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MACQUARIE BANK 2005 ANNUAL REVIEW
MACQUARIE BANK
2005 ANNUAL REVIEW
www.macquarie.com.au MACQUARIE BANK LIMITED ACN 008 583 542
The Holey Dollar In 1813 Governor The cover of the Macquarie Bank commitments now stand at
Lachlan Macquarie overcame 2005 Annual Review shows the KRW 1.26 trillion. In the past
an acute currency shortage by Incheon Expressway, a 40km tolled 12 months, six investments were
purchasing Spanish silver dollars link road between Seoul and Incheon made with over KRW 800 billion
(then worth five shillings), punching International Airport, in which the invested or firmly committed.
the centres out and creating two Korean Road Infrastructure Fund KRIF is widely considered to be the
new coins – the ‘Holey Dollar’ (KRIF) has a 24 per cent interest. KRIF
most active private infrastructure
(valued at five shillings) and the is a clear example of the success of player in the Korean market and has
‘Dump’ (valued at one shilling and the Bank’s infrastructure and invested or firmly committed more
three pence). specialised funds in global markets. than 95 per cent of its total capital
This single move not only doubled Established in 2002 in partnership commitments.
the number of coins in circulation with the Shinhan Financial Group KRIF has also created a platform
but increased their worth by 25 per (SFG), KRIF has raised capital
for Macquarie to leverage its global
cent and prevented the coins leaving predominantly from Korean experience in project finance,
the colony. Governor Macquarie’s institutional investors and has pioneering the use of non-recourse
creation of the Holey Dollar was an invested into ten Korean infrastructure funding in the Korean market.
inspired solution to a difficult problem projects specially designated for
and for this reason it was chosen as private investment.
the symbol for the Macquarie Group. The year to 31 March 2005 has seen
the fund move quickly to secure
quality investment opportunities at an
early stage of the Korean market’s
development. The fund’s total capital
eTree
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territory where the registered
shareholder resides.
Macquarie Bank shareholders can
This report has been printed on register to receive their shareholder
Mediaprint Silk an EMAS certified communications, such as the Annual
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Macquarie Bank Review 2005 Concise Report
2 Highlights 55 Directors’ Report
2005 Annual Review 4 Chairman’s and Managing 74 Directors’ Report Schedules
Director’s Report 78 Consolidated statement of
8 Management and Organisation financial performance
10 Macquarie Bank global locations 79 Consolidated statement of
12 Investment Banking Group financial position
18 Banking and Property Group 80 Consolidated statement of cash flows
22 Treasury and Commodities Group 81 Discussion and analysis
26 Equity Markets Group 82 Notes to the concise financial
30 Financial Services Group statements
Funds Management Group 90 Directors’ declaration
34 Other Groups and Divisions 91 Independent audit report
36 Macquarie and the community 92 Ten year history
40 Corporate Governance Statement 93 Contact directory
“ The year was characterised by substantial
international growth with the Bank benefiting from:
– Increase in employee numbers – staff based outside
Australia grew by 29 per cent to 1,747
(Total staff numbers grew by 15 per cent to 6,556)
– Continuation of business expansion and significant
international achievements
This has resulted in growth in international revenue
of 83 per cent to $1.3 billion.
”
David Clarke, Executive Chairman/Macquarie Bank
2005 Annual General Meeting
Macquarie Bank’s 2005
Annual General Meeting
will be held at 10.30 am
on Thursday, 28 July 2005
at The Westin Sydney,
in the Grand Ballroom,
Lower Level,
No. 1 Martin Place, Sydney.
Details of the business of
the meeting will be contained
in the separate Notice of
Annual General Meeting to
be sent to securityholders.
The Macquarie Bank Group’s
annual report consists of two
documents – the 2005
Annual Review (incorporating
the Concise Report) and the
2005 Financial Report. The
Annual Review provides an
overview of the Groups’
operations and a summary
of the financial statements.
If you would like a copy
of the 2005 Financial
Report, please call us on
+61 2 8232 5006 or visit
www.macquarie.com.au/
shareholdercentre
1
Highlights – Profit after tax from ordinary activities (attributable to ordinary equity
holders) increased 67 per cent to $823 million
– Operating income increased 54 per cent to $3,655 million
– Earnings per share increased 61 per cent to $3.75 per share
– Ordinary dividends of $1.61 per share for the year
(interim dividend and final dividend franked to 90 per cent)
– Special dividend of 40 cents per share franked to 90 per cent
– Return on average ordinary shareholders’ funds was 30.2 per cent
– International income contributed 37 per cent of the Bank’s
operating income (excluding earnings on capital)
– Total assets under management increased 42 per cent to $89 billion
– Total assets grew by 13 per cent to $49 billion
– Total capital adequacy ratio 21.2 per cent
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2 Macquarie Bank Limited 2005 Annual Review
Consolidated profit
Year ended 31 March 20052 20042 % Change
$m $m
Total income 3,655 2,380 54
Total expenses (2,494) (1,695) 47
Profit before income tax 1,161 685 69
Income tax expense (280) (161) 74
Profit after income tax 881 524 68
Macquarie Income Preferred Securities (28) – large
Other outside equity interest (1) (3) (67)
Distribution on Macquarie Income Securities (29) (27) 7
Profit after income tax attributable to ordinary equity holders 823 494 67
2
The results for both the 2004 and 2005 years have been adjusted to reclassify income and expenses related to businesses held for resale.
Ratings Short-term Long-term Outlook
Fitch Ratings F1 A+ Stable
Moody’s Investors Service P1 A2 Positive
Standard & Poors A1 A Stable
Relative Group contribution to profit 1 2005 2004
Corporate Finance (including Infrastructure and Specialised Funds and IBG Principle) 38% 33%
Macquarie Securities 7% 8%
Financial Products 4% 6%
Macquarie Capital 2% 3%
Total Investment Banking 51% 50%
Banking and Property 3 22% 13%
Treasury and Commodities 13% 17%
Equity Markets 9% 14%
Financial Services 4% 5%
Funds Management 1% 1%
Including the one-off profit from the formation of Macquarie Goodman Group.
3
400 210
350 180
300
150
250
120
200
90
150
100 60
50 30
0 0
3
Chairman’s and Managing Result and all of the Bank’s operating
The Macquarie Bank Group (the Groups reported record results.
Director’s Report Bank or Macquarie) delivered another Assets under management grew
record result in the financial year to 42 per cent to $89 billion over the
31 March 2005. As a result, the Bank period, with growth in specialist
is pleased to announce a special property and infrastructure funds
dividend of 40 cents per ordinary increasing from $26 billion to $46 billion
share in addition to a final dividend of over the period. The specialist funds
$1.00 per ordinary share. The special continued their strong returns to
dividend was declared because of the investors. Total shareholder returns
significant one-off profit recognised for investors in Macquarie specialist
from the formation of Macquarie funds, both in Australia and
Goodman Group (MGQ), reflecting internationally, has been over
12 years of business building by the 400 per cent since December 1995.1
property funds management team. Asset realisations also formed a
The final and special dividends are significant part of the Bank’s revenue.
franked to 90 per cent. In particular, the formation of MGQ,
Consolidated after-tax profit discussed later, led to a $91 million
attributable to ordinary equity holders contribution to net profit after tax and
increased 67 per cent from profit share.
$494 million to $823 million for the Pleasingly, the Bank was the
year ended 31 March 2005. Earnings successful bidder in a larger number
per share increased 61 per cent from of investment banking and
$2.33 to $3.75. fund-related transactions over the
Total operating income rose by 54 per course of the year. Responding to
cent from $2.4 billion to $3.7 billion. the lower volatility and interest rate
Trading, fee and commission, and environment, the Bank’s equity
interest income were all up on the derivatives businesses produced a
previous year. Fee and commission result slightly ahead of the prior year,
income contributed approximately largely due to geographic and
52 per cent of income and rose product diversification. The treasury
45 per cent on the prior year. and commodities area saw broad
The year was characterised by growth in its businesses. Retail
substantial international growth with financial services benefited from
the Bank benefiting from: favourable market conditions with
continuing focus on cost
– Increase in employee numbers – management. The Bank’s institutional
staff based outside Australia grew by stockbroking businesses, both in
29 per cent to 1,747 (total staff Australian and Asian securities, made
numbers grew by 15 per cent to 6,556) a meaningful contribution in good
– Continuation of business expansion market conditions. Performance fees
and significant international from the Bank’s specialist funds
achievements contributed $312 million, up 39 per
This resulted in international revenue cent on the prior year.
growth of 83 per cent to $1,273 million. The expense to income ratio fell from
Market conditions continued to be 71.2 per cent to 68.2 per cent despite
broadly favourable across most of the the addition of 447 staff from the
markets in which the Bank operates acquisition of the ING cash equities
sales business in Asia. While cost
management initiatives continued
during the year, the improvement in
the expense to income ratio was
mainly due to strong income growth.
Investment continued in staff and
systems to support ongoing growth.
The Bank maintains its strong
capitalisation, with a Tier 1 capital
ratio of 14.4 per cent, providing the
ability to support new and existing
business initiatives and maintain its
credit ratings.
1
Total shareholder return measures the change in
share value over a specified period, assuming
that all dividends are reinvested and accounting
for all corporate actions.
4 Macquarie Bank Limited 2005 Annual Review
A year of major strategic – Margin lending products reported – Joint venture with the Thai Military
achievements rapid growth with the total loan Bank focusing on stockbroking and
The year was marked by a number of portfolio growing by 47 per cent to investment banking
notable achievements not only in over $2.6 billion Europe and the Middle East
Australia but also in the international – Acquired 49 per cent of Brook Asset – Established Macquarie European
markets in which we operate. Some Management in New Zealand Infrastructure Fund (MEIF), an unlisted
of these are highlighted below: – No. 2 stockbroker by ASX market pan-European fund focusing on
Australia/New Zealand share for the 2004 calendar year and infrastructure investments in Europe.
– ConnectEast Group, supported by the No. 1 for the first quarter of 2005 During the year, MEIF invested in
Macquarie Bank, Thiess Pty Limited Post balance date: assets such as South East Water, the
and John Holland Pty Limited, was – $1 billion IPO of Macquarie Capital Wales and the West gas distribution
awarded the 39-year concession for Alliance Group, a fund focusing on business and Energy Power
the Mitcham-Frankston project. co-investing with Macquarie Bank Resources in the United Kingdom,
Macquarie was also the arranger and and/or with Macquarie managed Arlanda Express in Sweden and
joint lead manager of the $1.1 billion funds in any sector, excluding property Brussels International Airport
Initial Public Offering (IPO) of Asia Company in Belgium
ConnectEast – Macquarie Securities Asia (previously – Acquisition of 70 per cent of Brussels
– Merger of Macquarie Goodman ING’s Asian cash equities business) is
International Airport Company by a
Industrial Trust and Macquarie already profitable and growing Macquarie Airports-led consortium for
Goodman Management Limited to – Completed the $US530 million IPO for €735 million
form MGQ, Australia’s largest SM Investments Corporation, the
– Acquisition of NTL:Broadcast UK
industrial property group largest IPO in Philippines’ history, by a Macquarie Communications
– $266 million IPO and subsequent demonstrating the Bank’s increasing Infrastructure Group-led consortium
$398 million raising by Diversified Asia-wide investment banking capability for £1.3 billion
Utility and Energy Trusts (DUET), a – Awarded a Malaysian stockbroking – Established Macquarie Global
fund principally investing in Australian licence, one of only five conferred Property Advisers that now manages
and New Zealand utility and energy upon non-Malaysian firms $US1.9 billion of assets in Europe
assets, and managed by a joint – Expanded structured equity and Asia
venture with AMP Capital offerings to include products over
– Acquired 92 radio stations in 45 Korean, Taiwanese, Singaporean
Australian regional markets with the and Japanese markets
intention that these will become part – Korean securities funds management
of a specialist fund joint venture increased assets under
– IPO of Macquarie Private Capital management (Macquarie’s share)
Group, a $107 million private equity 62 per cent to $3.5 billion
fund
– Launch of an integrated hedge Post balance date:
fund business – Proposed listing on the Singapore
– Macquarie Cash Management Trust Stock Exchange of Macquarie
exceeded $10 billion in funds under International Infrastructure Fund, a
management and Macquarie Wrap fund focusing on the direct and
Solutions exceeded $14 billion in indirect investment in infrastructure
funds under administration assets and infrastructure-focused
securities
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Chairman’s and Managing – Entered into a renewable energy joint – No. 1 ranking for overall research/
venture which has one of the largest sales quality in Australian equities,
Director’s Report portfolios in the UK with a total value by Greenwich Associates
continued of £121 million – Strong growth in commodities
– Global Energy Markets team including cotton and oil and gas
headquartered in London increased financing businesses. Energy
contribution significantly derivatives teams were also
– Agricultural Commodities’ structured established in New York and Houston
products team established in London Review of operations
Post balance date: The year was characterised by strong
– Treasury and Commodities joint venture growth with record contributions from
with Abu Dhabi Commercial Bank all our major business Groups.
The Americas The Investment Banking Group
– $US535 million New York Stock achieved an excellent result,
Exchange IPO of the Macquarie 73 per cent up over the prior year,
Infrastructure Company Trust (MIC). in a very favourable operating
MIC invests in a diversified group of environment. Strong equity market
infrastructure businesses in the US conditions during the year resulted
and other developed countries in significant deal flow, asset
– Chicago Skyway acquired by realisations and increased market
Macquarie Infrastructure Group (MIG) shares. Expansion into international
and Cintra Concesiones de markets continued with the
Infraestructuras de Transporte, S.A. contribution from international
for $US1.8 billion businesses growing significantly,
– Macquarie Property and its joint including from specialist funds.
venture partners acquired Banking and Property Group
$US5.5 billion of property including
posted its seventh consecutive record
Macquarie CountryWide with Regency contribution, which was 200 per cent
Centres ($US2.8 billion portfolio of up on the prior year (including the profit
US shopping centres) and Macquarie
realised on the formation of MGQ). All
Office Trust (takeover of $1.3 billion of the Group’s businesses increased
Principal America Office Trust) contributions on the prior year despite
– $C212 million Toronto Stock some challenges to the operating
Exchange IPO of Macquarie Power environment including the domestic
Income Fund (MPT), a fund focusing interest rate increase. Property assets
primarily on power generation assets under management (including
in North America associates) increased by 90 per cent
– $C528 million acquisition of from $10.9 billion to $20.7 billion. As
Leisureworld, a Canadian aged care briefly mentioned above, through its
provider, intended to be transferred to 37.1 per cent stake in Macquarie
a Macquarie managed fund Goodman Management Limited
(MGM), the Group also benefited from
the merger of MGM and Macquarie
Goodman Industrial Trust, bringing to
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6 Macquarie Bank Limited 2005 Annual Review
account a $91 million profit after tax markets where its particular skills and Dividends and capital management
and profit share. The Bank now holds expertise deliver real advantage to The Bank will pay a final dividend of
approximately 8.6 per cent of MGQ. clients. This approach allows the $1.00 per ordinary share for the year
Increased contributions across most flexibility to enter new markets as to 31 March 2005, franked to 90 per
operating divisions, including opportunities arise and the ability to cent. This brings total ordinary
particularly strong increases from respond to the specialist requirements dividends for the year to $1.61 per
Agricultural Commodities and Energy of individual markets in the region and share, compared to $1.22 per share
Markets, led to Treasury and around the world. As a result, for the year ended 31 March 2004. In
Commodities Group’s contribution Macquarie has established leading addition, a special dividend of 40 cents
being 30 per cent up on the prior year. positions in a diverse range of per ordinary share has been declared,
international markets. also franked to 90 per cent, taking
Equity Markets Group achieved a total dividends for the year to $2.01
good result, slightly ahead of the prior The Bank also seeks to identify,
encourage and reward achievement per ordinary share. The special
year. Increased contributions were dividend broadly represents the after-
made by a number of relatively new everywhere in the organisation. We
believe that all our staff have the tax gain realised by the Bank on the
businesses, demonstrating the formation of MGQ. The special
benefits of diversifying the Group’s ability to contribute and be innovative,
and it is the responsibility of dividend takes the dividend payout
geographic and product mix. ratio for the year to 54 per cent.
management to provide an
Financial Services Group’s environment which allows and The Bank’s target payout ratio each
contribution was 20 per cent up encourages them to do so. We have year remains in the range of 50 to
on the prior year. The increased the approach that if businesses 60 per cent of net earnings. It is
contribution was the result of strong succeed, the staff in those expected that future dividends will
inflows into the Group’s major businesses, along with shareholders, be at least 80 per cent franked.
products, the continued strength of should benefit through appropriate
equity markets and four years of In September 2004, a Macquarie
reward structures. Group entity issued £350 million of
investment and business
diversification. Our potential for continued growth, Macquarie Income Preferred
including successfully building new Securities (MIPS). MIPS are Tier 1
Funds Management Group’s businesses, depends on our ability to eligible hybrid securities and have
contribution was 66 per cent up on reward our people fairly for their been used initially to augment the
the prior year. The Group enjoyed achievements. As our businesses Macquarie Bank Group’s US activities
strong inflows into fixed interest, diversify, we are increasingly and for general corporate purposes.
currency, alternative investments and competing to attract and retain
listed property. Total funds managed Outlook
people in the global market. The Bank is aiming to repeat the full
by the Group increased by 16 per
cent to $42 billion over the year. Macquarie has maintained a year 2005 result for the year ending
consistent approach to remuneration, 31 March 2006, excluding the one-off
Long-term performance and with minor adjustments reflecting profit realisation on the formation of
strategy regular review. The principles of this MGQ and the impact of the introduction
This year, Macquarie continued to remuneration structure have been of International Financial Reporting
generate substantial profits and public since the Bank’s listing in 1996. Standards. These standards will
dividends for its shareholders. This They have contributed to the come into effect in 2006 and are
record of consistently strong growth generation of strong long-term discussed on pages 11-19 of the
has been reflected in the Bank’s long- performance and supported long- Bank’s Financial Report.
term share price appreciation and term commitment from management
returns to shareholders. As illustrated Achieving that result will, however,
and staff. These principles also serve be subject to swing factors including
in the graph opposite, the Bank’s total to align staff interests with those of
shareholder return was 929 per cent the quantum of performance fees on
shareholders (both net profit after tax specialist funds, market conditions
from the time its shares were listed in and return on equity).
July 1996 until 31 March 2005. This and asset realisations.
return compares to the average total Details of the Bank’s remuneration We note that equity market conditions
shareholder return of the companies policies and practices are contained have recently softened and we
which comprised the ASX Top 50 in the Remuneration Approach may not achieve this outcome if this
at the time of the Bank’s listing of section of the Directors’ Report later softening is sustained.
164 per cent over the same period.
in this document. This consolidates
the remuneration information Over the medium term the Bank
The Bank delivered a total continues to be well placed due to
shareholder return over this period included last year in the Directors’
Report and in the Corporate good businesses, diversification,
better than all of those companies. benefits of major strategic growth
Governance Statement.
This return reflects Macquarie’s initiatives, committed quality staff and
business strategy to remain focused effective prudential controls. Subject
on adding significant value for our to market conditions not deteriorating
clients. In Australia, Macquarie materially, the Bank expects
provides a full suite of financial continued good growth in revenue
services and products. Internationally, and earnings across most businesses
Macquarie’s strategy is to expand and continued good growth in
selectively, seeking only to enter international businesses.
7
Management and Organisation 8 Macquarie Bank Limited 2005 Annual Review
We identify, encourage and reward achievement. We believe that all our staff have
the ability to contribute and be innovative – it is the responsibility of management
to provide an environment which allows and encourages them to do so. The
concentric nature of the organisation chart represents the non-hierarchical nature
of Macquarie and the role of central risk management.
The Bank’s activities are organised into six Each Group focuses on specific products
operating Groups: or markets.
– Banking and Property Group
– Equity Markets Group
– Financial Services Group
– Funds Management Group
– Investment Banking Group
– Treasury and Commodities Group
Strong independent risk management has been The principles of Macquarie’s approach to risk
fundamental to the Bank’s success. Given the management are:
markets in which we operate, risk is an inherent part – Independence – Risk Management Division is
of Macquarie’s businesses. The Bank’s policy is not independent of the Bank’s operating areas
to eliminate all risks but to manage risks appropriately. – Centralised Bank-wide prudential management
The main risks faced by Macquarie are market risk, – Approval of new business activities
credit risk, liquidity risk, operational risk and legal – Continuous assessment
compliance and documentation risk. It is the – Frequent monitoring – centralised systems to allow
responsibility of the Risk Management Division to daily monitoring of credit and market risks.
ensure the appropriate assessment and management
of these risks within the Bank. Further information on the Bank’s risk management
is provided on page 34 of this report, pages 50 and
51 of the Corporate Governance Statement and in
the Risk Management Report at the beginning of
the 2005 Financial Report.
A network of support areas provides the infrastructure Macquarie employs more than 6,500 people in
and framework which enable the Groups to operate. 23 countries worldwide. This includes staff acquired
These include the Information Services Division (systems as part of the acquisition of ING’s Asian equities
and communications technology), the Corporate Affairs businesses, completed in mid 2004.
Group (comprising Human Resources, Business
Services, Financial Operations, Business Improvement,
Settlements, Company Secretarial, Investor Relations
and Taxation) and the Quantitative Applications Division.
Corporate Communications is part of the Central
Executive of the Bank.
All businesses operate within overall guidelines and
specific parameters set by the Board and the Executive
Committee (a central group comprising the Chairman,
Managing Director, Deputy Managing Director, Deputy
Chairman, six business heads and the Heads of Risk
Management Division and Corporate Affairs Group).
9Macquarie Bank global locations Europe/Middle East/Africa: Asia:
In Europe, Macquarie provides In Asia, Macquarie provides a broad
specialist services in a range of chosen range of investment banking services
market segments. Our regional base and has successfully pursued
is London, where we have more than selective expansion, entering markets
300 people, with additional offices in and businesses where there is a
Dublin, Frankfurt, Geneva, Milan, genuine opportunity to add real value
Munich, Paris and Vienna. to stakeholders.
Our European activities include Our regional base is in Hong Kong,
infrastructure funds management, with rapidly growing businesses in
corporate finance and advisory China, Indonesia, Japan, Korea,
services, financial products, lending Malaysia, the Philippines, Singapore,
and asset financing, institutional Taiwan and Thailand. We continue to
stockbroking and research, treasury grow our Asian activities, expanding
and commodities activities, real estate existing businesses, forming joint
investment banking and equity ventures with local partners and
structured finance and derivatives. making acquisitions.
In Africa and the Middle East,
Macquarie successfully focuses on
selected businesses where our
expertise provides particular value
to clients.
10 Macquarie Bank Limited 2005 Annual ReviewAustralia/New Zealand: The Americas: Macquarie in the Americas undertakes
Macquarie is a diversified international Macquarie provides a range of a range of activities including mergers
provider of financial and investment specialist investment, advisory and and acquisitions and corporate
banking services. In Australia, financial services to clients in the restructuring advice, capital raising in
Macquarie is a leading full service United States. Our regional base is in private and public equity and debt
investment bank providing financial New York, with teams located in markets, project and infrastructure
market trading, advisory products Boston, Charleston, Chicago, finance and structured finance. We
and debt and equity capital. Houston, Jupiter, Los Angeles, have also developed specialist
Macquarie continues to hold leading Memphis, Palm Springs, San Diego, expertise in the areas of oil and gas,
positions in most businesses, and is San Francisco, San Jose, Sao Paulo, infrastructure, telecommunications
committed to achieving outstanding Seattle, Toronto and Vancouver. and a significant presence in real
results. Technical expertise, strong estate funds management, real estate
risk management and an enterprising investment banking, real estate
approach underlie all activities. finance, residential mortgages and
lifestyle and resort community
development.
Not to scale
11Investment Banking Group Focus: Brussels Airport/Belgium 12 Macquarie Bank Limited 2005 Annual Review
13
Investment Banking Group In late 2004, a Macquarie Airports (MAp)-led consortium completed the
purchase of 70 per cent of the Brussels International Airport Company (BIAC)
Focus: Brussels Airport/Belgium for ¤735 million.
MAp secured a 52 per cent beneficial interest in Brussels Airport through
The Investment Banking Group its 74.3 per cent holding in the consortium. Remaining consortium equity
achieved an excellent result, interests are held by Macquarie European Infrastructure Fund (14.2%),
73 per cent up on the prior year. Global Infrastructure Fund II (4.3%) and Macquarie Bank (7.2%). The
Belgian Government retained its 30 per cent holding of BIAC.
The acquisition, which provides geographic and investment diversity to
Investment Banking Group MA p’s portfolio,
Treasury was financed
and Commodities Group through a combination of equity,
Equity convertible
Markets Group
contribution to profit contribution to profit contribution to profit
loans and shareholder loans from consortium members and through a
bridge facility. An innovative hybrid capital instrument called TICkETS
51% (Tradeable Interest-bearing
13% Convertible to Equity Trust Securities) raised9%
$525 million and was awarded FinanceAsia magazine’s Best Equity-Linked
Deal of the Year. An equity placement of $400 million was also executed.
Brussels Airport was recognised by Airport Council International as one of
the world’s top ten best-performing airports in 2004, with traffic growth
averaging 5.3 per cent per annum in the period from 1988. As Belgium’s
only major airport, it serves a dense and relatively high-income-per-capita
population of over 10 million people. Brussels is home to the European
Commission, NATO, 120 international government and 1,400 international
non-government organisations.
BIAC holds an indefinite licence to operate Brussels Airport and also owns
the 1,245 hectares of land it occupies, a space comparable to that of
London’s Heathrow Airport. Following its expansion and facilities upgrade
in 2002, the airport has significant capacity for growth in passenger
volumes in terminals and runway movements per hour.
Many of the world’s top infrastructure investors bid for BIAC. However, the
Belgian Government awarded the transaction to the MAp-led consortium
due to high quality business planning and the consortium’s superior track
record in airport management.
Macquarie Airports
14 Macquarie Bank Limited 2005 Annual ReviewThe Investment Banking Group position as a leading provider of power generation assets in North
achieved another record result, project finance advisory services was America (listed April 2004)
73 per cent up on the prior year (95 confirmed with a No. 1 ranking – Diversified Utility and Energy Trusts
per cent excluding Macquarie Direct globally for completed mandates (DUET) – an Australian Stock
Investment, which was boosted by (Project Finance International). Exchange (ASX) listed fund principally
asset realisations in the prior year), in a Notable transactions are contained in investing in Australian and New
very favourable operating environment. the table overleaf. Zealand utility and energy assets,
Strong equity market conditions Growth in the infrastructure and managed by a joint venture between
during the year resulted in significant specialised funds (ISF) business Macquarie Bank and AMP Capital
deal flow and increased market continues to be an important global (listed August 2004)
shares. Expansion into international focus. Macquarie has achieved a 1
Annualised return based on all capital raised,
markets continued with contributions compound annual return of 22.5 per distributions paid and valuations (market
capitalisations) for ISF’s funds since inception
from international businesses growing cent1 for investors in listed to 31 March 2005.
significantly. infrastructure funds since inception. 2
For listed funds – market capitalisation as at
Corporate Finance, which includes Equity under management 2 grew by 31 March 2005 plus fully underwritten or
101 per cent from $13.5 billion to committed future capital raisings. Invested and
the Group’s advisory, equity capital committed capital for unlisted funds. Invested
$27.1 billion for the year to 31 March capital for mandated assets (including third
markets (ECM) and infrastructure and
2005. This was due to additional party investors in consortia which are led by
specialised funds businesses, Macquarie managed funds), MBL direct
continued to perform strongly across raisings by most funds and the holdings and other funds. Jointly managed
most industry sectors. It also benefited establishment of several new funds, funds (SAIF, AIIF, DUET, KRIF) included at 50% of
from asset realisations such as part of including: invested capital. Invested capital comprises
actual capital drawn from investors, net of asset
the stake in Macquarie Communications – Macquarie European Infrastructure realisations returned to investors, plus firm
investment commitments which will require a
Infrastructure Group (MCG). Fund (MEIF) – an unlisted pan- future call on investors. Exchange rates as at
Leading market positions were European fund focusing on 31 March 2005.
maintained with Macquarie ranking infrastructure investments in Europe
No. 1 in ECM for Australian equity (first close April 2004)
raised (Bloomberg) and No. 2 for – Macquarie Power Income Fund
announced mergers and acquisitions (MPT) – a Toronto Stock Exchange
(Thomson Financial). Macquarie’s listed fund focusing primarily on
continues to diversify its portfolio
15Investment Banking Group – Macquarie Infrastructure Company – New seed asset acquisitions – regional
Trust (MIC) – a New York Stock radio businesses in Australia and a
continued Exchange listed fund investing in renewable energy business in the UK
a diversified group of infrastructure Macquarie also restructured its private
businesses in the US and other equity division, Macquarie Direct
developed countries (listed Investment, during the year, resulting
December 2004) in the consolidation of various private
Other initiatives included: equity businesses and their
– Asset acquisitions by existing funds – integration into the specialist funds
gas and electricity distribution business. This restructure is expected
networks in Australia by DUET, a to capitalise on the investment
district heating business and airport origination capabilities of the Group.
service companies in the US by MIC, The table below highlights key
a power generation plant in Canada transactions during the year.
by Macquarie Essential Assets
Partnership (MEAP), a broadcast Macquarie Securities, the Australian
transmission provider in the UK by and Asian institutional stockbroking
MCG, toll roads in the US by MIG and business, achieved an excellent
in Korea by KRIF and, subject to overall result. In Australia, strong
financial close, a UK gas distribution secondary market revenues and an
network by MEIF overall increase in Australian market
share contributed to the outstanding
result. A highlight of the year was the
No. 1 ranking in Australia, Asia and
Sector
Infrastructure
Industrials
Property
Telecommunications, Media, Entertainment
and Technology (TMeT)
Resources
Financial Institutions
16 Macquarie Bank Limited 2005 Annual Reviewthe US and No. 2 in Europe for overall Macquarie Capital, which carries out are expected with continued high
research and sales quality for the Group’s asset financing activities, levels of business activity in Europe,
Australian equities (Peter Lee continued to experience strong Asia and the US.
Associates/Greenwich Associates). growth in asset-based leasing Increased domestic and international
Following the successful acquisition volumes, up 20 per cent to $3.6 billion infrastructure activity is anticipated
and integration of Macquarie from $3.0 billion. New product with existing funds growing through
Securities Asia (previously ING’s Asian initiatives continue to increase deal new acquisitions and the continued
cash equities business), the business flows and further opportunities are development of various new funds in
is operating better than expected with being actively explored. the resources and media sectors.
improved market conditions and Outlook
market shares and a good Since 31 March 2005, two new
If recent softening in equity markets specialist funds were launched:
contribution from ECM transactions, is sustained, the Group may find it
particularly from the Philippines. challenging to repeat last year’s – Macquarie Capital Alliance Group
In Financial Products, increased excellent result in 2006. However, (MCQ) – ASX listed fund focusing on
levels of domestic and international the Group anticipates an increase in co-investment with the Bank and/or
activity were experienced with revenue and profit over the medium Macquarie managed funds in any
continued growth in the size and term, providing there is no material sector excluding property; and
range of retail products. change in market conditions. – Macquarie International Infrastructure
Internationally, retail product offerings A particular focus will be on the Fund Limited (MIIF) – a prospectus
were launched in Europe, while expansion of the Asian investment has been lodged with the Monetary
development of retail infrastructure banking business including strong Authority of Singapore for a proposed
and collateralised debt obligation growth in stockbroking activities, listed Singaporean fund, focusing on
products in the US continued. expansion of the ECM business and the direct and indirect investment in
The US cross border leasing market the pursuit of M&A opportunities in infrastructure assets and
remains on hold. the property and resources sectors. infrastructure-focused securities.
New retail financial product offerings
Description
Co-sponsor and financial adviser to the ConnectEast consortium’s bid for the $3.8 billion Mitcham-Frankston tollroad project in Victoria.
Arranger and joint lead manager of the $1.1 billion IPO of ConnectEast.
Adviser to the Macquarie Airports led consortium on the $1.26 billion (€735 million) acquisition of a 70 per cent stake in Brussels
International Airport and subsequent $1.96 billion (€1.13 billion) refinancing.
Adviser to Macquarie Infrastructure Group (MIG) and Cintra Concesiones de Infraestructuras de Transporte, S.A. (Cintra) on the
$2.4 billion ($US1.8 billion) acquisition of the Chicago Skyway toll bridge in the US.
Senior co-lead manager to the international offer for the $2.6 billion IPO of Cintra.
Adviser, equity arranger and lead manager on the $1.9 billion acquisition by DUET, Alinta Limited and Alcoa of Australia Limited of the
Dampier to Bunbury Natural Gas Pipeline and associated assets.
Adviser to Sydney Airports Corporation on the $3.1 billion refinancing of Sydney Airport.
Adviser, sole lead manager and underwriter to Alinta on the $1.86 billion acquisition of Duke Energy’s Australian and
New Zealand interests.
Defence adviser to SPC Ardmona on the $700 million takeover by Coca Cola Amatil.
Adviser to PT Tanjungenim Lestari Pulp and Paper (Singapore) on its $1.0 billion debt refinancing.
Sole lead manager and bookrunner on the $81 million IPO of Super Cheap Auto.
Sole global coordinator, bookrunner and international lead manager on the $687 million ($US530 million) IPO of SM Investments
Corporation (Philippines).
Financial adviser to Mirvac Group on its $498 million takeover of James Fielding Group.
Financial adviser to Macquarie Goodman Management on the $5.1 billion merger with Macquarie Goodman Industrial Trust.
Joint lead manager and bookrunner on the $311 million Ascendas Real Estate Investment Trust (Singapore) preferential
offer and placement.
Financial adviser to General Property Trust on the proposed merger with Lend Lease Corporation, defence from Stockland’s unsolicited
bid as well as the internalisation and joint venture proposal with Babcock & Brown.
Adviser to Macquarie Communications Infrastructure Group led consortium on the $3.1 billion (£1.3 billion) acquisition of NTL:Broadcast
in the UK.
Adviser to Telstra Corporation on its $333 million acquisition of KAZ Group.
Adviser to Publishing and Broadcasting Limited on its $716 million acquisition of the remaining stake in Burswood Limited.
Adviser, debt arranger and underwriter to Centennial Coal’s $615 million debt refinancing.
Adviser to Lundin Mining Corporation on its $148 million acquisition of Zinkgruvan Mine in Sweden.
Sole global coordinator and bookrunner on a $90 million placement by Semirara Mining Corporation (Philippines).
Adviser to the independent directors of AXA Asia Pacific in relation to AXA SA’s proposal to acquire the remaining 48.3 per cent minority
interests in AXA Asia Pacific.
Adviser to Macquarie Bank on its acquisition of ING’s Asian cash equities business.
17Banking and Property Group Focus: Macquarie Goodman/Hong Kong 18 Macquarie Bank Limited 2005 Annual Review
19
Banking and Property Group The year to 31 March 2005 saw the merger of Macquarie Goodman
Management Limited and Macquarie Goodman Industrial Trust to form the
Focus: Macquarie Goodman/ Macquarie Goodman Group. The new Group began trading on the ASX on
Hong Kong 2 February 2005.
The Banking and Property Group achieved The Macquarie Goodman Group’s business comprises industrial property
another very strong result, 200 per cent ownership, funds management, property development, project and
up on the prior year (24 per cent excluding development management and property services. Macquarie Bank’s 37.1 per
profit on MGQ formation). cent stake in Macquarie Goodman Management Limited has become an
8.6 per cent stake in Macquarie Goodman Group.
Banking and Property Group The Macquarie
Financial Goodman
Services Group Group has a market capitalisation of Management
Funds approximately
Group
contribution to profit contribution to profit contribution to profit
$5 billion, making it the largest industrial property group listed on the ASX, and
one of the largest listed industrial property groups in the world. It has funds
22% under management
4% of $6.4 billion in Australia, New Zealand and Singapore,
1%
and a direct property investment portfolio valued at around $4.3 billion.
The creation of the Macquarie Goodman Group saw Macquarie Bank bring
to account a net profit of $91 million (after tax and profit share) in 2004/2005,
reflecting the strategic positioning of the Group in building a leading, listed
industrial and business property fund.
The Macquarie Goodman Group and Macquarie Bank have begun to expand
in Asia by securing a well-known industrial property in Hong Kong, the lower
portion of Global Gateway (pictured) in Tsuen Wan, for $HK750 million. It is
proposed that this first acquisition will seed the Group’s funds management
business in Asia which is expected to attract local and international investors.
Macquarie Bank is confident the expansion of the logistics industry in Asia,
the growth and recovery of Asia’s economy and the increased demand for
securitised real estate in Asia augurs well for the Asian expansion of the
joint venture.
From the outset, Macquarie Goodman Group will be transporting its unique
customer service model to Asia with the objective of targeting quality properties
in established industrial and business space property markets and sourcing
opportunities to provide solutions for existing and prospective customers.
Macquarie Goodman Group
takes its first steps in Asia
20 Macquarie Bank Limited 2005 Annual ReviewBanking and Property Group posted Macquarie Capital Partners (MCP) Mortgages and Securitisation
its seventh consecutive record is a real estate investment banking continued to grow both domestically
contribution, 200 per cent up on the business based in the United States and internationally. The Australian
prior year, or 24 per cent not including and Europe which specialises in raising mortgage portfolio grew by 25 per
the profit on formation of Macquarie private equity for real estate operating cent to more than $14.5 billion from
Goodman Group (MGQ) (discussed companies and funds, and providing $11.6 billion in the prior year. The US
below). financial and strategic advisory services mortgage operations closed over
All sectors increased their to its clients. During the year, MCP $US1 billion in loans during the year.
contributions on the prior year. completed 33 transactions totalling The Division has also established an
$US5.7 billion on behalf of clients. Italian mortgage business which is
Property assets under management
(including associates)1 increased During the year, Property opened expected to commence operations in
90 per cent from $10.9 billion to new offices in Tokyo and London to May 2005. The Division made a
$20.7 billion. develop real estate investment trust decision to sell its China mortgage
(REIT) management opportunities business and an agreement was
Property contributed approximately reached during the year.
60 per cent of the Banking and
and provide development finance
Property Group’s result, excluding the solutions leveraging Australian market Margin Lending’s result was up
MGQ impact. As at 31 March 2005,
experience. strongly on the prior year, achieving
Macquarie (including associates) was Property Investment Banking significant growth in its core products,
the second largest Australian listed participated in transactions totalling margin loans and capital protected
property funds manager (by ASX more than $2 billion and raised equity loans. During the year to
31 December 2004, the Division’s
market capitalisation). and debt of over $350 million.
margin loan portfolio grew at three
Property Investment Management Macquarie Global Property Advisers times the industry average, increasing
(Australia and North America) (MGPA) was established and by 80 per cent. The total loan portfolio
together with joint venture partners, manages $US1.9 billion of assets grew by 47 per cent to over $2.6 billion
acquired $US5.5 billion of property in across Europe and Asia. MGPA in the year ended 31 March 2005.
North America during the year. Key recently launched Macquarie Global
achievements included: Property Fund II, a private investment Outlook
fund that is pursuing real estate related The Group is examining various
– Macquarie CountryWide Trust’s opportunities for international
acquisition of a $US2.8 billion portfolio assets across Europe and Asia.
expansion in Asia, the Middle East,
of US shopping centres with joint Property Finance continued the Europe and North America. All
venture partner, Regency Centers growth and diversification of its Divisions are experiencing strong deal
– Macquarie Office Trust’s takeover of international portfolio. Offshore loan flows and are well placed to take
the $1.3 billion Principal America commitments increased by 37 per advantage of both international and
Office Trust cent during the year, with deals domestic opportunities as capital
sourced from offices in Seattle and markets mature. The greater
In February 2005, Macquarie Los Angeles. A new office was also international acceptance of REIT
Goodman Management Limited and opened in London in December 2004. structures is expected to provide
Macquarie Goodman Industrial Trust
During the year, Golf and Leisure and significant property funds
merged to create Australia’s largest
Macquarie Community Partnerships management opportunities,
industrial property group, MGQ. As a
became part of the Property Division. particularly in Asia.
result of the merger, Macquarie Bank
brought to account a net profit (after The Banking Division’s record result Strengthening international growth is
tax and profit share) of $91 million. was generated by increased loan, expected to offset the impact of a
deposit and client volumes. The possible slowdown in the listed
Division’s expanded product offering property trust market and in some
achieved strong client interest. It sectors of the property development
successfully implemented its and residential property markets in
enhanced internet banking offering, Australia. The Group’s strong risk
delivering competitive advantages to management and conservative credit
clients and improved internal policies will continue to protect the
productivity. In response to growing Group’s businesses.
customer demand, the Division 1
Represents total assets under management of
opened offices in Parramatta and funds where Macquarie controls or significantly
influences the fund manager, including 100 per
Newcastle during the year. cent of MGQ.
21Treasury and Commodities Group Focus: Macquarie Cotton/Brazil 22 Macquarie Bank Limited 2005 Annual Review
23
Treasury and Commodities Group Macquarie’s existing Brazilian soft commodities business has expanded into
cotton financing, hedging and exports, which complements our Australian and
Focus: Macquarie Cotton/Brazil US-based cotton businesses.
The cotton business works primarily with producers from Australia, the United
Treasury and Commodities Group States and Brazil and with importing processors throughout the world. A large
achieved a strong result, 30 per cent Brazilian cotton producer – part of Macquarie’s existing soft commodities
up on the prior year. network – approached us for assistance in financing the season’s crop.
Macquarie provided pre-export financing secured by the crop and over-the-
counter hedging solutions. The pre-export finance is repaid via the delivery of
Treasury and Commodities Group cottonMarkets
Equity to Macquarie,
Group which in turn sells the cotton in keyBanking
global and
markets.
Property Group
contribution to profit contribution to profit contribution to profit
Using our understanding of the Brazilian agricultural market, Macquarie has
been able to assist cotton producers with international financing and with
13% managing the9% price risks associated with cotton production and sale. 22%
Strong
relationships with textile processing clients, particularly in China and greater
Asia, have allowed Macquarie to successfully market this cotton internationally.
Macquarie’s entry into this business comes at a time of strong growth in
Brazilian cotton production. Industry focus has moved from domestic to
international export markets. In recent years, the use of scale and new
technology has seen Brazil emerge as a world leader in cost-efficient cotton
production. By working with leading producers, and using our international
expertise, Macquarie has been able to take an active role in the emergence of
Brazil as an important global exporter of cotton.
Macquarie is confident the combination of continued growth of the Brazilian
cotton industry, increased end-consumer demand in Asia and Macquarie’s
unique approach to risk management will mean this business is well placed to
take advantage of future opportunities to provide innovative finance and
hedging solutions to commodities clients.
Macquarie enters Brazilian
cotton market
24 Macquarie Bank Limited 2005 Annual ReviewThe contribution from Treasury and credit and interest rate risk building its presence in physical
Commodities Group was 30 per cent management solutions through cotton. Higher volatility in commodity
up on the strong prior year and reflects structured securities and derivatives. markets with increased client hedging
increased contributions across most The Debt Markets’ result was broadly and trading opportunities, in addition
operating divisions, including strong in line with the prior year. The to a broader product mix, resulted in
increases from Agricultural business experienced good client a significantly stronger contribution
Commodities and Energy Markets. deal flow and trading and a positive from Agricultural Commodities.
Metals and Energy Capital offers contribution from the South African Energy Markets provides risk
price-making, derivative trading and joint venture with ABSA Bank Limited. management and financing solutions
financing in base and precious metals Futures provides a full range of to the energy sector globally, and has
as well as financing to the oil and gas broking and clearing services for a presence in London, Sydney,
sector. The contribution from Metals Australian and international exchange Houston and New York. Energy
and Energy Capital was down slightly traded derivatives markets. The Markets made an increased
on the strong result of the prior year, contribution from Futures was contribution due to good customer
which included the $38 million profit strongly up on the prior year due to business flows and a solid trading
upon realisation of the East African increased turnover. desk performance.
Gold Mines investment. Good Treasury is responsible for Outlook
growth was experienced in the oil management of the Bank’s balance The future performance of the Group
and gas financing business and a sheet, liquidity and interest rate is dependent on the operating
number of investments were realised exposure. Treasury’s result was well environment and, in particular, market
during the year. up on the prior year, reflecting conditions. High volatility across most
Foreign Exchange provides services successful management of the multi- markets is expected to continue,
across all currency pairs and currency interest risk of the balance while volumes are expected to
structured term hedging currency sheet. The Division successfully remain at a satisfactory level. The
solutions for Australian and undertook an increased number of Group expects to maintain strong
international clients. Foreign Exchange private and public transactions in domestic market positions and will
continued to perform well as high global funding markets during the continue to expand its offshore
volatility and volumes provided good year, including the Bank’s hybrid operations as appropriate
opportunities for client deals and capital raising. opportunities are identified. Repeating
trading. The Division’s contribution Agricultural Commodities provides the strong 2004/2005 result may be
increased on the strong prior year. risk management solutions to the challenging given dependence on the
Debt Markets originates, arranges agricultural industry globally. During operating environment.
and places debt for clients and is the year, the Division continued to
active in primary and secondary broaden its scope by establishing a
markets for government inflation- structured products team to
linked, corporate, global and asset- capitalise on strong investor interest
backed securities. It also provides in commodities and by further
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