Heartland Group Holdings Limited (HGH) Earnings Call Transcript

[Foreign Language] Good morning, ladies and gentlemen. My name is Phoebe Gibbons, and I'm the Chief Legal Officer for the Group and the New Zealand Bank. A very warm welcome to shareholders and guests present both in person and online today at the 2025 Annual General Meeting of Heartland Group Holdings Limited. It is our great pleasure to be here in Ashburton, where Heartland's journey began 150 years ago as the Ashburton Permanent Building & Investment Society just down the road on Tancred Street. For those in the room, to ensure your experience at Hotel Ashburton is both memorable and safe, we would like to make you aware of the following. This meeting is located in the Valetta and Arrowsmith rooms. Bathrooms can be found in the foyer area near the main entrance to the building or just outside the room. In the unlikely event of an emergency, please remain calm and leave the room immediately through the fire exit doors and head to the evacuation point, which is located in the carpark at the front of the hotel. Smoking, including vaping is permitted only outside the function entrants or by the garden. Finally, it is a courtesy to everyone present today, please ensure your phone is on silent. For those joining the meeting in person today, we welcome you to please join the Board and management for light refreshments after the conclusion of the meeting. For those joining online, I will shortly provide you with instructions on how to vote and ask questions. If you encounter any issues, please refer to the virtual annual meeting guide online or phone the helpline on 0800-200-220. Since a quorum is present, I declare the meeting open. I will now outline the agenda of business for today's meeting. I will shortly introduce you to the Board of Directors and the Chief Executive Officers of Heartland Group Holdings Limited, Heartland Bank Limited, and Heartland Bank Australia Limited, who are joining us in person today. I will then take you through the formalities of the meeting before inviting Greg Tomlinson, Chair of the Heartland Group Board to chair the meeting and provide a high-level overview of Heartland's performance and activities in the 2025 financial year and its focus moving forward. This will be followed by an address from Heartland Group's Chief Executive Officer, Andrew Dixson. This will, in turn, be followed by an address from the New Zealand Bank Chief Executive Officer, Leanne Lazarus; and the Australian Bank Chief Executive Officer, Michelle Winzer. The Chairs of each bank are also here today and available to answer any questions. Following this, there will be an opportunity to answer any questions you may have about Heartland's performance, strategic direction and operations. I encourage shareholders attending online to begin to submit their questions now, if they have not already done so. We will answer as many of these questions as we can at the appropriate time. Thereafter, we will move to the formal business of the meeting, including voting on the resolution posed to you today. I would now like to introduce the Directors and Chief Executive Officers. Greg Tomlinson. Greg is the Chair of the Heartland Group Holdings Limited Board. Greg was appointed a Director of Heartland in March 2013, and was appointed Chair of the Heartland Group Board in February 2023. Andrew Dixson. Andrew was appointed Chief Executive Officer of Heartland Group in October 2024. That same month, he was appointed to the Heartland Bank Board. And in February 2025, he joined the Heartland Bank Australia Board. Michelle Winzer. Michelle was appointed Chief Executive Officer of Heartland Bank Australia in July 2024. Geoff Summerhayes. Geoff was appointed Chair of the Heartland Bank Australia Board on establishment in April 2024. Geoff had previously been a Director of the Heartland Group Board. Kate Mitchell. Kate was appointed as a Director of Heartland Group in October 2021. Kate is also a Director of Heartland Bank New Zealand. John Harvey. John has been a Director of Heartland Bank New Zealand since establishment in 2011, and he was appointed to the Heartland Group Board in April 2024. Leanne Lazarus. Leanne was appointed Chief Executive Officer of Heartland Bank New Zealand in August 2022. Leanne is also a Director of Heartland Bank Australia. Bruce Irvine. Bruce is the Chair of the Heartland Bank New Zealand Board, where he has been a director since its establishment in 2011. Bruce is also a Director of Heartland Bank Australia. Simon Beckett. Simon was appointed as a Director of Heartland Group in June 2024. Rob Bell. Rob was appointed as a Director of Heartland Group in June 2024. Returning now to the business of the meeting. I advise that all valid proxies and postal votes received from shareholders within the prescribed time limits have been admitted. I can confirm that a total of 772 proxies and postal votes have been accepted. This represents some 310,608,790 shares or 33% of total issued shares in Heartland Group. I can say that for the resolution before us today, approximately 91% of these proxy and postal votes are in favor. I would now like to outline the meeting procedures for today. This is a meeting of Heartland Group Holdings Limited shareholders. Accordingly, while our guests are very welcome to witness the proceedings of the meeting, participation and shareholder discussion and the business of the meeting is confined to ordinary shareholders present in person, online, by proxy or by authorized representative. Regarding the voting procedures for today's meeting. The resolution will be decided by way of a poll. This is in line with the practice increasingly adopted by listed companies and is the preferred method of the NZX and the New Zealand Shareholders' Association. By having the resolution stated by way of a poll, we are counting all postal votes, proxy votes, votes online and votes from the floor. The resolution will be put to the meeting. Shareholders joining us in the room should have received a voting card on registration. Please keep your voting card with you until the resolution has been voted on. Our share registrar, MUFG Pension & Market Services will then move through the room with the ballot boxes and collect all voting cards. If you need to leave the meeting before the end, you may place your voting card in one of the ballot boxes at the exit with an MUFG Pension & Market Services staff member. For shareholders attending the meeting online, when the online registration is validated, you will receive an electronic voting card, which you can use to cast your vote. To vote, you will need to click, Get Voting Card within the online meeting platform. You'll be asked to enter your shareholder or proxy number to validate. Please then mark your voting card in the way you wish to vote by clicking for, against or abstain. Once you have made your selection, please click submit vote on the bottom of the card to lodge your vote. Please refer to the virtual meeting online portal guide or phone the help line on 0800-200-220, if you require assistance. Voting will remain open for 5 minutes after the conclusion of the meeting. The notice calling this Annual General Meeting was published electronically on the September 30, 2025, with hard copies subsequently sent to shareholders who requested a copy. That notice outlined the formal business for this meeting and also provided background information on the resolution to be voted on. The minutes of the last Annual General Meeting held on the October 30, 2024, have been approved and confirmed by directors as is our custom. A digital version is also available on Heartland's website at heartlandgroup.info. I will now invite Heartland Group Chair, Greg Tomlinson, to address you. Following addresses by Andrew Dixson, Leanne Lazarus and Michelle Winzer, we will then move to the shareholder discussion, which our Chair will facilitate. We invite online questions to be submitted now to allow us to answer these at that time. Thank you.

Thank you, Phoebe. Good morning, ladies and gentlemen. Thank you for joining us on this lovely day here. It's a pleasure to be in Ashburton for this year's Annual General Meeting. 2025 marked 150 years since Heartland's earliest predecessor, the Ashburton Permanent Building & Investment Society, was established. The last time we gathered here was in 2012, making our return even more special as we mark the significant milestone. As we recognize our rich 150-year history, this is a moment to pause, reflect and celebrate how far we've come. It's a tribute to the many people who have shaped the organization over the years: The founders of our predecessor institutions, the leaders who guide us through the times of change, the employees whose commitment and hard work have shaped our success, the customers who have placed the trust in us, and shareholders who have supported our vision. One of those leaders was Graham Kennedy, who we will hear from shortly. Graham is a former Chair of Ashburton Permanent, former Director of Heartland Bank, and current trustee of the Heartland Trust -- Heartland's registered charitable trust. While we can trace our history back to Ashburton in 1875, Heartland as a banking organization is still very young. Heartland emerged in 2011, in the wake of the GFC with a clear ambition to build a bank that could thrive by doing things -- sorry, could do things in another way. Heartland chose to concentrate on specific market segments. This strategy has served us well, and we have come a long way since formation. Receivables have grown from $1.7 billion at the end of FY '11 to $7.2 billion at the end of FY '25. In the same period, Heartland's net profit after tax has increased from $7.1 million to $38.8 million or $46.9 million on an underlying basis. Building on the momentum achieved in the second half of FY '25, Heartland delivered a solid performance for Q1, and is on-track to deliver an underlying net profit after tax of at least $85 million for FY '26. But we are still young, and just at the beginning of our journey to achieve scale. In New Zealand, FY '25 saw us renew our focus in certain asset classes, which provide an appropriate return. We are focused on growing our core product sets, reverse mortgages, rural finance, motor finance and asset finance and exiting assets that are no longer a strategic fit. Andrew Dixson will provide more information about our nonstrategic asset progress, which is ahead of plan. The reverse mortgage portfolio is our core product and where effort is being placed in New Zealand. Our early mover advantage positions us to extract significant value from this segment. In other areas, business performance has been slower. In Motor Finance, we have made meaningful progress in arrears management and have achieved notable successes in recoveries and collections. We're also being more selective in terms of who we are partnering with to ensure we're writing quality business. While these improvements have contributed to the portfolio's contraction, they ensure Heartland remains well positioned in a changing market. Leanne Lazarus will provide a more detailed update. With regard to Australia, the ADI acquisition and the regulatory requirements associated with it placed increased costs on Heartland. The operational integration of our existing Australian businesses into the ADI was a big change to the organization. With access to retail deposits through the ADI license, we have strengthened our ability to compete and grow in Australia. The reverse mortgage book stands out as a significant area of opportunity and our efforts here are already delivering promising results. While livestock finance hasn't performed as well as we would have hoped, we understand the challenges and remain committed to the sector. Michelle Winzer will provide a more detailed update on the Australian Bank. Moving now to the Board and management updates. Since our AGM last year, a number of appointments have taken place to ensure Heartland's teams have skills and support needed to deliver value for customers and shareholders. On the February 3, 2025, Andrew Dixson was appointed Non-Independent Non-Executive Director of Heartland Bank Australia. In February this year, Michael Jonas was appointed to the role of Chief Strategy Officer of Heartland Group. While the New Zealand Bank -- within the New Zealand Bank, Peter Griffin, was appointed to the role of Chief Commercial Officer, and we welcomed Alistair Scott as Chief Auto and Asset Finance Officer; and Rebecca Thomas as Chief Digital Transformation Officer. As our renewed strategic focus bids in, we have seen improvements begin to flow through the key metrics essential to shareholder return. While Heartland's return on equity, earnings and earnings per shares are below historical levels, we saw a strong rebound in the second half of FY '25, with return on equity at 6% and earnings per share at 6% -- $0.046 per share. We have seen this positive momentum continue in the first quarter of FY '26, with underlying return on equity for the quarter of 7.6% and underlying earnings per share of $0.025 per share. Regarding dividends, in September, we paid a final dividend of $0.02 per share, bringing the total dividend for FY '25 to $0.04 per share. The payout ratio for the second half of FY '25, a 52% was in line with Heartland's targeted dividend payout ratio of at least 50% of underlying net profit after tax. Our dividend policy reflects the realities of our growth strategy. Australia is a growth investment for Heartland, absorbing capital to support expansion and innovation. While this requires patience from shareholders, we are confident that our investments will deliver sustainable returns over time. We remain committed to balancing growth with the delivery of appropriate returns to our shareholders. Our focus for FY '26 is on maintaining a refined strategic focus, core lending growth, expanding further into reverse mortgages, where the addressable markets present a significant growth opportunity, operational cost control, leveraging technology to unlock efficiency, scalability and future growth, and continuing to prioritize efficient use of capital. Heartland is well positioned to face the future with great confidence. We are investing in areas of opportunity and remaining agile and response to changing market conditions. Our renewed focus on our core product set reflects our beliefs in the value of these segments. With your continued support and patience, I am confident that Heartland will deliver on its promise of sustainable, profitable growth and enhanced shareholder returns. I would now like to invite Graham Kennedy to provide an update on the Heartland Trust charitable activities. Thank you, Graham.

Thank you, Greg. Good morning, everybody. The Heartland Trust has a registered Charitable Trust and was -- is independent from, but closely supported by Heartland Bank in New Zealand. The purpose of the Trust is to give back to the communities in which Heartland operates. Through the areas of education and learning, arts and culture, mental health and well-being, and sport and physical well-being. Going back to when Heartland was formed, we found that Southern Cross Building Society had a large number of small shareholders that were gone no address. After an extensive search and the appropriate legal process, these shares were transferred into what is now the Heartland Trust. The Trust now has 6.5 million shares in Heartland Group Holdings Limited. The Trust is governed by 4 trustees: Myself, Bruce Irvine, John Harvey, and Sir Christopher Mace. The dividends received by the Heartland Trust have enabled the trustees to distribute grants to 17 community organizations in the year ended 2025. That totaled $465,000. We have had a range of local beneficiaries this year, including the Ashburton Schools' Music Festival, Ashburton Performing Arts Center, Ashburton Age Concern, Christchurch Boys' High School Rowing, the [ Mid Canterbury Tennis Center ] Charitable Trust, and Christchurch WORD Festival. However, there are 2 main beneficiaries. The 2 main beneficiaries were Boost literacy program and Tatai Whetu Waitaha and air fleet support program. Boost is a child literacy program delivered by the Ashburton Learning Center, supporting primary school children across Mid Canterbury, age 7 to 9, helping them develop essential reading and writing schools. This important initiative is jointly funded by the Mackenzie Charitable Foundation, and Advance Ashburton Community Foundation, reflecting a shared commitment to improving education outcomes for young kiwis. Tatai Whetu Waitaha is an athlete support program delivered by the Canterbury sports development academy. This program currently provides 38 aspiring Canterbury athletes with opportunities to develop their potential through access to tailored support, mentoring and professional networks. They are supporting 10 high achieving athletes in Mid Canterbury alone. As a past Canterbury Director, Canterbury-based Director of Heartland, and particularly as we are today, acknowledging our 150-year milestone, I'm proud to see that the investment by the Trust and community organizations across Canterbury. Thank you. And thank you, Greg. We look forward to those increasing dividends. We've still got work to do.

Good morning, and welcome, all, and thank you for joining us at this year's Annual General Meeting. FY '25 presented a unique set of challenges and opportunities, marked by a period of significant reset, change and integration. We have deliberately recalibrated our strategy, sharpened our focus on core products, and taken decisive steps to ensure capital is allocated where it delivers the strongest returns. This reset has laid the groundwork for a more resilient and agile banking group, and is something we will continue to test on an ongoing basis. Our net profit after tax for the year was $38.8 million. On an underlying basis, NPAT was $46.9 million, which while meeting impact guidance of at least $45 million, does not represent our desired performance for Heartland, following a challenging environment and the impact of necessary strategic changes. Importantly, we restored our net interest margin to near historic levels with each bank delivering strong exit margins. And this positive trend has continued into the first quarter of FY '26, as Heartland delivered a solid performance improving profitability and return on equity across the quarter. Overall, net interest margin continued to expand and cost growth remains stable. The strong reverse mortgage momentum experienced within both banks has continued through FY '25 into the first quarter, while subdued markets and usual seasonal contractions impact growth in Heartland's other core lending portfolios. Capital optimization was a key priority for us in FY 2025, and a critical part of our reset. This was reflected in several initiatives undertaken, including the runoff of unsecured lending and the accelerated realization of nonstrategic assets, which has enabled the redeployment of capital into higher return core lending portfolios, and I'll speak more about this shortly. A substantial increase in impairment expense was incurred in the first half of FY '25 in response to ongoing economic deterioration in New Zealand, and to derisk and reposition some of the New Zealand Bank's lending portfolios. Necessary changes made to collections, recoveries, policies, processes and leadership have delivered early tangible improvements with the recovery efforts outperforming expectation and total motor finance arrears now outperforming the industry average. As Greg discussed, we also completed the operational integration of our Australian businesses into Heartland Bank Australian, creating a new and unique bank. The Australian funding transition has continued to be very successful as deposits now form 86% of the bank's funding, providing a deep, stable and diverse platform to efficiently fund the significant lending opportunity we have ahead of us. As a condition of the ADI acquisition, Heartland required an evolution in its role as the listed parent company of 2 banks, and a number of responsibilities shifted from Heartland into those banks with Heartland's operations now focused on group strategy, Investor Relations, Corporate Finance, capital allocation and strategic and risk management oversight of each bank. We have made extremely strong progress in the realization of NSAs in FY '25, and I'm pleased to report that in the first quarter of FY '26, our NSA realization has not only continued at pace, but has exceeded our own quarterly estimates. This momentum has carried into the second quarter. Key highlights include the accelerated exits from rural and business relationship borrowers, primarily through the sale of security and refinancing. Notably, the largest relationship exposure was partially settled in the first quarter, with the remaining refinance settled in October 2025. The third largest relationship exposure also went unconditional in September and was repaid in early October. Home Loans, which closed to new business in March 2025, continues to run off ahead of expectations, driven by early repayments. We also achieved the unconditional sale of 1 of the 2 dairy farms with settlement in October 2025. We completed the exit of Heartland shareholding in harmony as well, achieving a sale price significantly above carrying value as at 30 June 2025. And this generated a fair value gain of $3.1 million, which was the key difference between our underlying and reported results for the first quarter. And we expect this to remain the key difference for the results, for the remainder of FY '26. Additionally, the sale of Heartland Bank's Australia shareholding Alex Bank was also settled in October 2025. By the end of this calendar year, we estimate the value of NSAs will be a little under $180 million, a reduction of $358 million or nearly 67% since 30 June 2024. Looking ahead to FY 2026, Heartland expects to deliver an underlying return on equity of at least 7%, and an improved underlying net profit after tax of at least $85 million. While Greg mentioned several areas of focus for FY 2026, 2 critical themes are, firstly, increasing process automation to improve customer experience and deliver true operating leverage. Secondly, ensuring capital is deployed efficiently into return on equity accretive activity against the backdrop of continued regulatory change. Regarding technology uplift, targeted investments in technology and automation will enable sustainable growth and operational excellence into the future. In late 2023, Heartland Bank completed its upgrade to a modern core banking system. Since then, Heartland has focused on executing and integrating strategic acquisitions made in Australia. With these complete, in FY 2026, Heartland will invest in a targeted technology uplift to resume and reinvigorate digital transformation in each bank. Leanne and Michelle will discuss this further in their addresses. This technology uplift will modernize our existing infrastructure and deliver new capability within the respective banks, resulting in greater efficiency and enhanced customer intermediary and employee experience, and positioning both banks to be able to meet customer demand at scale. Regarding capital efficiency, Heartland welcomes and will continue to participate in the Reserve Bank of New Zealand's review of key capital settings. We see this as a critical pathway to support Heartland Bank's ability to remain competitive, reduce the cost to the end customer and deliver a significantly improved return on equity. Heartland Bank made a submission as part of the Reserve Bank of New Zealand's consultation process with a particular focus on capital levels, asset risk weights and the composition of regulatory capital. We remain fully supportive of the Reserve Bank of New Zealand's objective to ensure a resilient and stable financial system that protects depositors in the broader economy. We will present our updated long-term ambitions at an Investor Day, which is now scheduled to take place in March 2026, following Heartland's interim financial results due to take place on Thursday, 26 February 2026. This timing will allow each bank to complete its contract negotiations, whether it's preferred vendor for its respective technology initiatives. And also takes into account investors' availability over the festive period. At the Investor Day, we will share the key metrics and growth drivers that will underpin our ambitions through to FY 2030, including our continued focus on return on equity, core lending growth, and operational efficiency. In closing, I want to acknowledge the resilience and commitment of our people, the support of our shareholders, and the trust of our customers. We have faced into a number of issues, made the necessary changes, and are beginning to see the benefits. We have made significant progress and the early signs of positive change are encouraging, and I'm confident that we can deliver on our promise of sustainable, profitable growth and enhanced shareholder return. I will now hand over to Leanne Lazarus, followed by Michelle Winzer, to provide updates on our respective New Zealand, Australian Banks. Thank you.

[Foreign Language] Hello, everyone. Good morning. It is a privilege to join you in Ashburton for this year's Annual General Meeting, marking 150 years since Heartland's beginning in this community, a testament to our lasting partnership and heritage. As a region, Canterbury hosts 13% of New Zealand's population but provides 26% of Heartland's deposits, so punching twice above its weight in funding Heartland's assets. Turning to the financial year that has been. As mentioned, financial year '25 was a year of reset and change for the New Zealand Bank. At the beginning of the financial year '25, we faced some challenges, including the need to respond decisively to a changing economic environment. We took proactive steps to de-risk and reposition parts of our lending portfolio, resulting in a $49.6 million impairment expense. While this impacted our first half year results, it was in the long-term interest of our business, our customers and you, Heartland's shareholders. Since then, we have refined our core product sets, these are reverse mortgages, which continues to experience strong growth. Rural finance, which we are highly committed to, motor finance, asset finance, and savings and deposits. We also focused on improving asset quality, we committed to greater cost discipline, and accelerating nonstrategic asset realization to enable capital to be reallocated to high-return core lending products. Today, Heartland Bank remains strong, stable and well capitalized. We have also made changes to our leadership team to ensure we have the right expertise to give sustain -- to drive sustainable growth within our core product sets, and accelerate digitalization and automation, also to deliver an outstanding customer and originator experience. Our strategy is clear and well defined with the vision to be New Zealand's leading specialist bank underpinned by the 3 pillars of quality, efficiency and growth. We are already beginning to see the benefits of this strategic reset. As mentioned, we have refined our core lending strategy to support quality, sustainable growth within our core product sets. We have introduced new credit decisioning scorecards for our motor finance and have shifted motor finance focus from lending that's originated primarily through brokers to lending through higher-quality direct-to-consumer channels, known as Motor Direct, also with our franchise dealers and branded distribution partners. The introduction of a more prescriptive collections, recoveries and write-off strategies has had a positive effect on asset quality as both Greg and Andrew have described. We are still on track to have no motor finance arrears greater than 180 days past due by June 30, 2026. For our business finance customers, trading conditions have been challenging. This was reflected in arrears, which increased throughout financial year '25 and into the first quarter of this financial year. However, we are starting to see an improvement early into the second quarter of the financial year. At the end of October, total business finance arrears were down $2.9 million with nonperforming loans down $5.9 million. Our teams are still working closely with customers to support them through this period, and we expect to see further reduction in nonperforming loans as we near the end of this calendar year. The portfolio remains well provisioned, reflecting the secured nature of this lending. Our focus on efficiency is about disciplined cost management and efficient use of capital. It also describes our focus on automation to increase speed and ease for both our customers and our employees. Costs did increase in financial year '25, primarily due to non-repeating benefits in financial year '24. Investment in core functions to enable higher quality growth and to address additional regulatory oversight responsibilities arising from owning an Australian authorized deposit-taking institution, and then the amortization of our core banking upgrade, which completed in 2023. Cost growth has stabilized in the second half of '25, and remained stable throughout the quarter -- first quarter of this financial year. We have actively managed our cost of funds to the end of financial year '25 with a strong margin. Net interest margin was 3.87% with an exit margin of 4.13%. We are pleased to see this positive trend continue through to the first quarter of this year, with 4.06% as our margin and an exit margin of 4.08%. Leveraging the completion of our core banking system upgrade late in 2023, we're starting to see -- we will be continuing to invest in technology and automation to reduce manual ways of working, which limit how quickly and easily we can convert demand into new business. So it's absolutely imperative that we do this. This investment means that we'll be able to deliver an even better experience for our customers and originators and enable scalable growth within our core lending portfolios. The New Zealand Bank's growth focus is on our specialist lending portfolios, where our customer value proposition is strongest. We are continuing to see great momentum in reverse mortgages with receivables up 14% in the first quarter of this financial year, reflecting solid ongoing demand. Excluding livestock finance, which experienced the usual seasonal contraction, the rural portfolio grew by 6.1% in the first quarter. Subdued markets impacted growth within motor finance and asset finance, the recent motor finance retraction also reflects our shift to a higher-quality distribution channel better positioning the portfolio for quantity growth. Building on our strength as the reverse mortgage market leader, we launched Village Access Loans, expanding our offering to better serve older New Zealanders. We also leveraged our vehicle lending expertise by introducing Marac Marketplace, a new online platform that simplifies vehicle purchasing and financing, further strengthening our presence in the motor vehicle finance market. As earlier covered, during financial year 2025 and 2026, the New Zealand Bank's focus was and is unwinding down assets that no longer are a strategic fit. This is progressing ahead of schedule with several large exposures settled in full. This accelerated progress together with holding firm on the quality of the business that we are willing to write contributed to a retraction in Heartland Bank's lending portfolio over the year. These decisions were made with prudence, prioritizing quality, stability and resilience. We have a very clear focus for this financial year of building our strength across our core portfolios. We are committed to helping older New Zealanders achieve financial freedom through our reverse mortgages, supporting growth for our farmers, making it easier for our customers to get on the road or invest in new assets, offering competitive deposit rates, and investing in technology to enhance efficiency, scalability and customer experience. Finally, I want to extend a heartfelt thanks to you and this community and to our shareholders for standing with us as we navigate a change to position Heartland for continued success. Your commitment has been foundational to our success from multiple building societies to a trans-Tasman banking group, we are proud to call Ashburton Home. I will now hand over to Michelle Winzer to discuss the Australian Bank. Thank you.

Thank you, Leanne, and good morning, everyone. It is wonderful to be here with you in Ashburton today. I'm very proud of the way that we finished our first full year of operation in the Australian business. And the enterprise value that we created in FY '25. Our strong performance has continued in the first 4 months of FY '26, and we are well positioned to deliver on our commitments for the current financial year. Our vision is to be Australia's leading specialist bank with a focus on enriching customers' lives through financial freedom. We are committed to our core specialist areas, reverse mortgages, livestock financing, and deposits. Retaining this focus and deepening our expertise in these markets will ensure we deliver optimal value for our customers. FY '25 was a year of reset for us, consolidating a bank with Heartland's 2 existing non-bank finance companies to form Heartland Bank Australia. We focused intensely on integration, strengthening our leadership and uplifting capability and processes to meet APRA regulations and protect our customers. We have improved our risk capability and formed partnerships to ensure the business can achieve prudent growth into the future. The work completed in FY '25 has been critical to establish a solid baseline for us to achieve prudent growth. As we said in our recent results announcements in the last AGM, our key areas of focus in the business remain, business growth, service excellence and diversifying distribution. As our financial results demonstrated, we improved business momentum half-on-half during FY '25, and this has continued in FY '26. Our reverse mortgages achieved a new record level of funding in October at over $51 million, taking our book to over $2.1 billion year-to-date. Our pipeline of new business is at record levels, putting us in a good position to achieve our FY '26 growth aspirations. Livestock has returned to positive growth with a record result in October, post the seasonally colder months in the first quarter. Purchases for both cattle and sheep are at record levels and significantly higher than the prior 12-month rolling average. We continue to have strong demand for our deposit products, which is funding organic growth and saw the repayment of our final outstanding $100 million medium-term note, before its contractual maturity date in October '27. The bank is now 86% deposit funded within 18 months of its acquisition. In relation to service excellence, our key focus areas have been: significantly reducing our application turnaround time from over 60 days turnaround time to 8 days. The implementation of a new customer satisfaction survey, providing real-time insights to continually improve the service that we provide. We've enhanced our customer engagement and retention activity through insightful communications, and this ensured repayment volumes held steady at approximately $23 million per month, enabling new business to consistently surpass runoff and drive net portfolio growth. We established new leadership to guide our customer service teams to deliver exceptional customer service to our direct channel. In relation to diversifying distribution, our key areas of focus have been: deepening relationships and working closely with our accredited partners and brokers. And this is evidenced by more than half of our new reverse mortgage business coming from the broker network and underscoring its pivotal role in our distribution strategy. Expanding partnerships and sponsorships in the livestock business to now include agents. The agent network gives us access to farming communities across Australia wide. And similarly, our expansion of our partners in the deposit business has provided us with access to broader customer segments and enabled us to achieve the growth required to fund our lending. The work completed to set the business up in FY '25 has provided a strong platform for growth. We executed a comprehensive and successful reset, consolidating our business and taking strong momentum into FY '26. Our reverse mortgages are achieving accelerated growth and our livestock business is recovering robustly, already showing double-digit growth in applications in October. We have extensive market data to support our view on the potential opportunity in Australia, and we have utilized these insights to develop a clearer go-to-market strategy. While reverse mortgages competition is increasing with nonbanks and fintechs demonstrating interest in our specialist markets, our response remains disciplined and evidence-based. And our market leadership positions us well to meet the significantly untapped potential available to us. Our Australian market share grew from 36% to 40% in FY '25. Regarding our technology uplift, FY '26 will be a year of transformation for the Heartland Bank Australia. After completing a market search and selecting a preferred vendor, we have embarked on a technology initiative to implement a new unified origination and servicing platform. This initiative will support us with our growth ambitions and digitization. Costs related to this technology initiative are expected to be elevated in quarter 2 as vendor negotiations and program planning continues. But we are now in the final contract stages and we'll present further detail on the initiative at the Investor Day that Andrew spoke about early in the calendar year. In summary, we have the talent, the clarity and the discipline to succeed. Our focus is now singular: to maintain this momentum, simplify our business, and strengthen the partnerships that will ensure we deliver exceptional sustained value for our customers and Heartland's shareholders. Thank you for your time today, and I'll now hand back to Greg.

So shareholder discussions, I'll open that, please, to the floor. Right. Thank you, Michelle. Ladies and gentlemen, before opening the meeting for questions, I advise that Karen Shires of PwC, the company's auditor, is present today and can answer any questions relevant to the conduct of the audit and the preparation and content of the auditor's report of the year ended 30 June '25. Shareholders joining online who wish to ask a question on Heartland's performance, strategy or operations can submit the questions through the online meeting platform now. We will aim to answer as many of those questions as possible. Any comments, questions or matters raised for discussion during the meeting must be relevant to the business before the meeting. If you have matters you would like to raise as a customer, the Board and management can answer your questions during refreshments after the meeting. For those online, please submit any customer questions, and we will respond after the meeting. Shareholders, we're also invited to submit questions prior to Annual General Meeting.

We received 3 questions, which we want to address now. The first question was, what is the progress on selling noncore assets and realizing cash from them? Andrew provided more detail on his address. Significant progress was achieved in the realization of nonstrategic assets during FY '25. This has continued into FY '26. First quarter results exceeded our own projections with strong momentum earlier in the second quarter. By the end of this...

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Yes, look, we'll come to that at the end of this. Thank you. By end of this calendar year, we anticipate total value of nonstrategic assets will be approximately $179.5 million, reflecting a reduction of $358.1 million or 66.6% since June 2024. I hope that's got an answer for you, Mike. The next question asked, the share price took a dive last financial through poor performance and has moved up slightly lately. What decisions are being made to arrest the situation arising again? Look, we recognize that performance and key metrics important to shareholder return has been below historical levels. Our priority is to maximize shareholder value through prudent capital management and by concentrating on asset classes where heartland can compete and deliver exceptional customer value while providing an appropriate return. That means keeping things simple, increasing efficiencies and a particular focus on improved return on equity. We're seeing encouraging asset quality improvements, flows through from the changes made to collections and recoveries, strategies in New Zealand and from refining our core product set. We are also seeing encouraging signs with return on equity and earnings per share both improving in the second half of FY '25. That momentum has continued into the first quarter of FY '26. Underlying guidance and -- sorry, we're on track to meet our FY '26 underlying guidance. And are confident in Heartland's ability to deliver enhanced shareholder return. The final question came from shareholder -- shareholders in Melbourne. The question asked, what services does Heartland provide in Australia? How do we access these? Are term deposits available? And are they competitive? Response here. So Heartland Bank Australia was formed in May last year after Heartland acquired the bank and integrated its existing Australian businesses into it. Heartland Bank Australia offers 3 core products: reverse mortgages, livestock finance, and deposits. More information and access to these products can be found from the Bank's website. Its offerings does include term deposits, which are competitive. I will now open the meeting for questions, starting with those in the room followed by questions online. Mr. Oliver?

Thank you, Greg, and thank you for the presentation and discussion so far. My name is Oliver Mander from New Zealand Shareholders' Association. Look, we have noticed in the accounts, obviously, there was a significant payment made to the former CEO on his departure. It's always a tricky conversation for a Board. I'm well aware of that. I guess in the interest of looking forward, would Heartland be prepared to make disclosures in terms of severance arrangements for the current CEO just to avoid any future surprise for shareholders?

Okay. Thank you, Oliver. And look, that's -- and I suspect that's on other shareholders mind. So it's a good question. I just think -- we've got to put it into context. So this business has been a start-up, and we're just getting through the start-up phase. We've managed amalgamation of a number of assets that were troubled through the GFC. We've managed to obtain a New Zealand banking license and latterly the Australian ADI. So this is quite a big shift. So you think about what the value that Jeff Greenslade bought to this business over that period was nothing but outstanding. And so we've got to put it into perspective. So we don't think that that's unfair. So in Jeff's exit payment on his retirement. Now does that set a precedence for the future? And of course, no. This was a special situation under special times with special results. Thank you.

Thank you for the clarity. Would -- let's get back to the question with the bank -- sorry, would the group be prepared to disclose the severance arrangements for the current CEO, just as a matter of course and that provides greater clarity in terms of those expectations?

Well, I'm sure we can. Yes, is the answer. Well, that is a bit of an unusual request.

Well, sorry, just to clarify that. There are many NZX companies that do that as a matter of course, and it's something that we do encourage.

Noted. Right. Thank you.

Mark Bensman, shareholder. I think in your presentation you talked about achieving a desired level of underlying profit. I just wondered what you thought desired or minimum or target level of underlying profit and return on equity would be. I guess, what is the target moving out beyond next year?

So I mean, we've provided a plan for -- we've got a plan for FY '28. And I mean we've worked pretty hard to achieve that. Of course, it's been quite tough in this current environment. But there is -- you will -- we will be getting back to our historical levels of returns. But you've got to bear in mind, we've got -- we are growing strongly in Australia, which is a drag on capital. Andrew, is there anything else you'd like to add there?

Yes. The reference of desire was really just getting back to above $100 million, which is where we were over the last couple of financial years before. The most recent financial year and getting that return on equity up and above at least 10% in the near term. So those will be our desires. Obviously, there's a longer-term ambition, which we will be presenting back next year, which will be well in excess of those numbers.

Colin Cameron from Taupo. Just driven through the night, so I've got a bit of a fuzzy brain at the moment. First off, with most world economists saying the way the economy is and geopolitical situations, why doesn't the bank stop paying out a dividend and actually build up a lot of cash to keep safe and make certain that we are going to be able to progress further down the line. Secondly, in order to actually have a dividend reinvestment plan. And thirdly, have a buy set at a share set, I'd say, $1 that any time it goes under the dollar, the bank steps in and buys the shares at that minimum amount. And fourthly, which is -- now I just totally forgotten what it was going to be, sorry, I'll pass it off.

Well, thank you for that question. I think look, in simple terms, we're not capital constrained in this business. So we're very focused on returns to the shareholders and growth. Now on -- so -- and we have -- we have been very, very clear on what we are providing to our shareholders. Now on the buyback issue, well, we don't -- we don't buy buyback shares, that's -- we don't need to. There's not a desire or a requirement.

[ Just remember it ]. With the way the 4 big banks in Australia and New Zealand are and then previously, like ANZ buying Trust Bank and all that, do you foresee in the very near future the 4 big banks are looking for an edge in the market? Heartland has got that edge that any one of them may come and knock on?

Well, I can't answer for the other major players. But yes. So we are just carrying on with our business. We're focused on our areas of expertise. And we're not worrying about the others. Thank you. I'll just open up. Mike, you've got a question?

What's the AI situation [indiscernible]. Maybe Andrew could give us a feel -- maybe Andrew could give us a feel on what benefits that or otherwise that might have on Heartland's activities in the marketplace going forward?

Thanks for the question. So we're very much at the early stages of AI adoption, it's fair to say. We've been partnering with industry leaders to ensure that AI in Heartland is responsibly designed and well governed. For us, the next stage of AI links to our technology programs in both countries. So we will be looking to significantly enhance and get further up that curve with AI.

So Andrew, is that a cost or is that a saving?

Well, look, it's initially going to be across these technology programs, unfortunately costs money. So there will be upfront costs. We will be removing a lot of costs from existing technology and subscriptions that we already have, and we'll be saving a lot from removing the manual processes that we currently have, and we'll be looking to adopt AI through the loan process as much as we can throughout that.

If I can just add to what Andrew has said. So for -- at present, we do use some components of AI within our business. But we've got to make sure that it is safe and secure for our people and also our customers because fraud and scams are on the rise as well as cyber threats. So security is absolutely key. The technology, we are looking at investing in does have components of AI. What it will do is make our people more efficient. It will make the way in which we deliver products to our customers faster for them to access. So that's what we are working on. As Andrew said, whilst it is the cost to invest in some of that, this is not a large cost. It will unlock opportunity for us to deal with the demand for growth because at present, we have components of our business that are manual that you have to add people. The technology we are looking at and we do have components of that just helps our staff be more efficient. So hopefully, that's answered a bit more.

Thank you, Leanne. Yes Stan on the back.

Yes. Look, it's Philip Ben and I'm a shareholder of Heartland, have been sort of for 25 years. So I've been able to watch the progression of CBAs and then going on through into Heartland. Now I've listened to the talks here and it's very rosy going forward. But I would just point out that heartland Bank for the last 2 years has been negative 34% returned to the shareholders. And comparing it to other banks -- 4 other banks and I've just got here as representative examples, they've done a positive 47% to 123% in that same period. So it's fair to say that Heartland has destroyed shareholder value. And anyone who's bought shares in Heartland since 2018, even allowing for the dividends, has actually gone backwards in a cash sense, they have not got a return on their investment. They've actually gone backwards if they were to sell today. Now for a number of years there, I watched the Heartland results. They went up quite steadily. It was good returns. And then all of a sudden, out of the blue, it seems to just about tip over a cliff. First words of disgruntlement, we're having some issues getting staff for collecting of beats. Then the bad debt start to come through. From what I was sort of looking at and I sort of wonder, had there been some carrying forward of bad debts that were being sitting in the balance sheet that weren't been adequately provisioned or written off at the time. I would wonder at what stage the auditors sort of perhaps looked at that, who picked it up. Given that the departing CEO got a very handsome reward or sort of -- it would appear that it perhaps wasn't sitting on his desk. The question is, and it's really one for the Board of Directors is, where the systems in place for bad debt reporting for the collection of bad debts. Has that changed? Has that improved? Because the last thing I want to see is for the bank to continue to report increased profits over the forthcoming years, and then have a drop off again. So we've got a problem here, the eyes dropped off the ball, so to speak. So are the directors confident that the appropriate reporting is in place for the collection of debt going forward?

Yes. Look, We will give you confidence on that with the changes. I think just -- let's put it in perspective. We've gone through the GFC. We have supported customers possibly to the extent that would be an overgenerous. But I think we'd be better off to pass this on to Leanne, and she can answer that in a deeper...

Well, I'll start.

Context. So you're going to do it, Bruce.

So to answer the last question first, are we confident about our collection processes and the discipline that we have now? The answer is absolutely yes. And you will have seen there's even been articles about what we're doing around repossessions and what we're doing around all of that discipline. So if you look at the issue of the returns that the shareholders have in the holding company, those returns, obviously, were significantly impacted by the write-offs that we had at the beginning of this year. And so you look back at those write-offs and you go, why didn't we know about those? Where did they come from? And the answer is there's a number of elements, I guess, of what I would describe as the old perfect storm. The first thing was that when COVID hit, we offered to extend a lot of our debt and $170 million of our debt was extended. A lot of that was in the motor book. So we had a 3-year motor loans. We extended them to 5 to 6 years. We then work to remediate with those customers who had asked for that extension. And we work with them to remediate those accounts and so on. And that was on the basis that what would happen is post-COVID, with an improvement in the economy, they would then be able to pay back the extended debt that we had allowed. We haven't had that improvement in the economy through '24 and early '25. So what we did was we then went and did a deep dive into those books. And so a lot of that additional write-off that we did at the beginning of last year was in the motor book, which were loans that we extended from the COVID period. So -- and it was -- as a result of that, that we then also have gone instead of trying to remediate some of these loans, we've actually taken a far more disciplined approach in terms of collection and recovery of those loans. And that is a transformation that has happened in the current last 12 months. I don't know if that answers your question for you.

Yes. Thank you. That does answer the question. It was going to sort of go on a bit further and say that I've noted that when there's a liquidation that comes out in the paper, Heartland's name seems to appear with frequency. And the revenue department is always there as a creditor that Heartland seems to be coming through a little bit too often as well. So that would be a reflection of...

It's a result of that increased focus.

Correct. Again, as a shareholder, that's my money or the shareholders' money going out for the goodwill of the customer or the person who's borrowed, I'd certainly like to see a few more of them being tapped upside down, shaken up and perhaps...

And I think it's also fair to say that although you might see that in the paper a lot more, that -- those loans are all adequately provisioned as well now.

Okay. And just to close that question of, we do not write that business today. We have changed our business writing strategies in recent years. So these are loans that predate 2019.

Yes. Can I congratulate the Board on the fact that you've managed in very difficult circumstances to -- not only stay in business, but to pay a dividend. I think it's a quite spectacular result. Congratulations.

Thank you. Thank you. Yes, rest I'd say we will bank that one.

[indiscernible], shareholder. My question is relating to -- you've got 612 staff according to your annual report, but I'm looking at the number of executive salaries you're paying out compared to similar banks and similar size. We've got $4 million salaries. We've got 10 more with $0.5 million salaries and that has continued over the last few years. It doesn't seem to show much evidence of really controlling the issue and making sure we're getting good return for our money.

Well, just -- I mean you've got a few questions there, really. But number one, the $4 million, please don't focus on that. That was a one-off. Now...

Talking about the individual salaries of the 4 senior executives.

Yes. Okay. Well, that's -- well, we've got growing businesses and they've got high levels of complexity over 2 jurisdictions. So there's going to be cost. And these are -- like I've tried to restress, these business are pretty much start-ups -- although they're maturing. But look at what we have actually managed to deliver everybody over this period. Now...

You delivered a halving of the asset value of the company, you haven't actually delivered anything?

Well, give us some time. We're all investors here. Mike?

I think we thought shareholders should realize that Greg is relatively new in the chair. He's got 88 million shares of his own to look after. And I think he's made pretty darn good progress with the rest of Heartland Bank towards getting the ship back on its feet again. So I think that's relevant. I think we'll give you another year, Jeff.

Yes. Well, I might end up as Jeff. So thank you, Mike. Yes. Are there any further questions? Oliver?

Thank you, Greg. So just in terms of the new corporate structure and the risk function that supports that. So you've clearly got risk functions in both Australia and New Zealand. The first linked question to that is, is there any sort of overarching framework that ties those together to leverage any learnings on both sides of the Tasman. The -- while also satisfying the independence requirements on each side, in each jurisdiction. The second is relating to the audit of how that has covered through the audit. Is there -- and just talk a little more around some of the structure on how the audited accounts are put together. Is there a separate order for the Australian Bank, New Zealand Bank, how the risks looked at? And how does that start to play through its process? And also just as an aside, how long have PwC been the auditor for?