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HUG - Huge Group Limited - Reviewed condensed consolidated annual financial

Release Date: 31/05/2012 17:50
Code(s): HUG
Wrap Text

HUG - Huge Group Limited - Reviewed condensed consolidated annual financial results of Huge for the year ended 29 February 2012 HUGE GROUP LIMITED (Registration number 2006/023587/06) Share code: HUG ISIN: ZAE000102042 ("Huge" or "the Group" or "the Company") REVIEWED CONDENSED CONSOLIDATED ANNUAL FINANCIAL RESULTS OF HUGE FOR THE YEAR ENDED 29 FEBRUARY 2012 HIGHLIGHTS FOR THE FINANCIAL YEAR - Completion of business restructuring - Adoption of lower operational cost business model - Significant turnaround in operational performance - Substantial improvements in supplier terms - Securing of material future input cost reductions - Confirmation of sustainability of technology model used in revised business model - Introduction of important distribution channels - Disposal of 49% stake in TelePassport Communications (Pty) Limited - Basic loss per share reduced from 15.33 to 4.05 cents - Headline loss per share reduced from 15.33 to 5.04 cents - Cash generated from operations of R22 million The board of directors ("the Board") of Huge is pleased to present the reviewed condensed consolidated annual financial results of the Company and all its subsidiary companies, associate companies, and joint ventures ("the Group") for the year ended 29 February 2012. REVIEWED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Reviewed Unaudited Audited 29 February 31 August 28 February
2012 2011 2011 (12 months) (6 months) (12 months) R R R
Total revenue 388 854 143 212 337 255 523 771 553 Gross profit 74 671 335 46 375 763 89 667 748 Other income 2 140 083 381 210 1 200 715 Operating expenses (79 054 428) (38 190 124) (114 763 516) Operating profit/ (2 243 010) 8 566 849 (23 895 053) (loss) from operations Investment income 833 047 1 585 937 3 733 896 Net change in fair (2 662 602) (6 350 925) 5 126 817 value of financial instruments Net change in fair - 1 896 354 - value of investment in associate company - TelePassport Communications (Pty) Ltd, a 49% held associate company of Huge Telecom, a wholly owned subsidiary company of the Company - held- for-sale Share of earnings 61 733 1 298 457 (952 298) /(losses) from equity accounted investments Finance costs (1 882 063) (775 426) (2 999 875) Profit/(loss) before (5 892 895) 6 221 246 (18 986 513) taxation Income tax credit / 2 213 068 (3 570 057) 2 111 745 (expense) Net profit/(loss) for (3 679 827) 2 651 189 (16 874 768) the period Non-controlling 151 309 (28 881) (1 897 956) interest Net profit/(loss) (3 831 136) 2 680 070 (14 976 812) attributable to owners of the company Earnings before 2 520 041 11 829 115 102 909 interest, taxation, depreciation and amortisation Basic (loss) / (4.05) 2.80 (15.33) earnings per share (cents) Headline (loss) (5.04) 1.09 (15.31) earnings per share (cents) Diluted (loss) (4.05) 2.80 (15.33) earnings per share (cents) Diluted headline (5.04) 1.09 (15.31) (loss) / earnings per share (cents) Dividends - - - Total number of 90 242 95 901 95 901 shares in issue (`000) Weighted number of 94 586 95 901 97 671 shares in issue (`000) (Loss) /Earnings (3 831 136) 2 680 070 (14 976 812) attributable to ordinary shareholders Adjusted for: Loss/(Profit) on 1 901 793 (1 896 354) (104 556) disposal of property, plant and equipment Tax effect (532 502) 265 490 Impairment of - - 97 774 goodwill on acquisition of Ambient Mobile (Pty) Limited Tax effect - - 29 276 Profit on disposal of (2 685 372) - - associate company Tax effect 375 952 - - Headline (loss)/ (4 771 265) 1 049 206 (14 954 318) earnings Note: the operational earnings and headline operational earnings per share reflect the earnings per share of the company independent of the effect of the fair-value adjustment of the derivative instruments. REVIEWED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Reviewed Unaudited Audited 29 February 31 August 28 February
2012 2011 2011 (12 months) (6 months) (12 months) R R R
ASSETS Property, plant and 33 025 064 37 325 921 38 901 191 equipment Goodwill 215 153 478 215 153 482 215 153 482 Intangible assets 15 392 172 16 639 409 17 716 060 Investments in joint 562 230 552 369 387 558 venture Investment in (736 461) - 1 811 107 associates Investments 263 159 305 585 305 585 Loans to associate - - - companies Deferred tax 12 258 684 6 990 144 10 511 201 CURRENT ASSETS Inventories 9 151 439 49 742 467 43 749 852 Trade and other 81 281 923 67 589 512 78 041 833 receivables Loans to associate - 1 850 942 1 779 083 companies Current tax 164 404 1 429 577 1 429 577 receivable Cash and cash 24 649 239 5 386 556 11 933 887 equivalents Investment in - 4 900 000 - associate - held for sale Total assets 391 165 331 407 865 964 421 720 416 EQUITY AND LIABILITIES Share capital 9 024 9 590 9 590 Share premium 214 395 559 221 108 366 221 108 366 Reserves (1 074 561) 28 888 28 888 Retained earnings 10 498 952 17 010 159 14 330 089 Equity attributable 223 828 974 238 157 003 235 476 933 to equity holders of parent Non-controlling (1 121 496) (1 301 686) (1 272 805) interest Non-current liabilities Finance lease - 101 751 439 094 obligations Deferred tax 1 798 081 2 385 861 2 385 861
Current liabilities Loans to/(from) 1 464 324 1 191 937 1 212 057 associate companies Loans from 1 886 082 601 103 654 951 shareholders Other financial - 1 341 979 1 630 832 liabilities Finance lease 739 571 499 604 3 674 139 obligations Trade and other 145 172 003 140 279 143 155 221 410 payables Shareholders for - 14 952 14 952 dividends Bank overdraft 17 361 308 24 267 196 21 955 871 Current tax payable 36 484 327 121 327 121 Total equity and 391 165 331 407 865 964 421 720 416 liabilities Number of shares in 90 242 95 901 95 901 issue (`000) Net asset value per 246.79 248.34 245.54 share (cents) Net tangible asset (0.87) 6.64 2.72 value per share (cents) REVIEWED CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME Reviewed Unaudited Audited 29 February 31 August 28 February
2012 2011 2011 (12 months) (6 months) (12 months) R R R
Net (loss) / profit (3 831 136) 2 680 070 (14 976 812) for the period attributable to owners of the company Other comprehensive income Other comprehensive (71 250) - (484 396) income for the period net of taxation attributable to the sale of land and buildings by Huge Telecom (Pty) Ltd Total comprehensive (3 902 386) 2 680 070 (15 461 208) income/(loss) for the period attributable to owners of the company REVIEWED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Reviewed Unaudited Audited
29 February 31 August 28 February 2012 2011 2011 (12 months) (6 months) (12 months) R R R
Balance at 1 March 234 204 128 234 204 128 257 683 078 Total comprehensive (3 902 386) 2 680 070 (15 461 208) (loss) / income for the period Purchase of own (6 713 373) - (5 321 685) shares Share option reserve - - (701 754) Lapsing of Eyeballs (659 392) - - call option Transfer of call 350 877 - - option premium to share premium on exercise of call options Acquisition of call (723 684) - - options Non-controlling 151 309 (28 881) (1 897 956) interest Acquisition of - - (96 347) subsidiaries Balance at 28/29 222 707 479 236 855 317 234 204 128 February/31 August REVIEWED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Reviewed Unaudited Audited 29 February 31 August 28 February 2012 2011 2011 (12 months) (6 months) (12 months)
R R R Cash flows from 22 010 910 (2 912 275) 7 463 545 operating activities Cash flows from 6 860 303 (2 091 802) (8 345 175) investing activities Cash flows from (11 561 297) (3 854 579) (20 575 794) financing activities Net cash movement for 17 309 916 (8 858 656) (21 457 424) the period Cash at the beginning (10 021 984) (10 021 984) 11 430 271 of the period Cash and cash - - 5 169 equivalents acquired Total cash at the end 7 287 932 (18 880 640) (10 021 984) of the period SEGMENTAL REPORTING The directors have considered the implications of IFRS 8 Operating segments and are of the opinion, based on the information provided to the chief operating decision maker, that the current operations of the Group can be split into two main operating segments, namely a Telecom Grouping (including Huge Telecom (Pty) Ltd ("Huge Telecom") and Centracell (Pty) Ltd ("CentraCell")) and a Media, Technology and Software (MTS) Grouping (including Eyeballs Mobile Advertising (Pty) Ltd ("Eyeballs") and Huge Media (Pty) Ltd ("Huge Media")). The operations within each of these main segments, or groupings, are substantially similar to one another and the risk and returns of the operations of these segments/groupings are likewise similar. Resource allocation and management of the current operations are performed on an aggregate basis within each of the two main segments/groupings. Eyeballs and Huge Media are still in the start-up phase of their respective business life cycles. No revenue was generated by either company. The summarised information is included below in line with the requirements of IAS 34. The revenue, generated from the products and services supplied by the respective Group companies, is distributed countrywide to all clients with no geographical differentiation. Telecom MTS Corporate Total
Grouping Grouping Office R R R R Total revenue 388 514 962 339 181 - 388 854 143 Cost of sales (314 127 930) (54 878) - (314 182 808) Gross profit 74 387 032 284 303 - 74 671 335 Other income 1 911 362 73 835 154 886 2 140 083 Operating (72 336 651) (1 311 390) (5 406 388) (79 054 429) expenses Operating 3 961 743 (953 252) (5 251 502) (2 243 011) profit/(loss) Investment 402 135 - 430 912 833 047 income Net change in (950 493) - (1 712 110) (2 662 603) fair value of financial instruments Income/(loss) 61 733 - - 61 733 from equity accounted investments Finance costs (1 619 278) (223 821) (38 964) (1 882 063) Profit/(loss) 1 855 840 (1 177 073) (6 571 664) (5 892 897) before income tax Income tax 3 044 450 - (831 382) 2 213 068 credit/(expens e) Profit after 4 900 290 (1 177 073) (7 403 046) (3 679 829) income tax COMMENTARY ACCOUNTING POLICIES The reviewed condensed consolidated annual financial results have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards and presented in accordance with the minimum content, including disclosures, prescribed by IAS 34 Interim Financial Reporting applied to year end reporting, and South African Statements and Interpretations of Statements of Generally Accepted Accounting Practice (AC500 Series), the Companies Act of South Africa, and the JSE Limited`s Listings Requirements. The accounting policies used in preparation of these reviewed condensed consolidated annual financial results are consistent with those applied in the last annual financial statements of the Company published in the prior year. COMPANY PROFILE Huge is an investment holding company listed on the Alternative Exchange (Altx) of the JSE Limited`s Stock Exchange ("the JSE"). The Group is focused on building shareholder value. Its treasury operations are mandated to maximise the financial position of the Company in the debt and equity markets using cash and derivative-based financial instruments. Huge Telecom and CentraCell, wholly owned subsidiaries of Huge and the principal trading operations of the Group, are two of South Africa`s leading managed telecommunications companies. Eyeballs (77% owned by Huge) is a technology provider whose technology consists of a software application that recipient users download and install, at no cost, on their mobile phones. It displays advertising and content images on the phone screen when calls are made or messages are received. Eyeballs intends generating revenue from the successful deployment of the server-end of its technology on the servers of various customers, particularly mobile network operators operating throughout the world. FINANCIAL OVERVIEW GROUP FINANCIAL PERFORMANCE During the year under review, the Company focused on completing the restructuring of its business operations, which resulted in further reductions in costs. This had the effect of turning around the operational performance of the Company for the 2012 financial year. The focus of the Management and Board for the coming financial year will be achieving substantial improvements in the terms enjoyed from its wholesale suppliers, including further reductions in input prices, as well as growing and strengthening its distribution channels. INVESTMENT HOLDING ACTIVITIES The Company continues to repurchase its own shares in accordance with the mandate of its shareholders. The dates of the acquisitions of the shares are set out below: Date of Acquiror Number of Purchase Value of purchase shares price per shares share purchased
26-Aug-11 Huge Group 401 000 75.00 300 750.00 30-Aug-11 Huge Group 200 000 81.99 163 980.00 12-Dec-11 Huge Group 934 400 51.37 480 000.00 12-Dec-11 Huge Group 37.55 350 877.20 - Option Premium 12-Dec-11 Huge 3 500 000 140.00 4 900 000.00 Telecom
12-Dec-11 Huge (3 500 000) (140.00) (4 900 000.00) Telecom 12-Dec-11 Huge Group 3 500 000 140.00 4 900 000.00 12-Dec-11 Huge Group 11 100 55.00 6 105.00 20-Dec-11 Huge Group 60 321 69.00 41 621.49 20-Dec-11 Huge Group 101 200 70.00 70 840.00 20-Dec-11 Huge Group 2 000 71.00 1 420.00 12-Jan-12 Huge Group 2 020 66.00 1 333.20 08-Feb-12 Huge Group 90 000 81.00 72 900.00 08-Feb-12 Huge Group 10 000 80.00 8 000.00 13-Feb-12 Huge Group 124 863 83.00 103 636.29 14-Feb-12 Huge Group 30 000 84.00 25 200.00 16-Feb-12 Huge Group 33 460 95.00 31 787.00 17-Feb-12 Huge Group 118 333 100.00 118 333.00 22-Feb-12 Huge Group 40 655 90.00 36 589.50 Total 5 659 352 6 713 372.68
118.62 TELECOMMUNICATIONS ACTIVITIES The telecommunications industry in South Africa continues to be both a dynamic and challenging arena, characterized by on-going regulatory changes, together with innovative product development, which has caused the natural attrition of the number of competitors within the industry over the past three years. The Board has considered the value of goodwill recognized by Huge on the original acquisition of Huge Telecom and CentraCell ("the Goodwill") and has concluded that no impairment to the Goodwill is considered necessary given the following factors: - Huge Telecom and CentraCell ("HugeTel") were originally formed to take advantage of a price arbitrage between the cost to an ordinary customer of making a telephone call to a mobile destination using the services of Telkom Ltd ("Telkom") and the cost of making the same telephone call using the services of mobile network operators ("MNOs") in the retail telephony services market. This price arbitrage was initially a 40% price advantage and was passed on by the likes of HugeTel to its clients on the date on which the client commenced utilising HugeTel`s telephony services; - In order to deliver its telephony services to its clients, HugeTel adopted a commercial business model called least cost routing ("LCR"). LCR involved the subscription by HugeTel, as an ordinary retail customer, for retail mobile packages from the respective MNOs; - Due to its bulk buying power HugeTel was able to secure bulk discounts and other incentives (in the form of connection incentive bonuses ("CIBs") and marketing incentives) from the MNOs in respect of the retail subscription based mobile packages purchased from the MNOs and sold to its clients; - It was these discounts and incentives that generated the gross profit, net profit and cash flows of HugeTel and ultimately supported the valuation of the Goodwill; - In July 2010 the major MNOs ceased paying CIBs; Management considered this a potential indicator of the impairment of the Goodwill ("the CIB Impairment Indicator"); - As early as April 2008 the management of HugeTel ("Management") and the Board started giving due consideration to the medium and long-term sustainability of the business model adopted by HugeTel in operating in its chosen market; LCR was considered generally at the time to be unsustainable given that it was a retail-price-less-discount business model ("the Retail Risk") and catered for only part of the total needs of HugeTel`s client base ("the Service Risk"); - Because LCR was borne out of a retail arbitrage relating to mobile terminated telephone calls (in other words outbound mobile telephone calls) only, it inherently exhibited the Service Risk - given that only one sixth (or at best one quarter) of the telephony services used by the clients of HugeTel were being provided by it; the other five sixths (or at best the other three quarters) of the telephony services, which include outbound international, national and local telephone calls, and inbound international, mobile, national and local telephone calls, were being provided by Telkom ("the Foregone Destinations"); - At the time, Management and the Board also considered the medium and long- term sustainability of the technology model of fixed cellular routing ("FCR") used by the LCR business model to deliver the `last-mile` of the telephony services HugeTel was providing and compared the sustainability and economic viability of this last-mile technology solution against other technology solutions, such as Voice over Internet Protocol ("VoIP"), over Telkom`s legacy fixed-line infrastructure, touted by many industry commentators as a solution for use in providing the last-mile for all telephony services; - After due consideration Management and the Board concluded that the cost- benefit ratio of using FCR technology to deliver the last-mile for telephony services far outweighed the cost-benefit ratio of switching to VoIP technology, using Telkom`s legacy fixed-line infrastructure, to deliver the last-mile for telephony services; - From as early as 2008, Management and the Board saw the benefits of embarking on a strategy of eliminating the Retail Risk by securing a wholesale agreement that would see it acquire wholesale last-mile services from one or more of the MNOs for use in providing telephony services to the clients of HugeTel; In February 2011 Management concluded such an agreement ("the Wholesale Advantage"); - In obtaining the Wholesale Advantage HugeTel is able to offer a full suite of telephony services, including the Foregone Destinations; - Management and the Board estimate that the Foregone Destinations are equal to, at worst, three times the existing services provided by HugeTel (measured in minutes), and at best, equal to five time the existing services provided by HugeTel (measured in minutes) ("the Service Multiplier"); - As a result of the regulatory changes to termination rates the wholesale input costs of Telkom, taken into account when pricing telephony services to mobile destinations, started decreasing, allowing Telkom to reduce its mobile telephony prices to the market; - Between August and November 2011, Telkom aggressively targeted the upper segment of the telephony services market - defined by HugeTel as customers spending more than R100 000 per month on telephony services by substantially reducing prices for telephony services to mobile destinations; - Management and the Board considered strategies to combat the loss of revenue from clients in the upper segment of the market ("Upper Segment Churn") moving to Telkom, including matching prices for Telkom`s telephony services to mobile destinations, and concluded that the retention of the upper segment at ever reducing profit margins and at any cost was futile; - Management and the Board considered the impact of Upper Segment Churn on revenue ("the Revenue Impact") for the 2012 financial year and concluded that the Revenue Impact, although short-term in nature, is still a potential indicator of an impairment of the Goodwill ("the Churn Impairment Indicator"); - Management and the Board considered the CIB Impairment Indicator and the Churn Impairment Indicator ("Indicators") and conclude that the Service Multiplier more than mitigates the impact of the Indicators. The Board continues to assess the industry and the possible changes that could impact the Goodwill. During the course of the year, TelePassport Namibia, in which the Huge Telecom held a 49% stake, was sold for R4 900 000 to Luigi`s Trust, an associate of Anton Potgieter, a non-executive director of the Company. TelePassport is based in Windhoek, Namibia and was formed in 2004 by Huge Telecom and certain local high profile residents of Namibia, with a view to growing Huge Telecom`s market share outside the borders of South Africa. Namibia is a small market for the provision of managed telecommunications services and is roughly equal in size to half of Huge Telecom`s KwaZulu Natal office. Namibia is also a different regulatory market as far as telecommunications services are concerned, making the management thereof different to the Group`s South African operation. Shareholder approval for the disposal was obtained on 9 December 2011. The purchase price for TelePassport Namibia was satisfied through the tendering of 3 500 000 ordinary shares in the issued share capital of the Company, and thus the disposal of Huge Telecom`s holding in TelePassport afforded the Company the opportunity to continue to repurchase its shares under favourable conditions. MEDIA ACTIVITIES Huge has a 77% shareholding in Eyeballs. Eyeballs has continued to refine its proprietary in-application mobile phone advertising technology during the financial year in support of its technology provider strategy. The Board has considered the value of the intangible asset of approximately R16.05 million raised on the step acquisition by the Company of an additional 52% of the ordinary share capital of Eyeballs wherein the Company`s ownership of Eyeballs increased to a shareholding of 77%. The value of the intangible asset is based on the technology owned by Eyeballs and is further based on its value-in-use or its fair-value-less-costs-to-sell, as required by International Financial Reporting Standards (IFRS). The intangible assets is amortised over a useful life of five years. The technology is disclosed at a carrying value of R6.4 million. GROUP OPERATING ACTIVITIES The performance of the Group can be summarised as follows: Revenue for the full financial year to date ("YTD") is down R134.9 million or 25.76% from R523.8 million to R388.9 million when compared to the prior year; YTD gross profit ("GP") is down R15.0 million or 16.72% from R89.7 million to R74.7 million; YTD GP, excluding the increasing effects of CIBs and marketing incentives of R20.9 million in the 2011 financial year ("FY") but including the decreasing effects of Business Partner commissions paid of R24.5 million in FY2011) is up R6.5 million or 6.97% from R93.3 million (R89.7 million less R20.9 million plus R24.5 million) to R86.8 million (R74.7 million less R4.8 million plus R16.9 million); the aforementioned change in GP is a like for like comparison as it ignores the effects of CIBs; YTD operating costs are down R35.7 million or 31.12% from R114.8 million to R79.0 million. GROUP NET CHANGE IN THE FAIR-VALUE OF FINANCIAL INSTRUMENTS The net change in the fair-value of financial instruments, in particular the mark-to-market profits on the single stock futures contracts and contracts for difference held by the Group, amounted to a loss of R2.66 million. STATEMENT OF FINANCIAL POSITION CONSIDERATIONS Cash generated from operations during the current financial year amounted to R22.0 million. Capital expenditure during the current financial year amounted to R3.7 million. The Group no longer has any long-term debt. FUTURE PROSPECTS Investment Holding Activities The Group will continue where possible to purchase shares that trade at a discount to its fair-value under its general authority to repurchase. This general authority is limited to a maximum of 5% of the issued ordinary share capital at present and will be utilised by Huge in order to unlock long-term value for shareholders. Telecommunication Activities The Board and Management expect the market for telecommunications products and services to experience significant wholesale price compression in the immediate future. This outlook is good for HugeTel given that wholesale price compression equates to lower input prices and correspondingly higher profit margins. The most significant moves are expected from the MNOs, particular Cell C, but no doubt MTN and Vodacom will have to follow suit if they want to prevent Cell C from gaining an early lead in providing corporate telephony in South Africa. Wholesale price reductions by the MNOs will add further credibility to the provision of telephony services using FCR and the concomitant use of the wireless GSM last-mile to deliver these telephony services. This will improve the position of HugeTel relative to that of its VoIP competitors, who piggy- back on Telkom`s existing legacy fixed-line infrastructure to provide the last- mile for their telephony services. Management and the Board believe that HugeTel is in a relatively stronger position with the MNOs in the event of significant wholesale price competition because, unlike the VOIP proponents, HugeTel has chosen not to build its own network to compete with the incumbent telecom operators. Indeed, the MNOs may well see the likes of Vox, Nashua, Internet Solutions, and Autopage as competitors at the operator level, whereas HugeTel is far better positioned to partner meaningfully with the MNOs because of its pure service provider, rather than aspirant network operator, status. Management believes further that it is also going to be difficult for the current VoIP proponents in the market to undo their recent unilateral conversions of their clients from LCR to VoIP, given the capital investments that they have now made in their VoIP networks, the long-term infrastructure contracts for the supply of data services to which their clients have bound themselves, and the competitive threat which they potentially pose to the MNOs. If a wholesale price war in the corporate telephony voice market emerges, it is the Board and Management`s view that at present HugeTel is one of the best placed providers of corporate telephony solutions to benefit from this. HugeTel may also possibly be the only real service provider left in this space, due to the mass exodus to VoIP - especially by the larger players - and the failure of most of the smaller players due to financial pressures associated with the margin squeeze experienced over the past three years. HugeTel has on numerous occasions been questioned about the real-world benefits of FCR. It is the view of Management that FCR benefits far outweigh the benefits of VoIP. It is far simpler to install an FCR solution than a fixed-line or VoIP solution, as the lead time to architect the solution is shorter, the lead times to implement are quicker, it can be provided incrementally (in units as small as one voice channel), there is natural redundancy and fail-over built into the architecture of the MNOs GSM-networks and the mean times to repair are phenomenally better. Besides the complexity of installing a VoIP system and the costs to manage and maintain it, fixed- line telephony comes with a host of other challenges and pitfalls: Cable theft is rife and affected areas often take weeks or months to have their services restored, if at all in some cases; Lead time to install or move services takes weeks or even months; and Trying to move a fixed-line is very difficult. The Board and Management believe that HugeTel is well prepared to take advantage of the position it holds given that its extensive, proprietary systems and business model are all geared towards efficiently routing corporate voice across fixed cellular channels. The company has automatically generated alerts on channel usage, together with a billing engine capable of rating, checking and double-checking calls from all networks, advanced reporting options, a national presence across South Africa with a wide network of Business Partners, and a technology solution which is proven. Furthermore, unlike VoIP, the services scale and work equally well across the entire market, from a residential customer to an SME or start-up with two telephone lines to a corporate with two hundred or more telephone lines. Media Activities Eyeballs will continue to explore partnerships to deploy its offerings in the international market. This start-up business continues to be well placed to achieve breakeven profitability in the near future. The mobile advertising market continues to enjoy enormous growth projections from leading experts worldwide. GENERAL REPURCHASE OF SHARES FOR CASH From 1 March 2011 to the end of the 2012 financial year Huge repurchased 5 659 352 ordinary shares in accordance with Section 85 of the erstwhile Companies Act, 1973, and Section 46 and 48 of the Companies Act, 2008, promulgated on 1 May 2011. The cost of the shares acquired was R6 713 372.68 at an average price of 118.62 cents per share. The Group currently holds 10 270 878 ordinary shares as treasury shares, of which 623 952 ordinary shares are held by the Company and will be cancelled, while 9 646 926 ordinary shares are held by Huge Telecom. The Company currently has 100 512 495 ordinary shares in issue of which 10 270 878 ordinary shares have been repurchased, leaving a net 90 241 617 listed ordinary shares. The Company is also the holder of single stock futures contracts over 8 045 500 ordinary shares, while Huge Telecom is the holder of single stock futures contracts over 359 200 ordinary shares and contracts for difference over 3 904 579 ordinary shares. These financial derivative instruments are all fully collateralized with cash and present the Company with the potential to repurchase the shares underlying them for no cash consideration. Should the Company elect to repurchase the underlying shares, which it has not as yet decided to do, the net number of ordinary shares in issue will fall to 77 932 338 ordinary shares. LEGAL AND REGULATORY REQUIREMENTS Huge Telecom is currently party to the following litigation: MTN Service Provider Proprietary Limited ("MTN SP") MTN SP instituted a notice of motion in the South Gauteng High Court, Johannesburg, on 18 January 2011 whereby it made application for either an order 1) liquidating Huge Telecom Proprietary Limited; 2) that the costs of the application be costs in the liquidation; 3) further and/or alternative relief, or alternatively a judgment against Huge Telecom Proprietary Limited for 1) payment of the amount of R30 million; 2) interest; 3) costs of the suit; 4) further or alternative relief. Huge Telecom opposed the notice of motion and filed its answering affidavit on 1 March 2011. MTN SP`s filed its replying affidavit on 1 July 2011. The application proceedings have been enrolled for hearing on 23 and 24 July 2012. The Group has recognised the assets and the liabilities relating to the MTN SP dispute in accordance with the settlement agreement which MTN SP claims was reached between the parties. As such the carrying amounts of these assets and liabilities may be materially adjusted within the next financial year, depending on the outcome of the legal dispute. Mr JP Kimber On 22 November 2010, Jonathan Peter Kimber ("Kimber"), a past director of Huge Telecom, instituted a claim against Huge Telecom for payment of R6.8 million in terms of an option agreement signed by Huge Telecom and Kimber on 2 September 2008, as varied by the option agreement amendment agreement signed by Huge Telecom and Kimber on 27 February 2009 ("the option agreements"). On 12 October 2011 Kimber launched an application in the South Gauteng High Court for rectification of the option agreements and for payment of the sum of R6.8 million plus interest thereon ("the main application"). Huge Telecom opposed the notice of motion in terms of the main application and filed its answering affidavit on 19 October 2011. On 14 November 2011 Huge Telecom launched its own notice of motion in terms of a separate Section 6(1) application in the South Gauteng High Court seeking an order compelling Kimber to comply with the arbitration undertakings in the option agreements, which prevent Kimber from litigating in court. On 22 November 2011 Kimber filed a notice of intention to oppose the Section 6(1) application, and subsequently on 7 December 2011, Kimber filed an opposing affidavit to the Section 6(1) application. In reply, on 12 January 2012 Huge Telecom filed its replying affidavit to the Section 6(1) application to stay the main application. The section 6(1) application was set down for hearing on 28 March 2012 and was heard by Acting Judge Vermeulen, who has reserved judgment in the matter, with no indication of when judgment may be delivered. No amounts have been recognized in the financial results given that the dispute involves the possible repurchase by the Company of its own shares. SUBSEQUENT EVENTS There are no events subsequent to 29 February 2012 and to the date of this announcement which have had or may have a material impact on the Company. GOING CONCERN The Board has made a detailed assessment of the going concern capability of the company and all subsidiaries of the company that form the Group with reference to certain assumptions and plans underlying various cash flow forecasts made by Management. The Board has not identified any events or conditions that individually or collectively cast significant doubt on the ability of the Company and the Group to continue as a going concern. CHANGES TO THE BOARD OF DIRECTORS AND COMPANY SECRETARY Ms Yvette Neverling resigned as the Acting Financial Director with effect from 31 May 2011, whereafter Mr James Charles Herbst fulfilled the role of Acting Financial Director. Subsequent to this, Mr Neil Brian Wensley was appointed as Group Financial Director with effect from 1 August 2011, which appointment was ratified by shareholders at the Annual General Meeting of the Company held on 28 October 2011. CHANGES TO THE AUDITOR BDO South Africa Incorporated was appointed to the office of auditor of the Company with effect from 2 December 2011 in the stead of KPMG Incorporated. DIVIDENDS No dividends were paid or declared during the financial year ended 29 February 2012. GOVERNANCE The Group recognises the need to conduct its business with integrity, transparency and equal opportunity, and subscribes to the spirit of good corporate governance as set out in the King III Report on Corporate Governance. UNMODIFIED REVIEW CONCLUSION The reviewed condensed consolidated annual financial results of Huge for the year ended 29 February 2012 have been reviewed by the Company`s auditor, BDO South Africa Incorporated. Their unmodified review report dated 31 May 2012 is available for inspection at the Company`s registered office. Johannesburg 31 May 2012 Designated Advisor Arcay Moela Sponsors Proprietary Limited Number 3, Anerley Road, Parktown, 2193 Auditors BDO South Africa Incorporated. 13 Wellington Road, Parktown, 2193 Registered office: 146a Kelvin Drive, Woodmead, Johannesburg, 2191 (PO Box 16376, Dowerglen, 1610) Transfer Secretaries Computershare Investor Services Proprietary Limited Ground Floor, 70 Marshall Street, Johannesburg Directors: SP Tredoux* (Non-executive Chairman), KD Jarvis (Lead Independent director)*, BA McQueen*, AD Potgieter*, MR Beamish*, JC Herbst (CEO), NB Wensley (Group Financial Director), VM Mokholo *Non-executive Date: 31/05/2012 17:50:52 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.

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