Coronation Fund Managers on Tuesday reported a 23 percent decline in diluted headline earnings per share to 24 cents for the six months ended March from 31.1 cents a year. Basic HEPS declined to 26.6 cents from 34.7 cents before.

The full effect of the share buy-back and cancellation programme embarked upon during the 2006 and 2007 financial years had a positive impact on these per share figures, the group said.

Coronation cautioned in January that the slowdown in the group's revenue growth and the dividend tax charge accounted for in this interim period would result in earnings being lower than the previous corresponding period.

Revenue for the six months ended March, comprising annual recurring fees and performance fees, remained flat at R421-million from a previous R423-million, despite a 64 percent fall in performance fees, anticipated in volatile market conditions.

CEO Hugo Nelson commented: "The six months under review was characterised by negative global market sentiment which extended to global emerging markets, triggering an indiscriminate sell-off in the South African financial and industrial sector. We produced a satisfactory set of interim results notwithstanding the challenges imposed in this market turmoil."

Operating expenses of R269-million increased by five percent. A significant contributor to this has been fund distribution costs which, whilst being variable, are nevertheless paid on the asset base or fixed component of fee revenue.

A further negative cost impact arises in the taxation charge where a secondary tax on companies charge of R15-million was accounted for in the current six month period. A similar charge was not incurred in the previous comparable period, when a capital distribution was paid in lieu of a dividend.

Assets under management grew by a "pleasing" 11 percent to R136-billion, the group said. "A significant proportion of this growth is attributable to our growth in the fixed interest market; further entrenching Coronation as a manager across all asset classes," Nelson said.

"We remain singularly focused on fund management and the ongoing support of our clients is vital to our success. Our philosophy of investing with a long-term time horizon and commitment to proprietary research has, amid the volatility and indiscriminate market sell-off, given us the opportunity to strengthen our positioning in high conviction calls," Nelson said.

Coronation continues to invest considerable resources and effort in building a sustainable business and has embarked on a number of business initiatives that will, in due course, add to revenue and profitability.

The PPS Investments business, the investment arm of The Professional Provident Society, continues to gain traction in the marketplace. In addition, Coronation has started to build a private equity offering that will enable its clients to maximise their asset allocation to alternative investments. A team of three professionals joined the business in November 2007.

Coronation is also set to launch a comprehensive range of international funds to both institutional and individual investors, pending regulatory approval. The Coronation Global Emerging Markets Flexible Fund was successfully launched in December 2007 to the retail market. This was followed by the launch of the hedge fund, Coronation Global Emerging Markets Opportunities Fund in February 2008.

"We continue with our objective of rewarding shareholders through regular and significant distributions of free cash flow generated. Given the extent of volatility in the market, we have decided to only distribute two thirds of our target distribution of 75 percent of after-tax cash profits generated during the period, at this time which translates to 16 cents per share," Nelson said.

The outlook for the financial markets suggests that market volatility will continue for the foreseeable future.

"Although this undoubtedly will have an impact on our profitability over the next six months, we are confident that we have the right strategy, business model and investment philosophy focused on delivering long-term investment returns for our clients. Our business has a diversified revenue stream, a strong cash flow and continues to be singularly focused on fund management," Nelson concluded.

I-Net Bridge