Heartland Group Guidance Update

Heartland Group Holdings Limited | NZX/ASX: HGH | PO Box 9919, Newmarket, Auckland 1149 | shareholders.heartland.co.nz
NZX/ASX release
10 May 2021

Strong trend continues for Heartland Group performance:
Guidance update

This update on Heartland Group Holdings Limited’s (Heartland) (NZX/ASX: HGH) financial
performance falls outside of Heartland’s usual reporting practice. However, Heartland considers a
guidance update appropriate given the uncertainty which remains as to New Zealand’s resilience to
the economic impact of the COVID-19 pandemic and the timing of the economic recovery.

All financial results in this announcement are based on the unaudited financial statements of
Heartland and its subsidiaries for the nine months to 31 March 2021 (YTD). Relative growth rates
are annualised, and include the impact of changes in foreign exchange rates.

Financial update
Heartland has achieved a net profit after tax (NPAT) of $21.0 million for the three months ended 31
March 2021 (3Q2021), bringing YTD NPAT to $65.1 million (or $64.3 million on an underlying basis,
excluding the impacts of one-offs as detailed in Heartland’s announcement of its results for the six
months to 31 December 2020 (1H2021)).

Underlying return on equity (ROE) was 11.9% (annualised YTD NPAT as a percentage of average
equity), flat on 1H2021 underlying ROE.

Momentum in lending increased in 3Q2021, with gross finance receivables (including reverse
mortgages) growing $158.6 million (13.7%), a significant uplift from $59.3 million (2.5%) in 1H2021,
resulting in a YTD growth of $218.0 million (6.2%).

Growth was experienced in Motor, both New Zealand and Australian Reverse Mortgages and
Business Intermediated. Current Home Loans pipeline momentum remains strong, with $580 million
approved online and $30.3 million drawn down YTD. Heartland recently expanded its Home Loans
offering with the provision of a Revolving Credit facility at New Zealand’s lowest rate.

Heartland maintained net interest margin (NIM) of 4.30% in the nine months to 31 March 2021, up 2
basis points on 1H2021.

The underlying cost to income (CTI) ratio for 3Q2021 was 44.1%, bringing the underlying YTD CTI
ratio to 45.3% (1H2021: 45.9%). The reduction in the underlying CTI ratio during 3Q2021
demonstrates Heartland’s continuous focus on creating end-to-end processing efficiencies through
ongoing digitalisation.

Impairments continue to perform strongly with a YTD impairment expense ratio (annualised
impairment expense as a percentage of average receivables) of 0.27% (1H2021: 0.19%). The
increase is due to higher than usual repayments in 1H2021, combined with significantly stronger
growth in receivables in 3Q2021 compared with 1H2021.

General update
Heartland’s digital strategy is evolving further, becoming embedded in operations. What this means
is the removal of friction and the prioritisation of speed in delivering service which enhances
customer experience and results in processing efficiencies. The online platform for Home Loans is an

Heartland Group Holdings Limited | 0800 85 20 20 | PO Box 9919, Newmarket, Auckland 1149 | shareholders.heartland.co.nz
2
example of this, where Heartland is currently able to offer the most competitive mortgage rates and
will soon offer even lower rates, passing on the benefits of digital banking directly to New Zealand
home owners. Ultimately, it will also be demonstrated in reductions in the CTI.

On 31 March 2021, the Reserve Bank of New Zealand (RBNZ) announced that it was easing dividend
restrictions which were put in place in April 2020 (and extended in November 2020), to allow banks
to pay up to 50% of their NPAT to shareholders. The 50% dividend restriction will remain in place
until 1 July 2022, at which point the RBNZ intends to remove the restrictions entirely (subject to no
significant worsening of economic conditions).

Harmoney’s transition of its funding model from a peer-to-peer off-balance sheet model to
wholesale securitised on-balance sheet funding via warehouse structures is well advanced, and the
transition of Heartland’s facilities with Harmoney is progressing well.

Despite continued elevated levels of uncertainty regarding the economic impact of COVID-19,
Heartland’s economic overlay of $9.6 million taken in respect of the financial year ended 30 June
2020 remains unutilised. Heartland’s Board continues to consider the need for this overlay as part of
Heartland’s upcoming year-end financial results process for 30 June 2021 (FY2021).

Looking forward
Provided current trends continue as expected and economic conditions remain stable, Heartland
now expects NPAT for FY2021 to be in the range of $85 million to $86 million. This updated NPAT
forecast range does not include any release of Heartland’s economic overlay, which remains under
continuous review by Heartland’s Board, and on which no decision has been made.


– ENDS –


For further information, please contact the person(s) who authorised this announcement:

Jeff Greenslade Andrew Dixson
Chief Executive Officer Chief Financial Officer
027 382 0023 021 263 2666
jeff.greenslade@heartland.co.nz andrew.dixson@heartland.co.nz

Address: Level 3, Heartland House, 35 Teed Street, Newmarket, Auckland, New Zealand