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Macquarie Group
Year ended 31 March 2018
MACQUARIE GROUP LIMITED ACN 122 169 279
Macquarie is a diversified financial
group providing clients with:
– asset management and finance
– banking
– advisory
– risk and capital solutions across
debt, equity and commodities.
2018 Annual General Meeting
Macquarie Group Limited’s 2018 Annual General
Meeting will be held at 10:30 am on Thursday
26 July 2018 at the Hyatt Regency Sydney, Maritime
Ballroom, 161 Sussex 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.
Cover image
The growth of cities is driving unprecedented social
and economic change across the globe. With another
one billion people expected to migrate to urban areas
over the next 12 years, global infrastructure and
energy investment has increased to meet the needs
of growing populations, while technological innovation
continues to shape the way we live, work and interact.
The Macquarie name and Holey Dollar device are
registered trade marks of Macquarie Group Limited
ACN 122 169 279.
Contents
About
About Macquarie
Chairman's and Managing Director's Letter
Financial Highlights
Operating and Financial Review
Governance
Corporate Governance Summary
Diversity Report
Environmental, Social and Governance
Macquarie Group Foundation
Risk Management Report
Directors' Report
Directors' Report
Schedule 1 – Directors' experience and special responsibilities
Schedule 2 – Remuneration Report
Financial Report
Contents
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors' declaration
Independent auditor's report
Further Information
Additional Investor information
Ten year history
Glossary
2
3
4
6
8
19
20
22
24
31
32
39
40
45
50
83
84
85
86
87
88
90
91
176
177
183
184
189
190
2
Macquarie Group Limited and its subsidiaries
2018 Annual Report
macquarie.com
1ABOUT
About Macquarie
Chairman’s and Managing Director’s Letter
Financial Highlights
Operating and Financial Review
ABOUT MACQUARIE
Macquarie (MGL and its subsidiaries, the
Consolidated Entity) is a global diversified
financial group with offices in 25 countries.
Macquarie now employs over
14,400 people
across
25 countries
globally
Americas 18%
EMEA 12%
Asia 24%
ANZ 46%
3
The diversity
of Macquarie’s
operations,
combined with
a strong capital
position and
robust risk
management
framework, has
contributed to
Macquarie’s
49 year record
of unbroken
profitability.
Macquarie Group Limited (MGL, the Company) is listed
in Australia and is regulated by the Australian Prudential
Regulation Authority (APRA), the Australian banking regulator,
as a non-operating holding company of Macquarie Bank
Limited (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
14,400 people globally, has total assets of $A191.3 billion
and total equity of $A18.2 billion as at 31 March 2018.
Macquarie’s breadth of expertise covers asset management
and finance, banking, advisory and risk and capital solutions
across debt, equity and commodities. The diversity of our
operations, combined with a strong capital position and
robust risk management framework, has contributed to
Macquarie’s 49 year record of unbroken profitability.
Macquarie acts primarily as an investment intermediary for
institutional, corporate, government and retail clients and
counterparties around the world, generating income by
providing a diversified range of products and services to our
clients. We have established leading market positions as a
global specialist in a wide range of sectors, including resources
and commodities, green energy, conventional energy, financial
institutions, infrastructure and real estate and have a deep
knowledge of Asia-Pacific financial markets.
Alignment of interests is a longstanding feature of Macquarie’s
client focused business, demonstrated by our willingness to
both invest alongside clients and closely align the interests of
our shareholders and staff.
$A2,557m
FY2018 profit
2018
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT1969 15%
Net profit
increase over
the prior year
4
CHAIRMAN’S AND MANAGING DIRECTOR’S LETTER
We are pleased to announce Macquarie
achieved a net profit of $A2,557 million for
the year ended 31 March 2018, up 15%
on the prior year.
Macquarie reported net operating income
of $A10,920 million, an increase of 5% on
the prior year.
CONTINUED STRONG PERFORMANCE
Macquarie's businesses have continued to grow in
the challenging market conditions of recent years,
highlighting the diversity of our business offering
and its ability to adapt to changing conditions.
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(1) of
$A3,451 million, an increase of 6% on the prior year.
Among the highlights of the annuity-style businesses:
– Macquarie Asset Management continued to perform
well compared to the prior year, benefiting from
increased performance fees
– Corporate and Asset Finance experienced
solid performances across most portfolios, with
growth in the Technology, Energy and Resources
portfolios as well as higher prepayments,
realisations and investment-related income in
Principal Finance
– Banking and Financial Services experienced
continued growth in Australian loan, business
banking and deposit books as well as increased
funds on platform.
The net profit contribution from our capital markets
facing businesses (Commodities and Global Markets
and Macquarie Capital) was $A1,610 million, an
increase of 11% on the prior year.
Among the highlights of the capital markets facing
businesses:
– Commodities and Global Markets benefited from
improved results across the commodities, fixed
income and currencies, equities and futures
platforms, offset by sustained low volatility and
tighter credit spreads impacting income from
interest rate and credit products
– Macquarie Capital benefited from increased
asset realisations, particularly in green energy,
conventional energy and infrastructure, higher
debt capital markets income and lower provisions
and impairment charges compared to the
prior year.
Macquarie’s total operating expenses of
$A7,456 million increased 3% on the prior year.
While the effective tax rate of 25.7% was down from
28.1% in the prior year, mainly due to changes in the
geographic composition and nature of earnings.
While our Australian franchise maintained
its strong position, the offshore businesses
continued to perform well, with international
income(2) accounting for 67% of Macquarie’s total
income for the year ended 31 March 2018. Total
international income was $A7,127 million for the
year ended 31 March 2018, an increase of 8% from
$A6,612 million in the prior year.
DIVIDENDS AND CAPITAL
The Board has resolved to pay a final ordinary
dividend of $A3.20 per share (45% franked), up
from $A2.05 per share (45% franked) in the first half
and up from $A2.80 per share (45% franked) in the
second half of last year. This results in a total ordinary
dividend payment for the year ended 31 March 2018
of $A5.25 per share, up from $A4.70 in the prior year.
Macquarie has a longstanding policy of holding a
level of capital that supports its business and has
consistently grown its capital base ahead of business
requirements. Macquarie’s APRA Basel III capital
was $A19.1 billion and Macquarie’s surplus above
regulatory minimum requirements was $A4.2 billion(3)
at 31 March 2018.
PROFESSIONAL CONDUCT
The Board and Management are committed to
achieving the highest standards of professional
conduct across all Macquarie operations.
Compliance with all regulatory requirements and our
Company-specific policies and procedures are core
to our business and have been since inception.
Our Code of conduct and What We Stand For
principles of Opportunity, Accountability and
Integrity guide the way that Management and staff
are expected to manage their responsibilities and
conduct themselves on a day-to-day basis. It is a
fundamental responsibility for all Management and
staff to deal honestly and fairly in their relationships
with our clients and counterparties. They must
not engage in any improper, unlawful, or unethical
behaviour. There are appropriate consequences for
anyone who fails to meet these high standards.
To assist the Board, Management and staff to
meet their responsibilities, we regularly review
and enhance our reporting, training, monitoring
and surveillance activity. We have an established
Conduct Risk Framework. It details our approach to
managing conduct risk which is defined as the risk
of improper, unethical behaviour or action that may
have a negative impact on our clients, counterparties
or the fair and effective operation of the markets
in which we operate. Supervisors are accountable
for outcomes in the businesses they supervise. We
(1) Where referenced in this document, net profit contribution is management accounting profit before unallocated corporate
costs, profit share and income tax.
International income is net operating income excluding earnings on capital and other corporate items.
(2)
(3) Calculated at 8.5% Risk Weighted Assets (RWA) including capital conservation buffer (CCB), per APRA ADI Prudential
Standard 110. The APRA Basel III Group surplus is $A5.6 billion calculated at 7.0% RWA, per the internal minimum Tier 1
ratio of the Bank Group.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries About Macquarie
Chairman’s and Managing Director’s Letter
Financial Highlights
Operating and Financial Review
5
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.
In October 2017, and after 25 years of service,
Stephen Allen, Macquarie’s Chief Risk Officer and
Head of Risk Management Group, announced his
intention to retire and step down from Macquarie’s
Executive Committee on 31 December 2017.
Effective 1 January 2018, Macquarie’s Chief Financial
Officer and Head of Financial Management Group,
Patrick Upfold, succeeded Mr Allen as Chief Risk
Officer and Head of Risk Management Group.
Effective the same date, Alex Harvey succeeded
Mr Upfold as Chief Financial Officer and Head of
Financial Management Group and joined Macquarie’s
Executive Committee.
OUTLOOK
Macquarie’s result for the financial year ending
31 March 2019 is currently expected to be broadly in
line with the financial year ended 31 March 2018.
Macquarie’s short-term outlook remains subject to
market conditions, the impact of foreign exchange,
potential regulatory changes and tax uncertainties
and the geographic composition of income.
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 Senior Management,
we would like to thank our staff for their efforts
during the year and our shareholders for their
continued support.
Peter Warne
Chairman
Nicholas Moore
Managing Director and Chief Executive Officer
Sydney
4 May 2018
take a dynamic approach to enhancing our risk
culture and Conduct Risk Framework in response to
changes in our business operations, outcomes of our
oversight activities and the expectations of regulators
and the communities in which we do business.
We regularly reinforce our Company-wide
expectations of behaviour through multiple
mechanisms, including policies, procedures, training
and direct communications to staff.
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE
The Board and Management view our commitment
to Environmental, Social and Governance (ESG)
performance as part of our responsibility to clients,
shareholders, communities and the environment in
which we operate.
In the year ended 31 March 2018, we continued
to embed ESG risk management across the
organisation and support the transition to a lower
carbon economy by pursuing business opportunities
in renewable energy, clean technology and
environmental markets. Our ESG Report provides
further details on our approach to ESG matters.
IN THE COMMUNITY
The Macquarie Group Foundation continued its
longstanding support of the non-profit sector during
the year. Since 1985, the Foundation and our staff
have contributed $A330 million to thousands of
community organisations around the world. This
year the Foundation and our staff contributed
$A28.3 million in donations and fundraising to
more than 1,500 community organisations globally,
as well as recording over 60,000 hours of voluntary
community service.
BOARD CHANGES
Effective 1 November 2017, Glenn Stevens
was appointed to the Macquarie Group Limited
and Macquarie Bank Limited Boards as an
independent director. Mr Stevens worked at the
highest levels of the Reserve Bank of Australia
for 20 years, most recently as Governor between
2006 and 2016. He led policy decisions through
the global financial crisis, Australia’s mining boom,
and an extended period of low interest rates,
and developed Australia’s successful inflation
targeting framework for monetary policy.
MANAGEMENT CHANGES
On 15 June 2017, Nicholas O’Kane, Head of
Commodity Markets and Finance, joined the
Executive Committee. Mr O’Kane established the
Energy Markets Division in the US, building the
business both organically and through acquisition.
On the same date, Michael McLaughlin, US
Country Head and Head of Credit Markets Division,
announced his decision to step down from the
Executive Committee, having been a member since
1 January 2012.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT
6
FINANCIAL HIGHLIGHTS
FY2018 NET
OPERATING INCOME
$A10,920m
5% on prior year
10,158 10,364 10,920
9,262
8,132
FY14
FY15
FY16
FY17
FY18
$A million
2H
1H
FY2018 NET PROFIT
$A2,557m
15% on prior year
3000
2,557
2,217
2,063
1,604
1,265
FY14
FY15
FY16 FY17
FY18
$A million
2H
1H
FY2018 EARNINGS
PER SHARE
$A7.58
15% on prior year
7.58
6.58
6.19
5.02
3.84
FY14
FY15
FY16
FY17
FY18
$A
2H
1H
FY2018 DIVIDENDS
PER SHARE
$A5.25
12% on prior year
(45% franked)
5.25
4.70
4.00
3.76
3.30
$A
SYD Special
Dividend(1)
2H
1H
FY14
FY15
FY16
FY17 FY18
FY2018 Return
on equity
16.8%
from 15.2%
in prior year
FY2018 Operating
expenses
$A7,456m
3% on
prior year
FY2018 Effective
tax rate
25.7%
from 28.1%
in prior year
Assets under
management as
at 31 March 2018
$A497b
from $A482b at
31 March 2017
(1)
In 2H2014, eligible shareholders also benefited from the SYD distribution in January 2014 which comprised a special dividend of $A1.16 (40% franked)
and a return capital of $A2.57 per share.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries About Macquarie
Chairman’s and Managing Director’s Letter
Financial Highlights
Operating and Financial Review
FY2018 INTERNATIONAL INCOME(2)
Americas
27%
FY2018 NET PROFIT CONTRIBUTION(4) BY OPERATING GROUP
Annuity-style businesses
~70%
$A3,451m
6% on prior year
MACQUARIE ASSET MANAGEMENT
33%
CORPORATE AND ASSET FINANCE
24%
BANKING AND FINANCIAL SERVICES
11%
Net profit
contribution
7
EMEA
29%
Asia
11%
Australia(3)
33%
Capital markets facing businesses
~30%
$A1,610m
11% on prior year
COMMODITIES AND GLOBAL MARKETS
18%
14%
MACQUARIE CAPITAL
International income is net operating income excluding earnings on capital and other corporate items.
Includes New Zealand.
(2)
(3)
(4) Net profit contribution is management accounting profit before unallocated corporate costs, profit share and income tax. Annuity-style businesses
include Macquarie Asset Management, Corporate and Asset Finance and Banking and Financial Services. Capital markets facing businesses include
Commodities and Global Markets and Macquarie Capital.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 8
OPERATING AND FINANCIAL REVIEW
OUR BUSINESSES
Macquarie is a diversified financial group providing clients with asset management and finance, banking,
advisory and risk and capital solutions across debt, equity and commodities.
For internal reporting and risk management purposes, Macquarie is divided into five Operating Groups, which are supported by four
Central Service Groups. The Operating Groups are split between annuity-style businesses and capital markets facing businesses.
Annuity-style businesses
MACQUARIE ASSET
MANAGEMENT (MAM)
CORPORATE AND ASSET
FINANCE (CAF)
BANKING AND FINANCIAL
SERVICES (BFS)
$A1,685m
10% on prior year
MAM is Macquarie’s asset management
business, offering a diverse range of products
through three divisions:
Macquarie Infrastructure and Real
Assets (MIRA): a leader in alternative asset
management worldwide, specialising in
infrastructure, real estate, agriculture and
energy via public and private funds, co-
investments, partnerships and separately
managed accounts.
Macquarie Investment Management (MIM):
offering securities investment management
capabilities across a number of asset classes
including fixed income, currencies, equities,
infrastructure securities, hedge funds and
multi-asset allocation solutions.
Macquarie Specialised Investment Solutions
(MSIS): offering a range of investment solutions
with an alternate fixed income focus, for its
fiduciary clients within the infrastructure debt
sector and balance sheet lending to shipping,
export credit agency backed debt, hedge
funds and private equity investors.
Performance
MAM delivered a net profit contribution
of $A1,685 million for FY2018, up ten per cent
from $A1,538 million in FY2017. Performance fee
income of $A595 million increased significantly
from $A264 million in the prior year, predominately
from Macquarie European Infrastructure Fund 3
(MEIF3), Macquarie Atlas Roads (MQA) and
other managed funds and co-investors. Base
fees of $A1,608 million were broadly in line with
FY2017, as positive market movements in MIM
AUM and investments made by MIRA-managed
funds were partially offset by asset realisations
by MIRA-managed funds, net flow impacts in the
MIM business and foreign exchange impacts.
Investment-related income of $A562 million
was broadly in line with a strong prior year,
while impairments and provisions increased
to $A177 million largely due to the write-down
of MIRA’s investment in MIC. Assets under
management of $A495.1 billion increased three
per cent from $A480.0 billion at 31 March 2017.
Medium-term
MAM is an annuity-style business that is diversified
across regions, products, asset classes and
investor types. This diversification of capabilities
allows for the business to be well placed to grow
assets under management in different market
conditions. MAM is also well positioned for
organic growth with several strongly performing
products and an efficient operating platform.
$A1,206m
1% on prior year
CAF consists of an Asset Finance business
and a Principal Finance business. CAF
services clients in over 50 countries and
manages an asset and loan portfolio of
$A34.5 billion as at 31 March 2018. CAF
is comprised of the following businesses:
Asset Finance: Provides tailored finance and
asset management solutions to clients across
specialised assets through the cycles, with
asset finance expertise in aircraft, vehicles,
technology, healthcare, manufacturing,
industrial, energy, rail and mining equipment.
Principal Finance: Provides flexible primary
financing solutions and engages in secondary
market investing across the capital structure.
It operates globally in both corporate and real
estate sectors.
$A560m
9% on prior year
BFS serves the Australian market, and is
organised into the following three business
divisions:
Personal Banking: Provides a full retail
banking product suite to clients with
mortgages, credit cards, transaction and
savings accounts.
Wealth Management: Provides clients with
a wide range of wrap platform and cash
management services, investment and
superannuation products, financial advice,
private banking and stockbroking.
Business Banking: 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.
Performance
CAF delivered a net profit contribution of
$A1,206 million for FY2018, up one per cent
from $A1,198 million in FY2017. The increase
was mainly driven by increased income from
prepayments, realisations and investment-related
income in the Principal Finance portfolio and lower
charges for provisions and impairments, partially
offset by lower interest income as a result of the
reduction in the Principal Finance portfolio size.
The Asset Finance contribution increased due to
stronger underlying net operating lease income in
Aviation and income from Vehicles, which included
the sale of the US commercial vehicles financing
business. The remaining portfolios continued
to perform well. CAF’s asset and loan portfolio
of $A34.5 billion decreased five per cent from
$A36.5 billion at 31 March 2017.
Medium-term
CAF’s medium-term focus is to leverage its deep
industry expertise to maximise growth potential
in asset and loan portfolios. CAF is positioned for
further asset acquisitions and realisations, subject
to market conditions, with funding from asset
securitisations expected throughout the cycle.
Performance
BFS delivered a net profit contribution of
$A560 million for FY2018, up nine per cent from
$A513 million in FY2017. The improved result
reflects increased income from growth in average
Australian loan, deposit and platform volumes, as
well as the non-recurrence of expenses recognised
in the prior year. The prior year also included the
net overall gain on the disposal of Macquarie Life’s
risk insurance business to Zurich Australia Limited
and the US mortgages portfolio. BFS deposits
of $A45.7 billion increased three per cent from
$A44.5 billion at 31 March 2017 and funds on
platform of $A82.5 billion increased 14 per cent
from $A72.2 billion at 31 March 2017 due to
the successful migration of holdings onto the
Vision platform, net inflows and positive market
movements. The Australian mortgage portfolio
of $A32.7 billion increased 14 per cent from
$A28.7 billion at 31 March 2017, representing
approximately two per cent of the Australian
mortgage market.
Medium-term
BFS remains focused on: strong growth
opportunities through intermediary and direct retail
client distribution, white labelling, platforms and
client service; opportunities to increase financial
services engagement with existing business
banking clients and extend into adjacent segments;
and modernising technology to improve client
experience and support growth.
Further information is also available at macquarie.com/about/company
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries About Macquarie
Chairman’s and Managing Director’s Letter
Financial Highlights
Operating and Financial Review
9
Capital markets facing businesses
Central Service Groups
COMMODITIES AND
GLOBAL MARKETS (CGM)
MACQUARIE
CAPITAL
$A910m
6% on prior year
CGM provides clients with an integrated,
end-to-end offering across global markets
including equities, fixed income, foreign
exchange and commodities. The platform
covers more than 25 markets and over 160
products, and has evolved over more than
three decades to provide clients with access
to markets, financing, financial hedging,
research and market analysis and physical
execution. CGM comprises seven divisions:
Cash Equities, Commodity Markets and
Finance, Credit Markets, Equity Derivatives
and Trading, Fixed Income and Currencies,
Futures and Central (CGM-wide services).
$A700m
45% on prior year
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. It also utilises its balance sheet
globally to support clients. Its activities are
aligned with global capability in infrastructure,
energy, real estate, telecommunications,
media, technology, consumer, gaming
and leisure, business services, resources,
industrials and financial institutions.
Performance
CGM delivered a net profit contribution of
$A910 million for FY2018, down six per cent from
$A971 million in FY2017. The result was driven
by an improved performance across the equities
platform due to rallying prices and increased
volatility in Asia, a reduction in impairments in
commodity-related sectors, improved client
demand for structured foreign exchange solutions
in Asia and North America and significant
opportunities for the North American Gas and
Power business to capitalise on price dislocations
across regions. This was offset by the timing of
income recognition relating to tolling agreements
and capacity contracts, sustained low volatility
and tighter credit spreads impacting income from
interest rate and credit products, and reduced
income from the sale of investments, mainly in
energy and related sectors.
Medium-term
CGM remains focused on: opportunities to grow
the commodities business, both organically
and through acquisition; the development of
institutional coverage for specialised credit,
rates and foreign exchange products; increasing
financing activities; growing the client base across
all regions; leveraging a strong market position
in Asia-Pacific through investment in the equities
platform and further integration of the business
across CGM.
Performance
Macquarie Capital delivered a net profit
contribution of $A700 million for FY2018, up
45 per cent from $A483 million in FY2017. The
result reflects increased investment-related income
due to asset realisations particularly in green
energy, conventional energy and infrastructure,
higher fee income from debt capital markets in
the US due to increased market share and client
activity, and lower provisions and impairment
charges. This was partially offset by lower mergers
and acquisitions and equity capital markets
fee income as well as higher funding costs
for balance sheet positions. During FY2018,
Macquarie advised on 402 transactions valued at
$A352 billion. During FY2018, a Macquarie-led
consortium acquired the UK Green Investment
Bank plc from HM Government for £2.3 billion.
The Green Investment Bank, rebranded as Green
Investment Group, is one of Europe’s largest
teams of green energy investment specialists.
Medium-term
Macquarie Capital is positioned to benefit from
any improvement in M&A and capital markets
activity. It also continues to tailor the business
offering to current opportunities, market conditions
and strengths in each region and sector.
Risk Management
Group (RMG)
Independent and centralised unit
responsible for identifying, assessing
and monitoring risks across Macquarie.
Legal and Governance (LGL)
Provides a full range of legal and
corporate governance services,
including strategic legal and governance
advice and risk assessment on
corporate transactions, treasury and
funding, insurance, regulatory enquiries
and litigation.
Financial Management
Group (FMG)
Provides financial, tax, treasury,
corporate communications and investor
relations services.
Corporate Operations Group
(COG)
Provides specialist support services
through technology, market operations,
human resources, workplace, strategy,
operational risk management, resilience,
brand and marketing, global security
and the Macquarie Foundation.
The Central 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.
For more details on the financial
performance of the Operating
Groups, see section 3.0 Segment
Analysis of the Management
Discussion and Analysis available
at macq.co/FY18MDA
For more details on the operational
performance of the Operating
Groups, see slides 17 to 21 of
the presentation to investors and
analysts available at macq.co/
FY18investorpresentation
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 10
OPERATING AND FINANCIAL REVIEW
OUR STRATEGY
Our Purpose
Our Business Strategy
Macquarie’s purpose is
to realise opportunity for
the benefit of our clients,
shareholders and staff.
We are in business to be
profitable and to achieve
an appropriate and
resilient long-term return
on capital. Ultimately
though, it is the way we
do business that defines
Macquarie.
What
We
Stand
For
Opportunity, Accountability and
Integrity. These long-held principles
form the basis of Macquarie’s
expectations of our staff and
adherence to them is required under
the Code of conduct.
The balance between opportunity
and accountability, while operating
with integrity within a strong risk
management framework, is a
feature of Macquarie’s success and
a key factor in our long record of
unbroken profitability.
The Code of conduct is available at
macquarie.com/what-we-stand-for
Consistent with our What We Stand For principles, Macquarie’s
business strategy is focused on the medium-term with the
following key aspects:
Risk management approach
Adopting a conservative approach to risk management. Macquarie’s robust risk management
framework is embedded across all Operating and Central Service Groups. This equips the
business for unanticipated disruptions with the objective of ensuring that both the relevant
business and Macquarie can survive a worst case outcome from any existing or new activity.
Strong balance sheet
Maintaining a strong and conservative balance sheet.
This is consistent with Macquarie’s 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.
We continue to pursue the strategy of diversifying funding sources by growing our deposit base
and accessing different funding markets.
Business mix
Conducting a mix of annuity-style and capital markets facing businesses that deliver solid returns
in a range of market conditions.
Macquarie has dynamically developed its annuity-style businesses, providing steady
returns to the business and our shareholders, and certainty to clients.
Diversification
Operating a diversified set of businesses across different locations and service offerings: asset
management and finance, banking, advisory and risk and capital solutions across debt, equity
and commodities.
Macquarie offers a range of services to government, institutional, corporate and retail clients. This
diversity mitigates concentration risk and provides resilience to Macquarie, as highlighted by
Macquarie’s results in the challenging global markets of recent years.
Proven expertise
Utilising proven deep expertise has allowed Macquarie to establish leading market positions as
a global specialist in sectors including renewables, infrastructure, resources and commodities,
energy, financial institutions and real estate. This is coupled with deep knowledge of Asia-Pacific
financial markets.
Adjacencies
Expanding progressively by pursuing adjacencies through organic opportunities and
selective acquisitions.
These include products and geographies adjacent to our established areas of expertise.
This results in sustainable evolutionary growth.
Pursuit of growth opportunities
Targeting continued evolution and growth through innovation. We start with real knowledge and
skill, and we encourage ingenuity and entrepreneurial spirit coupled with accountability.
Ideas for new businesses are typically generated in the Operating Groups. Additionally, there
are no specific businesses, markets or regions in which our strategy demands we operate.
This means we retain operational flexibility and can adapt the portfolio mix to changing market
conditions within the boundaries of the Risk Appetite Statement (RAS) approved by the Board.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries About Macquarie
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Financial Highlights
Operating and Financial Review
11
Risk Management
Macroeconomic factors
Macquarie recognises that a sound risk
culture is a fundamental requirement of
an effective risk management framework.
Macquarie’s risk culture is well established
and the risk management framework is
embedded across all operations.
The long-held foundations of Macquarie’s
risk culture are the principles of What We
Stand For:
Opportunity
We seek to identify opportunity and realise it for our
clients, community, shareholders and our people.
Accountability
We are accountable for all our actions, to our clients, our
community, our shareholders and each other.
Integrity
We earn the trust of our clients, colleagues, community
and shareholders through the quality of our work and our
high ethical standards.
Staff are made aware that these principles must
form the basis of all behaviours and actions.
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.
The assumption of risk is made within a calculated
and controlled framework that assigns clear risk
roles and responsibilities.
Refer to the Risk Management Report in section 2 for
details on Macquarie’s risk management framework,
risk culture and conduct risk management.
The key macroeconomic risks to
Macquarie’s short and medium-term
financial outlook noted on page 17 are:
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
CGM 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.
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.
Potential regulatory changes
Macquarie, like all financial institutions, is affected by
changes in regulation. Regulatory change continues to be
developed at both the global and Australian levels and has
the potential to affect the capital adequacy, funding and
profitability of businesses.
Funding and liquidity
Macquarie uses deposits and debt markets to fund its
assets. Macquarie is therefore exposed to the risk of an
increase in the cost of funding, or of reduced access to
funding sources, which could affect the volume of income
earning assets and the margin earned on those assets.
In addition, there are specific risks which relate to
the nature of Macquarie’s operations. These include
conduct, credit, cyber and information security, data,
environmental and social (including climate change),
equity, legal, liquidity, market, model, operational,
regulatory and compliance, reputation and tax
risks. All of these risks, including those mentioned
above are monitored, mitigated and managed under
Macquarie’s risk management framework.
Further details on the management of these risks
are available at macquarie.com/risk-management
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT
12
OPERATING AND FINANCIAL REVIEW
REVIEW OF GROUP PERFORMANCE AND FINANCIAL POSITION
GROUP PERFORMANCE
Overview
Profit attributable to ordinary equity holders of $A2,557 million for the year
ended 31 March 2018 increased 15% from $A2,217 million in the prior year.
Net operating income
Operating expenses
Income tax expense
Profit attributable to non-controlling interests
Profit attributable to ordinary equity holders
Full-year to
31 Mar 2018
$A million
Full-year to
31 Mar 2017
$A million
Movement
%
10,920
(7,456)
(883)
(24)
2,557
10,364
(7,260)
(868)
(19)
2,217
5
3
2
26
15
Annuity-style businesses
Capital markets facing businesses
Macquarie’s annuity-style businesses generated a
combined net profit contribution of $A3,451 million
for the year ended 31 March 2018, up 6% on the
prior year.
Macquarie’s capital markets facing businesses delivered
a combined net profit contribution of $A1,610 million
for the year ended 31 March 2018, up 11% on the
prior year.
MACQUARIE ASSET MANAGEMENT
COMMODITIES AND GLOBAL MARKETS
6% on prior year
–
–
–
timing of income recognition relating to tolling
agreements and capacity contracts
sustained low volatility and tighter credit spreads
impacting income from interest rate and credit products
reduced income from the sale of investments, mainly in
energy and related sectors.
Partially offset by:
–
–
–
–
improved results across the equities platform driven by
rallying prices and increased volatility, notably in Asia
reduction in impairments in commodity related sectors
increased client demand for structured foreign exchange
solutions in Asia and North America
significant opportunities for the North American Gas
and Power business to capitalise on price dislocations
across regions.
MACQUARIE CAPITAL
45% on prior year
–
increased investment-related income due to asset
realisations, particularly in green energy, conventional
energy and infrastructure
– higher fee income from debt capital markets in the US
–
due to increased market share and client activity
lower provisions and impairment charges compared to
the prior year.
Partially offset by:
–
lower mergers and acquisitions and equity capital
markets fee income
– higher funding costs for balance sheet positions.
10% on prior year
– base fees broadly in line driven by higher AUM, offset by
–
–
foreign exchange movements
increased performance fee income primarily from MEIF3
investment-related income broadly in line with a strong
prior year.
Partially offset by:
–
increased impairments largely reflects the write-down of
MIRA’s investment in MIC.
CORPORATE AND ASSET FINANCE
1% on prior year
increased income from prepayments, realisations and
investment-related income in the Principal Finance portfolio
–
lower charges for provisions and impairments reflecting
the partial reversal of collective provisions, driven by net
loan repayments, and the improved credit performance
of underlying portfolios
– Asset Finance contribution increased due to stronger
underlying net operating lease income in Aviation and
income from Vehicles which included the sale of the US
commercial vehicles financing business. The remaining
portfolios continued to perform well.
Partially offset by:
–
lower interest income as a result of the reduction in the
Principal Finance portfolio size.
BANKING AND FINANCIAL SERVICES
9% on prior year
– growth in Australian loan, deposit and platform average
volumes
–
the non-recurrence of expenses recognised in the prior
year, including impairment charges predominately on
certain equity positions, intangible assets and expenses
in relation to the Core Banking platform.
Partially offset by:
–
the non-recurrence of the net overall gain on the disposal
of Macquarie Life’s risk insurance business to Zurich
Australia Limited and the US mortgages portfolio in the
prior year.
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Net operating income
Net operating income of $A10,920 million for the year ended 31 March 2018 increased 5% from $A10,364 million
in the prior year. Increases across fee and commission income, equity accounted income and reduced charges
for provisions were partially offset by impairments and lower investment income.
Key drivers included:
Net interest and trading income
Fee and commission income
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
3,943
3,943
–
in line with
prior year
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
4,670
4,331
8%
on prior year
– growth in average Australian loan portfolio and deposit
–
volumes in BFS
increased performance fee income in MAM primarily from
MEIF3 in MAM
–
lower costs of holding long-term liquidity in Corporate.
– base fees broadly in line driven by higher AUM, offset by
Offset by:
–
lower interest income as a result of the reduction in the
Principal Finance portfolio size in CAF
–
sustained low volatility and tighter credit spreads
impacting income from interest rate and credit products
in CGM
– higher funding costs for balance sheet positions in
Macquarie Capital
–
impact of Australian Government Major Bank Levy.
foreign exchange movements
– higher debt capital markets fee income in Macquarie
Capital reflected increased market share and client activity
in the US.
Partially offset by:
–
lower mergers and acquisitions and equity capital
markets fee income in Macquarie Capital.
Net operating lease income
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
935
–
921
on prior year
improved underlying income from the Aviation, Energy
and Technology portfolios in CAF.
2%
Share of net profits of associates and joint
ventures accounted for using the equity method
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
241
51
significantly
on prior year
–
increased income was primarily due to MAM’s share of
net profits from the sale of a number of underlying assets
within equity accounted investments.
Other operating income and charges
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
1%
–
1,131
1,118
on prior year
lower charges for impairments and provisions across
most Operating Groups due to improved credit
conditions, partially offset by the write-down of the
investment in MIC
– higher other income driven by the sale of certain CAF
Principal Finance assets in the US and increased
investing activity in Macquarie Capital.
Partially offset by:
–
lower investment income mainly due to the
non-recurrence of gains in the prior year including the
sale of Macquarie Life’s risk insurance business to
Zurich Australia Limited in BFS and gains on sale on
listed funds and unlisted infrastructure assets in MAM.
This was partially offset by increased investment-related
income in the current year due to asset realisations,
particularly in green energy, conventional energy and
infrastructure in Macquarie Capital.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 14
OPERATING AND FINANCIAL REVIEW
REVIEW OF GROUP PERFORMANCE AND FINANCIAL POSITION
CONTINUED
Operating expenses
Total operating expenses of $A7,456 million for the year ended 31 March 2018 increased 3% from $A7,260 million
in the prior year.
Key drivers included:
Employment expenses
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
4,493
4,379
3%
on prior year
– higher performance-related profit share expense,
driven by the improved overall performance of the
Operating Groups
– higher average headcount.
Partially offset by:
–
favourable foreign currency movements.
Brokerage, commission and
trading-related expenses
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
830
852
3%
on prior year
– decrease mainly driven by reduced physical metals
inventory levels in CGM.
Non-salary technology expenses
Occupancy and Other operating expenses
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
604
644
6%
on prior year
Full year to
31 Mar 2018
$A million
31 Mar 2017
$A million
1,529
1,385
10%
on prior year
–
the prior year included non-recurring technology expenses
in relation to the Core Banking platform in BFS.
– higher transaction and integration costs from acquisitions
and increased business activity
– occupancy expenses broadly in line with prior year.
Income tax expense
Income tax expense for the year ended 31 March 2018 was $A883 million, a 2% increase from $A868 million
in the prior year. The effective tax rate for the year ended 31 March 2018 was 25.7%, down from 28.1% in the
prior year.
The increase in tax expense was mainly due to higher profit before tax, offset in part by increased benefit
from permanent tax differences. The reduced effective tax rate was mainly driven by change in geographic
composition and nature of earnings.
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Financial Highlights
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15
FINANCIAL POSITION
Balance sheet
Macquarie’s statement of financial position has been impacted by changes in business activities and Treasury
management initiatives during the year ended 31 March 2018.
Total Assets
As at
31 Mar 2018
$A million
31 Mar 2017
$A million
191,325
182,877
5%
on prior year
– Receivables from financial institutions of $A38.6 billion
at 31 March 2018 increased 40% from $A27.5 billion
at 31 March 2017 mainly due to an increase in stock
borrowing and reverse repurchase trades in CGM driven
by short term funding opportunities and client flow
– Loan assets held at amortised cost of $A81.2 billion
at 31 March 2018 increased 6% from $A76.7 billion at
31 March 2017 mainly due to net new loans written in
BFS’ mortgages and business lending portfolios, and
an increase in CGM’s lending in the Fixed Income and
Currencies and Futures businesses. This was partially
offset by a decrease of 8% in CAF’s loan and finance
lease portfolio to $A24.3 billion at 31 March 2018
from $A26.5 billion at 31 March 2017 primarily due to
repayments in Principal Finance
–
Interests in associates and joint ventures accounted for
using the equity method of $A4.1 billion increased 94%
from $A2.1 billion at 31 March 2017 mainly due to new
investments in Macquarie Capital and CGM and the
reclassification of a number of investments in MAM and
CAF from Available for sale to Associates
– Other assets of $A18.4 billion at 31 March 2018
increased 11% from $A16.6 billion at 31 March 2017
mainly due to an increase in Held for sale investments
in Macquarie Capital, MAM and CAF and an increase
in unsettled trade balances in CGM. The receivable
following the sale of the Canadian mortgages portfolio
in BFS in the prior year was partially offset by the
receivable on the sale of CAF’s US commercial vehicles
financing business in the current year
– Trading portfolio assets of $A15.6 billion at
31 March 2018 decreased 42% from $A26.9 billion
at 31 March 2017 mainly due to a decrease in long
equity positions and a reduction in the holdings of
physical commodities and volume of oil cargo contracts
–
Investment securities available for sale of $A6.2 billion
at 31 March 2018 decreased 11% from $A6.9 billion
at 31 March 2017 mainly due to the reclassification of
investments in MAM and CAF from Available for sale
to Associates.
Total Liabilities
As at
31 Mar 2018
$A million
31 Mar 2017
$A million
173,145
165,607
5%
on prior year
– Trading portfolio liabilities of $A8.1 billion at
31 March 2018 increased 59% from $A5.1 billion at
31 March 2017 mainly due to an increase in short equity
positions
– Debt issued at amortised cost of $A53.7 billion at
31 March 2018 increased 6% from $A50.8 billion at
31 March 2017, mainly driven by Treasury’s funding and
liquidity management activities which included issuance
of long term debt and US commercial paper. This was
partially offset by a reduction in CAF leasing facilities
– Deposits of $A59.4 billion at 31 March 2018 increased
3% from $A57.7 billion at 31 March 2017 mainly due
to an increase in transaction and savings accounts and
business deposit volumes
– Other liabilities of $A16.1 billion at 31 March 2018
increased 7% from $A15.0 billion at 31 March 2017
mainly due to an increase in unsettled trade balances
in CGM’s Cash Equities business
– Payables to financial institutions of $A15.4 billion at
31 March 2018 decreased 10% from $A17.1 billion
at 31 March 2017 mainly due to a net repayment
of Treasury funding facilities and a decrease in cash
collateral on securities lent in CGM
– Loan capital of $A5.4 billion decreased 6% from
$A5.7 billion mainly due to the redemption of
Exchangeable Capital Securities notes during the year.
Total Equity
As at
31 Mar 2018
$A million
31 Mar 2017
$A million
18,180
17,270
5%
on prior year
– Total equity increased 5% to $A18.2 billion at
31 March 2018 from $A17.3 billion at 31 March 2017.
The increase was mainly due to the retained earnings
generated during the year ended 31 March 2018 (net
of dividends paid), partially offset by a decrease in the
Available for sale reserve due to the reclassification of
investments from Available for sale to Associates during
the year ended 31 March 2018.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 16
OPERATING AND FINANCIAL REVIEW
REVIEW OF GROUP PERFORMANCE AND FINANCIAL POSITION
CONTINUED
Loan capital
5%
Equity & hybrid
13%
Wholesale
issued paper
5%
Customer
deposits
40%
Funding
Macquarie's liquidity risk management framework is designed to ensure that it is able to meet its funding
requirements as they fall due under a range of market conditions.
Bonds
24%
Macquarie has a funding base that is stable with minimal reliance on short-term wholesale funding markets.
At 31 March 2018 Macquarie’s term assets were covered by term funding maturing beyond one year, stable
deposits and equity.
Net trade creditors
2%
Syndicated Loan
Facilites
The weighted average term to maturity of term funding maturing beyond one year (excluding equity which is
4%
a permanent source of funding) was 4.6 years at 31 March 2018.
Structured notes
3%
Secured funding
4%
4.6yrs
The weighted
average term to
maturity of term
funding maturing
beyond one year
at 31 March 2018
Term funding profile
Detail of drawn funding maturing beyond one year
Diversity of funding sources
$A billion
$A billion
30
25
20
15
10
5
0
1-2 yrs
2-3 yrs
3-4 yrs
4-5 yrs
5 yrs+
35
30
25
20
15
10
5
0
1-2 yrs
2-3 yrs
3-4 yrs
4-5 yrs
5 yrs+
Debt
Loan capital
Equity and hybrids
Debt
Loan capital
Equity and hybrids
Equity and hybrids
13%
Loan capital
4%
Bonds
27%
Wholesale
issued paper
7%
Customer
deposits
37%
Net trade creditors
2%
Syndicated Loan
Facilites
3%
Other loans 1%
Structured notes 2%
Secured funding
4%
Macquarie has a liability driven approach to balance sheet management, where funding is raised prior to
assets being taken on to the balance sheet. Since 1 April 2017, Macquarie has continued to raise term
wholesale funding across various products and currencies.
Details of term funding raised between 1 April 2017 and 31 March 2018:
Secured Funding
Issued paper
Loan facilities
Term securitisation and other
secured finance
Senior and subordinated
MGL loan facilities
Macquarie Air Finance Term Loan (1) Unsecured and secured term loan
Total
Bank
Group
$A billion
Non-Bank
Group
$A billion
Total
$A billion
2.2
3.1
–
5.1
0.8
7.3
3.3
–
10.4
11.4
3.0
10.4
3.3
5.1
21.8
Macquarie has continued to develop and expand its major funding markets and products during the year
ended 31 March 2018.
(1) The Macquarie Air Finance Term Loan is a refinance and upsize of the current outstanding AWAS Term Loan.
Commitment letters for the Macquarie Air Finance Term Loan were signed prior to 31 March 2018.
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Operating and Financial Review
17
$A4.2b
Group capital
surplus
Capital
As an Australian Prudential Regulation Authority (APRA) authorised and regulated Non-Operating Holding
Company (NOHC), MGL is required to maintain minimum regulatory capital 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 per APRA’s authorised deposit-taking institution (ADI) Prudential Standards
– the Non-Bank Group’s capital requirement, calculated using Macquarie’s Board approved Economic Capital
Adequacy Model (ECAM). Transactions internal to Macquarie are eliminated.
Macquarie remains well capitalised with APRA Basel III Group capital of $A19.1 billion at 31 March 2018,
with a Group surplus of $A4.2 billion ($A6.3 billion on a Harmonised(1) Basel III basis) calculated at 8.5% RWA
including the capital conservation buffer (CCB), per APRA Prudential Standard 110.
Under Basel III rules, APRA requires authorised deposit-taking institutions (ADIs) to have a minimum ratio of
Tier 1 capital to risk-weighted assets of 8.5% including the 2.5% capital conservation buffer, with at least
7% in the form of Common Equity Tier 1 capital.
In addition, APRA may impose ADI-specific minimum capital ratios which may be higher than these levels.
The minimum BCBS Basel III leverage ratio requirement of 3% is effective from 1 Jan 2018(2).
As at 31 March 2018, the Bank Group had the following capital adequacy ratios:
Bank Group Basel III ratios as at 31 March 2018
Harmonised Basel III
APRA Basel III
Common Equity Tier 1 Capital Ratio
Tier 1 Capital Ratio
Leverage Ratio
13.5%
15.3%
6.9%
11.0%
12.8%
6.0%
For further information relating to the capital adequacy of Macquarie, refer to section
6.0 Capital of the Management Discussion and Analysis at macq.co/FY18MDA
Macquarie's capital management strategy is outlined in Note 25 to the financial statements
contained in the Financial Report.
OUTLOOK
Macquarie’s result for the financial year ending 31 March 2019 is currently expected to be broadly in
line with the financial year ended 31 March 2018.
Macquarie’s short-term outlook remains subject to market conditions, the impact of foreign exchange,
potential regulatory changes and tax uncertainties and the geographic composition of income.
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.
‘Harmonised’ Basel III estimates are calculated in accordance with the BCBS Basel III framework.
(1)
(2) APRA has proposed a minimum leverage ratio of 4% from July 2019.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 18
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macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries ABOUT
ABOUT
GOVERNANCE
GOVERNANCE
DIRECTORS’ REPORT
DIRECTORS’ REPORT
FINANCIAL REPORT
FINANCIAL REPORT
FURTHER INFORMATION
FURTHER INFORMATION
19
Corporate Governance Summary
Diversity Report
Environmental, Social and Governance
Macquarie Group Foundation
Risk Management Report
2GOVERNANCE
20
CORPORATE GOVERNANCE SUMMARY
CORPORATE GOVERNANCE STATEMENT
Macquarie’s Corporate Governance Statement has been approved
by the Board and lodged with the ASX.
The risk management framework incorporates active management
and monitoring of a range of risks. Policies and procedures are in
place to manage the risks arising in all operations.
Macquarie’s governance practices were consistent with the
recommendations in the 3rd edition of the ASX Corporate
Governance Council’s Principles and Recommendations (ASX
Recommendations) throughout the year.
Our Corporate Governance Statement is available at
macquarie.com/leadership-corporate-governance
CORPORATE GOVERNANCE
Macquarie’s approach to corporate governance 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’s Code of conduct sets out the way staff are expected
to do business.
ETHICAL AND RESPONSIBLE DECISION-MAKING
The Code of conduct, 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
– provides clear guidance to staff on good decision-making and
escalation, encouraging staff to speak up and report genuine
concerns about misconduct
– reinforces Macquarie’s policies, including the Whistleblower
Policy, in relation to the protection of whistleblowers
– summarises the standards, policies and processes regarding
conflicts of interest, disclosure and corruption.
Macquarie established the Integrity Office in 1998. Supporting the
group-wide Integrity Officer are Integrity Officers in Macquarie’s
regional offices around the world. 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.
Macquarie established the Customer Advocate office at the
end of March 2017 as part of our continuing commitment to our
Australian retail and small business clients. In addition to customer
support provided by the business, the Customer Advocate’s role is
to promote fair and reasonable customer complaint outcomes, to
review and assist with determining escalated customer complaints,
and to provide a customer-centric voice when making
recommendations to improve customer experience.
Clients that receive a final decision from Macquarie’s complaint
resolution teams in the businesses may request the Customer
Advocate or an external dispute resolution service (such as the
Financial Ombudsman) review that decision.
Macquarie recognises that a sound risk culture is a fundamental
requirement of an effective risk management framework.
Macquarie’s core risk management principles have remained stable
and continue to be effective.
Refer to the Risk Management Report of this Annual Report
for details on Macquarie’s risk management framework.
COMMITMENT TO SHAREHOLDERS AND AN
INFORMED MARKET
Macquarie believes that shareholders, regulators, rating agencies
and the investment community should be informed of all material
business events and risks that influence Macquarie in a factual,
timely and widely available manner. Macquarie has a continuous
disclosure policy that is incorporated in its Continuous Disclosure
and External Communications Policy.
Further information for investors including the Annual General
Meeting (AGM) webcast, interim and year-end results
presentations and a shareholder calendar are available at
macquarie.com/investors
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 that include approving strategy, adopting an
annual budget, approving Macquarie’s Risk Appetite Statement
and Risk Management Strategy, appointing Macquarie’s Chief
Executive Officer and considering matters relating to remuneration
and diversity. The Board is committed to oversight of Macquarie’s
performance, risk management and culture and to promoting the
creation of enduring value.
The Macquarie Board consists of ten Directors, nine of whom are
independent. Nicholas Moore, Macquarie’s Managing Director and
Chief Executive Officer (CEO), is the only executive Board member.
Peter Warne, an Independent Director, is Chairman.
During the year, Glenn Stevens was appointed to the Board,
effective from 1 November 2017. Mr Stevens worked at the
highest levels of the Reserve Bank of Australia for over 20 years
and, as well as developing Australia’s successful inflation
targeting framework for monetary policy, played a significant
role in central banking internationally.
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. A Voting
Director (Director) will be considered independent if not a member
of management and if they are free of any interests or relationships
that could materially interfere with their ability to constructively
challenge and independently contribute to the work of the Board.
Board Renewal and Performance
The Board, with the assistance of the Board Nominating Committee
(BNC), regularly assesses the skills, experience, tenure and diversity
required collectively for the Board to effectively fulfil its role. The
Board recognises the importance of undergoing a regular process
of renewal via changes in membership to provide it with the benefit
of regular new input. The Board reviews its performance and the
performance of each Director on an annual basis. A Director’s
Board membership is subject to their ongoing performance and the
Board’s need for any specialist skills or experience.
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The Macquarie 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, tenure and diversity considered
necessary to appropriately govern an ASX-listed, global, diversified
financial group.
Further details on the skills, experience and tenure of the
Board are in Macquarie’s Corporate Governance Statement
and Schedule 1 of the Directors’ Report.
Macquarie’s policy on Board Renewal, Appointment of Directors
and Board Performance Review sets out the fundamental factors
relevant to the selection of new Directors, the material terms of
their appointment and the process for conducting the review of the
Board’s performance.
Board Committees
Macquarie’s five standing Board Committees assist the Board in
its oversight role. The Board Risk Committee (BRiC), Board Audit
Committee (BAC), Board Governance and Compliance Committee
(BGCC), BNC and Board Remuneration Committee (BRC)
comprise members who are independent Directors and each Board
Committee has an independent Director as its Chairman.
The membership of the Board Committees can be found in
the Directors’ Report. The Board Committee Charters detail
the responsibilities of each Committee and how they exercise
their authority.
Responsibilities of Management
The Board has reserved certain matters for its approval as set out in
the Board Charter. In addition to delegating specific responsibilities
Corporate Governance Framework
to its various Board Committees, the Board also determines
delegations to Management, approves relevant limits and reviews
business developments for consistency with the Risk Appetite
Statement and Risk Management Strategy approved by the Board.
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 Board meeting. In addition
to regular reporting from Management, the Board has unlimited
access to Senior Management as well as external advisors.
For further information on corporate governance at Macquarie
refer to the Corporate Governance Statement and the following
documents:
– Macquarie Constitution
– Macquarie Board and Board Committee Charters
– Director Independence Criteria
– Policy on Board Renewal, Appointment of Directors and
Board Performance Review
– Code of conduct
– Continuous Disclosure and External Communications Policy
summary
– MGL Trading Policy
The above are available at macquarie.com/leadership-
corporate-governance
Macquarie Board
Board Audit
Committee
Board Governance
and Compliance
Committee
Board Nominating
Committee
Board Remuneration
Committee
Board Risk
Committee
Financial reporting,
internal audit and
external audit
Corporate governance,
and compliance including,
professional conduct,
WHSE and
environmental and
social risk
Board and Committee
membership and
renewal
Remuneration policies,
practices and related
disclosure,
diversity and
promotions
Risk culture, risk
management framework,
risk management
strategy, risk appetite
and risk profile
Macquarie Managing Director and Chief Executive Officer
Powers of the Macquarie Group Board within delegated limits for all matters except those
reserved for the Board in the Board Charter or delegated to the Board Committees
Macquarie Management Committees
Head of Internal Audit
Chief Risk Officer
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DIVERSITY REPORT
Macquarie’s ongoing commitment to workforce diversity and inclusion ensures that our business remains
innovative, sustainable and continues to meet the evolving needs of our clients, community, shareholders and
our people.
Macquarie is committed to:
– attracting a broad range of employment 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 our people to reach their full potential in the workplace
– allocating pay and advancement opportunities in a fair and
equitable way, considering merit and the markets and business
environments in which Macquarie operates.
All staff are responsible for promoting workforce diversity and
inclusion. Dedicated diversity representatives support each region
and, together with the regional diversity committees, implement the
organisation’s global objectives while responding to business or
location-specific priorities and circumstances.
Macquarie continues to embed the principles of diversity and
inclusion into everything it does, combined with an ongoing focus
on accountability and measurement. Macquarie will continue to
focus on creating opportunities for all staff to demonstrate their
merit and promotion readiness, to ensure we are retaining staff
through the critical mid-career levels and into senior roles.
GLOBAL DIVERSITY POLICY
Macquarie’s Workforce Diversity Policy defines Macquarie’s
workforce diversity commitment and the structures in place to
ensure its realisation.
The principles contained in Macquarie’s Workforce Diversity
Policy are incorporated in Our Commitment to diversity and
inclusion statement, available 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
2014
%
2015
%
Board of Directors
36.4
30.0
Executive
Committee
Division Head(1)
Senior Executive(2)
Macquarie
Workforce
20.0
14.4
13.6
23.1
16.8
13.9
2016
%
30.0
23.1
18.5
14.3
2017
%
33.3
25.0
21.6
15.2
2018
%
30.0
25.0
23.5
16.7
37.0
37.5
37.8
38.2
38.8
DIVERSITY OBJECTIVES
The Workforce Diversity Policy provides that each year the Board
will set measurable objectives for achieving gender diversity. The
Board has endorsed the diversity objectives as set out below, on
which Macquarie has reported since March 2014.
Diverse workforce
Outcome sought
Increased representation of women and other traditionally
under-represented groups at all levels in the Macquarie
workforce.
Objective
Macquarie’s objectives are to:
– increase female representation at senior leadership levels:
– Board of Directors
– Executive Committee
– Division Head
– Senior Executive
– require female representation on all recruitment shortlists and
ask ‘if not, why not?’
– recruit female lateral hires in proportion to the underlying female
candidate pool as a minimum requirement
– improve gender balance on Intern and Graduate programs
– continue to participate in and sponsor networking and
development programs that focus on women and other
traditionally under-represented groups in areas such as race/
ethnicity, disability and the Lesbian Gay Bisexual Transgender
and Intersex (LGBTI) community.
Progress FY2018
Macquarie’s ongoing commitment to achieving gender balance
at all levels of the organisation is demonstrated by the year on
year increase in female representation across Macquarie’s total
workforce as well as at Division Head and Senior Executive levels.
One-quarter of the Executive Committee and 30% of Macquarie’s
Board of Directors are female.
The majority of all roles filled globally during FY2018 had at least
one female candidate on the shortlist and one or more female
Macquarie staff on the interview panel. Women continue to be hired
in greater proportion than the underlying female application rate.
Additionally female representation on Intern and Graduate programs
increased globally in FY2018 compared with FY2017.
Macquarie introduced Returner Programs in key global locations to
support candidates who have taken extended professional career
breaks to reintegrate into the workforce. Macquarie also continued
its participation in the CareerTrackers and CareerSeekers internship
programs, placing 21 students across Macquarie in Australia
during 2017.
Inclusive workplace
Outcome sought
An inclusive workplace in which individuals can reach their
full potential.
(1) Division Head refers to critical roles across Macquarie. It typically includes executives two layers down from the CEO.
(2) Senior Executive refers to Macquarie’s combined Division Director and Executive Director population.
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Objective
Macquarie’s objectives are to:
– provide staff with the flexibility to manage their work and time
– maintain high return to work rates for staff on parental leave
– maintain high retention of staff returning from parental leave
– promote LGBTI workplace inclusion through training,
sponsorships, community partnerships and participation in
benchmarking indexes.
Progress FY2018
Macquarie recognises that working flexibly means different things
to different people and therefore exists across Macquarie in many
forms, such as changes to hours, locations and patterns of work.
Flexibility is flexible at Macquarie and is offered in response to
a range of reasons including family or carer’s responsibilities,
pursuit of further studies, sporting commitments, community
work, phased retirement or a career break. Staff may also achieve
flexibility by accessing leave without pay, study and exam leave and
purchased leave.
Ultimately, Macquarie empowers its staff to manage their work and
time to suit their own personal situation, so they can achieve their
career and personal goals.
Macquarie equips its people managers to lead a flexible workforce
through the ongoing roll out of manager capability training that
shares practical tips and information on how managers and teams
can help to support the varied arrangements of their colleagues.
Macquarie’s global return-to-work rate was 98% in FY2018 and
high retention rates continue to be achieved for staff who have
taken parental leave.
Macquarie continues to provide support to working parents
and those with carer’s responsibilities through initiatives such as
childcare centres, backup child/adult/eldercare, nursing mothers’
facilities and return-to-work coaching for parents. The vast majority
of part-time and full-time employees are able to access some form
of company paid parental leave provisions.
Macquarie has achieved notable recognition as an employer that
provides a supportive and inclusive workplace for LGBTI staff.
Banking and Financial Services (BFS) attained Gold Employer
status in the 2017 Australian Workplace Equality Index, a national
benchmark on LGBTI workplace inclusion. In the UK, Macquarie
has ranked as a top 100 employer for three consecutive years in
the Stonewall Workplace Equality Index. Macquarie is also the first
Australian-headquartered financial services institution to receive
a Corporate Equality Index rating from the US based Human
Rights Campaign.
Robust meritocracy
Outcome sought
Equity and transparency embedded in remuneration, promotion
and development practices.
Objective
Macquarie’s objectives are to:
– 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 the same proportion as men.
Progress FY2018
Macquarie continues to embed equity and transparency in all
people-related practices and processes. Throughout FY2018:
– remuneration outcomes were reviewed to ensure pay equity
for like roles and performance across all Operating and Central
Service Groups and regions
– promotion decisions and outcomes were reviewed and analysed
to identify any gender discrepancies. Promotion of females to
director levels continues to increase relative to the underlying
female population
– the female participation rate in the Macquarie Director Program,
Macquarie’s core leadership and development program, was
higher than the underlying female population at director-level, and
– there was no noticeable difference between female and
male turnover.
Integration and awareness
Outcome sought
Workforce diversity and inclusion is an integral part of the way
Macquarie does business.
Objective
Macquarie’s objectives are to:
– embed the principles of diversity and inclusion into all Human
Resources-related policies, processes and programs to ensure
the highest and fairest standards in how Macquarie hires,
develops, pays and promotes staff
– measure and assess diversity statistics in relation to these
activities and decisions, holding managers accountable for
inclusive practices.
Progress FY2018
Macquarie conducted its first global Diversity and Inclusion (D&I)
survey to obtain benchmark data on staff perceptions of flexibility,
inclusion, advocacy and leadership behaviours. The survey provides
comprehensive data to measure progress and identify opportunities
for new initiatives.
Macquarie expanded its training offering introducing a Diversity and
Inclusion Advocates program in addition to Conscious Decision
Making. This training provided participants with practical skills
in recognising and responding to situations where non-inclusive
language and behaviour are observed. Over 1,000 staff have now
completed this training. The principles of Conscious Decision
Making and D&I Advocates training are also embedded in core
talent programs, recruitment processes and remuneration and
promotion criteria.
Macquarie’s employee network groups span gender, culture
and heritage, First Australians, veterans, families, wellness and
LGBTI, and provide staff with opportunities to exchange ideas,
build relationships and support Macquarie’s diversity and inclusion
strategy. Macquarie’s employee network for LGBTI staff and their
supporters expanded in Australia with Executive Level sponsorship
and increased participation from every Group. LGBTI networks also
operate in UK, US and the Philippines.
Further information on Diversity and Inclusion is available at
macquarie.com/diversity
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Macquarie’s Board and Management recognises the importance of sound Environmental, Social and
Governance (ESG) practices as part of their responsibility to our clients, shareholders, communities and
the environment in which Macquarie operates.
Macquarie structures its ESG approach around focus areas
considered to be material to our business. Underpinned by
Macquarie’s What We Stand For and the Code of conduct,
these focus areas reflect the risks and opportunities identified
by the business and the issues of interest to Macquarie’s
stakeholders including:
– business conduct and ethics(1)
– ESG risk management
– investments, markets and products
– sustainability in direct operations
– people and workplace.
To gain a complete view of Macquarie’s ESG approach, this
ESG report should be read in conjunction with other sections
of this Annual Report.
More detailed information is also available at
macquarie.com/ESG
ESG Highlights
In the year ended 31 March 2018, highlights include:
– assessing over 310 transactions and advisory mandates
under the Environmental and Social Risk Policy
– investing and arranging over $A9.5 billion in renewable
energy, energy efficiency and clean technology in FY2018,
with over 12,546MW of diversified renewable energy assets
in operation or under management
– expanding our commitment to the growth of the clean
energy sector through the acquisition of the UK Green
Investment Bank and new investments via the platform in
the UK and other markets
– maintaining carbon neutrality across energy use in premises
and corporate air travel
– strengthening our management of human rights risks in our
supply chain and implementing commitments to identify and
mitigate modern slavery risk
– ongoing investment in our staff with over 4,700 classroom
events and 207,000 online courses and knowledge
tests delivered.
ESG GOVERNANCE
The Board is responsible for approving Macquarie’s ESG framework
including major ESG policies. In accordance with its Charter, the
Board Governance and Compliance Committee (BGCC) assists the
Board in adopting appropriate governance standards and reviewing
the operation of environmental and social risk management policies.
Responsibility for implementation of the ESG framework and related
board-approved policies resides with Management.
Macquarie’s Environmental and Social Risk (ESR) team coordinates
a diverse range of ESG activities across business groups and
regions, including developing and implementing Macquarie-wide
and business specific policies, conducting transaction reviews,
providing advice on ESG risks and opportunities and facilitating
training. The ESR team is part of RMG Credit and regularly reports
to the Chief Risk Officer (CRO) and to the BGCC on ESG and work
health and safety related matters.
ESG RISK MANAGEMENT
Macquarie-wide ESG risk management
Macquarie views management of material ESG risks as a
component of the broader risk management approach detailed in
the Risk Management Report. Macquarie recognises that failure
to manage ESG risks could expose Macquarie to commercial,
reputational and regulatory impacts and affect communities, the
environment and other external parties. As a key business priority
ESG risks are managed through a well-established framework of
ESG-related policies and practices.
More detailed information is available at
macquarie.com/ESG
Under the Code of conduct all staff share a responsibility for
identifying and managing environmental and social issues as part of
normal business practice. Staff are supported by the ESR team, as
well as through access to ESG research and specialist training.
Managing environmental and social risk in transactions
Environmental and social risks are managed through the
implementation of the Environmental and Social Risk (ESR) and
Work Health and Safety (WHS) Policies.
Macquarie’s ESR Policy describes our approach to ESR
management in client on-boarding and across a broad range of
transactions including equity investments, financing, leasing and
advisory mandates. The ESR Policy provides a robust process to
assess, manage, mitigate, monitor and report environmental and
social risks and takes a precautionary approach to ESR issues
including labour and employment practices, climate change,
human rights, resource efficiency, pollution prevention, biodiversity
and cultural heritage. Based on international guidelines including
the International Finance Corporation Performance Standards,
the ESR Policy provides escalated decision-making and approval
processes for material environmental and social risks. Transactions
with material environmental and social risks are referred to the CRO
and may be escalated to Executive Committee or Macquarie Board.
The ESR team oversees the operation of the ESR and WHS
Policies, reviewing transactions and providing specialist advice
and training. During the year, in-person training was delivered to
over 250 risk managers and those in specific business groups with
greatest potential exposure to environmental and social risks.
In FY2018, 264 transactions were assessed under the ESR Policy
and 50 advisory mandates and 64 client on-boarding cases were
referred to the ESR team for review.
(1) Business conduct and ethics are discussed further in the Corporate Governance Summary in this Annual Report and in the Corporate Governance
Statement on the Macquarie website at macquarie.com/leadership-corporate-governance.
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ESR Policy referrals
Client on-boarding
64
Advisory
Mandates
50
Asia
20%
Transactions
264
Australia
31%
EMEA
27%
Americas
22%
Transactions assessed under the ESR Policy by Sector
Food & Retail 7
Real estate 10
Manufacturing 11
Transport 11
Consumer
Finance
Products
11
Gaming &
Entertainment
18
Agriculture
26
Energy
22
risk management focus, Macquarie considers climate change
and future carbon constraints within the existing risk framework.
Macquarie’s approach is based on:
– assessing and managing the risks arising from climate change
and future carbon constraints
– identifying and leveraging opportunities for low carbon and
climate resilient investment and trading for Macquarie and
our clients
– collaborating with industry, government and other stakeholders
to share knowledge and build capacity
– managing our own carbon footprint.
The financial sector has a critical role to play, alongside government,
business, investors and the community in the transition to a
low-carbon and climate resilient economy. As a global diversified
financial group, Macquarie uses its expertise in infrastructure,
clean technology, renewable energy and environmental markets to
support this transition by:
– investing and providing asset financing solutions in
the renewable energy, clean technology and energy
efficiency sectors
– making principal investment that will support the increase in
volume and value of low carbon and clean assets in established
and emerging markets
– providing clients and staff with research on the economic,
policy and business impacts of climate change and
emerging technologies
– assisting industry participants in meeting their compliance
with carbon regulation and providing carbon risk
management products.
In FY2018, Macquarie continued to evolve its climate risk approach,
enhancing our portfolio analysis and the assessment of climate-
related risks for transactions in carbon intensive sectors. Climate-
related risks including physical risks and transition risks such as
changes to laws and regulations, technology developments and
disruptions are factored into the credit risk analysis for transactions
and counterparties in exposed sectors.
Macquarie acknowledges that conventional energy sources will
continue to deliver capacity to the global energy system for some
time, and anticipates that our businesses will adapt, adjust and
continue to seek new opportunities in response to decarbonisation
of this sector. The table below provides Macquarie’s equity
and loan portfolio exposures to oil and gas and coal sectors
at 31 March 2018. These sectors account for 2% of our total
funded loan assets and 7% of our total funded equity investments.
Macquarie’s investment activity in the renewable energy sector is
discussed in the subsequent section.
Loan Assets(3)
Investments(4)
Equity
$Ab
1.1
0.2
$Ab
0.4
–
Renewables
36
Mining
29
Other
29
Infrastructure
28
Defence 26
For operating assets in which Macquarie has an interest, Macquarie
continued to facilitate work health, safety and environmental
management improvements through the implementation of the
WHS and ESR Policies and associated frameworks, which are
based on international standards(2).
The Policy is updated periodically to respond to emerging issues
and good practices. In FY2018, Macquarie continued to strengthen
the management and assessment of climate change related risks.
Climate change approach
Climate change and the associated legislative and regulatory
responses present significant challenges for society and the
global economy and generates both risks and opportunities for
Macquarie’s business and stakeholders. Consistent with our strong
Sector
Oil and gas
Coal
(2) 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 Organization for Standardization
(ISO) 14001:2016.
(3) Total funded loan assets include loan assets held at amortised cost adjusted to exclude certain items such as assets that are funded by third parties
with no recourse to Macquarie. In addition, loan assets at amortised cost per the statutory balance sheet are adjusted to include fundable assets not
classified as loans on a statutory basis (e.g. assets subject to operating leases and loans booked in Fair Value through P&L). Total funded loan assets
amount to $A75.3 billion at 31 March 2018 ($A67.5 billion at 31 March 2017).
(4) Equity investments are reported on a funded balance sheet basis and therefore exclude equity hedge positions and non-controlling interests. Total funded
equity investments amount to $A6.8 billion at 31 March 2018 ($A5.5 billion at 31 March 2017).
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE
CONTINUED
Macquarie supports the important work of the Task Force on
Climate-related Financial Disclosure (TCFD) and will continue to
evolve disclosures in response to the taskforce recommendations.
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.
– Shanghai Sineng Investment Co: Macquarie Asia Infrastructure
Fund 2 acquired a 50% joint controlling stake in Shanghai
Sineng Investment Co. Ltd (Sineng), a private wind development
company in China. Sineng has 222MW of operational wind
assets and 380MW of construction-ready projects in Shanxi and
Inner Mongolia provinces
– Lincs offshore wind farm: Macquarie Capital acted as
More detailed information is available at macquarie.com/
ESG/climate-change-approach
INVESTMENTS, MARKETS AND PRODUCTS
Macquarie continues to pursue opportunities for innovative
investments, markets and products with an ESG focus. This section
presents highlights of activities undertaken in FY2018 to support
clients seeking to manage and respond to sustainability challenges
and capitalise on emerging opportunities.
ESG research and collaboration
Macquarie has industry-leading analysts dedicated to publishing
specialist ESG and alternative energy research. The analysis of ESG
issues complements our bottom-up stock valuations and analysis.
In addition, our fundamental research teams incorporate ESG
perspectives in their stock-specific research and publish reports
focused on specific ESG topics as well as collaborative research
reports spanning multiple sectors. In FY2018, our specialist ESG
reports covered topics such as human capital management,
company ESG ratings, demographic trends and company-specific
scenario analyses. In addition to published research, Macquarie
hosts various corporate and investor engagement programs relating
to ESG issues and company chair engagement sessions.
The global Alternative Energy Research team covers listed wind,
solar, metering and battery companies around the world. The team
is comprised of analysts located in London, New York, Hong Kong
and Shanghai. The team published more than 100 pieces of
research in FY2018 and covered over 30 alternative energy stocks.
In FY2018, Macquarie held its 10th Alternative Energy Conference
in London.
During FY2018, Macquarie’s research teams received investment
client recognition and industry recognition for our alternative energy
and ESG research including a top-three rating for our Australian
ESG research by Australian Institutional Investors.
Investment in renewable energy and clean technology
Macquarie has a substantial and longstanding commitment to
the renewable energy sector. In FY2018, Macquarie invested or
arranged over $A9.5 billion of investment into renewable energy
projects. Drawing on our global network, sector expertise and
strong record, Macquarie continues to support the transition
to a lower carbon economy by servicing clients across various
renewable energy technologies including: solar, wind, waste to
energy, bioenergy and energy efficiency.
Macquarie and Macquarie-managed businesses have more than
12,546MW(5) of diversified renewable energy assets in operation.
Investment and advisory activities in renewable energy over the past
12 months included:
financial adviser to a consortium comprising the Universities
Superannuation Scheme, Macquarie European Infrastructure
Fund 5 and UK Green Investment Bank Limited on the £221
million senior debt refinancing of a 31% stake in the 270MW
Lincs offshore wind farm in the UK
– Indian solar power projects: UK Climate Investments LLP
(UKCI), a joint venture between the Green Investment Group
(GIG) and the UK Government, made its first investment into a
partnership platform with Lightsource Renewable Energy to fund
the development of large-scale solar power generation assets
in India. The seed asset for the partnership will be Lightsource’s
60MWp project in the Indian state of Maharashtra
– Markbygden onshore wind farm: Macquarie Capital and
GIG partnered with GE Capital to jointly acquire, develop and
operate the 650MW Markbygden onshore wind farm project in
Sweden, the largest single-site wind farm in Europe. Macquarie
Capital committed 50% of the equity funding to the circa
€800 million project
– Achim solar power project: Macquarie Capital acquired a
100% equity interest in Achim Solar Power Co. Ltd, a project
company that owns and operates a 3MW solar photovoltaic
plant, located in Goesan, Korea. The project includes the
development and construction of an energy storage system
attached to the solar plant with battery capacity of 6.5MWh
– Energy Development Corporation: A MIRA-led consortium
acquired 47.5% of Energy Development Corporation (EDC), the
Philippines’ premier diversified renewable energy company and
the largest vertically integrated geothermal company globally.
EDC owns and operates 1.2GW of geothermal, 150MW of wind,
132MW of hydro and 8MW of solar generation assets.
Macquarie provides financing to renewable energy businesses,
tailoring funding instruments to meet client needs. Examples of
transactions in FY2018 included:
– MIDIS structured on behalf of its institutional investors a long-
term debt facility to part fund the acquisition of a 50% share in
the Walney Extension project, a 659MW offshore wind farm
in the UK
– Macquarie expanded financing to support and fund carbon
sequestration projects under the Australian Emissions
Reduction Fund
– Macquarie invested in Connected Energy, an innovator in
site-integrated energy storage solutions in the UK and Europe.
(5) MW of renewable energy assets in operation reflects 100% generating capacity of each asset, not the proportion owned/managed by Macquarie.
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Green Investment Bank acquisition
In August 2017, a Macquarie-led consortium acquired UK
Green Investment Bank Limited for £2.3 billion from the UK
government following a competitive process.
The business has been adopted by Macquarie Capital as
its primary vehicle for principal investment in green projects
in the UK and wider Europe and has been renamed Green
Investment Group (GIG). Macquarie has committed to GIG’s
target of leading £3 billion of investment in green energy
projects over the next three years, investing across the capital
structure and in all stages of the development process.
All GIG investment activities will continue to be evaluated against
GIG’s Green Objective and the business will continue to report
annually on the overall performance of its asset portfolio. GIG
will remain a signatory to the Equator Principles and a signatory
as asset owner to the United Nations – supported Principles
of Responsible Investment (PRI). Under Macquarie ownership,
GIG will continue to play an active role in dialogue, policy
development and collaboration with government institutions,
NGOs and members of the global Green Bank Network with
the aim of facilitating further private investment into low-carbon,
climate resilient infrastructure world-wide.
Investment in social infrastructure
Macquarie has advised, sponsored and invested in social
infrastructure, assisting public and private entities to deliver essential
services including hospitals, schools, community housing, justice
facilities and water treatment.
Investment and advisory activities over the past 12 months included:
– Havebury Housing Partnership: MIDIS funded 100% of a long-
term debt facility for Havebury Housing Partnership on behalf
of third party investors. The funding will contribute towards the
development of over 1,200 new social and affordable houses in
England over the next seven years
– Enfi Environmental Protection Co Ltd: Macquarie Asia
Infrastructure Fund acquired a joint controlling stake in Enfi
Environmental Protection Co. Ltd. (Enfi), a leading operator of
water and waste water treatment plants across six provinces in
China. Enfi has a current operating capacity of approximately one
million tonnes/day across seven major cities in China.
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 trades 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:
– demand side management
– energy efficient asset finance
– distributed generation and battery storage
– electric vehicle finance.
Demand side management
In FY2018, Macquarie continued to increase its smart meter
facilities to a number of UK energy retailers, with combined
facilities in place to fund more than £1.3 billion of smart meters
and associated equipment under the UK mandated rollout. These
facilities enable the accelerated roll-out of smart gas and electricity
meters that assist with efficient energy management in the industrial,
commercial and residential sectors.
Macquarie owns a portfolio of nine million traditional and smart gas
and electricity meters in the UK, with more than three million smart
meters rented to energy retailers and approximately 150,000 new
meters funded each month.
Through our meter refurbishment programme, Macquarie has
provided more than 500,000 used meters to energy suppliers.
This benefits UK consumers through lower costs and provides
environmental benefits by avoiding the manufacture of traditional
meters with a limited life.
During FY2018, Macquarie also became a smart meter funder in
the Australian National Energy Market’s competitive non-regulated
meter market.
Energy efficient asset finance
Established in November 2011, the energy efficient asset finance
business focuses on smart energy assets in Australia and the
UK. The program provides finance for energy efficient assets
and distributed generation for public and private sector covering
technologies such as: LED lighting, combined heat and power,
heating, ventilation and air conditioning, rooftop solar, smart building
systems, and electric vehicles and chargers.
Through partnership with the GIG, Macquarie Energy Leasing also
offers a ‘pay-as-you-save’ Energy Services Agreement which is
a turnkey energy solution for clients that is off-balance sheet and
combines a wide range of technologies.
Distributed generation and battery storage
Macquarie Energy Leasing continues to expand its consumer and
commercial rooftop solar and battery storage finance offerings in
Australia and the UK. Together with industry partners, the business
is developing new products which leverage existing systems and
channels to market such as the commercial finance broker network
as well as large corporate vendors and energy retailers.
Electric vehicle finance
Macquarie partnered with the Clean Energy Finance Corporation
(CEFC) in September 2017 to establish a new $100m asset
finance program which offers a discount on finance for electric
vehicles, plug-in hybrid electric vehicles, and a range of eligible
energy efficient and renewable energy equipment. Customers who
choose eligible lower emissions passenger vehicles can also benefit
from the program. CEFC modelling is targeting carbon savings
of more than 200,000 tonnes of carbon emissions over the life of
the program.
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE
CONTINUED
ESG in asset management
Macquarie’s asset management businesses are committed to
evaluating ESG factors in investment decision-making and engaging
with investors on ESG issues. Macquarie Asset Management (MAM)
is a signatory to the PRI and reports annually to the PRI. Divisions
within MAM have established specific ESG policies and approaches
that reflect the particular ESG considerations associated with
their business.
Further information is available at macquarie.com/ESG
Macquarie’s experienced teams offer clients specialised investment
products tailored to their particular ESG requirements. Examples of
these investments include:
– MIM’s Socially Responsible Investing (SRI) products:
MIM has longstanding experience in investing in companies
that incorporate positive ESG behaviour into their business
operations. MIM offers specialised products to investors that
in addition to focusing on positive ESG behaviour also exclude
companies whose business participates in specifically identified
negative ESG practices. Total assets managed under these SRI
strategies was $US703 million as at 31 March 2018
– MIM Austria provides ESG fixed income investing, offering
two pooled funds managed according to a disciplined ESG
selection process with total assets managed of €201 million
as at 31 March 2018
– Macquarie Private Portfolio Management (MPPM) offers
wholesale clients customised investment solutions aligned to
their specific ESG goals or screening preferences. Wholesale
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 was $A600 million as at 31 March 2018
– MIRA is pursuing a new agricultural initiative that aims to further
sustainable farming practices. Building a portfolio of cropping
farms in Australia, MIRA will draw on the combined expertise of
the CEFC and Commonwealth Scientific and Industrial Research
Organisation (CSIRO) to support new standards in energy
efficient farming and low carbon emissions. It will also develop
clean energy models and measurement tools targeted for
broader use across the farming sector.
SUSTAINABILITY IN DIRECT OPERATIONS
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.
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 (EMP). The EMP reflects the
initiatives to be implemented to reduce resource usage and maintain
carbon neutrality, occupy and invest in sustainable buildings and
improve the sustainability of Macquarie’s supply chain.
Reducing emissions from energy use: Whilst Macquarie’s
absolute emissions increased by 2.1% in FY2018, attributed to
an increased in Scope 3 emissions, our total Scope 2 emissions
decreased by 5.5% from FY2017. Scope 1 emissions are not
considered to be material, comprising 0.6% of Macquarie’s
total emissions(6).
The reduction in Scope 2 emissions is the result of a continued
focus on energy use in all Macquarie premises globally, including
retrofit and fit out projects that have delivered more energy efficient
premises and our IT cloud transformation strategy that enables
rationalisation of servers.
Macquarie’s Scope 3 emissions increased by 10% compared
with FY2017, as a result of an increase in flight miles. Technology
upgrades such as virtual conferencing that facilitate collaboration
and help reduce the need for business travel continue to be
implemented across the business.
Maintaining carbon neutrality: Since 2010, Macquarie has
maintained our carbon neutral commitment by working to reduce
and offset emissions. In FY2018, to meet this commitment,
Macquarie purchased and retired a diverse portfolio of voluntary
carbon 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 Peru and Zimbabwe. These projects,
supported by the sale of carbon credits on international markets,
Carbon and Energy data for FY2018
Carbon emissions in TCo2-e
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Energy use in TJ
240
230
220
210
200
190
180
Scope 1 (TCo2-e)
Scope 2 (TCo2-e)
Scope 3 (TCo2-e)
Energy (TJ)
Baseline
FY16
FY17
FY18
(6) Baseline emissions include Scope 2 and Scope 3 emissions. Scope 1 was not reported in 2010 as Scope 1 emissions comprised <1% of total
reported emissions.
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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.
Improving resource efficiency: Macquarie continues to roll out
technology and behavioural initiatives to reduce paper use and,
where tenancy arrangements permit, reduce waste and manage
water consumption.
In FY2018, paper use decreased by 15% compared to FY2017.
Paper use data is collected across the majority of Macquarie
offices, representing approximately 90% of Macquarie staff. The
environmental impacts of paper use are also being addressed
through an ongoing commitment to use certified sustainable or
recycled paper stock. Since the FY2011 baseline sustainability
audits of its offices, Macquarie has implemented 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.
Sustainable procurement: As part of its procurement strategy,
Macquarie includes sustainability clauses within tender documents.
These clauses include consideration of human rights, safe, fair and
ethical working conditions, environmental performance and supplier
diversity. In FY2018, Macquarie appointed an ESR officer to its
procurement division, and implemented new vendor risk systems
and processes to improve the management of ESG issues in our
supply chain. Macquarie communicated its Principles for Suppliers
with all critical and strategic suppliers and worked with external
specialists to develop a human rights diagnostic tool and ongoing
assurance and action plan across the supply chain.
The Principles for Suppliers are available
at macquarie.com/suppliers
Macquarie responded to the transparency requirements of the
UK’s Modern Slavery Act 2015, producing its second slavery and
human trafficking statement that sets out the steps taken to identify
and mitigate the risk of modern slavery within the supply chain and
business operations.
The statement is available at macquarie.com/MSA17
PEOPLE AND WORKPLACE
Macquarie recognises that our most important assets are our
people. Macquarie recruits talented individuals and encourages
them to realise their potential in an environment that values
excellence, innovation and creativity. Macquarie provides a broad
range of programs that reflect its What We Stand For principles and
support the development, diversity and wellbeing of our staff. This
ensures the business continues to meet the highest standards and
serves the evolving needs of our stakeholders.
Diversity and inclusion
Macquarie’s ongoing commitment to workforce diversity and
inclusion ensures that our business remains innovative, sustainable
and continues to meet the evolving needs of our clients.
Macquarie’s broad range of experiences, skills and views are key
strengths and critical to the wide range of services we deliver
across a global operating environment.
More detailed information on our approach to diversity and
inclusion is provided in the Diversity Report.
Further information is also available at
macquarie.com/diversity
LEARNING AND DEVELOPMENT
Macquarie strives to create an environment where learning is part of
an employee’s development and progression. This focus on learning
and development drives leadership capability, and is a key channel
through which Macquarie’s culture is embedded and reinforced
across the organisation.
Macquarie provides targeted and role-specific learning
opportunities, to meet the needs of Macquarie’s diverse talent
base and to build the skills and behaviours required for long-term
organisational success.
Commencing with the employee onboarding and orientation
process, Macquarie recognises the importance of early
employee engagement. This is reflected in a series of learning
and development activities (including events hosted by the CEO)
designed to communicate and embed the Macquarie culture and
reinforce the ongoing importance of effective risk management and
behaviours across all our businesses and regions.
Since 1 April 2017, over 4,700 classroom events have been
delivered globally to Macquarie staff. A further 207,000 online
courses and knowledge tests have been completed by staff,
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
matters) as well as leadership courses and materials on financial
services products.
Leadership development remains a key priority within Macquarie.
Since its launch in 2014, more than 1,000 Associate Directors and
Division Directors have enrolled in the Macquarie Director Program.
Since the launch of Macquarie’s leadership program for Executive
Directors (our top 350 leaders) in February 2017, almost one third of
Executive Directors have completed the program. Workshop focus
areas include self-awareness and wellbeing, cultivating inclusion
and innovation, and building networks to identify opportunities.
Macquarie also continues to focus on developing management
capability more broadly through its manager program and
investment in executive coaching and mentoring initiatives. In
addition to Macquarie-delivered programs, many staff benefit
from sponsored education and can pursue career development
opportunities at independent institutions such as business schools
and through professional bodies.
Alongside the structured learning and development curriculum,
Macquarie recognises and encourages the social and
developmental benefits of skilled volunteering and wider community
engagement by staff. During 2017, reciprocal development
initiatives between staff and not for profit organisations have been
built through the Macquarie Group Foundation.
Regular appraisals, including goal setting and ongoing career
development, are a key part of performance measurement and
support Macquarie’s merit based culture. As well as encouraging
regular and ongoing feedback with managers, Macquarie requires
all staff to have at least one formal annual appraisal session with
their manager. During these appraisals, staff are encouraged to
raise, discuss and respond to matters relating to training, further
education and development of leadership capabilities.
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE
CONTINUED
In addition to the annual appraisal, Macquarie’s businesses use
a range of tools and models to ensure an ongoing focus on
performance and development throughout the year. These include
the use of 360-degree feedback surveys, personal scorecards and
real-time feedback applications, all aligned to the specific needs
and context of Macquarie’s diverse businesses.
Workplace health, safety and wellbeing
Macquarie has a comprehensive global health and safety framework
that aims to prevent workplace accidents and injury as well as
minimise health and safety risks arising from work activities. This
is achieved by hazard identification and mitigation, engaging with
health and safety representatives and staff in consultation forums,
and training staff on safe work practices.
Macquarie’s commitment to providing a safe workplace has resulted
in consistently low prevalence and severity of workplace incidents.
In the year ended 31 March 2018, the Lost Time Injury Frequency
Rate (LTIFR) across Macquarie’s global workforce was 0.4(7).
Macquarie Plus, Macquarie’s wellbeing benefits program, is
designed to support the personal health and wellbeing of staff.
Macquarie Plus provides access to a number of benefits and
initiatives to empower staff to optimise their physical, psychological
and financial wellbeing, and assists staff to make the most of being
part of the Macquarie community. Macquarie Plus is reviewed
annually to ensure it continues to meet the needs of staff and
minimises health and safety risks. The program includes:
– confidential counselling services (Employee Assistance Program)
– educational seminars on mindfulness, resilience, life balance
and diet
– health screenings and assessments including dietician
consultations, and skin cancer, heart health and executive
health checks
– fitness classes and sports teams
– psychological wellbeing training.
Further information is available at macquarie.com/
macquarie-plus
ENGAGING STAKEHOLDERS
Clear dialogue with stakeholders is important to building strong
relationships and our understanding of external dynamics,
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, regulators, staff and the
wider community.
More detailed information on Macquarie’s approach to
stakeholder engagement is available at macquarie.com/ESG
TAX TRANSPARENCY
Macquarie acknowledges stakeholder expectations for increased
transparency on tax related matters. Macquarie is a signatory to the
Australian Board of Taxation’s voluntary Tax Transparency Code.
More detailed information on Macquarie’s approach to tax
transparency is available at macquarie.com/tax-transparency
(7) LTIFR is the number of lost time injuries per one million hours worked.
POLITICAL CONTRIBUTIONS AND ENGAGEMENT
Macquarie believes it needs to be engaged and understand the
evolving policy and regulatory environments in Australia as these
impact our business, as well as our clients’ businesses.
Australian political parties are funded by a mix of public and private
monies. As part of its engagement with the Australian political
process, Macquarie provides financial support to the major political
parties, primarily through paid attendance at events.
As a listed Australian company operating in highly-regulated
industries, we have a responsibility to our shareholders, customers,
counterparties and employees to understand and contribute to
public policy and to ensure that our organisation and operating
environments are well understood by parliamentarians. Additionally,
our clients, many of whom also operate in regulated industries,
expect us to have detailed current knowledge of public policy issues
and drivers when we provide advice and services to them.
Other ways in which Macquarie participates in policy engagement
include:
– making submissions to inquiries and industry consultation
processes where appropriate. These may be processes
established by Parliament or government agencies such as
regulators, and submissions may be made by Macquarie directly
or as part of a broader industry group
– contributing to the advocacy work done by industry groups.
In Australia, industry groups of which Macquarie is a member
include the Australian Financial Markets Association, the
Australian Banking Association, the Financial Services Council
and the Business Council of Australia.
Macquarie has a full disclosure policy and declares all political
contributions to the Australian Electoral Commission (AEC) including
memberships of political party business forums, attendance at
events, sponsorship of events and attendance at 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. This disclosure is made by way of an annual
AEC return on a 1 July to 30 June basis. In the year ended
30 June 2017, Macquarie’s political contributions in Australia
totalled $A250,550: Liberal Party $A128,100, Australian Labor Party
$A92,750, and National Party $A29,700.
Direct cash contributions accounted for 7% of total contributions in
the year ended 30 June 2017. The remainder of the contributions
were memberships of political party business forums, attendance at
events, sponsorship of events and attendance at party conferences.
ABOUT THESE DISCLOSURES
Macquarie has used the GRI G4 reporting principles to guide
its ESG disclosures. The content of the disclosures is based on
Macquarie’s ESG focus areas as confirmed through an external
review, the interests of stakeholders, including investors and
analysts, and the applicable GRI indicators.
This year Macquarie’s ESG disclosures comprise this ESG
report, other relevant sections of the Annual Report and the
Macquarie website.
A GRI index is available at macquarie.com/ESG
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The Macquarie Group Foundation operates globally as Macquarie’s philanthropic arm. Its community
investment strategy is threefold: to drive community outcomes by encouraging and supporting Macquarie staff
to give back to the communities where they live and work, to support social innovation and to strengthen the
impact of non-profit organisations by funding capacity building and collaboration.
The Foundation’s focus on the communities where Macquarie
staff are concentrated helps to leverage staff time, expertise and
networks for greater social impact. It has supported thousands
of community organisations around the world since its inception
in 1985, contributing $A330 million together with staff during
that period.
It continued this approach during FY2018. During the year,
$A28.3 million was donated to more than 1,500 non-profits around
the world by staff and the Foundation, while more than 60,000
hours of voluntary community service, including pro bono work and
community board positions, was contributed.
STAFF FOCUS
Initiatives such as the annual Staff in the Community Awards
and Foundation Week – a period in October where non-profits
receive ‘double-matching’ of amounts raised by Macquarie
teams (up to A$5,000) as well as $A500 grants if volunteering
takes place – demonstrate Macquarie’s support for employee
community engagement.
Reflecting diverse staff interests and passions, more than
$A2.3 million was distributed to over 180 organisations around
the world following a range of events held during the 2017
Foundation Week.
GRANT-MAKING FOCUS FOR IMPACT
Following a review in early 2017, the Foundation decided to focus
its strategic grant making model to increase engagement with
Macquarie staff and have a greater social impact in the community.
The majority of the Foundation’s grant making funding will now
concentrate on organisations enabling social and economic
opportunities in the communities where we operate, with each
region concentrating its efforts on issues with local relevance.
– In the Americas the focus is on supporting college access,
persistence and career attainment for first-generation college-
bound youth. The Foundation will continue funding organisations
like America Needs You, the Double Discovery Center at
Columbia University and The HAY Center, which provide
intensive career development and mentoring to enable students
to realise their academic and career goals.
– In Australia, supporting education and economic opportunities
for young people is the focus, and the Foundation will fund
non-profits working in this area. This will include organisations
like Aurora Education Foundation, BackTrack and SYC Ltd,
which provide programs to help young people realise their
academic and career potential.
– The focus on empowering dignified livelihoods for migrant
workers will continue across Asia, where the Foundation
has had a strategic, programmatic response to the issue of
modern slavery since 2015. Grants will continue to be made
to organisations such as Justice Centre Hong Kong, Fair
Employment Foundation and the Visayan Forum Foundation,
enabling these organisations to strengthen and create policies
and regulation, build ethical and sustainable recruitment
practices and educate vulnerable communities about their rights.
– In Europe, the Middle East and Africa, promoting social mobility
opportunities for young people will be the focus. The Foundation
will continue supporting organisations like Leadership Through
Sport and Business (commonly know as LTSB), Reach Out,
Dallaglio RugbyWorks and Islington Giving’s Mentoring Works
programme, which support the social mobility of disadvantaged
young people across the United Kingdom.
The Foundation will also continue to actively support Macquarie
staff as they pursue their own community interests through our
matching gifts and supporting volunteering opportunities.
SOCIAL INNOVATION
The biennial Macquarie Social Innovation Award recognises a
non-profit organisation that addresses an unmet community
need within Australia. In August 2017, the Cerebral Palsy Alliance
won the $A100,000 award to fund its ‘Remarkable Accelerator
Program’, which provides seed funding and support to disruptive
early stage start-ups, creating technologies to facilitate the social
and economic inclusion of people with disabilities. Early progress on
the program looks promising.
COLLECTION 30TH ANNIVERSARY
In September 2017 the Macquarie Group Collection celebrated
its 30th anniversary by establishing the Macquarie Group First
Nations Emerging Curator Award. The inaugural award was offered
under a new partnership with the Australia Council for the Arts.
Freja Carmichael, a Ngugi woman, belonging to the Quandamooka
People of Moreton Bay, won the award, which includes a $A15,000
prize, a mentorship program and curatorial exhibition to be held in
November 2018.
FY18 contribution amount
Total Macquarie spend
(including staff matching)
$17,551,191
Staff contribution
$10,760,533
Further information regarding Macquarie staff community
initiatives and organisations supported by the Foundation is
available at macquarie.com/community
(1) Contribution figures comprise Macquarie Group 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 Macquarie Group and Foundation grants to community organisations.
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RISK MANAGEMENT REPORT
RISK GOVERNANCE
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. The Board is ultimately
responsible for the framework, including oversight of its operation
by Management.
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.
Staff are made aware that these principles must form the basis of all
behaviours and actions.
Board Committees, Management Committees and ultimately
individuals support the Board in its oversight.
Further details are available in Macquarie’s Corporate
Governance Statement at macquarie.com/leadership-
corporate-governance
RISK MANAGEMENT FRAMEWORK
Overview
Macquarie’s risk management framework consists of systems,
structures, policies, processes, and our people and culture. Under
the framework, staff are responsible for identifying, measuring,
evaluating, monitoring, reporting, managing and where appropriate,
accepting material risks.
Details about the risks we manage at Macquarie are
available at macquarie.com/risk-management
The risk management framework incorporates active management
and monitoring of a range of risks. These include credit, cyber
and information security, data, environmental and social (including
climate change), equity, legal, liquidity, market, model, operational,
regulatory and compliance, reputation and tax risks. It also includes
risk culture and conduct risk frameworks. The risk management
framework applies to all business activities across Operating and
Central Service Groups.
Policies and procedures are in place to manage the risks arising
in all operations. Formalising practices and principles into policies
assists in the consistent management of risks. It also results in the
sharing of experience and expertise gained from managing risks
in various business activities. Macquarie’s key risk management
policies are reviewed annually by the owner. Material changes are
approved by the Board.
Internal Audit reviews elements of Macquarie’s risk
management framework annually and covers all key elements
over a three-year period. The results of these reviews are
reported to the Board Audit Committee (BAC). Relevant reviews
for FY2018 have been completed.
The assumption of risk is made within a calculated and controlled
framework that assigns clear risk roles and responsibilities
represented by ‘three lines of defence’:
– primary responsibility for risk management lies at the business
level. This is the first line of defence. Part of the role of all
business managers throughout Macquarie is to ensure they
manage risks appropriately
– the risk management function forms the second line of defence
and independently assesses all material risks
– Internal Audit, as the third line, independently reviews the
Group’s risk management controls, processes and systems.
Key Components
Core risk management principles
Macquarie’s principles have remained stable and continue to be
effective. These are:
– ownership of risk at the business level: Group Heads are
responsible for identifying risks within their businesses and
ensuring appropriate management. Before taking decisions,
clear analysis of the risks is sought to ensure those taken are
consistent with the risk appetite and strategy of Macquarie
– understanding worst case outcomes: Highly experienced
professionals at Macquarie use both quantitative and qualitative
inputs to examine the consequences of worst case outcomes
and determine whether these are acceptable. This approach is
adopted for all material risk types and is often achieved by stress
testing. In particular, the market risk management framework
is based primarily on the application of stress tests, rather than
statistical models. Macquarie applies limits to contingent losses
from worst case scenarios that include market movements larger
than have occurred historically. For example, an instantaneous
40% gap move in stock prices. These limits effectively constrain
position taking by divisions trading in products where the current
risk appears low but potential risk exists in extreme loss events.
Macquarie has over 15,000 contingent loss limits that consider a
variety of worst case scenarios
– requirement for an independent sign-off by risk
management: Macquarie places significant importance on
having a strong, independent Risk Management Group (RMG)
charged with signing off all material risk acceptance decisions.
It is essential that RMG has the capability to do this effectively.
RMG has invested in recruiting skilled professionals, many
with trading or investment banking experience. For all material
proposals, RMG’s opinion is sought at an early stage in the
decision-making process. The approval document submitted to
Senior Management includes independent input from RMG on
risk and return.
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Macquarie’s risk culture is well established
Leading and executing
A sound risk culture has been integral to Macquarie’s risk
management framework since inception. It is continuously
being maintained and improved. Primary responsibility for risk
management in Macquarie, including risk culture, is at the
business level.
The Board, assisted by the Board Risk Committee (BRiC), is
responsible for:
– forming a view of Macquarie’s risk culture and the extent to
which that culture supports Macquarie’s ability to operate
consistently within its risk appetite
Management implements behavioural expectations through:
– leadership actions and communication
– organisational governance
– incentives and consequence management
– organisational and individual capability.
Monitoring, measuring and reporting
Macquarie monitors and measures its risk culture to gauge
effectiveness while promoting continuous improvement. Key
mechanisms include but are not limited to:
– the identification of any desirable changes to evolve Macquarie’s
risk culture and for ensuring that Macquarie takes steps to
address those changes.
– policies and processes in relation to Board and Management
governance, which include reporting and escalation of issues
– processes to govern the identification, recording, management
and reporting of incidents
– independent oversight and sign-off by RMG for material
risk decisions
– intense scrutiny of material business activities and risk decisions
at the business level by Senior Management and at the Group
level led by BRiC
– personal observation and assessment by Board and Senior
Management, including frequent interaction with staff,
attendance at formal staff events, and the Board schedules two
separate regional visits to Macquarie overseas offices annually
– risk culture reviews, completed by an independent Risk Mindsets
and Behaviours team
– rigorous remuneration monitoring mechanisms.
Reports incorporating behavioural issues are prepared by all
businesses, RMG, HR and Macquarie’s Integrity Office and
escalated, where relevant, according to our governance framework.
These include multiple regular reports relating to risk culture which
are provided to Senior Management and the Board.
Consequence management
Effective consequence management is also a key component
of Macquarie’s risk management framework and risk culture.
Macquarie aims to apply consequences for non-compliance in a
timely manner, and as fairly and consistently as possible.
In addition to Macquarie’s group-wide guiding principles for
consequence management, Operating and Central Service Groups
may apply specific guidelines and/or procedures.
Staff are held accountable for the consequences of their actions
in support of Macquarie’s risk culture and good conduct.
Macquarie’s long standing approach to risk culture assists the
Board and Management in meeting their responsibilities.
Maintaining an appropriate risk culture
Macquarie’s approach to risk culture is based on the following
main components:
Setting behavioural expectations
The Board recognises the importance of, and is committed to,
a sound risk culture throughout Macquarie. Senior Management
oversees performance and continually evolves Macquarie’s
expectations regarding appropriate behaviours.
Staff are made aware that Macquarie’s What We Stand For
principles of Opportunity, Accountability and Integrity must form
the basis of all behaviours and actions.
These behavioural expectations are outlined in the Board approved
Code of conduct, which is actively promoted by Management and
cascaded through the organisation. They include:
– individual accountability: each person understands and meets
their role and responsibilities; all staff are accountable to our
clients, community, shareholders and staff for their actions
– policies, procedures and systems: for every individual,
compliance is fundamental
– proactive approach: individuals are encouraged to;
– remain vigilant for new and unexpected risks, and potential
adverse consequences of actions
– seek advice from appropriate experts
– escalation: each individual is obliged and encouraged to
escalate concerns when they make a mistake or see something
that may be a breach of Macquarie’s Code of conduct or
a policy
– fair dealing: it is a fundamental responsibility for staff to deal
honestly and fairly in their relationships with our clients.
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RISK MANAGEMENT REPORT
CONTINUED
Decisions about consequences are made by Management
supported by HR, RMG and additional stakeholders relevant to that
particular matter. Depending on the level of materiality, the matter
may be escalated to the CEO, Executive Committee and Board.
In determining the appropriate consequence for a breach by a staff
member, relevant factors (both mitigating and aggravating) are
considered. Actions undertaken assist staff in building their skills
and knowledge. Where appropriate, actions can also be a deterrent
against further breaches by reinforcing proper standards of staff
conduct. Potential consequences include, but are not limited to:
– additional training
– placing the staff member under increased supervision and/or
monitoring including pre-vetting of work and increased sample
testing of work
– issuing a verbal warning
– issuing a written warning (including a first and final
written warning)
– a financial consequence in respect of any discretionary
element of remuneration
– a consequence that impacts performance rating or promotion
– dismissing the staff member (with or without notice).
RMG and HR data relating to employee conduct is collated from
various sources and reported on a quarterly basis. At year end,
relevant employee conduct data is used to inform remuneration
and promotion decisions and ensure that appropriate consequence
management is applied.
Conduct Risk Framework
Macquarie defines conduct risk as the risk of improper, unlawful or
unethical behaviour or action that may have a negative impact on
our clients or counterparties or the fair and effective operation of the
markets in which Macquarie operates.
Conduct risk may arise inadvertently or deliberately in any of
Macquarie’s activities or businesses, both retail and wholesale.
Management approach
Macquarie’s approach to conduct risk management is essential
to the way we operate. It is based on sustainable practices and
integrated in how staff manage their responsibilities and conduct
themselves in Macquarie’s business every day. Conduct risk
management is a fundamental part of our existing risk management
framework. Key aspects which address conduct risk include:
– establishing and maintaining an effective risk culture that drives
good conduct
– having in place the necessary policies, controls, processes and
reporting mechanisms to manage conduct risk associated with
compliance, legal, reputation and operational risks.
Consistent with Macquarie’s ‘three lines of defence’ approach
to risk management, Operating and Central Service Groups are
primarily responsible for ensuring appropriate application of the
Conduct Risk Framework.
Macquarie identifies conduct risk through existing risk management
controls and processes that have been established to actively
identify, manage and monitor material risks. New and emerging
conduct risk, relating to customer outcomes and market impact,
continues to be identified through the:
– annual strategy and business planning process
– new product and business approval process.
Conduct risk also remains a key business focus in the risk
and control self-assessment, and risk-based monitoring and
surveillance processes.
Our ongoing focus on managing conduct risk, including monitoring
and assurance, continues to drive the development of effective and
sustainable controls designed to mitigate key conduct risks. The
responsibilities of supervisors for overseeing the management of
conduct risk are clearly outlined and communicated to staff.
Mandatory training incorporates strong messaging on the
importance of adhering to Macquarie’s Code of conduct, including
the principles of effective supervision. Targeted conduct risk training
is also delivered on an as needed basis.
Risk management framework support
In addition to those noted above, multiple aspects of the risk
management framework support Macquarie’s risk culture and
management of conduct risk including:
– Macquarie’s businesses are fundamentally client based.
Greater emphasis is placed across Macquarie on fostering
long-term relationships with our clients. This facilitates building
client-facing businesses as opposed to short-term profits from
proprietary trading
– 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 and Central Service Groups. In its review of a new
proposal, RMG provides independent confirmation of the risk
decision. RMG works closely with each deal team sharing the
goal of making the transaction successful and, where applicable,
requiring improvements to the transaction terms. Transferring
knowledge to transaction teams, to enable the same risk
management principles to be applied at an early stage to future
proposals is strongly emphasised
– Macquarie’s remuneration framework seeks to align staff
and shareholders’ interests while prudently managing
risk and encouraging a long-term view. The framework
requires significant retention and deferral of a profit share
based remuneration award, invested in Macquarie shares
and Macquarie managed funds. The principles behind
the framework are long-standing and have been integral to
Macquarie’s sustained success. Profit share is determined at
the business unit level with detailed consideration of market
relativities and the individual’s contribution to their business unit
performance. The assessment of an individual’s contribution
includes an assessment of their risk management, compliance
and conduct (including adherence to the Code of conduct and
commitment to What We Stand For). The combination of a profit
share based remuneration structure, with significant retention
and deferral, invested in Macquarie’s future performance, drives
strong alignment to shareholder’s interests and encourages
ongoing prudent management of risk.
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Relevant policies
Policies expand on the principles found in the RAS and often
translate them into operational requirements for individuals and
business activities.
Communication and training
The RAS is accessible to all staff and is referred to in the Code of
conduct. In addition, the principles in the RAS are communicated to
relevant staff through formal and informal training programs. These
include regular communication of policies to key staff, training
programs for specific policies and mandatory Director-level staff
training on the risk management framework.
Requirement to consider risk-adjusted returns
The RAS states that:
– Macquarie pursues an appropriate and resilient long-term return
on its capital
– transactions must generate returns proportionate to the risks.
Accordingly, proposals for all significant new deals, products and
businesses must contain an analysis of risk-adjusted returns.
The level of acceptable return for any proposal must also
account for strategic fit and broader risk analysis (e.g. tail risk and
concentration).
Existing businesses are subject to regular risk-return monitoring and
reporting. Risk-adjusted performance metrics for each division are
significant inputs into performance based remuneration.
Risk appetite management
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 Macquarie is willing to accept as outlined
in the Risk Appetite Statement (RAS).
Macquarie’s risk culture supports its ability to operate within the
Board-approved RAS. In addition, behavioural expectations require
staff to comply with the processes, limits and policies that put the
principles of the RAS into operation.
The RAS sets out the degree of risk that 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 principles of the RAS are implemented primarily through the
following four mechanisms:
New product and business approval process
All new businesses and significant changes to existing products or
processes are subject to a rigorous, interactive approval process
that adheres to the principles stated in the RAS. This results in
constructive dialogue on risk matters between RMG and the
relevant business.
This formal process is designed so that the proposed transaction
or operation can be managed properly, without creating unwanted
risks for Macquarie. All relevant risks are reviewed to ensure they
are identified and addressed prior to implementation. These risks
are also monitored on an ongoing basis. The approvals of RMG,
Financial Management Group, Legal and Governance and other
relevant stakeholders within Macquarie are obtained. RMG also
checks that all necessary internal approvals are obtained prior
to commencement.
The Operational Risk function within RMG oversees the new
product and business approval process.
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 not only
to capital but also to earnings so that in a prolonged, severe
downturn, earnings and surplus capital cover losses and market
confidence in Macquarie is maintained.
Under Macquarie’s ‘no limits, no dealing’ approach, individual credit
and equity exposures are managed within approved counterparty
limits. Market risk exposures are also governed by a suite of
individual and portfolio limits.
These granular limits are set to allow businesses to achieve their
near-term plans while promoting a reassessment of the opportunity
and associated risks as the limit is approached.
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RISK MANAGEMENT REPORT
CONTINUED
RISK MANAGEMENT GROUP
RMG, which forms the second line of defence, is an independent
and centralised unit responsible for identifying, assessing and
monitoring risks across Macquarie. It designs and oversees
implementation of the risk management framework.
RMG is structured into specialist teams and employs 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 a detailed analysis takes place
both at the individual and aggregate risk level.
RMG’s oversight of risk is based on the following five principles:
– Independence: RMG is independent of Macquarie’s Operating
and other Central Service Groups. 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. It assesses risks from a
Macquarie-wide perspective and provides 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 the risks, 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 Central Service Groups.
Further details on RMG’s structure and the
management of specific risks are available at
macquarie.com/risk-management
INTERNAL AUDIT
Internal Audit, as the third line of defence, 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 assesses whether risks have been adequately identified,
appropriate internal controls are in place to manage those risks
and whether those controls are working effectively.
Issues identified by Internal Audit are followed up to validate
remediation.
Our Risk Mindsets and Behaviours team, comprised of risk
culture specialists, performs reviews across Macquarie using a
well-established assessment methodology. The prevailing risk
management attitudes and behaviours of selected functions
across the Operating and Central Service Groups are assessed.
Areas of relative strength are highlighted together with areas
for improvement.
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 unrestricted access
to the BAC.
MARKET AND CREDIT RISK
Year end performance indicators
Macquarie monitors and measures a range of risks as outlined
above in the risk management framework overview. The following
graphs provide historical and current year information on key
market and credit risks.
Trading revenue
The effectiveness of Macquarie’s risk management framework
can be partially measured by Macquarie’s daily trading results.
These are daily profit and loss results that are directly attributable
to market based activity from Macquarie’s trading desks. In light
of uncertain market conditions, the small quantity and magnitude
of daily losses incurred by Macquarie are indicative of an effective
risk management framework and business operations focused on
servicing our clients’ needs.
Macquarie’s market risk activities continue to be based on
earning income from client-facing businesses. The majority of
trading income is derived from client activities rather than outright
proprietary trading activity.
Macquarie’s trading results over time have shown consistent profits
and low volatility. This is evident in the graph below and reflects
the client-based nature of trading activities. In FY2018 Macquarie
made a net trading profit on 218 out of 260 trading days (2017
results: 235 out of 261 trading days) and trading loss profiles were
consistent with previous years.
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Daily Trading Profit and Loss
Days
100
80
60
40
20
0
<-25
<-20
<-15
<-10
<-5
<0
>0
>5
>10
>15
>20
>25
>30
FY 2017
FY 2018
Value-at-Risk
37
>35
A$m
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, correlations and enhancements to the model. The integrity of the VaR model is regularly tested against daily
profit and loss.
Macquarie’s market risk fluctuated throughout the year driven by commodity exposure as well as changes in market volatility. VaR remains
low in comparison to capital and earnings. It represents less than 0.1% of total equity.
Aggregate VaR
A$ million
40
35
30
25
20
15
10
5
0
%
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Mar 16
Jun 16
Sep 16
Dec 16
Mar 17
Jun 17
Sep 17
Dec 17
Mar 18
Value at Risk (1-day 99% confidence interval)
Average Value at Risk to Total Equity
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RISK MANAGEMENT REPORT
CONTINUED
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. Specific provisions are
recognised where a particular impairment is identified. Where applicable, the calculation for specific provisions is based on the discounted
values of expected future cash flows. Facilities for which no individually assessed provision is required are evaluated collectively for
impairment. These are representative of losses that have been incurred but not yet identified.
The decrease in 2018 is primarily driven by lower impaired assets in the Commodities and Global Markets Operating Group.
Ratio of provisions and impaired assets to loans, advances and leases
%
5
4
3
2
1
0
Notes:
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Collective provision to loans, advances and leases (Balance sheet)
Net impaired assets to loans, advances and leases (Balance sheet)
Net Credit losses to loans, advances and leases (Income statement)
– Loan assets exclude securitised mortgages, securitised Macquarie Capital loans/leases, segregated futures funds and receivables in
the form of fees
– Net impaired assets and net losses exclude investment securities
– Collective provision is intended to cover losses inherent in the existing overall credit portfolio which are not yet specifically identifiable
– Net credit losses represent total P&L impact in the stated period due to additional specific provisions and direct write-offs net of
any write-backs.
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ABOUT
GOVERNANCE
GOVERNANCE
DIRECTORS’ REPORT
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FINANCIAL REPORT
FURTHER INFORMATION
FURTHER INFORMATION
39
Directors’ Report
Schedule 1 – Directors’ experience and special responsibilities
Schedule 2 – Remuneration Report
3DIRECTORS’
REPORT
40
DIRECTORS’ REPORT
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
THE DIRECTORS OF MGL SUBMIT THEIR REPORT WITH THE FINANCIAL REPORT OF THE CONSOLIDATED
ENTITY AND OF THE COMPANY FOR THE YEAR ENDED 31 MARCH 2018.
DIVIDENDS AND DISTRIBUTIONS
Subsequent to the year ended 31 March 2018, the Directors have
resolved to pay a final ordinary dividend of $A3.20 per share, 45%
franked based on tax paid at 30% ($A1,088 million in aggregate).
The final ordinary dividend is payable on 3 July 2018.
On 13 December 2017, the Company paid an interim ordinary
dividend of $A2.05 per share, 45% franked ($A697 million in
aggregate) for the financial year ended 31 March 2018.
On 3 July 2017, the Company paid a final dividend of $A2.80
per share, 45% franked ($A952 million in aggregate) for the financial
year ended 31 March 2017.
No other ordinary share dividend 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 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 section 1 of this Annual Report for the following in
respect of the Consolidated Entity:
– 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
– 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.
DIRECTORS
At the date of this report, the Directors of MGL are:
Independent Directors
P.H. Warne, Chairman
G.R. Banks AO
G.M. Cairns
M.J. Coleman
P.A. Cross
D.J. Grady AM
M.J. Hawker AM
G.R. Stevens AC
N.M. Wakefield Evans
Executive Voting Director
N.W. Moore, Managing Director and Chief Executive Officer
Other than Mr Stevens, the Directors listed above each held
office as a Director of MGL throughout the financial year ended
31 March 2018. Mr Stevens joined the Board of Directors effective
on 1 November 2017. Those Directors listed as Independent
Directors have been independent throughout the period of
their appointment.
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 MGL during the financial year ended
31 March 2018 was to act as a Non-Operating Holding Company
(NOHC) for the Consolidated Entity. The activities of the
Consolidated Entity were those of a global financial group providing
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.
RESULT
The financial report for the financial years ended 31 March 2018 and
31 March 2017, 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 2018 was
$A2,557 million (2017: $A2,217 million).
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 41
DIRECTORS’ EQUITY PARTICIPATION AND OTHER RELEVANT INTERESTS
As at the date of this report, the Directors have relevant interests in MGL ordinary shares, MGL securities, or managed investment schemes
made available by related companies of MGL and other relevant disclosable interests, as notified by the Directors to ASX in accordance with
the Corporations Act 2001 (Cth) (the Act), in the following:
NAME & POSITION
EQUITY PARTICIPATION
OTHER RELEVANT INTERESTS
MGL ordinary shares
RSUs held in
MEREP(1)
PSUs held in
MEREP(1)
Direct & Indirect
Interests
Number held
Executive Voting Director
N.W. Moore
2,310,976
632,575
195,826
2006 Macquarie
Timber Land Trust
units
Macquarie Global
Infrastructure Fund III
(B) units
75
2,163,106
Independent Directors
G.R. Banks
G.M. Cairns
M.J. Coleman
P.A. Cross
D.J. Grady
M.J. Hawker
G.R. Stevens
N.M. Wakefield Evans
P.H. Warne
6,416
12,734
7,199
7,636
8,427
7,335
1,028
5,267
14,933
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Macquarie Income
Securities
Macquarie Group
Capital Notes 2
(MCN2)
–
Macquarie Group
Capital Notes
MCN2
MCN2
Macquarie Atlas
Roads Group Limited
Stapled Securities
–
–
–
900
2,000
–
400
100
500
413
–
–
(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 32 to the financial statements in the Financial Report.
During the financial year, Directors received dividends relating to their holdings of MGL ordinary shares at the same rate as other shareholders.
Directors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration ReportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 42
DIRECTORS’ REPORT
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
BOARD AND BOARD COMMITTEE MEETINGS AND ATTENDANCE
The number of meetings of the Board of Directors (the Board) and of the Committees of the Board and the individual attendance by Directors
at those meetings which they were eligible to attend, during the financial year, is summarised in the table below:
Regular Board
BAC
Meetings(1)
meetings(1)
BGCC
meetings(1)
BNC
meetings(1)
BRC
meetings(1)
BRiC
Special Board
meetings(1)
Meetings(1)
Number of meetings
P.H. Warne
N.W. Moore
G.R. Banks
G.M. Cairns
M.J. Coleman
P.A. Cross
D.J. Grady
M.J. Hawker
G.R. Stevens(2)
N.M. Wakefield Evans
9
9/9
9/9
9/9
9/9
9/9
9/9
9/9
9/9
4/4
9/9
6
–
–
–
–
6/6
6/6
–
6/6
–
6/6
4
–
–
4/4
–
4/4
–
4/4
–
–
4/4
2
2/2
2/2
2/2
2/2
2/2
2/2
2/2
2/2
1/1
2/2
7
7/7
–
7/7
7/7
–
–
7/7
7/7
–
–
5
5/5
–
5/5
5/5
5/5
5/5
5/5
5/5
3/3
5/5
2
2/2
2/2
2/2
2/2
2/2
2/2
2/2
2/2
1/1
2/2
(1) Number of meetings attended by the member / total number of meetings eligible to attend as a member.
(2) Mr Stevens was appointed to the Board as an Independent Voting Director, and as a member of the Board Risk Committee and Board Nominating
Committee, effective from 1 November 2017.
There was one Board sub-committee convened during the period,
with two meetings held. All eligible sub-committee members, being
Mr Warne, Mr Moore, Mr Coleman and the Chief Financial Officer
(CFO), Mr Upfold, attended both meetings.
All Board members are sent Board Committee meeting agendas and
may attend any Board Committee meeting.
The Chairman of the Board and the CEO attend Board Committee
meetings by invitation as a matter of course.
DIRECTORS’ AND OFFICERS’ INDEMNIFICATION
AND INSURANCE
Under MGL’s Constitution, MGL indemnifies all past and present
directors and secretaries of MGL and its wholly-owned subsidiaries
(including at this time the Directors named in this report and the
Secretaries), 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
– 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 MGL and its wholly-owned
subsidiaries, if that has been approved in accordance with
MGL policy.
This indemnity does not apply to the extent that:
– MGL is forbidden by law to indemnify the person against the
liability or legal costs, or
– an indemnity by MGL of the person against the liability or legal
costs, if given, would be made void by law.
MGL has also entered into a Deed of Access, Indemnity, Insurance
and Disclosure (as amended from time to time) (Deed) with each of
the Directors. Under the Deed, MGL, inter alia agrees to:
– indemnify the Director upon terms broadly consistent with the
indemnity contained in MGL’s Constitution
– take out and maintain an insurance policy against liabilities
incurred by the Director acting as an officer of MGL or its
wholly-owned subsidiaries. The insurance policy must be for
an amount and on terms and conditions appropriate for a
reasonably prudent company in MGL’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)
– grant access to the Director to all relevant company papers
(including Board papers and other documents) 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).
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 43
In addition, MGL made an Indemnity and Insurance Deed Poll on
12 September 2007 (Deed Poll). The benefit of the undertakings
made by MGL under the Deed Poll have been given to each of the
directors, secretaries, persons involved in the management and
certain other persons, of MGL and its wholly-owned subsidiaries and
other companies where the person is acting as such at the specific
request of MGL and its wholly-owned subsidiaries. The Deed Poll
provides for broadly 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 MGL Constitution, the Deed and the Deed Poll, are broadly
consistent with the corresponding indemnities and insurance
arrangements provided under the MBL Constitution and deeds
entered into by MBL.
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 MGL 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 MGL 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, appropriately addressed and material breaches notified.
The Directors have determined that there has not been any material
breach of those obligations during the financial year.
NON-AUDIT SERVICES
Fees paid or payable to the auditor of the Consolidated Entity,
PricewaterhouseCoopers (PwC), for non-audit services during the
period ended 31 March 2018 total $A9.8 million. Further details
of amounts paid or payable to PwC and its related practices are
disclosed in Note 41 – Audit and other services provided by PwC in
the Financial Report.
The Voting 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,
audits its own professional expertise, or creates a mutual or
conflicting interest between the auditor and the Consolidated
Entity. The policy also provides that significant permissible
non-audit assignments awarded to the external auditor must be
approved in advance by the Board Audit Committee (BAC) or
the BAC Chairman, as appropriate
– 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.
Directors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration ReportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 44
DIRECTORS’ REPORT
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
ROUNDING OF AMOUNTS
In accordance with ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, amounts in the Directors’
Report and Financial Report have been rounded off to the nearest
million Australian 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 that 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 2018.
AUDITOR’S INDEPENDENCE DECLARATION
As lead auditor for the audit of Macquarie Group Limited for
the year ended 31 March 2018, 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 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.
Peter Warne
Independent Director and Chairman
K.G. Smith
Partner
PricewaterhouseCoopers
Sydney
4 May 2018
Liability limited by a scheme approved under Professional Standards
Legislation
Nicholas Moore
Managing Director and Chief Executive Officer
Sydney
4 May 2018
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, w ww.pwc.com.au
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
Directors’ Report
Schedule 1 – Directors’ experience and special responsibilities
Schedule 2 – Remuneration Report
45
DIRECTORS’ REPORT SCHEDULE 1
DIRECTORS’ EXPERIENCE AND SPECIAL RESPONSIBILITIES
PETER H WARNE, BA (MACQUARIE), FAICD
Independent Chairman of MGL and MBL since April 2016
Independent Voting Director of MGL since August 2007
Independent Voting Director of MBL since July 2007
Mr Warne is Chairman of the BNC and a member of the BRC and BRiC
Experience
Listed Company directorships (last three years)
Peter Warne has extensive knowledge of, and experience in,
financial services and investment banking, through a number of
senior roles at Bankers Trust Australia Limited, including as Head
of its global 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 ASX
in July 2006, he became a Director of ASX Limited. Mr Warne has
previously served as Chairman of ALE Property Group from 2003
to 2017 and OzForex Group Limited (now trading as OFX Limited)
from 2013 to 2016, and as Deputy Chairman of Crowe Horwath
Australasia Limited from 2008 to 2015.
– Chairman, ALE Property Group (September 2003 – May 2017)
– Director, ASX Limited (since July 2006)
– Chairman, OzForex Group Limited (now trading as OFX Limited)
(September 2013 – November 2016)
Age: 62
Other current directorships/appointments
Mr Warne is a resident of New South Wales.
– Director, New South Wales Treasury Corporation
– Member, Macquarie University Faculty of Business and
Economics Industry Advisory Board
NICHOLAS W MOORE, BCOM LLB (UNSW), FCA
Managing Director and Chief Executive Officer of MGL since May 2008
Executive Voting Director of MGL since February 2008
Executive Voting Director of MBL since May 2008
Experience
Other current directorships/appointments
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.
– Chairman, Screen Australia
– Chairman, Sydney Opera House Trust
– Chairman, UNSW Business School Advisory Council
– Director, Centre for Independent Studies
Age: 59
Mr Moore is a resident of New South Wales.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 46
DIRECTORS’ REPORT SCHEDULE 1
DIRECTORS’ EXPERIENCE AND SPECIAL RESPONSIBILITIES
CONTINUED
GARY R BANKS AO, BEC (HONS) (MONASH), MEC (ANU)
Independent Voting Director of MGL and MBL since August 2013
Mr Banks is a member of the BGCC, BNC, BRC and BRiC
Experience
Other current directorships/appointments
– Chairperson, Australian Statistics Advisory Council
– Chairman, Regulatory Policy Committee of the OECD
– Professorial Fellow and Member of Advisory Board,
Melbourne Institute, University of Melbourne
– Senior Fellow, Centre for Independent Studies
– Member, NSW Government’s Economic Development
Advisory Panel
Gary Banks has extensive 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 and subsequently Chief Executive of
the Australia and New Zealand School of Government.
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.
Age: 68
Mr Banks is a resident of Victoria.
GORDON M CAIRNS, MA (HONS) (EDIN)
Independent Voting Director of MGL and MBL since November 2014
Mr Cairns is a member of the BNC, BRC and BRiC
Experience
Listed Company directorships (last three years)
Gordon Cairns has held a range of management and executive
roles throughout his career with Nestle, Cadbury Ltd and PepsiCo
culminating as Chief Executive Officer of Lion Nathan Limited
from 1997 – 2004. 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.
He also 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.
– Chairman, Woolworths Limited (since September 2015)
– Chairman, Origin Energy Limited (since October 2013)
(Director since June 2007)
Age: 67
Other current directorships/appointments
Mr Cairns is a resident of New South Wales.
– Director, World Education Australia
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 47
MICHAEL J COLEMAN, MCOM (UNSW), FCA, FCPA, FAICD
Independent Voting Director of MGL and MBL since November 2012
Mr Coleman is Chairman of the BAC and a member of the BGCC, BNC and BRiC
Experience
Listed Company directorships (last three years)
– Chairman, Bingo Industries Limited (since March 2017)
(listed May 2017)
After a career as a senior audit partner with KPMG for 30 years,
Mr Coleman has been a professional non-executive director
for the past seven years. He has significant experience in risk
management, financial and regulatory reporting and corporate
governance.
Mr Coleman has been Chairman of ING Management Limited, a
member of the Audit Committee of the Reserve Bank of Australia
and a member of the Financial Reporting Council, including terms
as Chairman and Deputy Chairman. He 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.
Age: 67
Other current directorships/appointments
Mr Coleman is a resident of New South Wales.
– Chairman, Reporting Committee of the Australian Institute of
Company Directors (AICD)
– Member, National Board and NSW Council, AICD
– Chairman, Planet Ark Environmental Foundation
– Adjunct Professor, Australian School of Business, UNSW
– Board member, Legal Aid NSW
PATRICIA A CROSS, BSC (HONS) (GEORGETOWN), FAICD
Independent Voting Director of MGL and MBL since August 2013
Mrs Cross is Chair of the BRiC and a member of the BAC and BNC
Experience
Listed Company directorships (last three years)
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, Qantas Airways,
Wesfarmers Limited, AMP Limited and Suncorp-Metway Limited.
She was Chair of Qantas Superannuation Limited and Deputy Chair
of the Transport Accident Commission of Victoria and a Director of
JBWere Limited. Mrs Cross has also served on many government
bodies and not-for-profit organisations’ boards.
Age: 58
Mrs Cross is a resident of Victoria.
– Director, Aviva plc (since October 2013)
Other current directorships/appointments
– Chair, Commonwealth Superannuation Corporation
– Ambassador, Australian Indigenous Education Foundation
– Founding Chair, 30% Club Australia
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 48
DIRECTORS’ REPORT SCHEDULE 1
DIRECTORS’ EXPERIENCE AND SPECIAL RESPONSIBILITIES
CONTINUED
DIANE J GRADY AM, BA (MILLS), MA (HAWAII), MBA (HARV), FAICD
Independent Voting Director of MGL and MBL since May 2011
Ms Grady is a member of the BGCC, BNC, BRC and BRiC
Experience
Listed Company directorships (last three years)
Diane Grady has extensive international experience in a variety
of industries having served as a full time independent director of
public companies and not-for-profit boards since 1994. Previous
directorships include Australian Stationery Industries, 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.
Ms Grady was a partner at McKinsey & Company where she
consulted for over 15 years to clients on strategic and operational
issues related to growth and was a worldwide leader of the firm’s
Organisation and Change Management practice. She has a
Masters degree in Chinese Studies and worked for three years
as a journalist in Asia. She has published research on innovation,
corporate governance and gender diversity.
Age: 69
Ms Grady is a resident of New South Wales.
– Director, Spotless Group Holdings Limited (March 2014 –
July 2017)
Other current directorships/appointments
– Chair, The Hunger Project Australia
– Member, Centre for Ethical Leadership
– Member, Heads Over Heels Advisory Board
– Member, NFP Chairs Forum
– Director, Tennis Australia
– Director, Grant Thornton Australia Board
MICHAEL J HAWKER AM, BSC (SYDNEY), FAICD, SF FIN, FAIM, FIOD
Independent Voting Director of MGL and MBL since March 2010
Mr Hawker is Chairman of the BRC and a member of the BAC, BRiC and BNC
Experience
Listed Company directorships (last three years)
Michael Hawker has substantial expertise and experience in the
financial services industry including management experience
in regulated entities in Australia and internationally 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.
Age: 58
Mr Hawker is a resident of New South Wales.
– Director, Aviva plc (since January 2010)
– Director, Washington H Soul Pattinson and Company Ltd (since
October 2012)
Other current directorships/appointments
– Chairman, the George Institute for Global Health
– Director, Rugby World Cup Limited
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 49
GLENN R STEVENS AC, BEC (HONS) (SYDNEY), MA (ECON) (UWO)
Independent Voting Director of MGL and MBL since November 2017
Mr Stevens is a member of the BRiC and BNC
Experience
Other current directorships/appointments
Glenn Stevens worked at the highest levels of the Reserve Bank of
Australia (RBA) for 20 years and, as well as developing Australia’s
successful inflation targeting framework for monetary policy, played a
significant role in central banking internationally. Most recently, he was
Governor of the Reserve Bank of Australia between 2006 and 2016.
Mr Stevens has also made key contributions to a number of
Australian and international boards and committees, including as
chair of the Australian Council of Financial Regulators between
2006 and 2016, as a member of the Financial Stability Board and
on a range of G20 committees.
Age: 60
Mr Stevens is a resident of New South Wales.
– Director, Lowy Institute
– Director, Anika Foundation
– Member, Investment Committee, NWQ Capital Management
– Advisor, Ellerston Capital Global Macro Fund
– Deputy Chair, Temora Aviation Museum
NICOLA M WAKEFIELD EVANS, BJURIS/BLAW (UNSW), FAICD
Independent Voting Director of MGL and MBL since February 2014
Ms Wakefield Evans is Chair of the BGCC and a member of the BAC, BRiC and BNC
Experience
Listed Company directorships (last three years)
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.
– Director, Lendlease Corporation Limited (since September 2013)
– Director, Toll Holdings Limited (May 2011 – June 2017) (de-listed
May 2015)
Age: 57
Other current directorships/appointments
Ms Wakefield Evans is a resident of New South Wales.
– Director, BUPA ANZ Healthcare Holdings Pty Ltd
– Director, BUPA ANZ Insurance Pty Ltd
– Director, Clean Energy Finance Corporation
– Director, Chief Executive Women
– Member, Asialink (University of Melbourne) and Asialink Business
– Member, Takeovers Panel
– Director, UNSW Foundation Limited
– Member, National Board, Australian Institute of Company Directors
COMPANY SECRETARIES’ QUALIFICATIONS AND EXPERIENCE
DENNIS LEONG, BSC BE (HONS) (SYD), MCOM (UNSW),
CPA, FGIA
IDA LAWRANCE, BCOM (HONS) (QUEENS),
LLM (UNSW), AGIA, GAICD
Company Secretary since October 2006
Assistant Company Secretary since July 2016
Dennis Leong is an Executive Director of Macquarie and has had
responsibility for Macquarie’s company secretarial requirements,
general and professional risks insurances and aspects of its employee
equity plans. He has over 24 years company secretarial experience
and 12 years experience in corporate finance at Macquarie and
Hill Samuel Australia Limited.
Ida Lawrance is a Division Director of Macquarie and has over
15 years legal and governance experience. Prior to joining
Macquarie in March 2006, Ida practiced as a lawyer in both the
private and public sectors.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 50
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
LETTER FROM THE CHAIRMAN OF THE BOARD REMUNERATION COMMITTEE
Dear shareholders
On behalf of the Board, I am pleased to present Macquarie’s 2018 Remuneration Report. In 2018, Macquarie has continued to deliver strong
financial results for shareholders. These results are reflected in Executive Key Management Personnel (Executive KMP) remuneration outcomes.
Performance
Our results are driven by the performance and deep expertise of
our people, in accordance with our long-held principles of What We
Stand For – Opportunity, Accountability and Integrity. For FY2018:
– Net profit after tax (NPAT) of $A2,557 million is up 15% on the
prior year
– Return on equity (ROE) of 16.8% has improved from 15.2% in
the prior year
– Earnings per share (EPS) of 758.2 cents per share has increased
by 15% on the prior year.
Total compensation has increased by 2%, whereas the total
compensation expense to income ratio continued to decline. This
reflects the change in business mix, with contribution to net profit
from annuity-style businesses increasing from 25% to approximately
70% over the past ten years.
The Board has determined that total awarded profit share for
Comparable Executive KMP(1) of $A100.6 million, representing
a 5% increase on the prior year, is appropriate.
The company-wide profit share pool is determined through a
bottom-up assessment at both the business group and individual
level (refer to page 57). This is compared to an internal formula
based on Macquarie’s after-tax profits and earnings over and
above the estimated cost of capital. As in some previous years, the
Board exercised its discretion to approve a final pool lower than the
amount calculated in accordance with the internal formula.
Remuneration approach
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 and
reinforcing the Code of conduct and What We Stand For.
Macquarie has a longstanding and consistent approach to
remuneration which has evolved over time. Our approach to
remuneration is a partnership where profits are shared between our
shareholders and our staff. No significant changes have been made
to Macquarie’s remuneration structure for this year.
The Board believes this approach is integral to Macquarie’s
sustained success and creates a strong alignment between staff
and shareholders.
Our approach is characterised by:
– an emphasis on performance-based remuneration including
consideration of the following factors: financial performance,
risk management and compliance, business leadership, people
leadership and professional conduct
– comparatively low fixed remuneration
– profit share based on realised after-tax profits
– significant retention and long deferral periods (for example, for
the CEO, 80% is retained, vesting over three to seven years).
Including Performance Share Units (PSUs), the effective deferral
rate for the CEO is 82% for the year.
This approach has been fundamental in attracting, motivating and
retaining our people. As a global diversified financial group, our
people operate in over 100 different markets, in over 25 countries,
with approximately 67% of our income generated outside Australia
and 54% of our staff based offshore. We are a regular employer in
offshore markets and must look to the international environment
when competing for talent. For this reason, we use an international
reference group for peer comparison.
Conduct
The manner in which our people conduct themselves is crucial
to the success of our organisation. Staff are guided by our Code
of conduct and long-held principles of What We Stand For –
Opportunity, Accountability and Integrity.
We have consistent and transparent practices in place for managing
non-compliance with our policies and our strong risk management
framework guides the way all staff are expected to conduct themselves.
We are committed to achieving the highest standards of
professional conduct across the organisation. The Board and
the Board Remuneration Committee (BRC) take any breaches of
policy or other misconduct very seriously. Our deferral periods and
significant retention rates enable risk outcomes to be taken into
account over long periods.
In 2018, there were 157 (2017: 167) matters involving conduct/
policy breaches which resulted in formal consequences (refer to
page 58). Consequences included additional training, adjustments
of performance-based remuneration, impact on promotion,
formal warnings and termination. Of the 157 matters, 38 resulted in
termination of employment and 119 resulted in a formal warning. In 32
of the 119 matters where a formal warning was issued, the individual
subsequently left Macquarie. These matters were considered to be
isolated incidents and not systemic.
Disclosure
As a result of ongoing engagement with shareholders, investors
and other external stakeholders, this year we have incorporated
additional disclosures on awarded remuneration in our report. The
additional disclosures illustrate how profit share awarded for the
year is aligned with the current year’s performance (refer to pages
59 to 62). In addition, we have included further information on how
profit share is determined and allocated (refer to page 57), and how
our robust consequence management process informs the Board’s
decision making (refer to page 58).
We look forward to receiving your views and support at the 2018
Annual General Meeting.
Michael Hawker
Chairman, Board Remuneration Committee
(1) Comparable Executive KMP are those KMP who are members of the Executive Committee for the full year in both FY2018 and FY2017.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
51
REMUNERATION FRAMEWORK
This section explains the objectives and principles of our remuneration framework.
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 and reinforcing the Code of conduct and What We Stand For. The Board
recognises that to achieve this objective, Macquarie must attract, motivate and retain exceptional people while aligning their interests
with those of shareholders.
Overall remuneration objectives and principles
SUPERIOR LONG-TERM COMPANY PERFORMANCE
Align interests of staff and shareholders
Attract, motivate and retain high quality people
The Board consider this is best achieved by supporting the following principles:
– linking rewards to create sustainable shareholder value through the use of shareholder return drivers, namely profitability
and returns in excess of the cost of capital
– emphasising performance-based remuneration with an appropriate balance between short-term and long-term incentives
having regard to risk
– determining variable remuneration as a share of profits (not a short-term bonus) based on realised after-tax profits
– remunerating high performing staff appropriately, relative to global peers, so they are attracted to and stay with Macquarie
– ensuring remuneration is structured to drive behaviours which reflect Macquarie’s culture and promote Macquarie’s risk
management framework
– delivering remuneration in a way that encourages a long-term perspective, creates alignment with shareholder interests
and encourages the prudent management of risk
– providing consistent arrangements over time to give staff the confidence to pursue multi-year initiatives.
CREATING A LONG-TERM FOCUS
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 52
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
REMUNERATION STRUCTURE
This section describes the way in which remuneration is structured and delivered.
Macquarie’s remuneration framework works as an integrated whole. An individual’s remuneration comprises fixed remuneration, profit share
and, for Executive Committee members (our Executive KMP), PSUs. The table below provides an overview of these components.
FIXED REMUNERATION
Fixed
– comparatively low compared to similar roles in other organisations but sufficient to avoid inappropriate
risk-taking
– for risk and financial control staff, generally a higher proportion of total remuneration than for front office staff.
PERFORMANCE-BASED REMUNERATION
Profit share
– all permanent employees are eligible to participate
– significant portion of profit share is retained (80% for the CEO) with a long deferral period (three to seven years
for Executive Committee members)
– retained profit share is delivered in a combination of MGL equity and Macquarie-managed fund equity to
strengthen alignment with future performance
– Malus provisions apply to certain senior employees
– retained profit share is subject to forfeiture upon leaving Macquarie except in limited circumstances (such as
retirement from Macquarie, redundancy, death, serious incapacitation, disability, serious ill-health or other
limited exceptional circumstances).
PSUs
– only awarded to Executive Committee members to drive company-wide performance
– are a meaningful incentive but not the major element of total remuneration
– vesting of PSUs is subject to achievement of performance hurdles measured equally against ROE relative to
an international reference group (50%) and absolute EPS growth (50%)
– PSU awards vest in two equal tranches after three and four years
– no retesting of hurdles
– an international reference group recognises the extent of Macquarie’s diversification and internationalisation
– Malus provisions apply from 2018
– unvested PSUs are subject to forfeiture upon leaving Macquarie except in limited circumstances (such as
retirement from Macquarie, redundancy, death, serious incapacitation, disability, serious ill-health or other
limited exceptional circumstances).
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.
Retained profit share: retention and vesting
Macquarie retains a percentage of certain individuals’ annual profit share allocation (retained profit share) which is invested in a combination
of Macquarie ordinary shares under the MEREP and Macquarie-managed fund equity notionally invested under the Post-2009 Director’s
Profit Share (DPS) Plan(1). Whilst they are employed, an individual’s retained profit share vests and is released over a period that reflects the
scope and nature of their role and responsibilities. Retention and vesting arrangements are determined by the BRC, according to prevailing
market conditions, having regard to regulatory and remuneration trends. For each year’s allocation, once the vesting period has been
determined it remains fixed for that allocation.
The following table summarises the standard retention and vesting arrangements applicable for FY2018.
(1) Both the MEREP and 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 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 Macquarie ordinary shares held in a trust for the staff member (Restricted Share Units or RSUs). For further details on the MEREP,
refer to Note 32 to the financial statements in the Financial Report.
The Post-2009 DPS Plan comprises exposure to a notional portfolio of Macquarie-managed funds. Retained amounts 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.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
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FY2018 Standard profit share arrangements – retention levels, investment of retained profit share and vesting periods
Retained profit share investment
Profit share
retention (%)
MEREP
(MGL ordinary
shares) %
Post-2009
DPS plan
(Macquarie-
managed fund
equity) %
Vesting and
release of profit
share
Role
CEO
CEO Macquarie Bank
Executive Committee members with Funds
responsibilities
Other Executive Committee members
Designated Executive Directors(2)
Other Executive Directors
Executive Directors with Funds
responsibilities
80
60
70
60 – 70
50 – 60
40 – 60
40 – 60
90
90
50
80 – 90
80 – 90
80 – 90
25 – 50
Staff other than Executive Directors
25 – 60(3)
100(4)
10
10
50
10 – 20
10 – 20
10 – 20
50 – 75
0(4)
One-fifth in each
of years 3 – 7
One-third in each
of years 3 – 5
As Above
One-third in each
of years 2 – 4
The Board’s discretion to change remuneration arrangements,
as noted above, includes changes to profit share retention levels
provided that the retention percentage is at least 30% for Executive
Directors.
In addition to the arrangements set out in the table above, different
arrangements may apply in certain circumstances:
– Retention rates, vesting and release schedules may vary for
certain groups of staff who have become employees as a result
of an acquisition, or for staff in certain jurisdictions, for example
the EU, to ensure compliance with local regulatory requirements
– 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 staff with those of their clients.
A small number of individuals with funds responsibilities may
receive a portion of their performance-based remuneration as a
share of performance fees paid by Macquarie-managed funds. The
company-wide profit share pool is adjusted downwards to reflect
these deferred remuneration arrangements which are also taken
into account in determining the individual’s profit share allocation.
Consistent with market practice, these individuals are allocated an
entitlement to a share of performance fees paid by a particular fund.
This allocation is based on performance, seniority and the extent
of their involvement with the particular fund. An individual will not
receive their entitlement until Macquarie has received performance
fees towards the end of the fund’s life, which is typically upwards
of 10 years. Currently there are no KMP that participate in
these arrangements.
Forfeiture of retained profit share – Malus Events
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 current Malus provisions provide
the Board or its delegate with the ability to reduce or eliminate in full,
the unvested profit share awarded in respect of FY2015 onwards to
certain senior employees if it determined that the individual has at
any time:
– acted dishonestly (including, but not limited to, 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 Operating Group within Macquarie
incurring:
– significant reputational harm
– a significant unexpected financial loss, impairment charge,
cost or provision
– acted or failed to act in a way that contributed to Macquarie or
Macquarie Bank making a material financial misstatement.
Each of the above is a Malus Event.
Additional provisions may apply to staff in certain jurisdictions
to ensure compliance with local regulations. This includes, for
example, staff in the EU who are required to comply with local
regulatory requirements. These individuals are subject to additional
Malus and clawback provisions under EU regulations.
Macquarie has always had and continues to have, the ability to
terminate staff where a Malus Event has occurred, 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.
(2) Executive Directors who have a significant management or risk responsibility in the organisation.
(3) Above certain monetary thresholds.
(4) For staff other than Executive Directors, retained profit share is generally invested in Macquarie equity with the exception of those staff with funds
responsibilities where retained profit share is invested in a combination of Macquarie equity and Macquarie-managed fund equity.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 54
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
REMUNERATION STRUCTURE CONTINUED
Early vesting and release of retained profit share
An Executive Director’s unvested retained profit share is only paid out on termination of employment in the case of retirement from
Macquarie, redundancy, death, serious incapacitation, disability, serious ill-health or other limited exceptional circumstances. The Board
has discretion to accelerate the vesting of retained profit share under these circumstances (subject to the conditions of early release as set
out below).
Discretion may be exercised in certain other limited exceptional circumstances on the grounds of business efficacy, in relation to strategic
business objectives, including in connection with the divestment or internalisation of Macquarie businesses, or when an employee resigns to
fulfil a public service role in a governmental organisation or agency. Where such discretion is exercised, the Board may impose such other
conditions as it considers appropriate.
This year such discretion has been exercised and retained profit share was released for one executive due to the sale of the business,
to which they provided services.
Conditions of early release to departing Executive Directors – Post Employment Events
In addition to the Malus provisions set out above, where discretion has been exercised to accelerate the vesting of the retained profit share
of any departing Executive Director, the Board may reduce or eliminate in full their retained profit share, if it determines that the Executive
Director has at any time during their employment or the relevant release periods after their employment committed a Malus Event (as
described on page 53) or:
a) taken staff to a competitor of Macquarie or been instrumental in causing staff to go to a competitor, or
b) joined a competitor of Macquarie or otherwise participated in a business that competes with Macquarie.
Each of the above is a Post Employment Event.
In the case of death or serious incapacitation, the Board 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. In other circumstances, the release will occur over
the period from six months to two years after the Executive Director leaves, in accordance with the following table:
Time post-departure
Six months
Six months to one year
One year to two years
First Period
Second Period
Third Period
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 as set out
on the previous page or Post
Employment Event as set out
above
No Malus Event or Post
Employment Event during the
First Period, and
No Malus Event or Post
Employment Event during the
First Period, and
No Malus Event or Post
Employment Event a) above
during Second Period
No Malus Event or Post
Employment Event a) during
the Second Period, and
No Malus Event during the
Third Period
Where the release is by
reason of retirement from
Macquarie
As above
As above and in addition, the
release is subject to no Post
Employment Event b) during
the Second Period
As above and in addition, the
release is subject to no Post
Employment Event b) during
the Second and/or Third Period
As set out in the table above, the release provisions for retirement from Macquarie were enhanced during FY2018, whereby the release
of retention post termination at six months, one year and two years is subject to the Executive Director not having joined a competitor or
otherwise participated in a business that competes with Macquarie (Post Employment Event b).
Where an Executive Director has a tax liability on termination of employment in respect of any unvested retained profit share, the Board
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.
For individuals who are allocated an entitlement to a share of performance fees paid by a particular Macquarie-managed fund, the
entitlement will be forfeited if their employment ceases before five years from the date of allocation. Entitlements are subject to similar
forfeiture conditions as profit share.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 55
Performance Share Units (PSUs)
Executive Committee members are the only group of staff eligible to receive PSUs, which are subject to forward-looking performance
hurdles and are determined with reference to Macquarie’s performance as a whole. As such, they provide an additional incentive
to Executive Committee members to drive company-wide performance over the long-term over and above their business group
responsibilities. PSU awards are a meaningful incentive but are generally not the major element of an Executive Committee member’s total
remuneration.
Since their introduction, PSUs have been structured as DSUs(5) with performance hurdles. Holders have no right to dividend equivalent
payments. There is no exercise price 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 market practice. No change has been made to the hurdles for
FY2018.
The following table summarises the key terms of PSUs and the performance hurdles:
Application
Performance measure
EPS CAGR hurdle
50% of PSU award
ROE hurdle
50% of PSU award
Compound annual growth rate (CAGR) in EPS
over the vesting period (three to four years)
Average annual ROE over the vesting period
(three to four years) relative to a reference group
of global financial institutions(6)
Hurdle
Sliding scale applies:
Sliding scale applies:
– 50% becoming exercisable at EPS CAGR
– 50% becoming exercisable above the
of 7.5%
50th percentile
– 100% at EPS CAGR of 12%
– 100% at the 75th percentile
For example, if EPS CAGR was 9.75%, 75% of
the relevant awards would become exercisable.
For example, if ROE achievement was at the
60th percentile, 70% of the relevant awards
would become exercisable.
Rationale for hurdles
– ROE and EPS drive long-term company performance and are appropriate as the Executive Committee can affect outcomes on both
measures. In contrast, Total Shareholder Return (TSR) is influenced by many external factors over which executives have limited control
– The approach is consistent with that advocated by APRA in not using TSR as a measure
– Can be substantiated using information that is disclosed in audited financial statements
– A sliding scale diversifies the risk of not achieving the hurdles and 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
– Designed to 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
– An international reference group recognises the extent of Macquarie’s diversification and internationalisation. At 31 March 2018,
total international income represented approximately 67% of Macquarie’s total income with approximately 54% of Macquarie’s staff
located outside Australia.
Forfeiture
– Malus provisions apply from 2018
– The standard policy is that unvested PSUs will be forfeited upon termination
– To ensure continued alignment with shareholders post termination, in the case of retirement from Macquarie, redundancy, death,
serious incapacitation, disability, serious ill-health, or other limited exceptional circumstances, the Board or the BRC has the authority
to either accelerate the vesting of PSUs or to permit the PSUs to continue to vest in accordance with the original award schedule and
remain subject to the same performance hurdles
– Should a change of control occur, the Board or the BRC has discretion to determine how unvested PSUs should be treated,
having regard to factors such as the length of time elapsed in the performance period, the level of performance to date and the
circumstances of the change in control.
(5) A DSU is a Deferred Share Unit and is one of the award types under the MEREP. For further details, refer to Note 32 to the financial statements in the
Financial Report.
(6) The reference group for awards made from 2013 is Bank of America Corporation, Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, Goldman
Sachs Group Inc., JP Morgan Chase & Co., Lazard Ltd, Morgan Stanley and UBS AG.
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DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
Testing of hurdles
Under both performance hurdles, the objective is examined once only. Testing occurs annually on 30 June immediately before vesting on
1 July, based on the most recent financial year end results available. PSUs that do not meet performance hurdles expire.
The PSUs that vested in July 2017 comprised the second tranche of those awards granted in 2013 and the first tranche of those granted in
2014. The performance hurdles under each tranche were fully met and 100% of the awards became exercisable. As a result:
EPS CAGR hurdle
Macquarie result
(for vesting period) Hurdle
27.20%
7.5%-12%
ROE hurdle
Macquarie result
(for vesting period)
12.33%
Outcome
100%
exercisable
PSU tranche
2013
Tranche 2
Hurdle
Outcome
50% above the 50th
percentile (7)
100%
exercisable
100% at the 75th
percentile (7)
2014
Tranche 1
19.68%
7.5%-12%
100%
exercisable
13.01%
50% above the 50th
percentile (8)
100%
exercisable
100% at the 75th
percentile (8)
Other features of Macquarie’s remuneration structure
Minimum shareholding
requirement
Promotion Awards
Executive Directors are required to hold a relevant interest in Macquarie ordinary shares which
have a value equal to 5% of an Executive Director’s aggregate profit share allocations for each
of the past five years (10 years for Executive Committee members), which can be satisfied by
the requirements of the profit share retention policy.
Staff who are promoted to Associate Director, Division Director or Executive Director receive an
allocation of MEREP awards based on Director-level set with reference to an Australian dollar value.
Currently these awards range from $A25,000 to $A175,000 depending on the promotion level.
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 that
ensures that a large part of their remuneration is ‘at risk’. Refer to pages 52 to 54 for details.
PSU participation
Executive Committee members are eligible to receive PSUs. Refer to pages 55 to 56 for details.
Termination of employment
Requires no more than four weeks’ notice(9) by Macquarie or the Executive Committee member
(Post-employment restrictions apply).
Post-employment restrictions
Restrictions include non-solicitation provisions applicable for six months, and paid
non-competition provisions applicable, at Macquarie’s election, for up to three months
post-termination.
(7) Peer group ROE at 50th percentile 6.47% and peer group ROE at 75th percentile 9.64%.
(8) Peer group ROE at 50th percentile 7.19% and peer group ROE at 75th percentile 9.33%.
(9) 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.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 57
APPROACH TO DETERMINING REMUNERATION OUTCOMES
This section provides an overview of Macquarie’s approach to determining remuneration outcomes.
FIXED REMUNERATION
Fixed
– Reviewed annually and reflects technical and functional expertise, role scope, market practice and regulatory
requirements.
PERFORMANCE-BASED REMUNERATION
Profit share
The company-wide profit share pool is determined through a bottom-up assessment at both the business group
and individual level:
Allocation to business groups
– Considers overall remuneration levels in the market in which each business operates
– Reflects each business’ contribution to company-wide profits taking into account capital and funding usage
– For support groups, based on the quality and integrity of control functions and support services; not primarily
determined with reference to profitability.
Allocation to individuals
– Considers individual remuneration levels in the market in which each business operates
– Primarily based on business profits and individual contribution to profits for front office staff
– Primarily based on contribution to high quality control functions for risk management and financial control staff
– For other support staff, based on their contribution to delivering high quality services to support the
businesses
– Other factors considered include risk management and compliance, business leadership, people leadership
and professional conduct
– May be adjusted downwards based on an assessment of risk or conduct issues that have arisen during the year.
Company-wide profit share pool
– Is an aggregate of the bottom-up assessment conducted at the business and individual level which is
compared to an internal formula based on Macquarie’s after-tax profits and its earnings over and above the
estimated cost of capital to ensure it is appropriate
– The CFO confirms that payment of the profit share pool would not result in elimination of capital surpluses
– The Board retains discretion to determine the final amount of profit share allocated to reflect internal or
external factors if deemed in the interests of Macquarie and shareholders.
PSUs
– Pool determined with reference to profits over recent years
– The Board retains discretion to award PSUs
– Awards are made based on a fair value methodology
– Individual allocations reflect role and complexity, and contribution to driving the collective performance
of Macquarie
– PSUs are granted in August each year. Details of 2017 grants are included on pages 79 to 80 in Appendix 4.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 58
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
RISK CONSIDERATIONS AND CONSEQUENCE MANAGEMENT
This section describes how risk is considered throughout Macquarie’s remuneration approach.
Risk culture
A sound risk culture has been integral to Macquarie’s risk management framework since inception. Staff are made aware that Macquarie’s
What We Stand For principles of Opportunity, Accountability and Integrity must form the basis of all behaviours and actions. These
behavioural expectations are outlined in the Board approved Code of conduct, which is actively promoted by Management and cascaded
through the organisation.
The Board and the BRC take risk and behavioural matters very seriously. There are consistent and transparent practices in place for
managing non-compliance with our policies.
Alignment of remuneration with prudent risk taking
The Board considers that the effective alignment of remuneration with prudent risk-taking is fundamental to its remuneration approach.
Performance-based remuneration reflects an individual’s performance which includes an assessment of a range of factors including risk
management and compliance as well as behavioural measures to promote good conduct and commitment to the Code of conduct and
What We Stand For.
Macquarie’s remuneration framework is characterised by significant retention and long deferral periods, which enables risk outcomes to be
taken into account over a longer period. There are robust processes in place to ensure that risk, reputation and conduct related matters, as
well as financial losses and impairments, and other breaches of the risk management framework are specifically considered when assessing
performance and determining remuneration outcomes. These processes may result in a downward adjustment to group and/or individual
profit share allocations where appropriate.
To assist the Board and the BRC:
– The Board receives regular reports to assist Board members in assessing Macquarie’s risk culture as well as through personal
observation including visits to Macquarie’s overseas offices
– The Chief Risk Officer (CRO) provides an independent annual report to the BRC detailing any material breaches of policy, losses and
impairments, residual risks associated with large transactions concluded during the current financial year, return on economic capital
by business and the relationship between profitability and risk
– The Global Head of HR discusses the CRO’s report with the Group Heads to ensure any matters listed in the report have been
appropriately reflected in remuneration outcomes for relevant staff and provides a report to the BRC detailing how this has been achieved
– The General Counsel, in conjunction with HR, considers whether there are any incidents that should be brought to the attention of the
BRC which might lead to a Malus determination and reports to the BRC at year end.
The BRC conducts a detailed review of all the material presented and uses this information when considering remuneration outcomes for
relevant businesses and individuals.
Consequence Management
Macquarie operates a robust consequence management process whereby incidents, breaches of policy and misconduct are regularly reported
to senior management. Macquarie’s Consequence Management Guideline applies wherever a breach of internal policy, including the Code of
conduct, or regulatory requirement is identified. Consequences may include requirements to undergo further training, removal of delegated
authorities or permissions, adjustments to performance-based remuneration, impact on promotion, formal warnings or termination.
In any given year, each of these different types of consequences may be imposed on individuals working at Macquarie. The most serious
consequences are formal warnings and terminations. Where an employee has received a formal warning, in most cases the discretionary
component of their remuneration will be impacted. In the event that an individual’s employment is terminated on account of a compliance or
conduct concern (or they resign), Macquarie’s standard policy would apply, whereby retained and unvested remuneration is forfeited.
To assist the Board and the BRC:
– RMG and HR routinely provide information on identified breaches of policies and regulatory rules to (amongst other purposes)
ensure that appropriate consequence management is applied. RMG and HR data relating to employee conduct, including individual
employee warnings, incidents and breaches, is collated from various sources and regularly reported to senior management
– The Global Head of HR annually reports to the BRC on the outcomes from the consequence management process and confirms
these matters have been considered in determining remuneration and promotion outcomes where appropriate.
In 2018, there were 157 (FY2017: 167) matters involving conduct/policy breaches which resulted in formal consequences. Of those matters:
– for 38 matters, termination of employment was the outcome, compared with 63 matters in FY2017
– for 119 matters, a formal warning was issued compared with 104 matters in FY2017. Where a formal warning was issued, additional
consequences were applied as appropriate including additional training, removal of delegated authorities or permissions, adjustments
to performance-based remuneration and/or impact to promotion. Of the 119 matters, 32 have resulted in individuals subsequently
leaving Macquarie.
These matters were considered to be isolated incidents and not systemic.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 59
ALIGNMENT OF EXECUTIVE KMP REMUNERATION OUTCOMES TO RESULTS
This section details Executive KMP remuneration outcomes for FY2018 and demonstrates the link between pay and performance.
Macquarie has delivered strong financial results for shareholders in FY2018. NPAT and EPS have both increased by 15% compared with
FY2017. In addition, returns to shareholders have been strong with an increase in ordinary dividends of 12% compared to the prior year.
Total compensation in FY2018 has not increased to the same extent as NPAT and EPS, and the compensation expense to income ratio
has declined from 43.1% to 38.7% over a five year period. This reflects the change in business mix with contribution to net profit from
annuity-style businesses increasing from 25% to approximately 70% over the past ten years.
As in some previous years, not all of the profit share pool calculated in accordance with the internal formula has been allocated.
Fixed remuneration outcomes
– No fixed remuneration increases are proposed for Executive KMP in 2018 with the exception of:
– N. O’Kane and A. Harvey who both joined the Executive Committee during the year. Effective 1 July 2018, an increase in fixed
remuneration was determined to be appropriate given their increased responsibilities and oversight role
– M. Reemst whose fixed remuneration was increased, effective 1 July 2018, to reflect the scope of her role
– This is the 7th year that the CEO’s fixed remuneration has remained unchanged
– In line with our pay for performance approach to remuneration, fixed remuneration of our Executive KMP in FY2018 comprised
approximately 7% of total awarded remuneration, with the balance at risk and explicitly linked to performance.
Profit share outcomes
For FY2018 the Board determined that total awarded profit share for Comparable Executive KMP of $A100.6 million(10), representing an
increase of 5% on the prior year, is appropriate.
In determining each Executive KMP’s profit share for the year, the BRC carefully considered a number of factors with respect to each
Executive KMP, including the financial performance of each business, their business and people leadership, their business judgement as
well as risk and conduct matters. In addition, the BRC considered remuneration levels for organisations in an international reference group
that broadly operate in the same markets and compete for the same people as Macquarie.
The following graphs show multi-year alignment between CEO and total Executive KMP awarded profit share and Macquarie NPAT over a
ten year period.
CEO awarded profit share
Total Executive KMP awarded profit share
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(10) Total FY2018 awarded profit share for all Executive KMP is $A115.9 million as set out in the Total Executive KMP awarded profit share graph.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report
60
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
ADDITIONAL AWARDED REMUNERATION DISCLOSURES
This year, to clearly demonstrate the link between pay and performance and to further enhance the transparency of remuneration outcomes for our
Executive KMP, we have included additional awarded profit share disclosures and highlights of each Executive KMP’s performance for the year.
The tables on the following pages:
– are additional disclosures which are prepared on a different basis to those included in the statutory disclosures in Appendix 2 and
are not additive
– only include remuneration relating to the portion of the relevant periods that each person was an Executive KMP.
Macquarie Group
Macquarie Bank
– NPAT of $A2,557 million is up 15% on the prior year
– ROE of 16.8% has improved from 15.2% in the prior year
– EPS of 758.2 cents per share has increased by 15% on the
prior year
– Maintained a strong funded balance sheet
– Continued to pursue new opportunities including the successful
integration of the Green Investment Group and Cargill trading
businesses
– Strong risk management approach
– Continued focus on culture and conduct underpinned by our
long-held principles of What We Stand For – Opportunity,
Accountability and Integrity
– The Foundation and our staff contributed $A28.3 million
to more than 1,500 community organisations globally and
recorded over 60,000 hours of voluntary service.
– Strong MBL financial performance
– Strong liquidity position maintained well above regulatory
minimums and surplus Group APRA Basel III capital available
to support growth
– Stable credit ratings maintained; S&P “A” rating maintained
for 26 years
– Strong risk management approach
– All Operating Groups focused on customer outcomes
– Office of the Customer Advocate introduced in FY2018 for
retail and small business customers.
– Continued focus on Macquarie’s risk culture as part of the
way we do business
– Maintained strong awareness of our long-held principles
of What We Stand For – Opportunity, Accountability
and Integrity.
N.W. Moore – Macquarie CEO
Awarded remuneration ($A)
Fixed remuneration
Available profit share
Retained profit share
Total
M.J. Reemst – Macquarie Bank CEO
FY2018
818,746
FY2017
818,804
Awarded remuneration ($A)
Fixed remuneration
FY2018
722,423
FY2017
722,474
3,616,294
3,447,296
Available profit share
1,590,412
1,401,648
14,487,770
13,805,661
Retained profit share
2,389,344
2,104,984
18,922,810
18,071,761
Total
4,702,179
4,229,106
Macquarie Asset Management (MAM)
Banking and Financial Services (BFS)
– MAM delivered a net profit contribution of $A1,685 million for
– BFS delivered a net profit contribution of $A560 million for
FY2018, up 10% on the prior year
FY2018, up 9% on the prior year
– Performance fee income of $A595 million increased
significantly from $A264 million in the prior year predominantly
from Macquarie European Infrastructure Fund 3 (MEIF 3)
and Macquarie Atlas Roads (MQA), and other managed funds
and co-investors
– Base fees of $A1,608 million were broadly in line with FY2017
– AUM of $A495.1 billion increased 3% in FY2018
– Platform expansion through acquisition of GLL Real Estate
Partners and ValueInvest Asset Management
– MIRA ranked largest infrastructure manager globally(11)
– MIM received 6 awards for Australian Equities and
2 Lipper Awards(12).
– BFS deposits of $A45.7 billion increased 3% in FY2018
– Funds on platform of $A82.5 billion increased 14% in FY2018
– The Australian mortgage portfolio of $A32.7 billion increased
14% in FY2018
– Significant focus on customer outcomes
– Recognised for Best Digital Banking offering and Innovative
Card Product of the year, Australian Retail Banking Award
(May 2017).
S. Wikramanayake – Group Head
G.C. Ward – Group Head
Awarded remuneration ($A)
Fixed remuneration
Available profit share
Retained profit share
Total
FY2018
722,423
FY2017
722,474
Awarded remuneration ($A)
Fixed remuneration
FY2018
770,584
FY2017
770,639
4,785,436
5,826,309
Available profit share
3,142,957
3,030,590
11,175,707
8,745,265
Retained profit share
4,720,981
4,550,713
16,683,566
15,294,048
Total
8,634,522
8,351,942
(11) Based on assets under management, Willis Towers Watson 2017 Global Alternatives Survey, published 17 July 2017.
(12) For more information and disclosures about these awards, visit: macquarieim.com/mimdisclosures.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 61
ADDITIONAL AWARDED REMUNERATION DISCLOSURES CONTINUED
Corporate and Asset Finance (CAF)
– CAF delivered a net profit contribution of $A1,206 million for FY2018, up 1% from the prior year
– During FY2018, CAF continued to provide specialist finance and asset management solutions on a global scale with an asset and
loan portfolio of $A34.5 billion
– The Asset Finance portfolio continued to perform well:
– Currently finance over 9 million smart meters in the UK, 600,000 cars in Australia and 196 commercial aircraft globally
– Launched integrated operations platform to offer more solutions to our customers in the US, Europe and Australia
– Continued investment in technology including the establishment of Moto Me
– Principal Finance continued to generate strong overall returns:
– Disciplined and focused execution across geographies, sectors and instruments
– Zero realised impairments in FY2018
– Notable realisations from the sale of principal investments ranging from a UK solar platform to a US power plant.
G.A. Farrell – Group Co-Head (Asset Finance)
B.A. Brazil – Group Co-Head (Principal Finance)
Awarded remuneration ($A)
Fixed remuneration
Available profit share
Retained profit share
Total
FY2018
722,423
FY2017
Awarded remuneration ($A)
722,474
Fixed remuneration
FY2018
722,423
FY2017
722,474
3,029,356
3,030,590
Available profit share
5,728,513
6,387,347
4,551,131
4,551,317
Retained profit share
8,606,190
9,592,469
8,302,910
8,304,381
Total
15,057,126
16,702,290
Commodities and Global Markets (CGM)
– CGM delivered a net profit contribution of $A910 million for FY2018, down 6% from the prior year
– Diverse platform covering more than 25 market segments, with more than 160 products
– Growth and continued strength in commodities (e.g. natural gas, LNG, NGLs, power, oil, coal, base metals, iron ore and sugar)
– Integrated the former MSG business into CGM with improved results across the equities platform
– Acquisition of Cargill Petroleum and Cargill North America Power and Gas were completed in FY2018, expanding the energy platform
– Improved ranking to become the No. 2 US physical gas marketer in North America – the highest ranked non-producer.(13)
A.J. Downe – Group Head
Awarded remuneration ($A)
Fixed remuneration
Available profit share
Retained profit share
Total
N. O’Kane – Head of Commodity Markets and Finance(14)
FY2018
934,710
FY2017
Awarded remuneration ($A)
936,281
Fixed remuneration
5,158,730
5,564,000
Available profit share
7,738,096
8,346,000
Retained profit share
13,831,536
14,846,281
Total
FY2018
590,962
4,050,098
6,075,147
10,716,207
FY2017
n.a.
n.a.
n.a.
n.a.
(13) Platts Q4 CY17.
(14) Mr O’Kane was appointed to the Executive Committee effective 15 June 2017. Awarded remuneration disclosed reflects his time as an Executive KMP.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 62
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
Macquarie Capital
Corporate Operations Group (COG)
– Macquarie Capital delivered a net profit contribution of
$A700 million for FY2018, up 45% on the prior year
– Continued to build a global energy business by leading the
acquisition of the UK Green Investment Bank plc, appointing a
Global Head of Energy, increased investment in green energy
assets and expansion into new geographies
– Stronger investment-related income from asset realisations
across most regions, primarily in the green energy,
conventional energy and infrastructure sectors
– Macquarie Capital maintained strong market positions across
its global capabilities in FY2018 and continued to advise on
and participate in leading transactions globally.
– Responsible for Technology, Market Operations, Human
Resources, Business Services, Business Improvement & Strategy,
Brand & Marketing, the Macquarie Foundation and Global Security
– Ongoing strategic initiatives resulting in net operational efficiencies
– Led a number of Group-wide initiatives including an Executive
Director leadership program
– Strong operational metrics
– Partnered with the operating groups on a number of initiatives
including BFS digital banking, MAM global platform strategy and
the acquisitions of Green Investment Bank and Cargill
– Significant effort in regulatory reform including MiFIDII and BEAR
– Uplift in resilience and cyber security capability.
T.C. Bishop – Group Head
Awarded remuneration ($A)
Fixed remuneration
Available profit share
Retained profit share
Total
N. Sorbara – Group Head
FY2018
722,423
FY2017
Awarded remuneration ($A)
722,474
Fixed remuneration(15)
2,556,019
1,619,472
Available profit share
5,973,361
3,783,282
Retained profit share
9,251,803
6,125,228
Total
FY2018
759,027
FY2017
698,713
2,272,017
1,780,472
3,413,349
2,673,899
6,444,393
5,153,084
Risk Management Group (RMG)
Financial Management Group (FMG)
– Successfully transitioned into the CRO role on 1 January 2018
– Responsible for identifying, assessing and monitoring risks
– Successfully transitioned into the CFO role on 1 January 2018
– Responsible for financial, tax and treasury services to all areas
across Macquarie
of Macquarie
– Engages with 215 regulators around the world
– RMG continued to take a leading role in its core function of
managing risk across Macquarie by analysing, approving and
monitoring key risk decisions while adapting to changes in
Macquarie’s underlying businesses
– Further embedded conduct risk management into the existing
Risk Management Framework with enhanced conduct risk
processes
– Investment in key risk systems delivered efficiencies in
FY2018.
– Ensures Macquarie continues to meet its financial regulatory
and compliance obligations and is well positioned to respond
effectively to future changes
– Continued responsibility for Macquarie’s corporate
communications, investor relations and actively engages and
manages rating agency and banking relationships
– Continued responsibility for capital and funding, liquidity and
interest rate risk management of Macquarie’s balance sheet.
P.C. Upfold – CRO and Group Head(16)
A. Harvey – CFO and Group Head(17)
Awarded remuneration ($A)
Fixed remuneration
Available profit share
Retained profit share
Total
FY2018
770,584
FY2017
Awarded remuneration ($A)
770,639
Fixed remuneration
2,272,017
2,121,413
Available profit share
3,413,349
3,185,922
Retained profit share
6,455,950
6,077,974
Total
FY2018
143,890
568,004
853,338
1,565,232
FY2017
n.a.
n.a.
n.a.
n.a.
(15) Mrs Sorbara was a part-time employee until 31 May 2017 and became a full time employee effective 1 June 2017. She did not receive a fixed
remuneration increase during the year.
(16) Mr Upfold commenced as the CRO and Head of RMG effective 1 January 2018. He was formerly the CFO and Head of FMG.
(17) Mr Harvey was appointed to the Executive Committee as CFO and Head of FMG effective 1 January 2018. Awarded remuneration disclosed reflects
remuneration awarded in respect of his role as an Executive KMP.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 63
Allocation of PSUs to the Macquarie CEO
Approval will be sought under ASX Listing Rule 10.14 at Macquarie’s 2018 Annual General Meeting to allocate $A2.55 million worth of PSUs
to the Macquarie CEO, who is also an Executive Voting Director. The CEO’s PSUs will be structured as Deferred Share Units (DSUs) with the
performance hurdles described on page 55. As in previous years, the number of PSUs that will be allocated to the CEO will be calculated
by dividing the $A2.55 million by the fair valuation of a PSU at the date of grant. The fair value of PSUs that may be acquired by the CEO is
$A2.55 million (FY2017: $A2.55 million).
The table below provides an estimate of the number of PSUs to be granted at varying prices for Macquarie’s ordinary shares. The following
assumptions were used in estimating these values: a risk free interest rate of 2.45% per annum, share volatility of 23.12% and a forecast
dividend yield of 4.96% per annum (paid in two instalments each year).
Macquarie
Share Price
$A
95
100
105
110
Fair Value
$A
2,550,000
2,550,000
2,550,000
2,550,000
PSU
Fair Value(18)
(per unit)
59.1660
62.2800
65.3940
68.5080
Estimated
number of
PSUs to be
granted
43,099
40,944
38,994
37,221
Estimated
Face value
$A
4,094,405
4,094,400
4,094,370
4,094,310
(18) The fair value per PSU will be calculated at the date of grant using a Monte-Carlo option pricing framework which is designed to take account of trading
restrictions, the fact that PSUs do not attract dividends and the vesting performance hurdles and timeframes. As a result, the fair value of a PSU is lower
than the market value of a Macquarie ordinary share.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 64
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
ALIGNMENT OF REMUNERATION OUTCOMES TO RESULTS
This section details Macquarie’s results and demonstrates how these results are aligned to remuneration outcomes for the year.
Comparison of performance measures and executive remuneration measures: FY2017-2018
Performance measures
NPAT
Basic EPS
Ordinary Dividends
Return on equity
Annual TSR(19)
Executive remuneration measures
Total Compensation Expense
Compensation Expense to Income ratio
Average staff headcount
Actual staff headcount 31 March
Awarded profit share – CEO
Awarded profit share – Comparable Executive KMP
Statutory Remuneration – CEO
Statutory Remuneration – Comparable Executive KMP
Performance over past 10 years: FY2009-2018
Expressed as
2018
2017
$Am
Cents per share
Cents per share
Percent
Percent
$Am
Percent
$Am
$Am
$Am
$Am
2,557
758.2
525.0
16.8
20.1
4,221
38.7
14,048
14,469
18.1
100.6
19.7
119.4
2,217
657.6
470.0
15.2
44.6
4,121
39.8
13,990
13,597
17.3
95.5
18.7
112.9
Increase/
(Decrease)
%
15
15
12
2
–
6
5
5
5
6
Year ended 31 March
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Income Statement
NPAT ($Am)
871
Basic EPS (cents per share)
309.6
1,050
320.2
956
282.5
730
210.1
851
251.2
1,265
383.6
1,604
502.3
2,063
619.2
2,217
657.6
2,557
758.2
Shareholder returns
Return on equity (%)
9.9
10.1
Ordinary Dividends (cents
per share)
Special Dividends (cents
per share)
Share price at 31 March ($A)
Annual TSR (%)(19)
10 year TSR (%)(19)
185
–
27.1
(44.0)
–
186
–
47.3
79.8
–
8.8
186
–
36.6
(18.9)
–
6.8
140
–
29.1
(15.9)
–
7.8
11.1
14.0
14.7
15.2
16.8
200
260
–
116(20)
37.2
34.4
–
57.9
66.0
–
330
–
76.7
38.9
–
400
–
66.1
(9.9)
–
470
–
90.2
44.6
–
525
–
102.9
20.1
233.0
(19) Source: Bloomberg.
(20) 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.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 65
MACQUARIE’S PERFORMANCE RELATIVE TO A REFERENCE GROUP
The following analysis demonstrates Macquarie’s strong performance over the short and long-term, compared to its global reference
group.
Use of a global reference group
The BRC considers a global reference group to be appropriate
on the basis that Macquarie has no comparable Australian peers.
These international firms broadly operate in the same markets and
compete for the same people as Macquarie.
Nonetheless, comparisons are complicated as each company has
a different business mix. Some companies are or have become
part of larger organisations, often with large retail operations that
can distort comparisons. In addition, depending on the business
mix, the capital requirements may differ significantly, impacting each
company’s capital levels.
Comparator company information is presented in the same order
throughout the Remuneration Report and comprises Bank of
America Corporation, Barclays PLC, Credit Suisse Group AG,
Deutsche Bank AG, Goldman Sachs Group Inc., JP Morgan Chase
& Co., Lazard Ltd, Morgan Stanley and UBS AG.
Return on Equity (ROE)
Macquarie’s ROE for FY2018 of 16.8% has improved from 15.2%
in the prior year, and is higher than all but one of the global
reference group.
Reference group ROE over ten years FY2009-2018
1 year
average
% p.a.
3 year
average
% p.a.
5 year
average
% p.a.
10 year
average
% p.a.
Macquarie
16.8
15.6
14.4
11.5
Average of
reference group
Company
Company
Company
Company
Company
Company
Company
Company
Company
5.0
6.8
(3.4)
(2.3)
(1.7)
5.0
9.9
20.8
8.1
2.0
8.7
6.6
(0.4)
(5.1)
(5.1)
7.3
10.1
49.6
8.3
6.5
9.2
5.2
(0.1)
(1.3)
(2.2)
8.8
9.7
48.9
6.8
6.7
6.5
2.6
4.8
1.0
0.6
9.6
8.9
27.7
4.9
(1.5)
In addition, Macquarie’s three, five and ten-year average annual
ROE exceeds all but one of the reference group.
Source: Bloomberg and Annual Reports
Total shareholder return
Macquarie’s total shareholder return over the long-term has been strong and continues to outperform both the MSCI World Capital Markets
Index since the inception of this index and the All Ordinaries Accumulation Index (All Ords) since listing.
Macquarie TSR versus the MSCI Index(21): 30 April 2003, being the date the index was first calculated, to 31 March 2018
900
800
700
600
500
400
300
200
100
0
3
0
r
a
M
4
0
r
a
M
5
0
r
a
M
6
0
r
a
M
7
0
r
a
M
8
0
r
a
M
9
0
r
a
M
0
1
r
a
M
1
1
r
a
M
2
1
r
a
M
3
1
r
a
M
4
1
r
a
M
5
1
r
a
M
6
1
r
a
M
7
1
r
a
M
8
1
r
a
M
MQG
MSCI World Capital Markets Index
Source: Factset
(21) Indexed to 100 on 30 April 2003, being the date the index was first calculated. The MSCI World Capital Markets Index comprises a basket of companies
that provide capital markets activities (defined by MSCI as asset management, investment banking and brokerage, and diversified capital markets
activities). Macquarie TSR calculations assume continuous listing. Therefore they are based on Macquarie Bank Limited (ASX Code: MBL) data up to
and including 2 November 2007 (the last day of trading of MBL shares), and MGL (ASX Code: MQG) data from the commencement of trading of MGL
ordinary shares on 5 November 2007 onwards.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report
66
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
Macquarie TSR since listing versus the All Ords(22): 29 July 1996 to 31 March 2018
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
6
9
r
a
M
7
9
r
a
M
8
9
r
a
M
9
9
r
a
M
0
0
r
a
M
1
0
r
a
M
2
0
r
a
M
3
0
r
a
M
4
0
r
a
M
5
0
r
a
M
6
0
r
a
M
7
0
r
a
M
8
0
r
a
M
9
0
r
a
M
0
1
r
a
M
1
1
r
a
M
2
1
r
a
M
3
1
r
a
M
4
1
r
a
M
5
1
r
a
M
6
1
r
a
M
7
1
r
a
M
8
1
r
a
M
MQG TSR
All Ords TSR
Source: Bloomberg
Compensation expense to income ratio: FY2016-FY2018 (%)
The compensation expense to income ratio (compensation ratio) is widely used in the financial services industry as a broad measure of
relative remuneration levels. It is not, however, the basis on which Macquarie’s profit share pool is determined. While the compensation ratio
effectively adjusts for differences in size between organisations, it is not an entirely adequate measure to use in assessing compensation
levels because it fails to take into account factors such as those set out on page 65. In the following chart, Macquarie’s compensation ratio
is compared with that of the global reference group(23) used for testing PSU outcomes.
2015/2016
2016/2017
2017/2018
Average 2017/2018 compensation ratio of reference group
Source: Data has been calculated by Macquarie. The information is based on publicly available information for the reference group. In order to show more
comparable compensation ratios, impairments have been consistently netted against net revenue in the revised calculations for some organisations.
(22) Indexed to 100 on 29 July 1996, being when MBL shares were first quoted on ASX. The All Ordinaries Accumulation Index (All Ords) comprises the
500 largest ASX listed companies by market capitalisation.
(23) The reference group comprises Bank of America Corporation, Credit Suisse Group AG (Investment Banking and Capital Markets and Global Markets
segments), Deutsche Bank AG, Goldman Sachs Group Inc., JP Morgan Chase & Co. (Corporate and Investment Banking segment), Lazard Ltd,
Morgan Stanley and UBS AG (Investment Banking segment). Barclays PLC (Investment Banking segment) data is no longer available and has therefore
been excluded from this analysis.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
67
MACQUARIE’S PERFORMANCE RELATIVE TO A REFERENCE GROUP CONTINUED
Staff retention
One of the primary goals of Macquarie’s remuneration framework is to attract, motivate and retain high-performing staff. The Board’s view is
that Macquarie continues to achieve this goal as demonstrated by the following:
– Macquarie’s Executive KMP had an average tenure of 25 years with Macquarie as at 31 March 2018. Their strong leadership and deep
expertise was integral in driving company and business performance in FY2018
– As at 31 March 2018, 48% of Director-level staff had ten or more years’ experience with Macquarie, while a further 24% had between
five and ten years’ experience with Macquarie
– The 6.9% director-level voluntary turnover rate in FY2018 is broadly in line with the prior year and remains below the voluntary turnover
rate across Macquarie overall.
Tenure of Executive KMP(24)
Directors' tenure as at 31 March 2018
Director-level staff tenure as at 31 March 2018(25)
A Downe
G Farrell
N Moore
S Wikramanayke
T Bishop
M Reemst
N O'Kane
G Ward
N Sorbara
P Upfold
A Harvey
B Brazil
0
8
16
Number of years at Macquarie
24
Over 10years
48%
FY2017 43%
32
Below 3 years
17%
FY2017 18%
3 years
to 5 years
11%
FY2017 9%
5 years
to 10 years
24%
FY2017 30%
(24) This includes accumulated service at acquired companies, for example Bankers Trust Investment Bank Australia.
(25) Directors include all Director-level staff defined as Associate Directors, Division Directors and Executive Directors. As at 31 March 2018, there were a total
of 3,158 Director-level staff, of whom 342 were Executive Directors.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 68
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
REMUNERATION GOVERNANCE
Effective governance is central to Macquarie’s remuneration
strategy and approach. The key elements of Macquarie’s
remuneration governance framework are described below.
Strong Board oversight
The Board oversees Macquarie’s remuneration framework. 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 Non-Executive
Directors (NEDs):
– Michael Hawker (Chairman)
– Gary Banks
– Gordon Cairns
– Diane Grady
– Peter Warne.
The BRC members have the required experience and expertise
in human resources, remuneration and risk that enable them
to achieve effective governance of Macquarie’s remuneration
framework. The BRC has a regular meeting cycle and it met
seven times over the last financial year. Attendance at the meetings
by the BRC members is set out in the Directors’ Report. Strict
processes are in place to ensure that conflicts of interest are
appropriately managed.
The BRC pays close attention to the design and the operation of
remuneration practices for all of Macquarie, not just for the most
senior executives. The responsibilities of the BRC are outlined in
its Charter, which is reviewed and approved annually by the Board.
Some of the responsibilities include:
– recommending to the Board the remuneration outcomes for all
Executive KMP, Designated Executive Directors as well as other
senior executives
– assessing the effectiveness of the Remuneration Policy to ensure
compliance with legal and regulatory requirements, as well as to
support the alignment of remuneration with prudent risk taking
and professional conduct across the organisation
– recommending the Remuneration Policy to the Board for
approval, and
Over the course of the year the Board receives regular reports
and updates on many of these areas. These are summarised in
the CEO’s presentation, together with additional information on
any particular matters of interest that the Board has identified for
further discussion as a part of the review process. The Board then
considers the CEO’s performance and progress against all of these
topics in determining the CEO’s remuneration for the year. 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 and professional conduct
consistent with the Code of conduct and What We Stand For.
In addition, the BRC considers remuneration levels for organisations
in an international reference group that broadly operate in the same
markets and compete for the same people as Macquarie.
This information helps the BRC and Board make decisions about
remuneration.
Engagement with external stakeholders
The Chairman of the Board and the Chairman of the BRC
undertake a series of meetings each year with investors and proxy
advisors to communicate our remuneration approach and to hear
any concerns raised by the investor community.
Independent remuneration review
The BRC has retained Pay Governance as its independent
remuneration consultant, for the use of the Board to obtain advice
on the appropriateness of Macquarie’s remuneration framework.
The only service that Pay Governance provides to Macquarie is
executive compensation consulting to the BRC. Pay Governance
has not made any remuneration recommendations, as defined
by the Corporations Act 2001 (Cth). The BRC is responsible for
making decisions within the terms of its Charter. Pay Governance’s
terms of engagement set out their independence from members of
Macquarie’s management. This year, Pay Governance:
– provided information on global remuneration and
regulatory trends
– considered alignment with shareholder interests
– compared individual remuneration for Executive KMP where
relevant comparator company information was available
– considered Macquarie’s overall remuneration approach
– overseeing the process for the annual review by the Board of the
compared to comparator company organisations.
CEOs’ and other Executive KMPs’ performance.
The Charter is available at
macquarie.com/leadership-corporate-governance.
As part of the Board’s annual review of Macquarie’s CEO’s
performance, the CEO meets with the NEDs of the Board towards
the end of each financial year to consider formal documentation that
outlines his views of Macquarie’s performance. The presentation
includes a broad range of Macquarie’s activities covering the
following main areas:
– financial position and performance
– risk management and compliance
– people leadership and professional conduct consistent with the
Code of conduct and What We Stand For
– sustainability (planning and investment in the future)
– community and customer outcomes.
Pay Governance’s findings included that:
– the objectives of Macquarie’s remuneration framework are similar
to those cited by other leading global investment banks
– Macquarie’s remuneration components support its remuneration
objectives and principles and are largely consistent with
practices at other leading global investment banks, including
that performance-based remuneration takes risk management
into account.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
69
NON-EXECUTIVE DIRECTOR REMUNERATION
Macquarie’s remuneration approach seeks to ensure that the
Non-Executive Directors (NEDs) are appropriately remunerated.
Reflecting the Board’s role, the remuneration arrangements
applicable to NEDs, as outlined in this section, significantly differ
from the arrangements applicable to Executives.
Non-Executive Director remuneration
Non-Executive Director Fees are set acknowledging the level
required to appropriately remunerate highly qualified NEDs who
have the relevant skills and experience to govern as a member of
the Board.
Macquarie’s NED remuneration framework seeks to remunerate
high-calibre directors by:
– setting an overall fee that reflects the scale and complexity
of Macquarie including risk management and regulatory
responsibilities and the global financial nature of Macquarie’s
activities
– setting Board and Committee fees to reflect the time
commitment to meet the responsibilities involved in the annual
scheduled calendar, taking into account market rates for relevant
organisations and market trends
– paying separate fees for additional responsibilities that may arise
on an ad-hoc basis
– delivering these fees in a form that is not contingent on
Macquarie’s performance
– setting a minimum shareholding requirement to align the interest
of NEDs with shareholders.
All NEDs of MGL are also NEDs of MBL. The framework governs
the remuneration of NEDs of both MGL and MBL. The CEO is not
remunerated separately for acting as an Executive Voting Director.
Unlike Macquarie executives, NEDs are not granted equity, nor
are they eligible to receive profit share payments. There are no
termination payments to NEDs on their retirement from office
other than payments relating to their accrued superannuation
contributions comprising part of their remuneration.
NEDs may elect to receive their remuneration, in part, in the form of
superannuation contributions over and above the minimum level of
contribution required under applicable legislation. Macquarie’s NEDs
are remunerated for their services from the maximum aggregate
amount approved by shareholders for this purpose. Macquarie
shareholders approved the current limit ($A4.6 million per annum)
at MGL’s 2015 AGM. The Board ensures that NED remuneration
for MGL and MBL taken together does not exceed this shareholder
approved maximum amount.
Board and Committee fees are reviewed annually(26). An internal
review of NED remuneration was completed during the year.
Following this review, the Boards determined that Board and
Committee fees should remain unchanged.
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, who are required to
have a meaningful direct shareholding in Macquarie.
In March 2018, the Board reviewed the minimum shareholding
requirement for NEDs given share price increases since it was last
reviewed. To support Board diversity while maintaining a significant
alignment with the interests of shareholders in a manner that
directly relates to the level of remuneration paid to NEDs, the Board
approved amending the minimum shareholding requirement as
follows:
– for NEDs other than the Chair using an investment of one times
the average annual NED fees for the financial year ending prior
to their appointment
– for the Chair using an investment of one times the Chair fee
with the minimum number of shares to be determined using the
share price as at the date of a NED’s appointment.
The above requirements apply to NEDs appointed after March 2018
and are to be met within three years from appointment with one
third of the requirement to be held after one year, two thirds after
two years and in full after three years. Transitional arrangements
apply to NEDs whose tenure is less than five years.
Under Macquarie’s Trading Policy, NEDs may only trade Macquarie
securities during designated trading windows and 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 41 of the Directors’ Report.
MGL and MBL Annual Director Fees
Board
Board Risk Committee (BRiC)
Board Audit Committee (BAC)
Board Remuneration Committee (BRC)
Board Governance and Compliance Committee (BGCC)
Board Nominating Committee (BNC)
MGL FEES
MBL FEES
TOTAL FEES
Chairman
$A
Member
$A
Chairman
$A
Member
$A
Chairman(27)
$A
Member
$A
615,000
177,500
250,000
72,500
865,000
250,000
75,000
75,000
75,000
75,000
n.a.
35,000
35,000
35,000
35,000
8,000
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
75,000
75,000
75,000
75,000
n.a.
35,000
35,000
35,000
35,000
8,000
(26) Macquarie has five standing Board Committees. The BAC and BRiC are joint committees of Macquarie and Macquarie Bank. The BRC also advises
both Boards.
(27) The Board Chairman is not paid separate Committee fees. The Board Chairman is Chairman of the BNC, a member of the BRiC and the BRC, and
normally attends BAC and BGCC meetings by invitation.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 70
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
This page has been intentionally left blank.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 71
APPENDIX 1: KEY MANAGEMENT PERSONNEL (KMP) FOR FY2018
All the individuals listed below have been determined to be KMP for FY2018 for the purposes of the Corporations Act 2001 (Cth) and as
defined by AASB 124 Related Party Disclosures. KMP include Executive Voting Directors and Executives with authority and responsibility for
planning, directing and controlling the activities of MGL and its controlled entities (together making Executive KMP) and NEDs. MGL’s NEDs
are required by the Act to be included as KMP for the purposes of disclosures in the Remuneration Report. However, the NEDs do not
consider themselves part of Management.
Name
Position
Term as KMP for FY2018
Executive Voting Director
N.W. Moore
CEO
Non-Executive Directors
G.R. Banks AO
G.M. Cairns
M.J. Coleman
P.A. Cross
D.J. Grady AM
M.J. Hawker AM
G.R. Stevens AC
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
N.M. Wakefield Evans
Independent Director
Independent Chairman
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Appointed to the Board effective from
1 November 2017
Full year
Full year
Full year
Full year
Full year
Full year
Appointed to the Executive Committee
effective from 1 January 2018
Ceased to be a member of the Executive
Committee on 15 June 2017
Former CRO and Head of RMG
Ceased to be a member of the Executive
Committee on 31 December 2017
Head of Macquarie Capital
Co-Head of CAF
Head of CGM
Co-Head of CAF
CFO, Head of FMG
M. McLaughlin
Former Country Head, USA
Head of Commodity Markets and
Finance (CMF)
Appointed to the Executive Committee
effective from 15 June 2017
Macquarie Bank CEO
COO, Head of COG
CRO, Head of RMG
Deputy Managing Director and
Head of BFS
Full year
Full year
Full year
Full year
Full year
S. Wikramanayake
Head of MAM
(1) Except where indicated otherwise, all of the Executives as well as the CEO were members of the Executive Committee as at 4 May 2018.
(2) Mr. Upfold was an Executive KMP for FY2018 but changed roles during the year, commencing as CRO, Head of RMG on 1 January 2018. He was
formerly CFO, Head of FMG.
P.H. Warne
Executives(1)
S.D. Allen
T.C. Bishop
B.A. Brazil
A.J. Downe
G.A. Farrell
A. Harvey
N. O’Kane
M.J. Reemst
N. Sorbara
P.C. Upfold(2)
G.C. Ward
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 72
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
APPENDIX 2: EXECUTIVE KMP REMUNERATION DISCLOSURE (IN ACCORDANCE WITH AUSTRALIAN
ACCOUNTING STANDARDS)
Name
Position
Executive Voting Director
N.W. Moore(1)
CEO
Other Executives
T.C. Bishop
Head of Macquarie Capital
B.A. Brazil
Co-Head of CAF
A.J. Downe(2)
Head of CGM
G.A. Farrell
Co-Head of CAF
M.J. Reemst
Macquarie Bank CEO
N. Sorbara(3)
COO, Head of COG
P.C. Upfold
CRO, Head of RMG
G.C. Ward
Deputy Managing Director, Head of BFS
S. Wikramanayake
Head of MAM
Total Remuneration – Comparable Executive KMP(4)
New Executives
A. Harvey(5)
CFO, Head of FMG
N. O’Kane(5)
Head of CMF
Former Executives
S.D. Allen(6)
Former CRO, Head of RMG
M. McLaughlin(6)
Former Country Head, USA
S. Vrcelj(6)
Former Head of MSG
Total Remuneration – Executive KMP
(including new and former executives)
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
SHORT-TERM EMPLOYEE BENEFITS
LONG-TERM EMPLOYEE BENEFITS
SHARE BASED PAYMENTS
Salary
(including
superannuation)
$A
Performance
related
remuneration
$A
Total short-
term
employee
benefits
$A
Earnings on
Restricted
prior year
Total long-term
Equity awards
profit
share
$A
restricted
profit share
$A
employee
benefits
$A
including
shares(4)
$A
Total
share-based
Percentage of
remuneration
Total
that consists of
PSUs
$A
payments
Remuneration
$A
$A
818,746
818,804
3,616,294
4,435,040
3,447,296
4,266,100
1,446,518
1,378,918
803,246
478,265
2,249,764
1,857,183
9,674,838
9,004,475
3,290,441
3,586,078
12,965,279
19,650,083
12,590,553
18,713,836
722,423
722,474
722,423
722,474
934,710
936,281
722,423
722,474
722,423
722,474
759,027
698,713
770,584
770,639
770,584
770,639
722,423
722,474
2,556,019
3,278,442
1,619,472
2,341,946
5,728,513
6,450,936
6,387,347
7,109,821
5,158,730
6,093,440
5,564,000
6,500,281
3,029,356
3,751,779
3,030,590
3,753,064
1,590,412
2,312,835
1,401,648
2,124,122
2,272,017
3,031,044
1,780,472
2,479,185
2,272,017
3,042,601
2,121,413
2,892,052
3,142,957
3,913,541
3,030,590
3,801,229
4,785,436
5,507,859
5,826,309
6,548,783
7,665,766
34,151,751
41,817,517
7,607,446
34,209,137
41,816,583
143,890
568,004
711,894
–
–
–
590,962
4,050,098
4,641,060
–
–
–
578,731
770,639
172,857
797,240
–
1,476,811
2,055,542
2,348,707
3,119,346
–
172,857
800,000
1,597,240
–
–
485,709
189,412
675,121
9,152,206
40,246,664
49,398,870
9,661,034
37,547,256
47,208,290
596,405
377,877
859,277
958,102
773,810
834,600
454,403
454,589
238,562
210,247
340,803
267,071
340,803
318,212
942,887
909,177
5,583,009
4,369,732
11,576,477
10,078,525
–
–
–
–
221,522
352,306
120,000
266,622
450,920
481,598
223,087
1,014,743
882,811
299,756
215,380
110,241
72,717
111,893
50,565
55,845
292,986
141,766
1,897,726
865,262
5,407,952
3,436,618
–
–
–
863,027
828,797
1,340,875
1,181,189
1,788,553
1,717,411
754,159
669,969
348,803
282,964
452,696
317,636
374,057
1,235,873
1,050,943
7,480,735
5,234,994
3,340,241
2,893,189
7,231,912
6,973,281
5,015,379
4,717,101
3,298,853
3,201,048
1,397,486
1,223,635
1,740,081
1,354,591
1,919,250
2,527,447
2,296,985
3,595,850
3,040,082
1,991,767
2,004,093
1,914,747
1,619,586
2,308,390
2,510,939
2,308,392
2,506,392
1,349,723
1,112,092
1,596,954
1,662,145
1,112,092
2,205,306
2,307,839
2,308,390
2,515,794
5,332,008
4,897,282
9,146,659
8,592,867
7,323,769
7,228,040
5,607,245
5,707,440
2,335,727
3,337,035
3,016,736
3,031,342
4,732,753
4,604,824
9,473,477
8,068,025
16,938,470
16,883,877
15,205,762
15,445,732
10,113,183
10,130,473
4,742,813
6,820,775
5,813,557
6,297,451
9,882,167
9,456,996
2,747,209
5,408,847
5,904,240
18,892,834
5,555,876
17,339,653
16,984,429
40,009,998
20,623,833
60,633,831
119,435,777
13,515,143
36,623,637
20,937,050
57,560,687
112,892,413
129,141
469,944
2,187,911
1,349,723
3,537,634
7,050,179
19.14
85,201
27,668
112,869
481,155
90,605
571,760
1,396,523
6.49
607,515
303,968
911,483
4,323,099
410,528
4,733,627
10,286,170
3.99
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150,674
126,838
59,197
238,882
372,196
479,144
59,197
358,882
1,533,423
2,017,926
159,831
1,290,666
926,041
1,688,686
83,646
562,715
2,459,464
3,706,612
243,477
4,887,202
7,305,102
475,531
1,853,381
3,809,503
44,196
25,715
69,911
787,901
921,630
1,709,531
2,454,563
12,490,715
10,595,027
5,949,459
18,440,174
46,507,506
22,134,653
68,642,159
136,481,203
3,828,053
14,423,080
40,720,130
24,110,081
64,830,211
126,461,581
PSUs
%
16.75
19.16
21.02
24.84
11.30
9.59
15.18
16.26
22.83
24.74
24.95
23.45
23.41
28.59
17.66
22.32
24.40
12.22
14.51
–
–
18.95
23.12
17.59
14.77
–
37.55
(1) Mr Moore’s FY2018 statutory remuneration includes amortisation of $A10.0 million that relates to prior years’ 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 2011-2017 that have previously been disclosed and approved by shareholders.
(2) Mr Downe is paid in $SG. His base salary for FY2018 differs to FY2017 due to exchange rate movements.
(3) Mrs Sorbara’s FY2018 full-time equivalent salary is $A770,584 (FY2017: $A770,639). Mrs Sorbara was a part-time employee until 31 May 2017 and
became a full time employee effective 1 June 2017. She did not receive a base remuneration increase during the year.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries APPENDIX 2: EXECUTIVE KMP REMUNERATION DISCLOSURE (IN ACCORDANCE WITH AUSTRALIAN
ACCOUNTING STANDARDS)
SHORT-TERM EMPLOYEE BENEFITS
LONG-TERM EMPLOYEE BENEFITS
SHARE BASED PAYMENTS
Salary
Performance
(including
related
superannuation)
remuneration
$A
$A
Total short-
term
employee
benefits
$A
Restricted
profit
share
$A
Earnings on
prior year
restricted
profit share
$A
Total long-term
employee
benefits
$A
Equity awards
including
shares(4)
$A
Total
share-based
payments
$A
Total
Remuneration
$A
PSUs
$A
Percentage of
remuneration
that consists of
PSUs
%
73
818,746
818,804
3,616,294
4,435,040
3,447,296
4,266,100
1,446,518
1,378,918
803,246
478,265
2,249,764
1,857,183
9,674,838
9,004,475
3,290,441
3,586,078
12,965,279
19,650,083
12,590,553
18,713,836
Name
Position
Executive Voting Director
N.W. Moore(1)
CEO
Other Executives
T.C. Bishop
Head of Macquarie Capital
B.A. Brazil
Co-Head of CAF
A.J. Downe(2)
Head of CGM
G.A. Farrell
Co-Head of CAF
M.J. Reemst
Macquarie Bank CEO
N. Sorbara(3)
COO, Head of COG
P.C. Upfold
CRO, Head of RMG
G.C. Ward
Deputy Managing Director, Head of BFS
S. Wikramanayake
Head of MAM
Total Remuneration – Comparable Executive KMP(4)
New Executives
A. Harvey(5)
CFO, Head of FMG
Former Executives
S.D. Allen(6)
Former CRO, Head of RMG
M. McLaughlin(6)
Former Country Head, USA
S. Vrcelj(6)
Former Head of MSG
Total Remuneration – Executive KMP
(including new and former executives)
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
722,423
722,474
722,423
722,474
934,710
936,281
722,423
722,474
722,423
722,474
759,027
698,713
770,584
770,639
770,584
770,639
722,423
722,474
2,556,019
3,278,442
1,619,472
2,341,946
5,728,513
6,450,936
6,387,347
7,109,821
5,158,730
6,093,440
5,564,000
6,500,281
3,029,356
3,751,779
3,030,590
3,753,064
1,590,412
2,312,835
1,401,648
2,124,122
2,272,017
3,031,044
1,780,472
2,479,185
2,272,017
3,042,601
2,121,413
2,892,052
3,142,957
3,913,541
3,030,590
3,801,229
4,785,436
5,507,859
5,826,309
6,548,783
7,665,766
34,151,751
41,817,517
7,607,446
34,209,137
41,816,583
–
–
–
–
–
–
–
–
–
–
578,731
770,639
172,857
797,240
1,476,811
2,055,542
2,348,707
3,119,346
172,857
800,000
1,597,240
485,709
189,412
675,121
9,152,206
40,246,664
49,398,870
9,661,034
37,547,256
47,208,290
N. O’Kane(5)
Head of CMF
590,962
4,050,098
4,641,060
607,515
303,968
911,483
4,323,099
410,528
4,733,627
10,286,170
143,890
568,004
711,894
85,201
27,668
112,869
481,155
90,605
571,760
1,396,523
–
–
–
–
–
–
–
–
–
–
–
–
–
–
221,522
352,306
–
120,000
–
44,196
12,490,715
10,595,027
150,674
126,838
59,197
238,882
–
25,715
372,196
479,144
59,197
358,882
–
1,533,423
2,017,926
159,831
1,290,666
–
926,041
1,688,686
83,646
562,715
–
2,459,464
3,706,612
243,477
4,887,202
7,305,102
475,531
1,853,381
3,809,503
–
–
69,911
787,901
921,630
1,709,531
2,454,563
5,949,459
18,440,174
46,507,506
22,134,653
68,642,159
136,481,203
3,828,053
14,423,080
40,720,130
24,110,081
64,830,211
126,461,581
596,405
377,877
859,277
958,102
773,810
834,600
454,403
454,589
238,562
210,247
340,803
267,071
340,803
318,212
942,887
909,177
5,583,009
4,369,732
11,576,477
10,078,525
266,622
450,920
481,598
223,087
1,014,743
882,811
299,756
215,380
110,241
72,717
111,893
50,565
863,027
828,797
1,340,875
1,181,189
1,788,553
1,717,411
754,159
669,969
348,803
282,964
452,696
317,636
3,340,241
2,893,189
7,231,912
6,973,281
5,015,379
4,717,101
3,298,853
3,201,048
1,397,486
1,223,635
1,740,081
1,354,591
1,991,767
2,004,093
1,914,747
1,619,586
2,308,390
2,510,939
2,308,392
2,506,392
1,349,723
1,112,092
1,596,954
1,662,145
5,332,008
4,897,282
9,146,659
8,592,867
7,323,769
7,228,040
5,607,245
5,707,440
9,473,477
8,068,025
16,938,470
16,883,877
15,205,762
15,445,732
10,113,183
10,130,473
2,747,209
5,408,847
2,335,727
3,337,035
3,016,736
4,742,813
6,820,775
5,813,557
55,845
292,986
141,766
1,897,726
865,262
5,407,952
3,436,618
374,057
1,235,873
1,050,943
7,480,735
5,234,994
1,919,250
2,527,447
2,296,985
3,595,850
3,040,082
1,112,092
2,205,306
2,307,839
2,308,390
2,515,794
3,031,342
4,732,753
4,604,824
6,297,451
9,882,167
9,456,996
5,904,240
18,892,834
5,555,876
17,339,653
16,984,429
40,009,998
20,623,833
60,633,831
119,435,777
13,515,143
36,623,637
20,937,050
57,560,687
112,892,413
129,141
469,944
2,187,911
1,349,723
3,537,634
7,050,179
19.14
16.75
19.16
21.02
24.84
11.30
9.59
15.18
16.26
22.83
24.74
24.95
23.45
23.41
28.59
17.66
22.32
24.40
12.22
14.51
6.49
–
3.99
–
18.95
23.12
17.59
14.77
–
37.55
(4) Comparable KMP are Executive KMP who are members of the Executive Committee for the full year in both FY2018 and FY2017.
(5) Mr Harvey and Mr O’Kane were appointed to the Executive Committee effective from 1 January 2018 and 15 June 2017 respectively.
(6) Mr Allen, Mr McLaughlin and Mr Vrcelj ceased to be members of the Executive Committee on 31 December 2017, 15 June 2017 and 29 November 2016
respectively. The amount shown as a PSU share-based payment represents the current year expense in respect of prior year PSU awards.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report APPENDIX 2: EXECUTIVE KMP REMUNERATION DISCLOSURE (IN ACCORDANCE WITH AUSTRALIAN
ACCOUNTING STANDARDS) CONTINUED
Additional information in regards to the statutory
remuneration disclosures set out in this Appendix
(3) Share-based payments:
74
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
The remuneration disclosures set out in this appendix have been
prepared in accordance with Australian Accounting standards and
differ to the additional disclosures set out on pages 60 to 62.
Under the requirements of AASB 124 Related Party Disclosures, the
remuneration disclosures for the years ended 31 March 2018 and
31 March 2017 only include remuneration relating to the portion of
the relevant periods that each person was an Executive KMP.
The following information provides more detail in regards to some of
the column headings in this appendix:
(1) Short-term employee benefits:
a) Salary: includes superannuation and an accrual for long
service leave
b) Performance-related remuneration: this represents the
cash portion of each person’s profit share allocation for the
reporting period as an Executive KMP.
(2) Long-term employee benefits:
a) Restricted profit share: this represents the amount of
retained profit share that is deferred to future periods and
held as a notional investment in Macquarie-managed fund
equity (Post-2009 DPS Plan)
b) Earnings on prior years restricted profit share: Profit share
amounts retained under the Post-2009 DPS Plan are
notionally invested in Macquarie-managed funds, providing
Executive Directors with an economic exposure to the
underlying investments. Executive Directors are each
entitled to amounts equivalent to the investment earnings
(dividends/distributions and security price appreciation) on
the underlying securities. The notional returns are calculated
based on total shareholder return. Where these amounts
are positive, they may be paid to Executive Directors and
are included in these remuneration disclosures as part of
‘Earnings on prior year restricted profit share’. If there is
a notional loss, this loss will be offset against any future
notional income until the loss is completely offset, and is
reported as a negative amount in the same column. These
earnings 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 about the individual’s current year performance.
a) Equity awards including shares: This represents the current
year expense for retained profit share that is invested in
Macquarie ordinary shares under the MEREP as described
on page 53. This is recognised as an expense over the
respective vesting periods as described on page 53 and
includes amounts that relates to prior year equity awards
that have been previously disclosed. Equity awards in
respect of FY2018 performance will be granted during
FY2019, however Macquarie begins recognising an expense
for these awards (based on an initial estimate) from 1 April
2017. The expense is estimated using the price of MGL
ordinary shares as at 31 March 2018 and the number of
equity awards expected to vest. In the following financial
year, Macquarie will adjust the accumulated expense
recognised for the final determination of fair value for each
equity award when granted and will use this validation for
recognising the expense over the remaining vesting period
b) PSUs: This represents the current year expense for PSUs
that is recognised over the vesting period as described on
page 55. This includes amounts that relate to prior year
PSU awards. PSUs will be granted during FY2019, however
Macquarie begins recognising an expense for these awards
(based on an initial estimate) from 1 April 2017. The expense
is estimated using the price of MGL ordinary shares as at
31 March 2018 and the number of PSUs expected to vest.
The estimate also incorporates an interest rate to maturity
of 2.45% per annum, expected vesting dates of PSUs of
1 July 2021 and 1 July 2022, and a dividend yield of
4.96% per annum. In the following financial year, Macquarie
will adjust the accumulated expense recognised for the final
determination of fair value for each PSU when granted and
will use this validation for recognising the expense over the
remaining vesting period.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 75
APPENDIX 3: NON-EXECUTIVE DIRECTOR REMUNERATION
The remuneration arrangements for all of the persons listed below as NEDs are described on page 69 of the Remuneration Report. The fees
shown include fees paid as members of both the MGL and MBL Boards.
G.R. Banks
G.M. Cairns
M.J. Coleman
P.A. Cross
D.J. Grady
M.J. Hawker(2)
G.R. Stevens(3)
N.M. Wakefield Evans
P.H. Warne
Total Remuneration – Non-Executive KMP
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Fees
$A
363,000
363,000
328,000
328,000
403,000
403,000
368,000
368,000
363,000
363,000
403,000
398,914
122,083
–
403,000
403,000
865,000
865,000
3,618,083
3,491,914
Other
benefits(1)
$A
Total
Compensation
$A
–
–
–
–
–
3,000
–
–
–
–
–
–
–
–
–
–
–
–
–
3,000
363,000
363,000
328,000
328,000
403,000
406,000
368,000
368,000
363,000
363,000
403,000
398,914
122,083
–
403,000
403,000
865,000
865,000
3,618,083
3,494,914
(1) Other benefits for NEDs include due diligence committee fees paid to Mr Coleman of $A3,000 in FY2017.
(2) Mr Hawker became Chairman of the BRC effective 8 May 2016.
(3) Mr Stevens was appointed to the MGL and MBL Boards as an Independent Voting Director effective 1 November 2017. He became a member of the
Board Risk Committee and a member of the Board Nominating Committee on 1 November 2017.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 76
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
APPENDIX 4: SHARE DISCLOSURES
Shareholdings of KMP and their related parties
The following tables set out details of MGL ordinary shares held during the financial year by KMP including their related parties.
Name and position
Executive Director
N.W. Moore
Non-Executive Directors
G.R. Banks
G.M. Cairns
M.J. Coleman(5)
P.A. Cross
D.J. Grady
M.J. Hawker
G.R. Stevens
N.M. Wakefield Evans
P.H. Warne
Executives
S.D. Allen
T.C. Bishop
B.A. Brazil
A.J. Downe
G.A. Farrell
A. Harvey
M. McLaughlin
N. O’Kane
M.J. Reemst
N. Sorbara
P.C. Upfold
G.C. Ward
S. Wikramanayake
Number of
shares held at
1 April 2017(1)
Shares received
on withdrawal
from the MEREP
Other
changes(2)
Number of
shares held at
31 March 2018(3)(4)
2,109,147
201,829
6,416
12,734
9,529
7,636
8,306
11,407
–
4,411
14,933
33,315
–
56,801
28,594
–
–
–
4,840
10,902
9,384
75,151
–
615,754
–
–
249
–
–
–
–
–
–
70,460
84,611
93,244
138,104
181,870
–
57,470
–
19,180
44,399
20,753
86,347
94,249
–
–
–
(409)
–
246
–
1,028
856
–
(103,775)
(84,611)
(50,000)
(68,104)
(181,870)
–
(57,470)
–
(19,180)
(44,399)
(20,753)
(86,347)
–
2,310,976
6,416
12,734
9,369
7,636
8,552
11,407
1,028
5,267
14,933
–
–
100,045
98,594
–
–
–
4,840
10,902
9,384
75,151
–
710,003
Includes on-market acquisitions and disposals.
(1) Or date of appointment if later.
(2)
(3) Or date of ceasing to be a KMP if earlier.
(4)
In addition to the MGL ordinary shares set out in this table, Executive KMP also hold an interest in MGL ordinary shares through the MEREP, as set out in
the table on page 81.
(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.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 77
RSU awards to KMP
The following tables set out details of the RSU awards associated with MGL ordinary 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 grants set out below since the grant date. RSU awards are subject to forfeiture as set out on
page 53. The value of the grants at vesting could vary significantly as they are dependent on the MGL ordinary share price at the time of
vesting. Retention rates, the vesting profiles and service and performance criteria for the current year are set out on page 53. RSUs are
granted in the financial year following the year of Macquarie’s performance to which the grant relates. For example RSUs granted to the
CEO in August 2017 relate to the CEO’s performance in FY2017. All awards that were eligible to vest, vested during the year. No awards
were forfeited during the year.
Name and position
Executive Director
N.W. Moore
Executives
S.D. Allen(10)
T.C. Bishop(11)
B. Brazil
A.J. Downe
G.A. Farrell
RSU awards
granted to date(6)(7)
139,235
156,144
124,404
117,102
92,048
133,805
144,026
100,625
35,573
31,014
26,975
29,934
27,120
41,150
109,173
38,155
53,773
39,035
37,947
45,305
31,361
5,509
96,743
127,396
84,429
84,151
54,749
57,546
75,152
58,182
95,575
82,233
93,557
45,901
41,749
44,959
48,496
46,229
88,108
57,259
Grant date
15-Aug-17
15-Aug-16
17-Aug-15
15-Aug-14
15-Aug-13
15-Aug-12
15-Aug-11
13-Aug-10
22-Jun-17
17-Jun-16
6-Jul-15
25-Jun-14
25-Jun-13
7-Jun-12
3-Mar-10
22-Jun-17
17-Jun-16
6-Jul-15
25-Jun-14
25-Jun-13
7-Jun-12
15-Apr-11
22-Jun-17
17-Jun-16
6-Jul-15
22-Jun-17
17-Jun-16
6-Jul-15
25-Jun-14
25-Jun-13
7-Jun-12
20-Jun-11
30-Jun-10
22-Jun-17
17-Jun-16
6-Jul-15
25-Jun-14
25-Jun-13
7-Jun-12
20-Jun-11
Number vested
during the year(8)(9)
–
–
–
26,496
18,410
26,761
28,805
19,889
–
–
–
6,944
5,424
6,842
16,577
–
–
–
8,561
9,060
4,531
1,092
–
–
–
–
–
–
16,895
11,636
19,115
16,446
18,492
–
–
–
10,980
9,245
17,621
11,451
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 78
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
APPENDIX 4: SHARE DISCLOSURES CONTINUED
Name and position
Executives continued
M. McLaughlin
M.J. Reemst
N. Sorbara
P.C. Upfold
G.C. Ward
S. Wikramanayake(12)
RSU awards
granted to date(6)(7)
12,157
–
14,501
25,321
28,490
14,908
21,229
18,787
14,810
26,967
25,049
18,512
17,105
12,327
32,131
33,399
26,446
40,801
32,445
26,446
31,696
31,229
46,460
43,316
36,591
49,025
54,473
42,608
47,019
35,957
58,075
66,611
Grant date
22-Jun-17
17-Jun-16
6-Jul-15
25-Jun-14
25-Jun-13
7-Jun-12
22-Jun-17
17-Jun-16
6-Jul-15
22-Jun-17
17-Jun-16
6-Jul-15
25-Jun-14
25-Jun-13
22-Jun-17
17-Jun-16
6-Jul-15
22-Jun-17
17-Jun-16
6-Jul-15
25-Jun-14
25-Jun-13
7-Jun-12
20-Jun-11
30-Jun-10
22-Jun-17
17-Jun-16
6-Jul-15
25-Jun-14
25-Jun-13
7-Jun-12
3-Mar-10
Number vested
during the year(8)(9)
–
–
–
6,298
5,698
2,981
–
–
–
–
–
–
3,676
2,465
–
–
–
–
–
–
7,333
6,246
9,292
8,663
7,236
–
–
–
10,317
7,191
4,785
16,436
(6) Or during the period that the Executive was a KMP.
(7) 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. For the RSUs in the above table granted prior to that date, the number of RSUs has been adjusted for the impact of the
consolidation.
(8) RSUs vesting during the current financial year for grants made prior to Executives becoming a KMP are not disclosed.
(9) 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.
(10) As at the date Mr Allen ceased to be a member of the Executive Committee on 31 December 2017, 15,889 awards granted in previous years were 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.
(11) As at 31 March 2018, 19,765 awards granted in previous years 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.
(12) As at 31 March 2018, 11,016 awards granted in previous years 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.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 79
PSU awards to KMP
The following tables set out details of PSU awards granted to Executive KMP.
GRANTED TO DATE
FORFEITED/LAPSED DURING THE
FINANCIAL YEAR(13)
EXERCISED DURING THE
FINANCIAL YEAR(13)
Name and position
Number(14)
Date
$A(15)
$A(16)
Number
%
Value $A
Accounting
Fair Value
Face Value
Number
exercised
Value $A(17)
Executive Director
N.W. Moore
47,532 15-Aug-17
3,469,807
4,171,408
Executives
S.D. Allen
52,887 15-Aug-16
3,488,600
4,132,590
52,947 17-Aug-15
3,535,271
4,181,754
84,920 15-Aug-14
4,067,668
4,842,988
78,017 15-Aug-13
3,223,662
3,506,084
23,673 15-Aug-17
1,728,115
2,077,542
26,339 15-Aug-16
1,737,407
2,058,129
26,369 17-Aug-15
1,760,658
2,082,624
36,191 15-Aug-14
1,733,549
2,063,973
33,157 15-Aug-13
1,370,047
1,490,076
T.C. Bishop
28,333 15-Aug-17
2,068,292
2,486,504
31,524 15-Aug-16
2,079,426
2,463,285
31,560 17-Aug-15
2,107,261
2,492,609
43,315 15-Aug-14
2,074,789
2,470,254
39,895 15-Aug-13
1,648,462
1,792,881
B.A. Brazil
34,903 15-Aug-17
2,547,898
3,063,087
41,023 15-Aug-16
2,706,012
3,205,537
35,298 17-Aug-15
2,356,847
2,787,836
A.J. Downe
33,552 15-Aug-17
2,449,276
2,944,524
37,332 15-Aug-16
2,462,541
2,917,122
37,374 17-Aug-15
2,495,462
2,951,799
57,848 15-Aug-14
2,770,919
3,299,071
53,193 15-Aug-13
2,197,935
2,390,493
G.A. Farrell
33,552 15-Aug-17
2,449,276
2,944,524
M. McLaughlin
37,332 15-Aug-16
2,462,541
2,917,122
37,374 17-Aug-15
2,495,462
2,951,799
57,848 15-Aug-14
2,770,919
3,299,071
53,194 15-Aug-13
2,197,976
2,390,538
92,796 15-Aug-12
2,033,160
2,405,272
8,296 15-Aug-16
8,305 17-Aug-15
13,393 15-Aug-14
12,412 15-Aug-13
547,231
554,525
641,525
512,864
648,249
655,929
763,803
557,795
M.J. Reemst
23,673 15-Aug-17
1,728,115
2,077,542
26,339 15-Aug-16
1,737,407
2,058,129
26,369 17-Aug-15
1,760,658
2,082,624
N. Sorbara
23,673 15-Aug-17
1,728,115
2,077,542
26,339 15-Aug-16
1,737,407
2,058,129
26,369 17-Aug-15
1,760,658
2,082,624
36,191 15-Aug-14
1,733,549
2,063,973
33,158 15-Aug-13
1,370,088
1,490,121
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42,460
3,711,853
39,008
3,410,079
–
–
–
–
–
–
18,095
1,549,108
16,578
1,419,491
–
–
–
–
–
–
21,657
1,841,062
19,948
1,696,178
–
–
–
–
–
–
–
–
–
–
–
–
28,924
2,491,224
26,596
2,292,309
–
–
–
–
–
–
28,924
2,859,087
53,194
5,094,967
43,614
4,035,596
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,095
1,556,069
16,579
1,426,840
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report 80
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
APPENDIX 4: SHARE DISCLOSURES CONTINUED
GRANTED TO DATE
FORFEITED/LAPSED DURING THE
FINANCIAL YEAR(13)
EXERCISED DURING THE
FINANCIAL YEAR(13)
Name and position
Number(14)
Date
$A(15)
$A(16)
Number
%
Value $A
Accounting
Fair Value
Face Value
P.C. Upfold
23,673 15-Aug-17
1,728,115 2,077,542
26,339 15-Aug-16
1,737,407 2,058,129
26,369 17-Aug-15
1,760,658 2,082,624
G.C. Ward
32,434 15-Aug-17
2,367,663 2,846,408
36,087 15-Aug-16
2,380,417 2,819,838
36,128 17-Aug-15
2,412,267 2,853,389
49,584 15-Aug-14
2,375,074 2,827,776
45,569 15-Aug-13
1,882,911 2,047,871
S. Wikramanayake
33,552 15-Aug-17
2,449,276 2,944,524
37,332 15-Aug-16
2,462,541 2,917,122
37,374 17-Aug-15
2,495,462 2,951,799
57,848 15-Aug-14
2,770,919 3,299,071
53,193 15-Aug-13
2,197,935 2,390,493
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Number
exercised
Value $A(17)
–
–
–
–
–
–
–
–
–
–
–
–
24,792
2,171,902
22,785
1,957,625
–
–
–
–
–
–
28,924
2,481,679
26,596
2,281,937
As required under the Act, Macquarie has adopted the fair value measurement provisions of AASB 2 Share-Based Payment for all
PSUs granted to KMP. The accounting 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 2017 PSU allocation has been determined based on a fair valuation of a PSU at
15 August 2017. The accounting fair value of $A73.00 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
2.26% per annum
Expected vesting dates
1 July 2020 and 1 July 2021
Dividend yield
5.07% per annum
PSUs have a nil exercise price. PSUs vest on a pro-rata basis as set out on page 55. For the 2017 grant, the first tranche will vest on
1 July 2020. The PSUs expire on 15 August 2025.
(13) Or during the period for which the Executive was a KMP if shorter.
(14) 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. For the PSUs in the above table granted prior to that date, the number of PSUs granted has been adjusted for the impact
of the consolidation.
(15) Based on the accounting fair value on the date of grant. The 2016 grant reflects the accounting fair value of $65.96 in accordance of AASB 2.
(16) Face value is calculated by multiplying the number of PSUs granted by the closing market price of Macquarie ordinary shares on the date of grant.
(17) Based on the share price at the time of exercise.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 81
MEREP awards of KMP and their related parties
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 32 to the financial statements in the
Financial Report.
Name and position
Executive Director
N.W. Moore
Executives
S.D. Allen(23)
T.C. Bishop(23)
B.A. Brazil
A.J. Downe
G.A. Farrell
A. Harvey
M. McLaughlin
N. O’Kane
M.J. Reemst
N. Sorbara
P.C. Upfold
G.C. Ward
S. Wikramanayake(23)
Number of
Awards
held at
Awards
granted
during the
financial
Type of Award
1 April 2017(18)
year(19)
Awards
vested/
exercised
during the
financial
year(20)(21)
Awards not
able to be
exercised due
to performance
hurdles not met
Number
of awards
held at
31 March
2018(22)
RSU
PSU
RSU
PSU
RSU
PSU
RSU
PSU
RSU
PSU
RSU
PSU
RSU
RSU
PSU
RSU
RSU
PSU
RSU
PSU
RSU
PSU
RSU
PSU
RSU
PSU
613,701
229,762
154,969
105,477
214,130
126,347
532,035
76,321
333,399
159,150
248,397
229,362
121,433
126,429
36,201
312,299
88,177
52,708
80,010
105,478
129,532
52,708
163,037
144,584
219,795
159,150
139,235
47,532
35,573
23,673
38,155
28,333
96,743
34,903
84,151
33,552
45,901
33,552
–
–
–
70,919
21,229
23,673
26,967
23,673
32,131
23,673
40,801
32,434
49,025
33,552
120,361
81,468
35,787
34,673
43,006
41,605
93,244
–
82,584
55,520
56,138
125,732
–
57,470
–
–
19,180
–
9,725
34,674
20,753
–
38,770
47,577
38,729
55,520
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
632,575
195,826
154,755
94,477
209,279
113,075
535,534
111,224
334,966
137,182
238,160
137,182
121,433
68,959
36,201
383,218
90,226
76,381
97,252
94,477
140,910
76,381
165,068
129,441
230,091
137,182
(18) Or date of appointment if later.
(19) RSU awards 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 FY2017. PSUs are granted annually in August.
(20) 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.
(21) There were no PSUs that vested during the year that were not exercised.
(22) Or date of ceasing to be a KMP if earlier.
(23) Refer to footnotes (10), (11) and (12) in the table ‘RSU Awards to KMP’ on pages 77 to 78.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTDirectors’ ReportSchedule 1 – Directors’ experience and special responsibilitiesSchedule 2 – Remuneration Report
82
DIRECTORS’ REPORT SCHEDULE 2
REMUNERATION REPORT
CONTINUED
APPENDIX 5: LOAN 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 table:
Name and Position
Non-Executive Directors
D.J. Grady (related party)
Balance at
1 April 2017
$A’000
Interest
charged(2)
$A’000
Write
downs
$A’000
Balance at
31 March 2018
$A’000
Highest
balance during
the year
$A’000
–
3
–
464
498
(1) There were no other loans provided by Macquarie to KMP and their related parties during the financial year ended 31 March 2018.
(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 2009 through
to 31 March 2018 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).
APPENDIX 6: OTHER KMP DISCLOSURES
Other transactions with KMP and their related parties
Certain KMP and their related parties have acquired investments
in certain products from subsidiaries within Macquarie. These
products typically involve the issuance of investment units and have
been financed with limited recourse loans.
Some are accounted for as fee and commission income when
acting on behalf of investors. This fee represents the service
performed by Macquarie for transferring interest received from
investors in exchange for their investment unit returns. The gross
receipts by Macquarie were zero (2017: $A2,700 thousand).
Others are subject to swap agreements and are accounted for
as derivatives by Macquarie. All the arrangements between the
investor and Macquarie are subject to a legal right of set-off.
All transactions with KMP (including their related parties) were
conducted on an arm’s length basis in the ordinary course of
business and under standard terms and conditions for other
customers and employees.
From an accounting perspective, amounts recognised by
Macquarie in respect of these transactions are either recognised net
in either trading income or fee and commission income and have
been disclosed below.
Aggregated amounts
recognised by Macquarie
Trading income
Fee and Commission
income
Balance at
31 March 2018
$A’000
Balance at
31 March 2017
$A’000
–
–
838
397
Contributions for FY2017 in respect of these products relate to
the following Key Management Personnel: S. Wikramanayake. All
products have matured or have been redeemed during FY2017.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries ABOUT
ABOUT
GOVERNANCE
GOVERNANCE
DIRECTORS’ REPORT
DIRECTORS’ REPORT
FINANCIAL REPORT
FINANCIAL REPORT
FURTHER INFORMATION
FURTHER INFORMATION
83
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
4FINANCIAL
REPORT
84
FINANCIAL REPORT
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTENTS
Loan assets held at amortised cost
Impaired financial assets
Property, plant and equipment
Interests in associates and joint ventures
Intangible assets
Investments in subsidiaries
Summary of significant accounting policies
Operating profit before income tax
Segment reporting
Income tax expense
Dividends and distributions paid or provided for
Earnings per share
Receivables from financial institutions
Trading portfolio assets
Investment securities available for sale
Income statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
1
2
3
4
5
6
7
8
9
10 Other assets
11
12
13 Other financial assets at fair value through profit or loss
14
15
16
17
18 Deferred tax assets/(liabilities)
Trading portfolio liabilities
19
20 Deposits
21 Other liabilities
22
23 Debt issued at amortised cost
24 Other debt issued at fair value through profit or loss
25 Capital management strategy
26
Loan capital
27 Contributed equity
28 Reserves, retained earnings and non-controlling interests
29 Notes to the statements of cash flows
30 Related party information
31 Key Management Personnel disclosure
32
33 Contingent liabilities and commitments
34
35
36 Derivative financial instruments
Financial risk management
37
38
Fair value of financial assets and financial liabilities
39 Offsetting financial assets and financial liabilities
40
41
42
43
Directors’ declaration
Independent auditor’s report
Lease commitments
Structured entities
Payables to financial institutions
Employee equity participation
Transfers of financial assets
Audit and other services provided by PricewaterhouseCoopers
Acquisitions and disposals of subsidiaries and businesses
Events after the reporting date
The Financial Report was authorised for issue by the Board of Directors on 4 May 2018.
The Board of Directors has the power to amend and reissue the Financial Report.
85
86
87
88
90
91
91
104
107
111
112
113
114
114
114
115
115
117
117
117
119
119
120
122
123
123
123
123
124
125
125
126
128
130
131
133
135
138
143
143
144
145
146
162
170
172
173
175
175
176
177
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
INCOME STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
85
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
Interest and similar income
Interest expense and similar charges
Net interest income/(expense)
Fee and commission income
Net trading income/(expense)
Net operating lease income
Share of net profits of associates and joint ventures
Other operating income and charges
Net operating income
Employment expenses
Brokerage, commission and trading-related expenses
Occupancy expenses
Non-salary technology expenses
Other operating expenses
Total operating expenses
Operating profit before income tax
Income tax (expense)/benefit
Profit after income tax
Profit attributable to non-controlling interests:
Macquarie Income Securities
Other non-controlling interests
Profit attributable to non-controlling interests
Profit attributable to ordinary equity holders of Macquarie
Group Limited
Basic earnings per share
Diluted earnings per share
CONSOLIDATED
COMPANY
2018
$m
4,943
(2,957)
1,986
4,670
1,957
935
241
1,131
10,920
(4,493)
(830)
(402)
(604)
(1,127)
(7,456)
3,464
(883)
2,581
(14)
(10)
(24)
2017
$m
5,138
(2,953)
2,185
4,331
1,758
921
51
1,118
10,364
(4,379)
(852)
(392)
(644)
(993)
(7,260)
3,104
(868)
2,236
(15)
(4)
(19)
2018
$m
479
(521)
(42)
10
(39)
–
–
4,430
4,359
(4)
–
–
–
(1)
(5)
4,354
3
4,357
–
–
–
2017
$m
447
(488)
(41)
10
(39)
–
–
4,087
4,017
(4)
–
–
–
(2)
(6)
4,011
(2)
4,009
–
–
–
2,557
2,217
4,357
4,009
Cents per share
758.2
743.5
657.6
644.5
Notes
2
2
2
2
2
2
2
2
2
2
2
2
4
5
6
6
The above income statements should be read in conjunction with the accompanying notes.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 86
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
Profit after income tax
Other comprehensive income/(expense):
Movements in items that may be subsequently reclassified
to income statement:
Available for sale investments, net of tax:
Revaluation (losses)/gains transferred to equity
Transferred to income statement on:
Impairment
Sale or reclassification
Cash flow hedges, net movement taken to equity, net of tax
Share of other comprehensive income/(expense) of associates
and joint ventures, net of tax
Exchange differences on translation of foreign operations,
net of hedge and tax
Movements in items that will not be reclassified to income statement:
Fair value changes attributable to own credit risk on other debt
issued at fair value through profit or loss, net of tax
Total other comprehensive expense
Total comprehensive income
Total comprehensive income attributable to non-controlling interests:
Macquarie Income Securities
Other non-controlling interests
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to ordinary equity
holders of Macquarie Group Limited
CONSOLIDATED
COMPANY
Notes
2018
$m
2,581
2017
$m
2,236
2018
$m
4,357
2017
$m
4,009
28
28
28
28
28
(129)
16
(263)
54
2
263
37
(20)
2,561
(14)
(146)
(160)
129
32
(323)
15
(1)
(130)
(30)
(308)
1,928
(15)
(3)
(18)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,357
4,009
–
–
–
–
–
–
2,401
1,910
4,357
4,009
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
STATEMENTS OF FINANCIAL POSITION
AS AT 31 MARCH 2018
Assets
Receivables from financial institutions
Trading portfolio assets
Derivative assets
Investment securities available for sale
Other assets
Loan assets held at amortised cost
Other financial assets at fair value through profit or loss
Due from subsidiaries
Property, plant and equipment
Interests in associates and joint ventures
Intangible assets
Investments in subsidiaries
Deferred tax assets
Total assets
Liabilities
Trading portfolio liabilities
Derivative liabilities
Deposits
Other liabilities
Payables to financial institutions
Due to subsidiaries
Debt issued at amortised cost
Other debt issued at fair value through profit or loss
Deferred tax liabilities
Total liabilities excluding loan capital
Loan capital
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total capital and reserves attributable to ordinary equity
holders of Macquarie Group Limited
Non-controlling interests
Total equity
87
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
CONSOLIDATED
COMPANY
Notes
2018
$m
2017
$m
2018
$m
2017
$m
27,471
26,933
12,106
6,893
16,558
76,663
1,502
–
–
–
–
12
–
–
–
–
–
–
70
–
–
–
17,269
10,009
7
8
9
10
11
13
30
14
15
16
17
18
19
20
21
22
30
23
24
18
26
27
28
28
28
38,559
15,585
12,937
6,166
18,370
81,150
1,434
–
11,426
4,055
993
–
650
11,009
2,095
1,009
–
638
191,325
182,877
8,061
11,925
59,412
16,086
15,440
–
53,717
2,363
749
167,753
5,392
173,145
18,180
6,243
1,297
8,817
16,357
1,823
18,180
5,067
11,128
57,708
15,031
17,072
–
50,828
2,404
621
159,859
5,748
165,607
17,270
6,290
1,396
7,877
15,563
1,707
17,270
–
–
–
25,347
19
42,647
–
1
24
196
3,191
843
12,177
–
–
16,432
1,135
17,567
25,080
8,849
902
15,329
–
–
–
22,644
26
32,749
–
–
11
160
2,413
945
5,746
–
–
9,275
1,130
10,405
22,344
8,933
804
12,607
25,080
22,344
–
–
25,080
22,344
The above statements of financial position should be read in conjunction with the accompanying notes.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 88
STATEMENTS OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
Contributed
equity
$m
Notes
Reserves
$m
Retained
earnings
$m
Non-
controlling
interests
$m
Total
$m
Total
equity
$m
Balance as at 1 April 2016
Profit after income tax
Other comprehensive expense, net of tax
Total comprehensive (expense)/income
Transactions with equity holders in their capacity as
ordinary equity holders:
Contributions of ordinary equity, net of transaction costs
Dividends paid
Purchase of shares by MEREP Trust
Non-controlling interests:
Change in non-controlling ownership interests
Dividends and distributions paid or provided for
Other equity movements:
MEREP expense
Additional deferred tax benefit on MEREP expense
Net other movements in treasury shares
Transfer of MEREP expense from share-based
payments reserve on vesting of MEREP awards
Transfer of additional deferred tax benefit on MEREP
expense from share-based payments reserve on
vesting of MEREP awards
6,422
1,536
–
–
–
1
–
(433)
–
–
–
–
(2)
–
(277)
(277)
–
–
–
–
–
382
57
–
5,28
27
28
28
27
27,28
277
(277)
27,28
39
(39)
Transfer from share-based payments capital reduction
reserve on vested and forfeited awards
27,28
Balance as at 31 March 2017
Profit after income tax
Other comprehensive (expense)/income, net of tax
Total comprehensive (expense)/income
Transactions with equity holders in their capacity as
ordinary equity holders:
Dividends paid
Purchase of shares by MEREP Trust
Non-controlling interests:
Change in non-controlling ownership interests
Dividends and distributions paid or provided for
Other equity movements:
MEREP expense
Additional deferred tax benefit on MEREP expense
Transfer of MEREP expense from share-based
payments reserve on vesting of MEREP awards
(14)
(132)
14
137
6,290
1,396
–
–
–
–
(373)
–
–
–
–
–
(193)
(193)
–
–
–
–
383
37
5,28
27
28
28
27,28
293
(293)
Transfer of additional deferred tax benefit on MEREP
expense from share-based payments reserve on
vesting of MEREP awards
Transfer from share-based payments capital reduction
reserve on vested and forfeited awards
27,28
27,28
40
(7)
(47)
(40)
7
94
7,158
2,217
(30)
2,187
15,116
2,217
(307)
1,910
–
1
(1,462)
(1,462)
(433)
CONSOLIDATED
548
15,664
19
(1)
18
–
–
–
2,236
(308)
1,928
1
(1,462)
(433)
–
(6)
–
–
–
–
–
–
–
(6)
–
1,160
1,154
(19)
(19)
382
57
(2)
–
–
–
–
–
–
–
–
–
382
57
(2)
–
–
–
(1,468)
(1,463)
7,877
2,557
37
2,594
15,563
2,557
(156)
2,401
1,141
1,707
24
136
160
(322)
17,270
2,581
(20)
2,561
(1,649)
(1,649)
–
(5)
–
–
–
–
–
–
(373)
(5)
–
383
37
–
–
–
–
–
(1,649)
(373)
27
(71)
–
–
–
–
–
22
(71)
383
37
–
–
–
(1,654)
(1,607)
(44)
(1,651)
Balance as at 31 March 2018
6,243
1,297
8,817
16,357
1,823
18,180
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
89
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
STATEMENTS OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
Contributed
equity
$m
Notes
Reserves
$m
Retained
earnings
$m
Balance as at 1 April 2016
Profit after income tax
Total comprehensive income
Transactions with equity holders in their capacity as ordinary
equity holders:
Contributions of ordinary equity, net of transaction costs
Dividends paid
Purchase of shares by MEREP Trust
Other equity movements:
MEREP expense relating to employees of subsidiaries
Additional deferred tax benefit on MEREP expense
Transfer of MEREP expense from share-based payments
reserve on vesting of MEREP awards
Transfer of additional deferred tax benefit on MEREP
expense from share-based payments reserve on vesting of
MEREP awards
Transfer from share-based payments capital reduction reserve
on vested and forfeited awards
Balance as at 31 March 2017
Profit after income tax
Total comprehensive income
Transactions with equity holders in their capacity as ordinary
equity holders:
Contributions of ordinary equity, net of transaction costs
Dividends paid
Purchase of shares by MEREP Trust
Other equity movements:
MEREP expense relating to employees of subsidiaries
Additional deferred tax benefit on MEREP expense
Transfer of MEREP expense from share-based payments
reserve on vesting of MEREP awards
Transfer of additional deferred tax benefit on MEREP
expense from share-based payments reserve on vesting of
MEREP awards
Transfer from share-based payments capital reduction reserve
on vested and forfeited awards
Balance as at 31 March 2018
9,097
686
–
–
3
–
(433)
–
–
5,28
27
28
28
27,28
277
27,28
27,28
5,28
27
28
28
3
(14)
(164)
8,933
–
–
1
–
(373)
–
–
–
–
–
–
–
382
2
(277)
(3)
14
118
804
–
–
–
–
–
383
3
27,28
293
(293)
27,28
27,28
2
(7)
(84)
8,849
(2)
7
98
902
The above statements of changes in equity should be read in conjunction with the accompanying notes.
Total
equity
$m
COMPANY
19,830
4,009
4,009
3
(1,449)
(433)
382
2
–
–
–
(1,495)
22,344
4,357
4,357
1
(1,635)
(373)
383
3
–
–
–
10,047
4,009
4,009
–
(1,449)
–
–
–
–
–
–
(1,449)
12,607
4,357
4,357
–
(1,635)
–
–
–
–
–
–
(1,635)
15,329
(1,621)
25,080
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT
90
STATEMENTS OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
Notes
Cash flows from/(used in) operating activities
Interest and similar income received
Interest expense and similar charges paid
Fees and other non-interest income received
Fees and commissions paid
Operating lease income received
Dividends and distributions received
Employment expenses paid
Operating expenses paid
Income tax paid
Changes in operating assets and liabilities:
Net receipts from trading portfolio assets and other assets/liabilities
Net movement in deposits
Net movement in debt issued at amortised cost
Net movement in payables to financial institutions and other borrowings
Net movement in loan assets and balance with related entities
Net margin money paid
Net payments for assets under operating lease
Life business:
Life investment linked contract premiums received, disposal of
investment assets and other unitholder contributions
Life investment linked contract payments, acquisition of investment
assets and other unitholder redemptions
Net cash flows from/(used in) operating activities
29
Cash flows (used in)/from investing activities
Net proceeds from investment securities available for sale and
financial instruments designated at fair value
Proceeds from the disposal of or capital return from associates,
subsidiaries and businesses, net of cash deconsolidated
Payments for the acquisition of associates or capital contribution,
subsidiaries and businesses, net of cash acquired
Proceeds from the disposal of property, plant and equipment, and
intangible assets
Payments for the acquisition of property, plant and equipment, and
intangible assets
Net cash flows (used in)/from investing activities
Cash flows (used in)/from financing activities
(Payments for)/Proceeds from non-controlling interests
Proceeds from the issue of loan capital
Payments on redemption of loan capital
Dividends and distributions paid
Payments for treasury shares
27
Net cash flows (used in)/from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
29
CONSOLIDATED
COMPANY
2018
$m
4,908
(2,940)
4,405
(877)
1,831
228
(3,913)
(1,836)
(483)
3,937
1,499
2,500
182
(3,610)
(184)
(1,202)
2017
$m
5,161
(2,843)
4,484
(909)
1,607
209
(3,885)
(1,401)
(723)
3,901
5,561
(12,303)
(4,259)
1,012
(1,104)
(320)
1,104
1,181
(1,099)
4,450
(1,077)
(5,708)
111
3,510
3,212
2,869
(4,224)
(2,619)
58
(255)
(800)
(33)
–
(330)
(1,663)
(373)
(2,399)
1,251
11,754
13,005
–
(329)
3,133
1,160
980
(221)
(1,477)
(433)
9
(2,566)
14,320
11,754
2018
$m
479
(492)
9
–
–
1,730
(4)
–
(187)
(129)
13
6,447
854
(6,712)
–
–
–
–
2017
$m
447
(428)
10
–
–
1,787
(4)
–
(257)
(11)
3
(753)
(434)
1,522
–
–
–
–
2,008
1,882
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,635)
(373)
(2,008)
–
–
–
(1,449)
(433)
(1,882)
–
–
–
The above statements of cash flows should be read in conjunction with the accompanying notes.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
91
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
NOTE 1
Summary of significant accounting policies
(i) Basis of preparation
The principal accounting policies adopted in the preparation of
this Financial Report 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 and the Corporations Act 2001 (Cth). Macquarie is a
for-profit entity for the purpose of preparing the financial statements.
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 except for the following items:
Fair value measurement basis – derivative financial instruments,
trading portfolio assets and liabilities, investment securities
available for sale, other financial assets and other financial liabilities
designated at fair value through profit or loss, and non current
assets and disposal groups held for sale where the fair value less
cost of disposal is less than their carrying value.
Amortised cost adjusted for changes in fair value attributable
to the risk being hedged – recognised financial assets and
liabilities designated as hedged items in qualifying fair value
hedge relationships.
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 the Consolidated Entity and the consolidated
Financial Report such as:
– fair value of financial assets and financial liabilities including
accounting for day 1 profit or loss (Note 38)
– impairment of loan assets held at amortised cost, investment
securities available for sale, interests in associates and joint
ventures, investment in subsidiaries and assets under operating
lease (Notes 1(xiii), 1(xv), 1(xvii), 9, 11, 14, 15 and 17)
– distinguishing between whether assets or a business is acquired
under a business combination (Note 1(iii))
– determination of control of subsidiaries and structured entities
(Notes 1(ii) and 35)
– determination of significant influence over associates and joint
control over joint arrangements (Note 1(ii))
– 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)
– recognition of performance fees from Macquarie-managed listed
and unlisted funds (Note 1(vi)), and
– recognition and measurement of supplemental income,
maintenance liabilities and end of lease compensation
(Note 1(xix), 10 and 21).
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 management’s 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 not yet effective
AASB 9 Financial Instruments
AASB 9 results in changes to accounting policies for financial assets
and financial liabilities covering Classification and Measurement,
Impairment and Hedge accounting. The Consolidated Entity will
first apply AASB 9 in the financial year beginning 1 April 2018 and
it will be applied retrospectively in respect of Classification and
Measurement and Impairment, with no requirement to restate
comparatives. The cumulative effect of initially applying the standard
is recognised as an adjustment to the opening balance sheet.
Classification and Measurement:
Financial assets:
AASB 9 has three classification categories for financial assets;
amortised cost, fair value through other comprehensive income
(FVTOCI) and fair value through profit or loss (FVTPL). The
classification is based on the business model under which the
financial instrument is managed and its contractual cash flows.
Compared to AASB 139, the FVTOCI and amortised cost
categories will be added and held-to-maturity, loans and receivables
and available-for-sale classification categories will be removed.
Under AASB 9, financial assets with embedded derivatives are
classified in their entirety, without separating any derivative element.
The Consolidated Entity will apply the following policies for the
newly adopted classification categories under AASB 9.
Amortised cost
A financial asset will be measured at amortised cost if both of the
following conditions are met:
(i) the financial asset is held within a business model whose objective
is to hold financial assets in order to collect contractual cash
flows; and
(ii) the contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
FVTOCI
A financial asset will be measured at FVTOCI if both of the following
conditions are met:
(i) the financial asset is held within a business model whose
objective is achieved by both collecting contractual cash flows
and selling financial assets; and
(ii) the contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 92
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 1
Summary of significant accounting policies continued
(i) Basis of preparation continued
FVTPL
All financial assets that are not measured at amortised cost or
FVTOCI will be measured at FVTPL. All financial assets that
are equity instruments will be measured at FVTPL unless the
Consolidated Entity irrevocably elects to present subsequent
changes in the fair value in other comprehensive income. The
Consolidated Entity does not expect to make this election.
The Consolidated Entity may also irrevocably elect to designate a
financial asset as measured at FVTPL on initial recognition if doing
so eliminates or significantly reduces an accounting mismatch.
Business model assessment
The Consolidated Entity will determine the business model at the
level that reflects how groups of financial assets are managed. In
determining the business model, all relevant evidence that is available
at the date of the assessment is used including:
(i) how the performance of financial assets held within that business
model are evaluated and reported to the Consolidated Entity’s key
management personnel
(ii) the risks that affect the performance of the business model (and
the financial assets held within that business model) and, in
particular, the way in which those risks are managed
(iii) how managers of the business are compensated (for example,
whether the compensation is based on the fair value of the
assets managed or on the contractual cash flows collected).
Financial liabilities:
The component of change in fair value of financial liabilities
designated at fair value through profit or loss due to the
Consolidated Entity’s own credit risk is 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. Under AASB 139, this component was
recognised in profit or loss. This treatment was early adopted
prospectively from 1 October 2016.
Impairment:
AASB 9 replaces the incurred loss model of AASB 139 with an
expected loss model, resulting in an acceleration of impairment
recognition.
The impairment requirements apply to financial assets measured at
amortised cost and FVTOCI, lease receivables, amounts receivable
from contracts with customers as defined in AASB 15 Revenue
from Contracts with Customers, loan commitments, certain letters
of credit and financial guarantee contracts.
Under the expected credit loss model, the Consolidated Entity will
apply a three-stage approach to measuring the expected credit loss
(ECL) based on credit migration between the stages. Where ECL is
modelled collectively for portfolios of exposures, it is modelled as
the product of the probability of default (PD), the loss given default
(LGD) and the exposure at default (EAD).
The assessment of credit risk, and the estimation of ECL, will be
unbiased and probability weighted, and incorporate all relevant
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.
The impairment allowance is intended to be more forward-looking
under AASB 9.
(i) Stage 1 – 12 month ECL
At initial recognition, ECL is measured as the product of the 12 month
PD, LGD and EAD, adjusted for forward-looking information.
(ii) Stage 2 – Lifetime ECL not credit-impaired
When there has been a significant increase in credit risk (SICR), the
ECL is increased to reflect the product of the lifetime PD, LGD and
EAD, adjusted for forward-looking information.
(iii) Stage 3 – Lifetime ECL credit-impaired
An ECL is generally measured as the difference between the
contractual and expected cash flows from the individual exposure,
discounted using the effective interest rate (EIR) for that exposure.
For credit-impaired exposures that are modelled collectively, ECL
is measured as the product of the lifetime PD, LGD and EAD,
adjusted for forward-looking information.
(iv) Purchased or originated credit-impaired
The ECL is measured as the product of the lifetime PD, LGD and
EAD adjusted for forward-looking information or by discounting the
difference between the contractual and expected cash flows from
the individual exposure using the credit-adjusted effective interest
rate, with increases and decreases in the measured ECL from the
date of origination or purchase being recognised in profit or loss as
an impairment expense or gain.
Credit impaired assets generally match the Australian Prudential
Regulatory Authority (APRA) definition of default which includes
exposures that are at least 90 days past due and where the obligor
is unlikely to pay without recourse against available collateral.
Hedge accounting:
The new hedge accounting requirements under AASB 9 simplify
hedge accounting by more closely aligning hedge relationships with
Macquarie’s risk management activities. Hedge accounting may
be applied to a greater variety of hedging instruments and related
hedged risks. Hedge effectiveness testing will be less prescriptive
under the new standard and make achieving hedge accounting
more likely.
The new standard does not explicitly address the accounting for
macro hedging activities and includes the choice to retain the
current hedge accounting requirements of AASB 139 until an
amended standard as an outcome of the IASB’s project on macro
hedge accounting is effective. Macquarie has early adopted the
hedge accounting requirements under AASB 9 prospectively for
the reporting period beginning 1 April 2018. Enhanced disclosures
required by amendments to AASB 7 Financial Instruments
Disclosures relating to hedge accounting will be required in
Macquarie’s Financial Report for the financial year beginning
1 April 2018.
Transition:
The Consolidated Entity will record a transition adjustment to the
opening balance sheet, retained earnings and other comprehensive
income at 1 April 2018 for the impact of the adoption of the
classification and measurement, and impairment requirements
of AASB 9.
The transition adjustment will reduce the Consolidated Entity’s
shareholders’ equity by approximately $125 million after tax and will
not have a material impact on the Consolidated Entity’s minimum
regulatory capital requirements. The estimated transition
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 93
instruments. Macquarie will calculate the expected credit losses on
these long-term interests under the AASB 9 impairment model.
AASB 2017-7 is effective for annual periods beginning on or after
1 January 2019. The Consolidated Entity will early adopt the
amendment in the financial year beginning 1 April 2018. The impact
of this amendment is included in the transition adjustment for
AASB 9.
AASB 15 Revenue from Contracts with Customers
AASB 15 replaces all current guidance on revenue recognition
from contracts with customers. It requires identification of discrete
performance obligations within a transaction and an associated
transaction price allocation to these obligations. Revenue is
recognised upon satisfaction of these performance obligations,
which occur when control of the goods or services are transferred
to the customer. Revenue received for a contract that includes a
variable amount is subject to revised conditions for recognition,
whereby it must be highly probable that no significant reversal of
the variable component will occur when the uncertainties around its
measurement are removed.
AASB 15 also specifies the accounting treatment for costs incurred
to obtain or fulfil a contract. Costs are recognised as an asset only
if the entity expects to recover them. Any capitalised contract costs
are amortised on a systematic basis that is consistent with the
transfer of the related goods and services.
In 2016, the AASB issued clarifying amendments to AASB 15.
These amendments provided additional application guidance but
did not alter the underlying requirements of the standard.
The Consolidated Entity will first apply AASB 15 in the financial
year beginning 1 April 2018, retrospectively, recognising the
cumulative effect of initially applying the standard as an adjustment
to the opening balance of retained earnings, with no comparatives
restatement.
AASB 15 specifically excludes financial instruments
recognised under AASB 9 Financial Instruments. As such,
the impacted revenue streams for Macquarie are limited to
fee-based revenue items such as performance fees, corporate
advisory and underwriting fees, asset management fees and
brokerage & commissions.
Macquarie’s assessment of revenue streams existing at
transition has concluded. Based on this assessment, neither the
Consolidated Entity or the Company will be materially impacted
upon adoption and no transition adjustment is required. The
application of the requirements of AASB 15 are broadly consistent
with Macquarie’s current accounting policies.
The Consolidated Entity and the Company expects presentation
changes in the income statements relating to certain recoverable
costs previously recognised net of any associated revenue.
NOTE 1
Summary of significant accounting policies continued
(i) Basis of preparation continued
adjustment relates primarily to the implementation of the impairment
requirements which reduce opening retained earnings by
approximately $150 million after tax. The Consolidated Entity will
not restate comparatives.
The Consolidated Entity will continue to refine and validate
components of the ECL impairment models and develop related
technology solutions and controls during the financial year ending
31 March 2019.
The adoption of the Classification and Measurement requirements
of the standard will result in measurement differences when
compared to those under AASB 139. The most significant change
is approximately $17,000 million of financial assets measured at
amortised cost that will be recognised at FVTPL on adoption. The
impacted instruments are primarily short-term reverse repurchase
agreements and the fair value re-measurement is included in
the above. There are no other material changes in measurement
categories expected.
In the separate financial statements of the Company, adoption will
result in additional credit provisioning in relation to amounts due
from subsidiaries. The total transition impact to the Company’s
shareholders’ equity on transition is a reduction of approximately
$20 million.
AASB 7 Financial Instruments: Disclosures
AASB 7 has been amended to include more extensive qualitative
and quantitative disclosure relating to AASB 9, such as new
financial instrument classification categories which will impact
disclosures related to the statement of financial performance as
well as introducing new qualitative and quantitative disclosure
requirements for the three stage impairment model. The
amendment also includes new hedge accounting disclosures and
transition disclosures related to the adoption of AASB 9.
AASB 2017-6 Amendments to Australian Accounting Standards –
Prepayments features with negative compensation
AASB 2017-6 amends AASB 9 to permit entities to measure at
amortised cost or fair value through other comprehensive income,
particular financial assets that would otherwise have contractual
cash flows that are solely payments of principal and interest
but do not meet that condition only as a result of a prepayment
feature. This is subject to meeting other conditions, such as
the nature of the business model relevant to the financial asset.
Otherwise, the financial assets would be measured at fair value
through profit or loss.
AASB 2017-6 is effective for annual periods beginning on or after
1 January 2019. The Consolidated Entity will early adopt the
amendment from 1 April 2018. The impact of this amendment is
included in the transition adjustment for AASB 9.
AASB 2017-7 Amendments to Australian Accounting Standards –
Long-term interests in associates and joint ventures
AASB 2017-7 clarifies the accounting for long-term interests in an
associate or joint venture, which in substance form part of the net
investment in the associate or joint venture, but to which the equity
method is not applied. Such long term interests are accounted
under AASB 9 before applying the loss allocation and impairment
requirements in AASB 128 Investments in Associates and Joint
Ventures. These long term interests are in the nature of debt
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 94
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
the single most likely amount or the sum of the probability weighted
amounts in a range of possible outcomes, whichever better predicts
the resolution of the uncertainty. Judgements will be reassessed as
and when new facts and circumstances come to light.
Interpretation 23 will apply to the Consolidated Entity from
1 April 2019. An initial assessment has been performed and based
on this assessment it is not expected that the implementation of
Interpretation 23 will materially impact Macquarie’s statement of
financial position or income statement. This assessment is subject
to the matters relevant at the date of transition.
(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) in relation to which the Consolidated Entity 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, returns from 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 investors’ 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 involvement in 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.
NOTE 1
Summary of significant accounting policies continued
(i) Basis of preparation continued
AASB 16 Leases
AASB 16 replaces the current AASB 117 Leases standard and
sets out a comprehensive model for identifying lease arrangements
and the subsequent measurement. A contract contains a lease if
it conveys the right to control the use of an identified asset for a
period of time. The majority of leases from the lessee perspective
within the scope of AASB 16 will require the recognition of a
‘right-of-use’ asset and a related lease liability, being the present
value of future lease payments. This will result in an increase in the
recognised assets and liabilities in the statement of financial position
as well as a change in expense recognition, with interest and
depreciation replacing operating lease expense. Classification of
leases from the Consolidated Entity’s perspective as lessor remains
unchanged under AASB 16.
Unless early adopted, AASB 16 is effective for the Consolidated
Entity for the annual periods beginning 1 April 2019.
The Consolidated Entity is expected to apply the standard
retrospectively, recognising the cumulative effect of initially applying
the standard as an adjustment to the opening balance of retained
earnings. Alternative methods of calculating the ‘right-of-use’ asset
are allowed under AASB 16 which impact the size of the transition
adjustment. The Consolidated Entity is still evaluating which
method to apply.
An initial assessment has been performed based on operating
leases that exist in the current reporting period. Based on this
assessment it is not anticipated that there will be a material impact
to retained earnings. This assessment is subject to the composition
of operating leases at the date of transition. A schedule of current
operating lease commitments is disclosed in Note 34.
AASB 2016-5 Amendments to Australian Accounting Standards
– Classification and Measurement of Share-based Payment
Transactions
The amendment addresses the accounting for cash-settled share-
based payments and equity-settled awards that include a ‘net
settlement’ feature in respect of withholding taxes. The amendment
clarifies the measurement basis for cash-settled share-based
payments and the accounting for modifications that change an
award from cash-settled to equity-settled. It also introduces an
exception that will require an award to be treated as if it was wholly
equity-settled, where an employer is obliged to withhold an amount
for the employee’s tax obligation associated with a share-based
payment and pay that amount to the tax authority.
The requirements would be effective for Macquarie on 1 April 2018,
however the Consolidated Entity has early adopted this amendment
from 1 April 2017. Retrospective application did not have a
material impact on the financial position nor performance of the
Consolidated Entity or the Company.
AASB Interpretation 23 (Interpretation 23) Uncertainty over
Income Tax Treatments
Interpretation 23 clarifies the application of the recognition and
measurement criteria in AASB 112 Income Taxes where there is
uncertainty over income tax treatments. It requires assessment
of each uncertain tax position as to whether it is probable that a
taxation authority will accept the position. Where it is not probable,
the effect of the uncertainty will be reflected in determining the
relevant taxable profit or loss, tax bases, unused tax losses, unused
tax credits or tax rates. The amount will be determined as either
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 95
NOTE 1
Summary of significant accounting policies continued
(ii) Principles of consolidation continued
Consolidation
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 are shown separately in
the consolidated income statements, consolidated statements
of comprehensive income and consolidated statements of
financial position.
Where control of an entity was obtained during the financial year,
its results are included in the consolidated income statements 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 Consolidated Entity determines the dates of obtaining control
(i.e. acquisition date) and losing control (i.e. disposal date) of
another entity based on an assessment of all pertinent facts and
circumstances that affect the ability to direct the relevant activities
and the capacity to influence returns 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
Associates and joint ventures are entities over which the
Consolidated Entity has significant influence or joint control, but not
control. Investment in associates and joint ventures are accounted
for under the equity method except those which are classified as
held for sale and loans to associates and joint ventures that are
accounted for under effective interest rate method. 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 loss in the consolidated income statements, and the share of
the post-acquisition movements in reserves in the consolidated
statements of comprehensive income. Dividends or distributions
from associates or joint ventures reduce the carrying amount of
the investment.
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
acquisition date) of assets acquired, equity instruments issued or
liabilities incurred or assumed at the date of acquisition. 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.
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 statements, but only after a reassessment
of the identification and measurement of the net assets acquired.
For contingent consideration provided, 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 acquisition. 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 (for example tangible or intangible assets, and intellectual
property) and a majority of the critical processes (for example
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 six
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.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 96
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 1
Summary of significant accounting policies continued
(v) Foreign currency translation
Functional and presentation currency
Items included in the Group financial statements for each of the
Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the functional
currency). The Consolidated Entity’s and Company’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 translated into the functional
currency using the exchange rates prevailing at the transaction
date. Foreign exchange gain and loss 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 OCI as a result of meeting cash flow hedge or net
investment hedge accounting requirements (see Note 1(xii)).
(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 and interest expense are brought to account using
the effective interest rate method. The effective interest rate 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
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(xii)).
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 when it is highly probable those conditions
will not affect the outcome.
Subsidiaries and other entities
The results and financial position of all entities that have a functional
currency other than Australian dollars are translated into Australian
dollars as follows:
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.
– 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
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:
– income and expenses for each income statement are translated
at actual exchange rates at the dates of the transactions
– all resulting exchange differences are recognised in OCI within
a separate component of equity, being the foreign currency
translation reserve.
– 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.
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.
Net trading income
Net trading income comprises gain and loss related to trading
assets and liabilities and include all realised and unrealised fair value
changes, dividends, ineffective hedge accounting movements and
foreign exchange differences.
Net operating lease income
Operating lease income is recognised on a straight-line basis
over the lease term. It comprises operating lease income and
supplemental rent and is presented net of depreciation expense.
Dividends and distributions
Dividends or distributions are recognised as income when the
Consolidated Entity becomes entitled to the dividend or distribution.
Dividends or distributions from subsidiaries, associates and joint
ventures are recognised in the income statement of the Company
when the right to receive the dividend or distribution is established.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 97
NOTE 1
Summary of significant accounting policies continued
(vii) Taxation
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.
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 enacted or substantively 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.
The Consolidated Entity and Company 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 the
amount expected to be paid to/(recovered from) tax authorities
based on its understanding of the 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.
Goods and services tax (GST)
Where GST (or other value added tax) is not recoverable from
global tax authorities, it is either capitalised to the statement of
financial position as part of the cost of the asset or expensed to the
income statement.
Where GST (or other value added tax) is recoverable from or
payable to global tax authorities, the amount is recorded as a
separate asset or liability in the statement of financial position.
Cash flows are presented on a gross basis in the statement
of cash flows.
(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.
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.
Cash provided as collateral on securities borrowed or on the
reverse repurchase agreement is included in receivables from
financial institutions 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) Recognition and derecognition of financial instruments
Financial instruments are recognised when the Consolidated Entity
becomes a party to the contractual provisions of the instrument.
Specific policies are provided for the various financial instrument
categories below.
Financial assets are derecognised from the statement of financial
position when the rights to cash flows have expired (for example
because the borrower repays its obligations), the loan is sold and
substantially all the risks and rewards of ownership are transferred.
Financial liabilities are derecognised from the statement of financial
position when the Consolidated Entity’s obligation has been
discharged, cancelled or has expired.
Where an existing financial instrument is replaced by another with
the same counterparty on substantially different terms, or the terms
of an existing instrument are substantially modified, the exchange or
modification is treated as a derecognition of the original instrument
and the recognition of a new instrument, with the difference in the
respective carrying amounts recognised in the income statement.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 98
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 1
Summary of significant accounting policies continued
(x) 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 with the intent of being actively traded.
Assets and liabilities included in the trading portfolio are carried at
fair value (see Note 38). Commodities are measured at fair value
less costs to sell in accordance with the broker-trader exception.
Realised 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 trading portfolio financial
assets. At the date a purchase transaction is entered into (trade
date), the Consolidated Entity recognises the resulting financial
asset and any subsequent unrealised profit or loss arising from
revaluing that contract to fair value is recognised in the income
statement. When the Consolidated Entity becomes party to a sale
contract of a financial asset, and the derecognition criteria are met,
it derecognises the asset and recognises a trade receivable from
trade date until settlement date. The same trade date accounting
applies for available for sale financial instruments and financial
instruments designated at fair value through profit or loss.
The Consolidated Entity uses trade date accounting when
accounting for purchases and sales of trading portfolio
financial liabilities.
(xi) 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 held for 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.
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
profit or loss immediately when the derivative is recognised (‘day
1 profit or loss’). When significant unobservable inputs are used
to determine fair value, the day 1 profit or loss is deferred and is
recognised in the income statement over the life of the transaction
or when the inputs become observable.
(xii) 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 the cash flow hedging reserve through OCI 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 under net trading income.
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 36 – Derivative financial instruments.
Movements in the cash flow hedging reserve in equity are shown in
Note 28 – Reserves, retained earnings and non-controlling interests.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 99
NOTE 1
Summary of significant accounting policies continued
(xiii) 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,
other receivables and amounts due from subsidiaries, which are
non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. Loans and receivables
are recognised on settlement date, when cash is advanced
to the borrower.
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.
Management may elect 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 and financial liabilities
managed and evaluated on a fair value basis in accordance
with a documented risk management or investment strategy,
and reporting is provided on that basis to key management
personnel, 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 in this category are available for sale and may
be sold should the need arise, including for purposes of liquidity, or
due to fair value movements resulting from 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 values are recognised through OCI 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).
Dividends from equity securities available for sale are recognised
in the income statement when the Consolidated Entity becomes
entitled to the dividend or distribution as disclosed in Note 1(vi).
Life investment linked assets and liabilities
Life investment policies consist of two components: a financial
instrument and an investment management fee. The investment
management fee is recognised through the income statement
over the period for which the service is provided, while the deposit
component is designated at fair value through the profit or loss.
Life investment contracts are directly linked to the performance
and market value of the assets that back them and the fair value is
measured as the minimum current surrender value. Withdrawals and
surrenders of life investment contracts are treated as a reduction
in the investment contract liability. Life investment linked assets are
measured at fair value through the profit or loss, with any changes in
fair value recognised in the income statement in the period in which
they occur.
(xiv) Non-current assets and disposal groups classified
as held for sale
This category includes interests in businesses, subsidiaries,
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 have not been equity
accounted or 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.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 100
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
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.
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.
Investments in subsidiaries
Investments in subsidiaries are reviewed annually for indicators
of impairment or more frequently if events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment is recognised for the amount by which
the investment’s carrying amount exceeds its recoverable amount
(which is the higher of fair value less costs to sell and value in use).
At each reporting date, investments in subsidiaries that have been
impaired are reviewed for possible reversal of the impairment.
NOTE 1
Summary of significant accounting policies continued
(xv) 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 loss decreases
and the decrease can be related objectively to an event occurring
after the impairment loss was recognised, the previously recognised
impairment loss is reversed through the income statement to
the extent of what the amortised cost would have been had the
impairment not been recognised.
When the Consolidated Entity concludes that there is no reasonable
expectation of recovering cash flows from the loan asset and all
possible collateral has been realised, the loan is written off, either
partially or in full, against the related provision. Recoveries of loans
previously written off are recorded based on the cash received.
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.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 101
NOTE 1
Summary of significant accounting policies continued
(xvi) Property, plant and equipment
Property, plant and equipment are stated at historical cost (which
includes directly attributable borrowing costs) less accumulated
depreciation and accumulated impairment loss, if any. Property,
plant and equipment are reviewed for indicators of impairment (or
possible reversal of previous impairment losses) 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 aviation assets is calculated on a diminishing balance
method and depreciation on all other 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
Furniture, fittings and leasehold improvements (1)
Equipment
Infrastructure assets
Aviation (2)
Meters
Rail cars
Telecommunications
Other operating lease assets
2 to 3.3%
10 to 20%
33 to 50%
2 to 12%
2 to 8%
5 to 15%
3 to 5%
33%
2 to 50%
(1) Where remaining lease terms are less than five years, leasehold
(2)
improvements are depreciated over the remaining lease term.
Includes aircraft, for which depreciation is calculated on a diminishing-
value basis.
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 or business at the date of acquisition.
Goodwill arising from business combinations is included in
intangible assets in the statement of financial position.
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 loss. Where no contractual or legal
limitation exists, 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 accumulated impairment loss.
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.
Customer and servicing contracts acquired with a finite useful life
are carried at cost less accumulated amortisation and accumulated
impairment loss. Amortisation is calculated over the period for
which the customer relationship is expected to exist.
Customer and servicing contracts with an indefinite useful life are
carried at cost less accumulated impairment loss.
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. Cost
incurred on software maintenance is 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 (see Note 3 – Segment reporting)
and assessed for impairment.
(xviii) Financial liabilities
The Consolidated Entity has on issue debt securities and
instruments which are initially recognised on settlement date 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 borrowing using the
effective interest method.
Other debt issued 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. Management may elect 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 in
accordance with a documented risk management or
– investment strategy, and reporting is provided on that basis to
key management personnel, or
– doing so eliminates or significantly reduces a measurement or
recognition inconsistency that would otherwise arise.
For financial liabilities designated at fair value through profit or loss,
the Consolidated Entity uses trade date accounting on recognition
and settlement date accounting on derecognition of the obligation.
Interest expense on such items is recognised in the income
statement as interest expense using the effective interest method.
Changes in fair value due to the change in the Consolidated Entity’s
own credit are recognised in Other Comprehensive Income.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 102
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 1
Summary of significant accounting policies continued
(xix) Supplemental rent, maintenance liability and end of
lease compensation
Under certain leases, the Consolidated Entity requires lessees to
make regular additional rent payments based on aircraft utilisation
to contribute towards maintenance expenditure related to Major
Maintenance Events (MMEs). These payments are typically
calculated on the basis of hourly utilisation, calendar time or the
number of cycles operated at an agreed rate specified in the lease.
These payments are recorded as supplemental rent revenue in the
period in which it is earned.
In certain circumstances, the Consolidated Entity agrees to an
alternative mechanism to earn supplemental rent known as end
of lease compensation. This compensation is typically calculated
on the basis of the condition of each major component at the
end of the lease relative to the commencement of the lease
measured by hours, number of cycles or calendar time at an
agreed rate specified in the lease. The Consolidated Entity accrues
the expected lessee’s compensation for the use of the aircraft
over the term of the lease and agrees to defer the receipt of this
compensation until the lease end.
At the beginning and throughout the term of each lease, the
Consolidated Entity estimates the maintenance liability for MMEs
which are expected to occur during the lease and accrues for
this over the same term. Management determines this estimate
based on quantitative and qualitative information including
aircraft utilisation, area of operation, costs and timing of MMEs.
Maintenance expenses are recorded in the income statement net
of supplemental rent revenue. Maintenance liabilities are recognised
separately and disclosed in Note 21 – Other liabilities.
(xx) 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
in the statement of financial position as a liability and a reduction in
retained earnings when the dividend has been declared.
(xxi) 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
adjusted by profit attributable to all the dilutive potential ordinary
shares by the weighted average number of ordinary shares and
potential 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.
(xxii) Performance based remuneration
Share-based payments
The Consolidated Entity operates share-based compensation
plans, which include awards (including those delivered through
the MEREP) granted to employees under share acquisition plans.
Information relating to these schemes is set out in Note 32 –
Employee equity participation. The Consolidated Entity recognises
an expense and a corresponding increase in equity in case of
equity settled awards or a corresponding increase in liability in case
of cash settled 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 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.
(xxiii) Cash and cash equivalents
Cash and cash equivalents comprise of:
– cash and short-term amounts included in receivables from
financial institutions and loan assets at amortised cost with
original contractual maturity of three months or less
– certain trading portfolio assets and debt securities with original
contractual maturity of three months or less.
(xxiv) Investment property
Investment properties are initially recognised at cost and
subsequently stated at fair value at each balance date.
Any change in fair value is recognised in the consolidated income
statements in the period.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 103
NOTE 1
Summary of significant accounting policies continued
(xxv) 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.
(xxix) 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 the income statement.
Similarly, when selling ownership interests of a subsidiary (such
that control is lost), or an investment in an 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. Any changes in
ownership of an associate that remains an associate only impacts
the investment and does not create any profit or loss.
(xxx) Comparatives
Where necessary, comparative information has been restated to
conform to changes in presentation in the current year.
(xxxi) Rounding of amounts
In accordance with ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, amounts in the Directors’
Report and Financial Report have been rounded off to the
nearest million Australian dollars unless otherwise indicated.
Where finance leases are granted to third parties, the present
value of the minimum lease payments plus an estimate of the
value of any unguaranteed residual value 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.
(xxvi) 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.
(xxvii) Loan capital
Loan capital is debt issued by the Consolidated Entity with terms
and conditions that qualify for inclusion as capital under APRA
Prudential Standards. For compound instruments that have
both equity and liability features, the liability component is initially
measured at fair value plus directly attributable transaction costs
and thereafter at amortised cost using the effective interest method.
Capital instruments with conversion features (i.e. Common Equity
Capital Trigger Event or Non-Viability Trigger Events) are considered
to contain embedded derivatives that are accounted for separately
at fair value through profit and loss if the derivative is deemed to not
be closely related to the capital instrument.
(xxviii) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares are shown in equity as a
deduction, net of tax, from the proceeds.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 104
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 2
Operating profit before income tax
Net interest income/(expense)
Interest and similar income
Interest expense and similar charges
Net interest income/(expense)
Fee and commission income
Base fees
Performance fees
Mergers and acquisitions, advisory and underwriting fees
Brokerage and commissions
Other fee and commission income
Total fee and commission income
Net trading income/(expense) (1)
Equities
Commodities (2)
Credit, interest rate and foreign exchange products
Net trading income/(expense)
Net operating lease income
Rental income (3)
Depreciation on operating lease assets (Note 14)
Net operating lease income
Share of net profits of associates and joint ventures
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
4,943
(2,957)
1,986
5,138
(2,953)
2,185
479
(521)
(42)
447
(488)
(41)
1,632
1,580
595
920
774
749
264
963
813
711
4,670
4,331
566
1,132
259
1,957
1,901
(966)
935
241
441
1,163
154
1,758
1,646
(725)
921
51
–
–
–
–
10
10
–
–
(39)
(39)
–
–
–
–
–
–
–
–
10
10
–
–
(39)
(39)
–
–
–
–
(1)
(2)
(3)
Includes net fair value loss of $20 million (2017: $64 million gain) relating to financial assets and financial liabilities designated as held at fair value through
profit or loss. This also includes the ineffective portion of hedges and fair value changes on derivatives used to economically hedge the Consolidated
Entity’s interest rate risk where hedge accounting requirements are not met. Refer to Note 1(xi) – Derivative instruments.
Includes $411 million (2017: $266 million) of transportation and storage costs.
Includes $155 million (2017: $128 million) of net supplemental rent on aircraft (adjusted for maintenance expense).
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 105
NOTE 2
Operating profit before income tax continued
Other operating income and charges
Investment income
Net gain on sale of investment securities available for sale
Net gain on sale of interests in associates and joint ventures
Net gain on acquisition, disposal, reclassification and change in ownership
interests of investments, subsidiaries and businesses and assets held for sale (1)
Net fair value gains on financial instruments designated at fair value
Dividends/distributions from investment securities available for sale
Dividends/distributions from Subsidiaries (Note 30)
Total investment income
Impairments (charge)/reversal
Investment securities available for sale
Interests in associates and joint ventures
Intangible assets and other non-financial assets
Investment in subsidiaries (Note 17)
Total impairment (charge)/reversal
Provision on loans and other receivables
Individually assessed provisions
Recovery of individually assessed provisions
Collective allowance for credit losses reversed
Amounts written off
Recovery of amounts previously written off
Total provision on loan and other receivables
Other income
Total other operating income and charges
Net operating income(2)
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
76
224
768
113
52
–
419
286
613
11
95
–
1,233
1,424
(25)
(201)
(77)
–
(303)
(123)
37
116
(134)
41
(63)
264
(47)
(27)
(99)
–
(173)
(210)
38
5
(148)
44
(271)
138
–
–
–
–
–
1,730
1,730
–
–
–
2,700
2,700
–
–
–
–
–
–
–
–
–
–
–
–
1,787
1,787
–
–
–
2,300
2,300
–
–
–
–
–
–
–
1,131
10,920
1,118
10,364
4,430
4,359
4,087
4,017
Includes $557 million (2017: $80 million) of gains on reclassification of investments.
(1)
(2) Prior comparative financial year has been reclassified to conform to current financial year presentation.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 106
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 2
Operating profit before income tax continued
Employment expenses
Salary and related costs including commissions,
superannuation and performance-related profit share
Share-based payments (1)
Provision for long service leave and annual leave
Total compensation expenses
Other employment expenses including on-costs, staff
procurement and staff training
Total employment expenses
Brokerage, commission and trading-related expenses
Brokerage and other trading-related expenses
Other fee and commission expenses
Total brokerage, commission and trading-related expenses
Occupancy expenses
Operating lease rentals
Depreciation: buildings, furniture, fittings and leasehold
improvements
Other occupancy expenses
Total occupancy expenses
Non-salary technology expenses
Information services
Depreciation: equipment (Note 14)
Service provider and other non-salary technology expenses
Total non-salary technology expenses
Other operating expenses
Professional fees
Travel and entertainment expenses
Advertising and promotional expenses
Auditor’s remuneration (Note 41)
Amortisation of intangible assets
Communication expenses
Depreciation: infrastructure assets
Other expenses
Total other operating expenses
Total operating expenses
Operating profit before income tax
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
(3,798)
(410)
(13)
(4,221)
(272)
(4,493)
(661)
(169)
(830)
(224)
(75)
(103)
(402)
(181)
(24)
(399)
(604)
(411)
(163)
(83)
(35)
(41)
(31)
(26)
(3,691)
(416)
(14)
(4,121)
(258)
(4,379)
(674)
(178)
(852)
(219)
(73)
(100)
(392)
(189)
(27)
(428)
(644)
(385)
(154)
(80)
(36)
(35)
(35)
(16)
(337)
(1,127)
(7,456)
3,464
(252)
(993)
(7,260)
3,104
(4)
–
–
(4)
–
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(1)
(5)
(4)
–
–
(4)
–
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2)
(2)
(6)
4,354
4,011
(1)
Includes $26 million (2017: $33 million) of share-based payments expense for cash settled awards.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 107
NOTE 3
Segment reporting
(i) Operating segments
AASB 8 Operating Segments requires the ‘management approach’
to disclosing information about the Consolidated Entity’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, the Consolidated Entity is divided into five
Operating Groups and a Corporate segment. These segments
have been set up based on the different core products and
services offered. There were previously six Operating Groups and
during the prior year Commodities and Financial Markets merged
with Macquarie Securities to form CGM. Segment information
has been prepared in accordance with the basis of preparation
described below.
The Operating Groups comprise:
MAM provides clients with access to a diverse range of capabilities
and products, including infrastructure, real assets, equities,
fixed income, liquid alternatives and multi-asset investment
management solutions.
CAF operates in selected international markets, providing
specialist financing, investing and asset management solutions.
CAF has expertise in flexible primary financing, secondary market
investing and asset finance including aircraft, vehicles, technology,
healthcare, manufacturing, industrial, energy, rail and mining
equipment.
BFS provides a diverse range of personal banking, wealth
management and business banking products and services to retail
clients, advisers, brokers and business clients.
CGM provides clients with an integrated, end-to-end offering
across global markets including equities, fixed income, foreign
exchange and commodities.
Macquarie Capital has global capability across Infrastructure,
Energy, Real Estate, Telecommunications, Media and Technology,
Consumer, Gaming and Leisure, Business Services, Resources,
Industrials and Financial Institutions in mergers and acquisitions
advisory, equity and debt capital markets and balance sheet
positions.
The Operating Groups are grouped into annuity-style businesses
and capital markets facing businesses:
– Annuity-style businesses comprise of MAM, CAF and BFS
– Capital markets facing businesses comprise of CGM and
Macquarie Capital.
The Corporate segment, which is not considered an Operating
Group, includes head office and central service groups 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 the Consolidated Entity,
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 service
groups, the Consolidated Entity’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 or expense. These transactions
eliminate on aggregation/consolidation.
Below is a selection of key policies applied in determining operating
segment results.
Internal funding arrangements
Group Treasury has responsibility for managing funding for the
Consolidated Entity 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. Break
costs are charged to Operating Groups for the early repayment
of term funding.
In certain cases, Operating Groups may source funding directly
from external sources – typically where the funding is secured by
the assets of the Operating Group. In such cases the Operating
Group bears the funding costs directly and Group Treasury may levy
additional charges where appropriate.
Deposits are a funding source for the Consolidated Entity. 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 Consolidated Entity’s CEO or 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.
Accounting for derivatives that economically hedge
interest rate risk
For businesses that predominately earn income from lending activities
(CAF and BFS), derivatives that economically hedge interest rate risk
are required to be carried at fair value through net trading income
unless they form part of a qualifying hedge relationship. Hedge
relationships are generally only recognised at a Consolidated Entity
level; however for segment reporting, derivatives are accounted for
on an accruals basis in the Operating Group segments and changes
in fair value are recognised within the Corporate segment offset by
the effect of hedge relationships at the total Consolidated Entity level.
Central service groups
Central service groups recover their costs from Operating Groups
generally on either a time and effort allocation basis or a fee for
service basis. Central service groups include COG, FMG, RMG,
LGL 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 charge is used.
These internal management revenues/charges are offset by an
equal and opposite amount recognised in the Corporate segment
such that they are eliminated on aggregation.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 108
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
Macquarie
Asset
Management
$m
Corporate
and Asset
Finance
$m
Banking and
Financial
Services
$m
Annuity Style
Businesses
$m
Commodities and
Global Markets
$m
Macquarie Capital
$m
Capital Markets
Facing Businesses
$m
Corporate
$m
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
Net interest and trading (expense)/income
Fee and commission income/(expense)
Net operating lease income
Share of net profits/(losses) of associates and joint ventures
accounted for using the equity method
Other operating income and charges:
Impairment charges, write-offs and provisions, net of
recoveries
Other operating income and charges
Internal management revenue/(charge)
Net operating income
Total operating expenses
Operating profit/(loss) before income tax
Income tax expense
Profit attributable to non-controlling interests
Net profit/(loss) attributable to ordinary equity holders
Reportable segment assets
Net interest and trading (expense)/income
Fee and commission income/(expense)
Net operating lease income
Share of net profits/(losses) of associates and joint ventures
accounted for using the equity method
Other operating income and charges:
Impairment charges, write-offs and provisions, net of
recoveries
Other operating income and charges
Internal management revenue/(charge)
Net operating income
Total operating expenses
Operating profit/(loss) before income tax
Income tax expense
(Profit)/loss attributable to non-controlling interests
Net profit/(loss) attributable to ordinary equity holders
Reportable segment assets
(52)
2,407
3
163
(177)
407
41
2,792
(1,107)
1,685
–
–
1,685
8,959
(42)
2,067
14
45
14
454
44
2,596
(1,057)
1,539
–
(1)
1,538
8,017
582
41
929
(3)
(15)
351
4
1,889
(679)
1,210
–
(4)
1,206
36,901
712
53
904
–
(111)
233
40
1,831
(634)
1,197
–
1
1,198
38,159
1,182
466
–
3
(26)
18
3
1,646
(1,086)
560
–
–
560
42,318
1,049
472
–
6
(91)
207
5
1,648
(1,135)
513
–
–
513
38,106
1,712
2,914
932
163
(218)
776
48
6,327
(2,872)
3,455
–
(4)
3,451
88,178
1,719
2,592
918
51
(188)
894
89
6,075
(2,826)
3,249
–
–
3,249
84,282
1,960
893
–
21
(88)
109
12
2,907
(1,997)
910
910
89,644
2,060
857
–
–
–
–
(149)
181
(1)
2,948
(1,976)
972
–
(1)
971
86,107
(72)
878
–
56
(60)
668
21
1,491
(785)
706
–
(6)
700
5,062
887
3
–
28
(97)
379
6
1,206
(722)
484
–
(1)
483
3,521
1,888
1,771
–
77
(148)
777
33
4,398
(2,782)
1,616
–
(6)
1,610
94,706
2,063
1,744
–
28
(246)
560
5
4,154
(2,698)
1,456
–
(2)
1,454
89,628
CONSOLIDATED 2018
CONSOLIDATED 2017
Total
$m
3,943
4,670
935
241
(366)
1,497
–
10,920
(7,456)
3,464
(883)
(24)
2,557
191,325
3,943
4,331
921
51
(444)
1,562
–
10,364
(7,260)
3,104
(868)
(19)
2,217
182,877
343
(15)
3
1
–
(56)
(81)
195
(1,802)
(1,607)
(883)
(14)
(2,504)
8,441
161
(5)
3
(28)
(10)
108
(94)
135
(1,736)
(1,601)
(868)
(17)
(2,486)
8,967
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
109
Macquarie
Asset
Management
$m
Corporate
and Asset
Finance
$m
Banking and
Financial
Services
$m
Annuity Style
Businesses
$m
Commodities and
Global Markets
$m
Macquarie Capital
$m
Capital Markets
Facing Businesses
$m
Corporate
$m
Total
$m
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
Net interest and trading (expense)/income
Fee and commission income/(expense)
Net operating lease income
Share of net profits/(losses) of associates and joint ventures
accounted for using the equity method
Other operating income and charges:
Impairment charges, write-offs and provisions, net of
recoveries
Other operating income and charges
Internal management revenue/(charge)
Net operating income
Total operating expenses
Operating profit/(loss) before income tax
Income tax expense
Profit attributable to non-controlling interests
Net profit/(loss) attributable to ordinary equity holders
Reportable segment assets
Net interest and trading (expense)/income
Fee and commission income/(expense)
Net operating lease income
Share of net profits/(losses) of associates and joint ventures
accounted for using the equity method
Other operating income and charges:
Impairment charges, write-offs and provisions, net of
recoveries
Other operating income and charges
Internal management revenue/(charge)
Net operating income
Total operating expenses
Operating profit/(loss) before income tax
Income tax expense
(Profit)/loss attributable to non-controlling interests
Net profit/(loss) attributable to ordinary equity holders
Reportable segment assets
(52)
2,407
3
163
(177)
407
41
2,792
(1,107)
1,685
–
–
1,685
8,959
(42)
2,067
14
45
14
454
44
2,596
(1,057)
1,539
–
(1)
1,538
8,017
582
41
929
(3)
(15)
351
4
1,889
(679)
1,210
–
(4)
1,206
36,901
712
53
904
–
(111)
233
40
1,831
(634)
1,197
–
1
1,198
38,159
1,182
466
–
3
–
–
–
6
–
–
(26)
18
3
1,646
(1,086)
560
560
42,318
1,049
472
(91)
207
5
1,648
(1,135)
513
513
38,106
1,712
2,914
932
163
(218)
776
48
6,327
(2,872)
3,455
–
(4)
3,451
88,178
1,719
2,592
918
51
(188)
894
89
6,075
(2,826)
3,249
–
–
3,249
84,282
1,960
893
–
21
(88)
109
12
2,907
(1,997)
910
–
–
910
89,644
2,060
857
–
–
(149)
181
(1)
2,948
(1,976)
972
–
(1)
971
86,107
(72)
878
–
56
(60)
668
21
1,491
(785)
706
–
(6)
700
5,062
3
887
–
28
(97)
379
6
1,206
(722)
484
–
(1)
483
3,521
1,888
1,771
–
77
(148)
777
33
4,398
(2,782)
1,616
–
(6)
1,610
94,706
2,063
1,744
–
28
(246)
560
5
4,154
(2,698)
1,456
–
(2)
1,454
89,628
343
(15)
3
1
–
(56)
(81)
195
(1,802)
(1,607)
(883)
(14)
(2,504)
8,441
161
(5)
3
(28)
(10)
108
(94)
135
(1,736)
(1,601)
(868)
(17)
(2,486)
8,967
CONSOLIDATED 2018
3,943
4,670
935
241
(366)
1,497
–
10,920
(7,456)
3,464
(883)
(24)
2,557
191,325
CONSOLIDATED 2017
3,943
4,331
921
51
(444)
1,562
–
10,364
(7,260)
3,104
(868)
(19)
2,217
182,877
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT
110
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 3
Segment reporting continued
(ii) Products and services
For the purpose of preparing a segment report based on products and services, the activities of the Consolidated Entity have been divided
into four areas:
– Lending: corporate and structured finance, banking activities, mortgages and leasing
– Financial Markets: trading in fixed income securities, equities, currency, commodities and derivative products
– Asset and Wealth Management: investment management, manufacture and distribution of fund management products
– Capital Markets: advisory, underwriting, facilitation, broking, principal investments and real estate/property development.
Revenue from external customers
Lending
Financial Markets
Asset and Wealth Management
Capital Markets
Total revenue from external customers (1)
CONSOLIDATED
2018
$m
6,069
3,859
2,851
2,814
2017
$m
5,712
3,618
2,914
2,638
15,593
14,882
(1) Revenue from external customers includes interest and similar income, fee and commission income, net trading income, operating lease income, income
associated with investing activities and other income.
(iii) Geographical areas
Geographical segments have been determined based on where the transactions have recorded. The operations of the Consolidated Entity
are headquartered in Australia.
Australia
Europe, Middle East and Africa (2)
Americas (3)
Asia Pacific
Total
CONSOLIDATED 2018
CONSOLIDATED 2017
Revenue
from external
customers
$m
Non-current
assets (1)
$m
Revenue
from external
customers
$m
Non-current
assets (1)
$m
5,953
4,557
3,875
1,208
15,593
2,518
10,938
2,845
215
16,516
5,969
3,789
3,750
1,374
2,087
9,735
2,393
278
14,882
14,493
(1) Non-current assets consist of intangible assets, interests in associates and joint ventures, property, plant and equipment and investment property.
(2)
(3)
Includes external revenue generated in the United Kingdom of $3,722 million (2017: $2,898 million).
Includes external revenue generated in the United States of America of $3,658 million (2017: $3,532 million).
(iv) Major customers
The Consolidated Entity does not rely on any major customers.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 111
NOTE 4
Income tax expense
(i) Income tax (expense)/benefit
Current tax (expense)/benefit
Deferred tax expense
Total income tax (expense)/benefit
(ii) Numerical reconciliation of income tax expense
to prima facie tax payable
Prima facie income tax expense on operating profit (1)
Tax effect of amounts which are (not deductible)/ non-assessable
in calculating taxable income:
Rate differential on offshore income
Impairment reversal on subsidiaries
Intra-group dividend
Other items
Total income tax (expense)/benefit
(iii) Tax benefit/(expense) relating to items of other
comprehensive income
Available for sale reserve
Cash flow hedge reserve
Share of other comprehensive expense of associates and joint ventures
Foreign currency translation reserve
Own credit risk
Total tax benefit relating to items of other comprehensive income
(iv) Deferred tax (expense)/benefit represents movements
in deferred tax assets/liabilities
Fixed assets
Intangible assets
Investments
Tax losses
Leasing and financial instruments
Other assets and liabilities
Total deferred tax expense represents movements in deferred
tax assets/liabilities
(1) Prima facie income tax on operating profit is calculated at the rate of 30% (2017: 30%).
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
(581)
(302)
(883)
(486)
(382)
(868)
9
(6)
3
44
(46)
(2)
(1,039)
(931)
(1,306)
(1,203)
173
–
–
(17)
(883)
144
(13)
(1)
–
(3)
127
(25)
37
23
(18)
56
(375)
(302)
75
–
–
(12)
(868)
54
(13)
–
2
–
43
(9)
9
(89)
(77)
(207)
(9)
(382)
6
810
519
(26)
3
–
–
–
–
–
–
–
–
–
–
–
(6)
(6)
5
690
536
(30)
(2)
–
–
–
–
–
–
–
–
–
–
–
(46)
(46)
Revenue authorities undertake risk reviews and audits as part of their normal activities. The Consolidated Entity has assessed these and
other taxation claims and litigation, including seeking advice where appropriate, and considers that it holds appropriate provisions.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT
112
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 5
Dividends and distributions paid or provided for
(i) Dividends paid
Ordinary share capital and exchangeable shares
Final dividend paid (2017: $2.80 (2016: $2.40) per share) (1)
Interim dividend paid (2018: $2.05 (2017: $1.90) per share) (2)
Total dividends paid (Note 28)
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
952
697
1,649
816
646
1,462
944
691
1,635
809
640
1,449
(1) Final dividend paid by the Consolidated Entity includes $8 million (2017: $7 million) of dividend equivalent amount paid to Deferred Share Unit (DSU)
(2)
holders as described in Note 32 – Employee equity participation.
Interim dividend paid by the Consolidated Entity includes $6 million (2017: $6 million) of dividend equivalent amount paid to DSU holders as described in
Note 32 – Employee equity participation.
The 2017 final and 2018 interim dividends paid during the financial year were franked at 45% based on tax paid at 30% (2016 final dividend
franked at 40% based on tax paid at 30%; 2017 interim dividend franked at 45% based on tax paid at 30%). The dividends paid to the
holders of the 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. 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 27 – Contributed equity.
(ii) Dividends not recognised at the end of the financial year
Since the end of the financial year, the Directors have resolved to pay a 2018 final dividend of $3.20 per fully paid ordinary share, 45%
franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 3 July 2018 from retained
profits, but not recognised as a liability at the end of the financial year is $1,088 million (net of $1 million to be received on treasury shares
(refer to Note 27 – Contributed equity for further details of these instruments). This amount has been estimated based on the number of
shares and MEREP awards eligible to participate as at 31 March 2018.
Cash dividend per ordinary share (distribution of current year profits)
($ per share)
Franking credits available for the subsequent financial year at a
corporate tax rate of 30% (2017: 30%) ($m)
CONSOLIDATED
COMPANY
2018
2017
2018
2017
5.25
117
4.70
199
5.25
117
4.70
199
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.
(iii) Distributions paid or provided for
Macquarie Income Securities (1)
Distributions paid (net of distributions previously provided for)
Distributions provided for
Total distributions paid or provided for
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
11
3
14
12
3
15
–
–
–
–
–
–
(1)
The Macquarie Income Securities (MIS) represent the NCI of a subsidiary. Refer to Note 28 – Reserves, retained earnings and non-controlling interests for
further details on MIS.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 113
CONSOLIDATED
2018
2017
Cents per share
758.2
743.5
$m
2,581
(14)
(10)
2,557
(112)
2,445
75
90
2,610
657.6
644.5
$m
2,236
(15)
(4)
2,217
(105)
2,112
65
115
2,292
Number of shares
NOTE 6
Earnings per share
Basic earnings per share
Diluted earnings per share
Reconciliation of earnings used in the calculation of basic and diluted earnings per share
Profit after income tax
Profit attributable to non-controlling interests:
Macquarie Income Securities
Other non-controlling interests
Total profit attributable to ordinary equity holders of MGL
Less: profit attributable to participating unvested MEREP awards
Total earnings used in the calculation of basic earnings per share
Add back: Profit attributable to dilutive participating unvested MEREP awards
Adjusted interest expense on loan capital
Total earnings used in the calculation of diluted earnings per share
Total weighted average number of equity shares (net of treasury shares) used in the calculation
of basic earnings per share
322,475,660 321,147,160
Weighted average number of equity shares used in the calculation of diluted earnings per share:
Weighted average number of equity shares (net of treasury shares)
322,475,660 321,147,160
Potential equity shares:
Weighted average unvested MEREP awards (1)
Weighted average loan capital (2)
12,625,725
12,658,678
15,955,364
21,795,249
Total weighted average number of equity shares (net of treasury shares) and potential equity shares
used in the calculation of diluted earnings per share
351,056,749 355,601,087
(1) For details of MEREP awards, refer to Note 32 – Employee equity participation.
(2) For details of loan capital, refer to Note 26 – Loan capital.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT
114
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
NOTE 7
Receivables from financial institutions
Cash and other receivables (1)
Cash collateral on securities borrowed and reverse repurchase agreements (2)
Total receivables from financial institutions
9,722
28,837
38,559
9,464
18,007
27,471
–
–
–
–
–
–
Includes $153 million (2017: $147 million) provided as security against payables to other financial institutions.
(1)
(2) The Consolidated Entity enters into stock borrowing and reverse repurchase transactions with counterparties which require lodgement of non-cash
collateral. The fair value of collateral held as at 31 March 2018 is $28,671 million (2017: $18,205 million). For 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 that the Consolidated Entity is permitted to sell or re-pledge in the absence of default is $28,671 million (2017: $18,205 million), of which the
fair value of collateral sold or re-pledged is $11,750 million (2017: $4,629 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
Unlisted
Debt securities
Commonwealth and Foreign government securities
Corporate loans and securities
Treasury notes
Other debt securities
Commodities
Total trading portfolio assets (1)
4,494
391
5,846
1,095
611
325
2,823
15,585
12,121
11
6,310
1,758
1,061
71
5,601
26,933
–
–
–
–
–
–
–
–
(1)
Includes $2,837 million (2017: $5,200 million) pledged as collateral to secure liabilities under repurchase agreements and stock lending arrangements.
The above amounts are expected to be recovered within 12 months of the balance date by the Consolidated Entity.
NOTE 9
Investment securities available for sale
Debt securities (1)
Equity securities
Listed
Unlisted
Total investment securities available for sale
5,648
4,851
48
470
6,166
899
1,143
6,893
–
–
–
–
(1)
Includes $517 million (2017: $509 million) provided as security against payables to financial institutions.
Of the above amounts, $2,874 million (2017: $1,919 million) is expected to be recovered within 12 months of the balance date by the
Consolidated Entity.
–
–
–
–
–
–
–
–
–
–
–
–
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 115
NOTE 10
Other assets
Security settlements
Debtors and prepayments
Assets of disposal groups and interests in associates held for sale (1)
Life investment linked contracts and other unitholder assets
Income tax receivable
Other
Total other assets (2)
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
7,343
6,444
3,341
647
376
219
6,529
5,609
2,802
721
471
426
18,370
16,558
–
4
–
–
8
–
12
–
26
–
–
44
–
70
(1)
(2)
Includes $1,855 million (2017: $1,733 million) relating to an indirect investment in a gas distribution network in the United Kingdom acquired during the
financial year 31 March 2017 exclusively with an intention to sell. This investment is held in a consortium vehicle that forms part of the Consolidated
Entity. Non-controlling interest for the amounts contributed by external investors to the consortium vehicle of $1,254 million (2017: $1,171 million) are
included in Note 28 – Reserves, retained earnings and non-controlling interests.
Includes $510 million (2017: $437 million) provided as security against payables to financial institutions.
Of the above amounts, $18,019 million (2017: $15,807 million) is expected to be recovered within 12 months of the balance date by the
Consolidated Entity and $12 million (2017: $70 million) by the Company.
CONSOLIDATED 2018
CONSOLIDATED 2017
NOTE 11
Loan assets held at amortised cost
Mortgages (1)
Asset financing (1)
Corporate, commercial and other lending
Margin money placed
Investment lending
Total loan assets before collective
allowance for credit losses
Less collective allowance for credit losses
Total loan assets held at amortised cost (2)
Gross
$m
36,937
19,307
15,157
8,185
2,034
Individually
assessed
provisions for
impairment
$m
Individually
assessed
provisions for
impairment
$m
Net
$m
Gross
$m
(3)
(41)
(133)
–
–
32,791
19,772
15,928
7,376
1,670
77,537
(3)
(66)
(347)
–
(1)
(417)
36,934
19,266
15,024
8,185
2,034
81,443
(293)
81,150
81,620
(177)
Net
$m
32,788
19,706
15,581
7,376
1,669
77,120
(457)
76,663
(1)
(2)
Includes loans of $11,560 million (2017: $16,332 million) held by consolidated Special Purpose Entities (SPEs), which are available as security to note
holders and debt providers.
Includes other loans of $752 million (2017: $767 million) provided as security against payables to financial institutions.
Of the above amounts, $31,546 million (2017: $28,765 million) is expected to be recovered within 12 months of the balance date by the
Consolidated Entity.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 116
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 11
Loan assets held at amortised cost continued
Individually assessed provisions for impairment
Balance at the beginning of the financial year
Provided for during the financial year
Loan assets written off or sold, previously provided for
Recovery of loans previously provided for
Net transfer from collective provisions
Foreign exchange movements
Balance at the end of the financial year
Individually assessed provisions as a percentage of total gross loan assets
Collective allowance for credit losses
Balance at the beginning of the financial year
Reversed during the financial year
Disposal during the financial year
Net transfer to specific provisions
Foreign exchange movements
Balance at the end of the financial year
CONSOLIDATED
2018
$m
2017
$m
417
105
(325)
(27)
7
–
177
0.22%
457
(151)
(9)
(7)
3
293
413
201
(206)
(19)
30
(2)
417
0.54%
520
(20)
(7)
(30)
(6)
457
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. Finance lease receivables does not include retail products such as hire purchase, chattel mortgages and consumer loans.
CONSOLIDATED 2018
CONSOLIDATED 2017
Gross
investment
in finance
lease
receivables
$m
1,991
4,121
92
6,204
Unearned
income
$m
(206)
(419)
(16)
(641)
Present
value of
minimum
lease
payments
receivable
$m
Gross
investment
in finance
lease
receivables
$m
1,785
3,702
76
5,563
2,569
3,820
108
6,497
Present
value of
minimum
lease
payments
receivable
$m
2,302
3,384
84
5,770
Unearned
income
$m
(267)
(436)
(24)
(727)
Not later than one year
Later than one year and not later than
five years
Later than five years
Total
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 117
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
NOTE 12
Impaired financial assets
Debt investment securities available for sale before cumulative
impairment loss
Less: Cumulative impairment loss
Debt investment securities available for sale
Impaired loan assets and other financial assets before individually assessed
provisions for impairment
Less: Individually assessed provisions for impairment
Loan assets and other financial assets after individually assessed provisions
for impairment
Total impaired financial assets
NOTE 13
Other financial assets at fair value through profit or loss
Investment securities
Equity
Debt
Loan assets
41
(41)
–
630
(270)
360
360
891
103
440
49
(48)
1
1,071
(501)
570
571
869
72
561
Total other financial assets at fair value through profit or loss (1)
1,434
1,502
(1)
Includes $5 million (2017: $10 million) provided as security against payables to financial institutions.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Of the above amounts, $516 million (2017: $788 million) is expected to be recovered within 12 months of the balance date by the
Consolidated Entity.
CONSOLIDATED 2018
CONSOLIDATED 2017
NOTE 14
Property, plant and equipment
Assets for own use
Land and buildings
Furniture, fittings and leasehold improvements
Equipment
Infrastructure assets
Total assets for own use
Assets under operating lease
Aviation
Meters
Telecommunications
Rail cars
Others
Total assets under operating lease
Total property, plant and equipment
279
684
127
768
1,858
9,938
1,629
963
862
445
13,837
15,695
(19)
(498)
(95)
(71)
(683)
(2,437)
(541)
(255)
(176)
(177)
(3,586)
(4,269)
Accumulated
depreciation
and
impairment
$m
Cost
$m
Written
down
value
$m
Accumulated
depreciation
and
impairment
$m
Written
down
value
$m
(13)
(458)
(81)
(28)
(580)
265
212
33
533
1,043
(1,996)
8,171
(411)
(20)
(129)
(156)
(2,712)
(3,292)
735
188
633
239
9,966
11,009
Cost
$m
278
670
114
561
260
186
32
697
1,175
1,623
7,501
1,088
708
686
268
10,251
11,426
10,167
1,146
208
762
395
12,678
14,301
The majority of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 118
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 14
Property, plant and equipment continued
Movement in the Consolidated Entity’s property, plant and equipment at their written down value:
Assets for own use
Balance as at 1 April 2016
Acquisitions
Disposals
Foreign exchange movements
Depreciation expense
Balance as at 31 March 2017
Acquisitions
Disposals
Reclassification and other adjustments
Impairments
Foreign exchange movements
Depreciation expense
Balance as at 31 March 2018
Furniture,
fittings and
leasehold
improvements
$m
Land and
buildings
$m
Equipment
$m
Infrastructure
assets
$m
269
3
(2)
–
(5)
265
7
(1)
(5)
–
–
(6)
260
224
74
(15)
(3)
(68)
212
53
(10)
(1)
–
4
(72)
186
44
17
(1)
–
(27)
33
23
(1)
–
–
1
(24)
32
427
182
–
(60)
(16)
533
153
(12)
17
(21)
55
(28)
697
Total
$m
964
276
(18)
(63)
(116)
1,043
236
(24)
11
(21)
60
(130)
1,175
Included in the balance of assets for own use are assets pledged as security against payables to 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 $50 million (2017: $14 million).
Assets under operating lease
Balance as at 1 April 2016
Acquisitions
Disposals
Reclassification and other adjustments
Impairments
Foreign exchange movements
Depreciation expense (Note 2)
Balance as at 31 March 2017
Acquisitions
Disposals
Reclassification and other adjustments
Impairments
Foreign exchange movements
Depreciation expense (Note 2)
Balance as at 31 March 2018
Aviation
$m
Meters
$m
Telecom-
munications
$m
8,879
43
(256)
1
(19)
44
(521)
8,171
7
(104)
(42)
(12)
(42)
(477)
7,501
690
272
–
(33)
–
(91)
(103)
735
438
–
(48)
–
94
(131)
1,088
2
206
–
–
–
–
(20)
188
847
(65)
–
–
–
(262)
708
Rail cars
$m
726
3
–
–
–
(68)
(28)
633
–
–
–
–
82
(29)
686
Other
$m
260
46
(14)
1
–
(1)
(53)
239
110
(14)
(1)
–
1
(67)
268
Total
$m
10,557
570
(270)
(31)
(19)
(116)
(725)
9,966
1,402
(183)
(91)
(12)
135
(966)
10,251
Included in the balance of assets under operating leases are assets pledged as security against payables to 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 $2,765 million (2017: $3,028 million).
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 119
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
Later than one year and not later than five years
Later than five years
Total future minimum lease payments receivable
NOTE 15
Interests in associates and joint ventures
Loans and investments without provisions for impairment
Loans and investments with provisions for impairment
Less provisions for impairment
Loans and investments with provisions for impairment at recoverable amount
Total interests in associates and joint ventures (1),(2)
CONSOLIDATED
2018
$m
1,455
2,336
314
4,105
2017
$m
1,130
2,508
531
4,169
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
3,440
950
(335)
615
4,055
1,998
241
(144)
97
2,095
–
–
–
–
–
–
–
–
–
–
(1)
Includes $2,854 million (2017: $1,690 million) relating to interests in associates and $1,201 million (2017: $405 million) relating to interests in joint
ventures.
(2) Financial statements of associates and joint ventures have various reporting dates. There are no associates or joint ventures individually material to the
Consolidated Entity.
All of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity.
NOTE 16
Intangible assets
Goodwill
Cost
Less accumulated impairment loss
Total goodwill
Intangible assets with indefinite lives
Cost
Less accumulated impairment loss
Total intangible assets with indefinite lives
Customer and servicing contracts
Cost
Less accumulated amortisation and impairment loss
Total customer and servicing contracts
Other identifiable intangible assets
Cost
Less accumulated amortisation and impairment loss
Total other identifiable intangible assets
Total intangible assets
685
(216)
469
269
–
269
180
(140)
40
499
(284)
215
993
605
(163)
442
270
–
270
176
(124)
52
466
(221)
245
1,009
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The majority of the above amounts are expected to be recovered after 12 months of the balance date by the Consolidated Entity.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 120
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 16
Intangible assets continued
Movement in Consolidated Entity’s intangible assets at their written down value:
Balance as at 1 April 2016
Acquisitions
Disposals, reclassifications and other adjustments
Impairments
Amortisation
Foreign exchange movements
Balance as at 31 March 2017
Acquisitions
Disposals, reclassifications and other adjustments
Impairments
Amortisation(1)
Foreign exchange movements
Balance as at 31 March 2018
Intangible
assets with
indefinite lives
$m
Customer
and servicing
contracts
$m
Goodwill
$m
Other
identifiable
intangible
assets
$m
525
12
(25)
(62)
–
(8)
442
81
(19)
(39)
–
4
469
270
–
–
–
–
–
270
–
–
–
–
(1)
269
67
20
(18)
–
(17)
–
52
7
(1)
–
(16)
(2)
40
216
112
(45)
(19)
(18)
(1)
245
131
(100)
(5)
(61)
5
215
Total
$m
1,078
144
(88)
(81)
(35)
(9)
1,009
219
(120)
(44)
(77)
6
993
(1) The balance includes amortisation of $36m which is included in Net trading income.
Goodwill and Intangible assets with indefinite lives:
Goodwill and Intangible assets with indefinite lives are tested for impairment by comparing the carrying amount of Cash Generating Unit
(CGU) or a group of CGUs to the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use.
Intangible assets with indefinite lives are considered indefinite as the underlying income stream is related to the management of funds that
have no defined end date and are expected to operate perpetually.
Fair value less costs to sell is estimated with market based approaches using revenues, earnings and assets under management multiples
based on a trading statistics of companies deemed comparable and publicly available information relevant to the business.
Value in use is calculated using pre-tax cashflow projections for fee revenue, net income and operating expenses. Forecasts are
extrapolated using a growth rate and discounted using a discount rate incorporating market risk determinants, adjusted for specific risks
related to the CGU and the environment in which it operates.
NOTE 17
Investments in subsidiaries
Investments at cost without provisions for impairment
Investments at cost with provisions for impairment
Less provisions for impairment (1)
Investments with provisions for impairment at recoverable amount
Total investments in subsidiaries
COMPANY
2018
$m
2017
$m
13,384
17,209
(5,246)
11,963
25,347
13,382
17,208
(7,946)
9,262
22,644
(1) During the financial year the Company recognised an impairment reversal of $2,700 million (2017: $2,300) as a consequence of the continued
improvement in the performance of its subsidiary, Macquarie Financial Holdings Pty Limited (Australia). The recoverable amount has been estimated using
valuation techniques which incorporate the subsidiary’s consolidated earnings and relevant earnings multiples.
The above amounts are expected to be recovered after 12 months of the balance date by the Company.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 121
NOTE 17
Investments in subsidiaries continued
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:
– Macquarie (UK) Group Services Limited (United Kingdom)
– Macquarie Agricultural Funds Management Limited (Australia)
– Macquarie B.H. Pty. Ltd (Australia)
– Macquarie Bank International Limited (United Kingdom)
– Macquarie Bank Limited (Australia)
– Macquarie Capital (Australia) Limited (Australia)
– Macquarie Capital (Europe) Limited (United Kingdom)
– Macquarie Capital (Singapore) Pte. Limited (Singapore)
– Macquarie Capital (USA) Inc (United States)
– Macquarie Capital Limited (Hong Kong)
– Macquarie Capital Markets Canada Ltd. (Canada)
– Macquarie Capital Securities (India) Private Limited (India)
– Macquarie Capital Securities (Singapore) Pte. Limited (Singapore)
– Macquarie Commodities (UK) Limited (United Kingdom)
– Macquarie Commodities Brasil S/A (Brazil)
– Macquarie Corporate Holdings Pty Limited (Australia)
– Macquarie Emerging Markets Asian Trading Pte Limited (Singapore)
– Macquarie Energy Canada Limited (Canada)
– Macquarie Energy LLC (United States)
– Macquarie Equities Limited (Australia)
– Macquarie Euro Limited (United Kingdom)
– Macquarie Finance Limited (Australia)
– Macquarie Financial Holdings (USA) LLC (United States)
– Macquarie Financial Holdings Pty Limited (Australia)
– Macquarie Financial Products Management Limited (Australia)
– Macquarie Futures (Singapore) Pte. Limited (Singapore)
– Macquarie Futures USA LLC (United States)
– Macquarie Group investments (UK) No.2 Limited (United Kingdom)
– Macquarie Group Services Australia Pty Limited (Australia)
– Macquarie Holdings (USA) Inc. (United States)
– Macquarie Inc. (United States)
– Macquarie Infrastructure and Real Assets (Europe) Limited
(United Kingdom)
– Macquarie Infrastructure and Real Assets Inc. (United States)
– Macquarie Infrastructure Management (USA) Inc. (United States)
– Macquarie International Finance Limited (Australia)
– Macquarie Investment Holdings No.2 Pty. Limited (Australia)
– Macquarie Investment Management Australia Limited (Australia)
– Macquarie Investment Management Global Limited (Australia)
– Macquarie Investment Management Limited (Australia)
– Macquarie Investments (UK) Limited (United Kingdom)
– Macquarie Leasing Pty. Limited (Australia)
– Macquarie Management Holdings, Inc. (United States)
– Macquarie Physical Metals (USA) Inc. (United States)
– Macquarie Private Debt Europe Limited (Ireland)
– Macquarie Securities (Australia) Limited (Australia)
– Macquarie Securities (NZ) Limited (New Zealand)
– Macquarie Securities (Thailand) Limited
– Macquarie Securities Korea Limited (Republic of Korea)
– Macquarie Securities South Africa Limited (South Africa)
– Macquarie Securitisation Limited (Australia)
– Macquarie Specialised Asset Management Limited (Australia)
– MIF Holdings Limited (United Kingdom)
– Delaware Investments Management Company, LLC (United States)
The country of incorporation has been stated in brackets next to the name of the subsidiary.
Overseas subsidiaries conduct business predominantly in their place of incorporation, unless otherwise stated.
Beneficial interest in all material subsidiaries is 100%.
All material subsidiaries have a 31 March reporting date.
In accordance with ASIC instruments 13-0151, 13-0394, 15-0518, 16-0119 and 18-0145, the Consolidated Entity has been granted relief
under section 340 of the Act from synchronising the year-end of the following consolidated entities to 31 March:
– Macquarie Mexico Real Estate Management, S.A. de C.V.
– Texas Municipal Gas Acquisition and Supply Corporation III
– Macquarie Energy Mexico, S. de R.L. de C.V. (formerly Macquarie Gas de Sonora S. De R.L. de C.V.)
– Comercializadora Energia de la Reforma S. de R.L. de C.V
– Macquarie Servicios Electricos de Mexico S. de R.L. de C.V.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 122
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 18
Deferred tax assets/(liabilities)
The balance comprises temporary differences attributable to:
Other assets and liabilities
Tax losses
Investments
Fixed assets
Leasing and financial instruments
Intangibles
Set-off of deferred tax liabilities
Net deferred tax assets
Leasing and financial instruments
Other assets and liabilities
Intangible assets
Investments
Fixed assets
Set-off of deferred tax assets
Net deferred tax liabilities
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
810
403
121
156
37
18
(895)
650
(1,082)
(432)
(77)
(33)
(20)
895
(749)
1,046
421
143
173
7
23
(1,175)
638
(1,092)
(336)
(137)
(219)
(12)
1,175
(621)
–
24
–
–
–
–
(5)
19
–
(5)
–
–
–
5
–
–
28
–
–
–
–
(2)
26
–
(2)
–
–
–
2
–
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 $312 million (2017: $282 million) attributable to tax losses carried forward by subsidiaries and
other timing differences have not been brought to account in the Consolidated Entity as the Directors do not believe the realisation
of the tax assets is probable. Included in this amount are gross losses of $32 million (2017: $30 million) that will expire within 2 years,
$95 million (2017: $87 million) that will expire in 2 – 5 years, $50 million (2017: $69 million) that will expire in 5 – 10 years and $231 million
(2017: $201 million) that will expire in 10 – 20 years. $918 million (2017: $776 million of gross losses) do not expire and can be carried
forward indefinitely.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 123
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
7,663
4,404
328
70
8,061
592
71
5,067
38,606
7,133
11,017
2,656
59,412
6,993
3,493
3,329
846
640
523
262
38,551
7,154
10,182
1,821
57,708
6,588
3,112
3,103
782
714
520
212
16,086
15,031
–
–
–
–
–
24
–
–
24
–
70
14
–
–
–
–
–
–
–
–
11
–
–
11
–
71
7
–
–
–
112
196
82
160
10,057
5,383
15,440
10,125
6,947
17,072
3,191
–
3,191
2,413
–
2,413
NOTE 19
Trading portfolio liabilities
Equity securities
Debt Securities
Foreign government securities
Corporate securities
Total trading portfolio liabilities
NOTE 20
Deposits
Interest bearing deposits
Call
Term
Client monies, segregated fund and margin money held
Non-interest bearing call deposits
Total deposits
NOTE 21
Other liabilities
Security settlements
Accrued charges, income received in advance and other liabilities
Creditors
Aircraft and rail maintenance liabilities
Life investment linked contracts and other unitholder liabilities
Liabilities of disposal groups classified as held for sale
Income tax payable
Total other liabilities
NOTE 22
Payables to financial institutions
Borrowings from banks
Cash collateral on securities lent and repurchase agreements
Total payables to financial institutions
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 124
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 23
Debt issued at amortised cost
Debt issued at amortised cost (1)
Total debt issued at amortised cost
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
53,717
53,717
50,828
50,828
12,177
12,177
5,746
5,746
(1)
Includes issued to SPE note holders and debt holders of $8,979 million (2017: $13,430 million).The Consolidated Entity has not had any defaults of
principal, interest or other breaches with respect to its debt during the financial years reported.
Reconciliation of debt issued at amortised cost by major currency
(In Australian dollar equivalent)
United States dollar
Australian dollar
Euro
Swiss franc
Japanese yen
Great British pound
Yuan renminbi
Norwegian krone
Hong Kong dollar
Canadian dollar
Korean won
South African rand
Singapore dollar
Total
30,861
13,093
5,742
1,487
1,029
727
225
163
152
126
112
–
–
25,536
14,887
5,650
1,912
1,222
767
218
153
222
125
107
17
12
9,922
1,011
797
–
447
–
–
–
–
–
–
–
–
5,236
7
–
–
503
–
–
–
–
–
–
–
–
53,717
50,828
12,177
5,746
The Consolidated Entity’s and the Company’s primary sources of domestic and international debt funding are their multi-currency,
multi-jurisdictional Debt Instrument Program and domestic Negotiable Certificate of Deposits (NCD) issuance.
NOTE 24
Other debt issued at fair value through profit or loss
Structured notes (1),(2)
Total other debt issued at fair value through profit or loss
2,363
2,363
2,404
2,404
–
–
–
–
(1)
(2)
Includes debt instruments on which the return is linked to commodities, equities, currencies, interest rates or other assets.
Includes cumulative fair value gain of $25 million (2017: $12 million loss) due to changes in the Consolidated Entity’s credit risk.
The amount that would be contractually required to be paid at maturity to the holders of the financial liabilities designated at fair value
through profit or loss for the Consolidated Entity is $3,193 million (2017: $3,183 million).
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 125
NOTE 24
Other debt issued at fair value through profit or loss continued
Reconciliation of other debt issued at fair value through profit or loss by major currency
(In Australian dollar equivalent)
United States dollar
South African rand
Australian dollar
Others
Total
CONSOLIDATED
COMPANY
2018
$m
1,901
371
70
21
2017
$m
1,812
513
56
23
2,363
2,404
2018
$m
2017
$m
–
–
–
–
–
–
–
–
–
–
NOTE 25
Capital management strategy
The Consolidated Entity’s and Company’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.
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
(IRRBB).
The Consolidated Entity’s capital management objectives are to:
– continue to support the Consolidated Entity’s credit rating
– ensure sufficient capital resources to support the Consolidated
Entity’s business and operational requirements
– maintain sufficient capital to exceed externally imposed capital
requirements
– 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,
the Consolidated Entity has developed an Economic Capital
Adequacy Model (ECAM) that is used to quantify the Consolidated
Entity’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 the Consolidated Entity’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.
The Consolidated Entity is subject to minimum capital requirements
externally imposed by APRA.
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, other bank
entities excluded from Level 2 plus the non-bank group.
As an APRA authorised and regulated Non-Operating Holding
Company (NOHC), the Company is required to maintain minimum
regulatory capital calculated as the sum 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 financial year.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 126
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 26
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 with conditional repayment obligations
are discussed below.
Macquarie Group Capital Notes (MCN)
On 7 June 2013, the Company issued 6 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 all MCN
were exchanged at 31 March 2018 would be 5,800,733 (31 March
2017: 6,879,235). 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% per annum, adjusted
for franking credits, paid semi-annually in arrears. 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 has announced that it intends to redeem MCN
in June 2018. An offer of MCN3 hybrid securities, including a
rollover offer for MCN holders and a security holder offer will be
launched subsequent to 31 March 2018.
Macquarie Group Capital Notes 2 (MCN2)
On 18 December 2015, the Company issued 5.3 million MCN2 at
face value of $100 each. These instruments are non-cumulative and
unsecured and may be redeemed at face value on 17 March 2021,
17 September 2021 or 17 March 2022 (subject to certain
conditions being satisfied) or earlier in specified circumstances at
the discretion of the Company, subject to APRA’s written approval.
MCN2 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
18 March 2024. The MCN2 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, MCN2 Holders will receive up to
approximately $101 worth of ordinary shares per MCN2 held.
The total number of ordinary shares that would be issued if all
MCN2 were exchanged at 31 March 2018 would be 5,133,572
(31 March 2017: 6,088,032). The maximum number of ordinary
shares that can be issued on an exchange is 32,644,295.
The MCN2 pay discretionary, floating rate cash distributions equal
to 180-day BBSW plus a fixed margin of 5.15% per annum,
adjusted for franking credits, paid semi-annually in arrears. If interest
is not paid on the MCN2, the Company will be restricted from
paying dividends or returning capital on ordinary shares until the
next interest payment date.
Macquarie Bank Capital Notes (BCN)
On 8 October 2014, MBL, 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 MBL, 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 MBL 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 MGL ordinary shares per BCN held.
The total number of ordinary shares that would be issued if all
BCN were exchanged at 31 March 2018 would be 4,151,492
(31 March 2017: 4,923,360). 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% per annum, adjusted
for franking credits, paid semi-annually in arrears. If interest is not
paid on the BCN, MBL will be restricted from paying dividends
or returning capital on MBL ordinary shares until the next interest
payment date.
Macquarie Additional Capital Securities (MACS)
On 8 March 2017, MBL, acting through its London Branch, issued
$US750 million of MACS.
The MACS, being unsecured subordinated notes, pay discretionary,
non-cumulative interest of 6.125% per annum, payable semi-
annually in arrears, with the rate to be reset on the tenth anniversary
(and each fifth anniversary thereafter), if the MACS remain
outstanding after this time. If interest is not paid on the MACS, MBL
will be restricted from paying dividends or returning capital on its
ordinary shares until the next interest payment date.
The MACS may be exchanged on an acquisition event (where a
person acquires control of MBL or MGL), where MBL’s common
equity Tier 1 capital ratio falls below 5.125%, 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 MGL ordinary shares
will be issued at a 1% 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 MACS were exchanged during the financial year. The total
number of MGL ordinary shares that would be issued if all
MACS were exchanged at 31 March 2018 would be 9,469,528
(31 March 2017: 11,189,774). The maximum number of ordinary
shares that can be issued on an exchange is 56,947,286.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 127
NOTE 26
Loan capital continued
The MACS 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 MACS.
Exchangeable Capital Securities (ECS)
On 26 March 2012, MBL, acting through its London Branch, issued
$US250 million of ECS. During the current financial year, MBL
bought back ECS and extinguished the entire $US250 million.
Under their terms, the ECS, were unsecured subordinated notes,
paid discretionary, non-cumulative interest of 10.25% per annum,
payable semi-annually in arrears.
The ECS were exchangeable for a variable number of fully paid
ordinary shares of the Company.
No ECS were exchanged during the period before their buyback.
Maturity of Loan Capital:
Accrued Interest payable as per terms of instruments:
Less than 12 months
Subordinate debt instruments with fixed repayment obligations:
30 May 2019
21 September 2020
7 April 2021
10 June 2025
Instruments with conditional repayment obligations:
MCN
MCN2
BCN
MACS
ECS
Less directly attributable issue cost
Total loan capital (1)
Reconciliation of loan capital by major currency:
(In Australian dollar equivalent)
United States dollar
Australian dollar
Euro
Less directly attributable issue cost
Total loan capital (1)
(1) The balance includes fair value hedge accounting adjustments.
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
86
94
11
11
1
773
1,088
930
600
531
430
976
–
5,415
(23)
5,392
3,047
1,572
796
5,415
(23)
5,392
1
689
1,149
978
600
531
430
980
327
5,779
(31)
5,748
3,498
1,572
709
5,779
(31)
5,748
–
–
–
–
600
531
–
–
–
1,142
(7)
1,135
–
1,142
–
1,142
(7)
1,135
–
–
–
–
600
531
–
–
–
1,142
(12)
1,130
–
1,142
–
1,142
(12)
1,130
The Consolidated Entity and the Company have not had any defaults of principal, interest or other breaches with respect to their loan capital
during the financial years reported.
In accordance with APRA guidelines, the Consolidated Entity includes the BCN, ECS and MACS as Additional Tier 1 capital and the
applicable portion of the remaining loan capital as Tier 2 capital.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 128
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
2018
Number
of shares
2017
Number
of shares
Notes
2018
$m
2017
$m
NOTE 27
Contributed equity
Ordinary share capital (1)
Opening balance of fully paid ordinary shares
Issue of shares on exercise of MEREP awards
Issue of shares on retraction of exchangeable shares
For employee MEREP awards:
Transfer of MEREP expense from share-based payments
reserve on vesting of MEREP awards
Transfer of additional deferred tax benefit on MEREP expense
from share based payments reserve on vesting of MEREP awards
Transfer from treasury shares for awards
withdrawn/exercised
Transfer from share-based payments capital reduction reserve on
vested and forfeited awards
28
28
28
340,351,731 340,302,389
7,467
7,446
CONSOLIDATED
–
13,089
19,126
30,216
–
–
–
–
–
–
–
–
–
1
293
40
1
2
277
39
(296)
(284)
(7)
7,498
(14)
7,467
Closing balance of fully paid ordinary shares
340,364,820 340,351,731
Treasury shares (2),(3)
Opening balance
Purchase of shares for employee MEREP awards
Transfer to ordinary share capital for awards withdrawn/exercised
Sale of shares for cash settled awards by MEREP Trust
Purchase of shares for allocation under DRP scheme
Allocation of shares under DRP scheme
Purchase of shares for allocation under ESP scheme
Allocation of shares under ESP scheme
Valuation adjustment on treasury shares
Closing balance of treasury shares
Exchangeable shares (4)
Opening balance
Retraction of exchangeable shares
Closing balance of exchangeable shares
Contributed equity
(19,300,529)
(20,053,879)
(1,187)
(1,036)
(4,182,548)
(6,045,273)
5,642,962
6,791,529
–
7,094
(1,501,424)
(1,550,824)
1,501,424
1,550,824
(11,090)
11,090
–
(10,670)
10,670
–
(373)
296
–
(140)
140
(1)
1
–
(433)
284
–
(121)
121
(1)
1
(2)
(17,840,115)
(19,300,529)
(1,264)
(1,187)
138,835
(13,867)
124,968
170,846
(32,011)
138,835
10
(1)
9
12
(2)
10
6,243
6,290
(1) Ordinary shares have no par value.
(2)
Under MEREP, a portion of staff retained profit share is held in MGL ordinary shares by the MEREP Trust and presented as Treasury shares. The
Consolidated Entity has resolved to purchase additional Treasury shares to satisfy MEREP requirements of approximately $460 million commencing on
14 May 2018. Ordinary shares will be issued if purchasing becomes impractical or inadvisable. For further information regarding terms and conditions of
MEREP refer to Note 32 – Employee equity participation.
(3) During the year, the Board approved an on-market buyback of up to $1 billion. As at 31 March 2018, no shares were purchased as part of this approval.
The buyback program remains in place.
(4) The exchangeable shares were issued by subsidiaries 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 the terms of the original agreement, they were eligible
to be exchanged on a one-for-one basis for shares in the Company (subject to staff trading restrictions) or cash at the Company’s discretion and will
pay dividends equal to the Company’s dividends during their legal life. However, subsequent to the approval of consolidation of the Company’s ordinary
shares by the Company’s shareholders on 12 December 2013, the terms of the agreement have been modified to a 0.9438-for-one basis for shares in
the Company.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
129
2018
Number
of shares
2017
Number
of shares
Notes
2018
$m
2017
$m
340,351,731
340,302,389
10,120
10,135
–
13,089
19,126
30,216
–
1
1
2
COMPANY
28
28
28
–
–
–
–
–
–
–
–
293
277
2
3
(296)
(284)
(7)
NOTE 27
Contributed equity continued
Ordinary share capital(1)
Opening balance of fully paid ordinary shares
Issue of shares on exercise of MEREP awards
Issue of shares on retraction of exchangeable shares
For employee MEREP awards:
Transfer of MEREP expense from share-based payments
reserve on vesting of MEREP awards
Transfer of additional deferred tax benefit on MEREP
expense from share-based payments reserve on vesting
of MEREP awards
Transfer from treasury shares for awards withdrawn/
exercised
Transfer from share-based payments capital reduction
reserve on vested and forfeited awards
Closing balance of fully paid ordinary shares
340,364,820
340,351,731
10,113
Treasury shares (2),(3)
Opening balance
Purchase of shares for employee MEREP awards
Transfer to ordinary share capital for awards
withdrawn/exercised
Sale of shares for cash settled awards by MEREP Trust
Closing balance of treasury shares
Contributed equity
(19,300,529)
(20,053,879)
(4,182,548)
(6,045,273)
5,642,962
6,791,529
–
7,094
(17,840,115)
(19,300,529)
(1,187)
(373)
296
–
(1,264)
8,849
(14)
10,120
(1,038)
(433)
284
–
(1,187)
8,933
(1) Ordinary shares have no par value.
(2) Under MEREP, a portion of staff retained profit share is held in MGL ordinary shares by the MEREP Trust and presented as Treasury shares. The
Consolidated Entity has resolved to purchase additional Treasury shares to satisfy MEREP requirements of approximately $460 million commencing on
14 May 2018. Ordinary shares will be issued if purchasing becomes impractical or inadvisable. For further information regarding terms and conditions of
MEREP refer to Note 32 – Employee equity participation.
(3) During the year, the Board approved an on-market buyback of up to $1 billion. As at 31 March 2018, no shares were purchased as part of this approval.
The buyback program remains in place.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT
130
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 28
Reserves, retained earnings and non-controlling interests
Reserves
Foreign currency translation reserve
Balance at the beginning of the financial year
Exchange differences on translation of foreign operations, net of hedge and tax
Balance at the end of the financial year
Available for sale reserve
Balance at the beginning of the financial year
Revaluation movements for the current year, net of tax
Transfer to income statement on:
Impairment, net of tax
Sale or reclassification, net of tax
Balance at the end of the financial year
Share-based payments reserve
Balance at the beginning of the financial year
MEREP expense for the financial year
Additional deferred tax benefit on MEREP expense
MEREP issued to employees of subsidiaries (Note 30)
Transfer to ordinary share capital on vesting of MEREP awards
Transfer of additional deferred tax benefit to ordinary share capital
on vesting of MEREP awards
Balance at the end of the financial year
Share-based payments capital reduction reserve
Balance at the beginning of the financial year
Transfer to ordinary share capital on vested and forfeited awards
Balance at the end of the financial year
Cash flow hedging reserve
Balance at the beginning of the financial year
Revaluation movement for the financial year, net of tax
Balance at the end of the financial year
Share of reserves of interests in associates and joint ventures
Balance at the beginning of the financial year
Share of other comprehensive (expense)/income of associates and
joint ventures during the year, net of tax
Balance at the end of the financial year
Total reserves at the end of the financial year
Retained earnings
Balance at the beginning of the financial year
Profit attributable to ordinary equity holders of MGL
Dividends paid on ordinary share capital (Note 5)
Loss on change in non-controlling ownership interest
Fair value changes attributable to own credit risk on other debt
issued at fair value though profit or loss, net of tax
Balance at the end of the financial year
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
248
127
375
393
(129)
16
(263)
17
877
383
37
–
(293)
(40)
964
(19)
7
(12)
(103)
54
(49)
–
2
2
377
(129)
248
555
129
32
(323)
393
754
382
57
–
(277)
(39)
877
(33)
14
(19)
(118)
15
(103)
1
(1)
–
–
–
–
–
–
–
–
–
823
–
3
383
(293)
(2)
914
(19)
7
(12)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
719
–
2
382
(277)
(3)
823
(33)
14
(19)
–
–
–
–
–
–
1,297
1,396
902
804
7,877
2,557
(1,649)
(5)
37
8,817
7,158
2,217
(1,462)
(6)
(30)
7,877
12,607
4,357
(1,635)
–
–
10,047
4,009
(1,449)
–
–
15,329
12,607
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 131
NOTE 28
Reserves, retained earnings and non-controlling interests continued
Non-controlling interests
Macquarie Income Securities
The MIS issued by MBL, a subsidiary, are redeemable (in whole or in part) at MBL’s discretion. Interest is paid quarterly at a floating rate
of BBSW plus 1.7% per annum (2017: 1.7% 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.
CONSOLIDATED
COMPANY
Macquarie Income Securities
4,000,000 Macquarie Income Securities of $100 each
Less transaction costs for original placement
Total Macquarie Income Securities
Other non-controlling interests (1)
Share capital and partnership interests (2)
Foreign currency translation reserve
Accumulated losses
Total other non-controlling interests
Total non-controlling interests
2018
$m
400
(9)
391
1,352
124
(44)
1,432
1,823
2017
$m
400
(9)
391
1,360
(12)
(32)
1,316
1,707
2018
$m
2017
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1) Other non-controlling interests represents equity in a subsidiary that is not attributable, directly or indirectly, to the parent company. As such, it is ineligible
(2)
to absorb losses arising elsewhere within the Consolidated Entity.
Includes non-controlling interest of $1,254 million (2017: $1,171 million) representing amounts contributed by external investors to a consortium vehicle
that forms part of the Consolidated Entity. The consortium vehicle holds an indirect investment in a gas distribution network in the United Kingdom that is
classified by the Consolidated Entity as held for sale, as disclosed in Note 10 - Other assets.
NOTE 29
Notes to the statements of cash flows
Reconciliation of cash and cash equivalents
Cash and cash equivalents at the end of the financial year are reflected in the related items in the statements of financial position as follows:
Receivables from financial institutions (1)
Trading portfolio assets (2)
Debt investment securities available for sale (3)
Loan assets held at amortised cost (4)
9,381
612
1,197
1,815
9,135
1,102
324
1,193
Cash and cash equivalents at the end of the financial year (5)
13,005
11,754
–
–
–
–
–
–
–
–
–
–
Includes cash at bank, overnight cash at bank, other loans to banks and amounts due from clearing houses.
Includes certificates of deposit, bank bills, treasury notes and other short-term debt securities.
Includes short-term debt securities.
Includes margin balances at call.
(1)
(2)
(3)
(4)
(5) Cash and cash equivalents include $4,479 million (2017: $5,173 million) in escrow accounts which are restricted for use or held by collateralised
securitisation vehicles in segregated deposit fund.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 132
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 29
Notes to the statements of cash flows continued
Reconciliation of profit after income tax to net cash flows from/
(used in) operating activities
Profit after income tax
Adjustments to profit after income tax:
Depreciation and amortisation
Unrealised foreign exchange and fair value movement on financial assets
and liabilities
Credit losses and impairment charges
Impairment reversal of investment in subsidiary
Investment income and gain on sale of operating lease assets and other
non-financial assets
Share-based payments expense
Share of net profit of associates and joint ventures
Changes in assets and liabilities:
Change in carrying values of associates and joint ventures due to
dividends received
Change in net interest payable and receivable
Change in fees and non-interest income receivable
Change in fees and commissions payable
Change in tax balances
Change in operating lease assets
Change in loan assets and balances with related entities
Change in margin money placed
Change in debtors, prepayments, accrued charges and creditors
Change in net trading portfolio assets and liabilities and net derivative
financial instruments(1)
Change in amounts due to financial institutions and other borrowings
Change in deposits
Change in debt issued at amortised cost
Net cash flows from/(used in) operating activities
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
2,581
2,236
4,357
4,009
1,172
(32)
408
–
(1,122)
383
(241)
175
(18)
(459)
(47)
401
(1,202)
(3,610)
(184)
259
1,805
182
1,499
2,500
4,450
876
(618)
488
–
(1,334)
382
(51)
113
134
40
(57)
147
(320)
1,013
(1,104)
602
2,746
(4,259)
5,561
(12,303)
(5,708)
–
(118)
–
(2,700)
–
–
–
–
29
–
–
(188)
–
(6,712)
–
–
26
854
13
6,447
2,008
–
21
–
(2,300)
–
–
–
–
62
–
–
(255)
–
1,522
–
–
7
(434)
3
(753)
1,882
(1)
Includes unrealised foreign exchange movements relating to derivatives which largely offsets the unrealised foreign exchange movements on financial
assets and liabilities.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
133
NOTE 30
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 and the provision of guarantees. 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 Consolidated Entity, 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) – Taxation. Due from subsidiaries in the Company’s separate statement of financial position includes the amount of
current tax asset assumed by MGL as the head entity and amount receivable by the Company under the tax funding agreement of the tax
consolidated group.
The following income/(expense) resulted from transactions with subsidiaries during the financial year(1):
Interest income
Interest expense
Fee and commission income
Dividends and distributions (Note 2)
The following balances with subsidiaries were outstanding
as at financial year end (2):
Amounts receivable
Amounts payable
CONSOLIDATED
COMPANY
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
–
–
–
–
2018
$’000
479,042
(52,391)
9,359
2017
$’000
445,826
(57,720)
9,747
1,730,000
1,787,000
17,269,299
10,009,030
(843,162)
(944,584)
(1) Share based payments to employees of subsidiaries (Note 28) expensed during the financial year is $383,243 thousand (2017: $382,280 thousand).
(2) As described in Note 1(xxii) – Performance based remuneration, the Company has a liability as at 31 March 2018 of $418,599 thousand (2017: $398,731
thousand) for amounts received in advance as at 31 March 2018 from subsidiaries for MEREP offered to their employees net of share-based payment
expense recognised 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.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 134
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 30
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 unrealised transactions undertaken
with associates and joint ventures are eliminated in the consolidated income statement to the extent of ownership interests held by the
Consolidated Entity.
Balances arising from lending and borrowing activities between the Consolidated Entity and its associates and joint ventures are typically
extended on a term basis and where appropriate may be either subordinated or collateralised.
During the financial year, the following amounts of income/(expense) resulted from transactions with associates and joint ventures:
Interest income
Fee and commission income(1)
Brokerage, commission and trading-related expenses
Dividends and distributions (2)
Other (expense)/income
CONSOLIDATED
COMPANY
2018
$’000
146,136
1,003,976
(10,410)
181,000
(12,321)
2017
$’000
73,523
609,157
(9,482)
112,599
2,220
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
–
–
Includes $449,250 thousand (2017: $90,863 thousand) performance fees earned from the Consolidated Entity’s associates.
(1)
(2) Dividends and distributions are shown as gross amounts. Under the equity method, these amounts are not included as income but are recorded as a
reduction from 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):
Amounts receivable
Amounts payable
Undrawn Commitments(3)
854,947
463,890
(32,268)
(681,371)
(14,591)
(245,695)
–
–
–
–
–
–
(3) Undrawn commitments are included in Note 33: Contingent liabilities and commitments.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 135
NOTE 31
Key Management Personnel disclosure
Key Management Personnel
The following persons were Directors of the Company during the financial years ended 31 March 2018 and 31 March 2017,
unless indicated.
Executive Voting Director (1)
N.W. Moore
Non-Executive Directors
P.H. Warne (2)
G.R. Banks AO
G.M. Cairns
M.J. Coleman
P.A. Cross
D.J. Grady AM
M. J. Hawker AM
G.R. Stevens AC
N.M. Wakefield Evans
CEO
Chairman
(appointed effective 1 November 2017)
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 2018 and 31 March 2017, unless otherwise indicated.
Current Executives (1)
T.C. Bishop
B.A. Brazil
A.J. Downe
G.A. Farrell
A. Harvey
N. O’Kane
M.J. Reemst
N. Sorbara
P.C. Upfold(3)
G.C. Ward
S. Wikramanayake
Former Executives
S.D Allen
M. McLaughlin
Head of Macquarie Capital
Co-Head of CAF
Head of CGM
Co-Head of CAF
CFO, Head of FMG (appointed effective 1 January 2018)
Head of CMF (appointed effective 15 June 2017)
Macquarie Bank CEO
COO, Head of COG
CRO, Head of RMG
Deputy Managing Director and Head of BFS
Head of MAM
Former CRO, Head of RMG (ceased to be a member of the Executive Committee on
31 December 2017)
Former Country Head, United States of America (ceased to be a member of the Executive
Committee on 15 June 2017)
S. Vrcelj
Former Head of MSG (ceased to be a member of the Executive Committee on 29 November 2016)
The remuneration arrangements for all of the persons listed above are described on pages 56 to 63 of the Remuneration Report, contained
in the Directors’ Report.
(1) Except where otherwise indicated, the CEO and all current Executives are members of the Consolidated Entity’s Executive Committee as at 4 May 2018.
(2) P.H. Warne commenced as Chairman of the MGL Board effective 1 April 2016.
(3) P.C. Upfold was an Executive KMP for FY2018 but changed roles during the year, commencing as CRO, Head of RMG on 1 January 2018. He was
formerly CFO, Head of FMG.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT
136
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 31
Key Management Personnel disclosure continued
Key Management Personnel remuneration
The following tables detail the aggregate remuneration for 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
2018
2017
9,152,206
40,246,664
9,661,034
37,547,256
Non-Executive Remuneration
2018
2017
3,618,083
3,491,914
–
–
–
–
–
49,398,870
18,440,174
46,507,506
22,134,653 136,481,203
47,208,290
14,423,080
40,720,130
24,110,081 126,461,581
3,618,083
3,000
3,494,914
–
–
–
–
–
–
3,618,083
3,494,914
(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 held via the Post-2009 DPS plan including earnings on notional investments from retained profit share in prior
financial years.
(3) The current year amortisation for retained profit share calculated as described in Note 1(xxii) – Performance based remuneration.
(4) The current year amortisation for PSUs calculated as described in Note 1(xxii) – Performance based remuneration. Adjustments were made during the
prior financial 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 KMP and their related parties
The following tables set out details of MGL ordinary shares held during the financial year by KMP 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
received on
withdrawal
from
MEREP
3,014,420
2,729,089
4,840
1,092,765
–
1,103,328
Other
changes (1)
(714,788)
(817,997)
Number
of shares
held by former
KMP at date
of resignation/
retirement
(prior to
31 March)
Number
of shares
held at
31 March
–
–
3,397,237
3,014,420
2018
2017
(1)
Includes on-market acquisitions and disposals.
MEREP RSU Awards of KMP and their related parties (1)
The following tables set out details of the MEREP RSU awards held during the financial 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 Appendix 4 of the Remuneration Report,
contained in the Directors’ Report from pages 76 to 81. Further details in relation to the MEREP RSU awards are disclosed in
Note 32 – 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)
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
2018
2017
2,903,611
2,941,721
433,732
80,406
680,830
662,377
(615,747)
(689,639)
223,714
3,178,712
91,254
2,903,611
(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 for
2018 relate to the Company’s performance in 2017.
(2) Vested RSUs transferred to the KMP’s shareholding.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 137
NOTE 31
Key Management Personnel disclosure continued
MEREP PSU Awards of KMP and their related parties (1)
The following tables set out details of MEREP PSU awards held during the financial 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 79 to 80.
Further details in relation to the MEREP PSU awards are disclosed in Note 32 – Employee equity participation.
Number
of PSU
awards
held at
1 April
Number of PSU
awards held at
appointment/
retirement date
(after 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)
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 (3)
2018
2017
1,477,248
1,502,467
–
101,963
338,550
415,168
(476,769)
(413,211)
–
(16,908)
130,678
112,231
1,208,351
1,477,248
(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 for
2018 relate to the Company’s performance in 2017.
(2) Performance hurdles for PSU awards issued on or after 17 December 2009 and vesting at 1 July 2016 were partially achieved and therefore some
of those PSU awards did not become exercisable and lapsed in FY2017. 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) PSU awards vested and not exercised at 31 March 2018:Nil (2017: 70,211).
Details of share-based payment grant dates affecting compensation for the financial years ended 31 March 2018 and 31 March 2017.
Financial year grant relates to
Type of grant
Managing Director
GRANT DATE
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Transition awards
Retained DPS
Retained DPS
PSUs
Retained DPS
PSUs
Retained DPS
PSUs
Retained DPS
PSUs
Retained DPS
PSUs
Retained DPS
PSUs
Retained DPS
PSUs
Retained DPS
PSUs
Retained DPS
PSUs
3 March 2010
3 March 2010
3 March 2010
3 March 2010
13 August 2010
13 August 2010
15 August 2011
15 August 2011
15 August 2012
15 August 2012
15 August 2013
15 August 2013
15 August 2014
15 August 2014
17 August 2015
17 August 2015
15 August 2016
15 August 2016
15 August 2017
15 August 2017
All other KMP
3 March 2010
3 March 2010
3 March 2010
3 March 2010
30 June 2010
13 August 2010
15 February 2011
15 April 2011
20 June 2011
15 August 2011
7 June 2012
15 August 2012
25 June 2013
15 August 2013
25 June 2014
15 August 2014
6 July 2015
17 August 2015
17 June 2016
15 August 2016
22 June 2017
15 August 2017
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 138
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 31
Key Management Personnel disclosure continued
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
2018
2017
–
–
3
–
–
–
464
–
(1) Number of persons included in the aggregate at 31 March 2018: 1 (2017: Nil).
Loans and other financial instrument transactions were made by the Consolidated Entity in the ordinary course of business with
related parties.
Other transactions with Key Management Personnel and their related parties
Certain Key Management Personnel and their related parties have acquired investments in a number of products from subsidiaries within the
Consolidated Entity. These products typically involve the issuance of investment units and have been financed with limited recourse loans.
Some are accounted for as fee and commission income when acting on behalf of investors. This fee represents the service performed by the
Consolidated Entity for transferring interest received from investors in exchange for their investment unit returns. The gross receipts by the
Consolidated Entity were $Nil (2017: $2,700 thousand). Others are subject to swap agreements and are accounted for as derivatives by the
Consolidated Entity. All the arrangements between the investor and Macquarie are subject to a legal right of set-off.
All transactions with Key Management Personnel (including their related parties) were conducted on an arm’s length basis in the ordinary
course of business and under standard terms and conditions for other customers and employees.
From an accounting perspective, amounts recognised by the Consolidated Entity in respect of these transactions are recognised net in
either trading income or fee and commission income and have been disclosed below.
Aggregated amounts recognised by the Consolidated Entity
Trading income
Fee and commission income
Consolidated
2018
$’000
Consolidated
2017
$’000
–
–
838
397
Contributions in respect of these products relate to the following Key Management Personnel: S. Wikramanayake. All products have
matured or been redeemed during the year.
NOTE 32
Employee equity participation
MEREP
The Consolidated Entity continues to operate the MEREP in conjunction with other remuneration arrangements.
Award Types under the MEREP
Restricted Share Units (RSUs)
A RSU is a beneficial interest in a MGL ordinary 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 of 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
direct the Trustee to acquire shares on-market, or via a share acquisition arrangement for potential future allocations to holders of DSUs.
Generally, where permitted by lay DSUs will provide for cash payments in lieu of dividends paid on MGL ordinary 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 with respect to any underlying MGL ordinary 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). DSUs have been granted with an expiry period of up to eight years.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 139
NOTE 32
Employee equity participation continued
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.
Restricted Shares
A Restricted Share is a MGL ordinary 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, and to exercise the voting rights of, the Restricted
Shares. Restricted Shares are only offered in jurisdictions where legal or tax rules make RSU/DSU awards impractical.
The following is a summary of Awards which have been granted pursuant to the MEREP:
RSUs on issue at the beginning of the financial year
Granted during the financial year
Vested RSUs withdrawn or sold from the MEREP during the financial year
Forfeited during the financial year
RSUs on issue at the end of the financial year
RSUs vested and not withdrawn from the MEREP at the end of the financial year
Number of
RSU Awards
2018
Number of
RSU Awards
2017
15,857,964
16,762,504
3,874,717
5,210,587
(4,453,864)
(5,564,965)
(447,482)
(550,162)
14,831,335
15,857,964
28,660
6,945
The weighted average fair value of the RSU awards granted during the financial year was $90.20 (2017: $72.77).
DSUs on issue at the beginning of the financial year
Granted during the financial year
Exercised during the financial year
Forfeited during the financial year
DSUs on issue at the end of the financial year
DSUs exercisable at the end of the financial year
Number of
DSU Awards
2018
Number of
DSU Awards
2017
3,003,035
876,982
3,036,458
1,112,093
(798,552)
(1,061,207)
(86,496)
(84,309)
2,994,969
3,003,035
572,456
487,800
The weighted average fair value of the DSU awards granted during the financial year was $90.31 (2017: $72.50).
PSUs on issue at the beginning of the financial year
Granted during the financial year
Exercised during the financial year
Expired during the financial year
PSUs on issue at the end of the financial year
PSUs exercisable at the end of the financial year
Number of
PSU Awards
2018
Number of
PSU Awards
2017
1,589,479
1,629,738
346,006
(526,639)
–
415,168
(437,000)
(18,427)
1,408,846
1,589,479
–
70,211
The weighted average fair value of the PSU awards granted during the financial year was $73.00 (2017: $65.53).
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 140
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 32
Employee equity participation continued
Restricted shares on issue at the beginning of the financial year
Granted during the financial year
Forfeited during the financial year
Released during the financial year
Restricted shares on issue at the end of the financial year
Number of
Restricted
Share
Awards
2018
54,650
14,358
–
(42,837)
26,171
Number of
Restricted
Share
Awards
2017
118,155
48,594
(7,069)
(105,030)
54,650
The weighted average fair value of the Restricted Shares granted during the financial year was $87.29 (2017: $69.73).
The awards are measured at their grant dates based on their fair value(1) 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 financial year in
respect of 2017. 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: 2.26% per annum
– expected vesting dates of PSUs: 1 July 2020 and 1 July 2021
– dividend yield: 5.07% per annum.
While RSUs and DSUs, and PSUs (for Executive Committee members) for FY2018 will be granted during FY2019, the Consolidated
Entity begins recognising an expense for these awards (based on an initial estimate) from 1 April 2017. The expense is estimated using
the price of MGL ordinary shares as at 31 March 2018 and the number of equity instruments expected to vest. For PSUs, the estimate
also incorporates an interest rate to maturity of 2.58% per annum, expected vesting dates of PSUs of 1 July 2021 and 1 July 2022, and a
dividend yield of 4.96% per annum. 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 validation 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 equity settled awards), or a corresponding adjustment to liabilities (for cash settled awards).
For the financial year ended 31 March 2018, compensation expense relating to the MEREP totalled $404,714 thousand (2017: $412,246
thousand).
For the equity settled awards, the estimated future withholding tax outflow is $267,262 thousand (2017: $258,494 thousand). 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)
– staff other than Executive Directors with retained profit share above a threshold amount (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 staff with retained commission (Commission Awards)
– Macquarie staff who receive a discretionary payment in recognition of contributions over a predetermined period (Incentive Awards)
– new Macquarie 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
– 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 Consolidated Entity upon the acquisition of their employer by a
Macquarie entity or who receive an additional award at the time of joining Macquarie (also referred to above as New Hire Awards).
(1) For employees categorised as Material Risk Takers who are required to comply with the European Banking Authority Guidelines on the CRD IV
remuneration requirements, the fair value of the awards granted for performance periods after 1 April 2017 has been adjusted to take into account the
prohibition of dividends on unvested awards.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 141
NOTE 32
Employee equity participation continued
Vesting periods are as follows:
Award type
Level
Vesting
Retained Profit Share Awards
and Promotion Awards
Retained DPS Awards
representing 2009 retention
Below Executive Director
1/3rd in the 2nd, 3rd and 4th year following the year of grant (1)
Executive Director
1/5th in the 3rd, 4th, 5th, 6th and 7th year following the year
of grant (2)
Retained DPS Awards for 2010
and all future years’ retention
Executive Committee member and
Designated Executive Director
1/5th in the 3rd, 4th, 5th, 6th and 7th year following the year
of grant (2)
Retained DPS Awards for 2010
and all future years’ retention
PSU Awards granted in relation
to 2012 and following years
All other Executive Directors
1/3rd in the 3rd, 4th and 5th year following the year of grant (1)
Executive Committee members
50% three and four years after the year of grant (3)
Commission Awards
Below Executive Director
1/3rd in the 2nd, 3rd and 4th year following the year of grant (1)
Incentive Awards
All Macquarie Group staff
New Hire Awards
All Director-level staff
1/3rd on each first day of a staff trading window on or after
the 2nd, 3rd and 4th anniversaries of the date of allocation
1/3rd on each first day of a staff trading window on or after
the 2nd, 3rd and 4th anniversaries of the date of allocation
(1) Vesting will occur during an eligible staff trading window.
(2) Vesting will occur during an eligible staff trading window. 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 2017 retention, the allocation price was the weighted average price of the shares acquired
for the 2017 purchase period, which was 16 May 2017 to 22 June 2017. That price was calculated to be $89.25 (2016 retention: $71.55).
PSUs
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% of the total number of PSUs awarded. Hurdles are periodically
reviewed by the Board Remuneration Committee (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 market practice. No change has been made to the hurdles for this
financial year.
The hurdles are outlined below.
Performance hurdle 1
REFERENCE GROUP
Hurdle
Granted after 31 March 2013
Granted on or before 31 March 2013
50% of the PSUs based solely on the
relative average annual return on ordinary
equity (ROE) over the vesting period (three
to four years) compared with a reference
group of global financial institutions.
A sliding scale applies with 50% becoming
exercisable above the 50th percentile and
100% vesting at the 75th percentile.
The current reference group comprises
Barclays PLC, Bank of America
Corporation, Credit Suisse Group AG,
Deutsche Bank AG, Goldman Sachs Group
Inc., JPMorgan Chase & Co., Lazard
Limited, Morgan Stanley and UBS AG.
The reference group comprised Bank of
America Corporation, Citigroup Inc, Credit
Suisse Group AG, Deutsche Bank AG,
Goldman Sachs Group Inc., JPMorgan Chase
& Co., 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).
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 142
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 32
Employee equity participation continued
Performance hurdle 2
REQUIRED RESULT
Hurdle
Granted after 31 March 2013
Granted on or before 31 March 2013
50% 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% becoming
exercisable at EPS CAGR of 7.5% and
100% at EPS CAGR of 12%. For example,
if EPS CAGR were 9.75%, 75% of the
relevant awards would become exercisable.
A sliding scale applies with 50% becoming
exercisable at EPS CAGR of 9% and 100%
at EPS CAGR of 13%. For example, if EPS
CAGR were 11%, 75% of the relevant awards
would become exercisable.
Under both performance hurdles, the objective is examined once only. Testing occurs annually on 30 June immediately before vesting on
1 July, based on the most recent financial year-end results available. To the extent that a condition is not met when examined, the PSUs due
to vest will not be exercisable upon vesting, resulting in a nil benefit to Executive Committee members.
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 financial year ended 31 March 2018 was $262 thousand (2017: $463 thousand).
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 MGL ordinary shares for no cash consideration.
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 Consolidated Entity. 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 2017. A total of 1,109 (2017: 970) staff participated in this offer. On
28 November 2017, the participants were each allocated 10 (2017:11) fully paid ordinary shares based on the offer amount of $1,000 and
the then calculated average market share price of $99.33 (2017: $84.13); a total of 11,090 (2017: 10,670) 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.
For the financial year ended 31 March 2018, compensation expense relating to the ESP totalled $1,097 thousand (2017: $893 thousand).
Historical Share and Option Plans
Shares are no longer being issued under the Staff Share Acquisition Plan or the Non-Executive Director Share Acquisition plan. However,
employees and Non-Executive Directors still hold shares issued in previous years.
Options over fully paid unissued ordinary shares are no longer granted under the Macquarie Group Employee Share Option Plan and no
options are outstanding.
Other plans
The Consolidated Entity operates other local share-based compensation plans, none of which, individually or in aggregate are material.
Shares purchased on-market for the purpose of an employee incentive scheme
During the financial year ended 31 March 2018, the Consolidated Entity purchased 1,257,791 shares on-market (2017: 1,728,065 shares)
and 2,924,757 shares via off-market transfer (2017: 4,317,208 shares) for MEREP. A further 11,090 shares were purchased on-market
for the ESP (2017: 10,670 shares). The average price of all share purchases during the financial year was $89.28 (2017: $71.57) and the
average price of the purchases made on-market was $89.81 (2017: $72.04).
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 143
NOTE 33
Contingent liabilities and commitments
(1),(2)
Contingent liabilities exist in respect of:
Letters of credit
Guarantees (3)
Performance related contingents
Indemnities
Total contingent liabilities
Commitments exist in respect of:
Undrawn credit facilities and securities underwriting (4)
Forward asset purchases
Total commitments
CONSOLIDATED
COMPANY
2018
$m
2017
$m
2018
$m
2017
$m
1,087
312
237
152
843
289
305
56
–
3,589
–
–
–
3,442
–
–
1,788
1,493
3,589
3,442
8,439
1,371
9,810
9,156
816
9,972
–
–
–
–
–
–
Total contingent liabilities and commitments
11,598
11,465
3,589
3,442
(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. Other than those recognised liabilities, the Consolidated Entity and the Company 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.
It is not practicable to ascertain the timing of any outflow and the possibility of any reimbursement related to these contingent liabilities.
(2)
(3) The Company guaranteed $1,926 million (2017: $1,964 million) of performance obligations of a consolidated structured entity in relation to their external
obligations disclosed in Note 35 – Structured entities.
(4) Undrawn credit facilities are irrevocably extended to clients. These amounts include fully or partially undrawn commitments that are legally binding
and cannot be unconditionally cancelled by the Consolidated Entity. Securities underwriting includes firm commitments to underwrite debt and equity
securities issuances and private equity commitments.
NOTE 34
Lease commitments
Non-cancellable operating leases expiring:
Not later than one year
Later than one year and not later than five years
Later than five years
Total operating lease commitments
213
523
97
833
170
498
116
784
–
–
–
–
–
–
–
–
Operating leases relate to commercial buildings. The future lease commitments disclosed are net of any rental incentives received.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 144
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 35
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 (for example
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.
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, including mortgages, finance leases, credit
card receivables of the Consolidated Entity or of its clients.
Macquarie may serve as a sponsor, servicer, underwriter, liquidity
provider, derivative counterparty, purchaser of notes and/or purchaser
of residual income units. The Consolidated Entity may also provide
redraw facilities or loan commitments to securitisation vehicles.
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 income units or guarantor.
SE’s are consolidated when they meet the criteria described in
Note 1 (ii) – Principles of consolidation.
Macquarie has contractually guaranteed the performance
obligations of a consolidated SE that has borrowings from third
parties. The notional value of the guarantee is $1,926 million (2017:
$1,964 million), which is included in amounts of MGL guarantees
disclosed in Note 33 – Contingent liabilities and commitments. For
the Consolidated Entity, this contingent liability is replaced with the
SE’s borrowing of $1,860 million (2017: $1,912 million) owing to
third parties, included in Note 23 – Debt issued at amortised cost.
Interests held in unconsolidated structured entities
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 (for example interest rate swaps and currency swaps)
and positions where the Consolidated Entity:
(i) creates rather than absorbs variability of the unconsolidated
SE (for example 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
(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.
Income received by the Consolidated Entity during the financial
year from interests held at the reporting date relates to interest,
management fees, servicing fees, dividends and gains or losses
from revaluing financial instruments.
The following table presents 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:
Carrying value of assets
Trading portfolio assets
Derivative assets
Investment securities available for sale (1)
Loan assets held at amortised cost
Total carrying value of assets (2)
Maximum exposure to loss (3)
Debt, equity and derivatives held
Undrawn commitments
Total maximum exposure to loss
CONSOLIDATED 2018
CONSOLIDATED 2017
Securitisations
$m
Asset-backed
financing
$m
Securitisations
$m
Asset-backed
financing
$m
128
110
1,366
254
1,858
1,858
–
1,858
189
–
215
800
1,204
1,204
7
1,211
507
33
1,068
520
2,128
2,128
3
2,131
364
6
47
418
835
835
37
872
(1) Securitisations includes $1,158 million (2017: $702 million) of investments that are managed by the Consolidated Entity under the liquid assets holdings
policy described in Note 37.2 – Liquidity risk.
(2) Total carrying value of assets includes $1,010 million (2017: $718 million) in subordinated interests, of which $47 million (2017: $397 million) is included in
securitisation activities and $965 million (2017: $321 million) included in asset backed financing activities. Of the subordinated asset-backed interests, the
potential loss borne by others whose interests rank lower is $825 million (2017: $9 million).
(3) Maximum exposure to loss is the carrying value of debt, equity and derivatives held and the undrawn amount for commitments. The amounts for
commitments are reduced for any liabilities already recognised.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 145
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 2018, the fair value of outstanding derivatives held
by the Consolidated Entity and designated as fair value hedges was
$227 million negative value (2017: $1 million negative value).
During the financial year, a fair value loss from hedging instruments
of $226 million was recognised (2017: $452 million loss), offset by a
$213 million gain (2017: $436 million gain) on the hedged items.
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 2018, the fair value of outstanding derivatives held
by the Consolidated Entity and designated as net investment
in foreign operations hedges was $116 million negative value
(2017: $176 million positive value). During the financial year the
Consolidated Entity recognised $nil (2017: $nil) in the income
statement due to hedge ineffectiveness on net investment hedges.
A proportion of the Consolidated Entity’s borrowings amounting to
$11,429 million (2017: $8,699 million) is designated as a hedge of
its net investment in foreign operations. The foreign exchange loss
of $204 million (2017: $67 million loss) 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 – Futures, Forwards and forward
rate agreements, Swaps, Options.
NOTE 35
Structured entities continued
The subordinated securitisation interests are primarily trading
positions that are typically managed under market risk described
in Note 37.3 – Market risk. For these reasons, information on
size and structure for these SEs is not considered meaningful
for understanding the related risks, and so have not been
presented. The subordinated asset backed interests that are
included within investments available for sale and loan assets,
involve unconsolidated SEs with a total size of $4,174 million
(2017: $546 million). Size represents either the total assets of the
SE (measured either at amortised cost excluding impairments or
fair values if readily available); outstanding notional of issued notes
or the principal amount of liabilities if there is nominal equity. Size
is based on the most current publicly available information to the
Consolidated Entity.
NOTE 36
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(xii) – Hedge accounting:
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 and foreign currency denominated
assets which are hedged with cross-currency swaps, and
– commodity price risk from forecasted future commodity sales
hedged with commodity forward contracts.
At 31 March 2018, the fair value of outstanding derivatives held by
the Consolidated Entity and designated as cash flow hedges was
$64 million negative value (2017: $150 million negative value).
During the financial year the Consolidated Entity recognised a
$2 million gain (2017: $3 million gain) in the income statement due
to hedge ineffectiveness on cash flow hedges.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 146
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
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 (1)
MQ99
Default
(1) The Default category primarily correlates to the ‘past due more than
90 days not impaired’ and ‘individually impaired’ balances disclosed
in the following pages.
Retail pools are mapped to the corresponding rating grade based
on their probability of 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 specific provisioning is adequate.
Portfolio and country risk
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 management framework
which covers the assessment of country risk and the approval of
country risk limits. Where appropriate the country risk is mitigated
by political risk insurance.
NOTE 37
Financial risk management
Risk Management Group (RMG)
Risk is an integral part of the Consolidated Entity’s businesses.
The main risks faced by the Consolidated Entity are credit, liquidity,
market, equity, conduct, regulatory and compliance, reputation,
operational, legal, tax, model, cyber and information security,
environmental and social, and data risk. Further details on the
risks faced by the Consolidated Entity can be found in the Risk
Management Report of this Annual Report.
Primary responsibility for risk management lies at the business level.
Part of the role of all business managers throughout Macquarie is to
ensure they manage risks appropriately.
RMG is independent of all other areas of the Consolidated Entity.
RMG approval 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. The Head of RMG, as
Macquarie’s CRO, is a member of the Executive Committee of
MGL and MBL and reports directly to the CEO with a secondary
reporting line to the Board Risk Committee.
Note 37.1 Credit risk
Credit risk is 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 repaid or the loss incurred in
replicating a trading contract with a new counterparty.
Analysis and limit approval
Responsibility for approval of credit exposures is delegated to
specific individuals by the Board or CRO. 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 required. 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. Derivative exposures are measured using
high confidence potential future underlying asset prices. To mitigate
credit risk, where appropriate, 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).
Ratings and reviews
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 which reflects the estimated economic loss in the event
of default occurring.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 147
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
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.
Maximum exposure to credit risk
The table below details the concentration of maximum exposure to credit risk of the Consolidated Entity’s financial assets, credit
commitments and contingent liabilities by significant geographical locations and counterparty type. The maximum credit exposure is to
each counterparty and does not take into consideration collateral or other credit enhancements (refer to section on collateral and credit
enhancements). The geographical location is determined by the domicile and industry type of the counterparty.
Receivables
from financial
institutions (1)
$m
Trading
portfolio
assets
$m
Derivative
assets
$m
Debt
investment
securities
available
for sale
$m
Other
financial
assets (2)
$m
Loan assets
held at
amortised
cost
$m
Australia
Governments
Financial institutions
Other
Total Australia
Asia Pacific
Governments
Financial institutions
Other
Total Asia Pacific
–
4,415
7,005
–
160
1
7,005
4,576
–
1,191
6,468
–
377
292
6,468
1,860
Europe, Middle East and Africa
Governments
Financial institutions
Other
–
14,638
–
Total Europe, Middle East and Africa
14,638
Americas
Governments
Financial institutions
Other
Total Americas
Total gross credit risk
–
10,448
–
10,448
38,559
130
32
68
230
865
38
308
1,211
7,877
357
1,009
759
2,125
7
296
385
688
2
3,160
1,311
4,473
155
2,436
3,060
5,651
364
3,909
43
4,316
165
450
13
628
–
90
100
190
–
455
59
514
3
1,103
531
1,637
413
1,075
923
2,411
135
3,022
1,369
4,526
32
1,897
2,018
3,947
12,937
5,648
12,521
66
2,210
57,164
59,440
16
575
1,182
1,773
19
2,231
6,475
8,725
82
3,209
7,921
11,212
81,150
Other
financial
assets at
fair value
through
profit
or loss
$m
Credit
commitments
and
contingent
liabilities
$m
Total
$m
CONSOLIDATED 2018
–
2
127
129
70
–
2
72
–
149
–
149
–
3
190
193
543
–
119
2,698
2,817
–
5
359
364
13
225
3,845
4,083
6
1,125
3,203
4,334
5,205
15,517
61,323
82,045
1,862
9,246
3,156
14,264
299
23,547
13,168
37,014
1,140
19,611
16,759
37,510
11,598
170,833
Includes reverse repurchase agreements where the classification is based on the underlying collateral of the agreement.
(1)
(2) This balance excludes other non-financial assets of $5,202 million and Life Investment Linked contracts and other unitholder assets of $647 million which
are included in Note 10 – Other assets.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 148
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
Maximum exposure to credit risk continued
Receivables
from
financial
institutions (1)
$m
Trading
portfolio
assets
$m
Derivative
assets
$m
Debt
investment
securities
available
for sale
$m
Loan
assets
held at
amortised
cost
$m
Other
financial
assets (2)
$m
Australia
Governments
Financial institutions
Other
Total Australia
Asia Pacific
Governments
Financial institutions
Other
Total Asia Pacific
–
4,868
6,327
–
126
3
6,327
4,997
–
1,065
2,031
–
383
315
2,031
1,763
Europe, Middle East and Africa
Governments
Financial institutions
Other
–
5,608
–
Total Europe, Middle East and Africa
5,608
Americas
Governments
Financial institutions
Other
Total Americas
Total gross credit risk
–
13,505
–
13,505
27,471
508
160
80
748
672
132
888
1,692
9,200
461
1,754
1,194
3,409
3
174
326
503
3
3,192
1,605
4,800
142
2,127
1,125
3,394
852
2,554
58
11
687
388
3,464
1,086
54
394
13
461
42
316
19
377
–
383
166
549
636
381
1,349
2,366
52
2,060
1,676
3,788
38
2,320
1,455
3,813
12,106
4,851
11,053
56
1,822
52,950
54,828
12
590
771
1,373
2
2,726
5,858
8,586
90
2,692
9,094
11,876
76,663
Other
financial
assets at
fair value
through
profit or
loss
$m
Credit
commitments
and
contingent
liabilities
$m
Total
$m
CONSOLIDATED 2017
–
1
121
122
75
–
7
82
–
237
51
288
–
–
141
141
633
–
213
2,331
2,544
–
10
74
84
12
185
3,007
3,204
3
431
5,199
5,633
6,248
13,484
57,045
76,777
1,845
3,963
2,855
8,663
619
14,484
12,296
27,399
945
21,590
18,068
40,603
11,465
153,442
Includes reverse repurchase agreements where the classification is based on the underlying collateral of the agreement.
(1)
(2) This balance excludes other non-financial assets of $4,784 million and Life Investment Linked contracts and other unitholder assets of $721 million which
are included in Note 10 – Other assets.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 149
Due from
subsidiaries
$m
3,430
13,783
17,213
–
23
23
–
3
3
–
30
30
17,269
11
9,956
9,967
–
20
20
–
–
–
–
22
22
10,009
Credit
commitments
and contingent
liabilities
$m
Total
$m
COMPANY 2018
–
388
388
–
430
430
38
497
535
–
2,236
2,236
3,589
–
381
381
–
425
425
91
492
583
–
2,053
2,053
3,442
3,430
14,171
17,601
–
453
453
38
500
538
–
2,266
2,266
20,858
COMPANY 2017
11
10,337
10,348
–
445
445
91
492
583
–
2,075
2,075
13,451
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
Maximum exposure to credit risk continued
Australia
Financial institutions
Other
Total Australia
Asia Pacific
Financial institutions
Other
Total Asia Pacific
Europe, Middle East and Africa
Financial institutions
Other
Total Europe, Middle East and Africa
Americas
Financial institutions
Other
Total Americas
Total gross credit risk
Australia
Financial institutions
Other
Total Australia
Asia Pacific
Financial institutions
Other
Total Asia Pacific
Europe, Middle East and Africa
Financial institutions
Other
Total Europe, Middle East and Africa
Americas
Financial institutions
Other
Total Americas
Total gross credit risk
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 150
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
Credit quality of financial assets
The table below details the credit quality of the Consolidated Entity’s financial assets for the maximum exposure to credit risk. The credit quality
is based on the individual counterparty’s credit rating and industry type using the Consolidated Entity’s credit rating system and excludes the
benefit of collateral and credit enhancements except as otherwise indicated (refer to section on collateral and credit enhancements).
Investment
Grade
$m
Below
Investment
Grade
$m
Past due
but not
individually
impaired (4)
$m
Individually
impaired
$m
Total
$m
CONSOLIDATED 2018
Receivables from financial institutions (1)
33,956
4,603
Trading portfolio assets
Governments
Financial institutions
Other
Derivative assets
Governments
Financial institutions
Other
Debt investment securities available for sale
Governments
Financial institutions
Other
Other financial assets (2)
Governments
Financial institutions
Other
Loan assets held at amortised cost (3)
Governments
Financial institutions
Other
Other financial assets at fair value through profit or loss
Governments
Financial institutions
Other
Total
6,515
573
158
521
6,254
3,104
529
4,689
5
532
4,643
2,518
143
6,766
32,773
70
–
71
86
34
478
–
647
2,411
–
215
210
–
2,435
2,192
40
1,458
37,375
–
154
223
–
–
–
33
–
–
–
–
–
–
51
19
120
–
1
2,245
–
–
25
–
–
–
–
–
–
–
–
–
–
–
–
11
–
–
349
–
–
–
38,559
7,877
6,601
607
669
12,937
521
6,901
5,515
5,648
529
4,904
215
12,521
583
7,097
4,841
81,150
183
8,225
72,742
543
70
154
319
103,820
52,561
2,494
360
159,235
Includes reverse repurchase agreements where the credit quality classification is based on the underlying collateral of the agreement.
(1)
(2) This balance excludes other non-financial assets of $5,202 million and Life Investment Linked contracts and other unitholder assets $647 million which
are included in Note 10 – Other assets.
(3) Mortgages are classified as investment grade when the Consolidated Entity has taken insurance from investment grade LMI counterparties and classified
as below investment grade based on probability of default rating either when not insured or the Consolidated Entity bears first loss on the portfolio.
Included in the past due category are balances which were overdue by one day or more.
(4)
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 151
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
Credit quality of financial assets continued
Investment
Grade
$m
Below
Investment
Grade
$m
Past due
but not
individually
impaired(4)
$m
Individually
impaired
$m
Total
$m
CONSOLIDATED 2017
Receivables from financial institutions (1)
24,685
2,786
Trading portfolio assets
Governments
Financial institutions
Other
Derivative assets
Governments
Financial institutions
Other
Debt investment securities available for sale
Governments
Financial institutions
Other
Other financial assets ( 2)
Governments
Financial institutions
Other
Loan assets held at amortised cost (3)
Governments
Financial institutions
Other
Other financial assets at fair value through profit or loss
Governments
Financial institutions
Other
Total
6,979
618
309
609
7,049
2,681
948
3,456
12
695
3,460
2,463
139
6,157
31,902
75
–
122
134
183
937
–
198
1,569
–
191
243
–
1,926
2,303
21
1,673
33,886
–
238
190
–
–
–
40
–
–
–
–
–
–
42
62
80
–
–
2,338
–
–
7
–
–
–
–
–
–
–
–
–
1
–
–
22
–
–
547
–
–
1
27,471
9,200
7,113
801
1,286
12,106
609
7,247
4,250
4,851
948
3,647
256
11,053
737
5,448
4,868
76,663
160
7,830
68,673
633
75
238
320
Includes reverse repurchase agreements where the credit quality classification is based on the underlying collateral of the agreement.
(1)
(2) This balance excludes other non-financial assets of $4,784 million and Life Investment Linked contracts and other unitholder assets $721 million which
are included in Note 10 – Other assets.
(3) Mortgages are classified as investment grade when the Consolidated Entity has taken insurance from investment grade LMI counterparties and classified
as below investment grade based on probability of default rating either when not insured or the Consolidated Entity bears first loss on the portfolio.
Included in the past due category are balances which were overdue by one day or more.
(4)
92,359
46,478
2,569
571
141,977
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 152
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
Credit quality of financial assets continued
The table below details the credit quality of the Company’s financial assets for the maximum exposure to credit risk. The credit quality is
based on the individual counterparty’s credit rating and industry type using the Consolidated Entity’s credit rating system and excludes the
benefit of collateral and credit enhancements (refer to section on collateral and credit enhancements).
Due from subsidiaries
Financial institutions
Other
Total
Due from subsidiaries
Financial institutions
Other
Total
Investment
Grade
$m
3,430
13,839
17,269
11
9,998
10,009
Total
$m
COMPANY 2018
3,430
13,839
17,269
COMPANY 2017
11
9,998
10,009
Ageing analysis of assets past due but not individually impaired and individually impaired assets
PAST DUE BUT NOT INDIVIDUALLY IMPAIRED
Class of financial asset
Debt investment securities
available for sale
Other
Other financial assets
Government
Financial institutions
Other
Loan assets held at
amortised cost
Financial institutions
Other
Trading portfolio assets
Other
Other financial assets at fair
value through profit or loss
Other
Total
Less than
30 days
$m
31 to 60
days
$m
61 to 90
days
$m
More than
90 days
$m
Total past
due but not
individually
impaired
$m
Individually
impaired
$m
Total
$m
CONSOLIDATED 2018
–
26
6
71
1
1,332
–
–
1,436
–
3
2
20
–
333
–
25
383
–
2
1
8
–
135
–
–
146
–
20
10
21
–
445
33
–
529
–
51
19
120
1
2,245
33
25
2,494
–
–
–
11
–
349
–
–
360
–
51
19
131
1
2,594
33
25
2,854
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 153
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
Ageing analysis of assets past due but not individually impaired and individually impaired assets continued
PAST DUE BUT NOT INDIVIDUALLY IMPAIRED
Class of financial asset
Debt investment securities
available for sale
Other
Other financial assets
Government
Financial institutions
Other
Loan assets held at
amortised cost
Other
Trading portfolio assets
Other
Other financial assets at fair
value through profit or loss
Other
Total
Less than
30 days
$m
31 to 60
days
$m
61 to 90
days
$m
More than
90 days
$m
Total past
due but not
individually
impaired
$m
Individually
impaired
$m
Total
$m
CONSOLIDATED 2017
–
12
50
52
–
4
2
12
–
3
1
3
1,333
314
132
–
–
–
7
–
–
1,447
339
139
–
23
9
13
559
40
–
644
–
42
62
80
1
–
–
22
1
42
62
102
2,338
547
2,885
40
7
2,569
–
1
571
40
8
3,140
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(xv) –
Impairment.
Of the collateral held against past due or impaired balances for loan assets held at amortised cost, $1,630 million (2017: $1,704 million)
relates to collateral held against past due or 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 or impaired balances for other assets primarily represents equity securities held as security against
failed trade settlements.
Repossessed collateral
In the event of a customer default on facilities, the Consolidated Entity may take possession of real estate or other assets held as security.
During the financial year, the Consolidated Entity has taken possession of fixed assets and property assets with a carrying value of
$66 million (2017: $50 million).
Collateral and credit enhancements held
Receivables from financial institutions
Cash collateral on securities borrowed and reverse repurchase agreements balances are included in receivables from financial institutions.
For details, refer to Note 7 – Receivables from financial institutions.
Securities borrowed require the deposit of cash collateral at amounts equal to or greater than the market value of the securities borrowed.
Reverse repurchase agreements are collateralised financing arrangements with the market value of the securities provided as collateral
generally in excess of the principal amount.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 154
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
Loan assets held at amortised cost
Mortgage loans
Mortgages are secured by fixed charges over a borrower’s property. Further, to cover a substantial portion of the mortgage portfolio
against a potential shortfall between the value of a repossessed property sold and the loan outstanding, including accrued interest, prior
to April 2017 the Consolidated Entity obtained LMI from an investment grade counterparty. Since April 2017, the Consolidated Entity has
purchased risk protection from a panel of investment grade companies via an excess of loss structure. The mortgage loan balance includes
$11,560 million (2017: $16,332 million) which has been securitised by consolidated SPEs.
The tables below provide information on Loan to Value Ratios (LVRs) determined using current loan balances and the most recent valuation
of mortgaged assets in response to variation in the loan request.
Australia
$m
2018
EMEA
$m
Total
$m
Australia
$m
2017
EMEA
$m
1,255
5,942
11,730
12,190
3,961
804
40
11
125
461
315
75
19
6
1,266
6,067
12,191
12,505
4,036
823
46
1,018
4,535
9,054
11,402
4,625
985
44
13
168
464
225
132
123
–
Total
$m
1,031
4,703
9,518
11,627
4,757
1,108
44
35,922
1,012
36,934
31,663
1,125
32,788
Fully collateralised
Loan to value ratio
<=25%
>25% to 50%
>50% to 70%
>70% to 80%
>80% to 90%
>90% to 100%
Partly collateralised
Total mortgages
Asset financing
The Consolidated Entity leases assets and provides asset-related
financing, predominantly motor vehicles, to corporate and
retail clients. Titles to the underlying assets are held by the
Consolidated Entity as collateral. Of the asset finance portfolio of
$19,266 million (2017: $19,706 million), the credit exposure after
considering the depreciated value of collateral is $8,570 million
(2017: $8,648 million).
The collateralised value is based on standard recovery rates for
the underlying assets of retail and corporate clients.
Corporate, commercial and other lending
Collateral held against corporate, commercial and other lending
consists of secured positions over assets of the counterparty,
often in the form of corporate assets. Of the term lending of
$15,024 million (2017: $15,581 million), the credit exposure
after considering the estimated value of collateral and credit
enhancements is $3,448 million (2017: $3,915 million).
Investment lending
The Consolidated Entity lends to clients for investment lending,
where it holds the underlying investment and/or alternative
acceptable assets as collateral, or holds security by way of
a registered pledge over the underlying investment. Of the
investment lending portfolio of $2,034 million (2017: $1,669 million),
$2,034 million (2017: $1,669 million) is fully collateralised.
Additional collateral
The Consolidated Entity also holds other types of collateral, such
as unsupported guarantees. While such mitigants have value,
as a credit risk mitigant, 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
Other financial assets at fair value through profit or loss include
financing provided to clients for investing. Financing may be
unsecured or secured (partially or fully). Collateral is generally
comprised of underlying securities investments or cash deposits
of the investors.
Derivative financial instruments
Derivatives may be traded on an exchange (exchange traded) or
they may be privately negotiated contracts, which are referred to as
Over The Counter (OTC) derivatives. The Consolidated Entity’s OTC
derivatives are cleared and settled either through central clearing
counterparties (OTC-cleared), or bilateral contracts between
two counterparties.
Exchange traded and OTC-cleared derivative contracts have
reduced credit risk as the Consolidated Entity’s counterparty is a
clearing house. The clearing house is responsible for managing
the risk associated with the process on behalf of their members
and ensuring it has adequate resources to fulfil 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. The Consolidated Entity held exchange traded
derivatives with positive replacement values as at 31 March 2018
of $669 million (2017: $1,418 million).
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 155
NOTE 37
Financial risk management continued
Note 37.1 Credit risk continued
For OTC derivative contracts, the Consolidated Entity 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. In the event of default, they require
balances with a particular counterparty covered by the agreement
(for example derivatives and cash margins) to be terminated and
settled on a net basis. The Consolidated Entity also often executes
a Credit Support Annex in conjunction with a master netting
agreement. This facilitates the transfer of margin between parties
during the term of arrangements and mitigates counterparty risk
arising from changes in market values of the derivatives.
As at 31 March 2018, the Consolidated Entity held OTC contracts
with a positive replacement value of $12,268 million (2017:
$10,688 million). The credit risk of these contracts is reduced due
to master netting agreements covering negative OTC contracts
of $6,697 million (2017: $6,670 million) and margins held
(excluding the impact of over-collateralisation) of $1,400 million
(2017: $1,344 million).
Debt investment securities available for sale
This classification mainly includes debt securities held by Group
Treasury for liquidity management purposes as well as certain
asset-backed securities.
The Consolidated Entity utilises Credit Default Swaps (CDS),
Guarantees, other forms of credit enhancements or collateral
in order to minimise the exposure to credit risk.
Other assets
Security settlements of $7,343 million (2017: $6,529 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). Security settlements are collateralised with the underlying
equity securities or cash held by the Consolidated Entity until
date of settlement.
Credit commitments
Undrawn facilities and lending commitments of $4,679 million
(2017: $5,670 million) are secured through collateral and
credit enhancement out of total undrawn facilities and lending
commitments of $8,439 million (2017: $9,156 million).
Note 37.2 Liquidity risk
Governance and oversight
Macquarie’s liquidity risk management framework is designed to
ensure 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 (ALCO) and
RMG. Macquarie’s liquidity policy is approved by the MGL and MBL
Boards after endorsement by the ALCO and liquidity reporting is
provided to the Boards on a monthly basis. The ALCO includes
the MGL CEO, MBL CEO, CFO, CRO, Group Treasurer, Head of
Balance Sheet Management and Operating Group Heads.
RMG provides independent oversight of liquidity risk management,
including ownership of liquidity policies and key limits and approval
of material liquidity scenario assumptions.
Liquidity policy and risk appetite
The MGL and MBL Liquidity Policy is designed so that each of
Macquarie, the Bank Group and the Non-Bank Group maintains
sufficient liquidity to meet its obligations as they fall due. MGL
provides funding predominantly to the Non-Bank Group. As such,
the MGL and MBL Liquidity Policy outlines the liquidity requirements
for the Non-Bank Group. Macquarie’s liquidity risk appetite is
set to ensure that Macquarie is able to meet all of its liquidity
obligations during a period of liquidity stress: a twelve month period
with constrained access to funding markets for MBL, no access
to funding markets for MGL and with only a limited reduction in
Macquarie’s franchise businesses.
Reflecting the longer-term nature of the Non-Bank Group asset
profile, MGL is funded predominantly with a mixture of capital and
long-term wholesale funding.
MBL is an ADI and is funded mainly with capital, long-term liabilities
and deposits.
Liquidity contingency plan
Group Treasury maintains a Liquidity Contingency Plan, which
outlines how a liquidity crisis would be managed. The plan defines
roles and responsibilities and actions to be taken in a liquidity event,
including identifying 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 responsible for managing
a crisis
– the information required to effectively manage a crisis
– a communications strategy
– a high level checklist of possible actions to conserve or raise
additional liquidity
– contact lists to facilitate prompt communication with all key
internal and external stakeholders.
In addition, Macquarie monitors a range of early warning indicators
on a daily basis that might assist in identifying emerging risks in
Macquarie’s liquidity position. These indicators are reviewed by
Senior Management and are used to inform any decisions regarding
invoking the plan.
The Liquidity Contingency Plan is subject to regular review by both
Group Treasury and RMG. It is submitted to the ALCO and MGL
and MBL Boards 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.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 156
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
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 Macquarie as
a whole. Businesses that raise funding are compensated at a level
that is appropriate for the liquidity benefit provided by the funding.
NOTE 37
Financial risk management continued
Note 37.2 Liquidity risk continued
Funding strategy
Macquarie prepares a Funding Strategy on an annual basis and
monitors progress against the strategy throughout the year. The
Funding Strategy aims to maintain Macquarie’s diversity of current
and projected funding sources, ensure ongoing compliance with
all liquidity policy requirements and facilitate forecast asset growth.
The Funding Strategy is reviewed by the ALCO and approved
by the respective Boards.
Scenario analysis
Scenario analysis is central to Macquarie’s liquidity risk
management framework. In addition to the regulatory defined
scenarios, Group Treasury models a number of additional liquidity
scenarios covering both market-wide and Macquarie-specific
crises.
The scenarios are run over a number of timeframes and a range of
conservative assumptions are used regarding the level of access to
capital markets, deposit outflows, contingent funding requirements
and asset sales.
As an example, one internal scenario projects the expected cash
and liquid asset position during a combined market-wide and
Macquarie name-specific crisis over a twelve month time frame.
This scenario assumes no access to new funding sources, a
significant loss of customer deposits and contingent funding
outflows resulting from undrawn commitments, market moves
impacting derivatives and other margined positions combined with
a multiple notch credit rating downgrade. Macquarie’s cash and
liquid asset portfolio must exceed the minimum requirement as
calculated in this scenario at all times.
Liquid asset holdings
Group Treasury centrally maintains a portfolio of highly liquid
unencumbered assets 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
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 (HQLA) or be an asset type that is eligible
as collateral in the Reserve Bank of Australia’s (RBA) Committed
Liquidity Facility (CLF) – so called ‘Alternative Liquid Assets’ (ALA).
Composition constraints are also applied to ensure appropriate
diversity and quality of the assets in the portfolio. The cash and
liquid asset portfolio is held in a range of currencies to ensure
Macquarie’s liquidity requirements are broadly matched by currency.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 157
NOTE 37
Financial risk management continued
Note 37.2 Liquidity risk continued
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 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.
Derivative liabilities (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.
Trading portfolio liabilities
Derivative liabilities (trading)
Derivative liabilities (hedging relationship)(1)
Contractual amounts payable
Contractual amounts receivable
Deposits
Other financial liabilities (2)
Payables to financial institutions(3)
Debt issued at amortised cost (4)
Other debt issued at fair value through
profit or loss
Loan capital (5)
Total undiscounted cash flows
Contingent liabilities
Commitments
Total undiscounted contingent liabilities
and commitments (6)
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
1 to 5
years
$m
More than
5 years
$m
Total
$m
–
–
–
–
52,148
640
6,169
–
13
–
58,970
–
1,072
8,061
11,398
1,133
(1,014)
4,188
9,847
2,260
7,603
198
748
44,422
1,788
2,244
–
–
1,430
(1,263)
2,715
–
543
11,234
353
307
15,319
–
1,335
–
–
1,147
(858)
366
–
5,320
23,439
269
3,557
33,240
–
2,883
CONSOLIDATED 2018
–
–
140
(18)
48
–
1,754
19,377
2,479
2,301
26,081
–
2,276
8,061
11,398
3,850
(3,153)
59,465
10,487
16,046
61,653
3,312
6,913
178,032
1,788
9,810
1,072
4,032
1,335
2,883
2,276
11,598
(1) Where multiple derivatives are combined in order to form a single hedge instrument designated in a hedge accounting relationship, each derivative is
considered independently for the purposes of assessing liquidity risk.
(2) Excludes items that are not financial instruments and non-contractual accruals and provisions. This balance includes $640 million of life investment linked
contracts and other unitholder liabilities which are included in Note 21 – Other liabilities.
(3) Subsequent to 31 March 2018, as part of refinancing, contractual maturities for $820 million primarily in 1 to 5 years maturity category have been
(4)
(5)
extended to more than 5 years. A further $3,200 million facility for maturity beyond 5 years has been put in place and remains undrawn.
Includes $12,335 million payable to SPE note holders disclosed on contractual maturity basis. The expected maturity of the notes is dependent on the
repayment of the underlying loans included in loan assets held at amortised cost.
Includes 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 26 – Loan capital.
(6) 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’ unless they are payable on demand or the contractual terms specify a
longer dated cash flow.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 158
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 37
Financial risk management continued
Note 37.2 Liquidity risk continued
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
1 to 5
years
$m
More than
5 years
$m
Total
$m
Trading portfolio liabilities
Derivative liabilities (trading)
Derivative liabilities (hedging relationship)(1)
Contractual amounts payable
Contractual amounts receivable
Deposits
Other financial liabilities (2)
Payables to financial institutions
Debt issued at amortised cost (3)
Other debt issued at fair value through profit
or loss
Loan capital (4)
Total undiscounted cash flows
Contingent liabilities
Commitments
–
–
–
–
50,418
714
5,065
–
–
–
56,197
–
2,745
5,067
10,386
3,111
(2,944)
4,228
9,396
2,476
7,379
160
477
39,736
1,493
2,595
Total undiscounted contingent liabilities
and commitments (5)
2,745
4,088
–
–
2,611
(2,404)
2,580
–
1,858
9,131
366
297
14,439
–
559
559
–
–
4,873
(4,039)
470
–
6,194
26,411
278
4,238
38,425
–
2,308
CONSOLIDATED 2017
–
–
1,712
(1,426)
66
–
2,322
16,154
2,379
2,412
23,619
–
1,765
5,067
10,386
12,307
(10,813)
57,762
10,110
17,915
59,075
3,183
7,424
172,416
1,493
9,972
2,308
1,765
11,465
(1) Where multiple derivatives are combined in order to form a single hedge instrument designated in a hedge accounting relationship, each derivative is
considered independently for the purposes of assessing liquidity risk.
(2) Excludes items that are not financial instruments and non-contractual accruals and provisions.
(3)
Includes $18,192 million payable to SPE note holders disclosed on contractual maturity basis. The expected maturity of the notes is dependent on the
repayment of the underlying loans included in loan assets held at amortised cost.
Includes 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 26 – Loan capital.
(4)
(5) 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’ unless they are payable on demand or the contractual terms specify a
longer dated cash flow.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 159
NOTE 37
Financial risk management continued
Note 37.2 Liquidity risk continued
Payables to financial institutions
Deposits
Due to subsidiaries (1)
Debt issued at amortised cost
Loan Capital (2)
Total undiscounted cash flows
Contingent liabilities
Total undiscounted contingent liabilities (3)
Payables to financial institutions
Deposits
Due to subsidiaries (1)
Debt issued at amortised cost
Loan Capital (2)
Total undiscounted cash flows
Contingent liabilities
Total undiscounted contingent liabilities (3)
On
demand
$m
Less than
3 months
$m
3 to 12
months
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25
–
511
158
615
1,309
3,589
3,589
14
–
546
71
15
646
3,442
3,442
75
–
–
1,724
32
1,831
–
–
43
–
–
984
47
1,074
–
–
1 to 5
years
$m
3,501
27
–
5,170
596
9,294
–
–
2,107
11
–
5,196
1,242
8,556
–
–
More than
5 years
$m
Total
$m
COMPANY 2018
–
–
–
6,963
–
6,963
–
–
415
–
–
165
–
580
–
–
3,601
27
511
14,015
1,243
19,397
3,589
3,589
COMPANY 2017
2,579
11
546
6,416
1,304
10,856
3,442
3,442
(1) Excludes items that are not financial instruments and non-contractual accruals and provisions.
(2)
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 26 – Loan capital.
(3) 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’ unless they are payable on demand or the contractual terms specify a longer dated cash flow.
Note 37.3 Market risk
Traded market risk
Market risk is the risk of adverse changes in the value of the
Consolidated Entity’s trading portfolios from 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
– commodities and energy: changes in the price and volatility
of base metals, agricultural commodities and energy products
The Consolidated Entity is also exposed 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
– Value-at-Risk (VaR) limits: statistical measure based on a
10-day holding period and a 99% 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.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 160
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 37
Financial risk management continued
Note 37.3 Market risk continued
Value-at-Risk figures (1-day, 99% confidence level)
The table below shows the average, maximum and minimum VaR over the financial 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.
2018
2017
Average
$m
Maximum
$m
Minimum
$m
Average
$m
Maximum
$m
Minimum
$m
7.23
4.10
1.73
8.79
11.75
11.00
8.13
3.40
13.94
15.18
2.62
2.66
0.70
3.40
7.94
9.72
5.60
1.94
6.81
11.71
12.93
8.59
4.04
16.03
19.39
5.31
3.26
0.66
3.74
6.69
Investments in foreign operations
Where foreign exchange exposures arise as a result of investments
in foreign operations, a key objective of the Foreign Exchange
Hedging Policy of the Consolidated Entity is to reduce the sensitivity
of regulatory capital ratios to foreign currency movements. This is
achieved by leaving specific investments in core foreign operations
exposed to foreign currency translation movements and captured
in the foreign currency translation reserve, a component of
regulatory capital. This aligns the currency of capital supply with
capital requirements.
As a result of this foreign exchange policy, the Consolidated Entity
is therefore partially exposed to currency risk in relation to the
translation of its net investment in foreign operations to Australian
dollars. Apart from this there is no material non-trading foreign
exchange risk in the income statement.
Accounting considerations arising from hedging activities
The use of derivative instruments to hedge non-traded positions
potentially gives rise to income statement volatility due to
accounting treatments. The Consolidated Entity manages this
through hedge accounting set out in Note 1 (xi) and (xii).
Equities
Interest rates
Foreign exchange and bullion
Commodities
Aggregate
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%
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.
Non-traded market risk
The Consolidated Entity has exposure to non-traded market risks
arising from transactions entered into during its normal course of
business and as a result of its investments in foreign operations.
These risks include:
– Interest rate: changes in the level, shape and volatility of yield
curves, and/or client behaviour given these changes
– Foreign exchange: changes in the spot exchange rates
The Consolidated Entity has limited appetite for non-traded market
risks. Where commercially feasible, these risks are transferred into
the trading books of CGM and Group Treasury and governed within
the traded market risk framework described above.
Responsibility for managing exposures rests with individual
businesses, with additional central monitoring from FMG for foreign
exchange risks. Any residual non-traded market risks are subject
to independent limits approved by RMG and reported regularly to
Senior Management.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 161
NOTE 37
Financial risk management continued
Note 37.3 Market risk continued
Foreign currency risk
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 are United States dollar,
Great British pound, Euro and Canadian dollar as shown below.
United States dollar
Great British pound
Euro
Canadian dollar
Total
United States dollar
Great British pound
Euro
Canadian dollar
Total
Equity price risk
2018
2017
Movement in
exchange
rates
%
Sensitivity
of equity
after tax
$m
Movement in
exchange
rates
%
Sensitivity
of equity
after tax
$m
CONSOLIDATED
+10
+10
+10
+10
-10
-10
-10
-10
(486)
(102)
(38)
(17)
(643)
594
125
46
21
786
+10
+10
+10
+10
–10
–10
–10
–10
(488)
(73)
(33)
(17)
(611)
597
90
40
21
748
The table below indicates the equity markets to which the Consolidated Entity had significant exposure at 31 March on its non-trading
investment portfolio. This excludes 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 (as a result of a change in the fair value of financial
assets designated at fair value) due to a reasonably possible change in equity prices, with all other variables held constant, is as follows:
Geographic region
Listed
Australia
Americas
Europe, Middle East and Africa
Asia Pacific
Unlisted
Total
Listed
Australia
Americas
Europe, Middle East and Africa
Asia Pacific
Unlisted
Total
Movement in
exchange
rates
%
2018
Sensitivity
of profit
after tax
$m
Sensitivity
of equity
after tax
$m
Movement in
exchange
rates
%
2017
Sensitivity
of profit
after tax
$m
Sensitivity
of equity
after tax
$m
CONSOLIDATED
+10
+10
+10
+10
+10
-10
-10
-10
-10
-10
–
5
–
–
25
30
–
(5)
–
–
(25)
(30)
1
–
2
–
33
36
(1)
–
(2)
–
(33)
(36)
+10
+10
+10
+10
+10
-10
-10
-10
-10
-10
–
4
2
2
16
24
–
(4)
(2)
(2)
(16)
(24)
24
31
4
–
85
144
(24)
(31)
(4)
–
(85)
(144)
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 162
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 38
Fair value of financial assets and financial liabilities
Fair value reflects the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
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
Level 2
quoted prices (unadjusted) in active markets for
identical assets or liabilities
inputs other than quoted prices included within
Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. 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.
AASB 13 Fair Value Measurement requires use of the price within
the bid-offer spread that is most representative of fair value.
Valuation systems will typically generate mid-market prices. The
bid-offer adjustment reflects the extent to which bid-offer costs
would be incurred if substantially all residual net portfolio market
risks were closed using available hedging instruments.
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 credit worthiness of the borrower
– the fair value of debt issued and loan capital issued at amortised
cost 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.
The following methods and significant assumptions have been
applied in determining the fair values of financial instruments which
are measured at fair value:
– 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 (for example 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 active quoted market
prices when available (for example 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 the
Consolidated Entity’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.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 163
NOTE 38
Fair value of financial assets and financial liabilities continued
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 (for example 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.
The fair values calculated for financial assets which are carried on the statement of financial position at amortised cost are for disclosure
purposes only. The methods and assumptions applied to derive these fair values, as described below, can require significant judgement by
management and therefore may not necessarily be comparable to other financial institutions.
The tables below summarise the carrying value and fair value of financial assets and financial liabilities held at amortised cost. Fair values are
calculated for disclosure purpose only.
Assets
Receivables from financial institutions
Other financial assets (1)
Loan assets held at amortised cost
Total assets
Liabilities
Deposits
Other financial liabilities (2)
Payables to financial institutions
Debt issued at amortised cost
Loan capital
Total liabilities
Assets
Due from subsidiaries
Total assets
Liabilities
Deposits
Payables to financial institutions
Due to subsidiaries
Debt issued at amortised cost
Loan capital
Total liabilities
2018
2017
Carrying value
$m
Fair value
$m
Carrying value
$m
Fair value
$m
CONSOLIDATED
38,559
12,521
81,150
38,559
12,521
81,438
27,471
11,053
76,663
27,471
11,053
77,060
132,230
132,518
115,187
115,584
59,412
9,847
15,440
53,717
5,392
59,429
9,847
15,485
54,157
5,593
57,708
9,396
17,072
50,828
5,748
143,808
144,511
140,752
17,242
17,242
24
3,191
843
12,177
1,135
17,370
17,306
17,306
24
3,201
843
12,256
1,169
17,493
9,613
9,613
11
2,413
911
5,746
1,130
57,722
9,396
17,157
51,468
5,965
141,708
COMPANY
10,020
10,020
11
2,442
911
6,112
1,187
10,211
10,663
(1) Excludes other non-financial assets of $5,202 million (2017: $4,784 million) and Life investment linked contracts and other unitholder assets of
$647 million (2017: $721 million) which are included in Note 10 – Other assets.
(2) Excludes other non-financial liabilities of $5,599 million (2017: $4,921 million) and Life investment linked contracts and other unitholder liabilities of
$640 million (2017: $714 million) which are included in Note 21 – Other liabilities.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 164
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 38
Fair value of financial assets and financial liabilities continued
The following table summarises the levels of the fair value hierarchy for financial assets and liabilities held at amortised cost:
Assets
Receivables from financial institutions
Other financial assets
Loan assets held at amortised cost
Total assets
Liabilities
Deposits
Other financial liabilities
Payables to financial institutions
Debt issued at amortised cost
Loan capital
Total liabilities
Assets
Receivables from financial institutions
Other financial assets
Loan assets held at amortised cost
Total assets
Liabilities
Deposits
Other financial liabilities
Payables to financial institutions
Debt issued at amortised cost
Loan capital
Total liabilities
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
CONSOLIDATED 2018
9,680
–
8,152
17,832
51,633
–
2,106
–
2,549
56,288
9,298
–
7,376
16,674
50,568
–
1,054
–
2,933
54,555
28,879
12,521
8,330
49,730
7,796
9,847
11,109
49,218
3,044
81,014
18,173
11,053
7,101
36,327
7,154
9,396
13,496
45,505
3,032
78,583
–
–
64,956
64,956
–
–
2,270
4,939
–
38,559
12,521
81,438
132,518
59,429
9,847
15,485
54,157
5,593
7,209
144,511
CONSOLIDATED 2017
–
–
62,583
62,583
–
–
2,607
5,963
–
27,471
11,053
77,060
115,584
57,722
9,396
17,157
51,468
5,965
8,570
141,708
The financial assets and liabilities held at amortised cost in the Company as at 31 March 2018 and 31 March 2017 are predominantly
classified as Level 2 in the fair value hierarchy except for ‘Loan capital’ classified as Level 1.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 165
NOTE 38
Fair value of financial assets and financial liabilities continued
The following table summarises the levels of the fair value hierarchy for financial instruments measured at fair value:
Assets
Trading portfolio assets
Derivative assets
Investment securities available for sale
Other financial assets at fair value through profit or loss
Other financial assets (1)
Total assets
Liabilities
Trading portfolio liabilities
Derivative liabilities
Other debt issued at fair value through profit or loss
Other financial liabilities (2)
Total liabilities
Assets
Trading portfolio assets
Derivative assets
Investment securities available for sale
Other financial assets at fair value through profit or loss
Other financial assets (1)
Total assets
Liabilities
Trading portfolio liabilities
Derivative liabilities
Other debt issued at fair value through profit or loss
Other financial liabilities (2)
Total liabilities
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
10,079
460
3,923
213
30
5,049
11,827
1,360
1,065
616
CONSOLIDATED 2018
457
650
883
156
1
15,585
12,937
6,166
1,434
647
14,705
19,917
2,147
36,769
6,409
633
–
–
7,042
18,075
770
3,997
109
23
1,652
10,943
2,357
639
15,591
8,444
10,987
1,640
1,325
691
–
349
6
1
356
8,061
11,925
2,363
640
22,989
CONSOLIDATED 2017
414
349
1,256
68
7
26,933
12,106
6,893
1,502
721
22,974
23,087
2,094
48,155
3,250
686
–
–
3,936
1,817
10,239
2,347
707
15,110
–
203
57
7
267
5,067
11,128
2,404
714
19,313
(1) This balance represents $647 million (2017: $721 million) of life investment linked contracts and other unitholder assets which are included in Note 10 –
Other assets.
(2) This balance represents $640 million (2017: $714 million) of life investment linked contracts and other unitholder liabilities which are included in Note 21 –
Other liabilities.
The Company does not hold financial instruments measured at fair value.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 166
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 38
Fair value of financial assets and financial 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 2018 and 31 March 2017:
Trading portfolio
assets
$m
Investment securities
available for sale
$m
Other financial
assets at fair value
through profit or loss
Other financial
assets
$m
Other
debt issued
at fair value
through
profit or loss
Derivative financial
instruments
Other financial
(net replacement
liabilities
$m
values) (2)
$m
Balance as at 1 April 2016
Purchases
Sales
Settlements
Transfers into Level 3
Transfers out of Level 3
Fair value (losses)/gains recognised in the income statement (1)
Fair value losses recognised in other comprehensive income (1)
Balance as at 31 March 2017
Fair value (losses)/gains for the financial year included in the income statements for assets and
liabilities held at the end of the financial year (1)
Balance as at 1 April 2017
Purchases
Sales
Settlements
Transfers into Level 3
Transfers out of Level 3
Fair value (losses)/gains recognised in the income statement (1)
Fair value losses recognised in other comprehensive income (1)
Balance as at 31 March 2018
Fair value (losses)/gains for the financial year included in the income statements for assets and
liabilities held at the end of the financial year (1)
807
224
(521)
–
126
(218)
(4)
–
414
–
414
344
(377)
–
80
(2)
(2)
–
457
(2)
1,968
162
(387)
(237)
2
(177)
87
(162)
1,256
(7)
1,256
156
(308)
(42)
20
(56)
5
(148)
883
(9)
(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 of 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 $650 million
(2017: $349 million) and derivative liabilities are $349 million (2017: $203 million).
$m
46
29
(8)
–
–
–
1
–
5
68
68
130
(29)
(1)
34
(88)
42
–
156
13
$m
(54)
(3)
(57)
(5)
(57)
51
–
–
–
–
–
–
–
–
–
–
–
–
–
79
(72)
–
–
–
–
–
–
7
–
7
–
–
–
–
–
–
1
–
(6)
(6)
(1)
CONSOLIDATED 2017
CONSOLIDATED 2018
Total
$m
3,048
507
(1,112)
(237)
136
(430)
77
(162)
1,827
(10)
1,827
810
(673)
(43)
140
(149)
27
(148)
1,791
(16)
209
92
(124)
–
8
(35)
(4)
–
146
(3)
146
180
(10)
–
6
(3)
(18)
–
301
(18)
(7)
(7)
(7)
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries NOTE 38
Fair value of financial assets and financial 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 2018 and 31 March 2017:
Fair value (losses)/gains recognised in the income statement (1)
Fair value losses recognised in other comprehensive income (1)
Balance as at 31 March 2017
Fair value (losses)/gains for the financial year included in the income statements for assets and
liabilities held at the end of the financial year (1)
Balance as at 1 April 2016
Purchases
Sales
Settlements
Transfers into Level 3
Transfers out of Level 3
Balance as at 1 April 2017
Purchases
Sales
Settlements
Transfers into Level 3
Transfers out of Level 3
807
224
(521)
–
126
(218)
(4)
–
414
–
414
344
(377)
–
80
(2)
(2)
–
457
(2)
1,968
162
(387)
(237)
2
(177)
87
(162)
1,256
(7)
1,256
156
(308)
(42)
20
(56)
5
(148)
883
(9)
Fair value (losses)/gains recognised in the income statement (1)
Fair value losses recognised in other comprehensive income (1)
Balance as at 31 March 2018
Fair value (losses)/gains for the financial year included in the income statements for assets and
liabilities held at the end of the financial year (1)
(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 of 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 $650 million
(2017: $349 million) and derivative liabilities are $349 million (2017: $203 million).
Trading portfolio
Investment securities
assets
$m
available for sale
$m
Other financial
assets at fair value
through profit or loss
$m
Other financial
assets
$m
Other
debt issued
at fair value
through
profit or loss
$m
Other financial
liabilities
$m
Derivative financial
instruments
(net replacement
values) (2)
$m
46
29
(8)
–
–
–
1
–
68
5
68
130
(29)
(1)
34
(88)
42
–
156
13
79
–
(72)
–
–
–
–
–
7
–
7
–
(6)
–
–
–
–
–
1
–
(54)
–
–
–
–
–
(3)
–
(57)
(5)
(57)
–
51
–
–
–
–
–
(6)
–
(7)
–
–
–
–
–
–
–
(7)
–
(7)
–
6
–
–
–
–
–
(1)
–
209
92
(124)
–
8
(35)
(4)
–
146
(3)
146
180
(10)
–
6
(3)
(18)
–
301
(18)
167
Total
$m
CONSOLIDATED 2017
3,048
507
(1,112)
(237)
136
(430)
77
(162)
1,827
(10)
CONSOLIDATED 2018
1,827
810
(673)
(43)
140
(149)
27
(148)
1,791
(16)
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 168
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 38
Fair value of financial assets and financial 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 financial year. Transfers between levels are deemed to have
occurred as of the beginning of the reporting period in which the instrument has been transferred.
Unrecognised gain
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:
Balance at the beginning of the financial year
Deferral on new transactions
Amounts recognised in the income statements during the financial year
Balance at the end of the financial year
Sensitivity analysis of valuations using unobservable inputs
CONSOLIDATED
2018
$m
185
34
(41)
178
2017
$m
153
88
(56)
185
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 cash flows, which are
based on assumptions that have been determined by reference to historical company and industry experience.
Product type
Equity and equity linked products
Commodities and other products
Total
Product type
Equity and equity linked products
Commodities and other products
Total
FAVOURABLE CHANGES
UNFAVOURABLE CHANGES
Profit
or loss
$m
Equity
$m
Profit
or loss
$m
Equity
$m
13
88
101
9
78
87
58
5
63
89
8
97
CONSOLIDATED 2018
(13)
(92)
(105)
(55)
(5)
(60)
CONSOLIDATED 2017
(9)
(102)
(111)
(82)
(8)
(90)
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 169
NOTE 38
Fair value of financial assets and financial 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.
Assets
$m
Liabilities
$m
Valuation
technique(s)
Significant
unobservable
inputs
RANGE OF INPUTS
Minimum
value
Maximum
value
CONSOLIDATED 2018
Equity and equity linked
products
651
32
Discounted
cash flows
Discount rate
5.0%
11.0%
Commodities and other
products
1,496
324
Total
Equity and equity linked
products
2,147
855
356
19
Commodities and other
products
1,239
248
Pricing model
Earnings multiple
2x
13.9x
Market comparability
Discounted
cash flows
Pricing model
Market comparability
Price in % (1)
Discount rate
Volatility
Correlation
Price in % (1)
4.0%
10.0%
5.0%
(40.0%)
178.3%
100.0%
Discounted
cash flows
Discount rate
8.0%
11.0%
CONSOLIDATED 2017
Pricing model
Earnings multiple
1.0x
21.2x
Market comparability
Discounted
cash flows
Pricing model
Market comparability
Price in % (1)
Discount rate
Volatility
Correlation
Price in % (1)
4.0%
10.0%
6.0%
(40.0%)
108.0%
100.0%
Total
2,094
267
(1) The range of inputs relating to market comparability is not disclosed as the diverse nature of the underlying investments results in a wide range of inputs.
Correlation
Correlation is a measure of the relationship between the movements of two variables (i.e. 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.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 170
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 39
Offsetting financial assets and financial liabilities
The Consolidated Entity reports financial assets and financial liabilities on a net basis on the statement of financial position when they meet
the criteria described in Note 1(xxvi) – Offsetting financial instruments. The following tables provide information on the impact of offsetting
that has occurred in the statement of financial position, as well as amounts subject to enforceable netting arrangements that do not
meet all the criteria for offsetting in the statement of financial position. 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 effects on the
Consolidated Entity and Company’s financial position in that circumstance is to settle as one arrangement. The Consolidated Entity uses a
variety of credit risk mitigation strategies in addition to netting and collateral arrangements, therefore amounts presented in this note are not
intended to represent the credit risk exposure of the entity, refer to Note 37.1 – Credit risk for information on credit risk management.
AMOUNTS SUBJECT TO ENFORCEABLE NETTING ARRANGEMENTS
SUBJECT TO OFFSETTING IN THE
STATEMENT OF FINANCIAL POSITION
RELATED AMOUNTS
NOT OFFSET (7)
Other
recognised
financial
instru-
ments (5)
$m
Cash
and other
financial
collateral (6)
$m
Net
amount
presented
$m
Gross
amounts
$m
Amounts
offset
$m
29,062
18,103
4,747
(1,099)
(6,146)
(2,825)
27,963
11,957
1,922
(1,664)
(6,697)
(17)
373
(244)
129
–
(25,772)
(2,069)
–
–
52,285
(10,314)
41,971
(8,378)
(27,841)
(11,202)
6,697
2,191
Net
amount
$m
527
3,191
1,905
129
5,752
(2,314)
Amounts
not
subject to
enforceable
netting
arrange-
ments
$m
Statement
of financial
position
total
$m
CONSOLIDATED 2018
10,596
980
11,246
1,305
24,127
(723)
38,559
12,937
13,168
1,434
66,098
(11,925)
(59,412)
(10,487)
(15,440)
(97,264)
(17,348)
(273)
(4,455)
(6,464)
6,146
244
2,825
1,099
(29)
(1,630)
(5,365)
–
17
1,664
8,378
–
–
3,382
5,573
(29)
(59,383)
(1,613)
(319)
(4,275)
(8,857)
(10,075)
(79,038)
Total liabilities
(28,540)
10,314
(18,226)
Includes repurchase arrangements and other similar secured lending.
(1)
(2) Excludes other non-financial assets of $5,202 million which is included in Note 10 – Other assets.
(3) Excludes other non-financial liabilities of $5,599 million which is included in Note 21 – Other liabilities.
(4)
(5) Financial instruments recognised in the statement of financial position but not offset due to not meeting all the criteria for net presentation.
(6) Amounts received or pledged as collateral in relation to the gross amounts of assets and liabilities.
(7) Related amounts not offset have been limited to the net amount presented in the statement of financial position so as not to include the effect of
Includes repurchase arrangements and other similar secured borrowing.
over-collateralisation.
Receivables from financial
institutions (1)
Derivative assets
Other assets(2)
Other financial assets at fair
value through profit or loss
Total assets
Derivative liabilities
Deposits
Other liabilities (3)
Payables to financial institutions (4)
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 171
Amounts
not
subject to
enforceable
netting
arrange-
ments
$m
Statement
of financial
position
total
$m
CONSOLIDATED 2017
Net
amount
$m
266
2,121
2,747
128
5,262
(1,004)
NOTE 39
Offsetting financial assets and financial liabilities continued
AMOUNTS SUBJECT TO ENFORCEABLE NETTING ARRANGEMENTS
SUBJECT TO OFFSETTING IN THE
STATEMENT OF FINANCIAL POSITION
RELATED AMOUNTS
NOT OFFSET (7)
Other
recognised
financial
instru-
ments (5)
$m
Cash
and other
financial
collateral (6)
$m
Net
amount
presented
$m
Gross
amounts
$m
Amounts
offset
$m
Receivables from financial
institutions (1)
Derivative assets
Other assets (2)
Other financial assets at fair
value through profit or loss
Total assets
Derivative liabilities
Deposits
Other liabilities (3)
Payables to financial institutions (4)
Other debt issued at fair value
through profit or loss
17,558
16,907
5,835
442
40,742
(15,378)
(246)
(5,560)
(6,921)
(97)
–
(5,354)
(3,059)
(314)
(8,727)
5,354
219
3,059
–
95
17,558
11,553
2,776
128
32,015
(10,024)
(27)
(2,501)
(6,921)
(16,217)
(2,762)
–
–
(18,979)
2,350
(1,075)
(6,670)
(29)
–
(7,774)
6,670
–
29
–
–
(27)
(57,681)
(2,472)
(7,609)
1,075
5,596
(250)
(10,151)
9,913
553
8,998
1,374
20,838
(1,104)
27,471
12,106
11,774
1,502
52,853
(11,128)
(57,708)
(10,110)
(17,072)
(2)
–
–
(2)
(2,402)
(2,404)
Total liabilities
(28,202)
8,727
(19,475)
7,774
7,946
(3,755)
(78,947)
(98,422)
Includes reverse repurchase arrangements and other similar secured lending.
(1)
(2) Excludes other non-financial assets of $4,784 million which is included in Note 10 – Other assets.
(3) Excludes other non-financial liabilities of $4,921 million which is included in Note 21 – Other liabilities.
(4)
(5) Financial Instruments recognised in the statement of financial position but not offset due to not meeting all the criteria for net presentation.
(6) Amounts received or pledged as collateral in relation to the gross amounts of assets and liabilities.
(7) Related amounts not offset have been limited to the net amount presented in the statement of financial position so as not to include the effect of
Includes repurchase arrangements and other similar secured borrowing.
over-collateralisation.
AMOUNTS SUBJECT TO ENFORCEABLE NETTING ARRANGEMENTS
SUBJECT TO OFFSETTING IN THE
STATEMENT OF FINANCIAL POSITION
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
Due from subsidiaries
Due to subsidiaries
Due from subsidiaries
Due to subsidiaries
20,116
(3,687)
12,702
(3,629)
(2,875)
2,875
(2,714)
2,714
17,241
(812)
9,988
(915)
–
–
–
–
–
–
–
–
Amounts not
subject to
enforceable
netting
arrange-
ments
$m
Statement
of financial
position
total
$m
COMPANY 2018
28
(31)
17,269
(843)
COMPANY 2017
21
(30)
10,009
(945)
Net
amount
$m
17,241
(812)
9,988
(915)
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 172
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 40
Transfers of financial assets
The Consolidated Entity may enter into transactions in the normal course of business that transfer financial assets recognised in the
statement of financial position to other entities. Depending on the criteria discussed in Note 1 (ix) – Recognition and derecognition of
financial instruments, the Consolidated Entity may be unable to derecognise the transferred asset, be able to derecognise the transferred
assets in full or continue to recognise the asset to the extent of continuing involvement.
Transferred financial assets that are derecognised
When financial assets are derecognised, some continuing involvement may be retained in the assets through liquidity support, financial
guarantees, certain derivatives or certain securitisation interests. For the years ending 31 March 2018 and 31 March 2017, there were no
material transfers of financial assets where the Consolidated Entity or Company retained a continuing involvement in the transferred asset.
Transferred financial assets that are not derecognised
The Consolidated Entity and the Company did not recognise financial assets only to the extent of continuing involvement in the years ending
31 March 2018 and 31 March 2017. The following transactions typically result in the transferred assets continuing to be recognised in full.
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.
FOR THOSE LIABILITIES THAT ONLY HAVE
RECOURSE TO THE TRANSFERRED ASSETS
Carrying
amount of
transferred
assets
$m
Carrying
amount of
associated
liabilities
$m
Fair Value of
transferred
assets
$m
Fair Value of
associated
liabilities
$m
Net Fair
value
$m
CONSOLIDATED 2018
Financial assets not derecognised due to repurchase
and securities lending agreements:
Trading portfolio assets
2,690
(2,654)
Financial assets not derecognised due to total
return/asset swaps:
Investment securities available for sale
Other financial assets not derecognised:
Loan assets held at amortised cost
Total financial assets not derecognised
517
(485)
749
3,956
(762)
(3,901)
Financial assets not derecognised due to repurchase
and securities lending agreements:
Trading portfolio assets
4,874
(4,997)
Financial assets not derecognised due to total
return/asset swaps:
Investment securities available for sale
Other financial assets not derecognised:
Loan assets held at amortised cost
Total financial assets not derecognised
509
(475)
594
5,977
(594)
(6,066)
–
–
756
756
–
–
606
606
–
–
(768)
(768)
–
–
(12)
(12)
CONSOLIDATED 2017
–
–
(588)
(588)
–
–
18
18
There were no material transfers of financial assets for the Company where the financial assets are not derecognised as at 31 March 2018
and at 31 March 2017.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
173
NOTE 41
Audit and other services provided by PricewaterhouseCoopers
During the financial year, the auditor of the Consolidated Entity and the Company, PwC and its network firms earned the
following remuneration:
CONSOLIDATED
COMPANY
2018
$’000
2017
$’000
2018
$’000
2017
$’000
PwC – Australia
Audit of the Group and controlled entities
13,283
11,586
Other assurance services (1)
Advisory services
Taxation
Total non-audit services
Total remuneration paid to PwC Australia
Network firms of PwC Australia
Audit of the Group and controlled entities
Other assurance services (1)
Advisory services
Taxation
Total non-audit services
5,548
483
241
6,272
19,555
3,863
32
484
4,379
15,965
12,260
14,001
1,190
668
1,699
3,557
1,220
1,359
3,082
5,661
Total remuneration paid to network firms of PwC Australia
15,817
19,662
Total Audit Services remuneration paid to PwC
Total Non-Audit Services remuneration paid to PwC
Total remuneration paid to PwC (Note 2)
25,543
9,829
35,372
25,587
10,040
35,627
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1) Other assurance services consist of engagements in relation to an audit that are not the direct audit or review of financial reports. These services include
regulatory compliance, accounting advice, comfort letters on debt issuance programs, certifications, due diligence and reviews of controls, and other
agreed upon procedures.
Use of PwC’s services for engagements other than audit and assurance is restricted in accordance with the Company’s Auditor
Independence Policy. It is the Consolidated Entity’s policy to seek competitive tenders for all major advisory projects.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 174
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 2018
CONTINUED
NOTE 42
Acquisitions and disposals of subsidiaries and businesses
Significant entities or businesses consolidated due to acquisition of control:
There were no significant entities or businesses consolidated due to acquisition of control during the current financial year.
Other entities or businesses consolidated due to acquisition of control:
UK Green Investment Bank Plc, Cargill, Inc.’s global oil trading business (Cargill Petroleum), Cargill, Inc.’s North American natural gas and
electricity business (Cargill North American Power and Gas), Acacia Renewables K.K., Hirasawa Power West GK, M-Icheon Company
Limited, M-Daon Company Limited, M-Haman Company Limited, Achim Solar Co Ltd., Norte III Power S.A.P.I. de C.V, PropertyIQ Pty. Ltd,
PropertyIQ Strata Pty. Ltd., ADL Software Pty Ltd.
On 17 August 2017, Macquarie acquired UK Green Investment Bank Plc (GIB) from the Government of United Kingdom. GIB comprises
of a portfolio of green infrastructure equity and debt investments and wholly owns UK Green Investment Bank Financial Services Ltd (“GIB
FS”), a regulated and licenced fund manager.
During the financial year ended 31 March 2017, other entities or businesses acquired or consolidated due to acquisition of control were:
Re-Clean Co. Ltd, Sparks Battery Holdings, LLC, Hybrid-Electric Building Technologies Irvine 1, LLC, Hybrid-Electric Building
Technologies Irvine 2, LLC, Hybrid-Electric Building Technologies West Los Angeles 1, LLC and Hybrid-Electric Building Technologies,
West Los Angeles 2, LLC.
Aggregate details of the entities and businesses consolidated due to acquisition of control are as follows:
Fair value of net assets acquired
Receivables from financial institutions
Property, plant and equipment
Other Intangible assets
Interests in associates and joint ventures
Other assets(1)
Other financial assets
Payables, provisions, borrowings and other liabilities
Non-controlling interests
Total fair value of net assets acquired
Consideration
Cash consideration (including transaction costs)
Deferred consideration
Fair value of equity interest held before the acquisition date
Total consideration
Goodwill recognised on acquisition
Net cash flow
Cash consideration
Less: cash and cash equivalents acquired
Net cash outflow
(1)
Includes assets classified as held for sale and other non-financial assets.
2018
$m
101
36
83
24
1,722
250
(437)
(1)
1,778
1,856
1
2
1,859
81
(1,856)
101
(1,755)
2017
$m
6
3
80
–
2
–
(27)
–
64
72
4
–
76
12
(72)
6
(66)
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 175
NOTE 42
Acquisitions and disposals of subsidiaries and businesses continued
Significant entities or 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 due to loss of control:
Macquarie Financial Ltd., Levantera Development Limited, New Zoom Inc, Reclean Holdings and its Subsidiaries, Chaptre Investments
Limited, Chaptre GreenCo Limited, EIH PPP Limited, Eriugena Investments Limited, Eriugena Holdings Limited, Eriugena Designated
Activity Company, Haiding One International Investment Co. Ltd., Haiding Two International Investment Co. Ltd., Haiding Three International
Investment Co. Ltd., Hirasawa Power West Godo Kaisha, Norte III Power, S.A.P.I. de C.V, Advantage Funding Receivables LLC, Advantage
Funding Commercial Capital Corp., Advantage Funding Services LLC, Advantage Funding Management Co. Inc., Advantage Funding
Leasing LLC, Advantage Funding Auto Trust, Advantage Title Agent LLC.
During the financial year ended 31 March 2017, other entities or businesses disposed of or deconsolidated due to loss of control were:
Firebolt RB Holdings Limited, Macquarie Life’s risk insurance business, US Mortgages, Macquarie Equities New Zealand Limited, Macquarie
Equity Custodians Limited, International Life Solutions Proprietary Limited, Macquarie APTT Management PTE Limited,
Noctua Square Investments B.V, NACH B.V, Brek Manufacturing Co, Godo Kaisha ACMP2 and Godo Kaisha ACMP3.
Aggregate details of the entities or businesses disposed of or deconsolidated are as follows:
Carrying value of assets and liabilities disposed of or deconsolidated
Receivables from financial institutions
Property, plant and equipment
Other Intangible assets
Interests in associates and joint ventures
Other assets
Other financial assets
Payables, provisions, borrowings and other liabilities
Non-controlling interests
Total carrying value of net assets disposed of or deconsolidated
Consideration
Cash consideration (net of cost of disposal)
Consideration receivable
Fair value remeasurement of investment retained
Total consideration
Direct costs relating to disposal
Net cash flow
Cash consideration
Less cash and cash equivalents disposed of or deconsolidated
Cash outflow on direct costs related to disposal
Net cash inflow
2018
$m
55
81
16
–
707
1,003
(1,264)
(2)
596
376
416
218
1,010
(5)
376
(55)
–
321
2017
$m
48
17
50
1,294
175
535
(1,153)
(174)
792
937
151
133
1,221
(21)
937
(46)
(10)
881
NOTE 43
Events after the reporting date
There were no material events subsequent to 31 March 2018 that have not been reflected in the financial statements.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTIncome StatementsStatements of comprehensive incomeStatements of financial positionStatements of changes in equityStatements of cash flowsNotes to the financial statementsDirectors’ declaration Independent auditor’s reportFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 176
MACQUARIE GROUP LIMITED
DIRECTORS’ DECLARATION
In the Directors’ opinion:
a) the financial statements and notes set out on pages 84 to 175 are in accordance with the Corporations Act 2001 (Cth) including:
(i) complying with the Australian accounting standards, and
(ii) giving a true and fair view of the Company’s and the Consolidated Entity’s financial positions as at 31 March 2018 and their
performance for the financial year ended on that date, and
b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
Note 1(i) includes a statement that the financial report complies with International Financial Reporting Standards.
The Directors have been given the declarations by the CEO and CFO required by section 295A of the Corporations Act 2001 (Cth).
This declaration is made in accordance with a resolution of the Directors.
Peter Warne
Independent Director and Chairman
Nicholas Moore
Managing Director and Chief Executive Officer
Sydney
4 May 2018
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MACQUARIE GROUP LIMITED
177
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
REPORT ON THE AUDIT OF THE FINANCIAL REPORT
Our opinion
In our opinion:
The accompanying financial report of Macquarie Group
Limited (the Company) and its controlled entities (together the
Consolidated Entity) is in accordance with the Corporations Act
2001 (Cth), including:
(a) giving a true and fair view of the Company’s and the
Consolidated Entity’s financial position as at 31 March 2018 and
of their financial performance for the year then ended; and
(b) complying with Australian Accounting Standards and the
Corporations Regulations 2001 (Cth).
What we have audited
Macquarie Group Limited’s financial report comprises:
– the Company and the Consolidated Entity statements of financial
position as at 31 March 2018
– the Company and the Consolidated Entity income statements for
the year then ended
– the Company and the Consolidated Entity statements of
comprehensive income for the year then ended
– the Company and the Consolidated Entity statements of
changes in equity for the year then ended
– the Company and the Consolidated Entity statements of cash
flows for the year then ended
– the notes to the financial statements, which include a summary
of significant accounting policies, and
– the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing
Standards. Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of the
financial report section of our report.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We are independent of the Consolidated Entity in accordance
with the auditor independence requirements of the Corporations
Act 2001 (Cth) and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of
Ethics for Professional Accountants (the Code) that are relevant to
our audit of the financial report in Australia. We have also fulfilled our
other ethical responsibilities in accordance with the Code.
Our audit approach
An audit is designed to provide reasonable assurance about
whether the financial report is free from material misstatement.
Misstatements may arise due to fraud or error. They are considered
material if individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial report.
The Consolidated Entity is structured into five global operating
groups and a corporate segment. The Consolidated Entity has
operations in multiple overseas locations, including sites in
Gurugram, Jacksonville and Manila which undertake operational
activities that are important to the financial reporting processes.
The Consolidated Entity’s financial report is a consolidation of the
five global operating groups and the corporate segment.
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial report
as a whole, taking into account the geographic and management
structure of the Consolidated Entity, its accounting processes and
controls and the industry in which it operates.
Consolidated Entity materiality
For the purpose of our Consolidated Entity audit we used overall
materiality of $150 million, which represents approximately 5%
of the Consolidated Entity’s profit before tax. We applied this
threshold, together with qualitative considerations, to determine
the scope of our audit and the nature, timing and extent of our
audit procedures and to evaluate the effect of misstatements on
the financial report as a whole.
We chose profit before tax as the benchmark because, in our
view, it is the benchmark against which the performance of the
Consolidated Entity is most commonly measured. We selected 5%
based on our professional judgement, noting it is within the range of
commonly accepted thresholds.
Consolidated Entity audit scope
Our overall approach to setting our audit scope was to focus
our audit in areas where we identified a higher risk of material
misstatement to the financial report, including areas where the
directors made subjective judgements; for example, significant
accounting estimates involving assumptions and inherently
uncertain future events. To conduct this risk assessment, we
considered the inherent risks facing the Consolidated Entity,
including those arising from its respective business operations,
and how the Consolidated Entity manages these risks. We also
considered a number of other factors including the design and
implementation of the Consolidated Entity’s control environment
relevant to the audit, the appropriateness of the use of the going
concern basis of accounting in the preparation of the financial
report and the risk of management override of key controls.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 178
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MACQUARIE GROUP LIMITED
CONTINUED
We aligned our audit to the Consolidated Entity’s structure by
instructing a component audit team for each of the five global
operating groups and the corporate segment. These component
audit teams established an audit strategy tailored for each operating
group and the corporate segment, in consultation with the group
audit team.
The work performed by the component audit teams and the
overseas audit teams, together with additional audit procedures
performed by the group audit team such as procedures over
the Consolidated Entity’s consolidation and the financial report
disclosures, provided us with the information we needed for our
opinion on the Consolidated Entity’s financial report as a whole.
Given the extent of the overseas operations of the Consolidated
Entity, the component audit teams instructed a number of other
PwC firms in overseas locations to perform audit procedures
ranging from an audit of financial information to specified risk
focussed audit procedures. The group audit team determined
the level of supervision and direction it needed to have over the
audit work performed by the component audit teams, including
over the component audit teams’ review and supervision of the
overseas audit teams they, in turn, instructed. As part of the overall
supervision of our audit and to develop our understanding of the
Consolidated Entity’s global operations, the group audit team
or the component audit teams also visited overseas locations,
including Geneva, Gurugram, Hong Kong, Houston, Jacksonville,
London, Manila, New York, San Francisco, Singapore and Tokyo.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for
the current period. We have communicated the key audit matters to the Board Audit Committee. The key audit matters were addressed
in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. The key audit matters
identified below relate to both the Company and the Consolidated Entity audits conducted, unless otherwise noted.
Key audit matter
Provisions for loan losses
Refer to Note 11
How our audit addressed the key audit matter
The Consolidated Entity holds both specific and collective
impairment provisions over loan assets. Specific impairment
provisions are created when the impairment of an individual loan
is recognised. The collective impairment provision is intended to
cover losses in the existing overall loan portfolio which have not yet
been individually identified.
The identification of loans that are deteriorating and the assessment
of the present value of expected future cash flows from the loans in
determining specific impairment provisions are inherently uncertain,
involving various assumptions and judgments.
In estimating the collective impairment provisions, judgement
is required in the design of the models used and the selection
of assumptions adopted, such as the estimate of the likelihood
of default and the potential loss given default. A management
overlay is also included in the overall collective provision to reflect
emerging trends or particular situations which are not captured by
these models.
Given the extent of judgment involved, we considered this to be a
key audit matter.
Our procedures included assessing the design and operating
effectiveness of certain controls relating to the timely recognition
and measurement of impairments for loan losses.
For specific loan loss provisions, we examined a sample of
individual loan exposures. We applied judgment in selecting this
sample, including consideration of sectors that may pose an
increased risk of uncertainty and certain geographic regions of the
Australian property market. We also evaluated a sample of loan
assets written off or disposed of to assess, with the benefit of
hindsight, the Consolidated Entity’s ability to accurately estimate
specific loan loss provisions.
For the collective provisions, assisted by our experts, we tested
on a sample basis:
– the appropriateness of the design and use of the models used
by the Consolidated Entity, and
– the appropriateness of the assumptions adopted and data used
in the models, by using our knowledge of industry developments
and the actual loss experience of the Consolidated Entity.
We also examined and assessed the analysis performed by the
Consolidated Entity in determining the management overlay.
We assessed the appropriateness of the Consolidated Entity’s
disclosure in the financial report.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 179
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
Key audit matter
How our audit addressed the key audit matter
Valuation of financial assets and liabilities held at fair value
Refer to Note 38
The Consolidated Entity exercises judgement in valuing certain
assets and liabilities at fair value where there are significant
unobservable inputs for the valuation of these assets and
liabilities. These assets and liabilities are known as Level 3
financial instruments.
For the Consolidated Entity, these Level 3 financial instruments
predominantly consist of derivatives and unlisted equity and debt
investments. Judgement is required in estimating the fair value
of these financial instruments in determining appropriate models,
assumptions and inputs.
Given the extent of judgement involved in valuing these Level 3
financial instruments, we considered this to be a key audit matter.
Impairment of assets
Refer to Note 2 and 14
The Consolidated Entity holds certain assets where the recoverable
amount is required to be considered under AASB 136. At year
end, the Consolidated Entity considered whether there were any
indicators that these assets might be impaired. Where indicators
existed, the Consolidated Entity then compared carrying amounts
of the relevant assets to the higher of their estimated value-in-use
and fair value less costs of disposal in accordance with AASB 136.
Value-in-use is the calculation of the net present value of the cash
flows expected from the Consolidated Entity’s use of an asset.
This calculation requires an estimation of the expected future cash
flows associated with the use of an asset and the determination of
certain assumptions such as discount rates and growth rates.
In respect of its portfolio of aircraft assets, the Consolidated Entity
also obtained independent valuation reports for certain aircraft from
external appraisers to assist in developing their estimates of the
recoverable amounts of these assets.
Given the extent of judgement required in respect of impairment of
assets we considered this to be a key audit matter.
Our procedures included assessing the design and testing the
operating effectiveness of certain controls relating to Level 3
financial instruments, including controls over:
– approval and validation of the models adopted
– accuracy of data feeds and inputs to models
– the Consolidated Entity’s process for testing valuations, and
– governance and review.
For derivatives, we assessed a sample of valuations by considering
the modelling approaches and inputs, assisted by PwC valuation
experts. We also considered a sample of collateral disputes, gains
and losses on disposals and other events to help assess the
appropriateness of the valuations.
For a sample of unlisted equity and debt investments, we assessed
the appropriateness of the valuation methodologies applied, and
assessed the sensitivity of the Consolidated Entity’s valuations to
alternative methodologies and assumptions where appropriate. We
also evaluated a sample of disposals to assess, with the benefit of
hindsight, the Consolidated Entity’s ability to estimate fair values.
We assessed the appropriateness of the Consolidated Entity’s
disclosure in the financial report.
Our procedures included:
– updating our understanding of prevailing market conditions and
factors that could materially affect the fair value and usage of the
relevant assets, and considering whether these may represent
indicators of impairment
– evaluating the appropriateness of the impairment
assessment methodology and the assumptions applied
in the value-in-use calculations, and
– engaging PwC valuation experts where relevant.
In respect of the aircraft assets, our procedures also included:
– assessing the competency, capability and objectivity of external
appraisers, as well as the appropriateness of methodologies and
assumptions used by the appraisers, and
– comparing the realised value of certain aircraft sold during
the year against the carrying value to assess, with the benefit
of hindsight, the Consolidated Entity’s ability to accurately
make estimates.
We assessed the appropriateness of the Consolidated Entity’s
disclosure in the financial report.
IT systems and controls over financial reporting
The Consolidated Entity’s operations and financial reporting
systems are heavily dependent on IT systems, including automated
accounting procedures and IT dependent manual controls.
The Consolidated Entity’s controls over IT systems include:
– the framework of governance over IT systems
– controls over program development and changes
– access to programs, data and IT operations, and
– governance over generic and privileged user accounts.
Given the reliance on the IT systems in the financial reporting
process, we considered this to be a key audit matter.
Our procedures included evaluating and testing the design and
operating effectiveness of certain controls over the continued
integrity of the IT systems that are relevant to financial reporting.
We also carried out direct tests, on a sample basis, of system
functionality that was key to our audit testing in order to assess
the accuracy of certain system calculations, the generation of
certain reports and the operation of certain system enforced
access controls.
When considered appropriate we performed alternative audit
procedures on the financial information that was key to our audit
testing produced by the IT systems.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 180
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MACQUARIE GROUP LIMITED
CONTINUED
Key audit matter
How our audit addressed the key audit matter
Provisions for tax payable and deferred tax liabilities
Refer to Note 18 and 21
The Consolidated Entity is subject to taxation in a number of
jurisdictions. The assessment of the amounts expected to be paid
to tax authorities is considered initially by the Consolidated Entity at
a local level and then reviewed centrally, with consideration given
to particular tax positions in certain jurisdictions. In some cases,
the treatment of tax positions requires judgement to estimate the
ultimate amounts of tax that will be paid.
Given the extent of judgement involved, we considered this to be
a key audit matter.
Disclosure of the impact of AASB 9
Refer to Note 1
On 1 April 2018 the Consolidated Entity transitioned to financial
instruments accounting standard AASB 9 which replaced
AASB 139. AASB 9 relates to impairment, classification and
measurement of financial instruments and hedge accounting.
Disclosure has been included in these 31 March 2018
financial statements which is intended to provide users with an
understanding of the estimated transition impact of the new
standard. As required, further disclosure will be included in the
2019 financial statements.
Under the new AASB 9 impairment model, losses are recognised
on an Expected Credit Loss (ECL) basis. ECLs are required to
incorporate forward-looking information, reflecting the Consolidated
Entity’s view of potential future economic environments. The
complexity involved required the Consolidated Entity to develop
new models involving the use of significant judgements, post model
adjustments and a large increase in the data inputs required by
these models.
Separately, the standard introduces new requirements around the
classification and measurement of financial instruments, and the
qualifying criteria for hedge accounting.
Given this is a new and complex accounting standard which
requires considerable judgement, we considered the transition
disclosure to be a key audit matter.
Our procedures included evaluating the analysis conducted by
the Consolidated Entity which sets out the basis for judgements
made in respect of the ultimate amounts expected to be paid to
tax authorities.
Assisted by PwC tax experts, we read a risk focused selection
of correspondence with tax authorities and external advice
obtained by the Consolidated Entity and used our understanding
of the business to assess and challenge the completeness and
quantum of the provisions for tax. We independently considered
the likelihood of additional tax exposures occurring based on our
knowledge of tax legislation, applicable precedent and industry
developments, noting the level of judgement involved.
We assessed the appropriateness of the Consolidated Entity’s
disclosure in the financial report.
Our procedures included assessing the design and testing
the operating effectiveness of certain controls supporting the
Consolidated Entity’s estimate of the impairment transition
adjustment focusing on:
– model development, validation and approval to support
compliance with AASB 9 requirements
– review and approval of key assumptions, judgements and
forward looking information prior to use in the models
– the integrity of data used as input into the models including
the transfer of data between source systems and the models
– review and approval of post model adjustments, and
– review and approval of the output of the models and related
transition impacts.
We examined and assessed the ECL models developed by the
Consolidated Entity, including using PwC credit modelling experts
in our assessment of judgements and assumptions supporting the
ECL requirements of AASB 9. We assessed the reasonableness
of forward looking information incorporated into the impairment
calculations by using PwC experts to challenge the multiple
economic scenarios chosen by the Consolidated Entity and the
weighting applied to capture non-linear losses. We assessed
the post model adjustments in the context of key model and data
limitations identified by the Consolidated Entity, considered their
rationale and recalculated where necessary.
We examined and assessed the controls and judgements relating
to the classification and measurement of financial instruments.
We also examined the controls and judgements relating to the
designation and documentation of the eligible hedging relationships
and their prospective hedging effectiveness. We assessed the
appropriateness of the Consolidated Entity’s transition disclosure
in the financial statements.
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 181
Income Statements
Statements of comprehensive income
Statements of financial position
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
Key audit matter
How our audit addressed the key audit matter
Reversal of impairment on investment in subsidiary (Company only)
Refer to Note 17
At year end, the Company considered whether there were any
indicators that an impairment loss recognised in prior periods on an
investment in subsidiary no longer existed, or had decreased.
Given the improved performance of the subsidiary an indicator
of impairment reversal was determined to exist. Accordingly an
estimate of the investment’s recoverable amount was calculated by
determining the higher of the value-in-use and fair value less cost of
disposal for relevant investment.
An impairment reversal was recognised for the amount by which
the recoverable amount of the investment exceeded the carrying
amount. Given the quantum of the investment and the judgement
involved in determining the recoverable amount, we considered this
to be a key audit matter.
Our procedures included:
– evaluating and testing certain controls relating to the recognition
and measurement of impairment and the reversal of impairment
in investment in subsidiaries
– evaluating the methodology applied in the impairment reversal
assessment conducted
– assessing certain underlying data used in determining the
carrying value and recoverable amount for the investment in
subsidiary with the impairment reversal, and
– engaging PwC valuation experts where relevant.
We assessed the appropriateness of the Consolidated Entity’s
disclosure in the financial report.
FURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORTFURTHER INFORMATIONABOUTGOVERNANCEDIRECTORS’ REPORTFINANCIAL REPORT 182
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MACQUARIE GROUP LIMITED
CONTINUED
Other information
The directors are responsible for the other information. The other
information comprises the information included in the Consolidated
Entity’s annual report for the year ended 31 March 2018, including
About Macquarie, Chairman’s and Managing Director’s Letter,
Financial Highlights, Operating and Financial Review, Corporate
Governance, Diversity Report, ESG Report, Macquarie Group
Foundation, Risk Management Report, Directors’ Report, Additional
Investor Information, 10 year history and Glossary but does not
include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other
information and accordingly we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility
is to read the other information identified above and, in doing so,
consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of the directors 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 Corporations Act 2001 (Cth)
and for such internal control as the directors determine is necessary
to enable the preparation of the financial report that gives a true
and fair view and is free from material misstatement, whether due
to fraud or error.
In preparing the financial report, the directors are responsible for
assessing the ability of the Consolidated Entity to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
the directors either intend to liquidate the Consolidated Entity or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial report
Our objectives are to obtain reasonable assurance about whether
the financial report as a whole is free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with the Australian Auditing Standards will always
detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of
the financial report.
A further description of our responsibilities for the audit of the
financial report is located at the Auditing and Assurance Standards
Board website at: w ww.auasb.gov.au/auditors_responsibilities/ar1.
pdf for the Consolidated Entity and at w ww.auasb.gov.au/auditors_
responsibilities/ar2.pdf for the Company. This description forms part
of our audit report.
REPORT ON THE REMUNERATION REPORT
Our opinion on the remuneration report
We have audited the remuneration report included in pages 50 to 82
of the Directors’ Report for the year ended 31 March 2018.
In our opinion, the remuneration report of Macquarie Group Limited
for the year ended 31 March 2018 complies with section 300A of
the Corporations Act 2001 (Cth).
Responsibilities
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.
PricewaterhouseCoopers
K.G. Smith
Partner
Sydney
4 May 2018
Liability limited by a scheme approved under Professional Standards Legislation.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, w ww.pwc.com.au
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries ABOUT
ABOUT
GOVERNANCE
GOVERNANCE
DIRECTORS’ REPORT
DIRECTORS’ REPORT
FINANCIAL REPORT
FINANCIAL REPORT
FURTHER INFORMATION
FURTHER INFORMATION
183
Additional Investor Information
Ten Year History
Glossary
5FURTHER
INFORMATION
Payment date for MCN2 distribution
Macquarie Bank Limited Convertible Securities
184
ADDITIONAL INVESTOR INFORMATION
SHAREHOLDER CALENDAR
2018
Date
4 May
14 May
15 May
7 June
3 July
26 July
17 September
30 September
2 November(1)
12 November(1)
Event
Full-year result announcement
Ex-dividend date for final ordinary
dividend
Record date for final ordinary dividend
Payment date for MCN distribution
Payment date for final ordinary dividend
AGM
Financial half-year end
Half-year result announcement
Ex-dividend date for interim ordinary
dividend
13 November(1)
Record date for interim ordinary dividend
7 December
18 December(1)
Payment date for MCN distribution
Payment date for interim ordinary
dividend
(1) These dates are subject to change.
2019
Date
18 March
31 March
Event
Payment date for MCN2 distribution
Financial year end
2018 ANNUAL GENERAL MEETING
Macquarie Group Limited’s 2018 AGM will be held at 10:30 am
on Thursday, 26 July 2018 at the Hyatt Regency Sydney, Maritime
Ballroom, 161 Sussex St, Sydney NSW 2000. Details of the business
of the meeting will be forwarded to shareholders separately.
DIVIDEND DETAILS
Macquarie 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 2018 calendar year
are in the calendar above.
Dividend Reinvestment Plan (DRP)
The DRP allows shareholders to apply their dividends to acquire new
Macquarie ordinary shares rather than receiving dividends in cash.
STOCK EXCHANGE LISTING
Equity or hybrid
security
Stock exchange
listing
Trading code
Macquarie Group Limited Securities
Macquarie ordinary
shares
Macquarie Group
Capital Notes (MCN)
Macquarie Group
Capital Notes 2
(MCN2)
ASX
ASX
ASX
MQG
MQGPA
MQGPB
Macquarie Bank
Capital Notes (BCN)
Macquarie Additional
Capital Securities
(MACS)
ASX
SGX
MBLPA
6F6B
Macquarie also has debt securities quoted on the London Stock
Exchange.
EQUITY AND HYBRID SECURITIES
The following information is correct as at 31 March 2018.
MACQUARIE GROUP LIMITED SECURITIES
Fully paid ordinary shares
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 proxy, attorney or
corporate 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 by the member, and
ii) that proportion of a vote for any partly paid ordinary share
calculated in accordance with clause 8.18 of the MGL
Constitution.
A copy of the Constitution is available at
macquarie.com/leadership-corporate-governance
macquarie.com2018 Annual ReportMacquarie Group Limited and its subsidiaries 185
Additional Investor Information
Ten Year History
Glossary
20 largest holders
Registered holder
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Bond Street Custodians Limited
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