Slide1: Mick Lilley, Division Director , Macquarie Bank Limited – September 2006 Economies and Investment in Rural and Regional Australia Regional Perspectives 2006 Regions are Big Business


The Australian Economy : The Australian Economy The Australian economy has enjoyed an extended period of healthy growth over the last 15 years. Corporate profits as a share of GDP have risen from 20% to 24%. The unemployment rate has fallen from 11% in the early 1990s to 5% now. The level of net public debt has fallen from $95 billion in 1995 to zero now. The market capitalisation of listed companies has increased by 260% over the last decade.


The global business cycle is remarkably strong at present : The global business cycle is remarkably strong at present Recession Up-swing Mid-cycle acceleration Peak Slowdown NZ UK Australia Japan Korea Euro area Eastern Europe South East Asia China US Source: Macquarie Research, July 2006 India


…reinforcing the importance of industrialisation phases for resources: …reinforcing the importance of industrialisation phases for resources Source: IRESS, July 2006


The economy has undergone a marked shift in the drivers of growth: The economy has undergone a marked shift in the drivers of growth Source: ABS, Macquarie Research, July 2006 Forecasts Composition of Australian Growth


Australian growth has been propelled by surging business investment : Australian growth has been propelled by surging business investment Source: ABS, July 2006 Quarterly Index Index Investment by Sector


Business confidence is particularly high in WA: Source: Sensis, July 2006 Business confidence is particularly high in WA Net Balance Quarterly Sensis Business Confidence Net Balance


The east-west housing divide is testament to the diverging fortunes: The east-west housing divide is testament to the diverging fortunes Source: ABS, July 2006 Monthly Number Number


Economics of Regions: Economics of Regions In recent years it has been the resource-rich States that have enjoyed most of the gains. Growth Rates by State – June 2005 to 2006 Source: ABS, September 2006


Diverging regional economic performance has become entrenched: Diverging regional economic performance has become entrenched Source: ABS, July 2006 Gross State Product % Chg on Prev Yr


Jobs growth strong over the past year: Jobs growth strong over the past year Source: ABS, July 2006 Australia 155.9k Employment over the past year* 000’s 000’s


Employment in mining and construction sectors has helped: Employment in mining and construction sectors has helped Source: ABS, July 2006


Macquarie Research : Macquarie Research Macquarie Research Economics has looked at the economic data for 3 main types of regional centres. First, there are the larger regional centres such as Tamworth, Wodonga, Noosa and Bunbury. Second, the smaller regional centres such as Cairns, Gunnedah, Swan Hill and Whyalla. Third, there are the remote centres, such as Mount Isa, Esperance, Coober Pedy and Kununurra.


Main Points : Main Points Between 2000 and 2005 overall population growth in regional Australia has been roughly the same as in the major capital cities. major cities grew by 6% large regional centres grew by 9% smaller regional centres, grew by 3% remote areas population declined by 3%. The industrial base of the larger regional towns is actually quite diverse. agriculture and mining 8% of total employment. Manufacturing (12%), infrastructure (14%) health and education (19%).


Main Points : Main Points The current mining boom is not the only reason that many regions have been doing well This quick overview of our unpublished research on the performance of regional Australia has highlighted that some locations offer tremendously exciting growth opportunities. There are also significant difficulties and challenges faced by some communities, such as poor communications infrastructure, environmental problems and lower standards of education.


Overall Impression : Overall Impression Our view is that regional Australia represents a significant part of the Australian economy, with a highly diverse range of industries and what could be some of the fastest growing markets in the economy. With rapid population growth, comes a range of business opportunities and challenges.


Macquarie Bank : Macquarie Bank


Staff - over 8,600 staff in 24 countries: Munich Miami Dublin Frankfurt London Paris Geneva Milan Vienna Cape Town Johannesburg Jakarta Kuala Lumpur Bangkok Hong Kong Singapore Labuan Manila Hsinchu Taipei Shanghai Tianjin Beijing Seoul Tokyo Vancouver Seattle San Francisco San Jose Los Angeles San Diego Houston Chicago Memphis Charleston Jupiter New York Boston Toronto Auckland Wellington Christchurch Sao Paulo EUROPE ASIA NORTH AMERICA 669 staff 1,247 staff 696 staff Abu Dhabi MIDDLE EAST 18 staff Staff numbers at 30 June 2006 Mumbai Rome Zurich Jacksonville Amsterdam Winnipeg Montreal Staff - over 8,600 staff in 24 countries


Macquarie in Regional Australia: Macquarie in Regional Australia Offices in Moree NSW Newcastle NSW Gold Coast QLD Sunshine Coast QLD Robinvale Vic


Macquarie in Regional Australia: Macquarie in Regional Australia Financial Services/Wealth Management Services Rural Property Trust (still in capital raising phase) Managed Investment Schemes Gippsland (Forestry) Ballarat (Forestry) Hamilton (Forestry) Robinvale (Almonds)


Macquarie in Regional Australia: Macquarie in Regional Australia Communications Macquarie Regional Radioworks is the owner and operator of 85 commercial radio licences in regional Australia providing coverage to approximately 60% of Australia’s population outside the mainland capital cities (approximately 4.6 million people). Broadcast Australia provides the most extensive TV and radio transmission services in Australia, reaching 99% of the population.


Macquarie in Regional Australia: Macquarie in Regional Australia Macquarie CountryWide Property Trust Over 50 shopping centres located in regional Australia (Value approx $800 million)


Macquarie in Regional Australia: Macquarie in Regional Australia Cotton Trading Purchased approx 240,000 bales Australian cotton in 2005/06 (Represents 9% of Australian crop) Exports to China, Indonesia, Pakistan, Thailand, Japan (Gross export sales revenue US$75) Local representation across Queensland and NSW cotton regions – Moree, Narrabri, Dubbo, Toowoomba Value adding in regional communities via trading activities


Macquarie in Regional Australia: Macquarie in Regional Australia Commodity Markets In addition to the Cotton Merchant Business "Macquarie Cotton", The Commodity Markets Division provides over-the-counter agricultural price risk management solutions and unique financing structures to the agricultural industry in Australia with a particular emphasis on the sugar industry. 


Macquarie in Regional Australia: Macquarie in Regional Australia Residential Developments Busselton, WA Gold Coast, Sunshine Coast, Palm Cove, QLD Newcastle, Hunter Valley, NSW


Macquarie in Regional Australia: Macquarie in Regional Australia Utilities - DUET (jointly managed by Macquarie and AMP Capital) Dampier Bunbury Pipeline - 87.6% interest AlintaGas Networks - 25.9% interest


Slide27: Managing important regional assets in Australia In some cases, Macquarie or Macquarie managed fund has partial interest in asset Property Communications Utilities Other


Future investment in Regional Australia: Future investment in Regional Australia


The Challenge : The Challenge A key issue for growth is provision of Infrastructure. Australia’s infrastructure requirements for the next 20 years*: Estimated shortfall of approx $50 billion for new road, rail & water assets; $40 billion investment required for electricity generation & distribution; and A potential water shortage equal to Sydney’s current annual water use. These are issues for Regional Australia as well as Capital Cities Regional Australia will be competing with Cities for infrastructure investment by Public Sector Business Council of Australia, 2005


Meeting the Infrastructure Challenge: Meeting the Infrastructure Challenge


PPPs can make a Valuable Contribution: PPPs can make a Valuable Contribution Providing additional funding for infrastructure Shifting risks to the private sector Certainty of delivery Can be a solution for Infrastructure in Regional Australia


The PPP Solution: The PPP Solution UK leading the Development of PPP schemes 700 projects since 1997. Total capital value of PPPs to date is £46bn. Intention is that PPP schemes will contribute between 10 and 15 per cent of total public sector investment each year. Australia About 20 PPPs commissioned over the past five years. About 20 in the pipeline. A total worth estimated at some $20 billion.


History of PPPs in Australia : History of PPPs in Australia Pre 1990s-1993 Tollroads Hospitals Water Prisons Power Sea Ports Water 1994 - 1997 1998 - 2000 Airports Rail Power Water Defence Prisons Hospitals Airports Toll Roads Sea Ports Schools 2001-2002 Defence Hospitals Schools Convention Centres Courts Toll Roads Water Waste TAFE College Housing Ports Rolling Stock Cruise Terminal Sports Complex Broadband Public Transport Aged Care Research Facilities 2003-2006


The Debate on Financing: The Debate on Financing … and have had many delivery failures. Governments are running out of money….


Financing PPPs: Financing PPPs


Equity Investors: Equity Investors Superannuation funds have grown very rapidly in Australia in recent years, from $95 billion in June 1988 to $730 billion in December 2005; Superannuation funds will continue to be strong cash flow positive until beyond 2020; New investment opportunities outside of existing capital markets are highly attractive; and Australia now has the fourth largest managed investment pool in the world.


Equity Investors: Equity Investors Investment in PPPs well suited for Super/Pension equity funds: Long term; Low risk; Good credit; Predictable / stable returns; and Infrastructure seen as “recession proof” investment. Several infrastructure funds and now sector specific funds Many funds publicly listed: Macquarie leading the way in Australia (e.g. MIG, MAG, MCIG).


Summary: Summary Regional Australia represents a significant part of the Australian economy and presents many investment opportunities. Large corporations are large investors in Regional Australia – Regions are big business! Infrastructure investment is important factor in continued economic growth. Privatisation and PPPs are an important part of the mix for meeting our infrastructure needs into the future and should be considered as part of the solution in Regional Australia.


Questions: Questions