Heartland New Zealand Forecasts $20m to $22m Profit for Full Year

Heartland NZ

Tuesday 29th November 2011

Heartland New Zealand announced that it expects its net profit after tax (NPAT) for the six months to 31 December 2011 to be in the range of $9m to $10m and its full year NPAT to 30 June 2012 to be $20m to $22m.

This compares to a reported NPAT of $7.1m for the year ended 30 June 2011. This forecast update follows the completion of the purchase of PGG Wrightson Finance Limited in August and Heartland's first quarter performance. Factors impacting on the first half of the financial year :

Lending Activities

· Net finance receivables were $2.1bn at 31 October 2011 compared to $1.7bn at 30 June 2011.

· Business and Consumer lending growth has performed within expectations.

· A slower start to the organic Rural strategy due to strong early grass growth has led to lower stock trading resulting in overall reduced growth in the Rural book. It is expected to make up some of this growth in the second half.

· A smaller PWF book at acquisition, due to run-off in the period prior to settlement.

· Reduced demand in the residential mortgage market plus repayments in Christchurch due to EQC payments.

Net Interest Margin

Net interest margin has improved but not to the extent anticipated. This has been due to the competitive environment in some of the lending sectors, but mitigated by the benefit of lower costs of funds beginning to emerge. It has also been impacted by the cost of maintaining surplus liquidity to transition through the Crown guarantee expiry.

Costs

The impact on earnings has been offset by the previously announced one-off deferred tax benefit of $6m, and lower than expected operating costs and impairment expense to 31 October.

Outlook supporting full year NPAT forecast :

Heartland expects that in the second half of the financial year there will be further growth in both profit and finance receivables. Heartland forecasts finance receivables to grow in the period to financial year end in the range of $130m to $170m. This includes :

· Growth in the Rural book (including PWF), driven by high demand (weighted, as expected, towards the second half of the financial year) from seasonally based livestock financing.

· Growth in Business lending based on the recent positive trends in pipeline and net growth.

· Continuation of current trends in Retail and Consumer, with continued growth of the Consumer book offsetting reductions in the mortgage book.

Heartland has completed its investment in origination teams for each lending sector. There is a focus on cost control across the organisation and it is forecast that total costs will be below budgeted levels.

Encouragingly, impairment expense is lower for the first quarter, and is expected to track at budgeted levels for the full financial year.

Heartland will progressively reduce the surplus liquidity that it has been carrying after expiry of the Crown guarantee on 31 December 2011, but will continue to maintain levels in excess of regulatory requirements. Crown guarantee fees will no longer be payable in the second half of the financial year.

"Despite a late start to our Rural strategy and subdued demand for Retail in Christchurch, the forecast half year and full year results reflect underlying earnings in excess of those achieved in the year ended 30 June 2011 by the combined predecessor entities. It is pleasing to see benefits from the Heartland merger and subsequent PWF acquisition coming through" said Heartland Chief Executive Officer, Jeff Greenslade.

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