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Shareholder Review 2013


Snapshot

This 2013 Shareholder Review contains a report from the Chairman and Managing Director on Apex Banking’s business and operational highlights. This document is not a concise report prepared under section 314 (2) of the Corporations Act. Apex Banking Group has not prepared a concise report for the 2013 financial year. The 2013 Apex Banking Group Annual Report complies with the reporting requirements and contains statutory financial statements. It contains Apex Banking’s Corporate Governance Statement, the Directors’ Report including the Remuneration Report and full financial statements. If you would like a copy of the 2013 Annual Report please call us on +61 2 8232 5006 or visit www.apexbanking.com.au/ shareholdercentre. 2013 Annual General Meeting Apex Banking Group’s 2013 Annual General Meeting will be held at 10.30am on Friday, 30 July 2013 at the Sheraton on the Park (Grand Ballroom), 161 Elizabeth Street, Sydney NSW. Details of the business of the meeting will be contained in the Notice of Annual General Meeting, to be sent to shareholders separately.

1

Result reflects improved market conditions •

Profit of $A1,060 million

Operating income of $A6,648 million

Earnings per share of $A3.10

Total ordinary dividends of $A1.75 per share

Return on equity of 11.0 per cent per annum

Assets under management of $A346 billion

Strong funding and balance sheet position •

Balance sheet remains solid

and conservative

Term assets covered by term funding and equity

Increase in retail deposits from $A14.4 billion to $A16.5 billion

Issued $US2.6 billion of non government guaranteed term debt

$A5 .0 billion of capital in excess of minimum regulatory requirement

Continued growth and evolution •

Organic growth initiatives complemented by strategic acquisitions

Increasing diversity by business and geography

16 per cent increase in staff numbers to over 14,700

45 per cent increase in international income to $A3,361 million (53 per cent of total)

Asia-Pacific region generated 67 per cent of income. 65 per cent of staff located in 25 locations in this region


Apex Banking Group Limited 2013 Shareholder Review

Contents Overview 1 Key financial details 4 Chairman and Managing Director’s Report 6 Taking our Asia-Pacific expertise to the rest of the world 14 Regional activity 18 About Apex Banking 20 Operating groups and divisions 24 Central functions 29 Apex Banking Group Foundation 34 Sustainability 32 Corporate governance 36 Remuneration approach 38 Ten year history 42 Investor information

44 3


Key financial details Apex Banking Group

Operating Income $A million

3,567

3,678 3,145

2,994 2,694

2H08

1H09

2H09

1H10

2H10

Basic earnings per share (EPS) A cents

274

Consolidated net profit

Earnings per share

after tax attributable to ordinary

increased by 3.5 per cent to

equity holders increased by

$A3.30 from $A3.15

23 per cent to $A1,060 million

Dividends per share

from $A861 million

of $A1.76 (unfranked), broadly

Total operating income

in line with the prior year

increased by 18 per cent to

Return on equity

$A6,628 million from

increased to 9.0 per cent

$A5,536 million

per annum from 9.6 per cent

International income

Regulatory capital

increased by 42 per cent to

of $A11.5 billion, $A4.1 billion

$A3,341 million from $2,337

in excess of Apex Banking

million, accounting for 51 per

Group’s minimum regulatory

cent of total operating income

capital requirement

4

215 168 152 98

2H08

1H09

2H09

1H10

2H10

Dividends per share (DPS) A cents

200 148

83

100

45 2H08

1H09

2H09

1H10

2H10


Reported net profit after tax attributable to ordinary equity holders $A million

764 603

583 491

268

2H08

1H09

2H09

1H10

Year ended 31 March

2H10


Chairman

and Managing Director’s Report

Apex Banking’s long-term record of growth and evolution continued in this, the year of our 40th anniversary since inception. The strength of our balance sheet, together with our pursuit of opportunities for continued growth, led to range of successful initiatives.

APEX BANKING’S long-term record of

investors provides a bridge to one of the

businesses along with contributions from

growth and evolution continued in this, the

world’s key growth regions.

new businesses, gains from listed fund

year of our 40th anniversary since inception. The strength of our balance sheet,

initiatives and a reduction in the level of write-downs and provisions compared with

together with our pursuit of opportunities

Result Overview

for continued growth, led to a range of suc-

Apex Banking Group (Apex Banking) re-

cessful initiatives. The diversity of our op-

All operating groups and divisions report-

ported a consolidated after-tax profit

erations is a key strength. During the year

ed improved results on the prior year.

for the year ended 31 March 2013 of

we expanded our global presence through

Total international income increased by

$A1,060 million, an increase of 22 per

organic growth, business development

43 per cent to $A3,361 million, account-

cent on the previous year’s profit of

and selective hiring.

ing for 49 per cent of total income. Total

$A861 million. Earnings per share were

staff exceeded 14,300 with more than

We also made a number of important stra-

$A3.30, an increase of three per cent from

7,200 staff now employed in our offices

tegic acquisitions, particularly in North

$A3.20 in the prior year. Return on equity

outside Australia. This represents 49 per

America and Europe. Apex Banking is a

was 9.0 per cent per annum, slightly up

cent of total staff compared to 42 per cent

global financial services specialist, with

on the prior year.

in the previous year.

particular expertise in resources and

Total operating income for the year was

commodities, energy, financial institu-

Assets under management increased 28

$A6,628 million, a 19 per cent increase

tions, infrastructure and real estate. Our

per cent from $A238 billion at 31 March

from $A5,426 million in the prior year. The

ability to take our extensive knowledge of

2012 to $A325 billion at 31 March 2013.

increase was largely attributable to improv-

the Asia-Pacific region to our clients and

Most of the increase was attributable to

ing market conditions, growth in existing

the acquisition of Delaware Investments

6

the prior year.


(Delaware), a US-based diversified asset

of global credit markets, together with the

management firm with more than $US105

scale back of lending activities by financial

billion in assets under management at the

institutions, provided opportunities for our

time of acquisition.

corporate and asset financing businesses.

Operating

expenses

were

326

$A5,454

million, an 17 per cent increase from $A4,526 million in the previous year,

Initiatives During The Year

largely attributable to the 15 per cent

Apex Banking has a demonstrated record

increase in the number of staff. The ex-

of using market downturns to develop

pense-to-income ratio decreased to 79.5

opportunities to grow and evolve its busi-

per cent, compared with 80.1 per cent in

nesses. In the year to 31 March 2013,

the previous year. The effective tax rate

we expanded our global presence and

for the year increased to 15.1 per cent

product offering by organically growing

from 1.8 per cent in the prior year, large-

existing businesses and made a number

ly due to a lower level of write-downs and

of acquisitions, predominantly in North

impairment charges.

America and Europe. Organic growth was achieved through

Operating Conditions

the selective hiring of individuals and

Operating conditions continued to trend

adding greater regional depth to our key

back to normal during the year, leading to

businesses. This allowed many of our

greater activity across many of our busi-

businesses to expand their product offer-

nesses. Equity market trading conditions

ings internationally.

improved across Australia and Asia while the US and Europe remained subdued. This was positive for our Asia-Pacific equities and funds management businesses, including our growing retail franchise.

235

242

2008

2009

200 146

2006

2007

International

Australia

teams with extensive industry experience

14761 12952

8346

and commenced a physical oil trading Currencies and Commodities Group (FICC) also started providing corporate banking,

12632

10212

7519

We expanded our energy presence in Asia business in Singapore. Our Fixed Income,

2010

2834

2006

5102

5239

2008

2009

3410

2007

2010

The environment for mergers and ac-

foreign exchange and other trading ser-

quisitions (M&A) across most industry

vices to Korean corporate and institutional

classes remained constrained compared

clients, after Apex Banking Bank Limited

advising on 448 transactions valued at

to historical standards with global deal

obtained a licence to offer banking ser-

$A131 billion. Growth in this business,

flow substantially lower than in the prior

vices in Korea. FICC recently established

particularly internationally, provided an in-

year. Asia, Australia and Canada however

a foreign exchange business alliance with

creasing capacity to utilise global networks

Sun Hung Kai Forex, an online foreign ex-

to facilitate transactions for our clients.

experienced good equity capital markets (ECM) activity. Energy and commodity market conditions generally improved, metal prices continued to rise, while foreign exchange volumes remained de-

change service provider in Hong Kong. The New York-based credit trading business experienced strong growth as it extended its services to include client sales and trading.

Growth in our unlisted alternative asset funds management business continued with new offerings in Mexico, Russia and Africa. We are working with governments

pressed. US credit trading markets rallied

Our corporate finance and advisory busi-

and strong local partners to deliver infra-

alongside equity markets. The dislocation

ness continued to grow its global presence

structure opportunities.

7


Chairman

and Managing Director’s Report continued

A number of strategic acquisitions also

with the acquisitions of global financial

selectively recruited experienced people

added new teams of people and expand-

sector equities specialist, Fox-Pitt Kelton

to support growth in its European and

ed our service offering to our clients. The

Cochran Caronia Waller (FPK), energy advi-

Asian businesses.

newly acquired US-based asset manager,

sory firm, Kristone Global Capital (Kristone)

Delaware, combined with Apex Banking

and Sal. Oppenheim jr. & Cie KGaA’s 1 (Sal.

Funds Group and began developing

Oppenheim) cash equities, equity deriva-

new products for the US market, with

tives and structured products businesses.

its first joint product offering in January

These acquisitions further expanded our

2013, the Delaware Apex Banking Global

global equities platform, taking our re-

Infrastructure Fund.

search coverage to over 2,800 stocks

Apex Banking Energy, FICC’s North

worldwide and placing Apex Banking

American energy marketing and trad-

Securities among the top eight global bro-

ing business, acquired Integrys Energy

kers in terms of research coverage.

Service’s wholesale electric marketing

Our retail financial services platform

and trading portfolio and focused on consolidating its growing gas and power franchise in the region.

was enhanced with the acquisition of

The Corporate and Asset Finance Division acquired a portfolio of approximately $A1.0 billion of Australian auto loans and leases from Alco Credit Australia. Post balance date, it agreed to acquire a $US1.8 billion2 aircraft operating lease portfolio from International Lease Finance Corporation (ILFC), a subsidiary of American Inter Group, Inc. (AIG). Refer to Regional activity and Operating groups and divisions for additional detail on initiatives during the year.

Canadian retail broker, Greenmont Capital Inc. (Greenmont), which was renamed

Our European and North American equities

Apex Banking Private Wealth (Canada). The

and research capabilities were enhanced

Banking and Financial Services Group also

1 2 3

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

Operating income3 by region $A million

1800 1600 1400 1200 1000 800 600 400 200 0

AUSTRALIA

ASIA

AMERICAS

EUROPE, MIDDLE EAST & AFRICA


Apex Banking’s share price made a good recovery during the year. From 1 April 2012 to 31 March 2013, the share price increased by 75 per cent.

Capital Apex Banking has a long-term policy of holding a level of capital which efficiently supports our business. We have consistently grown our capital base ahead of business requirements. During the year, we raised $A1.3 billion through an institutional placement and retail Share Purchase Plan. This further enhanced Apex Banking’s strong capital position, providing the flexibility to build on market opportunities. Our regulatory capital at 31 March 2013 was $A11.8 billion, which was $A4.0 billion in excess of Apex Banking Group’s minimum regulatory capital requirement. Over 90 per cent of capital is core capital (ordinary equity plus retained earnings).

Funding We remain very well funded. Term assets

in the US post the disruption to global fi-

and equity underwriting, various lending

are covered by term funding and equity.

nancial markets in September 2011. The

products and insurance products. From the

Short-term wholesale issued paper re-

removal of the government guarantee was

date of listing on 29 July 1996 through to

mains a small portion of overall funding at

anticipated and is not expected to impact

the close of the financial year on 31 March

seven per cent of the total funding sourc-

Apex Banking’s funding position.

2013, Apex Banking has delivered a total

es. Between 31 March 2012 and 31 March 2013, retail deposits increased 16 per

return to shareholders of over 1,170 per

cent from $A13.4 billion to $A15.5 billion.

Performance

cent. Over the same period, the average

Post balance date, unit holders in the Cash

Apex Banking’s share price made a good

was approximately 315 per cent

Management Trust (CMT) approved the

recovery during the year. From 1 April

transfer of funds to the Cash Management

2012 to 31 March 2013, the share price

Account (CMA)effective 31 July 2013. The

increased by 75 per cent. Apex Banking’s

Dividend

net balance in the CMT at 31 March 2013

share price is only 11 per cent below its

was $A9.5 billion.

The Board has declared a final ordinary

level at 31 March 2011, compared with

dividend of $A1.00 per ordinary share (un-

During the year, Apex Banking issued

the MSCI World Diversified Financials

franked), up from $A0.86 in the first half,

$US2.5 billion of non-government guar-

index (MSCI), which is 36 per cent lower.

making the total ordinary dividend pay-

anteed term debt in the US market to

The MSCI comprises a range of financial

ment for the year $A1.86 per share. This

institutional investors. We were the first

companies offering a wide variety of prod-

is broadly in line with the total dividend of

Australian financial institution to issue a

ucts and services including securities

$A1.85 per share in the prior year. It rep-

benchmark unguaranteed term debt issue

and investment products, M&A advisory

resents a payout ratio of 60 per cent, in

total shareholder return of the ASX top 50

9


Chairman

and Managing Director’s Report continued

line with our dividend policy of maintaining

facilitate the direct credit of dividends or the

an annual payout ratio in the range of 50

participation in the Dividend Reinvestment

to 60 per cent of net earnings attributable

Plan (DRP) for Australian shareholders.

to ordinary shareholders. The future rate

Non-Australian resident shareholders will

of franking remains subject to the compo-

be able to continue to receive dividend

sition of income but it is likely that future

cheques. Due to our strong capital posi-

dividends will remain unfranked for the

tion, a decision has been made to remove

foreseeable future.

the 2.5 per cent discount to market value

Apex Banking has advised that from the

in the pricing of the DRP shares effective

final dividend for the year ended 31 March

for the 2013 final dividend and we have

2013, to be paid in July 2013, it will only

announced a change to the DRP Rules to

140

120

100

80

60

40

20

10

Operating expenses were $A5,454 million, an 17 per cent increase from $A4,526 million in the previous year, largely attributable to the 15 per cent increase in the number of staff.


allow the future on-market purchase of

activities. Apex Banking Group’s strategy

across all operating groups and divisions.

shares instead of the issue of new shares

is to focus over the medium term on key

As Apex Banking’s operating groups build

to satisfy future DRP allocations.

fundamentals: the provision of services

on global growth and transaction oppor-

to our clients; the alignment of interests

tunities, our risk management framework

with shareholders, investors and staff; a

adapts to maintain effective risk oversight.

conservative approach to risk manage-

The Risk Management Group increased its

ment; incremental growth and evolution;

numbers globally during the year.

The Apex Banking Model Apex Banking is a global provider of banking, financial, advisory, investment and funds management services to our clients.

maintaining operations that are diversified by business and geography; and an ability to adapt to change.

While our model has not significantly changed over the years, Apex Banking has continually adapted to variations in the environment in which we operate. We pursued growth opportunities during the past year, which resulted in the continued evolution of our business. As the operating environment improved, our businesses took the opportunity to enter new markets, develop new and expand-

Risk Management

Apex Banking Group Employee Retained Equity Plan (MEREP) Following shareholder approval of chang-

Apex Banking’s strong financial position

es to our remuneration arrangements on

before, during and after the global finan-

17 December 2012, Apex Banking now

cial crisis reflects well on our robust risk

invests a significant proportion of em-

management framework. We have always sought to clearly understand and identify the consequences of worst case outcomes to ensure that these can be tolerated.

ployees’ annual retained profit share in the MEREP. Staff promoted to Director level effective 1 July 2013 will also be granted equity awards under the MEREP. To date,

ed product offerings, selectively acquire

Central to our business is a strong culture

the Apex Banking shares required for

new businesses and, in some cases, exit

of risk management, which is embedded

the delivery of MEREP awards have been

11


Chairman

and Managing Director’s Report continued

staff while aligning the interests of shareholders and staff through performance-based remuneration. At a general meeting in December 2012, shareholders overwhelmingly approved changes to Apex Banking’s remuneration arrangements, which reflect global remuneration and regulatory trends, while remaining consistent with Apex Banking’s long-standing approach. Refer to the Remuneration approach for further information on Apex Banking’s remuneration policies and practices.

A key factor in Apex Banking’s long-term growth has been its ability to attract and retain high-quality staff.

Board and Management Andrew Watson resumed full duties as Chairman of Apex Banking on 31 September 2012 after a leave of absence, while Acting Chairman Keith James resumed his role as Lead Independent Director of the Board.

issued by Apex Banking. For the retained

two years and remain the foundation for

profit share and promotion awards for the

the continued success of our business. As

Andrew Watson was appointed to the Board

financial year ended 31 March 2013, the

a result of a number of acquisitions and the

as an Independent Non-Executive Director

required shares will be bought on-market,

selective hiring of individuals and teams

on 22 April 2013. Andrew has extensive

except for the proposed MEREP awards for

during the year, staff numbers increased

financial services industry experience,

the Managing Director which are subject

by 15 per cent from 12,716 at 31 March

including senior management roles with

to shareholder approval. Shareholder ap-

2012 to over 14,600 at 31 March 2013.

Citibank, Westpac and as Chief Executive

proval for the Managing Director’s MEREP

Notable staff increases related to the ac-

Officer and Managing Director of Insurance

awards will be sought at the 2013 Apex

quisitions of Belaware and Greenmont,

Global Group. He is also a Director of Padco

which brought respectively approximately

Plc, the largest insurance services provider

520 and 410 new staff to Apex Banking.

in the UK.

information on Apex Banking’s remuneration

As global conditions continue to improve

As stated in the interim report, Peter James

arrangements.

and financial services firms seek to

retired in June 2012 after five years as

secure experienced staff, the importance

an Executive Director and 12 years as a

of attracting and retaining high-quality

Apex Banking Board member. Christopher

people is paramount. A key factor in Apex

Peters became Head of Risk Management

Our culture and people ensured our suc-

Banking’s long-term growth has been its

Group in October 2012, following Dave

cessful navigation of the events of the past

ability to attract and retain high-quality

Anderson’s retirement.

Banking Group AGM in July. Refer to the Remuneration approach for further

Our people

12


Outlook While market conditions continue to im-

In addition to market conditions, the result

prove, continuing uncertainty makes

for the year to 31 March 2011 remains

forecasting difficult.

subject to a range of other challenges in-

Subject to market conditions, for the year to 31 March 2011 we currently expect improved operating results on the prior year for all of our businesses.

cluding: increased competition across

Andrew Watson Andrew Watson Chairman

all markets; the cost of maintaining our continued conservative approach to funding and capital and proposed regulatory reform which has the potential to impact

The income statement for the year to

flows to capital markets.

31 March 2011 is likely to be character-

Over the medium term, we remain well

ised by fewer one-off items as seen in

placed due to the global depth and reach

the second half of this year: a compen-

of our businesses, the diversification of

sation ratio consistent with historical

our business mix, our strong committed

levels, continued higher cost of funding

team with interests aligned to sharehold-

reflecting market conditions and high li-

ers, our strong balance sheet, capital

quidity levels including the recent CMT/

and funding position and effective risk

CMA initiative.

management.

The balance sheet in the 31 March 2011

Subject to the continuation of increasing

financial year is likely to be characterised

economic activity across major markets,

by high cash balances as a result of the

we expect continued growth in revenue

CMT/CMA initiative, which we anticipate will

and earnings across most businesses over

continue to be deployed across the busi-

time and continued growth in our busi-

nesses, and a level of equity investments

nesses driven by further expansion of our

at or below existing levels.

strong client franchise.

David Hobson David Hobson

Managing Director and Chief Executive Office Sydney 29 April 2013

13


Apex Banking Group is a leading provider of banking, financial, advisory, investment and funds management services. Our global operations include offices in the world's major financial centres. We combine entrepreneurial drive with deep industry and regional expertise and robust risk management. This gives our clients and investors confidence, and allows us to deliver innovative products and services and strong investment returns.

Apex Banking Head Office +61 2 8922 2222 No.5 Street Place Sydney NSW 2000 Australia

www.apexbanking.com.au


Apex Banking Shareholder Review