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,\u00a0amid a loss of ‘upper segment clients’ and fierce competition.<\/p>\n
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.<\/p>\n
Huge recorded headline earnings per share of 10.03 cents, from 1.09 cents per share during the prior period in 2011.<\/p>\n
The group\u00a0attributed a\u00a026.6% slide in total revenue\u00a0“to the loss of upper segment clients whose rand\u00a0value of spend is greater than R60,000 per month but whose margins\u00a0attributable to this rand value of spend are substantially lower\u00a0than those margins attributable to clients whose rand value of spend\u00a0is lower than R60,000 per month”.<\/p>\n
The ICT firm also pointed out that competition at the upper segment of the market is fierce and price\u00a0elasticity is greater. “Given the price compression at this end of\u00a0the market, gross margins are very small,” it said.<\/p>\n
The lower segment of the market is less price elastic, margins are\u00a0higher and other factors, such as service, differentiate offerings. “Huge Telecom has decided to focus on the lower segment of the\u00a0market,” it said.<\/p>\n
Accordingly, it noted that gross margins are up 5.13% when comparing gross margins\u00a0of 24.33% for the six month period to 31 August 2012 with gross\u00a0margins of 19.20% for the 12 month period to 29 February 2012.<\/p>\n
Huge Telecom stressed that it continues to focus on cost containment. This, it said,\u00a0translated into lower operating expenses, which declined\u00a09.41% to R34.6 million.<\/p>\n
Looking ahead, Huge said it will continue\u00a0to consider the purchase of shares in the company that trade at a discount to its fair-value.<\/p>\n
“The Board expects the market for telecommunications products and\u00a0services to continue to experience wholesale price compression in\u00a0the immediate future. This price compression is good for Huge\u00a0Telecom given that wholesale price compression equates to lower
\ninput prices and correspondingly higher profit margins,” it said.<\/p>\n
Huge Telecom said it remains committed to its strategy of providing a\u00a0complete spectrum of managed telecommunication services to South\u00a0African businesses.<\/p>\n
However, it quickly added that it will\u00a0continue to focus on introducing alternative\u00a0revenue streams that complement its business. It added that it will also pursue\u00a0opportunities to increase its client base to enhance capacity\u00a0utilisation and further improve gross and operating profit margins.<\/p>\n
“The success of Huge Telecom’s decision to focus on the lower segment\u00a0of the market will be determined ultimately by its efforts to grow\u00a0revenue in this segment of the market.<\/p>\n
“Growing revenue is a function\u00a0of the size and extent of Huge Telecom’s distribution channels. In\u00a0the last six months, Huge Telecom has focused on growing its\u00a0distribution of dealers from 89 to 167\u00a0active business partners. The benefits of this growth in
\ndistribution will accrue to Huge Telecom in coming months,” it said.<\/p>\n
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