Heartland Group Holdings Ltd. · NZX:HGH
Heartland — H1 2023 Earnings Presentation
42 slides from Heartland's earnings presentation, Feb 28, 2023
Slide 1: FY2023 Half year results
FY2023 Half year results 28 February 2023
Slide 2: Important notice
Important notice This presentation has been prepared by Heartland Group Holdings Limited (NZX/ASX: HGH) (the Company or Heartland) for the purpose of briefings in relation to its financial statements. The presentation and the briefing (together the Presentation) contain summary information only, whi
Slide 3: Contents
Contents 01 1H2023 highlights Page 4 – 7 02 Financial results Page 8 – 12 03 Strategic update Page 13 – 16 04 Divisional summaries Page 17 – 30 05 Funding, liquidity, capital and regulatory update Page 31 – 35 06 Outlook Page 36 – 37 07 Appendices Page 38 – 41 3
Slide 4: 1H2023 highlights
1H2023 highlights Jeff Greenslade Chief Executive Officer Heartland Group 4
Slide 5: Presentation of results
Presentation of results Financial results in this investor presentation are presented on a reported and Adjustments for underlying results impact net operating income (NOI), operating underlying basis. expenses (OPEX), net profit after tax (NPAT), net interest margin (NIM) and earnings per share (EP
Slide 6: Financial highlights
Financial highlights REPORTED UNDERLYING Financial Net Interest Income $138.9m 12.1% vs 1H2022 $140.8m 13.6% vs 1H2022 performance Other Operating Income (OOI)1 $2.8m 58.6% vs 1H2022 $8.9m 28.3% vs 1H2022 OPEX $63.4m 10.8% vs 1H2022 $63.9m 13.3% vs 1H2022 Impairment Expense $9.2m 8.3%
Slide 7: Operating environment
Operating environment Overall credit quality remains good, benefitting from Heartland’s Heartland’s Economic Overlay of $8.0 million taken in the financial year continued move towards higher quality and lower risk assets. ended 30 June 2022 (FY2022) remains unchanged at 31 December 2022. The Economi
Slide 8: Financial results
Financial results Andrew Dixson Chief Financial Officer Heartland Group 8
Slide 9: Growth in profitability
Growth in profitability ↗ 7.6 (16.2%) Underlying: 47.1 → 54.7 ↗ 1.1 (2.4%) Reported: 47.5 → 48.7 2 3 1 1.9 (2.9) 5.4 4 (4.6) (0.7) (0.9) (2.1) 11.5 64.4 58.8 58.1 55.1 54.7 47.1 47.5 1H2022 NPAT Net Interest Other Operating Operating Impairment Tax 1H2023 NPAT Income Income Expenses Expense StockCo
Slide 10: Key performance measures
Key NIM CTI performance 46.8% 43.8% 43.6% 44.8% measures 4.16% 44.8% 4.35% 43.1% 42.5% 42.7% 4.30% 4.02% 4.05% 3.97% NPAT ($ million) 1 47.6 Jun-21 Dec-21 Jun-22 Dec-22 Jun-21 Dec-21 Jun-22 Dec-22 42.9 32.1 Reported NIM Underlying NIM Reported CTI Underlying CTI +2% +8% 48.7 +11% 44.1 47.5 39.9 FY20
Slide 11: Shareholder return
Shareholder return Underlying ROE • Underlying return on equity (ROE) 12.1% (down 7 bps vs 1H2022).1 12.6% • Earnings per share (EPS) of 7.3 cps, down 0.8 cps compared with 1H2022. 12.0% 12.1% 12.1% • Underlying EPS of 8.2 cps (up 0.2 cps vs 1H2022). • Interim dividend of 5.5 cps, flat on 1H2022. Ju
Slide 12: Growth in Receivables
Growth in Receivables ↗ $315.7m (10.1%)1 13 27 (2) (8) - 6.7% 43 76 19.3% (35) (6.9%) 19 (33) (11.5%) 87 13.4% (10.9%) 7.4% (37.7%) 10.9% 24.0% 6,511 128 19.9% 6,196 AU Reverse Business Business Jun-22 NZ Reverse Relationship Australia Asset Finance Home Loans Dec-22 Livestock Motor Finance Personal
Slide 13: Strategic update
Strategic update Jeff Greenslade Chief Executive Officer Heartland Group 13
Slide 14: 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 Heartland Bank Heartland Bank Mobile $198.
Slide 15: Challenger Bank acquisition
Challenger Bank acquisition On 20 October 2022, Heartland announced it had signed a Heartland’s vision is to create a sustainable and profitable digital conditional share purchase agreement for the purchase of bank serving sectors of the Australian market which Heartland Challenger Bank, an establis
Slide 16: 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 Rainbow Tick accreditation Heartland Bank consistently FY2022 emissions show a 56% absolu
Slide 17: NZ divisional summary
NZ divisional summary Leanne Lazarus Chief Executive Officer Heartland Bank 17
Slide 18: NZ Reverse Mortgages
NZ Reverse Mortgages • • New Zealand Reverse Mortgages net operating income (NOI) was up 33.4% from 1H2022. Receivables increased $87.4 million (24.0%) to $808.7 million. $20.5m +33.4% • Strong demand and growth continues due to: NET OPERATING INCOME increase since 1H2022 – a reverse mortgage being
Slide 19: NZ Reverse Mortgages portfolio analytics
NZ Reverse Mortgages portfolio analytics Average loan size $122,751 Weighted average borrowers’ age 78 Average origination LVR 10.0% Weighted average LVR 19.7% Proportion of the loan book over 75% LVR 0.0% $809m Number of loans in the book over 75% LVR 0 NZ Reverse Mortgages $109m +$87m (24.0%)2 1H2
Slide 20: Asset Finance
Asset Finance1 • • • Asset Finance NOI was down 4.8% from 1H2022. Receivables increased $42.7 million (13.4%) to $676.3 million. NIM deteriorated due to the impact of interest rate changes $14.9m -4.8% required to maintain competitive pricing in an aggressive NET OPERATING INCOME decrease since 1H20
Slide 21: 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. Receivables decreased $34.7 million (10.9%) to $595.5 million. $15.8m +1.6% NET OPERATING INCOME increase since
Slide 22: Open for Business
Open for Business • • • 1H2023 saw a decrease of $0.5 million (6.8%) in O4B NOI. Receivables decreased $8.2 million (11.5%)1 to $133.0 million. A strategy reset occurred in Q2 following a change in the $6.7m -6.8% demand profile through COVID-19, and the sensitivities that small-to-medium enterprise
Slide 23: Motor Finance
Motor Finance • • Motor Finance NOI was down 9.9% from 1H2022. Receivables increased $75.9 million (10.9%) to $1.46 billion as early repayments slowed. $32.7m -9.9% • NIM was impacted by competitor activity, and by the change in NET OPERATING INCOME decrease since 1H2022 portfolio mix of business, w
Slide 24: Personal Lending
Personal Lending $3.4m -35.4% • Personal Lending includes loans originated directly through Heartland Bank, and those originated by Harmoney Corp Limited (Harmoney) in New Zealand and Australia. • Heartland personal loans have increased $9.1 million (52.9%) to $43.4 million. NET OPERATING INCOME dec
Slide 25: Online Home Loans
Online Home Loans¹ • • Online Home Loans1 Receivables increased $27.6 million (19.9%) in 1H2023 to $302.3 million. The reduction in the rate of book growth was driven by the sharp decline in property sales and new mortgage volumes in $2.1m +267.2% New Zealand.2 NET OPERATING INCOME increase since 1H
Slide 26: Rural
Rural • Overall Rural portfolio Receivables decreased by $13.3 million (3.8%) to $675.8 million. Driven from the normal seasonal fluctuations in Livestock Receivables which decreased by $32.6 million (37.7%) to $139.0 million, offset in part by Rural $16.9m +9.2% Receivables increasing by $19.4 mill
Slide 27: AU divisional summary
AU divisional summary Chris Flood Deputy Chief Executive Officer Heartland Group 27
Slide 28: AU Reverse Mortgages
AU Reverse Mortgages • • Receivables increased by $128.0 million (19.9%)1 to $1.40 billion. Growth was driven by: – increased debt consolidation and cost of living requests $23.1m +21.5% – customers looking to enjoy retirement with modest lifestyle NET OPERATING INCOME increase since 1H2022 spending
Slide 29: AU Reverse Mortgages portfolio analytics
AU Reverse Mortgages portfolio analytics Average loan size A$156,497 Weighted average borrowers’ age 77 Average origination LVR 11.7% Weighted average LVR 20.0% Proportion of the loan book over 75% LVR 0.1% A$1,269m Number of loans in the book over 75% LVR 3 AU Reverse Mortgages 1H2023 origination $
Slide 30: StockCo AU
StockCo AU • • StockCo Australia Receivables increased $12.5 million (6.7%) in 1H2023 to $385.6 million. Growth was supported by strong onboarding of new clients, and increased facility limit requirements and usage. $13.4m NET OPERATING INCOME • Growth slowed due to adverse weather conditions, the r
Slide 31: Funding, liquidity, capital & regulatory update
Funding, liquidity, capital & regulatory update Andrew Dixson Chief Financial Officer Heartland Group 31
Slide 32: NZ funding and liquidity
Heartland Bank NZ funding and liquidity Funding Composition3 $m 4,596 4,347 207 209 120 3,959 191 3,723 273 110 110 278 268 825 Heartland Group 285 108 235 513 307 Heartland increased borrowings by $158.3 million (2.6%) to $6,329.1 million. 968 7 807 851 895 New Zealand 2,445 2,245 2,178 2,189 • Hea
Slide 33: AU funding and liquidity
AU funding and liquidity Heartland Australia Funding Composition A$m 1,368 1,200 1,098 1,131 363 Heartland Australia1 281 221 266 • Heartland Australia increased borrowings by A$167.8 million (14.0%) to A$1,368.0 million. • Heartland Australia continues to successfully execute on its strategic fundi
Slide 34: Capital
Capital 0.07% • Heartland Bank’s regulatory capital ratio reduced to 13.15% as at 31 December 2022 (30 June 2022: 13.49%) following the removal of any bank dividend restrictions by (0.03%) 0.01% the RBNZ on 1 July 2022. Heartland Bank continues to operate significantly in excess of regulatory minimu
Slide 35: Regulatory update
Regulatory update Heartland continues to monitor the significant volume of regulatory change. Key changes include: • changes to the New Zealand Credit Contracts and Consumer Finance Act 2003 and the Credit Contracts and Consumer Finance Regulations 2004 • the Financial Markets (Conduct of Financial
Slide 36: Outlook
Outlook Jeff Greenslade Chief Executive Officer Heartland Group 36
Slide 37: Looking forward
Looking forward • The pleasing result in 1H2023 highlights the resilience of Heartland’s product portfolios despite the ongoing current economic challenges in New Zealand and Australia. Strong growth continued in core portfolios, though softened elsewhere due to suppressed credit demand. • It is cur
Slide 38: Appendices
Appendices 38
Slide 39: Appendix 1: Financial performance
Appendix 1: Financial performance Reported Underlying $m 1H2023 1H2022 Change ($) Change (%) 1H2023 1H2022 Change ($) Change (%) Net Operating Income 1 141.7 130.7 11.0 8.4% 149.6 130.8 18.8 14.4% Operating Expenses 63.4 57.3 6.2 10.8% 63.9 56.4 7.5 13.3% Impairment Expense 9.2 8.5 0.7 8.3% 9.2 8.5
Slide 40: Appendix 2: Financial position
Appendix 2: Financial position Movement Movement $m 31 December 2022 30 June 2022 ($m) (%) Liquid Assets 655 585 70 11.9% Gross Finance Receivables 6,460 6,196 264 4.3% Provisions (54) (52) (2) (3.2%) Other Assets 377 362 15 4.2% Total Assets 7,438 7,090 348 4.9% Retail Deposits 4,071 3,593 478 13.3
Slide 41: Appendix 3: Reconciliation of reported with underlying results
Appendix 3: Reconciliation of reported with $m 1H2023 1H2022 Movement ($m) Movement (%) underlying results Reported NOI 141.7 130.7 11.0 8.4% Less: Hedge accounting impacts (3.6) - (3.6) Net fair value gain/(loss) on investments (2.4) (0.1) (2.4) 1H2023 one-offs included in the reported result: Stoc
Slide 42: Thank you
Thank you For Heartland’s 1H2023 results announcement, please see heartlandgroup.info
Heartland Group Holdings — H1 2023 Earnings Presentation on 6ix