Heartland Group Holdings is continuing to decline to provide annual earnings guidance, citing volatility within the markets it operates in.
In August Heartland posted June-year annual net profit after tax of $102.7 million, on an underlying basis, 4.9% below Heartland's own guidance. At that time outgoing CEO Jeff Greenslade, citing volatility and uncertainty in economic conditions, said it wasn't appropriate to give guidance, which it normally does with annual results.
"...the volatility we experienced in full-year 2024 has continued in the markets we operate in and continues to create too much uncertainty to provide an accurate underlying net profit after tax guidance range for full [June] year 2025. We will revisit our ability to provide guidance as the financial year progresses," Chairman Greg Tomlinson said at Heartland's annual meeting on Wednesday.
New CEO Andrew Dixson told shareholders at the meeting his immediate focus is addressing Heartland’s return on equity (RoE) and ensuring capital is allocated to the parts of the business that generate strong returns.
"This discipline is paramount in an environment of standardised prescriptive capital requirements. Capital is one of our most precious resources, and it must be utilised efficiently," said Dixson.
Tomlinson noted Heartland's 2024 June-year RoE had fallen to 6.6% from 10.4% in 2023, or 9.8% from 11.9% on an underlying basis.
Dixson went on to say a key part of plans to simplify Heartland's business and improve RoE is the reallocation of capital from assets identified as non-strategic.
"These are a pool of assets that Heartland Bank has accumulated over time during its journey to date . As the business has matured, these are no longer a strategic fit for the organisation and do not contribute positively to Heartland Bank’s RoE. The total value of these assets at 30 June 2024 was $217.8 million, out of total assets of $9.3 billion."
"We have commenced development of realisation strategies and will report on these assets separately in full-year 2025 to provide greater transparency. This will allow underlying capital to be redeployed to support value accretive growth within Heartland Bank," said Dixson.
He added that whilst Heartland remains cautious in the short-term, it expects growth in core lending to return, and asset quality metrics to stabilise as economic recovery progresses during its June 2025 year.
"We are already experiencing an improvement in our net interest margin," Dixson said.
Tomlinson, meanwhile, said total June 2024 year dividends came to seven cents a share, giving an underlying net profit after tax payout ratio of 55%. June 2023 year dividends were 11.5c per share.
"We expect to target a similar dividend payout ratio in the financial year ending 30 June 2025. The Board will continue to actively manage dividend settings and carefully consider the declaration of any dividends subject to maintaining a prudent level of capital needs, while having regard to RoE accretive growth opportunities and financial performance," said Tomlinson.
Heartland's annual meeting presentation provided the non-strategic asset breakdown table below. It says non-strategic assets include assets that earn little or no income or are returning less than Heartland’s cost of capital.
"Non-strategic assets will be managed and reported separately in full-year 2025 for greater transparency and focused resolution strategies. Heartland intends to rationalise these assets over a responsible period of time," Heartland said.
2) Receivables as at 30 June 2024 excluding provisions.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.