Macquarie : 2023 full year result management discussion and analysis

Notice to readers

The purpose of this report is to provide information supplementary to the Macquarie Group Limited Financial Report (the Financial Report) for the year ended 31 March 2023, including further detail in relation to key elements of Macquarie Group Limited and its subsidiaries' (Macquarie, the Consolidated Entity) financial performance and financial position. The report also outlines the funding and capital profile of the Consolidated Entity.

Certain financial information in this report is prepared on a different basis to that contained in the Financial Report, which is prepared in accordance with Australian Accounting Standards. Where financial information presented within this report does not comply with Australian Accounting Standards, a reconciliation to the statutory information is provided.

Date of this report

This report has been prepared for the year ended 31 March 2023 and is current as at 5 May 2023.

Cover image

The UK's gas networks keep homes warm and power industry. They help meet the country's energy security needs and will play an important role in helping to achieve the UK's longer- term net zero goals by carrying low-carbon fuels across the country.

During the period, Macquarie Asset Management invested in the UK's national gas transmission network. The long-term commitment will see National Gas invest to further develop the transmission system, while supporting its transition towards low-carbon fuels with the creation of a nationwide hydrogen transmission backbone.

The investment complements Macquarie's work at Cadent since 2017, where it is supporting homes and businesses served by the UK's largest gas distribution network operator, which is also working to utilise greener gases like hydrogen.

Explanatory notes

Comparative information and conventions

Where necessary, comparative figures have been restated to conform to changes in current year financial presentation and group structures.

References to the prior year are to the 12 months ended 31 March 2022. References to the first half are to the six months ended 30 September 2022. References to the second half are to the six months ended 31 March 2023.

In the financial tables throughout this document '*' indicates that the absolute percentage change in the balance was greater than 300% or indicates the result was a gain in one period but a loss in another,

or vice versa.

Independent Auditor's Report

This document should be read in conjunction with the Financial Report for the year ended 31 March 2023, which was subject to independent audit by PricewaterhouseCoopers.

PricewaterhouseCoopers' independent auditor's report to the members of Macquarie Group Limited dated 5 May 2023 was unqualified.

Any additional financial information in this document which is not included in the Financial Report was not subject to independent audit by PricewaterhouseCoopers.

Disclaimer

The material in this document has been prepared by Macquarie Group Limited ABN 94 122 169 279 (MGL) and is general background information about MGL and its subsidiaries' (Macquarie) activities current as at the date of this document. This information is given in summary form and does not purport to be complete. The material in this document may include information derived from publicly available sources that have not been independently verified. Information in this document should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments and does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to these matters, any relevant offer document and in particular, you should seek independent financial advice. No representation or warranty is made as to the accuracy, completeness or reliability of the information. All securities and financial product or instrument transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk.

This document may contain forward looking statements - that is, statements related to future, not past, events or other matters - including, without limitation, statements regarding our intent, belief or current expectations with respect to Macquarie's businesses and operations, market conditions, results of operation and financial condition, capital adequacy, provisions for impairments and risk management practices. Readers are cautioned not to place undue reliance on these forward looking statements. Macquarie does not undertake any obligation to publicly release the result of any revisions to these forward looking statements or to otherwise update any forward looking statements, whether as a result of new information, future events or otherwise, after the date of this document. Actual results may vary in a materially positive or negative manner. Forward looking statements and hypothetical examples are subject to uncertainty and contingencies outside Macquarie's control. Past performance is not a reliable indication of future performance.

Other than Macquarie Bank Limited ABN 46 008 583 542 (MBL), any Macquarie group entity noted in this document is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). That entity's obligations do not represent deposits or other liabilities of MBL and MBL does not guarantee or otherwise provide assurance in respect of the obligations of that entity. Any investments are subject to investment risk including possible delays in repayment and loss of income and principal invested.

Contents

01 02

Result Overview		Financial Performance
		Analysis
1.1 Executive Summary	3	2.1 Net Interest and Trading Income
		2.2 Fee and Commission Income

2.3 Share of Net (Losses)/Profits from Associates and Joint Ventures

2.4 Credit and Other Impairment Charges

2.5 Net Other Operating Income

2.6 Operating Expenses

2.7 Headcount

2.8 Income Tax Expense

11

14

16

17

19

20

21

22

06		07
Capital		Funds Management
6.1 Overview	71	7.1 Assets Under Management	83
6.2 Bank Group Capital	73	7.2 Equity Under Management	84
6.3 Non-Bank Group Capital	78

03 04 05

Segment Analysis		Balance Sheet		Funding and
					Liquidity
3.1	Basis of Preparation	25	4.1 Statement of Financial Position	43	5.1	Liquidity Risk Governance and
3.2 MAM	29	4.2 Loan Assets	45	Management Framework
3.3 BFS	31	4.3 Equity Investments	47	5.2 Management of Liquidity Risk
3.4 CGM	33			5.3 Funded Balance Sheet
3.5	Macquarie Capital	36			5.4	Funding Profile for Macquarie
3.6	Corporate	38			5.5	Funding Profile for the Bank Group
3.7	International Income	40			5.6	Funding Profile for the Non-Bank
					Group

5.7 Explanatory Notes Concerning

Funding Sources and Funded Assets

51

53

55

57

61

65

67

08		09
Glossary		Ten Year History
8.1 Glossary	87	9.1 Ten Year History	95

1

Results	Financial	Segment	Balance	Funding and		Funds		Ten Year
Performance	Capital	Glossary
Overview	Analysis	Analysis	Sheet	Liquidity	Management	History

Macquarie Group Limited 2023 Management Discussion and Analysis	2

1.1 Executive Summary

Macquarie (MGL and its subsidiaries, the Consolidated Entity) is a global financial group with offices in 34 markets.

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 (NOHC) 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 20,5001 people globally, has total assets of $A387.9 billion and total equity of $A34.1 billion as at 31 March 2023.

Macquarie's breadth of expertise covers asset management, retail and business banking, wealth management, leasing and asset financing, market access, commodity trading, renewables development, specialist advice, access to capital and principal investment. The diversity of our operations, combined with a strong capital position and robust risk management framework, has contributed to Macquarie's 54-year record of unbroken profitability.

Macquarie works with government, institutional, corporate and retail clients and counterparties around the world, providing a diversified range of products and services. We have established leading market positions as a global specialist in a wide range of sectors, including renewables, infrastructure, resources and commodities and energy.

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.

• This figure includes staff employed in certain operationally segregated subsidiaries (OSS).

3

Results	Financial	Segment	Balance	Funding and		Funds		Ten Year
Performance	Capital	Glossary
Overview	Analysis	Analysis	Sheet	Liquidity	Management	History

FY23 net profit1

$A5,182m

• 10%on prior year

FY23 net operating income

$A19,122m

• 10%on prior year

FY23 return on equity

16.9%

• from 18.7% in the prior year

FY23 operating expenses

$A12,130m

• 12% on prior year

FY23 net profit contribution2 by activity

Annuity-style activities	Markets-facing activities
$A4,143m	$A6,208m
â							á
17%	on prior year	38% on prior year

• Net profit is profit after tax attributable to ordinary equity holders of Macquarie Group Limited.

• Net profit contribution is management accounting profit before unallocated corporate costs, profit share and income tax.

Macquarie Group Limited 2023 Management Discussion and Analysis	4

1.1 Executive Summary

Continued

FY23 net profit contribution by Operating Group

Summary of the Operating Groups' performance for the year ended 31 March 2023.

Non-Banking Group

Annuity-style businesses

Macquarie Asset Management (MAM)1

$A2,342m

• 23% on prior year due to

• significant income2 from the disposition of assets in Macquarie Infrastructure Corporation (MIC)3 in the prior year
• decreased net income on equity, debt and other investments driven by lower gains on asset realisations in the green energy sector.

Partially offset by:

• higher performance fees from Private Markets-managed funds
• lower credit and other impairment charges primarily driven by impairment of underperforming equity investments in the green energy sector in the prior year.

Markets-facing businesses

Macquarie Capital1

$A801m

• 47%on prior year due to

• lower fee and commission income driven by lower mergers and acquisitions fee income on a strong prior year, lower capital markets fee income and lower brokerage income due to weaker market activity
• lower net income on equity, debt and other investments driven by negative revaluations on equity investments reflecting market movements and fewer material asset realisations compared to the prior year
• higher mark-to-market losses on certain debt underwriting positions related to a deterioration in macroeconomic conditions experienced in the first half
• higher operating expenses predominantly driven by higher employment costs, increased compliance and regulatory spend and higher expenditure on technology platform and infrastructure.

Partially offset by:

• higher net interest income from the private credit portfolio benefitting from $A5.1 billion of growth in average drawn loan assets
• lower non-controlling interests due to the non-recurrence of gains attributable on disposal.

Banking Group

Banking and Financial Services (BFS)

$A1,201m

• 20% on prior year due to

• higher net interest and trading income mainly driven by growth in the loan portfolio and BFS deposits, and improved margins from the rising interest rate environment.

Partially offset by:

• higher credit impairment charges driven by deterioration in the macroeconomic outlook compared to the prior year and release of COVID-19 overlays in the prior year
• higher expenses driven by increased technology investment, additional headcount to support business growth, and compliance and regulatory initiatives.

Commodities and Global Markets (CGM)4

$A6,007m

á54%on prior year due to

• inventory management and trading income increased substantially driven by trading gains from regional supply and demand imbalances primarily in North American Gas and Power markets
• increased risk management revenue reflecting strong contributions across the platform, particularly from Gas and Power, Global Oil and Resources due to increased client hedging and trading activity as a result of elevated volatility and price movements in commodity markets
• increased foreign exchange, interest rate and credit products income driven by increased client hedging and financing activity.

Partially offset by:

• lower net income on equity, debt and other investments due to the gain on the partial sale of the UK Meters portfolio of assets in the prior year
• higher operating expenses driven by higher expenditure on technology platform and infrastructure, increased compliance and regulatory spend and higher employment costs.

• The Green Investment Group was transferred from Macquarie Capital to MAM effective 1 April 2022. Comparatives have been reclassified to reflect this reorganisation.
  2 Income includes disposition fee, equity accounted income and impairment reversal.
  3 On 22 September 2021, MIC completed a corporate reorganisation, becoming a subsidiary of the newly formed Macquarie Infrastructure Holdings, LLC which continued to trade under the New York Stock Exchange symbol of 'MIC' until it was delisted on 21 July 2022.
  4 Certain assets of the Credit Markets business, certain activities of the Commodity Markets and Finance business, and some other less financially significant activities are undertaken from within the Non-Banking Group.

5