South Africa may face unacceptable energy deficits for decades as its long-term plans do not sufficiently address the scale of new baseload capacity nor the transmission infrastructure required.
This was according to Coronation Fund Managers’ directors, which said in its results for the six months to March 31 that decisions on these issues needed to be taken now.
They said that while the performance of the economy was discouraging, with long-term fundamentals continuing to deteriorate and little concrete action being taken to drive meaningful change, “our biggest immediate concern is the state of electricity generation.” The group manages more than R600 billion in investment assets.
Recent regulatory relaxation to allow private sector power generation should reduce the intensity of load shedding in the medium term. However “if these investments (baseload capacity and transmission infrastructure) are not sufficiently prioritised, then the system will be unable to support renewables at the scale currently envisaged,” they said.
They said Coronation would not pay an interim dividend due to a provision on a tax dispute with SA Revenue Service (Sars) that resulted in interim headline earnings per share falling 97% to 6.2 cents.
Fund management earnings, excluding the impact of the obligation payable to SA Revenue Service (Sars), amounted to 191.5 cents per share compared to 214.8 cents the prior corresponding period.
Despite this, directors said the group had proven its resilience in challenging local and global markets with “compelling long term performance across its local portfolios.” Closing assets under management (AUM) increased 9% to R623bn compared with R574bn at September 30, 2022. Over 95% of the portfolios had outperformed their benchmarks since inception.
The global portfolio had been particularly encouraging over the past 12 months and “we remain of the view that the above macro shocks have created attractive stock-picking opportunities for those investors prepared to take a long-term view.”
Outflows amounted to 5% of average AUM, in line with recent experience and a trend the group expected would continue as the local savings pool continues to contract.
Fixed expenses increased 11% largely driven by the normalisation of costs after the Covid pandemic, with key drivers the resumption of travel and an increased investment in marketing.
The average rand dollar exchange rate weakened by 15% from the comparative period, impacting many expenses, particularly technology.
“The group is firmly of the view the Supreme Court of Appeal (SCA) erred in its ruling with respect to Coronation's dispute with Sars.”
The directors said they were confident in the strength of their position in the dispute and had applied for the right to appeal in the Constitutional Court. A full provision had been made for the impact of the SCA judgement.
The impact of the obligation to SARS as per the SCA judgement was R716m.
The potential impact of the tax dispute had been accounted for in the interim results, and it had not had a material impact on Coronation’s long-term sustainability and the group remained fully operational and well capitalised, directors said.
“While the past 18 months have been incredibly difficult for investors, we are positive about the opportunities that economic stress is providing to patient investors who are prepared to take the long-term view,” they said.
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