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HUG - Huge Group Limited - Trading statement HUGE GROUP LIMITED (Registration number 2006/023587/06) Share code: HUG ISIN: ZAE000102042 ("Huge" or "the Group" or "the company") TRADING STATEMENT In terms of paragraph 3.4(b) of the JSE Limited Listings Requirements, a listed company is required to publish a trading statement as soon as it is satisfied that a reasonable degree of certainty exists that the financial results for the period to be reported upon next will differ, by at least 20%, from the financial results for the corresponding period in the prior year. Huge is currently finalising its financial results for the interim period dated 31 August 2009 ("1HY10") which results are expected to be announced during November 2009. Shareholders are accordingly hereby advised that a reasonable degree of certainty exists that the company`s earnings per share ("EPS") and headline earnings per share ("HEPS") will be 110% to 130% lower than the 26,18 (EPS) and 26,18 (HEPS) cents reported for the half year ended 31 August 2009. The main reasons for the decrease in EPS and HEPS can be attributed to: Revenue Effects * A reduction in cellular airtime and other revenue of R14 million from R262 million for 1HY09 to R253 million for 1HY10. Weighted average daily cellular airtime revenue is down by R75 000 per average calling day from R1.918 million per average calling day to R1.843 million per average calling day. There were 131.5 weighted calling days during 1HY10 versus 132 weighted calling days during 1HY09. This has had the effect of reducing gross profit by R2.8 million based on current discounts received from the mobile network operators, with the after tax impact on earnings amounting to R2.016 million. An increased focus on sales coupled with the appointments of a Managing Director: Sales and a Managing Director: Channel and Distribution at Huge Telecom (Pty) Limited, should result in an improvement during 2HY10. Gross Profit Effects * The contractual seasonality or timing patterns of mobile network contracts, with a contract period of 24 months, has had the effect of reducing connection incentive bonuses earned during 1HY10 by R13 million from R43 million in 1HY09 to R29 million during the period under review. This difference is expected to reverse in 1HY11. This has had the effect of reducing gross profit by R13 million with an after tax impact on earnings of R9.4 million. * Stock of airtime revenue on 6 000 unallocated SIM cards of R11.5 million has been written off during 1HY10. The after tax impact of this write off on earnings is R8.28 million. All 6 000 unallocated SIM cards have now been allocated to customers. Operating Expenses Effects * Operating expenses during 1HY10 have increased by R11.6 million when compared to 1HY09 as a result of: * An increase in salary expenses of R 6.5 million. Huge Telecom has resolved to invest in human capital to advance its medium term growth aspirations. * Non-recurring restraint of trade bonuses of R2.4 million paid to staff (and not directors of the Company) in the prior half year but amortised during the current half year. * An increase in bad debts of R 2.6 million when compared to the same period last year, mainly due to the weaker economic climate. The bad debt ratio of 1.7% is however stable and within an acceptable range. * Legal fees are R 2 million higher than the prior period. These fees are considered non-recurring. * Consulting and audit fees are R 1 million higher. The 2009 year end audit was particularly complex as a result of the accounting treatment of certain transactions. The increase in fees is expected to be non- recurring. * Depreciation and amortisation is R 1 million higher due to high capital expenditure in the prior year. The Company`s infrastructure was upgraded and vastly improved and this is expected to positively contribute to the future success of the Company. * The after tax impact of these items of operating expenses was R8.352 million. Other Effects on Earnings * The impairment of derivative contracts currently held by the Company negatively impacted pre tax earnings by R 6.3 million in the current period due to downward movements in the Huge share price. The total possible future exposure to these derivatives contracts amounts to R6.9 million, which represents the net total possible future loss to the Company in this regard. This trading statement has not been reviewed or reported on by the Company`s external auditors. Johannesburg 09 October 2009 Corporate Advisor Manhattan Equity Corporate Finance (Proprietary) Limited Designated Advisor Arcay Moela Sponsors (Proprietary) Limited Registered office: Block 2, Woodlands Drive Office Park, 5 Woodlands Drive, Woodmead, Johannesburg, 2191 (PO Box 16376, Dowerglen, 1610) Transfer secretaries Computershare Investor Services (Proprietary) Limited, Ground Floor, 70 Marshall Street, Johannesburg Date: 12/10/2009 09:35:17 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.
