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CML
CML
Coronation - Reviewed Financial Results for the year ended 30 September 2006
Coronation Fund Managers Limited
(Incorporated in the Republic of South Africa)
Registration number 1973/009318/06
Share code: CML & ISIN: ZAE000047353
("Coronation" or "the Company")
REVIEWED FINANCIAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2006
* Assets under management increased to R101 billion, up 24%
* Headline earnings per share of 52 cents, up 21%
* Earnings per share pre IFRS 2 of 66 cents, up 35%
* Distribution of 53 cents per share, up 47%
Thys du Toit, CEO commented: "This strong set of financial results stem from
our single minded focus on delivering long-term investment excellence across
all client portfolios. Our assets under management have passed the R100
billion milestone aided by robust domestic market conditions, the continuance
of which is difficult to predict. We believe our aim to continue building a
long-term sustainable business focused on fund management will extend beyond
financial market cyclicality. We will remain focused on long-term investment
excellence for the benefit firstly of our clients and ultimately our
shareholders and staff whose interests are significantly aligned."
Enquiries:
Coronation Fund Managers 021 680 2400
Thys du Toit, CEO 021 680 2015
John Snalam, CFO 021 680 2094
Anton Pillay, COO 021 680 2480
College Hill 011 447 3030
Johannes van Niekerk 082 921 9110
Louise Brugman 083 504 1186
Results
The strong financial results produced by Coronation Fund Managers Limited
(Coronation) for the 2006 financial year, confirm it as one of the most
successful fund management companies in the country. While robust domestic
market conditions contributed to the health of the business, clear focus on
fund management ensures that the company remains single minded in its delivery
of long-term Investment Excellence across all client portfolios.
Coronation has reached a significant milestone with assets under management as
at 30 September 2006 surpassing R100 billion. The growth in Coronation"s
assets under management reflects an unyielding trust by clients in our ability
to deliver investment performance.
The 2006 financial year sees the first-time adoption of the International
Financial Reporting Standards (IFRSs) by Coronation. The main effect on
reported earnings resulting from the transition to IFRSs, are the share-based
payment charges in terms of IFRS 2. For the year ended 30 September 2006 these
total R51 million, compared to a charge for the comparable year to 30
September 2005 of R18 million. These charges are not tax deductible. If these
charges are added back, attributable earnings per share for the year ended 30
September 2006 are 35% up on the previous year.
In the year under review, profit from fund management activities increased by
16% to R294 million. Headline earnings per share increased by 21% to 51,9
cents and diluted headline earnings per share by 14% to 46,8 cents.
Capital structure
Coronation embarked on a share buy-back programme, whereby in the period June
to August 2006 a total of 35 315 852 shares were bought back at a total cost
of R200 million. These shares were all cancelled. Together with additional
shares issued during the year in terms of the exercise of options granted to
staff in December 2003 (2 618 324), this resulted in a weighted average number
of shares in issue for the financial year of 376 670 543 (2005: 382 274 930).
Actual shares in issue at 30 September 2006 were 349 577 402 (2005: 382 274
930).
Post the financial year-end, 4 560 000 of the 7 600 000 convertible redeemable
cumulative preference shares in issue are to be converted into ordinary
shares. These shares will not participate in the capital distribution detailed
below. The balance of 3 040 000 preference shares will be redeemed.
Capital distribution
The cash-generating ability of the business remains exceptional and the board
of directors wishes to continue its policy of generous distributions to
shareholders. As in the past, this will be calculated as 75% of profits after
tax but, for the year under review, will be increased to take account of the
non-cash impact of share-based payment charges.
The resultant distribution for the 2006 financial year will be R185 million
and will be based on the actual shares in issue of 349 577 402 as at 30
September 2006. This equates to a cash distribution per share of 53 cents.
This represents an increase of 47% over the capital distribution for the 2005
financial year (36 cps). The reduced ordinary shares in issue at 30 September
2006 have contributed 8,6% to this uplift.
The distribution will once again take the form of a capital distribution,
which will be paid out of the share premium account in Coronation. Capital
distributions were approved by shareholders at the Annual General Meeting held
in January 2006. This is in lieu of a dividend.
In compliance with the requirements of the JSE Limited, the following dates
are applicable:
Last date to trade Friday, 8 December 2006
Shares trade ex distribution Monday, 11 December 2006
Record date Friday, 15 December 2006
Payment date Monday, 18 December 2006
Share certificates may not be dematerialised or rematerialised between Monday,
11 December 2006, and Friday, 15 December 2006, both dates inclusive.
Investment performance
Long-term investment performance remains strong while our short-term relative
performance has been disappointing. This relative underperformance is as a
result of high-conviction domestic equity investment views. Due to the fact
that all our portfolios reflect the same investment views/"DNA", this trend is
evident across our domestic equity mandates.
Institutional
Institutional assets grew by R13 billion to R75 billion. This excludes new
client mandates across our equity, fixed interest and hedge fund offerings of
some R4 billion that have been awarded, but where the assets have not been
received.
Our flagship domestic balanced portfolios continue to perform strongly over
the longer term, ending in 3rd position in the Alexander Forbes SA Large
Manager Watch for the three and five-year periods. The exceptional performance
of our fixed interest franchise is reflected in our upper quartile position
within the SA Bond Manager Watch. While the absolute return funds remain
closed to new business, our longest-standing fund, the Coronation Absolute
Fund, yielded a compelling active return of 8,3% per annum since inception in
August 1999 over its inflation + 7% benchmark.
Retail
Domestic retail assets under management amounted to R17,8 billion, with R2,7
billion in net inflows into all long-term Coronation funds. Lower-risk managed
funds continued to attract the bulk of new business.
Coronation continued to be rewarded for its investment excellence throughout
the year. In 2005 the company was awarded the coveted Raging Bull Unit Trust
Company of the Year. This was the third time in four years that we had been
presented with this prestigious industry honour. Coronation also received a
total of 14 individual funds awards, and was again ranked `the best provider
of retail asset management services" in the PwC Strategic and Emerging Issues
in South Africa Banking Survey for 2005.
In January 2006 we successfully launched a range of individual retirement
products, which include Retirement Annuity, Preservation, Pension and
Provident funds, Living Annuity and Endowment Plans.
International
We have continued to build the international fund of funds business despite
South African investors having largely avoided investments in global markets
in recent times.
The Coronation Global Equity Alternative Strategy Fund reached its 10th
anniversary in August 2006, making it one of the longest-standing specialist
global long/short fund of hedge funds in the world. It also is one of the
largest, with assets of some US$438 million. Assets under management currently
total US$1,2 billion.
Ownership and transformation
As a result of staff share options being exercised and the conversion of the
preference shares subsequent to year-end, the direct staff shareholding in the
company increased to 20%. Including the shares held by our staff empowerment
vehicle, Imvula Trust, the effective total staff shareholding increases to
28%. These staff shareholding initiatives, which were implemented some 18
months ago, have reinvigorated the company with a spirit of ownership and
allow for the enhanced alignment of interest that will benefit our clients,
staff, shareholders and all other stakeholders.
In terms of transformation, our journey of creating broad-based sustainable
black economic empowerment has been rewarded in our achieving an "A" rating by
EmpowerDex for the second consecutive year.
In South Africa black staff currently comprises more than 50% of our total
staff complement.
Prospects
The fund management industry, and Coronation in particular, is enjoying the
strong conditions in domestic financial markets, the continuance of which is
difficult to predict. It is our aim to continue building a long-term
sustainable business focused on fund management which we believe will extend
beyond financial market cyclicality. We will remain focused on long-term
Investment Excellence for the benefit firstly of our clients and ultimately
our shareholders and staff whose interests are significantly aligned. We
remain singularly focused on fund management and are excited about our future.
Financial statements
The results have been reviewed by the company"s auditors, KPMG Inc. A copy of
their review report is available for inspection at the company"s registered
office.
First-time adoption of IFRSs
As mentioned above, 2006 sees the first-time adoption of IFRSs. An explanation
of the effects of this first-time adoption is presented below.
Change in accounting policy - previous GAAP
In presenting the results for the period, the board has reconsidered the
accounting treatment applied under previous GAAP, to the common control
transaction that involved the acquisition of the company"s operating
subsidiaries prior to its listing in 2003. The effect of the change in
accounting policy is highlighted in the results as presented and has had the
principal effect of recognising goodwill as an intangible asset, prior to the
adoption of IFRSs
Gavan Ryan
Chairman
Thys du Toit
Chief executive officer
John Snalam
Company secretary
Cape Town
14 November 2006
Consolidated income statement
For the year ended 30 September 2006
Reviewed Reviewed
2006 Growth 2005
Notes R"000 % R"000
Fund management activities
Revenue 4.1 706 238 20 588 249
Financial income 4.1 36 054 18 30 640
Interest and dividend 21 614 12 686
income
Other income 14 440 17 954
Operating expenses (436 593) 21 (360 580)
Share-based payment 2.2 (51 384) (18 038)
expense
Other expenses 4.2 (385 209) (342 542)
Interest expense (13 005) (6 009)
Share of profit of 5 1 799 967
associates
Income from fund 294 493 16 253 267
management
Income attributable to
policyholder
linked assets and
investment
partnerships 2.3 43 168 18 641
Net fair value gains on
policyholder and
investment
partnership financial 48 982 40 847
instruments
Administration expenses
borne by
policyholders and
investors in
investment partnerships (5 814) (22 206)
Profit before tax 337 661 271 908
Income tax expense (141 207) 37 (103 039)
Taxation on shareholder (98 039) 16 (84 398)
profits
Taxation on policyholder
investment
contracts 2.3 (43 168) (18 641)
Profit for the year 196 454 16 168 869
Attributable to:
- equity holders of the 196 454 168 283
company
- minority interest - 586
Profit for the year 196 454 168 869
Earnings per share (cents)
- basic 51,9 19 43,8
- diluted 46,8 12 41,7
Note to the income
statement
Headline earnings per
share (cents)
- basic 51,9 21 42,9
- diluted 46,8 14 40,9
BEE transaction (cents per
share)
- special dividend - 1,0
- special capital - 24,0
distribution
Capital distribution per
share (cents)
- payable 53,0 47 36,0
Shares in issue (millions) 349,6 382,3
Weighted average number of
ordinary
shares (millions) 376,7 382,3
Weighted average number of
ordinary
shares (diluted) 424,5 405,1
(millions)
Consolidated balance sheet
As at 30 September 2006
Reviewed Reviewed
2006 2005
Notes R"000 R"000
Assets
Goodwill 3 1 087 772 1 087 772
Equipment 5 932 5 539
Investments in associates 5 11 021 -
Deferred tax assets 2 044 5 466
Investments backing policyholder funds
and investments held through
investment partnerships 2.3 15 984 792 13 644 642
Financial assets available-for-sale 87 327 65 382
Financial assets at fair value through
profit or loss 64 804 77 627
Trade and other receivables 97 636 110 348
Cash and cash equivalents 253 590 245 752
Total assets 17 594 918 15 242 528
Liabilities
Interest-bearing borrowing 139 533 148 000
Deferred tax liabilities 39 906 18 764
Policyholder investment contract
liabilities and liabilities to
holders of interests in investment
partnerships 2.3 15 946 396 13 627 367
Income tax payable 78 955 31 635
Trade and other payables 140 092 108 320
Total liabilities 16 344 882 13 934 086
Net assets 1 250 036 1 308 442
Equity
Issued capital and reserves
attributable to equity holders
of the company 1 250 036 1 307 856
Minority interest - 586
Total equity 1 250 036 1 308 442
Condensed consolidated statement of cash flows
For the year ended 30 September 2006
Reviewed Reviewed
2006 2005
R"000 R"000
Cash flows from operating activities
Profit for the period 196 454 168 869
Income tax expense 141 207 103 039
Non-cash adjustments 14 033 (2 538)
Working capital changes 45 353 15 737
Cash generated from operations 397 047 285 107
Interest paid (13 874) (480)
Income taxes paid (69 323) (123 382)
Net cash from operating activities 313 850 161 245
Net cash from investing activities 10 627 (13 091)
Net cash from financing activities (339 083) (44 064)
Shares issued, repurchased and cancelled (191 200) -
Capital distributions and dividends paid (139 416) (192 064)
(Decrease)/increase in interest-bearing
borrowings (8 467) 148 000
Net (decrease)/increase in cash and cash
equivalents (14 606) 104 090
Cash and cash equivalents at beginning
of period 245 752 143 667
Exchange rate adjustments 22 444 (2 005)
Cash and cash equivalents at end of period 253 590 245 752
Condensed consolidated statement of changes in equity
For the year ended 30 September 2006
Foreign
currency
Share Share translation Accumulated
R"000 capital premium reserve earnings
Balance at 30
September 2004
- as previously
reported
39 93 561 (9 242) 140 185
Change in
accounting
policy - note 3
1 170 696 (82 924)
Balance at
30 September
2004
- SA GAAP
restated 39 1 264 257 (9 242) 57 261
Share-based
payment
expense (3 569)
Balance at
30 September
2004
- under IFRS 39 1 264 257 (9 242) 53 692
Currency
translation
differences (2 005)
Revaluation of
available-
for-sale
financial
investments
Net income
recognised
directly in
equity (2 005)
Profit for the
period 168 283
- SA GAAP 186 321
- Adoption of
IFRS: share-
based payment
expense
(18 038)
Total
recognised
income
and expense for
the year (2 005) 168 283
Share-based
payment reserve
Dividends paid (100 318)
Capital
distribution (91 746)
Balance at
30 September
2005 39 1 172 511 (11 247) 121 657
Currency
translation
differences 22 444
Revaluation of
available-
for-sale
financial
investments
Net income
recognised
directly in
equity 22 444
Profit for the
period 196 454
Total
recognised
income
and expense for
the year 22 444 196 454
Share-based
payment reserve
Dividends paid
(1 219)
Capital
distribution (138 197)
Shares issued 8 967
Shares
repurchased
And cancelled (3) (200 164)
Acquisition of
minority
interest
Balance at
30 September
2006 36 843 117 11 197 316 982
Condensed consolidated statement of changes in equity
For the year ended 30 September 2006 (continued)
Share- Issued
capital and
reserves
based Re- attributable
payment valuation to equity
holders of
R"000 reserve reserve the company
Balance at 30
September 2004
- as previously
reported
1 188 225 731
Change in
accounting
policy - note 3
1 087 772
Balance at
30 September
2004
- SA GAAP
restated 1 188 1 313 503
Share-based
payment
expense 3 569
Balance at
30 September
2004
- under IFRS 3 569 1 188 1 313 503
Currency
translation
differences (2 005)
Revaluation of
available-
for-sale
financial
investments 2 101 2 101
Net income
recognised
directly in
equity 2 101 96
Profit for the
period 168 283
- SA GAAP
- Adoption of
IFRS: share-
based payment
expense
Total
recognised
income
and expense for
the year 2 101 168 379
Share-based
payment reserve
18 038 18 038
Dividends paid (100 318)
Capital
distribution (91 746)
Balance at
30 September
2005 21 607 3 289 1 307 856
Currency
translation
differences 22 444
Revaluation of
available-
for-sale
financial
investments 2 514 2 514
Net income
recognised
directly in
equity 2 514 24 958
Profit for the
period 196 454
Total
recognised
income
and expense for
the year 2 514 221 412
Share-based
payment reserve 51 384 51 384
Dividends paid
(1 219)
Capital
distribution (138 197)
Shares issued 8 967
Shares
repurchased
And cancelled (200 167)
Acquisition of
minority
interest
Balance at
30 September
2006 72 991 5 803 1 250 036
Condensed consolidated statement of changes in equity
For the year ended 30 September 2006 (continued)
Minority Total
R"000 interest equity
Balance at 30
September 2004
- as previously
reported
225 731
Change in
accounting
policy - note 3
1 087 772
Balance at
30 September
2004
- SA GAAP
restated 1 313 503
Share-based
payment
expense
Balance at
30 September
2004
- under IFRS 1 313 503
Currency
translation
differences (2 005)
Revaluation of
available-
for-sale
financial
investments 2 101
Net income
recognised
directly in
equity 96
Profit for the
period 586 168 869
- SA GAAP
- Adoption of
IFRS: share-
based payment
expense
Total
recognised
income
and expense for
the year 586 168 965
Share-based
payment reserve 18 038
Dividends paid
(100 318)
Capital
distribution (91 746)
Balance at
30 September
2005 586 1 308 442
Currency
translation
differences 22 444
Revaluation of
available-
for-sale
financial
investments 2 514
Net income
recognised
directly in
equity 24 958
Profit for the
period 196 454
Total
recognised
income
and expense for
the year 221 412
Share-based
payment reserve 51 384
Dividends paid
(1 219)
Capital
distribution (138 197)
Shares issued 8 967
Shares
repurchased
And cancelled (200 167)
Acquisition of
minority
interest (586) (586)
Balance at
30 September
2006 1 250 036
Segment report
for the year ended 30 September 2006
South Africa International
2006 2005 2006 2005
R"000 R"000 R"000 R"000
Segment revenue
632 833 510 518 73 405 77 731
Segment operating
expenses
(372 776) (300 290) (63 817) (60 290)
Segment result
for the year
260 057 210 228 9 588 17 441
Segment net
financial income
14 444 24 289 8 605 342
Segment share of
profit of
associates
1 799 967 - -
Segment income
from fund
management
276 300 235 484 18 193 17 783
Segment report
for the year ended 30 September 2006
Consolidated
2006 2005
R"000 R"000
Segment revenue
706 238 588 249
Segment operating
expenses
(436 593) (360 580)
Segment result
for the year
269 645 227 669
Segment net
financial income
23 049 24 631
Segment share of
profit of
associates
1 799 967
Segment income
from fund
management
294 493 253 267
Notes to the consolidated financial statements
1. Basis of preparation and transition to IFRS
The group has adopted International Financial Reporting Standards (IFRSs) for
the year ended 30 September 2006. The financial information has been prepared
in accordance with the recognition and measurement principles of IFRSs, the
disclosure and presentation requirements of IAS34 Interim Financial Reporting,
the requirements of the South African Companies Act, Act 61 of 1973, as
amended, and the Listings Requirements of the JSE Limited (JSE). These are the
group"s first IFRS consolidated financial statements and IFRS 1 First-time
Adoption of International Financial Reporting Standards (IFRS 1) has been
applied. The condensed consolidated financial statements do not include all of
the information required for full annual financial statements.
The accounting policies adopted on transition to IFRSs have been applied
consistently throughout the group for purposes of preparing these condensed
consolidated financial statements.
2. Application of IFRS 1 and accounting policies adopted on conversion to IFRS
2.1 Application of IFRS 1
The group has elected not to apply IFRS 3 Business Combinations (IFRS 3)
retrospectively to business combinations that occurred prior to 1 October
2004. The group has however reconsidered the accounting policy applied to
common control transactions under its previous GAAP, prior to transition to
IFRS (refer note 3 below).
2.2 Share-based payment transactions
The fair value of share options under employee share incentive schemes and
other equity instruments granted to group employees is recognised as an
expense with a corresponding increase in equity. The fair value is measured at
grant date and expensed over the period during which the employee becomes
unconditionally entitled to the equity instruments. The fair value of the
instruments granted is measured using generally accepted valuation techniques,
taking into account the terms and conditions upon which the instruments are
granted. The amount recognised as an expense is adjusted to reflect the actual
number of share options that vest except where forfeiture is only due to
market conditions not being met. This accounting policy has been applied to
all equity instruments granted after 7 November 2002 that had not yet vested
at 1 January 2005.
Black economic empowerment transactions
Transaction recognition criteria
In circumstances where a portion of the equity in a subsidiary company is
disposed of and serves as security for the funding of the proceeds receivable,
the accounting recognition of the disposal of such shares in the group
financial statements is deferred until the funding subject to the security of
the equity sold, has been fully repaid.
Share-based payment
The group is extending the scope of IFRS 2 Share-based payment (IFRS 2) to
include the group"s black economic ownership initiatives in accordance with
international interpretations in this regard. Where goods or services are
received from black economic empowerment partners as consideration for equity
instruments of the group, then these transactions are accounted for in terms
of IFRS 2, even when the entity cannot specifically identify the goods and
services received.
The terms and conditions of the share grants and BEE transaction are disclosed
in the most recent annual financial statements and interim financial results
for the period ended 31 March 2006, together with the assumptions applied in
determining the value of services received for these share grants and hence
the share-based payment expense.
2.3 Investment contract liabilities and associated linked investments
The financial instruments that arise as a result of the issuance of investment
contracts by the group are accounted for in terms of IAS 32 Financial
Instruments - Presentation and Disclosure and IAS 39 Financial Instruments -
Recognition and Measurement and are designated as financial instruments at
fair value through profit or loss. This designation significantly reduces a
measurement inconsistency that would otherwise arise. Commitments received
from policyholders and benefit payments made to policyholders are not
recognised in the income statement. Changes in the fair value of these
financial instruments are recognised in the income statement in the period in
which they arise. The fair value of linked investment contract liabilities is
determined based on the fair value of the associated linked financial asset
and is net of the taxation payable on investment gains. The taxation payable
is separately disclosed as part of taxation in the income statement.
2.4 Goodwill
Goodwill is frozen at the amortised value at 1 October 2004 and is tested for
impairment annually in terms of IAS 36 Impairment of Assets.
3. Change in accounting policy - previous GAAP
Common control transactions
The board has reconsidered the accounting treatment applied under the
company"s previous GAAP, to the acquisition of its operating subsidiaries
prior to the company"s listing in 2003. Having previously accounted for this
common control transaction at net book value, the board has elected to restate
this acquisition by applying the requirements of AC131, which was the most
relevant standard effective at that time, so as to more clearly reflect the
value at which that transaction was concluded. The effect of the change in
accounting policy is highlighted in the results as presented and has had the
principal effect of recognising goodwill as an intangible asset prior to the
adoption of IFRS. The transaction has been restated so as to be recorded at
R1,26 billion in the group accounts, being the value at which the 382 274 930
ordinary shares that were issued in settlement of the purchase consideration,
listed on 13 June 2003.
Goodwill thereby recognised after amortisation, amounts to R1,2 billion. The
carrying value was amortised from the effective date of the transaction to 30
September 2004.
4. Explanation of transition to IFRS
An explanation of how the transition to IFRSs has affected the reported
financial position and financial performance of the group is provided in the
Statement of Changes in Equity. This statement includes reconciliations of
equity and profit after tax as reported for comparative periods under SA GAAP,
to that reported under IFRSs.
4.1 Revenue
Revenue from fund management activities comprise fund management fees, service
fees and initial charges. Revenue under SA GAAP included interest, dividend
and other income. These items have been reclassified as financial income in
presenting the income statement on adoption of IFRSs. Revenue has been grossed
up to adjust for trail commission and fees payable to financial intermediaries
for services rendered to the group.
4.2 Operating expenses
Certain items previously included as operating expenses have been reclassified
to financial income in presenting the income statement on adoption of IFRSs.
Expenses have been grossed up to adjust for trail commission and fees payable
to financial intermediaries for services rendered to the group.
4.3 Balance sheet presentation
The presentation of assets and liabilities in the balance sheet has been
amended to be based on liquidity.
4.4 Cash flow statement
There is no impact on the value of cash and cash equivalents as a result of
the adoption of IFRSs. Dividends paid were previously disclosed as part of net
cash from operating activities and have been reclassified so as to form part
of net cash from financing activities.
5. Investment in associate
Coronation purchased 48% of the issued shares in Namibia Asset Management
Limited, which is listed on the Namibian Stock Exchange, for R9 million.
Directors:
G M C Ryan* Chairman, M M du Toit Chief Executive Officer, W T Floquet*+, L F
Stassen, S Pather*+ (* Non-executive + Independent)
Registered office:
Coronation House, Boundary Terraces, 1 Mariendahl Lane, Newlands 7700
Postal address:
PO Box 993, Cape Town 8000
Registration number:
1973/009318/06
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Limited, 70 Marshall Street,
Johannesburg 2001
JSE share code: CML
ISIN: ZAE000047353
Website: www.coronation.com
Date: 14/11/2006 07:07:44 AM Produced by the JSE SENS Department
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