Heartland Group (HGH) H2 2025 earnings summary

Executive summary

• FY 2025 marked a significant reset, focusing on capital efficiency, margin restoration, and de-risking lending portfolios, impacting first-half results but building momentum in the second half.

• Underlying net profit after tax was $46.9 million, meeting guidance, with strong growth in reverse mortgages and livestock finance, but challenges in motor and asset finance due to economic conditions.

• NIM improved by 17 bps to 3.56%, with strong exit margins in NZ (4.13%) and AU (3.59%).

• Asset quality improved, especially in Motor Finance, now outperforming industry arrears averages.

• Integration of Australian businesses into the acquired ADI created a new Australian bank, with successful funding transition and 81% deposit funding.

Financial highlights

• Underlying NPAT: $46.9m (vs $45m+ guidance); reported NPAT: $38.8m, down 47.9% year-over-year.

• Impairment expense increased by $25 million, mainly in New Zealand, due to economic deterioration and portfolio repositioning; total impairment expense rose 54.3% to $71.6m.

• Operating expenses rose $53 million, driven by non-repeating FY 2024 benefits, ADI cost base, regulatory requirements, and growth investments; OPEX up 38.1% to $192.5m.

• Receivables retracted $85 million, reflecting a shift to higher-return, lower-capital assets.

• Dividend: 4 cps for FY2025, payout ratio 80%.

Outlook and guidance

• FY 2026 targets include underlying ROE of at least 7% and net profit after tax of at least $85 million.

• No further material cost increases anticipated; focus on disciplined cost control, technology investment, and improving CTI.

• Reverse mortgages prioritized for growth and innovation, with >18% growth forecast in NZ and >19% in Australia.

• NZ bank: NIM >4.20%, CTI <53.5%, impairment expense ratio <0.85%. AU bank: NIM >3.40%, CTI <45.5%, impairment expense ratio <0.10%.

• Long-term ambitions reset to FY 2030, aiming for significant increases in ROE and profit through capital efficiency and core product growth.