HGH - Heartland Group Holdings

[Snow Leopard]

All very well PT except for one thing.

You claim that the provision for impaired assets has gone up by a net $23.1m because of the increase in category 8 and 9 Judgement loans from FY2012 to FY2013....

Oh no I didn't.

Go read it again.

Best Wishes
Paper Tiger

Hint: 'two broad portfolios'

[Snoopy]

Exiting non-core portfolio;
Approx 10% was realised in the first 2 months.HNZ expects to realise over $40mil in the next 10months,reducing the portfolio to $60mil.
So HNZ is doing what they said they would.*****[five stars]

If you look at page 21 of the shareholder presentation, Heartland were planning to reduce their $107m non-core profit portfolio by 7% by the time July 2014 rolls around. So if come the end of August 10% has already been removed from the books this is good progress. However, there really isn't enough information in this announcement to know if Heartland's non-core property sales are going to plan or not.

1/ Did they on sell the properties at book value or at a discount, or a premium?

2/ Were the properties sold Category 6, 7, 8 or 9? Why is that important? Because there would be pressure from management to get the non core property sell down done, and show progress. Human nature would suggest that to fulfill this the low hanging fruit would. be on sold first. So just because they are ahead of their sell down target now, does not mean they will continue to track in front of their targets.

But let's say the value of outstanding properties on the books is now $90m.

$90m/388m = 23cps

That is still quite a large potential write down still hanging over the shares which at 30th June had an NTA 0f 85c

SNOOPY

[Snoopy]

Canterbury loans are down quite a bit from $584m at YE2012 to $532m YE2013 (note 36b YE2013). That should help with the geographic re-balancing of the loan portfolio. It all ties up with the equivalent figures listed in the annual report last year (note 32biii AR2012).

However some of the other figures don't tally so well. Auckland region loans have gone up from $654m (YE2012) to $706m (YE2013) as listed in the 2013 accounts. Yet if you go back to the accounts declared in AR2012, the total Auckland business was only $548m. That is a discrepancy of over $100m. Very strange, yet the Canterbury figures are in agreement between the two reports.

Also noted is a big jump in Heartland loans to the Wellington region. From $120m to $220m (YE2013 note 36b). This gain is leaving aside the mysterious gain from the $102 listed for the Wellington region in the FY2012 report.

I think all of these mismatches may have something to do with the RECL (Real Estate Credit Limited) agreement that was terminated during the year. Suddenly some $200m more loans in total came back on the books.

FY2012 Report Total Loans by Geographic Region (Note 32iii)

Auckland: $548.451m
Wellington: $101.791m
Rest of NI: $480.287m
Canterbury: $583.848m
Rest of SI: $363.899m

FY2013 Result Filing, FY2012 Comparative figures (Note 36b)

Auckland: $653.517m
Wellington: $120.469m
Rest of NI: $482.342m
Canterbury: $584.086m
Rest of SI: $365.112m

Difference

Auckland: $105.066m
Wellington: $18.678m
Rest of NI: $2.055m
Canterbury: $0.238m
Rest of SI: $1.213m

The difference I would suggest are the loans bought back after the Real Estate Credit Limited (RECL) debt buyback deal. (from Note 36e: For the year ended 30th June 2013, the benefit of the RECL agreement was included in and the analysis of risk gradings and the classification of individually impaired assets")

SNOOPY

[Snoopy]

Difference

Auckland: $105.066m
Wellington: $18.678m
Rest of NI: $2.055m
Canterbury: $0.238m
Rest of SI: $1.213m

The difference I would suggest are the loans bought back after the Real Estate Credit Limited (RECL) debt buyback deal. (from Note 36e: For the year ended 30th June 2012, the benefit of the RECL agreement was included in and the analysis of risk gradings and the classification of individually impaired assets")

Now the second half of the year on year 'reporting' comparison. The 'individually impaired assets'.

From table 32aii on the FY2012 annual report: The credit impairment provision for individually impaired assets

----

Opening $68.537m

Additions $40.376m
Deletions ($53.939)m
Assumed on acquisition $1.871m

Closing gross individually impaired assets $56.825m.

-----

Now we have ostensibly the same information as reprised in the FY2013 report for FY2012 (table 37c)

----

Opening $68.537m

Additions $40.376m
Deletions ($39.323)m
Assumed on acquisition $1.871m
Write Offs ($14.636)m

Closing gross individually impaired assets $56.825m.

-----

As you can see the tables are the same with the exception that with the benefit of one years hindsight $14.636m of what were deleted assets have actually been written off.

SNOOPY

[Snow Leopard]

...As you can see the tables are the same with the exception that with the benefit of one years hindsight $14.836m of what were deleted assets have actually been written off...

Capture.PNG

Fig 1. From the Heartland New Zealand 2012 Full Year Report

Best Wishes
Paper Tiger

[Snow Leopard]

As this thread seems to be highlighting finding information in company accounts, even those who are not trying to hide something, is a difficult task.
It requires that you read the entire accounts and hunt around for what you are looking for.
That the accountants change the format from year to year does not help.

This is primarily because because accounting is easy, anybody who can do basic maths in their head can do it. (You need to be able to this stuff mentally so that when your calculator tells you that 2 X 3 = 5, you assume that you pressed a wrong button instead of believing it).

So in order to justify working for actual money they feel the need to obfuscate the whole business.
But we can beat them and understand if we put the effort in.

Best Wishes
Paper Tiger

Disc: I know several accountants and they are all nice people who hopefully will never read this post.

[K1W1G0LD]

There is no accounting for the stupidty of some people, that is accounted for by the fact that all of us are different , but by all accounts you would think we would learn from our mistakes. There I hope that clears that all up , it certainly helped me.

[Snoopy]

Difference

Auckland: $105.066m
Wellington: $18.678m
Rest of NI: $2.055m
Canterbury: $0.238m
Rest of SI: $1.213m

The difference I would suggest are the loans bought back after the Real Estate Credit Limited (RECL) debt buyback deal. (from Note 36e: For the year ended 30th June 2012, the benefit of the RECL agreement was included in and the analysis of risk gradings and the classification of individually impaired assets")

The hunt to pin down those more doubtful loans on the books continues. In the FY2013 accounts the retrospective comparative figure for concentration of credit risk by industry sector adds to $2.197billion (note 36c).

Now if we go back to the FY2012 report this same figure is listed in 32bii, but here it only adds to $2.078b. Is the difference due to those retrospectively reabsorbed RECL loans?

From the YE2013 results the industry breakdown of receivables is as follows: (note 36c again)

------

Agriculture $530.440m
Forestry & Fishing $35.698m
Mining $14.325m
Manufacturing $56.304m
Finance & Insurance $134.630m
Wholesale Trade $38.669m
Retail Trade $144.608m
Households $678.508m
Property & Business Services $297.944m
Transport & Storage $57.709m
Other Services $189.208m

(Total $2,078.276m)

------

Now what will happen when we try to extract ostensibly the same figures from the FY2012 report? The full year report for FY2012 as listed under note 32c has different (more) categories. Nevertheless I will try to align those numbers with the FY2013 headings as listed above

------

Agriculture $382.578m
Forestry & Fishing $1.615m + $0.551m = $2.166m
Mining $16.022m
Manufacturing $71.432m +$4.479m = $75.911m
Finance & Insurance $27.013m +$3.157m= $30.170m
Wholesale Trade $42.257m
Retail Trade $117.100m
Households $838.492m
Property & Business Services $195.143m +$154.435m+ $10.016m= $359.594m
Transport & Storage $88.210m
Other Services $44.368m + $28.627m +$23.661m +$12.847m + $16.273m= $125.776m

(Total $2,078.276m)

-----

I am sure I have put some of those reclassified loans into the wrong box, although when classifying loans 'wrong' may be a a matter of opinion. As PT says, it is very frustrating when reporting standards are changed for seemingly no reason from year to year. I however, am always suspicious when I see this, as I wonder what he company hoped to hide by doing so!

SNOOPY

[janner]

So in order to justify working for actual money they feel the need to obfuscate the whole business.
But we can beat them and understand if we put the effort in.

Best Wishes
Paper Tiger

Disc: I know several accountants and they are all nice people who hopefully will never read this post.

So. So. True PT..

Hence my long time drive for an Expenditure Tax.. Not Income Tax..

Income Tax has been added to and subtracted from for years and years..

At last I am able to say... Thinking in the controlling places is changing.. Yes !!.. headway is being made..

Everybody spends.. Even a beggar !!..

[Snow Leopard]

The hunt to pin down those more doubtful loans on the books continues.

Snoopy and the Temple of the Doom?

You have $50M5 of impairments of which $41M5 is Corporate Property [FY2013 37(e)] you quest is complete.

In the FY2013 accounts the retrospective comparative figure for concentration of credit risk by industry sector adds to $2.197billion (note 36c).

Now if we go back to the FY2012 report this same figure is listed in 32bii, but here it only adds to $2.078b. Is the difference due to those retrospectively reabsorbed RECL loans?

The difference of approx $120m does fit well with the size of the RECL stuff at EOY, but this is a pure co-incidence!

36(a) from this years accounts gives the game away:

Capture.PNG

Fig 2 From the Heartland New Zealand 2013 Full Year Financial Statements.

So whereas in the 2012 Accounts, credit risk exposure covers only Finance receivables this has been extended to all financial assets including cash in banks, bonds etc.
The only question is why were these not included last year, after all they do have some risk attached to them?

the YE2013 results th industry breakdown of receivables is as follows: (note 36c again)...
...OK, I hope I haven't double counted any of those. I am sure I have put some of them in the wrong box. As PT says it is very frustrating when reporting standards are changed for seemingly no reason from year to year. I however, am always suspicious when I see this, as I wonder what he company hoped to hide by doing so!

SNOOPY

You are not going to get anywhere with this approach, honestly.


Let me also say here that HNZ is the largest single investment I ever had in a publicly listed company and as such I have been through these accounts very carefully, if there is something dodgy I want to know about it, quick.

I am happy with the risk/reward ratio they provide, and I am hoping for good long term capital appreciation and dividends.
However this is not a recommendation to invest, or not, without doing your own research.

Best Wishes
Paper Tiger