Huge Telecom surprised investors at a presentation last week by declaring plans to issue a 12c dividend, despite operating a "negative working capital" cycle.
Financial director James Herbst explains that it is not as crazy as it sounds. He defines working capital as debt plus stock less creditors, and a negative cycle as the practice of paying creditors later than your debtors pay you.
On average, Huge waits 30- 45 days for its debtors to pay, and takes between 45 and 90 days to pay its own debts. "If you are negative, that means your creditors are funding you," Herbst says. He says this kind of practice is common in the telecom sector.
Huge is a least-cost router (LCR), a company that specialises in finding the cheapest way to route phone calls.
Herbst says the next challenge for the group is not to chase revenue but to improve its gross margin which, at 25%, is below the targeted 30%.
The introduction of new telecom players like Neotel actually increases business opportunities for Huge, says Potgieter, as the addition of more players makes it more difficult to find the cheapest routes.
"The more complex things get, the more important it is that you have someone who knows what they are doing," Potgieter says of LCR.
Huge is moving into areas such as advertising over mobile phones. It recently bought Eyeballs, a company that specialises in this.
Potgieter is bullish on the sector's prospects. "It's almost bullet-proof. Whether times are good or bad, people still make calls."
By Larry Claasen