Macquarie Bank announces 17 per cent Interim profit increase

16 November 2004

Macquarie Bank today announced a $284 million profit after tax attributable to ordinary shareholders for the half year to 30 September, 2004, an increase of 17 per cent over the $242 million profit for the prior corresponding period.

Earnings per share for the six month period increased 12 per cent to 130.6 cents from 116.2 cents for the prior corresponding period.

Macquarie Bank Chairman David Clarke said the Bank will pay an interim dividend of 61 cents per ordinary share franked to 90 per cent for the half year ended 30 September, 2004. This compares with last year’s interim dividend of 52 cents per ordinary share, also franked to 90 per cent.

“Market conditions continued to be broadly favourable, and despite lower performance fees from specialist funds, we have reported another record result for our shareholders,” Mr Clarke said.  “Strong international earnings were again a highlight of the result with international income up 34 per cent on the prior corresponding period to $470 million.”

Mr Clarke said that while the Bank has been very active, its key focus is to continue to carefully manage risks to ensure they are appropriate relative to capital and revenues.

“There was a substantial increase in the Bank’s capital base during the period, largely attributable to a Tier 1 eligible capital raising of £350 million in the United Kingdom in September 2004.  The Bank remains strongly capitalised with a Tier 1 capital ratio of 12.6 per cent, which provides the ability to both support business initiatives and maintain good credit ratings,” he said.

Mr Clarke said that in general, investors in Macquarie’s specialist infrastructure and property funds have also benefited significantly. Measured at the 30 September 2004 market close, Macquarie’s specialist listed infrastructure and property funds had an average accumulation return of 341 per cent since December 1995, versus a 132 per cent accumulation return for the sharemarket over the same period.

Mr Clarke also noted that investors in Initial Public Offerings (IPOs) managed by Macquarie Bank since 1 April 2003 received a weighted average return of 79 per cent, while Macquarie managed placements returned 32 per cent.

Macquarie Bank Managing Director and Chief Executive Officer Allan Moss said all six major business Groups made good contributions to the record result.

Mr Moss said the results from Banking and Property Group and Treasury and Commodities Group were particularly strong. The Investment Banking Group continued to be the largest contributor to the Bank’s overall result, however its half year contribution was down on a strong prior corresponding period. Equity Markets Group’s result was significantly up on the prior corresponding period, but down on the prior period, reflecting market conditions. The Financial Services Group’s half year was well up and Funds Management Group made an increased contribution on the prior corresponding period.

A feature of the period was a 19 per cent increase in assets under management from $62.6 billion at 31 March 2004 to $74.4 billion.

Mr Moss said that important factors driving the result included the timing of large property investment banking transactions, the US mortgagebusiness moving to profitability, high volumes of Hong Kong equity derivative sales and a large increase in profit from the sale of derivative products over US and European stocks. The agricultural commodities business performed strongly in more favourable markets. There was also continued growth in retail financial services.

FINANCIAL HIGHLIGHTS

Total income from ordinary activities, adjusted for businesses held for resale, for the half year was $1,377 million, up 17 per cent from $1,176 million for the prior corresponding period. Net fee and commission income rose by 5 per cent to $740 million from $705 million, while the contribution from trading income rose by 49 per cent to $336 million from $225 million in the prior corresponding period. Net interest income rose by 31 per cent to $188 million, from $143 million previously. Other income increased 10 per cent to $113 million from $103 million for the prior corresponding period.

GROUP OPERATING HIGHLIGHTS

The Investment Banking Group continued to be the largest contributor to the Bank’s overall result, however its half year contribution was down on a strong prior corresponding period.

The contribution from Corporate Finance was down due to lower performance fees from specialist funds which were partially offset by increased contributions from other divisions. A leading equity capital markets position was maintained and Macquarie achieved the No. 1 ranking in M&A deals announced and completed for the nine months to 30 September 2004 (Thomson Financial).

Corporate Finance continued its global infrastructure strategy. It established several new funds, including the first pan-European fund (Macquarie European Infrastructure Fund), Macquarie’s first listed fund in Canada (Macquarie Power Income Fund) and DUET, jointly managed with AMP Capital Investors Limited. It also filed a statement with the US Securities and Exchange Commission for a proposed listed infrastructure holding company (Macquarie Infrastructure Company Trust).

Infrastructure equity under management (market capitalisation for listed funds, committed equity for unlisted funds) increased by 49 per cent from $12.4 billion at 31 March, 2004, to $18.5 billion. Additional raisings were undertaken by Korean Road Infrastructure Fund, Macquarie Essential Assets Partnership, Macquarie Global Infrastructure Fund II and African Infrastructure Investment Fund.

A number of assets were added to the portfolio during the period, including gas and electricity distribution networks and regional radio businesses in Australia, a district heating business and airport service companies in the US, a power generation plant in Canada and, subject to financial close, a UK gas distribution network.

Financial Products was up on the prior corresponding period due to continued growth in retail and wholesale products including forestry and capital protected funds. In the US, the Four Corners debt management business secured new mandates. The cross-border leasing business is no longer active in this market.

Macquarie Securities, the institutional stockbroking business, recorded a strong result, up on the prior corresponding period, with Australian secondary market brokerage revenues up on increased market shares. Macquarie Bank assumed economic interest of the ING Asian cash equities business on 8 March, 2004 and successfully completed the  acquisition and integration in July. The integrated business, now known as Macquarie Securities Asia, is operating profitably.

Macquarie Capital continues to achieve growth in asset-based leasing volumes with a 10 per cent increase from $3.0 billion at 31 March, 2004, to $3.3 billion.

Treasury and Commodities Group’s contribution was up on the strong prior corresponding period. The result reflects increased contributions across most operating divisions, including Energy Markets, which completed its first full year of operation.

The contribution from Metals and Mining, however, was down on the strong result of the prior corresponding period, which included the $37.5 million profit on realisation of the East African Gold Mines investment.

Foreign Exchange continued to perform well as high volatility and volumes, particularly in the first four months, provided good opportunities for client deals and trading.

Debt Markets’ result was slightly above the prior corresponding period with market conditions broadly similar to those of the previous six months. The contribution from Futures was up on the prior corresponding period due to increased turnover. Treasury’s result was above the prior corresponding period.

Higher volatility in commodity markets, with increased client hedging and trading opportunities, resulted in a significantly stronger contribution from Agricultural Commodities.

Energy Markets performed well due to good customer business flows and a solid trading desk performance in its first full year of operation.

Banking and Property Group’s contribution was significantly up on the prior corresponding period.

A strong contribution was made by Property Investment Banking due to the timing of a number of large transactions. Property funds management fee income rose substantially with assets under management (including associates) increasing by 50 per cent from $10.9 billion at 31 March 2004 to $16.3 billion. This growth was largely attributable to Macquarie Office Trust’s takeover of the Principal America Office Trust, property acquisitions in the US by Macquarie DDR Trust, Macquarie ProLogis Trust and Macquarie CountryWide Trust and the investment in global property group Ochtar Capital Partners to form Macquarie Global Property Advisers, managing $US1.6 billion of assets in Europe and Asia.

The Australian mortgage portfolio grew by 14 per cent from $11.6 billion to $13.2 billion as a result of record new business settlements. The US mortgage business moved to profitability with an increase in settlements over the prior corresponding period.

Margin and capital protected loan portfolios continued to grow. The contribution from Banking was up on the prior corresponding period due to good client demand and growth in both deposit and loan volumes. Golf and Leisure continued to build through strategic investments in new and existing businesses.

Equity Markets Group’s contribution was significantly up on the prior corresponding period but was lower than in the six months to 31 March 2004, with all major businesses performing well.

Hong Kong was again the largest contributor to the Group’s result, despite a decline in market volumes during the first half compared with the prior half. Sales of new products were strong, while leading market positions were maintained in both warrants and unlisted equity linked notes.

Australia performed strongly with a contribution up on the prior corresponding period. Leading warrant market shares were maintained and profits from unlisted and corporate sector product sales increased.

The business alliance with Woori Bank in Korea has been profitable in its first full year of operation. Results from South Africa, Brazil and Japan were down on the prior corresponding period, reflecting market conditions.

The contribution from trading in the US and European markets was higher on increased sales of equity risk products over these underlying markets to the Asian customer base. The contribution from international structuring transactions increased over the prior corresponding period with an increased number of deals.

During the period the Group’s hedge fund business was launched.

Financial Services Group’s contribution was well up on the prior corresponding period due to favourable equity markets and the progression of new business opportunities, particularly in administrative outsourcing. The result was revenue driven with controlled expenses.

Wrap funds under administration rose 34 per cent from $9.1 billion at 31 March, 2004, to $12.2 billion. Macquarie Adviser Services was awarded both Best Master Trust/Wrap Provider and Best Fund Manager in the ASSIRT 2004 Service Level Awards for the second consecutive year, and was also named Investorweb Research Superannuation Manager of the Year for the third successive year. Macquarie Cash Management Trust funds under management rose 9 per cent, from $9.3 billion at 31 March, 2004 to $10.1 billion.

The full service stockbroking business increased both its adviser and client numbers. Macquarie Wealth Management, Private Bank, Private Portfolio Management and Retail Treasury and Commodities businesses all continued to expand.

Funds Management Group’s contribution was up on the prior corresponding period. Total funds under management increased by 13 per cent from $36.2 billion to $40.8 billion. The Group enjoyed solid inflows into cash, currency and listed property.

In the alternative assets sector, the Group raised in excess of $500 million in the Macquarie Australian Long Short Equitised Fund, Macquarie Alternative Investment Trust 3 and Macquarie Global Active Currency Fund.

The Group also began to build its own retail distribution team to target the platform market, thereby offering financial advisers and their clients a selected suite of innovative investment products previously only available to institutional investors.

Macquarie Direct Investment’s contribution was up on the prior corresponding period but down on the prior half. The result was due principally to the partial realisation of CH4 and the IPO of The Reject Shop. The gains from these divestments were somewhat offset by the writedown in the carrying cost of Vignette Corporation shares received on the sale of Tower Technology in March.

Going forward, the Direct Investment business will be part of the Investment Banking Group.

SINCE BALANCE DATE

Since balance date, the Bank has announced that the ConnectEast consortium, of which it was the sponsor and financial adviser, has won the right to build and operate the Mitcham to Frankston tollroad in suburban Melbourne. The Bank has also indicated that it supports the proposed merger of Macquarie Goodman Industrial Trust (MGI) and Macquarie Goodman Funds Management Limited (MGM). If the merger, which is subject to unitholder and shareholder approval by those entities proceeds as planned, the Bank’s 39.1 per cent interest in MGM will be replaced by an 8.8 per cent interest in the merged entity and the Bank will recognise a net profit of approximately $80 million in February 2005.

Macquarie Bank was a member of the Macquarie Airports (MAp) led consortium, which was the successful bidder for the acquisition of a 70 per cent interest in Brussels International Airport Company (BIAC). The Bank acquired a 5.1 per cent interest in BIAC for €51million.

DIVIDEND

Mr Clarke said the 61 cent interim dividend represents a dividend payout ratio of 47 per cent of first half earnings. The full-year payout ratio is expected to be in the range of 50 to 60 per cent as previously advised. Dividends are expected to remain at least 80 per cent franked in the medium term.

OUTLOOK

Mr Moss said that excluding the effects of the proposed MGM/MGI merger and subject to market conditions, the Bank expects to exceed last year’s full year result.

Over the medium term, Macquarie is well placed due to good businesses, diversification, committed quality staff and effective prudential controls. Subject to market conditions not deteriorating materially, Macquarie expects continued growth in revenue and earnings across most businesses and continued international growth.

For further information, please contact:

Matthew Russell
Public Relations
Macquarie Bank Limited
Tel: (612) 8232 4102
Mobile: (614) 1069 9532

Erica Sibree
Investor Relations
Macquarie Bank Limited
Tel: (612) 8232 5008
Mobile: (614) 1302 6309