South Africa’s Huge Group's Focus on Improving Operational Efficiency Pays Off

Mergers, Acquisitions and Financial Results

Huge Group has reversed its first-half loss of R5.8m, posting a profit of R8.1m for the year to February despite a slight fall in revenue, thanks to a dramatic turnaround in the second half of its financial year.

The second half is traditionally a slower period for the company, but its focus on improving operational efficiency and generating higher gross profit margins within its largest subsidiary, Huge Telecom, contributed to a spike in profits.

Group revenue was down to R573.5m from R608.5m last year. Headline earnings per share were up 28.3% to 8.79c. CEO James Herbst said the turnaround was mainly due to a successful merger of TelePassport and CentraCell into Huge Telecom. This resulted in a 35% growth in gross profit in Huge Telecom. The gross profit margin rose to 20.8% from 18.6%.

This was achieved primarily through significant improvements in the management of Huge Telecom's input costs. The group opened a revenue assurance department to enhance the management of airtime available for sale. This resulted in a dramatic reduction of airtime lost through expiry.

Gross profit for the traditionally slower second six months of the year amounted to R68.4m, an increase of 34% from the R51m recorded in the first half of the 2010 financial year.

The group has also diversified its business by launching a media division called Huge Media and by increasing its stake in mobile advertising platform provider Eyeballs Mobile Advertising to 77% from 25%. Contributions from the subsidiaries are expected from this financial year.

The adding of new revenue streams was also partly done in anticipation of the reduction in interconnection rates, which is expected to substantially reduce the profitability of companies that provide least-cost routing services. However, Mr Herbst said the group was confident it would not suffer as its competitors had because of this reduction in interconnection fees. He said Eyeballs had started generating revenue from sales after the financial year had ended, and he expected Huge Media "to start contributing in future".