Huge share trade hammers profit

Embattled Huge Group is still paying the price for its share trade, which recently resulted in directors being fined.

This morning, the company released results that showed it had to adjust the value of the shares to the market price, resulting in a R9.4 million loss on the value of the shares, which impacted its pre-tax earnings.

Huge's adjustment filtered through to the company's bottom line, with it reporting a R5.9 million loss for the half-year to August, compared to a R28.8 million profit last year.

Chris Gilmour, an analyst with Absa Investments, says that, without the share trade debacle, the company would have reported a profit.

Huge bought the 12.3 million shares between July and October last year, at an average price of 360c each.

Since then, the shares have slid dramatically and were trading at 41c in mid-morning trade, a 1c improvement on yesterday's close. However, the company reached its 52-week low on 10 November, when its shares were at 30c.

If the share continues to slide, it could face a future loss of R10.2 million.

Chairman Anton Potgieter and CEO James Herbst have already been fined by the JSE for the share trades.

The directors were censured for not following the bourse's rules after buying future shares in Huge worth R8 million, which were then sold back to the company.

The bourse fined each director R5 million in their personal capacity, because they did not tell minority shareholders they were selling Huge shares to the company.

The results, which were released late, showed revenue was down from R308.9 million a year ago to R282 million. Headline earnings per share also slid, going from 26.18c a year ago to a 5.46c loss in the six months to August.

Huge did not declare a dividend, although last year it declared a maiden dividend of 12c a share.

Huge's results were released after the JSE's three-month deadline, and the company could have faced further censure from the bourse. Yesterday, CEO James Herbst explained that formatting problems had delayed publication of the figures.

Herbst was in a board meeting today, and was not available to comment on the results. However, in its results commentary, the company says “cash flow generation is good and management is quietly optimistic about the future prospects of the business”.

Cash flows from operating activities were substantially down on last year, when R19.5 million came in from operations. This year, negative R25.4 million was earned in cash from operations. Despite this, Huge says it “continues to perform well at an operating level”.

Although revenue reduced, it says it kept its gross margins at “acceptable levels” and it has seen “improved efficiencies”. Huge says the decline in revenue is because there was a slowdown in cellular airtime sales and other revenue of R14 million.

Huge has made plans to counter the reduction in airtime, and has initiated an increased focus on sales, an expanded product and service offering, and the appointments of a sales managing director and a channel and distribution managing director at Huge Telecom.

The company has also completed the integration of TelePassport and CentraCell “after taking far longer than expected and impacting on the business during the period under review”.

Huge says it has now completed its transition to a fully-fledged managed telecommunications service provider, with a focus on communications expense management services. “Management is hopeful of seeing the benefits of its recent restructuring in the last six months of the current financial year.”