MACQUARIE AIRPORTSAirport Privatisation – Sydney Airport Case Study

Kerrie Mather – Chief Executive Officer

15 September 2004

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SPECIAL NOTICE

Investments in Macquarie Airports (MAp) are not deposits with or other liabilities of Macquarie Bank Limited ACN 008 583 542, or of any other entity in the Macquarie Bank Group and are subject to investment risk, including possible delays in repayment and loss of income and capital invested.

 

None of Macquarie Airports Holding (Bermuda) Limited, Macquarie Airports Management Limited and Macquarie Investment Management (UK) Limited nor any member of the Macquarie Bank Group guarantees any particular rate of return or the performance of MAp, nor do they guarantee the repayment of capital from MAp.

This presentation has been prepared by MAp based on information available to it. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law neither Macquarie Airports Management Limited, Macquarie Investment Management (UK) Limited nor any member of the Macquarie Bank Group, their directors, employees or agents, nor any other person accepts any liability for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it, including any liability arising from fault or negligence.

GENERAL SECURITIES WARNING

This presentation is not an offer or invitation for subscription or purchase of or a recommendation of securities. It does not take into account the investment objectives, financial situation and particular needs of the investor. Before making an investment in MAp, the investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs, objectives and financial circumstances and consult an investment adviser if necessary.

 

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Agenda

MAp Background

Sydney Airport Privatisation

— Sale Background

— Sale Preparation/Process

— Government Objectives

— Macquarie Consortium

— Investor Issues

— Post Transaction Initiatives & Performance

Conclusions

MAp Background

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MAp Background

Market Capitalisation

A$3.0 billionWeighted Average Issue price

$1.77

ASX 100

Top 60

Sydney 63.2%

Rome 26.2%

Bristol 4.3%

Birmingham 6.3%

*Weightings based on Directors valuations as at 30 June 2004

Passenger Throughput

70m p.a

MAp Portfolio Composition*Foreign Ownership

0

5

10

15

20

25

30

35

(%)

6%

30%

Dec - 2002

Jul - 2004

Sydney Airport Privatisation

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International pax share

Domestic pax share

Source : Major Airport Data Exchange, March 2002 FY YTDInternational includes domestic on-carriage

Sydney

50%

17%

21%

2%10%7%

22%

34%

28%

9%

Freight

44%

Sydney is the Major Gateway to Australia and the Major Domestic Hub

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One of Australia’s Most Important Infrastructure Assets

Gateway to Australia - Handles 26m passengers p.a and 50% of all international visitors to Australia

Three runways and three terminals

One of the world’s oldest continuously operating airports

Contributes 2% to the Australian Economy and 6% to the NSW economy

$6.6 billion per annum to the NSW Gross State Product

Supplies about 8% of the Sydney labour market jobs

Contribution to economy is approximately 2.7 Olympic Games a year

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Recognised as a World Class Airport

2004 – Airport of the Year (Top 10) – Skytrax

2004 – Best Airport Pacific Region – Skytrax

2003 – Airport of the year (Top 10) – Skytrax

2003 – No. 1 Australia International Airport – Airline Survey

2002 – Airport of the year (Top 10 ) – Sky Trax

2001 – World’s Best Airport in class – IATA, ACI

2000 – Australian Airport of the year – AAA

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Background to Sale of Sydney Airport

The late 1990’s saw Australia become one of the world’s most prominent privatising nations

Government debt reduction was a major driver of privatisation

Previous privatisations have shown that assets in Government hands are never likely to perform on a sustainable basis as well as in private hands

Introducing greater efficiency is one of the main objectives of privatisation

Privatisation has also removed the need for Government to fund the modernisation and growth of this major infrastructure category in the future

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Background to Sale of Sydney Airport

Phase 1 - 1997

Phase 2 - 1998

Phase 3 - 2002

Melbourne $1,255m HK$6.903m

Brisbane $1,314m HK$7,227m

Perth $631mHK$3,470.5m

Adelaide $362mHK$1,991m

Canberra $66.5mHK$365.8m

Hobart $35.9m HK$197.5m

Coolangatta $103.6mHK$569.8m

Darwin/NT $110.1mHK$605.6m

Sydney $5,600m HK$30,800m

$9,478.1mHK$52,130m

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Government Preparation for Sale

Regulatory review

Review transport policy

Regulatory issues

Environmental issues

Contractual issues

Industrial relations

Communication strategy

Asset Review

Data aggregation

Analyse Government Policy

Review airport market

Identify Opportunities

Implication of regulation

Preparing asset for sale

Sale Planning

Structure of Transaction

Method of Sale

Identify Potential

Investors

Valuations

Marketing

Sydney Airport was a Large and Complex Sale

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Sydney Airport Sale Process & Timetable

April 2001 – Shortlisted bidders selected to proceed to final and binding bids

September 2001 - Airport sale deferred post September 11 and the collapse of Ansett on 14 Sept 2001 11 March 2002 - Government announce sale process has recommenced

December 2000 – Scoping study advisor appointed

February 2001 – On recommendation of a scoping study the Commonwealth Government announced intention to privatise Sydney Airport via trade sale – indicative bids sought

12 June 2002 - Three consortia submitted final and binding bids

25 June 2002 – Southern Cross announced as preferred bidder

28 June 2002 – Southern Cross Completes purchase of Sydney Airport Corporation shares

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Sales Process: Options for Government

1. Trade Sale – Majority of equity

2. IPO – Majority of equity

3. IPO – Minority of equity

4. Hybrid – Minority trade sale and IPO

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Majority Sale: Trade Sale or IPO

Maximise sale proceeds

Efficient process

Financial capability of purchaser

Trade sales have achieved highest EBITDA multiples

Most trade sale processes can be completed within 6 months

Government and advisers can test financial capabilities of bidders

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Government Objectives

Sales Process

1. Maximise sale proceeds

2. An efficient and transparent process

3. Financial capability of purchaser

After Sale Marketplace

1. Government retains control in key areas: noise, security

2. Economic regulation to control price/quality

3. Development plans – mandatory requirement

THE GOVERNMENT CAN ENSURE ONGOING CONTROL WHILST SELLING DOWN MAJORITY OWNERSHIP

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Macquarie’s Sydney Airport Consortium

Macquarie Managed Funds - 61.2%

Ontario Teachers – 5.0%

Ferrovial – 20.9%

Hochtief - 10.5%

MTAA – 2.4%

Macquarie Managed Funds have a 61.2% beneficial interest

Pensions Funds and Construction companies form significant shareholder base

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Investor Areas of Focus

Ability to exercise influence over key areas of the business

Regulatory environment that supports initial and ongoing investment and rewards business improvements

Financial flexibility to develop an optimal funding structure that can evolve with the life cycle of the airport

Ability to promote airport to new airlines to increase the number of routes and services to promote increasing passenger numbers

Freedom to manage business operations to ensure maximum operational efficiency

Ability of the airport to negotiate commercial agreements with airlines etc to provide long term certainty for the airport & airlines

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Key Areas of Focus Immediately Post Acquisition

Complete re-evaluation of all key areas of the business

— Airline relationships and marketing plans

— Retail performance benchmarking studies to confirm areas for improvement

— Confirm long term capacity and capex requirements to develop long term investment and funding plans

— Comprehensive line by line review of all costs and develop plans to optimise operational efficiency

Management and staffing review

Develop contingency plans to be implemented in the event of macro shocks

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*-Includes both actual and announced services commencing in FY04/05 years** - possible services stemming from expansion of air rights agreement

Middle East 14

NZ 23

Pacific 6

USA 7

Hong Kong 28

Other 8

China 5

Additional weekly Frequency 91

Initiatives – International Airline Marketing

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Initiatives – Domestic Airline Expansion

From late 2001 the Australian Domestic market has undergone significant change:

— Collapse of Ansett

— Qantas dominance of market increased by acquisition of Impulse- but

— Successful launch of Virgin Blue added extra competition

— Recent launch of Jetstar

Essential that Sydney Airport is able to promote greater domestic competition against a background of airline ownership of domestic terminals

Completed long term agreements with 5 airlines to use domestic terminal promoting growth in domestic market

Extensive review of domestic terminal to improve retail and commercial businesses to match evolving passenger mix

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Initiatives – Retail, Food and Beverage and Foreign Exchange

Retail

— Walk through Duty Free arrivals (July 2003) and departures (June 2004) completed

— T2 retail upgrade – 31 retail/service outlets

Food and Beverage

— T1 refurbishment of Food & Beverage areas adding new brands: Oporto; Starbucks; Wagamama; Asagao Sushi

Foreign Exchange

— Re-tender of existing contracts

— Increase number of outlets to improve penetration rates

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Initiatives – Car parking, Property and Capacity

Car parking

— Construction of 700 new domestic car parks

— Introduction of a range of new products

— MDP process for Multi Storey international car park

Property

— Multi storey office development for Australian Customs Service recently completed

— New developments for DHL Freight centre, Krispy Kreme Donut factory, F1 Accor Hotel

— Outline plans for 70 hectares of surplus land

Capacity

— Master Plan approved – 68m passengers by 2024

— A$2.3bn capital investment programme over the next 20 years

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Financial Performance

In the last 2 years of privatisation, impressive operating results have been achieved

This was achieved in what was one of the most challenging aviation environments -Bali bombing, SARS and Iraq War

0

100

200

300

400

500

FY00 FY01 FY02 FY03 FY04

$A

m E

BIT

DA

Eight consecutive quarters of double digit earnings growth since acquisition

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Conclusions

Australian Government decision to undertake sale of Sydney Airport by 100% Trade Sale achieved:

— Maximum sale proceeds for Government from a rigorous competitive process

— Improvements in business efficiency and service quality

— A favourable environment to promote long term significant investment from new owners

— Regulatory environment that encourages airport and airlines to develop long term commercial agreements without need for Government involvement

Macquarie consortium has been able to successfully transition the business into private ownership

Privatised airport has been able to absorb significant external shocks and play a leading role in promoting greater choice & travel experience for passengers

MACQUARIE AIRPORTSAirport Privatisation – Sydney Airport Case Study

Kerrie Mather – Chief Executive Officer

15 September 2004