Coronation Fund Managers, a publicly traded asset management firm, saw a significant drop in profits as a result of a costly tax case involving its Irish operations. The company’s half-year financial results, which were recently released, revealed a staggering 97% drop in headline profits. Headline earnings per share for the fiscal year ending March 31, 2023 fell to 6.2 cents, a significant decrease from the 199.1 cents reported during the same interim period.
Coronation must pay additional taxes to the South African Revenue Service (Sars) on profits earned through Coronation Global Fund Managers, its Dublin-based international operation, according to a February ruling by the Supreme Court of Appeal (SCA). The court’s decision included the payment of interest and costs, imposing a significant financial burden on the company. Coronation had already announced its intention to set aside funds to settle the order, estimating the provision to be between R800 million and R900 million.
Coronation disclosed in its recently released interim results that the total amount payable to Sars as a result of the tax case was R716 million. Excluding this impact, the company reported fund management earnings of 191.5 cents per share for the period, compared to 214.8 cents per share in the previous corresponding period. As a result, given the provisions associated with the tax case, the company decided not to declare a dividend.
Despite the implications of the Sars tax case, Coronation remains confident in its long-term viability. The company stressed that it is well-capitalized and does not expect any material impact on its overall financial stability. It strongly disagrees with the SCA’s decision and has requested the right to appeal to the Constitutional Court. Coronation has already made full provision for the financial impact of the judgment, which has had a significant negative impact on its profits.
Despite the challenges posed by the tax case, Coronation managed to increase assets under management (AuM) by 9% during the reporting period. Its AuM increased from R574 billion at the end of September 2022 to R623 billion at the end of September 2023. The company, however, did not provide specifics about the value of its average AuM or mention the outflows it experienced.
In summary, Coronation Fund Managers saw a significant drop in profits as a result of a costly tax case involving its Irish operations. The company maintains its confidence in its position and plans to appeal the Supreme Court of Appeal’s decision. Despite the fact that the tax case has had a significant impact on its financial performance, Coronation’s assets under management have increased.
