Heartland Group Holdings Ltd. · NZX:HGH
Heartland — H1 2024 Earnings Presentation
42 slides from Heartland's earnings presentation, February 2024
Slide 1: 1H2024 Results
1H2024 Results For the six-months ended 31 December 2023
Slide 2: Contents
Contents 01 Highlights & strategic update 3-8 02 Financial results, funding & liquidity 9-18 03 NZ divisional summary 19-26 04 AU divisional summary 27-32 05 Outlook 33-34 06 Disclaimer, glossary & appendices 35-42 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 Unaudited 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 pe
Slide 5: Solid performance despite economic headwinds
01 Solid performance despite economic headwinds Resilience of core lending Becoming a bank in Growth December 2023 revision portfolios Australia to guidance • Continued Receivables growth in • The acquisition of Challenger • In the long-term Heartland • The expected A$3.5 million one- most core lend
Slide 6: Group financial highlights
01 Group financial highlights Impairment NPAT2 NIM CTI ratio ROE EPS expense ratio $37.6m 3.67% 46.5% 0.70% 7.3% 5.3 cps Reported 22.7% vs 1H2023 29 bps vs 1H2023 170 bps vs 1H2023 41 bps vs 1H2023 329 bps vs 1H2023 2.0 cps vs 1H2023 $52.7m 3.67% 43.7% 0.23% 10.2% 7.4 cps Underlying1
Slide 7: Business as Usual Growth
• Overall Receivables growth of 4.2%1. 01 Business as Usual Growth • Continued strong Reverse Mortgage growth (NZ up 18.7%, AU up 20.0%) 1. • Motor Finance growth of 6.4%1 in market where total new and used car sales in NZ were down 12.2%2. $144m (4.2%)1 NZ AU Household Business Rural $130m (9.1%)1
Slide 8: FY2028 growth ambitions
01 FY2028 growth ambitions Strong growth in core lending • Achievement of ambitions requires Receivables growth rates at historical levels only. FY2023 FY2028 CTI ratio of less than 35% Result Ambition • Underlying CTI ratio of 43.7%1, remains significantly lower than the average CTI ratio of NZ’s n
Slide 9: Financial results, funding & liquidity
02 Financial results, funding & liquidity Andrew Dixson Chief Financial Officer Heartland Group
Slide 10: Group financial results
02 Group financial results Reported Underlying NII $138.7m 0.1% vs 1H2023 $138.7m 1.4% vs 1H2023 OOI1 $4.4m 54.9% vs 1H2023 $6.8m 23.1% vs 1H2023 NOI $143.1m 1.0% vs 1H2023 $145.6m 2.7% vs 1H2023 OPEX $66.5m 4.8% vs 1H2023 $63.9m 0.6% vs 1H2023 Impairment Expense $24.0m 160.1% vs 1
Slide 11: Growth in profitability
02 Growth in profitability NPAT ($ million) 1.5%1 Reported: 48.7 → 37.6 11.1 (22.7%) 47.6 47.2 Underlying: 54.7 → 52.7 42.9 2.0 (3.6%) 32.1 +3% +8% 47.5 48.7 -23% 39.9 +11% 44.1 37.6 FY20 FY21 FY22 FY23 FY24 Underlying NPAT ($ million) 8.4% 1 55.5 49.0 44.6 38.7 +16% -4% +9% 54.7 52.7 +13% 43.3 47.1
Slide 12: Net interest margin
02 Net interest margin NIM Underlying Gross interest yield Underlying Cost of funds Underlying Liquid assets yield FY24 NIM 8.93% 5.34% 3.52% outlook 4.30% NIM contribution 145bps1 NIM contribution 193bps2 NIM contribution 14bps3 4.16% vs 1H2023 vs 1H2023 vs 1H2023 4.30% 4.02% 4.00% NIM compression
Slide 13: Cost to income ratio
02 Cost to income ratio CTI ratio Reported FY24 CTI ratio 3.0m (4.8%) outlook Underlying 0.4m (0.6%) Expected to gradually 44.8% 44.9% 46.5% improve, via continued 43.8% 43.6% cost discipline, revenue 43.1% 42.5% 42.7% 42.0% 43.7% growth and digitalisation initiatives. Dec-21 Jun-22 Dec-22 Jun-23 De
Slide 14: Provisions
02 Provisions Non Performing Loans Impairment Expense Ratio 0.70% 2.58% 1.81% 2.05% 1.87% 1.70% NPL 0.36% 51.7m 0.33% 0.25% 0.29% vs 30 June 2023 0.23% 178.6 0.33% 0.36% 0.29% 0.29% NPL ratio 132.4 126.9 112.0 71 bps 90.9 vs 30 June 2023 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 Dec-21 Jun-22 Dec-22 Ju
Slide 15: Shareholder return
02 Shareholder return • Underlying ROE of 10.2% (down 183 bps vs 1H2023).1 • Dividend yield of 11.9%2 (1H2023: 8.7%3). • EPS of 5.3 cps, down 2.0 cps compared with 1H2023. • A slightly lower interim dividend is consistent with current earnings and previous • Underlying EPS of 7.4 cps (down 0.8 cps v
Slide 16: Funding & liquidity
02 Funding & liquidity New Zealand • Heartland Bank increased borrowings by $217.3 million (4.6%) to $4,963.5 million. • Deposits grew $82.7 million (2.0%) to $4,213.8 million, driven by competitive pricing on targeted products, including Heartland’s Notice Saver offerings, particularly the Digital
Slide 17: Funding & liquidity
02 Funding & liquidity Australia • Heartland Australia increased borrowings by A$4.2 million (0.2%) to A$1,736.7 million. • Excluding StockCo Australia1, borrowings increased by A$74.9 million (5.1%) to A$1,557.1 million. Heartland Australia Heartland Australia • An A$50 million tap issue was comple
Slide 18: Capital
02 Capital Total Tier 1 Capital • With a regulatory capital ratio of 14.07%1, contribution (0.63%) Heartland Bank continues to operate significantly in excess of regulatory minimums and is well positioned to meet the RBNZ’s future higher capital requirements. • The RBNZ future capital requirements a
Slide 19: NZ divisional summary
03 NZ divisional summary Leanne Lazarus Chief Executive Officer Heartland Bank
Slide 20: NZ Household
03 NZ Household Personal Lending2 Home Loans1 Personal Lending2 Reverse Mortgages $34.1m, 1.2% $1.5m, 2.5% $2.1m, 3.5% • Strong growth of 18.7%3. $13.0m (54.9%)3 $1.0m (40.0%) $1.4m (39.5%) • Current demand driven by the ongoing cost-of- living strain placed on older homeowners. • Accelerated gr
Slide 21: Motor Finance & Collections position
03 Motor Finance & Collections position Issue affecting a subset of longer dated loans • Economic conditions impacting more severely on a subset of longer dated loans which arose from operational issues in Heartland Bank’s Collections & Recoveries area and do not reflect any underlying issues with t
Slide 22: NZ Reverse Mortgages portfolio analytics
03 NZ Reverse Mortgages portfolio analytics $972m $135,139 78 16.7% NZ Reverse Mortgages Average Weighted average Compounded annual +$84m (18.7%)1 vs June 2023 loan size borrowers’ age growth rate2 9.6% 22.8% 0.0% 0 Average Weighted Proportion of the Number of loans in the origination LVR average LV
Slide 23: NZ Business
03 NZ Business O4B1 $98.9m, 7.3% $18.2m (30.9%)2 Asset Finance • Growth of 8.9%2 is strong against a backdrop O4B $5.5m, 16.1% of lower margin loans taking longer to roll off $1.2m (18.2%) as customers take longer to refinance assets. Wholesale Lending $225.0m, 16.7% Wholesale Lending $20.1m (1
Slide 24: NZ Rural
03 NZ Rural Rural Direct Rural Direct $88.6m, 13.3% $2.3m, 13.6% Livestock Finance $1.2m (118.8%) $3.7m (8.6%)1 • Decrease in Receivables was driven by the normal seasonal fluctuations, with growth expected in 2H2024. Livestock Livestock Finance Rural Direct Finance $159.3m, 24.0% $664m $3.9m, 23.
Slide 25: NZ divisional summary
03 NZ divisional summary Rural Rural $664m, $17m, 13.4% 15.3% $4,968m $110m NZ Receivables Household NZ NOI Household $2,957m, $59m, Business $67m (2.7%)1 59.5% Business $4m (3.3%) 53.8% $1,347m, vs June 2023 $34m, vs 1H2023 27.1% 30.9% Note: 1H2024 growth in Receivables by portfolio is excludin
Slide 26: NZ divisional summary
03 NZ divisional summary $67m (2.7%)1 Household Business Rural $130m (9.1%)1 $27m (-3.9%) 1 $36m (-10.3%) 1 (13) (20) 9 31 (19) 51 (18) (8) (54.9%) 5.6% (16.3%) (11.5%) 8.9% (32) (30.9%) 4 (3.8%) 6.4% 84 (33.1%) 8.6% 18.7% 4,968 4,901 Jun-23 Reverse Motor Personal Home Loans Business Asset Finance W
Slide 27: AU divisional summary
04 AU divisional summary Chris Flood Deputy Chief Executive Officer Heartland Group
Slide 28: Preparation for completion of Challenger Bank acquisition
04 Preparation for completion of Challenger Bank acquisition1 Transaction Premises leased Recruitment of key Early Challenger Bank AU deposit market experience related costs in Melbourne and roles well advanced exceeding Heartland expectations expected to be Sydney to to support bank • Challenger Ba
Slide 29: AU Household
04 AU Household Reverse Mortgages1 • Strong growth of 20.0%.2 • Cost-of-living requests (debt consolidation, supplementing income) have increased $1,668m $26m while lifestyle requests (car, travel) have softened. Home improvements and debt Household Receivables1 Household NOI $152.9m (20.0%)2 $3
Slide 30: AU Reverse Mortgages portfolio analytics
04 AU Reverse Mortgages portfolio analytics1 $1,668m $190,849 77 22.6% Compounded annual AU Reverse Mortgages Average Weighted average growth rate2 +$153m (20.0%)3 vs June 2023 loan size borrowers’ age 11.9% 22.7% 0.1% 3 Average Weighted Proportion of the Number of loans in the origination LVR avera
Slide 31: AU Rural
04 AU Rural Livestock Finance • Adverse weather conditions and drought concerns continued to negatively impact livestock prices in 1H2024. • With the reducing risk of drought, livestock $299m $8m prices have improved. Cattle prices are now Rural Receivables1 Rural NOI above the 10- and 20-year avera
Slide 32: AU divisional summary
04 AU divisional summary Rural $299m, 15.2% Rural $8m, 23.8% $1,967m $34m AU Receivables1 Household AU NOI Household $1,668m, $26m, $76.5m (8.0%)2 $0.2m (0.5%) 84.8% 76.2% vs June 2023 vs 1H2023 1 Excluding the impact of changes in FX rates. 2 Annualised 1H2024 growth excluding the impact of cha
Slide 33: Outlook
05 Outlook Jeff Greenslade Chief Executive Officer Heartland Group
Slide 34: FY2024 outlook
05 FY2024 outlook Complete the acquisition of Challenger Bank within 2H20241 FY2024 NPAT • The focal point for 2H2024 and a critical step in Heartland’s strategy for • Heartland expects NPAT for expansion in AU market – and ultimately towards achieving its FY2028 FY2024 to be within the guidance amb
Slide 35: Disclaimer, glossary & appendices
06 Disclaimer, glossary & appendices
Slide 36: 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 37: Glossary
06 Glossary ABP Australia Bank Programme NOI Net operating income ADI Authorised deposit-taking institution NPAT Net profit after tax APRA Australian Prudential Regulation Authority NPL Non performing loan bps Basis points O4B Open for Business Challenger Bank Challenger Bank Limited OOI Other opera
Slide 38: Sustainability
06 Sustainability Heartland’s sustainability framework is built on three key pillars: environment, people and financial wellbeing. Heartland is making good progress to meet the StockCo announced a two-year pilot project Heartland Bank awarded Canstar NZ’s Bank new Climate-Related Disclosures with Au
Slide 39: Appendix 1: Financial performance
06 Appendix 1: Financial performance Reported Underlying $m 1H24 1H23 Change ($) Change (%) 1H24 1H23 Change ($) Change (%) NII 138.7 138.9 (0.2) (0.1%) 138.7 140.8 (2.0) (1.4%) OOI1 4.4 2.8 1.5 54.9% 6.8 8.9 (2.0) (23.1%) NOI 143.1 141.7 1.4 1.0% 145.6 149.6 (4.1) (2.7%) OPEX 66.5 63.4 3.0 4.8% 63.
Slide 40: Appendix 2: Financial position
06 Appendix 2: Financial position $m 31 Dec 2023 30 June 2023 Movement ($m) Movement (%) Liquid Assets 678 627 52 8.2% Gross Finance Receivables 6,924 6,791 133 2.0% Provisions (70) (53) (16) (30.5%) Other Assets 382 383 (1) (0.3%) Total Assets 7,914 7,747 167 2.2% Retail Deposits 4,214 4,131 83 2.0
Slide 41: Appendix 3: Reconciliation of reported with underlying results
06 Appendix 3: Reconciliation of reported with underlying results 1H2024 one-offs and non-cash technical items included in the reported result: $m 1H2024 1H2023 Movement ($) Movement (%) Reported NOI 143.1 141.7 1.4 1.0% • Hedging: a $4.3 million loss was recognised in relation to derivatives that w
Slide 42: 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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