Charles Savage: Easy may look hectic – but it’s all on plan

A profit reverse for Easy Equities’ parent company Purple Group in the financial year to end August set some tongues wagging. But inside the company the response to the numbers was sanguine – CEO Charles Savage explaining here why it’s all going according to plan, with the bottom line picture an expected part of the planned growth. In this post-results interview, he fills in the gaps for BizNews editor Alec Hogg.

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Edited Transcript of the Interview between Alec Hogg and Charles Savage

Alec Hogg: Purple Group, an exponential company in our BizNews portfolio from South Africa, owns 70% of EasyEquities. EasyEquities is rapidly growing in South Africa and globally. Charles Savage, a friend of BizNews, will be at our conference in March. He discusses EasyEquities’ results, acknowledging challenges due to economic conditions in South Africa. Despite revenue pressure, customer and asset growth rates are promising, with assets up 25% and customer numbers up 18%.

Charles Savage: Hello Alec, good to be on. Looking forward to the BizNews conference as well. Let’s focus on crucial numbers—customer and asset growth. Assets grew by 25%, with the market contributing 11% and the rest from customers adding to their portfolios. Customer numbers grew by 18%, impressive given EasyEquities had about 700,000 customers last year. Revenue saw a small increase, less than 1%, attributed to the challenging economic environment. We’re navigating a recession in South Africa, impacting customers’ capacity to invest, especially with new inflows affecting 30% of revenue. We raised 150 million in capital to support growth and invest in new products and regions, contributing to the loss. Despite challenges, I see it as a positive result with areas for improvement. We’ve learned a lot from our first EasyEquities recession, navigating a tough market environment. In a competitive landscape with competitors facing outflows, our results stand out.

Alec Hogg: Let’s discuss institutional flows shortly. On the retail side, with nearly 900,000 active clients, how do you define an active client, and have they been impacted by the challenging economy?

Charles Savage: Active clients have invested assets on the platform. Lower-income groups, LSM one to five, were more impacted, with deposits reduced by 50-100%. Higher-income groups, LSM five to seven, were more resilient with a 15-20% reduction. The impact correlated with interest rate increases, revealing investors’ debt. As interest rates decrease, we anticipate a recovery in deposit rates and revenue.

Alec Hogg: A practical correlation. The Reserve Bank should consider the real impact on people when making interest rate decisions.

Charles Savage: Exactly, South Africans were at the breaking point. Another rate hike could have led to outflows, forcing people to draw on investments to fund their lifestyle. The Reserve Bank navigated inflationary pressures without destroying investors’ capital bases.

Alec Hogg: Very insightful. They need to be mindful of affecting real people with interest rate decisions.

Alec Hogg: But the upside, I guess, is that as interest rates fall, you’ll start seeing that turn around. On the institutional side, there were big inflows. In fact, in the past, it was 90% from individuals, 10% from institutions or companies. In this past year, to the end of August, it was 60-40. So that’s a big swing. How did that happen?

Charles Savage: Yeah, so institutional money is what you and I would call pension fund money or retirement annuity money. It’s compulsory money that gets taken off your income statement, your payroll, before you get to spend it. So you don’t have a choice. It’s not money that is left after you’ve spent everything. And so it’s much more resilient in tough times because you don’t have the choice to abandon your retirement savings or your pension fund savings. And so in this environment, it really complements the retail business.

Because it’s grown in a very tough environment. But the reason it’s grown is that retail investors don’t have a choice. They haven’t been able to say, look, I need to stop investing in my retirement. It’s compulsory. And so it had a much stronger result than the retail side of the business. But the two businesses work really well together. If you think about institutional money, it controls 95% of JSC flows and retail money only 5%. So if you like…

The pool for growth for EasyEquities is 5% of the JSE. The pool for growth for Rise is 95% of the JSE. And so over time, the institutional business should swamp the retail business as we get better and better at competing with some very mature and entrenched players.

Alec Hogg: And then the international story, looking at your annual report, you now have companies in, well, you’ve had companies in Mauritius and Ireland for a while, you now have companies in the Philippines and Australia. We have spoken at some length about the Philippines. What’s going on in Australia?

Charles Savage: Yeah, all of those companies are kind of future-proofing our growth story. So, South Africa, if you like, it’s been a 10-year growth story. I think we’ve got at least another 10 years of growth, of exponential growth in this market. And so 80% of our focus remains just deliver on the partnerships and the products and the client opportunities that are right in front of us. But 20% of our resources, time, efforts, and where I spend my time,

is where’s the next South African market going to come from? Where are we going to find growth that supports, if you even like, the next CEO and the next team that comes after 10 years, so 20 years ahead? And those are, you know, Philippines is a market opportunity that we’re very heavily focused on. Australia, we’re not heavily focused on. It’s a nice little business, makes a small profit, but it’s a highly competitive environment, and our view is the longer we stay in the market, the more the Aussies will trust us, the better we’ll do. And…

So we’re not going to spend heavily on marketing in that region. And then Mauritius is really, it’s a structure. It’s not a business that we intend to grow. It’s a business that’s set up to structure to benefit from tax efficiencies that we can get out of expanding into Africa, interestingly. So our African expansion story will happen out of the Mauritius office.

Alec Hogg: Charles, if one has a look at your company from the outside, it’s very busy, there’s a heck of a lot going on. Does there come a time, due to economics or through finance, that you start scaling back on that, start consolidating on that?

Charles Savage: Start scaling back. Yeah, you know Alec, two years ago I delivered our three-year strategy. So we’ve got one more year left on our three-year strategy. And if you like, if I summarize the strategy as I presented it, there were two attack points. One is keep growing our distribution in South Africa and through partnerships, which we’ve done very well.

Product stack that you deliver to those customers, which essentially means we want to uplift our ARPU, uplift the revenue by delivering more products and services to our customer base. And when we did that, we said at the end of three years, we want to be operational in at least one other significant region. And on the product side, we said we want to have a product stack that is, I think it was 10. And at the time we had three, we had easy properties, easy crypto, and easy equities. And so,

This last year, we delivered Easy Credit, we delivered Easy Protect, which is a life insurance product, and then more recently Easy Bonds, which is South Africa’s first fractionalized access to government bonds. Next year, we’ll deliver three more products in the financial year. And if you like, at the end of that period, we’ve built all of the products that we set out to three years ago. And the question that then comes is, have we got another runway for 10 new products and are we going to be investing in additional product growth?

Well, as I said here today, no. As I said here today, we don’t have any product aspirations outside of the plans that we’ve already laid down in our annual report and previous annual reports. And so the focus in South Africa will shift towards scaling the product and consumption of those products that we’ve built. And then we will start to shift more resources to scaling the operations globally in the markets that we’re in. And hopefully that’s the Philippines. And potentially maybe one of them.

Alec Hogg: Nicely laid out. It’s not, nothing here is happening by accident. It’s all been part of a strategy. Something that hasn’t been part of the strategy, and a very welcome response has been what’s going on with easy crypto or with the crypto markets. And I pulled that out. Easy crypto is the easiest way for anyone to invest in Bitcoin or other cryptocurrencies. And It’s a significant operation even at the end of August. According to the annual report, you had 450 million rands worth of your clients’ money invested in there, which is surely one of the biggest chunks of any crypto investment in the country. But since then, the Bitcoin price, and I suppose it shows the cryptos overall, has gone from $29,500. This is at the end of August when it was your year, your financial year into 43 and a half thousand dollars. So that’s up 47 percent. Now, you said in your report that a part of the drawdown as you guys in the financial services, in other words, the reverse, the reduction in the profits was due on the crypto side anyway to a falling in the price now that the price is up 47 percent.in the past few months. Have you been seeing that flying through to the bottom line?

Charles Savage: Yeah, Alec, I mean, well noted, and hopefully other people saw that too, but that business is heavily leveraged into the price of the asset class because we make money on managing the bundles, if you like, the sort of crypto ETFs, which are the most significant part of that business. And so the revenue will commensurately be up and will flow directly to the bottom line. There’s no additional cost to serve that revenue line. So if we see…

Crypto prices inflated these levels for the rest of the financial year, then people should be, they can take a straight line to the income statement of easy crypto and improve it by the asset improvements that they see in that asset class.

Alec Hogg: Charles Savage is the chief executive of Purple Group. I’m Alec Hogg from BizNews.com.