ANNUAL REPORT Macquarie Group Year ended 31 March 2019 For personal use only MACQUARIE GROUP LIMITED ACN 122 169 279 50 years of financial service Macquarie’s predecessor organisation, Hill Samuel Australia, opened in Sydney in December 1969 with three staff, capital of $A250,000 and an ambition to provide advisory and investment banking services of an international standard to the Australian market. Today Macquarie is a global financial services group operating in 30 markets providing asset management, leasing and asset financing, retail banking and wealth management, market access, commodity trading, investment banking and principal investment. 2019 Annual General Meeting Macquarie Group Limited’s 2019 Annual General Meeting will be held at 10:30 am on Thursday, 25 July 2019 at the Sheraton Grand Sydney Hyde Park, Grand Ballroom, 161 Elizabeth St, Sydney NSW 2000. Details of the business of the meeting will be contained in the Notice of Annual General Meeting, to be sent to shareholders separately. For personal use only Cover image Macquarie’s global headquarters at 50 Martin Place, Sydney is a connected, flexible and sustainable workplace and the largest heritage redevelopment of its size to be awarded a Six Star Green Star Rating from the Green Building Council of Australia. Crowning the building with a new steel-frame glass dome, daylight harvesting reduces energy consumption by 40%. About Macquarie 3 Table of 50 years of financial service 6 1 Letter from the Chairman 8 0 Letter from the Managing Director and CEO 10 contents ABOUT Financial Highlights 12 Operating and Financial Review 14 Corporate Governance Summary 26 Diversity Report 28 2 Environmental, Social and Governance 32 0 Macquarie Group Foundation 42 GOVERNANCE Risk Management Report 44 Directors’ Report 51 Directors’ experience and special responsibilities 56 03 Remuneration Report 62 DIRECTORS’ REPORT Contents 102 Income Statements 103 4 Statements of comprehensive income 104 0 Statements of financial position 105 FINANCIAL Statements of changes in equity 106 REPORT Statements of cash flows 108 Notes to the financial statements 109 Directors’ declaration 239 Independent auditor’s report 240 For personal use only Additional investor information 246 Ten year history 252 05 Glossary 253 FURTHER INFORMATION 1 0About Cheonan-Nonsan Expressway, South Korea Macquarie’s MKIF fund is the majority owner of the Cheonan-Nonsan Expressway, an 81.0 km, dual two-lane toll expressway that connects the For personal use only northwestern and southwestern provinces of South Korea. It has two major tunnels, 44 bridges and seven interchanges. Macquarie is the largest foreign asset manager in South Korea with 36 assets across the infrastructure, renewables and waste management sectors. About Governance Directors’ Report Financial Report Further Information About Macquarie Macquarie (MGL and its subsidiaries, the Consolidated Entity) is a global diversified financial group with offices in 30 markets. $A2,982m Macquarie Group Limited (MGL, the Company) is listed FY2019 profit in Australia and is regulated by the Australian Prudential Regulation Authority (APRA), the Australian banking regulator, as a non-operating holding company of Macquarie Bank Limited (MBL), an authorised deposit-taking institution (ADI). Macquarie’s activities are also subject to supervision by various other regulatory agencies around the world. Founded in 1969, Macquarie now employs over 15,700(1) people globally, has total assets of $A203.2 billion and total equity of $A18.4 billion as at 31 March 2019. Macquarie’s breadth of expertise covers asset management and finance, banking, advisory and risk and capital solutions across debt, equity and commodities. The diversity of our operations, combined with a strong capital position and robust risk management framework, has contributed to Macquarie’s 50-year record of unbroken profitability. Macquarie acts primarily as an investment intermediary for institutional, corporate, government and retail clients and counterparties around the world, generating income by providing a diversified range of products and services to our clients. We have established leading market positions as a global specialist in a wide range of sectors, including resources and commodities, green energy, conventional energy, financial institutions, infrastructure and real estate 1 and have a deep knowledge of Asia-Pacific financial markets. Alignment of interests is a longstanding feature of Macquarie’s client focused business, demonstrated by our willingness to both invest alongside clients and closely align 0 the interests of our shareholders and staff. For personal use only 1969 2019 (1) This figure includes staff employed in certain operationally segregated subsidiaries (OSS). Unless otherwise stated, further references to staff data and policies do not include those in OSS. macquarie.com Macquarie Group Limited and its subsidiaries 2019 Annual Report 3 years of financial service Macquarie’s predecessor organisation, Hill Samuel Australia, opened in Sydney in December 1969 with three staff, capital of $A250,000 and an ambition to provide advisory and investment banking services of an international standard to the Australian market. Today Macquarie is a global financial services group with over 15,700(1) staff in 30 markets providing asset management, leasing and asset financing, retail banking and wealth management, market access, commodity trading, corporate advisory and principal investment. For personal use only (1) This figure includes staff employed in certain operationally segregated subsidiaries (OSS). Unless otherwise stated, further references to staff data and policies do not include those in OSS. 4 Macquarie Group Limited and its subsidiaries 2019 Annual Report macquarie.com About Governance Directors’ Report Financial Report Further Information 1970s The 1970s saw Hill Samuel Australia extend its initial offer beyond The country has been good to us; and in our own way advisory and lending to Australian and international corporates to we have made a contribution to the rapid development establish a strong foothold in the emerging international markets of Australian industry and business. After ten years of of gold bullion and foreign exchange hedging and eventually growth we cannot afford to relax... Our major resource futures and commodities trading. These businesses laid the is our team of professionals who know how and when foundations for the global growth that was to follow. to act. In creating this team, we look for individuality, intelligence and common sense, imagination and The early management team established some of the operating dedication. It is a young, disciplined team, responsive to principles which continue to underpin Macquarie today. These change and alert to its consequences.” included a commitment to recruiting people of talent and integrity; a remuneration structure that aligns the interests of employees Stan Owens, Chairman, 1979 Annual Report with sound long-term outcomes for clients, shareholders and communities; a flat management structure founded on Our ability to develop new ideas, new products and individual accountability and an environment in which people are services; to come up with fresh approaches; and to encouraged to seek out adjacent opportunities within a robust look outside traditional boundaries and barriers is a and enduring risk framework. Opportunity, Accountability and fundamental aspect of our business.” Integrity remain the touchstones of Macquarie’s culture in 2019. Stan Owens, Chairman, 1983 Annual Report Just as Lachlan Macquarie was one of our leading pioneers, introducing many reforms which spurred 1980s Australia’s social and commercial development, so A commitment to innovation in Australian retail financial services we aspire to be a bank known for our pioneering built in the 1980s as Hill Samuel’s Cash Management Trust spirit, our innovative ideas and our willingness to allowed individuals and small businesses to access attractive explore and capitalise on new opportunities… short-term money market rates for the first time and was a Whilst providing the full range of general banking forerunner to Macquarie’s expansion into funds management. services we intend to concentrate on those niches Deregulation of the Australian financial services sector opened of the financial system where we have a leadership the path to a banking licence in 1985 and the creation of position. Or can reasonably be expected to develop Macquarie Bank Limited. The new bank took the name of one one… Change for the sake of change holds little of the early governors of New South Wales, Lachlan Macquarie, value for the successful organisation. However, and adapted as its logo Australia’s first currency, the Holey Dollar, a carefully planned reaction to the ever-changing which Governor Macquarie used to solve a currency shortage in environment is essential for success.” the colony, an early example of creating intrinsic value through David Clarke, Executive Chairman, financial innovation. 1985 Annual Report The Macquarie Group Foundation was established in 1985 to support not-for-profit organisations in the communities in which As a company is a member of the society in which Macquarie operates. Since 1985, Macquarie staff and the it operates, it follows that one of its important duties Foundation have donated over $A360 million to charities working is to work in a multitude of ways for the betterment to improve the communities in which they operate,