Heartland publishes Annual Report and Notice of Meeting
Heartland Group Holdings Limited | NZX/ASX: HGH | PO Box 9919, Newmarket, Auckland 1149 | shareholders.heartland.co.nz
NZX/ASX release
27 September 2021
Heartland publishes Annual Report and Notice of Meeting
Heartland Group Holdings Limited (Heartland) (NZX/ASX: HGH) has today published its Annual
Report for the year ended 30 June 2021, and the Notice of Meeting for its 2021 Annual Meeting.
Annual Report
Heartland is pleased to release its Annual Report for the year ended 30 June 2021. The Annual
Report is being sent to shareholders from today. A copy is attached to this announcement.
Annual Meeting
Heartland’s Annual Meeting will be held on Thursday 28 October 2021, commencing at 2pm (NZST)
online and, subject to New Zealand’s COVID-19 Alert Level status, in-person at the Loyalty Lounge,
Eden Park, Reimers Avenue, Kingsland, Auckland.
The Notice of Meeting and Voting/Proxy Form are being sent to shareholders from today. Copies of
these documents are attached to this announcement.
– ENDS –
For further information, please contact the person who authorised this announcement:
Andrew Dixson
Chief Financial Officer
021 263 2666
andrew.dixson@heartland.co.nz
Level 3, Heartland House, 35 Teed Street, Newmarket, Auckland, New Zealand
---
2021
Annual
Report
Pūrongo
ā-tau
Mahi tika
Do the right thing
Do what’s right and true.
Mahi tahi
Be one team
We’re all in this together.
Mahi toa
Have big ambition
Feel the fear and do it anyway.
Mahi tipu
Be always evolving
Strive for excellence.
Ngā mātāpono, our values
Our mātāpono (values) underpin who
we are and everything we do. They
were created by our people to be
shared with our customers, partners,
communities and shareholders.
Heartland has a proud whakapapa (history)
stretching back to Ashburton, New Zealand in 1875
where life began as the Ashburton Permanent
Building & Investment Society. We’ve come a long
way since then, including first listing on the NZX 10
years ago after the merger of CBS Canterbury, Marac
Finance and Southern Cross Building Society – and
later, the acquisition of PGG Wrightson Finance and
Australian Seniors Finance.
Throughout our history, our point of difference has
been based on providing products which are the
best or only of their kind. By prioritising digitalisation,
our strategic positioning has evolved to providing
those products through scalable online platforms.
Our focus for the year ahead remains on embedding
digitalisation and automation to deliver frictionless
service and an enhanced experience for our customers
– all while continuing to deliver exceptional value for
our shareholders.
Nau mai ki te mahinga rerekētanga.
Welcome to doing
things differently
Nau mai ki te
mahinga rerekētanga
2
Jeffrey Greenslade
Chief Executive Officer
and Executive Director
Geoffrey Ricketts
Chair of the Board
This Annual Report of Heartland Group Holdings
Limited (Heartland) is dated 27 September 2021 and
is signed on behalf of the Board of Directors by:
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Heartland Annual Report 2021
65
Environmental
conservation
05
Chair’s Report
09
Chief Executive Officer’s
Report
15
2021 results at a glance
17
Digital Home Loans
disrupt the market
19
Meeting the needs of
older Australians
YEAR IN REVIEW
21
Our business
51
Directors’ disclosures
23
Heartland Group Board
61
Executive remuneration
25
Heartland Bank Board
27
Strategic Management
Group
29
Bringing our values to life
33
Diversity Report
41
Corporate governance
63
Our sustainability journey
67
Social equity
69
Economic prosperity
71
Financial commentary
146
78
Financial statements
139
Auditor’s report
WHO WE ARE
SUSTAINABILITY
FINANCIAL RESULTS
DIRECTORY
143
Shareholder information
145
Other information
Contents Rārangi ūpoko
Directory
Chair’s Report
Nā te Kaiwhakahaere Poari
GEOFFREY RICKETTS
Chair of the Board
Throughout the year, the effects of COVID-19 continued to prove challenging for
many and changed the environment in which we are operating. On behalf of the
Board, I am pleased to report that Heartland and its subsidiaries (the Group),
and its customers, continued to respond well to the economic impacts of the
pandemic.
Heartland achieved a net profit after tax (NPAT) of $87.0 million for the
financial year ended 30 June 2021 (F Y2021). This was an increase of $15.1
million (20.9%) compared with the financial year ended 30 June 2020 (FY2020).
On an underlying basis
1
(which excluded the impacts of one-offs), FY2021
NPAT was $87.9 million, an increase of $11.0 million (14.3%) compared with the
FY2020 underlying NPAT.
2
5
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Heartland Annual Report 2021
Doing the right thing for customers
Heartland’s commitment to doing the right thing for
its customers is reflected in the social impact of its
products, the way in which it conducts its business, and
in one of its core values ‘Mahi tika’ – do the right thing.
Through FY2021, Heartland was pleased to meet a
significant milestone – having helped more than 40,000
older New Zealanders and Australians to live a more
comfortable retirement by releasing equity from their
homes with a Heartland Reverse Mortgage.
Through the year, Heartland continued to support its
customers affected by the impacts of COVID-19. This
included providing more than 150 business customers
with access to the New Zealand Government’s Business
Finance Guarantee Scheme, and lending more than
$188 million through its Heartland Extend product for
consumer and business customers needing flexibility
with their repayments.
Like those presented through COVID-19, Heartland
is conscious that vulnerabilities come in various
forms, and many of its customers may be facing such
vulnerabilities whilst applying for finance. Numerous
processes are in place to support customer needs and
deliver good customer outcomes, such as the provision
of cooling off periods for some products, customer
feedback and complaint management processes, and
employee training to identify and respond to elder
financial abuse.
Heartland Bank Limited (Heartland Bank) recently
become a Hearing Accredited Workplace to better
support customers who are deaf or hard of hearing.
In FY2021, Heartland also completed its Conduct and
Culture Work Plan, aimed at maintaining good conduct
and culture in everything it does. You can read more
about this and Heartland’s social equity activity on
p a g e 6 7.
Regulatory update
There are various upcoming regulatory changes relating
to banks which will impact on the Group. Among these,
key changes include those to New Zealand’s Credit
Contracts and Consumer Finance Act 2003 and the
Credit Contracts and Consumer Finance Regulations
2004 (CCCFA), the proposed Deposit Takers Bill,
the Reserve Bank of New Zealand (RBNZ) capital
implementation review, and Australia’s new Design and
Distribution Obligations.
Changes to the CCCFA will now come into effect on 1
December 2021. The changes touch on a number of
aspects of Heartland Bank’s processes for promotion,
origination and fulfilment for its consumer loans. The
liability regime for directors and senior managers will
also be substantially strengthened. Heartland has
used these changes as an opportunity to implement
technologies that will allow it to carry out the new
inquiries required of it in a way that is as user-friendly
as possible for customers, while reducing the cost to
serve.
Also related to Heartland Bank, the Deposit Takers
Act is being developed to strengthen the regulatory
framework for all institutions that take deposits, and to
introduce a new deposit insurance scheme, overseen by
the RBNZ. An exposure draft of the Act is expected to
be available for submission later this year.
Australia’s new Design and Distribution Obligations
come into force on 5 October 2021. To ensure
compliance, Australian Seniors Finance Pty Ltd must
prepare ‘Target Market Determinations’ for its Reverse
Mortgage and Well-Life Loan products, and review its
existing processes in relation to marketing, third-party
distribution, record keeping, and ongoing monitoring
and assurance activities. Heartland is on track to
implement the changes required to comply with the
obligations before the commencement date.
The RBNZ’s new Banking Prudential Requirements
(BPRs) also come into force from October 2021, with
the main changes relating to restrictions on dividends
as capital buffer requirements for banks are increased,
guidance on likely supervisory action in response
to buffer breach, requirements for new financial
instruments that can qualify for bank capital, and a new
notification process relating to bank capital instruments.
Requirements for increases in capital will be phased in
over a seven-year period, starting from 1 July 2022.
Heartland in the community
Through the Heartland Trust
3
, Heartland is pleased
to have the opportunity to make a positive impact in
the communities in which it operates. During the year,
the Heartland Trust made grants totalling $448,183
to support our communities, including in the areas of
education, sport and wellbeing.
1
Underlying results exclude the impacts of one-offs. Refer to page 72 for details about FY2021 one-offs. A detailed reconciliation between
reported and underlying financial information is set out in Heartland's FY2021 investor presentation available at shareholders.heartland.co.nz.
2
All comparative results are based on the audited full year consolidated financial statements of the Group for FY2020.
3
The Heartland Trust is a registered charitable trust which is independent from, but closely supported by, Heartland and Heartland Bank.
6
Heartland is pleased to be able to continue to
deliver shareholder return notwithstanding dividend
restrictions imposed by the RBNZ on distributions by
banks in New Zealand. Total shareholder return (TSR)
was 107.2% for the five-year period 20 August 2016 –
20 August 2021, compared with TSR of 81.9% for the
NZX50. This is an excellent result for our shareholders.
Outlook
The Board has been pleased with the way in which
Heartland and its customers have responded to
the effects of COVID-19. The Board is confident
in Heartland’s ability to deliver strong growth and
profitability as it continues to deliver against its strategy
to provide frictionless service at the lowest cost –
reducing Heartland's cost to income (CTI) ratio and
passing the benefits on to customers through lower
pricing.
Noting uncertainties associated with the ongoing
impacts of COVID-19, Heartland expects its NPAT for
the year ending 30 June 2022 (FY2022) to be in the
range of $93 million to $96 million.
On behalf of the Board, I would like to take this
opportunity to acknowledge the continued support of
our shareholders and to thank our Heartland whānau
for their efforts this year.
Geoffrey Ricketts
Chair of the Board
Through FY2020 and part of FY2021, many of the
organisations and groups the Heartland Trust supports
were impacted by COVID-19 lockdowns, with events
and sport unable to go ahead. It has been fantastic
to see rugby teams returning to the field, scholarship
recipients able to connect with their cohort in person,
and festivals run as planned.
The Heartland Trust was pleased to this year support
Men’s Health Week and continue its support of the
InZone Education Foundation, the Kupe Leadership
Scholarship, the Auckland Writers Festival, WORD
Christchurch Festival, and both boys’ and girls’ 1st XV
rugby. You can read more about the activities of the
Heartland Trust on page 67 of this Annual Report.
Board changes
On 12 March 2021, Ellen Comerford resigned from
her directorship of Heartland Bank. Ellen joined the
Heartland Bank Board in January 2017, and remains
a valued director of the Heartland Group Board and
Chair of the Heartland Audit and Risk Committee.
Ellen’s retirement from the Heartland Bank Board
reflects the maturing of the organisational structure
within the Group.
The Board intends to appoint Geoff Summerhayes
and Kate Mitchell as directors of the Heartland Board,
effective 1 October 2021.
Geoff Summerhayes is a professional director and
senior advisor, with extensive commercial and
regulatory experience across a wide range of sectors
including banking, insurance and financial services
prudential regulation. Geoff is recognised as a global
leader on climate change financial risk through his
regulatory work at the Australian Prudential Regulatory
Authority, the International Association of Insurance
Supervisors and the UN Environment Programme where
he chaired the Sustainable Insurance Forum. Heartland
is pleased to boost its director capability with Geoff's
commercial and regulatory experience.
Kate Mitchell has been a director of Heartland Bank
since March 2019. Kate will continue in that role and will
bring her considerable banking and finance experience
directly to the Heartland Board.
Dividend
The Board resolved to pay a fully imputed final dividend
of 7.0 cents per share on Wednesday 15 September
2021 to all shareholders on Heartland’s register at
5.00pm NZST on Wednesday 1 September 2021.
Together with the interim dividend of 4.0 cents per
share, the total dividend for the year was 11.0 cents per
share (4.0 cents per share up from FY2020).
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Heartland Annual Report 2021
8
Chief Executive Officer’s Report
Na te Kaiwhakahaere Matua
The effects of the COVID-19 pandemic continue to be experienced in New Zealand
and Australia. Subdued growth in the first half of FY2021 (1H2021) reflected
reduced confidence brought about by the pandemic. However, in the second half
(2H2021), confidence returned which saw higher ‘business as usual’ growth in core
lending portfolios, enabling Heartland to achieve a strong financial result for FY2021.
JEFF GREENSLADE
Chief Executive Officer
Kei te tukituki tonu te urutā imurangi-19 i Aotearoa me Ahitereiria. I te
whakaata te hekenga o te tupuranga ahumoni i te weherua tuatahi o te tau
ahumoni (TAm)2021(1H2021) i te hekenga o te titikaha o te mākete i puta
ake i te urutā. Heoti i te weherua tuarua (2H2021), i piki anō te titikaha i
piki ai hoki te tupuranga 'kaipakihi māori' o ngā kōpaki nama matua. Koinā
i tatū ai i a Heartland te putanga ahumoni pakari i te TA2021.
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Heartland Annual Report 2021
In addition, significant progress was made during the
year towards strategic goals in digitalisation.
NPAT for FY2021 was $87.0 million, up 20.9% ($15.1
million) on FY2020.
1
On an underlying basis, NPAT was
$87.9 million, up 14.3% ($11.0 million) on FY2020.
2
Gross finance receivables (Receivables)
3
continued
to grow to $5.0 billion, up 8.0% ($371.8 million)
4
on
FY2020.
The year also marked a significant 10-year milestone
for Heartland. In 2011, CBS Canterbury, Marac Finance
and Southern Cross Building Society – and later, PGG
Wrightson Finance – came together to form Heartland
New Zealand. This was followed by Heartland listing on
the NZX Main Board.
Strategic Positioning
Throughout its history, Heartland’s point of
differentiation has been based on best or only products.
Examples of best or only products include Reverse
Mortgages and Motor loans amongst others. Recently,
the advent of digitalisation has allowed Heartland to
offer these products via online platforms (typically
Me te mea hoki, kua kaha te ahunga whakamua i taua
tau nei ki ngā whāinga rautaki o te whakamamati.
Kua $87.0 miriona te THRi (tahua huamoni rauiti) o
te TAm2021, he pikinga 20.9% ($15.1 miriona) no te
TAm2020. Hei matapae taketake, ka $87.9 million te
THRi, he pikinga 14.3% ($11.0 miriona) no te TAm2020.
I te tupu tonu ngā nama ahumoni raunui (Nama) ki te
$5.0 piriona, he pikinga 8.0% ($371.8 miriona) no te
TAm2020.
I tohu hoki taua tau nei i te houanga whakahirahira
10-tau nei o Heartland. I te tau 2011, i hono tahi a CBS
Canterbury, a Marac Finance, a Southern Cross Building
Society – ā, no muri mai hoki a PGG Wrightson Finance
– kia puta ake ai a Heartland Aotearoa. I whāia taua
hononga tahitanga ki te urunga atu o Heartland ki te
rārangi kamupene o te Poari Matua o te Paehoko
o Aotearoa (NZX Main Board).
Whakanōhanga Rautaki
No te tīmatanga rānō, ko tō Heartland hanga motuhake
ko te piri ki ngā hua papai me ngā hua taratahi. Hei
tauira o aua hua nei, ko ngā Mōkete Tauaro, ko ngā
Mōkete Waka, ā, ko ētahi atu hoki. Nōnākuanei, no
te whakarewa i ngā mahi whakamamati, kua tatū i
a Heartland te tukutuku atu i aua hua nei ki ngā pae
ipurangi (ā, mā ngā waea atamai hoki). Na te hangarau
nei i roa ake ai te toronga atu, i nui ake ai hoki te
taumata whakaputaputa, na, kua whakaatahia ki te
hekenga o ngā utu i te whakarewanga.
Mā aua hanga motuhake e mau ai a Heartland ki te
apataki toitū e pai ai te tupuranga me te huamoni.
Wāhanga arotahi
E whā ngā wāhanga e ārahi ana i te whakanōhanga
rautaki a Heartland:
1. Tupuranga hei Kaipakihi Māori
2. Ratonga Pāpākore ki te Utu Iti Rawa
3. Whakarahinga atu i Ahitereiria
4. Whiwhinga.
accessed by mobile phone). This technology has
allowed Heartland to extend its reach and manufacture
scale, reflected in lower onboarding costs.
These points of differentiation will give Heartland a
sustainable base for growth and profitability.
Areas of focus
There are four elements underpinning Heartland’s
strategic positioning:
1. Business as Usual Growth
2. Frictionless Service at the Lowest Cost
3. Expansion in Australia
4. Acquisitions.
1
All comparative results are based on the audited full year
consolidated financial statements of the Group for FY2020.
2
Underlying results exclude the impacts of one-offs.
3
Receivables include Reverse Mortgages.
4
Excluding the impact of changes in foreign currency exchange
(FX) rates.
1
E ahu ana putanga whakariterite katoa i ngā arotakenga o ngā
tauākī ahumoni tōpū o Te Hono o te katoa o te TAm2020.
2
Kāore te tukinga pā tahi i waenga i ngā putanga taketake.
3
He nama hoki ngā Mōkete Tauaro.
4
I tua atu i te pānga o ngā rerenga kētanga o ngā taumata
tauhokohoko moni nō tāwāhi (FX).
10
Business as Usual Growth
Through FY2021, core lending portfolios continued to
perform well. Significant growth came in particular from
Asset Finance
5
(Receivables up 14.4% to $570.9 million)
and Motor (Receivables up 14.9% to $1,293.7 million).
New Zealand Reverse Mortgages experienced a record
year for new business (up 30.4% from FY2020), while
Australian Reverse Mortgages grew 9.5%
6
and its loan
book surpassed $1 billion.
The Motor dealer book contributed strongly to growth
via car dealerships, brokers and partnerships such as
Kia Finance and Jaguar/Land Rover Financial Services.
This is expected to continue through FY2022 as
relationships with dealers, brokers and vehicle brands
are strengthened.
Whilst in their infancy, digital platforms for Home
Loans and Sheep & Beef Direct performed well. Strong
application rates for the Home Loans platform followed
its launch with enquiries at 30 June 2021 totalling
$895.2 million, with more than $200 million approved.
Sheep & Beef Direct had, as of August 2021, online
applications totalling $48.0 million, with $40.5 million
approved online and $30.4 million drawn down.
Tupuranga Kaipakihi Māori
Huri noa i te TAm2021, i te pakari tonu ngā kōpaki
nama matua. He pakari rawa te tupuranga i ahu mai i
te Ahumoni Rawa (he pikinga 14.4% nō ngā Nama ki
te $570.9 miriona) me ngā Mōkete Waka (he pikinga
14.9% nō ngā Nama ki te $1,293.7 miriona). He tau
tiketike rawa mo te kaipakihi hou o ngā Mōkete Tauaro
i Aotearoa (he pikinga 30.4% no te TAm2020). Me te
mea hoki, he pikinga 9.5% nō ngā Mōkete Tauaro o
Ahitereiria, ā, ka taha atu te pukapuka nama i te $1
piriona.
He taikaha te taunaki o te pukapuka kaihoko Waka i te
tupuranga o ngā kamupene, o ngā kaiwhakariterite, o
ngā hononga e hokohokona ai ngā waka, he pērā i a Kia
Finance me Jaguar/Land Rover Financial Services. Ko te
āhua nei, ka tupu tonu i te roanga o te TAm2022 i runga
i te kahanga ake o te piringa atu ki ngā kaihoko, ki ngā
kaiwhakarite, ki ngā waitohu waka.
Ahakoa te kānewhatanga, kua kaha ngā pae mamati
o Home Loans me Sheep & Beef Direct. Kua maha ngā
tono ki te pae o Home Loans i muri i te whakarewanga
atu, ā, ka $895.2 miriona te ritenga o ngā tono, ā, ka
taha atu ngā whakaaetanga i te $200 miriona. No te
Akuhata 2021, kua $4.8 miriona te ritenga o ngā tono ki
Sheep & Beef Direct, ā, kua $40.5 miriona tō ngā tono
Further information about the financial performance of
Heartland’s lending portfolios, and funding activity, is
set out in ‘Financial commentary’ on page 71.
Frictionless Service at the Lowest Cost
The digitalisation process began with the front-end
– the customer facing platforms. These platforms,
accessible via mobile phone, laptop and desktop,
provide reach beyond the constraints of physical
distribution.
Online access to Heartland's products ranges from
small business working capital (Open for Business),
to Deposits, Home Loans and Sheep & Beef Direct
farm loans amongst others. The platforms are now
integrated into business units as the prime means of
distribution. The next stage of digitalisation is aimed at
creating scale through automation and self-service (via
a mobile app). This removes ‘friction’, i.e. processes that
cause customer inconvenience and delay.
Frictionless service at each stage of the customer’s
journey not only enhances the customer experience,
it also removes costly processes. This produces a
virtuous circle of better service and reduced costs,
i whakaaetia. Na, kua tangohia te $30.4 miriona o aua
whakaaetanga
Kei 'Whakawākanga ahumoni', kei te whārangi 71, ngā
kōrero kē atu o te pakari o ngā kōpaki tukutuku pūtea o
Heartland me ngā nekenekehanga tahua.
Ratonga Pāpākore ki te Utu Iti Rawa
I tīmata te pūnaha whakamamati ki te pito tōmua – ki te
kiritaki e aro atu ana ki ngā pae mamati. Ratorato atu ai
aua pae nei – aua pae tonu e taea ai i ngā waea atamai,
i ngā rorohiko harihari, i ngā rorohiko tau tēpū – ki tua
atu o ngā tepe o te ratonga kikokiko.
Ahu ai ngā ratonga ā-ipurangi o ngā putanga a
Heartland i te tahua whakamahi mā ngā kaipakihi ririki
(Tuhera ki te Kaipakihi - Open for Business) ki Moni
Punga (Deposits), ki Tukurewa Kāinga (Home Loans),
ki ngā tukurewa pāmu, ko Hipi & Pīwhi Tōtika (Sheep &
Beef Direct), ā, ki ētahi atu. Kua whakariteritea ngā pae
hei tūtahinga kaipakihi, hei ratonga tohatoha matua
hoki. E aro atu ana te wāhanga whakamamati e whai
ake nei ki te hanga rahinga ki te whakaaunoa me te rato
ā-kiriaro (ki te taupānga harihari). Ka ngaro te 'pāpā' i
reira, arā, i ngā pūnaha e raruraru ai, e takaroa ai hoki
te kiritaki.
11
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Heartland Annual Report 2021
allowing Heartland to provide customers with better
value through lower rates or time-savings. The Home
Loans platform launched during the year shows what is
possible. By transacting online, Heartland was able to
offer market-leading rates.
Expansion in Australia
Growth in Australia is a key strategic priority for
Heartland.
Market share in Reverse Mortgages Australia continued
to increase, from 26% in March 2020
7
, to 29% in March
2021.
8
Research by the Royal Melbourne Institute of
Technology University, supported by Heartland, found
that 90% of Australians wish to age in their homes,
but that limited superannuation and the rising cost of
living is restricting their ability to do so.
9
This research
shows there is substantial opportunity for Heartland to
support a greater number of older Australians to live the
retirement they deserve. See page 19.
Expansion both through existing relationships with
intermediaries and directly in the Small Business and
Consumer segments is also being explored.
Ehara i te mea ko te wheako anahe o te kiritaki i tērā
tūāoma, i tērā tūāoma o ngā mahi e pai ake ai te
ratonga pāpākore, ka tangohia hoki ngā pūnaha utu nui.
Ka puta ake he huarahi ngāwari e pai ake ai te ratonga,
e heke iho ai te utu. Hei reira tatū ai i a Heartland te
ratorato i te wāriu pai ake ki ngā kiritaki nā ngā utu iti
iho rānei, na te penapena rānei o te wā. Kua whakaatu
te pae Home Loans i whakarewaina i te tau nei i ngā
hua ka taea. Na te mahi ā-ipurangi, i āhei ai a Heartland
ki te tuku i ngā utu papai o te mākete.
Whakarahinga atu i Ahitereiria
He whāinga rautaki matua nā Heartland te tupuranga i
Ahitereiria.
I piki tonu te wāhanga mākete o ngā Mōkete Tauaro
o Ahitereiria i te 26%
i Maehe 2020
7
ki te 29%
i Maehe
2021.
8
Ka kitea i ngā rangahau a Te Whare Wānanga
o te Royal Melbourne Institute of Technology, me
te tautoko a Heartland, kua 90% o ngā tāngata o
Ahitereiria e hiahia ana kia kaumātua i roto i ō rātou
ake kāinga, engari kua raruraru aua hiahia i te iti o te
penihana me te nui o te utu whai oranga. E whakaatu
ana ngā rangahau nei i te huarahi e tautoko ai a
Heartland kia tokomaha atu ngā kaumātua o Ahitereiria
e whai ai i te tāokinga e tika ana. Tirohia te whārangi 19.
Acquisitions
Where there is a fit with Heartland’s strategic vision
and the opportunity to add value, acquisitions will be
explored. There is currently nothing to report on, but as
a means of adding scale or technology, Heartland will
remain open to acquisitions.
COVID-19
Heartland’s COVID-19 economic overlay of $9.6 million
pre-tax, taken in respect of FY2020, remains unutilised.
The overlay does not represent any actual losses, but
was taken to provide a buffer against any future losses
that the uncertainty of COVID-19 may give rise to.
Kei te torotoro hoki i ngā huarahi e rahi atu ai ngā
hononga ki ngā takawaenga me ngā hononga torotika ki
ngā tūtanga o ngā Kaipakihi Ririki me ngā Kaihokohoko.
Whiwhinga
Ina kitea he mea e hāngai ana ki ngā whāinga rautaki
a Heartland, me te huarahi e pai atu ai te kounga,
ka torotorongia atu hei whiwhinga. Kāore he aha hei
pūrongo i tēnei wā, engari hei huarahi e tupu ai, e
whai hangarau ai, ka tuhera tonu a Heartland ki ngā
whiwhinga hou.
Imurangi-19
Kāore anō tā Heartland paparua ohaoha o te $9.6
miriona i mua i te tāke mo te imurangi-19, mo te
TAm2020, kia whakamahia. Kāore hoki te paparua i te
tohu i ngā ngaromanga tūturu, engari i whakaritea hei
CHIEF EXECUTIVE OFFICER’S REPORT
5
Previously referred to as Business Intermediated.
6
Excluding the impact of changes in FX rates.
7
Based on APRA ADI Property Exposure and Heartland Reverse
Mortgages data as at 31 March 2020.
8
Based on APRA ADI Property Exposure and Heartland Reverse
Mortgages data as at 31 March 2021.
9
Reverse mortgages: Financing ageing in place, Royal Melbourne
Institute of Technology (RMIT) University, cur.org.au/cms/wp-
content/uploads/2020/11/financing-ageing-in-place.pdf.
5
Kiia tōmuatia ai hei Kaipakihi Whai Takawaenga.
6
I tua atu o ngā tukinga o ngā rerenga kētanga o ngā taupāpātanga FX.
7
E ahu ana i ngā raraunga o te APRA ADI Property Exposure me
Heartland Mōkete Tauaro i te 31 Maehe 2020.
8
E ahu ana i ngā raraunga o te APRA ADI Property Exposure me
Heartland Mōkete Tauaro i te 31 Maehe 2021.
9
Mōkete Tauaro: Te moni e kaumātua ai i te kāinga, Royal Melbourne
Institute of Technology (RMIT) University, cur.org.au/cms/wp-content/
uploads/2020/11/financing-ageing-in-place.pdf.
12
Caution continues to be warranted, evidenced by the
recent lockdowns in New Zealand and Australia. In
addition, there remains the ongoing uncertainty arising
from supply-chain restrictions, border closures, and the
prospect of rising inflation. Despite, to date, absorbing
any direct impacts of the pandemic within business as
usual impairments, a release of the COVID-19 economic
overlay is not considered appropriate and it has been
retained in full.
He manawa tangata – our people
I want to acknowledge that it has been 10 years since
Heartland lost four of its Marac Finance colleagues in
the Christchurch earthquakes on 22 February 2011.
Me maumahara tonu tātou ki a rātou – let us always
remember them.
The Heartland people have shown resilience and have
worked hard throughout the year to achieve results.
Heartland’s commitment to diversity and building a
culture of inclusion continues. Key activity in FY2021
included the establishment of Kainga Pasifika, a new
internal committee to represent Pasifika employees,
and development of the Iho Pūmanawa recruitment
whakaruruhau i ngā ngaromanga o muri atu nei ka puta
i te hanga tītahataha o te imurangi-19.
He tika tonu te whakatūpato i ngā rāhui nōnākuanui
i Aotearoa me Ahitereiria. Hei tāpiritanga atu, e mau
tonu ana te mānukahuka i ngā whatinga taura rawa, i
ngā katinga rohe, i te takutaku o te tāminga ahumoni.
Ahakoa ngā tikanga mohoa ake nei, ehara rawa i te tika
te pēhi i ngā tukinga ka ahu hāngai mai i te urutā hei
kaipakihi māori. Nō reira, kua kore te whakaaro e tika
ana te tuku i ngā moni o te paparua ohaoha. Āna, kua
puritia te katoa.
He manawa tangata – ō tātou tāngata
E hiahia ana ahau ki te whākī atu, kua taha atu te 10
tau i te whakangaromanga atu o ngā hoa tokowhā o
Marac Finance i ngā rū whenua o Ōtautahi i te 22 o
Pepuere 2011. Me maumahara tonu tātou ki a rātou –
kei wareware i a tātou.
Kua manawanui, kua pukumahi ngā tāngata o
Heartland i te roanga o te tau, kia puta tonu ai ngā hua.
E mau tonu ana te ū o Heartland ki ngā hanga huhua
me te waihanga i te ahurea whakahuihui tangata. Ko
ētahi o ngā tino mahi i te TAm2021, ko te whakatū i te
Kāinga Pasifika, he kōmiti rāroto hou hei māngai mō
ngā kaimahi Pasifika, me te whakawhanake i te rautaki
taritari kaimahi, ko te Iho Pūmanawa, hei tautoko i
ngā tikanga e tairite atu ai ngā hua o te taritari me te
whiriwhiri kaimahi. I whakatau atu a Manawa Ako i
ngā pia e 45 i te tau 2020/2021, he pikinga ake i te 34
o te tau 2019/2020. I whakatūngia te hōtaka nei hei
whakaatu i ngā huarahi ki te rangatahi, hei whakaatu
hoki i ngā tikanga e pai atu ai a Heartland ki te
whakarite i te taiao mahi whakahuihui tangata.
Kei te whārangi 33 te pūrongo hanga huhua e nui atu
ana ngā kōrero mo te ahunga whakamua o Heartland.
No te tau nei, pānui ai a Heartland i te whāinga
whakatoatoa e heke ai ngā whakaputanga hau
kati mahana (GNG). Kua ahu whakamua hoki te
whakahekenga o ngā waka (he hekenga 7% no te
TAm2021), e tahuri atu ai ki te kahupapa e nui ana ngā
waka hanumi, waka hiko. Kua kōkiritia ngā whāinga
twhakaukauka hei tīaroarotanga ki ngā whāinga
whakamamati. Kei te pūrongo 'Tō mātou hinonga
whakaukauka', kei te whārangi 63.
Titiro whakamua
Hei te tau e haere mai nei, ka ū tonu a Heartland ki te
tautoko i ngā kiritaki i a tātou e mahi ana i raro i ngā
āhuatanga o te imurangi-19.
strategy which supports more equitable recruitment
and selection outcomes. The Manawa Ako internship
intake for 2020/2021 welcomed 45 participants, up
from 34 in 2019/2020. This programme was established
to provide opportunities for rangatahi, and to provide
learnings on making Heartland a more welcoming
working environment.
Read more about Heartland's progress in the Diversity
Report on page 33.
This year, Heartland announced an ambitious
Greenhouse Gas (GHG) emissions reduction target
and made progress towards the reduction of its vehicle
fleet (reducing by 7% in FY2021) as it transitions
to a primarily hybrid and electric fleet. Heartland’s
sustainability initiatives are well underway and aligned
closely with digitalisation goals. This is outlined in
‘Our sustainability journey’ on page 63.
Looking forward
Looking to the year ahead, Heartland remains
committed to supporting customers as we continue to
operate in a COVID-19 environment.
13
|
Heartland Annual Report 2021
The growth momentum seen in the second half of
2021 may be impacted to some extent by the recent
lockdown in New Zealand, but past experience
suggests that a period of ‘catch up’ borrowing may
occur.
It should be noted that higher growth in Reverse
Mortgages, Home Loans and Harmoney (post adoption
of an on-balance sheet model) will result in net interest
margin contracting. However this will also drive an
offsetting benefit of reduced impairment expenses,
reflecting improved quality of the lending portfolio.
Our digitalisation programme continues, focusing on
removing customer friction through automation and
increasing the ability for customers to self-serve via the
Heartland Mobile App. Longer term, we aim for this to
flow through to reduction in the cost to income ratio,
enabling Heartland to enjoy competitive advantage.
Work will continue towards Heartland’s Environmental,
Social and Governance strategy, as well as in our
diversity initiatives, to foster an environment that is
welcoming and inclusive of all people.
Tērā pea ka tukia te ānga tuputupu o te weherua
tuarua o te tau 2021 e te rāhui i Aotearoa nōnākuanui,
engari, e ai ki ngā kitenga o mua atu, ka pupū ake he wā
whaiwhai noa o te tonotono pūtea.
Me mōhio hoki, ma te pikinga o te tupuranga o ngā
Mōkete Tauaro, o Home Loans, o Harmoney (te whai
tōmuri nei i te tauira ripanga tairite), e heke ai te paenga
huamoni rauiti (NIM). Engari, mā reira hoki e āia ai
te hua whakakorekore i te nui o ngā utu ruharuha, ā,
ka whakaatahia i te pikinga o te kounga o te kōpaki
tukutuku pūtea.
Kei te tupu tonu te hōtaka whakamamati, me te
arotahi ki te whakakore i te pāpā mai o ngā kiritaki i
te whakawhānui i te whakaaunoa me te āheinga o
ngā kiritaki ki te whai ratonga i te taupānga Heartland
Mobile. Hei te roanga atu, e ngana ana mātou kia kitea
ngā painga i te taupāpātanga o te tōpūtanga rorohiko
(CTI), ā, hei reira rēhia ai a Heartland i te huanga
whakataetae.
Ka whai tonu i ngā mahi o te rautaki taiao, hapori,
kāwana o Heartland. Waihoki ngā whāinga hanga
huhua, hei poipoi i te taiao aumihi, whakahuihui
tangata.
I would like to thank our Heartland whānau for living our
mātāpono (values) throughout the year, and also wish
to thank our shareholders for their continued support of
Heartland.
Ngā mihi nui,
Jeff Greenslade
Chief Executive Officer
Ko tāku nei, ko te whakamihi i te whānau o Heartland e
whakatinana mai rā i ō tātou mātāpono i te roanga o te
tau nei, ā, ka whakamihi hoki i te hunga whai pānga e
tautoko tonu mai ana i a Heartland.
Ngā mihi nunui,
Jeff Greenslade
Kaiwhakahaere Matua
CHIEF EXECUTIVE OFFICER’S REPORT
14
5.0 billion
RETURN ON EQUITY
GROSS FINANCE RECEIVABLES
EARNINGS PER SHAREFINAL DIVIDEND DECLARED
TOTAL DIVIDEND FOR THE YEAR
NET INTEREST MARGIN
Underlying return on equity 12.0%
FY20 10.5%
FY20 underlying return on equity 11.1%
FY20 $4.6b
11.9
%
FY20 4.33%
Consistently higher than banking peers
1
4.35
%
2021 results at a glance
Ka kaperua ki ngā putanga o 2021
FY20 2.5 cents per share
7.0
cents
per share
14.9
Underlying earnings per share 15.1 cents per share
FY20 12.5 cents per share
FY20 underlying earnings per share 13.3 cents per share
cents
per share
FY20 7.0 cents per share
11.0
cents
per share
15
|
Heartland Annual Report 2021
1
KPMG FIPS Report March 2021.
2
Compound annual growth rate (CAGR) for the five years from FY2017-FY2021.
Note: Underlying results exclude the impacts of one-offs. FY2021 one-off items had a $0.8 million net impact on NPAT, consisting of $4.1 million
of one-off net gains and $6.9 million of one-off expenses (net of tax). For more detail about FY2021 one-off items, go to page 72. FY2020 one-
off items had a $4.9 million net impact on NPAT, consisting of $5.5 million of one-off income, $3.6 million of one-off expenses and a $9.6 million
economic overlay due to COVID-19 (net of tax).
CANSTAR SAVINGS BANK OF THE YEARAWARD-WINNING REVERSE MORTGAGE
Underlying net profit after tax $87.9m FY20 $72.0m FY20 underlying net profit after tax $76.9m
87.0 million
H1H2
NET PROFIT AFTER TAX
F Y21
8 7. 0
42.9
44.1
FY17
60.8
31.7
29.1
FY19
73.6
40.5
33.1
FY18
6 7. 5
36.4
31.1
FY20
72.0
32.1
39.9
Five-year
CAGR
2
9.9%
Heartland Bank awarded Canstar’s 2021 Bank of
the Year – Savings Award (fourth consecutive year),
and 5-Star Ratings for Outstanding Value for Direct
Call and YouChoose accounts
Australian Reverse Mortgages awarded
Your Mortgage Magazine’s 5-Star Lender Award and
InfoChoice’s Best Reverse Mortgage Award
16
Digital Home Loans disrupt
the market
Ka ihiihi te mākete i ngā pūtea
taurewa ā-whare mamati
The launch of Heartland Home Loans
In October 2020, Heartland entered the residential
mortgage market with the lowest fixed term rates
New Zealand had seen in decades. Unlike some
other lenders in the market with low or special rates,
Heartland’s strategy for offering market-leading
rates did not involve the RBNZ Funding for Lending
Programme. Instead, low interest rates were the
result of our self-serve, digital application process
which significantly reduces the cost of onboarding for
Heartland and provides customers with a fast and
convenient online application.
The October launch followed a successful trial in March
2020, which determined there was appetite in the
market for an online mortgage application process –
one where customers could apply and receive approval
without needing to speak to a mortgage manager or
visit a bank. Throughout the rest of FY2021, Heartland
Home Loans continued to make waves in the residential
mortgage market with the addition of the country’s
then lowest revolving credit home loan rate, as well as
multiple fixed and floating rate drops.
Heartland’s competitive advantage has historically lain
in providing best or only products, which has allowed it
to target niche markets. Our re-entry into the residential
mortgage market signified the extension of Heartland’s
strategy to providing best or only products through
scalable digital platforms.
Taking mortgage applications digital
Heartland’s aim is to create a frictionless experience –
‘friction’ is all the things that keep customers waiting.
At the same time, friction is costly. Investing in
automation and self-service applications leads to
better service at a lower cost.
In proving the effectiveness of a ‘do-it-yourself’ digital
application, the Home Loans launch paved the way for
Heartland to build digital application processes for a
number of other lending products, such as vehicle loans
and Sheep & Beef Direct rural loans.
Heartland’s digital platform for mortgages incorporates
an automated application and approval process, the
benefits of which can be passed on to customers in
the form of lower prices. This provides the opportunity
to compete against the big lenders. Heartland’s online
Home Loans application can be completed in minutes,
with an average turnaround time of less than three
working days. The eligibility criteria that Heartland
applies aims at simple, high quality leads that facilitates
automation and a faster approval process.
New technologies open opportunities
for the future
Heartland is focused on enhancing its digital
platforms and applications to continue to provide
customers with a frictionless service at each stage
of their customer journey. We will be embedding
property database checks into the online application
to automate the eligibility verification of the
customer’s property.
In addition, as part of our response to the upcoming
changes to the CCCFA, we are using bank scraping
technology to assist with verifying customer income,
debts and expenses for our consumer loans. Heartland
is using this regulatory change as an opportunity
to implement technologies that will accelerate the
digitalisation of our business and cut down the cost to
serve.
We are excited to continue disrupting the residential
mortgage market through our digital processes and
competitive rates, into FY2022 and beyond.
17
|
Heartland Annual Report 2021
$895.2 million
total value of
online enquiries
$200m+
approved from FY2021 applications
2.7
average time for Heartland to verify
an online approval
3
loan calculators to help
customers self-serve
3
market-leading interest rates
(as at 30 June 2021)
9,489
online applications received
19
average time for customers to
complete the online application
minutesworking days
Home Loans successes in FY2021
The Heartland Home Loans platform has continued to evolve throughout FY2021.
18
A comfortable retirement out of reach for
many
The global population is ageing.
1
In Australia, the
proportion of those aged 65 and over increased from
12.4% in 2000 to 16.3% in 2020 – this is expected to
grow as more baby boomers (people born between
1946 and 1964) turn 65.
2
However, managing the cost of retirement is becoming
increasingly challenging. While more people are
entering retirement, the cost of living continues to
increase
3
, as does the Retirement Savings Gap – the
shortfall between the retirement income of working
Australians and the income they need for an adequate
retirement.
.4
The Australian government’s pension is a core pillar
of retirement income and the main source of income
for most Australians aged over 65. As at July 2021,
a retiree living alone receiving the maximum basic
pension rate receives $868.30 fortnightly, and a couple
receives $654.50 each fortnightly. This equates to an
annual single person income of $22,576, or $17,017 for
each person in a couple.
5
According to the Association of Superannuation Funds
of Australia Retirement Standard, for a retiree to live a
modest lifestyle (with only the basics), they would need
$28,514, or $41,170 for a couple.
6
This demonstrates
that living a modest, let alone comfortable, lifestyle is
often not possible on the pension alone. It is clear to see
from these figures that additional financial support is
needed to allow this age group to live more comfortably
in retirement.
Increased financial support is needed
Recent research and the 2021 Australian Federal
Budget reinforce the need for increased financial
options. In May 2021, the Australian Federal
Government announced various commitments to
support people in retirement and to reform the aged
care system. Funding commitments included increased
pension contribution allowances for those wishing to
downsize, support for older Australians to access aged
care, and support to receive in-home care.
Further to this, research by RMIT University, supported
by Heartland, found that the majority of older
Australians wish to age in place – that is, ageing in their
current home compared with moving into specialised
care, or even moving at all.
7
So, while options to support
downsizing may suit some, it’s not the preference for
most.
Though 90% of older Australians wish to age in place,
29% say they will not be able to afford the changes
required to make their home aged-friendly.
1
Ageing, Global Issues, United Nations, www.un.org/en/global-issues/ageing.
2
Twenty years of population change, Australian Bureau of Statistics, www.abs.gov.au/articles/twenty-years-population-change.
3
Australia’s cost of living over the last decade, Australian Parliament House, www.aph.gov.au/About_Parliament/Parliamentary_
Departments/Parliamentary_Library/pubs/BriefingBook46p/CostLiving.
4
Advisory Street 2020, Australia’s National Saving Update: Beyond 2020, Report to FSC and MLC, Sydney.
5
Age Pension, Services Australia, Australian Government, www.servicesaustralia.gov.au/individuals/services/centrelink/age-pension.
6
ASFA Retirement Standard, The Association of Superannuation Funds of Australia, www.superannuation.asn.au/resources/retirement-
standard.
7
Reverse mortgages: Financing ageing in place, RMIT University, cur.org.au/cms/wp-content/uploads/2020/11/financing-ageing-in-place.pdf.
Meeting the needs of
older Australians
Te whakatutuki i ngā hiahia
o ngā kaumātua o Ahitereiria
19
|
Heartland Annual Report 2021
8
Global Equity Release market forecast to more than treble by 2031, The European Pensions and Property Asset Release Group, epparg.org/
news/global-equity-release-market-forecast-to-more-than-treble-by-2031.
9
Retirement Income Review Final Report, The Australian Government the Treasury (November 2020).
10
Trends in home ownership in Australia: a quick guide, Australian Parliament House, www.aph.gov.au/About_Parliament/Parliamentary_
Departments/Parliamentary_Library/pubs/rp/rp1617/Quick_Guides/TrendsHomeOwnership.
11
Based on APRA ADI Property Exposure and Heartland Reverse Mortgages data as at 31 March 2020.
12
Based on APRA ADI Property Exposure and Heartland Reverse Mortgages data as at 31 March 2021.
Reverse Mortgages a solution to enable
ageing in place
Limited superannuation and the rising cost of living is
restricting the ability to age in place. RMIT University
suggested expanding the ‘traditional’ three pillars of
retirement funding (pensions, superannuation and
private savings) to include equity release options – a
market that is predicted to more than triple over the
next decade.
8
This notion was supported by the Federal
Government in its Independent Retirement Income
Review Final Report which observed that “individuals
can significantly boost their retirement incomes without
having to increase their superannuation contributions
[by] ...accessing equity in their home”.
9
In 2013-14, 85% of people aged 65 and over were
homeowners.
10
For the majority of those homeowners
who wish to remain in their home, an equity release
option, such as a reverse mortgage, could be their
solution.
Heartland has seen significant increase in demand
for Reverse Mortgages, with enquiry levels in
Australia for FY2021 increasing by 31% compared
with the previous corresponding reporting period.
The way in which customers are using their reverse
mortgage strongly reflects the financial needs
of this demographic – 46% are used for home
improvements, 41% for debt consolidation, 20% for car
repair or replacement and 16% for extra income.
As Australasia’s leading provider
of reverse mortgages (with market
share in Australia increasing from
26%
11
to 29%
12
), there is substantial
opportunity for Heartland to support
more older Australians to live with
more financial freedom in retirement.
Heartland’s award-winning reverse mortgage has
helped more than 22,000 Australians to release equity
from their homes. Its Aged Care Reverse Mortgage is
also one of the few specialist aged care loan products
available in Australia, with as much as 50% of the
home’s equity available to release for upfront or
ongoing aged care costs.
The future of retirement finance
As more Australians are reaching retirement than ever
before, and with an increasingly high cost of living,
Heartland recognises that some people may need
to access funds sooner than retirement age, or need
a one-off lump sum to fund an immediate need as
they move towards retirement, or in retirement. Age
requirements for Heartland Reverse Mortgages were
recently expanded to enable senior Australians to
access funds sooner as they transition into retirement
– applications can now be accepted for couples where
someone aged 60 or over has a partner aged 55-59.
In February 2021, Heartland also launched its new
Well-Life Loan to help those 60 and over to get an
extra financial boost when taking their next step in life,
without having to mortgage the family home.
Heartland is committed to innovation in financing
the needs of Australians entering and in retirement.
This includes servicing customers at each point of the
‘technical maturity’ spectrum – allowing customers
to access information and retirement finance via
convenient and accessible digital channels. Recently
this has included the development of educational
digital animations, embedded e-signing for loan
documents, improvements to our online application,
and consideration into the development of a mobile app
to allow customers to more easily access and manage
their loan.
With A$1.25 billion in aggregate available to support
Heartland’s growth aspirations, our aim is to more
broadly service the needs of the aged sector in Australia
through a diversified product offering to a wider
demographic, including exploring options to provide
more simplified equity release options and products
which support entry into various stages of aged care.
20
Employees: 490 New Zealand + 22 Australia
Retail deposits
$ 1.0
B
Securitisation facilities
$ 0.5
B
Unsubordinated bonds
52:47:1
Female : Male : Not Stated
13
Locations
20
+
Ethnicities
Our business
Tō mātou kaipakihi
OUR PEOPLE
OUR FUNDING
3.2
B
125,000
+
Customers
Shareholders
12,000
+
512
21
|
Heartland Annual Report 2021
1,672.9
M
Reverse Mortgages
59.2
M
Residential Mortgages
586.6
M
Rural Finance
1,270.5
M
Business Finance
132.1
M
Other Personal Lending
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1
1
All lending portfolio figures exclude FX impact.
2
Previously referred to as Business Intermediated.
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Motor Finance
22
For full profiles, visit
shareholders.heartland.co.nz
JEFFREY GREENSLADE
CEO and Executive Director
Appointed 19 July 2018
Committee memberships: N/A
GEOFFREY RICKETTS (CHAIR)
Chair and Independent Non-Executive Director
Appointed 31 October 2018
Committee memberships: Heartland Audit
and Risk Committee, Heartland Corporate
Governance, People, Remuneration and
Nominations Committee (Chair)
ELLEN COMERFORD
Independent Non-Executive Director
Appointed 31 October 2018
Committee memberships: Heartland Audit and
Risk Committee (Chair)
SIR CHRISTOPHER MACE
Independent Non-Executive Director
Appointed 31 October 2018
Committee memberships: Heartland Audit
and Risk Committee
GREGORY TOMLINSON (DEPUTY CHAIR)
Non-Executive Director
Appointed 31 October 2018
Committee memberships: Heartland Corporate
Governance, People, Remuneration and
Nominations Committee
From left to right:
As at the date of this Annual Report.
Heartland Group Board
Poari o te Hono Heartland
23
|
Heartland Annual Report 2021
24 24
1
Refer to page 45 for information on Bruce Irvine’s membership of the Heartland Corporate Governance, People, Remuneration and
Nominations Committee.
BRUCE IRVINE (CHAIR)
Independent Non-Executive Director
Appointed 31 December 2015
Committee memberships:
Heartland Bank Audit Committee,
Heartland Corporate Governance, People,
Remuneration and Nominations Committee
1
Heartland Bank Board
Poari o te Pēke Heartland
JEFFREY GREENSLADE
Executive Director
Appointed 31 December 2015
Committee memberships: N/A
GEOFFREY RICKETTS
Independent Non-Executive Director
Appointed 31 December 2015
Committee memberships: Heartland Bank Audit Committee
Pictured on pages 23-24:
For full profiles, visit
shareholders.heartland.co.nz
As at the date of this Annual Report.
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Heartland Annual Report 2021
EDWARD JOHN HARVEY
Independent Non-Executive Director
Appointed 31 December 2015
Committee memberships:
Heartland Bank Audit Committee (Chair),
Heartland Bank Risk Committee
KATHRYN MITCHELL
Independent Non-Executive Director
Appointed 29 March 2019
Committee memberships:
Heartland Bank Risk Committee
SHELLEY RUHA
Independent Non-Executive Director
Appointed 1 January 2020
Committee memberships:
Heartland Bank Risk Committee (Chair),
Heartland Bank Audit Committee
26
KEIRA BILLOT
Chief People & Brand Experience Officer
CHRIS FLOOD
CEO, Heartland Bank Limited
JEFF GREENSLADE
CEO, Heartland Group Holdings Limited
Strategic Management Group
Hono Whakahaere Rautaki
For full profiles, visit
shareholders.heartland.co.nz
As at the date of this Annual Report.
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Heartland Annual Report 2021
LYDIA ZULKIFLI
Chief Digital Officer
ANDREW DIXSON
Chief Financial Officer
LAURA BYRNE
Chief Operating Officer
MICHAEL DRUMM
Chief Risk Officer
28
Bringing our values to life
Te whakaora i ō mātou tikanga
Each year, Heartland is proud to welcome talented Māori and Pasifika rangatahi to join its Manawa Ako internship
programme. In accordance with the Māori concept of ‘ako’ (to learn and to teach), the programme is designed
to enable the interns to learn from their experience at Heartland, and for Heartland to learn from the interns –
particularly in relation to the way in which we can continue to develop a welcoming and inclusive workplace culture
and environment for Māori and Pasifika.
Mahi tika: Do the right thing
Whakataukī: Kia tika, kia pono. Do what’s right
and true.
Symbol: Pātiki (flounder).
Do what’s right for your whānau and the wider
community, even if that means fishing for flounder at
night while others sleep.
This artwork symbolises the many obstacles we may
face in order to make the right choices to meet our
aspirations and the needs of those we serve. This
is represented by the kōhine (girl) looking up at the
mountain ahead of her. The korowai (cloak) around her
portrays the responsibilities she carries of her whānau
and the wider community as she ventures off on her
challenging path.
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Heartland Annual Report 2021
Following the work of the previous year’s cohort, interns from the 2020/2021 intake worked with New Zealand artist
Shane Hansen to create a series of four murals that represent Heartland’s mātāpono (values). These are mahi tika
(do the right thing), mahi tahi (be one team), mahi toa (have big ambition) and mahi tipu (be always evolving).
The meaning behind each value, its corresponding whakataukī (proverb) and symbolism has been carefully woven
into the artworks which are now on display within our Teed Street, Newmarket, Auckland office and serve as
reminders to uphold and live our mātāpono.
Mahi tahi: Be one team
Whakataukī: He waka eke noa. We’re all in this
together.
Symbol: Purapura whetū (stars).
Leverage the power of the team. If everyone in the waka
is paddling and working together, it will go a lot faster
and be a lot more efficient.
Everyone at Heartland has a part to play in our
continued success. The hoe (paddles/oars) as the
central focus in this artwork represents the coming
together of all Heartland employees to paddle in the
same direction. The blue and green ‘hands’ behind the
hoe depict Ranginui and Papatūānuku, the Sky Father
and Earth Mother in the creation story, demonstrating
the need for us to acknowledge the world around us in
order to grow.
30
Mahi toa: Have big ambition
Whakataukī: Tū whitia te hopo. Feel the fear and do it anyway.
Symbol: Niho taniwha (teeth of the taniwha).
Have big ambitions. Like a chief’s lineage from the gods and the realm of
mythology – if we can dream it, we can do it.
One of New Zealand’s native birds, the tūī often symbolises strength and
resilience in Māori culture, with significant connection to tribal chiefs. In this
piece, the tūī depicts the strength and courage required to face your fears or the
unknown. The koru behind the manu (bird) signifies a new beginning – it is time
for one to spread their wings and be ambitious in the pursuit of their goals.
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Heartland Annual Report 2021
BRINGING OUR VALUES TO LIFE
Mahi tipu: Be always evolving
Whakataukī: Whāia te iti kahurangi. Strive for excellence.
Symbol: Poutama (steps/stairway).
Embrace learning and evolving, even when it feels challenging. The stepped
pattern signifies the growth of people, striving ever upwards to prosperity.
This artwork represents growth. The blossom on the left signifies the beginning
of our journey, with much growth ahead before we flourish. The three kete
(baskets) of knowledge through the centre symbolise the way in which
Heartland provides for its employees – in the same way the baskets were
obtained in the pursuit of knowledge. Finally, the eels to the right, swimming
both up and downstream, depict the long journey eels go on to find a suitable
habitat. The larger eel in the bottom right corner represents the growth
experienced by the eels through their journey, and the growth we too can
experience as we continue to strive for excellence.
32
Diversity Report
Pūrongo Aronga Rau
Current measurable objectives
• To improve the inclusiveness of our
workplace by increasing cultural
awareness and celebrating diversity in
all of its forms.
• To achieve a gender balance at all
levels of the organisation and work
towards ensuring diverse ethnicities
are represented throughout the
organisation.
• To be a workplace where Māori can
succeed as Māori and thereby create
a pathway to being an employer
that is welcoming to all cultures and
ethnicities.
• To be a workplace and financial service
that understands and welcomes sexuality
and gender diversity.
The following sections demonstrate the progress made
against these measurable objectives during the 2021
financial year.
To improve the inclusiveness of our
workplace by increasing cultural
awareness and celebrating diversity
in all of its forms
Heartland has a workforce with diverse ethnicities,
heritages, backgrounds, cultures, genders, sexualities
and ages. We are focused on continuing to develop a
culture that embraces and celebrates our diversity and
encourages our people to be authentic and share their
thoughts and ideas.
Tukua kia tū takitahi ngā
whetū o te rangi
Let each star shine its own light
Heartland considers diversity, in all its forms,
a strength. We are committed to supporting
initiatives which foster diversity at all levels of the
organisation to put us in a better position to attract
the widest pool of talent, understand and respond
to our diverse stakeholder needs, and provide us
with a broad experience base from which to identify
new opportunities, solve problems and make the
right decisions. By promoting a culture of inclusion
and embracing diversity, we believe our people
will be engaged and motivated to create the best
outcomes for our customers and other stakeholders.
In order to articulate our commitment to diversity,
Heartland has a Diversity and Inclusion Policy.
The Diversity and Inclusion Policy is available
on our shareholder website
shareholders.heartland.co.nz
Diversity is the many characteristics that make
each of us different, including gender, ethnicity,
heritage, sexual orientation, age, religious beliefs or
other ideologies, family status, language, cultural
background, and physical and mental abilities.
An inclusive workplace is one where all those forms
of diversity are valued, respected and leveraged,
creating equal opportunities for all employees.
Under this policy, the Board, with the assistance of
the Diversity & Inclusion Committee, is responsible
for setting measurable objectives and reviewing
progress against them.
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Heartland Annual Report 2021
During the year, we became the National Foundation
for Deaf and Hard of Hearing’s (NFD) first ever Hearing
Accredited workplace. This initiative has helped us
become more aware of the experiences of those
affected by hearing loss and to be more inclusive for our
customers and employees who are deaf or hard
of hearing.
Actions undertaken to earn Hearing
Accreditation
• Two hearing accredited workplace workshops
delivered to Heartland employees that covered
hearing health, deaf awareness and basics in
New Zealand Sign Language.
• Free hearing tests for all employees.
• Implementing Loud & Quiet Zone posters
in all offices.
• Sharing career opportunities at Heartland with
the NFD.
• Completion of workplace noise risk
assessments.
Looking ahead, we will continue to improve our
communication and practices in these areas to
improve the experience for our customers and
employees with hearing loss.
Heartland’s Diversity & Inclusion Committee is a
forum for our people to come together and share
ideas to measure, celebrate and promote diversity
and inclusion. The Committee reports to the Board
on diversity related matters, including Heartland’s
progress towards achievement of the measurable
objectives.
The Diversity & Inclusion Committee coordinated a
number of events throughout the year to celebrate
and recognise times of cultural significance, including
Christmas, Eid, Diwali, Lunar New Year, Matariki, and
Māori Language Week. For Māori Language Week
2020, we partnered with Reo Whairawa to create
a webinar on how to incorporate te reo Māori into
online meetings. The webinar was made available to
the wider finance sector with over 244 participants
from 35 different organisations.
A ‘Pasifika week’ event was held in October 2020,
creating an opportunity for our people to better
understand the richness our Pasifika people bring
to Aotearoa, for example Samoan is the third most
spoken language in Aotearoa. This event was also the
impetus for the creation of Heartland’s Kainga Pasifika
group who now lead initiatives that represent our
Pacific nations.
In order to create awareness and inclusion in a wider
sense, we also held events celebrating Mental Health
Awareness Week, Movember, NZ Sign Language
Week and Men’s Health Week.
Diversity & Inclusion Committee
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Heartland Annual Report 2021
To achieve a gender balance at all
levels of the organisation and work
towards ensuring diverse ethnicities are
represented throughout the organisation
Heartland continues to identify and address gender
imbalances at all levels. The following table shows
the gender diversity of directors and employees of
Heartland in both New Zealand and Australia as at
30 June 2021 and 30 June 2020.
As at 30 June 2021As at 30 June 2020
PositionsFemaleMaleNot StatedTotalFemaleMaleNot StatedTotal
Board -
Heartland
1
(20%)
3
(60%)
1
(20%)
5
1
(20%)
3
(60%)
1
(20%)
5
Board -
Heartland
Bank
2
(33.33%)
4
(66.67%)
06
3
(43%)
4
(57%)
07
Strategic
Management
Group
4
(50%)
4
(50%)
08
4
(44%)
5
(56%)
09
People in Key
Leadership
14
(41.18%)
20
(58.82%)
034
16
(46%)
19
(54%)
035
All staff
269
(52.54%)
241
(47.07%)
2
(0.39%)
512
261
(52%)
231
(46%)
8
(2%)
500
We continued our partnership with Global Women during the year, enabling Heartland to access best practice
trends and opportunities and to collaborate with other organisations that are leading diversity and inclusion in New
Zealand.
DIVERSITY REPORT
We are now focused on recruiting and promoting
women into more senior roles and ensuring proactive in-
role development of women. We are encouraged by the
representation of women in the Strategic Management
Group and continue to seek to understand how we
can maintain a gender balance as our workplace
demographic evolves. For our employees aged 30
and under, the gender balance is encouraging, with
47% reporting as male and 53% reporting as female.
We’ve invested in the individual development of female
talent, including 56% of our Rangatahi (Youth) Advisory
Board members being female which provides a rich
development ground for future leaders.
Another way in which we foster gender diversity at
Heartland is through Kia Eke, a group created to help
aspiring female leaders at Heartland further develop
their confidence and leadership aspirations. One of
There is a strong commitment from the Board to furthering our gender diversity objective. The following table
summarises the Directors’ participation in diversity forums and the aims of each of these forums.
DirectorForumAim
Jeff GreensladeChampions for Change
To exchange ideas with peers of appropriate ways to
improve our diversity and inclusiveness.
Ellen ComerfordChief Executive Women
To educate and influence Australian business and
government on the importance of gender balance.
Shelley Ruha
Kathryn Mitchell
Global Women
in New Zealand
To access best practice, trends and opportunities to
collaborate with other organisations who are leading
diversity and inclusion in New Zealand.
Geoffrey Ricketts
Bruce Irvine
IOD mentoring for diversity
To promote diversity in its wider sense including ethnicity,
age, skills and experience in addition to gender.
the main goals of Kia Eke is to grow a diverse set of
female leadership from within the organisation. In
FY2021, we welcomed a new cohort of 10 women from
a range of different business units and locations into
the programme. To date, our Kia Eke members have
attended workshops and coaching sessions held by
inspiring female leaders covering topics such imposter
syndrome and how to find balance in ambition.
Heartland continues to support flexible working with
a formal policy in place and people leaders being
encouraged to take an open-minded approach to
requests for flexible working, reinforcing the benefits
to Heartland and its customers by providing flexibility
to employees who value it. Whilst we see this as one
of the many ways in which we can attract and retain
women in more senior roles in the organisation, the
benefits of having a flexible working policy extend
Kia Eke
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Heartland Annual Report 2021
Our Manawa Ako internship programme also operates
to further this objective, with 76 rangatahi participating
over the past four years. We have continued our
relationship with InZone Education Foundation and a
number of secondary schools as part of the programme.
This year we will be expanding our iwi partnerships,
bringing a new perspective for the ākonga (interns)
to identify opportunities to learn about the sector and
return those learnings to their iwi. Heartland sees
the value in the perspectives the ākonga bring to the
workplace through their close connection to their
identity.
beyond fostering a gender balance – it is also aligned
to Heartland’s objective to be a more generally diverse
and inclusive workplace. Giving all employees flexibility
enables them to access personal pursuits such as
sport, community work, religious celebrations or care
for family members.
To be a workplace where Māori can
succeed as Māori, and thereby create
a pathway to being an employer that
is welcoming to all cultures and
ethnicities
To improve our ethnic and cultural diversity, we’re
starting close to home with New Zealand’s own
people: our tangata whenua. Māori have a unique
and significant role in Aotearoa which Heartland
is embracing – we aspire to be a workplace that
Māori want to be part of. It is our belief that if we
can enhance our working environment so that Māori
language, culture and values are embraced and Māori
feel confident to join us and succeed authentically as
Māori, then we will have set a good foundation for
being a more welcoming place for people of all cultures
and ethnicities.
Whāia te iti kahurangi is Heartland’s framework
for providing a workplace and financial service that
enables Māori to succeed as Māori. The purpose
of Whāia te iti kahurangi is to support the work we do
with Māori, te reo Māori, and customary practices.
It is used as a reference point for our people on
operational issues and to support the inclusion of an
indigenous perspective around the work that we do.
This framework sits alongside our policy documents
and is linked to various business operations to ensure
it is kept in our line of sight, reflecting its mana.
DIVERSITY REPORT
Manawa Ako alumni
"I was part of the first intake of the Manawa Ako
programme at the end of 2017 and have worked
at Heartland ever since. Now that I’ve finished my
studies and am working full-time, my team have really
helped me grow and develop in my role. I’ve been able
to take on more responsibility and participate in a few
Māori leadership opportunities as well.”
Payton Taplin - Communications Coordinator
38
based Māori language course for the financial and
accounting community. Eight people from Heartland
attended this two-day event along with people from a
wide range of organisations across the sector. It was
a great opportunity to stand shoulder to shoulder with
others in the industry to collectively support the use
and development of te reo Māori. We recognise that we
are in a privileged position to be able to have a positive
impact on regenerating our indigenous language.
Throughout the year, we have continued our aim to
make Heartland and the banking sector more inclusive
for Māori. Māori now make up 7% of our Heartland
population, despite only 2% of people in the financial
and insurance services sector identifying as Māori.
We continue to make progress with our younger Māori
workforce, with 59% of our employees who identify as
Māori being aged 30 and under. This can be attributed
to the efforts invested in the Manawa Ako internship
programme, with 12 intern alumni currently employed
by Heartland. The programme helps to build a
workplace where Māori can see a career pathway and
establish their career with cultural integrity.
To be a workplace and financial service
that understands and welcomes
sexuality and gender diversity
Inclusion of our rainbow community is another priority
for Heartland. During the year we held two educational
workshops facilitated by Rainbow Tick, enabling our
people to learn more about our rainbow communities.
We’ve also made progress in the way we recruit by
developing a new strategy, Iho Pūmanawa, which
supports more equitable recruitment and selection
outcomes. Partnerships with iwi groups mean that our
job opportunities are shared with their iwi members,
giving us reach to a wider pool of talent. We are also
taking a proactive approach to career development
for Māori within the business, including through a
cadetship programme called Hīkina, in partnership with
Te Puni Kōkiri and Indigenous Growth. During the year,
14 of our people completed Hīkina, with the overarching
purpose of the programme being to enable promising
and established indigenous leaders to take leadership
opportunities and show how their cultural values are
transferable and add value to the organisation.
Manawa Whenua, our internal network for Māori
employees and allies, has played a pivotal role in
driving, guiding, and celebrating Māori initiatives at
Heartland and we continue to raise the status of te
reo Māori where we can. We acknowledge our role as
kaitiaki (guardians or caretakers) of the language and
our responsibility to maintain a high standard of reo
Māori by engaging recognised proficient translators.
Māori language continues to be used in various
contexts throughout the business. The increased use
of te reo Māori lifts the status of the language, thereby
creating a stronger sense of belonging for people
who identify as Māori and also for people whose first
language is not English.
We were proud to support Reo Whairawa and the
Kura Reo Pakihi in Rotorua in April. This is a marae-
Manawa Whenua Committee
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Heartland Annual Report 2021
We also celebrated Pride Month and supported our
people to participate in Sweat with Pride, a fundraising
event for the New Zealand AIDS foundation, Rainbow
Youth and Outline, being organisations that actively
work towards improving mental, physical and sexual
health for rainbow communities.
Throughout the year, we continued to work towards
achieving the Rainbow Tick and the next step in this
journey is for Heartland (with the help of Rainbow Tick)
to host group conversations for our Heartlanders who
identify with the rainbow community, to discuss what
we are doing well and areas where we can continue
to improve.
During the year, our Rainbow Committee introduced
the option for our people to include pronouns in
their email signatures as a way to easily convey
the words they would like others to use when being
addressed or referred to. We recognise that diversity
comes in all forms and the ability to self-identify
promotes confidence in bringing your true and
authentic self to work.
These actions are only the beginning for our Rainbow
Committee as we strengthen our focus towards
increasing rainbow awareness and allyship, and
being an organisation that understands, welcomes
and embraces sexuality and gender diversity. We are
confident that our values will be the foundation for total
inclusivity.
We are very proud of what we have
continued to achieve in FY2021 in
embracing and promoting the diversity
of our people. We are creating a more
welcoming and inclusive workplace
where all people are respected and
valued. We recognise that all forms of
diversity bring different perspectives
and expressions of ideas and opinions
within the Board, the Strategic
Management Group and throughout
the organisation, and contribute to
Heartland’s productivity, profitability
and connection with our communities
and stakeholders.
In the year ahead, we will continue
to embrace and promote diversity,
leverage diversity as a competitive
advantage to attract, retain and
motivate the widest possible pool
of talent and recognise, understand
and value individual contribution and
performance across the organisation.
DIVERSITY REPORT
Kainga Pasifika Committee
40
Corporate governance
Te urungi ā-rangatōpū
This corporate governance statement describes
Heartland’s corporate governance policies and
practices as at 30 June 2021, and has been approved
by the Board.
Heartland, as the parent company of the Group, is
committed to ensuring that Heartland’s policies and
practices reflect current best practice, in the interests
of Heartland’s shareholders and other stakeholders.
In addition to information about Heartland’s corporate
governance policies and practices, this section also
includes information about Heartland Bank’s corporate
governance policies and practices. Heartland Bank
has its own Board and Board Committees, and
makes independent decisions (including on corporate
governance matters), however Heartland and
Heartland Bank Board and Committee meetings are
usually held consecutively and members of both Boards
or Committees (as applicable) attend both meetings.
Heartland’s important corporate governance policies
and practices either apply to, or have been adopted by,
Heartland Bank.
Heartland is pleased to report that, other than in
respect of the matter explained in the 'Principle 3 -
Board Committees' section below, it was fully compliant
with the corporate governance principles contained in
the NZX Corporate Governance Code (the NZX Code)
as at 30 June 2021.
Principle 1 – Code of Ethical Behaviour
Directors should set high standards of ethical
behaviour, model this behaviour and hold
management accountable for these standards
being followed throughout the organisation.
Codes of Conduct
Heartland’s Code of Conduct and Directors’ Code of
Conduct set out the ethical and behavioural standards
expected of the Group's directors, employees and
intermediaries. The Codes of Conduct are available
on Heartland’s shareholder website,
shareholders.heartland.co.nz.
The Codes of Conduct cover a wide range of
areas, including:
• Heartland’s responsibilities towards shareholders
and the financial community, its customers, clients
and service providers, and its employees
• conflicts of interest, including the receipt of gifts
and other corporate opportunities
• confidentiality
• the procedure for advising Heartland of a
suspected breach.
Every new director or employee is to be provided with
a copy of the Code of Conduct and is required to read
it. Each director and staff member has an obligation, at
all times, to comply with the spirit as well as the letter
of the law, to comply with the principles of the Code of
Conduct, including exhibiting a high standard of ethical
behaviour. The Codes of Conduct are subject to annual
review.
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Heartland Annual Report 2021
Insider Trading Policy
In addition to the prohibition on insider trading,
the Group’s directors, senior employees and other
restricted persons are prohibited from buying or
selling the Group’s quoted financial products during
‘blackout periods’ – which are periods that commence
30 days prior to the end of the half-year and the
full-year and end once the financial results from the
half-year or the full-year have been released to the
market. In addition, all of the Group’s directors, senior
employees and other restricted persons are required
to obtain consent before buying or selling the Group’s
quoted financial products outside of blackout periods,
and to certify that their decision to buy or sell has not
been made on the basis of inside information.
The Board continually assesses, with the assistance
of the Heartland Bank Board, whether any matters
under consideration are likely to materially influence
Heartland’s share price and therefore whether
additional trading restrictions should be imposed
on directors, senior employees and other restricted
persons.
The Insider Trading Policy is available on Heartland’s
shareholder website, shareholders.heartland.co.nz.
Through our share registrar, Link Market Services,
we actively monitor trading in Heartland shares
by directors, senior employees and other restricted
persons.
Principle 2 – Board Composition
and Performance
To ensure an effective board, there should be
a balance of independence, skills, knowledge,
experience and perspectives.
Role of the Board
The Board is responsible for corporate governance
and setting the Group’s overall strategic direction. The
Board charter regulates Board procedure and describes
the Board’s role and responsibilities in detail, and is
available on Heartland’s shareholder website,
shareholders.heartland.co.nz.
The Board establishes objectives, strategies and an
overall policy framework within which the Group’s
business is conducted.
The Board schedules regular meetings at which it
receives briefings on key strategic and operational
issues from management.
Board processes
The Board held 9 meetings, and the Heartland Bank
Board held 9 meetings, during the year ended 30 June
2021. The following table shows attendance by each
director at the meetings of the Heartland and Heartland
Bank Boards and Committees of which he or she was a
member.
42
Heartland BoardHeartland Bank Board
Attend as DirectorAttended as ObserverAttended as Director Attended as Observer
J K Greenslade9-9-
E F Comerford9-6
1
3
E J Harvey-99-
B R Irvine-99-
C R Mace9--8
K Mitchell-99-
G T Ricketts9-9-
G R Tomlinson9--8
S M Ruha -99-
Heartland directorshipsHeartland Bank directorships
Audit & Risk
Committee
2
Corporate Governance,
People, Remuneration
and Nominations
Committee
Audit
Committee
Risk
Committee
J K Greenslade4*5*1*-
E F Comerford7-5*6*
E J Harvey6*-76
B R Irvine6*571*
C R Mace6-4*6*
K Mitchell--1*6
G T Ricketts6571*
G R Tomlinson-5-1*
S M Ruha2*-6**6
*
These meetings were attended by the director as an observer rather than as a member.
**
The first three meetings were attended as an observer and the subsequent three as a member.
1
E Comerford resigned from the Heartland Bank Board on 12 March 2021.
2
Heartland‘s Risk Committee was merged with the Audit Committee in August 2020. These numbers include meetings of the Heartland Risk
Committee.
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Heartland Annual Report 2021
CORPORATE GOVERNANCE
All of the then serving members of the Board, and
Heartland Bank Board, attended the Annual Meeting
held on 30 November 2020.
Director appointment
The Corporate Governance, People, Remuneration
and Nominations Committee is tasked with the role
of reviewing Heartland Board composition, and
reviewing and making recommendations in relation to
nominations, for the Board’s consideration.
Each new director of Heartland is required, pursuant
to the Heartland board charter, to enter into a written
agreement with Heartland in respect of his or
her appointment and Heartland has a pro forma
director appointment letter which is tailored for
individual appointments.
Board membership, size and composition
The NZX Main Board Listing Rules provide that the
number of directors must not be fewer than three.
Subject to this limitation, the size of the Board is
determined from time to time by the Board.
As at 30 June 2021, the Board comprised five directors,
being an independent Chairman, the Deputy Chair,
the Chief Executive Officer and two non-executive
directors. The Board encourages rigorous discussion
and analysis when making decisions.
As mentioned above, Heartland Bank has its own
Board and Board Committees, and meetings are
held consecutively with Heartland Board and Board
Committees meetings. Members of both Boards and
Committees (as applicable) attend both Heartland
and Heartland Bank Board or Committee meetings
(as applicable), which further encourages rigorous
discussion and analysis.
The Board recognises the need to have a range of
complementary skills, knowledge and experience in
order to support the Group’s implementation of its
strategic priorities, and for the Board to have a balance
of skills and attributes in order to support diversity
at board level. With this in mind, the composition of
both the Heartland and the Heartland Bank Boards is
regularly reviewed and their collective skills, knowledge
and experience formally assessed. This exercise
provides an opportunity to reflect on and discuss
current Board composition, as well as succession
planning. The current Boards comprise directors with
a mix of qualifications, skills and attributes who hold
diverse business, governance and industry experience.
Board training and performance assessment
To ensure ongoing education, directors are regularly
informed of developments that affect the industry and
business environment, as well as company and legal
issues that impact the directors themselves. Directors
have access to management and any additional
information they consider necessary for informed
decision making.
The Boards of Heartland and Heartland Bank
undertake a formal review of their own, their
committees’ and individual directors’ performance at
least annually. This is to ensure that they each have
a range of complementary skills, knowledge and
experience in order to effectively govern the Group, to
monitor its performance, and to
support the implementation of its strategic priorities –
in the interests of its shareholders
and other stakeholders.
Diversity and inclusion
In order to articulate its commitment to diversity,
Heartland has developed a Diversity & Inclusion
Policy, which requires the Board, with the help of the
Diversity & Inclusion Committee, to set measurable
objectives for achieving diversity and to track progress
against them. Heartland’s Diversity & Inclusion Policy
is available on Heartland’s shareholder website,
shareholders.heartland.co.nz.
A discussion of Heartland’s Diversity and Inclusion
Policy and a report on the measurable objectives
which were set for FY2021 is included on page 33 of
this Annual Report.
44
Principle 3 – Board Committees
The Board should use committees where this
will enhance its effectiveness in key areas,
while still retaining board responsibility.
Board Committees
As at 30 June 2021, Heartland had two permanently
constituted Board Committees, each of which is
tasked with working with management in its specific
area of responsibility and reporting its findings and
recommendations to the Board. Management attend
Committee meetings as required at the invitation of the
relevant Committee.
Each of these Committees has a charter which sets out
the Committee’s objectives, membership, procedures
and responsibilities. A Committee does not take action
or make decisions on behalf of the Board unless it is
specifically mandated to do so. The charter of each
Committee is available on Heartland’s shareholder
website, shareholders.heartland.co.nz.
The Board is comfortable that no other standing
Committees are necessary at this stage, however
other ad hoc Committees are established for specific
purposes from time to time.
As at 30 June 2021 Heartland Bank had a permanently
constituted Risk Committee and an Audit Committee
which are tasked with working with management and
reporting their findings and recommendations to the
Heartland Bank Board.
Audit & Risk Committee
Membership is restricted to non-executive directors,
with at least three members, the majority of whom must
be independent. The Chair of the Audit Committee must
be an independent director who is not the Chair of
the Board.
As at 30 June 2021, the members of the Audit & Risk
Committee were E F Comerford (Chair),
C R Mace and G T Ricketts.
The role of the Audit & Risk Committee is to advise and
provide assurance to the Board in order to enable the
Board to discharge its responsibilities in relation to the
oversight of:
• the integrity of financial control, financial
management and external financial reporting
• the internal audit function
• the independent audit process
• the formulation of its risk appetite
• to provide the Board with assurance that
all risks within the key risk categories which are
relevant to the Group have been appropriately
identified, managed and reported to the Board.
The Audit & Risk Committee works closely with
the Heartland Bank Audit Committee and the
Heartland Bank Risk Committee, which have similar
responsibilities in relation to Heartland Bank, and their
meetings occur consecutively. As at 30 June 2021, the
Board determined that all committee members had a
recognised form of financial expertise in accordance
with the Audit & Risk Committee’s charter.
Corporate Governance, People,
Remuneration and Nominations Committee
The Corporate Governance, People, Remuneration
and Nominations Committee is required to have at
least three directors, the majority of whom must be
independent.
As at 30 June 2021, the members of the Corporate
Governance, People, Remuneration and Nominations
Committee were G T Ricketts (Chair), B R Irvine and G R
Tomlinson. Although B R Irvine is a director of Heartland
Bank and not Heartland, the Board are of the view that
a director of Heartland Bank should be a member of
the Corporate Governance, People, Remuneration and
Nominations Committee given that the vast majority
of employees of the Group are employed by Heartland
Bank. B Irvine, as Chairman of Heartland Bank,
represents Heartland Bank’s position in that regard.
Accordingly, Heartland has not strictly complied with
recommendation 3.3 of the NZX Code as the majority
of the Committee are not independent directors of
Heartland. Instead, the Committee has one independent
director of Heartland and one independent director of
Heartland Bank but, as described above, the Board
considers this appropriate for Heartland.
45
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Heartland Annual Report 2021
CORPORATE GOVERNANCE
The role of the Corporate Governance, People,
Remuneration and Nominations Committee
includes advising and making recommendations to
the Board regarding:
• corporate governance matters
• people strategy, including organisation structure,
performance, succession planning, development,
culture, diversity and remuneration strategy and
policies and any other strategic people initiatives
• remuneration of the directors, Chief Executive
Officer and senior executives
• the performance of the Chief Executive Officer
including setting and review of annual KPIs
• director and senior executive appointments, Board
composition and succession planning.
Takeovers Response Manual
The Board has documented and adopted a Takeover
Response Manual document, which is designed to
give the Board and management clear direction on
the steps that need to be taken following receipt of
a takeover offer.
The document, amongst other things, includes an
“independent director” protocol for directors who are
involved or associated with the bidder, talks to the
scope of independent advisory reports to shareholders,
and prompts the Board to consider the option of
establishing an independent takeover committee
following receipt of a takeover offer.
46
Principle 4 – Reporting and Disclosures
The Board should demand integrity in
financial and non-financial reporting, and
in the timeliness and balance of corporate
disclosures.
Heartland appreciates that its investors and other
stakeholders value both financial and non-financial
reporting, and Heartland seeks to ensure that its
investors have timely access to full and accurate
material information about Heartland which is factual
and balanced.
Heartland’s Disclosure Policy sets out procedures
that are in place to make sure all material information
is identified and disclosed in a timely manner, and to
prevent the selective disclosure of material non-public
information. Under the Policy, potentially ‘material
information’ is required to be brought to the attention
of the Disclosure Committee, which is ultimately
responsible for determining whether information
is material, and approving the form and content of
material information that is disclosed. Heartland also
monitors information in the market about itself and
(with the assistance of the Disclosure Committee) will
release information to the extent necessary to prevent
development of a false market for the Group’s quoted
financial products.
All of Heartland’s key governance documents,
including the Disclosure Policy, are available on
Heartland’s shareholder website,
shareholders.heartland.co.nz. Heartland also maintains
copies of its stock exchange announcements, and
half-year and full-year reports, investor presentations
and details of annual shareholder meetings, on its
shareholder website.
Audit & Risk Committee
The Audit & Risk Committee oversees the quality and
timeliness of all external financial reports, including all
disclosure documents issued by Heartland.
The Audit & Risk Committee oversees the preparation
of Heartland’s financial statements and setting policy
to ensure the information presented is useful for
investors and other stakeholders. Heartland makes its
financial statements easy to read by using clear, plain
language, and structuring them so that key information is
prominent. In addition to the full-year audit, Heartland’s
external auditor completes a review of the interim
financial statements.
The Chief Executive Officer and Chief Financial Officer are
also required to certify to the Audit & Risk Committee that
the financial statements of Heartland and its subsidiaries
present a true and fair view of Heartland and comply with
all relevant accounting standards.
Heartland is committed to delivering value for its
customers, shareholders, employees, communities,
partners and intermediaries. This is the third year that
Heartland has reported against a Corporate Social
Responsibility Framework in order to provide more
detailed information on the value created for Heartland’s
stakeholders. Refer to page 63 of this Annual Report.
47
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Heartland Annual Report 2021
CORPORATE GOVERNANCE
Principle 5 – Remuneration
The remuneration of directors and executives
should be transparent, fair and reasonable.
Heartland’s remuneration strategy is designed to create
a high-performance culture which attracts and retains
quality candidates by incentivising and rewarding
exceptional performance.
Heartland has developed a Remuneration Policy which
explains its remuneration strategy and its approach to
setting remuneration in more detail. The key principles
are that Heartland’s remuneration policy:
• supports the attraction, retention and engagement
of quality, diverse candidates
• does not discriminate on the basis of gender,
ethnicity, sexuality or any other individual factor
• should further Heartland’s aspiration to achieve
pay equity across the organisation
• rewards for high performance
• has the flexibility to cater for Heartland’s
operational differences
• recognises the link between company performance
and remuneration, and the importance of creation
of shareholder value
• is understood by employees.
The full Remuneration Policy is available on Heartland’s
shareholder website at shareholders.heartland.co.nz.
Heartland’s Corporate Governance, People,
Remuneration and Nominations Committee (the
Committee) is kept up to date with relevant market
information and best practice, obtaining advice from
external advisors when necessary. Heartland has used
PriceWaterhouseCoopers as a consultant for advice on
various remuneration activities including, but not limited
to, the structure of its long-term incentive schemes and
the valuation of the performance rights under these
schemes.
Remuneration levels are reviewed annually for market
competitiveness and alignment with strategic and
performance priorities. All senior executive performance
is assessed by the Committee with reference to Group
risk management policies and frameworks.
Non-executive directors’ remuneration
Total remuneration available to the Group’s non-
executive directors is determined by Heartland’s
shareholders. The current aggregate approved amount
by shareholders is $1,200,000 per annum.
Heartland’s policy is to pay directors’ fees in cash. There
is no requirement for directors to take a portion of their
remuneration in shares and nor is there a requirement
for directors to hold shares in Heartland. However, as
at 30 June 2021, a number of the directors held shares,
or a beneficial interest in shares, in Heartland (see the
Directors’ disclosures section of this Annual Report for
further details).
Senior executive remuneration
The objective is to provide competitive remuneration
that aligns executives’ remuneration with shareholder
value and rewards the executives’ achievement of the
Group’s strategies and business plans.
All senior executives receive a base salary and are
also eligible to participate in short-term and, in some
cases, long-term incentive plans under which they
are rewarded for achieving key performance and
operating results.
Disclosure of the CEO’s remuneration is included in
the Directors’ disclosures section from page 51 of this
Annual Report.
48
Principle 6 – Risk Management
Directors should have a sound understanding
of the material risks faced by the issuer and
how to manage them. The Board should
regularly verify that the issuer has appropriate
processes that identify and manage potential
and material risks.
Risk management
The Board ensures that Heartland has a Risk
Management Programme in place which identifies,
manages and communicates the key risks that may
impact Heartland’s business. Specific risk management
strategies have been developed for each of the key
risks identified. The Audit & Risk Committee of the
Board oversees the risk management programme and
strategy. Heartland also has in place insurance cover for
insurable liability and general business risk.
Health and safety
Heartland promotes a working environment where we
engage with all our people, so that together we can
maintain a workplace that is mentally and physically
safe and healthy, and to promote a positive health
and safety culture. We engage with our people to
identify, assess, control and review risk, with a focus on
continuous improvement of health and safety.
All Group employees are required to read and attest
to our Health, Safety and Wellbeing Policy. Induction
includes instruction on our Health, Safety and
Wellbeing Policy and procedures. The Health & Safety
Committee, representing all employees, convenes every
second month to discuss reported incidents, accidents
and near misses, initiatives and tabled reports.
Incidents, accidents and near misses are registered in
our Risk Management System (RMS). A Health & Safety
Report that includes RMS data, number of employee
insurance claims, number of employees accessing
counselling, and summaries of initiatives is provided to
the Executive Risk Committee and to the Board.
In the year ended 30 June 2021, there have been no
notifiable events to report to WorkSafe New Zealand.
Principle 7 – Auditors
The Board should ensure the quality and
independence of the external audit process.
The Audit & Risk Committee is responsible for
overseeing the external, independent audit of
Heartland’s financial statements. This encompasses
processes for sustaining communication with
Heartland’s external auditors, ensuring that the ability
of the external auditors to carry out their statutory
audit role is not impaired, or could reasonably be
perceived to be impaired, to address what other
services may be provided by the external auditors
to Heartland, and to provide for the monitoring and
approval of any such services.
Heartland’s External Auditor Independence Policy
provides guidelines to ensure that non-audit related
services do not conflict with the independent role of
the external auditor, and the Audit & Risk Committee
ensures that non-audit work undertaken by the
auditors is in accordance with that Policy. That Policy
also sets out guidelines in relation to the tenure and
re-appointment of the external auditor, which the
Audit Committee ensures are complied with. Refer to
Heartland’s shareholder website,
shareholders.heartland.co.nz, for a copy of the External
Auditor Independence Policy.
The external auditor monitors its independence and
reports to the Audit & Risk Committee bi-annually
to confirm that it has remained independent in the
previous six months, in accordance with Heartland’s
External Auditor Independence Policy and the external
auditor’s policies and professional requirements. There
have been no threats to auditor independence identified
during the year ended 30 June 2021.
Heartland also has an internal audit function which
is independent of the external auditors. The Audit &
Risk Committee approves the annual internal audit
programme, which is developed in consultation with
management of Heartland.
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Heartland Annual Report 2021
CORPORATE GOVERNANCE
Principle 8 – Shareholder Rights & Relations
The Board should respect the rights of
shareholders and foster constructive
relationships with shareholders that encourage
them to engage with the issuer.
The Board is committed to maintaining a full and
open dialogue with all shareholders, as outlined in the
Disclosure Policy which is available on Heartland’s
shareholder website, shareholders.heartland.co.nz.
Heartland keeps shareholders informed through:
• periodic and continuous disclosure to NZX
and ASX
• information provided to analysts and media
during briefings
• Heartland’s shareholder website
shareholders.heartland.co.nz
• the Annual Meeting, at which shareholders
have the opportunity to ask questions
• annual reports.
The Board encourages full participation of shareholders
at the Annual Meeting to ensure a high level of
accountability. Heartland’s external auditor also
attends the Annual Meeting and is available to answer
questions relating to the external audit.
50
Directors’ disclosures
Puakanga kaitohutohu
Directors
The following persons were directors of Heartland and its subsidiaries during the year ended 30 June 2021.
CompanyDirectors Status
Heartland Group
Holdings Limited
Geoffrey Thomas Ricketts
Gregory Raymond Tomlinson
Ellen Frances Comerford
Jeffrey Kenneth Greenslade
Christopher Robert Mace
Independent Director (Chair)
Non-Independent Director (Deputy Chair)
Independent Director
Executive Director
Independent Director
Heartland Bank LimitedBruce Robertson Irvine
Ellen Frances Comerford
Jeffrey Kenneth Greenslade
Edward John Harvey
Shelley Maree Ruha
Kathryn Mitchell
Geoffrey Thomas Ricketts
Independent Director (Chair)
Independent Director (resigned 12/3/2021)
Non-Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
ASF Custodians Pty LimitedRichard Glenn Udovenya
Jeffrey Kenneth Greenslade
Australian Seniors
Finance Pty Limited
Jeffrey Kenneth Greenslade
Christopher David Andrew Cowell
Andrew Peter Dixson
Sharon Susan Yardley
Grant Stuart Kemble
Appointed 06/07/2020 and resigned
31/03/2021
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Heartland Annual Report 2021
CompanyDirectorsStatus
Heartland Australia
Holdings Pty Ltd
Jeffrey Kenneth Greenslade
Christopher David Andrew Cowell
Andrew Peter Dixson
Sharon Susan Yardley
Grant Stuart Kemble
Appointed 06/07/2020 and resigned
31/03/2021
Heartland Australia
Group Pty Ltd
Jeffrey Kenneth Greenslade
Christopher David Andrew Cowell
Andrew Peter Dixson
Sharon Susan Yardley
Grant Stuart Kemble
Appointed 06/07/2020 and resigned
31/03/2021
Heartland NZ Trustee LimitedPhilippa Rosemary Drury
Christopher Patrick Francis Flood
Heartland PIE Fund LimitedJeffrey Kenneth Greenslade
Bruce Robertson Irvine
Marac Insurance LimitedAndrew James Aitken
Christopher Patrick Francis Flood
Christopher Robert Mace
Sarah Elizabeth Ann SmithResigned 01/04/2021
VPS Properties LimitedChristopher Patrick Francis Flood
When determining whether a director of Heartland is independent, the factors described in the NZX Code as
possibly impacting a director’s independence were considered and it was determined that none of those factors
applied to the directors noted above as independent.
52
Interests register
The following are the entries in the Interests Register of Heartland (and its subsidiaries) made during the year ended
30 June 2021.
Indemnification and insurance of directors
Heartland has given indemnities to, and has effected insurance for, directors of Heartland and its subsidiaries to
indemnify and insure them in respect of any liability for, or costs incurred in relation to, any act or omission in their
capacity as directors, to the extent permitted by the Companies Act 1993. The cost of the insurance premiums to the
Group for the year ended 30 June 2021 was $240,270 (including GST).
Share dealings by directors
Details of individual directors’ share dealings as entered in the Interests Register of Heartland under Section 148(2)
of the Companies Act 1993 during the year ended 30 June 2021 are as follows (all dealings are in ordinary shares
unless otherwise specified):
E J Harvey
Date of acquisition/
disposal
Nature of relevant interestAcquisition/disposalNo. of sharesConsideration
9 October 2020Allotment under DRPAcquisition2,517$3,887.41
16 March 2021Allotment under DRPAcquisition2,836$5,114.80
J K Greenslade
Date of acquisition/
disposal
Nature of relevant interestAcquisition/disposalNo. of sharesConsideration
9 December 2020Transfer of SharesDisposal1,993,078
B R Irvine
Date of acquisition/
disposal
Nature of relevant interestAcquisition/disposalNo. of sharesConsideration
9 October 2020Allotment under DRPAcquisition2,355$2,936.74
9 October 2020Allotment under DRPAcquisition8,167$10,184.05
16 March 2021Allotment under DRPAcquisition2,654$4,786.56
16 March 2021Allotment under DRPAcquisition9,203$16 , 5 97. 8 6
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Heartland Annual Report 2021
DIRECTORS' DISCLOSURES
S Ruha
Date of acquisition/
disposal
Nature of relevant interestAcquisition/disposalNo. of sharesConsideration
6 October 2020Ordinary SharesAcquisition38,523$50,079.90
7 October 2020Ordinary SharesAcquisition58,450$77,738.50
8 October 2020Ordinary SharesAcquisition17,550$23,341.50
3 November 2020Ordinary SharesAcquisition36,477$49,243.95
16 March 2021Allotment under DRPAcquisition3,116$5,619.79
K Mitchell
Date of acquisition/
disposal
Nature of relevant interestAcquisition/disposalNo. of sharesConsideration
3 November 2020Ordinary SharesAcquisition15,243$20,000.00
4 November 2020Ordinary SharesAcquisition7, 7 9 5$10,000.00
9 November 2020Ordinary SharesAcquisition3,747$5,000.00
12 November 2020Ordinary SharesAcquisition7, 3 91$10,000.00
13 November 2020Ordinary SharesAcquisition7, 3 91$10,000.00
1 April 2021Ordinary SharesAcquisition2,864$4,982.99
6 April 2021Ordinary SharesAcquisition2,880$4,982.99
6 April 2021Ordinary SharesAcquisition2,897$4,982.99
7 April 2021Ordinary SharesAcquisition2,880$4,983.02
54
General notice of disclosure of interests in the interests register
Details of any changes to Heartland and Heartland Bank directors’ general disclosures entered in the relevant
interests register under Section 140 of the Companies Act 1993 during the year ended 30 June 2021 are as follows:
E J Comerford
Appointed director to Airtasker Limited from 1 February 2021 and Lendi Group Pty Ltd
from 3 May 2021.
Appointed director to Auscred Ltd from 31 August 2020 and ceased directorship from
2 May 2021.
E J HarveyNo amendments for year ended 30 June 2021.
B R Irvine
Ceased directorship of Original Foods Limited from 2 November 2020, House of Travel
ESP Trustee Limited from 23 December 2020 and Limeloader Irrigation Limited from 2
February 2021.
C R MaceNo amendments for the year ended 30 June 2021.
K MitchellNo amendments for year ended 30 June 2021.
G T Ricketts
Appointed director to MCF Amplify Limited from 2 December 2020, MCF3 Green Limited
from 12 April 2021 and MCF3 E&P Holdco Limited from 24 June 2020.
Ceased directorship of MCF2 Nexus Limited from 1 December 2020, MCD 7 Limited
from 1 December 2020, MCF 8 Limited from 1 December 2020, MCF 9 Limited from 1
December 2020 and The New Zealand Centre for Independent Studies Limited from 21
June 2021.
S M Ruha
Appointed director to Hobson Wealth Holdings Limited from 10 December 2020, Analey
Investments Limited from 16 February 2021, TaxGift Limited from 28 April 2021 and
Hobson Wealth Partners Limited from 17 May 2021.
G R Tomlinson
Appointed director to Tomlinson Group Argenta GP Limited from 19 February 2021.
Ceased directorship of The Icehouse Limited from 27 November 2020, Impact Capital
Limited from 21 December 2020, Argenta Limited from 9 March 2021, Forte Health
Limited from 29 March 2021 and Forte Health Group Limited from 29 March 2021.
J K GreensladeNo amendments for year ended 30 June 2021.
Details of Heartland Bank directors’ general disclosures entered in the relevant interest register under Section 140 of
the Companies Act 1993 prior to 1 July 2020 can be found in earlier Annual Reports.
Specific disclosures of interest in the interests register
There were no specific disclosures of interests in transactions entered into by Heartland or its subsidiaries (including
Heartland Bank) during the period 1 July 2020 to 30 June 2021.
Information used by directors
No director of Heartland or its subsidiaries (including Heartland Bank) disclosed use of information received in his or
her capacity as a director that would not otherwise be available to that director.
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Heartland Annual Report 2021
DIRECTORS' DISCLOSURES
Heartland and Heartland Bank Directors’ relevant interests
Director
Number of ordinary
shares –
beneficial
Number of ordinary
shares –
non-beneficial
1
Number
of options
J K Greenslade1,993,078NilNil
E J Harvey140,2656,475,976Nil
B R Irvine586,3776,475,976Nil
C R Mace14,337,4896,475,976Nil
G T Ricketts13,267,2856,475,976Nil
G R Tomlinson58,392,997NilNil
S Ruha154,116NilNil
K Mitchell53,088NilNil
1
The non-beneficial interest in the 6,475,976 shares arises from those directors being a trustee of the Heartland
Trust, which held 6,475,976 shares in Heartland as at 30 June 2021.
Directors’ remuneration
The current total fee pool for the non-executive directors of Heartland and its subsidiaries approved by shareholders
at the Annual Shareholder Meeting of Heartland Bank held on 22 November 2016 is $1,200,000 per annum.
1
The table below sets out the fees payable to the non-executive directors of Heartland for the year ended 30 June
2021 based on the position(s) held.
Board/committee
2
Position Fees (per annum)
Board of Directors
Chair
Member
$150,000
$100,000
Heartland Audit & Risk Committee
Chair
Member
$15,000
Nil
Heartland Bank Audit Committee
Chair
Member
$15,000
Nil
Heartland Bank Risk Committee
Chair
Member
$15,000
Nil
Corporate Governance, People,
Remuneration and Nominations Committee Nominations
Chair
Member
$15,000
Nill
The total remuneration and value of other benefits
3
received by each non-executive director who held office in
Heartland and/or any of its subsidiaries during the year ended 30 June 2021 is set out in the following table.
Directors’ fees exclude GST where appropriate.
1
On 4 October 2018, NZX granted Heartland a waiver from Rule 3.5.1, to the extent that this Rule requires the Directors' Remuneration Pool to
be authorised by an Ordinary Resolution of Heartland (as opposed to Heartland Bank).
2
If a director sits on both the Heartland and Heartland Bank boards, they are only entitled to receive one fee.
3
In addition to these amounts, Heartland meets costs incurred by directors, which are incidental to the performance of their duties. This includes
providing directors with telephone concessions and paying the cost of directors’ travel. As these costs are incurred by Heartland to enable
directors to perform their duties, no value is attributable to them as benefits to directors for the purposes of the tables included in this report.
56
Heartland
directorships
Heartland Bank
directorships
DirectorBoard fees
Audit & Risk
Committee
4
Corporate
Governance,
People,
Remuneration
and Nominations
Committee
Audit
Committee
Risk
Committee
Other
Total
remuneration
E F Comerford$100,000$15,000--$2,500
5
-$117,500
E J Harvey$100,000-$15,000--$115,000
B R Irvine$150,000- ---$150,000
K Mitchell $100,000----$100,000
C R Mace$100,000----$100,000
G T Ricketts$150,000$15,000---$165,000
S M Ruha
6
$100,000--$12,500-$112,500
G R Tomlinson$100,000 ----$100,000
Subsidiary directorships
A J Aitken$32,000
7
---$32,000
E F ComerfordA$50,000
8
----$53,805
P Drury$20,000
9
---$20,000
C R Mace$15,000
10
---$15,000
R G UdovenyaA$30,000
11
$32,283
Total$1,113,088
12
4
Heartland Audit & Risk Committee commenced from 31 August 2020.
5
Resigned as Chair of the Heartland Bank Risk Committee with effect from 31 August 2020.
6
Commenced as Chair of the Heartland Bank Risk Committee from 31 August 2020.
7
Fees paid to A J Aitken as a director of MARAC Insurance Limited.
8
Fees paid to E F Comerford by Heartland Australia Group Pty Limited and Heartland Australia Holdings Pty Limited (E F Comerford resigned
as a director from 26 July 2019 but still receives fees in return for consultancy services provided to those companies).
9
Fees paid to P Drury as a director of Heartland NZ Trustee Limited.
10
Fees paid to C R Mace as Chair of MARAC Insurance Limited.
11
Fees paid to R G Udovenya as a director of ASF Custodians Pty Limited.
12
For the purposes of this table, A$ fees have been converted to NZ$ using an exchange rate of $1.07610.
Remuneration and/or other benefits from the company and its subsidiaries to executive directors
The remuneration for the Executive Director (being, in Heartland’s case, the CEO) includes a fixed remuneration
component, a variable remuneration component comprising short-term incentives (STIs) and long-term incentives
(LT Is), and other benefits. LTIs are offered to selected employees (including the CEO) in order to incentivise them to
enhance long-term shareholder value.
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Heartland Annual Report 2021
13
Motor vehicle
14
Cost of FY2018/2019 grant spread over the three-year service period (noting that this grant was amended, and has effectively been spread
over its five-year service period). Also includes cost of FY2021 grant spread over its four-year service period.
15
This amount is net of a pre-existing reserve which had been built up pre-FY2020. Including the reserve, the total accounting cost of the
grants would have been $309,180.
STI scheme
The CEO is entitled to receive STIs which are cash
payments, determined by the Board, and paid at the
end of a financial year for exceeding performance
expectations in the relevant financial year. Ultimately,
STI payments are entirely discretionary and entitlement
is not guaranteed even if performance expectations
have been met or exceeded.
LTI schemes
Set out below is a summary of the grants made to the
CEO under LTI schemes relating to the financial year
ended 30 June 2021.
Performance Rights Plan – FY2021 Grant
Under the Performance Rights Plan – FY2021 Grant,
the CEO was issued performance rights which,
subject to continuous employment except in limited
circumstances and achievement of certain financial
measures, specified culture and conduct measures and
key strategic objectives over the period commencing
1 July 2020 and ending on 30 June 2023, were to
vest into up to one share in Heartland. The Board
subsequently extended the performance period to end
on 30 June 2024.
The Scheme Rules provide flexibility to adjust the
relevant performance hurdles, including in order to
account for changes during the performance period.
This feature, in conjunction with the other features
of the Performance Rights Plan, ensures that the
FY2021 Grant will vest only if, and to the extent, that
sustainable shareholder value is created during the
performance period.
CEO remuneration disclosures
In the year ended 30 June 2021, the CEO received
a fixed salary, a variable remuneration component
comprising STI, and other benefits as detailed in the
below tables. The tables also show a comparison
between the year ended 30 June 2020 and the year
ended 30 June 2021 and a summary of the CEO’s total
remuneration over the last five financial years.
This year, Heartland has presented the summary using
both the cost to Heartland (being the accounting cost)
of all current LTI grants made to the CEO, and also
the value of the awards which actually vested and
were referable to the relevant financial year (being the
amount of remuneration actually received by the CEO
in relation to service during the relevant financial year).
The accounting cost of all current LTI grants differs from
the value of the awards which actually vested. This is
because the accounting cost of a grant is determined
at the time the grant is made, reflects the uncertainty
around whether the relevant performance criteria will
be met, and is spread over the entire performance
period of that grant. There are no LTI grants which
vested in respect of FY2021.
CEO remuneration (FY2021 and FY2020)
Financial year endedSalaryBenefits
13
At risk pay
Total
STILT I
30 June 2021$989,200$10,800$1,000,000Cost to Heartland
in FY2021
$650,666
14
$2,650,666
Benefit to CEO
attributable to
FY2021
$0$2,000,000
30 June 2020$989,200$10,800$956,512Cost to Heartland
in FY2020
$87,520
15
$2,044,032
Benefit to CEO
attributable to
FY2020
$0$1,956,512
DIRECTORS' DISCLOSURES
58
16
Where “N/A”, there were no maximum limits for the relevant period.
17
Cost of FY2018/2019 grant spread over its three-year service period (noting that this grant was amended, and has effectively been spread
over its five-year service period). Also includes cost of FY2021 grant spread over its four-year service period.
18
This amount is net of a pre-existing reserve which had been built up pre-FY2020. Including the reserve, the total accounting cost of the
grants would have been $309,180.
19
The service period for the Senior Executive Scheme shares which are being treated as vesting in FY2019 was FY2019. However, the FY2017
grant spanned FY2017-FY2019.
20
The accounting cost of the Senior Executive Scheme, the FY2018/2019 grant and the FY2017 grant spread over their respective service
periods.
21
Includes the value of the Senior Executive Shares attributable to FY2019. Also includes the value of the FY2017 grant which vested in full.
The full amount of this vesting was $642,672, however it was referable to a three-year service period. One third ($214,224) was referable to
FY2019.
22
The service period for the Senior Executive Scheme shares which are being treated as vesting in FY2018 was FY2018.
23
The accounting cost of the Senior Executive Scheme, the FY2018/2019 grant and the FY2017 grant spread over their respective service
periods.
24
Includes the value of the Senior Executive Shares attributable to FY2018.
25
The service period for the Senior Executive Scheme shares which are being treated as vesting in FY2017 was FY2017.
26
The accounting cost of the Senior Executive Scheme and the FY2017 grant spread over its service periods.
27
Includes the value of the Senior Executive Shares attributable to FY2017.
28
STI payments are entirely discretionary and entitlement is not guaranteed even if measures are achieved.
Five-year summary of total CEO remuneration
As noted above, this year Heartland has presented the below summary using the value of the awards which actually
vested during the relevant financial year, the cost to Heartland as reflected in its accounts during that financial year
and the remuneration actually received by the CEO in relation to service during the relevant financial year.
Financial year
ended
Percentage
STI against
maximum
Value of
LTI awards
vested in that
financial year
Percentage
LTI vesting
against
maximum
16
Span of
relevant LTI
performance
period
Annual
LTI cost to
Heartland in
that financial
year
LTI benefit
to CEO
attributable to
that financial
year
30 June 2021100%$0N/AN/A$650,666
17
$0
30 June 202096%$0N/AN/A$87,520
18
$0
30 June 201945%$1,379,161100%FY2019
19
$683,552
20
$950,713
21
30 June 201890%$736,489100%FY2018
22
$683,552
23
$736,489
24
30 June 2017100%$736,489100%FY2017
25
$475,589
26
$736,489
27
Breakdown of CEO At Risk Pay (FY2020)
DescriptionPerformance measures
Percentage
achieved
STIUp to 100% of base salary based on the
achievement of financial and non-financial
performance expectations.
Based on achievement of financial and
non-financial performance expectations.
28
100%
LT IN/AN/AN/A
59
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Heartland Annual Report 2021
DIRECTORS' DISCLOSURES
CEO Grant under Performance Rights Scheme (FY2021 Grant)
Type of scheme
interest
Basis of award
Face value of award
and % of award
vesting at threshold
Length of vesting
period
Summary of
performance
measures and
targets
Performance rights
(2021 Grant)
A number of
performance rights
equal to 200% of
FY2020 base salary
divided by the
Heartland volume
weighted average
share price on the
date of issue.
$2,000,000 face
value.
100% vesting on
full achievement
of performance
measures or partial
vesting depending
upon the extent to
which performance
measures were met.
16 October 2020
to the date falling
20 business days
following the date
on which Heartland
announces its full
year results for the
year ending 30 June
2024.
Continued
employment and
achievement of
certain financial
performance, culture
and conduct, and
strategic objectives
during the vesting
period.
Summary of Heartland’s TSR performance (30 June 2016 – 30 June 2021)
The above total shareholder return (TSR) performance graph is provided to aid comparability between Heartland’s
performance and the remuneration information provided in this section. TSR has been calculated as at the end of
the five-year period to 30 June 2021, including the benefit of imputation credits. A comparison is shown against the
NZX50 Index which measures the performance of the 50 largest eligible stocks listed on the NZX Main Board by
float-adjusted market capitalisation.
CEO remuneration as a multiple of staff remuneration
The CEO’s salary as a multiple of the staff average is 10.5 times (FY20: 10.7 times), and his total remuneration as a
multiple of the staff average is 25.9times (FY20: 19.76 times).
60
Executive remuneration
Utu tumu whakarae
The number of employees of Heartland and its subsidiaries (including former employees), other than directors, who
received remuneration, including non-cash benefits, in excess of $100,000 during the year ended 30 June 2021 is set
out in the remuneration bands detailed below.
RemunerationNumber of employees
$100,000 - $109,99921
$110,000 - $119,99917
$120,000 - $129,99934
$130,000 - $139,99922
$140,000 - $149,99917
$150,000 - $159,99910
$160,000 - $169,99910
$170,000 - $179,9993
$180,000 - $189,9995
$190,000 - $199,9992
$200,000 - $209,9993
$210,000 - $219,9991
$220,000 - $229,9993
$230,000 - $239,9993
$240,000 - $249,9991
$250,000 - $259,9993
$260,000 - $269,9992
$280,000 - $289,9993
$290,000 - $299,9993
$300,000 - $309,9991
$330,000 - $339,9991
$340,000 - $349,9991
$350,000 - $359,9991
$370,000 - $379,9991
$380,000 - $389,9991
$390,000 - $399,9991
$400,000 - $409,9991
$410,000 - $419,9991
$560,000 - $569,9991
$570,000 - $579,9992
$630,000 - $639,9991
$920,000 - $929,9991
$980,000 - $989,9991
Grand total178
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Heartland Annual Report 2021
Our FY2021 achievements
– GHG emissions reduced from 1,157 tCO2e in
FY2019, to 955 tCO2e in FY2020.
– Published ambitious GHG emissions reduction
targets.
– Reduced the size of our vehicle fleet and
began evaluating options to transition to a
primarily hybrid and electric fleet.
– Contracted for certified renewable energy for
all of our New Zealand electricity consumption.
– Established an internal Green Team to champion
environmental initiatives and drive change.
Our goals for the year ahead
– Undertake an official waste audit to determine
how we can reduce the environmental impact of
our wastage.
– Promote and encourage our people to commute
sustainably.
– Continue our transition towards digitalising
paper-based customer letters and lowering our
vehicle emissions.
– Begin to trial a number of sustainable
lending projects.
Our sustainability journey
Tō mātou hinonga whakaukauka
As an organisation trusted by thousands of customers
and shareholders across New Zealand and Australia,
Heartland has a corporate responsibility to ensure its
business is operating in a way that’s sustainable for our
communities, the environment and our stakeholders.
Through our sustainability framework, which sets
out the three key pillars of our sustainability strategy,
Heartland achieved significant milestones in FY2021
and set further goals for the coming year.
Environmental conservation
Acting as kaitiaki of our natural environment
Kia tika, kia pono – do what’s right and true. In the spirit
of ‘Mahi tika’, Heartland is working towards ambitious
sustainability targets across the organisation. By
making sustainability a strategic priority, we’re doing
our part to protect the planet, serve our people and
communities, and improve economic outcomes for our
stakeholders.”
Laura Byrne - Chief Operating Officer
Reducing our direct impact on
the environment.
Creating an internal culture of
environmental awareness and
conscientiousness.
Creating business practices that
support good environmental
outcomes.
Mahi tika Do the right thing.
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Heartland Annual Report 2021
Economic prosperity
Creating sustainable economic outcomes for our stakeholders
Positively contributing to the
New Zealand and Australian
economies.
Enhancing economic outcomes
for customers through
digitalisation.
Creating sustainable economic
value for our shareholders.
Our FY2021 achievements
– Launched Rocket, an app for school leavers
designed to bridge financial literacy gaps in
New Zealand.
– Developed a self-serve online home loan
application, reducing the cost of onboarding and
thereby providing cost-savings for customers in the
form of market-leading rates.
– Built multiple app features designed to create a
frictionless in-app experience and save customers
valuable time and energy.
– Paid a total dividend of 11.0 cents per share, despite
RBNZ restrictions on dividends by banks.
Our goals for the year ahead
– Present Rocket to 10+ schools in
FY2022.
– Promote Heartland’s values amongst
our new and existing supply chain
partners as part of an updated
Procurement Policy.
– Continue our digitalisation work to
save customers time while offering
competitive rates.
Social equity
Caring for our people, customers and communities
Ensuring our conduct and culture
drives fair outcomes for our
customers.
Making a positive difference in
our communities.
Creating and fostering internal
and external cultures of diversity
and inclusivity.
Our FY2021 achievements
– Completed our Conduct and Culture Work Plan.
– Developed our new Iho Pūmanawa recruitment
strategy.
– Became New Zealand’s first Hearing Accredited
Workplace.
– Increased the proportion of Māori employees at
Heartland by over 3%.
Our goals for the year ahead
– Complete the final steps to achieve the
Rainbow Tick.
– Continue our work towards achieving
gender balance at all levels of the
organisation.
– Evaluate the diversity of our current supply
chain and consider ways to support a more
diverse network.
64
Environmental conservation
Te atawhai ā-taiao
955
tCO2e
HIGHLIGHTS
POTENTIAL IMPACT OF DIGITALISING THE SIGNING OF DOCUMENTS BY CUSTOMERS
35%
328,004
13,390 kg 878 kg
132,854 L 39
7%503
By 2025, we aim to reduce GHG
emissions from the FY2019 baseline by
sheets of paper saved
CO2 emissions avertedwaste avoided
water conservedtrees protected
decrease in the size of
Heartland’s vehicle fleet
trees planted on behalf of Heartland
employees as part of Christmas gift
GHG emissions in FY2020, reduced
from 1,157 tCO2e in FY2019
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Heartland Annual Report 2021
Heartland’s ambitious Greenhouse Gas
emissions reduction targets
Heartland is a proud member of the Climate Leaders
Coalition, working with other Kiwi organisations to
limit global warming within 2°C of pre-industrial
levels. During FY2021, Heartland formulated and
published our GHG emissions reduction targets
which go a step further than what is outlined in the
Paris Agreement, aiming to keep global temperatures
within 1.5°C.
During FY2021, the carbon reporting for our FY2019
baseline year was independently audited by Toitū
Envirocare, and minor corrections and methodology
improvements have now been incorporated.
Heartland’s mandatory GHG emissions reported
for FY2020 were 955 tCO2e, of which 406.4 tonnes
are direct emissions (Scope 1), 87.5 tonnes are from
electricity indirect emissions (Scope 2) and 461 tonnes
are indirect Scope 3 emissions. This is an absolute
reduction of 17% from the 1,157 tCO2e reported for
FY2019, plus a significant reduction per business unit
once the growth in the overall business is considered.
The reduction can be attributed to both the initial
activities in our emissions reduction plan, as well as
the inadvertent reduction in our travel emissions due to
COVID-19.
As we begin actively working to reduce our emissions,
we encourage interested parties to find out more
about sustainability at Heartland by visiting
shareholders.heartland.co.nz (see the About Heartland
menu item on the website). Here you can read more
about the specifics of our GHG emissions reduction
targets, as well as updates on our sustainability
initiatives moving forward.
Optimising our vehicle fleet
Heartland’s vehicle fleet allows our lending relationship
managers to visit customers and intermediaries across
New Zealand. Since the beginning of FY2021, we’ve
worked to reduce our fleet size by 7%, which alone
could decrease our carbon emissions by as much as
32.2 metric tonnes of CO2 per year. We will continue to
identify opportunities to decrease our fleet size over the
next financial year.
In addition, we are in the process of reviewing the
types of vehicles that currently make up Heartland’s
fleet and which are candidates for replacement. We
are currently creating a full transition plan for multiple
Heartland locations, including the installation of
charging stations, which we will begin to implement
throughout FY2022.
Launching the Green Team
FY2021 saw the creation of an internal Green Team,
made up of Heartland employees with a passion
for environmental conservation and the drive to
implement change across the business. The Green
Team has been split into focus groups, each looking
into how Heartland can make sustainable changes
to waste management, commuting habits, customer
communications, properties and more.
One project in progress is the switching of fluorescent
lights for LED lights in the Newmarket, Auckland
offices, which house over half of Heartland’s
people. This project has the potential to reduce our
annual CO2 emissions by 4 tonnes and our power
consumption by 41,000kWh.
Looking forward to FY2022
In addition to the achievements above, over the last
financial year, Heartland has laid the foundation
for other exciting initiatives that we aim to bring
to fruition. The Green Team will be spearheading
multiple initiatives, including undergoing a waste
audit, installing composting methods and setting an
overall waste reduction target, as well as looking into
a new environmentally friendly commuting incentive
programme.
SUSTAINABILITY
66
Green Team
Social equity
Te tōkeke ā-hapori
GRANTED BY THE HEARTLAND TRUST
1
$
448,183
8
new members appointed
to the Rangatahi (Youth)
Advisory Board
3
new internal groups and
committees formed, including
Kainga Pasifika (Pasifika Committee)
Became New Zealand’s first
Hearing Accredited Workplace
7.1%
of Heartlanders identify as
Māori, compared with 2.3%
industry average
Read more about Heartland’s diversity initiatives on page 33.
1
The Heartland Trust is a registered charitable trust which is independent from, but closely supported by, Heartland and Heartland Bank.
67
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Heartland Annual Report 2021
Completing our Conduct and Culture Work Plan
As part of cultivating a sustainable business, Heartland
has a core focus on maintaining good conduct and
culture in everything we do. Heartland launched its
Conduct and Culture Work Plan in FY2020, following
the recommendations that came out of the 2018
Financial Markets Authority and RBNZ conduct and
culture review. The plan was then completed in 2021,
including the following key initiatives.
• Published Manawa-Taki, an internal digital
resource that is central to providing good outcomes
for our customers.
• Improved tools and reporting for customer
feedback.
• Created an alert in our core banking system to help
identify vulnerable customers and mitigate possible
issues before they occur.
• Launched a quality assurance programme to
review phone calls and identify areas where we
can improve our services.
Supporting our communities
through the Heartland Trust
Through the Heartland Trust (the Trus t), we support
a number of organisations, clubs and schools. The
Trust is funded by dividends paid by its Heartland
shareholding. Despite the RBNZ’s dividend restrictions
in FY2021 reducing the amount of funding received,
the Trust was able to make grants totalling $448,183
in areas like education, arts and culture, sport and
wellbeing. The Trust’s criteria were recently reviewed
to better align with Heartland’s mātāpono (values)
and strategic objectives, leading to the addition of
two new sponsorship pillars to allow the Trust to more
readily support initiatives which foster environmental
conservation and promote mental health.
The Trust is proud to be a long-term supporter of the
InZone Education Foundation (InZone), which aims to
enhance the educational outcomes of Māori and Pasifika
youth by providing hostels in high performing school
zones. Heartland’s Manawa Ako internship programme
was developed from our relationship with InZone. A
number of InZone students have participated in the
programme and are now working in permanent roles at
Heartland, or have continued to tertiary education.
Read more about Manawa Ako and our Manawa Ako
alumni in the Diversity Report on page 33.
The Trust has maintained many of its other existing
sponsorships, including four boys’ rugby teams
and three girls’ rugby teams, as well as Auckland
University’s Kupe Leadership Scholarship, Lifeline,
Auckland Writers Festival and WORD Christchurch
Festival.
Fostering a diverse group
of leaders at Heartland
Heartland recognises the benefits of cultivating
leadership skills earlier on in women’s careers, in
particular because a number of the female leaders
within the Strategic Management Group grew into
those roles over time. We have recently welcomed a
new cohort to Kia Eke, a group created to help women
at Heartland build confidence and ambition. The
programme for 2021 includes sessions on imposter
syndrome, developing people leadership skills and
learning from Heartland’s female directors.
Heartland also aims to grow a culturally diverse
group of leaders from within the organisation. In April
2021, 14 people graduated from Hīkina, Heartland’s
Māori leadership programme with Indigenous Growth
Limited. The programme was designed to encourage
Māori employees to take leadership opportunities, and
demonstrate how their cultural values are transferable
and add value to the organisation.
In FY2020, Heartland acknowledged the importance of
diversifying the perspectives of its strategic leadership
by creating the Rangatahi Advisory Board, a group
of employees aged 35 and under. Their purpose is
to diversify the perspectives of Heartland’s Senior
Management Group, and ultimately the Board, by
providing unique insights on our people and customers
to enhance Heartland’s strategic initiatives. In FY2021,
the Rangatahi Advisory Board accepted eight new
members of different genders, cultures, backgrounds
and business areas who contribute their perspectives
and experience towards Heartland’s strategy.
Looking forward to FY2022
Over the coming year, one of our main focuses in
the social equity space will be on working towards
achieving gender balance at all levels of the
organisation – this includes growing more female
leaders, ensuring our hiring processes are equitable,
and creating a space for gender diverse people to be
represented in the workplace. This is described within
the Diversity Report from page 36.
Another area on which we’ll be focusing is our supply
chain and the diversity of our partners. The first step
will be evaluating Heartland's current supply chain to
determine how diverse it is – from there, we will begin
looking into ways we can support a more diverse and
inclusive network. For example, supporting more female
or Māori-owned businesses.
SUSTAINABILITY
68
Economic prosperity
Te tōnuitanga ohaoha
HIGHLIGHTS
DELIVERING SHAREHOLDER VALUE
Dividend per share (cents per share)
270
students and school
leavers introduced
to financial literacy
app Rocket
approved from Home Loans online
applications received during FY2021
loaned to consumers and businesses
through Heartland Extend
My daughter came home enthusiastic and
engaged about the presentation. She was
able to clearly explain it to me and has
already used it to plan for her next steps
at university and long-term travel goals.”
– St. Dominic’s College parent
$
200m
$
188m
107. 2
%
total shareholder return over the last five years
(20 August 2016 – 20 August 2021)
FY18
5.5
3.5
FY19
6.5
3.5
FY20
2.5
4.5
F Y21
7. 0
4.0
Interim dividendFinal dividend
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|
Heartland Annual Report 2021
Bridging financial literacy gaps
In FY2021, Heartland built and launched its financial
literacy app called Rocket, designed to help school
leavers become familiar with important financial
concepts as they step into the real world. The
Rangatahi Advisory Board held 15 workshops at
secondary schools around Auckland during the second
half of FY2021, presenting to hundreds of students on
banking basics and demonstrating how the app works.
The response from students and parents has been
positive, with a number of learnings resulting from the
workshops and impacting the future direction of Rocket.
Over the next financial year, the goal is to deliver
workshops to at least 10 schools, while continuing to
develop our presentations.
During FY2021, Heartland designed, built and released
a number of digital updates designed to make the
Heartland Mobile App even better for customers to
use, and to increasingly allow customers to self-serve.
Some of these included the ability to personalise the
app, open some accounts end-to-end within the app
as a new customer, set automatic regular payments
and transfers, self-reset their password, download
documents and more.
Delivering sustainable economic
value for shareholders
Heartland continued to deliver positive economic
outcomes for shareholders despite the economic
challenges presented by COVID-19, including the
RBNZ restrictions on dividends by banks. After the
easing of RBNZ restrictions, we were pleased to be
able to pay a final dividend of 7.0 cents per share
(cps), bringing our total dividend in respect of FY2021
to 11.0 cps.
In addition to this, Heartland delivered total
shareholder return (TSR) of 107.2% for the five-year
period 20 August 2016 - 20 August 2021, compared
with the NZX50 Index TSR of 81.9% in the same
period, while also delivering growth in earnings per
share (EPS) (up 2.4 cps to 14.9 cps).
1
Looking forward to FY2022
Over the next financial year, Heartland aims to solidify
the strategic direction of the Rocket app and determine
market fit. We will also continue running financial
literacy presentations with our established pilot schools
with whom we can work to continue to develop our
presentations. In addition to this digital solution for
financial literacy, Heartland will continue exploring
other ways to streamline traditionally manual banking
processes through digitalisation. In doing so, we can
save our customers valuable time while lowering the cost
to onboard, which can then lead to further cost savings
for customers in the form of low rates.
Heartland’s sustainability efforts have the potential
to reach even further if we’re able to use our spending
power to influence our customers and partners to follow
our lead. One of our goals for FY2022 is to update
our Procurement Policy to tie it more closely with our
sustainability framework. The updated framework
will put processes in place for promoting Heartland’s
values amongst our new and existing supply chain
partners. By doing so, we can enable positive economic
outcomes for businesses that share our commitment to
sustainability, as well as increase our shared impact.
Creating a frictionless customer experience
Heartland’s vision is to be the service provider that
customers find easiest to deal with, which we aim
to achieve by digitalising everything we do. We
are already in the process of replacing traditionally
manual processes, like loan applications and banking
transactions, with digital solutions. The benefits of this
approach from an economic perspective are twofold.
Firstly, customers can engage with Heartland in the
way that best suits them, whether from the Heartland
Mobile App, the website or through Heartland Digital.
By removing or reducing traditional constraints, such
as the requirement to visit a bank branch or call, we’re
saving precious time for customers.
Secondly, digital solutions have a positive economic
impact on Heartland as they significantly reduce
the cost to onboard. In some cases, these savings
can then be passed on to customers in the form of
market-leading rates. A great example of this was the
relaunch of Heartland Home Loans in October 2020,
where we disrupted the market with the lowest fixed
rate in the country at the time. This was made possible
because of Heartland’s self-serve, online application,
which allowed customers to apply on their own time
without needing to speak to a mortgage manager or
bank representative.
SUSTAINABILITY
1
Underlying EPS was 15.1 cps, up 1.8 cps from FY2020.
70
Financial commentary
Whakawākanga ahumoni
Financial position
Total assets increased by $359.5 million (6.8%)
during FY2021, driven by a $371.8 million (8.0%)
increase in Receivables.
Receivables growth was experienced primarily in
Motor, Australian Reverse Mortgages, Asset Finance
3
,
Business Relationship, digital Home Loans and New
Zealand Reverse Mortgages, partly offset by decreases
in Harmoney and other personal lending, Rural
Relationship, Open for Business (O4B) and Livestock.
Momentum in lending and a strong pipeline supported
growth in the second half of FY2021 (2H2021) of
$312.4 million (13.4%)
4
, a significant uplift from $59.3
million (2.5%)
5
in the first half of FY2021 (1H2021).
Borrowings
6
increased by $326.5 million (7.2%).
Funding other than deposits increased $407.2million,
mainly driven by an increase in wholesale and
securitised funding. This resulted in deposits
decreasing $80.7 million.
Net assets increased by $61.7 million to $761.7 million.
Net tangible assets (NTA) increased by $68.3 million
to $678.4 million, resulting in an NTA per share of
$1.16 (30 June 2020: $1.05).
Profitability
NPAT was $87.0 million, a $15.1 million (20.9%)
increase on FY2020. Underlying NPAT was $87.9
million, a $11.0 million (14.3%) increase on FY2020.
Return on equity (ROE) was 11.9%, up 144 basis
points (bps) from FY2020. Underlying ROE was
12.0%, up 86 bps from FY2020.
Earnings per share (EPS) was 14.9 cents per share
(cps), up 2.4 cps from FY2020. Underlying EPS
was 15.1 cps, up 1.8 cps from FY2020.
Heartland Group Holdings Limited (Heartland)
(NZX/ASX: HGH) is pleased to announce a net
profit after tax (NPAT) of $87.0 million for the
financial year ended 30 June 2021 (FY2021), an
increase of $15.1 million (20.9%) compared with
the financial year ended 30 June 2020 (FY2020)
1
.
On an underlying
2
basis, FY2021 NPAT was
$87.9 million, an increase of $11.0 million (14.3%)
compared with the FY2020 underlying NPAT.
1
All comparative results are based on the audited full year consolidated financial statements of the Group for FY2020.
2
Underlying results exclude the impacts of one-offs. Refer to ‘Profitability’ for details about FY2021 one-offs. A detailed reconciliation between
reported and underlying financial information is set out on page 33 of the FY2021 full year results investor presentation. General information about
the use of non-GAAP financial measures is set out on page 2 of that presentation.
3
Previously referred to as Business Intermediated.
4
Annualised 2H2021 growth including the impact of changes in FX rates.
5
Annualised 1H2021 growth including the impact of changes in FX rates.
6
Includes retail deposits and other borrowings.
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Heartland Annual Report 2021
FY2021 one-offs included in the reported result
1. Fair value gain on equity investment in
Harmoney Corp Limited (Harmoney):
7
A
$3.9 million fair value gain was recognised on
Heartland’s equity investment in Harmoney.
Harmoney listed on the ASX, and the NZX as
a foreign exempt listing, in November 2020,
with approximately 72% of shares (including
those owned by Heartland) subject to escrow
arrangements. The fair value as at 30 June
2021 takes into consideration the impact of the
restriction imposed by the escrow arrangements
on observed trading volumes and market prices
(including bid and ask spreads) of Harmoney’s
shares.
2. Fair value gain on investment property: A $0.7
million fair value gain was recognised following
updated external valuations received on
Heartland Bank’s investment property portfolio.
7
Refer to Note 20 – Fair Value (page 115) in this Annual Report for further detail.
8
Net operating income (NOI) includes fair value gains/losses on investments.
9
Net interest margin (NIM) is calculated based on average gross interest earning assets excluding liquid assets.
3. Fair value loss on equity investment in Fuelled
Limited (Fuelled): A $0.5 million fair value loss
was recognised following Heartland Bank
acquiring remaining Fuelled shares in April 2021.
4. Voluntarily accelerated amortisation of
intangible assets: A $4.3 million expense
was recognised, reflecting an acceleration of
amortisation of software assets held on the
balance sheet.
5. Write-off and provisioning of aged suspense
account items: $1.7 million of aged legacy
suspense account transactions were written off
or provisioned where collectability is uncertain.
6. Other non-recurring expenses: $0.9 million.
The impact of these one-off items on the respective
financial metrics is outlined in the table below.
ReportedUnderlying
FY2021FY2020MovementFY2021FY2020Movement
NOI
8
($m)251.2235.315.8247.1229.817. 3
Operating expenses117. 7106.810.9110.8103.27. 5
N PAT ($m)87.072.015.18 7. 976.911.0
NIM4.35%4.33%2 bps4.35%4.33%2 bps
NIM excl. liquid assets
9
4.69%4.59%10 bps4.69%4.59%10 bps
Cost to income (CTI) ratio46.8%45.4%1.5 pps44.8%44.9%(0.1 pps)
Impairment expense ratio0.31%0.65%(34 bps)0.31%0.44%(13 bps)
ROE11.9%10.5%144 bps12.0%11.1%86 bps
EPS14.9 cps12.5 cps2.4 cps15.1 cps13.3 cps1.8 cps
72
Income
Total NOI was $251.2 million, an increase of $15.8
million (6.7%) from FY2020.
Underlying NOI was $247.1 million, $17.3 million (7.5%)
higher than FY2020. This was largely due to a $16.8
million (7.8%) increase in NII, driven by $366.2 million
(7.3%) higher average interest earning assets in FY2021
than FY2020, and a 2 bps increase in NIM compared
with FY2020 to 4.35%.
Underlying other operating income increased by $0.4
million (3.1%) compared with FY2020, primarily due to a
higher treasury result.
Expenses
Operating expenses were $117.7 million, an increase of
$10.9 million (10.2%) on FY2020. Excluding the impact
of one-offs (described above), underlying operating
expenses were $110.8 million, $7.5 million (7.3%) higher
compared with FY2020.
Higher underlying operating expenses were primarily
due to the following:
1. A $6.7 million (12.2%) increase in staff expenses.
On average, Heartland employed 63 more full-
time equivalent (FTE) employees in permanent or
fixed term roles compared with FY2020 to provide
additional support to customers in response to
COVID-19, and to support digital and technology
capability, enabling Heartland to accelerate its
evolution as a digitally-led financial services
group. The teams are now well resourced to
deliver on Heartland’s strategic objectives, and
the number of people employed in response to
COVID-19 has been reduced.
2. A $2.1 million (17.1%) increase in IT and
communication expenses (as a result of
software amortisation and licencing costs for
additional FTE).
3. Other non-recurring expenses: $0.9 million.
The CTI ratio increased to 46.8%, up 1.5 percentage
points (pps) compared with FY2020. The underlying
CTI ratio remained flat at 44.8%, a 0.1 pps decrease on
prior year. Heartland’s continued focus on creating end-
to-end processing efficiencies through digitalisation has
resulted in the underlying CTI ratio trending downwards
in 2H2021, at 43.9% in 2H2021 vs 45.8% in 1H2021.
Impairment expense
Impairment expense was $15.0 million, a $14.4 million
decrease (49.1%) on FY2020. On an underlying basis,
which excludes the impact of the $9.6 million COVID-19
economic overlay in FY2020, impairment expense
was $4.8 million (24.4%) lower than FY2020. This was
mainly due to remediation activity in 1H2021 together
with retraction in the Harmoney and personal lending
portfolios which attract higher rates of provisioning.
Impairment expense in 2H2021 was $10.4 million, a
$5.9 million increase on 1H2021, reflecting the benefit
of post COVID-19 remediation activity which occurred
in 1H2021 together with a return to more normal levels
of asset growth and associated provisioning in 2H2021.
Impact of COVID-19
The impact of COVID-19 on Heartland’s portfolios
has been more benign than initially forecast.
Heartland’s COVID-19 economic overlay of $9.6
million, taken in respect of FY2020, remains
unutilised. However, there remains significant
uncertainty. In particular, the continued prevalence of
COVID-19 (including the emergence of new variants),
vaccination rates, lockdowns in Australia and now in
New Zealand, and continued uncertainty regarding
when borders will re-open.
Furthermore, economic stimulus has given rise to
the potential for inflationary pressures, a steepening
interest rate environment, and a higher cost of labour
and inputs in the medium term. In the circumstances,
a release of the COVID-19 economic overlay is not
appropriate at this stage and the overlay has been
retained in full.
Business performance
Asset Finance
10
Asset Finance lending NOI was $28.5 million, an
increase of $6.6 million (30.1%) compared with FY2020.
Asset Finance Receivables increased $71.9 million
(14.4%) to $570.9 million, reflecting Heartland
Bank’s focus on this portfolio through deepening and
expanding the intermediary network, and distributor/
vendor and point of sale support. Strong demand from
partners in the transport and logistics sector assisted
growth following increased demand in the aftermath of
the COVID-19 restrictions.
10
Previously referred to as Business Intermediated.
73
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Heartland Annual Report 2021
FINANCIAL COMMENTARY
Business Relationship
Business Relationship lending NOI was $26.1 million, an
increase of $1.0 million (4.1%) compared with FY2020.
Business Relationship Receivables increased $58.7
million (11.8%)
11
to $555.1 million. Through the
Government's Business Finance Guarantee Scheme,
Heartland supported more than 150 businesses to
access over $60 million in funding to meet their business
needs. In addition, Heartland Bank also provided a
funding facility to Go Car Finance in 2H2021 for its
New Zealand loan book. This aligns with its strategy to
diversify distribution in motor vehicle finance.
The residual portfolio’s continued downward trend
reflects Heartland’s strategy to reduce non-core low
margin Relationship lending or risk concentrations.
O4B
O4B NOI was $14.6 million, a decrease of $0.2 million
(1.1%) compared with FY2020.
O4B Receivables decreased $10.8 million (6.9%)
11
to $144.5 million. COVID-19 disruptions and the
availability of Government-backed funding for small
businesses slowed O4B growth from 2H2020.
This trend continued in 1H2021, resulting in O4B
Receivables decreasing $14.4 million (9.3%)
11
to $140.7
million.
2H2021 saw growth of $3.6 million in line with
improved business confidence and economic sentiment,
which is expected to fuel return to pre-COVID-19 levels
of growth.
Motor
Motor NOI was $69.2 million, an increase of $8.6 million
(14.2%) compared with FY2020. Motor Receivables
increased $168.1 million (14.9%) to $1,293.7 million.
The growth was mainly from the Motor dealer book via
car dealerships, brokers and partnerships such as Kia
Finance and Jaguar/Land Rover Financial Services.
In July 2021, a new vehicle finance service iOWN,
provided exclusively by Heartland Bank, was launched
in partnership with Auto Distributors New Zealand
Limited enabling the purchase of a new or used Peugeot
or Citroen from authorised dealerships.
Harmoney and other personal lending
Harmoney NOI was $16.6 million, a decrease of $4.8
million (22.4%) compared with FY2020.
Harmoney Receivables decreased by $79.9 million
(37.7%)
11
, with the New Zealand Harmoney portfolio
contracting $69.1 million (47.4%) to $76.7 million, while
the Australian Harmoney portfolio decreased by $5.2
million (9.5%)
11
to $48.8 million. Both New Zealand and
Australian portfolios continued to contract in FY2021
as a result of high repayments combined with greater
utilisation by Harmoney of its own on-balance sheet
funding facilities. Heartland is in the latter stages of
completing its transition to offer Harmoney on-balance
sheet funding facilities in both New Zealand and
Australia.
11
Excluding the impact of changes in FX rates.
74
• comparatively lower repayments in Q4 of FY2020
with property sales restricted by COVID-19
related lockdowns and the built-up demand
associated with this
• a buoyant property market with higher sales
volumes.
Australia
Australian Reverse Mortgages NOI was $36.2 million,
an increase of $1.9 million (5.5%) compared with
FY2020.
Australian Reverse Mortgages Receivables increased
by $92.7 million (9.5%)
12
to $1,071.4 million, although
impacted by historically high repayments due to a
combination of factors, including:
• comparatively lower repayments in Q4 of FY2020
with property sales restricted by COVID-19
lockdowns
• a buoyant property market in 1H2021
• seniors moving in with family and pooling
financial resources
• higher value homes being more cost effective
to sell and downsize compared with ‘average’
homes.
Heartland’s Reverse Mortgages received support
from mortgage aggregators in Australia, including
partnerships with Australian Finance Group, Choice
Aggregation and PLAN Australia.
Funding and liquidity
New Zealand
Heartland Bank increased borrowings by $94.4 million
(2.6%), primarily as a result of an increase in other
borrowings of $144.2 million (40.2%) which partly offset
a decrease in deposits of $49.7 million (1.5%).
Money market borrowings for short term funding and
liquidity management purposes increased by $110.2
million and secured funding increased by $42.6 million.
Heartland Bank continues its focus on reducing risk
concentrations in its deposit book while shifting the mix
towards lower rate call deposits where Heartland is
relatively underweight. This resulted in the call to total
deposit ratio increasing to 30% as at 30 June 2021 (30
June 2020: 25%).
Home Loans
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 application rates have continued in
2H2021. Online enquiries totalled $895.2 million and
more than $200 million was approved from applications
received during FY2021.
Growth was supported by Heartland’s low and market-
leading interest rates. In addition, Heartland launched a
new revolving credit home loan product in 2H2021 with
the lowest rate in the market at the time. Momentum in
the book is pleasing, with the book expected to continue
growing beyond the current rate of $12 million a month.
Rural
Rural lending NOI was $32.2 million, an increase of $1.5
million (4.7%) compared with FY2020.
Rural Receivables decreased by $19.0 million (3.1%)
to $586.6 million. Rural Relationship Receivables
reduced by $13.1 million (2.7%) to $477.3 million,
while Livestock Receivables decreased by $5.9 million
(5.1%) to $109.4 million. The downward trend reflects
Heartland’s strategy to reduce non-core low margin
Rural Relationship lending.
Whilst in its infancy, the Sheep & Beef Direct platform
has seen a pleasing volume of high-quality applications
since its launch in late 2020. At 5 August 2021, eligible
applications totalled $48.0 million, with $40.5 million
approved online and $30.4 million drawn down.
New Zealand Reverse Mortgages
New Zealand Reverse Mortgages NOI was $24.4
million, an increase of $0.9 million (3.6%) compared with
FY2020. Excluding the impact of one-offs (described
above) from FY2020, underlying NOI increased $0.4
million (1.5%) compared with FY2020.
New Zealand Reverse Mortgages had a record year
for new business, up 30.4% from FY2020 where the
final quarter (Q4) was impacted by COVID-19, and
26.2% ahead of FY2019. Performance was driven
by investment in marketing to increase awareness,
education and lead nurturing activity, supported by
lower interest rates and higher property prices.
Receivables increased by $41.6 million (7.4%) to $601.5
million, impacted by elevated repayments in 1H2021
due to:
12
Excluding the impact of changes in FX rates.
75
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Heartland Annual Report 2021
FINANCIAL COMMENTARY
Heartland Bank’s savings products have also received
market recognition, being awarded Canstar’s Bank of
the Year – Savings Award in 2021 (fourth consecutive
year), and Canstar’s 5-Star Rating for Outstanding
Value Savings Account for its Direct Call (sixth
consecutive year) and YouChoose accounts (second
consecutive year). Heartland Bank also expanded its
savings products with the introduction of a 32-day
Notice Saver account.
Heartland Bank decreased total liquidity by $99.1
million (13.7%) primarily due to a $72.5 million (18.6%)
decrease in investments for liquidity management
purposes.
Heartland Bank increased its committed auto
warehouse facility from $150 million to $300 million
in May 2020, and its target holding of cash and cash
equivalents in response to the uncertain economic
and liquidity impacts of COVID-19 in 2H2020, which it
continued to maintain in 2H2021. As a result, Heartland
Bank holds liquidity well in excess of regulatory
minimums.
Heartland Bank’s capital position has progressively
increased during 2H2021, reflecting its continued strong
profitability and the RBNZ restrictions on distributions
imposed in 2H2020. Heartland Bank’s regulatory
capital ratio was 13.88% as at 30 June 2021 (30 June
2020: 12.67%), well in excess of regulatory minimums
and providing a strong platform for Heartland Bank to
meet RBNZ’s future higher capital requirements.
Australia
The Heartland Australia group (comprising Heartland
Australia Holdings Pty Ltd and its subsidiaries)
increased borrowings by A$247.6 million (29.1%),
largely as a result of A$36 million further drawdowns
of the existing warehouse funding, new issuance of a
A$75 million MTN and, in a first-of-its-kind transaction,
a A$142 million new long-term mortgage-backed
syndicated loan for the Australian Reverse Mortgage
business funded by established offshore institutional
investors. This transaction achieved another milestone
in executing Heartland’s strategy to diversify type,
source and tenor of its Australian funding and,
importantly, evidences market liquidity to existing
warehouse funders.
The Heartland Australia group continues to successfully
execute on its strategic funding programme to cater
for strong growth in its portfolios, with a further A$45
million MTN issued in July 2021, adding further diversity
to the funding base.
Heartland Australia group has access to A$1.25 billion
of committed funding in aggregate. Further expansion
of existing warehouse funding through increased senior
limits and the introduction of mezzanine funding is well
advanced, and focus will continue to be on sourcing
optimal long-term duration matched funding.
76
Tauākī
ahumoni
Financial
statements
FOR THE YEAR ENDED 30 JUNE 2021
General information
These financial statements are issued by
Heartland Group Holdings Limited (HGH) and
its subsidiaries (the Group) for the year ended
30 June 2021.
Name and address for service
The Group’s address for service is Level 3,
Heartland House, 35 Teed Street, Newmarket,
Auckland 1023.
Details of incorporation
HGH was incorporated in New Zealand under
the Companies Act 1993 on 19 July 2018.
Auditor
KPMG
KPMG Centre
18 Viaduct Harbour Avenue
Auckland
Other material matters
There are no material matters relating to
the business or affairs of the Group that are
not disclosed in these consolidated financial
statements which, if disclosed, would
materially affect the decision of a person to
subscribe for debt or equity instruments of
which the Group is the issuer.
82
Directors’ statements
77
General information
Auditor
Other material matters
83
Consolidated statement
of comprehensive income
84
Consolidated statement
of changes in equity
FINANCIAL
STATEMENTS
81
Directors
85
Consolidated statement
of financial position
86
Consolidated statement
of cash flows
88
1. Financial statements
preparation
NOTESPERFORMANCE
93
2. Segmental analysis
94
3. Net interest income
95
4. Net operating
lease income
5. Other income
96
6. Operating expenses
7. Compensation of auditor
97
8. Impaired asset expense
98
9. Taxation
100
10. Earnings per share
79
|
Heartland Annual Report 2021
FINANCIAL POSITION
101
11. Investments
12. Derivative financial
instruments
103
13. Finance receivables
108
14. Operating
lease vehicles
15. Borrowings
109
16. Share capital and
dividends
110
17. Other reserves
111
18. Other balance
sheet items
113
19. Related party
transactions and
balances
115
20. Fair value
RISK MANAGEMENT
122
21. Enterprise risk
management program
125
22. Credit risk exposure
129
23. Liquidity risk
130
24. Interest rate risk
OTHER DISCLOSURES
133
25. Significant subsidiaries
26. Structured entities
134
27. Staff share ownership
arrangements
136
28. Insurance business,
securitisation, funds
management, other
fiduciary activities
137
29. Concentrations
of funding
138
30. Contingent liabilities
and commitments
31. Events after the
reporting date
AUDITOR’S REPORT
139
Auditor’s Report
80
Name: GEOFFREY THOMAS RICKETTS CNZM
Chairman - Board of Directors
Type of Director: Independent Non-Executive Director
External Directorships: Janmac Capital Limited, Maisemore Enterprises Limited, MCF2 Message4U Limited, MCF3
Amplify Limited, MCF3 Green Limited, MCF3 E&P Holdco Limited, MCF 10 Limited, MCF2 (Fund 1) Limited, MCF2A
General Partner Limited, MCF2 GP Limited, MCF3 GP Limited, MCF3B General Partner Limited, MCF3A General
Partner Limited, MCF2 FFF-GK Limited, MCF3 Cook Limited, MCF3 TEG Limited, MCF3 Resourceco Limited, MCF3
Squiz Limited, MC Medical Properties Limited, Mercury Capital No.1 Fund Limited, Mercury Capital No. 1 Trustee
Limited, Mercury Medical Holdings Limited, New Zealand Catholic Education Office Limited, NZCEO Finance Limited,
O & E Group Services Limited, Oceania and Eastern Finance Limited, Oceania and Eastern Group Funds Limited,
Oceania and Eastern Holdings Limited, Oceania and Eastern Limited, Oceania and Eastern Securities Limited,
Oceania North Limited, Oceania Securities Limited, Quartet Equities Limited.
Name: SIR CHRISTOPHER ROBERT MACE KNZM
Type of Director: Independent Non-Executive Director
External Directorships: Akitu Equities Limited, Akitu Capital Limited, Akitu Group Company No 1 Limited, Akitu
Group Company No 2 Limited, Akitu Group Company No 3 Limited, Akitu Health Services Limited, Akitu Investments
Limited, Akitu Investments No 2 Limited, Goldburn Resources Limited, Helicopter Enterprises Limited, Janik Equities
Limited, Janmac Capital Limited, J N S Capital Limited, Mace Capital Limited, Mace Construction Limited, Mace
Developments Limited, Mace Enterprises Limited, Mace Investments Limited, Maisemore Enterprises Limited,
Nuffield Forestry Limited, Oceania and Eastern Finance Limited, Oceania and Eastern Group Funds Limited, Oceania
and Eastern Holdings Limited, Oceania and Eastern Limited, Oceania and Eastern Securities Limited, O & E Group
Services Limited, Paroa Bay Station Limited, PPT Trustee (NZ) Limited, Quartet Equities Limited, St. Just Enterprises
Limited, Te Puia Tapapa GP Limited, The Aotearoa Circle.
Name: GREGORY RAYMOND TOMLINSON
Type of Director: Non-Independent Non-Executive Director
External Directorships: Alta Cable Holdings Limited, Chippies Vineyard Limited, Indevin Group Limited, Little
Ngakuta Trust Company Limited, Mountbatten Trustee Limited, Nearco Stud Limited, Oceania Healthcare Limited,
Pelorus Finance Limited, St Leonards Limited, Tomlinson Group Argenta GP Limited, Tomlinson Group NZ Limited,
Tomlinson Holdings Limited, Tomlinson Group Investments Limited, Tomlinson Ventures Limited.
Name: JEFFREY KENNETH GREENSLADE
Type of Director: Non-Independent Executive Director
External Directorships: Henley Family Investments Limited.
Name: ELLEN FRANCES COMERFORD
Type of Director: Independent Non-Executive Director
External Directorships: Airtasker Limited, Comerford Gohl Holdings Pty Limited, Hollard Holdings Australia Pty
Limited, Lendi Group Pty Limited, The Hollard Insurance Company Pty Limited.
Directors
All Directors of HGH reside in New Zealand with the exception of Ellen Frances Comerford who resides in Australia.
Communications to the Directors can be sent to Heartland Group Holdings Limited, 35 Teed Street, Newmarket,
Auckland 1023. At the time of the signing of these consolidated financial statements the Directors of HGH and their
details were:
Qualifications: LLB (Hons), LLD
(honoris causa), CFInstD
Occupation: Company Director
Qualifications: CMInstD
Occupation: Company Director
Qualifications: AME
Occupation: Company Director
Qualifications: LLB
Occupation: Chief Executive Officer of HGH
Qualifications: BEc
Occupation: Company Director
81
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Heartland Annual Report 2021
Directors’ statements
The consolidated financial statements are dated 23 August 2021 and have been signed by all the Directors.
G T Ricketts (Chair)
J K Greenslade
G R Tomlinson
E F Comerford
Sir C R Mace
82
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
$000’sNoteJune 2021June 2020
Interest income3 3 2 7, 9 3 5 346,802
Interest expense3 94,418 130,129
Net interest income 233,517 216,673
Operating lease income4 5,004 5,946
Operating lease expense4 3,149 4,063
Net operating lease income 1,855 1,883
Lending and credit fee income8,090 10,811
Other income5 3,634 3,882
Net operating income 2 47, 0 9 6 233,249
Operating expenses6 117, 6 5 8 106,794
Profit before impaired asset expense and income tax 129,438 126,455
Fair value gain on investment4,092 2,097
Impaired asset expense8 14,974 29,419
Profit before income tax118,556 99,133
Income tax expense9 31,530 2 7, 161
Profit for the year8 7, 02 6 71,972
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss, net of income tax:
Effective portion of change in fair value of derivative financial instruments8,940 (2,179)
Movement in fair value reserve(5,646)766
Movement in foreign currency translation reserve(68)114
Other comprehensive income/(loss) for the year, net of income tax3,226 (1,299)
Total comprehensive income for the year90,25270,673
Earnings per share
Basic earnings per share10 15c 12c
Diluted earnings per share10 15c 12c
Consolidated statement of comprehensive income
For the year ended 30 June 2021
Total comprehensive income for the year is attributable to the owners of the Group.
The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.
83
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Heartland Annual Report 2021
Consolidated statement of changes in equity
For the year ended 30 June 2021
The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.
June 2021June 2020
$000’sNote
Share
CapitalReserves
Retained
Earnings
Total
Equity
Share
CapitalReserves
Retained
Earnings
Total
Equity
Balance at
beginning of year
576,257 (5,500)129,223 699,980 558,970 (4,297)120,995 675,668
NZ IFRS 16 adjustment- - - - - - (751)(751)
Restated balance at
beginning of year
576,257 (5,500)129,223 699,980 558,970 (4,297)120,244 6 74 , 917
Total comprehensive
income for the year
Profit for the year
- - 87,026 87,026 - - 71, 972 71, 972
Other comprehensive
income/(loss), net of income tax- 3,226 - 3,226 - (1,299)- (1,299)
Total comprehensive
income for the year
- 3,226 8 7, 02 6 90,252 - (1,299)71,972 70,673
Contributions by and
distributions to owners
Dividends paid16- - ( 3 7, 8 61 )( 3 7, 8 61 )- - (62,993)(62,993)
Dividend
reinvestment plan
167,524 - - 7,524 16,895 - - 16,895
Transaction costs
associated with
capital raising
- - - - (28)- - (28)
Share based payments- 1,797 - 1,797 - 516 - 516
Shares vested- - - - 420 (420)- -
Total transactions
with owners
7, 5 2 4 1,797 ( 37, 8 61)(28,540)17, 2 8 7 96 (62,993)(45,610)
Balance at the end
of the year
583,781 (477)178,388 761,692 576,257 (5,500)129,223 699,980
84
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
Consolidated statement of financial position
As at 30 June 2021
The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.
$000’sNoteJune 2021June 2020
Assets
Cash and cash equivalents182,333 147,179
Investments11 3 7 7, 8 2 3 413,340
Investment properties11,832 11,132
Derivative financial instruments12 14,139 17,246
Finance receivables13 3,288,466 3,045,195
Finance receivables - reverse mortgages13 1,676,073 1,538,585
Operating lease vehicles14 10,865 17,603
Right of use assets18 15,985 18,362
Other assets18 16,815 19,558
Intangible assets18 69,165 72,813
Deferred tax asset9 14,117 17, 1 2 3
Total assets5,677,613 5,318,136
Liabilities
Deposits 15 3,183,454 3,264,192
Other borrowings15 1,675,133 1 , 2 6 7, 9 31
Tax liabilities7,440 12,303
Derivative financial instruments12 4,802 17,012
Lease liabilities18 18,166 20,456
Trade and other payables18 26,926 36,262
Total liabilities4,915,921 4,618,156
Equity
Share capital16 583,781 576,257
Retained earnings and reserves17 7, 911 123,723
Total equity761,692 699,980
Total equity and liabilities5,677,613 5,318,136
Total interest earning and discount bearing assets5,432,181 5,114,348
Total interest and discount bearing liabilities4,840,310 4,518,174
85
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Heartland Annual Report 2021
Consolidated statement of cash flows
For the year ended 30 June 2021
The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.
$000’sNoteJune 2021June 2020
Cash flows from operating activities
Interest received
233,447 258,665
Operating lease income received5,046 5,934
Lending, credit fees and other income received4,625 16,037
Operating inflows243,118 280,636
Interest paid(85,058)(117, 31 3 )
Payments to suppliers and employees(97,205)(92,861)
Taxation paid(34,004)(24,619)
Operating outflows(216,267)(234,793)
Net cash flows from operating activities before changes in operating
assets and liabilities
26,851 45,843
Proceeds from sale of operating lease vehicles6,821 4,969
Purchase of operating lease vehicles(1,788)(9,938)
Net movement in finance receivables
(296,754)(171,617)
Net movement in deposits(74,608)110,993
Net cash flows (applied to) operating activities
1
(339,478)(19,750)
Cash flows from investing activities
Sale of property, plant and equipment and intangible assets
- 118
Total cash provided from investing activities- 118
Purchase of property, plant and equipment and intangible assets( 7, 5 6 2 )(6,739)
Net decrease/(increase) in investments
23,276 (45,562)
Total cash from/(applied to) investing activities
15,714 (52,301)
Net cash flows from/(applied to) investing activities15,714 (52,183)
Cash flows from financing activities
Net increase in wholesale funding309,680 85,795
Proceeds from issue of Unsubordinated Notes
81,801 106,952
Total cash (provided from) financing activities391,481 1 92 ,747
Dividends paid16 (30,337)(46,098)
Payment of lease liabilities
(2,226)(2,005)
Transaction costs associated with capital raising- (28)
Total cash (applied to) financing activities(32,563)(48,131)
Net cash flows from financing activities
358,918 144,616
Net increase in cash held
35,154 72,683
Opening cash and cash equivalents147,179 74,496
Closing cash and cash equivalents182,333 147,179
1
Cash flows from operating activities do not include cash flows from wholesale funding which are included as part of
financing activities.
86
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
Consolidated statement of cash flows (continued)
For the year ended 30 June 2021
Reconciliation of profit after tax to net cash flows from operating activities
The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.
$000’sNoteJune 2021June 2020
Profit for the year8 7, 02 6 71,972
Add /(less) non-cash items:
Depreciation and amortisation expense14,615 9,161
Depreciation on lease vehicles14 2,801 3,634
Capitalised net interest income and fee income(68,755)(77,429)
Impaired asset expense8 14,974 29,419
Investment fair value movement(4,092)(2,097)
Other non-cash items(24,538)2,488
Total non-cash items (64,995)(34,824)
Add/(less) movements in operating assets and liabilities:
Finance receivables(296,754)(171,617)
Operating lease vehicles5,033 (4,969)
Other assets3,448 9,528
Current tax (4,863)4,771
Derivative financial instruments(163)931
Deferred tax3,006 ( 7, 5 9 2 )
Deposits(74,608)110,993
Other liabilities3,392 1,057
Total movements in operating assets and liabilities(361,509)(56,898)
Net cash flows applied to operating activities
1
(339,478)(19,750)
1
Cash flows from operating activities do not include cash flows from wholesale funding which are included as part of
financing activities.
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Heartland Annual Report 2021
Notes to the financial statements
For the year ended 30 June 2021
1. Financial statements preparation
Reporting entity
The financial statements presented are the consolidated financial statements comprising Heartland Group Holdings
Limited (HGH) and its subsidiaries (the Group). Refer Note 25 – Significant subsidiaries for further details.
As at 30 June 2021, HGH is a company incorporated in New Zealand under the Companies Act 1993 and a Financial
Market Conduct (FMC) reporting entity for the purposes of the Financial Markets Conduct Act 2013.
Basis of preparation
The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in
New Zealand (NZ GAAP) and the New Zealand's Exchange (NZX) Main Board Listing Rules and the Australian
Securities Exchange (ASX) Listing Rules. The financial statements comply with New Zealand equivalents to
International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards as
appropriate for profit-oriented entities. The financial statements also comply with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board.
The financial statements are presented in New Zealand dollars which is the Group’s functional and presentation
currency. Unless otherwise indicated, amounts are rounded to the nearest thousand dollars.
The financial statements have been prepared on a going concern basis after considering the Group’s funding and
liquidity position.
The accounting policies adopted have been applied consistently throughout the periods presented in these financial
statements.
Certain comparative balances have been reclassified to align with the presentation used in the current financial year.
These reclassifications have no impact on the overall financial performance or financial position for the comparative year.
Basis of measurement
The financial statements have been prepared on the basis of historical cost, except for certain financial instruments
and investment properties, which are measured at their fair values as identified in the accounting policies set out in
the accompanying notes to the financial statements.
Principles of consolidation
The consolidated financial statements of the Group incorporate the assets, liabilities and results of all controlled
entities. Controlled entities are all entities in which the Group is exposed to, or has rights to, variable returns from
its involvement with the investee and has the ability to affect those returns through its power over the entities.
Intercompany transactions, balances and any unrealised income and expense (except for foreign currency
translation gains or losses) between controlled entities are eliminated.
Assets and liabilities in a transactional currency that is not the New Zealand dollar, are translated at the exchange
rates ruling at balance date. Revenue and expense items are translated at the average rate at the balance date.
Exchange differences are taken to the consolidated statement of comprehensive income.
88
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
1. Financial statements preparation (continued)
Changes in accounting standards
Accounting standards issued and effective
There have been no changes to accounting policies or other new or amended standards that are issued and effective
that are expected to have a material impact on the Group.
Accounting standards issued but not yet effective
NZ IFRS 17 Insurance Contracts was issued in July 2017 and is applicable to general and life insurance contracts. NZ
IFRS 17 will replace NZ IFRS 4 Insurance Contracts. In March 2020, the effective date of NZ IFRS 17 was deferred by
one year. As such the standard will be effective for the Group's reporting for the financial year ending 30 June 2024,
including 30 June 2023 comparatives.
MARAC Insurance Limited (MIL), a subsidiary of Heartland Bank Limited (HBL), no longer conducts insurance
business as HBL entered into a distribution agreement with DPL Insurance Limited (DPL) to distribute DPL’s
insurance products through HBL's network. MIL stopped writing insurance policies in the prior year with the last
policies expected to expire in 2025.
Other amendments to existing standards that are not yet effective are not expected to have a material impact on
the Group.
Estimates and judgements
The preparation of the Group’s consolidated financial statements requires the use of estimates and judgements. This
note provides an overview of the areas that involve a higher degree of judgement or complexity. Detailed information
about each of these estimates and judgements is included in the relevant notes together with the basis of calculation
for each affected item in the financial statements.
• Provisions for impairment - The effect of credit risk is quantified based on the Group's best estimate of future
cash repayments and proceeds from any security held or by reference to risk profile groupings, historical
loss data and forward-looking information. Refer to Note 8 - Impaired asset expense, and Note 13 - Finance
receivables for further details.
• Investment in equity securities - Judgements have been applied in techniques to determine the fair value of
Harmoney equity securities to reflect the underlying characteristics. Refer to Note 20 - Fair value for further
details.
• Fair value of reverse mortgages - Fair value is quantified by the transaction price and the Group’s subsequent
best estimate of the risk profile of the reverse mortgage portfolio. Refer to Note 20 - Fair value for further
details.
• Goodwill - Determining the fair value of assets and liabilities of acquired businesses requires the Group to
exercise judgement. The carrying value of goodwill is tested annually for impairment, refer to Note 18 - Other
balance sheet items.
Assumptions made at each reporting date (e.g. the calculation of the provision for impairment and fair value
adjustments) are based on best estimates as at that date. Although the Group has internal controls in place to
ensure that estimates can be reliably measured, actual amounts may differ from these estimates. The estimates and
judgements used in the preparation of the Group’s financial statements are continually evaluated. They are based
on historical experience and other factors, including expectations of future events that may have a financial impact
on the entity. Revisions to accounting estimates are recognised in the reporting period in which the estimates are
revised and in any future periods affected.
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Estimates and judgements (continued)
COVID-19 pandemic - impact on estimates and judgements
The COVID-19 pandemic resulted in the Group adopting an economic overlay for expected credit losses (ECL) to
its portfolios as at 30 June 2020 of pre-tax $9.6 million in response to the uncertain but potential economic impact
of COVID-19 on HBL's borrowers (COVID Overlay). The COVID Overlay was sized based on a range of techniques
including stress testing, benchmarking, scenario analysis and expert judgement.
To date, the impact of COVID-19 on HBL's borrowers has been more benign than was initially forecast, and the
COVID Overlay has not been utilised. However, the continued prevalence of COVID-19 in other countries (including
the emergence of new variants), together with vaccination rates and border closures provides an ongoing risk of
further economic disruption in New Zealand. Furthermore, Government stimulus has given rise to the potential for
inflationary pressures, a steepening interest rate environment, and a higher cost of labour and inputs in the medium
term.
Management notes the uncertainties associated with the ongoing economic impacts of COVID-19 and consequently
have decided to retain the COVID Overlay in full at this stage.
The accounting judgement that is most impacted by the COVID Overlay is the ECL on finance receivables at
amortised cost. The Group measures the allowance for ECL using an ECL impairment model in compliance with NZ
IFRS 9 Financial Instruments.
The estimates and judgements considered to apply the COVID Overlay adequately in the ECL on finance receivables
at amortised cost is further discussed in Note 8 Impaired asset expense.
Financial assets and liabilities
Financial Assets
Financial assets are classified based on:
• The business model within which the assets are managed; and
• Whether the contractual cash flows of the instrument represent solely payment of principal and interest (SPPI).
The Group determines the business model at the level that reflects how groups of financial assets are managed.
When assessing the business model, the Group considers factors including how performance and risks are
managed, evaluated and reported and the frequency and volume of, and reason for sales in previous periods.
Financial assets are classified into the following measurement categories:
1. Financial statements preparation (continued)
Financial Assets Measurement Category Note
Bank bonds and floating rate notes
Fair value through other comprehensive income
(FVOCI)
11
Public sector securities and corporate bondsFVOCI11
Equity investmentsFair value through profit or loss (FVTPL)11
Finance receivables – reverse mortgagesFVTPL13
Finance receivablesAmortised cost13
90
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
Financial assets and liabilities (continued)
Financial Assets (continued)
Financial assets measured at amortised cost
Financial assets are measured at amortised cost if they are held within a business model whose objective is
achieved through holding the financial asset to collect contractual cash flows which represent SPPI on the principal
balance.
Financial assets at amortised cost are initially recognised at fair value and subsequently measured at amortised cost
using the effective interest rate method.
Financial assets measured at FVOCI
Financial assets are measured at FVOCI if they are held within a business model whose objective is achieved both
through collecting contractual cash flows which represent SPPI on the principal balance or selling the financial asset.
Financial assets at FVOCI are measured at fair value with unrealised gains and losses recognised in other
comprehensive income except for interest income, impairment charges and foreign exchange gains and losses,
which are recognised in profit or loss.
Financial assets measured at FVTPL
Financial assets are measured at FVTPL if:
• They are held within a business model whose objective is achieved through selling or repurchasing the financial
asset in the near term, or forms part of a portfolio of financial instruments that are managed together and for
which there is evidence of short-term profit taking; or
• They are designated at FVTPL upon initial recognition to eliminate or reduce an accounting mismatch.
Financial assets at FVTPL are measured at fair value with subsequent changes in fair value recognised in profit or loss.
Financial Liabilities
Financial liabilities are classified into the following measurement categories:
• Those to be measured at amortised cost;
• Those to be measured at FVTPL.
Financial liabilities measured at amortised cost
Financial liabilities are measured at amortised cost if they are not held for trading or not designated at FVTPL.
Financial liabilities measured at amortised cost are accounted for using the effective interest rate method.
Financial liabilities measured at FVTPL
Financial liabilities are measured at FVTPL if:
• They are held for trading whose principal objective is achieved through selling or repurchasing the financial
liability in the near term, or forms part of a portfolio of financial instruments that are managed together and
for which there is evidence of short-term profit taking; or
• They are designated at FVTPL upon initial recognition to eliminate or reduce an accounting mismatch.
Financial liabilities at FVTPL are measured at fair value with subsequent changes in fair value recognised in profit or loss.
1. Financial statements preparation (continued)
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Heartland Annual Report 2021
Financial assets and liabilities (continued)
Financial Liabilities (continued)
Further details of the accounting policy for each category of financial asset or financial liability mentioned
above is set out in the note for the relevant item.
The Group’s policies for determining the fair value of financial assets and financial liabilities are set out in
Note 20 - Fair value.
Recognition
The Group initially recognises finance receivables and borrowings on the date that they are originated. All other
financial assets and liabilities (including assets and liabilities designated at FVTPL) are initially recognised on
the trade date at which the Group becomes a party to the contractual provisions of the instrument.
Derecognition
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire,
or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in
transferred financial assets that is created or retained by the Group is recognised as a separate asset.
The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of
financial position, but retains either all risks or rewards of the transferred assets or a portion of them. If all or
substantially all risks and rewards are retained, then the transferred assets are not derecognised from the
consolidated statement of financial position. Transfers of assets with the retention of all or substantially all
risks and rewards include, for example, securitised assets and repurchase transactions.
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. Where an existing
financial liability is replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, the exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, with the difference in the respective carrying amounts
recognised in profit or loss.
Offsetting financial instruments
The Group offsets financial assets and financial liabilities and reports the net balance in the balance sheet
where there is currently a legally enforceable right to set off and there is an intention to settle on a net basis or
to realise the asset and settle the liability simultaneously.
1. Financial statements preparation (continued)
92
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
Performance
2. Segmental analysis
Segment information is presented in respect of the Group’s operating segments which are those used for the
Group’s management and internal reporting structure.
Operating segments
The Group operates within New Zealand and Australia and comprises the following main operating segments:
MotorMotor vehicle finance.
Reverse mortgagesReverse mortgage lending in New Zealand.
Other personalA range of financial services - including term, transactional and personal loans to individuals.
Business
Term debt, plant and equipment finance, commercial mortgage lending and working capital
solutions for small-to-medium sized businesses.
Rural
Specialist financial services to the farming sector primarily offering livestock finance, rural
mortgage lending, seasonal and working capital financing, as well as leasing solutions to farmers.
AustraliaReverse mortgage lending and other financial services within Australia.
Certain operating expenses, such as premises, IT, support centre costs and tax expense are not allocated to
operating segments and are included in Other. Finance receivables are allocated across the operating segments as
assets and liabilities are managed centrally and therefore are not allocated across the operating segments.
The Group’s operating segments are different from the industry categories detailed in Note 22 - Credit risk
exposure. The operating segments are primarily categorised by sales channel, whereas Note 22 - Credit risk
exposure categorises exposures based on credit risk concentrations.
$000’sMotor
Reverse
Mortgages
Other
PersonalBusinessRuralAustraliaOtherTotal
June 2021
Net interest income 65,829 22,257 12,073 63,898 30,579 39,348 (467)233,517
Net other income 3,343 2,143 1,946 2,723 881 2,684 (141)13,579
Net operating income 69,172 24,400 14,019 66,621 31,460 42,032 (608) 2 47, 0 9 6
Operating expenses 3,787 4,284 6,833 11,340 2,124 12,390 76,900 117, 6 5 8
Profit/(loss) before
impaired asset expense
and income tax
65,385 20,116 7, 1 8 6 55,281 29,336 29,642 (77,508) 129,438
Fair value gain
on investment
- - - - 700 - 3,392 4,092
Impaired asset expense5,298 - 2,081 5,649 1,649 297 - 14,974
Profit/(loss) before
income tax
60,087 20,116 5,105 49,632 28,387 29,345 (74,116) 118,556
Income tax expense- - - - - - 31,530 31,530
Profit/(loss) for the year 60,087 20,116 5,105 49,632 28,387 29,345 (105,646) 8 7, 02 6
Total assets1 , 2 8 7, 97 8 601,505 1 37, 910 1,225,710 586,318 1,149,610 688,582 5,677,613
Total liabilities4,915,921
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Heartland Annual Report 2021
2. Segmental analysis (continued)
$000’sMotor
Reverse
Mortgages
Other
PersonalBusinessRuralAustraliaOtherTotal
June 2020
Net interest income56,957 20,118 18,365 57,950 29,674 30,127 3,482 216,673
Net other income3,622 3,430 3,055 3,465 1,028 4,214 (2,238)16,576
Net operating income60,579 23,548 21,420 61,415 30,702 34,341 1,244 233,249
Operating expenses3,248 4,804 6,776 11,283 2,648 11,680 66,355 106,794
Profit/(loss) before
impaired asset expense
and income tax
5 7, 3 31 18 ,74 4 14,644 50,132 28,054 22,661 (65,111)126,455
Fair value gain
on investment
- - - - - - 2,097 2,097
Impaired asset
expense/(benefit)
10,160 - 11,119 10,110 (1,970)- - 29,419
Profit/(loss)
before income tax
47, 171 18 ,74 4 3,525 40,022 30,024 22,661 (63,014)99,133
Income tax expense- - - - - - 2 7, 161 2 7, 161
Profit/(loss) for the year47, 171 18 ,74 4 3,525 40,022 30,024 22,661 (90,175)71,972
Total assets1,125,295 559,934 214,759 1,126,632 604,938 979,496 707, 0 8 2 5,318,136
Total liabilities4,618,156
3. Net interest income
Policy
Interest income and expense on financial instruments is measured using the effective interest rate method that
discounts the financial instruments’ future cash flows to their present value and allocates the interest income or
expense over the life of the financial instrument. The effective interest rate is established on initial recognition of
the financial assets or liabilities and is not subsequently revised. For financial instruments at amortised cost, the
calculation of the effective interest rate includes all yield related fees and commissions paid or received that are
an integral part of the underlying financial instrument.
$000’sJune 2021June 2020
Interest income
Cash and cash equivalents119 499
Investments6,979 8,496
Finance receivables232,845 250,606
Finance receivables - reverse mortgages8 7, 9 92 8 7, 2 01
Total interest income327, 9 3 5 346,802
Interest expense
Deposits55,273 90,739
Other borrowings35,609 35,888
Net interest expense on derivative financial instruments3,536 3,502
Total interest expense94,418 130,129
Net interest income 233,517 216,673
94
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
4. Net operating lease income
Policy
As a lessor, the Group retains substantially all the risks and rewards incidental to ownership of the assets
and therefore classifies the leases as operating leases. Rental income and expense from operating leases is
recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the carrying amount of the leased asset and recognised on
a straight-line basis over the lease term. Profits on the sale of operating lease assets are included as part of
operating lease income. Current year depreciation and losses on the sale of operating lease assets are included
as part of operating lease expenses. The leased assets are depreciated over their useful lives on a basis
consistent with similar assets.
$000’sJune 2021June 2020
Operating lease income
Lease income3,908 5,194
Gain on disposal of lease assets
1,096752
Total operating lease income5,004 5,946
Operating lease expense
Depreciation on lease assets2,801 3,634
Direct lease costs348 429
Total operating lease expense
3,149 4,063
Net operating lease income1,8551,883
5. Other income
Policy
Rental income from investment property
Rental income from investment properties is recognised on a straight-line basis over the term of the relevant
lease.
Insurance income
Insurance premium income and commission expense are recognised in profit or loss from the date of
attachment of the risk over the period of the insurance contract. Claim expense is recognised in the profit or loss
on an accrual basis once our liability to the policyholder has been confirmed under the terms of the contract.
$000’sJune 2021June 2020
Rental income from investment properties1,055 1,125
Insurance income1,096 1,610
Gain on sale of investments157 -
Other income1,117 774
FX gain209 373
Total other income3,634 3,882
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Heartland Annual Report 2021
6. Operating expenses
Policy
Operating expenses are recognised as the underlying service is rendered or over a period in which an asset is
consumed or a liability is incurred.
$000’sJune 2021June 2020
Personnel expenses61,476 54,511
Directors’ fees1,129 1,059
Superannuation1,535 1,069
Depreciation - property, plant and equipment2,995 2,380
Legal and professional fees2,876 3,615
Advertising and public relations5,138 6,729
Depreciation - right of use asset2,312 2,324
Technology services7, 2 6 2 6,372
Telecommunications, stationery and postage1,843 1,886
Customer acquisition costs6,982 7,419
Amortisation of intangible assets9,308 4,456
Other operating expenses
1
14,802 14,974
Total operating expenses117, 6 5 8 106,794
1
Other operating expenses include compensation of auditor which is further disclosed in Note 7.
7. Compensation of auditor
$000’sJune 2021June 2020
Audit and review of the financial statements
1
790 774
Other assurance services paid to auditor
2
103 133
Total compensation of auditor893 907
1
Audit and review of the financial statements includes fees paid for both the audit of the annual financial statements and the
review of the interim financial statements.
2
Other assurance services paid to auditor comprise regulatory assurance services, agreed upon procedures engagements
and supervisor reporting.
96
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
8. Impaired asset expense
Policy
Impairment of finance receivables
At each reporting date, the Group applies a three stage approach to measuring ECL to finance receivables not
carried at fair value. The ECL model assesses whether there has been a significant increase in credit risk since
initial recognition.
The ECL model is a forward looking model where impairment allowances are recognised before losses are
actually incurred. On initial recognition, an impairment allowance is required, based on events that are possible in
the next 12 months.
Assets may migrate through the following stages based on their change in credit quality:
Stage 1 - 12 months ECL (past due 30 days or less)
Where there has been no evidence of increased credit risk since initial recognition, and finance receivables are
not credit impaired upon origination, the portion of the lifetime ECL associated with the probability of default
events occurring within the next 12 months is recognised.
Stage 2 - Lifetime ECL not credit impaired (greater than 30 but less than 90 days past due)
Where there has been a significant increase in credit risk.
Stage 3 - Lifetime ECL credit impaired (90 days past due or more)
Objective evidence of impairment, so are considered to be in default or otherwise credit impaired.
In determining whether credit risk has increased all available information relevant to the assessment of economic
conditions at the reporting date are taken into consideration. To do this the Group considers its historical
loss experience and adjusts this for current observable data. In addition to this the Group uses reasonable
and supportable forecasts of future economic conditions including experienced judgement to estimate the
amount of an expected impairment loss. Future economic conditions consider macroeconomic factors such
as unemployment, interest rate, gross domestic product, and inflation, and requires an evaluation of both the
current and forecast direction of the economic cycle. The methodology and assumptions including any forecasts
of future economic conditions are reviewed regularly as incorporating forward-looking information increases the
level of judgement as to how changes in these macroeconomic factors will affect the ECL.
The calculation of ECL is modelled for portfolios of like assets. For portfolios which are either new or too small to
model, judgement is used to determine impairment provisions.
For assets that are individually assessed for ECL, the allowance for ECL is calculated directly as the difference
between the defaulted assets carrying value and the recoverable amount (being the present value of expected
future cash flows, including cash flows from the realisation of collateral or guarantees, where applicable).
$000’sJune 2021June 2020
Non-securitised
Individually impaired asset expense9,131 3,385
Collectively impaired asset expense6,001 25,637
Total non-securitised impaired asset expense15,132 29,022
Securitised
Collectively impaired asset expense(158)397
Total securitised impaired asset expense(158)397
Total
Individually impaired asset expense9,131 3,385
Collectively impaired asset expense5,843 26,034
Total impaired asset expense14 , 974 29,419
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Heartland Annual Report 2021
8. Impaired asset expense (continued)
The Group’s models for estimating ECL for each of its portfolios are based on the historic credit experience of those
portfolios. The models assume that economic conditions (such as GDP growth, unemployment rates, and house
price index forecasts) remain static over time. If the Group forecasts that economic conditions may change in the
foreseeable future, the Group applies judgement to determine whether the modelled output should be subject to
an economic overlay. Judgment is required because analysis has been unable to establish any clear correlation
between key economic indicators and the credit performance of the Group’s unique portfolios.
The onset of COVID-19 caused a deterioration in economic conditions, creating uncertainty regarding the impact
on HBL’s borrowers over and above the modelled ECL. Accordingly, a COVID Overlay was sized based on a range
of techniques (including stress testing, benchmarking, scenario analysis and expert judgement) and adopted by the
Group.
The COVID-19 Overlay has not been utilised at this stage. Despite forecasts showing improvements in the economic
conditions, new variants of COVID-19 have emerged and vaccination strategies are varied and as yet unproven
across a sufficient population. Furthermore, Government stimulus has given rise to the potential for inflationary
pressures, a steepening interest rate environment, and a higher cost of labour in the medium term. Management
considers that sufficient uncertainty remains such that the COVID Overlay should be retained in full at this stage.
9. Taxation
Policy
Income tax
Income tax expense for the year comprises current tax and movements in deferred tax balances, including any
adjustment required for prior years’ tax expense. Income tax expense is recognised in profit and loss except
to the extent that it relates to items recognised directly in other comprehensive income, in which case it is
recognised in equity or other comprehensive income.
Current tax
Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to the tax payable or receivable
in respect of previous years. Current tax for current and prior years is recognised as a liability (or asset) to the
extent that it is unpaid (or refundable).
Deferred tax
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between
the carrying amounts of assets and liabilities for accounting purposes and the amounts used for taxation
purposes. As required by NZ IAS 12 Income Taxes, a deferred tax asset is recognised only to the extent that it is
probable that a future taxable profit will be available to realise the asset.
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of GST. As the Group is predominantly involved in providing
financial services, only a proportion of GST paid on inputs is recoverable. The non-recoverable proportion of
GST is treated as an expense or, if relevant, as part of the cost of acquisition of an asset.
98
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
9. Taxation (continued)
Income tax expense
$000’sJune 2021June 2020
Income tax recognised in profit or loss
Current tax
Current year30,584 30,868
Adjustments for prior year(1,854)1,834
Tax other rates426 335
Deferred tax
Current year1,283 (3,568)
Adjustments for prior year1,145 (2,289)
Tax other rates(54)(19)
Total income tax expense recognised in profit or loss31,530 27,161
Income tax recognised in other comprehensive income
Current tax
Derivatives at fair value reserve(2,197)768
Fair value movements of cash flow hedge3,457 (1,477)
Total income tax expense recognised in other comprehensive income1,260 (709)
Reconciliation of effective tax rate:
$000’sJune 2021June 2020
Profit before income tax118,556 99,133
Tax at New Zealand income tax rate of 28%33,196 27,757
Higher tax rate for overseas jurisdiction372 316
Adjusted tax effect of items not taxable/deductible(1,330)(457)
Adjustments for prior year(708)(455)
Total income tax expense31,530 27,161
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Heartland Annual Report 2021
9. Taxation (continued)
Deferred tax assets comprise the following temporary differences:
$000’sJune 2021June 2020
Employee expenses1,647 1,942
Share based payment503 692
Provision for impairment15,097 17, 7 3 9
Intangibles and property, plant and equipment(3,816)(4,576)
Deferred acquisition costs(475)(936)
Operating lease vehicles479 731
Other temporary differences682 1,531
Total deferred tax assets14,117 17, 1 2 3
Opening balance of deferred tax assets17, 1 2 3 9,531
Movement recognised in profit or loss(3,006)7, 3 3 6
Movement recognised in retained earnings- 256
Closing balance of deferred tax assets14,117 17, 1 2 3
Imputation credit account
$000’sJune 2021June 2020
Imputation credit account 19,990 5,676
10. Earnings per share
June 2021June 2020
Earnings
Per Share
Cents
Net Profit
Af ter Ta x
$000’s
Weighted
Average
No. of
Shares
000’s
Earnings
Per Share
Cents
Net
Profit
After
Ta x
$000’s
Weighted
Average
No. of
Shares
000’s
Basic earnings15 87,026 583,467 12 71, 972 576,929
Diluted earnings15 87,026 583,467 12 71, 972 576,929
100
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
Financial Position
11. Investments
Policy
Investments are classified into one of the following categories:
Fair value through profit or loss
Investments under this category include equity investments and are measured at fair value plus transaction costs.
Changes in fair value of these investments are recognised in profit or loss in the period in which they occur.
Fair value through other comprehensive income
Investments under this category include bank bonds, floating rate notes, local authority stock, public securities
and corporate bonds. These are initially measured at fair value, including transaction costs, and subsequently
carried at fair value. Changes in fair value of these investments are recognised in other comprehensive income
and presented within the fair value reserve.
Amortised cost
Investments under this category include bank deposits and are measured using effective interest rate method.
They are held to collect contractual cash flows that are solely payments of principal and interest on the principal
amount outstanding.
$000’sJune 2021June 2020
Bank deposits, bank bonds and floating rate notes351,613 366,289
Public sector securities and corporate bonds5,543 30,716
Equity investments20,667 16,335
Total investments37 7, 8 2 3 413,340
Refer to Note 20 - Fair value for details of the split between investments measured at fair value through profit or
loss, fair value through other comprehensive income and amortised cost.
12. Derivative financial instruments
Policy
The Group uses derivatives for risk management purposes. Derivatives held for risk management purposes
include hedges that either meet the hedge accounting requirements set out in NZ IAS 39, or economic hedges
not placed into an accounting hedge relationship.
Derivatives are recognised at their fair value, with the derivatives being carried as assets when their fair value is
positive and as liabilities when their fair value is negative.
A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that exposes the
Group to risk of changes in fair value or cash flows, and that is designated as being hedged. The Group applies
fair value hedge accounting to hedge movements in the value of fixed interest rate assets and liabilities subject
to interest rate risk. The Group applies cash flow hedge accounting to hedge the variability in highly probable
forecast future cash flows attributable to interest rate risk on variable rate assets and liabilities.
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Subsequent to initial designation, changes in the fair value of derivatives that are designated and qualify for
fair value hedge accounting are recorded through profit or loss alongside any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk.
Where the hedged item is carried at amortised cost, the movement in fair value of the hedged item attributable
to the hedged risk is made as an adjustment to the carrying value of the hedged asset or liability. When a
hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the
adjustment to carrying amount of a hedged item carried at amortised cost is amortised to the consolidated
statement of comprehensive income on an effective yield basis over the remaining period to maturity of the
hedged item. Where a hedged item carried at amortised cost is derecognised from the balance sheet, the
adjustment to the carrying amount of the asset or liability is immediately transferred to the consolidated
statement of comprehensive income.
Cash flow hedge accounting
The criteria that must be met for a relationship to qualify for hedge accounting include:
•
the hedging relationship must be formally designated and documented at inception of the hedge,
•
effectiveness testing must be carried out on an on-going basis to ensure the hedge is effective, consistent
with the originally documented risk management strategy, and
•
the instruments or counterparty must be a third party external to the Group.
The Group documents, at the inception of the transaction, the relationship between hedged items and hedging
instruments, as well as its risk management objective and strategy for undertaking various hedge transactions.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of
hedged items.
A fair value gain or loss associated with the effective portion of a derivative designated as a cash flow hedge
is recognised initially in the hedging reserve. The ineffective portion of a fair value gain or loss is recognised
immediately in the consolidated statement of comprehensive income.
When a hedging derivative expires or is sold, the hedge no longer meets the criteria for hedge accounting, or
the Group elects to revoke the hedge designation, the cumulative gain or loss on the hedging derivative remains
in the cash flow hedging reserve until the forecast transaction occurs and affects income, at which point it is
transferred to the corresponding income or expense line. If a forecast transaction is no longer expected to occur,
the cumulative gain or loss on the hedging derivative previously reported in the cash flow hedging reserve is
immediately transferred to the consolidated statement of comprehensive income.
12. Derivative financial instruments (continued)
Fair value hedge accounting
The criteria that must be met for a relationship to qualify for hedge accounting include:
•
the hedging relationship must be formally designated and documented at inception of the hedge,
•
effectiveness testing must be carried out on an on-going basis to ensure the hedge is effective, consistent
with the originally documented risk management strategy, and
•
the instruments or counterparty must be a third party external to the Group.
The Group documents, at the inception of the transaction, the relationship between hedged items and
hedging instruments, as well as its risk management objective and strategy for undertaking various hedge
transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair
value of hedged items.
102
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
12. Derivative financial instruments (continued)
$000’s
June 2021June 2020
Notional
Principal
Fair Value
Assets
Fair Value
Liabilities
Notional
Principal
Fair Value
Assets
Fair Value
Liabilities
Held for risk management
Interest rate related contracts
Swaps 1,121,179 14,122 4,533 1,140,422 17, 2 3 8 16,938
Foreign currency related contracts
Forwards69,525 17 269 237,900 8 74
Total derivative financial
instruments
1,190,704 14,139 4,802 1,378,322 17, 2 4 6 17, 01 2
The Group has entered into credit support annexes (CSAs) which form a part of International Swaps and
Derivatives Association (ISDA) Master Agreement, in respect of certain exposures relating to derivative
transactions. As per these CSAs, the Group or the counterparty needs to collateralise the market value of
outstanding derivative transactions. As at 30 June 2021, the Group has received $4.09 million of cash collateral
(2020: nil) and advanced $0.59 million of cash collateral (2020: nil) against derivative assets and liabilities
respectively. The cash collateral received or advanced is not netted off against the balance of derivative assets and
derivative liabilities disclosed in the consolidated statement of financial position.
13. Finance receivables
(a) Finance receivables held at amortised cost
Policy
Finance receivables are initially recognised at fair value plus incremental direct transaction costs and are
subsequently measured at amortised cost using the effective interest method, less any impairment loss.
Fees and direct costs relating to loan origination, financing and loan commitments are deferred and amortised
to interest income over the life of the loan using the effective interest rate method. Lending fees not directly
related to the origination of a loan are recognised over the period of service.
Past due but not impaired assets are any assets which have not been operated by the counterparty within their
key terms but are not considered to be impaired by the Group.
Individually impaired assets are those loans for which the Group has evidence that it will incur a loss, and will
be unable to collect all principal and interest due according to the contractual terms of the loan.
In determining whether credit risk has increased all available information relevant to the assessment including
information about past events, current conditions and reasonable and supportable forecasts of economic
conditions at the reporting date are taken into consideration.
The calculation of ECL is modelled for portfolios of like assets. For portfolios which are either new or too small to
model, judgement is used to determine impairment provisions.
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13. Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
$000’sJune 2021June 2020
Non-securitised
Neither at least 90 days past due nor impaired 3,140,489 2,945,858
At least 90 days past due 36,882 58,876
Individually impaired 38,143 24,667
Gross finance receivables3,215,515 3,029,401
Less provision for impairment(53,448)(62,272)
Total non-securitised finance receivables3,162,067 2,967,129
Securitised
Neither at least 90 days past due nor impaired 126,638 78,059
At least 90 days past due - 404
Individually impaired - -
Gross finance receivables126,638 78,463
Less provision for impairment(239)(397)
Total securitised finance receivables126,399 78,066
Total
Neither at least 90 days past due nor impaired 3 , 2 6 7, 1 2 8 3,023,917
At least 90 days past due 36,882 59,280
Individually impaired 38,143 24,667
Gross finance receivables3,342,153 3,107,864
Less provision for impairment(53,687)(62,669)
Total finance receivables3,288,466 3,045,195
Movement in provision
The following table details the movement from the opening balance to the closing balance of the provision for
impairment losses by class.
104
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
13. Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Movement in provision (continued)
$000’s
12 - Month
ECL
Lifetime ECL
Not Credit
Impaired
Lifetime ECL
Credit
Impaired
Specific
ProvisionTotal
June 2021
Non-securitised
Impairment allowance as at 30 June 2020
32,160 2,143 22,668 5,301 62,272
Changes in loss allowance
Transfer between stages(2,485)(1,090)(22)3,597 -
New and increased provision
(net of collective provision releases)
(3,207)1,329 13,715 6,034 17,871
Recovery of amounts written off- - (2,739)- (2,739)
Credit impairment charge(5,692)239 10,954 9,631 15,132
Recovery of amounts previously written off- - 2,739 - 2,739
Write offs- - (19,729)(7,303)(27,032)
Effect of changes in foreign exchange rate(10)1 3 - (6)
Acquisition of portfolio133 22 188 - 343
Impairment allowance as at 30 June 2021
26,591 2,405 16,823 7, 6 2 9 53,448
Securitised
Impairment allowance as at 30 June 2020
260 23 114 - 397
Changes in loss allowance
Transfer between stages(4)(3)7 - -
New and increased provision
(net of collective provision releases)
(40)2 (120)- (158)
Recovery of amounts written off- - - - -
Credit impairment charge(44)(1)(113)- (158)
Recovery of amounts previously written off- - - - -
Write offs- - - - -
Effect of changes in foreign exchange rate- - - - -
Impairment allowance as at 30 June 2021
216 22 1 - 239
Total
Impairment allowance as at 30 June 2020
32,420 2,166 22,782 5,301 62,669
Changes in loss allowance
Transfer between stages(2,489)(1,093)(15)3,597 -
New and increased provision
(net of collective provision releases)
(3,247)1,331 13,595 6,034 17, 71 3
Recovery of amounts written off- - (2,739)- (2,739)
Credit impairment charge(5,736)238 10,841 9,631 14 , 974
Recovery of amounts previously written off- - 2,739 - 2,739
Write offs- - (19,729)(7,303)(27,032)
Effect of changes in foreign exchange rate(10)1 3 - (6)
Acquisition of portfolio133 22 188 - 343
Impairment allowance as at 30 June 2021
26,807 2,427 16,824 7, 6 2 9 53,687
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Heartland Annual Report 2021
$000’s
12 - Month
ECL
Lifetime ECL
Not Credit
Impaired
Lifetime ECL
Credit
Impaired
Specific
ProvisionTotal
June 2020
Non-securitised
Impairment allowance as at 30 June 2019
30,422 1,781 18,425 7, 8 6 3 58,491
Changes in loss allowance
Transfer between stages(1,190)(294)(109)1,593 -
New and increased provision
(net of collective provision releases)
2,901 2,090 25,047 1,792 31,830
Recovery of amounts written off- - (2,808)- (2,808)
Credit impairment charge
1,711 1,796 22,130 3,385 29,022
Recovery of amounts previously written off- - 2,808 - 2,808
Write offs- (1,438)(20,705)(5,947)(28,090)
Effect of changes in foreign exchange rate27 4 10 - 41
Impairment allowance as at 30 June 2020
32,160 2,143 22,668 5,301 62,272
Securitised
Impairment allowance as at 30 June 2019
- - - - -
Changes in loss allowance
Transfer between stages
(19)11 8 - -
New and increased provision
(net of collective provision releases)
279 12 106 - 397
Recovery of amounts written off
- - - - -
Credit impairment charge
260 23 114 - 397
Recovery of amounts previously written off
- - - - -
Write offs
- - - - -
Effect of changes in foreign exchange rate
- - - - -
Impairment allowance as at 30 June 2020
260 23 114 - 397
Total
Impairment allowance as at 30 June 2019
30,422 1,781 18,425 7, 8 6 3 58,491
Changes in loss allowance
Transfer between stages(1,209)(283)(101)1,593 -
New and increased provision
(net of collective provision releases)
3,180 2,102 25,153 1,792 32,227
Recovery of amounts written off-- (2,808) - (2,808)
Credit impairment charge
1,971 1,819 22,244 3,385 29,419
Recovery of amounts previously written off- - 2,808 - 2,808
Write offs- (1,438)(20,705)(5,947)(28,090)
Effect of changes in foreign exchange rate27 4 10 - 41
Impairment allowance as at 30 June 2020
32,420 2,166 22,782 5,301 62,669
13. Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Movement in provision (continued)
106
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
13. Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Impact of changes in gross finance receivables held at amortised cost on allowance for ECL
$000’s
12 - Month
ECL
Lifetime ECL
Not Credit
Impaired
Lifetime ECL
Credit
Impaired
Specific
ProvisionTotal
June 2021
Gross finance receivables as at 30 June 20202,826,208 183,260 73,729 24,667 3,107,864
Transfer between stages(103,233)67,419 13,314 22,499 -
Additions1,435,408 - - 955 1,436,363
Deletions(1,065,730)(84,886)(20,337)(466)(1,171,419)
Write offs- - (21,142)(9,512)(30,655)
Gross finance receivables as at 30 June 20213,092,653 165,793 45,564 38,143 3,342,153
June 2020
Gross finance receivables as at 30 June 20192,799,282 206,882 57,043 26,412 3,089,619
Transfer between stages(61,191)12,570 41,245 7, 3 76 -
Additions1,497,073 87,843 23,610 - 1,608,526
Deletions(1,402,340)(118,572)(37,334)(3,174)(1,561,420)
Write offs(6,616)(5,463)(10,835)(5,947)(28,861)
Gross finance receivables as at 30 June 20202,826,208 183,260 73,729 24,667 3,107,864
(b) Finance receivables held at fair value
Policy
Finance receivables – reverse mortgages are initially recognised, and subsequently measured, at fair value
through profit or loss.
$000’sJune 2021June 2020
Finance receivables - reverse mortgages1,676,073 1,538,585
Total finance receivables - reverse mortgages1,676,073 1,538,585
Note 20 (a) - Financial instruments measured at fair value discloses further information regarding the Group’s valuation
policy.
Note 22 - Credit risk exposure discloses further information regarding how reverse mortgages operate.
Credit risk adjustments on financial assets designated at fair value through profit or loss
There were no credit risk adjustments on individual financial assets.
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14. Operating lease vehicles
Policy
Operating lease vehicles are stated at cost less accumulated depreciation.
Operating lease vehicles are depreciated on a straight line basis over their expected useful life after allowing
for any residual values. The estimated lives of these vehicles vary up to five years. Vehicles held for sale are not
depreciated but are tested for impairment.
$000’sJune 2021June 2020
Cost
Opening balance24,098 21,623
Additions1,788 9,938
Disposals(9,772)(7,463)
Closing balance16,114 24,098
Accumulated depreciation
Opening balance6,495 6,107
Depreciation charge for the year2,801 3,634
Disposals(4,047)(3,246)
Closing balance5,249 6,495
Opening net book value17,603 15,516
Closing net book value10,865 17, 6 0 3
The future minimum lease payments receivable under operating leases not later than one year is $2.141 million
(2020: $3.487 million), within one to five years is $1.406 million (2020: $2.053 million) and over five years is nil
(2020: nil).
15. Borrowings
Policy
Borrowings and deposits are initially recognised at fair value including incremental direct transaction costs. They
are subsequently measured at amortised cost using the effective interest method.
$000’sJune 2021June 2020
Deposits3,183,454 3,264,192
Total deposits3,183,454 3,264,192
Unsubordinated Notes
521,399 448,228
Securitised borrowings
1,043,516 819,703
Certificate of deposit
69,853 -
Repurchase agreement
1
40,365 -
Total other borrowings1,675,133 1,267,931
1
The amounts disclosed as securities sold under arrangements to repurchase include $40.0 million (face value) of high
quality liquid assets. The cash consideration received (recognised as a liability) was $40.4 million.
108
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
15. Borrowings (continued)
Deposits and unsubordinated notes rank equally and are unsecured.
The Group has the following unsubordinated notes on issue at reporting date. Australian (AU) borrowings are
stated in their functional currency AU dollars.
Frequency of
Interest RepaymentPrincipalValuationIssue DateMaturity Date
$150 millionAmortised cost21 September 201721 September 2022Semi annually
$125 millionAmortised cost12 April 201912 April 2024Semi annually
AU $100 millionAmortised cost13 November 201913 May 2022Quarterly
AU $45 millionAmortised cost8 March 202121 April 2023Quarterly
AU $75 millionAmortised cost15 January 202121 April 2023Quarterly
At 30 June 2021 the Group had the following securitised borrowings outstanding:
•
Heartland Auto Receivables Warehouse Trust 2018-1 securitisation facility $300 million, drawn $108 million
(2020: $300 million, drawn $66 million). Notes issued to investors are secured over the assets of the Heartland
Auto Receivables Warehouse Trust 2018-1. The facility has a maturity date of 29 August 2022.
•
Senior Warehouse Trust securitisation facility AU $600 million, drawn AU $556 million (2020: AU $600 million,
drawn AU $544 million). Notes issued to investors are secured over the assets of Seniors Warehouse Trust.
The facility has a maturity date of 30 September 2022.
•
Senior Warehouse Trust No. 2 securitisation facility AU $250 million, drawn AU $182 million (2020: AU $250
million, drawn AU $160 million). Notes issued to investors are secured over the assets of Seniors Warehouse
Trust No. 2. The facility has a maturity date of 1 July 2022.
•
Atlas 2020-1 Trust securitisation facility AU $137 million, drawn AU $137 million (2020: nil). Loans issued to
investors are secured over the assets of Atlas 2020-1 Trust and has a maturity date of 24 September 2050.
16. Share capital and dividends
Policy
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares
and share options are recognised as a deduction from equity, net of any tax effect.
000’s
June 2021
Number of Shares
June 2020
Number of Shares
Issued shares
Opening balance580,979
569,338
Shares issued - performance rights plan-
817
Shares issued - dividend reinvestment plan4,925
10,824
Closing balance585,904 580,979
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Heartland Annual Report 2021
16. Share capital and dividends (continued)
Under dividend reinvestment plans, 2,482,921 new shares were issued at $1.8035 per share on 16 March 2021
and 2,442,338 new shares at $1.2470 per share on 9 October 2020 (2020: 7,313,501 new shares were issued at
$1.5444 per share on 6 September 2019 and 3,511,020 at $1.5948 on 11 March 2020).
Dividends paid
June 2021June 2020
Date Declared
Cents Per
Share$000’sDate Declared
Cents Per
Share$000’s
Final dividend17 September 20202.514,524 15 August 20196.537,007
Interim dividend22 February 20214.023,337 18 February 20204.525,986
Total
dividends paid
37, 8 61 62,993
17. Other reserves
Employee
Benefits
Reserve
Foreign
Currency
Translation
Reserve
(FCTR)
Fair Value
Reserve
Defined
Benefit
Reserve
Cash Flow
Hedge
ReserveTotal$000’s
June 2021
Balance as at 30 June 2020934 (3,907)5,324 171 (8,022)(5,500)
Other comprehensive income,
net of income tax
- (68)(5,646)- 8,940 3,226
Share based payments1,797 - - - - 1,797
Balance as at 30 June 2021 2,731 (3,975) (322) 171 918 (477)
June 2020
Balance as at 30 June 2019838 (4,021)4,558 171 (5,843)(4,297)
Other comprehensive income,
net of income tax
-114 766 - (2,179)(1,299)
Share based payments516 - - - - 516
Shares vested(420)- - - - (420)
Balance as at 30 June 2020 934 (3,907) 5,324 171 (8,022) (5,500)
110
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
Policy
Property, plant and equipment are stated at cost less accumulated depreciation and impairment (if any).
Depreciation is calculated on a straight line basis to write off the net cost or revalued amount of each asset over
its expected life to its estimated residual value.
$000’sJune 2021June 2020
Other assets
Trade receivables643 1,952
GST receivable1,763 985
Prepayments3,699 4,857
Property, plant and equipment9,061 10,153
Other receivables1,059 1,611
Collateral paid on derivatives590 -
Total other assets16,815 19,558
Policy
Intangible assets
Intangible assets with finite useful lives
Software acquired or internally developed by the Group is stated at cost less accumulated amortisation and
any accumulated impairment losses. Expenditure on software assets is capitalised only when it increases the
future economic value of that asset. Amortisation of software is on a straight line basis, at rates which will write
off the cost over the assets’ estimated useful lives. The expected useful life of the software varies up to ten
years.
Goodwill
Goodwill arising on acquisition represents the excess of the cost of the acquisition over the Group’s interest in
the fair value of the identifiable net assets acquired. Goodwill that has an indefinite useful life is not subject to
amortisation and is tested for impairment annually. Goodwill is carried at cost less accumulated impairment
losses.
$000’sJune 2021June 2020
Computer software
Cost44,371 42,534
Accumulated amortisation20,349 14,864
Net carrying value of computer software24,022 27, 6 70
Goodwill
Cost45,143 45,143
Net carrying value of goodwill45,143 45,143
Total intangible assets69,165 72,813
18. Other balance sheet items
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For the purposes of impairment testing, goodwill is allocated to cash generating units (CGU’s). A CGU is the
smallest identifiable group of assets that generate independent cash inflows. The Group has assessed that
goodwill should be allocated to the following smallest identifiable CGUs:
• Heartland Australia Holdings Pty Limited: $15.3 million (2020: $15.3 million).
• Heartland Bank Limited: $29.8 million (2020: $29.8 million).
Goodwill is tested for impairment at a cash generating unit (CGU) level. The recoverable amounts are determined
on a value in use basis using a five-year discounted cash flow methodology based on financial budget and
forecasts. Key assumptions used in the models included a discount rate of 10% and a terminal growth rate of 2%
which reflect both past experience and external sources of information. The recoverable amounts for each CGU are
compared to the respective carrying value of net assets.
There was no indication of impairment and no impairment losses have been recognised against the carrying
amount of goodwill for the year ended 30 June 2021 (30 June 2020: nil). Uncertainty associated with the effects
from the COVID-19 pandemic were considered in the impairment tests to determine the resilience of the headroom
and no impairment was identified from the assessments.
Policy
Employee benefits
Annual leave entitlements are accrued at amounts expected to be paid. Long service leave is accrued by
calculating the probable future value of the entitlements and discounting back to present value. Obligations to
defined contribution superannuation schemes are recognised as an expense when the contribution is paid.
$000’sJune 2021June 2020
Trade and other payables
Trade payables11,243 20,657
Insurance liability3,353 6,094
Employee benefits7, 616 8,223
Other tax payables623 1,288
Collateral received on derivatives4,091 -
Total trade and other payables26,926 36,262
Policy
Leases
The Group leases office space, car parks, equipment and cars. Rental contracts are typically made for fixed
periods but may have extension options. Lease terms are negotiated on an individual basis and contain a wide
range of different terms and conditions.
In determining the lease term, all facts and circumstances that create an economic incentive to exercise an extension
option are considered. Extension options are only included in the lease term if the lease is reasonably certain to be
extended.
Lease liabilities are measured at the present value of the remaining lease payments and discounted using the
Group’s incremental borrowing rate (IBR). Lease liabilities are measured using the effective interest method.
Carrying amounts are remeasured only upon reassessments and lease modifications.
Right of use assets are depreciated at the shorter of lease term or the Group’s depreciation policy for that asset
class.
18. Other balance sheet items (continued)
112
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
18. Other balance sheet items (continued)
$000’sJune 2021June 2020
Right of use assets
Balance at beginning of year18,362 10,728
Depreciation charge for the year, included within depreciation expense in the income statement(2,313)(2,324)
(Terminations)/additions to right of use assets(64)9,958
Total right of use assets15,985 18,362
Lease liability
Current2,339 2,222
Non-current15,827 18,234
Total lease liability18,166 20,456
Interest expense relating to lease liability568 570
19. Related party transactions and balances
Policy
A person or entity is a related party under the following circumstances:
a) A person or a close member of that person’s family if that person:
i) has control or joint control over HGH;
ii)
has significant influence over HGH; or
iii)
is a member of the key management personnel of HGH.
b) An entity is related to HGH if any of the following conditions applies:
i)
The entity and HGH are members of the same group;
ii)
One entity is an associate or joint venture of the other entity;
iii)
Both entities are joint ventures of the same third party;
iv)
One entity is a joint venture of a third entity and the other entity is an associate of the third
entity;
v)
The entity is a post-employment benefit plan for the benefit of employees of either the
reporting entity or an entity related to HGH;
vi)
The entity is controlled, or jointly controlled by a person identified in (a); and
vii)
A person identified in (a)(i) has significant influence over the entity or is a member of the
key management personnel of the entity (or of a parent of the entity).
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19. Related party transactions and balances (continued)
(a) Transactions with key management personnel
Key management personnel (KMP), are those who, directly or indirectly, have authority and responsibility for
planning, directing and controlling the activities of the Group. This includes all executive staff, Directors and their
close family members.
KMP receive personal banking and financial investment services from the Group in the ordinary course of business.
The terms and conditions, for example interest rates and collateral, and the risks to the Group are comparable to
transactions with other employees and did not involve more than the normal risk of repayment or present other
unfavourable features.
All other transactions with KMPs and their related entities are made on terms equivalent to those that prevail in
arm’s length transactions.
$000’sJune 2021June 2020
Transactions with key management personnel
Interest income receivable39 18
Interest expense payable(22)(47)
Key management personnel compensation
Short-term employee benefits(9,384)(8,814)
Share-based payment expense(1,797)(828)
Total transactions with key management personnel(11,181)(9,671)
Due (to)/from key management personnel
Lending415 239
Borrowings - deposits(23,409)(1,646)
Total due (to) key management personnel(22,994)(1,407)
(b) Transactions with related parties
HGH is the ultimate parent company of the Group.
Entities within the Group have regular transactions between each other on agreed terms. The transactions include
the provision of administrative services, tax transactions, and customer operations and call centre. Banking
facilities are provided by Heartland Bank Limited to other Heartland Group entities on normal commercial terms as
with other customers. There is no lending from subsidiaries within the Group to HGH.
Related party transactions between the Group eliminate on consolidation. Related party transactions outside of
the Group are as follows:
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FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
19. Related party transactions and balances (continued)
$000’sJune 2021June 2020
Southern Cross Building Society Staff Superannuation (SCBS)
Interest expense payable to SCBS1233
Management fees receivable from SCBS1010
ASF Custodians Pty Limited
Audit fees77
Heartland Trust (HT)
Dividends paid421712
HT held 6,475,976 shares in HGH (2020: 6,475,976 shares).
The Trustees of HT and certain employees of the Group provided their time and skills to the oversight and operation
of HT at no charge.
(c) Other balances with related parties
$000’sJune 2021June 2020
Southern Cross Building Society Staff Superannuation
Deposits1,760 1,934
20. Fair value
Policy
Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
On initial recognition, the transaction price generally represents the fair value of the financial instrument, unless
there is observable information from an active market that provides a more appropriate fair value.
The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted
market prices or dealer price quotations. For all other financial instruments, the Group determines fair value
using other valuation techniques.
The Group measures fair values using the following fair value hierarchy, which reflects the observability of the
inputs used in measuring fair value:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs)
The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period
during which the change has occurred.
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20. Fair value (continued)
Investments in equity securities are classified as fair value through profit or loss unless an irrevocable election
is made by the Group to measure at FVOCI. Investments in listed equity securities that trade on a liquid, active
market (e.g. stock exchange) where quoted prices are readily observable are measured under Level 1 of the
fair value hierarchy without adjustment. A liquid, active market is one in which transactions take place with
sufficient frequency and volume to provide pricing information on an ongoing basis.
Investments in listed equity securities that trade on an illiquid, inactive market, and investments in unlisted
equity securities are measured under Level 3 of the fair value hierarchy. In these cases, fair value is measured
through market based valuation techniques using unobservable inputs that reflect assumptions market
participants would use when pricing the investment in an equity security, including assumptions about risk.
(a) Financial instruments measured at fair value
The following methods and assumptions were used to estimate the fair value of each class of financial asset and
liability measured at fair value on a recurring basis in the consolidated statement of financial position.
The Group has an established framework in performing valuations required for financial reporting purposes
including level 3 fair values. The Group regularly reviews and calibrates significant unobservable inputs and
valuation adjustments in accordance with market participants’ views. If external valuation specialists are engaged
to measure fair values, the Group assesses the evidence obtained from these specialists to support the conclusion
of these valuations. All significant valuations are reported to the Group’s Board Audit and Risk Committee for
approval prior to its adoption in the financial statements.
Investments
Investments in public sector securities and corporate bonds are classified at FVOCI, with the fair value being based
on quoted market prices (Level 1 under the fair value hierarchy) or modelled using observable market inputs (Level
2 under the fair value hierarchy). Refer to Note 11 - Investments for more details.
Investments valued under Level 2 of the fair value hierarchy are valued either based on quoted market prices or
dealer quotes for similar instruments, or discounted cash flows analysis.
Equity Investment in Harmoney Corp Limited
Harmoney Corp Limited (Harmoney) listed on the ASX with a foreign exempt listing on the NZX on 19 November
2020, raising AU $92.5 million as part of its Initial Public Offering (IPO). As part of the IPO, HGH, alongside other
major shareholders, employees and directors, entered into escrow arrangements that restrict the ability to sell its
Harmoney shares, with approximately 72% of the shares being in escrow (Escrow Restrictions). The escrowed
shares are released from escrow in two stages, with the first 50% of escrow shares released in August 2021 and
the final 50% of escrowed shares released in February 2022.
The Escrow Restrictions have significantly reduced the available trading pool of shares, resulting in an illiquid
market for the instrument, wide bid-ask spreads and volume that is insufficient to meet the definition of an active
market under New Zealand Equivalent to International Financial Reporting Standard 13 Fair Value Measurement
(NZ IFRS 13) for purposes of Harmoney shares traded. As such the quoted price of Harmoney as at 30 June 2021
is not considered the most reliable evidence of fair value and accordingly HGH’s equity investment in Harmoney
has not been measured under Level 1 of the fair value hierarchy.
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FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
20. Fair value (continued)
(a) Financial instruments measured at fair value (continued)
Equity Investment in Harmoney Corp Limited (continued)
Instead, and consistent with prior reporting periods, the fair value of HGH’s investment in Harmoney has been
measured under Level 3 of the fair value hierarchy using unobservable inputs under a market approach valuation
technique. Factors considered relevant to market participants such as observed trading volumes, bid-ask spreads,
market prices of Harmoney’s shares, revenue multiples, analyst valuations, the impact of Escrow Restrictions, as
well as publicly available financial information for Harmoney have all been taken into account when measuring fair
value at reporting date.
The investment is primarily measured using the volume weighted average price (V WAP) of Harmoney shares
traded on the ASX across a period required to capture sufficient volume and moderate share price volatility
attributable to the aforementioned factors. The VWAP period considered to be the most appropriate, reflecting the
characteristics of the underlying share trading that has occurred, is 6 months to reporting date. This VWAP has
been further evaluated through a composite valuation weighting the closing price of Harmoney shares, revenue
multiples of comparable public companies, IPO price and analyst valuations. Both the VWAP and composite
valuation approaches derive consistent outcomes.
The fair value measurement of HGH’s equity investment in Harmoney was AU $1.90 per share as at reporting
date. This was a 26% premium to the market closing price of AU $1.51 as at 30 June 2021, which if used as the
basis for measuring fair value would result in a $3.9 million lower fair value than that reported. The fair value of the
Investment was previously measured at AU $2.11 per share at 31 December 2020.
Investment properties
Investment properties are initially recorded at their fair value, with subsequent changes in fair value recognised
in profit or loss. Fair value are determined by qualified independent valuers or other similar external evidence,
adjusted for changes in market conditions.
Investment properties have been acquired through the enforcement of security over finance receivables and are
held to earn rental income or for capital appreciation (or both).
Finance receivables - reverse mortgages
Reverse mortgage loans are classified at fair value through profit or loss. On initial recognition the Group considers
the transaction price to represent the fair value of the loan.
For subsequent measurement the Group has considered if the fair value can be determined by reference to a
relevant active market or observable inputs, but has concluded relevant support is not currently available. In the
absence of such market evidence the Group has used valuation techniques (income approach) including actuarial
assessments to consider the fair value.
When the Group enters into a reverse mortgage loan the Group has set expectations regarding the loan’s current
and future risk profile and expectation of performance. This expectation references a wide range of assumptions
including:
• Mortality and move to care;
• Voluntary exits;
• House price changes;
• No negative equity guarantee; and
• Interest rate margin.
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(a) Financial instruments measured at fair value (continued)
Finance receivables - reverse mortgages (continued)
At balance date the Group does not consider any of the above expectations to have moved outside of the original
expectation range. Therefore the Group has continued to estimate the fair value of the portfolio at transaction
price. There has been no fair value movement recognised in profit or loss during the period. Given the nature of the
loan terms and tenor, the fair value as recorded is regarded as not being highly sensitive to the above assumptions,
particularly to house prices and interest rates, that would impact the fair value at balance date. While noting the
uncertainty around future economic conditions, based on current judgement there is no evidence that COVID-19
has impacted and will have a long-term adverse impact on market conditions, particularly regarding the key
elements of house prices or interest rates, that would materially influence the fair value of the reverse mortgage
portfolio at balance date.
The Group will continue to reassess the existence of a relevant active market and movements in expectations on an
on-going basis.
Derivative financial instruments
Interest rate and foreign currency related contracts are recognised in the financial statements at fair value. Fair
values are determined from observable market prices as at the reporting date, discounted cash flow models or
option pricing models as appropriate. (Level 2 under the fair value hierarchy).
The following table analyses financial instruments measured at fair value at the reporting date by the level in the
fair value hierarchy into which each fair value measurement is categorised. The amounts are based on the values
recognised in the consolidated statement of financial position.
$000’sLevel 1Level 2Level 3Total
June 2021
Assets
Investments259,041 92,476 20,667 372,184
Investment properties- - 11,832 11,832
Derivative financial instruments- 14,139 - 14,139
Finance receivables - reverse mortgages- - 1,676,073 1,676,073
Total financial assets measured at fair value259,041 106,615 1,708,572 2,074,228
Liabilities
Derivative financial instruments- 4,802 - 4,802
Total financial liabilities measured at fair value- 4,802 - 4,802
June 2020
Assets
Investments295,300 94,354 16,335 405,989
Investment properties- - 11,132 11,132
Derivative financial instruments- 17,246 - 17,246
Finance receivables - reverse mortgages- - 1,538,585 1,538,585
Total financial assets measured at fair value295,300 111,600 1,566,052 1,972,952
Liabilities
Derivative financial instruments- 17,012 - 17,012
Total financial liabilities measured at fair value- 17, 01 2 - 17, 01 2
20. Fair value (continued)
118
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
(a) Financial instruments measured at fair value (continued)
There were no transfers between levels in the fair value hierarchy in the year ended 30 June 2021 (2020: nil).
The movement in Level 3 assets measured at fair value are below:
Finance
Receivables
- Reverse
MortgagesInvestments
Investment
Properties$000’sTotal
June 2021
As at 30 June 2020
1,538,585 16,335 11,132 1,566,052
New loans
300,689 - - 300,689
Repayments
(257,999)- - (257,999)
Capitalised interest and fees
91,812 - - 91,812
Purchase of investments
- 940 - 940
Fair value gain on investment
- 3,392 700 4,092
Other
2,986 - - 2,986
As at 30 June 20211,676,073 20,667 11,832 1,708,572
June 2020
As at 30 June 20191,318,677 12,435 11,132 1,342,244
New loans290,488 - - 290,488
Repayments
(182,653)- - (182,653)
Capitalised Interest and fees91,288 - - 91,288
Purchase of investments- 1,803 - 1,803
Fair value gain on investment- 2,097 - 2,097
Other20,785 - - 20,785
As at 30 June 20201,538,585 16,335 11,132 1,566,052
(b) Financial instruments not measured at fair value
The following assets and liabilities of the Group are not measured at fair value in the consolidated statement of
financial position.
Cash and cash equivalents
Cash and cash equivalents are measured at amortised cost and their carrying value is considered equivalent to
their fair value due to their short term nature.
20. Fair value (continued)
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(b) Financial instruments not measured at fair value (continued)
Finance receivables
The fair value of the Group’s finance receivables is calculated using a valuation technique which assumes the
Group’s current weighted average lending rates for loans of a similar nature and term.
The current weighted average lending rate used to fair value finance receivables with a fixed interest rate was
7.08% (2020: 8.06%). Finance receivables with a floating interest rate are deemed to be at current market rates.
The current amount of credit provisioning has been deducted from the fair value calculation of finance receivables
as a proxy for future losses.
Borrowings
The fair value of deposits, bank borrowings and other borrowings is the present value of future cash flows and is
based on the current market interest rates payable by the Group for the debt of similar maturities. The average
current market rate used to fair value borrowings is 1.23% (2020: 2.24%).
Other financial assets and financial liabilities
Financial instruments such as short-term trade receivables and payables are considered equivalent to their
carrying value due to their short term nature.
The following table sets out financial instruments not measured at fair value, compares their carrying value
against their fair value and analyses them by level in the fair value hierarchy.
June 2021June 2020
$000’s
Fair Value
Hierarchy
Total Fair
Value
Total
Carrying
Value
Fair Value
Hierarchy
Total Fair
Value
Total
Carrying
Value
Assets
Cash and cash equivalentsLevel 1182,333 182,333 Level 1147,179 147,179
Investments
1
Level 25,640 5,639 Level 27,375 7, 3 51
Finance receivablesLevel 23,362,536 3,288,466 Level 23,092,150 3,045,195
Other financial assetsLevel 32,292 2,292 Level 33,563 3,563
Total financial assets3,552,801 3,478,730 3,250,267 3,203,288
Liabilities
DepositsLevel 23,192,708 3,183,454 Level 23,278,483 3,264,192
Other borrowingsLevel 2631,617 631,617 Level 2448,626 448,228
Borrowings - securitisedLevel 21,043,516 1,043,516 Level 2819,305 819,703
Other financial liabilitiesLevel 318,687 18,687 Level 326,751 26,751
Total financial liabilities4,886,528 4 , 8 7 7, 274 4,573,165 4 , 55 8 , 874
1
Included within investments are bank deposits which are held to support the Group’s contractual cash flows. Such
investments are measured at amortised cost.
20. Fair value (continued)
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FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
(c) Classification of financial instruments
The following table summarises the categories of financial instruments and the carrying value and fair value of all
financial instruments of the Group:
$000’sFVOCIFVTPL
Amortised
Cost
Total
Carrying
Value
Total Fair
Value
June 2021
Assets
Cash and cash equivalents- - 182,333 182,333 182,333
Investments351,517 20,667 5,639 3 7 7, 8 2 3 377,824
Investment properties- 11,832 - 11,832 11,832
Finance receivables- - 3,288,466 3,288,466 3,362,536
Finance receivables - reverse mortgages- 1,676,073 - 1,676,073 1,676,073
Derivative financial instruments3,230 10,909 - 14,139 14,139
Other financial assets- - 2,292 2,292 2,292
Total financial assets35 4 ,747 1,719,481 3,478,730 5,552,958 5,627,029
Liabilities
Deposits- - 3,183,454 3,183,454 3,192,708
Other borrowings- - 1,675,133 1,675,133 1,675,133
Derivative financial instruments4,408 394 - 4,802 4,802
Other financial liabilities- - 18,687 18,687 18,687
Total financial liabilities4,408 394 4 , 8 7 7, 274 4,882,076 4,891,330
June 2020
Assets
Cash and cash equivalents- - 147,179 147,179 147,179
Investments389,654 16,335 7, 3 51 413,340 413,364
Investment properties- 11,132 - 11,132 11,132
Finance receivables- - 3,045,195 3,045,195 3,092,150
Finance receivables - reverse mortgages- 1,538,585 - 1,538,585 1,538,585
Derivative financial instruments32 17, 2 1 3 - 17,246 17,246
Other financial assets- - 3,563 3,563 3,563
Total financial assets389,686 1,583,265 3,203,288 5,176,240 5,223,219
Liabilities
Deposits- - 3,264,192 3,264,192 3,278,483
Other borrowings- - 1 , 2 6 7, 9 31 1 , 2 6 7, 9 31 1 , 2 6 7, 9 31
Derivative financial instruments15,408 1,604 - 17,012 17,012
Other financial liabilities- - 26,751 26,751 26,751
Total financial liabilities15,408 1,604 4 , 55 8 , 874 4,575,886 4,590,177
20. Fair value (continued)
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Risk Management
21. Enterprise risk management program
The board of directors (the Board) sets and monitors the Group’s risk appetite across the primary risk domains
of credit, capital, liquidity, market (including interest rate), operational and compliance and general business risk.
Management are, in turn, responsible for ensuring appropriate structures, policies, procedures and information
systems are in place to actively manage these risk domains, as outlined within the Enterprise Risk Management
Framework (ERMF). Collectively, these processes are known as the Group’s Enterprise Risk Management Program
(RMP).
Role of the Board and the Board Audit Risk Committee
The Board, through its Board Audit Risk Committee (BARC) is responsible for oversight and governance of the
development of the RMP. The role of the BARC is to assist the Board to formulate its risk appetite, and to monitor the
effectiveness of the RMP. The BARC has the following specific responsibilities:
• Financial reporting and application of accounting policies as part of the internal control and risk assessment
framework.
• Monitors the identification, evaluation and management of all significant risks through the Group. This work
is supported by internal audit, which provides an independent assessment of the design, adequacy and
effectiveness of internal controls. The BARC receives regular reports from internal audit.
• To advise the Board on the formulation of the Board’s Risk Appetite Statement at least annually.
• To review any reports, policies, standards, other risk documents or matters, or minutes which have been
prepared by or in respect of the HGH’s Board.
• To advise and make recommendations to the Board as to the key parameters for Internal Capital Adequacy
Assessment Process (ICAAP), delegated authorities, risk appetite and stress testing for its subsidiary, Heartland
Bank Limited.
Internal Audit
The Group has an Internal Audit function, the objective of which is to provide independent, objective assurance
over the internal control environment. In certain circumstances, Internal Audit will provide risk and control advice
to Management provided the work does not impede the independence of the Internal Audit function. The function
assists the Group in accomplishing its objectives by bringing a systematic and disciplined approach to evaluate and
improve the effectiveness of risk management, control, and governance processes.
Internal Audit is allowed full, free and unfettered access to any and all of the organisation’s records, personnel and
physical properties deemed necessary to accomplish its activities.
A regular cycle of review has been implemented to cover all areas of the business, focused on assessment,
management and control of risks identified. The audit plan takes into account cyclical review of various business
units and operational areas, as well as identified areas of higher identified risk. The audit methodology is designed
to meet the International Standards for the Professional Practice of Internal Auditing of The Institute of Internal
Auditors.
Each audit has specific audit procedures tailored to the area of business that is being reviewed. The audit
procedures are updated during each audit to reflect any process changes. Audit work papers are completed to
evidence the testing performed in accordance with the audit procedures.
Audit reports are addressed to the manager of the relevant area that is being audited in addition to other relevant
stakeholders within the Group. Management comments are obtained from the process owner(s) and are included in
the report.
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FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
21. Enterprise risk management program (continued)
Internal Audit (continued)
The Head of Internal Audit has a direct reporting line to the Chairman of the BARC. Internal audit has accountability
to the BARC of the Group. A schedule of all outstanding internal control issues is maintained and presented to the
BARC to assist the and track the resolution of previously identified issues. Any issues raised that are categorised as
high risk are specifically reviewed by internal audit during a follow up review once the issue is considered closed by
management. The follow up review is performed with a view to formally close out the issue.
Asset and Liability Committee (ALCO)
The ALCO comprises the CEO HGH, CEO HBL, CFO HGH, Chief Legal & Bank Risk Officer, Head of Retail, Financial
Controller HBL and Chief Distribution Officer. The ALCO generally meets monthly, and provides reports to the BARC.
ALCO's specific responsibilities include decision making and oversight of risk matters in relation to:
• Market risk (including non-traded interest rate risk and the investment of capital);
• Liquidity risk (including funding);
• Foreign exchange rate risk;
• Balance sheet structure; and
• Capital management;
Operational and compliance risk
Operational and compliance risk is the risk arising from day to day operational activities in the execution of the
Group's strategy which may result in direct or indirect losses. Operational and compliance risk losses can occur as a
result of fraud, human error, missing or inadequately designed processes, failed systems, damage to physical assets,
improper behaviour, or from external events. The losses range from direct financial losses, to reputational damage,
unfavourable media attention, injury to or loss of staff or clients or as a breach of laws or banking regulations. Where
appropriate, risks are mitigated by insurance.
To ensure appropriate responsibility is allocated for the management, reporting and escalation of operational and
compliance risk, the Group operates a “three lines of defence” model which outlines principles, responsibilities and
accountabilities for operational and compliance risk management:
• The first line of defence is the business line management of the identification, management and mitigation of the
risks associated with the products and processes of the business. This accountability includes regular testing and
attestation of the adequacy and effectiveness of controls and compliance with the Group's policies.
• The second line of defence is the Risk and Compliance function, responsible for the design and ownership of
the Operational Risk Management Framework. It incorporates key processes including Risk and Control Self-
Assessment (RCSA), incident management, independent evaluation of the adequacy and effectiveness of the
internal control framework, and the attestation process.
• The third line of defence is Internal Audit which is responsible for independently assessing how effectively the
Group is managing its risk according to the stated risk appetite.
Market risk
Market risk is the possibility of experiencing losses or gains due to factors affecting the overall performance of
financial markets in which the Group is exposed. The primary market risk exposures for the Group are interest
rate risk and foreign exchange risk. The risk being that market interest rates or foreign exchange rates will change
and adversely impact on the Group’s earnings due to either adverse moves in foreign exchange market rates or in
the case of interest rate risks mismatches between repricing dates of interest bearing assets and liabilities and/or
differences between customer pricing and wholesale rates.
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21. Enterprise risk management program (continued)
Interest rate risk
Interest rate risk refers to exposure of an entity’s earnings and / or capital because of a mismatch between the
interest rate exposures of its assets and liabilities. Interest rate risk for the Group arises from the provision of
non-traded retail banking products and services and from traded wholesale transactions entered into to reduce
aggregate interest rate risk (known as hedges). This risk arises from four key sources:
• Mismatches between the repricing dates of interest bearing assets and liabilities (yield curve and repricing risk);
• Banking products repricing differently to changes in wholesale market rates (basis risk);
• Loan prepayment or deposit early withdrawal behaviour from customers that deviates from the expected or
contractually agreed behaviour (optionality risk); and
• The effect of internal or market forces on a bank’s net interest margin where, for example, in a low rate
environment any fall in rates will further decrease interest income earned on the assets whereas funding cost
cannot be reduced as it is already at the minimum level (margin compression risk).
Refer Note 24 - Interest rate risk for further details regarding interest rate risk.
Foreign exchange risk
Foreign exchange risk is the risk that the Group’s earnings and shareholder equity position are adversely impacted
from changes in foreign exchange rates. The Group has exposure to foreign exchange translation risks through its
Australian subsidiaries (which have a functional currency of AUD), in the forms of profit translation risk and balance
sheet translation risk.
Profit translation risk is the risk that deviations in exchange rates have a significant impact on the reported profit.
Balance sheet translation risk is the risk that whilst the foreign currency value of the net investment in a subsidiary
may not have changed, when translated back to the New Zealand dollars (NZD), the NZD value has changed
materially due to movements in the exchange rates. Foreign exchange revaluation gains and losses are booked to
the foreign currency translation reserve. Foreign exchange rate movements in any given year may have an impact
on other comprehensive income. The Group manages this risk by setting and approving the foreign exchange rate for
the upcoming financial year and entering into hedging contracts to manage the foreign exchange translation risks.
Counterparty Credit Risk
The Group has on-going credit exposure associated with:
• Cash and cash equivalents;
• Finance receivables;
• Holding of investment securities; and
• Payments owed to the Group from risk management instruments.
Counterparty credit risk is managed against limits set in the Market Risk Policy including credit exposure on
derivative contracts, bilateral set-off arrangements, cash and cash equivalents and investment securities.
124
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
22. Credit risk exposure
Credit risk is the risk that a borrower will default on any type of debt by failing to make payments which it is
obligated to make. The risk is primarily that of the lender and includes loss of principal and interest, disruption to cash
flows and increased collection costs.
Credit risk is managed to achieve sustainable risk-reward performance whilst maintaining exposures within
acceptable risk “appetite” parameters. This is achieved through the combination of governance, policies, systems
and controls, underpinned by commercial judgement as described below.
To manage this risk, HBL's Executive Risk Committee (ERC) oversees the formal credit risk management strategy.
The ERC reviews the Group's credit risk exposures typically on a monthly basis. The credit risk management
strategies aim to ensure that:
• Credit origination meets agreed levels of credit quality at point of approval;
• Sector concentrations are monitored;
• Maximum total exposure to any one debtor is actively managed; and
• Changes to credit risk are actively monitored with regular credit reviews.
The BARC also oversees the Group's credit risk exposures to monitor overall risk metrics having regard to risk
appetite set by the Board.
HBL's Board Risk Committee (BRC) has authority for approval of all credit exposures. Lending authority has been
provided to the HBL's Credit Committee, and to the business units under a detailed Delegated Lending Authority
framework. Application of credit discretions in the business operation are monitored through a defined review and
hindsight structure as outlined in the Credit Risk Oversight Policy. Delegated Lending Authorities are provided to
individual officers with due cognisance of their experience and ability. Larger and higher risk exposures require
approval of senior management, the Credit Committee and ultimately through to HBL's BRC.
The Group employs a process of hindsighting loans to ensure that credit policies and the quality of credit processes
are maintained.
Reverse mortgage loans and negative equity risk
Reverse mortgage loans are a form of mortgage lending designed for the needs of people over 60 years. These
loans differ to conventional mortgages in that they typically are not repaid until the borrower ceases to reside in
the property. Further, interest is not required to be paid, it is capitalised into the loan balance and is repayable on
termination of the loan. As such, there are no incoming cash flows and therefore no default risk to manage during the
term of the loan. Negative equity risk arises from the promise by the Group that the maximum repayment amount is
limited to the net sale proceeds of the borrowers' property.
The Group’s exposure to negative equity risk is managed by the Credit Risk Oversight Policy in conjunction with
associated lending standards specific for this product. In addition to usual criteria regarding the type, and location,
of security property that the Group will accept for reverse mortgage lending, a key aspect of the Group's policy is
that a borrower’s age on origination of the reverse mortgage loan will dictate the loan-to-value ratio of the reserve
mortgage on origination. Both New Zealand and Australia reverse mortgage operations are similarly aligned. The
policy is managed and reviewed periodically to ensure appropriate consistency across locations.
Business Finance Guarantee Scheme (BFGS)
HBL, along with other registered banks in New Zealand, has entered into a Deed of Indemnity with the New Zealand
Government to implement the New Zealand Government's Business Finance Guarantee Scheme. The purpose of
the scheme is to provide short term credit to eligible small and medium size businesses, who have been impacted
by economic effects of COVID-19. The scheme allows banks to lend to a maximum of $5 million for a maximum of
five years. The New Zealand Government will guarantee 80% of any loss incurred (credit risk) with HBL holding
the remaining 20%. As at 30 June 2021 the Group had a total exposure of $64.3 million (2020, $6.5 million) to its
customers under the scheme. BFGS has concluded on 30 June 2021 with scheme loans no longer being available.
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22. Credit risk exposure (continued)
Maximum exposure to credit risk at the relevant reporting dates
The following table represents the maximum credit risk exposure, without taking account of any collateral held.
The on balance sheet exposures set out below are based on net carrying amounts as reported in the consolidated
statement of financial position.
As at 30 June 2021 there was $0.216 million undrawn lending commitments available to counterparties for whom
drawn balances were classified as individually impaired (2020: nil).
Concentration of credit risk by geographic region
$000'sJune 2021June 2020
On balance sheet:
Cash and cash equivalents182,333 147,179
Investments3 5 7, 1 5 6 397,005
Finance receivables3,288,466 3,045,195
Finance receivables - reverse mortgages1,676,073 1,538,585
Derivative financial assets14,139 17,246
Other financial assets2,292 3,563
Total on balance sheet credit exposures5,520,459 5,148,773
Off balance sheet:
Letters of credit, guarantee commitments and performance bonds13,484 6,515
Undrawn facilities available to customers299,544 260,098
Conditional commitments to fund at future dates19,083 58,045
Total off balance sheet credit exposures332,111 324,658
Total credit exposures 5,852,570 5,473,431
$000'sJune 2021June 2020
New Zealand4,402,656 4,086,184
Australia1,243,522 1,154,567
Rest of the world
1
260,079 295,349
Total
5,906,257 5,536,100
Provision for impairment(53,687)(62,669)
Total credit exposures5,852,570 5,473,431
1
These overseas assets are primarily NZD-denominated investments in AA+ and higher rated securities issued by offshore
supranational agencies ("Kauri Bonds").
126
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
22. Credit risk exposure (continued)
Concentration of credit risk by industry sector
The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis
for categorising customer industry sectors.
$000'sJune 2021June 2020
Agriculture670,428 695,661
Forestry and fishing153,160 149,871
Mining12,684 13,425
Manufacturing76,951 80,776
Finance and insurance674,854 609,657
Wholesale trade56,522 48,055
Retail trade and accommodation279,388 278,768
Households2,994,980 2,752,641
Other business services148,011 168,326
Construction241,668 202,685
Rental, hiring and real estate services185,320 154,318
Transport and storage297,920 262,078
Other114,371 119,839
Total5,906,257 5,536,100
Provision for impairment(53,687)(62,669)
Total credit exposures5,852,570 5,473,431
Credit risk grading
The Group's finance receivables are monitored either by account behaviour (Behavioural portfolio) or a regular
assessment of their credit risk grade based on an objective review of defined risk characteristics (Judgemental
portfolio).
Finance receivables - reverse mortgages have no arrears characteristics and are assessed on origination against a
pre-determined criteria.
The Judgemental portfolio consists mainly of business and rural lending where an on-going and detailed working
relationship with the customer has been developed while the Behavioural portfolio consists of consumer, retail and
smaller business receivables.
Judgemental loans are individually risk graded based on loan status, financial information, security and debt
servicing ability. Exposures in the Judgemental portfolio are credit risk graded by an internal risk grading mechanism
where grade 1 is the strongest risk. Grade 8 and grade 9 are the weakest risk grades where a loss is probable.
Behavioural loans are managed based on their arrears status.
Upon adoption of NZ IFRS 9 all loans past due but not impaired have been categorised into three impairments
stages (see Note 8) which are in most cases based on arrears status. If a Judgemental loan is risk graded 6 or above
it will be classified as stage 2 as a minimum and carry a provision based on lifetime ECL.
127
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Heartland Annual Report 2021
$000's
12 Months
ECL
Lifetime ECL
Not Credit
Impaired
Lifetime
ECL Credit
Impaired
Specifically
ProvidedFair ValueTotal
June 2021
Judgemental portfolio
Grade 1 - Very Strong34 - - - - 34
Grade 2 - Strong10,854 64 - - - 10,918
Grade 3 - Sound50,816 163 - - - 50,979
Grade 4 - Adequate580,289 4,675 1,734 - - 586,698
Grade 5 - Acceptable877,393 5,658 1,882 - - 884,933
Grade 6 - Monitor- 58,178 1,038 - - 59,216
Grade 7 - Substandard- 71,718 8,107 - - 79,825
Grade 8 - Doubtful- - - 33,228 - 33,228
Grade 9 - At risk of loss- - - 4,915 - 4,915
Total judgemental portfolio1,519,386 140,456 12,761 38,143 - 1,710,746
Total behavioural portfolio1,573,267 25,337 32,803 - 1,676,073 3,307,480
Gross finance receivables3,092,653 165,793 45,564 38,143 1,676,073 5,018,226
Provision for impairment(26,807)(2,427)(16,824)(7,629)- (53,687)
Total finance receivables3,065,846 163,366 28 ,74 0 30,514 1,676,073 4,964,539
June 2020
Judgemental portfolio
Grade 1 - Very Strong28 - - - - 28
Grade 2 - Strong9,323 - - - - 9,323
Grade 3 - Sound65,084 - 189 - - 65,273
Grade 4 - Adequate509,154 5,117 4,238 - - 518,509
Grade 5 - Acceptable817,190 4,613 1,938 - - 823,741
Grade 6 - Monitor- 112,586 2,558 - - 115,144
Grade 7 - Substandard- 2 7, 2 8 9 17, 6 5 2 - - 44,941
Grade 8 - Doubtful- - - 16,025 - 16,025
Grade 9 - At risk of loss- - - 8,642 - 8,642
Total Judgemental portfolio1,400,779 149,605 26,575 24,667 - 1,601,626
Total Behavioural portfolio1,425,429 33,655 47,154 - 1,538,585 3,044,823
Gross finance receivables2,826,208 183,260 73,729 24,667 1,538,585 4,646,449
Provision for impairment(32,420)(2,166)(22,782)(5,301)- (62,669)
Total finance receivables2,793,788 181,094 50,947 19,366 1,538,585 4,583,780
22. Credit risk exposure (continued)
Credit risk grading (continued)
128
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
23. Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations as they fall due. The timing
mismatch of cash flows and the related liquidity risk in all banking operations are closely monitored by the Group.
Measurement of liquidity risk is designed to ensure that the Group has the ability to generate or obtain sufficient cash
in a timely manner and at a reasonable price to meet its financial commitments on a daily basis.
The Group’s exposure to liquidity risk is governed by the liquidity policy approved by the Board and managed by
the ALCO. This policy sets out the nature of the risk which may be taken and aggregate risk limits. The objective of
the ALCO is to derive the most appropriate strategy for the Group in terms of a mix of assets and liabilities given its
expectations of future cash flows, liquidity constraints and capital adequacy to meet the requirements of the policy.
The Group employs asset and liability cash flow modelling to determine appropriate liquidity and funding strategies.
Reserve Bank of New Zealand (RBNZ) facilities
In March 2020, HBL was onboarded by the RBNZ as an approved counterparty and executed a 2011 Global Master
Repo Agreement providing an additional source for intra-day liquidity for the Group if required.
On 16 March 2020, as a result of COVID-19, the RBNZ announced that it would provide term funding through a Term
Auction Facility (TAF) to give banks the ability to access term funding using repurchase agreements with qualifying
collateral for a term of up to twelve months. On 10 March 2021, RBNZ announced to remove TAF and the final TAF
tenders was held on 16 March 2021.
From 26 May 2020, the RBNZ also made available, for a period of 6 months, a Term Lending Facility (TLF) to offer
loans for a fixed term of three years at the Official Cash Rate, with access to the funds linked to banks’ lending under
the Business Finance Guarantee Scheme. On 20 August 2020, RBNZ announced the change of the lending term to
five years. The availability of TLF was extended to 1 February 2021, and further extended to 28 July 2021.
Additional stimulus provided through a funding for lending programme also commenced in December 2020 designed
to enable banks to provide low-cost lending.
The Group had not utilised any of these facilities as at 30 June 2021.
The Group holds the following liquid assets and committed funding sources for the purpose of managing liquidity risk:
$000'sJune 2021June 2020
Cash and cash equivalents182,333 147,179
Investments3 5 7, 1 5 6 397,005
Undrawn committed bank facilities
311,993
390,762
Total liquidity851,482 934,946
Contractual liquidity profile of liabilities
The following tables present the Group's liabilities by relevant maturity groupings based upon contractual maturity
date. The amounts disclosed in the tables represent undiscounted future principal and interest cash flows. As
a result, the amounts in the tables below may differ to the amounts reported on the consolidated statement of
financial position.
The contractual cash flows presented below may differ significantly from actual cash flows. This occurs as a result
of future actions by the Group and its counterparties, such as early repayments or refinancing of term loans and
borrowings. Deposits and other public borrowings include customer savings deposits and transactional accounts,
which are at call. These accounts provide a stable source of long term funding for the Group.
129
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Heartland Annual Report 2021
June 2020
Financial liabilities
Deposits813,140 1,418,656 833,440 162,221 86,615 - 3,314,072
Other borrowings- 13,517 61,038 196,835 1,039,462 - 1,310,852
Lease liabilities- 1,400 1,415 5,730 7,634 7,085 23,264
Derivative financial liabilities- 5,722 4,665 5,297 1,354 - 17,038
Other financial liabilities- 26,751 - - - - 26,751
Total financial liabilities813,140 1,466,046 900,558 370,083 1,135,065 7, 0 8 5 4,691,977
Undrawn facilities available to
customers
260,098 - - - - - 260,098
Undrawn committed bank
facilities
390,762 - - - - - 390,762
23. Liquidity risk (continued)
Contractual liquidity profile of liabilities (continued)
$000's
On
Demand
0-6
Months
6 -12
Months
1-2
Years
2-5
Years
5+
Years
Total
June 2021
Financial liabilities
Deposits
971,924 1,291,863
560,232 292,091 91,107 - 3,207,217
Other borrowings
- 124,431
120,855 1,205,547 1 5 7, 8 5 5 181,244 1,789,932
Lease liabilities
- 1,419
1,433 2,836 7,605 7,085 20,378
Derivative financial liabilities
- 2,499
1,564 516 4 - 4,583
Other financial liabilities
- 18,688
- - - - 18,688
Total financial liabilities
971,924 1,438,900
684,084 1,500,990 256,571 188,329 5,040,798
Undrawn facilities available to
customers
299,544 -
- - - - 299,544
Undrawn committed bank
facilities
311,993 -
- - - - 311,993
The Group's market risk is derived primarily of exposure to interest rate risk, predominantly from raising funds
through the retail and wholesale deposit market, the debt capital markets and committed and uncommitted bank
funding, securitisation of receivables, and offering loan finance products to the commercial and consumer market
in New Zealand and Australia.
The Group’s exposure to market risk is governed by a policy approved by the Board and managed by the ALCO.
This policy sets out the nature of risk which may be taken and aggregate risk limits, and the ALCO must conform
to this. The objective of the ALCO is to derive the most appropriate strategy for the Group in terms of the mix of
assets and liabilities given its expectations of the future and the potential consequences of interest rate movements,
liquidity constraints and capital adequacy.
The objective of the Group’s interest rate risk policies is to limit underlying net profit after tax (NPAT) volatility.
The measurement comprises net interest income the Group generates from its interest earning assets and interest
bearing liabilities.
24. Interest rate risk
130
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
24. Interest rate risk (continued)
Contractual repricing analysis
The interest rate risk profile of financial assets and liabilities that follows has been prepared on the basis of maturity
or next repricing date, whichever is earlier.
$000's
0-3
Months
3-6
Months
6 -12
Months
1-2
Years
2+
Years
Non-
Interest
BearingTotal
June 2021
Financial assets
Cash and cash equivalents182,323 - - - - 10 182,333
Investments31,896 8,034 19,669 53,505 244,052 20,667 3 7 7, 8 2 3
Finance receivables1,587,718 151,674 299,305 462,900 715,032 71,837 3,288,466
Finance receivables - reverse
mortgages
1,676,073 - - - - - 1,676,073
Derivative financial assets- - - - - 14,139 14,139
Other financial assets- - - - - 2,292 2,292
Total financial assets3,478,010 159,708 318 , 974 516,405 959,084 108,945 5,541,126
Financial liabilities
Deposits1,670,667 570,068 554,340 285,025 85,077 18,277 3,183,454
Other borrowings1,342,612 50,837 - 153,751 1 2 7, 9 3 3 - 1,675,133
Derivative financial liabilities- - - - - 4,802 4,802
Lease liabilities- - - - - 18,166 18,166
Other financial liabilities- - - - - 18,687 18,687
Total financial liabilities3,013,279 620,905 554,340 438,776 213,010 59,932 4,900,242
Effect of derivatives held
for risk management
474,010 (9,023)(146,067)(85,669)(233,251)- -
Net financial assets/(liabilities)93 8 ,741 (470,220)(381,433)(8,040)512,823 49,013 640,884
The exposure to net interest income comes from a reduction in margins on interest earning assets or interest bearing
liabilities and is managed when setting rates by taking into consideration wholesale rates, liquidity premiums, as well
as appropriate lending credit margins.
An analysis of the Group’s sensitivity to an increase (+) or decrease (-) in market interest rates by 100 basis points
(BP) is as follows. An (+)/(-) to market interest rates of 100 BP would result in a $0.45 million (+)/(-) to NPAT (2020:
$1.5million (+)/(-)) with a corresponding impact to equity.
The Group also manages interest rate risk by:
• Monitoring maturity profiles and seeking to match the re-pricing of assets and liabilities;
• Monitoring interest rates daily and regularly (at least monthly) reviewing interest rate exposures; and
• Entering into derivatives to hedge against movements in interest rates.
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Heartland Annual Report 2021
24. Interest rate risk (continued)
Contractual repricing analysis (continued)
The tables above illustrate the periods in which the cash flows from interest rate swaps are expected to occur and
affect profit or loss.
$000's
0-3
Months
3-6
Months
6 -12
Months
1-2
Years
2+
Years
Non-
Interest
BearingTotal
June 2020
Financial assets
Cash and cash equivalents147,172 - - - - 7 147,179
Investments43,863 18,425 52,708 59,296 222,713 16,335 413,340
Finance receivables1,522,837 198,446 352,076 5 5 7, 5 6 9 400,658 13,609 3,045,195
Finance receivables - reverse
mortgages
1,538,585 - - - - - 1,538,585
Derivative financial assets- - - - - 17,246 17,246
Other financial assets- - - - - 3,563 3,563
Total financial assets3,252,457 216,871 404,784 616,865 623,371 50,760 5,165,108
Financial liabilities
Deposits1,616,521 585,482 815,366 155,219 7 7, 6 5 5 13,949 3,264,192
Other borrowings976,638 970 - - 290,323 - 1 , 2 6 7, 9 31
Derivative financial liabilities- - - - - 17,012 17,012
Lease liabilities- - - - - 20,456 20,456
Other financial liabilities- - - - - 26,751 26,751
Total financial liabilities2,593,159 586,452 815,366 155,219 3 6 7, 97 8 78,168 4,596,342
Effect of derivatives
held for risk management
557,955 (51,349)(239,137)( 2 3 7, 2 1 2 )(30,257)- -
Net financial assets/(liabilities)1,217,253 (420,930)(649,719)224,434 225,136 ( 27, 4 0 8 )568,766
132
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
Other Disclosures
25. Significant subsidiaries
26. Structured entities
Significant Subsidiaries
Country of
Incorporation and
Place of BusinessNature of Business
Proportion of ownership
and voting power held
June 2021June 2020
Heartland Bank LimitedNew ZealandBank100%100%
VPS Properties LimitedNew Zealand
Investment property
holding company
100%100%
MARAC Insurance Limited New ZealandInsurance services100%100%
Heartland Australia Holdings Pty LimitedAustraliaFinancial services100%100%
Heartland Australia Group Pty LimitedAustraliaFinancial services100%100%
Australian Seniors Finance Pty Limited AustraliaManagement services100%100%
$000'sJune 2021June 2020
Deposits153,244 166,676
$000'sJune 2021June 2020
Cash and cash equivalents9,047 5,493
Finance receivables126,399 78,066
Other borrowings(128,125)(79,012)
A structured entity is one which has been designed such that voting or similar rights are not the dominant factor
in deciding who controls the entity. Structured entities are created to accomplish a narrow and well-defined
objective such as the securitisation or holding of particular assets, or the execution of a specific borrowing or lending
transaction. Structured entities are consolidated where the substance of the relationship is that the Group controls
the structured entity.
(a) Heartland Cash and Term PIE Fund (Heartland PIE Fund)
The Group controls the operations of the Heartland PIE Fund which is a portfolio investment entity that invests in the
Group's deposits. Investments of Heartland PIE Fund are represented as follows:
(b) Heartland Auto Receivables Warehouse Trust 2018-1 (Auto Warehouse)
The Auto Warehouse securitises motor loan receivables as a source of funding.
The Group continues to recognise the securitised assets and associated borrowings in the consolidated statement
of financial position as the Group remains exposed to and has the ability to affect variable returns from those assets
and liabilities. Although the Group recognises those interests in Auto Warehouse, the loans sold to Auto Warehouse
are set aside for the benefit of investors in Auto Warehouse and other depositors and lenders to the Group have no
recourse to those assets.
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Heartland Annual Report 2021
26. Structured entities (continued)
27. Staff share ownership arrangements
$000'sJune 2021June 2020
Cash and cash equivalents29,170 26,491
Finance receivables - reverse mortgages934,523 929,179
Other borrowings(822,112)(783,373)
$000'sJune 2021
Cash and cash equivalents17, 5 9 2
Finance receivables - reverse mortgages140,044
Other borrowings(145,943)
(c) Seniors Warehouse Trust, Seniors Warehouse Trust No.2 (together the SW Trusts) and ASF Settlement
Trust (ASF Trust)
SW Trusts and ASF Trust (collectively the Trusts) form part of ASF's reverse mortgage business and were set up
by ASF as asset holding entities. The Trustee for the Trusts is ASF Custodians Pty Limited and the Trust Manager is
ASF. The reverse mortgage loans held by the Trusts are set aside for the benefit of the investors in the Trusts. The
balances of SW Trusts and ASF Trust are represented as follows:
The Group operates a number of share-based compensation plans that are equity settled. The fair value determined
at the grant date is expensed on a straight line basis over the vesting period, based on the Group’s estimate of equity
instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period
the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised
estimate, with a corresponding adjustment to the employee benefits reserve.
(a) Share-based compensation plan details
Heartland performance rights plan (PR plan)
The PR plan was established to enhance the alignment of participants' interests with those of the Group’s
shareholders. Under the PR plan participants are issued performance rights which will entitle them to receive shares
in the Group. As at June 2020, there were 3 tranches being 2017, 2018 and 2022. The 2017 and 2018 tranche
rules have been aligned to the PR Plan 2022, and therefore they all have the same terms and conditions applying
regarding participants, awarding of PR, measurement date and vesting as outlined below.
(d) Atlas 2020-1 Trust (Atlas Trust)
Atlas Trust was set up on 11 September 2020 as part of ASF's reverse mortgage business similar to the existing SW
Trusts and ASF Trust. The Trustee for the Trust is BNY Trust Company of Australia Limited and the Trust Manager is
ASF. The balances of Atlas Trust are represented as follows:
134
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
27. Staff share ownership arrangements (continued)
(a) Share-based compensation plan details (continued)
PR Plan 2022 Tranche (PR plan 2022)
The number of performance rights offered is determined by the participant’s long-term incentive (LT I) value over the
volume weighted average price (V WAP) of the Group's ordinary shares on the NZX Main Board for the 20 business
days immediately before (and excluding) the issue date. The issue date is 14 September 2019. Performance rights do
not entitle participants to dividends or voting rights.
The performance rights are issued subject to the participants’ continued employment with the Group until the
measurement date and the Group achieving its financial measures, strategic objectives and culture and conduct
objectives, over the period commencing 1 July 2019 and ending on 30 June 2022. The targets are dynamic and
may be adjusted by the Board from time to time in order to account for unanticipated capital changes during the
performance period. The measurement date is the business days following the date on which the Group announces
its full year results for the financial year ended 2022.
Performance rights will vest on the measurement date to the extent these criteria have been met, but subject to caps
and also to retesting on a later measurement date if the criteria are not met on the initial measurement date.
PR Plan 2023 Tranche (PR plan 2023)
PR plan 2023 was issued for period commencing 1 July 2020 and ending on 30 June 2023. The tranche rules have
been aligned with PR plan 2022. The measurement date for this tranche is the business date on which the Group
announces its full year results for the financial year ended 2023.
(b) Effect of share-based payment transactions
As at 30 June 2021, $3.0 million of the share scheme awards remain unvested and not expensed (2020: $1.9 million).
This expense will be recognised over the vesting period of the awards.
June 2021
PR Plan Number
of Rights
June 2020
PR Plan Number
of Rights
Opening balance3,216,927 3,121,340
Granted- (816,858)
Issued5,342,289 1,230,740
Forfeited(816,940)(318,295)
Closing balance7, 74 2 , 276 3,216,927
$000'sJune 2021June 2020
Award of Shares
PR Plan1,797 516
Total expense recognised1,797 516
135
|
Heartland Annual Report 2021
27. Staff share ownership arrangements (continued)
28. Insurance business, securitisation, funds management, other fiduciary activities
(c) Number of rights outstanding
Insurance business
Marac Insurance Limited, a subsidiary of HBL, no longer conducts Insurance business as HBL entered into a
distribution agreement with DPL Insurance Limited to distribute DPL's insurance products through HBL's network.
MIL stopped writing insurance policies in the prior year with the last policies expected to expire in 2025.
The Group's aggregate amount of insurance business comprises the total consolidated assets of MIL of $8.5 million
(2020: $10.9 million), which represents 0.15% of the total consolidated assets of the Group (2020: 0.20%).
Securitisation, funds management and other fiduciary activities
Changes to the Group’s involvement in securitisation activities are set out in Note 26. There have been no material
changes to the Group’s involvement in funds management and other fiduciary activities during the year.
June 2021June 2020
000's
Rights
Outstanding
Remaining
Years
Rights
Outstanding
Remaining
Years
PR Plan - 20171,943 1 2,039 2
PR Plan - 2018170 1 259 2
PR Plan - 2022722 1 919 2
PR Plan - 20234,908 2 - -
Total7, 74 3 3,217
136
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
29. Concentrations of funding
(a) Concentrations of funding by industry
The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis for
categorising customer industry sectors.
(b) Concentration of funding by geographical area
$000'sJune 2021June 2020
Agriculture102,107 109,268
Forestry and fishing14,226 14,901
Mining94 35
Manufacturing11,592 6,976
Finance and insurance1,669,055 1,431,320
Wholesale trade11,218 10,855
Retail trade and accommodation28,521 20,423
Households2,322,514 2,263,668
Rental, hiring and real estate services46,245 41,348
Construction24,231 19,702
Other business services58,334 63,697
Transport and storage4,337 4,552
Other 44,714 97,150
Total4 , 3 37, 1 8 8 4,083,895
Unsubordinated notes521,399 448,228
Total borrowings4,858,587 4,532,123
$000'sJune 2021June 2020
New Zealand3,599,337 3,470,744
Overseas
1,259,250
1,061,379
Total borrowings4,858,587 4,532,123
137
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Heartland Annual Report 2021
30. Contingent liabilities and commitments
31. Events after the reporting date
$000's
June 2021June 2020
Letters of credit, guarantee commitments and performance bonds13,484 6,515
Total contingent liabilities13,484 6,515
Undrawn facilities available to customers299,544 260,098
Conditional commitments to fund at future dates19,083 58,045
Total commitments
318,627 318,143
The Group in the ordinary course of business will be subject to claims and proceedings against it whereby the
validity of the claim will only be confirmed by uncertain future events. In such circumstances the contingent liabilities
are possible obligations, or present obligations if known, where the transfer of economic benefit is uncertain or
cannot be reliable measured. Contingent liabilities are not recognised, but are disclosed, unless they are remote.
Where some loss is probable, provisions have been made on a case by case basis.
Contingent liabilities and credit related commitments arising in respect of the Group's operations were:
HGH subsidiary Heartland Australia Group Pty Limited completed a senior unsecured bond issuance of AU $45
million on 9 July 2021.
The Group declared a fully imputed final dividend of 7 cents per share on 23 August 2021.
On Tuesday 17 August 2021 the New Zealand Government, in response to a community outbreak of the Delta
COVID variant, placed New Zealand into an immediate Level 4 lockdown. The Directors have considered the impact
of this, on the reported performance of the Group, and consider the reported performance has adequately allowed
for the potential impact of COVID at this time, and that the current lockdown does not affect the reported result for
the 12 months ended 30 June 2021.
There have been no other material events after the reporting date that would affect the interpretation of the
consolidated financial statements or the performance of the Group.
138
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member
firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Independent Auditor’s Report
To the shareholders of Heartland Group Holdings Limited
Report on the audit of the consolidated financial statements
Opinion
We have audited the accompanying consolidated
financial statements of Heartland Group Holdings
Limited and its subsidiaries (the “Group”) which
comprise:
— the consolidated statement of financial position
as at 30 June 2021;
— the consolidated statements of comprehensive
income, changes in equity and cash flows for
the year then ended; and
— notes, including a summary of significant
accounting policies and other explanatory
information.
In our opinion, the accompanying consolidated
financial statements of the Group on pages 83 to 138:
i.present fairly in all material respects the Group’s
financial position as at 30 June 2021 and its
financial performance and cash flows for the
year ended on that date; and
ii.comply with New Zealand Equivalents to
International Financial Reporting Standards and
International Financial Reporting Standards.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (“ISAs (NZ)”). We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of
Ethics for Assurance Practitioners (Including International Independence Standards) (New Zealand) issued by the
New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for
Accountants’ International Code of Ethics for Professional Accountants (including International Independence
Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the
consolidated financial statements section of our report.
Our firm has also provided other services to the Group in relation to the review of the Group’s consolidated
interim financial statements, regulatory assurance services, agreed upon procedure engagements and supervisor
reporting. Subject to certain restrictions, partners and employees of our firm may also deal with the Group on
normal terms within the ordinary course of trading activities of the business of the Group. These matters have
not impaired our independence as auditor of the Group. The firm has no other relationship with, or interest in, the
Group.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually
and on the consolidated financial statements as a whole. The materiality for the consolidated financial statements
as a whole was set at $5,820,000 determined with reference to a benchmark of the Group’s profit before tax.
We chose the benchmark because, in our view, this is a key measure of the Group’s performance.
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member
firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Independent Auditor’s Report
To the shareholders of Heartland Group Holdings Limited
Report on the audit of the consolidated financial statements
Opinion
We have audited the accompanying consolidated
financial statements of Heartland Group Holdings
Limited and its subsidiaries (the “Group”) which
comprise:
— the consolidated statement of financial position
as at 30 June 2021;
— the consolidated statements of comprehensive
income, changes in equity and cash flows for
the year then ended; and
— notes, including a summary of significant
accounting policies and other explanatory
information.
In our opinion, the accompanying consolidated
financial statements of the Group on pages 83 to 139:
i.present fairly in all material respects the Group’s
financial position as at 30 June 2021 and its
financial performance and cash flows for the
year ended on that date; and
ii.comply with New Zealand Equivalents to
International Financial Reporting Standards and
International Financial Reporting Standards.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (“ISAs (NZ)”). We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of
Ethics for Assurance Practitioners (Including International Independence Standards) (New Zealand) issued by the
New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for
Accountants’ International Code of Ethics for Professional Accountants (including International Independence
Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the
consolidated financial statements section of our report.
Our firm has also provided other services to the Group in relation to the review of the Group’s consolidated
interim financial statements, regulatory assurance services, agreed upon procedure engagements and supervisor
reporting. Subject to certain restrictions, partners and employees of our firm may also deal with the Group on
normal terms within the ordinary course of trading activities of the business of the Group. These matters have
not impaired our independence as auditor of the Group. The firm has no other relationship with, or interest in, the
Group.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually
and on the consolidated financial statements as a whole. The materiality for the consolidated financial statements
as a whole was set at $5,820,000 determined with reference to a benchmark of the Group’s profit before tax.
We chose the benchmark because, in our view, this is a key measure of the Group’s performance.
We agreed with the Audit Committee that we would report to them, misstatements identified during our audit
above $290,000 as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements in the current period. We summarise below those matters and our key
audit procedures to address those matters in order that the shareholders as a body may better understand the
process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely
for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not
express discrete opinions on separate elements of the consolidated financial statements.
The key audit matter How the matter was addressed in our audit
Provision for impairment of finance receivables
Refer to notes 1, 13 and 22 to the consolidated financial statements.
The provision for impairment of finance
receivables is a key audit matter due to the
financial significance and the inherent
complexity of the Group’s expected credit loss
(“ECL”) models.
Significant judgement and estimates are
required to incorporate forward-looking
information to reflect future economic
conditions.
The collective provision is estimated through
the ECL models using historical data which is
adjusted for forward looking information and
the assigned risk grade or arrears status.
Additionally, management apply judgement in
the determination of provision overlays to
adjust for future market conditions.
The level of judgement involved in determining
the provision for collectively impaired assets
requires us to challenge the appropriateness
of management’s assumptions.
The provision for individually impaired assets is
based on the application of management
judgement regarding expected future
cashflows, which are inherently uncertain.
Together with KPMG credit risk specialists we assessed the Group’s
collective and individual provisions. Our procedures, amongst others,
included:
Assessing the Group’s governance and oversight, including the
continuous reassessment of overall provisioning;
Assessing the Group’s significant accounting policies and
expected credit loss (“ECL”) modelling methodology against
the requirements of the standards and underlying accounting
records;
Testing key controls including the arrears calculations,
customer loan ratings, annual loan reviews, credit risk reviews
and data reconciliations between the ECL models and source
systems;
Assessing the model output against actual losses incurred by
the Group;
Challenging the key assumptions, including forward looking
economic assumptions, against external information including
benchmarking management’s estimates to a range of different
market forecasts;
Evaluating individual credit assessments for a sample of ‘rural’
and other ‘corporate’ loans on management’s credit watchlist.
This included inspection of the latest correspondence with the
borrower, assessment of the provision estimates prepared by
credit risk officers, and consideration of the resolution strategy.
We challenged assumptions and assessed collateral values by
comparing them to valuations performed by independent
valuers; and
Assessing the disclosures in the consolidated financial
statements against the requirements of NZ IFRS.
From the procedures performed we consider the Group
appropriately identified and considered the uncertainties in the
provision estimates.
140
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
The key audit matter How the matter was addressed in our audit
Valuation of finance receivables – reverse mortgages
Refer to note 20 of the consolidated financial statements.
The Group’s reverse mortgage portfolio is held
at fair value.
The fair value calculation is based on the
application of management judgement. In
assessing the fair value, the Group
continuously considers evidence of a relevant
active market. In the absence of such a
market, in the current period, the Group
considered changes since loan origination and
expected future cashflows.
The inherent uncertainties include estimated
exits, interest rates and security property
values.
Our procedures over the fair value loan portfolios, amongst others,
included:
Testing key controls over the accuracy of data impacting the
fair value assessment;
Assessing evidence of a relevant active market or observable
inputs; and
Challenging the key assumptions used by the Group in
determining the portfolio’s fair value.
The estimates and assumptions used to determine the valuation of
finance receivables are reasonable, with no evidence of management
bias or influence identified from our procedures.
Operation of IT systems and controls
The Group is reliant on complex IT systems for
the processing and recording of significant
volumes of transactions and other core
banking activity.
For significant financial statement balances,
such as finance receivables and deposits,
where relevant, our audit involves an
assessment of the design of the Group’s
internal control environment. There are some
areas of the audit where we seek to test and
place reliance on IT systems, automated
controls and reporting.
The effective operation of these controls is
dependent upon the Group’s general IT control
environment, which incorporates controls
relevant to IT system changes and
development, IT operations, and developer
and user access.
Our audit procedures, amongst others, included:
Gaining an understanding of business processes, key controls
and IT systems relevant to significant financial statement
balances, including technology services provided by a third
party;
Assessing the effectiveness of the IT control environment,
including core banking IT systems, key automated controls and
reporting; and
Evaluating general IT controls relevant to IT system changes
and development, IT operations, and developer and user
access.
Where we noted design or operating effectiveness matters relating
to IT system or application controls relevant to our audit, we
performed alternative audit procedures. We also identified and tested
mitigating controls in order to respond to the impact on our overall
audit approach.
We did not identify any material issues or exceptions from those
additional procedures.
Other information
The Directors, on behalf of the Group, are responsible for the other information included in the entity’s Annual
Report. Other information may include the Chairman’s Report, Chief Executive Officer’s Report and disclosures
relating to corporate governance. Our opinion on the consolidated financial statements does not cover any other
information and we do not express any form of assurance conclusion thereon.
The Annual Report is expected to be made available to us after the date of this Independent Auditor's
Report. Our responsibility is to read the Annual Report when it becomes available and consider whether the
other information it contains is materially inconsistent with the consolidated financial statements, or our
knowledge obtained in the audit, or otherwise appear misstated. If so, we are required to report such matters to
the Directors.
141
|
Heartland Annual Report 2021
Use of this independent auditor’s report
This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been
undertaken so that we might state to the shareholders those matters we are required to state to them in the
independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent
auditor’s report, or any of the opinions we have formed.
Responsibilities of the Directors for the consolidated financial statements
The Directors, on behalf of the Group, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with generally
accepted accounting practice in New Zealand (being New Zealand Equivalents to International Financial
Reporting Standards) and International Financial Reporting Standards;
— implementing necessary internal control to enable the preparation of consolidated financial statements that
are fairly presented and free from material misstatement, whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to liquidate or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial
statements
Our objective is:
— to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error; and
— to issue an independent auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs NZ will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at
the External Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.
The engagement partner on the audit resulting in this independent auditor's report is Graeme Edwards.
For and on behalf of
KPMG
Auckland
23 August 2021
142
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021
Spread of shares
Set out below are details of the spread of shareholders of Heartland as at 30 August 2021 (being a date not more
than two months prior to the date of this Annual Report).
Size of holdingNumber of shareholdersTotal shares% of issued shares
1 - 1,000 shares1,464798,5550.14
1,001 - 5,000 shares3,1518,958,8341.53
5,001 - 10,000 shares2,21416,458,6582.81
10,001 - 50,000 shares4,461100,598,40817.17
50,001 - 100,000 shares78554,253,9979.26
100,001 shares and over518404,835,91369.10
Total12,593585,904,365100.00
Shareholder information
Mōhiohio o te hunga whaipānga
143
|
Heartland Annual Report 2021
Twenty largest shareholders
Set out below are details of the 20 largest shareholders of Heartland as at 30 August 2021 (being a date not more
than two months prior to the date of this Annual Report).
RankShareholderTotal shares% of issued shares
1Harrogate Trustee Limited58,392,9979.97
2FNZ Custodians Limited32,253,8725.50
3Citibank Nominees (NZ) Limited 23,935,6554.09
4Custodial Services Limited15,199,4942.59
5Oceania & Eastern Limited13,267,2852.26
6New Zealand Depository Nominee11,631,1441.99
7Philip Maurice Carter11,416,6471.95
8Accident Compensation Corporation 10,092,1521.72
9Hobson Wealth Custodian Limited9,374,7951.60
10BNP Paribas Nominees NZ Limited9,026,3481.54
11JPMORGAN Chase Bank 7, 6 76 , 9 3 31.31
12HSBC Nominees (New Zealand) Limited 7,204,3221.23
13Pt Booster Investments Nominees Limited 7,099,7271.21
14Heartland Trust 6,475,9761.11
15HSBC Nominees (New Zealand) Limited 6,032,8021.03
16Forsyth Barr Custodians Limited 5,218,3720.89
17Jarden Custodians Limited4,794,6670.82
18FNZ Custodians Limited4,583,1290.78
19ASB Nominees Limited4,000,0000.68
20Pub lic Tr us t3,292,9370.56
Total250,969,25442.83
Substantial product holders
As at 30 June 2021, the following product holders are substantial product holders in Heartland. Heartland had
585,904,365 ordinary shares on issue, being the only class of quoted voting products on issue.
Name
Number of sharesClass of shares
% of total number
of shares in class
Harrogate Trustee Limited and
Gregory Raymond Tomlinson
58,392,997Ordinary9.97
144
Auditors’ fees
KPMG has continued to act as auditors of Heartland and its subsidiaries. The amount payable by Heartland and
its subsidiaries to KPMG as audit fees during the year ended 30 June 2021 was $790,000. The amount of fees
payable to KPMG for non-audit work during the year ended 30 June 2021 was $103,000. These non-audit fees
were primarily for regulatory assurance services, agreed upon procedures engagements and supervisor reporting.
Credit rating
As at the date of this Annual Report, Heartland has a Fitch Australia Pty Limited long-term credit rating of
BBB (outlook stable).
Donations
The total amount of donations made by Heartland and its subsidiaries during the year ended 30 June 2021
was $14,355.
Exercise of NZX disciplinary powers
NZX Limited did not exercise any of its powers under Listing Rule 9.9.3 in relation to Heartland and its
subsidiaries during the year ended 30 June 2021.
NZX waivers
No waivers were granted to the Group by NZX, or relied on by the Group, within the 12-month period preceding 30
June 2021 other than the NZX class waiver providing issuers with additional time to prepare and release their full
year results announcement and annual report in recognition that COVID-19 impacted issuers’ abilities to meet the
usual reporting timeframes which the Group relied upon in connection with the financial year ended 30 June 2020.
Other information
Mōhiohio kē atu
145
|
Heartland Annual Report 2021
Directory
Te rēhita
146
heartland.co.nz
---
2021
Annual
Meeting
Hui ā-tau
Heartland Group Holdings Limited
invites you, our shareholders,
to join us at our Annual Meeting.
The meeting will be held online at
www.virtualmeeting.co.nz/hgh21
and, subject to New Zealand’s
COVID-19 Alert Level status, in
person at Eden Park, Reimers
Avenue, Kingsland, Auckland,
New Zealand on Thursday 28
October 2021 commencing at 2pm
(New Zealand time).
1
Heartland may, in its sole discretion, elect to hold the annual
meeting as an online only meeting if it considers there are
potential risks to the health of attendees or if an in-person
meeting is prohibited by law. In such circumstances,
Heartland will provide shareholders with as much notice
as is reasonably practicable by way of an announcement
to the NZX and ASX, and on our website at shareholders.
heartland.co.nz/shareholder-resources/annual-meetings.
Ellen Comerford, Sir Christopher Mace, Geoff Summerhayes
and Kate Mitchell will be retiring and Ellen Comerford,
Geoff Summerhayes and Kate Mitchell will be standing for
re-election at the annual meeting. Shareholders will be
asked to vote on their re-election as directors. The board
unanimously supports the re-election of Ellen, Geoff and
Kate. You can read about each of their backgrounds in the
explanatory notes to this notice of meeting.
If you are unable to attend the annual meeting, I encourage
you to cast a postal vote or appoint a proxy to attend and
vote at the annual meeting on your behalf. Your personalised
voting form accompanies this notice of meeting.
In the event we are able to hold the annual meeting in
person, for those shareholders who do attend in person,
please bring the enclosed voting form with you to assist
with your registration.
Yours sincerely
Geoffrey Ricketts
Chair of the Board
Dear Shareholders,
On behalf of the Board, I am pleased to
invite you to the 2021 Annual Meeting
of Heartland Group Holdings Limited
(Heartland).
The meeting will be held online at
www.virtualmeeting.co.nz/hgh21 and,
subject to New Zealand’s COVID-19
Alert Level status, in person at Eden Park,
Reimers Avenue, Kingsland, Auckland,
New Zealand on Thursday 28 October
2021 commencing at 2pm
(New Zealand time).
HEARTLAND ANNUAL MEETING 2021
2
Agenda for the Annual Meeting
To consider, and if thought fit, to pass the following resolutions:
Resolution 1: Re-election of Ellen Comerford
That Ellen Comerford, who retires by rotation and is eligible for
re-election, be re-elected as a director of Heartland.
Resolution 1 is an ordinary resolution, requiring approval by a
majority (being more than 50%) of the votes of those shareholders
entitled to vote and voting.
Resolution 2: Re-election of Geoff Summerhayes
That Geoff Summerhayes, who retires in accordance with the
constitution and is eligible for re-election, be re-elected as a
director of Heartland.
Resolution 2 is an ordinary resolution, requiring approval by a
majority (being more than 50%) of the votes of those shareholders
entitled to vote and voting.
Resolution 3: Re-election of Kate Mitchell
That Kate Mitchell, who retires in accordance with the constitution
and is eligible for re-election, be re-elected as a director of Heartland.
Resolution 3 is an ordinary resolution, requiring approval by a
majority (being more than 50%) of the votes of those shareholders
entitled to vote and voting.
Resolution 4: Auditor’s remuneration
That the board be authorised to fix the remuneration of Heartland’s
auditor, KPMG, for the financial year ending 30 June 2022.
Resolution 4 is an ordinary resolution, requiring approval by a
majority (being more than 50%) of the votes of those shareholders
entitled to vote and voting.
A brief description of each resolution is included in the explanatory
notes. The board unanimously supports each resolution.
Geoffrey Ricketts
Chair of the Board
27 September 2021
Explanatory Notes
Resolutions 1, 2 & 3: Re-election
of Ellen Comerford, Geoff
Summerhayes and Kate Mitchell
Heartland’s constitution and the NZX
Listing Rules require each director to
retire by rotation at least every three
years. This year, Ellen Comerford
and Sir Christopher Mace are retiring
and Ellen Comerford is standing for
re-election.
Heartland’s constitution also
requires any director appointed
by the board to retire at the first
subsequent Annual Meeting. Geoff
Summerhayes and Kate Mitchell
were appointed by the board with
effect from 1 October 2021 and they
are both standing for re-election.
Brief biographies of Ellen Comerford,
Geoff Summerhayes and Kate
Mitchell are provided on the
following page.
Resolution 4: Auditor’s
remuneration
KPMG will be automatically
reappointed as Heartland’s
auditor under section 207T of the
Companies Act 1993. It is proposed
that the board be authorised to fix
KPMG’s remuneration for the year
ending 30 June 2022 in accordance
with section 207S of the Companies
Act 1993.
A. Chair’s Welcome and Address
B. Chief Executive Officer’s Review
C. Shareholder Discussion
D. Formal Business
HEARTLAND ANNUAL MEETING 2021
3
Ellen (Ellie) was appointed to the Heartland Board on 31 October 2018 after
originally joining the Heartland Bank Board in January 2017. She is Chair of
Heartland’s Audit and Risk Committee.
Ellie has worked for more than three decades in financial services in Australia
and overseas across a range of banking and insurance businesses in both
an executive and non-executive capacity. Ellie currently is Senior Strategic
Advisor and executive director for Hollard Holdings Australia Pty Ltd as
well as non-executive director for other companies including The Hollard
Insurance Company Pty Ltd, Lendi Group Pty Ltd (merger of Auscred Limited
and Aussie Home Loans Holdings in May 2021) and Airtasker Limited (listed
on ASX:ART in March 2021). Prior roles include Group CFO Hollard Insurance
in Australia, CEO and Managing Director for Genworth Mortgage Insurance
Australia Limited (successfully listing on the ASX in 2014) and a range of
senior executive positions at First American Financial Services and Citigroup.
Ellie is a member of Chief Executive Women in Australia (a forum to educate
and influence Australian business and government on the importance of
gender balance).
Kate was appointed to the board of Heartland subsidiary,
Heartland Bank Limited, in March 2019 and continues in that role.
Prior to moving to New Zealand in 2014, Kate spent 20 years working in
investment banking in the UK, with firms such as Merrill Lynch, Goldman
Sachs and, most recently, Deutsche Bank, where she held a variety of
senior client coverage and management roles in the areas of financial risk
management, structured financing and investments. She now co-runs a
Christchurch-based consulting business, advising SMEs on succession
planning, strategy and governance.
Kate is currently a director of a number of companies including Christchurch
International Airport Limited, The New Zealand Merino Company Limited,
Link Engine Management Limited and FarmRight Limited.
Ellen Comerford
Geoff Summerhayes
Kate Mitchell
HEARTLAND ANNUAL MEETING 2021
Geoff Summerhayes is a professional director and senior advisor. He has
extensive commercial and regulatory experience across a wide range of
sectors including banking, insurance and financial services prudential
regulation. He was a Board member of the Australian Prudential Regulation
Authority (APRA) for a five-year term until December 2020.
Geoff is recognised as a global leader on climate change financial risk through
his regulatory work at APRA, the International Association of Insurance
Supervisors (IAIS) and the UN Environment Programme where he chaired
the Sustainable Insurance Forum. He has served as an executive committee
member on the IAIS where he chaired the Audit and Risk Committee. Prior to
his Board role at APRA, Geoff was CEO of Suncorp Life in Australia and New
Zealand, held a number of senior executive roles at National Australia Bank in
strategy, and asset finance, business banking products and distribution.
Geoff is currently a senior advisor to the Pollination Group, a climate advisory
and investment firm, and is on the advisory board of CSIRO Agriculture
and Food. He also co-authored an insurance submission for COP26 for the
University of Cambridge.
5
Voting
Each shareholder will be entitled to one vote for every
share held as at 5pm (New Zealand time) on Tuesday
26 October 2021.
Your right to vote may be exercised by:
– attending the meeting and voting in person;
– attending the online meeting and voting online;
– submitting a postal vote; or
– appointing a proxy (or representative) to attend
the meeting and vote in your place (Proxy).
If you are attending the meeting in person, please bring
the enclosed voting form that will act as your admission
card to the meeting.
How to submit a postal vote or appoint a proxy
If you are not able to attend the annual meeting, either
in person or online, but wish to submit a postal vote or
appoint a Proxy to attend the meeting and vote on your
behalf, you can:
– lodge your postal vote or appoint a Proxy online
at vote.linkmarketservices.com/HGH. You will be
required to enter your CSN/Holder Number and
Authorisation Code (FIN). If you do not have a FIN
number, please contact Link Market Services at
09 375 5998 or enquiries@linkmarketservices.co.nz;
or
– complete and return your voting form in accordance
with the instructions on the voting form.
Your completed voting form must be received by
Link Market Services, or your postal vote or your Proxy
appointment lodged online, by no later 2pm
(New Zealand time) on Tuesday 26 October 2021.
If you wish, you may appoint the Chair of the meeting
as your proxy. To do so, please write “Chair of the
meeting” in the relevant section. The Chair will vote
according to your instructions. If the Chair is not instructed
how to vote, the Chair will vote as he or she thinks fit.
How to attend the online meeting
To attend the online meeting, please go to
www.virtualmeeting.co.nz/hgh21. Shareholders
attending online will be able to vote during the annual
meeting. Shareholders who will be attending
the online meeting and wish to ask a question
are encouraged to submit their question(s) prior
to the annual meeting in accordance with the
instructions below. More information regarding
virtual attendance at the annual meeting (including
how to vote during the meeting) is available in the
Virtual Annual Meeting Online Portal Guide available
at bcast.linkinvestorservices.co.nz/generic/docs/
OnlinePortalGuide.pdf.
Shareholder questions prior to the annual meeting
Shareholders present at the annual meeting will have
the opportunity to ask questions during the meeting.
If you cannot attend the annual meeting but would
like to ask a question, you can submit a question
by going to vote.linkmarketservices.com/HGH or
emailing your proxy form with your question to
meetings@linkmarketservices.com
(please put the
words Heartland Group Holdings Proxy Form in
the subject line for easy identification)
. Shareholder
questions will need to be submitted by 2pm
(New Zealand time) on Tuesday 26 October 2021.
Questions should relate to matters being addressed
at the annual meeting.
Procedural Notes
HEARTLAND ANNUAL MEETING 2021
REIMERS AVENUE
CRICKET
AVENUE
EAST STAND
SANDRINGHAM ROAD
NEW NORTH ROAD
WALTERS ROAD
NORTH STAND
SOUTH STAND
WEST STAND
BELLWOOD AVENUE
RALEIGH STREET
EDEN PARK
G
ENTRY
HEARTLAND ANNUAL MEETING 2021
Venue and parking information
Pending New Zealand’s COVID-19 Alert Level status, the physical meeting will be held in:
The Loyalty Lounge, Eden Park, Reimers Avenue, Kingsland, Auckland, New Zealand.
Please enter Eden Park via Gate G.
Free parking is available in P5 off Reimers Avenue. Security will assist with directing you to the nearest available
car parking spaces. The Loyalty Lounge is located on Level 3 and can be accessed via the lift.
---
2021 Annual Meeting
Eden Park, Reimers Avenue, Kingsland, Auckland and online at
www.virtualmeeting.co.nz/hgh21 at 2pm on Thursday 28 October 2021.
How to lodge your postal vote/proxy appointment:
Online:
http://vote.linkmarketservices.com/HGH
Email: meetings@linkmarketservices.com
Mail: Use the enclosed reply paid envelope or send to:
Link Market Services Limited PO Box 91976,
Auckland 1142, New Zealand
Deliver: Link Market Services Limited, Level 30, PwC Tower,
15 Customs Street West, Auckland 1010
Scan this
QR Code with your
smartphone and vote online
Heartland Group Holdings Limited (Heartland) is closely monitoring the situation in New Zealand with regard to COVID-19. In the event of
any significant developments, Heartland may, in its sole discretion, elect to hold the annual meeting as an online only meeting if it considers
there are potential risks to the health of meeting attendees or if an in-person meeting is prohibited by law. In such circumstances, Heartland
will provide shareholders with as much notice as is reasonably practicable by way of an announcement to the NZX and ASX and on our
website at https://shareholders.heartland.co.nz/shareholder-resources/annual-meetings.
Admission card
If you are attending the meeting, keep this form intact and bring it to the meeting for registration purposes.
If you are not attending the meeting, but wish to make a postal vote or appoint a proxy, you can do so online or by completing and returning
this form to Link Market Services Limited. It must be received by no later than 2pm on Tuesday 26 October 2021. This is the cut-off time for
postal votes to be cast and proxies to be appointed online.
Signing this form
If your shares are held by:
(a) an individual, this form must be signed by the individual (or his or her duly authorised attorney);
(b) a company, this form must be signed by a duly authorised signatory of the company (including a director);
(c) a trust, this form should be signed as above by at least one trustee in accordance with the relevant trust deed (in accordance with (a) or
(b) above, as applicable if the trustee is an individual or a company);
(d) a partnership, this form should be signed by at least one partner in accordance with the rules governing the partnership (in accordance
with (a) or (b) above, as applicable if the partner is an individual or a company); or
(e) joint shareholders, this form should be signed by at least one joint shareholder (or as otherwise required by the arrangements between
the joint shareholders) in accordance with the relevant method for that joint shareholder set out above.
If this form is completed by an attorney or representative, a copy of the power of attorney or letter of appointment of representative (unless
previously provided), must accompany this form together with a completed certificate of non-revocation of authority.
Postal voting
If you are entitled to vote at the meeting, you may cast a postal vote by ticking the Postal Vote box, completing the Resolutions section and
signing and returning this form. Alternatively, you can cast your postal vote online.
If you return a postal vote without indicating how you wish to vote on a resolution, you will be deemed to have abstained from voting on that
resolution. If you lodge a postal vote and also appoint a proxy, your postal vote will take priority over your proxy appointment.
Appointing a proxy
If you are entitled to vote at the meeting, you may appoint a proxy by completing the Appointment of Proxy and Resolutions sections and
signing and returning this form. Alternatively, you can appoint a proxy online. If you return this form without appointing a proxy, it will be
treated as a postal vote.
A Proxy does not have to be a Heartland shareholder. If your Proxy does not attend the meeting, your vote will not be counted (unless you
have cast a postal vote before the meeting).
If you appoint a proxy to vote on your behalf and tick the “Proxy’s Discretion” box for a resolution, or do not direct your proxy how to vote on a
resolution, your proxy will vote as he/she sees fit on that resolution. If you wish, you may appoint the Chair of the meeting as your proxy. To do
so, please write “Chair of the meeting” in the Appointment of Proxy section. The Chair will vote according to your instructions. If the Chair is
not instructed how to vote, he will vote as he thinks fit.
Voting and Proxy form
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Question:
ForAgainst
Proxy’s
discretionAbstain
1. That Ellen Comerford, who retires by rotation and is eligible for re-election,
be re-elected as a director of Heartland.
2. That Geoff Summerhayes, who retires in accordance with the constitution
and is eligible for re-election, be re-elected as a director of Heartland.
3. That Kate Mitchell, who retires in accordance with the constitution and
is eligible for re-election, be re-elected as a director of Heartland.
4. That the Board be authorised to fix the remuneration of Heartland’s
auditor, KPMG, for the financial year ending 30 June 2022.
Voting and Proxy form
Postal vote
COMPLETE THIS SECTION IF YOU WILL NOT ATTEND THE MEETING BUT WISH TO CAST A POSTAL VOTE OR DIRECT YOUR PROXY
HOW TO VOTE AT THE MEETING
I/ We wish to vote by Postal Vote (please tick the box).
Appointment of proxy
COMPLETE THIS SECTION IF YOU WILL NOT ATTEND THE MEETING BUT WISH TO APPOINT SOMEONE TO ATTEND ON YOUR BEHALF
I/We being a shareholder/s of Heartland hereby appoint:
Full name E-mail address
as my/our proxy (or representative, if a body corporate) to attend the meeting on my/our behalf and any adjournment of the meeting and to
vote on my/our behalf at the meeting and any adjournment of the meeting in accordance with my/our directions below.
Resolutions
Cast a postal vote, or instruct a proxy to vote, by placing a tick in the relevant box.
If you have appointed a proxy and want him/her to decide how to vote on the resolution, tick the box “Proxy’s Discretion”. Proxy’s discretion is
not applicable for a postal vote.
Shareholder questions
Shareholders present at the Annual Meeting will have the opportunity to ask questions during the meeting. If you cannot attend but would
like to ask a question, you can submit a question online by going to https://vote.linkmarketservices.com/HGH and completing the online
validation process or complete the question section below and return to Link Market Services. Questions will need to be submitted by 2pm on
Tuesday 26 October 2021. The Board will address and answer questions during the meeting.
Signature of shareholder(s)
Signature(s) of shareholder(s) Signature(s) of shareholder(s) Signature(s) of shareholder(s)
Date of signing Day time contact phone number
Electronic investor communication
If you received the Notice of Meeting and this form by mail and would like to receive all future shareholder communications electronically
(by email) where possible, please write your email address below.
Email
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Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.