Sequoia Financial Group has reported a 10.7 per cent decrease in revenue to $131.5 million and a 55.6 per cent fall in operating profit to $5.5 million as part of its FY23 results.
Chief executive officer Garry Crole and chairman John Larsen acknowledged that the figures, which included discontinued operations, were a “disappointment” on the surface.
Notably, the results were impacted by non-recurring items including claims and penalties of $2.0 million in expenses, unrealised loss on share portfolio of $0.7 million, and lower revenue earned on structured products of $1.3 million attributed to economic uncertainty conditions.
After non-recurring items, revenue and operating profit for continuing businesses were down by 10.8 per cent and 12.3 per cent, respectively, but Sequoia asserted that it had ended the year with a far stronger balance sheet and its core business once again experiencing strong growth.
In a statement, Mr Crole said that FY23 was a “year of transition for Sequoia”.
“The year tested the resilience of the financial services industry with rising interest rates, global inflation, a reduction in the available adviser pool and a heavy fall in market volumes,” he said.
“Positively, we navigated the delicate balancing act of maintaining profitability while absorbing increased operational expenses from an inflationary market in addition to several significant non-recurring expenses.”
Sequoia’s licensees services division recorded a 5 per cent increase in adviser numbers over the financial year despite the contraction seen in the industry overall. Revenue in the division increased by 23 per cent to $77.9 million.
Non-recurring expenses were said to have distorted the licensees services division’s operating profit, which sat at $3.8 million in FY23, by approximately $1.6 million, mainly due to the settlement of professional indemnity claims associated with advice provided back in 2019.
When removing these non-recurring items, Sequoia said the licensees services division met the firm’s 15 per cent target return with an operating profit of nearly $6.0 million.
The equity markets division suffered a 40 per cent decline in revenue to $41.7 million and a $4 million drop in operating profit amid adverse market conditions in local equity markets, global market volatility, commodity price increases, and the costs of buying cover.
Revenue in the direct investments segment increased by 16 per cent to $3.0 million but with an operating loss of $0.2 million that Sequoia described as a “significant budget miss”. This underperformance was attributed to acquisitions that failed to meet expectations.
Meanwhile, revenue in professional services rose by 9.0 per cent to $8.5 million with a slight increase in operating profit to $2.4 million.
“Sequoia is a profitable, growing, and well capitalised financial services business seeking to generate >15 per cent returns from all four divisions,” said Mr Crole.
“Following a strong finish to FY23, a solid start to FY24, especially from our equity markets division, the company is well positioned to deliver further growth in profits and shareholder returns.”
Notable developments highlighted by the firm during the financial year included the divestment of 80 per cent of Morrison Securities to New Quantum Holdings. Sequoia has now received a total cash consideration of $40.5 million and will maintain a 20 per cent interest in Morrison.
“This pool of liquid capital will allow us to fund further acquisitions with cash rather than via the dilutionary effect of issuing new shares,” Sequoia said.
“We expect organic growth within all four operating divisions with our focus being on acquisitions within our licensees services and professional services divisions.”
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
