EBIT to Interest Expense Ratio FY2012
Quote:
Originally Posted by
Snoopy
1/ EBIT to interest expense > 1.2
EBIT is not listed as that, so I have had to improvise. On p10 (Interim
Statements of Comprehensive Income) we find the 'Interest Income'
figure and I have subtracted from that the selling and administration
costs also on p10.
EBIT = $101.770m-$35.691m= $66.079m
Interest expense is listed as $62.64m.
So (EBIT)/(Interest Expense)= ($66.079)/($62.64)= 1.05 < 1.2
Result: FAIL TEST
Updating for the full year result
EBIT (high estimate) = $205.148m-$65.547m= $139.601m
Interest expense is listed as $121.502m.
So (EBIT)/(Interest Expense)= ($139.602)/($121.502)= 1.15 < 1.20
Result: FAIL TEST but an improvement from the HY2012 position.
SNOOPY
Tier 1 & Tier 2 Lending Covenants FY2012
Quote:
Originally Posted by
Snoopy
Criterion 5/ Minimum Equity Contribution:
Tier 1 Risk Share Lending (basic equity capital and disclosed reserves) > 20%,
Tier 2 Risk share lending (this applies to undisclosed debts, and provisions against bad debts) > 30%.
There is no mention of Tier 1 or Tier 2 in the Heartland HY2012 interim report. I am not sure how to apply this test. Perhaps someone will confirm or correct my opinion?
I think the loans have to be grouped into both 'Tier 1' and 'Tier 2' categories. Once this is done then enough equity capital has to be set aside to cover 20% of the gross lending value of 'Tier 1' loans and
likewise 30% of the 'Tier 2' loans. Add these two required amounts of capital together and the figure should not exceed the actual underlying capital on the company balance sheet.
The 'best case' scenario is that all loans are Tier 1. $1,985.55m of loans are outstanding. 20% of that figure is:
0.2 x $1,985.55m = $397.0m
From p3, Heartland has total equity of $360m, which is insufficient no matter what the tier classification of the loans. Even if $20m of profit is booked to boost shareholder capital, there would still be a shortfall of capital of $17m assuming no growth in the loan portfolio.
Result: FAIL TEST
Once again there is no mention of Tier 1 or Tier 2 in the Heartland FY2012 report.
The 'best case' scenario is that all loans are Tier 1. $1,939.29m of loans are outstanding. 20% of that figure is:
0.2 x $1,939.29m = $387.9m
Heartland has total equity of $374.8m which is insufficient no matter what the tier classification of the loans.
Result: FAIL TEST
However the numbers are moving in the right direction. Heartland are certainly doing the right thing by retaining their earnings and not paying out a dividend.
Ironically the small reduction in the size of their loan book is helping too.
However the fact that the overall business is downsizing does mean less customer activity. Those shareholders looking for a step change in earnings are likely to be disappointed IMO.
SNOOPY
Underlying Gearing Ratio FY2012
Quote:
Originally Posted by
Snoopy
I guess the gearing ratio would be one important numerical foundation of a company. So how does HNZ stack up?
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Criterion 3/ Gearing Ratio (Total non-risk share liabilities to total non risk tangible assets) < 90%
Once again we look at p12 ('Interim Statements of Financial Position') where we can find the underlying debt of the company: $34,808,000.
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:
$2,380.54m - ($2,075.21m +$58.08m + $24.31) = $222.94m
By contrast the Vehicles on lease should be readily saleable so for this exercise I would count those as non-risk assets.
We are then asked to remove the intangible assets from the equation as well:
$222.94m - $21.98m = $200.96m
Now we have the information needed to calculate the information asked for:
$34.8m/$200.96m= 17.3% < 90%
Result: PASS TEST
The underlying debt of the company according to the full year statement of financial position is: $33,802,000m.
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:
$2,348.69m - ($2,078.28m +$55.50m + $24.22) = $190.09m
We are then asked to remove the intangible assets from the equation as well:
$190.09m - $23.00m = $167.09m
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$33.8m/$167.09m= 20.2% < 90%
Result: PASS TEST
I note that the relative debt has increased since the half year reporting date. However it is still well within acceptable levels. I would the debt position to worsen during the year because of all the deferred branch transformation expenditure that was shunted into the FY2013 year. It will pay to keep an eye on this figure.
SNOOPY
Customer Concentration Test FY2012
Quote:
Originally Posted by
Snoopy
I have been covering these hurdles out of my original order to better match the flow of this thread. But there is one more bankers test that HNZ must face.
4/ Single new customer group exposure (as a percentage of shareholder funds) <10%
I can't find any information in the Heartland HY2012 interim report on customer concentration. Since one of the objectives of merging all the entities that formed Heartland together was to reduce the concentration of risk, I don't think it likely that a single customer has 10% or more of the balance of the loans outstanding.
The HNZ interim report does say that post merger, 40% of loans are now in the Canterbury region (note 11). That might mean regional volatility need be considered in future.
Result: PROBABLE PASS (interim report has insufficient information)
Customer concentration is of course an indirect measure of potential risk. Of more interest perhaps is real risk.
Interesting reading from Note 32C in the Full Year 2012 accounts.
There is a large jump in Grade 6 categorized loans. Grade 6 is the 'monitor' category up from $93.269m to $183.814m. Grade 6 is the jargon used by Heartland when a loan is on the cusp of going bad. Obviously these loans have not gone bad at this point, and that should be emphasized. Nevertheless if even half of those loans did go bad it would wipe out a whole years profits. This is something that should make Heartland shareholders cautious. A call for new capital from shareholders is now officially an 'on the horizon possibility', even though Heartland have only said so indirectly in this obtuse way.
SNOOPY
Liquidity Buffer Ratio FY2012
Quote:
Originally Posted by
Snoopy
2/ Liquidity buffer ratio (including bank lines) >10%
The hurdle setters don't specify, but I believe that this test is to provide an insight into how current liabilities are matched to current assets. It could be thought of as a 'stress test' on liquidity with a twelve-month time horizon.
From p12 (Interim Statements of Financial Position) we see HNZ has total borrowings of $1,985,551,000, made up principally of term deposits lodged with Heartland. Note 11 is meant to give a breakdown of these borrowings. Strangely there is no breakdown given of current and longer-term borrowings. Nevertheless Note 11 contains this tantalizing hint.
"On 2 August 2011, the Group entered an agreement with its securitisation facility provider to increase the MARAC ABCP Trust 1 securitisation facility by $100m to $300m, and to extend its maturity date to 8 August 2012."
This gives the impression of Heartland almost operating 'hand to mouth' with even this new banking syndicate agreement expiring within just a
year of being signed. To proceed further I can only assume that all funds deposited with Heartland, directly or indirectly (via securitisation) are 'current liabilities'.
This money has been on loaned to customers who want loans. These customers owe HNZ 'Finance Receivables' of $2,075,211,000. Again there is no breakdown as to what loans are current and longer term. Given:
1/ I understand 'liquidity' to be a balance between the maturity profile of current debenture holders VERSES
2/the loan periods associated with those on lent funds are unknown,
then my analysis comes to a full stop. Any ideas as to how to proceed from here, or even opinions on if I am on the right track, would be greatly appreciated.
Result: UNCERTAIN (due to lack of published loan data). But if almost all depositors have put their money with Heartland on a one year or less basis, then I am not encouraged.
Time to reevaluate liquidity.
HNZ has total borrowings of $1,939,489,000, made up principally of term deposits lodged with Heartland.
Note 24 is meant to give a breakdown of these borrowings. Once again there is no breakdown given of current and longer-term borrowings
The information given on the secularized facilities is as follows
"The Group has securitisation facilities in relation to the Trusts totalling $450.0 million. On 27 February 2012, the Group entered into an agreement with its securitisation facility provider to extend the maturity date of Heartland ABCP Trust 1 $300 million securitisation facility to 6 February 2013. On 19 December 2011, the Group entered into an agreement to increase CBS Warehouse A Trust securitisation facility by $100 million to $175 million. $25 million of this increase matured on 1 April 2012. The maturity date of the remaining $150 million CBS Warehouse A Trust securitisation facility is 22 July 2013."
IOW all activity relates to a time-frame no more than one year out in the future.
The amount of securitized holdings has increased when I would have expected it to decrease now that HNZ has fully rolled out of the government deposit guarantee scheme.
"The Group has bank facilities totalling $650.0 million (2011: $475.0 million)."
That increase is good for future flexibility.
This money has been on loaned to customers who want loans. These customers owe HNZ 'Finance Receivables' of $2,078,276,000. Again there is no breakdown as to what loans are current and longer term (note 16).
Given:
1/ I understand 'liquidity' to be a balance between the maturity profile of current debenture holders VERSES
2/the loan periods associated with those on lent funds are unknown,
then my analysis comes to a full stop (again).
The only thing I do note is that the amount borrowed as debentures and deposits from customers has gone down (by $6.022m) and the amount lent to customers has gone up (by $3.065m). Given that bank facilities have gone up by $175m over the same period this isn't an issue.
SNOOPY