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INTERNATIONALISATION OF THE MACQUARIE GROUP
INTERNATIONALISATION OF THE MACQUARIE GROUP Christian Drysdale Macquarie Group of Companies, Central Executive, Asia Managing Director / Strategic Development, Asia 9 December 2013 STRICTLY CONFIDENTIAL CONTENTS 1 MACQUARIE OVERVIEW 2 MACQUARIE GROWTH – THE PAST ERA KOREA – KEY PART OF THE GROWTH STORY IN ASIA LESSONS LEARNED FROM INTERNATIONALISATION 3 4 MACQUARIE OVERVIEW OVERVIEW OF MACQUARIE GROUP Diversified, global financial services organization Global provider of banking, financial, advisory, investment and funds management services Main business focus is providing products and services to clients Listed on Australian Securities Exchange (ASX: MQG; ADR: MQBKY) Regulated by APRA, Australian banking regulator, as non-operating holding company of a licensed Australian bank – also regulated by over 100 regulators world-wide Assets under management $A380 billion Founded in 1969 Macquarie Group in numbers Market Capitalisation ~A$18.2bn as at December 2013 13,900 employees across 28 countries 1 $A851m in Net Profit for FY2011 1. 30 September 2013, 2 Long-term rating for Macquarie Bank Limited S&P, Moody’s and Fitch A/A22 44-year credit rating history ABOUT MACQUARIE Macquarie Funds Corporate and Asset Finance • Top 50 global asset manager with $A380.7b1 of assets under management • Provides clients with access to a diverse range of capabilities and products, including infrastructure and real asset management, securities investment management and fund and equity based solutions • Provider of specialist finance and asset management solutions, with $A24.6b2 of loans and assets under finance • Global capability in corporate and real estate credit investing and lending • Expertise in asset finance including aircraft, motor vehicles, technology, healthcare, manufacturing, industrial, energy, rail and mining equipment Banking and Financial Services • Brings together Macquarie’s retail banking and financial services businesses • Provides a diverse range of personal banking, wealth management and business banking products and services to retail customers, advisers, brokers and business customers • Global fixed income, currencies and commodities provider of finance, risk solutions and market access to Fixed Income, Currencies and Commodities producers/consumers and financial institutions/investors • Growing presence in physical commodities (natural gas, LNG, NGLs, power, oil, coal, base metals, iron ore, sugar and freight) • Predominant in US and Australia, niche offering in Canada and Latin America, growing presence in Asia and EMEA • Specialities: commodities, Asian and emerging markets, high yield and distressed debt • Global institutional securities house with strong Asia-Pacific foundations covering sales, research, ECM, execution and Macquarie Securities derivatives activities • Full-service cash equities in Australia, Asia, South Africa and Canada with specialised offerings in US and Europe. Specialised derivatives offerings in key locations globally • Key specialities: Infrastructure and Utilities, TMET, Resources (mining and energy), Industrials and Financial Institutions Macquarie Capital z z Global corporate finance capability, including M&A, debt and equity capital markets, and principal investments Key specialities in six industry groups: Infrastructure, Utilities and Renewables; Resources (mining and energy); Real Estate; TMET; Industrials and Financial Institutions 1. As at 30 Sep 13. Excludes ING Investment Management Korea AUM of $A25b, which MFG entered into an agreement to acquire during 1H14, subject to certain closing conditions, including regulatory approval. 2. As at 30 Sep 13. DIVERSIFIED INCOME Net operating income by source 12 months to 31 Mar 12 $A7.0b 12 months to 31 Mar 13 $A6.7b Institutional and retail cash equities 14% 24% Equity derivatives 13% 4% 5% 25% Securities funds management and administration M&A and advisory income 21% 24% 19% 17% 11% 7% Note: These charts represent operating income which is net of impairment charges Asset and equity investments Commodities, resources and foreign exchange 8% 8% Lending, leasing and margin related income INTERNATIONAL INCOME 66% of operating income1 in 1H14 is generated offshore $Am 1H12 1,600 2H12 1,400 1H13 1,200 2H13 1,000 1H14 800 600 400 200 0 Australia Asia Americas Europe, Middle East & Africa 1. Operating income net of impairment charges for the half year to 30 Sep 13. Net operating income in each region excludes income from the Corporate segment. 13,901 STAFF ACROSS 28 COUNTRIES Europe, Middle East & Africa2 Asia Americas Income: $A741m (21% of total) Staff: 1,199 Income: $A485m (13% of total) Staff: 3,280 Income: $A1,162m (32% of total) Staff: 3,255 Australia3 Income: $A1,204m (34% of total) Staff: 6,167 1. Operating income net of impairment charges for the half year to 30 Sep 13. Net operating income in each region excludes income from the Corporate segment. 2. Excludes staff in Macquarie First South joint venture and staff seconded to Macquarie Renaissance joint venture (Moscow). 3. Includes New Zealand. GLOBAL INFRASTRUCTURE MANAGER 118 PORTFOLIO BUSINESSES, ~300 PROPERTIES AND ~3.6 MILLION HECTARES OF FARMLAND1 Spain UK Bristol Airport Airwave Arqiva CLP Envirogas (MEIF Renewables) Energy Power Resources (MEIF Renewables) Thames Water M6 Toll Condor Group (ferry services) Moto (motorway services) National Car Parks Wightlink (ferry services) Baglan Bay Power Station Sutton Bridge Power Station Asset Energia Solar (MEIF Renewables) Solpex Energia Solar (MEIF Renewables) Itevelesa (vehicle inspections) Canada Czech Republic Ceske Radiokomunikace Czech Gas Networks Sweden EPR Sweden (MEIF Renewables, Mexico Decarred (highways) wind farm) Mareña Renovables (wind farms) Varmevarden Telecommunication Towers Arlanda Express Portfolio Poland Russia DCT Gdansk (container terminal) TanQuid (tank storage business) USA Autoroute 25 Fraser Surrey Docks Halterm Limited (port) Brunswick Rail GSR Energy Investments Russian Towers OGK-5 Concesionaria Universidad Politécnica Macquarie Mexico REIT Santiago HydroGen AMC REIT Chicago Skyway Dulles Greenway Indiana Toll Road Elizabeth River Tunnels Harley Marine Services Icon Parking Penn Terminals Smarte Carte Airport Services (fixed base operations) Total Terminals International (Hanjin Pacific Corporation) Japan Aquarion Company Puget Energy District Energy Duquesne Light Hawaii Gas Broadrock Renewables MIC Solar International-Matex Tank Terminals Leaf River Gas Storage Waste Industries WCA Waste Belgium Brussels Airport Denmark Copenhagen Airports France Pisto SAS (oil storage and distribution) Osaka) South Korea C&M (Cable TV) North East Chemical Tongyang Cement’s Waste Heat Power Youngduk Wind Power Kangnam City Gas Daegil Industry / Daegil Environment Baekyang Tunnel Cheonan-Nonsan Expressway Gwangju 2nd Beltway Section 1 Gwangju 2nd Beltway Section 3-1 Incheon Grand Bridge Incheon International Airport Expressway Machang Bridge Seoul Chuncheon Expressway Soojungsan Tunnel Woomyunsan Tunnel Yongin-Seoul Expressway Seoul Subway Line 9, Section 1 Busan New Port Phase 2-3 Hanjin Pacific Corporation (ports) Macquarie NPS REIT Macquarie NPS REIT No. 2 CNE Motorway Service Stations Philippines EPR France (MEIF North Luzon Renewable Energy Corp. Renewables, wind farm) RES (MEIF Renewables, wind farm) Trois Sources & Lomont Windfarms Compteurs Farnier (Techem, water metering) Autoroutes Paris-RhinRhône Australia Germany TanQuid (tank storage Hanjin Pacific Corporation (Tokyo, business) GWE (Techem) Techem (submetering) Thyssengas Open Grid Europe Warnow Tunnel China South Africa Nigeria Lekki Concession Company Kelvin Power Station Umoya Energy Cookhouse Kathu Bakwena Platinum Corridor N3 Toll Concessions Trans African Concessions Brazil United Arab Emirates ICAD Effluent Treatment Plant Al Ain Industrial City Industrial City of Abu Dhabi Airports Communications Energy Waste Cruzeiro do Sul Grãos India (1 farm) Viom Networks Adhunik Power and GMR Airports (Delhi and Hyderabad airports) Soham Renewable Energy Natural Resources MB Power (Madhya Trichy Tollways GMR Jadcherla Pradesh) Expressways Ashoka Concessions Renewable Energy Hobart International Airport 3P Learning Regis Group (aged care) MREEFs Paraway Pastoral (17 farms) Lawson Grains (4 farms) Melro Dairy (1 farm) New Zealand Retirement Care New Zealand Taiwan Hua Nan Expressway Star King (China) Food Group Taiwan Broadband Communications Hanjin Pacific Corporation (Kaohsiung) MWREF (Retail Malls) Shenyang Water Treatment Co. Shenyang Zhenxing Environmental Protection Hengyang Holdings Zhejiang Wanna Environment Protection Longtan Tianyu Terminal Plaza 353 Qingdao Utilities Roads & Rail Other Transport Real Estate Services Agriculture Other Real Assets 1. As at 30 September 2013. Represents portfolio businesses which Macquarie Infrastructure and Real Assets manages on behalf of investors with various direct percentage stakes held in each. Portfolio businesses shown on the map are representative and not exhaustive. In some instances they represent the operations of a single business where it has operations across different countries. MACQUARIE GROWTH – THE PAST ERA WHY WE HAD TO GROW Big commercial banks and global investment banks all in Australia when we started growth path 1980s - We were dominant in our home market, so went offshore to expand Deregulation of the financial sector spurred competition, prompting Macquarie to be more innovative, offer more products, look for niches Macquarie is the only domestic investment bank remaining in Australia 1983 Australian Dollar floated 1984 Hill Samuel Australia authorized as foreign exchange dealer 1984 14 new foreign exchange licenses granted 1985 16 foreign banks get banking licenses 1985 Hill Samuel’s name changed to Macquarie Bank 1988 Reforms start overhauls of Australia’s regulatory agencies 1989 Macquarie begins global expansion into Europe, US and Asia; Still continuing 1990s Macquarie becomes global leader in infrastructure asset management 2000s Macquarie emerges as fully diversified, global financial services provider 44 YEARS OF PROFITABILITY $Ab 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0 Macquarie Full Year Profit $A851m EXPANSION OF MACQUARIE: A TIMELINE First listed property trust launched Macquarie Bank established 900 800 Headcount 700 Australian dollar ‘floated’ Cash Management Trust established 600 500 Trading foreign exchange in a grey market Hill Samuel Australia established 400 300 200 100 0 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Headcount 1983 1984 Sydney Airport transaction Houston Oil and Gas 12,000 10,000 8,000 1982 Hong Kong & New York offices opened London office opened 6,000 Hills Motorway – Macquarie’s entry into toll roads ‘The Australian specialist’ 4,000 BT Financial acquisition Korea office established MBL lists on the Australian Stock Exchange 1985 1986 1987 1988 Non Operating Holding Company Thames Water Macquarie the biggest foreign buyer of US / real estate ING Barings Cash Equities acquired 2,000 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 MACQUARIE GROUP FOUNDATION SUPPORTING LOCAL COMMUNITIES Australia’s No. 1 Corporate Donor* The Macquarie Group Foundation was established in 1985 to formalise Macquarie's community support program and to provide a leadership role in corporate philanthropy. Macquarie provides support to 1,300+ community organisations annually, focusing on the key areas of art, education, health, welfare and the environment. The Foundation: – Supports the communities in which Macquarie’s businesses operate around the world – Develops and strengthens the community engagement of Macquarie staff around the world – Raises awareness, both within Macquarie and externally, of areas of community need and ways in which these can be addressed – Provides financial and other support to community organisations where Macquarie staff are already personally involved Staff fundraising, donations and volunteering are important contributors to supporting the success and long-term operations of not-for-profit organisations – Staff donations and fundraising are matched by contributions from the Foundation under its staff support policy – Macquarie staff regularly commit their time and expertise through volunteering, pro bono work and serving in executive capacities as board or committee members *Philanthropy Australia, 2012. STAFF DRIVEN INITIATIVES SUPPORTED BY THE MACQUARIE GROUP FOUNDATION Volunteering Financial support Skills transfer 1,300+ community organisations $A190 million+ over 28 years* 5000+ days contributed *As at 31 March 2013. KOREA – KEY PART OF THE GROWTH STORY IN ASIA KOREA – KEY PART OF THE GROWTH STORY 2000 2013 5 Staff 280 staff Organic growth over a period of time 1 Business 8 diversified business entities 0 Funds 8 Funds (1 listed fund) Smallest financial player The largest and most diverse foreign IBs No. 1 financial adviser in Korea project finance market The largest foreign asset manager in Korea by assets under management No.1 foreign player in equipment lease market in Korea MACQUARIE’S GROWTH IN KOREA 2000~1 2002 2003 2004 2005 2006 Macquarie Korea Opportunities Fund Woori Macquarie Equities Derivatives Corporation MSKL now locally incporated subsidiary Seoul office JV with Shinhan Infrastructure Fund capitalized with KRW 247 Billion First REIT on Korea Exchange OTC license received March 2007 Infrastructure Fund lists on Seoul and London stock exchanges Woori Macquarie Business Corporation begins trade in commodity derivatives Macquarie Securities Ltd. Seoul Branch 2007~8 Macquarie Electronics Macquarie IMM sold to Goldman Sachs Top Advisor in Korea on 2008 M&A Financial Advisory Thomson League Table MACQUARIE’S GROWTH IN KOREA 2010 2009 Macquarie Samchully Asset Management Bank branch commences operation (Q1) Macquarie Bank Attempt acquire Ltd. receives full Prudential license Securities Korea 2011 Bank branch receives OTC derivatives license Physical oil trading business Commitment to build broader business in Korea Korea Macquarie Growth Fund (KMGF) established 2013 ASSETS MANAGED BY MACQUARIE TRANSPORTATION MEDIA Seoul Subway Line 9, Section 1 Incheon International Expressway Incheon Grand Bridge Yongin Seoul Expressway Gwangju 2nd Beltway,Section 1 Gwangju 2nd Beltway,Section 3 Seoul–Chuncheon Expressway Woomyunsan Tunnel Cheonan– Nonsan Expressway Daegu 4th Beltway East Baekyang Tunnel Soojungsan Tunnel Busan New Port Machang Bridge C&M Megabox Megabox Megabox Megabox Megabox Megabox Megabox (Shinchon) (GMC1) (Mokdong) (Suwon) (Daegu) (Ulsan) (Haeundae) Megabox Megabox Magabox Megabox Megabox (Seomyun) (Suwon Youngtong2) (COEX) (Jeonju) (Gwangju) North Miaoli (TBC) PROPERTY Renault Samsung Building ING Centre CJ Cheiljedang Building EDUCATION Youngjaesagwan Co., Ltd South Miaoli (TBC) Taichung (TBC) Kaoshiung (Hanjin) South Taoyuan (TBC) Hsinchu County (TBC) Taiwan Seattle, WA (Hanjin) Oakland, CA (Hanjin) Long Beach, CA (Hanjin) U.S. Tokyo (Hanjin) UTILITIES MANUFACTURING Hanjin Pacific Corporation Seung Gwang Co., Ltd. Doha Industry Co., Ltd. SLS Shipbuilding Co., Ltd. Hyundai Forging Co., Ltd. Chemical storage tank operator in Ulsan Youngduk Wind Power Osaka (Hanjin) Japan TRANSPORTATION EDUCATION UTILITIES MEDIA PROPERTY MANUFACTURING PROVIDER OF ESSENTIAL COMMUNITY SERVICES 1,855 employees employed at Hanjin terminals in the US, Japan and Taiwan (MKOF) MKIF has created more than 46,000 jobs with its construction assets Over half million people travel on Macquarie Korea’s asset roads every day 3.8 million TEU and 2.2 million of boxes handled by 6 Hanjin Terminals 2,715,258 Cable TV subscribers and 631,633 of ISP subscribers at C&M 724,628 Cable TV subscribers and 140,227 of ISP subscribers at TBC Megabox provides movie venues at 52 sites nationwide Provided chemical storage service (199,000KL) to major petrochemical companies and traders in Ulsan Generated 70,657 MWh power at Youngduk Wind Power (with 39.6 MWh capacity) CSR INITIATIVES IN KOREA SUPPORTED BY THE MACQUARIE GROUP FOUNDATION Macquarie Korea Community Day is an annual staff-driven volunteer activity in Korea for local communities and fund-raising activities. Macquarie Korea provides a full business day to participating staff who spend the day volunteering at charities for the underprivileged or unwell. In addition, Macquarie Group Foundation fosters the tradition of giving back to the society and actively encourages the staff’s involvement in community services. Macquarie is the Global Partner of the World Taekwondo Federation under the multimillion dollar sponsorship agreement announced on 31 March 2008. The sponsorship provides opportunities for underprivileged children to learn Taekwondo through Enhancing Young Lives program. In early 2006 Macquarie donated $US2 million to the Korea Advanced Institute of Science and Technology’s Graduate School of Finance to assist in the development of local financial experts. The funds will also be used for research into financial techniques and other projects. Every year Macquarie staff participate in UNICEF – Change for Good program to help millions of vulnerable children around the world have a healthier, happier future. All funds raised through the program are applicable for support from the Macquarie Group Foundation through the staff donation support program. Korean Community Advisory Committee (KCAC) represents our commitment to return to Korea some small measure of the gains we have made here. Through KCAC, we have donated to the Holt Foundation to buy milk for abandoned infants, supported Hwasong Baby Home, funded newspaper deliveries to underprivileged schools in remote areas and donated funds to a local orphanage and to disadvantaged middle school students. LESSONS LEARNED FROM INTERNATIONALISATION OVERVIEW Relatively consistent approach throughout each period of growth Macquarie’s overall approach to internationalisation has remained relatively consistent One approach doesn’t necessarily fit all businesses — Different business did adopt different approaches As the scale and scope of international activities increases the key areas of emphasis / importance can vary However, there are a core set of principles that have been identified for success during “lessons learned” reviews in relation to internationalisation BROAD PRINCIPLES Adjacencies and special value Pursuing adjacent opportunities — constantly evolving and new initiatives tend to be organic — initiatives are adjacent if they flow naturally from something we already do — this idea helps us avoid stretching too far into areas we do not understand Focus on where we can add special value to clients and the market — Those closest to the clients and markets are best position to identify opportunity — Avoid applying new resources to areas where Macquarie expertise is untested Entry mode — Forming joint ventures and making niche acquisitions — Largely organic growth with only selective acquisitions — We do not acquire companies until we have organic experience in new market “New business initiatives come from the broader team” - not a strategic planning office OPERATING FRAMEWORK IS IMPORTANT “Freedom within boundaries” This philosophy has been a key to Macquarie's success It is a balance between operating freedom, controls on risk limits and observance of professional standards The framework: — “Boundaries” are set by Board and senior management – the “centre” — Boundaries exist in relation to credit risk, market risk, operational risk, regulatory compliance, IT standards and reputation risk — Within Macquarie’s risk framework the aim is to give business heads a high level of entrepreneurial freedom to develop and implement business unit strategy — “Freedom” to explore opportunities and growth within those boundaries An independent, centralised risk management group is extremely important element of this approach This approach hasn’t changed as a result of internationalisation APPROACH TO RISK MANAGEMENT Risk is an integral part of the Macquarie Group’s business and management of that risk is critical to continuing profitability — Where risk is assumed, it is within a calculated and controlled framework — Ownership of risk always lies with the business and principal responsibility for risk management lies with business managers However, independent validation of all material risk acceptance decisions is required from the Risk Management Group (RMG) who is responsible for assessing and monitoring risks across Macquarie — RMG ensures a consistent approach across all areas and ensures that these risks are quantified in terms of their worst case outcomes and that the aggregated risk does not exceed Macquarie’s economic capability to bear risk — RMG monitors credit, market and regulatory risk daily — Any breaches are addresses immediately and escalated rapidly, if necessary Internal Audit reviews business operations, on a cyclical basis, to provide assurance to senior management and the Board on the continued effectiveness of Macquarie’s risk management framework RMG reports directly to the Managing Director and the Board LESSONS FROM THE EARLY DAYS Pre 2000’s internationalisation Focus on the “best” businesses for internationalisation — Aim to add value to the new market immediately Send the “best” staff to build the businesses — Impress immediately and succeed in difficult situations — Ability to adapt and refocus Provide strong support from head office – regular communication, senior executive visits, etc — Staff will feel isolated — Many risks are heightened in offshore offices, including dissipation of culture, poaching of staff and potential deviation from desired behaviours Patience is important and failure used to learn Accept a lack of critical mass and market knowledge in early days and develop strategies to address these deficiencies — Consultants, industry specialists, local recruitment, business partners LESSON FROM THE MID-YEARS Support, focus and decide Leverage not weaken the core business — Focus on the needs of clients and leverage resources, expertise, etc of the head office — Do not expand at the expense of weakening the core business Continually adapt to change and commit to growth through cycles for successful businesses, market downturns have typically created opportunities Staffing — Localise but embed corporate culture and foster common cultures across offices — Recruitment can be a challenge: you are no longer the go to recruiter and prestige organisation in the market — Retaining staff can be a bigger challenge: your staff will be attractive to competitors Support areas need to internationalise with businesses and adapt processes accordingly: HR, IT, Finance Frequent visits by senior management EXAMPLES: INFRASTRUCTURE Adjacent expansion in infrastructure EXAMPLES: FICC FICC’s strategy has involved predominantly building adjacencies from core businesses Environmental product trading Structured Commodity Finance Started commodities platform Futures execution and clearing Foreign exchange Ag Structured Finance – finance into small and medium sized producers Metals and Energy Capital Debt capital markets and interest rates 1980’s 1999 Credit Trading Ethanol trading JV 2001 Acquired Australian assets of Bankers Trust (Australia, US, Brazil) Established Macquarie Futures USA Energy Markets and derivatives business 2002 2003 Metals and Energy Capital (Houston) Cook Inlet acquisition (natural gas) 2006 Physical base metals Expansion of US futures clearing platform (Shatkin Arbor) Corona acquisition 2005 Physical coal trading 2007 2008 Physical power business (Houston) Purchased Integrys wholesale electronic marketing and trading portfolio 2009 Asian markets Commodity Investor Products Commercial mortgage finance & CMBS Credit solutions Physical oil 2010 2011 2012 Constellation acquisition (gas trading) Latin American physical oil markets Credit sales & trading Canadian crude oil markets Ag derivatives Pulp & paper Brazil office Iron ore LNG EXAMPLES: GROWTH MOVES Team hires and JVs have been regular elements of growth ^ Exited. * JV/alliances with Abu Dhabi Commercial Bank in investment banking, real estate and FICC. #Initial JV/alliance with Woori Bank in equity derivatives. Established an alliance in FICC in Aug 2006. THANK YOU
