Huge Telecom, the Alt-X listed ICT group on Friday (30 November) announced a decline in earnings and profit for the six months ended August 2012, amid a loss of ‘upper segment clients’ and fierce competition.
Total revenue slipped to R155.9 million, from R212.34 million in 2011, with an operating profit of R4.08 million, versus R8.567 million before.
Huge recorded headline earnings per share of 10.03 cents, from 1.09 cents per share during the prior period in 2011.
The group attributed a 26.6% slide in total revenue “to the loss of upper segment clients whose rand value of spend is greater than R60,000 per month but whose margins attributable to this rand value of spend are substantially lower than those margins attributable to clients whose rand value of spend is lower than R60,000 per month”.
The ICT firm also pointed out that competition at the upper segment of the market is fierce and price elasticity is greater. “Given the price compression at this end of the market, gross margins are very small,” it said.
The lower segment of the market is less price elastic, margins are higher and other factors, such as service, differentiate offerings. “Huge Telecom has decided to focus on the lower segment of the market,” it said.
Accordingly, it noted that gross margins are up 5.13% when comparing gross margins of 24.33% for the six month period to 31 August 2012 with gross margins of 19.20% for the 12 month period to 29 February 2012.
Huge Telecom stressed that it continues to focus on cost containment. This, it said, translated into lower operating expenses, which declined 9.41% to R34.6 million.
Looking ahead, Huge said it will continue to consider the purchase of shares in the company that trade at a discount to its fair-value.
“The Board expects the market for telecommunications products and services to continue to experience wholesale price compression in the immediate future. This price compression is good for Huge Telecom given that wholesale price compression equates to lower
input prices and correspondingly higher profit margins,” it said.
Huge Telecom said it remains committed to its strategy of providing a complete spectrum of managed telecommunication services to South African businesses.
However, it quickly added that it will continue to focus on introducing alternative revenue streams that complement its business. It added that it will also pursue opportunities to increase its client base to enhance capacity utilisation and further improve gross and operating profit margins.
“The success of Huge Telecom’s decision to focus on the lower segment of the market will be determined ultimately by its efforts to grow revenue in this segment of the market.
“Growing revenue is a function of the size and extent of Huge Telecom’s distribution channels. In the last six months, Huge Telecom has focused on growing its distribution of dealers from 89 to 167 active business partners. The benefits of this growth in
distribution will accrue to Huge Telecom in coming months,” it said.