Macquarie warns of softening profits despite FY19 record

Macquarie shares sink as it faces a tougher 2020, after a record full-year profit of almost $3bn.

Macquarie CEO Shemara Wikramanayake. Pic: James Croucher

Macquarie Group has warned of a tougher 2020 after delivering another record full-year profit just shy of $3 billion, buoyed by asset management, commodities and deal advisory fees.

The results also revealed that longstanding head of Macquarie’s global investment bank Tim Bishop will step down from the role at the month’s end to become chairman of the division. He will be replaced by Daniel Wong, who jointly heads up the global infrastructure and energy group.

The asset manager and investment bank’s annual net profit climbed 17 per cent to $2.98 billion for the 12 months ended March 31, it said in a statement to the ASX.

Macquarie’s guidance – which was ratcheted up through the period - pointed to an annual profit result up to 15 per cent higher than 2018’s $2.56 billion. Analysts were expecting a full-year profit of $2.97 billion.

Macquarie’s outlook hit the company’s shares in morning trade. Shortly before noon (AEST) they were down six per cent at $127.93, after hitting an all-time high yesterday.

Macquarie chief executive Shemara Wikramanayake, who took the top job in December, cautioned that earnings in 2020 were expected to be “slightly down” on this year, calling out favourable market conditions and material transactions booked in 2019.

“Macquarie remains well positioned to deliver superior performance in the medium term,” she said.

The company – now in its 50th year – has in the past five years typically provided conservative guidance at the start of its year and then increased it throughout the period. For 2019, profit guidance was increased twice in November.

In its 2019 financial year, Macquarie divested sizeable stakes in companies including Quadrant Energy and online property settlement group PEXA.

Macquarie declared a final dividend of $3.60 per share, taking the full-year payments to $5.75 Last year’s final dividend was $3.20.

Macquarie booked net operating income of $12.8 billion for 2019, up 17 per cent on a year earlier, while operating expenses grew 19 per cent to $8.9 billion.

Staff numbers increased to 15,715 as at March 31, from 14,810.

Macquarie benefited from favourable market conditions and a decline in the Australian dollar, as it earns about two-thirds of its income offshore.

Assets under management rose 11 per cent to $542.76 billion, underpinned by investments made by the Macquarie Infrastructure and Real Assets managed funds, foreign exchange impacts, contributions from businesses acquired and market movements.

Macquarie Asset Management - the largest division - saw its net profit contribution fall 4 per cent, despite an increase in base and performance fees earned on its stable of investment funds.

The result was helped by a strong performance in Macquarie businesses that are leveraged to financial markets.

The commodities and global markets division delivered a 65 per cent jump in profit contribution, benefiting from client hedging activity and “significant opportunities” in North American gas and power.

The Macquarie Capital advisory arm saw its net profit contribution surge 89 per cent, boosted by asset sales and work on deals including the Wesfarmers demerger of Coles and Nine’s acquisition of Fairfax Media.

Macquarie’s banking and financial services division posted a rise in profit contribution for the 2019 year, while the corporate and asset finance arm made a lower contribution.

Macquarie’s group capital surplus was $6.1 billion and return on equity came in at 18 per cent.

Analysts at UBS said the result was helped by stronger gains on divestments and performance fees but offset by larger impairment charges.

The “strong result was driven by more volatile line items such as gains on sale and performance fee,” the said. “Guidance is typically conservative at this stage of the year given difficulty in predicting revenue. However it implies a circa 7 per cent downgrades to consensus.”