MACQUARIE BANK MACQUARIE 2007 2007 ANNUAL REVIEW MACQUARIE BANK 2007 ANNUAL REVIEW www.macquarie.com.au MACQUARIE BANK LIMITED ACN 008 583 542 The Macquarie Bank Group’s 2007 If you would like a copy of the annual report consists of two 2007 Financial Report please call documents – the 2007 Annual Review us on +61 2 8232 5006 or visit (incorporating the Concise Report) www.macquarie.com.au/ and the 2007 Financial Report. This shareholdercentre. Annual Review provides an overview of the Group’s operations and a summary of the financial statements. The Financial Report contains the Bank’s risk management report and statutory financial statements. Cover: Thames Water 2007 Annual General Meeting The Holey Dollar Thames Water is the largest water Macquarie Bank’s 2007 Annual In 1813 Governor Lachlan Macquarie and wastewater services company in General Meeting will be held at overcame an acute currency the United Kingdom, serving eight 10.30am on Thursday, 19 July 2007 shortage by purchasing Spanish million water and 13 million wastewater at the Westin Sydney, in the Grand silver dollars (then worth five shillings), customers across London and the Ballroom, Lower Level, No.1 Martin punching the centres out and Thames Valley. The history of Thames Place, Sydney. creating two new coins – the ‘Holey Water dates back to the early 1600s Details of the business of the meeting Dollar’ (valued at five shillings) and when the privately funded New River, will be contained in the separate the ‘Dump’ (valued at one shilling a 40-mile channel, was built to create Notice of Annual General Meeting to and three pence). London’s water supply. be sent to shareholders. This single move not only doubled On 1 December 2006, a Macquarie- the number of coins in circulation led consortium, Kemble Water, but increased their worth by 25 per acquired Thames Water for £8 billion cent and prevented the coins leaving ($A19.88 billion). Kemble Water, the colony. Governor Macquarie’s named after the town near the creation of the Holey Dollar was an headwaters of the Thames River, inspired solution to a difficult problem eTree Macquarie Bank is proud to be a is the largest consortium Macquarie and for this reason it was chosen as Foundation Member of eTree. eTree has ever brought together and the symbol for the Macquarie Group. is a Computershare Limited initiative includes investors from Europe, with Landcare Australia which North America and Australasia. provides an environmental incentive On Kemble Water’s behalf, Macquarie to shareholders of Australian companies to elect to receive has been working closely with shareholder communications Thames Water management to Macquarie Bank Head Office electronically. For every shareholder help lay the foundations for a new No.1 Martin Place who registers an email address era for the company. Sydney NSW 2000 Macquarie will donate $2 to Australia Landcare Australia to support reforestation projects in the state or Tel: +61 2 8232 3333 territory where the registered Fax: +61 2 8232 3350 shareholder resides. Registered Office The Macquarie Bank 2007 annual Macquarie Bank shareholders can Macquarie Bank Limited report is printed on Media Print, an register to receive their shareholder Level 3, 25 National Circuit EMAS accredited paper stock which communications, such as the Annual Forrest ACT 2603 Cover photograph by Steve Speller. is totally chlorine free. EMAS is the Review, electronically, by visiting Map image © Crown Copyright (2007). Australia All rights reserved. European Union’s regulated www.etree.com.au/macquarie and Ordnance Survey Licence Number 100019345. Solutions Octopus by management Print Sydney Design, Frost by Designed Tel: +61 2 6225 3000 environmental management system. registering their email address. Review 2007 Concise Report Macquarie Bank 2 Who we are 43 Directors’ Report 2007 Annual Review (including global locations) 96 Directors’ Report Schedules 4 Highlights 00 Consolidated income statement 6 Chairman’s and Managing 0 Consolidated balance sheet Director’s Report 02 Consolidated statement of 2 –Investment Banking Group changes in equity 6 –Banking and Property Group 03 Consolidated cash flow 8 –Treasury and Commodities Group statement 20 –Equity Markets Group 04 Discussion and analysis 22 –Financial Services Group 05 Notes to the concise 24 –Funds Management Group financial statements 26 –Other Groups and Divisions 3 Directors’ declaration 29 –Macquarie Bank Foundation 4 Independent audit report 3 Corporate Governance Statement 5 Ten year history 6 Investor information 4We have over 0,000 staff, up 22 per cent from March 2006, including around 6,500 Australian- based staff and over 3,500 international staff 455 per cent of our operating income is now derived from international markets 4Total Shareholder Return for the period since the Bank’s listing in July 996 until 3 March 2007 exceeds ,800 per cent Throughout this report, total operating income for the purposes of international income, excludes earnings on capital and is after directly attributable costs including fee and commission expenses. Who we are Macquarie Bank evolved from Hill Samuel Australia Limited, which was established in 969 as a subsidiary of the UK merchant bank, Hill Samuel & Co. In 985, a banking licence was acquired and operations began under the name Macquarie Bank. Macquarie listed on the Australian Stock Exchange (ASX) in July 996, with a market capitalisation of approximately $A.0 billion. Our market capitalisation is approximately $A2.0 billion (at 3 March 2007) and we employ over 0,000 people in 24 countries, offering a full range of investment, financial market and advisory products and services. 2 Macquarie Bank Limited 2007 Annual Review Our strategy is to expand selectively, seeking only Macquarie’s success is driven by entrepreneurial to enter markets where our particular skills and energy, our people and a robust risk management expertise deliver real advantage to clients. This framework. approach allows the flexibility to enter new sectors We structure our business into seven operating and regions as opportunities arise and to respond Groups with a non-hierarchical management style to the specialist requirements of individual markets. providing individual businesses with operating freedom As a result, we have established leading positions within risk limits. This strategy is known as ‘freedom in a diverse range of markets. within boundaries’. In Australia and New Zealand, we are a pre-eminent provider of diversified investment banking and financial services. In Asia, we offer a full range of investment, financial market and advisory products and services. In Europe, the Middle East, Africa and the Americas, we focus on select markets where we can add real value. 3 Highlights 4 Earnings per share increased 48 per cent to $A5.92 per share 4 Total ordinary dividends for the year were $A3.5 per share 4 Return on average ordinary shareholders’ funds was 28. per cent 4 International income contributed 55 per cent of the Bank’s operating income (excluding earnings on capital) 4 Total assets under management increased 4 per cent to almost $A200 billion 4 Total assets grew by 28 per cent to $A36.4 billion 4 Tier capital adequacy ratio of 5.0 per cent Consolidated profit Year ended 3 March 2007 2006 % $m $m Change Total income 7,8 4,832 49 Total expenses (5,253) (3,545) 48 Profit before income tax ,928 ,287 50 Income tax expense (377) (290) 30 Profit from ordinary activities after income tax ,55 997 56 Minority interests (57) (52) 0 Distribution on Macquarie Income Securities (3) (29) 7 Profit after income tax attributable to ordinary equity holders ,463 96 60 4 Macquarie Bank Limited 2007 Annual Review Reported net profit after tax attributable to Domestic and international income ordinary equity holders Total operating income $A million $A million International Domestic 1600 7000 1400 6000 1200 1000 5000 Domestic and international income 800Reported net profit after tax attributable to Total4000 operating income ordinary equity holders $A million 600 $A million International3000 Domestic 400 2000 1600 7000 200 1000 1400 6000 0 1200 997 998 999 1 1 1 2000 2000 2001 2002 2003 2004 2005 2006 2007 05000 997 997 998 999 1 1 1 1000 2000 2001 2002 2003 2004 2005 2006 2007 4000 800 3000 600 2000 400 200 1000 0 0 997 998 999 997 997 998 999 1 1 1 1 1 1 2000 2000 2001 2002 2003 2004 2005 2006 2007 2000 2000 2001 2002 2003 2004 2005 2006 2007 Basic earnings per share (EPS) performance Dividends per share A cents A cents Interim Final Special Dividends per share Basic600 earnings per share (EPS) performance A cents A cents 350Interim Final Special 500 300 600 350 400 250 500 300 300 200 250 400 200 150 200 300 100 100 150 200 50 100 0 997 997 998 999 1 1 1 100 2000 2001 2002 2003 2004 2005 2006 2007 0 50 997 997 998 998 999 1 1 1 2000 2000 2001 2002 2003 2004 2005 2006 2007 0 0 997 997 998 999 997 997 998 998 999 1 1 1 1 1 1 2000 2000 2001 2002 2003 2004 2005 2006 2007 2000 2000 2001 2002 2003 2004 2005 2006 2007 5 Chairman’s and Managing Director’s Report This year, we are reporting our 5th consecutive year of record profit. This result reflects the quality of our staff, our investment in growth, particularly internationally, and favourable market conditions. 4 Consolidated after-tax profit attributable to ordinary equity holders increased 60 per cent to $A,463 million from $A96 million 4 Earnings per share increased 48 per cent to $A5.92 from $A4.00 4 Total operating income increased 49 per cent to $A7,8 million from $A4,832 million 4 Trading, fee and commission, and interest income were all up on the previous year 4 Fee and commission income contributed approximately 49 per cent of income and rose 25 per cent on the prior year 4 International income increased by 70 per cent to $A3,457 million, accounting for 55 per cent of total income 6 Macquarie Bank Limited 2007 Annual Review Result overview International income increased by 70 per cent to Consolidated after-tax profit for the Macquarie Bank $A3,457 million, accounting for 55 per cent of total Group (the Bank or Macquarie) was $A,463 million, income.