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FIRSTRAND LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1966/010753/06
JSE ordinary share code: FSR; ISIN: ZAE000066304
NSX ordinary share code: FST
LEI: 529900XYOP8CUZU7R671
VOLUNTARY TRADING UPDATE AND TRADING STATEMENT FOR THE TWELVE
MONTHS ENDING 30 JUNE 2024
FirstRand Limited (FirstRand or the group) today updates its
guidance on the group's operational and financial performance
for the twelve months to 30 June 2024 (financial year or the
current period).
FirstRand's portfolio produced a stronger underlying performance
than anticipated in the second half of the financial year. This
resulted in higher earnings growth emanating from operations,
compared to guidance provided in February 2024 when the group
announced its interim results. Earnings growth is, however,
offset by the decision to raise an accounting provision for the
previously disclosed UK motor commissions review process.
Operational performance better than expected.
The macroeconomic environment in most of the jurisdictions where
the group operates remained largely as anticipated,
characterised by persistently high interest rates and inflation,
resulting in ongoing affordability pressures, particularly for
households. However, the UK macroeconomic environment proved to
be more benign than expected.
Against this backdrop, some of the key income statement lines
trended better than estimated during the second six months of
the financial year.
Net interest income benefited from improved investment rates
afforded by market volatility and ongoing asset and liability
management strategies executed by Group Treasury. Advances and
deposits growth remained resilient and in line with guidance.
Growth in the group's non-interest revenue was markedly stronger
than in the first half of the financial year, demonstrating the
benefits of its diversified capital-light income streams.
RMB produced stronger than expected growth in knowledge-based
fee income and a private equity realisation of a similar value
to the private equity realisation in the first half of the
financial year.
Despite fee reductions in the retail and commercial segment
continuing in the second half of the financial year, FNB
delivered slightly higher levels of fee and commission income
compared to the first half of the financial year, the result of
increased customer activity.
The group's overall credit performance is trending better than
guidance, with the credit loss ratio now expected to be closer
to the bottom end of the group's through-the-cycle range.
Although impairments are higher than anticipated in certain
retail portfolios, this has been offset by a better-than-
expected credit performance from the UK operations. This was
mainly as a result of reducing cost-of-living pressures, which
allowed for partial provision releases. In addition, the
resolution of the previously disclosed notice of sums in arrears
remediation process allowed for a further provision release.
Overall group operating expenses have been well managed to mid-
single-digit growth. This is a more positive outcome than
initially expected, mainly driven by FNB's ongoing focus on cost
management.
Accounting provision raised for UK motor commissions review
process.
As previously communicated to shareholders, the UK's Financial
Conduct Authority (FCA) announced that it is undertaking a
review of the historical use of discretionary commission
arrangements and sales by the mainstream lenders in the UK motor
finance market. The FCA plans to set out next steps by the end
of September 2024.
Shareholders should note the following:
- most of the vehicle loans originated within the scope of
the FCA review reside in FirstRand Bank's London branch in
the form of the MotoNovo back book, which was not
transferred to Aldermore when it acquired the MotoNovo
business from FirstRand in May 2019;
- a smaller cohort of such loans resides in the MotoNovo
front book as MotoNovo phased out discretionary commission
arrangements by January 2021;
- not all loans originated through dealers in the review
period used discretionary commission arrangements; and
- where individual cases have been tested in county courts,
unfairness and/or customer detriment was not demonstrated
in the majority of cases.
The group continues to believe that MotoNovo's historical
practices were compliant with the law and regulations in place
at the time.
However, uncertainty persists whilst the FCA process runs its
course and legal risk remains as individual cases continue to be
tested and taken on appeal. In addition, the FCA has
subsequently published the following statement:
"We have observed firms taking different approaches to account for
the potential impact of previous use of DCA on their financial
resources. So, we are writing to firms to remind them they must
maintain adequate financial resources at all times."
Given the prevailing uncertainty and the above statement, the group
has taken the decision to raise an accounting provision based on
probability-weighted scenario principles constructed from its own
data analysis, and which includes potential legal and redress
costs. The amount provided is a best estimate of what can be raised
as a conservatively struck accounting provision. The methodology
used to inform the provision will be reviewed as part of the
group's year-end audit and governance process.
It is worth noting that other firms operating in the motor finance
sector in the UK, also participating in the FCA process, have
raised accounting provisions.
As a result of the provision, updated ranges for earnings growth
are outlined below:
- earnings per share (EPS) for the current period is expected to
increase between 1% and 8% compared to the reported EPS for the
prior comparable period (648.1 cents per share), resulting in a
range of between 654.6 cents per share and 699.9 cents per share;
- headline EPS for the current period is expected to increase
between 1% and 5% compared to the reported headline EPS for the
prior comparable period (654.7 cents per share), resulting in a
range of between 661.2 cents per share and 687.4 cents per share;
and
- normalised EPS for the current period is expected to increase
between 1% and 5% compared to the reported normalised EPS for the
prior comparable period (653.1 cents per share), resulting in a
range of between 659.6 cents per share and 685.8 cents per share.
As previously stated, the group believes normalised earnings more
accurately reflect operational performance.
The return on equity will remain within the target range of 18%
to 22%, and the group's capital and liquidity levels remain
strong and above internal targets.
FirstRand's customer franchises are in good health and remain
operationally resilient. Strategies are tracking as expected.
This stronger performance for the second half of the financial
year is a pleasing outcome, given the challenging operating
environment. It has allowed the group to deliver higher earnings
growth and returns to shareholders than expected and enabled it
to absorb a conservatively struck accounting provision.
Shareholders are advised that the financial information on which
this voluntary trading update and trading statement is
based has not been reviewed or reported on by the group's
external auditors. The group will announce financial results for
the full year to 30 June 2024 on Thursday, 12 September 2024.
Sandton
27 June 2024
Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)
Date: 27-06-2024 01:15:00
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