JSE-listed Huge Group's expected 80% to 90% earnings drop, in its coming year-end results, has taken analysts by surprise.
The company's trading statement, released this morning, shows its headline earnings per share (HEPS) and earnings per share (EPS) have taken a beating over the last year.
The biggest drop has been attributed to the company's staff retention programme, which will see R4.3 million paid out in restraint of trade agreements, cutting HEPS and EPS earnings by 2.9c per share.
Many ICT companies have found it hard to retain newly-trained staff, who are often poached by rival companies. Over the last two years, the industry has suffered from the expense of training staff and the costs involved in losing them.
Huge says the new restraint of trade agreements have helped to stabilise the company's workforce. “Human capital contributes 67% of total overhead in Huge Telecom, the principal subsidiary of Huge.”
The company's earnings were expected to move downward after a controversial director buy-in to contracts for difference. Between 2007 and September last year, company directors converted around 10% of the company's issued shares into futures.
Directors used the funds as a loan to the company, which seemed beneficial until the world was hit by the financial meltdown. The downturn collapsed the value of the futures.
According to the company's statement, the lower value of the futures decreased the company's HEPS and EPS by another 2.9c per share. Another expected drop was from the integration of CentraCell and the loss of iTalk Cellular to MTN.
However, IDC analyst Richard Hurst says the total expected drop in earnings comes as a surprise. “Yes, a drop is expected in earnings, but that margin is at odds with everything else that is out there.”
With the softening market, most telecoms businesses are expected to have lower earnings, but markets are averaging between 20% and 40%.
Huge says its results will not be all bad news. “On a more positive note, post year-end, the company is experiencing the beginnings of an upturn in commercial activity.” The company says it has signed three new major deals that amount to a value of R15 million.
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