FirstRand Limited has updated its guidance on operational and financial performance for the year ending June 30, 2024.
Stronger Underlying Performance
FirstRand’s portfolio performed better than anticipated in the second half of the financial year.
- Higher Earnings Growth: Earnings growth from operations exceeded expectations set in February 2024.
- Offset by Provision: Growth was offset by an accounting provision for the UK motor commissions review.
Macroeconomic Environment
The macroeconomic environment remained as anticipated, with high interest rates and inflation.
- Household Pressures: High interest rates and inflation continued to pressure household affordability.
- Benign UK Environment: The UK environment was more favorable than expected.
Income Statement Trends
Key income statement lines performed better than estimated in the second half of the financial year.
- Net Interest Income: Benefited from improved investment rates and asset-liability management.
- Resilient Advances and Deposits: Growth remained resilient and in line with guidance.
- Stronger Non-Interest Revenue: Non-interest revenue grew markedly, benefiting from diversified capital-light income streams.
Segment Performance
Each segment showed varying levels of performance improvement.
- RMB: Strong growth in knowledge-based fee income and private equity realizations.
- FNB: Slightly higher fee and commission income due to increased customer activity.
Credit Performance
The group’s overall credit performance trended better than guidance.
- Credit Loss Ratio: Expected to be closer to the bottom end of the through-the-cycle range.
- UK Operations: Better-than-expected credit performance due to reducing cost-of-living pressures and provision releases.
Operating Expenses
Operating expenses were well managed, with mid-single-digit growth.
- Cost Management: Driven by FNB’s ongoing focus on cost management.
UK Motor Commissions Review
FirstRand raised an accounting provision for the UK motor commissions review.
- FCA Review: The UK Financial Conduct Authority (FCA) is reviewing discretionary commission arrangements in the UK motor finance market.
- MotoNovo Loans: Most vehicle loans under review reside in FirstRand Bank’s London branch as MotoNovo back book.
- Provision Decision: Raised a provision based on probability-weighted scenarios, including legal and redress costs.
Earnings Growth Estimates
Updated ranges for earnings growth due to the provision.
| Metric | Prior Period (cents) | Expected Increase (%) | Expected Range (cents) |
|---|---|---|---|
| EPS | 648.1 | 1% – 8% | 654.6 – 699.9 |
| Headline EPS | 654.7 | 1% – 5% | 661.2 – 687.4 |
| Normalised EPS | 653.1 | 1% – 5% | 659.6 – 685.8 |
Conclusion
FirstRand’s better-than-expected second-half performance and provision for UK motor commissions demonstrate operational resilience amid challenging conditions. The group’s robust capital and liquidity levels underpin its strategic objectives and shareholder value.