Heartland Group Holdings Ltd. · NZX:HGH
Heartland — Heartland New Zealand — FY2014 Earnings Presentation
30 slides from Heartland's earnings presentation, August 2014
Slide 1: Full Year Results to 30 June 2014
Full Year Results to 30 June 2014 Jeff Greenslade Simon Owen Annual Meeting 1 November 2013 | Page 1
Slide 2: Important Notice
Important Notice This presentation has been prepared by Heartland New Zealand Limited (Heartland) (NZX: HNZ) for the purpose of briefings provided by HNZ in relation to its financial statements. The presentation and the briefing constitute summary information only, and you should not rely on them in
Slide 3: Agenda
Agenda • Introduction • Financial Overview • Business Overview • Looking Forward • Questions Annual Meeting 1 November 2013 | Page 3 Full Year Results to 30 June 2014 | Page 3
Slide 4: Introduction
Introduction Annual Meeting 1 November 2013 | Page 4
Slide 5: Heartland's Progress to Date
Heartland’s Progress to Date Heartland has made significant progress restructuring the existing business and growth is underway Merger successfully completed Investment grade credit rating achieved Bank licence obtained Costs normalised Consistent growth in earnings Asset rebalancing bei
Slide 6: Effect of Balance Sheet Changes
Effect of Balance Sheet Changes Strategic changes to Heartland’s balance sheet composition have resulted in increased EPS and ROE 30 June 2011 30 June 20121 30 June 2013 30 June 2014 Total Net Receivables6 Total Net Receivables6 Total Net Receivables6 Total Net Receivables6 $1.7b $2.1b $2.1b $2.6b N
Slide 7: Financial Overview
Financial Overview Annual Meeting 1 November 2013 | Page 7
Slide 8: Financial Full Year Overview
Financial Full Year Overview Step up in profitability • Achieved NPAT of $36.0m 12 months to 12 months to Jun 2014 Jun 2013 Change (NZ$m) (NZ$m) % • Increase in Adjusted NPAT of $12m or Net interest income 109.1 95.5 14% 48% Net other income 13.5 11.8 14% Net operating income * 122.6 107.3 14% • Inc
Slide 9: Net Profit Before Tax
Net Profit Before Tax Adjusted NPBT shows continued improvement • Adjustment for one-off Non-Core Property expense in 2013, for like on like • Interest margin big driver in growth • Continued trend improvement • Acquisition contributed in last quarter 2014 Annual Meeting 1 November 2013 | Page 9 Ful
Slide 10: Net Profit Before Tax - Bridge
Net Profit Before Tax - Bridge Breakdown of component parts * Change in strategy provisions ($18.0m), Management fee ($6.1m), Management expenses ($0.2m) added back Annual Meeting 1 November 2013 | Page 10 Full Year Results to 30 June 2014 | Page 10
Slide 11: Operational Efficiency
Operational Efficiency Continuing improvement in cost to income ratio • Ratio lower as NOI continues to grow and costs held flat • Annual cost to income ratio now at 53% • Second half 2013 increase in costs due to non-core property costs of $6.3m • Further improvement expected Annual Meeting 1 Novem
Slide 12: Net Operating Income
Net Operating Income NOI driving profitability • NOI up 14% • Household biggest earning division • Growth in NOI due to: — Product mix changes — COF reductions Annual Meeting 1 November 2013 | Page 12 Full Year Results to 30 June 2014 | Page 12
Slide 13: Balance Sheet Summary
Balance Sheet Summary Growth in receivables • Total assets increased by $512m • Net finance receivables increased by $597m • Retail and consumer biggest segment up $679m largely from HER acquisition • Retail and non-core property back $178m as we execute strategy to exit • Equity up $82m due to capi
Slide 14: Net Finance Receivables Bridge
Net Finance Receivables Bridge Portfolio mix improvement Annual Meeting 1 November 2013 | Page 14 Full Year Results to 30 June 2014 | Page 14
Slide 15: Asset Quality Trends
Asset Quality Trends Trend improvement in underlying asset quality • Asset quality improving overall • Non-Core Property significantly reduced • Core business impairment is low • Increase in core net impairment expense from last year • Business NPL’s higher at year end; don’t expect increase in impa
Slide 16: Cost of Funds – Heartland Bank
Cost of Funds – Heartland Bank Cost of funds continue to track lower Solid retail deposit performance and lower cost of funds driven by: • Rate alignment with Bank peers • Changing funding mix (increased retail, reduced wholesale) Annual Meeting 1 November 2013 | Page 16 Full Year Results to 30 June
Slide 17: Business Overview
Business Overview Annual Meeting 1 November 2013 | Page 17
Slide 18: Market Position
Market Position A focus on Household, SME and Rural sectors • Our focus is on three sectors: Household, SME and Rural • We offer specialist products which are superior to alternatives or substitutes (best in category) in niches within these sectors (areas of low contestability). By doing so we estab
Slide 19: Acquisition and Product Centric Strategy for Growth
Acquisition and Product Centric Strategy for Growth Over the last 4 years, Heartland has successfully integrated 5 businesses and developed new products • With credit growth likely to remain constrained beyond 2014, Heartland aims to accelerate earnings growth through potential acquisitions • Produc
Slide 20: Household
Household Biggest segment $1.6b Sub categories are: • Consumer (primarily motor vehicles) • Home Equity release • Residential mortgages Residential • Continued run down (not a strategic product) June 2014 June 2013 • New business and re-finance originated into Gross Receivables $122m $233m Kiwibank;
Slide 21: Consumer
June 2014 June 2013 Consumer Gross Receivables $779m $725m Avg loan size $16k $16k Strong growth • Marque motor vehicle product • Growth of $54m or 7% in current year • Launch of i-finance: — financing lower cost cars, adjacent segment, achieve appropriate risk reward • Intermediated distribution st
Slide 22: HER Overview
HER Overview Total Receivables NZ $735m • Positive earnings contribution after acquisition costs and marketing investment • 250 loans approved since acquisition, with combined limits of NZ$19m • Growth in New Zealand book achieved after three months of ownership, growth in Australian book forecast f
Slide 23: HER Integration
HER Integration Progressing as planned • New Zealand sales capability developed within Heartland Bank’s retail business • Marketing programme launched in New Zealand in May, Australia in July • Australian agency distribution channels being re-established with training and accreditation being progres
Slide 24: Rural
June 2014 June 2013 Rural Gross Receivables $412m $457m Avg loan size $198k $263k Expect growth in 2015 • PGGW acquisition at NTA in 2011 came with higher risk (guaranteed loans), and mortgage lending products which overlapped with the major banks • The higher risk loans have repaid and a significan
Slide 25: Business
June 2014 June 2013 Business Gross Receivables $555m $555m Avg loan size $185k $188k Multi product solutions • Strategy is to support business growth through a range of specialist business products • Focus on business needs – not owners house or their personal assets • We understand our customer and
Slide 26: Significant Reduction in Non-Core Property
Significant Reduction in Non-Core Property Heartland continues to significantly reduce its non-core property holdings 30 June 2013 31 December 2013 30 June 2014 Total Property Book $107.4m Total Property Book $87.1m Total Property Book $40.8m Annual Meeting 1 November 2013 | Page 26 Full Year Result
Slide 27: Non-Core Property
Non-Core Property Sell down exceeding forecast • Non-core property assets reduced by 62% from $107.4m at 30 June 2013 to $40.8m at 30 June 2014 • Net receivables $16.0m – 18 loans with an average balance of less than $0.9m – Includes provisions of $5.7m • Investment properties $24.9m – 13 properties
Slide 28: Return on equity
Return on equity ROE and profit trending up • Profitability increasing • ROE for year ended 30 June 2014 9.0% compared to ROE of 1.8% and Adjusted ROE2 of 6.4% for the prior year • ROE trending up with ROE in last quarter of approximately 9.7% • Specific focus on improving ROE – Continued focus on h
Slide 29: Dividends
Dividends Final dividend of 3.5¢ cents per share • Fully imputed Interim and final dividend of 6.0¢ up from 4.5¢ in prior year (33% increase) 2014 2013 Special 1.5¢ Interim 2.5¢ 2.0¢ Final 3.5¢ 2.5¢ TOTAL 6.0¢ 6.0¢ Annual Meeting 1 November 2013 | Page 29 Full Year Results to 30 June 2014 | Page 29
Slide 30: Questions
Questions Annual Meeting 1 November 2013 | Page 30 Half Year Results to 31 December 2013 | Page 30