Coronation optimistic about investment return outlook
19 November 2019
- Assets under management of R571 million
- Diluted headline earnings per share of 341.9 cents
- Total dividend per share of 341 cents
Cape Town, 19 November 2019 – Long-term valuation-driven asset manager Coronation Fund Managers today announced its annual results for the 12 months to end September 2019.
CEO Anton Pillay commented: “Notwithstanding some very encouraging outperformance by our clients’ portfolios under very tough conditions in 2019, our financial results for the year ended 30 September 2019 reflect the weak economic environment, which has affected both market returns and the formal savings industry. The key asset classes from which we construct the bulk of our client portfolios delivered lacklustre returns for the period under review, with domestic equities up only 1.9% and emerging market equities up 4.8% in rands.”
Pillay added that the challenging markets seen over the last five years have resulted in many attractively priced opportunities from which active managers can construct their client portfolios. “In this regard, we are optimistic about the investment opportunities that key markets present and believe that clients should see better returns in the next five years.”
Decline in revenue impacted by weak market returns
Against this backdrop, Coronation’s total assets under management (AUM) were down 2.7% compared to its opening balance at the start of the period. Pillay, however, explained that the 5.9% decline in average AUM, compared to average AUM in the prior 12-month period, provides a better reflection of the impact of sustained weak market returns over the reporting period. This drop in average AUM contributed to the decline in revenue of 14.5% to R3.3 billion.
Operating expenses decreased by 6.9%, as fixed costs increased by 2.4% and variable costs decreased by 11.7%. The combined effect was a decrease of 18.7% in diluted and basic headline earnings per share to 341.9 cents.
“We are pleased that our variable cost model, where costs typically decrease in periods of declining revenue, once again demonstrated its power,” said Pillay.
For the period, Coronation also continued to reward shareholders with a significant distribution. “Once again, we will distribute 100% of our after-tax cash profit, which, together with the interim gross dividend of 165.0 cents per share, amounts to a total gross dividend of 341.0 cents per share for the year.”
Long-term valuation-driven investing
Coronation manages the savings of millions of South Africans, and several leading international retirement funds, endowments and family offices, and it takes this role very seriously, explained Pillay.
“We are encouraged by the good short-term performance delivered by our range of portfolios in the last year but are mindful that our long-term performance remains the true measure of our ultimate success for clients and stakeholders.”
In this regard, Pillay said that clients representing more than 50% of Coronation’s total institutional assets have been invested with the company from more than 10 years. “Of these client assets, 97.5% have outperformed their benchmarks since inception on an asset-weighted basis.” He added that all Coronation’s domestic and global institutional portfolios with a track record of more than 10 years have delivered enviable active returns since inception.
“Looking at our domestic and global flagship unit trust funds, all funds rank first or second in their respective Morningstar categories since inception.” Collectively, the assets invested across all of Coronation’s domestic and global flagship unit trust funds represent more than 90% of total retail AUM and have track records that span between 10 and 23 years.
Flows reflective of the broader industry
With respect to flows, Pillay emphasised that, as an investment-led business, Coronation’s focus is to grow the value of the client assets entrusted to it over the long term rather than growing the pool of assets under its management.
He explained that, as one of the largest investment managers in the country, Coronation’s net flows reflect that of the broader industry, which is, in turn, being impacted by a shrinking pool of formal savers and further aggravated by the very weak economic environment.
“As such, we saw total net outflows of R43.9 billion for the period, which is equal to 7.5% of our opening AUM balance. Stakeholders should expect net flows to remain negative until such time that industry flows turn positive, the timing of which is difficult to predict.”
Pillay said that as a homegrown South African business, Coronation continues to play a meaningful role in ensuring an inclusive society. “In addition to our impactful corporate social investment initiatives and support for small businesses, we have made tangible progress in transforming our business to reflect the country’s diversity.”
As at end-September 2019, 56% of Coronation’s South African-based employees were black, of whom 57% were female. Of its South African-based employees appointed in the 2019 financial year, 52% were black, of whom 37% were female.
“Many of our senior leadership roles are held by black employees, including the position of CEO, CFO, COO, Head of Institutional Business, Head of Fixed Income and Head of SA Equity Research. Of our Board of Directors, 78% are black and 56% are female.”
Coronation is also a Level 2 contributor to broad-based black economic empowerment.
Positioned for the future
Pillay concluded that from an operational perspective, Coronation continued to extract efficiencies following the implementation of major administration and systems changes in the prior and current financial years. “This bodes well for both our clients and other stakeholders in the long term.”
“While markets and economies continue to be uncertain, we will continue to focus on delivering the best possible returns for our clients, which will ultimately ensure the long-term sustainability of the business.”
General enquiries: Anton Pillay, Coronation | 021 680 2000
Analyst enquiries: Johannes van Niekerk, CapitalVoice | 082 921 9110
Media enquiries: Louise Pelser, Coronation | 021 680 2216/076 282 3995
Our Institutional Business manages R331 billion (September 2018: R346 billion) on behalf of our South African and global institutional clients.
South African clients
We continue to manage a meaningful share of assets in the local pension fund industry, representing a total AUM of R265 billion (September 2018: R285 billion), making us one of the largest independent managers of pension assets in the country. Net outflows over the reporting period represented 8.4% of our opening balance for local institutional assets.
We manage a total of R66 billion (September 2018: R61 billion) in our global strategies on behalf of several leading international retirement funds, endowments and family offices. Net outflows represented 11.4% of our opening AUM; reflecting the ongoing material shift from active to passive strategies.
We remain one of the country’s leading managers of long-term assets in the collective investment schemes industry, with retail assets totalling R240 billion (September 2018: R241 billion). The combination of weak historical market returns and a sluggish local economy led to a net outflow from long-term funds representing 4.2% of industry assets. This was offset by strong inflows into income, bond and cash flows as many investors chose to de-risk their portfolios. Against this backdrop, we experienced net outflows representing 5.4% of our opening balance.
Any information being provided herein (the “Information”) is not designed for use in any jurisdiction or location where the publication or availability of the Information would be contrary to local law or regulation. If you have access to the Information it is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction and it is recommended an investor first obtain appropriate legal, tax, investment or other professional advice prior to acting upon the Information. Coronation Asset Management (Pty) Limited, Coronation Investment Management International (Pty) Limited and Coronation Alternative Investment Managers (Pty) Limited are authorised Financial Services Providers regulated by the Financial Sector Conduct Authority of South Africa. Coronation Asset Management (Pty) Limited, Coronation Investment Management International (Pty) Limited and Coronation Alternative Investment Managers (Pty) Limited are subsidiary companies of Coronation Fund Managers Ltd, a company incorporated in South Africa and listed on the JSE (ISIN: ZAE000047353). The Information is for information purposes only and does not constitute or form part of any offer to the public to issue or sell, or any solicitation of any offer to subscribe for or purchase an investment, nor shall it or the fact of its distribution form the basis of, or be relied upon in connection with, any contract for investment. Coronation Asset Management (Pty) Limited and Coronation Investment Management International (Pty) Limited are investment advisers registered with the United States Securities and Exchange Commission (“SEC”). An investment adviser’s registration with the SEC does not imply a certain level of skill or training. Additional information about Coronation Asset Management (Pty) Limited and Coronation Investment Management International (Pty) Limited is also available on the SEC’s website at www.adviserinfo.sec.gov. The information in this document has not been approved or verified by the SEC or by any state securities authority. Unit trusts should be considered a medium- to long-term investment. The value of units may go down as well as up and is therefore not guaranteed. Past performance is not necessarily an indication of future performance. Note that individual investor performance may differ as a result of the actual investment date, the date of reinvestment of distributions and dividend withholding tax, where applicable. Where foreign securities are included in a fund it may be exposed to macroeconomic, settlement, political, tax, reporting or illiquidity risk factors that may be different to similar investments in the South African markets. Fluctuations or movements in exchange rates may cause the value of underlying investments to go up or down. Coronation Management Company (RF) (Pty) Ltd is a Collective Investment Schemes Manager approved by the Financial Sector Conduct Authority in terms of the Collective Investment Schemes Control Act. Unit trusts are traded at ruling prices set on every trading day. Unit trusts are allowed to engage in scrip lending and borrowing. Coronation Fund Managers Limited is a Full member of the Association for Savings & Investment SA (ASISA). Opinions expressed in this document may be changed without notice at any time after publication. Nothing in this document shall constitute advice on the merits of buying and selling an investment.