Heartland Group Holdings Limited (HGH) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Heartland Group's Fiscal Year '21 Interim Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Jeff Greenslade. Please go ahead.

[Foreign Language] I'm Jeff Greenslade, the Chief Executive of the Heartland Group. I'm joined with the Group Chief Financial Officer, Andrew Dixson; and Chris Flood, the Bank Chief Executive. In a moment, I'll run through the -- an overview of the financial highlights of the half year performance. I'll also make some comments on the impairments and, in a related sense, the impact of COVID. Then Andrew will pick up the financial performance in more detail, and he'll be followed by Chris Flood, who'll go through a divisional summary, and then I will close with some strategic and community and cultural highlights. Before I start, however, I would like just to note this is the tenth year of the Christchurch earthquake and also recognize the employees of MARAC, one of the antecedent units of Heartland that either perished or injured during that earthquake. All right. Turning to the results now. The net profit after tax was $44.1 million, up 10.6% on the previous period. Underlying NPAT was a little lower at $43.2 million, up 13.4%, and that relates -- or that reflects the underlying – reflects -- Andrew will go into more detail, but we had a write-up in the holding value of our Harmoney shares, which was, to a large extent, offset by other factors, some other areas where we chose to take some write-downs, which produced a small net gain. During the year, we saw -- during the period, we saw our gross financial receivables grow by 2.7%, which is a little bit lower than where we would be normally. We saw good growth in areas like Motor, Business Intermediated and Reverse Mortgages, the core areas, and the continuation of production in some of the noncore areas but also some of the areas like Open for Business where we're facing competition effectively from the facilities that the government has put in place following COVID. Net interest margin at 4.28% was up 5 basis points on the back of NOI of $125.3 million, itself up 5.6%. So performing very well in those top line earnings area. The cost/income ratio was up 48.8% -- sorry, to 48.8%, up 2.8 percentage points and, again, driven by the increased costs that I referred to earlier in a one-off sense. In an underlying perspective, the cost/income ratio was just under 46%, which was in line with expectations. I'll talk a bit more about impairment expenses, but as a percentage of average receivables, it decreased from 0.4% to 0.19%. In terms of the experience we're seeing, a very positive response in terms of the impairment experience. All this produced a return on equity which was up 54 basis points to 12.2%. And we are pleased -- or the Board is very pleased on the basis of this performance to announce an interim dividend of $0.04 per share. I'll turn now to deal -- to discuss a little bit more detail the impairment expense and some of the issues relating to COVID. We are operating in an unusual environment. In the release -- on Page 2 of our release, there is a graph which demonstrates the delta between where forecasters have had GDP over the last period and where it has actually been. And as you can see, there's been quite a considerable gap between sentiment and actual performance, and that really reflects the environment we're in, and I think that flows through to our impairment expenses. So whilst there was expectation that things were going to be harder, more severe as a result of the lockdowns, that simply has not happened. And there's probably 3 key drivers behind this. One is the behaviors of our customer base, reflecting the high levels of cash in the environment. Whether it's through government intervention or things like the bank mortgage holidays, we have seen customer behaviors change in terms of acceleration of repayments. And as Chris will talk a bit about this in a moment, we are seeing strong origination, but at the same time we're seeing higher-than-normal repayment levels. We are hoping that with the cessation of the mortgage holidays in particular that will start to abate. The second factor around that stronger impairment experience is the improvement -- ongoing improvements in terms of our own processes, in terms of collections and working with customers. And also thirdly, the mix that we have. So where we are growing more proportionately is in the lower impairment or areas of high degree of predictability around impairments such as Motor and Business Intermediated and Reverse Mortgages. So that has also helped us. We have grown also conversely less in the areas of high impairment. We also have put in place what's called Heartland Extend, and I know when we discussed that last time, there was some sense that this was a kind of a bad book as a result of COVID. It was always intended to be a product we wanted to offer to customers and indeed to noncustomers. We see it very much as a business-as-usual product. And interestingly, the NPLs, in fact, in these areas are actually lower than the comparable non-Heartland Extend products. So Heartland Extend certainly has provided some help to COVID-impacted customers. That's undoubted. But generally speaking, the book is performing very well. And certainly, in terms of NPL, it's actually better than comparable products. Moving now on to COVID. In FY '20, we took a COVID-19 economic overlay of $9.6 million pretax. And that was against a backdrop of this rather unusual environment where we weren't certain that we would -- that we could see actual losses arising from COVID. However, we did accept the view that traditional means of monitoring and forecasting impairments may not apply in the environment that we were facing given the obvious layers of unpredictability and unprecedented circumstances that we faced so that we have -- we decided to take that on top of the traditional layers and buffers that we currently have. To date, we have not utilized the facility at all, in fact, it's still there. And as I said earlier, the behavior of our books has improved for a number of reasons, some of them in a positive way related to COVID in terms of the cash being -- a lot of cash in the environment, fueling repayments, but also to those other factors. At the moment, given ongoing uncertainty and a short lockdown as recently as last week in Auckland, we still do not feel yet to be in a position to release that provision, but that is something that we will continue to monitor. All right. At this point, I'll hand over to Andrew Dixson, the Chief Financial Officer, who will take you through the financial results in more detail.

Thanks, Jeff. So I'm on the growth in profitability slide, 10. So as Jeff summarized, net profit after tax for the 6 months to 31 December 2020 was $44.1 million. It's $4.2 million higher than the prior comparative period, representing growth of 10.6%. Included in that result, though, are 3 one-off items that have a net impact of $0.9 million post tax, reducing net profit after tax to $43.2 million on an underlying basis. And while the net impact is low, the gross impact of these items were as follows. In other operating income, a $5.2 million nontaxable fair value gain taken on Heartland's equity investment in Harmoney. And that follows Harmoney raising capital and contemporaneously listing on the ASX and NZX in November 2020. Now this was offset by 2 operating expense items: firstly, a voluntary acceleration of amortization of certain software assets totaling $4.3 million; and secondly, the write-off and provisioning of historic aged suspense account items, which totaled $1.7 million. Now just to remind that there were some one-off items in the prior comparative period primarily related to the release of unamortized reverse mortgages income and expenses following the adoption of IFRS 9, which reduced comparative underlying impact to $38.1 million, meaning the increase in underlying net profit after tax for the period was $5.1 million, representing growth of 13.4%. In terms of the components of that bridge between profitability, net interest income increased $8 million, with net interest margin increasing 5 basis points due to having $300 million higher average interest-earning asset. The components of NIM saw interest income decreased $6.1 million on account of a low interest rate environment reducing asset yields together with the continuation of our liquid asset portfolio in excess of historic norms and the aforementioned portfolio shift away from high-yielding unsecured portfolios towards Reverse Mortgages, Motor and Business Intermediated lending. Interest expense decreased $14.1 million on account of both deposits in the bank and wholesale benchmark rates over which Australian funding is priced at -- presenting at historic lows. Overall, net interest margin has been maintained at around that 4.3% mark. In terms of operating expenses, they increased $3.8 million on an underlying basis, and that was due to 3 factors. Firstly, $4.5 million higher staff expenses, which is due to an increased headcount to assist COVID-related customer activity and our continued investment in our digital and financial technology strategy. We also had $1.6 million lower marketing costs primarily due to the COVID impacts and the subdued lending market. And we had $1 million higher IT costs to accommodate the increased headcount. As noted earlier, the cost base is really to scale once historic levels of growth resume. And while the cost-to-income ratio ticked up slightly, it remains stable and within expected levels. Finally, impaired asset expense decreased $4.5 million with the impaired asset expense ratio decreasing to 0.19% that was detailed by Jeff previously. Turning to the growth in receivables, Slide 11, and Chris will pick up the divisional specifics later in the pack. However, the graph here highlights growth across the various portfolios, which has been tempered by elevated repayments. That said, we have seen strong growth in our core portfolios, particularly Reverse Mortgages in both countries, Business Intermediated and Motor. We've also seen reductions in our unsecured portfolio, Open for Business, as Jeff mentioned, with competing products, which, to some degree -- being the government loan scheme, sorry, as well as Harmoney, which was reduced and itself is in the process of transitioning to being an on-balance sheet lender. We've also seen the continued reductions in our noncore portfolios, though, to a lesser degree than in other periods. Turning to the key performance measures on Slide 12. These have been largely covered. Net interest margin continues to be strong. However, notably, the top line there shows the impact of the excess liquid asset position. Again, cost-to-income ratio on an underlying basis is sitting around the mid-40s, as we expect at this point. Continued improvement in nonperforming loans, which has been highlighted previously. And the expense -- impairment expense ratio, which has reduced to about half of what it was in the prior comparative period. Now turning to shareholder return, Slide 13. Pleasingly, both return on equity and EPS have continued to improve and increase with EPS growth of 10%. And as Jeff mentioned, very pleased to announce an interim dividend of $0.04 per ordinary share despite the continued ban on distribution by Heartland Bank, a position we hope to have clarity on from Reserve Bank come the end of March. So with that, I will hand over to Chris to start the divisional summary -- or maybe Jeff to start with Australia, sorry.

Yes. So I will cover Australia. So I'm -- we're up to Slide #15. So another period of good growth in the Australian Reverse Mortgage markets with our operating income up 15% and receivables increased by 10.6%. We've also seen elevated repayments coming out of Australia, and that's not unexpected. Similar phenomenon in New Zealand with buoyant property markets. A lot of our customers are seeing the opportunity to cash up and move on to the next stage of life probably a little bit sooner than anticipated given the rise in those key residential property markets. We've done a lot of work in terms of broadening our distribution within Australia, adding more aggregators. And we'll see the benefits of that flowing through alongside the investment we continue to make in the digitalization of that platform with rising numbers of customers onboarding via our digital platform. And during that last 12-month period, we increased market share from 26% to 28%. So Chris will cover the other New Zealand-based divisions within the bank.

Thanks, Jeff. So just turning now to Page 16 and New Zealand Reverse Mortgages. And just before I start, both Andrew and Jeff noted the increase in repayments that we have experienced in the first half of this year. Certainly, in a bank context, the -- it was significantly more than anticipated. The -- it also clearly impacted on growth. And as Jeff mentioned, that wasn't a product of our ability to write new loans. In fact, in terms of the -- our new lending budget, the bank is performing very close to the budget set, and the likely growth is simply a product of many more repayments than we had anticipated. The repayment is secured for different reasons. In terms of Reverse Mortgages in New Zealand, there are a couple of factors driving that. Firstly, the last quarter of the last financial year, there was very little repayment as the -- as our customers didn't sell homes in that period, didn't want people coming into their house, and there was very much a catch-up in the first half of this year. But the underlying performance of the division was very strong. New lending up 11% on the year prior, and it was a record. And that was achieved with smaller average loan size, so more loans. And in an environment where house prices increased, reducing the LVR on drawdown, down to 9%. Prospects for the division are very solid. Approvals in the first 6 months of this year were up 20% on the same period last year, and the pipeline as at the end of December was up 38% on the same measure. On Page 17, we actually provide some -- a little more in-depth analysis of the -- both Reverse Mortgage portfolios. I'll just note that origination also includes in this slide advances made to existing customers, and that will be an ongoing story as people are heading towards regular draws more so than they did in the past and away from that lump sum upfront. Turning now to Page 18 and Open for Business. Repayments are clearly a feature in this ledger, and activity in the last quarter of last year was very much supporting customers, making sure they're in a position to work through the COVID lockdowns in the periods that followed. And the first sort of half of this year, just certainly the first quarter of this year, was spent, in a lot of cases, unwinding some of those arrangements as customers went back to normal payment schedules for the reasons that Jeff discussed earlier in terms of the underlying performance of the economy. So very much, it was a repayment story. The government packages, the wage subsidies and, in particular, the IRD loans impacted this book as borrowers could retire higher-costing debt for, in some cases, interest-free debt. And then more lastly, the mortgage holidays and the low mortgage rate environment have seen a continuation of that through the first half. There was also -- in the first half, there was also flat borrow demand through that period, which started to abate in December. And since then, we have seen that trend reversing and will be supported in the second half by more advertising. And we expect to be back heading towards our pre-COVID growth levels before the end of this financial year. Turning to Business Intermediated. Again, repayment story here. The activity was similar to that experienced in Open for Business. However, we did experience a very pleasing and solid receivables growth of 13.2% in the half. Remember that the intermediated business model was a point-of-sale model. We form relationships with distributors, predominantly in the transport sector but other sectors as well, such as tractors and plant equipment like forklifts, and form relationships with the dealers that sell those products. This puts us right at the point of sale, and that has been very successful for us. We have established new distributor relationships and obviously, in fact, relationships with the dealer networks during the half that have been attracted to some of the digital tools that we have and our sole focus on helping them sell product and new business volumes are starting to return to pre-COVID levels. We expect a stronger second half as a consequence. The only sort of note of concern is some of the supply chain disruptions that are occurring overseas just noting sort of the complexity of the equipment we fund. However, at this point, the distributors' expectations support our growth assumptions for the second half. Turning to Business Relationship. There's 2 factors in play here: clearly the continued runoff of the noncore high cost-to serve and low-margin business, and we expect that to continue. The bank finance guarantee scheme and low mortgage rates and potentially higher property prices may see that noncore book run off at a slightly faster rate. About 20% of the book now, though, is focused on funding inventory that supports our Motor and intermediated businesses and helps us attract the retail business that, that produces, and we see growth in the sector over the second half. So while there will be continued runoff in the core relationship book, we are likely to see some swapping out with inventory financing and other core parts of our book. Turning now to Motor finance on Page 20, and that was a very pleasing result. It was impacted by higher levels of repayments, predominantly due to mortgage holidays, as Jeff discussed, but also some deconsolidation as a consequence of historically low mortgage prices. So very pleased with the growth. They came as a consequence of market share gains. And in fact, new lending was up something like 22% half-on-half and in an environment where new vehicle sales were down 17% and the importation of used imports into the country were down by a similar margin. The other effect that I need to draw out here is that Holden contributed 23% of the first half of the '20 financial year as they contributed 23% of business. In this half, they only contributed 5% of business. So a very pleasing result. So we're leaning to more customers, a greater number of customers, but also higher loan value as we have -- are getting a greater share of that new car market. We have established additional distributor relationships, so we'll enjoy the relationships with the dealers that sell your product. And again, attracted to digital onboarding processes and the flexibility that we have in that regard but also the -- some [indiscernible] products like our Guaranteed Future Value product. We have a very experienced team in the Motor area that have been in this industry a long time. They are well respected not only within the bank but also across the motor industry, and that has sort of a good speed and helped us achieve those market gains. Pipelines are strong. There is some concern with Intermediated around supply chains. But again, distributors' expectations support the growth aspirations we have for the second half. And on strong pipelines, I expect growth to occur at a similar sort of level. Turning now to Harmoney and other personal lendings. Clearly, quite a bit of reduction in this book, and there's a couple of reasons for that. Firstly, in the COVID period, both Harmoney and Heartland appropriately reset the risk ceilings. There was reduced demand post COVID. And then obviously the wage subsidies and mortgage holidays. The low mortgage rates that are available also saw repayments come at a faster rate. Harmoney itself is pivoting to a wholesale model, as Andrew alluded to, and Heartland will participate in that move. And we are -- expect pre-COVID sort of growth levels to resume well ahead of the end of the financial year. Jeff will pick up some comments on home loans a little bit later in the presentation in his closing. So we're turning now to Page 24 and rural. Now 3 things I want to call out here: continuation of the noncore relationship model, being repaid at low margin, high cost-to-serve. And I think that we expect that to continue certainly with strong dairy prices and some potential consolidation occurring in that market that will be a factor in the second half. The other factor I want to call out is banks -- other banks activity in the smaller farm area has changed. They are looking to take cost out of their model by moving from a farm gate relationship model to a phone relationship model. We see that as an opportunity and were able to develop rather quickly a digital platform called Sheep & Beef that was launched late in the year. And I'll just call -- you can see some very encouraging application numbers and indeed some early payouts. We think that will be a continuing story in the second half. It's attractive to farmers but also attractive to the professionals that support them. And the third part of the rural book, of course, is livestock, and it's been a tough season for farmers but also a tough season for Heartland in the context of a drought, some uncertain meat schedules and less trading as a consequence. So we didn't -- and that's where Heartland actually plays in the supply chain. When growers sell to finishers, the Heartland facilities are placed to be used in that space, and that just didn't happen to the same degree as it typically does. Those facilities remain in place. They will be drawn again when the market returns. And we -- so we expect a better result in the year ahead. So lastly, I wanted to cover funding and liquidity. And given the modest balance sheet growth achieved, there wasn't a lot of headline action there. Underneath that, though, there was quite a bit of activity as we continued to reduce the size of our average deposit relationship, and that's about bringing new depositors to the bank, and that remains a focus. We maintain strong liquidity, and we're well placed to fund the growth expectations in the second half of the financial year. So handing now back to Jeff -- or to Andrew, sorry.

So still on funding and liquidity. So in Australia, we continued to diversify and expand our Australian funding with the term securitization transaction completed in September. We're now very well positioned with 2 bank-funded warehouses to fund origination and seasoned loans, and then a term structure to programmatically issue and to free up warehouse capacity as required. So this all sets us up well to accommodate BAU growth with the next stage focused on developing funding for new products that are planned, and Jeff will cover that in his strategic section, and are focused to further optimize the existing funding programs that we have, which includes increasing facility limits and introducing mezzanine funding to further -- to optimize our capital position in those facilities. I'll pass back to Jeff now.

Thank you, Andrew. Thank you, Chris. So strategically, nothing particularly new to report, but just some points I just want to tease out. We're operating in an unusual environment of COVID. I guess that's sort of a general strategic theme that we're living with. And similarly, we are seeing the continuation of pre-COVID of a shift towards traditionally nonbank type of areas. And I guess the third theme, which is us, is around Australia. So all those 3 things taken into consideration, we see ourselves very much positioned in terms of our opportunity as opposed to challenge. That graph that I referred to earlier in terms of where forecasters saw GDP versus actual is, I think, a reflection of a lot of mainstream thinking in the banking sector, one of continued caution. So we are less on -- focused on the caution side and see ourselves positioned around the opportunity. And out of that opportunity, we do wish to continue to grow, whether it's organically, inorganically, in order to acquire scale and also to acquire scale through a different means than simply growing, we'd like that as well, both through technology of digitalizing everything we do effectively gives us scale. We can get to every New Zealander and conceivably every Australia, if we so choose, through digital platforms. To give you an idea, our residential mortgage platform, which is a very new one, we had a few stops and starts with COVID and then the Christmas holidays. We are seeing around about 11,000 visits per month to our website. So that's sort of 11,000 New Zealanders that will take an awful lot of branches to get to otherwise in terms of the traditional way of selling mortgages. So we have continued that process. So as Chris mentioned, we launched the Sheep & Beef platform, our Motor Direct platform and also an SME Open for Business platform in Australia. The home loan platform in New Zealand, as said, went through a bit of a stop/start again, but we have managed to approve $300 million of loans so far. That's translated into currently around about $15 million of drawdowns. That conversion rate will improve with time as we sort of gain momentum, but also, we work through the initial periods where our customers need to buy a house or get their mortgage refinanced. So something that we'll be sort of working through. As typical of these platforms, the drawdown start off being a lot less than visits and approvals, but eventually catch up. And so we are very positive about what we see. Turning now to some other highlights in terms of customers, culture and community. We -- very pleased in terms of progress we've made around youth and Maori youth in particular, our Rangatahi Board, where we have a Board of staff comprising employees under the age of 30, reflecting the fact that now more than 1/3 of our staff are aged under 30. This, combined with Manawa Ako, which -- internship program, which we're now targeting mainly Maori school leaders. We have had 74 alumni through the organization, including 45 participants this summer. And also, we have now 12 permanent employees. So this is giving us very good ability to help in the career development of Rangatahi but also to identify a very rich source of talent going forward. Part of -- one of the things that I've been achieving is the launch of a mobile financial literacy tool called Rocket, an app which is now being rolled out through a number of schools in New Zealand. During the course of the year, we continued to receive best of category awards in terms of our savings products and our call account and also Reverse Mortgages. In terms of sustainability, we have -- moving towards measuring our baseline greenhouse gas emission that will be audited, and our reduction target will be published in the website by the 31st -- on our website by the 31st of March 2020 (sic) [ 2021 ]. And finally, in terms of economic prosperity, we're very pleased to say that we have delivered total shareholder returns of 124% over the last 5 years compared with the NZX Index 50 (sic) [ NZX50 Index ] of around 108% for the same period. So it's something that we're very proud of. It's continuing to invest in our communities, particularly developing Rangatahi but also bringing economic prosperity to our shareholders. On that note, we would like to thank our shareholders for your support. And also, we'd like to thank the staff and the people of Heartland for their efforts during what remains a very interesting environment. Thank you. So I will close there, and we will open up for questions after which I will give some comments around where we see the forecast.

[Operator Instructions] And we will go to Grant Lowe.

Thanks for the presentation. It was very comprehensive. I've got just a few questions. Firstly, around the OpEx side of things. So obviously CTI was sort of around the low 40s a couple of years back. Just wanted to get a sense around the 78 additional staff. What's the sort of split of those between sort of COVID and tech related that you've called out there? And just a sense of what they're sort of doing, whether that's front-end origination or apps or otherwise and/or back-end sort of processing system-type stuff and how that relates to the software impairments that you've taken in the half. And then, of course, just where we sort of expect that to go to, whether that's peaked or whether that's expected to come back.

Thanks. I'll answer the first bit -- or the last bit first. So yes, that investment has peaked. It's roughly, I'd say, 40-odd would be in the digital space and 30-odd would be COVID related. The COVID staff were -- are on the way out barring any further lockdowns. They are really needed and have been needed to provide hands-on assistance to customers impacted by the lockdown. So they typically were like seasoned, retired bankers that we brought back -- brought in to get on telephones and provide that sort of hands-on assistance where required. So that is beginning to sort of wind down and out. When it comes to digital, the staff that we've hired have been the execution staff, project managers and developers. The second category is something we decided a while ago it made sense for us to bring into our -- in-house our development, our coding skills. That, we decided, was more efficient in terms of speed, and remembering that this market is one where speed is highly valued, but also for efficiency. So rather than standing in a queue in someone else's shop, we could be the masters of our own destiny in terms of that area. So I see that area remaining relatively stable. So we will -- like earnings will grow up around that investment. In terms of the write-downs, Andrew, that is unrelated to digital. That was just some software we had which were still good software, still with good life, but we decided, given the situation we're in, that we might as well sort of accelerate some of the depreciation and just put it behind us.

Okay. And just in terms of -- so, I mean, you've articulated the Reverse Mortgages side. I think the growth was lower, but I think that's largely a result of sort of repayments, which you've articulated. In terms of the marketing spend, last year was up significantly on the prior year. Were you sort of spending at similar levels to support Reverse Mortgages in Australia and New Zealand?

Yes. So we have been -- in historical terms, we are up from where we have been in the past. However, in terms of where we expected the spend, it's probably a little bit down given the fact that we suffered from the lockdowns, and some of the distribution meant that we shifted more towards the lower-cost AdWords type of advertising as opposed to more expensive TV. But we are looking to refresh those campaigns, so we will continue to see marketing spend at the sort of last year-this year sort of levels compared with previous years', particularly in Reverse Mortgages.

Got it. Okay. And last one for me just around the strategy. So obviously, at the last update, whilst there was nothing committed, you were looking at potentially spinning out a couple of business units, so Motors in particularly called out, to sort of optimize value, I believe the terminology was, or some such. Has that now sort of abated now that the share price has sort of recovered quite a lot from where it was sort of at the low point? Or how are you thinking about that going forward?

What we want to do was to allow -- was a number of objectives. But firstly was to create a more transparent perspective in terms of some of our businesses, particularly Motor, that certain areas are probably less well understood. So a degree of separation in terms of simply providing more granularity in terms of the financial components of Motor and Reverse Mortgages for that matter were something that we wanted to do. And then secondly is, I guess, there's more strategic element is we do wish to sort of always preserve the possibility to be able to play in either a bank sector or a nonbank sector, whatever is the most favorable. So yes, structurally, we want to preserve those options because it comes and goes. It wasn't so long ago banking was the best place to be. Now for a whole lot of reasons that I'm sure are obvious, the pendulum has now swung towards the nonbank areas. Now our purpose is to make sure that we have the option to play in whatever space is going to maximize shareholder return.

Okay. So is there anything sort of ongoing on that front at the moment? Or I appreciate you say retain the opportunity in your sort of ongoing processes.

Just to remind -- so that it's just that we're getting -- so yes, it's -- so it's all internal just in terms of getting that sort of transparency and providing some degree of structural definition around certain areas, so -- but nothing beyond the confines of the organization.

And we'll next go to Stephen Hudson.

So Steve Hudson here. Just a couple from me. Just in terms of the guidance, I think you've conditioned that on, I suppose, repayments activity normalizing in the second half. We can see from the, I mean, the data that at least to November that gross lending outside the residential mortgages looked -- or growth looked relatively low, in fact backwards, suggesting that repayment activity remained pretty high at that point. I just wondered if you could give us a little bit of a feel for your confidence in that repayment activity normalizing in the second half and what impact that could have on the range that you've provided. And then secondly, just on Reverse Mortgages. I just wondered if you could give us some idea about your aspirations outside of Australia and New Zealand, whether or not you've considered that in the most recent strategic review.

Thank you. And Stephen, thank you very much for providing the segue back to the forecast because in my haste to go on to questions, I missed that last page. So yes, we are continuing to confirm guidance, but with the qualification that we expect it to be at the upper end of the $83 million to $85 million. So -- and to come back to your questions, we are seeing good, in terms of our expectations, cost margin activity, and we're seeing also, obviously, a very favorable impairment experience continue. So that gives us the sort of confidence around the upper end. The swing factor in terms of repayments is a factor -- given where we are at this time of the year, it has -- as every literally day goes by, repayments have -- net repayments have less ability to swing the outcome. But it is something -- perhaps probably more relevant for the next financial year than this financial year is how we see repayments behaviors. Our sense is, and it's very hard to measure in a scientific sense, but in terms of what we see in here, it is that there's a lot of cash in the environment, a lot of diversion from mainstream mortgage repayments to other higher-earning, higher-yielding loans. So it has been swung. With the cessation of mortgage holidays, we're now in that period. But it's too early to say whether that is going to cause abatement. It could be that customers, again, with higher interest -- or with lower interest rates are just looking at accelerating their payments generally. So rather than cross average repayments would be [ 4 ] months…

Yes. Loan to [indiscernible]…

Motor is the one which we watch most closely for obvious reasons. Yet, maybe that might inch forward just in terms of people having more cash to allocate towards principal than interest and so forth. So a lot of water to go under the bridge there, but I'd emphasize the fact that we're getting a long way down the track in terms of the full year result. The other question was Reverse Mortgages. Have we looked beyond Australia and New Zealand? Interestingly, when we were first offered the Australian business, it came with Spain and Ireland as well. At that stage, we decided that it was -- Australia was enough for us to be going on with in terms of extending our reach offshore. So the answer at this stage is no, we aren't -- not looking at anything in particular, but it is something that we see of interest in terms of countries with similar demographics, similar pressures in terms of both housing and asset-rich and income-poor dynamics coming through.

That's useful. Actually, I might just sneak one more in, if I could. Just going back to the potential for a nonbank holding structure for the Motor vehicle book. Would you envision the entire book being placed into that kind of structure or part of it? And if so, what would drive that decision?

No decision has been made and haven't really sort of yet had to contemplate that sort of decision-making. But yes, all I can say is the obvious ones would be the drivers, just rerun the math, what is the most efficient outcome.