Purple Group takes it on the chin after big IT investment

SHARES of retail-focused financial services and technology group Purple Group yesterday slid more than 5 percent on the JSE after it invested heavily in IT.

Mark Barnes, the chairman of Purple, said that technology and attitude came together nowadays to enable a much wider demographic, ranging from the youth to the older generation, enabled people who today knew so much more than “we did, with expectations to match”.

“People have infinite, real-time access to information and comparison – they know the price, they understand and demand value, they have alternatives. All of us carry real time world access around in our pockets, on our smartphones, 24/7. We live in the ether, we communicate on social media,” he said.

Barnes said the world of stockbroking, investment and asset management has changed from the secretive, arrogant and complex era driven by few individuals to an inclusive world driven by technology and innovation. Investing in this new world of technology has had a negative impact on the results of Purple, but it also promised greater rewards in the future, he said.

Decline

In the year to end August, the results showed a decline of 97.11 percent to R1.3 million in earnings before interest, tax, depreciation and amortisation from core operation, down from R45.1m reported in 2015.

The decline was driven by the 19.48 percent decrease in revenue and 24.8 percent increase in operating costs as the group invested heavily in its people, IT and marketing in order to reap healthy results in the future.

Revenue for the year declined to R105.81m, down from R131.4m as compared to 2015 while net income tumbled to R0.4m, down from R44.5m a year before. The loss attributable to owners came in at R3.19m against R29.44m reported in 2015.

Purple group, as a derivatives trading and asset management business, incorporates four distinct client offerings: GT247.com, EasyEquities, GT Private Broking and Emperor Asset Management.

The group’s chief financial and operations officer Gary van Dyk said: “The company has invested, significantly over the past two years in furthering our ambitions, as reflected in the increase in operating expenses during financial year 2015 and financial year 2016 of 17.1 percent and 24.8 percent respectively. This investment in people, IT and marketing is proving in the results,” he said.

Van Dyk said there were pleasing aspects in the results, with total active clients across the group’s products increasing 94 percent as compared with 56 percent a year ago. “An additional 22 000 customers opened EasyEquities accounts during the year, with total accounts opened in excess of 30 000 at August 2016,” he said.

EasyEquities generated net revenue of R7.8m compared with a loss of R0.5m in the prior year, while total client assets across the group increased by 41 percent to R1.3 billion, up from R0.92bn. EasyEquities direct client assets was up by an impressive 360 percent to R711m, up from R155m in 2015.

The group also reported headline loss per share of 0.37 cents per share as compared with 3.51c headline earnings per share in 2015. The group has R143.84m cash on hand at the end of the period.

The group will hold its annual general meeting at the beginning of December.

Purple Group shares dropped 6.78 percent on the JSE yesterday to close at R0.55.