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Dividend resumption announcement
HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
(“Huge” or “the Company” or “the Group”)
Dividend resumption announcement
The board of directors of Huge Group Limited (“the Board”)
has recently approved the budget for the financial year
(“FY”) ending on 28 February 2016 (“the FY16 Budget”).
After considering the FY16 Budget, the current financial
position and the current trading performance of the Group,
the Board has resolved to resume paying dividends.
In resolving to do so, the Board has also considered the
existing dividend policy of the Company, which was
established at the time of the Company’s listing on the JSE
Limited’s stock exchange in August 2007.
The existing dividend policy of the Company is to pay a
low, regular dividend supplemented by additional dividends
when earnings exceed expectations. If earnings were to be
higher than budgeted expectations in a given period, an
additional dividend might be paid, which would then be
designated a special dividend.
The existing dividend policy is based on the application of
a target dividend-payout ratio of 50%, implying a dividend
cover of two.
The Board has resolved to resume paying dividends in terms
of its existing policy which, together with any special
dividends, will result in a maximum target dividend-payout
ratio of 50%.
The Board has taken into account the following factors when
arriving at its decision to resume paying dividends:
- The contractual constraints embodied in the provisions
of the Group’s banking facility agreements with
Firstrand Bank Limited and the loan agreements with
Afrasia Special Opportunities Fund (Pty) Limited, both
of which require the consent of the lender to the
payment by the borrower of dividends;
- The current trading performance of the Group;
- The growth prospects of the Group, the associated
funding requirements for expansion and the enhancement
of the Company’s asset base; and
- The Company’s ability to raise external capital after
consideration of associated costs and timing.
With regard to the current trading performance of the
Group, the Board has taken into account the following:
- Revenue generation:
- Revenue generation is annuity based, compounding and
is associated with contractual terms in excess of 24
months;
- Revenue for FY15 is expected to be marginally higher
than revenue for FY14, providing evidence that the
declines in revenue over the prior three financial
years have been reversed;
- Measures of cumulative revenue from August 2014
(example, August 2014 to February 2015, September
2014 to February 2015, etc.) compared to measures of
cumulative revenue in the previous year have been
about 4% higher on average; and
- Revenue during February 2015 is 7% higher than
revenue generated in February 2014.
- Distribution:
- The total number of resellers (Business Partners) at
the end of February 2014 of 293, increased by 132 to
425 at the end of February 2015 (a 45% increase).
- Sales activity
- The average number of active Business Partners
during FY15 was 76% higher when compared to the
average number of active Business Partners during
FY14;
- The average monthly sales of units of telephone
lines (or connections) during FY15 was approximately
double the average monthly sales of units of
telephone lines during FY14; and
- The total number of client accounts increased by 52%
during FY15.
- Gross margins
- Wholesale input costs continue to fall;
- Selling prices have fallen at a much slower rate;
- The average monthly increase in fixed annuity
revenue generated during FY15 was 3.7 times the
average monthly increase in fixed annuity revenue
generated during FY14; and
- The increasing contribution from fixed annuity
revenue, which has grown by R1.3 million from a
monthly value of R2.4 million to a monthly value of
R3.7 million during FY15 (a 54% increase).
- Client base
- The total base of installed telephone lines (the
principal business division of Huge) increased by
31% during FY15.
With regard to the growth prospects of the Group, the
associated funding requirements for expansion and the
enhancement of the Company’s asset base, the Board has
taken into account the following:
- The current trading performance of the Group;
- The low stock holding requirements;
- Trade creditors financing trade debtors;
- Low capital expenditure (“CAPEX”) requirements of
maintaining a last mile network (as opposed to the high
CAPEX requirements of maintaining a core network);
- The low maintenance requirements of maintaining a last
mile, GSM network (as opposed to the high maintenance
costs of maintaining a core fixed-line or core VoIP
network); and
- The high level of operational leverage in the Group’s
principal business (where an ever greater percentage of
gross profit filters to operating profit because of a
low requirement for additional fixed overheads).
With regard to the Company’s ability to raise external
capital after consideration of associated costs and timing,
the Board has taken into account the following:
- The resolution of material items of litigation during
FY15;
- The successful raising of capital by way of a rights
offer to shareholders in September 2014;
- The successful raising of debt capital during November
2014;
- The improved liquidity of the Company’s shares as traded
on the JSE; and
- The introduction of certain strategic shareholders to
the Company.
Shareholders are referred to the Company’s current investor
presentation, which can be found on the Company’s web-site
at www.hugegroup.com.
Further particulars with regard to the quantum of dividends
and payment dates of dividends will be provided to
shareholders once the final results for the year to 28
February 2015 have been finalised.
Shareholders are advised that any information contained in
this announcement that might be viewed as a profit forecast
or forward looking statement has not been reviewed nor
reported on by the Company’s auditors in accordance with
section 8.40 (a) of the JSE Listing Requirements.
1 April 2015
Johannesburg
Designated adviser: AfrAsia Corporate Finance (Pty) Limited
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