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Coronation has regal style in financial services growth game
Establishing SA's first hedge fund is just one
of many milestones achieved by Coronation Holdings, writes MARCIA KLEIN
Coronation was established in October 1992 with about R10-million capital and one staff member - David Barnes at home with his telephone.
Since then earnings have grown at a compound rate of 70% a year and the share price has risen more than 70% a year in the past five years to R65 at end-September, placing it seventh in this year's Business Times Top 100.
Apart from its excellent track record, Coronation has achieved many firsts in SA's financial services sector, including the first hedge fund.
Coronation's success lies largely in its emphasis on flexibility and opportunism. "We do not make macroeconomic forecasts for growth and inflation," says Ryan. "All our planning really involves is having a structure to adapt to changing circumstances."
Since starting as a one-man show, the group's growth has been rapid. In 1993 Coronation Asset Management was formed, and Coronation in Jersey was established with initial capital of £10 000. Coronation reported taxed profits of R4.6-million in that year.
In 1994 Coronation Investment Trust - SA's first hedge fund - was formed. By 1995 shareholders' funds exceeded R100-million and 1996 saw the launch of Coronation's first two unit trusts and its stockbroking subsidiary. Last year Coronation bought 25% of Mobile, the holding company of Trencor, and Coronation placed $50-million of Coronation shares with international investors and formed a subsidiary in Dublin with $50-million capital.
Financial services associate African Harvest was formed in partnership with NECorp, with an initial capital of R1-billion and was listed on the JSE in October 1997.
This year saw another listing, this time of its hedge fund under the new name Corohedge, with capital of more than R800-million.
All these developments mean that Coronation now has a range of focused interests in asset management, treasury and financial, corporate and structured finance, container finance, international operations, stockbroking, securities trading and unit trusts.
Yet it has managed to remain small, especially in terms of head count, and focused, with low cost structures.
The group, with a market capitalisation of more than R8-billion, has only 150 employees. They work in teams focused on what they do best and everything else is outsourced. "If we are working in an area, we ask where in that area staff would have the maximum profit impact, and we outsource everything else, like the administration of scrip or IT," Ryan says.
Coronation wastes no energy on things which are not central to its operations. It has a flat management structure, no standardised letterheads, corporate colours, canteens or buildings called "Coronation".
Teams are given a lot of freedom but, at the same time, there is control - "a range within which the teams can operate and trade".
Coronation staff earn well. "We offer outstanding rewards for outstanding performance, a low fixed remuneration with rewards taking account of performance," says Ryan. "Bonuses can be a multiple of basic salary. It is vital that people have a sense of ownership in what they are doing."
Ryan adds that while remuneration is obviously important, it is equally important that people work in a successful team and that they are comfortable and in a place where they like working.
Coronation's future growth is dependent on what its people can achieve. "Therefore it becomes an exercise in how you can retain outstanding people and maintain the momentum and thrust," Ryan says.
Coronation is fortunate in that it has very little legacy, and while Ryan admits there can be a lot of goodwill in an established brand name, a lot of baggage can also be inherited.
The group has also been lucky in that since 1992, financial services has been a good area to be in, although this sector is now becoming increasingly competitive. Ryan says the implications of internationalisation are far reaching.
"Capital does not belong within boundaries and it has become very mobile. We are also seeing increasing specialisation in financial services.
"SA companies must accept that, globally, they will be subject to much more competition and, if there is little skill, they will end up low-margin, high-overhead operations. But if there is a speciality, this can be adapted to work on a larger, more international base."
Coronation's ability to adapt is evident in its consistently strong financial performance. Since 1992 it has achieved a compound growth in earnings a share of 70% while net asset value per share has grown to more than R30 from 70c and its market capitalisation to more than R8-billion. In the year to September 1997 it reported headline earnings of 225c, 72% up on the previous year's 131c a share. Attributable income was 177% higher at R156-million.
In the six months to March this year, headline earnings grew 86% to 162c a share despite a difficult start to the financial year caused by the declines in share prices in October 1997.
The 183% rise in attributable half-year earnings to R149-million partly reflects the inclusion of African Harvest, which made a significant contribution, accounting for a third of profits and of capital. Asset management, now a R20-billion business - lifted its contribution by 110%.
Although Coronation will obviously be affected by the market crash when it reports for the full year, Ryan says Coronation has excellent people and a good reputation.
"We are in growing businesses and have small market share in growth sectors. With our capital base, we have the wherewithal in terms of capital and access to credit."
Coronation also has a growing international base with capital of around $100-million. There are significant opportunities opening up, too, for associate African Harvest, and Coronation will continue to look at new areas in financial services.
Ryan says that with Coronation's flexibility and low fixed cost structure, it is more adaptable than others to volatile conditions in emerging markets. Top of page