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Huge in legal battles

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 02 Jun 2014
A dispute between Huge Group and MTN Service Provider finally goes to court in August.
A dispute between Huge Group and MTN Service Provider finally goes to court in August.

The Huge Group, which provides full suite telephony services to more than 7 100 small and medium enterprises, is embroiled in several legal battles, its full-year results commentary shows.

Among these is a dispute between it and MTN Service Provider (MTNSP), which is set to go to court on 25 August, over an alleged breach of agreement by Huge. The matter, which dates back to when MTN bought iTalk in 2009, hinges on a dispute over whether MTNSP could take over contracts with Huge without Huge agreeing to the contract being moved to MTNSA.

Huge CEO James Herbst explains MTNSP wants the South Gauteng High Court to enforce a settlement agreement, which he says was not binding. MTNSP has also launched another action in case its initial bid fails, in which it is seeking R56 million.

Defensible

Herbst says the practical value of MTN's claim would have to be taken into account off MTN's claim because Huge is still owed airtime value from the iTalk deal. While the company believes its position is defensible, it has provided for the matter in its numbers and Herbst notes there are settlement opportunities.

In addition, Huge is embroiled in a billing dispute with TeleMasters after TeleMasters cancelled an agreement with Huge for the supply of MTN airtime and suspended the SIM cards held by Huge last February.

TeleMasters alleges Huge owes it R4.17 million, but Huge says it was overcharged to the tune of R6 million. The issue is set to be hammered out before the Arbitration Foundation of Southern Africa on an uncertain future date.

Profit gains

Despite its legal woes, the revamped company has been managing to increase its gross profit margin and net profit, even as revenue growth slows. In the 12 months to February, turnover dropped from R266 million to R203.6 million, but its bottom line gained to R11 million from R3 million.

The AltX-listed company also grew its gross profit margins from 29.7% to 46.3%. Herbst says because Huge is now a totally different company, the top line is not comparable year-on-year.

A year ago, the group simplified its telecoms unit's operational and sales structure, and changed the way it does business. Herbst says, based on its sales, this is paying off as it hit a record month in March in terms of the number of units it sold.

Huge has grown its business partners from 174 to 289 and seen sales increasing from these partners. Sales, measured by the number of telephone lines sold, increased substantially during the year, to 8 262 units - a 226% increase year-on-year. "In March 2014, sales of new telephone lines exceeded 1 000 lines for the first time in the company's history."

In its review commentary, it notes the past year was "another important building block in establishing Huge Telecom as the pre-eminent provider of full suite telephony services to corporate enterprises in South Africa, and in particular to SMMEs". The company says the small and medium market, where it is well positioned, has become the last frontier and is where the "gold rush" is currently happening.

It adds Huge Telecom made improvements in every area of the business this year, and a number of merger and acquisition opportunities are also starting to emerge.

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