Heartland Group Holdings Ltd. · NZX:HGH
Heartland — FY2023 Earnings Presentation
43 slides from Heartland's earnings presentation, August 2023
Slide 1: FY2023 results Investor presentation
FY2023 results Investor presentation For the year ended 30 June 2023
Slide 2: Contents
Contents 01 Highlights & strategic update 3-9 02 Financial results, funding & liquidity 10-20 03 NZ divisional summary 21-28 04 AU divisional summary 29-34 05 Outlook 35-36 06 Disclaimer, glossary & appendices 37-43 2 2
Slide 3: Highlights & strategic update
01 Highlights & strategic update Jeff Greenslade Chief Executive Officer Heartland Group
Slide 4: Presentation of results
01 Presentation of results Financial results in this investor presentation are presented on a reported and underlying basis. • Reported results are prepared in accordance with NZ GAAP and include the impacts of one-offs, both positive and negative, which can make it difficult to compare performance
Slide 5: Group financial highlights
01 Group financial highlights Impairment NPAT NIM CTI ratio ROE EPS expense ratio $95.9m 3.97% 44.9% 0.36% 10.4% 14.0 cps Reported 0.8% vs FY2022 8 bps vs FY2022 126 bps vs FY2022 11 bps vs FY2022 169 bps vs FY2022 2.1 cps vs FY2022 $110.2m 4.00% 42.0% 0.36% 11.9% 16.0 cps Underlying1
Slide 6: Strategic update
01 Strategic update Business as Usual Growth Frictionless Service at the Lowest Cost Expansion in Australia FY2023 achievements ↗ $625m (10.1%) Demonstrated resilience in ‘best or only’ strategy • Growth in core lending portfolios despite NZ AU macroeconomic environment, demonstrating Household Busi
Slide 7: Strategic update
01 Strategic update Business as Usual Growth Frictionless Service at the Lowest Cost Expansion in Australia FY2023 achievements FY2024 focus Replicating the scale of big banks Ambition to achieve underlying CTI ratio <35% by FY2028 • Underlying CTI ratio of 42.0%, much lower than the average CTI rat
Slide 8: Strategic update
01 Strategic update Business as Usual Growth Frictionless Service at the Lowest Cost Expansion in Australia FY2023 achievements FY2024 focus Largest active provider of AU reverse mortgages Grow Reverse Mortgages • Maintained position as largest active provider of reverse mortgages in • Leverage dema
Slide 9: Sustainability
01 Sustainability Heartland’s sustainability framework is built on three key pillars: environment, people and financial wellbeing. Environment People Financial wellbeing • Support the just transition to a net-zero economy. • Create a pathway and place for Heartland’s people to grow, • Support the fi
Slide 10: Financial results, funding & liquidity
02 Financial results, funding & liquidity Andrew Dixson Chief Financial Officer Heartland Group
Slide 11: Group financial results
02 Group financial results Reported Underlying NII $282.0m 12.7% vs FY2022 $283.9m 14.3% vs FY2022 OOI1 $3.3m 81.0% vs FY2022 $16.9m 22.7% vs FY2022 NOI $285.3m 6.6% vs FY2022 $300.7m 14.8% vs FY2022 OPEX $128.1m 9.7% vs FY2022 $126.2m 13.4% vs FY2022 Impairment Expense $23.2m 68.1
Slide 12: Growth in profitability
02 Growth in profitability NPAT ($ million) Reported: 95.1 → 95.9 ↗ 10.0%1 ↗ 0.7 (0.8%) Underlying: 96.1 → 110.2 ↗ 14.1 (14.6%) 95.1 95.9 87.0 +1% +9% 3.1 (6.0) 72.0 +21% 13.8 (8.9) (7.4) 0.7 FY20 FY21 FY22 FY23 (0.1) (3.0) 21.8 Underlying NPAT ($ million) 110.2 1 96.1 ↗ 12.7% 110.2 FY2022 NPAT Net
Slide 13: Net interest margin
02 Net interest margin NIM Underlying Gross interest yield Underlying Cost of funds Underlying Liquid assets yield FY24 NIM 7.88% 3.81% 2.63% NIM contribution ↗ 163bps1 vs FY22 NIM contribution ↘ 192bps2 vs FY22 NIM contribution ↗ 13bps3 vs FY22 outlook Reported Expected to remain 4.16% stable throu
Slide 14: Cost to income ratio
02 Cost to income ratio CTI ratio Reported FY24 CTI ratio ↗ 11.3m (9.7%) outlook Underlying ↗ 14.9m (13.4%) Expected to gradually 45.4% 46.8% 44.9% improve, via continued 43.6% cost discipline, efficiency 44.9% 44.8% and digitalisation 42.5% 42.0% initiatives. FY20 FY21 FY22 FY23 Reported CTI ratio
Slide 15: Loan provisions
02 Loan provisions • Impairment expense was $23.2 million (68.1% up on FY2022). • As at 30 June 2023, the balance of Heartland’s Economic Overlay • Underlying impairment expense up $7.5 million (47.9%) on FY2022. of $8.0 million taken in FY2022 was $2.4 million. The Economic • Increase in underlying
Slide 16: Shareholder return
02 Shareholder return • Underlying ROE of 11.9% (down 68 bps vs FY2022).1 • EPS of 14.0 cps, down 2.1 cps compared with FY2022. • Underlying EPS of 16.0 cps (down 0.3 cps vs FY2022). • Final dividend of 6.0 cps, taking FY2023 total dividend to 11.5 cps, up 0.5 cps on FY2022. • Dividend yield of 9.3%
Slide 17: Growth in receivables
02 Growth in receivables ↗ $625m (10.1%) NZ AU Household Business Rural 8 ↗ $374m (15.3%) ↘ $31m (2.2%) ↗ $11m (1.7%) 2.1% 264 (27) 38 (30) 49 - (24) (18) (17) 9 20 (9.9%) 20.7% 187 (8.2%) 7.8% (27.3%) 13.4% (17.1%) 11.2% (3.9%) 11.6% 6,821 167 13.5% 23.2% 6,196 Jun-22 Reverse Motor Personal Home Lo
Slide 18: NZ funding & liquidity
HBL Funding Composition3 $m 02 NZ funding & liquidity 4,347 4,746 168 220 209 227 3,723 273 3,628 719 110 268 New Zealand 293 285 513 66 108 • Heartland Bank increased borrowings by $399.5 million (9.2%) to Core funding ratio 7 783 89.6% 813 $4,746.2 million. 968 895 ‒ Deposits grew $533.9 million (
Slide 19: AU funding & liquidity
02 AU funding & liquidity Heartland Australia1 • Heartland Australia increased borrowings by A$282.0 million (23.5%) to A$1,482.2 million. Heartland Australia Heartland Australia • A A$30 million tap issue was completed in August Funding Composition A$m Liquidity Composition A$m 1,482 2022 and a fur
Slide 20: Capital
02 Capital Total Tier 1 Capital contribution (0.01%) • Heartland Bank’s regulatory capital ratio increased to 14.69% as at 30 June 2023 (30 June 2022: 0.01% (0.06%) (0.04%) 13.49%). Heartland Bank continues to operate (0.30%) significantly in excess of regulatory minimums and is well positioned to m
Slide 21: NZ divisional summary
03 NZ divisional summary Leanne Lazarus Chief Executive Officer Heartland Bank
Slide 22: NZ divisional summary
03 NZ divisional summary Rural Rural $701m, $34m, 14.3% 15.1% $4,901m $227m NZ Receivables Household NZ NOI Household $2,827m, $118m, Business $354m (7.8%) 57.7% Business $4m (1.8%) 51.9% $1,373m, vs FY2022 $75m, vs FY2022 28.0% 33.1% 22
Slide 23: NZ divisional summary
03 NZ divisional summary ↗ $354m (7.8%) Household Business Rural ↗ $374m (15.3%) ↘ $31m (2.2%) ↗ $11m (1.7%) (27) 49 - 38 (30) (24) (18) 9 (17) 20 7.8% (9.9%) 13.4% (8.2%) (17.1%) 11.2% 187 (27.3%) (3.9%) 11.6% 13.5% 167 4,901 23.2% 4,547 Jun-22 Reverse Motor Personal Lending Home Loans Business Ass
Slide 24: NZ Household
03 NZ Household Motor Finance • Strong growth of 13.5%. Market share gains made at the expense of margin, alongside Personal Lending Home Loans1 Personal Lending general margin compression due to a shift in $47.3m, 1.7% $4.4m, 3.7% $6.6m, 5.6% $17.8m (27.3%) $1.6m (59.6%) $3.1m (32.2%) asset qua
Slide 25: NZ Reverse Mortgages portfolio analytics
03 NZ Reverse Mortgages portfolio analytics $889m $128,938 78 16.4% NZ Reverse Mortgages Average Weighted average Compounded annual +$167m (23.2%) vs June 2022 loan size borrowers’ age growth rate1 9.8% 21.3% 0.0% 0 Average Weighted Proportion of the Number of loans in the origination LVR average LV
Slide 26: NZ Business
03 NZ Business O4B1 Asset Finance $117.1m, 8.5% • Solid growth with continued focus on freight $24.1m (17.1%) O4B transport and yellow goods sectors. $12.9m, 17.2% $0.8m (5.7%) • NIM affected by change in mix of new business weighted toward an improved credit profile. Lower margin loans being re
Slide 27: NZ Rural
03 NZ Rural Rural Relationship • Reduction in Receivables of $17.1m due to Rural Direct the continued transition of the book away Rural Direct $2.6m, 7.7% $84.9m, 12.1% $1.2m (85.9%) from large, complex, low margin lending. $8.6m (11.2%) • Heartland’s exposure to the dairy sector reduced to 32.8%
Slide 28: CTI ratio reduction initiatives
03 CTI ratio reduction initiatives A number of initiatives are being delivered through a systemised programme of work to enhance digital, self-service and automation capabilities. Four key automation and digitalisation initiatives: Zero inbound calls One-Click Deferral Process automation Motor digit
Slide 29: AU divisional summary
04 AU divisional summary Chris Flood Deputy Chief Executive Officer Heartland Group
Slide 30: AU divisional summary
04 AU divisional summary Rural $381m, 19.8% Rural2 $32m, 40.2% $1,920m $79m AU Receivables1 Household AU NOI Household $1,539m, $47m, $271m (16.5%) $40m (102.3%) 80.2% 59.8% vs 30 June 2022 vs FY2022 1 Excluding the impact of changes in FX rates 2 Includes full year contribution of StockcCo Aust
Slide 31: AU divisional summary
04 AU divisional summary ↗ $271m (16.5%) 8 2.1% Waterfall to show growth 264 1,920 20.7% 1,649 Jun-22 Reverse Mortgages Livestock Finance Jun-23 Note: The graph shows FY2023 growth in receivables by portfolio excluding the impact of changes in FX rates and intercompany balances. All figures in NZ$m.
Slide 32: AU Household
04 AU Household Reverse Mortgages1 • Growth was driven by increased debt consolidation and cost of living requests due to current economic environment, and $1,539m $47m customers seeking funds to age in place more comfortably. Household Receivables1 Household NOI $263.7m (20.7%) $8.2m (20.9%) •
Slide 33: AU Reverse Mortgages portfolio analytics
04 AU Reverse Mortgages portfolio analytics1 $1,539m $180,432 77 22.8% AU Reverse Mortgages Average Weighted average Compounded annual +$264m (20.7%)vs June 2022 loan size borrowers’ age growth rate2 11.7% 21.5% 0.0% 1 Average Weighted Proportion of the Number of loans in the origination LVR average
Slide 34: AU Rural
04 AU Rural Livestock Finance • Subdued growth was due to macroeconomic events affecting livestock prices and demand, including adverse weather conditions, the rising interest rate environment, and low export demand with the USA drought and China’s COVID-19 response contributing to freezers being fu
Slide 35: Outlook
05 Outlook Jeff Greenslade Chief Executive Officer Heartland Group
Slide 36: Outlook
05 Outlook Business as usual growth NIM stabilisation • Heartland’s strength is its track record of strong • NIM outlook is stable with repayment and replacement of legacy lower margin growth in core lending portfolios. Motor Finance and Asset Finance loans. • Growth focus will be on Reverse Mortgag
Slide 37: Disclaimer, glossary & appendices
06 Disclaimer, glossary & appendices
Slide 38: Disclaimer
06 Disclaimer This presentation has been prepared by Heartland Group Holdings Limited (NZX/ASX: Non-GAAP measures HGH) (the Company or Heartland) for the purpose of briefings in relation to its financial This presentation contains references to non-GAAP measures including underlying profit or statem
Slide 39: Glossary
06 Glossary ABP Australia Bank Programme NII Net interest income ADI Authorised deposit-taking institution NIM Net interest margin ANZSIC Australian and New Zealand Standard Industrial Classification NOI Net operating income APRA Australian Prudential Regulation Authority NPAT Net profit after tax b
Slide 40: Appendix 1: Financial performance
06 Appendix 1: Financial performance Reported Underlying $m FY2023 FY2022 Change ($) Change (%) FY2023 FY2022 Change ($) Change (%) NII 282.0 250.1 31.8 12.7% 283.9 248.3 35.6 14.3% OOI1 3.3 17.5 (14.1) (81.0%) 16.9 13.7 3.1 22.7% NOI 285.3 267.6 17.7 6.6% 300.7 262.0 38.7 14.8% OPEX 128.1 116.8 11.
Slide 41: Appendix 2: Financial position
06 Appendix 2: Financial position $m 30 June 2023 30 June 2022 Movement ($m) Movement (%) Liquid Assets 627 585 42 7.1% Gross Finance Receivables 6,791 6,196 596 9.6% Provisions (53) (52) (1) (2.4%) Other Assets 383 362 21 5.8% Total Assets 7,747 7,090 657 9.3% Retail Deposits 4,131 3,593 539 15.0%
Slide 42: Appendix 3: Reconciliation of reported with underlying results
06 Appendix 3: Reconciliation of reported with underlying results FY2023 one-offs included in the reported result: $m FY2023 FY2022 Movement ($) Movement (%) • Hedging: a $9.1 million loss was recognised in relation to derivatives that were de- Reported NOI 285.3 267.6 17.7 6.6% designated from prio
Slide 43: Thank you
Thank you Investor & media relations Investor information Nicola Foley For more information Group Head of Communications heartlandgroup.info/investor-information +64 27 345 6809 nicola.foley@heartland.co.nz
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