Coronation Fund Managers expects the domestic savings industry to continue to contract this year amid sluggish economic growth and financially hard-pressed households.
The group’s total assets under management (AUM) increased by 5% to R631 billion (30 September 2023: R602bn), while average AUM remained relatively flat at R619bn compared to R618bn in the prior year, Coronation said in its interim results to the end of March, released on Tuesday.
“Net outflows for the period were in line with our expectations, at 4% of average AUM. This is largely due to the weak South African savings industry, to which Coronation is significantly exposed. It also reflects the experience of the broader industry, as active asset managers around the world experience persistent net outflows,” the group said.
“We expect that the domestic savings industry will continue to contract, as South Africa struggles to kickstart economic growth, formal employment remains stagnant, and households remain under pressure, exacerbated by the ongoing externalisation of both retirement and discretionary savings.”
Global equity markets delivered strong returns over the period, while the returns from the South African equity market remained relatively anaemic, the group said.
BusinessLive quoted Coronation chief executive Anton Pillay as saying the asset manager wants to grow its international franchise, which constitutes about 31% of its total AUM, amid the shrinking domestic savings industry and more South Africans externalising their wealth through feeder funds.
Coronation’s offshore franchise had R194bn in AUM in the six months to the end of March, up from R160bn reported in 2023, according to BusinessLive.
The interim results statement said Coronation expected “a near-term uptick in industry-wide outflows once the new two-pot retirement system comes into play. However, we believe that this reform is positive for South African savers and the local savings industry over the long term.”
Citywire quoted Pillay as saying Coronation estimated that between R60bn and R70bn will flow out of the asset management industry within a year once the two-pot system is implemented on 1 September. However, he said withdrawals should decrease in the long term because fund members will no longer be able to access their retirement savings whenever they change jobs.
Revenue from fees increased by 4.2%, from R1.895bn in the previous interim period to R1.893bn.
Management fee revenue was up by only 1%, from R1.66bn to R1.678bn, but performance fee revenue jumped by 38.7%, from R155m to R215m.
Profit from fund management increased by 26% compared to the previous half year, from R683m to R857m.
Total operating expenses fell by 7%, from R1.153bn to R1.076bn.
Fund management earnings per share (FMEPS) were 185.8 cents. Management uses FMEPS to measure operating financial performance, which excludes the net mark-to-market effect of fair value gains and losses, and related foreign exchange, on investment securities held.
Basic earnings and headline earnings per share increased to 200.5 cents per share, from 6.2 cents per share in the prior corresponding period.
The asset manager declared an interim dividend of 185 cents per share after not declaring a dividend in the same period last year because of a dispute with the South African Revenue Service (SARS).
Tax liability reduced
Coronation is engaged in litigation with the SARS over whether the profits of its Irish business, Coronation Global Fund Managers (CGFM), should be included in the taxable income of Coronation Investment Management SA, its South African holding company.
In the interim results, Coronation estimated its liability for the years of assessment from 2012 to March 2024 at R794m. This is higher than the R761m estimated in its full-year results in September 2023.
In September 2021, the High Court in Cape Town ruled in Coronation’s favour. SARS appealed this judgment to the Supreme Court of Appeal (SCA). In February last year, the SCA upheld SARS’s appeal and ordered CIMSA to pay additional taxes in respect of profits earned by its international operations, together with interest and costs. The SCA dismissed SARS’s claim for penalties.
The interim results show that Coronation has paid most of the tax claim, with provision made for only R148m (including interest) outstanding at the end of March this year.
Coronation applied to the Constitutional Court for leave to appeal the SCA’s judgment. The Constitutional Court heard the matter in February this year, and the outcome is pending.
If Coronation wins its case, it will get back the R794m.
