Heartland Group Holdings Ltd. · NZX:HGH
Heartland — Investor Day (November 2018)
74 slides from Heartland's investor day presentation, Nov 19, 2018
Slide 1: Heartland Investor Day 19 November 2018
Heartland Investor Day 19 November 2018 Heartland Investor Day – 19 November 2018 | Page 1
Slide 2: Agenda
Agenda 9:00am Welcome Jeff Greenslade – CEO Business and strategic update 9:15am 2019 Q1 Results David Mackrell – CFO 9:30am Reverse Mortgages Andrew Ford – CEO, Heartland Seniors Finance 10:30am Morning tea break 10:45am Financial & Regulatory update David Mackrell – CFO 11:15am Motor, Business, Ru
Slide 3: Welcome: Business and strategic update
Welcome Business and strategic update Jeff Greenslade, CEO Heartland Investor Day – 19 November 2018 | Page 3
Slide 4: Strategic Management Group
Strategic Management Group Jeff Greenslade Chris Flood Laura Byrne Grant Kemble CEO Deputy CEO Chief People & Culture Officer Chief Risk Officer David Mackrell Rochelle Moloney Sarah Smith Lydia Zulkifli CFO Chief Marketing & Chief Technology & Chief Digital Officer Communications Officer Enablement
Slide 5: Heartland Group – threefold strategic focus
Heartland Group – threefold strategic focus New Zealand Digital Platform Australia Banking Services Opportunity to be the leading reverse mortgage provider Deposit raising Open for Business Five core lending activities : Able to fund Australia reverse mortgage growth directly Reverse Mortgages, Moto
Slide 6: Heartland's point of difference
Heartland’s point of difference • Highest Net Interest Margin among our bank peers • Resulting in highest Return on Assets • Competitive Return on Equity • Highest growth rate in Gross Loans and Advances (Net Finance Receivables) – 2.7% in the June quarter and 12.3% year on year Source: Reserve Bank
Slide 7: FMA & RBNZ report on bank conduct and culture in New Zealand
FMA & RBNZ report on bank conduct and culture in New Zealand • Report focusses on the industry as a whole, rather than specific banks. • Makes a number of findings which have been divided into four key themes. • The report concluded that there does not appear to be widespread conduct and culture iss
Slide 8: 2019 Q1 Results
2019 Q1 Results David Mackrell, CFO Heartland Investor Day – 19 November 2018 | Page 8
Slide 9: 2019 Q1 Results – September 2018
2019 Q1 Results – September 2018 Net operating income Net profit after tax Net finance receivables 3 months to 30 Sept 2018 3 months to 30 Sept 2018 As at 30 Sept 2018 $51.4m $17.4m $4.1bn 9.9% from Q1 Sept 2017 8.7% from Q1 Sept 2017 11.0% from 30 Sept 2017 (4.4)% from Q4 June 2018 (7.9)% from Q4 J
Slide 10: Net Receivables movement
Net Receivables movement Heartland Investor Day – 19 November 2018 | Page 10
Slide 11: Impairments
Impairments • Impairment expense $6.2 million ($5.1 million for 3 months ended 30 Sept 2017 and $5.9 million for 3 months ended 30 June 2018). • Impairment expense ratio 0.61% (0.56% for 3 months ended 30 Sept 2017, 0.59% for the year ended 30 June 2018). • Impairments increased due to growth in net
Slide 12: Impacts of IFRS9 on provisions and impairment expense
Impacts of IFRS9 on provisions and impairment expense • Adjustment to provisions of $20-25 million with resulting impact on Equity of $14-18 million. • Provisioning commences automatically from loan origination – Expected losses expensed from day 1. – Results in increased impairment expense due to g
Slide 13: Growing balance sheet
Growing balance sheet Summary Balance Sheet 30 Sept 2018 ($m) 30 June 2018 ($m) Movement ($m) Net finance receivables 4,087.5 3,984.9 102.6 Other assets 508.8 511.0 (2.2) TOTAL ASSETS 4,596.3 4,495.9 100.4 Retail deposits 2,977.1 2,881.8 95.3 Other borrowings 943.9 914.2 29.7 Other liabilities 35.1
Slide 14: Movements in Equity
Movements in Equity Heartland Bank Limited $m Balance as at 30 June 2018 664.2 Profit for the period ended 30 Sept 2018 17.4 IFRS 9 Adjustment (17.9) Dividends paid (30.8) Dividend reinvestment plan 8.6 Movement in reserves (1.3) Balance as at 30 June 2018 640.2 Heartland Investor Day – 19 November
Slide 15: Reverse Mortgages
Reverse Mortgages Andrew Ford, CEO Heartland Seniors Finance Heartland Investor Day – 19 November 2018 | Page 15
Slide 16: Agenda
Agenda • Overview • Strong Growth and Momentum • Market Insights • Heartland Reverse Mortgage Product • Portfolio Analysis • ASIC Review • Typical Customer Growing need… • Summary Over 20,000 Australians turn 65 every month and the number of New Zealanders aged 65+ is expected to increase by 80% bet
Slide 17: Overview
Overview • Australasia’s leading reverse mortgage provider • Purchased by Heartland on 1 April 2014 • NZ$1,130m in net finance receivables • Assisted over 30,000 seniors across New Zealand and Australia live a more comfortable retirement • Market leading product • A heavily regulated consumer financ
Slide 18: Strong Growth and Momentum
Strong Growth and Momentum • Compound annual growth rate of 18% in Australia and 11% in NZ over the last three years • Net operating income was $38.1m for FY18, up 28% • Receivables grew 12% in NZ and 25% in Australia • Expect growth to continue at similar rates in FY19 • Scalable product Heartland
Slide 19: Market Insights
Market Insights • Only material provider in NZ • More mature and competitive market in Australia • Competitors exiting – Westpac, Macquarie (both mid 2017), and CBA have announced exit effective 1 January 2019. A few non-major bank competitors remain • Australia Government Pension Loans Scheme assis
Slide 20: Heartland Reverse Mortgage Product
Heartland Reverse Mortgage Product • Market leading, award winning, product • Researched internationally for best product and processes • Flexible product for customers’ circumstances • Considerable consumer protection • Socially responsible with a thorough fulfilment process • Controls throughout p
Slide 21: Portfolio Analysis
Portfolio Analysis HSF Australia Book as at 30/6/18 (AUD) HSF NZ Book as at 30/6/18 (NZD) Loan Book Size $619m Loan Book Size $453m FY18 Growth $125.7m (25%) FY18 Growth $49.8m (12%) (FY17 18%) (FY17 11%) Avg Loan Size $120k Avg Loan Size $100k Weighted Avg LVR (indexed 25% Weighted Avg LVR (indexed
Slide 22: Portfolio Analysis – by LVR
Portfolio Analysis – by LVR Portfolio • Average weighted LVR 25% • 90% of loans have an LVR under 40% Outliers • Only 36 loans with LVR over 60% (0.8% of book) • Average age of these loans is 11.8 years • Average youngest borrower age for Outliers No. of Loans these loans is 88 LVR Current Loan Bala
Slide 23: Portfolio Analysis – by LVR (cont.)
Portfolio Analysis – by LVR (cont.) Low initial LVR • Average initial LVR of 12% (FY18 11%) • Draw a lump sum and have funds set aside for future needs via a ‘line of credit’ or receive a Regular Advance • ~10% borrow upfront maximum available • LVR based off age at approval. Any increase requires n
Slide 24: Portfolio Analysis – by Location
Portfolio Analysis – by Location Deep Property Markets • Lending standards focus on areas with deep property markets • 60% of Aus portfolio in capital cities • 43% of Aus portfolio in Sydney and Melbourne • 59% of new business since acquisition has been in Sydney & Melbourne • 56% of NZ portfolio in
Slide 25: Portfolio Analysis – by Age
Portfolio Analysis – by Age Seasoned Portfolio • Weighted average loan age is 6.5 years • Average term at repayment (FY18) 6.6 years in Aus and 7.5 in NZ • Weighted average age of youngest borrower is 77.5 years old • 51% of loans are to joint borrowers, 34% sole female and 15% sole male Heartland I
Slide 26: Portfolio Analysis – by Size
Portfolio Analysis – by Size Concentration Risk • Average loan size $117k • Average original loan $62k • Only 7 loans over $1m (in local currency) • Average LVR on these loans is 31% with highest 46% Heartland Investor Day – 19 November 2018 | Page 26
Slide 27: Portfolio Analysis – Repayments
Portfolio Analysis – Repayments Steady Repayments – Cash flow Positive (excl. new business) • Weighted median term is 7.4 years (where more than 50% of loans have been repaid) FY18 Experience - • Australia - $66m of repayments ($33m interest charged) • NZ - $62m of repayments ($30m interest charged)
Slide 28: ASIC Review of Reverse Mortgage Lending
ASIC Review of Reverse Mortgage Lending • Report released 28 August 2018 after ~18 month review • Thorough and balanced, highlighting growing need for equity release product • Report finds that reverse mortgages help older Australian achieve their immediate financial objectives and that customers ar
Slide 29: Typical Customer
Typical Customer • Joint borrowers (51%) / sole female (34%) / sole male (15%) • 75 years old • Have depleted super and other assets • Receive pension • Reside in Auckland, Sydney, Melbourne, Brisbane, Coastal NSW / QLD • Property worth $775k • LVR at origination of 11%, with further funds set aside
Slide 30: Case Study
Case Study • Jack 74 and Bev 70 • Home value: $800,000 • Max loan amount: $200,000 (based on Bev’s age - 25%) • Initial Borrowing: $100,000 (including fees) • Payoff a current mortgage • Some home improvements • Remaining available facility: $100,000 • Drawdown additional $15k, two years after takin
Slide 31: Customer Stories
Customer Stories Our most recent Australia customer survey showed: • 96% of customers would recommend Heartland to friends and family; and • 94% said they would recommend taking out a reverse mortgage. “Peace of mind” “Given us the freedom to do so many things” “Financial pressures eased” “You are a
Slide 32: Summary
Summary • Australasia’s leading provider • Award winning and socially responsible product • Heavily regulated with robust and thorough fulfilment process • Considerable customer protection and controls • High quality portfolio • Strong growth achieved and momentum • Growing market and increasing dem
Slide 33: Questions
Questions “, Nan. alli BRA : HEARTLAND GROUP
Slide 34: Reverse Mortgages – Stress Testing
Reverse Mortgages – Stress Testing David Mackrell, CFO Heartland Investor Day – 19 November 2018 | Page 34
Slide 35: Product and Key Risks
“cross-over” point Product and Key Risks $ $ • Potential loss arises from the interplay between interest capitalising to the loan balance, the value of the security property through time, $ potential loss and loan exit (repayment date). $ • The borrower can never owe more than the net sale proceeds
Slide 36: Reverse Mortgage Stress
Reverse Mortgage Stress • We examine three interest rate and house price inflation (HPI) scenarios to determine the impact on loan balance and security value for an individual loan, and the resulting potential losses. • Each scenario assumes the borrower age is 69, with a security value of $1m. Outc
Slide 37: Base Stress Outcomes
Base Stress Outcomes • 50% of Maximum Eligible LVR (12%) = No loss experienced: - Conservative LVR on origination - Moderate Year 1 HPI stress - Long run HPI while modest, compensates for initial HPI decline over Year 1 • 100 % of Maximum Eligible LVR (24%) = Loss experienced from 98 years of age, 2
Slide 38: Irish Stress Outcomes
Irish Stress Outcomes • 50% of Maximum Eligible LVR (12%) = No loss experienced: - Conservative LVR on origination - Severe decline in security value over 5 year period partially compensated for during following 5 years - Long run HPI while modest partially offsets capitalising interest in a rising
Slide 39: AAA Stress Outcomes
AAA Stress Outcomes • The AAA Stress is the most severe as it compounds all risk factors: - A 35% fall in security value is 2.1x more severe than anything experienced in the USA during the GFC - The scenario assumes no HPI recovery, which is not supported by historical analysis - Interest rates incr
Slide 40: Financial & Regulatory update
Financial & Regulatory update David Mackrell, CFO Heartland Investor Day – 19 November 2018 | Page 40
Slide 41: Corporate restructure and ASX listing complete
Corporate restructure and ASX listing complete • Heartland Group Holdings Limited listed on Shareholders the NZX Main Board and the ASX under a foreign exempt listing under the ticker code HGH. Heartland Group Holdings NZX Listed ASX Listed Limited • Provide the group with a more suitable platform f
Slide 42: Funding
Funding Present Funding • CBA has been the primary funder of the business since its inception in 2004 • Committed warehouse facility to 30 September 2022 Current initiatives • Continue to develop multiple warehouse facilities, broadening providers of senior funding and introducing mezzanine investor
Slide 43: Capital
Capital • Tier 2 Notes (A$20 million) were repaid as part of the corporate restructure in October 2018 with existing funds. • Total Capital Ratio forecast to remain above 12.5% based on forecast asset growth and earnings while maintaining the proposed level of dividend pay-outs. • RBNZ due to conclu
Slide 44: Motor, Business, Rural
Motor, Business, Rural Chris Flood, Deputy CEO | Page 44
Slide 45: Motor
Motor • 16% growth in net finance receivables in 2018 financial year • 13% annualised growth in the quarter ending 30 September • 11.4% CAGR between 2013 and 2018 • Scalable model due to distribution and origination/scorecard technology Heartland Investor Day – 19 November 2018 | Page 45
Slide 46: Motor – growing dealership lending
Motor – growing dealership lending • Dealership lending accounts for 94.1% of book as at 30 June 2018 - Average loan size of $24,000 compared to Direct average loan size of $19,000 • Broad distribution network of 400+ dealers and brokers. - As at August 2018 there were 3,481 registered car dealers •
Slide 47: Motor – NZ market dynamics
Motor – NZ market dynamics • Heartland’s share of the market is small compared to vehicles sold. Therefore this presents further growth opportunities • There are over 1 million vehicles sold per year (dealer to public and private) • Dealer to public sales accounted for 375,670 sales in FY18, up 1.9%
Slide 48: Business
Business Intermediary lending increasing Relationship lending decreasing Digital platform lending increasing Heartland Investor Day – 19 November 2018 | Page 48
Slide 49: Business intermediary partnerships
Business intermediary partnerships • Growing business with intermediary partners – financing trucks, vehicles, plant & machinery • Heartland partners with distributors that account for 33% of all new truck sales in New Zealand • Growth supported by digital financing platforms for our key intermediar
Slide 50: Business
Business Average Loan Size 30/06/2013 30/06/2014 30/06/2015 30/06/2016 30/06/2017 30/06/2018 ($’000) Relationship 192.3 172.9 198.8 191.3 164.5 139.2 Intermediated 22.3 26.6 34.7 45.2 53.4 56.4 Open for Business - - - 29.3 36.8 38.8 Total average loan size 96.7 93.2 110.6 111.1 97.2 84.1 Average Con
Slide 51: Business – geographical diverse
Business – geographical diverse Heartland Investor Day – 19 November 2018 | Page 51
Slide 52: Rural
Rural Heartland Investor Day – 19 November 2018 | Page 52
Slide 53: Rural
Rural Average Loan Size 30/06/2013 30/06/2014 30/06/2015 30/06/2016 30/06/2017 30/06/2018 ($’000) Rural – Relationship 308.0 311.3 370.8 393.3 422.5 427.3 Livestock - Direct 79.8 50.3 78.0 75.3 61.0 25.6 Livestock - Partnerships 225.9 167.1 77.8 66.4 64.6 55.3 Total average loan size 252.7 220.4 234
Slide 54: Rural
Rural • Seasonal nature of rural and livestock mean we see higher gross receivables balances in between reporting dates. • Therefore rural income can increase even though reported receivables fluctuate up and down. Heartland Investor Day – 19 November 2018 | Page 54
Slide 55: Rural
Rural Geographical exposure: • 48% rural exposure in Canterbury and Otago • Diverse spread around the rest of New Zealand Heartland Investor Day – 19 November 2018 | Page 55
Slide 56: Heartland Group Digital Initiatives
Heartland Group Digital Initiatives 2018 Heartland Investor Day – 19 November 2018 | Page 56
Slide 57: Our Approach to Digital
Our Approach to Digital Distribution and reach Data and Speed and insights simplicity OUR DIGITAL STRATEGY Customer Device centric agnostic thinking Frictionless user experience Heartland Investor Day – 19 November 2018 | Page 57
Slide 58: Digital Overview
Digital Overview • Innovate, create and optimise digital platforms • Leverage customer feedback, data and insights • In-house capability enabling an agile, responsive approach • Diverse team skill-set and thinking Average Monthly Website Visits As at 14 November 2018 60,000+ Heartland Investor Day –
Slide 59: Open for Business (O4B)
Open for Business (O4B) Key Information: Credit Intelligence: • Loans for small and medium sized business • Algorithms provide indicators as to an in New Zealand – up to $75k unsecured applicant’s risk profile based on: statistical and up to $250k partially secured analysis; market analysis; credit
Slide 60: Key Statistics on O4B
Key Statistics on O4B Recent typical month Book Growth Since Origination $111m 12.1% ~$50K $62 Yield on new Average SEM Loan book(a) Average loan origination(b) cost per new size customer (a) For September 2018. Yield includes interest and fee income (b) As at 31 October SEM – Search Engine Marketin
Slide 61: What we have achieved
What we have achieved Search Engine Optimisation – Organic position on Google Sep-17 Sep-18 Search Terms + AVG MONTHLY AVG MONTHLY POSITION POSITION POSITION Rankings SEARCHES SEARCHES CHANGE Business loans 720 14 880 4 10 Business loans NZ 590 12 720 5 7 Small business loans 260 7 260 3 4 Business
Slide 62: Term loan product / Revolving credit facility
Term loan product Revolving credit facility • Fixed term, amortising P&I product • Meets seasonal cash flow • Used for plant and equipment, requirements of better customers business and franchise purchases, • Available through Open For Business vehicle purchases, or funding for and Mobile App longer
Slide 63: O4B – Marketing Campaign
O4B – Marketing Campaign • New TV commercial and supporting digital activity launched mid-September 2018 • Key campaign objectives: — Drive awareness of Heartland and the Open for Business platform as an option for small business finance — Drive lead generation for Open for Business • Campaign resul
Slide 64: Heartland Investor Day – 19 November 2018 | Page 64
Heartland Investor Day – 19 November 2018 | Page 64
Slide 65: Customer Interaction Analysis
Customer Interaction Analysis • Heat maps show us how visitors are interacting with our website • Website development improvements based on customer interaction analysis are constant Heartland Investor Day – 19 November 2018 | Page 65
Slide 66: Deposits Platform - What we have achieved
Deposits Platform - What we have achieved Recent typical month Platform Booksize CAGR over last Compound growth over 18 months Monthly $25 Average SEM last 18 months Growth over cost per online last 18 months application Deposits $104.6mill 139.78% 7.56% Heartland Investor Day – 19 November 2018 | P
Slide 67: Heartland Mobile App – Key Features
Heartland Mobile App – Key Features Heartland Investor Day – 19 November 2018 | Page 67
Slide 68: Heartland Mobile App
Heartland Mobile App • 2,800+ registered users across Apple and Android • 8% uptake from deposit customers and growing daily • Extensive user testing drove over 100+ enhancements to the app prior to launch 3 months since full • Overcomes customer issues previously 3 months launch experienced with in
Slide 69: What we're working on next
What we’re working on next Solutions for End-to-end Mobile Card Millennials depositors Payments Payments and Gen Z platform Heartland Investor Day – 19 November 2018 | Page 69
Slide 70: Customer touch points
Customer touch points Lending and deposit roadmaps show key touch points in the customer journey where automation initiatives are being implemented. Lending process automation initiatives Pre-market Decision Validation Documentation Loan • Search engine making tools • Biometrics • Online Drawdown ma
Slide 71: RPA at Heartland
RPA at Heartland Non-attended automation Implement in a process within the business that: Tasks that are automated end-to-end and can be • is rule based and scheduled to run at regular intervals. E.g.: standardised • Retrieve information and serve up daily reports • has high repetition • Complete re
Slide 72: RPA at Heartland – next steps
RPA at Heartland – next steps Proven technology shows benefits of adopting more than a single software solution Blue Prism robotics software was first developed by the UK banking industry and is well suited to Heartland. Other recently developed offerings could provide different benefits. We are eng
Slide 73: Online Biometrics solution
Online Biometrics solution Tailored workflows depending on customer needs • A guided workflow (talking the customer through the process) • An unguided workflow (customer can complete in their own time) • Biometric Critical Success Factors: • Collect an image of the identification electronically with
Slide 74: Heartland Investor Day Closing remarks and Q&A
Heartland Investor Day Closing remarks and Q&A Heartland Investor Day – 19 November 2018 | Page 74
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