Description
In 1813 Governor Lachlan Macquarie overcame an acute currency shortage by purchasing Spanish silver dollars (then worth five shillings), punching the centres out and creating two new coins – the 'Holey Dollar' (valued at five shillings) and the 'Dump' (valued at one shilling and three pence). This single move not only doubled the number of coins in circulation butincreased their worth by 25 per cent and prevented the coins leaving the colony. Governor Macquarie's creation of the Holey Dollar was an inspired solution to a difficult problem and for this reason it was chosen as the symbol for Macquarie Group.
MACQUARIE GROUP LIMITED ACN 122 169 279
2015 Annual Report
Macquarie Group
The Holey Dollar 2015 Annual General Meeting
Macquarie Group’s 2015 Annual General Meeting
will be held at 10:30am on Thursday, 23 July 2015
at the Sheraton on the Park (Grand Ballroom),
161 Elizabeth Street, Sydney NSW 2000.
Details of the business of the meeting will be contained
in the Notice of Annual General Meeting, to be sent
to shareholders separately.
The Macquarie name and Holey Dollar device are registered
trade marks of Macquarie Group Limited.
In 1813 Governor Lachlan Macquarie
overcame an acute currency shortage
by purchasing Spanish silver dollars
(then worth fve shillings), punching
the centres out and creating two new
coins – the ‘Holey Dollar’ (valued at
fve shillings) and the ‘Dump’ (valued
at one shilling and three pence).
This single move not only doubled
the number of coins in circulation but
increased their worth by 25 per cent
and prevented the coins leaving the
colony. Governor Macquarie’s creation
of the Holey Dollar was an inspired
solution to a diffcult problem and
for this reason it was chosen as the
symbol for Macquarie Group.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Annual Report
Contents
1
Financial Highlights 2
Chairman's and Managing Directors’ Letter 4
Operating and Financial Review 6
Corporate Governance Statement 19
Macquarie Group Foundation Review 28
Diversity Report 29
Risk Management Report 33
Environmental, Social and Governance Report 49
Directors’ Report 66
– Schedule 1 – Directors' experience and special responsibilities 72
– Schedule 2 – Remuneration Report 77
– Schedule 3 – Auditor's independence declaration 115
Financial Report 116
– Income Statements 117
– Statements of comprehensive income 118
– Statements of financial position 119
– Statements of changes in equity 120
– Statements of cash flows 122
– Notes to the financial statements 123
– Directors’ declaration 226
– Independent auditor’s report 227
Ten year history 228
Additional investor information 229
Glossary 234
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Financial Highlights
2
3
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Chairman's and Managing Director’s Letter
4
A year of continued strong performance
We are pleased to announce Macquarie Group achieved a
net profit of $A1.6 billion for the year ended 31 March 2015,
up 27 percent on the prior year.
The Group reported record operating income of $A9.3
billion, an increase of 14 percent on the prior year.
Today’s result reflects the return on many years of
investment across the business, enabling the Group to
further capitalise on improved trading conditions.
Five of Macquarie’s six operating groups achieved a higher
net profit contribution
(1)
during the year, with record net profit
contributions from Macquarie Asset Management (formerly
Macquarie Funds Group), Corporate and Asset Finance,
Banking and Financial Services and Commodities and
Financial Markets (formerly Fixed Income, Currencies and
Commodities).
Our annuity-style businesses (Macquarie Asset
Management, Corporate and Asset Finance and Banking
and Financial Services) had another strong year, with a
combined net profit contribution of $A2.8 billion, an increase
of 33 percent during the year. These businesses have
continued to grow in the challenging market conditions of
recent years, highlighting the diversity of Macquarie’s
business offering and its ability to adapt to changing
conditions.
Among the annuity-style businesses:
– Macquarie Asset Management delivered strong annuity
base and performance fee income
– Corporate and Asset Finance experienced increased
lending and leasing activity and gains on asset and
business sales
– Banking and Financial Services experienced continued
volume growth across its mortgage business and wrap
platform, as well as business lending and deposits.
The net profit contribution from our capital markets facing
businesses (Macquarie Securities Group, Macquarie Capital
and Commodities and Financial Markets) was $A1.3 billion,
an increase of 19 percent on the prior year. These
businesses continued to build on their strong franchise
positions and benefited from improving market conditions.
Among the capital markets facing businesses:
– Macquarie Securities Group continued to experience
strong equity capital markets (ECM) activity in Australia,
while client activity across Asia remained subdued
– Macquarie Capital experienced increased activity in
mergers and acquisitions and ECM, particularly in
Australia and the US
– Commodities and Financial Markets improved its
returns across its commodities related activities, as well
as its fixed income and foreign exchange platforms,
while the credit environment remained mixed.
Total Group operating expenses of $A6.8 billion for the year
ended 31 March 2015 were up 12 percent, while the
effective tax rate of 35.9 percent was down from
39.5 percent in the prior year.
(1)
Net profit contribution is management accounting profit before
unallocated corporate costs, profit share and income tax.
While our Australian franchise maintained its strong position,
the offshore businesses continued to grow, with international
income accounting for 70 percent of the Group’s total
income
(2)
for the year ended 31 March 2015. This reflects
the growth of our international operations, particularly in the
Americas which was the largest contributing region with
36 percent of total income, as well as the favourable impact
of foreign exchange movements.
Dividends and Capital
The Board has resolved to pay a final ordinary dividend of
$A2.00 per share (40 per cent franked), up from $A1.30 per
share (40 percent franked) in the first half. This results in a
total ordinary dividend payment for the year ended 31 March
2015 of $A3.30 per share, up from $A2.60 in the prior
year
(3)
.
Macquarie has a long-standing policy of holding a level of
capital which supports its business and has consistently
grown its capital base ahead of business requirements.
The Group’s APRA Basel III capital at 31 March 2015 was
$A16.1 billion, a $A2.7 billion surplus to Macquarie's
minimum regulatory capital requirements based on
1 January 2016
(4)
requirements.
Environmental, Social and Governance
The Board and Management view our commitment to
Environmental, Social and Governance (ESG) performance
as part of our broader responsibility to clients, shareholders
and the communities in which we operate.
In the year ended 31 March 2015, we continued to embed
ESG risk management across the organisation and pursue
business opportunities in renewable energy, energy
efficiency and ESG research. Further details of Macquarie’s
ESG approach are provided in the ESG Report.
In the Community
The Macquarie Group Foundation continued its long-
standing support to the not-for-profit sector during the year
and celebrates its 30th anniversary in 2015. Since 1985, the
Foundation and our staff have contributed more than $A240
million to thousands of community organisations around the
world. This year the Foundation and our staff contributed
$A24 million in donations to more than 1,300 community
organisations around the world and provided approximately
33,500 hours of voluntary community service.
(2)
International income is net operating income excluding
earnings on capital and other corporate items.
(3)
In addition, in the prior year eligible shareholders benefited
from the SYD distribution in January 2014 which comprised
a special dividend of $A1.16 (40 per cent franked) and a
return of capital of $A2.57 per share.
(4)
Calculated at 8.5 percent Risk Weighted Assets (RWA)
including capital conservation buffer (CCB), per the
1 January 2016 minimum requirements in APRA Prudential
Standard 110. The APRA Basel III Group capital surplus is
$A4.0 billion calculated at existing requirements of 7.0 per
cent RWA, per the internal minimum Tier 1 ratio of the Bank
Group.
5
Board and Management Changes
As previously advised, Helen Nugent and Peter Kirby retired
as Non-Executive Directors from the Boards of Macquarie
Group and Macquarie Bank on 24 July 2014.
We thank Helen and Peter for their significant contributions
and wish them the very best for the future.
Gordon Cairns was appointed to the Macquarie Group and
Macquarie Bank Boards as a Non-Executive Director on
1 November 2014. Mr Cairns has held a wide range of
management and executive roles throughout his career
including Chief Executive Officer of Lion Nathan Limited. He
is currently the chairman of Origin Energy Limited, Quick
Service Restaurants and the Origin Foundation. He has also
served as a director of Westpac Banking Corporation, Seven
Network Australia Limited and Lion Nathan Limited, as well
as the chairman of David Jones Limited and Rebel Group
Pty Limited.
Outlook
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 financial year ending 31 March 2016 will be broadly in
line with the financial year ended 31 March 2015.
The tax rate for the financial year ending 31 March 2016 is
currently expected to be broadly in line with the second half
of the financial year ended 31 March 2015, and down on the
tax rate for the financial year ended 31 March 2015.
Accordingly, the Group’s result for the financial year ending
31 March 2016 is currently expected to be slightly up on the
financial year ended 31 March 2015.
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.
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 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.
On behalf of the Board and Management, we would like to
thank staff for their efforts during the year. Finally, we thank
our shareholders for their continued support.
Kevin McCann AM
Chairman
Nicholas Moore
Managing Director and Chief Executive Officer
Sydney
8 May 2015
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
6
About Macquarie
Macquarie Group Limited (Macquarie, MGL, Macquarie
Group, the Group or the Company) is a global financial
services provider with offices in 28 countries. It is listed in
Australia and is regulated by the Australian Prudential
Regulation Authority (APRA), the Australian banking
regulator, as the owner of Macquarie Bank Limited
(Macquarie Bank, MBL), an authorised deposit-taking
institution (ADI). Macquarie's activities are also subject to
supervision by various other regulatory agencies around the
world.
Founded in 1969, Macquarie now employs over 14,000
people globally, has total assets of $A188.0 billion and total
equity of $A14.4 billion as at 31 March 2015.
Macquarie’s breadth of expertise covers advisory and capital
markets, trading and hedging, funds management, asset
finance, financing, research and retail financial services. The
diversity of its operations, combined with a strong capital
position and robust risk management framework, has
contributed to Macquarie’s 46-year record of unbroken
profitability.
Macquarie acts primarily as an investment intermediary for
institutional, corporate and retail clients and counterparties
around the world, generating income by providing a
diversified range of products and services to its clients.
It has established leading market positions as a global
specialist in a wide range of sectors, including resources and
commodities, energy, financial institutions, infrastructure and
real estate, and has a deep knowledge of Asia-Pacific
financial markets.
Alignment of interests is a longstanding feature of
Macquarie’s client-focused business, demonstrated by its
willingness to both invest alongside clients and closely align
the interests of its shareholders and people.
Organisational structure
For internal reporting and risk management purposes,
Macquarie is divided into six operating groups, which are
supported by four central service groups. The operating
groups are split between annuity-style businesses and
capital markets facing businesses.
The service groups provide a range of functions supporting
Macquarie’s operating groups, ensuring they have the
appropriate workplace support and systems to operate
effectively and the necessary resources to meet their
regulatory, compliance, financial reporting, legal and risk
management requirements.
Further details on the operations and performance of each
operating group can be found in the review of operating
groups on pages 13 to 18.
Macquarie Group Limited (MGL)
Global financial services provider with offices in 28 countries and expertise across advisory and capital markets, trading and
hedging, funds management, asset finance, financing, research and retail financial services.
Operating Groups
Annuity-style businesses Capital markets facing businesses
Macquarie Asset Management (MAM)
Full-service asset manager offering infrastructure and real asset
management, securities investment management and tailored
investment solutions over funds and listed equities.
Macquarie Securities Group (MSG)
Global institutional securities house with strong Asia-Pacific
foundations covering sales, research, equity capital markets
(ECM), execution and derivatives activities.
Corporate and Asset Finance (CAF)
Provider of specialist finance and asset management solutions,
with global capability in corporate and real estate credit lending
and asset financing.
Macquarie Capital
Global corporate finance capability including mergers and
acquisitions (M&A), equity and debt capital markets and
principal investments, across six key industry groups.
Banking and Financial Services (BFS)
Retail banking and financial services provider offering a diverse
range of personal banking, wealth management and business
banking products and services.
Commodities and Financial Markets (CFM)
Provider of risk and capital solutions across physical and
financial markets.
Central Service Groups
Risk Management Group
(RMG)
Independent and centralised
unit responsible for risk
assessment and management
across the business groups.
Legal and Governance
(LGL)
Provides a full range of
strategic legal advice and
support and corporate
governance services.
Financial Management
Group (FMG)
Management of funding and
capital through financial, tax
and treasury services across
the operating groups.
Corporate Operations Group
(COG)
Driving operational excellence
through talent, workplace,
technology and market
operations support.
7
Macquarie’s purpose
Macquarie’s purpose is to realise opportunity for the benefit of
its clients, shareholders and people. It is in business to be
profitable and to achieve an appropriate and resilient long term
return on capital. Ultimately though, it is the way it does
business that defines Macquarie.
Macquarie’s approach is based on three long-held principles
of Opportunity, Accountability and Integrity. These principles
form the basis of Macquarie’s expectations of its people and
adherence to them is required under the Code of conduct (the
Code) available on Macquarie’s website at
macquarie.com/what-we-stand-for
This balance between opportunity and accountability, while
operating with integrity within a strong risk management
framework, is a unique feature of Macquarie’s success and a
key factor in its 46-year record of unbroken profitability.
Business strategy
Consistent with the principles of Opportunity, Accountability
and Integrity, Macquarie employs a business strategy focused
on the medium term with the following key aspects:
– conducting a mix of annuity-style and capital markets
facing businesses that deliver solid returns in a range of
market conditions. In recent years Macquarie has strongly
developed its annuity-style businesses, providing steady
returns to the business and Macquarie shareholders and
certainty to clients
– operating a diversified set of businesses across
different locations and service offerings: banking, financial,
advisory, investment and funds management services.
Macquarie offers a range of services to government,
institutional, corporate and retail clients. This diversity
mitigates concentration risk and provides resilience to the
Group, as highlighted in the challenging global markets of
recent years
– utilising proven deep expertise has allowed Macquarie
to establish leading market positions as a global specialist
in sectors including resources and commodities, energy,
financial institutions, infrastructure and real estate, with a
deep knowledge of Asia-Pacific financial markets
– expanding progressively by pursuing adjacencies
through new organic opportunities and selective
acquisitions in products and geographies that are
adjacent to its established areas of expertise, by building
expertise in these disciplines and expanding into
associated activities. This results in sustainable
evolutionary growth
– pursuing growth opportunities through recognising the
value of ideas and innovation. Macquarie starts with real
knowledge and skill and encourages innovation, ingenuity
and entrepreneurial spirit coupled with accountability.
Macquarie seeks to indentify opportunity and realise it for
clients, community, shareholders and its people. Ideas for
new businesses are typically generated in the operating
businesses. Additionally, there are no specific businesses,
markets, or regions in which Macquarie’s strategy
demands it operates. This means it retains operational
flexibility and can adapt the portfolio mix to changing
market conditions within the boundaries of the Board-
approved Risk Appetite Statement (RAS)
– utilising a conservative approach to risk management
through Macquarie’s strong risk management framework,
embedded across all operating groups. This equips the
business for unanticipated disruptions and ensures that
both the relevant business and Macquarie can survive a
worst-case outcome from any new or existing activity
– maintaining a strong and conservative balance sheet
consistent with its longstanding policy of holding a level of
capital which supports its business and managing its
capital base ahead of ordinary business requirements.
Macquarie remains well funded, with diversified funding
sources. It continues to pursue its strategy of diversifying
funding sources by growing its deposit base and
accessing different funding markets.
Risk management
The acceptance of risk is an integral part of Macquarie’s
businesses. Strong independent prudential management has
been a key to Macquarie’s success and stability over many
years. Where risk is assumed, it is within a calculated and
controlled framework that assigns clear risk roles and
responsibilities. Furthermore, Macquarie’s strong culture of risk
management is embedded across all operating groups and
divisions.
The key macroeconomic risks to Macquarie’s short and
medium-term financial outlook mentioned on page 12 are as
follows:
– market conditions: The general condition of markets,
driven mainly by macroeconomic factors, will influence the
volume of transactions that businesses experience. For
example, an increase in market volatility may increase the
income CFM derives from hedging transactions
performed on behalf of clients. Market conditions can also
influence the value of various equity, credit and market
risk exposures held by Macquarie on its balance sheet.
These risks are discussed further below
– the value of the Australian dollar: A significant
proportion of Macquarie’s net income is denominated in
foreign currency. Therefore, net income will be lower in
Australian dollar terms if it appreciates against these
currencies.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
8
In addition there are specific risks which relate to the nature of
Macquarie’s operations. These include:
– Credit risk: This is the risk of a counterparty failing to
complete its contractual obligations when they fall due.
Examples of exposures that generate this risk include
Macquarie advancing a loan to a retail or corporate client
or when a capital markets facing business like CFM
enters into a derivative contract. The consequent loss is
either the amount of the loan not paid back or the loss
incurred in replicating a trading contract with a new
counterparty
– Market risk: This is exposure to adverse changes in the
value of Macquarie's trading portfolios as a result of
changes in market prices or volatility. Macquarie is
exposed to risks in the foreign exchange and bullion,
interest rates and debt securities, equities and
commodities and energy markets. This risk resides
primarily in the capital markets facing businesses
– Equity risk: This is the risk of loss arising from non-
trading equity-type exposures. Examples of such
exposures include holdings in MAM-managed funds and
principal exposures taken by Macquarie Capital
– Operational risk: This is the risk of loss resulting from
failed or inadequate internal processes, people and
systems or from external events
– Liquidity risk: This is the risk that Macquarie is unable to
meet its financial obligations as they fall due which could
arise due to mismatches in cash flows. Liquidity
management is performed centrally by Group Treasury
– Regulatory and compliance risk: This is the risk of loss
arising from a failure to comply with legal and regulatory
requirements or government policies and the risk that
regulatory change has an impact on Macquarie's
business activities
– Legal risk: This is the risk of loss arising from a breach of
contract, law or regulation, the risk of litigation or
regulatory enforcement or the risk that a contract is not
capable of being enforced as expected
– Insurance risk: This captures the risks associated with
the provision of life insurance policies. It includes lapse
risk, claims risk, asset/liability mismatch risk and expense
risk
– Tax risk: This is the risk of loss arising from the
misinterpretation of tax regimes and the manner in which
they may be applied and enforced
– Reputation risk: This is the risk of loss arising from
damage to Macquarie’s brand or reputation.
The risks above are monitored, mitigated and managed under
Macquarie’s risk management framework. The framework is
discussed in more detail in the Risk Management Report. The
core risk management principles underlying the framework
have remained stable and continue to be highly effective.
These are:
– ownership of risk at the business level: Operating
Group Heads are responsible for identifying risks within
their businesses and ensuring that they are managed
appropriately. Before taking decisions, clear analysis of
the risks is sought to ensure risks taken are consistent
with the risk appetite and strategy of Macquarie. Business
ownership of risk is an essential element in understanding
and controlling risk
– understanding worst case outcomes: Macquarie's risk
management approach is based on examining the
consequences of worst case outcomes and determining
whether these are acceptable. This approach is adopted
for all material risk types and is often achieved by stress
testing. In particular, Macquarie's market risk framework
is based primarily on the application of stress tests, rather
than statistical models. The effectiveness of this approach
was demonstrated over the recent past. Shocks
observed in the markets generally remained within
Macquarie's stress scenarios, resulting in very few of our
worst case loss scenarios being exceeded. While
Macquarie operates a number of sophisticated
quantitative risk management processes, the foundation
of its risk management approach is the informed
consideration of both quantitative and qualitative inputs
by highly experienced professionals
– requirement for an independent sign-off by risk
management: Macquarie places significant importance
on having a strong independent RMG that is charged with
signing off all material risk acceptance decisions. It is
essential RMG has the capability to do this effectively and
hence RMG has invested in recruiting skilled
professionals, many with previous trading or investment
banking experience. For all material proposals, RMG's
opinion is sought at an early stage in the decision-making
process and independent input from RMG on risk and
return is included in the approval document submitted to
senior management.
9
Review of Group performance and
financial position
Group performance
Overview
Profit attributable to ordinary equity holders of $A1,604 million
for the year ended 31 March 2015 increased 27 percent from
$A1,265 million in the prior year.
31 Mar 2015
$A million
31 Mar 2014
$A million
Movement
%
Net operating
income 9,293 8,132 14
Operating
expenses (6,771) (6,026) 12
Income tax
expense (899) (827) 9
Profit attributable
to non-controlling
interests (19) (14) 36
Profit attributable
to ordinary equity
holders 1,604 1,265 27
FY2015 Net Profit Contribution
By Operating Group
Macquarie’s annuity-style businesses – MAM, CAF and
BFS – continued to perform well, generating a combined net
profit contribution for the year ended 31 March 2015 of
$A2,847 million, an increase of 33 percent on the prior year.
MAM benefited from increased base and performance fee
income, while CAF’s higher net profit contribution was largely
driven by increased loan and lease volumes, together with
gains on the disposals of the US equipment leasing business
and operating lease assets. BFS reported an improved net
profit contribution largely driven by volume growth in Australian
mortgages, business lending, deposits and the Wrap platform.
Macquarie’s capital markets facing businesses – MSG,
Macquarie Capital and CFM – delivered a combined net profit
contribution for the year ended 31 March 2015 of $A1,329
million, an increase of 19 percent on the prior year. MSG’s net
profit contribution was down on the prior year as increased
income from improved trading opportunities was offset by
increased operating expenses driven by additional regulatory
compliance requirements and restructuring costs associated
with exiting Structured Products during the year. Macquarie
Capital benefited from increased fee income across all product
classes, particularly mergers and acquisitions and debt capital
markets, and increased gains on sales of principal investments
resulting from improved market conditions. CFM’s net profit
contribution was mainly driven by the continued strong
performance of its commodities businesses, increased income
across interest rates and foreign exchange platforms and
increased fee income and debt capital markets activity in the
US.
Further information on the group’s performance is detailed
below and the review of operating businesses is contained on
pages 13 to 18.
Net operating income
Net operating income of $A9,293 million for the year ended
31 March 2015 increased 14 percent on the prior year. Key
drivers of the changes from the prior year were:
– a 17 percent increase in combined net interest and
trading income to $A3,819 million for the year ended
31 March 2015 from $A3,275 million in the prior year.
Most operating groups contributed to the increase, with
key drivers of the result being:
– continued strong performance of commodities
businesses in CFM
– increased volatility in foreign exchange and interest
rate markets, particularly in the second half of the
year, resulting in increased client volumes and
activity in CFM compared with the prior year, and
– loan portfolio growth in CAF and BFS
– a 24 percent increase in fee and commission income to
$A4,770 million for the year ended 31 March 2015 from
$A3,853 million in the prior year primarily driven by:
– increased base fees of $A1,388 million for the year
ended 31 March 2015, up 8 percent from $A1,289
million in the prior year, largely due to positive net
flows into higher fee earning products, additional
investments and favourable currency and market
movements
– increased performance fees of $A667 million for the
year ended 31 March 2015, up significantly from
$A219 million in the prior year, including significant
performance fees recognised from Macquarie
Infrastructure Company LLC (MIC), Macquarie
European Infrastructure Fund 1 (MEIF1), Hedge
Funds and Macquarie Atlas Roads (MQA)
– increased mergers and acquisitions, advisory and
underwriting fees of $A973 million for the year ended
31 March 2015, up 20 percent from $A809 million in
the prior year, mainly due to an increase in mergers
and acquisitions and debt capital markets activity
particularly in the US, and
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
10
– increased other fee and commission income of
$A875 million for the year ended 31 March 2015,
up 38 percent from $A633 million in the prior year
mainly due to a fee from Freeport LNG Terminal by
CFM and higher income in BFS resulting from the
acquisition of the Woolworths credit card portfolio in
May 2014 and increased platform commissions from
higher assets under administration on the Wrap
platform
– an 18 percent decrease in other operating income and
charges to $A699 million for the year ended 31 March
2015 from $A855 million in the prior year. The current
year included:
– a decrease of 35 percent in net gains on sale of
investments (including debt and equity investment
securities available for sale and investments in
associates and joint ventures) to $A324 million for
the year ended 31 March 2015 from $A502 million in
the prior year, which included a $A228 million gain
on the Sydney Airport stapled securities distribution
in January 2014 and income from the disposal of an
investment in OzForex on its IPO in October 2013
– gains on disposal of operating lease assets of $A231
million for the year ended 31 March 2015, up from $A2
million in the prior year mainly due to gains in CAF on
disposal of the North American railcar operating lease
portfolio in January 2015 and the restructure of an
unrelated railcar logistics operating lease facility
– gains on acquiring, disposing and change in
ownership interest in subsidiaries and associates of
$A190 million, up from $A26 million in the prior year
primarily due to the sale of CAF’s US equipment
leasing business in March 2015
– an increase of 11 percent in net operating lease
income to $A585 million for the year ended
31 March 2015 from $A529 million in the prior year
primarily due to favourable currency movements and
acquisitions in CAF's Aviation portfolio
– an increase of 34 percent in aggregate impairment
charges on investment securities available for sale,
associates and joint ventures and non-financial
assets to $A356 million for the year ended 31 March
2015 from $A265 million in the prior year which
included impairment of goodwill relating to legacy
acquisitions and the write-down of certain assets
associated with the restructure of a railcar logistics
operating lease facility in CAF, and
– an increase of 93 percent in net individually assessed
provisions for impairment, write-offs and collective
allowance for credit losses to $A467 million for the
year ended 31 March 2015 from $A242 million in the
prior year primarily due to higher provisions in CFM
mainly due to the underperformance of certain
credits and the downward movement in certain
commodity prices, additional collective provisions in
CAF reflecting portfolio growth and the changing mix
of assets in the lending and finance leasing portfolios
and an increase to the collective provision central
management overlay in Corporate
(1)
to account for
changes in current economic conditions.
(1)
Corporate includes head office and central support functions
including Group Treasury.
Operating expenses
Total operating expenses of $A6,771 million for the year ended
31 March 2015 increased 12 percent on the prior year mainly
due to the following key drivers:
– an 11 percent increase in employment expenses to
$A4,143 million for the year ended 31 March 2015 from
$A3,736 million in the prior year primarily due to higher
staff compensation resulting from the improved
performance of the Group and the impact of the
depreciation of the Australian dollar on offshore expenses.
Headcount increased one percent from 13,913 at
31 March 2014 to 14,085 at 31 March 2015. The
compensation ratio of 41.9 percent for the year ended
31 March 2015 decreased from 43.1 percent in the prior
year
– a 35 percent increase in non-salary technology expenses
from $A323 million in the prior year to $A437 million for
the year ended 31 March 2015 primarily due to increased
development activity to support business growth,
including the development of a new Core Banking system
in BFS and activity driven by increased regulatory
compliance requirements, and
– a 19 percent increase in total other operating expenses
from $A806 million in the prior year to $A957 million for
the year ended 31 March 2015 largely driven by
increased activity across the Group, the impact of the
depreciation of the Australian dollar on offshore expenses
and transaction related expenses for business and asset
disposals and acquisitions in CAF.
Income tax expense
Income tax expense for the year ended 31 March 2015 was
$A899 million, up nine percent on the prior year. The increase
was mainly driven by a 20 percent increase in operating profit
before income tax, from $A2,106 million in the prior year to
$A2,522 million in the year ended 31 March 2015, partly offset
by a decrease in income tax permanent differences. The
effective tax rate for the year ended 31 March 2015 was
35.9 percent, down from 39.5 percent in the prior year,
reflecting the nature and geographic mix of income and tax
uncertainties.
In relation to the audit by the Australian Taxation Office (ATO),
it has concluded and all outstanding matters have been
resolved. Macquarie continues to be part of the Pre-lodgement
Compliance Review process, whereby the ATO undertakes a
review prior to the lodgement of Macquarie's tax returns.
Group financial position
Balance Sheet
The Group’s balance sheet has been impacted by changes in
business activities and movements in prices and rates since
31 March 2014. Total assets of $A188.0 billion at 31 March
2015 increased 22 percent from $A153.9 billion at 31 March
2014, while total liabilities increased 22 percent from $A142.0
billion at 31 March 2014 to $A173.6 billion at 31 March 2015.
The growth in the Group’s balance sheet has largely been
driven by the impact of the depreciation of the Australian
dollar, growth in loan assets, trading assets and receivables
from financial institutions (Treasury cash and liquid assets).
11
Key drivers of the movement in the balance sheet include:
– Treasury management initiatives during the year including
significant new issuances of short term and long term
debt issued at amortised cost and an increase in cash
and liquid asset holdings with increased reverse
repurchase agreements that led to an overall increase in
receivables from financial institutions. These were partially
offset by the sale of debt investment securities available
for sale
– improved trading opportunities in equities driven by
increased market volatility in certain emerging markets,
particularly China, resulted in increased trading and
reduced stock borrowing activity in MSG. This led to an
increase in trading portfolio assets and liabilities and a
reduction in receivables from financial institutions
– in CFM, growth of the physical metals business led to an
increase in trading portfolio assets, which was partially
offset by a reduction in Commonwealth Government
bond holdings. Changes in interest rates, foreign
exchange and commodity prices during the year also
resulted in an increase in derivative assets and liabilities
– an increase in principal investments through acquisitions,
combined with the impact of the depreciation of the
Australian dollar, resulted in an increase in investment
securities available for sale within MAM and Macquarie
Capital
– increased lending activity was seen across the Group,
leading to strong growth in loan assets held at amortised
cost, including:
– BFS’ Australian mortgage portfolio grew 44 percent
from $A17.0 billion at 31 March 2014 to $A24.5
billion at 31 March 2015, which included acquisitions
of residential mortgage portfolios of $A2.5 billion
during the year. This growth was partially offset by a
reduction in the Canadian and US mortgage
portfolios, which are in run-off and closed at a
combined $A3.8 billion at 31 March 2015, down
31 percent from $A5.5 billion at 31 March 2014
– BFS also increased business lending volumes by
27 percent from $A4.1 billion at 31 March 2014 to
$A5.2 billion at 31 March 2015, and credit card
volumes from $A0.3 billion at 31 March 2014 to
$A0.6 billion at 31 March 2015 driven by the
acquisition of the Woolworths credit card portfolio in
May 2014
– CAF’s loan and finance lease portfolios of $A22.4
billion at 31 March 2015 increased 13 percent from
the prior year driven by growth in the Lending and
Leasing portfolios as a result of acquisitions along
with the favourable impact of the depreciation of the
Australian dollar, partially offset by the sale of the US
equipment leasing business. The increased lending
and leasing activity in CAF also resulted in an
increase in external non-recourse funding through
securitisations by the SMART Trusts and warehouse
facilities
– these increases were partially offset by reduced
asset backed lending activity and redemptions from
retail products in MAM
– operating lease portfolios within CAF benefited from
acquisitions of aircraft and the impact of the depreciation
of the Australian dollar, partially offset by the disposal of
the North American railcar operating lease portfolio,
resulting in a net increase in property, plant and
equipment
– the issuance of Macquarie Bank Capital Notes (BCN) and
foreign currency movements on foreign denominated
debts resulted in increased loan capital.
Total equity increased $A2.5 billion from $A11.9 billion at
31 March 2014 to $A14.4 billion at 31 March 2015, largely due
to a net increase in the foreign currency translation reserve
driven by the impact of the depreciation of the Australian
dollar, new share issuances in March 2015 through the
institutional private placement of $A500 million and the share
purchase plan of $A170 million, the dividend reinvestment plan
of $A171 million and net retained earnings generated during
the year.
Funding
Macquarie has a stable funding base with minimal reliance on
short term wholesale funding markets. At 31 March 2015, the
Group’s term assets were covered by term funding maturing
beyond one year, stable deposits and equity.
The weighted average term to maturity of term funding
maturing beyond one year (excluding equity which is a
permanent source of funding) decreased from 4.5 years at
31 March 2014 to 4.4 years as at 31 March 2015.
As at 31 March 2015, total deposits
(1)
represented
$A39.7 billion, or 35 percent of the Group’s total funding, short
term (maturing in less than twelve months) wholesale issued
paper represented $A12.5 billion, or eleven percent of total
funding, and other debt funding maturing within twelve months
represented $A9.2 billion, or eight percent of total funding.
During the year ended 31 March 2015, all remaining
government guaranteed debt was repaid.
Macquarie has a liability driven approach to balance sheet
management, where funding is put in place before assets are
taken on to the balance sheet. Since 31 March 2014, MGL
and MBL have continued to raise term wholesale funding.
Macquarie has continued to diversify its funding base and
develop new markets including issuances in Australia, Japan,
Switzerland, Norway, China and the United Kingdom.
Since 31 March 2014, the Group raised $A21.5 billion of term
funding, including $A12.8 billion of term wholesale funding,
$A8.3 billion of term secured finance and $A0.4 billion of BCN
issuance. Wholesale term issuance of $A12.8 billion includes
$A5.8 billion in senior unsecured debt issuance in the US
market, $A4.5 billion in senior unsecured issuance in
European, Australian, Japanese, Swiss and UK markets,
$A2.3 billion in MBL private placements and structured notes
and $A0.2 billion in MGL loan facilities. Term secured finance
of $A8.3 billion includes $A4.3 billion of PUMA RMBS, $A3.2
billion of SMART auto & equipment ABS, $A0.3 billion of
Macquarie Equipment Finance ABS and a net increase of
$A0.5 billion of warehouse funding for SMART.
Macquarie's liquidity risk management framework is designed
to ensure that both MGL and MBL are able to meet their
funding requirements as they fall due under a range of market
conditions.
(1)
Represents deposits available to fund Macquarie’s assets.
Excludes segregated client margin balances.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
12
Capital
As an Australian Prudential Regulation Authority (APRA)
authorised and regulated non-operating holding company
(NOHC), MGL is required to hold adequate regulatory capital
to cover the risks for the whole Macquarie Group, including the
Non-Bank Group. Macquarie and APRA have agreed a capital
adequacy framework for MGL, based on Macquarie’s Board-
approved Economic Capital Adequacy Model (ECAM) and
APRA’s capital standards for ADIs.
MGL’s capital adequacy framework requires it to maintain
minimum regulatory capital requirements calculated as the
sum of:
– the Bank Group’s minimum Tier 1 capital requirement,
based on a percentage of risk-weighted assets plus Tier 1
deductions using prevailing APRA ADI Prudential
Standards, and
– the Non-Bank Group’s capital requirement, calculated
using Macquarie’s ECAM. Transactions internal to the
Macquarie Group are eliminated.
The Group has satisfied its regulatory capital requirements
throughout the year. At 31 March 2015, the Bank Group had a
Harmonised Basel III Common Equity Tier 1 Capital Ratio of
11.4 percent and a Harmonised Tier 1 Capital Ratio of
12.6 percent. The Bank Group's APRA Common Equity Tier 1
Capital Ratio was 9.7 percent and its APRA Tier 1 Capital
Ratio was 11.0 percent as at 31 March 2015. The Group
remains well capitalised with $A2.7 billion of eligible capital in
excess of the minimum regulatory capital requirements
(1)
.
Macquarie’s capital management strategy is outlined in
Note 26 to the financial statements contained within the
Financial Report.
(1) Calculated at 8.5 per cent Risk Weighted Assets (RWA)
including capital conservation buffer (CCB), per the 1 January
2016 minimum requirements in APRA Prudential Standard
110. The APRA Basel III Group capital surplus is $A4.0 billion
calculated at existing requirements of 7.0 per cent RWA, per
the internal minimum Tier 1 ratio of the Bank Group.
Outlook
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 financial
year ending 31 March 2016 will be broadly in line with the
financial year ended 31 March 2015.
The tax rate for the financial year ending 31 March 2016 is
currently expected to be broadly in line with the second half of
the financial year ended 31 March 2015, and down on the tax
rate for the financial year ended 31 March 2015.
Accordingly, the Group's result for the financial year ending
31 March 2016 is currently expected to be slightly up on the
financial year ended 31 March 2015.
The Group's short term outlook remains subject to a range of
challenges including: market conditions; the impact of foreign
exchange; the cost of its continued conservative approach to
funding and capital; and potential regulatory changes and tax
uncertainties.
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 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.
13
Macquarie Asset Management (MAM)
MAM is a top 50 global asset manager with $A484 billion of AUM, offering a diverse range of products through three divisions:
Macquarie Infrastructure and
Real Assets (MIRA)
Macquarie Investment Management
(MIM)
Macquarie Specialised Investment
Solutions (MSIS)
A global leader in alternative asset
management, specialising in
infrastructure, real estate, agriculture and
energy. It is recognised as the world’s
largest infrastructure manager
(1)
,
operating more than 50 funds globally,
with investments in 129 businesses,
approximately 300 properties and 3.6
million hectares of farmland. Investing
regionally with expert local investment
and asset management teams, MIRA’s
client base is primarily institutional
investors, including global pension and
superannuation funds, other institutions
and governments.
Offers securities investment
management capabilities across a
number of asset classes including fixed
interest, currencies, equities,
infrastructure securities, hedge funds
and multi-asset allocation solutions. MIM
manages $A348 billion in around 100
investment strategies.
MIM also offers best of breed third party
managed strategies in Australia through
its Macquarie Professional Series funds.
Manufactures and distributes a range of
tailored investment solutions over funds
and listed equities including fund-linked
products, principal protected
investments, a hedge fund incubation
platform, infrastructure debt funds
management, restructuring solutions and
agriculture investment solutions.
Medium term
MAM’s medium term focus is to further grow AUM by
continuing to deliver strong performance outcomes for clients,
developing new and adjacent investment capabilities that meet
evolving client needs, expanding its global distribution network
and maintaining an efficient operating platform.
Performance
MAM contributed $A1.5 billion to Macquarie’s total profit from
operating groups for the year ended 31 March 2015, an
increase of 38 percent on the prior year. It generated net
operating income of $A2.4 billion, an increase of 27 percent on
the prior year.
MAM had $A484 billion in AUM at 31 March 2015, an increase
of 14 percent on the prior year.
MIRA reached a record $A66.2 billion in equity under
management having raised $A8.3 billion in new equity
commitments during the year, including $US1.4 billion for
pan-Asia infrastructure investment and $US1 billion for its
second China retail property fund. MIRA’s fourth unlisted North
American fund, Macquarie Infrastructure Partners III, raised a
further $US841 million, to reach its final close with $US3 billion
in investor commitments. The New York Stock Exchange-
listed Macquarie Infrastructure Company (MIC) raised $US1.5
billion on market to support acquisitions.
MIRA invested equity of $A6.2 billion during the year into
infrastructure assets in the US, Europe, Mexico, the
Philippines, China, Russia, India and Korea, real estate in
China and Mexico and agriculture in Australia and Brazil. Asset
divestments of more than $A2.5 billion included €1.4 billion
from the portfolio of Macquarie European Infrastructure Fund 1
(MEIF1) as it approaches maturity.
MIRA base fees continued to grow with equity under
management, while performance fees were earned
predominately from MIC, MEIF1 and Macquarie Atlas Roads.
MIRA was also named Global Fundraiser and Global Fund
Manager of the Year by Infrastructure Investor Magazine.
MIM grew AUM by 12 percent with run rate revenue
increasing as a result of positive net fund flows into higher fee
earnings products and favourable foreign exchange and
market valuations, partially offset by the impact of the Jackson
Square Partners JV and management buy-out of the MIM
Private Markets business. Investment performance across a
range of asset classes continued to be strong, with the
majority of funds outperforming their benchmarks over three
years and several strategies receiving industry awards during
the year, including six 2015 Lipper Awards
(2)
across the US
and Asia. Strong performance fees were generated
predominately in the alternative asset classes.
MIM continued to expand its global distribution network, with
recruitment in the US, UK, Germany, Japan and Australia.
Strong positive net inflows were generated in the Australian
wholesale and US mutual fund channels, with $A6 billion in
new funded institutional mandates secured globally. MIM
launched several new funds and filled capacity in a number of
strategies.
MSIS continued to grow the Macquarie Infrastructure Debt
Investment Solutions (MIDIS) business, reaching second close
on the UK Inflation-linked Infrastructure Debt Fund to bring
total third party investor commitments on the MIDIS platform
to over $A3.3 billion. MSIS also closed a number of
investments, bringing total AUM to $A1.4 billion. MSIS secured
its first mandate as sole underwriter for private equity
secondaries fund financing and raised over $A600 million for
Australian retail principal protected investments and specialist
funds.
Outlook
Subject to the risks identified on pages 7 to 8, MAM currently
expects its result for the year ending 31 March 2016 to be
broadly in line with the year ended 31 March 2015.
(1)
Towers Watson 2014 Global Alternatives Survey.
(2)
For more information visit www .macquarie.com.au/mgl/au/
mfg/mim/about-us/awards.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
14
Corporate and Asset Finance (CAF)
CAF manages a portfolio of $A28.7 billion, specialising in corporate and real estate lending and asset financing.
Lending Asset Finance
A corporate and real
estate lending business
providing customised
capital solutions and
financing to its clients
through primary and
secondary transactions.
It is differentiated by its
bespoke offering where
it is a leading market
participant and is also a
niche acquirer of loans
and other credit assets
in the secondary market.
The team has experience
across a variety of
industry groups
including: real estate;
infrastructure;
telecommunications,
media, entertainment
and technology; leisure
and healthcare.
Macquarie Aviation Macquarie Leasing Macquarie Energy Leasing
Provides operating leases of
commercial jet aircraft to
airlines, helping clients to
increase fleet management
capability and minimise market
and equipment obsolescence
risk.
A leading provider of finance
leases, novated lease
agreements and commercial
hire purchases for motor
vehicles and other plant and
equipment in Australia with a
presence in the UK.
The largest provider of more
than seven million traditional
and smart meters in the UK
mainly to major energy
suppliers. It recently
commenced financing solar
energy assets in Australia.
Macquarie Rotorcraft Leasing Mining Equipment Finance Macquarie Equipment Finance
A full service helicopter
operating leasing business
supporting industries including
offshore oil and gas, medical
transport, search and rescue,
utility and executive transport.
Provides finance, operating
leases and secured lending for
mobile mining equipment to
miners, contract miners and
rental companies.
Provides specialist equipment
finance and services solutions
globally in healthcare,
technology, communications,
materials handling,
manufacturing and related
equipment.
Macquarie European Rail
Offers operating lease financing for passenger and freight assets in Europe.
Medium term
CAF’s medium term focus is to leverage its deep industry
expertise to maximise growth potential in loan and lease
portfolios, anticipate further asset acquisitions and realisations
at attractive return levels and will continue to secure funding
from asset securitisations throughout the cycle.
Performance
CAF contributed $A1.1 billion to Macquarie’s total profit from
operating groups for the year ended 31 March 2015, up
35 percent on the prior year. It generated net operating
income of $A1.6 billion, up 32 percent on the prior year.
At 31 March 2015, CAF managed a lease and loan portfolio of
$A28.7 billion, up 13 percent on the prior year.
Lending’s funded loan portfolio totalled $A11.2 billion at
31 March 2015, up 24 percent on the prior year. Portfolio
additions of $A4.7 billion for the year comprised:
– $A3.1 billion of new primary financings across corporate
and real estate, weighted towards bespoke originations
– $A1.6 billion of corporate and commercial real estate
loans and residential mortgages acquired in the
secondary market.
Notable transactions included the re-leasing and exit of a
railcar logistics facility, the acquisition of two residential
mortgage portfolios in the UK and Germany totalling £140
million and €294 million respectively, and the provision of £104
million bespoke financing across two UK care home portfolios.
Asset quality within the lending portfolio remained sound and
the portfolio continued to generate strong overall returns.
Significant prepayment and realisation income arose from the
re-leasing and exit of the railcar logistics facility and the
refinancing of a leading French telecommunications company.
CAF’s Asset Finance portfolio of $A17.5 billion was up six
percent on the prior year due to foreign exchange movements.
In March 2015, CAF sold its US equipment leasing business,
consisting of $US900 million in assets. CAF also sold its North
American railcar operating lease portfolio during the year,
comprising $US390 million in assets.
In March 2015, CAF entered into an agreement to acquire an
aircraft operating lease portfolio from AWAS Aviation Capital
Limited valued at approximately $US4 billion. The portfolio
comprises 90 modern, current generation commercial
passenger aircraft that will be acquired and delivered during
the year ending 31 March 2016.
CAF’s motor vehicle leasing portfolio continued to grow, with
more than 300,000 contracts. Both its motor vehicle and
equipment finance channels continued to expand through
dealer networks in Australia and ongoing expansion in the UK.
The Energy Leasing, European Rail and Mining Equipment
Finance businesses continued to perform well.
CAF continued its securitisation activities with $A4 billion of
motor vehicle and equipment leases and loans securitised.
Outlook
Subject to the risks identified on pages 7 and 8, CAF currently
expects its result for the year ending 31 March 2016 to be
broadly in line with the year ended 31 March 2015.
15
Banking and Financial Services (BFS)
BFS provides a diverse range of personal banking, wealth management and business banking products and services to retail
customers, advisers, brokers and business clients. BFS is focused on the Australian market, building on expertise developed over
more than 30 years.
Personal Banking Wealth Management Business Banking
Provides retail financial products such as
mortgages, credit cards and deposits. It
serves personal banking clients through
mortgage intermediary relationships and
white-label arrangements, as well as
Macquarie branded offerings.
Provides superannuation and insurance
products, as well as financial advice,
private banking, stockbroking, cash
management and wrap platform
services. It delivers products and
services through institutional
relationships, virtual adviser networks
and dedicated direct relationships with
its clients.
Provides a full range of deposit, lending
and payment solutions, as well as
tailored services to business clients,
ranging from sole practitioners to
corporate professional firms, through a
variety of channels including dedicated
relationship managers.
Medium term
BFS remains focused on opportunities in Australian retail
financial services.
BFS’ medium term focus is to build on its successful
intermediary and white-label partnerships to support the
ongoing growth of third party distribution in Personal Banking
and Wealth Management, as well as maximise opportunities to
increase financial services engagement with existing Business
Banking clients and extend into adjacent segments.
BFS is also investing in its technology to improve client
experience, support growth and simplify, streamline and
centralise its product and transactional functions.
Performance
BFS contributed $A285 million to Macquarie’s total profit from
operating groups for the full year ended 31 March 2015, an
increase of 10 percent on the prior year. It generated net
operating income from continuing operations
(1)
of $A1.3 billion,
up 10 percent on the prior year.
BFS maintained its strong market position in its core Australian
retail businesses, with approximately 1.1 million Australian
clients at 31 March 2015. Retail deposits increased to
$A37.3 billion at 31 March 2015, up 12 on the prior year.
BFS continued its digital transformation to improve prospective
client experience and the scalability of its operating model, and
is currently in year two of its five year program to deliver a Core
Banking platform with real time capability.
Personal Banking: The Australian mortgage portfolio grew to
$A24.5 billion at 31 March 2015, representing 1.7 percent of
the Australian mortgage market. This includes $A2.5 billion in
residential mortgage portfolios acquired during the year. BFS
continued to maximise strong growth opportunities that exist
through intermediary distribution and white-labelling, entering
into white-label agreements with Real Home Loans and
Mortgage Choice. The business was named home loans
Partner of the Year in the iSelect 2014 Partner Awards and
ranked first in the Brokers on Non-Majors 2014 survey by
Australian Broker Magazine.
(1)
Excludes MPW Canada from comparative periods which BFS
exited in November 2013.
After signing an agreement as credit card issuing partner for
the Woolworths Money Everyday and Woolworths Money
Qantas Credit Cards in May 2014, BFS successfully
completed the migration of accounts and data to internal
systems in October 2014.
Wealth Management: Macquarie platform assets under
administration grew strongly to $A48.0 billion at 31 March
2015, up 19 percent on 31 March 2014 due to strong net
inflows and market movement.
During the year, the Macquarie Life inforce book increased
17 percent due to strong underlying business fundamentals
and new business volumes. The business was awarded five-
star status in the Beaton Benchmarks 2014 – Life Insurance
Intermediaries Study for the seventh consecutive year,
remaining the only five-star rated insurer in the market at this
time.
Business Banking grew its average deposit volumes by
19 percent and the loan portfolio grew to $A5.2 billion as at
31 March 2015, up from $A4.1 billion in the prior year. It also
delivered new solutions to improve SME clients’ business
productivity including managing billing, collections and office
administration, with the number of SME clients increasing
13 percent over the year.
Outlook
Subject to the risks identified on pages 7 and 8, BFS currently
expects its result for the year ending 31 March 2016 to be up
on the year ended 31 March 2015.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
16
Macquarie Securities Group (MSG)
MSG is a global institutional securities house with strong Asia-Pacific foundations, covering sales, research, ECM, execution and
derivatives activities.
Cash Division Derivatives and Trading Divisions
Operates as a full-service institutional cash equities broker in
Australia, Asia, South Africa and Canada, with a specialised
institutional cash equities broker offering in the US and Europe.
It provides an ECM service through a joint venture with
Macquarie Capital. Its key specialties include: financial
institutions; industrials; infrastructure, renewables and utilities;
resources (mining and energy); small-mid caps; and
telecommunications, media, entertainment and technology
(TMET).
Issues retail derivatives in key locations, provides Delta 1
products and equity finance solutions to its institutional client
base and conducts risk and trading activities.
Medium term
MSG’s medium term focus is to remain well positioned for
recovery in Asian retail derivatives, cash equities and ECM,
given it is highly leveraged to any improvement in market
conditions and return of investor confidence. MSG is focused
on monetising its existing strong research platform and is
positioned to participate in the significant opportunity offered
as China liberalises foreign investment rules and increases
access to its mainland securities markets.
Performance
MSG reported a net profit of $A64 million for the year ended
31 March 2015, a decrease from the prior year profit of $A107
million. It generated net operating income of $A918 million, up
six percent on the prior year.
Brokerage income remained relatively flat while ECM activity
increased on the prior year largely driven by Australia. Certain
markets experienced favourable conditions which benefited
the derivatives and trading divisions. Operating expenses,
excluding brokerage, commission and trading-related
expenses, were up 11 percent on the prior year, largely due to
increased investment in platforms and processes driven by
regulatory compliance requirements, as well as restructuring
costs from the exit of Structured Products.
The Cash Division experienced mixed levels of activity, with
improved client activity in Australia and Europe, offset by
weaker client volumes across Asia and North America. MSG
maintained its leading positions for Australian equities ranked
equal No.1 by Australian institutional investors in the 2014
Peter Lee Associates Survey. Its global research coverage
totals more than 2,300 listed companies, highlighting the
extent of its market and industry knowledge. MSG reached a
new high in US stock coverage during the year, driven by a
significant expansion of its US Emerging Leaders company
coverage and aligns the US with Macquarie's leading
small-mid cap franchise in Asia and Australia.
ECM activity continued to be strong in Australia, with notable
deals during the year including the $A5.7 billion Medibank
Private and $A3.6 billion Healthscope IPOs, as well as the
$A1.8 billion APA Group rights offering. Macquarie was ranked
No.2 by Dealogic and Thomson Financial for all equity raising
across Australia in calendar year 2014 and No.1 for IPOs by
value and number of deals completed.
The Derivatives and Trading Divisions benefited from
favourable market conditions in China combined with greater
market access due to quota increases and the launch of China
Stock Connect in November 2014 allowing international clients
to trade eligible China-A shares. Macquarie Bank Limited was
awarded an additional $US400 million of QFII quota by China’s
State Administration for Foreign Exchange during the year,
bringing its total approved quota to $US800 million. This
important development gives MSG the opportunity to continue
growing its investment footprint in China’s mainland
yuan-denominated securities markets.
MSG maintained its No.1 ranked market share in listed
warrants in Singapore, was No.3 in Thailand and No.7 in Hong
Kong. In October 2014, MSG launched its Malaysian
structured warrants business and achieved No.1 ranked
market share in the quarter ended 31 March 2015. Macquarie
is the only issuer in the region with an active presence in more
than two warrant markets and its launch in Malaysia confirms
MSG’s position as the leading warrant issuer in Asia by
coverage.
Outlook
Subject to the risks identified on pages 7 and 8, MSG currently
expects its result for the year ending 31 March 2016 to be up
on the year ended 31 March 2015.
17
Macquarie Capital
Macquarie Capital provides corporate finance advisory and capital market services to corporate and government clients involved in
public and private M&A, debt and equity fund raisings, private equity raisings and corporate restructuring. Macquarie Capital has built a
global corporate finance capability, strong client relationships and market expertise. Its advisory activities are aligned with expertise in
financial institutions; industrials; infrastructure, utilities and renewables; real estate; resources (mining and energy); and TMET.
Advisory Equity and Debt Capital Markets Principal Investments
M&A, structuring, divestments, takeover
responses, restructuring, project finance
and private capital expertise.
Underwriting and advising companies
seeking to raise equity including initial
listings on stock exchanges and
follow-on raisings. Debt advisory,
underwriting and lending services in
all major financial centres.
A specialised service using the
Macquarie balance sheet to help support
clients in developing their businesses
and achieving their goals. Macquarie
Capital invests across the capital
structure.
Medium term
Macquarie Capital focuses on regions and sectors where its
strong specialist capabilities can deliver client value. Macquarie
Capital is able to combine advice with access to capital by
deploying equity and debt in support of our clients and in
response to market opportunities.
Performance
Macquarie Capital contributed $A430 million to Macquarie’s
total profit from operating groups for the year ended 31 March
2015, up 54 percent on the prior year. It generated net
operating income of $A1.1 billion, up 29 percent on the prior
year.
The business advised on 470 transactions worth $A141 billion
during the year.
In Australia and New Zealand, Macquarie Capital
consolidated its leading market position in M&A, advisory,
public private partnerships and capital markets activity across
all industry sectors while continuing to partner with clients on
several large principal transactions. In the 2014 calendar year,
Macquarie Capital was ranked No.1 in Australia for number of
announced and completed M&A transactions by Thomson
Financial and Dealogic. Macquarie was also ranked No.1 in
Australia for IPOs and No.2 for Australian equity and equity
related deals in 2014.
Notable transactions for the region include:
– Adviser, Joint Lead Manager (JLM) and Bookrunner on
APA Group’s $A1.8 billion accelerated renounceable
entitlement offer in connection with the $A5 billion
acquisition of the QCLNG pipeline
– JLM on the $A5.7 billion IPO of Medibank Private, the
largest Australian IPO in 2014, and the second largest
Australian IPO ever
– Joint Global Co-ordinator on the $A3.6 billion IPO of
Healthscope Limited
– Joint Financial Adviser to QIC on the $A7 billion sale of
Queensland Motorways to a consortium comprising
Transurban, AustralianSuper and Tawreed Investments
Limited, the largest transport infrastructure M&A
transaction ever in Australia.
In Asia, Macquarie Capital’s regional footprint and broad
expertise allows Macquarie Capital to be a leader in
cross-border transactions including:
– Adviser to Emperador for its acquisition of Whyte &
Mackay from United Spirits for £430 million
– Joint Sponsor, Joint Global Coordinator, Joint
Bookrunner and JLM for the $US1.2 billion
(pre-greenshoe) IPO of China CNR Corporation Limited
– Adviser on the $US1 billion strategic alliance between
Piramal Enterprises and APG Asset Management focused
on mezzanine investments in Indian infrastructure.
In Europe, the Middle East and Africa, Macquarie Capital
has delivered solutions for its clients by combining advice with
its ability to deploy capital across its product range. This has
allowed Macquarie Capital to strengthen its position in
infrastructure, German midcaps and other more niche sectors.
Notable transactions include:
– Sole Sponsor and exclusive Financial Adviser to IHS
Lothian for the project finance facilities of £185 million to
the Royal Hospital for Sick Children PPP project in
Edinburgh
– Adviser to Salamander Energy plc’s Board on its
£314 million recommended acquisition by Ophir Energy
plc
– Adviser to Canada Pension Plan Investment Board in
relation to its £1.1 billion acquisition of Liberty Living,
the second largest off-campus student accommodation
owner-operator in the UK.
In the Americas, momentum continued across sectors and
products, including the following notable transactions:
– Adviser to Freeport LNG on its landmark $US11 billion
equity and debt raising to project finance its LNG export
facility in Texas
– Adviser to Bally Technologies on its $US5.1 billion sale to
Scientific Games
– Provided committed financing and acted as Bookrunner
on multiple capital markets transactions to support
SunEdison and Terraform Power’s $US2.4 billion
acquisition of First Wind
– Co-lead Underwriter for Osisko Gold Royalties Ltd’s fully
subscribed $C200 million private placement of Special
Warrants.
Outlook
Subject to the risks identified on pages 7 and 8, Macquarie
Capital currently expects its result for the year ending
31 March 2016 to be up on the year ended 31 March 2015.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
18
Commodities and Financial Markets (CFM)
CFM provides clients with risk and capital solutions across physical and financial markets. CFM comprises the following divisions:
Commodities (Physical and Financial) Financial Markets (Primary and Secondary)
Energy Markets Metals, Mining & Agriculture Fixed Income & Currencies Credit Markets
Provides a full spectrum
offering to clients with
exposure to the energy
sector. The division provides
risk management, lending
and financing, and physical
execution and logistics
services across Global Oil,
North American Gas and
Power, EMEA Gas, Power
and Emissions, Australian
Power, and Coal.
Provides risk management,
lending and financing, and
physical execution and
logistics services to
producers and consumers
across the metals, industrial
minerals, bulk commodities
and agricultural sectors
globally. The division also
offers commodity-based
index products to institutional
investors.
Provides financial hedging,
finance and access to market
pricing for corporate and
institutional clients in foreign
exchange and fixed income
markets.
Facilitates client transactions
with institutional investors and
makes secondary markets in
corporate debt securities,
syndicated bank loans and
middle market loans, in
addition to providing specialty
lending for commercial
mortgage finance, asset-
backed and mortgage-
backed securities.
Futures
Provides a full range of execution, clearing and financing solutions to corporate and institutional clients, providing 24-hour coverage
of all major markets globally. The division has specialist expertise in energy, freight, grains and soft commodities as well as a market
leading position in Australian interest rate products.
Central
Fosters and develops various non-division specific, early stage or cross-divisional initiatives, as well as housing CFM-wide services
including Structured Commodity Finance, Cross-Product Sales, Structured Global Markets and Private and Structured Finance.
Medium term
Over the medium term, CFM remains focused on: pursuing
opportunities to grow its commodities business, both
organically and through acquisitions; developing institutional
coverage for specialised credit, rates and foreign exchange
products; increasing its financing activities; and growing its
client base across all regions.
Performance
CFM contributed $A835 million to Macquarie’s total profit from
operating groups for the year ended 31 March 2015, an
increase of 15 percent on the prior year. It generated net
operating income of $A1.8 billion, an increase of nine percent
on the prior year.
The improved result reflected a general improvement in market
conditions compared to the prior year.
Energy Markets was a significant contributor to CFM’s overall
result with revenues generated across the global energy
platform, particularly in Global Oil and North American Gas.
The realisation of a fee from Freeport LNG Terminal in Texas,
US, also contributed to the strong result. Macquarie Energy
was ranked by Platts as the No.3 US physical gas marketer in
North America.
Metals, Mining and Agriculture experienced continued
growth in its base metals platform across financing, physical
execution and hedging activities. Overall customer activity was
mixed, with improved activity in base metals and lower levels in
agriculture and precious metals. Further provisions for
impairment were taken on underperforming resources
investments and loans.
Fixed Income and Currencies benefited from increased client
volumes as volatility in foreign exchange and interest rate
markets improved, particularly in the second half. Transaction
flows across securitisation and origination businesses
continued to grow, particularly in the UK and Europe. The
international customer base continued to grow during the year.
Credit Markets in the US were mixed, influenced by the
continued low interest rate environment, increased liquidity in
Europe and the end of US Federal Reserve quantitative easing.
New issuance volumes and fees in Debt Capital Markets
increased as M&A activity increased, while investor demand for
high yield products continued to increase as credit spreads
tightened.
Futures volumes were mixed during the year but improved in
the second half due to increased market volatility and
associated client activity, particularly in commodity and energy
markets. Macquarie maintained its No.2 overall market share
ranking in ASX24 Futures during the year.
Outlook
Subject to the risks identified on pages 7 and 8, CFM currently
expects its result for the year ending 31 March 2016 to be
broadly in line with the year ended 31 March 2015.
This is the end of the Operating and Financial Review.
Corporate Governance Statement
19
Macquarie’s approach to Corporate
Governance
Macquarie’s approach to corporate governance, which has
remained largely consistent over time, is to:
– promote the long term profitability of Macquarie while
prudently managing risk
– drive superior and sustainable shareholder value over
the long term through the alignment of the interests of
shareholders and staff
– meet stakeholder expectations of sound corporate
governance as part of Macquarie’s broader
responsibility to clients, shareholders, investors and
the communities in which it operates.
Macquarie recognises that a key factor in delivering long
term shareholder returns is providing superior services to
clients. Macquarie's Code of conduct sets out the way staff
are expected to do business.
Macquarie is a global financial services provider with a
diverse range of activities across different locations. Its
shares are listed on the Australian Securities Exchange
(ASX). Macquarie is regulated by APRA, the Australian
banking regulator, as the NOHC of Macquarie Bank Limited,
an ADI. APRA's prudential standards include governance
and risk management requirements. A number of Macquarie
subsidiaries are supervised by regulators in the overseas
jurisdictions in which they operate. The notes to Macquarie’s
financial statements include a list of material subsidiaries of
the company.
Macquarie's governance practices were consistent with the
recommendations in the 2
nd
edition of the ASX Corporate
Governance Council's Principles and Recommendations
(ASX Recommendations) throughout the year. A summary of
the ASX Recommendations and reference to the applicable
Macquarie governance practice is available on Macquarie's
website at macquarie.com/leadership-corporate-governance
During FY2015 Macquarie reviewed its corporate
governance and reporting practices in light of the new 3
rd
edition of the ASX Recommendations and expects to be
consistent with the 3
rd
edition of the ASX Recommendations
from 1 April 2015.
This Corporate Governance Statement has been approved
by the Board.
Corporate Governance framework
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Corporate Governance Statement
continued
20
Board oversight
The primary role of the Board is to promote Macquarie's
long term health and prosperity. The Board Charter details
the Board's role and responsibilities which include approving
strategy, adopting an annual budget, approving Macquarie's
RAS and risk management strategy, appointing Macquarie's
Chief Executive Officer and considering matters relating to
remuneration and diversity.
Macquarie’s Constitution sets out requirements concerning
the setting of board size, meetings, election of directors
and the powers and duties of directors. In accordance with
the Constitution, the Board has resolved that the maximum
number of Voting Directors (Directors) is currently ten.
A copy of the Constitution and Board Charter are available
on Macquarie's website at macquarie.com/leadership-
corporate-governance
The Macquarie Board consists of ten Directors, nine of
whom are independent. Kevin McCann, an independent
Director, is Chairman. Nicholas Moore, Macquarie’s
Managing Director and Chief Executive Officer (CEO), is the
only executive Board member.
During the year, Gordon Cairns was appointed to the Board
effective from 1 November 2014 and Helen Nugent and
Peter Kirby retired on 24 July 2014. Schedule 1 of the
Directors' Report includes each Director's experience and
date of appointment to the Board.
The table below sets out the current composition of the
Board and the membership of each Board Committee.
Members’ attendance at Board and Board Committee
meetings during the past year is set out in the Directors’
Report.
Responsibilities of management
The Board has reserved certain matters for its approval as
set out in the Board Charter. It has delegated speci?c
authorities to its various Board Committees which are
detailed in each Board Committee Charter. The Board also
determines delegations to Management, approves relevant
limits and reviews business developments for consistency
within the Board-approved RAS and risk management
strategy.
The CEO has been granted authority for those matters not
reserved for the Board or a Board Committee. Macquarie’s
Management Committees assist in the exercise of the CEO’s
delegated authority. The CEO, the Chief Risk Officer (CRO)
and the Chief Financial Officer (CFO) report to the Board at
each monthly Board meeting. In addition to regular reporting
from Management, the Board has unlimited access to senior
management as well as external advisers.
The Company Secretary is appointed by and accountable to
the Board, through the Chairman, for matters relating to the
proper functioning of the Board.
Board and Board Committee membership
Macquarie
Board Audit
Governance
and
Compliance Nominating Remuneration Risk
Macquarie Independent Directors
Kevin McCann AM
(1)
Chairman Chairman Member Member
Gary Banks AO Member Member Member Member
Gordon Cairns Member Member Member Member
Michael Coleman Member Chairman Member Member Member
Patricia Cross Member Member Member Chairman
Diane Grady AM Member Member Member Member Member
Michael Hawker AM Member Member Chairman Member Member
Nicola Wakefield Evans Member Member Member Member Member
Peter Warne Member Member Chairman Member
Macquarie Managing Director and Chief Executive Officer
Nicholas Moore
(1)
Member
(1)
The Chairman and the CEO attend meetings of Board Committees of which they are not a member as a matter of course.
21
Board Committees
Macquarie’s five standing Board Committees assist the
Board in its oversight role. Each Board Committee has an
independent director as its Chairman. All Board members
are sent Board Committee meeting agendas and may attend
any Board Committee meetings. Subsequent to each Board
Committee meeting, the minutes are included in the Board
papers and presented to the Board by the respective Board
Committee Chairmen.
The Risk, Audit, Governance and Compliance, Nominating
and Remuneration Committees comprise members who are
independent directors. The Board Committee Charters,
detailing the responsibilities of each Committee and how
they exercise their authority, are available on Macquarie’s
website at macquarie.com/leadership-corporate-governance
Allocation of responsibilities between
Board Committees
The Board Risk Committee (BRiC) assists the Board by
providing oversight of the implementation and operation of
Macquarie's risk management framework and advising the
Board on Macquarie's risk position, risk appetite, risk culture
and risk management strategy. The BRiC receives
information on material risks and external developments that
may have an impact on the effectiveness of the risk
management framework.
The Board Audit Committee (BAC) assists the Board with
its oversight of the integrity of the financial statements. The
BAC is also responsible for reviewing the adequacy of the
Group’s control framework for financial regulatory reporting
to banking regulators and monitoring the internal financial
control environment. The BAC reviews reports from the
external auditor and Internal Audit, referring matters relating
to the duties and responsibilities of the BRiC and Board
Governance and Compliance Committee to the appropriate
Committee.
The Board Remuneration Committee (BRC) makes
recommendations to the Board that promote appropriate
remuneration policies and practices for the Macquarie
Group consistent with Macquarie Group’s risk
management framework. The BRC is responsible for
liaising with the BRiC to ensure there is effective
co-ordination between the two Committees to assist in
producing a properly integrated approach to remuneration
that reflects prudent and appropriate risk. The BRC is also
responsible for liaising with the BAC in relation to
remuneration related disclosures in the remuneration report.
The Board Governance and Compliance Committee
(BGCC) has responsibility for recommending to the Board
the most appropriate corporate governance policies for the
Macquarie Group and for assisting the Board in fulfilling its
responsibility for oversight of the compliance framework of
the Group. In addition, it has oversight of Macquarie’s work
health and safety practices and environmental and social risk
management policies.
The Board Nominating Committee (BNC) is responsible for
assisting the Board to ensure that it has an appropriate mix
of skills, experience and diversity to be an effective decision-
making body in order to provide successful oversight and
stewardship of Macquarie.
Director Independence
Macquarie recognises that independent directors have an
important role in assuring shareholders that the Board is
able to act in the best interests of Macquarie and
independently of Management.
The independence of Non-Executive Directors (NEDs) is
reviewed annually by the BGCC and then considered by the
Board as part of its review of the BGCC minutes. Based on
Macquarie’s criteria for assessing director independence,
each independent Director is asked to confirm whether they
have any material interests or relationships with Macquarie
that could interfere with the exercise of their independent
judgement. There were no material or substantial
relationships noted by Directors in their annual declaration.
Some of the Directors hold or have previously held positions
in companies and professional service providers with which
Macquarie has commercial relationships. All dealings with
these companies and with professional service providers are
and have been on arm's length commercial terms. Each
Director's date of appointment, experience and directorships
are set out in Schedule 1 of the Directors' Report.
Consistent with the 3
rd
edition of the ASX
Recommendations, the following interests or associations of
the type described in the commentary to the relevant
recommendation were noted by the BGCC. Mr McCann has
been on the Board for a period that exceeds Macquarie's
tenure policy, and a family member of Mr Coleman is
employed as a Division Director of Macquarie. BGCC
members considered that neither factor impacts their
independence because, in the course of Board deliberations,
they demonstrate independent judgement and an objective
assessment of all matters before the Board.
Similarly, the BGCC has determined that there are no
interests or relationships that could materially interfere with
each of the other NEDs' ability to act independently of
management and in the best interests of Macquarie.
Therefore, excluding the CEO, all Directors continue to be
independent.
Directors are able to consult independent experts at
Macquarie’s expense, subject to the estimated costs
being approved by the Chairman in advance as being
reasonable, and also have unlimited access to senior
management of Macquarie.
Macquarie's criteria for assessing director independence,
including materiality thresholds, is available on the Macquarie
website at macquarie.com/leadership-corporate-governance
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Corporate Governance Statement
continued
22
Board Renewal
The Board with the assistance of the Board Nominating
Committee regularly assesses the skills, experience and
diversity required collectively for the Board to effectively fulfil
its role. Macquarie’s Policy on Board Renewal and
Appointment of Directors sets out the fundamental factors
relevant to the selection and appointment of new Directors
and is available on Macquarie’s website at macquarie.com/
leadership-corporate-governance
The Board is comprised of highly experienced senior
business leaders from a variety of professional backgrounds
who each meet the fundamental requirements and,
collectively, possess the skills, experience and diversity
considered necessary to appropriately govern an ASX-listed
global financial services provider.
A summary of the key skills and experience of the ten
members of the Board is set out below.
Skills and experience
No. of
Directors
Financial Services/Retail Banking 8
Investment Banking/Corporate
Banking/Financial Markets/Funds
Management
9
Financial acumen 10
Listed company board experience 9
International background/experience 9
Senior management role 9
Accounting 2
Law 3
Human capital management 8
Business development and strategy 10
Regulation and public policy 8
The qualifications, skills and experience of the individual
members of the Board are set out in Schedule 1 of the
Directors' Report.
New NEDs are appointed for three 3-year terms from first
election by shareholders. The Board has discretion to extend
a NED's term of appointment if the Board determines that
extending the term will be of significant benefit to Macquarie.
At the 2014 Annual General Meeting (AGM), consistent with
the Board's recommendation, shareholders re-elected the
Chairman, Kevin McCann, for a further three-year term.
Director appointment, induction and development
In accordance with Macquarie's Fit and Proper Policy, prior
to appointing a person to the Macquarie Board, appropriate
background checks are undertaken. New Directors stand for
election at the first AGM following their appointment. The
notice of meeting provides shareholders with material
information relevant to a decision as to whether to elect a
Director including their skills, experience, other directorships
and an acknowledgement that they will have sufficient time
to fulfil their responsibilities as a Director.
All new Directors receive an appointment letter setting out
the key terms and conditions of their appointment. They also
undertake an induction program covering relevant matters
such as Board practices and procedures, prudential
requirements and briefings with senior management. NEDs
identify business awareness needs on an ongoing basis and
regular Board workshops are held during the year. In
addition to workshops, the Board travels to various
Macquarie overseas offices annually and the Chairman also
visits other Macquarie overseas operations at least annually.
Board performance
The Board and Directors
The Board reviews its performance and the performance of
each Director on an annual basis with emphasis on those
individual Directors who are required to stand for re-election
at the next AGM. Material information relevant to a decision
on whether or not to re-elect a Director, is provided to
shareholders in the explanatory notes to Macquarie's notice
of meeting.
The process for conducting the review is agreed by the
Board. Typically the process includes individual interviews by
the Chairman or an external facilitator with each Director,
and the use of a questionnaire to cover matters such as:
– the Board’s contribution to developing strategy
and policy
– the Board’s performance relative to its objectives
– interaction between the Board and Management and
between Board members
– the Board’s oversight of business performance and
compliance, risk controls and management
– Board composition, including consideration of relevant
skills and structure
– the operation of the Board, including the conduct of
Board meetings and group behaviours.
A nominated independent Director or an external facilitator
provides feedback to the Chairman on the Chairman’s
performance based on discussion with the other Directors.
A written report summarising the results, issues for
discussion and recommendations is presented to the Board
and discussed at a Board meeting.
The Board’s review in FY2015 was conducted internally and
for FY2016 will be conducted with the assistance of an
external facilitator, both in accordance with the process
described above.
23
Board Committees
As part of the Board's annual performance evaluation,
the functioning of the Board Committees is reviewed. Each
Board Committee also undertakes a periodic review of its
performance, at least biennially. The process for the review
also includes use of a questionnaire and discussion of the
outcomes, including recommendations, which is led by the
Chairman of the respective Board Committee.
A summary of the processes adopted by Macquarie for
Board and Key Executive Performance Review is available on
Macquarie’s website at macquarie.com/leadership-
corporate-governance
Performance of key executives
Formal processes have been adopted by Macquarie to
review the performance of Macquarie’s most senior
executives. The BRC oversees the process for the CEO’s
annual performance review.
As part of the annual review, the CEO prepares a formal
report on his performance and presents to the NEDs. The
NEDs review performance by considering a range of
indicators including financial position and performance,
people and culture, sustainability (planning and investment in
the future) and community. A similar process is followed to
review the performance of the CEO of Macquarie Bank. The
NEDs also have regard to any risk management and
compliance matters as reported by the CRO.
The CEO evaluates, at least annually, the performance of the
Operating Group Heads, the CRO, the CFO and the Chief
Operating Officer (COO). Performance criteria vary according
to the individual’s role. Factors relevant to assessing
performance include (as appropriate) financial performance,
risk management and compliance, business leadership and
people leadership (including upholding Macquarie's Code of
conduct). The CEO reports to the BRC on the performance
of these key executives and recommends individual senior
executive remuneration for Board approval.
The Board and the CEO seek to ensure that remuneration
for the CRO is determined in a way that preserves the
independence of this function and maintains Macquarie’s
robust risk management framework.
A performance evaluation for senior executives has taken
place during the year in accordance with the process
described above. Further detail on the remuneration policy
and performance review for Executive Key Management
Personnel is found in the Remuneration Report in the
Directors’ Report.
Ethical and responsible decision-making
Code of conduct
The Code, which has been approved by the Board,
incorporates What We Stand For: the principles of
Opportunity, Accountability and Integrity that guide the way
staff conduct business. The Code provides clear guidance to
staff on good decision making and escalation, encouraging
staff to speak up and report genuine concerns about
misconduct. The Code reinforces Macquarie's policies in
relation to the protection of whistleblowers. The Code also
summarises the standards, policies and processes regarding
conflicts of interest, disclosure and corruption.
To ensure that Macquarie's culture of honesty and integrity
remains strong throughout the organisation, all staff who join
Macquarie receive specific training on What We Stand For
and the Code. Existing staff also receive training and sign an
annual declaration that they have reviewed the Code.
A copy of What We Stand For and the Code are available on
Macquarie’s website at macquarie.com/what-we-stand-for
Integrity office
Macquarie established the Integrity Office in 1998. In
addition to providing an independent and confidential point
of escalation for staff to raise concerns, the Integrity Office
works with business groups to support staff in good decision
making and to promote the principles of What We Stand For.
The Integrity Office is responsible for Macquarie's externally
managed staff hotline that enables staff to report suspected
breaches of the Code, or other misconduct, anonymously.
The Integrity Office reports directly to the CEO and provides
an annual report to the BGCC.
Dealing with potential conflicts
Failure to identify a conflict of interest can give rise to
considerable harm to Macquarie's relationship with clients
and its reputation. Before entering into a transaction,
undertaking any dealing (either directly with clients or
otherwise), or undertaking any fiduciary role, appropriate
checks are undertaken.
Macquarie has systems and protocols in place to identify a
conflict of interest and a framework for managing conflicts.
It is the responsibility of each business head to ensure that
conflicts of interest are adequately managed and that their
business is conducted in accordance with applicable laws,
regulations, rules and statements of regulatory policy.
Macquarie has adopted a variety of measures to manage
conflicts of interest, including Macquarie-wide policies and
divisional policies, systems, lists, information protocols
and appropriate disclosures. The appropriate mechanism
to manage a conflict will depend on the circumstances and
nature of the conflict. Conflict management arrangements
at Macquarie are subject to the oversight function of the
Compliance Division within RMG.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Corporate Governance Statement
continued
24
The Board has guidelines for its members for declaring and
dealing with potential conflicts of interest that include:
– board members declaring their interests as required
under the Corporations Act 2001 (Cth) (the Act), the
ASX Listing Rules and general law requirements
– board members with a material personal interest in a
matter before the Board do not receive the relevant
Board paper and are not present at a Board meeting
during the consideration of the matter and subsequent
vote, unless the Board (excluding the relevant Board
member) resolves otherwise
– board members with a conflict not involving a material
personal interest may be required to absent themselves
from the relevant deliberations of the Board.
Macquarie Bank is a subsidiary of Macquarie, and the
Macquarie Bank Board is ultimately responsible for the
sound and prudent management of Macquarie Bank,
with due consideration for the interests of deposit holders.
Where potential conflicts arise, Management will provide
Directors of the relevant Board with sufficient information to
manage conflicts appropriately.
Staff and Director trading
Macquarie’s personal dealing policies apply to Directors
and all Macquarie staff. They identify the principles by which
Macquarie balances personal investment interests against
the responsibility of Macquarie and its staff to ensure that all
personal dealing and investment activities are conducted
appropriately. Key aspects of Macquarie’s personal dealing
policies include:
– pre-clear securities trading: Directors and staff must
pre-clear their securities trading with Macquarie
– trading windows: Generally, Directors and staff may
only trade in Macquarie securities and related
derivatives during designated trading windows. These
are typically of three to five weeks duration and follow
Macquarie’s announcement of its interim and full year
results and after the AGM
– excluded dealings: Certain types of transactions such
as acquisition of securities under an employee share
plan or participation in the dividend reinvestment plan
may be effected outside a trading window without
pre-clearance
– trading prohibition while in possession of material
non-public price-sensitive information: In all cases
Macquarie prohibits Directors and staff from dealing
in any security, including a Macquarie security, if they
possess non-public price-sensitive information about
or affecting the relevant security
– deferred and unvested equity awards, retained
shares and minimum shareholding requirements
cannot be hedged: Staff are not permitted to
undertake any action that is designed to limit their
exposure to Macquarie shares that are subject to
retention arrangements, or their deferred and unvested
equity awards. NEDs may not enter into a transaction
that operates to limit the economic risk of their
Macquarie shareholding below their minimum
shareholding requirement
– net short positions not permitted: Directors and staff
are not permitted to take net short positions in
Macquarie shares or any securities in Macquarie-
managed funds.
Macquarie's Trading Policy sets out the restrictions that
apply to dealing in Macquarie securities by Macquarie staff,
including Key Management Personnel, and is available on its
website at macquarie.com/leadership-corporate-governance
Each member of the Board is encouraged to consider
positions in a Macquarie security as a long term investment
and is not permitted to trade derivatives relating to a
Macquarie security without the prior approval of the
Chairman (or the CEO in the case of the Chairman). Board
members and Key Management Personnel are also required
to annually disclose to Macquarie any financing
arrangements relating to their Macquarie securities and
manage their financing arrangements in accordance with
Macquarie’s policies.
Corporate governance in Macquarie-managed
funds
Macquarie’s expertise in managing fund assets and sourcing
new value-adding opportunities is a key attraction for
investors in Macquarie-managed funds (Funds).
The Funds' governance standards adopt an appropriate
governance framework to ensure that key decisions are
taken in the best interests of investors consistent with the
fund’s mandate and regulatory requirements.
The key elements of Macquarie’s corporate governance
framework for Funds are:
– appropriate management of conflicts of interest arising
between a Fund and its related parties. Related party
transactions should be identified clearly, conducted on
arm’s length terms and tested by reference to whether
they meet market standards. Decisions by listed Funds
about transactions with Macquarie or its affiliates should
be made by parties independent of Macquarie
– appropriate resourcing of funds management
businesses. In particular:
– staff involved in managing a Fund should be
dedicated to the relevant funds management
business, rather than to advisory or other activities
– all recommendations to Fund boards (and
supporting information) should be prepared or
reviewed by funds management staff
– each listed Fund that invests in operating assets or
businesses should have its own managing director
or chief executive officer and a majority of
independent directors on the Fund board
– information barriers operate to separate
Macquarie’s corporate finance, advisory and ECM
businesses from its funds management
businesses.
25
Diversity
The diversity of our people remains fundamental to
Macquarie’s success. Macquarie’s Workforce Diversity
Policy defines Macquarie’s diversity commitment and
the structures in place to ensure it is realised. The principles
contained in our Workforce Diversity Policy are incorporated
in the Our Commitment to Workforce Diversity statement
available on Macquarie's website at macquarie.com/diversity
Macquarie has implemented an extensive range of programs
and initiatives to support the achievement of its diversity and
inclusion strategy over the past year.
Macquarie’s measurable objectives for achieving diversity are
detailed in the Diversity Report.
Macquarie and the community
Macquarie engages in the wider community through the
Macquarie Group Foundation (the Foundation). Together
with Macquarie staff, the Foundation has contributed more
than $A240 million to over 2,500 community organisations
since its inception in 1985. Staff also volunteer at a number
of community organisations globally. In the
year ended 31 March 2015, the Foundation and Macquarie
staff contributed approximately $A24.2 million.
Further information is included in the Macquarie Group
Foundation section of this Annual Report.
Commitment to shareholders and an
informed market
Macquarie believes that shareholders, regulators, ratings
agencies and the investment community should be informed
of all major business events and risks that influence
Macquarie in a factual, and timely manner. Macquarie has a
continuous disclosure policy that is incorporated in the
External Communications Policy.
It is Macquarie’s policy that any price-sensitive material for
public announcement, including annual and interim profit
announcements, release of financial reports, presentations
to investors and analysts, and other prepared investor
briefings for Macquarie and Macquarie Bank, will:
– be factual and reviewed internally before issue
– not omit material information
– be timely and expressed in a clear and objective
manner.
Macquarie's continuous disclosure procedure includes
reference to and consideration by Macquarie's Disclosure
Committee as appropriate. A summary of the External
Communications Policy is available on Macquarie’s website
at macquarie.com/leadership-corporate-governance
Macquarie has an investor relations program to facilitate
effective two-way communication with investors and
analysts, to provide a greater understanding of Macquarie’s
business, performance, governance and financial prospects.
Shareholder meetings
Macquarie typically holds its AGM in July of each year.
Macquarie encourages shareholders to participate in general
meetings and aims to choose a date, time and venue
convenient to its shareholders. For shareholders who are
unable to attend in person, Macquarie provides a webcast
of its AGM and any other general meetings. The results of all
resolutions are lodged with ASX after the meeting as soon as
they are available.
This year Macquarie’s AGM will be held in Sydney, Australia.
Other general meetings may be held as required during the
year.
Macquarie’s auditor is required to attend each AGM and be
available to answer questions about the conduct of the audit,
and the preparation and content of the auditor’s report.
Notices of meeting are accompanied by explanatory notes
on the items of business and together they seek to clearly
and accurately explain the nature of business of the meeting.
Shareholders, if unable to attend the meeting, are encouraged
to vote on the proposed motions by appointing a proxy. The
proxy form included with a notice of meeting will explain how
to appoint a proxy.
Online proxy voting is also available to shareholders. Unless
specifically stated in a notice of meeting, all holders of fully
paid ordinary shares are eligible to vote on all resolutions.
Macquarie seeks that its shareholder meetings are
conducted in a manner which is courteous for those
attending. In the interests of attending shareholders, the
chair of the meeting will exercise his or her powers as the
chair to ensure that the meeting is conducted in an orderly
and timely fashion.
A shareholder calendar is available on Macquarie’s website
at macquarie.com/investors
Macquarie’s website
Macquarie’s website contains recent announcements, past
and current reports to shareholders, including summaries of
key financial data, and copies of recent notices of meeting.
There is also a link allowing investors to register to receive
email notification of Macquarie public announcements.
Shareholders can also elect to receive communications
electronically by contacting the share registry.
Recent AGM webcasts, year-end and interim results
presentations and operational briefing presentations
are available on Macquarie’s website at
macquarie.com/investors
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Corporate Governance Statement
continued
26
Financial reporting
On behalf of the Boards of Macquarie and Macquarie Bank,
the BAC monitors:
– the integrity of Macquarie’s financial reporting and the
operation of the financial reporting processes. The
processes are aimed at providing assurance that the
financial statements and related notes are complete, in
accordance with applicable legal requirements and
accounting standards, and give a true and fair view of
Macquarie’s financial position. During its review of
Macquarie’s interim and year-end financial reports the
BAC meets with the external auditor in the absence of
Management
– the external auditor engagement. The BAC reviews the
appointment, the terms of the engagement and the
performance of the external auditor before making
recommendations to the Board on the appointment
and removal of the external auditor
– the operation of Internal Audit and Credit Assurance
(CA). The BAC reviews the independence, appointment,
performance and remuneration of the Head of the
Internal Audit Division (IAD), as well as monitoring the
effectiveness of Internal Audit. It also provides oversight
of the IAD and CA annual plans
– Macquarie’s control framework for financial regulatory
reporting to banking regulators.
Auditor independence
Before the approval of the interim and year-end financial
reports, the BAC reviews the independence of the external
auditors in accordance with the Act, the Macquarie Auditor
Independence Policy, and the BAC Charter.
Macquarie’s Auditor Independence Policy requires BAC
approval, or between meetings the approval of the BAC
Chairman, for material non-audit work performed by its
auditors. Also under the policy, which reflects Australian legal
requirements, Macquarie’s lead auditor and review auditor
must be rotated every five years unless the Board grants
approval to extend the term for up to a further two years.
Mr Kim Smith of PricewaterhouseCoopers (PwC) is
Macquarie’s lead auditor for FY2015.
The BAC Charter and the External Auditor Policy Statement
describe key aspects of Macquarie’s Auditor Independence
Policy and external auditor selection process. They are
available on Macquarie’s website at
macquarie.com/leadership-corporate-governance
Chief Executive Officer and Chief Financial Officer
declaration
The Macquarie and Macquarie Bank Boards have each
received written confirmation from their respective CEO and
CFO that their statement given to the Board in accordance
with section 295A of the Act is founded on a sound system
of risk management and internal control and the system is
operating effectively in all material respects in relation to
financial reporting risks.
Oversight of risk management
Macquarie’s approach to risk management is detailed in the
Risk Management Report and is available on Macquarie’s
website at macquarie.com/leadership-corporate-governance
The Board monitors significant business risks and reviews how
they are managed. The Board also monitors Macquarie's risk
management framework, including by forming a view of
Macquarie's risk culture and approving Macquarie's risk
appetite statement and risk management strategy.
All independent Directors are members of the BRiC to
provide oversight of the implementation and operation of
Macquarie's risk management framework and constructively
challenge Management’s proposals and decisions on risk
management arising from the Group's activities.
The CRO is a member of Macquarie’s Executive Committee
and reports directly to the CEO. The CRO has a secondary
reporting line to the BRiC which approves the replacement,
appointment, reassignment or dismissal of the CRO. The
CRO presents on risk matters at the BRiC meeting, and in
months where there is no scheduled BRiC meeting, at the
Board meeting. During the year, senior management has
reported to the Board on the effectiveness of risk
management and internal control systems in addressing
material risks.
At the executive management level, senior management
committees focus on strategic issues, operational issues,
material transactions, the management of risk and review the
performance of Macquarie on a monthly basis. There are
also other committees where senior specialists focus on
speci?c risks as appropriate. The Market Risk Committee
and the Asset and Liability Committee are examples of these
committees.
Internal audit
IAD provides independent assurance to Management and
the Board on the adequacy and operational effectiveness of
Macquarie's internal control, risk management and
governance systems and processes. IAD findings are
reported to the BAC. The Head of IAD is jointly accountable
to the BAC and the CRO. The BAC approves the
replacement, appointment, reassignment or dismissal of the
Head of IAD.
27
Environmental, Social and Governance risk
Macquarie’s Board and Management view the commitment
to Environmental, Social and Governance (ESG) performance
as part of their broader responsibility to clients, shareholders
and the communities in which Macquarie operates.
Macquarie’s approach is detailed in the ESG Report.
Macquarie has continued efforts to: manage ESG risks in its
business activities; advance environmental management;
and pursue investments, markets and products with an ESG
focus, including in renewable energy and energy efficiency.
Macquarie values its people and continues to invest in the
development and well-being of its diverse talent base.
A Global Reporting Initiative (GRI) index is available on
Macquarie's website.
Oversight of remuneration arrangements
The Board of Directors oversees Macquarie’s remuneration
arrangements, including executive remuneration and the
remuneration of Macquarie’s NEDs. The Board is assisted by
the BRC. The BRC annually reviews that Macquarie's
remuneration approach remains appropriate and creates a
strong alignment of staff and shareholders’ interests while
prudently managing risk.
Unlike Macquarie executives, NEDs are not granted equity,
nor are they eligible to receive bonus payments. They do
not receive payments on their retirement from office other
than payments accruing from superannuation contributions
comprising part of their remuneration. Macquarie’s NEDs are
remunerated for their services from the maximum aggregate
amount approved by shareholders, currently $A4 million.
Details of Macquarie’s approach and the amount of
remuneration paid to NEDs are contained in the
Remuneration Report in the Directors’ Report.
To align the interests of the Board with shareholders, NEDs
are required to progressively acquire a minimum of 6,000
shares in Macquarie over a period of five years from the
date of their appointment. During the year, the Board
introduced a minimum shareholding requirement for the
Chairman of 12,000 Macquarie shares to be achieved within
three years of becoming Chairman.
Each NED’s remuneration and current Macquarie
shareholding are set out in the Key Management Personnel
disclosure in the Remuneration Report and in the notes to
the financial statements in the Financial Report.
Details of the nature and amount of remuneration (including
non-monetary components such as equity grants) for each
Executive Voting Director and the members of the Executive
Committee as well as Macquarie’s remuneration policies and
practices are set out in the Remuneration Report.
This is the end of the Corporate Governance Statement.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Macquarie Group Foundation Review
28
Macquarie’s approach to philanthropy is to support staff in
identifying the needs of their local communities globally.
In 2015, as the Foundation celebrates its 30th anniversary,
it continues to encourage staff to address these needs through
the giving of their time, expertise and financial support. The
Foundation is also committed to social innovation, working
with its community partners to drive sustainable community
benefits over the long term.
In the year ended 31 March 2015, the Foundation celebrated
its employee-led focus by establishing an inaugural Foundation
Week. Together with the Foundation's financial support,
Macquarie employees raised more than $A1 million for
hundreds of non-profits during a 9-day community
engagement initiative.
This contribution was part of the approximately $A24.2
million
(1)
provided to 1,300 community organisations by staff
and the Foundation globally over the year, together with
approximately 33,500 hours of voluntary community service.
Staff recognition
The Foundation recognises staff activity in a number of ways.
Its annual Staff in the Community Awards acknowledge
outstanding staff volunteering, fundraising and pro bono efforts
at an individual, team and office level, with financial support
extended to the charities involved.
In addition, Macquarie’s staff matching policy provides up to
$A25,000 for individual donations or fundraising and up to
$A100,000 for team fundraising.
A highlight of Macquarie’s staff fundraising in the year ended
31 March 2015 was the Movember campaign, for which
Macquarie was one of the top three global corporate
fundraisers. Together with Foundation matching, more than
$A313,000 was raised by employees for men’s health. This
means that, since 2009, more than $A3 million has been
contributed to Movember by Macquarie staff and the
Foundation.
Pro bono expertise
A distinguishing feature of Macquarie’s philanthropy is its focus
on building the capacity of community organisations through
the professional expertise of Macquarie’s staff.
During the year, the Foundation, working with Macquarie’s
Learning and Development team, linked Macquarie director-
level employees to non-profit organisations in need of skilled
volunteering in Sydney, London, Hong Kong and New York
City. The Macquarie Director Program aims to support
non-profits in effectively addressing their objectives, while staff
have the opportunity to develop leadership and project
management skills outside of their day-to-day roles.
Social innovation
Throughout its 30-year history, the Foundation has sought to
pioneer new approaches to corporate philanthropy. During
FY2015, one of its initiatives in this area – the Macquarie David
Clarke Social Innovation Fellowship established in Australia in
2012 – was extended to the UK, Hong Kong and New York
City.
This Fellowship, valued at $A20,000, encourages CEOs of
non-profits to visit and research best practice social innovation
around the world. The following CEOs were recognised:
– Jennifer Mitchell, The HOPE Program, New York
– Anita Grover, Auditory Verbal, UK
– Paul Edginton, SYC and Scott Harris, Beacon
Foundation, joint winners, Australia
– Alia Eyres, Mother’s Choice, Hong Kong.
In addition, Macquarie’s $100,000 Social Innovation Award
recognises, rewards and promotes new ideas that meet
pressing community social needs. The winner of the 2014
Award was Perth-based Fogarty EDvance for its school
improvement program.
Long term partnerships
The Foundation builds sustained relationships with non-profit
partners by extending grants in some cases over three to five
years. With many of these partners, there is also a deep level
of Macquarie staff engagement. The long term nature of these
relationships allows for certainty of funding within these
organisations and the ability to leverage support from other
funders.
Examples include:
– Asha Foundation (India): Macquarie has supported Asha
since 2012 through an internship program in its Gurgaon
office for university students from slum communities. The
Foundation provided a grant to Asha in 2013 and then a
further three-year grant in 2014 to help extend its work
across health, education and development initiatives
– BIG (Businesses for Islington Giving) Alliance (UK): the
Foundation provided seed funding to the BIG Alliance
when it was established in 2012, helping facilitate
business volunteering with local charities and schools in
the London district
– LEADS (US): since 2008, in conjunction with Columbia
University's Double Discovery Center, Macquarie’s New
York City employees have offered a four month mentoring
program – that includes a month-long, paid summer
internship at Macquarie – to local high school students who
are the first in their families to attend college
– The Song Room (Australia): Macquarie has supported the
Song Room since 2004 through a number of multi-year
grants for different projects, including online arts
education, research and social enterprise development.
The Foundation also notes that in FY2015 the Hayden
Reynolds Tiwi College Project, supported by Macquarie since
2010, recorded $A2 million in fundraising for education and
training facilities for Tiwi Island youth.
Further information regarding Macquarie staff community
initiatives and organisations supported by the Foundation is
available at macquarie.com/community.
(1)
Comprising Foundation matching support for staff donations
and fundraising; Foundation donations to commemorate staff
attaining 10-year and 25-year anniversaries at Macquarie;
Foundation participation grants to staff who have been on a
non-profit board for more than 12 months; and Foundation
grants to community organisations.
This is the end of the Macquarie Group Foundation Review.
Diversity Report
29
As a company which operates globally, the diversity of
Macquarie's people is fundamental to its success. Macquarie’s
ongoing commitment to workforce diversity ensures its
business remains innovative, sustainable and continues to
meet the evolving needs of its clients.
Macquarie's range of experiences, skills and views are key
strengths and critical to the wide range of services the Group
delivers across the globe.
Macquarie is committed to:
– attracting a broad range of candidates
– applying fair and robust selection processes
– providing a workplace that is inclusive of all individuals
– providing the relevant structures and work environment to
best support its people to reach their full potential in the
workplace
– allocating pay and advancement opportunities in a fair
and equitable way with a view to both merit and the
markets and business environments in which Macquarie
operates.
All executives, managers and employees are responsible for
promoting workforce diversity and inclusion. Each region is
supported by dedicated diversity representatives who,
together with the regional diversity committees, implement the
organisation’s global objectives while responding to business
or location specific priorities and circumstances.
Global Diversity Policy
Macquarie’s Workforce Diversity Policy defines Macquarie’s
workforce diversity commitment and the structures in place to
ensure it is realised. The principles contained in Macquarie's
Workforce Diversity Policy are incorporated in the Our
Commitment to Workforce Diversity statement available on
Macquarie’s website at macquarie.com/diversity
Composition of workforce and female
representation
The table below outlines the proportion of women employed
globally at Macquarie over the last five years.
As at 31 March 2011
(%)
2012
(%)
2013
(%)
2014
(%)
2015
(%)
Board of
Directors
25.0 33.3 30.0 36.4 30.0
Executive
Committee
8.3 10.0 18.2 20.0 23.1
Division Head
(1)
9.9 11.1 14.4 16.8
Senior
Executive
(2)
12.5 12.9 13.8 13.6 13.9
Macquarie
Workforce
37.3 36.9 36.8 37.0 37.5
(1)
Division Head refers to critical roles across Macquarie.
It typically includes executives two layers down from the CEO.
Note female representation at Division Head was not reported
in 2011.
(2)
Senior Executive refers to Macquarie’s combined Division
Director and Executive Director population.
At the end of the year, Macquarie’s permanent workforce
comprised approximately 44.4 percent located in ANZ,
19.7 percent located in the Americas, 26.5 percent located in
Asia and 9.4 percent located in Europe, the Middle East and
Africa. Flexible work is accommodated where possible and all
part-time and full-time employees have eligibility for the same
types of benefits, unless there is a local legal or regulatory
requirement to restrict eligibility on that basis.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Diversity Report
continued
30
Diversity objectives
The Workforce Diversity Policy provides that each year the Board will set measurable objectives for achieving gender diversity. For
the year ended 31 March 2014, the Board endorsed a revised set of diversity objectives that are meaningful, measurable and
broader than gender.
The diversity objectives are set out in the following table.
Diversity objectives
Strategic
imperative
Long term outcome
sought
Objective
Diverse
workforce
Increase the representation
of women at Macquarie at
all levels.
– increase female representation at senior leadership levels:
– Board of Directors
– Executive Committee
– Division Head
– Senior Executive.
– expand efforts to increase the number of women in the finance industry by
promoting finance careers to female secondary school and university students
– require female representation on all recruitment shortlists and ask ‘if not, why
not?’
– improve gender balance on Intern and Graduate programs
– recruit female lateral hires in proportion to the underlying female candidate pool as
a minimum requirement.
Inclusive
workplace
Provide an inclusive and
flexible workplace,
underpinned by policies
that support individuals to
reach their full potential.
– provide technology and maintain policies to support flexible work arrangements
– provide leave benefits and maintain policies to support parental leave
– provide parents and carers support prior to, during and upon return from leave
– continue to participate in and sponsor networking and development programs
focusing on women and other traditionally under-represented groups in areas
such as race/ethnicity and disability.
Robust
meritocracy
Embed equity and
transparency in all people
practices and processes
including remuneration,
promotion, succession,
retention, performance
and development.
– maintain pay equity for like roles and performance
– maintain equality for men and women in promotion decisions
– require that participation in development and leadership programs is
representative of the underlying workforce demographics
– retain women in same proportion as men
– maintain high return to work rates for staff on parental leave
– maintain high retention of staff returning from parental leave.
Integration
and
awareness
Further integrate and build
awareness of diversity and
inclusion objectives into the
day-to-day operations of
the organisation to become
part of the way Macquarie
does business.
– embed the principles of diversity and inclusion into all Human Resources related
policies, processes and programs to ensure the highest and fair standards in how
Macquarie hires, develops, pays and promotes staff
– measure and assess diversity statistics in relation to these activities and decisions,
holding management accountable for inclusive practices.
31
Progress FY2015
Macquarie has implemented an extensive range of programs
and initiatives to support the achievement of its diversity and
inclusion strategy over the past year.
Diverse workforce
Macquarie aims to promote a workforce that is reflective of the
diversity within the communities in which it operates.
Macquarie’s ongoing commitment to achieving gender
balance at the leadership levels of the organisation is
demonstrated in the strong female representation on the
Board and Executive Committee and improving representation
at Division Head and Senior Executive levels.
Macquarie's focus continues to be on developing the internal
and external female talent pipeline at both junior and senior
levels and enhancing its recruitment processes to facilitate this.
Consequently the majority of all roles filled globally during
FY2015 had at least one female candidate on the shortlist and
women were hired in greater proportion than the underlying
female application rate. Additionally, female representation on
both graduate and intern programs increased globally in
FY2015 over FY2014.
Macquarie continues to sponsor female university societies
and to actively participate in industry-wide diversity initiatives.
Macquarie launched a series of initiatives in secondary
schools, hosting events aimed toward high-performing
students studying maths, economics or commerce or with an
interest in finance to educate students on the breadth of
opportunities available within the financial services industry.
Macquarie will continue to be actively involved with industry
groups focused on addressing gender balance with an aim to
leverage initiatives relevant to the secondary school and tertiary
student population.
Inclusive workplace
In recognition of the importance of empowering staff to
manage their work and time as effectively as possible,
Macquarie provides policies to support flexible work
arrangements in all regions. Flexibility is offered in response to
a range of reasons including family or carer’s responsibilities,
pursuit of further studies, recreational reasons such as sporting
commitments or community work, phased retirement or a
career break.
Where possible, Macquarie offers its staff the opportunity to
work flexibly in relation to hours, days and place of work in all
regions and may include, for example, flexi-time (having a
different or flexible start/finish time), purchased leave, job share
and working from home.
Macquarie supports working parents and those with carer’s
responsibilities through a variety of means. Employee network
groups were launched in FY2015 in Australia and Asia to
support people with family and carer’s responsibilities. In
Sydney, Macquarie has well established relationships at two
childcare centres which offer childcare services to permanent
employees. Macquarie also offers casual places through these
centres to respond to the need for flexible childcare
arrangements. Other initiatives include ‘Care for Kids’ (an online
portal for working parents providing access to research and
resources), backup childcare, backup adult and eldercare,
childcare vacancy and emergency childcare search and return-
to-work coaching for parents.
Macquarie participated in internship programs designed for
Indigenous students and those with a disability by partnering
with CareerTrackers and Australian Network on Disability in
FY2015. In addition Macquarie partnered with the East London
Business Alliance, an organisation focused on placing
university graduates from disadvantaged East London
backgrounds and communities. Macquarie continues to
actively participate in sponsorship, mentoring and networking
programs, both internally and externally in all regions, including
the Chief Executive Women’s Leaders Program, the Women in
Banking and Finance Mentoring program and the FTSE 100
Mentoring Program. Additionally the first Macquarie cross-
business group mentoring program will be launched in Asia in
2015 providing the opportunity to build a more diverse
leadership pipeline for Macquarie in Asia and to enhance
collaboration across groups and country boundaries.
Robust meritocracy
Macquarie aims to attract and retain a diverse range of
candidates, ensuring meritocracy in hiring, reward and
promotion decisions. To achieve this Macquarie embeds
equity and transparency in all people-related practices and
processes:
– conscious decision-making training is embedded in core
talent programs, recruitment processes and remuneration
and promotion criteria, complemented by targeted
training in specific business groups and regions
– the staff induction program and the Macquarie Director
Program both include modules specifically focused on
Macquarie’s diversity and inclusion objectives
– a review of remuneration outcomes is conducted annually
to ensure pay equity for like roles and performance across
all groups and regions
– a promotion decision framework analyses and reports on
any gender discrepancies in promotion outcomes
– Executive Committee members have diversity-related
metrics included in annual performance assessments.
The female participation rate in the core leadership
development program, the Macquarie Director Program, is
higher than the underlying female representation at director-
level and female participation continues to grow at an
increasing rate.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Diversity Report
continued
32
Macquarie has improved its already very high return to work
rate and continues to achieve high retention rates globally for
those staff who have taken parental leave. Furthermore over
the past year there has been no discrepancy between female
versus male turnover.
Integration and awareness
Macquarie is committed to an inclusive workplace and ensuring
that workforce diversity is an integral part of the way it does
business. It continues to invest in promoting and supporting
opportunities for staff to engage in initiatives such as business or
region-specific ‘Diversity Weeks’, international days of
celebration such as International Women’s Day, International
Day Against Homophobia and Transphobia and World Aids Day.
FY2015 has seen a targeted expansion of our employee
networking groups in all regions to provide staff with
opportunities to exchange ideas, build relationships and to
support Macquarie’s diversity and inclusion strategy. Employee
network groups now exist in the areas of Gender Equality,
Pride (for Lesbian Gay Bisexual Transgender and Intersex
(LGBTI) staff and allies), Families and Carers, Heritage and
Culture, Wellness and First Australians.
In particular our Pride network has developed significantly over
the past year, implementing gender transition support
guidelines for individuals wishing to transition, providing
training programs focusing on LGBTI awareness and
supporting community partnerships and fundraising activities.
These efforts have seen Macquarie improve its ranking in the
2014 Australian Workplace Equality Index, a national
benchmark on LGBTI workplace inclusion.
Spotlight on diversity and inclusion training
Macquarie recognises the value that effective training and
development can have on an organisation’s diversity and
inclusion practices and outcomes and offers a range of
solutions to employees globally.
LGBTI awareness training is available to all employees in
Australia, which emphasises the importance of allowing
people to be themselves without fear of repercussions.
The training explains why LGBTI inclusion is important to
Macquarie and outlines some of the unique challenges
faced by LGBTI employees.
Similarly, targeted conscious decision-making training has
been implemented to provide key populations with skills to
improve the quality of decision-making and recognise how
unconscious bias can affect perceptions, judgements and
interactions in the workplace.
In recognition that flexibility is a key enabler of workforce
diversity, in FY2015 Macquarie implemented training
targeted at managing a flexible workforce, providing
practical tips and information on how managers and teams
can help to support the various arrangements of their
colleagues.
A series of career and networking events have also been
implemented in Australia to provide employees with the
opportunity to hear from senior leaders on their diverse
range of experiences across a variety of topics. The topics
were selected based on what Macquarie believes will
enable a more diverse workforce and inclusive workplace
and include, for example, raising your professional profile,
sponsorship and mentoring and achieving balance.
This is the end of the Diversity Report.
Risk Management Report
33
Risk governance at Macquarie
The primary role of the Board is to promote Macquarie's long
term health and prosperity. Macquarie's robust risk
management framework supports the Board in its role and the
oversight of the framework is a top priority for the Board.
The Board monitors significant business risks and reviews how
they are managed. It also monitors Macquarie's risk
management framework, which includes forming a view of
Macquarie's risk culture, and approving Macquarie's RAS and
risk management strategy. The Board determines delegations
to management, approves relevant risk limits and policies, and
reviews business developments for consistency with the risk
appetite and strategy of Macquarie.
The BRiC assists the Board by providing oversight of the
implementation and operation of Macquarie's risk
management framework and constructively probing Senior
Management's proposals and decisions on risk management
arising from the Group's activities. The BRiC assists the Board
with its oversight of Macquarie's risk profile, risk appetite, and
risk culture. The BRiC receives information on breaches of the
policy framework and external developments that may have
some impact on the effectiveness of the risk management
framework. The Board is also assisted by the BAC, BRC and
BGCC.
The Head of RMG, as Macquarie’s CRO, is a member of
Macquarie’s Executive Committee and reports directly to the
CEO. The CRO has a secondary reporting line to the BRiC.
The BRiC approves the replacement, appointment,
reassignment or dismissal of the CRO and also reviews the
performance and remuneration of the CRO.
Committees exist at the executive management level to ensure
that the necessary elements of expertise are focused on
specific risk areas. The Macquarie and Macquarie Bank
Executive Committees focus on strategic issues as well as
material transactions. The Group Risk and Compliance
Committee (GRCC) is responsible for monitoring the operation
of key risk frameworks, internal controls and Macquarie's
approach to governance. There are other committees where
senior specialists focus on specific risks as appropriate.
The Market Risk Committee and the Asset and Liability
Committee (ALCO) are examples of these committees.
While committees oversee Macquarie’s risk appetite and risk
acceptance processes, risk acceptance decisions are
ultimately delegated to individuals to ensure that approvers are
accountable when signing off on risk acceptance decisions.
Macquarie's risk management framework
The acceptance of risk is an integral part of Macquarie’s
businesses. Strong independent prudential management has
been a key to Macquarie’s success and stability over many
years. Where risk is assumed, it is within a calculated and
controlled framework that assigns clear risk roles and
responsibilities represented by ‘three lines of defence’.
The primary responsibility for risk management lies at the
business level, which forms the first line of defence. Part of the
role of all business managers throughout the Macquarie
business units is to ensure risks are managed appropriately.
The risk management function forms the second line of
defence and independently assesses all material risks. The
third line, which includes internal audit, independently reviews
and challenges the group’s risk management controls,
processes and systems.
Macquarie’s core risk management principles have remained
stable and continue to be highly effective. These are:
– ownership of risk at the business level: Operating
Group Heads are responsible for identifying risks within
their businesses and ensuring that they are managed
appropriately. Before taking decisions, clear analysis
of the risks is sought to ensure risks taken are consistent
with Macquarie's risk appetite and strategy. Business
ownership of risk is an essential element in understanding
and controlling risk
– understanding worst-case outcomes: Macquarie's risk
management approach is based on examining the
consequences of worst case outcomes and determining
whether these are acceptable. This approach is adopted
for all material risk types and is often achieved by stress
testing. In particular, Macquarie's market risk framework
is based primarily on the application of stress tests, rather
than statistical models. The effectiveness of this approach
was demonstrated over the recent past. Shocks
observed in the markets generally remained within
Macquarie's stress scenarios, resulting in very few of our
worst case loss scenarios being exceeded. While
Macquarie operates a number of sophisticated
quantitative risk management processes, the foundation
of its risk management approach is the informed
consideration of both quantitative and qualitative inputs
by highly experienced professionals
– requirement for an independent sign off by risk
management: Macquarie places significant importance
on having a strong independent RMG that is charged with
signing off all material risk acceptance decisions. It is
essential RMG has the capability to do this effectively and
hence RMG has invested in recruiting skilled
professionals, many with previous trading or investment
banking experience. For all material proposals, RMG's
opinion is sought at an early stage in the decision-making
process and independent input from RMG on risk and
return is included in the approval document submitted
to senior management.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
34
Macquarie’s risk culture is well established
Macquarie recognises that a sound risk culture is a
fundamental requirement of an effective risk management
framework. The long-held foundations of Macquarie's risk
culture are the principles of What We Stand For – Opportunity,
Accountability and Integrity. These principles are expected to
form the basis of all day-to-day behaviours and actions.
Macquarie drives behaviours in keeping with these principles
through extensive and purpose-designed management
frameworks and controls including policies, standards and
processes. Senior management measure and monitor risk
culture indicators and constantly seek opportunities for
improvement. Senior management learn from the past and
from industry and use that knowledge to further strengthen
Macquarie's risk culture. Macquarie has robust remuneration
and consequence management policies which further support
adherence to the expected behaviours.
Key aspects supporting Macquarie's risk culture include:
– the Code which has been approved by the Board,
incorporates What We Stand For. It focuses on the
accountability of every staff member in managing the risks
associated with their respective roles and the
consequences of their actions. It encourages staff to
speak up, escalate concerns and report mistakes,
provides an overview of the important policies with which
all staff are expected to be familiar and outlines key
supervisory principles
– Macquarie's businesses are fundamentally client
based. Therefore, greater emphasis is placed across
Macquarie on fostering long term relationships with our
clients and building franchise businesses as opposed
to short term profits from proprietary trading
– consideration of worst-case scenarios is part of
everyday risk controls rather than supplementary to
them. Even though the worst-case scenarios are often
in excess of what has been historically observed, they
play a major role in influencing and limiting positions
particularly for extreme loss events. For example,
Macquarie applies limits to contingent losses from an
instantaneous 40 percent gap move in stock prices. This
effectively constrains trading divisions from issuing well
out of the money options and encourages hedging of
extreme loss events. Macquarie has over 14,000
contingent loss limits that consider a variety of worst case
scenarios
– the role of risk management staff is one of active
engagement in risk-taking decisions. In accordance
with the principle of risk ownership, the primary risk
analysis and initial decisions to reject or accept a
transaction are taken by Operating Groups. In its review
of a new proposal, RMG provides an independent
confirmation of the risk acceptance decision. RMG works
closely with the deal team and shares the goal of making
the transaction successful by requiring improvements to
the transaction terms where applicable. Strong emphasis
is placed on transferring knowledge to transaction teams
so that the same risk management principles are applied
to future proposals from an early stage
– Macquarie’s remuneration policy for senior
management encourages a long term view in decision
making. It discourages excessive risk taking as incentives
are aligned with the long term profitability of the firm
through retention of remuneration and equity
participation. The principles behind Macquarie's current
remuneration structure have been in place for
many years.
Macquarie’s risk culture supports its ability to operate within
the Board-approved RAS. The behaviour expectations that are
overseen by the Board and executed by management such as
individual accountability, ‘compliance is not optional’ and the
fair treatment of clients are consistent with the principles in the
RAS. In addition these behavioural expectations encourage
staff to comply with the processes, limits and policies that put
the principles of the RAS into operation.
Risk appetite setting
The Board reviews and endorses Macquarie's risk appetite as
part of the annual corporate strategy review process. Risk
appetite is the nature and amount of risk that the Group is
willing to accept. At Macquarie this is outlined in the Board-
approved RAS.
The RAS sets out the degree of risk Macquarie is willing to
take overall and for each material risk type. It also conveys the
process for ensuring that risk limits (tolerances) are set at an
appropriate level, monitored and reviewed.
The statement is put into operation via the following key
methods: New Product and Business Approval process,
aggregate and specific risk limits, relevant policies, and
communication and training. These are discussed further
below.
New product and business approval process
All new businesses and significant changes to existing
products or processes are subject to a rigorous approval
process. Approval requires confirming that the proposal is
consistent with the principles stated in the RAS. The process is
interactive and results in constructive dialogue on risk matters.
This formal process is designed so that the proposed
transaction or operation can be managed properly and does
not create unknown or unwanted risks for Macquarie in the
future. All relevant risks (for example, market, credit, equity,
legal, compliance, taxation, accounting, operational and
systems) are reviewed to ensure that they are identified and
addressed prior to implementation (including ongoing risk
monitoring processes). The approvals of RMG, Finance
Division, Taxation Division, LGL and other relevant
stakeholders within Macquarie are obtained. RMG also checks
that all necessary internal approvals are obtained prior to
commencement.
For all material transactions, independent input from RMG
on the risk and return of the transaction is included in the
approval document submitted to senior management.
The Operational Risk function within RMG oversees the
new product and business approval process.
35
RMG Internal Audit performs an audit of the operations of any
significant new businesses based on an assessment of the
associated risk faced by Macquarie. The audit typically takes
place within six to twelve months following acquisition or
launch and includes confirmation that operations are in line
with the new product approval document.
Limits
In many cases limits translate risk appetite principles into hard
constraints on individual businesses.
These consist of specific risk limits given to various businesses
and products or industry sectors as well as the Global Risk
Limit that constrains Macquarie’s aggregate level of risk.
Macquarie sets the Global Risk Limit with reference to earnings
and not just capital. The limit is set in such a way that in a
prolonged and severe downturn, losses would be covered by
earnings and surplus capital, and market confidence in
Macquarie is maintained.
In accordance with Macquarie’s ‘no limits, no dealing’
approach, individual credit and equity exposures must also fit
within approved counterparty limits. Market risk exposures are
governed by a suite of individual and portfolio limits.
These granular limits are set to allow businesses to achieve
their near-term plans and promote a reassessment of the
opportunity and associated risks as the limit is approached.
Relevant policies
Policies expand on the principles found in the RAS and often
translate them into what must be done operationally by an
individual or business.
Policies are communicated regularly to key staff. Director-level
staff attend mandatory risk management framework and policy
training on a regular basis. Training programs for specific
policies are also in place.
Communication and training
The RAS is available for all staff to access and is referred to in
the Code which is a document that must be read by all staff.
In addition, the principles in the RAS are communicated to
relevant staff by other formal and informal training programs.
Requirement to consider risk-adjusted returns
The RAS states that Macquarie pursues an appropriate and
resilient long term return on its capital and that transactions
must generate returns in proportion to the risks. In line with
this, proposals for all significant new deals, products and
businesses must contain an analysis of risk-adjusted returns.
Risk capacity is allocated to activities that earn an appropriate
reward for the risk. This is a binding discipline on risk
acceptance to ensure the risk-return trade-off does not
deteriorate. The level of acceptable return for any proposal
must also account for strategic fit and broader risk analysis
(for example tail risk and concentration).
Existing businesses are subject to regular risk-return
monitoring and reporting. Risk-adjusted performance metrics
for each division are a significant input into performance based
remuneration.
Risk Management Group
RMG’s oversight of risk is based on the following five
principles:
Independence
RMG, which is responsible for assessing and monitoring
risks across Macquarie, is independent of Macquarie's
operating groups, and the Head of RMG, as Macquarie’s
CRO, reports directly to the CEO with a secondary
reporting line to the BRiC. RMG approval is required for all
material risk acceptance decisions.
Centralised prudential management
RMG’s responsibility covers the whole of Macquarie.
Therefore, it can assess risks from a Macquarie-wide
perspective and provide a consistent approach across
all operating areas.
Approval of all new business activities
Operating areas cannot undertake new businesses or
activities, offer new products, or enter new markets
without first consulting RMG. RMG reviews and assesses
risk and sets prudential limits. Where appropriate, these
limits are approved by the Executive Committee and the
Board.
Continuous assessment
RMG continually reviews risks to account for changes in
market circumstances and developments within
Macquarie’s operating areas.
Frequent monitoring
Centralised systems exist to allow RMG to monitor credit
and market risks daily. RMG staff liaise closely with
operating and support divisions.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
36
RMG structure and resourcing
Effective risk management is not only a function of disciplined processes but also of imaginative analysis by talented individuals.
RMG attracts high calibre candidates. It recruits experienced individuals both from within Macquarie and externally and is a source
of talent for Macquarie’s Operating Groups when recruiting.
While RMG is structured into specialist teams as detailed below, we employ an integrated approach to risk analysis and
management across risk classes. RMG’s assessment and monitoring of risks involves a collaborative effort across the teams
to ensure that a detailed analysis takes place both at the individual and aggregate risk level.
(1)
Financial Crimes Compliance includes anti-money laundering, anti-bribery and corruption and sanctions.
37
RMG staff numbers as at 31 March 2015 were 641, which is a
16 percent increase over the year. This was largely driven by
additional resources required in RMG Compliance in response
to the developing regulatory environment.
Ratio of RMG headcount to total Macquarie
(1)
(1)
Headcount numbers only include permanent, active staff
(full-time and part-time). Figures prior to FY2011 have not
been restated to account for business compliance staff who
joined RMG in FY2011 and FY2013.
To ensure that risks are managed in a controlled manner,
about half of total RMG staff as at 31 March 2015 were based
outside of Australia. All offices are subject to the same risk
management controls and standards. This is supported by
regular staff communication and visits to international offices.
Consistent with the concept of Operating Groups owning risk,
specific day-to-day operations are more appropriately
discharged and embedded within the Operating Groups. This
applies particularly to the management of compliance and
operational risk. The majority of these functions are discharged
within the Operating Groups as follows:
– a significant number of RMG Compliance staff are
co-located with the business and ensure that day-to-day
compliance obligations are discharged at the business
level. These staff report into their Regional Head of
Compliance and ultimately into the Head of RMG
Compliance
– Business Operational Risk Managers (BORMs) are
appointed by the Operating Group Heads to be their
representative on operational risk management matters,
and act as their delegate in ensuring that operational risk
and standards are addressed appropriately within their
division.
Risk management and monitoring
The risk management framework incorporates active
management and monitoring of market, credit, equity, liquidity,
operational, compliance, regulatory and legal risks. It is
designed to ensure policies and procedures are in place to
manage the risks arising within each division. Application varies
in detail from one part of Macquarie to another; however,
the same risk management framework applies across all
business activities.
Credit risk
Credit Risk is defined as the risk of a counterparty failing
to complete its contractual obligations when they fall due.
The consequent loss is either the amount of the loan not paid
back or the loss incurred in replicating a trading contract with
a new counterparty.
RMG Credit maintain a comprehensive and robust framework
for the identification, analysis and monitoring of credit risks
arising within each business. Key aspects of this framework
are discussed below.
Analysis and approval of exposures
The Macquarie and Macquarie Bank Boards are responsible
for establishing the framework for approving credit exposures.
The Boards delegate discretions to approve credit exposure to
designated individuals within Macquarie whose capacity to
exercise authority prudently has been assessed.
Operating Groups are assigned modest levels of credit
discretions. Credit exposures above these levels are assessed
independently by RMG and approved by senior RMG staff,
the CEO and the Boards as required.
Macquarie enforces a strict 'no limit, no dealing' rule:
all proposed transactions are analysed and approved
by designated individuals before they can proceed.
All wholesale credit exposures are reviewed at least once a
year, or more frequently if required. Retail credit exposures are
monitored on a portfolio basis.
Independent analysis
RMG Credit works closely with the Operating Groups to
identify the risks inherent in Macquarie’s businesses, and
provide independent analysis commensurate to the level and
nature of risks.
Credit risk analysis is focused on ensuring that risks have been
fully identified and that the downside risk is properly
understood and acceptable so that a balanced assessment
can be made of the worst case outcome against the expected
rewards. Downside analysis includes stress testing and
scenario analysis.
Macquarie does not rely on quantitative models to assess
credit risk in our wholesale portfolio, but uses fundamental
credit analysis to make credit risk acceptance decisions.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
38
Macquarie Group ratings
Macquarie has established a proprietary internal credit rating
framework to assess counterparty credit risk. Macquarie
ratings are used to estimate the likelihood of the counterparty
defaulting on financial obligations. The Macquarie ratings
system ensures a consistent assessment of borrower and
transaction characteristics across Macquarie and provides the
mechanism for meaningful differentiation of credit risk.
Each Macquarie rating maps to a Probability of Default
estimate. All wholesale counterparties and certain individual
facilities are assigned a Loss Given Default estimate reflecting
the estimated economic loss in the event of default occurring.
All wholesale exposures are allocated a Macquarie rating on a
scale that broadly corresponds to Standard & Poor's and
Moody's Investor Services credit ratings. Credit Assurance,
located within RMG Credit provide independent assurance of
the effectiveness of credit processes and controls.
Measuring and monitoring exposures
Credit exposures for loans are evaluated as either the full
current face value or where appropriate the acquisition cost
when acquired in the secondary market.
Credit exposures for derivatives are a function of potential
market movements. Portfolio credit exposure is determined
using a high-confidence-level portfolio revaluation on the
assumption of Macquarie having to go to the market to replace
defaulting deals at the worst possible time during the active life
of the portfolio. The RMG Credit Analytics team proposes and
regularly reviews the market risk factor evolution models that
are used in generating the possible market moves. The models
are back-tested to ensure that they would have provided
the required confidence level over a representative historical
period. Evolution model and portfolio credit exposure reviews
are conducted using a combination of fundamental and
technical analysis and adjustments are made for market
liquidity, risks associated with physical delivery and other
significant risks.
Where trading gives rise to settlement risk, this exposure is
assessed as the full face value of the settlement amount.
All credit exposures are regularly monitored against limits.
To mitigate credit risk, Macquarie makes use of margining and
other forms of collateral or credit enhancement techniques
(including guarantees and letters of credit, the purchase of
credit default swaps and mortgage insurance) where
appropriate.
A review of the credit portfolio that involves monitoring
credit concentrations by counterparty, country, risk type,
industry and credit quality is carried out and reported to the
GRCC quarterly and Board semi-annually. Policies are in place
to manage credit risk and avoid unacceptable concentrations
to any counterparty or country.
Loan impairment review
All exposures are subject to recurring review and assessment
for possible impairment. Provisions for loan losses are based
on an incurred loss model that recognises a provision where
there is objective evidence of impairment at each balance date,
and is calculated based on the discounted values of expected
future cash flows.
Specific provisions are recognised where specific impairment
is identified. Facilities for which no individually assessed
provision is required are assessed collectively for impairment
and are representative of losses that have been incurred but
not yet identified.
Impaired assets have increased over the past year. This has
been driven in part by foreign currency movements.
39
Ratio of provisions and impaired assets to loans and leases
Notes:
— Loan assets exclude securitised mortgages, securitised Macquarie Capital loans/leases, segregated future funds and receivables in the
form of fees
— Net impaired assets and net losses exclude investment securities
— Collective provision (as per Note 11 of the Financial Report) is intended to cover losses inherent in the existing overall credit portfolio that
are not yet specifically identifiable
— Net credit losses represent total profit and loss impact in the stated period due to additional individually assessed provisions and direct
write-offs net of any write-backs
— Please refer to Note 12 of the Financial Report for further information on impaired assets.
Country risk
Country risk is defined as losses arising from events in a country that include an act of government, war, terrorism, civil strife or
economic crisis.
The Country Risk Policy guides the management of Macquarie’s country risk. Countries are grouped into categories based on the
country’s risk profile. Before any exposure is taken in a country that is considered to be high risk, a review of the economic, political
and operating environment is undertaken to determine the level of exposure that is considered to be acceptable. Where
appropriate, measures to mitigate country risk are put in place.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
40
Market risk
Market risk is the exposure to adverse changes in the value of
Macquarie’s trading portfolios as a result of changes in market
prices or volatility. Macquarie is exposed to the following risks in
each of the major markets in which it trades:
– foreign exchange and bullion: changes in spot and
forward exchange rates and bullion prices and the
volatility of exchange rates and bullion prices
– interest rates and debt securities: changes in the level,
shape and volatility of yield curves, the basis between
different debt securities and derivatives and credit
margins
– equities: changes in the price and volatility of individual
equities, equity baskets and equity indices
– commodities and energy: changes in the price and
volatility of base metals, agricultural commodities and
energy products.
Macquarie is also exposed to the correlation of market
prices and rates within and across markets.
Macquarie has long favoured transparent scenario analysis
over complex statistical modelling as the cornerstone of risk
measurement.
Trading market risk
All trading activities contain calculated elements of risk taking.
Macquarie is prepared to accept such risks provided they are
within agreed limits, independently and correctly identified,
calculated and monitored by RMG, and reported to senior
management on a regular basis.
RMG monitors positions within Macquarie according to a limit
structure that sets limits for all exposures in all markets. Limits
are applied at a granular level to individual trading desks,
through increasing levels of aggregation to Divisions and
Operating Groups, and ultimately, Macquarie. This approach
removes the need for future correlations or scenarios to be
precisely predicted as all risks are stressed to the extreme and
accounted for within the risk profile agreed for each business
and Macquarie in aggregate.
Limits are approved by senior management with appropriate
authority for the size and nature of the risk, and Macquarie
adheres to a strict ‘no limit, no dealing’ policy. If a product
or position has not been authorised and given a limit structure by
RMG, then it cannot be traded. Material breaches of the
approved limit structure are communicated monthly to the
Macquarie and Macquarie Bank Boards. RMG sets three
complementary limit structures:
– contingent loss limits: worst-case scenarios that shock
prices and volatilities by more than has occurred
historically. Multiple scenarios are set for each market
to capture the non-linearity and complexity of exposures
arising from derivatives
– position limits: volume, maturity and open position limits
are set on a large number of market instruments and
securities in order to constrain concentration risk and
to avoid the accumulation of risky, illiquid positions
– Value-at-Risk (VaR) limits: statistical measure that
determines the potential loss in trading value at both
a business and aggregate level.
The risk of loss from incorrect or inappropriate pricing and
hedging models is mitigated by the requirement for all new
pricing models to be independently tested by the specialist
Quantitative Applications Division within RMG.
Aggregate measures of market risk
Aggregate market risk is constrained by two risk measures,
VaR and the Macro-Economic-Linkages (MEL) stress
scenarios. The VaR model predicts the maximum likely loss in
Macquarie’s trading portfolio due to adverse movements in
global markets over holding periods of one and 10 days. The
MEL scenario utilises the contingent loss approach to capture
simultaneous, worst case movements across all major
markets. Whereas MEL focuses on extreme price movements,
VaR focuses on unexceptional changes in price so that it does
not account for losses that could occur beyond the 99 percent
level of confidence. For this reason, stress testing remains the
predominant focus of RMG as it is considered to be the most
effective mechanism to reduce Macquarie's exposure to
unexpected market events.
Macro-Economic-Linkages
MEL calculates Macquarie’s total market risk exposure to global
market stress test scenarios extrapolated from historical crisis
events and global market correlations. Each stress test scenario
includes a primary shock to either equity or energy markets as well
as cross-market effects in corporate margins, metals, foreign
exchange, interest rates and commodities. MEL is Macquarie’s
preferred internal measure of aggregate market risk because of
the severity of the shocks applied and the ability for scenarios to
develop with changing market dynamics. MEL is monitored and
reported to senior management daily and to the Board regularly.
It is reviewed by RMG regularly to ensure the measure remains
appropriate for changing market conditions and the risks to which
Macquarie is exposed.
The ‘Market Contagion’ scenario, typically the most
conservative of the MEL stress test scenarios, accounts for all
the significant markets to which Macquarie is exposed. The
assumptions in this scenario are considerably more severe
than the conditions that prevailed throughout the Global
Financial Crisis. The 'Market Contagion' scenario measures
the impact of an instantaneous equity market crash of 20 to 40
percent as well as additional shocks to foreign exchange,
metals, interest rate, energy, agricultural commodity and credit
markets. Macquarie’s exposure to the ‘Market Contagion’
stress test scenario increased compared with last year as
trading businesses managed exposures while looking to take
advantage of increased trading activity. The average exposure
to the MEL stress test scenario represents less than six
percent of total equity.
41
Value-at-Risk
VaR provides a statistically based summary of overall market risk in Macquarie. The magnitude of VaR reflects changes in positions
as well as changes in market volatility and correlations and enhancements to the model. The integrity of the VaR model is tested
regularly against daily profit and loss.
The VaR model uses a Monte Carlo simulation to generate normally distributed price and volatility paths for approximately 3,200
benchmarks, using volatilities and correlations based on three years of historical data. Emphasis is placed on more recent market
movements to more accurately reflect current conditions. Each benchmark represents an asset at a specific maturity, for example
one year crude oil futures or spot gold. The benchmarks provide a high level of granularity in assessing risk, covering a range of
points on yield curves and forward price curves, and distinguishing between similar but distinct assets; for example crude oil as
opposed to heating oil, or gas traded in different locations. Exposures to individual equities within a national market are captured by
specific risk modelling incorporated directly into the VaR model.
Macquarie’s market risk, as measured by VaR, increased over the first half of the year from larger commodity exposures, and
peaked at the end of the year due to higher exposures to equities and interest rates. VaR remains modest in comparison to capital
and earnings and continues to represent less than 0.2 percent of total equity. The graph below shows the daily VaR and the six
month average VaR as a percentage of total equity.
Aggregate VaR
VaR (1-day 99 percent confidence level)
–
Average VaR to total equity
–
$A million %
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
42
VaR figures for year ended 31 March 2015 (1-day, 99 percent confidence level)
2015
Average
$Am
2015
Maximum
$Am
2015
Minimum
$Am
2014
Average
$Am
2014
Maximum
$Am
2014
Minimum
$Am
Equities 6.51 13.43 3.35 5.55 8.21 2.98
Interest rates 8.86 14.49 6.08 10.37 15.56 6.17
Foreign exchange and bullion 2.64 4.44 0.58 3.97 8.05 1.05
Commodities and energy 9.75 13.75 6.80 13.08 20.89 7.36
Aggregate 13.96 23.76 8.18 18.09 28.23 9.38
Trading revenue
The effectiveness of Macquarie’s risk management methodology can be measured by Macquarie's daily trading results. In light of
uncertain market conditions, the small quantity and magnitude of daily losses incurred by Macquarie are indicative of both an
effective risk management framework and business operations focused on servicing client needs.
Macquarie's market risk activities continue to be based on earning income from spreads, franchise businesses and client flows.
The majority of trading income is derived from client franchise activities rather than outright proprietary trading activity.
Macquarie’s trading approach has shown consistent profits and low volatility in trading results over time. This is evident in the graph
below, and reflects the client-based nature of trading activities. In FY2015 Macquarie made a net trading profit on 212 out of 261
trading days (2014 results: 220 out of 261 trading days).
Non-traded market risk
Macquarie also has exposure to non-traded interest rate risk, generated by banking products such as loans and deposits. Interest
rate exposures, where possible, are transferred into the trading books of CFM and the Group Treasury division and managed under
market risk limits. However, some residual interest rate risks remain in the banking book due to factors outside the interest rate
market or due to timing differences in accumulating exposures large enough to hedge. These residual risks in the banking book are
monitored and controlled by RMG and regularly reported to Senior Management.
Daily Trading Profit and Loss
43
Equity risk
Equity risk is the risk of loss arising from banking book
equity-type exposures. These exposures include:
– holdings in specialised funds managed by Macquarie
– principal exposures taken by MacCap, including direct
investments in entities external to Macquarie
– property equity, including property trusts and direct
property investments
– lease residuals
– other equity, including investments in resource
companies.
Equity Risk Limit
All of the above equity risk positions are subject to an
aggregate Equity Risk Limit (ERL). The ERL is set by the Board
with reference to the Risk Appetite Test that is described
further in the economic capital section. In setting the limit,
consideration is also given to the level of earnings, capital and
market conditions. The limit is reviewed on a semi-annual basis
by RMG and the results of the review are reported to the
GRCC and the Board.
Concentrations within the equity portfolio are managed by
a number of additional limits approved by the Executive
Committee and/or the Board. These include limits on:
– property equity investments
– investments in the resources sector
– lease residuals (by type of leased asset)
– co-investments and other assets of MacCap.
Transaction review and approval process
The division executing the transaction is responsible for
due diligence and risk analysis of each equity investment.
For material deals, RMG undertakes shadow due diligence and
performs a comprehensive analysis of all risks and potential
losses associated with the acquisition such as:
– market and credit risks
– regulatory, capital, liquidity and compliance requirements
– business, operational and reputation risks.
All material equity risk positions are subject to approval by
RMG and by the CEO, Executive Committee and the Board,
depending on the size and nature of the risk. RMG ensures
that the transaction is correctly represented to the relevant
approvers.
Operational risk
Macquarie defines operational risk as the risk of loss resulting
from inadequate or failed internal processes, people and
systems or from external events. Macquarie has established
procedures and controls to manage market, credit, reputation
and strategic risks. The potential for failure or inadequacy in
these procedures and controls is classified as an operational
risk. Operational risk failures could lead to reputation damage,
financial loss or regulatory consequences.
RMG is responsible for ensuring an appropriate framework
exists to identify, assess and manage all operational risks and
that resources are available to support it. RMG is also
responsible for Macquarie’s operational risk capital
measurement methodology.
The technology environment presents a key risk area for all
firms in the financial services sector including Macquarie.
The risk involves a potential compromise or loss of data, and
the potential loss of access to systems for employees and
customers. There has been an increase in attacks globally on
financial services firms from the internet, otherwise known as
cyber attacks. Macquarie continues to develop frameworks,
policies and procedures to ensure there is appropriate
protection in place, that monitoring is conducted to identify
attacks, and that reaction and recovery procedures exist to
manage an incident caused by a cyber attack.
Operational Risk Management framework
Macquarie’s Operational Risk Management Framework
(ORMF) is designed to identify, assess and manage
operational risks within the organisation. The key objectives of
the framework are as follows:
– risk identification, analysis and acceptance
– execution and monitoring of risk management practices
– reporting and escalation of risk information on a routine
and exception basis.
Businesses carry out elements of the ORMF in a manner
that is tailored to their specific operational risk profile.
However, to ensure consistency and minimum standards
the framework includes the following mandatory elements:
– a robust change management process to ensure
operational risks in new activities or products are
identified, addressed and managed prior to
implementation
– a semi-annual operational risk self assessment process to
identify operational risks at the business level, assess
controls and develop action plans to address deficiencies
– recording of operational risk incidents into a centralised
reporting system. Incidents are analysed to identify trends
and establish lessons learnt on the effectiveness of
controls
– allocation of operational risk capital to all Macquarie
businesses as a tool to further encourage positive
behavior in Macquarie’s day-to-day management
of operational risk
– Macquarie-wide policies that require a consistent
approach and minimum standards on specific operational
risk matters
– embedded operational risk representatives in Operating
Groups who act as delegates of the Operating Group
Head. These representatives are required to assess
whether operational risks are addressed appropriately
and that the ORMF is executed within their area.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
44
Macquarie’s operational risk capital framework
Macquarie’s framework for operational risk capital has two
main elements:
– an annual scenario approach for modelling operational
risk losses and to determine operational risk capital
– a quarterly scorecard analysis that is used to update
operational risk capital between scenario analyses, and as
a basis for updating the allocation of capital to
businesses.
Operational risk scenarios identify key risks that, while very low
in probability may, if they occurred, result in very high impact
losses. In identifying the potential for such losses consideration
is given to the individual statistical distribution for each
scenario, external loss data, internal loss data, risk and control
factors determined by the operational risk self assessments,
and the contribution of expert opinion from businesses.
Scenario estimates are then modelled to determine the
operational risk component of regulatory capital required to be
held by Macquarie at the 99.9
th
percentile. The model reflects
recent changes in operational risk capital regulatory
requirements.
Over time changes in operational risk capital reflect:
– new or significantly changed business activity or business
growth
– reduced risk arising from business stability and control
environment maturity
– changes in the external environment such as new
regulations or movements in the economic cycle.
Macquarie allocates capital to individual businesses. The
capital allocation effectively rewards positive risk behaviour and
penalises increased risks. This is done using scorecards that
measure changes in a number of key factors such as the size
and complexity of the business, risk and control assessments,
incident and exception management and governance. The
quarterly change in the sum of divisional capital is also used as
an estimate to update the Macquarie capital requirement
between annual assessments.
Assessment of aggregate risk
Macquarie has developed an economic capital model
that quantifies Macquarie’s aggregate level of risk.
The economic capital framework complements the
management of specific risk types such as equity, credit,
market and operational risk by providing an aggregate view of
Macquarie’s risk profile.
The economic capital model is used to support business
decision-making and has three main applications:
– capital adequacy assessment
– risk appetite setting
– risk-adjusted performance measurement.
Capital adequacy assessment
Macquarie assesses capital adequacy for both Macquarie
Group and Macquarie Bank. In each case, capital adequacy is
assessed on a regulatory basis and on an economic basis,
with capital requirements assessed as follows:
Economic Regulatory
Macquarie
Bank
Internal model,
covering
exposures of the
Banking Group
Capital to cover
risk-weighted assets
and regulatory
deductions, according
to the APRA banking
prudential standards
Macquarie
Group
Internal model,
covering all
exposures of
Macquarie
Group
Bank regulatory capital
requirement as above
plus economic capital
requirement of the non-
banking entities
Economic capital adequacy means an internal assessment of
capital adequacy, designed to ensure Macquarie has sufficient
capital to absorb potential losses and provide creditors with
the required degree of protection.
Potential losses are quantified using the Economic Capital
Adequacy Model (ECAM). These potential losses are compared
with the capital resources available to absorb loss, consisting of
book equity and eligible hybrid equity. Earnings are also available
to absorb losses, however only a fraction of potential earnings are
recognised as a buffer against losses.
The ECAM quantifies the following types of risk:
– equity risk
– credit risk
– operational risk
– traded market risk.
The ECAM also covers insurance risk, underwriting risk,
non-traded interest rate risk and the risk on assets held as part
of business operations, eg fixed assets, goodwill, intangible
assets, capitalised expenses and certain minority stakes in
associated companies or stakes in joint ventures.
The regulatory capital requirement of Macquarie’s non-banking
entities as agreed with APRA is determined by the ECAM.
Macquarie is well capitalised – a substantial regulatory capital
surplus exists. An element of this surplus is set aside as a
buffer against volatility in the drivers of capital adequacy. The
remaining capital surplus is available to support growth and
provide strategic flexibility.
45
In order to reduce volatility in Macquarie’s capital adequacy,
Macquarie actively manages the sensitivity of its capital
position to foreign currency movements. This is achieved
by leaving specific investments in core foreign operations
exposed to foreign currency translation movements. The
resultant change in the Australian dollar value of the foreign
investment is captured in the Foreign Currency Translation
Reserve, a component of regulatory capital. This offsets the
corresponding movement in the capital requirements of these
investments.
The Common Equity Tier 1, Tier 1 and total capital ratios
(1)
for
the Banking Group as at 31 March 2015 were 9.7 percent,
11.0 percent and 12.4 percent respectively.
The capital adequacy results are reported to the Board
and senior management on a regular basis, together with
projections of capital adequacy under a range of scenarios.
The Risk Appetite Test – an aggregate stress test
The key tool that the Board uses to quantify aggregate risk
appetite is the Risk Appetite Test. This is a Macquarie-wide
stress test that considers losses and earnings under a severe
economic downturn scenario with the aim of Macquarie
emerging from that scenario with sufficient capital to operate.
The Risk Appetite Test asserts that potential losses must be
less than the Global Risk Limit, which comprises underlying
earnings that Macquarie can achieve in a three year downturn
(downturn forward earnings capacity) plus surplus regulatory
capital. Consideration is also given to the year-by-year
outcome of the modelled downturn scenario to ensure that
market confidence is maintained.
Downturn forward earnings capacity is estimated by the
Operating Groups and divisions with reference to a three-year
downturn scenario provided to them by RMG.
Aggregate risk can be broken down into two categories:
– business risk: meaning decline in earnings through
deterioration in volumes and margins due to market
conditions
– potential losses: including potential credit losses, write-
downs of equity investments, operational risk losses and
losses on trading positions.
Business risk is captured by the difference in base case and
downturn forward earnings estimates. Potential losses are
quantified using a version of the economic capital model.
A principal use of the Risk Appetite Test is in setting the ERL.
This limit constrains Macquarie’s aggregate level of risk arising
from principal equity positions, managed fund holdings,
property equity investments, lease residuals and other equity
investments. Any changes to the ERL are sized to ensure that
even under full utilisation of this limit, and allowing for growth in
other risk types, the requirements of the Risk Appetite Test will
be met.
(1)
Under APRA Basel III rules.
Liquidity risk
Liquidity management
Macquarie's two primary external funding vehicles are MGL
and MBL. MGL provides funding principally to the
Non-Banking Group and limited funding to some MBL Group
subsidiaries. MBL provides funding to the Banking Group.
The high level funding structure within Macquarie is shown on
the following page.
Macquarie’s liquidity risk management framework is designed
to ensure that both MGL and MBL are able to meet their
funding requirements as they fall due under a range of market
conditions.
Liquidity management is performed centrally by Group
Treasury, with oversight from ALCO and RMG. MGL and MBL
liquidity policies are approved by the respective Boards after
endorsement by ALCO and liquidity reporting is provided to
the MGL and MBL Boards on a monthly basis.
ALCO includes the CEO, MBL CEO, CFO, CRO and Business
Group Heads.
RMG provides independent prudential oversight of liquidity risk
management, including the validation of liquidity scenario
assumptions, liquidity policies, and the required funding
maturity profile.
Liquidity policy and principles
MGL provides funding predominantly to the Non-Banking
Group. As such, the MGL Liquidity Policy outlines the liquidity
requirements for the Non-Banking Group. MGL's risk appetite
is set so that MGL is able to meet all of its liquidity obligations
during a period of liquidity stress: a 12-month period with no
access to funding markets and with only a limited impact on
franchise businesses.
Reflecting the longer-term nature of the Non-Banking Group
asset profile, MGL is funded predominantly with a mixture of
capital and long term wholesale funding.
The MBL Liquidity Policy outlines the liquidity requirements for
the Banking Group. MBL's risk appetite is set so that MBL is
able to meet all of its liquidity obligations during a period of
liquidity stress: a 12 month period of constrained access to
funding markets and with only a limited impact on franchise
businesses.
MBL is funded mainly by capital, long term liabilities and
deposits.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
46
Macquarie Group – high-level funding structure
The liquidity risk appetite is supported by a number of risk
tolerances and management principles applied to oversee
liquidity risk in both MGL and MBL.
Risk Tolerances
– term assets must be funded by term liabilities and short
term assets must exceed short term wholesale liabilities
– cash and liquid assets must be sufficient to cover a
12 month stress scenario and meet minimum regulatory
requirements
– cash and liquid assets held to meet stress scenarios and
regulatory minimums must be high quality unencumbered
liquid assets and cash
– diversity and stability of funding sources is a key priority
– balance sheet currency mismatches are managed within
set tolerances
– funding and liquidity exposures between Macquarie
Group entities are subject to constraints where required.
Liquidity Management Principles
– Macquarie has a centralised approach to liquidity
management
– liquidity risk is managed through stress scenario analysis
and setting limits on the composition and maturity of
assets and liabilities
– a Regional Liquidity Framework is maintained that outlines
Macquarie's approach to managing funding and liquidity
requirements in offshore subsidiaries and branches
– the liquidity position is managed to ensure all obligations
can be met as required on an intraday basis
– a Liquidity Contingency Plan is maintained that provides
an action plan in the event of a liquidity crisis
– a funding strategy is prepared annually and monitored on
a regular basis
– internal pricing allocates liquidity costs, benefits and risks
to areas responsible for generating them
– strong relationships are maintained to assist with
managing confidence and liquidity
– the MBL and MGL Boards and Senior Management
receive regular reporting on Macquarie's liquidity position,
including compliance with liquidity policy and regulatory
requirements.
Scenario analysis
Scenario analysis is central to Macquarie's liquidity risk
management framework. Group Treasury models a number
of liquidity scenarios covering both market-wide and
Group-specific crises. The objective of this modelling is to
ensure the ability of MGL and MBL to meet all repayment
obligations under each scenario and determine the capacity
for asset growth.
The scenarios separately consider the requirements of the
Banking Group, Non-Banking Group and the Consolidated
Entity. They are run over a number of timeframes and a range
of conservative assumptions are used including access to
capital markets, deposit outflows, contingent funding
requirements and asset sales.
Liquid asset holdings
Macquarie's internal scenario projections determine the
expected minimum cash and liquid asset requirement during
a combined market-wide and Group-specific crisis over a
12-month timeframe This scenario assumes no access to new
funding sources, a significant loss of deposits and contingent
funding outflows resulting from undrawn commitments, market
moves impacting derivatives and other margined positions.
The size of the liquid asset portfolio must exceed the minimum
requirement as calculated in this model at all times.
Group Treasury maintains a portfolio of highly liquid
unencumbered assets in both MGL and MBL to ensure
adequate liquidity is available in all funding environments,
including worst case wholesale and retail market conditions.
The minimum level of cash and liquid assets is calculated with
reference to internal scenario projections and minimum
regulatory requirements.
The cash and liquid asset portfolio contains only
unencumbered assets that can be relied on to maintain their
liquidity in a crisis scenario. Specifically, cash and liquid assets
held to meet minimum internal and regulatory requirements
must be held in cash, qualifying High Quality Liquid Assets or
be an asset type that is eligible as collateral in the Reserve
Bank of Australia's Committed Liquidity Facility.
47
The cash and liquid asset portfolio typically includes
unencumbered cash and central bank repo eligible
government, semi-government, supranational, government
guaranteed bank and unguaranteed bank securities and
AAA rated Australian residential mortgage backed securities.
In addition, the portfolio includes other very short dated, high
quality liquid assets such as A-1+ rated Australian residential
mortgage backed securities.
The liquid asset portfolio is denominated and held in both
Australian dollars and a range of other currencies to ensure
Macquarie's liquidity requirements are broadly matched by
currency.
Liquidity contingency plan
Group Treasury maintains a liquidity contingency plan.
The liquidity contingency plan applies to the entire Group and
defines roles and responsibilities and actions to be taken in a
liquidity event. This includes identification of key information
requirements and appropriate communication plans with both
internal and external parties.
Specifically, the plan details factors that may constitute a crisis,
the officer responsible for enacting the contingency
management, a committee of senior executives who would be
responsible for managing a crisis, the information required to
effectively manage a crisis, a communications strategy, a
high-level check list of possible actions to conserve or raise
additional liquidity and contact lists to facilitate prompt
communication with all key internal and external stakeholders.
The liquidity contingency plan is subject to regular review
(at least annually) by both Group Treasury and RMG and is
submitted to the Board for approval.
Macquarie is a global financial institution, with branches and
subsidiaries in a variety of countries. Regulations in certain
countries may require some branches or subsidiaries to have
specific local contingency plans. Where that is the case, the
liquidity contingency plan contains a supplement providing the
specific information required for those branches or
subsidiaries.
Funds transfer pricing
An internal funds transfer pricing framework is in place that has
been designed to produce appropriate incentives for business
decision-making by reflecting the true funding costs arising from
business actions. Under this framework, each business is
allocated the full cost of the funding required to support its
products and business lines, recognising the actual and
contingent funding-related exposures their activities create for
the group as a whole. Businesses that raise funding are
compensated at a level that is appropriate for the liquidity benefit
provided by the funding.
Regulatory and compliance risk
RMG Compliance is an independent function responsible for
ensuring that all Compliance Risks are appropriately assessed
and managed across Macquarie.
In line with the core risk management principle of risk
ownership, business heads are responsible for identifying risks
within their businesses and ensuring that they are managed
appropriately. RMG Compliance enables business
management to fulfil these supervisory responsibilities by
establishing a robust and effective compliance framework,
and by performing an advisory, training and monitoring role in
respect of the compliance risks arising from Macquarie’s
business activities.
RMG Compliance communicates and delivers on its priorities
by defining and implementing a risk-based compliance
program that sets out planned activities, such as the
implementation and review of specific policies and procedures,
compliance testing and staff training. The compliance program
is overseen by the Head of RMG Compliance to ensure
appropriate coverage across businesses and co-ordination
among other risk management functions.
The Head of RMG Compliance reports directly to the CRO,
has free access to the BGCC at any time and meets privately
with the BGCC.
RMG Compliance is closely supported by RMG Prudential,
Capital and Markets Division to ensure compliance with
prudential standards and consistency of Macquarie’s
approach to prudential regulation globally.
Legal risk
Legal risk is the risk of loss arising from a breach of contract,
law or regulation, the risk of litigation or regulatory enforcement
or the risk that a contract is not capable of being enforced as
expected.
Legal risk is managed through identification and assessment,
and by minimising or mitigating legal risk as far as reasonably
practicable. Responsibility for legal risk lies with Macquarie’s
businesses in conjunction with LGL. The Head of LGL,
the General Counsel, is a member of Macquarie’s GRCC
and reports directly to the CEO. The General Counsel has
access to the Board and any Board committees. Each
Macquarie Operating Group has a business General Counsel
who reports to the General Counsel and to the relevant
Operating Group Head.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
48
Reputation risk
All activities have embedded elements of reputation risk.
Managing reputation risk is an essential role of senior
management as it has the potential to impact both earnings
and access to capital. Macquarie seeks to manage and
minimise reputation risk through its corporate governance
structure and risk management framework.
Macquarie operates under a strong corporate governance
structure consistent with the regulatory requirements of various
regulators including the Australian Securities and Investments
Commission (ASIC), the ASX and APRA. The Code outlines a
clear code of ethics which is communicated to all staff,
Regional Integrity Officers deal with potential issues of integrity.
Operating Groups take ownership of risk, including reputation
risk. In addition, a robust, independent risk management
framework incorporates active management and monitoring of
risks arising within Macquarie. The operation of this framework
and oversight by RMG are major mitigants to reputation risk.
The various policies, procedures and practices in place aim to
minimise reputation risk. Regular reporting to the GRCC and
Boards includes detail on reputation risk issues as appropriate.
The direct financial losses arising from reputation risk (such as
breach of mandates and regulatory fines) as well as legal costs
are taken into account in the operational risk capital model.
Tax risk
Tax risk is defined as the risk of loss arising from the
misinterpretation of tax regimes and the manner in which they
may be applied and enforced. The management of tax risk is
undertaken by the Taxation Division, a specialist division within
FMG. This division is independent of the business units and
takes an integrated view of tax risk for the whole Group.
The Taxation Division provides taxation support to all areas of
Macquarie and manages the Group’s relationships with
revenue authorities globally. It assists in achieving compliance
with Macquarie’s global taxation obligations by providing
technical assistance and input in relation to tax returns and
other filing obligations. To confirm appropriate coverage,
individual tax specialists within the Taxation Division are
assigned primary responsibility for key divisions, technical
issues and regions. The Taxation Division oversees and
monitors the tax risks of all entities within the Macquarie Group
by reviewing and approving Macquarie’s new and existing
businesses and structures, and confirming that Macquarie
holds appropriate external taxation opinions and support. In
addition, the Taxation Division monitors relevant taxation risks
of appropriate connected entities.
Material tax issues and risks are regularly considered with the
CFO and escalated to MGL and MBL Executive Committee as
well as the BAC as appropriate.
Insurance risk
Macquarie Life Limited (MLL), a subsidiary of MBL, underwrites
life insurance policies that provide death, trauma, total and
permanent disability and income protection benefits to
policyholders. A large portion of this risk is passed on to
reinsurers. However, Macquarie retains a portion of the risk
and is therefore exposed to potential losses arising from higher
than expected policy lapse rates, claim rates and expenses.
To ensure that the potential losses arising from the insurance
business remains within MBL’s risk appetite, the MBL Board
has established an insurance risk limit framework. RMG
monitors MLL’s insurance risks against the limits established
by MBL, and provides regular reports to the MBL Board in
relation to those limits.
Internal Audit
Internal Audit provides independent assurance to senior
management and the Board on the adequacy and operational
effectiveness of Macquarie’s internal control, risk management
and governance systems and processes. Internal Audit
provides an independent and objective assessment as to
whether risks have been adequately identified; adequate
internal controls are in place to manage those risks; and
whether those controls are working effectively. Internal Audit is
independent of both business management and the activities it
reviews.
The Head of Internal Audit is jointly accountable to the
BAC and the CRO. The BAC approves the appointment and
removal of the Head of Internal Audit who has unlimited access
to the BAC.
Basel III
Macquarie Bank is accredited under the Foundation Internal
Ratings Based Approach for credit risk, the Advanced
Measurement Approach for operational risk, the internal model
approach for market risk
(1)
and the internal model approach for
interest rate risk in the banking book.
These advanced approaches place a higher reliance on
a bank’s internal capital measures and therefore require
a more sophisticated level of risk management and risk
measurement practices.
(1)
Standard approach applied for specific risk on debt securities.
This is the end of the Risk Management Report.
Environmental, Social and Governance Report
49
Macquarie’s Board and Management view the commitment to
ESG performance as part of their broader responsibility to
clients, shareholders and the communities in which Macquarie
operates. This report provides an overview of Macquarie’s
ESG approach, progress and performance.
Macquarie’s ESG approach is structured around priorities
considered to be material to the business. Underpinned by
Macquarie’s What We Stand For and the Code, these ESG
priorities were confimed through an external review completed
in FY2015. The priorities reflect the risks and opportunities
identified by the business and the issues of interest to
Macquarie’s stakeholders including:
– managing ESG risks in business activities
– advancing environmental management
– pursuing investments, markets and products with an ESG
focus
– valuing Macquarie’s people and workplace.
To gain a complete view of Macquarie’s ESG approach, these
pages should be read in conjunction with other sections of this
Annual Report.
In the year ended 31 March 2015, Macquarie continued to
embed ESG within its diverse activities and drive new business
opportunities. Highlights include:
– enhancing the Group-wide approach to environmental
and social risk in decision-making with the Board approval
of the Environmental and Social Risk (ESR) Policy, which
builds on existing ESG related policies and procedures
– reducing Scope 2 emissions by one percent in corporate
offices and data centres compared with FY2014 and
16 percent compared with baseline
– reducing Scope 3 emissions by 14 percent compared
with FY2014, equivalent to a reduction of five percent in
actual flight miles
– achievement of 6 Star Green Star Design and As Built
rating from the Green Building Council of Australia for
Macquarie’s new head office at 50 Martin Place, Sydney
– maintaining carbon neutrality across energy use in
premises and corporate air travel
– continuing to foster sustainability by investing in and
providing advice on renewable energy, energy efficiency
and clean technology
– contributing to public policy reviews
– ongoing investment in staff training and development.
ESG governance
The Board approves Macquarie’s ESG framework including
major ESG policies. The BGCC assists the Board in adopting
appropriate governance standards and reviewing the operation
of environmental and social risk management policies and
work health and safety practices. Responsibility for
implementation of the ESG framework and related Board
approved policies resides with Management.
Macquarie’s Sustainability and Environment Office has
transferred into RMG, further embedding environmental and
social risk into Macquarie’s risk management framework. The
renamed Environmental and Social Risk (ESR) team continues
to coordinate a diverse range of ESG activities, including
developing and implementing Group-wide and businesses
specific policies, providing advice on ESG risks and
opportunities and facilitating training. The ESR team regularly
reports to the BGCC on ESG related matters.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
continued
50
ESG risk management
Group-wide ESG risk management
Macquarie views management of material ESG risks as a
component of broader risk management and recognises that
failure to manage these risks could expose Macquarie to
commercial, reputational and regulatory impacts.
ESG risks are managed through a well established framework
of ESG-related policies and practices including:
– corporate governance
– oversight and management of Work Health and Safety
(WHS)
– identification, assessment and management of
environmental and social risks
– selection and management of investments and
undertaking new business activities
– ethical conduct by staff, including support from
Integrity Officers
– sustainable management of Macquarie’s business
premises
– greenhouse gas and energy management and reporting
– provision of a safe, diverse and appropriate workplace,
including a network of Equal Employment Opportunity
officers
– dealings with external parties such as regulators and
public officials
– whistleblowing, anti-corruption and anti-money laundering
– management of business and staff conflicts of interest
– engagement by Macquarie and its staff in the wider
community, including volunteering, capacity building and
matched donations.
All staff share responsibility for identifying and managing ESG
issues as part of normal business practice. Staff are supported
by RMG, as well as through access to the ESR team and
specialist ESG research and training.
Managing environmental and social risk in
transactions
Macquarie understands the importance of embedding
environmental and social risk management into investment
decision-making. In the year ended 31 March 2015, the Board
approved a Group-wide ESR Policy which builds on existing
policies and procedures.
51
The ESR Policy was developed with reference to international
guidelines including the International Finance Corporation
Performance Standards. It provides a robust approach to
assess, categorise, manage, mitigate, monitor and report
environment and social risks in client on-boarding and across a
broad range of transactions including financing, lending,
leasing and advisory. The ESR Policy guides the management
of environmental and social issues including labour and
employment practices, human rights, resource efficiency,
pollution prevention, biodiversity and cultural heritage.
The ESR Policy establishes escalated decision-making and
approval processes for material environmental and social risks.
Transactions may be reviewed by the CRO, Executive
Committee or Macquarie Board.
Managing WHSE risk in operating assets
For operating assets in which Macquarie has an interest,
effective work health, safety and environmental (WHSE)
management is a key business priority because of the
significant legal, ethical, reputational and commercial risks
associated with poor WHSE performance. This is
demonstrated through the implementation of relevant
Group-wide policies; and WHSE performance reporting to,
and oversight by, the BGCC. Macquarie deems WHSE legal
compliance and continuous improvement in management
frameworks as a minimum requirement for all controlled assets
and continues to encourage and facilitate WHSE management
improvements in non-controlled assets.
Macquarie’s commitment to ongoing WHSE performance
improvement is outlined in the WHS, and Environmental Risk
Policies, both of which establish comprehensive frameworks
for management and oversight of WHSE risks and obligations
across Macquarie’s businesses. The policies are supported by
WHS and environmental management systems, which are
based on international standards
(1)
. In addition to the
management systems, the frameworks require completion of
stringent WHSE due diligence by independent specialist
advisers prior to investment, in order to reduce the likelihood of
poor performance at individual assets, and to facilitate effective
WHSE management post investment. These requirements
enable early identification and attention to performance
improvements for newly acquired assets and continuous
improvement for existing assets.
(1)
Occupational health and safety assessment series (OHSAS).
Occupational health and safety management systems –
Requirements 18001:2007 and Environmental management
systems – Requirements with guidance for use Australia/ New
Zealand (AS/NZ) International Organisation for Standardization
(ISO) 14001:2004.
Regular compliance, management framework status and
performance data reporting is required for all controlled assets
and where relevant, for non-controlled assets. Business
specific policies further support and ensure WHSE issues are
addressed in a timely manner relevant to the risk profile and
nature of the asset. Where appropriate, assets or businesses
pursue international certifications, such as ISO14001 or
OHSAS 18001, employ independent impact assessments and
develop compliance plans as relevant to their operations.
Preventing money laundering, terrorist financing and
corruption
Macquarie is committed to conducting its business in
accordance with all applicable laws and regulations and in a
way that enhances its reputation in the market.
Macquarie maintains a risk management framework that is
designed to minimise the risk of its products and systems
being used to facilitate the crimes of money laundering and
terrorist financing. The framework also supports Macquarie’s
anti-corruption and anti-bribery initiatives to achieve a high
level of integrity in all business dealings.
The framework includes policies and procedures, training,
governance standards, escalation protocols and assurance
activities and ensures that Macquarie:
– meets its obligations to the jurisdictions in which it
operates
– contributes to the stability, integrity and strength of the
global financial system
– maintains principles that guide the way Macquarie
identifies, mitigates and manages the risk of money
laundering, terrorist financing and corruption.
All Macquarie employees are required to undertake training to
understand their obligations under the relevant laws and
regulations governing anti-corruption, anti-bribery and
anti-money laundering. Risk assessments are undertaken
periodically across all businesses to identify business activities
which are more susceptible to abuse, with additional training
and oversight efforts directed accordingly.
Regulatory requirements and expectations continue to evolve
in the areas of anti-money laundering, counter-terrorist
financing and anti-corruption. Macquarie is committed to
meeting new regulatory requirements.
A more detailed overview of these policies and procedures is
available on the Macquarie website.
Addressing privacy
Macquarie respects and protects the privacy of the personal
information of individuals with whom it deals. Macquarie uses
security procedures and technology to protect the information
held. Access to and use of personal information within
Macquarie seeks to prevent misuse or unlawful disclosure of
the information.
Macquarie has appointed a General Counsel – Privacy and
Data. This is a dedicated Group-wide role focused on data
protection and privacy.
Macquarie’s Privacy Policy is available on the Macquarie
website.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
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52
Responsible marketing
Macquarie is committed to ensuring that its products are
marketed appropriately and that clients are treated fairly.
There are Group-wide policies that require disclosure and
marketing materials meet legal and regulatory expectations,
are appropriate for the target audience and accurately and
fairly describe the product. Macquarie has also implemented
policies and procedures to ensure that consumer complaints
are handled in an appropriate and time-efficient manner and
that agreements do not contain provisions which may be
considered abusive or unfair. Further information on
Macquarie’s approach can be found in the Code.
Political contributions and engagement
Macquarie supports strong and vibrant democracies and
believes it is critical to understand the regulatory and political
environments in the jurisdictions in which it has a presence and
does business. Over the financial year Macquarie made
submissions, both verbally and in writing, on a range of policy
related topics. These submissions were made to various
Parliamentary Committees, government review bodies
established to conduct public inquiries, elected officials,
regulatory officers and public officials.
Macquarie has a longstanding and consistent policy in regard
to political contributions provided to Australia’s main political
parties. Any requests for financial assistance are assessed with
the aim of ensuring that multi-party systems deliver both good
government and good opposition. In Australia, Macquarie
achieves this objective by providing financial assistance to
major political parties at the state and federal level.
Macquarie has a full disclosure policy and declares all political
contributions to the Australian Electoral Commission (AEC)
including attendance at political events, memberships of
political business forums, sponsorship and attendance at
political party conferences, as well as any cash donations.
Macquarie declares its political contributions to the AEC
regardless of any thresholds or other provisions that may
otherwise limit the need to disclose. In the year ended 30 June
2014, Macquarie’s political contributions in Australia totaled
$A463,890 (including $A36,608 GST): Liberal Party
$A277,630; Australian Labor Party $A169,210; and National
Party $A17,050.
Cash contributions accounted for less than four percent of
total contributions in the year ended 30 June 2014. The
remainder of the contributions were memberships of political
party business forums, attendance at events, sponsorships
and attendance at party conferences. No contributions were
made by the Group outside of Australia in FY2015.
Advancing environmental management
Macquarie approaches environmental management by
focusing on three areas: identifying and managing
climate-related risks and opportunities, managing resources
used in direct operations, and managing environmental issues
in investments (detailed in the ESG Risk Management section
on page 50).
Climate change
Macquarie recognises that climate change presents significant
challenges to society and generates both risks and
opportunities for its business and stakeholders. Consistent
with Macquarie’s strong risk management focus, climate
change and future carbon constraints are considered within
the existing risk framework. Macquarie’s approach is based
on:
– identifying, assessing and managing the risks arising from
climate change and future carbon constraints
– identifying and leveraging opportunities for investment and
trading for Macquarie and its clients
– assessing and managing its own carbon footprint.
Under this framework:
– businesses are responsible for considering greenhouse
and energy management during due diligence for new
businesses and products and addressing local legislative
requirements consistent with Macquarie’s Greenhouse
and Energy Reporting Policy
– Macquarie provides clients and staff with research and
information about the economic, policy and business
impacts of climate change
– Macquarie uses its expertise in carbon markets to assist
clients to prepare for compliance with emissions trading
and provides emissions risk management products
– Macquarie also uses its expertise in financial services to
assist clients active in the renewable energy sector.
Macquarie does not consider its businesses to have any
material exposure to climate change regulatory risk. Macquarie
continues to monitor developments in climate change
regulation around the world. As a signatory to the Carbon
Disclosure Project (CDP), Macquarie reports detailed
information about its approach to the risks and opportunities
arising from climate change. Macquarie’s annual responses
are available on the CDP website.
Direct operations
Macquarie strives to integrate resource efficiency and
sustainability into the day-to-day operations of Macquarie’s
offices and corporate operations through the implementation
of Macquarie’s Environmental Management Plan. Macquarie’s
direct environmental impacts predominantly relate to the
operation of Macquarie’s tenanted offices and data centres,
air travel and the resources consumed by these activities.
Reducing emissions from energy use: In the year ended
31 March 2015, Macquarie’s total Scope 2 and Scope 3
emissions reduced by six percent from FY2014. FY2015 is the
fourth consecutive year of absolute emission reductions.
Scope 1 emissions are not reported by Macquarie as they are
not material, comprising less than one percent of Macquarie’s
total emissions in Australia.
53
Macquarie’s total Scope 2 emissions increased by two percent
from FY2014, as a result of inclusion of base building
(1)
energy
usage for 50 Martin Place this year. However, when compared
with FY2014, Scope 2 emissions on a like-for-like basis
(relating only to corporate offices and data centres) decreased
by one percent. This reduction is the result of a continued
focus on energy use in all Macquarie premises and data
centres globally, including a specific program of data centre
rationalisation and emphasis on occupying sustainable
buildings.
Macquarie’s Scope 3 emissions decreased by 14 percent
compared with FY2014, due to a five percent reduction in flight
miles and updates in emission factors. Macquarie continues to
encourage the use of video conferencing and has seen an
increase of 10 percent from FY2014 in Macquarie’s five largest
locations.
Maintaining carbon neutrality: Since 2010, Macquarie has
maintained its carbon neutral commitment by reducing and
offsetting emissions from its office energy use and business air
travel. The Carbon Commitment
(2)
builds on Macquarie’s
response to risks and opportunities arising from climate
change, its investments and activities in renewable energy,
clean technology and environmental markets, and status as a
signatory to the CDP.
To offset Macquarie’s remaining Scope 2 and Scope 3
emissions and achieve carbon neutrality for corporate offices,
data centres, base building and air travel, Macquarie
purchased and retired voluntary carbon offsets for the year
ended 31 March 2015. Macquarie acquired a diverse portfolio
of offsets, focusing on project quality and verifiable emissions
reductions. Carbon credits that met Voluntary Carbon
Standards and Climate, Community and Biodiversity
Standards were purchased from projects in Mexico, Peru and
Zambia. These projects, supported by the sale of carbon
credits on international markets, provide solutions to reduce
carbon emissions in the countries and communities in which
they operate.
Supporting sustainable buildings: Focusing on sustainable
buildings is a critical way for Macquarie to reduce direct
resource consumption and greenhouse gas emissions.
Macquarie corporate offices are fitted with water and energy
efficient fittings and fixtures and continually monitored for
energy performance, environmental quality and staff comfort.
Macquarie aims to ensure all new premises are designed and
constructed to achieve a 6 Star Green Star, LEED Platinum,
BREEAM Excellent or equivalent rating. All tenancy
refurbishments aim to achieve 5 Star Green Star, LEED Gold
or equivalent rating for the jurisdiction.
(1)
Base building applies only where Macquarie owns and
occupies the building. This comprises 50 Martin Place and
9-19 Elizabeth Street Sydney.
(2)
Refers to Macquarie’s carbon neutral commitment across its
global corporate office energy use and corporate air travel.
Sustainability ratings for Macquarie hub offices
Office Rating – Operation/ Fit-
out
Rating –
Design
50 Martin Place,
Sydney
5 Star NABERS
(energy commitment
agreement)
6 Star Green
Star
Ropemaker
Place, London
n/a BREEAM
Certified–
Excellent
125 W55
th
St, New
York
LEED Certified – Gold n/a
One IFC, Hong
Kong
LEED Certified – Gold BEAM
Certified –
Platinum
1 Shelley Street,
Sydney
4 Star NABERS
energy usage
6 Star Green
Star
1 Martin Place
Sydney
3 Star NABERS
energy usage
n/a
Creating sustainable and collaborative workplaces
In FY2015 Macquarie opened its new global headquarters at
50 Martin Place in Sydney, Australia. The new premises has
achieved a 6 Star Green Star Design and As Built rating from
the Green Building Council of Australia, the As Built rating
being the first in Australia for a large scale heritage listed office
building. Through a commitment agreement, the building is
also targeting an operational energy efficiency rating of 5 star
NABERS energy.
The redevelopment of 50 Martin Place has provided an
opportunity for a more sustainable and collaborative
workplace. The performance of the building is continually
monitored, including air quality and acoustic monitoring to
ensure the environmental quality of the internal environment
and the comfort of staff is maximised.
Improved spaces and facilities including change rooms,
showers, bike racks, parent’s room, and quiet and multi-faith
prayer room provide greater flexibility for employees.
The internal atrium stairway and open atrium space provides
greater connectivity between floors and encourages
collaboration between employees.
Technology upgrades and improvements including audio visual
and video conferencing services facilitate collaboration and
communication between clients and employees globally, and
reduce the need for business travel.
The sustainable design features of the building, including the
glass-domed roof and expanded atrium space which allows
55 percent more daylight to penetrate compared with previous
structure and a bespoke air-conditioning system, assist to
make a more comfortable and energy efficient building.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
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Improving resource efficiency: Over the last three years,
initiatives have been rolled out to reduce paper use and, where
tenancy arrangements permit, reduce waste and manage
water consumption.
An ongoing program of technology and behavioural initiatives
has resulted in a continued reduction in paper use from the
FY2012 baseline of 167,106 reams to 121,051 reams in
FY2015, a decrease of 27 percent. The environmental impacts
of paper use are also being addressed through an ongoing
commitment to use certified sustainable or recycled paper
stock. Paper use data is now collected across the majority of
Macquarie offices, representing approximately 80 percent of
Macquarie staff.
Since the FY2011 baseline sustainability audits of its offices,
Macquarie has implemented standardised waste recycling and
water management programs wherever tenancy arrangements
allow. Waste and water data is currently collected from large
offices where Macquarie occupies the entire building. For
example, from the FY2012 baseline to FY2014, waste in
Sydney offices reduced by 29 percent, from 1,129 tonnes to
799 tonnes. The waste recycling programs in these offices
resulted in 70 percent of total waste being recycled, diverting
over 425 tonnes of waste from landfill in FY2015.
Macquarie will continue to identify opportunities to improve
waste management and water use in offices accommodating
more than 100 staff.
Sustainable procurement: As part of its ongoing
procurement strategy, Macquarie continues to include
sustainability clauses within tender documents. These clauses
include consideration of governance and ethics, legal
responsibilities, financial, environmental, workforce
considerations and risk management, and are used by the
Business Services Division (Sourcing and Vendor
Management) as a factor in supplier selection.
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Carbon and Energy Data for FY2015
Baseline
(1)
Units FY09 FY10
Scope 2 Indirect Electricity emissions: tCO2-e
— corporate offices and data centres
(2)
49,632 50,923
— base buildings
(3)
– –
Total electricity emissions 49,632 50,923
Scope 3 Indirect Business air travel emissions
(4)
tCO2-e
n/a 78,018
Total Emissions Total Scope 2 and Scope 3 tCO2-e – 128,941
Energy Macquarie energy use: TJ
— corporate offices and data centres 237 251
— base buildings – –
Total Macquarie energy use 237 251
Per Capita Emissions Electricity emissions per capita: tCO2-e per person
— corporate offices and data centres 3.93 3.49
— base buildings – –
Total emissions per capita 3.93 3.49
Business air travel emissions per capita tCO2-e per person n/a 5.34
(1)
Note that the baseline for Scope 2 electricity emissions is FY2009 while, due to data availability, the baseline for Scope 3 business air
travel emissions is FY2010. Total Scope 2 and Scope 3 emissions reductions are calculated based on a FY2010 baseline.
(2)
Macquarie corporate offices and data centres are defined as:
- space leased by Macquarie operating entities that are also occupied by Macquarie staff and have a Net Usable Area greater than
100m
2
- data centres considered to be under the ongoing operational control of a Macquarie Group operating entity
- new space from business acquisitions from the month of acquisition
- including Australian and international corporate offices.
(3)
Base building refers to the energy required to operate a building and excludes tenanted energy use. It includes the mechanical plant,
lifts, and lighting in lobby and other common areas. Base building applies only where Macquarie owns and occupies the building.
This comprises 50 Martin Place and 9-19 Elizabeth Street Sydney.
(4)
Business air travel is defined as travel ticketed through Macquarie’s Travel Management Companies for the primary purpose of
business.
(5)
Some numbers in this column have been revised from last year’s Annual Report to reflect updated invoice data.
57
Baseline Change
FY11 FY12 FY13 FY14
(5)
FY15 Prior Year Baseline
51,941 52,497 46,499 42,389 41,842 -1% -16%
– – – – 1,557 n/a n/a
51,941 52,497 46,499 42,389 43,399 2% -13%
79,330 73,260 63,334 48,870 41,954 -14% -46%
131,271 125,757 109,833 91,259 85,353 -6% -34%
268 275 243 231 222 -4% -6%
– – – – 7 n/a n/a
268 275 243 231 229 -1% -4%
3.35 3.55 3.4 3.05 2.98 -2% -24%
– – – – 0.11 n/a n/a
3.35 3.55 3.4 3.05 3.09 1% -21%
5.11 4.95 4.64 3.51 2.99 -15% -44%
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
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58
Investments, markets and products
While Macquarie’s overarching approach aims to embed ESG
as part of normal business practice, Macquarie businesses
also facilitate and pursue investments, markets and products
with an ESG focus.
ESG research and collaboration
Macquarie has industry-leading analysts dedicated to
publishing specialist ESG and alternative energy research.
The analysts focus on ESG issues as part of their detailed
analysis of listed stocks and in the application of an integrated
approach, giving top down analysis followed by bottom-up
stock valuations. The team published specialist ESG reports in
FY2015 covering topics such as employee engagement,
company ESG ratings and corporate governance.
The global Alternative Energy Research team covers listed
wind, solar, metering and battery companies around the world.
The team is coordinated from London with analysts located in
Shanghai, Sydney and New York. The team published over
200 pieces of research in FY2015 and covered over
30 alternative energy stocks. In FY2015, Macquarie published
a series of reports focused on stock opportunities with
leverage to Chinese government policies including new energy
vehicles and the development of alternative power.
During FY2015, Macquarie’s research teams received
investment client recognition and industry recognition for its
alternative energy and ESG research including a top three
rating for its Australian ESG research by Australian Institutional
Investors.
(1)
Investment in renewable energy and clean
technology
Macquarie has been an active investor and adviser in the
renewable energy and clean technology sectors for over
15 years. Drawing on its global network, sector expertise and
strong record, Macquarie services clients across various
renewable energy technologies including: solar, wind, waste to
energy, geothermal, biomass and energy efficiency.
Macquarie and Macquarie-managed businesses also have
more than 4380MW of diversified renewable energy assets in
operation.
Investment and advisory activities over the past 12 months
included:
– Idaho Wind Partners: Macquarie Infrastructure Company
acquired a majority holding in a 183 MW wind power
generation project near Twin Falls in Idaho, USA
– Hengi Water: Macquarie Greater China Infrastructure
Fund invested in two class 1-A industrial wastewater
plants and a recycling plant with total capacity of 220,000
tonnes per day
(1)
Peter Lee Associates Survey 2014
– Sorgenia Green Srl: Macquarie European Infrastructure
Fund 4 acquired this Italian and French renewable energy
project developer and operator. Its Italian wind business
includes a ~112MW portfolio of operational wind farms
with a further ~70MW of projects permitted for
development. The French wind business is a joint venture
with a total ~165MW portfolio of operational wind farms
and a development pipeline of ~40MW of projects
– Low Carbon JV: Macquarie Capital invested in five new
large-scale UK solar projects through its partnership with
solar developer Low Carbon. The 50:50 partnership has
funded the Bottom Plain solar park (10.1MW), Berwick
solar park (8.2MW), Great Wilbraham solar park
(38.1MW), Emberton solar park (9.4MW) and Branston
solar park (18.7MW).
Macquarie provides financing to renewable energy businesses,
tailoring funding instruments to meet the needs of the client.
Examples of transactions in FY2015 included:
– financing a 29MWp ground mounted solar photovoltaic
project in Pembrokeshire Wales. With more than 113,000
solar panels, this is one of the largest solar projects in the
UK to date
– financing a portfolio of seven on shore wind farms in the
UK with a generating capacity of 55MW for Capital
Dynamics Clean Energy and Infrastructure Fund
– providing over $A330 million in financing for energy
efficiency upgrades and renewable energy installations for
buildings through the US Property Assessed Clean
Energy (PACE) Scheme. Through this scheme Macquarie
provides finance linked to the property and is repaid as
part of the annual property tax assessment. Macquarie
provides market access to PACE loans through
securitisation into bonds for investors
– financing for 24 different commercial solar products in
Massachusetts generating ~65MW of solar electricity
production and over 40MWh of residential roof top solar
power generation in support of the solar renewable
energy credit program
– financing agreement for the installation of geothermal heat
exchange systems at Sainsbury’s supermarkets in the
UK. Once installed and operational, the equipment will
enable Sainsbury’s to significantly reduce its energy
usage.
59
Trading carbon and environmental products
Macquarie brings its depth of experience as a top-tier global
commodities trading and finance house to the environmental
markets. Macquarie is involved with trading environmental
financial products and is a major global carbon trader by
volume. Macquarie offers the following services and products:
– a full-service trading desk making physical and derivative
markets in European Union emissions allowances and
Certified Emission Reductions as well as dealing in
domestic emission allowances and renewable energy
certificates across multiple jurisdictions
– inventory financing for environmental markets compliance
unit holdings
– debt/equity investment and derivative financing for
renewable energy projects
– tailored environmental risk management solutions from
simple hedge structures to complex structured
derivatives.
Asset financing
Macquarie uses its specialist expertise in finance and asset
management to provide the following solutions and services:
– energy efficient asset finance
– smart metering finance
– solar photovoltaic system financing
– specialised financing solutions for renewable energy
providers.
Energy efficient asset finance
Established in November 2011, the energy efficient asset
financing program focuses on energy efficient assets in
Australia and the UK. The program has brought a new source
of finance to stimulate uptake of, and investment in, clean
energy technologies in existing commercial buildings and
industries. Equipment finance can include: solar PV; distributed
gas generation; energy-efficient lighting systems (LED); heating
(including biomass boilers and heat pumps); ventilation and
air-conditioning; and smart building systems.
Smart metering
In the year ended 31 March 2015, Macquarie continued to
increase its funding lines to UK energy retailers to facilitate the
accelerated roll-out of smart gas and electricity meters which
assists with efficient energy management in the industrial,
commercial and residential sectors.
Of the more than seven million gas and electricity smart meters
in the UK, Macquarie currently leases more than one million
smart meters to energy retailers with existing contracts in place
to fund approximately 28,000 smart gas and electricity meters
per month.
Solar photovoltaic system financing
Macquarie Energy Leasing continues to expand its commercial
rooftop solar finance offerings in Australia. The business is
using existing channels to market through its extensive
commercial finance broker network as well as direct to large
corporate vendors.
Specialised ESG products
Macquarie has experienced teams that offer clients specialised
investment products that respond to and support their
particular ESG requirements. Examples of these investments
include:
– Delaware Investments Socially Responsible Investing (SRI)
products – Delaware has longstanding experience in ESG
investing and seeks to invest in companies that
incorporate positive ESG behaviour into their business
operations. Offering a spectrum of specialist products to
investors, total assets managed under these SRI
strategies is $US809.3 million as at 31 March 2015
– Macquarie Private Portfolio Management (MPPM) offers
wholesale clients customised investment solutions aligned
to their specific ESG goals or screening preferences.
MPPM also provides retail clients with access to model
portfolios with a broad, socially responsible investing bias
using both internal and external factors. All clients
investing in MPPM-managed strategies have access to a
research process that includes embedded ESG-focused
factors. The combined funds under management covered
by these strategies is $A1.5 billion
– Macquarie Bonds High Quality (AUM $US115 million) and
M200 (AUM $US65 million) are managed according to
social responsibility criteria. In 2015, both bonds were
awarded with the Austrian eco label for sustainability by
the Austrian Ministry of Environment.
People and workplace
Macquarie recognises that its most important assets are its
people. Macquarie recruits talented individuals and
encourages them to realise their potential in an environment
that values excellence, innovation and creativity. Macquarie
provides a wide range of programs that reflect Macquarie’s
What We Stand For principles and support the development,
diversity and wellbeing of its employees. This ensures the
business continues to meet the highest standards and serves
the evolving needs of its clients.
What we stand for
Macquarie seeks to realise opportunity for the benefit of its
clients, its shareholders, its community and its people.
Macquarie is in business to be profitable, but recognises that it
is the way it does business that defines the organisation. The
trust and confidence of Macquarie’s clients and the community
are critical to its long-term success.
What We Stand For is the statement that sets out the three
principles which guide the way Macquarie does business. The
principles reflect Macquarie’s long-held approach of
Opportunity, Accountability and Integrity.
The Code incorporates these principles. The Code also
includes guidelines and advice on escalation and good
decision-making.
The Integrity Office, which was established in 1998, is an
independent function within Macquarie, reporting to the CEO
and providing annual reports to the BGCC.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
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The Integrity Office has responsibility for the promotion,
understanding and staff awareness of What We Stand For. To
ensure that Macquarie’s culture of honesty and integrity
remains strong throughout the organisation, all staff who join
Macquarie receive specific training on What We Stand For and
the Code. Integrity Officers work with business leaders to
ensure that staff continue to be trained and supported in good
decision-making and escalation and receive continued
communication of the principles that underpin the way
Macquarie operates.
The Integrity Office works with RMG Compliance to ensure
that all staff read the Code, and sign an annual declaration that
they have done so.
The Integrity Office provides an independent and confidential
point of escalation for staff to seek advice or raise concerns
about integrity issues. Macquarie has whistleblower policies
and protections in each of the regions in which it operates. In
addition, Macquarie has an externally-managed staff hotline
that enables staff to report suspected breaches of the Code,
or other misconduct, anonymously.
Learning and development
Macquarie strives to create an environment where learning is a
part of an employee’s career development and we recognise
the benefits to both the individual and the wider organisation of
such investment.
Macquarie continues to invest in employee development by
providing targeted and role-specific learning opportunities,
both to meet the needs of Macquarie’s diverse talent base and
to build the skills and behaviours needed for long-term
organisational success.
Since 1 April 2014, a total of almost 1,170 classroom events
have been delivered globally and a further 982 online courses
and 387 knowledge tests have been available including
compliance-related training for new and existing staff (focusing
on fraud awareness, anti-bribery, anti-money
laundering/counter-terrorism financing and other financial
services compliance issues) as well as leadership courses and
materials on financial services products.
As part of Macquarie’s leadership development efforts, in 2014
Macquarie launched a new global leadership development
program targeted at new director level staff and designed to
focus on both business and people leadership skills. Over 300
staff globally have commenced the program since 1 April
2014, with strong business and participant feedback. Building
on this success, the development of an extension program
aimed at our most senior directors is now underway for launch
in 2015.
Macquarie also continues to focus on developing leadership
capability more broadly with 324 people having attended
Macquarie’s frontline manager program, as well as investment
through executive coaching and mentoring initiatives.
In addition to Macquarie delivered programs, many employees
benefit from sponsored education and can pursue career
development opportunities at independent institutions such as
a Master of Finance offered by INSEAD.
Macquarie also invests significant time and effort in the
employee onboarding and orientation process, with a series of
learning and development activities (including events hosted by
the CEO) designed to communicate and embed the Macquarie
culture at the earliest possible stage.
Alongside the structured learning and development curriculum,
Macquarie also recognises and encourages the developmental
benefits of wider community engagement by employees.
Involvement of employees in this through the Macquarie
Foundation and other channels is widely communicated and
encouraged.
To support Macquarie’s merit-based culture, regular appraisals
are a key part of performance measurement, including
goal setting and ongoing career development. In addition
to encouraging regular and ongoing feedback with managers,
Macquarie requires all employees to have at least one formal
annual appraisal session with their manager where employees
are encouraged to raise, discuss and respond to matters
relating to training, further education and development
of leadership capabilities. A Group-wide performance
management system is in place to document all performance
and development related discussions. Customised online and
classroom training is also available to all managers and staff to
ensure they get the support needed to complete these
activities effectively.
Diversity
Macquarie’s ongoing commitment to workforce diversity
ensures its business remains innovative, sustainable and
continues to meet the evolving needs of its clients.
Macquarie’s broad range of experiences, skills and views are
key strengths and critical to the wide range of services it
delivers across a global operating environment.
More detailed information about Macquarie’s approach
to diversity is provided in the Diversity Report.
Workplace Work Health and Safety
Macquarie has established safe work practices to ensure it
provides a workplace free from illness and injury. A safe work
environment is provided through workplace safety inspections
that allow early identification and mitigation of hazards. This is
combined with ergonomic workstations and office spaces
designed to maximise health and wellbeing.
These systems are reviewed on an ongoing basis to ensure
safe work and employee wellbeing standards are maintained
across the global workforce.
Macquarie’s commitment to providing a safe work
environment has resulted in the prevalence and severity of
incidents remaining low and consistent with previous years.
Health and safety representatives are appointed globally to
assist both in the reporting and rectification of incidents and in
the development and dissemination of employee health and
wellbeing initiatives across Macquarie.
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Macquarie recognises the positive impact healthy employees
have on business performance. This extends beyond
professional development to the personal wellbeing of
employees, incorporating psychological and physical health.
Macquarie provides initiatives which promote and empower
employees to own their health and wellbeing, including:
– confidential counselling services (Employee Assistance
Program)
– health screenings and assessment to help employees
understand and improve their personal health status
– educational seminars on healthy leadership, effective
communication, achieving balance in a high performance
environment and diet and nutrition
– training on topics including managing a flexible workforce,
appropriate workplace behaviour and managing mental
health in the workplace.
Engaging stakeholders
Clear dialogue with stakeholders is important to building strong
relationships, maintaining trust, enhancing business
performance and evolving our ESG approach. Macquarie
regularly engages with a broad range of stakeholders including
shareholders, investors, clients, analysts, industry groups,
governments, employees and the wider community.
Macquarie’s key engagement activities in 2015 are
summarised below:
– shareholders and investors: Macquarie provides clear
and open lines of communication with shareholders,
analysts, investors and their advisors well beyond the key
events of the corporate calendar, such as the AGM and
result and operational briefings. Investor Relations
oversees an extensive program which includes domestic
and international investor roadshows, conferences and
briefings and responds to investor queries to provide
transparency about the ESG framework and approach
– political engagement: Macquarie’s Government
Relations team has lead responsibility for maintaining
relationships with key government and public sector
stakeholders
– employees: Results of the Macquarie-wide staff survey
conducted in 2013 have continued to be used by
Macquarie’s businesses to inform areas of priority for
action planning and to maximise sustainable staff
engagement. In late 2014, four of the businesses
conducted a follow-up pulse check survey to seek
feedback on the effectiveness of recent efforts and to
calibrate current levels of engagement. Analysis of the
responses has been fed back into the action planning
process to ensure that the right initiatives are being
pursued and to identify further opportunities. While pulse-
check surveys are typically business-specific, overall
results indicate that positive levels of engagement
continue to be maintained
– communities: The Foundation provides financial and
other forms of support to a wide range of community
organisations and programs. A more detailed overview of
the Foundation’s engagement with communities is
provided in the Macquarie Group Foundation section of
this Annual Report, along with the Foundation’s Annual
Report which is available on the Macquarie website.
About these disclosures
In 2013 the GRI released the latest evolution of its Reporting
Guidelines – G4. Macquarie is seeking to transition to G4 and
has used the GRI G4 reporting principles to guide disclosures
within this Annual Report. The content of the disclosures is
based on Macquarie’s ESG priorities as confirmed through an
external review, the interests of stakeholders, including
investors and analysts, and the applicable GRI indicators.
Consistent with Macquarie’s approach to sustainability,
information concerning governance, environment, social and
economic performance is presented throughout the Annual
Report rather than as a separate disclosure. A GRI index is
available on Macquarie’s website.
This is the end of the Environmental, Social and Governance Report.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Appendix
Independent review
62
Independent review of selected Subject
Matter contained in Macquarie Group
Limited’s 2015 Annual Report
Purpose
The purpose of this document is to define the selected
Subject Matter (the selected Subject Matter) contained within
Macquarie Group Limited’s (MGL) 2015 Annual Report that
have been included in the scope of PwC’s limited assurance
engagement.
Scope and the selected Subject Matter
The selected Subject Matter that MGL requested be
included within the scope of PwC’s limited assurance
engagement comprised the following selected corporate
sustainability information for the 12 months ending 31 March
2015 (the reporting period):
a) total electricity consumed from MGL’s corporate offices,
data centres and base building consumption (where
MGL owns and occupies the building) around the world
b) total indirect emissions from electricity usage (Scope 2)
from MGL’s corporate offices, data centres and base
building consumption (where MGL owns and occupies
the building) around the world
c) Scope 3 emissions associated with short, medium and
long-haul flights procured by MGL
d) management’s assertion that carbon offsets have been
purchased and retired for the 2015 reporting period
representing a quantity of greenhouse emissions offset
greater than the sum of b) and c).
Basis of preparation
Organisational boundary
Corporate offices and data centres
Macquarie’s corporate offices and data centres are defined
as:
– offices leased by MGL operating entities globally which
are also occupied by MGL staff and have a Net Usable
Area (NUA) – the area that can be fitted out by the
tenant greater than 100m
2
– data centres around the world considered to be under
the ongoing ‘operational control’ of MGL. In this
instance ‘operational control’ is defined with reference
to the Australian National Greenhouse and Energy
Reporting Act (2007)
– new offices from business acquisitions from the month
of acquisition.
The following exclusions have been applied in determining
the reporting boundary for corporate offices:
– offices or buildings that are owned or managed by an
MGL entity but are not tenanted by Macquarie staff
– serviced offices used by Macquarie staff where MGL
has no oversight of the energy usage of the office.
Energy costs for serviced offices are typically included
as part of a service fee
– joint venture offices (where the joint venture is the only
Macquarie related occupant of the office). Joint venture
offices are defined as offices where Macquarie staff may
be located as part of a joint venture business activity
but where Macquarie has limited ability to influence the
operation of these offices and does not have oversight
of the data required to calculate greenhouse gas (GHG)
emissions.
Base building
Macquarie’s base buildings are defined as:
– offices or buildings where Macquarie owns and
occupies the building. Base building energy refers to the
energy required to operate the mechanical plant, lifts
and lighting in the lobby and other communal areas.
The following exclusions have been applied in determining
the reporting boundary for base buildings:
– energy use in this category excludes tenanted energy
use in Macquarie owned and operated buildings.
Business air travel
Business air travel is defined as travel ticketed through
Macquarie’s Travel Management Companies for the primary
purpose of business. Where business trips booked through
Macquarie’s Travel Management Companies include
staff-funded spousal travel or personal leisure arrangements
made as an aside to a business trip, this has been included
in ‘business air travel’.
Calculating and measuring GHG emissions and
energy use
Energy use and GHG emissions
Direct emissions associated with natural gas and diesel
(Scope 1 emissions)
Australian data for Scope 1 emissions associated with fuel
combustion, natural gas and refrigerants within the
organisational boundary was obtained from supplier invoices
and found to comprise less than one percent of Macquarie’s
total Australian emissions. On this basis, Scope 1 emissions
for Macquarie’s corporate offices internationally have been
excluded in calculating total GHG emissions for the purposes
of this report.
63
Total electricity consumed
Approximately 85 percent of the electricity data for the
reporting period was obtained directly from actual tenancy or
building data. The remaining 15 percent of energy
consumption was estimated by one of the following:
– where invoiced data existed for an office for part of the
reporting period, determining daily electricity consumed
for that part of the reporting period and extrapolating
this out to the remainder of the reporting period for that
office
– where historical data exists for the office this is used to
estimate the electricity consumed for the reporting
period
– where no invoice data was available for a particular
office, estimating electricity consumed for that office
based on the Net Lettable Area of the office and the
average electricity consumption per square metre of
other offices in the same region.
Emission factors outlined in Measurement of GHG emissions
have then been applied to determine the equivalent indirect
emissions associated with electricity consumed (Scope 2
emissions).
Other indirect emissions associated with business air
travel (Scope 3 emissions)
Air travel data was based on reports provided by
International SOS, the organisation contracted to track MGL
staff travel and provide emergency assistance where
required.
Emission factors outlined in Measurement of GHG emissions
have then been applied to mileage to determine the
equivalent indirect emissions associated with business air
travel (Scope 3 emissions).
Measurement of GHG emissions
The following emissions factors have applied in calculating
GHG emissions (tonnes CO
2
-e):
Component Reference documents
Australian offices National Greenhouse and Energy
Reporting (Measurement)
Determination 2008 and subsequent
amendments for the calculation of
greenhouse gas (GHG) emissions.
EMEA offices Department for Environment Food
and Rural Affairs (DEFRA) 2014
Government GHG Conversion Factors
for Company Reporting: Methodology
Paper for Emission Factors.
Americas offices The Climate Registry Information
System (CRIS) (2014).
Asia offices
Department for Environment Food
and Rural Affairs (DEFRA) 2014
Government GHG Conversion Factors
for Company Reporting: Methodology
Paper for Emission Factors.
Air travel
Department for Environment Food
and Rural Affairs (DEFRA) 2014
Government GHG Conversion Factors
for Company Reporting: Methodology
Paper for Emission Factors.
Scope 2 emissions factors used for Australian and The
Americas offices, and Scope 3 emissions factors for all air
travel include greenhouse gases in addition to carbon
dioxide and are expressed in carbon dioxide equivalents
(CO
2
-e) as stipulated within the associated reference
documents. Scope 2 emission factors used for the United
Kingdom and remaining office locations only comprise
carbon dioxide emissions (CO
2
) as stipulated within the
reference documents. The jurisdictional variance in
approaches to Scope 2 methodology had no material effect
on outcome.
Carbon offsets purchased and retired
All carbon offsets purchased were registered under the
international Gold Standard issued by the Gold Standard
Foundation, Voluntary Carbon Standard issued by the VCS
Association or US Climate Action Reserve protocol.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Appendix
Independent limited assurance report
continued
64
Independent Limited Assurance Report to the
Directors of Macquarie Group Limited over
selected Subject Matter included in MGL’s
Annual Report for the 12 months ending
31 March 2015
We have been engaged to provide limited assurance on
selected subject matter (the selected Subject Matter)
presented in the Environmental, Social and Governance (ESG)
Report section of Macquarie Group Limited’s (MGL) Annual
Report (the Annual Report) for the 12 months ending
31 March 2015 (the period), in accordance with the basis of
preparation (the Reporting Criteria) set out on pages 62 and
63 in the Annual Report.
The selected subject matter
The selected Subject Matter was chosen by MGL and
comprises:
a) total electricity consumed from MGL’s corporate offices,
data centres and base building consumption (where MGL
owns and occupies the building) around the world (TJ)
b) total indirect emissions from electricity usage (Scope 2)
from MGL’s corporate offices, data centres and base
building consumption (where MGL owns and occupies
the building) around the world (tCO
2
-e)
c) total Scope 3 emissions associated with short, medium
and long-haul flights procured by MGL (tCO
2
-e)
d) management’s assertion that carbon offsets have been
purchased and retired for the reporting period
representing a quantity of greenhouse emissions offset
greater than the sum of b) and c) above.
Our responsibility
Our responsibility is to express a conclusion on the selected
Subject Matter based on our procedures.
The procedures selected depend on auditor judgment,
including an assessment of the risks of material misstatement
of the selected Subject Matter, whether due to fraud or error.
In making these risk assessments, we consider internal control
relevant to MGL’s preparation and fair presentation of the
selected Subject Matter in the Annual Report in order to
design assurance procedures that are appropriate in the
circumstances, but not for the purpose of expressing a
conclusion on the effectiveness of MGL’s internal controls.
We read other information included within the ESG Report
section in the Annual Report and consider whether it is
consistent with the knowledge obtained through our
procedures. We consider the implications for our report if we
become aware of any apparent material inconsistencies with
the selected Subject Matter. Our responsibilities do not extend
to any other information reported by MGL.
In conducting our assurance engagement, we have followed
applicable independence requirements of Australian
professional ethical pronouncements.
Management’s responsibilities
Management of MGL are responsible for preparing and
presenting the selected Subject Matter in accordance with the
Reporting Criteria. Management are responsible for
determining the adequacy of the Reporting Criteria to meet the
reporting needs of MGL. Management’s responsibility also
includes the design, implementation and maintenance of a
system of internal control relevant to the preparation and fair
presentation of the selected Subject Matter that is free from
material misstatement, whether due to fraud or error.
Inherent limitations
Non-financial performance information, including the selected
Subject Matter, may be subject to more inherent limitations
than financial information, given both its nature and the
methods used for the determining, calculating and estimating
such information. Qualitative interpretations of relevance,
materiality and the accuracy of data are subject to individual
assumptions and judgments. It is important to read the
selected Subject Matter in the context of MGL’s Reporting
Criteria.
Assurance work performed
We conducted our limited assurance engagement in
accordance with the Australian Auditing and Assurance
standard ASAE 3410 “Assurance Engagements on
Greenhouse Gas Statements" (ASAE 3410) issued by the
Australian Auditing and Assurance Standards Board. Our
procedures primarily consisted of:
– enquiries of management
– analytical procedures
– substantive testing of sample data to source information
– re-performance of calculations
– detailed walk-through of key processes and controls
– detailed testing over the consolidation and reporting
process applied by MGL.
As a limited assurance engagement generally comprises of
making enquiries, primarily of management, and applying
analytical procedures and the work is substantially less
detailed than that undertaken for a reasonable assurance
engagement, the level of assurance is lower than would be
obtained in a reasonable assurance engagement. The
conclusion expressed in this report has been formed on the
above basis.
Use of our report
This report has been prepared in accordance with our
engagement terms, solely for the Directors of MGL as a body,
for the sole purpose of reporting on the selected Subject
Matter within the Annual Report. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone
other than the Directors of MGL for our work or for this report,
or for any other purpose other than that for which this report
was prepared.
We consent to the inclusion of this report in the Annual Report
to assist MGL shareholders in assessing whether the Directors
have discharged their responsibilities by commissioning an
independent assurance report in connection with the selected
subject matter.
65
Conclusion
Based on the work described above, nothing has come to our
attention which causes us to believe that the selected Subject
Matter included in the Annual Report for the 12 months ending
31 March 2015 has not been prepared, in all material respects,
in accordance with the Reporting Criteria.
PricewaterhouseCoopers Australia
by
John Tomac
Partner
Sustainability & Climate Change
08 May 2015
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Directors’ Report
for the financial year ended 31 March 2015
66
In accordance with a resolution of the Voting Directors
(the Directors) of Macquarie Group Limited, the Directors
submit the income statements and cash flow statements for
the year ended 31 March 2015 and the balance sheets as at
31 March 2015 of the Consolidated Entity at the end of, and
during, the financial year ended on that date and report
as follows:
Directors
At the date of this report, the Directors of Macquarie are:
Independent Directors
H.K. McCann AM, Chairman
G.R. Banks AO
G.M. Cairns
(1)
M.J. Coleman
P.A. Cross
D.J. Grady AM
M.J. Hawker AM
N.M. Wakefield Evans
P.H. Warne
Executive Voting Director
N.W. Moore, Managing Director and Chief Executive Officer.
Other than Mr Cairns, the Directors listed above each held
office as a Director of Macquarie throughout the financial year
ended 31 March 2015. Those Directors listed as Independent
Directors have been independent throughout the period of
their appointment.
Dr H.M. Nugent AO and Mr P.M. Kirby retired as Independent
Directors on 24 July 2014.
Details of the qualifications, experience and special
responsibilities of the Directors and qualifications and
experience of the Company Secretaries at the date of this
report are set out in Schedule 1 at the end of this report.
Principal Activities
The principal activity of Macquarie during the financial year
ended 31 March 2015 was to act as NOHC for the
Consolidated Entity. The activities of the Consolidated Entity
were those of a financial services provider of banking, financial,
advisory, investment and funds management services. In the
opinion of the Directors, there were no significant changes to
the principal activities of the Consolidated Entity during the
financial year under review that are not otherwise disclosed in
this report.
(1)
Mr Cairns was appointed to the Board as an Independent
Director effective from 1 November 2014.
Result
The financial report for the financial years ended 31 March
2015 and 31 March 2014, and the results have been prepared
in accordance with Australian Accounting Standards.
The consolidated profit after income tax attributable to ordinary
owners for the financial year ended 31 March 2015 was
$A1,604 million (2014:$A1,265 million).
Dividends and Distributions
Subsequent to year end, the Directors have announced a final
ordinary dividend of $A2.00 per share, 40 percent franked
based on tax paid at 30 percent ($A666 million in aggregate).
The final ordinary dividend is payable on 2 July 2015.
On 16 December 2014, the Company paid an interim ordinary
dividend of $A1.30 per share 40 percent franked ($A413
million in aggregate) for the financial year ended 31 March
2015.
On 2 July 2014, the Company paid the final dividend of $A1.60
per share 40 percent franked ($A508 million in aggregate) for
the financial year ended 31 March 2014.
No other ordinary dividends or distributions were declared or
paid during the financial year by the Company.
State of affairs
There were no other significant changes in the state of the affairs
of the Consolidated Entity that occurred during the financial year
under review that are not otherwise disclosed in this report.
Operating and financial review
Please refer to the Chairman's and Managing Director's Letter
and the Operating and Financial Review sections on pages 4
to 18 for the following in respect of the Consolidated Entity
which includes:
– a review of operations during the year and the results of
those operations
– likely developments in the operations in future financial
years and the expected results of those operations
– comments on the financial position, and
– comments on business strategies and prospects for
future financial years.
In respect of likely developments, business strategies and
prospects for future financial years, material which if included
would be likely to result in unreasonable prejudice to the
Consolidated Entity, has been omitted.
67
Directors’ equity participation
As at 8 May 2015, the Directors have relevant interests, as notified by the Directors to the ASX in accordance with the Act, in the
following shares and share options of Macquarie:
Fully paid ordinary shares RSUs held in the MEREP
(1)
PSUs held in the MEREP
(1)
N.W. Moore 1,611,814 649,723 327,154
G.R. Banks 2,916 – –
G.M Cairns 4,620 – –
M.J. Coleman 7,136 – –
P.A. Cross 7,636 – –
D. J. Grady 6,306 – –
M.J. Hawker 7,272 – –
H.K. McCann 13,864 – –
N.M. Wakefield Evans 2,636 – –
P.H. Warne 14,933 – –
(1)
These RSUs and PSUs were issued pursuant to the Macquarie Group Employee Retained Equity Plan (MEREP) and are subject to the
vesting, forfeiture and other conditions applied to grants of awards to Executive Directors, as described in Note 33 to the financial
statements in the Financial Report.
During the financial year, Directors received dividends relating to their shareholdings in Macquarie at the same rate as
other shareholders.
Directors’ other relevant interests
The relevant interests of Directors on 8 May 2015 in managed investment schemes made available by subsidiaries of Macquarie
Group and other disclosable relevant interests are listed in the table below:
Name and position Direct and Indirect Interests
Executive Voting Director
N.W. Moore 2004 Macquarie Timber Land Trust units 50
2006 Macquarie Timber Land Trust units 75
Macquarie Global Infrastructure Fund III (B) units 2,163,106
Independent Directors
G.M. Cairns Macquarie Income Securities 900
D.J. Grady Macquarie Group Capital Notes (MCN) 400
H.K. McCann MCN 4,800
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report
for the financial year ended 31 March 2015
continued
68
Meeting attendance
Directors’ meetings
The number of meetings of the Board of Directors (the Board), and the number of meetings attended by each of the Directors of
Macquarie during the financial year is summarised in the table below:
Board meetings
Monthly Board meetings
(12)
Special Board meetings
(3)
Eligible to attend
as a member
Attended Eligible to attend
as a member
Attended
H.K. McCann 12 12 3 3
N.W. Moore 12 12 3 3
G.R. Banks 12 12 3 2
G.M. Cairns
(1)
5 5 1 1
M.J. Coleman 12 12 3 3
P.A. Cross 12 12 3 3
D.J. Grady 12 11 3 2
M.J. Hawker 12 12 3 3
P.M. Kirby
(2)
4 4 – –
H.M. Nugent
(3)
4 4 – –
N.M. Wakefield Evans 12 12 3 3
P.H. Warne 12 12 3 3
(1)
Mr Cairns was appointed to the Board as an Independent Director effective from 1 November 2014.
(2)
Mr Kirby retired as an Independent Director on 24 July 2014.
(3)
Dr Nugent retired as an Independent Director on 24 July 2014.
69
The number of meetings of Committees of the Board, and the number of meetings attended by each of the members of the
Committees during the financial year is summarised in the table below:
Board Committee meetings
Board Audit
Committee
meetings
(7)
Board Governance
and Compliance
Committee
meetings
(5)
Board
Nominating
Committee
meetings
(2)
Board
Remuneration
Committee
meetings
(9)
Board Risk
Committee
meetings
(6)
Eligible to
attend
as a
member
Attended
as a
member
Eligible to
attend
as a
member
Attended
as a
member
Eligible to
attend
as a
member
Attended
as a
member
Eligible to
attend
as a
member
Attended
as a
member
Eligible to
attend
as a
member
Attended
as a
member
H.K. McCann
(1)
– – – –
2 2 7 7 6 6
N.W. Moore
(2)
– – – – – – – –
4 4
G.R. Banks
(3)
1 1
– – 2 2 7 6
6 6
G.M. Cairns
(4)
– – – –
1 1 4 4
3 2
M.J. Coleman
(5)
7 7 5 5
2 2 – –
6 6
P.A. Cross
(6)
7 7
– – 2 2
5 5 6 6
D.J. Grady
(7)
– –
5 5
2 2
9 9 6 6
M.J. Hawker 7 7 5 5
2 2 – –
6 6
P.M. Kirby
(8)
2 2 1 1 1 1
– –
1 1
H.M. Nugent
(9)
– – – –
1 1 4 4 1 1
N.M. Wakefield Evans
(10)
6 5 5 5 2 2 – –
6 6
P.H. Warne – –
– – 2
2 9 9 6 6
G.C. Ward
(11)
– – – – – – – – 1 1
There were two Board sub-committees convened during the
period. Each sub-committee held two meetings with all
members in attendance for all meetings. The members of the
first sub-committee were Mr McCann, Mr Moore, Mr Coleman
and the CFO, Mr Upfold. The members of the second
sub-committee were Mr McCann, Mr Moore, Mr Coleman,
Mrs Cross and Mr Warne.
The Chairman of the Board and the CEO attend Board
Committee meetings by invitation as a matter of course. All
Board members are sent Board Committee meeting agendas
and may attend any Board Committee meeting.
(1)
Mr McCann ceased to be a member of the BRC on 1 June
2014, and was re-appointed to the Committee on 23 July
2014.
(2)
Mr Moore ceased to be a member of the BRiC on
31 December 2014.
(3)
Mr Banks joined the BNC and BRC, and ceased to be a
member of the BAC, on 1 June 2014.
(4)
Mr Cairns joined the BNC, BRC and BRiC on 1 November
2014.
(5)
Mr Coleman joined the BNC on 1 June 2014.
(6)
Mrs Cross joined the BNC on 1 June 2014, and ceased to be
a member of the BRC on 1 November 2014.
(7)
Ms Grady joined the BNC on 1 June 2014.
(8)
Mr Kirby joined the BNC on 1 June 2014, and retired as an
Independent Director on 24 July 2014.
(9)
Dr Nugent retired as an Independent Director on 24 July 2014.
(10)
Ms Wakefield Evans joined the BNC and BAC on 1 June 2014.
(11)
Mr Ward is not a Voting Director of Macquarie Group Limited.
He was CEO of Macquarie Bank Limited and a member of the
BRiC until his resignation from the Bank Board which was
effective on 30 June 2014.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report
for the financial year ended 31 March 2015
continued
70
Directors’ and officers’ indemnification and
insurance
Under Macquarie Group's Constitution, Macquarie
indemnifies all past and present Directors and Secretaries of
Macquarie (including at this time the Directors named in this
report and the Secretaries) and its wholly-owned
subsidiaries, against certain liabilities and costs incurred by
them in their respective capacities. The indemnity covers the
following liabilities and legal costs (subject to the exclusions
described as follows):
– every liability incurred by the person in their respective
capacity
– all legal costs incurred in defending or resisting (or
otherwise in connection with) proceedings in which the
person becomes involved because of their respective
capacity, and
– legal costs incurred by the person in good faith in
obtaining legal advice on issues relevant to the
performance and discharge of their duties as an officer
of Macquarie or of a wholly-owned subsidiary of
Macquarie, if that has been approved in accordance
with Macquarie policy.
This indemnity does not apply to the extent that:
– Macquarie is forbidden by law to indemnify the person
against the liability or legal costs, or
– an indemnity by Macquarie of the person against the
liability or legal costs, if given, would be made void by
law.
Macquarie has also entered into a Deed of Access,
Indemnity, Insurance and Disclosure (Deed) with each of the
Directors. Under the Deed, Macquarie, inter alia agrees to:
– indemnify the Director to the full extent of the indemnity
given in relation to officers of Macquarie under its
Constitution in force from time to time
– take out and maintain an insurance policy against
liabilities incurred by the Director acting as an officer of
Macquarie or a wholly-owned subsidiary of Macquarie,
or acting as an officer of another company at the
specific request of Macquarie or a wholly-owned
subsidiary of Macquarie. The insurance policy must be
in an amount and on terms and conditions appropriate
for a reasonably prudent company in Macquarie
Group’s position. Insurance must be maintained for
seven years after the Director ceases to be a Director or
until any proceedings commenced during that period
have been finally resolved (including any appeal
proceedings), and
– grant access to the Director to all relevant company
papers (including Board papers and other documents).
In addition, Macquarie made an Indemnity and Insurance
Deed Poll on 12 September 2007 (Deed Poll). The benefit of
the undertakings made by Macquarie under the Deed Poll
have been given to each of the Directors, Secretaries,
persons involved in the management and certain other
persons, of Macquarie, its wholly-owned subsidiaries and
other companies where the person is acting as such at the
specific request of Macquarie or a wholly-owned subsidiary
of Macquarie. The Deed Poll provides for the same indemnity
and insurance arrangements for those persons with the
benefit of the Deed Poll as for the Deed described above.
However, the Deed Poll does not provide for access to
company documents.
The indemnities and insurance arrangements provided for
under the Macquarie Constitution, the Deed and the Deed
Poll, are broadly consistent with the corresponding
indemnities and insurance arrangements provided under the
Macquarie Bank Constitution and deeds entered into by
Macquarie Bank, and were adopted by Macquarie upon the
Consolidated Entity restructure, under which Macquarie
replaced Macquarie Bank as the parent company of the
Group.
Macquarie maintains a Directors’ and Officers’ insurance
policy that provides cover for each person in favour of whom
such insurance is required to be taken out under the Deed
and the Deed Poll and for Macquarie in indemnifying such
persons pursuant to the Deed and the Deed Poll. Relevant
individuals pay the premium attributable to the direct
coverage under the policy and Macquarie pays the premium
attributable to the company reimbursement coverage under
the policy. The Directors’ and Officers’ insurance policy
prohibits disclosure of the premium payable under the policy
and the nature of the liabilities insured.
Environmental regulations
The Consolidated Entity has policies and procedures in place
that are designed to ensure that, where operations are
subject to any particular and significant environmental
regulation under a law of the Commonwealth or of a State or
Territory, those obligations are identified and appropriately
addressed.
The Voting Directors have determined that there has not
been any material breach of those obligations during the
financial year.
Auditor’s independence declaration
A copy of the auditor’s independence declaration as
required under section 307C of the Act, is set out in the
Directors’ Report Schedule 3 following this report.
Non-audit services
Fees paid or payable to the auditor of the Consolidated
Entity, PwC, for non-audit services during the period ended
31 March 2015 total $A6.7 million. Further details of
amounts paid or payable to PwC and its related practices
are disclosed in Note 42 to the financial statements in the
Financial Report.
The Directors are satisfied that the provision of non-audit
services did not compromise the auditor independence
requirements of the Act for the following reasons:
– the operation of the Consolidated Entity’s Auditor
Independence Policy, restricts the external auditor from
providing non-audit services under which the auditor
assumes the role of management, becomes an
advocate for the Consolidated Entity, or audits its own
professional expertise. The policy also provides that
significant permissible non-audit assignments awarded
to the external auditor must be approved in advance by
the BAC or the BAC Chairman, as appropriate, and
71
– the BAC has reviewed a summary of non-audit services
provided by PwC, including details of the amounts paid
or payable to PwC for non-audit services, and has
provided written advice to the Board of Directors.
Consistent with the advice of the BAC, the Directors are
satisfied that the provision of non-audit services during the
year by the auditor and its related practices is compatible
with the general standard of independence for auditors
imposed by the Act.
Rounding of amounts
In accordance with ASIC Class Order 98/100 (as amended),
amounts in the full Directors' Report and Financial Report
have been rounded off to the nearest million dollars unless
otherwise indicated.
This report is made in accordance with a resolution of the
Directors.
Events subsequent to balance date
At the date of this report, the Directors are not aware
of any matter or circumstance which has arisen that
has significantly affected or may significantly affect the
operations of the Consolidated Entity, the results of those
operations or the state of affairs of the Consolidated Entity
in the financial years subsequent to 31 March 2015 not
otherwise disclosed in this report.
H Kevin McCann AM
Independent Director and Chairman
Nicholas Moore
Managing Director and
Chief Executive Officer
Sydney
8 May 2015
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 1 –
Directors’ experience and special responsibilities
for the financial year ended 31 March 2015
72
H Kevin McCann AM, BA LLB (Hons) (Syd),
LLM (Harv), FAICD (age 74)
Independent Chairman since March 2011
Chairman – Board Nominating Committee
Member – Board Remuneration Committee
Member – Board Risk Committee
Kevin McCann joined the Board of Macquarie Group as an
Independent Director in August 2007. Mr McCann was
appointed as an Independent Director of Macquarie Bank in
December 1996 and continues to hold this position. He was
appointed Chairman of the Macquarie Group and Macquarie
Bank Boards in March 2011.
Experience
Kevin McCann was a Partner of leading Australian law firm
Allens Arthur Robinson for 34 years and also served as
Chairman. He practised as a commercial lawyer specialising
in mergers and acquisitions, mineral and resources law and
capital markets transactions.
Mr McCann has wide board experience with major Australian
companies. He was previously Chairman of Origin Energy
Limited, Healthscope Limited and ING Management Limited
and a Director of BlueScope Steel Limited.
Listed company directorships
(held at any time in the last three years)
– Chairman, The Citadel Group Limited (since October
2014)
– Chairman, Origin Energy Limited (from February 2000 to
October 2013)
– Director, BlueScope Steel Limited (from May 2001 to
April 2013).
Other current directorships/appointments
– Chairman, National Library of Australia Foundation
– Director, Sydney Institute of Marine Science
– Director, the United States Studies Centre at the
University of Sydney
– Director, Evans and Partners Pty Limited
– Director, Origin Foundation
– Fellow, University of Sydney Senate
– Co-Vice Chair, New Colombo Plan Reference Group.
Mr McCann is a resident of New South Wales.
Nicholas W Moore, BCom LLB (UNSW),
FCA (age 56)
Managing Director and Chief Executive Officer since
May 2008
Nicholas Moore joined the Board of Macquarie Group in
February 2008 as an Executive Voting Director. Mr Moore
was appointed as an Executive Voting Director of Macquarie
Bank in May 2008 and continues to hold this position.
Experience
Nicholas Moore joined Macquarie in 1986 and led the global
development of its advisory, funds management, financing
and securities businesses.
Appointed Chief Executive Officer in 2008, he is now leading
the continued global growth of Macquarie Group as it builds
on its position as one of Asia-Pacific’s leading financial
services providers.
Other current directorships/appointments
– Chairman, Screen Australia
– Director, Centre for Independent Studies
– Chairman, UNSW Business School Advisory Council
– Chairman, Police & Community Youth Clubs NSW.
Mr Moore is a resident of New South Wales.
Gary R Banks AO, BEc (Hons) (Monash), MEc
(ANU) (age 65)
Member – Board Nominating Committee
Member – Board Remuneration Committee
Member – Board Risk Committee
Gary Banks joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in August 2013.
Experience
Gary Banks has a wealth of experience across economics,
public policy and regulation in Australia and internationally.
He was Chairman of the Australian Productivity Commission
from its inception in 1998 until 2012.
He has also held senior roles with the GATT Secretariat in
Geneva, the Trade Policy Research Centre in London, the
Centre for International Economics in Canberra and
consulted to the World Bank, Organisation for Economic
Co-operation and Development (OECD) and World Trade
Organisation.
Other current directorships/appointments
– Chief Executive and Dean, the Australia and New
Zealand School of Government
– Member, Prime Minister's Business Advisory Council
– Chairman, Regulatory Policy Committee of the OECD
– Member, Advisory Board of the Melbourne Institute,
University of Melbourne
– Adjunct Professor, Australian National University.
Mr Banks is a resident of Victoria.
73
Gordon M Cairns, MA (Hons) (Edin) (age 64)
Member – Board Nominating Committee
Member – Board Remuneration Committee
Member – Board Risk Committee
Gordon Cairns joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in November
2014.
Experience
Gordon Cairns has held a range of management and
executive roles throughout his career, including Chief
Executive Officer of Lion Nathan Limited. He has extensive
experience as a company director, including nine years as a
non-executive director of Westpac Banking Corporation,
where he served on the Board Risk Management and
Remuneration Committees.
Mr Cairns has served as a director on the boards of Lion
Nathan Australia Limited and Seven Network Australia
Limited, and as Chairman of David Jones Limited and Rebel
Group Pty Limited.
Listed company directorships
(held at any time in the last three years)
– Chairman, Origin Energy Limited (since October 2013)
(Director since June 2007)
– Chairman, David Jones Limited (from March 2014 to
August 2014)
– Director, Westpac Banking Corporation (from July 2004
to December 2013).
Other current directorships/appointments
– Chairman, Quick Service Restaurant Group Pty Ltd
– Chairman, Origin Foundation
– Senior Adviser, McKinsey & Company.
Mr Cairns is a resident of New South Wales.
Michael J Coleman, MCom (UNSW), FCA, FCPA,
FAICD (age 64)
Chairman – Board Audit Committee
Member – Board Governance and Compliance Committee
Member – Board Nominating Committee
Member – Board Risk Committee
Michael Coleman joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in November
2012.
Experience
A senior audit partner with KPMG for 30 years, Michael
Coleman has significant experience in risk management,
financial and regulatory reporting and corporate governance.
Mr Coleman was KPMG’s inaugural National Managing
Partner Assurance and Advisory from 1998 to 2002, National
Managing Partner for Risk and Regulation from 2002 to
2010 and Regional Leader for Asia Pacific Quality and Risk
Management from 2002 to 2011. He has also served as
Chairman of ING Management Limited.
Listed company directorships
(held at any time in the last three years)
– Chairman, ING Management Limited (from July 2011 to
June 2012).
Other current directorships/appointments
– Deputy Chairman, Financial Reporting Council
– Member, Audit Committee of the Reserve Bank of
Australia
– Chairman, Reporting Committee of the Australian
Institute of Company Directors (AICD)
– Member, NSW Council, AICD
– Member, Advisory Board of Norton Rose Fulbright
Australia
– Chairman, Planet Ark Environmental Foundation
– Adjunct Professor, Australian School of Business,
University of New South Wales.
Mr Coleman is a resident of New South Wales.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 1 –
Directors’ experience and special responsibilities
for the financial year ended 31 March 2015
continued
74
Patricia A Cross, BSc (Hons) (Georgetown), FAICD
(age 55)
Chairman – Board Risk Committee
Member – Board Audit Committee
Member – Board Nominating Committee
Patricia Cross joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in August 2013.
Experience
Patricia Cross has extensive international financial and
banking experience, through senior executive roles with
Chase Manhattan Bank and Chase Investment Bank,
Banque Nationale de Paris and National Australia Bank,
where she was responsible for the Wholesale Banking and
Finance Division and a member of the Executive Committee.
She has lived and worked in seven different countries.
Mrs Cross has served on a number of listed company
boards, including National Australia Bank Limited, JBWere
Limited, Qantas Airways, Wesfarmers Limited, AMP Limited
and Suncorp-Metway Limited. She was Chairman of Qantas
Superannuation Limited and Deputy Chairman of the
Transport Accident Commission of Victoria. Mrs Cross has
also served on many government bodies and not for profit
organisations’ boards.
Listed company directorships
(held at any time in the last three years)
– Director, Aviva plc (since October 2013)
– Director, Qantas (from January 2004 to October 2013)
– Director, National Australia Bank (from December 2005
to August 2013).
Other current directorships/appointments
– Chairman, Commonwealth Superannuation Corporation
– Director, Grattan Institute
– Ambassador, Australian Indigenous Education
Foundation.
Mrs Cross is a resident of Victoria.
Diane J Grady AM, BA (Mills), MA (Hawaii),
MBA (Harv), FAICD (age 66)
Member – Board Governance and Compliance Committee
Member – Board Nominating Committee
Member – Board Remuneration Committee
Member – Board Risk Committee
Diane Grady joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in May 2011.
Experience
Diane Grady was a partner at McKinsey & Company where
she consulted for over 15 years to clients on strategic,
organisational and operational issues related to growth and
was a worldwide leader of the firm’s Organisation and
Change Management practice. She has a Masters of
Chinese Studies and worked for three years as a journalist in
Asia. She has published research on innovation, corporate
governance and gender diversity.
Ms Grady has been a full time independent director of public
companies and not-for-profit boards since 1994 and has
extensive international experience in a variety of industries.
Previous directorships include BlueScope Steel Limited,
Woolworths Limited, Goodman Group, Wattyl Limited, Lend
Lease US Office Trust, Lend Lease Limited and MLC. She
also served as a member of the ASIC Business Consultative
Panel, the National Investment Council, the Sydney Opera
House Trust and was President of Chief Executive Women.
Listed company directorships
(held at any time in the last three years)
– Director, Spotless Group Holdings Limited (since March
2014)
– Director, BlueScope Steel Limited (from May 2002 to
February 2013).
Other current directorships/appointments
– Member, McKinsey Advisory Council
– Chair, Ascham School
– Chair, Hunger Project Australia
– Director, Australian Stationery Industries
– Member, NSW Innovation and Productivity Council
– Member, Centre for Ethical Leadership
– Member, Heads over Heels Advisory Council.
Ms Grady is a resident of New South Wales.
75
Michael J Hawker AM, BSc (Sydney), FAICD, SF
Fin, FAIM, FIoD (age 55)
Chairman – Board Governance and Compliance Committee
Member – Board Audit Committee
Member – Board Nominating Committee
Member – Board Risk Committee
Michael Hawker joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in March 2010.
Experience
Michael Hawker has substantial expertise and experience in
the financial services industry including management
experience in regulated entities and a deep understanding of
risk management. He was Chief Executive Officer and
Managing Director of Insurance Australia Group from 2001
to 2008 and has held senior positions at Westpac and
Citibank.
Mr Hawker was also President of the Insurance Council of
Australia, Chairman of the Australian Financial Markets
Association, a board member of the Geneva Association and
a member of the Financial Sector Advisory Council.
Listed company directorships
(held at any time in the last three years)
– Director, Aviva plc (since January 2010)
– Director, Washington H Soul Pattinson and Company
Ltd (since October 2012).
Other current directorships/appointments
– Chairman, Australian Rugby Union
– Chairman, the George Institute for Global Health
– Member, the George Institute for Global Health (UK).
Mr Hawker is a resident of New South Wales.
Nicola M Wakefield Evans, BJuris/BLaw (UNSW),
MAICD (age 54)
Member – Board Audit Committee
Member – Board Governance and Compliance Committee
Member – Board Nominating Committee
Member – Board Risk Committee
Nicola Wakefield Evans joined the Boards of Macquarie
Group and Macquarie Bank as an Independent Director in
February 2014.
Experience
Nicola Wakefield Evans has significant Asia-Pacific
experience as a corporate finance lawyer and was a partner
at King & Wood Mallesons (and its predecessor, Mallesons
Stephen Jaques) for more than 20 years. Ms Wakefield
Evans has particular expertise in the financial services,
resources and energy, and infrastructure sectors.
She held several key management positions at King & Wood
Mallesons including Managing Partner International in Hong
Kong and Managing Partner, Practice in Sydney.
Listed company directorships
(held at any time in the last three years)
– Director, Toll Holdings Limited (since May 2011)
– Director, Lend Lease Corporation Limited (since
September 2013).
Other current directorships/appointments
– Director, BUPA Australia and New Zealand Group
– Director, Asialink, University of Melbourne
– Member, Advisory Council, University of New South
Wales Law School.
Ms Wakefield Evans is a resident of New South Wales.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 1 –
Directors’ experience and special responsibilities
for the financial year ended 31 March 2015
continued
76
Peter H Warne, BA (Macquarie), FAICD (age 59)
Chairman – Board Remuneration Committee
Member – Board Nominating Committee
Member – Board Risk Committee
Peter Warne joined the Board of Macquarie Group as an
Independent Director in August 2007. Mr Warne was
appointed as an Independent Director of Macquarie Bank in
July 2007 and continues to hold this position.
Experience
Peter Warne has extensive knowledge of, and experience in,
financial services and investment banking, through a number
of roles at Bankers Trust Australia Limited, including as Head
of its Financial Markets Group from 1988 to 1999. Mr Warne
was a Director of the Sydney Futures Exchange (SFE) from
1990 to 1999, then from 2000 to 2006. He served as Deputy
Chairman of the SFE from 1995 to 1999. When the SFE
merged with the Australian Securities Exchange (ASX
Limited) in July 2006, he became a Director of ASX Limited,
a position he still holds.
Listed company directorships
(held at any time in the last three years)
– Chairman, ALE Property Group (since September 2003)
– Chairman, OzForex Group Limited (since September
2013)
– Director, ASX Limited (since July 2006)
– Deputy Chairman, Crowe Horwath Australasia Limited
(from September 2008 to January 2015) (Director from
May 2007 to January 2015).
Other current directorships/appointments
– Director, New South Wales Treasury Corporation
– Member, Advisory Board of the Australian Office of
Financial Management
– Patron, Macquarie University Foundation.
Mr Warne is a resident of New South Wales.
Company secretaries’ qualifications and
experience
Dennis Leong, BSc BE (Hons) (Syd), MCom
(UNSW), CPA, FGIA
Company Secretary since October 2006
Dennis Leong is an Executive Director of Macquarie
and Head of the Group’s Corporate Governance Division
that is responsible for the Group’s company secretarial
requirements, general and professional risks insurances
and employee equity plans. He has over 21 years company
secretarial experience and 12 years experience in corporate
finance at Macquarie and Hill Samuel Australia Limited.
Paula Walsh, ACIS
Assistant Company Secretary since May 2008
Paula Walsh is a Division Director of Macquarie and has
over 25 years company secretarial experience. She joined
Macquarie in May 2007 and was previously Head of
Corporate Governance, Asia Pacific at British
Telecommunications PLC.
Nigel Donnelly, BEc LLB (Hons) (Macquarie)
Assistant Company Secretary since October 2008
Nigel Donnelly is a Division Director of Macquarie and has
over 15 years experience as a solicitor. He joined Macquarie
in April 2006, and was previously a Senior Associate at
Mallesons Stephen Jaques (now named King & Wood
Mallesons) with a general corporate advisory and corporate
governance focus.
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
77
Executive summary ........................................................................................................................................................................ 78
Macquarie’s remuneration framework .......................................................................................................................................... 80
Macquarie’s remuneration structure ............................................................................................................................................. 82
Profit share retention levels ......................................................................................................................................................... 82
Investment of retained profit share .............................................................................................................................................. 82
Vesting and release of profit share .............................................................................................................................................. 83
Forfeiture of retained profit share (Malus) .................................................................................................................................... 83
Early vesting and release of retained profit share ........................................................................................................................ 84
Performance Share Units (PSUs) ................................................................................................................................................ 85
Other features of Macquarie's remuneration structure ................................................................................................................ 87
Alignment of remuneration outcomes to results .......................................................................................................................... 88
Macquarie’s performance relative to peers .................................................................................................................................. 90
Net profit after tax ....................................................................................................................................................................... 90
Return on equity ......................................................................................................................................................................... 91
Total shareholder return .............................................................................................................................................................. 92
Compensation expense to income ratio ...................................................................................................................................... 94
Staff retention ............................................................................................................................................................................. 95
Remuneration governance ............................................................................................................................................................. 96
Strong Board oversight ............................................................................................................................................................... 96
Independent remuneration review ............................................................................................................................................... 97
Non-Executive Director remuneration ........................................................................................................................................... 98
Non-Executive Director remuneration policy ............................................................................................................................... 98
Board and Committee fees ......................................................................................................................................................... 98
Minimum shareholding requirement for Non-Executive Directors ................................................................................................ 99
Appendices: Key Management Personnel (KMP) disclosures ................................................................................................... 100
Appendix 1: KMP .......................................................................................................................................................................... 100
Appendix 2: Statutory remuneration disclosures ....................................................................................................................... 102
Appendix 3: Share disclosures .................................................................................................................................................... 108
Appendix 4: Other KMP disclosures ........................................................................................................................................... 114
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
78
Executive summary
During the year, the Board and the BRC have reviewed
Macquarie’s remuneration framework to ensure it continues to
meet its overriding objective of delivering superior company
performance over the short and long term, while prudently
managing risk. In undertaking this assessment, the Board and
the BRC have considered factors including:
– the degree of alignment between staff and shareholders
– the evolving regulatory landscape
– market developments
– feedback from shareholders
– the employment environment
– Macquarie’s performance during the year and the
performance of each business
– shareholder returns
– the need to balance long term and short term incentives.
The Board is of the view that Macquarie’s remuneration
approach continues to create a strong alignment of staff and
shareholders’ interests, while prudently managing risk.
The remuneration framework seeks to attract, motivate and
retain exceptional people, while aligning their interests with
those of shareholders. It is comprised of fixed remuneration,
a profit share scheme, and for Macquarie’s most senior
executives, the Executive Committee, Performance Share
Units (PSUs). The framework should be considered as an
integrated whole. The components that make up the
integrated remuneration framework are explained below.
Macquarie’s remuneration structure emphasises performance-
based remuneration, with an appropriate balance between
short and longer-term incentives, and an alignment with
prudent risk-taking.
Fixed remuneration for senior staff remains low relative to
comparable roles in other organisations, although it is sufficient
to avoid inappropriate risk-taking. Moreover, it is low as a
proportion of overall remuneration. In 2015, fixed remuneration
for Macquarie’s 13 Executive Committee members comprised
approximately eight per cent of total remuneration. The
balance remains at risk and is explicitly linked to performance.
Performance-based remuneration in the form of profit share is
aligned with company performance. The profit share pool is
determined annually using the twin measures of net profit after
tax (NPAT) and return on ordinary equity (ROE), measures
which are known to be drivers of returns to shareholders.
A portion of Macquarie’s profit earned accrues to the profit
share pool. Once the cost of equity capital is met, an additional
portion of excess profit is accrued to the profit share pool. In
addition, the NEDs of the Board have the discretion to change
the quantum of the profit share pool to reflect internal and
external factors if deemed in the interests of Macquarie and
shareholders. As has occurred in previous years, not all of the
profit share pool has been paid to employees in the current
year.
Profit share is allocated to Macquarie’s businesses and, in
turn, to individuals, based predominantly on performance.
Performance criteria vary depending on an individual’s role
including:
– financial performance
– risk management and compliance
– business leadership
– people leadership including upholding the Code.
The Board also seeks to ensure that remuneration for staff
whose primary role is risk and financial control, including the
CRO and the CFO, preserves the independence of the
function and maintains Macquarie’s robust risk management
framework.
Performance-based remuneration is delivered in ways that
encourage a longer-term perspective and ensure alignment
with shareholders’ longer-term interests and staff retention. In
turn, this encourages staff to maximise profit without exposing
Macquarie to risk or behaviours that jeopardise long term
profitability or reputation. To achieve this outcome, a significant
portion of performance-based remuneration is:
– retained and deferred over a long period (for example, the
retention rate for the CEO’s profit share allocation is 70
per cent, retained for up to seven years). Including PSUs,
the effective deferral rate for the CEO is 74 per cent for
this year
– delivered in equity
– subject to forfeiture in certain circumstances.
Performance-based remuneration in the form of PSUs are
allocated to Executive Committee members based on their
performance, using criteria similar to those used for profit
share. PSUs vest in equal tranches after three and four years
and are exercisable subject to the achievement of two
performance hurdles linked to earnings per share (EPS) and
ROE, with no retesting.
Other conditions apply that seek to align staff and shareholder
interests. All Executive Directors are subject to a minimum
shareholding requirement which can be satisfied through the
delivery of equity under the current remuneration
arrangements. This aligns shareholder and staff interests and
provides the strongest incentive to staff to maximise long term
profitability and shareholder returns.
Macquarie prohibits staff from hedging any of the following
types of securities:
– shares held to satisfy the minimum shareholding
requirement
– deferred and unvested awards to be delivered under the
equity plan, the MEREP, including PSUs.
Staff can only trade Macquarie ordinary shares and other
securities during designated trading windows.
79
Macquarie’s remuneration outcomes are aligned to business results and shareholder returns.
Macquarie has delivered strong financial results for shareholders while appropriately managing remuneration for staff. The Board is
of the view that the remuneration outcomes for senior executives are appropriately aligned to their businesses’ performance,
Macquarie’s performance and the interests of shareholders.
To demonstrate the link between pay and performance, a comparison of performance measures and executive remuneration
outcomes allows shareholders to see how the remuneration for Executive Key Management Personnel (KMP) is aligned with
performance. The analysis below shows that CEO remuneration has increased in line with the increase in NPAT and EPS.
Remuneration outcomes for other Executive KMP varied according to their individual performance and the performance of their
business. Total remuneration for Comparable Executive KMP, including the CEO, has not increased to the same extent as NPAT
and EPS, which reflects the way that performance takes a range of factors into consideration.
Comparison of performance measures and executive remuneration measures: FY2014 – FY2015
2015 2014
Increase/
(Decrease)%
Performance measures
NPAT $Am 1,604 1,265 27
Basic EPS Cents per share 502.3 383.6 31
Ordinary dividends Cents per share 330.0 260.0 27
Total dividends
Cents per share 330.0 376.0
(1)
(12)
Return on equity Per cent 14.0 11.1
Annual TSR
(2)
Per cent 38.9 66.0
Executive remuneration measures
Total Compensation Expense $Am 3,891 3,505 11
Compensation Expense to Income ratio Per cent 41.9 43.1
Average staff headcount 14,086 13,796 2
Actual staff headcount 14,085 13,913 1
Statutory Remuneration – CEO $Am 16.50 13.08 26
Statutory Remuneration – Comparable KMP
(3)
$Am 90.82 76.05 19
(1)
Includes the special dividend component of 116 cents per share in relation to the SYD distribution in January 2014.
(2)
TSR represents the accumulated share price return when all cash dividends are reinvested at the ex-dividend date.
(3)
Comparable KMP are defined on page 88.
In addition, Macquarie’s performance has been strong relative to peers, particularly over the longer-term.
Strong remuneration governance continues to be exercised.
The Board and the BRC remain committed to strong remuneration governance structures and processes. Strict processes are in
place to ensure that conflicts of interest are appropriately managed. The BRC makes recommendations to the NEDs on key
decisions including the remuneration outcomes for all Executive Committee members.
An independent remuneration review has also been obtained from an independent consultant, Pay Governance, to provide an
opinion on the appropriateness of Macquarie’s remuneration arrangements.
NED fees take into account market rates for relevant Australian financial organisations and reflect the time commitment and
responsibilities involved within the shareholder approved aggregate limit.
In summary, Macquarie’s overall approach to remuneration supports the overarching objective of delivering superior company
performance over the short and long term, while prudently managing risk.
long term
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
80
Macquarie’s remuneration framework
This section explains the objectives and principles of the remuneration system.
Macquarie’s remuneration framework continues to support the overarching objective of delivering superior company performance
over the short and long term, while prudently managing risk. Directors recognise that to achieve this objective, Macquarie must
attract, motivate and retain exceptional people, while aligning their interests with those of shareholders.
They consider this is best achieved by supporting the following principles:
– emphasising performance-based remuneration with an appropriate balance between short and longer-term incentives having
regard to risk
– linking rewards to the creation of sustainable shareholder value through the use of shareholder return drivers, namely
profitability and returns in excess of the cost of capital
– structuring remuneration to encourage behaviour that supports Macquarie’s risk management framework
– delivering remuneration in a way that encourages a long term perspective and creates alignment with shareholder interests
– providing consistent arrangements over time to give staff the confidence to pursue multi-year initiatives
– remunerating high performing staff appropriately, relative to global peers, so they are attracted to and stay with Macquarie.
The way these principles link to the overall objectives are outlined in the chart below.
Overall remuneration objectives and principles
The remuneration framework works as an integrated whole. It is comprised of fixed remuneration and a profit share system. In
addition, the Group’s most senior executives, the Executive Committee, may be awarded PSUs. The way in which these three
elements work together as part of an integrated framework to support the objectives and principles is outlined in the diagram on the
following page.
81
(1)
See page 83 for a description.
P
e
r
f
o
r
m
a
n
c
e
-
b
a
s
e
d
r
e
m
u
n
e
r
a
t
i
o
n
Structure and
deliver
performance-based
remuneration
Profit share pool is determined annually by
– allocation of a proportion of the Group’s NPAT and ROE over and above
the cost of capital
– potential for NEDs to exercise discretion to adjust the size of the pool up or
down
– PSU pool reflects the Group’s overall performance.
Allocate to businesses
– based on each business’ relative contribution to profits (not revenue) taking
into account factors including capital usage, risk management and
compliance and competitor dynamics.
Allocate to risk and financial control groups and other support groups
– based on the quality and integrity of control functions and the quality of
business support services
– not determined solely with reference to profitability.
Allocate to individuals
– based on individual performance. Performance criteria vary depending on
an individual’s role including:
– financial performance
– risk management and compliance
– business leadership
– people leadership including upholding the Code.
– PSUs are only awarded to members of the Executive Committee.
– create shareholder alignment by adopting an approach where a significant
portion of performance-based remuneration is:
– retained and deferred over a long period
– delivered in equity
– subject to forfeiture except in the case of genuine retirement,
redundancy or other limited circumstances and for Executive Directors,
subject to payout over two years post termination of employment
dependent on specific criteria being met.
– apply Malus
(1)
subject to conditions and the exercise of discretion by the
Board consistent with employment legislation
– employ ROE and EPS as PSU vesting hurdles.
Allocate
– Profit Share
– PSUs
Create Pool
– Profit Share
– PSUs
F
i
x
e
d
r
e
m
u
n
e
r
a
t
i
o
n
Determine
fixed
remuneration
Fixed remuneration
– modest compared with similar roles in other organisations but sufficient to
avoid inappropriate risk-taking
– compared with profit share, generally higher for risk and financial control
staff than for front office staff
– reviewed annually and reflects technical and functional expertise, role
scope, market practice and regulatory requirements.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
82
Macquarie’s remuneration structure
This section describes the way in which performance-based remuneration is structured and delivered to manage risk and create
shareholder alignment.
Macquarie’s remuneration structure emphasises performance-based remuneration, with an appropriate balance between short and
longer-term incentives, and an alignment with prudent risk-taking. The Board has discretion to change the remuneration
arrangements on an annual basis to meet changing market conditions as well as to comply with regulatory and corporate
governance developments.
Profit share retention levels
A percentage of each Executive Directors' annual gross profit share allocation is retained by Macquarie (retained profit share). The
percentage is set according to their role.
The Board has discretion to change the percentage of profit share allocations retained on an annual basis to meet changing market
conditions as well as to comply with regulatory and corporate governance guidance, provided that the retention percentage is at
least 30 per cent for Executive Directors.
Standard retention rates by role
Role %
CEO 70%
CEO Macquarie Bank 50%
Other Executive Committee members 50% – 60%
Designated Executive Directors
(1)
50% – 60%
Other Executive Directors 40% – 60%
Staff other than Executive Directors 25% – 60%
(2)
(1)
Executive Directors who have a significant management or risk responsibility in the organisation.
(2)
Dependent on certain thresholds.
Investment of retained profit share
Executive Directors' retained profit share is invested in a combination of Macquarie shares under the MEREP
(3)
, and Macquarie-
managed fund equity notionally invested under the Post-2009 Director’s Profit Share (DPS) Plan
(4)
. The following table shows the
current percentage allocation of retained profit share that is invested in these two plans, depending on the Executive Director’s role:
Role
Post-2009 DPS Plan
(Macquarie-managed fund equity)
MEREP
(Macquarie shares)
CEO Macquarie and CEO Macquarie Bank 10% 90%
Executive Committee members with Funds responsibilities 50% 50%
Other Executive Committee members 10% 90%
Executive Directors with Funds responsibilities 50% – 75% 25% – 50%
Other Executive Directors 10% – 20% 80% – 90%
For staff other than Executive Directors, retained profit share is generally invested in Macquarie equity.
Both the MEREP and the DPS Plan are fundamental tools in Macquarie’s retention, alignment and risk management strategies,
encompassing both long term retention arrangements and equity holding requirements. The BRC reviews the percentage allocated
to the Post-2009 DPS Plan and the MEREP on an annual basis to reflect an individual Executive Director’s responsibilities. In limited
circumstances, retained profit share may be allocated to other than the Post-2009 DPS Plan or the MEREP. An example might
include investment in funds or products of a specific business group where there is a need to directly align the interests of
employees with those of their specific types of clients.
(3)
The MEREP has a flexible plan structure that offers different types of equity grants depending on the jurisdiction in which the participating
employees are based. In most cases, the equity grants are in the form of units comprising a beneficial interest in a Macquarie share held in a
trust for the staff member (Restricted Share Units or RSUs). For further details on the MEREP, refer to Note 33 to the financial statements in
the Financial Report.
(4)
The Post-2009 DPS plan comprises exposure to a notional portfolio of Macquarie-managed funds. Retained amounts for Executive
Directors are notionally invested over the retention period. This investment is described as ‘notional’ because Executive Directors do not
directly hold securities in relation to this investment. However, the value of the retained amounts will vary as if these amounts were
directly invested in actual securities, giving the Executive Directors an effective economic exposure to the performance of the securities.
Notional returns on retained profit share invested in the Post-2009 DPS Plan may be paid annually to Executive Directors. These
amounts are required to be disclosed as remuneration for Executive KMP. The notional returns are calculated based on total
shareholder return. If the notional investment of retained profit share results in a notional loss, this loss will be offset against any future
notional income until the loss is completely offset.
83
Vesting and release of profit share
Retained profit share vests and is released over a period that
reflects the scope and nature of an individual’s role and
responsibilities. The vesting period is established for each
retained profit share allocation by the BRC, according to the
prevailing market conditions, having regard to regulatory and
remuneration trends at the time of allocation. For each year’s
allocation, once the vesting period has been determined it will
remain fixed for that allocation. The BRC has established the
following release schedule for retained profit share invested in
the Post-2009 DPS Plan and the MEREP:
Role Release schedule
Executive Committee Members
(including the Managing Director
and CEOs of Macquarie and
Macquarie Bank), Designated
Executive Directors
one-fifth in each
of years 3–7
Other Executive Directors one-third in each
of years 3–5
Staff other than Executive Directors one-third in each
of years 2–4
Vesting schedules may vary for certain groups of staff who
have become employees as a result of an acquisition, or for
staff in jurisdictions outside Australia to ensure compliance with
local regulatory requirements.
Forfeiture of retained profit share (Malus)
Since 2012, the Board or its delegate has had the ability to
reduce or eliminate unvested profit share for certain senior
employees in certain circumstances (Malus). The Malus
provisions were enhanced in FY2015, such that the Board or
its delegate may reduce or eliminate in full, the unvested profit
share awarded in respect of FY2015 and subsequent years to
certain senior employees if it determines that the individual has
at any time:
– acted dishonestly (including, but not limited to, by
misappropriating funds or deliberately concealing a
transaction)
– acted or failed to act in a way that contributed to a breach
of a significant legal or significant regulatory requirement
relevant to Macquarie
– acted or failed to act in a way that contributed to
Macquarie, Macquarie Bank or any Group within
Macquarie incurring:
– significant reputational harm, and/or
– a significant unexpected financial loss, impairment
charge, cost or provision, or
– acted or failed to act in a way that contributed to
MGL or MBL making a material financial restatement.
Each of the above is a Malus Event.
Additional provisions may apply to staff in jurisdictions outside
Australia to ensure compliance with local regulations. This
includes, for example, staff in the EU who are required to
comply with the UK Regulators' Remuneration Code (Code
Staff). These individuals are subject to additional Malus and
clawback provisions under these regulations.
Macquarie has always had, and continues to have, the ability
to terminate staff for such circumstances, at which time any
unvested profit share would be forfeited in full. The BRC
considers whether, and the extent to which, to apply Malus,
taking into account local employment laws, the nature and
circumstances of the event and any other redress that has
been or may be applied.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
84
Early vesting and release of retained profit share
A departing Executive Director’s unvested retained profit share is only paid out in the case of genuine retirement, redundancy,
disability, serious ill-health or other limited exceptional circumstances. The Board, or its delegate, has discretion to accelerate the
vesting of retained profit share under these circumstances (subject to the conditions of early release as set out below).
In the case of death or serious incapacitation, the Board or its delegate will typically accelerate the vesting of retained profit share
and immediately release it to the Executive Director or, to the Executive Director's legal personal representative (subject to the
Malus provisions).
Discretion may be exercised in certain other limited exceptional circumstances on the grounds of business efficacy, in connection
with strategic business objectives (including in connection with the divestment or internalisation of Macquarie businesses) or when
an employee resigns to fulfil a senior full-time role in a governmental organisation or agency. Where such discretion is exercised, the
Board or its delegate may impose such other conditions as it considers appropriate. This year discretion has been exercised and
retained profit share released for seven executives.
Conditions of early release of retained profit share to departing Executive Directors
In addition to the Malus provisions set out on page 83, the Board or its delegate may reduce or eliminate in full the retained profit
share of any departing Executive Director for whom discretion has been exercised to accelerate the vesting of their retained profit
share upon termination, if it determines that the Executive Director has at any time committed a Malus Event (as described above)
or:
a) taken staff to a competitor or been instrumental in causing staff to go to a competitor, or
b) joined a competitor.
Each of the above is a Post Employment Event.
Other than in the case of death or serious incapacitation, the release will occur over the period from six months to two years after
the Executive Director leaves, in accordance with the following table:
First period Second period Third period
Time post departure Six months Six months – one year One year – two years
Unvested retained
profit share released
From all but the last two
years of employment
From the second year prior
to the end of employment
From the year prior to the end
of employment
Subject to No Malus Event or Post
Employment Event
No Malus Event or Post
Employment Event during
First Period
and no Malus Event or Post
Employment Event (a) in
Second Period
No Malus Event or Post Employment
Event during First Period and No
Malus Event or Post Employment
Event (a) during Second Period
and No Malus Event in Third Period
Where an Executive Director has a tax liability on termination of employment in respect of any unvested retained profit share, the
Board or its delegate has discretion to release unvested retained profit share up to an amount equal to the Executive Director's tax
liability, at an earlier time than noted above.
85
Performance Share Units (PSUs)
Executive Committee members are the only group of staff eligible to receive PSUs. Since their introduction, PSUs have been
structured as DSUs
(1)
with performance hurdles. Holders have no right to dividend equivalent payments. In all other respects,
holders of these PSUs have the same rights as holders of DSUs. There is no exercise price for PSUs. The following table
summarises the key terms of PSUs and the performance hurdles:
(1)
A DSU is a Deferred Share Unit and is one of the award types under the MEREP. For further details, refer to Note 33 to the financial
statements in the Financial Report.
(2)
The allocation of PSUs to the CEO, who is an Executive Voting Director, is subject to shareholder approval.
Determination
– The Board approves the value of PSUs to be allocated to Executive
Committee members each year.
Allocation
– The allocation to individuals
(2)
is based on:
– role scope and complexity
– financial and non-financial performance assessment against a range
of factors including financial results, risk management and
compliance, business leadership and people leadership
– upholding the Code.
Vesting
– Since 2012, PSUs will vest in two equal tranches after years three and four
from the deemed vesting commencement date (typically 1 July in the year
of grant), and are exercisable on the achievement of performance hurdles
(refer pages 86 to 87)
– Grants made prior to 2012 vest in three equal tranches after two, three and
four years.
To ensure continued alignment with shareholders post termination, in cases of
genuine retirement, PSUs continue to vest in accordance with the above vesting
schedule and remain subject to the same performance hurdles. The Board or its
delegate has the authority to accelerate the vesting of, or to forfeit PSUs, when an
Executive Committee member leaves Macquarie. To date, this discretion has not
been exercised.
Upon leaving
Macquarie
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
86
Performance hurdles for PSUs
The PSU hurdles are periodically reviewed by the BRC to ensure they continue to align the interests of staff and shareholders and
provide a challenging but meaningful incentive to Executive Committee members. The BRC considers historical and forecast market
data, the views of corporate governance bodies, shareholders and regulators as well as peer market practice. No change has been
made to the hurdles for FY2015.
PSUs issued under the MEREP become exercisable upon the achievement of two performance hurdles, each applying individually
to 50 per cent of the total number of each tranche of PSUs awarded. The following table provides a summary of the hurdles:
EPS CAGR Hurdle ROE Hurdle
Application to
PSU awards
50 per cent 50 per cent
Performance
measure
Compound annual growth rate (CAGR) in EPS
over the vesting period (three to four years).
Relative average annual return on ordinary equity over
the vesting period (three to four years) compared with a
reference group of global peers
(1)
.
Hurdle Sliding scale applies:
– 50 per cent becoming exercisable at EPS
CAGR of 7.5 per cent
– 100 per cent at EPS CAGR of 12 per cent.
For example, if EPS CAGR was 9.75 per cent,
75 per cent of the relevant awards would
become exercisable.
For awards made prior to 2013, the EPS
CAGR hurdle range was 9 per cent to 13 per
cent.
Sliding scale applies:
– 50 per cent becoming exercisable above the 50
th
percentile
– 100 per cent at the 75
th
percentile.
For example, if ROE achievement was at the 60
th
percentile, 70 per cent of the relevant awards would
become exercisable.
Rationale for
hurdles
– ROE and EPS are considered appropriate measures of performance as they drive longer-term
company performance and are broadly similar to the performance measures Macquarie uses for
determining the annual profit share pool
– ROE and EPS are appropriate for the Executive Committee because they can affect outcomes on both
measures. In contrast, Total Shareholder Return (TSR) is influenced by many external factors, including
market sentiment, over which executives have limited control
– ROE and EPS can be substantiated using information that is disclosed in audited financial statements
– the use of a sliding scale diversifies the risk of not achieving the hurdles, provides rewards
proportionate to performance for shareholders and is preferable to an all-or-nothing test which some
have argued could promote excessive risk taking
– the approach is consistent with that advocated by APRA in not using TSR as a measure
– being three and four year average measures from 2012 and aligned with the vesting period,
Macquarie’s performance hurdles reward sustained strong performance and are relatively well-
insulated from short term fluctuations. The time frame used for PSUs should also be considered in
light of the three to seven year deferral of profit share for members of the Executive Committee.
Use of an international peer group recognises the extent of Macquarie’s internationalisation. At 31 March
2015 approximately 70 per cent of Macquarie's income and approximately 54 per cent of Macquarie's
staff were offshore.
(1)
The reference group comprises Macquarie’s major international investment banking peers with whom Macquarie competes and
frequently compares its performance. The reference group for awards made from 2013 is Barclays PLC, Bank of America Corporation,
Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., JP Morgan Chase, Lazard Ltd, Morgan Stanley and UBS AG.
The reference group for awards made prior to 2013 comprised Bank of America Corporation, Citigroup Inc, Credit Suisse Group AG,
Deutsche Bank AG, Goldman Sachs Group AG, JP Morgan Chase, Morgan Stanley and UBS AG as well as significant Australian
commercial banks within the ASX 100 (ANZ Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, Westpac
Banking Corporation and Suncorp Metway Limited).
87
Testing of hurdles
Under both performance hurdles, the objective is examined once only. Testing occurs at the calendar quarter end immediately
before vesting, based on the most recent financial year end results available. If the condition is not met when examined, the PSUs
due to vest will not be exercisable upon vesting.
The PSUs which vested in July 2014 comprised the third tranche of those granted in 2010 and the second tranche of those granted
in 2011. Both tranches did not become fully exercisable due to the performance hurdles not being fully met. As a result:
PSU Tranche
EPS CAGR Hurdle ROE Hurdle
Macquarie result
(for vesting
period)
Hurdle Outcome
Macquarie result
(for vesting
period)
Hurdle Outcome
2010 Tranche 3 4.6% At 9%
0%
exercisable
7.9%
> 50
th
percentile rank
56%
exercisable
2011 Tranche 2 10.7% At 9%
72%
exercisable
7.8%
> 50
th
percentile rank
56%
exercisable
PSUs that did not meet performance hurdles expired.
Other features of Macquarie's remuneration structure
Promotion awards
Staff who are promoted to Associate Director, Division Director or Executive Director receive an allocation of MEREP awards based
on seniority set with reference to an $A value.
Minimum Shareholding requirement
Executive Directors are required to hold a minimum amount of Macquarie shares which is satisfied by the requirements of the profit
share retention policy.
Hedging
Macquarie prohibits staff from hedging shares held to meet the minimum shareholding requirement and unvested equity held in the
MEREP.
Employment contracts
The following table summarises key features of the employment contracts for Executive Committee members including the CEO:
Length of contract Permanent open-ended
Remuneration review period 1 April to 31 March annually
Profit share participation Executive Committee members are eligible to be considered for a profit share allocation
which ensures that a large part of their remuneration is ‘at risk’. Refer to pages 82 to 84 for
details.
PSU participation Executive Committee members are eligible to receive PSUs. Refer to pages 85 to 87 for
details.
Termination of employment Requires no more than four weeks notice
(1)
by Macquarie or the Executive Committee
member.
(1)
Subject to compliance with local regulatory and legal requirements. In Australia, Executive Directors given notice by Macquarie may
receive an additional week’s notice if they are over 45 years of age and have more than two years’ continuous service at the time of the
termination of their employment.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
88
Alignment of remuneration outcomes to results
This section demonstrates how remuneration outcomes are aligned to Macquarie’s results for the year.
Macquarie has delivered strong financial results in FY2015. While NPAT, EPS and ordinary dividends have significantly increased
compared with FY2014, total compensation does not reflect the same rate of growth, reflecting Macquarie's focus on cost
management. Shareholder returns have also been strong, both over the past year and over the longer-term.
The Board is of the view that the remuneration outcomes for senior executives are appropriately aligned to their businesses’
performance, Macquarie's performance and the interests of shareholders.
To demonstrate the link between pay and performance, a comparison of performance measures and executive remuneration
outcomes allows shareholders to see how the remuneration for Executive KMP is aligned with performance. The analysis below
shows that CEO remuneration has increased in line with the increase in NPAT and EPS. Remuneration outcomes for other
Executive KMP varied according to their individual performance and the performance of their business. Total remuneration for
Comparable KMP
(1)
, including the CEO, has not increased to the same extent as NPAT, ordinary dividends and EPS, which reflects
the way that performance takes a range of factors into consideration.
Comparison of performance measures and executive remuneration measures: FY2014 – FY2015
2015 2014
Increase/
(Decrease)%
Performance measures
NPAT $Am 1,604 1,265 27
Basic EPS Cents per share 502.3 383.6 31
Ordinary dividends Cents per share 330.0 260.0 27
Total dividends
Cents per share 330.0 376.0
(2)
(12)
Return on equity Per cent 14.0 11.1
Annual TSR
(3)
Per cent 38.9 66.0
Executive remuneration measures
Total Compensation Expense $Am 3,891 3,505 11
Compensation Expense to Income ratio Per cent 41.9 43.1
Average staff headcount 14,086 13,796 2
Actual staff headcount 14,085 13,913 1
Statutory Remuneration – CEO $Am 16.50 13.08 26
Statutory Remuneration – Comparable KMP $Am 90.82 76.05 19
(1)
Comparable KMP are Executive KMP who were members of the Executive Committee for the full year in both FY2015 and FY2014.
(2)
Includes the special dividend component of 116 cents per share in relation to the SYD distribution in January 2014.
(3)
TSR represents the accumulated share price return when all cash dividends are reinvested at the ex-dividend date.
89
Performance over past 10 years: FY2006–2015
Years ended 31 March FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY08 FY07 FY06
Income statement
NPAT attributable to ordinary
owners ($A million)
1,604 1,265 851 730 956 1,050 871 1,803 1,463 916
Basic EPS (cents per share)
502.3 383.6 251.2 210.1 282.5 320.2 309.6 670.6 591.6 400.3
ROE
Return on average ordinary
shareholders' funds (% p.a.)
14.0 11.1 7.8 6.8 8.8 10.1 9.9 23.7 28.1 26.0
Total shareholder returns
(TSR)
Dividend – Interim and Final
(cents per share)
330
260 200 140 186 186 185 345 315 215
Dividend – Special
(cents per share)
– 116
(1)
– – – – – – – –
Share price at 31 Mar ($A) 76.7 57.9 37.2 29.1 36.6 47.3 27.1 52.8 82.8 64.7
Annual TSR (%) 38.9 66.0 34.4 (16.0) (19.0) 79.6 (44.1) (33.6) 32.6 40.2
10 Year TSR (%) 162.2
(1)
The special dividend for the year ended 31 March 2014 represented the special dividend component of the SYD Distribution in January
2014. The total distribution including return on capital was 373 cents per share.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
90
Macquarie’s performance relative to peers
The analysis below demonstrates that Macquarie has performed well relative to peers on the following key indicators of
performance:
– NPAT compound annual growth rate (CAGR) over the short and longer-term (base currency and $US)
– ROE over the short and longer-term
– TSR since listing
– Compensation ratio over the past three years.
The same international investment banking peer group as last year has been used under each heading in the analysis below. The
BRC considers these firms to be appropriate peers on the basis that they broadly operate in the same markets and compete for the
same people as Macquarie. Nonetheless, comparisons are complicated for the following reasons:
– each peer has a different business mix. Some peers are or have become parts of larger organisations, often with large retail
operations which can distort comparisons
– where peer information is published, comparative information may not include a share of central overhead costs
– variations in accounting practices used by comparator organisations. For example, some companies report net revenue before
adjusting for impairments, whereas others (including Macquarie) report net revenue after adjusting for impairments
– peers located in different jurisdictions report in different currencies and comparisons do not always reflect the impact of
changes in foreign exchange rates
– remuneration delivered as deferred equity is amortised over the vesting period of the equity. Different deferral levels and
different vesting periods, therefore, result in different accounting results, even if the underlying quantum of remuneration is the
same.
Where appropriate, segment information has been used as disclosed throughout the Remuneration Report. This is particularly
relevant where the investment banking segment is part of a larger organisation. Peer information is presented in the same order
throughout the Remuneration Report.
Net profit after tax
One of the measures used to compare relative performance is NPAT. The NPAT CAGR is shown in both local currency and a
common currency ($US) to reduce the impact of significant changes in foreign exchange rates over the period when comparing the
performance of peers from different jurisdictions. Macquarie’s performance against peers is above all but one peer over a ten year
period in both base currency and $US and is in the upper range of peers over a one year period in base currency.
Peer relative growth in NPAT: FY2005-2015
(1)
1 year CAGR
Base Currency
%
10 year CAGR
Base Currency
%
1 year CAGR
$US
%
10 year CAGR
$US
%
Macquarie 27% 7% 18% 9%
Peer n.a. n.a. n.a. n.a.
Peer (19% ) (10% ) (19% ) (8% )
Peer 150% (4% ) 150% (3% )
Peer 5% 6% 5% 6%
Peer (35% ) 2% (35% ) 2%
Peer 21% 16% 21% 16%
Peer 167% 6% 167% 6%
Peer 19% (3% ) 19% (3% )
Peer 9% (8% ) 10% (5% )
Source: Peer underlying data from Annual Reports.
(1)
Peers comprise Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Jefferies, JP Morgan Chase,
Lazard Ltd, Morgan Stanley and UBS AG. ‘n.a.’ is noted where the peer recorded a loss 10 years ago, in the prior year or in the current
year.
91
NPAT 10 year CAGR
(1)
Macquarie versus international investment banking peers (%)
(1)
Peers comprise Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Jefferies, JP Morgan Chase,
Lazard Ltd, Morgan Stanley and UBS AG. ‘n.a.’ is noted where the peer recorded a loss 10 years ago, in the prior year or in the current
year.
Return on equity
Macquarie’s annual ROE continues to improve, up from 11.1 per cent in FY2014 to 14.0 per cent in FY2015, higher than all but one
peer. In addition, Macquarie’s 10 year average annual ROE is higher than all but one of its peers.
Peer ROE over 10 years: FY2006–2015
(1)
Macquarie versus international investment banking peers
1 year average
%
3 year average
%
5 year average
%
10 year average
%
Macquarie 14.0 11.0 9.7 14.6
Average of Peers 12.1 7.9 8.7 8.4
Peer 1.7 2.5 1.2 5.2
Peer (0.3 ) (0.2 ) 2.4 11.5
Peer 4.8 4.7 6.6 9.0
Peer 2.7 1.4 3.6 7.2
Peer 11.2 10.9 9.6 16.0
Peer 9.8 9.6 9.8 9.2
Peer 67.4 36.2 33.8 n.a.
Peer 4.9 3.1 4.3 7.4
Peer 7.0 2.9 6.8 1.5
Source: Peer underlying data from Bloomberg and Annual Reports.
(1)
Peers comprise Bank of America Corporation, Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc.,
JP Morgan Chase, Lazard Ltd, Morgan Stanley and UBS AG.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
92
Macquarie's ROE has also exhibited less volatility over a ten year period.
10 year chart of annual ROE
Macquarie versus international investment banking peers
(1)
(%)
Source: Peer underlying data from Bloomberg and Annual Reports.
(1)
Peers comprise Bank of America Corporation, Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc.,
JP Morgan Chase, Lazard Ltd, Morgan Stanley and UBS AG.
Total shareholder return
Macquarie’s shareholder return over the long term has been strong and significantly higher than international investment banking
peers. In addition, TSR since listing is currently ranked the highest of all companies that were in the ASX Top 50 at the time that
Macquarie Bank Limited (MBL) listed in July 1996.
TSR since listing (July 1996)
Macquarie Group Limited, international investment banking peers, other top performing ASX 50 companies (%)
Source: Bloomberg
(1)
Peers comprise Bank of America Corporation, Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, JP Morgan Chase, Morgan
Stanley and UBS AG. Peers which have been included in comparative analysis elsewhere in this Remuneration Report but which have
not been continuously listed since Macquarie Bank Limited’s date of listing (29 July 1996), or are no longer listed, have been excluded
from this chart, i.e. Goldman Sachs, Jefferies and Lazard.
93
Similarly, Macquarie’s shareholder returns continue to outperform the All Ordinaries Accumulation Index (All Ords) since listing.
Macquarie TSR versus the All Ords
(1)
29 July 1996 to 31 March 2015
Source: Bloomberg.
(1)
Indexed to 100 on 29 July 1996. The All Ords line in the above chart is based on the S&P/ASX 500 Accumulation Index from 31 March
2000. Prior to this, it was based on the All Ords. Macquarie TSR calculations, here and throughout this Remuneration Report, assume
continuous listing. Hence, they are based on Macquarie Bank Limited (ASX code: MBL) data up to and including 2 November 2007, the
last day of trading of Macquarie Bank Limited shares, and Macquarie Group Limited (ASX code: MQG) data from the commencement of
trading of Macquarie Group Limited shares on 5 November 2007 onwards.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
94
Compensation expense to income ratio
One guideline used to evaluate overall remuneration levels is the organisation’s compensation expense to income ratio
(compensation ratio). The compensation ratio is widely used within the investment banking industry as a broad measure of
comparative remuneration levels. It is not, however, the basis on which Macquarie’s profit share pool is determined.
Macquarie’s compensation ratio is compared with that of a group of peers in the following chart. While the compensation ratio
effectively adjusts for differences in size between organisations, it is not an entirely satisfactory measure to use in assessing
compensation levels because it does not take into account factors such as those set out at the beginning of this section.
Notwithstanding these factors, Macquarie’s FY2015 ratio of 41.9 per cent is in the lower half of peers.
Compensation ratio: FY2013–2015
(1)
(%)
Source: Data has been calculated by Macquarie. The information is based on publicly available information for the peer firms.
(1)
Peers comprise Barclays PLC (Investment Banking segment), Credit Suisse Group AG (Investment Banking segment), Deutsche Bank
AG, Goldman Sachs Group Inc., Jefferies Group Inc., JP Morgan Chase (Corporate and Investment Banking segment), Lazard Ltd,
Morgan Stanley and UBS AG (Investment Banking segment). In order to show more comparable compensation ratios, impairments have
been consistently netted against net revenue in the revised calculations for some peers.
95
Staff retention
One of the primary goals of Macquarie's remuneration arrangements is to attract, motivate and retain high performing staff. The
Board’s view is that Macquarie continues to achieve this goal. While director-level voluntary turnover of 7.4 per cent is marginally
higher than the prior year, it remains below voluntary turnover across Macquarie overall.
Macquarie continues to have a highly experienced senior management team. The average tenure
(1)
of Macquarie’s Executive
Committee, including the three new appointees this year, is approximately 20 years.
Tenure of Executive Committee members
Number of years at Macquarie
This depth of experience continues outside of the Executive Committee. As at 31 March 2015, 35 per cent of Director-level staff
(2)
have ten years’ experience or more with Macquarie, and a further 34 per cent have between five and ten years’ experience with
Macquarie.
Directors’ tenure as at 31 March 2015
(1)
This includes accumulated service at acquired companies, for example Bankers Trust Investment Bank Australia and ING’s Asian
Equities business.
(2)
Directors include all Director-level staff, being Associate Directors, Division Directors and Executive Directors. As at 31 March 2015,
there were a total of 3,242 Director-level staff, of whom 330 were Executive Directors.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
96
Remuneration governance
Effective governance is central to Macquarie’s remuneration strategy and approach. The key elements of Macquarie’s remuneration
governance are described below.
Strong Board oversight
The Board has oversight of Macquarie’s remuneration
arrangements. The Board has a BRC whose objective is to
assist the Board and the Board of Macquarie Bank, a key
operating subsidiary, with Macquarie’s remuneration policies
and practices.
The BRC currently comprises five Independent NEDs:
– Peter Warne (Chairman)
– Gary Banks
– Gordon Cairns
– Diane Grady
– Kevin McCann.
The responsibilities of the Committee include reviewing the
Remuneration Policy for compliance with legal and regulatory
requirements and recommending it to the Board for approval.
The full responsibilities of the Committee are outlined in their
Charter, which is reviewed and approved annually by the
Board. A copy of the Charter is available on Macquarie’s
website at macquarie.com/leadership-corporate-governance
The BRC members have the required experience and expertise
in both human resources and risk to achieve effective
governance of Macquarie’s remuneration system. In addition,
all members of the BRC have extensive experience in
remuneration, either through their professional background or
as members of the remuneration committees of other boards.
The BRC has a regular meeting cycle and met nine times over
the last financial year. Attendance at the meetings is set out in
the Directors’ Report. Strict processes are in place to ensure
that conflicts of interest are appropriately managed. The Board
pays close attention to the design and the operation of
remuneration practices for all of Macquarie, not just for the
most senior executives.
The remuneration governance framework requires that
remuneration recommendations relating to staff at various
levels of seniority be approved at an appropriate level of
authority. As part of this, the BRC recommends the
remuneration outcomes to the Board for approval for the:
– CEOs of both Macquarie and Macquarie Bank
– Executive Committee members
– Designated Executive Directors
– Senior risk and financial control personnel
– Staff covered under specific regulatory requirements.
As part of its process, towards the end of each financial year,
the NEDs meet with the CEO to consider formal
documentation that outlines his views on the Group's
performance. The Group CEO’s presentation includes a wide
range of the Group’s activities covering the following main
areas:
– financial position and performance
– risk management and compliance
– people and culture
– sustainability (planning and investment in the future)
– community.
The Board considers the CEO’s performance and progress
against all of these topics in determining the CEO’s
remuneration for the year. Over the course of the year the
Board receives regular reports and updates on many of these
topics. These are summarised in the CEO’s presentation,
together with additional information on any particular areas of
interest which the Board have identified for further discussion
as a part of the review process. A similar process is followed
for the CEO of Macquarie Bank.
The Board and the BRC also consider formal documentation
for each Executive Committee member which covers financial
performance, risk management and compliance, business
leadership and people leadership (including upholding the
Code).
This information helps the BRC and Board make decisions in
relation to remuneration.
In addition, as part of the remuneration process:
– the CFO confirms to the BRC that the forecast profit
share pool does not result in eliminating capital surpluses
– the BRC receives an independent report from the CRO on
material losses, impairments or breaches of the risk
management framework, return on economic capital by
business, the relationship between profitability and risk
and the contingent risks associated with large
transactions concluded during the current financial year
– the Global Head of HR discusses the link between losses
and proposed remuneration with the Group Heads and
reports to the BRC in regards to the link between risk
outcomes and individual remuneration. The BRC uses this
information when considering the profit share allocated to
businesses and to individuals.
97
Independent remuneration review
The BRC has access, as required, to Macquarie's senior
management and has retained an independent consultant, Pay
Governance, for the use of the Board to obtain advice on
the appropriateness of Macquarie’s remuneration system.
The only service that Pay Governance provides to Macquarie is
executive compensation consulting to the BRC. This year, Pay
Governance considered the overall approach to remuneration,
peer organisations’ overall approach to remuneration, the
extent of alignment with shareholder interests and a
comparison of individual remuneration for senior executives
where relevant peer information was available. In addition, the
BRC independently analysed global remuneration trends and
data. The cost of the Pay Governance Review was
approximately $US135,000.
Pay Governance has confirmed that its analyses and
observations have been made free from undue influence by
Macquarie’s Executive KMP. The Board is satisfied that the
remuneration review conducted by Pay Governance was made
free from undue influence by the Executive KMP for the
following reasons:
– the agreement for services was authorised by the
Chairman of the BRC under delegated authority on
behalf of Macquarie
– the Pay Governance Review was provided by Pay
Governance directly to the BRC
– Pay Governance held meetings with the BRC Chairman
– in relation to the Pay Governance Review, no Executive
KMP had separate, direct contact with Pay Governance.
Pay Governance’s findings included that:
– the objectives of Macquarie’s remuneration system are
similar to those cited by other leading global investment
banks, including the need to drive company performance
over the short and longer-term, align the interests of staff
and shareholders, the importance of attracting and
retaining the right talent, and structuring and delivering
remuneration to not encourage excessive risks
– Macquarie’s remuneration components support its
remuneration objectives and principles and are very much
in line with practices at peer global investment banks.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
98
Non-Executive Director remuneration
Macquarie’s remuneration approach ensures that the NEDs are appropriately remunerated. Reflecting the Board's role, the
remuneration arrangements applicable to NEDs, as outlined in this section, differ from the arrangements applicable to Executives.
Non-Executive Director remuneration policy
The overall objective of Macquarie’s NED remuneration policy is to ensure that NEDs are remunerated appropriately. It is achieved
by:
– setting Board and Committee fees taking into account market rates for relevant Australian financial organisations for the time
commitment and responsibilities involved
– delivering these fees in a form that is not contingent on Macquarie’s performance.
Unlike Macquarie executives, NEDs are not granted equity, nor are they eligible to receive profit share payments. There are no, nor
have there ever been, termination payments to NEDs on their retirement from office other than payments relating to their accrued
superannuation contributions comprising part of their remuneration.
The CEO is not remunerated separately for acting as an Executive Voting Director.
Directors are required to disclose to Macquarie, at least annually, their financing arrangements relating to their Macquarie securities.
All NEDs of Macquarie Group Limited (Macquarie) are also NEDs of Macquarie Bank Limited (Macquarie Bank). This policy governs
the remuneration of NEDs of both Macquarie and Macquarie Bank.
Board and Committee fees
NEDs are remunerated via Board and Committee fees which are reviewed annually. Per diem fees may also be paid from time to
time for approved additional work. Macquarie’s approach to NED remuneration is to set Board and Board Committee fees reflecting
the time commitment and responsibilities involved, taking into account market rates for relevant Australian financial organisations
and consistent with market trends. During FY2015, the Board determined that Board member base fees be increased for both
Macquarie and Macquarie Bank to $A175,000 (from $A165,000) and $A70,000 (from $A65,000) respectively and that Committee
fees should remain unchanged. Board member base fees were last increased in 2010.
Macquarie and Macquarie Bank Fees
Macquarie fees Macquarie Bank fees Total fees
$A
Chairman
$A
Member
$A
Chairman
$A
Member
$A
Chairman
(1)
$A
Member
Board 585,000 175,000 240,000 70,000 825,000 245,000
Board Risk Committee (BRiC)
(2)
70,000 30,000 n.a. n.a. 70,000 30,000
Board Audit Committee (BAC)
(2)
70,000 30,000 n.a. n.a. 70,000 30,000
Board Remuneration Committee (BRC)
(2)
70,000 30,000 n.a. n.a. 70,000 30,000
Board Governance and Compliance Committee
(BGCC)
(2)
57,500 25,000 n.a. n.a. 57,500 25,000
Board Nominating Committee (BNC)
(2)
n.a. 8,000 n.a. n.a. n.a. 8,000
(1)
The Chairman is a member of the BRiC, BRC and is Chairman of the BNC. He also normally attends BAC and BGCC meetings by
invitation. The Chairman is not paid separate Committee fees.
(2)
Macquarie has five standing Board committees. The Macquarie BAC is a joint committee of Macquarie and Macquarie Bank, and the
BRiC became a joint committee of Macquarie and Macquarie Bank effective from 1 January 2015. The BRC also advises both Boards.
NEDs may elect to receive their remuneration, in part, in the form of superannuation contributions.
Information on the frequency of Board and Committee meetings is included on pages 68 and 69 of the Directors’ Report.
Macquarie’s NEDs are remunerated for their services from the maximum aggregate amount approved by shareholders for this
purpose. The current limit ($A4 million per annum) was approved by Macquarie Group shareholders at Macquarie Group’s 2010
AGM. The Board ensures that NED remuneration for Macquarie Group Limited and Macquarie Bank Limited taken together does
not exceed this shareholder approved maximum aggregate amount.
99
Minimum shareholding requirement for
Non-Executive Directors
To align the interests of the Board with shareholders, the
Board has a minimum shareholding requirement for NEDs.
NEDs are required to have a meaningful direct shareholding in
Macquarie.
Under the minimum shareholding requirement, NEDs are
required to acquire progressively a minimum of 6,000 shares in
Macquarie over a period of five years from the date of their
appointment. During the year, the Board introduced a
minimum shareholding requirement for the Chairman of 12,000
Macquarie shares to be achieved within three years of
becoming Chairman.
Under Macquarie’s Trading Policy, NEDs are prohibited from
hedging shares held to meet this minimum Macquarie
shareholding requirement. Each NED’s current holding of
Macquarie ordinary shares is included on page 67 of the
Directors’ Report.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
100
Appendices: Key Management Personnel (KMP) disclosures
Appendix 1: KMP
KMP include Executive Voting Directors and Executives with authority and responsibility for planning, directing and controlling the
activities of Macquarie and its controlled entities (together making Executive KMP) and NEDs. Macquarie’s NEDs are required by the
Act to be included as KMP for the purposes of the disclosures in the Remuneration Report. However, the NEDs do not consider
themselves part of ‘management’. The table reflects KMP movements during FY2015 and FY2014. The key changes included:
Non-Executive Directors
– G.M Cairns was appointed to the Board effective from 1 November 2014
– P.M Kirby retired from the Board on 24 July 2014
– H.M. Nugent AO retired from the Board on 24 July 2014
– N.M. Wakefield Evans was appointed to the Board effective from 7 February 2014
– J.R. Niland AC retired from the Board on 31 December 2013
– P.A. Cross was appointed to the Board effective from 7 August 2013
– G.R. Banks AO was appointed to the Board effective from 1 August 2013
– C.B. Livingstone AO retired from the Board on 25 July 2013.
Executives
– B.A. Brazil was appointed to the Executive Committee effective from 1 July 2014
– M.J. Reemst was appointed to the Executive Committee effective from 1 July 2014
– P.C. Upfold was appointed to the Executive Committee effective from 1 July 2014
– P.J. Maher ceased to be a member of the Executive Committee on 3 May 2013.
Name Position
Term as
KMP 2015
Term as
KMP 2014
Executive Voting Director
N.W. Moore
(1)
CEO Full year Full year
Non-Executive Directors
G.R. Banks AO Independent Director Full year Part year
G.M. Cairns Independent Director Part year –
M.J. Coleman Independent Director Full year Full year
P.A. Cross Independent Director Full year Part year
D.J. Grady AM Independent Director Full year Full year
M.J. Hawker AM Independent Director Full year Full year
P.M. Kirby Former Independent Director Part year Full year
C.B. Livingstone AO Former Independent Director – Part year
H.K. McCann AM Independent Chairman Full year Full year
J.R. Niland AC Former Independent Director – Part year
H.M. Nugent AO Former Independent Director Part year Full year
N.M. Wakefield Evans Independent Director Full year Part Year
P.H. Warne Independent Director Full year Full year
(1)
Members of Macquarie’s Executive Committee as at 8 May 2015.
101
Name Position
Term as
KMP 2015
Term as
KMP 2014
Executives
S.D. Allen
(1)
CRO, Head of RMG Full year Full year
T.C. Bishop
(1)
Head of Macquarie Capital Full year Full year
B.A. Brazil
(1)
Co-Head of CAF Part Year –
A.J. Downe
(1)
Head of CFM Full year Full year
G.A. Farrell
(1)
Co-Head of CAF Full year Full year
P.J. Maher Former Head of BFS – Part year
M. McLaughlin
(1)
Country Head, United States of America Full year Full year
M.J. Reemst
(1)
Macquarie Bank CEO Part year –
N. Sorbara
(1)
COO, Head of COG Full year Full year
P.C. Upfold
(1)
CFO, Head of FMG Part year –
S. Vrcelj
(1)
Head of MSG Full year Full year
G.C. Ward
(1)
Deputy Managing Director and Head of BFS Full year Full year
S. Wikramanayake
(1)
Head of MAM Full year Full year
(1)
Members of Macquarie’s Executive Committee as at 8 May 2015.
Except where otherwise noted, the remuneration and other related party disclosures included in the Remuneration Report have
been prepared in accordance with the requirements of the Act and in compliance with AASB 124 Related Party Disclosures. For the
purpose of these disclosures, all the individuals listed above have been determined to be KMP, as defined by AASB 124 Related
Party Disclosures.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
102
Appendix 2: Statutory remuneration disclosures
Executive remuneration
The remuneration arrangements for all of the persons listed as
Executive Voting Directors or Executives are described on
pages 80 to 87.
In accordance with the requirements of AASB 124 Related
Party Disclosures, the remuneration disclosures for the years
ended 31 March 2015 and 31 March 2014, only include
remuneration relating to the portion of the relevant periods that
each individual was an Executive KMP. Hence, comparable
executive remuneration is confined to those who were
Executive KMP for the full year in both FY2015 and FY2014.
While RSUs and DSUs, and PSUs (for Executive Committee
members), in respect of FY2015 will be granted during
FY2016, Macquarie begins recognising an expense for these
awards (based on an initial estimate) from 1 April 2014. The
expense is estimated using Macquarie’s share price as at 31
March 2015 and the number of equity instruments expected to
vest. For PSUs, the estimate also incorporates an interest rate
to maturity of 2.61 per cent; expected vest dates of PSU: 1
July 2018 and 1 July 2019; and a dividend yield of 4.76 per
cent per annum. In the following financial year, Macquarie will
adjust the accumulated expense recognised for the final
determination of fair value for each RSU, DSU and PSU when
granted, and will use this valuation for recognising the expense
over the remaining vesting period.
As explained on page 82, profit share amounts retained under
the Post-2009 DPS Plan are notionally invested for Executive
Directors, providing them with an economic exposure to the
underlying investments, typically Macquarie-managed
funds. This ensures that they are exposed to both the upside
and downside of the underlying securities.
Executive Directors are each entitled to amounts equivalent to
the investment earnings (dividends/distributions and security
price appreciation) on the underlying securities. Where these
amounts are positive, they may be paid to Executive Directors
and are included in the relevant remuneration disclosures
below as part of Long Term Employee Benefits (refer to the
‘Earnings on prior year restricted profit share’ column in the
table on pages 104 and 105). When these amounts are
negative, they are deducted from Long Term Employee
Benefits remuneration in the same column.
These earnings on retained DPS amounts reflect the
investment performance of the assets in which prior year
retained amounts have been notionally invested. Their inclusion
in the individual remuneration disclosures on the following
pages may therefore cause distortions when year-on-year
remuneration trends are examined. They do not reflect
remuneration review decisions made in relation to the
individual’s current year performance.
103
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Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
104
Executive Key Management Personnel Remuneration disclosure (in accordance with Australian Accounting Standards)
Short Term Employee Benefits
Salary (including
superannuation)
Performance
related
remuneration
(1)
Total short term
employee benefits
$A $A $A
Executive Voting Director
N.W. Moore
(6)
Managing Director and CEO
2015 818,948 4,774,084 5,593,032
2014 818,731 2,995,900 3,814,631
Other Executives
S.D. Allen CRO, Head of RMG
2015 770,775 2,415,459 3,186,234
2014 770,571 1,690,987 2,461,558
T.C. Bishop Head of MacCap
2015 722,602 2,330,207 3,052,809
2014 722,410 1,350,454 2,072,864
A.J. Downe
(7)
Head of CFM
2015 864,894 5,158,731 6,023,625
2014 831,520 4,047,673 4,879,193
G.A. Farrell Co-Head of CAF
2015 722,602 4,025,765 4,748,367
2014 722,410 2,569,494 3,291,904
M. McLaughlin
(7)
Country Head, United States of
America
2015 685,468 1,300,000 1,985,468
2014 644,045 1,913,885 2,557,930
N. Sorbara COO, Head of COG
2015 698,837 1,657,668 2,356,505
2014 698,651 1,129,705 1,828,356
S. Vrcelj Head of MSG
2015 722,602 757,791 1,480,393
2014 722,410 683,624 1,406,034
G.C. Ward Deputy Managing Director and Head
of BFS
2015 770,775 2,368,097 3,138,872
2014 770,571 1,801,623 2,572,194
S. Wikramanayake Head of MAM
2015 722,602 6,867,481 7,590,083
2014 722,410 4,777,592 5,500,002
Total Remuneration – Comparable Executive KMP
2015 7,500,105 31,655,283 39,155,388
2014 7,423,729 22,960,937 30,384,666
New Executives
B. Brazil
(8)
Co-Head of CAF
2015 547,052 5,722,938 6,269,990
2014 – – –
M. Reemst
(8)
Macquarie Bank Limited Managing
Director and CEO
2015 437,642 1,003,884 1,441,526
2014 – – –
P. Upfold
(8)
CFO, Head of FMG
2015 583,522 1,792,649 2,376,171
2014 – – –
Former Executives
P.J. Maher
(9)
Former Head of BFS
2015 – – –
2014 65,967 58,599 124,566
Total Remuneration – Executive KMP
(including new and former executives)
2015 9,068,321 40,174,754 49,243,075
2014 7,489,696 23,019,536 30,509,232
105
Executive Key Management Personnel Remuneration disclosure (in accordance with Australian Accounting Standards)
Long Term Employee Benefits Share Based Payments
Restricted
profit share
(2)
Earnings on
prior year
restricted
profit share
(3)
Total
long term
employee
benefits
Equity awards
including
shares
(4)
PSUs
(5)
Total share-
based
payments
Total
Remuneration
Percentage of
remuneration
that consists
of PSUs
$A $A $A $A $A $A $A %
1,113,953 1,293,714 2,407,667 5,834,545 2,659,826 8,494,371 16,495,070 16.12
1,398,087 1,358,788 2,756,875 4,733,125 1,775,801 6,508,926 13,080,432 13.58
241,546 368,151 609,697 1,500,786 1,185,702 2,686,488 6,482,419 18.29
338,197 388,834 727,031 1,478,068 843,770 2,321,838 5,510,427 15.31
349,531 659,255 1,008,786 2,101,850 1,331,880 3,433,730 7,495,325 17.77
202,568 1,310,573 1,513,141 2,183,282 1,042,387 3,225,669 6,811,674 15.30
515,873 2,360,993 2,876,866 3,598,335 1,894,330 5,492,665 14,393,156 13.16
404,767 2,667,755 3,072,522 3,186,866 1,187,740 4,374,606 12,326,321 9.64
402,576 517,494 920,070 2,447,770 1,853,795 4,301,565 9,970,002 18.59
256,949 560,092 817,041 1,954,739 1,672,512 3,627,251 7,736,196 21.62
130,000 204,421 334,421 1,872,444 406,290 2,278,734 4,598,623 8.84
956,943 172,969 1,129,912 2,042,615 344,311 2,386,926 6,074,768 5.67
165,767 85,568 251,335 708,258 1,049,350 1,757,608 4,365,448 24.04
225,941 40,654 266,595 493,978 695,132 1,189,110 3,284,061 21.17
113,669 78,507 192,176 865,547 1,133,485 1,999,032 3,671,601 30.87
102,544 98,341 200,885 867,314 799,441 1,666,755 3,273,674 24.42
236,810 372,864 609,674 1,712,133 1,593,651 3,305,784 7,054,330 22.59
360,325 379,934 740,259 1,516,382 1,054,302 2,570,684 5,883,137 17.92
3,433,741 1,478,785 4,912,526 1,886,653 1,902,080 3,788,733 16,291,342 11.68
2,388,797 1,163,498 3,552,295 1,389,298 1,627,001 3,016,299 12,068,596 13.48
6,703,466 7,419,752 14,123,218 22,528,321 15,010,389 37,538,710 90,817,316
6,635,118 8,141,438 14,776,556 19,845,667 11,042,397 30,888,064 76,049,286
572,294 344,278 916,572 3,108,931 380,011 3,488,942 10,675,504 3.56
– – – – – – – –
100,388 153,561 253,949 595,632 283,891 879,523 2,574,998 11.02
– – – – – – – –
179,265 79,903 259,168 861,986 283,891 1,145,877 3,781,216 7.51
– – – – – – – –
– – – – – – – –
5,860 14,534 20,394 87,401 8,732 96,133 241,093 3.62
7,555,413 7,997,494 15,552,907 27,094,870 15,958,182 43,053,052 107,849,034
6,640,978 8,155,972 14,796,950 19,933,068 11,051,129 30,984,197 76,290,379
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
106
Notes to the statutory remuneration disclosures
(1)
The cash portion of each individual’s profit share allocation for
the reporting period when they were an Executive KMP.
(2)
The amount of retained profit share which is deferred to future
periods and held as a notional investment in Macquarie
managed-fund equity (Post-2009 DPS Plan).
(3)
The earnings on restricted profit share as described on
page 82.
(4)
The current year expense for retained profit share which is
invested in Macquarie shares under the MEREP as described
on page 82. This is recognised as an expense over the
respective vesting periods as described on pages 83 and 102.
(5)
The current year expense for PSUs which is recognised over
the vesting period as described on pages 85 and 102.
Adjustments were made during the current and prior year to
reduce previously recognised remuneration expense where
performance hurdles have not been met, have been partially
met, or are not expected to be met.
Notes on individuals
(6)
Mr Moore’s FY2015 statutory remuneration includes $A6
million that relates to prior year equity awards that have been
previously disclosed and approved by shareholders. In future
years it is likely, subject to performance, there will also be an
amount that relates to equity awards in respect of years 2000-
2014 that have previously been disclosed and approved by
shareholders.
(7)
Mr Downe and Mr McLaughlin are paid in $SG and $US
respectively. They have not received a base remuneration
increase during the year. The base salary for FY2015 differs to
FY2014 due to exchange rate movements.
(8)
Mr Brazil, Ms Reemst and Mr Upfold were appointed to the
Executive Committee effective from 1 July 2014.
(9)
Mr Maher ceased to be a member of the Executive Committee
on 3 May 2013.
107
Non-Executive Director remuneration
The remuneration arrangements for all of the persons listed below as NEDs are described on pages 98 to 99 of the Remuneration
Report:
Directors Fees
$A
Other Benefits
(1)
$A
Total Compensation
$A
G.R. Banks
(2)
2015 307,917 – 307,917
2014 193,333 – 193,333
G.M. Cairns
(3)
2015 130,417 – 130,417
2014 – – –
M.J. Coleman
(4)
2015 372,917 14,400 387,317
2014 327,728 12,900 340,628
P.A. Cross
(5)
2015 365,417 – 365,417
2014 222,473 – 222,473
D.J. Grady
(6)
2015 332,917 – 332,917
2014 304,583 – 304,583
M.J. Hawker 2015 366,750 – 366,750
2014 328,587 – 328,587
P.M. Kirby
(7)
2015 101,223 – 101,223
2014 315,000 – 315,000
C.B. Livingstone
(8)
2015 – – –
2014 115,145 – 115,145
H.K. McCann 2015 825,000 – 825,000
2014 825,000 – 825,000
J.R. Niland
(9)
2015 – – –
2014 260,625 – 260,625
H.M. Nugent
(10)
2015 107,274 13,500 120,774
2014 338,000 38,500 376,500
N.M. Wakefield Evans
(11)
2015 327,917 – 327,917
2014 40,774 – 40,774
P.H. Warne
(12)
2015 336,669 – 336,669
2014 327,167 4,500 331,667
Total Remuneration – Non-Executive
KMP
2015 3,574,418 27,900 3,602,318
2014 3,598,415 55,900 3,654,315
(1)
Other benefits for NEDs include due diligence committee fees paid to Mr Coleman of $A14,400 (FY2014: $A12,900); BRC related per
diem fees for Dr Nugent of $A13,500 for approved additional work (FY2014: $A34,000) and per diem fees of $A4,500 paid to Dr Nugent
and Mr Warne in FY2014 for additional work related to the BNC.
(2)
Mr Banks joined the BNC and BRC, and ceased to be a member of the BAC, on 1 June 2014.
(3)
Mr Cairns was appointed to the Macquarie Group and Macquarie Bank Boards, the BNC, BRC and the BRiC effective from 1 November
2014.
(4)
Mr Coleman joined the BNC effective from 1 June 2014.
(5)
Mrs Cross joined the BNC effective from 1 June 2014, and ceased to be a member of the BRC on 1 November 2014.
(6)
Ms Grady joined the BNC effective from 1 June 2014.
(7)
Mr Kirby joined the BNC effective from 1 June 2014, and retired from the MGL and MBL Boards on 24 July 2014.
(8)
Ms Livingstone retired from the MGL and MBL Boards on 25 July 2013.
(9)
Dr Niland retired from the MGL and MBL Boards on 31 December 2013.
(10)
Dr Nugent retired from the MGL and MBL Boards on 24 July 2014.
(11)
Ms Wakefield Evans joined the BNC and BAC effective from 1 June 2014.
(12)
Mr Warne was appointed Chairman of the BRC effective from 25 July 2014.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
108
Appendix 3: Share disclosures
Shareholdings of Key Management Personnel and their related parties
The following tables set out details of fully paid ordinary shares of Macquarie held during the financial year by KMP including their
related parties.
For the financial year ended 31 March 2015
Name and position
Number
of shares
held at
1 April
2014
(1)
Shares
received
on withdrawal
from the
MEREP
Other
changes
(2)
Number
of shares
held at
31 March
2015
(3)
Executive Voting Director
N.W. Moore 1,455,517 156,297 – 1,611,814
Non-Executive Directors
H.K. McCann 12,728 – 1,136 13,864
G.R. Banks 1,416 – 1,500 2,916
G.M. Cairns
(4)
4,484 – 136 4,620
M.J. Coleman
(5)
6,343 – 2,080 8,423
P.A. Cross 3,936 – 3,700 7,636
D.J. Grady 3,878 – 2,731 6,609
M.J. Hawker 10,009 – 1,272 11,281
P.M. Kirby
(6)
23,913 – – 23,913
H.M. Nugent
(6)
19,987 – – 19,987
N.M. Wakefield Evans – – 2,636 2,636
P.H. Warne 14,933 – – 14,933
Executives
S.D. Allen 17,123 46,125 (40,000) 23,248
T.C. Bishop 15,492 61,804 (61,804) 15,492
B.A. Brazil
(7)
8,954 15,437 – 24,391
A.J. Downe 28,594 70,814 (70,814) 28,594
G.A. Farrell – 45,706 (45,706) –
M. McLaughlin – 48,861 (48,861) –
M.J. Reemst
(7)
10,902 10,060 (10,060) 10,902
N. Sorbara 9,384 6,445 (6,445) 9,384
P.C. Upfold
(7)
19,456 18,285 969 38,710
S. Vrcelj – 40,757 (40,757) –
G.C. Ward – 47,755 (47,755) –
S. Wikramanayake 355,442 39,177 – 394,619
(1)
Or date of appointment if later.
(2)
Includes on-market acquisitions and disposals.
(3)
Or date of resignation/retirement if earlier.
(4)
Mr Cairns was appointed to the Board effective from 1 November 2014. The opening balance on 1 April 2014 represents his holdings at
the date of appointment.
(5) A related party of Mr Coleman holds RSU awards, some of which vested during the year. Mr Coleman does not influence any
investment decisions over, nor does he benefit from, this holding.
(6) Mr Kirby and Dr Nugent retired from the Board on 24 July 2014. The closing balance at 31 March 2015 represents their holdings at the
date of retirement from the Board.
(7)
Mr Brazil, Ms Reemst and Mr Upfold were appointed to the Executive Committee effective from 1 July 2014. The opening balance at 1
April 2014 represents their holdings at the date of appointment.
109
RSU Awards to KMP
The following tables set out details of the RSU awards associated with Macquarie shares granted to Executive KMP. Grants made
to Executive KMP prior to their joining the Executive Committee are not disclosed. PSUs are disclosed in a separate table.
A significant portion of an Executive KMP’s retained profit share is invested in Macquarie equity, delivered as RSUs. There have
been no alterations to the terms or conditions of the above grants since the grant date. RSU awards are subject to forfeiture as set
out on page 83. The value of the grants at vesting could vary significantly as they are dependent on the Macquarie share price at
the time of vesting. Retention rates, the vesting profile and service and performance criteria for the current year are set out on pages
82 and 83. RSUs are granted in the financial year following the year of the Company’s performance to which the grant relates. For
example, RSUs granted in August 2014 relate to the CEO’s performance in FY2014. No awards were forfeited during the year.
Name and position
RSU awards granted
to date
(1) (2)
Grant date
Number vested during
the year
(3)(4)
Executive Voting Directors
N.W. Moore 117,102 15-Aug-14 –
92,048 15-Aug-13 –
133,805 15-Aug-12 –
144,026 15-Aug-11 28,805
100,625 13-Aug-10 19,888
454,682 3-Mar-10 65,938
Executives
S.D. Allen
(5)
29,934 25-Jun-14 –
27,120 25-Jun-13 –
41,150 7-Jun-12 –
37,902 20-Jun-11 9,329
13,385 15-Feb-11 13,385
25,867 30-Jun-10 4,288
109,713 3-Mar-10 4,604
T.C. Bishop
(6)
37,947 25-Jun-14 –
45,305 25-Jun-13 –
31,361 7-Jun-12 –
58,864 20-Jun-11 30,460
5,509 15-Apr-11 1,088
A.J. Downe 75,152 25-Jun-14 –
58,182 25-Jun-13 –
95,575 7-Jun-12 –
82,233 20-Jun-11 16,446
93,557 30-Jun-10 18,491
78,150 3-Mar-10 15,266
G.A. Farrell 48,496 25-Jun-14 –
46,229 25-Jun-13 –
88,108 7-Jun-12 –
57,259 20-Jun-11 11,451
M. McLaughlin 25,321 25-Jun-14 –
28,490 25-Jun-13 –
14,908 7-Jun-12 –
N. Sorbara 17,105 25-Jun-14 –
12,327 25-Jun-13 –
S. Vrcelj 18,792 25-Jun-14 –
52,872 20-Jun-11 10,574
Continued on the following page.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
110
Name and position
RSU awards granted
to date
(1) (2)
Grant date
Number vested during
the year
(3)(4)
G.C. Ward 31,696 25-Jun-14 –
31,229 25-Jun-13 –
46,460 7-Jun-12 –
43,316 20-Jun-11 8,663
36,591 30-Jun-10 7,231
90,110 3-Mar-10 14,435
S. Wikramanayake
(7)
47,019 25-Jun-14 –
35,957 25-Jun-13 –
58,075 7-Jun-12 –
35,245 20-Jun-11 15,263
13,605 30-Jun-10 –
66,611 3-Mar-10 4,169
(1)
Or during the period that the Executive was a KMP.
(2)
On 23 December 2013, Macquarie consolidated its shares through the conversion of one ordinary share into 0.9438 ordinary shares,
including for shares held in the MEREP. The above table shows the number of RSUs granted prior to that date adjusted for the impact
of the consolidation.
(3)
RSUs vesting during the current financial year in respect of grants made prior to Executives becoming a KMP are not disclosed.
(4)
The number of RSUs that vested during the year includes the impact of the transitional remuneration arrangements that were put in
place in 2009 when shareholders approved the establishment of the MEREP.
(5)
As at 31 March 2015, due to a change in employment jurisdiction, 60,094 awards are held outside the MEREP and Mr Allen does not
have a legal or beneficial interest in the underlying shares. However, these awards have the same economic benefits as an RSU award
held in the MEREP.
(6)
As at 31 March 2015, due to a change in employment jurisdiction, 54,129 awards are held outside the MEREP and Mr Bishop does not
have a legal or beneficial interest in the underlying shares. However, these awards have the same economic benefits as an RSU award
held in the MEREP.
(7)
As at 31 March 2015, due to a change in employment jurisdiction, 36,433 awards are held outside the MEREP and Ms Wikramanayake
does not have a legal or beneficial interest in the underlying shares. However, these awards have the same economic benefits as an
RSU award held in the MEREP.
111
PSU Awards to KMP
The following tables set out details of PSU awards granted to Executive KMP. PSUs are granted in the financial year following the
year of the Company’s performance to which the grant relates. For example, PSUs granted in August 2014 relate to the Executive
KMP’s performance in FY2014.
Granted to date
Forfeited/Lapsed during the
financial year
(2)(3)
Exercised during the
financial year
(3)
Name and position Number
(1)
Date Value $A
(1)
Number % Value $A
(4)
Number
exercised Value $A
(5)
Executive Voting Director
N.W. Moore
84,920 15-Aug-14 4,067,668 – – – – –
78,017 15-Aug-13 3,223,662 – – – – –
113,886 15-Aug-12 2,495,242 – – – – –
153,988 15-Aug-11 3,216,809 18,197 11% 1,085,087 32,133 1,824,512
106,198 13-Aug-10 3,677,637 24,515 23% 1,461,829 9,533 538,900
Executives
S.D. Allen
36,191 15-Aug 14 1,733,549 – – – – –
33,157 15-Aug-13 1,370,047 – – – – –
49,411 15-Aug-12 1,082,595 – – – – –
56,956 15-Aug-11 1,189,811 6,731 11% 401,370 11,885 696,699
29,346 13-Aug-10 1,016,252 6,776 23% 404,053 2,634 154,405
T.C. Bishop
43,315 15-Aug-14 2,074,789 – – – – –
39,895 15-Aug-13 1,648,462 – – – – –
25,308 15-Aug-12 554,499 – – – – –
68,645 15-Aug-11 1,433,994 8,112 11% 483,719 14,324 838,351
A.J. Downe
57,848 15-Aug-14 2,770,919 – – – – –
53,193 15-Aug-13 2,197,935 – – – – –
101,232 15-Aug-12 2,217,993 – – – – –
109,461 15-Aug-11 2,286,614 12,936 11% 771,374 11,841 676,202
97,702 13-Aug-10 3,383,420 22,554 23% 1,344,895 8,770 498,654
G.A. Farrell
57,848 15-Aug-14 2,770,919 – – – – –
53,194 15-Aug-13 2,197,976 – – – – –
92,796 15-Aug-12 2,033,160 – – – – –
75,652 15-Aug-11 1,580,370 8,989 11% 536,014 22,834 1,345,609
M. McLaughlin
13,393 15-Aug-14 641,525 – – – – –
12,412 15-Aug-13 512,864 – – – – –
15,064 15-Aug-12 330,053 – – – – –
N. Sorbara
36,191 15-Aug-14 1,733,549 – – – – –
33,158 15-Aug-13 1,370,088 – – – – –
S. Vrcelj
(6)
38,470 15-Aug-14 1,842,713 – – – – –
35,463 15-Aug-13 1,383,005 – – – – –
50,216 15-Aug-11 1,049,012 5,935 11% 353,904 10,478 609,847
G.C. Ward
49,584 15-Aug-14 2,375,074 – – – – –
45,569 15-Aug-13 1,882,911 – – – – –
55,436 15-Aug-12 1,214,603 – – – – –
64,935 15-Aug-11 1,356,492 7,674 11% 457,601 13,549 791,730
43,187 13-Aug-10 1,495,566 9,970 23% 594,511 3,877 226,511
S. Wikramanayake
57,848 15-Aug-14 2,770,919 – – – – –
53,193 15-Aug-13 2,197,935 – – – – –
110,270 15-Aug-12 2,416,016 – – – – –
84,106 15-Aug-11 1,756,974 9,940 11% 592,722 17,549 1,016,087
24,461 13-Aug-10 847,084 5,647 23% 336,731 2,196 126,962
The notes to this table are on the following page.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
112
(1)
On 23 December 2013, Macquarie consolidated its shares through the conversion of one ordinary share into 0.9438 ordinary shares,
including for shares held in the MEREP. The above table shows the number of PSUs granted prior to that date adjusted for the impact
of the consolidation. The value is based on the fair value per share at grant date multiplied by the adjusted number of awards.
(2)
Performance hurdles for PSU awards issued on or after 13 August 2010 and vesting at 1 July 2014 were partially achieved and
therefore some of those PSU awards did not become exercisable and lapsed. These awards are not exchangeable and the related
expense previously recognised on these PSU grants was reversed during the current and prior financial years.
(3)
Or during the period that the Executive was a KMP. One ordinary share was issued as a result of the exercise of one PSU.
(4)
Based on closing share price at 30 June 2014, being the day the PSUs were forfeited.
(5)
Based on the share price at the time of exercise.
(6)
PSUs were formally issued on 17 February 2014.
Macquarie has adopted the fair value measurement provisions of AASB 2 Share-Based Payment for all PSUs granted to KMP. The
fair value of such grants is being amortised and disclosed as part of each KMP’s remuneration on a straight-line basis over the
vesting period. The 2014 PSU allocation has been determined based on a valuation of a PSU at 15 August 2014. The fair value of
$A47.90 at this date has been estimated using a discounted cash flow method.
The following key assumptions were adopted in determining the value of the PSUs granted:
– interest rate to maturity: 3.10 per cent
– expected vest date: 1 July 2017 and 1 July 2018
– dividend yield: 4.97 per cent per annum.
PSUs have a nil exercise price. PSUs vest on a pro-rata basis as set out on pages 85 to 87. For the 2014 grant, the first tranche will
vest on 1 July 2017. The PSUs expire on 15 August 2022.
113
MEREP Awards of Key Management Personnel and their related parties
(1)
The following tables set out details of the MEREP RSU and PSU awards held during the year for the KMP including their related
parties. Further details in relation to the MEREP RSU and PSU awards are disclosed in Note 33 to the financial statements in the
Financial Report.
For the financial year ended 31 March 2015
Name and position
Type of
Award
Number of
awards held at
1 April 2014
(2)
Awards
granted during
the financial
year
(3)
Awards vested
/ exercised
during the
financial year
(4)
Awards not
able to be
exercised due
to performance
hurdles not
met
(5)
Number of
awards held at
31 March 2015
Executive Voting Director
N.W. Moore RSU 647,252 117,102 114,631 649,723
PSU 326,612 84,920 41,666 42,712 327,154
Executives
S.D. Allen
(6)
RSU 188,543 29,934 31,606 – 186,871
PSU 129,210 36,191 14,519 13,507 137,375
T.C. Bishop
(6)
RSU 206,679 37,947 47,480 – 197,146
PSU 110,076 43,315 14,324 8,112 130,955
B.A. Brazil RSU 461,108 – 15,437 – 445,671
PSU – – – – –
A.J. Downe
(7)
RSU 355,755 75,152 50,203 – 380,704
PSU 257,303 57,848 20,611 35,490 259,050
G.A. Farrell RSU 232,704 48,496 22,872 – 258,328
PSU 202,675 57,848 22,834 8,989 228,700
M. McLaughlin RSU 251,020 25,321 48,861 – 227,480
PSU 27,476 13,393 – – 40,869
M.J. Reemst RSU 97,758 – 10,060 – 87,698
PSU – – – – –
N. Sorbara RSU 48,108 17,105 6,445 – 58,768
PSU 33,158 36,191 – – 69,349
P.C. Upfold RSU 122,801 – 18,285 – 104,516
PSU – – – – –
S. Vrcelj RSU 101,748 18,792 30,279 – 90,261
PSU 68,289 38,470 10,478 5,935 90,346
G.C. Ward RSU 193,242 31,696 30,329 – 194,609
PSU 157,300 49,584 17,426 17,644 171,814
S. Wikramanayake
(6)
RSU 168,982 47,019 19,432 – 196,569
PSU 226,286 57,848 19,745 15,587 248,802
(1)
A related party of Mr M.J. Coleman holds RSU awards, some of which vested during the year. Mr Coleman does not influence any
investment decisions over, nor does he benefit from, this holding.
(2)
Or date of appointment if later.
(3)
Awards are granted in the financial year following the year of the Company’s performance to which the grant relates. RSUs and PSUs
disclosed as granted above relate to FY2014.
(4)
For RSUs, this represents vested RSUs transferred to the KMP’s shareholding and includes RSUs vesting during the current year in
respect of grants made prior to Executives becoming a KMP.
(5)
Performance hurdles for PSU awards issued on or after 13 August 2010 and vesting at 1 July 2014 were partially achieved and
therefore some of those PSU awards did not become exercisable and lapsed. These awards are not exchangeable and the related
expense previously recognised on these PSU grants was reversed during the current and prior financial years.
(6)
Refer to footnotes (5), (6) and (7) in the table "RSU Awards to KMP” on pages 109 to 110.
(7)
Mr Downe had 11,000 PSUs vest which were not exercised during FY2015. There were no other PSUs that vested during the year
which were not exercised.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
114
Appendix 4: Other KMP disclosures
Loans to Key Management Personnel and their related parties
Details of loans provided by Macquarie to KMP and their related parties
(1)
are disclosed in the following tables:
Name and position
Balance at
1 April
2014
$A’000
Interest
charged
(2)
$A’000
Write-downs
$A’000
Balance at
31 March 2015
$A’000
Highest balance
during
year
$A’000
Executives
N. Sorbara 250 14 – 559 560
(1)
There were no other loans provided by Macquarie to KMP and their related parties during the financial year ended 31 March 2015.
(2)
All loans provided by Macquarie to Directors and Executives are made in the ordinary course of business on an arm’s length basis and
are entered into under normal terms and conditions consistent with other customers and employees. There have been no write-downs
or allowances for doubtful debts.
This Remuneration Report has been prepared in accordance with the Act. The Remuneration Report contains disclosures as
required by Accounting Standard AASB 124 Related Party Disclosures as permitted by Corporations Regulation 2M.3.03.
Throughout this Remuneration Report financial information for Macquarie relating to the years ended 31 March 2006 through to 31
March 2015 has been presented in accordance with Australian Accounting Standards. Compliance with Australian Accounting
Standards ensures compliance with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
This is the end of the Remuneration Report.
Directors’ Report Schedule 3 –
Auditor’s Independence Declaration
for the financial year ended 31 March 2015
115
Auditor’s Independence Declaration
As lead auditor for the audit of Macquarie Group Limited
for the year ended 31 March 2015, I declare that to the
best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence
requirements of the Corporations Act 2001 (Cth)
in relation to the audit; and
b) no contraventions of any applicable code of professional
conduct in relation to the audit.
This declaration is in respect of Macquarie Group Limited
and the entities it controlled during the period.
K.G. Smith
Partner
PricewaterhouseCoopers
Sydney
8 May 2015
Liability is limited by a scheme approved under Professional
Standards Legislation.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Financial Report
for the financial year ended 31 March 2015
Contents
116
Income statements ....................................................................................................................................................................... 117
Statements of comprehensive income ........................................................................................................................................ 118
Statements of financial position .................................................................................................................................................. 119
Statements of changes in equity ................................................................................................................................................. 120
Statements of cash flows ............................................................................................................................................................. 122
Notes to the financial statements ................................................................................................................................................ 123
1 Summary of significant accounting policies ............................................................................................................................ 123
2 Profit for the financial year ...................................................................................................................................................... 134
3 Segment reporting ................................................................................................................................................................. 137
4 Income tax expense ............................................................................................................................................................... 141
5 Dividends and distributions paid or provided for .................................................................................................................... 142
6 Earnings per share ................................................................................................................................................................. 143
7 Receivables from financial institutions .................................................................................................................................... 145
8 Trading portfolio assets .......................................................................................................................................................... 145
9 Investment securities available for sale ................................................................................................................................... 146
10 Other assets .......................................................................................................................................................................... 146
11 Loan assets held at amortised cost ....................................................................................................................................... 147
12 Impaired financial assets ........................................................................................................................................................ 149
13 Other financial assets at fair value through profit or loss ......................................................................................................... 149
14 Property, plant and equipment ............................................................................................................................................... 150
15 Interests in associates and joint ventures accounted for using the equity method .................................................................. 152
16 Intangible assets .................................................................................................................................................................... 153
17 Investments in subsidiaries .................................................................................................................................................... 154
18 Deferred tax assets/(liabilities) ................................................................................................................................................ 155
19 Trading portfolio liabilities ....................................................................................................................................................... 156
20 Deposits ................................................................................................................................................................................ 156
21 Other liabilities ........................................................................................................................................................................ 156
22 Payables to financial institutions ............................................................................................................................................. 156
23 Other financial liabilities at fair value through profit or loss ...................................................................................................... 156
24 Debt issued at amortised cost ............................................................................................................................................... 157
25 Provisions .............................................................................................................................................................................. 157
26 Capital management strategy ................................................................................................................................................ 158
27 Loan capital ........................................................................................................................................................................... 159
28 Contributed equity ................................................................................................................................................................. 162
29 Reserves, retained earnings and non-controlling interests ..................................................................................................... 165
30 Notes to the statements of cash flows ................................................................................................................................... 167
31 Related party information ....................................................................................................................................................... 168
32 Key Management Personnel disclosure ................................................................................................................................. 170
33 Employee equity participation ................................................................................................................................................ 174
34 Contingent liabilities and commitments .................................................................................................................................. 181
35 Lease commitments .............................................................................................................................................................. 181
36 Structured entities .................................................................................................................................................................. 182
37 Derivative financial instruments .............................................................................................................................................. 185
38 Financial risk management ..................................................................................................................................................... 186
39 Fair value of financial assets and liabilities .............................................................................................................................. 207
40 Offsetting financial assets and financial liabilities .................................................................................................................... 217
41 Transfers of financial assets ................................................................................................................................................... 220
42 Audit and other services provided by PricewaterhouseCoopers ............................................................................................ 222
43 Acquisitions and disposals of subsidiaries and businesses .................................................................................................... 223
44 Events after the reporting date ............................................................................................................................................... 225
Directors’ declaration ................................................................................................................................................................... 226
Independent audit report ............................................................................................................................................................. 227
Ten year history ............................................................................................................................................................................ 228
The Financial Report was authorised for issue by the Directors on 8 May 2015.
The Consolidated Entity has the power to amend and reissue the Financial Report.
Income statements
for the financial year ended 31 March 2015
Income statements
Notes
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
117
Interest and similar income
5,009 4,611 372 339
Interest expense and similar charges
(2,917) (2,906) (375) (410)
Net interest income/(expense)
2
2,092 1,705 (3) (71)
Fee and commission income 2
4,770 3,853 9 9
Net trading income 2
1,727 1,570 67 5
Share of net profits of associates and joint ventures
accounted for using the equity method
2
5 149 – –
Other operating income and charges 2
699 855 2,544 2,757
Net operating income
9,293 8,132 2,617 2,700
Employment expenses 2
(4,143) (3,736) (4) (4)
Brokerage, commission and trading-related expenses 2
(855) (779) – –
Occupancy expenses 2
(379) (382) – –
Non-salary technology expenses 2
(437) (323) – –
Other operating expenses 2
(957) (806) – (3)
Total operating expenses
(6,771) (6,026) (4) (7)
Operating profit before income tax
2,522 2,106 2,613 2,693
Income tax (expense)/benefit 4
(899) (827) (32) 15
Profit after income tax
1,623 1,279 2,581 2,708
(Profit)/loss attributable to non-controlling interests:
Macquarie Income Securities
5
(18) (18) – –
Macquarie Income Preferred Securities
5
(5) (4) – –
Other non-controlling interests
4 8 – –
Profit attributable to non-controlling interests
(19) (14) – –
Profit attributable to ordinary equity holders
of Macquarie Group Limited
1,604 1,265 2,581 2,708
Cents per share
Basic earnings per share 6
502.3 383.6
Diluted earnings per share 6
484.2 369.2
The above income statements should be read in conjunction with the accompanying notes.
Income statements
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Statements of comprehensive income
for the financial year ended 31 March 2015
Notes
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
118
Profit after income tax
1,623 1,279 2,581 2,708
Other comprehensive income/(expense)
(1)
:
Available for sale investments, net of tax
58 72 – –
Cash flow hedges, net of tax
29
(56) 21 – –
Share of other comprehensive (expense)/income of
associates and joint ventures, net of tax
29
(14) 14 – –
Exchange differences on translation of foreign operations,
net of hedge and tax
877 612 – –
Total other comprehensive income
865 719 – –
Total comprehensive income 2,488 1,998 2,581 2,708
Total comprehensive income/(expense) attributable to:
Ordinary equity holders of Macquarie Group Limited
2,460 1,954 2,581 2,708
Macquarie Income Securities holders
18 18 – –
Macquarie Income Preferred Securities holders
11 18 – –
Other non-controlling interests
(1) 8 – –
Total comprehensive income 2,488 1,998 2,581 2,708
(1)
All items of other comprehensive income/(expense) may be reclassified subsequently to profit or loss.
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
Statements of comprehensive income
Statements of financial position
as at 31 March 2015
Notes
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
119
Assets
Receivables from financial institutions
7
28,705 19,457 – –
Trading portfolio assets
8
30,406 22,462 – –
Derivative assets
20,080 12,633 – –
Investment securities available for sale
9
8,896 14,051 – –
Other assets
10
13,557 12,990 138 270
Loan assets held at amortised cost
11
72,762 58,712 – –
Other financial assets at fair value through profit or loss
13
2,125 2,854 – –
Due from subsidiaries
31
– – 10,361 8,711
Property, plant and equipment
14
7,079 6,311 – –
Interests in associates and joint ventures accounted for
using the equity method
15
2,328 2,447 – –
Intangible assets
16
1,164 1,221 – –
Investments in subsidiaries
17,1
– – 15,871 13,637
Deferred tax assets
18
874 766 59 143
Total assets
187,976 153,904 26,429 22,761
Liabilities
Trading portfolio liabilities 19 5,295 2,762 – –
Derivative liabilities 18,267 11,973 – –
Deposits 20 47,386 42,401 18 33
Other liabilities 21 15,830 13,908 68 74
Payables to financial institutions 22 18,645 19,654 2,566 1,307
Other financial liabilities at fair value through profit or loss 23 1,626 1,464 – –
Due to subsidiaries 31 – – 810 866
Debt issued at amortised cost 24 61,463 45,565 6,179 6,265
Provisions 25 220 205 – –
Deferred tax liabilities
18 464 551 – –
Total liabilities excluding loan capital 169,196 138,483 9,641 8,545
Loan capital
Subordinated debt at amortised cost 4,384 3,507 603 601
Total loan capital 27 4,384 3,507 603 601
Total liabilities 173,580 141,990 10,244 9,146
Net assets 14,396 11,914 16,185 13,615
Equity
Contributed equity 28
5,947 5,112 8,667 7,852
Reserves 29
1,656 669 654 559
Retained earnings
29
6,306 5,637 6,864 5,204
Total capital and reserves attributable to ordinary
equity holders of Macquarie Group Limited 13,909 11,418 16,185 13,615
Non-controlling interests 29 487 496 – –
Total equity 14,396 11,914 16,185 13,615
The above statements of financial position should be read in conjunction with the accompanying notes.
Statements of financial position
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Statements of changes in equity
for the financial year ended 31 March 2015
Notes
Contributed
equity
$m
Reserves
$m
Retained
earnings
$m
Total
$m
Non-
controlling
interests
$m
Total
equity
$m
120
Consolidated
Balance at 1 April 2013 5,907 57 5,439 11,403 552 11,955
Profit after income tax – – 1,265 1,265 14 1,279
Other comprehensive income, net of tax – 689 – 689 30 719
Total comprehensive income – 689 1,265 1,954 44 1,998
Transactions with equity holders in their
capacity as equity holders:
Contributions of ordinary equity, net of
transaction costs 28 15 – – 15 – 15
Purchase of shares by MEREP Trust 28 (216) – – (216) – (216)
Dividends and distributions paid or provided for 5 – – (1,159) (1,159) – (1,159)
Capital reduction through SYD distribution 28,29 (803) (72) – (875) – (875)
Non-controlling interests:
Change in non controlling ownership interests 29 – – (5) (5) (86) (91)
Distributions paid or provided for – – – – (14) (14)
Other equity movements:
MEREP expense 29 – 257 – 257 – 257
Additional deferred tax benefit on MEREP
expense 29 – 53 – 53 – 53
Transfer from share-based payments reserve:
– to retained earnings 29 – (97) 97 – – –
– to other liabilities for cash settled awards 29 – (9) – (9) – (9)
– to equity for equity settled awards 28,29 195 (195) – – – –
Transfer of additional deferred tax benefit on
MEREP expense upon vesting to equity 28,29 14 (14) – – – –
(795) (77) (1,067) (1,939) (100) (2,039)
Balance at 31 March 2014 5,112 669 5,637 11,418 496 11,914
Profit after income tax – – 1,604 1,604 19 1,623
Other comprehensive income, net of tax – 856 – 856 9 865
Total comprehensive income – 856 1,604 2,460 28 2,488
Transactions with equity holders in their
capacity as equity holders:
Contributions of ordinary equity, net of
transaction costs 28 847 – – 847 – 847
Purchase of shares by MEREP Trust 28 (266) – – (266) – (266)
Dividends and distributions paid or provided for 5 – – (931) (931) – (931)
Non-controlling interests:
Change in non controlling ownership interests 29 – – (4) (4) (12) (16)
Distributions paid or provided for – – – – (25) (25)
Other equity movements:
MEREP expense 29 – 319 – 319 – 319
Additional deferred tax benefit on MEREP
expense 29 – 67 – 67 – 67
Transfer from share-based payments reserve:
– to other liabilities for cash settled awards 29 – (1) – (1) – (1)
– to equity for equity settled awards 28,29 242 (242) – – – –
Transfer from share-based payment capital
reduction reserve to equity 28,29 (19) 19 – – – –
Transfer of additional deferred tax benefit on
MEREP expense upon vesting to equity 28,29 31 (31) – – – –
835 131 (935) 31 (37) (6)
Balance at 31 March 2015 5,947 1,656 6,306 13,909 487 14,396
Statements of changes in equity
Notes
Contributed
equity
$m
Reserves
$m
Retained
earnings
$m
Total
$m
Non-
controlling
interests
$m
Total
equity
$m
121
Company
Balance at 1 April 2013
8,642 675 3,543 12,860 – 12,860
Profit after income tax
– – 2,708 2,708 – 2,708
Total comprehensive income
– – 2,708 2,708 – 2,708
Transactions with equity holders in their
capacity as equity holders:
Contributions of ordinary equity, net of
transaction costs 28 24 – – 24 – 24
Purchase of shares by MEREP Trust 28 (216) – – (216) – (216)
Dividends and distributions paid or provided for 5 – – (1,144) (1,144) – (1,144)
Capital reduction through SYD distribution
28,29
(793) (72) – (865) – (865)
Other equity movements:
MEREP expense
29 – 257 – 257 – 257
Transfer from share-based payments reserve:
– to retained earnings 29 – (97) 97 – – –
– to other liabilities for cash settled awards 29 – (9) – (9) – (9)
– to equity for equity settled awards 28,29 195 (195) – – – –
(790) (116) (1,047) (1,953) – (1,953)
Balance at 31 March 2014 7,852 559 5,204 13,615 – 13,615
Profit after income tax
– – 2,581 2,581 – 2,581
Total comprehensive income
– – 2,581 2,581 – 2,581
Transactions with equity holders in their
capacity as equity holders:
Contributions of ordinary equity, net of
transaction costs 28 858 – – 858 – 858
Purchase of shares by MEREP Trust 28 (266) – – (266) – (266)
Dividends and distributions paid or
provided for
5
– – (921) (921) – (921)
Other equity movements:
MEREP expense
29 – 319 – 319 – 319
Transfer from share-based payments reserve:
– to other liabilities for cash settled awards
29 – (1) – (1) – (1)
– to equity for equity settled awards
28,29 242 (242) – – – –
Transfer from share-based payment capital
reduction reserve to equity
28,29 (19) 19 – – – –
815 95 (921) (11) – (11)
Balance at 31 March 2015 8,667 654 6,864 16,185 – 16,185
The above statements of changes in equity should be read in conjunction with the accompanying notes.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2015
Notes
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
122
Cash flows (used in)/ from operating activities
Interest received 4,680 4,350 369 339
Interest and other costs of finance paid (2,935) (2,901) (377) (410)
Dividends and distributions received 257 214 1,273 810
Fees and other non-interest income received 5,752 4,686 92 16
Fees and commissions paid (830) (782) – –
Net payments on trading portfolio assets and other
financial assets/liabilities (12,834) (2,067) – –
(Payments to)/receipts from suppliers (543) (643) – 3
Employment expenses paid (3,582) (3,122) (4) (4)
Income tax (paid)/refund (178) (336) 116 (115)
Life investment contract premiums received, disposal of
investment assets and other unitholder contributions 1,392 1,191 – –
Life investment contract payments (1,331) (1,123) – –
Net loan assets granted (13,570) (7,776) (1,339) (1,209)
Net increase in amounts due to other financial institutions,
deposits and other borrowings 22,140 8,169 1,163 929
Proceeds from the disposal of lease assets 64 51 – –
Payments for the acquisition of lease assets
(895) (377) – –
Net cash flows (used in)/from operating activities 30
(2,413) (466) 1,293 359
Cash flows from/(used in) investing activities
Net proceeds from investment securities available for sale 2,993 4,188 – –
Proceeds from the disposal of associates, subsidiaries and
businesses, net of cash deconsolidated 1,855 565 – –
Payments for the acquisition of associates, subsidiaries
and businesses, net of cash acquired (776) (729) (950) –
Proceeds from the disposal of property, plant and
equipment, lease assets and intangible assets 158 105 – –
Payments for the acquisition of property, plant and
equipment, lease assets and intangible assets (416) (314) – –
Net cash flows from/(used in) investing activities
3,814 3,815 (950) –
Cash flows from/(used in) financing activities
Proceeds from the issue of ordinary shares 28
673 12 673 12
(Payments to)/proceeds from non-controlling interests
(13) 103 – –
Proceeds from issue of subordinated debt
421 359 – 600
Repayment of convertible preference shares
subordinated debt
– (359) – –
Dividends and distributions paid
(783) (787) (750) (755)
Payments for acquisition of treasury shares 28
(266) (216) (266) (216)
Net cash flows from/(used in) financing activities
32 (888) (343) (359)
Net increase in cash and cash equivalents 1,433 2,461 – –
Cash and cash equivalents at the beginning of the
financial year
15,540 13,079 – –
Cash and cash equivalents at the end of the
financial year 30
16,973 15,540 – –
The above statements of cash flows should be read in conjunction with the accompanying notes.
Statements of cash flows
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
123
Notes to the financial statements
Note 1
Summary of significant accounting policies
(i) Basis of preparation
The principal accounting policies adopted in the preparation of
this financial report and that of the previous financial year are
set out below. These policies have been consistently applied to
all the financial years presented, unless otherwise stated.
This financial report is a general purpose financial report which
has been prepared in accordance with Australian Accounting
Standards (which includes Australian Interpretations by virtue of
AASB 1048 Interpretation of Standards) and the Corporations
Act 2001 (Cth).
Compliance with IFRS as issued by the IASB
Compliance with Australian Accounting Standards ensures that
the financial report complies with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB). Consequently, this
financial report has also been prepared in accordance with and
complies with IFRS as issued by the IASB.
Historical cost convention
This financial report has been prepared under the historical cost
convention, as modified by the revaluation of investment
securities available for sale and certain other assets and
liabilities (including derivative instruments) at fair value.
Critical accounting estimates and significant judgements
The preparation of the financial report in conformity with Australian
Accounting Standards requires the use of certain critical
accounting estimates. It also requires management to exercise
judgement in the process of applying the accounting policies. The
notes to the financial statements set out areas involving a higher
degree of judgement or complexity, or areas where assumptions
are significant to Macquarie Group Limited and its subsidiaries
(Consolidated Entity) and the consolidated financial report such as:
– fair value of financial assets and liabilities (Note 39)
– impairment of loan assets held at amortised cost,
investment securities available for sale and interests in
associates and joint ventures, investment in subsidiaries
(Notes 1(xii), 1(xiv), 1(xxviii), 11, 15 and 17)
– acquisitions and disposals of subsidiaries, associates and
joint ventures and assets and disposal groups classified as
held for sale (Notes 1(ii), 1(xiii), 15 and 43)
– distinguishing between whether assets or a business is
acquired (Note 1(iii))
– determination of control of structured entities (Notes 1(ii)
and 36)
– determination of whether dividends and distributions
received are recognised as income or a return of capital
(Note 1(vi))
– recoverability of deferred tax assets and measurement of
current and deferred tax liabilities (Notes 1(vii), 4 and 18)
– the impairment of goodwill and other identifiable intangible
assets with indefinite useful lives (Notes 1(xvii) and 16), and
– recognition of performance fees from Macquarie-managed
unlisted funds (Note 1(vi)).
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
reasonable expectations of future events.
Management believes the estimates used in preparing the
financial report are reasonable. Actual results in the future may
differ from those reported and therefore it is reasonably
possible, on the basis of existing knowledge, that outcomes
within the next financial year that are different from our
assumptions and estimates could require an adjustment to the
carrying amounts of the assets and liabilities reported.
New Australian Accounting Standards and amendments
to Accounting Standards that are effective in the
current financial year
The following key Accounting Standards and amendments to
Accounting Standards became applicable in the current
financial year:
AASB 2012-3 Amendments to Australian Accounting
Standards – Offsetting Financial Assets and Financial
Liabilities
AASB 2012-3 amends AASB 132 Financial Instruments:
Presentation to clarify that to set off an asset with a liability:
– the right of set-off must be available and legally enforceable
for all counterparties in the normal course of business, as
well as in the event of default, insolvency or bankruptcy
– certain gross settlement mechanisms (such as through a
clearing house) may be equivalent to net settlement
– master netting arrangements where the legal right of offset
is only enforceable on the occurrence of a future event
(such as default of the counterparty) continue to not meet
the requirements for netting.
AASB 2012-3 is required to be retrospectively applied. Application
in the current period did not have a material impact on the financial
position nor performance of the Consolidated Entity.
AASB 2011-4 Amendments to Australian Accounting
Standards to Remove Individual Key Management
Personnel Disclosure Requirements
AASB 2011-4 removes the individual Key Management
Personnel disclosure requirements from AASB 124 Related
Party Disclosures. The application of AASB 2011-4 in the
current financial year has reduced disclosures provided in the
financial report but has not affected any of the amounts
recognised in the financial statements.
AASB 2013-5 Amendments to Australian Accounting
Standards – Investment Entities
AASB 2013-5 defines an investment entity and provides an
exception to the consolidation requirements in AASB 10.
Investment entities are required to measure particular
subsidiaries at fair value through profit or loss, rather than
consolidate them. However, where a non-investment entity
parent ultimately controls an investment entity, the parent must
still consolidate the investment entity and all the underlying
subsidiaries, reversing fair value used by the investment entity.
AASB 2013-5 is required to be retrospectively applied.
Application in the current period has not had a material impact
on the financial position nor performance of the Consolidated
Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
124
Note 1
Summary of significant accounting policies continued
New Australian Accounting Standards and amendments
to Accounting Standards that are not yet effective
AASB 9 Financial Instruments
AASB 9 will replace AASB 139 Financial Instruments:
Recognition and Measurement. It will lead to changes in the
accounting for financial instruments, primarily relating to:
Financial assets: A financial asset is measured at amortised
cost only if it is held within a business model whose objective is
to collect contractual cash flows and the asset gives rise to
cash flows on specified dates that are payments solely of
principal and interest (on the principal amount outstanding). All
other financial assets are measured at fair value. Changes in the
fair value of debt instruments that:
(i) have cash flows solely of principal and interest, and
(ii) are held in a business model managed both to collect cash
flows and for sale
are recognised in other comprehensive income until sold, when
they are recycled to the income statement. Interest and
impairment are recognised directly in profit or loss. Changes in the
fair value of equity investments that are not part of a trading activity
may be reported directly in other comprehensive income, but
upon realisation, those accumulated changes are not recycled to
the income statement. Dividends on such investments are
recognised in profit or loss, unless they clearly represent a
recovery of the cost of the investment. Changes in the fair value of
all other financial assets carried at fair value are reported in the
income statement. The combined effect of the application of the
business model and the contractual cash flow characteristics tests
will result in some differences in the assets measured at
amortised cost vs. fair value compared with AASB 139.
Financial liabilities: The component of change in fair value of
financial liabilities designated at fair value through profit or loss
due to an entity’s own credit risk are presented in other
comprehensive income, unless this creates an accounting
mismatch. If a mismatch is created or enlarged, all changes in
fair value (including the effects of credit risk) are presented in
profit or loss. These requirements may be applied early without
applying all other requirements of AASB 9.
Impairment: The impairment requirements apply to financial
assets measured at amortised cost and fair value through other
comprehensive income, lease receivables and certain loan
commitments and financial guarantee contracts. At initial
recognition, an allowance is recognised for expected credit
losses (ECL), resulting from possible defaults within the next 12
months. Subsequently, when there is a significant increase in
credit risk, an allowance is required for ECL resulting from
possible defaults over the expected life of the financial
instrument. The assessment of credit risk, and the estimation of
ECL, are to be unbiased and probability-weighted, and
incorporates all available information relevant to the
assessment, including information about past events, current
conditions and reasonable and supportable information about
future events and economic conditions at the reporting date. As
a result, the impairment allowance is intended to be more
forward-looking and the resulting impairment charge will tend to
be more volatile than under AASB 139.
Hedge accounting: Hedge accounting is more closely aligned
with financial risk management, and may be applied to a greater
variety of hedging instruments and risks.
AASB 9 is effective for annual reporting periods beginning on or
after 1 January 2018. The Consolidated Entity will first apply
AASB 9 in the financial year beginning 1 April 2018. The
Consolidated Entity is currently assessing the impact of the new
requirements on the consolidated financial statements.
AASB 15 Revenue from Contracts with Customers
AASB 15 specifies how and when revenue is recognised, based
on the concept of recognising revenue for performance
obligations as they are satisfied. This could affect the timing and
amount recognised for asset management fees, and contracts
with multiple services. AASB 15 also requires enhanced
disclosures.
AASB 15 is effective for annual periods beginning on or after 1
January 2017. The Consolidated Entity will first apply AASB 15
in the financial year beginning 1 April 2017.
The Consolidated Entity is currently assessing the impact of the
new requirements on the consolidated financial statements.
AASB 2014-10 Amendments to Australian Accounting
Standards – Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
AASB 2014-10 amends AASB 128 and AASB 10 to require that
when an investor sells or contributes assets that constitute a
business to its associate or joint venture, a full gain or loss is
recognised. When the assets transferred do not constitute a
business, the gain or loss recognised is limited to the interest
sold. In determining whether the assets sold or contributed are
a business, it is irrelevant whether the items transferred exist
within a subsidiary.
AASB 2014-10 is effective for annual periods beginning on or
after 1 January 2016. The Consolidated Entity will first apply the
amendments in the financial year beginning 1 April 2016. Initial
application is not expected to result in any material impact for
the Consolidated Entity.
AASB 2015-5 Amendments to Australian Accounting
Standards – Investment Entities: Applying the
Consolidation Exception
AASB 2015-5 introduces a choice in application of the equity
method by a non-investment entity investor to an investment
entity investee. When a non-investment entity investor applies
the equity method to an investment entity associate or joint
venture, the investor may retain the fair value measurement
applied by the investment entity associate or joint venture to its
interests in subsidiaries, or reverse the fair value measurement
to conform to the accounting policies of the investor.
AASB 2015-5 is effective for annual reporting periods beginning
on or after 1 January 2016. The Consolidated Entity will first
apply the amendments in the financial year beginning 1 April
2016. Initial application is not expected to result in any material
impact for the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
125
(ii) Principles of consolidation
Subsidiaries
The consolidated financial report comprises the financial report
of the Consolidated Entity. Subsidiaries are all those entities
(including structured entities) over which the Company has:
(i) power to direct the relevant activities
(ii) exposure to significant variable returns, and
(iii) the ability to utilise power to affect the Consolidated Entity’s
own returns.
The determination of control is based on current facts and
circumstances and is continuously assessed.
The Consolidated Entity has power over an entity when it has
existing substantive rights that give it the current ability to direct
the entity’s relevant activities. Relevant activities are those
activities that significantly affect the entity’s returns. The
Consolidated Entity evaluates whether it has the power to direct
the relevant activities. The Consolidated Entity also considers
the entity’s purpose and design. If the Consolidated Entity
determines that it has power over an entity, the Consolidated
Entity then evaluates whether it has exposure or rights to
variable returns that, in aggregate, are significant. All variable
returns are considered including, but not limited to, debt or
equity investments, guarantees, liquidity arrangements, variable
fees and certain derivative contracts.
Structured entities
Structured entities (SEs) are those entities where voting rights
do not have a significant effect on its returns, including where
voting rights relate to administrative tasks only and contractual
arrangements dictate how the entity should carry out its
activities. When assessing whether the Consolidated Entity
controls (and therefore consolidates) a SE, judgement is
required as to whether the Consolidated Entity has power over
the relevant activities as well as exposure to significant variable
returns of the SE.
Where the Consolidated Entity has power over, is exposed to
significant variable returns through the residual risk associated
with its Mortgage SEs and other SEs, and is able to affect its
returns, the underlying assets, liabilities, revenues and expenses
of these SEs are reported in the consolidated financial
statements.
The effects of all transactions between entities in the
Consolidated Entity are eliminated in full. Non-controlling
interests (NCI) in the results and equity of subsidiaries, where
the Company owns less than 100 percent of the issued capital,
are shown separately in the consolidated income statement,
consolidated statement of comprehensive income and
consolidated statement of financial position, respectively.
Where control of an entity was obtained during the financial
year, its results are included in the consolidated income
statement from the date on which control commenced. Where
control of an entity ceased during the financial year, its results
are included for that part of the financial year during which
control existed.
The Company and Consolidated Entity determine the dates of
obtaining control (ie acquisition date) and losing control (ie
disposal date) of another entity based on an assessment of all
pertinent facts and circumstances that affect the ability to direct
the relevant activities of that entity. Facts and circumstances
that have the most impact include the contractual arrangements
agreed with the counterparty, the manner in which those
arrangements are expected to operate in practice and whether
regulatory approval is required to complete. The acquisition or
disposal date does not necessarily occur when the transaction
is closed or finalised under law.
Subsidiaries held by the Company are carried in its financial
statements at cost less impairment in accordance with AASB
127 Separate Financial Statements.
Interests in associates and joint ventures accounted for
using the equity method
Associates and joint ventures are entities over which the
Consolidated Entity has significant influence or joint control, but
not control, and are accounted for under the equity method
except those which are classified as held for sale. The equity
method of accounting is applied in the consolidated financial
report and involves the recognition of the Consolidated Entity’s
share of its associates’ and joint ventures’ post-acquisition
profits or losses in the consolidated income statement, and the
share of its post-acquisition movements in reserves.
The Consolidated Entity determines the dates of obtaining or
losing significant influence or joint control of another entity
based on an assessment of all pertinent facts and
circumstances that affect the ability to significantly influence or
jointly control the financial and operating policies of that entity.
Facts and circumstances that have the most impact include the
contractual arrangements agreed with the counterparty, the
manner in which those arrangements are expected to operate
in practice, and whether regulatory approval is required to
complete. The acquisition or disposal date does not necessarily
occur when the transaction is closed or finalised under law.
(iii) Business combinations
Business combinations are accounted for using the acquisition
method. Cost is measured as the aggregate of the fair values
(at the date of exchange) of assets acquired, equity instruments
issued or liabilities incurred or assumed at the date of
exchange. Transaction costs arising on the issue of equity
instruments are recognised directly in equity, and those arising
on borrowings are capitalised and included in interest expense
using the effective interest method.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
126
Note 1
Summary of significant accounting policies continued
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured at
their fair values on the acquisition date. The Consolidated Entity
can elect, on a transaction-by-transaction basis, to measure
NCI relating to ordinary shares either at fair value or at the NCI’s
proportionate share of the fair values of the identifiable assets
and liabilities. The excess of the consideration over the
Consolidated Entity’s share of the fair value of the identifiable
net assets acquired is recorded as goodwill. If the consideration
is less than the Consolidated Entity’s share of the fair value of
the identifiable net assets of the business acquired, the
difference is recognised directly in the consolidated income
statement, but only after a reassessment of the identification
and measurement of the net assets acquired. For contingent
consideration given, the amount is subsequently remeasured to
its fair value with changes recognised in the consolidated
income statement.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their
present values as at the date of exchange. The discount rate
used is the entity’s incremental borrowing rate, being the rate at
which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
Distinguishing between whether assets or a business is
acquired involves judgement. Some of the factors that the
Consolidated Entity uses in identifying a business combination
are:
– the nature of the Consolidated Entity’s industry and
business model, which affects the nature of an input,
process or output
– whether the acquisition included at least a majority of the
critical inputs (eg tangible or intangible assets, and
intellectual property) and a majority of the critical processes
(eg strategic processes, skilled and experienced workforce)
– the relative ease of replacing the critical processes not
acquired by either integrating within the Consolidated
Entity’s existing processes or sub-contracting them to third
parties, and
– the presence of goodwill.
(iv) Segment reporting
Operating segments are identified on the basis of internal
reports to senior management about components of the
Consolidated Entity that are regularly reviewed by senior
management who have been identified as the chief operating
decision makers, in order to allocate resources to the segment
and to assess its performance. Information reported to senior
management for the purposes of resource allocation and
assessment of performance is specifically focused on core
products and services offered, comprising seven reportable
segments as disclosed in Note 3. Information about products
and services and geographical segments is based on the
financial information used to produce the Consolidated Entity’s
financial statements.
(v) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of foreign operations
are measured using the currency of the primary economic
environment in which the foreign operation operates (the
functional currency). The Company’s and Consolidated Entity’s
financial statements are presented in Australian dollars (the
presentation currency), which is also the Company’s functional
currency.
Transactions and balances
Foreign currency transactions are recorded in the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at
year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income
statement, except when deferred in other comprehensive
income (OCI) as a result of meeting cash flow hedge or net
investment hedge accounting requirements (see Note 1(xi)).
Translation differences on non-monetary items (such as
equities) held at fair value through profit or loss, are reported as
part of the fair value gain or loss in the income statement.
Translation differences on non-monetary items classified as
available for sale financial assets are included in the available for
sale reserve in equity, unless they form part of fair value hedge
relationships in which case the translation differences are
recognised in the income statement (see Note 1(xi)).
Subsidiaries and other entities
The results and financial position of all foreign operations that
have a functional currency other than Australian dollars are
translated into Australian dollars as follows:
– assets and liabilities for each statement of financial position
presented are translated at the closing exchange rate at the
date of that statement of financial position
– income and expenses for each income statement are
translated at actual exchange rates at the dates of the
transactions, and
– all resulting exchange differences are recognised in OCI
within a separate component of equity-the foreign currency
translation reserve.
On consolidation, exchange differences arising from the
translation of any net investment in foreign operations and of
borrowings and other foreign currency instruments designated
as hedges of such investments, are taken to the foreign
currency translation reserve through OCI. When a foreign
operation is disposed of or any borrowings forming part of the
net investment are repaid, such exchange differences are
recognised in the income statement as part of the gain or loss
on disposal.
Goodwill and fair value adjustments arising on the acquisition of
a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
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Statements of cash flows
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127
(vi) Revenue and expense recognition
Revenue is measured at the fair value of the consideration
received or receivable. Revenue is recognised for each major
revenue stream as follows:
Net interest income
Interest income is brought to account using the effective
interest method. The effective interest method calculates the
amortised cost of a financial instrument and allocates the
interest income or interest expense over the relevant period.
The effective interest rate is the rate that discounts estimated
future cash receipts or payments through the expected life of
the financial instrument or, when appropriate, a shorter period,
to the net carrying amount of the financial asset or liability. Fees
and transaction costs associated with loans are capitalised and
included in the effective interest rate and recognised in the
income statement over the expected life of the instrument.
Interest income on finance leases is brought to account
progressively over the life of the lease consistent with the
outstanding investment balance.
Fee and commission income
Fee and commission income includes fees from fund
management, brokerage, account servicing, corporate advisory,
underwriting and securitisation arrangements and is recognised
as the related services are performed. Where commissions and
fees are subject to clawback or meeting certain performance
hurdles, they are recognised as income at the point when those
conditions can no longer affect the outcome.
Fee and commission income and expenses that are integral to
the effective interest rate on a financial asset or liability are
capitalised and included in the effective interest rate and
recognised in the income statement over the expected life of
the instrument.
Performance fees from Macquarie-managed unlisted funds are
recognised when the fee can be reliably measured and its
receipt is highly probable. Factors that are taken into
consideration include:
– the proportion of assets already realised
– returns on assets realised to-date
– downside valuation on remaining unrealised assets and
reliability of those estimates
– nature of unrealised investments and their returns.
Net trading income
Net trading income comprises gains and losses related to
trading assets and liabilities and include all realised and
unrealised fair value changes, dividends and foreign exchange
differences.
Dividends and distributions
Dividends and distributions are recognised as income when the
Consolidated Entity becomes entitled to the dividend or
distribution. Dividends from subsidiaries, associates and joint
ventures are recognised in the income statement when the
Company’s right to receive the dividend is established.
When accounting for a dividend or distribution, judgement is
required about whether it is recognised as income or a return of
capital. The range of factors that are considered include:
– whether the payment follows a legal process to reduce
either the number of outstanding shares or the amount of
share capital
– whether evidence exists clearly demonstrating that the
distribution is a return of capital originally invested by the
investor (eg the timing of a distribution relative to the
acquisition of the investment)
– the substance of the payment, including the existence of
non-discretionary evidence, that may identify its nature. A
director declaration of the nature is given a low weighting in
the analysis
– whether other transactions occur with the same
counterparty at the same time as, or in contemplation of,
the payment
– whether the payment is from profits in proportion to the
investors’ particular class of capital
– when a dividend is paid in the form of additional equity of
the investee, whether all investors retain the same relative
ownership interest in the investee
– whether the criteria for derecognising part, or all, of an
investment in a financial asset under AASB139 Financial
Instruments: Recognition and Measurement are met, and in
particular if substantially all the risks and rewards of
ownership have been transferred.
(vii) Income tax
The income tax expense for the financial year is the tax payable
on the current period’s taxable income based on the national
income tax rate for each jurisdiction, adjusted for changes in
deferred tax assets and liabilities and unused tax losses.
Deferred tax assets are recognised when temporary differences
arise between the tax bases of assets and liabilities and their
respective carrying amounts which give rise to a future tax
benefit, or when a benefit arises due to unused tax losses.
In both cases, deferred tax assets are recognised only to the
extent that it is probable that future taxable amounts will be
available to utilise those temporary differences or tax losses.
Deferred tax liabilities are recognised when such temporary
differences will give rise to taxable amounts that are payable in
future periods. Deferred tax assets and liabilities are recognised
at the tax rates expected to apply when the assets are
recovered or the liabilities are settled under currently enacted
tax law.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets and liabilities
and when the deferred tax balances relate to the same taxation
authority. Current tax assets and liabilities are offset when there
is a legally enforceable right to offset and an intention to either
settle on a net basis, or realise the asset and settle the liability
simultaneously. Current and deferred taxes attributable to
amounts recognised directly in equity are also recognised
directly in equity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
128
Note 1
Summary of significant accounting policies continued
The Company and Consolidated Entity exercise judgement in
determining whether deferred tax assets, particularly in relation
to tax losses, are probable of recovery. Factors considered
include the ability to offset tax losses within the tax consolidated
group in Australia or groups of entities in overseas jurisdictions,
the nature of the tax loss, the length of time that tax losses are
eligible for carry forward to offset against future taxable profits
and whether future taxable profits are expected to be sufficient
to allow recovery of deferred tax assets.
The Consolidated Entity undertakes transactions in the ordinary
course of business where the income tax treatment requires the
exercise of judgement. The Consolidated Entity estimates its tax
liability based on its understanding of the tax law.
Tax consolidation
The Consolidated Entity’s Australian tax liabilities are
determined according to tax consolidation legislation. The
Company together with all eligible Australian resident wholly-
owned subsidiaries of the Company comprise a tax
consolidated group with the Company as the head entity. As a
consequence, the relevant subsidiaries are not liable to make
income tax payments and do not recognise any current tax
balances or any deferred tax assets arising from unused tax
losses. Under the terms and conditions of a tax funding
agreement, the Company charges each subsidiary for all
current tax liabilities incurred in respect of their activities and
reimburses each subsidiary for any tax assets arising from
unused tax losses.
Should the Company be in default of its tax payment
obligations, or a default is probable, the current tax balances of
the subsidiaries will be determined in accordance with the
terms and conditions of a tax sharing agreement between the
Company and entities in the tax consolidated group.
(viii) Cash collateral on securities borrowed/lent and
reverse repurchase/repurchase agreements
As part of its trading activities, the Consolidated Entity borrows
and lends securities on a collateralised basis. The securities
subject to the borrowing or lending are not derecognised from
the statements of financial position of the relevant parties, as
the risks and rewards of ownership remain with the initial
holder. Where cash is provided as collateral, the cash paid to
third parties on securities borrowed is recorded as a receivable,
while cash received from third parties on securities lent is
recorded as a borrowing.
Reverse repurchase transactions, where the Consolidated
Entity purchases securities under an agreement to resell, and
repurchase transactions, where the Consolidated Entity sells
securities under an agreement to repurchase, are also
conducted on a collateralised basis. The securities subject to
the reverse repurchase and repurchase agreements are not
derecognised from the statements of financial position of the
relevant parties, as the risks and rewards of ownership remain
with the initial holder. Where cash is provided as collateral, the
cash paid to third parties on the reverse repurchase agreement
is recorded as a receivable, while cash received from third
parties on the repurchase agreement is recorded as a
borrowing.
Cash provided as collateral on securities borrowed or on the
reverse repurchase agreement is included in receivables from
financial institution or other assets based on the counterparty,
while cash received from third parties on securities lent or
repurchase agreement is included in payables to financial
institutions or other liabilities based on the counterparty.
The Consolidated Entity continually reviews the fair values of the
securities on which the above transactions are based and,
where appropriate, requests or provides additional collateral to
support the transactions, in accordance with the underlying
agreements.
(ix) Trading portfolio assets and liabilities
Trading portfolio assets (long positions) comprise debt and
equity securities, bank bills, treasury notes, bullion and
commodities purchased with the intent of being actively traded.
Trading portfolio liabilities (short positions) comprise obligations
to deliver assets across the same trading categories, which the
Consolidated Entity has short-sold and are actively traded.
Assets and liabilities included in the trading portfolio are carried
at fair value (see Note 39). Realised gains and losses, and
unrealised gains and losses arising from changes in the fair
value of the trading portfolio are recognised as net trading
income in the income statement in the period in which they
arise. Dividend income or expense on the trading portfolio is
recognised in the income statement as net trading income.
The Consolidated Entity uses trade date accounting when
recording regular way purchases and sales of financial assets.
At the date the transaction is entered into (trade date), the
Consolidated Entity recognises the resulting financial asset or
liability and any subsequent unrealised profits or losses arising
from revaluing that contract to fair value in the income
statement. When the Consolidated Entity becomes party to a
sale contract of a financial asset, it derecognises the asset and
recognises a trade receivable from trade date until settlement
date.
(x) Derivative instruments
Derivative instruments entered into by the Consolidated Entity
include futures, forwards and forward rate agreements, swaps
and options in the interest rate, foreign exchange, commodity
and equity markets. These derivative instruments are principally
used for the risk management of existing financial assets and
financial liabilities.
All derivatives, including those used for statement of financial
position hedging purposes, are recognised on the statement of
financial position and are disclosed as an asset where they have
a positive fair value at balance date or as a liability where the fair
value at balance date is negative.
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Statements of cash flows
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Derivatives are initially recognised at fair value on the date a
derivative contract is entered into and subsequently
re-measured to their fair value. Fair values are obtained from
quoted market prices in active markets including recent market
transactions, and valuation techniques including discounted
cash flow models and option pricing models, as appropriate.
Movements in the fair values of derivatives are recognised in the
income statement in net trading income, unless the derivative
meets the requirements for hedge accounting.
The best evidence of a derivative’s fair value at initial recognition
is its transaction price, unless its fair value is evidenced by
comparison with other observable current market transactions
in the same instrument, or based on a valuation technique for
which variables include only data from observable markets.
Where such alternative evidence exists, the Consolidated Entity
recognises profits or losses immediately when the derivative is
recognised.
(xi) Hedge accounting
The Consolidated Entity designates certain derivatives or
financial instruments as hedging instruments in qualifying hedge
relationships. On initial designation of the hedge, the
Consolidated Entity documents the hedge relationship between
hedging instruments and hedged items, as well as its risk
management objectives and strategies. The Consolidated Entity
also documents its assessment, both at hedge inception and
on an ongoing basis, of whether hedging relationships have
been and will continue to be highly effective. Derivatives or
financial instruments can be designated in one of three types of
hedge relationships.
Cash flow hedges
For a derivative or financial instrument designated as hedging
the variability in cash flows attributable to a particular risk
associated with a recognised asset or liability (or a highly
probable forecast transaction), the gain or loss on the derivative
or financial instrument associated with the effective portion of
the hedge is initially recognised in OCI in the cash flow hedging
reserve and subsequently released to the income statement
when the hedged item affects the income statement. The gain
or loss relating to the ineffective portion of the hedge is
recognised immediately in the income statement.
Fair value hedges
For a derivative or financial instrument designated as hedging
the change in fair value of a recognised asset or liability (or an
unrecognised firm commitment), the gain or loss on the
derivative or financial instrument is recognised in the income
statement immediately, together with the loss or gain on the
hedged asset or liability that is attributable to the hedged risk.
Net investment hedges
For a derivative or borrowing designated as hedging a net
investment in a foreign operation, the gain or loss on revaluing
the derivative or borrowing associated with the effective portion
of the hedge is recognised in the foreign currency translation
reserve and subsequently released to the income statement
when the foreign operation is disposed of. The ineffective
portion is recognised in the income statement immediately.
The fair values of various financial instruments used for hedging
purposes are disclosed in Note 39. Movements in the cash flow
hedging reserve in equity are shown in Note 29.
(xii) Investments and other financial assets
With the exception of trading portfolio assets and derivatives,
which are classified separately in the statement of financial
position, the remaining investments in financial assets are
classified into the following categories: loans and receivables,
other financial assets at fair value through profit or loss and
investment securities available for sale. The classification
depends on the purpose for which the financial asset was
acquired, which is determined at initial recognition and, except
for other financial assets at fair value through profit or loss, is
re-evaluated at each balance date.
Loans and receivables
This category includes loan assets held at amortised cost and
amounts due from subsidiaries, which are non-derivative
financial assets with fixed or determinable payments that are
not quoted in an active market.
Other financial assets at fair value through profit or loss
This category includes only those financial assets which have
been designated by management as held at fair value through
profit or loss on initial recognition.
The policy of management is to designate a financial asset as
such if: the asset contains embedded derivatives which must
otherwise be separated and carried at fair value; it is part of a
group of financial assets managed and evaluated on a fair value
basis; or doing so eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise. Interest income on debt securities designated as at fair
value through profit or loss is recognised in the income
statement in interest income using the effective interest method
as disclosed in Note 1(vi).
Investment securities available for sale
Investment securities available for sale comprise securities that
are not actively traded and are intended to be held for an
indefinite period. Such securities are available for sale and may
be sold should the need arise, including purposes of liquidity, or
due to the impacts of changes in interest rates, foreign
exchange rates or equity prices.
Investment securities available for sale are initially carried at fair
value plus transaction costs. Gains and losses arising from
subsequent changes in fair value are recognised directly in the
available for sale reserve in equity until the asset is
derecognised or impaired, at which time the cumulative gain or
loss is recognised in the income statement. Fair values of
quoted investments in active markets are based on current bid
prices.
If the relevant market is not considered active (or the securities
are unlisted), fair value is established by valuation techniques,
including recent arm’s length transactions, discounted cash
flow analysis and other valuation techniques commonly used by
market participants.
Interest income on debt securities available for sale is
recognised in the income statement in interest income using the
effective interest method as disclosed in Note 1(vi).
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
130
Note 1
Summary of significant accounting policies continued
(xiii) Non-current assets and disposal groups
classified as held for sale
This category includes interests in businesses, subsidiaries and
associates and joint ventures for which their carrying amount
will be recovered principally through a sale or distribution
transaction rather than continuing use, and subsidiaries held
exclusively with a view to sale or distribute. These assets and
disposal groups are classified as held for sale when it is highly
probable that the asset will be sold or distributed within
12 months subsequent to being classified as such. Where there
is a planned partial disposal of a subsidiary resulting in loss of
control, all of the assets and liabilities of the subsidiary are
classified as held for sale.
Non-current assets and assets of disposal groups classified as
held for sale are measured at the lower of their carrying amount
and fair value less costs to sell. These assets are not
depreciated.
An impairment loss is recognised for any initial or subsequent
write down of the asset to fair value less costs to sell. A gain is
recognised for any subsequent increase in fair value less costs
to sell, limited by the cumulative impairment loss previously
recognised. A gain or loss not previously recognised by the
date of sale is recognised at the date of sale.
(xiv) Impairment
Loan assets held at amortised cost
Loan assets are subject to regular review and assessment for
possible impairment. Provisions for impairment on loan assets
are recognised based on an incurred loss model and
re-assessed at each balance date. A provision for impairment is
recognised when there is objective evidence of impairment, and
is calculated based on the present value of expected future
cash flows, discounted using the original effective interest rate.
Individually assessed provisions for impairment are recognised
where impairment of individual loans are identified. Where
individual loans are found not to be impaired, they are placed
into pools of assets with similar risk profiles and collectively
assessed for losses that have been incurred but are not yet
specifically identifiable.
The Consolidated Entity makes judgements as to whether there
is any observable data indicating that there is a significant
decrease in the estimated future cash flows from a portfolio of
loans before the decrease can be identified with an individual
loan in that portfolio. This evidence may include observable data
indicating that there has been an adverse change in the
payment status of the borrowers in a group, or national or local
economic conditions that correlate with defaults on assets in
the group. Management uses estimates based on historical loss
experience for assets with credit risk characteristics and
objective evidence of impairment similar to those in the portfolio
when scheduling its future cash flows. The methodology and
assumptions used for estimating both the amount and timing of
future cash flows are reviewed regularly to reduce any
differences between loss estimates and actual loss experience.
Changes in assumptions used for estimating future cash flows
could result in a change in the estimated provisions for
impairment on loan assets at the end of a reporting period.
If, in a subsequent period, the amount of impairment losses
decrease and the decrease can be related objectively to an
event occurring after the impairment losses were recognised,
the previously recognised impairment losses are reversed
through the income statement to the extent of what the
amortised cost would have been had the impairment not been
recognised.
Investment securities available for sale
The Consolidated Entity performs an assessment at each
balance date to determine whether there is any objective
evidence that available for sale financial assets have been
impaired. Impairment exists if there is objective evidence of
impairment as a result of one or more events (loss event) which
have an impact on the estimated future cash flows of the
financial asset that can be reliably estimated.
For equity securities classified as available for sale, the main
indicators of impairment are: significant changes in the market,
economic or legal environment and a significant or prolonged
decline in fair value below cost. In making this judgement, the
Consolidated Entity evaluates among other factors, the normal
volatility in share price and the period of time for which fair value
has been below cost.
In the case of debt securities classified as available for sale,
observable data that relates to loss events are considered,
including adverse changes in the payment status of the issuer
and national or local economic conditions that correlate with
defaults on those assets.
In addition, impairment may be appropriate when there is
evidence of deterioration in the financial condition of the
investee, industry and sector performance, operational and
financing cash flows or changes in technology.
When the fair value of an available for sale financial asset is less
than its initial carrying amount and there is objective evidence
that the asset is impaired, the cumulative loss recognised
directly in OCI is removed from equity and recognised in the
income statement.
Impairment losses recognised in the income statement for
equity securities classified as available for sale are not
subsequently reversed through the income statement. However
impairment losses recognised for debt investment securities
classified as available for sale are subsequently reversed
through the income statement if the fair value increases and the
increase can be objectively related to an event after the
impairment loss was recognised in the income statement.
Interests in associates and joint ventures
The Consolidated Entity performs an assessment at each
balance date to determine whether there is any objective
evidence that its interests in associates and joint ventures are
impaired. The entire carrying amount of each investment in
associate and joint venture is considered in the assessment.
The main indicators of impairment are as for equity securities
classified as available for sale, disclosed above.
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Statements of cash flows
for the financial year ended 31 March 2013
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If there is an indication that an investment in an associate or
joint venture may be impaired, then the entire carrying amount
of the investment in the associate or joint venture is tested for
impairment by comparing the recoverable amount (higher of
value in use and fair value less costs to sell) with its carrying
amount. Impairment losses recognised in the income statement
for investments in associates and joint ventures are
subsequently reversed through the income statement if there
has been a change in the estimates used to determine the
recoverable amount since the impairment loss was recognised.
(xv) Life insurance business
The life insurance business is comprised of insurance contracts
and investment contracts as defined in AASB 4 Insurance
Contracts. The following are key accounting policies in relation
to the life insurance business:
Disclosure
The consolidated financial statements include the assets,
liabilities, income and expenses of the life insurance business
conducted by a subsidiary of the Company in accordance with
AASB 139 Financial Instruments: Recognition and
Measurement, and AASB 1038 Life Insurance Contracts which
apply to investment contracts and assets backing insurance
liabilities, respectively. These amounts represent the total life
insurance business of the subsidiary, including underlying
amounts that relate to both policyholders and shareholders of
the life insurance business.
Investment assets
Investment assets are carried at fair value through profit or loss.
Fair values of quoted investments in active markets are based
on current bid prices. If the relevant market is not considered
active (and for unlisted securities), fair value is established by
valuation techniques, including recent arm’s length
transactions, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by
market participants. Changes in fair values are recognised in the
income statement in the period in which the changes occur.
Restriction on assets
Investments held in the Life Funds can only be used within the
restrictions imposed under the Life Insurance Act 1995. The
main restrictions are that the assets in a fund can only be used
to meet the liabilities and expenses of the fund, acquire
investments to further the business of the fund or pay
distributions when solvency and capital adequacy requirements
allow. Shareholders can only receive a distribution when the
capital adequacy requirements of the Life Insurance Act 1995
have been met.
Policy liabilities
Life insurance liabilities are measured as the accumulated
benefits to policyholders in accordance with AASB 139 and
AASB 1038, which apply to investment contracts and assets
backing insurance liabilities, respectively.
(xvi) Property, plant and equipment
Property, plant and equipment are stated at historical cost less
accumulated depreciation and accumulated impairment losses,
if any. Property, plant and equipment are reviewed for
impairment at each reporting date. Historical cost includes
expenditure directly attributable to the acquisition of the asset.
Property, plant and equipment includes assets leased out under
operating leases.
Depreciation on assets is calculated on a straight-line basis to
allocate the difference between cost and residual values over
their estimated useful lives, at the following rates:
Buildings 2.5 to 3.3 percent
Furniture, fittings and leasehold
improvements
(1)
10 to 20 percent
Equipment 33 to 50 percent
Infrastructure assets 5 to 20 percent
Aviation 2 to 4 percent
Meters 5 to 10 percent
Railcars 2 to 3 percent
Other operating lease assets 2 to 50 percent
(1)
Where remaining lease terms are less than five years, leasehold
improvements are depreciated over the remaining lease term.
Useful lives and residual values are reviewed annually and
reassessed in light of commercial and technological
developments. If an asset’s carrying value is greater than its
recoverable amount, the carrying amount is written down
immediately to its recoverable amount. Adjustments arising
from such items and on disposal of property, plant and
equipment are recognised in the income statement.
Gains and losses on disposal are determined by comparing
proceeds with the asset’s carrying amount and are recognised
in the income statement.
(xvii) Goodwill and other identifiable intangible assets
Goodwill
Goodwill represents the excess of the consideration over the
Consolidated Entity’s share of the fair value of the identifiable
net assets of the acquired entity at the date of acquisition.
Goodwill arising from business combinations is included in
intangible assets on the face of the statement of financial
position. Goodwill arising from acquisitions of associates is
included in the carrying amount of investments in associates.
Other identifiable intangible assets
An intangible asset is considered to have an indefinite useful life
where it is expected to contribute to the Consolidated Entity’s
net cash inflows indefinitely.
Licences and trading rights are generally carried at cost less
accumulated impairment losses. These assets are not amortised
because they are considered to have an indefinite useful life.
Management rights have a finite useful life and are carried at
cost less accumulated amortisation and impairment losses.
Amortisation is calculated using the straight-line method to
allocate the cost of management rights over the estimated
useful life, usually a period not exceeding 20 years.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
132
Note 1
Summary of significant accounting policies continued
Customer and servicing contracts acquired with a finite useful
life are carried at cost less accumulated amortisation and any
impairment losses. Amortisation is calculated over the period
over which the customer relationship is expected to exist.
Customer and servicing contracts with an indefinite useful life
are carried at cost less accumulated impairment losses.
Software
Certain internal and external costs directly incurred in acquiring
and developing certain software are capitalised and amortised
over the estimated useful life, usually a period of three to seven
years. Costs incurred on software maintenance are expensed
as incurred.
Impairment
Goodwill and intangible assets that have an indefinite useful life
are not subject to amortisation but are tested annually for
impairment, or more frequently if events or changes in
circumstances indicate that the carrying amount may not be
recoverable. For intangible assets that have a finite useful life,
an assessment is made at each reporting date for indications of
impairment. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of the asset’s fair
value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or
groups of assets (cash-generating units). Intangible assets
(other than goodwill) that suffered impairment are reviewed for
possible reversal of the impairment at each reporting date.
In relation to businesses acquired and held for disposal, the
individual business is treated as a cash generating unit. Assets
associated with strategic business acquisitions are allocated to
each of the operating segments (refer to Note 3 – Segment
reporting) and assessed for impairment on a regional legal entity
operating group basis.
The recoverable amount of goodwill is determined using the
higher of value-in-use and fair value less costs to sell.
Value-in-use calculations are based upon discounting estimated
post-tax cashflows at a risk-adjusted interest rate appropriate
to the cash generating unit to which the goodwill applies. The
determination of both cashflows and discount rates require the
exercise of judgement. The calculations use cash flow
estimations based on financial budgets and forecasts reviewed
by management. These cashflows are discounted at rates that
have been determined by reference to historical company and
industry experience and publicly available data.
Fair value less costs to sell calculations are determined using an
earnings multiple approach applicable to that type of business.
These have been determined by reference to historical
company and industry experience and publicly available data.
(xviii) Financial liabilities
The Consolidated Entity has on issue debt securities and
instruments which are initially recognised at fair value net of
transaction costs incurred, and subsequently measured at
amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption amount is recognised in
the income statement over the period of the borrowings using
the effective interest method.
Other financial liabilities at fair value through profit or loss
This category includes only those financial liabilities which have
been designated by management as held at fair value through
profit or loss on initial recognition. The policy of management is
to designate a financial liability as such if: the liability contains
embedded derivatives which must otherwise be separated and
carried at fair value; the liability is part of a group of financial
assets and financial liabilities managed and evaluated on a fair
value basis; or doing so eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise. Interest expense on such items is recognised in the
income statement in interest expense using the effective interest
method.
(xix) Provisions
Employee benefits
A liability for employee benefits is recognised by the entity that
has the obligation to the employee. Generally, this is consistent
with the legal position of the parties to the employment
contract.
Liabilities for unpaid salaries, salary related costs and provisions
for annual leave are recorded in the statement of financial
position at the salary rates which are expected to be paid when
the liability is settled. Provisions for long service leave and other
long-term benefits are recognised at the present value of
expected future payments to be made.
In determining this amount, consideration is given to expected
future salary levels and employee service histories. Expected
future payments are discounted to their net present value using
discount rates on high quality corporate bonds, except where
there is no deep market, in which case rates on Commonwealth
Government securities are used. Such discount rates have
terms that match as closely as possible the expected future
cash flows.
Provisions for unpaid employee benefits are derecognised when
the benefit is settled, or is transferred to another entity and the
Company and Consolidated Entity are legally released from the
obligation and do not retain a constructive obligation.
Dividends
Provisions for dividends to be paid by the Company are
recognised on the statement of financial position as a liability
and a reduction in retained earnings when the dividend has
been declared.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
133
(xx) Earnings per share
Basic earnings per share is calculated by dividing the
Consolidated Entity’s profit attributable to ordinary equity
holders by the weighted average number of ordinary shares
outstanding during the financial year.
Diluted earnings per share is calculated by dividing the
Consolidated Entity’s profit attributable to ordinary equity
holders by the weighted average number of ordinary shares that
would be issued on the exchange of all the dilutive potential
ordinary shares into ordinary shares.
Refer to Note 6 – Earnings per share for information concerning
the classification of securities.
(xxi) Performance based remuneration
Share-based payments
The Consolidated Entity operates share-based compensation
plans, which include awards (including those delivered through
the Macquarie Group Employee Retained Equity Plan (MEREP))
granted to employees under share acquisition plans.
Information relating to these schemes is set out in Note 33 –
Employee equity participation. The Consolidated Entity
recognises an expense (and equity reserve) for its awards
granted to employees. The awards are measured at the grant
dates based on their fair value and using the number of equity
instruments expected to vest. This amount is recognised as an
expense over the respective vesting periods.
Performance hurdles attached to Performance Share Units
(PSUs) under the MEREP are not taken into account when
determining the fair value of the PSUs at grant date. Instead,
these vesting conditions are taken into account by adjusting the
number of equity instruments expected to vest.
Profit share remuneration
The Consolidated Entity recognises a liability and an expense
for profit share remuneration to be paid in cash.
(xxii) Cash and cash equivalents
Cash and cash equivalents comprise:
– cash and short-term amounts included in receivables from
financial institutions and loan assets at amortised cost, and
– certain trading portfolio assets and debt securities with
original contractual maturity of three months or less.
(xxiii) Leases
Leases where the lessee has substantially all the risks and
rewards incidental to ownership of the leased assets are
classified as finance leases. All other leases are operating leases.
Where finance leases are granted to third parties, the present
value of the lease receipts is recognised as a receivable and
included in loan assets held at amortised cost. The difference
between the gross receivable and the present value of the
receivable is unearned interest income. Lease receipts are
discounted using the interest rate implicit in the lease. Lease
income is recognised over the term of the lease using the
effective interest method, which reflects a constant rate of return.
Leases entered into by the Consolidated Entity as lessee are
primarily operating leases. The total fixed payments made under
operating leases are charged to the income statement on a
straight-line basis over the period of the lease.
Purchased assets, where the Consolidated Entity is the lessor
under operating leases, are carried at cost and depreciated
over their useful lives which vary depending on each class of
asset and range from 2 to 50 years. Operating lease income is
recognised on a straight-line basis over the period of the lease
unless another systematic basis is more appropriate. Assets
leased out under operating leases are included in property,
plant and equipment.
(xxiv) Offsetting financial instruments
Financial assets and financial liabilities are offset and the net
amount reported on the statement of financial position when
there is a legally enforceable right to offset the amounts and
either there is an intention to settle on a net basis, or realise the
financial asset and settle the financial liability simultaneously.
(xxv) Loan capital
Loan capital is debt issued by the Consolidated Entity with
terms and conditions that qualify for inclusion as capital under
Australian Prudential Regulation Authority (APRA) Prudential
Standards. Loan capital debt issues are initially recorded at fair
value plus directly attributable transaction costs and thereafter
at amortised cost using the effective interest method (for debt
host component of convertible preference securities and
subordinated debt at amortised cost).
(xxvi) Contributed equity
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
(xxvii) Changes in ownership interests
When acquiring additional interests of a financial asset (such
that it becomes an associate, joint venture or subsidiary) or an
investment in an associate or joint venture (such that it
becomes a subsidiary), previously held interests are revalued to
their current fair value and any gain or loss is immediately
recognised in profit or loss.
Similarly, when selling ownership interests of a subsidiary (such
that control is lost), or an investment in associate or joint venture
(such that it becomes a financial asset), retained ownership
interests are revalued to their current fair value and any gain or loss
is immediately recognised in the income statement.
When increasing or decreasing the ownership interests of a
subsidiary that remains a subsidiary afterwards, the
consideration exchanged is recognised directly in equity.
(xxviii) Comparatives
During the current financial year, as a consequence of the
continued improvement in the performance of its subsidiaries,
the Company recognised a reversal of $2,919 million of its
impairment in its investment in subsidiaries. The impairment
reversal has been split across the years ended 31 March 2015
$1,271 million and a restatement to 31 March 2014
$1,648 million. Where necessary, comparative information has
been restated to conform to changes in presentation in the
current year.
(xxix) Rounding of amounts
In accordance with ASIC Class Order 98/100 (as amended),
amounts in the full Directors' Report and Financial Report have
been rounded off to the nearest million dollars unless otherwise
indicated.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
134
Note 2
Profit for the financial year
Net interest income
Interest and similar income received/receivable
5,009 4,611 372
339
Interest expense and similar charges paid/payable
(2,917) (2,906) (375)
(410)
Net interest income/(expense)
2,092 1,705 (3)
(71)
Fee and commission income
Base fees
1,388 1,289 –
–
Performance fees
667 219 –
–
Mergers and acquisitions, advisory and underwriting fees
973 809 –
–
Brokerage and commissions
867 903 –
–
Other fee and commission income
875 633 9
9
Total fee and commission income
4,770 3,853 9
9
Net trading income
(1)
Equities
384 382 6
–
Commodities
(2)
1,039 1,102 –
–
Credit, Interest rate and foreign exchange products
304 86 61
5
Net trading income
1,727 1,570 67
5
Share of net profits of associates and joint ventures
accounted for using the equity method 5 149 –
–
(1)
Included in net trading income are fair value losses of $32 million (2014: $484 million gain) relating to financial assets and financial
liabilities designated as held at fair value through profit or loss. Fair value changes relating to derivatives are also reported in net trading
income which principally offsets the fair value changes relating to the financial assets and financial liabilities designated at fair value. This
also includes fair value changes on derivatives used to hedge the Consolidated Entity's economic interest rate risk where hedge
accounting requirements are not met – refer to Note 1(xi) – Summary of significant accounting policies.
(2)
Net of transportation costs $247 million (2014: $87 million).
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
135
Note 2
Profit for the financial year continued
Other operating income and charges
Net gains/(losses) on sale of investment securities available for sale 215 441 – (19)
Impairment charge on investment securities available for sale (67) (85) – –
Net gains on sale of associates and joint ventures 109 61 – –
Impairment charge on interests in associates and joint ventures (121) (152) – –
Gain on disposal of operating lease assets 231 2 – –
Gain on acquiring, disposing and change in ownership interest in
subsidiaries and associates 190 26 – –
Impairment reversal on subsidiaries (Note 1(xxviii)) – – 1,271 1,648
Impairment charge on intangibles and other non-financial assets (168) (28) – –
Net operating lease income:
Rental income 1,025 930 – –
Depreciation on operating lease assets (Note 14) (440) (401) – –
Dividends/distributions received/receivable: –
Investment securities available for sale 102 208 – –
Subsidiaries (Note 31) – – 1,273 1,128
Collective allowance for credit losses provided for during the financial
year:
Loan assets (Note 11) (91) (58) – –
Debt investment securities available for sale (13) (6) – –
Individually assessed provisions and write-offs:
Loan assets provided for during the financial year (Note 11) (305) (119) – –
Other receivables provided for during the financial year (30) (32) – –
Recovery of loans previously provided for (Note 11) 27 11 – –
Recovery of other receivables previously provided for 4 7 – –
Loans written off (83) (62) – –
Recovery of loans previously written off 24 17 – –
Other income 90 95 – –
Total other operating income and charges 699 855 2,544 2,757
Net operating income 9,293 8,132 2,617 2,700
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
136
Note 2
Profit for the financial year continued
Employment expenses
Salary and salary related costs including commissions,
superannuation and performance-related profit share
(3,541) (3,217) (4) (4)
Share-based payments
(1)
(340) (284) – –
Provision for long service leave and annual leave
(10) (4) – –
Total compensation expense
(3,891) (3,505) (4) (4)
Other employment expenses including on-costs, staff procurement
and staff training
(252) (231) – –
Total employment expenses
(4,143) (3,736) (4) (4)
Brokerage, commission and trading-related expenses
Brokerage and other trading-related expenses
(671) (627) – –
Other fee and commission expenses
(184) (152) – –
Total brokerage, commission and trading-related expenses
(855) (779) – –
Occupancy expenses
Operating lease rentals
(231) (226) – –
Depreciation: buildings, furniture, fittings and leasehold
improvements (Note 14)
(72) (84) – –
Other occupancy expenses
(76) (72) – –
Total occupancy expenses
(379) (382) – –
Non-salary technology expenses
Information services
(145) (140) – –
Depreciation: equipment (Note 14)
(16) (20) – –
Service provider and other non-salary technology expenses
(276) (163) – –
Total non-salary technology expenses
(437) (323) – –
Other operating expenses
Professional fees
(315) (257) – –
Auditor’s remuneration (Note 42)
(27) (24) – –
Travel and entertainment expenses
(158) (150) – –
Advertising and promotional expenses
(79) (67) – –
Communication expenses
(33) (29) – –
Amortisation of intangibles (Note 16)
(95) (66) – –
Other expenses
(250) (213) – (3)
Total other operating expenses
(957) (806) – (3)
Total operating expenses (6,771) (6,026) (4) (7)
(1)
Includes $21 million (2014: $27 million) of share based payment expense for cash settled awards.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
137
Note 3
Segment reporting
(i) Operating segments
AASB 8 Operating Segments requires the ‘management
approach’ to disclosing information about Macquarie’s
reportable segments. The financial information is reported on
the same basis as used internally by senior management for
evaluating operating segment performance and for deciding
how to allocate resources to operating segments. Such
information may be produced using different measures to that
used in preparing the statutory income statement.
For internal reporting, performance measurement and risk
management purposes, Macquarie is divided into six operating
groups and a corporate segment. These segments have been
set up based on the different core products and services
offered. Segment information has been prepared in accordance
with the basis of preparation described below.
The operating groups comprise:
Macquarie Asset Management (MAM) provides clients with
access to a diverse range of capabilities and products,
including infrastructure and real asset management, securities
investment management and tailored investment solutions
over funds and listed equities.
Corporate and Asset Finance (CAF) delivers tailored finance
and asset management solutions to clients through the cycles,
specialising in corporate and real estate lending and with an
expertise in asset finance including aircraft, motor vehicles,
technology, healthcare, manufacturing, industrial, energy, rail,
rotorcraft and mining equipment.
Banking and Financial Services (BFS) provides a diverse
range of personal banking, wealth management and business
banking products and services to retail customers, advisors,
brokers and business clients.
Macquarie Securities Group (MSG) is a global institutional
securities house with strong Asia-Pacific foundations covering
sales, research, equity capital markets, execution and
derivatives activities.
Macquarie Capital provides corporate finance advisory and
capital markets services to corporate and government clients
involved in public and private M&A, debt and equity fund
raisings, private equity raisings and corporate debt
restructuring.
Commodities and Financial Markets (CFM) provides clients
with risk and capital solutions across physical and financial
markets.
The Corporate segment, which is not considered an operating
group, includes head office and central support functions
including Group Treasury. The Corporate segment also holds
certain legacy investments, assets and businesses that are no
longer core for strategic reasons and not allocated to any of
the operating groups.
Items of income and expense within the Corporate segment
include the net impact of managing liquidity for Macquarie,
earnings on capital, non-trading derivative volatility, earnings
from investments, central overlay on impairment provisions or
valuation of assets, unallocated head office costs and costs of
central support functions, the Group’s performance-related
profit share and share based payments expense, income tax
expense and certain distributions attributable to non-
controlling interests and holders of loan capital.
All transactions and transfers between segments are generally
determined on an arm’s length basis and are included within
the relevant categories of income. These transactions eliminate
on aggregation/consolidation.
Below is a selection of key policies applied in determining
operating segment results.
Internal funding arrangements
Operating groups are fully debt funded. Group Treasury has
the responsibility for managing funding for the Group, and
operating groups obtain their funding from Group Treasury.
The interest rates charged by Group Treasury are determined
by the currency and term of the funding and are fully costed.
Generally, operating groups may only source funding directly
from external sources when there is recourse only to the
assets being funded and not to the Group.
Deposits are a funding source for Macquarie. BFS receives a
deposit premium from Group Treasury on deposits they
generate. This deposit premium is included within net interest
and trading income for segment reporting purposes.
Transactions between Operating Groups
Operating groups that enter into arrangements with other
operating groups must do so on commercial terms or as
agreed by the Group’s Chief Executive Officer or Chief
Financial Officer (CFO). There is a requirement for accounting
symmetry in such transactions.
Internal transactions are recognised in each of the relevant
categories of income and expense as appropriate.
Central support functions
Central support functions recover their costs from operating
groups on either a time and effort allocation basis or a fee for
service basis. Central support functions include Corporate
Operations Group (COG), Financial Management Group (FMG),
Risk Management Group (RMG), Legal and Governance and
Central Executive.
Performance-related profit share and share based
payments expense
Performance-related profit share and share based payments
expense relating to the MEREP is recognised in the Corporate
segment and not allocated to operating groups.
Income tax
Income tax expense and benefits are recognised in the
Corporate segment and not allocated to operating groups.
However, to recognise an operating group’s contribution to
permanent income tax differences, an internal management
revenue or charge is used. These internal management
revenue/charges are offset by an equal and opposite amount
recognised in the Corporate segment such that they are
eliminated on aggregation.
Presentation of segment income statements
The income statements in the following pages for each of the
reported segments are in some cases summarised by
grouping non-material balances together. Where appropriate,
all material or key balances have been reported separately to
provide users with information relevant to the understanding of
Macquarie’s financial performance.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
Macquarie
Asset
Management
$m
Corporate and
Asset Finance
$m
Banking and
Financial
Services
$m
138
Note 3
Segment reporting continued
(i) Operating segments continued
The following is an analysis of the Consolidated Entity’s revenue and results by reportable segment for the financial year:
Net interest and trading income/(expense) 11 737 825
Fee and commission income/(expense) 2,303 33 532
Share of net profits/(losses) of associates and joint ventures accounted for
using the equity method 13 3 3
Other operating income and charges:
Impairment charges, write-offs and provisions, net of recoveries (36) (153) (35)
Other other operating income and charges 154 977 17
Internal management revenue/(charge) 2 (3) 3
Net operating income 2,447 1,594 1,345
Total operating expenses (997) (482) (1,060)
Profit/(loss) before tax 1,450 1,112 285
Tax expense – – –
Loss/(profit) attributable to non-controlling interests – – –
Net profit/(loss) contribution 1,450 1,112 285
Reportable segment assets 7,341 30,091 37,282
Net interest and trading (expense)/income (23) 663 738
Fee and commission income/(expense) 1,720 36 576
Share of net profits of associates and joint ventures accounted for using
the equity method 103 2 1
Other operating income and charges:
Impairment charges, write-offs and provisions, net of recoveries 4 (85) (49)
Other other operating income and charges 108 576 49
Internal management revenue/(charge) 16 15 5
Net operating income 1,928 1,207 1,320
Total operating expenses (877) (381) (1,060)
Profit/(loss) before tax 1,051 826 260
Tax expense – – –
Loss/(profit) attributable to non-controlling interests – – –
Net profit/(loss) contribution 1,051 826 260
Reportable segment assets 8,582 26,543 29,612
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to financial statements
for the financial year ended 31 March 2013
Macquarie Securities
Group
$m
Macquarie
Capital
$m
Commodities and
Financial Markets
$m
Corporate
$m
Total
$m
139
.
.
.
.
Consolidated 2015
289 (24) 1,693 288 3,819
652 860 418 (28) 4,770
– 13 (1) (26) 5
(4) (58) (334) (203) (823)
(9) 258 65 60 1,522
(10) 5 (10) 13 –
918 1,054 1,831 104 9,293
(854) (629) (996) (1,753) (6,771)
64 425 835 (1,649) 2,522
– – – (899) (899)
– 5 – (24) (19)
64 430 835 (2,572) 1,604
31,051 3,634 69,634 8,943 187,976
Consolidated 2014
234 (35) 1,580 118 3,275
633 727 162 (1) 3,853
– 18 23 2 149
(5) (48) (207) (117) (507)
2 148 131 348 1,362
1 7 (7) (37) –
865 817 1,682 313 8,132
(758) (548) (956) (1,446) (6,026)
107 269 726 (1,133) 2,106
– – – (827) (827)
– 11 – (25) (14)
107 280 726 (1,985) 1,265
26,015 2,885 44,811 15,456 153,904
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
140
Note 3
Segment reporting continued
(ii) Products and services
For the purposes of preparing a segment report based on products and services, the activities of the Consolidated Entity
have been divided into four areas:
– Asset and Wealth Management: distribution and manufacture of funds management products
– Financial Markets: trading in fixed income, equities, currency, commodities and derivative products
– Capital Markets: corporate and structured finance, advisory, underwriting, facilitation, broking and real estate/ property
development
– Lending: banking activities, mortgages and leasing.
Asset
and Wealth
Management
$m
Financial
Markets
$m
Capital
Markets
$m
Lending
$m
Total
$m
Consolidated 2015
Revenues from external customers 3,052 3,731 2,032 5,128 13,943
Consolidated 2014
Revenues from external customers 2,507 3,196 2,023 4,395 12,121
(iii) Geographical areas
Geographical segments have been determined based upon where the transactions have been booked. The operations of the
Consolidated Entity are headquartered in Australia.
Revenues
from external
customers
$m
Non-current
assets
(1)
$m
Consolidated 2015
Americas
(2)
5,415 2,094
Australia 4,923 2,029
Europe, Middle East and Africa
(3)
2,283 6,383
Asia Pacific 1,322 317
Total 13,943 10,823
Consolidated 2014
Americas
(2)
3,672 2,556
Australia
5,513 2,024
Europe, Middle East and Africa
(3)
2,012 5,207
Asia Pacific
924 369
Total 12,121 10,156
(1)
Non-current assets consist of intangible assets, interests in associates and joint ventures accounted for using the equity method,
property, plant and equipment and property held for sale and development.
(2)
Included within this balance is external revenue generated in the USA of $4,505 million (2014: $2,879 million).
(3)
Included within this balance is external revenue generated in the UK of $1,885 million (2014: $1,356 million).
(iv) Major customers
The Consolidated Entity does not rely on any major customer.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
141
Note 4
Income tax expense
(i) Income tax (expense)/benefit
Current tax expense
(1,056) (321) (13) (21)
Deferred tax benefit/(expense)
157 (506) (19) 36
Total (899) (827) (32) 15
(ii) Numerical reconciliation of income tax (expense)/benefit to prima facie tax payable
Prima facie income tax expense on operating profit
(1)
(757) (632) (784) (808)
Tax effect of amounts which are (not deductible)/non-assessable
in calculating taxable income:
Rate differential on offshore income (129) (179) 4 4
Impairment reversal on subsidiary – – 381 494
Intra-group dividend – – 382 338
Other items (13) (16) (15) (13)
Total income tax (expense)/benefit (899) (827) (32) 15
(iii) Tax (expense)/benefit relating to items of other comprehensive income
Available for sale reserve (61) (38) – –
Cash flow hedges 25 (11) – –
Foreign currency translation reserve (19) (31) – –
Share of other comprehensive income of associates and joint
ventures
7 (6) – –
Total tax expense relating to items of other comprehensive
income (48) (86) – –
(iv) Deferred tax benefit/(expense) represents movements in deferred tax assets/liabilities
Investments
(171) (111) – –
Fixed assets
(19) 5 – –
Leasing and financial instruments
46 (198) (50) (77)
Intangible assets
2 (15) – –
Other assets and liabilities
300 (22) 19 27
Tax Losses
(1) (165) 12 86
Total deferred tax benefit/(expense) represents movements in
deferred tax assets/liabilities 157 (506) (19) 36
(1)
Prima facie income tax on operating profit is calculated at the rate of 30 percent.
Revenue authorities undertake risk reviews and audits as part of their normal activities.
The Group has assessed these and other taxation claims and litigation, including seeking advice where appropriate, and considers
that it holds appropriate provisions.
The audit by the Australian Taxation Office (ATO) has concluded and all outstanding matters have been resolved. Macquarie
continues to be part of the Pre-lodgement Compliance Review process, whereby the ATO undertakes a review prior to the
lodgement of Macquarie's tax returns.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
142
Note 5
Dividends and distributions paid or provided for
(i) Dividends paid or provided for
Ordinary share capital and exchangeable shares
2014 final dividend paid ($1.60 (2013: $1.25) per share)
(1),(3)
514 420 508 419
2015 interim dividend paid ($1.30 (2014: $1.00) per share)
(2)
417 345 413 336
2014 special dividend paid
(4)
– 395 – 389
Dividends reversed – (1) – –
Total dividends paid or provided for (Note 29) 931 1,159 921 1,144
(1)
Final dividend paid by the Consolidated Entity includes $5 million (2014: $nil) of dividend equivalent amount paid to Deferred Share Units
(DSUs) holders as described in Note 33 – Employee equity participation.
(2)
Interim dividend paid by the Consolidated Entity includes $4 million (2014: $8 million) of dividend equivalent amount paid to DSUs
holders as described in Note 33 – Employee equity participation.
(3)
Final dividend paid by the Consolidated Entity includes $1 million (2014: $1 million) of dividends paid to holders of the exchangeable
shares issued as consideration for the acquisition of Orion Financial Inc. and Tristone Capital Global Inc. as described in Note 28 –
Contributed equity.
(4)
On 12 December 2013, MGL shareholders approved the SYD Distribution, a distribution of the majority of the Group’s investment in Sydney
Airport stapled securities (SYD Securities) to its ordinary shareholders implemented through a special dividend and a capital reduction along
with a consolidation of one MGL share into 0.9438 ordinary share (Refer to Note 28 – Contributed equity for further details on capital
reduction and share consolidation). Eligible MGL ordinary shareholders received one SYD Security for each MGL ordinary share held. The
carrying value of SYD securities on approval date (12 December 2013) was $3.77 per share and at settlement date (13 January 2014) was
$3.73 per share. The special dividend component of the SYD Distribution was $1.1563 per ordinary share. The amount paid by the
Consolidated Entity includes $2 million paid to the holders of the exchangeable shares and $4 million to DSU holders.
The final and interim dividend paid during the financial year was 40 percent franked based on tax paid at 30 percent (full year to 31 March
2014: 40 percent franked on tax paid at 30 percent). The dividends paid to holders of exchangeable shares were not franked.
The Company’s Dividend Reinvestment Plan (DRP) remains active. The DRP is optional and offers ordinary shareholders in Australia
and New Zealand the opportunity to acquire fully paid ordinary shares without transaction costs. The previous discount to the
Market Value has been removed. A shareholder can elect to participate in or terminate their involvement in the DRP at any time.
Details of shares purchased from the market and then allocated as fully paid ordinary shares pursuant to the DRP are included in
Note 28 – Contributed equity.
(ii) Dividends not recognised at the end of the financial year
Since the end of the financial year, the Directors have recommended the payment of the 2015 final dividend of $2.00 per fully paid
ordinary share, 40 percent franked based on tax paid at 30 percent. The aggregate amount of the proposed dividend expected to
be paid on 2 July 2015 from retained profits at 31 March 2015, but not recognised as a liability at the end of the financial year, is
$666 million (including $1 million to be paid by a subsidiary to the holders of the exchangeable shares and net of $2 million to be
received on treasury shares (refer to Note 28 – Contributed equity for further details of these instruments)). This amount has been
estimated based on the number of shares eligible to participate as at 31 March 2015.
Consolidated
2015
Consolidated
2014
Company
2015
Company
2014
Dividend per ordinary share
Cash dividend per ordinary share
(distribution of current year profits) $3.30 $2.60 $3.30 $2.60
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Franking credits available for the subsequent financial year at a
corporate tax rate of 30 percent (2014: 30 percent)
144
250
144
250
The above amounts represent the balances of the franking accounts as at the end of the financial year, adjusted for:
– franking credits that will arise from the payment of income tax payable as at the end of the financial year, and
– franking debits that will arise from the receipt of tax receivables as at the end of the financial year.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
143
Note 5
Dividends and distributions paid or provided for continued
(iii) Distributions paid or provided for
Macquarie Income Securities
Distributions paid (net of distributions previously provided for)
14 14 – –
Distributions provided for
4 4 – –
Total distributions paid or provided for 18 18 – –
The Macquarie Income Securities (MIS) represent the NCI of a subsidiary. Refer to Note 29 – Reserves, retained earnings and
non- controlling interests for further details on these instruments. No dividends are payable under the preference shares until
Macquarie Bank Limited (MBL), a subsidiary, exercises its option to receive future payments of interest and principal under the other
stapled security. Upon exercise, dividends are payable at the same rate, and subject to similar conditions, as the MIS. Dividends are
also subject to MBL Directors' discretion.
Macquarie Income Preferred Securities
Distributions paid (net of distributions previously provided for)
3 2 – –
Distributions provided for
2 2 – –
Total distributions paid or provided for 5
4
–
–
The Macquarie Income Preferred Securities (MIPS) represent the NCI of a subsidiary. Refer to Note 29 – Reserves, retained earnings
and non-controlling interests for further details on these instruments. MBL can redirect the payments of distributions under the
convertible debentures to be paid to itself. For each debenture 500 MBL preference shares may be substituted at MBL's discretion
at any time, in certain circumstances (to meet capital requirements), or on maturity.
Consolidated
2015
Consolidated
2014
Note 6
Earnings per share
Cents per share
Basic earnings per share
502.3 383.6
Diluted earnings per share 484.2 369.2
Reconciliation of earnings used in the calculation of basic and diluted earnings per share $m $m
Profit after income tax 1,623 1,279
(Profit)/loss attributable to non-controlling interests:
Macquarie Income Securities (18) (18)
Macquarie Income Preferred Securities (5) (4)
Other non-controlling interests 4 8
Total profit attributable to ordinary equity holders of MGL 1,604 1,265
Less profit attributable to participating unvested MEREP awards (107) (91)
Total earnings used in the calculation of basic earnings per share 1,497 1,174
Add back: Adjusted interest expense on Macquarie Bank Capital Notes 6 –
Adjusted interest expense on Macquarie Group Capital Notes 18 14
Adjusted interest expense on Exchangeable Capital Securities 11 9
Profit attributable to dilutive participating unvested MEREP awards 77 73
Add back adjusted interest expense on Macquarie Convertible Preference Securities
(1)
– 7
Total earnings used in the calculation of diluted earnings per share 1,609 1,277
(1)
The Convertible Preference Securities have been included in diluted earnings per share weighted for the period through their date of
redemption, to the extent to which they were dilutive based on the conversion features measured at their date of redemption.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
Consolidated
2014
144
Note 6
Earnings per share continued
Number of shares
Total weighted average number of externally held ordinary shares
used in the calculation of basic earnings per share 298,056,554 306,081,657
Weighted average number of shares used in the calculation
of diluted earnings per share
Weighted average fully paid externally held ordinary shares
298,056,554 306,081,657
Potential ordinary shares:
Weighted average options
2,720 38,425
Weighted average Macquarie Bank Capital Notes
2,750,600 –
Weighted average Macquarie Group Capital Notes
7,970,512 8,837,685
Weighted average Exchangeable Capital Securities
4,546,959 5,067,970
Weighted average unvested MEREP awards
18,965,134 22,645,659
Weighted average Macquarie Convertible Preference Securities
(1)
– 3,222,037
Total weighted average number of externally held ordinary shares and potential
ordinary shares used in the calculation of diluted earnings per share 332,292,479 345,893,433
(1)
The Convertible Preference Securities have been included in diluted earnings per share weighted for the period through their date of
redemption, to the extent to which they were dilutive based on the conversion features measured at their date of redemption.
Macquarie Group Employee Retained Equity Plan
In December 2009, the Company’s shareholders approved the implementation of the MEREP.
Vested MEREP awards are considered to be ordinary shares and have been included in the determination of basic and diluted
earnings per share from their date of vesting.
Unvested MEREP awards are considered to be potential ordinary shares and have been included in the calculation of diluted
earnings per share to the extent they are dilutive. Included in the balance of weighted average unvested MEREP awards are
3,278,643 (2014: 3,884,630) awards that were vested, lapsed or cancelled during the period. As at 31 March 2015, a further
22,253 (2014: 48,518) MEREP awards have not been included in the balance of weighted average unvested MEREP awards on the
basis that they are not considered to be dilutive.
Exchangeable Shares
The exchangeable shares on issue (refer Note 28 – Contributed equity) are considered to be ordinary shares and have been
included in the determination of basic and diluted earnings per share from their date of issue.
Exchangeable Capital Securities
Exchangeable Capital Securities (ECS) (refer to Note 27 – Loan capital) have the potential to be ordinary shares and have been
included in the determination of diluted earnings per share from their date of issue to the extent to which they are dilutive. These
securities have not been included in the determination of basic earnings per share.
Macquarie Group Capital Notes
Macquarie Group Capital Notes (MCN) (refer to Note 27 – Loan capital) have the potential to be ordinary shares and have been
included in the determination of diluted earnings per share from their date of issue to the extent to which they are dilutive. The
securities have not been included in the determination of basic earnings per share.
Macquarie Bank Capital Notes
Macquarie Bank Capital Notes (BCN) (refer to Note 27 – Loan capital) have the potential to be ordinary shares and have been
included in the determination of diluted earnings per share from their date of issue to the extent to which they are dilutive. The
securities have not been included in the determination of basic earnings per share.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the finl year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
145
Note 7
Receivables from financial institutions
Cash and other receivables
(1)
10,732 8,695
–
–
Cash collateral on securities borrowed and reverse
repurchase agreements
(2)
17,973 10,762
–
–
Total receivables from financial institutions
28,705
19,457
–
–
(1)
Included within this balance is $62 million (2014: $64 million) provided as security over payables to other financial institutions.
(2)
The Consolidated Entity enters into stock borrowings and reverse repurchase transactions with counterparties which require lodgement
of non-cash collateral. Under certain transactions, the Consolidated Entity is allowed to resell or re-pledge the collateral held under
terms that are usual and customary, but is obliged to return equivalent securities. The fair value of collateral held as at 31 March 2015 is
$19,800 million (2014: $11,679 million).
The majority of the above amounts are expected to be recovered within 12 months of the balance date by the Consolidated Entity.
Note 8
Trading portfolio assets
Equities
Listed
14,832 7,990 – –
Unlisted
63 33 – –
Commodities
6,035 4,506 – –
Commonwealth government securities
4,199 5,707 – –
Corporate loans and securities
2,653 2,190 – –
Foreign government securities
1,377 1,756 – –
Treasury notes
1,133 173 – –
Other
(1)
114 107 – –
Total trading portfolio assets
(2),(3)
30,406 22,462 – –
(1)
Included in this balance are promissory notes, bank bills and other government securities which include state and local governments
and related enterprises, predominantly in Australia.
(2)
Included within these balances are assets pledged as security over issued notes and payables to other external investors and financial
institutions. The value of assets provided as security is $915 million (2014: $617 million).
(3)
Included within this balance are assets of $5,869 million (2014: $7,470 million) pledged as collateral to secure liabilities under repurchase
agreements and stock lending agreements.
The above amounts are expected to be recovered within 12 months of the balance date by the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
146
Note 9
Investment securities available for sale
Equity securities
Listed 944 771 – –
Unlisted 1,500 1,234 – –
Debt securities
(1),(2)
6,452 12,046 – –
Total investment securities available for sale
(3)
8,896
14,051
–
–
(1)
Included within this balance is $1,206 million (2014: $3,909 million) of Negotiable Certificates of Deposits (NCD) receivable from financial
institutions and $nil (2014: $100 million) of bank bills.
(2)
Included within this balance is $941 million (2014: $1,161 million) provided as security over payables to other financial institutions.
(3)
Included within this balance is $411 million (2014: $582 million) pledged as collateral to secure liabilities under repurchase agreements
and stock lending agreements.
Of the above amounts, $2,060 million (2014: $5,805 million) is expected to be recovered within 12 months of the balance date by
the Consolidated Entity.
Note 10
Other assets
Security settlements
(1)
6,722 6,094
– –
Debtors and prepayments 5,017 4,721
10 23
Life investment contracts and other unitholder assets 1,059 1,113
– –
Income tax receivable 363 726
128 247
Property held for sale and development 250 175
– –
Other 146 161
– –
Total other assets
(2)
13,557
12,990
138 270
(1)
Security settlements are generally receivable within three working days of the relevant trade date.
(2)
Included within this balance is $133 million (2014: $53 million) of assets which are provided as security over amounts payable to other
financial institutions.
Of the above amounts, $13,161 million (2014: $12,654 million) and $138 million (2014: $270 million) are expected to be recovered
within 12 months of the balance date by the Consolidated Entity and by the Company.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the finl year ended 31 March 2013
147
Note 11
Loan assets held at amortised cost
Consolidated 2015 Consolidated 2014
Gross
$m
Individually
assessed
provision for
impairment
$m
Net
$m
Gross
$m
Individually
assessed
provision for
impairment
$m
Net
$m
Residential mortgage loans 29,432 (14) 29,418 23,107 (13) 23,094
Corporate and commercial lending 19,871 (545) 19,326 16,785 (260) 16,525
Lease and retail financing 11,586 (57) 11,529 11,082 (72) 11,010
Margin money placed 9,182 – 9,182 5,342 – 5,342
Relationship banking mortgages 2,064 – 2,064 1,613 – 1,613
Investment and insurance premium lending 1,676 (5) 1,671 1,450 (14) 1,436
Total loan assets before collective
allowance for credit losses 73,811 (621) 73,190 59,379 (359) 59,020
Less collective allowance for credit losses (428) (308)
Total loan assets held at amortised
cost
(1),(2),(3)
72,762 58,712
(1)
Included within this balance are loans of $17,207 million (2014: $14,025 million) held by consolidated Special Purpose Entities (SPEs),
which are available as security to note holders and debt providers.
(2)
Included within this balance are other loans of $2,653 million (2014: $3,508 million) pledged as security over issued notes and payables
to other external investors and financial institutions.
(3)
Included within this balance are loans of $1,854 million (2014: $3,853 million) that are held by either a government-backed securitisation
vehicle or financial institutions, and which are pledged as security to note holders. Further, loans of $938 million (2014: $720 million) are
pledged under repurchase agreements.
Of the above amounts, $23,262 million (2014: $17,655 million) is expected to be recovered within 12 months of the balance date by
the Consolidated Entity.
There are no loan assets held at amortised cost in the Company.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
148
Note 11
Loan assets held at amortised cost continued
Individually assessed provisions for impairment
Balance at the beginning of the financial year 359 335 – –
Provided for during the financial year (Note 2) 305 119 – –
Loan assets written off, previously provided for (66) (116) – –
Recovery of loans previously provided for (Note 2) (27) (11) – –
Net transfer from other provisions – 10 – –
Impact of foreign currency translation 50 22 – –
Balance at the end of the financial year 621 359 – –
Individually assessed provisions as a percentage of total gross
loan assets 0.84% 0.60% – –
Collective allowance for credit losses
Balance at the beginning of the financial year 308 240 – –
Provided for during the financial year (Note 2) 91 58 – –
Acquisitions during the period 14 – – –
Net transfer (to)/from other provisions (4) 1 – –
Impact of foreign currency translation 19 9 – –
Balance at the end of the financial year 428 308 – –
The collective allowance for credit losses is intended to cover losses in the existing overall credit portfolio which are not yet
individually identified.
Finance lease receivables are included within loan assets held at amortised cost. The Consolidated Entity provides finance leases to
a broad range of clients to support financing needs in acquiring movable assets such as motor vehicles, small plant and equipment,
electronic and IT equipment.
Consolidated 2015 Consolidated 2014
Gross
investment in
finance lease
receivables
$m
Unearned
income
$m
Present value of
minimum lease
payments
receivable
$m
Gross
investment in
finance lease
receivables
$m
Unearned
income
$m
Present value
of minimum
lease payments
receivable
$m
No later than one year
1,998 (209) 1,789 1,812 (219) 1,593
Later than one year and no later
than five years 3,783 (407) 3,376 4,523 (531) 3,992
Later than five years 242 (73) 169 269 (79) 190
Total finance lease receivables 6,023 (689) 5,334 6,604 (829) 5,775
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the finl year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
149
Note 12
Impaired financial assets
Impaired debt investment securities available for sale before
individually assessed provisions for impairment
3 7 –
–
Less individually assessed provisions for impairment
(3) (6) –
–
Debt investment securities available for sale after individually
assessed provisions for impairment
– 1 –
–
Impaired loan assets and other financial assets before individually
assessed provisions for impairment
1,343 848 –
–
Less individually assessed provisions for impairment
(716) (434) –
–
Loan assets and other financial assets after individually assessed
provisions for impairment
627 414 –
–
Total net impaired financial assets 627 415 –
–
Note 13
Other financial assets at fair value through profit or loss
Investment securities
Equity securities
1,076 1,342 –
–
Debt securities
404 538 –
–
Loan assets
645 974 –
–
Total other financial assets at fair value through profit or loss
(1)
2,125 2,854 –
–
(1)
Included within this balance is $611 million (2014: $867 million) provided as security over payables to other financial institutions.
Of the above amounts, $723 million (2014: $1,222 million) is expected to be recovered within 12 months of the balance date by the
Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
150
Note 14
Property, plant and equipment
Assets for own use
Land and buildings
Cost 307 290 – –
Less accumulated depreciation (11) (8) – –
Total land and buildings 296 282 – –
Furniture, fittings and leasehold improvements
Cost 724 584 – –
Less accumulated depreciation (467) (396) – –
Total Furniture, fittings and leasehold improvements 257 188 – –
Equipment
Cost 145 163 – –
Less accumulated depreciation (102) (142) – –
Total equipment 43 21 – –
Infrastructure assets
Cost 164 100 – –
Less accumulated depreciation (5) (4) – –
Total infrastructure assets 159 96 – –
Total assets for own use 755 587 – –
Assets under operating lease
Aviation
Cost 5,473 4,062 – –
Less accumulated depreciation (947) (618) – –
Total aviation 4,526 3,444 – –
Meters
Cost 1,200 1,036 – –
Less accumulated depreciation (423) (252) – –
Total meters 777 784 – –
Rail cars
Cost 808 1,282 – –
Less accumulated depreciation (64) (95) – –
Total rail cars 744 1,187 – –
Others
Cost 411 429 – –
Less accumulated depreciation (134) (120) – –
Total others 277 309 – –
Total assets under operating lease 6,324 5,724 – –
Total property, plant and equipment 7,079 6,311 –
–
The majority of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the finl year ended 31 March 2013
151
Note 14
Property, plant and equipment continued
Reconciliation of the movement in the Consolidated Entity’s property, plant and equipment at their written-down
value:
Assets for own use
Land and
buildings
$m
Furniture,
fittings and
leasehold
improvements
$m
Equipment
$m
Infrastructure
assets
$m
Total
$m
Balance at 1 April 2013
178 296 22 12 508
Acquisitions 101 53 18 93 265
Disposals – (109) (1) – (110)
Reclassification 6 (2) – (4) –
Impairments (2) – – – (2)
Foreign exchange movements 1 31 2 (4) 30
Depreciation expense (Note 2) (2) (81) (20) (1) (104)
Balance at 31 March 2014 282 188 21 96 587
Acquisitions
60 77 36 178 351
Disposals (4) (2) – (121) (127)
Reclassification (40) 42 – – 2
Impairments – – – 1 1
Foreign exchange movements 2 15 2 10 29
Depreciation expense (Note 2) (4) (63) (16) (5) (88)
Balance at 31 March 2015 296 257 43 159 755
Included in the balance of property, plant and equipment are assets pledged as security over payables to other financial institutions.
The terms preclude these assets from being sold or being used as security for further liabilities without the permission of the
financial institution. The carrying value of assets pledged is $5 million (2014: $13 million).
Assets under operating lease
Aviation
$m
Meters
$m
Rail cars
$m
Other
$m
Total
$m
Balance at 1 April 2013
3,146 660 1,058 271 5,135
Acquisitions
110 176 1 90 377
Disposals
(5) (1) (20) (14) (40)
Reclassification
(3) (104) – 5 (102)
Foreign exchange movements
389 148 192 26 755
Depreciation expense (Note 2)
(193) (95) (44) (69)
(401)
Balance at 31 March 2014 3,444 784 1,187 309 5,724
Acquisitions 633 104 3 155 895
Disposals
(48) – (476) (40) (564)
Reclassification
(1)
(46) (67) – (101) (214)
Impairments
(24) – – – (24)
Foreign exchange movements
772 63 71 41 947
Depreciation expense (Note 2)
(205) (107) (41) (87) (440)
Balance at 31 March 2015 4,526 777 744 277 6,324
Included in the balance of operating leases are assets pledged as security over payables to other financial institutions. The terms
preclude these assets from being sold or being used as security for further liabilities without the permission of the financial
institution. The carrying value of assets pledged is $323 million (2014: $442 million).
(1)
Includes reclassification of operating lease to finance lease as a result of lease re-negotiations.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
152
Note 14
Property, plant and equipment continued
The future minimum lease payments expected to be received under non-cancellable operating leases are as follows:
Assets under operating lease
Not later than one year
732
597
–
–
Later than one year and no later than five years
1,390 1,145 –
–
Later than five years
215
138
–
–
Total future minimum lease payments receivable 2,337 1,880 –
–
Note 15
Interests in associates and joint ventures accounted for using the equity method
Loans and investments without provisions for impairment
1,918 2,074 –
–
Loans and investments with provisions for impairment
1,090 1,052 –
–
Less provisions for impairment
(680) (679) –
–
Loans and investments at recoverable amount
410 373 –
–
Total interests in associates and joint ventures accounted for
using the equity method
(1)
2,328
2,447
–
–
(1)
Included within this balance is $2,159 million (2014: $2,252 million) relating to interests in associates and $169 million (2014: $195
million) relating to interests in joint ventures. All of the above amounts are expected to be recovered after 12 months of the balance date
by the Consolidated Entity.
(i) Financial information of associates and joint ventures that are individually immaterial is as follows:
Consolidated Entity’s share of:
Profit or loss from continuing operations
5
141
–
–
Post-tax profit or loss from discontinued operations
–
8
–
–
Other comprehensive income
(6)
19
–
–
Total comprehensive income
(1)
168
–
–
(ii) Contingent liabilities of associates and joint ventures are as follows:
Share incurred jointly with other investors
–
17 – –
For which the Consolidated Entity is severally liable
–
19
–
–
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
153
Note 16
Intangible assets
Goodwill
580
653
–
–
Intangible assets with indefinite lives
293
242
–
–
Customer and servicing contracts
89
119
–
–
Other identifiable intangible assets
202
207
–
–
Total intangible assets 1,164
1,221
–
–
The majority of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity.
Reconciliation of the Consolidated Entity’s movement in intangible assets:
Goodwill
$m
Intangible
assets with
indefinite
lives
$m
Customer
and
servicing
contracts
$m
Other
identifiable
intangible
assets
$m
Total
$m
Balance at 1 April 2013
613 243 121 244 1,221
Acquisitions 20 – – 41 61
Reclassifications 2 – 5 (6) 1
Adjustments to purchase consideration 1 – – 3 4
Disposals (49) (28) – (38) (115)
Impairment – – (1) (20) (21)
Amortisation expense (Note 2) – – (23) (43) (66)
Currency translation difference 66 27 17 26 136
Balance at 31 March 2014 653 242 119 207 1,221
Acquisitions
– – – 105 105
Reclassifications 9 – (9) – –
Disposals (68) – (9) (38) (115)
Impairment (120) – (11) (10) (141)
Amortisation expense (Note 2) – – (19) (76) (95)
Currency translation difference 106 51 18 14 189
Balance at 31 March 2015 580 293 89 202 1,164
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
154
Note 17
Investments in subsidiaries
Investments at cost without provisions for impairment
–
– 12,047 11,096
Investments at cost with provisions for impairment –
– 14,070 14,058
Less provisions for impairment (Note 1(xxviii)) –
– (10,246) (11,517)
Investments at recoverable amount
(1)
–
– 3,824 2,541
Total investments in subsidiaries –
–
15,871
13,637
(1)
The recoverable amount has been estimated using valuation techniques which incorporate the subsidiary’s consolidated earnings and
Macquarie’s price earnings multiple.
The above amounts are expected to be recovered after 12 months of the balance date by the Company.
The material subsidiaries of the Company, based on contribution to the Consolidated Entity’s profit after income tax, the size of the
investment made by the Company or the nature of activities conducted by the subsidiary, are:
– Delaware Investments Management Company, LLC (United
States)
– Delaware Management Holdings, Inc. (United States)
– Macquarie Aerospace Limited (Bermuda)
– Macquarie Affiliated Managers (USA) Inc. (United States)
– Macquarie Affiliated Managers Holdings (USA) Inc. (United
States)
– Macquarie Agricultural Funds Management Ltd (Australia)
– Macquarie Alpine Inc. (United States)
– Macquarie Alternative Assets Management Limited (Australia)
– Macquarie America Holdings Inc. (United States)
– Macquarie Americas Holdings Pty Ltd (Australia)
– Macquarie Australia Pty Limited (Australia)
– Macquarie B.H. Pty Ltd (Australia)
– Macquarie Bank International Limited (United Kingdom)
– Macquarie Bank Limited (Australia)
– Macquarie BFS Holdings Ltd. (Canada)
– Macquarie Capital (Australia) Limited (Australia)
– Macquarie Capital (Europe) Limited (United Kingdom)
– Macquarie Capital (Singapore) Pte Limited (Singapore)
– Macquarie Capital Group Limited (Australia)
– Macquarie Capital International Holdings Pty Limited (Australia)
– Macquarie Capital Securities (Mauritius) Limited (Mauritius)
– Macquarie Capital Securities (Singapore) Pte Limited
(Singapore)
– Macquarie Capital Securities Limited (Hong Kong)
– Macquarie Corporate and Asset Finance Limited (Australia)
– Macquarie Credit Nexus Holdings Limited (Cayman Islands)
– Macquarie Energy LLC (United States)
– Macquarie FG Holdings Inc. (United States)
– Macquarie FICC (UK) Limited (United Kingdom)
– Macquarie FICC Holdings USA Inc. (United States)
– Macquarie Financial Holdings (USA) LLC (United States)
– Macquarie Financial Holdings Limited (Australia)
– Macquarie Financial Ltd./Financiere Macquarie Ltee. (Canada)
– Macquarie Financial Markets LLC (United States)
– Macquarie Financial Products Management Limited (Australia)
– Macquarie Funding Holdings LLC (United States)
– Macquarie Funds Management Holdings Pty Limited (Australia)
– Macquarie Group Employee Retained Equity Plan (MEREP
Trust) (Australia)
– Macquarie Group Services Australia Pty Ltd (Australia)
– Macquarie Holdings (U.S.A.) Inc. (United States)
– Macquarie Infrastructure and Real Assets (Europe) Limited
(United Kingdom)
– Macquarie Infrastructure and Real Assets Inc. (United States)
– Macquarie Infrastructure Funds Management Pty Limited
(Australia)
– Macquarie Infrastructure Management (Asia) Pty Limited
(Australia)
– Macquarie Infrastructure Management (USA) Inc (United
States)
– Macquarie Investment Management Ltd (Australia)
– Macquarie Investments (UK) Limited (United Kingdom)
– Macquarie Leasing Pty Limited (Australia)
– Macquarie Prism Pty Limited (Australia)
– Macquarie Sct Pty Limited (Australia)
– Macquarie Securities South Africa Limited (South Africa)
– Macquarie Services (USA) LLC (United States)
– Macquarie TCG (USA) LLC (United States)
– Macquarie US Gas Supply LLC (United States)
– Meadowlark Capital LLC (United States)
– MIHI LLC (United States).
Note: The country of incorporation has been stated in brackets next to the name of the entity, unless otherwise stated.
Overseas subsidiaries conduct business predominantly in their place of incorporation, unless otherwise stated.
Beneficial interest in all material entities is 100 percent.
All material entities have a 31 March reporting date.
In accordance with ASIC instruments 12-0250, 12-1311, 13-0151, 13-0394 and 13-0500, Macquarie Group has been granted
relief under section 340 of the Corporations Act 2001 (Cth) from synchronising the year-end of the following entities that are in its
consolidated group:
– Macquarie Mexico Real Estate Management, S.A. de C.V.
– Texas Municipal Gas Acquisition and Supply Corporation III
– Energia del Norte Holding S.A.P.I. de C.V. and Cefiro Capital S.A.P.I de C.V. SOFOM E.N.R.
This is of no consequence to the consolidation as, while the year-ends of the above entities are different to that of Macquarie
Group, the results and balances included in the consolidation are at the reporting date of 31 March.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
155
Note 18
Deferred tax assets/(liabilities)
The balance comprises temporary differences attributable to:
Other assets and liabilities 991 622 40 16
Tax losses 517 491 19 77
Fixed assets 89 108 – –
Set-off of deferred tax liabilities (723) (455) – 50
Total deferred tax assets 874 766 59 143
Investments
(55) 153 – –
Intangible assets (135) (137) – –
Other assets and liabilities (239) (193) – –
Leasing and financial instruments (758) (829) – 50
Set-off of deferred tax assets 723 455 – (50)
Total deferred tax liabilities (464) (551) – –
Net deferred tax assets 410 215 59 143
The majority of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity
and the Company.
Potential tax assets of approximately $104 million (2014: $33 million) attributable to tax losses carried forward by subsidiaries have
not been brought to account in the Consolidated Entity as the Directors do not believe the realisation of the tax assets is probable.
The principles of the balance sheet method of tax effect accounting have been adopted whereby the income tax expense for the
financial year is the tax payable on the current year's taxable income adjusted for changes in deferred tax assets and liabilities
attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial
statements and unused tax losses. Deductible temporary differences and tax losses give rise to deferred tax assets. Deferred tax
assets are not recognised unless the benefit is probable of realisation.
The deferred tax assets have been applied against deferred tax liabilities to the extent that they are expected to be realised within
the same tax paying entity or group.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
156
Note 19
Trading portfolio liabilities
Listed equity securities
4,525 1,888 – –
Foreign government securities 336 363 – –
Corporate securities 309 396 – –
Commodities 125 115 – –
Total trading portfolio liabilities 5,295 2,762 – –
Note 20
Deposits
Interest bearing deposits
Call 30,308 26,225 – –
Term 8,146 9,491 18 33
Client monies, segregated fund and margin money held 7,728 5,527 – –
Non-interest bearing deposits 1,204 1,158 – –
Total deposits 47,386 42,401 18 33
Note 21
Other liabilities
Due to brokers and customers
6,790 6,343 – –
Creditors 4,706 4,269 – 6
Accrued charges and sundry provisions 2,430 1,921 66 68
Life investment contracts and other unitholder liabilities 1,004 1,084 – –
Income tax payable 650 74 2 –
Other 250 217 – –
Total other liabilities 15,830 13,908 68 74
The majority of the above amounts are expected to be settled within 12 months of the balance date by the Consolidated Entity and
by the Company.
Note 22
Payables to financial institutions
Cash collateral on securities lent and repurchase agreements
12,018 13,564 – –
OECD banks 4,691 4,128 2,566 1,307
Other 1,936 1,962 – –
Total payables to financial institutions 18,645 19,654 2,566 1,307
Note 23
Other financial liabilities at fair value through profit or loss
Credit linked notes 1,064 297 – –
Equity linked notes 420 1,084 – –
Debt issued at fair value 142 83 – –
Total other financial liabilities at fair value through profit or loss 1,626 1,464 – –
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
157
Note 24
Debt issued at amortised cost
Debt issued at amortised cost
(1)
61,463 45,565 6,179 6,265
Total debt issued at amortised cost 61,463 45,565 6,179 6,265
(1)
Included within this balance are amounts payable to SPE note holders and debt holders of $15,952 million (2014: $12,732 million).
The Consolidated Entity has not had any defaults of principal, interest or other breaches with respect to its debt during the years
reported.
Reconciliation of debt issued at amortised cost and other financial liabilities at fair value through profit or loss by
major currency:
(In Australian dollar equivalent):
United States dollars
34,059 23,912 5,639 5,710
Australian dollars 15,206 12,056 22 65
Euro 4,073 1,691 – –
Great British pounds 3,519 1,090 – –
Canadian dollars 1,949 3,932 – –
Swiss franc 1,717 1,138 – –
Japanese yen 1,318 1,998 518 490
South African rand 531 636 – –
Hong Kong dollars 205 174 – –
Norwegian Krone 162 – – –
Yuan Renminbi 140 – – –
Korean won 124 262 – –
Singapore dollars 56 104 – –
Others 30 36 – –
Total by currency 63,089 47,029 6,179 6,265
The Consolidated Entity's primary sources of domestic and international debt funding are its multi-currency, multi-jurisdictional Debt
Instrument Program and domestic NCD issuance.
Note 25
Provisions
Provision for annual leave
113 109 – –
Provision for long service leave 85 81 – –
Provision for other employee entitlements 16 9 – –
Provision for dividends 6 6 – –
Total provisions 220 205 – –
The majority of the above amounts are expected to be settled after 12 months of the balance date by the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
158
Note 26
Capital management strategy
The Company and Consolidated Entity’s capital management
strategy is to maximise shareholder value through optimising the
level and use of capital resources, whilst also providing the flexibility
to take advantage of opportunities as they may arise.
The Consolidated Entity’s capital management objectives are to:
– continue to support the Consolidated Entity’s credit rating
– ensure sufficient capital resource to support the Consolidated
Entity’s business and operational requirements
– maintain sufficient capital to exceed externally imposed capital
requirements, and
– safeguard the Consolidated Entity’s ability to continue as a going
concern.
The Consolidated Entity’s capital management strategy uses both
internal and external measures of capital. Internally, Macquarie has
developed an Economic Capital Adequacy Model (ECAM) that is
used to quantify MGL’s aggregate level of risk. The economic capital
framework complements the management of specific risk types
such as equity, credit, market and operational risk by providing an
aggregate view of MGL’s risk profile. The economic capital model
is used to support business decision-making and has three main
applications:
– capital adequacy assessment
– risk appetite setting, and
– risk-adjusted performance measurement.
The Consolidated Entity is subject to minimum capital requirements
externally imposed by APRA.
A subsidiary of the Company, MBL, is accredited by APRA to apply
the Basel III Foundation Internal Ratings Based Approach (FIRB) for
credit risk, the Advanced Measurement Approach (AMA) for
operational risk, the internal model approach for market risk and the
internal model approach for interest rate risk in the banking book.
Regulatory capital requirements are measured at three levels of
consolidation within the Consolidated Entity. MBL and certain
subsidiaries which meet the APRA definition of Extended Licensed
Entities are reported as Level 1. Level 2 consists of MBL, its
subsidiaries and its immediate parent less certain subsidiaries of
MBL which are deconsolidated for APRA reporting purposes. These
include mortgage and leasing special purpose vehicles (SPVs) and
entities conducting insurance, funds management and non-financial
operations. Level 3 consists of the Level 2 group plus the non-bank
group.
APRA requires Authorised Deposit-taking Institutions (ADIs)
to have a minimum ratio of capital to risk weighted assets
(RWA) of 8 percent at both Level 1 and Level 2, with at
least 6 percent of this capital in the form of Tier 1 capital
and at least 4.5 percent of this minimum capital in the form
of Common Equity Tier 1 capital. In addition, APRA
imposes ADI specific minimum capital ratios which may be
higher than these levels. At the Level 3 group, which
involves the Non-Operating Holding Company structure,
APRA has imposed minimum regulatory capital
requirements calculated as the sum of the dollar value of:
– MBL’s minimum Tier 1 capital requirement, based on
a percentage of RWA plus Tier 1 deductions using
prevailing APRA ADI Prudential Standards, and
– the non-bank group capital requirement, using the
Consolidated Entity’s ECAM. Transactions internal
to the Consolidated Entity are excluded.
The Consolidated Entity’s Level 3 eligible capital consists
of ordinary equity, certain reserves and hybrid instruments.
The overall Level 3 capital position is reported as an excess
over the regulatory imposed minimum capital adequacy
requirement.
The Consolidated Entity has satisfied all internally and
externally imposed capital requirements at Level 1, Level 2
and Level 3 throughout the year.
159
Note 27
Loan capital
Subordinated debt
Agreements between the Consolidated Entity and the lenders
provide that, in the event of liquidation, entitlement of such
lenders to repayment of the principal sum and interest thereon
is and shall at all times be and remain subordinated to the rights
of all other present and future creditors of the Consolidated
Entity. Details of selected capital instruments are discussed
below.
Macquarie Preferred Membership Interests
On 2 December 2010, Macquarie PMI LLC, a subsidiary of the
Company, issued $US400 million of $US denominated
Preferred Membership Interests (Macquarie PMI). These
instruments are non-cumulative and unsecured equity interests
in the issuer. They are redeemable at the Company’s option,
subject to various conditions, on any distribution date from
2 December 2015, and are non-dilutive, as they will only
exchange to a fixed number of MGL preference shares in
specified circumstances, and mandatorily on 26 November
2035.
The Macquarie PMI bear discretionary fixed-rate coupons at
8.375 percent per annum, paid semi-annually. If coupons are
not paid, the Company will be restricted from paying dividends
or returning capital on ordinary shares until two full coupon
payments have been made.
The total number of MGL preference shares that would be
issued if Macquarie PMI were exchanged at 31 March 2015
would be 400,000 (31 March 2014: 400,000).
Exchangeable Capital Securities
On 26 March 2012, MBL, acting through its London Branch,
issued $US250 million of ECS.
The ECS, being unsecured subordinated notes, pay
discretionary, non-cumulative interest of 10.25 percent per
annum, payable semi-annually in arrears, with the rate to be
reset on 20 June 2017 (and each fifth anniversary thereafter) if
the ECS remain outstanding after this time. If interest is not paid
on the ECS, MBL and the Company will be restricted from
paying dividends or returning capital on their ordinary shares
until the next interest payment date.
Subject to certain conditions being met, the ECS will be
exchanged for a variable number of fully paid ordinary shares of
the Company on 20 June 2017, or on any interest payment
date thereafter, with exchange to occur no later than 20 June
2057. The ECS may also be exchanged earlier on an acquisition
event (where a person acquires control of MBL or the
Company), where MBL’s common equity Tier 1 capital ratio falls
below 5.125 percent, or where APRA determines MBL would
be non-viable without an exchange or a public sector injection
of capital (or equivalent support).
If exchange occurs, a variable number of the Company's
ordinary shares will be issued at a 5 percent discount to the
share price, as quoted on the ASX and converted to US dollars,
determined over a period immediately prior to the date of that
exchange.
No ECS were exchanged during the financial year. The total
number of ordinary shares that would be issued if ECS were
exchanged at 31 March 2015 would be 4,546,959 (31 March
2014: 5,067,970). The maximum number of ordinary shares
that can be issued on an exchange is 17,689,525.
The ECS will only be redeemable, subject to APRA’s written
approval, at the discretion of MBL in limited circumstances,
including following a change in law that has an impact on the
regulatory or tax treatment of the ECS.
As at 31 March 2015, the remaining principal liability related to
the ECS was $US250 million (31 March 2014: $US250 million).
Macquarie Group Capital Notes
On 7 June 2013, the Company issued six million MCN at face
value of $100 each. These instruments are non-cumulative and
unsecured and may be redeemed at face value on 7 June
2018, 7 December 2018 or 7 June 2019 (subject to certain
conditions being satisfied) or earlier in specified circumstances
at the discretion of the Company, subject to APRA's written
approval.
MCN may also be exchanged into a variable number of the
Company’s ordinary shares (subject to certain conditions being
satisfied) on these redemption dates or mandatorily exchanged
on 7 June 2021. The MCN may also be exchanged earlier on
an acquisition event (where a person acquires control of the
Company) or where APRA determines the Company would be
non-viable without an exchange or a public sector injection of
capital (or equivalent support).
In the event of an exchange, MCN Holders will receive up to
approximately $101 worth of ordinary shares per MCN held.
The total number of ordinary shares that would be issued if
MCN were exchanged at 31 March 2015 would be 7,970,512
(31 March 2014: 10,824,861). The maximum number of
ordinary shares that can be issued on an exchange is
70,721,358.
The MCN pay discretionary, floating rate cash distributions
equal to 180-day BBSW plus a fixed margin of 4.00 percent per
annum, adjusted for franking credits, paid semi-annually. If
interest is not paid on the MCN, the Company will be restricted
from paying dividends or returning capital on ordinary shares
until the next interest payment date.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
160
Note 27
Loan capital continued
Macquarie Bank Capital Notes
On 8 October 2014, Macquarie Bank Limited, a subsidiary of
the Company, issued 4.3 million BCN at face value of $100
each. These instruments are non-cumulative and unsecured
and may be redeemed at face value on 24 March 2020,
24 September 2020 or 24 March 2021 (subject to certain
conditions being satisfied) or earlier in specified circumstances
at the discretion of the Company, subject to APRA's written
approval.
BCN may also be exchanged into a variable number of the
Company’s ordinary shares (subject to certain conditions being
satisfied) on these redemption dates or mandatorily exchanged
on 24 March 2023. The BCN may also be exchanged earlier on
an acquisition event (where a person acquires control of the
Company or MBL) or where APRA determines Macquarie Bank
Limited would be non-viable without an exchange or a public
sector injection of capital (or equivalent support).
In the event of an exchange, BCN Holders will receive up to
approximately $101 worth of ordinary shares per BCN held.
The total number of ordinary shares that would be issued if
BCN were exchanged at 31 March 2015 would be 5,704,369.
The maximum number of ordinary shares that can be issued on
an exchange is 37,056,481.
The BCN pay discretionary, floating rate cash distributions
equal to 180-day BBSW plus a fixed margin of 3.30 percent per
annum, adjusted for franking credits, paid semi-annually. If
interest is not paid on the BCN, Macquarie Bank Limited will be
restricted from paying dividends or returning capital on ordinary
shares until the next interest payment date.
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
161
Note 27
Loan capital continued
Maturity and currency profiles of loan capital instruments
The dates upon which the Consolidated Entity has committed to repay the principal sum to the lenders are as follows:
Less than 12 months
104 92 11 10
21 September 2020 953 968 – –
7 April 2021 1,461 1,160 – –
Subordinated debt 2,518 2,220 11 10
Instruments with conditional repayment obligations:
MCN 600 600 600 600
Macquarie PMI 526 431 – –
BCN 430 – – –
ECS 329 270 – –
Loan capital 4,403 3,521 611 610
Less directly attributable issue cost (19) (14) (8) (9)
Total loan capital
(1)
4,384 3,507 603 601
Reconciliation of subordinated debt by major currency:
(In Australian dollar equivalent)
United States dollars
2,382 1,915 – –
Australian dollars 1,042 610 611 610
Euro 979 996 – –
Loan capital 4,403 3,521 611 610
Less directly attributable issue cost (19) (14) (8) (9)
Total loan capital
(1)
4,384 3,507 603 601
(1)
The balance is net of fair value hedge accounting adjustments.
The Consolidated Entity has not had any defaults of principal, interest or other breaches with respect to its loan capital during the
years reported.
In accordance with APRA guidelines, MBL includes the applicable portion of the subordinated debt as Tier 2 capital and the ECS as
Additional Tier 1 capital.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
Number of
shares
Consolidated
2014
Number of
shares
Consolidated
2015
$m
Consolidated
2014
$m
162
Note 28
Contributed equity
Ordinary share capital
Opening balance of fully paid ordinary shares 321,074,750 339,506,578 6,075 6,882
Issue of shares on exercise of options 67,664 423,159 3 12
Issue of shares on exercise of MEREP awards 28,072 65,141 2 3
Issue of shares pursuant to Dividend Reinvestment Plan (DRP) at
$57.79 per share 2,967,273 – 171 –
Issue of shares pursuant to Employee Share Plan (ESP) at $59.27
per share 16,080 – 1 –
Issue of shares pursuant to Institutional Private Placement at
$73.50 per share 6,802,722 – 500 –
Issue of shares pursuant to Share Purchase Plan (SPP) at $73.50
per share 2,312,714 – 170 –
Issue of shares on retraction of exchangeable shares 188,502 147,840 10 9
Capital reduction through SYD distribution
(1)
– – – (803)
Consolidation of one ordinary share into 0.9438 ordinary share
(1)
– (19,067,968) – –
For employee MEREP awards that have vested and forfeited, and
options exercised during the financial year:
Transfer of MEREP expense from share-based payments reserve – – 242 195
Transfer of additional deferred tax benefit on MEREP expense
from share-based payments reserve – – 31 14
Transfer from treasury shares for shares withdrawn – – (285) (237)
Transfer from share-based payment capital reduction reserve – – (19) –
Closing balance of fully paid ordinary shares 333,457,777 321,074,750 6,901 6,075
(1)
Represents SYD Distribution to ordinary shareholders recognised as return of ordinary share capital and consolidation of ordinary shares
on SYD Securities distribution. Refer Note 5 – Dividends and distribution paid or provided for.
Company
2015
Number of
shares
Company
2014
Number of
shares
Company
2015
$m
Company
2014
$m
163
Note 28
Contributed equity continued
Ordinary share capital
Opening balance of fully paid ordinary shares 321,074,750 339,506,578 8,841 9,652
Issue of shares on exercise of options 67,664 423,159 3 12
Issue of shares on exercise of MEREP awards 28,072 65,141 2 3
Issue of shares pursuant to Dividend Reinvestment Plan (DRP) at
$57.79 per share 2,967,273 – 171 –
Issue of shares pursuant to Employee Share Plan (ESP) at $59.27
per share 16,080 – 1 –
Issue of shares pursuant to Institutional Private Placement at
$73.50 per share 6,802,722 – 500 –
Issue of shares pursuant to Share Purchase Plan (SPP) at $73.50
per share 2,312,714 – 170 –
Issue of shares on retraction of exchangeable shares 188,502 147,840 11 9
Capital reduction through SYD distribution
(1)
– – – (793)
Consolidation of one ordinary share into 0.9438 ordinary share
(1)
– (19,067,968) – –
For employee MEREP awards that have vested and forfeited, and
options exercised during the financial year:
Transfer of MEREP expense from share-based payments reserve – – 242 195
Transfer from treasury shares for shares withdrawn – – (285) (237)
Transfer from share-based payment capital reduction reserve – – (19) –
Closing balance of fully paid ordinary shares 333,457,777 321,074,750 9,637 8,841
(1)
Represents SYD Distribution to ordinary shareholders recognised as return of ordinary share capital and consolidation of ordinary shares
on SYD Securities distribution. Refer Note 5 – Dividends and distribution paid or provided for. Disclosures regarding the Company’s
DRP are included in Note 5 – Dividends and distributions paid or provided for.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
164
Note 28
Contributed equity continued
Treasury shares
Opening balance of 26,011,106 (1 April 2013: 28,981,801) treasury
shares
(1)
(990) (1,011) (989) (1,010)
Purchase of 4,461,905 (31 March 2014: 4,969,737) shares for
employee MEREP awards (266) (216) (266) (216)
Transfer of 7,228,889 (31 March 2014: 6,345,371) shares
withdrawn/exercised for vested MEREP awards 285 237 285 237
Consolidation of one treasury share into 0.9438 treasury share
resulting in a reduction of 1,595,061 treasury shares in 2014 – – – –
Purchase of nil (31 March 2014: 1,866,577) shares for DRP share
issue by the Company – (81) – (81)
Allocation of nil (31 March 2014: 1,866,577) shares under DRP
scheme by the Company – 81 – 81
Purchase of 1,049,203 (31 March 2014: 702,614) shares for DRP
share issue by the consolidated entity (63) (39) – –
Allocation of 1,049,203 (31 March 2014: 702,614) shares under
DRP scheme by the consolidated entity 63 39 – –
Closing balance of 23,244,122 (31 March 2014: 26,011,106)
treasury shares
(1)
(971) (990) (970) (989)
(1)
In December 2009, the Company introduced MEREP, which grants RSUs, DSUs and PSUs to eligible staff. Under MEREP the staff
retained profit share is held in the shares of the Company by Macquarie Group Employee Retained Equity Plan Trust (MEREP Trust) and
presented as Treasury shares. For further information regarding terms and conditions of MEREP refer to Note 33 – Employee equity
participation.
Exchangeable shares
Opening balance of 447,562 (1 April 2013: 604,206) exchangeable
shares 27 36 –
–
Retraction of 199,679 (31 March 2014: 147,840) exchangeable
shares, exchangeable to shares in MGL
(1)
(10) (9) –
–
Cancellation of 2,428 (31 March 2014: 8,804) exchangeable shares – – –
–
Closing balance of 245,455 (31 March 2014: 447,562)
exchangeable shares 17 27 –
–
(1)
The exchangeable shares were issued by a subsidiary as consideration for the acquisitions of Tristone Capital Global Inc. and Orion
Financial Inc. and are classified as equity in accordance with AASB 132 Financial Instruments: Presentation. As per terms of the original
agreement, they were eligible to be exchanged on a one-for-one basis for shares in MGL (subject to staff trading restrictions) or cash at
the Company’s discretion and will pay dividends equal to MGL dividends during their legal life. However, subsequent to the approval of
consolidation of Macquarie ordinary shares by Macquarie's shareholders on 12 December 2013, the terms of the agreement have been
modified to a 0.9438-for-one basis for shares in MGL.
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Contributed equity 5,947 5,112 8,667 7,852
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
165
Note 29
Reserves, retained earnings and non-controlling interests
Reserves
Foreign currency translation reserve
Balance at the beginning of the financial year (313) (895) – –
Currency translation differences arising during the financial year,
net of hedge and tax 868 582 – –
Balance at the end of the financial year 555 (313) – –
Available for sale reserve
Balance at the beginning of the financial year 385 313 – –
Revaluation movement for the financial year, net of tax 166 311 – –
Transfer to income statement for impairment, net of tax 46 64 – –
Transfer to income statement on realisation, net of tax (154) (303) – –
Balance at the end of the financial year 443 385 – –
Share-based payments reserve
Balance at the beginning of the financial year 683 688 631 675
MEREP expense for the financial year 319 257 – –
Additional deferred tax benefit on MEREP expense 67 53 – –
MEREP issued to employees of subsidiaries (Note 31) – – 319 257
Transfer to retained earnings in respect of expired and lapsed
options and forfeited MEREP awards – (97) – (97)
Transfer to other liabilities on vesting of MEREP awards and
exercise of options
(1)
(1) (9) (1) (9)
Transfer to share capital on vesting of MEREP awards and
exercise of options (242) (195) (242) (195)
Transfer of additional deferred tax benefit to share capital on
vesting of MEREP awards (31) (14) – –
Balance at the end of the financial year 795 683 707 631
Share-based payments capital reduction reserve
(2)
Balance at the beginning of the financial year (72) – (72) –
SYD Distribution to MEREP holders – (72) – (72)
Transfer to share capital related to vested and forfeited awards 19 – 19 –
Balance at the end of the financial year (53) (72) (53) (72)
Cash flow hedging reserve
Balance at the beginning of the financial year (28) (49) – –
Revaluation movement for the financial year, net of tax (56) 21 – –
Balance at the end of the financial year (84) (28) – –
Share of reserves of interests in associates and joint ventures
accounted for using the equity method
Balance at the beginning of the financial year 14 – – –
Share of other comprehensive (expense)/income of associates and
joint ventures, net of tax (14) 14 – –
Balance at the end of the financial year – 14 – –
Total reserves at the end of the financial year 1,656 669 654 559
Retained earnings
Balance at the beginning of the financial year (Note 1(xxviii)) 5,637 5,439 5,204 3,543
Profit attributable to ordinary equity holders of MGL 1,604 1,265 2,581 2,708
Dividends paid on ordinary share capital (Note 5) (931) (1,159) (921) (1,144)
Transfer from share based payments reserves in respect of
expired and lapsed options and forfeited MEREP awards – 97 – 97
Change in non-controlling ownership interest (4) (5) – –
Balance at the end of the financial year 6,306 5,637 6,864 5,204
(1)
Represents vested MEREP awards settled through cash.
(2)
Represents SYD Distribution to the unvested MEREP holders recognised as return of ordinary share capital on SYD Securities
distribution. Refer Note 5 – Dividends and distributions paid or provided for.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
166
Note 29
Reserves, retained earnings and non-controlling interests continued
Non-controlling interests
Macquarie Income Securities
The MIS issued by MBL were listed for trading on the Australian Stock Exchange (now Australian Securities Exchange) on
19 October 1999 and became redeemable (in whole or in part) at MBL's discretion on 19 November 2004. Interest is paid quarterly
at a floating rate of BBSW plus 1.7 percent per annum (2014: 1.7 percent per annum). Payment of interest to holders is subject to
certain conditions, including the profitability of MBL. They are a perpetual instrument with no conversion rights.
Macquarie Income Preferred Securities
On 22 September 2004, Macquarie Capital Funding LP, a subsidiary of the Company, issued £350 million of MIPS. MIPS,
guaranteed non-cumulative step-up perpetual preferred securities, currently pay a 6.177 percent (2014: 6.177 percent) per annum
semi-annual non-cumulative fixed rate distribution. They are perpetual securities and may be redeemed on 15 April 2020, at MGL’s
discretion. If redemption is not elected on this date, the distribution rate will be reset to 2.35 percent per annum above the then
five-year benchmark sterling gilt rate. MIPS may be redeemed on each fifth anniversary thereafter at MGL’s discretion. The first
coupon was paid on 15 April 2005. Following the cancellation of £307.5 million MIPS in September 2009, £42.5 million MIPS
remain on issue.
These instruments are classified as equity in accordance with AASB 132 Financial Instruments: Presentation and reflected in the
Consolidated Entity’s financial statements as a NCI, with distribution entitlements being included with NCI share of profit after tax.
Distribution policies for these instruments are included in Note 5 – Dividends and distributions paid or provided for.
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Macquarie Income Securities
4,000,000 Macquarie Income Securities of $100 each 400 400 – –
Less transaction costs for original placement (9) (9) – –
Total Macquarie Income Securities 391 391 – –
Macquarie Income Preferred Securities
Proceeds on issue of Macquarie Income Preferred Securities 109 109 – –
Less issue costs (1) (1) – –
Foreign currency translation reserve
108 108 – –
(26) (32) – –
Total Macquarie Income Preferred Securities 82 76 – –
Other non-controlling interests
Ordinary share capital 16 28 – –
Preference share capital 2 2 – –
Foreign currency translation reserve 3 – – –
Retained earnings (7) (1) – –
Total other non-controlling interests 14 29 – –
Total non-controlling interests 487 496 – –
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
167
Note 30
Notes to the statements of cash flows
Reconciliation of cash and cash equivalents
Cash and cash equivalents at the end of the financial year as shown
in the statements of cash flows are reconciled to related items in the
statements of financial position as follows:
Receivables from financial institutions
(1)
10,681 8,362 – –
Trading portfolio assets
(2)
1,155 538 – –
Debt securities
(3)
1,129 4,208 – –
Loan asset at amortised cost
(4)
4,008 2,432 – –
Cash and cash equivalents at the end of the financial year
(5)
16,973 15,540 – –
(1)
Includes cash at bank, overnight cash at bank, other loans to banks and amounts due from clearing houses.
(2)
Includes certificates of deposit, bank bills, treasury notes and other short-term debt securities.
(3)
Includes short-term debt securities.
(4)
Includes amounts due from clearing houses.
(5)
Cash and cash equivalents include $5,643 million (2014: $4,172 million) held by collaterised securitisation vehicles in segregated deposit
fund and escrow accounts which are restricted for use.
Reconciliation of profit after income tax to net cash flows
from/(used in) operating activities
Profit after income tax 1,623 1,279 2,581 2,708
Adjustments to profit after income tax:
Depreciation and amortisation 623 571 – –
Fair value changes on financial assets and liabilities at fair value through
profit or loss and realised investment securities available for sale (566) (301) – –
Provision and impairment charge on financial and non-financial assets 847 524 – –
Impairment reversal in subsidiary – – (1,271) (1,648)
Interest on available for sale financial assets (299) (198) – –
Non-cash dividend received – – – (318)
Net gains on sale of investment securities available for sale, associates
and joint ventures and operating lease assets (745) (530) – 19
Share-based payments expense 319 264 – –
Share of net profits of associates and joint ventures accounted for using
the equity method (5) (149) – –
Changes in assets and liabilities:
Change in amount due from subsidiaries under tax funding agreement – – 390 (283)
Change in dividends receivable (106) (105) – –
Change in values of associates due to dividends received 261 111 – –
Change in fees and non-interest income receivable (79) (148) – –
Change in fees and commissions payable 25 (3) – –
Change in tax balances 721 523 (242) 153
Change in provisions for employee entitlements 14 (7) – –
Change in lease assets, net of depreciation, foreign exchange and
impairment (831) (326) – –
Change in loan assets (13,594) (7,793) (1,339) (1,209)
Change in debtors, prepayments, accrued charges and creditors 1,527 1,027 7 9
Change in net trading portfolio assets and liabilities and net derivative
financial instruments (14,231) (3,355) – –
Change in net interest payable, amounts due to other financial
institutions, deposits and other borrowings 22,083 8,150 1,167 928
Net cash flows (used in)/from operating activities (2,413) (466) 1,293 359
Cash flows used in financing activities do not include the non cash transaction related to SYD distribution. Refer Note 5 – Dividends
and distributions paid or provided for.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
168
Note 31
Related party information
Subsidiaries
Transactions between the Company and its subsidiaries principally arise from the granting of loans and the provision of
management and administration services. Significant transactions between the Company and its subsidiaries are disclosed below.
All transactions with subsidiaries are in accordance with regulatory requirements, the majority of which are on commercial terms.
All transactions undertaken during the financial year with subsidiaries are eliminated in the consolidated financial statements.
Amounts due from and due to subsidiaries are presented separately in the statement of financial position of the Company except
when the parties have the legal right and intention to offset.
Balances arising from lending and borrowing activities between the Company and its subsidiaries are typically repayable on
demand, but may be extended on a term basis and where appropriate may be either subordinated or collateralised.
A list of material subsidiaries is set out in Note 17 – Investments in subsidiaries.
The Company as the ultimate parent entity of the Macquarie Group, is the head entity of the Australian tax consolidated group and
has entered into a tax funding agreement with its eligible Australian resident subsidiaries. The terms and conditions of this
agreement are set out in Note 1(vii) – Summary of significant accounting policies. During the year ended 31 March 2015, current tax
assets of subsidiaries assumed by MGL as the head entity of the tax consolidated group amounted to $59 million (2014:
$241 million). As at 31 March 2015, the amount receivable by the Company under the tax funding agreement with the tax
consolidated entities is $1 million (2014: $391 million receivable). This balance is included in Due from subsidiaries in the Company’s
separate statement of financial position.
The following income/(expense) resulted from transactions with subsidiaries during the financial year:
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Interest income received/receivable
– – 333 340
Interest expense paid/payable
– – (24) (14)
Share-based payments to employees of subsidiaries (Note 29)
– – (319) (257)
Dividends and distributions (Note 2)
– – 1,273 1,128
The following balances with subsidiaries were outstanding as at
financial year end:
Amounts receivable
– – 10,361 8,711
Amounts payable
(1)
– – (810) (866)
(1)
As described in Note 1(xxi) – Summary of significant accounting policies, the Company has recognised a liability as at 31 March 2015 of
$32 million (2014: $285 million) for amounts received in advance as at 31 March 2015 from subsidiaries for MEREP offered to their
employees and yet to be recognised as a share-based payment expense by the subsidiary. To the extent that the awards vest, this
amount will be retained by the Company as compensation for issuing and releasing the shares to the subsidiary employees.
Outstanding balances are unsecured and are repayable in cash.
169
Note 31
Related party information continued
Associates and joint ventures
Transactions between the Consolidated Entity and its associates and joint ventures principally arise from the provision of corporate
advisory services, the granting of loans, derivative transactions and the provision of management services. All transactions
undertaken with associates and joint ventures are eliminated where they are unrealised, to the extent of ownership interests held by
the Consolidated Entity, in the consolidated income statement.
During the financial year, the following income/(expense) resulted from transactions with associates and joint ventures:
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Interest income received/receivable
22 2 – –
Fee and commission income 1,081 599 – –
Other income – 2 – –
Dividends and distributions
(1)
272 101 – –
Brokerage, commission and trading-related expenses (7) (5) – –
(1)
Dividends and distributions are shown as gross amounts. Under the equity method, these amounts are not taken up as income but are
recorded as a reduction of the carrying amount of the investment.
The following balances with associates and joint ventures were outstanding as at financial year end (these exclude amounts which in
substance form part of the Consolidated Entity's net investment in associates, disclosed in Note 15 – Interests in associates and
joint ventures accounted for using the equity method):
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Amounts receivable
1,824 488 – –
Amounts payable (125) (235) – –
Balances arising from lending and borrowing activities between the Consolidated Entity and its associates and joint ventures are
typically repayable on demand, but may be extended on a term basis and where appropriate may be either subordinated or
collateralised.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
170
Note 32
Key Management Personnel disclosure
Key Management Personnel
The following persons were Directors of the Company during the financial years ended 31 March 2015 and 31 March 2014, unless
indicated.
Executive Voting Director
N.W. Moore
(1)
Managing Director and Chief Executive Officer (CEO)
Non-Executive Directors
H.K. McCann AM Non-Executive Chairman
G.R. Banks AO (effective from 1 August 2013)
G.M. Cairns (effective from 1 November 2014)
M.J. Coleman
P.A. Cross (effective from 7 August 2013)
D.J. Grady AM
M. J. Hawker AM
N.M. Wakefield Evans (effective from 7 February 2014)
P.H. Warne
Former Non-Executive Directors
P.M. Kirby (retired on 24 July 2014)
C.B. Livingstone AO (retired on 25 July 2013)
J.R. Niland AC (retired on 31 December 2013)
H.M. Nugent AO (retired on 24 July 2014)
In addition to the Executive Director listed above, the following persons also had authority and responsibility for planning, directing
and controlling the activities of MGL during the past two financial years ended 31 March 2015 and 31 March 2014, unless
otherwise indicated.
Current Executives
(1)
S.D. Allen Head of RMG
T.C. Bishop Head of Macquarie Capital
B.A. Brazil Co-Head of CAF (effective from 1 July 2014)
(2)
A.J. Downe Head of CFM
G.A. Farrell Co-Head of CAF
M. McLaughlin Country Head, United States of America
M.J. Reemst CEO of Macquarie Bank Limited (effective from 1 July 2014)
(2)
N. Sorbara Head of COG
P.C. Upfold CFO and Head of FMG (effective from 1 July 2014)
(2)
S. Vrcelj Head of MSG
G.C. Ward Deputy Managing Director and Head of BFS
S. Wikramanayake Head of MAM
Former Executives
P.J. Maher Former Head of BFS (ceased to be a member of the Executive Committee on 3 May 2013)
(1)
The CEO and all current Executives are members of the Consolidated Entity’s Executive Committee as at 8 May 2015.
(2)
Refers to the date from which the relevant Executive was determined to be a KMP.
The remuneration arrangements for all of the persons listed above are described in the Remuneration Report, contained in
Schedule 2 of the Directors' Report.
171
Note 32
Key Management Personnel disclosure continued
Key Management Personnel remuneration
The following tables detail the aggregate remuneration for Key Management Personnel (KMP):
Short-term Employee Benefits
Long-term
Employee
Benefits
Share-based Payments
Salary and
fees (including
superannuation)
$
Performance
related
remuneration
(1)
$
Other
benefits
$
Total
short-term
Employee
Benefits
$
Restricted
profit share
including
earnings on
restricted
profit share
(2)
$
Equity
awards
including
shares
(3)
$
PSUs
(4)
$
Total
remuneration
$
Executive Remuneration
2015
9,068,321 40,174,754 – 49,243,075 15,552,907 27,094,870 15,958,182 107,849,034
2014
7,489,696 23,019,536 – 30,509,232 14,796,950 19,933,068 11,051,129 76,290,379
Non-Executive Remuneration
2015
3,574,418 – 27,900 3,602,318 – – – 3,602,318
2014
3,598,415 – 55,900 3,654,315 – – – 3,654,315
(1)
The cash portion of each KMP's profit share allocation for the reporting period when they were a KMP.
(2)
The amount of retained profit share which is deferred to future periods and held as a notional investment in Macquarie managed-fund
equity (Post-2009 DPS plan) including earnings on notional investments from retained profit share in prior years.
(3)
The current year amortisation for retained profit share calculated as described in Note 1(xxi) – Summary of significant accounting
policies.
(4)
The current year amortisation for PSUs calculated as described in Note 1(xxi) – Summary of significant accounting policies. Adjustments
were made during the current and prior years to reduce previously recognised remuneration expense where performance hurdles have
not been met, have been partially met or are not expected to be met.
Equity holdings of Key Management Personnel and their related parties
The following tables set out details of fully paid ordinary shares of the Company held during the financial year by Key Management
Personnel including their related parties, on a Consolidated Entity basis.
Number
of shares
held at
1 April
Number of
shares held at
appointment/
retirement date
(after 1 April)
Shares
Consolidation
(1)
Shares received
on withdrawal
from MEREP
Other
changes
(2)
Number of
shares held by
former KMP at
date of
resignation/
retirement (prior
to 31 March)
Number
of shares
held at
31 March
2015 1,978,695 43,796 – 607,523 (356,042) (43,900) 2,230,072
2014 2,088,864 2,169 (118,374) 345,662 (317,858) (21,768) 1,978,695
(1)
Consolidation of one ordinary share into 0.9438 ordinary shares for shares held at the date of consolidation.
(2)
Includes on – market acquisitions and disposals.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
172
Note 32
Key Management Personnel disclosure continued
MEREP RSU Awards of Key Management Personnel and their related parties
(1)
The following tables set out details of the MEREP RSU awards held during the year for the KMP including their related parties, on a
Consolidated Entity basis. Further details of the particulars of the grants can be found in the Directors’ Report from pages 109 and
110. Further details in relation to the MEREP RSU awards are disclosed in Note 33 – Employee equity participation.
Number
of RSU
awards
held at
1 April
Number of RSU
awards held at
appointment/
retirement date
(after 1 April)
RSU awards
granted during
the financial
year
(1)
Vested RSU
awards withdrawn
from the MEREP
during the
financial year
(2)
RSU awards
consolidation
(3)
Number of
RSU awards
held by
former KMP
at date of
resignation/
retirement
(prior to 31
March)
Number
of RSU
awards
held at
31 March
2015 2,394,033 681,667 448,564 (445,920) – – 3,078,344
2014 2,614,253 – 399,339 (288,620) (142,548) (188,391) 2,394,033
(1)
RSUs are granted in the financial year following the year of the Company’s performance to which the grant relates. RSUs disclosed as
granted above relate to 2014.
(2)
Vested RSUs transferred to the KMP’s shareholding.
(3)
Consolidation of one ordinary share into 0.9438 ordinary shares for shares held at the date of consolidation.
MEREP PSU Awards of Key Management Personnel and their related parties
The following tables set out details of MEREP PSU awards held during the year for the KMP including their related parties, on a
Consolidated Entity basis. Further details of the particulars of the grants can be found in the Directors' Report on page 111. Further
details in relation to the MEREP PSU awards are disclosed in Note 33 – Employee equity participation.
Number of
PSU awards
held at 1 April
PSU awards
granted during
the financial
year
(1)
Vested PSU
awards
exchanged
during the
financial
year
PSU awards
not able to be
exercised
due to
performance
hurdles
not met
(2)
PSU
awards
consolidation
during the
financial year
(3)
Number of PSU
awards held by
former KMP at
date of
resignation/
retirement (prior
to 31 March)
Number
of PSU
awards
held at
31 March
(4)
2015 1,538,385 475,608 (161,603) (147,976) – – 1,704,414
2014 1,678,020 463,293 (57,042) (311,205) (91,600) (143,081) 1,538,385
(1)
PSUs are granted in the financial year following the year of the Company’s performance to which the grant relates. PSUs disclosed as
granted above relate to 2014.
(2)
Performance hurdles for PSU awards issued on or after 17 December 2009 and vesting at 1 July 2014 were partially achieved and
therefore some of those PSU awards did not become exercisable and lapsed. These awards are not exchangeable and the related
expense previously recognised on these PSU grants was reversed during the current and prior financial years.
(3)
Adjustment of PSUs due to consolidation of one ordinary share into 0.9438 ordinary shares for shares held at the date of consolidation.
(4)
PSU awards vested and not exercised at 31 March 2015: 11,000 (2014: 6,961).
173
Note 32
Key Management Personnel disclosure continued
Details of Share – based payment grant dates affecting compensation for the years ending 31 March 2015 and
31 March 2014
Grant date
Year grant relates to Type of grant Managing Director All other KMP
2008 Transition awards 3 March 2010 3 March 2010
Retained DPS 3 March 2010 3 March 2010
2009 Retained DPS 3 March 2010 3 March 2010
PSUs 3 March 2010 3 March 2010
2010 Retained DPS 13 August 2010 30 June 2010
PSUs 13 August 2010 13 August 2010
2011 Retained DPS 15 August 2011 15 February 2011
15 April 2011
20 June 2011
PSUs 15 August 2011 15 August 2011
2012 Retained DPS 15 August 2012 7 June 2012
PSUs 15 August 2012 15 August 2012
2013 Retained DPS 15 August 2013 25 June 2013
PSUs 15 August 2013 15 August 2013
2014 Retained DPS 15 August 2014 25 June 2014
PSUs 15 August 2014 15 August 2014
Loans to Key Management Personnel and their related parties
Details of loans provided by the Consolidated Entity to KMP and their related parties are disclosed in aggregate in the following
tables:
Opening
balance at
1 April
$’000
Interest
charged
$’000
Write-downs
$’000
Closing
balance at
31 March
$’000
(1)
Total for Key Management Personnel
and their related parties
2015 600 14 – 559
2014 5,706 6 – 600
(1)
Number of persons included in the aggregate at 31 March 2015: 1 (2014: 3).
Loans and other financial instrument transactions are made by the Consolidated Entity in the ordinary course of business with
related parties.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
174
Note 33
Employee equity participation
Macquarie Group Employee Retained Equity Plan
The Consolidated Entity continues to operate the MEREP in
conjunction with remuneration arrangements. These
arrangements included a decrease in the portion of staff profit
share paid in cash and an increase in the portion delivered as
equity, an increase in the proportion of deferred remuneration
and cessation of new option grants under the Macquarie Group
Employee Share Option Plan (MGESOP).
Award Types under the MEREP
Restricted Share Units (RSUs)
A RSU is a beneficial interest in a Macquarie share held on
behalf of a MEREP participant by the plan trustee (Trustee).
The participant is entitled to receive dividends on the share and
direct the Trustee how to exercise voting rights in the share.
The participant also has the right to request the release of the
share from the Trust, subject to the vesting and forfeiture
provisions of the MEREP.
Deferred Share Units (DSUs)
A DSU represents the right to receive on exercise of the DSU
either a share held in the Trust or a newly issued share (as
determined by the Company in its absolute discretion) for no
cash payment, subject to the vesting and forfeiture provisions of
the MEREP. A MEREP participant holding a DSU has no right or
interest in any share until the DSU is exercised. The Company
may issue shares to the Trustee or procure the Trustee to
acquire shares on-market for potential future allocations to
holders of DSUs. Generally DSUs will provide for cash
payments in lieu of dividends paid on Company shares before
the DSU is exercised. Further, the number of shares underlying
a DSU will be adjusted upon any bonus issue or other capital
reconstruction of the Company in accordance with the ASX
Listing Rules, so that the holder of a DSU does not receive a
benefit that holders of the Company’s shares do not generally
receive. These provisions are intended to provide the holders of
DSUs, as far as possible, with the same benefits and risks as
holders of RSUs. However, holders of DSUs will have no voting
rights on any underlying MGL shares. DSUs will only be offered
in jurisdictions where legal or tax rules make the grant of RSUs
impractical, or where PSUs are structured as DSUs (see PSUs
below). DSUs have been granted with an expiry period of eight
years.
Performance Share Units (PSUs)
All PSUs currently on issue are structured as DSUs with
performance hurdles that must be met before the underlying
share or cash equivalent (as the case may be) will be delivered.
PSU holders have no right to dividend equivalent payments
before the PSUs vest. In all other respects, holders of these
PSUs will have the same rights as holders of DSUs.
Restricted Shares
A Restricted Share is a Macquarie share transferred from the
MEREP Trust and held by a MEREP participant subject to
restrictions on disposal, vesting and forfeiture rules. The
participant is entitled to receive dividends on Restricted Shares
and to vote. Restricted Shares are only offered in jurisdictions
where legal or tax rules make RSU/DSU awards impractical.
175
Note 33
Employee equity participation continued
The following is a summary of Awards which have been granted pursuant to the MEREP:
Number of
RSU Awards
2015
Number of
RSU Awards
2014
RSUs on issue at the beginning of the financial year
22,446,790 24,700,480
Consolidation of one ordinary share into 0.9438 ordinary shares
(1)
– (1,356,793)
Granted during the financial year 4,810,937 5,553,634
Vested RSUs withdrawn or sold from the MEREP during the financial year (6,590,000) (5,676,173)
Forfeited during the financial year (940,900) (774,358)
RSUs on issue at the end of the financial year 19,726,827 22,446,790
RSUs vested and not withdrawn from the MEREP at the end of the financial year 4,457 8,327
The weighted average fair value of the RSU Awards granted during the financial year was $59.75 (2014: $41.06).
Number of
DSU Awards
2015
Number of
DSU Awards
2014
DSUs on issue at the beginning of the financial year
3,917,214 4,316,880
Adjustment of DSUs due to 0.9438 for one ordinary share consolidation
(1)
– (246,149)
Granted during the financial year 810,248 916,603
Exercised during the financial year (1,001,795) (878,657)
Forfeited during the financial year (93,369) (191,463)
DSUs on issue at the end of the financial year 3,632,298 3,917,214
DSUs exercisable at the end of the financial year 539,167 366,064
The weighted average fair value of the DSU Awards granted during the financial year was $59.67 (2014: $40.84).
Number of
PSU Awards
2015
Number of
PSU Awards
2014
PSUs on issue at the beginning of the financial year
1,792,160 1,969,394
Adjustment of PSUs due to 0.9438 for one ordinary share consolidation
(1)
– (106,710)
Granted during the financial year 475,608 463,293
Exercised during the financial year (223,937) (77,663)
Expired during the financial year (219,289) (456,154)
PSUs on issue at the end of the financial year 1,824,542 1,792,160
PSUs exercisable at the end of the financial year 11,000 6,961
The weighted average fair value of the PSU Awards granted during the financial year was $47.89 (2014: $41.49).
Number of
Restricted Share
Awards
2015
Number of
Restricted Share
Awards
2014
Restricted shares on issue at the beginning of the financial year
138,900 92,558
Consolidation of one ordinary share into 0.9438 ordinary shares
(1)
– (5,509)
Granted during the financial year 19,951 87,239
Released during the financial year (87,819) (35,388)
Restricted shares on issue at the end of the financial year 71,032 138,900
The weighted average fair value of the restricted shares granted during the financial year was $58.49 (2014: $48.39).
(1)
Consolidation applied to shares held in the MEREP as at the record date for the consolidation.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
176
Note 33
Employee equity participation continued
The awards are measured at their grant dates based on their
fair value and for each PSU, the number expected to vest. This
amount is recognised as an expense evenly over the respective
vesting periods and the equity provided is treated as a capital
contribution to the subsidiary where the Company is not
reimbursed or as a prepaid asset in advance where the
Company is reimbursed.
RSUs/DSUs and PSUs relating to the MEREP plan for
Executive Committee members, have been granted in the
current year in respect of 2014. The fair value of each of these
grants is estimated using the Company’s share price on the
date of grant, and for each PSU also incorporates a discounted
cash flow method using the following key assumptions:
– interest rate to maturity: 3.62 percent
– expected vest dates of PSU: 1 July 2017 and 1 July 2018,
and
– dividend yield: 5.02 percent per annum.
While RSUs and DSUs, and PSUs (for Executive Committee
members), in respect of the current year’s performance will be
granted in the following financial year, the Consolidated Entity
begins recognising an expense (based on an initial estimate)
from 1 April of the current financial year related to these future
grants. The expense is estimated using the Company’s share
price as at 31 March 2015 (and for PSUs, also incorporates an
interest rate to maturity of 2.61 percent; expected vest dates of
PSU: 1 July 2018 and 1 July 2019; and a dividend yield of
4.76 percent per annum) and the number of equity instruments
expected to vest. In the following financial year, the
Consolidated Entity will adjust the accumulated expense
recognised for the final determination of fair value for each RSU,
DSU and PSU when granted, and will use this valuation for
recognising the expense over the remaining vesting period.
The Consolidated Entity annually revises its estimates of the
number of awards (including those delivered through MEREP)
that are expected to vest. It recognises the impact of the
revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity.
For the year ended 31 March 2015, compensation expense
relating to the MEREP totalled $340 million (2014: $283 million).
Participation in the MEREP is currently provided to the following
Eligible Employees:
– Executive Directors with retained Directors’ Profit Share
(DPS) from 2009 onwards, a proportion of which is
allocated in the form of MEREP awards (Retained DPS
Awards)
– Executive Directors with pre-2009 retained DPS (which they
elected to transition into the MEREP)
– staff other than Executive Directors with retained profit
share (Retained Profit Share Awards) and staff who were
promoted to Associate Director, Division Director or
Executive Director, who received a fixed Australian dollar
value allocation of MEREP awards (Promotion Awards)
– Macquarie Group staff with retained commission
(Commission Awards)
– Macquarie Group staff who receive a discretionary payment
in recognition of contributions over a predetermined period
(Incentive Awards)
– new Macquarie Group staff who commence at Associate
Director, Division Director or Executive Director level and are
awarded a fixed Australian dollar value, depending on level
(New Hire Awards)
– members of the MGL and MBL Executive Committees who
are eligible for PSUs, and
– in limited circumstances, Macquarie staff may receive an
equity grant instead of a remuneration or consideration
payment in cash. Current examples include individuals who
become employees of the Group upon the acquisition of
their employer by a Macquarie Group entity or who receive
an additional award at the time of joining Macquarie (also
referred to above as New Hire Awards).
177
Note 33
Employee equity participation continued
Vesting periods are as follows:
Award type Level Vesting
Retained Profit Share Awards
and Promotion Awards
Below Executive Director 1/3
rd
on or after each 1 July, in the 2
nd
, 3
rd
and 4
th
year
following the year of grant
(1)
Retained DPS Awards
representing 2009 retention
Executive Director 1/5
th
on or after each 1 July, in the 3
rd
, 4
th
, 5
th
, 6
th
and 7
th
year following the year of grant
(2)
Retained DPS Awards for 2010
and all future years’ retention
Executive Committee member and
Designated Executive Director
1/5
th
on or after each 1 July in the 3
rd
, 4
th
, 5
th
, 6
th
and 7
th
year following the year of grant
(2)
Retained DPS Awards for 2010
and all future years’ retention
All other Executive Directors 1/3
rd
on or after each 1 July in the 3
rd
, 4
th
and 5
th
year
following the year of grant
(1)
PSU Awards granted in relation
to 2012 and following years
Executive Committee members 50 percent on or after each 1 July, three and four years
after the year of grant
(3)
PSU Awards granted in relation
to 2009, 2010 and 2011
Executive Committee members 1/3
rd
on or after each 1 July, two, three and four years after
the year of grant
(3)
Pre-2009 DPS Transitioned into
the MEREP
Executive Committee members 1/7
th
each year from 1 July 2010 to 1 July 2016
(2)
Pre-2009 DPS Transitioned into
the MEREP
Executive Directors (other than
those on the Executive Committee)
1/5
th
each year from 1 July 2010 to 1 July 2014
(2)
Commission Awards Below Executive Director 1/3
rd
on or after each 1 July, in the 2
nd
, 3
rd
and 4
th
year
following the year of grant
(1)
Incentive Awards All Macquarie Group staff 1/3
rd
on each first day of a staff trading window on or after
the 2
nd
, 3
rd
and 4
th
anniversaries of the date of allocation
New Hire Awards All Director-level staff 1/3
rd
on each first day of a staff trading window on or after
the 2
nd
, 3
rd
and 4
th
anniversaries of the date of allocation
(1)
Vesting will occur on the first day of a staff trading window following 1 July of the specified year.
(2)
Vesting will occur on the first day of a staff trading window following 1 July of the specified year. If an Executive Director has been on
leave without pay (excluding leave to which the Executive Director may be eligible under local laws) for 12 months or more, the vesting
period may be extended accordingly.
(3)
Subject to achieving certain performance hurdles – refer below.
In limited cases, the Application Form for awards may set out a different vesting period, in which case that period will be the vesting
period for the Award. For example, staff in jurisdictions outside Australia may have a different vesting period due to local regulatory
requirements.
For Retained Profit Share Awards representing 2014 retention, the allocation price was the weighted average price of the Shares
acquired for the 2014 Purchase Period, which was 14 May 2014 to 25 June 2014 inclusive (excluding the period from 22 May to
3 June 2013). That price was calculated to be $59.56 (2013 retention: $43.56).
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
178
Note 33
Employee equity participation continued
Performance Share Units
PSUs will only be released or become exercisable upon the achievement of certain performance hurdles. Only members of the MGL
and MBL Executive Committees are eligible to receive PSUs. For the PSUs allocated to Executive Committee Members, two
performance hurdles have been determined and each will apply individually to 50 percent of the total number of PSUs awarded.
Hurdles are periodically examined by the Board Remuneration Committee (BRC) as part of their ongoing review of the remuneration
approach, to ensure they continue to align the interests of staff and shareholders and provide a challenging but meaningful incentive
to Executive Committee members. The BRC considers historical and forecast market data, the views of corporate governance
bodies, shareholders and regulators as well as peer market practice. No change has been made to the hurdles for FY2015.
The hurdles are outlined below.
Performance hurdle 1
Hurdle
Reference group
Granted after 31 March 2013 Granted on or before 31 March 2013
50 percent of the PSUs based solely on
the relative average annual return on
ordinary equity (ROE) over the vesting
period (three and four years) compared
with a reference group of global peers.
A sliding scale applies with 50 percent
becoming exercisable above the 50
th
percentile and 100 percent vesting at
the 75
th
percentile.
The current reference group
(1)
comprises
Barclays PLC, Bank of America
Corporation, Credit Suisse Group AG,
Deutsche Bank AG, Goldman Sachs
Group Inc., JP Morgan Chase, Lazard
Ltd, Morgan Stanley and UBS AG.
The reference group comprises ANZ
Group Limited, Commonwealth Bank of
Australia, National Australia Bank
Limited, Westpac Banking Corporation,
Suncorp Metway Limited, Bank of
America Corporation, Citigroup Inc,
Credit Suisse Group AG, Deutsche Bank
AG, Goldman Sachs Group AG, JP
Morgan Chase, Morgan Stanley and
UBS AG.
(1)
Jefferies Group Inc. has been excluded from the reference group for awards made from 2013 following its acquisition by Leucadia
National Corp.
Performance hurdle 2
Hurdle
Required result
Granted after 31 March 2013 Granted on or before 31 March 2013
50 percent of the PSUs based solely on
the compound annual growth rate
(CAGR) in earnings per share (EPS) over
the vesting period (three to four years).
A sliding scale applies with 50 percent
becoming exercisable at EPS CAGR of
7.5 percent and 100 percent at EPS
CAGR of 12.0 percent. For example, if
EPS CAGR were 9.75 percent, 75
percent of the Award would become
exercisable.
A sliding scale applies with 50 percent
becoming exercisable at EPS CAGR of
9.0 percent and 100 percent at EPS
CAGR of 13.0 percent. For example, if
EPS CAGR were 11.0 percent, 75
percent of the Award would become
exercisable.
Under both performance hurdles, the objective is to be examined once only, effectively at the calendar quarter end immediately
before vesting. If the condition is not met when examined, the PSUs due to vest will not be exercisable upon vesting.
Other arrangements
There are certain arrangements with employees which take the form of a share-based payment but which are held outside the
MEREP. Employees do not have a legal or beneficial interest in the underlying shares; however the arrangements have the same
economic benefits as those held in MEREP.
Compensation expense relating to these awards for the year ended 31 March 2015 was $0.6 million (2014: $0.4 million).
179
Note 33
Employee equity participation continued
Option Plan
The Company suspended new offers under the MGESOP under the remuneration arrangements which were the subject of
shareholder approvals obtained at the General Meeting of the Company in December 2009. The last grant of Options under the
MGESOP was on 8 December 2009. The Company does not currently expect to issue any further Options under the MGESOP.
At 31 March 2015, there were no (2014: 24) participants in the MGESOP.
The following is a summary of the movement in options granted pursuant to the MGESOP:
Number of
options
2015
Weighted
average
exercise
price
2015
$
Number of
options
2014
Weighted
average
exercise
price
2014
(2)
$
Outstanding at the beginning of the financial year
80,879 48.31 8,725,398 52.63
Adjustment of Options due to 0.9438 for one ordinary share
consolidation
(1)
– – (6,456) 42.79
Forfeited during the financial year – – (1,200) 50.35
Exercised during the financial year (67,664) 48.25 (423,159) 31.72
Lapsed during the financial year (13,215) 48.58 (8,213,704) 53.76
Outstanding at the end of the financial year – – 80,879 48.31
Exercisable at the end of the financial year – – 80,879 48.31
For options exercised during the financial year the weighted average share price at the date of exercise was $59.45 (2014: $46.98).
There are no outstanding options as at 31 March 2015.
(1)
Consolidation applied to Options held in the MGESOP as at the record date for the consolidation.
(2)
Some of the exercise prices reflect the impact of the SYD Distribution, a distribution of the majority of the Group’s investment in SYD
Securities to its ordinary shareholders implemented through a special dividend and a capital reduction along with a consolidation of one
MGL share into 0.9438 of an ordinary share.
The weighted average remaining contractual life for the share options outstanding as at 31 March 2015 was nil (2014: 0.43 years).
The weighted average remaining contractual life when analysed by exercise price range was:
Exercise price range $
Number of
options
2015
Remaining
life (years)
2015
Number of
options
2014
Remaining
life (years)
2014
30-40
– – 22,358 0.25
40-50 – – 15,102 0.56
50-60 – – 43,419 0.49
– – 80,879 0.43
The market value of shares issued during the year as a result of the exercise of these options was $4.02 million (2014:
$19.8 million).
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
180
Note 33
Employee equity participation continued
Employee Share Plan
The Consolidated Entity continues to operate the Macquarie
Group Employee Share Plan (ESP) whereby each financial year
eligible employees are offered up to $1,000 worth of fully paid
ordinary Macquarie shares for no cash payment.
Shares allocated under the ESP cannot be sold until the earlier
of three years after allocation or the time when the participant
is no longer employed by the Company or a subsidiary of the
Company. In all other respects, shares allocated rank equally
with all other fully paid ordinary shares then on issue.
The latest offer under the ESP was made during November
2014. A total of 1,005 (2014: 966) staff participated in this
offer. On 8 December 2014, the participants were each
allocated 16 (2014:18) fully paid ordinary shares based on the
offer amount of $1,000 and the then calculated average
market share price of $ 59.27 (2014: $53.70); a total of 16,080
(2014: 17,388) shares were allocated. The shares were
allocated to staff for no cash consideration. The aggregate
value of the shares allocated was deducted from staff profit
share and commissions.
Historical Share Plans
Shares are no longer being issued under the Staff Share
Acquisition Plan nor the Non-Executive Director Share
Acquisition plan. However employees and Non-Executive
Directors still hold shares issued in previous years.
Other plans
The Consolidated Entity operates other local share-based
compensation plans, none of which, individually or in
aggregate are material.
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
181
Note 34
Contingent liabilities and commitments
The following contingent liabilities and commitments exclude derivatives.
Contingent liabilities exist in respect of:
Letters of credit 611 558 – –
Guarantees 601 285 3,585 3,413
Performance related contingents 276 342 – –
Indemnities 155 161 – –
Total contingent liabilities
(1), (2)
1,643 1,346 3,585 3,413
Commitments exist in respect of:
Undrawn credit facilities 5,956 4,792 – –
Forward asset purchases 5,712 455 – –
Total commitments
(3)
11,668 5,247 – –
Total contingent liabilities and commitments 13,311 6,593 3,585 3,413
(1)
Contingent liabilities exist in respect of actual and potential claims and proceedings that arise in the conduct of the Consolidated Entity's
business. In the event it is likely that a loss is probable and can be reliably measured then a liability is recognised and the exposure is
excluded from the contingent liabilities above. The Consolidated Entity is currently not engaged in any litigation or claim which is likely to
have a material adverse effect on the Consolidated Entity's business, financial condition or performance.
(2)
The Company guarantees the performance obligation of certain subsidiaries in relation to their external obligations.
(3)
Total commitments also represent contingent assets. Such commitments to provide credit may convert to loans and other assets in the
ordinary course of business.
Note 35
Lease commitments
Non-cancellable operating leases expiring:
Not later than one year 147 170 –
–
Later than one year and not later than five years 570 482 –
–
Later than five years 292 382 –
–
Total operating lease commitments 1,009 1,034 –
–
Operating leases relate to commercial buildings. The future lease commitments disclosed are net of any rental incentives received.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
182
Note 36
Structured entities
The Consolidated Entity engages in various transactions with
SEs. SEs are designed so that voting or similar rights are not
the dominant factor in affecting an investor’s returns (eg
decisions relate to administrative tasks only, and contractual
arrangements determine the direction of activities). Generally,
SEs do not have a range of operating and financing activities for
which substantive decision-making is required continuously.
The Consolidated Entity has interests in SEs that are involved in
securitisations, asset-backed financing structures and
investment funds.
Securitisations
Securitisations involve transferring assets into a vehicle that sells
beneficial interests to investors through the issue of debt and
equity notes with varying levels of subordination. The notes are
collateralised by the assets transferred to these vehicles and
pay a return based on the returns of those assets, with residual
returns paid to the most subordinated investor. These vehicles
are created for securitising assets of the Consolidated Entity or
of its clients.
The Consolidated Entity engages in securitisation of mortgages,
finance leases, credit card receivables and other types of
instruments. The Consolidated Entity may serve as a sponsor,
servicer, underwriter, liquidity provider, derivative counterparty,
purchaser of notes and/or purchaser of residual interest units.
The Consolidated Entity may also provide redraw facilities or
loan commitments to securitisation vehicles.
Income received by the Consolidated Entity during the year
from interests held at the reporting date relates to interest,
management fees, servicing fees, and gains and losses from
revaluing financial instruments.
Asset-backed financing
Asset-backed vehicles are used to provide tailored lending for
the purchase or lease of assets transferred by the Consolidated
Entity or its clients. The assets are normally pledged as
collateral to the lenders.
The Consolidated Entity engages in raising finance for assets
such as aircraft, rail cars, electronic and IT equipment. The
Consolidated Entity may act as a lender, manager, derivative
counterparty, purchaser of notes and/or purchaser of residual
interest units or guarantor.
Income received by the Consolidated Entity during the year
from interests held at the reporting date relates to revaluation of
derivatives, dividends, interest and servicing fees.
Investment funds
SEs formed for the purpose of offering alternative investment
opportunities relate primarily to fund-linked or funds of funds
products. Investment structures are designed to provide
investors with specified returns based on the returns of an
underlying security, referenced asset or index by issuing credit-
linked or equity-linked notes to investors. SEs typically obtain
exposure to the underlying asset or index through a derivative
instrument (eg swaps or call options) and place the remaining
proceeds on deposit to serve as collateral for the derivative.
The Consolidated Entity may act as sponsor, manager, broker,
funder, liquidity provider or derivative counterparty.
Income received by the Consolidated Entity during the year
from interests held at the reporting date relates to management
fees and revaluation of derivatives.
At 31 March 2015, the Consolidated Entity’s interests in
unconsolidated investment funds is immaterial.
Interests held
Interests in unconsolidated SEs include, but are not limited to,
debt and equity investments, guarantees, liquidity agreements,
commitments, fees from investment structures, and fees from
derivative instruments that expose the Consolidated Entity to
the risks of the unconsolidated SE. Interests do not include
plain vanilla derivatives (eg interest rate swaps and currency
swaps) and positions where the Consolidated Entity:
(i) creates rather than absorbs variability of the unconsolidated
SE (eg purchase of credit protection under a credit default
swap)
(ii) acts as underwriter or placement agent, or provides
administrative, trustee or other services to third party
managed SEs, and
(iii) transfers assets and does not have any other interest
deemed to be significant in the SE. Trading positions have
been included in the following table.
183
Note 36
Structured entities continued
The following tables present the carrying value and maximum exposure to loss (before the benefit of collateral and credit
enhancements) of the Consolidated Entity’s interests in unconsolidated SEs as at 31 March:
Nature of activity
Securitisations
$m
Asset-backed
financing
$m
Consolidated 2015
Carrying value of assets
Trading portfolio assets 373 –
Derivative assets 1 11
Investment securities available for sale
(1)
1,692 176
Loan assets held at amortised cost 308 451
Total carrying value of assets 2,374 638
Maximum exposure to loss
Debt and equity held 2,373 627
Derivatives and undrawn commitments 786 55
Total maximum exposure to loss 3,159 682
Nature of activity
Securitisations
$m
Asset-backed
financing
$m
Consolidated 2014
Carrying value of assets
Trading portfolio assets 1,169 –
Derivative assets 4 21
Investment securities available for sale
(1)
2,430 146
Loan assets held at amortised cost 254 270
Total carrying value of assets 3,857 437
Maximum exposure to loss
Debt and equity held 3,853 416
Derivatives and undrawn commitments 882 21
Total maximum exposure to loss 4,735 437
(1)
Securitisations includes $1,198 million (2014: $1,749 million) of investments that are managed by the Consolidated Entity under the
liquid assets holdings policy described in Note 38.2 – Liquidity risk.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
184
Note 36
Structured entities continued
Maximum exposure to loss is the carrying value of debt and
equity held, the undrawn amount for commitments, the
maximum amount guaranteed and the notional amounts of
derivative instruments. The amounts for commitments,
guarantees and derivatives are reduced for any liabilities already
recognised.
Of the above interests, the Consolidated Entity holds $742
million (2014: $846 million) in subordinated interests, with
$234 million (2014: $533 million) included in securitisation
activities and $508 million (2014: $313 million) million included
in asset-backed financing activities. These carrying values also
represent the maximum exposure to loss.
The subordinated securitisation interests are primarily trading
positions that are typically managed under market risk
described in Note 38.3 – Market risk. For these reasons,
information on size and capital structure for these SEs is not
considered meaningful for understanding the related risks, and
so have not been presented.
The subordinated asset-backed interests are included within
derivative assets, investments available for sale and loans,
involve unconsolidated SEs with a total size of $1,668 million
(2014: $1,025 million), and the potential losses borne by others
whose interests rank lower is $9 million (2014: $8 million).
Size represents either the assets of the SE (measured either at
amortised cost excluding impairments or fair values if readily
available); the principal amount of liabilities if there is nominal
equity; or the notional amounts of derivatives if the SE was
designed to primarily obtain exposure synthetically through
derivative instruments. Size is based on the most current
publicly available information to the Consolidated Entity.
Support
MGL has contractually guaranteed the performance obligations
of a consolidated SE that has borrowings from third parties. The
notional value of the guarantee is $2,023 million (2014: $1,672
million), which is included in amounts of MGL guarantees
disclosed in Note 34 – Contingent liabilities and commitments.
For the Consolidated Entity, this contingent liability is replaced
with the SE's borrowing of $1,957 million (2014: $1,616 million)
owing to third parties, included in Note 24 – Debt issued at
amortised cost.
185
Note 37
Derivative financial instruments
Objectives of holding and issuing derivative financial
instruments
The Consolidated Entity is an active price-maker in derivatives
on interest rates, foreign exchange, commodities and equities.
Its objective is to earn profits from the price-making spread and
from managing the residual exposures on hedged positions.
Proprietary position taking is a small part of the Consolidated
Entity’s trading activities. Risks on derivatives are managed
together with all other trading positions in the same market.
All trading positions, including derivatives, are marked to fair
value daily.
The Consolidated Entity also uses derivatives to hedge banking
operations and for asset/liability management. Certain derivative
transactions may qualify as cash flow, fair value or net
investment in foreign operations hedges, if they meet the
appropriate strict hedge criteria outlined in Note 1(xi) –
Summary of significant accounting policies:
Cash flow hedges: The Consolidated Entity is exposed to
volatility in future interest cash flows arising from floating rate
issued debt used to fund fixed rate asset positions. The
aggregate principal balances and interest cash flows across
these portfolios form the basis for identifying the non–trading
interest rate risk of the Consolidated Entity, which is hedged
with interest rate swaps. The Consolidated Entity is also
exposed to foreign currency exchange risk from foreign
currency denominated issued debt which is hedged with cross-
currency swaps.
At 31 March 2015, the fair value of outstanding derivatives held
by the Consolidated Entity and designated as cash flow hedges
was $125 million negative value (2014: $58 million negative
value).
During the year the Consolidated Entity recognised $1.1 million
of losses (2014: $0.6 million gains) in the income statement due
to hedge ineffectiveness on cash flow hedges.
Fair value hedges: The Consolidated Entity’s fair value hedges
consist of:
– interest rate swaps used to hedge against changes in the
fair value of fixed rate assets and liabilities as a result of
movements in benchmark interest rates, and
– foreign exchange forward contracts used to hedge against
changes in the fair value of foreign denominated equity
instruments as a result of movements in market foreign
exchange rates.
As at 31 March 2015, the fair value of outstanding derivatives
held by the Consolidated Entity and designated as fair value
hedges was $74 million negative value (2014: $211 million
positive value).
During the year fair value losses on the hedging instruments of
$285 million have been recognised (2014: $82 million losses),
offset by $301 million (2014: $86 million gains) of gains on the
hedged item.
Net investment in foreign operations hedges: The
Consolidated Entity has designated derivatives and borrowings
as hedges of its net investment for foreign exchange risk arising
from its foreign operations.
At 31 March 2015, the fair value of outstanding derivatives held
by the Consolidated Entity and designated as net investment in
foreign operations hedges was $237 million negative value
(2014: $182 million negative value). During the year the
Consolidated Entity recognised $nil (2014: $nil) in the income
statement due to hedge ineffectiveness on net investment
hedges.
A proportion of the Consolidated Entity’s borrowings amounting
to $6,208 million (2014: $5,449 million) is designated as a
hedge of its net investment in foreign operations. The foreign
exchange loss of $911 million (2014: $223 million losses) on
translation of the foreign currency borrowing to Australian
Dollars at the end of the reporting period is recognised in other
comprehensive income.
The types of derivatives which the Consolidated Entity trades
and uses for hedging purposes are detailed below:
Futures: Futures contracts provide the holder with the
obligation to buy a specified financial instrument or commodity
at a fixed price and fixed date in the future. Contracts may be
closed early via cash settlement. Futures contracts are
exchange traded.
Forwards and forward rate agreements: Forward contracts,
which resemble futures contracts, are an agreement between
two parties that a financial instrument or commodity will be
traded at a fixed price and fixed date in the future. A forward
rate agreement provides for two parties to exchange interest
rate differentials based on an underlying principal amount at a
fixed date in the future.
Swaps: Swap transactions provide for two parties to swap a
series of cash flows in relation to an underlying principal
amount, usually to exchange a fixed interest rate for a floating
interest rate. Cross currency swaps provide a tool for two
parties to manage risk arising from movements in exchange
rates.
Options: Option contracts provide the holder the right to buy or
sell financial instruments or commodities at a fixed price over an
agreed period or on a fixed date. The contract does not oblige
the holder to buy or sell, however the writer must perform if the
holder exercises the rights pertaining to the option.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
186
Note 38
Financial risk management
Risk Management Group
Risk is an integral part of the Consolidated Entity’s businesses.
The main risks faced by the Consolidated Entity are credit,
market, equity, operational, liquidity, regulatory, compliance,
legal, insurance, tax and reputational risk. Responsibility for
management of these risks lies with the individual businesses
giving rise to them. RMG independently assesses all material
risks.
RMG is independent of all other areas of the Consolidated
Entity. The Head of RMG, as Macquarie’s Chief Risk Officer, is
a member of the Executive Committee of MGL and MBL and
reports directly to the Managing Director and Chief Executive
Officer with a secondary reporting line to the Board Risk
Committee. RMG authority is required for all material risk
acceptance decisions. RMG identifies, quantifies and assesses
all material risks and sets prudential limits. Where appropriate,
these limits are approved by the Executive Committee and the
Board.
187
Note 38.1
Credit risk
Credit risk is defined as the risk of a counterparty failing to
complete its contractual obligations when they fall due. The
consequent loss is either the amount of the loan not paid
back, or the loss incurred in replicating a trading contract
with a new counterparty.
The responsibility for approval of credit exposures is
delegated to specific individuals by the Board. Credit risk
analysis is focused on ensuring that risks have been fully
identified and that the downside risk is properly understood
and acceptable. After this analysis is undertaken, limits are
set for an acceptable level of potential exposure. All
wholesale limits and ratings are reviewed at least once a
year, or more frequently if necessary. Retail credit exposures
are monitored on a portfolio basis.
All credit exposures are monitored regularly against limits.
Credit exposures for loans are evaluated as either the full
current face value or, for distressed debt, the acquisition
cost when acquired in the secondary market. Exposures for
derivatives depend on potential future asset prices. To
mitigate credit risk, the Consolidated Entity makes use of
margining and other forms of collateral or credit
enhancement techniques (including guarantees, letters of
credit, the purchase of credit default swaps and mortgage
insurance) where appropriate.
All wholesale exposures are allocated to a Macquarie rating
on a scale that broadly corresponds to Standard & Poor’s
and Moody’s Investor Services credit ratings. Each
Macquarie rating maps to a Probability of Default estimate.
All wholesale counterparties and certain individual facilities
are assigned a Loss Given Default estimate reflecting the
estimated economic loss in the event of default occurring.
Macquarie wholesale ratings broadly correspond to Standard
& Poor’s credit ratings as follows:
Credit Grading Internal Rating
External
Equivalent
Investment Grade MQ1 to MQ8 AAA to BBB-
Below Investment Grade MQ9 to MQ16 BB+ to C
Default MQ99 Default
All loan assets are subject to recurring review and
assessment for possible impairment. Where there is a
deteriorating credit risk profile, the exposures are monitored
on a monthly basis through the CreditWatch reports. The
business remains responsible for the management of the
counterparty and of the risk position, but RMG oversight is
increased to ensure that positions are managed for optimal
outcomes. When counterparties default, RMG and the
business work together to resolve the issues and ensure
provisioning is adequate.
A review of the credit portfolio that involves monitoring credit
concentrations by counterparty, country, risk type, industry
and credit quality is carried out quarterly and reported to the
Board semi-annually. Policies are in place to regulate large
exposures to single counterparties or groups of
counterparties.
The Consolidated Entity has a country risk framework which
covers the assessment of country risk and the approval of
country risk limits. Where appropriate the country risk is
covered by political risk insurance.
The balances disclosed in the credit risk tables below
exclude financial assets that are subject to risks other than
credit risk, such as equity investments, commodities,
interests in associates and joint ventures or bank notes and
coins.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
188
Note 38.1
Credit risk continued
Maximum exposure to credit risk
The table below details the concentration of credit exposure of the Consolidated Entity’s assets to significant geographical locations
and counterparty types. The amounts shown represent the maximum credit risk of the Consolidated Entity's assets before the
benefit of collateral and credit enhancements.
Receivables
from financial
institutions
$m
Trading
portfolio
assets
$m
Derivative
assets
$m
Debt
investment
securities
available
for sale
$m
Australia
Governments – 4,208 534 1,166
Financial institutions 4,161 200 606 3,303
Other – 2 1,221 116
Total Australia 4,161 4,410 2,361 4,585
Asia Pacific
Governments – 651 1 91
Financial institutions 3,558 876 354 224
Other – 461 348 –
Total Asia Pacific 3,558 1,988 703 315
Europe, Middle East and Africa
Governments – – 84 –
Financial institutions 7,882 438 5,132 471
Other – 57 7,300 468
Total Europe, Middle East and Africa 7,882 495 12,516 939
Americas
Governments – 1,557 159 –
Financial institutions 13,104 344 2,064 168
Other – 682 2,277 445
Total Americas 13,104 2,583 4,500 613
Total gross credit risk 28,705 9,476 20,080 6,452
189
Other financial
assets
$m
Loan assets held at
amortised cost
$m
Other financial assets
at fair value through
profit or loss
$m
Credit commitments
and contingent
liabilities
$m
Total
$m
Consolidated 2015
2 61 – – 5,971
64 909 – 256 9,499
1,674 42,282 291 2,062 47,648
1,740 43,252 291 2,318 63,118
– 9 76 – 828
– 507 – 33 5,552
2,479 754 – 109 4,151
2,479 1,270 76 142 10,531
– 6 20 – 110
– 2,694 355 467 17,439
3,888 8,225 48 6,604 26,590
3,888 10,925 423 7,071 44,139
– 110 – – 1,826
– 5,330 62 1,267 22,339
3,129 11,875 197 2,513 21,118
3,129 17,315 259 3,780 45,283
11,236 72,762 1,049 13,311 163,071
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
190
Note 38.1
Credit risk continued
Maximum exposure to credit risk continued
Receivables
from financial
institutions
$m
Trading
portfolio
assets
$m
Derivative
assets
$m
Debt
investment
securities
available
for sale
$m
Australia
Governments – 5,715 324 2,494
Financial institutions 5,445 88 872 6,072
Other – 56 407 95
Total Australia 5,445 5,859 1,603 8,661
Asia Pacific
Governments – 694 6 43
Financial institutions 2,111 466 312 522
Other – 336 128 10
Total Asia Pacific 2,111 1,496 446 575
Europe, Middle East and Africa
Governments – 52 53 53
Financial institutions 6,143 229 4,534 1,225
Other – 47 2,302 412
Total Europe, Middle East and Africa 6,143 328 6,889 1,690
Americas
Governments – 1,008 22 –
Financial institutions 5,758 714 2,135 716
Other – 528 1,538 404
Total Americas 5,758 2,250 3,695 1,120
Total gross credit risk 19,457 9,933 12,633 12,046
191
Note 38.1
Credit risk continued
Maximum exposure to credit risk continued
Other financial
assets
$m
Loan assets held at
amortised cost
$m
Other financial assets
at fair value through
profit or loss
$m
Credit commitments
and contingent
liabilities
$m
Total
$m
Consolidated 2014
1 60 – 1 8,595
37 443 – 300 13,257
1,173 32,920 578 1,976 37,205
1,211 33,423 578 2,277 59,057
– 6 61 – 810
– 319 – 108 3,838
2,543 567 10 139 3,733
2,543 892 71 247 8,381
– 6 21 – 185
– 3,940 515 643 17,229
2,413 4,589 67 712 10,542
2,413 8,535 603 1,355 27,956
– 127 – – 1,157
– 4,053 10 503 13,889
4,210 11,682 250 2,211 20,823
4,210 15,862 260 2,714 35,869
10,377 58,712 1,512 6,593 131,263
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
192
Note 38.1
Credit risk continued
Maximum exposure to credit risk continued
Other financial
assets
$m
Due from
subsidiaries
$m
Credit commitments
and contingent
liabilities
$m
Total
$m
Australia
Company 2015
Other
8 10,255 475 10,738
Total Australia
8 10,255 475 10,738
Asia Pacific
Other
– 38 409 447
Total Asia Pacific
– 38 409 447
Europe, Middle East and Africa
Financial institutions
– – 58 58
Other
– 2 495 497
Total Europe, Middle East and Africa
– 2 553 555
Americas
Other
– 66 2,148 2,214
Total Americas
– 66 2,148 2,214
Total gross credit risk 8 10,361 3,585 13,954
Australia
Company 2014
Other
16 8,600 506 9,122
Total Australia
16 8,600 506 9,122
Asia Pacific
Other
– 54 334 388
Total Asia Pacific
– 54 334 388
Europe, Middle East and Africa
Other
– 2 796 798
Total Europe, Middle East and Africa
– 2 796 798
Americas
Other
– 55 1,777 1,832
Total Americas
– 55 1,777 1,832
Total gross credit risk 16 8,711 3,413 12,140
193
Note 38.1
Credit risk continued
Collateral and credit enhancements held
Receivables from financial institutions
Cash collateral on securities borrowed and reverse repurchase
agreements balance is included in receivables from financial
institutions.
Securities borrowed and reverse repurchase agreements are
fully collateralised with highly liquid securities as they require
collateral to be in excess of the loaned amount.
Loan assets held at amortised cost
Residential mortgage loans
Residential mortgages are secured by fixed charges over a
borrower’s property. Further, Macquarie obtains lender’s
mortgage insurance (LMI) to cover the majority of the mortgage
portfolio to protect against a potential shortfall between the
value of a repossessed property sold and the loan outstanding,
including accrued interest. Substantially all the Americas
portfolio consists of Canadian mortgages. Included in the
mortgage loan balance is $17,207 million (2014: $14,025
million) which have been securitised by consolidated SPEs.
Further, $1,854 million (2014: $3,853 million) are held by either
a government-backed securitisation vehicle or financial
institutions, not consolidated by the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
194
Note 38.1
Credit risk continued
The tables below provide information on loan to value ratios (LVRs) determined using current loan balances and the valuation at the
time the mortgage was financed.
2015 2014
Australia
$m
Americas
$m
EMEA
$m
Australia
$m
Americas
$m
EMEA
$m
Fully collateralised
Loan to value ratio
Less than 25% 937 36 – 212 13 –
25% to 50% 3,261 226 – 1,222 161 244
51% to 75% 8,762 1,539 720 4,429 902 207
76% to 90% 10,293 1,534 – 8,716 2,630 32
91% to 100% 1,626 467 – 2,324 1,813 –
Partly collateralised 15 2 – 6 2 –
Total mortgages 24,894 3,804 720 16,909 5,521 483
Relationship banking mortgages
In addition, and separately to, the residential mortgages portfolios above, Macquarie Relationship Banking provides residential and
commercial mortgages to clients in Australia, usually high net worth individuals. These loans are secured by fixed charges over the
borrowers’ property. Of the mortgage balance of $2,064 million (2014: $1,199 million), $166 million (2014: $109 million) has a LVR
of 50 percent or less, $983 million (2014: $615 million) has a LVR of between 50 and 75 percent and $894 million (2014: $462
million) has a LVR of between 75 and 100 percent. $21 million (2014: $13 million) is only partly secured by real estate with a LVR
greater than 100 percent.
Investment and insurance premium lending
Macquarie lends to clients for investment, and insurance premium financing. Where Macquarie lends for investment, Macquarie
holds the investment as collateral. For insurance premium loans, the loan is collateralised by the right to receive the pro-rata return
premium for the underlying insurance policies, where the policy is cancellable. Where the policy is non-cancellable, recourse is to
the obligor in the first instance. Of the investment and insurance premium lending portfolio of $1,671 million (2014: $1,126 million),
$1,626 million (2014: $728 million) is fully collateralised.
Lease and retail financing
Macquarie leases assets and provides retail financing, predominantly motor vehicles, to corporate and retail clients. Titles to the
underlying fixed assets are held by Macquarie as collateral. Of the lease and retail finance portfolio of $11,435 million (2014:
$10,997 million), the credit exposure after considering the depreciated value of collateral is $5,527 million (2014: $3,110 million).
Corporate and commercial term lending
Collateral held against corporate and commercial lending consists of secured positions over assets of the counterparty, often in the
form of commercial property and land rights. Of the term lending of $19,025 million (2014: $15,856 million), the credit exposure
after the estimated value of collateral and credit enhancements is $4,802 million (2014: $3,341 million).
Additional collateral
Macquarie excludes other types of collateral, such as unsupported guarantees and floating charges over the assets of a customer’s
business. While such mitigants have value, often providing rights in insolvency, their assignable values are uncertain and therefore
are assigned no value for disclosure purposes.
Other financial assets at fair value through profit or loss
Included in Other financial assets at fair value through profit or loss is financing provided to clients for investing, which had a carrying
value at balance date of $268 million (2014: $644 million). This amount is secured by the underlying securities investments or cash
deposits of the investors.
195
Note 38.1
Credit risk continued
Derivative financial instruments
Derivatives may be traded on an exchange (exchange
traded) or they may be privately negotiated contracts, which
are usually referred to as Over The Counter (OTC)
derivatives. Certain of the Group’s OTC derivatives are
cleared and settled through central clearing counterparties
(OTC-cleared), while others are bilateral contracts between
two counterparties.
Exchange traded and OTC-cleared derivative contracts have
reduced credit risk as our counterparty is a clearing house
that is responsible for risk managing their members to
ensure the clearing house has adequate resources to fulfill its
obligations when they become due. Members are required to
provide initial margins in accordance with the exchange rules
in the form of cash or securities, and provide daily variation
margins in cash to cover changes in market values. Further,
all members are generally required to contribute to (and
guarantee) the compensation or reserve fund which may be
used in the event of default and shortfall of a member.
Macquarie has exchange traded derivatives with positive
replacement values (and for which counterparties would
have had to place margin) as at 31 March 2015 of $4,641
million (2014: $2,565 million). Macquarie has also placed
margins on House and Client positions with exchanges, the
balance at 31 March 2015 being $5,063 million (2014:
$2,831 million), which are recorded in Receivables from
financial institutions and Loan assets held at amortised cost.
For OTC derivative contracts, Macquarie often has master
netting agreements (usually ISDA Master Agreements) with
certain counterparties to manage the credit risk. The credit
risk associated with positive replacement value contracts is
reduced by master netting arrangements that in an event of
default requires balances with a particular counterparty
covered by the agreement (eg derivatives and cash margins)
to be terminated and settled on a net basis. Macquarie also
often executes a Credit Support Annex in conjunction with a
master netting agreement, which facilitates the transfer of
margin between parties during the term of arrangements, to
mitigate counterparty risk arising from changes in market
values of the derivatives.
As at 31 March 2015, Macquarie held OTC contracts with a
positive replacement value of $15,505 million (2014: $10,153
million). The credit risk of these contracts is reduced due to
master netting agreements covering negative OTC contracts
of $8,753 million (2014: $6,235 million) and margins held
(excluding the impact of over-collateralisation) of $1,738
million (2014: $1,167 million). In addition, Macquarie has
placed collateral of $2,386 million (2014: $1,643 million)
which has immaterial credit risk as this is offset by the related
negative OTC contracts.
Debt investments securities available for sale
Included in this balance are holdings of $225 million (2014:
$255 million) secured by specified Australian and Canadian
assets under covered bonds.
Other assets
Security settlements of $6,722 million (2014: $6,094 million)
are included in Other assets, which represent amounts owed
by an exchange (or a client) for equities sold (or bought on
behalf of a client). Macquarie holds the underlying equity
security or cash until settled, which is usually less than 3
days after trade.
Credit commitments and contingent liabilities
Of the Undrawn facilities and lending commitments of
$6,598 million (2014: $4,792 million), $2,754 million (2014:
$2,129 million) are fully secured by underlying specific
assets.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
196
Note 38.1
Credit risk continued
Credit quality of financial assets
The table below shows the credit quality by class of financial asset (based upon ultimate risk counterparty) for credit exposures,
based on the Consolidated Entity’s credit rating system.
Credit quality – Consolidated 2015
Neither past due nor impaired
Past due or
individually
impaired
$m
Total
$m
Investment
Grade
$m
Below
Investment
Grade
$m
Default
$m
Unrated
$m
Receivables from financial
institutions
25,535 3,166 4 – – 28,705
Trading portfolio assets
9,476
Governments 6,416 – – – – 6,416
Financial institutions 1,387 407 64 – – 1,858
Other 436 579 187 – – 1,202
Derivative assets
20,080
Governments 769 9 – – – 778
Financial institutions 7,916 231 9 – – 8,156
Other 7,286 3,789 71 – – 11,146
Debt investment securities
available for sale
6,452
Governments 1,257 – – – – 1,257
Financial institutions 4,122 44 – – – 4,166
Other 93 814 – – 122 1,029
Other financial assets
11,236
Governments – – – – 2 2
Financial institutions – – – – 64 64
Other 8,879 2,019 – 141 131 11,170
Loan assets held at amortised
cost
72,762
Governments 174 12 – – – 186
Financial institutions 7,147 2,268 13 – 12 9,440
Other 33,411 26,940 – – 2,785 63,136
Other financial assets at fair
value through profit or loss
1,049
Governments 96 – – – – 96
Financial institutions 357 60 – – – 417
Other 22 498 – – 16 536
Total 105,303 40,836 348 141 3,132 149,760
Included in the past due category are balances in which an amount was overdue by one day or more.
197
Note 38.1
Credit risk continued
Credit quality of financial assets
The table below shows the credit quality by class of financial asset (based upon ultimate risk counterparty) for credit exposures,
based on the Consolidated Entity’s credit rating system.
Credit quality – Consolidated 2014
Neither past due nor impaired
Past due or
individually
impaired
$m
Total
$m
Investment
Grade
$m
Below
Investment
Grade
$m
Default
$m
Unrated
$m
Receivables from
financial institutions
17,478 1,963 16 – – 19,457
Trading portfolio assets
9,933
Governments 7,417 52 – – – 7,469
Financial institutions 913 548 36 – – 1,497
Other 441 389 137 – – 967
Derivative assets
12,633
Governments 404 1 – – – 405
Financial institutions 7,579 274 – – – 7,853
Other 2,985 1,390 – – – 4,375
Debt investment securities
available for sale
12,046
Governments 2,590 – – – – 2,590
Financial institutions 8,453 82 – – – 8,535
Other 136 784 – – 1 921
Other financial assets
10,377
Governments – – – – 1 1
Financial institutions – – – – 37 37
Other 6,649 2,895 20 610 165 10,339
Loan assets held at amortised
cost
58,712
Governments 187 12 – – – 199
Financial institutions 5,093 3,406 256 – – 8,755
Other 24,851 22,995 227 – 1,685 49,758
Other financial assets at fair
value through profit or loss
1,512
Governments 82 – – – – 82
Financial institutions 508 17 – – – 525
Other 32 854 – – 19 905
Total 85,798 35,662 692 610 1,908 124,670
Included in the past due category are balances in which an amount was overdue by one day or more.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
198
Note 38.1
Credit risk continued
The table below shows the credit quality by class of financial asset (based upon ultimate risk counterparty) for credit exposures,
based on the Consolidated Entity’s credit rating system.
Credit quality – Company 2015
Neither past due nor impaired
Past due or
individually
impaired
$m
Total
$m
Investment
Grade
$m
Below
Investment
Grade
$m
Default
$m
Unrated
$m
Other assets
Other 6 2 – – – 8
Due from subsidiaries
Other 10,259 – – 102 – 10,361
Total 10,265 2 – 102 – 10,369
Included in the past due category are balances in which an amount was overdue by one day or more.
Credit quality – Company 2014
Neither past due nor impaired
Past due or
individually
impaired
$m
Total
$m
Investment
Grade
$m
Below
Investment
Grade
$m
Default
$m
Unrated
$m
Other assets
Other 3 – – 13 – 16
Due from subsidiaries
Other 8,585 – – 126 – 8,711
Total 8,588 – – 139 – 8,727
Included in the past due category are balances in which an amount was overdue by one day or more.
199
Note 38.1
Credit risk continued
Ageing analysis of assets past due but not impaired and impaired assets
Class of financial asset
Past due but not impaired
Impaired
$m
Total
$m
Less than 30
days
$m
31 to 60
days
$m
61 to 90
days
$m
More than
90 days
$m
Debt investment securities
available for sale
Consolidated 2015
Other – – – 122 – 122
Other assets
Government 1 1 – – – 2
Financial institutions 63 1 – – – 64
Other 73 13 4 10 31 131
Loan assets held at amortised cost
Financial institutions 5 4 3 – – 12
Other 782 185 72 1,152 594 2,785
Other financial assets at fair value
through profit or loss
Other 13 1 – – 2 16
Total 937 205 79 1,284 627 3,132
Debt investment securities
available for sale Consolidated 2014
Other – – – – 1 1
Other assets
Government 1 – – – – 1
Financial institutions 35 1 1 – – 37
Other 75 27 20 2 41 165
Loan assets held at amortised cost
Other 752 166 62 340 365 1,685
Other financial assets at fair value
through profit or loss
Other 3 3 1 4 8 19
Total 866 197 84 346 415 1,908
A facility is considered to be past due when a contractual payment falls overdue by one or more days. When a facility is classified as
past due, the entire facility balance after provisions is disclosed in the past due analysis.
The factors taken into consideration by the Consolidated Entity when determining whether an asset is impaired are set out in
Note 1(xiv) – Summary of significant accounting policies.
Of the collateral held against past due and impaired balances for loan assets held at amortised cost, $1,058 million
(2014: $966 million) relates to collateral held against past due and impaired balances on residential mortgage facilities that are
covered by mortgage insurance. A mortgage insurance claim will only be made in an instance where there is an outstanding
balance on the mortgage facility after the receipt of proceeds on the disposal of the property held as security. The remaining
collateral is made up of assets held as collateral against other loan and receivable balances.
The collateral held against past due and impaired balances for other assets represents equity securities held as security against
failed trade settlements.
Repossessed collateral
In the event of customer default on facilities, the Consolidated Entity may take possession of real estate or other assets held as
security. As at 31 March 2015, the Consolidated Entity has taken possession of fixed assets and property assets with a carrying
value of $79 million (2014: $178 million). These assets are in the process of being sold.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
200
Note 38.2
Liquidity risk
Liquidity management
The Consolidated Entity’s liquidity risk management
framework ensures that it is able to meet its funding
requirements as they fall due under a range of market
conditions.
Liquidity management is performed centrally by Group
Treasury, with oversight from the Asset and Liability
Committee and RMG. The Consolidated Entity’s liquidity
policies are approved by the Board after endorsement by the
Asset and Liability Committee and liquidity reporting is
provided to the MGL and MBL Boards on a monthly basis.
The Asset and Liability Committee includes the CEO, MBL
CEO, the CFO, Chief Risk Officer, Group Treasurer and
Business Group Heads.
RMG provides independent prudential oversight of liquidity
risk management, including the validation of liquidity scenario
assumptions, liquidity policies, and the required funding
maturity profile.
Liquidity policy
MGL provides funding predominantly to the Non-Banking
Group. As such, the MGL liquidity policy outlines the liquidity
requirements for the Non-Banking Group. MGL’s risk
appetite is to be able to meet all of its liquidity obligations
during a period of liquidity stress: a 12 month period with no
access to funding markets and with only a limited reduction
in franchise businesses.
Reflecting the longer term nature of the Non-Banking Group
asset profile, MGL is funded predominantly with a mixture of
capital and long-term wholesale funding.
The MBL liquidity policy outlines the liquidity requirements for
the Banking Group. MBL’s risk appetite is to be able to meet
all of its liquidity obligations during a period of liquidity stress:
a 12 month period of constrained access to funding markets
and with only a limited reduction in franchise businesses.
MBL is funded mainly by capital, long-term liabilities and
deposits.
Scenario analysis
Scenario analysis is central to the Consolidated Entity’s
liquidity risk management framework. Group Treasury
models a number of liquidity scenarios covering both
market-wide and firm-specific crises. The objective of this
modelling is to ensure the Consolidated Entity’s ability to
meet all repayment obligations under each scenario and to
determine the capacity for asset growth.
The scenarios separately consider the requirements of the
Banking Group, Non-Banking Group and the Consolidated
Entity. They are run over a number of timeframes and a
range of conservative assumptions are used including the
level of access to capital markets, deposit outflows,
contingent funding requirements and asset sales.
Liquid asset holdings
MGL’s internal scenario projections determine the expected
minimum cash requirement during a combined market-wide
and firm-specific crisis scenario over a 12 month timeframe.
This scenario assumes no access to new funding sources, a
significant loss of deposits and contingent funding outflows
resulting from undrawn commitments, market moves
impacting derivatives and other margined positions. The size
of the liquid asset portfolio must exceed the minimum
requirement as calculated in this model at all times.
Group Treasury maintains a portfolio of highly liquid
unencumbered assets in the Consolidated Entity to ensure
adequate liquidity is available in all funding environments,
including worst case wholesale and retail market conditions.
MGL’s minimum level of cash and liquid assets is calculated
with reference to internal scenario projections and minimum
regulatory requirements.
Liquidity contingency plan
Group Treasury maintains a liquidity contingency plan. The
liquidity contingency plan applies to the entire Consolidated
Entity and defines roles and responsibilities and actions to be
taken in a liquidity event. This includes identification of key
information requirements and appropriate communication
plans with both internal and external parties.
Specifically, the plan details factors that may constitute a
crisis, the officer responsible for enacting the contingency
management, a committee of senior executives who would
be responsible for managing a crisis, the information required
to effectively manage a crisis, a public relations strategy, a
high level check list of possible actions to conserve or raise
additional liquidity and contact lists to facilitate prompt
communication with all key internal and external
stakeholders. The liquidity contingency plan is subject to
regular review (at least annually) by both Group Treasury and
RMG and is submitted to the Board for approval.
201
Note 38.2
Liquidity risk continued
Macquarie is a global financial institution, with branches and subsidiaries in a variety of countries. Regulations in certain countries
may require some branches or subsidiaries to have specific local contingency plans. Where that is the case, the liquidity
contingency plan contains a supplement providing the specific information required for those branches or subsidiaries.
Funds transfer pricing
An internal funds transfer pricing framework is in place that has been designed to produce appropriate incentives for business
decision-making by reflecting the true funding costs arising from business actions. Under this framework, each business is allocated
the full cost of the funding required to support its products and business lines, recognising the actual and contingent funding-related
exposures their activities create for the group as a whole. Businesses that raise funding are compensated at a level that is
appropriate for the liquidity benefit provided by the funding.
Contractual undiscounted cash flows
The following tables summarise the maturity profile of the Consolidated Entity’s financial liabilities as at 31 March based on
contractual undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were given
immediately. However, the Consolidated Entity expects that many customers will not request repayment on the earliest date the
Consolidated Entity could be required to pay. Deposits are reported at their contractual maturity – the table does not reflect the
expected cash flows indicated by the Consolidated Entity’s deposit retention history.
Derivatives (other than those designated in a hedging relationship) and trading portfolio liabilities are included in the ‘less than 3
months’ column at their fair value. Liquidity risk on these items is not managed on the basis of contractual maturity, since they are
not held for settlement according to such maturity and will frequently be settled in the short term at fair value. Derivatives designated
in a hedging relationship are included according to their contractual maturity.
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Total
$m
Consolidated 2015
Trading portfolio liabilities – 5,295 – – – 5,295
Derivative financial instruments (trading) – 17,430 – – – 17,430
Derivative financial instruments (hedging
relationship)
Contractual amounts payable – 4,865 3,514 10,294 2,820 21,493
Contractual amounts receivable – (4,795) (3,163) (9,871) (2,595) (20,424)
Deposits 39,102 4,466 3,287 608 21 47,484
Other financial liabilities
(1)
– 11,572 – – – 11,572
Payables to financial institutions 9,124 5,182 668 3,584 565 19,123
Other financial liabilities at fair value through profit
or loss – 153 170 361 1,175 1,859
Debt issued at amortised cost
(2)
3 10,209 11,624 31,017 22,421 75,274
Loan Capital
(3)
– 147 744 2,129 2,270 5,290
Total undiscounted cash flows
48,229 54,524 16,844 38,122 26,677 184,396
Contingent liabilities – 1,643 – – – 1,643
Commitments
620 5,001 5,213 825 9 11,668
Total undiscounted contingent liabilities and
commitments
(4)
620 6,644 5,213 825 9 13,311
(1)
Excludes items that are not financial instruments and non-contractual accruals and provisions.
(2)
Included in this balance is $25,861 million (2014: $19,139 million) payable to SPE note holders. The contractual maturity of the notes is
dependent on the repayment of the underlying loans included in loan assets held at amortised cost. The contractual maturity of the
underlying loans is reflected in the maturity analysis.
(3)
Included in this balance are securities with conditional repayment obligations. These securities are disclosed using repricing dates
instead of contractual maturity. For contractual maturity of these securities, refer to Note 27 – Loan capital.
(4)
Cash flows on contingent liabilities and commitments are dependent on the occurrence of various future events and conditions, and
may or may not result in an outflow of resources. These are reported in the ‘less than 3 months’ column unless the contractual terms
specify a longer dated cash flow.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
202
Note 38.2
Liquidity risk continued
Contractual undiscounted cash flows continued
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Total
$m
Consolidated 2014
Trading portfolio liabilities – 2,762 – – – 2,762
Derivative financial instruments (trading) – 11,537 – – – 11,537
Derivative financial instruments (hedging
relationship)
Contractual amounts payable – 2,467 2,222 5,649 620 10,958
Contractual amounts receivable – (2,374) (2,303) (5,795) (706) (11,178)
Deposits 32,631 5,124 4,290 460 14 42,519
Other financial liabilities
(1)
– 11,111 – – – 11,111
Payables to financial institutions 4,809 10,005 586 3,713 919 20,032
Other financial liabilities at fair value
through profit or loss – 538 342 315 303 1,498
Debt issued at amortised cost
(2)
– 8,783 9,659 19,548 17,453 55,443
Loan Capital
(3)
– 115 171 2,028 2,189 4,503
Total undiscounted cash flows 37,440 50,068 14,967 25,918 20,792 149,185
Contingent liabilities – 1,346 – – – 1,346
Commitments – 4,659 199 384 5 5,247
Total undiscounted contingent liabilities and
commitments
(4)
– 6,005 199 384 5 6,593
(1)
Excludes items that are not financial instruments and non-contractual accruals and provisions.
(2)
Included in this balance is $19,139 million payable to SPE note holders. The contractual maturity of the notes is dependent on the
repayment of the underlying loans included in loan assets held at amortised cost. The contractual maturity of the underlying loans is
reflected in the maturity analysis.
(3)
Included in this balance are securities with conditional repayment obligations. These securities are disclosed using repricing dates
instead of contractual maturity. For contractual maturity of these securities, refer to Note 27 – Loan capital.
(4)
Cash flows on contingent liabilities and commitments are dependent on the occurrence of various future events and conditions, and
may or may not result in an outflow of resources. These are reported in the ‘less than 3 months’ column unless the contractual terms
specify a longer dated cash flow.
203
Note 38.2
Liquidity risk continued
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Total
$m
Company 2015
Deposits – – 18 – – 18
Other financial liabilities
(1)
– 3 – – – 3
Payables to financial institutions – 11 34 2,691 – 2,736
Due to subsidiaries
(2)
274 49 – 177 44 544
Debt issued at amortised cost – 79 272 5,635 1,485 7,471
Loan Capital
(3)
– 17 17 686 – 720
Total undiscounted cash flows 274 159 341 9,189 1,529 11,492
Contingent liabilities
– 3,585 – – – 3,585
Total undiscounted contingent
liabilities
(4)
– 3,585 – – – 3,585
Company 2014
Deposits – 33 – – – 33
Other financial liabilities
(1)
– 2 – – – 2
Payables to financial institutions – 6 17 1,393 – 1,416
Due to subsidiaries
(2)
484 2 1 65 – 552
Debt issued at amortised cost – 128 1,299 3,154 3,014 7,595
Loan Capital
(3)
– 17 17 719 – 753
Total undiscounted cash flows 484 188 1,334 5,331 3,014 10,351
Contingent liabilities
– 3,413 – – – 3,413
Total undiscounted contingent
liabilities
(4)
– 3,413 – – – 3,413
(1)
Excludes items that are not financial instruments and non-contractual accruals and provisions.
(2)
Excludes items that are not financial instruments and non-contractual prepayments.
(3)
Included in this balance are securities with conditional repayment obligations. These securities are disclosed using repricing dates
instead of contractual maturity. For contractual maturity of these securities, refer to Note 27 – Loan capital.
(4)
Cash flows on contingent liabilities are dependent on the occurrence of various future events and conditions, and may or may not result
in an outflow of resources. These are reported in the ‘less than 3 months’ column unless the contractual terms specify a longer dated
cash flow.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
204
Note 38.3
Market risk
Market risk is the exposure to adverse changes in the value of the Consolidated Entity's trading portfolios as a result of changes in
market prices or volatility. The Consolidated Entity is exposed to the following risks in each of the major markets in which it trades:
– foreign exchange and bullion: changes in spot and forward exchange rates and bullion prices and the volatility of exchange
rates and bullion prices
– interest rates and debt securities: changes in the level, shape and volatility of yield curves, the basis between different debt
securities and derivatives and credit margins
– equities: changes in the price and volatility of individual equities, equity baskets and equity indices, and
– commodities and energy: changes in the price and volatility of base metals, agricultural commodities and energy products;
and to the correlation of market prices and rates within and across markets.
It is recognised that all trading activities contain calculated elements of risk taking. The Consolidated Entity is prepared to accept
such risks provided they are within agreed limits, independently and correctly identified, calculated and monitored by RMG, and
reported to senior management on a regular basis.
RMG monitors positions within the Consolidated Entity according to a limit structure which sets limits for all exposures in all
markets. Limits are for both individual trading desks and divisions as well as in aggregate. Trigger limits for the Consolidated Entity
as a whole ensure that if several trading book limits are being used simultaneously, the aggregate level of risk is in line with the
global risk appetite articulated in the economic capital model.
RMG sets three complementary limit structures:
– contingent loss limits: worst case scenarios that shock prices and volatilities by more than has occurred historically. Multiple
scenarios are set for each market to capture the non-linearity and complexity of exposures arising from derivatives. A wide
range of assumptions about the correlations between markets is applied
– position limits: volume, maturity and open position limits are set on a large number of market instruments and securities in
order to constrain concentration risk and to avoid the accumulation of risky, illiquid positions, and
– Value-at-Risk (VaR) limits: statistical measure based on a 10-day holding period and a 99 percent confidence level, as
stipulated by the APRA capital adequacy standard. The model is validated daily by back testing a one-day VaR against
hypothetical and actual daily trading profit or loss.
Value-at-Risk figures (1-day, 99 percent confidence level)
The table below shows the average, maximum and minimum VaR over the year for the major markets in which the Consolidated
Entity operates. The VaR shown in the table is based on a one-day holding period. The aggregated VaR is on a correlated basis.
2015
Average
$m
2015
Maximum
$m
2015
Minimum
$m
2014
Average
$m
2014
Maximum
$m
2014
Minimum
$m
Consolidated
Equities 6.51 13.43 3.35 5.55 8.21 2.98
Interest rates 8.86 14.49 6.08 10.37 15.56 6.17
Foreign exchange and bullion 2.64 4.44 0.58 3.97 8.05 1.05
Commodities 9.75 13.75 6.80 13.08 20.89 7.36
Aggregate 13.96 23.76 8.18 18.09 28.23 9.38
Value-at-Risk
The VaR model uses a Monte Carlo simulation to generate normally distributed price and volatility paths, based on three years of
historical data. VaR focuses on unexceptional price moves so that it does not account for losses that could occur beyond the 99
percent level of confidence. These factors can limit the effectiveness of VaR in predicting future price moves when changes to future
risk factors deviate from the movements expected by the above assumptions. For capital adequacy purposes, debt-specific risk is
measured using APRA’s standard method, whilst all other exposures are captured by the VaR model. This combined approach has
been approved by APRA and is subject to periodic review.
Interest rate risk
The Consolidated Entity also has exposure to non-traded interest rate risk generated by banking products such as loans and
deposits. Banking businesses have small limits to accumulate small levels of interest rate risk. Wherever possible, these interest rate
risks are transferred into the trading books of CFM and Group Treasury Division which are managed within traded market risk limits
and are included within the VaR figures presented above. Some residual interest rate risks remain in the banking book due to
factors outside the interest rate market or due to timing differences in accumulating exposures large enough to hedge. These
residual risks have independent limits that are monitored by RMG and regularly reported to senior management.
205
Note 38.3
Market risk continued
Foreign currency risk
The Consolidated Entity is exposed to foreign currency risk arising from transactions entered into in its normal course of business
and as a result of its investments in foreign operations. Movements in foreign currency exchange rates will result in gains or losses in
the income statement due to the revaluation of certain balances or in movements in the foreign currency translation reserve due to
the revaluation of foreign operations.
In order to manage this risk, the Consolidated Entity has a policy that non-trading foreign currency exposures are appropriately
hedged unless specifically approved by RMG, and trading foreign currency exposures remain within trading limits set by RMG.
Forward foreign exchange contracts, or borrowings in the same currency as the exposure, are designated as hedges under
Australian Accounting Standards and offset movements on the net assets within foreign operations and are transferred to the
foreign currency translation reserve.
Responsibility for monitoring and managing foreign currency exposures arising from transactions rests with individual businesses
which will enter into internal transactions as necessary to transfer the underlying foreign exchange risk to our trading businesses.
Any residual foreign exchange risk residing in non-trading divisions is included in the internal model capital calculation by RMG, with
the exception of specific investments in core foreign operations as discussed below.
The hedging policy of the Consolidated Entity is designed to reduce the sensitivity of the Consolidated Entity’s regulatory capital
position to foreign currency movements. This is achieved by leaving specific investments in core foreign operations exposed to
foreign currency translation movements. The resultant change in the Australian dollar value of the foreign investment is captured in
the foreign currency translation reserve, a component of regulatory capital. This offsets the corresponding movement in the capital
requirements of these investments.
As a result of the Consolidated Entity’s foreign exchange policy, the Consolidated Entity is partially exposed to currency risk in
relation to the translation of its net investment in foreign operations to Australian dollars. Other than this there is no material non-
trading foreign exchange risk in the profit and loss.
The table below indicates the sensitivity to movements in the Australian dollar rate against various foreign currencies at 31 March.
The Consolidated Entity is active in various currencies globally-those with the most impact on the sensitivity analysis below are USD,
GBP, CAD and EUR.
2015 2014
Movement in
exchange
rates
%
Sensitivity
of equity
after tax
$m
Movement in
exchange
rates
%
Sensitivity
of equity
after tax
$m
Consolidated
USD +10 (413.2) +10 (320.0)
GBP +10 (69.5) +10 (64.0)
CAD +10 (28.2) +10 (26.6)
EUR +10 (33.5) +10 (31.0)
Total (544.4) (441.6)
USD –10 505.0 –10 391.1
GBP –10 84.9 –10 78.3
CAD –10 34.5 –10 32.4
EUR –10 40.9
–10
37.9
Total 665.3
539.7
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
206
Note 38.3
Market risk continued
Equity price risk
The table below indicates the equity markets to which the Consolidated Entity had significant exposure at 31 March on its
non-trading investment portfolio excluding interests in associates and joint ventures. The effect on equity (as a result of a change in
the fair value of equity instruments held as available for sale at 31 March) and the income statement due to a reasonably possible
change in equity prices, with all other variables held constant, is as follows:
2015 2014
Movement in
equity
price
Sensitivity
of profit
before tax
Sensitivity
of equity
after tax
Movement
in equity
price
Sensitivity
of profit
before tax
Sensitivity
of equity
after tax
Geographic region % $m $m
% $m $m
Consolidated
Listed
Americas +10 – 31.9 +10 – 14.5
Australia +10 0.4 27.3 +10 – 36.1
Asia Pacific +10 – 1.1 +10 – 1.3
Europe, Middle East
and Africa +10 – 0.7 +10 1.8 0.8
Unlisted +10 0.7 104.4 +10 0.6 86.0
Listed
Americas –10 – (31.9) –10 – (14.5)
Australia –10 (0.4) (27.3) –10 – (36.1)
Asia Pacific –10 – (1.1) –10 – (1.3)
Europe, Middle East
and Africa –10 – (0.7) –10 (1.8) (0.8)
Unlisted –10 (0.7) (104.4) –10 (0.6) (86.0)
207
Note 39
Fair value of financial assets and liabilities
Fair value reflects the amount for which an asset could be
exchanged or a liability settled, between knowledgeable, willing
parties in an arm’s length transaction. Quoted prices or rates
are used to determine fair value where an active market exists.
If the market for a financial instrument is not active, fair values
are estimated using present value or other valuation techniques,
using inputs based on market conditions prevailing on the
measurement date.
The values derived from applying these techniques are affected
by the choice of valuation model used and the underlying
assumptions made regarding inputs such as timing and
amounts of future cash flows, discount rates, credit risk,
volatility and correlation.
Financial instruments measured at fair value are categorised in
their entirety, in accordance with the levels of the fair value
hierarchy as outlined below:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities
Level 2: inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either
directly (ie as prices) or indirectly (ie derived from
prices)
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The appropriate level for an instrument is determined on the
basis of the lowest level input that is significant to the fair value
measurement.
The Consolidated Entity uses the portfolio exemption in
AASB 13 Fair Value Measurement to measure the fair value of
certain groups of financial assets and financial liabilities. These
are measured using the price that would be received to sell a
net long position, or transfer a net short position, for a particular
risk exposure.
The following methods and significant assumptions have been
applied in determining the fair values of financial instruments:
– trading portfolio assets and liabilities, financial assets and
liabilities at fair value through profit or loss, derivative
financial instruments and other transactions undertaken for
trading purposes are measured at fair value by reference to
quoted market prices when available (eg listed securities). If
quoted market prices are not available, then fair values are
estimated on the basis of pricing models or other
recognised valuation techniques
– investment securities classified as available for sale are
measured at fair value by reference to quoted market prices
when available (eg listed securities). If quoted market prices
are not available, then fair values are estimated on the basis
of pricing models or other recognised valuation techniques.
Unrealised gains and losses, excluding impairment write-
downs, are recorded in the available for sale reserve in
equity until the asset is sold, collected or otherwise
disposed of
– fair values of fixed rate loans and issued debt classified as
at fair value through profit or loss is estimated by reference
to current market rates offered on similar loans and issued
debt
– for financial assets carried at fair value, in order to measure
counterparty credit risk, a Credit Valuation Adjustment
(CVA) is incorporated into the valuation. The CVA is
calculated at a counterparty level taking into account all
exposures to that counterparty
– for financial liabilities carried at fair value, in order to
measure the Consolidated Entity’s own credit risk, a Debit
Valuation Adjustment (DVA) is incorporated into the
valuations, and
– for uncollateralised derivative positions, the Consolidated
Entity has incorporated the market implied funding costs for
these uncollateralised derivative positions as a Funding
Valuation Adjustment (FVA). FVA is determined by
calculating the net expected exposures at a counterparty
level and applying MGL's internal Treasury lending rates as
an input into the calculation. The approach takes into
account the probability of default of each counterparty, as
well as any mandatory break clauses.
Where valuation techniques are used to determine fair values,
they are validated and periodically reviewed by qualified
personnel independent of the area that created them. All
models are certified before they are used, and models are
calibrated periodically to test that outputs reflect prices from
observable current market transactions in the same instrument
or other available observable market data. To the extent
possible, models use only observable market data (eg for OTC
derivatives), however management is required to make
assumptions for certain inputs that are not supported by prices
from observable current market transactions in the same
instrument, such as, volatility and correlation.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
208
Note 39
Fair value of financial assets and liabilities continued
The following methods and significant assumptions have been
applied in determining the fair values of financial instruments
which are carried at amortised cost:
– the fair values of liquid assets and other instruments
maturing within three months are approximate to their
carrying amounts. This assumption is applied to liquid
assets and the short-term elements of all other financial
assets and financial liabilities
– the fair value of demand deposits with no fixed maturity is
approximately their carrying amount as they are short term
in nature or are payable on demand
– the fair values of variable rate financial instruments,
including certain loan assets and liabilities carried at
amortised cost, cash collateral on securities borrowed/cash
collateral on securities lent and reverse
repurchase/repurchase agreements, are approximate to
their carrying amounts. The fair value of loan assets
repayable without penalty is approximated by their carrying
value. Fair values of all loan assets is determined with
reference to changes in credit markets as well as interest
rates
– the fair value of fixed rate loans and debt carried at
amortised cost is estimated by reference to current market
rates offered on similar loans and the creditworthiness of
the borrower
– the fair value of debt issued and subordinated debt is based
on market prices where available. Where market prices are
not available the fair value is based on discounted cash
flows using rates appropriate to the term and issue and
incorporates changes in the Consolidated Entity’s own
credit spread
– substantially all of the Consolidated Entity’s commitments to
extend credit are at variable rates. As such, there is no
significant exposure to fair value fluctuations resulting from
interest rate movements relating to these commitments,
and
– in the financial statements of the Company, the fair value of
balances due from/to subsidiaries is approximated by their
carrying amount as the balances are generally
receivable/payable on demand.
2015
Carrying
value
$m
2015
Fair
value
$m
2014
Carrying
value
$m
2014
Fair
value
$m
209
Note 39
Fair value of financial assets and liabilities continued
The tables below summarise the carrying value and fair value of financial assets and liabilities held at amortised cost of the
Consolidated Entity and the Company:
Consolidated
Assets
Receivables from financial institutions 28,705 28,705 19,457 19,457
Other financial assets 11,236 11,236 10,377 10,377
Loan assets held at amortised cost 72,762 72,834 58,712 58,875
Total assets 112,703 112,775 88,546 88,709
Liabilities
Deposits 47,386 47,359 42,401 42,413
Other financial liabilities 10,568 10,568 10,027 10,027
Payables to financial institutions 18,645 18,747 19,654 19,698
Debt issued at amortised cost 61,463 62,463 45,565 46,302
Loan capital at amortised cost 4,384 4,712 3,507 3,744
Total liabilities 142,446 143,849 121,154 122,184
The fair values for "Deposits" have been predominantly classified as Level 1 except for $9,984 million (2014: $10,849 million) which
have been classified as Level 2.
Fair values for "Receivable from Financial Institutions", "Other financial assets", "Other financial liabilities", "Payable to financial
institutions", "Debt issued at amortised cost" and "Loan capital" have been predominantly classified as Level 2 except for $10,552
million (2014: $8,509 million) in Receivables from Financial Institutions, $1,926 million (2014: $1,595 million) in Payable to financial
institutions, $1,599 million (2014: $3,279 million) in Debt issued at amortised cost and $1,427 million (2014: $934 million) in Loan
Capital has been classified as Level 1 and $7,162 million (2014:$5,999 million) in Debt issued at amortised cost is classified as Level 3.
Loan assets at amortised cost are primarily Level 3 except for $10,470 million (2014: $11,715 million) which has been classified as
Level 2 and $9,318 million (2014: $5,342 million) which has been classified as Level 1.
Company
Assets
Other financial assets 8 8 16 16
Due from subsidiaries 10,361 10,361 8,711 8,711
Total assets 10,369 10,369 8,727 8,727
Liabilities
Deposits 18 18 33 33
Other Financial Liabilities 3 3 2 2
Payables to financial institutions 2,566 2,584 1,307 1,307
Due to subsidiaries 810 810 866 866
Debt issued at amortised cost 6,179 6,737 6,265 6,581
Loan capital at amortised cost 603 624 601 628
Total liabilities 10,179 10,776 9,074 9,417
As at 31 March 2015, the above fair values are predominantly classified as Level 2 in the fair value hierarchy except for ‘Loan capital
‘classified as Level 1”.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
210
Note 39
Fair value of financial assets and liabilities continued
The following table summarises the levels of the fair value hierarchy for financial instruments measured at fair value:
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Consolidated 2015
Assets
Trading portfolio assets 19,580 10,129 697 30,406
Derivative assets 948 18,799 333 20,080
Investment securities available for sale 4,306 2,389 2,201 8,896
Other financial assets at fair value through profit or loss 118 1,817 190 2,125
Other financial assets
(1)
234 825 – 1,059
Total assets 25,186 33,959 3,421 62,566
Liabilities
Trading portfolio liabilities 2,697 2,598 – 5,295
Derivative liabilities 1,159 16,869 239 18,267
Other financial liabilities at fair value through profit or loss – 1,604 22 1,626
Other financial liabilities
(1)
232 772 – 1,004
Total liabilities 4,088 21,843 261 26,192
Consolidated 2014
Assets
Trading portfolio assets 13,982 7,770 710 22,462
Derivative assets 591 11,944 98 12,633
Investment securities available for sale 8,897 3,930 1,224 14,051
Other financial assets at fair value through profit or loss 244 2,457 153 2,854
Other financial assets
(1)
353 760 – 1,113
Total assets 24,067 26,861 2,185 53,113
Liabilities
Trading portfolio liabilities 1,125 1,637 – 2,762
Derivative liabilities 738 11,148 87 11,973
Other financial liabilities at fair value through profit or loss – 1,432 32 1,464
Other financial liabilities
(1)
351 733 – 1,084
Total liabilities 2,214 14,950 119 17,283
(1)
Relates to life insurance contracts and other unitholder investment assets and liabilities.
211
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Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
212
Note 39
Fair value of financial assets and liabilities continued
Reconciliation of balances in Level 3 of the fair value hierarchy
The following table reconciles the balances in Level 3 of the fair value hierarchy for the Consolidated Entity for the financial years
ended 31 March 2015 and 31 March 2014:
Trading portfolio assets
Investment
securities available
for sale
$m $m
Balance at 1 April 2013 322 744
Purchases 354 583
Sales (196) (237)
Issues – 49
Settlements – (3)
Net transfers into Level 3 312 16
Net transfers out of Level 3 (90) (65)
Fair value gains/(losses) recognised in the income statement
(1)
8 76
Fair value gains recognised in other comprehensive income
(1)
– 61
Balance at 31 March 2014 710 1,224
Fair value gains/(losses) for the financial year included in the income
statement for assets and liabilities held at the end of the financial year
(1)
9 33
Balance at 1 April 2014 710 1,224
Purchases 609 605
Sales (545) (450)
Issues – –
Settlements – (90)
Net transfers into Level 3 65 672
Net transfers out of Level 3 (152) (78)
Fair value gains/(losses) recognised in the income statement
(1)
10 274
Fair value gains recognised in other comprehensive income
(1)
– 44
Balance at 31 March 2015 697 2,201
Fair value gains/(losses) for the financial year included in the income statement for
assets and liabilities held at the end of the financial year
(1)
10 157
(1)
The Consolidated Entity employs various hedging techniques in order to manage risks, including risks in Level 3 positions. Such
techniques may include the purchase or sale of financial instruments that are classified as Levels 1 and/or 2. The realised and unrealised
gains and losses for assets and liabilities in Level 3 presented in the table above do not reflect the related realised or unrealised gains
and losses arising on economic hedging instruments classified in Level 1 and/or 2.
(2)
The derivative financial instruments in the table above are represented on a net basis. On a gross basis derivative assets are $333 million
(2014: $98 million) and derivative liabilities are $239 million (2014: $87 million).
213
Note 39
Fair value of financial assets and liabilities continued
Reconciliation of balances in Level 3 of the fair value hierarchy continued
The following table reconciles the balances in Level 3 of the fair value hierarchy for the Consolidated Entity for the financial years
ended 31 March 2015 and 31 March 2014:
Other financial assets at fair
value through profit or loss
Other financial liabilities
at fair value through
profit or loss
Derivative financial
instruments
(net replacement values)
(2)
Total
$m $m $m $m
Consolidated 2014
69 (70) 23 1,088
62 – (33) 966
(40) 40 (2) (435)
– – (5) 44
– 2 (19) (20)
57 – 11 396
– – 7 (148)
5 (4) 29 114
– – – 61
153 (32) 11 2,066
1 (4) 38 77
Consolidated 2015
153 (32) 11 2,066
6 – 104 1,324
(9) – (21) (1,025)
– – (10) (10)
9 11 2 (68)
– – (21) 716
– – 29 (201)
31 (1) – 314
– – – 44
190 (22) 94 3,160
32 (1) (14) 184
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
214
Note 39
Fair value of financial assets and liabilities continued
Significant transfers between levels of the fair value hierarchy
During the financial year the Consolidated Entity did not have significant transfers between Level 1 and 2.
Transfers into Level 3 were due to the lack of observable valuation inputs for certain securities and investments. Transfers out of
Level 3 were principally due to valuation inputs becoming observable during the year.
Unrecognised gains
For financial assets and financial liabilities measured at fair value through profit or loss, when the transaction price in a non-active
market is different to the fair market value from other observable current market conditions in the same instrument or based on
valuation techniques whose variables include other data from observable markets, the Consolidated Entity recognises the difference
between the transaction price and the fair value in the income statement. In cases where use is made of data which is not
observable, profit or loss is only recognised in the income statement when the inputs become observable, or over the life of the
instrument.
The table below summarises the deferral and recognition of profit or loss where a valuation technique has been applied for which
not all inputs are observable in the market:
Consolidated
2015
$m
Consolidated
2014
$m
Balance at the beginning of the financial year
12 32
Deferral on new transactions 46 4
Amounts recognised in the income statement during the year (2) (24)
Balance at the end of the financial year 56 12
Sensitivity analysis of valuations using unobservable inputs
The table below shows the sensitivity in changing assumptions to reasonably possible alternative assumptions, for those financial
instruments for which fair values are determined in whole or in part using valuation techniques, such as discounted cashflows, which
are based on assumptions that have been determined by reference to historical company and industry experience.
Favourable changes Unfavourable changes
Profit
or loss
$m
Equity
$m
Profit
or loss
$m
Equity
$m
Product type
Consolidated 2015
Equity and equity linked products 13 114 (13) (110)
Other products 81 23 (65) (16)
Total 94 137 (78) (126)
Product type
Consolidated 2014
Equity and equity linked products 3 75 (3) (54)
Other products 17 7 (11) (7)
Total 20 82 (14) (61)
215
Note 39
Fair value of financial assets and liabilities continued
Significant unobservable inputs
The following table contains information about the significant unobservable inputs used in Level 3 valuations, and the valuation
techniques used to measure fair value of instruments. The range of values represent the highest and lowest input used in the
valuation techniques. Therefore, the range does not reflect the level of uncertainty regarding a particular input, but rather the
different underlying characteristics of the relevant assets and liabilities.
Range of inputs
Assets
$m
Liabilities
$m
Valuation
technique(s)
Significant unobservable
inputs
Minimum
value
Maximum
value
As at 31 Mar 2015
Equity and
equity linked
products
1,794 22
Discounted cash
flows Discount rate 7.0% 15.0%
Pricing model Volatility 17.0% 192.0%
Earnings multiple 0.4x 16.0x
Correlation – –
Market comparability Price in % (25.0)% 25.0%
Other products 1,627 239
Discounted cash
flows Discount rate 6.0% 22.0%
Pricing model Volatility 11.3% 150.0%
Correlation – –
Market comparability Price in % – 103.0%
Total 3,421 261
As at 31 Mar 2014
Equity and
equity linked
products
1,022 35
Discounted cash
flows Discount rate 6.8% 25.0%
Pricing model Volatility 9.2% 95.0%
Earnings multiple 0.4x 8.45x
Correlation 0.07 0.07
Market comparability Price in % (5.9)% 25.0%
Other products 1,163 84 Pricing model Volatility 7.0% 93.5%
Correlation – 1.00
Market comparability Price in % 7.0% 214.0%
Total 2,185 119
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
216
Note 39
Fair value of financial assets and liabilities continued
Correlation
Correlation is a measure of the relationship between the
movements of two variables (ie how the change in one variable
influences a change in the other variable). Correlation is a key
input of derivatives with more than one underlying and is
generally used to value hybrid and exotic instruments.
Volatility
Volatility is a measure of the variability or uncertainty in returns
for a given derivative underlying. It represents an estimate of
how much a particular underlying instrument, parameter or
index will change in value over time. Volatility is an input in the
valuation of derivatives containing optionality. Volatility and skew
are impacted by the underlying risk, term and strike price of a
derivative.
Inputs for unlisted equity securities (discount rate,
earnings multiple)
Unlisted equity instruments are generally valued based on
earnings multiples of comparable companies. Significant
unobservable inputs may include earnings multiple, discount
rate and forecast earnings of the investee companies.
217
Note 40
Offsetting financial assets and financial liabilities
The Consolidated Entity reports financial assets and financial liabilities on a net basis on the balance sheet when they meet the
criteria described in Note 1(xxiv) – Offsetting financial instruments. The following tables provide information on the impact of
offsetting that has occurred in the balance sheet, as well as amounts subject to enforceable netting arrangements that do not
qualify for offsetting in the balance sheet. The tables exclude amounts not subject to offsetting or enforceable netting arrangements.
The amounts presented in this note do not represent the credit risk exposure of the entity, refer to Note 38.1 – Credit risk for
information on credit risk management.
Amounts subject to enforceable netting arrangements
Subject to offsetting on balance sheet Related amounts not offset
Gross
amounts
$m
Amounts
offset
$m
Net amount
presented
$m
Other
recognised
financial
instruments
$m
Cash and
other financial
collateral
$m
Net amount
$m
Consolidated 2015
Receivables from financial
institutions
(1)
17,482
–
17,482
(302)
(16,773)
407
Derivative assets 21,375 (4,746) 16,629 (12,713) (1,738) 2,178
Other assets 4,136 (2,766) 1,370 (58) – 1,312
Loan assets held at
amortised cost
155
(155)
–
–
–
–
Other financial assets at fair
value through profit or loss
1,564
(1,400)
164
–
–
164
Total assets 44,712 (9,067) 35,645 (13,073) (18,511) 4,061
Derivative liabilities (21,592) 4,753 (16,839) 12,713 1,947 (2,179)
Deposits (336) 308 (28) – – (28)
Other liabilities (4,558) 2,819 (1,739) 58 – (1,681)
Payables to financial
institutions
(2)
(10,748) – (10,748) 302 10,210 (236)
Other financial liabilities at fair
value through profit or loss (1,139) 1,139 – – – –
Debt issued at amortised cost (48) 48 – – – –
Total liabilities (38,421) 9,067 (29,354) 13,073 12,157 (4,124)
(1)
Included within this balance are reverse repurchase arrangements and other similar secured lending.
(2)
Included within this balance are repurchase arrangements and other similar secured borrowing.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
218
Note 40
Offsetting financial assets and financial liabilities continued
Amounts subject to enforceable netting arrangements
Subject to offsetting on balance sheet Related amounts not offset
Gross
Amounts
$m
Amounts
offset
$m
Net amount
presented
$m
Other
recognised
financial
instruments
$m
Cash and
other financial
collateral
$m
Net amount
$m
Consolidated 2014
Receivables from financial
institutions
(1)
10,065 (1) 10,064 (712) (9,132) 220
Derivative assets 13,563 (1,904) 11,659 (8,388) (1,167) 2,104
Other assets 3,554 (2,075) 1,479 (55) (1) 1,423
Loan assets held at
amortised cost 139 (139) – – – –
Other financial assets at fair
value through profit or loss 1,377 (1,264) 113 – – 113
Total assets 28,698 (5,383) 23,315 (9,155) (10,300) 3,860
Derivative liabilities (13,288) 1,902 (11,386) 8,388 1,300 (1,698)
Deposits (205) 169 (36) – 1 (35)
Other liabilities (3,588) 2,129 (1,459) 55 – (1,404)
Payables to financial
institutions
(2)
(8,618) 1 (8,617) 712 7,859 (46)
Other financial liabilities at fair
value through profit or loss (1,150) 1,150 – – – –
Debt issued at amortised cost (32) 32 – – – –
Total liabilities (26,881) 5,383 (21,498) 9,155 9,160 (3,183)
(1)
Included within this balance are reverse repurchase arrangements and other similar secured lending.
(2)
Included within this balance are repurchase arrangements and other similar secured borrowing.
219
Note 40
Offsetting financial assets and financial liabilities continued
Amounts subject to enforceable netting arrangements
Subject to offsetting on balance sheet Related amounts not offset
Gross
amounts $m
Amounts
offset
$m
Net amount
presented
$m
Other
recognised
financial
instruments
$m
Cash and
other financial
collateral
$m
Net amount
$m
Company 2015
Due from subsidiaries 11,002 (785) 10,217 – – 10,217
Total assets 11,002 (785) 10,217 – – 10,217
Due to subsidiaries (1,063) 785 (278) – – (278)
Total liabilities (1,063) 785 (278) – – (278)
Company 2014
Due from subsidiaries 11,635 (3,013) 8,622 – – 8,622
Total assets 11,635 (3,013) 8,622 – – 8,622
Due to subsidiaries (3,299) 3,013 (286) – – (286)
Total liabilities (3,299) 3,013 (286) – – (286)
Offsetting on balance sheet
Amounts are offset in accordance with the criteria described in Note 1(xxiv) – Offsetting financial instruments and are limited to the
gross carrying values of the financial instruments. Therefore, when an asset is offset by a liability and the asset carrying value
exceeds the liability carrying value, then the net amount presented for the asset will be the difference, and for the liability will be nil.
Amounts subject to enforceable netting arrangements
Enforceable netting arrangements may allow for net settlement of specified contracts with a counterparty only in the event of default
or other pre-determined events, such that their potential effect on the Consolidated Entity’s and Company’s financial position in that
circumstance is to settle as one arrangement.
‘Other recognised financial instruments’ discloses other financial instruments recognised on balance sheet and ‘Cash and other
financial collateral’ discloses amounts received or pledged in relation to the gross amounts of assets and liabilities. Both are subject
to enforceable netting arrangements but are not offset due to the rights of set off applying only upon default or other predetermined
events. This excludes non-financial instrument collateral.
The amounts subject to enforceable netting arrangements but not set off on the balance sheet have been limited to the net amount
presented on the balance sheet so as not to include effects of over-collateralisation.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
220
Note 41
Transfers of financial assets
Transferred financial assets that are derecognised
The Consolidated Entity may enter into transactions in the
normal course of business that transfer financial assets to
other entities. When the financial assets are derecognised,
some continuing involvement may be retained in the assets
through liquidity support, financial guarantees, certain
derivatives or certain securitisation interests. There were no
material transfers of financial assets where the Consolidated
Entity or Company retained continuing involvement.
Transferred financial assets that are not
derecognised
When financial assets are transferred but not derecognised,
this is due to retaining exposure to substantially all the risks
and rewards of ownership of the transferred assets through
repurchase and securities lending agreements or asset
swaps.
Repurchase and securities lending agreements
Securities sold under agreement to repurchase and
securities subject to lending agreements continue to be
recognised on the statement of financial position and an
associated liability is recognised for the consideration
received. In certain arrangements, the securities transferred
cannot otherwise be pledged or sold, however the assets
may be substituted if the required collateral is maintained.
Asset swaps
Financial assets sold, while concurrently entering into an
asset swap with the counterparty, continue to be recognised
along with an associated liability for the consideration
received. The Consolidated Entity does not have legal rights
to these assets but has full economic exposure to them. The
transferred assets cannot otherwise be pledged or sold.
Written put options
When financial assets are transferred but continue to be
recognised to the extent of continuing involvement, this is
due to some but not substantially all of the risks and rewards
of ownership being transferred, and control of the asset
being retained. Examples of such transactions include
transfers involving written put options or other instruments
linked to the performance of the asset and are not priced at
fair value.
221
Note 41
Transfers of financial assets continued
There were no material transfers of financial assets for the Company where the assets continue to be recognised as at
31 March 2015 and at 31 March 2014. The following table presents information for transfers of financial assets not derecognised by
the Consolidated Entity as at 31 March 2015 and 31 March 2014:
Repurchase and
securities lending
agreements
$m
Transfers with total
return/asset swaps
$m
Transfer with
written put option
$m
Consolidated 2015
Carrying amount of transferred assets
(1)
7,218 3,212 342
Carrying amount of associated liabilities (7,217) (3,236) (361)
Carrying amount of assets before transfer, where assets
recognised to the extent of continuing involvement
(3)
– – 361
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets 948 1,992 345
Fair value of associated liabilities (969) (2,064) (362)
Net fair value (21) (72) (17)
Consolidated 2014
Carrying amount of transferred assets
(1),(2)
8,771 6,037 668
Carrying amount of associated liabilities
(2)
(8,541) (5,580) (684)
Carrying amount of assets before transfer, where assets
recognised to the extent of continuing involvement
(3)
– – 683
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets 727 4,057 674
Fair value of associated liabilities (724) (4,118) (689)
Net fair value 3 (61) (15)
(1)
The transferred financial assets are presented in Note 8 – Trading portfolio assets $5,909 million (2014: $7,549 million), Note 9 –
Investment securities available for sale $1,352 million (2014: $1,743 million), Note 11 – Loan assets held at amortised cost $3,312
million (2014: $6,184 million) and Note 13 – Other financial assets at fair value through profit and loss $199 million (2014: $nil) in the
statement of financial position.
(2)
As a result of an asset swap, included in the carrying amount of associated liabilities is $nil (2014: $919 million) that will be settled partly
by the transferred assets with a carrying amount of $nil (2014: $919 million). The Consolidated Entity had provided a guarantee to the
extent of $493 million, and has given $493 million cash collateral to the counterparty that has been set off against the associated liability
in 2014. The fair values of the transferred assets and the associated liability approximate their carrying amounts.
(3)
This disclosure is required only in respect of transfers that fail derecognition under the continuing involvement model.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
222
Note 42
Audit and other services provided by PricewaterhouseCoopers
During the financial year, the auditor of the Company and Consolidated Entity, PwC, and its related practices earned the following
remuneration:
Consolidated
2015
$’000
Consolidated
2014
$’000
Company
2015
$’000
Company
2014
$’000
PwC – Australia
Audit and review of financial reports of the Group or controlled entity 9,917 8,664 – –
Other audit-related and assurance services 3,772 3,139 – –
Total audit and other assurance services 13,689 11,803 – –
Advisory services 151 833 – –
Taxation 680 198 – –
Total non-audit services 831 1,031 – –
Total remuneration paid to PwC Australia 14,520 12,834 – –
Network firms of PwC Australia
Audit and review of financial reports of the Group or controlled entity 10,522 9,575 – –
Other audit-related and assurance services 457 475 – –
Total audit and other assurance services 10,979 10,050 – –
Advisory services 32 6 – –
Taxation 1,608 1,479 – –
Total non-audit services 1,640 1,485 – –
Total remuneration paid to network firms of PwC Australia 12,619 11,535 – –
Total remuneration paid to PwC (Note 2) 27,139 24,369 – –
Use of PwC’s services for engagements other than audit and assurance is restricted in accordance with the Company’s Auditor
Independence Policy. These assignments are principally tax compliance and agreed upon assurance procedures in relation to
acquisitions.
Certain fees for other audit-related and assurance services are in relation to initial public offerings and due diligence services for new
funds. These fees may be recovered by the Consolidated Entity upon the successful establishment of the funds.
It is the Company’s policy to seek competitive tenders for all major advisory projects.
223
Note 43
Acquisitions and disposals of subsidiaries and businesses
Significant entities or businesses acquired or consolidated due to acquisition of control:
There were no significant entities or businesses acquired or consolidated due to acquisition of control during the period.
Other entities or businesses acquired or consolidated due to acquisition of control during the period are as follows:
Credit Cards Portfolio, Macquarie Infrastructure Limited, Macquarie Greater China Limited, Macquarie Greater China Infrastructure
Management Limited, Macquarie Greater China Infrastructure Management Advisory Limited and Japan Infrastructure Group Co.
Ltd.
Aggregate details of the entities and businesses acquired or consolidated due to acquisition of control are as follows:
2015
$m
2014
$m
Fair value of net assets acquired
Cash and other assets 345 49
Property, plant and equipment – 1
Goodwill and other intangible assets 18 37
Payables, provisions, borrowings and other liabilities (6) (9)
Total fair value of net assets acquired 357 78
Consideration
Cash consideration 357 78
Total consideration 357 78
Net cash flow
Cash consideration (357) (78)
Less:
Cash and cash equivalents acquired 4 42
Net cash outflow (353) (36)
The 31 March 2014 comparatives principally relate to the following entities or businesses acquired or consolidated due to
acquisition of control:
Sequoia PV 1 LLC, Sequoia PV 2 LLC, Sequoia 3 LLC, Macquarie Renaissance Corporate Finance Holdings Limited, Corona
Energy Retail 5 Limited and Macquarie Investment Management Korea Co. Ltd.
The operating results of the acquisitions have not had a material impact on the results of the Consolidated Entity.
There are no significant differences between the fair value of net assets acquired and their carrying amounts, other than goodwill
and other intangible assets as noted above. The goodwill acquired during the current financial year has arisen due to the value of
the businesses acquired over their individual asset values and synergies the Consolidated Entity expects to realise from the
acquisitions.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
224
Note 43
Acquisitions and disposals of subsidiaries and businesses continued
Significant entities and businesses disposed of or deconsolidated due to loss of control:
There were no significant entities or businesses disposed of or deconsolidated due to loss of control during the financial year.
Other entities or businesses disposed of or deconsolidated during the financial year are as follows:
Macquarie Rail Inc., Macquarie Rail Canada Limited, CMC Industries Inc., Texas Rail Terminal LLC, TRT LeaseCo LLC, Macquarie
Equipment Finance Inc., Macquarie Equipment Funding LLC, UPL (No.15) Pty Limited, Hyperion Investments Australia Pty Limited,
Helios Investments Australia Pty Limited, Macquarie Real Estate Korea Ltd, Wala Holding 1 Limited, Delaware Investment Advisers,
Delaware Capital Management, Delaware Investments Fund Advisers, West Texas Solar 1 LLC, Hermes Infrastructure Investco
BVBA, Hermes Infrastructure NV, Baltic Sea Offshore Holdco Limited, Baltic Sea Offshore Investment Limited, Macquarie
Infrastructure and Real Assets Management (Asia) Pte Limited, Delaware Large Cap Core Fund Class I, Macquarie PA TAP
Management I Inc., Macquarie NM Management II Inc., Macquarie NM Management I Inc, Macquarie HiTIP Management I Inc.,
Macquarie Generation Management II Inc. and Macquarie Generation Management I Inc.
Aggregate details of the entities or businesses disposed of or deconsolidated are as follows:
2015
$m
2014
$m
Carrying value of assets and liabilities disposed of or deconsolidated
Cash and other assets 33 681
Other financial assets 1,345 613
Property, plant and equipment 618 106
Goodwill and other intangible assets 76 83
Payables, provisions, borrowings and other liabilities (1,068) (1,031)
Non-controlling interest 2 (173)
Total carrying value of assets and liabilities disposed of or deconsolidated 1,006 279
Consideration
Cash consideration 1,327 269
Consideration received in equity 6 –
Deferred consideration 2 –
Total consideration 1,335 269
Net cash flow
Cash consideration 1,327 269
Less:
Investment retained – 36
Cash and cash equivalents disposed of or deconsolidated (9) (303)
Net cash inflow 1,318 2
Entities or businesses disposed of or de-consolidated due to loss of control in the year ended 31 March 2014 comparatives are as
follows:
Aviation Technical Services Inc., Bavarian Geothermal Energy Group Limited, Poseidon Infrastructure InvestCo LP BVBA, Macquarie
Visor, Rossignol Ski Company, Macquarie European Alpha Fund; Tulare PV I LLC, Tulare PV II LLC, Macquarie Private Wealth Inc.,
Macquarie Precision Marketing (Japan) Limited, Macquarie Precision Marketing (Australia) Limited, Sequoia PV 1 LLC, Sequoia PV 2
LLC, Sequoia PV 3 LLC, Macquarie Hyperion Limited and Taikansan Kaihatsu Limited.
225
Note 44
Events after the reporting date
On 15 April 2015, the Company, MBL, Macquarie B.H. Pty Ltd
(MBHPL) and Macquarie Financial Holdings Limited (MFHL)
signed a Restructure Deed. Through the Restructure Deed,
MBL transferred all of the economic risks and rewards from,
and control of, the Macquarie Investment Management
business (MIM) at fair value to MFHL and its subsidiaries
(MFHL Group). The fair value of MIM is $3,709 million. MBL,
MBHPL and MFHL are controlled by the Company, and
therefore there is no impact on the Consolidated Entity.
MIM, which operates in the MAM segment, offers investment
management expertise across a number of asset classes
including fixed interest, credit and currencies, equities,
infrastructure securities and multi-asset allocation solutions.
MIM delivers a full-service offering to both retail and
institutional clients in Australia and the US, with selective
offerings in other regions.
As a result of entering into the Restructure Deed, on settlement
of the Restructure Deed the Company is expecting to receive
dividends of approximately $3,100 million from MBHPL, the
holding company of MBL. This dividend will be matched by an
ordinary share capital contribution of approximately $3,100
million to MFHL. MFHL will apply this contribution of ordinary
share capital towards the acquisition of MIM.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Macquarie Group Limited
Directors’ declaration
226
In the Directors’ opinion:
a) the financial statements and notes set out on pages
116 to 225 are in accordance with the Corporations Act
2001 (Cth) including:
(i) complying with the accounting standards, and
(ii) giving a true and fair view of the Company and
Consolidated Entity’s financial position as at
31 March 2015 and performance for the financial
year ended on that date, and
b) there are reasonable grounds to believe that Macquarie
Group Limited will be able to pay its debts as and when
they become due and payable, and
c) the financial statements also comply with International
Financial Reporting Standards (see Note 1(i) – Basis of
preparation set out on pages 123 and 124).
The Directors have been given the declarations by the Chief
Executive Officer and Chief Financial Officer required by section
295A of the Corporations Act 2001 (Cth).
This declaration is made in accordance with a resolution of the
Directors.
Directors’ declaration
H Kevin McCann, AM
Independent Director and
Chairman
Nicholas Moore
Managing Director and
Chief Executive Officer
Sydney
8 May 2015
Independent auditor’s report
to the members of Macquarie Group Limited
227
Report on the financial report
We have audited the accompanying financial report of
Macquarie Group Limited (the Company), which comprises
the statements of financial position as at 31 March 2015, the
income statements, statements of comprehensive income,
statements of changes in equity and statements of cash
flows for the year ended on that date, a summary of
significant accounting policies, other explanatory notes and
the directors’ declaration for both Macquarie Group Limited
and the Consolidated Entity. The Consolidated Entity
comprises the Company and the entities it controlled at
year's end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the
preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards
and the Corporations Act 2001 (Cth) and for such internal
control as the directors determine is necessary to enable the
preparation of the financial report that is free from material
misstatement, whether due to fraud or error. In Note 1 –
Summary of significant accounting policies, the directors also
state, in accordance with Accounting Standard AASB 101
Presentation of Financial Statements, that the financial
statements comply with International Financial Reporting
Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial
report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. Those
standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and
perform the audit to obtain reasonable assurance whether
the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or
error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation
and fair presentation of the financial report in order to design
audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the
overall presentation of the financial report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinions.
Independent audit report
Liability is limited by scheme approved under Professional
Standards Legislation
Independence
In conducting our audit, we have complied with the
independence requirements of the Corporations Act 2001
(Cth).
Auditor’s opinion
In our opinion:
a) the financial report of Macquarie Group Limited is in
accordance with the Corporations Act 2001 (Cth),
including:
(i) giving a true and fair view of the Company’s and
Consolidated Entity’s financial position as at 31
March 2015 and of their performance for the year
ended on that date, and
(ii) complying with Australian Accounting Standards
(including the Australian Accounting Interpretations)
and the Corporations Regulations 2001.
b) the financial report and notes also complies with
International Financial Reporting Standards as disclosed
in Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages
77 to 114 of the directors’ report for the year ended
31 March 2015. The directors of the Company are
responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of
the Corporations Act 2001 (Cth). Our responsibility is to
express an opinion on the Remuneration Report, based on
our audit conducted in accordance with Australian Auditing
Standards.
Auditor’s opinion
In our opinion, the Remuneration Report of Macquarie Group
Limited for the year ended 31 March 2015, complies with
section 300A of the Corporations Act 2001 (Cth).
PricewaterhouseCoopers
K.G. Smith
Partner
Sydney
8 May 2015
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Macquarie Group Limited
Ten year history
228
The financial information for the full years ended 31 March 2006-2015 is based on the reported results using the Australian
Accounting Standards that also comply with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
Years ended 31 March 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Income statement ($ million)
Total income 4,832 7,181 8,248 5,526 6,638 7,665 6,963 6,657 8,132 9,293
Total expenses (3,545) (5,253) (6,043) (4,537) (5,344) (6,394) (5,914) (5,252) (6,026) (6,771)
Operating profit before income tax 1,287 1,928 2,205 989 1,294 1,271 1,049 1,405 2,106 2,522
Income tax expense (290) (377) (317) (15) (201) (282) (287) (533) (827) (899)
Profit for the year 997 1,551 1,888 974 1,093 989 762 872 1,279 1,623
Macquarie Income Securities distributions (29) (31) (34) (33) (21) (26) (26) (21) (18) (18)
Macquarie Income Preferred Securities
distributions (51) (54) (50) (45) (8) (4) (4) (4) (4) (5)
Other non-controlling interests (1) (3) (1) (25) (14) (3) (2) 4 8 4
Profit attributable to ordinary equity
holders 916 1,463 1,803 871 1,050 956 730 851 1,265 1,604
Statement of financial position ($ million)
Total assets 106,211 136,389 167,250 149,144 145,940 157,568 153,626 144,748 153,904 187,976
Total liabilities 100,874 128,870 157,189 139,584 134,171 145,636 141,894 132,793 141,990 173,580
Net assets 5,337 7,519 10,061 9,560 11,769 11,932 11,732 11,955 11,914 14,396
Total loan assets
35,126 45,939 53,213 47,080 45,660 47,222 46,380 50,793 58,712 72,762
Impaired loan assets (net of provisions) 85 46 121 916 551 340 357 368 365 594
Share information
Dividends per share (cents per share)
Interim 90 125 145 145 86 86 65 75 100 130
Final 125 190 200 40 100 100 75 125 160 200
Special
(1)
– – – – – – – – 116 –
Total 215 315 345 185 186 186 140 200 376 330
Basic earnings per share
(cents per share) 400.3 591.6 670.6 309.6 320.2 282.5 210.1 251.2 383.6 502.3
Share price at 31 March ($) 64.68 82.75 52.82 27.05 47.25 36.60 29.08 37.15 57.93 76.67
Ordinary share capital (million shares)
232.4 253.9 274.6 283.4 344.2 346.8 348.6 339.5 321.1 333.5
Market capitalisation at 31 March
(fully paid ordinary shares) ($ million) 15,032 21,010 14,504 7,666 16,263 12,693 10,137 12,613 18,601 25,569
Net tangible assets per ordinary share ($) 16.99 24.35 30.35 27.89 28.40 28.91 28.12 29.94 31.71 38.19
Ratios (%)
Return on average ordinary shareholders’
funds 26.0 28.1 23.7 9.9 10.1 8.8 6.8 7.8 11.1 14.0
Ordinary dividend payout ratio 54.4 54.3 52.2 60.2 60.4 67.3 66.4 79.0 66.8 67.6
Expense/income ratio 73.4 73.2 73.3 82.1 80.5 83.4 84.9 78.9 74.1 72.9
Net loan losses as % of loan assets
(excluding securitisation SPVs and
segregated futures funds) 0.2 0.1 0.3 1.9 0.8 0.4 0.5 0.4 0.4 0.7
Assets under management ($ billion) 140.3 197.2 232.0 243.1 325.7 309.8 326.9 347.4 426.9 486.3
Staff numbers 8,183 10,023 13,107 12,716 14,657 15,556 14,202 13,663 13,913 14,085
(1)
The special dividend for the year ended 31 March 2014 represented the special dividend component of the SYD distribution in January
2014. The total distribution including return of capital was 373 cents per share.
Ten year history
Additional Investor Information
229
2015 Shareholder calendar
Date Event
8 May Full-year result announcement
20 May Record date for final ordinary dividend
8 June Payment date for MCN distribution
2 July Payment date for final ordinary dividend
23 July AGM
30 September Financial half-year end
30 October
(1)
Half-year result announcement
11 November
(1)
Record date for interim ordinary dividend
7 December Payment date for MCN distribution
16 December
(1)
Payment date for interim ordinary
dividend
(1)
These dates are subject to change.
2015 Annual General Meeting
Macquarie Group's 2015 AGM will be held at 10:30 am on
Thursday, 23 July 2015 at the Sheraton on the Park (Grand
Ballroom), 161 Elizabeth Street, Sydney, NSW. Details of the
business of the meeting will be forwarded to shareholders
separately.
Stock Exchange listing
Macquarie Group Limited is listed on the ASX and its ordinary
shares trade under the code MQG.
Macquarie Group Capital Notes (MCN) are listed on the ASX
and trade under the code MQGPA.
Macquarie Income Securities (MIS) are listed on the ASX and
trade under the code MBLHB.
Macquarie Bank Capital Notes (BCN) are listed on the ASX
and trade under the code MBLPA.
Macquarie Preferred Membership Interests (Macquarie PMIs)
are listed on the Singapore Stock Exchange and trade under
the stock code 40RB.
Macquarie Exchangeable Capital Securities (Macquarie ECS)
are listed on the Singapore Stock Exchange and trade under
the stock code 2AQB.
Macquarie Group also has debt securities quoted on the
London Stock Exchange.
Dividend details
Macquarie Group generally pays a dividend on its fully paid
ordinary shares twice a year following the interim and final
results announcements. The proposed dates for the 2015
dividends are as follows:
Dividend
announcement
date Record date
Proposed
payment date
8 May 2015 20 May 2015 2 July 2015
30 Oct 2015
(1)
11 Nov 2015
(1)
16 Dec 2015
(1)
Dividend Reinvestment Plan (DRP)
The DRP allows shareholders to apply their dividends to
acquire new Macquarie shares rather than receiving dividends
in cash.
American Depository Receipt (ADR) program
Macquarie ADRs are negotiable certificates issued by BNY
Mellon, with one ADR representing one Macquarie share. They
are traded under the symbol MQBKY and are classified as
Level 1. They are not listed on any exchange and are only
traded over-the-counter via brokers. BNY Mellon:
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
USA
Toll-free telephone number for domestic callers:
1-888-BNY-ADRs
Telephone numbers for international callers: +1 201-680-6825
Further information can be found at bnymellon.com/shareowner.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Additional Investor Information
continued
230
Voting rights
At meetings of members or classes of members each
member may vote in person or by proxy, attorney or (if the
member is a body corporate) corporate representative. On a
show of hands every person present who is a member or a
representative of a member has one vote and on a poll every
member present in person or by proxy, attorney or corporate
representative has:
(i) one vote for each fully paid share held, and
(ii) that proportion of a vote for any partly paid ordinary
share calculated in accordance with clause 8.18 of the
Macquarie Constitution.
A copy of the Constitution is available at
macquarie.com/leadership-corporate-governance
Macquarie Group Capital Notes (MCN)
Macquarie MCN may convert into a variable number of
ordinary shares on 7 June 2021 or at other times, subject to
various conditions. Holders of MCN have no voting rights in
respect of Macquarie Group Limited prior to conversion.
Macquarie Preferred Membership Interests (PMIs)
PMIs may be exchanged for preference shares in Macquarie
Group Limited under certain circumstances. Prior to
exchange, PMI holders have no voting rights in respect of
MGL. After an exchange the preference share holder has a
right to vote at any general meeting of MGL only in one or
more of the following circumstances:
(a) on any proposal:
(i) to reduce the share capital of MGL
(ii) that affects the rights attached to the Preference
Shares
(iii) to wind up MGL
(iv) for the disposal of the whole of the property,
business and undertaking of MGL
(b) on any resolution to approve the terms of a share
buyback agreement
(c) during a period in which a dividend or part of a dividend
is in arrears, or
(d) during the winding up of MGL.
in which case the holders of preference shares have the
same rights as to manner of attendance and to voting as
holders of ordinary shares with one vote per preference
share.
Macquarie Exchangeable Capital Securities
(Macquarie ECS)
Macquarie ECS may convert into a variable number of
ordinary shares on 20 June 2017 or at other times, subject
to various conditions. Holders of Macquarie ECS have no
voting rights in respect of Macquarie Group Limited prior to
conversion.
Macquarie Income Securities (MIS)
Holders of MIS, as holders of a stapled security that includes
a preference share issued by Macquarie Bank, have limited
voting rights in respect of Macquarie Bank Limited and no
voting rights in respect of Macquarie Group Limited.
Macquarie Bank Capital Notes (BCN)
BCN are unsecured, subordinated notes issued by
Macquarie Bank Limited. They are non-cumulative and
mandatorily convertible. BCN holders have no voting rights in
respect of Macquarie Bank Limited or Macquarie Group
Limited.
Macquarie Income Preferred Securities (MIPS)
Unpaid preference shares were issued by Macquarie Bank
as part of the MIPS issue. Holders have no voting rights in
Macquarie Bank Limited prior to the preference shares
becoming paid-up and no rights in respect of Macquarie
Group Limited.
Enquiries
Investors who wish to enquire about any administrative
matter relating to their Macquarie Group Limited
shareholding or MCN security holding are invited to contact
the Share Registry office at:
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne VIC 8060 Australia
Telephone (within Australia): 1300 554 096
Telephone (international) +61 3 9415 4137
Facsimile: +61 3 9473 2500
Website: www .investorcentre.com/contact
All other enquiries relating to a Macquarie Group Limited
share investment can be directed to:
Investor Relations
Macquarie Group Limited
Level 6, 50 Martin Place
Sydney NSW 2000 Australia
Telephone: +61 2 8232 3333
Facsimile: +61 2 8232 7780
Email: [email protected]
Website: macquarie.com/investors
Macquarie Group’s Company Secretary, Dennis Leong, may
be contacted on the above numbers.
Website
To view the Interim and Annual Reports, presentations,
dividend information and other investor information,
visit macquarie.com/investors
231
Fully paid ordinary shares
Twenty largest ordinary shareholders at 22 April 2015: Ordinary Shares
Percentage of
Ordinary Shares
HSBC Custody Nominees (Australia) Limited
71,756,736 21.52
JP Morgan Nominees Australia Limited
55,684,175 16.70
National Nominees Limited
44,483,645 13.34
Citicorp Nominees Pty Limited
21,318,522 6.39
Bond Street Custodians Limited – MEREP Trustee – RSU Allocated
19,933,795 5.98
BNP Paribas Noms Pty Ltd – DRP
8,312,687 2.49
Citicorp Nominees Pty Limited – Colonial First State Inv A/C
6,125,481 1.84
Bond Street Custodians Limited – MEREP Trustee – Unallocated
3,504,844 1.05
AMP Life Limited
2,462,876 0.74
Argo Investments Limited
2,355,151 0.71
HSBC Custody Nominees (Australia) Limited – NT-Comnwlth Super Corp A/C
1,950,233 0.58
BNP Paribas Nominees Pty Ltd – Agency Lending DRP A/C
1,939,263 0.58
Bond Street Custodians Limited – Solium Capital Aus Pty Ltd
1,338,113 0.40
QIC Limited
1,203,722 0.36
RBC Investor Services Australia Nominees Pty Limited – BKCUST A/C
989,950 0.30
Nicholas Moore
816,244 0.24
UBS Nominees Pty Ltd
725,992 0.22
National Nominees Limited – DB A/C
661,676 0.20
EG Holdings Pty Ltd
519,090 0.16
Milton Corporation Limited
508,849 0.15
Total
246,591,044 73.95
Substantial shareholders
At 22 April 2015 the following shareholders were registered by the Company as a substantial shareholder, having declared a
relevant interest in accordance with the Act, in the voting shares below:
Holder Ordinary Shares Date of notice
Macquarie Group Limited
28,549,458 25 August 2014
Spread of ordinary shareholdings
Details of the spread of ordinary shareholdings at 22 April 2015 are as follows:
Range Shareholders Shares
1 – 1,000
79,599 24,140,023
1,001 – 5,000
15,799 29,597,299
5,001 – 10,000
1,005 6,865,651
10,001 – 100,000
573 14,276,379
100,001 shares and over
75 258,578,425
Total
97,051 333,457,777
2,606 shareholders (representing 6,667 fully paid shares) held less than a marketable parcel.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Additional Investor Information
continued
232
Unlisted securities
– 141,597 exchangeable shares on issue at 22 April 2015 are held by former employees of Orion Financial Inc.
The exchangeable shares were issued by a controlled entity and are eligible to be exchanged one for 0.9438 of an ordinary
share in Macquarie Group Limited. They expire in November 2017 and carry no Macquarie Group Limited voting rights
– 92,563 exchangeable shares on issue at 22 April 2015 are held by former employees of Tristone Capital Global Inc. The
exchangeable shares were issued by a controlled entity and are eligible to be exchanged one for 0.9438 of an ordinary share in
Macquarie Group Limited. They expire in August 2019 and carry no Macquarie Group Limited voting rights. There are a further
11,295 exchangeable shares on issue, resulting from the exercise of retention options previously held under retention
agreements with key former Tristone employees
– as at 22 April 2015, 3,624,400 DSUs and 1,824,542 PSUs are held by participants in the MEREP.
Macquarie Group Capital Notes
Twenty largest MCN holders at 22 April 2015:
MCN Percentage of MCN
Questor Financial Services Limited – TPS RF A/C 293,803 4.90
National Nominees Limited
196,530 3.28
HSBC Custody Nominees (Australia) Limited
126,685 2.11
Navigator Australia Ltd – MLC Investment Sett A/C
123,605 2.06
Nulis Nominees (Australia) Limited – Navigator Mast Plan Sett A/C
87,242 1.45
JP Morgan Nominees Australia Limited
84,780 1.41
UBS Wealth Management Australia Nominees Pty Ltd
69,693 1.16
Australian Executor Trustees Limited – No 1 Account
56,525 0.94
Questor Financial Services Limited – TPS PIP A/C
47,988 0.80
Longhurst Management Services Pty Ltd
38,152 0.64
HSBC Custody Nominees (Australia) Limited – A/C 2
35,560 0.59
UBS Nominees Pty Ltd
33,816 0.56
Netwealth Investments Limited – Wrap Services A/C
31,904 0.53
BT Portfolio Services Limited – Namrog Investments P/L A/C
30,000 0.50
Sir Moses Montefiore Jewish Home – Income A/C
28,000 0.47
Aust Executor Trustees Ltd – DDH Preferred Income Fund
26,499 0.44
BNP Paribas Noms Pty Ltd – DRP
20,000 0.33
Netwealth Investments Limited – Super Services A/C
18,626 0.31
Brownbuilt Pty Ltd
16,477 0.27
Aust Executor Trustees Ltd – Charitable Foundation
15,727 0.26
Total 1,381,612 23.03
Spread of Macquarie Group Capital Notes
Details of the spread of MCN holdings at 22 April 2015 were as follows:
Range
Noteholders Notes
1 – 1,000
8,151 2,705,852
1,001 – 5,000
680 1,432,738
5,001 – 10,000
40 313,636
10,001 – 100,000
28 807,151
100,001 securities and over
4 740,623
Total
8,903 6,000,000
3 noteholders (representing 9 MCN) held less than a marketable parcel.
233
Macquarie Preferred Membership Interests
As at 22 April 2015, the 400,000 convertible notes issued by
Macquarie Group Limited as part of the Macquarie PMIs were
held by one holder, Macquarie PMI LLC. The register in
respect of the convertible notes is kept at Macquarie Group
Limited’s principal administrative office at 50 Martin Place,
Sydney NSW 2000; telephone number +61 2 8232 3333.
Macquarie Exchangeable Capital Securities
As at 22 April 2015, the $US250 million exchangeable capital
securities, issued by Macquarie Bank Limited acting through
its London branch, were held by one holder, BT Globenet
Nominees Limited, as nominee for Deutsche Bank AG, London
Branch as common depository for Euroclear Bank S.A./N.V.
and Clearstream Banking société anonyme. The register in
respect of the exchangeable capital securities is kept by
Deutsche Bank Luxembourg S.A, as the Registrar for the
exchangeable capital securities.
This is the end of the Additional Investor Information.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Glossary
234
AASB Australian Accounting Standards Board
the Act Corporations Act 2001 (Cth)
ADI authorised deposit-taking institution
ADR American Depository Receipt
AEC Australian Electoral Commission
AGM Annual General Meeting
AICD Australian Institute of Company Directors
ALCO Asset and Liability Committee
AMA Advanced Measurement Approach
Annual Report Macquarie Group Limited’s 2015 Annual Report
ANZ Australia and New Zealand
APRA Australian Prudential Regulation Authority
ASIC Australian Securities & Investments Commission
ASX Australian Securities Exchange or ASX Limited ABN 98 008 624 691 and the market operated by
ASX Limited
ASX Recommendations ASX Corporate Governance Council Principles & Recommendations
ATO Australian Taxation Office
AUM assets under management
BAC Board Audit Committee
Banking Group the Banking Group comprises BFS, CAF, CFM, MAM and the trading activities of MSG
BBSW Australian Financial Markets Association’s bank-bill rate, published daily on AAP Reuters webpage.
The Australian equivalent of LIBOR, SIBOR etc
BFS Banking and Financial Services Group
BGCC Board Governance and Compliance Committee
BNC Board Nominating Committee
the Board the Board of Voting Directors of Macquarie Group Limited
BORMs Business Operational Risk Managers
BRC Board Remuneration Committee
BRiC Board Risk Committee
CA Credit Assurance
CAF Corporate and Asset Finance Group
CAGR compound annual growth rate
CDP Carbon Disclosure Project
CEO Managing Director and Chief Executive Officer
CER Certified Emission Reductions
CFM Commodities and Financial Markets Group
CFO Chief Financial Officer
COG Corporate Operations Group
the Code Macquarie's Code of Conduct
the Company Macquarie Group Limited
the Consolidated Entity Macquarie Group Limited and its subsidiaries
Corporate head office and central support functions including Group Treasury
CRO Chief Risk Officer
CVA credit valuation adjustments
Deed Deed of Access, Indemnity, Insurance and Disclosure
Deed Poll Indemnity and Insurance Deed Poll dated 12 September 2007
Directors the Voting Directors of Macquarie Group Limited (unless the context indicates otherwise)
DRP Dividend Reinvestment Plan
DSU Deferred Share Unit issued under the MEREP
DVA debit valuation adjustments
ECAM Economic Capital Adequacy Model
ECL expected credit losses
ECM equity capital markets
EMEA Europe, Middle East and Africa
Environmental
Management Plan
Macquarie's internal framework of actions and targets to manage and reduce the environmental
impact of its direct operations. The Plan covers Macquarie's corporate offices and associated
corporate activities such as travel and procurement
EPS earnings per share
ERL Equity Risk Limit
235
ESP Macquarie Group Employee Share Plan
ESG Environmental, Social and Governance
ESR Environmental and Social Risk
Executive Director Macquarie’s most senior employees including Group Heads, Divisions Heads and senior business
unit managers
Executive Key
Management Personnel
(Executive KMP)
Members of the Executive Committee of Macquarie Group Limited
Executive Voting Director an executive board member
FIRB Foundation Internal Ratings Based Approach
FMG Financial Management Group
the Foundation Macquarie Group Foundation
Funds Macquarie-managed funds
FVA funding value adjustment
GRCC Group Risk and Compliance Committee
GRI Global Reporting Initiative
IAD Internal Audit Division
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IPO initial public offering
JLM Joint Lead Manager
LGBTI Lesbian Gay Bisexual Transgender and Intersex
LGL Legal and Governance Group
LMI lender's mortgage insurance
LVRs loan to value ratios
Key Management
Personnel (KMP)
all Voting Directors and members of the Executive Committee of Macquarie Group Limited
M&A mergers and acquisitions
Macquarie Bank, MBL Macquarie Bank Limited ABN 46 008 583 542
Macquarie Board, the
Board
the Board of Voting Directors of Macquarie Group Limited
Macquarie ECS, ECS Macquarie Exchangeable Capital Securities
Macquarie ordinary
shares
Macquarie Group Limited fully paid ordinary shares
Macquarie, MGL,
Macquarie Group or
Group
Macquarie Group Limited and its subsidiaries
Macquarie PMI Macquarie Preferred Membership Interests
Malus the discretion of the Board (from 2012) to reduce or eliminate unvested profit share amounts where
it determines that an employee's action or inaction has caused Macquarie significant reputational
harm, caused a significant or unexpected financial loss or caused Macquarie to make a material
financial restatement
MAM Macquarie Asset Management Group
Management Macquarie senior management
MBHPL Macquarie B.H. Pty Limited
MBL Macquarie Bank Limited
MCN Macquarie Group Capital Notes
MEL Macro-Economic-Linkages
MEREP Macquarie Group Employee Retained Equity Plan
MFHL Macquarie Financial Holdings Limited
MFHL Group MFHL and its subsidiaries
MGESOP Macquarie Group Employee Share Option Plan
MGL Macquarie Group Limited ABN 94 122 169 279
MIDIS Macquarie Infrastructure Debt Investment Solutions
MIM Macquarie Investment Management
MIP Macquarie Infrastructure Partners Inc.
MIPS Macquarie Income Preferred Securities
MIRA Macquarie Infrastructure and Real Assets
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Glossary
continued
236
MIS Macquarie Income Securities
MPPM Macquarie Private Portfolio Management
MSG Macquarie Securities Group
MSIS Macquarie Specialised Investment Solutions
NCD negotiable certificates of deposit
NCI non-controlling interests
NED Non-Executive Director
NOHC non-operating holding company
Non-Banking Group the Non-Banking Group comprises Macquarie Capital and some business activities of MSG, MAM
and CFM that use certain offshore regulated entities of the Non-Banking Group
NPAT net profit after tax
NUA Net usable area
OCI Other comprehensive income
OECD Organisation for Economic Co-operation and Development
Operating Groups the Operating Groups consist of BFS, CAF, FICC, Macquarie Capital, MFG and MSG
ORMF Operational Risk Management Framework
OTC over-the-counter
PINAI Philippines Investment Alliance for Infrastructure
Post-2009 DPS retained profit share which is deferred to future periods and held as a notional investment in
Macquarie managed-fund equity
PPP Public Private Partnership
PSU Performance Share Unit issued under the MEREP
PwC PricewaterhouseCoopers
RAS Risk Appetite Statement
RMG Risk Management Group
ROE return on ordinary equity
RSU Restricted Share Unit issued under the MEREP
RWA risk-weighted assets
S&P Standard & Poor’s
SEs structured entities
SFE Sydney Futures Exchange
Statutory Remuneration Statutory remuneration disclosures are prepared in accordance with Australian Accounting
Standards and as disclosed throughout the Remuneration Report
SYD ASX-listed Sydney Airport
SYD Distribution In specie distribution of Sydney Airport stapled securities to Macquarie ordinary shareholders on 13
January 2014
SYD Securities SYD stapled securities
SPVs special purpose vehicles
tCO2-e (Carbon dioxide
equivalent in tonnes)
metric measure used to compare the emissions from various greenhouse gases based upon their
global warming potential (US Environment Protection Agency)
TJ terajoules
TMET telecommunications, media, entertainment and technology
TSR total shareholder return
VaR Value-at-Risk
Voting Directors the Voting Directors of Macquarie Group Limited as defined in the MGL Constitution
WHS Work Health and Safety
WHSE work health, safety and environmental
Contact details
Macquarie Group Principal Administrative Offce
50 Martin Place
Sydney NSW 2000
Australia
Tel: +61 2 8232 3333
Registered Offce
Macquarie Group Limited
Level 6, 50 Martin Place
Sydney NSW 2000
Australia
Tel: +61 2 8232 3333
Fax: +61 2 8237 1899
Paper stock
Monza Recycled is Certifed Carbon Neutral by
The Carbon Reduction Institute (CRI) in accordance
with the global Greenhouse Gas Protocol and ISO 14040
framework. Monza Recycled contains 55 per cent
recycled fbre (25 per cent post consumer and 30 per cent
pre consumer) and is FSC Mix Certifed, which ensures
that all virgin pulp is derived from well-managed forests
and controlled sources. It is manufactured by an
ISO 14001 certifed mill.
macquarie.com
doc_833076027.pdf
In 1813 Governor Lachlan Macquarie overcame an acute currency shortage by purchasing Spanish silver dollars (then worth five shillings), punching the centres out and creating two new coins – the 'Holey Dollar' (valued at five shillings) and the 'Dump' (valued at one shilling and three pence). This single move not only doubled the number of coins in circulation butincreased their worth by 25 per cent and prevented the coins leaving the colony. Governor Macquarie's creation of the Holey Dollar was an inspired solution to a difficult problem and for this reason it was chosen as the symbol for Macquarie Group.
MACQUARIE GROUP LIMITED ACN 122 169 279
2015 Annual Report
Macquarie Group
The Holey Dollar 2015 Annual General Meeting
Macquarie Group’s 2015 Annual General Meeting
will be held at 10:30am on Thursday, 23 July 2015
at the Sheraton on the Park (Grand Ballroom),
161 Elizabeth Street, Sydney NSW 2000.
Details of the business of the meeting will be contained
in the Notice of Annual General Meeting, to be sent
to shareholders separately.
The Macquarie name and Holey Dollar device are registered
trade marks of Macquarie Group Limited.
In 1813 Governor Lachlan Macquarie
overcame an acute currency shortage
by purchasing Spanish silver dollars
(then worth fve shillings), punching
the centres out and creating two new
coins – the ‘Holey Dollar’ (valued at
fve shillings) and the ‘Dump’ (valued
at one shilling and three pence).
This single move not only doubled
the number of coins in circulation but
increased their worth by 25 per cent
and prevented the coins leaving the
colony. Governor Macquarie’s creation
of the Holey Dollar was an inspired
solution to a diffcult problem and
for this reason it was chosen as the
symbol for Macquarie Group.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Annual Report
Contents
1
Financial Highlights 2
Chairman's and Managing Directors’ Letter 4
Operating and Financial Review 6
Corporate Governance Statement 19
Macquarie Group Foundation Review 28
Diversity Report 29
Risk Management Report 33
Environmental, Social and Governance Report 49
Directors’ Report 66
– Schedule 1 – Directors' experience and special responsibilities 72
– Schedule 2 – Remuneration Report 77
– Schedule 3 – Auditor's independence declaration 115
Financial Report 116
– Income Statements 117
– Statements of comprehensive income 118
– Statements of financial position 119
– Statements of changes in equity 120
– Statements of cash flows 122
– Notes to the financial statements 123
– Directors’ declaration 226
– Independent auditor’s report 227
Ten year history 228
Additional investor information 229
Glossary 234
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Financial Highlights
2
3
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Chairman's and Managing Director’s Letter
4
A year of continued strong performance
We are pleased to announce Macquarie Group achieved a
net profit of $A1.6 billion for the year ended 31 March 2015,
up 27 percent on the prior year.
The Group reported record operating income of $A9.3
billion, an increase of 14 percent on the prior year.
Today’s result reflects the return on many years of
investment across the business, enabling the Group to
further capitalise on improved trading conditions.
Five of Macquarie’s six operating groups achieved a higher
net profit contribution
(1)
during the year, with record net profit
contributions from Macquarie Asset Management (formerly
Macquarie Funds Group), Corporate and Asset Finance,
Banking and Financial Services and Commodities and
Financial Markets (formerly Fixed Income, Currencies and
Commodities).
Our annuity-style businesses (Macquarie Asset
Management, Corporate and Asset Finance and Banking
and Financial Services) had another strong year, with a
combined net profit contribution of $A2.8 billion, an increase
of 33 percent during the year. These businesses have
continued to grow in the challenging market conditions of
recent years, highlighting the diversity of Macquarie’s
business offering and its ability to adapt to changing
conditions.
Among the annuity-style businesses:
– Macquarie Asset Management delivered strong annuity
base and performance fee income
– Corporate and Asset Finance experienced increased
lending and leasing activity and gains on asset and
business sales
– Banking and Financial Services experienced continued
volume growth across its mortgage business and wrap
platform, as well as business lending and deposits.
The net profit contribution from our capital markets facing
businesses (Macquarie Securities Group, Macquarie Capital
and Commodities and Financial Markets) was $A1.3 billion,
an increase of 19 percent on the prior year. These
businesses continued to build on their strong franchise
positions and benefited from improving market conditions.
Among the capital markets facing businesses:
– Macquarie Securities Group continued to experience
strong equity capital markets (ECM) activity in Australia,
while client activity across Asia remained subdued
– Macquarie Capital experienced increased activity in
mergers and acquisitions and ECM, particularly in
Australia and the US
– Commodities and Financial Markets improved its
returns across its commodities related activities, as well
as its fixed income and foreign exchange platforms,
while the credit environment remained mixed.
Total Group operating expenses of $A6.8 billion for the year
ended 31 March 2015 were up 12 percent, while the
effective tax rate of 35.9 percent was down from
39.5 percent in the prior year.
(1)
Net profit contribution is management accounting profit before
unallocated corporate costs, profit share and income tax.
While our Australian franchise maintained its strong position,
the offshore businesses continued to grow, with international
income accounting for 70 percent of the Group’s total
income
(2)
for the year ended 31 March 2015. This reflects
the growth of our international operations, particularly in the
Americas which was the largest contributing region with
36 percent of total income, as well as the favourable impact
of foreign exchange movements.
Dividends and Capital
The Board has resolved to pay a final ordinary dividend of
$A2.00 per share (40 per cent franked), up from $A1.30 per
share (40 percent franked) in the first half. This results in a
total ordinary dividend payment for the year ended 31 March
2015 of $A3.30 per share, up from $A2.60 in the prior
year
(3)
.
Macquarie has a long-standing policy of holding a level of
capital which supports its business and has consistently
grown its capital base ahead of business requirements.
The Group’s APRA Basel III capital at 31 March 2015 was
$A16.1 billion, a $A2.7 billion surplus to Macquarie's
minimum regulatory capital requirements based on
1 January 2016
(4)
requirements.
Environmental, Social and Governance
The Board and Management view our commitment to
Environmental, Social and Governance (ESG) performance
as part of our broader responsibility to clients, shareholders
and the communities in which we operate.
In the year ended 31 March 2015, we continued to embed
ESG risk management across the organisation and pursue
business opportunities in renewable energy, energy
efficiency and ESG research. Further details of Macquarie’s
ESG approach are provided in the ESG Report.
In the Community
The Macquarie Group Foundation continued its long-
standing support to the not-for-profit sector during the year
and celebrates its 30th anniversary in 2015. Since 1985, the
Foundation and our staff have contributed more than $A240
million to thousands of community organisations around the
world. This year the Foundation and our staff contributed
$A24 million in donations to more than 1,300 community
organisations around the world and provided approximately
33,500 hours of voluntary community service.
(2)
International income is net operating income excluding
earnings on capital and other corporate items.
(3)
In addition, in the prior year eligible shareholders benefited
from the SYD distribution in January 2014 which comprised
a special dividend of $A1.16 (40 per cent franked) and a
return of capital of $A2.57 per share.
(4)
Calculated at 8.5 percent Risk Weighted Assets (RWA)
including capital conservation buffer (CCB), per the
1 January 2016 minimum requirements in APRA Prudential
Standard 110. The APRA Basel III Group capital surplus is
$A4.0 billion calculated at existing requirements of 7.0 per
cent RWA, per the internal minimum Tier 1 ratio of the Bank
Group.
5
Board and Management Changes
As previously advised, Helen Nugent and Peter Kirby retired
as Non-Executive Directors from the Boards of Macquarie
Group and Macquarie Bank on 24 July 2014.
We thank Helen and Peter for their significant contributions
and wish them the very best for the future.
Gordon Cairns was appointed to the Macquarie Group and
Macquarie Bank Boards as a Non-Executive Director on
1 November 2014. Mr Cairns has held a wide range of
management and executive roles throughout his career
including Chief Executive Officer of Lion Nathan Limited. He
is currently the chairman of Origin Energy Limited, Quick
Service Restaurants and the Origin Foundation. He has also
served as a director of Westpac Banking Corporation, Seven
Network Australia Limited and Lion Nathan Limited, as well
as the chairman of David Jones Limited and Rebel Group
Pty Limited.
Outlook
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 financial year ending 31 March 2016 will be broadly in
line with the financial year ended 31 March 2015.
The tax rate for the financial year ending 31 March 2016 is
currently expected to be broadly in line with the second half
of the financial year ended 31 March 2015, and down on the
tax rate for the financial year ended 31 March 2015.
Accordingly, the Group’s result for the financial year ending
31 March 2016 is currently expected to be slightly up on the
financial year ended 31 March 2015.
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.
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 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.
On behalf of the Board and Management, we would like to
thank staff for their efforts during the year. Finally, we thank
our shareholders for their continued support.
Kevin McCann AM
Chairman
Nicholas Moore
Managing Director and Chief Executive Officer
Sydney
8 May 2015
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
6
About Macquarie
Macquarie Group Limited (Macquarie, MGL, Macquarie
Group, the Group or the Company) is a global financial
services provider with offices in 28 countries. It is listed in
Australia and is regulated by the Australian Prudential
Regulation Authority (APRA), the Australian banking
regulator, as the owner of Macquarie Bank Limited
(Macquarie Bank, MBL), an authorised deposit-taking
institution (ADI). Macquarie's activities are also subject to
supervision by various other regulatory agencies around the
world.
Founded in 1969, Macquarie now employs over 14,000
people globally, has total assets of $A188.0 billion and total
equity of $A14.4 billion as at 31 March 2015.
Macquarie’s breadth of expertise covers advisory and capital
markets, trading and hedging, funds management, asset
finance, financing, research and retail financial services. The
diversity of its operations, combined with a strong capital
position and robust risk management framework, has
contributed to Macquarie’s 46-year record of unbroken
profitability.
Macquarie acts primarily as an investment intermediary for
institutional, corporate and retail clients and counterparties
around the world, generating income by providing a
diversified range of products and services to its clients.
It has established leading market positions as a global
specialist in a wide range of sectors, including resources and
commodities, energy, financial institutions, infrastructure and
real estate, and has a deep knowledge of Asia-Pacific
financial markets.
Alignment of interests is a longstanding feature of
Macquarie’s client-focused business, demonstrated by its
willingness to both invest alongside clients and closely align
the interests of its shareholders and people.
Organisational structure
For internal reporting and risk management purposes,
Macquarie is divided into six operating groups, which are
supported by four central service groups. The operating
groups are split between annuity-style businesses and
capital markets facing businesses.
The service groups provide a range of functions supporting
Macquarie’s operating groups, ensuring they have the
appropriate workplace support and systems to operate
effectively and the necessary resources to meet their
regulatory, compliance, financial reporting, legal and risk
management requirements.
Further details on the operations and performance of each
operating group can be found in the review of operating
groups on pages 13 to 18.
Macquarie Group Limited (MGL)
Global financial services provider with offices in 28 countries and expertise across advisory and capital markets, trading and
hedging, funds management, asset finance, financing, research and retail financial services.
Operating Groups
Annuity-style businesses Capital markets facing businesses
Macquarie Asset Management (MAM)
Full-service asset manager offering infrastructure and real asset
management, securities investment management and tailored
investment solutions over funds and listed equities.
Macquarie Securities Group (MSG)
Global institutional securities house with strong Asia-Pacific
foundations covering sales, research, equity capital markets
(ECM), execution and derivatives activities.
Corporate and Asset Finance (CAF)
Provider of specialist finance and asset management solutions,
with global capability in corporate and real estate credit lending
and asset financing.
Macquarie Capital
Global corporate finance capability including mergers and
acquisitions (M&A), equity and debt capital markets and
principal investments, across six key industry groups.
Banking and Financial Services (BFS)
Retail banking and financial services provider offering a diverse
range of personal banking, wealth management and business
banking products and services.
Commodities and Financial Markets (CFM)
Provider of risk and capital solutions across physical and
financial markets.
Central Service Groups
Risk Management Group
(RMG)
Independent and centralised
unit responsible for risk
assessment and management
across the business groups.
Legal and Governance
(LGL)
Provides a full range of
strategic legal advice and
support and corporate
governance services.
Financial Management
Group (FMG)
Management of funding and
capital through financial, tax
and treasury services across
the operating groups.
Corporate Operations Group
(COG)
Driving operational excellence
through talent, workplace,
technology and market
operations support.
7
Macquarie’s purpose
Macquarie’s purpose is to realise opportunity for the benefit of
its clients, shareholders and people. It is in business to be
profitable and to achieve an appropriate and resilient long term
return on capital. Ultimately though, it is the way it does
business that defines Macquarie.
Macquarie’s approach is based on three long-held principles
of Opportunity, Accountability and Integrity. These principles
form the basis of Macquarie’s expectations of its people and
adherence to them is required under the Code of conduct (the
Code) available on Macquarie’s website at
macquarie.com/what-we-stand-for
This balance between opportunity and accountability, while
operating with integrity within a strong risk management
framework, is a unique feature of Macquarie’s success and a
key factor in its 46-year record of unbroken profitability.
Business strategy
Consistent with the principles of Opportunity, Accountability
and Integrity, Macquarie employs a business strategy focused
on the medium term with the following key aspects:
– conducting a mix of annuity-style and capital markets
facing businesses that deliver solid returns in a range of
market conditions. In recent years Macquarie has strongly
developed its annuity-style businesses, providing steady
returns to the business and Macquarie shareholders and
certainty to clients
– operating a diversified set of businesses across
different locations and service offerings: banking, financial,
advisory, investment and funds management services.
Macquarie offers a range of services to government,
institutional, corporate and retail clients. This diversity
mitigates concentration risk and provides resilience to the
Group, as highlighted in the challenging global markets of
recent years
– utilising proven deep expertise has allowed Macquarie
to establish leading market positions as a global specialist
in sectors including resources and commodities, energy,
financial institutions, infrastructure and real estate, with a
deep knowledge of Asia-Pacific financial markets
– expanding progressively by pursuing adjacencies
through new organic opportunities and selective
acquisitions in products and geographies that are
adjacent to its established areas of expertise, by building
expertise in these disciplines and expanding into
associated activities. This results in sustainable
evolutionary growth
– pursuing growth opportunities through recognising the
value of ideas and innovation. Macquarie starts with real
knowledge and skill and encourages innovation, ingenuity
and entrepreneurial spirit coupled with accountability.
Macquarie seeks to indentify opportunity and realise it for
clients, community, shareholders and its people. Ideas for
new businesses are typically generated in the operating
businesses. Additionally, there are no specific businesses,
markets, or regions in which Macquarie’s strategy
demands it operates. This means it retains operational
flexibility and can adapt the portfolio mix to changing
market conditions within the boundaries of the Board-
approved Risk Appetite Statement (RAS)
– utilising a conservative approach to risk management
through Macquarie’s strong risk management framework,
embedded across all operating groups. This equips the
business for unanticipated disruptions and ensures that
both the relevant business and Macquarie can survive a
worst-case outcome from any new or existing activity
– maintaining a strong and conservative balance sheet
consistent with its longstanding policy of holding a level of
capital which supports its business and managing its
capital base ahead of ordinary business requirements.
Macquarie remains well funded, with diversified funding
sources. It continues to pursue its strategy of diversifying
funding sources by growing its deposit base and
accessing different funding markets.
Risk management
The acceptance of risk is an integral part of Macquarie’s
businesses. Strong independent prudential management has
been a key to Macquarie’s success and stability over many
years. Where risk is assumed, it is within a calculated and
controlled framework that assigns clear risk roles and
responsibilities. Furthermore, Macquarie’s strong culture of risk
management is embedded across all operating groups and
divisions.
The key macroeconomic risks to Macquarie’s short and
medium-term financial outlook mentioned on page 12 are as
follows:
– market conditions: The general condition of markets,
driven mainly by macroeconomic factors, will influence the
volume of transactions that businesses experience. For
example, an increase in market volatility may increase the
income CFM derives from hedging transactions
performed on behalf of clients. Market conditions can also
influence the value of various equity, credit and market
risk exposures held by Macquarie on its balance sheet.
These risks are discussed further below
– the value of the Australian dollar: A significant
proportion of Macquarie’s net income is denominated in
foreign currency. Therefore, net income will be lower in
Australian dollar terms if it appreciates against these
currencies.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
8
In addition there are specific risks which relate to the nature of
Macquarie’s operations. These include:
– Credit risk: This is the risk of a counterparty failing to
complete its contractual obligations when they fall due.
Examples of exposures that generate this risk include
Macquarie advancing a loan to a retail or corporate client
or when a capital markets facing business like CFM
enters into a derivative contract. The consequent loss is
either the amount of the loan not paid back or the loss
incurred in replicating a trading contract with a new
counterparty
– Market risk: This is exposure to adverse changes in the
value of Macquarie's trading portfolios as a result of
changes in market prices or volatility. Macquarie is
exposed to risks in the foreign exchange and bullion,
interest rates and debt securities, equities and
commodities and energy markets. This risk resides
primarily in the capital markets facing businesses
– Equity risk: This is the risk of loss arising from non-
trading equity-type exposures. Examples of such
exposures include holdings in MAM-managed funds and
principal exposures taken by Macquarie Capital
– Operational risk: This is the risk of loss resulting from
failed or inadequate internal processes, people and
systems or from external events
– Liquidity risk: This is the risk that Macquarie is unable to
meet its financial obligations as they fall due which could
arise due to mismatches in cash flows. Liquidity
management is performed centrally by Group Treasury
– Regulatory and compliance risk: This is the risk of loss
arising from a failure to comply with legal and regulatory
requirements or government policies and the risk that
regulatory change has an impact on Macquarie's
business activities
– Legal risk: This is the risk of loss arising from a breach of
contract, law or regulation, the risk of litigation or
regulatory enforcement or the risk that a contract is not
capable of being enforced as expected
– Insurance risk: This captures the risks associated with
the provision of life insurance policies. It includes lapse
risk, claims risk, asset/liability mismatch risk and expense
risk
– Tax risk: This is the risk of loss arising from the
misinterpretation of tax regimes and the manner in which
they may be applied and enforced
– Reputation risk: This is the risk of loss arising from
damage to Macquarie’s brand or reputation.
The risks above are monitored, mitigated and managed under
Macquarie’s risk management framework. The framework is
discussed in more detail in the Risk Management Report. The
core risk management principles underlying the framework
have remained stable and continue to be highly effective.
These are:
– ownership of risk at the business level: Operating
Group Heads are responsible for identifying risks within
their businesses and ensuring that they are managed
appropriately. Before taking decisions, clear analysis of
the risks is sought to ensure risks taken are consistent
with the risk appetite and strategy of Macquarie. Business
ownership of risk is an essential element in understanding
and controlling risk
– understanding worst case outcomes: Macquarie's risk
management approach is based on examining the
consequences of worst case outcomes and determining
whether these are acceptable. This approach is adopted
for all material risk types and is often achieved by stress
testing. In particular, Macquarie's market risk framework
is based primarily on the application of stress tests, rather
than statistical models. The effectiveness of this approach
was demonstrated over the recent past. Shocks
observed in the markets generally remained within
Macquarie's stress scenarios, resulting in very few of our
worst case loss scenarios being exceeded. While
Macquarie operates a number of sophisticated
quantitative risk management processes, the foundation
of its risk management approach is the informed
consideration of both quantitative and qualitative inputs
by highly experienced professionals
– requirement for an independent sign-off by risk
management: Macquarie places significant importance
on having a strong independent RMG that is charged with
signing off all material risk acceptance decisions. It is
essential RMG has the capability to do this effectively and
hence RMG has invested in recruiting skilled
professionals, many with previous trading or investment
banking experience. For all material proposals, RMG's
opinion is sought at an early stage in the decision-making
process and independent input from RMG on risk and
return is included in the approval document submitted to
senior management.
9
Review of Group performance and
financial position
Group performance
Overview
Profit attributable to ordinary equity holders of $A1,604 million
for the year ended 31 March 2015 increased 27 percent from
$A1,265 million in the prior year.
31 Mar 2015
$A million
31 Mar 2014
$A million
Movement
%
Net operating
income 9,293 8,132 14
Operating
expenses (6,771) (6,026) 12
Income tax
expense (899) (827) 9
Profit attributable
to non-controlling
interests (19) (14) 36
Profit attributable
to ordinary equity
holders 1,604 1,265 27
FY2015 Net Profit Contribution
By Operating Group
Macquarie’s annuity-style businesses – MAM, CAF and
BFS – continued to perform well, generating a combined net
profit contribution for the year ended 31 March 2015 of
$A2,847 million, an increase of 33 percent on the prior year.
MAM benefited from increased base and performance fee
income, while CAF’s higher net profit contribution was largely
driven by increased loan and lease volumes, together with
gains on the disposals of the US equipment leasing business
and operating lease assets. BFS reported an improved net
profit contribution largely driven by volume growth in Australian
mortgages, business lending, deposits and the Wrap platform.
Macquarie’s capital markets facing businesses – MSG,
Macquarie Capital and CFM – delivered a combined net profit
contribution for the year ended 31 March 2015 of $A1,329
million, an increase of 19 percent on the prior year. MSG’s net
profit contribution was down on the prior year as increased
income from improved trading opportunities was offset by
increased operating expenses driven by additional regulatory
compliance requirements and restructuring costs associated
with exiting Structured Products during the year. Macquarie
Capital benefited from increased fee income across all product
classes, particularly mergers and acquisitions and debt capital
markets, and increased gains on sales of principal investments
resulting from improved market conditions. CFM’s net profit
contribution was mainly driven by the continued strong
performance of its commodities businesses, increased income
across interest rates and foreign exchange platforms and
increased fee income and debt capital markets activity in the
US.
Further information on the group’s performance is detailed
below and the review of operating businesses is contained on
pages 13 to 18.
Net operating income
Net operating income of $A9,293 million for the year ended
31 March 2015 increased 14 percent on the prior year. Key
drivers of the changes from the prior year were:
– a 17 percent increase in combined net interest and
trading income to $A3,819 million for the year ended
31 March 2015 from $A3,275 million in the prior year.
Most operating groups contributed to the increase, with
key drivers of the result being:
– continued strong performance of commodities
businesses in CFM
– increased volatility in foreign exchange and interest
rate markets, particularly in the second half of the
year, resulting in increased client volumes and
activity in CFM compared with the prior year, and
– loan portfolio growth in CAF and BFS
– a 24 percent increase in fee and commission income to
$A4,770 million for the year ended 31 March 2015 from
$A3,853 million in the prior year primarily driven by:
– increased base fees of $A1,388 million for the year
ended 31 March 2015, up 8 percent from $A1,289
million in the prior year, largely due to positive net
flows into higher fee earning products, additional
investments and favourable currency and market
movements
– increased performance fees of $A667 million for the
year ended 31 March 2015, up significantly from
$A219 million in the prior year, including significant
performance fees recognised from Macquarie
Infrastructure Company LLC (MIC), Macquarie
European Infrastructure Fund 1 (MEIF1), Hedge
Funds and Macquarie Atlas Roads (MQA)
– increased mergers and acquisitions, advisory and
underwriting fees of $A973 million for the year ended
31 March 2015, up 20 percent from $A809 million in
the prior year, mainly due to an increase in mergers
and acquisitions and debt capital markets activity
particularly in the US, and
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
10
– increased other fee and commission income of
$A875 million for the year ended 31 March 2015,
up 38 percent from $A633 million in the prior year
mainly due to a fee from Freeport LNG Terminal by
CFM and higher income in BFS resulting from the
acquisition of the Woolworths credit card portfolio in
May 2014 and increased platform commissions from
higher assets under administration on the Wrap
platform
– an 18 percent decrease in other operating income and
charges to $A699 million for the year ended 31 March
2015 from $A855 million in the prior year. The current
year included:
– a decrease of 35 percent in net gains on sale of
investments (including debt and equity investment
securities available for sale and investments in
associates and joint ventures) to $A324 million for
the year ended 31 March 2015 from $A502 million in
the prior year, which included a $A228 million gain
on the Sydney Airport stapled securities distribution
in January 2014 and income from the disposal of an
investment in OzForex on its IPO in October 2013
– gains on disposal of operating lease assets of $A231
million for the year ended 31 March 2015, up from $A2
million in the prior year mainly due to gains in CAF on
disposal of the North American railcar operating lease
portfolio in January 2015 and the restructure of an
unrelated railcar logistics operating lease facility
– gains on acquiring, disposing and change in
ownership interest in subsidiaries and associates of
$A190 million, up from $A26 million in the prior year
primarily due to the sale of CAF’s US equipment
leasing business in March 2015
– an increase of 11 percent in net operating lease
income to $A585 million for the year ended
31 March 2015 from $A529 million in the prior year
primarily due to favourable currency movements and
acquisitions in CAF's Aviation portfolio
– an increase of 34 percent in aggregate impairment
charges on investment securities available for sale,
associates and joint ventures and non-financial
assets to $A356 million for the year ended 31 March
2015 from $A265 million in the prior year which
included impairment of goodwill relating to legacy
acquisitions and the write-down of certain assets
associated with the restructure of a railcar logistics
operating lease facility in CAF, and
– an increase of 93 percent in net individually assessed
provisions for impairment, write-offs and collective
allowance for credit losses to $A467 million for the
year ended 31 March 2015 from $A242 million in the
prior year primarily due to higher provisions in CFM
mainly due to the underperformance of certain
credits and the downward movement in certain
commodity prices, additional collective provisions in
CAF reflecting portfolio growth and the changing mix
of assets in the lending and finance leasing portfolios
and an increase to the collective provision central
management overlay in Corporate
(1)
to account for
changes in current economic conditions.
(1)
Corporate includes head office and central support functions
including Group Treasury.
Operating expenses
Total operating expenses of $A6,771 million for the year ended
31 March 2015 increased 12 percent on the prior year mainly
due to the following key drivers:
– an 11 percent increase in employment expenses to
$A4,143 million for the year ended 31 March 2015 from
$A3,736 million in the prior year primarily due to higher
staff compensation resulting from the improved
performance of the Group and the impact of the
depreciation of the Australian dollar on offshore expenses.
Headcount increased one percent from 13,913 at
31 March 2014 to 14,085 at 31 March 2015. The
compensation ratio of 41.9 percent for the year ended
31 March 2015 decreased from 43.1 percent in the prior
year
– a 35 percent increase in non-salary technology expenses
from $A323 million in the prior year to $A437 million for
the year ended 31 March 2015 primarily due to increased
development activity to support business growth,
including the development of a new Core Banking system
in BFS and activity driven by increased regulatory
compliance requirements, and
– a 19 percent increase in total other operating expenses
from $A806 million in the prior year to $A957 million for
the year ended 31 March 2015 largely driven by
increased activity across the Group, the impact of the
depreciation of the Australian dollar on offshore expenses
and transaction related expenses for business and asset
disposals and acquisitions in CAF.
Income tax expense
Income tax expense for the year ended 31 March 2015 was
$A899 million, up nine percent on the prior year. The increase
was mainly driven by a 20 percent increase in operating profit
before income tax, from $A2,106 million in the prior year to
$A2,522 million in the year ended 31 March 2015, partly offset
by a decrease in income tax permanent differences. The
effective tax rate for the year ended 31 March 2015 was
35.9 percent, down from 39.5 percent in the prior year,
reflecting the nature and geographic mix of income and tax
uncertainties.
In relation to the audit by the Australian Taxation Office (ATO),
it has concluded and all outstanding matters have been
resolved. Macquarie continues to be part of the Pre-lodgement
Compliance Review process, whereby the ATO undertakes a
review prior to the lodgement of Macquarie's tax returns.
Group financial position
Balance Sheet
The Group’s balance sheet has been impacted by changes in
business activities and movements in prices and rates since
31 March 2014. Total assets of $A188.0 billion at 31 March
2015 increased 22 percent from $A153.9 billion at 31 March
2014, while total liabilities increased 22 percent from $A142.0
billion at 31 March 2014 to $A173.6 billion at 31 March 2015.
The growth in the Group’s balance sheet has largely been
driven by the impact of the depreciation of the Australian
dollar, growth in loan assets, trading assets and receivables
from financial institutions (Treasury cash and liquid assets).
11
Key drivers of the movement in the balance sheet include:
– Treasury management initiatives during the year including
significant new issuances of short term and long term
debt issued at amortised cost and an increase in cash
and liquid asset holdings with increased reverse
repurchase agreements that led to an overall increase in
receivables from financial institutions. These were partially
offset by the sale of debt investment securities available
for sale
– improved trading opportunities in equities driven by
increased market volatility in certain emerging markets,
particularly China, resulted in increased trading and
reduced stock borrowing activity in MSG. This led to an
increase in trading portfolio assets and liabilities and a
reduction in receivables from financial institutions
– in CFM, growth of the physical metals business led to an
increase in trading portfolio assets, which was partially
offset by a reduction in Commonwealth Government
bond holdings. Changes in interest rates, foreign
exchange and commodity prices during the year also
resulted in an increase in derivative assets and liabilities
– an increase in principal investments through acquisitions,
combined with the impact of the depreciation of the
Australian dollar, resulted in an increase in investment
securities available for sale within MAM and Macquarie
Capital
– increased lending activity was seen across the Group,
leading to strong growth in loan assets held at amortised
cost, including:
– BFS’ Australian mortgage portfolio grew 44 percent
from $A17.0 billion at 31 March 2014 to $A24.5
billion at 31 March 2015, which included acquisitions
of residential mortgage portfolios of $A2.5 billion
during the year. This growth was partially offset by a
reduction in the Canadian and US mortgage
portfolios, which are in run-off and closed at a
combined $A3.8 billion at 31 March 2015, down
31 percent from $A5.5 billion at 31 March 2014
– BFS also increased business lending volumes by
27 percent from $A4.1 billion at 31 March 2014 to
$A5.2 billion at 31 March 2015, and credit card
volumes from $A0.3 billion at 31 March 2014 to
$A0.6 billion at 31 March 2015 driven by the
acquisition of the Woolworths credit card portfolio in
May 2014
– CAF’s loan and finance lease portfolios of $A22.4
billion at 31 March 2015 increased 13 percent from
the prior year driven by growth in the Lending and
Leasing portfolios as a result of acquisitions along
with the favourable impact of the depreciation of the
Australian dollar, partially offset by the sale of the US
equipment leasing business. The increased lending
and leasing activity in CAF also resulted in an
increase in external non-recourse funding through
securitisations by the SMART Trusts and warehouse
facilities
– these increases were partially offset by reduced
asset backed lending activity and redemptions from
retail products in MAM
– operating lease portfolios within CAF benefited from
acquisitions of aircraft and the impact of the depreciation
of the Australian dollar, partially offset by the disposal of
the North American railcar operating lease portfolio,
resulting in a net increase in property, plant and
equipment
– the issuance of Macquarie Bank Capital Notes (BCN) and
foreign currency movements on foreign denominated
debts resulted in increased loan capital.
Total equity increased $A2.5 billion from $A11.9 billion at
31 March 2014 to $A14.4 billion at 31 March 2015, largely due
to a net increase in the foreign currency translation reserve
driven by the impact of the depreciation of the Australian
dollar, new share issuances in March 2015 through the
institutional private placement of $A500 million and the share
purchase plan of $A170 million, the dividend reinvestment plan
of $A171 million and net retained earnings generated during
the year.
Funding
Macquarie has a stable funding base with minimal reliance on
short term wholesale funding markets. At 31 March 2015, the
Group’s term assets were covered by term funding maturing
beyond one year, stable deposits and equity.
The weighted average term to maturity of term funding
maturing beyond one year (excluding equity which is a
permanent source of funding) decreased from 4.5 years at
31 March 2014 to 4.4 years as at 31 March 2015.
As at 31 March 2015, total deposits
(1)
represented
$A39.7 billion, or 35 percent of the Group’s total funding, short
term (maturing in less than twelve months) wholesale issued
paper represented $A12.5 billion, or eleven percent of total
funding, and other debt funding maturing within twelve months
represented $A9.2 billion, or eight percent of total funding.
During the year ended 31 March 2015, all remaining
government guaranteed debt was repaid.
Macquarie has a liability driven approach to balance sheet
management, where funding is put in place before assets are
taken on to the balance sheet. Since 31 March 2014, MGL
and MBL have continued to raise term wholesale funding.
Macquarie has continued to diversify its funding base and
develop new markets including issuances in Australia, Japan,
Switzerland, Norway, China and the United Kingdom.
Since 31 March 2014, the Group raised $A21.5 billion of term
funding, including $A12.8 billion of term wholesale funding,
$A8.3 billion of term secured finance and $A0.4 billion of BCN
issuance. Wholesale term issuance of $A12.8 billion includes
$A5.8 billion in senior unsecured debt issuance in the US
market, $A4.5 billion in senior unsecured issuance in
European, Australian, Japanese, Swiss and UK markets,
$A2.3 billion in MBL private placements and structured notes
and $A0.2 billion in MGL loan facilities. Term secured finance
of $A8.3 billion includes $A4.3 billion of PUMA RMBS, $A3.2
billion of SMART auto & equipment ABS, $A0.3 billion of
Macquarie Equipment Finance ABS and a net increase of
$A0.5 billion of warehouse funding for SMART.
Macquarie's liquidity risk management framework is designed
to ensure that both MGL and MBL are able to meet their
funding requirements as they fall due under a range of market
conditions.
(1)
Represents deposits available to fund Macquarie’s assets.
Excludes segregated client margin balances.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
12
Capital
As an Australian Prudential Regulation Authority (APRA)
authorised and regulated non-operating holding company
(NOHC), MGL is required to hold adequate regulatory capital
to cover the risks for the whole Macquarie Group, including the
Non-Bank Group. Macquarie and APRA have agreed a capital
adequacy framework for MGL, based on Macquarie’s Board-
approved Economic Capital Adequacy Model (ECAM) and
APRA’s capital standards for ADIs.
MGL’s capital adequacy framework requires it to maintain
minimum regulatory capital requirements calculated as the
sum of:
– the Bank Group’s minimum Tier 1 capital requirement,
based on a percentage of risk-weighted assets plus Tier 1
deductions using prevailing APRA ADI Prudential
Standards, and
– the Non-Bank Group’s capital requirement, calculated
using Macquarie’s ECAM. Transactions internal to the
Macquarie Group are eliminated.
The Group has satisfied its regulatory capital requirements
throughout the year. At 31 March 2015, the Bank Group had a
Harmonised Basel III Common Equity Tier 1 Capital Ratio of
11.4 percent and a Harmonised Tier 1 Capital Ratio of
12.6 percent. The Bank Group's APRA Common Equity Tier 1
Capital Ratio was 9.7 percent and its APRA Tier 1 Capital
Ratio was 11.0 percent as at 31 March 2015. The Group
remains well capitalised with $A2.7 billion of eligible capital in
excess of the minimum regulatory capital requirements
(1)
.
Macquarie’s capital management strategy is outlined in
Note 26 to the financial statements contained within the
Financial Report.
(1) Calculated at 8.5 per cent Risk Weighted Assets (RWA)
including capital conservation buffer (CCB), per the 1 January
2016 minimum requirements in APRA Prudential Standard
110. The APRA Basel III Group capital surplus is $A4.0 billion
calculated at existing requirements of 7.0 per cent RWA, per
the internal minimum Tier 1 ratio of the Bank Group.
Outlook
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 financial
year ending 31 March 2016 will be broadly in line with the
financial year ended 31 March 2015.
The tax rate for the financial year ending 31 March 2016 is
currently expected to be broadly in line with the second half of
the financial year ended 31 March 2015, and down on the tax
rate for the financial year ended 31 March 2015.
Accordingly, the Group's result for the financial year ending
31 March 2016 is currently expected to be slightly up on the
financial year ended 31 March 2015.
The Group's short term outlook remains subject to a range of
challenges including: market conditions; the impact of foreign
exchange; the cost of its continued conservative approach to
funding and capital; and potential regulatory changes and tax
uncertainties.
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 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.
13
Macquarie Asset Management (MAM)
MAM is a top 50 global asset manager with $A484 billion of AUM, offering a diverse range of products through three divisions:
Macquarie Infrastructure and
Real Assets (MIRA)
Macquarie Investment Management
(MIM)
Macquarie Specialised Investment
Solutions (MSIS)
A global leader in alternative asset
management, specialising in
infrastructure, real estate, agriculture and
energy. It is recognised as the world’s
largest infrastructure manager
(1)
,
operating more than 50 funds globally,
with investments in 129 businesses,
approximately 300 properties and 3.6
million hectares of farmland. Investing
regionally with expert local investment
and asset management teams, MIRA’s
client base is primarily institutional
investors, including global pension and
superannuation funds, other institutions
and governments.
Offers securities investment
management capabilities across a
number of asset classes including fixed
interest, currencies, equities,
infrastructure securities, hedge funds
and multi-asset allocation solutions. MIM
manages $A348 billion in around 100
investment strategies.
MIM also offers best of breed third party
managed strategies in Australia through
its Macquarie Professional Series funds.
Manufactures and distributes a range of
tailored investment solutions over funds
and listed equities including fund-linked
products, principal protected
investments, a hedge fund incubation
platform, infrastructure debt funds
management, restructuring solutions and
agriculture investment solutions.
Medium term
MAM’s medium term focus is to further grow AUM by
continuing to deliver strong performance outcomes for clients,
developing new and adjacent investment capabilities that meet
evolving client needs, expanding its global distribution network
and maintaining an efficient operating platform.
Performance
MAM contributed $A1.5 billion to Macquarie’s total profit from
operating groups for the year ended 31 March 2015, an
increase of 38 percent on the prior year. It generated net
operating income of $A2.4 billion, an increase of 27 percent on
the prior year.
MAM had $A484 billion in AUM at 31 March 2015, an increase
of 14 percent on the prior year.
MIRA reached a record $A66.2 billion in equity under
management having raised $A8.3 billion in new equity
commitments during the year, including $US1.4 billion for
pan-Asia infrastructure investment and $US1 billion for its
second China retail property fund. MIRA’s fourth unlisted North
American fund, Macquarie Infrastructure Partners III, raised a
further $US841 million, to reach its final close with $US3 billion
in investor commitments. The New York Stock Exchange-
listed Macquarie Infrastructure Company (MIC) raised $US1.5
billion on market to support acquisitions.
MIRA invested equity of $A6.2 billion during the year into
infrastructure assets in the US, Europe, Mexico, the
Philippines, China, Russia, India and Korea, real estate in
China and Mexico and agriculture in Australia and Brazil. Asset
divestments of more than $A2.5 billion included €1.4 billion
from the portfolio of Macquarie European Infrastructure Fund 1
(MEIF1) as it approaches maturity.
MIRA base fees continued to grow with equity under
management, while performance fees were earned
predominately from MIC, MEIF1 and Macquarie Atlas Roads.
MIRA was also named Global Fundraiser and Global Fund
Manager of the Year by Infrastructure Investor Magazine.
MIM grew AUM by 12 percent with run rate revenue
increasing as a result of positive net fund flows into higher fee
earnings products and favourable foreign exchange and
market valuations, partially offset by the impact of the Jackson
Square Partners JV and management buy-out of the MIM
Private Markets business. Investment performance across a
range of asset classes continued to be strong, with the
majority of funds outperforming their benchmarks over three
years and several strategies receiving industry awards during
the year, including six 2015 Lipper Awards
(2)
across the US
and Asia. Strong performance fees were generated
predominately in the alternative asset classes.
MIM continued to expand its global distribution network, with
recruitment in the US, UK, Germany, Japan and Australia.
Strong positive net inflows were generated in the Australian
wholesale and US mutual fund channels, with $A6 billion in
new funded institutional mandates secured globally. MIM
launched several new funds and filled capacity in a number of
strategies.
MSIS continued to grow the Macquarie Infrastructure Debt
Investment Solutions (MIDIS) business, reaching second close
on the UK Inflation-linked Infrastructure Debt Fund to bring
total third party investor commitments on the MIDIS platform
to over $A3.3 billion. MSIS also closed a number of
investments, bringing total AUM to $A1.4 billion. MSIS secured
its first mandate as sole underwriter for private equity
secondaries fund financing and raised over $A600 million for
Australian retail principal protected investments and specialist
funds.
Outlook
Subject to the risks identified on pages 7 to 8, MAM currently
expects its result for the year ending 31 March 2016 to be
broadly in line with the year ended 31 March 2015.
(1)
Towers Watson 2014 Global Alternatives Survey.
(2)
For more information visit www .macquarie.com.au/mgl/au/
mfg/mim/about-us/awards.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
14
Corporate and Asset Finance (CAF)
CAF manages a portfolio of $A28.7 billion, specialising in corporate and real estate lending and asset financing.
Lending Asset Finance
A corporate and real
estate lending business
providing customised
capital solutions and
financing to its clients
through primary and
secondary transactions.
It is differentiated by its
bespoke offering where
it is a leading market
participant and is also a
niche acquirer of loans
and other credit assets
in the secondary market.
The team has experience
across a variety of
industry groups
including: real estate;
infrastructure;
telecommunications,
media, entertainment
and technology; leisure
and healthcare.
Macquarie Aviation Macquarie Leasing Macquarie Energy Leasing
Provides operating leases of
commercial jet aircraft to
airlines, helping clients to
increase fleet management
capability and minimise market
and equipment obsolescence
risk.
A leading provider of finance
leases, novated lease
agreements and commercial
hire purchases for motor
vehicles and other plant and
equipment in Australia with a
presence in the UK.
The largest provider of more
than seven million traditional
and smart meters in the UK
mainly to major energy
suppliers. It recently
commenced financing solar
energy assets in Australia.
Macquarie Rotorcraft Leasing Mining Equipment Finance Macquarie Equipment Finance
A full service helicopter
operating leasing business
supporting industries including
offshore oil and gas, medical
transport, search and rescue,
utility and executive transport.
Provides finance, operating
leases and secured lending for
mobile mining equipment to
miners, contract miners and
rental companies.
Provides specialist equipment
finance and services solutions
globally in healthcare,
technology, communications,
materials handling,
manufacturing and related
equipment.
Macquarie European Rail
Offers operating lease financing for passenger and freight assets in Europe.
Medium term
CAF’s medium term focus is to leverage its deep industry
expertise to maximise growth potential in loan and lease
portfolios, anticipate further asset acquisitions and realisations
at attractive return levels and will continue to secure funding
from asset securitisations throughout the cycle.
Performance
CAF contributed $A1.1 billion to Macquarie’s total profit from
operating groups for the year ended 31 March 2015, up
35 percent on the prior year. It generated net operating
income of $A1.6 billion, up 32 percent on the prior year.
At 31 March 2015, CAF managed a lease and loan portfolio of
$A28.7 billion, up 13 percent on the prior year.
Lending’s funded loan portfolio totalled $A11.2 billion at
31 March 2015, up 24 percent on the prior year. Portfolio
additions of $A4.7 billion for the year comprised:
– $A3.1 billion of new primary financings across corporate
and real estate, weighted towards bespoke originations
– $A1.6 billion of corporate and commercial real estate
loans and residential mortgages acquired in the
secondary market.
Notable transactions included the re-leasing and exit of a
railcar logistics facility, the acquisition of two residential
mortgage portfolios in the UK and Germany totalling £140
million and €294 million respectively, and the provision of £104
million bespoke financing across two UK care home portfolios.
Asset quality within the lending portfolio remained sound and
the portfolio continued to generate strong overall returns.
Significant prepayment and realisation income arose from the
re-leasing and exit of the railcar logistics facility and the
refinancing of a leading French telecommunications company.
CAF’s Asset Finance portfolio of $A17.5 billion was up six
percent on the prior year due to foreign exchange movements.
In March 2015, CAF sold its US equipment leasing business,
consisting of $US900 million in assets. CAF also sold its North
American railcar operating lease portfolio during the year,
comprising $US390 million in assets.
In March 2015, CAF entered into an agreement to acquire an
aircraft operating lease portfolio from AWAS Aviation Capital
Limited valued at approximately $US4 billion. The portfolio
comprises 90 modern, current generation commercial
passenger aircraft that will be acquired and delivered during
the year ending 31 March 2016.
CAF’s motor vehicle leasing portfolio continued to grow, with
more than 300,000 contracts. Both its motor vehicle and
equipment finance channels continued to expand through
dealer networks in Australia and ongoing expansion in the UK.
The Energy Leasing, European Rail and Mining Equipment
Finance businesses continued to perform well.
CAF continued its securitisation activities with $A4 billion of
motor vehicle and equipment leases and loans securitised.
Outlook
Subject to the risks identified on pages 7 and 8, CAF currently
expects its result for the year ending 31 March 2016 to be
broadly in line with the year ended 31 March 2015.
15
Banking and Financial Services (BFS)
BFS provides a diverse range of personal banking, wealth management and business banking products and services to retail
customers, advisers, brokers and business clients. BFS is focused on the Australian market, building on expertise developed over
more than 30 years.
Personal Banking Wealth Management Business Banking
Provides retail financial products such as
mortgages, credit cards and deposits. It
serves personal banking clients through
mortgage intermediary relationships and
white-label arrangements, as well as
Macquarie branded offerings.
Provides superannuation and insurance
products, as well as financial advice,
private banking, stockbroking, cash
management and wrap platform
services. It delivers products and
services through institutional
relationships, virtual adviser networks
and dedicated direct relationships with
its clients.
Provides a full range of deposit, lending
and payment solutions, as well as
tailored services to business clients,
ranging from sole practitioners to
corporate professional firms, through a
variety of channels including dedicated
relationship managers.
Medium term
BFS remains focused on opportunities in Australian retail
financial services.
BFS’ medium term focus is to build on its successful
intermediary and white-label partnerships to support the
ongoing growth of third party distribution in Personal Banking
and Wealth Management, as well as maximise opportunities to
increase financial services engagement with existing Business
Banking clients and extend into adjacent segments.
BFS is also investing in its technology to improve client
experience, support growth and simplify, streamline and
centralise its product and transactional functions.
Performance
BFS contributed $A285 million to Macquarie’s total profit from
operating groups for the full year ended 31 March 2015, an
increase of 10 percent on the prior year. It generated net
operating income from continuing operations
(1)
of $A1.3 billion,
up 10 percent on the prior year.
BFS maintained its strong market position in its core Australian
retail businesses, with approximately 1.1 million Australian
clients at 31 March 2015. Retail deposits increased to
$A37.3 billion at 31 March 2015, up 12 on the prior year.
BFS continued its digital transformation to improve prospective
client experience and the scalability of its operating model, and
is currently in year two of its five year program to deliver a Core
Banking platform with real time capability.
Personal Banking: The Australian mortgage portfolio grew to
$A24.5 billion at 31 March 2015, representing 1.7 percent of
the Australian mortgage market. This includes $A2.5 billion in
residential mortgage portfolios acquired during the year. BFS
continued to maximise strong growth opportunities that exist
through intermediary distribution and white-labelling, entering
into white-label agreements with Real Home Loans and
Mortgage Choice. The business was named home loans
Partner of the Year in the iSelect 2014 Partner Awards and
ranked first in the Brokers on Non-Majors 2014 survey by
Australian Broker Magazine.
(1)
Excludes MPW Canada from comparative periods which BFS
exited in November 2013.
After signing an agreement as credit card issuing partner for
the Woolworths Money Everyday and Woolworths Money
Qantas Credit Cards in May 2014, BFS successfully
completed the migration of accounts and data to internal
systems in October 2014.
Wealth Management: Macquarie platform assets under
administration grew strongly to $A48.0 billion at 31 March
2015, up 19 percent on 31 March 2014 due to strong net
inflows and market movement.
During the year, the Macquarie Life inforce book increased
17 percent due to strong underlying business fundamentals
and new business volumes. The business was awarded five-
star status in the Beaton Benchmarks 2014 – Life Insurance
Intermediaries Study for the seventh consecutive year,
remaining the only five-star rated insurer in the market at this
time.
Business Banking grew its average deposit volumes by
19 percent and the loan portfolio grew to $A5.2 billion as at
31 March 2015, up from $A4.1 billion in the prior year. It also
delivered new solutions to improve SME clients’ business
productivity including managing billing, collections and office
administration, with the number of SME clients increasing
13 percent over the year.
Outlook
Subject to the risks identified on pages 7 and 8, BFS currently
expects its result for the year ending 31 March 2016 to be up
on the year ended 31 March 2015.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
16
Macquarie Securities Group (MSG)
MSG is a global institutional securities house with strong Asia-Pacific foundations, covering sales, research, ECM, execution and
derivatives activities.
Cash Division Derivatives and Trading Divisions
Operates as a full-service institutional cash equities broker in
Australia, Asia, South Africa and Canada, with a specialised
institutional cash equities broker offering in the US and Europe.
It provides an ECM service through a joint venture with
Macquarie Capital. Its key specialties include: financial
institutions; industrials; infrastructure, renewables and utilities;
resources (mining and energy); small-mid caps; and
telecommunications, media, entertainment and technology
(TMET).
Issues retail derivatives in key locations, provides Delta 1
products and equity finance solutions to its institutional client
base and conducts risk and trading activities.
Medium term
MSG’s medium term focus is to remain well positioned for
recovery in Asian retail derivatives, cash equities and ECM,
given it is highly leveraged to any improvement in market
conditions and return of investor confidence. MSG is focused
on monetising its existing strong research platform and is
positioned to participate in the significant opportunity offered
as China liberalises foreign investment rules and increases
access to its mainland securities markets.
Performance
MSG reported a net profit of $A64 million for the year ended
31 March 2015, a decrease from the prior year profit of $A107
million. It generated net operating income of $A918 million, up
six percent on the prior year.
Brokerage income remained relatively flat while ECM activity
increased on the prior year largely driven by Australia. Certain
markets experienced favourable conditions which benefited
the derivatives and trading divisions. Operating expenses,
excluding brokerage, commission and trading-related
expenses, were up 11 percent on the prior year, largely due to
increased investment in platforms and processes driven by
regulatory compliance requirements, as well as restructuring
costs from the exit of Structured Products.
The Cash Division experienced mixed levels of activity, with
improved client activity in Australia and Europe, offset by
weaker client volumes across Asia and North America. MSG
maintained its leading positions for Australian equities ranked
equal No.1 by Australian institutional investors in the 2014
Peter Lee Associates Survey. Its global research coverage
totals more than 2,300 listed companies, highlighting the
extent of its market and industry knowledge. MSG reached a
new high in US stock coverage during the year, driven by a
significant expansion of its US Emerging Leaders company
coverage and aligns the US with Macquarie's leading
small-mid cap franchise in Asia and Australia.
ECM activity continued to be strong in Australia, with notable
deals during the year including the $A5.7 billion Medibank
Private and $A3.6 billion Healthscope IPOs, as well as the
$A1.8 billion APA Group rights offering. Macquarie was ranked
No.2 by Dealogic and Thomson Financial for all equity raising
across Australia in calendar year 2014 and No.1 for IPOs by
value and number of deals completed.
The Derivatives and Trading Divisions benefited from
favourable market conditions in China combined with greater
market access due to quota increases and the launch of China
Stock Connect in November 2014 allowing international clients
to trade eligible China-A shares. Macquarie Bank Limited was
awarded an additional $US400 million of QFII quota by China’s
State Administration for Foreign Exchange during the year,
bringing its total approved quota to $US800 million. This
important development gives MSG the opportunity to continue
growing its investment footprint in China’s mainland
yuan-denominated securities markets.
MSG maintained its No.1 ranked market share in listed
warrants in Singapore, was No.3 in Thailand and No.7 in Hong
Kong. In October 2014, MSG launched its Malaysian
structured warrants business and achieved No.1 ranked
market share in the quarter ended 31 March 2015. Macquarie
is the only issuer in the region with an active presence in more
than two warrant markets and its launch in Malaysia confirms
MSG’s position as the leading warrant issuer in Asia by
coverage.
Outlook
Subject to the risks identified on pages 7 and 8, MSG currently
expects its result for the year ending 31 March 2016 to be up
on the year ended 31 March 2015.
17
Macquarie Capital
Macquarie Capital provides corporate finance advisory and capital market services to corporate and government clients involved in
public and private M&A, debt and equity fund raisings, private equity raisings and corporate restructuring. Macquarie Capital has built a
global corporate finance capability, strong client relationships and market expertise. Its advisory activities are aligned with expertise in
financial institutions; industrials; infrastructure, utilities and renewables; real estate; resources (mining and energy); and TMET.
Advisory Equity and Debt Capital Markets Principal Investments
M&A, structuring, divestments, takeover
responses, restructuring, project finance
and private capital expertise.
Underwriting and advising companies
seeking to raise equity including initial
listings on stock exchanges and
follow-on raisings. Debt advisory,
underwriting and lending services in
all major financial centres.
A specialised service using the
Macquarie balance sheet to help support
clients in developing their businesses
and achieving their goals. Macquarie
Capital invests across the capital
structure.
Medium term
Macquarie Capital focuses on regions and sectors where its
strong specialist capabilities can deliver client value. Macquarie
Capital is able to combine advice with access to capital by
deploying equity and debt in support of our clients and in
response to market opportunities.
Performance
Macquarie Capital contributed $A430 million to Macquarie’s
total profit from operating groups for the year ended 31 March
2015, up 54 percent on the prior year. It generated net
operating income of $A1.1 billion, up 29 percent on the prior
year.
The business advised on 470 transactions worth $A141 billion
during the year.
In Australia and New Zealand, Macquarie Capital
consolidated its leading market position in M&A, advisory,
public private partnerships and capital markets activity across
all industry sectors while continuing to partner with clients on
several large principal transactions. In the 2014 calendar year,
Macquarie Capital was ranked No.1 in Australia for number of
announced and completed M&A transactions by Thomson
Financial and Dealogic. Macquarie was also ranked No.1 in
Australia for IPOs and No.2 for Australian equity and equity
related deals in 2014.
Notable transactions for the region include:
– Adviser, Joint Lead Manager (JLM) and Bookrunner on
APA Group’s $A1.8 billion accelerated renounceable
entitlement offer in connection with the $A5 billion
acquisition of the QCLNG pipeline
– JLM on the $A5.7 billion IPO of Medibank Private, the
largest Australian IPO in 2014, and the second largest
Australian IPO ever
– Joint Global Co-ordinator on the $A3.6 billion IPO of
Healthscope Limited
– Joint Financial Adviser to QIC on the $A7 billion sale of
Queensland Motorways to a consortium comprising
Transurban, AustralianSuper and Tawreed Investments
Limited, the largest transport infrastructure M&A
transaction ever in Australia.
In Asia, Macquarie Capital’s regional footprint and broad
expertise allows Macquarie Capital to be a leader in
cross-border transactions including:
– Adviser to Emperador for its acquisition of Whyte &
Mackay from United Spirits for £430 million
– Joint Sponsor, Joint Global Coordinator, Joint
Bookrunner and JLM for the $US1.2 billion
(pre-greenshoe) IPO of China CNR Corporation Limited
– Adviser on the $US1 billion strategic alliance between
Piramal Enterprises and APG Asset Management focused
on mezzanine investments in Indian infrastructure.
In Europe, the Middle East and Africa, Macquarie Capital
has delivered solutions for its clients by combining advice with
its ability to deploy capital across its product range. This has
allowed Macquarie Capital to strengthen its position in
infrastructure, German midcaps and other more niche sectors.
Notable transactions include:
– Sole Sponsor and exclusive Financial Adviser to IHS
Lothian for the project finance facilities of £185 million to
the Royal Hospital for Sick Children PPP project in
Edinburgh
– Adviser to Salamander Energy plc’s Board on its
£314 million recommended acquisition by Ophir Energy
plc
– Adviser to Canada Pension Plan Investment Board in
relation to its £1.1 billion acquisition of Liberty Living,
the second largest off-campus student accommodation
owner-operator in the UK.
In the Americas, momentum continued across sectors and
products, including the following notable transactions:
– Adviser to Freeport LNG on its landmark $US11 billion
equity and debt raising to project finance its LNG export
facility in Texas
– Adviser to Bally Technologies on its $US5.1 billion sale to
Scientific Games
– Provided committed financing and acted as Bookrunner
on multiple capital markets transactions to support
SunEdison and Terraform Power’s $US2.4 billion
acquisition of First Wind
– Co-lead Underwriter for Osisko Gold Royalties Ltd’s fully
subscribed $C200 million private placement of Special
Warrants.
Outlook
Subject to the risks identified on pages 7 and 8, Macquarie
Capital currently expects its result for the year ending
31 March 2016 to be up on the year ended 31 March 2015.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Operating and Financial Review
for the financial year ended 31 March 2015
continued
18
Commodities and Financial Markets (CFM)
CFM provides clients with risk and capital solutions across physical and financial markets. CFM comprises the following divisions:
Commodities (Physical and Financial) Financial Markets (Primary and Secondary)
Energy Markets Metals, Mining & Agriculture Fixed Income & Currencies Credit Markets
Provides a full spectrum
offering to clients with
exposure to the energy
sector. The division provides
risk management, lending
and financing, and physical
execution and logistics
services across Global Oil,
North American Gas and
Power, EMEA Gas, Power
and Emissions, Australian
Power, and Coal.
Provides risk management,
lending and financing, and
physical execution and
logistics services to
producers and consumers
across the metals, industrial
minerals, bulk commodities
and agricultural sectors
globally. The division also
offers commodity-based
index products to institutional
investors.
Provides financial hedging,
finance and access to market
pricing for corporate and
institutional clients in foreign
exchange and fixed income
markets.
Facilitates client transactions
with institutional investors and
makes secondary markets in
corporate debt securities,
syndicated bank loans and
middle market loans, in
addition to providing specialty
lending for commercial
mortgage finance, asset-
backed and mortgage-
backed securities.
Futures
Provides a full range of execution, clearing and financing solutions to corporate and institutional clients, providing 24-hour coverage
of all major markets globally. The division has specialist expertise in energy, freight, grains and soft commodities as well as a market
leading position in Australian interest rate products.
Central
Fosters and develops various non-division specific, early stage or cross-divisional initiatives, as well as housing CFM-wide services
including Structured Commodity Finance, Cross-Product Sales, Structured Global Markets and Private and Structured Finance.
Medium term
Over the medium term, CFM remains focused on: pursuing
opportunities to grow its commodities business, both
organically and through acquisitions; developing institutional
coverage for specialised credit, rates and foreign exchange
products; increasing its financing activities; and growing its
client base across all regions.
Performance
CFM contributed $A835 million to Macquarie’s total profit from
operating groups for the year ended 31 March 2015, an
increase of 15 percent on the prior year. It generated net
operating income of $A1.8 billion, an increase of nine percent
on the prior year.
The improved result reflected a general improvement in market
conditions compared to the prior year.
Energy Markets was a significant contributor to CFM’s overall
result with revenues generated across the global energy
platform, particularly in Global Oil and North American Gas.
The realisation of a fee from Freeport LNG Terminal in Texas,
US, also contributed to the strong result. Macquarie Energy
was ranked by Platts as the No.3 US physical gas marketer in
North America.
Metals, Mining and Agriculture experienced continued
growth in its base metals platform across financing, physical
execution and hedging activities. Overall customer activity was
mixed, with improved activity in base metals and lower levels in
agriculture and precious metals. Further provisions for
impairment were taken on underperforming resources
investments and loans.
Fixed Income and Currencies benefited from increased client
volumes as volatility in foreign exchange and interest rate
markets improved, particularly in the second half. Transaction
flows across securitisation and origination businesses
continued to grow, particularly in the UK and Europe. The
international customer base continued to grow during the year.
Credit Markets in the US were mixed, influenced by the
continued low interest rate environment, increased liquidity in
Europe and the end of US Federal Reserve quantitative easing.
New issuance volumes and fees in Debt Capital Markets
increased as M&A activity increased, while investor demand for
high yield products continued to increase as credit spreads
tightened.
Futures volumes were mixed during the year but improved in
the second half due to increased market volatility and
associated client activity, particularly in commodity and energy
markets. Macquarie maintained its No.2 overall market share
ranking in ASX24 Futures during the year.
Outlook
Subject to the risks identified on pages 7 and 8, CFM currently
expects its result for the year ending 31 March 2016 to be
broadly in line with the year ended 31 March 2015.
This is the end of the Operating and Financial Review.
Corporate Governance Statement
19
Macquarie’s approach to Corporate
Governance
Macquarie’s approach to corporate governance, which has
remained largely consistent over time, is to:
– promote the long term profitability of Macquarie while
prudently managing risk
– drive superior and sustainable shareholder value over
the long term through the alignment of the interests of
shareholders and staff
– meet stakeholder expectations of sound corporate
governance as part of Macquarie’s broader
responsibility to clients, shareholders, investors and
the communities in which it operates.
Macquarie recognises that a key factor in delivering long
term shareholder returns is providing superior services to
clients. Macquarie's Code of conduct sets out the way staff
are expected to do business.
Macquarie is a global financial services provider with a
diverse range of activities across different locations. Its
shares are listed on the Australian Securities Exchange
(ASX). Macquarie is regulated by APRA, the Australian
banking regulator, as the NOHC of Macquarie Bank Limited,
an ADI. APRA's prudential standards include governance
and risk management requirements. A number of Macquarie
subsidiaries are supervised by regulators in the overseas
jurisdictions in which they operate. The notes to Macquarie’s
financial statements include a list of material subsidiaries of
the company.
Macquarie's governance practices were consistent with the
recommendations in the 2
nd
edition of the ASX Corporate
Governance Council's Principles and Recommendations
(ASX Recommendations) throughout the year. A summary of
the ASX Recommendations and reference to the applicable
Macquarie governance practice is available on Macquarie's
website at macquarie.com/leadership-corporate-governance
During FY2015 Macquarie reviewed its corporate
governance and reporting practices in light of the new 3
rd
edition of the ASX Recommendations and expects to be
consistent with the 3
rd
edition of the ASX Recommendations
from 1 April 2015.
This Corporate Governance Statement has been approved
by the Board.
Corporate Governance framework
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Corporate Governance Statement
continued
20
Board oversight
The primary role of the Board is to promote Macquarie's
long term health and prosperity. The Board Charter details
the Board's role and responsibilities which include approving
strategy, adopting an annual budget, approving Macquarie's
RAS and risk management strategy, appointing Macquarie's
Chief Executive Officer and considering matters relating to
remuneration and diversity.
Macquarie’s Constitution sets out requirements concerning
the setting of board size, meetings, election of directors
and the powers and duties of directors. In accordance with
the Constitution, the Board has resolved that the maximum
number of Voting Directors (Directors) is currently ten.
A copy of the Constitution and Board Charter are available
on Macquarie's website at macquarie.com/leadership-
corporate-governance
The Macquarie Board consists of ten Directors, nine of
whom are independent. Kevin McCann, an independent
Director, is Chairman. Nicholas Moore, Macquarie’s
Managing Director and Chief Executive Officer (CEO), is the
only executive Board member.
During the year, Gordon Cairns was appointed to the Board
effective from 1 November 2014 and Helen Nugent and
Peter Kirby retired on 24 July 2014. Schedule 1 of the
Directors' Report includes each Director's experience and
date of appointment to the Board.
The table below sets out the current composition of the
Board and the membership of each Board Committee.
Members’ attendance at Board and Board Committee
meetings during the past year is set out in the Directors’
Report.
Responsibilities of management
The Board has reserved certain matters for its approval as
set out in the Board Charter. It has delegated speci?c
authorities to its various Board Committees which are
detailed in each Board Committee Charter. The Board also
determines delegations to Management, approves relevant
limits and reviews business developments for consistency
within the Board-approved RAS and risk management
strategy.
The CEO has been granted authority for those matters not
reserved for the Board or a Board Committee. Macquarie’s
Management Committees assist in the exercise of the CEO’s
delegated authority. The CEO, the Chief Risk Officer (CRO)
and the Chief Financial Officer (CFO) report to the Board at
each monthly Board meeting. In addition to regular reporting
from Management, the Board has unlimited access to senior
management as well as external advisers.
The Company Secretary is appointed by and accountable to
the Board, through the Chairman, for matters relating to the
proper functioning of the Board.
Board and Board Committee membership
Macquarie
Board Audit
Governance
and
Compliance Nominating Remuneration Risk
Macquarie Independent Directors
Kevin McCann AM
(1)
Chairman Chairman Member Member
Gary Banks AO Member Member Member Member
Gordon Cairns Member Member Member Member
Michael Coleman Member Chairman Member Member Member
Patricia Cross Member Member Member Chairman
Diane Grady AM Member Member Member Member Member
Michael Hawker AM Member Member Chairman Member Member
Nicola Wakefield Evans Member Member Member Member Member
Peter Warne Member Member Chairman Member
Macquarie Managing Director and Chief Executive Officer
Nicholas Moore
(1)
Member
(1)
The Chairman and the CEO attend meetings of Board Committees of which they are not a member as a matter of course.
21
Board Committees
Macquarie’s five standing Board Committees assist the
Board in its oversight role. Each Board Committee has an
independent director as its Chairman. All Board members
are sent Board Committee meeting agendas and may attend
any Board Committee meetings. Subsequent to each Board
Committee meeting, the minutes are included in the Board
papers and presented to the Board by the respective Board
Committee Chairmen.
The Risk, Audit, Governance and Compliance, Nominating
and Remuneration Committees comprise members who are
independent directors. The Board Committee Charters,
detailing the responsibilities of each Committee and how
they exercise their authority, are available on Macquarie’s
website at macquarie.com/leadership-corporate-governance
Allocation of responsibilities between
Board Committees
The Board Risk Committee (BRiC) assists the Board by
providing oversight of the implementation and operation of
Macquarie's risk management framework and advising the
Board on Macquarie's risk position, risk appetite, risk culture
and risk management strategy. The BRiC receives
information on material risks and external developments that
may have an impact on the effectiveness of the risk
management framework.
The Board Audit Committee (BAC) assists the Board with
its oversight of the integrity of the financial statements. The
BAC is also responsible for reviewing the adequacy of the
Group’s control framework for financial regulatory reporting
to banking regulators and monitoring the internal financial
control environment. The BAC reviews reports from the
external auditor and Internal Audit, referring matters relating
to the duties and responsibilities of the BRiC and Board
Governance and Compliance Committee to the appropriate
Committee.
The Board Remuneration Committee (BRC) makes
recommendations to the Board that promote appropriate
remuneration policies and practices for the Macquarie
Group consistent with Macquarie Group’s risk
management framework. The BRC is responsible for
liaising with the BRiC to ensure there is effective
co-ordination between the two Committees to assist in
producing a properly integrated approach to remuneration
that reflects prudent and appropriate risk. The BRC is also
responsible for liaising with the BAC in relation to
remuneration related disclosures in the remuneration report.
The Board Governance and Compliance Committee
(BGCC) has responsibility for recommending to the Board
the most appropriate corporate governance policies for the
Macquarie Group and for assisting the Board in fulfilling its
responsibility for oversight of the compliance framework of
the Group. In addition, it has oversight of Macquarie’s work
health and safety practices and environmental and social risk
management policies.
The Board Nominating Committee (BNC) is responsible for
assisting the Board to ensure that it has an appropriate mix
of skills, experience and diversity to be an effective decision-
making body in order to provide successful oversight and
stewardship of Macquarie.
Director Independence
Macquarie recognises that independent directors have an
important role in assuring shareholders that the Board is
able to act in the best interests of Macquarie and
independently of Management.
The independence of Non-Executive Directors (NEDs) is
reviewed annually by the BGCC and then considered by the
Board as part of its review of the BGCC minutes. Based on
Macquarie’s criteria for assessing director independence,
each independent Director is asked to confirm whether they
have any material interests or relationships with Macquarie
that could interfere with the exercise of their independent
judgement. There were no material or substantial
relationships noted by Directors in their annual declaration.
Some of the Directors hold or have previously held positions
in companies and professional service providers with which
Macquarie has commercial relationships. All dealings with
these companies and with professional service providers are
and have been on arm's length commercial terms. Each
Director's date of appointment, experience and directorships
are set out in Schedule 1 of the Directors' Report.
Consistent with the 3
rd
edition of the ASX
Recommendations, the following interests or associations of
the type described in the commentary to the relevant
recommendation were noted by the BGCC. Mr McCann has
been on the Board for a period that exceeds Macquarie's
tenure policy, and a family member of Mr Coleman is
employed as a Division Director of Macquarie. BGCC
members considered that neither factor impacts their
independence because, in the course of Board deliberations,
they demonstrate independent judgement and an objective
assessment of all matters before the Board.
Similarly, the BGCC has determined that there are no
interests or relationships that could materially interfere with
each of the other NEDs' ability to act independently of
management and in the best interests of Macquarie.
Therefore, excluding the CEO, all Directors continue to be
independent.
Directors are able to consult independent experts at
Macquarie’s expense, subject to the estimated costs
being approved by the Chairman in advance as being
reasonable, and also have unlimited access to senior
management of Macquarie.
Macquarie's criteria for assessing director independence,
including materiality thresholds, is available on the Macquarie
website at macquarie.com/leadership-corporate-governance
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Corporate Governance Statement
continued
22
Board Renewal
The Board with the assistance of the Board Nominating
Committee regularly assesses the skills, experience and
diversity required collectively for the Board to effectively fulfil
its role. Macquarie’s Policy on Board Renewal and
Appointment of Directors sets out the fundamental factors
relevant to the selection and appointment of new Directors
and is available on Macquarie’s website at macquarie.com/
leadership-corporate-governance
The Board is comprised of highly experienced senior
business leaders from a variety of professional backgrounds
who each meet the fundamental requirements and,
collectively, possess the skills, experience and diversity
considered necessary to appropriately govern an ASX-listed
global financial services provider.
A summary of the key skills and experience of the ten
members of the Board is set out below.
Skills and experience
No. of
Directors
Financial Services/Retail Banking 8
Investment Banking/Corporate
Banking/Financial Markets/Funds
Management
9
Financial acumen 10
Listed company board experience 9
International background/experience 9
Senior management role 9
Accounting 2
Law 3
Human capital management 8
Business development and strategy 10
Regulation and public policy 8
The qualifications, skills and experience of the individual
members of the Board are set out in Schedule 1 of the
Directors' Report.
New NEDs are appointed for three 3-year terms from first
election by shareholders. The Board has discretion to extend
a NED's term of appointment if the Board determines that
extending the term will be of significant benefit to Macquarie.
At the 2014 Annual General Meeting (AGM), consistent with
the Board's recommendation, shareholders re-elected the
Chairman, Kevin McCann, for a further three-year term.
Director appointment, induction and development
In accordance with Macquarie's Fit and Proper Policy, prior
to appointing a person to the Macquarie Board, appropriate
background checks are undertaken. New Directors stand for
election at the first AGM following their appointment. The
notice of meeting provides shareholders with material
information relevant to a decision as to whether to elect a
Director including their skills, experience, other directorships
and an acknowledgement that they will have sufficient time
to fulfil their responsibilities as a Director.
All new Directors receive an appointment letter setting out
the key terms and conditions of their appointment. They also
undertake an induction program covering relevant matters
such as Board practices and procedures, prudential
requirements and briefings with senior management. NEDs
identify business awareness needs on an ongoing basis and
regular Board workshops are held during the year. In
addition to workshops, the Board travels to various
Macquarie overseas offices annually and the Chairman also
visits other Macquarie overseas operations at least annually.
Board performance
The Board and Directors
The Board reviews its performance and the performance of
each Director on an annual basis with emphasis on those
individual Directors who are required to stand for re-election
at the next AGM. Material information relevant to a decision
on whether or not to re-elect a Director, is provided to
shareholders in the explanatory notes to Macquarie's notice
of meeting.
The process for conducting the review is agreed by the
Board. Typically the process includes individual interviews by
the Chairman or an external facilitator with each Director,
and the use of a questionnaire to cover matters such as:
– the Board’s contribution to developing strategy
and policy
– the Board’s performance relative to its objectives
– interaction between the Board and Management and
between Board members
– the Board’s oversight of business performance and
compliance, risk controls and management
– Board composition, including consideration of relevant
skills and structure
– the operation of the Board, including the conduct of
Board meetings and group behaviours.
A nominated independent Director or an external facilitator
provides feedback to the Chairman on the Chairman’s
performance based on discussion with the other Directors.
A written report summarising the results, issues for
discussion and recommendations is presented to the Board
and discussed at a Board meeting.
The Board’s review in FY2015 was conducted internally and
for FY2016 will be conducted with the assistance of an
external facilitator, both in accordance with the process
described above.
23
Board Committees
As part of the Board's annual performance evaluation,
the functioning of the Board Committees is reviewed. Each
Board Committee also undertakes a periodic review of its
performance, at least biennially. The process for the review
also includes use of a questionnaire and discussion of the
outcomes, including recommendations, which is led by the
Chairman of the respective Board Committee.
A summary of the processes adopted by Macquarie for
Board and Key Executive Performance Review is available on
Macquarie’s website at macquarie.com/leadership-
corporate-governance
Performance of key executives
Formal processes have been adopted by Macquarie to
review the performance of Macquarie’s most senior
executives. The BRC oversees the process for the CEO’s
annual performance review.
As part of the annual review, the CEO prepares a formal
report on his performance and presents to the NEDs. The
NEDs review performance by considering a range of
indicators including financial position and performance,
people and culture, sustainability (planning and investment in
the future) and community. A similar process is followed to
review the performance of the CEO of Macquarie Bank. The
NEDs also have regard to any risk management and
compliance matters as reported by the CRO.
The CEO evaluates, at least annually, the performance of the
Operating Group Heads, the CRO, the CFO and the Chief
Operating Officer (COO). Performance criteria vary according
to the individual’s role. Factors relevant to assessing
performance include (as appropriate) financial performance,
risk management and compliance, business leadership and
people leadership (including upholding Macquarie's Code of
conduct). The CEO reports to the BRC on the performance
of these key executives and recommends individual senior
executive remuneration for Board approval.
The Board and the CEO seek to ensure that remuneration
for the CRO is determined in a way that preserves the
independence of this function and maintains Macquarie’s
robust risk management framework.
A performance evaluation for senior executives has taken
place during the year in accordance with the process
described above. Further detail on the remuneration policy
and performance review for Executive Key Management
Personnel is found in the Remuneration Report in the
Directors’ Report.
Ethical and responsible decision-making
Code of conduct
The Code, which has been approved by the Board,
incorporates What We Stand For: the principles of
Opportunity, Accountability and Integrity that guide the way
staff conduct business. The Code provides clear guidance to
staff on good decision making and escalation, encouraging
staff to speak up and report genuine concerns about
misconduct. The Code reinforces Macquarie's policies in
relation to the protection of whistleblowers. The Code also
summarises the standards, policies and processes regarding
conflicts of interest, disclosure and corruption.
To ensure that Macquarie's culture of honesty and integrity
remains strong throughout the organisation, all staff who join
Macquarie receive specific training on What We Stand For
and the Code. Existing staff also receive training and sign an
annual declaration that they have reviewed the Code.
A copy of What We Stand For and the Code are available on
Macquarie’s website at macquarie.com/what-we-stand-for
Integrity office
Macquarie established the Integrity Office in 1998. In
addition to providing an independent and confidential point
of escalation for staff to raise concerns, the Integrity Office
works with business groups to support staff in good decision
making and to promote the principles of What We Stand For.
The Integrity Office is responsible for Macquarie's externally
managed staff hotline that enables staff to report suspected
breaches of the Code, or other misconduct, anonymously.
The Integrity Office reports directly to the CEO and provides
an annual report to the BGCC.
Dealing with potential conflicts
Failure to identify a conflict of interest can give rise to
considerable harm to Macquarie's relationship with clients
and its reputation. Before entering into a transaction,
undertaking any dealing (either directly with clients or
otherwise), or undertaking any fiduciary role, appropriate
checks are undertaken.
Macquarie has systems and protocols in place to identify a
conflict of interest and a framework for managing conflicts.
It is the responsibility of each business head to ensure that
conflicts of interest are adequately managed and that their
business is conducted in accordance with applicable laws,
regulations, rules and statements of regulatory policy.
Macquarie has adopted a variety of measures to manage
conflicts of interest, including Macquarie-wide policies and
divisional policies, systems, lists, information protocols
and appropriate disclosures. The appropriate mechanism
to manage a conflict will depend on the circumstances and
nature of the conflict. Conflict management arrangements
at Macquarie are subject to the oversight function of the
Compliance Division within RMG.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Corporate Governance Statement
continued
24
The Board has guidelines for its members for declaring and
dealing with potential conflicts of interest that include:
– board members declaring their interests as required
under the Corporations Act 2001 (Cth) (the Act), the
ASX Listing Rules and general law requirements
– board members with a material personal interest in a
matter before the Board do not receive the relevant
Board paper and are not present at a Board meeting
during the consideration of the matter and subsequent
vote, unless the Board (excluding the relevant Board
member) resolves otherwise
– board members with a conflict not involving a material
personal interest may be required to absent themselves
from the relevant deliberations of the Board.
Macquarie Bank is a subsidiary of Macquarie, and the
Macquarie Bank Board is ultimately responsible for the
sound and prudent management of Macquarie Bank,
with due consideration for the interests of deposit holders.
Where potential conflicts arise, Management will provide
Directors of the relevant Board with sufficient information to
manage conflicts appropriately.
Staff and Director trading
Macquarie’s personal dealing policies apply to Directors
and all Macquarie staff. They identify the principles by which
Macquarie balances personal investment interests against
the responsibility of Macquarie and its staff to ensure that all
personal dealing and investment activities are conducted
appropriately. Key aspects of Macquarie’s personal dealing
policies include:
– pre-clear securities trading: Directors and staff must
pre-clear their securities trading with Macquarie
– trading windows: Generally, Directors and staff may
only trade in Macquarie securities and related
derivatives during designated trading windows. These
are typically of three to five weeks duration and follow
Macquarie’s announcement of its interim and full year
results and after the AGM
– excluded dealings: Certain types of transactions such
as acquisition of securities under an employee share
plan or participation in the dividend reinvestment plan
may be effected outside a trading window without
pre-clearance
– trading prohibition while in possession of material
non-public price-sensitive information: In all cases
Macquarie prohibits Directors and staff from dealing
in any security, including a Macquarie security, if they
possess non-public price-sensitive information about
or affecting the relevant security
– deferred and unvested equity awards, retained
shares and minimum shareholding requirements
cannot be hedged: Staff are not permitted to
undertake any action that is designed to limit their
exposure to Macquarie shares that are subject to
retention arrangements, or their deferred and unvested
equity awards. NEDs may not enter into a transaction
that operates to limit the economic risk of their
Macquarie shareholding below their minimum
shareholding requirement
– net short positions not permitted: Directors and staff
are not permitted to take net short positions in
Macquarie shares or any securities in Macquarie-
managed funds.
Macquarie's Trading Policy sets out the restrictions that
apply to dealing in Macquarie securities by Macquarie staff,
including Key Management Personnel, and is available on its
website at macquarie.com/leadership-corporate-governance
Each member of the Board is encouraged to consider
positions in a Macquarie security as a long term investment
and is not permitted to trade derivatives relating to a
Macquarie security without the prior approval of the
Chairman (or the CEO in the case of the Chairman). Board
members and Key Management Personnel are also required
to annually disclose to Macquarie any financing
arrangements relating to their Macquarie securities and
manage their financing arrangements in accordance with
Macquarie’s policies.
Corporate governance in Macquarie-managed
funds
Macquarie’s expertise in managing fund assets and sourcing
new value-adding opportunities is a key attraction for
investors in Macquarie-managed funds (Funds).
The Funds' governance standards adopt an appropriate
governance framework to ensure that key decisions are
taken in the best interests of investors consistent with the
fund’s mandate and regulatory requirements.
The key elements of Macquarie’s corporate governance
framework for Funds are:
– appropriate management of conflicts of interest arising
between a Fund and its related parties. Related party
transactions should be identified clearly, conducted on
arm’s length terms and tested by reference to whether
they meet market standards. Decisions by listed Funds
about transactions with Macquarie or its affiliates should
be made by parties independent of Macquarie
– appropriate resourcing of funds management
businesses. In particular:
– staff involved in managing a Fund should be
dedicated to the relevant funds management
business, rather than to advisory or other activities
– all recommendations to Fund boards (and
supporting information) should be prepared or
reviewed by funds management staff
– each listed Fund that invests in operating assets or
businesses should have its own managing director
or chief executive officer and a majority of
independent directors on the Fund board
– information barriers operate to separate
Macquarie’s corporate finance, advisory and ECM
businesses from its funds management
businesses.
25
Diversity
The diversity of our people remains fundamental to
Macquarie’s success. Macquarie’s Workforce Diversity
Policy defines Macquarie’s diversity commitment and
the structures in place to ensure it is realised. The principles
contained in our Workforce Diversity Policy are incorporated
in the Our Commitment to Workforce Diversity statement
available on Macquarie's website at macquarie.com/diversity
Macquarie has implemented an extensive range of programs
and initiatives to support the achievement of its diversity and
inclusion strategy over the past year.
Macquarie’s measurable objectives for achieving diversity are
detailed in the Diversity Report.
Macquarie and the community
Macquarie engages in the wider community through the
Macquarie Group Foundation (the Foundation). Together
with Macquarie staff, the Foundation has contributed more
than $A240 million to over 2,500 community organisations
since its inception in 1985. Staff also volunteer at a number
of community organisations globally. In the
year ended 31 March 2015, the Foundation and Macquarie
staff contributed approximately $A24.2 million.
Further information is included in the Macquarie Group
Foundation section of this Annual Report.
Commitment to shareholders and an
informed market
Macquarie believes that shareholders, regulators, ratings
agencies and the investment community should be informed
of all major business events and risks that influence
Macquarie in a factual, and timely manner. Macquarie has a
continuous disclosure policy that is incorporated in the
External Communications Policy.
It is Macquarie’s policy that any price-sensitive material for
public announcement, including annual and interim profit
announcements, release of financial reports, presentations
to investors and analysts, and other prepared investor
briefings for Macquarie and Macquarie Bank, will:
– be factual and reviewed internally before issue
– not omit material information
– be timely and expressed in a clear and objective
manner.
Macquarie's continuous disclosure procedure includes
reference to and consideration by Macquarie's Disclosure
Committee as appropriate. A summary of the External
Communications Policy is available on Macquarie’s website
at macquarie.com/leadership-corporate-governance
Macquarie has an investor relations program to facilitate
effective two-way communication with investors and
analysts, to provide a greater understanding of Macquarie’s
business, performance, governance and financial prospects.
Shareholder meetings
Macquarie typically holds its AGM in July of each year.
Macquarie encourages shareholders to participate in general
meetings and aims to choose a date, time and venue
convenient to its shareholders. For shareholders who are
unable to attend in person, Macquarie provides a webcast
of its AGM and any other general meetings. The results of all
resolutions are lodged with ASX after the meeting as soon as
they are available.
This year Macquarie’s AGM will be held in Sydney, Australia.
Other general meetings may be held as required during the
year.
Macquarie’s auditor is required to attend each AGM and be
available to answer questions about the conduct of the audit,
and the preparation and content of the auditor’s report.
Notices of meeting are accompanied by explanatory notes
on the items of business and together they seek to clearly
and accurately explain the nature of business of the meeting.
Shareholders, if unable to attend the meeting, are encouraged
to vote on the proposed motions by appointing a proxy. The
proxy form included with a notice of meeting will explain how
to appoint a proxy.
Online proxy voting is also available to shareholders. Unless
specifically stated in a notice of meeting, all holders of fully
paid ordinary shares are eligible to vote on all resolutions.
Macquarie seeks that its shareholder meetings are
conducted in a manner which is courteous for those
attending. In the interests of attending shareholders, the
chair of the meeting will exercise his or her powers as the
chair to ensure that the meeting is conducted in an orderly
and timely fashion.
A shareholder calendar is available on Macquarie’s website
at macquarie.com/investors
Macquarie’s website
Macquarie’s website contains recent announcements, past
and current reports to shareholders, including summaries of
key financial data, and copies of recent notices of meeting.
There is also a link allowing investors to register to receive
email notification of Macquarie public announcements.
Shareholders can also elect to receive communications
electronically by contacting the share registry.
Recent AGM webcasts, year-end and interim results
presentations and operational briefing presentations
are available on Macquarie’s website at
macquarie.com/investors
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Corporate Governance Statement
continued
26
Financial reporting
On behalf of the Boards of Macquarie and Macquarie Bank,
the BAC monitors:
– the integrity of Macquarie’s financial reporting and the
operation of the financial reporting processes. The
processes are aimed at providing assurance that the
financial statements and related notes are complete, in
accordance with applicable legal requirements and
accounting standards, and give a true and fair view of
Macquarie’s financial position. During its review of
Macquarie’s interim and year-end financial reports the
BAC meets with the external auditor in the absence of
Management
– the external auditor engagement. The BAC reviews the
appointment, the terms of the engagement and the
performance of the external auditor before making
recommendations to the Board on the appointment
and removal of the external auditor
– the operation of Internal Audit and Credit Assurance
(CA). The BAC reviews the independence, appointment,
performance and remuneration of the Head of the
Internal Audit Division (IAD), as well as monitoring the
effectiveness of Internal Audit. It also provides oversight
of the IAD and CA annual plans
– Macquarie’s control framework for financial regulatory
reporting to banking regulators.
Auditor independence
Before the approval of the interim and year-end financial
reports, the BAC reviews the independence of the external
auditors in accordance with the Act, the Macquarie Auditor
Independence Policy, and the BAC Charter.
Macquarie’s Auditor Independence Policy requires BAC
approval, or between meetings the approval of the BAC
Chairman, for material non-audit work performed by its
auditors. Also under the policy, which reflects Australian legal
requirements, Macquarie’s lead auditor and review auditor
must be rotated every five years unless the Board grants
approval to extend the term for up to a further two years.
Mr Kim Smith of PricewaterhouseCoopers (PwC) is
Macquarie’s lead auditor for FY2015.
The BAC Charter and the External Auditor Policy Statement
describe key aspects of Macquarie’s Auditor Independence
Policy and external auditor selection process. They are
available on Macquarie’s website at
macquarie.com/leadership-corporate-governance
Chief Executive Officer and Chief Financial Officer
declaration
The Macquarie and Macquarie Bank Boards have each
received written confirmation from their respective CEO and
CFO that their statement given to the Board in accordance
with section 295A of the Act is founded on a sound system
of risk management and internal control and the system is
operating effectively in all material respects in relation to
financial reporting risks.
Oversight of risk management
Macquarie’s approach to risk management is detailed in the
Risk Management Report and is available on Macquarie’s
website at macquarie.com/leadership-corporate-governance
The Board monitors significant business risks and reviews how
they are managed. The Board also monitors Macquarie's risk
management framework, including by forming a view of
Macquarie's risk culture and approving Macquarie's risk
appetite statement and risk management strategy.
All independent Directors are members of the BRiC to
provide oversight of the implementation and operation of
Macquarie's risk management framework and constructively
challenge Management’s proposals and decisions on risk
management arising from the Group's activities.
The CRO is a member of Macquarie’s Executive Committee
and reports directly to the CEO. The CRO has a secondary
reporting line to the BRiC which approves the replacement,
appointment, reassignment or dismissal of the CRO. The
CRO presents on risk matters at the BRiC meeting, and in
months where there is no scheduled BRiC meeting, at the
Board meeting. During the year, senior management has
reported to the Board on the effectiveness of risk
management and internal control systems in addressing
material risks.
At the executive management level, senior management
committees focus on strategic issues, operational issues,
material transactions, the management of risk and review the
performance of Macquarie on a monthly basis. There are
also other committees where senior specialists focus on
speci?c risks as appropriate. The Market Risk Committee
and the Asset and Liability Committee are examples of these
committees.
Internal audit
IAD provides independent assurance to Management and
the Board on the adequacy and operational effectiveness of
Macquarie's internal control, risk management and
governance systems and processes. IAD findings are
reported to the BAC. The Head of IAD is jointly accountable
to the BAC and the CRO. The BAC approves the
replacement, appointment, reassignment or dismissal of the
Head of IAD.
27
Environmental, Social and Governance risk
Macquarie’s Board and Management view the commitment
to Environmental, Social and Governance (ESG) performance
as part of their broader responsibility to clients, shareholders
and the communities in which Macquarie operates.
Macquarie’s approach is detailed in the ESG Report.
Macquarie has continued efforts to: manage ESG risks in its
business activities; advance environmental management;
and pursue investments, markets and products with an ESG
focus, including in renewable energy and energy efficiency.
Macquarie values its people and continues to invest in the
development and well-being of its diverse talent base.
A Global Reporting Initiative (GRI) index is available on
Macquarie's website.
Oversight of remuneration arrangements
The Board of Directors oversees Macquarie’s remuneration
arrangements, including executive remuneration and the
remuneration of Macquarie’s NEDs. The Board is assisted by
the BRC. The BRC annually reviews that Macquarie's
remuneration approach remains appropriate and creates a
strong alignment of staff and shareholders’ interests while
prudently managing risk.
Unlike Macquarie executives, NEDs are not granted equity,
nor are they eligible to receive bonus payments. They do
not receive payments on their retirement from office other
than payments accruing from superannuation contributions
comprising part of their remuneration. Macquarie’s NEDs are
remunerated for their services from the maximum aggregate
amount approved by shareholders, currently $A4 million.
Details of Macquarie’s approach and the amount of
remuneration paid to NEDs are contained in the
Remuneration Report in the Directors’ Report.
To align the interests of the Board with shareholders, NEDs
are required to progressively acquire a minimum of 6,000
shares in Macquarie over a period of five years from the
date of their appointment. During the year, the Board
introduced a minimum shareholding requirement for the
Chairman of 12,000 Macquarie shares to be achieved within
three years of becoming Chairman.
Each NED’s remuneration and current Macquarie
shareholding are set out in the Key Management Personnel
disclosure in the Remuneration Report and in the notes to
the financial statements in the Financial Report.
Details of the nature and amount of remuneration (including
non-monetary components such as equity grants) for each
Executive Voting Director and the members of the Executive
Committee as well as Macquarie’s remuneration policies and
practices are set out in the Remuneration Report.
This is the end of the Corporate Governance Statement.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Macquarie Group Foundation Review
28
Macquarie’s approach to philanthropy is to support staff in
identifying the needs of their local communities globally.
In 2015, as the Foundation celebrates its 30th anniversary,
it continues to encourage staff to address these needs through
the giving of their time, expertise and financial support. The
Foundation is also committed to social innovation, working
with its community partners to drive sustainable community
benefits over the long term.
In the year ended 31 March 2015, the Foundation celebrated
its employee-led focus by establishing an inaugural Foundation
Week. Together with the Foundation's financial support,
Macquarie employees raised more than $A1 million for
hundreds of non-profits during a 9-day community
engagement initiative.
This contribution was part of the approximately $A24.2
million
(1)
provided to 1,300 community organisations by staff
and the Foundation globally over the year, together with
approximately 33,500 hours of voluntary community service.
Staff recognition
The Foundation recognises staff activity in a number of ways.
Its annual Staff in the Community Awards acknowledge
outstanding staff volunteering, fundraising and pro bono efforts
at an individual, team and office level, with financial support
extended to the charities involved.
In addition, Macquarie’s staff matching policy provides up to
$A25,000 for individual donations or fundraising and up to
$A100,000 for team fundraising.
A highlight of Macquarie’s staff fundraising in the year ended
31 March 2015 was the Movember campaign, for which
Macquarie was one of the top three global corporate
fundraisers. Together with Foundation matching, more than
$A313,000 was raised by employees for men’s health. This
means that, since 2009, more than $A3 million has been
contributed to Movember by Macquarie staff and the
Foundation.
Pro bono expertise
A distinguishing feature of Macquarie’s philanthropy is its focus
on building the capacity of community organisations through
the professional expertise of Macquarie’s staff.
During the year, the Foundation, working with Macquarie’s
Learning and Development team, linked Macquarie director-
level employees to non-profit organisations in need of skilled
volunteering in Sydney, London, Hong Kong and New York
City. The Macquarie Director Program aims to support
non-profits in effectively addressing their objectives, while staff
have the opportunity to develop leadership and project
management skills outside of their day-to-day roles.
Social innovation
Throughout its 30-year history, the Foundation has sought to
pioneer new approaches to corporate philanthropy. During
FY2015, one of its initiatives in this area – the Macquarie David
Clarke Social Innovation Fellowship established in Australia in
2012 – was extended to the UK, Hong Kong and New York
City.
This Fellowship, valued at $A20,000, encourages CEOs of
non-profits to visit and research best practice social innovation
around the world. The following CEOs were recognised:
– Jennifer Mitchell, The HOPE Program, New York
– Anita Grover, Auditory Verbal, UK
– Paul Edginton, SYC and Scott Harris, Beacon
Foundation, joint winners, Australia
– Alia Eyres, Mother’s Choice, Hong Kong.
In addition, Macquarie’s $100,000 Social Innovation Award
recognises, rewards and promotes new ideas that meet
pressing community social needs. The winner of the 2014
Award was Perth-based Fogarty EDvance for its school
improvement program.
Long term partnerships
The Foundation builds sustained relationships with non-profit
partners by extending grants in some cases over three to five
years. With many of these partners, there is also a deep level
of Macquarie staff engagement. The long term nature of these
relationships allows for certainty of funding within these
organisations and the ability to leverage support from other
funders.
Examples include:
– Asha Foundation (India): Macquarie has supported Asha
since 2012 through an internship program in its Gurgaon
office for university students from slum communities. The
Foundation provided a grant to Asha in 2013 and then a
further three-year grant in 2014 to help extend its work
across health, education and development initiatives
– BIG (Businesses for Islington Giving) Alliance (UK): the
Foundation provided seed funding to the BIG Alliance
when it was established in 2012, helping facilitate
business volunteering with local charities and schools in
the London district
– LEADS (US): since 2008, in conjunction with Columbia
University's Double Discovery Center, Macquarie’s New
York City employees have offered a four month mentoring
program – that includes a month-long, paid summer
internship at Macquarie – to local high school students who
are the first in their families to attend college
– The Song Room (Australia): Macquarie has supported the
Song Room since 2004 through a number of multi-year
grants for different projects, including online arts
education, research and social enterprise development.
The Foundation also notes that in FY2015 the Hayden
Reynolds Tiwi College Project, supported by Macquarie since
2010, recorded $A2 million in fundraising for education and
training facilities for Tiwi Island youth.
Further information regarding Macquarie staff community
initiatives and organisations supported by the Foundation is
available at macquarie.com/community.
(1)
Comprising Foundation matching support for staff donations
and fundraising; Foundation donations to commemorate staff
attaining 10-year and 25-year anniversaries at Macquarie;
Foundation participation grants to staff who have been on a
non-profit board for more than 12 months; and Foundation
grants to community organisations.
This is the end of the Macquarie Group Foundation Review.
Diversity Report
29
As a company which operates globally, the diversity of
Macquarie's people is fundamental to its success. Macquarie’s
ongoing commitment to workforce diversity ensures its
business remains innovative, sustainable and continues to
meet the evolving needs of its clients.
Macquarie's range of experiences, skills and views are key
strengths and critical to the wide range of services the Group
delivers across the globe.
Macquarie is committed to:
– attracting a broad range of candidates
– applying fair and robust selection processes
– providing a workplace that is inclusive of all individuals
– providing the relevant structures and work environment to
best support its people to reach their full potential in the
workplace
– allocating pay and advancement opportunities in a fair
and equitable way with a view to both merit and the
markets and business environments in which Macquarie
operates.
All executives, managers and employees are responsible for
promoting workforce diversity and inclusion. Each region is
supported by dedicated diversity representatives who,
together with the regional diversity committees, implement the
organisation’s global objectives while responding to business
or location specific priorities and circumstances.
Global Diversity Policy
Macquarie’s Workforce Diversity Policy defines Macquarie’s
workforce diversity commitment and the structures in place to
ensure it is realised. The principles contained in Macquarie's
Workforce Diversity Policy are incorporated in the Our
Commitment to Workforce Diversity statement available on
Macquarie’s website at macquarie.com/diversity
Composition of workforce and female
representation
The table below outlines the proportion of women employed
globally at Macquarie over the last five years.
As at 31 March 2011
(%)
2012
(%)
2013
(%)
2014
(%)
2015
(%)
Board of
Directors
25.0 33.3 30.0 36.4 30.0
Executive
Committee
8.3 10.0 18.2 20.0 23.1
Division Head
(1)
9.9 11.1 14.4 16.8
Senior
Executive
(2)
12.5 12.9 13.8 13.6 13.9
Macquarie
Workforce
37.3 36.9 36.8 37.0 37.5
(1)
Division Head refers to critical roles across Macquarie.
It typically includes executives two layers down from the CEO.
Note female representation at Division Head was not reported
in 2011.
(2)
Senior Executive refers to Macquarie’s combined Division
Director and Executive Director population.
At the end of the year, Macquarie’s permanent workforce
comprised approximately 44.4 percent located in ANZ,
19.7 percent located in the Americas, 26.5 percent located in
Asia and 9.4 percent located in Europe, the Middle East and
Africa. Flexible work is accommodated where possible and all
part-time and full-time employees have eligibility for the same
types of benefits, unless there is a local legal or regulatory
requirement to restrict eligibility on that basis.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Diversity Report
continued
30
Diversity objectives
The Workforce Diversity Policy provides that each year the Board will set measurable objectives for achieving gender diversity. For
the year ended 31 March 2014, the Board endorsed a revised set of diversity objectives that are meaningful, measurable and
broader than gender.
The diversity objectives are set out in the following table.
Diversity objectives
Strategic
imperative
Long term outcome
sought
Objective
Diverse
workforce
Increase the representation
of women at Macquarie at
all levels.
– increase female representation at senior leadership levels:
– Board of Directors
– Executive Committee
– Division Head
– Senior Executive.
– expand efforts to increase the number of women in the finance industry by
promoting finance careers to female secondary school and university students
– require female representation on all recruitment shortlists and ask ‘if not, why
not?’
– improve gender balance on Intern and Graduate programs
– recruit female lateral hires in proportion to the underlying female candidate pool as
a minimum requirement.
Inclusive
workplace
Provide an inclusive and
flexible workplace,
underpinned by policies
that support individuals to
reach their full potential.
– provide technology and maintain policies to support flexible work arrangements
– provide leave benefits and maintain policies to support parental leave
– provide parents and carers support prior to, during and upon return from leave
– continue to participate in and sponsor networking and development programs
focusing on women and other traditionally under-represented groups in areas
such as race/ethnicity and disability.
Robust
meritocracy
Embed equity and
transparency in all people
practices and processes
including remuneration,
promotion, succession,
retention, performance
and development.
– maintain pay equity for like roles and performance
– maintain equality for men and women in promotion decisions
– require that participation in development and leadership programs is
representative of the underlying workforce demographics
– retain women in same proportion as men
– maintain high return to work rates for staff on parental leave
– maintain high retention of staff returning from parental leave.
Integration
and
awareness
Further integrate and build
awareness of diversity and
inclusion objectives into the
day-to-day operations of
the organisation to become
part of the way Macquarie
does business.
– embed the principles of diversity and inclusion into all Human Resources related
policies, processes and programs to ensure the highest and fair standards in how
Macquarie hires, develops, pays and promotes staff
– measure and assess diversity statistics in relation to these activities and decisions,
holding management accountable for inclusive practices.
31
Progress FY2015
Macquarie has implemented an extensive range of programs
and initiatives to support the achievement of its diversity and
inclusion strategy over the past year.
Diverse workforce
Macquarie aims to promote a workforce that is reflective of the
diversity within the communities in which it operates.
Macquarie’s ongoing commitment to achieving gender
balance at the leadership levels of the organisation is
demonstrated in the strong female representation on the
Board and Executive Committee and improving representation
at Division Head and Senior Executive levels.
Macquarie's focus continues to be on developing the internal
and external female talent pipeline at both junior and senior
levels and enhancing its recruitment processes to facilitate this.
Consequently the majority of all roles filled globally during
FY2015 had at least one female candidate on the shortlist and
women were hired in greater proportion than the underlying
female application rate. Additionally, female representation on
both graduate and intern programs increased globally in
FY2015 over FY2014.
Macquarie continues to sponsor female university societies
and to actively participate in industry-wide diversity initiatives.
Macquarie launched a series of initiatives in secondary
schools, hosting events aimed toward high-performing
students studying maths, economics or commerce or with an
interest in finance to educate students on the breadth of
opportunities available within the financial services industry.
Macquarie will continue to be actively involved with industry
groups focused on addressing gender balance with an aim to
leverage initiatives relevant to the secondary school and tertiary
student population.
Inclusive workplace
In recognition of the importance of empowering staff to
manage their work and time as effectively as possible,
Macquarie provides policies to support flexible work
arrangements in all regions. Flexibility is offered in response to
a range of reasons including family or carer’s responsibilities,
pursuit of further studies, recreational reasons such as sporting
commitments or community work, phased retirement or a
career break.
Where possible, Macquarie offers its staff the opportunity to
work flexibly in relation to hours, days and place of work in all
regions and may include, for example, flexi-time (having a
different or flexible start/finish time), purchased leave, job share
and working from home.
Macquarie supports working parents and those with carer’s
responsibilities through a variety of means. Employee network
groups were launched in FY2015 in Australia and Asia to
support people with family and carer’s responsibilities. In
Sydney, Macquarie has well established relationships at two
childcare centres which offer childcare services to permanent
employees. Macquarie also offers casual places through these
centres to respond to the need for flexible childcare
arrangements. Other initiatives include ‘Care for Kids’ (an online
portal for working parents providing access to research and
resources), backup childcare, backup adult and eldercare,
childcare vacancy and emergency childcare search and return-
to-work coaching for parents.
Macquarie participated in internship programs designed for
Indigenous students and those with a disability by partnering
with CareerTrackers and Australian Network on Disability in
FY2015. In addition Macquarie partnered with the East London
Business Alliance, an organisation focused on placing
university graduates from disadvantaged East London
backgrounds and communities. Macquarie continues to
actively participate in sponsorship, mentoring and networking
programs, both internally and externally in all regions, including
the Chief Executive Women’s Leaders Program, the Women in
Banking and Finance Mentoring program and the FTSE 100
Mentoring Program. Additionally the first Macquarie cross-
business group mentoring program will be launched in Asia in
2015 providing the opportunity to build a more diverse
leadership pipeline for Macquarie in Asia and to enhance
collaboration across groups and country boundaries.
Robust meritocracy
Macquarie aims to attract and retain a diverse range of
candidates, ensuring meritocracy in hiring, reward and
promotion decisions. To achieve this Macquarie embeds
equity and transparency in all people-related practices and
processes:
– conscious decision-making training is embedded in core
talent programs, recruitment processes and remuneration
and promotion criteria, complemented by targeted
training in specific business groups and regions
– the staff induction program and the Macquarie Director
Program both include modules specifically focused on
Macquarie’s diversity and inclusion objectives
– a review of remuneration outcomes is conducted annually
to ensure pay equity for like roles and performance across
all groups and regions
– a promotion decision framework analyses and reports on
any gender discrepancies in promotion outcomes
– Executive Committee members have diversity-related
metrics included in annual performance assessments.
The female participation rate in the core leadership
development program, the Macquarie Director Program, is
higher than the underlying female representation at director-
level and female participation continues to grow at an
increasing rate.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Diversity Report
continued
32
Macquarie has improved its already very high return to work
rate and continues to achieve high retention rates globally for
those staff who have taken parental leave. Furthermore over
the past year there has been no discrepancy between female
versus male turnover.
Integration and awareness
Macquarie is committed to an inclusive workplace and ensuring
that workforce diversity is an integral part of the way it does
business. It continues to invest in promoting and supporting
opportunities for staff to engage in initiatives such as business or
region-specific ‘Diversity Weeks’, international days of
celebration such as International Women’s Day, International
Day Against Homophobia and Transphobia and World Aids Day.
FY2015 has seen a targeted expansion of our employee
networking groups in all regions to provide staff with
opportunities to exchange ideas, build relationships and to
support Macquarie’s diversity and inclusion strategy. Employee
network groups now exist in the areas of Gender Equality,
Pride (for Lesbian Gay Bisexual Transgender and Intersex
(LGBTI) staff and allies), Families and Carers, Heritage and
Culture, Wellness and First Australians.
In particular our Pride network has developed significantly over
the past year, implementing gender transition support
guidelines for individuals wishing to transition, providing
training programs focusing on LGBTI awareness and
supporting community partnerships and fundraising activities.
These efforts have seen Macquarie improve its ranking in the
2014 Australian Workplace Equality Index, a national
benchmark on LGBTI workplace inclusion.
Spotlight on diversity and inclusion training
Macquarie recognises the value that effective training and
development can have on an organisation’s diversity and
inclusion practices and outcomes and offers a range of
solutions to employees globally.
LGBTI awareness training is available to all employees in
Australia, which emphasises the importance of allowing
people to be themselves without fear of repercussions.
The training explains why LGBTI inclusion is important to
Macquarie and outlines some of the unique challenges
faced by LGBTI employees.
Similarly, targeted conscious decision-making training has
been implemented to provide key populations with skills to
improve the quality of decision-making and recognise how
unconscious bias can affect perceptions, judgements and
interactions in the workplace.
In recognition that flexibility is a key enabler of workforce
diversity, in FY2015 Macquarie implemented training
targeted at managing a flexible workforce, providing
practical tips and information on how managers and teams
can help to support the various arrangements of their
colleagues.
A series of career and networking events have also been
implemented in Australia to provide employees with the
opportunity to hear from senior leaders on their diverse
range of experiences across a variety of topics. The topics
were selected based on what Macquarie believes will
enable a more diverse workforce and inclusive workplace
and include, for example, raising your professional profile,
sponsorship and mentoring and achieving balance.
This is the end of the Diversity Report.
Risk Management Report
33
Risk governance at Macquarie
The primary role of the Board is to promote Macquarie's long
term health and prosperity. Macquarie's robust risk
management framework supports the Board in its role and the
oversight of the framework is a top priority for the Board.
The Board monitors significant business risks and reviews how
they are managed. It also monitors Macquarie's risk
management framework, which includes forming a view of
Macquarie's risk culture, and approving Macquarie's RAS and
risk management strategy. The Board determines delegations
to management, approves relevant risk limits and policies, and
reviews business developments for consistency with the risk
appetite and strategy of Macquarie.
The BRiC assists the Board by providing oversight of the
implementation and operation of Macquarie's risk
management framework and constructively probing Senior
Management's proposals and decisions on risk management
arising from the Group's activities. The BRiC assists the Board
with its oversight of Macquarie's risk profile, risk appetite, and
risk culture. The BRiC receives information on breaches of the
policy framework and external developments that may have
some impact on the effectiveness of the risk management
framework. The Board is also assisted by the BAC, BRC and
BGCC.
The Head of RMG, as Macquarie’s CRO, is a member of
Macquarie’s Executive Committee and reports directly to the
CEO. The CRO has a secondary reporting line to the BRiC.
The BRiC approves the replacement, appointment,
reassignment or dismissal of the CRO and also reviews the
performance and remuneration of the CRO.
Committees exist at the executive management level to ensure
that the necessary elements of expertise are focused on
specific risk areas. The Macquarie and Macquarie Bank
Executive Committees focus on strategic issues as well as
material transactions. The Group Risk and Compliance
Committee (GRCC) is responsible for monitoring the operation
of key risk frameworks, internal controls and Macquarie's
approach to governance. There are other committees where
senior specialists focus on specific risks as appropriate.
The Market Risk Committee and the Asset and Liability
Committee (ALCO) are examples of these committees.
While committees oversee Macquarie’s risk appetite and risk
acceptance processes, risk acceptance decisions are
ultimately delegated to individuals to ensure that approvers are
accountable when signing off on risk acceptance decisions.
Macquarie's risk management framework
The acceptance of risk is an integral part of Macquarie’s
businesses. Strong independent prudential management has
been a key to Macquarie’s success and stability over many
years. Where risk is assumed, it is within a calculated and
controlled framework that assigns clear risk roles and
responsibilities represented by ‘three lines of defence’.
The primary responsibility for risk management lies at the
business level, which forms the first line of defence. Part of the
role of all business managers throughout the Macquarie
business units is to ensure risks are managed appropriately.
The risk management function forms the second line of
defence and independently assesses all material risks. The
third line, which includes internal audit, independently reviews
and challenges the group’s risk management controls,
processes and systems.
Macquarie’s core risk management principles have remained
stable and continue to be highly effective. These are:
– ownership of risk at the business level: Operating
Group Heads are responsible for identifying risks within
their businesses and ensuring that they are managed
appropriately. Before taking decisions, clear analysis
of the risks is sought to ensure risks taken are consistent
with Macquarie's risk appetite and strategy. Business
ownership of risk is an essential element in understanding
and controlling risk
– understanding worst-case outcomes: Macquarie's risk
management approach is based on examining the
consequences of worst case outcomes and determining
whether these are acceptable. This approach is adopted
for all material risk types and is often achieved by stress
testing. In particular, Macquarie's market risk framework
is based primarily on the application of stress tests, rather
than statistical models. The effectiveness of this approach
was demonstrated over the recent past. Shocks
observed in the markets generally remained within
Macquarie's stress scenarios, resulting in very few of our
worst case loss scenarios being exceeded. While
Macquarie operates a number of sophisticated
quantitative risk management processes, the foundation
of its risk management approach is the informed
consideration of both quantitative and qualitative inputs
by highly experienced professionals
– requirement for an independent sign off by risk
management: Macquarie places significant importance
on having a strong independent RMG that is charged with
signing off all material risk acceptance decisions. It is
essential RMG has the capability to do this effectively and
hence RMG has invested in recruiting skilled
professionals, many with previous trading or investment
banking experience. For all material proposals, RMG's
opinion is sought at an early stage in the decision-making
process and independent input from RMG on risk and
return is included in the approval document submitted
to senior management.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
34
Macquarie’s risk culture is well established
Macquarie recognises that a sound risk culture is a
fundamental requirement of an effective risk management
framework. The long-held foundations of Macquarie's risk
culture are the principles of What We Stand For – Opportunity,
Accountability and Integrity. These principles are expected to
form the basis of all day-to-day behaviours and actions.
Macquarie drives behaviours in keeping with these principles
through extensive and purpose-designed management
frameworks and controls including policies, standards and
processes. Senior management measure and monitor risk
culture indicators and constantly seek opportunities for
improvement. Senior management learn from the past and
from industry and use that knowledge to further strengthen
Macquarie's risk culture. Macquarie has robust remuneration
and consequence management policies which further support
adherence to the expected behaviours.
Key aspects supporting Macquarie's risk culture include:
– the Code which has been approved by the Board,
incorporates What We Stand For. It focuses on the
accountability of every staff member in managing the risks
associated with their respective roles and the
consequences of their actions. It encourages staff to
speak up, escalate concerns and report mistakes,
provides an overview of the important policies with which
all staff are expected to be familiar and outlines key
supervisory principles
– Macquarie's businesses are fundamentally client
based. Therefore, greater emphasis is placed across
Macquarie on fostering long term relationships with our
clients and building franchise businesses as opposed
to short term profits from proprietary trading
– consideration of worst-case scenarios is part of
everyday risk controls rather than supplementary to
them. Even though the worst-case scenarios are often
in excess of what has been historically observed, they
play a major role in influencing and limiting positions
particularly for extreme loss events. For example,
Macquarie applies limits to contingent losses from an
instantaneous 40 percent gap move in stock prices. This
effectively constrains trading divisions from issuing well
out of the money options and encourages hedging of
extreme loss events. Macquarie has over 14,000
contingent loss limits that consider a variety of worst case
scenarios
– the role of risk management staff is one of active
engagement in risk-taking decisions. In accordance
with the principle of risk ownership, the primary risk
analysis and initial decisions to reject or accept a
transaction are taken by Operating Groups. In its review
of a new proposal, RMG provides an independent
confirmation of the risk acceptance decision. RMG works
closely with the deal team and shares the goal of making
the transaction successful by requiring improvements to
the transaction terms where applicable. Strong emphasis
is placed on transferring knowledge to transaction teams
so that the same risk management principles are applied
to future proposals from an early stage
– Macquarie’s remuneration policy for senior
management encourages a long term view in decision
making. It discourages excessive risk taking as incentives
are aligned with the long term profitability of the firm
through retention of remuneration and equity
participation. The principles behind Macquarie's current
remuneration structure have been in place for
many years.
Macquarie’s risk culture supports its ability to operate within
the Board-approved RAS. The behaviour expectations that are
overseen by the Board and executed by management such as
individual accountability, ‘compliance is not optional’ and the
fair treatment of clients are consistent with the principles in the
RAS. In addition these behavioural expectations encourage
staff to comply with the processes, limits and policies that put
the principles of the RAS into operation.
Risk appetite setting
The Board reviews and endorses Macquarie's risk appetite as
part of the annual corporate strategy review process. Risk
appetite is the nature and amount of risk that the Group is
willing to accept. At Macquarie this is outlined in the Board-
approved RAS.
The RAS sets out the degree of risk Macquarie is willing to
take overall and for each material risk type. It also conveys the
process for ensuring that risk limits (tolerances) are set at an
appropriate level, monitored and reviewed.
The statement is put into operation via the following key
methods: New Product and Business Approval process,
aggregate and specific risk limits, relevant policies, and
communication and training. These are discussed further
below.
New product and business approval process
All new businesses and significant changes to existing
products or processes are subject to a rigorous approval
process. Approval requires confirming that the proposal is
consistent with the principles stated in the RAS. The process is
interactive and results in constructive dialogue on risk matters.
This formal process is designed so that the proposed
transaction or operation can be managed properly and does
not create unknown or unwanted risks for Macquarie in the
future. All relevant risks (for example, market, credit, equity,
legal, compliance, taxation, accounting, operational and
systems) are reviewed to ensure that they are identified and
addressed prior to implementation (including ongoing risk
monitoring processes). The approvals of RMG, Finance
Division, Taxation Division, LGL and other relevant
stakeholders within Macquarie are obtained. RMG also checks
that all necessary internal approvals are obtained prior to
commencement.
For all material transactions, independent input from RMG
on the risk and return of the transaction is included in the
approval document submitted to senior management.
The Operational Risk function within RMG oversees the
new product and business approval process.
35
RMG Internal Audit performs an audit of the operations of any
significant new businesses based on an assessment of the
associated risk faced by Macquarie. The audit typically takes
place within six to twelve months following acquisition or
launch and includes confirmation that operations are in line
with the new product approval document.
Limits
In many cases limits translate risk appetite principles into hard
constraints on individual businesses.
These consist of specific risk limits given to various businesses
and products or industry sectors as well as the Global Risk
Limit that constrains Macquarie’s aggregate level of risk.
Macquarie sets the Global Risk Limit with reference to earnings
and not just capital. The limit is set in such a way that in a
prolonged and severe downturn, losses would be covered by
earnings and surplus capital, and market confidence in
Macquarie is maintained.
In accordance with Macquarie’s ‘no limits, no dealing’
approach, individual credit and equity exposures must also fit
within approved counterparty limits. Market risk exposures are
governed by a suite of individual and portfolio limits.
These granular limits are set to allow businesses to achieve
their near-term plans and promote a reassessment of the
opportunity and associated risks as the limit is approached.
Relevant policies
Policies expand on the principles found in the RAS and often
translate them into what must be done operationally by an
individual or business.
Policies are communicated regularly to key staff. Director-level
staff attend mandatory risk management framework and policy
training on a regular basis. Training programs for specific
policies are also in place.
Communication and training
The RAS is available for all staff to access and is referred to in
the Code which is a document that must be read by all staff.
In addition, the principles in the RAS are communicated to
relevant staff by other formal and informal training programs.
Requirement to consider risk-adjusted returns
The RAS states that Macquarie pursues an appropriate and
resilient long term return on its capital and that transactions
must generate returns in proportion to the risks. In line with
this, proposals for all significant new deals, products and
businesses must contain an analysis of risk-adjusted returns.
Risk capacity is allocated to activities that earn an appropriate
reward for the risk. This is a binding discipline on risk
acceptance to ensure the risk-return trade-off does not
deteriorate. The level of acceptable return for any proposal
must also account for strategic fit and broader risk analysis
(for example tail risk and concentration).
Existing businesses are subject to regular risk-return
monitoring and reporting. Risk-adjusted performance metrics
for each division are a significant input into performance based
remuneration.
Risk Management Group
RMG’s oversight of risk is based on the following five
principles:
Independence
RMG, which is responsible for assessing and monitoring
risks across Macquarie, is independent of Macquarie's
operating groups, and the Head of RMG, as Macquarie’s
CRO, reports directly to the CEO with a secondary
reporting line to the BRiC. RMG approval is required for all
material risk acceptance decisions.
Centralised prudential management
RMG’s responsibility covers the whole of Macquarie.
Therefore, it can assess risks from a Macquarie-wide
perspective and provide a consistent approach across
all operating areas.
Approval of all new business activities
Operating areas cannot undertake new businesses or
activities, offer new products, or enter new markets
without first consulting RMG. RMG reviews and assesses
risk and sets prudential limits. Where appropriate, these
limits are approved by the Executive Committee and the
Board.
Continuous assessment
RMG continually reviews risks to account for changes in
market circumstances and developments within
Macquarie’s operating areas.
Frequent monitoring
Centralised systems exist to allow RMG to monitor credit
and market risks daily. RMG staff liaise closely with
operating and support divisions.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
36
RMG structure and resourcing
Effective risk management is not only a function of disciplined processes but also of imaginative analysis by talented individuals.
RMG attracts high calibre candidates. It recruits experienced individuals both from within Macquarie and externally and is a source
of talent for Macquarie’s Operating Groups when recruiting.
While RMG is structured into specialist teams as detailed below, we employ an integrated approach to risk analysis and
management across risk classes. RMG’s assessment and monitoring of risks involves a collaborative effort across the teams
to ensure that a detailed analysis takes place both at the individual and aggregate risk level.
(1)
Financial Crimes Compliance includes anti-money laundering, anti-bribery and corruption and sanctions.
37
RMG staff numbers as at 31 March 2015 were 641, which is a
16 percent increase over the year. This was largely driven by
additional resources required in RMG Compliance in response
to the developing regulatory environment.
Ratio of RMG headcount to total Macquarie
(1)
(1)
Headcount numbers only include permanent, active staff
(full-time and part-time). Figures prior to FY2011 have not
been restated to account for business compliance staff who
joined RMG in FY2011 and FY2013.
To ensure that risks are managed in a controlled manner,
about half of total RMG staff as at 31 March 2015 were based
outside of Australia. All offices are subject to the same risk
management controls and standards. This is supported by
regular staff communication and visits to international offices.
Consistent with the concept of Operating Groups owning risk,
specific day-to-day operations are more appropriately
discharged and embedded within the Operating Groups. This
applies particularly to the management of compliance and
operational risk. The majority of these functions are discharged
within the Operating Groups as follows:
– a significant number of RMG Compliance staff are
co-located with the business and ensure that day-to-day
compliance obligations are discharged at the business
level. These staff report into their Regional Head of
Compliance and ultimately into the Head of RMG
Compliance
– Business Operational Risk Managers (BORMs) are
appointed by the Operating Group Heads to be their
representative on operational risk management matters,
and act as their delegate in ensuring that operational risk
and standards are addressed appropriately within their
division.
Risk management and monitoring
The risk management framework incorporates active
management and monitoring of market, credit, equity, liquidity,
operational, compliance, regulatory and legal risks. It is
designed to ensure policies and procedures are in place to
manage the risks arising within each division. Application varies
in detail from one part of Macquarie to another; however,
the same risk management framework applies across all
business activities.
Credit risk
Credit Risk is defined as the risk of a counterparty failing
to complete its contractual obligations when they fall due.
The consequent loss is either the amount of the loan not paid
back or the loss incurred in replicating a trading contract with
a new counterparty.
RMG Credit maintain a comprehensive and robust framework
for the identification, analysis and monitoring of credit risks
arising within each business. Key aspects of this framework
are discussed below.
Analysis and approval of exposures
The Macquarie and Macquarie Bank Boards are responsible
for establishing the framework for approving credit exposures.
The Boards delegate discretions to approve credit exposure to
designated individuals within Macquarie whose capacity to
exercise authority prudently has been assessed.
Operating Groups are assigned modest levels of credit
discretions. Credit exposures above these levels are assessed
independently by RMG and approved by senior RMG staff,
the CEO and the Boards as required.
Macquarie enforces a strict 'no limit, no dealing' rule:
all proposed transactions are analysed and approved
by designated individuals before they can proceed.
All wholesale credit exposures are reviewed at least once a
year, or more frequently if required. Retail credit exposures are
monitored on a portfolio basis.
Independent analysis
RMG Credit works closely with the Operating Groups to
identify the risks inherent in Macquarie’s businesses, and
provide independent analysis commensurate to the level and
nature of risks.
Credit risk analysis is focused on ensuring that risks have been
fully identified and that the downside risk is properly
understood and acceptable so that a balanced assessment
can be made of the worst case outcome against the expected
rewards. Downside analysis includes stress testing and
scenario analysis.
Macquarie does not rely on quantitative models to assess
credit risk in our wholesale portfolio, but uses fundamental
credit analysis to make credit risk acceptance decisions.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
38
Macquarie Group ratings
Macquarie has established a proprietary internal credit rating
framework to assess counterparty credit risk. Macquarie
ratings are used to estimate the likelihood of the counterparty
defaulting on financial obligations. The Macquarie ratings
system ensures a consistent assessment of borrower and
transaction characteristics across Macquarie and provides the
mechanism for meaningful differentiation of credit risk.
Each Macquarie rating maps to a Probability of Default
estimate. All wholesale counterparties and certain individual
facilities are assigned a Loss Given Default estimate reflecting
the estimated economic loss in the event of default occurring.
All wholesale exposures are allocated a Macquarie rating on a
scale that broadly corresponds to Standard & Poor's and
Moody's Investor Services credit ratings. Credit Assurance,
located within RMG Credit provide independent assurance of
the effectiveness of credit processes and controls.
Measuring and monitoring exposures
Credit exposures for loans are evaluated as either the full
current face value or where appropriate the acquisition cost
when acquired in the secondary market.
Credit exposures for derivatives are a function of potential
market movements. Portfolio credit exposure is determined
using a high-confidence-level portfolio revaluation on the
assumption of Macquarie having to go to the market to replace
defaulting deals at the worst possible time during the active life
of the portfolio. The RMG Credit Analytics team proposes and
regularly reviews the market risk factor evolution models that
are used in generating the possible market moves. The models
are back-tested to ensure that they would have provided
the required confidence level over a representative historical
period. Evolution model and portfolio credit exposure reviews
are conducted using a combination of fundamental and
technical analysis and adjustments are made for market
liquidity, risks associated with physical delivery and other
significant risks.
Where trading gives rise to settlement risk, this exposure is
assessed as the full face value of the settlement amount.
All credit exposures are regularly monitored against limits.
To mitigate credit risk, Macquarie makes use of margining and
other forms of collateral or credit enhancement techniques
(including guarantees and letters of credit, the purchase of
credit default swaps and mortgage insurance) where
appropriate.
A review of the credit portfolio that involves monitoring
credit concentrations by counterparty, country, risk type,
industry and credit quality is carried out and reported to the
GRCC quarterly and Board semi-annually. Policies are in place
to manage credit risk and avoid unacceptable concentrations
to any counterparty or country.
Loan impairment review
All exposures are subject to recurring review and assessment
for possible impairment. Provisions for loan losses are based
on an incurred loss model that recognises a provision where
there is objective evidence of impairment at each balance date,
and is calculated based on the discounted values of expected
future cash flows.
Specific provisions are recognised where specific impairment
is identified. Facilities for which no individually assessed
provision is required are assessed collectively for impairment
and are representative of losses that have been incurred but
not yet identified.
Impaired assets have increased over the past year. This has
been driven in part by foreign currency movements.
39
Ratio of provisions and impaired assets to loans and leases
Notes:
— Loan assets exclude securitised mortgages, securitised Macquarie Capital loans/leases, segregated future funds and receivables in the
form of fees
— Net impaired assets and net losses exclude investment securities
— Collective provision (as per Note 11 of the Financial Report) is intended to cover losses inherent in the existing overall credit portfolio that
are not yet specifically identifiable
— Net credit losses represent total profit and loss impact in the stated period due to additional individually assessed provisions and direct
write-offs net of any write-backs
— Please refer to Note 12 of the Financial Report for further information on impaired assets.
Country risk
Country risk is defined as losses arising from events in a country that include an act of government, war, terrorism, civil strife or
economic crisis.
The Country Risk Policy guides the management of Macquarie’s country risk. Countries are grouped into categories based on the
country’s risk profile. Before any exposure is taken in a country that is considered to be high risk, a review of the economic, political
and operating environment is undertaken to determine the level of exposure that is considered to be acceptable. Where
appropriate, measures to mitigate country risk are put in place.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
40
Market risk
Market risk is the exposure to adverse changes in the value of
Macquarie’s trading portfolios as a result of changes in market
prices or volatility. Macquarie is exposed to the following risks in
each of the major markets in which it trades:
– foreign exchange and bullion: changes in spot and
forward exchange rates and bullion prices and the
volatility of exchange rates and bullion prices
– interest rates and debt securities: changes in the level,
shape and volatility of yield curves, the basis between
different debt securities and derivatives and credit
margins
– equities: changes in the price and volatility of individual
equities, equity baskets and equity indices
– commodities and energy: changes in the price and
volatility of base metals, agricultural commodities and
energy products.
Macquarie is also exposed to the correlation of market
prices and rates within and across markets.
Macquarie has long favoured transparent scenario analysis
over complex statistical modelling as the cornerstone of risk
measurement.
Trading market risk
All trading activities contain calculated elements of risk taking.
Macquarie is prepared to accept such risks provided they are
within agreed limits, independently and correctly identified,
calculated and monitored by RMG, and reported to senior
management on a regular basis.
RMG monitors positions within Macquarie according to a limit
structure that sets limits for all exposures in all markets. Limits
are applied at a granular level to individual trading desks,
through increasing levels of aggregation to Divisions and
Operating Groups, and ultimately, Macquarie. This approach
removes the need for future correlations or scenarios to be
precisely predicted as all risks are stressed to the extreme and
accounted for within the risk profile agreed for each business
and Macquarie in aggregate.
Limits are approved by senior management with appropriate
authority for the size and nature of the risk, and Macquarie
adheres to a strict ‘no limit, no dealing’ policy. If a product
or position has not been authorised and given a limit structure by
RMG, then it cannot be traded. Material breaches of the
approved limit structure are communicated monthly to the
Macquarie and Macquarie Bank Boards. RMG sets three
complementary limit structures:
– contingent loss limits: worst-case scenarios that shock
prices and volatilities by more than has occurred
historically. Multiple scenarios are set for each market
to capture the non-linearity and complexity of exposures
arising from derivatives
– position limits: volume, maturity and open position limits
are set on a large number of market instruments and
securities in order to constrain concentration risk and
to avoid the accumulation of risky, illiquid positions
– Value-at-Risk (VaR) limits: statistical measure that
determines the potential loss in trading value at both
a business and aggregate level.
The risk of loss from incorrect or inappropriate pricing and
hedging models is mitigated by the requirement for all new
pricing models to be independently tested by the specialist
Quantitative Applications Division within RMG.
Aggregate measures of market risk
Aggregate market risk is constrained by two risk measures,
VaR and the Macro-Economic-Linkages (MEL) stress
scenarios. The VaR model predicts the maximum likely loss in
Macquarie’s trading portfolio due to adverse movements in
global markets over holding periods of one and 10 days. The
MEL scenario utilises the contingent loss approach to capture
simultaneous, worst case movements across all major
markets. Whereas MEL focuses on extreme price movements,
VaR focuses on unexceptional changes in price so that it does
not account for losses that could occur beyond the 99 percent
level of confidence. For this reason, stress testing remains the
predominant focus of RMG as it is considered to be the most
effective mechanism to reduce Macquarie's exposure to
unexpected market events.
Macro-Economic-Linkages
MEL calculates Macquarie’s total market risk exposure to global
market stress test scenarios extrapolated from historical crisis
events and global market correlations. Each stress test scenario
includes a primary shock to either equity or energy markets as well
as cross-market effects in corporate margins, metals, foreign
exchange, interest rates and commodities. MEL is Macquarie’s
preferred internal measure of aggregate market risk because of
the severity of the shocks applied and the ability for scenarios to
develop with changing market dynamics. MEL is monitored and
reported to senior management daily and to the Board regularly.
It is reviewed by RMG regularly to ensure the measure remains
appropriate for changing market conditions and the risks to which
Macquarie is exposed.
The ‘Market Contagion’ scenario, typically the most
conservative of the MEL stress test scenarios, accounts for all
the significant markets to which Macquarie is exposed. The
assumptions in this scenario are considerably more severe
than the conditions that prevailed throughout the Global
Financial Crisis. The 'Market Contagion' scenario measures
the impact of an instantaneous equity market crash of 20 to 40
percent as well as additional shocks to foreign exchange,
metals, interest rate, energy, agricultural commodity and credit
markets. Macquarie’s exposure to the ‘Market Contagion’
stress test scenario increased compared with last year as
trading businesses managed exposures while looking to take
advantage of increased trading activity. The average exposure
to the MEL stress test scenario represents less than six
percent of total equity.
41
Value-at-Risk
VaR provides a statistically based summary of overall market risk in Macquarie. The magnitude of VaR reflects changes in positions
as well as changes in market volatility and correlations and enhancements to the model. The integrity of the VaR model is tested
regularly against daily profit and loss.
The VaR model uses a Monte Carlo simulation to generate normally distributed price and volatility paths for approximately 3,200
benchmarks, using volatilities and correlations based on three years of historical data. Emphasis is placed on more recent market
movements to more accurately reflect current conditions. Each benchmark represents an asset at a specific maturity, for example
one year crude oil futures or spot gold. The benchmarks provide a high level of granularity in assessing risk, covering a range of
points on yield curves and forward price curves, and distinguishing between similar but distinct assets; for example crude oil as
opposed to heating oil, or gas traded in different locations. Exposures to individual equities within a national market are captured by
specific risk modelling incorporated directly into the VaR model.
Macquarie’s market risk, as measured by VaR, increased over the first half of the year from larger commodity exposures, and
peaked at the end of the year due to higher exposures to equities and interest rates. VaR remains modest in comparison to capital
and earnings and continues to represent less than 0.2 percent of total equity. The graph below shows the daily VaR and the six
month average VaR as a percentage of total equity.
Aggregate VaR
VaR (1-day 99 percent confidence level)
–
Average VaR to total equity
–
$A million %
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
42
VaR figures for year ended 31 March 2015 (1-day, 99 percent confidence level)
2015
Average
$Am
2015
Maximum
$Am
2015
Minimum
$Am
2014
Average
$Am
2014
Maximum
$Am
2014
Minimum
$Am
Equities 6.51 13.43 3.35 5.55 8.21 2.98
Interest rates 8.86 14.49 6.08 10.37 15.56 6.17
Foreign exchange and bullion 2.64 4.44 0.58 3.97 8.05 1.05
Commodities and energy 9.75 13.75 6.80 13.08 20.89 7.36
Aggregate 13.96 23.76 8.18 18.09 28.23 9.38
Trading revenue
The effectiveness of Macquarie’s risk management methodology can be measured by Macquarie's daily trading results. In light of
uncertain market conditions, the small quantity and magnitude of daily losses incurred by Macquarie are indicative of both an
effective risk management framework and business operations focused on servicing client needs.
Macquarie's market risk activities continue to be based on earning income from spreads, franchise businesses and client flows.
The majority of trading income is derived from client franchise activities rather than outright proprietary trading activity.
Macquarie’s trading approach has shown consistent profits and low volatility in trading results over time. This is evident in the graph
below, and reflects the client-based nature of trading activities. In FY2015 Macquarie made a net trading profit on 212 out of 261
trading days (2014 results: 220 out of 261 trading days).
Non-traded market risk
Macquarie also has exposure to non-traded interest rate risk, generated by banking products such as loans and deposits. Interest
rate exposures, where possible, are transferred into the trading books of CFM and the Group Treasury division and managed under
market risk limits. However, some residual interest rate risks remain in the banking book due to factors outside the interest rate
market or due to timing differences in accumulating exposures large enough to hedge. These residual risks in the banking book are
monitored and controlled by RMG and regularly reported to Senior Management.
Daily Trading Profit and Loss
43
Equity risk
Equity risk is the risk of loss arising from banking book
equity-type exposures. These exposures include:
– holdings in specialised funds managed by Macquarie
– principal exposures taken by MacCap, including direct
investments in entities external to Macquarie
– property equity, including property trusts and direct
property investments
– lease residuals
– other equity, including investments in resource
companies.
Equity Risk Limit
All of the above equity risk positions are subject to an
aggregate Equity Risk Limit (ERL). The ERL is set by the Board
with reference to the Risk Appetite Test that is described
further in the economic capital section. In setting the limit,
consideration is also given to the level of earnings, capital and
market conditions. The limit is reviewed on a semi-annual basis
by RMG and the results of the review are reported to the
GRCC and the Board.
Concentrations within the equity portfolio are managed by
a number of additional limits approved by the Executive
Committee and/or the Board. These include limits on:
– property equity investments
– investments in the resources sector
– lease residuals (by type of leased asset)
– co-investments and other assets of MacCap.
Transaction review and approval process
The division executing the transaction is responsible for
due diligence and risk analysis of each equity investment.
For material deals, RMG undertakes shadow due diligence and
performs a comprehensive analysis of all risks and potential
losses associated with the acquisition such as:
– market and credit risks
– regulatory, capital, liquidity and compliance requirements
– business, operational and reputation risks.
All material equity risk positions are subject to approval by
RMG and by the CEO, Executive Committee and the Board,
depending on the size and nature of the risk. RMG ensures
that the transaction is correctly represented to the relevant
approvers.
Operational risk
Macquarie defines operational risk as the risk of loss resulting
from inadequate or failed internal processes, people and
systems or from external events. Macquarie has established
procedures and controls to manage market, credit, reputation
and strategic risks. The potential for failure or inadequacy in
these procedures and controls is classified as an operational
risk. Operational risk failures could lead to reputation damage,
financial loss or regulatory consequences.
RMG is responsible for ensuring an appropriate framework
exists to identify, assess and manage all operational risks and
that resources are available to support it. RMG is also
responsible for Macquarie’s operational risk capital
measurement methodology.
The technology environment presents a key risk area for all
firms in the financial services sector including Macquarie.
The risk involves a potential compromise or loss of data, and
the potential loss of access to systems for employees and
customers. There has been an increase in attacks globally on
financial services firms from the internet, otherwise known as
cyber attacks. Macquarie continues to develop frameworks,
policies and procedures to ensure there is appropriate
protection in place, that monitoring is conducted to identify
attacks, and that reaction and recovery procedures exist to
manage an incident caused by a cyber attack.
Operational Risk Management framework
Macquarie’s Operational Risk Management Framework
(ORMF) is designed to identify, assess and manage
operational risks within the organisation. The key objectives of
the framework are as follows:
– risk identification, analysis and acceptance
– execution and monitoring of risk management practices
– reporting and escalation of risk information on a routine
and exception basis.
Businesses carry out elements of the ORMF in a manner
that is tailored to their specific operational risk profile.
However, to ensure consistency and minimum standards
the framework includes the following mandatory elements:
– a robust change management process to ensure
operational risks in new activities or products are
identified, addressed and managed prior to
implementation
– a semi-annual operational risk self assessment process to
identify operational risks at the business level, assess
controls and develop action plans to address deficiencies
– recording of operational risk incidents into a centralised
reporting system. Incidents are analysed to identify trends
and establish lessons learnt on the effectiveness of
controls
– allocation of operational risk capital to all Macquarie
businesses as a tool to further encourage positive
behavior in Macquarie’s day-to-day management
of operational risk
– Macquarie-wide policies that require a consistent
approach and minimum standards on specific operational
risk matters
– embedded operational risk representatives in Operating
Groups who act as delegates of the Operating Group
Head. These representatives are required to assess
whether operational risks are addressed appropriately
and that the ORMF is executed within their area.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
44
Macquarie’s operational risk capital framework
Macquarie’s framework for operational risk capital has two
main elements:
– an annual scenario approach for modelling operational
risk losses and to determine operational risk capital
– a quarterly scorecard analysis that is used to update
operational risk capital between scenario analyses, and as
a basis for updating the allocation of capital to
businesses.
Operational risk scenarios identify key risks that, while very low
in probability may, if they occurred, result in very high impact
losses. In identifying the potential for such losses consideration
is given to the individual statistical distribution for each
scenario, external loss data, internal loss data, risk and control
factors determined by the operational risk self assessments,
and the contribution of expert opinion from businesses.
Scenario estimates are then modelled to determine the
operational risk component of regulatory capital required to be
held by Macquarie at the 99.9
th
percentile. The model reflects
recent changes in operational risk capital regulatory
requirements.
Over time changes in operational risk capital reflect:
– new or significantly changed business activity or business
growth
– reduced risk arising from business stability and control
environment maturity
– changes in the external environment such as new
regulations or movements in the economic cycle.
Macquarie allocates capital to individual businesses. The
capital allocation effectively rewards positive risk behaviour and
penalises increased risks. This is done using scorecards that
measure changes in a number of key factors such as the size
and complexity of the business, risk and control assessments,
incident and exception management and governance. The
quarterly change in the sum of divisional capital is also used as
an estimate to update the Macquarie capital requirement
between annual assessments.
Assessment of aggregate risk
Macquarie has developed an economic capital model
that quantifies Macquarie’s aggregate level of risk.
The economic capital framework complements the
management of specific risk types such as equity, credit,
market and operational risk by providing an aggregate view of
Macquarie’s risk profile.
The economic capital model is used to support business
decision-making and has three main applications:
– capital adequacy assessment
– risk appetite setting
– risk-adjusted performance measurement.
Capital adequacy assessment
Macquarie assesses capital adequacy for both Macquarie
Group and Macquarie Bank. In each case, capital adequacy is
assessed on a regulatory basis and on an economic basis,
with capital requirements assessed as follows:
Economic Regulatory
Macquarie
Bank
Internal model,
covering
exposures of the
Banking Group
Capital to cover
risk-weighted assets
and regulatory
deductions, according
to the APRA banking
prudential standards
Macquarie
Group
Internal model,
covering all
exposures of
Macquarie
Group
Bank regulatory capital
requirement as above
plus economic capital
requirement of the non-
banking entities
Economic capital adequacy means an internal assessment of
capital adequacy, designed to ensure Macquarie has sufficient
capital to absorb potential losses and provide creditors with
the required degree of protection.
Potential losses are quantified using the Economic Capital
Adequacy Model (ECAM). These potential losses are compared
with the capital resources available to absorb loss, consisting of
book equity and eligible hybrid equity. Earnings are also available
to absorb losses, however only a fraction of potential earnings are
recognised as a buffer against losses.
The ECAM quantifies the following types of risk:
– equity risk
– credit risk
– operational risk
– traded market risk.
The ECAM also covers insurance risk, underwriting risk,
non-traded interest rate risk and the risk on assets held as part
of business operations, eg fixed assets, goodwill, intangible
assets, capitalised expenses and certain minority stakes in
associated companies or stakes in joint ventures.
The regulatory capital requirement of Macquarie’s non-banking
entities as agreed with APRA is determined by the ECAM.
Macquarie is well capitalised – a substantial regulatory capital
surplus exists. An element of this surplus is set aside as a
buffer against volatility in the drivers of capital adequacy. The
remaining capital surplus is available to support growth and
provide strategic flexibility.
45
In order to reduce volatility in Macquarie’s capital adequacy,
Macquarie actively manages the sensitivity of its capital
position to foreign currency movements. This is achieved
by leaving specific investments in core foreign operations
exposed to foreign currency translation movements. The
resultant change in the Australian dollar value of the foreign
investment is captured in the Foreign Currency Translation
Reserve, a component of regulatory capital. This offsets the
corresponding movement in the capital requirements of these
investments.
The Common Equity Tier 1, Tier 1 and total capital ratios
(1)
for
the Banking Group as at 31 March 2015 were 9.7 percent,
11.0 percent and 12.4 percent respectively.
The capital adequacy results are reported to the Board
and senior management on a regular basis, together with
projections of capital adequacy under a range of scenarios.
The Risk Appetite Test – an aggregate stress test
The key tool that the Board uses to quantify aggregate risk
appetite is the Risk Appetite Test. This is a Macquarie-wide
stress test that considers losses and earnings under a severe
economic downturn scenario with the aim of Macquarie
emerging from that scenario with sufficient capital to operate.
The Risk Appetite Test asserts that potential losses must be
less than the Global Risk Limit, which comprises underlying
earnings that Macquarie can achieve in a three year downturn
(downturn forward earnings capacity) plus surplus regulatory
capital. Consideration is also given to the year-by-year
outcome of the modelled downturn scenario to ensure that
market confidence is maintained.
Downturn forward earnings capacity is estimated by the
Operating Groups and divisions with reference to a three-year
downturn scenario provided to them by RMG.
Aggregate risk can be broken down into two categories:
– business risk: meaning decline in earnings through
deterioration in volumes and margins due to market
conditions
– potential losses: including potential credit losses, write-
downs of equity investments, operational risk losses and
losses on trading positions.
Business risk is captured by the difference in base case and
downturn forward earnings estimates. Potential losses are
quantified using a version of the economic capital model.
A principal use of the Risk Appetite Test is in setting the ERL.
This limit constrains Macquarie’s aggregate level of risk arising
from principal equity positions, managed fund holdings,
property equity investments, lease residuals and other equity
investments. Any changes to the ERL are sized to ensure that
even under full utilisation of this limit, and allowing for growth in
other risk types, the requirements of the Risk Appetite Test will
be met.
(1)
Under APRA Basel III rules.
Liquidity risk
Liquidity management
Macquarie's two primary external funding vehicles are MGL
and MBL. MGL provides funding principally to the
Non-Banking Group and limited funding to some MBL Group
subsidiaries. MBL provides funding to the Banking Group.
The high level funding structure within Macquarie is shown on
the following page.
Macquarie’s liquidity risk management framework is designed
to ensure that both MGL and MBL are able to meet their
funding requirements as they fall due under a range of market
conditions.
Liquidity management is performed centrally by Group
Treasury, with oversight from ALCO and RMG. MGL and MBL
liquidity policies are approved by the respective Boards after
endorsement by ALCO and liquidity reporting is provided to
the MGL and MBL Boards on a monthly basis.
ALCO includes the CEO, MBL CEO, CFO, CRO and Business
Group Heads.
RMG provides independent prudential oversight of liquidity risk
management, including the validation of liquidity scenario
assumptions, liquidity policies, and the required funding
maturity profile.
Liquidity policy and principles
MGL provides funding predominantly to the Non-Banking
Group. As such, the MGL Liquidity Policy outlines the liquidity
requirements for the Non-Banking Group. MGL's risk appetite
is set so that MGL is able to meet all of its liquidity obligations
during a period of liquidity stress: a 12-month period with no
access to funding markets and with only a limited impact on
franchise businesses.
Reflecting the longer-term nature of the Non-Banking Group
asset profile, MGL is funded predominantly with a mixture of
capital and long term wholesale funding.
The MBL Liquidity Policy outlines the liquidity requirements for
the Banking Group. MBL's risk appetite is set so that MBL is
able to meet all of its liquidity obligations during a period of
liquidity stress: a 12 month period of constrained access to
funding markets and with only a limited impact on franchise
businesses.
MBL is funded mainly by capital, long term liabilities and
deposits.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
46
Macquarie Group – high-level funding structure
The liquidity risk appetite is supported by a number of risk
tolerances and management principles applied to oversee
liquidity risk in both MGL and MBL.
Risk Tolerances
– term assets must be funded by term liabilities and short
term assets must exceed short term wholesale liabilities
– cash and liquid assets must be sufficient to cover a
12 month stress scenario and meet minimum regulatory
requirements
– cash and liquid assets held to meet stress scenarios and
regulatory minimums must be high quality unencumbered
liquid assets and cash
– diversity and stability of funding sources is a key priority
– balance sheet currency mismatches are managed within
set tolerances
– funding and liquidity exposures between Macquarie
Group entities are subject to constraints where required.
Liquidity Management Principles
– Macquarie has a centralised approach to liquidity
management
– liquidity risk is managed through stress scenario analysis
and setting limits on the composition and maturity of
assets and liabilities
– a Regional Liquidity Framework is maintained that outlines
Macquarie's approach to managing funding and liquidity
requirements in offshore subsidiaries and branches
– the liquidity position is managed to ensure all obligations
can be met as required on an intraday basis
– a Liquidity Contingency Plan is maintained that provides
an action plan in the event of a liquidity crisis
– a funding strategy is prepared annually and monitored on
a regular basis
– internal pricing allocates liquidity costs, benefits and risks
to areas responsible for generating them
– strong relationships are maintained to assist with
managing confidence and liquidity
– the MBL and MGL Boards and Senior Management
receive regular reporting on Macquarie's liquidity position,
including compliance with liquidity policy and regulatory
requirements.
Scenario analysis
Scenario analysis is central to Macquarie's liquidity risk
management framework. Group Treasury models a number
of liquidity scenarios covering both market-wide and
Group-specific crises. The objective of this modelling is to
ensure the ability of MGL and MBL to meet all repayment
obligations under each scenario and determine the capacity
for asset growth.
The scenarios separately consider the requirements of the
Banking Group, Non-Banking Group and the Consolidated
Entity. They are run over a number of timeframes and a range
of conservative assumptions are used including access to
capital markets, deposit outflows, contingent funding
requirements and asset sales.
Liquid asset holdings
Macquarie's internal scenario projections determine the
expected minimum cash and liquid asset requirement during
a combined market-wide and Group-specific crisis over a
12-month timeframe This scenario assumes no access to new
funding sources, a significant loss of deposits and contingent
funding outflows resulting from undrawn commitments, market
moves impacting derivatives and other margined positions.
The size of the liquid asset portfolio must exceed the minimum
requirement as calculated in this model at all times.
Group Treasury maintains a portfolio of highly liquid
unencumbered assets in both MGL and MBL to ensure
adequate liquidity is available in all funding environments,
including worst case wholesale and retail market conditions.
The minimum level of cash and liquid assets is calculated with
reference to internal scenario projections and minimum
regulatory requirements.
The cash and liquid asset portfolio contains only
unencumbered assets that can be relied on to maintain their
liquidity in a crisis scenario. Specifically, cash and liquid assets
held to meet minimum internal and regulatory requirements
must be held in cash, qualifying High Quality Liquid Assets or
be an asset type that is eligible as collateral in the Reserve
Bank of Australia's Committed Liquidity Facility.
47
The cash and liquid asset portfolio typically includes
unencumbered cash and central bank repo eligible
government, semi-government, supranational, government
guaranteed bank and unguaranteed bank securities and
AAA rated Australian residential mortgage backed securities.
In addition, the portfolio includes other very short dated, high
quality liquid assets such as A-1+ rated Australian residential
mortgage backed securities.
The liquid asset portfolio is denominated and held in both
Australian dollars and a range of other currencies to ensure
Macquarie's liquidity requirements are broadly matched by
currency.
Liquidity contingency plan
Group Treasury maintains a liquidity contingency plan.
The liquidity contingency plan applies to the entire Group and
defines roles and responsibilities and actions to be taken in a
liquidity event. This includes identification of key information
requirements and appropriate communication plans with both
internal and external parties.
Specifically, the plan details factors that may constitute a crisis,
the officer responsible for enacting the contingency
management, a committee of senior executives who would be
responsible for managing a crisis, the information required to
effectively manage a crisis, a communications strategy, a
high-level check list of possible actions to conserve or raise
additional liquidity and contact lists to facilitate prompt
communication with all key internal and external stakeholders.
The liquidity contingency plan is subject to regular review
(at least annually) by both Group Treasury and RMG and is
submitted to the Board for approval.
Macquarie is a global financial institution, with branches and
subsidiaries in a variety of countries. Regulations in certain
countries may require some branches or subsidiaries to have
specific local contingency plans. Where that is the case, the
liquidity contingency plan contains a supplement providing the
specific information required for those branches or
subsidiaries.
Funds transfer pricing
An internal funds transfer pricing framework is in place that has
been designed to produce appropriate incentives for business
decision-making by reflecting the true funding costs arising from
business actions. Under this framework, each business is
allocated the full cost of the funding required to support its
products and business lines, recognising the actual and
contingent funding-related exposures their activities create for
the group as a whole. Businesses that raise funding are
compensated at a level that is appropriate for the liquidity benefit
provided by the funding.
Regulatory and compliance risk
RMG Compliance is an independent function responsible for
ensuring that all Compliance Risks are appropriately assessed
and managed across Macquarie.
In line with the core risk management principle of risk
ownership, business heads are responsible for identifying risks
within their businesses and ensuring that they are managed
appropriately. RMG Compliance enables business
management to fulfil these supervisory responsibilities by
establishing a robust and effective compliance framework,
and by performing an advisory, training and monitoring role in
respect of the compliance risks arising from Macquarie’s
business activities.
RMG Compliance communicates and delivers on its priorities
by defining and implementing a risk-based compliance
program that sets out planned activities, such as the
implementation and review of specific policies and procedures,
compliance testing and staff training. The compliance program
is overseen by the Head of RMG Compliance to ensure
appropriate coverage across businesses and co-ordination
among other risk management functions.
The Head of RMG Compliance reports directly to the CRO,
has free access to the BGCC at any time and meets privately
with the BGCC.
RMG Compliance is closely supported by RMG Prudential,
Capital and Markets Division to ensure compliance with
prudential standards and consistency of Macquarie’s
approach to prudential regulation globally.
Legal risk
Legal risk is the risk of loss arising from a breach of contract,
law or regulation, the risk of litigation or regulatory enforcement
or the risk that a contract is not capable of being enforced as
expected.
Legal risk is managed through identification and assessment,
and by minimising or mitigating legal risk as far as reasonably
practicable. Responsibility for legal risk lies with Macquarie’s
businesses in conjunction with LGL. The Head of LGL,
the General Counsel, is a member of Macquarie’s GRCC
and reports directly to the CEO. The General Counsel has
access to the Board and any Board committees. Each
Macquarie Operating Group has a business General Counsel
who reports to the General Counsel and to the relevant
Operating Group Head.
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Risk Management Report
continued
48
Reputation risk
All activities have embedded elements of reputation risk.
Managing reputation risk is an essential role of senior
management as it has the potential to impact both earnings
and access to capital. Macquarie seeks to manage and
minimise reputation risk through its corporate governance
structure and risk management framework.
Macquarie operates under a strong corporate governance
structure consistent with the regulatory requirements of various
regulators including the Australian Securities and Investments
Commission (ASIC), the ASX and APRA. The Code outlines a
clear code of ethics which is communicated to all staff,
Regional Integrity Officers deal with potential issues of integrity.
Operating Groups take ownership of risk, including reputation
risk. In addition, a robust, independent risk management
framework incorporates active management and monitoring of
risks arising within Macquarie. The operation of this framework
and oversight by RMG are major mitigants to reputation risk.
The various policies, procedures and practices in place aim to
minimise reputation risk. Regular reporting to the GRCC and
Boards includes detail on reputation risk issues as appropriate.
The direct financial losses arising from reputation risk (such as
breach of mandates and regulatory fines) as well as legal costs
are taken into account in the operational risk capital model.
Tax risk
Tax risk is defined as the risk of loss arising from the
misinterpretation of tax regimes and the manner in which they
may be applied and enforced. The management of tax risk is
undertaken by the Taxation Division, a specialist division within
FMG. This division is independent of the business units and
takes an integrated view of tax risk for the whole Group.
The Taxation Division provides taxation support to all areas of
Macquarie and manages the Group’s relationships with
revenue authorities globally. It assists in achieving compliance
with Macquarie’s global taxation obligations by providing
technical assistance and input in relation to tax returns and
other filing obligations. To confirm appropriate coverage,
individual tax specialists within the Taxation Division are
assigned primary responsibility for key divisions, technical
issues and regions. The Taxation Division oversees and
monitors the tax risks of all entities within the Macquarie Group
by reviewing and approving Macquarie’s new and existing
businesses and structures, and confirming that Macquarie
holds appropriate external taxation opinions and support. In
addition, the Taxation Division monitors relevant taxation risks
of appropriate connected entities.
Material tax issues and risks are regularly considered with the
CFO and escalated to MGL and MBL Executive Committee as
well as the BAC as appropriate.
Insurance risk
Macquarie Life Limited (MLL), a subsidiary of MBL, underwrites
life insurance policies that provide death, trauma, total and
permanent disability and income protection benefits to
policyholders. A large portion of this risk is passed on to
reinsurers. However, Macquarie retains a portion of the risk
and is therefore exposed to potential losses arising from higher
than expected policy lapse rates, claim rates and expenses.
To ensure that the potential losses arising from the insurance
business remains within MBL’s risk appetite, the MBL Board
has established an insurance risk limit framework. RMG
monitors MLL’s insurance risks against the limits established
by MBL, and provides regular reports to the MBL Board in
relation to those limits.
Internal Audit
Internal Audit provides independent assurance to senior
management and the Board on the adequacy and operational
effectiveness of Macquarie’s internal control, risk management
and governance systems and processes. Internal Audit
provides an independent and objective assessment as to
whether risks have been adequately identified; adequate
internal controls are in place to manage those risks; and
whether those controls are working effectively. Internal Audit is
independent of both business management and the activities it
reviews.
The Head of Internal Audit is jointly accountable to the
BAC and the CRO. The BAC approves the appointment and
removal of the Head of Internal Audit who has unlimited access
to the BAC.
Basel III
Macquarie Bank is accredited under the Foundation Internal
Ratings Based Approach for credit risk, the Advanced
Measurement Approach for operational risk, the internal model
approach for market risk
(1)
and the internal model approach for
interest rate risk in the banking book.
These advanced approaches place a higher reliance on
a bank’s internal capital measures and therefore require
a more sophisticated level of risk management and risk
measurement practices.
(1)
Standard approach applied for specific risk on debt securities.
This is the end of the Risk Management Report.
Environmental, Social and Governance Report
49
Macquarie’s Board and Management view the commitment to
ESG performance as part of their broader responsibility to
clients, shareholders and the communities in which Macquarie
operates. This report provides an overview of Macquarie’s
ESG approach, progress and performance.
Macquarie’s ESG approach is structured around priorities
considered to be material to the business. Underpinned by
Macquarie’s What We Stand For and the Code, these ESG
priorities were confimed through an external review completed
in FY2015. The priorities reflect the risks and opportunities
identified by the business and the issues of interest to
Macquarie’s stakeholders including:
– managing ESG risks in business activities
– advancing environmental management
– pursuing investments, markets and products with an ESG
focus
– valuing Macquarie’s people and workplace.
To gain a complete view of Macquarie’s ESG approach, these
pages should be read in conjunction with other sections of this
Annual Report.
In the year ended 31 March 2015, Macquarie continued to
embed ESG within its diverse activities and drive new business
opportunities. Highlights include:
– enhancing the Group-wide approach to environmental
and social risk in decision-making with the Board approval
of the Environmental and Social Risk (ESR) Policy, which
builds on existing ESG related policies and procedures
– reducing Scope 2 emissions by one percent in corporate
offices and data centres compared with FY2014 and
16 percent compared with baseline
– reducing Scope 3 emissions by 14 percent compared
with FY2014, equivalent to a reduction of five percent in
actual flight miles
– achievement of 6 Star Green Star Design and As Built
rating from the Green Building Council of Australia for
Macquarie’s new head office at 50 Martin Place, Sydney
– maintaining carbon neutrality across energy use in
premises and corporate air travel
– continuing to foster sustainability by investing in and
providing advice on renewable energy, energy efficiency
and clean technology
– contributing to public policy reviews
– ongoing investment in staff training and development.
ESG governance
The Board approves Macquarie’s ESG framework including
major ESG policies. The BGCC assists the Board in adopting
appropriate governance standards and reviewing the operation
of environmental and social risk management policies and
work health and safety practices. Responsibility for
implementation of the ESG framework and related Board
approved policies resides with Management.
Macquarie’s Sustainability and Environment Office has
transferred into RMG, further embedding environmental and
social risk into Macquarie’s risk management framework. The
renamed Environmental and Social Risk (ESR) team continues
to coordinate a diverse range of ESG activities, including
developing and implementing Group-wide and businesses
specific policies, providing advice on ESG risks and
opportunities and facilitating training. The ESR team regularly
reports to the BGCC on ESG related matters.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
continued
50
ESG risk management
Group-wide ESG risk management
Macquarie views management of material ESG risks as a
component of broader risk management and recognises that
failure to manage these risks could expose Macquarie to
commercial, reputational and regulatory impacts.
ESG risks are managed through a well established framework
of ESG-related policies and practices including:
– corporate governance
– oversight and management of Work Health and Safety
(WHS)
– identification, assessment and management of
environmental and social risks
– selection and management of investments and
undertaking new business activities
– ethical conduct by staff, including support from
Integrity Officers
– sustainable management of Macquarie’s business
premises
– greenhouse gas and energy management and reporting
– provision of a safe, diverse and appropriate workplace,
including a network of Equal Employment Opportunity
officers
– dealings with external parties such as regulators and
public officials
– whistleblowing, anti-corruption and anti-money laundering
– management of business and staff conflicts of interest
– engagement by Macquarie and its staff in the wider
community, including volunteering, capacity building and
matched donations.
All staff share responsibility for identifying and managing ESG
issues as part of normal business practice. Staff are supported
by RMG, as well as through access to the ESR team and
specialist ESG research and training.
Managing environmental and social risk in
transactions
Macquarie understands the importance of embedding
environmental and social risk management into investment
decision-making. In the year ended 31 March 2015, the Board
approved a Group-wide ESR Policy which builds on existing
policies and procedures.
51
The ESR Policy was developed with reference to international
guidelines including the International Finance Corporation
Performance Standards. It provides a robust approach to
assess, categorise, manage, mitigate, monitor and report
environment and social risks in client on-boarding and across a
broad range of transactions including financing, lending,
leasing and advisory. The ESR Policy guides the management
of environmental and social issues including labour and
employment practices, human rights, resource efficiency,
pollution prevention, biodiversity and cultural heritage.
The ESR Policy establishes escalated decision-making and
approval processes for material environmental and social risks.
Transactions may be reviewed by the CRO, Executive
Committee or Macquarie Board.
Managing WHSE risk in operating assets
For operating assets in which Macquarie has an interest,
effective work health, safety and environmental (WHSE)
management is a key business priority because of the
significant legal, ethical, reputational and commercial risks
associated with poor WHSE performance. This is
demonstrated through the implementation of relevant
Group-wide policies; and WHSE performance reporting to,
and oversight by, the BGCC. Macquarie deems WHSE legal
compliance and continuous improvement in management
frameworks as a minimum requirement for all controlled assets
and continues to encourage and facilitate WHSE management
improvements in non-controlled assets.
Macquarie’s commitment to ongoing WHSE performance
improvement is outlined in the WHS, and Environmental Risk
Policies, both of which establish comprehensive frameworks
for management and oversight of WHSE risks and obligations
across Macquarie’s businesses. The policies are supported by
WHS and environmental management systems, which are
based on international standards
(1)
. In addition to the
management systems, the frameworks require completion of
stringent WHSE due diligence by independent specialist
advisers prior to investment, in order to reduce the likelihood of
poor performance at individual assets, and to facilitate effective
WHSE management post investment. These requirements
enable early identification and attention to performance
improvements for newly acquired assets and continuous
improvement for existing assets.
(1)
Occupational health and safety assessment series (OHSAS).
Occupational health and safety management systems –
Requirements 18001:2007 and Environmental management
systems – Requirements with guidance for use Australia/ New
Zealand (AS/NZ) International Organisation for Standardization
(ISO) 14001:2004.
Regular compliance, management framework status and
performance data reporting is required for all controlled assets
and where relevant, for non-controlled assets. Business
specific policies further support and ensure WHSE issues are
addressed in a timely manner relevant to the risk profile and
nature of the asset. Where appropriate, assets or businesses
pursue international certifications, such as ISO14001 or
OHSAS 18001, employ independent impact assessments and
develop compliance plans as relevant to their operations.
Preventing money laundering, terrorist financing and
corruption
Macquarie is committed to conducting its business in
accordance with all applicable laws and regulations and in a
way that enhances its reputation in the market.
Macquarie maintains a risk management framework that is
designed to minimise the risk of its products and systems
being used to facilitate the crimes of money laundering and
terrorist financing. The framework also supports Macquarie’s
anti-corruption and anti-bribery initiatives to achieve a high
level of integrity in all business dealings.
The framework includes policies and procedures, training,
governance standards, escalation protocols and assurance
activities and ensures that Macquarie:
– meets its obligations to the jurisdictions in which it
operates
– contributes to the stability, integrity and strength of the
global financial system
– maintains principles that guide the way Macquarie
identifies, mitigates and manages the risk of money
laundering, terrorist financing and corruption.
All Macquarie employees are required to undertake training to
understand their obligations under the relevant laws and
regulations governing anti-corruption, anti-bribery and
anti-money laundering. Risk assessments are undertaken
periodically across all businesses to identify business activities
which are more susceptible to abuse, with additional training
and oversight efforts directed accordingly.
Regulatory requirements and expectations continue to evolve
in the areas of anti-money laundering, counter-terrorist
financing and anti-corruption. Macquarie is committed to
meeting new regulatory requirements.
A more detailed overview of these policies and procedures is
available on the Macquarie website.
Addressing privacy
Macquarie respects and protects the privacy of the personal
information of individuals with whom it deals. Macquarie uses
security procedures and technology to protect the information
held. Access to and use of personal information within
Macquarie seeks to prevent misuse or unlawful disclosure of
the information.
Macquarie has appointed a General Counsel – Privacy and
Data. This is a dedicated Group-wide role focused on data
protection and privacy.
Macquarie’s Privacy Policy is available on the Macquarie
website.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
continued
52
Responsible marketing
Macquarie is committed to ensuring that its products are
marketed appropriately and that clients are treated fairly.
There are Group-wide policies that require disclosure and
marketing materials meet legal and regulatory expectations,
are appropriate for the target audience and accurately and
fairly describe the product. Macquarie has also implemented
policies and procedures to ensure that consumer complaints
are handled in an appropriate and time-efficient manner and
that agreements do not contain provisions which may be
considered abusive or unfair. Further information on
Macquarie’s approach can be found in the Code.
Political contributions and engagement
Macquarie supports strong and vibrant democracies and
believes it is critical to understand the regulatory and political
environments in the jurisdictions in which it has a presence and
does business. Over the financial year Macquarie made
submissions, both verbally and in writing, on a range of policy
related topics. These submissions were made to various
Parliamentary Committees, government review bodies
established to conduct public inquiries, elected officials,
regulatory officers and public officials.
Macquarie has a longstanding and consistent policy in regard
to political contributions provided to Australia’s main political
parties. Any requests for financial assistance are assessed with
the aim of ensuring that multi-party systems deliver both good
government and good opposition. In Australia, Macquarie
achieves this objective by providing financial assistance to
major political parties at the state and federal level.
Macquarie has a full disclosure policy and declares all political
contributions to the Australian Electoral Commission (AEC)
including attendance at political events, memberships of
political business forums, sponsorship and attendance at
political party conferences, as well as any cash donations.
Macquarie declares its political contributions to the AEC
regardless of any thresholds or other provisions that may
otherwise limit the need to disclose. In the year ended 30 June
2014, Macquarie’s political contributions in Australia totaled
$A463,890 (including $A36,608 GST): Liberal Party
$A277,630; Australian Labor Party $A169,210; and National
Party $A17,050.
Cash contributions accounted for less than four percent of
total contributions in the year ended 30 June 2014. The
remainder of the contributions were memberships of political
party business forums, attendance at events, sponsorships
and attendance at party conferences. No contributions were
made by the Group outside of Australia in FY2015.
Advancing environmental management
Macquarie approaches environmental management by
focusing on three areas: identifying and managing
climate-related risks and opportunities, managing resources
used in direct operations, and managing environmental issues
in investments (detailed in the ESG Risk Management section
on page 50).
Climate change
Macquarie recognises that climate change presents significant
challenges to society and generates both risks and
opportunities for its business and stakeholders. Consistent
with Macquarie’s strong risk management focus, climate
change and future carbon constraints are considered within
the existing risk framework. Macquarie’s approach is based
on:
– identifying, assessing and managing the risks arising from
climate change and future carbon constraints
– identifying and leveraging opportunities for investment and
trading for Macquarie and its clients
– assessing and managing its own carbon footprint.
Under this framework:
– businesses are responsible for considering greenhouse
and energy management during due diligence for new
businesses and products and addressing local legislative
requirements consistent with Macquarie’s Greenhouse
and Energy Reporting Policy
– Macquarie provides clients and staff with research and
information about the economic, policy and business
impacts of climate change
– Macquarie uses its expertise in carbon markets to assist
clients to prepare for compliance with emissions trading
and provides emissions risk management products
– Macquarie also uses its expertise in financial services to
assist clients active in the renewable energy sector.
Macquarie does not consider its businesses to have any
material exposure to climate change regulatory risk. Macquarie
continues to monitor developments in climate change
regulation around the world. As a signatory to the Carbon
Disclosure Project (CDP), Macquarie reports detailed
information about its approach to the risks and opportunities
arising from climate change. Macquarie’s annual responses
are available on the CDP website.
Direct operations
Macquarie strives to integrate resource efficiency and
sustainability into the day-to-day operations of Macquarie’s
offices and corporate operations through the implementation
of Macquarie’s Environmental Management Plan. Macquarie’s
direct environmental impacts predominantly relate to the
operation of Macquarie’s tenanted offices and data centres,
air travel and the resources consumed by these activities.
Reducing emissions from energy use: In the year ended
31 March 2015, Macquarie’s total Scope 2 and Scope 3
emissions reduced by six percent from FY2014. FY2015 is the
fourth consecutive year of absolute emission reductions.
Scope 1 emissions are not reported by Macquarie as they are
not material, comprising less than one percent of Macquarie’s
total emissions in Australia.
53
Macquarie’s total Scope 2 emissions increased by two percent
from FY2014, as a result of inclusion of base building
(1)
energy
usage for 50 Martin Place this year. However, when compared
with FY2014, Scope 2 emissions on a like-for-like basis
(relating only to corporate offices and data centres) decreased
by one percent. This reduction is the result of a continued
focus on energy use in all Macquarie premises and data
centres globally, including a specific program of data centre
rationalisation and emphasis on occupying sustainable
buildings.
Macquarie’s Scope 3 emissions decreased by 14 percent
compared with FY2014, due to a five percent reduction in flight
miles and updates in emission factors. Macquarie continues to
encourage the use of video conferencing and has seen an
increase of 10 percent from FY2014 in Macquarie’s five largest
locations.
Maintaining carbon neutrality: Since 2010, Macquarie has
maintained its carbon neutral commitment by reducing and
offsetting emissions from its office energy use and business air
travel. The Carbon Commitment
(2)
builds on Macquarie’s
response to risks and opportunities arising from climate
change, its investments and activities in renewable energy,
clean technology and environmental markets, and status as a
signatory to the CDP.
To offset Macquarie’s remaining Scope 2 and Scope 3
emissions and achieve carbon neutrality for corporate offices,
data centres, base building and air travel, Macquarie
purchased and retired voluntary carbon offsets for the year
ended 31 March 2015. Macquarie acquired a diverse portfolio
of offsets, focusing on project quality and verifiable emissions
reductions. Carbon credits that met Voluntary Carbon
Standards and Climate, Community and Biodiversity
Standards were purchased from projects in Mexico, Peru and
Zambia. These projects, supported by the sale of carbon
credits on international markets, provide solutions to reduce
carbon emissions in the countries and communities in which
they operate.
Supporting sustainable buildings: Focusing on sustainable
buildings is a critical way for Macquarie to reduce direct
resource consumption and greenhouse gas emissions.
Macquarie corporate offices are fitted with water and energy
efficient fittings and fixtures and continually monitored for
energy performance, environmental quality and staff comfort.
Macquarie aims to ensure all new premises are designed and
constructed to achieve a 6 Star Green Star, LEED Platinum,
BREEAM Excellent or equivalent rating. All tenancy
refurbishments aim to achieve 5 Star Green Star, LEED Gold
or equivalent rating for the jurisdiction.
(1)
Base building applies only where Macquarie owns and
occupies the building. This comprises 50 Martin Place and
9-19 Elizabeth Street Sydney.
(2)
Refers to Macquarie’s carbon neutral commitment across its
global corporate office energy use and corporate air travel.
Sustainability ratings for Macquarie hub offices
Office Rating – Operation/ Fit-
out
Rating –
Design
50 Martin Place,
Sydney
5 Star NABERS
(energy commitment
agreement)
6 Star Green
Star
Ropemaker
Place, London
n/a BREEAM
Certified–
Excellent
125 W55
th
St, New
York
LEED Certified – Gold n/a
One IFC, Hong
Kong
LEED Certified – Gold BEAM
Certified –
Platinum
1 Shelley Street,
Sydney
4 Star NABERS
energy usage
6 Star Green
Star
1 Martin Place
Sydney
3 Star NABERS
energy usage
n/a
Creating sustainable and collaborative workplaces
In FY2015 Macquarie opened its new global headquarters at
50 Martin Place in Sydney, Australia. The new premises has
achieved a 6 Star Green Star Design and As Built rating from
the Green Building Council of Australia, the As Built rating
being the first in Australia for a large scale heritage listed office
building. Through a commitment agreement, the building is
also targeting an operational energy efficiency rating of 5 star
NABERS energy.
The redevelopment of 50 Martin Place has provided an
opportunity for a more sustainable and collaborative
workplace. The performance of the building is continually
monitored, including air quality and acoustic monitoring to
ensure the environmental quality of the internal environment
and the comfort of staff is maximised.
Improved spaces and facilities including change rooms,
showers, bike racks, parent’s room, and quiet and multi-faith
prayer room provide greater flexibility for employees.
The internal atrium stairway and open atrium space provides
greater connectivity between floors and encourages
collaboration between employees.
Technology upgrades and improvements including audio visual
and video conferencing services facilitate collaboration and
communication between clients and employees globally, and
reduce the need for business travel.
The sustainable design features of the building, including the
glass-domed roof and expanded atrium space which allows
55 percent more daylight to penetrate compared with previous
structure and a bespoke air-conditioning system, assist to
make a more comfortable and energy efficient building.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
continued
54
Improving resource efficiency: Over the last three years,
initiatives have been rolled out to reduce paper use and, where
tenancy arrangements permit, reduce waste and manage
water consumption.
An ongoing program of technology and behavioural initiatives
has resulted in a continued reduction in paper use from the
FY2012 baseline of 167,106 reams to 121,051 reams in
FY2015, a decrease of 27 percent. The environmental impacts
of paper use are also being addressed through an ongoing
commitment to use certified sustainable or recycled paper
stock. Paper use data is now collected across the majority of
Macquarie offices, representing approximately 80 percent of
Macquarie staff.
Since the FY2011 baseline sustainability audits of its offices,
Macquarie has implemented standardised waste recycling and
water management programs wherever tenancy arrangements
allow. Waste and water data is currently collected from large
offices where Macquarie occupies the entire building. For
example, from the FY2012 baseline to FY2014, waste in
Sydney offices reduced by 29 percent, from 1,129 tonnes to
799 tonnes. The waste recycling programs in these offices
resulted in 70 percent of total waste being recycled, diverting
over 425 tonnes of waste from landfill in FY2015.
Macquarie will continue to identify opportunities to improve
waste management and water use in offices accommodating
more than 100 staff.
Sustainable procurement: As part of its ongoing
procurement strategy, Macquarie continues to include
sustainability clauses within tender documents. These clauses
include consideration of governance and ethics, legal
responsibilities, financial, environmental, workforce
considerations and risk management, and are used by the
Business Services Division (Sourcing and Vendor
Management) as a factor in supplier selection.
55
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Environmental, Social and Governance Report
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56
Carbon and Energy Data for FY2015
Baseline
(1)
Units FY09 FY10
Scope 2 Indirect Electricity emissions: tCO2-e
— corporate offices and data centres
(2)
49,632 50,923
— base buildings
(3)
– –
Total electricity emissions 49,632 50,923
Scope 3 Indirect Business air travel emissions
(4)
tCO2-e
n/a 78,018
Total Emissions Total Scope 2 and Scope 3 tCO2-e – 128,941
Energy Macquarie energy use: TJ
— corporate offices and data centres 237 251
— base buildings – –
Total Macquarie energy use 237 251
Per Capita Emissions Electricity emissions per capita: tCO2-e per person
— corporate offices and data centres 3.93 3.49
— base buildings – –
Total emissions per capita 3.93 3.49
Business air travel emissions per capita tCO2-e per person n/a 5.34
(1)
Note that the baseline for Scope 2 electricity emissions is FY2009 while, due to data availability, the baseline for Scope 3 business air
travel emissions is FY2010. Total Scope 2 and Scope 3 emissions reductions are calculated based on a FY2010 baseline.
(2)
Macquarie corporate offices and data centres are defined as:
- space leased by Macquarie operating entities that are also occupied by Macquarie staff and have a Net Usable Area greater than
100m
2
- data centres considered to be under the ongoing operational control of a Macquarie Group operating entity
- new space from business acquisitions from the month of acquisition
- including Australian and international corporate offices.
(3)
Base building refers to the energy required to operate a building and excludes tenanted energy use. It includes the mechanical plant,
lifts, and lighting in lobby and other common areas. Base building applies only where Macquarie owns and occupies the building.
This comprises 50 Martin Place and 9-19 Elizabeth Street Sydney.
(4)
Business air travel is defined as travel ticketed through Macquarie’s Travel Management Companies for the primary purpose of
business.
(5)
Some numbers in this column have been revised from last year’s Annual Report to reflect updated invoice data.
57
Baseline Change
FY11 FY12 FY13 FY14
(5)
FY15 Prior Year Baseline
51,941 52,497 46,499 42,389 41,842 -1% -16%
– – – – 1,557 n/a n/a
51,941 52,497 46,499 42,389 43,399 2% -13%
79,330 73,260 63,334 48,870 41,954 -14% -46%
131,271 125,757 109,833 91,259 85,353 -6% -34%
268 275 243 231 222 -4% -6%
– – – – 7 n/a n/a
268 275 243 231 229 -1% -4%
3.35 3.55 3.4 3.05 2.98 -2% -24%
– – – – 0.11 n/a n/a
3.35 3.55 3.4 3.05 3.09 1% -21%
5.11 4.95 4.64 3.51 2.99 -15% -44%
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
continued
58
Investments, markets and products
While Macquarie’s overarching approach aims to embed ESG
as part of normal business practice, Macquarie businesses
also facilitate and pursue investments, markets and products
with an ESG focus.
ESG research and collaboration
Macquarie has industry-leading analysts dedicated to
publishing specialist ESG and alternative energy research.
The analysts focus on ESG issues as part of their detailed
analysis of listed stocks and in the application of an integrated
approach, giving top down analysis followed by bottom-up
stock valuations. The team published specialist ESG reports in
FY2015 covering topics such as employee engagement,
company ESG ratings and corporate governance.
The global Alternative Energy Research team covers listed
wind, solar, metering and battery companies around the world.
The team is coordinated from London with analysts located in
Shanghai, Sydney and New York. The team published over
200 pieces of research in FY2015 and covered over
30 alternative energy stocks. In FY2015, Macquarie published
a series of reports focused on stock opportunities with
leverage to Chinese government policies including new energy
vehicles and the development of alternative power.
During FY2015, Macquarie’s research teams received
investment client recognition and industry recognition for its
alternative energy and ESG research including a top three
rating for its Australian ESG research by Australian Institutional
Investors.
(1)
Investment in renewable energy and clean
technology
Macquarie has been an active investor and adviser in the
renewable energy and clean technology sectors for over
15 years. Drawing on its global network, sector expertise and
strong record, Macquarie services clients across various
renewable energy technologies including: solar, wind, waste to
energy, geothermal, biomass and energy efficiency.
Macquarie and Macquarie-managed businesses also have
more than 4380MW of diversified renewable energy assets in
operation.
Investment and advisory activities over the past 12 months
included:
– Idaho Wind Partners: Macquarie Infrastructure Company
acquired a majority holding in a 183 MW wind power
generation project near Twin Falls in Idaho, USA
– Hengi Water: Macquarie Greater China Infrastructure
Fund invested in two class 1-A industrial wastewater
plants and a recycling plant with total capacity of 220,000
tonnes per day
(1)
Peter Lee Associates Survey 2014
– Sorgenia Green Srl: Macquarie European Infrastructure
Fund 4 acquired this Italian and French renewable energy
project developer and operator. Its Italian wind business
includes a ~112MW portfolio of operational wind farms
with a further ~70MW of projects permitted for
development. The French wind business is a joint venture
with a total ~165MW portfolio of operational wind farms
and a development pipeline of ~40MW of projects
– Low Carbon JV: Macquarie Capital invested in five new
large-scale UK solar projects through its partnership with
solar developer Low Carbon. The 50:50 partnership has
funded the Bottom Plain solar park (10.1MW), Berwick
solar park (8.2MW), Great Wilbraham solar park
(38.1MW), Emberton solar park (9.4MW) and Branston
solar park (18.7MW).
Macquarie provides financing to renewable energy businesses,
tailoring funding instruments to meet the needs of the client.
Examples of transactions in FY2015 included:
– financing a 29MWp ground mounted solar photovoltaic
project in Pembrokeshire Wales. With more than 113,000
solar panels, this is one of the largest solar projects in the
UK to date
– financing a portfolio of seven on shore wind farms in the
UK with a generating capacity of 55MW for Capital
Dynamics Clean Energy and Infrastructure Fund
– providing over $A330 million in financing for energy
efficiency upgrades and renewable energy installations for
buildings through the US Property Assessed Clean
Energy (PACE) Scheme. Through this scheme Macquarie
provides finance linked to the property and is repaid as
part of the annual property tax assessment. Macquarie
provides market access to PACE loans through
securitisation into bonds for investors
– financing for 24 different commercial solar products in
Massachusetts generating ~65MW of solar electricity
production and over 40MWh of residential roof top solar
power generation in support of the solar renewable
energy credit program
– financing agreement for the installation of geothermal heat
exchange systems at Sainsbury’s supermarkets in the
UK. Once installed and operational, the equipment will
enable Sainsbury’s to significantly reduce its energy
usage.
59
Trading carbon and environmental products
Macquarie brings its depth of experience as a top-tier global
commodities trading and finance house to the environmental
markets. Macquarie is involved with trading environmental
financial products and is a major global carbon trader by
volume. Macquarie offers the following services and products:
– a full-service trading desk making physical and derivative
markets in European Union emissions allowances and
Certified Emission Reductions as well as dealing in
domestic emission allowances and renewable energy
certificates across multiple jurisdictions
– inventory financing for environmental markets compliance
unit holdings
– debt/equity investment and derivative financing for
renewable energy projects
– tailored environmental risk management solutions from
simple hedge structures to complex structured
derivatives.
Asset financing
Macquarie uses its specialist expertise in finance and asset
management to provide the following solutions and services:
– energy efficient asset finance
– smart metering finance
– solar photovoltaic system financing
– specialised financing solutions for renewable energy
providers.
Energy efficient asset finance
Established in November 2011, the energy efficient asset
financing program focuses on energy efficient assets in
Australia and the UK. The program has brought a new source
of finance to stimulate uptake of, and investment in, clean
energy technologies in existing commercial buildings and
industries. Equipment finance can include: solar PV; distributed
gas generation; energy-efficient lighting systems (LED); heating
(including biomass boilers and heat pumps); ventilation and
air-conditioning; and smart building systems.
Smart metering
In the year ended 31 March 2015, Macquarie continued to
increase its funding lines to UK energy retailers to facilitate the
accelerated roll-out of smart gas and electricity meters which
assists with efficient energy management in the industrial,
commercial and residential sectors.
Of the more than seven million gas and electricity smart meters
in the UK, Macquarie currently leases more than one million
smart meters to energy retailers with existing contracts in place
to fund approximately 28,000 smart gas and electricity meters
per month.
Solar photovoltaic system financing
Macquarie Energy Leasing continues to expand its commercial
rooftop solar finance offerings in Australia. The business is
using existing channels to market through its extensive
commercial finance broker network as well as direct to large
corporate vendors.
Specialised ESG products
Macquarie has experienced teams that offer clients specialised
investment products that respond to and support their
particular ESG requirements. Examples of these investments
include:
– Delaware Investments Socially Responsible Investing (SRI)
products – Delaware has longstanding experience in ESG
investing and seeks to invest in companies that
incorporate positive ESG behaviour into their business
operations. Offering a spectrum of specialist products to
investors, total assets managed under these SRI
strategies is $US809.3 million as at 31 March 2015
– Macquarie Private Portfolio Management (MPPM) offers
wholesale clients customised investment solutions aligned
to their specific ESG goals or screening preferences.
MPPM also provides retail clients with access to model
portfolios with a broad, socially responsible investing bias
using both internal and external factors. All clients
investing in MPPM-managed strategies have access to a
research process that includes embedded ESG-focused
factors. The combined funds under management covered
by these strategies is $A1.5 billion
– Macquarie Bonds High Quality (AUM $US115 million) and
M200 (AUM $US65 million) are managed according to
social responsibility criteria. In 2015, both bonds were
awarded with the Austrian eco label for sustainability by
the Austrian Ministry of Environment.
People and workplace
Macquarie recognises that its most important assets are its
people. Macquarie recruits talented individuals and
encourages them to realise their potential in an environment
that values excellence, innovation and creativity. Macquarie
provides a wide range of programs that reflect Macquarie’s
What We Stand For principles and support the development,
diversity and wellbeing of its employees. This ensures the
business continues to meet the highest standards and serves
the evolving needs of its clients.
What we stand for
Macquarie seeks to realise opportunity for the benefit of its
clients, its shareholders, its community and its people.
Macquarie is in business to be profitable, but recognises that it
is the way it does business that defines the organisation. The
trust and confidence of Macquarie’s clients and the community
are critical to its long-term success.
What We Stand For is the statement that sets out the three
principles which guide the way Macquarie does business. The
principles reflect Macquarie’s long-held approach of
Opportunity, Accountability and Integrity.
The Code incorporates these principles. The Code also
includes guidelines and advice on escalation and good
decision-making.
The Integrity Office, which was established in 1998, is an
independent function within Macquarie, reporting to the CEO
and providing annual reports to the BGCC.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Report
continued
60
The Integrity Office has responsibility for the promotion,
understanding and staff awareness of What We Stand For. To
ensure that Macquarie’s culture of honesty and integrity
remains strong throughout the organisation, all staff who join
Macquarie receive specific training on What We Stand For and
the Code. Integrity Officers work with business leaders to
ensure that staff continue to be trained and supported in good
decision-making and escalation and receive continued
communication of the principles that underpin the way
Macquarie operates.
The Integrity Office works with RMG Compliance to ensure
that all staff read the Code, and sign an annual declaration that
they have done so.
The Integrity Office provides an independent and confidential
point of escalation for staff to seek advice or raise concerns
about integrity issues. Macquarie has whistleblower policies
and protections in each of the regions in which it operates. In
addition, Macquarie has an externally-managed staff hotline
that enables staff to report suspected breaches of the Code,
or other misconduct, anonymously.
Learning and development
Macquarie strives to create an environment where learning is a
part of an employee’s career development and we recognise
the benefits to both the individual and the wider organisation of
such investment.
Macquarie continues to invest in employee development by
providing targeted and role-specific learning opportunities,
both to meet the needs of Macquarie’s diverse talent base and
to build the skills and behaviours needed for long-term
organisational success.
Since 1 April 2014, a total of almost 1,170 classroom events
have been delivered globally and a further 982 online courses
and 387 knowledge tests have been available including
compliance-related training for new and existing staff (focusing
on fraud awareness, anti-bribery, anti-money
laundering/counter-terrorism financing and other financial
services compliance issues) as well as leadership courses and
materials on financial services products.
As part of Macquarie’s leadership development efforts, in 2014
Macquarie launched a new global leadership development
program targeted at new director level staff and designed to
focus on both business and people leadership skills. Over 300
staff globally have commenced the program since 1 April
2014, with strong business and participant feedback. Building
on this success, the development of an extension program
aimed at our most senior directors is now underway for launch
in 2015.
Macquarie also continues to focus on developing leadership
capability more broadly with 324 people having attended
Macquarie’s frontline manager program, as well as investment
through executive coaching and mentoring initiatives.
In addition to Macquarie delivered programs, many employees
benefit from sponsored education and can pursue career
development opportunities at independent institutions such as
a Master of Finance offered by INSEAD.
Macquarie also invests significant time and effort in the
employee onboarding and orientation process, with a series of
learning and development activities (including events hosted by
the CEO) designed to communicate and embed the Macquarie
culture at the earliest possible stage.
Alongside the structured learning and development curriculum,
Macquarie also recognises and encourages the developmental
benefits of wider community engagement by employees.
Involvement of employees in this through the Macquarie
Foundation and other channels is widely communicated and
encouraged.
To support Macquarie’s merit-based culture, regular appraisals
are a key part of performance measurement, including
goal setting and ongoing career development. In addition
to encouraging regular and ongoing feedback with managers,
Macquarie requires all employees to have at least one formal
annual appraisal session with their manager where employees
are encouraged to raise, discuss and respond to matters
relating to training, further education and development
of leadership capabilities. A Group-wide performance
management system is in place to document all performance
and development related discussions. Customised online and
classroom training is also available to all managers and staff to
ensure they get the support needed to complete these
activities effectively.
Diversity
Macquarie’s ongoing commitment to workforce diversity
ensures its business remains innovative, sustainable and
continues to meet the evolving needs of its clients.
Macquarie’s broad range of experiences, skills and views are
key strengths and critical to the wide range of services it
delivers across a global operating environment.
More detailed information about Macquarie’s approach
to diversity is provided in the Diversity Report.
Workplace Work Health and Safety
Macquarie has established safe work practices to ensure it
provides a workplace free from illness and injury. A safe work
environment is provided through workplace safety inspections
that allow early identification and mitigation of hazards. This is
combined with ergonomic workstations and office spaces
designed to maximise health and wellbeing.
These systems are reviewed on an ongoing basis to ensure
safe work and employee wellbeing standards are maintained
across the global workforce.
Macquarie’s commitment to providing a safe work
environment has resulted in the prevalence and severity of
incidents remaining low and consistent with previous years.
Health and safety representatives are appointed globally to
assist both in the reporting and rectification of incidents and in
the development and dissemination of employee health and
wellbeing initiatives across Macquarie.
61
Macquarie recognises the positive impact healthy employees
have on business performance. This extends beyond
professional development to the personal wellbeing of
employees, incorporating psychological and physical health.
Macquarie provides initiatives which promote and empower
employees to own their health and wellbeing, including:
– confidential counselling services (Employee Assistance
Program)
– health screenings and assessment to help employees
understand and improve their personal health status
– educational seminars on healthy leadership, effective
communication, achieving balance in a high performance
environment and diet and nutrition
– training on topics including managing a flexible workforce,
appropriate workplace behaviour and managing mental
health in the workplace.
Engaging stakeholders
Clear dialogue with stakeholders is important to building strong
relationships, maintaining trust, enhancing business
performance and evolving our ESG approach. Macquarie
regularly engages with a broad range of stakeholders including
shareholders, investors, clients, analysts, industry groups,
governments, employees and the wider community.
Macquarie’s key engagement activities in 2015 are
summarised below:
– shareholders and investors: Macquarie provides clear
and open lines of communication with shareholders,
analysts, investors and their advisors well beyond the key
events of the corporate calendar, such as the AGM and
result and operational briefings. Investor Relations
oversees an extensive program which includes domestic
and international investor roadshows, conferences and
briefings and responds to investor queries to provide
transparency about the ESG framework and approach
– political engagement: Macquarie’s Government
Relations team has lead responsibility for maintaining
relationships with key government and public sector
stakeholders
– employees: Results of the Macquarie-wide staff survey
conducted in 2013 have continued to be used by
Macquarie’s businesses to inform areas of priority for
action planning and to maximise sustainable staff
engagement. In late 2014, four of the businesses
conducted a follow-up pulse check survey to seek
feedback on the effectiveness of recent efforts and to
calibrate current levels of engagement. Analysis of the
responses has been fed back into the action planning
process to ensure that the right initiatives are being
pursued and to identify further opportunities. While pulse-
check surveys are typically business-specific, overall
results indicate that positive levels of engagement
continue to be maintained
– communities: The Foundation provides financial and
other forms of support to a wide range of community
organisations and programs. A more detailed overview of
the Foundation’s engagement with communities is
provided in the Macquarie Group Foundation section of
this Annual Report, along with the Foundation’s Annual
Report which is available on the Macquarie website.
About these disclosures
In 2013 the GRI released the latest evolution of its Reporting
Guidelines – G4. Macquarie is seeking to transition to G4 and
has used the GRI G4 reporting principles to guide disclosures
within this Annual Report. The content of the disclosures is
based on Macquarie’s ESG priorities as confirmed through an
external review, the interests of stakeholders, including
investors and analysts, and the applicable GRI indicators.
Consistent with Macquarie’s approach to sustainability,
information concerning governance, environment, social and
economic performance is presented throughout the Annual
Report rather than as a separate disclosure. A GRI index is
available on Macquarie’s website.
This is the end of the Environmental, Social and Governance Report.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Appendix
Independent review
62
Independent review of selected Subject
Matter contained in Macquarie Group
Limited’s 2015 Annual Report
Purpose
The purpose of this document is to define the selected
Subject Matter (the selected Subject Matter) contained within
Macquarie Group Limited’s (MGL) 2015 Annual Report that
have been included in the scope of PwC’s limited assurance
engagement.
Scope and the selected Subject Matter
The selected Subject Matter that MGL requested be
included within the scope of PwC’s limited assurance
engagement comprised the following selected corporate
sustainability information for the 12 months ending 31 March
2015 (the reporting period):
a) total electricity consumed from MGL’s corporate offices,
data centres and base building consumption (where
MGL owns and occupies the building) around the world
b) total indirect emissions from electricity usage (Scope 2)
from MGL’s corporate offices, data centres and base
building consumption (where MGL owns and occupies
the building) around the world
c) Scope 3 emissions associated with short, medium and
long-haul flights procured by MGL
d) management’s assertion that carbon offsets have been
purchased and retired for the 2015 reporting period
representing a quantity of greenhouse emissions offset
greater than the sum of b) and c).
Basis of preparation
Organisational boundary
Corporate offices and data centres
Macquarie’s corporate offices and data centres are defined
as:
– offices leased by MGL operating entities globally which
are also occupied by MGL staff and have a Net Usable
Area (NUA) – the area that can be fitted out by the
tenant greater than 100m
2
– data centres around the world considered to be under
the ongoing ‘operational control’ of MGL. In this
instance ‘operational control’ is defined with reference
to the Australian National Greenhouse and Energy
Reporting Act (2007)
– new offices from business acquisitions from the month
of acquisition.
The following exclusions have been applied in determining
the reporting boundary for corporate offices:
– offices or buildings that are owned or managed by an
MGL entity but are not tenanted by Macquarie staff
– serviced offices used by Macquarie staff where MGL
has no oversight of the energy usage of the office.
Energy costs for serviced offices are typically included
as part of a service fee
– joint venture offices (where the joint venture is the only
Macquarie related occupant of the office). Joint venture
offices are defined as offices where Macquarie staff may
be located as part of a joint venture business activity
but where Macquarie has limited ability to influence the
operation of these offices and does not have oversight
of the data required to calculate greenhouse gas (GHG)
emissions.
Base building
Macquarie’s base buildings are defined as:
– offices or buildings where Macquarie owns and
occupies the building. Base building energy refers to the
energy required to operate the mechanical plant, lifts
and lighting in the lobby and other communal areas.
The following exclusions have been applied in determining
the reporting boundary for base buildings:
– energy use in this category excludes tenanted energy
use in Macquarie owned and operated buildings.
Business air travel
Business air travel is defined as travel ticketed through
Macquarie’s Travel Management Companies for the primary
purpose of business. Where business trips booked through
Macquarie’s Travel Management Companies include
staff-funded spousal travel or personal leisure arrangements
made as an aside to a business trip, this has been included
in ‘business air travel’.
Calculating and measuring GHG emissions and
energy use
Energy use and GHG emissions
Direct emissions associated with natural gas and diesel
(Scope 1 emissions)
Australian data for Scope 1 emissions associated with fuel
combustion, natural gas and refrigerants within the
organisational boundary was obtained from supplier invoices
and found to comprise less than one percent of Macquarie’s
total Australian emissions. On this basis, Scope 1 emissions
for Macquarie’s corporate offices internationally have been
excluded in calculating total GHG emissions for the purposes
of this report.
63
Total electricity consumed
Approximately 85 percent of the electricity data for the
reporting period was obtained directly from actual tenancy or
building data. The remaining 15 percent of energy
consumption was estimated by one of the following:
– where invoiced data existed for an office for part of the
reporting period, determining daily electricity consumed
for that part of the reporting period and extrapolating
this out to the remainder of the reporting period for that
office
– where historical data exists for the office this is used to
estimate the electricity consumed for the reporting
period
– where no invoice data was available for a particular
office, estimating electricity consumed for that office
based on the Net Lettable Area of the office and the
average electricity consumption per square metre of
other offices in the same region.
Emission factors outlined in Measurement of GHG emissions
have then been applied to determine the equivalent indirect
emissions associated with electricity consumed (Scope 2
emissions).
Other indirect emissions associated with business air
travel (Scope 3 emissions)
Air travel data was based on reports provided by
International SOS, the organisation contracted to track MGL
staff travel and provide emergency assistance where
required.
Emission factors outlined in Measurement of GHG emissions
have then been applied to mileage to determine the
equivalent indirect emissions associated with business air
travel (Scope 3 emissions).
Measurement of GHG emissions
The following emissions factors have applied in calculating
GHG emissions (tonnes CO
2
-e):
Component Reference documents
Australian offices National Greenhouse and Energy
Reporting (Measurement)
Determination 2008 and subsequent
amendments for the calculation of
greenhouse gas (GHG) emissions.
EMEA offices Department for Environment Food
and Rural Affairs (DEFRA) 2014
Government GHG Conversion Factors
for Company Reporting: Methodology
Paper for Emission Factors.
Americas offices The Climate Registry Information
System (CRIS) (2014).
Asia offices
Department for Environment Food
and Rural Affairs (DEFRA) 2014
Government GHG Conversion Factors
for Company Reporting: Methodology
Paper for Emission Factors.
Air travel
Department for Environment Food
and Rural Affairs (DEFRA) 2014
Government GHG Conversion Factors
for Company Reporting: Methodology
Paper for Emission Factors.
Scope 2 emissions factors used for Australian and The
Americas offices, and Scope 3 emissions factors for all air
travel include greenhouse gases in addition to carbon
dioxide and are expressed in carbon dioxide equivalents
(CO
2
-e) as stipulated within the associated reference
documents. Scope 2 emission factors used for the United
Kingdom and remaining office locations only comprise
carbon dioxide emissions (CO
2
) as stipulated within the
reference documents. The jurisdictional variance in
approaches to Scope 2 methodology had no material effect
on outcome.
Carbon offsets purchased and retired
All carbon offsets purchased were registered under the
international Gold Standard issued by the Gold Standard
Foundation, Voluntary Carbon Standard issued by the VCS
Association or US Climate Action Reserve protocol.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Environmental, Social and Governance Appendix
Independent limited assurance report
continued
64
Independent Limited Assurance Report to the
Directors of Macquarie Group Limited over
selected Subject Matter included in MGL’s
Annual Report for the 12 months ending
31 March 2015
We have been engaged to provide limited assurance on
selected subject matter (the selected Subject Matter)
presented in the Environmental, Social and Governance (ESG)
Report section of Macquarie Group Limited’s (MGL) Annual
Report (the Annual Report) for the 12 months ending
31 March 2015 (the period), in accordance with the basis of
preparation (the Reporting Criteria) set out on pages 62 and
63 in the Annual Report.
The selected subject matter
The selected Subject Matter was chosen by MGL and
comprises:
a) total electricity consumed from MGL’s corporate offices,
data centres and base building consumption (where MGL
owns and occupies the building) around the world (TJ)
b) total indirect emissions from electricity usage (Scope 2)
from MGL’s corporate offices, data centres and base
building consumption (where MGL owns and occupies
the building) around the world (tCO
2
-e)
c) total Scope 3 emissions associated with short, medium
and long-haul flights procured by MGL (tCO
2
-e)
d) management’s assertion that carbon offsets have been
purchased and retired for the reporting period
representing a quantity of greenhouse emissions offset
greater than the sum of b) and c) above.
Our responsibility
Our responsibility is to express a conclusion on the selected
Subject Matter based on our procedures.
The procedures selected depend on auditor judgment,
including an assessment of the risks of material misstatement
of the selected Subject Matter, whether due to fraud or error.
In making these risk assessments, we consider internal control
relevant to MGL’s preparation and fair presentation of the
selected Subject Matter in the Annual Report in order to
design assurance procedures that are appropriate in the
circumstances, but not for the purpose of expressing a
conclusion on the effectiveness of MGL’s internal controls.
We read other information included within the ESG Report
section in the Annual Report and consider whether it is
consistent with the knowledge obtained through our
procedures. We consider the implications for our report if we
become aware of any apparent material inconsistencies with
the selected Subject Matter. Our responsibilities do not extend
to any other information reported by MGL.
In conducting our assurance engagement, we have followed
applicable independence requirements of Australian
professional ethical pronouncements.
Management’s responsibilities
Management of MGL are responsible for preparing and
presenting the selected Subject Matter in accordance with the
Reporting Criteria. Management are responsible for
determining the adequacy of the Reporting Criteria to meet the
reporting needs of MGL. Management’s responsibility also
includes the design, implementation and maintenance of a
system of internal control relevant to the preparation and fair
presentation of the selected Subject Matter that is free from
material misstatement, whether due to fraud or error.
Inherent limitations
Non-financial performance information, including the selected
Subject Matter, may be subject to more inherent limitations
than financial information, given both its nature and the
methods used for the determining, calculating and estimating
such information. Qualitative interpretations of relevance,
materiality and the accuracy of data are subject to individual
assumptions and judgments. It is important to read the
selected Subject Matter in the context of MGL’s Reporting
Criteria.
Assurance work performed
We conducted our limited assurance engagement in
accordance with the Australian Auditing and Assurance
standard ASAE 3410 “Assurance Engagements on
Greenhouse Gas Statements" (ASAE 3410) issued by the
Australian Auditing and Assurance Standards Board. Our
procedures primarily consisted of:
– enquiries of management
– analytical procedures
– substantive testing of sample data to source information
– re-performance of calculations
– detailed walk-through of key processes and controls
– detailed testing over the consolidation and reporting
process applied by MGL.
As a limited assurance engagement generally comprises of
making enquiries, primarily of management, and applying
analytical procedures and the work is substantially less
detailed than that undertaken for a reasonable assurance
engagement, the level of assurance is lower than would be
obtained in a reasonable assurance engagement. The
conclusion expressed in this report has been formed on the
above basis.
Use of our report
This report has been prepared in accordance with our
engagement terms, solely for the Directors of MGL as a body,
for the sole purpose of reporting on the selected Subject
Matter within the Annual Report. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone
other than the Directors of MGL for our work or for this report,
or for any other purpose other than that for which this report
was prepared.
We consent to the inclusion of this report in the Annual Report
to assist MGL shareholders in assessing whether the Directors
have discharged their responsibilities by commissioning an
independent assurance report in connection with the selected
subject matter.
65
Conclusion
Based on the work described above, nothing has come to our
attention which causes us to believe that the selected Subject
Matter included in the Annual Report for the 12 months ending
31 March 2015 has not been prepared, in all material respects,
in accordance with the Reporting Criteria.
PricewaterhouseCoopers Australia
by
John Tomac
Partner
Sustainability & Climate Change
08 May 2015
Macquarie Group Limited and its subsidiaries
2015 Annual Report macquarie.com
Directors’ Report
for the financial year ended 31 March 2015
66
In accordance with a resolution of the Voting Directors
(the Directors) of Macquarie Group Limited, the Directors
submit the income statements and cash flow statements for
the year ended 31 March 2015 and the balance sheets as at
31 March 2015 of the Consolidated Entity at the end of, and
during, the financial year ended on that date and report
as follows:
Directors
At the date of this report, the Directors of Macquarie are:
Independent Directors
H.K. McCann AM, Chairman
G.R. Banks AO
G.M. Cairns
(1)
M.J. Coleman
P.A. Cross
D.J. Grady AM
M.J. Hawker AM
N.M. Wakefield Evans
P.H. Warne
Executive Voting Director
N.W. Moore, Managing Director and Chief Executive Officer.
Other than Mr Cairns, the Directors listed above each held
office as a Director of Macquarie throughout the financial year
ended 31 March 2015. Those Directors listed as Independent
Directors have been independent throughout the period of
their appointment.
Dr H.M. Nugent AO and Mr P.M. Kirby retired as Independent
Directors on 24 July 2014.
Details of the qualifications, experience and special
responsibilities of the Directors and qualifications and
experience of the Company Secretaries at the date of this
report are set out in Schedule 1 at the end of this report.
Principal Activities
The principal activity of Macquarie during the financial year
ended 31 March 2015 was to act as NOHC for the
Consolidated Entity. The activities of the Consolidated Entity
were those of a financial services provider of banking, financial,
advisory, investment and funds management services. In the
opinion of the Directors, there were no significant changes to
the principal activities of the Consolidated Entity during the
financial year under review that are not otherwise disclosed in
this report.
(1)
Mr Cairns was appointed to the Board as an Independent
Director effective from 1 November 2014.
Result
The financial report for the financial years ended 31 March
2015 and 31 March 2014, and the results have been prepared
in accordance with Australian Accounting Standards.
The consolidated profit after income tax attributable to ordinary
owners for the financial year ended 31 March 2015 was
$A1,604 million (2014:$A1,265 million).
Dividends and Distributions
Subsequent to year end, the Directors have announced a final
ordinary dividend of $A2.00 per share, 40 percent franked
based on tax paid at 30 percent ($A666 million in aggregate).
The final ordinary dividend is payable on 2 July 2015.
On 16 December 2014, the Company paid an interim ordinary
dividend of $A1.30 per share 40 percent franked ($A413
million in aggregate) for the financial year ended 31 March
2015.
On 2 July 2014, the Company paid the final dividend of $A1.60
per share 40 percent franked ($A508 million in aggregate) for
the financial year ended 31 March 2014.
No other ordinary dividends or distributions were declared or
paid during the financial year by the Company.
State of affairs
There were no other significant changes in the state of the affairs
of the Consolidated Entity that occurred during the financial year
under review that are not otherwise disclosed in this report.
Operating and financial review
Please refer to the Chairman's and Managing Director's Letter
and the Operating and Financial Review sections on pages 4
to 18 for the following in respect of the Consolidated Entity
which includes:
– a review of operations during the year and the results of
those operations
– likely developments in the operations in future financial
years and the expected results of those operations
– comments on the financial position, and
– comments on business strategies and prospects for
future financial years.
In respect of likely developments, business strategies and
prospects for future financial years, material which if included
would be likely to result in unreasonable prejudice to the
Consolidated Entity, has been omitted.
67
Directors’ equity participation
As at 8 May 2015, the Directors have relevant interests, as notified by the Directors to the ASX in accordance with the Act, in the
following shares and share options of Macquarie:
Fully paid ordinary shares RSUs held in the MEREP
(1)
PSUs held in the MEREP
(1)
N.W. Moore 1,611,814 649,723 327,154
G.R. Banks 2,916 – –
G.M Cairns 4,620 – –
M.J. Coleman 7,136 – –
P.A. Cross 7,636 – –
D. J. Grady 6,306 – –
M.J. Hawker 7,272 – –
H.K. McCann 13,864 – –
N.M. Wakefield Evans 2,636 – –
P.H. Warne 14,933 – –
(1)
These RSUs and PSUs were issued pursuant to the Macquarie Group Employee Retained Equity Plan (MEREP) and are subject to the
vesting, forfeiture and other conditions applied to grants of awards to Executive Directors, as described in Note 33 to the financial
statements in the Financial Report.
During the financial year, Directors received dividends relating to their shareholdings in Macquarie at the same rate as
other shareholders.
Directors’ other relevant interests
The relevant interests of Directors on 8 May 2015 in managed investment schemes made available by subsidiaries of Macquarie
Group and other disclosable relevant interests are listed in the table below:
Name and position Direct and Indirect Interests
Executive Voting Director
N.W. Moore 2004 Macquarie Timber Land Trust units 50
2006 Macquarie Timber Land Trust units 75
Macquarie Global Infrastructure Fund III (B) units 2,163,106
Independent Directors
G.M. Cairns Macquarie Income Securities 900
D.J. Grady Macquarie Group Capital Notes (MCN) 400
H.K. McCann MCN 4,800
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report
for the financial year ended 31 March 2015
continued
68
Meeting attendance
Directors’ meetings
The number of meetings of the Board of Directors (the Board), and the number of meetings attended by each of the Directors of
Macquarie during the financial year is summarised in the table below:
Board meetings
Monthly Board meetings
(12)
Special Board meetings
(3)
Eligible to attend
as a member
Attended Eligible to attend
as a member
Attended
H.K. McCann 12 12 3 3
N.W. Moore 12 12 3 3
G.R. Banks 12 12 3 2
G.M. Cairns
(1)
5 5 1 1
M.J. Coleman 12 12 3 3
P.A. Cross 12 12 3 3
D.J. Grady 12 11 3 2
M.J. Hawker 12 12 3 3
P.M. Kirby
(2)
4 4 – –
H.M. Nugent
(3)
4 4 – –
N.M. Wakefield Evans 12 12 3 3
P.H. Warne 12 12 3 3
(1)
Mr Cairns was appointed to the Board as an Independent Director effective from 1 November 2014.
(2)
Mr Kirby retired as an Independent Director on 24 July 2014.
(3)
Dr Nugent retired as an Independent Director on 24 July 2014.
69
The number of meetings of Committees of the Board, and the number of meetings attended by each of the members of the
Committees during the financial year is summarised in the table below:
Board Committee meetings
Board Audit
Committee
meetings
(7)
Board Governance
and Compliance
Committee
meetings
(5)
Board
Nominating
Committee
meetings
(2)
Board
Remuneration
Committee
meetings
(9)
Board Risk
Committee
meetings
(6)
Eligible to
attend
as a
member
Attended
as a
member
Eligible to
attend
as a
member
Attended
as a
member
Eligible to
attend
as a
member
Attended
as a
member
Eligible to
attend
as a
member
Attended
as a
member
Eligible to
attend
as a
member
Attended
as a
member
H.K. McCann
(1)
– – – –
2 2 7 7 6 6
N.W. Moore
(2)
– – – – – – – –
4 4
G.R. Banks
(3)
1 1
– – 2 2 7 6
6 6
G.M. Cairns
(4)
– – – –
1 1 4 4
3 2
M.J. Coleman
(5)
7 7 5 5
2 2 – –
6 6
P.A. Cross
(6)
7 7
– – 2 2
5 5 6 6
D.J. Grady
(7)
– –
5 5
2 2
9 9 6 6
M.J. Hawker 7 7 5 5
2 2 – –
6 6
P.M. Kirby
(8)
2 2 1 1 1 1
– –
1 1
H.M. Nugent
(9)
– – – –
1 1 4 4 1 1
N.M. Wakefield Evans
(10)
6 5 5 5 2 2 – –
6 6
P.H. Warne – –
– – 2
2 9 9 6 6
G.C. Ward
(11)
– – – – – – – – 1 1
There were two Board sub-committees convened during the
period. Each sub-committee held two meetings with all
members in attendance for all meetings. The members of the
first sub-committee were Mr McCann, Mr Moore, Mr Coleman
and the CFO, Mr Upfold. The members of the second
sub-committee were Mr McCann, Mr Moore, Mr Coleman,
Mrs Cross and Mr Warne.
The Chairman of the Board and the CEO attend Board
Committee meetings by invitation as a matter of course. All
Board members are sent Board Committee meeting agendas
and may attend any Board Committee meeting.
(1)
Mr McCann ceased to be a member of the BRC on 1 June
2014, and was re-appointed to the Committee on 23 July
2014.
(2)
Mr Moore ceased to be a member of the BRiC on
31 December 2014.
(3)
Mr Banks joined the BNC and BRC, and ceased to be a
member of the BAC, on 1 June 2014.
(4)
Mr Cairns joined the BNC, BRC and BRiC on 1 November
2014.
(5)
Mr Coleman joined the BNC on 1 June 2014.
(6)
Mrs Cross joined the BNC on 1 June 2014, and ceased to be
a member of the BRC on 1 November 2014.
(7)
Ms Grady joined the BNC on 1 June 2014.
(8)
Mr Kirby joined the BNC on 1 June 2014, and retired as an
Independent Director on 24 July 2014.
(9)
Dr Nugent retired as an Independent Director on 24 July 2014.
(10)
Ms Wakefield Evans joined the BNC and BAC on 1 June 2014.
(11)
Mr Ward is not a Voting Director of Macquarie Group Limited.
He was CEO of Macquarie Bank Limited and a member of the
BRiC until his resignation from the Bank Board which was
effective on 30 June 2014.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report
for the financial year ended 31 March 2015
continued
70
Directors’ and officers’ indemnification and
insurance
Under Macquarie Group's Constitution, Macquarie
indemnifies all past and present Directors and Secretaries of
Macquarie (including at this time the Directors named in this
report and the Secretaries) and its wholly-owned
subsidiaries, against certain liabilities and costs incurred by
them in their respective capacities. The indemnity covers the
following liabilities and legal costs (subject to the exclusions
described as follows):
– every liability incurred by the person in their respective
capacity
– all legal costs incurred in defending or resisting (or
otherwise in connection with) proceedings in which the
person becomes involved because of their respective
capacity, and
– legal costs incurred by the person in good faith in
obtaining legal advice on issues relevant to the
performance and discharge of their duties as an officer
of Macquarie or of a wholly-owned subsidiary of
Macquarie, if that has been approved in accordance
with Macquarie policy.
This indemnity does not apply to the extent that:
– Macquarie is forbidden by law to indemnify the person
against the liability or legal costs, or
– an indemnity by Macquarie of the person against the
liability or legal costs, if given, would be made void by
law.
Macquarie has also entered into a Deed of Access,
Indemnity, Insurance and Disclosure (Deed) with each of the
Directors. Under the Deed, Macquarie, inter alia agrees to:
– indemnify the Director to the full extent of the indemnity
given in relation to officers of Macquarie under its
Constitution in force from time to time
– take out and maintain an insurance policy against
liabilities incurred by the Director acting as an officer of
Macquarie or a wholly-owned subsidiary of Macquarie,
or acting as an officer of another company at the
specific request of Macquarie or a wholly-owned
subsidiary of Macquarie. The insurance policy must be
in an amount and on terms and conditions appropriate
for a reasonably prudent company in Macquarie
Group’s position. Insurance must be maintained for
seven years after the Director ceases to be a Director or
until any proceedings commenced during that period
have been finally resolved (including any appeal
proceedings), and
– grant access to the Director to all relevant company
papers (including Board papers and other documents).
In addition, Macquarie made an Indemnity and Insurance
Deed Poll on 12 September 2007 (Deed Poll). The benefit of
the undertakings made by Macquarie under the Deed Poll
have been given to each of the Directors, Secretaries,
persons involved in the management and certain other
persons, of Macquarie, its wholly-owned subsidiaries and
other companies where the person is acting as such at the
specific request of Macquarie or a wholly-owned subsidiary
of Macquarie. The Deed Poll provides for the same indemnity
and insurance arrangements for those persons with the
benefit of the Deed Poll as for the Deed described above.
However, the Deed Poll does not provide for access to
company documents.
The indemnities and insurance arrangements provided for
under the Macquarie Constitution, the Deed and the Deed
Poll, are broadly consistent with the corresponding
indemnities and insurance arrangements provided under the
Macquarie Bank Constitution and deeds entered into by
Macquarie Bank, and were adopted by Macquarie upon the
Consolidated Entity restructure, under which Macquarie
replaced Macquarie Bank as the parent company of the
Group.
Macquarie maintains a Directors’ and Officers’ insurance
policy that provides cover for each person in favour of whom
such insurance is required to be taken out under the Deed
and the Deed Poll and for Macquarie in indemnifying such
persons pursuant to the Deed and the Deed Poll. Relevant
individuals pay the premium attributable to the direct
coverage under the policy and Macquarie pays the premium
attributable to the company reimbursement coverage under
the policy. The Directors’ and Officers’ insurance policy
prohibits disclosure of the premium payable under the policy
and the nature of the liabilities insured.
Environmental regulations
The Consolidated Entity has policies and procedures in place
that are designed to ensure that, where operations are
subject to any particular and significant environmental
regulation under a law of the Commonwealth or of a State or
Territory, those obligations are identified and appropriately
addressed.
The Voting Directors have determined that there has not
been any material breach of those obligations during the
financial year.
Auditor’s independence declaration
A copy of the auditor’s independence declaration as
required under section 307C of the Act, is set out in the
Directors’ Report Schedule 3 following this report.
Non-audit services
Fees paid or payable to the auditor of the Consolidated
Entity, PwC, for non-audit services during the period ended
31 March 2015 total $A6.7 million. Further details of
amounts paid or payable to PwC and its related practices
are disclosed in Note 42 to the financial statements in the
Financial Report.
The Directors are satisfied that the provision of non-audit
services did not compromise the auditor independence
requirements of the Act for the following reasons:
– the operation of the Consolidated Entity’s Auditor
Independence Policy, restricts the external auditor from
providing non-audit services under which the auditor
assumes the role of management, becomes an
advocate for the Consolidated Entity, or audits its own
professional expertise. The policy also provides that
significant permissible non-audit assignments awarded
to the external auditor must be approved in advance by
the BAC or the BAC Chairman, as appropriate, and
71
– the BAC has reviewed a summary of non-audit services
provided by PwC, including details of the amounts paid
or payable to PwC for non-audit services, and has
provided written advice to the Board of Directors.
Consistent with the advice of the BAC, the Directors are
satisfied that the provision of non-audit services during the
year by the auditor and its related practices is compatible
with the general standard of independence for auditors
imposed by the Act.
Rounding of amounts
In accordance with ASIC Class Order 98/100 (as amended),
amounts in the full Directors' Report and Financial Report
have been rounded off to the nearest million dollars unless
otherwise indicated.
This report is made in accordance with a resolution of the
Directors.
Events subsequent to balance date
At the date of this report, the Directors are not aware
of any matter or circumstance which has arisen that
has significantly affected or may significantly affect the
operations of the Consolidated Entity, the results of those
operations or the state of affairs of the Consolidated Entity
in the financial years subsequent to 31 March 2015 not
otherwise disclosed in this report.
H Kevin McCann AM
Independent Director and Chairman
Nicholas Moore
Managing Director and
Chief Executive Officer
Sydney
8 May 2015
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 1 –
Directors’ experience and special responsibilities
for the financial year ended 31 March 2015
72
H Kevin McCann AM, BA LLB (Hons) (Syd),
LLM (Harv), FAICD (age 74)
Independent Chairman since March 2011
Chairman – Board Nominating Committee
Member – Board Remuneration Committee
Member – Board Risk Committee
Kevin McCann joined the Board of Macquarie Group as an
Independent Director in August 2007. Mr McCann was
appointed as an Independent Director of Macquarie Bank in
December 1996 and continues to hold this position. He was
appointed Chairman of the Macquarie Group and Macquarie
Bank Boards in March 2011.
Experience
Kevin McCann was a Partner of leading Australian law firm
Allens Arthur Robinson for 34 years and also served as
Chairman. He practised as a commercial lawyer specialising
in mergers and acquisitions, mineral and resources law and
capital markets transactions.
Mr McCann has wide board experience with major Australian
companies. He was previously Chairman of Origin Energy
Limited, Healthscope Limited and ING Management Limited
and a Director of BlueScope Steel Limited.
Listed company directorships
(held at any time in the last three years)
– Chairman, The Citadel Group Limited (since October
2014)
– Chairman, Origin Energy Limited (from February 2000 to
October 2013)
– Director, BlueScope Steel Limited (from May 2001 to
April 2013).
Other current directorships/appointments
– Chairman, National Library of Australia Foundation
– Director, Sydney Institute of Marine Science
– Director, the United States Studies Centre at the
University of Sydney
– Director, Evans and Partners Pty Limited
– Director, Origin Foundation
– Fellow, University of Sydney Senate
– Co-Vice Chair, New Colombo Plan Reference Group.
Mr McCann is a resident of New South Wales.
Nicholas W Moore, BCom LLB (UNSW),
FCA (age 56)
Managing Director and Chief Executive Officer since
May 2008
Nicholas Moore joined the Board of Macquarie Group in
February 2008 as an Executive Voting Director. Mr Moore
was appointed as an Executive Voting Director of Macquarie
Bank in May 2008 and continues to hold this position.
Experience
Nicholas Moore joined Macquarie in 1986 and led the global
development of its advisory, funds management, financing
and securities businesses.
Appointed Chief Executive Officer in 2008, he is now leading
the continued global growth of Macquarie Group as it builds
on its position as one of Asia-Pacific’s leading financial
services providers.
Other current directorships/appointments
– Chairman, Screen Australia
– Director, Centre for Independent Studies
– Chairman, UNSW Business School Advisory Council
– Chairman, Police & Community Youth Clubs NSW.
Mr Moore is a resident of New South Wales.
Gary R Banks AO, BEc (Hons) (Monash), MEc
(ANU) (age 65)
Member – Board Nominating Committee
Member – Board Remuneration Committee
Member – Board Risk Committee
Gary Banks joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in August 2013.
Experience
Gary Banks has a wealth of experience across economics,
public policy and regulation in Australia and internationally.
He was Chairman of the Australian Productivity Commission
from its inception in 1998 until 2012.
He has also held senior roles with the GATT Secretariat in
Geneva, the Trade Policy Research Centre in London, the
Centre for International Economics in Canberra and
consulted to the World Bank, Organisation for Economic
Co-operation and Development (OECD) and World Trade
Organisation.
Other current directorships/appointments
– Chief Executive and Dean, the Australia and New
Zealand School of Government
– Member, Prime Minister's Business Advisory Council
– Chairman, Regulatory Policy Committee of the OECD
– Member, Advisory Board of the Melbourne Institute,
University of Melbourne
– Adjunct Professor, Australian National University.
Mr Banks is a resident of Victoria.
73
Gordon M Cairns, MA (Hons) (Edin) (age 64)
Member – Board Nominating Committee
Member – Board Remuneration Committee
Member – Board Risk Committee
Gordon Cairns joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in November
2014.
Experience
Gordon Cairns has held a range of management and
executive roles throughout his career, including Chief
Executive Officer of Lion Nathan Limited. He has extensive
experience as a company director, including nine years as a
non-executive director of Westpac Banking Corporation,
where he served on the Board Risk Management and
Remuneration Committees.
Mr Cairns has served as a director on the boards of Lion
Nathan Australia Limited and Seven Network Australia
Limited, and as Chairman of David Jones Limited and Rebel
Group Pty Limited.
Listed company directorships
(held at any time in the last three years)
– Chairman, Origin Energy Limited (since October 2013)
(Director since June 2007)
– Chairman, David Jones Limited (from March 2014 to
August 2014)
– Director, Westpac Banking Corporation (from July 2004
to December 2013).
Other current directorships/appointments
– Chairman, Quick Service Restaurant Group Pty Ltd
– Chairman, Origin Foundation
– Senior Adviser, McKinsey & Company.
Mr Cairns is a resident of New South Wales.
Michael J Coleman, MCom (UNSW), FCA, FCPA,
FAICD (age 64)
Chairman – Board Audit Committee
Member – Board Governance and Compliance Committee
Member – Board Nominating Committee
Member – Board Risk Committee
Michael Coleman joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in November
2012.
Experience
A senior audit partner with KPMG for 30 years, Michael
Coleman has significant experience in risk management,
financial and regulatory reporting and corporate governance.
Mr Coleman was KPMG’s inaugural National Managing
Partner Assurance and Advisory from 1998 to 2002, National
Managing Partner for Risk and Regulation from 2002 to
2010 and Regional Leader for Asia Pacific Quality and Risk
Management from 2002 to 2011. He has also served as
Chairman of ING Management Limited.
Listed company directorships
(held at any time in the last three years)
– Chairman, ING Management Limited (from July 2011 to
June 2012).
Other current directorships/appointments
– Deputy Chairman, Financial Reporting Council
– Member, Audit Committee of the Reserve Bank of
Australia
– Chairman, Reporting Committee of the Australian
Institute of Company Directors (AICD)
– Member, NSW Council, AICD
– Member, Advisory Board of Norton Rose Fulbright
Australia
– Chairman, Planet Ark Environmental Foundation
– Adjunct Professor, Australian School of Business,
University of New South Wales.
Mr Coleman is a resident of New South Wales.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 1 –
Directors’ experience and special responsibilities
for the financial year ended 31 March 2015
continued
74
Patricia A Cross, BSc (Hons) (Georgetown), FAICD
(age 55)
Chairman – Board Risk Committee
Member – Board Audit Committee
Member – Board Nominating Committee
Patricia Cross joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in August 2013.
Experience
Patricia Cross has extensive international financial and
banking experience, through senior executive roles with
Chase Manhattan Bank and Chase Investment Bank,
Banque Nationale de Paris and National Australia Bank,
where she was responsible for the Wholesale Banking and
Finance Division and a member of the Executive Committee.
She has lived and worked in seven different countries.
Mrs Cross has served on a number of listed company
boards, including National Australia Bank Limited, JBWere
Limited, Qantas Airways, Wesfarmers Limited, AMP Limited
and Suncorp-Metway Limited. She was Chairman of Qantas
Superannuation Limited and Deputy Chairman of the
Transport Accident Commission of Victoria. Mrs Cross has
also served on many government bodies and not for profit
organisations’ boards.
Listed company directorships
(held at any time in the last three years)
– Director, Aviva plc (since October 2013)
– Director, Qantas (from January 2004 to October 2013)
– Director, National Australia Bank (from December 2005
to August 2013).
Other current directorships/appointments
– Chairman, Commonwealth Superannuation Corporation
– Director, Grattan Institute
– Ambassador, Australian Indigenous Education
Foundation.
Mrs Cross is a resident of Victoria.
Diane J Grady AM, BA (Mills), MA (Hawaii),
MBA (Harv), FAICD (age 66)
Member – Board Governance and Compliance Committee
Member – Board Nominating Committee
Member – Board Remuneration Committee
Member – Board Risk Committee
Diane Grady joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in May 2011.
Experience
Diane Grady was a partner at McKinsey & Company where
she consulted for over 15 years to clients on strategic,
organisational and operational issues related to growth and
was a worldwide leader of the firm’s Organisation and
Change Management practice. She has a Masters of
Chinese Studies and worked for three years as a journalist in
Asia. She has published research on innovation, corporate
governance and gender diversity.
Ms Grady has been a full time independent director of public
companies and not-for-profit boards since 1994 and has
extensive international experience in a variety of industries.
Previous directorships include BlueScope Steel Limited,
Woolworths Limited, Goodman Group, Wattyl Limited, Lend
Lease US Office Trust, Lend Lease Limited and MLC. She
also served as a member of the ASIC Business Consultative
Panel, the National Investment Council, the Sydney Opera
House Trust and was President of Chief Executive Women.
Listed company directorships
(held at any time in the last three years)
– Director, Spotless Group Holdings Limited (since March
2014)
– Director, BlueScope Steel Limited (from May 2002 to
February 2013).
Other current directorships/appointments
– Member, McKinsey Advisory Council
– Chair, Ascham School
– Chair, Hunger Project Australia
– Director, Australian Stationery Industries
– Member, NSW Innovation and Productivity Council
– Member, Centre for Ethical Leadership
– Member, Heads over Heels Advisory Council.
Ms Grady is a resident of New South Wales.
75
Michael J Hawker AM, BSc (Sydney), FAICD, SF
Fin, FAIM, FIoD (age 55)
Chairman – Board Governance and Compliance Committee
Member – Board Audit Committee
Member – Board Nominating Committee
Member – Board Risk Committee
Michael Hawker joined the Boards of Macquarie Group and
Macquarie Bank as an Independent Director in March 2010.
Experience
Michael Hawker has substantial expertise and experience in
the financial services industry including management
experience in regulated entities and a deep understanding of
risk management. He was Chief Executive Officer and
Managing Director of Insurance Australia Group from 2001
to 2008 and has held senior positions at Westpac and
Citibank.
Mr Hawker was also President of the Insurance Council of
Australia, Chairman of the Australian Financial Markets
Association, a board member of the Geneva Association and
a member of the Financial Sector Advisory Council.
Listed company directorships
(held at any time in the last three years)
– Director, Aviva plc (since January 2010)
– Director, Washington H Soul Pattinson and Company
Ltd (since October 2012).
Other current directorships/appointments
– Chairman, Australian Rugby Union
– Chairman, the George Institute for Global Health
– Member, the George Institute for Global Health (UK).
Mr Hawker is a resident of New South Wales.
Nicola M Wakefield Evans, BJuris/BLaw (UNSW),
MAICD (age 54)
Member – Board Audit Committee
Member – Board Governance and Compliance Committee
Member – Board Nominating Committee
Member – Board Risk Committee
Nicola Wakefield Evans joined the Boards of Macquarie
Group and Macquarie Bank as an Independent Director in
February 2014.
Experience
Nicola Wakefield Evans has significant Asia-Pacific
experience as a corporate finance lawyer and was a partner
at King & Wood Mallesons (and its predecessor, Mallesons
Stephen Jaques) for more than 20 years. Ms Wakefield
Evans has particular expertise in the financial services,
resources and energy, and infrastructure sectors.
She held several key management positions at King & Wood
Mallesons including Managing Partner International in Hong
Kong and Managing Partner, Practice in Sydney.
Listed company directorships
(held at any time in the last three years)
– Director, Toll Holdings Limited (since May 2011)
– Director, Lend Lease Corporation Limited (since
September 2013).
Other current directorships/appointments
– Director, BUPA Australia and New Zealand Group
– Director, Asialink, University of Melbourne
– Member, Advisory Council, University of New South
Wales Law School.
Ms Wakefield Evans is a resident of New South Wales.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 1 –
Directors’ experience and special responsibilities
for the financial year ended 31 March 2015
continued
76
Peter H Warne, BA (Macquarie), FAICD (age 59)
Chairman – Board Remuneration Committee
Member – Board Nominating Committee
Member – Board Risk Committee
Peter Warne joined the Board of Macquarie Group as an
Independent Director in August 2007. Mr Warne was
appointed as an Independent Director of Macquarie Bank in
July 2007 and continues to hold this position.
Experience
Peter Warne has extensive knowledge of, and experience in,
financial services and investment banking, through a number
of roles at Bankers Trust Australia Limited, including as Head
of its Financial Markets Group from 1988 to 1999. Mr Warne
was a Director of the Sydney Futures Exchange (SFE) from
1990 to 1999, then from 2000 to 2006. He served as Deputy
Chairman of the SFE from 1995 to 1999. When the SFE
merged with the Australian Securities Exchange (ASX
Limited) in July 2006, he became a Director of ASX Limited,
a position he still holds.
Listed company directorships
(held at any time in the last three years)
– Chairman, ALE Property Group (since September 2003)
– Chairman, OzForex Group Limited (since September
2013)
– Director, ASX Limited (since July 2006)
– Deputy Chairman, Crowe Horwath Australasia Limited
(from September 2008 to January 2015) (Director from
May 2007 to January 2015).
Other current directorships/appointments
– Director, New South Wales Treasury Corporation
– Member, Advisory Board of the Australian Office of
Financial Management
– Patron, Macquarie University Foundation.
Mr Warne is a resident of New South Wales.
Company secretaries’ qualifications and
experience
Dennis Leong, BSc BE (Hons) (Syd), MCom
(UNSW), CPA, FGIA
Company Secretary since October 2006
Dennis Leong is an Executive Director of Macquarie
and Head of the Group’s Corporate Governance Division
that is responsible for the Group’s company secretarial
requirements, general and professional risks insurances
and employee equity plans. He has over 21 years company
secretarial experience and 12 years experience in corporate
finance at Macquarie and Hill Samuel Australia Limited.
Paula Walsh, ACIS
Assistant Company Secretary since May 2008
Paula Walsh is a Division Director of Macquarie and has
over 25 years company secretarial experience. She joined
Macquarie in May 2007 and was previously Head of
Corporate Governance, Asia Pacific at British
Telecommunications PLC.
Nigel Donnelly, BEc LLB (Hons) (Macquarie)
Assistant Company Secretary since October 2008
Nigel Donnelly is a Division Director of Macquarie and has
over 15 years experience as a solicitor. He joined Macquarie
in April 2006, and was previously a Senior Associate at
Mallesons Stephen Jaques (now named King & Wood
Mallesons) with a general corporate advisory and corporate
governance focus.
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
77
Executive summary ........................................................................................................................................................................ 78
Macquarie’s remuneration framework .......................................................................................................................................... 80
Macquarie’s remuneration structure ............................................................................................................................................. 82
Profit share retention levels ......................................................................................................................................................... 82
Investment of retained profit share .............................................................................................................................................. 82
Vesting and release of profit share .............................................................................................................................................. 83
Forfeiture of retained profit share (Malus) .................................................................................................................................... 83
Early vesting and release of retained profit share ........................................................................................................................ 84
Performance Share Units (PSUs) ................................................................................................................................................ 85
Other features of Macquarie's remuneration structure ................................................................................................................ 87
Alignment of remuneration outcomes to results .......................................................................................................................... 88
Macquarie’s performance relative to peers .................................................................................................................................. 90
Net profit after tax ....................................................................................................................................................................... 90
Return on equity ......................................................................................................................................................................... 91
Total shareholder return .............................................................................................................................................................. 92
Compensation expense to income ratio ...................................................................................................................................... 94
Staff retention ............................................................................................................................................................................. 95
Remuneration governance ............................................................................................................................................................. 96
Strong Board oversight ............................................................................................................................................................... 96
Independent remuneration review ............................................................................................................................................... 97
Non-Executive Director remuneration ........................................................................................................................................... 98
Non-Executive Director remuneration policy ............................................................................................................................... 98
Board and Committee fees ......................................................................................................................................................... 98
Minimum shareholding requirement for Non-Executive Directors ................................................................................................ 99
Appendices: Key Management Personnel (KMP) disclosures ................................................................................................... 100
Appendix 1: KMP .......................................................................................................................................................................... 100
Appendix 2: Statutory remuneration disclosures ....................................................................................................................... 102
Appendix 3: Share disclosures .................................................................................................................................................... 108
Appendix 4: Other KMP disclosures ........................................................................................................................................... 114
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
78
Executive summary
During the year, the Board and the BRC have reviewed
Macquarie’s remuneration framework to ensure it continues to
meet its overriding objective of delivering superior company
performance over the short and long term, while prudently
managing risk. In undertaking this assessment, the Board and
the BRC have considered factors including:
– the degree of alignment between staff and shareholders
– the evolving regulatory landscape
– market developments
– feedback from shareholders
– the employment environment
– Macquarie’s performance during the year and the
performance of each business
– shareholder returns
– the need to balance long term and short term incentives.
The Board is of the view that Macquarie’s remuneration
approach continues to create a strong alignment of staff and
shareholders’ interests, while prudently managing risk.
The remuneration framework seeks to attract, motivate and
retain exceptional people, while aligning their interests with
those of shareholders. It is comprised of fixed remuneration,
a profit share scheme, and for Macquarie’s most senior
executives, the Executive Committee, Performance Share
Units (PSUs). The framework should be considered as an
integrated whole. The components that make up the
integrated remuneration framework are explained below.
Macquarie’s remuneration structure emphasises performance-
based remuneration, with an appropriate balance between
short and longer-term incentives, and an alignment with
prudent risk-taking.
Fixed remuneration for senior staff remains low relative to
comparable roles in other organisations, although it is sufficient
to avoid inappropriate risk-taking. Moreover, it is low as a
proportion of overall remuneration. In 2015, fixed remuneration
for Macquarie’s 13 Executive Committee members comprised
approximately eight per cent of total remuneration. The
balance remains at risk and is explicitly linked to performance.
Performance-based remuneration in the form of profit share is
aligned with company performance. The profit share pool is
determined annually using the twin measures of net profit after
tax (NPAT) and return on ordinary equity (ROE), measures
which are known to be drivers of returns to shareholders.
A portion of Macquarie’s profit earned accrues to the profit
share pool. Once the cost of equity capital is met, an additional
portion of excess profit is accrued to the profit share pool. In
addition, the NEDs of the Board have the discretion to change
the quantum of the profit share pool to reflect internal and
external factors if deemed in the interests of Macquarie and
shareholders. As has occurred in previous years, not all of the
profit share pool has been paid to employees in the current
year.
Profit share is allocated to Macquarie’s businesses and, in
turn, to individuals, based predominantly on performance.
Performance criteria vary depending on an individual’s role
including:
– financial performance
– risk management and compliance
– business leadership
– people leadership including upholding the Code.
The Board also seeks to ensure that remuneration for staff
whose primary role is risk and financial control, including the
CRO and the CFO, preserves the independence of the
function and maintains Macquarie’s robust risk management
framework.
Performance-based remuneration is delivered in ways that
encourage a longer-term perspective and ensure alignment
with shareholders’ longer-term interests and staff retention. In
turn, this encourages staff to maximise profit without exposing
Macquarie to risk or behaviours that jeopardise long term
profitability or reputation. To achieve this outcome, a significant
portion of performance-based remuneration is:
– retained and deferred over a long period (for example, the
retention rate for the CEO’s profit share allocation is 70
per cent, retained for up to seven years). Including PSUs,
the effective deferral rate for the CEO is 74 per cent for
this year
– delivered in equity
– subject to forfeiture in certain circumstances.
Performance-based remuneration in the form of PSUs are
allocated to Executive Committee members based on their
performance, using criteria similar to those used for profit
share. PSUs vest in equal tranches after three and four years
and are exercisable subject to the achievement of two
performance hurdles linked to earnings per share (EPS) and
ROE, with no retesting.
Other conditions apply that seek to align staff and shareholder
interests. All Executive Directors are subject to a minimum
shareholding requirement which can be satisfied through the
delivery of equity under the current remuneration
arrangements. This aligns shareholder and staff interests and
provides the strongest incentive to staff to maximise long term
profitability and shareholder returns.
Macquarie prohibits staff from hedging any of the following
types of securities:
– shares held to satisfy the minimum shareholding
requirement
– deferred and unvested awards to be delivered under the
equity plan, the MEREP, including PSUs.
Staff can only trade Macquarie ordinary shares and other
securities during designated trading windows.
79
Macquarie’s remuneration outcomes are aligned to business results and shareholder returns.
Macquarie has delivered strong financial results for shareholders while appropriately managing remuneration for staff. The Board is
of the view that the remuneration outcomes for senior executives are appropriately aligned to their businesses’ performance,
Macquarie’s performance and the interests of shareholders.
To demonstrate the link between pay and performance, a comparison of performance measures and executive remuneration
outcomes allows shareholders to see how the remuneration for Executive Key Management Personnel (KMP) is aligned with
performance. The analysis below shows that CEO remuneration has increased in line with the increase in NPAT and EPS.
Remuneration outcomes for other Executive KMP varied according to their individual performance and the performance of their
business. Total remuneration for Comparable Executive KMP, including the CEO, has not increased to the same extent as NPAT
and EPS, which reflects the way that performance takes a range of factors into consideration.
Comparison of performance measures and executive remuneration measures: FY2014 – FY2015
2015 2014
Increase/
(Decrease)%
Performance measures
NPAT $Am 1,604 1,265 27
Basic EPS Cents per share 502.3 383.6 31
Ordinary dividends Cents per share 330.0 260.0 27
Total dividends
Cents per share 330.0 376.0
(1)
(12)
Return on equity Per cent 14.0 11.1
Annual TSR
(2)
Per cent 38.9 66.0
Executive remuneration measures
Total Compensation Expense $Am 3,891 3,505 11
Compensation Expense to Income ratio Per cent 41.9 43.1
Average staff headcount 14,086 13,796 2
Actual staff headcount 14,085 13,913 1
Statutory Remuneration – CEO $Am 16.50 13.08 26
Statutory Remuneration – Comparable KMP
(3)
$Am 90.82 76.05 19
(1)
Includes the special dividend component of 116 cents per share in relation to the SYD distribution in January 2014.
(2)
TSR represents the accumulated share price return when all cash dividends are reinvested at the ex-dividend date.
(3)
Comparable KMP are defined on page 88.
In addition, Macquarie’s performance has been strong relative to peers, particularly over the longer-term.
Strong remuneration governance continues to be exercised.
The Board and the BRC remain committed to strong remuneration governance structures and processes. Strict processes are in
place to ensure that conflicts of interest are appropriately managed. The BRC makes recommendations to the NEDs on key
decisions including the remuneration outcomes for all Executive Committee members.
An independent remuneration review has also been obtained from an independent consultant, Pay Governance, to provide an
opinion on the appropriateness of Macquarie’s remuneration arrangements.
NED fees take into account market rates for relevant Australian financial organisations and reflect the time commitment and
responsibilities involved within the shareholder approved aggregate limit.
In summary, Macquarie’s overall approach to remuneration supports the overarching objective of delivering superior company
performance over the short and long term, while prudently managing risk.
long term
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
80
Macquarie’s remuneration framework
This section explains the objectives and principles of the remuneration system.
Macquarie’s remuneration framework continues to support the overarching objective of delivering superior company performance
over the short and long term, while prudently managing risk. Directors recognise that to achieve this objective, Macquarie must
attract, motivate and retain exceptional people, while aligning their interests with those of shareholders.
They consider this is best achieved by supporting the following principles:
– emphasising performance-based remuneration with an appropriate balance between short and longer-term incentives having
regard to risk
– linking rewards to the creation of sustainable shareholder value through the use of shareholder return drivers, namely
profitability and returns in excess of the cost of capital
– structuring remuneration to encourage behaviour that supports Macquarie’s risk management framework
– delivering remuneration in a way that encourages a long term perspective and creates alignment with shareholder interests
– providing consistent arrangements over time to give staff the confidence to pursue multi-year initiatives
– remunerating high performing staff appropriately, relative to global peers, so they are attracted to and stay with Macquarie.
The way these principles link to the overall objectives are outlined in the chart below.
Overall remuneration objectives and principles
The remuneration framework works as an integrated whole. It is comprised of fixed remuneration and a profit share system. In
addition, the Group’s most senior executives, the Executive Committee, may be awarded PSUs. The way in which these three
elements work together as part of an integrated framework to support the objectives and principles is outlined in the diagram on the
following page.
81
(1)
See page 83 for a description.
P
e
r
f
o
r
m
a
n
c
e
-
b
a
s
e
d
r
e
m
u
n
e
r
a
t
i
o
n
Structure and
deliver
performance-based
remuneration
Profit share pool is determined annually by
– allocation of a proportion of the Group’s NPAT and ROE over and above
the cost of capital
– potential for NEDs to exercise discretion to adjust the size of the pool up or
down
– PSU pool reflects the Group’s overall performance.
Allocate to businesses
– based on each business’ relative contribution to profits (not revenue) taking
into account factors including capital usage, risk management and
compliance and competitor dynamics.
Allocate to risk and financial control groups and other support groups
– based on the quality and integrity of control functions and the quality of
business support services
– not determined solely with reference to profitability.
Allocate to individuals
– based on individual performance. Performance criteria vary depending on
an individual’s role including:
– financial performance
– risk management and compliance
– business leadership
– people leadership including upholding the Code.
– PSUs are only awarded to members of the Executive Committee.
– create shareholder alignment by adopting an approach where a significant
portion of performance-based remuneration is:
– retained and deferred over a long period
– delivered in equity
– subject to forfeiture except in the case of genuine retirement,
redundancy or other limited circumstances and for Executive Directors,
subject to payout over two years post termination of employment
dependent on specific criteria being met.
– apply Malus
(1)
subject to conditions and the exercise of discretion by the
Board consistent with employment legislation
– employ ROE and EPS as PSU vesting hurdles.
Allocate
– Profit Share
– PSUs
Create Pool
– Profit Share
– PSUs
F
i
x
e
d
r
e
m
u
n
e
r
a
t
i
o
n
Determine
fixed
remuneration
Fixed remuneration
– modest compared with similar roles in other organisations but sufficient to
avoid inappropriate risk-taking
– compared with profit share, generally higher for risk and financial control
staff than for front office staff
– reviewed annually and reflects technical and functional expertise, role
scope, market practice and regulatory requirements.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
82
Macquarie’s remuneration structure
This section describes the way in which performance-based remuneration is structured and delivered to manage risk and create
shareholder alignment.
Macquarie’s remuneration structure emphasises performance-based remuneration, with an appropriate balance between short and
longer-term incentives, and an alignment with prudent risk-taking. The Board has discretion to change the remuneration
arrangements on an annual basis to meet changing market conditions as well as to comply with regulatory and corporate
governance developments.
Profit share retention levels
A percentage of each Executive Directors' annual gross profit share allocation is retained by Macquarie (retained profit share). The
percentage is set according to their role.
The Board has discretion to change the percentage of profit share allocations retained on an annual basis to meet changing market
conditions as well as to comply with regulatory and corporate governance guidance, provided that the retention percentage is at
least 30 per cent for Executive Directors.
Standard retention rates by role
Role %
CEO 70%
CEO Macquarie Bank 50%
Other Executive Committee members 50% – 60%
Designated Executive Directors
(1)
50% – 60%
Other Executive Directors 40% – 60%
Staff other than Executive Directors 25% – 60%
(2)
(1)
Executive Directors who have a significant management or risk responsibility in the organisation.
(2)
Dependent on certain thresholds.
Investment of retained profit share
Executive Directors' retained profit share is invested in a combination of Macquarie shares under the MEREP
(3)
, and Macquarie-
managed fund equity notionally invested under the Post-2009 Director’s Profit Share (DPS) Plan
(4)
. The following table shows the
current percentage allocation of retained profit share that is invested in these two plans, depending on the Executive Director’s role:
Role
Post-2009 DPS Plan
(Macquarie-managed fund equity)
MEREP
(Macquarie shares)
CEO Macquarie and CEO Macquarie Bank 10% 90%
Executive Committee members with Funds responsibilities 50% 50%
Other Executive Committee members 10% 90%
Executive Directors with Funds responsibilities 50% – 75% 25% – 50%
Other Executive Directors 10% – 20% 80% – 90%
For staff other than Executive Directors, retained profit share is generally invested in Macquarie equity.
Both the MEREP and the DPS Plan are fundamental tools in Macquarie’s retention, alignment and risk management strategies,
encompassing both long term retention arrangements and equity holding requirements. The BRC reviews the percentage allocated
to the Post-2009 DPS Plan and the MEREP on an annual basis to reflect an individual Executive Director’s responsibilities. In limited
circumstances, retained profit share may be allocated to other than the Post-2009 DPS Plan or the MEREP. An example might
include investment in funds or products of a specific business group where there is a need to directly align the interests of
employees with those of their specific types of clients.
(3)
The MEREP has a flexible plan structure that offers different types of equity grants depending on the jurisdiction in which the participating
employees are based. In most cases, the equity grants are in the form of units comprising a beneficial interest in a Macquarie share held in a
trust for the staff member (Restricted Share Units or RSUs). For further details on the MEREP, refer to Note 33 to the financial statements in
the Financial Report.
(4)
The Post-2009 DPS plan comprises exposure to a notional portfolio of Macquarie-managed funds. Retained amounts for Executive
Directors are notionally invested over the retention period. This investment is described as ‘notional’ because Executive Directors do not
directly hold securities in relation to this investment. However, the value of the retained amounts will vary as if these amounts were
directly invested in actual securities, giving the Executive Directors an effective economic exposure to the performance of the securities.
Notional returns on retained profit share invested in the Post-2009 DPS Plan may be paid annually to Executive Directors. These
amounts are required to be disclosed as remuneration for Executive KMP. The notional returns are calculated based on total
shareholder return. If the notional investment of retained profit share results in a notional loss, this loss will be offset against any future
notional income until the loss is completely offset.
83
Vesting and release of profit share
Retained profit share vests and is released over a period that
reflects the scope and nature of an individual’s role and
responsibilities. The vesting period is established for each
retained profit share allocation by the BRC, according to the
prevailing market conditions, having regard to regulatory and
remuneration trends at the time of allocation. For each year’s
allocation, once the vesting period has been determined it will
remain fixed for that allocation. The BRC has established the
following release schedule for retained profit share invested in
the Post-2009 DPS Plan and the MEREP:
Role Release schedule
Executive Committee Members
(including the Managing Director
and CEOs of Macquarie and
Macquarie Bank), Designated
Executive Directors
one-fifth in each
of years 3–7
Other Executive Directors one-third in each
of years 3–5
Staff other than Executive Directors one-third in each
of years 2–4
Vesting schedules may vary for certain groups of staff who
have become employees as a result of an acquisition, or for
staff in jurisdictions outside Australia to ensure compliance with
local regulatory requirements.
Forfeiture of retained profit share (Malus)
Since 2012, the Board or its delegate has had the ability to
reduce or eliminate unvested profit share for certain senior
employees in certain circumstances (Malus). The Malus
provisions were enhanced in FY2015, such that the Board or
its delegate may reduce or eliminate in full, the unvested profit
share awarded in respect of FY2015 and subsequent years to
certain senior employees if it determines that the individual has
at any time:
– acted dishonestly (including, but not limited to, by
misappropriating funds or deliberately concealing a
transaction)
– acted or failed to act in a way that contributed to a breach
of a significant legal or significant regulatory requirement
relevant to Macquarie
– acted or failed to act in a way that contributed to
Macquarie, Macquarie Bank or any Group within
Macquarie incurring:
– significant reputational harm, and/or
– a significant unexpected financial loss, impairment
charge, cost or provision, or
– acted or failed to act in a way that contributed to
MGL or MBL making a material financial restatement.
Each of the above is a Malus Event.
Additional provisions may apply to staff in jurisdictions outside
Australia to ensure compliance with local regulations. This
includes, for example, staff in the EU who are required to
comply with the UK Regulators' Remuneration Code (Code
Staff). These individuals are subject to additional Malus and
clawback provisions under these regulations.
Macquarie has always had, and continues to have, the ability
to terminate staff for such circumstances, at which time any
unvested profit share would be forfeited in full. The BRC
considers whether, and the extent to which, to apply Malus,
taking into account local employment laws, the nature and
circumstances of the event and any other redress that has
been or may be applied.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
84
Early vesting and release of retained profit share
A departing Executive Director’s unvested retained profit share is only paid out in the case of genuine retirement, redundancy,
disability, serious ill-health or other limited exceptional circumstances. The Board, or its delegate, has discretion to accelerate the
vesting of retained profit share under these circumstances (subject to the conditions of early release as set out below).
In the case of death or serious incapacitation, the Board or its delegate will typically accelerate the vesting of retained profit share
and immediately release it to the Executive Director or, to the Executive Director's legal personal representative (subject to the
Malus provisions).
Discretion may be exercised in certain other limited exceptional circumstances on the grounds of business efficacy, in connection
with strategic business objectives (including in connection with the divestment or internalisation of Macquarie businesses) or when
an employee resigns to fulfil a senior full-time role in a governmental organisation or agency. Where such discretion is exercised, the
Board or its delegate may impose such other conditions as it considers appropriate. This year discretion has been exercised and
retained profit share released for seven executives.
Conditions of early release of retained profit share to departing Executive Directors
In addition to the Malus provisions set out on page 83, the Board or its delegate may reduce or eliminate in full the retained profit
share of any departing Executive Director for whom discretion has been exercised to accelerate the vesting of their retained profit
share upon termination, if it determines that the Executive Director has at any time committed a Malus Event (as described above)
or:
a) taken staff to a competitor or been instrumental in causing staff to go to a competitor, or
b) joined a competitor.
Each of the above is a Post Employment Event.
Other than in the case of death or serious incapacitation, the release will occur over the period from six months to two years after
the Executive Director leaves, in accordance with the following table:
First period Second period Third period
Time post departure Six months Six months – one year One year – two years
Unvested retained
profit share released
From all but the last two
years of employment
From the second year prior
to the end of employment
From the year prior to the end
of employment
Subject to No Malus Event or Post
Employment Event
No Malus Event or Post
Employment Event during
First Period
and no Malus Event or Post
Employment Event (a) in
Second Period
No Malus Event or Post Employment
Event during First Period and No
Malus Event or Post Employment
Event (a) during Second Period
and No Malus Event in Third Period
Where an Executive Director has a tax liability on termination of employment in respect of any unvested retained profit share, the
Board or its delegate has discretion to release unvested retained profit share up to an amount equal to the Executive Director's tax
liability, at an earlier time than noted above.
85
Performance Share Units (PSUs)
Executive Committee members are the only group of staff eligible to receive PSUs. Since their introduction, PSUs have been
structured as DSUs
(1)
with performance hurdles. Holders have no right to dividend equivalent payments. In all other respects,
holders of these PSUs have the same rights as holders of DSUs. There is no exercise price for PSUs. The following table
summarises the key terms of PSUs and the performance hurdles:
(1)
A DSU is a Deferred Share Unit and is one of the award types under the MEREP. For further details, refer to Note 33 to the financial
statements in the Financial Report.
(2)
The allocation of PSUs to the CEO, who is an Executive Voting Director, is subject to shareholder approval.
Determination
– The Board approves the value of PSUs to be allocated to Executive
Committee members each year.
Allocation
– The allocation to individuals
(2)
is based on:
– role scope and complexity
– financial and non-financial performance assessment against a range
of factors including financial results, risk management and
compliance, business leadership and people leadership
– upholding the Code.
Vesting
– Since 2012, PSUs will vest in two equal tranches after years three and four
from the deemed vesting commencement date (typically 1 July in the year
of grant), and are exercisable on the achievement of performance hurdles
(refer pages 86 to 87)
– Grants made prior to 2012 vest in three equal tranches after two, three and
four years.
To ensure continued alignment with shareholders post termination, in cases of
genuine retirement, PSUs continue to vest in accordance with the above vesting
schedule and remain subject to the same performance hurdles. The Board or its
delegate has the authority to accelerate the vesting of, or to forfeit PSUs, when an
Executive Committee member leaves Macquarie. To date, this discretion has not
been exercised.
Upon leaving
Macquarie
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
86
Performance hurdles for PSUs
The PSU hurdles are periodically reviewed by the BRC to ensure they continue to align the interests of staff and shareholders and
provide a challenging but meaningful incentive to Executive Committee members. The BRC considers historical and forecast market
data, the views of corporate governance bodies, shareholders and regulators as well as peer market practice. No change has been
made to the hurdles for FY2015.
PSUs issued under the MEREP become exercisable upon the achievement of two performance hurdles, each applying individually
to 50 per cent of the total number of each tranche of PSUs awarded. The following table provides a summary of the hurdles:
EPS CAGR Hurdle ROE Hurdle
Application to
PSU awards
50 per cent 50 per cent
Performance
measure
Compound annual growth rate (CAGR) in EPS
over the vesting period (three to four years).
Relative average annual return on ordinary equity over
the vesting period (three to four years) compared with a
reference group of global peers
(1)
.
Hurdle Sliding scale applies:
– 50 per cent becoming exercisable at EPS
CAGR of 7.5 per cent
– 100 per cent at EPS CAGR of 12 per cent.
For example, if EPS CAGR was 9.75 per cent,
75 per cent of the relevant awards would
become exercisable.
For awards made prior to 2013, the EPS
CAGR hurdle range was 9 per cent to 13 per
cent.
Sliding scale applies:
– 50 per cent becoming exercisable above the 50
th
percentile
– 100 per cent at the 75
th
percentile.
For example, if ROE achievement was at the 60
th
percentile, 70 per cent of the relevant awards would
become exercisable.
Rationale for
hurdles
– ROE and EPS are considered appropriate measures of performance as they drive longer-term
company performance and are broadly similar to the performance measures Macquarie uses for
determining the annual profit share pool
– ROE and EPS are appropriate for the Executive Committee because they can affect outcomes on both
measures. In contrast, Total Shareholder Return (TSR) is influenced by many external factors, including
market sentiment, over which executives have limited control
– ROE and EPS can be substantiated using information that is disclosed in audited financial statements
– the use of a sliding scale diversifies the risk of not achieving the hurdles, provides rewards
proportionate to performance for shareholders and is preferable to an all-or-nothing test which some
have argued could promote excessive risk taking
– the approach is consistent with that advocated by APRA in not using TSR as a measure
– being three and four year average measures from 2012 and aligned with the vesting period,
Macquarie’s performance hurdles reward sustained strong performance and are relatively well-
insulated from short term fluctuations. The time frame used for PSUs should also be considered in
light of the three to seven year deferral of profit share for members of the Executive Committee.
Use of an international peer group recognises the extent of Macquarie’s internationalisation. At 31 March
2015 approximately 70 per cent of Macquarie's income and approximately 54 per cent of Macquarie's
staff were offshore.
(1)
The reference group comprises Macquarie’s major international investment banking peers with whom Macquarie competes and
frequently compares its performance. The reference group for awards made from 2013 is Barclays PLC, Bank of America Corporation,
Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., JP Morgan Chase, Lazard Ltd, Morgan Stanley and UBS AG.
The reference group for awards made prior to 2013 comprised Bank of America Corporation, Citigroup Inc, Credit Suisse Group AG,
Deutsche Bank AG, Goldman Sachs Group AG, JP Morgan Chase, Morgan Stanley and UBS AG as well as significant Australian
commercial banks within the ASX 100 (ANZ Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, Westpac
Banking Corporation and Suncorp Metway Limited).
87
Testing of hurdles
Under both performance hurdles, the objective is examined once only. Testing occurs at the calendar quarter end immediately
before vesting, based on the most recent financial year end results available. If the condition is not met when examined, the PSUs
due to vest will not be exercisable upon vesting.
The PSUs which vested in July 2014 comprised the third tranche of those granted in 2010 and the second tranche of those granted
in 2011. Both tranches did not become fully exercisable due to the performance hurdles not being fully met. As a result:
PSU Tranche
EPS CAGR Hurdle ROE Hurdle
Macquarie result
(for vesting
period)
Hurdle Outcome
Macquarie result
(for vesting
period)
Hurdle Outcome
2010 Tranche 3 4.6% At 9%
0%
exercisable
7.9%
> 50
th
percentile rank
56%
exercisable
2011 Tranche 2 10.7% At 9%
72%
exercisable
7.8%
> 50
th
percentile rank
56%
exercisable
PSUs that did not meet performance hurdles expired.
Other features of Macquarie's remuneration structure
Promotion awards
Staff who are promoted to Associate Director, Division Director or Executive Director receive an allocation of MEREP awards based
on seniority set with reference to an $A value.
Minimum Shareholding requirement
Executive Directors are required to hold a minimum amount of Macquarie shares which is satisfied by the requirements of the profit
share retention policy.
Hedging
Macquarie prohibits staff from hedging shares held to meet the minimum shareholding requirement and unvested equity held in the
MEREP.
Employment contracts
The following table summarises key features of the employment contracts for Executive Committee members including the CEO:
Length of contract Permanent open-ended
Remuneration review period 1 April to 31 March annually
Profit share participation Executive Committee members are eligible to be considered for a profit share allocation
which ensures that a large part of their remuneration is ‘at risk’. Refer to pages 82 to 84 for
details.
PSU participation Executive Committee members are eligible to receive PSUs. Refer to pages 85 to 87 for
details.
Termination of employment Requires no more than four weeks notice
(1)
by Macquarie or the Executive Committee
member.
(1)
Subject to compliance with local regulatory and legal requirements. In Australia, Executive Directors given notice by Macquarie may
receive an additional week’s notice if they are over 45 years of age and have more than two years’ continuous service at the time of the
termination of their employment.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
88
Alignment of remuneration outcomes to results
This section demonstrates how remuneration outcomes are aligned to Macquarie’s results for the year.
Macquarie has delivered strong financial results in FY2015. While NPAT, EPS and ordinary dividends have significantly increased
compared with FY2014, total compensation does not reflect the same rate of growth, reflecting Macquarie's focus on cost
management. Shareholder returns have also been strong, both over the past year and over the longer-term.
The Board is of the view that the remuneration outcomes for senior executives are appropriately aligned to their businesses’
performance, Macquarie's performance and the interests of shareholders.
To demonstrate the link between pay and performance, a comparison of performance measures and executive remuneration
outcomes allows shareholders to see how the remuneration for Executive KMP is aligned with performance. The analysis below
shows that CEO remuneration has increased in line with the increase in NPAT and EPS. Remuneration outcomes for other
Executive KMP varied according to their individual performance and the performance of their business. Total remuneration for
Comparable KMP
(1)
, including the CEO, has not increased to the same extent as NPAT, ordinary dividends and EPS, which reflects
the way that performance takes a range of factors into consideration.
Comparison of performance measures and executive remuneration measures: FY2014 – FY2015
2015 2014
Increase/
(Decrease)%
Performance measures
NPAT $Am 1,604 1,265 27
Basic EPS Cents per share 502.3 383.6 31
Ordinary dividends Cents per share 330.0 260.0 27
Total dividends
Cents per share 330.0 376.0
(2)
(12)
Return on equity Per cent 14.0 11.1
Annual TSR
(3)
Per cent 38.9 66.0
Executive remuneration measures
Total Compensation Expense $Am 3,891 3,505 11
Compensation Expense to Income ratio Per cent 41.9 43.1
Average staff headcount 14,086 13,796 2
Actual staff headcount 14,085 13,913 1
Statutory Remuneration – CEO $Am 16.50 13.08 26
Statutory Remuneration – Comparable KMP $Am 90.82 76.05 19
(1)
Comparable KMP are Executive KMP who were members of the Executive Committee for the full year in both FY2015 and FY2014.
(2)
Includes the special dividend component of 116 cents per share in relation to the SYD distribution in January 2014.
(3)
TSR represents the accumulated share price return when all cash dividends are reinvested at the ex-dividend date.
89
Performance over past 10 years: FY2006–2015
Years ended 31 March FY15 FY14 FY13 FY12 FY11 FY10 FY09 FY08 FY07 FY06
Income statement
NPAT attributable to ordinary
owners ($A million)
1,604 1,265 851 730 956 1,050 871 1,803 1,463 916
Basic EPS (cents per share)
502.3 383.6 251.2 210.1 282.5 320.2 309.6 670.6 591.6 400.3
ROE
Return on average ordinary
shareholders' funds (% p.a.)
14.0 11.1 7.8 6.8 8.8 10.1 9.9 23.7 28.1 26.0
Total shareholder returns
(TSR)
Dividend – Interim and Final
(cents per share)
330
260 200 140 186 186 185 345 315 215
Dividend – Special
(cents per share)
– 116
(1)
– – – – – – – –
Share price at 31 Mar ($A) 76.7 57.9 37.2 29.1 36.6 47.3 27.1 52.8 82.8 64.7
Annual TSR (%) 38.9 66.0 34.4 (16.0) (19.0) 79.6 (44.1) (33.6) 32.6 40.2
10 Year TSR (%) 162.2
(1)
The special dividend for the year ended 31 March 2014 represented the special dividend component of the SYD Distribution in January
2014. The total distribution including return on capital was 373 cents per share.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
90
Macquarie’s performance relative to peers
The analysis below demonstrates that Macquarie has performed well relative to peers on the following key indicators of
performance:
– NPAT compound annual growth rate (CAGR) over the short and longer-term (base currency and $US)
– ROE over the short and longer-term
– TSR since listing
– Compensation ratio over the past three years.
The same international investment banking peer group as last year has been used under each heading in the analysis below. The
BRC considers these firms to be appropriate peers on the basis that they broadly operate in the same markets and compete for the
same people as Macquarie. Nonetheless, comparisons are complicated for the following reasons:
– each peer has a different business mix. Some peers are or have become parts of larger organisations, often with large retail
operations which can distort comparisons
– where peer information is published, comparative information may not include a share of central overhead costs
– variations in accounting practices used by comparator organisations. For example, some companies report net revenue before
adjusting for impairments, whereas others (including Macquarie) report net revenue after adjusting for impairments
– peers located in different jurisdictions report in different currencies and comparisons do not always reflect the impact of
changes in foreign exchange rates
– remuneration delivered as deferred equity is amortised over the vesting period of the equity. Different deferral levels and
different vesting periods, therefore, result in different accounting results, even if the underlying quantum of remuneration is the
same.
Where appropriate, segment information has been used as disclosed throughout the Remuneration Report. This is particularly
relevant where the investment banking segment is part of a larger organisation. Peer information is presented in the same order
throughout the Remuneration Report.
Net profit after tax
One of the measures used to compare relative performance is NPAT. The NPAT CAGR is shown in both local currency and a
common currency ($US) to reduce the impact of significant changes in foreign exchange rates over the period when comparing the
performance of peers from different jurisdictions. Macquarie’s performance against peers is above all but one peer over a ten year
period in both base currency and $US and is in the upper range of peers over a one year period in base currency.
Peer relative growth in NPAT: FY2005-2015
(1)
1 year CAGR
Base Currency
%
10 year CAGR
Base Currency
%
1 year CAGR
$US
%
10 year CAGR
$US
%
Macquarie 27% 7% 18% 9%
Peer n.a. n.a. n.a. n.a.
Peer (19% ) (10% ) (19% ) (8% )
Peer 150% (4% ) 150% (3% )
Peer 5% 6% 5% 6%
Peer (35% ) 2% (35% ) 2%
Peer 21% 16% 21% 16%
Peer 167% 6% 167% 6%
Peer 19% (3% ) 19% (3% )
Peer 9% (8% ) 10% (5% )
Source: Peer underlying data from Annual Reports.
(1)
Peers comprise Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Jefferies, JP Morgan Chase,
Lazard Ltd, Morgan Stanley and UBS AG. ‘n.a.’ is noted where the peer recorded a loss 10 years ago, in the prior year or in the current
year.
91
NPAT 10 year CAGR
(1)
Macquarie versus international investment banking peers (%)
(1)
Peers comprise Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Jefferies, JP Morgan Chase,
Lazard Ltd, Morgan Stanley and UBS AG. ‘n.a.’ is noted where the peer recorded a loss 10 years ago, in the prior year or in the current
year.
Return on equity
Macquarie’s annual ROE continues to improve, up from 11.1 per cent in FY2014 to 14.0 per cent in FY2015, higher than all but one
peer. In addition, Macquarie’s 10 year average annual ROE is higher than all but one of its peers.
Peer ROE over 10 years: FY2006–2015
(1)
Macquarie versus international investment banking peers
1 year average
%
3 year average
%
5 year average
%
10 year average
%
Macquarie 14.0 11.0 9.7 14.6
Average of Peers 12.1 7.9 8.7 8.4
Peer 1.7 2.5 1.2 5.2
Peer (0.3 ) (0.2 ) 2.4 11.5
Peer 4.8 4.7 6.6 9.0
Peer 2.7 1.4 3.6 7.2
Peer 11.2 10.9 9.6 16.0
Peer 9.8 9.6 9.8 9.2
Peer 67.4 36.2 33.8 n.a.
Peer 4.9 3.1 4.3 7.4
Peer 7.0 2.9 6.8 1.5
Source: Peer underlying data from Bloomberg and Annual Reports.
(1)
Peers comprise Bank of America Corporation, Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc.,
JP Morgan Chase, Lazard Ltd, Morgan Stanley and UBS AG.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
92
Macquarie's ROE has also exhibited less volatility over a ten year period.
10 year chart of annual ROE
Macquarie versus international investment banking peers
(1)
(%)
Source: Peer underlying data from Bloomberg and Annual Reports.
(1)
Peers comprise Bank of America Corporation, Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc.,
JP Morgan Chase, Lazard Ltd, Morgan Stanley and UBS AG.
Total shareholder return
Macquarie’s shareholder return over the long term has been strong and significantly higher than international investment banking
peers. In addition, TSR since listing is currently ranked the highest of all companies that were in the ASX Top 50 at the time that
Macquarie Bank Limited (MBL) listed in July 1996.
TSR since listing (July 1996)
Macquarie Group Limited, international investment banking peers, other top performing ASX 50 companies (%)
Source: Bloomberg
(1)
Peers comprise Bank of America Corporation, Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, JP Morgan Chase, Morgan
Stanley and UBS AG. Peers which have been included in comparative analysis elsewhere in this Remuneration Report but which have
not been continuously listed since Macquarie Bank Limited’s date of listing (29 July 1996), or are no longer listed, have been excluded
from this chart, i.e. Goldman Sachs, Jefferies and Lazard.
93
Similarly, Macquarie’s shareholder returns continue to outperform the All Ordinaries Accumulation Index (All Ords) since listing.
Macquarie TSR versus the All Ords
(1)
29 July 1996 to 31 March 2015
Source: Bloomberg.
(1)
Indexed to 100 on 29 July 1996. The All Ords line in the above chart is based on the S&P/ASX 500 Accumulation Index from 31 March
2000. Prior to this, it was based on the All Ords. Macquarie TSR calculations, here and throughout this Remuneration Report, assume
continuous listing. Hence, they are based on Macquarie Bank Limited (ASX code: MBL) data up to and including 2 November 2007, the
last day of trading of Macquarie Bank Limited shares, and Macquarie Group Limited (ASX code: MQG) data from the commencement of
trading of Macquarie Group Limited shares on 5 November 2007 onwards.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
94
Compensation expense to income ratio
One guideline used to evaluate overall remuneration levels is the organisation’s compensation expense to income ratio
(compensation ratio). The compensation ratio is widely used within the investment banking industry as a broad measure of
comparative remuneration levels. It is not, however, the basis on which Macquarie’s profit share pool is determined.
Macquarie’s compensation ratio is compared with that of a group of peers in the following chart. While the compensation ratio
effectively adjusts for differences in size between organisations, it is not an entirely satisfactory measure to use in assessing
compensation levels because it does not take into account factors such as those set out at the beginning of this section.
Notwithstanding these factors, Macquarie’s FY2015 ratio of 41.9 per cent is in the lower half of peers.
Compensation ratio: FY2013–2015
(1)
(%)
Source: Data has been calculated by Macquarie. The information is based on publicly available information for the peer firms.
(1)
Peers comprise Barclays PLC (Investment Banking segment), Credit Suisse Group AG (Investment Banking segment), Deutsche Bank
AG, Goldman Sachs Group Inc., Jefferies Group Inc., JP Morgan Chase (Corporate and Investment Banking segment), Lazard Ltd,
Morgan Stanley and UBS AG (Investment Banking segment). In order to show more comparable compensation ratios, impairments have
been consistently netted against net revenue in the revised calculations for some peers.
95
Staff retention
One of the primary goals of Macquarie's remuneration arrangements is to attract, motivate and retain high performing staff. The
Board’s view is that Macquarie continues to achieve this goal. While director-level voluntary turnover of 7.4 per cent is marginally
higher than the prior year, it remains below voluntary turnover across Macquarie overall.
Macquarie continues to have a highly experienced senior management team. The average tenure
(1)
of Macquarie’s Executive
Committee, including the three new appointees this year, is approximately 20 years.
Tenure of Executive Committee members
Number of years at Macquarie
This depth of experience continues outside of the Executive Committee. As at 31 March 2015, 35 per cent of Director-level staff
(2)
have ten years’ experience or more with Macquarie, and a further 34 per cent have between five and ten years’ experience with
Macquarie.
Directors’ tenure as at 31 March 2015
(1)
This includes accumulated service at acquired companies, for example Bankers Trust Investment Bank Australia and ING’s Asian
Equities business.
(2)
Directors include all Director-level staff, being Associate Directors, Division Directors and Executive Directors. As at 31 March 2015,
there were a total of 3,242 Director-level staff, of whom 330 were Executive Directors.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
96
Remuneration governance
Effective governance is central to Macquarie’s remuneration strategy and approach. The key elements of Macquarie’s remuneration
governance are described below.
Strong Board oversight
The Board has oversight of Macquarie’s remuneration
arrangements. The Board has a BRC whose objective is to
assist the Board and the Board of Macquarie Bank, a key
operating subsidiary, with Macquarie’s remuneration policies
and practices.
The BRC currently comprises five Independent NEDs:
– Peter Warne (Chairman)
– Gary Banks
– Gordon Cairns
– Diane Grady
– Kevin McCann.
The responsibilities of the Committee include reviewing the
Remuneration Policy for compliance with legal and regulatory
requirements and recommending it to the Board for approval.
The full responsibilities of the Committee are outlined in their
Charter, which is reviewed and approved annually by the
Board. A copy of the Charter is available on Macquarie’s
website at macquarie.com/leadership-corporate-governance
The BRC members have the required experience and expertise
in both human resources and risk to achieve effective
governance of Macquarie’s remuneration system. In addition,
all members of the BRC have extensive experience in
remuneration, either through their professional background or
as members of the remuneration committees of other boards.
The BRC has a regular meeting cycle and met nine times over
the last financial year. Attendance at the meetings is set out in
the Directors’ Report. Strict processes are in place to ensure
that conflicts of interest are appropriately managed. The Board
pays close attention to the design and the operation of
remuneration practices for all of Macquarie, not just for the
most senior executives.
The remuneration governance framework requires that
remuneration recommendations relating to staff at various
levels of seniority be approved at an appropriate level of
authority. As part of this, the BRC recommends the
remuneration outcomes to the Board for approval for the:
– CEOs of both Macquarie and Macquarie Bank
– Executive Committee members
– Designated Executive Directors
– Senior risk and financial control personnel
– Staff covered under specific regulatory requirements.
As part of its process, towards the end of each financial year,
the NEDs meet with the CEO to consider formal
documentation that outlines his views on the Group's
performance. The Group CEO’s presentation includes a wide
range of the Group’s activities covering the following main
areas:
– financial position and performance
– risk management and compliance
– people and culture
– sustainability (planning and investment in the future)
– community.
The Board considers the CEO’s performance and progress
against all of these topics in determining the CEO’s
remuneration for the year. Over the course of the year the
Board receives regular reports and updates on many of these
topics. These are summarised in the CEO’s presentation,
together with additional information on any particular areas of
interest which the Board have identified for further discussion
as a part of the review process. A similar process is followed
for the CEO of Macquarie Bank.
The Board and the BRC also consider formal documentation
for each Executive Committee member which covers financial
performance, risk management and compliance, business
leadership and people leadership (including upholding the
Code).
This information helps the BRC and Board make decisions in
relation to remuneration.
In addition, as part of the remuneration process:
– the CFO confirms to the BRC that the forecast profit
share pool does not result in eliminating capital surpluses
– the BRC receives an independent report from the CRO on
material losses, impairments or breaches of the risk
management framework, return on economic capital by
business, the relationship between profitability and risk
and the contingent risks associated with large
transactions concluded during the current financial year
– the Global Head of HR discusses the link between losses
and proposed remuneration with the Group Heads and
reports to the BRC in regards to the link between risk
outcomes and individual remuneration. The BRC uses this
information when considering the profit share allocated to
businesses and to individuals.
97
Independent remuneration review
The BRC has access, as required, to Macquarie's senior
management and has retained an independent consultant, Pay
Governance, for the use of the Board to obtain advice on
the appropriateness of Macquarie’s remuneration system.
The only service that Pay Governance provides to Macquarie is
executive compensation consulting to the BRC. This year, Pay
Governance considered the overall approach to remuneration,
peer organisations’ overall approach to remuneration, the
extent of alignment with shareholder interests and a
comparison of individual remuneration for senior executives
where relevant peer information was available. In addition, the
BRC independently analysed global remuneration trends and
data. The cost of the Pay Governance Review was
approximately $US135,000.
Pay Governance has confirmed that its analyses and
observations have been made free from undue influence by
Macquarie’s Executive KMP. The Board is satisfied that the
remuneration review conducted by Pay Governance was made
free from undue influence by the Executive KMP for the
following reasons:
– the agreement for services was authorised by the
Chairman of the BRC under delegated authority on
behalf of Macquarie
– the Pay Governance Review was provided by Pay
Governance directly to the BRC
– Pay Governance held meetings with the BRC Chairman
– in relation to the Pay Governance Review, no Executive
KMP had separate, direct contact with Pay Governance.
Pay Governance’s findings included that:
– the objectives of Macquarie’s remuneration system are
similar to those cited by other leading global investment
banks, including the need to drive company performance
over the short and longer-term, align the interests of staff
and shareholders, the importance of attracting and
retaining the right talent, and structuring and delivering
remuneration to not encourage excessive risks
– Macquarie’s remuneration components support its
remuneration objectives and principles and are very much
in line with practices at peer global investment banks.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
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Non-Executive Director remuneration
Macquarie’s remuneration approach ensures that the NEDs are appropriately remunerated. Reflecting the Board's role, the
remuneration arrangements applicable to NEDs, as outlined in this section, differ from the arrangements applicable to Executives.
Non-Executive Director remuneration policy
The overall objective of Macquarie’s NED remuneration policy is to ensure that NEDs are remunerated appropriately. It is achieved
by:
– setting Board and Committee fees taking into account market rates for relevant Australian financial organisations for the time
commitment and responsibilities involved
– delivering these fees in a form that is not contingent on Macquarie’s performance.
Unlike Macquarie executives, NEDs are not granted equity, nor are they eligible to receive profit share payments. There are no, nor
have there ever been, termination payments to NEDs on their retirement from office other than payments relating to their accrued
superannuation contributions comprising part of their remuneration.
The CEO is not remunerated separately for acting as an Executive Voting Director.
Directors are required to disclose to Macquarie, at least annually, their financing arrangements relating to their Macquarie securities.
All NEDs of Macquarie Group Limited (Macquarie) are also NEDs of Macquarie Bank Limited (Macquarie Bank). This policy governs
the remuneration of NEDs of both Macquarie and Macquarie Bank.
Board and Committee fees
NEDs are remunerated via Board and Committee fees which are reviewed annually. Per diem fees may also be paid from time to
time for approved additional work. Macquarie’s approach to NED remuneration is to set Board and Board Committee fees reflecting
the time commitment and responsibilities involved, taking into account market rates for relevant Australian financial organisations
and consistent with market trends. During FY2015, the Board determined that Board member base fees be increased for both
Macquarie and Macquarie Bank to $A175,000 (from $A165,000) and $A70,000 (from $A65,000) respectively and that Committee
fees should remain unchanged. Board member base fees were last increased in 2010.
Macquarie and Macquarie Bank Fees
Macquarie fees Macquarie Bank fees Total fees
$A
Chairman
$A
Member
$A
Chairman
$A
Member
$A
Chairman
(1)
$A
Member
Board 585,000 175,000 240,000 70,000 825,000 245,000
Board Risk Committee (BRiC)
(2)
70,000 30,000 n.a. n.a. 70,000 30,000
Board Audit Committee (BAC)
(2)
70,000 30,000 n.a. n.a. 70,000 30,000
Board Remuneration Committee (BRC)
(2)
70,000 30,000 n.a. n.a. 70,000 30,000
Board Governance and Compliance Committee
(BGCC)
(2)
57,500 25,000 n.a. n.a. 57,500 25,000
Board Nominating Committee (BNC)
(2)
n.a. 8,000 n.a. n.a. n.a. 8,000
(1)
The Chairman is a member of the BRiC, BRC and is Chairman of the BNC. He also normally attends BAC and BGCC meetings by
invitation. The Chairman is not paid separate Committee fees.
(2)
Macquarie has five standing Board committees. The Macquarie BAC is a joint committee of Macquarie and Macquarie Bank, and the
BRiC became a joint committee of Macquarie and Macquarie Bank effective from 1 January 2015. The BRC also advises both Boards.
NEDs may elect to receive their remuneration, in part, in the form of superannuation contributions.
Information on the frequency of Board and Committee meetings is included on pages 68 and 69 of the Directors’ Report.
Macquarie’s NEDs are remunerated for their services from the maximum aggregate amount approved by shareholders for this
purpose. The current limit ($A4 million per annum) was approved by Macquarie Group shareholders at Macquarie Group’s 2010
AGM. The Board ensures that NED remuneration for Macquarie Group Limited and Macquarie Bank Limited taken together does
not exceed this shareholder approved maximum aggregate amount.
99
Minimum shareholding requirement for
Non-Executive Directors
To align the interests of the Board with shareholders, the
Board has a minimum shareholding requirement for NEDs.
NEDs are required to have a meaningful direct shareholding in
Macquarie.
Under the minimum shareholding requirement, NEDs are
required to acquire progressively a minimum of 6,000 shares in
Macquarie over a period of five years from the date of their
appointment. During the year, the Board introduced a
minimum shareholding requirement for the Chairman of 12,000
Macquarie shares to be achieved within three years of
becoming Chairman.
Under Macquarie’s Trading Policy, NEDs are prohibited from
hedging shares held to meet this minimum Macquarie
shareholding requirement. Each NED’s current holding of
Macquarie ordinary shares is included on page 67 of the
Directors’ Report.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
100
Appendices: Key Management Personnel (KMP) disclosures
Appendix 1: KMP
KMP include Executive Voting Directors and Executives with authority and responsibility for planning, directing and controlling the
activities of Macquarie and its controlled entities (together making Executive KMP) and NEDs. Macquarie’s NEDs are required by the
Act to be included as KMP for the purposes of the disclosures in the Remuneration Report. However, the NEDs do not consider
themselves part of ‘management’. The table reflects KMP movements during FY2015 and FY2014. The key changes included:
Non-Executive Directors
– G.M Cairns was appointed to the Board effective from 1 November 2014
– P.M Kirby retired from the Board on 24 July 2014
– H.M. Nugent AO retired from the Board on 24 July 2014
– N.M. Wakefield Evans was appointed to the Board effective from 7 February 2014
– J.R. Niland AC retired from the Board on 31 December 2013
– P.A. Cross was appointed to the Board effective from 7 August 2013
– G.R. Banks AO was appointed to the Board effective from 1 August 2013
– C.B. Livingstone AO retired from the Board on 25 July 2013.
Executives
– B.A. Brazil was appointed to the Executive Committee effective from 1 July 2014
– M.J. Reemst was appointed to the Executive Committee effective from 1 July 2014
– P.C. Upfold was appointed to the Executive Committee effective from 1 July 2014
– P.J. Maher ceased to be a member of the Executive Committee on 3 May 2013.
Name Position
Term as
KMP 2015
Term as
KMP 2014
Executive Voting Director
N.W. Moore
(1)
CEO Full year Full year
Non-Executive Directors
G.R. Banks AO Independent Director Full year Part year
G.M. Cairns Independent Director Part year –
M.J. Coleman Independent Director Full year Full year
P.A. Cross Independent Director Full year Part year
D.J. Grady AM Independent Director Full year Full year
M.J. Hawker AM Independent Director Full year Full year
P.M. Kirby Former Independent Director Part year Full year
C.B. Livingstone AO Former Independent Director – Part year
H.K. McCann AM Independent Chairman Full year Full year
J.R. Niland AC Former Independent Director – Part year
H.M. Nugent AO Former Independent Director Part year Full year
N.M. Wakefield Evans Independent Director Full year Part Year
P.H. Warne Independent Director Full year Full year
(1)
Members of Macquarie’s Executive Committee as at 8 May 2015.
101
Name Position
Term as
KMP 2015
Term as
KMP 2014
Executives
S.D. Allen
(1)
CRO, Head of RMG Full year Full year
T.C. Bishop
(1)
Head of Macquarie Capital Full year Full year
B.A. Brazil
(1)
Co-Head of CAF Part Year –
A.J. Downe
(1)
Head of CFM Full year Full year
G.A. Farrell
(1)
Co-Head of CAF Full year Full year
P.J. Maher Former Head of BFS – Part year
M. McLaughlin
(1)
Country Head, United States of America Full year Full year
M.J. Reemst
(1)
Macquarie Bank CEO Part year –
N. Sorbara
(1)
COO, Head of COG Full year Full year
P.C. Upfold
(1)
CFO, Head of FMG Part year –
S. Vrcelj
(1)
Head of MSG Full year Full year
G.C. Ward
(1)
Deputy Managing Director and Head of BFS Full year Full year
S. Wikramanayake
(1)
Head of MAM Full year Full year
(1)
Members of Macquarie’s Executive Committee as at 8 May 2015.
Except where otherwise noted, the remuneration and other related party disclosures included in the Remuneration Report have
been prepared in accordance with the requirements of the Act and in compliance with AASB 124 Related Party Disclosures. For the
purpose of these disclosures, all the individuals listed above have been determined to be KMP, as defined by AASB 124 Related
Party Disclosures.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
102
Appendix 2: Statutory remuneration disclosures
Executive remuneration
The remuneration arrangements for all of the persons listed as
Executive Voting Directors or Executives are described on
pages 80 to 87.
In accordance with the requirements of AASB 124 Related
Party Disclosures, the remuneration disclosures for the years
ended 31 March 2015 and 31 March 2014, only include
remuneration relating to the portion of the relevant periods that
each individual was an Executive KMP. Hence, comparable
executive remuneration is confined to those who were
Executive KMP for the full year in both FY2015 and FY2014.
While RSUs and DSUs, and PSUs (for Executive Committee
members), in respect of FY2015 will be granted during
FY2016, Macquarie begins recognising an expense for these
awards (based on an initial estimate) from 1 April 2014. The
expense is estimated using Macquarie’s share price as at 31
March 2015 and the number of equity instruments expected to
vest. For PSUs, the estimate also incorporates an interest rate
to maturity of 2.61 per cent; expected vest dates of PSU: 1
July 2018 and 1 July 2019; and a dividend yield of 4.76 per
cent per annum. In the following financial year, Macquarie will
adjust the accumulated expense recognised for the final
determination of fair value for each RSU, DSU and PSU when
granted, and will use this valuation for recognising the expense
over the remaining vesting period.
As explained on page 82, profit share amounts retained under
the Post-2009 DPS Plan are notionally invested for Executive
Directors, providing them with an economic exposure to the
underlying investments, typically Macquarie-managed
funds. This ensures that they are exposed to both the upside
and downside of the underlying securities.
Executive Directors are each entitled to amounts equivalent to
the investment earnings (dividends/distributions and security
price appreciation) on the underlying securities. Where these
amounts are positive, they may be paid to Executive Directors
and are included in the relevant remuneration disclosures
below as part of Long Term Employee Benefits (refer to the
‘Earnings on prior year restricted profit share’ column in the
table on pages 104 and 105). When these amounts are
negative, they are deducted from Long Term Employee
Benefits remuneration in the same column.
These earnings on retained DPS amounts reflect the
investment performance of the assets in which prior year
retained amounts have been notionally invested. Their inclusion
in the individual remuneration disclosures on the following
pages may therefore cause distortions when year-on-year
remuneration trends are examined. They do not reflect
remuneration review decisions made in relation to the
individual’s current year performance.
103
This page has been intentionally left blank.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
104
Executive Key Management Personnel Remuneration disclosure (in accordance with Australian Accounting Standards)
Short Term Employee Benefits
Salary (including
superannuation)
Performance
related
remuneration
(1)
Total short term
employee benefits
$A $A $A
Executive Voting Director
N.W. Moore
(6)
Managing Director and CEO
2015 818,948 4,774,084 5,593,032
2014 818,731 2,995,900 3,814,631
Other Executives
S.D. Allen CRO, Head of RMG
2015 770,775 2,415,459 3,186,234
2014 770,571 1,690,987 2,461,558
T.C. Bishop Head of MacCap
2015 722,602 2,330,207 3,052,809
2014 722,410 1,350,454 2,072,864
A.J. Downe
(7)
Head of CFM
2015 864,894 5,158,731 6,023,625
2014 831,520 4,047,673 4,879,193
G.A. Farrell Co-Head of CAF
2015 722,602 4,025,765 4,748,367
2014 722,410 2,569,494 3,291,904
M. McLaughlin
(7)
Country Head, United States of
America
2015 685,468 1,300,000 1,985,468
2014 644,045 1,913,885 2,557,930
N. Sorbara COO, Head of COG
2015 698,837 1,657,668 2,356,505
2014 698,651 1,129,705 1,828,356
S. Vrcelj Head of MSG
2015 722,602 757,791 1,480,393
2014 722,410 683,624 1,406,034
G.C. Ward Deputy Managing Director and Head
of BFS
2015 770,775 2,368,097 3,138,872
2014 770,571 1,801,623 2,572,194
S. Wikramanayake Head of MAM
2015 722,602 6,867,481 7,590,083
2014 722,410 4,777,592 5,500,002
Total Remuneration – Comparable Executive KMP
2015 7,500,105 31,655,283 39,155,388
2014 7,423,729 22,960,937 30,384,666
New Executives
B. Brazil
(8)
Co-Head of CAF
2015 547,052 5,722,938 6,269,990
2014 – – –
M. Reemst
(8)
Macquarie Bank Limited Managing
Director and CEO
2015 437,642 1,003,884 1,441,526
2014 – – –
P. Upfold
(8)
CFO, Head of FMG
2015 583,522 1,792,649 2,376,171
2014 – – –
Former Executives
P.J. Maher
(9)
Former Head of BFS
2015 – – –
2014 65,967 58,599 124,566
Total Remuneration – Executive KMP
(including new and former executives)
2015 9,068,321 40,174,754 49,243,075
2014 7,489,696 23,019,536 30,509,232
105
Executive Key Management Personnel Remuneration disclosure (in accordance with Australian Accounting Standards)
Long Term Employee Benefits Share Based Payments
Restricted
profit share
(2)
Earnings on
prior year
restricted
profit share
(3)
Total
long term
employee
benefits
Equity awards
including
shares
(4)
PSUs
(5)
Total share-
based
payments
Total
Remuneration
Percentage of
remuneration
that consists
of PSUs
$A $A $A $A $A $A $A %
1,113,953 1,293,714 2,407,667 5,834,545 2,659,826 8,494,371 16,495,070 16.12
1,398,087 1,358,788 2,756,875 4,733,125 1,775,801 6,508,926 13,080,432 13.58
241,546 368,151 609,697 1,500,786 1,185,702 2,686,488 6,482,419 18.29
338,197 388,834 727,031 1,478,068 843,770 2,321,838 5,510,427 15.31
349,531 659,255 1,008,786 2,101,850 1,331,880 3,433,730 7,495,325 17.77
202,568 1,310,573 1,513,141 2,183,282 1,042,387 3,225,669 6,811,674 15.30
515,873 2,360,993 2,876,866 3,598,335 1,894,330 5,492,665 14,393,156 13.16
404,767 2,667,755 3,072,522 3,186,866 1,187,740 4,374,606 12,326,321 9.64
402,576 517,494 920,070 2,447,770 1,853,795 4,301,565 9,970,002 18.59
256,949 560,092 817,041 1,954,739 1,672,512 3,627,251 7,736,196 21.62
130,000 204,421 334,421 1,872,444 406,290 2,278,734 4,598,623 8.84
956,943 172,969 1,129,912 2,042,615 344,311 2,386,926 6,074,768 5.67
165,767 85,568 251,335 708,258 1,049,350 1,757,608 4,365,448 24.04
225,941 40,654 266,595 493,978 695,132 1,189,110 3,284,061 21.17
113,669 78,507 192,176 865,547 1,133,485 1,999,032 3,671,601 30.87
102,544 98,341 200,885 867,314 799,441 1,666,755 3,273,674 24.42
236,810 372,864 609,674 1,712,133 1,593,651 3,305,784 7,054,330 22.59
360,325 379,934 740,259 1,516,382 1,054,302 2,570,684 5,883,137 17.92
3,433,741 1,478,785 4,912,526 1,886,653 1,902,080 3,788,733 16,291,342 11.68
2,388,797 1,163,498 3,552,295 1,389,298 1,627,001 3,016,299 12,068,596 13.48
6,703,466 7,419,752 14,123,218 22,528,321 15,010,389 37,538,710 90,817,316
6,635,118 8,141,438 14,776,556 19,845,667 11,042,397 30,888,064 76,049,286
572,294 344,278 916,572 3,108,931 380,011 3,488,942 10,675,504 3.56
– – – – – – – –
100,388 153,561 253,949 595,632 283,891 879,523 2,574,998 11.02
– – – – – – – –
179,265 79,903 259,168 861,986 283,891 1,145,877 3,781,216 7.51
– – – – – – – –
– – – – – – – –
5,860 14,534 20,394 87,401 8,732 96,133 241,093 3.62
7,555,413 7,997,494 15,552,907 27,094,870 15,958,182 43,053,052 107,849,034
6,640,978 8,155,972 14,796,950 19,933,068 11,051,129 30,984,197 76,290,379
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
106
Notes to the statutory remuneration disclosures
(1)
The cash portion of each individual’s profit share allocation for
the reporting period when they were an Executive KMP.
(2)
The amount of retained profit share which is deferred to future
periods and held as a notional investment in Macquarie
managed-fund equity (Post-2009 DPS Plan).
(3)
The earnings on restricted profit share as described on
page 82.
(4)
The current year expense for retained profit share which is
invested in Macquarie shares under the MEREP as described
on page 82. This is recognised as an expense over the
respective vesting periods as described on pages 83 and 102.
(5)
The current year expense for PSUs which is recognised over
the vesting period as described on pages 85 and 102.
Adjustments were made during the current and prior year to
reduce previously recognised remuneration expense where
performance hurdles have not been met, have been partially
met, or are not expected to be met.
Notes on individuals
(6)
Mr Moore’s FY2015 statutory remuneration includes $A6
million that relates to prior year equity awards that have been
previously disclosed and approved by shareholders. In future
years it is likely, subject to performance, there will also be an
amount that relates to equity awards in respect of years 2000-
2014 that have previously been disclosed and approved by
shareholders.
(7)
Mr Downe and Mr McLaughlin are paid in $SG and $US
respectively. They have not received a base remuneration
increase during the year. The base salary for FY2015 differs to
FY2014 due to exchange rate movements.
(8)
Mr Brazil, Ms Reemst and Mr Upfold were appointed to the
Executive Committee effective from 1 July 2014.
(9)
Mr Maher ceased to be a member of the Executive Committee
on 3 May 2013.
107
Non-Executive Director remuneration
The remuneration arrangements for all of the persons listed below as NEDs are described on pages 98 to 99 of the Remuneration
Report:
Directors Fees
$A
Other Benefits
(1)
$A
Total Compensation
$A
G.R. Banks
(2)
2015 307,917 – 307,917
2014 193,333 – 193,333
G.M. Cairns
(3)
2015 130,417 – 130,417
2014 – – –
M.J. Coleman
(4)
2015 372,917 14,400 387,317
2014 327,728 12,900 340,628
P.A. Cross
(5)
2015 365,417 – 365,417
2014 222,473 – 222,473
D.J. Grady
(6)
2015 332,917 – 332,917
2014 304,583 – 304,583
M.J. Hawker 2015 366,750 – 366,750
2014 328,587 – 328,587
P.M. Kirby
(7)
2015 101,223 – 101,223
2014 315,000 – 315,000
C.B. Livingstone
(8)
2015 – – –
2014 115,145 – 115,145
H.K. McCann 2015 825,000 – 825,000
2014 825,000 – 825,000
J.R. Niland
(9)
2015 – – –
2014 260,625 – 260,625
H.M. Nugent
(10)
2015 107,274 13,500 120,774
2014 338,000 38,500 376,500
N.M. Wakefield Evans
(11)
2015 327,917 – 327,917
2014 40,774 – 40,774
P.H. Warne
(12)
2015 336,669 – 336,669
2014 327,167 4,500 331,667
Total Remuneration – Non-Executive
KMP
2015 3,574,418 27,900 3,602,318
2014 3,598,415 55,900 3,654,315
(1)
Other benefits for NEDs include due diligence committee fees paid to Mr Coleman of $A14,400 (FY2014: $A12,900); BRC related per
diem fees for Dr Nugent of $A13,500 for approved additional work (FY2014: $A34,000) and per diem fees of $A4,500 paid to Dr Nugent
and Mr Warne in FY2014 for additional work related to the BNC.
(2)
Mr Banks joined the BNC and BRC, and ceased to be a member of the BAC, on 1 June 2014.
(3)
Mr Cairns was appointed to the Macquarie Group and Macquarie Bank Boards, the BNC, BRC and the BRiC effective from 1 November
2014.
(4)
Mr Coleman joined the BNC effective from 1 June 2014.
(5)
Mrs Cross joined the BNC effective from 1 June 2014, and ceased to be a member of the BRC on 1 November 2014.
(6)
Ms Grady joined the BNC effective from 1 June 2014.
(7)
Mr Kirby joined the BNC effective from 1 June 2014, and retired from the MGL and MBL Boards on 24 July 2014.
(8)
Ms Livingstone retired from the MGL and MBL Boards on 25 July 2013.
(9)
Dr Niland retired from the MGL and MBL Boards on 31 December 2013.
(10)
Dr Nugent retired from the MGL and MBL Boards on 24 July 2014.
(11)
Ms Wakefield Evans joined the BNC and BAC effective from 1 June 2014.
(12)
Mr Warne was appointed Chairman of the BRC effective from 25 July 2014.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
108
Appendix 3: Share disclosures
Shareholdings of Key Management Personnel and their related parties
The following tables set out details of fully paid ordinary shares of Macquarie held during the financial year by KMP including their
related parties.
For the financial year ended 31 March 2015
Name and position
Number
of shares
held at
1 April
2014
(1)
Shares
received
on withdrawal
from the
MEREP
Other
changes
(2)
Number
of shares
held at
31 March
2015
(3)
Executive Voting Director
N.W. Moore 1,455,517 156,297 – 1,611,814
Non-Executive Directors
H.K. McCann 12,728 – 1,136 13,864
G.R. Banks 1,416 – 1,500 2,916
G.M. Cairns
(4)
4,484 – 136 4,620
M.J. Coleman
(5)
6,343 – 2,080 8,423
P.A. Cross 3,936 – 3,700 7,636
D.J. Grady 3,878 – 2,731 6,609
M.J. Hawker 10,009 – 1,272 11,281
P.M. Kirby
(6)
23,913 – – 23,913
H.M. Nugent
(6)
19,987 – – 19,987
N.M. Wakefield Evans – – 2,636 2,636
P.H. Warne 14,933 – – 14,933
Executives
S.D. Allen 17,123 46,125 (40,000) 23,248
T.C. Bishop 15,492 61,804 (61,804) 15,492
B.A. Brazil
(7)
8,954 15,437 – 24,391
A.J. Downe 28,594 70,814 (70,814) 28,594
G.A. Farrell – 45,706 (45,706) –
M. McLaughlin – 48,861 (48,861) –
M.J. Reemst
(7)
10,902 10,060 (10,060) 10,902
N. Sorbara 9,384 6,445 (6,445) 9,384
P.C. Upfold
(7)
19,456 18,285 969 38,710
S. Vrcelj – 40,757 (40,757) –
G.C. Ward – 47,755 (47,755) –
S. Wikramanayake 355,442 39,177 – 394,619
(1)
Or date of appointment if later.
(2)
Includes on-market acquisitions and disposals.
(3)
Or date of resignation/retirement if earlier.
(4)
Mr Cairns was appointed to the Board effective from 1 November 2014. The opening balance on 1 April 2014 represents his holdings at
the date of appointment.
(5) A related party of Mr Coleman holds RSU awards, some of which vested during the year. Mr Coleman does not influence any
investment decisions over, nor does he benefit from, this holding.
(6) Mr Kirby and Dr Nugent retired from the Board on 24 July 2014. The closing balance at 31 March 2015 represents their holdings at the
date of retirement from the Board.
(7)
Mr Brazil, Ms Reemst and Mr Upfold were appointed to the Executive Committee effective from 1 July 2014. The opening balance at 1
April 2014 represents their holdings at the date of appointment.
109
RSU Awards to KMP
The following tables set out details of the RSU awards associated with Macquarie shares granted to Executive KMP. Grants made
to Executive KMP prior to their joining the Executive Committee are not disclosed. PSUs are disclosed in a separate table.
A significant portion of an Executive KMP’s retained profit share is invested in Macquarie equity, delivered as RSUs. There have
been no alterations to the terms or conditions of the above grants since the grant date. RSU awards are subject to forfeiture as set
out on page 83. The value of the grants at vesting could vary significantly as they are dependent on the Macquarie share price at
the time of vesting. Retention rates, the vesting profile and service and performance criteria for the current year are set out on pages
82 and 83. RSUs are granted in the financial year following the year of the Company’s performance to which the grant relates. For
example, RSUs granted in August 2014 relate to the CEO’s performance in FY2014. No awards were forfeited during the year.
Name and position
RSU awards granted
to date
(1) (2)
Grant date
Number vested during
the year
(3)(4)
Executive Voting Directors
N.W. Moore 117,102 15-Aug-14 –
92,048 15-Aug-13 –
133,805 15-Aug-12 –
144,026 15-Aug-11 28,805
100,625 13-Aug-10 19,888
454,682 3-Mar-10 65,938
Executives
S.D. Allen
(5)
29,934 25-Jun-14 –
27,120 25-Jun-13 –
41,150 7-Jun-12 –
37,902 20-Jun-11 9,329
13,385 15-Feb-11 13,385
25,867 30-Jun-10 4,288
109,713 3-Mar-10 4,604
T.C. Bishop
(6)
37,947 25-Jun-14 –
45,305 25-Jun-13 –
31,361 7-Jun-12 –
58,864 20-Jun-11 30,460
5,509 15-Apr-11 1,088
A.J. Downe 75,152 25-Jun-14 –
58,182 25-Jun-13 –
95,575 7-Jun-12 –
82,233 20-Jun-11 16,446
93,557 30-Jun-10 18,491
78,150 3-Mar-10 15,266
G.A. Farrell 48,496 25-Jun-14 –
46,229 25-Jun-13 –
88,108 7-Jun-12 –
57,259 20-Jun-11 11,451
M. McLaughlin 25,321 25-Jun-14 –
28,490 25-Jun-13 –
14,908 7-Jun-12 –
N. Sorbara 17,105 25-Jun-14 –
12,327 25-Jun-13 –
S. Vrcelj 18,792 25-Jun-14 –
52,872 20-Jun-11 10,574
Continued on the following page.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
110
Name and position
RSU awards granted
to date
(1) (2)
Grant date
Number vested during
the year
(3)(4)
G.C. Ward 31,696 25-Jun-14 –
31,229 25-Jun-13 –
46,460 7-Jun-12 –
43,316 20-Jun-11 8,663
36,591 30-Jun-10 7,231
90,110 3-Mar-10 14,435
S. Wikramanayake
(7)
47,019 25-Jun-14 –
35,957 25-Jun-13 –
58,075 7-Jun-12 –
35,245 20-Jun-11 15,263
13,605 30-Jun-10 –
66,611 3-Mar-10 4,169
(1)
Or during the period that the Executive was a KMP.
(2)
On 23 December 2013, Macquarie consolidated its shares through the conversion of one ordinary share into 0.9438 ordinary shares,
including for shares held in the MEREP. The above table shows the number of RSUs granted prior to that date adjusted for the impact
of the consolidation.
(3)
RSUs vesting during the current financial year in respect of grants made prior to Executives becoming a KMP are not disclosed.
(4)
The number of RSUs that vested during the year includes the impact of the transitional remuneration arrangements that were put in
place in 2009 when shareholders approved the establishment of the MEREP.
(5)
As at 31 March 2015, due to a change in employment jurisdiction, 60,094 awards are held outside the MEREP and Mr Allen does not
have a legal or beneficial interest in the underlying shares. However, these awards have the same economic benefits as an RSU award
held in the MEREP.
(6)
As at 31 March 2015, due to a change in employment jurisdiction, 54,129 awards are held outside the MEREP and Mr Bishop does not
have a legal or beneficial interest in the underlying shares. However, these awards have the same economic benefits as an RSU award
held in the MEREP.
(7)
As at 31 March 2015, due to a change in employment jurisdiction, 36,433 awards are held outside the MEREP and Ms Wikramanayake
does not have a legal or beneficial interest in the underlying shares. However, these awards have the same economic benefits as an
RSU award held in the MEREP.
111
PSU Awards to KMP
The following tables set out details of PSU awards granted to Executive KMP. PSUs are granted in the financial year following the
year of the Company’s performance to which the grant relates. For example, PSUs granted in August 2014 relate to the Executive
KMP’s performance in FY2014.
Granted to date
Forfeited/Lapsed during the
financial year
(2)(3)
Exercised during the
financial year
(3)
Name and position Number
(1)
Date Value $A
(1)
Number % Value $A
(4)
Number
exercised Value $A
(5)
Executive Voting Director
N.W. Moore
84,920 15-Aug-14 4,067,668 – – – – –
78,017 15-Aug-13 3,223,662 – – – – –
113,886 15-Aug-12 2,495,242 – – – – –
153,988 15-Aug-11 3,216,809 18,197 11% 1,085,087 32,133 1,824,512
106,198 13-Aug-10 3,677,637 24,515 23% 1,461,829 9,533 538,900
Executives
S.D. Allen
36,191 15-Aug 14 1,733,549 – – – – –
33,157 15-Aug-13 1,370,047 – – – – –
49,411 15-Aug-12 1,082,595 – – – – –
56,956 15-Aug-11 1,189,811 6,731 11% 401,370 11,885 696,699
29,346 13-Aug-10 1,016,252 6,776 23% 404,053 2,634 154,405
T.C. Bishop
43,315 15-Aug-14 2,074,789 – – – – –
39,895 15-Aug-13 1,648,462 – – – – –
25,308 15-Aug-12 554,499 – – – – –
68,645 15-Aug-11 1,433,994 8,112 11% 483,719 14,324 838,351
A.J. Downe
57,848 15-Aug-14 2,770,919 – – – – –
53,193 15-Aug-13 2,197,935 – – – – –
101,232 15-Aug-12 2,217,993 – – – – –
109,461 15-Aug-11 2,286,614 12,936 11% 771,374 11,841 676,202
97,702 13-Aug-10 3,383,420 22,554 23% 1,344,895 8,770 498,654
G.A. Farrell
57,848 15-Aug-14 2,770,919 – – – – –
53,194 15-Aug-13 2,197,976 – – – – –
92,796 15-Aug-12 2,033,160 – – – – –
75,652 15-Aug-11 1,580,370 8,989 11% 536,014 22,834 1,345,609
M. McLaughlin
13,393 15-Aug-14 641,525 – – – – –
12,412 15-Aug-13 512,864 – – – – –
15,064 15-Aug-12 330,053 – – – – –
N. Sorbara
36,191 15-Aug-14 1,733,549 – – – – –
33,158 15-Aug-13 1,370,088 – – – – –
S. Vrcelj
(6)
38,470 15-Aug-14 1,842,713 – – – – –
35,463 15-Aug-13 1,383,005 – – – – –
50,216 15-Aug-11 1,049,012 5,935 11% 353,904 10,478 609,847
G.C. Ward
49,584 15-Aug-14 2,375,074 – – – – –
45,569 15-Aug-13 1,882,911 – – – – –
55,436 15-Aug-12 1,214,603 – – – – –
64,935 15-Aug-11 1,356,492 7,674 11% 457,601 13,549 791,730
43,187 13-Aug-10 1,495,566 9,970 23% 594,511 3,877 226,511
S. Wikramanayake
57,848 15-Aug-14 2,770,919 – – – – –
53,193 15-Aug-13 2,197,935 – – – – –
110,270 15-Aug-12 2,416,016 – – – – –
84,106 15-Aug-11 1,756,974 9,940 11% 592,722 17,549 1,016,087
24,461 13-Aug-10 847,084 5,647 23% 336,731 2,196 126,962
The notes to this table are on the following page.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
112
(1)
On 23 December 2013, Macquarie consolidated its shares through the conversion of one ordinary share into 0.9438 ordinary shares,
including for shares held in the MEREP. The above table shows the number of PSUs granted prior to that date adjusted for the impact
of the consolidation. The value is based on the fair value per share at grant date multiplied by the adjusted number of awards.
(2)
Performance hurdles for PSU awards issued on or after 13 August 2010 and vesting at 1 July 2014 were partially achieved and
therefore some of those PSU awards did not become exercisable and lapsed. These awards are not exchangeable and the related
expense previously recognised on these PSU grants was reversed during the current and prior financial years.
(3)
Or during the period that the Executive was a KMP. One ordinary share was issued as a result of the exercise of one PSU.
(4)
Based on closing share price at 30 June 2014, being the day the PSUs were forfeited.
(5)
Based on the share price at the time of exercise.
(6)
PSUs were formally issued on 17 February 2014.
Macquarie has adopted the fair value measurement provisions of AASB 2 Share-Based Payment for all PSUs granted to KMP. The
fair value of such grants is being amortised and disclosed as part of each KMP’s remuneration on a straight-line basis over the
vesting period. The 2014 PSU allocation has been determined based on a valuation of a PSU at 15 August 2014. The fair value of
$A47.90 at this date has been estimated using a discounted cash flow method.
The following key assumptions were adopted in determining the value of the PSUs granted:
– interest rate to maturity: 3.10 per cent
– expected vest date: 1 July 2017 and 1 July 2018
– dividend yield: 4.97 per cent per annum.
PSUs have a nil exercise price. PSUs vest on a pro-rata basis as set out on pages 85 to 87. For the 2014 grant, the first tranche will
vest on 1 July 2017. The PSUs expire on 15 August 2022.
113
MEREP Awards of Key Management Personnel and their related parties
(1)
The following tables set out details of the MEREP RSU and PSU awards held during the year for the KMP including their related
parties. Further details in relation to the MEREP RSU and PSU awards are disclosed in Note 33 to the financial statements in the
Financial Report.
For the financial year ended 31 March 2015
Name and position
Type of
Award
Number of
awards held at
1 April 2014
(2)
Awards
granted during
the financial
year
(3)
Awards vested
/ exercised
during the
financial year
(4)
Awards not
able to be
exercised due
to performance
hurdles not
met
(5)
Number of
awards held at
31 March 2015
Executive Voting Director
N.W. Moore RSU 647,252 117,102 114,631 649,723
PSU 326,612 84,920 41,666 42,712 327,154
Executives
S.D. Allen
(6)
RSU 188,543 29,934 31,606 – 186,871
PSU 129,210 36,191 14,519 13,507 137,375
T.C. Bishop
(6)
RSU 206,679 37,947 47,480 – 197,146
PSU 110,076 43,315 14,324 8,112 130,955
B.A. Brazil RSU 461,108 – 15,437 – 445,671
PSU – – – – –
A.J. Downe
(7)
RSU 355,755 75,152 50,203 – 380,704
PSU 257,303 57,848 20,611 35,490 259,050
G.A. Farrell RSU 232,704 48,496 22,872 – 258,328
PSU 202,675 57,848 22,834 8,989 228,700
M. McLaughlin RSU 251,020 25,321 48,861 – 227,480
PSU 27,476 13,393 – – 40,869
M.J. Reemst RSU 97,758 – 10,060 – 87,698
PSU – – – – –
N. Sorbara RSU 48,108 17,105 6,445 – 58,768
PSU 33,158 36,191 – – 69,349
P.C. Upfold RSU 122,801 – 18,285 – 104,516
PSU – – – – –
S. Vrcelj RSU 101,748 18,792 30,279 – 90,261
PSU 68,289 38,470 10,478 5,935 90,346
G.C. Ward RSU 193,242 31,696 30,329 – 194,609
PSU 157,300 49,584 17,426 17,644 171,814
S. Wikramanayake
(6)
RSU 168,982 47,019 19,432 – 196,569
PSU 226,286 57,848 19,745 15,587 248,802
(1)
A related party of Mr M.J. Coleman holds RSU awards, some of which vested during the year. Mr Coleman does not influence any
investment decisions over, nor does he benefit from, this holding.
(2)
Or date of appointment if later.
(3)
Awards are granted in the financial year following the year of the Company’s performance to which the grant relates. RSUs and PSUs
disclosed as granted above relate to FY2014.
(4)
For RSUs, this represents vested RSUs transferred to the KMP’s shareholding and includes RSUs vesting during the current year in
respect of grants made prior to Executives becoming a KMP.
(5)
Performance hurdles for PSU awards issued on or after 13 August 2010 and vesting at 1 July 2014 were partially achieved and
therefore some of those PSU awards did not become exercisable and lapsed. These awards are not exchangeable and the related
expense previously recognised on these PSU grants was reversed during the current and prior financial years.
(6)
Refer to footnotes (5), (6) and (7) in the table "RSU Awards to KMP” on pages 109 to 110.
(7)
Mr Downe had 11,000 PSUs vest which were not exercised during FY2015. There were no other PSUs that vested during the year
which were not exercised.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Directors’ Report Schedule 2 – Remuneration Report
for the financial year ended 31 March 2015
continued
114
Appendix 4: Other KMP disclosures
Loans to Key Management Personnel and their related parties
Details of loans provided by Macquarie to KMP and their related parties
(1)
are disclosed in the following tables:
Name and position
Balance at
1 April
2014
$A’000
Interest
charged
(2)
$A’000
Write-downs
$A’000
Balance at
31 March 2015
$A’000
Highest balance
during
year
$A’000
Executives
N. Sorbara 250 14 – 559 560
(1)
There were no other loans provided by Macquarie to KMP and their related parties during the financial year ended 31 March 2015.
(2)
All loans provided by Macquarie to Directors and Executives are made in the ordinary course of business on an arm’s length basis and
are entered into under normal terms and conditions consistent with other customers and employees. There have been no write-downs
or allowances for doubtful debts.
This Remuneration Report has been prepared in accordance with the Act. The Remuneration Report contains disclosures as
required by Accounting Standard AASB 124 Related Party Disclosures as permitted by Corporations Regulation 2M.3.03.
Throughout this Remuneration Report financial information for Macquarie relating to the years ended 31 March 2006 through to 31
March 2015 has been presented in accordance with Australian Accounting Standards. Compliance with Australian Accounting
Standards ensures compliance with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
This is the end of the Remuneration Report.
Directors’ Report Schedule 3 –
Auditor’s Independence Declaration
for the financial year ended 31 March 2015
115
Auditor’s Independence Declaration
As lead auditor for the audit of Macquarie Group Limited
for the year ended 31 March 2015, I declare that to the
best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence
requirements of the Corporations Act 2001 (Cth)
in relation to the audit; and
b) no contraventions of any applicable code of professional
conduct in relation to the audit.
This declaration is in respect of Macquarie Group Limited
and the entities it controlled during the period.
K.G. Smith
Partner
PricewaterhouseCoopers
Sydney
8 May 2015
Liability is limited by a scheme approved under Professional
Standards Legislation.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Financial Report
for the financial year ended 31 March 2015
Contents
116
Income statements ....................................................................................................................................................................... 117
Statements of comprehensive income ........................................................................................................................................ 118
Statements of financial position .................................................................................................................................................. 119
Statements of changes in equity ................................................................................................................................................. 120
Statements of cash flows ............................................................................................................................................................. 122
Notes to the financial statements ................................................................................................................................................ 123
1 Summary of significant accounting policies ............................................................................................................................ 123
2 Profit for the financial year ...................................................................................................................................................... 134
3 Segment reporting ................................................................................................................................................................. 137
4 Income tax expense ............................................................................................................................................................... 141
5 Dividends and distributions paid or provided for .................................................................................................................... 142
6 Earnings per share ................................................................................................................................................................. 143
7 Receivables from financial institutions .................................................................................................................................... 145
8 Trading portfolio assets .......................................................................................................................................................... 145
9 Investment securities available for sale ................................................................................................................................... 146
10 Other assets .......................................................................................................................................................................... 146
11 Loan assets held at amortised cost ....................................................................................................................................... 147
12 Impaired financial assets ........................................................................................................................................................ 149
13 Other financial assets at fair value through profit or loss ......................................................................................................... 149
14 Property, plant and equipment ............................................................................................................................................... 150
15 Interests in associates and joint ventures accounted for using the equity method .................................................................. 152
16 Intangible assets .................................................................................................................................................................... 153
17 Investments in subsidiaries .................................................................................................................................................... 154
18 Deferred tax assets/(liabilities) ................................................................................................................................................ 155
19 Trading portfolio liabilities ....................................................................................................................................................... 156
20 Deposits ................................................................................................................................................................................ 156
21 Other liabilities ........................................................................................................................................................................ 156
22 Payables to financial institutions ............................................................................................................................................. 156
23 Other financial liabilities at fair value through profit or loss ...................................................................................................... 156
24 Debt issued at amortised cost ............................................................................................................................................... 157
25 Provisions .............................................................................................................................................................................. 157
26 Capital management strategy ................................................................................................................................................ 158
27 Loan capital ........................................................................................................................................................................... 159
28 Contributed equity ................................................................................................................................................................. 162
29 Reserves, retained earnings and non-controlling interests ..................................................................................................... 165
30 Notes to the statements of cash flows ................................................................................................................................... 167
31 Related party information ....................................................................................................................................................... 168
32 Key Management Personnel disclosure ................................................................................................................................. 170
33 Employee equity participation ................................................................................................................................................ 174
34 Contingent liabilities and commitments .................................................................................................................................. 181
35 Lease commitments .............................................................................................................................................................. 181
36 Structured entities .................................................................................................................................................................. 182
37 Derivative financial instruments .............................................................................................................................................. 185
38 Financial risk management ..................................................................................................................................................... 186
39 Fair value of financial assets and liabilities .............................................................................................................................. 207
40 Offsetting financial assets and financial liabilities .................................................................................................................... 217
41 Transfers of financial assets ................................................................................................................................................... 220
42 Audit and other services provided by PricewaterhouseCoopers ............................................................................................ 222
43 Acquisitions and disposals of subsidiaries and businesses .................................................................................................... 223
44 Events after the reporting date ............................................................................................................................................... 225
Directors’ declaration ................................................................................................................................................................... 226
Independent audit report ............................................................................................................................................................. 227
Ten year history ............................................................................................................................................................................ 228
The Financial Report was authorised for issue by the Directors on 8 May 2015.
The Consolidated Entity has the power to amend and reissue the Financial Report.
Income statements
for the financial year ended 31 March 2015
Income statements
Notes
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
117
Interest and similar income
5,009 4,611 372 339
Interest expense and similar charges
(2,917) (2,906) (375) (410)
Net interest income/(expense)
2
2,092 1,705 (3) (71)
Fee and commission income 2
4,770 3,853 9 9
Net trading income 2
1,727 1,570 67 5
Share of net profits of associates and joint ventures
accounted for using the equity method
2
5 149 – –
Other operating income and charges 2
699 855 2,544 2,757
Net operating income
9,293 8,132 2,617 2,700
Employment expenses 2
(4,143) (3,736) (4) (4)
Brokerage, commission and trading-related expenses 2
(855) (779) – –
Occupancy expenses 2
(379) (382) – –
Non-salary technology expenses 2
(437) (323) – –
Other operating expenses 2
(957) (806) – (3)
Total operating expenses
(6,771) (6,026) (4) (7)
Operating profit before income tax
2,522 2,106 2,613 2,693
Income tax (expense)/benefit 4
(899) (827) (32) 15
Profit after income tax
1,623 1,279 2,581 2,708
(Profit)/loss attributable to non-controlling interests:
Macquarie Income Securities
5
(18) (18) – –
Macquarie Income Preferred Securities
5
(5) (4) – –
Other non-controlling interests
4 8 – –
Profit attributable to non-controlling interests
(19) (14) – –
Profit attributable to ordinary equity holders
of Macquarie Group Limited
1,604 1,265 2,581 2,708
Cents per share
Basic earnings per share 6
502.3 383.6
Diluted earnings per share 6
484.2 369.2
The above income statements should be read in conjunction with the accompanying notes.
Income statements
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Statements of comprehensive income
for the financial year ended 31 March 2015
Notes
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
118
Profit after income tax
1,623 1,279 2,581 2,708
Other comprehensive income/(expense)
(1)
:
Available for sale investments, net of tax
58 72 – –
Cash flow hedges, net of tax
29
(56) 21 – –
Share of other comprehensive (expense)/income of
associates and joint ventures, net of tax
29
(14) 14 – –
Exchange differences on translation of foreign operations,
net of hedge and tax
877 612 – –
Total other comprehensive income
865 719 – –
Total comprehensive income 2,488 1,998 2,581 2,708
Total comprehensive income/(expense) attributable to:
Ordinary equity holders of Macquarie Group Limited
2,460 1,954 2,581 2,708
Macquarie Income Securities holders
18 18 – –
Macquarie Income Preferred Securities holders
11 18 – –
Other non-controlling interests
(1) 8 – –
Total comprehensive income 2,488 1,998 2,581 2,708
(1)
All items of other comprehensive income/(expense) may be reclassified subsequently to profit or loss.
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
Statements of comprehensive income
Statements of financial position
as at 31 March 2015
Notes
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
119
Assets
Receivables from financial institutions
7
28,705 19,457 – –
Trading portfolio assets
8
30,406 22,462 – –
Derivative assets
20,080 12,633 – –
Investment securities available for sale
9
8,896 14,051 – –
Other assets
10
13,557 12,990 138 270
Loan assets held at amortised cost
11
72,762 58,712 – –
Other financial assets at fair value through profit or loss
13
2,125 2,854 – –
Due from subsidiaries
31
– – 10,361 8,711
Property, plant and equipment
14
7,079 6,311 – –
Interests in associates and joint ventures accounted for
using the equity method
15
2,328 2,447 – –
Intangible assets
16
1,164 1,221 – –
Investments in subsidiaries
17,1
– – 15,871 13,637
Deferred tax assets
18
874 766 59 143
Total assets
187,976 153,904 26,429 22,761
Liabilities
Trading portfolio liabilities 19 5,295 2,762 – –
Derivative liabilities 18,267 11,973 – –
Deposits 20 47,386 42,401 18 33
Other liabilities 21 15,830 13,908 68 74
Payables to financial institutions 22 18,645 19,654 2,566 1,307
Other financial liabilities at fair value through profit or loss 23 1,626 1,464 – –
Due to subsidiaries 31 – – 810 866
Debt issued at amortised cost 24 61,463 45,565 6,179 6,265
Provisions 25 220 205 – –
Deferred tax liabilities
18 464 551 – –
Total liabilities excluding loan capital 169,196 138,483 9,641 8,545
Loan capital
Subordinated debt at amortised cost 4,384 3,507 603 601
Total loan capital 27 4,384 3,507 603 601
Total liabilities 173,580 141,990 10,244 9,146
Net assets 14,396 11,914 16,185 13,615
Equity
Contributed equity 28
5,947 5,112 8,667 7,852
Reserves 29
1,656 669 654 559
Retained earnings
29
6,306 5,637 6,864 5,204
Total capital and reserves attributable to ordinary
equity holders of Macquarie Group Limited 13,909 11,418 16,185 13,615
Non-controlling interests 29 487 496 – –
Total equity 14,396 11,914 16,185 13,615
The above statements of financial position should be read in conjunction with the accompanying notes.
Statements of financial position
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Statements of changes in equity
for the financial year ended 31 March 2015
Notes
Contributed
equity
$m
Reserves
$m
Retained
earnings
$m
Total
$m
Non-
controlling
interests
$m
Total
equity
$m
120
Consolidated
Balance at 1 April 2013 5,907 57 5,439 11,403 552 11,955
Profit after income tax – – 1,265 1,265 14 1,279
Other comprehensive income, net of tax – 689 – 689 30 719
Total comprehensive income – 689 1,265 1,954 44 1,998
Transactions with equity holders in their
capacity as equity holders:
Contributions of ordinary equity, net of
transaction costs 28 15 – – 15 – 15
Purchase of shares by MEREP Trust 28 (216) – – (216) – (216)
Dividends and distributions paid or provided for 5 – – (1,159) (1,159) – (1,159)
Capital reduction through SYD distribution 28,29 (803) (72) – (875) – (875)
Non-controlling interests:
Change in non controlling ownership interests 29 – – (5) (5) (86) (91)
Distributions paid or provided for – – – – (14) (14)
Other equity movements:
MEREP expense 29 – 257 – 257 – 257
Additional deferred tax benefit on MEREP
expense 29 – 53 – 53 – 53
Transfer from share-based payments reserve:
– to retained earnings 29 – (97) 97 – – –
– to other liabilities for cash settled awards 29 – (9) – (9) – (9)
– to equity for equity settled awards 28,29 195 (195) – – – –
Transfer of additional deferred tax benefit on
MEREP expense upon vesting to equity 28,29 14 (14) – – – –
(795) (77) (1,067) (1,939) (100) (2,039)
Balance at 31 March 2014 5,112 669 5,637 11,418 496 11,914
Profit after income tax – – 1,604 1,604 19 1,623
Other comprehensive income, net of tax – 856 – 856 9 865
Total comprehensive income – 856 1,604 2,460 28 2,488
Transactions with equity holders in their
capacity as equity holders:
Contributions of ordinary equity, net of
transaction costs 28 847 – – 847 – 847
Purchase of shares by MEREP Trust 28 (266) – – (266) – (266)
Dividends and distributions paid or provided for 5 – – (931) (931) – (931)
Non-controlling interests:
Change in non controlling ownership interests 29 – – (4) (4) (12) (16)
Distributions paid or provided for – – – – (25) (25)
Other equity movements:
MEREP expense 29 – 319 – 319 – 319
Additional deferred tax benefit on MEREP
expense 29 – 67 – 67 – 67
Transfer from share-based payments reserve:
– to other liabilities for cash settled awards 29 – (1) – (1) – (1)
– to equity for equity settled awards 28,29 242 (242) – – – –
Transfer from share-based payment capital
reduction reserve to equity 28,29 (19) 19 – – – –
Transfer of additional deferred tax benefit on
MEREP expense upon vesting to equity 28,29 31 (31) – – – –
835 131 (935) 31 (37) (6)
Balance at 31 March 2015 5,947 1,656 6,306 13,909 487 14,396
Statements of changes in equity
Notes
Contributed
equity
$m
Reserves
$m
Retained
earnings
$m
Total
$m
Non-
controlling
interests
$m
Total
equity
$m
121
Company
Balance at 1 April 2013
8,642 675 3,543 12,860 – 12,860
Profit after income tax
– – 2,708 2,708 – 2,708
Total comprehensive income
– – 2,708 2,708 – 2,708
Transactions with equity holders in their
capacity as equity holders:
Contributions of ordinary equity, net of
transaction costs 28 24 – – 24 – 24
Purchase of shares by MEREP Trust 28 (216) – – (216) – (216)
Dividends and distributions paid or provided for 5 – – (1,144) (1,144) – (1,144)
Capital reduction through SYD distribution
28,29
(793) (72) – (865) – (865)
Other equity movements:
MEREP expense
29 – 257 – 257 – 257
Transfer from share-based payments reserve:
– to retained earnings 29 – (97) 97 – – –
– to other liabilities for cash settled awards 29 – (9) – (9) – (9)
– to equity for equity settled awards 28,29 195 (195) – – – –
(790) (116) (1,047) (1,953) – (1,953)
Balance at 31 March 2014 7,852 559 5,204 13,615 – 13,615
Profit after income tax
– – 2,581 2,581 – 2,581
Total comprehensive income
– – 2,581 2,581 – 2,581
Transactions with equity holders in their
capacity as equity holders:
Contributions of ordinary equity, net of
transaction costs 28 858 – – 858 – 858
Purchase of shares by MEREP Trust 28 (266) – – (266) – (266)
Dividends and distributions paid or
provided for
5
– – (921) (921) – (921)
Other equity movements:
MEREP expense
29 – 319 – 319 – 319
Transfer from share-based payments reserve:
– to other liabilities for cash settled awards
29 – (1) – (1) – (1)
– to equity for equity settled awards
28,29 242 (242) – – – –
Transfer from share-based payment capital
reduction reserve to equity
28,29 (19) 19 – – – –
815 95 (921) (11) – (11)
Balance at 31 March 2015 8,667 654 6,864 16,185 – 16,185
The above statements of changes in equity should be read in conjunction with the accompanying notes.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2015
Notes
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
122
Cash flows (used in)/ from operating activities
Interest received 4,680 4,350 369 339
Interest and other costs of finance paid (2,935) (2,901) (377) (410)
Dividends and distributions received 257 214 1,273 810
Fees and other non-interest income received 5,752 4,686 92 16
Fees and commissions paid (830) (782) – –
Net payments on trading portfolio assets and other
financial assets/liabilities (12,834) (2,067) – –
(Payments to)/receipts from suppliers (543) (643) – 3
Employment expenses paid (3,582) (3,122) (4) (4)
Income tax (paid)/refund (178) (336) 116 (115)
Life investment contract premiums received, disposal of
investment assets and other unitholder contributions 1,392 1,191 – –
Life investment contract payments (1,331) (1,123) – –
Net loan assets granted (13,570) (7,776) (1,339) (1,209)
Net increase in amounts due to other financial institutions,
deposits and other borrowings 22,140 8,169 1,163 929
Proceeds from the disposal of lease assets 64 51 – –
Payments for the acquisition of lease assets
(895) (377) – –
Net cash flows (used in)/from operating activities 30
(2,413) (466) 1,293 359
Cash flows from/(used in) investing activities
Net proceeds from investment securities available for sale 2,993 4,188 – –
Proceeds from the disposal of associates, subsidiaries and
businesses, net of cash deconsolidated 1,855 565 – –
Payments for the acquisition of associates, subsidiaries
and businesses, net of cash acquired (776) (729) (950) –
Proceeds from the disposal of property, plant and
equipment, lease assets and intangible assets 158 105 – –
Payments for the acquisition of property, plant and
equipment, lease assets and intangible assets (416) (314) – –
Net cash flows from/(used in) investing activities
3,814 3,815 (950) –
Cash flows from/(used in) financing activities
Proceeds from the issue of ordinary shares 28
673 12 673 12
(Payments to)/proceeds from non-controlling interests
(13) 103 – –
Proceeds from issue of subordinated debt
421 359 – 600
Repayment of convertible preference shares
subordinated debt
– (359) – –
Dividends and distributions paid
(783) (787) (750) (755)
Payments for acquisition of treasury shares 28
(266) (216) (266) (216)
Net cash flows from/(used in) financing activities
32 (888) (343) (359)
Net increase in cash and cash equivalents 1,433 2,461 – –
Cash and cash equivalents at the beginning of the
financial year
15,540 13,079 – –
Cash and cash equivalents at the end of the
financial year 30
16,973 15,540 – –
The above statements of cash flows should be read in conjunction with the accompanying notes.
Statements of cash flows
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
123
Notes to the financial statements
Note 1
Summary of significant accounting policies
(i) Basis of preparation
The principal accounting policies adopted in the preparation of
this financial report and that of the previous financial year are
set out below. These policies have been consistently applied to
all the financial years presented, unless otherwise stated.
This financial report is a general purpose financial report which
has been prepared in accordance with Australian Accounting
Standards (which includes Australian Interpretations by virtue of
AASB 1048 Interpretation of Standards) and the Corporations
Act 2001 (Cth).
Compliance with IFRS as issued by the IASB
Compliance with Australian Accounting Standards ensures that
the financial report complies with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB). Consequently, this
financial report has also been prepared in accordance with and
complies with IFRS as issued by the IASB.
Historical cost convention
This financial report has been prepared under the historical cost
convention, as modified by the revaluation of investment
securities available for sale and certain other assets and
liabilities (including derivative instruments) at fair value.
Critical accounting estimates and significant judgements
The preparation of the financial report in conformity with Australian
Accounting Standards requires the use of certain critical
accounting estimates. It also requires management to exercise
judgement in the process of applying the accounting policies. The
notes to the financial statements set out areas involving a higher
degree of judgement or complexity, or areas where assumptions
are significant to Macquarie Group Limited and its subsidiaries
(Consolidated Entity) and the consolidated financial report such as:
– fair value of financial assets and liabilities (Note 39)
– impairment of loan assets held at amortised cost,
investment securities available for sale and interests in
associates and joint ventures, investment in subsidiaries
(Notes 1(xii), 1(xiv), 1(xxviii), 11, 15 and 17)
– acquisitions and disposals of subsidiaries, associates and
joint ventures and assets and disposal groups classified as
held for sale (Notes 1(ii), 1(xiii), 15 and 43)
– distinguishing between whether assets or a business is
acquired (Note 1(iii))
– determination of control of structured entities (Notes 1(ii)
and 36)
– determination of whether dividends and distributions
received are recognised as income or a return of capital
(Note 1(vi))
– recoverability of deferred tax assets and measurement of
current and deferred tax liabilities (Notes 1(vii), 4 and 18)
– the impairment of goodwill and other identifiable intangible
assets with indefinite useful lives (Notes 1(xvii) and 16), and
– recognition of performance fees from Macquarie-managed
unlisted funds (Note 1(vi)).
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
reasonable expectations of future events.
Management believes the estimates used in preparing the
financial report are reasonable. Actual results in the future may
differ from those reported and therefore it is reasonably
possible, on the basis of existing knowledge, that outcomes
within the next financial year that are different from our
assumptions and estimates could require an adjustment to the
carrying amounts of the assets and liabilities reported.
New Australian Accounting Standards and amendments
to Accounting Standards that are effective in the
current financial year
The following key Accounting Standards and amendments to
Accounting Standards became applicable in the current
financial year:
AASB 2012-3 Amendments to Australian Accounting
Standards – Offsetting Financial Assets and Financial
Liabilities
AASB 2012-3 amends AASB 132 Financial Instruments:
Presentation to clarify that to set off an asset with a liability:
– the right of set-off must be available and legally enforceable
for all counterparties in the normal course of business, as
well as in the event of default, insolvency or bankruptcy
– certain gross settlement mechanisms (such as through a
clearing house) may be equivalent to net settlement
– master netting arrangements where the legal right of offset
is only enforceable on the occurrence of a future event
(such as default of the counterparty) continue to not meet
the requirements for netting.
AASB 2012-3 is required to be retrospectively applied. Application
in the current period did not have a material impact on the financial
position nor performance of the Consolidated Entity.
AASB 2011-4 Amendments to Australian Accounting
Standards to Remove Individual Key Management
Personnel Disclosure Requirements
AASB 2011-4 removes the individual Key Management
Personnel disclosure requirements from AASB 124 Related
Party Disclosures. The application of AASB 2011-4 in the
current financial year has reduced disclosures provided in the
financial report but has not affected any of the amounts
recognised in the financial statements.
AASB 2013-5 Amendments to Australian Accounting
Standards – Investment Entities
AASB 2013-5 defines an investment entity and provides an
exception to the consolidation requirements in AASB 10.
Investment entities are required to measure particular
subsidiaries at fair value through profit or loss, rather than
consolidate them. However, where a non-investment entity
parent ultimately controls an investment entity, the parent must
still consolidate the investment entity and all the underlying
subsidiaries, reversing fair value used by the investment entity.
AASB 2013-5 is required to be retrospectively applied.
Application in the current period has not had a material impact
on the financial position nor performance of the Consolidated
Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
124
Note 1
Summary of significant accounting policies continued
New Australian Accounting Standards and amendments
to Accounting Standards that are not yet effective
AASB 9 Financial Instruments
AASB 9 will replace AASB 139 Financial Instruments:
Recognition and Measurement. It will lead to changes in the
accounting for financial instruments, primarily relating to:
Financial assets: A financial asset is measured at amortised
cost only if it is held within a business model whose objective is
to collect contractual cash flows and the asset gives rise to
cash flows on specified dates that are payments solely of
principal and interest (on the principal amount outstanding). All
other financial assets are measured at fair value. Changes in the
fair value of debt instruments that:
(i) have cash flows solely of principal and interest, and
(ii) are held in a business model managed both to collect cash
flows and for sale
are recognised in other comprehensive income until sold, when
they are recycled to the income statement. Interest and
impairment are recognised directly in profit or loss. Changes in the
fair value of equity investments that are not part of a trading activity
may be reported directly in other comprehensive income, but
upon realisation, those accumulated changes are not recycled to
the income statement. Dividends on such investments are
recognised in profit or loss, unless they clearly represent a
recovery of the cost of the investment. Changes in the fair value of
all other financial assets carried at fair value are reported in the
income statement. The combined effect of the application of the
business model and the contractual cash flow characteristics tests
will result in some differences in the assets measured at
amortised cost vs. fair value compared with AASB 139.
Financial liabilities: The component of change in fair value of
financial liabilities designated at fair value through profit or loss
due to an entity’s own credit risk are presented in other
comprehensive income, unless this creates an accounting
mismatch. If a mismatch is created or enlarged, all changes in
fair value (including the effects of credit risk) are presented in
profit or loss. These requirements may be applied early without
applying all other requirements of AASB 9.
Impairment: The impairment requirements apply to financial
assets measured at amortised cost and fair value through other
comprehensive income, lease receivables and certain loan
commitments and financial guarantee contracts. At initial
recognition, an allowance is recognised for expected credit
losses (ECL), resulting from possible defaults within the next 12
months. Subsequently, when there is a significant increase in
credit risk, an allowance is required for ECL resulting from
possible defaults over the expected life of the financial
instrument. The assessment of credit risk, and the estimation of
ECL, are to be unbiased and probability-weighted, and
incorporates all available information relevant to the
assessment, including information about past events, current
conditions and reasonable and supportable information about
future events and economic conditions at the reporting date. As
a result, the impairment allowance is intended to be more
forward-looking and the resulting impairment charge will tend to
be more volatile than under AASB 139.
Hedge accounting: Hedge accounting is more closely aligned
with financial risk management, and may be applied to a greater
variety of hedging instruments and risks.
AASB 9 is effective for annual reporting periods beginning on or
after 1 January 2018. The Consolidated Entity will first apply
AASB 9 in the financial year beginning 1 April 2018. The
Consolidated Entity is currently assessing the impact of the new
requirements on the consolidated financial statements.
AASB 15 Revenue from Contracts with Customers
AASB 15 specifies how and when revenue is recognised, based
on the concept of recognising revenue for performance
obligations as they are satisfied. This could affect the timing and
amount recognised for asset management fees, and contracts
with multiple services. AASB 15 also requires enhanced
disclosures.
AASB 15 is effective for annual periods beginning on or after 1
January 2017. The Consolidated Entity will first apply AASB 15
in the financial year beginning 1 April 2017.
The Consolidated Entity is currently assessing the impact of the
new requirements on the consolidated financial statements.
AASB 2014-10 Amendments to Australian Accounting
Standards – Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
AASB 2014-10 amends AASB 128 and AASB 10 to require that
when an investor sells or contributes assets that constitute a
business to its associate or joint venture, a full gain or loss is
recognised. When the assets transferred do not constitute a
business, the gain or loss recognised is limited to the interest
sold. In determining whether the assets sold or contributed are
a business, it is irrelevant whether the items transferred exist
within a subsidiary.
AASB 2014-10 is effective for annual periods beginning on or
after 1 January 2016. The Consolidated Entity will first apply the
amendments in the financial year beginning 1 April 2016. Initial
application is not expected to result in any material impact for
the Consolidated Entity.
AASB 2015-5 Amendments to Australian Accounting
Standards – Investment Entities: Applying the
Consolidation Exception
AASB 2015-5 introduces a choice in application of the equity
method by a non-investment entity investor to an investment
entity investee. When a non-investment entity investor applies
the equity method to an investment entity associate or joint
venture, the investor may retain the fair value measurement
applied by the investment entity associate or joint venture to its
interests in subsidiaries, or reverse the fair value measurement
to conform to the accounting policies of the investor.
AASB 2015-5 is effective for annual reporting periods beginning
on or after 1 January 2016. The Consolidated Entity will first
apply the amendments in the financial year beginning 1 April
2016. Initial application is not expected to result in any material
impact for the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
125
(ii) Principles of consolidation
Subsidiaries
The consolidated financial report comprises the financial report
of the Consolidated Entity. Subsidiaries are all those entities
(including structured entities) over which the Company has:
(i) power to direct the relevant activities
(ii) exposure to significant variable returns, and
(iii) the ability to utilise power to affect the Consolidated Entity’s
own returns.
The determination of control is based on current facts and
circumstances and is continuously assessed.
The Consolidated Entity has power over an entity when it has
existing substantive rights that give it the current ability to direct
the entity’s relevant activities. Relevant activities are those
activities that significantly affect the entity’s returns. The
Consolidated Entity evaluates whether it has the power to direct
the relevant activities. The Consolidated Entity also considers
the entity’s purpose and design. If the Consolidated Entity
determines that it has power over an entity, the Consolidated
Entity then evaluates whether it has exposure or rights to
variable returns that, in aggregate, are significant. All variable
returns are considered including, but not limited to, debt or
equity investments, guarantees, liquidity arrangements, variable
fees and certain derivative contracts.
Structured entities
Structured entities (SEs) are those entities where voting rights
do not have a significant effect on its returns, including where
voting rights relate to administrative tasks only and contractual
arrangements dictate how the entity should carry out its
activities. When assessing whether the Consolidated Entity
controls (and therefore consolidates) a SE, judgement is
required as to whether the Consolidated Entity has power over
the relevant activities as well as exposure to significant variable
returns of the SE.
Where the Consolidated Entity has power over, is exposed to
significant variable returns through the residual risk associated
with its Mortgage SEs and other SEs, and is able to affect its
returns, the underlying assets, liabilities, revenues and expenses
of these SEs are reported in the consolidated financial
statements.
The effects of all transactions between entities in the
Consolidated Entity are eliminated in full. Non-controlling
interests (NCI) in the results and equity of subsidiaries, where
the Company owns less than 100 percent of the issued capital,
are shown separately in the consolidated income statement,
consolidated statement of comprehensive income and
consolidated statement of financial position, respectively.
Where control of an entity was obtained during the financial
year, its results are included in the consolidated income
statement from the date on which control commenced. Where
control of an entity ceased during the financial year, its results
are included for that part of the financial year during which
control existed.
The Company and Consolidated Entity determine the dates of
obtaining control (ie acquisition date) and losing control (ie
disposal date) of another entity based on an assessment of all
pertinent facts and circumstances that affect the ability to direct
the relevant activities of that entity. Facts and circumstances
that have the most impact include the contractual arrangements
agreed with the counterparty, the manner in which those
arrangements are expected to operate in practice and whether
regulatory approval is required to complete. The acquisition or
disposal date does not necessarily occur when the transaction
is closed or finalised under law.
Subsidiaries held by the Company are carried in its financial
statements at cost less impairment in accordance with AASB
127 Separate Financial Statements.
Interests in associates and joint ventures accounted for
using the equity method
Associates and joint ventures are entities over which the
Consolidated Entity has significant influence or joint control, but
not control, and are accounted for under the equity method
except those which are classified as held for sale. The equity
method of accounting is applied in the consolidated financial
report and involves the recognition of the Consolidated Entity’s
share of its associates’ and joint ventures’ post-acquisition
profits or losses in the consolidated income statement, and the
share of its post-acquisition movements in reserves.
The Consolidated Entity determines the dates of obtaining or
losing significant influence or joint control of another entity
based on an assessment of all pertinent facts and
circumstances that affect the ability to significantly influence or
jointly control the financial and operating policies of that entity.
Facts and circumstances that have the most impact include the
contractual arrangements agreed with the counterparty, the
manner in which those arrangements are expected to operate
in practice, and whether regulatory approval is required to
complete. The acquisition or disposal date does not necessarily
occur when the transaction is closed or finalised under law.
(iii) Business combinations
Business combinations are accounted for using the acquisition
method. Cost is measured as the aggregate of the fair values
(at the date of exchange) of assets acquired, equity instruments
issued or liabilities incurred or assumed at the date of
exchange. Transaction costs arising on the issue of equity
instruments are recognised directly in equity, and those arising
on borrowings are capitalised and included in interest expense
using the effective interest method.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
126
Note 1
Summary of significant accounting policies continued
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured at
their fair values on the acquisition date. The Consolidated Entity
can elect, on a transaction-by-transaction basis, to measure
NCI relating to ordinary shares either at fair value or at the NCI’s
proportionate share of the fair values of the identifiable assets
and liabilities. The excess of the consideration over the
Consolidated Entity’s share of the fair value of the identifiable
net assets acquired is recorded as goodwill. If the consideration
is less than the Consolidated Entity’s share of the fair value of
the identifiable net assets of the business acquired, the
difference is recognised directly in the consolidated income
statement, but only after a reassessment of the identification
and measurement of the net assets acquired. For contingent
consideration given, the amount is subsequently remeasured to
its fair value with changes recognised in the consolidated
income statement.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their
present values as at the date of exchange. The discount rate
used is the entity’s incremental borrowing rate, being the rate at
which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
Distinguishing between whether assets or a business is
acquired involves judgement. Some of the factors that the
Consolidated Entity uses in identifying a business combination
are:
– the nature of the Consolidated Entity’s industry and
business model, which affects the nature of an input,
process or output
– whether the acquisition included at least a majority of the
critical inputs (eg tangible or intangible assets, and
intellectual property) and a majority of the critical processes
(eg strategic processes, skilled and experienced workforce)
– the relative ease of replacing the critical processes not
acquired by either integrating within the Consolidated
Entity’s existing processes or sub-contracting them to third
parties, and
– the presence of goodwill.
(iv) Segment reporting
Operating segments are identified on the basis of internal
reports to senior management about components of the
Consolidated Entity that are regularly reviewed by senior
management who have been identified as the chief operating
decision makers, in order to allocate resources to the segment
and to assess its performance. Information reported to senior
management for the purposes of resource allocation and
assessment of performance is specifically focused on core
products and services offered, comprising seven reportable
segments as disclosed in Note 3. Information about products
and services and geographical segments is based on the
financial information used to produce the Consolidated Entity’s
financial statements.
(v) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of foreign operations
are measured using the currency of the primary economic
environment in which the foreign operation operates (the
functional currency). The Company’s and Consolidated Entity’s
financial statements are presented in Australian dollars (the
presentation currency), which is also the Company’s functional
currency.
Transactions and balances
Foreign currency transactions are recorded in the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at
year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income
statement, except when deferred in other comprehensive
income (OCI) as a result of meeting cash flow hedge or net
investment hedge accounting requirements (see Note 1(xi)).
Translation differences on non-monetary items (such as
equities) held at fair value through profit or loss, are reported as
part of the fair value gain or loss in the income statement.
Translation differences on non-monetary items classified as
available for sale financial assets are included in the available for
sale reserve in equity, unless they form part of fair value hedge
relationships in which case the translation differences are
recognised in the income statement (see Note 1(xi)).
Subsidiaries and other entities
The results and financial position of all foreign operations that
have a functional currency other than Australian dollars are
translated into Australian dollars as follows:
– assets and liabilities for each statement of financial position
presented are translated at the closing exchange rate at the
date of that statement of financial position
– income and expenses for each income statement are
translated at actual exchange rates at the dates of the
transactions, and
– all resulting exchange differences are recognised in OCI
within a separate component of equity-the foreign currency
translation reserve.
On consolidation, exchange differences arising from the
translation of any net investment in foreign operations and of
borrowings and other foreign currency instruments designated
as hedges of such investments, are taken to the foreign
currency translation reserve through OCI. When a foreign
operation is disposed of or any borrowings forming part of the
net investment are repaid, such exchange differences are
recognised in the income statement as part of the gain or loss
on disposal.
Goodwill and fair value adjustments arising on the acquisition of
a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
127
(vi) Revenue and expense recognition
Revenue is measured at the fair value of the consideration
received or receivable. Revenue is recognised for each major
revenue stream as follows:
Net interest income
Interest income is brought to account using the effective
interest method. The effective interest method calculates the
amortised cost of a financial instrument and allocates the
interest income or interest expense over the relevant period.
The effective interest rate is the rate that discounts estimated
future cash receipts or payments through the expected life of
the financial instrument or, when appropriate, a shorter period,
to the net carrying amount of the financial asset or liability. Fees
and transaction costs associated with loans are capitalised and
included in the effective interest rate and recognised in the
income statement over the expected life of the instrument.
Interest income on finance leases is brought to account
progressively over the life of the lease consistent with the
outstanding investment balance.
Fee and commission income
Fee and commission income includes fees from fund
management, brokerage, account servicing, corporate advisory,
underwriting and securitisation arrangements and is recognised
as the related services are performed. Where commissions and
fees are subject to clawback or meeting certain performance
hurdles, they are recognised as income at the point when those
conditions can no longer affect the outcome.
Fee and commission income and expenses that are integral to
the effective interest rate on a financial asset or liability are
capitalised and included in the effective interest rate and
recognised in the income statement over the expected life of
the instrument.
Performance fees from Macquarie-managed unlisted funds are
recognised when the fee can be reliably measured and its
receipt is highly probable. Factors that are taken into
consideration include:
– the proportion of assets already realised
– returns on assets realised to-date
– downside valuation on remaining unrealised assets and
reliability of those estimates
– nature of unrealised investments and their returns.
Net trading income
Net trading income comprises gains and losses related to
trading assets and liabilities and include all realised and
unrealised fair value changes, dividends and foreign exchange
differences.
Dividends and distributions
Dividends and distributions are recognised as income when the
Consolidated Entity becomes entitled to the dividend or
distribution. Dividends from subsidiaries, associates and joint
ventures are recognised in the income statement when the
Company’s right to receive the dividend is established.
When accounting for a dividend or distribution, judgement is
required about whether it is recognised as income or a return of
capital. The range of factors that are considered include:
– whether the payment follows a legal process to reduce
either the number of outstanding shares or the amount of
share capital
– whether evidence exists clearly demonstrating that the
distribution is a return of capital originally invested by the
investor (eg the timing of a distribution relative to the
acquisition of the investment)
– the substance of the payment, including the existence of
non-discretionary evidence, that may identify its nature. A
director declaration of the nature is given a low weighting in
the analysis
– whether other transactions occur with the same
counterparty at the same time as, or in contemplation of,
the payment
– whether the payment is from profits in proportion to the
investors’ particular class of capital
– when a dividend is paid in the form of additional equity of
the investee, whether all investors retain the same relative
ownership interest in the investee
– whether the criteria for derecognising part, or all, of an
investment in a financial asset under AASB139 Financial
Instruments: Recognition and Measurement are met, and in
particular if substantially all the risks and rewards of
ownership have been transferred.
(vii) Income tax
The income tax expense for the financial year is the tax payable
on the current period’s taxable income based on the national
income tax rate for each jurisdiction, adjusted for changes in
deferred tax assets and liabilities and unused tax losses.
Deferred tax assets are recognised when temporary differences
arise between the tax bases of assets and liabilities and their
respective carrying amounts which give rise to a future tax
benefit, or when a benefit arises due to unused tax losses.
In both cases, deferred tax assets are recognised only to the
extent that it is probable that future taxable amounts will be
available to utilise those temporary differences or tax losses.
Deferred tax liabilities are recognised when such temporary
differences will give rise to taxable amounts that are payable in
future periods. Deferred tax assets and liabilities are recognised
at the tax rates expected to apply when the assets are
recovered or the liabilities are settled under currently enacted
tax law.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets and liabilities
and when the deferred tax balances relate to the same taxation
authority. Current tax assets and liabilities are offset when there
is a legally enforceable right to offset and an intention to either
settle on a net basis, or realise the asset and settle the liability
simultaneously. Current and deferred taxes attributable to
amounts recognised directly in equity are also recognised
directly in equity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
128
Note 1
Summary of significant accounting policies continued
The Company and Consolidated Entity exercise judgement in
determining whether deferred tax assets, particularly in relation
to tax losses, are probable of recovery. Factors considered
include the ability to offset tax losses within the tax consolidated
group in Australia or groups of entities in overseas jurisdictions,
the nature of the tax loss, the length of time that tax losses are
eligible for carry forward to offset against future taxable profits
and whether future taxable profits are expected to be sufficient
to allow recovery of deferred tax assets.
The Consolidated Entity undertakes transactions in the ordinary
course of business where the income tax treatment requires the
exercise of judgement. The Consolidated Entity estimates its tax
liability based on its understanding of the tax law.
Tax consolidation
The Consolidated Entity’s Australian tax liabilities are
determined according to tax consolidation legislation. The
Company together with all eligible Australian resident wholly-
owned subsidiaries of the Company comprise a tax
consolidated group with the Company as the head entity. As a
consequence, the relevant subsidiaries are not liable to make
income tax payments and do not recognise any current tax
balances or any deferred tax assets arising from unused tax
losses. Under the terms and conditions of a tax funding
agreement, the Company charges each subsidiary for all
current tax liabilities incurred in respect of their activities and
reimburses each subsidiary for any tax assets arising from
unused tax losses.
Should the Company be in default of its tax payment
obligations, or a default is probable, the current tax balances of
the subsidiaries will be determined in accordance with the
terms and conditions of a tax sharing agreement between the
Company and entities in the tax consolidated group.
(viii) Cash collateral on securities borrowed/lent and
reverse repurchase/repurchase agreements
As part of its trading activities, the Consolidated Entity borrows
and lends securities on a collateralised basis. The securities
subject to the borrowing or lending are not derecognised from
the statements of financial position of the relevant parties, as
the risks and rewards of ownership remain with the initial
holder. Where cash is provided as collateral, the cash paid to
third parties on securities borrowed is recorded as a receivable,
while cash received from third parties on securities lent is
recorded as a borrowing.
Reverse repurchase transactions, where the Consolidated
Entity purchases securities under an agreement to resell, and
repurchase transactions, where the Consolidated Entity sells
securities under an agreement to repurchase, are also
conducted on a collateralised basis. The securities subject to
the reverse repurchase and repurchase agreements are not
derecognised from the statements of financial position of the
relevant parties, as the risks and rewards of ownership remain
with the initial holder. Where cash is provided as collateral, the
cash paid to third parties on the reverse repurchase agreement
is recorded as a receivable, while cash received from third
parties on the repurchase agreement is recorded as a
borrowing.
Cash provided as collateral on securities borrowed or on the
reverse repurchase agreement is included in receivables from
financial institution or other assets based on the counterparty,
while cash received from third parties on securities lent or
repurchase agreement is included in payables to financial
institutions or other liabilities based on the counterparty.
The Consolidated Entity continually reviews the fair values of the
securities on which the above transactions are based and,
where appropriate, requests or provides additional collateral to
support the transactions, in accordance with the underlying
agreements.
(ix) Trading portfolio assets and liabilities
Trading portfolio assets (long positions) comprise debt and
equity securities, bank bills, treasury notes, bullion and
commodities purchased with the intent of being actively traded.
Trading portfolio liabilities (short positions) comprise obligations
to deliver assets across the same trading categories, which the
Consolidated Entity has short-sold and are actively traded.
Assets and liabilities included in the trading portfolio are carried
at fair value (see Note 39). Realised gains and losses, and
unrealised gains and losses arising from changes in the fair
value of the trading portfolio are recognised as net trading
income in the income statement in the period in which they
arise. Dividend income or expense on the trading portfolio is
recognised in the income statement as net trading income.
The Consolidated Entity uses trade date accounting when
recording regular way purchases and sales of financial assets.
At the date the transaction is entered into (trade date), the
Consolidated Entity recognises the resulting financial asset or
liability and any subsequent unrealised profits or losses arising
from revaluing that contract to fair value in the income
statement. When the Consolidated Entity becomes party to a
sale contract of a financial asset, it derecognises the asset and
recognises a trade receivable from trade date until settlement
date.
(x) Derivative instruments
Derivative instruments entered into by the Consolidated Entity
include futures, forwards and forward rate agreements, swaps
and options in the interest rate, foreign exchange, commodity
and equity markets. These derivative instruments are principally
used for the risk management of existing financial assets and
financial liabilities.
All derivatives, including those used for statement of financial
position hedging purposes, are recognised on the statement of
financial position and are disclosed as an asset where they have
a positive fair value at balance date or as a liability where the fair
value at balance date is negative.
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Statements of cash flows
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Derivatives are initially recognised at fair value on the date a
derivative contract is entered into and subsequently
re-measured to their fair value. Fair values are obtained from
quoted market prices in active markets including recent market
transactions, and valuation techniques including discounted
cash flow models and option pricing models, as appropriate.
Movements in the fair values of derivatives are recognised in the
income statement in net trading income, unless the derivative
meets the requirements for hedge accounting.
The best evidence of a derivative’s fair value at initial recognition
is its transaction price, unless its fair value is evidenced by
comparison with other observable current market transactions
in the same instrument, or based on a valuation technique for
which variables include only data from observable markets.
Where such alternative evidence exists, the Consolidated Entity
recognises profits or losses immediately when the derivative is
recognised.
(xi) Hedge accounting
The Consolidated Entity designates certain derivatives or
financial instruments as hedging instruments in qualifying hedge
relationships. On initial designation of the hedge, the
Consolidated Entity documents the hedge relationship between
hedging instruments and hedged items, as well as its risk
management objectives and strategies. The Consolidated Entity
also documents its assessment, both at hedge inception and
on an ongoing basis, of whether hedging relationships have
been and will continue to be highly effective. Derivatives or
financial instruments can be designated in one of three types of
hedge relationships.
Cash flow hedges
For a derivative or financial instrument designated as hedging
the variability in cash flows attributable to a particular risk
associated with a recognised asset or liability (or a highly
probable forecast transaction), the gain or loss on the derivative
or financial instrument associated with the effective portion of
the hedge is initially recognised in OCI in the cash flow hedging
reserve and subsequently released to the income statement
when the hedged item affects the income statement. The gain
or loss relating to the ineffective portion of the hedge is
recognised immediately in the income statement.
Fair value hedges
For a derivative or financial instrument designated as hedging
the change in fair value of a recognised asset or liability (or an
unrecognised firm commitment), the gain or loss on the
derivative or financial instrument is recognised in the income
statement immediately, together with the loss or gain on the
hedged asset or liability that is attributable to the hedged risk.
Net investment hedges
For a derivative or borrowing designated as hedging a net
investment in a foreign operation, the gain or loss on revaluing
the derivative or borrowing associated with the effective portion
of the hedge is recognised in the foreign currency translation
reserve and subsequently released to the income statement
when the foreign operation is disposed of. The ineffective
portion is recognised in the income statement immediately.
The fair values of various financial instruments used for hedging
purposes are disclosed in Note 39. Movements in the cash flow
hedging reserve in equity are shown in Note 29.
(xii) Investments and other financial assets
With the exception of trading portfolio assets and derivatives,
which are classified separately in the statement of financial
position, the remaining investments in financial assets are
classified into the following categories: loans and receivables,
other financial assets at fair value through profit or loss and
investment securities available for sale. The classification
depends on the purpose for which the financial asset was
acquired, which is determined at initial recognition and, except
for other financial assets at fair value through profit or loss, is
re-evaluated at each balance date.
Loans and receivables
This category includes loan assets held at amortised cost and
amounts due from subsidiaries, which are non-derivative
financial assets with fixed or determinable payments that are
not quoted in an active market.
Other financial assets at fair value through profit or loss
This category includes only those financial assets which have
been designated by management as held at fair value through
profit or loss on initial recognition.
The policy of management is to designate a financial asset as
such if: the asset contains embedded derivatives which must
otherwise be separated and carried at fair value; it is part of a
group of financial assets managed and evaluated on a fair value
basis; or doing so eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise. Interest income on debt securities designated as at fair
value through profit or loss is recognised in the income
statement in interest income using the effective interest method
as disclosed in Note 1(vi).
Investment securities available for sale
Investment securities available for sale comprise securities that
are not actively traded and are intended to be held for an
indefinite period. Such securities are available for sale and may
be sold should the need arise, including purposes of liquidity, or
due to the impacts of changes in interest rates, foreign
exchange rates or equity prices.
Investment securities available for sale are initially carried at fair
value plus transaction costs. Gains and losses arising from
subsequent changes in fair value are recognised directly in the
available for sale reserve in equity until the asset is
derecognised or impaired, at which time the cumulative gain or
loss is recognised in the income statement. Fair values of
quoted investments in active markets are based on current bid
prices.
If the relevant market is not considered active (or the securities
are unlisted), fair value is established by valuation techniques,
including recent arm’s length transactions, discounted cash
flow analysis and other valuation techniques commonly used by
market participants.
Interest income on debt securities available for sale is
recognised in the income statement in interest income using the
effective interest method as disclosed in Note 1(vi).
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
130
Note 1
Summary of significant accounting policies continued
(xiii) Non-current assets and disposal groups
classified as held for sale
This category includes interests in businesses, subsidiaries and
associates and joint ventures for which their carrying amount
will be recovered principally through a sale or distribution
transaction rather than continuing use, and subsidiaries held
exclusively with a view to sale or distribute. These assets and
disposal groups are classified as held for sale when it is highly
probable that the asset will be sold or distributed within
12 months subsequent to being classified as such. Where there
is a planned partial disposal of a subsidiary resulting in loss of
control, all of the assets and liabilities of the subsidiary are
classified as held for sale.
Non-current assets and assets of disposal groups classified as
held for sale are measured at the lower of their carrying amount
and fair value less costs to sell. These assets are not
depreciated.
An impairment loss is recognised for any initial or subsequent
write down of the asset to fair value less costs to sell. A gain is
recognised for any subsequent increase in fair value less costs
to sell, limited by the cumulative impairment loss previously
recognised. A gain or loss not previously recognised by the
date of sale is recognised at the date of sale.
(xiv) Impairment
Loan assets held at amortised cost
Loan assets are subject to regular review and assessment for
possible impairment. Provisions for impairment on loan assets
are recognised based on an incurred loss model and
re-assessed at each balance date. A provision for impairment is
recognised when there is objective evidence of impairment, and
is calculated based on the present value of expected future
cash flows, discounted using the original effective interest rate.
Individually assessed provisions for impairment are recognised
where impairment of individual loans are identified. Where
individual loans are found not to be impaired, they are placed
into pools of assets with similar risk profiles and collectively
assessed for losses that have been incurred but are not yet
specifically identifiable.
The Consolidated Entity makes judgements as to whether there
is any observable data indicating that there is a significant
decrease in the estimated future cash flows from a portfolio of
loans before the decrease can be identified with an individual
loan in that portfolio. This evidence may include observable data
indicating that there has been an adverse change in the
payment status of the borrowers in a group, or national or local
economic conditions that correlate with defaults on assets in
the group. Management uses estimates based on historical loss
experience for assets with credit risk characteristics and
objective evidence of impairment similar to those in the portfolio
when scheduling its future cash flows. The methodology and
assumptions used for estimating both the amount and timing of
future cash flows are reviewed regularly to reduce any
differences between loss estimates and actual loss experience.
Changes in assumptions used for estimating future cash flows
could result in a change in the estimated provisions for
impairment on loan assets at the end of a reporting period.
If, in a subsequent period, the amount of impairment losses
decrease and the decrease can be related objectively to an
event occurring after the impairment losses were recognised,
the previously recognised impairment losses are reversed
through the income statement to the extent of what the
amortised cost would have been had the impairment not been
recognised.
Investment securities available for sale
The Consolidated Entity performs an assessment at each
balance date to determine whether there is any objective
evidence that available for sale financial assets have been
impaired. Impairment exists if there is objective evidence of
impairment as a result of one or more events (loss event) which
have an impact on the estimated future cash flows of the
financial asset that can be reliably estimated.
For equity securities classified as available for sale, the main
indicators of impairment are: significant changes in the market,
economic or legal environment and a significant or prolonged
decline in fair value below cost. In making this judgement, the
Consolidated Entity evaluates among other factors, the normal
volatility in share price and the period of time for which fair value
has been below cost.
In the case of debt securities classified as available for sale,
observable data that relates to loss events are considered,
including adverse changes in the payment status of the issuer
and national or local economic conditions that correlate with
defaults on those assets.
In addition, impairment may be appropriate when there is
evidence of deterioration in the financial condition of the
investee, industry and sector performance, operational and
financing cash flows or changes in technology.
When the fair value of an available for sale financial asset is less
than its initial carrying amount and there is objective evidence
that the asset is impaired, the cumulative loss recognised
directly in OCI is removed from equity and recognised in the
income statement.
Impairment losses recognised in the income statement for
equity securities classified as available for sale are not
subsequently reversed through the income statement. However
impairment losses recognised for debt investment securities
classified as available for sale are subsequently reversed
through the income statement if the fair value increases and the
increase can be objectively related to an event after the
impairment loss was recognised in the income statement.
Interests in associates and joint ventures
The Consolidated Entity performs an assessment at each
balance date to determine whether there is any objective
evidence that its interests in associates and joint ventures are
impaired. The entire carrying amount of each investment in
associate and joint venture is considered in the assessment.
The main indicators of impairment are as for equity securities
classified as available for sale, disclosed above.
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Statements of cash flows
for the financial year ended 31 March 2013
131
If there is an indication that an investment in an associate or
joint venture may be impaired, then the entire carrying amount
of the investment in the associate or joint venture is tested for
impairment by comparing the recoverable amount (higher of
value in use and fair value less costs to sell) with its carrying
amount. Impairment losses recognised in the income statement
for investments in associates and joint ventures are
subsequently reversed through the income statement if there
has been a change in the estimates used to determine the
recoverable amount since the impairment loss was recognised.
(xv) Life insurance business
The life insurance business is comprised of insurance contracts
and investment contracts as defined in AASB 4 Insurance
Contracts. The following are key accounting policies in relation
to the life insurance business:
Disclosure
The consolidated financial statements include the assets,
liabilities, income and expenses of the life insurance business
conducted by a subsidiary of the Company in accordance with
AASB 139 Financial Instruments: Recognition and
Measurement, and AASB 1038 Life Insurance Contracts which
apply to investment contracts and assets backing insurance
liabilities, respectively. These amounts represent the total life
insurance business of the subsidiary, including underlying
amounts that relate to both policyholders and shareholders of
the life insurance business.
Investment assets
Investment assets are carried at fair value through profit or loss.
Fair values of quoted investments in active markets are based
on current bid prices. If the relevant market is not considered
active (and for unlisted securities), fair value is established by
valuation techniques, including recent arm’s length
transactions, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by
market participants. Changes in fair values are recognised in the
income statement in the period in which the changes occur.
Restriction on assets
Investments held in the Life Funds can only be used within the
restrictions imposed under the Life Insurance Act 1995. The
main restrictions are that the assets in a fund can only be used
to meet the liabilities and expenses of the fund, acquire
investments to further the business of the fund or pay
distributions when solvency and capital adequacy requirements
allow. Shareholders can only receive a distribution when the
capital adequacy requirements of the Life Insurance Act 1995
have been met.
Policy liabilities
Life insurance liabilities are measured as the accumulated
benefits to policyholders in accordance with AASB 139 and
AASB 1038, which apply to investment contracts and assets
backing insurance liabilities, respectively.
(xvi) Property, plant and equipment
Property, plant and equipment are stated at historical cost less
accumulated depreciation and accumulated impairment losses,
if any. Property, plant and equipment are reviewed for
impairment at each reporting date. Historical cost includes
expenditure directly attributable to the acquisition of the asset.
Property, plant and equipment includes assets leased out under
operating leases.
Depreciation on assets is calculated on a straight-line basis to
allocate the difference between cost and residual values over
their estimated useful lives, at the following rates:
Buildings 2.5 to 3.3 percent
Furniture, fittings and leasehold
improvements
(1)
10 to 20 percent
Equipment 33 to 50 percent
Infrastructure assets 5 to 20 percent
Aviation 2 to 4 percent
Meters 5 to 10 percent
Railcars 2 to 3 percent
Other operating lease assets 2 to 50 percent
(1)
Where remaining lease terms are less than five years, leasehold
improvements are depreciated over the remaining lease term.
Useful lives and residual values are reviewed annually and
reassessed in light of commercial and technological
developments. If an asset’s carrying value is greater than its
recoverable amount, the carrying amount is written down
immediately to its recoverable amount. Adjustments arising
from such items and on disposal of property, plant and
equipment are recognised in the income statement.
Gains and losses on disposal are determined by comparing
proceeds with the asset’s carrying amount and are recognised
in the income statement.
(xvii) Goodwill and other identifiable intangible assets
Goodwill
Goodwill represents the excess of the consideration over the
Consolidated Entity’s share of the fair value of the identifiable
net assets of the acquired entity at the date of acquisition.
Goodwill arising from business combinations is included in
intangible assets on the face of the statement of financial
position. Goodwill arising from acquisitions of associates is
included in the carrying amount of investments in associates.
Other identifiable intangible assets
An intangible asset is considered to have an indefinite useful life
where it is expected to contribute to the Consolidated Entity’s
net cash inflows indefinitely.
Licences and trading rights are generally carried at cost less
accumulated impairment losses. These assets are not amortised
because they are considered to have an indefinite useful life.
Management rights have a finite useful life and are carried at
cost less accumulated amortisation and impairment losses.
Amortisation is calculated using the straight-line method to
allocate the cost of management rights over the estimated
useful life, usually a period not exceeding 20 years.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
132
Note 1
Summary of significant accounting policies continued
Customer and servicing contracts acquired with a finite useful
life are carried at cost less accumulated amortisation and any
impairment losses. Amortisation is calculated over the period
over which the customer relationship is expected to exist.
Customer and servicing contracts with an indefinite useful life
are carried at cost less accumulated impairment losses.
Software
Certain internal and external costs directly incurred in acquiring
and developing certain software are capitalised and amortised
over the estimated useful life, usually a period of three to seven
years. Costs incurred on software maintenance are expensed
as incurred.
Impairment
Goodwill and intangible assets that have an indefinite useful life
are not subject to amortisation but are tested annually for
impairment, or more frequently if events or changes in
circumstances indicate that the carrying amount may not be
recoverable. For intangible assets that have a finite useful life,
an assessment is made at each reporting date for indications of
impairment. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of the asset’s fair
value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or
groups of assets (cash-generating units). Intangible assets
(other than goodwill) that suffered impairment are reviewed for
possible reversal of the impairment at each reporting date.
In relation to businesses acquired and held for disposal, the
individual business is treated as a cash generating unit. Assets
associated with strategic business acquisitions are allocated to
each of the operating segments (refer to Note 3 – Segment
reporting) and assessed for impairment on a regional legal entity
operating group basis.
The recoverable amount of goodwill is determined using the
higher of value-in-use and fair value less costs to sell.
Value-in-use calculations are based upon discounting estimated
post-tax cashflows at a risk-adjusted interest rate appropriate
to the cash generating unit to which the goodwill applies. The
determination of both cashflows and discount rates require the
exercise of judgement. The calculations use cash flow
estimations based on financial budgets and forecasts reviewed
by management. These cashflows are discounted at rates that
have been determined by reference to historical company and
industry experience and publicly available data.
Fair value less costs to sell calculations are determined using an
earnings multiple approach applicable to that type of business.
These have been determined by reference to historical
company and industry experience and publicly available data.
(xviii) Financial liabilities
The Consolidated Entity has on issue debt securities and
instruments which are initially recognised at fair value net of
transaction costs incurred, and subsequently measured at
amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption amount is recognised in
the income statement over the period of the borrowings using
the effective interest method.
Other financial liabilities at fair value through profit or loss
This category includes only those financial liabilities which have
been designated by management as held at fair value through
profit or loss on initial recognition. The policy of management is
to designate a financial liability as such if: the liability contains
embedded derivatives which must otherwise be separated and
carried at fair value; the liability is part of a group of financial
assets and financial liabilities managed and evaluated on a fair
value basis; or doing so eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise. Interest expense on such items is recognised in the
income statement in interest expense using the effective interest
method.
(xix) Provisions
Employee benefits
A liability for employee benefits is recognised by the entity that
has the obligation to the employee. Generally, this is consistent
with the legal position of the parties to the employment
contract.
Liabilities for unpaid salaries, salary related costs and provisions
for annual leave are recorded in the statement of financial
position at the salary rates which are expected to be paid when
the liability is settled. Provisions for long service leave and other
long-term benefits are recognised at the present value of
expected future payments to be made.
In determining this amount, consideration is given to expected
future salary levels and employee service histories. Expected
future payments are discounted to their net present value using
discount rates on high quality corporate bonds, except where
there is no deep market, in which case rates on Commonwealth
Government securities are used. Such discount rates have
terms that match as closely as possible the expected future
cash flows.
Provisions for unpaid employee benefits are derecognised when
the benefit is settled, or is transferred to another entity and the
Company and Consolidated Entity are legally released from the
obligation and do not retain a constructive obligation.
Dividends
Provisions for dividends to be paid by the Company are
recognised on the statement of financial position as a liability
and a reduction in retained earnings when the dividend has
been declared.
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Statements of cash flows
for the financial year ended 31 March 2013
133
(xx) Earnings per share
Basic earnings per share is calculated by dividing the
Consolidated Entity’s profit attributable to ordinary equity
holders by the weighted average number of ordinary shares
outstanding during the financial year.
Diluted earnings per share is calculated by dividing the
Consolidated Entity’s profit attributable to ordinary equity
holders by the weighted average number of ordinary shares that
would be issued on the exchange of all the dilutive potential
ordinary shares into ordinary shares.
Refer to Note 6 – Earnings per share for information concerning
the classification of securities.
(xxi) Performance based remuneration
Share-based payments
The Consolidated Entity operates share-based compensation
plans, which include awards (including those delivered through
the Macquarie Group Employee Retained Equity Plan (MEREP))
granted to employees under share acquisition plans.
Information relating to these schemes is set out in Note 33 –
Employee equity participation. The Consolidated Entity
recognises an expense (and equity reserve) for its awards
granted to employees. The awards are measured at the grant
dates based on their fair value and using the number of equity
instruments expected to vest. This amount is recognised as an
expense over the respective vesting periods.
Performance hurdles attached to Performance Share Units
(PSUs) under the MEREP are not taken into account when
determining the fair value of the PSUs at grant date. Instead,
these vesting conditions are taken into account by adjusting the
number of equity instruments expected to vest.
Profit share remuneration
The Consolidated Entity recognises a liability and an expense
for profit share remuneration to be paid in cash.
(xxii) Cash and cash equivalents
Cash and cash equivalents comprise:
– cash and short-term amounts included in receivables from
financial institutions and loan assets at amortised cost, and
– certain trading portfolio assets and debt securities with
original contractual maturity of three months or less.
(xxiii) Leases
Leases where the lessee has substantially all the risks and
rewards incidental to ownership of the leased assets are
classified as finance leases. All other leases are operating leases.
Where finance leases are granted to third parties, the present
value of the lease receipts is recognised as a receivable and
included in loan assets held at amortised cost. The difference
between the gross receivable and the present value of the
receivable is unearned interest income. Lease receipts are
discounted using the interest rate implicit in the lease. Lease
income is recognised over the term of the lease using the
effective interest method, which reflects a constant rate of return.
Leases entered into by the Consolidated Entity as lessee are
primarily operating leases. The total fixed payments made under
operating leases are charged to the income statement on a
straight-line basis over the period of the lease.
Purchased assets, where the Consolidated Entity is the lessor
under operating leases, are carried at cost and depreciated
over their useful lives which vary depending on each class of
asset and range from 2 to 50 years. Operating lease income is
recognised on a straight-line basis over the period of the lease
unless another systematic basis is more appropriate. Assets
leased out under operating leases are included in property,
plant and equipment.
(xxiv) Offsetting financial instruments
Financial assets and financial liabilities are offset and the net
amount reported on the statement of financial position when
there is a legally enforceable right to offset the amounts and
either there is an intention to settle on a net basis, or realise the
financial asset and settle the financial liability simultaneously.
(xxv) Loan capital
Loan capital is debt issued by the Consolidated Entity with
terms and conditions that qualify for inclusion as capital under
Australian Prudential Regulation Authority (APRA) Prudential
Standards. Loan capital debt issues are initially recorded at fair
value plus directly attributable transaction costs and thereafter
at amortised cost using the effective interest method (for debt
host component of convertible preference securities and
subordinated debt at amortised cost).
(xxvi) Contributed equity
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
(xxvii) Changes in ownership interests
When acquiring additional interests of a financial asset (such
that it becomes an associate, joint venture or subsidiary) or an
investment in an associate or joint venture (such that it
becomes a subsidiary), previously held interests are revalued to
their current fair value and any gain or loss is immediately
recognised in profit or loss.
Similarly, when selling ownership interests of a subsidiary (such
that control is lost), or an investment in associate or joint venture
(such that it becomes a financial asset), retained ownership
interests are revalued to their current fair value and any gain or loss
is immediately recognised in the income statement.
When increasing or decreasing the ownership interests of a
subsidiary that remains a subsidiary afterwards, the
consideration exchanged is recognised directly in equity.
(xxviii) Comparatives
During the current financial year, as a consequence of the
continued improvement in the performance of its subsidiaries,
the Company recognised a reversal of $2,919 million of its
impairment in its investment in subsidiaries. The impairment
reversal has been split across the years ended 31 March 2015
$1,271 million and a restatement to 31 March 2014
$1,648 million. Where necessary, comparative information has
been restated to conform to changes in presentation in the
current year.
(xxix) Rounding of amounts
In accordance with ASIC Class Order 98/100 (as amended),
amounts in the full Directors' Report and Financial Report have
been rounded off to the nearest million dollars unless otherwise
indicated.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
134
Note 2
Profit for the financial year
Net interest income
Interest and similar income received/receivable
5,009 4,611 372
339
Interest expense and similar charges paid/payable
(2,917) (2,906) (375)
(410)
Net interest income/(expense)
2,092 1,705 (3)
(71)
Fee and commission income
Base fees
1,388 1,289 –
–
Performance fees
667 219 –
–
Mergers and acquisitions, advisory and underwriting fees
973 809 –
–
Brokerage and commissions
867 903 –
–
Other fee and commission income
875 633 9
9
Total fee and commission income
4,770 3,853 9
9
Net trading income
(1)
Equities
384 382 6
–
Commodities
(2)
1,039 1,102 –
–
Credit, Interest rate and foreign exchange products
304 86 61
5
Net trading income
1,727 1,570 67
5
Share of net profits of associates and joint ventures
accounted for using the equity method 5 149 –
–
(1)
Included in net trading income are fair value losses of $32 million (2014: $484 million gain) relating to financial assets and financial
liabilities designated as held at fair value through profit or loss. Fair value changes relating to derivatives are also reported in net trading
income which principally offsets the fair value changes relating to the financial assets and financial liabilities designated at fair value. This
also includes fair value changes on derivatives used to hedge the Consolidated Entity's economic interest rate risk where hedge
accounting requirements are not met – refer to Note 1(xi) – Summary of significant accounting policies.
(2)
Net of transportation costs $247 million (2014: $87 million).
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
135
Note 2
Profit for the financial year continued
Other operating income and charges
Net gains/(losses) on sale of investment securities available for sale 215 441 – (19)
Impairment charge on investment securities available for sale (67) (85) – –
Net gains on sale of associates and joint ventures 109 61 – –
Impairment charge on interests in associates and joint ventures (121) (152) – –
Gain on disposal of operating lease assets 231 2 – –
Gain on acquiring, disposing and change in ownership interest in
subsidiaries and associates 190 26 – –
Impairment reversal on subsidiaries (Note 1(xxviii)) – – 1,271 1,648
Impairment charge on intangibles and other non-financial assets (168) (28) – –
Net operating lease income:
Rental income 1,025 930 – –
Depreciation on operating lease assets (Note 14) (440) (401) – –
Dividends/distributions received/receivable: –
Investment securities available for sale 102 208 – –
Subsidiaries (Note 31) – – 1,273 1,128
Collective allowance for credit losses provided for during the financial
year:
Loan assets (Note 11) (91) (58) – –
Debt investment securities available for sale (13) (6) – –
Individually assessed provisions and write-offs:
Loan assets provided for during the financial year (Note 11) (305) (119) – –
Other receivables provided for during the financial year (30) (32) – –
Recovery of loans previously provided for (Note 11) 27 11 – –
Recovery of other receivables previously provided for 4 7 – –
Loans written off (83) (62) – –
Recovery of loans previously written off 24 17 – –
Other income 90 95 – –
Total other operating income and charges 699 855 2,544 2,757
Net operating income 9,293 8,132 2,617 2,700
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
136
Note 2
Profit for the financial year continued
Employment expenses
Salary and salary related costs including commissions,
superannuation and performance-related profit share
(3,541) (3,217) (4) (4)
Share-based payments
(1)
(340) (284) – –
Provision for long service leave and annual leave
(10) (4) – –
Total compensation expense
(3,891) (3,505) (4) (4)
Other employment expenses including on-costs, staff procurement
and staff training
(252) (231) – –
Total employment expenses
(4,143) (3,736) (4) (4)
Brokerage, commission and trading-related expenses
Brokerage and other trading-related expenses
(671) (627) – –
Other fee and commission expenses
(184) (152) – –
Total brokerage, commission and trading-related expenses
(855) (779) – –
Occupancy expenses
Operating lease rentals
(231) (226) – –
Depreciation: buildings, furniture, fittings and leasehold
improvements (Note 14)
(72) (84) – –
Other occupancy expenses
(76) (72) – –
Total occupancy expenses
(379) (382) – –
Non-salary technology expenses
Information services
(145) (140) – –
Depreciation: equipment (Note 14)
(16) (20) – –
Service provider and other non-salary technology expenses
(276) (163) – –
Total non-salary technology expenses
(437) (323) – –
Other operating expenses
Professional fees
(315) (257) – –
Auditor’s remuneration (Note 42)
(27) (24) – –
Travel and entertainment expenses
(158) (150) – –
Advertising and promotional expenses
(79) (67) – –
Communication expenses
(33) (29) – –
Amortisation of intangibles (Note 16)
(95) (66) – –
Other expenses
(250) (213) – (3)
Total other operating expenses
(957) (806) – (3)
Total operating expenses (6,771) (6,026) (4) (7)
(1)
Includes $21 million (2014: $27 million) of share based payment expense for cash settled awards.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
137
Note 3
Segment reporting
(i) Operating segments
AASB 8 Operating Segments requires the ‘management
approach’ to disclosing information about Macquarie’s
reportable segments. The financial information is reported on
the same basis as used internally by senior management for
evaluating operating segment performance and for deciding
how to allocate resources to operating segments. Such
information may be produced using different measures to that
used in preparing the statutory income statement.
For internal reporting, performance measurement and risk
management purposes, Macquarie is divided into six operating
groups and a corporate segment. These segments have been
set up based on the different core products and services
offered. Segment information has been prepared in accordance
with the basis of preparation described below.
The operating groups comprise:
Macquarie Asset Management (MAM) provides clients with
access to a diverse range of capabilities and products,
including infrastructure and real asset management, securities
investment management and tailored investment solutions
over funds and listed equities.
Corporate and Asset Finance (CAF) delivers tailored finance
and asset management solutions to clients through the cycles,
specialising in corporate and real estate lending and with an
expertise in asset finance including aircraft, motor vehicles,
technology, healthcare, manufacturing, industrial, energy, rail,
rotorcraft and mining equipment.
Banking and Financial Services (BFS) provides a diverse
range of personal banking, wealth management and business
banking products and services to retail customers, advisors,
brokers and business clients.
Macquarie Securities Group (MSG) is a global institutional
securities house with strong Asia-Pacific foundations covering
sales, research, equity capital markets, execution and
derivatives activities.
Macquarie Capital provides corporate finance advisory and
capital markets services to corporate and government clients
involved in public and private M&A, debt and equity fund
raisings, private equity raisings and corporate debt
restructuring.
Commodities and Financial Markets (CFM) provides clients
with risk and capital solutions across physical and financial
markets.
The Corporate segment, which is not considered an operating
group, includes head office and central support functions
including Group Treasury. The Corporate segment also holds
certain legacy investments, assets and businesses that are no
longer core for strategic reasons and not allocated to any of
the operating groups.
Items of income and expense within the Corporate segment
include the net impact of managing liquidity for Macquarie,
earnings on capital, non-trading derivative volatility, earnings
from investments, central overlay on impairment provisions or
valuation of assets, unallocated head office costs and costs of
central support functions, the Group’s performance-related
profit share and share based payments expense, income tax
expense and certain distributions attributable to non-
controlling interests and holders of loan capital.
All transactions and transfers between segments are generally
determined on an arm’s length basis and are included within
the relevant categories of income. These transactions eliminate
on aggregation/consolidation.
Below is a selection of key policies applied in determining
operating segment results.
Internal funding arrangements
Operating groups are fully debt funded. Group Treasury has
the responsibility for managing funding for the Group, and
operating groups obtain their funding from Group Treasury.
The interest rates charged by Group Treasury are determined
by the currency and term of the funding and are fully costed.
Generally, operating groups may only source funding directly
from external sources when there is recourse only to the
assets being funded and not to the Group.
Deposits are a funding source for Macquarie. BFS receives a
deposit premium from Group Treasury on deposits they
generate. This deposit premium is included within net interest
and trading income for segment reporting purposes.
Transactions between Operating Groups
Operating groups that enter into arrangements with other
operating groups must do so on commercial terms or as
agreed by the Group’s Chief Executive Officer or Chief
Financial Officer (CFO). There is a requirement for accounting
symmetry in such transactions.
Internal transactions are recognised in each of the relevant
categories of income and expense as appropriate.
Central support functions
Central support functions recover their costs from operating
groups on either a time and effort allocation basis or a fee for
service basis. Central support functions include Corporate
Operations Group (COG), Financial Management Group (FMG),
Risk Management Group (RMG), Legal and Governance and
Central Executive.
Performance-related profit share and share based
payments expense
Performance-related profit share and share based payments
expense relating to the MEREP is recognised in the Corporate
segment and not allocated to operating groups.
Income tax
Income tax expense and benefits are recognised in the
Corporate segment and not allocated to operating groups.
However, to recognise an operating group’s contribution to
permanent income tax differences, an internal management
revenue or charge is used. These internal management
revenue/charges are offset by an equal and opposite amount
recognised in the Corporate segment such that they are
eliminated on aggregation.
Presentation of segment income statements
The income statements in the following pages for each of the
reported segments are in some cases summarised by
grouping non-material balances together. Where appropriate,
all material or key balances have been reported separately to
provide users with information relevant to the understanding of
Macquarie’s financial performance.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
Macquarie
Asset
Management
$m
Corporate and
Asset Finance
$m
Banking and
Financial
Services
$m
138
Note 3
Segment reporting continued
(i) Operating segments continued
The following is an analysis of the Consolidated Entity’s revenue and results by reportable segment for the financial year:
Net interest and trading income/(expense) 11 737 825
Fee and commission income/(expense) 2,303 33 532
Share of net profits/(losses) of associates and joint ventures accounted for
using the equity method 13 3 3
Other operating income and charges:
Impairment charges, write-offs and provisions, net of recoveries (36) (153) (35)
Other other operating income and charges 154 977 17
Internal management revenue/(charge) 2 (3) 3
Net operating income 2,447 1,594 1,345
Total operating expenses (997) (482) (1,060)
Profit/(loss) before tax 1,450 1,112 285
Tax expense – – –
Loss/(profit) attributable to non-controlling interests – – –
Net profit/(loss) contribution 1,450 1,112 285
Reportable segment assets 7,341 30,091 37,282
Net interest and trading (expense)/income (23) 663 738
Fee and commission income/(expense) 1,720 36 576
Share of net profits of associates and joint ventures accounted for using
the equity method 103 2 1
Other operating income and charges:
Impairment charges, write-offs and provisions, net of recoveries 4 (85) (49)
Other other operating income and charges 108 576 49
Internal management revenue/(charge) 16 15 5
Net operating income 1,928 1,207 1,320
Total operating expenses (877) (381) (1,060)
Profit/(loss) before tax 1,051 826 260
Tax expense – – –
Loss/(profit) attributable to non-controlling interests – – –
Net profit/(loss) contribution 1,051 826 260
Reportable segment assets 8,582 26,543 29,612
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to financial statements
for the financial year ended 31 March 2013
Macquarie Securities
Group
$m
Macquarie
Capital
$m
Commodities and
Financial Markets
$m
Corporate
$m
Total
$m
139
.
.
.
.
Consolidated 2015
289 (24) 1,693 288 3,819
652 860 418 (28) 4,770
– 13 (1) (26) 5
(4) (58) (334) (203) (823)
(9) 258 65 60 1,522
(10) 5 (10) 13 –
918 1,054 1,831 104 9,293
(854) (629) (996) (1,753) (6,771)
64 425 835 (1,649) 2,522
– – – (899) (899)
– 5 – (24) (19)
64 430 835 (2,572) 1,604
31,051 3,634 69,634 8,943 187,976
Consolidated 2014
234 (35) 1,580 118 3,275
633 727 162 (1) 3,853
– 18 23 2 149
(5) (48) (207) (117) (507)
2 148 131 348 1,362
1 7 (7) (37) –
865 817 1,682 313 8,132
(758) (548) (956) (1,446) (6,026)
107 269 726 (1,133) 2,106
– – – (827) (827)
– 11 – (25) (14)
107 280 726 (1,985) 1,265
26,015 2,885 44,811 15,456 153,904
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
140
Note 3
Segment reporting continued
(ii) Products and services
For the purposes of preparing a segment report based on products and services, the activities of the Consolidated Entity
have been divided into four areas:
– Asset and Wealth Management: distribution and manufacture of funds management products
– Financial Markets: trading in fixed income, equities, currency, commodities and derivative products
– Capital Markets: corporate and structured finance, advisory, underwriting, facilitation, broking and real estate/ property
development
– Lending: banking activities, mortgages and leasing.
Asset
and Wealth
Management
$m
Financial
Markets
$m
Capital
Markets
$m
Lending
$m
Total
$m
Consolidated 2015
Revenues from external customers 3,052 3,731 2,032 5,128 13,943
Consolidated 2014
Revenues from external customers 2,507 3,196 2,023 4,395 12,121
(iii) Geographical areas
Geographical segments have been determined based upon where the transactions have been booked. The operations of the
Consolidated Entity are headquartered in Australia.
Revenues
from external
customers
$m
Non-current
assets
(1)
$m
Consolidated 2015
Americas
(2)
5,415 2,094
Australia 4,923 2,029
Europe, Middle East and Africa
(3)
2,283 6,383
Asia Pacific 1,322 317
Total 13,943 10,823
Consolidated 2014
Americas
(2)
3,672 2,556
Australia
5,513 2,024
Europe, Middle East and Africa
(3)
2,012 5,207
Asia Pacific
924 369
Total 12,121 10,156
(1)
Non-current assets consist of intangible assets, interests in associates and joint ventures accounted for using the equity method,
property, plant and equipment and property held for sale and development.
(2)
Included within this balance is external revenue generated in the USA of $4,505 million (2014: $2,879 million).
(3)
Included within this balance is external revenue generated in the UK of $1,885 million (2014: $1,356 million).
(iv) Major customers
The Consolidated Entity does not rely on any major customer.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
141
Note 4
Income tax expense
(i) Income tax (expense)/benefit
Current tax expense
(1,056) (321) (13) (21)
Deferred tax benefit/(expense)
157 (506) (19) 36
Total (899) (827) (32) 15
(ii) Numerical reconciliation of income tax (expense)/benefit to prima facie tax payable
Prima facie income tax expense on operating profit
(1)
(757) (632) (784) (808)
Tax effect of amounts which are (not deductible)/non-assessable
in calculating taxable income:
Rate differential on offshore income (129) (179) 4 4
Impairment reversal on subsidiary – – 381 494
Intra-group dividend – – 382 338
Other items (13) (16) (15) (13)
Total income tax (expense)/benefit (899) (827) (32) 15
(iii) Tax (expense)/benefit relating to items of other comprehensive income
Available for sale reserve (61) (38) – –
Cash flow hedges 25 (11) – –
Foreign currency translation reserve (19) (31) – –
Share of other comprehensive income of associates and joint
ventures
7 (6) – –
Total tax expense relating to items of other comprehensive
income (48) (86) – –
(iv) Deferred tax benefit/(expense) represents movements in deferred tax assets/liabilities
Investments
(171) (111) – –
Fixed assets
(19) 5 – –
Leasing and financial instruments
46 (198) (50) (77)
Intangible assets
2 (15) – –
Other assets and liabilities
300 (22) 19 27
Tax Losses
(1) (165) 12 86
Total deferred tax benefit/(expense) represents movements in
deferred tax assets/liabilities 157 (506) (19) 36
(1)
Prima facie income tax on operating profit is calculated at the rate of 30 percent.
Revenue authorities undertake risk reviews and audits as part of their normal activities.
The Group has assessed these and other taxation claims and litigation, including seeking advice where appropriate, and considers
that it holds appropriate provisions.
The audit by the Australian Taxation Office (ATO) has concluded and all outstanding matters have been resolved. Macquarie
continues to be part of the Pre-lodgement Compliance Review process, whereby the ATO undertakes a review prior to the
lodgement of Macquarie's tax returns.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
142
Note 5
Dividends and distributions paid or provided for
(i) Dividends paid or provided for
Ordinary share capital and exchangeable shares
2014 final dividend paid ($1.60 (2013: $1.25) per share)
(1),(3)
514 420 508 419
2015 interim dividend paid ($1.30 (2014: $1.00) per share)
(2)
417 345 413 336
2014 special dividend paid
(4)
– 395 – 389
Dividends reversed – (1) – –
Total dividends paid or provided for (Note 29) 931 1,159 921 1,144
(1)
Final dividend paid by the Consolidated Entity includes $5 million (2014: $nil) of dividend equivalent amount paid to Deferred Share Units
(DSUs) holders as described in Note 33 – Employee equity participation.
(2)
Interim dividend paid by the Consolidated Entity includes $4 million (2014: $8 million) of dividend equivalent amount paid to DSUs
holders as described in Note 33 – Employee equity participation.
(3)
Final dividend paid by the Consolidated Entity includes $1 million (2014: $1 million) of dividends paid to holders of the exchangeable
shares issued as consideration for the acquisition of Orion Financial Inc. and Tristone Capital Global Inc. as described in Note 28 –
Contributed equity.
(4)
On 12 December 2013, MGL shareholders approved the SYD Distribution, a distribution of the majority of the Group’s investment in Sydney
Airport stapled securities (SYD Securities) to its ordinary shareholders implemented through a special dividend and a capital reduction along
with a consolidation of one MGL share into 0.9438 ordinary share (Refer to Note 28 – Contributed equity for further details on capital
reduction and share consolidation). Eligible MGL ordinary shareholders received one SYD Security for each MGL ordinary share held. The
carrying value of SYD securities on approval date (12 December 2013) was $3.77 per share and at settlement date (13 January 2014) was
$3.73 per share. The special dividend component of the SYD Distribution was $1.1563 per ordinary share. The amount paid by the
Consolidated Entity includes $2 million paid to the holders of the exchangeable shares and $4 million to DSU holders.
The final and interim dividend paid during the financial year was 40 percent franked based on tax paid at 30 percent (full year to 31 March
2014: 40 percent franked on tax paid at 30 percent). The dividends paid to holders of exchangeable shares were not franked.
The Company’s Dividend Reinvestment Plan (DRP) remains active. The DRP is optional and offers ordinary shareholders in Australia
and New Zealand the opportunity to acquire fully paid ordinary shares without transaction costs. The previous discount to the
Market Value has been removed. A shareholder can elect to participate in or terminate their involvement in the DRP at any time.
Details of shares purchased from the market and then allocated as fully paid ordinary shares pursuant to the DRP are included in
Note 28 – Contributed equity.
(ii) Dividends not recognised at the end of the financial year
Since the end of the financial year, the Directors have recommended the payment of the 2015 final dividend of $2.00 per fully paid
ordinary share, 40 percent franked based on tax paid at 30 percent. The aggregate amount of the proposed dividend expected to
be paid on 2 July 2015 from retained profits at 31 March 2015, but not recognised as a liability at the end of the financial year, is
$666 million (including $1 million to be paid by a subsidiary to the holders of the exchangeable shares and net of $2 million to be
received on treasury shares (refer to Note 28 – Contributed equity for further details of these instruments)). This amount has been
estimated based on the number of shares eligible to participate as at 31 March 2015.
Consolidated
2015
Consolidated
2014
Company
2015
Company
2014
Dividend per ordinary share
Cash dividend per ordinary share
(distribution of current year profits) $3.30 $2.60 $3.30 $2.60
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Franking credits available for the subsequent financial year at a
corporate tax rate of 30 percent (2014: 30 percent)
144
250
144
250
The above amounts represent the balances of the franking accounts as at the end of the financial year, adjusted for:
– franking credits that will arise from the payment of income tax payable as at the end of the financial year, and
– franking debits that will arise from the receipt of tax receivables as at the end of the financial year.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
143
Note 5
Dividends and distributions paid or provided for continued
(iii) Distributions paid or provided for
Macquarie Income Securities
Distributions paid (net of distributions previously provided for)
14 14 – –
Distributions provided for
4 4 – –
Total distributions paid or provided for 18 18 – –
The Macquarie Income Securities (MIS) represent the NCI of a subsidiary. Refer to Note 29 – Reserves, retained earnings and
non- controlling interests for further details on these instruments. No dividends are payable under the preference shares until
Macquarie Bank Limited (MBL), a subsidiary, exercises its option to receive future payments of interest and principal under the other
stapled security. Upon exercise, dividends are payable at the same rate, and subject to similar conditions, as the MIS. Dividends are
also subject to MBL Directors' discretion.
Macquarie Income Preferred Securities
Distributions paid (net of distributions previously provided for)
3 2 – –
Distributions provided for
2 2 – –
Total distributions paid or provided for 5
4
–
–
The Macquarie Income Preferred Securities (MIPS) represent the NCI of a subsidiary. Refer to Note 29 – Reserves, retained earnings
and non-controlling interests for further details on these instruments. MBL can redirect the payments of distributions under the
convertible debentures to be paid to itself. For each debenture 500 MBL preference shares may be substituted at MBL's discretion
at any time, in certain circumstances (to meet capital requirements), or on maturity.
Consolidated
2015
Consolidated
2014
Note 6
Earnings per share
Cents per share
Basic earnings per share
502.3 383.6
Diluted earnings per share 484.2 369.2
Reconciliation of earnings used in the calculation of basic and diluted earnings per share $m $m
Profit after income tax 1,623 1,279
(Profit)/loss attributable to non-controlling interests:
Macquarie Income Securities (18) (18)
Macquarie Income Preferred Securities (5) (4)
Other non-controlling interests 4 8
Total profit attributable to ordinary equity holders of MGL 1,604 1,265
Less profit attributable to participating unvested MEREP awards (107) (91)
Total earnings used in the calculation of basic earnings per share 1,497 1,174
Add back: Adjusted interest expense on Macquarie Bank Capital Notes 6 –
Adjusted interest expense on Macquarie Group Capital Notes 18 14
Adjusted interest expense on Exchangeable Capital Securities 11 9
Profit attributable to dilutive participating unvested MEREP awards 77 73
Add back adjusted interest expense on Macquarie Convertible Preference Securities
(1)
– 7
Total earnings used in the calculation of diluted earnings per share 1,609 1,277
(1)
The Convertible Preference Securities have been included in diluted earnings per share weighted for the period through their date of
redemption, to the extent to which they were dilutive based on the conversion features measured at their date of redemption.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
Consolidated
2014
144
Note 6
Earnings per share continued
Number of shares
Total weighted average number of externally held ordinary shares
used in the calculation of basic earnings per share 298,056,554 306,081,657
Weighted average number of shares used in the calculation
of diluted earnings per share
Weighted average fully paid externally held ordinary shares
298,056,554 306,081,657
Potential ordinary shares:
Weighted average options
2,720 38,425
Weighted average Macquarie Bank Capital Notes
2,750,600 –
Weighted average Macquarie Group Capital Notes
7,970,512 8,837,685
Weighted average Exchangeable Capital Securities
4,546,959 5,067,970
Weighted average unvested MEREP awards
18,965,134 22,645,659
Weighted average Macquarie Convertible Preference Securities
(1)
– 3,222,037
Total weighted average number of externally held ordinary shares and potential
ordinary shares used in the calculation of diluted earnings per share 332,292,479 345,893,433
(1)
The Convertible Preference Securities have been included in diluted earnings per share weighted for the period through their date of
redemption, to the extent to which they were dilutive based on the conversion features measured at their date of redemption.
Macquarie Group Employee Retained Equity Plan
In December 2009, the Company’s shareholders approved the implementation of the MEREP.
Vested MEREP awards are considered to be ordinary shares and have been included in the determination of basic and diluted
earnings per share from their date of vesting.
Unvested MEREP awards are considered to be potential ordinary shares and have been included in the calculation of diluted
earnings per share to the extent they are dilutive. Included in the balance of weighted average unvested MEREP awards are
3,278,643 (2014: 3,884,630) awards that were vested, lapsed or cancelled during the period. As at 31 March 2015, a further
22,253 (2014: 48,518) MEREP awards have not been included in the balance of weighted average unvested MEREP awards on the
basis that they are not considered to be dilutive.
Exchangeable Shares
The exchangeable shares on issue (refer Note 28 – Contributed equity) are considered to be ordinary shares and have been
included in the determination of basic and diluted earnings per share from their date of issue.
Exchangeable Capital Securities
Exchangeable Capital Securities (ECS) (refer to Note 27 – Loan capital) have the potential to be ordinary shares and have been
included in the determination of diluted earnings per share from their date of issue to the extent to which they are dilutive. These
securities have not been included in the determination of basic earnings per share.
Macquarie Group Capital Notes
Macquarie Group Capital Notes (MCN) (refer to Note 27 – Loan capital) have the potential to be ordinary shares and have been
included in the determination of diluted earnings per share from their date of issue to the extent to which they are dilutive. The
securities have not been included in the determination of basic earnings per share.
Macquarie Bank Capital Notes
Macquarie Bank Capital Notes (BCN) (refer to Note 27 – Loan capital) have the potential to be ordinary shares and have been
included in the determination of diluted earnings per share from their date of issue to the extent to which they are dilutive. The
securities have not been included in the determination of basic earnings per share.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the finl year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
145
Note 7
Receivables from financial institutions
Cash and other receivables
(1)
10,732 8,695
–
–
Cash collateral on securities borrowed and reverse
repurchase agreements
(2)
17,973 10,762
–
–
Total receivables from financial institutions
28,705
19,457
–
–
(1)
Included within this balance is $62 million (2014: $64 million) provided as security over payables to other financial institutions.
(2)
The Consolidated Entity enters into stock borrowings and reverse repurchase transactions with counterparties which require lodgement
of non-cash collateral. Under certain transactions, the Consolidated Entity is allowed to resell or re-pledge the collateral held under
terms that are usual and customary, but is obliged to return equivalent securities. The fair value of collateral held as at 31 March 2015 is
$19,800 million (2014: $11,679 million).
The majority of the above amounts are expected to be recovered within 12 months of the balance date by the Consolidated Entity.
Note 8
Trading portfolio assets
Equities
Listed
14,832 7,990 – –
Unlisted
63 33 – –
Commodities
6,035 4,506 – –
Commonwealth government securities
4,199 5,707 – –
Corporate loans and securities
2,653 2,190 – –
Foreign government securities
1,377 1,756 – –
Treasury notes
1,133 173 – –
Other
(1)
114 107 – –
Total trading portfolio assets
(2),(3)
30,406 22,462 – –
(1)
Included in this balance are promissory notes, bank bills and other government securities which include state and local governments
and related enterprises, predominantly in Australia.
(2)
Included within these balances are assets pledged as security over issued notes and payables to other external investors and financial
institutions. The value of assets provided as security is $915 million (2014: $617 million).
(3)
Included within this balance are assets of $5,869 million (2014: $7,470 million) pledged as collateral to secure liabilities under repurchase
agreements and stock lending agreements.
The above amounts are expected to be recovered within 12 months of the balance date by the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
146
Note 9
Investment securities available for sale
Equity securities
Listed 944 771 – –
Unlisted 1,500 1,234 – –
Debt securities
(1),(2)
6,452 12,046 – –
Total investment securities available for sale
(3)
8,896
14,051
–
–
(1)
Included within this balance is $1,206 million (2014: $3,909 million) of Negotiable Certificates of Deposits (NCD) receivable from financial
institutions and $nil (2014: $100 million) of bank bills.
(2)
Included within this balance is $941 million (2014: $1,161 million) provided as security over payables to other financial institutions.
(3)
Included within this balance is $411 million (2014: $582 million) pledged as collateral to secure liabilities under repurchase agreements
and stock lending agreements.
Of the above amounts, $2,060 million (2014: $5,805 million) is expected to be recovered within 12 months of the balance date by
the Consolidated Entity.
Note 10
Other assets
Security settlements
(1)
6,722 6,094
– –
Debtors and prepayments 5,017 4,721
10 23
Life investment contracts and other unitholder assets 1,059 1,113
– –
Income tax receivable 363 726
128 247
Property held for sale and development 250 175
– –
Other 146 161
– –
Total other assets
(2)
13,557
12,990
138 270
(1)
Security settlements are generally receivable within three working days of the relevant trade date.
(2)
Included within this balance is $133 million (2014: $53 million) of assets which are provided as security over amounts payable to other
financial institutions.
Of the above amounts, $13,161 million (2014: $12,654 million) and $138 million (2014: $270 million) are expected to be recovered
within 12 months of the balance date by the Consolidated Entity and by the Company.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the finl year ended 31 March 2013
147
Note 11
Loan assets held at amortised cost
Consolidated 2015 Consolidated 2014
Gross
$m
Individually
assessed
provision for
impairment
$m
Net
$m
Gross
$m
Individually
assessed
provision for
impairment
$m
Net
$m
Residential mortgage loans 29,432 (14) 29,418 23,107 (13) 23,094
Corporate and commercial lending 19,871 (545) 19,326 16,785 (260) 16,525
Lease and retail financing 11,586 (57) 11,529 11,082 (72) 11,010
Margin money placed 9,182 – 9,182 5,342 – 5,342
Relationship banking mortgages 2,064 – 2,064 1,613 – 1,613
Investment and insurance premium lending 1,676 (5) 1,671 1,450 (14) 1,436
Total loan assets before collective
allowance for credit losses 73,811 (621) 73,190 59,379 (359) 59,020
Less collective allowance for credit losses (428) (308)
Total loan assets held at amortised
cost
(1),(2),(3)
72,762 58,712
(1)
Included within this balance are loans of $17,207 million (2014: $14,025 million) held by consolidated Special Purpose Entities (SPEs),
which are available as security to note holders and debt providers.
(2)
Included within this balance are other loans of $2,653 million (2014: $3,508 million) pledged as security over issued notes and payables
to other external investors and financial institutions.
(3)
Included within this balance are loans of $1,854 million (2014: $3,853 million) that are held by either a government-backed securitisation
vehicle or financial institutions, and which are pledged as security to note holders. Further, loans of $938 million (2014: $720 million) are
pledged under repurchase agreements.
Of the above amounts, $23,262 million (2014: $17,655 million) is expected to be recovered within 12 months of the balance date by
the Consolidated Entity.
There are no loan assets held at amortised cost in the Company.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
148
Note 11
Loan assets held at amortised cost continued
Individually assessed provisions for impairment
Balance at the beginning of the financial year 359 335 – –
Provided for during the financial year (Note 2) 305 119 – –
Loan assets written off, previously provided for (66) (116) – –
Recovery of loans previously provided for (Note 2) (27) (11) – –
Net transfer from other provisions – 10 – –
Impact of foreign currency translation 50 22 – –
Balance at the end of the financial year 621 359 – –
Individually assessed provisions as a percentage of total gross
loan assets 0.84% 0.60% – –
Collective allowance for credit losses
Balance at the beginning of the financial year 308 240 – –
Provided for during the financial year (Note 2) 91 58 – –
Acquisitions during the period 14 – – –
Net transfer (to)/from other provisions (4) 1 – –
Impact of foreign currency translation 19 9 – –
Balance at the end of the financial year 428 308 – –
The collective allowance for credit losses is intended to cover losses in the existing overall credit portfolio which are not yet
individually identified.
Finance lease receivables are included within loan assets held at amortised cost. The Consolidated Entity provides finance leases to
a broad range of clients to support financing needs in acquiring movable assets such as motor vehicles, small plant and equipment,
electronic and IT equipment.
Consolidated 2015 Consolidated 2014
Gross
investment in
finance lease
receivables
$m
Unearned
income
$m
Present value of
minimum lease
payments
receivable
$m
Gross
investment in
finance lease
receivables
$m
Unearned
income
$m
Present value
of minimum
lease payments
receivable
$m
No later than one year
1,998 (209) 1,789 1,812 (219) 1,593
Later than one year and no later
than five years 3,783 (407) 3,376 4,523 (531) 3,992
Later than five years 242 (73) 169 269 (79) 190
Total finance lease receivables 6,023 (689) 5,334 6,604 (829) 5,775
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the finl year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
149
Note 12
Impaired financial assets
Impaired debt investment securities available for sale before
individually assessed provisions for impairment
3 7 –
–
Less individually assessed provisions for impairment
(3) (6) –
–
Debt investment securities available for sale after individually
assessed provisions for impairment
– 1 –
–
Impaired loan assets and other financial assets before individually
assessed provisions for impairment
1,343 848 –
–
Less individually assessed provisions for impairment
(716) (434) –
–
Loan assets and other financial assets after individually assessed
provisions for impairment
627 414 –
–
Total net impaired financial assets 627 415 –
–
Note 13
Other financial assets at fair value through profit or loss
Investment securities
Equity securities
1,076 1,342 –
–
Debt securities
404 538 –
–
Loan assets
645 974 –
–
Total other financial assets at fair value through profit or loss
(1)
2,125 2,854 –
–
(1)
Included within this balance is $611 million (2014: $867 million) provided as security over payables to other financial institutions.
Of the above amounts, $723 million (2014: $1,222 million) is expected to be recovered within 12 months of the balance date by the
Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
150
Note 14
Property, plant and equipment
Assets for own use
Land and buildings
Cost 307 290 – –
Less accumulated depreciation (11) (8) – –
Total land and buildings 296 282 – –
Furniture, fittings and leasehold improvements
Cost 724 584 – –
Less accumulated depreciation (467) (396) – –
Total Furniture, fittings and leasehold improvements 257 188 – –
Equipment
Cost 145 163 – –
Less accumulated depreciation (102) (142) – –
Total equipment 43 21 – –
Infrastructure assets
Cost 164 100 – –
Less accumulated depreciation (5) (4) – –
Total infrastructure assets 159 96 – –
Total assets for own use 755 587 – –
Assets under operating lease
Aviation
Cost 5,473 4,062 – –
Less accumulated depreciation (947) (618) – –
Total aviation 4,526 3,444 – –
Meters
Cost 1,200 1,036 – –
Less accumulated depreciation (423) (252) – –
Total meters 777 784 – –
Rail cars
Cost 808 1,282 – –
Less accumulated depreciation (64) (95) – –
Total rail cars 744 1,187 – –
Others
Cost 411 429 – –
Less accumulated depreciation (134) (120) – –
Total others 277 309 – –
Total assets under operating lease 6,324 5,724 – –
Total property, plant and equipment 7,079 6,311 –
–
The majority of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Statements of cash flows
for the finl year ended 31 March 2013
151
Note 14
Property, plant and equipment continued
Reconciliation of the movement in the Consolidated Entity’s property, plant and equipment at their written-down
value:
Assets for own use
Land and
buildings
$m
Furniture,
fittings and
leasehold
improvements
$m
Equipment
$m
Infrastructure
assets
$m
Total
$m
Balance at 1 April 2013
178 296 22 12 508
Acquisitions 101 53 18 93 265
Disposals – (109) (1) – (110)
Reclassification 6 (2) – (4) –
Impairments (2) – – – (2)
Foreign exchange movements 1 31 2 (4) 30
Depreciation expense (Note 2) (2) (81) (20) (1) (104)
Balance at 31 March 2014 282 188 21 96 587
Acquisitions
60 77 36 178 351
Disposals (4) (2) – (121) (127)
Reclassification (40) 42 – – 2
Impairments – – – 1 1
Foreign exchange movements 2 15 2 10 29
Depreciation expense (Note 2) (4) (63) (16) (5) (88)
Balance at 31 March 2015 296 257 43 159 755
Included in the balance of property, plant and equipment are assets pledged as security over payables to other financial institutions.
The terms preclude these assets from being sold or being used as security for further liabilities without the permission of the
financial institution. The carrying value of assets pledged is $5 million (2014: $13 million).
Assets under operating lease
Aviation
$m
Meters
$m
Rail cars
$m
Other
$m
Total
$m
Balance at 1 April 2013
3,146 660 1,058 271 5,135
Acquisitions
110 176 1 90 377
Disposals
(5) (1) (20) (14) (40)
Reclassification
(3) (104) – 5 (102)
Foreign exchange movements
389 148 192 26 755
Depreciation expense (Note 2)
(193) (95) (44) (69)
(401)
Balance at 31 March 2014 3,444 784 1,187 309 5,724
Acquisitions 633 104 3 155 895
Disposals
(48) – (476) (40) (564)
Reclassification
(1)
(46) (67) – (101) (214)
Impairments
(24) – – – (24)
Foreign exchange movements
772 63 71 41 947
Depreciation expense (Note 2)
(205) (107) (41) (87) (440)
Balance at 31 March 2015 4,526 777 744 277 6,324
Included in the balance of operating leases are assets pledged as security over payables to other financial institutions. The terms
preclude these assets from being sold or being used as security for further liabilities without the permission of the financial
institution. The carrying value of assets pledged is $323 million (2014: $442 million).
(1)
Includes reclassification of operating lease to finance lease as a result of lease re-negotiations.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
152
Note 14
Property, plant and equipment continued
The future minimum lease payments expected to be received under non-cancellable operating leases are as follows:
Assets under operating lease
Not later than one year
732
597
–
–
Later than one year and no later than five years
1,390 1,145 –
–
Later than five years
215
138
–
–
Total future minimum lease payments receivable 2,337 1,880 –
–
Note 15
Interests in associates and joint ventures accounted for using the equity method
Loans and investments without provisions for impairment
1,918 2,074 –
–
Loans and investments with provisions for impairment
1,090 1,052 –
–
Less provisions for impairment
(680) (679) –
–
Loans and investments at recoverable amount
410 373 –
–
Total interests in associates and joint ventures accounted for
using the equity method
(1)
2,328
2,447
–
–
(1)
Included within this balance is $2,159 million (2014: $2,252 million) relating to interests in associates and $169 million (2014: $195
million) relating to interests in joint ventures. All of the above amounts are expected to be recovered after 12 months of the balance date
by the Consolidated Entity.
(i) Financial information of associates and joint ventures that are individually immaterial is as follows:
Consolidated Entity’s share of:
Profit or loss from continuing operations
5
141
–
–
Post-tax profit or loss from discontinued operations
–
8
–
–
Other comprehensive income
(6)
19
–
–
Total comprehensive income
(1)
168
–
–
(ii) Contingent liabilities of associates and joint ventures are as follows:
Share incurred jointly with other investors
–
17 – –
For which the Consolidated Entity is severally liable
–
19
–
–
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
153
Note 16
Intangible assets
Goodwill
580
653
–
–
Intangible assets with indefinite lives
293
242
–
–
Customer and servicing contracts
89
119
–
–
Other identifiable intangible assets
202
207
–
–
Total intangible assets 1,164
1,221
–
–
The majority of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity.
Reconciliation of the Consolidated Entity’s movement in intangible assets:
Goodwill
$m
Intangible
assets with
indefinite
lives
$m
Customer
and
servicing
contracts
$m
Other
identifiable
intangible
assets
$m
Total
$m
Balance at 1 April 2013
613 243 121 244 1,221
Acquisitions 20 – – 41 61
Reclassifications 2 – 5 (6) 1
Adjustments to purchase consideration 1 – – 3 4
Disposals (49) (28) – (38) (115)
Impairment – – (1) (20) (21)
Amortisation expense (Note 2) – – (23) (43) (66)
Currency translation difference 66 27 17 26 136
Balance at 31 March 2014 653 242 119 207 1,221
Acquisitions
– – – 105 105
Reclassifications 9 – (9) – –
Disposals (68) – (9) (38) (115)
Impairment (120) – (11) (10) (141)
Amortisation expense (Note 2) – – (19) (76) (95)
Currency translation difference 106 51 18 14 189
Balance at 31 March 2015 580 293 89 202 1,164
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
154
Note 17
Investments in subsidiaries
Investments at cost without provisions for impairment
–
– 12,047 11,096
Investments at cost with provisions for impairment –
– 14,070 14,058
Less provisions for impairment (Note 1(xxviii)) –
– (10,246) (11,517)
Investments at recoverable amount
(1)
–
– 3,824 2,541
Total investments in subsidiaries –
–
15,871
13,637
(1)
The recoverable amount has been estimated using valuation techniques which incorporate the subsidiary’s consolidated earnings and
Macquarie’s price earnings multiple.
The above amounts are expected to be recovered after 12 months of the balance date by the Company.
The material subsidiaries of the Company, based on contribution to the Consolidated Entity’s profit after income tax, the size of the
investment made by the Company or the nature of activities conducted by the subsidiary, are:
– Delaware Investments Management Company, LLC (United
States)
– Delaware Management Holdings, Inc. (United States)
– Macquarie Aerospace Limited (Bermuda)
– Macquarie Affiliated Managers (USA) Inc. (United States)
– Macquarie Affiliated Managers Holdings (USA) Inc. (United
States)
– Macquarie Agricultural Funds Management Ltd (Australia)
– Macquarie Alpine Inc. (United States)
– Macquarie Alternative Assets Management Limited (Australia)
– Macquarie America Holdings Inc. (United States)
– Macquarie Americas Holdings Pty Ltd (Australia)
– Macquarie Australia Pty Limited (Australia)
– Macquarie B.H. Pty Ltd (Australia)
– Macquarie Bank International Limited (United Kingdom)
– Macquarie Bank Limited (Australia)
– Macquarie BFS Holdings Ltd. (Canada)
– Macquarie Capital (Australia) Limited (Australia)
– Macquarie Capital (Europe) Limited (United Kingdom)
– Macquarie Capital (Singapore) Pte Limited (Singapore)
– Macquarie Capital Group Limited (Australia)
– Macquarie Capital International Holdings Pty Limited (Australia)
– Macquarie Capital Securities (Mauritius) Limited (Mauritius)
– Macquarie Capital Securities (Singapore) Pte Limited
(Singapore)
– Macquarie Capital Securities Limited (Hong Kong)
– Macquarie Corporate and Asset Finance Limited (Australia)
– Macquarie Credit Nexus Holdings Limited (Cayman Islands)
– Macquarie Energy LLC (United States)
– Macquarie FG Holdings Inc. (United States)
– Macquarie FICC (UK) Limited (United Kingdom)
– Macquarie FICC Holdings USA Inc. (United States)
– Macquarie Financial Holdings (USA) LLC (United States)
– Macquarie Financial Holdings Limited (Australia)
– Macquarie Financial Ltd./Financiere Macquarie Ltee. (Canada)
– Macquarie Financial Markets LLC (United States)
– Macquarie Financial Products Management Limited (Australia)
– Macquarie Funding Holdings LLC (United States)
– Macquarie Funds Management Holdings Pty Limited (Australia)
– Macquarie Group Employee Retained Equity Plan (MEREP
Trust) (Australia)
– Macquarie Group Services Australia Pty Ltd (Australia)
– Macquarie Holdings (U.S.A.) Inc. (United States)
– Macquarie Infrastructure and Real Assets (Europe) Limited
(United Kingdom)
– Macquarie Infrastructure and Real Assets Inc. (United States)
– Macquarie Infrastructure Funds Management Pty Limited
(Australia)
– Macquarie Infrastructure Management (Asia) Pty Limited
(Australia)
– Macquarie Infrastructure Management (USA) Inc (United
States)
– Macquarie Investment Management Ltd (Australia)
– Macquarie Investments (UK) Limited (United Kingdom)
– Macquarie Leasing Pty Limited (Australia)
– Macquarie Prism Pty Limited (Australia)
– Macquarie Sct Pty Limited (Australia)
– Macquarie Securities South Africa Limited (South Africa)
– Macquarie Services (USA) LLC (United States)
– Macquarie TCG (USA) LLC (United States)
– Macquarie US Gas Supply LLC (United States)
– Meadowlark Capital LLC (United States)
– MIHI LLC (United States).
Note: The country of incorporation has been stated in brackets next to the name of the entity, unless otherwise stated.
Overseas subsidiaries conduct business predominantly in their place of incorporation, unless otherwise stated.
Beneficial interest in all material entities is 100 percent.
All material entities have a 31 March reporting date.
In accordance with ASIC instruments 12-0250, 12-1311, 13-0151, 13-0394 and 13-0500, Macquarie Group has been granted
relief under section 340 of the Corporations Act 2001 (Cth) from synchronising the year-end of the following entities that are in its
consolidated group:
– Macquarie Mexico Real Estate Management, S.A. de C.V.
– Texas Municipal Gas Acquisition and Supply Corporation III
– Energia del Norte Holding S.A.P.I. de C.V. and Cefiro Capital S.A.P.I de C.V. SOFOM E.N.R.
This is of no consequence to the consolidation as, while the year-ends of the above entities are different to that of Macquarie
Group, the results and balances included in the consolidation are at the reporting date of 31 March.
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
155
Note 18
Deferred tax assets/(liabilities)
The balance comprises temporary differences attributable to:
Other assets and liabilities 991 622 40 16
Tax losses 517 491 19 77
Fixed assets 89 108 – –
Set-off of deferred tax liabilities (723) (455) – 50
Total deferred tax assets 874 766 59 143
Investments
(55) 153 – –
Intangible assets (135) (137) – –
Other assets and liabilities (239) (193) – –
Leasing and financial instruments (758) (829) – 50
Set-off of deferred tax assets 723 455 – (50)
Total deferred tax liabilities (464) (551) – –
Net deferred tax assets 410 215 59 143
The majority of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity
and the Company.
Potential tax assets of approximately $104 million (2014: $33 million) attributable to tax losses carried forward by subsidiaries have
not been brought to account in the Consolidated Entity as the Directors do not believe the realisation of the tax assets is probable.
The principles of the balance sheet method of tax effect accounting have been adopted whereby the income tax expense for the
financial year is the tax payable on the current year's taxable income adjusted for changes in deferred tax assets and liabilities
attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial
statements and unused tax losses. Deductible temporary differences and tax losses give rise to deferred tax assets. Deferred tax
assets are not recognised unless the benefit is probable of realisation.
The deferred tax assets have been applied against deferred tax liabilities to the extent that they are expected to be realised within
the same tax paying entity or group.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
156
Note 19
Trading portfolio liabilities
Listed equity securities
4,525 1,888 – –
Foreign government securities 336 363 – –
Corporate securities 309 396 – –
Commodities 125 115 – –
Total trading portfolio liabilities 5,295 2,762 – –
Note 20
Deposits
Interest bearing deposits
Call 30,308 26,225 – –
Term 8,146 9,491 18 33
Client monies, segregated fund and margin money held 7,728 5,527 – –
Non-interest bearing deposits 1,204 1,158 – –
Total deposits 47,386 42,401 18 33
Note 21
Other liabilities
Due to brokers and customers
6,790 6,343 – –
Creditors 4,706 4,269 – 6
Accrued charges and sundry provisions 2,430 1,921 66 68
Life investment contracts and other unitholder liabilities 1,004 1,084 – –
Income tax payable 650 74 2 –
Other 250 217 – –
Total other liabilities 15,830 13,908 68 74
The majority of the above amounts are expected to be settled within 12 months of the balance date by the Consolidated Entity and
by the Company.
Note 22
Payables to financial institutions
Cash collateral on securities lent and repurchase agreements
12,018 13,564 – –
OECD banks 4,691 4,128 2,566 1,307
Other 1,936 1,962 – –
Total payables to financial institutions 18,645 19,654 2,566 1,307
Note 23
Other financial liabilities at fair value through profit or loss
Credit linked notes 1,064 297 – –
Equity linked notes 420 1,084 – –
Debt issued at fair value 142 83 – –
Total other financial liabilities at fair value through profit or loss 1,626 1,464 – –
Macquarie Group Limited and its subsidiaries 2013 Annual Financial Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2013
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
157
Note 24
Debt issued at amortised cost
Debt issued at amortised cost
(1)
61,463 45,565 6,179 6,265
Total debt issued at amortised cost 61,463 45,565 6,179 6,265
(1)
Included within this balance are amounts payable to SPE note holders and debt holders of $15,952 million (2014: $12,732 million).
The Consolidated Entity has not had any defaults of principal, interest or other breaches with respect to its debt during the years
reported.
Reconciliation of debt issued at amortised cost and other financial liabilities at fair value through profit or loss by
major currency:
(In Australian dollar equivalent):
United States dollars
34,059 23,912 5,639 5,710
Australian dollars 15,206 12,056 22 65
Euro 4,073 1,691 – –
Great British pounds 3,519 1,090 – –
Canadian dollars 1,949 3,932 – –
Swiss franc 1,717 1,138 – –
Japanese yen 1,318 1,998 518 490
South African rand 531 636 – –
Hong Kong dollars 205 174 – –
Norwegian Krone 162 – – –
Yuan Renminbi 140 – – –
Korean won 124 262 – –
Singapore dollars 56 104 – –
Others 30 36 – –
Total by currency 63,089 47,029 6,179 6,265
The Consolidated Entity's primary sources of domestic and international debt funding are its multi-currency, multi-jurisdictional Debt
Instrument Program and domestic NCD issuance.
Note 25
Provisions
Provision for annual leave
113 109 – –
Provision for long service leave 85 81 – –
Provision for other employee entitlements 16 9 – –
Provision for dividends 6 6 – –
Total provisions 220 205 – –
The majority of the above amounts are expected to be settled after 12 months of the balance date by the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
158
Note 26
Capital management strategy
The Company and Consolidated Entity’s capital management
strategy is to maximise shareholder value through optimising the
level and use of capital resources, whilst also providing the flexibility
to take advantage of opportunities as they may arise.
The Consolidated Entity’s capital management objectives are to:
– continue to support the Consolidated Entity’s credit rating
– ensure sufficient capital resource to support the Consolidated
Entity’s business and operational requirements
– maintain sufficient capital to exceed externally imposed capital
requirements, and
– safeguard the Consolidated Entity’s ability to continue as a going
concern.
The Consolidated Entity’s capital management strategy uses both
internal and external measures of capital. Internally, Macquarie has
developed an Economic Capital Adequacy Model (ECAM) that is
used to quantify MGL’s aggregate level of risk. The economic capital
framework complements the management of specific risk types
such as equity, credit, market and operational risk by providing an
aggregate view of MGL’s risk profile. The economic capital model
is used to support business decision-making and has three main
applications:
– capital adequacy assessment
– risk appetite setting, and
– risk-adjusted performance measurement.
The Consolidated Entity is subject to minimum capital requirements
externally imposed by APRA.
A subsidiary of the Company, MBL, is accredited by APRA to apply
the Basel III Foundation Internal Ratings Based Approach (FIRB) for
credit risk, the Advanced Measurement Approach (AMA) for
operational risk, the internal model approach for market risk and the
internal model approach for interest rate risk in the banking book.
Regulatory capital requirements are measured at three levels of
consolidation within the Consolidated Entity. MBL and certain
subsidiaries which meet the APRA definition of Extended Licensed
Entities are reported as Level 1. Level 2 consists of MBL, its
subsidiaries and its immediate parent less certain subsidiaries of
MBL which are deconsolidated for APRA reporting purposes. These
include mortgage and leasing special purpose vehicles (SPVs) and
entities conducting insurance, funds management and non-financial
operations. Level 3 consists of the Level 2 group plus the non-bank
group.
APRA requires Authorised Deposit-taking Institutions (ADIs)
to have a minimum ratio of capital to risk weighted assets
(RWA) of 8 percent at both Level 1 and Level 2, with at
least 6 percent of this capital in the form of Tier 1 capital
and at least 4.5 percent of this minimum capital in the form
of Common Equity Tier 1 capital. In addition, APRA
imposes ADI specific minimum capital ratios which may be
higher than these levels. At the Level 3 group, which
involves the Non-Operating Holding Company structure,
APRA has imposed minimum regulatory capital
requirements calculated as the sum of the dollar value of:
– MBL’s minimum Tier 1 capital requirement, based on
a percentage of RWA plus Tier 1 deductions using
prevailing APRA ADI Prudential Standards, and
– the non-bank group capital requirement, using the
Consolidated Entity’s ECAM. Transactions internal
to the Consolidated Entity are excluded.
The Consolidated Entity’s Level 3 eligible capital consists
of ordinary equity, certain reserves and hybrid instruments.
The overall Level 3 capital position is reported as an excess
over the regulatory imposed minimum capital adequacy
requirement.
The Consolidated Entity has satisfied all internally and
externally imposed capital requirements at Level 1, Level 2
and Level 3 throughout the year.
159
Note 27
Loan capital
Subordinated debt
Agreements between the Consolidated Entity and the lenders
provide that, in the event of liquidation, entitlement of such
lenders to repayment of the principal sum and interest thereon
is and shall at all times be and remain subordinated to the rights
of all other present and future creditors of the Consolidated
Entity. Details of selected capital instruments are discussed
below.
Macquarie Preferred Membership Interests
On 2 December 2010, Macquarie PMI LLC, a subsidiary of the
Company, issued $US400 million of $US denominated
Preferred Membership Interests (Macquarie PMI). These
instruments are non-cumulative and unsecured equity interests
in the issuer. They are redeemable at the Company’s option,
subject to various conditions, on any distribution date from
2 December 2015, and are non-dilutive, as they will only
exchange to a fixed number of MGL preference shares in
specified circumstances, and mandatorily on 26 November
2035.
The Macquarie PMI bear discretionary fixed-rate coupons at
8.375 percent per annum, paid semi-annually. If coupons are
not paid, the Company will be restricted from paying dividends
or returning capital on ordinary shares until two full coupon
payments have been made.
The total number of MGL preference shares that would be
issued if Macquarie PMI were exchanged at 31 March 2015
would be 400,000 (31 March 2014: 400,000).
Exchangeable Capital Securities
On 26 March 2012, MBL, acting through its London Branch,
issued $US250 million of ECS.
The ECS, being unsecured subordinated notes, pay
discretionary, non-cumulative interest of 10.25 percent per
annum, payable semi-annually in arrears, with the rate to be
reset on 20 June 2017 (and each fifth anniversary thereafter) if
the ECS remain outstanding after this time. If interest is not paid
on the ECS, MBL and the Company will be restricted from
paying dividends or returning capital on their ordinary shares
until the next interest payment date.
Subject to certain conditions being met, the ECS will be
exchanged for a variable number of fully paid ordinary shares of
the Company on 20 June 2017, or on any interest payment
date thereafter, with exchange to occur no later than 20 June
2057. The ECS may also be exchanged earlier on an acquisition
event (where a person acquires control of MBL or the
Company), where MBL’s common equity Tier 1 capital ratio falls
below 5.125 percent, or where APRA determines MBL would
be non-viable without an exchange or a public sector injection
of capital (or equivalent support).
If exchange occurs, a variable number of the Company's
ordinary shares will be issued at a 5 percent discount to the
share price, as quoted on the ASX and converted to US dollars,
determined over a period immediately prior to the date of that
exchange.
No ECS were exchanged during the financial year. The total
number of ordinary shares that would be issued if ECS were
exchanged at 31 March 2015 would be 4,546,959 (31 March
2014: 5,067,970). The maximum number of ordinary shares
that can be issued on an exchange is 17,689,525.
The ECS will only be redeemable, subject to APRA’s written
approval, at the discretion of MBL in limited circumstances,
including following a change in law that has an impact on the
regulatory or tax treatment of the ECS.
As at 31 March 2015, the remaining principal liability related to
the ECS was $US250 million (31 March 2014: $US250 million).
Macquarie Group Capital Notes
On 7 June 2013, the Company issued six million MCN at face
value of $100 each. These instruments are non-cumulative and
unsecured and may be redeemed at face value on 7 June
2018, 7 December 2018 or 7 June 2019 (subject to certain
conditions being satisfied) or earlier in specified circumstances
at the discretion of the Company, subject to APRA's written
approval.
MCN may also be exchanged into a variable number of the
Company’s ordinary shares (subject to certain conditions being
satisfied) on these redemption dates or mandatorily exchanged
on 7 June 2021. The MCN may also be exchanged earlier on
an acquisition event (where a person acquires control of the
Company) or where APRA determines the Company would be
non-viable without an exchange or a public sector injection of
capital (or equivalent support).
In the event of an exchange, MCN Holders will receive up to
approximately $101 worth of ordinary shares per MCN held.
The total number of ordinary shares that would be issued if
MCN were exchanged at 31 March 2015 would be 7,970,512
(31 March 2014: 10,824,861). The maximum number of
ordinary shares that can be issued on an exchange is
70,721,358.
The MCN pay discretionary, floating rate cash distributions
equal to 180-day BBSW plus a fixed margin of 4.00 percent per
annum, adjusted for franking credits, paid semi-annually. If
interest is not paid on the MCN, the Company will be restricted
from paying dividends or returning capital on ordinary shares
until the next interest payment date.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
160
Note 27
Loan capital continued
Macquarie Bank Capital Notes
On 8 October 2014, Macquarie Bank Limited, a subsidiary of
the Company, issued 4.3 million BCN at face value of $100
each. These instruments are non-cumulative and unsecured
and may be redeemed at face value on 24 March 2020,
24 September 2020 or 24 March 2021 (subject to certain
conditions being satisfied) or earlier in specified circumstances
at the discretion of the Company, subject to APRA's written
approval.
BCN may also be exchanged into a variable number of the
Company’s ordinary shares (subject to certain conditions being
satisfied) on these redemption dates or mandatorily exchanged
on 24 March 2023. The BCN may also be exchanged earlier on
an acquisition event (where a person acquires control of the
Company or MBL) or where APRA determines Macquarie Bank
Limited would be non-viable without an exchange or a public
sector injection of capital (or equivalent support).
In the event of an exchange, BCN Holders will receive up to
approximately $101 worth of ordinary shares per BCN held.
The total number of ordinary shares that would be issued if
BCN were exchanged at 31 March 2015 would be 5,704,369.
The maximum number of ordinary shares that can be issued on
an exchange is 37,056,481.
The BCN pay discretionary, floating rate cash distributions
equal to 180-day BBSW plus a fixed margin of 3.30 percent per
annum, adjusted for franking credits, paid semi-annually. If
interest is not paid on the BCN, Macquarie Bank Limited will be
restricted from paying dividends or returning capital on ordinary
shares until the next interest payment date.
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
161
Note 27
Loan capital continued
Maturity and currency profiles of loan capital instruments
The dates upon which the Consolidated Entity has committed to repay the principal sum to the lenders are as follows:
Less than 12 months
104 92 11 10
21 September 2020 953 968 – –
7 April 2021 1,461 1,160 – –
Subordinated debt 2,518 2,220 11 10
Instruments with conditional repayment obligations:
MCN 600 600 600 600
Macquarie PMI 526 431 – –
BCN 430 – – –
ECS 329 270 – –
Loan capital 4,403 3,521 611 610
Less directly attributable issue cost (19) (14) (8) (9)
Total loan capital
(1)
4,384 3,507 603 601
Reconciliation of subordinated debt by major currency:
(In Australian dollar equivalent)
United States dollars
2,382 1,915 – –
Australian dollars 1,042 610 611 610
Euro 979 996 – –
Loan capital 4,403 3,521 611 610
Less directly attributable issue cost (19) (14) (8) (9)
Total loan capital
(1)
4,384 3,507 603 601
(1)
The balance is net of fair value hedge accounting adjustments.
The Consolidated Entity has not had any defaults of principal, interest or other breaches with respect to its loan capital during the
years reported.
In accordance with APRA guidelines, MBL includes the applicable portion of the subordinated debt as Tier 2 capital and the ECS as
Additional Tier 1 capital.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
Number of
shares
Consolidated
2014
Number of
shares
Consolidated
2015
$m
Consolidated
2014
$m
162
Note 28
Contributed equity
Ordinary share capital
Opening balance of fully paid ordinary shares 321,074,750 339,506,578 6,075 6,882
Issue of shares on exercise of options 67,664 423,159 3 12
Issue of shares on exercise of MEREP awards 28,072 65,141 2 3
Issue of shares pursuant to Dividend Reinvestment Plan (DRP) at
$57.79 per share 2,967,273 – 171 –
Issue of shares pursuant to Employee Share Plan (ESP) at $59.27
per share 16,080 – 1 –
Issue of shares pursuant to Institutional Private Placement at
$73.50 per share 6,802,722 – 500 –
Issue of shares pursuant to Share Purchase Plan (SPP) at $73.50
per share 2,312,714 – 170 –
Issue of shares on retraction of exchangeable shares 188,502 147,840 10 9
Capital reduction through SYD distribution
(1)
– – – (803)
Consolidation of one ordinary share into 0.9438 ordinary share
(1)
– (19,067,968) – –
For employee MEREP awards that have vested and forfeited, and
options exercised during the financial year:
Transfer of MEREP expense from share-based payments reserve – – 242 195
Transfer of additional deferred tax benefit on MEREP expense
from share-based payments reserve – – 31 14
Transfer from treasury shares for shares withdrawn – – (285) (237)
Transfer from share-based payment capital reduction reserve – – (19) –
Closing balance of fully paid ordinary shares 333,457,777 321,074,750 6,901 6,075
(1)
Represents SYD Distribution to ordinary shareholders recognised as return of ordinary share capital and consolidation of ordinary shares
on SYD Securities distribution. Refer Note 5 – Dividends and distribution paid or provided for.
Company
2015
Number of
shares
Company
2014
Number of
shares
Company
2015
$m
Company
2014
$m
163
Note 28
Contributed equity continued
Ordinary share capital
Opening balance of fully paid ordinary shares 321,074,750 339,506,578 8,841 9,652
Issue of shares on exercise of options 67,664 423,159 3 12
Issue of shares on exercise of MEREP awards 28,072 65,141 2 3
Issue of shares pursuant to Dividend Reinvestment Plan (DRP) at
$57.79 per share 2,967,273 – 171 –
Issue of shares pursuant to Employee Share Plan (ESP) at $59.27
per share 16,080 – 1 –
Issue of shares pursuant to Institutional Private Placement at
$73.50 per share 6,802,722 – 500 –
Issue of shares pursuant to Share Purchase Plan (SPP) at $73.50
per share 2,312,714 – 170 –
Issue of shares on retraction of exchangeable shares 188,502 147,840 11 9
Capital reduction through SYD distribution
(1)
– – – (793)
Consolidation of one ordinary share into 0.9438 ordinary share
(1)
– (19,067,968) – –
For employee MEREP awards that have vested and forfeited, and
options exercised during the financial year:
Transfer of MEREP expense from share-based payments reserve – – 242 195
Transfer from treasury shares for shares withdrawn – – (285) (237)
Transfer from share-based payment capital reduction reserve – – (19) –
Closing balance of fully paid ordinary shares 333,457,777 321,074,750 9,637 8,841
(1)
Represents SYD Distribution to ordinary shareholders recognised as return of ordinary share capital and consolidation of ordinary shares
on SYD Securities distribution. Refer Note 5 – Dividends and distribution paid or provided for. Disclosures regarding the Company’s
DRP are included in Note 5 – Dividends and distributions paid or provided for.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
164
Note 28
Contributed equity continued
Treasury shares
Opening balance of 26,011,106 (1 April 2013: 28,981,801) treasury
shares
(1)
(990) (1,011) (989) (1,010)
Purchase of 4,461,905 (31 March 2014: 4,969,737) shares for
employee MEREP awards (266) (216) (266) (216)
Transfer of 7,228,889 (31 March 2014: 6,345,371) shares
withdrawn/exercised for vested MEREP awards 285 237 285 237
Consolidation of one treasury share into 0.9438 treasury share
resulting in a reduction of 1,595,061 treasury shares in 2014 – – – –
Purchase of nil (31 March 2014: 1,866,577) shares for DRP share
issue by the Company – (81) – (81)
Allocation of nil (31 March 2014: 1,866,577) shares under DRP
scheme by the Company – 81 – 81
Purchase of 1,049,203 (31 March 2014: 702,614) shares for DRP
share issue by the consolidated entity (63) (39) – –
Allocation of 1,049,203 (31 March 2014: 702,614) shares under
DRP scheme by the consolidated entity 63 39 – –
Closing balance of 23,244,122 (31 March 2014: 26,011,106)
treasury shares
(1)
(971) (990) (970) (989)
(1)
In December 2009, the Company introduced MEREP, which grants RSUs, DSUs and PSUs to eligible staff. Under MEREP the staff
retained profit share is held in the shares of the Company by Macquarie Group Employee Retained Equity Plan Trust (MEREP Trust) and
presented as Treasury shares. For further information regarding terms and conditions of MEREP refer to Note 33 – Employee equity
participation.
Exchangeable shares
Opening balance of 447,562 (1 April 2013: 604,206) exchangeable
shares 27 36 –
–
Retraction of 199,679 (31 March 2014: 147,840) exchangeable
shares, exchangeable to shares in MGL
(1)
(10) (9) –
–
Cancellation of 2,428 (31 March 2014: 8,804) exchangeable shares – – –
–
Closing balance of 245,455 (31 March 2014: 447,562)
exchangeable shares 17 27 –
–
(1)
The exchangeable shares were issued by a subsidiary as consideration for the acquisitions of Tristone Capital Global Inc. and Orion
Financial Inc. and are classified as equity in accordance with AASB 132 Financial Instruments: Presentation. As per terms of the original
agreement, they were eligible to be exchanged on a one-for-one basis for shares in MGL (subject to staff trading restrictions) or cash at
the Company’s discretion and will pay dividends equal to MGL dividends during their legal life. However, subsequent to the approval of
consolidation of Macquarie ordinary shares by Macquarie's shareholders on 12 December 2013, the terms of the agreement have been
modified to a 0.9438-for-one basis for shares in MGL.
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Contributed equity 5,947 5,112 8,667 7,852
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
165
Note 29
Reserves, retained earnings and non-controlling interests
Reserves
Foreign currency translation reserve
Balance at the beginning of the financial year (313) (895) – –
Currency translation differences arising during the financial year,
net of hedge and tax 868 582 – –
Balance at the end of the financial year 555 (313) – –
Available for sale reserve
Balance at the beginning of the financial year 385 313 – –
Revaluation movement for the financial year, net of tax 166 311 – –
Transfer to income statement for impairment, net of tax 46 64 – –
Transfer to income statement on realisation, net of tax (154) (303) – –
Balance at the end of the financial year 443 385 – –
Share-based payments reserve
Balance at the beginning of the financial year 683 688 631 675
MEREP expense for the financial year 319 257 – –
Additional deferred tax benefit on MEREP expense 67 53 – –
MEREP issued to employees of subsidiaries (Note 31) – – 319 257
Transfer to retained earnings in respect of expired and lapsed
options and forfeited MEREP awards – (97) – (97)
Transfer to other liabilities on vesting of MEREP awards and
exercise of options
(1)
(1) (9) (1) (9)
Transfer to share capital on vesting of MEREP awards and
exercise of options (242) (195) (242) (195)
Transfer of additional deferred tax benefit to share capital on
vesting of MEREP awards (31) (14) – –
Balance at the end of the financial year 795 683 707 631
Share-based payments capital reduction reserve
(2)
Balance at the beginning of the financial year (72) – (72) –
SYD Distribution to MEREP holders – (72) – (72)
Transfer to share capital related to vested and forfeited awards 19 – 19 –
Balance at the end of the financial year (53) (72) (53) (72)
Cash flow hedging reserve
Balance at the beginning of the financial year (28) (49) – –
Revaluation movement for the financial year, net of tax (56) 21 – –
Balance at the end of the financial year (84) (28) – –
Share of reserves of interests in associates and joint ventures
accounted for using the equity method
Balance at the beginning of the financial year 14 – – –
Share of other comprehensive (expense)/income of associates and
joint ventures, net of tax (14) 14 – –
Balance at the end of the financial year – 14 – –
Total reserves at the end of the financial year 1,656 669 654 559
Retained earnings
Balance at the beginning of the financial year (Note 1(xxviii)) 5,637 5,439 5,204 3,543
Profit attributable to ordinary equity holders of MGL 1,604 1,265 2,581 2,708
Dividends paid on ordinary share capital (Note 5) (931) (1,159) (921) (1,144)
Transfer from share based payments reserves in respect of
expired and lapsed options and forfeited MEREP awards – 97 – 97
Change in non-controlling ownership interest (4) (5) – –
Balance at the end of the financial year 6,306 5,637 6,864 5,204
(1)
Represents vested MEREP awards settled through cash.
(2)
Represents SYD Distribution to the unvested MEREP holders recognised as return of ordinary share capital on SYD Securities
distribution. Refer Note 5 – Dividends and distributions paid or provided for.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
166
Note 29
Reserves, retained earnings and non-controlling interests continued
Non-controlling interests
Macquarie Income Securities
The MIS issued by MBL were listed for trading on the Australian Stock Exchange (now Australian Securities Exchange) on
19 October 1999 and became redeemable (in whole or in part) at MBL's discretion on 19 November 2004. Interest is paid quarterly
at a floating rate of BBSW plus 1.7 percent per annum (2014: 1.7 percent per annum). Payment of interest to holders is subject to
certain conditions, including the profitability of MBL. They are a perpetual instrument with no conversion rights.
Macquarie Income Preferred Securities
On 22 September 2004, Macquarie Capital Funding LP, a subsidiary of the Company, issued £350 million of MIPS. MIPS,
guaranteed non-cumulative step-up perpetual preferred securities, currently pay a 6.177 percent (2014: 6.177 percent) per annum
semi-annual non-cumulative fixed rate distribution. They are perpetual securities and may be redeemed on 15 April 2020, at MGL’s
discretion. If redemption is not elected on this date, the distribution rate will be reset to 2.35 percent per annum above the then
five-year benchmark sterling gilt rate. MIPS may be redeemed on each fifth anniversary thereafter at MGL’s discretion. The first
coupon was paid on 15 April 2005. Following the cancellation of £307.5 million MIPS in September 2009, £42.5 million MIPS
remain on issue.
These instruments are classified as equity in accordance with AASB 132 Financial Instruments: Presentation and reflected in the
Consolidated Entity’s financial statements as a NCI, with distribution entitlements being included with NCI share of profit after tax.
Distribution policies for these instruments are included in Note 5 – Dividends and distributions paid or provided for.
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Macquarie Income Securities
4,000,000 Macquarie Income Securities of $100 each 400 400 – –
Less transaction costs for original placement (9) (9) – –
Total Macquarie Income Securities 391 391 – –
Macquarie Income Preferred Securities
Proceeds on issue of Macquarie Income Preferred Securities 109 109 – –
Less issue costs (1) (1) – –
Foreign currency translation reserve
108 108 – –
(26) (32) – –
Total Macquarie Income Preferred Securities 82 76 – –
Other non-controlling interests
Ordinary share capital 16 28 – –
Preference share capital 2 2 – –
Foreign currency translation reserve 3 – – –
Retained earnings (7) (1) – –
Total other non-controlling interests 14 29 – –
Total non-controlling interests 487 496 – –
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
167
Note 30
Notes to the statements of cash flows
Reconciliation of cash and cash equivalents
Cash and cash equivalents at the end of the financial year as shown
in the statements of cash flows are reconciled to related items in the
statements of financial position as follows:
Receivables from financial institutions
(1)
10,681 8,362 – –
Trading portfolio assets
(2)
1,155 538 – –
Debt securities
(3)
1,129 4,208 – –
Loan asset at amortised cost
(4)
4,008 2,432 – –
Cash and cash equivalents at the end of the financial year
(5)
16,973 15,540 – –
(1)
Includes cash at bank, overnight cash at bank, other loans to banks and amounts due from clearing houses.
(2)
Includes certificates of deposit, bank bills, treasury notes and other short-term debt securities.
(3)
Includes short-term debt securities.
(4)
Includes amounts due from clearing houses.
(5)
Cash and cash equivalents include $5,643 million (2014: $4,172 million) held by collaterised securitisation vehicles in segregated deposit
fund and escrow accounts which are restricted for use.
Reconciliation of profit after income tax to net cash flows
from/(used in) operating activities
Profit after income tax 1,623 1,279 2,581 2,708
Adjustments to profit after income tax:
Depreciation and amortisation 623 571 – –
Fair value changes on financial assets and liabilities at fair value through
profit or loss and realised investment securities available for sale (566) (301) – –
Provision and impairment charge on financial and non-financial assets 847 524 – –
Impairment reversal in subsidiary – – (1,271) (1,648)
Interest on available for sale financial assets (299) (198) – –
Non-cash dividend received – – – (318)
Net gains on sale of investment securities available for sale, associates
and joint ventures and operating lease assets (745) (530) – 19
Share-based payments expense 319 264 – –
Share of net profits of associates and joint ventures accounted for using
the equity method (5) (149) – –
Changes in assets and liabilities:
Change in amount due from subsidiaries under tax funding agreement – – 390 (283)
Change in dividends receivable (106) (105) – –
Change in values of associates due to dividends received 261 111 – –
Change in fees and non-interest income receivable (79) (148) – –
Change in fees and commissions payable 25 (3) – –
Change in tax balances 721 523 (242) 153
Change in provisions for employee entitlements 14 (7) – –
Change in lease assets, net of depreciation, foreign exchange and
impairment (831) (326) – –
Change in loan assets (13,594) (7,793) (1,339) (1,209)
Change in debtors, prepayments, accrued charges and creditors 1,527 1,027 7 9
Change in net trading portfolio assets and liabilities and net derivative
financial instruments (14,231) (3,355) – –
Change in net interest payable, amounts due to other financial
institutions, deposits and other borrowings 22,083 8,150 1,167 928
Net cash flows (used in)/from operating activities (2,413) (466) 1,293 359
Cash flows used in financing activities do not include the non cash transaction related to SYD distribution. Refer Note 5 – Dividends
and distributions paid or provided for.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
168
Note 31
Related party information
Subsidiaries
Transactions between the Company and its subsidiaries principally arise from the granting of loans and the provision of
management and administration services. Significant transactions between the Company and its subsidiaries are disclosed below.
All transactions with subsidiaries are in accordance with regulatory requirements, the majority of which are on commercial terms.
All transactions undertaken during the financial year with subsidiaries are eliminated in the consolidated financial statements.
Amounts due from and due to subsidiaries are presented separately in the statement of financial position of the Company except
when the parties have the legal right and intention to offset.
Balances arising from lending and borrowing activities between the Company and its subsidiaries are typically repayable on
demand, but may be extended on a term basis and where appropriate may be either subordinated or collateralised.
A list of material subsidiaries is set out in Note 17 – Investments in subsidiaries.
The Company as the ultimate parent entity of the Macquarie Group, is the head entity of the Australian tax consolidated group and
has entered into a tax funding agreement with its eligible Australian resident subsidiaries. The terms and conditions of this
agreement are set out in Note 1(vii) – Summary of significant accounting policies. During the year ended 31 March 2015, current tax
assets of subsidiaries assumed by MGL as the head entity of the tax consolidated group amounted to $59 million (2014:
$241 million). As at 31 March 2015, the amount receivable by the Company under the tax funding agreement with the tax
consolidated entities is $1 million (2014: $391 million receivable). This balance is included in Due from subsidiaries in the Company’s
separate statement of financial position.
The following income/(expense) resulted from transactions with subsidiaries during the financial year:
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Interest income received/receivable
– – 333 340
Interest expense paid/payable
– – (24) (14)
Share-based payments to employees of subsidiaries (Note 29)
– – (319) (257)
Dividends and distributions (Note 2)
– – 1,273 1,128
The following balances with subsidiaries were outstanding as at
financial year end:
Amounts receivable
– – 10,361 8,711
Amounts payable
(1)
– – (810) (866)
(1)
As described in Note 1(xxi) – Summary of significant accounting policies, the Company has recognised a liability as at 31 March 2015 of
$32 million (2014: $285 million) for amounts received in advance as at 31 March 2015 from subsidiaries for MEREP offered to their
employees and yet to be recognised as a share-based payment expense by the subsidiary. To the extent that the awards vest, this
amount will be retained by the Company as compensation for issuing and releasing the shares to the subsidiary employees.
Outstanding balances are unsecured and are repayable in cash.
169
Note 31
Related party information continued
Associates and joint ventures
Transactions between the Consolidated Entity and its associates and joint ventures principally arise from the provision of corporate
advisory services, the granting of loans, derivative transactions and the provision of management services. All transactions
undertaken with associates and joint ventures are eliminated where they are unrealised, to the extent of ownership interests held by
the Consolidated Entity, in the consolidated income statement.
During the financial year, the following income/(expense) resulted from transactions with associates and joint ventures:
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Interest income received/receivable
22 2 – –
Fee and commission income 1,081 599 – –
Other income – 2 – –
Dividends and distributions
(1)
272 101 – –
Brokerage, commission and trading-related expenses (7) (5) – –
(1)
Dividends and distributions are shown as gross amounts. Under the equity method, these amounts are not taken up as income but are
recorded as a reduction of the carrying amount of the investment.
The following balances with associates and joint ventures were outstanding as at financial year end (these exclude amounts which in
substance form part of the Consolidated Entity's net investment in associates, disclosed in Note 15 – Interests in associates and
joint ventures accounted for using the equity method):
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
Amounts receivable
1,824 488 – –
Amounts payable (125) (235) – –
Balances arising from lending and borrowing activities between the Consolidated Entity and its associates and joint ventures are
typically repayable on demand, but may be extended on a term basis and where appropriate may be either subordinated or
collateralised.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
170
Note 32
Key Management Personnel disclosure
Key Management Personnel
The following persons were Directors of the Company during the financial years ended 31 March 2015 and 31 March 2014, unless
indicated.
Executive Voting Director
N.W. Moore
(1)
Managing Director and Chief Executive Officer (CEO)
Non-Executive Directors
H.K. McCann AM Non-Executive Chairman
G.R. Banks AO (effective from 1 August 2013)
G.M. Cairns (effective from 1 November 2014)
M.J. Coleman
P.A. Cross (effective from 7 August 2013)
D.J. Grady AM
M. J. Hawker AM
N.M. Wakefield Evans (effective from 7 February 2014)
P.H. Warne
Former Non-Executive Directors
P.M. Kirby (retired on 24 July 2014)
C.B. Livingstone AO (retired on 25 July 2013)
J.R. Niland AC (retired on 31 December 2013)
H.M. Nugent AO (retired on 24 July 2014)
In addition to the Executive Director listed above, the following persons also had authority and responsibility for planning, directing
and controlling the activities of MGL during the past two financial years ended 31 March 2015 and 31 March 2014, unless
otherwise indicated.
Current Executives
(1)
S.D. Allen Head of RMG
T.C. Bishop Head of Macquarie Capital
B.A. Brazil Co-Head of CAF (effective from 1 July 2014)
(2)
A.J. Downe Head of CFM
G.A. Farrell Co-Head of CAF
M. McLaughlin Country Head, United States of America
M.J. Reemst CEO of Macquarie Bank Limited (effective from 1 July 2014)
(2)
N. Sorbara Head of COG
P.C. Upfold CFO and Head of FMG (effective from 1 July 2014)
(2)
S. Vrcelj Head of MSG
G.C. Ward Deputy Managing Director and Head of BFS
S. Wikramanayake Head of MAM
Former Executives
P.J. Maher Former Head of BFS (ceased to be a member of the Executive Committee on 3 May 2013)
(1)
The CEO and all current Executives are members of the Consolidated Entity’s Executive Committee as at 8 May 2015.
(2)
Refers to the date from which the relevant Executive was determined to be a KMP.
The remuneration arrangements for all of the persons listed above are described in the Remuneration Report, contained in
Schedule 2 of the Directors' Report.
171
Note 32
Key Management Personnel disclosure continued
Key Management Personnel remuneration
The following tables detail the aggregate remuneration for Key Management Personnel (KMP):
Short-term Employee Benefits
Long-term
Employee
Benefits
Share-based Payments
Salary and
fees (including
superannuation)
$
Performance
related
remuneration
(1)
$
Other
benefits
$
Total
short-term
Employee
Benefits
$
Restricted
profit share
including
earnings on
restricted
profit share
(2)
$
Equity
awards
including
shares
(3)
$
PSUs
(4)
$
Total
remuneration
$
Executive Remuneration
2015
9,068,321 40,174,754 – 49,243,075 15,552,907 27,094,870 15,958,182 107,849,034
2014
7,489,696 23,019,536 – 30,509,232 14,796,950 19,933,068 11,051,129 76,290,379
Non-Executive Remuneration
2015
3,574,418 – 27,900 3,602,318 – – – 3,602,318
2014
3,598,415 – 55,900 3,654,315 – – – 3,654,315
(1)
The cash portion of each KMP's profit share allocation for the reporting period when they were a KMP.
(2)
The amount of retained profit share which is deferred to future periods and held as a notional investment in Macquarie managed-fund
equity (Post-2009 DPS plan) including earnings on notional investments from retained profit share in prior years.
(3)
The current year amortisation for retained profit share calculated as described in Note 1(xxi) – Summary of significant accounting
policies.
(4)
The current year amortisation for PSUs calculated as described in Note 1(xxi) – Summary of significant accounting policies. Adjustments
were made during the current and prior years to reduce previously recognised remuneration expense where performance hurdles have
not been met, have been partially met or are not expected to be met.
Equity holdings of Key Management Personnel and their related parties
The following tables set out details of fully paid ordinary shares of the Company held during the financial year by Key Management
Personnel including their related parties, on a Consolidated Entity basis.
Number
of shares
held at
1 April
Number of
shares held at
appointment/
retirement date
(after 1 April)
Shares
Consolidation
(1)
Shares received
on withdrawal
from MEREP
Other
changes
(2)
Number of
shares held by
former KMP at
date of
resignation/
retirement (prior
to 31 March)
Number
of shares
held at
31 March
2015 1,978,695 43,796 – 607,523 (356,042) (43,900) 2,230,072
2014 2,088,864 2,169 (118,374) 345,662 (317,858) (21,768) 1,978,695
(1)
Consolidation of one ordinary share into 0.9438 ordinary shares for shares held at the date of consolidation.
(2)
Includes on – market acquisitions and disposals.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
172
Note 32
Key Management Personnel disclosure continued
MEREP RSU Awards of Key Management Personnel and their related parties
(1)
The following tables set out details of the MEREP RSU awards held during the year for the KMP including their related parties, on a
Consolidated Entity basis. Further details of the particulars of the grants can be found in the Directors’ Report from pages 109 and
110. Further details in relation to the MEREP RSU awards are disclosed in Note 33 – Employee equity participation.
Number
of RSU
awards
held at
1 April
Number of RSU
awards held at
appointment/
retirement date
(after 1 April)
RSU awards
granted during
the financial
year
(1)
Vested RSU
awards withdrawn
from the MEREP
during the
financial year
(2)
RSU awards
consolidation
(3)
Number of
RSU awards
held by
former KMP
at date of
resignation/
retirement
(prior to 31
March)
Number
of RSU
awards
held at
31 March
2015 2,394,033 681,667 448,564 (445,920) – – 3,078,344
2014 2,614,253 – 399,339 (288,620) (142,548) (188,391) 2,394,033
(1)
RSUs are granted in the financial year following the year of the Company’s performance to which the grant relates. RSUs disclosed as
granted above relate to 2014.
(2)
Vested RSUs transferred to the KMP’s shareholding.
(3)
Consolidation of one ordinary share into 0.9438 ordinary shares for shares held at the date of consolidation.
MEREP PSU Awards of Key Management Personnel and their related parties
The following tables set out details of MEREP PSU awards held during the year for the KMP including their related parties, on a
Consolidated Entity basis. Further details of the particulars of the grants can be found in the Directors' Report on page 111. Further
details in relation to the MEREP PSU awards are disclosed in Note 33 – Employee equity participation.
Number of
PSU awards
held at 1 April
PSU awards
granted during
the financial
year
(1)
Vested PSU
awards
exchanged
during the
financial
year
PSU awards
not able to be
exercised
due to
performance
hurdles
not met
(2)
PSU
awards
consolidation
during the
financial year
(3)
Number of PSU
awards held by
former KMP at
date of
resignation/
retirement (prior
to 31 March)
Number
of PSU
awards
held at
31 March
(4)
2015 1,538,385 475,608 (161,603) (147,976) – – 1,704,414
2014 1,678,020 463,293 (57,042) (311,205) (91,600) (143,081) 1,538,385
(1)
PSUs are granted in the financial year following the year of the Company’s performance to which the grant relates. PSUs disclosed as
granted above relate to 2014.
(2)
Performance hurdles for PSU awards issued on or after 17 December 2009 and vesting at 1 July 2014 were partially achieved and
therefore some of those PSU awards did not become exercisable and lapsed. These awards are not exchangeable and the related
expense previously recognised on these PSU grants was reversed during the current and prior financial years.
(3)
Adjustment of PSUs due to consolidation of one ordinary share into 0.9438 ordinary shares for shares held at the date of consolidation.
(4)
PSU awards vested and not exercised at 31 March 2015: 11,000 (2014: 6,961).
173
Note 32
Key Management Personnel disclosure continued
Details of Share – based payment grant dates affecting compensation for the years ending 31 March 2015 and
31 March 2014
Grant date
Year grant relates to Type of grant Managing Director All other KMP
2008 Transition awards 3 March 2010 3 March 2010
Retained DPS 3 March 2010 3 March 2010
2009 Retained DPS 3 March 2010 3 March 2010
PSUs 3 March 2010 3 March 2010
2010 Retained DPS 13 August 2010 30 June 2010
PSUs 13 August 2010 13 August 2010
2011 Retained DPS 15 August 2011 15 February 2011
15 April 2011
20 June 2011
PSUs 15 August 2011 15 August 2011
2012 Retained DPS 15 August 2012 7 June 2012
PSUs 15 August 2012 15 August 2012
2013 Retained DPS 15 August 2013 25 June 2013
PSUs 15 August 2013 15 August 2013
2014 Retained DPS 15 August 2014 25 June 2014
PSUs 15 August 2014 15 August 2014
Loans to Key Management Personnel and their related parties
Details of loans provided by the Consolidated Entity to KMP and their related parties are disclosed in aggregate in the following
tables:
Opening
balance at
1 April
$’000
Interest
charged
$’000
Write-downs
$’000
Closing
balance at
31 March
$’000
(1)
Total for Key Management Personnel
and their related parties
2015 600 14 – 559
2014 5,706 6 – 600
(1)
Number of persons included in the aggregate at 31 March 2015: 1 (2014: 3).
Loans and other financial instrument transactions are made by the Consolidated Entity in the ordinary course of business with
related parties.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
174
Note 33
Employee equity participation
Macquarie Group Employee Retained Equity Plan
The Consolidated Entity continues to operate the MEREP in
conjunction with remuneration arrangements. These
arrangements included a decrease in the portion of staff profit
share paid in cash and an increase in the portion delivered as
equity, an increase in the proportion of deferred remuneration
and cessation of new option grants under the Macquarie Group
Employee Share Option Plan (MGESOP).
Award Types under the MEREP
Restricted Share Units (RSUs)
A RSU is a beneficial interest in a Macquarie share held on
behalf of a MEREP participant by the plan trustee (Trustee).
The participant is entitled to receive dividends on the share and
direct the Trustee how to exercise voting rights in the share.
The participant also has the right to request the release of the
share from the Trust, subject to the vesting and forfeiture
provisions of the MEREP.
Deferred Share Units (DSUs)
A DSU represents the right to receive on exercise of the DSU
either a share held in the Trust or a newly issued share (as
determined by the Company in its absolute discretion) for no
cash payment, subject to the vesting and forfeiture provisions of
the MEREP. A MEREP participant holding a DSU has no right or
interest in any share until the DSU is exercised. The Company
may issue shares to the Trustee or procure the Trustee to
acquire shares on-market for potential future allocations to
holders of DSUs. Generally DSUs will provide for cash
payments in lieu of dividends paid on Company shares before
the DSU is exercised. Further, the number of shares underlying
a DSU will be adjusted upon any bonus issue or other capital
reconstruction of the Company in accordance with the ASX
Listing Rules, so that the holder of a DSU does not receive a
benefit that holders of the Company’s shares do not generally
receive. These provisions are intended to provide the holders of
DSUs, as far as possible, with the same benefits and risks as
holders of RSUs. However, holders of DSUs will have no voting
rights on any underlying MGL shares. DSUs will only be offered
in jurisdictions where legal or tax rules make the grant of RSUs
impractical, or where PSUs are structured as DSUs (see PSUs
below). DSUs have been granted with an expiry period of eight
years.
Performance Share Units (PSUs)
All PSUs currently on issue are structured as DSUs with
performance hurdles that must be met before the underlying
share or cash equivalent (as the case may be) will be delivered.
PSU holders have no right to dividend equivalent payments
before the PSUs vest. In all other respects, holders of these
PSUs will have the same rights as holders of DSUs.
Restricted Shares
A Restricted Share is a Macquarie share transferred from the
MEREP Trust and held by a MEREP participant subject to
restrictions on disposal, vesting and forfeiture rules. The
participant is entitled to receive dividends on Restricted Shares
and to vote. Restricted Shares are only offered in jurisdictions
where legal or tax rules make RSU/DSU awards impractical.
175
Note 33
Employee equity participation continued
The following is a summary of Awards which have been granted pursuant to the MEREP:
Number of
RSU Awards
2015
Number of
RSU Awards
2014
RSUs on issue at the beginning of the financial year
22,446,790 24,700,480
Consolidation of one ordinary share into 0.9438 ordinary shares
(1)
– (1,356,793)
Granted during the financial year 4,810,937 5,553,634
Vested RSUs withdrawn or sold from the MEREP during the financial year (6,590,000) (5,676,173)
Forfeited during the financial year (940,900) (774,358)
RSUs on issue at the end of the financial year 19,726,827 22,446,790
RSUs vested and not withdrawn from the MEREP at the end of the financial year 4,457 8,327
The weighted average fair value of the RSU Awards granted during the financial year was $59.75 (2014: $41.06).
Number of
DSU Awards
2015
Number of
DSU Awards
2014
DSUs on issue at the beginning of the financial year
3,917,214 4,316,880
Adjustment of DSUs due to 0.9438 for one ordinary share consolidation
(1)
– (246,149)
Granted during the financial year 810,248 916,603
Exercised during the financial year (1,001,795) (878,657)
Forfeited during the financial year (93,369) (191,463)
DSUs on issue at the end of the financial year 3,632,298 3,917,214
DSUs exercisable at the end of the financial year 539,167 366,064
The weighted average fair value of the DSU Awards granted during the financial year was $59.67 (2014: $40.84).
Number of
PSU Awards
2015
Number of
PSU Awards
2014
PSUs on issue at the beginning of the financial year
1,792,160 1,969,394
Adjustment of PSUs due to 0.9438 for one ordinary share consolidation
(1)
– (106,710)
Granted during the financial year 475,608 463,293
Exercised during the financial year (223,937) (77,663)
Expired during the financial year (219,289) (456,154)
PSUs on issue at the end of the financial year 1,824,542 1,792,160
PSUs exercisable at the end of the financial year 11,000 6,961
The weighted average fair value of the PSU Awards granted during the financial year was $47.89 (2014: $41.49).
Number of
Restricted Share
Awards
2015
Number of
Restricted Share
Awards
2014
Restricted shares on issue at the beginning of the financial year
138,900 92,558
Consolidation of one ordinary share into 0.9438 ordinary shares
(1)
– (5,509)
Granted during the financial year 19,951 87,239
Released during the financial year (87,819) (35,388)
Restricted shares on issue at the end of the financial year 71,032 138,900
The weighted average fair value of the restricted shares granted during the financial year was $58.49 (2014: $48.39).
(1)
Consolidation applied to shares held in the MEREP as at the record date for the consolidation.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
176
Note 33
Employee equity participation continued
The awards are measured at their grant dates based on their
fair value and for each PSU, the number expected to vest. This
amount is recognised as an expense evenly over the respective
vesting periods and the equity provided is treated as a capital
contribution to the subsidiary where the Company is not
reimbursed or as a prepaid asset in advance where the
Company is reimbursed.
RSUs/DSUs and PSUs relating to the MEREP plan for
Executive Committee members, have been granted in the
current year in respect of 2014. The fair value of each of these
grants is estimated using the Company’s share price on the
date of grant, and for each PSU also incorporates a discounted
cash flow method using the following key assumptions:
– interest rate to maturity: 3.62 percent
– expected vest dates of PSU: 1 July 2017 and 1 July 2018,
and
– dividend yield: 5.02 percent per annum.
While RSUs and DSUs, and PSUs (for Executive Committee
members), in respect of the current year’s performance will be
granted in the following financial year, the Consolidated Entity
begins recognising an expense (based on an initial estimate)
from 1 April of the current financial year related to these future
grants. The expense is estimated using the Company’s share
price as at 31 March 2015 (and for PSUs, also incorporates an
interest rate to maturity of 2.61 percent; expected vest dates of
PSU: 1 July 2018 and 1 July 2019; and a dividend yield of
4.76 percent per annum) and the number of equity instruments
expected to vest. In the following financial year, the
Consolidated Entity will adjust the accumulated expense
recognised for the final determination of fair value for each RSU,
DSU and PSU when granted, and will use this valuation for
recognising the expense over the remaining vesting period.
The Consolidated Entity annually revises its estimates of the
number of awards (including those delivered through MEREP)
that are expected to vest. It recognises the impact of the
revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity.
For the year ended 31 March 2015, compensation expense
relating to the MEREP totalled $340 million (2014: $283 million).
Participation in the MEREP is currently provided to the following
Eligible Employees:
– Executive Directors with retained Directors’ Profit Share
(DPS) from 2009 onwards, a proportion of which is
allocated in the form of MEREP awards (Retained DPS
Awards)
– Executive Directors with pre-2009 retained DPS (which they
elected to transition into the MEREP)
– staff other than Executive Directors with retained profit
share (Retained Profit Share Awards) and staff who were
promoted to Associate Director, Division Director or
Executive Director, who received a fixed Australian dollar
value allocation of MEREP awards (Promotion Awards)
– Macquarie Group staff with retained commission
(Commission Awards)
– Macquarie Group staff who receive a discretionary payment
in recognition of contributions over a predetermined period
(Incentive Awards)
– new Macquarie Group staff who commence at Associate
Director, Division Director or Executive Director level and are
awarded a fixed Australian dollar value, depending on level
(New Hire Awards)
– members of the MGL and MBL Executive Committees who
are eligible for PSUs, and
– in limited circumstances, Macquarie staff may receive an
equity grant instead of a remuneration or consideration
payment in cash. Current examples include individuals who
become employees of the Group upon the acquisition of
their employer by a Macquarie Group entity or who receive
an additional award at the time of joining Macquarie (also
referred to above as New Hire Awards).
177
Note 33
Employee equity participation continued
Vesting periods are as follows:
Award type Level Vesting
Retained Profit Share Awards
and Promotion Awards
Below Executive Director 1/3
rd
on or after each 1 July, in the 2
nd
, 3
rd
and 4
th
year
following the year of grant
(1)
Retained DPS Awards
representing 2009 retention
Executive Director 1/5
th
on or after each 1 July, in the 3
rd
, 4
th
, 5
th
, 6
th
and 7
th
year following the year of grant
(2)
Retained DPS Awards for 2010
and all future years’ retention
Executive Committee member and
Designated Executive Director
1/5
th
on or after each 1 July in the 3
rd
, 4
th
, 5
th
, 6
th
and 7
th
year following the year of grant
(2)
Retained DPS Awards for 2010
and all future years’ retention
All other Executive Directors 1/3
rd
on or after each 1 July in the 3
rd
, 4
th
and 5
th
year
following the year of grant
(1)
PSU Awards granted in relation
to 2012 and following years
Executive Committee members 50 percent on or after each 1 July, three and four years
after the year of grant
(3)
PSU Awards granted in relation
to 2009, 2010 and 2011
Executive Committee members 1/3
rd
on or after each 1 July, two, three and four years after
the year of grant
(3)
Pre-2009 DPS Transitioned into
the MEREP
Executive Committee members 1/7
th
each year from 1 July 2010 to 1 July 2016
(2)
Pre-2009 DPS Transitioned into
the MEREP
Executive Directors (other than
those on the Executive Committee)
1/5
th
each year from 1 July 2010 to 1 July 2014
(2)
Commission Awards Below Executive Director 1/3
rd
on or after each 1 July, in the 2
nd
, 3
rd
and 4
th
year
following the year of grant
(1)
Incentive Awards All Macquarie Group staff 1/3
rd
on each first day of a staff trading window on or after
the 2
nd
, 3
rd
and 4
th
anniversaries of the date of allocation
New Hire Awards All Director-level staff 1/3
rd
on each first day of a staff trading window on or after
the 2
nd
, 3
rd
and 4
th
anniversaries of the date of allocation
(1)
Vesting will occur on the first day of a staff trading window following 1 July of the specified year.
(2)
Vesting will occur on the first day of a staff trading window following 1 July of the specified year. If an Executive Director has been on
leave without pay (excluding leave to which the Executive Director may be eligible under local laws) for 12 months or more, the vesting
period may be extended accordingly.
(3)
Subject to achieving certain performance hurdles – refer below.
In limited cases, the Application Form for awards may set out a different vesting period, in which case that period will be the vesting
period for the Award. For example, staff in jurisdictions outside Australia may have a different vesting period due to local regulatory
requirements.
For Retained Profit Share Awards representing 2014 retention, the allocation price was the weighted average price of the Shares
acquired for the 2014 Purchase Period, which was 14 May 2014 to 25 June 2014 inclusive (excluding the period from 22 May to
3 June 2013). That price was calculated to be $59.56 (2013 retention: $43.56).
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
178
Note 33
Employee equity participation continued
Performance Share Units
PSUs will only be released or become exercisable upon the achievement of certain performance hurdles. Only members of the MGL
and MBL Executive Committees are eligible to receive PSUs. For the PSUs allocated to Executive Committee Members, two
performance hurdles have been determined and each will apply individually to 50 percent of the total number of PSUs awarded.
Hurdles are periodically examined by the Board Remuneration Committee (BRC) as part of their ongoing review of the remuneration
approach, to ensure they continue to align the interests of staff and shareholders and provide a challenging but meaningful incentive
to Executive Committee members. The BRC considers historical and forecast market data, the views of corporate governance
bodies, shareholders and regulators as well as peer market practice. No change has been made to the hurdles for FY2015.
The hurdles are outlined below.
Performance hurdle 1
Hurdle
Reference group
Granted after 31 March 2013 Granted on or before 31 March 2013
50 percent of the PSUs based solely on
the relative average annual return on
ordinary equity (ROE) over the vesting
period (three and four years) compared
with a reference group of global peers.
A sliding scale applies with 50 percent
becoming exercisable above the 50
th
percentile and 100 percent vesting at
the 75
th
percentile.
The current reference group
(1)
comprises
Barclays PLC, Bank of America
Corporation, Credit Suisse Group AG,
Deutsche Bank AG, Goldman Sachs
Group Inc., JP Morgan Chase, Lazard
Ltd, Morgan Stanley and UBS AG.
The reference group comprises ANZ
Group Limited, Commonwealth Bank of
Australia, National Australia Bank
Limited, Westpac Banking Corporation,
Suncorp Metway Limited, Bank of
America Corporation, Citigroup Inc,
Credit Suisse Group AG, Deutsche Bank
AG, Goldman Sachs Group AG, JP
Morgan Chase, Morgan Stanley and
UBS AG.
(1)
Jefferies Group Inc. has been excluded from the reference group for awards made from 2013 following its acquisition by Leucadia
National Corp.
Performance hurdle 2
Hurdle
Required result
Granted after 31 March 2013 Granted on or before 31 March 2013
50 percent of the PSUs based solely on
the compound annual growth rate
(CAGR) in earnings per share (EPS) over
the vesting period (three to four years).
A sliding scale applies with 50 percent
becoming exercisable at EPS CAGR of
7.5 percent and 100 percent at EPS
CAGR of 12.0 percent. For example, if
EPS CAGR were 9.75 percent, 75
percent of the Award would become
exercisable.
A sliding scale applies with 50 percent
becoming exercisable at EPS CAGR of
9.0 percent and 100 percent at EPS
CAGR of 13.0 percent. For example, if
EPS CAGR were 11.0 percent, 75
percent of the Award would become
exercisable.
Under both performance hurdles, the objective is to be examined once only, effectively at the calendar quarter end immediately
before vesting. If the condition is not met when examined, the PSUs due to vest will not be exercisable upon vesting.
Other arrangements
There are certain arrangements with employees which take the form of a share-based payment but which are held outside the
MEREP. Employees do not have a legal or beneficial interest in the underlying shares; however the arrangements have the same
economic benefits as those held in MEREP.
Compensation expense relating to these awards for the year ended 31 March 2015 was $0.6 million (2014: $0.4 million).
179
Note 33
Employee equity participation continued
Option Plan
The Company suspended new offers under the MGESOP under the remuneration arrangements which were the subject of
shareholder approvals obtained at the General Meeting of the Company in December 2009. The last grant of Options under the
MGESOP was on 8 December 2009. The Company does not currently expect to issue any further Options under the MGESOP.
At 31 March 2015, there were no (2014: 24) participants in the MGESOP.
The following is a summary of the movement in options granted pursuant to the MGESOP:
Number of
options
2015
Weighted
average
exercise
price
2015
$
Number of
options
2014
Weighted
average
exercise
price
2014
(2)
$
Outstanding at the beginning of the financial year
80,879 48.31 8,725,398 52.63
Adjustment of Options due to 0.9438 for one ordinary share
consolidation
(1)
– – (6,456) 42.79
Forfeited during the financial year – – (1,200) 50.35
Exercised during the financial year (67,664) 48.25 (423,159) 31.72
Lapsed during the financial year (13,215) 48.58 (8,213,704) 53.76
Outstanding at the end of the financial year – – 80,879 48.31
Exercisable at the end of the financial year – – 80,879 48.31
For options exercised during the financial year the weighted average share price at the date of exercise was $59.45 (2014: $46.98).
There are no outstanding options as at 31 March 2015.
(1)
Consolidation applied to Options held in the MGESOP as at the record date for the consolidation.
(2)
Some of the exercise prices reflect the impact of the SYD Distribution, a distribution of the majority of the Group’s investment in SYD
Securities to its ordinary shareholders implemented through a special dividend and a capital reduction along with a consolidation of one
MGL share into 0.9438 of an ordinary share.
The weighted average remaining contractual life for the share options outstanding as at 31 March 2015 was nil (2014: 0.43 years).
The weighted average remaining contractual life when analysed by exercise price range was:
Exercise price range $
Number of
options
2015
Remaining
life (years)
2015
Number of
options
2014
Remaining
life (years)
2014
30-40
– – 22,358 0.25
40-50 – – 15,102 0.56
50-60 – – 43,419 0.49
– – 80,879 0.43
The market value of shares issued during the year as a result of the exercise of these options was $4.02 million (2014:
$19.8 million).
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
180
Note 33
Employee equity participation continued
Employee Share Plan
The Consolidated Entity continues to operate the Macquarie
Group Employee Share Plan (ESP) whereby each financial year
eligible employees are offered up to $1,000 worth of fully paid
ordinary Macquarie shares for no cash payment.
Shares allocated under the ESP cannot be sold until the earlier
of three years after allocation or the time when the participant
is no longer employed by the Company or a subsidiary of the
Company. In all other respects, shares allocated rank equally
with all other fully paid ordinary shares then on issue.
The latest offer under the ESP was made during November
2014. A total of 1,005 (2014: 966) staff participated in this
offer. On 8 December 2014, the participants were each
allocated 16 (2014:18) fully paid ordinary shares based on the
offer amount of $1,000 and the then calculated average
market share price of $ 59.27 (2014: $53.70); a total of 16,080
(2014: 17,388) shares were allocated. The shares were
allocated to staff for no cash consideration. The aggregate
value of the shares allocated was deducted from staff profit
share and commissions.
Historical Share Plans
Shares are no longer being issued under the Staff Share
Acquisition Plan nor the Non-Executive Director Share
Acquisition plan. However employees and Non-Executive
Directors still hold shares issued in previous years.
Other plans
The Consolidated Entity operates other local share-based
compensation plans, none of which, individually or in
aggregate are material.
Consolidated
2015
$m
Consolidated
2014
$m
Company
2015
$m
Company
2014
$m
181
Note 34
Contingent liabilities and commitments
The following contingent liabilities and commitments exclude derivatives.
Contingent liabilities exist in respect of:
Letters of credit 611 558 – –
Guarantees 601 285 3,585 3,413
Performance related contingents 276 342 – –
Indemnities 155 161 – –
Total contingent liabilities
(1), (2)
1,643 1,346 3,585 3,413
Commitments exist in respect of:
Undrawn credit facilities 5,956 4,792 – –
Forward asset purchases 5,712 455 – –
Total commitments
(3)
11,668 5,247 – –
Total contingent liabilities and commitments 13,311 6,593 3,585 3,413
(1)
Contingent liabilities exist in respect of actual and potential claims and proceedings that arise in the conduct of the Consolidated Entity's
business. In the event it is likely that a loss is probable and can be reliably measured then a liability is recognised and the exposure is
excluded from the contingent liabilities above. The Consolidated Entity is currently not engaged in any litigation or claim which is likely to
have a material adverse effect on the Consolidated Entity's business, financial condition or performance.
(2)
The Company guarantees the performance obligation of certain subsidiaries in relation to their external obligations.
(3)
Total commitments also represent contingent assets. Such commitments to provide credit may convert to loans and other assets in the
ordinary course of business.
Note 35
Lease commitments
Non-cancellable operating leases expiring:
Not later than one year 147 170 –
–
Later than one year and not later than five years 570 482 –
–
Later than five years 292 382 –
–
Total operating lease commitments 1,009 1,034 –
–
Operating leases relate to commercial buildings. The future lease commitments disclosed are net of any rental incentives received.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
182
Note 36
Structured entities
The Consolidated Entity engages in various transactions with
SEs. SEs are designed so that voting or similar rights are not
the dominant factor in affecting an investor’s returns (eg
decisions relate to administrative tasks only, and contractual
arrangements determine the direction of activities). Generally,
SEs do not have a range of operating and financing activities for
which substantive decision-making is required continuously.
The Consolidated Entity has interests in SEs that are involved in
securitisations, asset-backed financing structures and
investment funds.
Securitisations
Securitisations involve transferring assets into a vehicle that sells
beneficial interests to investors through the issue of debt and
equity notes with varying levels of subordination. The notes are
collateralised by the assets transferred to these vehicles and
pay a return based on the returns of those assets, with residual
returns paid to the most subordinated investor. These vehicles
are created for securitising assets of the Consolidated Entity or
of its clients.
The Consolidated Entity engages in securitisation of mortgages,
finance leases, credit card receivables and other types of
instruments. The Consolidated Entity may serve as a sponsor,
servicer, underwriter, liquidity provider, derivative counterparty,
purchaser of notes and/or purchaser of residual interest units.
The Consolidated Entity may also provide redraw facilities or
loan commitments to securitisation vehicles.
Income received by the Consolidated Entity during the year
from interests held at the reporting date relates to interest,
management fees, servicing fees, and gains and losses from
revaluing financial instruments.
Asset-backed financing
Asset-backed vehicles are used to provide tailored lending for
the purchase or lease of assets transferred by the Consolidated
Entity or its clients. The assets are normally pledged as
collateral to the lenders.
The Consolidated Entity engages in raising finance for assets
such as aircraft, rail cars, electronic and IT equipment. The
Consolidated Entity may act as a lender, manager, derivative
counterparty, purchaser of notes and/or purchaser of residual
interest units or guarantor.
Income received by the Consolidated Entity during the year
from interests held at the reporting date relates to revaluation of
derivatives, dividends, interest and servicing fees.
Investment funds
SEs formed for the purpose of offering alternative investment
opportunities relate primarily to fund-linked or funds of funds
products. Investment structures are designed to provide
investors with specified returns based on the returns of an
underlying security, referenced asset or index by issuing credit-
linked or equity-linked notes to investors. SEs typically obtain
exposure to the underlying asset or index through a derivative
instrument (eg swaps or call options) and place the remaining
proceeds on deposit to serve as collateral for the derivative.
The Consolidated Entity may act as sponsor, manager, broker,
funder, liquidity provider or derivative counterparty.
Income received by the Consolidated Entity during the year
from interests held at the reporting date relates to management
fees and revaluation of derivatives.
At 31 March 2015, the Consolidated Entity’s interests in
unconsolidated investment funds is immaterial.
Interests held
Interests in unconsolidated SEs include, but are not limited to,
debt and equity investments, guarantees, liquidity agreements,
commitments, fees from investment structures, and fees from
derivative instruments that expose the Consolidated Entity to
the risks of the unconsolidated SE. Interests do not include
plain vanilla derivatives (eg interest rate swaps and currency
swaps) and positions where the Consolidated Entity:
(i) creates rather than absorbs variability of the unconsolidated
SE (eg purchase of credit protection under a credit default
swap)
(ii) acts as underwriter or placement agent, or provides
administrative, trustee or other services to third party
managed SEs, and
(iii) transfers assets and does not have any other interest
deemed to be significant in the SE. Trading positions have
been included in the following table.
183
Note 36
Structured entities continued
The following tables present the carrying value and maximum exposure to loss (before the benefit of collateral and credit
enhancements) of the Consolidated Entity’s interests in unconsolidated SEs as at 31 March:
Nature of activity
Securitisations
$m
Asset-backed
financing
$m
Consolidated 2015
Carrying value of assets
Trading portfolio assets 373 –
Derivative assets 1 11
Investment securities available for sale
(1)
1,692 176
Loan assets held at amortised cost 308 451
Total carrying value of assets 2,374 638
Maximum exposure to loss
Debt and equity held 2,373 627
Derivatives and undrawn commitments 786 55
Total maximum exposure to loss 3,159 682
Nature of activity
Securitisations
$m
Asset-backed
financing
$m
Consolidated 2014
Carrying value of assets
Trading portfolio assets 1,169 –
Derivative assets 4 21
Investment securities available for sale
(1)
2,430 146
Loan assets held at amortised cost 254 270
Total carrying value of assets 3,857 437
Maximum exposure to loss
Debt and equity held 3,853 416
Derivatives and undrawn commitments 882 21
Total maximum exposure to loss 4,735 437
(1)
Securitisations includes $1,198 million (2014: $1,749 million) of investments that are managed by the Consolidated Entity under the
liquid assets holdings policy described in Note 38.2 – Liquidity risk.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
184
Note 36
Structured entities continued
Maximum exposure to loss is the carrying value of debt and
equity held, the undrawn amount for commitments, the
maximum amount guaranteed and the notional amounts of
derivative instruments. The amounts for commitments,
guarantees and derivatives are reduced for any liabilities already
recognised.
Of the above interests, the Consolidated Entity holds $742
million (2014: $846 million) in subordinated interests, with
$234 million (2014: $533 million) included in securitisation
activities and $508 million (2014: $313 million) million included
in asset-backed financing activities. These carrying values also
represent the maximum exposure to loss.
The subordinated securitisation interests are primarily trading
positions that are typically managed under market risk
described in Note 38.3 – Market risk. For these reasons,
information on size and capital structure for these SEs is not
considered meaningful for understanding the related risks, and
so have not been presented.
The subordinated asset-backed interests are included within
derivative assets, investments available for sale and loans,
involve unconsolidated SEs with a total size of $1,668 million
(2014: $1,025 million), and the potential losses borne by others
whose interests rank lower is $9 million (2014: $8 million).
Size represents either the assets of the SE (measured either at
amortised cost excluding impairments or fair values if readily
available); the principal amount of liabilities if there is nominal
equity; or the notional amounts of derivatives if the SE was
designed to primarily obtain exposure synthetically through
derivative instruments. Size is based on the most current
publicly available information to the Consolidated Entity.
Support
MGL has contractually guaranteed the performance obligations
of a consolidated SE that has borrowings from third parties. The
notional value of the guarantee is $2,023 million (2014: $1,672
million), which is included in amounts of MGL guarantees
disclosed in Note 34 – Contingent liabilities and commitments.
For the Consolidated Entity, this contingent liability is replaced
with the SE's borrowing of $1,957 million (2014: $1,616 million)
owing to third parties, included in Note 24 – Debt issued at
amortised cost.
185
Note 37
Derivative financial instruments
Objectives of holding and issuing derivative financial
instruments
The Consolidated Entity is an active price-maker in derivatives
on interest rates, foreign exchange, commodities and equities.
Its objective is to earn profits from the price-making spread and
from managing the residual exposures on hedged positions.
Proprietary position taking is a small part of the Consolidated
Entity’s trading activities. Risks on derivatives are managed
together with all other trading positions in the same market.
All trading positions, including derivatives, are marked to fair
value daily.
The Consolidated Entity also uses derivatives to hedge banking
operations and for asset/liability management. Certain derivative
transactions may qualify as cash flow, fair value or net
investment in foreign operations hedges, if they meet the
appropriate strict hedge criteria outlined in Note 1(xi) –
Summary of significant accounting policies:
Cash flow hedges: The Consolidated Entity is exposed to
volatility in future interest cash flows arising from floating rate
issued debt used to fund fixed rate asset positions. The
aggregate principal balances and interest cash flows across
these portfolios form the basis for identifying the non–trading
interest rate risk of the Consolidated Entity, which is hedged
with interest rate swaps. The Consolidated Entity is also
exposed to foreign currency exchange risk from foreign
currency denominated issued debt which is hedged with cross-
currency swaps.
At 31 March 2015, the fair value of outstanding derivatives held
by the Consolidated Entity and designated as cash flow hedges
was $125 million negative value (2014: $58 million negative
value).
During the year the Consolidated Entity recognised $1.1 million
of losses (2014: $0.6 million gains) in the income statement due
to hedge ineffectiveness on cash flow hedges.
Fair value hedges: The Consolidated Entity’s fair value hedges
consist of:
– interest rate swaps used to hedge against changes in the
fair value of fixed rate assets and liabilities as a result of
movements in benchmark interest rates, and
– foreign exchange forward contracts used to hedge against
changes in the fair value of foreign denominated equity
instruments as a result of movements in market foreign
exchange rates.
As at 31 March 2015, the fair value of outstanding derivatives
held by the Consolidated Entity and designated as fair value
hedges was $74 million negative value (2014: $211 million
positive value).
During the year fair value losses on the hedging instruments of
$285 million have been recognised (2014: $82 million losses),
offset by $301 million (2014: $86 million gains) of gains on the
hedged item.
Net investment in foreign operations hedges: The
Consolidated Entity has designated derivatives and borrowings
as hedges of its net investment for foreign exchange risk arising
from its foreign operations.
At 31 March 2015, the fair value of outstanding derivatives held
by the Consolidated Entity and designated as net investment in
foreign operations hedges was $237 million negative value
(2014: $182 million negative value). During the year the
Consolidated Entity recognised $nil (2014: $nil) in the income
statement due to hedge ineffectiveness on net investment
hedges.
A proportion of the Consolidated Entity’s borrowings amounting
to $6,208 million (2014: $5,449 million) is designated as a
hedge of its net investment in foreign operations. The foreign
exchange loss of $911 million (2014: $223 million losses) on
translation of the foreign currency borrowing to Australian
Dollars at the end of the reporting period is recognised in other
comprehensive income.
The types of derivatives which the Consolidated Entity trades
and uses for hedging purposes are detailed below:
Futures: Futures contracts provide the holder with the
obligation to buy a specified financial instrument or commodity
at a fixed price and fixed date in the future. Contracts may be
closed early via cash settlement. Futures contracts are
exchange traded.
Forwards and forward rate agreements: Forward contracts,
which resemble futures contracts, are an agreement between
two parties that a financial instrument or commodity will be
traded at a fixed price and fixed date in the future. A forward
rate agreement provides for two parties to exchange interest
rate differentials based on an underlying principal amount at a
fixed date in the future.
Swaps: Swap transactions provide for two parties to swap a
series of cash flows in relation to an underlying principal
amount, usually to exchange a fixed interest rate for a floating
interest rate. Cross currency swaps provide a tool for two
parties to manage risk arising from movements in exchange
rates.
Options: Option contracts provide the holder the right to buy or
sell financial instruments or commodities at a fixed price over an
agreed period or on a fixed date. The contract does not oblige
the holder to buy or sell, however the writer must perform if the
holder exercises the rights pertaining to the option.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
186
Note 38
Financial risk management
Risk Management Group
Risk is an integral part of the Consolidated Entity’s businesses.
The main risks faced by the Consolidated Entity are credit,
market, equity, operational, liquidity, regulatory, compliance,
legal, insurance, tax and reputational risk. Responsibility for
management of these risks lies with the individual businesses
giving rise to them. RMG independently assesses all material
risks.
RMG is independent of all other areas of the Consolidated
Entity. The Head of RMG, as Macquarie’s Chief Risk Officer, is
a member of the Executive Committee of MGL and MBL and
reports directly to the Managing Director and Chief Executive
Officer with a secondary reporting line to the Board Risk
Committee. RMG authority is required for all material risk
acceptance decisions. RMG identifies, quantifies and assesses
all material risks and sets prudential limits. Where appropriate,
these limits are approved by the Executive Committee and the
Board.
187
Note 38.1
Credit risk
Credit risk is defined as the risk of a counterparty failing to
complete its contractual obligations when they fall due. The
consequent loss is either the amount of the loan not paid
back, or the loss incurred in replicating a trading contract
with a new counterparty.
The responsibility for approval of credit exposures is
delegated to specific individuals by the Board. Credit risk
analysis is focused on ensuring that risks have been fully
identified and that the downside risk is properly understood
and acceptable. After this analysis is undertaken, limits are
set for an acceptable level of potential exposure. All
wholesale limits and ratings are reviewed at least once a
year, or more frequently if necessary. Retail credit exposures
are monitored on a portfolio basis.
All credit exposures are monitored regularly against limits.
Credit exposures for loans are evaluated as either the full
current face value or, for distressed debt, the acquisition
cost when acquired in the secondary market. Exposures for
derivatives depend on potential future asset prices. To
mitigate credit risk, the Consolidated Entity makes use of
margining and other forms of collateral or credit
enhancement techniques (including guarantees, letters of
credit, the purchase of credit default swaps and mortgage
insurance) where appropriate.
All wholesale exposures are allocated to a Macquarie rating
on a scale that broadly corresponds to Standard & Poor’s
and Moody’s Investor Services credit ratings. Each
Macquarie rating maps to a Probability of Default estimate.
All wholesale counterparties and certain individual facilities
are assigned a Loss Given Default estimate reflecting the
estimated economic loss in the event of default occurring.
Macquarie wholesale ratings broadly correspond to Standard
& Poor’s credit ratings as follows:
Credit Grading Internal Rating
External
Equivalent
Investment Grade MQ1 to MQ8 AAA to BBB-
Below Investment Grade MQ9 to MQ16 BB+ to C
Default MQ99 Default
All loan assets are subject to recurring review and
assessment for possible impairment. Where there is a
deteriorating credit risk profile, the exposures are monitored
on a monthly basis through the CreditWatch reports. The
business remains responsible for the management of the
counterparty and of the risk position, but RMG oversight is
increased to ensure that positions are managed for optimal
outcomes. When counterparties default, RMG and the
business work together to resolve the issues and ensure
provisioning is adequate.
A review of the credit portfolio that involves monitoring credit
concentrations by counterparty, country, risk type, industry
and credit quality is carried out quarterly and reported to the
Board semi-annually. Policies are in place to regulate large
exposures to single counterparties or groups of
counterparties.
The Consolidated Entity has a country risk framework which
covers the assessment of country risk and the approval of
country risk limits. Where appropriate the country risk is
covered by political risk insurance.
The balances disclosed in the credit risk tables below
exclude financial assets that are subject to risks other than
credit risk, such as equity investments, commodities,
interests in associates and joint ventures or bank notes and
coins.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
188
Note 38.1
Credit risk continued
Maximum exposure to credit risk
The table below details the concentration of credit exposure of the Consolidated Entity’s assets to significant geographical locations
and counterparty types. The amounts shown represent the maximum credit risk of the Consolidated Entity's assets before the
benefit of collateral and credit enhancements.
Receivables
from financial
institutions
$m
Trading
portfolio
assets
$m
Derivative
assets
$m
Debt
investment
securities
available
for sale
$m
Australia
Governments – 4,208 534 1,166
Financial institutions 4,161 200 606 3,303
Other – 2 1,221 116
Total Australia 4,161 4,410 2,361 4,585
Asia Pacific
Governments – 651 1 91
Financial institutions 3,558 876 354 224
Other – 461 348 –
Total Asia Pacific 3,558 1,988 703 315
Europe, Middle East and Africa
Governments – – 84 –
Financial institutions 7,882 438 5,132 471
Other – 57 7,300 468
Total Europe, Middle East and Africa 7,882 495 12,516 939
Americas
Governments – 1,557 159 –
Financial institutions 13,104 344 2,064 168
Other – 682 2,277 445
Total Americas 13,104 2,583 4,500 613
Total gross credit risk 28,705 9,476 20,080 6,452
189
Other financial
assets
$m
Loan assets held at
amortised cost
$m
Other financial assets
at fair value through
profit or loss
$m
Credit commitments
and contingent
liabilities
$m
Total
$m
Consolidated 2015
2 61 – – 5,971
64 909 – 256 9,499
1,674 42,282 291 2,062 47,648
1,740 43,252 291 2,318 63,118
– 9 76 – 828
– 507 – 33 5,552
2,479 754 – 109 4,151
2,479 1,270 76 142 10,531
– 6 20 – 110
– 2,694 355 467 17,439
3,888 8,225 48 6,604 26,590
3,888 10,925 423 7,071 44,139
– 110 – – 1,826
– 5,330 62 1,267 22,339
3,129 11,875 197 2,513 21,118
3,129 17,315 259 3,780 45,283
11,236 72,762 1,049 13,311 163,071
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
190
Note 38.1
Credit risk continued
Maximum exposure to credit risk continued
Receivables
from financial
institutions
$m
Trading
portfolio
assets
$m
Derivative
assets
$m
Debt
investment
securities
available
for sale
$m
Australia
Governments – 5,715 324 2,494
Financial institutions 5,445 88 872 6,072
Other – 56 407 95
Total Australia 5,445 5,859 1,603 8,661
Asia Pacific
Governments – 694 6 43
Financial institutions 2,111 466 312 522
Other – 336 128 10
Total Asia Pacific 2,111 1,496 446 575
Europe, Middle East and Africa
Governments – 52 53 53
Financial institutions 6,143 229 4,534 1,225
Other – 47 2,302 412
Total Europe, Middle East and Africa 6,143 328 6,889 1,690
Americas
Governments – 1,008 22 –
Financial institutions 5,758 714 2,135 716
Other – 528 1,538 404
Total Americas 5,758 2,250 3,695 1,120
Total gross credit risk 19,457 9,933 12,633 12,046
191
Note 38.1
Credit risk continued
Maximum exposure to credit risk continued
Other financial
assets
$m
Loan assets held at
amortised cost
$m
Other financial assets
at fair value through
profit or loss
$m
Credit commitments
and contingent
liabilities
$m
Total
$m
Consolidated 2014
1 60 – 1 8,595
37 443 – 300 13,257
1,173 32,920 578 1,976 37,205
1,211 33,423 578 2,277 59,057
– 6 61 – 810
– 319 – 108 3,838
2,543 567 10 139 3,733
2,543 892 71 247 8,381
– 6 21 – 185
– 3,940 515 643 17,229
2,413 4,589 67 712 10,542
2,413 8,535 603 1,355 27,956
– 127 – – 1,157
– 4,053 10 503 13,889
4,210 11,682 250 2,211 20,823
4,210 15,862 260 2,714 35,869
10,377 58,712 1,512 6,593 131,263
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
192
Note 38.1
Credit risk continued
Maximum exposure to credit risk continued
Other financial
assets
$m
Due from
subsidiaries
$m
Credit commitments
and contingent
liabilities
$m
Total
$m
Australia
Company 2015
Other
8 10,255 475 10,738
Total Australia
8 10,255 475 10,738
Asia Pacific
Other
– 38 409 447
Total Asia Pacific
– 38 409 447
Europe, Middle East and Africa
Financial institutions
– – 58 58
Other
– 2 495 497
Total Europe, Middle East and Africa
– 2 553 555
Americas
Other
– 66 2,148 2,214
Total Americas
– 66 2,148 2,214
Total gross credit risk 8 10,361 3,585 13,954
Australia
Company 2014
Other
16 8,600 506 9,122
Total Australia
16 8,600 506 9,122
Asia Pacific
Other
– 54 334 388
Total Asia Pacific
– 54 334 388
Europe, Middle East and Africa
Other
– 2 796 798
Total Europe, Middle East and Africa
– 2 796 798
Americas
Other
– 55 1,777 1,832
Total Americas
– 55 1,777 1,832
Total gross credit risk 16 8,711 3,413 12,140
193
Note 38.1
Credit risk continued
Collateral and credit enhancements held
Receivables from financial institutions
Cash collateral on securities borrowed and reverse repurchase
agreements balance is included in receivables from financial
institutions.
Securities borrowed and reverse repurchase agreements are
fully collateralised with highly liquid securities as they require
collateral to be in excess of the loaned amount.
Loan assets held at amortised cost
Residential mortgage loans
Residential mortgages are secured by fixed charges over a
borrower’s property. Further, Macquarie obtains lender’s
mortgage insurance (LMI) to cover the majority of the mortgage
portfolio to protect against a potential shortfall between the
value of a repossessed property sold and the loan outstanding,
including accrued interest. Substantially all the Americas
portfolio consists of Canadian mortgages. Included in the
mortgage loan balance is $17,207 million (2014: $14,025
million) which have been securitised by consolidated SPEs.
Further, $1,854 million (2014: $3,853 million) are held by either
a government-backed securitisation vehicle or financial
institutions, not consolidated by the Consolidated Entity.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
194
Note 38.1
Credit risk continued
The tables below provide information on loan to value ratios (LVRs) determined using current loan balances and the valuation at the
time the mortgage was financed.
2015 2014
Australia
$m
Americas
$m
EMEA
$m
Australia
$m
Americas
$m
EMEA
$m
Fully collateralised
Loan to value ratio
Less than 25% 937 36 – 212 13 –
25% to 50% 3,261 226 – 1,222 161 244
51% to 75% 8,762 1,539 720 4,429 902 207
76% to 90% 10,293 1,534 – 8,716 2,630 32
91% to 100% 1,626 467 – 2,324 1,813 –
Partly collateralised 15 2 – 6 2 –
Total mortgages 24,894 3,804 720 16,909 5,521 483
Relationship banking mortgages
In addition, and separately to, the residential mortgages portfolios above, Macquarie Relationship Banking provides residential and
commercial mortgages to clients in Australia, usually high net worth individuals. These loans are secured by fixed charges over the
borrowers’ property. Of the mortgage balance of $2,064 million (2014: $1,199 million), $166 million (2014: $109 million) has a LVR
of 50 percent or less, $983 million (2014: $615 million) has a LVR of between 50 and 75 percent and $894 million (2014: $462
million) has a LVR of between 75 and 100 percent. $21 million (2014: $13 million) is only partly secured by real estate with a LVR
greater than 100 percent.
Investment and insurance premium lending
Macquarie lends to clients for investment, and insurance premium financing. Where Macquarie lends for investment, Macquarie
holds the investment as collateral. For insurance premium loans, the loan is collateralised by the right to receive the pro-rata return
premium for the underlying insurance policies, where the policy is cancellable. Where the policy is non-cancellable, recourse is to
the obligor in the first instance. Of the investment and insurance premium lending portfolio of $1,671 million (2014: $1,126 million),
$1,626 million (2014: $728 million) is fully collateralised.
Lease and retail financing
Macquarie leases assets and provides retail financing, predominantly motor vehicles, to corporate and retail clients. Titles to the
underlying fixed assets are held by Macquarie as collateral. Of the lease and retail finance portfolio of $11,435 million (2014:
$10,997 million), the credit exposure after considering the depreciated value of collateral is $5,527 million (2014: $3,110 million).
Corporate and commercial term lending
Collateral held against corporate and commercial lending consists of secured positions over assets of the counterparty, often in the
form of commercial property and land rights. Of the term lending of $19,025 million (2014: $15,856 million), the credit exposure
after the estimated value of collateral and credit enhancements is $4,802 million (2014: $3,341 million).
Additional collateral
Macquarie excludes other types of collateral, such as unsupported guarantees and floating charges over the assets of a customer’s
business. While such mitigants have value, often providing rights in insolvency, their assignable values are uncertain and therefore
are assigned no value for disclosure purposes.
Other financial assets at fair value through profit or loss
Included in Other financial assets at fair value through profit or loss is financing provided to clients for investing, which had a carrying
value at balance date of $268 million (2014: $644 million). This amount is secured by the underlying securities investments or cash
deposits of the investors.
195
Note 38.1
Credit risk continued
Derivative financial instruments
Derivatives may be traded on an exchange (exchange
traded) or they may be privately negotiated contracts, which
are usually referred to as Over The Counter (OTC)
derivatives. Certain of the Group’s OTC derivatives are
cleared and settled through central clearing counterparties
(OTC-cleared), while others are bilateral contracts between
two counterparties.
Exchange traded and OTC-cleared derivative contracts have
reduced credit risk as our counterparty is a clearing house
that is responsible for risk managing their members to
ensure the clearing house has adequate resources to fulfill its
obligations when they become due. Members are required to
provide initial margins in accordance with the exchange rules
in the form of cash or securities, and provide daily variation
margins in cash to cover changes in market values. Further,
all members are generally required to contribute to (and
guarantee) the compensation or reserve fund which may be
used in the event of default and shortfall of a member.
Macquarie has exchange traded derivatives with positive
replacement values (and for which counterparties would
have had to place margin) as at 31 March 2015 of $4,641
million (2014: $2,565 million). Macquarie has also placed
margins on House and Client positions with exchanges, the
balance at 31 March 2015 being $5,063 million (2014:
$2,831 million), which are recorded in Receivables from
financial institutions and Loan assets held at amortised cost.
For OTC derivative contracts, Macquarie often has master
netting agreements (usually ISDA Master Agreements) with
certain counterparties to manage the credit risk. The credit
risk associated with positive replacement value contracts is
reduced by master netting arrangements that in an event of
default requires balances with a particular counterparty
covered by the agreement (eg derivatives and cash margins)
to be terminated and settled on a net basis. Macquarie also
often executes a Credit Support Annex in conjunction with a
master netting agreement, which facilitates the transfer of
margin between parties during the term of arrangements, to
mitigate counterparty risk arising from changes in market
values of the derivatives.
As at 31 March 2015, Macquarie held OTC contracts with a
positive replacement value of $15,505 million (2014: $10,153
million). The credit risk of these contracts is reduced due to
master netting agreements covering negative OTC contracts
of $8,753 million (2014: $6,235 million) and margins held
(excluding the impact of over-collateralisation) of $1,738
million (2014: $1,167 million). In addition, Macquarie has
placed collateral of $2,386 million (2014: $1,643 million)
which has immaterial credit risk as this is offset by the related
negative OTC contracts.
Debt investments securities available for sale
Included in this balance are holdings of $225 million (2014:
$255 million) secured by specified Australian and Canadian
assets under covered bonds.
Other assets
Security settlements of $6,722 million (2014: $6,094 million)
are included in Other assets, which represent amounts owed
by an exchange (or a client) for equities sold (or bought on
behalf of a client). Macquarie holds the underlying equity
security or cash until settled, which is usually less than 3
days after trade.
Credit commitments and contingent liabilities
Of the Undrawn facilities and lending commitments of
$6,598 million (2014: $4,792 million), $2,754 million (2014:
$2,129 million) are fully secured by underlying specific
assets.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
196
Note 38.1
Credit risk continued
Credit quality of financial assets
The table below shows the credit quality by class of financial asset (based upon ultimate risk counterparty) for credit exposures,
based on the Consolidated Entity’s credit rating system.
Credit quality – Consolidated 2015
Neither past due nor impaired
Past due or
individually
impaired
$m
Total
$m
Investment
Grade
$m
Below
Investment
Grade
$m
Default
$m
Unrated
$m
Receivables from financial
institutions
25,535 3,166 4 – – 28,705
Trading portfolio assets
9,476
Governments 6,416 – – – – 6,416
Financial institutions 1,387 407 64 – – 1,858
Other 436 579 187 – – 1,202
Derivative assets
20,080
Governments 769 9 – – – 778
Financial institutions 7,916 231 9 – – 8,156
Other 7,286 3,789 71 – – 11,146
Debt investment securities
available for sale
6,452
Governments 1,257 – – – – 1,257
Financial institutions 4,122 44 – – – 4,166
Other 93 814 – – 122 1,029
Other financial assets
11,236
Governments – – – – 2 2
Financial institutions – – – – 64 64
Other 8,879 2,019 – 141 131 11,170
Loan assets held at amortised
cost
72,762
Governments 174 12 – – – 186
Financial institutions 7,147 2,268 13 – 12 9,440
Other 33,411 26,940 – – 2,785 63,136
Other financial assets at fair
value through profit or loss
1,049
Governments 96 – – – – 96
Financial institutions 357 60 – – – 417
Other 22 498 – – 16 536
Total 105,303 40,836 348 141 3,132 149,760
Included in the past due category are balances in which an amount was overdue by one day or more.
197
Note 38.1
Credit risk continued
Credit quality of financial assets
The table below shows the credit quality by class of financial asset (based upon ultimate risk counterparty) for credit exposures,
based on the Consolidated Entity’s credit rating system.
Credit quality – Consolidated 2014
Neither past due nor impaired
Past due or
individually
impaired
$m
Total
$m
Investment
Grade
$m
Below
Investment
Grade
$m
Default
$m
Unrated
$m
Receivables from
financial institutions
17,478 1,963 16 – – 19,457
Trading portfolio assets
9,933
Governments 7,417 52 – – – 7,469
Financial institutions 913 548 36 – – 1,497
Other 441 389 137 – – 967
Derivative assets
12,633
Governments 404 1 – – – 405
Financial institutions 7,579 274 – – – 7,853
Other 2,985 1,390 – – – 4,375
Debt investment securities
available for sale
12,046
Governments 2,590 – – – – 2,590
Financial institutions 8,453 82 – – – 8,535
Other 136 784 – – 1 921
Other financial assets
10,377
Governments – – – – 1 1
Financial institutions – – – – 37 37
Other 6,649 2,895 20 610 165 10,339
Loan assets held at amortised
cost
58,712
Governments 187 12 – – – 199
Financial institutions 5,093 3,406 256 – – 8,755
Other 24,851 22,995 227 – 1,685 49,758
Other financial assets at fair
value through profit or loss
1,512
Governments 82 – – – – 82
Financial institutions 508 17 – – – 525
Other 32 854 – – 19 905
Total 85,798 35,662 692 610 1,908 124,670
Included in the past due category are balances in which an amount was overdue by one day or more.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
198
Note 38.1
Credit risk continued
The table below shows the credit quality by class of financial asset (based upon ultimate risk counterparty) for credit exposures,
based on the Consolidated Entity’s credit rating system.
Credit quality – Company 2015
Neither past due nor impaired
Past due or
individually
impaired
$m
Total
$m
Investment
Grade
$m
Below
Investment
Grade
$m
Default
$m
Unrated
$m
Other assets
Other 6 2 – – – 8
Due from subsidiaries
Other 10,259 – – 102 – 10,361
Total 10,265 2 – 102 – 10,369
Included in the past due category are balances in which an amount was overdue by one day or more.
Credit quality – Company 2014
Neither past due nor impaired
Past due or
individually
impaired
$m
Total
$m
Investment
Grade
$m
Below
Investment
Grade
$m
Default
$m
Unrated
$m
Other assets
Other 3 – – 13 – 16
Due from subsidiaries
Other 8,585 – – 126 – 8,711
Total 8,588 – – 139 – 8,727
Included in the past due category are balances in which an amount was overdue by one day or more.
199
Note 38.1
Credit risk continued
Ageing analysis of assets past due but not impaired and impaired assets
Class of financial asset
Past due but not impaired
Impaired
$m
Total
$m
Less than 30
days
$m
31 to 60
days
$m
61 to 90
days
$m
More than
90 days
$m
Debt investment securities
available for sale
Consolidated 2015
Other – – – 122 – 122
Other assets
Government 1 1 – – – 2
Financial institutions 63 1 – – – 64
Other 73 13 4 10 31 131
Loan assets held at amortised cost
Financial institutions 5 4 3 – – 12
Other 782 185 72 1,152 594 2,785
Other financial assets at fair value
through profit or loss
Other 13 1 – – 2 16
Total 937 205 79 1,284 627 3,132
Debt investment securities
available for sale Consolidated 2014
Other – – – – 1 1
Other assets
Government 1 – – – – 1
Financial institutions 35 1 1 – – 37
Other 75 27 20 2 41 165
Loan assets held at amortised cost
Other 752 166 62 340 365 1,685
Other financial assets at fair value
through profit or loss
Other 3 3 1 4 8 19
Total 866 197 84 346 415 1,908
A facility is considered to be past due when a contractual payment falls overdue by one or more days. When a facility is classified as
past due, the entire facility balance after provisions is disclosed in the past due analysis.
The factors taken into consideration by the Consolidated Entity when determining whether an asset is impaired are set out in
Note 1(xiv) – Summary of significant accounting policies.
Of the collateral held against past due and impaired balances for loan assets held at amortised cost, $1,058 million
(2014: $966 million) relates to collateral held against past due and impaired balances on residential mortgage facilities that are
covered by mortgage insurance. A mortgage insurance claim will only be made in an instance where there is an outstanding
balance on the mortgage facility after the receipt of proceeds on the disposal of the property held as security. The remaining
collateral is made up of assets held as collateral against other loan and receivable balances.
The collateral held against past due and impaired balances for other assets represents equity securities held as security against
failed trade settlements.
Repossessed collateral
In the event of customer default on facilities, the Consolidated Entity may take possession of real estate or other assets held as
security. As at 31 March 2015, the Consolidated Entity has taken possession of fixed assets and property assets with a carrying
value of $79 million (2014: $178 million). These assets are in the process of being sold.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
200
Note 38.2
Liquidity risk
Liquidity management
The Consolidated Entity’s liquidity risk management
framework ensures that it is able to meet its funding
requirements as they fall due under a range of market
conditions.
Liquidity management is performed centrally by Group
Treasury, with oversight from the Asset and Liability
Committee and RMG. The Consolidated Entity’s liquidity
policies are approved by the Board after endorsement by the
Asset and Liability Committee and liquidity reporting is
provided to the MGL and MBL Boards on a monthly basis.
The Asset and Liability Committee includes the CEO, MBL
CEO, the CFO, Chief Risk Officer, Group Treasurer and
Business Group Heads.
RMG provides independent prudential oversight of liquidity
risk management, including the validation of liquidity scenario
assumptions, liquidity policies, and the required funding
maturity profile.
Liquidity policy
MGL provides funding predominantly to the Non-Banking
Group. As such, the MGL liquidity policy outlines the liquidity
requirements for the Non-Banking Group. MGL’s risk
appetite is to be able to meet all of its liquidity obligations
during a period of liquidity stress: a 12 month period with no
access to funding markets and with only a limited reduction
in franchise businesses.
Reflecting the longer term nature of the Non-Banking Group
asset profile, MGL is funded predominantly with a mixture of
capital and long-term wholesale funding.
The MBL liquidity policy outlines the liquidity requirements for
the Banking Group. MBL’s risk appetite is to be able to meet
all of its liquidity obligations during a period of liquidity stress:
a 12 month period of constrained access to funding markets
and with only a limited reduction in franchise businesses.
MBL is funded mainly by capital, long-term liabilities and
deposits.
Scenario analysis
Scenario analysis is central to the Consolidated Entity’s
liquidity risk management framework. Group Treasury
models a number of liquidity scenarios covering both
market-wide and firm-specific crises. The objective of this
modelling is to ensure the Consolidated Entity’s ability to
meet all repayment obligations under each scenario and to
determine the capacity for asset growth.
The scenarios separately consider the requirements of the
Banking Group, Non-Banking Group and the Consolidated
Entity. They are run over a number of timeframes and a
range of conservative assumptions are used including the
level of access to capital markets, deposit outflows,
contingent funding requirements and asset sales.
Liquid asset holdings
MGL’s internal scenario projections determine the expected
minimum cash requirement during a combined market-wide
and firm-specific crisis scenario over a 12 month timeframe.
This scenario assumes no access to new funding sources, a
significant loss of deposits and contingent funding outflows
resulting from undrawn commitments, market moves
impacting derivatives and other margined positions. The size
of the liquid asset portfolio must exceed the minimum
requirement as calculated in this model at all times.
Group Treasury maintains a portfolio of highly liquid
unencumbered assets in the Consolidated Entity to ensure
adequate liquidity is available in all funding environments,
including worst case wholesale and retail market conditions.
MGL’s minimum level of cash and liquid assets is calculated
with reference to internal scenario projections and minimum
regulatory requirements.
Liquidity contingency plan
Group Treasury maintains a liquidity contingency plan. The
liquidity contingency plan applies to the entire Consolidated
Entity and defines roles and responsibilities and actions to be
taken in a liquidity event. This includes identification of key
information requirements and appropriate communication
plans with both internal and external parties.
Specifically, the plan details factors that may constitute a
crisis, the officer responsible for enacting the contingency
management, a committee of senior executives who would
be responsible for managing a crisis, the information required
to effectively manage a crisis, a public relations strategy, a
high level check list of possible actions to conserve or raise
additional liquidity and contact lists to facilitate prompt
communication with all key internal and external
stakeholders. The liquidity contingency plan is subject to
regular review (at least annually) by both Group Treasury and
RMG and is submitted to the Board for approval.
201
Note 38.2
Liquidity risk continued
Macquarie is a global financial institution, with branches and subsidiaries in a variety of countries. Regulations in certain countries
may require some branches or subsidiaries to have specific local contingency plans. Where that is the case, the liquidity
contingency plan contains a supplement providing the specific information required for those branches or subsidiaries.
Funds transfer pricing
An internal funds transfer pricing framework is in place that has been designed to produce appropriate incentives for business
decision-making by reflecting the true funding costs arising from business actions. Under this framework, each business is allocated
the full cost of the funding required to support its products and business lines, recognising the actual and contingent funding-related
exposures their activities create for the group as a whole. Businesses that raise funding are compensated at a level that is
appropriate for the liquidity benefit provided by the funding.
Contractual undiscounted cash flows
The following tables summarise the maturity profile of the Consolidated Entity’s financial liabilities as at 31 March based on
contractual undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were given
immediately. However, the Consolidated Entity expects that many customers will not request repayment on the earliest date the
Consolidated Entity could be required to pay. Deposits are reported at their contractual maturity – the table does not reflect the
expected cash flows indicated by the Consolidated Entity’s deposit retention history.
Derivatives (other than those designated in a hedging relationship) and trading portfolio liabilities are included in the ‘less than 3
months’ column at their fair value. Liquidity risk on these items is not managed on the basis of contractual maturity, since they are
not held for settlement according to such maturity and will frequently be settled in the short term at fair value. Derivatives designated
in a hedging relationship are included according to their contractual maturity.
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Total
$m
Consolidated 2015
Trading portfolio liabilities – 5,295 – – – 5,295
Derivative financial instruments (trading) – 17,430 – – – 17,430
Derivative financial instruments (hedging
relationship)
Contractual amounts payable – 4,865 3,514 10,294 2,820 21,493
Contractual amounts receivable – (4,795) (3,163) (9,871) (2,595) (20,424)
Deposits 39,102 4,466 3,287 608 21 47,484
Other financial liabilities
(1)
– 11,572 – – – 11,572
Payables to financial institutions 9,124 5,182 668 3,584 565 19,123
Other financial liabilities at fair value through profit
or loss – 153 170 361 1,175 1,859
Debt issued at amortised cost
(2)
3 10,209 11,624 31,017 22,421 75,274
Loan Capital
(3)
– 147 744 2,129 2,270 5,290
Total undiscounted cash flows
48,229 54,524 16,844 38,122 26,677 184,396
Contingent liabilities – 1,643 – – – 1,643
Commitments
620 5,001 5,213 825 9 11,668
Total undiscounted contingent liabilities and
commitments
(4)
620 6,644 5,213 825 9 13,311
(1)
Excludes items that are not financial instruments and non-contractual accruals and provisions.
(2)
Included in this balance is $25,861 million (2014: $19,139 million) payable to SPE note holders. The contractual maturity of the notes is
dependent on the repayment of the underlying loans included in loan assets held at amortised cost. The contractual maturity of the
underlying loans is reflected in the maturity analysis.
(3)
Included in this balance are securities with conditional repayment obligations. These securities are disclosed using repricing dates
instead of contractual maturity. For contractual maturity of these securities, refer to Note 27 – Loan capital.
(4)
Cash flows on contingent liabilities and commitments are dependent on the occurrence of various future events and conditions, and
may or may not result in an outflow of resources. These are reported in the ‘less than 3 months’ column unless the contractual terms
specify a longer dated cash flow.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
202
Note 38.2
Liquidity risk continued
Contractual undiscounted cash flows continued
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Total
$m
Consolidated 2014
Trading portfolio liabilities – 2,762 – – – 2,762
Derivative financial instruments (trading) – 11,537 – – – 11,537
Derivative financial instruments (hedging
relationship)
Contractual amounts payable – 2,467 2,222 5,649 620 10,958
Contractual amounts receivable – (2,374) (2,303) (5,795) (706) (11,178)
Deposits 32,631 5,124 4,290 460 14 42,519
Other financial liabilities
(1)
– 11,111 – – – 11,111
Payables to financial institutions 4,809 10,005 586 3,713 919 20,032
Other financial liabilities at fair value
through profit or loss – 538 342 315 303 1,498
Debt issued at amortised cost
(2)
– 8,783 9,659 19,548 17,453 55,443
Loan Capital
(3)
– 115 171 2,028 2,189 4,503
Total undiscounted cash flows 37,440 50,068 14,967 25,918 20,792 149,185
Contingent liabilities – 1,346 – – – 1,346
Commitments – 4,659 199 384 5 5,247
Total undiscounted contingent liabilities and
commitments
(4)
– 6,005 199 384 5 6,593
(1)
Excludes items that are not financial instruments and non-contractual accruals and provisions.
(2)
Included in this balance is $19,139 million payable to SPE note holders. The contractual maturity of the notes is dependent on the
repayment of the underlying loans included in loan assets held at amortised cost. The contractual maturity of the underlying loans is
reflected in the maturity analysis.
(3)
Included in this balance are securities with conditional repayment obligations. These securities are disclosed using repricing dates
instead of contractual maturity. For contractual maturity of these securities, refer to Note 27 – Loan capital.
(4)
Cash flows on contingent liabilities and commitments are dependent on the occurrence of various future events and conditions, and
may or may not result in an outflow of resources. These are reported in the ‘less than 3 months’ column unless the contractual terms
specify a longer dated cash flow.
203
Note 38.2
Liquidity risk continued
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Total
$m
Company 2015
Deposits – – 18 – – 18
Other financial liabilities
(1)
– 3 – – – 3
Payables to financial institutions – 11 34 2,691 – 2,736
Due to subsidiaries
(2)
274 49 – 177 44 544
Debt issued at amortised cost – 79 272 5,635 1,485 7,471
Loan Capital
(3)
– 17 17 686 – 720
Total undiscounted cash flows 274 159 341 9,189 1,529 11,492
Contingent liabilities
– 3,585 – – – 3,585
Total undiscounted contingent
liabilities
(4)
– 3,585 – – – 3,585
Company 2014
Deposits – 33 – – – 33
Other financial liabilities
(1)
– 2 – – – 2
Payables to financial institutions – 6 17 1,393 – 1,416
Due to subsidiaries
(2)
484 2 1 65 – 552
Debt issued at amortised cost – 128 1,299 3,154 3,014 7,595
Loan Capital
(3)
– 17 17 719 – 753
Total undiscounted cash flows 484 188 1,334 5,331 3,014 10,351
Contingent liabilities
– 3,413 – – – 3,413
Total undiscounted contingent
liabilities
(4)
– 3,413 – – – 3,413
(1)
Excludes items that are not financial instruments and non-contractual accruals and provisions.
(2)
Excludes items that are not financial instruments and non-contractual prepayments.
(3)
Included in this balance are securities with conditional repayment obligations. These securities are disclosed using repricing dates
instead of contractual maturity. For contractual maturity of these securities, refer to Note 27 – Loan capital.
(4)
Cash flows on contingent liabilities are dependent on the occurrence of various future events and conditions, and may or may not result
in an outflow of resources. These are reported in the ‘less than 3 months’ column unless the contractual terms specify a longer dated
cash flow.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
204
Note 38.3
Market risk
Market risk is the exposure to adverse changes in the value of the Consolidated Entity's trading portfolios as a result of changes in
market prices or volatility. The Consolidated Entity is exposed to the following risks in each of the major markets in which it trades:
– foreign exchange and bullion: changes in spot and forward exchange rates and bullion prices and the volatility of exchange
rates and bullion prices
– interest rates and debt securities: changes in the level, shape and volatility of yield curves, the basis between different debt
securities and derivatives and credit margins
– equities: changes in the price and volatility of individual equities, equity baskets and equity indices, and
– commodities and energy: changes in the price and volatility of base metals, agricultural commodities and energy products;
and to the correlation of market prices and rates within and across markets.
It is recognised that all trading activities contain calculated elements of risk taking. The Consolidated Entity is prepared to accept
such risks provided they are within agreed limits, independently and correctly identified, calculated and monitored by RMG, and
reported to senior management on a regular basis.
RMG monitors positions within the Consolidated Entity according to a limit structure which sets limits for all exposures in all
markets. Limits are for both individual trading desks and divisions as well as in aggregate. Trigger limits for the Consolidated Entity
as a whole ensure that if several trading book limits are being used simultaneously, the aggregate level of risk is in line with the
global risk appetite articulated in the economic capital model.
RMG sets three complementary limit structures:
– contingent loss limits: worst case scenarios that shock prices and volatilities by more than has occurred historically. Multiple
scenarios are set for each market to capture the non-linearity and complexity of exposures arising from derivatives. A wide
range of assumptions about the correlations between markets is applied
– position limits: volume, maturity and open position limits are set on a large number of market instruments and securities in
order to constrain concentration risk and to avoid the accumulation of risky, illiquid positions, and
– Value-at-Risk (VaR) limits: statistical measure based on a 10-day holding period and a 99 percent confidence level, as
stipulated by the APRA capital adequacy standard. The model is validated daily by back testing a one-day VaR against
hypothetical and actual daily trading profit or loss.
Value-at-Risk figures (1-day, 99 percent confidence level)
The table below shows the average, maximum and minimum VaR over the year for the major markets in which the Consolidated
Entity operates. The VaR shown in the table is based on a one-day holding period. The aggregated VaR is on a correlated basis.
2015
Average
$m
2015
Maximum
$m
2015
Minimum
$m
2014
Average
$m
2014
Maximum
$m
2014
Minimum
$m
Consolidated
Equities 6.51 13.43 3.35 5.55 8.21 2.98
Interest rates 8.86 14.49 6.08 10.37 15.56 6.17
Foreign exchange and bullion 2.64 4.44 0.58 3.97 8.05 1.05
Commodities 9.75 13.75 6.80 13.08 20.89 7.36
Aggregate 13.96 23.76 8.18 18.09 28.23 9.38
Value-at-Risk
The VaR model uses a Monte Carlo simulation to generate normally distributed price and volatility paths, based on three years of
historical data. VaR focuses on unexceptional price moves so that it does not account for losses that could occur beyond the 99
percent level of confidence. These factors can limit the effectiveness of VaR in predicting future price moves when changes to future
risk factors deviate from the movements expected by the above assumptions. For capital adequacy purposes, debt-specific risk is
measured using APRA’s standard method, whilst all other exposures are captured by the VaR model. This combined approach has
been approved by APRA and is subject to periodic review.
Interest rate risk
The Consolidated Entity also has exposure to non-traded interest rate risk generated by banking products such as loans and
deposits. Banking businesses have small limits to accumulate small levels of interest rate risk. Wherever possible, these interest rate
risks are transferred into the trading books of CFM and Group Treasury Division which are managed within traded market risk limits
and are included within the VaR figures presented above. Some residual interest rate risks remain in the banking book due to
factors outside the interest rate market or due to timing differences in accumulating exposures large enough to hedge. These
residual risks have independent limits that are monitored by RMG and regularly reported to senior management.
205
Note 38.3
Market risk continued
Foreign currency risk
The Consolidated Entity is exposed to foreign currency risk arising from transactions entered into in its normal course of business
and as a result of its investments in foreign operations. Movements in foreign currency exchange rates will result in gains or losses in
the income statement due to the revaluation of certain balances or in movements in the foreign currency translation reserve due to
the revaluation of foreign operations.
In order to manage this risk, the Consolidated Entity has a policy that non-trading foreign currency exposures are appropriately
hedged unless specifically approved by RMG, and trading foreign currency exposures remain within trading limits set by RMG.
Forward foreign exchange contracts, or borrowings in the same currency as the exposure, are designated as hedges under
Australian Accounting Standards and offset movements on the net assets within foreign operations and are transferred to the
foreign currency translation reserve.
Responsibility for monitoring and managing foreign currency exposures arising from transactions rests with individual businesses
which will enter into internal transactions as necessary to transfer the underlying foreign exchange risk to our trading businesses.
Any residual foreign exchange risk residing in non-trading divisions is included in the internal model capital calculation by RMG, with
the exception of specific investments in core foreign operations as discussed below.
The hedging policy of the Consolidated Entity is designed to reduce the sensitivity of the Consolidated Entity’s regulatory capital
position to foreign currency movements. This is achieved by leaving specific investments in core foreign operations exposed to
foreign currency translation movements. The resultant change in the Australian dollar value of the foreign investment is captured in
the foreign currency translation reserve, a component of regulatory capital. This offsets the corresponding movement in the capital
requirements of these investments.
As a result of the Consolidated Entity’s foreign exchange policy, the Consolidated Entity is partially exposed to currency risk in
relation to the translation of its net investment in foreign operations to Australian dollars. Other than this there is no material non-
trading foreign exchange risk in the profit and loss.
The table below indicates the sensitivity to movements in the Australian dollar rate against various foreign currencies at 31 March.
The Consolidated Entity is active in various currencies globally-those with the most impact on the sensitivity analysis below are USD,
GBP, CAD and EUR.
2015 2014
Movement in
exchange
rates
%
Sensitivity
of equity
after tax
$m
Movement in
exchange
rates
%
Sensitivity
of equity
after tax
$m
Consolidated
USD +10 (413.2) +10 (320.0)
GBP +10 (69.5) +10 (64.0)
CAD +10 (28.2) +10 (26.6)
EUR +10 (33.5) +10 (31.0)
Total (544.4) (441.6)
USD –10 505.0 –10 391.1
GBP –10 84.9 –10 78.3
CAD –10 34.5 –10 32.4
EUR –10 40.9
–10
37.9
Total 665.3
539.7
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
206
Note 38.3
Market risk continued
Equity price risk
The table below indicates the equity markets to which the Consolidated Entity had significant exposure at 31 March on its
non-trading investment portfolio excluding interests in associates and joint ventures. The effect on equity (as a result of a change in
the fair value of equity instruments held as available for sale at 31 March) and the income statement due to a reasonably possible
change in equity prices, with all other variables held constant, is as follows:
2015 2014
Movement in
equity
price
Sensitivity
of profit
before tax
Sensitivity
of equity
after tax
Movement
in equity
price
Sensitivity
of profit
before tax
Sensitivity
of equity
after tax
Geographic region % $m $m
% $m $m
Consolidated
Listed
Americas +10 – 31.9 +10 – 14.5
Australia +10 0.4 27.3 +10 – 36.1
Asia Pacific +10 – 1.1 +10 – 1.3
Europe, Middle East
and Africa +10 – 0.7 +10 1.8 0.8
Unlisted +10 0.7 104.4 +10 0.6 86.0
Listed
Americas –10 – (31.9) –10 – (14.5)
Australia –10 (0.4) (27.3) –10 – (36.1)
Asia Pacific –10 – (1.1) –10 – (1.3)
Europe, Middle East
and Africa –10 – (0.7) –10 (1.8) (0.8)
Unlisted –10 (0.7) (104.4) –10 (0.6) (86.0)
207
Note 39
Fair value of financial assets and liabilities
Fair value reflects the amount for which an asset could be
exchanged or a liability settled, between knowledgeable, willing
parties in an arm’s length transaction. Quoted prices or rates
are used to determine fair value where an active market exists.
If the market for a financial instrument is not active, fair values
are estimated using present value or other valuation techniques,
using inputs based on market conditions prevailing on the
measurement date.
The values derived from applying these techniques are affected
by the choice of valuation model used and the underlying
assumptions made regarding inputs such as timing and
amounts of future cash flows, discount rates, credit risk,
volatility and correlation.
Financial instruments measured at fair value are categorised in
their entirety, in accordance with the levels of the fair value
hierarchy as outlined below:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities
Level 2: inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either
directly (ie as prices) or indirectly (ie derived from
prices)
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The appropriate level for an instrument is determined on the
basis of the lowest level input that is significant to the fair value
measurement.
The Consolidated Entity uses the portfolio exemption in
AASB 13 Fair Value Measurement to measure the fair value of
certain groups of financial assets and financial liabilities. These
are measured using the price that would be received to sell a
net long position, or transfer a net short position, for a particular
risk exposure.
The following methods and significant assumptions have been
applied in determining the fair values of financial instruments:
– trading portfolio assets and liabilities, financial assets and
liabilities at fair value through profit or loss, derivative
financial instruments and other transactions undertaken for
trading purposes are measured at fair value by reference to
quoted market prices when available (eg listed securities). If
quoted market prices are not available, then fair values are
estimated on the basis of pricing models or other
recognised valuation techniques
– investment securities classified as available for sale are
measured at fair value by reference to quoted market prices
when available (eg listed securities). If quoted market prices
are not available, then fair values are estimated on the basis
of pricing models or other recognised valuation techniques.
Unrealised gains and losses, excluding impairment write-
downs, are recorded in the available for sale reserve in
equity until the asset is sold, collected or otherwise
disposed of
– fair values of fixed rate loans and issued debt classified as
at fair value through profit or loss is estimated by reference
to current market rates offered on similar loans and issued
debt
– for financial assets carried at fair value, in order to measure
counterparty credit risk, a Credit Valuation Adjustment
(CVA) is incorporated into the valuation. The CVA is
calculated at a counterparty level taking into account all
exposures to that counterparty
– for financial liabilities carried at fair value, in order to
measure the Consolidated Entity’s own credit risk, a Debit
Valuation Adjustment (DVA) is incorporated into the
valuations, and
– for uncollateralised derivative positions, the Consolidated
Entity has incorporated the market implied funding costs for
these uncollateralised derivative positions as a Funding
Valuation Adjustment (FVA). FVA is determined by
calculating the net expected exposures at a counterparty
level and applying MGL's internal Treasury lending rates as
an input into the calculation. The approach takes into
account the probability of default of each counterparty, as
well as any mandatory break clauses.
Where valuation techniques are used to determine fair values,
they are validated and periodically reviewed by qualified
personnel independent of the area that created them. All
models are certified before they are used, and models are
calibrated periodically to test that outputs reflect prices from
observable current market transactions in the same instrument
or other available observable market data. To the extent
possible, models use only observable market data (eg for OTC
derivatives), however management is required to make
assumptions for certain inputs that are not supported by prices
from observable current market transactions in the same
instrument, such as, volatility and correlation.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
208
Note 39
Fair value of financial assets and liabilities continued
The following methods and significant assumptions have been
applied in determining the fair values of financial instruments
which are carried at amortised cost:
– the fair values of liquid assets and other instruments
maturing within three months are approximate to their
carrying amounts. This assumption is applied to liquid
assets and the short-term elements of all other financial
assets and financial liabilities
– the fair value of demand deposits with no fixed maturity is
approximately their carrying amount as they are short term
in nature or are payable on demand
– the fair values of variable rate financial instruments,
including certain loan assets and liabilities carried at
amortised cost, cash collateral on securities borrowed/cash
collateral on securities lent and reverse
repurchase/repurchase agreements, are approximate to
their carrying amounts. The fair value of loan assets
repayable without penalty is approximated by their carrying
value. Fair values of all loan assets is determined with
reference to changes in credit markets as well as interest
rates
– the fair value of fixed rate loans and debt carried at
amortised cost is estimated by reference to current market
rates offered on similar loans and the creditworthiness of
the borrower
– the fair value of debt issued and subordinated debt is based
on market prices where available. Where market prices are
not available the fair value is based on discounted cash
flows using rates appropriate to the term and issue and
incorporates changes in the Consolidated Entity’s own
credit spread
– substantially all of the Consolidated Entity’s commitments to
extend credit are at variable rates. As such, there is no
significant exposure to fair value fluctuations resulting from
interest rate movements relating to these commitments,
and
– in the financial statements of the Company, the fair value of
balances due from/to subsidiaries is approximated by their
carrying amount as the balances are generally
receivable/payable on demand.
2015
Carrying
value
$m
2015
Fair
value
$m
2014
Carrying
value
$m
2014
Fair
value
$m
209
Note 39
Fair value of financial assets and liabilities continued
The tables below summarise the carrying value and fair value of financial assets and liabilities held at amortised cost of the
Consolidated Entity and the Company:
Consolidated
Assets
Receivables from financial institutions 28,705 28,705 19,457 19,457
Other financial assets 11,236 11,236 10,377 10,377
Loan assets held at amortised cost 72,762 72,834 58,712 58,875
Total assets 112,703 112,775 88,546 88,709
Liabilities
Deposits 47,386 47,359 42,401 42,413
Other financial liabilities 10,568 10,568 10,027 10,027
Payables to financial institutions 18,645 18,747 19,654 19,698
Debt issued at amortised cost 61,463 62,463 45,565 46,302
Loan capital at amortised cost 4,384 4,712 3,507 3,744
Total liabilities 142,446 143,849 121,154 122,184
The fair values for "Deposits" have been predominantly classified as Level 1 except for $9,984 million (2014: $10,849 million) which
have been classified as Level 2.
Fair values for "Receivable from Financial Institutions", "Other financial assets", "Other financial liabilities", "Payable to financial
institutions", "Debt issued at amortised cost" and "Loan capital" have been predominantly classified as Level 2 except for $10,552
million (2014: $8,509 million) in Receivables from Financial Institutions, $1,926 million (2014: $1,595 million) in Payable to financial
institutions, $1,599 million (2014: $3,279 million) in Debt issued at amortised cost and $1,427 million (2014: $934 million) in Loan
Capital has been classified as Level 1 and $7,162 million (2014:$5,999 million) in Debt issued at amortised cost is classified as Level 3.
Loan assets at amortised cost are primarily Level 3 except for $10,470 million (2014: $11,715 million) which has been classified as
Level 2 and $9,318 million (2014: $5,342 million) which has been classified as Level 1.
Company
Assets
Other financial assets 8 8 16 16
Due from subsidiaries 10,361 10,361 8,711 8,711
Total assets 10,369 10,369 8,727 8,727
Liabilities
Deposits 18 18 33 33
Other Financial Liabilities 3 3 2 2
Payables to financial institutions 2,566 2,584 1,307 1,307
Due to subsidiaries 810 810 866 866
Debt issued at amortised cost 6,179 6,737 6,265 6,581
Loan capital at amortised cost 603 624 601 628
Total liabilities 10,179 10,776 9,074 9,417
As at 31 March 2015, the above fair values are predominantly classified as Level 2 in the fair value hierarchy except for ‘Loan capital
‘classified as Level 1”.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
210
Note 39
Fair value of financial assets and liabilities continued
The following table summarises the levels of the fair value hierarchy for financial instruments measured at fair value:
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Consolidated 2015
Assets
Trading portfolio assets 19,580 10,129 697 30,406
Derivative assets 948 18,799 333 20,080
Investment securities available for sale 4,306 2,389 2,201 8,896
Other financial assets at fair value through profit or loss 118 1,817 190 2,125
Other financial assets
(1)
234 825 – 1,059
Total assets 25,186 33,959 3,421 62,566
Liabilities
Trading portfolio liabilities 2,697 2,598 – 5,295
Derivative liabilities 1,159 16,869 239 18,267
Other financial liabilities at fair value through profit or loss – 1,604 22 1,626
Other financial liabilities
(1)
232 772 – 1,004
Total liabilities 4,088 21,843 261 26,192
Consolidated 2014
Assets
Trading portfolio assets 13,982 7,770 710 22,462
Derivative assets 591 11,944 98 12,633
Investment securities available for sale 8,897 3,930 1,224 14,051
Other financial assets at fair value through profit or loss 244 2,457 153 2,854
Other financial assets
(1)
353 760 – 1,113
Total assets 24,067 26,861 2,185 53,113
Liabilities
Trading portfolio liabilities 1,125 1,637 – 2,762
Derivative liabilities 738 11,148 87 11,973
Other financial liabilities at fair value through profit or loss – 1,432 32 1,464
Other financial liabilities
(1)
351 733 – 1,084
Total liabilities 2,214 14,950 119 17,283
(1)
Relates to life insurance contracts and other unitholder investment assets and liabilities.
211
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Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
212
Note 39
Fair value of financial assets and liabilities continued
Reconciliation of balances in Level 3 of the fair value hierarchy
The following table reconciles the balances in Level 3 of the fair value hierarchy for the Consolidated Entity for the financial years
ended 31 March 2015 and 31 March 2014:
Trading portfolio assets
Investment
securities available
for sale
$m $m
Balance at 1 April 2013 322 744
Purchases 354 583
Sales (196) (237)
Issues – 49
Settlements – (3)
Net transfers into Level 3 312 16
Net transfers out of Level 3 (90) (65)
Fair value gains/(losses) recognised in the income statement
(1)
8 76
Fair value gains recognised in other comprehensive income
(1)
– 61
Balance at 31 March 2014 710 1,224
Fair value gains/(losses) for the financial year included in the income
statement for assets and liabilities held at the end of the financial year
(1)
9 33
Balance at 1 April 2014 710 1,224
Purchases 609 605
Sales (545) (450)
Issues – –
Settlements – (90)
Net transfers into Level 3 65 672
Net transfers out of Level 3 (152) (78)
Fair value gains/(losses) recognised in the income statement
(1)
10 274
Fair value gains recognised in other comprehensive income
(1)
– 44
Balance at 31 March 2015 697 2,201
Fair value gains/(losses) for the financial year included in the income statement for
assets and liabilities held at the end of the financial year
(1)
10 157
(1)
The Consolidated Entity employs various hedging techniques in order to manage risks, including risks in Level 3 positions. Such
techniques may include the purchase or sale of financial instruments that are classified as Levels 1 and/or 2. The realised and unrealised
gains and losses for assets and liabilities in Level 3 presented in the table above do not reflect the related realised or unrealised gains
and losses arising on economic hedging instruments classified in Level 1 and/or 2.
(2)
The derivative financial instruments in the table above are represented on a net basis. On a gross basis derivative assets are $333 million
(2014: $98 million) and derivative liabilities are $239 million (2014: $87 million).
213
Note 39
Fair value of financial assets and liabilities continued
Reconciliation of balances in Level 3 of the fair value hierarchy continued
The following table reconciles the balances in Level 3 of the fair value hierarchy for the Consolidated Entity for the financial years
ended 31 March 2015 and 31 March 2014:
Other financial assets at fair
value through profit or loss
Other financial liabilities
at fair value through
profit or loss
Derivative financial
instruments
(net replacement values)
(2)
Total
$m $m $m $m
Consolidated 2014
69 (70) 23 1,088
62 – (33) 966
(40) 40 (2) (435)
– – (5) 44
– 2 (19) (20)
57 – 11 396
– – 7 (148)
5 (4) 29 114
– – – 61
153 (32) 11 2,066
1 (4) 38 77
Consolidated 2015
153 (32) 11 2,066
6 – 104 1,324
(9) – (21) (1,025)
– – (10) (10)
9 11 2 (68)
– – (21) 716
– – 29 (201)
31 (1) – 314
– – – 44
190 (22) 94 3,160
32 (1) (14) 184
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
214
Note 39
Fair value of financial assets and liabilities continued
Significant transfers between levels of the fair value hierarchy
During the financial year the Consolidated Entity did not have significant transfers between Level 1 and 2.
Transfers into Level 3 were due to the lack of observable valuation inputs for certain securities and investments. Transfers out of
Level 3 were principally due to valuation inputs becoming observable during the year.
Unrecognised gains
For financial assets and financial liabilities measured at fair value through profit or loss, when the transaction price in a non-active
market is different to the fair market value from other observable current market conditions in the same instrument or based on
valuation techniques whose variables include other data from observable markets, the Consolidated Entity recognises the difference
between the transaction price and the fair value in the income statement. In cases where use is made of data which is not
observable, profit or loss is only recognised in the income statement when the inputs become observable, or over the life of the
instrument.
The table below summarises the deferral and recognition of profit or loss where a valuation technique has been applied for which
not all inputs are observable in the market:
Consolidated
2015
$m
Consolidated
2014
$m
Balance at the beginning of the financial year
12 32
Deferral on new transactions 46 4
Amounts recognised in the income statement during the year (2) (24)
Balance at the end of the financial year 56 12
Sensitivity analysis of valuations using unobservable inputs
The table below shows the sensitivity in changing assumptions to reasonably possible alternative assumptions, for those financial
instruments for which fair values are determined in whole or in part using valuation techniques, such as discounted cashflows, which
are based on assumptions that have been determined by reference to historical company and industry experience.
Favourable changes Unfavourable changes
Profit
or loss
$m
Equity
$m
Profit
or loss
$m
Equity
$m
Product type
Consolidated 2015
Equity and equity linked products 13 114 (13) (110)
Other products 81 23 (65) (16)
Total 94 137 (78) (126)
Product type
Consolidated 2014
Equity and equity linked products 3 75 (3) (54)
Other products 17 7 (11) (7)
Total 20 82 (14) (61)
215
Note 39
Fair value of financial assets and liabilities continued
Significant unobservable inputs
The following table contains information about the significant unobservable inputs used in Level 3 valuations, and the valuation
techniques used to measure fair value of instruments. The range of values represent the highest and lowest input used in the
valuation techniques. Therefore, the range does not reflect the level of uncertainty regarding a particular input, but rather the
different underlying characteristics of the relevant assets and liabilities.
Range of inputs
Assets
$m
Liabilities
$m
Valuation
technique(s)
Significant unobservable
inputs
Minimum
value
Maximum
value
As at 31 Mar 2015
Equity and
equity linked
products
1,794 22
Discounted cash
flows Discount rate 7.0% 15.0%
Pricing model Volatility 17.0% 192.0%
Earnings multiple 0.4x 16.0x
Correlation – –
Market comparability Price in % (25.0)% 25.0%
Other products 1,627 239
Discounted cash
flows Discount rate 6.0% 22.0%
Pricing model Volatility 11.3% 150.0%
Correlation – –
Market comparability Price in % – 103.0%
Total 3,421 261
As at 31 Mar 2014
Equity and
equity linked
products
1,022 35
Discounted cash
flows Discount rate 6.8% 25.0%
Pricing model Volatility 9.2% 95.0%
Earnings multiple 0.4x 8.45x
Correlation 0.07 0.07
Market comparability Price in % (5.9)% 25.0%
Other products 1,163 84 Pricing model Volatility 7.0% 93.5%
Correlation – 1.00
Market comparability Price in % 7.0% 214.0%
Total 2,185 119
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
216
Note 39
Fair value of financial assets and liabilities continued
Correlation
Correlation is a measure of the relationship between the
movements of two variables (ie how the change in one variable
influences a change in the other variable). Correlation is a key
input of derivatives with more than one underlying and is
generally used to value hybrid and exotic instruments.
Volatility
Volatility is a measure of the variability or uncertainty in returns
for a given derivative underlying. It represents an estimate of
how much a particular underlying instrument, parameter or
index will change in value over time. Volatility is an input in the
valuation of derivatives containing optionality. Volatility and skew
are impacted by the underlying risk, term and strike price of a
derivative.
Inputs for unlisted equity securities (discount rate,
earnings multiple)
Unlisted equity instruments are generally valued based on
earnings multiples of comparable companies. Significant
unobservable inputs may include earnings multiple, discount
rate and forecast earnings of the investee companies.
217
Note 40
Offsetting financial assets and financial liabilities
The Consolidated Entity reports financial assets and financial liabilities on a net basis on the balance sheet when they meet the
criteria described in Note 1(xxiv) – Offsetting financial instruments. The following tables provide information on the impact of
offsetting that has occurred in the balance sheet, as well as amounts subject to enforceable netting arrangements that do not
qualify for offsetting in the balance sheet. The tables exclude amounts not subject to offsetting or enforceable netting arrangements.
The amounts presented in this note do not represent the credit risk exposure of the entity, refer to Note 38.1 – Credit risk for
information on credit risk management.
Amounts subject to enforceable netting arrangements
Subject to offsetting on balance sheet Related amounts not offset
Gross
amounts
$m
Amounts
offset
$m
Net amount
presented
$m
Other
recognised
financial
instruments
$m
Cash and
other financial
collateral
$m
Net amount
$m
Consolidated 2015
Receivables from financial
institutions
(1)
17,482
–
17,482
(302)
(16,773)
407
Derivative assets 21,375 (4,746) 16,629 (12,713) (1,738) 2,178
Other assets 4,136 (2,766) 1,370 (58) – 1,312
Loan assets held at
amortised cost
155
(155)
–
–
–
–
Other financial assets at fair
value through profit or loss
1,564
(1,400)
164
–
–
164
Total assets 44,712 (9,067) 35,645 (13,073) (18,511) 4,061
Derivative liabilities (21,592) 4,753 (16,839) 12,713 1,947 (2,179)
Deposits (336) 308 (28) – – (28)
Other liabilities (4,558) 2,819 (1,739) 58 – (1,681)
Payables to financial
institutions
(2)
(10,748) – (10,748) 302 10,210 (236)
Other financial liabilities at fair
value through profit or loss (1,139) 1,139 – – – –
Debt issued at amortised cost (48) 48 – – – –
Total liabilities (38,421) 9,067 (29,354) 13,073 12,157 (4,124)
(1)
Included within this balance are reverse repurchase arrangements and other similar secured lending.
(2)
Included within this balance are repurchase arrangements and other similar secured borrowing.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
218
Note 40
Offsetting financial assets and financial liabilities continued
Amounts subject to enforceable netting arrangements
Subject to offsetting on balance sheet Related amounts not offset
Gross
Amounts
$m
Amounts
offset
$m
Net amount
presented
$m
Other
recognised
financial
instruments
$m
Cash and
other financial
collateral
$m
Net amount
$m
Consolidated 2014
Receivables from financial
institutions
(1)
10,065 (1) 10,064 (712) (9,132) 220
Derivative assets 13,563 (1,904) 11,659 (8,388) (1,167) 2,104
Other assets 3,554 (2,075) 1,479 (55) (1) 1,423
Loan assets held at
amortised cost 139 (139) – – – –
Other financial assets at fair
value through profit or loss 1,377 (1,264) 113 – – 113
Total assets 28,698 (5,383) 23,315 (9,155) (10,300) 3,860
Derivative liabilities (13,288) 1,902 (11,386) 8,388 1,300 (1,698)
Deposits (205) 169 (36) – 1 (35)
Other liabilities (3,588) 2,129 (1,459) 55 – (1,404)
Payables to financial
institutions
(2)
(8,618) 1 (8,617) 712 7,859 (46)
Other financial liabilities at fair
value through profit or loss (1,150) 1,150 – – – –
Debt issued at amortised cost (32) 32 – – – –
Total liabilities (26,881) 5,383 (21,498) 9,155 9,160 (3,183)
(1)
Included within this balance are reverse repurchase arrangements and other similar secured lending.
(2)
Included within this balance are repurchase arrangements and other similar secured borrowing.
219
Note 40
Offsetting financial assets and financial liabilities continued
Amounts subject to enforceable netting arrangements
Subject to offsetting on balance sheet Related amounts not offset
Gross
amounts $m
Amounts
offset
$m
Net amount
presented
$m
Other
recognised
financial
instruments
$m
Cash and
other financial
collateral
$m
Net amount
$m
Company 2015
Due from subsidiaries 11,002 (785) 10,217 – – 10,217
Total assets 11,002 (785) 10,217 – – 10,217
Due to subsidiaries (1,063) 785 (278) – – (278)
Total liabilities (1,063) 785 (278) – – (278)
Company 2014
Due from subsidiaries 11,635 (3,013) 8,622 – – 8,622
Total assets 11,635 (3,013) 8,622 – – 8,622
Due to subsidiaries (3,299) 3,013 (286) – – (286)
Total liabilities (3,299) 3,013 (286) – – (286)
Offsetting on balance sheet
Amounts are offset in accordance with the criteria described in Note 1(xxiv) – Offsetting financial instruments and are limited to the
gross carrying values of the financial instruments. Therefore, when an asset is offset by a liability and the asset carrying value
exceeds the liability carrying value, then the net amount presented for the asset will be the difference, and for the liability will be nil.
Amounts subject to enforceable netting arrangements
Enforceable netting arrangements may allow for net settlement of specified contracts with a counterparty only in the event of default
or other pre-determined events, such that their potential effect on the Consolidated Entity’s and Company’s financial position in that
circumstance is to settle as one arrangement.
‘Other recognised financial instruments’ discloses other financial instruments recognised on balance sheet and ‘Cash and other
financial collateral’ discloses amounts received or pledged in relation to the gross amounts of assets and liabilities. Both are subject
to enforceable netting arrangements but are not offset due to the rights of set off applying only upon default or other predetermined
events. This excludes non-financial instrument collateral.
The amounts subject to enforceable netting arrangements but not set off on the balance sheet have been limited to the net amount
presented on the balance sheet so as not to include effects of over-collateralisation.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
220
Note 41
Transfers of financial assets
Transferred financial assets that are derecognised
The Consolidated Entity may enter into transactions in the
normal course of business that transfer financial assets to
other entities. When the financial assets are derecognised,
some continuing involvement may be retained in the assets
through liquidity support, financial guarantees, certain
derivatives or certain securitisation interests. There were no
material transfers of financial assets where the Consolidated
Entity or Company retained continuing involvement.
Transferred financial assets that are not
derecognised
When financial assets are transferred but not derecognised,
this is due to retaining exposure to substantially all the risks
and rewards of ownership of the transferred assets through
repurchase and securities lending agreements or asset
swaps.
Repurchase and securities lending agreements
Securities sold under agreement to repurchase and
securities subject to lending agreements continue to be
recognised on the statement of financial position and an
associated liability is recognised for the consideration
received. In certain arrangements, the securities transferred
cannot otherwise be pledged or sold, however the assets
may be substituted if the required collateral is maintained.
Asset swaps
Financial assets sold, while concurrently entering into an
asset swap with the counterparty, continue to be recognised
along with an associated liability for the consideration
received. The Consolidated Entity does not have legal rights
to these assets but has full economic exposure to them. The
transferred assets cannot otherwise be pledged or sold.
Written put options
When financial assets are transferred but continue to be
recognised to the extent of continuing involvement, this is
due to some but not substantially all of the risks and rewards
of ownership being transferred, and control of the asset
being retained. Examples of such transactions include
transfers involving written put options or other instruments
linked to the performance of the asset and are not priced at
fair value.
221
Note 41
Transfers of financial assets continued
There were no material transfers of financial assets for the Company where the assets continue to be recognised as at
31 March 2015 and at 31 March 2014. The following table presents information for transfers of financial assets not derecognised by
the Consolidated Entity as at 31 March 2015 and 31 March 2014:
Repurchase and
securities lending
agreements
$m
Transfers with total
return/asset swaps
$m
Transfer with
written put option
$m
Consolidated 2015
Carrying amount of transferred assets
(1)
7,218 3,212 342
Carrying amount of associated liabilities (7,217) (3,236) (361)
Carrying amount of assets before transfer, where assets
recognised to the extent of continuing involvement
(3)
– – 361
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets 948 1,992 345
Fair value of associated liabilities (969) (2,064) (362)
Net fair value (21) (72) (17)
Consolidated 2014
Carrying amount of transferred assets
(1),(2)
8,771 6,037 668
Carrying amount of associated liabilities
(2)
(8,541) (5,580) (684)
Carrying amount of assets before transfer, where assets
recognised to the extent of continuing involvement
(3)
– – 683
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets 727 4,057 674
Fair value of associated liabilities (724) (4,118) (689)
Net fair value 3 (61) (15)
(1)
The transferred financial assets are presented in Note 8 – Trading portfolio assets $5,909 million (2014: $7,549 million), Note 9 –
Investment securities available for sale $1,352 million (2014: $1,743 million), Note 11 – Loan assets held at amortised cost $3,312
million (2014: $6,184 million) and Note 13 – Other financial assets at fair value through profit and loss $199 million (2014: $nil) in the
statement of financial position.
(2)
As a result of an asset swap, included in the carrying amount of associated liabilities is $nil (2014: $919 million) that will be settled partly
by the transferred assets with a carrying amount of $nil (2014: $919 million). The Consolidated Entity had provided a guarantee to the
extent of $493 million, and has given $493 million cash collateral to the counterparty that has been set off against the associated liability
in 2014. The fair values of the transferred assets and the associated liability approximate their carrying amounts.
(3)
This disclosure is required only in respect of transfers that fail derecognition under the continuing involvement model.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
222
Note 42
Audit and other services provided by PricewaterhouseCoopers
During the financial year, the auditor of the Company and Consolidated Entity, PwC, and its related practices earned the following
remuneration:
Consolidated
2015
$’000
Consolidated
2014
$’000
Company
2015
$’000
Company
2014
$’000
PwC – Australia
Audit and review of financial reports of the Group or controlled entity 9,917 8,664 – –
Other audit-related and assurance services 3,772 3,139 – –
Total audit and other assurance services 13,689 11,803 – –
Advisory services 151 833 – –
Taxation 680 198 – –
Total non-audit services 831 1,031 – –
Total remuneration paid to PwC Australia 14,520 12,834 – –
Network firms of PwC Australia
Audit and review of financial reports of the Group or controlled entity 10,522 9,575 – –
Other audit-related and assurance services 457 475 – –
Total audit and other assurance services 10,979 10,050 – –
Advisory services 32 6 – –
Taxation 1,608 1,479 – –
Total non-audit services 1,640 1,485 – –
Total remuneration paid to network firms of PwC Australia 12,619 11,535 – –
Total remuneration paid to PwC (Note 2) 27,139 24,369 – –
Use of PwC’s services for engagements other than audit and assurance is restricted in accordance with the Company’s Auditor
Independence Policy. These assignments are principally tax compliance and agreed upon assurance procedures in relation to
acquisitions.
Certain fees for other audit-related and assurance services are in relation to initial public offerings and due diligence services for new
funds. These fees may be recovered by the Consolidated Entity upon the successful establishment of the funds.
It is the Company’s policy to seek competitive tenders for all major advisory projects.
223
Note 43
Acquisitions and disposals of subsidiaries and businesses
Significant entities or businesses acquired or consolidated due to acquisition of control:
There were no significant entities or businesses acquired or consolidated due to acquisition of control during the period.
Other entities or businesses acquired or consolidated due to acquisition of control during the period are as follows:
Credit Cards Portfolio, Macquarie Infrastructure Limited, Macquarie Greater China Limited, Macquarie Greater China Infrastructure
Management Limited, Macquarie Greater China Infrastructure Management Advisory Limited and Japan Infrastructure Group Co.
Ltd.
Aggregate details of the entities and businesses acquired or consolidated due to acquisition of control are as follows:
2015
$m
2014
$m
Fair value of net assets acquired
Cash and other assets 345 49
Property, plant and equipment – 1
Goodwill and other intangible assets 18 37
Payables, provisions, borrowings and other liabilities (6) (9)
Total fair value of net assets acquired 357 78
Consideration
Cash consideration 357 78
Total consideration 357 78
Net cash flow
Cash consideration (357) (78)
Less:
Cash and cash equivalents acquired 4 42
Net cash outflow (353) (36)
The 31 March 2014 comparatives principally relate to the following entities or businesses acquired or consolidated due to
acquisition of control:
Sequoia PV 1 LLC, Sequoia PV 2 LLC, Sequoia 3 LLC, Macquarie Renaissance Corporate Finance Holdings Limited, Corona
Energy Retail 5 Limited and Macquarie Investment Management Korea Co. Ltd.
The operating results of the acquisitions have not had a material impact on the results of the Consolidated Entity.
There are no significant differences between the fair value of net assets acquired and their carrying amounts, other than goodwill
and other intangible assets as noted above. The goodwill acquired during the current financial year has arisen due to the value of
the businesses acquired over their individual asset values and synergies the Consolidated Entity expects to realise from the
acquisitions.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Notes to the financial statements
for the financial year ended 31 March 2015
continued
224
Note 43
Acquisitions and disposals of subsidiaries and businesses continued
Significant entities and businesses disposed of or deconsolidated due to loss of control:
There were no significant entities or businesses disposed of or deconsolidated due to loss of control during the financial year.
Other entities or businesses disposed of or deconsolidated during the financial year are as follows:
Macquarie Rail Inc., Macquarie Rail Canada Limited, CMC Industries Inc., Texas Rail Terminal LLC, TRT LeaseCo LLC, Macquarie
Equipment Finance Inc., Macquarie Equipment Funding LLC, UPL (No.15) Pty Limited, Hyperion Investments Australia Pty Limited,
Helios Investments Australia Pty Limited, Macquarie Real Estate Korea Ltd, Wala Holding 1 Limited, Delaware Investment Advisers,
Delaware Capital Management, Delaware Investments Fund Advisers, West Texas Solar 1 LLC, Hermes Infrastructure Investco
BVBA, Hermes Infrastructure NV, Baltic Sea Offshore Holdco Limited, Baltic Sea Offshore Investment Limited, Macquarie
Infrastructure and Real Assets Management (Asia) Pte Limited, Delaware Large Cap Core Fund Class I, Macquarie PA TAP
Management I Inc., Macquarie NM Management II Inc., Macquarie NM Management I Inc, Macquarie HiTIP Management I Inc.,
Macquarie Generation Management II Inc. and Macquarie Generation Management I Inc.
Aggregate details of the entities or businesses disposed of or deconsolidated are as follows:
2015
$m
2014
$m
Carrying value of assets and liabilities disposed of or deconsolidated
Cash and other assets 33 681
Other financial assets 1,345 613
Property, plant and equipment 618 106
Goodwill and other intangible assets 76 83
Payables, provisions, borrowings and other liabilities (1,068) (1,031)
Non-controlling interest 2 (173)
Total carrying value of assets and liabilities disposed of or deconsolidated 1,006 279
Consideration
Cash consideration 1,327 269
Consideration received in equity 6 –
Deferred consideration 2 –
Total consideration 1,335 269
Net cash flow
Cash consideration 1,327 269
Less:
Investment retained – 36
Cash and cash equivalents disposed of or deconsolidated (9) (303)
Net cash inflow 1,318 2
Entities or businesses disposed of or de-consolidated due to loss of control in the year ended 31 March 2014 comparatives are as
follows:
Aviation Technical Services Inc., Bavarian Geothermal Energy Group Limited, Poseidon Infrastructure InvestCo LP BVBA, Macquarie
Visor, Rossignol Ski Company, Macquarie European Alpha Fund; Tulare PV I LLC, Tulare PV II LLC, Macquarie Private Wealth Inc.,
Macquarie Precision Marketing (Japan) Limited, Macquarie Precision Marketing (Australia) Limited, Sequoia PV 1 LLC, Sequoia PV 2
LLC, Sequoia PV 3 LLC, Macquarie Hyperion Limited and Taikansan Kaihatsu Limited.
225
Note 44
Events after the reporting date
On 15 April 2015, the Company, MBL, Macquarie B.H. Pty Ltd
(MBHPL) and Macquarie Financial Holdings Limited (MFHL)
signed a Restructure Deed. Through the Restructure Deed,
MBL transferred all of the economic risks and rewards from,
and control of, the Macquarie Investment Management
business (MIM) at fair value to MFHL and its subsidiaries
(MFHL Group). The fair value of MIM is $3,709 million. MBL,
MBHPL and MFHL are controlled by the Company, and
therefore there is no impact on the Consolidated Entity.
MIM, which operates in the MAM segment, offers investment
management expertise across a number of asset classes
including fixed interest, credit and currencies, equities,
infrastructure securities and multi-asset allocation solutions.
MIM delivers a full-service offering to both retail and
institutional clients in Australia and the US, with selective
offerings in other regions.
As a result of entering into the Restructure Deed, on settlement
of the Restructure Deed the Company is expecting to receive
dividends of approximately $3,100 million from MBHPL, the
holding company of MBL. This dividend will be matched by an
ordinary share capital contribution of approximately $3,100
million to MFHL. MFHL will apply this contribution of ordinary
share capital towards the acquisition of MIM.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Macquarie Group Limited
Directors’ declaration
226
In the Directors’ opinion:
a) the financial statements and notes set out on pages
116 to 225 are in accordance with the Corporations Act
2001 (Cth) including:
(i) complying with the accounting standards, and
(ii) giving a true and fair view of the Company and
Consolidated Entity’s financial position as at
31 March 2015 and performance for the financial
year ended on that date, and
b) there are reasonable grounds to believe that Macquarie
Group Limited will be able to pay its debts as and when
they become due and payable, and
c) the financial statements also comply with International
Financial Reporting Standards (see Note 1(i) – Basis of
preparation set out on pages 123 and 124).
The Directors have been given the declarations by the Chief
Executive Officer and Chief Financial Officer required by section
295A of the Corporations Act 2001 (Cth).
This declaration is made in accordance with a resolution of the
Directors.
Directors’ declaration
H Kevin McCann, AM
Independent Director and
Chairman
Nicholas Moore
Managing Director and
Chief Executive Officer
Sydney
8 May 2015
Independent auditor’s report
to the members of Macquarie Group Limited
227
Report on the financial report
We have audited the accompanying financial report of
Macquarie Group Limited (the Company), which comprises
the statements of financial position as at 31 March 2015, the
income statements, statements of comprehensive income,
statements of changes in equity and statements of cash
flows for the year ended on that date, a summary of
significant accounting policies, other explanatory notes and
the directors’ declaration for both Macquarie Group Limited
and the Consolidated Entity. The Consolidated Entity
comprises the Company and the entities it controlled at
year's end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the
preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards
and the Corporations Act 2001 (Cth) and for such internal
control as the directors determine is necessary to enable the
preparation of the financial report that is free from material
misstatement, whether due to fraud or error. In Note 1 –
Summary of significant accounting policies, the directors also
state, in accordance with Accounting Standard AASB 101
Presentation of Financial Statements, that the financial
statements comply with International Financial Reporting
Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial
report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. Those
standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and
perform the audit to obtain reasonable assurance whether
the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or
error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation
and fair presentation of the financial report in order to design
audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the
overall presentation of the financial report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinions.
Independent audit report
Liability is limited by scheme approved under Professional
Standards Legislation
Independence
In conducting our audit, we have complied with the
independence requirements of the Corporations Act 2001
(Cth).
Auditor’s opinion
In our opinion:
a) the financial report of Macquarie Group Limited is in
accordance with the Corporations Act 2001 (Cth),
including:
(i) giving a true and fair view of the Company’s and
Consolidated Entity’s financial position as at 31
March 2015 and of their performance for the year
ended on that date, and
(ii) complying with Australian Accounting Standards
(including the Australian Accounting Interpretations)
and the Corporations Regulations 2001.
b) the financial report and notes also complies with
International Financial Reporting Standards as disclosed
in Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages
77 to 114 of the directors’ report for the year ended
31 March 2015. The directors of the Company are
responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of
the Corporations Act 2001 (Cth). Our responsibility is to
express an opinion on the Remuneration Report, based on
our audit conducted in accordance with Australian Auditing
Standards.
Auditor’s opinion
In our opinion, the Remuneration Report of Macquarie Group
Limited for the year ended 31 March 2015, complies with
section 300A of the Corporations Act 2001 (Cth).
PricewaterhouseCoopers
K.G. Smith
Partner
Sydney
8 May 2015
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Macquarie Group Limited
Ten year history
228
The financial information for the full years ended 31 March 2006-2015 is based on the reported results using the Australian
Accounting Standards that also comply with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
Years ended 31 March 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Income statement ($ million)
Total income 4,832 7,181 8,248 5,526 6,638 7,665 6,963 6,657 8,132 9,293
Total expenses (3,545) (5,253) (6,043) (4,537) (5,344) (6,394) (5,914) (5,252) (6,026) (6,771)
Operating profit before income tax 1,287 1,928 2,205 989 1,294 1,271 1,049 1,405 2,106 2,522
Income tax expense (290) (377) (317) (15) (201) (282) (287) (533) (827) (899)
Profit for the year 997 1,551 1,888 974 1,093 989 762 872 1,279 1,623
Macquarie Income Securities distributions (29) (31) (34) (33) (21) (26) (26) (21) (18) (18)
Macquarie Income Preferred Securities
distributions (51) (54) (50) (45) (8) (4) (4) (4) (4) (5)
Other non-controlling interests (1) (3) (1) (25) (14) (3) (2) 4 8 4
Profit attributable to ordinary equity
holders 916 1,463 1,803 871 1,050 956 730 851 1,265 1,604
Statement of financial position ($ million)
Total assets 106,211 136,389 167,250 149,144 145,940 157,568 153,626 144,748 153,904 187,976
Total liabilities 100,874 128,870 157,189 139,584 134,171 145,636 141,894 132,793 141,990 173,580
Net assets 5,337 7,519 10,061 9,560 11,769 11,932 11,732 11,955 11,914 14,396
Total loan assets
35,126 45,939 53,213 47,080 45,660 47,222 46,380 50,793 58,712 72,762
Impaired loan assets (net of provisions) 85 46 121 916 551 340 357 368 365 594
Share information
Dividends per share (cents per share)
Interim 90 125 145 145 86 86 65 75 100 130
Final 125 190 200 40 100 100 75 125 160 200
Special
(1)
– – – – – – – – 116 –
Total 215 315 345 185 186 186 140 200 376 330
Basic earnings per share
(cents per share) 400.3 591.6 670.6 309.6 320.2 282.5 210.1 251.2 383.6 502.3
Share price at 31 March ($) 64.68 82.75 52.82 27.05 47.25 36.60 29.08 37.15 57.93 76.67
Ordinary share capital (million shares)
232.4 253.9 274.6 283.4 344.2 346.8 348.6 339.5 321.1 333.5
Market capitalisation at 31 March
(fully paid ordinary shares) ($ million) 15,032 21,010 14,504 7,666 16,263 12,693 10,137 12,613 18,601 25,569
Net tangible assets per ordinary share ($) 16.99 24.35 30.35 27.89 28.40 28.91 28.12 29.94 31.71 38.19
Ratios (%)
Return on average ordinary shareholders’
funds 26.0 28.1 23.7 9.9 10.1 8.8 6.8 7.8 11.1 14.0
Ordinary dividend payout ratio 54.4 54.3 52.2 60.2 60.4 67.3 66.4 79.0 66.8 67.6
Expense/income ratio 73.4 73.2 73.3 82.1 80.5 83.4 84.9 78.9 74.1 72.9
Net loan losses as % of loan assets
(excluding securitisation SPVs and
segregated futures funds) 0.2 0.1 0.3 1.9 0.8 0.4 0.5 0.4 0.4 0.7
Assets under management ($ billion) 140.3 197.2 232.0 243.1 325.7 309.8 326.9 347.4 426.9 486.3
Staff numbers 8,183 10,023 13,107 12,716 14,657 15,556 14,202 13,663 13,913 14,085
(1)
The special dividend for the year ended 31 March 2014 represented the special dividend component of the SYD distribution in January
2014. The total distribution including return of capital was 373 cents per share.
Ten year history
Additional Investor Information
229
2015 Shareholder calendar
Date Event
8 May Full-year result announcement
20 May Record date for final ordinary dividend
8 June Payment date for MCN distribution
2 July Payment date for final ordinary dividend
23 July AGM
30 September Financial half-year end
30 October
(1)
Half-year result announcement
11 November
(1)
Record date for interim ordinary dividend
7 December Payment date for MCN distribution
16 December
(1)
Payment date for interim ordinary
dividend
(1)
These dates are subject to change.
2015 Annual General Meeting
Macquarie Group's 2015 AGM will be held at 10:30 am on
Thursday, 23 July 2015 at the Sheraton on the Park (Grand
Ballroom), 161 Elizabeth Street, Sydney, NSW. Details of the
business of the meeting will be forwarded to shareholders
separately.
Stock Exchange listing
Macquarie Group Limited is listed on the ASX and its ordinary
shares trade under the code MQG.
Macquarie Group Capital Notes (MCN) are listed on the ASX
and trade under the code MQGPA.
Macquarie Income Securities (MIS) are listed on the ASX and
trade under the code MBLHB.
Macquarie Bank Capital Notes (BCN) are listed on the ASX
and trade under the code MBLPA.
Macquarie Preferred Membership Interests (Macquarie PMIs)
are listed on the Singapore Stock Exchange and trade under
the stock code 40RB.
Macquarie Exchangeable Capital Securities (Macquarie ECS)
are listed on the Singapore Stock Exchange and trade under
the stock code 2AQB.
Macquarie Group also has debt securities quoted on the
London Stock Exchange.
Dividend details
Macquarie Group generally pays a dividend on its fully paid
ordinary shares twice a year following the interim and final
results announcements. The proposed dates for the 2015
dividends are as follows:
Dividend
announcement
date Record date
Proposed
payment date
8 May 2015 20 May 2015 2 July 2015
30 Oct 2015
(1)
11 Nov 2015
(1)
16 Dec 2015
(1)
Dividend Reinvestment Plan (DRP)
The DRP allows shareholders to apply their dividends to
acquire new Macquarie shares rather than receiving dividends
in cash.
American Depository Receipt (ADR) program
Macquarie ADRs are negotiable certificates issued by BNY
Mellon, with one ADR representing one Macquarie share. They
are traded under the symbol MQBKY and are classified as
Level 1. They are not listed on any exchange and are only
traded over-the-counter via brokers. BNY Mellon:
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516
USA
Toll-free telephone number for domestic callers:
1-888-BNY-ADRs
Telephone numbers for international callers: +1 201-680-6825
Further information can be found at bnymellon.com/shareowner.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Additional Investor Information
continued
230
Voting rights
At meetings of members or classes of members each
member may vote in person or by proxy, attorney or (if the
member is a body corporate) corporate representative. On a
show of hands every person present who is a member or a
representative of a member has one vote and on a poll every
member present in person or by proxy, attorney or corporate
representative has:
(i) one vote for each fully paid share held, and
(ii) that proportion of a vote for any partly paid ordinary
share calculated in accordance with clause 8.18 of the
Macquarie Constitution.
A copy of the Constitution is available at
macquarie.com/leadership-corporate-governance
Macquarie Group Capital Notes (MCN)
Macquarie MCN may convert into a variable number of
ordinary shares on 7 June 2021 or at other times, subject to
various conditions. Holders of MCN have no voting rights in
respect of Macquarie Group Limited prior to conversion.
Macquarie Preferred Membership Interests (PMIs)
PMIs may be exchanged for preference shares in Macquarie
Group Limited under certain circumstances. Prior to
exchange, PMI holders have no voting rights in respect of
MGL. After an exchange the preference share holder has a
right to vote at any general meeting of MGL only in one or
more of the following circumstances:
(a) on any proposal:
(i) to reduce the share capital of MGL
(ii) that affects the rights attached to the Preference
Shares
(iii) to wind up MGL
(iv) for the disposal of the whole of the property,
business and undertaking of MGL
(b) on any resolution to approve the terms of a share
buyback agreement
(c) during a period in which a dividend or part of a dividend
is in arrears, or
(d) during the winding up of MGL.
in which case the holders of preference shares have the
same rights as to manner of attendance and to voting as
holders of ordinary shares with one vote per preference
share.
Macquarie Exchangeable Capital Securities
(Macquarie ECS)
Macquarie ECS may convert into a variable number of
ordinary shares on 20 June 2017 or at other times, subject
to various conditions. Holders of Macquarie ECS have no
voting rights in respect of Macquarie Group Limited prior to
conversion.
Macquarie Income Securities (MIS)
Holders of MIS, as holders of a stapled security that includes
a preference share issued by Macquarie Bank, have limited
voting rights in respect of Macquarie Bank Limited and no
voting rights in respect of Macquarie Group Limited.
Macquarie Bank Capital Notes (BCN)
BCN are unsecured, subordinated notes issued by
Macquarie Bank Limited. They are non-cumulative and
mandatorily convertible. BCN holders have no voting rights in
respect of Macquarie Bank Limited or Macquarie Group
Limited.
Macquarie Income Preferred Securities (MIPS)
Unpaid preference shares were issued by Macquarie Bank
as part of the MIPS issue. Holders have no voting rights in
Macquarie Bank Limited prior to the preference shares
becoming paid-up and no rights in respect of Macquarie
Group Limited.
Enquiries
Investors who wish to enquire about any administrative
matter relating to their Macquarie Group Limited
shareholding or MCN security holding are invited to contact
the Share Registry office at:
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne VIC 8060 Australia
Telephone (within Australia): 1300 554 096
Telephone (international) +61 3 9415 4137
Facsimile: +61 3 9473 2500
Website: www .investorcentre.com/contact
All other enquiries relating to a Macquarie Group Limited
share investment can be directed to:
Investor Relations
Macquarie Group Limited
Level 6, 50 Martin Place
Sydney NSW 2000 Australia
Telephone: +61 2 8232 3333
Facsimile: +61 2 8232 7780
Email: [email protected]
Website: macquarie.com/investors
Macquarie Group’s Company Secretary, Dennis Leong, may
be contacted on the above numbers.
Website
To view the Interim and Annual Reports, presentations,
dividend information and other investor information,
visit macquarie.com/investors
231
Fully paid ordinary shares
Twenty largest ordinary shareholders at 22 April 2015: Ordinary Shares
Percentage of
Ordinary Shares
HSBC Custody Nominees (Australia) Limited
71,756,736 21.52
JP Morgan Nominees Australia Limited
55,684,175 16.70
National Nominees Limited
44,483,645 13.34
Citicorp Nominees Pty Limited
21,318,522 6.39
Bond Street Custodians Limited – MEREP Trustee – RSU Allocated
19,933,795 5.98
BNP Paribas Noms Pty Ltd – DRP
8,312,687 2.49
Citicorp Nominees Pty Limited – Colonial First State Inv A/C
6,125,481 1.84
Bond Street Custodians Limited – MEREP Trustee – Unallocated
3,504,844 1.05
AMP Life Limited
2,462,876 0.74
Argo Investments Limited
2,355,151 0.71
HSBC Custody Nominees (Australia) Limited – NT-Comnwlth Super Corp A/C
1,950,233 0.58
BNP Paribas Nominees Pty Ltd – Agency Lending DRP A/C
1,939,263 0.58
Bond Street Custodians Limited – Solium Capital Aus Pty Ltd
1,338,113 0.40
QIC Limited
1,203,722 0.36
RBC Investor Services Australia Nominees Pty Limited – BKCUST A/C
989,950 0.30
Nicholas Moore
816,244 0.24
UBS Nominees Pty Ltd
725,992 0.22
National Nominees Limited – DB A/C
661,676 0.20
EG Holdings Pty Ltd
519,090 0.16
Milton Corporation Limited
508,849 0.15
Total
246,591,044 73.95
Substantial shareholders
At 22 April 2015 the following shareholders were registered by the Company as a substantial shareholder, having declared a
relevant interest in accordance with the Act, in the voting shares below:
Holder Ordinary Shares Date of notice
Macquarie Group Limited
28,549,458 25 August 2014
Spread of ordinary shareholdings
Details of the spread of ordinary shareholdings at 22 April 2015 are as follows:
Range Shareholders Shares
1 – 1,000
79,599 24,140,023
1,001 – 5,000
15,799 29,597,299
5,001 – 10,000
1,005 6,865,651
10,001 – 100,000
573 14,276,379
100,001 shares and over
75 258,578,425
Total
97,051 333,457,777
2,606 shareholders (representing 6,667 fully paid shares) held less than a marketable parcel.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Additional Investor Information
continued
232
Unlisted securities
– 141,597 exchangeable shares on issue at 22 April 2015 are held by former employees of Orion Financial Inc.
The exchangeable shares were issued by a controlled entity and are eligible to be exchanged one for 0.9438 of an ordinary
share in Macquarie Group Limited. They expire in November 2017 and carry no Macquarie Group Limited voting rights
– 92,563 exchangeable shares on issue at 22 April 2015 are held by former employees of Tristone Capital Global Inc. The
exchangeable shares were issued by a controlled entity and are eligible to be exchanged one for 0.9438 of an ordinary share in
Macquarie Group Limited. They expire in August 2019 and carry no Macquarie Group Limited voting rights. There are a further
11,295 exchangeable shares on issue, resulting from the exercise of retention options previously held under retention
agreements with key former Tristone employees
– as at 22 April 2015, 3,624,400 DSUs and 1,824,542 PSUs are held by participants in the MEREP.
Macquarie Group Capital Notes
Twenty largest MCN holders at 22 April 2015:
MCN Percentage of MCN
Questor Financial Services Limited – TPS RF A/C 293,803 4.90
National Nominees Limited
196,530 3.28
HSBC Custody Nominees (Australia) Limited
126,685 2.11
Navigator Australia Ltd – MLC Investment Sett A/C
123,605 2.06
Nulis Nominees (Australia) Limited – Navigator Mast Plan Sett A/C
87,242 1.45
JP Morgan Nominees Australia Limited
84,780 1.41
UBS Wealth Management Australia Nominees Pty Ltd
69,693 1.16
Australian Executor Trustees Limited – No 1 Account
56,525 0.94
Questor Financial Services Limited – TPS PIP A/C
47,988 0.80
Longhurst Management Services Pty Ltd
38,152 0.64
HSBC Custody Nominees (Australia) Limited – A/C 2
35,560 0.59
UBS Nominees Pty Ltd
33,816 0.56
Netwealth Investments Limited – Wrap Services A/C
31,904 0.53
BT Portfolio Services Limited – Namrog Investments P/L A/C
30,000 0.50
Sir Moses Montefiore Jewish Home – Income A/C
28,000 0.47
Aust Executor Trustees Ltd – DDH Preferred Income Fund
26,499 0.44
BNP Paribas Noms Pty Ltd – DRP
20,000 0.33
Netwealth Investments Limited – Super Services A/C
18,626 0.31
Brownbuilt Pty Ltd
16,477 0.27
Aust Executor Trustees Ltd – Charitable Foundation
15,727 0.26
Total 1,381,612 23.03
Spread of Macquarie Group Capital Notes
Details of the spread of MCN holdings at 22 April 2015 were as follows:
Range
Noteholders Notes
1 – 1,000
8,151 2,705,852
1,001 – 5,000
680 1,432,738
5,001 – 10,000
40 313,636
10,001 – 100,000
28 807,151
100,001 securities and over
4 740,623
Total
8,903 6,000,000
3 noteholders (representing 9 MCN) held less than a marketable parcel.
233
Macquarie Preferred Membership Interests
As at 22 April 2015, the 400,000 convertible notes issued by
Macquarie Group Limited as part of the Macquarie PMIs were
held by one holder, Macquarie PMI LLC. The register in
respect of the convertible notes is kept at Macquarie Group
Limited’s principal administrative office at 50 Martin Place,
Sydney NSW 2000; telephone number +61 2 8232 3333.
Macquarie Exchangeable Capital Securities
As at 22 April 2015, the $US250 million exchangeable capital
securities, issued by Macquarie Bank Limited acting through
its London branch, were held by one holder, BT Globenet
Nominees Limited, as nominee for Deutsche Bank AG, London
Branch as common depository for Euroclear Bank S.A./N.V.
and Clearstream Banking société anonyme. The register in
respect of the exchangeable capital securities is kept by
Deutsche Bank Luxembourg S.A, as the Registrar for the
exchangeable capital securities.
This is the end of the Additional Investor Information.
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Glossary
234
AASB Australian Accounting Standards Board
the Act Corporations Act 2001 (Cth)
ADI authorised deposit-taking institution
ADR American Depository Receipt
AEC Australian Electoral Commission
AGM Annual General Meeting
AICD Australian Institute of Company Directors
ALCO Asset and Liability Committee
AMA Advanced Measurement Approach
Annual Report Macquarie Group Limited’s 2015 Annual Report
ANZ Australia and New Zealand
APRA Australian Prudential Regulation Authority
ASIC Australian Securities & Investments Commission
ASX Australian Securities Exchange or ASX Limited ABN 98 008 624 691 and the market operated by
ASX Limited
ASX Recommendations ASX Corporate Governance Council Principles & Recommendations
ATO Australian Taxation Office
AUM assets under management
BAC Board Audit Committee
Banking Group the Banking Group comprises BFS, CAF, CFM, MAM and the trading activities of MSG
BBSW Australian Financial Markets Association’s bank-bill rate, published daily on AAP Reuters webpage.
The Australian equivalent of LIBOR, SIBOR etc
BFS Banking and Financial Services Group
BGCC Board Governance and Compliance Committee
BNC Board Nominating Committee
the Board the Board of Voting Directors of Macquarie Group Limited
BORMs Business Operational Risk Managers
BRC Board Remuneration Committee
BRiC Board Risk Committee
CA Credit Assurance
CAF Corporate and Asset Finance Group
CAGR compound annual growth rate
CDP Carbon Disclosure Project
CEO Managing Director and Chief Executive Officer
CER Certified Emission Reductions
CFM Commodities and Financial Markets Group
CFO Chief Financial Officer
COG Corporate Operations Group
the Code Macquarie's Code of Conduct
the Company Macquarie Group Limited
the Consolidated Entity Macquarie Group Limited and its subsidiaries
Corporate head office and central support functions including Group Treasury
CRO Chief Risk Officer
CVA credit valuation adjustments
Deed Deed of Access, Indemnity, Insurance and Disclosure
Deed Poll Indemnity and Insurance Deed Poll dated 12 September 2007
Directors the Voting Directors of Macquarie Group Limited (unless the context indicates otherwise)
DRP Dividend Reinvestment Plan
DSU Deferred Share Unit issued under the MEREP
DVA debit valuation adjustments
ECAM Economic Capital Adequacy Model
ECL expected credit losses
ECM equity capital markets
EMEA Europe, Middle East and Africa
Environmental
Management Plan
Macquarie's internal framework of actions and targets to manage and reduce the environmental
impact of its direct operations. The Plan covers Macquarie's corporate offices and associated
corporate activities such as travel and procurement
EPS earnings per share
ERL Equity Risk Limit
235
ESP Macquarie Group Employee Share Plan
ESG Environmental, Social and Governance
ESR Environmental and Social Risk
Executive Director Macquarie’s most senior employees including Group Heads, Divisions Heads and senior business
unit managers
Executive Key
Management Personnel
(Executive KMP)
Members of the Executive Committee of Macquarie Group Limited
Executive Voting Director an executive board member
FIRB Foundation Internal Ratings Based Approach
FMG Financial Management Group
the Foundation Macquarie Group Foundation
Funds Macquarie-managed funds
FVA funding value adjustment
GRCC Group Risk and Compliance Committee
GRI Global Reporting Initiative
IAD Internal Audit Division
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IPO initial public offering
JLM Joint Lead Manager
LGBTI Lesbian Gay Bisexual Transgender and Intersex
LGL Legal and Governance Group
LMI lender's mortgage insurance
LVRs loan to value ratios
Key Management
Personnel (KMP)
all Voting Directors and members of the Executive Committee of Macquarie Group Limited
M&A mergers and acquisitions
Macquarie Bank, MBL Macquarie Bank Limited ABN 46 008 583 542
Macquarie Board, the
Board
the Board of Voting Directors of Macquarie Group Limited
Macquarie ECS, ECS Macquarie Exchangeable Capital Securities
Macquarie ordinary
shares
Macquarie Group Limited fully paid ordinary shares
Macquarie, MGL,
Macquarie Group or
Group
Macquarie Group Limited and its subsidiaries
Macquarie PMI Macquarie Preferred Membership Interests
Malus the discretion of the Board (from 2012) to reduce or eliminate unvested profit share amounts where
it determines that an employee's action or inaction has caused Macquarie significant reputational
harm, caused a significant or unexpected financial loss or caused Macquarie to make a material
financial restatement
MAM Macquarie Asset Management Group
Management Macquarie senior management
MBHPL Macquarie B.H. Pty Limited
MBL Macquarie Bank Limited
MCN Macquarie Group Capital Notes
MEL Macro-Economic-Linkages
MEREP Macquarie Group Employee Retained Equity Plan
MFHL Macquarie Financial Holdings Limited
MFHL Group MFHL and its subsidiaries
MGESOP Macquarie Group Employee Share Option Plan
MGL Macquarie Group Limited ABN 94 122 169 279
MIDIS Macquarie Infrastructure Debt Investment Solutions
MIM Macquarie Investment Management
MIP Macquarie Infrastructure Partners Inc.
MIPS Macquarie Income Preferred Securities
MIRA Macquarie Infrastructure and Real Assets
Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com
Glossary
continued
236
MIS Macquarie Income Securities
MPPM Macquarie Private Portfolio Management
MSG Macquarie Securities Group
MSIS Macquarie Specialised Investment Solutions
NCD negotiable certificates of deposit
NCI non-controlling interests
NED Non-Executive Director
NOHC non-operating holding company
Non-Banking Group the Non-Banking Group comprises Macquarie Capital and some business activities of MSG, MAM
and CFM that use certain offshore regulated entities of the Non-Banking Group
NPAT net profit after tax
NUA Net usable area
OCI Other comprehensive income
OECD Organisation for Economic Co-operation and Development
Operating Groups the Operating Groups consist of BFS, CAF, FICC, Macquarie Capital, MFG and MSG
ORMF Operational Risk Management Framework
OTC over-the-counter
PINAI Philippines Investment Alliance for Infrastructure
Post-2009 DPS retained profit share which is deferred to future periods and held as a notional investment in
Macquarie managed-fund equity
PPP Public Private Partnership
PSU Performance Share Unit issued under the MEREP
PwC PricewaterhouseCoopers
RAS Risk Appetite Statement
RMG Risk Management Group
ROE return on ordinary equity
RSU Restricted Share Unit issued under the MEREP
RWA risk-weighted assets
S&P Standard & Poor’s
SEs structured entities
SFE Sydney Futures Exchange
Statutory Remuneration Statutory remuneration disclosures are prepared in accordance with Australian Accounting
Standards and as disclosed throughout the Remuneration Report
SYD ASX-listed Sydney Airport
SYD Distribution In specie distribution of Sydney Airport stapled securities to Macquarie ordinary shareholders on 13
January 2014
SYD Securities SYD stapled securities
SPVs special purpose vehicles
tCO2-e (Carbon dioxide
equivalent in tonnes)
metric measure used to compare the emissions from various greenhouse gases based upon their
global warming potential (US Environment Protection Agency)
TJ terajoules
TMET telecommunications, media, entertainment and technology
TSR total shareholder return
VaR Value-at-Risk
Voting Directors the Voting Directors of Macquarie Group Limited as defined in the MGL Constitution
WHS Work Health and Safety
WHSE work health, safety and environmental
Contact details
Macquarie Group Principal Administrative Offce
50 Martin Place
Sydney NSW 2000
Australia
Tel: +61 2 8232 3333
Registered Offce
Macquarie Group Limited
Level 6, 50 Martin Place
Sydney NSW 2000
Australia
Tel: +61 2 8232 3333
Fax: +61 2 8237 1899
Paper stock
Monza Recycled is Certifed Carbon Neutral by
The Carbon Reduction Institute (CRI) in accordance
with the global Greenhouse Gas Protocol and ISO 14040
framework. Monza Recycled contains 55 per cent
recycled fbre (25 per cent post consumer and 30 per cent
pre consumer) and is FSC Mix Certifed, which ensures
that all virgin pulp is derived from well-managed forests
and controlled sources. It is manufactured by an
ISO 14001 certifed mill.
macquarie.com
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