Heartland Group Holdings Ltd. · NZX:HGH
Heartland — FY2022 Earnings Presentation
49 slides from Heartland's earnings presentation, Aug 23, 2022
Slide 1: FY2022 Annual Results
FY2022 Annual Results 23 August 2022
Slide 2: Disclaimer and important notice
Disclaimer and important notice This presentation has been prepared by Heartland Group Holdings Limited (the Company or Heartland) in relation to its financial statements for the year ended 30 June 2022 (FY2022) and an offer of new shares in the Company (New Shares) by way of: • a placement to eligi
Slide 3: Disclaimer and important notice
Disclaimer and important notice Financial data This presentation contains data sourced from and the views of independent third parties. In such data being replicated in this All dollar values are in New Zealand dollars (NZ$ or NZD) unless otherwise stated. presentation, no Specified Person makes any
Slide 4: Contents
Contents 01 Executive summary Page 5 02 FY2022 highlights Page 6 – 9 03 Financial results Page 10 – 14 04 Strategic update Page 15 – 19 05 Divisional summary Page 20 – 30 06 Funding, liquidity and capital update Page 31 – 34 07 Regulatory update and outlook Page 35 – 37 08 Proposed equity raise Page
Slide 5: Executive summary
Executive summary Financial results and trading update • Achieved net profit after tax (NPAT) and earnings per share (EPS) growth of 9.3% and 8.1% respectively vs FY2021. • Cost to income (CTI) ratio of 43.6%, down 3.2 percentage points (pps). Underlying CTI ratio of 42.5%, down 2.3 pps. • Completed
Slide 6: FY2022 highlights
FY2022 highlights 6
Slide 7: Financial highlights
Financial highlights Net interest income Underlying other operating Financial Underlying net interest margin (NIM) 4.16% $250.1m income $13.7m (+1.2% vs Financial position (-19 basis points (bps) vs +7.1% vs FY2021 FY2021). performance FY2021). $6,196m 4.16% Underlying average interest earning asset
Slide 8: Impairments, provisioning and operating environment
Impairments, provisioning and operating environment • The current operating environment continues to present challenges, with heightened geopolitical tensions and rising inflation contributing to increasing cost of living and rapidly rising interest rates. • Heartland remains focused on ensuring sup
Slide 9: Risk
Risk • Heartland’s portfolio mix has continued to move towards higher quality and lower risk assets. • For example, Heartland’s Reverse Mortgage portfolios in New Zealand and Australia have grown considerably and continue to perform very strongly. • Heartland’s Home Loans portfolio has grown signifi
Slide 10: Financial results
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Slide 11: Growth in profitability
Growth in profitability ↗ 8.2 (9.3%) Underlying: 87.9 → 96.1 ↗ 8.1 (9.3%) Reported: 87.0 → 95.1 One-off impacts 4 1 2.8 0.9 4.7 0.4 (1.6) (0.2) (3.4) 0.9 0.8 2 3 FY2022 one-offs $9.6m COVID-19 overlay release FY2021 one-offs $1.9m tax impact on one-offs FY2022 one-offs $1.4m non-recurring adjustment
Slide 12: Key performance measures
Key NIM CTI performance 4.46% 4.59% 4.69% 4.47% 45.4% 46.8% 43.6% measures 41.6% 44.9% 44.8% 4.33% 4.33% 4.35% 42.5% 39.9% 4.16% NPAT ($ million) FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22 Total NIM NIM excl. Liquid Assets Reported CTI Underlying CTI 1 ↗ 8.9% 95.1 87.0 73.6 72.0 Non Performing Loans Im
Slide 13: Shareholder return
Shareholder return ROE Earnings per share (cps) • Return on equity (ROE) of 12.1% (up 21 bps vs FY2021). Underlying ROE of 12.6% (up 59 vs FY2021). 11.9% 12.1% 14.9 16.1 • Earnings per share (EPS) of 16.1 cps, 13.0 12.5 up 1.2 cps compared with FY2021. 11.1% 10.5% • Final dividend of 5.5 cps, taking
Slide 14: Growth in receivables
Growth in receivables ↗ $1,139m (22.7%) 6,157 ↗ $766m (15.3%) 373 5,784 223 91 (67) 62 40 (3) 74 63 (50.9%) 376.6% 7.0% 120 57.0% 8.4% 13.4% 5,018 164 11.0% (2.3%) 19.9% 15.2% AU Reverse Jun 22 Jun 21 Livestock Business Business Personal Home Loans NZ Reverse Asset Finance excl. StockCo Relationship
Slide 15: Strategic update
Strategic update 1 15
Slide 16: Strategic progress
Strategic progress Heartland’s strategic vision is to provide best or only products via scalable digital platforms, achieved through the four pillars below. Business as Frictionless service Expansion in usual growth at the lowest cost Australia Acquisitions Reported on in 120% increase in Launched E
Slide 17: Sustainability
Sustainability Heartland’s sustainability framework is built on three key pillars: environmental conservation, social equity and economic prosperity. Environmental Social Economic Conservation equity prosperity 31% absolute reduction in Greenhouse Rainbow Tick achieved in Enabled more than 40,000 Ne
Slide 18: StockCo Australia
StockCo Australia • On 31 May 2022, Heartland completed the acquisition of StockCo Key operating metrics Diversified loan portfolio Australia. Number of customers 1,579 • Total consideration was A$154.4 million1, funded through a A$158 Cumulative Loss Rate 0.02% million bridge facility provided by a
Slide 19: Further opportunities for growth in Australia
Further opportunities for growth in Australia • Heartland has been exploring opportunities to establish or acquire an ADI in Australia. Becoming a bank through an ADI in Australia would make possible a number of benefits: ‒ access to a deep and efficient pool of funding to support ongoing growth; ‒
Slide 20: Divisional summary
Divisional summary 20 13
Slide 21: Reverse Mortgages portfolio analytics
Reverse Mortgages portfolio analytics NEW ZEALAND AUSTRALIA Average Average $116,728 A$148,405 loan size loan size Weighted average Weighted average 78 77 borrowers’ age borrowers’ age Average Average 10.0% 11.6% origination LVR origination LVR Weighted Weighted 18.3% 20.5% average LVR average LVR P
Slide 22: AU Reverse Mortgages
AU Reverse Mortgages • • Receivables increased by $163.8 million (15.2%)1 to $1.24 billion. Growth was driven by the relaxation of COVID-19 lockdowns, growing acceptance of reverse mortgages, promotion by the Australian Federal $39.2m +8.2% Government of its Home Equity Access Scheme, and advertisin
Slide 23: NZ Reverse Mortgages
NZ Reverse Mortgages • • New Zealand Reverse Mortgages net operating income (NOI) was up 33.4% from FY2021 due to record asset growth and improved margins. Receivables increased $119.8 million (19.9%) to $721.3 million. $32.5m +33.4% NET OPERATING INCOME increase since June 2021 • Increased awarenes
Slide 24: Open for Business
Open for Business $13.7m • Open for Business (O4B) is Heartland’s first digital platform that provides unsecured loans to the small-to-medium enterprise (SME) sector, with online approval possible within one minute. -5.8% • FY2022 saw a decrease of $0.8 million (5.8%) in O4B NOI. NET OPERATING INCOM
Slide 25: Asset Finance
Asset Finance1 • • Asset Finance NOI was up 7.5% from FY2021. Receivables increased $62.6 million (11.0%) to $633.6 million. $30.6m +7.5% • New business growth exceeded expectations as Heartland continues to build its intermediated partnership strategy and delivery processes. NET OPERATING INCOME in
Slide 26: Business
Business • Business includes floorplan lending to vehicle retailers and wholesale facilities to other lenders. The portfolio includes what was previously known as Business Relationship. $30.9m +18.6% • Receivables increased $74.3 million (13.4%)1 to $629.4 million. NET OPERATING INCOME increase sinc
Slide 27: Motor Finance
Motor Finance • • Motor Finance NOI was up 5.6% from FY2021. Receivables increased $90.8 million (7.0%) to $1.38 billion. $73.1m +5.6% • Growth was mainly from the Motor dealer book via car dealerships, brokers and partnerships such as Kia Finance, Jaguar/Land Rover NET OPERATING INCOME increase sin
Slide 28: Personal Lending
Personal Lending $10.3m • Personal Lending includes loans originated directly through Heartland • Bank, and those originated by Harmoney in New Zealand and Australia. The New Zealand Harmoney channel decreased $58.3 million (76.0%) to -40.4% $18.4 million. NET OPERATING INCOME decrease since June 20
Slide 29: Home Loans
Home Loans¹ • • Home Loans1 Receivables increased $224.8 million (450.8%) in FY2022 to $274.7 million. The rising interest rate environment drove a high volume of $2.1m $0.1m applications, as customers locked in competitive rates. NET OPERATING INCOME As at 30 June 2021 • Heartland’s rates were freq
Slide 30: Rural
Rural • An increase in both Livestock Receivables of $62.3 million (57.0%) to $171.7 million, and an increase in Rural Receivables of $40.2 million (8.4%) to $517.4 million. $30.2m -6.1% • Livestock enjoyed record growth in FY2022, resulting from an increase in customers and facility utilisation rat
Slide 31: Funding, liquidity and capital update
Funding, liquidity and capital update 31 13
Slide 32: NZ funding and liquidity
NZ funding and liquidity Heartland Bank Funding Composition1 $m 4,347 3,723 209 3,497 273 3,628 110 60 268 293 285 Heartland Group 283 66 108 513 Heartland Group increased borrowings by 26.9% to $6,170.7 million, contributed to by increases in New Zealand 813 881 968 895 and Australia. Excluding Sto
Slide 33: AU funding and liquidity
AU funding and liquidity Heartland Australia Funding Composition A$m 1,200 1,098 281 221 Australia 850 682 145 • Heartland Australia increased borrowings by 9.3% to A$1,200.2 million in FY2022, and has access to committed 50 Australian reverse mortgage loan funding of A$1.35 billion in aggregate. 87
Slide 34: Capital
Capital • Partial restriction on bank dividends removed effective 1 July 2022. • Heartland Bank’s capital ratio as at 30 June 2022 is 13.49% (down from 13.88% as at 30 June 2021). • As part of the RBNZ capital implementation review requiring an increase in capital, increases in capital will be phase
Slide 35: Regulatory update and outlook
Regulatory update and outlook 35 13
Slide 36: Regulatory update
Regulatory update Heartland continues to monitor the significant volume of regulatory change. Changes to the CCCFA • Initial changes came into force on 1 December 2021. • Heartland Bank implemented new processes and technologies to enable it to comply with these changes and continues to refine them.
Slide 37: Looking forward
Looking forward • The current economic environment presents the obvious challenges of rising inflation and rapidly rising interest rates, tempered somewhat by low unemployment, flowing through into business and consumer confidence. • To a meaningful extent, Heartland is insulated against these chall
Slide 38: Proposed equity raise
Proposed equity raise 1 38
Slide 39: Equity raise offer summary
Equity raise offer summary Offer size and structure Heartland is seeking to raise NZ$200 million (Equity Raise) in new equity via a: ‒ NZ$130 million fully underwritten placement to eligible investors; and ‒ NZ$70 million share purchase plan, with the ability for Heartland to accept oversubscription
Slide 40: Equity raise timetable
Equity raise Placement Date1 timetable Trading halt commences and Placement bookbuild opens Tuesday 23 August 2022 Announcement of results of Placement and trading halt lifted Wednesday 24 August 2022 ASX settlement Friday 26 August 2022 • Eligible investors interested in participating in the Placem
Slide 41: Key risks
Key risks This section outlines the key risks that Heartland has identified as relevant to investors in the proposed equity raise. These risks may affect the future operating and financial performance of Heartland and the Heartland share price. Like any investment, there are risks associated with an
Slide 42: Risks
Risks Macro-economic conditions • Increased volatility in macro-economic conditions (rising inflation, increasing costs of living and rapidly rising interest rates) is being experienced as a result of geopolitical tensions and other factors. • Severe deterioration in macro-economic conditions could
Slide 43: Risks cont.
Risks cont. Biosecurity • Heartland Bank has a livestock and rural funding business in New Zealand. Heartland Group recently acquired StockCo Australia, a market-leading provider of specialist livestock finance for cattle and sheep farmers across Australia. Through these businesses, Heartland either
Slide 44: Appendices
Appendices 44
Slide 45: Financial performance
Financial performance $m FY2022 FY2021 Change ($) Change (%) Net Operating Income 1 267.6 251.2 16.4 6.5% Operating Expenses 116.8 117.7 (0.9) (0.8%) Impairment Expense 13.8 15.0 (1.2) (7.7%) Profit Before Tax 137.0 118.6 18.5 15.6% Tax Expense 41.9 31.5 10.4 32.9% Net Profit After Tax 95.1 87.0 8.1
Slide 46: Financial position
Financial position 30 June 30 June Movement Movement $m 2022 2021 ($m) (%) Liquid Assets 585 539 45 8.4% Gross Finance Receivables 6,196 5,018 1,177 23.5% Provisions (52) (54) 2 (3.1%) Other Assets 362 179 183 101.9% Total Assets 7,090 5,683 1,407 24.8% Retail Deposits 3,593 3,183 409 12.8% Other Bo
Slide 47: Reconciliation of reported with underlying results
Reconciliation $m FY2022 FY2021 Movement ($m) Movement (%) Reported NOI 267.6 251.2 16.4 6.5% of reported with Less: StockCo Australia impacts1 1.9 - 1.9 Hedge accounting impacts 16.7 - 16.7 underlying results Net fair value gain/(loss) on investments (13.0) 4.1 (17.1) Underlying NOI 262.0 247.1 14.
Slide 48: International offer restrictions
International offer restrictions This document does not constitute an offer of New Shares in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the New Shares may not be offered or sold, in any country outside Australia and New Zeal
Slide 49: Thank you
Thank you For Heartland’s FY2022 full year results announcement, please see shareholders.heartland.co.nz
Heartland Group Holdings — FY2022 Earnings Presentation on 6ix