Keith Cullen, Founder and Managing Director of WT Financial Group Limited (ASX:WTL) discusses the company's half-year results, touching on highlights, acquisitions and consolidation, the rise in the cost of financial advice, the company's direct-to-consumer channel, the Quality of Advice Review, and dividends.
Tim McGowen: We're talking today with WT Financial Group Limited (ASX:WTL). It's a diversified financial services company. The company offers advice and product offerings delivered primarily through a group of privately owned and operated financial advice practices whose advisors operate as authorised representatives under the Wealth Today and Sentry Group and Synchron subsidiaries. We're joined by Keith Cullen, who's the Founder and Managing Director. The company has an ASX code of "WTL" and a market cap of $32m. Keith, thanks for your time.
Keith Cullen: Oh, thanks for having me back, Tim. It's great to be here.
Tim McGowen: Now, Keith, you've just announced your first half of 2023 financial year results. They were really positive. Can you talk us through it?
Keith Cullen: Yeah, sure, Tim. We've ended up with revenue of more than $83m for the half. That's up about 140 per cent on the prior corresponding period. And, to put it into context, $104m is what we did for the full year last year. So that really augurs well for this full year. We've been able to deliver an EBITDA line of 2.88, up about 70 per cent on the prior corresponding period. And this has resulted in a net profit after tax of 2.29. Again, 104 per cent up on the prior corresponding period and actually a little bit more than we did for the full financial year last year. So, we're really delighted with the result.
Tim McGowen: Keith, you've made some acquisitions over the last 12 months. You've brought together three different businesses over the past couple of years. How have you kind of managed that cost base, and do you see further synergies within the business post those acquisitions?
Keith Cullen: Yeah, well, Tim, look it's a complete credit to the executive management team and the staff of the businesses that we've brought together in the way they've been able to consolidate our operations on the backend. This is a real benefit to our advisors because what we're really doing is rationalising things so that we can deliver the benefit of scale to those advisors by consolidating the backend, if you like, of the businesses. We've really been able to contain costs through that rationalisation process. To put that in perspective is, against those big revenue increases that we've seen and the big jump in profits we've seen, we've been able to contain the operating overhead increases on the prior corresponding period to just around 90 per cent.
Tim McGowen: Of course, we're talking about financial advice here, and there's been lots of press about the rising costs associated with consumers seeking financial advice. How are you dealing with this? It sounds like it could be an impediment for your business moving forward?
Keith Cullen: Yeah, Tim, you'll see a lot talked about in the media of the rising cost of advice, and obviously the government's made a big issue of it in the last few years, and it's a reality. Advice is becoming more difficult for consumers to access. In terms of the impact in the industry, whilst this is a societal problem, I think, right when people are needing more advice, as the cost of advice has been driven up through the professionalisation of the industry, through increased regulatory overlays and burdens, that is a challenge for people accessing advice. But the demand is growing such that, really for the industry itself, for the individual advice practices and for groups like ourselves, there's so much demand that the profitability is still there.
Tim McGowen: We've talked today, initially, about your B2B, the licensee services you provide back to those groups that you've acquired, like Sentry and Synchron, for example. Are you continuing also with your direct-to-consumer channel? We've just spoken about advice being expensive. What's that channel look like for you at the moment?
Keith Cullen: Yeah, Tim, look, we made the pivot to really focus on what's known as the dealer group space. That's our support of independently owned financial advice practices, which happens through our Wealth Today, our Synchron and our Sentry Group. We made the decision to pivot to that as our primary business about four or five years ago now. But, in doing so, as we moved away from the direct-to-consumer operations and sold off a number of those assets, we've really kept the core operation going, and we'll continue to do that. That's under our Spring Financial Group banner. It's really important, I think, that we are able to keep it real within our business. We live and breathe that client experience and that running of a practice experience every day. And this brings real value to the supports that we provide to the independent operators in our group. So, we've no intention of sort of getting out of that space. If anything, over the next year or two, we'll probably seek to start growing it again.
Tim McGowen: And, Keith, of course, you've made some acquisitions. We've spoken about that. There's been a lot of consolidation in the industry. What's the role moving forward for WT Financial Group in regards to consolidation, and how do you think it's going to play out across the industry?
Keith Cullen: Our real driver in making the acquisitions that we made, Tim, was to ensure that we got to the right level of scale to underwrite all that intellectual property and the services that a really broad group of advisors needs. Now, we're supporting about 400 practices across Australia. There's a certain cost base that you have in that IP and in the processes that you have in place that will exist whether you're supporting 40 or 50 practices or 400, like we are. So that's why delivering scale has been really important. It's not just important for the shareholders, it's important for the practices we support. But we're at that scale now. So, I'd say to you that the company is no longer sort of acquisition driven. We've achieved that scale. We've rationalised the operations. We're now looking really to maximise revenue and profits. But, that said, I think there's probably more consolidation coming, and we won't rule it out. There's a lot of dealer groups that are remaining out there that have become, what I would say, subscale, so they're probably looking for a new home. Whether or not we execute on any of those, we'll keep looking, and we'll deal with them all on their merits, but it's not a primary driver for us now.
Tim McGowen: And, of course, the government's just released their Quality of Advice Review, and we see the advice industry in the past being kind of heavily regulated. Do you expect to see any kind of positive or negative income from these regulatory outcomes, and what impact might that have on WTL and its advisors?
Keith Cullen: Yeah, look, the regulatory environment's an interesting one. Certainly the regulatory burden's increased a lot over the last sort of 10 or 15 years, and that's led to those sort of cost increases that we talked about that have ended up being passed onto consumers. Really that's what drove this recent review by… It was started by the former government, but completed by this current government. The Quality of Advice Review was all about looking at ways of making advice more affordable. Frankly, I think we've got strong profitable businesses and a strong profitable future ahead of us in the advice space without any further regulatory change. And some people argued last year for enough's enough, enough change, let us just deal with what we've got. But there have been some really good recommendations in that report that was done by Michelle Levy that will remove some duplication from within the sort of compliance overlays. We'd love to see some of those implemented. There's also some dramatic recommendations that she's made there in terms of really a restructuring of the way advice is provided to retail consumers — letting superannuation funds, for example, give personal advice to their members and so on. Whether or not these get up, it's certainly a challenging political environment, I'd say, with the government having a cross bench to deal with and consumer groups to deal with and so on. The jury's out, but we were pretty positive about that report. In terms of impact on us, you can play with the hand that's dealt you at the moment. And so we're just focused on, you know, helping advisors build strong and profitable businesses with the regime, the regulatory regime, the way it exists today.
Tim McGowen: And thanks, Keith. We're almost halfway through the next half of the financial year. What do the financials look like moving forward? I note you didn't pay a dividend in this interim result. Is the idea to look at paying dividends in the future?
Keith Cullen: Yeah, look, in terms of the full year, I think we've got some guidance out there. For the half year, we're well on track with that guidance, so we'll only update that guidance that exists out there at the moment if there's anything positive or negative to say. So, we're expecting more of the same, I guess, is what I'd say to you for the full year. We think there's good opportunity for growth well beyond this financial year out of the existing business, through us helping advisors grow their businesses, which leads to further growth in revenue and profit for us. In terms of a dividend, all of our shareholders can be certain that, with board and management of the company owning 35 per cent of the group, we're pretty well motivated to get back to dividends. You know, Tim, that we had a strong dividend history for a microcap in our early days, having paid out nearly $7m in dividends. So, we're really motivated to get back there. Certainly, if we can keep up this level of sort of profitability, we'll be back there sooner rather than later.
Tim McGowen: Keith Cullen, thanks for your time.
Keith Cullen: Thanks, Tim.
Ends
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