Heartland Group Holdings Ltd. · NZX:HGH
Heartland — FY2021 Earnings Presentation
34 slides from Heartland's earnings presentation, Aug 24, 2021
Slide 1: 2021 Annual Results
2021 Annual Results 24 August 2021 1
Slide 2: Important notice
This presentation has been prepared by Heartland Group Non-GAAP measures Holdings Limited (NZX/ASX: HGH) (the Company or Heartland) for the purpose of briefings in relation to its This presentation contains references to non-GAAP financial statements. measures including underlying profit or loss, un
Slide 3: FY2021 highlights
FY2021 highlights 3
Slide 4: Financial performance highlights
Financial performance highlights KE Y HIGHLIGHTS • Continued Receivables growth in core lending portfolios Net interest margin Net interest income (Motor, Reverse (NIM) 4.35% (+2 bps vs $233.5m Mortgages, Asset $5,018m Underlying other FY2020) Finance5). +7.8% vs FY2020 operating income (OOI) $13.6m
Slide 5: FY2021 significant one-off items
FY2021 one-offs included in the reported result FY2021 • Net fair value gains/losses on investments: • a $3.9m fair value gain was recognised on Heartland’s equity investment in significant Harmoney one-off • a $0.7m fair value gain was recognised following updated external valuations received on He
Slide 6: Strategic highlights
Strategic highlights Further digitalisation and integration of Quality of loan book improved platforms in New Zealand and Australia. despite COVID-19 pressures. More than $200m approved from Home Loans Heartland Bank one of two Australasian banks to have no reduction or self-serve digital applicatio
Slide 7: Impairments and provisioning; Impact of COVID-19
Impairments Impact and provisioning of COVID-19 Impairment expense was $15.0m, a $14.4m decrease (49.1%), decreasing the • Direct impact of COVID-19 has been absorbed within business as usual impairment expense ratio1 from 0.65% in FY2020 to 0.31% in FY2021. activity. • The COVID-19 economic overlay
Slide 8: Financial results
Financial results 8
Slide 9: Growth in profitability
Growth in profitability One-off impacts Note: All figures in NZ$m. 1. Includes net gain on equity investments and investment properties. 2. Post-tax impact of $9.6m economic overlay due to COVID-19. 9
Slide 10: Growth in receivables
Growth in receivables Note: The graph shows year-to-date (YTD) movement in receivables by portfolio excluding the impact of changes in FX rates. All figures in NZ$m. 10
Slide 11: Key performance measures
NIM CTI 4.69% 4.61% 4.59% 45.4% 46.8% 4.46% 41.6% 40.9% Key 44.9% 44.8% 4.42% 40.9% 39.9% 4.33% 4.33% 4.35% performance measures FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21 Total NIM NIM excl. Liquid Assets Reported CTI Underlying CTI Non Performing Loans Impairment Expense Ratio 1.90% 1.87% 90.0 1.84%
Slide 12: Shareholder return
ROE Shareholder return Earnings per share (cps) • Return on equity (ROE) of 11.9% (up 144 bps vs FY2020). • Earnings per share (EPS) of 14.9 cps, up 2.4 cps compared to FY2020. • Final dividend of 7.0 cps, up 4.5 cps on FY2020 as pay-out ratio returns to historical levels with easing of RBNZ restric
Slide 13: Divisional summary
Divisional summary 13 13
Slide 14: Reverse mortgages portfolio analytics
Reverse mortgages portfolio analytics Average loan size $109,417 A$136,472 Average loan size Weighted average borrowers’ age 79 77 Weighted average borrowers’ age Average origination LVR 10.1% 602 M 1,001M 11.4% Average origination LVR NZ Reverse Mortgages AU Reverse Mortgages +A$86m (9.4%) Weighted
Slide 15: Australian Reverse Mortgages
Au Reverse Mortgages • • Receivables growth impacted by elevated repayments (39% vs FY2020), more on p14. Australian Seniors Finance recently rebranded $36.2m +5.5% to Heartland Reverse Mortgages, with all NET OPERATING INCOME increase since June 2020 Australian products now included under the Heart
Slide 16: NZ Reverse Mortgages
NZ Reverse Mortgages $24.4m +3.6% • New Zealand Reverse Mortgages had a NET OPERATING INCOME increase since June 2020 record year for new business, up 30.4% from FY2020 where the final quarter As at 30 June 2021 (Q4) was impacted by COVID-19, and up 26.2% ahead of FY2019. • Performance driven by inv
Slide 17: Open for Business (O4B)
Open for Business (O4B) $14.6m -1.1% NET OPERATING INCOME decrease since June 2020 • Growth slowed in 2H2020 as a result of COVID-19 disruptions and availability of As at 30 June 2021 Government-backed funding for small businesses. This trend continued in 1H2021. $144.5m -6.9% 1 • 2H2021 saw growth
Slide 18: Asset Finance
Asset Finance1 • Continued deepening and expansion of $28.5m +30.1% the intermediary network, and NET OPERATING INCOME increase since June 2020 distributor/vendor and point of sale support. As at 30 June 2021 • Strong demand from partners in the transport and logistics sector assisted growth followi
Slide 19: Business Relationship
Business Relationship • Supported more than 150 businesses to $26.1m +4.1% access over $60m in funding under NZ Government’s Business Finance NET OPERATING INCOME increase since June 2020 Guarantee Scheme. As at 30 June 2021 • Provided Go Car Finance with funding for its New Zealand loan book, align
Slide 20: Motor Finance
Motor Finance • Growth came mainly from the Motor $69.2m +14.2% dealer book via car dealerships, brokers NET OPERATING INCOME increase since June 2020 and branded partnerships such as Kia Finance, Jaguar/Land Rover Financial Services. As at 30 June 2021 • In July 2021, a new vehicle finance service
Slide 21: Harmoney and other personal lending
Harmoney and other personal lending $16.6m -22.4% NET OPERATING INCOME decrease since June 2020 • The New Zealand Harmoney portfolio contracted $69.1m (47.4%) to $76.7m, As at 30 June 2021 while the Australian Harmoney portfolio decreased by $5.2m (9.5%)1 to $48.8m. $132.1m -37.7% • Both New Zealand
Slide 22: Rural
Rural • Rural Relationship net operating income increased by 10.5% to $26.6m and Livestock net operating income $32.2m +4.7% decreased by 16.2% to $5.5m. NET OPERATING INCOME increase since June 2020 • Rural Relationship receivables reduced As at 30 June 2021 by 2.7% to $477.3m and Livestock receiva
Slide 23: Home Loans
Home Loans¹ • Home Loans1 Receivables increased $49.3m in FY2021 to $49.9m. • Following a successful pilot, Home Loans launched in October 2020 with conservative lending criteria targeting high quality applicants. • Loan drawdowns slowed over the summer holiday period in 1H2021, however strong appli
Slide 24: Funding and liquidity
Funding New Zealand • Heartland Bank increased borrowings by $94.4m (2.6%) in FY2021. and • • Deposits contracted $49.7m (1.5%). Decreased total liquidity by $99.1m (13.7%) primarily due to decrease in investments. liquidity • • Heartland Bank holds liquidity well in excess of regulatory minimums. C
Slide 25: Capital
Capital (0.27%) • Heartland Bank’s capital ratio as at 30 June 2021 is 13.88% (up 121bps from 30 June 2020). • As part of the RBNZ capital implementation review requiring an increase in capital, increases in capital will be phased in over a seven-year period, starting from 1 July 2022, requiring min
Slide 26: Strategic update
Strategic update 1 26 25
Slide 27: Regulatory update
Regulatory update A significant volume of regulatory change has been signalled, and Heartland continues to monitor this. Key changes include: • New Zealand Credit Contracts and Consumer Finance Act 2003 and the Credit Contracts and Consumer Finance Regulations 2004 • Financial Markets (Conduct of In
Slide 28: Strategic objectives
Strategic objectives Provide best or only Heartland’s strategic vision to provide best or only products via scalable products through scalable digital platforms will be achieved through: digital platforms, at the lowest cost Reduce CTI Reduce CTI ratio ratio 1. Business as usual growth 3. Expansion
Slide 29: Looking forward
Looking forward • Higher growth in Reverse Mortgages, Home Loans and transition of Harmoney to on-balance sheet model will result in NIM contracting. • However, this will drive an offsetting benefit of reduced impairment expenses, reflecting improved lending portfolio quality. • Continuing to extend
Slide 30: Appendices
Appendices 30
Slide 31: Appendix 1: Financial position
Appendix 1 $m Liquid Assets 30 June 2021 539 30 June 2020 544 Movement ($m) (5) Movement (%) (0.9%) Gross Finance 5,018 4,646 372 8.0% Receivables Financial Provisions Other Assets (54) 179 (63) 190 9 (11) 14.3% (5.8%) position TOTAL ASSETS Retail Deposits 5,683 3,183 5,318 3,264 365 (81) 6.9% (2.5%
Slide 32: Appendix 2: Financial performance
Appendix 2 $m Net Operating Income 1 Operating Expenses FY2021 251.2 117.7 FY2020 235.3 106.8 Change ($) 15.8 10.9 Change (%) 6.7% 10.2% Impairment Expense 15.0 29.4 (14.4) (49.1%) Financial Profit Before Tax 118.6 99.1 19.4 19.6% Tax Expense 31.5 27.2 4.4 16.1% performance Net Profit After Tax 87.0
Slide 33: Appendix 3: Reconciliation of reported with underlying results
Appendix 3 $m Reported NOI FY2021 251.2 FY2020 235.3 Movement ($m) 15.8 Movement (%) 6.7% Less: Reconciliation Upfront Reverse Mortgage fees - (2.8) 2.8 Net fair value gain on investments (4.1) (2.1) (2.0) Other non-recurring items (0.6) 0.6 of reported Underlying NOI Reported OPEX 247.1 117.7 229.8
Slide 34: Thank you
Thank you For Heartland’s FY2021 Annual Results announcement, please see shareholders.heartland.co.nz 34
Heartland Group Holdings — FY2021 Earnings Presentation on 6ix