macquarie group 2010 shareholder review

7/30/2019 Macquarie Group 2010 Shareholder Review

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MACQUARIE GRoUp LIMITED ACN 122 169 279

MACQUARIE gRoUp

2010 SHareHolder review


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Overview 1Key inancial details 2Chairman and Managing Directors Report 4Taking our Asia-Paciic expertise to the rest o the world 10Regional activity 12About Macquarie 14Operating groups and divisions 16Central unctions 27Macquarie Group Foundation 30Sustainability 32Corporate governance 36Remuneration approach 38

Ten year history 42Investor inormation 44

Result reects improved market conditionsProft o $A1,050 millionOperating income o $A6,638 million

Earnings per share o $A3.20Total ordinary dividends o $A1.86 per shareReturn on equity o 10.0 per cent per annum

Assets under management o $A326 billion

Strong unding and balance sheet positionBalance sheet remains solid and conservativeTerm assets covered by term unding and equity

Increase in retail deposits rom $A13.4 billion to $A15.5 billionIssued $US2.5 billion o non-government guaranteed term debt$A4 .0 billion o capital in excess o minimum regulatory requirement

Continued growth and evolutionOrganic growth initiatives complemented by strategic acquisitionsIncreasing diversity by business and geography15 per cent increase in sta numbers to over14,600

43 per cent increase in international income to $A3,351 million(52 per cent o total)Asia-Pacifc region generated 66 per cent o income.66 per cent o sta located in 26 locations in this region

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Consolidated net prot ater tax attributable to ordinary equity holdersincreased by 21 per cent to $A1,050 million rom $A871 million

Total operating income increased by 20 per cent to $A6,638 millionrom $A5,526 million

International income increased by 43 per cent to $A3,351 million rom$2,347 million, accounting or 52 per cent o total operating income

Earnings per share increased by 3 per cent to $A3.20 rom $A3.10Dividends per share o $A1.86 (unranked), broadly in linewith the prior year

Return on equity increased to 10.0 per cent per annum rom9.9 per cent

Regulatory capital o $A11.8 billion, $A4.0 billion in excess oMacquarie Groups minimum regulatory capital requirement

Key fnancial details

Reported net profit after tax attributableto ordinary equity holders$A million

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2010 2009 %$Am $Am Change

Total income 6,638 5,526 20

Total expenses (5,344) (4,537) 18

Prot beore income tax 1,294 989 31

Income tax expense (201) (15) large

Prot rom ordinary activities ater income tax 1,093 974 12

Minority interest (43) (103) (58)

Prot ater income tax attributable to ordinary equity holders 1,050 871 21

Consolidated proftYear ended 31 March

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Macquaries long-term record ogrowth and evolution continuedin this, the year o our 40thanniversary since inception.The strength o our balancesheet, together with our pursuito opportunities or continued

growth, led to a range osuccessul initiatives.

The diversity o our operationsis a key strength. During the yearwe expanded our global presencethrough organic growth, businessdevelopment and selective hiring.We also made a number oimportant strategic acquisitions,

particularly in North Americaand Europe.

Macquarie is a global fnancialservices specialist, with particularexpertise in resources andcommodities, energy, fnancialinstitutions, inrastructure andreal estate. Our ability to takeour extensive knowledge o

the Asia-Pacifc region to ourclients and investors providesa bridge to one o the worldskey growth regions.

Result overviewMacquarie Group (Macquarie) reported aconsolidated ater-tax prot or the year ended31 March 2010 o $A1,050 million, an increaseo 21 per cent on the previous years prot o$A871 million. Earnings per share were $A3.20,an increase o three per cent rom $A3.10 in theprior year. Return on equity was 10.0 per centper annum, slightly up on the prior year.

Total operating income or the year was$A6,638 million, a 20 per cent increase rom$A5,526 million in the prior year. The increasewas largely attributable to improving marketconditions, growth in existing businesses alongwith contributions rom new businesses, gainsrom listed und initiatives and a reduction in thelevel o write-downs and provisions comparedwith the prior year.

All operating groups and divisions reportedimproved results on the prior year. Totalinternational income increased by 43 per centto $A3,351 million, accounting or 52 per cento total income. Total sta exceeded 14,600 withmore than 7,300 sta now employed in our ocesoutside Australia. This represents 50 per cento total sta compared to 43 per cent in theprevious year.

Assets under management increased 34 per centrom $A243 billion at 31 March 2009 to $A326 billionat 31 March 2010. Most o the increase wasattributable to the acquisition o DelawareInvestments (Delaware), a US-based diversiedasset management rm with more than$US125 billion in assets under managementat the time o acquisition.

Operating expenses were $A5,344 million, an18 per cent increase rom $A4,537 million in theprevious year, largely attributable to the 15 percent increase in the number o sta. The expense-to-income ratio decreased to 80.5 per cent,compared with 82.1 per cent in the previous year.The eective tax rate or the year increased to16.1 per cent rom 1.7 per cent in the prior year,largely due to a lower level o write-downs andimpairment charges.

Operating conditionsOperating conditions continued to trend back tonormal during the year, leading to greater activityacross many o our businesses. Equity markettrading conditions improved across Australia andAsia while the US and Europe remained subdued.This was positive or our Asia-Pacic equities andunds management businesses, including ourgrowing retail ranchise.

Chairman and ManagingDirector's Report

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The environment or mergers and acquisitions(M&A) across most industry classes remainedconstrained compared to historical standardswith global deal fow substantially lower thanin the prior year. Asia, Australia and Canadahowever experienced good equity capitalmarkets (ECM) activity.

Energy and commodity market conditionsgenerally improved, metal prices continued torise, while oreign exchange volumes remaineddepressed. US credit trading markets ralliedalongside equity markets. The dislocation oglobal credit markets, together with the scaleback o lending activities by nancial institutions,provided opportunities or our corporate andasset nancing businesses.

Initiatives during the yearMacquarie has a demonstrated record ousing market downturns to develop opportunitiesto grow and evolve its businesses. In the yearto 31 March 2010, we expanded our globalpresence and product oering by organicallygrowing existing businesses and made a numbero acquisitions, predominantly in North Americaand Europe.

Organic growth was achieved through theselective hiring o individuals and teams withextensive industry experience adding greaterregional depth to our key businesses. Thisallowed many o our businesses to expandtheir product oerings internationally.

We expanded our energy presence in Asiaand commenced a physical oil trading business

in Singapore. Our Fixed Income, Currenciesand Commodities Group (FICC) also started

providing corporate banking, oreign exchangeand other trading services to Korean corporateand institutional clients, ater Macquarie BankLimited obtained a licence to oer bankingservices in Korea. FICC recently established aoreign exchange business alliance with Sun HungKai Forex, an online oreign exchange serviceprovider in Hong Kong. The New York-basedcredit trading business experienced strong growthas it extended its services to include client sales

and trading.Our corporate nance and advisory businesscontinued to grow its global presence advisingon 448 transactions valued at $A121 billion.Growth in this business, particularly internationally,provided an increasing capacity to utilise globalnetworks to acilitate transactions or our clients.

Growth in our unlisted alternative asset undsmanagement business continued with newoerings in Mexico, Russia and Arica. We areworking with governments and strong localpartners to deliver inrastructure opportunities.

Assets under management$A billion

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6 macquarie.com.auMacquarie Group 2010 Shareholder Review

A number o strategic acquisitions also addednew teams o people and expanded our serviceoering to our clients. The newly acquired US-based asset manager, Delaware, combined withMacquarie Funds Group and began developingnew products or the US market, with its rstjoint product oering in January 2010, theDelaware Macquarie Global Inrastructure Fund.

Macquarie Energy, FICCs North American

energy marketing and trading business, acquiredIntegrys Energy Services wholesale electricmarketing and trading portolio and ocusedon consolidating its growing gas and powerranchise in the region.

Our European and North American equities andresearch capabilities were enhanced with theacquisitions o global nancial sector equitiesspecialist, Fox-Pitt Kelton Cochran CaroniaWaller (FPK), energy advisory rm, Tristone GlobalCapital (Tristone) and Sal. Oppenheim jr.& CieKGaAs1 (Sal. Oppenheim) cash equities, equityderivatives and structured products businesses.

These acquisitions urther expanded our globalequities platorm, taking our research coverage

to over 2,700 stocks worldwide and placingMacquarie Securities among the top eight globalbrokers in terms o research coverage.

Our retail nancial services platorm wasenhanced with the acquisition o Canadian retailbroker, Blackmont Capital Inc. (Blackmont), whichwas renamed Macquarie Private Wealth (Canada).The Banking and Financial Services Group alsoselectively recruited experienced people to supportgrowth in its European and Asian businesses.

The Corporate and Asset Finance Divisionacquired a portolio o approximately $A1.0 billiono Australian auto loans and leases rom FordCredit Australia. Post balance date, it agreedto acquire a $US1.7 billion2 aircrat operatinglease portolio rom International Lease FinanceCorporation (ILFC), a subsidiary o AmericanInternational Group, Inc. (AIG).

Reer to Regional activity and Operating groupsand divisions or additional detail on initiativesduring the year.

Chairman and ManagingDirector's Report continued

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1Completed post balance date.2Net o current cash and reserves and subject to adjustments.3 Operating income excludes earnings on capital and other corporate items.


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CapitalMacquarie has a long-term policy o holdinga level o capital which eciently supports ourbusiness. We have consistently grown our capitalbase ahead o business requirements. Duringthe year, we raised $A1.2 billion through aninstitutional placement and retail Share PurchasePlan. This urther enhanced Macquaries strongcapital position, providing the fexibility to build onmarket opportunities.

Our regulatory capital at 31 March 2010 was$A11.8 billion, which was $A4.0 billion in excesso Macquarie Groups minimum regulatory capitalrequirement. Over 90 per cent o capital is corecapital (ordinary equity plus retained earnings).

FundingWe remain very well unded. Term assets arecovered by term unding and equity. Short-termwholesale issued paper remains a small portiono overall unding at seven per cent o the totalunding sources. Between 31 March 2009and 31 March 2010, retail deposits increased16 per cent rom $A13.4 billion to $A15.5 billion.

Post balance date, unit holders in the CashManagement Trust (CMT) approved the transero unds to the Cash Management Account (CMA)eective 31 July 2010. The net balance in theCMT at 31 March 2010 was $A9.5 billion.

During the year, Macquarie issued $US2.5 billiono non-government guaranteed term debt in theUS market to institutional investors. We werethe rst Australian nancial institution to issuea benchmark unguaranteed term debt issue inthe US post the disruption to global nancialmarkets in September 2008. The removal o thegovernment guarantee was anticipated and is notexpected to impact Macquaries unding position.

PerormanceMacquaries share price made a good recoveryduring the year. From 1 April 2009 to 31 March2010, the share price increased by 75 per cent.Macquaries share price is only 11 per centbelow its level at 31 March 2008, comparedwith the MSCI World Diversied Financials index(MSCI), which is 36 per cent lower. The MSCIcomprises a range o nancial companies oeringa wide variety o products and services includingsecurities and investment products, M&A advisoryand equity underwriting, various lending productsand insurance products.

From the date o listing on 29 July 1996 throughto the close o the nancial year on 31 March2010, Macquarie has delivered a total return toshareholders o over 1,170 per cent. Over thesame period, the average total shareholder returno the ASX top 50 was approximately 315 per cent.

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Macquarie share price vs the MSCI World MSCI Diversified Financials Index

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DividendThe Board has declared a nal ordinary dividendo $A1.00 per ordinary share (unranked), uprom $A0.86 in the rst hal, making the totalordinary dividend payment or the year $A1.86per share. This is broadly in line with the totaldividend o $A1.85 per share in the prior year.It represents a payout ratio o 60 per cent, inline with our dividend policy o maintaining an

annual payout ratio in the range o 50 to 60per cent o net earnings attributable to ordinaryshareholders. The uture rate o ranking remainssubject to the composition o income but it islikely that uture dividends will remain unrankedor the oreseeable uture.

Macquarie has advised that rom the naldividend or the year ended 31 March 2010,to be paid in July 2010, it will only acilitate thedirect credit o dividends or the participationin the Dividend Reinvestment Plan (DRP) orAustralian shareholders. Non-Australian resident

shareholders will be able to continue to receivedividend cheques. Due to our strong capitalposition, a decision has been made to removethe 2.5 per cent discount to market value in thepricing o the DRP shares eective or the 2010nal dividend and we have announced a changeto the DRP Rules to allow the uture on-marketpurchase o shares instead o the issue o newshares to satisy uture DRP allocations.

The Macquarie modelMacquarie is a global provider o banking,nancial, advisory, investment and unds

management services to our clients.While our model has not signicantly changedover the years, Macquarie has continuallyadapted to variations in the environment in whichwe operate. We pursued growth opportunitiesduring the past year which resulted in thecontinued evolution o our business. As theoperating environment improved, our businessestook the opportunity to enter new markets,develop new and expanded product oerings,selectively acquire new businesses and, in somecases, exit activities.

Macquarie Groups strategy is to ocus over themedium term on key undamentals: the provisiono services to our clients; the alignment ointerests with shareholders, investors and sta;a conservative approach to risk management;incremental growth and evolution; maintainingoperations that are diversied by business andgeography; and an ability to adapt to change.

Risk managementMacquaries strong nancial position beore,during and ater the global nancial crisis refectswell on our robust risk management ramework.We have always sought to clearly understandand identiy the consequences o worst caseoutcomes to ensure that these can be tolerated.

Central to our business is a strong culture orisk management which is embedded across alloperating groups and divisions. As Macquariesoperating groups build on global growth andtransaction opportunities, our risk managementramework adapts to maintain eective riskoversight. The Risk Management Group increasedits numbers globally during the year.

Macquarie Group Employee Retained EquityPlan (MEREP)Following shareholder approval o changes toour remuneration arrangements on 17 December2009, Macquarie now invests a signicantproportion o employees annual retained protshare in the MEREP. Sta promoted to Directorlevel eective 1 July 2010 will also be grantedequity awards under the MEREP. To date, theMacquarie shares required or the delivery oMEREP awards have been issued by Macquarie.For the retained prot share and promotion awardsor the nancial year ended 31 March 2010, therequired shares will be bought on-market, exceptor the proposed MEREP awards or the ManagingDirector which are subject to shareholder approval.Shareholder approval or the Managing DirectorsMEREP awards will be sought at the 2010Macquarie Group AGM in July.

Reer to the Remuneration approach orurther inormation on Macquaries remunerationarrangements.

Our peopleOur culture and people ensured our successulnavigation o the events o the past two yearsand remain the oundation or the continuedsuccess o our business. As a result o anumber o acquisitions and the selective hiringo individuals and teams during the year, stanumbers increased by 15 per cent rom 12,716 at31 March 2009 to over 14,600 at 31 March 2010.Notable sta increases related to the acquisitionso Delaware and Blackmont, which broughtrespectively approximately 520 and 410 newsta to Macquarie.

Chairman and ManagingDirector's Report continued


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In addition to market conditions, the result orthe year to 31 March 2011 remains subject to arange o other challenges including: increasedcompetition across all markets; the cost omaintaining our continued conservative approachto unding and capital and proposed regulatoryreorm which has the potential to impact fows tocapital markets.

Over the medium term, we remain well placeddue to the global depth and reach o ourbusinesses, the diversication o our businessmix, our strong committed team with interestsaligned to shareholders, our strong balancesheet, capital and unding position and eectiverisk management.

Subject to the continuation o increasingeconomic activity across major markets, weexpect continued growth in revenue and earningsacross most businesses over time and continuedgrowth in our businesses driven by urtherexpansion o our strong client ranchise.

David S. Clarke, AOChairman

Nicholas MooreManaging Director andChie Executive Ocer

Sydney29 April 2010

As global conditions continue to improveand nancial services rms seek to secureexperienced sta, the importance o attractingand retaining high-quality people is paramount.A key actor in Macquaries long-term growth hasbeen its ability to attract and retain high-qualitysta while aligning the interests o shareholders andsta through perormance-based remuneration.

At a general meeting in December 2009,shareholders overwhelmingly approved changesto Macquaries remuneration arrangements,which refect global remuneration and regulatorytrends, while remaining consistent withMacquaries long-standing approach.

Reer to the Remuneration approach or urtherinormation on Macquaries remuneration policiesand practices.

Board and managementDavid Clarke resumed ull duties as Chairmano Macquarie on 31 August 2009 ater a leave oabsence, while Acting Chairman Kevin McCann

resumed his role as Lead Independent Directoro the Board.

Michael Hawker was appointed to the Boardas an Independent Non-Executive Director on22 March 2010. Michael has extensive nancialservices industry experience, including seniormanagement roles with Citibank, Westpac andas Chie Executive Ocer and Managing Directoro Insurance Australia Group. He is also a Directoro Aviva Plc, the largest insurance servicesprovider in the UK.

As stated in the interim report, Laurie Cox retired

in July 2009 ater six years as an ExecutiveDirector and 13 years as a Macquarie Boardmember. Stephen Allen became Head o RiskManagement Group in November 2009, ollowingNick Minogues retirement.

OutlookWhile market conditions continue to improve,continuing uncertainty makes orecasting dicult.

Subject to market conditions, or the year to31 March 2011 we currently expect improvedoperating results on the prior year or all oour businesses.

The income statement or the year to 31 March2011 is likely to be characterised by ewer one-o items as seen in the second hal o this year:a compensation ratio consistent with historicallevels, continued higher cost o unding refectingmarket conditions and high liquidity levelsincluding the recent CMT/CMA initiative.

The balance sheet in the 31 March 2011 nancialyear is likely to be characterised by high cashbalances as a result o the CMT/CMA initiative,which we anticipate will continue to be deployed

across the businesses, and a level o equityinvestments at or below existing levels.


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Macquaries Asia-Pacic business has beendeveloped over 40 years. Commencingoperations in Australia in 1969, we developedull-service capabilities in this market beoreexpanding our operations into Hong Kong in1994, China in 1995 and India in 2005. We havebuilt a presence o over 9,700 sta across 26Asia-Pacic locations, representing over 65 percent o our total sta. We oer a comprehensiverange o banking, nancial, advisory, investment

and unds management services across a broadrange o sectors with a ocus on our globalspecialty areas o resources and commodities,energy, nancial services, inrastructure and realestate. Today, over 65 per cent o our operatingincome comes rom the Asia-Pacic region.

Our growth in the region refects the long-termevolution o our business and our ability tocapture opportunities as market cycles change.The 2004 acquisition o INGs Asian cash equitiesbusiness provided a solid platorm or growthand in the ensuing six years we have built a

signicant presence in the region. Our researchcoverage o over 1,200 stocks is one o thelargest in the Asia-Pacic region.We also haveone o the largest dedicated equities sales teamsin the region. We are a leading issuer o equityderivative products in the Hong Kong market,while we hold the largest market share or listedwarrants in Singapore and Korea and a top threeposition in Hong Kong. In Australia we maintainthe number one position or ASX market share incash equities.

The expansion o our cash equities capabilities

in North America and Europe, combined with therecent acquisitions o Fox-Pitt Kelton CochranCaronia Waller, Tristone Global Capital and Sal.Oppenheim, enables us to acilitate opportunitiesand provide products or Asian investorsoutside their local region. In this regard, we areincreasingly seen as a global broker with strongAsia-Pacic oundations.

Our record o transactions in the region refectsour strong relationships with Asias mostprestigious corporations. Macquarie has beenbookrunner to some o the largest initial public

oerings (IPO) in Hong Kong in the last two years,including the $US4.0 billion China MinshengBank and the $US1.3 billion China ZhongwangHoldings oerings. We have also led the largestIPO in Australia every year since 2000.

In addition to working on some o the regionsmost signicant transactions, Macquarie hasadvised on numerous cross-border transactions inand out o the region. In the year to 31 March 2010,we advised leading US waste and environmentalservices company Waste Management Inc onits rst investment in China, the $US142 million

acquisition o a 40 per cent stake in ShanghaiEnvironment Group, to pursue waste-to-energyopportunities throughout China. More recently,Macquarie was joint global coordinator and joint

Taking our Asia-Pacifc expertiseto the rest o the world

1 Institutional and retail combined.2 By transaction number. Source: Bloomberg, Dealogic.

Over 9,700 sta across 26 Asia-Pacic locations

Over 65 per cent o operating incomegenerated in the region

Research coverage o over 1,200Asia-Pacic stocks one o thelargest in the region

One o the largest dedicated equitiessales teams in the region

Maintain No.1 ASX market share orcash equities1

A leading issuer o equity derivativeproducts in the Hong Kong market

No.1 market share or listed warrantsin Singapore and Korea and a top

three position in HKA leading M&A adviser across theregion

Top two position in Hong KongIPOs since 20082

As the Asia-Pacifc region continues todrive global economic growth, Macquarieis uniquely placed to source opportunitiesor our global clients and investors and to

assist Asia-Pacifc businesses looking toexpand both within and outside the region.As a major fnancial services institution in theregion, we have developed leading positionsin equities research, distribution and sales,equity derivatives, advisory and equity capitalmarkets, while building activities in corporatebanking, oreign exchange, trading servicesand private wealth management. With strongrelationships across the region, we are usingour deep experience and local knowledgeo the region to acilitate cross-bordertransactions, providing a bridge between

Asia-Pacifc and the rest o the world.


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bookrunner or the 105 million IPO o leadingChinese ceramic manuacturer, Joyou AG, on theFrankurt Stock Exchange, demonstrating our

ability to bring product rom Asia to Europeaninvestors, and our ability to tap the worlds capitalmarkets or our Asian clients.

Macquarie is a recognised leader in themanagement o inrastructure assets aroundthe world, building on expertise developed inthe Australian market over more than 15 years.In Asia, we are working closely with governmentsand institutions to assist in the development othe inrastructure required to sustain the regionslong-term growth. In the year to 31 March 2010,we entered a joint venture with China Everbright

Limited to establish two unds to invest ininrastructure businesses in Greater China,one o which will be open exclusively to oreigninvestment. A similar inrastructure und has alsobeen launched in India with the State Bank oIndia, Indias largest commercial bank, and theInternational Finance Corporation, a member othe World Bank Group, with over $US1 billion ocommitted equity to date.

Our Fixed Income, Currencies and CommoditiesGroup is also expanding services into Asia. Duringthe year, we began providing corporate banking,

oreign exchange and other trading services inKorea, ater Macquarie Bank Limited secured abanking licence to establish a branch in Seoul,and commenced a physical oil trading business

in Singapore. Recently, we established a oreignexchange business alliance with Sun Hung KaiForex, an online oreign exchange service provider

in Hong Kong.Macquarie Funds Group signed a Memorandumo Understanding in January 2010 with ChinaUniversal Asset Management, a leading Chineseasset manager, to develop und products orChinese and global investors.

Our institutional and corporate presence in theAsia-Pacic region is well established and tocomplement this, more recently, we have ocusedon developing our retail prole in the region. OurBanking and Financial Services Group has takenits expertise developed in the Australian privatewealth sector to Asia and is now providing wealthmanagement products and advice to privateinvestors in India, Singapore and Hong Kong,partnering with established and experiencedlocal operators as appropriate.

The growth o Macquaries Asia-Pacic businessis an important eature o our ongoing evolution.It has provided a platorm or our long-term growthas we have adapted expertise developed in thisregion to service our clients and investors acrossthe globe. As the Asia-Pacic region continuesto be a signicant contributor to global growth,Macquarie will continue to play an important rolein nancial services activity across the region.

Raymond Liu


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Australia Sponsor, adviser, debt provider and equity underwriter or the $A5.7 billion (net present cost) VictorianDesalination Project, the largest Public Private Partnership undertaken globally since the disruption toglobal inancial markets in 2008

Continued to be at the oreront o Australian IPOs, leading the largest IPO every year since 2000 and leadingall the major IPOs o 2009/10 including carsales.com, Myer, Kathmandu and Miclyn Express Oshore

A range o listed und initiatives designed to maximise shareholder value resulted in the internalisedmanagement o Macquarie Airports, Macquarie Leisure Trust Group and Macquarie Media Group; therestructure o Macquarie Inrastructure Group into two separate listed inrastructure entities; the takeovero Macquarie Communications Inrastructure Group and the sale o the majority o the Australian corereal estate unds management platorm

Maintained number one position or ASX market share in cash equities1

Macquarie Securities Groups (MSG) derivatives business was the leading provider o listed warrants inthe Australian market or the year

The strong perormance o many o Macquarie Funds Groups (MFG) managed und asset classesresulted in good inlows rom both institutional and retail investors, particularly in the Fixed Income,Currencies and Commodities and Listed Equities unds

MFG launched the Macquarie Lietime Income Guarantee, a longevity risk protection product

Banking and Financial Services Group (BFS) launched a new online trading platorm, Macquarie Edge, inAustralia, winning three major industry awards in the irst six months o operation

Macquarie Agricultural Funds Management was awarded Real Asset Manager o the Year

Corporate and Asset Finance Division (CAF) originated or acquired in excess o $A7.5 billion o corporatedebt and lease assets

Asia-Paciic Joint lead manager roles or the listing o numerous Chinese companies on the Stock Exchange o HongKong, including China Zhongwang, BBMG, Powerlong Real Estate, Shenguan and China Minsheng Bank

Adviser and debt arranger to Lion Power Holdings or the $S2.35 billion reinancing o Senoko Powersacquisition debt, one o the largest inrastructure inancings in Asia-Paciic in 2009

Adviser on numerous cross-border transactions including Koreas KEPCO on its $C75.4 millionacquisition o Canadian uranium producer Denison and Australias PaperlinX on the sale o its$A760 million paper business to Japans Nippon Paper Industries

MSGs cash equities business continued to grow its market share in Hong Kong, Japan, Taiwan and Korea

MSGs derivatives business was the leading provider o listed warrants in Singapore and Korea or theyear and held the number three market share position in Hong Kong

Fixed Income, Currencies and Commodities (FICC) Energy Markets Division commenced a physical oiltrading business in Singapore, operated by a newly hired team with a range o proven trading strategiesbased on low risk intermediation and client service within the global oil trading value chain

Macquarie Bank Limited Seoul Branch was established, providing corporate banking, oreign exchangeand other trading services to corporate and institutional clients

MFG signed a Memorandum o Understanding with leading Chinese asset manager, China UniversalAsset Management, in January 2010 to develop und products or Chinese and global investors

BFS launched a Global Franchise Service in India in conjunction with joint venture partner, Religare.This discretionary investment management service provides investors with access to three investmentstrategies, covering absolute return, cash and co-investment opportunities

Religare Macquarie Private Wealth was named the Indian Private Banking International Global WealthAssociations Most Exciting Wealth Management Model

Macquarie Central Oice Corporate Restructure-Real Estate Investment Trust Co. sold its single managedasset, the Kukdong building in Seoul or $A300 million to GE NPS REIT

City Apartments, a residential complex in Shanghai, was sold to a Hong Kong-based investor orRMB270 million

Regional activity

1 Combined institutional and retail.


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The Americas Lead manager roles in numerous inancings or Canadian resources companies on the Toronto StockExchange, including Consolidated Thompson Iron Mines, Result Energy (and its predecessor TriStar Oil& Gas), Gleichen Resources, Ivanhoe Energy and Colossus Minerals

First close o Macquarie Mexican Inrastructure Fund (MMIF) with initial commitments o MXN5.2 billion($A455 million). MMIF is Macquaries irst managed und in Latin America and the irst peso-denominatedund solely ocused on investment opportunities in Mexican inrastructure projects

Acquisition and integration o Tristone Global Capital Inc, an independent energy advisory irm providingully integrated corporate inance, acquisitions and divestitures, equity capital markets and sales, tradingand research services

Acquisition and integration o Fox-Pitt Kelton Cochran Caronia Waller (FPK), a leading equity sales andtrading, research, advisory and capital markets team ocused on the inancial services sector

The US cash equities business experienced strong growth in secondary market commissions. It wasawarded a lead manager role on Broadwinds $US100 million US public oering in January 2010

The Canadian cash equities business experienced strong growth in market share and increased ECM activity

FICCs Credit Trading Division expanded its services to include client sales and trading, while broadeningthe product mix in high yield and distressed corporate and securitised debt securities

Acquisition o substantially all o the wholesale electric marketing and trading portolio o Integrys EnergyGroups non-regulated subsidiary, Integrys Energy Services

FICCs Metals and Energy Capital Division established a presence in Toronto, Canada

Acquisition o Delaware Investments, a US-based diversiied asset manager, completed in January 2010and launch o irst und post acquisition, the Delaware Macquarie Global Inrastructure Fund

MFG expanded its structured und solutions capability with the hire o senior executives in the US to leadthe global expansion o the business

Acquisition o Blackmont Capital, a Canadian ull-service wealth management and investment provider

Record origination volumes or the Canadian Mortgages business

CAF acquired the Technology Services Division o Relational Technology Services and integrated it intoits existing US IT leasing business

Europe, Middle Eastand Arica

Joint bookrunner or the IPO o Chinese ceramic producer, Joyou, on the Frankurt Stock Exchange,the irst Chinese company to loat in Germany in 2010

Adviser to Singapore Technologies Telemedia on the privatisation o Eircom Holdings, owner o a57.1 per cent stake in Irelands incumbent telecommunications provider, Eircom

First close o Macquarie Renaissance Inrastructure Fund (MRIF), with initial commitments o$US530 million. MRIF is the irst major private und dedicated to investing directly in inrastructure inRussia and other key CIS markets

First close o Arican Inrastructure Investment Fund 2 (AIIF2) with initial commitments o approximately$US320 million. The und will ocus on making equity investments into a diversiied portolio oinrastructure assets located in Arica

FPK acquisition (or detail reer to the Americas)

MSGs European and South Arican cash equities businesses experienced strong growth in secondarymarket commissions

Acquisition o Sal. Oppenheims cash equities and equity derivatives businesses (completed April 2010),broadening MSGs pan-European equities operations

FICCs Emerging Markets Division established emerging market operations in London, expanding itsoperations to provide a ull suite o services to European institutional and local market participants

FICCs Credit Trading Division expanded its operations into Europe by establishing a presence in London

MFG launched three unds ocused on emerging markets, emerging markets inrastructure andagricultural commodities that meet UCITS1 requirements or Europe and Asia

BFS launched a premium platorm service in the UK to support proessional inancial planners in providingservices to their clients. The irst unds have been lodged on the platorm

CAF unded approximately $A1.8 billion o corporate debt and leasing opportunities

1 Undertaking or Collective Investment in Transerable Securities.


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About Macquarie Management approachMacquaries strength lies in its unique structureand management style which enables businessesto exercise signicant operating reedom balancedby limits on risk and the adherence to proessionalstandards. Macquaries management approachosters an entrepreneurial culture among sta.

Strong prudential management is undamental tothis approach. Central management ocuses onrisks to Macquarie which may arise rom marketand industry infuences and on issues o mediumand long-term signicance.

Other core elements o Macquaries approach are:

the encouragement o high ethical andproessional standardscommitment to clientscommitment to growththe recruitment, retention and motivationo quality stathe alignment o sta rewards with thoseo shareholders

transparent and comprehensive reportingincluding nancial reporting and risk reporting.

Macquarie is a global provider o banking,nancial, advisory, investment and undsmanagement services. Macquaries main businessocus is making returns by providing a diversiedrange o services to clients. Macquarie acts onbehal o institutional, corporate and retail clientsand counterparties around the world.

Macquarie has ve operating groups and twodivisions within which individual businesses

operate. Businesses specialise in dened productor market sectors and work in closeco-operation. Great emphasis is placed on aclients relationship with Macquarie as a whole.

Three service groups provide the ramework,inrastructure and support which enable theoperating groups to unction.

Non-Operating Holding Company (NOHC)

Non-Banking Group business

Banking Group business

Central unctions

Macquarie Bank LimitedBoard o Directors

Macquarie Bank LimitedManaging Director and CEO

Macquarie Group Limited

Deputy Managing DirectorRichard Sheppard

Macquarie Group LimitedBoard o Directors

Macquarie Group LimitedManaging Director and CEO

Nicholas Moore

Risk Management GroupStephen Allen, CRO

Inormation Technology GroupNigel Smyth, CIO

Corporate Aairs GroupGreg Ward, CFO

MacquarieCapital

MacquarieSecurities

Group

Fixed Income,Currencies andCommodities

Group

Banking andFinancialServicesGroup

MacquarieFunds Group

Corporateand AssetFinanceDivision

Real EstateBankingDivision

Michael Carapiet Roy Laidlaw Andrew Downe Peter MaherShemara

Wikramanayake Garry Farrel lMatthewBanks


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15

Key services oered by operating groupsand divisions

Macquarie Securities GroupInstitutional cash equitiesDerivatives DeltaOne Trading

Institutional and retail derivativesCorporate Action tradingArbitrage tradingSynthetic productsGlobal Securities Finance

Capital management, collateralmanagement and securities borrowingand lending

Macquarie CapitalCorporate nance, including advisoryEquity capital marketsDebt structuring and distributionAlternative asset unds managementPrivate equity placementsPrincipal products

Macquarie Funds Group

Management o unds in: EquitiesFixed income, currency and commoditiesInrastructure securitiesReal estate securitiesPrivate equity and hedge und o unds

Aliated managersInvestment solutions and sales

Fixed Income, Currencies andCommodities Group

Energy marketsMetals and energy capitalCredit marketsAgricultural commoditiesForeign exchangeDebt marketsEmerging marketsFutures

Banking and Financial Services GroupFinancial adviceCash management servicesWealth management and private bankingFull-service brokingMortgagesLie insuranceBusiness bankingInvestment productsAdministrative and portolio services

Corporate and Asset Finance DivisionStructured corporate debt nancingAcquisition o secondary marketcorporate debtEquipment leasingSpecialised asset nanceAsset liecycle servicesEquipment trading and remarketing

Real Estate Banking DivisionReal estate unds managementReal estate investmentReal estate development and assetmanagementReal estate project and development nancing

Operating group and division contribution to proft

2010 2009

Net proft Contribution Net prot Contributioncontribution to proft contribution to prot

($Am) (%) ($Am) (%)Macquarie Securities Group 580 23 275 40

Macquarie Capital 657 26 257 36

Macquarie Funds Group 95 4 45 6

Fixed Income, Currencies and 827 33 509 74Commodities Group

Banking and Financial 261 10 (99) (14)Services Group

Corporate and Asset 264 10 66 10Finance Division

Real Estate Banking Division (152) (6) (362) (52)


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No.1 cashequities marketshare in Australia(including retail)

No.1 warrants marketshare in Australia,Korea and Singapore,No.3 in Hong Kong

1,670 staEighth largestbroker basedon global stockcoverage

2,700+ stockscovered globally

A global equities specialist oering uniqueinsights into energy, resources, commodities,inrastructure, real estate, quant and inancialinstitution group sectors

During the year, MSG continued to grow itsglobal platorm both organically and via a numbero acquisitions. The business took the opportunity

to hire individuals and teams o people,particularly in the US and Europe, bringing bothexpertise and important regional relationships toMacquaries growing equities ranchise.

On 1 December 2009, MSG completed theacquisition o FPK. The acquisition has enhancedMacquaries global nancial institutions (FIG)specialist group capability and boostedMacquaries standing with nancial institutionsand corporates around the world, adding deepsector expertise in the US and Europe tocomplement Macquaries well-established FIGposition in the Asia-Pacic region. The acquisitionhas increased the access and reach o ourequity oering to institutional clients, growing ourFIG research coverage to approximately765 stocks globally.

On 6 April 2010, post balance date, MSG completedthe acquisition o two separate businesses oGerman private bank Sal. Oppenheim jr. & Cie.KGaA that were announced during the year:

The cash equities business which comprisesequities research, sales, trading and executionunctions ocused on Continental Europe, withparticular strength in Germany. The acquisition

broadens our pan-European business, bolsteringour presence in key European markets andcomplementing existing operations.

Macquarie Securities Group (MSG) contributed$A580 million to Macquaries total prot romoperating groups or the year to 31 March 2010.

This was an increase o 111 per cent on theprior year. It generated operating income o$A1,480 million, an increase o 10 per cent onthe prior year.

The contribution rom the Cash Division was90 per cent up on the prior year. Secondarymarket commissions were up on the prior yearwith increased contributions rom the US andEuropean platorms rom organic growth as wellas the acquisitions o Fox-Pitt Kelton CochranCaronia Waller (FPK) and Tristone Global Capitaloset by the stronger Australian dollar. Thebusiness maintained its number one ranking1 inmarket share in Australia and continued to growmarket share in other regions. Equity capitalmarket (ECM) ees were up on the prior yeargiven the signicant increase in the number ocapital raisings, particularly in Asia, Australiaand Canada.

The Derivatives DeltaOne Trading Divisionresult was 483 per cent up on the prior year dueto improved trading conditions and an increase inproduct volumes, albeit rom a low base.

Operating groups and divisionsMacquarie Securities Group

1 Combined institutional and retail market share.


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17

The equity derivatives and structured productsbusiness which complements Macquariesexisting Asian derivatives operation and adds a

wider set o products to its growing Europeanbusiness. The acquisition brings more than90 new sta to Macquarie, based in Switzerlandand Germany. The business has market makingand issuance operations on exchanges inGermany, Switzerland, Austria and Italy.

These acquisitions take Macquaries researchcoverage to around 2,7001 stocks globally. It alsoplaces Macquarie in eighth position in terms oglobal research coverage.

OutlookSubject to market conditions, MSG currently

expects its result or the year to 31 March 2011to be up on the prior year.

We expect improved market conditions to providegood growth opportunities or the Cash Division,although we expect a lower level o AustralianECM activity.

Overall the group sees good growth opportunitiesin the medium to long term. Our vision is to beseen increasingly as a global broker with strongAsia-Pacic oundations. We will seek to maintainour number one ranking in market share or cashequities in Australia and continue to grow market

share in other markets.

We expect volumes or the Derivatives DeltaOneTrading Division to increase and or tradingconditions to continue to improve. The business

is looking to maintain its leading positions andmarket share ranking or its warrants products inAustralia, Hong Kong, Korea and Singapore. Thebusiness will pursue new opportunities includingthe development o an Indian derivatives business.It will continue to grow the derivatives business inSouth Arica and maintain a ocus on providing itsglobal institutional derivatives platorm to clientsacross the globe.

The group will also continue to consider strategicacquisition opportunities in each region.

About Macquarie Securities Group

The Cash Division operates as a ull-serviceinstitutional cash equities broker in the Asia-Pacicregion. In the rest o the world it operates as aspecialised institutional cash equities broker.It provides ECM products and services througha joint venture with Macquarie Capital Advisers.

The Derivatives DeltaOne Trading Divisioncombines the groups institutional and retailderivatives, structured equity nance, arbitragetrading, synthetic product businesses and globalsecurities nance. Global securities nanceincludes capital management (cash and liquiditymanagement and interest rate and oreign

exchange hedging), collateral management andsecurities borrowing and lending.

During the year,

MSGcontinued togrow its global

platorm bothorganically and viaa number oacquisitions. Thebusiness took theopportunity to hireindividuals andteams o people,particularly in the USand Europe, bringingboth expertise andimportant regionalrelationships toMacquaries growing

equities ranchise.The recentacquisitions o FPKand Sal. Oppenheimscash equitiesbusiness takesMacquaries globalresearch coverageto approximately2,7001 stocks. Thisplaces Macquariein eighth position interms o globalresearch coverage.

1 Includes stocks to be initiated under Macquarieollowing Sal. Oppenheim acquisition.


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Operating groups and divisionsMacquarie Capital

Macquarie Capital contributed $A657 millionto Macquaries total prot rom operating groupsor the year to 31 March 2010. This was anincrease o 156 per cent on the result achievedin the prior year. It generated operating incomeo $A1,689 million, an increase o 11 per centon the prior year. The improved result was largelyattributable to the completion o a number olisted und initiatives partially oset by loweradvisory revenue.

Despite market conditions, we advised on 448transactions valued at $A121 billion. Equity undermanagement (EUM) declined 28 per cent rom$A53.3 billion at 31 March 2009 to $A38.6 billionat 31 March 2010 and assets under management(AUM) decreased 40 per cent rom $A159.5 billionto $A96.5 billion. The declines in AUM and EUMwere primarily driven by the implementation ostrategic initiatives in Macquarie Capital managed

ASX-listed unds and the strengthening in theAustralian dollar.

Macquarie Capital AdvisersAs outlined in the Regional Activity section o thisreport, Macquarie Capital Advisers advised on anumber o signicant transactions. Other signicantroles included:

Adviser to Goodman Group on its recapitalisationincluding $A4.1 billion debt restructuring,$A1.3 billion equity raising and $A500 millionhybrid securities issued to China InvestmentCorporation

Joint global coordinator and joint underwriter orRio Tintos global $US15.2 billion renounceablerights issue

Financial adviser to Cintra and MeridiamInrastructure on the $US2 billion North TarrantExpress managed lanes project in Texas, US

Co-nancial adviser to Bouygues Constructionand Meridiam Inrastructure, arranging$US723 million o debt on the Port o MiamiTunnel and Access Improvement Project inMiami, US

Adviser to Bakwena Platinum CorridorConcessionaire on its ZAR3.5 billion toll roadrenancing in South Arica

Adviser to Inexus, a UK gas and electricitydistribution business, on the restructuring o itsdebt acilities

Adviser to Bord Gis ireann, a leading Irishenergy provider, on the 500 million acquisitiono SWS Natural Resources, one o the largestwind generators in Ireland

Adviser to Viterra on its $A1.6 billion acquisitiono ABB Grain and underwriter or its $A511 million

equity raisingAdviser to Transpacic Industries Group on its$A801 million recapitalisation and $A2.3 billiondebt renancing

Joint structuring adviser and joint lead manageror the $A2 billion PERLS V hybrid issue by CBA

Joint nancial adviser, lead manager andunderwriter or the $A8.9 billion recapitalisationand restructure o Prime Inrastructure

Adviser to Younghwa Engineering on the sale oYounghwa Engineering to MBK Partners in Korea

Joint lead manager or ANZs $A2 billion CPS2capital raising

Adviser to Eldorado Gold Corporation on its$C2.4 billion cross-border acquisition o SinoGold Mining Limited

Joint global coordinator and lead arranger on the$US1.6 billion takeover and IDX-listing o BUMA,Indonesias second largest mining contractor

Adviser to TriStar Oil & Gas on its $C2.7 billionstrategic combination with Petrobank Energy& Resources

Joint lead manager and underwriter to Mirvac

Group on its $A1.1 billion capital raising, andjoint nancial adviser on its acquisition o the$A814 million Mirvac REIT

An integrated global mergers and acquisitions,debt capital markets, equity capital marketsand principal investing platorm

2,140 sta

Leading Asia-PaciicECM house

Specialist ininrastructure,FIG, real estate,industrials, TMETand resources

Expanding advisoryand ECM capabilitiesacross Canada, theUS, UK, Germany,and South Arica

$A96 billion oalternative assetsunder managementacross 100 businesses


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19

Macquarie Capital

actedas joint leadmanager on the

$US4.03 billion initialpublic oering (IPO) oChina Minsheng Bankin Hong Kong. The IPOwas both the largest inHong Kong and thesecond largest globallyin 2009.

This transactiondemonstrates thestrength o MacquarieCapitals team in Asia,which has also recentlybeen involved in the

Hong Kong listing onumerous otherChinese companiesincluding ChinaZhongwang, BBMG,Powerlong Real Estateand Shenguan.

In addition, it highlightsthe growing strength oMacquarie Capitalsinancial institutionsteam which has beenurther bolstered by therecent acquisition o

specialist irm FPK.

Adviser to Central Pattana Public Company,a leading developer and manager o retailand commercial properties in Thailand, on a

THB5.7 billion real estate investmentAdviser to Rio Tinto on the proposed WesternAustralian iron ore joint venture with BHP Billiton.

The acquisitions o specialist rms, Tristone GlobalCapital Inc and Fox-Pitt Kelton Cochran CaroniaWaller (FPK), have enabled Macquarie Capital todeepen its expertise in resources and nancialinstitutions advisory respectively.

Macquarie Capital FundsMacquarie Capital Funds continued to grow itsunlisted unds management business, launchingnew unds in Russia, Mexico and Arica. During

the year, Macquarie Capital Funds raised $A3 billiono und and consortia equity, bringing the equityavailable or investment to $A7 billion.

Several ASX-listed und initiatives aimed atclosing the gap between listed market pricesand directors valuations were completed. Theseinitiatives resulted in the internalised managemento Macquarie Airports, Macquarie LeisureTrust Group and Macquarie Media Group, therestructure o Macquarie Inrastructure Groupinto two separate listed entities, the takeover oMacquarie Communications Inrastructure Group

by the Canadian Pension Plan Investment Boardand the sale o the majority o our Australiancore real estate unds management platormto Charter Hall.

OutlookSubject to market conditions, Macquarie Capitalexpects its result or the year to 31 March

2011 to exceed the prior year, with reasonableactivity expected in the Asian, US, Canadianand Australian markets, albeit a likely lower levelo Australian equity capital markets. Growthprospects or our Europe, Middle East and Aricanbusinesses are promising as economic activity inthis region is expected to improve. Our alternativeasset unds strategy will be to ocus on unlistedund raisings and continued expansion into newgeographies and sectors.

About Macquarie CapitalMacquarie Capital includes Macquaries corporateadvisory, equity underwriting and alternative assetunds management businesses.

Macquarie Capital Advisers provides advisoryand capital raising services to corporate andgovernment clients involved in public mergersand acquisitions, private treaty acquisitions anddivestments, debt and equity und raising andcorporate restructuring.

Advisory activities are aligned into industry groups,refecting key areas o expertise in inrastructureand utilities, resources, telecommunications, media,entertainment and technology (TMET), real estate,industrials and nancial institutions.

Macquarie Capital Advisers also encompassesMacquarie Capital Funds which managesa range o alternative asset unds, includinginrastructure and real estate unds.


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Experienced undsmanagementranchise, particularlyin the Australian andUS markets

Strength and disciplineo an institutionalmanager with theresponsiveness andinnovation o a boutique

1,090 staOver $A200 billiono assets undermanagement

Operating groups and divisionsMacquarie Funds Group

Macquarie Funds Group (MFG) contributed$A95 million to Macquaries total prot romoperating groups or the ull year to 31 March

2010. This was an increase o 111 per cent onthe prior year. It generated operating incomeo $A427 million, an increase o 27 per cent onthe prior year. The result was driven by ongoingbase management ee revenue, gains on seedcapital positions due to strong investmentperormance, a lower cost base, and the threemonth contribution rom Delaware Investments(Delaware). The acquisition o Delaware, a US-based diversied asset manager, was completedin January 2010.

Total assets under management (AUM)increased rom $A49.7 billion at 31 March 2009to $A209.9 billion at 31 March 2010.The increasewas largely a result o the Delaware acquisition,which contributed $A151.1 billion o AUM at31 March 2010. The group also experiencedinfows into institutional cash, xed income andequities products combined with rising assetvalues contributing $A9.1 billion to the increasein AUM.

The strong perormance o many o MFGsmanaged und asset classes resulted in infowsrom both institutional and retail investors. Inparticular, good infows were experienced into

the Fixed Income, Currency and Commoditiesand Listed Equities unds.

The addition o Delaware enhances MFGsglobal product development and distribution

capabilities. In the short period since acquisition,MFG has launched the Delaware MacquarieGlobal Inrastructure Fund which combines

Delawares US distribution platorm with MFGsinrastructure investment expertise. Further, theUS asset management distribution teams o thetwo businesses have now been brought togetherunder the stewardship o Delawares Head oDistribution. Delawares capabilities have alsobeen added to MFGs oering to investors inAustralia, Asia and Europe.

MFGs Investment Solutions and Sales Division(ISS) continued to develop and oer und-basedstructured products or retail and institutionalinvestors. The division capitalised on marketconditions during the year, augmenting itsstructured product oering and enhanced itscapabilities in the US market with the hire o anumber o experienced senior executives. Duringthe period, ISS successully launched a newgeneration o capital protected investmentproducts, with capital protection annually ratherthan only at maturity, and launched the MacquarieLietime Income Guarantee Policy, a longevityrisk protection product.

OutlookThe recovery in investor sentiment has resultedin increased und fows rom both retail and

institutional investors. We expect strongperormance across MFGs various products toprovide continued growth in AUM. We also expecta substantially greater contribution rom Delawarein its rst ull year o operation within MFG. Subject

A strong, established unds managementranchise with over $A200 billion in assetsunder management


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21

to market conditions, the group expects the resultor the year ending 31 March 2011 to be well upon the prior year.

The group will also continue to consider strategicacquisition opportunities, particularly in the largercapital markets.

About Macquarie Funds GroupThe Equities Division operates in Australia,Asia and the US and manages assets acrossthe ull spectrum o domestic and internationalunds. Its investment process has evolved tobecome a usion o quantitative and undamentalstrategies. The division oers a range o productsincluding High Conviction, Global Thematic,Asian & Emerging Markets and a wide range o

hedge unds.The Fixed Income, Currency and CommoditiesAsset Management Division operates in Australia,the US and the UK and is one o Australias largestcash and xed income managers. This divisionmanages a range o xed income products, alongwith currency products spanning rom passive todynamic, commodities and an active hedge und.

The Inrastructure Securities Division operatesin Sydney and New York and is a market leader inthe management o global and emerging marketlisted inrastructure securities.

The Real Estate Securities Division oersinvestment solutions managed by a dedicated andexperienced global real estate securities team withoperations in the US, Europe, Asia and Australia.

The Fund o Funds Division provides innovativeund o private equity unds and und o hedgeunds products using a disciplined and extensive

investment process designed to provide a risk-controlled, proessionally managed portolio withdiversied exposure to high quality unds.

The Investment Solutions and Sales Divisionspecialises in providing a range o market-leadinginvestment solutions to clients. The divisionstructures and distributes Macquarie Fundsproducts independently and through joint venturesglobally. The division also provides leveragesolutions to clients across a range o underlyingasset classes including unds o hedge unds.

MacquarieAfliated Managers specialises in

growing the asset management business throughacquisitions o, and partnerships with, externalasset managers. It pursues strategic acquisitionswhich can extend the ootprint o Macquariesbroader securities asset management capabilities,as well as the purchase o controlling stakes inspecialist managers that it believes can benetrom an aliation with Macquarie. Delaware, whichwas acquired in January, is part o this business.Additionally, Aliated Managers has an interest ina specialist energy asset manager in Korea.

MFG has over

$A200 billion in AUMacross a broad range

o asset classes.The acquisition oDelaware, a US-baseddiversiied assetmanager with$A151.1 billion inAUM, was completedin January 2010. Thebusiness launchedits irst product postacquisition in January,the DelawareMacquarie GlobalInrastructure Fund,which combinesDelawares USdistribution withMFGs inrastructureinvestment expertise.


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Operating groups and divisionsFixed Income, Currencies and

Commodities Group

Fixed Income Currencies and CommoditiesGroup (FICC) contributed $A827 million toMacquaries total prot rom operating groups orthe year to 31 March 2010. This was an increaseo 62 per cent on the prior year, with all operatingdivisions protable. It generated operating income

o $A1,480 million, an increase o 43 per cent onthe prior year.

Metals and Energy Capital was a strongcontributor or the year experiencing continuedimprovement in trading conditions, successulasset realisations and the benets o a return tomore normal market conditions in the projectnance sector.

Energy Market Divisions result was driven bystrong perormance o the US and UK energyoperations, including the European utilities oeringand growth o the global coal business. During

the year the business experienced generally lowvolatility and mixed market liquidity. However,more recently energy market conditions haveshown signs o improvement.

Debt Markets (which post balance date hasmerged with the Foreign Exchange Division tobecome Fixed Income and Currencies Division)made a strong contribution. Improving Australiandebt market conditions supported increaseddebt market activity.

The contribution rom Foreign Exchange (FX)was well down on the record result achievedin the prior year. A signicant reduction in bothvolatility and turnover in global oreign exchangemarkets during the year impacted all FX marketparticipants. The strong Australian dollarplaced additional downward pressure on thedivisions result.

The Credit Trading Division achieved anoutstanding result in its rst ull year as anoperating division within FICC. This result wasdriven by selective product expansion, theextension into client sales and trading, and therally in credit markets.

The Emerging Markets Division made a strong

contribution or the year, its rst as a ull operatingdivision. Its perormance was underpinnedby increased client act ivity, expansion oemerging market products and services and itsgeographical expansion into the US and Europe.

The result romAgricultural Commoditieswas up on the prior year, refecting a strongcontribution rom agricultural over-the-counterproducts, particularly in the Americas, and thereight business made a solid contribution.

The contribution rom Futures was broadly inline with the prior year, with exchange volumes

recovering, albeit in an inconsistent manner.Notable activity during the year included:

extension o the US credit trading business toinclude client sales and trading and expansioninto the UK

the acquisition o substantially all o thewholesale electric marketing and tradingportolio o Integrys Energy Group

selective expansion o energy markets andregions traded including European and UKpower markets

broadening emerging markets services toEuropean market participants

growth in physical shipping and reightcapabilities

expansion into Korea and early stage buildout o FICCs strategy or Asia.

OutlookFICC will continue to ocus on growth acrossits key markets in core geographic regionsand protecting the market share o its moremature, domestic businesses. FICC expects

continued improvement in market conditionswith a strong return o competitors across manymarket segments accompanying the improvedcondence in markets generally.

22

880 sta Leading arrangerand placementagent in Australianprimary debtmarkets

Global commoditymarkets specialist

Growing participantin the US corporatedebt market

Top ive physicalgas marketer inNorth America

A specialist in global ixed income, currencyand commodity markets oering trading, sales,

research and tailored price risk managementsolutions to inancial institutions, marketparticipants and signiicant commodityproducers and consumers


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23

The group expects its result or the year to31 March 2011 to be moderately up on theprior year as it continues to invest in organic

growth initiatives.About Fixed Income, Currencies andCommodities GroupThe Energy Markets Division provides riskmanagement solutions to energy producers,consumers and investors across a broad rangeo products and acts as a trading intermediaryin gas and power in the US and Europe.

The Credit Trading Division acilitates clienttransactions with institutional investors and makesmarkets in secondary trading o and investingin corporate debt securities, credit deaultswaps, syndicated bank loans, collateraliseddebt obligations, asset-backed/mortgage-basedsecurities and derivatives o these products.

The Foreign Exchange Division provides24-hour interbank FX services in all currencypairs to institutional clients in Australia andglobally and accesses retail FX volumes throughservice provision to retail platorms.

The Metals and Energy Capital Divisionprovides equity and debt nance globally to themetals and energy sector as well as providing

trading and hedging services to the base andprecious metals sectors.

TheAgricultural Commodities Divisionprovides risk management, structured nancingand physical commodity solutions across

agricultural commodities globally and selecteddry and wet reight routes.

The Emerging Markets Division provides a ullsuite o services to institutional and local marketparticipants in emerging markets globally.

The Futures Division provides a ull range obroking and clearing services on all major uturesexchanges. The division is a leading provider othese services in the Australian market and ispursuing opportunities in oshore markets.

The Debt Markets Division (which post balance

date has merged with the Foreign ExchangeDivision to become Fixed Income and CurrenciesDivision) arranges and places primary debt orclients and provides secondary market liquidityin government, infation linked, corporate, global,mortgage and asset-backed securities andprovides interest rate derivative structuring andhedging solutions or clients.

The Central Division is an incubator or variousnon-division specic, early-stage or cross-divisional initiatives including EnvironmentalFinancial Products, Structured Commodity

Finance, new jurisdiction and branch initiativesand joint ventures and alliances.

In the US

corporate creditmarket, participants

buy and sell debtsecurities, usually inthe orm o bonds.

The US corporatecredit market ralliedalongside the USequity market ormost o the yearas illustrated bymovement o theS&P500 index andthe CDX High YieldIndex, an index overhigher yielding, but

more risky corporatebonds. As theS&P500 rose,investors stepped into take advantage othe returns oered by

"high yield" or non-investment gradecorporate bonds.

FICCs Credit TradingDivision has teamsbased in New Yorkand London ocusedon opportunities

arising rom activityin this market.

23


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Operating groups and divisionsBanking and Financial Services Group

The primary relationship manager or Macquariesretail client base, providing premium advice,

service and products to retail investors throughAustralias No.1 ull-service retail stockbrokerand market leading platorms

1 IRESS, consideration traded.2 Excluding existing amounts held on deposit with

Macquarie Bank Limited at 31 March 2010 o $A0.5 billion.

24

863,000+ clientsin Australia

70,000+ clientsinternationally

$A22.5 billionin unds underadministration inMacquarie WrapSolutions

3,260 sta

Australias No.1ull-service retailstockbroker

Retail deposits o$A15.5 billion

Banking and Financial Services Group (BFS)contributed $A261 million to Macquaries totalprot rom operating groups or the year to31 March 2010. It generated operating incomeo $A1,251 million, an increase o 55 per centon the prior year, as a result o improving marketconditions, growth in client numbers and increasedinfows into core products such as cash and wrap.BFS continued its international expansion withthe acquisition o Canadian nancial servicescompany, Blackmont Capital Inc (Blackmont).Blackmont is a Canadian ull-service wealthmanagement and investment dealer with 410ull-time sta members in 12 oces in veprovinces across Canada. This acquisitionincreased BFS sta numbers in North America,

making it the second largest BFS operationglobally with almost 20 per cent o the groupssta now working there. Integration o thebusiness into Macquarie is well advanced andwe are ahead o schedule in terms o recruitmento advisers, increase in client assets undermanagement and growth in revenue.

The Business Banking Division launched aPremium Funding venture with the AON Groupo Companies in Canada, the UK and Ireland

in September. This agreement has signicantlyextended Business Bankings Premium Fundingootprint in these markets and reinorcedMacquaries commitment to the Canadianpremium nance market.

The group also launched a premium platormservice in the UK to support proessional nancialplanners in providing services to their clients.

The cash businesses continued to perormstrongly with retail cash deposits increasing rom$A13.4 billion at 31 March 2009 to $A15.5 billionat 31 March 2010. Over the same period, the

Cash Management Account (CMA) increasedrom $A170 million to $A3.6 billion, driven bytailored oerings with competitive interest rates.

Funds under administration in Macquarie Wrapreached $22.5 billion at 31 March 2010, up rom$17.5 billion at 31 March 2009.

Macquarie Lie Inorce risk insurance premiumsincreased 103 per cent on the prior year and, orthe second consecutive year, Macquarie Lie wasawarded Five Star status in the 2009 WA TaylorIntermediary Study which surveys 1,000 adviserssatisaction levels in the lie insurance market.

Overall, BFS client numbers increased nine percent to 863,000 with good growth in MacquarieCards client numbers. International client numbersreached 70,000 post the acquisition o Blackmont.

Based on market share and trading volumes,Macquarie Private Wealth again held the numberone position or ull-service retail stockbroking1.

In August, BFS launched its new online tradingplatorm, Macquarie Edge, a web-based servicetailored or the increasing number o Australianswho sel-manage their share market tradingactivity. The site includes a wide range o news

and analyst commentary, company proles andaccess to Macquarie research.

Macquarie Proessional Series was namedProduct Distributor o the Year in the 2009Standard & Poors (S&P) Fund Awards. S&P alsonamed Macquarie Proessional Series manager,Walter Scott & Partners Limited, as the topInternational Equities Developed Markets undor the third consecutive year.

Post balance date, unit holders in the CashManagement Trust (CMT) approved the transero unds to the CMA eective 31 July 2010.

The balance in the CMT at 31 March 2010was $A9.5 billion2.


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25

BFS introduced

Macquariestailoredinancial advisory

services to Canada inJanuary ater thenewly acquiredBlackmont Capital wasrebranded MacquariePrivate Wealth. Abroad advertisingcampaign includingnewspaper, magazinesand situational mediawas used to promoteMacquaries retailpresence in NorthAmerica.

The high visibilityo the launchcampaign resulted ininterest romprospective clientsand also rom advisersseeking inormationabout working atMacquarie PrivateWealth.

25

OutlookSubject to market conditions, BFS expects itsresult or the year ending 31 March 2011 to be

up on the prior year.The group will continue to consolidate itsbusinesses to help maintain its leading marketposition in the advice and intermediary markets.BFS will continue to look or appropriateacquisition and partnership opportunities whichoer dierentiated wealth management solutions.

Continued international expansion will be a priorityor the group with eorts concentrated in NorthAmerica, Asia and Europe.

BFS will continue to use its acknowledged riskmanagement strengths to respond to impending

regulatory changes.About Banking and Financial Services GroupBFS is the primary relationship manager orMacquaries retail client base. The group bringstogether Macquaries retail banking and nancialservices businesses, providing a diverse rangeo wealth management products and servicesto nancial advisers, stockbrokers, mortgagebrokers, proessional service industries and theend client.

Macquarie Adviser Services managesrelationships with external nancial intermediaries

and provides sales services and productmanagement o in-house and external products.

Macquarie Direct provides a range o consumerand nancial products or 154,000 non-advisedclients in Australia. This includes sel-directed

stockbroking through the Edge online tradingplatorm, Macquarie credit cards and cashproducts.

Macquarie Global Investments providesinvestment products or retail and wholesaleinvestors globally. The division includes theMacquarie Proessional Series, MacquariePrivate Portolio Management and theMacquarie Pastoral Fund.

Macquarie Private Wealth maintains directrelationships with more than 197,000 clients oeringa diverse range o services including ull-service

broking, strategic nancial planning, executive wealthmanagement and private banking.

Macquarie Relationship Banking providesinnovative banking services to successul small tomedium sized businesses, proessionals and highnet-worth individuals.

BFS North America is responsible orexpanding the groups mortgages, banking andpremium unding businesses along with the newMacquarie Private Wealth Canada into the NorthAmerican market.

BFS Europe and Asia is responsible or

expanding the groups wealth managementbusiness into the Asian, UK and European markets.It has a joint venture agreement with the Indiancompany, Religare.


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Operating groups and divisionsCorporate and Asset Finance Division

Real Estate Banking Division

Real Estate Banking Divisions (REB) resultor the year to 31 March 2010 was a net loss o$A152 million which was 58 per cent below theloss reported in the prior year. It generated anoperating loss o $A100 million, 63 per cent belowthe operating loss in the prior year. The negativeresult was largely driven by the recognition oasset impairment losses.

Assets under management decreased by

66 per cent during the year rom $A14.8 billionat 31 March 2009 to $A5.0 billion. This waslargely due to the strengthening Australian dollar,resulting in lower oshore asset values, as wellas write-downs and disposals by some unds.

OutlookThe division will maintain its ocus on increasingasset realisations through sales o developmentprojects, and the renancing o near-term debtmaturities. REB expects its result or the year to31 March 2011 to be up on the prior year.

About Real Estate Banking DivisionREB manages real estate balance sheet positionsacross a number o locations and products.Its operations include real estate developmentmanagement and unds management, dealsourcing, advisory, structuring and nancing, withactivities in Australia, Asia, North America, theUK and Arica.

Corporate and Asset Finance Division (CAF)contributed $A264 million to Macquaries totalprot rom operating groups or the year to31 March 2010, an increase o 300 per centon the prior year. It generated operating incomeo $A456 million, an increase o 116 per centon the prior year.

At 31 March 2010, CAF managed a lease andloan portolio o $A13.6 billion, an increase o

61 per cent rom 31 March 2009. The growth inthe portolio was mainly due to the expansion ocorporate lending activities and the acquisition o a$A1.0 billion portolio o Australian auto loans andleases rom Ford Credit Australia in October 2009.

The expansion o CAFs corporate lending activitiesduring the year was a response to the dislocationo global credit markets. The scale back o lendingactivities by other domestic and internationalnancial institutions provided Macquarie with theopportunity to acquire or originate quality corporateloans at attractive net interest margins.

During the year, CAF acquired the TechnologyServices Division o Relat ional TechnologySolutions (Relational). This business provides ITrelated services that are complementary to CAFsexisting US IT leasing business and expands andurther strengthens Macquaries US IT leasingplatorm. As part o the agreement, CAF will alsomanage Relationals existing $US500 million ITlease portolio.

Post balance date, CAF agreed to acquire anaircrat operating lease portolio rom InternationalLease Finance Corporation or $US1.7 billion(net o current cash reserves and subject to

adjustments). The portolio consists o 47 modernaircrat on lease to 35 airlines in 27 countries.Completion o the transaction is expected to occurover the remainder o calendar 2010.

OutlookThe CAF Division expects its result or the yearending 31 March 2011 to be signicantly up on theprior year. The division will continue to actively seekurther acquisition opportunities. It expects continuedgrowth in its existing businesses and urtherexpansion into new geographies and asset classes.

About Corporate and Asset Finance Division

CAF provides innovative and traditional capital,nance and related services to clients operating inselected international markets specialising in leasingand asset nance, oering tailored debt and nancesolutions and asset remarketing, sourcing and trading.


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Central unctions

The Corporate Aairs Group (CAG) providesessential and proessional services across allareas o Macquarie. There are 10 divisions inCAG which work together to provide seamlessmulti-disciplinary support inrastructure tailoredto business requirements, while maintainingappropriate levels o risk management,compliance and corporate governance.

The Finance Division supports Macquaries

operating groups by providing nancial control,nancial and capital management, managementreporting and budgeting and divisional accountingservices. The division is structured along businesslines with a dedicated team co-located with,and providing support to, each operating area.In addition, there are central unctions such asGroup Finance and Global Financial Services thatprovide services across the whole o Macquarie.Global Financial Services (GFS) has been ormedto create a more ecient and scaleable operatingmodel or the service delivery o the division.

GFS currently provides a range o services romSydney and New Delhi.

The Group Financial Management Division isresponsible or the management o Macquariescapital position and more generally providingstrategic advice and expertise to managementin relation to the balance sheet.

The Settlements Division is structured toprovide independent specialist verication,conrmation and settlement acilities or avariety o products and currencies or many oMacquaries businesses globally. The division

provides a key segregated control unction builton strong operational risk management and acontrol culture that is consistent and resilient.

The Business Improvement and StrategyDivision oers strategic advice and expertise toall Macquarie and related entities. The divisionhelps businesses to deliver programs or businessunit growth and operational eectiveness. It isalso responsible or acilitating Macquaries annualcorporate strategy process.

The Taxation Division provides taxation supportto all areas o Macquarie, managing relationshipswith revenue authorities worldwide andcompliance with taxation legislation.

Group Treasury is responsible or the unding,liquidity and interest rate risk management oMacquaries balance sheet. In addition, GroupTreasury manages Macquaries liquid assetportolio and is responsible or managing bankingand rating agency relationships.

The Corporate Communications and InvestorRelations Division (CCIR) actively engageswith shareholders, debt investors, investmentanalysts, governments, media, sta and the widercommunity to maximise their understandingo Macquarie and to enable Macquarie tounderstand the expectations o our keystakeholders.

CCIR is responsible or overseeing managemento Macquaries brand and reputation. It alsoincludes the activities o the Macquarie GroupFoundation, Macquarie Sports and theSustainability and Environment Oce.

Macquarie aspires to be recognised as theleading employer o the best people in the market.

The Human Resources Division supportsbusiness strategy by seeking to attract, recruit,reward and retain the best employees. To achievethis the division works closely with businessgroups providing operational and consultingservices globally.

The Business Services Division comprisesCorporate Real Estate, Corporate Risk, CorporateServices, Event Marketing and Strategic Sourcing.The teams have the responsibility or thestrategic direction, implementation and ongoingmanagement o Macquaries workplaces, physical

risks and corporate services whilst the strategicsourcing team leverages the Macquarie brand,global presence and spend on goods and servicesto unlock value rom its suppliers and vendors.

The Company Secretarial Division providesgovernance and company secretarial servicesto Macquarie, including the main Boards oMacquarie, the Board Committees, Macquariessubsidiary companies and Macquaries ExecutiveCommittee. The division is also responsible or thecoordination and administration o Macquariesshare registry arrangements, employee equity

plans and Macquaries global proessional risk andgeneral liability insurances.


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Inormation Technology Group (ITG) isresponsible or the management o Macquariestechnology inrastructure, the support anddevelopment o existing business systems andthe delivery and deployment o new systems,technologies and services. It incorporatesbusiness-aligned teams which provide dedicatedand specialist services to businesses as wellas central teams which provide shared services,

such as inrastructure, to multiple businesses.The business-aligned teams are oten co-locatedwith the business.

ITG supported the integration o businessesincluding Sal. Oppenheim, Fox-Pitt KeltonCochran Caronia Waller and Tristone GlobalCapital as well as the merger o Macquarie CookEnergy in Los Angeles with Macquarie Power toorm Macquarie Energy based in Houston.

Other integration programs are part-way throughincluding those or Delaware Investments andBlackmont Capital. ITG also supported vetransitions with respect to listed inrastructureunds in Australia. The transitions involvedrestructure, internalisation or management transer,with ITG working to ensure transition was smoothand timely or the customers, new management,sta and third parties.

The business-aligned teams implemented anumber o signicant applications including:

Calypso: the second phase o the global cashmanagement system implementation deliveredmajor enhancements to support Treasuryoreign currency loans and deposits

Anti-Money Laundering: transactionmonitoring and case management capabilitieswere implemented as part o Macquariescompl

macquarie group 2010 shareholder review

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