2015 Annual Report Macquarie Group MACQUARIE GROUP LIMITED ACN 122 169 279 The Holey Dollar 2015 Annual General Meeting In 1813 Governor Lachlan Macquarie Macquarie Group’s 2015 Annual General Meeting overcame an acute currency shortage will be held at 10:30am on Thursday, 23 July 2015 at the Sheraton on the Park (Grand Ballroom), by purchasing Spanish silver dollars 161 Elizabeth Street, Sydney NSW 2000. (then worth five shillings), punching Details of the business of the meeting will be contained the centres out and creating two new in the Notice of Annual General Meeting, to be sent coins – the ‘Holey Dollar’ (valued at to shareholders separately. five shillings) and the ‘Dump’ (valued at one shilling and three pence). This single move not only doubled the number of coins in circulation but increased their worth by 25 per cent and prevented the coins leaving the colony. Governor Macquarie’s creation of the Holey Dollar was an inspired solution to a difficult problem and for this reason it was chosen as the symbol for Macquarie Group. The Macquarie name and Holey Dollar device are registered trade marks of Macquarie Group Limited. Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com Annual Report Contents Financial Highlights 2 Chairman's and Managing Directors’ Letter 4 Operating and Financial Review 6 Corporate Governance Statement 19 Macquarie Group Foundation Review 28 Diversity Report 29 Risk Management Report 33 Environmental, Social and Governance Report 49 Directors’ Report 66 – Schedule 1 – Directors' experience and special responsibilities 72 – Schedule 2 – Remuneration Report 77 – Schedule 3 – Auditor's independence declaration 115 Financial Report 116 – Income Statements 117 – Statements of comprehensive income 118 – Statements of financial position 119 – Statements of changes in equity 120 – Statements of cash flows 122 – Notes to the financial statements 123 – Directors’ declaration 226 – Independent auditor’s report 227 Ten year history 228 Additional investor information 229 Glossary 234 1 Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com Financial Highlights 2 3 Macquarie Group Limited and its subsidiaries 2015 Annual Report macquarie.com Chairman's and Managing Director’s Letter A year of continued strong performance While our Australian franchise maintained its strong position, the offshore businesses continued to grow, with international We are pleased to announce Macquarie Group achieved a income accounting for 70 percent of the Group’s total net profit of $A1.6 billion for the year ended 31 March 2015, income(2) for the year ended 31 March 2015. This reflects up 27 percent on the prior year. the growth of our international operations, particularly in the The Group reported record operating income of $A9.3 Americas which was the largest contributing region with billion, an increase of 14 percent on the prior year. 36 percent of total income, as well as the favourable impact Today’s result reflects the return on many years of of foreign exchange movements. investment across the business, enabling the Group to Dividends and Capital further capitalise on improved trading conditions. The Board has resolved to pay a final ordinary dividend of Five of Macquarie’s six operating groups achieved a higher (1) $A2.00 per share (40 per cent franked), up from $A1.30 per net profit contribution during the year, with record net profit share (40 percent franked) in the first half. This results in a contributions from Macquarie Asset Management (formerly total ordinary dividend payment for the year ended 31 March Macquarie Funds Group), Corporate and Asset Finance, 2015 of $A3.30 per share, up from $A2.60 in the prior Banking and Financial Services and Commodities and year(3). Financial Markets (formerly Fixed Income, Currencies and Commodities). Macquarie has a long-standing policy of holding a level of capital which supports its business and has consistently Our annuity-style businesses (Macquarie Asset grown its capital base ahead of business requirements. Management, Corporate and Asset Finance and Banking The Group’s APRA Basel III capital at 31 March 2015 was and Financial Services) had another strong year, with a $A16.1 billion, a $A2.7 billion surplus to Macquarie's combined net profit contribution of $A2.8 billion, an increase minimum regulatory capital requirements based on of 33 percent during the year. These businesses have 1 January 2016(4) requirements. continued to grow in the challenging market conditions of recent years, highlighting the diversity of Macquarie’s Environmental, Social and Governance business offering and its ability to adapt to changing The Board and Management view our commitment to conditions. Environmental, Social and Governance (ESG) performance Among the annuity-style businesses: as part of our broader responsibility to clients, shareholders – Macquarie Asset Management delivered strong annuity and the communities in which we operate. base and performance fee income In the year ended 31 March 2015, we continued to embed – Corporate and Asset Finance experienced increased ESG risk management across the organisation and pursue lending and leasing activity and gains on asset and business opportunities in renewable energy, energy business sales efficiency and ESG research. Further details of Macquarie’s – Banking and Financial Services experienced continued ESG approach are provided in the ESG Report. volume growth across its mortgage business and wrap platform, as well as business lending and deposits. In the Community The net profit contribution from our capital markets facing The Macquarie Group Foundation continued its long- businesses (Macquarie Securities Group, Macquarie Capital standing support to the not-for-profit sector during the year and Commodities and Financial Markets) was $A1.3 billion, and celebrates its 30th anniversary in 2015. Since 1985, the an increase of 19 percent on the prior year. These Foundation and our staff have contributed more than $A240 businesses continued to build on their strong franchise million to thousands of community organisations around the positions and benefited from improving market conditions. world. This year the Foundation and our staff contributed $A24 million in donations to more than 1,300 community Among the capital markets facing businesses: organisations around the world and provided approximately – Macquarie Securities Group continued to experience 33,500 hours of voluntary community service. strong equity capital markets (ECM) activity in Australia, while client activity across Asia remained subdued (2) – Macquarie Capital experienced increased activity in International income is net operating income excluding mergers and acquisitions and ECM, particularly in earnings on capital and other corporate items. (3) Australia and the US In addition, in the prior year eligible shareholders benefited – Commodities and Financial Markets improved its from the SYD distribution in January 2014 which comprised returns across its commodities related activities, as well a special dividend of $A1.16 (40 per cent franked) and a as its fixed income and foreign exchange platforms, return of capital of $A2.57 per share. (4) while the credit environment remained mixed. Calculated at 8.5 percent Risk Weighted Assets (RWA) including capital conservation buffer (CCB), per the Total Group operating expenses of $A6.8 billion for the year 1 January 2016 minimum requirements in APRA Prudential ended 31 March 2015 were up 12 percent, while the Standard 110. The APRA Basel III Group capital surplus is effective tax rate of 35.9 percent was down from $A4.0 billion calculated at existing requirements of 7.0 per 39.5 percent in the prior year. cent RWA, per the internal minimum Tier 1 ratio of the Bank Group. (1) Net profit contribution is management accounting profit before unallocated corporate costs, profit share and income tax. 4 Board and Management Changes On behalf of the Board and Management, we would like to thank staff for their efforts during the year. Finally, we thank As previously advised, Helen Nugent and Peter Kirby retired our shareholders for their continued support. as Non-Executive Directors from the Boards of Macquarie Group and Macquarie Bank on 24 July 2014. We thank Helen and Peter for their significant contributions and wish them the very best for the future. Gordon Cairns was appointed to the Macquarie Group and Macquarie Bank Boards as a Non-Executive Director on 1 November 2014. Mr Cairns has held a wide range of management and executive roles throughout his career including Chief Executive Officer of Lion Nathan Limited. He is currently the chairman of Origin Energy Limited, Quick Kevin McCann AM Service Restaurants and the Origin Foundation. He has also served as a director of Westpac Banking Corporation, Seven Chairman Network Australia Limited and Lion Nathan Limited, as well as the chairman of David Jones Limited and Rebel Group Pty Limited. Outlook While the impact of future market conditions makes forecasting difficult, it is currently expected that the combined net profit contribution from operating groups for the financial year ending 31 March 2016 will be broadly in line with the financial year ended 31 March 2015. Nicholas Moore The tax rate for the financial year ending 31 March 2016 is Managing Director and Chief Executive Officer currently expected to be broadly in line with the second half of the financial year ended 31 March 2015, and down on the tax rate for the