Offshore loss puts red tinge on Purple
November 6, 2008
By SAMANTHA ENSLIN-PAYNE
Durban - Purple Capital, which recently acquired a 5.3 percent stake in the Bond Exchange of SA, yesterday reported a loss of R110.4 million for the year to August, largely due to the collapse of European operations of its spread betting business Global Trader.
Mark Barnes, the chairman of Purple Capital, said that the firm had had a difficult year during which "we suffered extraordinary and substantial financial loss. We learnt some hard lessons and paid a high price, but the 2008 financial year is behind us."
Among the main lessons learnt from the Global Trader Europe (GTE) debacle was that "one should not underestimate the complexity of running operations in foreign jurisdictions", he said. This included knowing not only the legal requirements but the company's clients. "It's different in your own backyard, where you know people. The situation at GTE would not happen here," Barnes said.
In the year under review Purple Capital wrote down R70.5 million related to the collapse of GTE. But Global Trader's South African operations continued to be profitable, despite severe market conditions, Barnes said.
Purple Capital's results were dampened by high interest costs and amortisation related to GTE.
Shortly after Purple Capital announced the acquisition of Global Trader last year, GTE was placed in administration after a client failed to meet a margin call, thus compromising the firm's capital adequacy.
Global Trader was acquired for R317.3 million. Eighty percent for was allocated for the larger South African operations and the balance for the international business. R209.8 million was for goodwill arising out of the prospect of future earnings.
Purple Capital said yesterday that despite the administration of GTE, management was confident that the remaining goodwill of R204.6 million relating to Global Trader South Africa would not be impaired.
Barnes said Global Trader South Africa had a good start to the current financial year.
The acquisition of Global Trader was funded with debt, and when GTE failed, Purple Capital's interest costs became onerous as income was lost from the European operations.
But recently the firm raised R120 million through a rights offer that was used to reduce long-term liabilities, loans and borrowings from R163.2 million at the end of the year to August to R68.7 million.
Barnes said: "Another lesson … is that if we are open and upfront with shareholders and bankers, they will stand by us."
Purple Capital shares rose 3.13 percent to 33c yesterday. The general financial sector fell 1.86 percent.
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