Coronation Fund Managers halted its dividend on Tuesday for the first time since it listed on the JSE in 2003 following an adverse Supreme Court of Appeal (SCA) tax ruling earlier this year.

‘As a result of the impact of the latest tax ruling, Coronation will not be paying an interim dividend,’ the company said in a statement. ‘This is in line with our dividend policy, which states that dividend payouts depend on our after-tax cash profits.’ 

During an interview with Citywire South Africa, Coronation chief executive Anton Pillay (pictured below) said that during his 16 years at the asset manager, the company had always declared interim and final dividends, until the SCA ruling.

 As a result of that SCA ruling, Coronation faces a potential extra tax bill of at least R716m, made up of tax due and interest, covering the period from 2012 to March 2023. However, Coronation has filed court papers with the Constitutional Court for leave to appeal the SCA ruling.

According to Coronation, Sars’ response to the company’s leave to appeal application saw it file court papers that seek further tax penalties related to the tax dispute that could result in a further tax for Coronation’s account if the appeal does not go in its favour. However, the SCA dismissed Sars’ claim for penalties.

‘The group is firmly of the view that the SCA erred in its ruling with respect to Coronation’s dispute with the South African Revenue Service,’ the company said.  

‘In the event of recovery from Sars, the impact will be reversed,’ Coronation added. 

Appealed
‘Sars has also appealed to the Constitutional Court in relation to the penalties that were waived by the SCA,’ said Musekiwa. ‘This is an important point to raise that the SCA, as well as the Western Cape Tax Court, do not believe there was any malicious behaviour by Coronation, and no penalties were imposed by both courts.’

Pillay said he expected the Constitutional Court to hear Coronation’s leave-to-appeal application within two to nine months. If that appeal was successful, the apex court could hear the matter in one to two years.  

For the half-year ended March 2023, Coronation reported that its performance fees dropped by 43% to R155m for the six months, down from R272m for the half-year ended March 2022. Pillay said this drop in Coronation’s performance fees covered institutional and retail portfolios.  

‘While the potential impact of the ongoing tax dispute with Sars has been accounted for in these interim results, it has not had a material impact on Coronation’s long-term sustainability, and the group remains fully operational and well capitalised,’ Coronation wrote in its latest interim results.  

Coronation reported a 6% decline in revenue to R1.8bn for the half year ended March 2023, down from R1.9bn for the previous comparative half year. In addition, the company reported that its expenses increased by 22% to R1.2bn during the half year while total fixed costs increased by 11% to R467m. 

‘Very discouraging’ 
Turning to the outlook, the company said it was positive about the opportunities that economic stress provides to patient investors. However, Coronation said the performance of the South African economy had been ‘very discouraging’ as long-term fundamentals continued to deteriorate and little concrete action was being taken to drive meaningful change.  

‘Despite the prevailing headwinds, Coronation has proven its resilience with compelling long-term performance across our local portfolios and closing AUM for the period up 9% at R623bn compared to R574bn at the end of September 2022,’  the company stated.

However, compared with the AUM at the end of March 2022 of R625bn, AUM declined marginally. On the other hand, Coronation reported that outflows amounted to almost 5% of its average AUM.  

‘This is in line with our recent experience and is a trend we expect to continue as the local savings pool continues to contract,’ the asset manager added.