Coronation Fund Managers, which is in the middle of a tax dispute with the SA Revenue Service (Sars), has warned shareholders not to expect a dividend when it releases half-year results in May, as profit is expected to plummet.
The Cape Town-based asset manager said in a trading update on Friday that fund management earnings per share are expected to fall 110%-120% in the six months to end-March resulting in a loss of between 21.5c and 43c per share. Fund management earnings are used to measure operating financial performance, excluding the net mark-to-market impact of unrealised fair value gains and losses and related foreign exchange impacts on invested assets.
Coronation said its earnings per share, headline earnings per share and diluted headline earnings are also expected to fall 101%-111% resulting in a loss per share, headline loss per share and diluted headline loss per share of 2c-21.9c per share.
“As a result of the material financial impact of providing for the tax case, the company will not be declaring an interim dividend for the period ended March 31 2023,” Coronation said in its trading update.
Coronation warned in late February that it would have to raise provisions of between R800m and R900m to cover the cost of its tax dispute with Sars, which relates to its reporting of earnings from an offshore subsidiary going all the way back to 2012. The dispute centres on whether the profits of Coronation’s Irish subsidiary should have been included in the taxable income of the group’s SA holding company.
Sars first raised the issue in 2017 over whether the net income of Coronation Global Fund Managers, should have been included in the taxable income of Coronation Investment Management SA, the group holding company and registered tax entity in SA.
Sars then raised a tax assessment for the firm pertaining to the 2012 to 2017 tax years, which Coronation objected to after consulting with external legal counsel. The matter ended up in the Western Cape High Court, which sat as a tax court and heard the case in 2021. It ruled in favour of Coronation on September 17 2021.
However, Sars took the matter to the Supreme Court of Appeal (SCA), which heard arguments in November 2022, before finding in favour of the tax authority in February 2023. The SCA ruling ultimately set aside the tax court’s decision and ordered Coronation to pay costs.
Coronation said it remains “firmly of the view” that the SCA erred in its ruling and that it has subsequently applied to the Constitutional Court for leave to appeal against the judgment.
“Should the Constitutional Court grant leave to the parties for the matter to be heard, it is likely to be heard in the 2024 financial year,” Coronation said.
The asset manager said its assets under management (AUM) totalled R623bn at end-March 2023. That compares with reported AUM of R610bn at November 15, 2022.
Coronation is scheduled to release results for the six months to end-March on May 23.
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