Increase in market share bolsters South Africa’s Huge Group's results

Mergers, Acquisitions and Financial Results

A rapid growth rate in the local managed telecommunications industry combined with a substantial increase in market share enabled AltX listed telecommunications company, the Huge Group, to post a strong set of interim results for the six months ended 31 August 2008.

These interim results include the full six months trading results for both CentraCell and TelePassport, trading as the merged entity, Huge Telecom. They are therefore not directly comparable to those reported for the corresponding 6 month period last year, which consisted of the trading results of only TelePassport, for only one month after listing.

However, comparing the latest six month interim results to the seven month period ending 28 February 2008, reveals that the company has grown revenue 27% from R243.5 million to R308.9 million. Attributable earnings increased 10% from R26.3 million to R28.8 million. The company generated cash flow from operations for the period under review of R19.5 million.

The Huge Group's CEO, Anton Potgieter says the company's strong results are also testimony to the swift and effective completion of the merger of the two businesses which formed Huge Telecom, being TelePassport and CentraCell, and the fact that they already now form a dynamic and unified managed telecommunications company.

According to Potgieter the market for cellular least cost routing (CLCR) services has increased by an annualised rate of 18% in the last 6 months from R3 billion in total revenue at the end of February 2008 to an estimated R3.28 billion at the end of August 2008.

"This rapid growth rate is being fuelled by tougher economic conditions, which are forcing corporations to tighten their control over telephone and communications usage and effectiveness. This increased cost consciousness means that companies delivering managed telecommunications services are naturally well placed to benefit from the drive to reduce costs."

Potgieter says that by achieving an annualised growth rate in total revenue for the six month period ending 31 August 2008 of 24%, Huge Telecom has managed to increase its market share by 2.5%, from 18% to 20.5%. "Provided the market and Huge Telecom continue to grow at the same respective rates, Huge Telecom could see its market share expand further."

According to Potgieter, mobile to mobile telephone calls terminated in SA today using CLCR is around 2.8 billion minutes per annum. Taking into account that total fixed-line to mobile voice traffic originated by Telkom and terminated on the mobile networks is around 4.2 billion minutes per annum, the scope for organic growth in managed telecommunications is capable of exceeding the growth rates of the broader mobile telecommunications market. Earnings growth rates in excess of 20% should therefore be achievable for the foreseeable future.

He says the advent of VoIP technology in the African telecommunications market, represents the latest trend towards an increase in telecommunication routing alternatives and this increases the growth opportunity for communications services companies involved in managing telecommunications, both domestically and abroad.

The Huge Group also, in the period under review, acquired a 25% stake in Eyeballs Mobile Advertising for R6 million. Eyeballs is based in Cape Town, and has developed a unique media platform that delivers rich advertising content to GSM mobile subscriber handsets in an unobtrusive and non-invasive manner, providing an extremely attractive alternative to SMS and MMS advertising which are often seen as spam. The technology developed by Eyeballs currently has intellectual property protection that provides it with a significant window of opportunity in the mobile advertising and media arenas.

"The future prospects of Eyeballs and the synergies that it offers with existing opportunities within Huge are significant," says Potgieter. "Mobile media is expected to grow exponentially making it an incredibly lucrative market in the very near future."

Potgieter says the Huge Group will continue to focus on its stated objectives for the remainder of 2008, namely organic growth, leveraging efficiencies and operational and customer service excellence in Huge Telecom.

The group will also focus on continued investment in and support of intellectual capital, acquisitive growth into allied industries and markets and the introduction of further strategic and BBBEE shareholders.