Sequoia Financial Group (ASX:SEQ) Half Year Results Presentation, February 2021

Company Presentations

Sequoia Financial Group Limited (ASX:SEQ) Executive Director & CEO Garry Crole presents the group's 1H21 results.

Garry Crole: Good afternoon and welcome to the Sequoia (ASX:SEQ) Half-Year Results Presentation. I'm pleased to see we've got quite a few shareholders online, so I thank you for doing that. As you would be aware, our results for the half-year period came out about an hour ago, and I'm delighted to be presenting them to you.

What I would like to do is start off talking a little bit about our business model, talk about the key performance indicators for the business, the divisional results, and then talk about short-term and long-term objectives. But probably the most important part of today is to look to take questions from shareholders. On the right hand side of your screens, you'll see a box where you can type in questions, and at the end of the presentation I will look to answer every question if possible and maybe take some offline if I'm not able to, or we'll get the answers to you. But certainly very open to take as many questions as you like. I have the CFO with me, Lizzie Tan, so if it's of a financial matter, I may pass to her. If it's of an operational or strategic matter, I'm certain that I can answer the questions.

First point I want to do is I want to look at the Sequoia business model. Over the last two or three years, it's been a little bit confusing about all the parts that we have. What is it that actually Sequoia does? Various people deal with various parts of our business, but as a whole, I think we've got the messaging right now. And whilst we have four divisions -- I'll put my glasses on so I can read -- we have one mission. So four divisions, one mission, and the one mission is to serve the advice community.

The advice community, as far as we're concerned, are financial advisors, accountancy practices, and third party licensees. The size of that market is changing all the time. In respect to advisors, shareholders would have realised and read in the press that the number of advisors in the industry is actually reducing, and there's been a big shift from bank-owned licences and insurance company-owned licences and product-owned licence away to licences like those that we run in the IFA market, where we're agnostic to product. That market at the moment, we think there’s around 12,000 advisors that suit our profile. There's around 18,000 to 20,000 advisors in the market at the moment. Each week you get a different number, but we think it's about 18,000 to 20,000. But 12,000 of that 18,000 to 20,000 suits our profile, and we'd be delighted to work with many of those advisors.

In the accountancy practice market, there's just over 10,000 accountancy practices in Australia. Currently, we work or have some form of relationship with about 2,000 of them, and we're looking to increase that in a number of ways through the various services we provide. And third party licensees that provide the licence for that 20,000 advisors in the market, there's about 2,000 licensees at the moment, and we have a relationship with around 100 licensees in different aspects of our business. But the premium and the core function is for us to license advisors ourselves under licences we own. And of the 12,000, by 2025 we would like to be licensing around 10 per cent of that market, of the IFA marketplace. So, 1,000 to 1,200 advisors, depending on the numbers at that particular time, would represent 10 per cent of the market.

And then what we do is we provide the services across those four divisions. So, professional services division -- an accountant or an advisor might have clients that do self-managed super fund administration. We provide a service so they can give the advice and we can do the administration. Legal documents, the same types of things. Equity markets is primarily a service to third-party licensees and advisors of our own. Doesn't tend to service the accountancy practice market too much. We're providing about 50 licensees currently their back office clearing in Morrison's, and I'll talk about Morrison's a little bit later in the presentation when we're referring to numbers, but that is a very, very high-growth part of our business at the moment. The wealth division is the core function. We have five licences that we provide advisors the opportunity to become licensed under, and that's our largest revenue and our largest profit centre at the moment, and really drives the core of the business.

Looking at the results, we're delighted with the results, but there's a couple of caveats I would like to mention in respect to the results. I tend to, those that know me, I see our business as the tortoise and not the hare, and I don't want to come across that we're not pro-growth. We are absolutely pro-growth. But we're looking to grow this business steadily over time, and I'm looking to underpromise and overdeliver. The numbers that you're seeing in the half year are very, very good, and we're above the budget we forecast. There's a couple of reasons for that. One is that we've done very well. There's no doubt about it. The business is growing extremely well in the wealth division and extremely well in the equity markets division, well ahead of our budgets.

But what we did see with COVID-19 in the half year, we saw the professional services division -- that's the division where accountants would buy companies, trusts, and super funds, or outsource their administration of their super funds to us -- that dropped off a little bit, and we also saw our direct media business have a drop-off in the half year. That's basically because the events that we provide listed companies and fund managers and to the community looking to invest, we just couldn't have those type of events with event centres closed and so on. We did pick up in those two business units, so we have 20 businesses in the four division. Two of the businesses suffered a large enough drop in revenue to qualify for JobKeeper Payments, and we took up that opportunity, so that added about $200,000 to $250,000 of revenue to the results in the half year.

And also, we actually invest in opportunities from time to time in the company, and we picked up $600,000 of realised profits in shares over that period. So there's about $600,000 to $700,000 of abnormals in that result. Now, whilst the share trading and those sort of things could continue, I just want to highlight that the $4 million half-year result, coming from $1.4 million, did have a couple of abnormal. So we're not budgeting for 40 per cent of our profit in the first half and 60 per cent in the second half this year. What we're suggesting is that we'll have around about a $4 million operating profit in the first half. And mindful of the comment that I don't want to overpromise, I'm very, very confident that we will achieve at least $3 million of operating profit in the second half and land at $7 million operating profit for the full year, opposed to the forecast we provided of $6 million.

Not all of that drops down to net profit after tax, but what does occur is that our operating profit is basically cash. The BITDA that reduces the operating profit to net profit after tax is just basically amortisation of goodwill and so on under the normal accounting standards. However, the reality is, those businesses are actually growing, not depreciating, and are probably worth more on a sum-of-parts basis than the carrying values.

The thing we like to talk about is one of two things in the business, is what is our operating profit and what is our cash profit? So, in the first half '21, operating profit was $4 million and cash was $3.4 million, so a very good result when you compare that to the previous year, where it was $1.4 million and cash was something like $400,000. So, extremely positive half-year results, and the second half in 2020 was very, very strong. We expect it to be very, very strong again, but I just want to condition the market to sort of expecting about $7 million of operating profit, and hopefully underpromise.

The particular highlights that are really important, two-and-a-half years ago we talked about putting a line in the sand and looking at the then 28 businesses that we had, and if the board and the management team and the finance team was not confident that we had a business of substantial growth opportunity and it couldn't deliver 15 per cent return on equity from an operating profit point of view, we would close it. We now have 20 businesses, and I'm confident to say 18 of those 20 businesses are fulfilling that particular criteria where we can see strong growth. We can see well in excess of 15 per cent return on equity. And we have two businesses that we just need to do a little bit of tinkering around to improve those.

The media business is one business that has underperformed. A lot of that has got to do with COVID, but some of that has got to do with we're just not making enough sales to cover the expenses of those business and give shareholders the types of returns that we would like to give. We'll be doing an overview of that particular business in the next 12 months to make sure that we can deliver the types of returns.

It is an important business for us. The media business provides the financial planners and the market not only sort of the daily news, which is something that you can get in numerous places, but what it provides us as a particular advantage is it gives us and our advisors a resource to source small company interviews with the CEOs. It gives us a resource to do interviews with the various fund managers that our financial planners are recommending. And we will be looking to create a hub of fund managers, small-to-medium companies, and large companies, where the community, being our advisors, but also the general community, being the public, can basically look up ABC Company and see the CEO being interviewed by our media team and asking the types of questions an analyst might look to ask and asking the types of questions a financial planner might look to ask, and then pass that through to their client when they're making a recommendation for that particular company. So, it is important, but as I mentioned, it's not performing to the level we would like, and we are looking to address that.

The overall growth, we had, as I mentioned, two businesses that had some COVID disappointment. The revenue growth was still 27.6 per cent above first half '20. So, very, very strong, but the wealth and equity markets were far, far higher than that, 50 per cent-plus type revenue growth. And we do expect that to continue.

Operating profit from the first half '20 is 176 per cent of growth. Some of that was to do with acquisitions, some of that was to do with just our operational growth and looking at the expense lines a lot better than we had in the past. Extremely strong and expected to continue at very high double-digit numbers. I don't expect 176 per cent growth, but I do expect long-term high double-digit growth in all facets of our business.

Looking at that particular market where I mentioned a slide at the start, we're still at the very, very early days of the opportunity that I see to serve the community. At the moment, we're providing licensee services to 3.3 per cent of the available market that we see. If the market is 12,000 advisors that we've got a potential to provide services to, we're doing 400. We've got 400 advisors licensed by us, so 3.3 per cent of the market. So, it's still quite small, but the scaling and the growth in the scaling allows us to be very, very price-competitive as we grow to that advisor network and add real value to that advisor network. As we're able to grow that and provide more and more services that they need, and that they can outsource under their licensing, it improves their business, but it also improves our business and it reduces their costs.

ASIC have been talking about the need for financial advice to reduce in cost. Unfortunately, without scale, that's a pipe dream. Groups like us and other groups that have scale can actually be the only ones that can fulfil that need. All the surveys that you see in the industry are improving in respect to the opinion of the financial advice community, but one thing that always stands out to me, when asked advisors, the community, about their advisor, they rank very, very high. The community who actually has engaged with an advisor short-, medium- and long-term has a very high opinion. The people who don't have an advisor have been the ones who have tended to be critical of the advice industry. We need to change that by making costs of advice more affordable and continue to provide the education and lifting the bar in respect to the service.

And we took a decision that the opportunity to provide quality clearing services to financial planners and quality clearing service s to other licensees was one that we wanted to explore. We invested very heavily in providing the back office and the ability to clear much larger volumes than we were, but have the highest level of service. I'm really pleased to say that decision has been a very positive one. 18 months ago we were losing $50,000 a month exploring this opportunity. Now we're making very, very good profits month to month, and our volumes are very, very high. It's not a result of the Robinhood traders and the day traders. Our clients are not that type of client. Our clients that use Morrison Securities are advice clients. Our average trade in Morrison's is $90,000, and all of the trading out there goes through bar a very small part with Sequoia Direct is advisor-driven.

Our contract note turnover is up 400 per cent on the prior corresponding period. The other reflecting point that really emphasises my point in respect to how quickly that particular business is growing and how much contribution it's making to our potential profits is the shares on HIN, so shares sponsored by Morrison have gone up from $400 million in January 2020 to $2.8 billion in January '21, so a massive increase on the size of investments that advisors that are using the Morrison Securities clearing business are advising to. That business is growing amazing.

One of the things, our breakeven point is about 10,000 equity trades, 5,000 option trades per month. 12 months ago we weren't doing that. For example, in February, the last eight trading days we have delivered more than 1,000 contracts per day, just on equities. We are growing very, very fast in that particular area of the business. It's a toll road business, so the cash profit drops straight to the bottom line, which is fantastic, and that's improving our business no end.

Operationally, we scaled up our advisor numbers so that we could maintain pricing. It's very, very important that advisors get a service from us that's very competitive to them. We take a small fee for providing a range of services, and we can provide a wide range of services if we have scale. If we don't have scale, we therefore have to reduce the level of compliance managers, reduce the level of practice managers, reduce the level of education arms that we have. But with scale, what we can do is we can have premium compliance staff, premium educators, premium everything, and advisors pay a little bit over a wide number, and everyone benefits. That's really what the business model is all about. It's almost like a cooperative for a wide range of self-employed advisors. And we’re product agnostic. It's all about them providing the advice that they think is the most appropriate for their client base, that is in the best interest for their client base. And we provide the education, the compliance, and all the tools for them to provide that type of advice.

A couple of areas that also improved during the 12 months was the corporate finance team. It's had a good six months period, and they've got lots of business in the pipeline at the moment, so we expect strong growth in that particular area. They've gone from two employees to six employees in that area in the last 12 months, and we're starting to deliver some very good offerings out to our advice community that they might not normally have had access to without our internal corporate function.

We also introduced a head of research that came from PhillipCapital, Wayne Sanderson, and he's added another level of insight that again is an added value for advisors to come under our licence. It's all about the key focus, serving the advice community in the best way we can, and both financially and operationally having that mindset has been very positive.

The forecast we provided in October when we had the annual general meeting, we told the market that we would have 25 per cent revenue growth to full-year '21 to $100 million. Today I would like to confirm that we now expect that to be $110 million at least. As I said, we're looking to be conservative and looking to tell you a forecast upgrade that we think we can bank. We're confident we can bank $110 million for the full-year '21, and we're confident we can bank a $7 million operating profit for full-year '21, of which nearly all of that $7 million is cash. And it's really important for us to generate cash, because we want to grow and we want to use our cash to make acquisitions as much as we possibly can, so that we're not diluting shareholders by using our paper.

Over the last 12 months, we have used our paper on a few occasions, but only on occasions where the businesses that we've been looking to buy have been very, very keen to have equity in the group and be long-term shareholders, I'm pleased to say. InterPrac was probably the first major acquisition we made. Almost all of the shareholders of InterPrac from two-and-a-half years ago remain as shareholders of Sequoia. In fact, in the top five shareholders of InterPrac, all of them still own 100 per cent of their holding, but more. They've bought on market more. It's almost like we're looking to provide an opportunity for people not to sell their business but to become part of a bigger one and be part of the long-term journey. Where someone's looking to exit and not looking to be a three-, five-year investor and be part of the dream that we're trying to build, that's where we're looking to use that cash that we're generating from the operating businesses to make those types of acquisitions.

We announced a dividend today as an interim dividend. The interim dividend we're paying out is 30 per cent of the net profit for the half year. That's where we would like to maintain the dividend for this 12 months. We're not looking to go to the traditional 65 to 70 per cent of net profit after tax dividend at this stage, and most likely not for at least four years. We're looking to slowly grow the dividend ratio towards that 65-70 per cent over that four to five-year period, because we're a growth company. We absolutely want to grow our revenues and our profits dramatically, and we want to use that cash to be able to do that, but at the same time give shareholders some dividend and some incentive to hold the stock and just bank the returns. Hopefully, the real return comes from the capital gain in the share price.

Pleased to say, full-year '21, we are going to exceed the 15 per cent equity target, equity return. Equity at the moment is around $35 million. 17 per cent is the $7 million we're talking about. We would like to see the advisor numbers grow to 450 on an organic basis. We're in discussions with acquisitions all the time, but the numbers I'm talking about there are organic, that I'm looking to see us grow from about 412 advisors we are today to about 450 under our own licences by that time. We're looking to put on two to three additional AFSLs into Morrison's per month, and we're looking to grow the number of accountants that use our services organically over time as well.

These slides talk about the half year. We put the line in the sand two-and-a-half years ago that this businesses had a major opportunity with the fallout from the Royal Commission to really create a business where advisors felt comfortable being licensed by us. But we needed to provide added value and be a type of business that they felt really safe putting their business in, from a financial point of view. They need a business where you've got good cash, you've got good profit, you're growing, but most of all, the services you provide are at the premium end. And that's what we're looking to do.

As you can see by the slides, every indicator is going in the correct direction. The number of advisors going up in a very good straight line, some of that by acquisition, some of that organic. The Morrison monthly average contracts, as I mentioned before, just under $15,000 was the breakeven. We didn't start to break even until the second half 2020, but we're shooting the lights out at the moment, and those numbers are going very, very good. And it's not because the market is having higher turnover, it's because we've got much more AFSLs using us as their clearer. The service levels that we provide we think are premium, and we think we're going to continue to win more and more AFSLs across to us in that respect.

The EBITDA line that I'm talking about has continued to be very strong, as has the return on equity. Those indicators are really important. Something that we talk about in every particular business, the four divisional heads that we have all understand their budgets, all understand the importance of all of these indicators, and all need to provide value in their own right to the advice community that we're looking to serve.

If you look at the divisional results in particular, I think it's really important to see where we're growing and where it's coming from, from the prior corresponding period. As I mentioned earlier, the professional services area and the direct investment area was not a strong period in this period because of COVID and also those businesses probably not doing as well as we would like. We do have plans to improve them, but the numbers would have been ever better had we been able to achieve some improved performance in those particular businesses that we do expect, and we believe we will return in the future.

That said, all four businesses had higher revenue and higher EBITDA than the first half '20. So whilst I'm being a little bit critical of some of those, the bottom two, they have improved but just not to the same level of improvement that you're seeing in the wealth and the equity markets business. The green line represents the revenue, so you can see first half '20, revenue in wealth was just under $20 million. It's now closing towards $30 million. We expect in the second half of '21 that the wealth division will generate $30 million of revenue in wealth. So you can see in just 12-odd months, a 50 per cent increase in revenue in wealth. The equity markets business on the EBITDA line has had a dramatic increase as well, so all of the numbers are hitting in the right direction.

If you total up those results, you can see first half '21, they add up to about $6 million, not the $4 million, and that's because we had head office costs that we spread across the divisions below the line, but then reported on a consolidated basis. But wealth, equity markets are generating very, very strong returns, and the other two on the improve. But $4 million in the first half and heading in the right direction.

The advice outlook, a couple of things. I've probably only focused us a little bit on the negatives, I suppose, because of my conservative nature in respect to the COVID. But there was a couple of very positive factors of COVID. One of the things that happened in March 2020 when the markets dived and the superannuation funds announced a lot of downgrades, particularly in the industry super funds, where we saw some property write-downs and we also saw some unlisted investment write-downs in those funds, and the government came out with giving people the opportunity to take $10,000 or lots of $10,000 out of their super funds, we saw a push for advice. People recognised that in COVID, if they didn't have money when they stopped working, they were going to have to rely on government more so. It really triggered a demand for more personal advice for March 2020 and beyond, and that really helped our wealth division and their financial planners see more and more clients. More and more of those unadvised clients are beginning to recognise the benefits of having an advisor, and our results in the half year reflect that outcome.

We also saw a lot of self-directed investors get pulled up by the ATO for not meeting their investment profile, so more and more self-directed investment and self-managed Superfund trustees looked to engage with an advisor in more capacity than they had in the past, whether that be on the investment side or the administration side or the accounting side. That's sort of a bit inconsistent, but what they did do as a whole was they started to use third party service providers more and more, not necessarily completely but in different parts. And we were beneficiary of that.

The bank and product providers have continued to exit the industry in respect to the advice component. That's been good in two senses. One sense that it's been very positive is the advisors have had to find a new home, and they're looking for groups of size and that had scale. One of the reasons why a lot of advisors joined those big banks was because of their financial strength, and the negative being that they were encouraged to sell product of their parent. That phenomenon has changed. They're now moving to the IFA market and seeking licensees with financial strength, and we're one of the recipients of that.

The other thing that's really important to note, and a benefit of the change, is the banks and product providers themselves that previously relied on their own distribution to market their product have improved their product. The IFA market is assessing... to continue their market share have had to improve their product. That's been a real benefit. And whilst the AMPs and the IOOFs and the banks may have lost their vertical integration, they've improved their product, and that's allowed them to continue to get business from a market they might not necessarily have got it from before. So that's been very positive, and we're seeing the cost of life insurance, the cost of income protection, the cost of managed funds reducing. There's a lot of competition in the market, and the IFA space that we sit in and the clients that we serve are significant beneficiaries of that, and that's extremely positive. The challenge for the client, of course, is to determine which one is the best for them, and that's where the advisor is necessary.

Younger Australians are also attracted to a lot of online short-term trading. That's added a demand for some of the services we provide. Our media, our education, engagement with an advisor in some capacity is seeing some demand driven by the online traders. What has tended to happen a little bit is some of these online traders have made a lot of money very quickly, and then they've lost a lot of money very quickly by recognizing they don't really know what they're doing as well as they thought in the first few trades. They're now interested in markets and interested in investing, and that's creating a move for some of those to get more education, more information, and engage with an advisor in some capacity, which is good.

And probably the last point from the financial advice aspect is the government's recognised the need to encourage advice. ASIC has put out a paper requesting the industry to give them their opinion of what ASIC and the government needs to do to bring down the cost of advice. Sequoia put a paper into that. I know a number of our advisors put a paper into that. We're very positive about Senator Hume, in respect to understanding the needs of the advice industry and the needs of the end client. I think the government's recognised that the advice community is very, very important, the advice community needs to be encouraged, the advice community needs to be taken up by those working Australians. And maybe some of the red tape that the governments and the regulators have imposed might have gone a bit too far in pushing up the price. There's been a bit of a line in the sand drawn about okay, what should the balance be? And all of that is positive for us, because it's positive for the client.

Our short-term objectives, obviously we want to grow 25 per cent per annum in respect to revenue. More in reality, but from a organic basis, that's the number that we've set. We want to be 450 advisors by June 2021. We definitely want to continue to seek out acquisitions in the advice market to move our scale towards that 10 per cent of the IFA marketplace, to get to the 1,000 to 1,200 advisors using our licence. There's a lot of licensees that don't have the scale to provide the types of services that they need to provide an advisor. The pricing point is very similar, but the level of services that the smaller licensees can provide are far less.

What they're recognizing is that there's an opportunity to become a shareholder of Sequoia and roll their business up into ours, so that our scale can provide the type of services their advisors need, and they can be a beneficiary along the way. So we're talking to three or four groups currently about acquisitions. They're very early days, but I'm out there all the time talking to the quality licensees that I believe don't have the scale but have the capability and the type of advice that we're interested in, to becoming part of the bigger group. That's important.

The Morrison businesses, I've touched on before. We would like the $2.8 billion to move to $3.5 billion by June '21. That's high growth, but as I mentioned before, that business is experiencing very, very high growth. And I touched on the last eight trading days, we've had record turnover from the IFA market. We would like to build more research content, not only for our advisors but for the industry. That's why we bought [Your Report 00:37:00] and that's why we continue to invest in Financial News Network. But we do need to improve those businesses in the next 12 months. And I want to confirm the revenue at $110 million is our full year '21 revenue budget, up from the $100 million. I also want to confirm that our operating profit is expected to be at least $7 million, up from the $6 million we forecast four or five months ago.

The longer-term objectives, I'm talking 2025 here, we want to be the market leader. Clearly, the IFA market space is the right space. The types of advisors that we're looking to attract, we want them to be the premium end. We want to provide cradle-to-grave type advice, so we want to be in a position where we can provide age care advice, and we want to be in a position where we can provide advice to self-managed funds, to retirees. We want to be in the advice to the accumulation stage. We want to be talking to parents about putting their children through higher education. So cradle-to-the-grave services to advisors, accountancies, and licensees so that they can provide their clients a complete range of financial services and be absolutely separated to product.

If we were to get to 10 per cent of that particular market, we would expect revenue by year 2025 to be $400 million, so about four times what it is now. We believe that if we have three times the amount of advisors, we'll have four times the amount of revenue, because of the shared services and the types of other business that we have. We're currently tracking around 7 per cent return on revenue. We think if we had that scale, that that would move to 8 per cent by 2025. So the target is to be a $400 million revenue business generating $30 million of cash and operating profit by 2025. That's not a tortoise. That is probably a hare. It's not going to happen overnight, and that's a four-year plan that I'm looking to achieve. The type of growth that we've achieved in the last 12 months suggests that we can do that.

I'd like to thank our shareholders for supporting us. The share price has been good. It's gone from 20-odd cents to 50-odd cents over that period and given us a $60 million market cap. But I think over the next four years, if we can deliver $400 million revenue and get to sort of $30 million cash earnings per year, a $60 million market cap can grow steadily. Part of that, obviously, is the numbers.

I've probably talked too much, but I just wanted to give the shareholders and the group an understanding of the results. We're very excited about the results. We do believe we're going to continue to grow. I'm very confident about the $110 million revenue upgrade and the $7 million operating profit upgrade, all of that basically cash. And I'm confident that we can deliver long-term increases in the dividends and long-term capital growth appreciation. Very open to take questions on any of that, or if anyone's had time to read the financials as yet, any questions anyone has in respect to the financials.

One question I probably haven't touched on yet is cash. We have $13 million of our own cash, almost no debt. We need to keep $7.5 million cash to service the Morrison's business, but we have free cash at the moment of about $5.5 million. We don't need to raise capital, and we are looking to generate cash. Ongoing, if we got a major acquisition target, we might consider it, raising cash, so that only shareholders that we want to be shareholders participated, but at this stage we're certainly not looking to raise capital. We're looking to pay dividends, and we're looking to grow a level of cash and use that to make acquisitions. Thank you for listening, and I'm open to questions if there's been any questions come in. Cozette will be asking those.

Cozette: Yeah, we definitely do have some questions. The first question we have here is, the equity markets have split into four divisions, Morrison's, research, Bourse, and Sequoia Specialist. What is the split of the $2.35 million EBITDA for that division?

Garry Crole: Yep, sure. There's been a change in the trend in that business. The revenues stayed quite flat, but the reality is that the Morrison Securities revenue doubled and the Specialist Investment reduced. Previously, special investments made up a lot of the profit for the equity markets divisions, and Morrison Securities was contributing a loss, and the research and Bourse data was basically flat. In the six months and in the 12 months moving ahead, it's fair to say that the Morrison's and the Specialist Investments will contribute about half each, whereas prior to that, basically Specialist Investments was making up 100 per cent of it, if not more, because the other ones were loss-making. But that dial has changed. And the revenue, you will see the Morrison revenue being double of the Sequoia Specialist Investment in the first half and looking to head towards triple in the next half.

We're reducing the number of specialist investments we're providing to the market as we grow the other parts of the business. That business is to complement the advice market and provide opportunities that they normally would not have got. It's not our core business, and the number of offers we're making are reducing, because the market and the pricing of the current market we think is topping, and the types of investments that that particular area has put out in the past tend to perform better when the markets are undervalued or extremely undervalued, because they're two to three-year-type investment horizons. That said, we will continue to put out some product, but it's less and less. I hope that answers that question. If not, ask another one.

Cozette: We have quite a few questions coming in about the acquisitions that you mentioned. Is there any further that you can expand on that?

Garry Crole: The types of acquisitions that we're looking to make, the most recent acquisition we made is the Panthercorp acquisition to help our professional services division. There's no revenue whatsoever in the first half for that particular acquisition. That will double the size of our documents business. My point there is, I'm not looking to make any more acquisitions in the professional services division, other than maybe in the general insurance broking area. And I'm not looking to make any acquisitions in the equity markets divisions either, because they're growing organically and we're quite happy with that base.

The acquisitions I am looking to make are in the wealth division, and they will be other acquisitions very similar to Libertas, the PhillipCapital, the YBR-type businesses. We're not at the point now where we could sort of say, oh, it looks like this, but I think yeah, there's a number of ASX-listed companies and there's a number of licensees that have between 20 and 100 advisors. That is the type of businesses that we're looking to acquire. We have had a number of discussions with a number of them. None of them are at a point where we could make an announcement or have drawn up term sheets or anything like that. But we're in the market, we're knocking on doors. People know we're a buyer. People that are looking to be in the industry for five years plus with their licence but don't have the scale are very interested in what we're looking to do.

I hope that answers the question, but you will see the growth in the wealth division. The $400 million that I'm talking about in 2025, I would expect $300 million of that to be in the wealth division, and something like $80 million to be in the equity markets division, so the Morrison...

Cozette: Another question that has come through is, what do you consider to be the major risks of the business at this point?

Garry Crole: The major risk for the business, that's an interesting one. You've got me there. I think all businesses that are in high growth can have a risk in respect to the expense line. I think if there's a risk, it would be growing too quickly and trying to make too many acquisitions too quickly before you bed them down. We haven't had that problem. We've been making acquisitions quite regularly, and we've successfully integrated all of them. I don't believe we've made a bad acquisition in the last two and a half years, and... continue... biggest risk would be buying the wrong one. Part of the due diligence process, if there was something out there we're looking to buy is not what we thought it is, that might be the biggest risk. But as far as the current business is concerned, I think we're pretty boring, and I don't see high risk.

Cozette: With regards to the cashflow statement, can you describe what the "purchase of intangibles" refers to?

Garry Crole: I will pass you on to our financial controller to do that one.

Cozette: Can you describe what the "purchase of intangibles" refers to in the cashflow statement?

Lizzie Tan: Yes, that refers to the acquisitions that we did in the last six months, relating to the capital and Total Cover, some of the customer base.

Garry Crole: Hopefully, you heard that. That is acquisition costs for purchase of, we bought 23 advisors from PhillipCapital, and we bought a client book for InterPrac Securities called Total Cover, and we paid cash, and that's the cash.

Cozette: Another question is regarding new talent graduating now and whether you think that graduates are still seeing financial advice as a long-term career objective in this changing environment, and whether you consider that to be a long-term risk as our existing advisor base ages out.

Garry Crole: It's an absolute massive risk. I hadn't mentioned that in risks, so that's a good pickup, whoever's asked that question. It's not necessarily a risk to Sequoia. It's a risk for the industry. One of the positive things about the vertical integration model of the past, where the banks and the large insurers dominated the introduction of advisors into the industry, was that they had the size to be able to bring graduates into the industry and fund them into the industry.

What tends to happen in the IFA space is, like in our case, there's 400 independent advice businesses that probably don't have the capacity to bring on more than one new advisor at any one time. Those advisors under the current scenario have to do a graduate year, and that almost means that they're being self-funded. They're funding the opportunity for someone to come through the industry for 12 months, and they're not income-producing and they're not even able to give advice. They're just able to watch and learn and grow to become an advisor in the future. I think that's a challenging model.

We will bring on some of those graduates in-house, but I think what is likely is that there will be a change over the next five years to that. It might make the introduction through universities and the like for graduates to come on in, not have to do this one year, may abate. But the biggest problem that I see, and the risk that I see, is there's not enough advisors in the industry to serve the community. That's great for us and that's great for our financials, but from the industry point of view, there might not be enough advisors to go around to serve the community, and that's the biggest problem.

And that's a government problem, and the industry and groups like us need to combine and work together to be able to bring some of these graduates through, where it's not a financial detriment to those advisors that are helping come through. That will be the biggest challenge, because you can't make profit from selling product. There's no commissions, it's all fee-for-advice. And the negative of the past where there was product profit to fund graduate growth is gone, so there has to be a new answer to that, and that is a problem. It's a positive for Sequoia, because we've got advisors to serve the community, but from a long-term perspective, it's a challenge, definitely.

Cozette: I think we can probably leave it at that for questions.

Garry Crole: Right, and I thank you very much. I hope you all enjoyed the presentation, and thank you for being shareholders. If anyone wants to contact me, my mobile is 0411-600-550. As a shareholder, I welcome your call at any time. Thank you.