Good morning, everyone, and welcome to the Heartland Group FY21 full-year results. Please note that all participants are currently in a listen-only mode. Once the presentation is over, you will be invited to ask questions. To do so, dial star one. And as my operator will assist you, if you would like to answer a question via the web interface, simply type your question in the answer question box and click send. If any participant has difficulty hearing the presentation, please submit your question by the same tool. I would like to turn the conference over now to Jeff Greenslade. Please go ahead, sir. [Non-English content]. Jeff Greenslade [Non-English content] Heartland. Good morning and welcome everybody, thank you for participating in this presentation of our results. I'm Jeff Greenslade, the Chief Executive of the Heartland Group. I'm joined by the Chief Executive of the Heartland Bank, Chris Flood, and the Chief Financial Officer of the group, Andrew Dixson. I'm going to start by taking you through some of the highlights of the results and of the year's performance. I'll then hand over to Andrew Dixson, who will take you through the detail of the results, and then Chris Flood will give divisional reports, and then I will close with some strategic summary. The result came in at NZD 87 million in terms of NPAT, which was just under 21% above the previous year. Recalling the fact that we took a COVID overlay of NZD 9.6 million in the previous year, if you exclude that, the underlying result was an increase of NZD 11 million or a very pleasing 14% increase in NPAT. That was driven by top-line growth of 7.8% in terms of net interest income of NZD 233.5 million, which itself was fueled by balance sheet growth of 8%, where we managed to get through the NZD 5 billion mark. The symmetry of these two lines makes sense in terms of margin, which stayed about the same as the previous year, up slightly at 2 basis points at 4.35%. That's what drove that symmetrical outcome, all those things being in line in terms of both top-line balance sheet and then the margin staying around about the same. Underneath the growth, Chris Flood will go into more detail, it was really a game of two halves, where we saw low growth in the H1, the flow and effects of the number of lockdowns and business confidence and consumer confidence still taking time to recover following the onset of the pandemic. We grew only about 2% or just over, or 2.7% in the H1. The H2, we saw more business as usual growth coming through, where we saw growth in motor, New Zealand and Australia reverse mortgages, Asset Finance, and Home Loans, which were offset for reasons that Chris Flood will go into, reductions in Harmoney, Open for Business, Livestock, and Rural. Underneath those results, in terms of volume, what we saw was a stable cost to income ratio in an underlying sense, but trending downwards in the H2. Our cost income ratio in the H1 was 45.8%, the H2 it was 43.9%, and that really reflects some of the work that I'll talk about later in terms of focusing on our cost income ratio in terms of a proxy for driving scale. Impairments were down 30 basis points in an underlying sense, excluding, again, the overlay, we saw an overall improvement in the quality of the book with impairments down from 44 basis points to 31 basis points. All these things resulted in a improvement in our underlying return on equity to around 12%, which is pleasing in terms of our long-term goal to gradually push up that return on equity, and we saw almost a 20% increase in earnings per share at 14.9%. Turning now to page five, which is just highlighting some significant one-off items. Those of you who've been following Heartland will know it's not a normal year unless we've got some one-off gains and losses to explain, and this year is no exception. Andrew will go into more detail in terms of where these one-offs were derived, but essentially, we saw fair value gains in investments and property offset by voluntary acceleration of depreciation and writing off some legacy suspense account provisions where we decided that recovery was becoming increasingly uncertain. Turning to the next page, which is strategic highlights. Just touch on a few of these, particularly the digitalization process which we are going through, which is really at the core of our business. I'll talk in more detail about that, there's some very pleasing progress, taking the gains that we've achieved in the front end, now moving further down the fulfillment continuum. This was reflected a number of ways, but particularly was our launch of a residential mortgage product. Previously, an area where we weren't able to be competitive. Now with digitalization, we can offer leading market rates in that market. That was a highlight of us to be able to launch that platform, and we'll again pick up that in Chris Flood's presentation. The reverse mortgage book in Australia went through the billion-dollar mark. We're in a very leading position in Australia, so very pleased about that. As I mentioned earlier, another highlight is the quality of the book has improved even after allowing for the COVID overlay. That was a particular highlight. We also remain one of only two Australasian banks to have no reduction or adverse change to its rating or outlook by Fitch since January 2020. We picked up a number of awards during the year, both in Australian Reverse Mortgages and New Zealand Reverse Mortgages, which is very pleasing, but also recognizing that we are in leading positions in those markets, it would be surprising if we weren't recognized as such. What was especially pleasing is that in the very competitive depositor market in New Zealand, we were once again the Savings Bank of the Year. That was a very fantastic performance by our people. Moving now to impairments in just a little bit more detail. Just want to sort of cover off, I guess particularly the underlying result and where it sits vis-a-vis COVID. On the face of it, we had quite a substantial decline in impairment expense, but that was made to look better than in fact it was, due to the fact that we took a large impairment overlay last year of NZD 9.6. If you strip that out, as I said earlier, we still saw an underlying improvement from 44 basis points down to 31 basis points. What was driving that? Well, firstly, some of the work that Chris Flood and his team are doing around remediation, bringing in faster processes of intervention, which is paying dividends. Secondly, we did see a lot of repayments coming through, particularly in that H1. Thirdly, the mix is having a very strong bearing where we are growing disproportionately high in areas like motor and reverse mortgages, which have a much more predictable profile. When it comes to the impact of COVID, the direct impacts of COVID were absorbed in our business as usual impairments, and the overlay has not been utilized. The Business Finance Guarantee Scheme, which the government introduced to support businesses through the pandemic, we participated in that. Our book is around about NZD 60 million, and it is performing at the same level as the other parts of the book. Similarly, the Extend product, which we introduced around about the same time to provide businesses with more flexibility in terms of debt amortization, is also performing in line with analogous books. However, despite that background, we have decided not to release the overlay even before the recent lockdown. We still see, if you like, second-stage uncertainties in the market, supply chain issues, the border being closed, the prospect of business expenses increasing with inflation or interest rates, which combine to create a level of uncertainty where we feel the prudent thing to do was to retain the overlay in full, and obviously recent events have only further vindicated that approach. I will now hand across to Andrew Dixson, who will take you through the detail of the financial results. Thanks, Jeff, good morning, everyone. I'm on slide nine, which bridges NPAT for the 2021 financial year with NPAT for the 2020 financial year, we have included this on both a reported and an underlying basis. The underlying result removes the one-off items that were previously referred to in each financial year, I will talk to those as I run through the individual components. Firstly though, net profit after tax on a reported basis was NZD 87 million for the 2021 financial year, an increase of NZD 15.1 million or 20.9% higher than the prior financial year. On an underlying basis, NPAT was NZD 87.9 million, which is an increase of NZD 11 million or 14.3% higher than the prior financial year. Stepping through the individual components, net interest income, which was NZD 233.5 million, increased NZD 16.8 million or 7.8% on the prior financial year. This was driven by a 2-basis-point increase in net interest margin, which expanded to 4.35%, up from 4.33% in the prior year. This was combined with NZD 366 million higher average interest-earning assets with NZD 305 million higher average receivables and NZD 61 million higher average liquid assets. As we will cover on the subsequent slide, receivables grew NZD 372 million or 8%. The 2-basis-point increase in net interest margin was driven by, firstly, an 82-basis-point decline in the yield on average interest-earning assets, this was offset by a 97-basis-point decline in the cost of average interest-bearing liabilities. The decline in asset yield was driven by several factors. Firstly, yields contracted across all portfolios with lower new origination yields replacing the higher-yielding back book as it repaid, this impact was compounded by elevated repayments experienced in the H1 of the financial year. The composition of the asset portfolio also changed. In the lending portfolio, growth occurred in lower-yielding portfolios such as Reverse Mortgages and more recently, Home Loans. Whereas higher-yielding portfolios such as Harmoney and Open for Business contracted. In the liquid asset portfolio, the composition became more weighted towards lower yield in cash and primary liquid assets on average. The decline in cost of funding was driven by several factors as well. Firstly, an 111- basis- point reduction in the average cost of deposits, which was driven primarily by the continuation of lower rate deposits replacing higher rate maturities, combined with a change in portfolio mix, with core deposits as a percentage of total deposits averaging 29% in the financial year versus 26% in the prior year. There was also a 67- basis- point reduction in the average cost of other borrowings. This was driven primarily by our Australian borrowings, which price as a margin over the bank bill swap rate. There were two factors here. Firstly, the bank bill swap rate remained at historic low single- digits for the duration of the financial year. We refinanced some of our medium-term notes at lower margins, which secured the benefit of programmatic issuance and also bringing more diversity into our investor base. I would also note that the Group and Bank in particular are carrying higher levels of capital than they historically have, which has a consequential impact of lowering the need for borrowings and therefore provides a small benefit to net interest margin. Moving on to other operating income, which is a slightly noisy part of our profitability. Reported other operating income was NZD 17.7 million, down NZD 1 million on the prior financial year, and this was impacted by the following one-off items. Firstly, in the prior financial year, one-off gains of NZD 5.5 million, which consisted of, firstly, a NZD 2.1 million fair value gain on Heartland's equity investment in Harmoney, which I will cover shortly. There was also a NZD 2.8 million gain from releasing all unamortized fee income on Reverse Mortgages NZ following the adoption of IFRS 9. There was a NZD 0.6 million gain on settlement of property that was held as security. In the current financial year, one-off gains totaled NZD 4.1 million, and this consisted predominantly of a NZD 3.9 million fair value gain on Heartland's equity investment in Harmoney. We have included a comprehensive disclosure in Note 20A on page 41 of the financial statements. In summary, Harmoney listed on the ASX and the NZX in November 2020, and as part of that, 72% of the share register are presently restricted from trading. The consequence of this has meant trading volume has been low, bid-ask spreads have been wide, and market prices have been volatile. We have considered a range of factors and information when measuring fair value rather than just using the closing price. There was also a NZD 0.7 million fair value gain on investment property that was offset by a NZD 0.5 million fair value loss on Heartland Bank's equity investment in Fuelled. After taking these items into consideration, underlying other operating income was NZD 13.6 million, which was up NZD 0.4 million on the prior financial year, this was primarily due to increased lending and credit fee income as a result of the noted receivables growth. Next, operating expenses. Reported operating expenses were NZD 117.7 million, up NZD 10.9 million on the prior financial year. This was impacted also by the following one-off items. In the prior financial year, one-off expenses were NZD 3.6 million, which included NZD 3.3 million of expenses from releasing all unamortized origination costs on reverse mortgages, again, following the adoption of IFRS 9. There were NZD 0.25 million of non-recurring staff expenses. In the current financial year, one-off expenses were NZD 6.9 million, largely on account of some balance sheet hygiene. We took NZD 4.3 million of voluntarily accelerated amortization on software assets. We also had NZD 1.7 million of legacy suspense account provisioning and write-offs. There were NZD 0.9 million of non-recurring staff expenses. After taking these items into consideration, underlying operating expenses were NZD 110.7 million, up NZD 7.5 million or 7.3% on the prior financial year. This was primarily due to NZD 6.7 million higher staff expenses, with Heartland on average employing 63 more FTEs compared with the prior financial year. The additional FTE supported both Heartland's customer response to COVID, but also our digital and technology capability as we continue to accelerate and expand our digital strategy across the organization. There were also NZD 2.1 million higher IT and communication expenses, and this was largely due to increased software amortization and licensing costs for those noted additional FTE. As is indicated in our subsequent key performance measure slide, Heartland's cost to income ratio has commenced a downward trajectory, and Heartland's teams are now well-resourced to deliver its next stage of strategic objectives. Finally, impairment expense, which has been well covered. I will add a couple of things to this. The arrears profile has improved, and this is demonstrated by our lending portfolio that is subject to a Stage 1 provision, which considers a 12-month expected credit loss increasing from 91%- 93% of the portfolio, with a corresponding decrease in the portfolio that's subject to a lifetime loss, which decreased from 8% of the portfolio to 6%. Just to finally reiterate that the COVID overlay taken in the prior financial year has not been utilized and remains in full at this stage, given the continuation of COVID in Australasia and the uncertainty in terms of economic impact that brings. Moving on now to Slide 10, which charts annual growth in receivables by division. Chris Flood will cover this in detail later in the divisional summary section. Moving through this, nearly all core portfolios reported double-digit growth for the financial year, which is a great result given the H1 saw an aggregate annualized growth rate of 2.7%, meaning H2 saw annualized growth of 13.1%. Some highlights include Reverse Mortgages NZ recording an annualized H2 growth rate of 8.7%. Asset Finance building on its strong H1 of 14.4% growth, recording in the H2 annualized growth of 14.7%. Open for Business returning to growth in the H2. Business Relationship growing to NZD 75 million in the H2 as a result of lending under the Business Finance Guarantee Scheme and also lending to Go Car Finance. Motor, after recording 14.9% annualized growth in the H1, continued that on, recording 15% in the H2. Harmoney run-off continued, though the pace of that slowed in the second half. I'll just jump in there. It's Chris Flood speaking. Harmoney, as discussed at the half year, has changed their funding model from off-balance sheet funding, which Heartland participated, into on-balance sheet funding. Heartland is in the final throes of finalizing a wholesale facility with Harmoney, and we expect lending to Harmoney to continue in the near future. Thanks, Chris. Finally, Home Loans grew to NZ$45 million for the year, with NZ$40 million of that occurring in the H2. Moving now to slide 11, Key Performance Measures. Couple of things to cover here. While net interest margin increased slightly, the impact of the liquid asset portfolio is highlighted here with a 10-basis point expansion in net interest margin excluding liquid assets. Heartland carried NZ$96 million higher liquid assets on average across the financial year, with the yield impacted by the low interest rate environment and a higher holding of cash in primary liquid assets. In terms of cost to income ratio, as previously covered, on an underlying basis, the ratio has commenced its downward trajectory. While this appears only incremental year on year, the cost to income ratio for the H2 was 43.9%, down from 45.8% in the H1. Finally, non-performing loans and the impaired asset expense ratio have both reduced to historic lows due to the previously noted remediation efforts, shift in portfolio mix, and general reduction in arrears. Moving to slide 12, Shareholder Return. Return on equity of 11.9% increased 144 basis points on the prior financial year. Earnings per share of NZD 0.149 per share was up NZD 0.024 per share on the prior financial year, which is EPS growth of 19%. A fully imputed final dividend of NZD 0.07 per share has been declared, which delivers a dividend yield of 7.1%. This was all achieved despite carrying higher capital than historic levels, with group capital as a percentage of total assets at 13.4% versus 13.2% in the prior year. In particular, Heartland Bank's capital as a percentage of total assets was 14.5%, up from 13.8% in the prior year. This translates into a regulatory capital ratio of 13.88% versus 12.67% in the prior year. These ratios for the bank are after the bank paid a dividend to its parent in June, following the partial easing of bank dividend restrictions by the RBNZ. This is well ahead of the trajectory to meet the higher levels of capital required by the RBNZ. I'll now hand back to Jeff to commence the divisional summary. Thank you, Andrew. I'll hand over to Chris in a moment to go through the bank's divisional results. I will talk about Australia. Before I do that, just want to refer you to a page we have in the pack, page 14, which just sets out some of the critical metrics, particularly some of the demographic metrics, the leverage ratios for our reverse mortgage books in both Australia and New Zealand. Don't propose to go into that in detail now, but it's a very useful reference in terms of the underlying characteristics of both those books. Turning to Australia, obviously our prime business in Australia is the reverse mortgage book, where we saw it increase by 9.5%, which also fueled growth in market share. We are the largest active participant in the Australian market. During the course of the year, similar to New Zealand, we saw elevated repayments. Anecdotally, that appears to be the outcome of a very buoyant property market where owners are taking the opportunity to lock in profits and move to the next stage of their life. We also expanded our product range to launch a Well-Life Loan, which is a non-mortgage product that achieves a similar outcome to a reverse mortgage, targeting the needs of people who are approaching the eligibility age for a reverse mortgage. It's a pipeline product that we are developing. We are also active in other parts of the market in Australia. In a very small way, we have a consumer and SME business in Australia, and we are keen to build on those and look at opportunities in a broader sense alongside the reverse mortgage business. I will now hand over to Chris Flood, who will take you through the divisional report of the bank. Thanks, Jeff. Good morning, everyone. I'm on page 16, Reverse Mortgages NZ. They recorded a record lending result for the year, 25% up on the previous record. That result was driven by three factors. Firstly, ongoing marketing, noting Heartland has now been promoting the product since 2014 and is really starting to benefit from increased borrower awareness. The second factor was supportive demographics. The baby boomer cohort is now aged between 57 and 75, and our average age of new to bank borrower is 72, so presents a good pipeline for the years ahead. The third factor was compelling economics. High house price inflation and historically low interest rates makes it an appealing product. Heartland has a leading market position here in New Zealand. That's on the back of having a dedicated specialist division. That's all they do. We also have a large pipeline of potential borrowers who have expressed interest in the product. That pipeline dates well back to before Heartland acquired the business in 2014 and continues to grow week on week. We regularly-- loans drawn down where we first had an interaction with the customers well before we acquired the book, and that happens on a monthly basis. We are developing online capability and know from our Australian business the benefits for both customers and Heartland in terms of new business volumes and efficiencies. High house prices did drive a repayment spike in 2021, as older borrowers who took the opportunity to sell down. That did flatten growth, which was still strong at 7.4%, as older and typically larger loans were paid. At the same time, it of course improved Heartland's risk profile, noting the weighted average LVR on the portfolio is only 21.5%. The pipeline is now near record levels, and we expect continued strong growth in the year ahead. Turning now to page 17 and Open for Business, which is a small lending platform we've spoken about before and Heartland's first foray into digital lending. Originally, an application portal was built that enabled borrowers to apply and receive an approval for small business loan all in the course of three minutes. Other platforms have since been launched across Heartland, including our most recent development, Open for Home Loans, and I'll talk about that later. Focus has now turned to digitalizing the back end of our operational aspects of Heartland's platforms. That will not only improve customer experience but deliver cost savings by removing the manual processes employed. The business was clearly impacted by COVID-19, with four material factors driving the result. Firstly, having to compete against the government packages at 0% interest rates in the form of IRD loans. Secondly, the Business Finance Guarantee Scheme, which was bank lending supported by a government guarantee and as a consequence, offered at a very low interest rate, noting, as Jeff mentioned, we also participated in this scheme. Thirdly, debt consolidation with residential mortgages being offered at historically low rates. Small businesses taking the opportunity to repay high yielding debt and replace it with record low residential mortgage rates. Lastly, small business cautiousness when considering additional debt in uncertain times. Prior to last week's level four lockdown, borrower appetite was returning to pre-COVID levels, driving accelerating balance sheet growth month-on-month. The current lockdown will dampen demand in the short- term. However, midterm prospects are strong. Turning now to Asset Finance on page 18, which reports an excellent result for the business, and it continued to grow strongly in challenging circumstances. The team were focused on a couple of key activities. Expansion of the distributor and vendor footprint, which is dominated by the transport sector. However, the model is equally applicable to other sectors within the economy, and Heartland is looking to expand the proposition. Focus on point of sale activity and making it easier for vendors to sell assets, including the development of digital quoting tools and making it both easier and quicker for purchasers to finance acquisitions. Pipelines are strong heading into 2021 financial year, and distributors are maintaining a weather eye on supply constraints given shipping issues. However, the midterm prospects remain positive. As does the prospects for the sectors we lend into more generally through this division. We anticipate continued double-digit growth in the financial year ahead. Jeff spoke earlier about the Extend product, let's provide a little bit more detail. What it does is enables borrowers to accelerate and slow repayments to meet the needs in uncertain times. I know it will be a comfort to borrowers who picked up the product after the first lockdown. Heartland Extend affords borrowers and Heartland the ability to efficiently manage uneven cash flows at the time such as these, or as they need to finance unscheduled maintenance or repairs. Importantly, from a Heartland perspective, the Extend ledgers, noting it's not just offered to Asset Finance customers, is performing in line with the rest of the book from an impairment perspective. Turning now to Business Relationship on page 19. We discussed at the half- year, and on previous occasions, the changing nature of the Business Relationship, pointing to a continued downward trend of non-core, low margin, high maintenance, larger business loans. We set an expectation that they would be replaced by smaller loans with a lower cost of origination, and importantly, a lower cost of ongoing servicing, or larger facilities to aggregators of loans or assets Heartland has experience or expertise in. Examples include the facility provided to Go Car Finance, mentioned earlier, and also the Harmoney facility I also mentioned earlier. We're also providing larger loans, which are stock facilities to motor vehicle dealers, and they of course, support Heartland's motor division. We are now expecting continued growth in this portfolio, noting this financial year has started with very strong new business pipelines. Turning now to motor finance on page 20, which records an excellent result for the year, that bore the full impact of Holden's withdrawal from motor vehicle distribution in New Zealand, and endured supply constraints as manufacturers brought operations back online around the world. A 15% growth was achieved through broadening Heartland's footprint with new distributors and dealer relationships. It was supported by innovative products, excellent systems, and experienced staff, whose ability to add value at a dealership level has paid dividends in what have been uncertain times for dealers. The division has also benefited from New Zealanders redirecting offshore spending to onshore assets, such as motor vehicles. The scalability of the division is now well established, noting new lending was up 25% year-on-year. The mix of business continues to improve as the percentages of new vehicles financed increases on the back of products such as our Guaranteed Future Value product. Heartland developed a recent exclusive partnership with Auto Distributors New Zealand Limited, who distribute Peugeot and Citroën brands, and now under their brand, i Own, will also offer a product that Heartland funds. Existing relationship with Kia and Jaguar Land Rover continue to develop and afford good growth prospects in the year ahead. This financial year has started with very strong pipelines, and we're expecting new lending to surpass the prior year and for double-digit balance sheet growth to be maintained. Turning now to rural on page 22. As with Business Relationship, we had previously set an expectation for Heartland to reduce its exposure to non-core, larger, low margin, high maintenance exposures. The 2021 result reflects that business initiative. Given strong milk prices in particular, we do expect more farms to change hands this year and next year, and with it, the repayment of further large rural loans Heartland holds. However, the balance sheet did not retract to the extent that it might have, and that was on the back of the introduction of Heartland's sheep and beef platform. It's a digital proposition that enables farmers with modest debt needs, typically sub NZD 5 million, to apply and be approved efficiently online. The pipeline continues to build as this part of the rural market is underserviced and the online proposition is valued. Heartland has over recent years developed a livestock proposition which endured a particularly difficult trading period in 2021. Unusually favorable climate conditions enabled breeders of stock to fatten on farm rather than sell them to finishers. Heartland's proposition is geared around the sale of stock from breeders to finishers. We expect a more normalized year in 2022. Finally, I would like to talk to page 23 and our online Home Loans proposition. The platform is by design, digital only and targets good quality, non-complex borrowers, so no trusts or businesses, in mainstream locations. What does that mean for Heartland? Lending to borrowers with good credit scores, conservative debt-to-income ratios, and sub 80% LVRs in locations with strong secondary markets. A digital platform also means the borrower or technology does all the heavy lifting for Heartland in an application, approval, or onboarding, which includes AML and responsible lending context. The marginal cost of developing this portfolio is therefore extremely low, and with the operational or back-end digital development talked about earlier, will get lower, meaning Heartland can pass on most of the benefits to the borrower via some of the best rates in the market with a frictionless application and fulfillment process, and still receive or achieve an acceptable ROE. It also means we must be disciplined in our execution, noting we will not employ additional staff to service this opportunity. We simply don't need to. Applicants do not have anyone to ring if they don't like the answer provided or want to negotiate a term or condition. The answer is either yes or no. It affords a scalable proposition in a highly contested market segment. In a market that NZD 9 billion of residential mortgages refinance each month, NZD 5 billion are held by borrowers who fit the profile I discussed earlier. Heartland has an excellent opportunity to grow this portfolio. We believe enough New Zealanders will value the speed, efficiency, and great rates on offer for a standalone Heartland home loan product over the traditional banking proposition offered by other banks in New Zealand. I'll now hand back to Jeff Greenslade. Thank you, Chris. I will ask Andrew to pick up page 24 just to talk about funding and liquidity before then I move on to the strategic summary. Andrew. Thanks, Jeff. Slide 24, funding and liquidity. In terms of the bank, the New Zealand part of this slide, deposit funding on average was flat year- on- year, noting there was very strong loyalty continued to be demonstrated by our customers. Much of the funding need for the bank was serviced through excess liquidity, as well as high utilization of wholesale funding and also through the sale of its Australian dollar asset portfolios back to Australia. The bank continues to have strong liquidity ratios, and a proven ability to generate material deposit flow, when required, either through select rate promotions, or promotion of its market-leading products, in particular its core product. The bank also recently launched a new product, which is the 32-Day Notice Saver product. In Australia, the business continued to execute on its strategic funding plan, expanding capacity and further diversifying through the issuance of a reverse mortgage-backed term securitization, which matches the duration of the assets. Two existing medium-term notes were also refinanced and two new issuances occurred, which had a margin benefit as I previously noted, but also introduced new investors into the program. The business has a stable funding profile to service expected growth both of reverse mortgages, but also its other asset classes for the new financial year ahead. The focus now is on further optimization and expansion of its current funding facilities. Moving on to slide 25, we've included there for the bank a waterfall of the capital ratio, which moves it from its 12.67% at June 2020 to 13.88% in the current end of financial year. As you'll see, the bulk of the increase was due to net profitability, which was a very strong result for the Bank, offset late in the financial year by a dividend that was paid to its parent, Heartland Group. I'll now hand back to Jeff. Thank you, Andrew Dixson. That brings us to page 26, which is headed Regulatory Update. Regulatory compliance is something we regard as being critical to success. It's a core competency for us. More particularly it is part of our Mātāpono or values Mahi Tika, which is to do the right thing. As you can see, there's quite a long list of regulatory activity that we are currently engaged in or expectedly coming down the line. That is something that we're well-resourced to meet these challenges. In particular, some of the changes that are coming, I guess ultimately out of the outcome of the Hayne Commission in Australia around suitability and affordability of customers, is something we're very keen to participate in and ensure that we meet and exceed expectations. Again, being consistent with our Mātāpono of doing the right thing, Mahi Tika. In a connected sense, we have also turned a lot of our attention to sustainability. We mentioned this this time last year, that some of our sustainability activity had been interrupted by activity that's coming out of the regulatory list of demands, but also the pandemic. We are now back into that in a very focused way in terms of the three pillars for us, environmental, social, and economic sustainability. Particularly in environmental, where we are setting ourselves some ambitious targets in terms of emissions reductions, driven not entirely, but largely by reduction in our fleet size and the transition to hybrid and electric cars, and internally driven by our own green team, which is made up of Rangatahi and others who champion environmental initiatives internally. Turning now to the next page, in terms of strategic objectives, one thing I just want to, at the risk of repeating myself, but to make very clear, for Heartland's overriding strategic positioning is around this concept of best or only products delivered via scalable digital platforms. This is how we believe we're going to achieve sustainable growth and sustainable profit. I just want to break that down a little to sort of give you a bit more color as to what we mean by that overriding strategic positioning and vision. Hopefully, best or only products is something you're all familiar with. We've based our business around products where we avoid competition with major banks through either offering something they don't offer, such as motor or reverse mortgages, or doing it better. Home Loans, as Chris talked about, is an example of this. What do we mean by scalable digital platforms? That has two elements. One is how we interface with our customers, our distribution, which is increasingly becoming digitalized. By digitalized, I mean via mobile phone, predominantly. Secondly, using technology to manufacture scale. Scale is very important in banking. Traditional small banks struggle to compete with big banks because they lack the scale over which to spread the costs of providing those services. Heartland is not a traditional bank, and digitalization is the reflection of our different approach to this problem, using digitalization to get to the broadest possible audience at the lowest marginal cost. There are four elements that we are pursuing to achieve this goal. Firstly, as Chris has talked about in detail, business-as-usual growth, maximizing our current market positions to generate more growth. Secondly, something that we've touched on is, and I apologize for the rather clumsy jargon, but frictionless service at the lowest cost. What is friction? Friction is all the things that cause customers delay, inconvenience, or work. All the things that we all experience, filling out forms, standing in queues, waiting on the telephone, are classic examples of friction. Now, perversely, it costs banks a lot of money to provide friction. It does cost banks to have people waiting in a queue or waiting on the telephone or filling out forms manually. There is a virtuous circle, a win-win that can be achieved through eliminating friction, improving service, and lowering the cost of providing that service. In doing so, as we've demonstrated with Home Loans, reflecting that reduced cost in lower prices to our customers. That's the second part of achieving our strategic vision. Thirdly, expanding in Australia. Clearly, Australia is a much bigger market than New Zealand. More or less, you get 7x the better return on any NZD invested. We are continuing to grow our reverse mortgage business. We're continuing to expand the product offering to that demographic, but we're also increasingly focusing on what other things we can be doing in Australia, again, in a digitalized sense with SME and consumer, either directly in our own right or via relationships that we have developed with Harmoney, as an example. Fourthly, we are always open to acquisitions. Acquisitions have the advantage, if done effectively, to give you a leapfrog in terms of acquiring scale. The issue for us is making sure that the acquisitions that we look at fit within our strategy and that they have the opportunity to add value to our business rather than being a drag on our business. Looking forward, what can we expect? I'm reminded when I think about this of an economist called J.K. Galbraith, who was a Harvard economist in, I guess, most of the late part of the 20th century. He made the observation is that banking is essentially a very simple business. Unfortunately, because it is simple, bankers tend to find it incumbent upon them to express it in very complex terms. The simplicity of banking that I just want to touch on is that we are a volume business. We're looking to grow. We're looking to run that volume through a margin which delivers great returns, while at the same time, keeping our impairments predictable and lowering the cost of generating income progressively, which is what is known as our cost-to-income ratio. One thing we're looking forward to is a lot more focus on our cost-income ratio, using technology to deliver scale, which flows through the cost-income ratio and lowers the cost of generating earnings. More volume, maintaining margin, maintaining impairments, and moving that cost-income ratio down. That is what we are doing. We started at the volume end in our journey of digitalization. We focused on the front end, developing these online platforms to reach a broader audience. Now we're moving further down the continuum to address that friction that I talked about earlier. Cost-income ratio and things like telephone calls per customer are the metrics that we are increasingly going to be focused on. That is what you can look forward to hearing more about in the future. In terms of guidance for the future, we have set a range of NZD 93 million-NZD 96 million. That range is a bit wider than we would normally have. That reflects a little bit of caution associated with the recent COVID lockdowns, which is impacting on, at this stage, just on logistics. Some of the activity that we had hoped for in this month, physically just can't happen. Hopefully things will free up in the next few weeks, and we return to business as usual. In the meantime, that remains our guidance. On that note, I will close and thank you very much for participation, and thank all of our stakeholders for your support, and open up for questions. Thank you, Jeff. We would now like to open up the lines to the participants for any questions. If you wish to ask a question, please press star one on your telephone and an operator will assist you. We'll pause for just a moment to allow everyone an opportunity to signal. We'll take our first question from Jonathan Koh from UBS. Your line is open. Please state your question. Good morning, team. Thanks for the presentation. Jeff, I'll pick up where you left off just with regards to the cost-to-income ratio and digitalization. I suppose that strategy does appear to be delivering good growth on the mortgage side, but FTEs do continue to rise. There were 63 added this year. I suppose, are you suggesting that we can expect a more modest rate of growth in employees? Were these employees for building out IT capability predominantly? The increase in FTE came about for two reasons. Firstly, the one you've mentioned, but also there were a lot of staff we had to bring on, to be on the telephones during the peak activity around the pandemic. Some of those people have now moved on. Jonathan, the key thing to remember, the cost-income ratio is that it's not about cost-cutting necessarily. It's the proportion of cost to income. You can expect to see, it's quite possible to see costs increasing whilst the cost-income ratio coming down. That's the approach we're taking, is we do expect to see costs continuing to grow as we grow, but as a lower percentage of our earnings. Understood. Second question, you mentioned that you had a long-term goal of lifting your return on equity. Would you be able to provide a ballpark number on what that target is? I wish I could. I guess everyone's asking that question at the moment in terms of the banking sector and what is the ideal return on equity, because there was a stage when 12% would be considered at the low end. Now it seems everything has come down to these sorts of levels. I guess longer- term, it remains to be seen where banking ROEs return to, but we're just focusing on improving that ROE. Okay. Is there an internal target that you have or just the goal to lift it? The goal is to lift it, and it's becoming more efficient with capital. What I don't want to do is to set a target, because at the moment, for the reasons I mentioned, bank ROEs are in a state of flux. I think we just focus on our own processes of becoming more efficient is what we're doing, keep our heads down and just improve that number. Cool. Okay. Then the final one for me, just around the potential for acquisitions. Are you able to provide a bit of color on if there are any sectors that you're interested in? I suppose what the hurdle rates for investment are? The things that we look at are obviously adjacent businesses in terms of offering the same sort of products we're doing, or secondly, where they've got technology that we think we can use. Our hurdle rates, I'm not going to disclose, but we are particularly keen to make sure that any acquisition improves our business rather than is a drag. Okay. Sure. Thank you very much. That's all from me. We'll take our next question from Grant Louw at Jarden. Your line is open. Please state your question. Hi, guys. Hope you can hear me okay. Just a couple of questions from me, just around the growth prospects in Australia. Obviously, with some of the big banks pulling out of Reverse Mortgages over there, two, three years back, it's been a good opportunity for you guys. How are you seeing competition over the near term? Offsetting that, how should we think about the new products that you're offering there in terms of risk return and growth aspirations, relative to your existing book over there? There are some competition coming from some startups that have, well, in fact, some of them have been around for a couple of years now. We are seeing increased interest in the area. Not all the products are the same, and not all the eligibility criteria are the same. We also see, unlike New Zealand, a lot of activity coming from both federal and state government levels, which is indirectly a positive. It raises awareness, it raises the acceptability of the product every time the federal government or a state government engages in encouraging. They have products of their own, which again, slightly different. Every time those products are either enhanced or promoted, we find that is a benefit for us generally. We are conscious of the fact that we have staked out a very leading position. It's a very good business, and we don't take that lightly. We don't rest on our laurels. We need to be constantly more efficient in what we're doing. Some of the things that we're doing to become more efficient and more appealing is continuing to invest in our platform. Particularly during the Victorian lockdown, we were able to execute a lot of those transactions remotely. We're also increasing distribution indirectly through aggregators and brokers in Australia who are picking up that product. The risk profile, just coming to your second part of your question, of the Reverse Mortgages, presumably that's reasonably predictable now and understood. In terms of other products that we're looking at, SME and consumer, we see that the risk profile of those products is very similar to what we've experienced in New Zealand. Obviously higher risk than, say, reverse mortgages, but clearly, obviously much higher margin. Okay, that's great. Thank you. In terms of the guidance for next year, NZD 93 million-NZD 96 million, how should we think about that in terms of, obviously, the receivables, closing receivables ended by 2021 is up on the prior year, which will drive some of that. How should we think about the breakdown of that movement in terms of, I guess, OpEx and, primarily around OpEx and potential impairments? As Chris mentioned, or I think Andrew mentioned, the H2 growth annualized was around about 13%, but that was with a completely free run in terms of the pandemic. Now, currently, we're in a slightly choppier environment, so it remains to be seen. What is beginning to emerge is some degree of certainty or lack of uncertainty in terms of what happens in these lockdowns in terms of moderating growth. And we can speculate as to the degree in terms of impact. When it comes to the mix, as Chris alluded to, we've got, if we go into the Harmoney warehouse, which we fully intend to, that will be a lower margin product, but much lower impairment rates. So there'd be offsetting cost and benefits there. That combined with reverse mortgages may see a contraction in the NIM, but we expect that to be offset by improvement in impairments, so it won't adversely impact on profitability. OpEx, as I've alluded to, our focus heavily is on improving our efficiency, reducing the reasons and the amount of calls that we get from our customers, which are costs, and also, I'm pretty confident that our customers don't wake up in the morning really wanting to give their bank a call, that they'd rather not be able to give their bank a call. If we can move a lot of those sorts of reasons for calling us, incurring costs onto a mobile app, for example, we'll start to see that OpEx come down as a proportion of earnings. We have factored in an increase in costs in that 93-96, but a small adjustment reflecting our growth. Okay. That's great. Thank you. We'll take our last question from Stephen Gunn from Macquarie Securities. Your line is open. Please go ahead. Hi, Stephen, can you star one again so that you can be in the queue? Thank you. Please go ahead. Hi, guys. Can you hear me? Yes. Hi. Sorry about that. Just a couple of questions from me. Sorry, you may have covered these on the call. I joined a little late. Apologies for that. I just wondered if you could comment on the likelihood of you transferring any more assets, or sorry, transferring assets into the sister non- bank subsidiary to drive further capital efficiencies. Secondly, I just wondered if you could comment whether or not you've adopted the IFRS cloud computing guidance, which I think forces you to expense certain cloud computing expenses. Lastly, I just wondered if you could run through your basic STI formulation for the coming year and what your basic targets are under your STIs. I will cover the first and I think third questions. Can you repeat the third question? It sort of blocked out a bit there. Was it STI you were referring to? Yeah, that's right. Our STIs are set each year, and they are broken down into a number of metrics. There are financial metrics that we look to, and there are strategic objectives that also are measured, but then there are also values-related metrics. STI is typically available at the senior levels and is entirely discretionary. There's no formulaic STIs and there are no sales target KPIs either. That's how we manage that. Andrew, would you like to pick up that second question, going in reverse order? Yeah. Sure. Stephen, I think you were referring to the accounting change regarding software as a service. Is that right? That's correct. Yeah. It's something that we're currently assessing and working through at the moment. We're not expecting there to be a great deal of impact for us. We don't have much in the way of cloud-based or systems that are accessed in terms of software as a service. We are working through that, but I'm not expecting that to be impactful at all. Okay. Sorry, Steve, can you remind me what the first question was? We're sort of in reverse order. Yeah, sorry. It was just regarding the balance of assets in your non-bank and bank subsidiaries, and whether or not you've had any more thinking on whether or not it might be more efficient to hold more in the non-bank sister subsidiary. Right. Yes. Apologies. We haven't developed our thinking any further. What we have done is working on the ability to move if we decided that was more efficient. Creating that flexibility is what we are focused on. No decision has been made in terms of fulfilling any flexible arrangements that we might have. No problem. That's useful. Thank you, guys. At this point, there are no more questions. I will now pass the line back to Jeff for closing remarks. Please go ahead, sir. Well, thank you very much, everybody, for participating. We are available during the course of this week, for anyone who wishes to have any more clarification. There have been releases made of a presentation deck, plus a more detailed announcement that's now available. Please have a look at those, and if you have any questions, feel free to give myself or Andrew Dixson or Chris Flood a call. Thank you very much for attending once again, and we look forward to coming back to you in the near future at the half- year with an update on how the year has gone. That concludes today's conference call. Thank you everyone for your participation. You may now disconnect.