his significant contribution to Macquarie over the past 11 years, during a period of great technological change.
While market volatility makes forecasting difficult, subject to market conditions it is currently expected that the FY14 net profit contribution from operating groups will be up on FY13.
The tax rate is currently expected to be in the mid 30 per cent range based on the present mix of income.
Accordingly, the FY14 result for the Group is expected to be an improvement on FY13 provided market conditions for FY14 are not worse than those experienced over the past 12 months.
The FY14 result also remains subject to a range of other challenges including:
Macquarie remains well positioned to deliver superior performance in the medium term, due to its deep expertise in major markets, strength in diversity, ability to adapt its 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.
Chief Financial Officer Patrick Upfold said: “Net operating income of $A6,700 million for the year ended 31 March 2013 was down 4 per cent, while total operating expenses of $A5,295 million were down 10 per cent on the prior year. Key drivers of the change from the prior year are:
A 19 per cent increase in trading income to $A1,234 million, primarily in Fixed Income, Currencies and Commodities with the business experiencing improved market conditions across most markets, particularly energy, agricultural, credit and financial markets.
A 2 per cent increase in fee and commission income to $A3,422 million, with base and performance fees of $A1,183 million an increase of 11 percent, primarily due to an increase in assets and equity under management combined with higher performance fees earned from funds outperforming their benchmarks. These increases were offset by reduced brokerage and commissions income impacted by lower volumes across equity markets, and reduced fee income from mergers and acquisitions, advisory and underwriting activity as capital market conditions remained subdued.
A 48 per cent decrease in other operating income and charges to $A585 million. The decrease was primarily due to the prior year benefiting from the receipt of a special distribution of $A295 million from Sydney Airport and an increase in impairment charges in the current year.
A 10 per cent reduction in total operating expenses achieved as a result of cost management initiatives undertaken over the past two years, including the centralisation of support functions to generate scale benefits through improved operational efficiencies and the scaling back or exiting of selected businesses.
Income tax expense for the year ended 31 March 2013 was $A533 million, up 86 per cent from $A287 million in the prior year due to a combination of higher operating profit before income tax as well as increased profitability in the US, write down of certain international group tax assets, particularly in Asia and increased provisioning for tax uncertainties”.
Mr Upfold said Macquarie continued to benefit from well-diversified funding sources and continued to pursue its strategy of diversifying funding sources by growing its deposit base and accessing different funding markets.
Retail deposits increased by 7 per cent from March 2012 to $A31.0 billion, while total deposits increased from $A33.9 billion at March 2012 to $A36.2 billion at March 2013. During FY13, $A9.7 billion of new term funding was raised and $A2.8 billion of government guaranteed debt was repurchased with a plan to launch a public tender to repurchase additional outstanding government guaranteed debt.
Macquarie maintained its strong capital base through the year. Regulatory capital of $A12.9 billion at 31 March 2013 was $A3.4 billion in excess of the Group’s minimum regulatory capital requirement on a Harmonised Basel III basis at 8.5 per cent RWAs. Macquarie Bank also noted a strong Harmonised Basel III Common Equity Tier 1 ratio of 11.6 per cent at 31 March 2013, which was down from 12.2 per cent at 31 March 2012.
During the year $A251 million of shares were purchased under the buyback at an average price of $A25.58 per share. Macquarie intends to purchase approximately $A250 million of shares on-market to satisfy the requirements of the Macquarie Group Employee Retained Equity Plan. The buying period for the MEREP will commence on 13 May 2013 and is expected to be completed early July 20134. The shares for the 2H13 Dividend Reinvestment Plan are to be acquired on-market3.
Macquarie intends to replace the 2008 Convertible Preference Securities (CPS) with a new security. There will be a reinvestment offer for existing CPS holders and a priority offer for Macquarie Group Limited shareholders. The final terms are subject to regulatory approval.