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Growth costs eating into Purple Group’s bottom line

Growth costs eating into Purple Group’s bottom line

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Purple Group’s headline earnings a share fell by 74.3% to 1.14 cents in the year to August 31, after operating expenses increased 38.1% as it grew the business.

The increase in overall costs was even though the cost to serve clients reduced by 16%. Group operating expenses came to R213 million.

Chief executive Charles Savage said in a letter the costs included about R20m to integrate new partners such as Discovery Bank, Telkom and the new Southeast Asia partner.

New clients onboarded were not yet profitable to the group, and accounted for around R31m of operating costs, while KYC (know your client) and associated onboarding costs, plus the consolidation of EasyCrypto, accounted for R9m of costs.

All clients onboarded since launch in 2014 turned profitable in year two or three of being clients.

Two product verticals would be launched in the next six months, securitised credit through EasyCredit, and Life Insurance through EasyProtect.

“We continue to build a high-growth group. All the while delivering low cost, low margin, easy, fair and fun financial products and services that engage new audiences and grow the market. We remain profitable and frugal with our resources,” said Savage.

Costs also included replicating the IT infrastructure in the Asian region, additional client engagement agents and trading and risk specialists, additional resources to increase the security of the platforms, and to improve the scalability of the platforms.

He said that while the market “struggles to place a value on our efforts, we know we are building something special… that's rewriting and fundamentally changing the financial fabric of the countries we operate in”.

Group net asset value per share increased by 13.8% to 38.39 cents. The share price yesterday morning was 4% lower at R1.67.

The number of clients increased 41% to 1.65 million. Active clients increased 50.4% to 763 233. This was in spite of weaker equity markets and the impact of higher inflation on clients.

During the year, subsidiary EasyEquities acquired the remaining 49% shareholding in EasyProperties for R25m, and EasyEquities acquired the 50% interest in RISE (Retirement Investment and Savings for Everyone) that it did not already own, for R60m.

Purple Group also bought the remaining 49% stake in EasyCrypto for R61m.

The share of profit in RISE joint venture increased 267% to R5.2m

Value of properties acquired by EasyProperties clients increased 22.4% to R152m. Active EasyProperties clients increased by 83% to 74 360,. Active EasyCrypto clients increased 39% to 152 968.

GT247.com revenue rose 104.6% to R56.9m, and it reported a pre-tax profit of R14.1m compared to a loss before tax of R8.7m the prior year.

Purple’s attributable profit decreased by 0.8% to R44m. Platform assets increased by 18.3% to R37.3 billion. Retail inflows increased by 7.4% to R9bn.

Savage said the acquisitions meant all stakeholders were now aligned around a common purpose, enabling greater diversity of income and levers for growth in the years ahead.

“All of these have made healthy contributions to group revenue while posting very impressive growth year on year,” he said.

At EasyEquities, client numbers and associated metrics continued to grow, with active clients up 50.4%, having added around 250 000 new first-time investors in the period.

“Our investment coverage was expanded to include South African Unit Trusts and UK and European Shares and ETFs, adding on our already extensive offering of US, Australian and South African Shares and ETFs.”


Original Article

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