With solid cash buffers, the two banks at the top of Sydney's Top Companies have been slammed in 2020, and not just from serious provisions relating to COVID-19 impacts.
Westpac (ASX: WBC) in particular was hit with the largest civil penalty in Australian legal history following an extensive investigation from AUSTRAC and findings that it breached the law on 23 million occasions.
Meanwhile, Sydney Airport maintained its top 10 position this year, despite being fairly empty since March.
On the other end of the spectrum, companies like Sonic Healthcare (ASX: SHC) and Aristocrat Leisure (ASX: ALL) benefited from the pandemic, with the former propped up by government spending on the healthcare industry and the latter lifted by gamblers going online, even though it sustained losses from closed pubs and casinos for its physical pokie machines.
1. Commonwealth Bank of Australia (CBA)
Market Cap: $112.6bn
FY20 revenue: $23.76b
FY20 profit: $9.63b
CEO: Matt Comyn
CEO salary: $5.68m
After handing over its crown as Australia's largest listed company to CSL (ASX: CSL) this year, Commonwealth Bank (ASX: CBA) managed to pull off a 12.4 per cent profit rise despite a $1.5 billion provision for COVID-19 impacts.
This was achieved mainly due to a post-tax gain also worth $1.5 billion from the sale of the global asset management arm of subsidiary Colonial First State (CFS) to Mitsubishi last year.
That magic number of $1.5 billion will be flowing CBA's way again in the first half of 2021 when it completes the sale of a 55 per cent stake in CFS to global investment firm KKR.
However, these positive results belie a time of monumental change for the banking industry where CBA can no longer depend on growing wealth in concert with its loyal Dollarmite lifers.
Like NAB (ASX: NAB), CBA recently took up the buy-now-pay-later challenge brought by the likes of Afterpay (ASX: APT) and Zip Co (ASX: Z1P) with the launch of a no-interest credit card called CommBank Neo.
Under this new offering made easier by historically low interest rates for the banks, later in 2020 eligible CBA customers will be able to access up to $3,000 of credit so long as they pay a monthly fee, which will be waived if no purchases are made on any given month.
The company is also trying to show its progressive attitude with a first-of-its-kind sustainability-linked loan worth $400 million which is incentivising Wesfarmers (ASX: WES) when it comes to environmental outcomes and Indigenous employment.
The bank has played a major part in the COVID-19 recovery. After the Reserve Bank responded to COVID-19 challenges with the announcement it would provide more than $90 billion in funding support aimed at SMEs while cutting interest rates further, CBA followed the lead by promising $10 billion in support to households and small businesses.
In its annual report, CBA noted it had processed more than 250,000 home, personal and business loan deferrals, and funded more than $650 million in new loans under the Government's Coronavirus SME Guarantee Scheme.
But Sydney's largest listed company continues to be plagued by the ills of the past. This includes civil proceedings from the corporate watchdog alleging conflicted influence at CFS, and a class action launched by Slater & Gordon (ASX: SGH) alleging the bank sold junk credit card and personal loan insurance to customers.
Current CEO Matt Comyn was group executive for retail banking services when the events in question occurred in 2015, and he told the Royal Commission he had pushed against it but was asked by then group CEO Ian Narev to "temper [his] sense of justice".
In terms of redressing other matters raised by the Royal Commission, ASIC revealed in August that CBA had paid $167.1 million in compensation for fees-for-no-service (FFNS) activity, which was paid out to 54,826 customers.
CEO Matt Comyn's remuneration rose by $1.2 million in FY20.
2. Westpac Banking Corporation (WBC)
Market Cap: $60.82b
1H20 revenue (operates on a calendar year): $10.6b
1H20 profit (operates on a calendar year): $1.2b
CEO & MD: Peter King
CEO salary: $3.56m
When AUSTRAC announced it had commenced civil proceedings against Westpac (ASX: WBC) in November 2019, it kicked off a series of events that saw the bank's CEO and chairman depart while earnings were slashed by $1.4 billion.
The case, relating to 23 million alleged contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act, saw AUSTRAC claim Westpac failed to monitor money laundering and terror financing risks and carry out due diligence on transactions with indicators relating to potential child exploitation risks.
The company's then CEO Brian Hartzer and chairman Lindsay Maxstead stepped down in the following weeks, with Hartzer replaced by former Westpac CFO Peter King and John McFarlane stepping into Maxstead's shoes.
The duo inherited a company under siege - Phi Finney McDonald launched a class action over the AUSTRAC situation for Australian investors in December 2019, while Rosen Law did the same two months later for investors in the US.
By June 2020 Westpac released the results of its investigation into AUSTRAC's allegations, with the bank claiming the failure to report more than 19.5 million IFTIs (international funds transfer instructions) occurred due to a "mix of technology and human error dating back to 2009".
Further, Westpac said the failure to adhere to AUSTRAC's guidelines for child exploitation risk occurred due to "deficient financial crime processes, compounded by poor individual judgments".
Nearly two months later the bank revealed hundreds of thousands of extra transactions that should have been reported to AUSTRAC were not, including 365,000 Threshold Transaction Reports.
Come September, it was unveiled that Westpac had been hit with a $1.3 billion fine over the proceedings: the largest civil penalty ever issued in Australian legal history.
The company admitted to breaching the law on 23 million occasions, including not reporting more than 19.5 million International Funds Transfer Instructions (IFTIs) amounting to over $11 billion to AUSTRAC.
King took up the top role at Westpac in April, right as the COVID-19 pandemic was forcing businesses to close around Australia and as banks were stepping in to provide billions in support to landlords, tenants and business owners.
The pandemic ultimately saw Westpac record a $1.6 billion impairment charge in 1H20. Combined with the $1.4 billion slashed earnings resulting from the AUSTRAC investigation, total reductions to the bank's bottom line went into the range of $3.6 billion for the half.
However, Westpac has a solid cash buffer, with its common equity tier 1 ratio at 10.8 per cent plus the proceeds of a $2.8 billion capital raise.
"Having materially strengthened capital over the last decade, building significant buffers, we are well positioned to absorb this increase and respond to future developments in the environment," said Westpac CEO Peter King.
"The world is going through a once in a life-time health and economic crisis and we are committed to assisting as many customers as possible to bridge this shutdown period."
That assistance has come in the form of approximately 135,000 mortgage deferral packages to Westpac customers and repayment relief packages for more than 31,500 small business customers.
As if new CEO King did not have enough on his plate, the ongoing Fees for No Service (FFNS) scandals affecting all Australian banks made their mark on Westpac.
With FFNS payouts approaching $900 million in total from Australian banking and financial institutions, Westpac has contributed more than $130 million in compensation to around 28,000 customers.
Further the banking giant has also paid $34 million in compensation to 1,647 customers over non-compliant advice complaints.
3. Woolworths (WOW)
Market Cap: $46.01b
FY20 revenue: $63.68b
FY20 profit: $1.6b
CEO: Brad Banducci
CEO salary: $6.1m
Australia's fresh food people have reaped the rewards of modernising upgrades to their distribution network for the online era, as COVID-19 came knocking with new logistical challenges.
Aside from consumer hoarding and an astonishing quadrupling of toilet paper sales in one week at almost 40 million rolls during the pandemic frenzy, Woolworths (ASX: WOW) has also had to adapt to stricter hygiene requirements.
In the wake of international border closures as society was gripped by fear of shortages, Woolies announced 20,000 new roles to keep up with higher demand.
The retailer's booming retail sales including at Big W, which has returned to profitability, and drinks businesses like Dan Murphy's were enough to offset a four-month closure of its hotels business, despite materially higher customer and team safety costs.
"Australian and New Zealand Food sales increased materially during March as customers pantry-loaded ahead of expectations of lockdowns, with weekly growth reaching over 40 per cent and 50 per cent at its peak," CEO Brad Banducci said in Woolworths' annual report.
Banducci described a "step change" for the group's digital and e-commerce businesses, which group-wide rose by almost 40 per cent for FY20 or almost $1 billion to $3.5 billion.
This is still only a 5.5 per cent sales penetration, but demonstrates the segment's potential which as Amazon or any of the major Chinese e-retailers will attest hinges on highly efficient distribution systems.
Soon before the word 'COVID' was about to enter the lexicon, Woolworths lodged a development application (DA) with the Brisbane City Council for a temperature-controlled distribution centre, following the launch of its 70,000sqm Melbourne South Regional Distribution Centre (MSRDC) which is the largest of its kind in the southern hemisphere.
In June the group announced more than $700 million would be spent on two new automated distribution centres in Sydney, while in August Woolworths made moves to acquire Australia's largest family-owned foodservice distributor - PFD Food Services.
4. Macquarie Group (MQG)
Market Cap: $43.22b
FY20 revenue: $12.33b
FY20 profit: $2.73b
CEO & MD: Shemara Wikramanayake
CEO salary: $17.02m
The global market shock that came alongside the COVID-19 pandemic did not stop Macquarie Group (ASX: MQG) from continuing on its more than 50-year run of profitability in FY20.
At the worst point shares in MQG, a global investment bank with exposure to diverse markets, fell to $70.02 per share on 23 March, the lowest price seen by the company since November 2016.
Since then Macquarie has been slow to recover to pre-COVID levels, with its share price plateauing around $123 per security.
The group managed to notch a $2.7 billion profit despite incurring $1 billion in credit and other impairment charges due to the economic impacts of COVID-19.
"Macquarie has not been immune to the effects of these once-in-a-century global circumstances, as reflected by volatility in our share price in late March," said Macquarie chairman Peter Warne in the group's FY20 Annual Report.
"Macquarie remains well placed because of its diversity of business mix and geography, strong capitalisation and well-funded balance sheet, and a conservative approach to risk management."
To support its clients during the recession Macquarie customers have been able to defer mortgage, overdraft, credit card or vehicle loan repayments for up to six months without penalty or a negative impact to their credit score.
Corporate clients have also been supported via advisory and fundraising services.
At the end of 1Q21 Macquarie is in a strong position with a capital surplus of $8.1 billion, but as COVID-19 continues to wreak havoc on the international and domestic markets the company expects its 1H21 results to be down 35 per cent year-on-year.
However, a healthy payday looks set to be incoming for the company that invests in a wide variety of industries, annuities and commodities, as Sydney-based tech firm Nuix (owned around 70 per cent by Macquarie) is poised to list on the ASX any day now with an estimated $1.5 billion valuation.
In terms of corporate social responsibility Macquarie is knocking its competitors out of the water when it comes to LGBTQI employees, being named as the best place to work by the Human Rights Campaign.
5. Goodman Group (GMG)
Market Cap: $33.14b
FY20 revenue: $2.63b
FY20 profit: $1.5b
CEO: Gregory Goodman
CEO salary: $11.99m
While many property owners globally have found themselves negotiating with tenants to ride out the crisis, Goodman Group (ASX: GMG) with its swag of strategic logistics assets - has benefited from the online retail trends hastened by the pandemic.
One telling example of this founder-led business' direction can be found in two Amazon Australia announcements in June with new fulfilment facilities to be built in Brisbane and Sydney; Goodman is involved in both.
The group also counts the likes of Kogan, Coles and Woolworths as its customers, but its scope is much wider than just the Australian market with $51.6 billion in assets under management internationally across 392 properties.
At the end of FY20 Goodman completed 1.2 million-square-foot logistics facility in El Monte, California, which the group's CEO for North America Anthony Rozic said was engineered for customers who are showing increased demand for operations relating to e-commerce.
"Companies are now required to be faster, more agile and quick to adapt operations," Rozic said.
"The El Monte Logistics Centre is another building block in our company's global gateway city strategy to better serve customers through urban logistics sites that are close to consumers."
In the company's annual results, co-founder and CEO Greg Goodman highlighted a work in progress (WIP) rise of 59 per cent year-on-year to $6.5 billion.
"Goodman has deliberately positioned its business over the past decade to maximise sustainability of earnings in varying market conditions. We expect COVID-19 to continue to significantly impact the way we live and work for the foreseeable future," he said.
"We remain sympathetic to this, and continue to work closely with our customers who have been genuinely impacted, to provide them with the necessary support to manage through the pandemic and beyond.
"The pandemic has reinforced the consumers' need for convenience, and heightened use of technology which have accelerated the adoption of e-commerce and increased the need for data storage."
6. Aristocrat Leisure (ALL)
Market Cap: $19.14b
1H20 revenue (operates on calendar year): $2.25b
1H20 profit (operates on calendar year): $1.3b
CEO: Trevor Croker
CEO salary (2019): $5.6m
If we can divide our Sydney Top Companies list into winners and losers this year, then gaming giant Aristocrat Leisure (ASX: ALL) has pulled out a few aces from its sleeve make it a winner.
Certainly, it was a winner by taking out the title of Best Overall Supplier of Slot Content at the annual EK Gaming Slot Awards in Las Vegas in March. Aristocrat dominated the awards something of an Academy Awards for pokies - for a second year in a row.
With a lot of people sitting at home and not having much to do in 2020, it could also be said Aristocrat's diversification into the online space in recent years has paid off handsomely.
As one of the world's largest manufacturers of casino gaming systems licensed in some 300 gaming jurisdictions in 90 countries, Aristocrat Leisure does not rely solely on selling products to physical land-based markets such as casinos and clubs.
The success of digital gaming has offset the company's land-based operations which were affected by the closure of casinos around the world this year.
The full effect of this year's COVID disruptions will not be known until the company's FY20 results are released later this year. Aristocrat's financial year ends on September 30.
The interim results to the end of March offered some insight into its prospects, with group revenue rising 7 per cent. A 6 per cent fall in land-based activities was offset by a 19 per cent increase in digital revenue. A big tax benefit bolstered the bottom line by $925.2 million.
Operating EBITDA was however put under pressure, but a $1 billion deferred tax asset in line with structural changes announced in November helped push profits into growth territory.
Meanwhile, the company's shares were added to the S&P/ASX 20 in June - another win.
Aristocrat also cleared the decks of two class action lawsuits in the US. The lawsuits related to online gaming platforms hosted by Big Fish Games Inc, the world's largest producer and distributor of free-to-play games which was bought by Aristocrat from Churchill Downs Incorporated in 2018.
It was alleged that some of the games offered on the platform were games of chance and prohibited by law in Washington State. The plaintiffs were seeking recovery of their losses, legal fees and punitive damages.
Of the US$155 million settlement agreed through mediation, Aristocrat will pay US$31 million and Churchill Downs the remainder.
7. Sonic Healthcare (SHL)
Healthcare Equipment & Services
Market Cap: $15.83b
FY20 revenue: $6.83b
FY20 profit: $527.74m
CEO: Colin Goldschmidt
CEO salary: $4.49m
Most companies in the healthcare space could be seen occupying the box seat for growth in 2020, and if Sonic Healthcare's (ASX: SHL) share performance this year is any guide, the market thinks it is better placed than most.
With a business profile that is essentially about the provision of specialised pathological and clinical laboratory services as well as diagnostic imaging, investors are making the most of Sonic's position as a global market leader in this field.
The company managed a modest increase in earnings in FY20, if the changes to the accounting treatment of leases is ignored. This follows a shaky view of the business in March during the early stages of COVID lockdowns when normal business volumes were affected.
Trade was looking grim with business in the US, UK, Ireland and Belgium severely affected. But it didn't take long for the tide to turn and, by June, the company was confident it could meet its earnings targets for the year.
Sonic is playing a major role in the public health space through COVID testing which offset the company's drop in base business volumes.
In April, it was awarded a federal government contract to provide a dedicated pathology service for the rapid sample collection and testing for COVID-19 in aged care homes, potentially totalling 2700 facilities nationally.
The company is playing its cards close to the chest in terms of the year ahead. It may be considered COVID safe in that its earnings are being bolstered by its government-backed role in public health activities, but it's not making any forecasts for FY21 at this stage.
8. Sydney Airport (SYD)
Market Cap: $15.81b
FY20 revenue: $511m
FY20 loss: $53.6m
CEO: Geoff Culbert
CEO salary: $3.39m
One of Australia's busiest airports became pretty empty this year.
With international borders closed to everyone but citizens and returning residents, and with most of the country closing its borders to NSW to stop the spread of COVID-19, Sydney airport suffered.
It is a monumental blip for the normally strong company but one that Sydney Airport hopes to be able to move past.
When COVID-19 restrictions began coming into effect in March, Sydney Airport withdrew its capital expenditure forecast of $350-450 million 2020.
At the time the company stressed it was in a position to see the pandemic period through, pointing out that it had around $2 billion in available funds on hand, comprising cash reserves, undrawn bank facilities and bond market debt.
However, come August, the airport made the decision to raise a further $2 billion to build up its balance sheet buffer.
It came alongside its FY20 report, detailing how the company reported a $53.6 million loss for the half year.
"Six months into the pandemic, there remains uncertainty as to how long it will take for aviation markets to return to pre-COVID-19 levels," said CEO Geoff Culbert.
"Accordingly, Sydney Airport is taking further decisive action to strengthen its balance sheet and to help ensure it remains well capitalised to meet the challenges presented by an uncertain COVID-19 operating environment, and to ensure it is positioned for growth in the future."
That return to pre-COVID-19 levels is likely still a while away; Sydney Airport's latest monthly traffic performance figures show a year to date total passenger numbers dive of 66.3 per cent.
In August alone the airport hosted just 129,000 passengers, a dive of 97 per cent on August 2019.
9. Brambles (BXB)
Market Cap: $15.79b
FY20 revenue: US$4.73b
FY20 profit: $448m
CEO: Graham Chipchase
CEO salary: US$2.67m
With the pallets that move essential goods worldwide, Brambles (ASX: BXB) has proven its worth in a year when supply chains are more volatile than usual.
More than a year after selling its reusable plastic container (RPC) business IFCO for $2.51 billion, Brambles' CHEP-branded pallets have contributed to the "continued flow of life's essentials" in the words of chairman John Mullen.
Sales revenue increased by 6 per cent in FY20 with around 80 per cent coming from consumer staples, with strong levels of demand across global grocery supply chains in March and April in particular.
Servicing high demand and overcoming coronavirus-related disruptions did come at a cost though, and the group's automotive and keg-pooling businesses suffered as car manufacturing and on-premise beer consumption plummeted.
Nonetheless, Brambles' profit after tax rose by five per cent and 11 per cent in constant currency terms, largely driven by a one point improvement in US margins and ongoing progress to address cost pressures in Canada and Latin America.
"I am extremely proud of the critical role our people have played in keeping supply chains open," CEO Graham Chipchase said in August.
"Cash flow generation improved significantly in the year and our balance sheet remains strong while we continued with the share buy-back programme and maintained dividend payments in line with our policy."
Brambles' environmental credentials were also up a notch in September after hitting its goal of having 100 per cent certified sustainable timber sources, saving an estimated 1.7 million trees from deforestation annually.
The milestone means all lumber sourced by Brambles comes from forests certified by either the Forest Stewardship Council (FSC) or the Program for the Endorsement of Forest Certification (PEFC), while the group continues with its 'share and reuse' model once the material is in circulation.
Chipchase notes Brambles' 2020 sustainability goals were considered very ambitious when they were set in 2015.
10. ASX (ASX)
Market Cap: $15.69b
FY20 revenue: $1.09b
FY20 profit: $498.6m
CEO: Dominic Stevens
CEO salary: $3.63m
There's no arguing that 2020 delivered plenty of volatility to the Australian share market, and that played out nicely for ASX Ltd (ASX: ASX).
With markets taking a dive in March and maintaining the jitters throughout the last quarter of FY20, share transactions spiked dramatically in the June half-year.
March 13 saw equities volumes peak at 5.18 million trades, which was double the previous pre-COVID high achieved in August 2019.
It shows that not even a pandemic could break the eight-year run of revenue growth for Australia's primary share market operator, even if 95 per cent of its employees were forced to work from home.
If there is a major take from the ASX's FY20 profit result, it's that the 'house' always wins in this environment.
ASX delivered an increase in net annual profit, modest by any standards at 1.4 per cent, but the company also went against the prevailing market trend of lower or suspended dividends and it actually boosted its ordinary full-year payout by 4.5 per cent. That's not taking into account the one-off special dividend from the IRESS sale that bolstered the payout in FY19.
From a broader market perspective, ASX played host to fewer IPOs in FY20 although their combined value was higher.
A welcome addition to the ASX indices this year was the S&P/ASX All Technologies Index, taking into account the depth of Australia's listed technology companies. The index was introduced in January 2020 with 46 companies valued at $100 billion. This grew to 50 companies worth $110 billion by the end of June.
Meanwhile, COVID has pushed back plans to replace the existing CHESS share trade settlements and registry system by a full 12 months. The new system was due to begin in April 2021 but is now scheduled for April 2022.
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