MACQUARIE BANK LIMITED ACN 008 583 542 MACQUARIE BANK 2004 ANNUAL REVIEW Review 02 Highlights 08 Chairman’s and Managing Director’s Report 12 Management and organisation 18 Investment Banking Group 20 Treasury and Commodities Group 21 Equity Markets Group 22 Banking and Property Group 23 Financial Services Group Our communities An important part of the Macquarie Bank Foundation’s and is recognising approach cant supporting the signifi community contributions made by our staff. 24 Funds Management Group 25 Other Groups and Divisions 32 Corporate Governance Statement 2004 Concise Report 47 Directors’ report 58 Directors’ report schedule 60 Consolidated statement of financial performance 61 Consolidated statement of financial position 62 Consolidated statement of cash flows Our people our business. People are Our potential for continued is dependent upon growth our ability to attract and quality people. retain 63 Discussion and analysis 64 Notes to and forming part of the concise financial statements 71 Directors’ declaration 72 Independent audit report 73 Financial summary since listing 74 Contact directory Specialist markets With under properties management in Seoul exceeding $450 million, Macquarie is now one of the largest foreign managers of investment grade in Korea. property 2004 Annual General Meeting Macquarie Bank’s 2004 Annual General Meeting will be held at 10.30am on Client commitment of the core Our clients are our business and central to success. Macquarie’s Thursday 29 July 2004 at The Westin Sydney, in the Grand Ballroom, Lower Level, No.1 Martin Place, Sydney. Details of the business of the meeting are contained in the separate Notice of Annual General Meeting sent to securityholders. The Macquarie Bank Group’s annual Long-term business focus Macquarie is a leading issuer of in Hong equity linked products Kong and one of the market’s largest issuers of warrants. report consists of two documents – the 2004 Annual Review (incorporating the Concise Report) and the 2004 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 2004 Financial Report, please call us on 61 2 8232 5006 or visit www.macquarie.com.au/ Exporting expertise to approach Macquarie’s nance and fi infrastructure management was developed in a Australia and has provided which the Bank has platform from expanded internationally. shareholdercentre Macquarie Bank Annual Review The Macquarie culture is represented by the way in which we act and work together. The values to which we aspire can be summarised in six principles: – Integrity – Client commitment – Strive for profi tability – Fulfi lment for our people – Teamwork – Highest standards Macquarie and the Holey Dollar The Bank looked to Australia’s most successful early governor, Lachlan Macquarie, for inspiration in its name and the creation of its logo. In 1813 Governor Macquarie overcame an acute currency shortage by purchasing Spanish silver dollars (then worth five shillings), punching out the centres and creating two new coins – the ‘Holey Dollar’ (valued at 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 total worth by 25 per cent and prevented the coins from 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 of the Macquarie Bank Group. 01 Highlights – Profi t after tax from ordinary activities (attributable to ordinary equity holders) increased 48 per cent to $494 million – Operating income increased 30 per cent to $2,380 million* – Earnings per share increased 41 per cent to $2.33 – Return on average ordinary shareholders’ funds was 22.3 per cent – International income contributed 31 per cent of the Bank’s income – Total assets grew by 35 per cent to $44 billion – Ordinary dividends of 122 cents per share for the year (interim dividend and fi nal dividend franked to 90 per cent) – Total capital adequacy ratio 19.9 per cent Growth in relative Group contribution to profi t** Index of 100 in year ended 31 March 2003 200 150 100 50 0 2003 2004 Profi t after income tax attributable to Return on average ordinary ordinary equity holders equity holders’ funds $ million year ended 31 March % pa year ended 31 March 500 30 25 400 20 300 15 200 10 100 5 0 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 02 Macquarie Bank Limited 2004 Annual Review Consolidated profi t Year ended 31 March 2004* 2003* % Change Total income 2,380 1,834 30 Total expenses (1,695) (1,374) 23 Profi t before income tax 685 460 49 Income tax expense (161) (96) 68 Profi t after income tax 524 364 44 Outside equity interest (3) (3) – Distribution on Macquarie Income Securities (27) (28) (4) Profi t after income tax attributable to ordinary equity holders 494 333 48 Ratings Short-term Long-term Fitch Ratings F1 A+ Moody’s Investors Service P1 A2 Standard and Poor’s A1 A Relative Group contribution to profi t** 2004 Corporate Finance (including Infrastructure and Specialised Funds) 27% Financial Products (including cross-border leasing) 6% Other (including Institutional Stockbroking and Macquarie Capital) 11% Total Investment Banking 44% Treasury and Commodities 17% Equity Markets 14% Banking and Property 13% Financial Services 5% Funds Management 1% Direct Investment 6% Domestic and international total operating income $ million year ended 31 March (excluding earnings on capital) 2500 Domestic International 2000 1500 1000 500 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 * The results for both the 2003 and 2004 years have been adjusted to reclassify income and expenses related to infrastructure assets held for resale ** Percentage contribution derived from management accounts based on fi gures excluding earnings on capital before profi t share and before income tax 03 Macquarie BankLimited2004 Annual Review 04 Exporting expertise Macquarie’s approach to infrastructure fi nance and management was developed in Australia and has provided a platform from which the Bank has expanded internationally. The acquisition of leading UK water utility South East Water in October was an important step in growing our European infrastructure business. Supplying 400 million litres of water per day to approximately 1.5 million people, South East Water provides an essential service to a growing community base. Macquarie is now a global leader in the infrastructure sector with a portfolio of world–class infrastructure assets. E E 05 Macquarie BankLimited2004 Annual Review 06 Long-term business focus Macquarie is a leading issuer of equity linked products in Hong Kong and one of the market’s largest issuers of warrants. Notwithstanding the signifi cant depreciation of the Hong Kong dollar, the business increased warrant market volumes during the year, listing more than 200 warrants. Through diversifi cation of its customer distribution channels and product range, it has become a major issuer of equity-linked products and other structured products, cementing its position as a market leader in Hong Kong. L B F 07 Chairman’s and Managing Director’s Report The Bank achieved its twelfth successive record profi t, almost double that achieved two years ago, benefi ting from extremely favourable domestic and favourable international market conditions. We remain committed to our long-term strategy of full service in Australia and focused international operations and will continue to invest in growth through the economic cycle. Result Corporate Finance again achieved No.1 The Macquarie Bank Group (referred to rankings for project finance and for below as Macquarie or the Bank) merger and acquisition advisory roles, delivered another record result in the and maintained its No.2 ranking for financial year to 31 March 2004. Australian equity raised (Thomson Consolidated after tax profit attributable Financial). to ordinary equity holders increased Growth in specialist funds continues to 48 per cent from $333 million to be an important part of the Bank’s $494 million for the year ended strategy. Macquarie established 31 March 2004. This result is almost infrastructure funds in several markets double that achieved just two years strongly particularly in Australian and around the world including the US – ago. Earnings per share increased Hong Kong markets, with good levels Macquarie/First Trust Global 41 per cent from $1.65 to $2.33. These of broking activity and increased interest Infrastructure/Utilities Dividend and results reflect growth and investment in retail products. Improving corporate Income Fund (MFD), Canada – initiatives undertaken over a number confidence led to an increase in initial Macquarie Essential Assets Partnership of years as well as excellent performance public offerings (IPOs) in the Australian (MEAP) and South Africa – African and commitment from staff throughout market. The property market also Infrastructure Investment Fund (AIIF), the Bank. performed strongly, benefiting from and entered into a joint venture in Total operating income* rose by 30 per continuing generally good credit quality. Australia with AMP Capital Holdings cent from $1.8 billion to $2.4 billion. In the trading areas of the Bank, the Limited to manage the Diversified Trading, fee and commission and appreciation of the Australian dollar Utilities Energy Trust (DUET). against other currencies helped interest income were all up on the Institutional Stockbroking contributed a generate strong customer flows. The previous year. Fee and commission result significantly up on the prior year Bank also benefited from a number of income contributed approximately due to improved market share, strong asset realisations, which were the 55 per cent of income and rose market volumes and increased culmination of investments made in 18 per cent on the prior year.