Wrap Text
Unaudited Consolidated Results for the Six Months Ended 31 August 2012
HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
("Huge" or "the Group" or "the Company")
UNAUDITED CONSOLIDATED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST
2012
HIGHLIGHTS FOR THE PERIOD
- Increased earnings
- Increased asset values
- Long-term borrowing capacity
- Increased gross margins
- Increased operating margins
- Greater operational efficiencies
- Reduced inventory obsolescence risks
- Improved working capital
- Sustainable supply arrangements
The board of directors ("the Board") of Huge is pleased to present
the unaudited interim results of the Company and all its subsidiary
companies, associate companies, and joint ventures (“the Group”) for
the six-months ended 31 August 2012.
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
31 August 31 August 29 February
2012 2011 2012
(6 months) (6 months) (12 months)
R R R
Total revenue 155 924 806 212 337 255 388 854 143
Gross profit 37 935 877 46 375 763 74 671 335
Other income 740 084 381 210 4 253 833
Operating
expenses (34 595 357) (38 190 124) (81 898 821)
Operating
profit/ (loss) 4 080 604 8 566 849 (2 973 653)
Investment
income 433 098 1 585 937 1 452 827
Net change in
fair value of
financial
instruments 3 770 875 (6 350 925) (2 662 602)
Net change in
fair value of
investment in
associate
company held
for sale
- 1 896 354 -
Share of
earnings
/(losses) from
equity
accounted
investments 93 269 1 298 457 61 733
Finance costs (2 212 505) (775 426) (2 501 843)
Profit/(loss)
before taxation 6 165 341 6 221 246 (6 623 538)
Income tax
credit /
(expense) 2 359 146 (3 570 057) 2 213 040
Net
profit/(loss)
for the period 8 524 487 2 651 189 (4 410 498)
Non-controlling
interest (446 699) (28 881) 151 310
Net
profit/(loss)
attributable to
owners of the
company 8 971 186 2 680 070 (4 561 808)
Basic earnings
/ (loss) per
share (cents) 9.95 2.80 (4.82)
Adjusted for:
(Profit)/loss
on disposal of
property, plant
and equipment - (1.71) 1.39
Profit on
disposal of
associate
company - - (2.44)
Impairment of
investment in
associate
company 0.08 - -
Headline
earnings /
(loss) per
share (cents) 10.03 1.09 (5.88)
Total number of
shares in issue
(‘000) 89 255 95 300 90 242
Weighted number
of shares in
issue (‘000) 90 160 95 895 94 586
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 August 31 August 29 February
2012 2011 2012
(6 months) (6 months) (12 months)
R R R
ASSETS
Property, plant and
equipment 33 116 994 37 325 921 33 025 064
Goodwill 215 153 482 215 153 482 215 153 482
Intangible assets 12 866 618 16 639 409 15 392 170
Investment in joint
venture 655 499 552 369 562 230
Investments 387 986 305 585 263 158
Deferred tax 16 865 096 6 990 144 12 258 656
279 045 675 276 966 910 276 654 760
CURRENT ASSETS
Inventories 3 894 490 49 742 467 9 151 439
Trade and other
receivables 56 647 369 67 589 512 81 335 887
Loans to associate
companies - 1 850 942 199 958
Shareholders’ loans 402 215 - -
Current tax
receivable - 1 429 577 164 405
Derivative margin
deposits 18 091 467 7 275 924
Cash and cash
equivalents 6 351 119 5 386 556 17 373 315
Investment in
associate – held for
sale - 4 900 000 -
85 386 660 130 899 054 115 500 928
Total assets 364 432 335 407 865 964 392 155 688
EQUITY AND
LIABILITIES
Share capital 9 024 9 590 9 024
Share premium 213 352 130 221 108 366 214 395 559
Reserves (1 074 561) 28 888 (1 074 562)
Retained earnings 19 470 108 17 010 159 10 498 923
Equity attributable
to equity holders of
parent 231 756 701 238 157 003 223 828 944
Non-controlling
interest (1 568 194) (1 301 686) (1 121 496)
230 188 507 236 855 317 222 707 448
Non-current
liabilities
Finance lease
obligations 577 584 101 751 445 550
Deferred tax 4 045 683 2 385 861 1 798 081
Investment in
associate - - 736 461
4 623 267 2 487 612 2 980 092
Current liabilities
Loans to associate
companies - 1 191 937 -
Loans from
shareholders 1 189 031 601 103 2 851 383
Other financial
liabilities 537 651 1 341 979 2 698 982
Finance lease
obligations 37 687 499 604 294 020
Trade and other
payables 115 404 027 140 279 143 143 225 971
Shareholders for
dividends - 14 952 -
Bank overdraft 12 452 165 24 267 196 17 361 308
Current tax payable - 327 121 36 484
129 620 561 168 523 035 166 468 148
Total liabilities 134 243 828 171 010 647 169 448 240
Total equity and
liabilities 364 432 335 407 865 964 392 155 688
Number of shares in
issue (‘000) 89 255 95 300 90 242
Net asset value per
share (cents) 257.90 248.54 246.79
Net tangible asset
value per share
(cents) 2.43 5.31 (0.87)
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
31 August 31 August 29 February
2012 2011 2012
(6 months) (6 months) (12 months)
R R R
Balance at 1 March 222 707 449 234 204 128 234 204 128
Total comprehensive
income / (loss) for
the period 8 971 186 2 680 070 (4 561 808)
Purchase of own
shares (1 043 429) - (6 713 374)
Transfer of call
option premium to
share premium on
exercise of call - - 350 877
options
Acquisition of call
options - - (723 685)
Non-controlling
interest (446 699) (28 881) 151 310
Balance at 28/29
February/31 August 230 188 507 236 855 317 222 707 448
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
31 August 31 August 29 February
2012 2011 2012
(6 months) (6 months) (12 months)
R R R
Cash flows from
operating activities (2 508 695) (2 912 275) 11 957 354
Cash flows from
investing activities 1 789 272 (2 091 802) 5 271 894
Cash flows from
financing activities (5 393 626) (3 854 579) (7 195 260)
Net cash movement for
the period (6 113 049) (8 858 656) 10 033 987
Cash at the beginning
of the period 12 003 (10 021 984) (10 021 984)
Total cash at the end
of the period (6 101 046) (18 880 640) 12 003
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 and a Media, Technology and Software (“MTS”)
Grouping. 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. 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.
The Telecom Grouping comprises:
- Huge Telecom (Pty) Limited (“Huge Telecom”);
- Huge Mobile (Pty) Limited (“Huge Mobile”) – formerly CentraCell
(Pty) Limited;
- Huge Cellular (Pty) Limited (“Huge Cellular”);
- Le Gacy Telecom (Pty) Limited (“Le Gacy”); and
- Gonondo Telecom (Pty) Limited (“Gonondo”);
The MTS Grouping comprises:
- Eyeballs Mobile Advertising (Pty) Limited (“Eyeballs”); and
- Huge Software (Pty) Limited (“Huge Software”) – formerly Huge
Media (Pty) Limited
The Corporate Office comprises:
- Huge Group Limited
Telecom MTS Corporate
Grouping Grouping Office Total
R R R R
Total revenue 155 799 806 125 000 - 155 924 806
Gross profit 37 810 877 125 000 - 37 935 877
Other income 615 457 - 124 627 740 084
Operating
expenses (30 999 174) (3 090 765) (505 418) (34 595 357)
Operating
profit/(loss) 7 427 160 (2 965 765) (380 791) 4 080 604
Investment
income 300 817 - 132 281 433 098
Net change in
fair value of
financial
instruments 1 357 225 - 2 413 650 3 770 875
Income/(loss)
from equity
accounted
investments 93 269 - - 93 269
Finance costs (1 412 189) (80) (800 236) (2 212 505)
Profit/(loss)
before income
tax 7 766 282 (2 965 845) 1 364 904 6 165 341
Income tax
credit/(expense) 398 080 2 737 441 (776 375) 2 359 146
Profit after
income tax 8 164 362 (228 404) 588 529 8 524 487
COMMENTARY
ACCOUNTING POLICIES
The unaudited consolidated interim 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, the Companies Act of South Africa,
and the JSE Limited’s Listings Requirements. The accounting
policies used in preparation of these unaudited consolidated interim
financial results are consistent with those applied in the last
comparable six month period, as well as those applied in the
preparation of the annual financial results of the Company for the
year ended 29 February 2012.
COMPANY PROFILE
Huge is an investment holding company listed on the Alternative
Exchange (“AltX”) of the JSE Limited’s Stock Exchange (“JSE”) and
comprises a Telecoms Grouping and an MTS Grouping. 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 instruments.
Huge Telecom, a wholly-owned subsidiary company of Huge and the
principal trading operation of the Group, is one of South Africa’s
leading “Communication Expense Management” and “Managed
Telecommunications” companies.
Eyeballs (77% owned by Huge) is a technology provider whose
“Eyeballs” technology consists of a software application that
recipient users download and install on their mobile phones. It
displays advertising and content images on the phone screen when
calls are made or messages are received.
Further investor and shareholder information is available at
www.hugegroup.com.
FINANCIAL OVERVIEW
GROUP FINANCIAL PERFORMANCE
Huge has seen further success with its focus on operational
efficiencies, treasury management and cost containment.
INVESTMENT HOLDING ACTIVITIES
The Company has been acquiring its own shares under the general
authority granted to the directors at the last six annual general
meetings (“AGMs”). The most recent of these AGMs was held on
Friday, 28 September 2012. The acquisitions recorded below were
undertaken in terms of the general authority granted to the
directors by the shareholders of the Company at the AGM held on 28
October 2011.
The dates of the acquisitions of the shares are set out below:
Transaction Purchaser Number of Price Total
Date ordinary per value
shares share of
acquired transaction
27 Jul 2012 Huge 200 000 100.00 200 000.00
30 Jul 2012 Huge 479 000 104.91 502 518.90
31 Jul 2012 Huge 10 000 100.00 10 000.00
1 Aug 2012 Huge 200 000 110.00 220 000.00
2 Aug 2012 Huge 38 100 110.00 41 910.00
31 Aug 2012 Huge Telecom 60 000 115.00 69 000.00
Total 987 100 1 043 428.90
At the beginning of the 2013 financial year that commenced on 1
March 2012, the Company had a total of 105 547 895 ordinary shares
in issue.
At the beginning of the 2013 financial year the Group held 15 306
279 ordinary shares as treasury shares. 5 659 352 ordinary shares
were held by the Company and 9 646 926 ordinary shares were held by
Huge Telecom.
In terms of the new Companies Act any shares of a company
repurchased by it are automatically returned to authorised share
capital as unissued shares and are not regarded as being held as
treasury shares.
In April 2012, a total of 5 035 400 ordinary shares were cancelled,
delisted from the JSE, and returned to authorised share capital,
leaving a total of 100 512 495 ordinary shares in issue, of which
9 646 926 ordinary shares were held in treasury by Huge Telecom and
623 952 ordinary shares were held by the Company on the basis that
these fell to be deducted from ordinary shares in issue.
Of the 987 100 ordinary shares recorded above that were acquired
between 1 March 2012 and 31 August 2012 927 100 also fall to be
deducted from ordinary shares currently in issue.
The 9 706 926 ordinary shares held by Huge Telecom affords the
Company the future prospect of reducing the number the number of
ordinary shares in issue further, to 89 254 517.
TELECOMMUNICATIONS ACTIVITIES
Huge Telecom is the Group’s principal revenue generator.
Total revenue generated in the six months ended 31 August 2012
showed a decrease of 26.6% to R155.9 million, from the R212.3
million generated during the six months to the end of August 2011.
This is attributable to the loss of upper segment clients whose Rand
value of spend is greater than R60 000 per month but whose margins
attributable to this Rand value of spend are substantially lower
than those margins attributable to clients whose Rand value of spend
is lower than R60 000 per month.
Competition at the upper segment of the market is fierce and price
elasticity is greater. Given the price compression at this end of
the market, gross margins are very small. Huge Telecom has no
desire to use price to differentiate its offering.
The lower segment of the market is less price elastic, margins are
higher and other factors, such as service, differentiate offerings.
Huge Telecom has decided to focus on the lower segment of the
market.
Accordingly, gross margins are up 5.13% when comparing gross margins
of 24.33% for the six month period to 31 August 2012 with gross
margins of 19.20% for the 12 month period to 29 February 2012.
Huge Telecom continues to focus on cost containment. Accordingly,
this has translated into lower operating expenses, which are down a
further 9.41% when comparing operating expenses of R34.6 million to
31 August 2012 with operating expenses of R38.2 million to 31 August
2011.
MEDIA ACTIVITIES
Eyeballs continued to develop its proprietary in-application mobile
phone advertising technology, in support of its technology provider
strategy.
The Eyeballs technology is available for all Symbian (which includes
most Nokia phones and several LG, Samsung and Sony Ericsson models)
and Blackberry Smartphones. Other operating systems will be
considered continually based on the size of the addressable market.
GROUP NET CHANGE IN THE FAIR-VALUE OF FINANCIAL INSTRUMENTS
The profits on single stock futures contracts (“SSFs”) and contracts
for difference (“CFDs”) increased the operating profitability of the
Group by R3.8 million in the six month period ended 31 August 2012 –
this compared to a loss of R6.4 million in the comparative prior
period.
FUTURE PROSPECTS
Investment Holding Activities
The Group will continue to consider the purchase of shares in the
Company that trade at a discount to its fair-value by making use of
its general authority to repurchase shares. This general authority
is limited to a maximum of 20% of the issued ordinary share capital
and will be used by Huge to unlock long-term value for shareholders.
Telecommunication 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.
The Board expects the market for telecommunications products and
services to continue to experience wholesale price compression in
the immediate future. This price compression is good for Huge
Telecom given that wholesale price compression equates to lower
input prices and correspondingly higher profit margins.
In addition, the Board continues to believe that Huge Telecom is
well prepared to take advantage of the position it holds in the
South African telecommunications industry given that its extensive,
proprietary systems and business model are all geared towards
efficiently routing corporate voice across fixed cellular channels.
Huge Telecom remains committed to its strategy of providing a
complete spectrum of managed telecommunication services to South
African businesses.
Huge Telecom continues to monitor developments in the
telecommunications industry to ensure that its business model is
appropriate, optimal and sustainable.
Huge Telecom will continue to focus on introducing alternative
revenue streams that complement its business. It will also pursue
opportunities to increase its client base to enhance capacity
utilisation and further improve gross and operating profit margins.
The success of Huge Telecom’s decision to focus on the lower segment
of the market will be determined ultimately by its efforts to grow
revenue in this segment of the market. Growing revenue is a function
of the size and extent of Huge Telecom’s distribution channels. In
the last six months, Huge Telecom has focused on growing its
distribution of dealers (known as Business Partners) from 89 to 167
active Business Partners. The benefits of this growth in
distribution will accrue to Huge Telecom in coming months.
Media Activities
Eyeballs will continue to explore partnerships to deploy its
offerings. 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
The Company currently has 100 512 495 ordinary shares in issue.
1 551 052 ordinary shares are held by the Company and are regarded
as being returned to authorised share capital. 9 706 926 ordinary
shares are held by Huge Telecom in treasury, leaving a net 89 254
517 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 further cash consideration. Should
the Company and Huge Telecom elect to repurchase the underlying
shares, which they have not as yet decided to do, the net number of
ordinary shares in issue will fall to 76 945 238 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 the application
proceedings were enrolled for hearing on 23 and 24 July 2012. The
matter was heard on 23 July 2012.
In terms of court order dated 20 August 2012, the matter was
referred to oral evidence with the notice of motion and founding
affidavit serving as a simple summons. MTN SP was required to
deliver a declaration within one month of the court order, which it
did.
On 26 October 2012 Huge Telecom filed a notice in terms of Rule 23
and Rule 30 of the uniform rules of court that:
1) it intended making application to have MTN SP’s declaration set
aside in accordance with the provisions of Rule 30, on the
grounds that it constituted an irregular step in that it did
not contain a clear and concise statement of the material
facts upon which it relies for its claims; or alternatively;
2) it intended to except to MTN SP’s declaration on the grounds
that the allegations contained therein lacked averments
necessary to sustain a cause of action, alternatively are
vague and embarrassing and Huge Telecom is prejudiced thereby.
MTN SP was required to file its response to Huge Telecom’s notice of
26 October 2012.
On 22 November 2012 MTN SP filed its notice in terms of Rule 28(1)
of the uniform rules of court of its intention to amend the
declaration. MTN SP filed an amended declaration.
By agreement between MTN SP and Huge Telecom, Huge Telecom is
required to deliver its plea to the amended declaration (on the
basis that it chooses not to file another Rule 23 and Rule 30
notice) by 6 February 2013.
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.
In terms of a judgment dated 31 August 2012, Acting Judge Vermeulen
ordered that the main application be stayed until the finalisation
of arbitration proceedings, if any, to be commenced by Kimber
against Huge Telecom in regard to the dispute arising between the
parties and ordering Kimber to pay Huge Telecom’s costs of the
Section 6(1) application.
At the date of this announcement Kimber has not instituted
arbitration proceedings.
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 31 August 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 subsidiary companies of the
Company that form the Group) with reference to certain assumptions
and plans underlying various cash flow forecasts.
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
Mr Ken Jarvis resigned as a non-executive director of the Company
with effect from 8 June 2012.
Mr Brian McQueen resigned as a non-executive director of the Company
with effect from 28 June 2012.
Mr Dennis Robert Gammie was appointed as a non-executive director of
the Company and the Chairman of the Combined Audit and Risk
Committee with effect from 29 June 2012.
Mrs Jean Tyndale-Biscoe was appointed as the Company Secretary of
the Group with effect from 1 August 2012.
Subsequent to the end of the period being reported on, Mr Neil Brian
Wensley resigned as the Group Financial Director. His resignation
took effect from 30 September 2012.
Mr David Deetlefs was appointed as Group Financial Director with
effect from 1 October 2012.
DIVIDENDS
No dividends were paid or declared during the six months ended 31
August 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.
Johannesburg
30 November 2012
Designated Advisor
Arcay Moela Sponsors Proprietary Limited
Number 3, Anerley Road, Parktown, 2193
Auditor
BDO South Africa Incorporated.
22 Wellington Road, Parktown, 2193
Registered office:
1st Floor, East Wing, 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:
VM Mokholo (Executive Chairman), SP Tredoux* (Lead Independent
Director), DR Gammie*, AD Potgieter*, MR Beamish*, JC Herbst (CEO),
D Deetlefs (Group Financial Director)
*Non-executive
Date: 30/11/2012 12:49:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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