Judo Capital Holdings Limited · ASX:JDO
Judo Capital — FY2022 Earnings Presentation
42 slides from Judo Capital's earnings presentation, Aug 25, 2022
Slide 1: 2022 Full Year Result
2022 Full Year DRAFT FOR SCENARIO PLANNING PURPOSES Result. 25 August 2022 Boldly backing business.
Slide 2: CEO Update
01 Our purpose To be the most trusted SME business bank in Australia. CEO Update. Joseph Healy Chief Executive Officer Our vision To build a world-class SME business bank. 2 2022 Full Year Result
Slide 3: The power of specialisation
The power of specialisation. The The Specialist Specialisation yields better return than generalisation, Event Specialists Generalists Premium as this Olympic example demonstrates. 100m 10.16 s 10.87 s 7% 110m Hurdle 13.64 s 14.34 s 5% 400m 41.16 s 47.82 s 14% THE GENERALIST Men’s Decathlon Gold Med
Slide 4: Judo remains unique, domestically and globally
• Born to address the ‘Triple U’ virus facing SME businesses – unloved, undervalued and underserved • We are providing a solution for a clear Judo remains unique, market failure domestically and • Our CVP addresses common pain points for globally. SME businesses • Our management team have deep domai
Slide 5: Judo is delivering on its promises
• Successful IPO provided the core equity capital required to reach metrics at scale • All FY22 prospectus targets exceeded; on track to achieve key business metrics at scale Judo is delivering on • Specialist SME customer value proposition is its promises. proven and scalable • Unique culture conti
Slide 6: All FY22 prospectus targets exceeded
All FY22 prospectus targets exceeded. Prospectus Trajectory to FY22 Result Result vs Prospectus FY22 Forecast metrics at scale Lending portfolio ($bn) 6.1 6.0 ✓ $15-20bn ✓ Pro forma PBT ($m) 15.6 7.4 ✓ Net Interest Income ($m) 169.8 160.5 ✓ Underlying NIM 2.79% 2.69% ✓ >3% ✓ Front Book Lending Margi
Slide 7: Customer value proposition is proven and scalable
Customer value proposition is proven and scalable. • GLA growth of 73% y/y as demand for our CVP takes us into new markets: 3 new offices opened in FY22, totalling 15 offices across six states. Bunbury NT office opened in early FY23 QLD • Entered into two new specialist areas – Brisbane WA Agribusin
Slide 8: Risk management culture is reflected in strong asset quality metrics
Risk management culture is reflected in strong asset quality metrics. • Judo’s risk management culture is deeply embedded, purpose-built for our specialist SME business banking customer value proposition • The 4C’s of credit – character, capacity, capital and collateral – have been applied consisten
Slide 9: Portfolio health check – July/August 2022
Portfolio health check – July/August 2022. Recent engagement has focused on customers most likely to be impacted by rising inflation, interest rates, labour shortages and supply chain challenges. • Judo’s bankers maintain close relationships with all customers • Customers remain in good financial he
Slide 10: Judo has significant positive leverage to rising rates
Judo has significant positive leverage to rising rates. 2H22 underlying NIM up 11 basis points, 7 basis points due to cash rate rises Underlying NIM (%) vs RBA Cash Rate (%) Sharp increase in monthly Underlying NIM in May and June 3.3% 3.50% 3.00% • 91% of lending assets floating off 1m BBSW 2.50% •
Slide 11: Key points
• We are delivering on our promises • FY22 results meet or exceed all prospectus targets • Customer value proposition proven and scalable • Risk management culture reflected in strong asset quality metrics • Key points. Portfolio health check in July/August reinforces the value of our model • Signif
Slide 12: Financial Update
02 Financial Update. Chris Bayliss Deputy Chief Executive Officer & Chief Financial Officer 12 2022 Full Year Result
Slide 13: FY22 Result
FY22 Result. Profit & Loss Statement FY22 FY21 Variance Net Interest Income ($m) 169.8 84.5 101% Pro forma Operating Expenses ($m) 132.0 87.0 52% Pro forma Net Profit Before Impairments ($m) 41.0 2.8 large Impairment Expense ($m) 25.4 10.0 154% Pro forma Profit Before Tax ($m) 15.6 (7.2) NM Key Oper
Slide 14: Strong lending growth continues
Strong lending growth continues. Judo’s loan book over time ($bn) 6.1 9% 4.8 45% 55% 3.5 $6.5 bn 91% 2.6 Forecast GLA 1.8 Aug-22 14% Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 25% Business Loans Asset Finance Home Loans Line of Credit 75% 30% 56% Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Applications, accepted, Fu
Slide 15: Underlying NIM
Underlying NIM. Underlying NIM Waterfall – 1H22 to 2H22 (%) 0.07% (0.09%) 0.08% 0.02% (0.04%) 2.84% 0.07% 2.73% 4 bps contribution from Increased funding new deposits 5bps contribution from 1m BBSW rising in from NCDs and Full-period impact Higher average TFF drawdowns May and June 3 bps one-off ben
Slide 16: Deposit costs
Deposit costs. New Deposits – Unhedged all-in rate 3.0% 2.82% As loans reprice from 1m BBSW, Judo’s NIM will be driven by 2.5% the hedged margin above 1m BBSW on new deposits 2.0% • Interest rates are increasing rapidly following an 1.5% extended period of being low 1.0% • Retail term deposits are s
Slide 17: Funding mix and cost
Funding mix and cost. Movement in funding sources ($bn) A sustained reduction in funding costs has been achieved 6.4 0.1 • Funding program continued to mature, with growth in 0.3 0.1 existing channels and establishment of new channels 3.8 0.1 1.5 0.3 • Deposit costs reduced reflecting the impact of
Slide 18: Lending margins
Lending margins. Gross lending margins are stable at ~4.5% over 1m BBSW Gross lending margins above 1m BBSW (%) • Lending margins have been largely stable through FY22 at a level consistent with our assumptions underpinning at-scale NIM of >3% 4.9% 4.8% 4.7% • Gross margins on new loans improved to
Slide 19: Sensitivity to cash rate
Sensitivity to cash rate. Further increases to the cash rate will drive NIM higher in FY23, all else equal • With 91% of loans repricing monthly from 1m BBSW, benefit to NIM from increasing interest rates will peak in NIM Sensitivity to cash rate movements vs 2H221 FY23 and be partly sustained there
Slide 20: Trajectory to at-scale NIM
Trajectory to at-scale NIM. NIM in 1H23 3.3 – 3.5% At Scale NIM >3% 2H22 Underlying NIM 2.84% Term deposit margins Warehouse pricing Ongoing diversification 20 Not to scale and chronology may change 2022 Full Year Result
Slide 21: Credit Quality
Credit Quality. Impairments and provisioning Impairment expense • Impairments of $25.4m below prospectus target of $28.5m Impairment expense ($m) 25.4 • Driven by growth in the loan book and the accounting 5.3 requirement to provision for expected loan losses on a forward-looking basis 20.1 Provisio
Slide 22: Credit Quality
Credit Quality. Reduction in 90+ DPD and Impaired Assets Days past due & impaired assets Past due & impaired assets (%) 0.60% • Impaired assets of 15 bps of GLA (down from 26 bps): 0.49% driven by a single group write-off during the period, 0.50% customer repayments and minimal new impairments. 0.39
Slide 23: Area of focus: Commercial Property
Area of focus: Commercial Property. Commercial Property1 concentration has been proactively reduced Proactive reduction in commercial property concentration as a result of consistent application of the 4Cs approach over time and not aggressively competing for loans on price. Commercial property Comm
Slide 24: Operating expenses
Operating expenses. Pro forma Operating Expenses ($m) FY22 100% • FY22 CTI improved 21 percentage points to 76% 97% demonstrating improved operating leverage and 200.0 80% efficiency as the business continues to scale 76% • 2H22 CTI improved 12 percentage points to 71% (1H22: 83%) 150.0 132.0 60% •
Slide 25: Capital
Capital. CET1 Waterfall – June 2022 vs June 2021 (%) CET 1 Ratio • Equity raising includes capital raised at IPO and $20m received in July 2021 as part of Judo’s final pre IPO equity 4.5% (10.8%) raising 24.5% • Loan growth and other RWAs includes lending exposure growth 0.5% 20.5% 1.5% 0.3% • Risk
Slide 26: Conclusion & Outlook
03 Conclusion & Outlook. Joseph Healy Chief Executive Officer 26 2022 Full Year Result
Slide 27: Operating environment
Operating environment. Macroeconomic conditions Judo portfolio positioning Inflation and interest rates are impacting sentiment Judo’s portfolio remains robust, confirmed broadly, but financial performance only selectively by recent portfolio health check • Some firms are experiencing labour shortag
Slide 28: Credit Quality – Sector analysis of inflation & interest rates
Credit Quality – Sector analysis of inflation & interest rates. Gross loans and % Fully / Partially % 90+ DPD and Customer groups % of GLA advances ($m) Secured Impaired (%) 90+ DPD & Impaired Industry Group (By ANZSIC Code) Jun-22 Jun-21 Jun-22 Jun-21 Jun-22 Jun-21 Jun-22 Jun-21 Jun-22 Jun-21 Manuf
Slide 29: Relationship model is a strategic hedge
The benefits of Judo’s relationship led model are highlighted during periods of uncertainty • The relationship between SMEs and their banks are never more important than in times of stress • Judo’s bankers maintain close relationships Relationship model is with all customers a strategic hedge. • All
Slide 30: What are our priorities?
What are our priorities? Maintaining our Customers at Consistent Not becoming Investing in unique culture our core challenger mindset a “Big Bank” technology 30 2022 Full Year Result
Slide 31: What are the challenges?
What are the challenges? Tight labour Increased Entrenched Preserving culture market regulation inflation while growing 31 2022 Full Year Result
Slide 32: What attracts our people to Judo
What attracts our people to Judo. Unique opportunity to work at a start up/scale up Opportunity to build a bank from scratch Personal career challenge opportunity Ability to be empowered and make a real impact Calibre of the people and/or leadership at Judo Judo's culture Judo's purpose and values R
Slide 33: What current employees value the most
What current employees value the most. Our people and culture stand out from the crowd Judo's people Judo's culture Career challenge / opportunity Being empowered Building a bank from scratch Relationship banking, the way it used to be 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 33 Survey conducted inter
Slide 34: FY23 Outlook
FY23 Outlook. Based on current conditions we expect to achieve the following: FY23 Drivers FY23 Guidance At Scale Metrics Gross Loans Strong growth to continue within risk appetite, >$9 billion $15 - $20 billion & Advances driven by our relationship-led CVP. Underlying NIM to benefit from temporary
Slide 35: Judo's strategy remains unchanged
• We have a clear purpose: to be the most trusted SME business bank in Australia • We are a unique pure-play SME bank; we believe specialists outperform generalists • Judo has a unique CVP that is a strategic hedge • Our clear set of priorities will drive growth Judo’s strategy within risk appetite
Slide 36: Questions
04 Questions. 36 2022 Full Year Result
Slide 37: Appendix
05 Appendix. 37 2022 Full Year Result
Slide 38: Pro forma income statement
Pro forma income statement. AUD, $m FY22 FY21 Change Net interest income 169.8 84.5 101% Other operating income 3.2 5.3 (40%) Net banking income 173.0 89.8 93% Employee benefits expense (79.5) (50.9) 56% Other expenses (52.5) (36.1) 45% Pro forma operating expenses (132.0) (87.0) 52% Pro forma net p
Slide 39: Statutory to pro forma NPAT reconciliation
Statutory to pro forma NPAT reconciliation. AUD, $m FY22 FY21 Change Statutory net banking income 173.0 89.8 93% Pro forma net banking income 173.0 89.8 93% Statutory profit/(loss) after tax (7.7) 28.7 NM Transaction and other related costs of the IPO expensed 23.0 1.3 Large Public company costs (1.
Slide 40: Statutory Balance Sheet
Statutory Balance Sheet. AUD, $m FY22 FY21 Change Cash & Treasury Portfolio 3,201 3,604 (11%) Gross Loans & Advances 6,092 3,518 73% Deferred Tax Assets 57 32 76% Other Assets 65 22 NM Total Assets 9,415 7,176 31% Deposits 4,091 2,548 61% Borrowings 3,833 3,529 9% Other Liabilities 86 23 NM Total Li
Slide 41: Thank You
Thank You. Boldly backing business. 2022 Full Year Result
Slide 42: Important Information
Important Information. This presentation is provided by Judo Capital Holdings Limited ABN 71 612 862 727 and its controlled entities (variously, "Judo", “us”, “we” or “our”) and is current at 25 August 2022. It is information given in summary form only and does not purport to be complete. It does no