Finance

Savings under pressure in South Africa

Luke Fraser

 ·19 Nov 2024

Coronation has seen a substantial rise in its earnings but warns that South Africa’s savings industry remains cash-flow negative amidst the nation’s major challenges.

In its financial results for the year ended September 2024, Coronation said that its fund management earnings per share were up 9% year-on-year at 402.9 cents after excluding the impact of winning a legal battle with the South African Revenue Service over an R800 million debt.

SARS accused Coronation of underestimating the taxes owed from its Irish subsidiary, but the Constitutional Court ruled in favour of the asset manager, stating that the group correctly interpreted and applied the relevant tax legislation.

The Supreme Court of Appeal (SCA) agreed with the taxman and ruled that the asset manager should pay nearly R800 million in taxes owed.

However, the case ultimately made its way to the Constitutional Court, which ruled in favour of Coronation in June, stating that the group correctly interpreted and applied the relevant tax legislation.

Total assets under management (AUM) grew by 11% to R667 billion (30 September 2023: R602 billion) following strong market returns and continued outperformance. Average AUM increased by 2% to R631 billion (30 September 2023: R620 billion).

“Global markets delivered solid returns in 2024, as financial markets absorbed many concerning geopolitical tensions while also responding positively to encouraging developments in inflation, economic growth and interest rate outlooks,” said Coronation.

“In South Africa, asset returns have been robust, fuelled by growing optimism that the new Government of National Unity will deliver much-needed reforms and unlock economic growth.”

The group added that its portfolio’s performed well amidst makret volatility, with its clients benefitting from the value generated by its active asset allocation and strong reasearch.

“Our globally integrated approach to managing offshore allocations in our Regulation 28-compliant funds has been material to our ability to unlock value for our clients,” said the group.

A recent amendment to Regulation 28 of the Pension Funds Act allowed companies to invest 45% of a fund into international assets.

That said, the group has seen a renewed interest in its Africa Frontiers Strategy after a decade of muted investor enthusiasm for the asset class.

Excluding the SARS tax matter, total operating expenses increased by 8% year-on-year, which highlighted the increased cost of doing business in South Africa.

“We remain acutely aware of the competitive, skills-constrained environment in which we operate and have continued to invest meaningfully in the business to maintain our market-leading position,” said the group.

“Key areas of investment include strengthening our local and global investment capabilities, enhancing client service systems, optimising information and technology systems and data management, and upholding rigorous compliance standards in response to a demanding global regulatory landscape.”

“This consistent investment in our people and systems was demonstrated by our ability to efficiently and timeously manage the heightened level of withdrawals that accompanied the roll-out of the Two-Pot retirement system on 1 September 2024.”

The group added that net outflows moderated to 8.1% of average AUM during the financial year.

It added that the South African savings industry remains cash-flow negative, with Coronation likely to continue experiencing outflows reflective of the broader environment.

“We anticipate this trend will persist as long as a weak economy and the high unemployment rate continue to limit people’s ability to save and invest.”

Financial Results

Following the group’s legal win over SARS at the Constitutional Court and the reversal of a provision, the group was able to pay a special dividend of 153 cents per share to shareholders.

With the group’s headline earnings per share and profit increasing by 245%, the group was also able to up its final dividend by 38% to 228 cents per share.

The group’s financial resutls can be found below:

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