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HUG - Huge Group Limited - Revised profit forecast
HUGE GROUP LIMITED
(formerly Vanquish Fund Managers Limited)
(Registration number 200/023587/06)
Share code: HUG & ISIN: ZAE000102042
("Huge" or "the company")
REVISED PROFIT FORECAST
Shareholders are advised that the directors of Huge Group Limited have revised
the profit forecast that was included in the prospectus published on 1 August
2007, both to revise upwards the initial profit forecast following acquisition
of TelePassport ("TelePassport") (Proprietary) Limited and the listing of the
company, and in order to include the effects of the recent acquisition of
CentraCell (Proprietary) Limited ("CentraCell").
The directors have prepared the following profit forecast for Huge Group ("the
Company") for the 7-month period ending 28 February 2008 and the 12-month period
ending 28 February 2009, for which they accept full responsibility:
February February
2008 2009
(Rand) (Rand)
7-month period 12-month period
Revenue 299 210 394 575 775 796
Cost of sales (240 445 473) (462 693 430)
Gross profit 58 764 921 113 082 366
Other income 1 000 000 1 200 000
Gross income 59 764 921 114 282 366
Operating expenses (29 277 824) (49 333 413)
Profit before taxation 30 487 097 64 948 953
Taxation (8 841 258) (18 835 197)
Net profit for the year 21 645 839 46 113 756
Earnings per ordinary 34.77 43.21
share (cents)
Headline earnings per 34.77 43.21
share (cents)
Number of shares in 62 253 333 106 720 000
issue (Refer note 3.14)
1 The assumptions which have been made for the profit forecast include
assumptions about factors that the directors can influence, such as revenue
mix, profit margins and operational issues, and outside factors over which
they have no control, such as the proposed merger of Telkom and MTN,
inflationary pressures, connection incentive bonuses and trading
conditions.
2 The accounting policies to be utilised by CentraCell and TelePassport are
the same as those for Huge Group Limited.
3 Notes to the profit forecast for the 7-month period ending 28 February 2008
and the 12-month period ending 28 February 2009
3.1 The 2008 profit forecast for the 7-month period ending 28 February 2008 is
based on the actual historical performance of the business of TelePassport
("TelePassport") and CentraCell ("CentraCell") for the financial years
ending on 28 February 2007 as well as the operational performance of both
companies as per the management accounts for June 2007.
3.2 Although both companies have been acquired with effect from 1 March 2007 by
the Company, the effective date on which Huge Group Limited exercised
control over TelePassport and CentraCell has been assumed as 1 August
2007. The management, operations and business model of TelePassport
remains unchanged but the management, operations and business model of
CentraCell is assumed will change to that of the management, operations and
business model of TelePassport.
3.3 It is assumed that total revenue for the 7-month period to February 2008,
but on an annualised basis, will increase as a result of the inclusion of
the contractual annuity revenue streams of CentraCell and as a result of
the higher opening book value of monthly annuity contracts of both
companies and its concomitant effect on the compounding of revenue when a
shorter period than 12 months is used. Total revenue for the 12-month
period ending 28 February 2009 is expected to increase by 12.2% in the year
to February 2009 based on the following factors:
3.3.1 The extension of Telkom`s monopoly or the proposed merger between MTN
and Telkom will not have a material affect on the revenue and
operating results of the Company and its subsidiaries;
3.3.2 The effect of deregulation in the telecommunications industry and the
introduction of new alternative telecommunications companies and new
technologies (example, WiFi, Wimax and VOIP) will have a positive
affect on the revenue and operating results of the Company and its
subsidiaries as the increased need for managed telecommunications
services emerges;
3.3.3 Total revenue mix comprises annuity revenue generated from managed
telecommunications, data and international call-back services.
Managed telecommunications revenue is expected to increase by 1% per
month from an opening base of R43mn on 1 August 2007 as a result of an
increase in new installations. Data revenue is expected to increase
by 5% per month off a starting base of R389 000 on 1 August 2007 as a
result of an increase in customers and usage. International call-back
revenue of R317 833 per month is expected to remain the same;
3.3.4 The directors have not taken into account any revenue generation from
future product and service launches nor any projects or relationships
that are currently in the process of being finalized;
3.4 Total gross profit margins will remain constant around 19.6% in the 7-month
period to February 2008 and the 12-month period to February 2009 based on
the following factors:
3.4.1 No significant changes will be made to the connection incentive bonus
received from the cellular operators, CellC, MTN or Vodacom for new
cellular telephone lines that have been contracted for in the name of
the Company or its subsidiary;
3.4.2 The arbitrage between the cost of landline telephone calls originating
from the fixed line network of Telkom and terminating on the cellular
GSM network of either CellC, MTN and Vodacom, which are charged at
higher rates and are thus more costly than cellular or mobile
telephone calls originating from one cellular GSM network and
terminating either on the same cellular GSM network or another
cellular GSM network remain the same;
3.5 Other income includes the performance of international operations and more
particular the equity accounted investment of TelePassport Namibia (which
was in a start up phase during the financial year ending on 28 February
2007).
3.6 An inflationary increase in overhead expenditure of approximately 8% and an
inflationary increase in salary expenditure of 6.25% are expected to be
offset by structural reductions in overhead expenditure resulting in an
overall increase in operating expenses of 2.8% for the 7-month period to
February 2008.
3.7 An inflationary increase in overhead expenditure of approximately 8% and an
inflationary increase in salary expenditure of 6.25% is expected to be
offset by further structural changes to overhead expenditure resulting in
an overall annualised operating expense overhead that remains unchanged for
the 12-month period ending February 2009.
3.8 The Company and its subsidiaries have no post retirement funding
commitments as a Defined Contribution Post Retirement Scheme is operated on
behalf of its employees;
3.9 The customer bases of the Company`s subsidiaries are highly dispersed with
the result that credit risk is low. No structural change in the credit
risk of the customer base is expected during the financial period ending on
28 February 2008 and the financial year ending on 28 February 2009;
3.10 No other changes in its business operations relative to the historical
performance of the Company or its subsidiaries will occur;
3.11 No account has been made in respect of finance charges as the Company
will maintain a positive cash balance throughout the financial period
ending on 28 February 2008 and the financial year ending on 28
February 2009;
3.12 Depreciation for the years ended 28 February 2008 and 28 February 2009
is based on additions to equipment and in particular routers in the
amount of R900 000 per month which are depreciated over 4 years;
3.13 An effective tax rate of 29% has been used; and
3.14 The 62 253 333 ordinary shares used for purposes of the 2008 earnings
per share calculation are based on 106 720 000 ordinary shares in
issue weighted for a 7-month period.
4 Comments on the profit forecast for the 7-month period ending 28 February
2008 and the 12-month period ending 28 February 2009
4.1 The profit forecast is based on the assumption that the sale agreement in
respect of CentraCell is unconditional and that the Company exercised
control over CentraCell from 1 August 2007 even though the conditions
precedent to the CentraCell sale agreement have at the date of this
forecast, not been fulfilled.
4.2 The profit forecast is based on the assumption that circumstances which
affect the business of the Company and its subsidiaries, but which are
outside the control of the directors, will not materially affect the
trading of the Company or its subsidiaries. More specifically:
4.2.1 Trading conditions are not expected to be materially different in each
of the forecast periods;
4.2.2 Costs will increase in line with the expected rate of inflation or as
stated above;
4.2.3 Interest rates, foreign exchange rates and the bases and rates of
taxation, both direct and indirect will not change materially;
4.3 In addition, the profit forecast is based on the assumption that:
4.3.1 There will be no new changes in International Financial Reporting
Standards which may affect the accounting treatment of the operating
results of the Company and its subsidiaries; and
4.3.2 There will be continuity in existing management and trading policies;
4.4 In the opinion of the directors, the above assumptions are significant to
the profit forecasts as being key factors upon which the financial results
of the Company and its subsidiaries will depend. However, certain
assumptions may not materialise and/or certain unforeseen events may occur
or circumstances may arise subsequent to the profit forecasts being made.
Accordingly, the results achieved for the periods referred to above may
differ from those forecast and the variations may be material.
REPORTING ACCOUNTANTS` REPORT
The auditors of the Company, Howard Leveton Boner, shall prepare a limited
assurance report on the profit forecast, which report may be viewed at the
registered offices of Huge, Block 1, Woodlands Drive Office Park, Woodlands
Drive, Woodmead, Johannesburg, 2191, once it has been finalised.
12 September 2007
Corporate advisor
Manhattan Equity Corporate Finance (Pty) Limited
Designated Advisor
Arcay Moela Sponsors (Pty) Limited
Date: 12/09/2007 08:00:09 Supplied by www.sharenet.co.za
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