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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
[Audio Gap] '22 result presentation and then capital raising presentation. Before we begin today, I would like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora nation. And pay my respects to Elders past, present and emerging. Today, we have our CEO, Shemara Wikramanayake, who's joining us from London, the head of the COP26, Climate Change forum; and Alex Harvey in Sydney. We also have our group heads on the line, Ben Way, Greg Ward, Nick O'Kane, Michael Silverton, Nicole Sorbara, Stuart Green and Michael Herring.And with that, I will hand over to Shemara. Thank you.
Great. Thanks, Sam, and welcome, and good morning, everyone, and it has just ticked over midnight here in the U.K. So it is morning for us as well. But thank you for joining us.Now before I take you through the results presentation for the first half of FY '22, I thought I'd just touch on the capital raising, which Sam just mentioned. And you will have seen this morning, we announced our intention to raise $1.5 billion through a non-unwritten institutional placement and through a non-underwritten share purchase plan to follow that.Now this follows a period where over the second half of last financial year and the first half of this financial year, across our 4 operating businesses, they've been able to deploy $5.5 billion in investments where we've seen superior return for the relative risk we perceive in the investment. And Alex and I will take you through in this presentation in more detail of those investments we've been making.But what we're doing with this raising is trying to empower our businesses with the flexibility to respond to ongoing opportunities as seeing in each of their deep franchises that are responding to a diverse range of structural themes and also position us with appropriate surplus capital as we constantly hold through the cycles.So with that, I might turn to the result for the first half of FY '22. And as usual, you see we start here with a reflection on our 4 operating businesses and the relative contribution of the annuity style versus market-facing businesses in that group. And you think in a conducive market environment like this, we would have greater contribution from the market-facing groups, but we had 63% from the annuity style, principally because in the Commodities and Financial Markets business in our annuity-style asset finance business, we had a realization of our meters business or a portion of it here in the U.K. And in Macquarie Asset Management, we had a realization of the last 2 assets in the U.S. listed fund Macquarie Infrastructure Corporation.Now all of these businesses give us very good diversification through the cycle and are positioned to deliver well for shareholders through the cycle. But of course, we also are focused on a group of other stakeholders and in delivering for them, we believe we do deliver better for our shareholders. And those include our employees, our clients, our portfolio companies and our communities whom we serve. And just reflecting on those 4 groups in terms of our employees, we mentioned at this time last year in the annual staff survey we do that despite 98% of people working remotely at the peak of the pandemic, we had a record engagement score up 5%. What's happened now with some regions having worked remotely for 19 months, is that the early results from the staff survey, we've just done showing the engagement cause are still at the same level as they were last year, which is very pleasing and a great statement from our employee commitment to our business.And then with our clients as well, we're working hard, especially in the still in some parts of the world, pandemic-impacted environment to make sure we're supporting them. And the clients on hardship assistance here in Australia have come down from 13% to 0.7% but we're coming out of extended lockdown to the large part of the population. So we'll have to continue to monitor that.And then with our portfolio companies throughout the pandemic, we have 100 million users of our services every day, and we stepped up and made sure they were supported and for our communities across our businesses, we try to make sure we delivered good outcomes for the communities, but also our foundation stepped up with an extra $20 million of donations to respond to the COVID pandemic.Now in terms of contribution to you, the shareholders, you will have seen in this last half, we delivered a result of $2.043 billion, which was almost double -- more than double the $985 million we delivered in the first half of last financial year, which was a particularly challenged and subdued environment with the pandemic impacts. But it was also larger than the $2.03 billion we delivered in the second half of last financial year, and as a result, a record result for us in a half and a return on equity of 17.8%.Now that result was up in all 4 operating groups compared to the first half of last financial year, which, as I said, was a particularly pandemic impacted in challenged period. And in relation to the second half of last financial year, the annuity-style businesses were up but the market-facing businesses in Macquarie Capital, the result was lower than the second half of last year because we had particularly strong investment realizations in the second half of last year. And in Commodities and Global Markets, while we had good growth in our portfolio in asset finance, and across financial markets activity levels in the commodity markets business, we had good income from inventory management and trading, but that was more than offset by unfavorable impact of the timing of income recognition in relation to transportation and storage contracts.Looking at it over multiple halves, and this is, I think, going back over the last 5 halves. As I mentioned, a record result in operating income, profit and earnings per share. And the Board has declared a dividend at the lower end of its dividend payout ratio at 50% of $2.72, bearing in mind that we are going out with the capital raising as well.Now looking at some of the factors that have driven the results across the board in terms of our assets under management, they also reached record levels at $737 billion. The big contributor here was the closing of the Waddell & Reed transaction, which delivered over $100 billion of assets. but we also had good investment in fundraising in the private managed funds and net flows into our public market funds as well.And then turning to the diversification of the contribution by regions. You can see here that typically, Asia is contributing about 10% of our result and the other 3 regions, about 30% each. In this most recent half, the Americas stepped up to deliver 39%, which is why the other halves where other regions were a little lower. And you can see here, Americas particularly stepping up on the Macquarie Infrastructure Corporation contribution, which Alex will talk about, was a contributor to that. And in the EMEA region as well, the sale of the meters in the Commodity and Global Markets business was a contributor there.Now looking at each of the operating groups as we usually do each half. Some of the highlights, Macquarie Asset Management, the results were up 29% on the second half of the year -- half of last year and 23% on the first half. And some of the key features in the private markets business, you see their ongoing good fund raising at $12.7 billion in this half, $13.6 billion invested and proceeds of $7.6 billion from realization of assets, which leaves us with nearly $28 billion of dry powder to deploy. And in those raising some of the notable examples Macquarie Infrastructure Partners V, which is our sixth North American fund, closed at a record USD 6.9 billion, that's U.S. dollars. And also the Asia Pacific opportunistic real estate strategy close to its hard cap of $1.1 billion. And I mentioned Macquarie Infrastructure Corporation making a particularly strong contribution with the sale of the remaining 2 assets in their Atlantic Aviation and Hawaii Gas. And in the public market side of the business, we had not only the Waddell & Reed acquisition closed, but we announced an agreement to acquire AMP's Global Equities and Fixed Income business. We also had good net flows, as I said, and 68% of strategy is performing above the 3-year benchmark. And in addition to that, we just announced the acquisition of Central Park Group, which distributes private market strategies, asset management strategies to high net worth investors. So opening up a new channel of investors for the whole of the MAM offerings.Then turning to Banking and Financial Services. The result was up material 52% on the first half last year where we had the expected credit loss provisions driving impact there. And then up 6% as well on the second half of last year as the books continue to grow in that business. And you can see there the home loan portfolio up 14%, the business banking portfolio up 8%, the deposits supporting all of that up 9% and the funds on platform up 15%. And that business really focuses on the customer experience through investment in technology and a platform that attracts much more customers to us. And the business is in mortgages, heading through the high 3% and business banking around 1%. So we're still small in a big market and a lot of opportunities to keep growing there. The vehicle finance portfolio being streamlined further with the exit of the dealer finance portfolio to Allied credit.Then in Commodities and Global Markets, the business results, there were up 14% on the second half and 60% on the first half of last year. The Asset Finance business, as I said, continues to grow the portfolio and made a particularly strong contribution through the exit of the commercial and industrial meters portfolio here in the U.K. We still have over 10 million meters left in the residential portfolio. So it's only a part of that, that was exited.And then in the financial markets across foreign exchange, interest rates, credit, futures, equity, derivatives, we have seen good activity levels continue to drive growth in those businesses. And in the commodities businesses, Alex will take you through more detail, but we've had good results, not just in energy but also in resources and agriculture. But as I mentioned, the strong income from the inventory management and trading, is more than offset by the timing of the impact of the timing of recognition of income on storage and transportation contracts.And then Macquarie Capital, significantly up on the first half of last year, which was a lost result but down 44% on a very strong second half last year, where we generated about $850 million. Now the services side of that business activity levels continue to grow even from the second half of last year. On the investment side, also good realizations, but not as strong as the second half of last year, but we're managing to continue to deploy capital, $5 billion invested in this half in the direct lending businesses in Advisory and Capital Solutions. And on the renewable side, we've got over 300 projects in the pipeline now representing more than 35 gigawatts of energy.So good contributions in terms of earnings from all the businesses. And then in terms of our funding and capital position, you can see here, we continue to have our term liabilities or our term funding exceed our term assets comfortably. And we raised a $24.4 billion amount of term funding in this half, including the RBA term funding facility and our deposits are up at $91.5 billion, up 9%.In terms of our capital, our capital surplus has moved from $8.8 billion at the beginning of the half to $8.4 billion. The biggest contributor to that, we, of course, had the earnings from this half offset by the dividend that we paid for last financial year, but the biggest contributor was the absorption of capital of $3.2 billion into our businesses.And as I mentioned at the beginning, if you look at second half of last year and first half of this year, $5.5 billion absorbed into the businesses. Alex will give much more detail on this. But in Macquarie Asset Management, there were those 3 -- well, 2 of the investments included there of Waddell & Reed and A&P. And then we were yet to close the A&P investment that's been agreed. BFS, the ongoing growth of the book, so impacting both halves where we're continuing to absorb capital into that both in the Personal Banking and Business Banking. In commodities and global markets as we grow the franchise on the lending and financing as well as the risk management products that increases the market risk and credit risk capital absorbed in the business as well as the growth in the asset finance portfolio absorbing capital. And then in Macquarie Capital, we're continuing to deploy capital, as I said, both into equity across the advisory and capital solutions deep sectors in the green energy and infrastructure side as well as into debt capital markets and direct lending.And our regulatory ratios remain strong, as you can see there, well above the Bal 3 minimum capital levels. So that's the financial results.I might also touch on now a couple of business-related changes that we've had. And the first of those is that the Green Investment Group is now going to operate as part of Macquarie Asset Management from 1 April 2022 onwards. And the reason for this is that we are seeing a much grown scale of investment opportunity in that area. And we're also seeing a big increase in the appetite of our investors to access these investments. So it seemed like the appropriate time to bring this offering now to our fiduciary investors in the asset management world.What it will also allow us to do is follow those assets through a longer part of the life cycle rather than exit them earlier as has happened on the balance sheet. And that is much better for engagement with our counterparties and also for our staff in terms of staying with the assets and for the communities for which we're delivering these assets. And it will let us invest now across a much broader spectrum, including development, construction and operating assets in the energy space, but also into new areas in terms of addressing climate.Now the GIG brand will be maintained in Macquarie Asset Management. And then Macquarie Capital will continue with all of its remaining businesses, and we'll continue to deploy balance sheet to support our deep sector expertise across the broad range of broader areas of expertise in which we have specialist teams in Macquarie Capital. And we'll, of course, continue to make our balance sheet available to Macquarie Asset Management in either seed portfolio investment, alignment in our funds or co-investment.Then in addition to that, we have a few management changes to announce. And the first of those is that Dan Wong has decided to step down as co-Head of Macquarie Capital and from the Macquarie Group Executive Committee effective today, 29 October to pursue opportunities outside Macquarie. Now Dan has been with us for 22 years and joined in our risk management group and has had a passion for infrastructure and energy and led the building of that business and the business itself, including leading the team that acquired the Green Investment Group after he moved here to the U.K., I think, in 2004 and that acquisition happened in 2017. So Dan has made a massive contribution to our business and leaves a huge legacy in terms of shaping and leading his mark on the business. I really want to thank Dan for everything he's done for us.And following Dan stepping down, Michael Silverton, who's currently co-head of Macquarie Capital Group with Dan will become the Head of Macquarie Capital. And Michael has also been with us, I think, 25 years, also started in the risk management group. So slaving over the same photocopier a couple of decades ago with Dan. And he will continue to run that business.Then Patrick Upfold, our Chief Risk Officer, who's been with Macquarie 25 years. And did his career in the opposite direction, having started in the investment bank, then became Group Treasurer and went on to be CFO for 6 years, as many of you will remember, and has been our Chief Risk Officer for the last 4 and really lifted the strength of our platform in terms of risk management. Patrick has decided to retire as of the end of this calendar year. So he will step down from the Executive Committee, and he will be -- his role as CRO and his Executive Committee role will be taken over by Andrew Cassidy, who has been with us for 18 years, including a period in our principal investing business, but most recently, has spent a couple of years working with Patrick in transition. Patrick also made an incredible contribution to the business. and will leave his mark. And I really want to thank Patrick for his contribution as well. And Patrick will continue to work with Andrew for as long as needed at least until mid next year for a long period of transition from now.And then lastly, we mentioned already that Michael Herring, our General Counsel, has also elected to retire after 17 years with us. He came across from King & Wood Mallesons into the investment bank, took over as General Counsel in 2009 and really shaped our legal and governance platform across the whole of Macquarie, and it's made an amazing contribution. He will be stepping down on the 6th of May 2022 with our full year results. And happily, Evie Bruce has agreed to join us from King and Wood Mallesons. She's been the Australian managing partner for mergers and acquisitions and the banking and finance practice and suddenly has done a lot of work for Macquarie Group. And Evie will join us in January 22, and she will take over from Michael's role in May 2022. And she will join our executive committee as well. So a big thank you to Michael as well. All 3 of these people really shaped our business and as I say, will leave their legacy for time to come. And Patrick as his last risk management activity, apparently used a chainsaw or in cut his way out of the tree that had fallen down in his house because of Victorian storms. And I think he's with us today as our Dan, Michael, Andrew Cassidy and Michael Herring as well.So before I hand over to Alex, the last thing I'll briefly touch on is, as I mentioned, the Board has declared an interim dividend of $2.72, which is a 50% payout ratio. It's a 40% franked dividend.And with that, I'll hand over to Alex to take you through much more detail on the financial results. And then I'll come back to talk about our outlook. So over to you, Alex.
Thanks, Shemara, and good morning, everyone. As is usually the case, I'll now take you through some more of the detail of the results for the group for the first half.So starting with the income statement. You can see operating income for the first half, up 41%. And the main drivers for that were a 20% increase in net interest and trading income, a 32% increase in fees and commission, investment income up $370 million and impairments and other charges, down $227 from where they were -- $227 million from where they were in the first half of FY '21. Expenses were up 19% for the half. And the real drivers there were increased profit share expense associated with the improved underlying performance of the business, together with employment and other expenses associated with the acquisition of Waddell & Reed that was completed at the end of April, 2021.The tax rate for the half was broadly in line with where we were for the first half of FY '21. And to the underlying results, $2.043 billion, up 107% on the first half of FY '21 and broadly in line with where we were for the second half of '21 and a record result for the group.Now turning to the operating businesses and starting with the Macquarie Asset Management business, which in this half was 33% of the overall net profit contribution for the group. And you can see that net MAM was up 23% from the first half of 2021. And just in terms of the drivers, we've broken out the components here to try and display the underlying performance and then talk about the contribution from MIC and the contribution from Waddell & Reed in this half. And so maybe I'll just talk about each of those components.So on the left-hand side of the chart, you can see base fees up $102 million or 11%, and that reflects a good period investing in private markets across a whole range of different mandates. We also had market movements and net inflows coming into the public investments side of the business. You can see in the middle of the chart, the contribution from MIC. And as people recall, I'm sure that the team in MIC have been over the last couple of years engaged in a strategic review and ultimately, the sale of the underlying assets of that portfolio. And during the half, transactions were entered into to sell Atlantic Aviation, which is the largest of the assets and Hawaii Gas.In relation to the first half then, MIC contributed 3 types of income to the group. Firstly, we had our share of the equity accounted gains from the disposal of Atlantic Aviation. Secondly, we had the reversal of the impairment that we've taken on the group's interest in MIC. And thirdly, we had disposition fees associated with the disposal of the asset of Atlantic Aviation.Hawaii Gas, a sale and purchase agreement has been entered into in relation to Hawaii gas. That transaction is expected to complete is subject to regulatory approval and expected to complete sometime in the next 6 to 12 months. Then on the right-hand side of the chart, you can see the contribution from Waddell & Reed. The transaction was completed at the end of April 2021. And you can see 2 components to the first half. Firstly, we had an increase in one-off expenses associated with Waddell & Reed of $184 million. And then you can see the ongoing contribution of Waddell & Reed increase of $126 million on where we were for the first half of FY '21. So the overall group up 23%.In terms of the underlying drivers of the business, you can see assets under management up just over 30% in the half. The key drivers there were the acquisition of Waddell & Reed. You can see on the left-hand side, the contribution of the significant investment activity that's been going on in the private markets part of the business. And as I mentioned before, the net flows and market movements associated with the public investments side of MAM.Now turning to the second of our annuity-style businesses, the banking and financial services business, which in this half, contributed 12% of the group's underlying net profit. You can see another strong half on where we were in the first half of FY '21 and also up on the second half of FY '21. And the key drivers there were an increase of $125 million in the personal bank, and that really derives from a 27% increase in average balances of mortgages across the business. You can see a step-up in the business bank of $16 million. And so we had a 23% growth in business lines, partly offset by a reduction in our asset finance business in the business bank. You can see a step-up in the contribution of the wealth business, and that really reflects the movement in assets under administration on the Wrap platform, up 27%. We had a lower contribution from impairments, reflecting an improved macroeconomic outlook for the business. And as we talked about at the full year results, we had a step-up in expenses in this half associated with the team's investment in the platform, in digitization, in technology and also an increase in employment costs associated with supporting the increase in volume across BFS as well as the regulatory obligations of the group.Importantly, in terms of the underlying drivers of the business with the exception of asset -- the asset finance business, which declined a small amount. You can see all of the underlying products actually increasing over the period, home loans, deposits and funds on platform, and of course, the business lines, all increasing. And that obviously all is well for the outlook for that business into the medium term.Now turning to the first of our market-facing businesses, the Commodities and Global Markets business, a very strong half, as Shemara referred to, up 60% on where they were for the first half of FY '21. And you can see the breakdown of that. Firstly, on the commodity side. Commodities income was up $142 million or 13%. And the key drivers there were the risk management income up $371 million. And that really reflects the work we're doing with clients across, particularly the gas and power sector on a global basis, the resources sector, metals and bulks, as well as the agriculture sector. You can see the volatility of markets creating great opportunities for us to help clients manage that exposure over the course of the last 6 months. That was partly offset by a lower contribution from inventory management and trading, and that really reflects the timing of income recognition on storage and transport contracts. You can see that reduce the inventory management trading by $376 million in the first half of our FY '22 financial year.The financial markets business was broadly in line with where it was for the first half of last year as was the asset finance business, with the exception of the proceeds from the disposal of the industrial and commercial meters business. So you can see that coming through in the middle of the chart, up $465 million. The contribution of the industrial and commercial meters was about $450 million, as we talked about at the full year results. So we saw that coming through during this half. Credit and other impairment charges down by $108 million, again, reflecting the quality of the portfolio and the improved macroeconomic outlook that we're seeing across the world.Now a slide that we included at the full year results, we thought we'd repeat here at the half year is just the underlying drivers of the CGM business. And as we've talked about before, it's a very client franchise, a client-focused business with a deep and broadening franchise all across the world. And you can see the client numbers on the right-hand side of that chart up at a compound average growth rate of 5% over the last few periods. On the left-hand side, you can see that reflecting into the operating income coming through the business, which represents, depending on period-on-period, say, 75% of the overall business of CGM. And then on the right-hand side, as we grow the client franchise, you can see the business consuming more capital as we provide solutions to our clients to help them manage risk over the course of the commodities and financial markets businesses.Turning now to the final of our operating businesses, the Macquarie Capital business. Obviously, a very challenging first half in FY '21, pleasingly returned to profit in this half $468 million for the half. And you can see the drivers there. We had a $365 million increase from our portfolio of debt and equity investments that Macquarie Capital has been investing in all around the world. And on the Principal Finance side, in particular, we saw a big step up, a $5 billion investment across the half across debt and business services and government services and those type of businesses that the team have been able to buy in recent times. And that follows a $4.5 billion increase in investment over the 12 months to 31 March 2021.Secondly, you can see the step-up in fee and commission income, $206 million, and that really reflects the recovery in confidence all around the world. So we saw an improvement in M&A volumes here in Australia. We saw it also in Europe, and also in the United States, all around the world, M&A volumes picking up. Our debt capital markets business has had a better period of time in the U.S. and up on last year. And of course, that fee income was partly offset by a lower contribution from equity capital markets income here in Australia following a very busy first half of FY '21.You can see expenses down $86 million from where they were in the first half of last year, and that reflects the work that the team has been doing to refocus that business on core sectors of expertise that we talked about at the half year result last year.Now turning to some of the other aspects of the financial or turning to maybe the capital first for Macquarie Capital before I go into that. So you can see the capital alongside Macquarie Capital's clients stepping up from $3.9 billion to $5.1 billion over the course of the half. And this is obviously a chart we've had in for some time now. And the importance of this capital is that it's really underpinning the performance of the Macquarie Capital Group going forward. So over the course of the half, up $1.2 billion in capital invested alongside Macquarie Capital and clients. And you can see it on the investments where that's particularly gone. It's really gone into the debt investments at the bottom of that stack, and you can also see a step-up in the green investments within the Macquarie Capital portfolio.Now turning to some of the other aspects of financial management for the group. Firstly, the cost of compliance, again, a slide that we put in for many results. Now you can see the cost of compliance going up at $335 million for the first half, up 11% from where we were in the first half of FY '21. Obviously, compliance is a very important aspect of the way we manage risk across the whole organization. And there's a range of areas in which we're investing in. My expectation is on a go-forward basis, this cost of compliance will continue to step up as we continue to lift the platform of Macquarie across the group.In terms of the balance sheet, obviously, balance sheet remains very strong. We had a good period, a very busy period in terms of accessing capital markets to support the funding requirements of the group. You can see we raised over $24 billion in the half, including a drawdown from the RBA term funding facility of $9.5 million, but a very strong and busy period for the team in terms of raising capital and funding for the group. Importantly, we've continued to diversify the sources of funding. We've accessed a range of markets around the world in the last 6 months. And the other thing we've been doing is lengthening the maturity profile of the group's balance sheet. Now out of 5.1 years versus 4.8 years when we sat here at half year -- full year talking to you about the results in May.In terms of deposit growth, up to $91.5 billion worth of deposits are a really good story, a 15% compound growth rate over the last 6.5 years. Great to see the team diversifying the type of products that we have in the market and attracting customers to the products that we're providing.In terms of the funded balance sheet in the loan and lease portfolio, just in terms of where some of that capital is -- some of that funding is going, we've obviously got up about 13.7% from where we were at March of 2021. And you can see where that increase funded loan and lease books line really in the BFS business, in the personal lines, and also in the business lines, you can see them both up considerably during the period. The other thing we see is a step-up in the asset finance business, and that really is the business that the funding business that sits within CGM, looking at shipping financing, looking at fund financing, and we've seen a step-up in activity across that part of the business. And then at the bottom of the page there, you can see the increase within Macquarie Capital in the corporate and other lending area. That's gone from $6 billion up to $8.9 billion at the end of the half.In terms of the equity investments, just to start, we have changed this slide slightly since we presented to you at the full year in response to some feedback we had from shareholders and analysts. So we've changed this slide to include consolidated investments on the balance sheet that we expect to sell. We've also included, obviously, equity investments or investments that we equity count and investments that are valued at fair value through P&L. So it gives you a broader range of the equity investments that are basically held for sale on the group's balance sheet. And you can see that stepping up from $7.7 billion at 31 March to now $8.8 billion at September. And I guess there's a range of movements there, but to highlight one in particular, you can see the step-up in the Green Energy investment from $1.3 billion to $1.8 billion as of September 21.Now turning to the regulatory update. There's always a lot on this slide. It's a very, very busy period. Regulatory reform is very active at the moment. A couple of things that I thought I would highlight on the way through here. Firstly, we are getting towards the end or APRA is getting toward the end of the Basel III are unquestionably strong , a reform process. So we'd expect to received final standards by the end of this year with an implementation date of the 1st of January 2023. Obviously, we're well advanced in terms of the preparation there. And as we've said for some time, we have been holding capital back in the group to support the additional capital obligations that will come with the introduction of the unquestionably strong capital reforms.In addition, I wanted to point out, obviously, in response to the APRA letter of the 1st of April, as we said at the time of the announcement, we had a range of programs that were in place to deal with improving our risk management, regulatory compliance and so on. we've incorporated some of those programs over the course of the last 6 months into a remediation program with APRA. And that remediation program really is looking at things like governance, it's looking at things like group structure, it's looking at things like incentive to ensure that we meet our ongoing regulatory reporting obligations, a very important program of work that we've now staffed up and obviously working hard to make sure that we lift our approach to this area.In terms of the capital ratio from a bank viewpoint, the CET1 ratio from the bank at 11.7%. So very strong. Obviously, a step down from where we were at March, reflecting the additional capital requirements of the group just given the -- the underlying performance that we've seen over the last 6 months. Strong liquidity position, nearly $70 billion worth of unencumbered cash and liquid assets. And from an LCR viewpoint, obviously, very strongly, 180% LCR for the September quarter.In terms of capital management, I'll come to the capital raising in a moment. Just a couple of other things. Obviously, during the half, we issued shares to satisfy the dividend reinvestment plan in respect of the final dividend for FY '21. We also issued shares in respect of the MEREP grant that was part of the profit share conversation for FY '21. Today, the Board obviously has declared a dividend of $2.72 franked to 40%, as Shemara mentioned, the dividend reinvestment plan remains on, although no discount is in place for this dividend.In terms of the capital raising, we announced this morning, as Shemara mentioned, we're seeking to raise $1.5 billion in the form of a non-underwritten institutional placement, and we're following that by a non-underwritten share purchase plan. The stock is obviously in trading hot while we go through the placement process today, and we'll -- and the stock will come out of trading we'll announce the price and we'll come out of a trading halt on Monday.In terms of the SPP, the SPP will open on the 8th of November. And in terms of pricing, the pricing for that SPP will be the law of the placement price adjusted for the dividend or 2% below the volume-weighted average price of Macquarie's ordinary shares trading ex dividend during the 5 days of ASX trading immediately prior to and including the SPP closing date.I probably covered the time table. As I said, the stock will come out of a trading halt on Monday, and we expect to allot the shares. And then in terms of the SPP, the allotment date will be 3rd of December withholding statements dispatched on the 6th of December.And so with that, I will hand back to Shemara for the remainder of the presentation. Thank you very much.
Thanks, Alex, and I'll now move on to taking you through the outlook. And as usual, the short-term outlook first and then the medium-term outlook. And as we always do, we're looking at this short-term outlook by the outlook for each of our operating groups.So starting with Macquarie Asset Management, we expect the base fees to be broadly in line, as we said, with last year, but we expect the net other operating income to be slightly down on the previous year due to the significant one-off items we had last financial year. And with the Waddell & Reed acquisition, as Alex mentioned, it's not expected to provide a meaningful net profit contribution this financial year because of the integration and one-off costs that he showed you in the slides he took you through.Banking and Financial Services, we see ongoing momentum in the loan and the deposit and the platform volumes, but we continue to see competitive dynamics putting pressure on margins in that business. And we're also continuing to invest on the cost side, as Alex mentioned, in both technology and regulatory compliance costs. Now we'll have to also continue to monitor provisionings in the COVID-19 environment in the BFS business.Then turning to the market-facing businesses. Macquarie Capital. We're expecting transaction activity in the second half of this year to be up on the activity levels even on the second half of last year. And in terms of the investment-related income, we're expecting that to be significantly up on the results of last financial year with improved outlook for investment realizations to continue in the second half of this financial year and also ongoing deployment of balance sheet. And Commodities and Global Markets in the asset finance portion of the business and in the financial markets part of the business, we expect ongoing contribution from the growth in those franchises. So the portfolio growing in asset finance and also the market base and client activity across financial markets.In the commodities part of the business, we're expecting the income there to be in line with FY '21 after taking into account the impacts of timing of income recognition on storage contracts and transportation agreements in that business. And then centrally, we expect both the compensation ratio and the effective tax rate to be broadly in line with historical levels. Now as usual, the short-term outlook is subject to a number of factors, which include things like the duration and speed of global recovery from the COVID-19 pandemic and the extent of government support to economies, market conditions, including significant volatility events and the impact of geopolitical events, potential tax or regulatory changes and tax uncertainties, completion of our period-end reviews and the completion rate of transactions and the geographic composition of our income and the impact of foreign exchange. So given all of this, we continue to maintain a cautious stance with a conservative approach to all of our capital funding and liquidity that should position us well to respond in this environment like all environments.And over the medium term, as we've often said, we think we're well positioned to deliver superior return for the risk based on the diversity of our franchise in terms of those 4 operating groups and the diversification by geography, by product and by sectoral themes to which they're responding, coupled with our strong and conservative balance sheet and our proven risk management framework. And as you've seen over the long term, this is delivered. So our annuity-style activities for the average of the last 15 years, delivered a return on equity of 22% and 24% in this last half and the market-facing activities delivered 16% average return on ordinary equity over the last 15 years and 21% in this last half. So at the group level, after taking into account the surplus capital we hold, we've delivered a 14% average return on equity over the last 15 years. And in this last half, 17.8%.So with that, I'll hand back to Sam and we'd be pleased to take any questions that you may have, Sam.
Thanks, Shemara. Given we are doing this briefing virtually, Chorus Call will be handling the questions. So I'll hand over to the operator. Thank you.
[Operator Instructions] Your first question is from Andrei Stadnik from Morgan Stanley. [Operator Instructions] The next question is from Andrew Triggs from JPMorgan.
Could you guys hear me?
Yes, I can hear you.
Yes. Okay. So I had a question firstly on the Green Investment Group business. Obviously, we know the capital that is invested within that cap in the renewable energy space. but there's relatively little disclosure on earnings for that business. Just thinking just after perhaps some assistance on how to figure out the timing and quantum of project development profits in that business over the next few years, noting that there is ongoing capital deployment in the first half with relatively little in the way of realizations?
Yes. Alex, I might let you go through the detail of that. But basically, that book will run off over the next few years. And you've seen the size of it in terms of the slides that Alex shared and where that's grown too. So Alex, did you want to cover that in terms of quantums and runoff profile?
Yes. So thanks, Andrew. You can see some of the earnings coming through in the half. And obviously, as we've talked about before, we see some earnings coming through from share of joint venture gains and losses. So obviously, that's bringing some income through in this half. And you can also see it in the other income line within Macquarie Capital. Obviously, that's partly offset by things like platform costs and development costs because as we've talked about before, a lot of those early-stage developments were actually expensing the early stage of development, while we actually create the asset. So we get a -- I guess, there's a few lines in which that income and that expense is coming through.Generally speaking, in terms of the platform, you can see, obviously, when we last spoke to you, we're sitting on about 30 gigawatts of pipeline that we're expecting to develop across the world. And typically, that's in the solar area, offshore wind, onshore wind, waste to energy. And so we're continuing to invest in those assets. And over the course of the half, that 30 gigawatts has grown to 40 gigawatts. So we're actually building the portfolio assets on the balance sheet. Typically, it takes -- I guess it takes sort of somewhere between 18 months and 3 years before you start to see some of those investments actually create assets and turn into profit. So what the team are doing is they continue to build out the solar platforms, the wind platforms, and over time, we're sometimes divesting those assets, and you saw some of that during this half. And other times, actually, we might look to divest the entire the entire portfolio itself once it's been built to scale. But probably somewhere between 18 months and 3 years, and obviously, as we talked about Andrew before, you actually see partial sell downs over time as we start to derisk these assets.
And is that time frame still through the very large offshore wind developments that you've been engaged in more recently?
It tends to be -- I mean, obviously, a lot of those, it depends what stage of investment we might have gone in. And so if you look at an asset like East Anglia 1 for the sake of the example where we've come in late-stage construction, you might actually be able to buy that asset at IRR continue through the construction phase and actually sell down at a premium relatively shortly thereafter. And then we might hold that asset through to its operating stage, which might take several more years and then sell down at that sort of operating level IRR. So it depends on when you come into that stage of construction. Some of the newer investments obviously are a little bit longer dated because you're actually going into a very early stage development of those assets, and it takes a while to actually go through the permitting process, go through the contracting process and start to get some of that IRR compression. So it depends a little bit about the stage of investment that the teams actually taking in the first place in terms of the overall timing for exit and profit.
Great. And if I could just ask a follow-up with GIG going into the MAM division. Do you let any changes to the cooperation agreement that's already there between those 2 businesses, including how sort of safe harbor rules will work and whether MIRA needs to take minority stakes in projects to ensure there's some market price mechanism on the transfer?
Yes. I might have a go at answering that, Alex, and please add if you have any further information. But there's clearly a meaningful portfolio on the balance sheet. And this transition isn't taking effect until the 1st of April next year. So the teams in Macquarie Asset Management and GIG will work through a lot of those assets and also the platforms. We have platforms, as Alex mentioned, Cero is a solar platform here in Europe, what of that will go into the asset management offering and what it will be run off on the balance sheet. And the point you make is a fair one in terms of transferring assets into the asset management business. We need transparency and validation of the valuation if we are to do that. So if we are -- some of them may be attractive assets for the asset management business, but we may well have to run a transparent arms length process and get validation of the price by selling down a portion of it to a third-party investor. But that's something our teams will be working through in a lot of detail, taking into account the interest of the fund investors as well as the balance sheet in terms of determining where those go. But all of those assets are ones that we're happy to hold on the balance sheet if we had to. But if there is scope to make them available to our fund investors earlier, that's something the team will work on. Anything, Alex, you'd like to add to that?
No, I think that covers it, Shemara. Thanks.
The next question is from Andrei Stadnik from Morgan Stanley.
Apologies. It was just a bit of a lag between the webcast, I missed my queue. Could I ask 2 questions, please? Could I ask firstly around the carbon offset an emission certificate trading opportunities in CGM? Can you talk a little bit about how much that could be in terms of the revenues today and that market size and how you see that evolving into the future?
Yes. And look, at the moment, Andrei, it's a small and growing market, and we are looking to position ourselves early in that market. So CGM is starting to offer carbon offset. It's a tailored programs as well to some of the big energy companies, but we expect that will grow in our usual patient organic adjacent growth approach. Nick O'Kane is actually on the line from Houston, I think. And I don't know, Nick, did you want to add anything to that? Or at this stage, does that cover it?
Shemara, I think at this stage, you've covered it well. It's a nascent market for us. There's certainly opportunity. We think it is in an adjacent space to our existing business and our customers are certainly looking for activity and looking for help in this space, and we're preparing to respond to that.
And second question, I wanted to ask around the traditional asset management division. And maybe just 2 parts to this question, if I can. In the Waddell & Reed, had about $184 million one-off costs, do you expect a broadly similar amount over the remaining future periods. And then you're clearly going to operate in scale in this memo division, where would you like that business to get to in terms of what would be a good level of rate and scale any kind of AUM targets?
Yes. Alex, I might let you cover the first part of the question. But I'd say, Andrei, briefly that the one-off costs are one-off, that we shouldn't continue to have those integration costs. So once we've actually transitioned the business to the state we want then we should just have the ongoing income contribution, but I'll let Alex give more detail.And in terms of what sort of AUM we target, we're already at scale. So when we were able to make the Delaware investment and get about at that stage, about $100 billion at least of assets under management. We had enough assets to cover all the costs involved in having an operating platform, a 120-person distribution team to service the U.S. market, legal, compliance, et cetera. So now when we make further acquisitions like Waddell & Reed, we pretty much are able to take a lot of the costs out and keep the new portfolio management strategies, et cetera. And so they're very accretive to us now that we are funding all the base costs of the platform through the Delaware investment we were able to make.Alex, did you want to elaborate on the one-off cost?
Sure. Thanks, Shemara. Thanks, Andrei, for the question. Yes. Just in the first half, obviously, we -- there was some redundancy costs come through there. But also we inherited as part of the transaction an asset with an onerous contract that we obviously anticipated. And so we wrote that contract down to what we thought was the fair value. So that came through in the first half. Obviously, the process of integration is still relative to the early stage, and we will -- we're going through that. It will probably take another 18 months or something to 2 years to actually get through that complete integration. But obviously, we're making a quick process in terms of getting down to the right size of organization and getting down to merging the underlying products and funds. And so I think maybe putting that together with what we said for the full year outlook, you can see, obviously, we say Waddell & Reed, we went from a slightly negative contribution to a not meaningful contribution. So I think implicit in that you can probably think about what the second half of one-off type expenses might be to get down to that sort of result.But there's a process that we're obviously going through to actually merge these businesses and obviously has to be handled carefully to make sure that the clients at Waddell & Reed are well looked after that the portfolio managers performance can be maintained and that we properly integrate the business so that we achieve the success with the acquisition that we're hoping.
The next question is from Matt Ingram from Bloomberg.
And congrats on a very good result. I just wondered if you could please drill into the capital side of things a bit. You've obviously got a commitment to shareholders for dividend payout and you've paid out at the bottom of the range, but you are raising capital at a record high share price. So I just wonder if you could please clarify for us what sort of surplus you want to maintain above the APRA requirements? Because you are at $8.4 billion now, and that seems like a substantial amount. So if you could, I guess, just clarify for us your thinking on that, please, in terms of the surplus. And in terms of the payment of the dividend and the capital at the same time?
Look, in terms of the surplus capital, obviously, the surplus we always express is over that regulatory minimum. And within that surplus, we're really trying to do 3 things. We're obviously holding buffers. So internal buffers over the regulatory minimum. They obviously scale with the size of the balance sheet. As we said for some time, there's a range of regulatory reform here in Australia. Most obviously, things like unquestionably strong, which will increase capital requirements for banks. And so we're holding capital back to support that. And the other thing that comes out of the surplus, obviously, is supporting the growth initiatives of the group around the world. So what we're doing today, obviously, is having looked at all that and looked at the investment in capital over the last 12 months and what we see as the outlook for capital usage over the medium term, we feel like it's an appropriate time to go and raise capital to support the business -- to support the business going forward. And obviously, at the same time, make sure we meet those buffer requirements and the regulatory change that we're seeing here in Australia.In terms of the dividend point, you're right, at the AGM, the Board made a decision to reduce the payout ratio down from 60% to 80%, which it had been since 2013, down to 50% to 70%. And at the time, we made the point, obviously, that the outlook for capital usage was very strong. And so we thought it was as appropriate to reduce that payout ratio to give a bit more flexibility to support the capital needs of the group. Just putting together the capital raise today with the lower dividend payout ratio, I think the Board has in mind very much that, obviously, the underlying story of that 15% rally over a long period of time is a good story and something has been hopefully, attractive to investors in the company. But there are a range of other stakeholders that would like to see the dividend as well. And so I think the Board is thinking about the overall capital strategy is trying to balance the need to make sure that there's a nice dividend flow coming out to our shareholders at the same time as supporting the capital needs of the group.
Yes. And if I could just wrap up and say, the way we've always run the business is that we sit with a good buffer over the regulatory minimums. Last time we raised, we had a buffer of a bit over $5 billion. As Alex says, the business has grown materially since then. So a similar proportionate buffer now is a much bigger absolute number. But we've always sat with those buffers. And as you saw in the material we shared been able to deliver mid-teens returns on equity, which we think are, when you blend our business lines, good returns even after holding the buffers. So that's why we're maintaining the buffer as well going out to raise capital for investment opportunities.
The next question comes from Brett Le Mesurier from Velocity Trade.
You mentioned that you made $450 million profit on sale of less than 5% of your U.K. meters. Does that mean that you're sitting on potential gains of close to $10 billion in respect to the rest of the portfolio?
Well, the reason we sold the industrial and commercial meters is there's strong appetite for industrial and commercial meters, and there were people who were prepared to invest in that portfolio at much lower required returns than we were looking for from the portfolio. So we exited that. The rest of it for us is good annuity strategic business that we want to keep. And so the income stream is valuable for us, and we think the returns we're making on the residential meters are attractive. We sold several hundred thousand in the industrial. We don't see that similar sort of strong external appetite for the residential. We may be able to make some profit on selling it but at this stage, the returns we're making are attractive, and we're happy to stay in that business.
Could you give me an indication as to the potential gain that you would get on selling those should you decide to?
It depends if we ran a process, what sort of required returns investors may have on that. So the returns required on the industrial and commercial in our estimation we're in the single digits at levels that we would not want to continue to invest. We haven't seen people approaching us or transactions happening in the market on the residential meters at a comparable level. So the game really depends on whether there's a market there that's prepared to pay those sort of returns. And we've not seen it at this point. So we're comfortable holding on to the portfolio.
And obviously, Brett, we're always balancing the return that we can get for our shareholders with that portfolio of assets on our own balance sheet versus the return you might be able to get by capitalizing that stream of income at somebody else's discount rate. And as Shemara said, we've been building this portfolio for some period of time. We're obviously in the process of converting it from a, I guess, rolling out from a traditional meter business to a smart meter business, and we think that's an attractive place to have capital and a good return on equity for our shareholders based on what we're seeing so far.
And how much you deployed in that, by the way?
Relatively small amount of capital, obviously, employed in the business.
I was just going to say we're at a much bigger scale, obviously, in residential, so our returns are stronger as well.
The next question comes from Matthew Wilson from E&P.
I wonder if you could talk to what's going on in the European and U.K. energy markets and how Macquarie fronts into that space? I would have thought that there's a bunch of opportunities and challenges there as well with suppliers under pressure, but your hedging book, your own cadence but there's a price cap. There's a whole lot of complexity in that market, which I'm sure you're well abreast of. Can you sort of give us a feel for if this volatility persists, how Macquarie fares in that environment?
Yes. And Nick O'Kane is on the line, so I'll let him speak. But we do see these levels of volatility from time to time in sectors in which we have a deep franchise in terms of servicing producers and consumers and having access to transportation and storage assets, et cetera, to responding challenging periods like this. We saw it during the polyvortex. We saw it during the Permian issues. We saw it during the Texas storms last year. And this year, I think basically what we're seeing is a big surge in demand coming back out of the COVID pandemic, where goods demand is up higher than services demand because services are still harder to access and goods are more energy intensive. And in that very heightened demand environment, if you have the slightest shocks to supply, the impacts on prices are exacerbated even more. So I think Alex was talking about in European Dutch gas price was up at 1 stage, about, I think, 7.5x and it's now up about 4x. All of that plays into other markets because the markets are connected. So it's had impacts on North American gas in terms of Henry Hub prices. It's flowed into oil and even thermal coal. And what we're able to do in some of those markets is step up and service our investors more if we actually have presence and a franchise in that market.But Nick, do you want to elaborate a little bit on that? We're obviously helping in terms of risk management, transportation, storage, financing.
Yes. Thank you, Shemara. Look, that was a very comprehensive answer. But I think primarily, our role here is to assist in the risk management of the volatility that our customers are experiencing. So obviously, with the amount of activity in the market, we are seeing some elevated customer activity, which you've seen in some of the numbers that have been presented and Alex has described earlier. But primarily across the European markets for us, it translates to opportunities for customer activity. We have a slightly smaller presence from a physical perspective than in some of the other markets like North America. However, the customer activity is quite robust, given the challenges that they're facing, trying to navigate the uncertainty heading into the winter months.
And just as a follow-up, is the market less freer than what you've experienced in Texas and New York when you've had extreme weather events? There are price caps, et cetera, or you front end the same -- you front into the same opportunity?
Sorry, what was the first part of the question? Is the market...
Is the market in U.K. and Europe, less free, i.e., there are price caps on retail, gas, et cetera, does that prevent you from enjoying the same opportunities that you did in Texas and New York? Or should we think about it the same way?
They are all different and separate markets. And the way the European markets operate is different to the way that the North American markets are operating. I'm not sure that the retail price caps impact the wholesale market, and we're primarily operating in the wholesale market. So that's less of a concern for us. The difference is just in the underlying business themselves, the size of the markets and the scale of our respective businesses is different. So we have a larger business in North America versus our European business.
Okay. And is there credit risk then given your wholesale selling to retail and some of those retailers have obviously struggled with their input costs?
From a risk management perspective and a credit perspective, we approach each market in the same way. And given our proximity to the markets, we have a fairly good idea of what stresses to apply to our underlying credit exposures. So we're very mindful of those. But nothing particularly of concern at the moment.
The next question is from Brian Johnson from Jefferies.
Congratulations team on the truly phenomenal result. A few questions, if I may. Recently, we've had the sale of One Rail. We've got the sale of the towers business. Now I'm guessing these were sitting in the Macquarie Australian Infrastructure Trust, which was set up in 2015. Should we be thinking that this is progressing towards generating performance fees, '24, '25, '26? Or is it earlier? And I note a few others as well.
Yes. The Macquarie Australian Infrastructure Trust, the MAIT trust, as they call it, has only just started realizing assets, Brian. So the one real sale to horizon, I think, is the one that's progressed, but the Axicom towers will take a while to progress. And usually, what we do is go through a period where we're reaching catch up before the performance fees get higher. So it's early in its exit of assets, and we'll probably run over the next couple of financial years probably the sort of kind of a talking about...
The tail of Performance fees to come through, Shemara?
Yes, that time should definitely generate performance fees. But I think at the moment, the sort of funds that are generating performance fees now are things like our third North American fund, some of the European funds, et cetera, in this financial year.
And Shemara, when we have a look at Green Investment Group sitting within MacCap, historically, it's been kind of like the investor in the development side, and it hasn't basically sold the assets at the end of the development side into MIRA. I'm just wondering, philosophically, transferring Green Investment Group in demand. Is there an opportunity to even lower the capital intensity further by basically raising external funds to do that and Macquarie participates in managing during the development stage as well?
That's effectively what we're doing, Brian, is that we're seeing investor appetite now to be involved in the development and the construction phase. When we first started investing, we were investing in the operating fees and there wasn't fiduciary investor interest in that. Gradually, as they got familiar with the asset class, their interest grew, and that's now done as a fiduciary offering. As time has gone on, we're seeing increasing investment from our fiduciary investors to be involved in the construction phase as it's become derisked and more familiar to them and then even in the development phase. So I think we're seeing other industry funds invest throughout the spectrum with fiduciary capital, and that's what we're moving to do with the Green Investment Group now operating as part of Macquarie Asset Management.
I think, Brian, just to add something from maybe for a second. I think the other thing that's happening, though, as Shemara talked about when she was talking that slide. It's just the scale of the opportunity is changing, Brian, as well. I mean, obviously, 10 years ago, it was one scale of opportunity. Today, you've got a lot of institutional capital looking for opportunities to invest in renewables. But the opportunity to actually go through solar, offshore wind, hydrogen is obviously coming hydro, battery, the scale of the investment opportunity is increasing sort of daily or monthly or quarterly or whatever you like to describe it as. And I think what we are seeing is as that scale expands, the opportunity to combine the expertise that's resident in the GIG group, with the expertise on managing and developing assets within MAM and actually taking that whole sort of life cycle to the fiduciary investor universe is something that we think is really compelling. And so that's why the timing now from our viewpoint makes sense. But the underlying story, I think, is that there's a decent runway in terms of actually participating in and facilitating, if you like, that green energy transition.
Alex, so this not only does it accelerate the growth in the traditional mirror funds but this also has the opportunity to potentially significantly lower the initial development capital intensity of GIG as well. Is that correct?
Well, I mean, I think that's yet to be seen. Obviously, as Shemara talked about, there's a process that the team is going through in terms of actually how you integrate the 2 businesses. And then we've obviously got a bunch of portfolios, Brian, sitting on the balance sheet today. In solar, in wind and in offshore wind that we're in the process of actually developing assets and maybe some of those assets end up in the renewable funds or the fiduciary business, maybe some are sold to third parties, maybe as a combination of both. So I think it's a bit early to tell exactly what might happen with the assets we've got sitting on our balance sheet today. But more generally, I think what we are seeing is more regions and greater scale in developing and participating in this sort of energy transformation. And we think what we're able to do is, obviously, we've got balance sheet appetite for doing that. And we've also got investors that are seeking to get exposed at the earlier stage of that investment. So combining our own balance sheet to get perhaps through the fund with through funds, with fiduciary investors and then really bring that expertise, that human capital that we've talked about before together in terms of both the development piece that said in GIG together with the asset management expertise that sits in MAM, we think is a pretty interesting combination for -- obviously, for all of us within the group and for all of you as shareholders, but also obviously for our fiduciary clients within MAM.
Alex, just a final one, if I may. At the moment, we've got the construct of a lower target payout ratio, which makes a lot of sense. We've got 40% dividend franking kind of running back in recent years. We just get a feeling of what is the outlook for basically the frank capacity...
You break up a bit, Brian. I think your question is what's the sort of medium-term outlook for franking? Was that the question?
Yes, that is correct.
Look, I think in the medium term, we feel reasonably good about the our capacity to frank sort of at that 40% rate, at least into the sort of medium term. I mean, obviously, the -- if you look longer term, the underlying driver is just the composition of international income versus domestic income. So for instance, in this half, international income was 72%, domestic income was 28%. So as that mix shifts and you start to see more income coming from offshore, that will obviously flow its way through into the franking capacity. But certainly, for the -- it feels like for the medium term, we should be able to frank at that 40% rate.
The next question comes from Brendan Sproules from Citi.
I just have a couple of questions on your CGM division. Just in terms of the unfavorable impact timing of income recognition in the inventory management. Are you able to give us some guidance of what that would look like in the second half? And then my sort of next part of that question is, is that income that you've already recognized? Or is that the timing means that you'll be recognizing that either this next coming half or even next year? And then the second question I have is just on the amount of capital that you've deployed into this division. I think it's up almost 50% in 12 months to almost $7 billion. Are we expected to see from a revenue perspective, the impact of that capital coming through greater revenue in lending and finance and asset finance or will we see it come through the bigger revenue lines like risk management products?
Yes. Alex, why don't you answer the question on the accounting. It's a difficult one in terms of when that timing will reverse.
Yes. No problem. Why don't I do that first. Thanks, Brendan. Yes, so this accounting versus economic P&L. So the first part of the question is, if you think about it, it really relates to the infrastructure assets that support the physical movement of -- or storage of commodities around the world. So oil storage assets or pipelines or power transmission lines. And the way the accounting requires -- we obviously, from a management P&L viewpoint, we mark-to-market the value of those assets. And so for instance, if spreads change at one end to another of a pipeline, obviously, the pipeline itself goes up or down in value. And so we actually mark these assets to market, if you like, from an economic P&L.From an accounting viewpoint, if the gain or loss is coming through because of the change in value of the underlying infrastructure, you've got to unwind that gain or loss through the P&L over the period of the contract. So that's the way that the accounting actually requires you to do it.In terms of the setup, there's probably -- Nick can probably talk about this in more detail if need be, but there's probably 18 to 20 contracts on a range of different assets and around the world. They have a various duration, but let's call it an average duration of about 18 months or something like that. And so that income that -- or the deduction from the economic P&L this year will unwind into the P&L over the future periods. And just -- but obviously, the amount of that obviously changes based on spread movements for the sake of the example, or new contracts that we might enter into. And so it's obviously not a static calculation. If everything stayed as it is, that $380 million of income that we held back this year would unwind over, say, the next 2 or 3 years on, say, an average basis of, say, 15 to 18 months. Does that help?
Yes. No, just a follow-up on that. So in terms of the economic side of this, has the value of these assets gone up because the value of storage has effectively just gone up in price and mark-to-market, and that's really what's the economics of driving this particular part of the business?
I might have a go and then Nick, you might want to come in. I mean, obviously, as we've talked about in previous result periods, if you just -- the infrastructure to move product from where it's been produced to where it's being consumed hasn't really kept up with the demand and supply. What the value of that particular piece of infrastructure means from one period to the next, obviously varies because it depends on price between those 2 periods. But generally speaking, there's been a relative underinvestment in the physical infrastructure that supports the movement or storage of commodities around the place versus the demand and supply of commodities that's actually come on stream. And so that creates value in that creates potential value in those assets. As I say, whether it's a positive or negative 1 period to the next depends on how prices have moved, depends on how demand and supply move. But generally speaking, there's been a relative underinvestment in physical infrastructure.Now that obviously catches up, Brendan, over time. I mean, obviously, it takes -- there's a time frame over which you can actually develop this sort of infrastructure. So over time, that dynamic changes. But generally speaking, there's been a big pickup in demand and supply for the energy and less investment in the infrastructure piece.Nick, is there anything you want to add to that?
I think that was a very comprehensive answer as well, Alex. I would just note that the value or perceived value changes very quickly, given the short-term nature of changing supply and demand for commodities based on things like weather. So it does move around on those types of factors as well. It's the underlying amount of production that's impacting the value of these things along with the amount of demand that's driven by, as Shemara mentioned earlier, things like demand for goods, which is increasing demand for energy to produce those goods and things like from a consumer perspective, whether the people's homes and things of that nature.
Brendan, I think your other question might have been on the capital footprint. If you have that question as well or we covered that?
I was just interested in when -- which revenue lines this capital that you've deployed, and I can see you've got some, obviously, in credit, but obviously, you've got some in markets. So I was just seeing what sort of revenue lines will be impacted by this deployment of the capital?
Yes. And so maybe just generalizing for a second. I mean, obviously, if you look at the -- and again, we've talked about this a few times at our results and so on. I mean the franchise or the footprint of the CGM business is obviously expanding in terms of its capabilities, it's geographic reach, the clients it's dealing with. And you've seen that over the last couple of halves as we've put up that slide talking about the customer franchise.The other thing that we're seeing on the customer franchise, Brendan, is that flowing into operating income from customer business. And so for the sake of going to a slide in this pack, you saw the customer numbers up by 5% compound annual growth rate over the last 5 halves. You saw the operating income up 3%. So there's a correlation obviously between customers and what we're seeing for operating income.And then in terms of that customer business, some of it's providing risk management solutions to help them manage volatility or price risk. Some is the extension of funding to support the acquisition of a shipper within the asset finance business. And so what we are seeing over time is that there's an increase in capital to support the growth of the franchise within CGM. Obviously, there's a bit of variability there. We saw lots of volatility across a number of the segments in CGM in the first half. And so you can see a big pickup in credit risk capital, and you can see a big pickup in market risk. That varies from period to period, but the real underlying story here is that the franchise itself is actually growing.And obviously, if you then -- one area where it's very much, I guess, in focus is really in the energy mix at the moment, obviously, CGM is well positioned, I think, to play a role to help clients manage that energy transition and that from time to time, generates capital need as well. Obviously, some of it is quite immediately responsive in terms of return you get from deployment of that capital because it's all the mark-to-market book and others, obviously, come over time in terms of return you get from extending a loan, for instance, to support the acquisition of a ship.
The next question is from Ed Henning from CLSA.
I just got 2 quick clarifications just on the GIG transaction or the transition. Firstly, you talked about being completed by April. How should we think about the either transition of the assets, the funds are being sold. Will that be done by April? Or is that going to be [indiscernible] over the next couple of years as we think about potential realization gains there? And then just secondly, on GIG, obviously, moving it to MAM, and we understand why, in MacCap, are you still going to be doing some green energy investments there? Or is that all going to be captured now in MAM?
Yes. In relation to your first question, MAM on April date is just for internal moving of assets. So will we leave them with Macquarie Capital, put them in the asset manager. If they're in the asset manager, will they stay on the balance sheet or be transferred into funds? That's an internal discussion. But the assets that are on the balance sheet and as we discussed earlier, if we're going to transfer them into the funds, we need some price validation and transparency to the fund, the investors see it's an arm's length price. So probably there won't be too many transfer into funds. So we will run them off in the same time profile that we would ordinarily run them off on the balance sheet, the existing portfolio. And Alex talked about that earlier in response to a previous question where it's 18 months to a couple of years that we run those assets off. But basically, what we're finding is that the new assets we're likely to deploy capital on behalf of investors into that area now that the investors are comfortable with you and happy to put their capital there. And then Macquarie Capital will probably invest in the sort of areas where investors are not comfortable to invest where the risk square. They're too early. The risks are too complex. And so we need the balance sheet to be taking on those investments. Typically higher risk but hopefully higher return as well if we do them well.In that specific Green Investment area, what we will do is not compete with the fund mandate. So Macquarie Capital will be supporting its clients still in terms of investments they want to make. And in terms of principal investing, if there are areas where we don't see that the fund investors will have interest in investing, then Macquarie Capital can continue to pursue those.
The next question is from Brian Johnson from Jefferies.
You just answered the question, Shemara.
Thanks, Ed, for asking it.
There are no further questions at this time. I'll now hand back to Mr. Dobson for closing remarks.
Great. Well, thank you all for your interest, and we look forward to catching up with you over the course of today in the next couple of weeks. So thank you very much.