Annual Report 2014
Highlights and
Financial Year Overview
30 June 2014
$50.8m
net profit
before tax
30 June 2013
$9.4m
30 June 2014
$452.6m
total equity
30 June 2013
$370.5m
• Acquisition of Australian and
New Zealand home equity release
mortgage businesses completed
• Lift in net profit after tax from
$7m to $36m
• Consistent growth in earnings –
net operating income up 14%
• Standard & Poor’s credit rating
on Heartland Bank Limited
raised to BBB1
• Non-core property assets
reduced by $67m
• Dividend pay-out of six cents
per share
• Return on equity increased to 9%
1 Outlook negative. The negative outlook reflects the negative economic risk trend assigned to the New Zealand banking system and Standard
and Poor’s concerns around economic imbalances, which are not specific to Heartland Bank Limited.
30 June 2014
$3,016.9m
total assets
30 June 2013
$2,504.6m
30 June 2014
$2,607.4m
net finance
receivables
30 June 2014
$36.0m
net profit
after tax
30 June 2013
$6.9m
30 June 2013
$2,010.4m
Heartland Share Price History ($ per share)
Heartland Dividend
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
DIVIDEND
E
R
A
H
S
R
E
P
S
T
N
E
C
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
1
1
P
E
S
2
1
R
A
M
2
1
P
E
S
3
1
R
A
M
3
1
P
E
S
4
1
R
A
M
4
1
P
E
S
2
1
C
E
D
3
1
R
A
M
2
1
P
E
S
3
1
R
A
M
3
1
P
E
S
4
1
R
A
M
4
1
P
E
S
SOURCE: Bloomberg
Contents
Heartland New Zealand Limited
Heartland Communities
Chairman and Managing Director’s Report
Board of Directors
4
5
6
10
Corporate Governance
Directors’ Responsibility Statement
Financial Statements
Audit Report
14
17
18
65
Director Disclosures and Executive Remuneration 67
73
Shareholder Information
74
Other Information
75
Executives and Directory
Heartland New Zealand Limited (Heartland)
Since its foundation in January 2011,
Heartland has successfully progressed
through several strategic phases.
Heartland Bank Limited (Heartland Bank)
was granted bank registration in December
2012 and since then five separate
businesses have successfully been merged
into one.
Emphasis has been on changing the asset
mix to align with a strategy of occupying
leading positions in the less contested
areas of the market. In the year ended
30 June 2011, around half of Heartland’s net
receivables derived from specialised and
less contested activities. By 30 June 2014
this is estimated to have increased to
around three quarters.
Heartland New Zealand’s
Business Divisions
Heartland Bank – New Zealand’s
specialist bank
Heartland Bank is a different bank.
Operating in the Household, Business
and Rural sectors, Heartland Bank offers
specialist products, different to those
offered by mainstream banks, and include:
• Heartland Bank’s Home Equity Loan
offering
•
i-finance - a specialist car finance
option in a market adjacent to one
where Heartland Bank already has
a strong presence through the
‘MARAC’ brand
• New livestock lending products.
The strategy is delivering results. Growth is
underway with net profit after tax of $36.0m
for the year ended 30 June 2014.
While focusing on these higher-yielding
products, Heartland Bank has reduced
focus on lower-yielding products by:
Focus is now on sustainable asset
growth and improving return on equity
(ROE), which will be achieved through a
combination of:
•
•
•
Extending Heartland’s reach in existing
core markets
Introducing new specialist products
Pursuing acquisition opportunities that
offer a good strategic fit and are value
accretive.
In April 2014, Heartland acquired the
New Zealand and Australian home equity
release (HER) mortgage businesses
(Sentinel and Australian Seniors Finance)
of Seniors Money International Limited
(the Acquisition). This gives Heartland
a commanding position in a sector
underserviced by traditional banks and one
that will experience increasing demand as
the population ages.
• Reducing Non-core property assets to
$40.8m (at 30 June 2014) from $107.4m
(30 June 2013)
• Reducing the residential mortgage book
by $112m.
Recognition of the ‘specialist bank’ strategy
was noted by international credit rating
agency Standard and Poor’s (S&P) when
it raised Heartland Bank’s credit rating.
Attributing a rating of BBB, Outlook
Negative, S&P stated:
“In our view the improvement in Heartland’s
business position is evidenced by the
deepening of the bank’s position in specialist
target market segments such as vehicle
asset finance, invoice financing, livestock
financing and reverse mortgage loans.”
S&P Ratings update, 21 May 2014
The negative outlook reflects the negative
economic risk trend assigned to the
New Zealand banking system and S&P’s
concerns around economic imbalances,
which are not specific to Heartland Bank.
Australian Seniors Finance (ASF)
ASF was part of the HER Aquisition. It
provides access to the Australian HER
market and offers several strategic
opportunities:
• ASF is the largest non-bank lender in the
Australian market
• ASF is an established business,
operating successfully since 2004
• Access to a broader and deeper market
than New Zealand.
Distribution networks have been re-
established and an advertising campaign is
underway. Growth is expected in the first
half of financial year 2015– reversing a post
GFC trend.
MARAC Insurance Limited
This is a joint venture with The New Zealand
Automobile Association. MARAC Insurance
delivered an increase of 15% in the value of
premiums written which was driven by:
22% increase in Lifestyle Protection
•
Insurance
10% increase in Guaranteed Asset
Protection insurance.
•
Heartland - The future
Heartland is committed to driving increases
in ROE with further asset mix improvements,
growth through product development and
strategic acquisitions.
We are Heartland, proud to be different.
Heartland Bank’s Business Call Account and Saver Account have been recognised
for offering “Outstanding Value” and proudly display Canstar’s maximum ‘Five
Star’ endorsement. Independent research company CANSTAR rate financial
products based on rates and features. The ‘star ratings’ are a consumer-friendly
benchmark that can help customers compare financial products.
PG 4 / Annual Report 2014 / Heartland New Zealand Limited
Heartland
Communities
We offer help and support to school sports teams, local bowling, golf and tennis clubs, local theatre productions and youth
groups, education scholarships and many more – over 100 groups throughout New Zealand. We know how important these
organisations are to our local communities and we are incredibly proud of the difference our support makes.
“We cherish the relationship we have developed over
the past two seasons and are sincerely grateful for the
sponsorship from Heartland of our school. It is only
through this level of support that we are able to provide
the rugby programme which allows us to compete with the
very best teams in the country. It also allows us to provide
support for a large number of young men in the school who
would otherwise struggle to be involved in school sport at
this level.”
Nigel Hotham, Deputy Headmaster and coach, Hamilton Boys High School,
First XV College Champions 2013, joint Champions 2014
“A huge thank you to Heartland for supporting us and the
many community organisations around New Zealand.
We pride ourselves on giving children in the community
the opportunity to perform on stage. If it wasn’t for the
support of our community, this would not be possible.”
The Big Little Theatre Company, Ashburton
“We are extremely appreciative of the support that
Heartland gives to the sport of bowls. The contribution
Heartland made to the National Championships enabled
the event to be an outstanding success.”
Kerry Clark OBE, Chief Executive, Bowls New Zealand
“Without Heartland’s support I would not have been able
to embark on such an amazing journey of learning and
discovery.”
Loren McCarthy, New Zealand representative at the Hague International Model United Nations
Image: sunlive.co.nz
Heartland New Zealand Limited / Annual Report 2014 / PG 5
Chairman
and
Managing
Director’s
report
Over the last year, Heartland New Zealand
Limited (Heartland) has made substantial
progress with its strategy of occupying
leading positions in less contested areas
of the market. The process of changing
the make-up of lending to align how
capital and resources are allocated
with the strategy has continued. This
included:
•
•
•
The acquisition of home equity
release (HER) mortgage businesses
in Australia and New Zealand
(the Acquisition)
Increase in motor vehicle lending
– up $55m
Increase in rural new lending
– up $88m
previous year has been calculated by
excluding the one-off expenses of $24.3m
(pre-tax) incurred as a result of the change
in property strategy with respect to the non-
core legacy property asset portfolio (which
included termination of a management
agreement announced 5 June 2013)
(Change in Property Strategy)1.
Return on equity
The earnings for 2014 equates to a return
on equity (ROE) of approximately 9.0% for
the full year. This compares to ROE of 1.8%
and adjusted ROE of 6.4% for the previous
year. Adjusted ROE has been calculated by
excluding the one-off expenses of $24.3m
(pre-tax) incurred as a result of the Change
in Property Strategy.
• Reduction of non-core property assets
– down $67m (62%)
Earnings per share was $0.09 based on
weighted average shares on issue.
• Reduction in residential mortgages
– down $112m.
Better product mix, along with reduced
cost of funds and lower impairments, has
improved the margin and this has been
the main driver of increased profitability
to date.
Beyond 2014 the objective is to grow
- expand in areas where Heartland is
already strong, develop new specialist
products, and explore acquisitions
offering a strategic fit, value and a
competitive advantage.
Breakdown of financial
performance
Net profit after tax (NPAT) was $36.0m for
the year ended 30 June 2014. This result is
in the upper end of forecast guidance, and
is up $29.1m from the $6.9m NPAT for the
previous year ended 30 June 2013.
Net profit before tax (NPBT) was $50.8m
for the year ended 30 June 2014 (up
from $9.4m NPBT for the year ended
30 June 2013).
The $50.8m NPBT for the year ended
30 June 2014 represents an increase of
$17.1m over the adjusted NPBT for the
year ended 30 June 2013, illustrating the
improvements in underlying business
performance. Adjusted NPBT for the
Balance Sheet
Heartland’s total assets increased by
$512.3m, or 20%, over the year ended
30 June 2014 (from $2.5bn at 30 June 2013
to $3.0bn at 30 June 2014).
•
There was a $597.0m increase in net
finance receivables (from $2.0bn at 30
June 2013 to $2.6bn at
30 June 2014). The increase was largely
due to the acquisition of the HER
mortgage business of $710.1m
• Cash and cash equivalents and
investments decreased by $63.3m (from
$339.5m at 30 June 2013 to $276.2m at
30 June 2014) as liquidity was used to
fund growth in receivables
•
Borrowings, being largely retail
deposits and bank lines, increased by
$426.9m (from $2.1bn at 30 June 2013
to $2.5bn at 30 June 2014) largely due
to the acquisition of the HER mortgage
business
Heartland’s net tangible assets (NTA)
increased by $68.7m over the year ending
30 June 2014 (from $331.2m at 30 June 2013
to $399.9m at 30 June 2014), primarily due
to the Acquisition. On a per share basis NTA
was $0.86 at 30 June 2014 compared to
$0.85 at 30 June 2013.
PG 6 / Annual Report 2014 / Heartland New Zealand Limited
1 The Change in Property Strategy included a one-off non-cash write down in property assets of $18m and $6.1m of pre-paid expenses written off
(pre tax).
Net Operating Income
Net operating income (NOI) was $122.2m for
the year ended 30 June 2014, an increase
of $15.3m (or 14%) from the previous year
ended 30 June 2013. The increase in NOI
was attributable to lower cost of funds,
improved product mix and the contribution
from the Acquisition.
Costs
Operating costs were $64.7m for the year
ended 30 June 2014, a decrease of $5.6m
from the previous year ended 30 June 2013.
However, operating costs for the previous
year included $6.1m of prepaid expenses
written off as a result of the Change in
Property Strategy. Adjusted operating costs
(calculated by excluding expenses related
to the Change in Property Strategy) were up
$0.5m from the previous year, due to costs
associated with the Acquisition, but have
reduced as a ratio to earnings.
The operating expense ratio was 53% for
the year ended 30 June 2014, a reduction
from 66% for the previous year ended
30 June 2013. The adjusted operating
expense ratio (calculated by excluding
the write-off of the expenses referred to
above) was 60% for the previous year. It
is expected that a further improvement to
the operating expense ratio will be made
over the coming year, and it is forecast
to fall below 50% for the year ending
30 June 2015.
Impairments and revaluations of
investment properties
Impaired asset expense was $5.9m for the
year ended 30 June 2014, a decrease of
$16.6m over the previous year ended
30 June 2013. This decrease was primarily
in the non-core property division, which
included an impairment expense of $12.9m
made as part of the Change in Property
Strategy in the previous year. Impairments
remained low across the core areas of Rural,
Business and Consumer lending.
A decrease in the fair value of investment
properties of $1.2m was recognised, $3.9m
less than the previous year.
Asset quality continues to improve with net
impaired, restructured and past due loans
over 90 days standing at 1.9% of net finance
receivables (Net Impairment Ratio) as
at 30 June 2014, down from 2.4% at
30 June 2013.
The Net Impairment Ratio on the core business
(excluding the non-core property book) was
1.4% as at 30 June 2014, compared to 0.9%
as at 30 June 2013. While this has increased
compared to the previous year, this remains
at an acceptable level.
Funding and liquidity
Borrowings increased from $2.1bn at
30 June 2013 to $2.5bn at 30 June
2014. The increase was in order to
fund the Acquisition and the associated
assumption of bank borrowings of $648.4m.
Subsequently, these bank borrowings
have reduced by $92.7m to $555.7m, as
New Zealand HER mortgages have been
transferred to Heartland Bank Limited
(Heartland Bank).
Credit rating raised
On 22 May 2014 Standard & Poor’s (S&P)
raised Heartland Bank’s long term issuer
credit rating to BBB from BBB- and
assigned a negative outlook. The negative
outlook reflects the negative economic
risk trend assigned to the New Zealand
banking system and S&P’s concerns around
economic imbalances, which are not
specific to Heartland Bank.
Business Performance –
Heartland Bank’s core
business divisions
Across the core business divisions of
Household, Business and Rural NOI
increased by 15% in the year ended 30 June
2014 – primarily driven by lower cost of
funds and better product mix.
(i) Household
NOI increased overall by $15.8m (32%)
over the year, driven by an increase
in core receivables, lower cost of
funds and the inclusion of one quarter
of earnings from the HER mortgage
business.
• Consumer
Core motor vehicle receivables grew
$55.3m (8%), as the intermediated
distribution strategy continued to
perform strongly. Growth of 5-10%
in the Consumer sector is expected
in the year ahead, supported by both
the current strategy and the launch of
i-finance.
• Retail
The residential mortgage book reduced
by $111.6m (48%) as part of the strategy
to improve product mix. More than
$50.0m of residential receivables
were placed through Heartland Bank’s
partnership with Kiwibank in the year
ended 30 June 2014 earning fee revenue
for Heartland Bank.
• Home equity release
HER receivables totalled $734.9m at
30 June 2014. Following a TV, radio
and press campaign in the final quarter
of the financial year, the New Zealand
book grew in June and July, reversing
a declining trend which had existed
prior to Heartland’s acquisition. TV
advertising began in July in Australia,
and as a result of this, and through
re-establishing a distribution partner
network, growth is expected in this
market in the first half of financial
year 2015.
(ii) Business
NOI was $3.8m (15%) above the
previous year ended 30 June 2013,
driven primarily by lower cost of funds.
The business receivables book was
stable at $547.2m. It is expected the
book will grow moderately in the
year ahead.
(iii) Rural
NOI was flat at $22.9m compared to the
previous year, as the benefit of lower
cost of funds was offset by a reduction
in receivables.
New lending on higher-yielding livestock
and revolving credit business grew by
$88m over the year 30 June 2014.
Heartland New Zealand Limited / Annual Report 2014 / PG 7
The last date of receipt for a participation
election from a shareholder who wished to
participate in the DRP was
19 September 2014.
The interim dividend of 2.5 cents plus the
3.5 cents final dividend will mean a fully
imputed 6.0 cents per share dividend
payment in relation to the 2014 financial
year. This represents a 33% increase in
interim and final dividend from 4.5 cents in
the 2013 financial year.
Special
Interim
Final
Total
2014
2.5¢
3.5¢
6.0¢
2013
1.5¢
2.0¢
2.5¢
6.0¢
Acknowledging Gary Leech
Gary Leech has announced that he
intends to resign from Heartland’s board
following the 2014 Annual Meeting, in light
of both recent appointments and other
commitments.
Gary has made an outstanding contribution
to Heartland, both at the time of the merger
in 2011, and in subsequently chairing the
Audit and Risk Committee. Gary has been
a valued and respected member of the
board, his broad experience contributing
directly to the success of the merger, and
where Heartland stands today is “mission
accomplished” for Gary.
The board is undertaking a process to
assess the skills and experience required
for a successor to Gary and will conduct
a thorough search to ensure the best
candidate is identified and appointed.
With focus on increasing lending in
these areas, the levels of lower-yielding
term mortgage business (bought from
PGG Wrightson Finance) fell during
the year as part of a strategy to reduce
exposure in areas of either higher
risk or overlapping competition with
major banks. This resulted in an overall
reduction in the rural receivables book
of $46.4m (10%).
The rural book is expected to grow
modestly over the year.
Non-core property
Total legacy non-core property assets
reduced ahead of expectation4 to $40.8m
($15.9m of net receivables, $24.9m of
investment properties) at 30 June 2014.
This represents a $66.6m (62%) reduction.
Non-core property assets are expected to
reduce by a further $15m in the six months
ending 31 December 2014. Heartland does
not expect future earnings to be materially
impacted by the future realisation of the
remaining assets.
Growth Strategy
The strategy is three-fold. Heartland will:
•
Leverage its position and grow share in
markets where there is already a
strong presence – e.g. motor vehicle
finance, etc
• Continue the development of
specialist products – such as
livestock rural lending
•
Pursue acquisitions that establish a
leading position in areas of strategic fit
– for example HER mortgages.
As announced in the half-year report for
the period ended 31 December 2013, a
specialist team for strategic growth has
been established to support this strategy.
This provides the capability to evaluate
and progress acquisition opportunities,
alongside expertise in the design of
new products.
Key criteria in assessing acquisition and
product development opportunities include
strategic fit, competitive advantage, the
potential for growth and importantly,
contributing positively to shareholder value
(with particular reference to earnings per
share and ROE).
Acquisition of home equity
release businesses
In April 2014 Heartland acquired the New
Zealand and Australian HER mortgage
businesses of Seniors Money International
Limited (SMI). The opportunity to
purchase the HER businesses arose during
Heartland’s strategic evaluation of the
product, providing a fast-track entry into
strong and established market positions.
This acquisition gives Heartland the product
capability to meet the needs of the 65
and over population, which is a growing
demographic and is typified by those with
the majority of their personal wealth tied up
in their primary residential dwelling.
HER NPAT was $0.7m (including $1.2m of
one-off acquisition costs), for the year
ended 30 June 2014.
Dividend
The directors of Heartland resolved to
pay a final dividend of 3.5 cents per share
on 3 October 2014 to shareholders on
Heartland’s register as at 5.00pm on
19 September 2014 (Record Date). This
dividend will be fully imputed.
The Dividend Reinvestment Plan announced
on 23 April 2013 (DRP) was made available,
and a discount of 1.0% will apply (that is,
the strike price under the DRP will be 99.0%
of the volume weighted average sale price
of Heartland shares over the five trading
days following the Record Date)5.
Participation in the DRP is entirely optional,
with shareholders wishing to participate
making a participation election in one of the
ways specified in the DRP offer document.
4 For details of expectation, see Heartland’s Change of Strategy market announcement of 5 June 2013.
5 For the full details of the DRP and the Strike Price calculation, refer to Heartland’s DRP offer document prepared as at 5 April 2013.
PG 8 / Annual Report 2014 / Heartland New Zealand Limited
The Future
For the next financial year, Heartland’s
objectives are to increase earnings through
growth and improve ROE. The strategy to
achieve this is underway and Heartland is
well-positioned to meet the NPAT guidance
for the next financial year of $42m to $45m.
Geoffrey Ricketts
Chairman
Jeffrey Greenslade
Managing Director
19 September 2014.
Heartland New Zealand Limited / Annual Report 2014 / PG 9
Board of Directors
The directors of Heartland New Zealand Limited are as follows:
Geoffrey Ricketts
CNZM, LLB (Hons), F Inst D
Jeffrey Greenslade
LLB
Graham Kennedy
J.P., BCom, FCA, ACIS, ACIM, AF Inst D
Chairman
Managing Director
Director
Geoff is a commercial lawyer, company
director and investor with wide experience
in the New Zealand and Australian business
environments. He holds a number of
directorships and was Chairman of Southern
Cross Building Society leading up to the
merger with MARAC Finance Limited and
CBS Canterbury.
Jeff has over 20 years’ experience as a
senior banking executive, and is responsible
for the strategies and operational
management of Heartland New Zealand
Limited. He is also CEO of Heartland Bank
Limited. He joined MARAC Finance Limited
as Chief Executive Officer in 2009, and was
appointed to its Board in December of
that year.
Graham has 40 years’ experience as a
chartered accountant and business advisor
and is now an independent professional
director and Chairman of a number of private
companies providing him with governance
experience across a diverse range of
business sectors including property, tourism,
agribusiness, transport, construction and
professional services. Graham was a director
of CBS Canterbury for 24 years, holding the
position of Chairman from 2002 – 2008.
Graham has also been actively involved in
a number of community-based charitable
organisations for many years.
PG 10 / Annual Report 2014 / Heartland New Zealand Limited
Gary Leech
BCom, FCA, AF Inst D, FNZTA
Christopher Mace
CNZM
Gregory Tomlinson
AME
Director
Director
Director
Gary has 40 years’ experience as a
chartered accountant and was the Chairman
of the Board of CBS Canterbury leading up
to the merger with MARAC Finance Limited
and Southern Cross Building Society. Gary
is a Fellow of The Institute of Chartered
Accountants, an Accredited Fellow of the
Institute of Directors and a Fellow of the
New Zealand Trustees Association.
Chris is an Auckland based businessman
and company director with experience in
the New Zealand and Australian business
environments. He holds a number of
directorships and was a director of Southern
Cross Building Society leading up to the
merger with MARAC Finance Limited and
CBS Canterbury.
Greg is a Christchurch based businessman
and investor with experience in a variety
of New Zealand industries. One of the
original pioneers of the mussel industry
in Marlborough, he has also established,
and held directorships on the boards of a
number of New Zealand based businesses.
Heartland New Zealand Limited / Annual Report 2014 / PG 11
As at the date of this Annual Report, the Heartland Bank Limited Board includes
J K Greenslade, G T Ricketts and G R Kennedy, plus the following directors who,
other than M D Jonas (who is an executive director), are independent directors:
Bruce Irvine
BCom, LLB, FCA, AF Inst D, FNZIM
Nicola Greer
MCom
Chairman
Director
John Harvey
BCom, CA
Director
Bruce is Chairman of Heartland Bank
Limited. He is a chartered accountant
and was admitted into the Christchurch
partnership of Deloitte in 1988. He was
Managing Partner from 1995 to 2007 before
he retired from Deloitte in May 2008 to
pursue his career as an independent
director. Bruce is also Chairman of
Christchurch City Holdings Limited, and
a director of several public and private
companies.
Nicola has extensive experience in the
banking and finance sector, both in New
Zealand and overseas. Her career to date
includes senior positions at ANZ Bank
(New Zealand and Australia), Citibank and
Goldman Sachs International, where she
worked in financial markets and asset and
liability management.
John has considerable financial services
experience and 36 years in the professional
services industry including 23 years as
a partner of PricewaterhouseCoopers.
Since his retirement from
PricewaterhouseCoopers in 2009, John
has pursued a career as an independent
director of a number of companies.
PG 12 / Annual Report 2014 / Heartland New Zealand Limited
Michael Jonas
LLB
Director
Richard Wilks
BCom, CA
Director
Michael has over 25 years’ experience as a
banking and finance lawyer, having been a
partner in several of New Zealand’s leading
law firms (including Bell Gully and Chapman
Tripp). He joined Heartland New Zealand
Limited as Group General Counsel on its
creation in 2011 (having held that position
with predecessor entities since February
2010). He moved to the new role of Head of
Strategic & Product Development in 2013.
Richard has extensive experience across a
range of industries including the banking
and finance sector. He recently retired
from a career as a senior corporate
banking professional, which included Chief
Risk Officer with ANZ National Bank and
executive roles with Standard Chartered
Bank and Citibank. Since retiring Richard
has taken up a number of directorships.
Heartland New Zealand Limited / Annual Report 2014 / PG 13
Corporate
Governance
The Board and management of
Heartland New Zealand Limited (the
Company) are committed to ensuring
that the Company maintains corporate
governance practices in line with current
best practice.
The Board has established policies and
protocols which comply with the corporate
governance requirements of the NZX Main
Board Listing Rules and which are consistent
with the principles contained in the NZX
Corporate Governance Best Practice Code.
This governance statement outlines the main
corporate governance practices applied by
the Company as at 30 June 2014. During the
year the Board reviewed and assessed the
Company’s governance structure to confirm
that its governance practices are consistent
with best practice. The Board considers
it has complied with the NZX Corporate
Governance Best Practice Code for the year
ended 30 June 2014.
This section of the Annual Report reflects
the Company’s compliance with the
requirements of the Financial Markets
Authority Corporate Governance in New
Zealand Principles and Guidelines.
The Company’s Constitution and Board and
Committee charters are available on the
Company’s website, www.heartland.co.nz.
Principle 1 – Ethical
Standards
Conduct and the Company’s Constitution,
and to exhibit a high standard of ethical
behaviour.
Codes of Conduct
The Company’s Code of Conduct and
Directors’ Code of Conduct set out the
ethical and behavioural standards expected
of the Company’s directors and employees.
The Codes of Conduct are available on the
Company’s website www.heartland.co.nz.
Securities Trading Policy
The Board continually considers whether
any matters under consideration are likely
to materially influence the Company’s share
price and therefore whether additional
trading restrictions should be imposed
on directors and senior employees of the
Company.
All directors and senior employees of the
Company are required to obtain consent
before buying or selling shares in the
Company and to certify that their decision
to buy or sell shares has not been made on
the basis of inside information.
Principle 2 – Board
Composition and
Performance
There is a balance of independence, skills,
knowledge, experience and perspectives
among directors so that the Board works
effectively.
Directors observe and foster high ethical
standards.
Role of the Board
The Company expects its directors and staff
to act honestly and in good faith, and in the
best interests of the Company at all times.
They must act with the care, diligence and
skill expected of a director or staff member
of a company that has shares that are
publicly traded on the NZX Main Board and
has subsidiaries that issue securities and
accept funds from the general public.
Directors and staff are required to act
honestly and fairly in all dealings with
the Company’s shareholders, customers,
investors and service providers.
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 Company’s
Code of Conduct, the Directors’ Code of
The Board of Directors is responsible for
corporate governance and setting the
Company’s overall strategic direction.
The Board charter regulates Board
procedure and describes the Board’s role
and responsibilities in detail. The Board
establishes objectives, strategies and an
overall policy framework within which
the business is conducted. Day-to-day
management is delegated to the Chief
Executive Officer (and, in the case of risk
management, to the Chief Risk Officer).
The Board regularly monitors and reviews
management’s performance in carrying out
their delegated duties.
The Board schedules monthly meetings at
which it receives regular briefings on key
strategic and operational issues
PG 14 / Annual Report 2014 / Heartland New Zealand Limited
As at 30 June 2014, the Board determined
that G R Kennedy, G R Leech, C R Mace and
G T Ricketts were the independent directors.
As at 30 June 2014, the members of the
Audit and Risk Committee were G R Kennedy
(Chairman), G R Leech and G T Ricketts.
from management. In the year ended
30 June 2014, the Board met nine times.
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 2014, the Board comprised
six directors, being an independent
Chairman, the Managing Director and
four non-executive directors. The Board
encourages rigorous discussion and
analysis when making decisions. The
current Board comprises directors with a
mix of qualifications and skills who hold
diverse business, governance and industry
experience.
Nomination and appointment
of directors
Procedures for the appointment and
removal of directors are governed by the
Company’s constitution.
A director is appointed by ordinary
resolution of the shareholders, although
the Board may fill a casual vacancy, in
which case the appointed director retires at
the next Annual Meeting but is eligible for
re-election. Nominations for election as a
director may be made by shareholders up
until a closing date, which must not be more
than two months before the date of the
Annual Meeting.
Independence of Directors
A director is considered to be independent
if that director is not an executive of the
Company and if the director has no direct or
indirect interest or relationship that could
reasonably influence, in a material way,
the director’s decisions in relation to the
Company.
Board Performance Assessment
The Board undertakes a regular
review of its own, its committees’ and
individual directors’ performance. This
is to ensure it has the right composition
and appropriate skills, qualifications,
experience and background to effectively
govern the Company and monitor the
Company’s performance in the interests of
shareholders.
Principle 3 – Board
Committees
The Board uses committees where this
enhances effectiveness in key areas while
retaining Board responsibility.
Board Committees
The Board has two permanently constituted
committees to assist the Board by working
with management in specific areas of
responsibility and then reporting their
findings and recommendations back to
the Board. Each of these committees has
a charter which set out the committee’s
objectives, membership, procedures and
responsibilities. A committee does not take
action or make decisions on behalf of the
Board unless specifically mandated. The
committee charters are available on the
Company’s website, www.heartland.co.nz.
Other ad hoc Board committees are
established for specific purposes from time
to time.
Audit and Risk Committee
Membership is restricted to non-executive
directors, with at least three members, the
majority of whom must be independent.
The gender composition of Directors and Officers was as follows:
As at 30 June 2014
As at 30 June 2013
Positions
Female
Male
Female
Male
Heartland New Zealand Limited Directors 0 (0%)
6 (100%)
0 (0%)
7 (100%)
Heartland Bank Limited Directors
1 (12.5%)
7 (87.5%)
0 (0%)
8 (100%)
Officers
2 (22%)
7 (78%)
1 (12.5%)
7 (87.5%)
The role of the Audit and 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.
• Risk management and internal control.
•
•
The internal audit function.
The independent audit process.
As at 30 June 2014, the Board determined
that all committee members had a
recognised form of financial expertise
in accordance with the Audit and Risk
Committee’s charter.
Governance and Remuneration
Committee
The Committee is required to comprise
of at least three directors, the majority of
whom must be independent. It is also a
requirement that one member be a director
of Heartland Bank Limited (Bank) to ensure
the flow of relevant information between the
Company and the Bank.
As at 30 June 2014, the members of the
Governance and Remuneration Committee
were G T Ricketts (Chairman), G R Tomlinson
and B R Irvine (in an ex-officio capacity).
The role of the Governance and
Remuneration Committee is to advise
and provide assurance to the Board in
order to enable the Board to discharge its
responsibilities in relation to:
• Corporate governance matters.
• Remuneration of the directors, Chief
Executive Officer and senior executives
and remuneration policies generally.
• Director and senior executive
appointments, Board composition and
succession planning.
• Capital management.
Heartland New Zealand Limited / Annual Report 2014 / PG 15
The Board encourages full participation
of shareholders at the annual meeting to
ensure a high level of accountability. The
Company’s external auditor also attends the
annual meeting and is available to answer
questions relating to the external audit.
Principle 9 – Stakeholder
Interests
The Board respects the interests of
stakeholders within the context of the
Company’s ownership type and its
fundamental purpose.
The Company has a wide range of
stakeholders and aims to manage its
business in a way which builds sustainable
value and produces positive outcomes
for stakeholders. As a listed entity with a
subsidiary which is a registered bank, the
Company is cognisant of its responsibility
to respect and balance its stakeholder
interests (including customers, staff,
regulators and shareholders).
Principle 4 – Reporting and
Disclosures
Principle 6 – Risk
Management
The Board demands integrity in both
financial reporting and in the timeliness and
balance of disclosures on entity affairs.
The Board regularly verifies that the Company
has appropriate processes that identify and
manage potential and relevant risks.
The Board is committed to ensuring the
highest standards are maintained in
financial reporting and disclosure of all
relevant information.
The Audit and Risk Committee oversees the
quality and timeliness of all financial reports,
including all disclosure documents issued by
the Company or any of its subsidiaries.
The Chief Executive Officer and Chief
Financial Officer are required to certify
to the Audit and Risk Committee that the
financial statements of the Company and its
subsidiaries present a true and fair view of
the Company and comply with all relevant
accounting standards.
Principle 5 – Remuneration
The remuneration of directors and executives
is transparent, fair and reasonable.
Non-Executive Directors’
Remuneration
Total remuneration available to non-
executive directors of the Company and its
subsidiaries is determined by shareholders.
The current aggregate approved amount by
shareholders is $917,500.
The Company’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 there is no requirement for
directors to hold shares in the Company.
However, as at 30 June 2014 all directors
held shares in the Company (see section 9 of
this 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
Company’s strategies and business plans.
All senior executives receive a base salary
and are also eligible to participate in short-
term and long-term incentive plans under
which they are rewarded for achieving key
performance and operating results.
The Board ensures that the Company
has a Risk Management Programme in
place which identifies, manages and
communicates the key risks that may
impact the Company’s business. Specific
risk management strategies have been
developed for each of the key risks
identified. The Audit and Risk Committee
of the Board oversees the risk management
programme and strategy. The Company
also has in place insurance cover for
insurable liability and general business risk.
Principle 7 – Auditors
The Board ensures the quality and
independence of the external audit process.
The Audit and Risk Committee is responsible
for overseeing the external, independent
audit of the Company’s financial statements.
The Audit and Risk Committee ensures that
the level of non-audit work undertaken
by the auditors does not jeopardise their
independence. The Company also has an
internal audit function which is independent
of the external auditors. The Audit and
Risk Committee approves the annual
audit programme, which is developed
in consultation with management of the
Company.
Principle 8 – Shareholder
Relations
The Board fosters constructive relationships
with shareholders that encourage them to
engage with the Company.
The Board is committed to maintaining a full
and open dialogue with all shareholders and
keeps shareholders informed through:
•
•
•
Periodic and continuous disclosure
to NZX.
Information provided to analysts and
media during briefings.
The annual shareholders’ meeting at
which shareholders’ questions are
responded to.
• Annual and half year reports.
PG 16 / Annual Report 2014 / Heartland New Zealand Limited
Directors’
Responsibility
Statement
The directors are responsible for ensuring
that the financial statements give a true
and fair view of the financial position of
Heartland New Zealand Limited (Company)
and its subsidiaries (Group) as at 30 June
2014 and the financial performance and cash
flows for the year ended 30 June 2014.
The Board of Directors (Board) of
Heartland New Zealand Limited authorised
the financial statements set out on pages 19
to 64 for issue on 25 August 2014.
For and on behalf of the Board
The directors consider that the financial
statements of the Group and the Company
have been prepared using appropriate
accounting policies consistently applied and
supported by reasonable judgements and
estimates and that all the relevant financial
reporting and accounting standards have
been followed.
The directors believe that proper accounting
records have been kept which enable, with
reasonable accuracy, the determination
of the financial position of the Group
and facilitate compliance of the financial
statements with the Financial Reporting
Act 1993.
Geoffrey Ricketts
Chairman
Jeffrey Greenslade
Managing Director
Heartland New Zealand Limited / Annual Report 2014 / PG 17
Financial
Statements
PG 18 / Annual Report 2014 / Heartland New Zealand Limited
STATEMENTS OF COMPREHENSIVE INCOME
For the year ended 30 June 2014
Interest income
Interest expense
Net interest income
Operating lease income
Operating lease expenses
Net operating lease income
Lending and credit fee income
Dividends received
Other income
Net operating income
Selling and administration expenses
Profit before impaired asset expense and income tax
Impaired asset expense
Decrease in fair value of investment properties
Operating profit
Share of equity accounted investee's profit
Profit before income tax
Income tax expense / (benefit)
Profit for the year
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges, net of income tax
Net change in available for sale reserve, net of income tax
Movement in foreign currency translation reserve, net of income tax
Items that will not be reclassified to profit or loss:
GROUP
COMPANY
NOTE
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
8
8
9
9
10
11
12
19
24
13
210,297
101,221
109,076
206,349
110,895
95,454
13,348
7,709
5,639
2,469
-
4,971
14,861
9,687
5,174
1,760
-
4,499
122,155
106,887
64,739
57,416
5,895
1,203
50,318
486
50,804
14,765
36,039
70,347
36,540
22,527
5,101
8,912
504
9,416
2,504
6,912
1,111
(12)
95
1,056
276
-
137
38
99
-
-
-
36
-
36
-
-
-
-
39,221
-
39,320
-
15,605
170
15,811
2,298
37,022
1,284
14,527
-
-
-
-
37,022
14,527
-
-
37,022
14,527
(335)
(214)
37,357
14,741
-
-
-
-
-
-
-
-
-
-
Net change in defined benefit reserve, net of income tax
3
462
Other comprehensive income for the year, net of income tax
13(b)
1,197
1,794
Total comprehensive income for the year
37,236
8,706
37,357
14,741
Earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
All comprehensive income for the year is attributable to owners of the Group.
The notes on pages 8 to 48 are an integral part of these financial statements.
The notes on pages 24 to 64 are an integral part of these financial statements.
15
15
9c
9c
2c
2c
n/a
n/a
n/a
n/a
Heartland New Zealand Limited / Annual Report 2014 / PG 19
3
STATEMENTS OF CHANGES IN EQUITY
For the year ended 30 June 2014
GROUP
Foreign
Employee Currency Available
for sale
Reserve
$000
Benefits Translation
Reserve
Reserve
$000
$000
Share
Capital
$000
Defined
benefit
Reserve
$000
NOTE
Hedging Retained
Reserve Earnings
$000
$000
Total
Equity
$000
Balance at 1 July 2013
192,020
629
-
284
41
46
177,522
370,542
Total comprehensive income / (loss) for the year
Profit for the year
Other comprehensive income / (loss), net of income tax
Total comprehensive income / (loss) for the year
Contributions by and distributions to owners
Effect of amalgamation
Dividends paid
Dividend reinvestment plan
Issue of share capital
Transaction costs associated with capital raising
Shares vested
Staff share ownership expense
4(h)
16
30
30
34
Total transactions with owners
-
-
-
149,269
-
7,321
57,840
(1,322)
88
-
213,196
-
-
-
-
-
-
-
-
(88)
935
847
-
95
95
-
-
-
-
-
-
-
-
-
(12)
(12)
-
-
-
-
-
-
-
-
-
3
3
-
-
-
-
-
-
-
-
-
1,111
1,111
36,039
-
36,039
36,039
1,197
37,236
-
-
-
-
-
-
-
-
(149,269)
(19,930)
-
-
-
-
-
-
(19,930)
7,321
57,840
(1,322)
-
935
(169,199)
44,844
Balance at 30 June 2014
405,216
1,476
95
272
44
1,157
44,362
452,622
Balance at 1 July 2012
192,020
Total comprehensive income for the year
Profit for the year
Other comprehensive income, net of income tax
Total comprehensive income for the year
Contributions by and distributions to owners
Dividends paid
Staff share ownership expense
16
34
Total transactions with owners
-
-
-
-
-
-
-
-
-
-
-
629
629
Balance at 30 June 2013
192,020
629
The notes on pages 8 to 48 are an integral part of these financial statements.
The notes on pages 24 to 64 are an integral part of these financial statements.
-
-
-
-
-
-
-
-
8
(421)
(1,010)
184,201
374,798
-
276
276
-
-
-
-
462
462
-
1,056
1,056
6,912
-
6,912
6,912
1,794
8,706
-
-
-
-
-
-
(13,591)
-
(13,591)
629
(13,591)
(12,962)
284
41
46
177,522
370,542
PG 20 / Annual Report 2014 / Heartland New Zealand Limited
4
STATEMENTS OF CHANGES IN EQUITY
For the year ended 30 June 2014
COMPANY
Foreign
Employee Currency Available
for sale
Reserve
$000
Benefits Translation
Reserve
Reserve
$000
$000
Share
Capital
$000
Defined
benefit
Reserve
$000
NOTE
Hedging Retained
Reserve Earnings
$000
$000
Total
Equity
$000
Balance at 1 July 2013
342,288
Total comprehensive income for the year
Profit for the year
Total comprehensive income for the year
Contributions by and distributions to owners
Dividends paid
Dividend reinvestment plan
Issue of share capital
Transaction costs associated with capital raising
Staff share ownership expense
16
30
30
34
Total transactions with owners
Balance at 30 June 2014
Balance at 1 July 2012
Total comprehensive income for the year
Profit for the year
Total comprehensive income for the year
Contributions by and distributions to owners
Dividends paid
16
Total transactions with owners
-
-
-
7,321
57,840
(1,322)
-
63,839
406,127
342,288
-
-
-
-
Balance at 30 June 2013
342,288
-
-
-
-
-
-
714
714
714
-
-
-
-
-
-
The notes on pages 8 to 48 are an integral part of these financial statements.
The notes on pages 24 to 64 are an integral part of these financial statements.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,962
344,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,357
37,357
37,357
37,357
(19,958)
-
-
-
-
(19,958)
(19,958)
7,321
57,840
(1,322)
714
44,595
19,361
426,202
826
343,114
14,741
14,741
14,741
14,741
(13,605)
(13,605)
(13,605)
(13,605)
1,962
344,250
Heartland New Zealand Limited / Annual Report 2014 / PG 21
5
STATEMENTS OF FINANCIAL POSITION
As at 30 June 2014
GROUP
COMPANY
NOTE
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
Assets
Cash and cash equivalents
Investments
Investment properties
Finance receivables
Operating lease vehicles
Current tax assets
Other assets
Investment in subsidiaries
Investment in joint venture
Property, plant and equipment
Intangible assets
Deferred tax assets
Total assets
Liabilities
Borrowings
Current tax liabilities
Trade and other payables
Total liabilities
Equity
Share capital
Retained earnings and reserves
Total equity
Total equity and liabilities
The notes on pages 8 to 48 are an integral part of these financial statements.
The notes on pages 24 to 64 are an integral part of these financial statements.
17
18
19
20
21
22
23
24
25
26
27
28
29
30
37,344
238,859
24,888
174,262
165,223
58,287
2,607,393 2,010,376
32,395
-
10,133
-
4,320
10,281
22,963
16,387
31,295
1,558
9,024
-
4,246
9,573
47,421
5,287
95
-
-
-
-
560
24,980
400,988
-
-
-
-
1,485
-
-
-
-
707
36
342,234
-
-
-
14
3,016,888 2,504,627
426,623
344,476
2,524,460 2,097,553
2,859
33,673
431
39,375
2,564,266 2,134,085
-
-
421
421
-
-
226
226
405,216
47,406
452,622
192,020
178,522
370,542
406,127
20,075
426,202
342,288
1,962
344,250
3,016,888 2,504,627
426,623
344,476
PG 22 / Annual Report 2014 / Heartland New Zealand Limited
6
STATEMENTS OF CASH FLOWS
For the year ended 30 June 2014
Cash flows from operating activities
Interest received
Dividends received
Operating lease income received
Proceeds from sale of operating lease vehicles
Lending, credit fees and other income received
Net decrease in finance receivables
Total cash provided from operating activities
Payments to suppliers and employees
Interest paid
Purchase of operating lease vehicles
Taxation paid
Total cash applied to operating activities
GROUP
COMPANY
NOTE
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
193,519
-
12,086
9,086
7,440
113,630
199,279
-
11,958
10,710
6,259
32,908
335,761
261,114
59,687
101,675
12,954
8,033
182,349
61,009
112,820
15,611
2,946
192,386
116
39,221
-
-
-
-
39,337
1,671
108
-
209
1,988
36
15,605
-
-
155
-
15,796
1,140
-
-
144
1,284
Net cash flows from operating activities
33
153,412
68,728
37,349
14,512
Cash flows from investing activities
Net proceeds from sale of investment properties
Proceeds from sale of office fit-out, equipment and intangible assets
Dividend received from joint venture
Decrease in investment in subsidiaries
Total cash provided from investing activities
Purchase of office fit-out, equipment and intangible assets
Net increase in investments
Purchase of subsidiaries
Net increase in funds on deposit with related parties
Net increase in working capital facility provided to subsidiaries
Increase in investment in subsidiaries
Increase in investment in joint venture
Total cash applied to investing activities
42,244
19
560
-
42,823
432
73,648
48,300
-
-
-
-
122,380
3,194
-
-
-
3,194
2,256
130,687
-
-
-
-
700
133,643
-
-
-
-
-
-
-
-
22,780
2,000
20,000
-
44,780
-
-
-
809
809
-
-
-
-
-
700
-
700
Net cash flows (applied to) / from investing activities
(79,557)
(130,449)
(44,780)
109
Cash flows from financing activities
Net increase in borrowings
Increase in share capital
Total cash provided from financing activities
Dividends paid
Transaction costs associated with capital raising
Net decrease in borrowings
Total cash applied to financing activities
-
20,000
159,885
-
20,000
159,885
-
20,000
20,000
-
-
-
12,609
1,322
220,669
234,600
13,591
12,637
13,605
-
-
1,322
-
-
-
13,591
13,959
13,605
Net cash flows (applied to) / from financing activities
(214,600)
146,294
6,041
(13,605)
Net (decrease) / increase in cash held
Opening cash and cash equivalents
Effects of currency translation on cash and cash equivalents
Cash impact of business combinations
Closing cash and cash equivalents
(140,745)
174,262
-
3,827
84,573
89,689
-
-
37,344
174,262
(1,390)
1,485
-
-
95
1,016
469
-
-
1,485
43
17
The notes on pages 8 to 48 are an integral part of these financial statements.
The notes on pages 24 to 64 are an integral part of these financial statements.
Heartland New Zealand Limited / Annual Report 2014 / PG 23
7
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
1 Reporting entity
The financial statements presented are the consolidated financial statements comprising Heartland New Zealand Limited (Company), its subsidiaries
and joint venture (Group). Refer to Note 5 - Significant subsidiaries and interests in jointly controlled entities and Note 6 - Structured entities for further
details.
On 1 April 2014, the Company, through its subsidiary Heartland HER Holdings Limited, acquired 100% of New Sentinel Limited and Australian Seniors
Finance Pty Limited (collectively the HER acquisition). Refer to Note 43 - Business combinations for more information.
The Company is a listed public company incorporated in New Zealand under the Companies Act 1993. The registered office is 75 Riccarton Road,
Riccarton, Christchurch.
All entities within the Group offer financial services or are special purpose entities.
2 Basis of preparation
(a) Statement of compliance
The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP) and with the
requirements of the Financial Reporting Act 1993. They 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 Company and all entities within the Group are profit-oriented entities. The Company is a reporting entity and an issuer for the purposes of the
Financial Reporting Act 1993 and its financial statements comply with that Act. The financial statements have been prepared in accordance with the
requirements of the Companies Act 1993 and the Securities Regulations 2009.
(b) Basis of measurement
The financial statements have been prepared on the basis of historical cost, except the following items measured at fair value:
-
-
-
Land and buildings, refer to Note 4(o).
Investment property, refer to Note 19.
Financial Instruments, refer to Notes 18, 31 and 35.
(c) Functional and presentation currency and rounding
These financial statements are presented in New Zealand dollars which is the Company's functional and the Group's presentation currency. Unless
otherwise indicated, amounts are rounded to the nearest thousand.
(d) Estimates and judgements
The preparation of financial statements requires the use of management judgement, estimates and assumptions that effect reported amounts. Actual
results may differ from these judgements. For further information about significant areas of estimation, uncertainty and critical judgements that have the
most significant effect on the financial statements, refer to Note 4(r) and 4(s).
(e) Going concern
The financial statements have been prepared on a going concern basis after considering the Company's and Group’s funding and liquidity position.
(f) Comparative information
Certain comparatives have been restated to comply with current year presentation.
PG 24 / Annual Report 2014 / Heartland New Zealand Limited
8
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
3 Application of new and revised accounting standards
(a) New standards and interpretations adopted
The following new standards and amendments to standards have been adopted from 1 July 2013 in the preparation of these financial statements:
NZ IAS 19 Employee Benefits (Revised 2011)
Requires the return on plan assets for defined benefit plans recognised in profit or loss to be calculated based on the rate used to discount the defined
benefit and also revises the definition of short term employee benefits. Adoption of these amendments has not resulted in any significant impact in the
consolidated financial statements.
Amendments to NZ IFRS 7 Financial Instruments: Disclosures
The amendments require entities to disclose information about rights of offset and related arrangements for financial instruments under an enforceable
master netting agreement or similar arrangement. Adoption of this amendment has not resulted in any significant impact on the Group's results or
financial position.
NZ IFRS 10 Consolidated Financial Statements
NZ IFRS 10 changes the definition of control such that an investor controls an investee when a) it has power over an investee, b) it is exposed, or has
rights, to variable returns from its involvement with the investee, and c) has the ability to use its power to effect its returns. All three of these criteria
must be met for an investor to have control over an investee. The adoption of NZ IFRS 10 has not resulted in the consolidated or deconsolidation of
any entities.
NZ IFRS 11 Joint Arrangements
NZ IFRS 11 requires joint arrangements to be classified as either joint operations or joint ventures. Joint operations are required to use the
proportionate consolidation method and joint ventures, the equity method. The adoption of NZ IFRS 11 had no effect on the Group’s joint arrangement,
which continues to be treated as a joint venture.
NZ IFRS 12 Disclosure of Interests in Other Entities
NZ IFRS 12 sets out the disclosure requirements relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities.
As the new standard affects only disclosure, there is no effect on the Group’s financial position or performance.
NZ IFRS 13 Fair Value Measurement
NZ IFRS 13 sets out the framework for determining the measurement of fair value and expands the disclosure requirements for all assets and liabilities
carried at fair value. Adoption of the new standard has not resulted in any significant impact on the Group's result or financial position, but the Group
has included new disclosures in the financial statements. As the Group has applied this standard prospectively, comparative information for these new
disclosures are not included.
(b) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 30 June 2014, and have not been
applied in preparing these financial statements. The new standards identified which may have an effect on the financial statements of the Group are:
Standard and description
Effective
for annual
years
beginning
on or
after:
Expected to
be initially
applied in
year ending:
NZ IFRS 9 Financial Instruments, which specifies how an entity should classify and measure financial assets and
1 January
30 June
liabilities.
2017
2018
NZ IFRS 9 Financial Instruments (2013), which provides a more principles-based approach to hedge accounting and
1 January
30 June
aligns hedge accounting more closely with risk management.
2017
2018
NZ IAS 32 Financial Instruments: Presentation - clarifies certain aspects of offsetting financial assets and liabilities
1 January
30 June
because of diversity in the application of the requirements of offsetting.
2014
2015
The amendments to NZ IAS 32 are not expected to have any material impact on the financial statements of the Group. The impact of NZ IFRS 9 has
not yet been fully assessed.
Heartland New Zealand Limited / Annual Report 2014 / PG 25
9
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
4 Significant accounting policies
(a) Consolidation of subsidiaries
Subsidiaries are entities (including structured entities) that are controlled by the Group. Investments in subsidiary companies are recorded at cost by
the Company.
The consolidated financial statements are prepared by consolidating the financial statements of the Company and its subsidiaries. Intra-group balances
and transactions, and any unrealised income and expense (except
for foreign currency transaction gains or losses) arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements.
(b) Joint arrangements
The Group has determined that it's joint arrangement is a joint venture. A joint venture is a joint arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the joint arrangement.
Investments in joint ventures are accounted for by the Group using the equity method and are recognised initially at cost. The consolidated financial
statements include the Group's share of the income and expenses and equity movements of equity accounted investees, from the date that significant
influence or joint control commences until the date that significant influence or joint control ceases.
(c) Structured entities
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
Company controls the structured entity.
(d)
Interest
Interest income and expense is recognised in profit or loss using the effective interest method . The effective interest rate is established on initial
recognition of the financial assets and liabilities and is not revised subsequently. The calculation of the effective interest rate includes all yield related
fees and commissions paid or received that are an integral part of the effective interest rate.
Interest on the effective portion of a derivative designated as a cash flow hedge is initially recognised in the hedging reserve. It is released to profit or
loss at the same time as the hedged item or if the hedge relationship is subsequently deemed to be ineffective.
(e) Lending and credit fee income
Lending and credit fee income that is integral to the effective interest rate of a financial asset or liability is included in the measurement of the effective
interest rate. Other lending and credit fee income is recognised as the related services are rendered.
(f) Dividend income
Dividend income is recognised in profit or loss on the date that the Company's right to receive payment is established.
(g) Tax
Income tax expense
Income tax expense for the year comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it
relates to items recognised directly in equity or other comprehensive income, in which case it is recognised in equity or other comprehensive income.
Current tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to tax payable 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 recognised in respect of temporary differences between the carrying amount of assets and liabilities and the amounts used for tax
purposes.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year(s) when the assets or liabilities giving rise to
them are realised or settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. The
measurement reflects the tax consequences that would follow from the manner in which the Group, at the reporting date, recovers or settles the
carrying amount of its assets and liabilities.
Deferred tax assets, including those related to the tax effects of income tax losses and credits available to be carried forward, are recognised only to
the extent that it is probable that future taxable profits will be available against which the deductible temporary differences or unused tax losses and
credits can be utilised. Deferred tax assets are reviewed each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
PG 26 / Annual Report 2014 / Heartland New Zealand Limited
10
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
4 Significant accounting policies (continued)
(g) Tax (continued)
Current and deferred tax assets and liabilities are offset only to the extent that they relate to income taxes imposed by the same taxation authority and
there is a legal right and intention to settle on a net basis and it is allowed under tax law.
(h) Share capital
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 effects.
At 30 June 2013 the Group's share capital differs from the share capital of the Company as a result of the reverse acquisition accounting applied when
the Company was formed. Under NZ IFRS, MARAC Finance Limited (MARAC) (a former subsidiary of the Company), was treated as the acquirer of
the Company. As a result, the Group's result represented a continuation of the MARAC business, and the share capital of the Group reflects this. On
the amalgamation of MARAC into the Bank (MARAC's immediate parent), the reverse acquisition accounting was eliminated.
(i) Cash and cash equivalents
Cash and cash equivalents consist of cash and liquid assets used in the day to day cash management of the Group. Cash and cash equivalents are
carried at amortised cost in the Statements of Financial Position.
(j)
Investments
The Group holds investments in local authority stock, public securities and corporate bonds. Investments held are classified as being available for sale
and are stated at fair value less impairment, if any. The fair values are derived by reference to published price quotations in an active market or
modelled using observable market inputs.
(k)
Investment properties
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). Investment property is initially recognised at its fair value, with subsequent changes in fair value recognised in profit or
loss.
Fair values are supported by independent valuations or other similar external evidence, adjusted for changes in market conditions and the time since
the last valuation.
(l) Finance receivables
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.
(m) Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All
other leases are classified as operating leases.
Finance leases
Amounts due from finance leases are recognised as finance receivables at the amount of the Group’s net investment in the leases. Finance lease
income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the
leases.
Operating leases
Rental income 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.
Operating lease vehicles are stated at cost less accumulated depreciation. Profits on the sale of operating lease vehicles are included as part of
operating lease income. Current year depreciation and losses on the sale of operating lease vehicles are included as part of operating lease expenses.
Operating lease vehicles are depreciated on a straight line basis over their expected life after allowing for any residual values. The estimated lives of
operating lease vehicles vary up to five years. Vehicles held for sale are not depreciated but are tested for impairment.
Heartland New Zealand Limited / Annual Report 2014 / PG 27
11
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
4 Significant accounting policies (continued)
(n) Derivative financial instruments
Derivative financial instruments are contracts entered into to reduce the exposure to the volatility of variable rate borrowings (cash flow hedges), or to
convert fixed rate borrowings or assets to variable rates (fair value hedges), in order to mitigate the Group’s interest rate risk. The financial instruments
are subject to the risk that market values may change subsequent to their acquisition; however such changes would be offset by corresponding, but
opposite, effects on the variable rate borrowings or fixed rate borrowings or assets being hedged. Derivatives are initially valued at fair value and
subsequently remeasured at fair value.
Fair value movements of derivatives that are not designated in a qualifying cash flow hedge relationship, are recognised in profit or loss. Fair value
movements of the effective portion of a qualifying cash flow hedge derivative, are recognised directly in other comprehensive income and held in the
hedging reserve in equity. The amount recognised in equity is transferred to profit or loss in the same year as the hedged cash flow affects profit or
loss, disclosed in the same line as the hedged item. Any ineffective portion of changes in fair value of the derivative is recognised immediately in profit
or loss. Fair value movements of a derivative designated as a fair value hedge are recognised directly in profit or loss together with the hedged item.
(o) Property, plant, equipment and depreciation
Land and buildings are measured at fair value. Fair value is determined on the basis of independent valuations prepared by external valuation experts,
based on discounted cash flows or capitalisation of net income.
Any revaluation increase arising on the revaluation of land and buildings is credited to the asset revaluation reserve, except to the extent that it
reverses a revaluation decrease for the same asset previously recognised as an expense in profit or loss, in which case the increase is credited to
profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of land and buildings is
charged as an expense to the extent that it exceeds the balance, if any, held in the asset revaluation reserve relating to a previous revaluation of that
asset.
Depreciation on revalued buildings is charged to profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation
surplus remaining in the asset revaluation reserve, net of any related deferred taxes, is transferred directly to retained earnings.
Other items of property, plant and equipment are stated at cost less accumulated depreciation and impairment. Depreciation is calculated on a straight
line basis to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value.
The following annual rates are used in the calculation of depreciation:
Buildings
Fixtures and fittings
Office equipment and furniture
Computer equipment
1.0% - 4.0%
7.0% - 36.0%
6.0% - 30.0%
20.0% - 48.0%
(p)
Intangible assets and goodwill
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 and contingent liabilities. When the fair value of the identifiable net assets and contingent liabilities exceeds the cost of an acquisition, the
resulting discount is recognised immediately in profit or loss for the year. Goodwill is tested for impairment at least annually, and is carried at cost less
accumulated impairment losses.
Computer software
Software acquired or internally developed by the Group is stated at cost less accumulated amortisation and any accumulated impairment losses.
Subsequent 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 their estimated economic lives of three to four years. All other expenditure is expensed
immediately as incurred.
PG 28 / Annual Report 2014 / Heartland New Zealand Limited
12
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
4 Significant accounting policies (continued)
(q) Financial assets and liabilities
Classification
Financial assets and liabilities are classified in the following accounting categories:
Financial assets/liabilities
Cash and cash equivalents
Investments
Due from related parties
Finance receivables
Other financial assets
Borrowings
Other financial liabilities
Derivatives
Recognition
Accounting category
Loans and receivables
Available for sale
Loans and receivables
Loans and receivables
Loans and receivables
Other liabilities at amortised cost
Other liabilities at amortised cost
Held for trading (or qualifying hedges as described in Note 4(n))
The Group initially recognises finance receivables, borrowings and subordinated liabilities on the date that they are originated. All other financial assets
and liabilities (including assets and liabilities designated at fair value through profit or loss) 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 or liability.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
The Group enters into transactions whereby it transfers assets recognised on its Statements of Financial Position, but retains either all risks and
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 Statements 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.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is an enforceable legal
right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
The extent of this offsetting is minimal and immaterial.
(r)
Impaired assets and past due assets
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.
The term collectively impaired asset refers to an asset where an event has occurred which past history indicates that there is an increased possibility
that the Group will not collect all
its principal and interest as it falls due. No losses have yet been identified on these individual loans within the
collectively impaired asset grouping, and history would indicate that only a small portion of these loans will eventually not be recovered. The Group
provides fully for its expected losses on collectively impaired assets.
Restructured assets are impaired assets where the Group expects to recover all amounts owing although the original terms have been changed due to
the counterparty's difficulty in complying with the original terms of the contract and the amended terms are not comparable with similar new lending.
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.
Heartland New Zealand Limited / Annual Report 2014 / PG 29
13
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
4 Significant accounting policies (continued)
(s) Provision for impairment
Credit impairment provisions are made where events have occurred leading to an expectation of reduced future cash flows from certain receivables.
These provisions are made in some cases against an individual loan and in other cases on a collective basis.
Bad debts provided for are written off against individual or collective provisions. Amounts required to bring the provisions to their assessed levels are
recognised in profit or loss. Any future recoveries of amounts provided for are recognised in profit or loss.
Collective provisioning
Collective provisions are assessed with reference to risk profile groupings and historical loss data. Other judgemental factors including economic and
credit cycle considerations are also taken into account in determining appropriate loss propensities to be applied. The future credit quality of these
portfolios is subject to uncertainties that could cause actual credit losses to differ materially from reported loan impairment provisions. These
uncertainties include the wider economic environment, interest rates and their effect on customer spending, unemployment levels, payment behaviour
and bankruptcy rates.
No provisions are applied to loans that are newly written and loans that remain within their contractual terms, except where the Group becomes aware
of an event that might alter its view of the risk of a particular deal or group of deals.
Individual provisioning
Specific impairment provisions are made where events have occurred leading to an expectation of reduced future cash flows from certain receivables.
For individually significant loans for which the assessed risk grade is considered a “potential loss”, an individual assessment is made of an appropriate
provision for credit impairment.
Credit impairments are recognised as the difference between the carrying value of the loan and the discounted value of management’s best estimate of
future cash repayments and proceeds from any security held (discounted at the loan’s original effective interest rate). All relevant considerations that
have a bearing on the expected future cash flows are taken into account, including the business prospects for the customer, the likely realisable value
of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out
process. Subjective judgements are made in this process. Furthermore, judgement can change with time as new information becomes available or as
work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are taken. Changes in judgement could have a
material impact on the financial statements.
Adequacy of the collective provision levels for each risk grouping is measured against historical
loss experience at least annually. Adequacy of
individual provisions is assessed in respect of each loan on a material development or at least quarterly.
(t) Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount 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 part of the cost of acquisition of the asset or is
expensed.
(u) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is
probable that an outflow of economic benefits will be required to settle the obligation.
(v) 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
entitlements and discounting back to present value. Obligations to defined contribution superannuation schemes are recognised as an expense when
the contribution is paid.
PG 30 / Annual Report 2014 / Heartland New Zealand Limited
14
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
4 Significant accounting policies (continued)
(w) Defined benefit plan
The cost of providing benefits for defined benefit superannuation plans is determined using the Projected Unit Credit Method. Actuarial gains and
losses are recognised in full in the year in which they occur by way of a movement in the defined benefit plan reserve, and are recognised in other
comprehensive income and presented in the Statements of Changes in Equity.
Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over
the average year until the benefit becomes vested. The defined benefit obligation is deducted from the fair value of the defined benefit plan asset to
derive the defined benefit plan surplus recognised in trade receivables in the Statement of Financial Position.
(x) Share schemes
The Group operates share-based compensation plans that are cash settled and equity settled.
For the cash settled plans, the Group recognises a liability based on the estimated fair value of the obligation. The value of this liability is recognised in
profit or loss over the relevant service period and is re-measured at each reporting date.
For equity settled plans, share based payments to employees providing services are measured at the fair value of the equity instruments at the grant
date. Details regarding the determination of the fair value of equity settled share-based transactions are set out in Note 34 - Staff share ownership
arrangements.
The fair value determined at the grant date of the equity settled share-based payments 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 equity-settled
employee benefits reserve.
(y) Borrowings
Bank 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.
(z) Foreign currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in
which the entity operates (the functional currency). The consolidated financial statements are presented in New Zealand dollars ($), which is the
Group’s presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or
valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation
at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred
in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.
Foreign operations
The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
-
-
-
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet.
income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the
rate on the dates of the transactions).
all resulting exchange differences are recognised in other comprehensive income.
(aa) Statements of Cash Flows
The Statements of Cash Flows have been prepared using the direct method modified by the netting of certain cash flows associated with cash and
cash equivalents, investments, related party balances, finance receivables and borrowings. Netting of cash flows provides more meaningful disclosure
as many of the cash flows are received and paid on behalf of customers and reflect the activities of those customers rather than the Group.
Heartland New Zealand Limited / Annual Report 2014 / PG 31
15
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
5 Significant subsidiaries and interests in jointly controlled entities
Significant
subsidiaries
Heartland NZ Holdings Limited
and its subsidiary:
Heartland Bank Limited (Bank)
and its subsidiaries:
- MARAC Finance Limited (MARAC) 1
- PGG Wrightson Finance Limited (PWF) 1
- VPS Parnell Limited
- VPS Properties Limited
- Heartland PIE Fund Limited 2
Country of
incorporation
and place of
business
New Zealand
Nature
of business
Holding company
Proportion of
ownership interest and
voting power held
Jun 14
100%
Jun 13
100%
New Zealand
Financial services
100%
100%
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Financial services
Financial services
Investment property holding company
Investment property holding company
Manager of Heartland Cash and Term
PIE Fund
N/A
N/A
100%
100%
100%
100%
100%
100%
100%
N/A
Heartland NZ Trustee Limited
New Zealand
Corporate Trustee
100%
100%
New Zealand
Holding company
100%
100%
Heartland Financial Services Limited (HFSL)
and its subsidiary:
Heartland HER Holdings Limited (HHHL) 3
and its subsidiaries (HHHL Group):
New Zealand
Holding company
- New Sentinel Limited (NSL) 3
New Zealand
- Sentinel Custodians Limited (SCL) 4
New Zealand
- Australian Seniors Finance Pty Limited (ASF) 3
Australia
- Australian Seniors Finance Custodians Pty Limited 5 Australia
Financial services
Nominee
Financial services
Nominee
100%
100%
100%
100%
100%
N/A
N/A
0%
0%
0%
and its jointly controlled entity:
- MARAC JV Holdings Limited (MJV)
and its subsidiary:
New Zealand
Holding company
50%
50%
1
2
3
4
5
- MARAC Insurance Limited
New Zealand
Insurance services
50%
50%
On 1 December 2013 MARAC and PWF were amalgamated into the Bank. As a result, the assets and liabilities of MARAC and PWF were
transferred to the Bank at book value.
Heartland PIE Fund Limited was incorporated on 12 August 2013 to replace MARAC as manager of the Heartland Cash and Term PIE Fund.
On 13 February 2014 Heartland HER Holdings Limited was incorporated. On 1 April 2014 the Company acquired New Sentinel Limited and
Australian Seniors Finance Pty Limited from Seniors Money International Limited. Refer to Note 43 - Business Combinations for more details.
Sentinel Custodians Limited is the legal holder of home equity release loans for the benefit of NSL. The shares in SCL are held by Public Trust as
trustee for NSL. The Company has determined it has control of SCL, as it has power to direct the relevant activities of SCL through its control
over the directors of SCL.
The Company acquired control of Australian Seniors Finance Custodians Pty Limited following the HER acquisition. Australian Seniors Finance
Custodians Pty Limited is the legal holder of home equity release loans for the benefit of the Seniors Warehouse Trust and ASF Settlement Trust.
6 Structured entities
The Group controls the operations of Heartland Cash and Term PIE Fund, CBS Warehouse A Trust (CBS Trust), Heartland ABCP Trust 1 (ABCP
Trust), Seniors Warehouse Trust (SW Trust) and ASF Settlement Trust (ASF Trust).
(a) Heartland Cash and Term PIE Fund
Heartland Cash and Term PIE Fund is a portfolio investment entity that invests in the Bank's deposits. Investments of Heartland Cash and Term PIE
Fund are represented as follows:
Deposits
GROUP
COMPANY
Jun 14
$000
38,819
Jun 13
$000
33,226
Jun 14
Jun 13
$000
-
$000
-
PG 32 / Annual Report 2014 / Heartland New Zealand Limited
16
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
6 Structured entities (continued)
(b) ABCP Trust and CBS Trust
The Group has securitised a pool of receivables comprising commercial and motor vehicle loans to the ABCP Trust. Prior to 15 August 2013, the
Group had securitised a pool of receivables comprising residential mortgages to the CBS Trust.
On 31 July 2013, the Group cancelled $50 million of the CBS Trust's $100 million securitisation facility. On 15 August 2013, the remaining $50 million
CBS Trust facility was cancelled and all of the receivables in the CBS Trust were sold back to the Bank. The CBS Trust will remain dormant for the
foreseeable future.
The Group substantially retains the credit risks and rewards associated with the securitised assets, and continues to recognise these assets and
associated borrowings on the Statement of Financial Position. Despite this presentation in the financial statements, the loans sold to the Trusts are set
aside for the benefit of investors in the Trusts. The securitised balances are represented as follows:
Cash and cash equivalents - securitised
Finance receivables - securitised
Borrowings - securitised
Derivative financial asset - securitised
Derivative financial liabilities - securitised
(c) SW Trust and ASF Trust
GROUP
COMPANY
Jun 14
$000
5,421
244,838
(228,623)
1,768
-
Jun 13
$000
11,586
274,978
(258,934)
567
(30)
Jun 14
$000
-
-
-
-
-
Jun 13
$000
-
-
-
-
-
SW Trust and ASF Trust form part of ASF's home equity release business. They were both settled by ASF, as asset holding entities. The Trustee for
both Trusts is ASF Custodians Pty Limited and the Trust Manager is ASF. The balances of SW Trust and ASF Trust are represented as follows:
Cash and cash equivalents
Finance receivables - Home equity release loans
Borrowings - CBA
Derivative financial liabilities
7 Segmental analysis
GROUP
COMPANY
Jun 14
$000
846
405,523
(364,335)
(4,147)
Jun 13
Jun 14
Jun 13
$000
-
-
-
-
$000
-
-
-
-
$000
-
-
-
-
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.
All income received is from external sources, except those transactions with related parties, refer to Note 32 - Related party transactions. Certain
selling and administration expenses, such as premises, IT and support centre costs are not allocated to operating segments and are included in Other.
Operating segments
The Group operates predominantly within New Zealand and comprises the following main operating segments:
Retail and Consumer
Providing a comprehensive range of financial services to New Zealand businesses and families, including
term, transactional and savings based deposit accounts together with mortgage lending (residential and home
Business
Rural
equity release), motor vehicle finance and asset finance.
Providing term debt, plant and equipment finance, commercial mortgage lending and working capital solutions
for small-to-medium sized New Zealand businesses.
Providing 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.
Non-core Property
Funding assets of the non-core property division.
The Group's operating segments are different than the industry categories detailed in Note 38 - Asset quality. The operating segments are primarily
categorised by sales channel, whereas Note 38 - Asset quality categorises exposures based on credit risk concentrations.
Heartland New Zealand Limited / Annual Report 2014 / PG 33
17
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
7 Segmental analysis (continued)
Retail &
Consumer
$000
Business
$000
Jun 14
Interest income
Interest expense
Net interest income / (expense)
Net operating lease income
Net other income
Net operating income
Depreciation and amortisation expense
Other selling and administration expenses
Selling and administration expenses
104,224
45,903
58,321
5,639
2,003
65,963
-
12,626
12,626
GROUP
Rural
$000
39,666
16,865
22,801
-
68
50,709
21,663
29,046
-
432
29,478
22,869
-
5,304
5,304
-
5,409
5,409
Non-core
Property
$000
2,977
4,426
(1,449)
-
3,822
2,373
-
4,000
4,000
Other
$000
12,721
12,364
357
-
1,115
1,472
2,142
35,258
37,400
Total
$000
210,297
101,221
109,076
5,639
7,440
122,155
2,142
62,597
64,739
Profit before impaired asset expense and income tax
53,337
24,174
17,460
(1,627)
(35,928)
57,416
Impaired asset expense
Decrease in fair value of investment properties
Operating profit / (loss)
1,028
-
52,309
5,155
-
19,019
963
-
16,497
(1,251)
1,203
(1,579)
-
-
(35,928)
Share of equity accounted investee's profit
-
-
-
-
486
Profit / (loss) before income tax
52,309
19,019
16,497
(1,579)
(35,442)
Income tax expense
Profit / (loss) for the year
Total assets
Total liabilities
Total equity
Jun 13
Interest income
Interest expense
Net interest income
Net operating lease income
Net other income
Net operating income
Depreciation and amortisation expense
Other selling and administration expenses
Selling and administration expenses
Profit / (loss) before impaired asset expense and
income tax
-
-
-
-
14,765
52,309
19,019
16,497
(1,579)
(50,207)
1,665,343
-
-
547,168
-
-
410,219
-
-
40,846
-
-
353,312
2,564,266
452,622
3,016,888
2,564,266
452,622
90,991
46,611
44,380
5,151
622
50,153
-
11,696
11,696
51,679
26,261
25,418
23
285
45,762
22,952
22,810
-
49
25,726
22,859
-
5,864
5,864
-
6,152
6,152
8,734
7,767
967
-
3,860
4,827
-
12,438
12,438
9,183
7,304
1,879
-
1,443
3,322
1,940
32,257
34,197
206,349
110,895
95,454
5,174
6,259
106,887
1,940
68,407
70,347
38,457
19,862
16,707
(7,611)
(30,875)
36,540
Impaired asset expense
Decrease in fair value of investment properties
Operating profit / (loss)
2,770
-
35,687
3,360
-
16,502
(195)
-
16,592
5,101
-
-
16,902
(29,304)
(30,875)
Share of equity accounted investee's profit
-
-
-
-
504
Profit / (loss) before income tax
35,687
16,502
16,902
(29,304)
(30,371)
Income tax expense
Profit/(loss) for the year
Total assets
Total liabilities
Total equity
-
-
-
-
2,504
35,687
16,502
16,902
(29,304)
(32,875)
987,796
-
-
549,177
-
-
456,647
-
-
107,438
-
-
403,569
2,134,085
370,542
2,504,627
2,134,085
370,542
5,895
1,203
50,318
486
50,804
14,765
36,039
22,527
5,101
8,912
504
9,416
2,504
6,912
PG 34 / Annual Report 2014 / Heartland New Zealand Limited
18
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
8 Net interest income
Interest income
Cash and cash equivalents
Investments
Finance receivables
Net interest income on derivative financial instruments
Total interest income
Interest expense
Retail deposits
Bank and securitised borrowings
Net interest expense on derivative financial instruments
Total interest expense
Net interest income
GROUP
COMPANY
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
3,559
9,189
197,549
-
210,297
3,876
1,860
197,999
2,614
206,349
79,430
20,932
859
94,198
16,697
-
101,221
110,895
109,076
95,454
137
-
-
-
137
-
-
38
38
99
36
-
-
-
36
-
-
-
-
36
Included within the Group's interest income on finance receivables is $2,665,000 (2013: $2,591,000) on individually impaired assets.
9 Net operating lease income
Operating lease income
Lease income
Gain on disposal of lease vehicles
Total operating lease income
Operating lease expense
Depreciation on lease vehicles
Direct lease costs
Total operating lease expenses
Net operating lease income
10 Other income
Rental income from investment properties
Management fees
Other income
Total other income
GROUP
COMPANY
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
11,256
2,092
13,348
7,060
649
7,709
5,639
12,898
1,963
14,861
9,019
668
9,687
5,174
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NOTE
32
GROUP
COMPANY
Jun 14
Jun 13
Jun 14
Jun 13
$000
4,027
374
570
4,971
$000
3,859
335
305
4,499
$000
-
-
-
-
$000
-
-
170
170
Heartland New Zealand Limited / Annual Report 2014 / PG 35
19
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
11 Selling and administration expenses
Personnel expenses
Directors' fees 1
Superannuation
Audit and review of financial statements
Other assurance services paid to auditor 2
Other fees paid to auditor 3
Depreciation - property, plant and equipment
Amortisation - intangible assets
Operating lease expense as a lessee
RECL Agreement fees 4
Legal and professional fees
Other operating expenses 5
Total selling and administration expenses
NOTE
25
26
GROUP
COMPANY
Jun 14
$000
35,180
882
585
430
18
193
801
1,341
1,654
-
4,434
19,221
64,739
Jun 13
$000
33,448
726
413
419
20
84
714
1,226
1,651
7,700
3,631
20,315
70,347
Jun 14
$000
-
412
-
140
-
-
-
-
-
-
1,510
236
2,298
Jun 13
$000
-
549
-
60
-
-
-
-
-
-
246
429
1,284
1 Included in Directors' fees are Directors' fees the Company has paid on behalf of the Bank and its subsidiaries.
2 Other assurance services paid to auditor comprise of reporting on trust deed requirements.
3 Other fees paid to auditor include professional fees in connection with RBNZ reporting and other regulatory compliance, accounting advice and
review work completed.
4 Prior to 4 June 2013, the Group had an agreement with Real Estate Credit Limited (RECL) to manage certain non-core real estate loans. On 4 June
2013 this agreement was terminated. As a result, the unamortised portion of an $11 million upfront fee paid was written off during the year ended 30
June 2013.
5 Other operating expenses above includes the following direct operating expenses on investment properties:
Operating expenses from investment properties that generated rental income
Operating expenses from investment properties that did not generate rental income
Total direct operating expenses on investment properties
12 Impaired asset expense
GROUP
COMPANY
Jun 14
Jun 13
Jun 14
Jun 13
$000
3,367
151
3,518
$000
3,563
219
3,782
$000
-
-
-
$000
-
-
-
GROUP
COMPANY
Jun 13
$000
Jun 14
$000
Jun 13
$000
Non-securitised
Individually impaired expense
Collectively impaired expense
Total non-securitised impaired asset expense
Securitised
Individually impaired expense
Collectively impaired expense
Total securitised impaired asset expense
Total
Individually impaired expense
Collectively impaired expense
Total impaired asset expense
NOTE
Jun 14
$000
11,851
(6,536)
5,315
-
580
580
13,098
9,108
22,206
3
318
321
38(e)
38(e)
11,851
(5,956)
5,895
13,101
9,426
22,527
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
In the year ended 30 June 2013 the Group changed its workout strategy with respect to non-core legacy property assets. This change affected the
periods over which assets are expected to be realised and the values expected to be realised for those assets. As a result of this change an additional
provision of $12.9 million was raised against finance receivables in the year ended 30 June 2013.
PG 36 / Annual Report 2014 / Heartland New Zealand Limited
20
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
13 Income tax expense
(a) Current income tax expense / (benefit)
Current year
Adjustments for prior year
Deferred tax (benefit) / expense
Origination and reversal of temporary differences
Total income tax expense / (benefit)
Reconciliation of effective tax rate
Profit before income tax
Prima facie tax at 28%
Higher tax rate for overseas jurisdiction
Plus tax effect of items not taxable / deductible
Adjustments for prior year
Dividends received
Total income tax expense / (benefit)
(b) Tax recognised in other comprehensive income
Jun 2014
Other comprehensive income / (loss) before tax
less tax (benefit) / expense
Total other comprehensive income / (loss), net of income tax
Jun 2013
Other comprehensive income before tax
less tax expense
Total other comprehensive income, net of income tax
14 Imputation credit account
GROUP
COMPANY
Jun 14
$000
3,725
30
11,010
14,765
Jun 13
$000
11,699
(193)
(9,002)
2,504
Jun 14
$000
Jun 13
$000
(350)
1
14
(335)
(300)
63
23
(214)
50,804
9,416
37,022
14,527
14,225
21
489
30
-
14,765
2,636
-
61
(193)
-
2,504
10,366
-
280
1
(10,982)
(335)
4,068
-
24
63
(4,369)
(214)
Foreign
Currency
Available
for sale
Translation investments
GROUP
Defined
Cash flow
Total
benefit
plan
hedges
Reserve
$000
95
-
95
-
-
-
$000
$000
$000
$000
(17)
(5)
(12)
383
107
276
4
1
3
478
16
462
1,542
431
1,111
1,467
411
1,056
1,624
427
1,197
2,328
534
1,794
As at 30 June 2014, the imputation credit account balance of the Group was a debit of $1,471,000 (2013: credit of $1,688,000) and the Australian
franking credit account balance of ASF was $nil (2013: n/a).
Heartland New Zealand Limited / Annual Report 2014 / PG 37
21
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
15 Earnings per share
The calculation of basic and diluted earnings of 9c per share at 30 June 2014 (2013: 2c per share) is based on the profit for the year of $36,039,000
(2013: $6,912,000), and a weighted average number of shares on issue of 411,753,442 (2013: 388,703,975).
16 Dividends paid
The Company paid total dividends of $19,958,000 ($0.05 per share), consisting of $9,718,000 ($0.025 per share) on 4 October 2013 and $10,240,000
($0.025 per share) on 4 April 2014. During the year ended 30 June 2013, the Company paid total dividends of $13,605,000 ($0.04 per share).
17 Cash and cash equivalents
Cash on hand
Cash at banks
Total cash and cash equivalents
18 Investments
Bank deposits
Public securities and corporate bonds
Local authority stock
Total investments
19 Investment properties
Opening balance
Acquisitions
Additional capital expenditure
Sales
Decrease in fair value of investment properties
Closing balance
GROUP
COMPANY
Jun 14
$000
340
37,004
37,344
Jun 13
$000
279
173,983
174,262
Jun 14
$000
-
95
95
Jun 13
$000
-
1,485
1,485
GROUP
COMPANY
Jun 14
$000
143,063
58,814
36,982
238,859
Jun 13
$000
121,780
9,162
34,281
165,223
Jun 14
Jun 13
$000
-
-
-
-
$000
-
-
-
-
GROUP
COMPANY
Jun 14
$000
58,287
9,746
302
(42,244)
(1,203)
24,888
Jun 13
$000
55,504
10,800
278
(3,194)
(5,101)
58,287
Jun 14
Jun 13
$000
-
-
-
-
-
-
$000
-
-
-
-
-
-
Investment properties are held at fair value, with fair values determined by qualified independent valuers or other similar external evidence, adjusted
for changes in market conditions and the time since the last valuation.
In the year ended 30 June 2013 the Group changed its workout strategy with respect to non-core legacy property assets. As a result of this change a
$5.1 million reduction in the fair value of investment properties was recognised reflecting the Director's views on the market value of the properties.
PG 38 / Annual Report 2014 / Heartland New Zealand Limited
22
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
20 Finance receivables
GROUP
COMPANY
NOTE
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
Non-securitised
Neither at least 90 days past due or impaired
At least 90 days past due
Individually impaired
Restructured assets
Gross finance receivables
Less allowance for impairment
Less fair value adjustment for present value of future losses 1
Total non-securitised finance receivables
Securitised
Neither at least 90 days past due or impaired
At least 90 days past due
Gross finance receivables
Less allowance for impairment
Total securitised finance receivables
Total
Neither at least 90 days past due or impaired
At least 90 days past due
Individually impaired
Restructured assets
Gross finance receivables
Less allowance for impairment
Less fair value adjustment for present value of future losses
2,321,630
32,969
27,617
4,064
2,386,280
15,725
8,000
1,687,480
24,837
69,301
3,566
1,785,184
49,786
-
2,362,555
1,735,398
244,409
1,065
245,474
636
244,838
2,566,039
34,034
27,617
4,064
2,631,754
16,361
8,000
273,922
1,761
275,683
705
274,978
1,961,402
26,598
69,301
3,566
2,060,867
50,491
-
38(b)
38(c)
38(e)
43
Total finance receivables
2,607,393
2,010,376
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 Of the $8.0m fair value adjustment, $0.5 million was raised as a result of the acquisition of $30.5 million home equity release loans in December
2013, and $7.5 million was raised pursuant to the HER acquisition (see Note 43 - Business combinations).
Refer to Note 38 - Asset quality for further analysis of finance receivables by credit risk concentration.
Finance lease receivables
The Group classifies finance leases as finance receivables. The table below provides an analysis of finance lease receivables for leases of certain
property and equipment in which the Group is the lessor.
Gross finance lease receivables
Less than 1 year
Between 1 and 5 years
More than 5 years
Total gross finance lease receivables
Less unearned finance income
Less provision for impairment
Net finance lease receivables
GROUP
COMPANY
Jun 14
$000
36,420
66,184
66
Jun 13
$000
40,777
69,665
-
102,670
110,442
14,681
87
87,902
15,616
192
94,634
Jun 14
$000
Jun 13
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Heartland New Zealand Limited / Annual Report 2014 / PG 39
23
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
21 Operating lease vehicles
Cost
Opening balance
Additions
Disposals
Closing balance
Accumulated depreciation
Opening balance
Depreciation charge for the year
Disposals
Closing balance
Opening net book value
Closing net book value
GROUP
COMPANY
Jun 14
$000
47,339
12,954
(16,698)
43,595
14,944
7,060
(9,704)
12,300
32,395
31,295
Jun 13
$000
51,236
15,611
(19,508)
47,339
16,686
9,019
(10,761)
14,944
34,550
32,395
Jun 14
$000
Jun 13
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The future minimum lease payments receivable under non-cancellable operating leases not later than one year is $8,610,000 (2013: $9,412,000),
within one to five years is $7,816,000 (2013: $8,390,000) and over five years is nil (2013: nil).
22 Other assets
Derivative financial assets
Trade receivables
Due from related parties
Prepayments
Total other assets
23 Investment in subsidiaries
Heartland NZ Holdings Limited
Heartland Financial Services Limited
Heartland NZ Trustee Limited
Total investments in subsidiaries
NOTE
31
32
GROUP
COMPANY
Jun 14
Jun 13
$000
1,867
6,134
-
1,023
9,024
$000
649
7,286
-
2,198
10,133
Jun 14
$000
70
23
24,887
-
24,980
Jun 13
$000
-
16
20
-
36
GROUP
COMPANY
Jun 14
Jun 13
$000
-
-
-
-
$000
-
-
-
Jun 14
$000
339,757
61,040
191
Jun 13
$000
338,843
3,200
191
-
400,988
342,234
On 1 April 2014, the Company increased its investment in HFSL, to fund HHHL's acquisition of NSL and ASF. Refer to Note 43 - Business
Combinations for more details.
24 Investment in joint venture
Carrying amount at beginning of year
Investment in joint venture
Dividends received from joint venture
Equity accounted earnings of joint venture
Carrying amount at end of year
GROUP
COMPANY
Jun 14
$000
4,320
-
(560)
486
4,246
Jun 13
$000
3,116
700
-
504
4,320
Jun 14
$000
-
-
-
-
-
-
Jun 13
$000
-
-
-
-
-
-
Total comprehensive income from joint venture
972
1,010
HFSL owns 50% of MJV. MJV is jointly owned by HFSL and the New Zealand Automobile Association Limited.
PG 40 / Annual Report 2014 / Heartland New Zealand Limited
24
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
25 Property, plant and equipment
Cost
Opening balance
Additions
Disposals
Closing balance
Accumulated depreciation
Opening balance
Depreciation charge for the year
Disposals
Closing balance
Opening net book value
Closing net book value
26 Intangible assets
Computer software - cost
Opening balance
Additions
Disposals
Closing balance
Computer software - accumulated amortisation
Opening balance
Amortisation charge for the year
Disposals
Closing balance
Computer software - opening net book value
Computer software - closing net book value
Goodwill
Opening balance
Additions
Disposals
Closing balance
Total intangible assets - opening net book value
Total intangible assets - closing net book value
GROUP
COMPANY
Jun 14
$000
14,006
168
(622)
13,552
3,725
801
(547)
3,979
10,281
9,573
7,733
816
(748)
7,801
4,929
1,341
(747)
5,523
2,804
2,278
20,159
24,984
-
45,143
22,963
47,421
Jun 13
$000
13,161
936
(91)
14,006
3,094
714
(83)
3,725
10,067
10,281
6,748
1,320
(335)
7,733
4,038
1,226
(335)
4,929
2,710
2,804
20,287
-
(128)
20,159
22,997
22,963
Jun 14
$000
Jun 13
$000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
As part of the HER acquisition $25.0 million of goodwill was recognised, refer to Note 43 - Business Combinations for more details.
Goodwill has not been allocated to individual cash generating units, as the future economic benefit is attributable to all business units. Management
intend to undertake further work to complete initial allocation of goodwill. The Group's management and Board of Directors continue to monitor
goodwill at a group level.
Heartland New Zealand Limited / Annual Report 2014 / PG 41
25
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
27 Deferred tax
Employee entitlements
Provision for impairment
Trade and other payables
Investment properties
Intangible assets
Tax assets
Property, plant and equipment
Intangible assets
Derivatives held for risk management
Operating lease vehicles
Tax liabilities
Net tax assets
GROUP
COMPANY
Jun 14
$000
1,619
4,404
223
1,740
-
7,986
826
27
449
1,397
2,699
Jun 13
$000
1,232
13,939
225
2,925
27
18,348
834
-
18
1,109
1,961
5,287
16,387
Jun 14
$000
-
-
-
-
-
-
-
-
-
-
-
-
Jun 13
$000
-
-
14
-
-
14
-
-
-
-
-
14
All deferred tax movements are included in profit or loss except for those in respect of the available for sale and hedging reserves which are
recognised in other comprehensive income.
28 Borrowings
Deposits
Subordinated bond
Bank borrowings
Securitised borrowings
Total borrowings
GROUP
COMPANY
Jun 14
Jun 13
Jun 14
Jun 13
$000
1,736,751
3,378
555,708
228,623
$000
1,838,619
-
-
258,934
2,524,460
2,097,553
$000
-
-
-
-
-
$000
-
-
-
-
-
Deposits rank equally and are unsecured. The Subordinated bonds rank below all other general liabilities of the Group.
Securitised borrowings held by investors in ABCP Trust rank equally with each other and are secured over the securitised assets of that trust. The
Group has securitised bank facilities of $400 million in relation to ABCP Trust which mature on 4 February 2015. The facilities are drawn by $229
million (2013: $259 million) as shown above.
The Group has a New Zealand and Australian bank facility provided by Commonwealth Bank of Australia (CBA) totalling $556 million in relation to
HHHL Group (CBA bank facility). The CBA bank facility is secured over assets of HHHL Group and has a maturity date of 30 September 2019.
Capacity for new Australian drawings is available for two years, based on scheduled repayments achieved by the Group. ASF Group (comprising ASF,
ASF Settlement Trust and Seniors Warehouse Trust) has also provided a cross-guarantee to CBA for bank loans to other members of ASF Group.
The banking agreements include covenants for the provision of information, attainment of minimum financial ratios and equity, compliance with
specified procedures and certification of due performance by ASF Group.
29 Trade and other payables
Derivative financial liabilities
Trade payables
GST payable
Due to related parties
Employee benefits
Total trade and other payables
NOTE
31
32
GROUP
COMPANY
Jun 14
$000
4,180
12,849
15,749
500
6,097
39,375
Jun 13
$000
30
12,360
16,249
500
4,534
33,673
Jun 14
$000
-
421
-
-
-
421
Jun 13
$000
-
226
-
-
-
226
PG 42 / Annual Report 2014 / Heartland New Zealand Limited
26
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
30 Share capital
Issued shares
Opening balance
Shares issued during the year
Closing balance
To fund the HER acquisition, the Company:
COMPANY
Jun 14
Jun 13
Number of shares
000
000
388,704
74,562
463,266
388,704
-
388,704
••••
Raised capital totalling $20 million. On 19 February 2014, $15 million was raised by issuing 17,045,455 HNZ shares at $0.88 per share to
institutions. On 25 March 2014, $5 million was raised through a Heartland New Zealand Limited underwritten share purchase plan, by issuing
5,854,940 HNZ shares at $0.8541 per share.
Issued $37.8m of shares. On 1 April 2014, the Company issued 43,000,000 HNZ shares at $0.88 per share to Seniors Money International
••••
Limited (subject to a minimum 12 month lock-up escrow arrangement).
Refer to Note 43 - Business Combinations for more details.
Under dividend reinvestment plans, the Company issued 3,850,604 new shares at $0.8260 per share on 3 October 2013 and 4,811,618 new shares at
$0.8606 per share on 4 April 2014.
The shares have equal voting rights, rights to dividends and distributions and do not have a par value.
31 Derivative financial instruments
Interest rate swaps
Qualifying cash flow hedges - securitised
Qualifying cash flow hedges - non-securitised
Qualifying fair value hedges - non-securitised
Forward exchange options held for risk management
Total derivative financial assets
Interest rate swaps
Qualifying cash flow hedges - securitised
Qualifying fair value hedges - non-securitised
Held for risk management
Total derivative financial liabilities
GROUP
COMPANY
NOTE
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
1,768
3
26
70
1,867
-
34
4,146
4,180
567
-
82
-
649
30
-
30
-
-
-
70
70
-
-
-
-
-
-
-
-
-
-
-
-
22
29
Derivatives consist of interest rate swaps held to manage the Group's exposure to interest rate repricing risk on its interest bearing assets and
liabilities and foreign exchange options used to manage the Group's exposure to foreign exchange rate risk.
ABCP Trust uses interest rate swaps to hedge the interest rate risk arising from its commercial paper issuance and its current and future floating rate
bank debt and designates those swaps as qualifying cash flow hedges. The Group uses interest rate swaps to hedge the interest rate risk arising from
deposits, fixed rate mortgage loans and investments and designates these swaps as qualifying fair value hedges and qualifying cash flow hedges.
Securitised derivatives are held in the name of ABCP Trust to hedge the interest rate risk arising in the Trust.
Heartland New Zealand Limited / Annual Report 2014 / PG 43
27
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
32 Related party transactions
The Company holds all shares in the Bank and HFSL, refer Note 5 - Significant subsidiaries and interests in jointly controlled entities.
(a) Transactions with related parties
The Bank provided administrative assistance to MARAC Insurance Limited (MARAC Insurance) and received insurance commission from MARAC
Insurance.
The Company, MARAC Insurance, Heartland Cash and Term PIE Fund and some key management personnel invested in the Bank's deposits. The
investments of Heartland Cash and Term PIE Fund are detailed in Note 6 - Structured entities. Key management personnel investments are detailed in
Note 32(b).
The Company received dividends from the Bank and HFSL.
The Company provided a working capital facility to Heartland HER Holdings Limited and a banking facility to the Heartland NZ Trustee Limited as
Heartland NZ Trustee Limited does not have a bank account. Both of these facilities are non-interest bearing.
Transactions with related parties
Subsidiaries
Interest income
Dividend income
MARAC Insurance Limited
Interest expense
Lending and credit fee income
Other income
Total transactions with other related parties
Due from related parties
Subsidiaries
Total due from related parties
Due to related parties
MARAC Insurance Limited
Total due to related parties
(b) Transactions with key management personnel
GROUP
COMPANY
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
-
-
(21)
300
374
653
-
-
500
500
-
-
(4)
312
335
643
21
39,221
-
15,605
-
-
-
-
-
-
39,242
15,605
-
-
24,887
24,887
500
500
-
-
20
20
-
-
Key management personnel, being directors of the Company and those staff reporting directly to the Chief Executive Officer and their immediate
relatives, have transacted with the Group during the year as follows:
GROUP
COMPANY
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
Transactions with key management personnel
Interest income
Interest expense
Key management personnel compensation:
Short-term employee benefits
Share-based payment expense
Total transactions with key management personnel
Due to / (from) key management personnel
Finance receivables
Borrowings - deposits
Total due from key management personnel
PG 44 / Annual Report 2014 / Heartland New Zealand Limited
55
(281)
(7,304)
(907)
(8,437)
709
(5,998)
(5,289)
-
(28)
(5,933)
(718)
(6,679)
-
(825)
(825)
-
-
(412)
-
(412)
-
-
-
-
-
(549)
-
(549)
-
-
-
28
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
33 Reconciliation of profit after tax to net cash flows from operating activities
GROUP
COMPANY
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
Profit for the year
36,039
6,912
37,357
14,741
Add / (less) non-cash items:
Depreciation and amortisation expense
Change in fair value of investment properties
Impaired asset expense
Deferred tax benefit
Derivative financial instruments revaluation
Accruals
Total non-cash items
Add / (less) movements in working capital items:
Other assets
Loss on disposal of property, plant and equipment and intangibles
Current tax
Other liabilities
Total movements in working capital items
Net cash flows from operating activities before movements in finance receivables
and operating lease vehicles
Movement in operating lease vehicles
Movement in finance receivables
Net cash flows from operating activities
34 Staff share ownership arrangements
(a) Heartland Long Term Executive Share Plan
2,142
1,203
5,895
11,100
91
950
21,381
804
56
(3,986)
1,203
(1,923)
1,940
5,101
22,527
(8,244)
1,100
(836)
21,588
6,022
-
8,494
(2,337)
12,179
-
-
-
14
(70)
-
(56)
(94)
-
147
(5)
48
-
-
-
(14)
-
-
(14)
267
-
(344)
(138)
(215)
55,497
40,679
37,349
14,512
1,100
96,815
153,412
2,155
25,894
68,728
-
-
-
-
37,349
14,512
The Heartland Long Term Executive Share Plan (the LTESP) was introduced in the year ended 30 June 2013 for selected senior employees of the
Bank. Under the LTESP, the Group lent funds to the participants. These funds were used by the participants to acquire shares in HNZ. The HNZ
shares acquired by participants are held on their behalf by Heartland NZ Trustee Limited, a HNZ subsidiary. Participants still employed by the Group
on 30 June 2014 may be entitled to some or all of the HNZ shares held on their behalf. The number of HNZ shares to which a participant will be
entitled is determined by performance hurdles relating to the period which commenced 1 July 2011 (which include corporate values targets and
financial performance targets). To the extent a participant is entitled to HNZ shares held on their behalf, the participant is given a cash bonus which is
applied toward repayment of the loan. To the extent a participant is not entitled to HNZ shares held on their behalf, those shares are acquired by
Heartland NZ Trustee Limited for a purchase price which is applied toward repayment of the loan. The weighted average grant date fair value of the
shares issued under the LTESP was $0.60 (based on the volume weighted average price of the shares for the 20 business days immediately
preceding the grant date).
Information regarding the shares under the LTESP is as follows:
Opening unvested shares
Number of shares granted
Less: forfeited over life of scheme
Less: vested over life of scheme
Closing unvested shares
Total amount recognised as an expense
GROUP
COMPANY
Jun 14
Shares
000
1,572
-
(155)
(158)
1,259
Jun 13
Shares
000
-
1,607
(35)
-
1,572
Jun 14
Shares
000
Jun 13
Shares
000
-
-
-
-
-
-
-
-
-
-
GROUP
COMPANY
Jun 14
$000
330
Jun 13
$000
459
Jun 14
$000
-
Jun 13
$000
-
Heartland New Zealand Limited / Annual Report 2014 / PG 45
29
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
34 Staff share ownership arrangements (continued)
(b) Heartland LTI Cash Entitlements Plan
The Heartland LTI Cash Entitlements Plan (LCEP) was introduced for selected senior employees of the Bank. Under the LCEP, participants are
granted a cash entitlement. This cash entitlement is based on the amount by which the market price of HNZ shares at a future date exceeds an agreed
reference price (no payment is made in the event that the market price of HNZ shares at that future date is lower than the reference price). If a
participant is still employed by the Group on 30 June 2015, that participant may be entitled to a cash entitlement. Cash entitlements based on a
reference pool of 5.65 million shares were issued in the year ending 30 June 2013 at a reference price of $0.72 per share.
Any cash entitlements are payable on the earlier of 20 business days after the release of the HNZ’s financial results for the year ended 30 June 2015,
or 2 November 2015. The market price of HNZ shares at this date will be based on the volume weighted average price for the 20 business days prior
to this date.
Compensation expense is recognised over the service period, being the period from the date the instrument is granted until the expiry date using the
Black Scholes option pricing model. The grant date was 23 November 2012. Information regarding the entitlements under the LCEP is as follows:
Opening entitlements granted
Number of options granted
Less: entitlements forfeited
Closing unvested entitlements
Total amount recognised as an expense
Liability recognised for bonus payable
The assumptions utilised in the model are as follows:
Volatility
Risk free interest rate
Annual dividends per share (cents)
Expiry date
Reference price ($)
Market price ($)
The volatility is calculated based on the historical movement in HNZ's ordinary shares.
GROUP
COMPANY
Jun 14
Shares
000
5,650
-
(1,000)
4,650
Jun 13
Shares
000
-
5,650
-
5,650
Jun 14
Shares
000
-
-
-
-
Jun 13
Shares
000
-
-
-
-
GROUP
COMPANY
Jun 14
Jun 13
Jun 14
Jun 13
$000
326
676
$000
350
350
$000
-
-
$000
-
-
25%
3%
5.5
30/06/2015
0.72
0.95
30%
3%
4.1
30/06/2015
0.72
0.83
PG 46 / Annual Report 2014 / Heartland New Zealand Limited
30
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
34 Staff share ownership arrangements (continued)
(c) Heartland LTI Net Share Settled Plan
The Heartland LTI Net Share Settled Plan (LNSSP) was introduced for selected senior employees of the Bank. Under the LNSSP participants are
granted an option to acquire shares in HNZ. The number of shares granted upon exercise of the options is based on the difference between the market
price of the shares on the exercise date and the reference price.
The options are exercisable from the earlier of the first business day in November 2015 and the business day after the day on which HNZ announces
its annual results for the year ended 30 June 2015, to the expiry date of 30 June 2017. The options generally lapse if the participant ceases
employment with the Group before 30 June 2015 or if the options are not exercised within the exercise period.
During the year ended 30 June 2014, 5,136,000 options were granted with a exercise price of $0.89. The exercise price is reduced by dividends paid
between the grant date and the exercise date.
Opening options granted
Number of options granted
Less: options forfeited
Closing unvested options outstanding / exercisable
GROUP
COMPANY
Jun 14
Shares
000
-
5,136
(89)
5,047
Jun 13
Shares
000
Jun 14
Shares
000
Jun 13
Shares
000
-
-
-
-
-
-
-
-
-
-
-
-
The fair value at grant date of these options has been measured using the Black Scholes option pricing model. As the exercise price is reduced by
dividends paid between the grant date and the exercise date, the model has been adjusted to reflect this. Information regarding the calculation of the
fair value under the LNSSP is as follows:
Total amount recognised as an expense
The assumptions utilised in the model are as follows:
Volatility
Risk free interest rate
Estimated option life (years)
Expiry date
Exercise price ($)
Market price at grant date($)
The volatility is calculated based on the historical movement in HNZ's ordinary shares.
Jun 14
Jun 13
Jun 14
Jun 13
$000
348
$000
366
$000
348
$000
366
25%
3.4%
3.9
30/06/2017
0.89
0.87
n/a
n/a
n/a
n/a
n/a
n/a
Heartland New Zealand Limited / Annual Report 2014 / PG 47
31
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 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 significance of
the inputs used in making the
measurements.
-
-
-
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 (that is, derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.
(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 Statement of Financial Position.
Investments
Investments in public sector securities and corporate bonds are classified as being available for sale and are stated at fair value less impairment, with
the fair value being based on quoted market prices or modelled using observable market inputs. Refer to Note 18 - 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.
Derivative items
Interest rate swaps are classified as held for trading and are recognised in the financial statements at fair value. Derivatives are initially recognised at
fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are determined on
the basis of discounted cash flow analysis using observable market prices and adjustments for counterparty credit spreads.
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 Statement of Financial Position.
June 14
Assets
Investments
Derivative assets held for risk management
Total
Liabilities
Derivative liabilities held for risk management
Total
June 13
Assets
Investments
Derivative assets held for risk management
Total
Liabilities
Derivative liabilities held for risk management
Total
There have been no transfers between Level 1 and Level 2 of the fair value hierarchy.
GROUP
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
198,385
-
198,385
-
-
40,474
1,867
42,341
4,180
4,180
125,223
-
125,223
40,000
649
40,649
-
-
30
30
-
-
-
-
-
-
-
-
-
-
238,859
1,867
240,726
4,180
4,180
165,223
649
165,872
30
30
PG 48 / Annual Report 2014 / Heartland New Zealand Limited
32
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Fair value (continued)
(b) Financial instruments not measured at fair value
The following methods and assumptions were used to estimate the fair value of each class of financial assets and liabilities not recognised at fair value
but for which fair value is calculated for disclosure purposes under level 2 or 3 of the fair value hierarchy.
Cash and cash equivalents and other financial assets and liabilities
The fair value of all cash and cash equivalents and other financial assets and liabilities is considered equivalent to their carrying value due to their
short term nature.
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 8.99% (2013: 8.58%). 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. Prepayment rates have not been factored into the fair value calculation as
they are not deemed to be material.
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 debt of similar maturities. The current market rate used to fair value borrowings for the Group is 4.64% (2013: 4.83%),
Other financial assets and financial liabilities
The Group has not disclosed the fair values for financial
instruments such as short-term trade receivables and payables, because their carrying
amounts are a reasonable approximation of fair values.
The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy
into which each fair value measurement is categorised.
June 14
Assets
Cash and cash equivalents
Finance receivables
Finance receivables - securitised
Other financial assets
Total financial assets
Liabilities
Borrowings
Borrowings - securitised
Other financial liabilities
Total financial liabilities
June 14
Assets
Cash and cash equivalents
Other financial assets
Total financial assets
Liabilities
Other financial liabilities
Total financial liabilities
GROUP
Level 1
Level 2
Level 3
Total Fair
Value
Total
Carrying
Value
$000
$000
$000
$000
$000
37,344
-
-
-
37,344
-
-
-
-
-
-
2,357,824
246,674
6,134
37,344
2,357,824
246,674
6,134
37,344
2,362,555
244,838
6,134
2,610,632
2,647,976
2,650,871
-
-
-
-
95
-
95
-
-
2,297,381
228,887
5,420
-
2,297,381
2,295,837
-
14,026
228,887
19,446
228,623
19,446
2,531,688
14,026
2,545,714
2,543,906
COMPANY
-
-
-
-
-
-
24,910
24,910
421
421
95
24,910
25,005
421
421
95
24,910
25,005
421
421
Heartland New Zealand Limited / Annual Report 2014 / PG 49
33
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
35 Fair value (continued)
(c) Classification of financial instruments
The following tables summarise the categories of financial instruments and the carrying value and fair value of all financial instruments of the Company
and the Group:
June 2014
Cash and cash equivalents
Investments
Finance receivables
Finance receivables - securitised
Derivative financial assets
Other financial assets
Total financial assets
Borrowings
Borrowings - securitised
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
June 2013
Cash and cash equivalents
Investments
Finance receivables
Finance receivables - securitised
Derivative financial assets
Other financial assets
Total financial assets
Borrowings
Borrowings - securitised
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
June 2014
Cash and cash equivalents
Other financial assets
Total financial assets
Other financial liabilities
Total financial liabilities
June 2013
Cash and cash equivalents
Other financial assets
Total financial assets
Other financial liabilities
Total financial liabilities
GROUP
Held for
trading
Loans and
receivables
Available for
sale
Financial
liabilities at
amortised
cost
Total
Carrying
Value
Total Fair
Value
$000
$000
$000
$000
$000
$000
-
-
-
-
1,867
-
37,344
-
2,362,555
244,838
-
6,134
1,867
2,650,871
-
238,859
-
-
-
-
238,859
-
-
-
-
-
-
-
37,344
238,859
2,362,555
244,838
1,867
6,134
37,344
238,859
2,357,824
246,674
1,867
6,134
2,891,597
2,888,702
-
-
4,180
-
4,180
-
-
-
-
649
-
649
-
-
30
-
30
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,295,837
228,623
-
19,446
2,295,837
228,623
4,180
19,446
2,297,381
228,887
4,180
19,446
2,543,906
2,548,086
2,549,894
174,262
-
1,735,398
274,978
-
7,286
2,191,924
-
165,223
-
-
-
-
165,223
-
-
-
-
-
-
-
174,262
165,223
1,735,398
274,978
649
7,286
174,262
165,223
1,734,792
278,540
649
7,286
2,357,796
2,360,752
-
-
-
-
-
95
24,910
25,005
-
-
1,485
36
1,521
-
-
-
-
-
-
-
1,838,619
258,934
-
17,394
1,838,619
258,934
30
17,394
1,841,657
258,934
30
17,394
2,114,947
2,114,977
2,118,015
COMPANY
-
-
-
-
-
-
-
-
-
-
-
-
-
421
421
-
-
-
226
226
95
24,910
25,005
421
421
1,485
36
1,521
226
226
95
24,910
25,005
421
421
1,485
36
1,521
226
226
PG 50 / Annual Report 2014 / Heartland New Zealand Limited
34
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
36 Risk management policies
The Group is committed to the management of risk. The primary risk categories are strategic, credit, liquidity, market (including interest rate), legal &
governance, financial & tax and operational & compliance. The Group's risk management strategy is set by the Board of Directors (Board). The Group
has put
in place management structures and information systems to manage risks incorporated in the Group's Enterprise Risk Management
Programme (RMP). The Group has separate monitoring tasks where feasible and subjects all risk processes to hindsight and internal audit, and
accounting systems to regular internal and external audits.
Role of the Board and the Risk Committee
The Board, through its Board Risk Committee (BRC) is responsible for the overall risk management process and the development of the RMP. The
role of the BRC is to assist the Board to formulate its risk appetite, understand the risks the Group faces for each strategic, credit, liquidity, market
(including interest rate), legal & governance, financial & tax, and operational & compliance risk to ensure that all policy and decisions are made in
accordance with the Group's corporate values and guiding principles. The BRC has the following responsibilities:
To oversee the Group’s risk profile and review and approve the Group’s RMP within the context of the risk-reward strategy determined by the
Board at least annually.
To make recommendations regarding high-level liquidity / capital / funding policies and strategy, including the use of securitisation and special
investment vehicles.
To agree and recommend for Board approval and annual review; a set of risk limits and conditions that apply to the taking of risk, as delegated to
the Risk Committee by the Board, that are consistent with the Board's determined risk appetite. This includes the authorities delegated by the
Board to the Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Risk Officer (CRO) and any other officers of the Bank to whom
the Board or the Committee have delegated authority, and to consider and accept risks beyond management’s approval discretion where deemed
appropriate.
To monitor the risk profile, performance, capital levels, exposures against limits and the management and control of the Group’s risks.
To review significant correspondence with the Group’s regulators, and receive reports from management on the Group’s regulatory relations and
report any significant issues to the Board.
To monitor changes anticipated in the economic and business environment and other factors considered relevant to the Group’s risk profile and
capital adequacy.
To review significant risk management issues that are raised in external or internal audits as well as the length of time and action taken to resolve
such issues.
To ensure an appropriate set of applicable corporate governance principles are developed, and reviewed on a regular basis.
-
-
-
-
-
-
-
-
The BRC consists of four directors, of which at least three are non-executive directors and two are independent directors. In addition the CEO, CRO
and CFO are in attendance at meetings. The BRC meets at least bi-monthly to review identified risk issues, and reports directly to the Board. A
member of the BRC sits on the Audit Committee and vice versa.
Audit Committee and Internal Audit
The Group has an internal audit function, the objective of which is to provide independent, objective assurance over the internal control environment
and additional services designed to add value and improve the Group’s operations. It assists the Group to accomplish 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 granted full, free and unfettered access to any and all of the organisation’s records, personnel and physical properties deemed necessary to
accomplish its internal audit activities.
A regular cycle of testing has been implemented to cover all areas of the business. Its focus is on assessment, management and control of risks. The
intention is to cycle through various business units and operational areas on a pre-set and agreed cycle relative to assessed risk, looking at the
specific internal control issues pertinent to the area, with a requirement to meet or exceed the Standards for the Professional Practice of Internal
Auditing of The Institute of Internal Auditors.
Each audit has a separate audit programme tailored to the area of business that is being reviewed. The audit programmes 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 programme.
All internal audit reports are addressed to the manager of the relevant area that is being audited. Management comments are obtained from the
process owner(s) and are included in the report.
The internal audit function has direct reporting lines, and accountability to the Audit Committee of the Bank and administratively to the CFO. A
schedule of all outstanding internal control issues is maintained and presented to the Audit Committee to assist the Audit Committee to 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.
The Audit Committee focuses on financial reporting and application of accounting policies as part of the internal control and risk assessment
framework. The Audit Committee 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 Audit
Committee receives regular reports from internal audit.
Charters for the Risk Committee and Audit Committee ensure suitable cross representation to allow effective communication pertaining to identified
issues with oversight by the Board. The CRO has a direct reporting line to the Chairman of the Risk Committee. The Head of Internal Audit has a direct
reporting line to the Chairman of the Audit Committee.
Heartland New Zealand Limited / Annual Report 2014 / PG 51
35
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
36 Risk management policies (continued)
Asset and Liability Committee (ALCO)
The ALCO comprises the CEO (Chair), CFO, CRO, Treasurer, Head of Retail, Head of Rural and Head of Business. The ALCO has responsibility for
overseeing aspects of the Group's financial position risk management. The purpose of the ALCO is to support the BRC with specific responsibilities for
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
- Capital management
The ALCO usually meet monthly, and reports to the BRC.
Executive Risk Committee (ERC)
The ERC comprises the CEO (Chair), CFO, CRO, Chief Operating Officer, Head of Retail, Head of Rural, Head of Business, Head of Human
Resources and Group General Counsel. The ERC has responsibility for overseeing all risk aspects not considered by ALCO. The purpose of ERC is to
support the BRC with specific responsibilities for decision making and oversight of the following risk categories:
- Operational and compliance risk
- Credit risk
- Strategic risk
- Legal and governance risk
- Financial and tax risk
Specific categories of Risk Management
Credit risk
Credit risk is the risk of loss arising from the non-performance of a counterparty to an instrument or facility. Credit risk arises when funds are extended,
committed, invested or otherwise exposed through contractual arrangements, and encompasses both on and off balance sheet instruments.
Credit risk is managed to achieve sustainable and superior 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 sound commercial judgement as
described below.
To manage this risk the BRC has been delegated the task of overseeing a formal credit risk management strategy. The BRC reviews the Group's
credit risk exposures to ensure consistency with the Group's credit policies to manage all aspects of credit risk. The credit risk management strategies
ensure that:
- Credit origination meets agreed levels of credit quality at point of approval.
- Sector and geographical risks are actively managed.
-
- Maximum total exposure to any one debtor is actively managed.
- Changes to credit risk are actively monitored with regular credit reviews.
Industry concentrations are actively monitored.
The Group has adopted a detailed Credit Policy Framework supported by Lending Standards providing criteria for finance products within each
business sector. The combination of the Credit Policy Framework and Lending Standards guides credit assessment, credit risk grading, documentation
standards, legal procedures and compliance with regulatory and statutory requirements.
The Risk Committee has authority from the Board for approval of all credit exposures. Lending authority has been individually provided to the Chief
Risk Officer, for delegation through 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. 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 risk committee
and ultimately through to the CRO or the BRC.
Although the Group relies primarily on the integrity of borrowers and their ability to make contracted repayments, the Group also requires appropriate
collateral for loans. This collateral is usually by way of first charge over the asset financed and usually includes personal guarantees from borrowers
and business owners. Because of the wide nature of the collateral held against loans it is impractical to provide an accurate estimate of their fair value.
The Group’s exposure to credit risk is governed by a policy approved by the Board and managed by the ERC. This policy sets out the nature of risk
which may be taken and aggregate risk limits, and the ERC must conform to this. The objective of the ERC is to manage the best risk return result
from lending activities and avoid risk at a transactional and portfolio level inconsistent with the Groups risk appetite.
In addition to regular internal audit activity in regards to credit standards, the Group employs a comprehensive process of hind sighting loans to ensure
that credit policies and the quality of credit processes are maintained.
PG 52 / Annual Report 2014 / Heartland New Zealand Limited
36
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
36 Risk management policies (continued)
Credit risk (continued)
Home equity release loans are a form of mortgage lending targeted toward the senior market. 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 with 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. Credit risk becomes 'negative equity' risk through the promise to customers that they can reside in their property for 'as long as they wish'
and repayment of their loan is limited to the net sale proceeds of their property.
The Group's exposure to negative equity risk is managed by Credit Risk Policy in conjunction with associated lending standards specific for this
product.
Market risk
The Group's market risk arises primarily due to significant 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.
Interest rate risk is the risk that the value of assets or liabilities will change because of changes in interest rates or that market interest rates may
change and thus alter the margin between interest
earning assets and interest
bearing liabilities. Interest rate risk for the Group refers to the risk of
loss due to holding assets and liabilities that may mature or re-price in different periods.
‐
‐
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.
To manage this market risk, the Group measures sensitivity to interest rate changes by frequently testing its position against various interest rate
change scenarios to assess potential risk exposure. The Group also manages interest rate risk by:
- Monitoring maturity profiles and seeking to match the re-pricing of assets and liabilities (physical hedging);
- Monitoring interest rates daily and regularly (at least monthly) reviewing interest rate exposure; and
-
Entering into forward rate agreements and interest rate swaps and options to hedge against movements in interest rates.
Foreign exchange rate 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 wholly owned subsidiary, ASF (which has a functional currency of
Australian dollars), 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. The foreign exchange revaluation gains and losses are
booked to the Foreign currency translational reserve. Substantial foreign exchange rate movements in any given year may have a 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.
Liquidity risk
Liquidity risk is the risk that under certain conditions, cash outflows can exceed cash inflows in a given period. The Group maintains sufficient liquid
funds to meet its commitments based on historical and budgeted cash flow forecasts. Management of liquidity risk is achieved by maintaining a prudent
level of liquid assets, utilisation of securitisation vehicles and management control of the growth of the business.
The Group’s liquidity risks are governed by a Board approved liquidity strategy that defines policy, systems and procedures for measuring, assessing,
reporting and managing liquidity. This also includes a formal contingency plan for dealing with a liquidity crisis.
The Group’s exposure to liquidity 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 future cash flows, liquidity constraints and capital adequacy.
Operational & compliance risk
Operational & compliance risk is the risk arising from day to day operational activities which may result in direct or indirect loss. Operational &
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, or loss of staff or clients. Examples include failure to comply with policy and legislation, human error, natural disasters, fraud and other
malicious acts. Where appropriate, risks are mitigated by insurance.
Heartland New Zealand Limited / Annual Report 2014 / PG 53
37
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
36 Risk management policies (continued)
Operational & compliance risk (continued)
To ensure appropriate responsibility is allocated for the management, reporting and escalation of operational & compliance risk, the Group operates a
“three lines of defence” model which outlines principles for the roles, responsibilities and accountabilities for operational & compliance risk
management:
The first line of defence is the business line management for the identification, management and mitigation of the risks associated with the
products and processes of the business. This accountability includes regular testing and certification of the adequacy and effectiveness of
controls and compliance with the Group’s policies.
The second line of defence is the Risk & Compliance function, responsible for the design and ownership of the Operational & Compliance Risk
Policies. It incorporates key processes including Risk and Control Self-Assessment, incident management, independent evaluation of the
adequacy and effectiveness of the internal control framework, and the self-certification process.
The third line of defence is audit. Internal Audit is responsible for assessing compliance with policy frameworks and for providing independent
-
-
-
evaluation of the adequacy and effectiveness of the risk and control framework.
The Group’s exposure to Operational & compliance risk is governed by a policy approved by the Board and managed by the ERC. This policy sets out
the nature of risk which may be taken and aggregate risk limits, and the ERC must conform to this. The objective of the ERC is to manage the
identification of operational & compliance risk and maintenance of a suitable internal control environment so residual risk to the Group is consistent
with the Groups risk appetite.
37 Credit risk exposure
(a) 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 exposures set out above are based
on net carrying amounts as reported in the Statements of Financial Position.
Cash and cash equivalents
Investments
Finance receivables
Derivative financial assets
Other financial assets
Total on balance sheet credit exposures
(b) Concentration of credit risk by geographic region
New Zealand:
Auckland
Wellington
Rest of North Island
Canterbury
Rest of South Island
Australia:
Queensland
New South Wales
Victoria
Western Australia
South Australia
Rest of Australia
Rest of the world 1
Provision for collectively impaired assets
Less acquisition fair value adjustment for present value of future losses
Due from related parties
Total on balance sheet credit exposures
GROUP
COMPANY
Jun 14
Jun 13
Jun 14
Jun 13
$000
37,344
238,859
2,607,393
1,867
$000
174,262
165,223
2,010,376
649
6,134
7,286
2,891,597
2,357,796
$000
95
-
-
70
24,910
25,075
725,318
196,992
668,629
482,159
380,814
115,936
171,765
79,041
14,456
16,951
10,311
44,224
706,137
217,928
548,046
531,871
369,775
-
-
-
-
-
-
-
188
-
-
-
-
-
-
-
-
-
-
-
$000
1,485
-
-
-
36
1,521
1,501
-
-
-
-
-
-
-
-
-
-
-
2,906,596
2,373,757
188
1,501
(6,999)
(8,000)
-
(15,961)
-
-
2,891,597
2,357,796
-
-
24,887
25,075
-
-
20
1,521
1 These overseas assets are not Finance Receivables, they are Investments. These assets represent NZD-denominated investments in AAA- rated
securities issued by offshore supranational agencies ("Kauri Bonds"). These securities are part of the liquid asset portfolio the Group holds for
managing liquidity risk.
PG 54 / Annual Report 2014 / Heartland New Zealand Limited
38
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
37 Credit risk exposure (continued)
(c) Concentration of credit risk by industry sector
Agriculture
Forestry and Fishing
Mining
Manufacturing
Finance & Insurance
Wholesale trade
Retail trade
Households
Property and Business services
Transport and storage
Other Services
Provision for collectively impaired assets
Less acquisition fair value adjustment for present value of future losses
Due from related parties
Total on balance sheet credit exposures
(d) Commitments to extend credit
Undrawn facilities available to customers
Conditional commitments to fund at future dates
GROUP
COMPANY
Jun 14
$000
469,020
22,301
11,148
77,321
291,223
80,884
171,019
1,313,877
330,860
15,873
123,070
Jun 13
$000
499,942
29,565
19,044
79,915
348,166
76,816
155,962
629,854
320,198
25,267
189,028
2,906,596
2,373,757
(6,999)
(8,000)
-
(15,961)
-
-
2,891,597
2,357,796
Jun 14
$000
-
-
-
-
165
-
23
-
-
-
-
188
-
-
24,887
25,075
Jun 13
$000
-
-
-
-
1,501
-
-
-
-
-
-
1,501
-
-
20
1,521
GROUP
COMPANY
Jun 14
$000
114,004
95,780
Jun 13
$000
106,702
48,428
Jun 14
Jun 13
$000
-
-
$000
-
-
As at 30 June 2014 there are no undrawn lending commitments to counterparties for whom drawn balances are classified as individually impaired
(2013: nil).
38 Asset quality
The disclosures in this note are categorised by the following credit risk concentrations:
Corporate
Rural
Property
Other
Residential
Lending to the farming sector primarily livestock, rural mortgage lending, seasonal and working capital financing, as
well as leasing solutions to farmers. Includes lending to individuals and small to medium enterprises.
Property asset lending including non-core property.
All other lending that does not fall into another category.
Lending secured by a first ranking mortgage over a residential property used primarily for residential purposes either
All Other
Consumer lending to individuals.
by the mortgagor or a tenant of the mortgagor.
Heartland New Zealand Limited / Annual Report 2014 / PG 55
39
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
38 Asset quality (continued)
(a) Finance receivables by credit risk concentration
Jun 14
Neither at least 90 days past due or impaired
At least 90 days past due
Individually impaired
Restructured assets
Fair value adjustment for present value of
future losses
Provision for impairment
NOTE
38(b)
38(c)
43
38(e)
GROUP
Corporate
Rural
$000
Property
$000
480,596
9,433
2,818
5
2,007
2,599
17,090
-
Other
$000
774,527
19,917
7,709
1,175
Residential
All Other
Total
$000
$000
$000
869,701
463
-
-
439,208
1,622
-
2,884
2,566,039
34,034
27,617
4,064
-
-
-
(8,000)
-
(8,000)
(2,114)
(5,744)
(7,275)
(57)
(1,171)
(16,361)
Total net finance receivables
490,738
15,952
796,053
862,107
442,543
2,607,393
Jun 13
Neither at least 90 days past due or impaired
At least 90 days past due
Individually impaired
Restructured assets
Provision for impairment
38(b)
38(c)
38(e)
522,815
3,975
2,979
6
17,866
11,045
61,634
-
797,195
7,584
4,688
1,225
230,283
814
-
-
393,243
3,180
-
2,335
1,961,402
26,598
69,301
3,566
(1,706)
(41,512)
(5,632)
(134)
(1,507)
(50,491)
Total net finance receivables
528,069
49,033
805,060
230,963
397,251
2,010,376
(b) Past due but not impaired
Jun 14
Less than 30 days past due
At least 30 and less than 60 days past due
At least 60 but less than 90 days past due
At least 90 days past due
Total past due but not impaired
Jun 13
Less than 30 days past due
At least 30 and less than 60 days past due
At least 60 but less than 90 days past due
At least 90 days past due
Total past due but not impaired
(c)
Individually impaired assets
Jun 14
Opening
Additions
Deletions
Write offs
Closing gross individually impaired assets
Less: provision for individually impaired assets
Total net impaired assets
Jun 13
Opening
Additions
Deletions
Write offs
Closing gross individually impaired assets
Less: provision for individually impaired assets
Total net impaired assets
PG 56 / Annual Report 2014 / Heartland New Zealand Limited
4,221
5,509
3,791
9,433
22,954
7,510
1,390
143
3,975
13,018
2,979
4,150
(3,027)
(1,284)
2,818
1,531
1,287
1,060
2,980
(795)
(266)
2,979
1,125
1,854
-
-
-
2,599
2,599
179
-
127
11,045
11,351
61,634
18,122
(30,361)
(32,305)
17,090
3,739
13,351
50,860
30,938
(16,740)
(3,424)
61,634
31,252
30,382
8,604
3,047
3,534
19,917
35,102
6,050
3,457
3,263
7,584
20,354
4,688
8,160
(3,470)
(1,669)
7,709
4,092
3,617
2,275
5,631
(1,160)
(2,058)
4,688
2,153
2,535
1,064
313
114
463
1,954
1,909
690
200
814
3,613
-
-
-
-
-
-
-
2,630
133
(1,832)
(931)
-
-
-
7,826
2,362
1,176
1,622
12,986
8,675
2,371
1,434
3,180
15,660
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,715
11,231
8,615
34,034
75,595
24,323
7,908
5,167
26,598
63,996
69,301
30,432
(36,858)
(35,258)
27,617
9,362
18,255
56,825
39,682
(20,527)
(6,679)
69,301
34,530
34,771
40
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
38 Asset quality (continued)
(d) Credit risk grading
The Group's receivables are monitored either by account behaviour or a regular assessment of their credit risk grade based on an objective review of
defined risk characteristics. The portfolio risk is regularly refreshed based on current information.
The Group classifies finance receivables as Behavioural or Judgement.
The Behavioural portfolio consists of consumer, retail and home equity release receivables and usually relates to financing of or the acquisition of a
single asset.
Consumer loans are typically introduced by vendors of the asset financed and are smaller in value than Judgement loans. Consumer and Retail loans
are risk graded based on arrears status.
Behavioural loans are classified as either not in arrears, active, arrangement, non-performing / repossession or recovery, as described below:
•
•
•
•
Active – loans for which the arrears category has reached 5 days overdue.
Arrangement – 5 to 34 days overdue accounts for which arrangements have or are in the process of being made for arrears to be repaid.
Non-performing / Repossession – residential mortgage loans that are greater than 90 days past due / other loans for which security has or is in
the process of being repossessed.
Recovery loans – loans for which security has been sold and shortfalls are being sought from the customer or where other recovery action is
being taken.
The Group also lends funds on it home equity release product which is considered behavioural but has no arrears characteristics. These loans are
assessed on origination against a pre-determined criteria supported by an actuarial assessment of future losses. The assumptions embedded in that
assessment are reviewed annually against actual experience.
The Judgement portfolio consists mainly of Business and Rural lending. Judgement loans relate to loans where an on-going and detailed working
relationship with the customer has been developed.
Judgement loans are individually risk graded based on loan status, financial
information, security and debt servicing ability. Exposures in the
Judgement portfolio are credit risk graded by an internal risk grading mechanism.
In the Judgement portfolio, grade 1 is the strongest risk grade for undoubted risk and grade 9 represents the weakest risk grade where a loss is
probable. Grade 10 reflects loss accounts written off. Grades 2 to 8 represent ascending steps in management's assessment of risk of exposures. The
Group typically finances new loans in risk grades 2 to 5 of the Judgement portfolio.
Heartland New Zealand Limited / Annual Report 2014 / PG 57
41
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
38 Asset quality (continued)
(d) Credit risk grading (continued)
Jun 14
Judgement portfolio
Grade 1 - Very Strong
Grade 2 - Strong
Grade 3 - Sound
Grade 4 - Adequate
Grade 5 - Acceptable
Grade 6 - Monitor
Grade 7 - Substandard
Grade 8 - Doubtful
Grade 9 - At risk of loss
Total Judgement portfolio
Behavioural portfolio
Not in arrears
Active
Arrangement
Non-performing / Repossession
Recovery
Total Behavioural portfolio
Provision for collectively impaired assets
Fair value adjustment for present value of future losses
GROUP
Corporate
Rural
$000
Property
$000
Other
$000
Residential
All Other
Total
$000
$000
$000
616
3,303
17,888
63,785
305,781
54,757
3,897
722
58
450,807
40,142
238
96
38
-
40,514
(583)
-
-
-
-
-
3,837
440
-
12,798
882
17,957
-
-
-
-
-
-
-
25,331
35,420
145,774
209,825
59,071
10,936
-
2,472
488,829
305,736
1,816
1,554
556
745
310,407
(2,005)
-
(3,183)
-
-
865
1,157
5,038
13,193
1,508
-
-
-
21,761
844,967
3,009
151
-
276
848,403
(57)
(8,000)
-
-
-
-
-
-
-
-
-
-
616
29,499
54,465
214,597
532,636
115,776
14,833
13,520
3,412
979,354
427,279
8,054
5,770
1,519
1,092
443,714
1,618,124
13,117
7,571
2,113
2,113
1,643,038
(1,171)
-
(6,999)
(8,000)
Total finance receivables
490,738
15,952
796,053
862,107
442,543
2,607,393
Jun 13
Judgement portfolio
Grade 1 - Very Strong
Grade 2 - Strong
Grade 3 - Sound
Grade 4 - Adequate
Grade 5 - Acceptable
Grade 6 - Monitor
Grade 7 - Substandard
Grade 8 - Doubtful
Grade 9 - At risk of loss
Total Judgement portfolio
Behavioural portfolio
Not in arrears
Active
Arrangement
Non-performing / Repossession
Recovery
Total Behavioural portfolio
575
6,689
17,050
106,467
234,912
122,876
5,150
269
1,850
495,838
32,565
197
45
5
-
32,812
-
-
-
-
1,979
12,297
-
20,924
24,093
59,293
-
-
-
-
-
-
-
8,877
64,242
153,848
181,851
60,560
12,120
325
1,818
483,641
318,094
3,346
1,985
902
571
324,898
-
41
2,320
4,671
19,326
2,637
764
-
-
29,759
196,545
4,517
-
-
276
201,338
-
-
-
-
-
-
-
-
-
-
381,730
8,444
6,116
1,319
1,149
398,758
575
15,607
83,612
264,986
438,068
198,370
18,034
21,518
27,761
1,068,531
928,934
16,504
8,146
2,226
1,996
957,806
Provision for collectively impaired assets
(581)
(10,260)
(3,479)
(134)
(1,507)
(15,961)
Total finance receivables
528,069
49,033
805,060
230,963
397,251
2,010,376
PG 58 / Annual Report 2014 / Heartland New Zealand Limited
42
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
38 Asset quality (continued)
(e) Provision for impairment
For Behavioural
loans, excluding home equity release loans, arrears drive provision outcomes. Each arrears classification carries a provision for
potential loss based on historical experience for that classification in the same portfolio.
Judgement loans in grades 6 to 8 ordinarily attract a collective provision based on risk grading overlaid with the strength of security position, except for
risk grades 6 which have strong security and accordingly attract no collective provision (typically rural exposures). Other collective provisions are also
maintained where considered appropriate against a class of loans or those with common risk characteristics. Judgement loans with a risk grade of 1 to
5 may be past due and not attract a provision if the Group has reviewed the risk position and it is deemed to remain sound. Under such circumstances
normally an amended credit risk grade will result.
The Group raises provisions based on historical loss experience for loans risk graded in grades 6 to 8. Loans in grade 9 of the Judgement portfolio are
individually assessed for impairment.
Total provision for impairment
2,114
5,744
7,275
Jun 14
Provision for individually impaired assets
Opening provision for individually impaired assets
Impairment loss for the year
- charge for the year
- recoveries
- write offs
- effect of discounting
Closing provision for individually impaired assets
Provision for collectively impaired assets
Opening provision for collective impaired assets
Impairment loss for the year
- charge/(credit) for the year
- recoveries
- write offs
Closing provision for collective impaired assets
Jun 13
Provision for individually impaired assets
Opening provision for individually impaired assets
Impairment loss for the year
- charge for the year
- RECL recovery
- recoveries
- write offs
- effect of discounting
Closing provision for individually impaired assets
Provision for collectively impaired assets
Opening provision for collective impaired assets
Impairment loss for the year
- charge/(credit) for the year
- RECL recovery
- recoveries
- write offs
Closing provision for collective impaired assets
GROUP
Corporate
Rural
$000
Property
$000
Other
$000
Residential
All Other
Total
$000
$000
$000
1,125
31,252
2,153
1,714
-
(1,284)
(24)
1,531
6,247
4
(32,305)
(1,459)
3,739
3,890
2
(1,669)
(284)
4,092
-
-
-
-
-
-
-
-
-
-
-
-
34,530
11,851
6
(35,258)
(1,767)
9,362
581
10,260
3,479
134
1,507
15,961
62
4
(64)
583
(7,497)
2
(760)
2,005
559
189
(1,044)
3,183
(77)
-
-
57
57
997
59
(1,392)
1,171
(5,956)
254
(3,260)
6,999
1,171
16,361
696
16,917
1,086
695
687
-
26
(266)
(18)
1,125
9,115
9,809
1
(3,424)
(1,166)
31,252
3,036
-
135
(2,058)
(46)
2,153
1,823
960
3,315
(1,244)
-
6
(4)
581
9,090
216
1
(7)
10,260
980
-
114
(930)
3,479
5,632
-
-
-
-
-
-
-
19,394
13,101
9,809
162
(6,679)
(1,257)
34,530
1,855
8,032
538
-
147
(1,033)
1,507
9,426
216
268
(1,981)
15,961
1,507
50,491
263
-
-
(931)
(27)
-
79
62
-
-
(7)
134
134
Total provision for impairment
1,706
41,512
Heartland New Zealand Limited / Annual Report 2014 / PG 59
43
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
39 Liquidity risk
Contractual liquidity profile of financial assets and liabilities
The following tables show the cash flows of the Group's financial liabilities and unrecognised loan commitments on the basis of their earliest possible
contractual maturity.
In the following tables, total financial assets do not include unrecognised loan commitments and total financial
liabilities do not include undrawn
committed bank facilities. The cash flows have been prepared using estimates of the average interest rate applicable for each asset or liability class
during the contractual term.
Jun 14
Cash and cash equivalents
Investments
Finance receivables
Finance receivables - securitised
Derivative financial assets
Other financial assets
Total financial assets
Borrowings
Borrowings - securitised
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
On
Demand
$000
37,344
12,910
-
-
-
-
50,254
615,862
-
-
13,263
629,125
0-6
Months
$000
-
4,382
403,974
60,833
1,867
6,134
477,190
737,055
4,765
126
6,183
748,129
6-12
Months
$000
-
62,301
250,028
55,235
-
-
367,564
306,974
230,984
92
-
538,050
GROUP
1-2
Years
$000
-
80,564
374,431
90,552
-
-
545,547
101,548
-
179
-
101,727
2-5
Years
$000
-
81,878
726,524
83,911
-
-
892,313
148,395
-
521
-
148,916
5+
Years
$000
-
20,837
2,938,811
30
-
-
2,959,678
567,509
-
3,262
-
570,771
Total
$000
37,344
262,872
4,693,768
290,561
1,867
6,134
5,292,546
2,477,343
235,749
4,180
19,446
2,736,718
Net financial (liabilities) / assets
(578,871)
(270,939)
(170,486)
443,820
743,397
2,388,907
2,555,828
Unrecognised loan commitments
Undrawn committed bank facilities
114,004
173,800
-
-
-
-
-
-
-
-
-
-
114,004
173,800
Undrawn committed bank facilities of $170.0 million were available to be drawn down on demand. To the extent drawn, $170.0 million is contractually
repayable in 6-12 months' time upon facility expiry. The remaining undrawn committed bank facilities of $3.8 million were available to ASF Group to
fund new home equity release finance receivables.
Jun 13
Cash and cash equivalents
Investments
Finance receivables
Finance receivables - securitised
Derivative financial assets
Other financial assets
Total financial assets
Borrowings
Borrowings - securitised
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
On
Demand
$000
174,262
11,520
-
-
-
-
185,782
452,201
-
-
-
452,201
0-6
Months
$000
-
1,647
562,696
55,889
649
7,286
628,167
859,386
4,496
30
17,394
881,306
6-12
Months
$000
-
47,882
283,239
55,910
-
-
387,031
387,733
260,834
-
-
648,567
GROUP
1-2
Years
$000
-
36,923
415,549
89,524
-
-
541,996
119,944
-
-
-
119,944
2-5
Years
$000
-
79,522
496,023
91,789
-
-
667,334
63,501
-
-
-
63,501
5+
Years
$000
-
-
448,422
65,199
-
-
513,621
-
-
-
-
-
Total
$000
174,262
177,494
2,205,929
358,311
649
7,286
2,923,931
1,882,765
265,330
30
17,394
2,165,519
Net financial (liabilities) / assets
(266,419)
(253,139)
(261,536)
422,052
603,833
513,621
758,412
Unrecognised loan commitments
Undrawn committed bank facilities
106,702
240,000
-
-
-
-
-
-
-
-
-
-
106,702
240,000
The undrawn committed bank facilities totalling $240.0 million were available to be drawn down on demand. To the extent drawn, $240.0 million is
contractually repayable in 6-12 months' time upon facility expiry.
PG 60 / Annual Report 2014 / Heartland New Zealand Limited
44
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
39 Liquidity risk (continued)
Expected maturity profile of financial assets and liabilities
The tables below show management's expected maturities of existing financial assets and financial liabilities.
Expected maturities of financial assets are based on management's best estimate having regard to current market conditions and past experience.
Historical deposit reinvestment levels have been applied to borrowings. Other financial liabilities reflect contractual maturities.
The below does not reflect a forward looking view of how the Group expects actual financial assets and liabilities to perform in the future, as it does not
include new lending and borrowing.
Jun 14
Cash and cash equivalents
Investments
Finance receivables
Finance receivables - securitised
Derivative financial assets
Other financial assets
Total financial assets
Borrowings
Borrowings - securitised
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
On
Demand
$000
37,344
12,910
-
-
-
-
50,254
6,159
-
-
12,763
18,922
0-6
Months
$000
-
4,382
538,883
78,179
1,867
6,134
629,445
231,357
4,765
126
6,183
242,431
6-12
Months
$000
-
62,301
358,181
63,245
-
-
483,727
190,902
4,688
92
-
195,682
GROUP
1-2
Years
$000
-
80,564
511,890
87,819
-
-
680,273
317,046
9,479
179
-
326,704
2-5
Years
$000
-
81,878
673,696
61,304
-
-
816,878
709,956
28,359
521
-
738,836
5+
Years
$000
-
20,837
1,318,444
246
-
-
1,339,527
1,110,787
230,000
3,262
500
1,344,549
Total
$000
37,344
262,872
3,401,094
290,793
1,867
6,134
4,000,104
2,566,207
277,291
4,180
19,446
2,867,124
Net financial assets / (liabilities)
31,332
387,014
288,045
353,569
78,042
(5,022)
1,132,980
Unrecognised loan commitments
Undrawn committed bank facilities
Jun 13
Cash and cash equivalents
Investments
Finance receivables
Finance receivables - securitised
Derivative financial assets
Other financial assets
Total financial assets
Borrowings
Borrowings - securitised
Derivative financial liabilities
Other financial liabilities
Total financial liabilities
114,004
173,800
On
Demand
$000
174,262
11,520
-
-
-
-
185,782
4,522
-
-
-
4,522
-
-
-
-
-
-
0-6
Months
$000
6-12
Months
$000
-
1,647
520,198
81,562
649
7,286
611,342
342,029
53,918
30
17,394
413,371
-
47,882
421,900
72,570
-
-
542,352
231,600
3,572
-
-
235,172
GROUP
1-2
Years
$000
-
36,923
514,305
97,603
-
-
648,831
357,000
7,203
-
-
364,203
-
-
2-5
Years
$000
-
79,522
468,854
64,991
-
-
613,367
590,880
21,628
-
-
612,508
-
-
114,004
173,800
5+
Years
$000
-
-
61,358
776
-
-
62,134
474,783
210,000
-
-
684,783
Total
$000
174,262
177,494
1,986,615
317,502
649
7,286
2,663,808
2,000,814
296,321
30
17,394
2,314,559
Net financial assets / (liabilities)
181,260
197,971
307,180
284,628
859
(622,649)
349,249
Unrecognised loan commitments
Undrawn committed bank facilities
106,702
240,000
-
-
-
-
-
-
-
-
-
-
106,702
240,000
Heartland New Zealand Limited / Annual Report 2014 / PG 61
45
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
40 Interest rate risk
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.
Jun 14
Financial assets
Cash and cash equivalents
Investments
Finance receivables
Finance receivables - securitised
Other financial assets
Total financial assets
Financial liabilities
Borrowings
Borrowings - securitised
Other financial liabilities
Total financial liabilities
0-3
Months
$000
4-6
Months
$000
6-12
Months
$000
37,004
126,585
1,781,120
43,043
1,867
1,989,619
1,556,658
228,623
4,680
1,789,961
-
2,039
83,718
30,518
-
116,275
328,448
-
-
328,448
-
29,379
137,484
51,819
-
218,682
282,156
-
-
282,156
GROUP
1-2
Years
$000
-
32,608
182,307
71,827
-
286,742
66,726
-
-
66,726
2+ Non-interest
bearing
$000
Years
$000
Total
$000
-
48,248
175,355
47,631
-
271,234
61,849
-
-
61,849
340
-
2,571
-
6,134
9,045
37,344
238,859
2,362,555
244,838
8,001
2,891,597
-
-
18,946
18,946
2,295,837
228,623
23,626
2,548,086
Effect of derivatives held for risk management
252,411
(22,550)
(40,925)
(64,025)
(124,911)
-
-
Net financial assets
452,069
(234,723)
(104,399)
155,991
84,474
(9,901)
343,511
Jun 13
Financial assets
Cash and cash equivalents
Investments
Finance receivables
Finance receivables - securitised
Other financial assets
Total financial assets
Financial liabilities
Borrowings
Borrowings - securitised
Other financial liabilities
Total financial liabilities
174,262
128,370
1,206,054
80,968
649
1,590,303
961,916
258,934
30
1,220,880
-
-
95,833
29,685
-
125,518
339,250
-
-
339,250
-
15,545
147,126
50,699
-
213,370
373,581
-
-
373,581
-
4,291
155,208
67,597
-
227,096
111,129
-
-
111,129
-
17,017
128,155
46,029
-
191,201
52,743
-
-
52,743
-
-
3,022
-
7,286
10,308
174,262
165,223
1,735,398
274,978
7,935
2,357,796
-
-
17,394
17,394
1,838,619
258,934
17,424
2,114,977
Effect of derivatives held for risk management
179,350
(18,700)
(45,330)
(61,200)
(54,120)
-
-
Net financial assets
548,773
(232,432)
(205,541)
54,767
84,338
(7,086)
242,819
The tables above illustrate the periods in which the cash flows from interest rate swaps are expected to occur and affect profit or loss.
The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group's financial assets and
liabilities to various standard and non standard interest rate scenarios. Standard scenarios which are considered on a monthly basis include a 100
basis point parallel fall or rise in the yield curve. There is no material impact on profit or loss in terms of a fair value change from movements in market
interest rates. Furthermore there is no material cash flow impact on the Statements of Cash Flows from a 100 basis point change in interest rates.
PG 62 / Annual Report 2014 / Heartland New Zealand Limited
46
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
41 Concentrations of funding
(a) Concentration of funding by industry
Finance
Other
Total borrowings
(b) Concentration of funding by geographical area
Auckland
Wellington
Rest of North Island
Canterbury
Rest of South Island
Overseas 1
Total borrowings
GROUP
COMPANY
Jun 14
$000
Jun 13
$000
Jun 14
$000
Jun 13
$000
818,543
1,705,917
283,421
1,814,132
2,524,460
2,097,553
453,168
202,829
376,495
687,168
168,442
636,358
409,923
304,297
392,056
725,365
184,800
81,112
2,524,460
2,097,553
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 Included in Overseas funding is the CBA bank facility totalling $556 million, refer to Note 28 - Borrowings for more information.
42 Contingent liabilities and commitments
Letters of credit, guarantees and performance bonds
Total contingent liabilities
Undrawn facilities available to customers
Conditional commitments to fund at future dates
Total commitments
43 Business combinations
GROUP
COMPANY
Jun 14
Jun 13
Jun 14
Jun 13
$000
6,329
6,329
$000
5,033
5,033
114,004
95,780
209,784
106,702
48,428
155,130
$000
-
$000
-
-
-
-
-
-
-
-
-
On 1 April 2014, the Company, through Heartland HER Holdings Limited, acquired 100% of New Sentinel Limited (NSL) and Australian Seniors
Finance Pty Limited (ASF) from Seniors Money International Limited. NSL and ASF offer home equity release mortgages, targeted to the seniors
demographic.
The purchase price was $86.1 million, consisting of $48.3 million paid in cash and the issuance of 43 million ordinary shares in the Company.
Fair value of the group consideration transferred at acquisition date
Cash paid
Equity issued - 43 million ordinary shares at 88 cents on 1 April 2014
Consideration transferred
GROUP
1 Apr 14
$000's
48,300
37,840
86,140
Heartland New Zealand Limited / Annual Report 2014 / PG 63
47
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2014
43 Business combinations (continued)
Identifiable assets acquired and liabilities assumed
Assets
Cash and cash equivalents
Finance receivables
- contractual amounts receivable
- unamortised net acquisition costs
- less acquisition fair value adjustment for present value of future losses 1
- finance receivables at fair value
Other assets
Total assets 2
Liabilities
Bank borrowings
Derivative financial liabilities
Other liabilities
Total liabilities 2
Total net identifiable assets
Total consideration transferred
Fair value of identifiable net assets
Goodwill
715,222
2,373
(7,451)
Fair value
1 Apr 14
$000's
3,827
710,144
-
713,971
648,420
3,952
443
652,815
61,156
86,140
61,156
24,984
1 This amount is conservative relative to the actual loss history in the acquired businesses. Since inception of the acquired businesses in 2003, actual
losses of $0.2 million have occurred. However, the Group has determined to take this amount as a fair value adjustment having considered actuarial
modelling (based on conservative assumptions) as to portfolio performance in the future. While there is no material current loss history in the home
equity release loan portfolio acquired, every home equity release loan portfolio (including the acquired businesses) will ultimately experience some loss
across the life of the portfolio.
2 The functional currency of ASF Group is Australian dollars (AUD). Included in the table above were total assets of AUD 384.4 million (including gross
finance receivables of AUD 382.6 million) and total liabilities of AUD 369.3 million. These AUD balances were converted to New Zealand dollars at the
exchange rate of 0.9367.
Transactions separate from the acquisition
The Group incurred acquisition-related costs of $1.2 million in the year to 30 June 2014 relating to external legal fees and due diligence costs. These
costs are included in selling and administration expenses.
Goodwill
Goodwill on acquisition of $25.0 million has arisen due to expected benefits of the newly acquired business. NSL is the largest HER mortgage provider
in New Zealand, with approximately 80% market share. ASF is the largest non-bank HER mortgage provider in Australia, with approximately 20% of
that market. Both the NSL and ASF portfolios are seasoned and diversified. This acquisition has given the Group the opportunity to fast-track entry into
strong and established market positions.
Revenue and profit of the acquiree
In the 3 months to 30 June 2014, NSL and ASF contributed net operating income of $2.5 million and estimated profit of $1.2 million.
44 Events after the reporting date
On 15 August 2014, the Bank reduced the ABCP Trust securitisation facilities by $50 million to $350 million. There have been no other material events
after the reporting date that would affect the interpretation of the financial statements or the performance of the Group.
PG 64 / Annual Report 2014 / Heartland New Zealand Limited
48
Audit Report
19 to 64.
Heartland New Zealand Limited / Annual Report 2014 / PG 65
19 to 64:
PG 66 / Annual Report 2014 / Heartland New Zealand Limited
Director
Disclosures
and Executive
Remuneration
Directors
The following persons were directors of the Company and the Company’s subsidiaries during
the year ended 30 June 2014.
Heartland New Zealand Limited
Jeffrey Kenneth Greenslade
Graham Russell Kennedy
Gary Richard Leech
Christopher Robert Mace
Geoffrey Thomas Ricketts
Gregory Raymond Tomlinson
Bruce Robertson Irvine
Non-Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Non-Independent Director
Independent Director (resigned on 27 August 2013)
Australian Seniors Finance Pty Limited
Julie Marie Campbell-Bode
Richard Udovenya
Vaughan Keith Underwood
Canterbury Building Society Limited1
Jeffrey Kenneth Greenslade
Bruce Robertson Irvine
Graham Russell Kennedy (resigned on 5 November 2013)
Heartland Bank Limited2
Jeffrey Kenneth Greenslade
Nicola Jean Greer
Edward John Harvey
Bruce Robertson Irvine
Michael Danton Jonas
Graham Russell Kennedy
Geoffrey Thomas Ricketts
Richard Arthur Wilks
Heartland Financial Services Limited
Jeffrey Kenneth Greenslade
Heartland HER Holdings Limited
Christopher Patrick Francis Flood
Jeffrey Kenneth Greenslade
Michael Danton Jonas
Geoffrey Thomas Ricketts
Gregory Raymond Tomlinson
Heartland NZ Holdings Limited
Jeffrey Kenneth Greenslade
Heartland NZ Trustee Limited
Jeffrey Kenneth Greenslade
Bruce Robertson Irvine
Heartland PIE Fund Limited
Jeffrey Kenneth Greenslade
Bruce Robertson Irvine
1 Southern Cross Nominees Limited, Southern Cross Building & Investments Limited and CBS Canterbury Limited amalgamated into Canterbury
Building Society Limited on 5 November 2013
2 MARAC Finance Limited and PGG Wrightson Finance Limited amalgamated into Heartland Bank Limited on 1 December 2013
Heartland New Zealand Limited / Annual Report 2014 / PG 67
New Sentinel Limited
Brett Stephen Wilson
Vaughan Keith Underwood
Sentinel Custodians Limited
Garry Dean Bishop
Vaughan Keith Underwood
VPS Parnell Limited
Michael Danton Jonas
Mark Stephen Mountcastle
Bruce Robertson Irvine (resigned on 16 July 2013)
VPS Properties Limited
Michael Danton Jonas
Mark Stephen Mountcastle
Bruce Robertson Irvine (resigned on 16 July 2013)
Interests Register
The following are the entries in the Interests Register of the Company and the Company’s subsidiaries made during the year ended 30 June 2014.
Indemnification and Insurance of Directors
The Company has given indemnities to, and has effected insurance for, directors of the Company and the Company’s 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 Company and the Company’s subsidiaries for the year ended
30 June 2014 was $47,437.50.
Share Dealings by Directors
Details of individual directors’ share dealings as entered in the Interests Register of the Company under Section 148(2) of the Companies Act
1993 during the year ended 30 June 2014 are as follows (all dealings are in ordinary shares unless otherwise specified):
J K Greenslade
No. of Shares Nature of Relevant Interest
Acquisition/Disposal
Consideration
Date of Acquisition/Disposal
4,289
Acquisition of shares by J K & S O Greenslade
under Heartland New Zealand Limited Share
Purchase Plan
G R Kennedy
Acquisition
$3,663.00
25 March 2014
No. of Shares Nature of Relevant Interest
Acquisition/Disposal
Consideration
Date of Acquisition/Disposal
4,289
4,289
66,171
Acquisition of shares as Trustee of Heartland
Trust under Heartland New Zealand Limited
Share Purchase Plan
Acquisition of shares by Clairvoyant
Development Limited under Heartland New
Zealand Limited Share Purchase Plan
Ceasing to have a relevant interest in shares as
company wound up
Acquisition
$3,663.00
25 March 2014
Acquisition
$3,663.00
25 March 2014
Disposal
Nil
08 April 2014
PG 68 / Annual Report 2014 / Heartland New Zealand Limited
G R Leech
No. of Shares Nature of Relevant Interest
Acquisition/Disposal
Consideration
Date of Acquisition/Disposal
Acquisition of shares as Trustee of GR & AM
Leech Family A/C under Heartland New Zealand
Limited Share Purchase Plan
Acquisition of shares as Trustee of Hank Murney
Family Trust under Heartland New Zealand
Limited Share Purchase Plan
Acquisition
$3,663.00
25 March 2014
Acquisition
$3,663.00
25 March 2014
4,289
4,289
C R Mace
No. of Shares Nature of Relevant Interest
Acquisition/Disposal
Consideration
Date of Acquisition/Disposal
4,289
4,289
Acquisition of shares as Trustee of Heartland
Trust under Heartland New Zealand Limited
Share Purchase Plan
Acquisition of shares by Oceania & Eastern
Limited under the Heartland New Zealand
Limited Share Purchase Plan
G T Ricketts
Acquisition
$3,663.00
25 March 2014
Acquisition
$3,663.00
25 March 2014
No. of Shares Nature of Relevant Interest
Acquisition/Disposal
Consideration
Date of Acquisition/Disposal
4,289
4,289
Acquisition of shares as trustee of Heartland
Trust under Heartland New Zealand Limited
Share Purchase Plan
Acquisition of shares by Oceania & Eastern
Limited under the Heartland New Zealand
Limited Share Purchase Plan
G R Tomlinson
Acquisition
$3,663.00
25 March 2014
Acquisition
$3,663.00
25 March 2014
No. of Shares Nature of Relevant Interest
Acquisition/Disposal
Consideration
Date of Acquisition/Disposal
540,838
1,048,743
On-market purchase by Harrogate Trustee
Limited
Acquisition of shares by Harrogate Trustee
Limited under Heartland New Zealand Limited
Dividend Reinvestment Plan
2,000,000
Participation in private placement of shares by
Harrogate Trustee Limited
4,289
1,088,993
Acquisition of shares by Harrogate Trustee
Limited under Heartland New Zealand Limited
Share Purchase Plan
Acquisition of shares by Harrogate Trustee
Limited under Heartland New Zealand Limited
Dividend Reinvestment Plan
3,000,000
On-market purchase by Harrogate Trustee
Limited
Acquisition
$454,303.92
29 August 2013
Acquisition
$866,261.72
04 October 2013
Acquisition
$1,760,000.00
19 February 2014
Acquisition
$3,663.00
25 March 2014
Acquisition
$937,187.39
4 April 2014
Acquisition
$2,610,000.00
11 April 2014
Heartland New Zealand Limited / Annual Report 2014 / PG 69
General Notice of Disclosure of Interest in the Interests Register
Details of directors’ general disclosures entered in the relevant interests register under Section 140 of the
Companies Act 1993 during the year ended 30 June 2014 are as follows:
Heartland New Zealand Limited
G R Kennedy
Timaru Central Limited
Heartland Bank Limited
N J Greer
26 Belfast Rd Limited
Cucumelle Limited
Longhurst Preschool No1 Limited
Mike Greer Homes Pegasus Town Limited
Mike Greer Commercial Limited
Pegasus PreSchool Limited
Birmingham Dr Developments Limited
Judsons Road Preschool Limited
Penny Lane Preschool Limited
Peter Street Preschool Limited
Waikare Avenue Preschool Limited
Greer Seeto Investment Trust
R A Wilks
Lirich Limited
Maxwell Farms (Developments) Limited
Maxwell Farms Limited
Maxwell Farms (Maroa) Limited
Maxwell Farms (Poihipi) Limited
Mamaku South Limited
Maxwell Farms (Te Kopia) Limited
Maxwell Farms (Tutukau) Limited
Director
Director/Shareholder
Director/Shareholder
Director/Shareholder
Director/Shareholder
Director/Shareholder
Director/Shareholder
Shareholder
Shareholder
Shareholder
Shareholder
Shareholder
Beneficiary
Director
Director
Director
Director
Director
Director
Director
Director
Details of directors’ general disclosures entered in the relevant interest register under Section 140 of the Companies Act 1993 prior
to 1 July 2013, can be found in earlier Annual Reports.
Specific Disclosures of Interest in the Interests Register
Heartland New Zealand Limited
Specific disclosures of interests in transactions entered into by the Company or the Company’s subsidiaries during the period 1 July 2013 to
30 June 2014 are as follows:
G R Tomlinson
Mr Tomlinson disclosed his interest in respect of the acquisition of the New Zealand
and Australian businesses of Seniors Money International Limited (Acquisition)
(as his investment vehicle Harrogate Trustee Limited would participate in the private
placement associated with the Acquisition by purchasing $2m shares in Heartland
New Zealand Limited).
Harrogate Trustee Limited acquired 540,838 Heartland New Zealand Limited shares
on-market sold by PGG Wrightson Limited.
Information Used by Directors
No director of the Company or the Company’s subsidiaries disclosed use of information received in his or her capacity as a director that would
not otherwise be available to that director.
PG 70 / Annual Report 2014 / Heartland New Zealand Limited
Directors’ Relevant Interests
Set out in the table below are the Heartland New Zealand Limited shares, and options which are convertible into shares, in which each
director of the Company had a relevant interest as at 30 June 2014.
Director
Number of Ordinary Shares – Beneficial
Number of Ordinary Shares – Non-Beneficial
Number of Options
J K Greenslade
G R Kennedy
G R Leech
C R Mace
G T Ricketts
G R Tomlinson
883,351
481,052
176,740
12,289,728
12,289,728
44,378,352
Directors’ Remuneration
1,871,105
5,741,916
240,054
5,715,427
5,715,427
Nil
1,496,268
Nil
Nil
Nil
Nil
Nil
The current total directors’ fee pool for the Company and its subsidiaries approved by the sole shareholder in 2010 is $917,500 per annum.
In August 2013 the Board passed resolutions and signed accompanying certificates to confirm the distribution of fees amongst directors of the
Company and its subsidiaries for the year ending 30 June 2014, as follows:
Heartland New Zealand Limited
Board/Committee1
Board
Audit and Risk Committee
Chairman
$125,000
$7,500
Governance and Remuneration Committee
$10,000
Heartland Bank Limited
Board/Committee
Board
Audit Committee
Risk Committee
Chairman
$125,000
$15,000
$20,000
Member
$75,000
$7,500
$5,000
Member
$70,000
$7,500
$10,000
The total remuneration and value of other benefits2 received by each director who held office in the Company and the Company’s subsidiaries
during the year ended 30 June 2014 was as follows:3
Director
G T Ricketts
N J Greer
E J Harvey
B R Irvine
G R Kennedy
G R Leech
C R Mace
G R Tomlinson
R A Wilks
Total
Remuneration
$132,916
$74,623
$94,166
$141,666
$92,500
$84,583
$86,250
$79,166
$81,666
$867,536
As a result of the acquisition of Australian Seniors Finance Pty Limited (ASF) on 1 April 2014, Richard Udovenya received A$7,500, being
a pro-rated portion of A$30,000 per annum in his capacity as an independent director of ASF from 1 April 2014 to 30 June 2014.
Directors’ fees exclude GST where appropriate. In addition, directors are entitled to be reimbursed for costs associated with carrying
out their duties.
1 Where a director sits on both the Heartland New Zealand Limited and Heartland Bank Limited Boards, the director receives the single highest applicable fee.
2 In addition to these amounts Heartland New Zealand Limited 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 New Zealand Limited to enable directors to perform their duties, no value is attributable to them as benefits to directors for the purposes of
the above table.
3 Fees paid during the year ended 30 June 2014 were pro-rated following changes to Board and Committee membership which took place in August 2013.
Heartland New Zealand Limited / Annual Report 2014 / PG 71
Remuneration and/or Other Benefits from the Company and its subsidiaries to Executive Directors
J K Greenslade
Heartland New Zealand Limited made a grant to J K Greenslade under the Heartland LTI Net Share Settled Options Plan on
28 August 2013 of 1,496,268 options.
The total remuneration and value of other benefits (including the grant above) paid to J K Greenslade was $1,610,906.92.
M D Jonas
Heartland New Zealand Limited made a grant to M D Jonas under the Heartland LTI Net Share Settled Options Plan on
28 August 2013 of 623,445 options.
The total remuneration and value of other benefits (including the grant above) paid to M D Jonas was $1,078,057.50.
Executive directors and employees acting as directors do not receive directors fees.
Executive Remuneration
The number of employees of the Company and the Company’s subsidiaries (including former employees), other than directors, who received
remuneration, including non-cash benefits, in excess of $100,000 for the year ended 30 June 2014 is set out in the remuneration bands
detailed below.
Remuneration
$100,000 to $109,999
$110,000 to $119,999
$120,000 to $129,999
$130,000 to $139,999
$140,000 to $149,999
$150,000 to $159,999
$160,000 to $169,999
$170,000 to $179,999
$180,000 to $189,999
$190,000 to $199,999
$200,000 to $209,999
$220,000 to $229,999
$230,000 to $239,999
$240,000 to $249,999
$250,000 to $259,999
$290,000 to $299,999
$390,000 to $399,999
$490,000 to $499,999
$600,000 to $609,999
$610,000 to $619,999
$890,000 to $899,999
Auditors’ Fees
Number
7
5
11
11
7
2
5
3
2
1
4
2
3
1
2
2
1
1
1
1
1
KPMG has continued to act as auditors of the Company and its subsidiaries. The amount payable by the Company and its subsidiaries
to KPMG as audit fees during the year ended 30 June 2014 was $448,000. The amount of fees payable to KPMG for non-audit work
during the year ended 30 June 2014 was $193,000.
PG 72 / Annual Report 2014 / Heartland New Zealand Limited
Shareholder
Information
Spread of Shares
Set out below are details of the spread of shareholders of the Company as at 12 August 2014.
Size of Holding
1–1,000 shares
1,001–5,000 shares
5,001–10,000 shares
10,001–50,000 shares
50,001–100,000 shares
100,001 shares and over
TOTAL
Number of Shareholders
Total Number of Shares
% of Issued Shares
929
2,237
1,417
2,775
561
363
8,282
567,893
5,931,971
10,573,272
62,334,750
39,066,560
344,792,146
463,266,592
0.12
1.28
2.28
13.46
8.43
74.43
100%
20 Largest Shareholders1
Set out below are details of the 20 largest shareholders of the Company as at 12 August 2014.
Rank
Shareholder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Harrogate Trustee Limited
Brett Wilson & Stephen Gunning
Accident Compensation Corporation
Oceania & Eastern Limited
Cogent Nominees Limited
Philip Maurice Carter
FNZ Custodians Limited
HSBC Nominees (New Zealand) Limited
New Zealand Permanent Trustees Limited
Leveraged Equities Finance Limited
National Nominees New Zealand Limited
JPMORGAN Chase Bank
Investment Custodial Services Limited
Citibank Nominees (NZ) Limited
Heartland Trust
Tea Custodians Limited
Investment Custodial Services Limited
Jarden Custodians Limited
Forsyth Barr Custodians Limited
TOTAL FOR TOP 20 HOLDERS
Total Shares
44,378,352
43,000,000
34,106,452
12,289,728
11,623,439
9,500,000
8,604,368
7,953,205
7,100,000
6,898,066
6,203,882
6,139,591
5,912,329
5,364,331
5,108,707
5,082,064
4,982,396
4,500,000
3,827,915
238,016,307
New Zealand Superannuation Fund Nominees Limited
5,441,482
% of Total Shareholders
9.58
9.28
7.36
2.65
2.51
2.05
1.86
1.72
1.53
1.49
1.34
1.33
1.28
1.17
1.16
1.1
1.1
1.08
0.97
0.83
51.38
1 Any person wishing to acquire an interest in 10% or more of the Company’s shares must obtain the consent of the Reserve Bank of New Zealand before they do so.
Heartland New Zealand Limited / Annual Report 2014 / PG 73
Substantial Security Holders
At 12 August 2014, the following security holders had given notice in accordance with the Securities Markets Act 1988 that they were
substantial security holders in the Company. The number of shares shown below are as advised in the most recent substantial security
holder notices to the Company and may not be their holding as at 12 August 2014.
Name
Accident Compensation Corporation, Nicholas Bagnall, Blair Tallott, Paul Robertshawe,
Blair Cooper and Jason Familton
Blair Cooper (includes ACC’s relevant interest)
Blair Tallott (includes ACC’s relevant interest)
Brett Wilson and Stephen Gunning as trustees of the SMI Argentum Trust
Harrogate Trustee Limited and Gregory Raymond Tomlinson
Heartland HER Holdings Limited2
Number of Shares
Class of Shares
32,902,973
Ordinary
25,602,740
25,613,239
43,000,000
40,285,070
43,000,000
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
The total number of Heartland New Zealand Limited ordinary shares on issue as at 12 August 2014 was 463,266,592.
2 Heartland HER Holdings Limited has the power to control disposition of securities pursuant to a lock-up deed between Heartland HER Holdings Limited, Seniors Money International Limited
and Sentinel Limited dated 1 April 2014.
Other
Information
NZX Waivers
The Company did not rely upon any waivers granted by NZX Limited during the year ended 30 June 2014.
Credit Rating
As at 19 September 2014, Heartland Bank Limited had a Standard & Poor’s long-term issuer credit rating of BBB (outlook negative) and a
Fitch Australia Pty Limited long-term credit rating of BBB-, Outlook Stable, (F3 Short-Term).
Exercise of NZX Disciplinary Powers
NZX Limited did not exercise any of its powers under Listing Rule 5.4.2 in relation to the Company during the year ended 30 June 2014.
PG 74 / Annual Report 2014 / Heartland New Zealand Limited
Executives
and Directory 1
Heartland New Zealand Limited
Directors
Geoffrey Ricketts
Jeffrey Greenslade
Graham Kennedy
Gary Leech
Christopher Mace
Gregory Tomlinson
Chairman
Managing Director
Director
Director
Director
Director
Heartland Bank Limited
Directors
Bruce Irvine
Jeffrey Greenslade
Nicola Greer
John Harvey
Graham Kennedy
Geoffrey Ricketts
Richard Wilks
Michael Jonas
Chairman
Managing Director
Director
Director
Director
Director
Director
Executive Director
Registered Office
75 Riccarton Road
Riccarton
Christchurch 8011
PO Box 8623
Riccarton
Christchurch, 8440
T 0508 432 785
E info@heartland.co.nz
W www.heartland.co.nz
Executives of Heartland New Zealand Limited
and Heartland Bank Limited
Laura Byrne
Group General Counsel
Chris Cowell
Head of Business
Chris Flood
Head of Retail & Consumer
Michael Jonas
Head of Strategic &
Product Development
James Mitchell
Chief Operating Officer
Mark Mountcastle
Chief Risk Officer
Simon Owen
Chief Financial Officer
Will Purvis
Head of Rural
Sarah Selwood
Head of Human Resources
1 Correct as at 19 September 2014
Registered Office
75 Riccarton Road
Riccarton
Christchurch 8011
PO Box 8623
Riccarton
Christchurch 8440
T 0508 432 785
E info@heartland.co.nz
W www.heartland.co.nz
Auditors
KPMG
KPMG Centre, 18 Viaduct Harbour,
Auckland 1010
T 09 367 5800
Share Registry
Link Market Services Limited
Level 7, Zurich House
21 Queen Street, Auckland 1010
T 09 375 5998
F 09 375 5990
E enquiries@linkmarketservices.com
W www.linkmarketservices.com
Heartland New Zealand Limited / Annual Report 2014 / PG 75