Heartland Group Holdings Ltd. · NZX:HGH
Heartland — Heartland New Zealand — FY2012 Earnings Presentation
34 slides from Heartland's earnings presentation, August 2012
Slide 1: Annual Results to 30 June 2012
Ti l goes h Title here – June J 2012 Annual Results to 30 June 2012 Jeff Greenslade Annual Results to 30 June 2012 | Page 1 Simon Owen Craig Stephen
Slide 2: Important Notice
Important Notice This p presentation has been p prepared p byy Heartland New Zealand Limited (Heartland) (NZX: HNZ) for the purpose of briefings provided by HNZ in relation to its financial statements. The h presentation i andd the h briefing b i fi constitute i summary information i f i only, and y
Slide 3: Agenda
Agenda • Introduction I d i J ff Greenslade Jeff G l d • Financial Overview Simon Owen / Craigg Stephen p • Operational Review & Jeff Greenslade Strategic Update • Questions Annual Results to 30 June 2012 | Page 3
Slide 4: Introduction
Introduction Achievements 1. PGG Wrightson Finance Limited (PWF) acquisition supported by successful capital raising 2. Investment grade credit rating affirmed and outlook improved to stable 3. Core earnings and profitability improving 4 Balance sheet strengthened 4. 5. Improved liquidity position a
Slide 5: Financial Overview
Financial Overview Simon Owen / Craig Stephen Annual Results to 30 June 2012 | Page 5
Slide 6: Financial Statements
Financial Statements • 30 June 2012 result represents 12 months of Heartland Group. It includes 10 months of PWF result from 31 August 2011. • 30 Ju Junee 2011 0 reported epo ted result esu t represents ep ese ts ssix months o t soof tthe e MARAC C Group (to 6 January 2011), plus six months of the H
Slide 7: Financial Year Overview
Financial Year Overview ‐ FY12 profit in line with guidance • Achieved NPAT of $23.6m 30 June 2012 30 June 2011 (NZ$m) (NZ$m) • Includes c udes one‐off o e o tatax ccredits ed ts o of $9 $9.6m 6 Net interest income 83.6 61.6 Net other income 11.3 8.9 • Normalised NPAT $14.0m vs $7.1m Net operating i
Slide 8: Half Yearly Performance
Half Yearly Performance ‐ Trend improvement in profitability • Net Operating Income up H1 H2 30 June 2012 (NZ$m) (NZ$m) (NZ$m) $5.1m Net interest income 39.1 44.5 83.6 Net other income 5.8 5.5 11.3 • Expenses down $5.8m Net operating income 44.9 50.0 94.9 • Operating expense ratio Expenses 35.7 29.9
Slide 9: Operational Efficiency
Operational Efficiency ‐ Trend improvement in cost control H1 2011 * H2 2011 H1 2012 H2 2012 • Key areas of focus and whilst trend Cost to income ratio 55% 72% 80% 60% improvement, we remain behind peers * 6 months ended 31 December 2010 reflects the ratio for MARAC only. • Trend improvement in cost
Slide 10: Balance Sheet Summary
Balance Sheet Summary ‐ Strong balance sheet • Total assets increased by $230m 30 June 2012 30 June 2011 (NZ$m) (NZ$m) Total assets 2,348.1 2,117.9 • Net finance receivables rose by $371m Total liabilities 1,973.3 1,821.5 Total equity 374.8 296.4 • Carrying cash of $90m, with total liquidity Equity
Slide 11: Net Finance Receivables
Net Finance Receivables Net Finance Receivables 2,500.0 ‐ Greater balance in portfolio mix $2,078m • PWF acquisition gives Rural scale 2,000.0 • The three core business divisions: Retail & $1,707m Consumer, Business, and Rural, now well 1,500.0 954.8 represented Retail & Consumer $m 1 002 4 1,002.4
Slide 12: Net Operating Income – Relative Contribution
Net Operating Income – Relative Contribution Net Operating Income ‐ Greater diversity of income sources 100 $95m 90 • Rural growth better diversifies Heartland’s 80 earnings 45 $70m 70 • Retail & Consumer remain the most 60 significant contributor Retail & Consumer Business $m 50 41 $ R l Rural • Co
Slide 13: Asset Quality Trends
Asset Quality Trends ‐ Trend improvement in underlying asset quality • Arrears and impaired assets Heartland Asset Quality remain at elevated levels due to 200 Non‐Core legacy property assets 180 – now segregated and actively 160 being managed out 140 paired Assets ($m) 122 118 120 • Real Estate Cre
Slide 14: Capital
Capital ‐ Ratios significantly in excess of prudential requirements • Surplus capital held, well in advance Tier 1 & Total Capital Ratios 20.0% of NBDT and RBNZ minimum capital 18.0% 16.0% adequacy ratios 14.0% 12.0% • Year end NBDT capital ratio of 10.4% 10.0% 8.0% and RBNZ capital ratio of 14.5% 1
Slide 15: Solid Funding Base
Solid Funding Base ‐ Stable and diverse funding base Total Funding Sources Retail Funding Split Depositor Geographic Split Retail Wholesale Equity Direct Branches Intermediaries as at 30 June 2012 100% 10% 100% 90% 20% 6% 13% 14% 15% 90% 10% 80% 80% 23% 25% 70% Canterbury 70% 24% 50% 60% 42% Rest of
Slide 16: Liquidity
Liquidity Undrawn Standby Facility Liquidity Split Undrawn Securitisation Facility Cash and Liquid Assets 100% 90% 25% ‐ Strong liquidity position 80% 50% 70% 60% • Improving liquidity mix 50% 40% 14% 41% • Strong positive cash flows from 30% 20% 36% 33% asset base 10% 0% • Staggered maturity profil
Slide 17: Cost of Funds
Cost of Funds ‐ Funding margin cut in half! • Cost of funds continues to track lower • New call and savings products with enhanced ‘banking’ functionality will continue to drive performance p Trend of Heartland Term Deposit Margins Over Bank Rates 140 bp) 120 Margin Over Bank Rates (b 100 80 60 Fund
Slide 18: Investment Grade Credit Rating
Investment Grade Credit Rating In its research update, dated 6 December 2011, S&P stated “…upward rating prospects… require evidence of: • The successful progression of its bank license application, • An improvement in its deposit reinvestment experience, and • Evidence of its ability to compete wit
Slide 19: Operational Review & Strategic Update
Operational Review & Strategic Update Jeff Greenslade Annual Results to 30 June 2012 | Page 19
Slide 20: Operational Performance
Operational Performance ‐ Balanced Portfolio Heartland aims to have a balanced portfolio across the three key areas of the New Zealand economy: • Business • Rural • Retail & Consumer Annual Results to 30 June 2012 | Page 20
Slide 21: Business Division
Business at a gglance Business Division Number of accounts 3,039 Total loans $540m ‐ Volume growth with margins preserved Average size of loan $178k • First full year of executing strategy • Relationship based model financing the working capital requirements of middle market SME’s • Target business
Slide 22: Rural Division
Rural at a glance Rural Division Number of accounts 1,784 Total loans $479m ‐ Positioned for future growth Average g size of loan $268k $ • PGG Wrightson Finance Limited acquired in August 2011 and now successfully integrated • Net Receivables grew $403m to $479m at June 2012 due to acquisition • Re
Slide 23: Retail & Consumer Division
Retail & Consumer at a glance Retail & Consumer Division Number of accounts 45,681 Total loans $955m ‐ Meeting the needs of middle NZ Average g size of loan $21k Retail and Consumer books managed as one division – customers similar (working middle income) Retail • Strong and loyal retail depositor b
Slide 24: Non Core: Property
Property 30 June 2012 30 June 2011 Non Core: Property Non‐Core: Net receivables $105m $153m Investment Property $56m $34m ‐ Good progress being made Total Property $161m $187m Property • Portfolio segregated and running off • Portfolio reduced by $48m at June 2012 compared to June 2011 • Real Estate
Slide 25: Strategic Update
Strategic Update 1. Assessment of Strategy Execution 2. Bank Registration 3 Guidance 3. G id Annual Results to 30 June 2012 | Page 25
Slide 26: Assessment of Strategy
Assessment of Strategy The aim is to run a complementary p y and p parallel strategy gy in each segment: g • A RELATIONSHIP driven offering based on customer service for Depositors, and Business and Rural segments g • Extending REACH of “Hero” products where Heartland aims to be best in category: —
Slide 27: Assessment of Offerings
Assessment of Offerings REACH Stock Finance Invoice Finance Motor Vehicles I Insurance Deposits ROE Residential Asset Finance RELATIONSHIP Mortgages Rural Business Banking NPAT Annual Results to 30 June 2012 | Page 27
Slide 28: Distribution Assessment
Distribution Assessment REACH – ggettingg to more people p p • Heartland has scalable distribution via branches, offices and strategic partners • Expansion of Heartland branded distribution is planned • Strategic partners are aligned to target markets or existing customer groups, ensuring relevance
Slide 29: Relationship Assessment
Relationship Assessment • Business Bankingg growth g momentum continuing and more products coming on stream • Deposits are performing well • Rural will be area of focus Annual Results to 30 June 2012 | Page 29
Slide 30: Systems and Service
Systems and Service Systems Architecture • De‐risk, De risk integrate and stabilise post merger • Target layered architecture built on industry standards Processingg Efficiencyy • One p processingg p platform • Operations centralised based on functional split across Auckland and Canterbury • Impleme
Slide 31: Adapt to Low Credit Growth Environment
Adapt to Low Credit Growth Environment 1. Be clear what we are ggood at and REPEAT IT 2. Be clear what we are not good at and AVOID or OUTSOURCE 3. Utilise existing capacity to extend REACH and increase RELATIONSHIP VALUE 4. Position Heartland to benefit from SWITCHING 5. Minimise FIXED COSTS Annual
Slide 32: Bank Registration
Bank Registration • The application pp process continues to be p p progressed. g • Certain necessary intermediate steps (including the provision of certain independent reports, and the formal written application, to the RBNZ) have been completed. • RBNZ has confirmed that the formal determination pr
Slide 33: Guidance
Guidance • Guidance will be p provided at the AGM in early November • Current trends are indicative of Return on Equity outlook 20.0% 18.0% — NOI second half 2012 financial year 16.0% 14.0% $50.0m 12.0% 10.0% — Cost to income ratio second half 2012 8 0% 8.0% financial year 60% 6.0% 4.0% — Impaired a
Slide 34: Questions
Questions i Annual Results to 30 June 2012 | Page 34