A new Huge

Huge Group has simplified its telecoms unit's operational and sales structure, and changed the way it does business, and believes this is starting to pay off, despite recording a full-year loss.

CEO James Herbst says Huge Group is now a new business and has been doing "handsomely" in the past few months.

Herbst says the core of the business is solid, although the numbers were affected by the write-down of Eyeballs, and a non-cash derivatives charge. He notes the telecoms unit boosted operating profit almost three times and the group's gross margin has improved.

The telecoms unit is by far its largest entity, contributing R266.1 million to total turnover. It has benefited from last year's re-organisation, which led to monthly savings of around R500 000 and helped offset lower revenue in the last seven months of the year.

In the year to February, revenue came in at R266.3 million, lower than last year's R384 million, and its net loss widened to R11.9 million, from R4.4 million, after being positive at half-year. Huge has two units, its telecoms group and the entity that holds its 77% stake in Eyeballs Mobile Advertising and Huge Software, previously Huge Media.

Huge says the drop in revenue is due to churn, and not from a lack of sales effort or an inability to activate new connections. Current trends suggest this is reversing, and sales of new connections are growing.

The last seven months of the financial year were negatively impacted by churn, as termination of existing contracts exceeded the sale of new connections, although lower revenue was partially offset by the gains from the lower cost structure carried over from the first five months.

Huge decided not to combat churn by dropping prices, which would erode margins. "In contrast, the benefit of the recently concluded wholesale, cost-plus agreement is the ability to offer more attractive pricing in the market," it says in the results commentary.

The listed company reported a 53% increase in gross profit margins from 19.4% to 29.7%. Huge's margins are now back at levels last seen before the interconnect rates started being trimmed a few years ago, says Herbst.

In 2010, the Independent Communications Authority of SA decreed that cellular interconnect costs had to drop to 73c at peak and 65c during off-peak times, from March 2011. Last year, rates dropped to 56c and 52c, respectively. This March, wholesale mobile termination rates dropped to 40c, regardless of the time the call is made.

Herbst says margins should improve further, although revenue is problematic and needs to be addressed. However, he thinks Huge has seen the last of the revenue declines.

Huge's telecoms unit is now focusing its sales efforts through its business partner channel. Huge Telecom supplies wireless, GSM-based, last-mile connectivity service using fixed cellular routing technology, which it sells through a business partner network of PABX suppliers.

The group says it is now faced with lower operational risk than in its 20-year history. This year, it will focus on adding more partners to its network, which will aid revenue gains.